V. CREDIT CONTROLS An inflation based on borrowed money must not be allowed. The Federal Reserve Board should increase the reserve requirements of member banks, and thus limit the amount of funds available to be loaned. Present reserve requirements are considerably below the present statutory maximum. Congress should authorize the President to require higher down payments and shorter credit periods for the purchase of goods in competition with defense production. Insofar as possible credit controls should not be used to undermine the living standards of our lowest-income families. VI. ADMINISTRATION OF PROGRAM Administration and enforcement of the mobilization controls should be lodged in agencies or Government corporations created for that purpose. Delegation of these responsibilities to the various executive departments may appear to offer a convenient short cut for getting these programs under way, but good administration, not administrative convenience, should receive first consideration. Government departments are geared to their existing responsibilities, most of which will be as necessary during this mobilization period as in normal times and should be continued. New agencies can proceed directly to create administrative strucutre and staff specifically for the responsibilities assigned to them. No time will be wasted in fitting these new functions to continuing peacetime operations. The administration of new controls under the mobilization program in the permanent agencies creates the danger of setting a pattern of permanent controls. Separate control agencies outside the permanent agencies will minimize this danger. Administration of supply and allocation powers should not be in the same agency exercising authority over price controls. This would lead to subordination of price consideration to procurement needs and would tend to serve inflationary ends. Insofar as the departments are equipped to render assistance to the defense agencies they can be called upon to contribute. Over-all coordination of industrial mobilization, military program and normal Government operations is of highest importance. It should be, and already is, assigned to a special agency at the top administrative level. The National Security Resources Board is charged with this responsibility by Congress. Such coordination will be more successfully achieved if mobilization programs have not been merged, intermixed, and confused with existing Government programs within the old-line departments. The eagerness of Cabinet officers to enlarge their authority by acquiring mobilization functions for their departments is understandable, but it should not determine the issue. The NSRB and other mobilization agencies should be required to create policy boards on which labor, agriculture, industry and general public and consumer interests are represented. VII. CIVILIAN PROGRAMS Regardless of the ultimate extent of our own military needs and oversees aid, we cannot afford to lay aside our basic responsibility to conserve and develop the human and the natural resources of this Nation. The educational, health, and housing needs of the American people must not be forgotten. Programs to conserve our forests and develop our river valleys along multipurpose lines must not be discarded. The strength and greatness of America depend upon the people and the land. We must not short-sightedly undermine these great national resources even while we fight for the freedom of the world. National chairman: Francis Biddle (United States attorney during Vice chairmen: Hubert H. Humphrey (Senator from Minnesota). Franklin D. Roosevelt, Jr. (New York Congressman). Walter P. Reuther (President, CIO Auto Workers). Hugo Ernst (President, AFL Hotel and Restaurant Workers). Reinhold Niebuhr (Protestant theologian). Arthur M. Schlesinger, Jr. (Harvard history professor). George C. Edwards, Jr. (Detroit attorney). Chairman, Executive Committee: Joseph L. Rauh, Jr. (Washington attorney). Secretary, National Board: David Ginsburg (Washington attorney). STATEMENT OF THOMAS C. BOUSHALL, PRESIDENT, Bank of VIRGINIA, RICHMOND VA., REPRESENTING THE CONSUMER BANKERS ASSOCIATION This statement deals only with that section of the Defense Production Act of 1950 having to do with the control of consumer credit. First of all, we strongly support and endorse any controls which are essential to effectively prepare for defense and prosecute the war effort. We further agree that prompt action along proper lines is absolutely necessary. As a preface to this statement, however, we feel compelled to again defend consumer credit, as we know it, and categorically deny some of the allegations against it which have been made before this committee from time to time, either by direct statement or implication. There are those who contend that the mere use of this credit instrument by American individuals and families is evidence of their financial irresponsibility and proof in itself that they need to be protected from themselves. This view implies that the average American family, if not forcibly restrained, will pledge its honor and future income aimlessly and needlessly until it is both morally and financially bankrupt. We denounce these assertions, implications, and opinions and can support our statement with facts and recorded history. We have records, based on millions of individual credit transactions, which prove that the American