THE CONSUMER'S BUDGET In appraising the impact of price changes for various commodities on the cost of living, the differences in the relative importance of various goods and services must be recognized. This is particularly important in a mobilization period such as the present where the impact of the program varies greatly among different commodities. Between 10 and 15 percent of all consumer outlays are for durable goods. The proportion was much greater in the postwar period than in 1940. In the fourth quarter of 1950 outlay for durables represented an unprecedented proportion of the consumer's budget, but even in that period less than one-sixth of all consumer expenditures were for durables. This is significant, since the chief fear of shortages relates to durable goods. It is sometimes forgotten that they are a relatively small part of the supply picture. The percentage of consumer outlay spent for food also is higher than before World War II. This is partly the result of the public eating more and better food, partly the result of an increase in food prices greater than the rise in other prices. The various other items of consumer expenditures have shown no pronounced change in their relative importance. In total, they have decreased somewhat to make up for the increase in the percentage spent for durables and food. PROSPECTIVE SUPPLY OF CONSUMER DURABLES The main area of concern with regard to consumer supply is in the durable goods sector: Automobiles, household equipment, etc. Since these items require the same materials as defense production, the major impact of rearmament on consumer supply will be felt in this sector. Therefore, a more detailed examination of the supply and demand situation in the durable goods field is in order even though durables account for only 10 to 15 percent of the consumer budget. or only about half as much as food. Although some reduction is expected in production of various consumer durables from the extraordinary levels of output reached in 1950, the supply in 1951 will be very good indeed when compared with any year other than 1950, according to the Director of Defense Mobilization. Production of passenger automobiles, although cut back from the 1950 levels, will be almost as great as in 1949, about 20 percent higher than in 1948, which was considered a banner automobile year. Refrigerator output will be only slightly below 1950 but greater than in any earlier year. Output of television sets will be very slightly less than in 1950, but about twice as great as in 1949. These are not iso ated examples of the supply situation in consumer durables. Those who are alarmed by announcements of cut-backs below 1950 levels of production forget what an extraordinary year that was. Output of consumer durables in the latter part of 1950 was so great compared with any prior records that it is unlikely that consumers could have maintained that rate of purchasing in any event. CONSUMER INVENTORIES OF DURABLES The adequacy of the supply of consumer durables must be considered in relation to the stock of such goods which consumers already have in their possession. If consumers are understocked, they may be expected to compete sharply for a supply which would otherwise be adequate. If, on the other hand, they consider their present holdings adequate, they can take a reduction in current output in their stride. The facts show that consumers holdings of durable goods at present are far in excess of any level previously recorded. The number of passenger automobiles in use is now 50 percent greater than in 1939 or in 1946. Two and one-half times as many electric refrigerators are in use in homes as in 1939. The number of washing machines has approximately doubled in the same interval. Another fact to remember is that a large part of existing holdings of durables have been bought since World War II and, therefore, are relatively new. This also will help to control the eagerness of consumers to bay. The Department of Commerce comments on the present situation as follows: * The high and rising production volumes of all types of consumer durables in the last 5 years have resulted in record per family holdings of the major items. "To illustrate, from 1946 to 1950, inclusive the total number of new nonfarm dwelling units built was close to 5 million; almost 21 million new passenger cars were produced; 21 million electric refrigerators; 75 million radio sets; 12 million television sets; more than 17 million washing machines; and 18 million electric and gas ranges were turned out by American factories. Thus, it would appear that even a sizable curtailment in the flow of the consumer hard goods would not for some time result in any real hardship or privation. In view of the fact that the production of the consumer durables, including housing, involves the same materials and labor resources needed for the production of military 'hard' goods, this sector of consumption faces varying degrees of curtailment in 1951." [Italics added.] FREQUENCY OF PURCHASE OF DURABLES Even if a shortage of durable consumer goods developed, the impact on the cost of living would be much less than the impact of a shortage of nondurable goods or services would be. The reason is that nondurable goods must be bought currently and continuously while durables are purchased only at infrequent intervals. The average family in the middle-income brackets buys a refrigerator only once every 12 years and a washing machine only once every 20 years. No serious hardship is likely to result if the purchase has to be postponed for say one more year. Consumers are not likely to bid desperately against each other for house furnishings as they would for a limited supply of items they must buy continuously. CONSUMER BUYING PLANS FOR 1951 A recent survey by the Federal Reserve Board gives an insight into the present intentions of consumers for purchasing durable goods in 1951. Such intentions, of course, are always subject to revision and the survey must be taken with reservations. However, the results as reported are rather reassuring. When surveyed, consumers indicated that they do not intend to participate in any mad scramble for durable goods during the present year. Fewer consumers intend to buy new houses in 1951 than in 1950. Those who are considering the purchase of new homes are less certain that