CONTINUANCE OF COMMODITY CREDIT CORPORATION

FRIDAY, MAY 28, 1943

HOUSE OF REPRESENTATIVES,

COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C.

The committee met at 10:30 a. m., Hon. Henry B. Steagall (chairman), presiding.

The CHAIRMAN. The committee will come to order.

Mr. PATMAN. Mr. Chairman, I wish you would ask the clerk of the committee to get the attorney for our committee up here. I want to ask him to draw two amendments: (1) Putting food under Mr. Davis for distribution, prices and everything under the Food Administrator. The other amendment to put oil, petroleum, and oil products including distribution, production, prices, and everything else under Mr. Ickes, and leave the enforcement of each to the Department of Justice. I want to make this statement so the committee would know about the amendments.

Mr. FORD. Do you contemplate abolishing the Office of Price Administration?

Mr. PATMAN. No, just taking that part of O. P. A.'s duties or functions away. The Office of Price Administration has plenty to do without those two items. Food and oil are so essential to the successful prosecution of the war I think we are justified in taking them away from O. P. A.

Mr. FORD. And what would be the O. P. A.'s connection with respect. to food and retail prices?

Mr. PATMAN. It would not be connected with that.

Mr. FORD. You would put the whole thing, retail prices and all under Mr. Davis?

Mr. PATMAN. Yes.

Mr. FORD. Do you think he wants to shoulder that burden?

Mr. PATMAN. I don't know but it should be under one person. He has taken a job and if he does not want that, why, then it is for him to

say.

The CHAIRMAN. Of course, the draftsman will be available. But there is no better draftsman than you are.

Mr. KEAN. Mr. Chairman, I understand from listening to the discussion of the committee that in all probability the committee feel that these sums that are expended by the Board of Economic Warfare and such should not be chargeable to the Commodity Credit Corporation but if we do not put in such an amendment and we are in a position where the Board of Economic Warfare could order them to spend any money that they want for their purposes we ought to hear something from the Board of Economic Warfare. If we are going to put in that amendment there is no reason to hear from them.

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The CHAIRMAN. Members of the committee, we have before us two representatives, one from the Grange and one from the Farmers' Union, and I suggest that we first try to conclude the hearings by hearing them and I really think when we hear these two gentlemen we will be pretty well prepared to take up this bill in executive session. But I am not foreclosing your suggestion at all.

Mr. KEAN. May I say off the record the reason I mention that?

STATEMENT OF ALBERT S. GOSS, MASTER, THE NATIONAL GRANGE

The CHAIRMAN. Gentlemen, I am sure you all know Mr. Albert S. Goss, who is the master of the National Grange and who is well known to you and throughout the United States.

We are delighted to have you with us and if you wish to proceed without any interruption the committee will be glad for you to do so and after that the members may desire to interrogate you. I suggest to the members that he be permitted to conclude his statement so that it may so appear in the record for the benefit of those who may want to read the hearings. You may proceed, Mr. Goss.

Mr. Goss. Thank you, Mr. Chairman, I would prefer it that way. We have furnished a mimeographed copy to the members so that they may make any notes where they may have questions. I will be glad to answer any of them that I can.

Mr. Chairman, H. R. 2725, relating to the Commodity Credit Corporation, has four main purposes. The first is to change the basis of taking inventories.

The second is to provide more funds.

The third is to extend the life of the Corporation.

The fourth is to provide for audit by the General Accounting Office. -We have no suggestion to make with reference to the method of taking inventories.

As to the life of the Corporation, we recognize that certain commitments have been provided by law for extending the life of the Steagall amendment to the post-war period as described in section 3 (a) of the bill; nevertheless, we doubt the wisdom of extending the life of the Corporation for more than 2 years. Congress can always extend it further whenever it desires to do so, and we believe it is best for Congress to look over the operations of any such emergency corporation, dealing in sums so vast, at least once in every 2 years to determine whether any changes in procedure are justified, and whether or not the life of the Corporation should be extended. If Congress determined not to extend its life, it is assumed that it would provide other means for meeting commitments made under its instructions.

