led to a certain amount of profiteering under medicare and medicaid in regular practices and that has also affected medical costs. These are all causes of higher prices and of higher index levels. These prices would not be reached by anything I have suggested here this morning. You correctly put your finger on that.

One other factor, of course, is more expensive types of hospital care, better diagnosis and so forth. The remedy for the high cost of medical care is a better system of helping people pay their medical costs and better administration of medicare and medicaid. I think there would be wide agreement on the need for this. And one takes care of the problem of shortage of nurses and the shortage of technicians and particularly the shortage of doctors, by spending a lot more money on medical education.

Mrs. SULLIVAN. I gather from this that hospital, medical costs, and so forth could not come under any kind of a freeze.

Dr. GALBRAITH. I wouldn't touch it for a moment. There is no remedy for anything of that sort here.

Mrs. SULLIVAN. What about transportation costs.

Dr. GALBRAITH. I am addressing myself and to where one has the interaction between strong unions and strong corporations and where this leads the inflationary spiral.

Mrs. SULLIVAN. I realize that. My $64 question is the one which has caused I believe every price controller untold agony and abuse. Do you impose price controls on food products when the raw agricultural commodity is still far below parity and if you wait until it gets up parity and above it what price controller can get away with ceilings on potatoes, meat?

to

Dr. GALBRAITH. I wouldn't-again those would be excluded commodities.

Prices of farm products are set in the market. No individual farmer can fix the prices at which he sells his products. The Department of Agriculture has somewhat more authority in these matters but it isn't necessary to have price control authority to control the Department of Agriculture or it shouldn't be necessary.

There being no market power this is not part of the area where one needs to intervene. Farmers have always gone to some length to insure that they don't have to deal with unions, either, as we know.

Mrs. SULLIVAN. I think one of the first things that people would want to see controls put on would be food. For instance, a box of cereal about 15 months ago cost 31 cents; today it is 45.

Dr. GALBRAITH. I would urge that in this part of the economy the proper action, is fiscal and monetary restraint. Where the market works as it does generally for agricultural products, one should act through general measures.

Mrs. SULLIVAN. I think maybe you can remember back, and I do, too, to the Korean situation. The day troops were ordered into action, immediately the food costs went up, store managers changed every price on every can or box or item on their shelves and so did every other retailer. How are we going to stop this constant spiral with prices of these kinds of products-food, clothing-that people notice most of all?

Dr. GALBRAITH. As I say, again, there are those temporary effects, but I do not regard this as the initiating force in inflation?

Mrs. SULLIVAN. Thank you very much, Mr. Johnson.

Mr. JOHNSON. Dr. Galbraith, I want to say I enjoyed your paper very, very much. You make wage and price control sound so easy and simple. I might say that I just finished tabulating a questionnaire from the people in my relatively rural district and 69 percent said they favor compulsory wage and price controls at this time in order to control inflation. I couldn't help but think maybe the people back in the country are way ahead of we Members of Congress and even the President. Do you think that is true, that the country is ready for wage and price controls?

Dr. GALBRAITH. I was just thinking how fortunate it was for a Congressman to have such an enlightened district.

Mr. JOHNSON. I could make a political speech here, but I guess I won't.

Your plan isn't that we put on wage and price controls on an experimental basis for 6 months?

Dr. GALBRAITH. No, I wouldn't use the word experimental. This is the period during which you work out the more durable system.

In this connection, Mr. Congressman, I would pay tribute to Robert Roosa who was Under Secretary of the Treasury in the Kennedy administration and now is partner of Brown Bros., Harriman & Co. Bob Roosa deserves the credit for the proposal that I have advanced. Possibly he was somewhat influential as regards Congressman Reuss, too. He drew attention to the need for getting rid of the inflationary psychology, and then having done that, to work out a wage-price code, convention, system, with which you can live with.

Mr. JOHNSON. Under the subject of it being a relatively easy thing to do, to put on wage and price controls

Dr. GALBRAITH. I must correct you on that, Congressman. I said it was administratively difficult. I was in charge of price control in World War II. I think I have perhaps had as much experience with it as anyone. I would not minimize the difficulty. But this proposal brings the administrative task down to the bare bones. It controls only that part of the wage-price relationship which leads the inflation. It is the only part that needs to be controlled.

