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necessity of modern replacements under the spur of obsolescence and depreciation, the need of meeting the shifting fancies and specifications of the users of the product, and the necessity of maintaining efficiency in organization and teamwork.

The personal incentives can be still further defined in terms of family security, family education, higher standards of living, and personal development. These business and personal incentives are implemented pretty generally in terms of profitable production and adequate wages. In an expanding economy prices and wages move upward as incentives to more production.

Declining prices and wages characterize a contracting economy. They reflect reduced production because of restricted or limited incentives to produce.

The difference between the rising profits and wages of an expanding economy and inflation is one of degree and of stimulation. Inflation is stimulated by fear of scarcity of goods, of the value of the dollar, and of political insecurity, or it is stimulated by a breaking down of the productive system, or excessive use of funds and credit, both public and private.

The CHAIRMAN. That certainly is the fact, but how can you stop it? I am just asking for guidance. That is what causes inflation, there is no doubt about that, and I still think that some of the statements these administrators made about shortages, and so forth, added to the confusion that existed from October until January, when they put the freeze on.

Mr. RIGGLE. I think no doubt it was to a great degree stimulated at that time.

Everybody is against inflation, but for an expanding economy.
The CHAIRMAN. That is right.

Mr. RIGGLE. But the treatment for inflation in an economic democracy, we believe, is not rigid price and wage controls. The answer, along with the other answers in an economic democracy, is an enlightened and informed public opinion under wise leadership.

We believe if the same energy and leadership were devoted to the problems of our inflation threat as was put into, say, the Liberty Loan drive of the First World War, the people of this country would respond with a self-discipline and restraint which would be an eye opener to those who have learned to think in terms largely of controls and Government coercion. Housewives, workers, farmers, industrialists, financiers, distributors, and professional people need to be told the related facts about public expenditures, taxes, credit, foodstuffs, materials, supplies, scarcities, and the situation with regard to availability, demands, and use in civilian and defense activities; and what they can do about it. Voluntary group organizations could bring the force of public opinion to bear on recalcitrants among their fellows.

Senator CAPEHART. If the witness will yield, I think this is one of the finest suggestions which has been made before this committee. Nothing is being done about it at all, in fact, just the opposite. Everything that is being done is on the basis of frightening people and further creating the very thing that we would like to stop.

Mr. RIGGLE. We had the same reaction.

Senator CAPEHART. In other words, the American people could stop inflation any time they wanted to. All they have got to do is quit buying

Mr. Riggle. There are certain segments now that are doing something about it.

Senator CAPEHART. The American consumer can put a stop to it any time he wants to curtail his buying, and show a little common horse sense in respect to what he buys.

The CHAIRMAN. We had hoped that the laws would have been put into effect in October. In steel—if they are going to take 40 percent of steel, the other agencies of the Government ought to watch with an eagle eye any attempt to hoard at all.

Senator CAPEHART. So far they have done nothing about hoarding.

The CHAIRMAN. I think you were present when I read the letter on steel acquisitions for the military. Naturally, everybody wants to buy steel. Common sense will tell you it is going to go up if the Government is going to take 40 percent.

Mr. RIGGLE. There is hope that the steel production is increasing

The CHAIRMAN. But that is 40 percent of all capacity.

Senator CAPEHART. The American people can stop it themselves if they make up their minds.

The CHAIRMAN. I agree on that. I was only mentioning the fact that it should be made that much harder for people who will hoard.

Senator CAPEHART. The law gives authority to prosecute hoarders. We wrote it into the law, either a hoarder in business, or an individual hoarder hoarding in his own kitchen or pantry. That is in the law now.

The CHAIRMAN. Go ahead, sir.

Mr. RIGGLE. I believe we have a demonstration of the effectiveness of this approach in the voluntary committees of commercial and investment bankers which are effectively screening loans and bond issues for productive purposes and inflation tendencies. Other groups also are engaged in effective “private” anti-inflation activities among themselves on a voluntary basis.

