Administrator, ESA; James McI. Henderson, Director, Office of Rent Stabilization; and Ralph S. Trigg, Deputy Administrator, DPA.

Mr. Fowler stated that, timewise, we have passed the halfway point in the 3-year program of defense mobilization which was developed in the summer and fall of 1950. The pressing question at the juncture is, In what particulars do these foundations of defense mobilization need to be enlarged, strengthened, or modified?

Due to the wise expansion of basic resources and facilities important for defense, the early shortages are being overcome. While this is being accomplished, an orderly system of distribution of available supplies continues to give military and atomic energy programs their requirements to the very last pound and the civilian economy an equitable distribution of an increasing remainder. Through the period of severest shortages and diversions, no sectors of the economy have been subjected to more than temporary impairment, and there has been a minimum of strain and dislocation. Mr. Fowler stated that many of the problems which were of grave concern to your committee have diminished to the point of disappearance. The rate of unemployment is the lowest since World War II. During the last quarter it was not necessary to make any allotments from the NPA "Small-business hardship account" and in August the metals held in the account were returned to the general reserve for distribution.

Mr. Fowler further stated that we are only part way through to the achievement of other objectives of the defense mobilization program such as the completion of the military production build-up and the rounding out of the mobilization base. It behooves us to con'tinue to fix definite objectives, challenging in time and scope for our future accomplishments for national security, and to hold to these objectives despite the temporary lulls and storms created by an enemy who is skilled at that art.

A principal problem of defense mobilization in the last quarter has been to manage the distribution of available steel production so as to minimize the impact of the loss of 18 million tons due to the recent work stoppage. The NPA announced a steel emergency distribution program with the overriding principle that deliveries on accepted military, atomic energy, and machine-tool orders would be placed ahead of all other requirements. To avoid severe damage to civilian steel users that would be a consequence of canceling or reducing their outstanding position on mill order books, or their allotments, it was decided to maintain the validity of these orders and allotments so that as their turn came after military, atomic energy, and machinetool orders, they had assurance of receiving steel deliveries in an orderly and definite pattern. A strenuous effort has been made to make new steel production available for immediate use rather than for building up inventories of some while others suffered for the lack of steel for immediate fabrication. Fortunately, steel output exceeded all expectations in its speedy return to full production, reaching 90 percent of rated capacity in 2 weeks. Delivery on all steel allotments for military, atomic energy, and machine-tool programs is virtually assured by the end of the year. A special reserve has been set aside to cover needs for four types of ammunition components-shells, fuzes, cartridge cases, and rocket tubing.

Our output of military hard goods-planes, tanks, guns, ammunition, and similar equipment-has risen from $300 million to $2 billion per month, or about three-quarters of the way toward which the present schedules are directed. Delivery of all types of procurement plus construction have risen from $400 million to about $2.7 billion per month. To insure the completion of the $88 billion of military goods on schedule the Nation faces a mammoth task. The full magnitude of the job ahead only comes home to us when we realize that the weapons of tomorrow are not the weapons of today. To assure meeting these military production programs, priority powers will have to be intelligently exercised to afford whatever measures of special effort which may be necessary to guarantee the timely flow of the right tools, materials, and components to defense producers.

At a previous hearing Mr. Fowler reported that there was a serious copper shortage due to our failure to obtain our share of the foreign supply. The intervening months have been marked by substantial easing of that situation. The buying of foreign copper for importation in the United States has increased sharply as a result of the change in the price regulations permitting our domestic wire and brass mills to pass through 80 percent of the price differential between domestic and foreign copper. Because of the time required for deliveries from Chile, the principal source of United States imports of copper, actual receipts did not increase substantially until the second half of July. While the supply of copper for civilian users has been increased, we have not yet been able to pay back appreciable quantities to the stockpile.