Mr. JOHNSON. Getting to the bill in front of us and after all that is what we are looking into, the bill on page 6 says, in section 202-do you have the bill in front of you?

Dr. GALBRAITH. Yes.

Mr. JOHNSON. Page 6. The very simple language says the President is authorized to issue such orders and regulations as he may deem appropriate to stabilize prices, rents, wages, and salaries at levels not less than those prevailing on May 25, 1970. And then on page 7, this authority expires February 28, 1971.

It would be a 9 months' period in this bill rather than the 6 months you suggest. Apparently the intent would be that the President would issue rather voluminous rules and regulations and do it by Executive order rather than we as Members of Congress doing it in an expansive bill. Is that the type of instrument you worked under when you were the price administrator?

Dr. GALBRAITH. It is the same one.

Mr. JOHNSON. We just give the President blanket authority; he is authorized to do it if he wants to and then he is authorized to issue rules and regulations, is that the way

Dr. GALBRAITH. Essentially that. Although I point out, you have a massive restriction on his authority. In the language that nothing he can do can lower it below the level of May 25, 1970. So that he is not authorized to lower the price for any firm or for any union below that level.

Mr. JOHNSON. I think I have time for one more question.

Now, it goes without saying that the auto industry faces a critical period, let us say, before the end of the year, the contract has expired and everybody thinks, yes, perhaps there will be an automobile strike. Perhaps the companies would welcome it because of the large amount of cars in the hands of dealers.

Now, on a practical basis, if the President should put in wage and price controls, just how would that affect the automotive industry and their contract which is expiring now September 1, I think?

Dr. GALBRAITH. I haven't put my mind on that particular problem. But if the freeze went into effect today under the terms of this bill, neither prices nor wages of automobiles could be increased come September. However, it is quite possible that UAW which has had, I believe, a 3-year contract may have been so caught in the timing of the collective bargaining sequence that its present levels are below that of other unions-say the electrical workers who negotiated a new contract last year. Under those circumstances, one would move pretty promptly to approve of the increase which would bring them abreast of the other unions. I would point out again-one is not concerned with keeping all prices flat. One is concerned here with breaking the big continuing spiral.

Mr. JOHNSON. Thank you, Doctor. My time has expired.

Mrs. SULLIVAN. Mr. Reuss.

Mr. REUSS. Dr. Galbraith, you were at the OPA-Office of Price Administration-in the World War II period?

Dr. GALBRAITH. The question is perhaps a trifle disingenuous inasmuch as my distinguished counsel and closest associate was the Representative from Wisconsin.

Mr. REUSS. We are just establishing the record.

Is it not a fact that you were assisted during that period by both Mr. and Mrs. Richard Nixon?

Dr. GALBRAITH. Yes. Mr. Nixon graduated from law school at Duke in the spring of 1941. He was, I believe, rejected for employment by Mr. J. Edgar Hoover. In any case we saw that he was a man of the future and we took him on as also Mrs. Nixon. I hasten to remind Congressman Reuss, who was Associate General Counsel of OPA, that Mr. Nixon was a lawyer and worked in the legal division of the agency. Mr. REUSS. My impression is that both Mr. and Mrs. Nixon were competent and faithful employees of OPA. Is that your recollection? Dr. GALBRAITH. Absolutely. I was unhappily not personally acquainted with their work, but that was certainly their reputation. Mr. REUSS. Based on the expertise thus acquired, would you think that they would be able to recruit competent people for such price control activities as the President may be empowered to carry out? Dr. GALBRAITH. Certainly, yes.

Mr. REUSS. On title II, itself, Dr. Galbraith, you haven't specifically testified as to whether you would indorse that or not.

Dr. GALBRAITH. Oh, yes, I would endorse it subject to my feeling that the continuing action, Congressman, should also be within the force of law. I would not go back to a voluntary system.

Mr. REUSS. Title II as drawn, as you know, contains simply an 8months' overall authority until February 28, 1971. The theory, as I explained earlier, is that what is really needed is a sort of social contract to be drawn up in this country between the Government and management and labor and all elements in our society, aimed at stopping inflation dead in its tracks. It is thought by the authors of title II that what is needed is some interim handle on inflation sufficient, whether it be for 2 months, 3 months, to bring the spiral to a halt, so that one could reasonably expect labor and management to work out longer term proposals. Such an interim price-wage-salary-rent freeze having been imposed, and long-term price-wage guideposts having been worked out, and a total anti-inflationary program having been worked out, I would not be able to foretell now whether voluntarism would work after next February or whether some additional legislation would be needed.