We believe section 402 (a) of title IV could be implemented in this fashion with a portion of the funds appropriated for price and wage regulation, through a comprehensive program of voluntary mobilization of the various sectors of the economy against inflation and other problems of the defense effort, with every prospect of success, unless a very extreme situation develops in the future which requires the use of a major part of our manpower and resources in war.

In the present situation we believe the price control and wage stabilization provision of title IV should be allowed to expire June 30, 1951. The authority for use of subsidies to roll back food prices, and to freeze the parity index on an annual basis proposed in H. R. 3871 should be withheld.

The CHAIRMAN. Speaking only for myself, I have no intention of voting to freeze parity prices. I do not see what good it will do. It is only fair to allow a free economy to the farmer. The farmer is supposed to get parity, which is a floor to protect him against inflation in the machinery he has to buy, and so forth; is that not right?

Mr. RIGGLE. That is right.

83762—51—pt. 2-50

The former is definitely inflationary. The latter would demoralize the farmers' market at the harvest season, and disrupt the orderly distribution of farm products over the consumption year.

The CHAIRMAN. We thank you for your enlightening statement.

If there are no questions at this time, the committee will stand in recess until 2:30 in this room. We will meet at 2 o'clock on RFC.

(Whereupon, at 12:20 p. m., the committee recessed until 2:30 p. m., of the same day.)

AFTERNOON SESSION

The CHAIRMAN. The meeting will come to order.
Mr. Myers, will you come up, sir?

Some of the Senators are still at the RFC meeting. I imagine they will be here later on.

Senator, we have your statement here. Do you desire to read the whole thing, or just high light it!

STATEMENT OF FRANCIS J. MYERS, IN BEHALF OF THE NATIONAL

FOUNDATION FOR CONSUMER CREDIT AND RETAIL CREDIT INSTITUTE OF AMERICA; ACCOMPANIED BY WILLIAM J. CHEYNEY, EXECUTIVE DIRECTOR, RETAIL CREDIT INSTITUTE

Mr. Myers. Mr. Chairman, I would ask consent to have it incorporated in the record, and I would then like to skip over it rather hurriedly.

The CHAIRMAN. Without objection, the full statement will appear in the record at the end of your testimony:

Mr. MYERS. I must apologize for my voice. I was at Denver for 2 or 3 days trying to bring the convention to Philadelphia, but the other party, having previously determined to bring their convention to Chicago, I have come back with a bad throat.

Senator BRICKER. You mean the Democrats followed the Republicans?

Mr. Myers. Unfortunately, in this instance, they did, Senator.

Mr. Chairman and members of the committee, I would like to point out in these first two paragraphs just whom we are representing before this committee.

The National Foundation for Consumer Credit is incorporated in the State of New York, embracing in its membership manufacturers of a great many important lines of consumers' durable goods; retailers distributing these products and offering facilities for the use of consumer credit throughout the country; commercial, industrial, and consumer bankers engaged in the transaction of consumer-credit business; finance companies dealing in consumer paper—in fact, a cross section of all those factors in the economy interested, one way or another, in serving the consumers in their use of credit.

The Retail Credit Institute of America consists principally of the owners and operators of retail stores throughout the United States and Canada which directly offer credit service to their customers, and a few of the major manufacturers of durables most frequently sold on credit terms because of their nature.

So much for the organizations.

Let me then turn to the bottom of page 2, the “Oflicial purposes of Regulation W.” The Executive order promulgated in 1941 by the President of the United States has been embodied by this Congress into that portion of the Defense Production Act of 1950 which authorizes the regulation of consumer credit. Those objectives are five in number, and I would like to just briefly direct your attention to each of those five purposes or objectives of the regulation, none of which have been or can be accomplished.

The first objective of the regulation, “To facilitate the transfer of productive resources to defense industries.' Isay to this committee the productive resources consist of manpower and materials. We believe that Regulation W is not the vehicle by which to allocate critical materials. When the regulation was first applied direct controls of these were not at hand, but today we allocate critical materials, so that the defense effort may take all that it needs. But what is left for consumers, a continuing tremendous supply, as you all know, is sufficient to permit its unmolested apportionment without rationing by the size of the buyers' accumulated cash resources.

