Senator CAPEHART. Mr. Chairman, to give you an idea of how hard it is for Congress to get the facts, I hold in my hand an article in the New York Times on May 20, and the headline is, "Defense To Take 75 Percent of Steel Soon." "Here is an article that says 75 percent, while this letter says 40 percent.

The CHAIRMAN. Mr. Gibson has charge of it. He wrote the letter, and he ought to know.

Senator CAPEHART. This is an article from the New York Times of May 20.

The CHAIRMAN. Did Mr. Gibson sign that letter?

Senator CAPEHART. The new set-aside for July on some of our more important products are as follows: Structural steel, 75 percent. Bars, 60 percent. Hot-rolled sheet, 60 percent.

The CHAIRMAN. Well, suppose we sent that article, if you do not mind giving it to Mr. McKenna, to Mr. Gibson now.

Senator CAPEHART. How are you going to get the facts when you get figures like that?

The CHAIRMAN. That was sent down this morning. We all know that the Army has not started to let their contracts yet, and has not spent the money that has been appropriated, much less the $6 billion that is going to be appropriated.

(The article referred to follows:)

[From the New York Times, May 20, 1951]

DEFENSE TO TAKE 75 PERCENT OF STEEL SOON-PRODUCERS ARE NOTIFIED SHARP RISE IN SET-ASIDE WILL BE REQUIRED BY JULY 1-INCREASE NOT EXPECTED— GREATER SHARE WILL BE NEEDED OF CERTAIN ITEMS, NOTABLY PLATES, OIL COUNTRY GOODS

(By Thomas E. Mullaney)

The Nation's steel companies have just received notice from the Government of a sharp upward revision in the amount of steel needed for defense and defensesupporting production in the second half of the year.

Most of the major companies, it is understood, will be providing an average of 75 percent of their total output for these purposes in July. The percentage for some of the smaller companies will be slightly lower, but in the case of specialty producers, an even higher portion will be directed to the national defense effort.

The steel industry had not expected that such a large part of its output would be requisitioned for military and defense-related projects before the latter part of the year. On the basis of previous indications from Washington, the big steel producers had expected to be setting aside about 50 percent at the middle of the year.

The call for steel made by the military and essential industries on the United States Steel Corp., which accounts for one-third of domestic production, indicates how sharply the upward revision has been. In March, the corporation was setting aside 25 percent of its output on Government directives. This rose to 35 percent this month; it will be 50 percent next month; and the July figure is estimated at 75 percent.

NEW "SET-ASIDES" GIVEN

In the case of United States Steel, the new "set-asides" for July, based on the original base period of 9 months of 1950 for some of the more important products, are as follows: structural shapes, 75 percent; bars, 60 percent; hot-rolled sheets, 60 percent; cold-rolled sheets and galvanized sheets, 40 percent each; hot- and cold-rolled strips, 25 percent; rods and high carbon wire, 60 percent; oil county goods, 110 percent; pressure tubing, 70 percent; wheels and axles, 95 percent, and wire rope, 60 percent.

The demand for plates, heretofore set at 85 percent, will be even greater, but they will be figured on a new and different base. The National Production

Authority's latest appraisal of plate requirements for July exceeds the current production of plates on the plate mills of the industry by substantially more than 100,000 tons, according to Bennett S. Chapple, Jr., an assistant executive vice president of United States Steel. This additional tonnage, he pointed out, must be secured from sheet mills.

One of the biggest jumps in military requirements received by the Armco Steel Corp. was on the expensive high-grade silicon steel. By July it will be setting aside 80 percent of its production of that product, compared with 50 percent previously estimated.

The pronounced upturn in defense and defense-supporting requirements of steel accounts for the further cut-back in the metal ordered last week for producers of passenger cars and other durable goods. Automobile manufacturers will be allowed only 65 percent as much steel as they consumed each month in the first half of 1950, while the makers of washing machines, refrigerators, and other durables will be permitted to use 70 percent of their pre-Korean outputthat is, of course, if they can succeed in obtaining that much.

The CHAIRMAN. Mr. Lawson will you proceed in your own way, sir?

STATEMENT OF W. D. LAWSON, PRESIDENT, AMERICAN COTTON SHIPPERS ASSOCIATION, ACCOMPANIED BY JOHN G. WHITE

Mr. LAWSON. My name is W. D. Lawson. My home is Gastonia, N. C. I am appearing in behalf of the American Cotton Shippers Association. The members of this association move approximately 85 percent of the cotton raised in the United States from farms to cotton spinners both domestic and foreign.

