Senator SPARKMAN. Also for insertion in the record is a comparison of average weekly earnings in manufacturing industries and buying power contrasted with 1939 dollars.

These figures on earnings and buying power are important because they show the devastating effect that the rapid price increases which followed the end of price control had on the living standards of American people. They show that, while weekly earnings went up more than $6 per week from 1946 to 1947, prices went up so fast that the real buying power of the factory worker actually went down. From 1946 to 1949 earnings went up 25 percent; price increases cut this down to less than a 3-percent increase in real buying power.

We notice that the price increases which have taken place since the start of the Korean War are seeming to have the same effect. An increase in weekly wages of almost $6.25 which took place between May 1950 and February 1951 has been cut down by price rises to an increase of 2 cents in net spendable weekly earnings in 1939 dollars, as far as a worker who has a wife and two children to support is concerned. In other words, an increase in wages of almost 11 percent has been wiped out through the price increases that have taken place in this short time.

(The information referred to follows:)

Comparison of average weekly earnings in manufacturing industries with the buying power of weekly earnings in 1939 dollars-1945–50, and selected months in 1950 and 1951

Source: Hours and Earnings-Industry Report-Table 3, U. S. Department of Labor, BLS, February 1951, p. 13.

Senator SPARKMAN. The committee will stand in recess until 10:30 Monday morning.

We are grateful to you for this presentation this afternoon, sir. (Whereupon the hearing in the above-entitled matter was recessed until 10:30 a. m., Monday, May 21, 1951.)

DEFENSE PRODUCTION ACT AMENDMENTS OF 1951

MONDAY, MAY 21, 1951

UNITED STATES SENATE,

COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C.

The committee met, pursuant to recess, at 10 a. m., in room 301, Senate Office Building, Senator A. Willis Robertson (acting chairman), presiding.

Present: Senators Robertson, Frear, Douglas, Benton, Moody, Capehart, Bricker, Schoeppel, and Dirksen.

Also present: Senator Connally.

Senator ROBERTSON. The committee will please come to order. The first witness this morning is Mr. Paul C. Smith, vice president, Swift & Co.

We will be glad to hear you, Mr. Smith.

STATEMENT OF PAUL C. SMITH, VICE PRESIDENT, SWIFT & CO., REPRESENTING AMERICAN MEAT INSTITUTE

Mr. SMITH. If I might, I would like to read a prepared statement that will take only, say, 15 minutes, and then if there are questions I will answer them.

Senator ROBERTSON. You may proceed.

Mr. SMITH. My name is Paul C. Smith. I am a vice president of Swift & Co. in charge of beef, veal, and lamb operations. I am here to speak for the American Meat Institute, the trade, educational, and research organization with about 700 members producing about 80 percent of the commercially produced meat in the country.

I am here to discuss the question of the advisability of the United States Government attempting to continue the establishment of legal prices above which meat shall not be sold.

The general philosophical considerations regarding this problem are well known to you. Other people who are better qualified than I, have made clear to you the reasons why economic controls, in general, are not desirable. I agree with that sentiment.

Apart from the question of the economic, moral, or political justification for controls; regardless of whether controls as a matter of principle, are desirable in this situation; irrespective of the injury to the American people that might result from inflation; regardless of whether or not the use of controls is an appropriate device for controlling inflation, it is our opinion that price controls on meat simply will not work. When I say that controls will not work I mean that whatever control system is set up will finally break down to the point where

prices on the average, that is, the cost of meat to the consumer, will be practically the same as under a free-market system.

It seems to us almost beyond dispute that if our conviction can be substantiated there would be no basis for argument as to the advisability of attempting meat price controls. Because we honestly believe that, and because we are in a position to know more about what happens to the marketing system for meat under control conditions than almost anyone else, we are electing to spend our entire time here with you today trying to make clear to you why we believe controls will not work.

One of the most convincing pieces of evidence to support the view that controls on meat will not work is to review very briefly the history of OPA. You will remember that the OPA during World War II froze beef prices, issued dollars and cents ceilings, issued new dollars and cents ceilings, attempted to ration meat, rolled back prices, controlled slaughter, paid subsidies to packers, paid subsidies to get feeders to feed cattle, and after hundreds of amendments to these orders, by 1945 the entire system was beginning to fall apart.

