Facilities construction program-Mining, milling, and smelting industries projects authorized between July 1, 1951 and June 30, 1952-Con.

ECONOMIC STABILIZATION AGENCY

Hon. BURNET R. MAYBANK,

ECONOMIC STABILIZATION AGENCY, Washington, D. C., September 22, 1952.

Chairman, Joint Committee on Defense Production,

United States Senate, Washington, D. C.

DEAR SENATOR MAYBANK: In transmitting the detailed reports of the constituent units of the Economic Stabilization Agency for the past year, I would like to discuss briefly the high lights of the Agency's program as a whole for the period the joint committee's annual report will cover.

This Agency, as you know, administers the direct control phases of economic stabilization over prices, wages, salaries, and rents. It also has a consultative interest in all other governmental programs that affect stabilization, particularly the so-called indirect anti-inflation programs such as tax policy, encouragement of increased productive capacity, allocations, credit control, and savings programs.

Taking the economic stabilization program in all its phases, there can be no doubt that during the past year-the second year of the defense emergency— the program continued successfully to carry out its twin functions of protecting the defense effort and safeguarding the civilian economy. The success of the program has been achieved despite the weakening of the direct and indirect controls in the Defense Production Act Amendments of 1951 and the further weakening in the Defense Production Act Amendments of 1952.

The outstanding fact is that from the second quarter of 1951 to the second quarter of 1952 our defense expenditures increased from an annual rate of $34.5 billion to an annual rate of $50.5 billion. In other words, we fed into the economy-which was already operating at full employment levels-an extra $16 billion of defense expenditures and increased our defense output at the rate of $16 billion a year. This huge stepping-up of the rate of defense production was accomplished with remarkable smoothness both from the point of view of the defense objective and from the point of view of safeguarding the civilian economy.

Thanks to allocation and price controls, defense production was not held up by any speculative hoarding of essential materials, such as would ordinarily occur in a defense-stimulated or war economy left to the free operation of marketplace forces. Thanks in large part to the success of the wage-stabilization program-operating under a flexible statute which permitted equitable wage adjustments so long as they were not unstabilizing-defense production attracted ample manpower at fair wages.

On the civilian economic side, the outstanding fact is the remarkable price stability that accompanied the pumping in of an additional $16 billion of defense expenditures. The index of wholesale prices-during the period from July 1951 to July 1952-actually dropped about 3 percent. Consumer prices during the same period rose only 2.9 percent. It is to be noted that a considerable part of that increase is accounted for by the creeping rise in the rent index caused in part by required rent increases and in part by local option decontrol, a rise in those food prices not subject to control, and by various other price changes in areas where our authority is limited by law. On the other hand, it should also be noted that a major factor in the price stability has been the high production of consumer goods coupled with consumer resistance to high prices. Public confidence in continued stability, which has accompanied the use of the controls machinery, has thus been an important cause of the continued stability.

On the side of wages, the record of stability is indicated, as the report of the Wage Board points out, by the fact that the monthly rate of increases in adjusted average hourly earnings of production workers in manufacturing has been slowed down from 0.9 percent during the post-Korean prestabilization period, to 0.4 percent since the price-wage freeze. This record of wage stabilization, it should be noted, is even more effective than the comparable experience of World War II.

Another aspect of stability is indicated by the record on strikes and work interruptions. Here the report of the Bureau of Labor Statistics on the first year of wage stabilization may be cited. "No long Nation-wide or industry-wide strikes occurred during 1951," the Bureau said, "and in general, stoppages in 1951 were somewhat shorter than in earlier postwar years. Consequently, total idleness caused by such stoppages dropped to 22,900,000 man-days-the lowest point since 1944."

Except for the steel dispute, the record in 1952 would be as favorable as in 1951. The steel dispute, however, has to be regarded as an extraordinary de

velopment. It proved too refractory to be successfully handled by the existing machinery which up to then had been so effective in setting labor disputes, or to be fitted, as far as its price consequences were concerned, into the ordinary rules of price administration. Fortunately, the production losses have not had the damaging effect upon defense production which had been feared, because of the high level of output following the resumption of operations. Also the consequences of the break in the price line the granting of a steel price increase in excess of OPS standards-when coupled with higher prices for aluminum and Chilean copper, have had an impact on a wide variety of products disbursed through a very large sector of the economy; nevertheless these have been confined to relatively small increases in the prices of mental-fabricated products. The achievement of economic stability during the past year, while not to be attributed exclusively to the direct controls programs, must be attributed to the work of all of the direct and indirect controls programs combined, including, of course, the production program. While it is impossible to assess the precise contribution that each of the various programs made to the over-all achievement, even the most casual analysis reveals the active and essential role of the directcontrols programs in the economic picture.

On the price front there are many sectors, both at wholesale and retail, where market prices are straining at ceilings. It is in these sectors that sellers are constantly seeking ceiling increases. Obviously businessmen would not undertake the burden of making a case for ceiling increases if they did not believe they could exact higher prices from their customers once such higher prices were legalized.

