monetary policy and fiscal policy, to accomplish the purpose that you and I and everybody want to accomplish?

Dr. GALBRAITH. No. I would be very firm on the point. There is in my view no chance of having stability and monetary and fiscal policy alone.

Mr. GETTYS. You think there must be other pressures?

Dr. GALBRAITH. Yes.

Mr. GETTYS. This is the best alternative.

Dr. GALBRAITH. If it were possible to have price stability by fiscal monetary policy alone, nobody would advocate controls.

Mr. GETTYS. You wouldn't do away with those?

Dr. GALBRAITH. Oh, no. They are very important supplements. Mr. GETTYS. And this is the best supplement here? In other words, is there any other solution or alternative to the wage and price control? Is there some other device that you think would substitute for this?

Dr. GALBRAITH. I think one can be certain. There isn't.

Mr. GETTYS. I appreciate your views. I am inclined to agree with you, too, sir.

Dr. GALBRAITH. I appreciate that, sir.

The CHAIRMAN. Mr. Annunzio.

Mr. ANNUNZIO. Thank you, Mr. Chairman.

Dr. Galbraith, I was in the audience when you addressed the University of Illinois on Sunday so I am being treated today to a doubleheader. I am one of the sponsors of this bill because I do feel that we must take a concrete approach to this problem. We can't wait any longer a depression is around the corner. I also want to say that when you talk about 17,000 employees under this program during World War II, the reason we had that many employees is because we were not only dealing with price control, but we were also dealing with rationing that is the rationing of commodities. Therefore, it required a larger number of people to police the entire program which was a very ambitious program. But today we are talking about a rollback to 1970, which is a price and a control freeze. The public should be educated to the fact that we are not talking about rationing. However, I want to go on the assumption that if this legislation fails, I would like at this time to get your reaction from another angle.

In 1964, we had a tax cut that supposedly put more money in the hands of the people and consequently, they were able to buy more goods and we got the country moving, so to speak. In 1968 we had the surtax which I voted for and I voted for it again in 1969 when the ADA was against it. My ADA average came down to 40 percent, and because of this rating, my total vote in my district will increase, and I assure I will not be hurt. Now, in 1969, we were faced with another tax cut. We are going to probably be asked to vote for another surtax. I would support that also because I feel this is one of the ways to curb inflation for those least able to pay are those that suffer because of fixed incomes.

I would like to get your opinion if this bill fails. What do we do about taxes? Do we increase taxes? I know this is a hot subject and that this is an election year. But if we are going to put our country above everything else, some people must go out and tell the people

the truth.

Dr. GALBRAITH. I think we need more money for the cities, including

yours.

Mr. ANNUNZIO. That is the reason I voted for the surtax. You cannot talk about more money because the money must come from somewhere. You can't ask the Government for a mass transit system, you can't ask to clean up the ghettos, you can't ask for housing, you must be able to be intelligent and honest enough to say, "Look, we need these improvements, the money has to come from someplace.' If you are the kind of a statesman that preaches that we must have these improvements in the cities and then votes against the tax program, you are not being too consistent.

Dr. GALBRAITH. I think that is right. I was reluctant about the surtax as long as the money was going down the Vietnam rat hole. We need to be certain that it isn't going to be used there. There had to be a clear indication we were getting out of that disaster before we voted any more taxes. If one had a choice of where to get the money, out of taxes or by stopping the waste in Vietnam, one obviously would first stop wasting it in Vietnam.

Mr. ANNUNZIO. The war will continue. We are faced with the same situation. This bill will fail. We can't continue by just saying that it is here, it is going to go away by itself. This is the reason I address myself to the problem of taxes. I deeply appreciate your being here today and your very constructive suggestions to the committee.

The CHAIRMAN. Mr. Griffin.

Mr. GRIFFIN. No questions.
The CHAIRMAN. Mr. Gonzalez.
Mr. GONZALEZ. No questions.
The CHAIRMAN. Anyone else?
Mr. GALIFIANAKIS. One question.
The CHAIRMAN. Mr. Galifianakis.

Mr. GALIFIANAKIS. On the last page of your statement you made reference to the liquidation of the Indochina mistake. What is your own idea of a timetable for the liquidation that you referred to?