As proof of the latter statement I offer: On January 8 of 1945 in the Eleventh Report of the Office of Price Administration, Seventyninth Congress, first session, the OPA itself reported:

Upgrading of meat has long been prevalent also at the retail level, frequently resulting in overcharges of 50 percent or more.

On March 6 of 1945, Mr. Chester Bowles, OPA Administrator, issued a statement reading in part:

We estimate above ceiling prices on food cost American families one billion dollars a year

and later studies showed that an important segment of this cost was on meat. In May of 1946 a special subcommittee of the Senate Committee on Agriculture and Forestry, in its Interim Report No. 1295 stated in part as follows:

Surveys made by independent marketing research agencies whom the committee believes to be competent and reliable, showed that in late February 1946, five out of six retail stores in 11 representative cities from coast to coast were charging in excess of ceiling prices for meat and that two-thirds of the meat cuts sold by these stores were sold at overceiling prices. The average overcharge for all meats, as shown by these reports was 20 percent and in the case of beef was 26 cents. These surveys were conservative in that reports could not be obtained covering sales to hotels, restaurants, clubs and others of the more flagrant kinds of black market meat operations.

Let me make it perfectly clear that the inability of the leaders of OPA to develop an effective meat price control program is, in our opinion, not attributable to any incompetence or lack of knowledge on their part. These men sincerely and valiantly attempted to develop a workable price control. I also want to make it clear that we in the meat industry are in no sense contemptuous of the efforts of those who have attempted to make meat price controls work. They did the best they could. Furthermore, if we had known of better ways of doing it we would have so advised them but we knew of no better way. It should be perfectly obvious from past history that the methods used in times past did in fact lead to a complete breakdown of the controls system and it is a highly significant fact that the program now being developed is almost an exact duplication of that which was tried before, including most of the recognized errors that were made

in the previous programs. That too is understandable. The same personnel at the working level that developed the previous program is now largely responsible for the development of the current one. We are not critical of their efforts and we do not mean to imply that they are incompetent or inefficient. They simply do not know how to do it any better and neither do we.

In a sense the meat packing industry has been seriously at fault because we have so constantly reiterated the point of view that meat price controls will not work, so that the opinion has got abroad that the meat packing industry is serving its own best interests by opposing these controls.

If it is self-serving interest to oppose a regulation which will rob the public of meat and which will prevent legitimate packers from making an equitable distribution of that meat, then we plead guilty.

The purpose of price controls on meat is to assure the lower-income groups of this Nation a supply of meat at reasonable prices. The record of OPA shows clearly that it is these low-income groups in our country who suffer most from the resultant black markets. The rich housewife can better afford the black market prices than the housewife who is trying to make ends meet on a low income.

Of course I will concede that what I have just said assumes that black markets will develop under the OPA regulations. But, I believe that the lessons learned from recent history under the OPA of World War II will support my view that black markets spring up under price controls. We speak from our experience with OPA that these controls lead to a complete destruction of the standards of business morals and ethics which have governed the industry for many years. Let me see if I can briefly state some of the reasons why price control did not and will not work on meats. I should like to confine my remarks to beef and live cattle.

OPA in its live cattle ceiling price regulation No. 23 states in effect that there is no known way of accurately grading live cattle for quality nor is there any way of accurately estimating the number of pounds of meat that a steer will yield per 1,000 pounds live weight. Nevertheless, the packer is directed not to pay over a given price for slaughter cattle based on a dressed grade and the slaughter yield obtained. You can appreciate that the two factors in that problem are (1) an accurate live weight should be obtained, and (2) beef all over the United States must be graded similarly. On the first point, there is not a barn on any farm in the United States that could not bear witness to cattle trades. Cattle are sold every day of the year on a weight basis, a weight less a shrinkage basis, or sold on a per head basis as well as a dozen different varieties of these bases.

Last week, on my own farm, I sold to a local butcher a few cattle that we agreed on a price of 34 cents a pound. I estimated they would weigh 1,020 pounds. The butcher thought they would weigh 1,000 pounds. We agreed to settle the transaction by multiplying 34 cents by 1,000 pounds. That is common practice. I have no scale on my place and did not happen to know of a scale close by that I knew to be accurate. If we overestimated or underestimated those cattle, the compliance feature of the live cattle ceiling is affected. But that is just the beginning of the compliance angle. Some packers weigh their beef immediately after slaughter and, of course, to figure a yield on cattle it is necessary to have the weight immediately after slaugh