On the wage front, the best indication of the role of wage stabilization in holding down wages is furnished by the numerous Wage Board decisions which have cut back the wage levels reached by voluntary collective bargaining. As the wage report indicates, 17 percent of all petitions for approval of wage agreements have either been denied or modified. It is important to keep in mind here that the wage levels of the voluntary agreements were themselves held back by the existence of the wage stabilization program. Many workers who might otherwise have held out for higher wage increases were glad to settle for increases within the cost-of-living formula knowing that such increases could be put into effect immediately without requiring Wage Board approval.

In the field of rents, the role of controls in restraining rent rises is beyond disnute. It is the general recognition that housing is still in short supply in most industrial and military areas, and that rents in such areas therefore need to he stabilized, that is responsible for the heavy affirmative vote of local community governing bodies to continue Federal rent control after Sentember 30. In addition, the pressures generated by stepped-up defense activities have necessitated the certification of more than 120 critical defense housing areas where comprehensive rent control has been authorized under Public Law 96.

Side by side with the sectors of the economy in which controls have plaved and are playing an active role in restraining inflationary pressures, are some sectors where prices have fallen away from ceilings and where for the moment there is no active function for the controls. Since this Agency has never believed in controls for controls' sake. it develoned the policy last winter of suspended ceilings wherever this could be done with safety. Suspension of ceilings has relieved the businessmen concerned of the burden of reporting and recordkeeping requirements. At the same time-unlike outright decontrol-the suspension policy and program have protected the economy against the danger of a sudden revival of inflationary pressures and the consequent damage that would ensue before proper action could be taken because it provided for a trigger mechanism to reactivate the ceilings at the first signs of renewed inflationary storms.

In addition to the suspension policy ESA has developed the policy of removing completely from controls those price and wage areas which have an insignificant effect on the cost of living. Both of these policies are incorporated in the congressional mandate which is part of the new act. But both before and since this mandate was put on the statute books, the constituent units of ESA have used their best efforts-as is detailed in their respective reports-to extend the relaxation of controls to the maximum consistent with safety to the general public.

The new law contains a mandate that ESA coordinate policies on price, wages, and salaries. That coordination has been carried out since the beginning of the controls program through the setting of wage and salary policies that are fair and compatible with our price policies, and through the rules for absorbing wage and other cost increases as long as industry profits do not fall below the industry earnings standards level or do not otherwise warrant adjustments for

reasons of fairness and equity. The coordination of price and wage policies and their relative fairness, are indicated by the fact that wages and prices have generally been kept in a stable balance with each other.

As we look toward the future, it appears that the general economic conditions which have prevailed during the past 12 months, the period covered by these reports, will continue without radical change for the next 6 to 12 months. However, our national defense program remains subject to change in the light of the changing international situation, and the changing military technology both of weapons of offense and of weapons of defense. The need for the various phases of an economic stabilization program depends primarily on the decisions made with regard to defense requirements and on the impact of these decisions on the capacity of the economy.

Undoubtedly future trends and future needs will be considerably more clarified by next spring when the Congress will be called upon to review the economic stabilization program and answer the question as to whether or not authority for all or just for certain phases of the present program need to be extended, whether some of the weakened controls powers should not be strengthened or revamped in the light of developments, and whether powers which have been removed-particularly over certain foods and over credit-should not be

restored.

The attachments which follow contain the reports for the ESA's six constituent organizations: the Office of Price Stabilization (p. 88), Office of Rent Stabilization (p. 85), Wage Stabilization Board (p. 108), Salary Stabilization Board (p. 119), Railroad and Airline Wage Board (p. 132), and National Enforcement Commission (which is included for the purposes of this report in the material submitted by the Wage Stabilization Board. The NEC, originally a subsidiary to the WSB, has just recently been established as a separate unit under my supervision). Each of these has been delegated broad operating authority subject to policy determinations and direction by the Administrator.

In their separate reports, each of these organizations discusses, from the standpoint of its own operating problems and assignments, the specific points included in the letter-questionnaire received from your committee.

For the Agency as a whole, I am attaching a table showing the distribution of our personnel as of August 31, 1952 (following a large-scale reduction in force required by our reduced appropriation), as of April 30, 1952 (the peak of employment during the past year), and as of August 31, 1951.

I am also submitting a chart for the Agency as a whole showing our present table of organization.

My staff in the immediate Office of the Administrator assists me in the development of general policy for the Agency as a whole and in the coordination of our various control programs. It also assists me in representing the stabilization program and the interests of stabilization with committees and Members of Congress and in all interagency matters-particularly with the Office of Defense Mobilization, the Defense Production Administration and its constituent units, the Federal Reserve Board, Council of Economic Advisers, Treasury, Housing and Home Finance Agency, Agriculture, Defense, State, and other agencies and departments having responsibilities under the Defense Production Act or related programs.

Sincerely yours,

ROGER L. PUTNAM, Administrator.

Size of staff, Economic Stabilization Agency, Office of the Administration, Personnel Section, Sept. 18, 1952