PENNSYLVANIA NEWSPAPER PUBLISHERS' ASSOCIATION, Hon. SAMUEL A. WEISS, Washington, D. C. DEAR SAM: Enclosed is a copy of an amendment that the newspaper and various advertising interests would like to have written into the price-control bill, H. R. 5479. Anything you can do to bring this about will be greatly appreciated. Also, I would like to have you write me later, giving your opinion as to the prospects for getting this amendment in the bill. Kindest regards. Sincerely yours, BILL HARDY. ADVERTISING AGENCIES ASK FOR CLARIFYING AMENDMENT TO PRICE-CONTROL BILL The American Association of Advertising Agencies, through its president, John Benson, has requested Chairman Steagall of the House Banking and Currency Committee to include an amendment in the price-control bill, H. R. 5479, now pending before the committee, so as to clarify the legislation with respect to control of advertising. The American Association of Advertising Agencies asks that a provision be added to section 2, paragraph (d) as follows: "Provided, however, That nothing in this act shall authorize the President to compel changes in the normal methods of distribution now or hereafter established in any industry which would have for its effect curtailing the services rendered by advertising, except in such cases where advertising has been willfully used to evade the purpose of this Act." [Telegram] Congressman CLARENCE F. LEA, MILL VALLEY, CALIF., October 28, 1941. Strongly urge inclusion in H. R. 5479, price-control bill, of provision clarifying status of advertising by expressly reserving power to curtail services rendered by advertising. We support price-control legislation in general, including control of wages and farm prices. MILL VALLEY RECORD. PRICE-CONTROL BILL TUESDAY, OCTOBER 14, 1941 HOUSE OF REPRESENTATIVES, COMMITTEE ON BANKING AND CURRENCY, Washington, D. C. The committee met at 10:30 a. m., Hon. Henry B. Steagall (chairman) presiding. The members present were: Messrs. Steagall, Williams, Spence, Ford, Brown, Patman, Gore, Mills, Monroney, Boggs, Hull, Kean, Miss Sumner, Messrs. Smith, Kunkel, Rolph, and Dewey. The CHAIRMAN. The committee will be in order. Mr. GORE. Mr. Chairman, before we start I want to bring up a little matter. Mr. Henderson last week raised the ceiling on tires. It seems to me that that is evidence of the utter futility of this piecemeal approach; but others might differ with me. I should not want to ask Mr. Henderson to come back before the committee. It might delay the committee in its deliberations. But I just wonder if the committee would not like to have a statement for the record from Mr. Henderson about the reasons that he felt justified in raising the ceiling on tires. The CHAIRMAN. If you desire that, I shall be glad to ask Mr. Henderson to submit such a statement. I am sure he will be glad to do it. I had noticed an account of that in the papers. I would be glad to hear his reasons myself. Mr. GORE. Do you not think it would be pertinent to the consideration of the bill and might properly go into the record? The CHAIRMAN. I am sure there would be no objection to that, and I am sure Mr. Henderson will not object. I shall ask him to submit a statement in connection with that. Mr. GORE. When you say a statement, you mean a full analysis of the situation? The CHAIRMAN. Yes. I shall ask him to give us an explanation, to tell us the facts concerning it. Mr. WILLIAMS. That is not the first item concerning which he has done that. The CHAIRMAN. That is probably true. Rubber is very important in this situation. If any member desires such a statement, I am sure he would not mind giving it. Mr. GORE. Of course, one angle is that Mr. Jesse Jones told us, in the hearings on the R. F. C. bill, that all of the rubber was now being purchased by the Rubber Reserve Co., under a cartel agreement, and rubber had not gone up. 1832 The CHAIRMAN. I do not know that it is desirable that we enter into any discussion of that at this time. But I do not understand Mr. Jones' testimony quite to justify your interpretation of it. The arrangement was made quite some time ago, which Mr. Jones' testimony seemed to show gave the Government an advantage that they would not have had in the absence of that agreement, and the price was fixed quite some time ago. But I am sure there will be no objection to getting a full statement on this. (The statement as later submitted follows:) THE RECENT INCREASE IN THE MAXIMUM PRICES FOR AUTOMOBILE TIRES AND TUBES STATEMENT BY LEON HENDERSON, ADMINISTRATOR, OFFICE OF PRICE ADMINISTRATION, FOR SUBMISSION TO THE HOUSE COMMITTEE ON BANKING AND CURRENCY, ON OCTOBER 23, 1941 1. SUMMARY A. The recent advance in the prices of automobile tires and tubes came almost entirely as a result of increased material costs, due principally to rises in the price of crude rubber and tire fabric. B. The increases in the cost of labor provided a small, practically insignificant item in the total. Crude rubber is an imported commodity, and the increase in the price of tire fabric is due primarily to the increase in the price of raw cotton over recent months. C. In raising no objection to the amount of the price increase for tires and ubes which may now be put into effect, the Office of Price Administration took into consideration the earnings positions of the medium-sized and small companies, which depend almost exclusively upon their tire and tube business. II. THE QUESTION AND UNDERLYING CONCEPTIONS On October 11, 1941, the Office of Price Administration announced that no objection would be raised to advances in consumer list prices on manufacturers' brands of tires and tubes sold in the replacement market1 of not more than 9 percent over June 16, 1941, levels. Manufacturers were asked to maintain all discounts in effect on June 16, 1941, and to submit revised schedules of list rrices to the Office of Price Administration for clearance before making them effective. The increases in wholesale prices which may be put into effect will afford an increase in the net recovery realized by manufacturers on each item varying from 111⁄2 percent to 13 percent, depending upon the discount schedule of the manufacturer. On October 14, 1941, the House Committee on Banking and Currency, at the request of Hon. Albert Gore, asked that a statement be obtained for the record of the proceedings before the committee on H. R. 5479, setting forth "a full analysis of the situation." 