Dr. GALBRAITH. I have long been a supporter of Senator Gravel's plan. I don't know how widely this has been known but it seems to me to deserve a lot more attention than it has received.

I am not unfamiliar with that part of the world. Subject to the negotiation of an amnesty, which I think could be done, which Averell Harriman says can be done, then I would proceed as Senator Gravel has suggested. He was asked on television a few weeks ago in New York what he would do about Vietnam and he said "Withdraw." This caught the television interrogator rather unaware as he had planned to make that question do for about 30, 40 seconds, maybe a minute. So he kind of stumbled and said Senator how would you implement that program? Senator Gravel continued to be brief. He said: "some by air, and the rest by ship."

Mr. CRANE. Will the gentleman yield for one final question?
Mr. GALIFIANAKIS. Yes.

Mr. CRANE. One part of this bill that I know my colleague from Illinois was interested in was rent controls. Professor Galbraith, I was wondering if you could address yourself very briefly to that portion. Dr. GALBRAITH. No, I wouldn't put in rent controls. Again, this would be under my rule that this relates to the problem of market power. The landlord, whatever his sins, is not an independent power force in the market. The solution to housing problems is to build more houses, not to fix rents.

Mr. CRANE. Thank you.

The CHAIRMAN. Mrs. Sullivan.

Mrs. SULLIVAN. Mr. Chairman, one thing I would like to make clear with Dr. Galbraith. Am I correct in my understanding of your answer on the freezing prices on food products? Would you suggest possibly a freeze on everything at the moment and then unfreeze the things that should not be under the controls?

Dr. GALBRAITH. Yes. When one establishes the confidence he proceeds as quickly as possible to get rid of those things which are not active ingredients in the inflationary focus, one does not enforce action that doesn't need to be enforced.

Mrs. SULLIVAN. I thought I understood that from your first answer, that we do have to put a stop to price increases on everything right now, as is.

Dr. GALBRAITH. That is right.

Mrs. SULLIVAN. Just one other question, Mr. Chairman. I would like to ask Professor Galbraith--since Richard Nixon helped your agency run the price control in World War II, are you available to run such a program for him now? He seems to have trouble finding the right man for the right spots.

Dr. GALBRAITH. I am a prodigious writer of memoranda. I think that that alone would disqualify me. But this is something which Congressman Reuss and I did quite well 30 years ago. There should be a new generation of that age capable of taking this on. Incidentally, I hope everybody on this committee knows that one of the most distinguished architects of World War II price control was the Honorable Henry Reuss, and prices were held nearly stable during that conflict despite an enormous diversion of resources from a much smaller GNP. I think that he would agree with me that no one who was associated with that experience will ever minimize the administrative problems that are associated with it. But we are not suggesting anything of that sort here. We are suggesting, I am suggesting a much, much more limited action on a very limited sector and manageable sector, of the economy.

Mrs. SULLIVAN. Thank you very much.

The CHAIRMAN. Mr. Moorhead.

Mr. MOORHEAD. Do I understand that even for the 6 months period, you would not recommend a freeze on rents?

Dr. GALBRAITH. I would put rents in the initial freeze but I would release all rents immediately or sometime during the 6 months period. Rent control is not a solution to the inflation problem.

Mr. MOORHEAD. Thank you, sir. It is in the bill. That is why I ask. The CHAIRMAN. No one else? Thank you very much, Dr. Galbraith. You have been of great benefit to our committee. I am sorry I had to miss a lot of it because we were dealing with the housing bill before the Rules Committee. You know, you don't get out of the Rules Committee quickly, it takes time. So thank you very much. You are always helpful to us. We appreciate it more than we can tell. If you desire to submit additional material you may do so. The committee will meet tomorrow morning at 10 o'clock here in the same room on the same subject.

(Whereupon, at 12:12 p.m. the committee recessed, to reconvene at 10 a.m., Wednesday, June 17, 1970.

TO EXTEND THE DEFENSE PRODUCTION ACT OF 1950,

AS AMENDED

WEDNESDAY, JUNE 17, 1970

HOUSE OF REPRESENTATIVES,

COMMITTEE ON BANKING AND CURRENCY,

Washington, D.C.