family is the best-managed business organization in this country. They have not and will not bankrupt themselves by assuming installment debts beyond their ability to repay. This is not a statement of opinion; it is a statement of fact, and, should the committee request it, we have supporting records to prove it-records which cover a period of more than 20 years. There are those who contend that current use of consumer credit has reached abnormal proportions and is in itself an indication that the American public is on a tremendous buying spree. We invite your comparison of total consumer credit figures at the end of 1949 with those of 1933. Certainly we have heard no one contend that the consumer was on a buying spree in 1933-quite the reverse. Federal Reserve Board statistics show that at the end of 1933 total consumer credit outstanding as related to net disposable income showed a ratio of 8.7 percent. At the end of 1949 this ratio was 9.8 percent or only 1.1 percentage points over the 1933 figure. Consumer credit has served over the past 30 years in general and more particularly in the past 20 years to stimulate the broader production of goods on a mass basis, and hence has tended to reduce prices of larger items of durable goods by placing these goods within the reach of a constantly enlarging portion of the people of the United States. Also, consumer credit-more particularly instalment loans has served to afford relief and assistance to millions of people in leveling out their ability to meet emergency and family needs not otherwise possible. Consumer credit, therefore, has become a potent force in the American economy, not only as a stimulant to production—and hence employment-but it has made possible the purchase of high-priced items that were available only through instalment purchase. Too, it has provided funds to the masses for the accomplishment of many goals and relief from many burdens not otherwise achievable. In these respects, therefore, consumer credit is as much a social force as it is an economic one. It is, of course, granted that should consumer credit, as either an economic force in stimulating production or providing a greater demand for goods than are available, become a danger to the economy, it should be controlled and any excesses curbed. Too, if consumer credit becomes abused as a social force, it should be curbed. In time of national emergency, consumer credit-potent as it is for constructive service must be examined as to its possible effect upon the production of items for defense; and in those instances where its uncurbed use could interfere with such production or act as an antisocial force, it should be restrained at the point of adverse effect or abuse. We have the record of the use of consumer credit in the prewar or defense period prior to World War II; its operation under Regulation W during and after World War II, until its repeal June 30, 1949. Therefore we can approach the authority to curb consumer credit use in the current and prospective emergency far more intelligently than we could in 1941, when Regulation W was first put into operation. We would respectfully suggest that, in reviving whatever controls are necessary as stand-by authority or for immediate implementation, the following points be given consideration: (1) That control of consumer credit be put on a parity with the control of credit to commerce and industry; namely, at the wholesale level and not at the retail level. It should be controlled quantitatively and not qualitatively. Regulation W was set up as a police function with a booklet at one time containing 35 pages of regulation by which borrower or purchaser and lender of money or purveyor of goods on an installment purchase basis had to be guided. There was a fine of money or prison term, or both, provided for any violation of any rule contained in the 35 pages. To have properly and adequately policed the operation of Regulation W would have called for an army of bureau employees and an equally large police force. As it was, there were only three violations successfully prosecuted in the face of the extension of some (estimated) $150,000,000,000 of credit used in some 200,000,000 transactions. There were some 350,000 registrants purveying goods or granting credit. It must be ovbious that such magnitude of policing a free people at a retail level is unnecessary, unwarranted, expensive, and ineffective in comparison with regulation at a wholesale level. At the wholesale level control could probably be far more effective, immensely less burdensome, and far less suggestive of the regimentation of a free people. (2) The selective control of consumer credit at the wholesale or retail level makes it possible to protect those segments of production having to do with defense programs. The absence of controls, where it would be economically and socially desirable to have consumer credit operate for the well-being of the economy and the constructive social use of the people, makes it feasible to use such control on an intelligent basis in lieu of blanket rules and prohibitions of millions of retail transactions. (3) Banks and other lenders of installment credit should have the leeway, not determined by central governmental control, to adapt the use of such credit to the people's needs, be they well-to-do or in moderate circumstances. Regulation W of 1941-49 militated against the family of modest