they will do so. The survey also indicates a reduction in plans for buying automobiles in 1951. Just about as many consumers are considering the purchase of other durables, such as refrigerators, television sets, furniture but they are not as certain in their plans as in 1950. NONDURABLE GOODS AND SERVICES Food The most important single element in the consumer's budget is food. About 33 percent of the weight of the Consumer Price Index of the Bureau of Labor Statistics is in food. Therefore, the course of the cost of living in 1951 will be importantly affected by the supply of food. Department of Agriculture official estimates for major food items in 1951 clearly indicate that supplies will be plentiful in the coming year. Meat consumption in pounds per person will be higher than in 1949 or 1950, although a little bit less than in 1946. The per capita meat consumption in 1951 will be 17 percent greater than in the late 1930's indicating a significant improvement in the standard of living. The supply of eggs, chicken, fluid milk, cheese, fresh fruits, and fresh vegetables will be very high in 1951 relative to recent years. These are the foods which are most important to the nourishment and to the standard of living of the country. In studying the food supply statistics, it must be remembered that there is a limit to the amount of food an individual can consume. An increase in the poundage consumption of certain foods must be matched by a decrease in the poundage consumption of other less desirable forms of nourishment. What has happened is that consumption of grains as human food has decreased markedly since the pre-World War II period. This is especially noticeable in cornmeal, oatmeal and wheat flour. People prefer to have more of their grain converted into meat, and they are prosperous enough to eat most of it in the form of meat. Apparel Clothing and shoes comprises about 10 percent of the consumer's budget. The situation in this field at the present moment is that retailers are well stocked and are finding it necessary to use aggressive methods to move their merchandise. Experts report that there is every assurance of an adequate supply of merchandise for the rest of the year. As noted earlier, even the wool supply outlook has improved. In any event, moreover, the wool price situation could not be dealt with by domestic price controls. Housing supply Consumers' expenditures for housing account for about 10 percent of their total budget. There are at present no indications that people will have difficulty finding places to live. In the year 1940 there was no visible housing shortage, and since that time the number of available dwelling units has increased by 24 percent whereas the population has increased by only 14 percent. Miscellaneous services It is not generally realized how much of the consumer's budget goes for miscellaneous services; medical care, utilities, transportation, laundries, barber shops, etc. Over 20 percent of consumers' expenditures are in this class. While it is hard to generalize about this mixture, there seems to be no ground for fearing any serious shortage. No scarce materials are involved. The mobilization program as it stands should lead to no shortage of manpower for these services. In summary, the nearby supply situation is not unfavorable. Obviously shortages will develop in some items and in a free market, after the demands of the military have been met, consumers undoubtedly would bid up prices of these scarce items. But is a price rise in a limited number of scarce articles sufficient justification for regimenting the entire economy and inviting the disaster which such regimentation is bound to bring? Under such regimentation, we can again expect to encounter shortages which would not otherwise exist, as well as the impairment of incentives to increased production. On the other hand, if we will adopt a sound anti-inflation program such as herein presented, we believe this Nation can move forward and defend itself against any enemy while protecting the freedom of the people at home. The CHAIRMAN. Mr. Newsom will you step up, please. STATEMENT OF HERSCHEL D. NEWSOM, MASTER, THE The CHAIRMAN. Will you proceed, sir, in your own way? Do you resire to read your entire statement? Mr. NEWSOM. I believe, Mr. Chairman, that I may be most likely to cover the points that I want to cover if I read the statement. I have tried very earnestly to keep it brief. The CHAIRMAN. Well, go ahead and read it. There are some questions I want to ask you, but you go ahead and read your statement. Mr. NEWSOM. I presume, Senator, that it may be in order, since this is my first appearance in my new capacity as Master of the National Grange, to point out that I am still a farmer in Indiana, as I have been for all of my life. The CHAIRMAN. I want to welcome you here as the chairman of this committee, because there is no other organization for which I have more respect than the Grange. Mr. NEWSOM. Thank you, sir. Under that freedom, within the framework of that democracy which has been provided in America, a great agricultural capacity has been developed. The United States is great by many standards and by many yardsticks but there is little doubt that its agricultural productive capacity is a direct measure of its greatness on the one hand and is largely responsible for its greatness on the other. As the productive capacity of American agriculture has expanded so have we released an increasing number of American people to expand the value of goods and services to a fuller and richer worth, thereby improving the real living standard of the Nation and increasing its usefulness. Freedom, that liberty of selection of one's occupation, of employment of one's own capacity and ability in productive effort, according to the individual's own estimate as to where he could make the greatest contribution to the general welfare, and receive the greatest reward or compensation for his effort, has been a major factor in the rising level of production and the increasing efficiency of American agriculture. Farmers, therefore, have a major stake in the preservation of freedom. All threats to freedom must be recognized and weighed. Farmers will give their utmost effort to produce and will readily accept a just and equitable increase in individual tax liability, to wage, and pay for this battle, to preserve freedom. At its annual session in Minneapolis last November, the Grange set out an eight-point program recognizing that the cause of freedom is now threatened, not only by the Communist forces of the world, but is threatened from within at the same time, by the forces of inflation. We especially call your attention to the order in which the points of that program were set out and the priority thus established: 1. We must rebuild our military might to repel future attacks. 