The committee met, pursuant to recess, at 10:10 a.m., in room 2128, Rayburn House Office Building, Hon. Wright Patman (chairman of the committee) presiding.

Present: Representatives Patman, Barrett, Sullivan, Reuss, Ashley, Moorhead, Stephens, St Germain, Annunzio, Widnall, Mize, Blackburn, Wylie, and Crane.

The CHAIRMAN. The committee will please come to order.

Today the committee continues hearings on H.R. 17880, to amend the Defense Production Act of 1950, and for other purposes.

Our witnesses today are eminently qualified to speak on the subject of standby wage and price controls as contained in title II of this legislation.

We have the Honorable Michael V. DiSalle, former Governor of Ohio, and former Director of Economic Stabilization under President Truman, the office which had full charge and responsibility for wage and price regulations during the Korean war.

Our other eminently qualified witness is Dr. Robert V. Roosa, former Under Secretary of the Treasury for Monetary Affairs, and an accomplished and respected economist, who will also speak on title II of the legislation before us.

Gentlemen, each of you have prepared statements which have previously been distributed to the members. It would be appreciated if you could summarize your statements so that as much time as possible may be spent in questions and answers. And your entire statements will be inserted in the record. And you can present such parts as you wish.

Mr. Roosa, may I take advantage of this opportunity to ask you a few questions just before you start, because I have to go to a Democratic caucus. You see, the Republicans have caucuses too, and they go to theirs, and we have to go to ours. And I want to ask you about something I think you have particular knowledge of.

The consideration of renewal of the Defense Production Act involves the course of money that is going to be used, if certain people's suggestions are abided by, to help bail out the Penn Central Railroad. And, of course, the law is rather plain, I think, that considerable investigating must be done before money can be used for that purpose. And I don't know whether it has been done or not. But this is aside from that.

I have a feeling that if the Government puts up $200 million, that this will be just the beginning. This will be considered to be a prece

dent for other cases that we know are in the pipeline, other railroads, other airplane companies, and many other similar companies. This would be used as a precedent and therefore we should go into it more fully on that account.

Now, I would like to see the creditors subrogate their claims to those of the Federal Government if the Federal Government puts up the money to bail them out.

Now, you are in the underwriting business and have lots of experience on things like that. Isn't it common to have creditors' meetings sometimes in cases like this to get them to help on situations comparable to this?

Mr. ROOSA. Mr. Chairman, I should take a disclaimer before I begin. We are not in the underwriting business at Brown Brothers, Harriman. But we are commercial bankers; we are investment advisers. We are not permitted under the banking statutes to be underwriters except for municipal issues. But we are one of the smaller banks included in the group who have loaned to the Pennsylvania Central Railroad. So I know a little bit about the situation from that side.

And, of course, as a partner not on the active negotiating front, I cannot speak with intimate detailed knowledge about it, but I can surely say that there must be meetings of the creditors, and that some such meetings with the management have occurred under the chairmanship of one of the lead banks in the original credits to the road. Such meetings always pose a difficult problem, because while the creditors have to meet in order to work out in the end reasonably uniform terms that will have approximately the same impact on each, we have to be careful about anything that breeches the antitrust laws as well.

And so there should be public representatives at those meetings. And I understand that there have been, at the meetings that have occurred thus far.

Now, it is also my feeling personally, and again speaking without intimate knowledge, that a government which extends a guarantee in a distress case of this kind should be expected to receive some degree of senior responsibility for at least a review of key management appointments or even decisions.

You will recall much better than I the way this was handled under the RFC back in 1932. And I would think in the public interest one of two things is appropriate: either that the Government, along with its guarantee, gets some element of an equity participation in the same sense that the stockholders do in the selection and overriding surveillance of management, or that there be subordination to the Government of claims on the vast assets of the holding company that is in turn the owner of the Pennsylvania Railroad. I think it is called the Penn Central Co.

This company, which is vast in assets but low in liquidity, has reportedly so many billions in resources that it seems unfair to expect the Government to take the full burden of guarantee when those resources can be leaned on.

The CHAIRMAN. I think you have made a very fine statement on that, Mr. Roosa, and very fair to everybody concerned.

I wonder if we would be justified in writing in the law, since we are extending the act right now-giving the Government in cases like this a first lien, the first preference in the distribution of assets.