Senator BARKLEY. That raises a very difficult question for the committee to decide, as to who is a crank and who has an ax to grind. I do not know whether or not we can enter into a final adjudication as to that.

Senator TAFT. We can be a little selective, perhaps.

Senator BARKLEY. The question of how long we run the hearings may be determined in some respects by whether we hold hearings morning and afternoon. It is impossible to say from day to day just what the situation might be on the floor. We have no legislation on the calendar of transcendant importance, although we cannot tell now whether or not something important may be brought in requiring immediate action. If we can hold the hearings both morning and afternoon we ought to be able to conclude all reasonable hearings within a week or 10 days.

Senator TAFT. I would think that the end of next week could be set as the final date.

Senator BARKLEY. I will say frankly that I would like to have the committee take whatever action it is going to take on the bill before Christmas, so that we can take it up in the Senate at once thereafter. Senator GLASS (presiding). Are we going to have any Christmas? Senator BARKLEY. I do not know; but there will be a Christmas Day. I meant before the holiday, whether there is one or not.

Senator TAFT. I agree with the general theory of closing the hearings before Christmas, but you might have a subcommittee working through the holidays. There are some who would be willing to do it. You are anxious to have it before the Senate when the new session meets on the 3d of January, and that is entirely satisfactory to me. Some of the witnesses I would suggest calling are Dr. Charles Hardy, of the Brookings Institute, Dr. Williams, Dean of the Graduate School of Public Administration, of Harvard, and Dr. Nystrom, professor of marketing at Columbia University-all gentlemen with technical and some practical experience in business operation. No doubt there are others who want to be heard here. It seems to me that someone might try to work out a program.

Senator BARKLEY. Could we not agree now that the hearings not proceed longer than next week?

Senator TAFT. I would like to say further, however, that if we should run out of witnesses next week I would like to call some witness, because I cannot get some of the people I would like to get this week; the time is very short.

Senator BARKLEY. It is difficult to arrange a hearing as you would the trial of a case.

Senator TAFT. I do not think there are two sides. If there are two sides, there are ten sides.

Senator GLASS (presiding). You never think there are two sides when anyone is opposed to you?

Senator TAFT. My position is, Mr. Chairman, that if there are 2 sides there are 10 sides, and my only desire is to get light from all points of view. As a matter of fact, we had a debate at Town Hall in which Mr. Henderson and I were almost together. Some were against all price fixing and others were for much more violent price fixing. So, as I see it, there is no two-side proposition involved. It is a matter of studying each provision of the bill and deciding what is right. All I am asking for is the opportunity to get some light. I

have drafted a substitute which is not tremendously different from the House bill, which I would appreciate having the members of the committee study. It does not present any fundamental difference of principle. There are only a dozen fields of administration that it seems to me are important.

Senator BARKLEY. Those questions we can discuss when we get into executive session on the bill. I do not know how many witnesses are to be heard, and I do not think we need to be scrupulous as to the order in which they should appear. If we run out of witnesses on any day and somebody else is here who can contribute anything to the discussion, we can hear him.

Senator TAFT. I suggest either that you appoint a small subcommittee to work out the order of the hearings and who shall be heard, or else that on next Tuesday I be given an opportunity to call the witnesses whom I would like to hear.

Senator BARKLEY. I suggest that we go on today.

Senator GLASS. I think we had better go on with Mr. Henderson. The first question to be determined is whether the hearings should be by the full committee or by a subcommittee.

Senator BARKLEY. I think it ought to be by the full committee. Senator GLASS (presiding). If that is agreeable, it will be by the full committee, and we will proceed now to hear Mr. Henderson. Senator DOWNEY. Before he proceeds, Mr. Chairman, may I make one comment?

Senator GLASS. Certainly.

Senator DowNEY. It is my intention to introduce an amendment that I personally consider of a great deal of importance in this matter, and that is an amendment that would provide for a withholding levy upon all incomes and wages up to 10 or 15 percent. Secretary Morgenthau has made a proposal for a withholding tax of about that amount. My proposal will rather be for an enforced saving of that amount. I am very firmly convinced, and I believe that every member of the committee would become convinced upon contemplation, that such a levy would greatly simplify any price-control bill and would make it much simpler for Mr. Henderson to perform the duties that he has to perform.

I am told that the Treasury Department is exploring the possibility of such a tax now and may present it to the Senate in the near future. I only want to say that I think every economist in the United States would agree that if such a withholding tax is to be made it totally changes the picture on inflation, and it seems to me that the Treasury Department ought to be invited into this discussion as a part of the price-control bill.

Senator BARKLEY. That is a tax bill which cannot be taken up by the Senate, either ab initio or as an amendment to some other bill. It would not be in order, and the House would not respect this bill if we put such an amendment on it. It would be in violation of the Constitution which provides that all revenue-raising measures shall originate in the House. It seems to me to be futile to take up the time of the committee in talking about putting a tax bill on as an amendment.

Senator DOWNEY. Perhaps that may be true; but let me say this. If 10, or 12, or 15 billion dollars of purchasing power is to be sucked out of our income by some sort of withholding tax, in the opinion of

most economists it would go about 80 percent of the way to solving the problem of inflation.

Senator BARKLEY. That is a matter that must originate in the Ways and Means Committee of the House. I do not see how we can consider it here at all.

Senator DOWNEY. The proposal that I am going to make is not for a tax. I think it would be constitutional. It is for enforced saving, which is somewhat different. I just wanted to give notice to the committee.

Senator GLASS (presiding). Mr. Henderson, the committe will be very glad to hear you if you have anything new to present in addition to your testimony before the House. We do not want a repetition here of the hearings before the House.