It is the policy to relax and remove production and material controls as soon as those actions can be taken without danger to the mobilization program. The current order structure is subjected to a continuing review so that these controls are kept in effect only so long as deemed necessary to meet defense program objectives. The question is from time to time asked as to how soon can we abandon the Controlled Materials Plan. As a result of the steel strike the wave of conjecture last spring, looking to a possible abandonment of this system around the first of the year, has abated and the question of timing in the minds of those in the business community seems to center around possible dates in the spring, Mr. Fowler stated. A most important basic distinction must be made between decontrol actions affecting the distribution of individual materials and the abandonment of the Controlled Materials Plan. CMP is the basic instrument for establishing and administering programs for the achievement of mobilization objectives. The authority and procedural machinery needed to insure a balanced production of individual shapes and forms of steel, copper, and aluminum in terms of mobilization requirements is embodied in CMP. The present situation for steel, copper, and aluminum is such that all three materials are in tight supply even with existing controls.

Mr. Fowler expressed the opinion that it would not be practicable or desirable to abandon the Controlled Materials Plan before July 1, 1953. To do so precipitately early next year might interfere with the ability of the executive agencies to carry out important decisions that the Congress may wish to make during the next session concerning the size, scope, and character of our future defense effort. The

establishment or reestablishment of the complex control machinery of CMP requires from 6 to 12 months' time depending on the length of the decontrol interruption. Decontrol, on the other hand, requires little time to be made effective once the basic decision is made. Considering the damage that can be done to the mobilization program by injudicious decontrol actions based on forecasts of somewhat dubious reliability, it appears that CMP decontrol action should await an actual balancing of supply and demand as evidenced by the new and unfilled order position in the steel, copper, and aluminum industries. This balance has not yet been achieved.

Stockpile goals have been met on about one-fourth of the critical materials on the stockpile list and objectives for a number of materials are being approached.

Consumer prices have continued to set new records, with further increases in July and August to 1.1 percent above the May level. Some price changes have been made in ceiling prices in order to renew or maintain the supply of certain basic metals, such as steel, aluminum, and imported copper. A form of pass-through of these costs, without absorption, but without pyramiding, was used. These increases were apart from the industry earnings standard. For other cost increases the standard continues to apply, and under it relief has been granted to some coal, iron-ore, and ferromanganese industries. The Office of Price Stabilization has continued its policy of suspension of controls when this can be safely done. Most of the very small manufacturing establishments have been exempted from all price control. Wage increases have been granted in a number of key industries, and small but persistent increases are taking place throughout nearly all sectors of the economy. The $21.2 billion in consumer credit outstanding on August 31, 1952, was an all-time high, and 7.1 percent above April. Real-estate credit has risen faster this year than in the last half of

1951.

More than 1,500 communities of the 2,400 which could have taken affirmative action to continue rent control have done so. In 51 cities with more than 100,000 population, 36 chose continuance. Of 116 cities with more than 50,000 population, 73 elected to continue the program.

The present situation shows some renewal of inflationary pressure. In general, barring unforeseen events, it seems probable that current inflationary pressures will be limited to moderate effects.

STAFF CONTRIBUTIONS TO THE WORK OF THE COMMITTEE

To the personnel of the staff falls the daily task of processing the heavy volume of correspondence relating to defense matters, conducting staff studies, and giving information on the telephone to Members of Congress, the agencies, and the public. Frequent conferences are held by members of the staff with officials of the various defense agencies, individuals, and business representatives who present problems to your committee. Others have requested assistance in securing certificates of necessity for tax amortization, equipment for public waterworks, essential housing developments, and public institutions. All of these requests have been reviewed by the staff members and followed through to a satisfactory conclusion with the proper agency.

It is necessary that the recommendations and suggestions contained in the hearings and reports of your committee be the subject of continuous review in order to determine whether there has been a complete compliance therewith by the defense agencies concerned. It is the further responsibility of the staff to review periodic reports from all of the defense agencies and to maintain a day-to-day knowledge of the policies and functions of these agencies.

Your committee has published and kept current a pamphlet entitled "Defense Mobilization Organization." This pamphlet contains the chain of command of the various defense agencies, a brief outline of their functions, and telephone numbers. It is made available to Members of Congress, the agencies, and in limited number to the public.

Acting for your committee and under the supervision of your chairman, the staff has succeeded in accomplishing the following, to name but a few typical examples:

REGULATIONS PERTAINING TO WHOLESALE LUMBER DEALERS

There are several thousand wholesale lumber dealers scattered over a wide area, mostly small firms, who in the aggregate distribute 75 percent or more of the production of lumber in the Nation. A large majority of the lumber manufacturers, especially the small ones, depend upon the wholesalers to distribute their products to retail lumber yards, railroads, industrial trade, and also to the armed services and other Government agencies.

