have as its primary responsibility the maintenance at par of the whole range of Federal securities. It feels bound to purchase those securi ties to the extent that may be necessary to keep the price at par when the market weakens. This policy would have to be revised if Federal Reserve action is to be redirected toward a raising of the interest rate, the tightening of credit, and a consequent decrease in the money supply and prices.

CONCLUSIONS

As stated before, the subcommittee is not making specific recommendations for action. It is leaving that to the decision of the full committee. It is, however, exercising its judgment in picking out certain of the list of procedures already suggested as worthy of the committee's attention. In consequence, it is exercising its judgment in discarding certain other procedures. For serious consideration we recommend the following:

Voluntary restraint on wage and salary demands by those in the higher brackets.

Raising the minimum wage.

Avoiding the destruction of food.

Increasing tax exemption on dependents.

Retiring governmental bank indebtedness from budgetary surplus.

Restoring control of consumer credit.

THE OVER-ALL PROBLEM

In connection with the above proposals, the importance of labor and business policies needs strong emphasis. If these private decisions are not made in the public interest, there seems to be nothing that Government alone can do to end inflation by any means that will not result in unemployment and depression.

Possibility of an orderly end to inflation could come from the following procedure:

First. Arrest the mounting cost of living by attention to its principal component, food, and by solving the principal food-price problem, meat and animal products. Review of rent control well in advance of its termination date is likewise indicated.

Second. With the rise in the cost of living arrested, demands for increased wages will lost their main justification, particularly in the case of those labor groups already in the higher-wage brackets.

Third. In view of an end to the cost-of-living, wage, cost-of-production spiral, business can and should adopt moderate price and profit policies, resulting in important price reductions and a definite contribution to moderate and orderly deflation in all lines

Fourth. The Government, meanwhile, by appropriate fiscal and monetary policies, will arrest and reverse the unrestrained expansion of the money supply which makes continued inflation possible.

This procedure can safely end the inflation. This cannot be done safely by Government action alone. If the Government does its part, and labor and business fail to do theirs, the responsibility for economic disaster will rest squarely on these nongovernmental shoulders.

This report was prepared as a basis of discussion for the full Joint Committee on the Economic Report. It is signed by the entire eastern subcommittee, with the understanding that while approved in general, no member is bound to endorse all its conclusions and proposals.

Senator RALPH E. FLANDERS, Representative ROBERT F. RICH.
Chairman.
Representative CLARENCE E.
KILBURN.
Representative
HART.

Senator RAYMOND E. BALDWIN.
Senator FRANCIS J. MYERS.

EDWARD J.

PART III. REPORT OF THE WESTERN SUBCOMMITTEE OF THE JOINT COMMITTEE ON THE ECONOMIC REPORT1

[Releasd by Joint Committee on May 14, 1948]

A. RECOMMENDATIONS

RECOMMENDATIONS OF THE WESTERN SUBCOMMITTEE TO THE JOINT COMMITTEE ON THE ECONOMIC REPORT

Pursuant to Senate Concurrent Resolution No. 19, the Western Subcommittee of the Joint Committee on the Economic Report, after review and consideration of testimony presented to it in its hearings, as well as other information pertaining to the increased prices of consumer goods, submits herewith a series of recommendations for consideration by the full committee. Other suggestions and proposals were also seriously considered and evaluated, but agreement as to the effectiveness of these in respect to the problem of high prices was not reached. The subcommittee believes that application of the recommendations agreed upon would contribute greatly to checking further price rises and aid in establishing greater price stability.

The recommendations are as follows:

I. Federal personal income taxes

The large (and continuing) increases in the totals of personal and business incomes and expenditures have exerted and are exerting inflationary pressures against an inadequate supply of goods. Outright tax reductions at this time will increase net personal incomes and prolong the period of price increases. Furthermore, the increase in purchasing power to taxpayers will enable these to purchase goods in the market away from those who are not benefited by tax reductions. This is the only way that a tax reduction will enable taxpayers to increase their consumption. Therefore, it is recommended that if

[Each of the recommendations in part A. of this report has been separately considered and approved by the members of the subcommittee. The subcommittee also reviewed other sections of this report, prepared by its staff, and generally approves its contents. Approval of these sections however, does not necessarily imply that the members of the subcommittee assume responsibility for the many details, or that they may individually endorse any particular statement or conclusion therein.]

tax reductions or refunds are made at this time, these take the form of required savings in United States Government bonds to be held by the recipient for a stated period of 1 or 2 years, or until such time as Congress shall determine that inflationary dangers have passed.

II. Excess-profits taxes

During this period of high demand and accumulated shortages, it is inevitable that many corporations will realize extraordinary profits. Under these conditions an excess profits tax should be restored. Such a tax should permit a base for computing excess profits higher than the wartime level by at least one-third. The excess profits rate should be graduated with a top limit of 50 percent. Such a schedule should not unduly penalize initiative and efficiency, nor adversely affect replacement and expansion of facilities. It should also provide a minimum base of normal profits for protection of new enterprises and those without sufficient operating and income experience upon which to establish a reasonable normal base.

III. Excise taxes

We recommend the removal of those excise taxes which directly increase the prices of essential cost-of-living items, particularly for low-income groups.

IV. Reclamation

We recommend the rapid completion of reclamation and drainage programs now under construction and development with a view to increasing the food supply in line with current and prospective needs, both domestic and foreign.

