How well the Navy functioned in the directions administered by these two men cannot be praised too highly, and I happen to know that the underlying reason was the splendid ground work this officer had laid during the years immediately preceding the war.

It was not surprising to me that the President, with whom Admiral Peoples worked so closely before and during the war years, wanted to have him near at hand and brought him back to Washington to head the Bureau for the prestige of which he is so largely responsible.

Only recently, the President gave further recognition to the admiral's ability by placing him in charge, in addition to his naval duties, of the centralized procurement agency as contemplated by the Executive order of June 10, 1933.

I feel that these are things that you gentlemen of the committee would wish to know, and I think it is entirely appropriate for our hear ings to chronicle such a distinguished service,

Admiral PEOPLES. Thank you, Mr. Chairman.

INSUFFICIENCY OF 1935 ESTIMATES TO MEET ADVANCED PRICES FOR SUPPLIES AND MATERIALS

Mr. AYRES. Admiral, there are two subjects I wish you would enlighten us upon before we proceed to the consideration of these justifications that have been submitted to us.

Admiral Bloch told us the other day that the pending budget is predicated upon prices used in framing the 1934 estimates. Those estimates took final form late in 1932. Admiral Bloch stated that the Budget authorities were considering proposing the creation of a special fund, applicable to all Federal activities, to be used in supplementing the regular appropriations if and to the extent necessary to meet advanced prices.

We do not propose to ask you to forecast what prices will be from 6 to 18 months hence, but it would be interesting to know how the situation has changed up to this time, contrasted, say, with the fall of 1932, in order that we may approximate how much the pending budget is short upon the basis of the present market.

We know the Navy buys a thousand and one different things, but I think if you would single out a few of the articles which occasion the biggest demand upon your funds we could in that way strike a fair

average.

Approximately, how much of the pending naval budget, would you say, would be affected by changing market conditions?

Admiral PEOPLES. I would say, Mr. Chairman, that the amount of the pending naval budget which will be affected by the present market conditions, where we are face to face with a rising market due to the increased cost of labor and materials, would involve all the appropriations which must purchase supplies and materials or which must use supplies and materials during the year. It would affect the appropriations for ordnance, construction and repairs, engineering, to a lesser extent yards and docks; maintenance, supplies and accounts Bureau of Navigation, instruments and supplies, and so forth. It would be approximately, I would say, about 20 or 25 percent of those total appropriations or approximately $13,000,000 to $15,000,000 We have made a quite thorough study of the question of increased costs, because it is a very vital and important one.

INCREASE IN SUBSISTENCE COSTS

In the matter of subsistence, Navy, the original estimate for 1935 was based upon a 45-cent ration. That was approximately 20 percent more than the average cost for 1933, which was 0.3808 cents. The Navy estimate for fuel oil for 1935 was based upon 75 cents per barrel, which was approximately 25 percent more than the actual cost per barrel in 1933, that figure being 604 cents per barrel, or about 25 percent more. The Budget Bureau used, as I have stated, the actual costs for 1933. Of course we are now in the fiscal year 1934 for a period of nearly six months.

In the matter of commodity prices, this statement is very illumnating-that is, the wholesale commodity prices for the last 4 months of 1932 as compared with the last 4 months of 1933. Those figures -how in the matter of the primary commodities that dairy products have increased by 9 percent; all grains, 80 percent; fruits and vegetables, 25 percent; cement by 14 percent; brick and tile, 11 percent; lumber, 45 percent; petroleum products, 4 percent; leather, 33 perrent; iron and steel, 11⁄2 percent; metals, nonferrous, 36 percent; lothing, 32 percent; cotton goods, 64 percent; knit goods, 45 percent; wools and worsteds, 50 percent; sugar, 38 percent. That shows the increases in the commodities which come under those general headings. Now, picking out some special items, in the case of turpentine, during the present calendar year, the month-by-month increase has been from 45 cents per gallon to 47 cents per gallon; linseed oil, from 0.073 to 0.101; lard, from 0.059 to 0.071; butter, from 0.20 to 0.24; cheese, from 0.12 to 0.14; condensed milk, from 4.68 per case to 4.73 per case; evaporated milk, from 2.55 to 2.70; potatoes, from 1.258 per hundred pounds to 2.092 per hundred pounds; wheat flour, from 3.80 per barrel to 6.93 per barrel; smoked hams, from 0.107 per pound to 9.126 per pound; lard from 0.046 per pound to 0.059 per pound; oroa, from 0.0367 to 0.0474; coffee, from 0.083 to 0.75 (that being a crop); sugar, raw, from 0.027 to 0.034; refined sugar, from 0.039 to 045; coke, from 1.88 per short ton to 3.19 per short ton; crude troleum, Kansas and Oklahoma base, from 0.530 to 0.788; refined oil, from 0.475 to 0.569; gasoline, from 0.028 to 0.049; lubricating from 0.133 to 0.186; douglas fir, from 8.58 per thousand feet to per thousand feet; southern pine, from 17.80 per thousand feet $1 per thousand feet; iron and steel, 28.61 per long ton to 31.13 elong ton; pig iron, from 13.50 per long ton to 16.80 per long ton; el composite finished, from 0.0212 to 0.0222; steel billets, from to 26 per long ton, that price remaining unchanged; structaral steel, 0.0160 to 0.0165; aluminum, from 0.2290 to 0.2290, that