means and favored those of better circumstances. The banks were afforded no discretion in such cases. It is undemocratic indeed to set up regulations that deny credit to those who need to meet their normal and exigent requirements, yet at the same time permit free use of credit to those of better circumstance. Regulation at the retail level is rigid regimentation. Regulation at the wholesale level leaves the selection of the use of available credit to the banks to be administered within the framework of the established wholesale control. (4) There must be ready recognition that there is a vast difference in the function and the effect of the extension of cash credit by banks and others in contrast to the sale of hard and soft goods by large and small stores and dealers. That charge accounts for needles and thread at stores should be put on a parity with cash loans at banks-the one to be paid in 30 days and the other in 18 monthsis difficult to reconcile. That the purchase by cash loan or by charge account or contract of sale of soft goods, unrelated to a war effort, should be equally controlled along with credit for the purchase of scarce goods competing for materials with a war effort, seems likewise amazing. These illustrations serve merely to point out that a well-defined purpose of control of credit affecting vital parts of a war program, particularly directed to those areas and those units of the economy whose operations really affect it, can be put into effect without a blanket thrown over the entire field and pinned down by 35 pages of regulations impossible of effective enforcement. Exemption from the rule of all areas or purveyors of such small totals as neither to be of any force upon the economy or possible of supervision would be most helpful at either level. We respectfully submit in conclusion that whatever controls are required for the proper orderly and effective prosecution of a defense or war preparation should be promptly imposed. Likewise, we submit that due care and direction should be given to such a program, to the end that no unnecessary areas are included or that no unnecessary restrictions be imposed the use of which could as effectively retard the effort as sound and needed controls would accelerate it; that, therefore, such controls should be imposed at the wholesale and not at the retail level, and that only those regulations and that degree of regimentation be imposed that a free people should have and the duration of these regulations be now so limited that they may be promptly rescinded when the need for them has passed. For whenever a central authority is granted control over the detailed life of the citizen, we have moved that much closer to a regimented police state unless it be very surely determined that such authority over the intimate lives of the citizens shall be relinquished when outside enemies are no longer endangering our way of life. 70294-50- -18 THE CONSUMER Conference of Greater CINCINNATI, Hon. BURNET MAYBANK, July 24, 1950. DEAR SENATOR: On behalf of the Consumer Conference of Cincinnati I am delegated to present to your committee our request that action be taken to prevent by appropriate legislation further pyramiding of food costs due, not to hoarding of commodities by consumers, but by arbitrary high profits added by producers and wholesalers. Many instances have been found where merchandise has been surcharged with higher price marks on the very shelves of large chain retailers. The hoarding is not to be condoned; it appears that plenty of merchandise is always on hand at the higher prices since there is no basic shortage. We believe that leaving price control to voluntary action is impracticable since those who comply would suffer by the acts of violators; it would be reasonable, we believe, to impose ceilings based on the average of prices between 1948 and 1949. It is further suggested that Government held commodities be placed upon the open market enabling their retail sale at prices current as of period previously mentioned. Sincerely yours, MARCELLA VAN VEEN (The following was submitted for the record by Robert G. Cargill, Jr., National Grain Trade Council) [Washington Post, January 11, 1948] "HEDGING" REDUCES PROCESSOR'S RISKS-GRAIN TRADING CUTS YOUR BREAD BILL (By Harry A. Bullis) (Mr. Bullis is chairman of the board of General Mills, Inc. The importance of General Mills as a grain trader is indicated by the fact that in its last fiscal year, ended May 31, 1937, the corporation paid $311,953,057 to farmers and other suppliers. That is 84 cents out of every sales dollar on sales totaling $370,932,427 The grain futures markets are like any other markets-a place where people go to sell their products and where others go to buy them. The only difference is that in one market the goods are actually displayed and the purchaser buys them and takes them away. The futures market operates by contracts between the seller and purchaser to deliver the product at some agreed future date. It is a meeting place where the transactions record the forces of supply and the prices that prevail therein. To these markets go producers, processors, exporters, importers, elevator operators, commission houses, grain merchandisers, consumers, and actual handlers of the commodities, and equally-as in any other market-those who attempt to wager their judgment against the future prices for purposes of gain. These