This association is opposed to inflation. Inflation threatens the continuance of all business enterprises and the livelihood and wellbeing of every American citizen. We urge that it be attacked directly and effectively. An attack on inflation must increase the supply and reduce free buying power.

The most fundamental and American step is to increase production, which in our free enterprise system means increasing incentives and reducing obstacles. Diversion of labor and effort from productive enterprise to nonessential Government employment and nonproductive controls should be avoided.

Until production is effective free buying power should be reduced by:

Higher taxes, designed to curb spending for consumer goods, but not so high as to discourage savings and investment in productive enterprises.

Unnecessary increase of free buying power should be avoided by (1) stopping Government deficit financing; (2) cutting Government nondefense expenditures; (3) careful expenditure of heavy defense appropriations; (4) curbing credit expansion.

Quoting Mr. C. E. Wilson, Director of the Office of Mobilization, "Direct price controls treat only the symptoms of inflation, not its basic cause."

Inflation results only from acts of commission or omission of the Government, not of the citizens.

Government controls remove the direction of production from the hands of those who understand to those who do not.

With your permission I shall now attempt to show you why price ceilings on raw cotton are unworkable and any attempt at enforcement would call for an immense expenditure of money and manpower.

Cotton is planted in the spring and harvested in the fall. Harvesting is done either mechanically or by hand and then taken to the cotton gin to separate the seed from the fiber. The fiber from the gin is packed into bales weighing approximately 500 pounds and then sold. The majority of the cotton is raised by small farmers and they usually wish to turn it into cash immediately. There are always numbers of cotton shippers bidding on the cotton and with competition keen the farmer can be sure he gets the maximum price on his cotton the day he sells it. Cotton from these thousands of farmers is bought by shippers, segregated into lots of approximately the same grade and staple, and sold to the cotton mills all over the United States and foreign countries.

The shipper thus performs two very definite economic functions by first, giving the farmer a daily market for his product and, second, by providing a constant source of supply to the cotton spinners of the world. Cotton shippers are not interest in the actual price of cotton except that it represents a fair return to the producer and allows the mill buyer an equitable return on his investment.

According to the office of OPA and unbiased sources the average cotton shipper's profit is about one-half of 1 percent on each bale he buys. You wonder how anyone could operate on such a small profit. This remarkable record is made possible by a cotton marketing mechanism refined by generations of experience to an extreme degree of flexibility and speed. It can be compared to a fine watch. It is more vulnerable and sensitive to the intrusion of arbitrary regulations than almost any other segment of the national economy. This is particularly true of our cotton futures markets. Being the only free markets left in the world to the trade, they are constantly receiving buying and selling orders from all over the world.

Senator SCHOEPPEL. Do you have in your industry large cooperative marketing associations in your cotton fields down South? Mr. LAWSON. Yes.

Senator SCHOEPPEL. What percentage of the business do they handle as against the business of your association?

Mr. LAWSON. I do not have the figures on it, Senator Schoeppel, but a great deal of the cotton that our shippers buy is bought from these associations. Not all of it, but a great deal of the cotton the cooperatives handle we buy.

One of the main reasons that price ceilings on cotton are unworkable is that classing of cotton is not an exact science and no two bales are exactly alike, any more than two people are exactly alike.

Gentlemen, that is where we think we have a very strong case, and I will try to show you why:

In classing, two samples are drawn one from each side of the bale with a coupon inserted showing the number of the bale. The value of the bale to the shipper is determined by the examination of this sample. Five factors make up this valuation: color-the brightest and whitest cotton has the highest value-the amount of foreign matter in the sample, that is, parts of twigs or leaves which the gin failed to remove; the staple, that is, the average length of fiber in the sample this may be any 1 of 20 different lengths-the preparation— showing smoothness in ginning, and other variables tested mechanically, such as fiber tensile strength, uniformity, and fineness.

According to the USDA there are over 400 different classifications of domestic cotton. This does not include hundreds of other variations recognized by the trade. When you realize that this classification of grade and staple is all done by the human eye and hand you see that there is a high probability of error.

It is very difficult for two classes to agree exactly on a small lot of 100 bales and even the same classer will not agree with himself on the same lot if he classes it on different days. For this reason most merchants have one classer to class cotton into stock and another to check the class on mill shipments, in accordance with the requirements of individual mills.