Are you willing to subscribe to a bill such as is contained in title II, which leaves the future thus somewhat more flexible?

Dr. GALBRAITH. I would take any legislation which came effectively to grips with the wage-price problem. My instinct is to feel for the longer run that if somebody violates this contract we must have an orderly process in law for dealing with it.

It is quite true that in the early 1960's the voluntary system worked for a period. But when we needed it most, it fell apart. The administration instead of strengthening it, abandoned it. So that my own feeling from that experience is the desirable thing would be a system worked out between management and labor, but which, if either side does not keep the contract, provides ultimate recourse to legal process. I don't like jawboning. Billingsgate as a form of punishment, strikes me as being undignified for the U.S. Government. We shouldn't use that for what the courts are meant to do.

Mr. REUSS. On just that question, let me ask my final question. You advocate this morning as the best way of handling that part of inflation which is caused by cost-push, a system which combines a compulsory legal freeze with an effort to work out an overall wage-price policy in conjunction with management and labor? That is the philosophy of title II.

Dr. GALBRAITH. Yes.

Mr. REUSS. That is what you think is the best?

Dr. GALBRAITH. Yes.

Again, we are dealing with the least unpleasant of a great many unpleasant things.

Mr. REUSS. There are two other gradations of action within the range of this cost-push freeze. We will call gradation No. 1 what you have just said title II tries to do. Gradation No. 2 would be no compulsion, but an honest effort to work out in conjunction with labor and manage wage-price guideposts, and then some effort to focus public attention on wage-price behavior which transcends the guideposts. The third alternative would be no guideposts, no organized focusing of opinion, but a general exhortation, vilification, persuasion, and other public efforts. Having said alternative number in your opinion is a good alternative, would you now characterize

alternatives Nos. 2 and 3? Alternative No. 3 you have characterized as fraudulent. But if I misstate you, I would give you the opportunity

to correct it.

Dr. GALBRAITH. You misstate my position slightly. I would characerize both Nos. 2 and 3 as fraudulent.

Mr. REUSS. Would you be able to pick out any degrees of relative fraudulence?

Dr. GALBRAITH. Well, President Eisenhower in the 1950's repeatedly warned management and labor that they must be reasonable in their demands. His economic advisers at that time made many such speeches. I think there is no evidence that even in the very relatively mild inflation of that period they had the slightest effect. And I think we all agree that President Eisenhower was a man whose words carried a certain amount of moral force.

To set standards and limit wage increases to what is consistent with price stability and ask firms to keep prices stable will only work if the unions and the corporations are both persuaded that it is serious. If the UAW, this autumn, can be persuaded that there will be no further increase in the cost of living they can accept a wage increase limited to the productivity gain in the industry. But the "if" is whether they can be persuaded that there will be no further inflation. Well, nobody can possibly persuade them of that, if it is voluntary, if it is a step-by-step action. And a union leader who was so persuaded would very quickly lose the confidence of his people.

So the voluntary method has within it the elements of its own very early destruction.

the

One should not ask people to give voluntarily what they haven't power to offer.

Accordingly, the proposal that Mr. Roosa has made and which is affirmed here in this title and which I endorse is the only possibility. That is, to establish firmly, under force of law, the clear certainty that prices are going to remain stable. Then you are starting from the right platform-from the promise of stability. It is, thereafter, at least reasonable that your proposal for a voluntary contract could work. I don't think it will, but such initial stability is equally necessary for my proposal for a permanent social contract that has the force of law.

Mr. REUSS. Thank you.

Mrs. SULLIVAN. Mr. Mize.

Mr. MIZE. Thank you, Madam Chairman.

Doctor, it is always a pleasure to hear you. You are provocative, to say the least. Do you think we can ever get away from the long-term inflationary psychology because, of course, the population of the country will increase and with the increase in demand for everything the sales of corporations will increase and profit accordingly?

Dr. GALBRAITH. Over the long course of history prices have generally tended to go up. Subject to some notable interruptions, that has been the general trend of prices for a long time. That doesn't mean they have to go up 6 percent a year. That is well beyond the tolerable

amount.

Mr. MIZE. On pages 6 and 7, in your testimony you said we should have a wage-price control program.