Toppock, William Nagle, and Gerald Engle, accompanied by the charming Mrs. Engle.

As public servants of Milwaukee County they are very keenly concerned with the current high interest rates and as the gentleman from Texas, Mr. Wright, just made clear in his excellent statement, high interest rates impose a very particular burden on our agencies of local government, so I think it very fortunate that my guests have been able to hear your excellent testimony.

Thank you.

Chairman PATMAN. Thank you, Mr. Reuss.

Mr. Alexander.

STATEMENT OF HON. BILL ALEXANDER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ARKANSAS

Mr. ALEXANDER. Mr. Chairman, distinguished Members of the committee, I appreciate the opportunity to appear before you today to discuss a situation of growing and urgent concern to the people of the First Congressional District of Arkansas. This is the high interesttight money policy that has been in effect for the past 15 months in an effort to bring inflation under control.

The thesis that I would like to discuss with you this morning is that this policy has clearly become counterproductive and is now actually contributing to the problem that it was originally designed to solve.

It is a fact of economic life that additional costs are always passed along to the consumer. This is true when the cost of labor, new products, transportation or any other commodity or service increases. I contend that this principle is just as true in the case of money. The increased cost of money is just as inflationary as is a wage increase or an increase in the cost of steel or other raw materials.

Who ends up paying the costs of inflation? It is the consumer who is unable to pass along the cost since "the buck stops here." It is the small businessman who can pass along part of the increased costs of his products perhaps, but who must deal with the realities of life at the consumer level. There is a limit beyond which the consumer cannot be pushed, and the small businessman cannot afford to pass along all of his additional costs plus all of the additional increases that have been added at earlier levels of production before the manufactured items ever came to him. So, he winds up bearing part of the costs of inflation, including inflationary money, or else he reduces his manpower, or suffers the consequences and is forced out of business. Inflation, and inflationary money, also bears hardest upon the shoulders of those who must rely on fixed incomes.

The question upon which we must focus is whether a high interest rate policy is effective as a tool against inflation? And are the effects of such a policy now justified?

I am aware that some persons have tried to shift the emphasis to other points. Some have tried to suggest that the question is who is responsible for inflation. Others have tried to shift the issue to alternative methods of fighting inflation.

I suggest that those questions are both irrelevant. It makes no difference in the present context whether the Democrats, Republicans, Whigs, or Tories are responsible for inflation. The question which con

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cerns all of us is how to halt inflation. If a high interest policy was showing results, was effectively halting inflation, then I would not be here today.

The President asked us to extend the income tax surcharge in order to fight inflation. I supported the President's request because I want to see inflation brought under control.

The President asked us to produce a balanced budget in order to stem the inflationary cycle. I supported this effort and joined with other Members of Congress in helping to reduce expenditures in certain programs so that we could have a balanced budget.

In other words, I have supported the President when he asked for support in his war against inflation, in our war against inflation. In the case of his high interest rates and tight monetary policies, however, there is evidence that this policy is doing a great deal of harm while producing very little if any good. It is my contention that any Federal policy which does more harm than good should be reversed on the basis of logic, humanitarianism, good economics, and commonsense.

What is the evidence concerning this policy of high-cost money? The most dramatic evidence is the current economic situation. Economists tell us that it takes a year for economic policies to take effect. The high interest rate policy was begun 15 months ago and, yet, today we see continuing and growing inflation, increased unemployment, and threatening signs of a recession. Economists tell us that we are not in an economic recession according to their indicators, but I think there is little doubt that we have definitely entered a period of economic anguish.

In northeast Arkansas we have situations where small businessmen are laying off employees because they are caught in a squeeze play between consumer purchasing power, increased inventory costs, and increased costs of money. In northeast Arkansas I have been personally told of conditions where parents are unable to send their children to college because of the cost of borrowed money, even though their children show great promise and have the ability and desire to develop to their full capabilities.

The economy in northeastern Arkansas and throughout the country has also been brought to a screeching halt by the tight money conditions that have been created. It is almost reaching the point in our region where there is no discrimination in the shortage of funds. When banking and savings and loan institutions have had their funds dried up or put in reserve, there is no one to whom local businessmen can go for credit. This is the factor that has led to a halt in the housing construction. This is the factor that has led to a serious challenge to business continuation. This is a factor that must be eliminated so that we can once again begin to attack the vital problems of housing, job opportunities for our unemployed, and the orderly continuation of regular business.

We used to say that some medicine was so bad you would forget what you had taken it for. It seems to me that this is the situation we have come to in the case of our economic policy. In the case of high interest rates, the medicine hurts so bad that we can't feel the pain of inflation. Some people may view this as a beneficial thing to do for the citizens of this country, but I cannot agree.

What do we want to accomplish by the consideration and passage of this resolution?

I received a letter a few days ago from a banker in Arkansas saying that inflation was bad, but that economic policy in the hands of politicians was even worse. I do not disagree with that statement. This is the reason we have offered a House concurrent resolution. It does not say that interest rates must be lowered at a particular time or in a particular way. It does not say that the interest rates must be at a particular level. It does not legislate economic policy.

What it does is say to the President and to his economic advisers that the American people should have the right to express themselves on economic policy and how it affects them and their lives. It does say that the effects of a policy on the American people should be considered, and that the American people have the right to express themselves through their elected representatives in the Congress. This resolution does say that the American people have examined this policy and found it wanting.

To me, it would be a callous attitude to say that the American people have the right to protest inflation but that they have no right to protest the methods being used to bring it under control. The very lives of the people of this country are affected by every economic decision made in the halls of Washington or the corridors of New York. Are we to say then to our people that it is none of their business what these decisions will be or how they will be made? Are we to say to them that they lack the knowledge to have an opinion on the economic policies which can mean prosperity or poverty for them?