Senator SCHOEPPEL. Mr. Lawson, you ought to get together with some of the cattle people in my State, and down in your State, on the different types of grading which is done by the human eye, and where they can clip them down $60 or $70 every hundred. You fellows have something in common there.

Mr. LAWSON. I would like to get together with them for some of those steaks, Senator.

For your information, the USDA has done an excellent job in promulgating grade and staple standards for the world cotton trade to use. The value of these grades and staples varies daily according to the amount produced in each crop and the mill demand for certain qualities. By contrast, the OPS has fixed prices on a cotton crop that has just been planted. I have in my hand one of their 1-inch staple types.

This is a standard that is put out to the whole world. They have 20 or more standards of different lengths, by which we class cotton, or are supposed to class it.

Senator Maybank, would you like me to show you how they grade the staple?

The CHAIRMAN. I opposed the price ceilings on cotton, and I think most of the members of the committee did.

Senator SCHOEPPEL. I would like to see it, myself.

The CHAIRMAN. I have pretty nearly forgotten how to do it, Mr. Lawson-it has been a long time-since 1938, as a matter of fact. Mr. LAWSON. That is the way it is done.

Senator BENTON. What is that package?

The CHAIRMAN. Government standard of cotton, 116 inch.

Mr. LAWSON. Gentlemen, you have to judge that length by your eye when you pull it. You don't have this standard with you all the time.

Senator CAPEHART. Is this good cotton, or bad cotton?

The CHAIRMAN. It is very good cotton.

They use a good deal of that up in Senator Benton's State.

As I was saying, this committee opposed the ceiling price on cotton. Of course, when we wrote the law, we protected the cotton farmer and shipper as best we could by parity, or the highest price between May 24, I think, to June 25. The reason why cotton went so high was because there was an awfully short crop. Naturally it went to some $45 or $46.

Mr. LAWSON. It didn't go there until they put the ceiling on it. The CHAIRMAN. It would have gone there, though, because cotton across the border was selling for 70 cents. We have long lists of contracts for foreign cottons that different firms have purchased between

70 and 80 cents. We didn't put them in the printed hearings, because I didn't want to expose people's business to everybody in the world by showing them to Mr. Johnston and Mr. DiSalle. I looked at them myself; they were friends of ours.

The trouble was there was a short crop. Now, it looks like you might have a pretty good crop this year.

Mr. LAWSON. It looks that way. We hope so.

The CHAIRMAN. Of course, nobody knows. Senator Schoeppel was asking me about that, because they are very interested in the price of cottonseed out in the cattle country. He asked me about the crop this year. I told him you have good acreage in, you had a good winter; but nobody knows.

Senator MOODY. I am interested to see this good cotton sample. Since you have been interrupted, there was one statement you made rather interested me because I don't know exactly what you mean: You say inflation results only from acts of commission or omission of the Government, not the citizens. What do you mean by that? Mr. LAWSON. I mean this, Senator: that none of the citizens print any money. The Government prints all the money.

Senator MOODY. Well

Mr. LAWSON. And this money causes inflation, they tell me. I am not an economist; I am a cotton man.

Senator MOODY. I don't think we ought to have an economic discussion here this morning, but I did not want to let that statement pass. because after all, inflation basically results here from the fact that we have to manufacture military goods to the extent of $50 billion a year, and that creates a gap between the money that must be manufactured for the making of those military goods, and the supply of civilian goods.

I am sure you wouldn't mean to say, would you, that the manufacture of our military strength, military weapons, was an act of omission or commission by the Government which created inflation?

Mr. LAWSON. Senator, I can't deal in these astronomical figures as you do in Washington. I have to take a more or less simple case like raising a family. We have always been taught to save money, and not to overspend our income, and I think most businesses and individuals do the same thing, but it looks to me like the Government is going one way, and the individuals and businesses and families are going the other, and I think we had better get in line. Either we are going to have to overspend, or the Government will have to stop it.

The CHAIRMAN. But how can you do it? We have appropriated for the military, since June of last year, $48 billion, of which they have spent about $25 billion.

We have a bill before us now for $62 billion, and another $6 billion coming in. That means $126 billion the Congress will have been requested to appropriate since last June. The appropriation bill will probably be passed, I would say, in July. That $126 billion is for the military.

Now, we have lost $2 billion out of every $10 billion since October: we have lost $2 billion in purchasing power. Everything has gone up so high-stel, tanks, and so forth and so on.

Of course, nobody believes in a balanced budget more than I do. I just don't see how you can put enough taxes on to balance the budget. Senator MOODY. May I add to what the chairman says: that over