urers are called upon to make has imposed a strain upon the working capital tion that had been reduced by losses in 1949 and 1948.

io and television industry

he fluctuation of this industry was made more severe because of the fact that ea coincided with the newness of the television receiver. Demand was ady high. It was made even more so by Korea, and the entire industry exled its capacity terrifically because of the high profit possibilities which combination of circumstances created. 1950 output was 7,500,000 televireceivers. Since it was so new an industry, there was no experience to back upon in determining whether the demand was at its peak and, consetly, the companies continued to operate at capacity during the first quarter 951. In April when demand plummeted the entire industry at the manufacng, wholesaling, and retailing level was holding tremendous inventories. e reductions were such that receivers have sold far below the ceiling prices since. Business picked up somewhat in the fall but not enough to rectify situation so that there still is a surplus of sets. Moreover, current selling es are not firm enough to assure profits. It will probably be another 6 ths before the supply of materials dries up to the extent that a reasonable nce between supply and demand is attained.

he availability of defense contracts has not been the answer to this industry. s is partly because of the much higher degree of skill required in the manuure of some of the electronic equipment which the Government buys; and ly it is due to the fact that in 1950 and early 1951, when some of the manuurers were experiencing such terrifically high earnings on civilian busi, they turned a cold shoulder to Government contracts. Those who were at I time willing to accept Government orders obtained a disproportionately 1 share. And so, many concerns which were at first indifferent to defense ers found, when they went looking later, that business was not available. very substantial amount of the electronic communication equipment which Government buys is in the high-frequency range, requiring a greater degree recision and engineering knowledge than is utilized in the production of vision and radio sets. There are specialists who make this type of equipt. They have been the beneficiaries of some of the largest orders so that r present unfilled orders are higher than their normal rate of production. Iroad equipment, manufacturers

utput of railroad equipment had declined in 1949 and early 1950 because of deoration in earnings by the railway carriers. Substantial orders for rolling k were placed immediately after Korea in anticipation of a substantial inse in freight traffic. The industry contends it has been unfairly treated in allocation of steel. The Government allocators respond that the allotments e been more than generous.

cks, manufacturers

51 was closed with high inventories of completed trucks, following an alle high level of production. The use of strategic materials in the early part 951 was not restricted in output of trucks, and therefore, manufacturers makboth automobiles and trucks endeavored to offset loss of automobile protion by increasing the truck output. Demand for the heavier models slowed in very perceptively in the second half of 1951. With such large investt in finished inventories, truck manufacturers who received war orders to arrange financing for such war contracts since their own working funds largely tied up in slow-moving inventory.

shing machine manufacturers

roduction in 1949 was 3,003,00 units; 1950, 4,290,000 units; and 1951, 3,300,000. industry was caught with a very heavy inventory in June 1951. Much proghas been made since in liquidating that inventory, but at the expense of operg profits. Some of the independent producers especially have had a difficult e, and several will report losses for 1951, the first red year since the end the war. Conversion to war production is just now getting under way. Ir. FOULKE. These problems are important to individual busises. But before the days of mobilizing for defense there were other blems of importance to individual businesses, problems of compeon, of law gross profit, or heavy inventories and light inventories,

of rising prices and falling prices, of excessive sales and too few sales, of turning employees into a team, of collecting receivables d ing downturns in particular areas or divisions of industry

commerce.

Business management has the job of constantly solving new pr lems, and the organizations which solve the new problems the earles and in the most efficient manner make the most progress.

Those organizations, on the other hand, which do not solve the problems drop by the wayside, and their places are taken by ne

ventures.

So, although in the summaries of problems presented for the record, many problems are stated, they are not stated from the viewpo that problems are unnatural in business. These problems will solved by aggressive skilled management, just as business problems have been solved by capable management in the past.

In addition to these industry problems, I would like to emphasize what appear to be three underlying economic problems.

The first of these is the long-run trend of inflation if deficit spen ing is continued.

The second is the problem of greater redemptions than sales in United States savings bonds. That is probably the result of the in crease in rates of interest of all classes of securities and borrowing during the past year and a half.

Senator FLANDERS. Do you not think there is some question in the minds of prospective purchasers as to the future value of the dollar! Mr. FOULKE. I certainly do.

Senator FLANDERS. Of course, that applies to savings of every sort, so that it should not apply specifically to savings bonds.

Mr. FOULKE. But the big difference, it seems to me, Senator Flan ders, is that, during the past year and a half in particular, so many building and loan associations and savings and loan associations-in contrast to the small number of savings banks although there are quite a few large savings banks-particularly those in the South and in the West, have raised interest rates not only to 3 percent but a reasona able number to 32 percent, and an occasional one to 4 percent. And you get that interest from the day the money is deposited. Of course, with United States savings bonds you get 2.9 percent over 10 years but the first few years or two the rate is very low, and last year, 1951 the redemptions over purchases was $1,690,000,000.