The method provided for audit by the G. A. O. is unusual, but we believe it may provide a practical means for meeting the difficulties encountered when an operating corporation is subject to audit by an agency established to audit governmental expenditures. We believe it worth a trial.

As to the increase of $1,000,000,000 in available funds, we have no way of determining the amount of money needed to carry on the buying, selling, or lending operations for which the Corporation was created. We assume that your committee will be guided by the estimates of the officers of the Corporation. We feel, however, that your

committee should give very careful consideration to the purposes for which money may be used, and we wish to direct our remarks to this phase of the problem. We strongly suspect that it is the plan to use a substantial portion of these funds for the payment of subsidies or for financing direct loss transactions which are tantamount to subsidies, since they show a definite and certain unrecoverable loss known at the time the transaction is initiated. We believe there is grave danger in embarking on such a policy on a large scale, and that restrictions should be written into the bill preventing certain types of practices which we wish to discuss in greater detail.

There are two major issues at stake, both of which are so far-reaching that they vitally affect our war efforts and the maintenance of a stable economy. We refer to the production of food and the prevention of inflation. These questions are so interrelated that it is impossible to discuss one without the other. If either is more important than the other, we would say that the production of food should claim our first consideration, for first we must eat. However, we will not take the time of your committee to discuss the importance of food, for you know all about it. It is regrettable, however, that the general public does not realize the precarious food situation we face if we fail to pursue policies designed to encourage maximum production.

INFLATION

There are two distinct schools of thought with reference to the control of inflation. One school favors establishing price ceilings, enforced by fines and penalties. The other advocates making use of economic forces by increasing production of goods and controlling purchasing power. The former is based on an economy of scarcity and requires a huge army of enforcement agents. The latter is based on an economy of abundance and is largely self-enforcing. The former is bureaucracy at the height of its glory. The latter is a decentralized approach to a tough problem.

Before we consider methods for the control of inflation, it would be well to consider the causes which bring it about. There are two chief causes of inflation. First, is the pressure of surplus income upon an inadequate supply of consumer goods. Second, is the loss of faith in the Government's ability to meet its obligations.

War Food Administrator Davis has given your committee some interesting figures on income and outgo through expenditures. A national income of $140,000,000,000, less estimated taxes of 16 billions, leaves 124 billions in spending power. At present values, available consumer goods are estimated at 82 billions, leaving a gap of approximately 42 billions. There are numerous estimates of how much of this will go into savings, running from 15 to 25 billions. This leaves from 17 to 27 billion dollars of income in excess of consumer goods, all seeking an outlet.

Those following the first school of thought, including the Administration, propose to erect a price ceiling dam against this excess income, and thereby shut off the spending outlet. They reason that our economy was in fairly good balance on some given date, and they would freeze everything at that spot. They would thereby prevent any price rises in order to prevent inflation. This is fallacious reason

ing, as all history has adequately demonstrated, for never have price ceilings prevented inflation over an extended period in the history of the world, although they have been tried hundreds of times.

The chief reason is that price ceilings ignore production costs and shut off the supply of goods. In wartime there are many items of cost which arise from war dislocation that cannot be controlled by any price ceiling method. On the farm we send our experienced young men to war and replace them with young boys and old men. We can control the wages by wage ceilings, but the substitutes do only half as much work and our labor cost is doubled. There are hundreds of uncontrollable war dislocation costs which force up the costs of consumer goods. When these costs bump into the ceilings, production is strangled, and the inflationary gap is increased. By bungling price control methods we have already created a lot of unnecessary food shortages and driven a lot of items into black markets, where the consumer is trimmed up right. It is now proposed to use subsidies to meet these war dislocation costs, so that production will not be strangled.