The Office of Price Stabilization published the General Ceiling Price Regulation effective January 26, 1951, known in business and industry as the GCPR. This regulation required the freezing of practically all prices of various commodities at the highest prices charged by any and all sellers for each commodity during the period from December 19, 1950, to January 25, 1951. In application, this meant that the highest prices charged for an item of any commodity actually delivered during the said base period became the seller's ceiling prices for all subsequent sales of the commodity he dealt in. Although this regulation served a good purpose in applying a brake to inflation, it is not difficult to comprehend that, due to the wide variation in the practices and methods of various segments of industry and trade, it was almost impossible to fashion one regulation that could be workably applied to all.

Difficulties in selling under the provisions of the GCPR were immediately recognized by wholesale distributors of lumber. These distributors determine their selling prices differently from almost any wholesale branch of trade. Except in rare instances, wholesale lumber dealers do not maintain inventories or warehouses and their sales are shipped directly from the manufacturer to their customers. Unlike wholesale dealers in other commodities, lumber wholesalers first make sales and subsequently purchase from manufacturers_the lumber sold on each particular order. Naturally the Defense Production Act of 1950 contemplated that the prices paid the manufacturer would be such as to permit a reasonable margin of profit to the wholesaler in his sales of lumber.

The prices applying to sales by wholesalers delivered during the GCPR base period varied, depending almost entirely upon the prices

charged by the individual mill, which were in no wise uniform. There fore, numerous deliveries made during the said base period were at extremely low prices that existed prior to the advance experienced during the fall of 1950, which orders had not been delivered before December 19, the first day of the GCPR base period. In many cases these low-priced sales were the only deliveries of particular items and determined wholesaler's ceiling prices considerably below the legal prices of manufacturers. Thus, many wholesalers were unable to continue to function legally because in many instances their legal selling prices were lower than the permitted selling prices of their suppliers.

A large number of these wholesalers through their trade association notified OPS as early as February 5, 1951, of the impossibility of continuing their business under the GCPR. Officials in the Forest Products Division of the OPS told trade representatives in February 1951 that consideration was being given to issuing an amendment to the GCPR authorizing wholesalers to add their normal mark-ups to cost of acquisition in determining their ceiling sales prices. Lumber wholesalers were told by their trade association that a relieving amendment might be expected to be published at almost any time.

Very soon thereafter a regulation containing the desired amendment was drawn, but about that time there were some changes made in personnel in the Lumber Division, and the issuance of the regulation was further delayed. It was not until January 22, 1952, that a lumber distributors' regulation that in principle was what had been agreed upon within the OPS as far back as in March 1951 was issued. This regulation has been in effect for about 8 months and, although it may need further clarification, it takes care of wholesale distribution of lumber in a generally satisfactory manner. Therefore, although OPS was notified in February of 1951 that the GCPR was wholly inapplicable to the wholesale lumber dealers' industry, it was not until May 28, 1951, that partial relief was granted through Supplemental Regulation 29 to GCPR, and not until January 1952 that complete relief was had through Supplemental Regulation 87 to GCPR.

Your committee authorized a staff hearing on this matter. OPS representatives and affected wholesale lumber dealers were invited to a hearing on May 8, 1952. The above-recited facts were developed at this hearing.

The long delay in issuing an amendment to GCPR with reference to wholesale lumber dealers was wholly unjustified. OPS representatives at the hearing spoke of staff difficulties, presumably of shortages of personnel, and attributed part of the trouble to the fact that the experts on lumber in OPS had to consult with lawyers and economists. Certainly in this case, the experts on lumber in OPS soon diagnosed the maladjustments and recommended a remedy. Whether the delay was due to the fault of these lumber experts or of other persons in OPS is immaterial. The fact is that the delay was inexcusable and led to many technical violations of an inequitable regulation as it was applied to the wholesale lumber industry.

Many wholesale lumber dealers took for granted that section 402 (g) of the Defense Production Act governed their situation, as it specifically provides:

The powers granted in this title shall not be used or made to operate to compel changes in the business practices, cost practices or methods, or means or aids to