V. Rent Controls

We recommend the extension of rent controls with adequate provision for hardship cases.

VI. Export controls

We recommend strict application of export controls for those commodities and products for which domestic prices may be unduly increased by demand from abroad, especially demand from those countries which are not included in any foreign-aid plan the Congress may adopt.

VII. Public works

Federal, State, and local public works in general should be deferred wherever feasible unless they are productive of food and other commodities in short supply.

VIII. Credit controls

The problem of credit controls has been reviewed to some extent in previous hearings of the Joint Economic Committee. We recommend that further exploration of this problem should be made as promptly as possible in order that appropriate action may be taken in time to avoid further serious expansion of credit.

IX. Compulsory controls

Particularly in view of the recent fluctuations in the commodity markets, we recommend further study of the need for compulsory controls pending the outcome of actions taken under the so-called Anti-Inflation Act, Public Law 395, enacted by the Eightieth Con

gress.

X. Increased fertilizer production

Every effort should be bent to increase the total production of fertilizer so that the present rate of application, already high, may be further increased.

Most of the added output should be sent to food-deficit countries, because the increased production of food abroad will lessen demands on our own supplies, and on shipping facilities, and hasten the restoration of a self-supporting economy abroad.

XI. Aid to foreign food production

The Anti-Inflation Act authorizes the Department of Agriculture to encourage the production of food in non-European countries. The subcommittee endorses this program and expresses the hope that the Department of Agriculture will vigorously promote its activities in this field.

XII. Victory gardens

There should be a revival of emphasis on victory gardens and on the preserving of food grown in them to relieve pressure on market supplies.

XIII. Conservation of grain

The Department of Agriculture should continue and intensify its efforts to promote the conservation and efficient feeding of grain. The Extension Service should push vigorously its regular program of educating farmers in more efficient production methods.

XIV. Consumer actions

To mitigate the effect of high prices, the committee feels consumer action and assistance are absolutely necessary, including

(a) More intelligent consumer shopping, use of substitutes, cooperation in food-saving measures.

(b) Greater funds for Bureau of Human Nutrition and Home Economics to make more consumer information and assistance available and to promote education on nutrition, meal planning, food substitution, etc.

(c) Encouragement of farmers' markets and other marketing methods which reduce the cost of distribution, especially perishable food products.

XV. Increased production

In order to promote increase in the production of consumer goods which have been and continue to be in short supply relative to demand, the subcommittee urges the following:

(a) Mutual efforts by management and labor to avoid any curtailment of production through labor disputes.

(b) Allocation of scarce raw materials to favor most urgent consumer-goods demands.

(c) Extension of working week, wherever feasible, without creating unemployment.

(d) Removal of monopolistic restrictions on production wherever they exist.

B. INTRODUCTION

Senate Concurrent Resolution 19 of the Eightieth Congress, commonly known as the Baldwin resolution, directed the Joint Committee on the Economic Report

*

(1) to make a full and complete study of the present high prices of consumer goods, and (2) to report to the Congress * * * the results of the study and investigation * together with such recommendations as to legislation as it may deem desirable. Seven other Members of Congress were associated with the committee in the conduct of the hearings and preparation of its reports.

Pursuant to this resolution hearings were held during September and October by three subcommittees in 26 cities in the easternseaboard States, the midcontinent region, and the Western States. The western subcommittee held hearings in six cities: Denver, Salt Lake City, Los Angeles, San Francisco, Portland, and Seattle.

In the conduct of these hearings, the western subcommittee heard well over 200 witnesses representing a wide range of activities and interests: Producers of many kinds of farm products; processors, wholesalers, and retailers of food; manufacturers and distributors of consumer goods; restaurant operators; cooperative and farm groups; fishery operators; labor organizations; many civic and consumer groups; professional economists; and research organizations.

Included in the 17 volumes of transcript and exhibits from such a diverse array of witnesses (practically all of whom presented prepared statements plus oral testimony in response to committee interrogation) are to be found the concerns and fears, complaints and accusations, justifications, and defenses, suggestions, plans, and programs of a broad cross section of producers, distributors, workers, and consumers. All of the testimony thus heard has been carefully reviewed and studied by the committee staff and others.

The subcommittee received many real contributions of information and opinion concerning the causes and effects of high prices. Considerable testimony reflected concern, alarm, and even bitterness because of the effects of increasing prices, particularly on the part of witnesses representing some labor groups, consumers, and various moderate- or low-income groups, including teachers, white-collar workers, veterans, and others. Accusations were made of profiteering on the part of farmers, manufacturers, wholesalers, or retailers, or all of them; of Government ineptitude in regard to price or wage controls or other actions, and of restrictive practices of industry and labor.1 Conversely, agricultural producers and food processors, manufacturers and distributors, labor and consumer groups generally disavowed any significant responsibility for the higher prices received or paid. Witness after witness, with statistical and other evidence, presented (at least to their own and many times the committee's satisfaction) their justification for current prices. Increased raw materials or goods costs, higher wages and salaries paid, and other operating expenses usually were shown to account for the advancing prices which individually a businessman or producer could not stem.2

Summaries and analyses of testimony given by labor and consumer witnesses are presented in separate sections of this report. Summary of wholesale and retail trade testimony is presented elsewhere.