SUBSIDIES

We are opposed to the use of subsidies for such purposes because they will not work, for reasons which I shall set forth. We believe your committee should safeguard any money made available to the Commodity Credit Corporation against such dangerous use, and we will suggest how we believe this can be done. We are confident that there are practical ways to control inflation if we have the courage to use them, as we will explain.

First, however, we want to point out two or three more fallacies in the price control system as we have tried to operate it. There are more than 10,000 hamlets and crossroads in America, each with its own individual production and marketing characteristics. We go into the mountains of Montana, where costs are high, and we find miners and stockmen paying more for their food. The law of supply and demand has adjusted prices to costs. We go into the mountains of the Carolinas, where costs are low, and we find the people are paying low prices for their food. The law of supply and demand has again adjusted prices to costs. Both places are equally distant from the railroad. Under the O. P. A. they are forced into a common mold. It is an extreme example, but to a greater or less degree it is typical of what is attempted all over America. The production may not be large in an individual high cost area, but in the aggregate it is enormous, and this production is largely curtailed or destroyed by rigid price ceilings. No system of subsidies can be devised to meet the tens of thousands of conditions which prevail, and the daily changes which are occurring by reason of dislocation costs.

We have pointed out the enormous inflationary gap we now face. These are not static figures. They will get progressively worse. Assuming that we could dam a 15-billion-dollar flood, we must not forget that it is accumulating; that it will be 20 billions by summer, 25 billions by fall, and 40 or 50 billions a year from now. Holding it back by price ceilings and subsidies is a complete impossibility.

We should also mention that we have adopted a policy of adjusting wages to meet living costs. Actually wages have gone up approxi

mately three and a half times as fast as living costs. These conditions are mentioned merely to point out the complete unworkability of a price ceiling system which you are now asked to bolster up by vast sums taken out of the Federal Treasury.

Now, to enumerate some of the reasons why we oppose subsidies and believe safeguards should be provided against their use:

First. They are inflationary and will defeat the purpose sought to be accomplished.

(a) Subsidies are paid from Federal funds which must be borrowed. About 80 percent is borrowed from banks and directly increases the surplus income to the extent of such borrowing, thus increasing the inflationary gap.

(b) Nothing will cause a greater loss of confidence in the financial soundness of our Government than to follow a policy of unwillingness to pay our bills as we go, as far as we can. In the days of our greatest national income, if America refuses to pay its food bill, but passes it on to future generations, it is clear that we are deliberately pursuing a policy that leads straight to bankruptcy. Every thinking person knows that such a policy long continued must result in a financial crash. The symptoms of loss of public confidence are all too plain in the statistics of bond-selling campaigns among individuals.

Second. Subsidies in lieu of fair prices will lead to post-war chaos. The goal of the present policy is to maintain a rigid price ceiling with the use of subsidies to meet the ever-increasing dislocation costs of production. As the war progresses, we will find it necessary to increase the subsidies and our price structure will become more unbalanced day by day. If we are to avoid bankruptcy, when the war is over we must balance our budget. When that day comes, subsidies will be the first thing to be cut off. Then one of two things will happen. Either farmers will have to get higher prices to meet their costs, or quit producing.

If we do not have the moral or political courage to pay the cost of our food bill during these days of billions of dollars of excess income and full employment, what chance would there be to raise food prices when men come back from the Army hunting jobs and income starts down?

The answer is, none whatever, and the result will be farm bankruptcy and chaos worse than that following the last war, which was, at least, not complicated by subsidies.

Third. Subsidies pass on to future generations costs which this generation should bear. It is almost axiomatic that we cannot fight a world war and raise our standards of living at the same time. But that is exactly what we are trying to do. How many of us are worse off financially than before the war started? For most of us our incomes have gone up far faster than our outgo, and we know very well that somebdy has got to pay for the enormous destruction going on. Instead of facing the facts and paying the necessary increased living and operation costs (and you will not I am omitting actual war costs) we are insisting on passing these costs on to future generations, and are trying to live better today than ever. It is time we faced the facts. Would not the boys who are making the sacrifices and fighting the war be justified in saying: "We have shed