2. We must develop a sound tax system. There must be no war profiteering. 3. We must finance war's cost as far as possible, from current taxes requiring an austerity program both personal and governmental. 4. We must allocate critical materials by compulsion if voluntary means fail. 5. We must attack inflation at its source through relation of supply of money to goods. 6. We must have rationing when supply of any goods becomes short. 7. We must control prices, supplemented by rationing, if rationing alone fails to prevent profiteering. 8. We must, if necessary to prevent inflation, control wages, prices and profits together, across the board. The Grange position, based on the above platform recognizes that mobilization requirements must be met. Priorities and allocations including authority to requisition and condemn, with proper safeguards, are therefore essential. To expand productive capacity and supply, to meet the present situation the general provisions of the proposed legislation under those heads seem appropriate. We strongly urge, however, that the committee amend the act to clearly prohibit subsidies for the purpose of making price roll-backs, below levels otherwise provided in the act, or to relieve consumers of the responsibility of paying the fair cost of any normal productive effort. Such subsidies are highly inflationary in themselves and will tend to defeat the very purpose for which those subsidies have been advocated. Subsidies should only be provided for, if at all, in cases of strategic materials definitely required by the mobilization effort. As an example of the type of subsidy which we believe to be sound, I would point out that normal industrial and agricultural uses, require all of the immediately available sulfur production. Mobilization and economic cooperation, as well as military cooperation with North Atlantic Treaty countries just demand large quantities of sulfur. We must have sulfur and I'm sure that potential sources of sulfur which cannot supply that critical item normally in price competition with our current sulfur producers must be utilized as quickly as pos sible. To subsidize that production in this emergency seems to be a justifiable use of Government funds. I should like to add there, Mr. Chairman, and members of the committee, that for 2 to 3 months now we have been sorely disappointed that it apparently has not been possible to get a realization that something definitely constructive must be done on this particular problem until within the last week or so, and I am happy to say that we are pleased to be able to advise the farm people and the Grange members that there is increasing evidence that the Office of Defense Mobilization has its finger pointed, at least, if not actually on potential supplies of sulfur. I repeat, I think we may be entirely justified in making some special concessions in our rather academic feeing on the matter of subsidies in this kind of a case. Section 104 (a) should be amended by striking In establishing, maintaining, or adjusting a ceiling under this title, the President shall consider as being included in the price received by producers of any agricultural commodity any payments made under the authority of section 303 of this act in connection with that commodity to or for the benefit of such producers in lines 3 to 8, inclusive, on page 9. The CHAIRMAN. Just one moment, Mr. Newsom. Senator Lucas says that he has given out a press release. As I said before he was to appear here at eleven o'clock this morning. I ask leave to have the press release placed in the record, and he will testify on Tuesday morning. (The material referred to follows:) AMERICAN FINANCE CONFERENCE WASHINGTON, May 18.-Scott W. Lucas, former majority leader of the Senate, today told the Senate Banking and Currency Committee that the administration of consumer credit controls is "unfair and unsound." He urged that reasonable limits on the stringency of controls be written into the law. Lucas appeared at the committee's hearings on extension of the Defense Production Act, which embodies authority for Regulation W, the credit-control authority. "There is no justification under present conditions for controls on installment sales of automobiles," he declared. Lucas called the use of its administrative power by the Federal Reserve Board "unconscionable" and recommended that if the control is continued a "floor" be written into the law, establishing the most stringent credit terms that can be applied on the purchase of automobiles. He pointed out there are many precedents for this type of "floor." Emphasizing that Regulation W was authorized for the supposed purposes of saving critical materials and curbing inflation, Lucas declared that it does neither effectively. "Regulation W applies equally to used cars as well as to new cars," he pointed out. "I shall welcome any help from this committee toward explaining how credit controls on used cars conserves materials. "As to new cars, it must be readily obvious to this committee that you can't control the manufacture of new cars by making it impossible for those who need them to buy them. The present law confers ample jurisdiction on the Executive to reduce the amount of such materials available for automobile manufacturing and to divert those materials for defense activities. "I must confess that I find it hard to see how any critical materials are conserved by a regulation which tells a man who needs a car that he cannot buy the car, already made, mind you, unless he pays one-third down and the balance in not in excess of fifteen months. Incidentally, are the materials in a car not critical if the car happens to be purchased on an all-cash basis? "As for the affect on inflation, it has been my understanding that inflation is caused by the creation of new money through extension of credit. There must |