Our people understand that, not only are they paying more for the items which they must buy and which are necessities to them, but they are also having to pay more for the money with which to buy these inflated items. The American people can see where inflated money costs are hurting them, and they cannot see where this policy of our Government is helping them.

I suggest to the members of this committee that a policy of high interest rates has outlived its usefulness. The people of northeast Arkansas feel that they have the right to express themselves on this issue. I think that the people of the other 434 congressional districts in this country have that same right. I suggest that they can be heard through the passage of this resolution.

Chairman PATMAN. Thank you, Mr. Alexander.

I will ask Mr. Adams and Mr. Gibbons to take places there at the table. You can stay there because after you get through the members of the committee will want to interrogate you.

Just keep your seats, each one of you, and lean forward and speak into the microphone, if you will.

All right, Mr. Adams.

STATEMENT OF HON. BROCK ADAMS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WASHINGTON

Mr. ADAMS. Thank you, Mr. Chairman and members of the committee.

This country is in a recession because the figures will indicate that for the last two quarters, in other words, the last quarter of 1969 and the first quarter of this year when the gross national product is ad

justed for inflation will indicate there has been a decrease in production.

In other words, attempts by the administration to stop inflation has succeeded in stopping the economy while prices continue to soar. As a result of the policy of high interest rates, tight money and a failure to adhere to wage-price guidelines, this country has the highest rate of inflation in history other than at the beginning of the Korean war.

This inflation is not a result of insufficient supply or excessive demand. We are presently using only about 82 percent of our industrial capacity and I don't know of a single economist in America who has said there is a shortage of the supply of goods. Demand is not outrunning supply.

And, parenthetically, our policies of surtax and high interest rates reduce demand further. This is not classic inflation caused by demand outrunning supply or with a bidding up of prices. This is inflation caused by an increase in costs of money and an increase in the cost of basic supplies produced by industries adhering to uniform prices, the industries in the so-called administered price area.

Even small businessmen must borrow in order to finance their inventory and often for their other expenses in their business. The high interest rates charged to these businessmen are added to the cost to the consumer. Now, this consumer has already been hit by the highest interest rates paid by manufacturers and others involved in the transportation and production of goods. The price paid for money is the key factor in the end cost of a product.

As the economists say to us, "This is one of the most pervasive costs." Pervasive costs being one that will always have to be added to the cost of a product, and will be directly inflationary. As the price goes up for each item that you use in basic production, you will have price inflation.

The refusal by the Federal Reserve Board to make additional money available or to lower the interest rates on rediscount, creates an additional threat to the problem of supply and demand.

As the population has increased and the demand for more goods per person has increased, more money is needed to handle the larger volume of business. When no more money is available, then you have the production of goods and services being cut back to meet the money supply available.

In other words, if the money isn't there to produce the goods and to do the basic financing, production must be cut back to the money level; they follow as night follows day. In time this will reduce the supply of goods and then you will begin to have classic inflation and this is now beginning to happen.

I might mention, for example, that where this will first be seen is again in the administered price area, automobile production being one of the most classic. In that industry you do not have price competition to a significant degree. In other words, everyone is rising and falling with the price level at approximately the same time so when costs increase in that industry and the demand is low, which demand. is now, because high interest rates don't allow people to buy cars as they did; the only answer is to lay off people. That is beginning to happen in the country, so, unemployment is on the rise and it will start in

these industries first. There is a problem with construction, also which I will mention in a minute.

A second major error in the administration has been to indicate to business and labor in the administered price area, where there is no price competition, such as steel, cement, automobiles, oil and so on, that they can go into the marketplace and get whatever amount is available for their services and for their product and the administration will not require them to stay within economic guidelines that match price increases to increases in production.

Now, that is the so-called jawboning. I think many people do not understand the effect or the power of the Presidency in the area of administering prices, such as steel, to say, "We expect you and the public expects you to stay within growth of production." This is effective in the administered price area. When this is taken away, you get the pressure on prices and also on major labor unions who are operating in this field, who are under intense pressure then by their membership to go out and get what they can. Since the whole level of prices in an industry will rise together, you get a rotating effect of that increase in prices, then an increase in demand for increased wages with both being tacked onto the ultimate price to the consumer, which, in turn, feeds back to the men who are buying the automobiles and they then want an increase in wages and then there occurs increase in prices.

This doesn't always happen in the nonadministered field, but in the administered price field where everybody can raise their prices the same amount at the same time, then the prices going up will follow as night follows day.

For example, the steel producers all raise their prices together. The consumers must pay this price and the consumer of the basic product, who is producing something else, in this case, an automobile manufacturer, will find his costs for his materials are rising. He will then have to raise his prices to meet this cost. Thus you can see how the pressure stays on.

Even when you have people in the nonadministered field, you can have these people caught in the backwash of this surge and they will have to raise their prices, too, because if a producer is making a toaster and the price of steel goes up, he must raise the price of his toaster.

Now, since all of his competitors pay the same price for steel, they will also raise their prices and thus the spiral of inflation continues to go up. No more production takes place, and the price going up will reduce the demand, all right, but it does not lower prices.

The effect of the administration's policy has been devastating to the Seattle district which I represent. Recently Seattle, as well as King and Snohomish Counties, which are the metropolitan counties that surround it, have been declared economically depressed areas by the U.S. Department of Commerce.

We were in a depressed area in the first part of the 1960's, and then we had an economic upswing until 1969. Now, we are back where we were before. Our rate of unemployment is running over 7 percent and going up.

In the construction industry, I was told as of yesterday, our unemployment rate is 40 percent in the building trades.

The construction industry of our area and of the United States as a whole has come to a near halt which, in turn, has affected the