remaining unchanged; copper, from 0.0478 to 0.0836; lead, 0.0300 to 0.0440; tin, from 0.2270 to 0.4810 per pound; crude "bber, from 0.033 to 0.077; zinc, from 0.0302 to 0.0472; portland erent, from 1.426 to 1.597; cotton, wholesale middling, 0.062 to

cotton yarn, from 0.168 to 0.329, and wool from 0.20 to 0.40. Mr. Chairman, we have these figures month by month, and, if you wish, they may be inserted in the record.

Mr. AYRES. I think the way you have stated the figures will thee for the printed record.

Admiral PEOPLES. I can take the principal items of subsistence ared by 1,000 men in the Navy for 30 days, and show you how

well the unit market prices are reflected in the cost of the ration. The increase in the cost of the ration is 20 percent, or an average of 20 percent. Now, taking 1,000 rations during the fiscal year 1933, or rations for 1,000 men for 30 days, and the cost was $8,244.20, while for the first 4 months of this fiscal year of 1934 the cost is $9,792.94.

Mr. SwICK. What is the principal article entering into the ration that would make that extra cost?

Admiral PEOPLES. It is all of them.

Mr. SWICK, Would flour be the principal one?

Admiral PEOPLES. It covers fresh beef, butter, and other fresh provisions; potatoes, cabbage, and items of that kind, and eggs and flour. It covers chickens, smoked meats, canned vegetables, canned fruits, of various kinds, and the various component parts that go to make up the Navy ration. In other words, we take the items of food required to be issued to 1,000 enlisted men for 30 days, and we show that the cost was $8,244 for 1933, as compared with $9,792 for the first 4 months of 1934. That shows an average increase of 20 percent. Now, that is borne out by the index numbers of the wholesale price of foods, considering the 1926 basis as 100. Taking that as a basis, the prices in 1929 were 102 for foods. In 1930 the index figures dropped to 81; in 1931, from January to December, it dropped from 80 to 69; in 1932, from January to December, from an average of 64.7 it dropped to 58.3.

Commencing with the months of 1933 they began to rise: 55, 53, 54, 59, 61, 65, 64, 64; in other words, from 55 cents to 64 cents during 1933.

Butter, cheese and milk: During 1933 the rise has been from 55 cents to 66 cents. There was a fall in March; they dropped down to 50, and from then on increased to 66 cents.

Cereal products: From January, 1933, 60.9 cents, there has been a constant rise month by month to 85 cents in October.

I have not the figures for 1929 and 1930 on cereal products and vegetables.

Fruits and vegetables in 1933, January to October, rose from 43 to 62 cents.

Meats: 49% to 51.

Other foods: 60.1 to 64.4.

INCREASE IN FUEL OIL COSTS

In the matter of fuel oil, there have been other definite data with respect to our own experience.

Bids were opened November 17, 1933 for bunker fuel oil and fuel oil for diesel engines for a 3 or 6 months' period. The schedule covered the needs of the Navy, the Coast Guard, the Lighthouse Service, the Coast and Geodetic Survey, the Army Transport Service, the Quartermaster Corps, and the U.S. Immigration Service; that is, under a consolidated form of contract. Three of the bids submitted-those of the Standard Oil Co. of New Jersey, the Mexican Petroleum Corporation, and the Colonial Beacon Oil Co.-contained a hedge clause, all of practically the same wording, which would increase the bid prices by reason of increased costs due to operation of the N.R.A. or for other causes.

The nature of those hedge clauses is in many respects unusual. They even contained a provision about inflation of the currency or bat money. It was a very unusual provision.

Mr. SwICK. Admiral, don't you think they had a right to put that in under present conditions?

