We had the head of the Federal Trade Commission. We had the head of the Federal Tariff Board. We had a representative of the Treasury.

We had representatives of all the different people and agencies interested to discuss a price before it was fixed. Every price had to go to the President to get his O. K. I think that is the only thing that is going to satisfy the people-that the President has to Ö. K. it. Mr. DEWEY. They sat as a permanent board?

Mr. BARUCH. They sat all during that time. There was a process of griefs and mistakes and errors, but we did review prices every 3 months.

Mr. DEWEY. They might take their appeal still from that board to the courts?

Mr. BARUCH. Oh, yes.

Mr. DEWEY. If they thought they had a grievance?

Mr. BARUCH. Yes.

Mr. DEWEY. Thank you very much.

Mr. BOGGS. This morning you spoke of the necessity of having a mobilization of the resources of the Nation. You went on in your introductory remarks to point out that in this period there has been a temporary dislocation in industry and unemployment and a failure to utilize many of the plants and a failure to subcontract; that actually in place of using all of our productive resources, we are failing to use a lot of them.

Now, personally, I think that that is one of the greatest problems facing the country today; and I wonder if you could tell us just a little bit about how that problem was handled during the last war. Mr. BARUCH. First of all, I will say that in Odlum the President has appointed a top man, than whom there is no better in the country to handle this.

Now, I will tell you what we did in the last war. We had regional advisers. There were 21 districts. These regional directors had their committees and they would go out and hunt for facilities that could be converted. If any plants in a district were overlooked the directors were called on the carpet. Men were sent from Washington to these districts to see how things were going.

The committees used to shift work from one factory to another. For example, if there was a great deal of work on the eastern seaboard, they would shove it over into the mountain district. I don't know just where, but somewhere.

I have always thought that we ought not to put too much business in one place, because it will stop up the whole line of stock. I would rather have two powder factories of 200,000 pounds a day than one of 400,000 pounds a day.

The regional committees were representatives to whom the small businesses could come. When a man has to go to Washington-it is a long trip. There is considerable expense. He doesn't know just where the man is whom he has to see. Our organization grew by trial and error. It was not perfect.

Then we had these councils of national defense in every district. They were very effective bodies.

I have advised some of the States to set up these councils, for instance, take my native State, South Carolina-I advised the Governor to immediately get an engineer to make a survey of all the

64300-41-pt. 2- -5

little factories, lathes, tools, find out what he could do; and then come up here to Washington and make a bid. I advised Governor Lehman to organize a council.

I think today they are going to establish something like we had in the World War, a kind of a museum or place where there will be the different designs, where men can go and see whether they can make any of those things.

And why not? There are a lot of wonderful factories all over the country. No only little ones, but bigger ones, that should be given work.

We may think we are getting these things in a hurry by making them in these big factories. In the end we will get more and get it quicker by subdividing the work.

Mr. BOGGS. How much do you think we could speed up our production if we could do that job of utilizing these little places?

Mr. BARUCH. I wouldn't want to say. You see, now they have to redouble themselves. I think those fellows down there are on their toes.

I said the other day that it was a faltering step, but a step in advance. It is a step in advance. They are really seeing the problem. I think they are tackling it. It is a very difficult problem.

At the start they would not give any airplanes to the automobile manufacturers.

Mr. MILLS. A little while ago I think you said that you did not believe that price control ought to be involved with civilian supplies.

Is that correct?

Mr. BARUCH. What I meant was that the administraion of price control should not be linked with the administration of civilian supply. I don't want to get into that. I don't agree with the authorities on it. I think one man should set all the prices and that that is enough of a job for one man.

Mr. MILLS. He has enough to do if he keeps prices in line.

Mr. BARUCH. I don't think any man is better able than Henderson to do it. I don't want to cast any aspersions on him, but I have said. this before.

Mr. MILLS. No; but lacking the necessary legislative authority, perhaps one of the reasons that civilian supplies was placed under the price administrator was the fact that he had another club behind him there, so to speak, to bring prices into line.

Mr. BARUCH. He saw many of these shortages like steel and aluminum. He got after those shortages in that driving way of his. Mr. MILLS. Then it is your opinion that this might be a good time to divorce civilian supply and price control?

Mr. BARUCH. I would let them fight that out.

Mr. MILLS. You have been through this picture.

Mr. BARUCH. I know, but maybe they can work it out better. I don't like to talk too much about my job, because I know it was not as good as they say it was.

Mr. MILLS. I happen to agree with you that no man can spread himself out and handle civilian supplies and price administration too. Both of them are man-killing jobs.

Mr. BARUCH. I wouldn't say what another fellow cannot do.

Mr. WILLIAMS. Let me ask you whether under the present set-up and the way it is divided the priorities on civilian needs are not now separated from the price administrator, in other words, Mr. Nelson. Mr. BARUCH. He is the priority director. What he says goes on priorities.

Mr. MILLS. For everything?

Mr. BARUCH. That is the way I understand it.