Senator FLANDERS. Is the remedy for the Government to raise the rate on savings bonds?

Mr. FOULKE. The point I am raising is that it is an area which needs very careful examination.

Senator FLANDERS. That is a very good answer.

Mr. FOULKE. And, if I may say it, the final third point of the problem, which, I believe, is an underlying economic problem, is the relatively greater increase in food prices than in other items of co sumer expenditures, whether we take the records from the January 1952 Economic Report of the President or whether it is taken fro Charles Wilson's fourth quarterly report of the Office of Defens

ilization, or whether it is taken from the tables which were pred for the Joint Committee of Congress on the Economic Report he Council of Economic Advisers. Each one of these tables has ferent base. One is June 1950; one, January 1950; and one of ary 1946. And in all cases the food prices have gone up much r and more rapidly than all other consumer items.

he CHAIRMAN. I wanted to ask you one question, Mr Foulke. What nmendation you would care to make on the basic problem here as hether or not the economy can support and maintain over the run an Armed Force of the size contemplated.

r. FOULKE. Well, I feel like Dr. Nourse: that it can be done, but lecision is one as to whether it is practical and expedient. If it is by deficit spending, that will be more inflation and less and less he laborer's dollar.

he CHAIRMAN. Thank you. If you have any more charts or any her information, you may place it in the record.

r. FOULKE. Thank you, sir; I shall do so.

The additional information and charts are as follow:)

ficit spending.—The current budget for the fiscal year beginning July 1, indicates a deficit of $12 billion to $14 billion without considering requests dditional expenditures for the Atome Energy Commssion and for the Navy, without making any allowances for possible tax increases. Wholesale prices ed an all-time high since 1779, last March. Since then wholesale prices leveled off, but the latest figures show prices about 13 percent above June Consumer prices moved upward every month last year and are now the est in our history. To the extent that continued deficits are financed by the mercial banks of the country, purchasing media of the country is expanded, hat means higher prices and less for the laboring man's dollar.

r economic life will be stronger for a longer period of years if we operate in our budget. Moreover, moral fiber becomes more and more weakened as it spending finds its way into inflation. History indicates that every year deficit spending continues, the more difficult it becomes to break the habit. at process the savings of individuals are taken away from them without knowledge.

demption of United States savings bonds.-In the calendar year of 1949, of United States savings bonds exceeded redemptions by $731 million, and 50 by $235 million. In 1951, redemptions exceeded sales by $1,690 million. ny savings and loan associations and building and loan associations, pararly in the South and West, paid 3 percent interest in 1950; additional assoons raised their rates to 3 percent, some to 3% percent in 1951 and, in an sional instance, to 4 percent. The upward trend in interest payments in associations, the steady upward trend in the yield on high-grade bonds 2.54 percent in January and February 1951 to 3.03 percent in December and the trend in interest rates on business loans from 2.60 percent in the quarter of 1951 to 3.27 percent in the fourth quarter of 1951 indicate a need study of the rate structure of United States savings bonds. To the extent sales of United States savings bonds decrease or hold down an increase in holdings of Federal securities, we have a means of restricting inflation. atively greater increase in farm and food prices.-I would like to call aton to a chart of consumers' prices on page 61 of the Economic Report of the ident. That chart shows the percentage increases in food, apparel, rent, "all items" from June 1950 to November 1951. With the exception of two periods, consumer food prices have consistently shown a greater increase June 1950 prices as a base.

Comparison of net sales and redemptions of United States savings bonda

Bank interest rates on business loans—Average of rates charged on short+:n loans to businesses, by banks, in 19 cities

I would like also to call attention to the charts on pages 37 and 38 Fourth Quarterly Report by the Director of Defense Mobilization dated Ja 1, 1952. A chart on page 37 shows the percentage increases in these same c sumer items but with January 1950 prices as a base. Consumer food pr with the exception of January and February 1950 have consistently had greatest percentage price rise.

The chart on page 38 of the Fourth Quarterly Report by the Director of De fense Mobilization shows how prices, on items which are exempt from e and which are partially controlled, have risen since February 1951. under OPS retail control but subject to parity pass-through show the gre percentage increase up to October 1951. Items in the Consumer Price In such as many agricultural commodities selling below parity, are by law exe from effective control.

It does seem as though in a period when consumer prices are the highe our history, and when food prices have shown the greatest percentage incred that the advantages conferred by law on farmers to collect a tribute from consumers should be carefully and painstakingly reexamined.