In other words, there is no excuse to determine by law which families should have a share of this remaining supply, which ones should not have a share of the supply, and so we believe that objective 1 certainly is not an objective of Regulation W.

Then at the top of page 4, "Productive capacity is really being wasted," I say to the members of this committee the output of important consumers' industries is cut back today by the effect of Regulation W, alarmingly reducing the weekly pay of thousands of workers who have been offered no alternative defense jobs nor any prospect of them. What was the second objective of this regulation, as set forth in the original proclamation of the President as now incorporated in the act of 1950 ?

Well, the second purpose was to assist in curbing unwarranted price advances and profiteering which tend to result when the supply of such goods is curtailed without corresponding curtailment of demand.

I take you then down to the first subheading, “Warehouses and pipelines are clogged.” As the second quarter of 1951 ends there is almost no important line durables in which inventories are not in excess of consumer demand. In fact, most pipelines are far too full. The only basic shortage today is one of warehouse space.

Economists for years have held that the most deflationary program possible for a nation is continued high-rate production and fast distribution to the public.

We have today high-rate production, with Government controls artificially imposed on one segment of distribution—to shift the heavy pressure of continuing consumers' buying power to other unregulated but highly sensitive markets, with great inflationary effect, rather than deflationary effect, which was the purpose of Regulation W.

Now I go down to the next subheading, "Drop in consumer debt offset by rise in wholesale outstandings,” and in the second paragraph below that subheading.

The committee may be surprised to know that whereas consumers since January 1, 1951, have reduced their indebtedness for the purchase of automobiles-actually bank loans outstanding to finance

unsold automobiles in the hands of manufacturers and retailers have increased more than the consumer indebtedness has decreased.

Senator BRICKER. Have you the detailed figures on that? Mr. MYERS. Do you, Mr. Cheyney? Mr. CHEYNEY. We can get them. Mr. MYERS. Let me take you to the next subheading, “The structure of durables' prices,” and to page 6, where I think the third paragraph is most important with regard to that subheading. When Regulation W prevents the durables industries from siphoning off “excess purchasing power” which in turn, since it cannot be used for durables goes into the purchase of nondurables and perishables—this tends to force upward prices in the latter areas, raising the cost of living index. The next step—the durables industries must pay more for wages to meet this index increase. A vicious cycle where durables prices are forced upward not by demand in the durables markets so much as because of increased demand and hence increased prices elsewhere.

Now, under the second purpose of Regulation W, let us look at the subheading, “A measure couched in the theory of shortages when there are no shortages."

The manufacturers of consumers' durable goods are producing, as we all know, in tremendous quantities. Regulation W

The CHAIRMAN. Now, on that point right there, do you believe that the law is effective enough if the Federal Reserve Board will use it! In other words, they can relax Regulation W, and if the time came, as you suggest, when the manufacturers are not going to produce in quantity, they could put it back on. Is that what you are advocating?

Mr. MYERS. They have that power, Mr. Chairman, but they have not exercised it, and refuse to exercise it. I believe at this point we could well do without the regulation, because I think it has contributed to inflation rather than deflation.

The CHAIRMAN. That is true as of today, but what about next year?

Mr. MYERS. Next year, of course; the Congress has had considerable experience with the regulation, and if they believe that it has not contributed to the reduction of inflation, to curtailing or preventing inflation, then I think the Congress probably should take another look and withdraw the power from the Federal Reserve and take another look at the whole subject.

The CHAIRMAN. That is what we are doing now. What would you recommend?

Mr. MYERS. Under the present set of circumstances, Mr. Chairman, these two groups, this National Foundation for Consumer Credit, and the Retail Credit Institute of America, which is certainly known to every Member of Congress, both recommend that the regulation should be repealed at this time and the power withdrawn from the Federal Reserve Board.

Senator BRICKER. The testimony by the Federal Reserve, and all the administration representatives here, has admitted there is a lot of consumer durables now in the pipelines, and in the warehouses, that there is an oversupply, and that that will be taken up during the summer as critical materials are withdrawn from those productive channels and put into the war program. Therefore there will be great need for this this fall when they finally catch up with the supply that has now piled up.

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