Admiral PEOPLES. We wrote to them about it, sir, and they wrote back and said, in one case-the Standard Oil Co.-that they put that a their bid by error; that they were doing it on regular commercial practice. But none of the other bidders, out of the thousands of ds that we have been receiving, have found it necessary to put any sch conditions as that into their bids at all; none whatever. Mr AYRES. You are referring to the current fiscal year? Admiral PEOPLES. Yes, sir; because the prices quoted in certain stances ranged from 40 percent to 66% percent in excess of existing Pentract prices, it was decided to reject all bids and, instead of requesting bids for a 6-month period, to make monthly purchases to eet current requirements until conditions in the oil industry beame more settled. Bids for January deliveries were opened on the 5th of December 1933, which brings us right down to date.

Mr. SwICK. Why were the bids not made for a longer period? Admiral PEOPLES. They qualified their bids to provide for 3 months months or a limited period. We could not force them to bid for conger period.

Mr. SWICK. What was their reason for not bidding for a longer eriod of time?

Admiral PEOPLES. I suppose the general doubt as to what the sts of fuel oil were going to be over a longer period of time.

Mr. SwICK. Would you not say that it was the general uncertainty the monetary system, first?

Admiral PEOPLES. I do not know that the monetary system has nd anything to do with it, sir. It is difficult for the man who is hasing to know what is in the minds of the different bidders. We know that in certain cases some of these companies have put hedge clauses in their bids on fuel oil. We have not run into such condition in any other commodity.

Mr. SwICK. What was the nature of those hedge clauses? Admiral PEOPLES. The hedge clause permitted the bidder to cancel contract, if awarded to him, at his option in the event of any tange in the basic conditions governing the Federal currency, or in event of inflation, or in the event of the issue of any fiat concerning establishment of the value of the dollar-factors of that kind, which are most unusual. We never saw anything of that kind before. Mr SWICK. Then you say they hedged on the money question? Admiral PEOPLES. Only with respect to these large oil companies,

no one else.

Mr SWICK. Who else was bidding on this contract?

Admiral PEOPLES. We are only talking about this fuel oil.

Mr SWICK. That is all I am talking about. That is the only one have had any contact with?

Admiral PEOPLES. Oh, no; we are inviting bids right along, sir, ***k in and week out.

Mr SWICK, Did anyone else bid?

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Admiral PEOPLES. In this case we received three bids-one from the Standard Oil Co. of New Jersey, another from the Mexican Petroleum Corporation, and another from the Colonial Beacon Oil Co.

Mr. SwICK. And they were all hedged about?

Admiral PEOPLES. These three were hedged about.

Mr. SwICK. That is all I wanted to know.

Admiral PEOPLES. I would like to add that there were other bidders, but as to who they were, I have not the record here. (Fifteen bids in all were received at this opening.)

Mr. AYRES. But the three you named were the only ones whose bids contained this hedge clause?

Admiral PEOPLES. Of the bids submitted three of them contained these hedge clauses, and they were the lowest bidders; and the prices were so excessive, over such a long period of time, and in view of the fact that the price had not been fixed by the Federal Government yet, it was decided to purchase only for a short period of time.

Mr. SwICK. Is it your opinion that the Federal Government will fix prices?

Admiral PEOPLES. It is expected, sir.

Mr. SwICK. Do you think that is a good policy?

Admiral PEOPLES. Under present conditions, I think it is; yes, sir. Mr. SwICK. And you think these prices were excessive?

Admiral PEOPLES. Yes, sir.

Mr. SwICK. What do you think made them excessive? That is, what do you think entered into the bidding that would make them so excessive at this time?

Admiral PEOPLES. I wish I could answer that question, sir, but I do not know. I do not think any man knows except the bidder himself.

Mr. SwICK. Don't you think it is going to cost the taxpayers a lot of money for you not to be able to get these bids as you have in the past?

Admiral PEOPLES. I think that the policy of the Government in fixing the price is fully warranted, and ought to keep the price down. Mr. Swick. You believe, then, in price-fixing?

Admiral PEOPLES. I do under abnormal conditions; yes, sir.

Mr. SwICK. In these other bids that you have taken, have they hedged in any way, or do you just take the bids on the oil and other petroleum products?

Admiral PEOPLES. We have been regularly asking for bids. It is a regular business with us, sir. Bids are opened every week throughout the whole year. It is a constant process for all the great run of commodities that are required by the Navy-coal, oil, steel, provisions of all kinds, clothing, and general supplies. But it is only in this matter of fuel oil where we have run into this unusual condition of bidding, and my reference to it was to show that the burning price for 1933 which has been used in the estimates for 1935 is out of all proportion to what we have got to pay under competitive bidding so far in 1934.