Mr. MILLS. For defense materials as well as materials for civilian use?

Mr. BARUCH. Whatever is left over is divided among the civilians at present. I think Mr. Henderson divides it, in addition to his pricecontrol duties.

Here is the fellow who can tell you best about that.

Mr. GINSBURG. The jobs are divided. Mr. Henderson has at least two jobs.

Mr. MILLS. He has the price control and he allocates civilian priority?

Mr. GINSBURG. I think that the final say on priorities is with S. P. A. B., the Supply Priorities and Allocations Board.

Mr. BARUCH. In other words, the decision is in the officials of the board itself. The Vice President has the final decision, doesn't he? Mr. GINSBURG. The decision must be made by the Board.

Mr. MILLS. In other words, Mr. Henderson does not control it? Mr. GINSBURG. He has not the final say. No, sir. The way it works out, Mr. Henderson makes the recommendation to the Priorities Division. If there is any question about it, the issue is referred to the Board. So that the S. P. A. B. has the final say as to how the residual supplies are divided.

Mr. MILLS. How does it differ now in the new set-up from what it was?

Mr. GINSBURG. The new Civilian Allocation Division has been moved out of the Office of Price Administration and has been moved into the Office of Production Management. It is now a division of that office under Mr. Knudsen.

Mr. MILLS. I am glad that you cleared that up.

The CHAIRMAN. That concludes the hearing today. Again, I want to thank you, Mr. Baruch, on behalf of the committee and audience, who have enjoyed your statement.

The committee will now adjourn until 10:30 o'clock on Monday morning.

(Whereupon, at 4:28 p. m., an adjournment was taken until Monday, September 22, 1941, at 10:30 a. m.)

MR. BARUCH'S TESTIMONY BEFORE THE WAR POLICIES COMMISSION,

1931

I. GENERAL STATEMENT

Among the many distinguished witnesses before this Commission there is expressed a variety of opinion on the suggestion of war policies submitted by me on March 6. While all do not concur fully, none is in total disagreement. There is some opinion which springs from a misapprehension of the policies proposed and some from a lack of knowledge of what was done. For the convenience of the Commission, out of deference to the earnestness of the witnesses themselves, and also because I believe most sincerely in the soundness of the plan submitted, it has seemed to me appropriate to digest and attempt to answer every instance of dissent.

As a result of a further study of the Constitutional aspects of the suggestion and the bearing upon them of certain expressions in post-war decisions of our

federal courts, the skeletonized statute which was submitted in my earlier testimony has been modified and amplified and is appended.

On pages 28 to 50 of the record, I ep.tomized the organization and method of industrial mobilization for war as developed in 1917-1918.

In no testimony did I discern any dissent from this broad outline which was generally concurred in by Commander Ralph T. O'Neil representing the American Legion (p. 8), former Commander Paul V. McNutt (p. 206), General Palmer E. Pierce (p. 145), Commander John M. Hancock (p. 153), Col. Leonard P. Ayres (p. 165), Daniel Willard (pp. 170, 171), George N. Peek (p. 219), Eugene Meyer (p. 238), ex-Assistant Secretary of War Charles B. Robbins (p. 253), Gen. C. C. Williams (p. 283), Julius Barnes, chairman of the United States Chamber of Commerce (p. 287), Howard Coffin (p. 306), and Homer Ferguson (p. 317). As I read the testimony of ex-Secretary of War Newton D. Baker (p. 124), he also concurred in this suggested organization with a qualification, excepting what he called a "little war." With that qualification, I am in complete agreement. I understand that what is proposed by Gen. Douglas MacArthur is in agreement as to broad organizational outline. I submit herewith an organization chart showing the system as it existed in 1918.

Such disagreement as I observe in the testimony centers chiefly on the plan for general price stabilization. The comment on this subject was so varied as to require systematic and comprehensive treatment in this reply.

In the first place, it must be made clear that the proposed enabling statute (see appendix) vesting power in the President to determine a day as of which the statute speaks to stabilize prices is discretionary and not mandatory. This is necessary for two reasons: (1) as Mr. Baker pointed out, it might not be required in a minor war; (2) no one can foresee the circumstance of future conflict. situation is conceivable in which none of the policies of 1917-1918 would be appropriate.

A

Also, while I thought I had exhausted ingenuity to make clear my suggestion as to price stabilization, things that some witnesses have said to me in conversation and much that is contained in the record convinces me that I was not altogether successful. At the risk of prolixity, I want at the outset to try to restate more clearly just what I do propose.

I do not suggest the fixation of any price. The effect of the proposed statute is simply to say, "Unless later adjusted by the President upward, no price shall rise above the figure at which it stood at a certain named day." In a word, we clamp a ceiling down on the existing price structure. All prices are free to fluctuate below that maximum.