are commonly known as speculators. The vast proportion of commodities passing through these futures markets go directly or indirectly into the hands of processors, or those who perform services in connection therewith. These for the most part rely upon a charge for the service they perform, rather than on any changes in the value of the products. To this end they attempt to minimize the risks involved in any possible price changes by what is known as the process of "hedging." Briefly stated, hedging is merely the method of protecting a purchase by the immediate sale of the product either in its original or processed form. For example, a processor buys a volume of wheat for delivery to him on a certain date, and immediately sells an equivalent amount of flour to be delivered by some future date. Or, if he wants to insure a supply of wheat for the future, he may purchase wheat and store it in his elevator, at the same time selling an equivalent amount for delivery at some future date, relying upon the differences in price to pay for the cost of carrying, insurance, and servicing. In considering these futures markets, one must fully understand that production of agricultural products is seasonal, but consumption is continuous. At harvest time there is a great flood of the commodity coming into the market, far more than the consumption at that time. By hedging, one may buy freely without risk and without price interest, and thus absorb the flow of the commodity which would otherwise be accumulated without buyers, unduly depressing the price. A SENSITIVE REGISTER The grain futures markets perform their very important economic function in three ways: 1. They provide a highly sensitive price-recording mechanism wherein the forces of supply and demand can be promptly registered. With the futures markets in existence, no individual or group of individuals, even including the United States Government, can artificially control the price level. They may affect it temporarily, or they may hasten a trend; but prices cannot be kept high or low with the futures market in existence solely as a result of futures trading. Supply and demand ultimately set the level. Any individual who feels that the price level is either too high or too low at that particular moment may buy or sell, depending upon his opinion. With the grain futures markets in existence, any changes in the supply or demand picture can be reflected in change of price level. In a free economy it is highly desirable that such changes in the supply and demand picture be recorded promptly, as an increased price level tends to increase production and curtail consumption, and a lower price level tends to do just the reverse. The earlier the price-level changes are established and recorded, the quicker our economy sets to work to counteract these changes. The present situation is a good case in point. Last year's total grain production in the United States was approximately 800,000,000 bushels less than was consumed and exported during the previous crop year. In order to make our reduced supplies go around, it was necessary to sharply curtail the use of grain in some category. The way it could best be reduced was in the animal feeding category. With our highly sensitive futures systems, prices rapidly rose to a level wherein grain feeding to animals was sharply curtailed. It was very important to the national economy that this scarcity of grain be immediately recognized, and that the counteracting grain-saving commence at the earliest possible date. Had we not had such price-recording machinery, which quickly and accurately reflected supply and demand, it is almost certain that we would have wasted grain through excessive animal feeding and the Nation would have discovered the shortage of grain for human food after it was too late for corrective measures to be effective. INVALUABLE PRICE TAGS 2. The second important economic function of the grain futures markets is to establish grain values and publicize those values for all to see. With this system it is possible for both the producer and consumer to observe not only the value of the different kinds of grain, but also the value of grain for immediate delivery versus grain for deferred delivery or the same grain for delivery in the following crop year. Likewise, these futures markets record the differential in value of one grain versus another, or the differential in value of grains in various locations. The important thing is that every segment of our population can know exactly what the price of grain is at any given moment and can observe the results of changes in the supply and demand picture. To the producer this is very valuable information. The extreme importance of grain futures quotations to the farmers of the Nation is dramatically evidenced by the fact that every radio station in the Farm Belt must carry grain quotations regularly as a part of its farm service. In the marketing of his grain, the farmer is able to observe the markets reports in the public press, to select his own time for marketing, and to establish price before date of shipment. If he elects to market his grain in his local market, he can, by again observing the futures markets, establish exactly the cost of using one or more middleman's services in the marketing of his grain. Neither of these features is available to the producer of commodities not traded in on futures exchanges. |