Senator BARKLEY. Mr. Chairman, none of us have read the hearings in the House or maybe a few of us have. There may be new things that have developed as a background for this legislation and in connection with the history that might slightly impinge upon his testimony before the House committee, but I think it would be well if he could, in as brief a way as possible, give the history of this thing; and I would like to ask him to do that without interruption until he has finished his general statement.

Senator GLASS (presiding). The Chair said that if he had anything new he could present it.

STATEMENT OF LEON HENDERSON, ADMINISTRATOR OF THE OFFICE OF PRICE ADMINISTRATION, WASHINGTON, D. C.

Mr. HENDERSON. I have brought most of the price experiences up to date. If the committee remembers, we began our hearings in the House in August, and there has been a considerable change in price data since that time. In addition, a very significant event, a declaration of war, has taken place, which it seems to me has put the future of prices into an entirely different aspect from that which confronted us in August or even 2 weeks ago when the House voted on the bill. I am here today to urge the enactment of a strong bill to authorize real control of prices. I think you ought to know that I do not believe that the House bill as passed is either adequate for the so-called defense period or at all workable in a wartime economy. I believe that the Senate will need to consider far stronger measures than were proposed at the time of the introduction of the bill in August.

The control of prices is a war measure as important to the prosecution of the war as the finding of adequate appropriations, as the Selective Service Act, as the power to establish adequate priorities and allocations, and ranks second in importance in the organization of the economy and the organization of the armed forces.

May I give you just a few figures on that? We have been having, since the outbreak of World War No. 2, in the fall of 1939, about 1 percent, or a little less than 1 percent, a month increase in prices. As to the appropriations authorized by this Congress, some $67,000,000,000, we figure that by the time they are expended the amount of munitions and armaments calculated to be bought would cost at least $13,000,000,000 more. If anything like a victory program is authorized-and I think it must be authorized-the total amount of increase

in cost at the present rate prices are increasing would be more than the total cost of the last war. The last war cost upward of $31,000,000,000. Mr. Baruch in his testimony estimated that there was an excess of cost, due to inflation, of about $13,000,000,000. And so, from a strict standpoint of cost, price control is worthy of your cnsideration. But it is also necessary, if we are to conduct a war calling for tremendous industrial production. This has been recognized by every nation at war, regardless of whether it was a democracy or a totalitarian government, and measures have been adopted very early, and the only difference has been in the degree and also in the extent of the control.

All wars in this country have produced an inflationary period followed by a deflation which paralyzed recovery.

In the last war, as you will remember, it was not until 1922 that this country reasserted its real productive strength and began its upward march.

I have here a chart of wholesale prices running from 1800 to 1941; and these bulges [indicating on chart 1] represent the war periods. We have reached a position in this country where the cost of living is the most important factor in the question of inflation. Up to the present time, as I will show later, it has been possible to absorb most of the increases in price out of the higher profits that came from using our capacity to its utmost. We have reached a period, however, in which that capacity of American industry to absorb additional costs is about at an end. Therefore any increase in wages due to an increase in the cost of living will in many cases raise the question as to whether a price increase must be authorized by the Price Administrator.

Senator TOBEY. In other words, the increased cost of living crucified

the increased wages; is that correct?

1 See pp. 66-68, infra.

Mr. HENDERSON. That is correct.

Senator TOBEY. So that it cancels out?

Mr. HENDERSON. It cancels out. If you assume, Senator Tobey, that last spring there was a 10-percent increase in the wages of heavy industry workers, it has been mainly canceled out by an 82 percent increase in the cost of living up to the middle of last month; and I have reason to assume that we are now proceeding at a rate of 112 percent a month increase in the cost of living. That would mean that by this time anybody who had a 10-percent increase last March has had that increase canceled out, and it means that anybody who lives on a fixed income, such as an annuity, or who has not had an increase in wages, has suffered a 10-percent reduction in his standard of living.

Senator TOBEY. Like a United States Senator, for example?

Mr. HENDERSON. Yes; or a Congressman, or even an employee of the District.

There is a historic parallelism in this war as to the course of prices in the last war. We had, beginning in July 1914, a period in which prices did not move, in which we were using our excess capacity; and then we had this kind of an operation [indicating on chart 2]; in other words, a doubling of our prices between October 1915 and the Armistice Day period. After the controls were released, prices went up another 40 points.

In the present war we had the same sort of experience, with a little bit of lag. But beginning February of this year we have had a rise in the index until they are tending to come together. The cost of living has followed almost the same parallel. The cost of living in the last war rose only gradually in the early months and then took this long, sustained trek to the heights that it reached in 1920 before the great debacle of deflation; and in the present war there is the same sort of an outline.

Senator BROWN. When did the Baruch price controls apply in the first World War?

Mr. HENDERSON. We had in the last war two general types of control. We had control over foods and fuels. I think Senator Taft was in that Administration, which came in, as I recall, in August of 1917, which covered foods and fuels. In addition, the Price Fixing Committee of the War Industries Board devoted its attention to essential, critical, and strategic materials, like metals-copper, for example and the things that were necessary for war production. Senator TAFT. Is it not correct to say that price controls started about the middle of 1917, when the first check comes, and that they were released at the end of 1918, just about the end of the war? Mr. HENDERSON. Yes.

Senator TAFT. So that that represents the period of price control? Mr. HENDERSON. Yes; this period represents the price control from the middle of 1917 to about the middle of 1918.

Senator TAFT. Really the end of 1918, because the armistice was in November, and the price controls were not released until January 1, as I recollect. So I figure about 18 months of price control, during which the index rose from 180 to 200, or approximately 10 percent during that period. At that time, as I recollect it, we had the food and fuel control, and my recollection is that we had about a 10-percent increase during the period of control. Then we had strategic-material