Next, what is proposed is not the artificial determination of price by fiat or otherwise. There was not a single witness who did not propose price fixing. Those who opposed me want to fix prices individually. Now that means studying the costs of a few producers selected by design or at random and (based upon such study) taking somebody's judgment as to what a particular price should be. My proposal suggests initially nothing of the kind. It addresses the whole interrelated pattern of prices as it exists under natural economic law and says of it, "Since arbitrary governmental rationing will henceforth govern supply and governmental determination of priority-and not price-will control demand, we propose to keep intact this last natural price schedule which we are likely to see for many a day."

It is a preservation of a natural determination rather than substitution of a collection of artificial determinations, and I think I can show later that it is the only fundamentally sound way in which the problem can be handled under the usual circumstances of the coming of war.

Some witnesses seemed to think that, once this existing maximum is established, there are to be no changes. I tried to make it clear that there is at once to be set up a competent tribunal to adjust any maximum prices, either upward or downward, whether to cure incidental injustice or hardship or to increase production. That, of course, will inject artificiality, but artificiality will be the exception and not the rule, as would be the case with plans which propose fixing the prices of basic commodities separately. On the other hand, some witnesses say, "He proposes to freeze prices and then immediately to unfreeze them." I propose to unfreeze nothing. I propose to adjust the few exceptions. Those who suggest partial price fixing propose to create what amounts to an entire artificial price structure and (as I shall later show), because they leave the generality of prices free, they will be obliged to adjust

1 All page numbers refer to the printed record of the War Policies Commission hearings, published in three volumes by the Government Printing Office.

fixed prices so frequently-and always upward-that, at least in the usual circumstances of war, they would perhaps better leave the whole schedule free. With so much said by way of explanation, what I propose is to have a statute which shall say in effect, "From and after a day to be determined by the President, it shall be unlawful to charge a higher price for anything than was in effect on that day, except that the President may and will (to relieve hardship or meet an exigency of war) adjust any particular price either upward or downward."

One misunderstanding I have discovered and am particularly happy to clear up is this: Some witnesses construed my language to mean that the President is not to select M-day or approximately M-day-the beginning of the warbut that he is to reach far back (let us say 90 days as a fixed period), in search of normal relationships notwithstanding substantial changes that may have occurred in the interim. Of course, if in such meantime there has been a marked inflation, to go back to a period of lower prices would constitute confiscation in many cases. Such was not the intent. The reason for not naming M-Day in the statute is that, in the usual circumstances of the advent of war, the first thing that happens is a marked and sometimes panicky price depression. Since the frozen schedule is one of maxima-a kind of ceiling clamped down on the whole price structure—one purpose of providing for a slight leeway was to prevent an abnormal depression from governing future price.

As I shall later show, it does not make a great deal of difference what day the President selects. His task is to select one reflecting the instant conditions and the fewest number of distortions. Since his very next step is to set up a Commission to adjust distortions and injustices, another purpose of giving some little leeway in naming the day is to minimize the work of that Commission and to determine a day, the circumstance of which seems fairest and wisest-all things considered.

I now understand from Gen. George Van H. Moseley that the opposition of the War Department to general stabilization was largely based on this misunderstanding, and now that this has been cleared up there is no substantial disagreement between the War Department and myself on this subject.

II. THE EXCESS-PROFITS TAX IS NOT A SUBSTITUTE FOR PRICE STABILIZATION Senator Swanson has brought out by questions to nearly every witness an opinion by some that, by letting prices rise to magnificent heights, we can induce extraordinary effort by holding out hope of extravagant profits and then later frustrate that hope by an excess-profits tax which shall recapture 80 percent of such profits. Other witnesses seemed to think that all the equalization of war burdens that would ever be necessary or practicable could be accomplished by the excess-profits tax. For example, on page 135 of the record appears the following colloquy:

"Senator SWANSON. * * During the war prices were fixed so as to stimulate production and people produced night and day, thinking they were making money. Afterward we took 80 percent of the profits in taxes and they realized they were not making so much as they thought they were making.

"Mr. BAKER. * Now the price of coal had to be fixed so that the people who had the high-cost producing mines could still live, and, when you did that, the surface mines * got very much more than a good profit

for them. That was recovered by an excess-profits tax. "Senator SWANSON. You think you can equalize that better by exercising the power of taxation than by trying to fix the price? "Mr. BAKER. That would be my judgment.

"Senator SWANSON. You think if Congress will exercise its power to tax it can equalize in substantial degree-not entirely exactly but in substantial degree the inequality of the profits by the power of taxation?

"Mr. BAKER. Yes, sir. I think Congress did try to do that and tried very earnestly and conscientiously to do it and I think they succeeded probably in accomplishing nearly a perfect job as could have been done by the other process with less disturbance while the war was going on."

By "other process" I understand Mr. Baker to mean price stabilization.

I hope I shall not be understood as being opposed to the excess profits tax. The war policy advocated here by me could not be effectuated without it. It was intrinsic in my recommendation. But I must emphasize, in all earnestness, that (except for human slaughter and maiming and all that goes with them)