3 In making his request to the committee, Congressman Gore stated that the action taken by the Office of Price Administration appeared to offer "evidence of the utter futility of this piecemeal approach." On the following day during the testimony of Mr. Lubin, Commissioner of Labor Statistics, Mr. Gore stated (1) that the prices prevailing on June 16, 1941, permitted the industry to operate at a profit, (2) that the price of rubber had not gone up, (3) that the increase in the cost of cotton was not a substantial factor in the cost of producing tires, and (4) that there had been an increase instead of a curtailment 1 Manufacturers' brands of tires and tubes are distinguished from private brands, i. e., tires and tubes manufactured for special accounts and marketed under brand names not owned by the manufacturers. Replacement tires are distinguished from original equipment tires, i. e., tires sold to manufacturers of automotive vehicles for installation on such vehicles as original equipment. 2 Congressman Gore, on October 13, 1941, had written to me and asked for a statement concerning the advance in the prices of tires and tubes. Hearings before the House Committee on Banking and Currency on H. R. 5479, October 14, 1941, pt. 29, pp. 7713-7714. in the production of tires and tubes. The suggestion was then made that the price increase was caused by past or anticipated wage increases. In a letter to me dated October 13, 1941, Mr. Gore had specifically inquired as to the extent to which increases in wages had been responsible for the advance in prices. Mr. Gore also made the point that a further increase to the public in the price of tires and tubes had occurred because the manufacturers' excise tax on tires and tubes had been doubled by the Revenue Act of 1941, effective October 1, 1941. I am glad to have an opportunity to submit to the committee for its record, an explanation of the action taken by the Office of Price Administration with respect to the prices of tires and tubes, and in particular, to clarify, the points raised by Congressman Gore. III. BASIC EXPLANATION A. The Office of price administration has not issued a schedule of maximum prices for automobile tires and tubes. Since June 22, 1941, however, the Office has determined that its policy would be to object to increases over the prices prevailing on June 16, 1941, except for adjustments resulting from increased material costs. In carrying out this policy, the Office of Price Administration has to date received the full cooperation of members of the industry. A brief summary in chronological order of each of the actions taken by the Office with respect to the prices of automobile tires and tubes is attached to this statement as appendix A. B. The necessity for the regulation of the prices of automobile tires and tubes can be attributed primarily to the threat to the continuity of rubber shipments from the Far East. In order to assure an adequate supply of rubber for military and essential civilian uses, it has been necessary to expedite the accumulation of a rubber stockpile not only by stepping up the rate of shipments of rubber from the Far East to this country, but also by curtailing the consumption of crude rubber for current uses. The Office of Price Administration has been vigilant to prevent speculative and inflationary increases in the prices of automobile tires and tubes, arising from a fear of shortage. C. The recent advances in the prices of automobile tires and tubes came as a result of higher material costs principally due to rises in the market prices of crude rubber and tire fabric. The increase in the cost of labor provided a very small, practically insignificant, item in the total. A detailed breakdown of the increases in production costs experienced by the tire and tube industry is set forth below in section IV, and it is readily apparent from these figures that increases in wages played a negligible role in the considerations bearing on the advance in prices. The price at which crude rubber is purchased in the Far East is fixed by negotiation between the Rubber Reserve Co. and the International Rubber Cartel composed of British and Dutch interests. Like other imported commodities, its delivered price depends in part upon the cost of marine transportation and insurance. The increase in the price of tire fabric is due primarily to the increase in the price of raw cotton over recent months. D. In considering proposed tire and tube prices, the Office of Price Admin*istration acted on the basis of cost and earnings data furnished to it by the companies in response to a questionnaire sent to all the companies by the Office on August 1. Returns from this questionnaire came in during the period from August 15 to October 7, and were analyzed during the month of September and the early part of October. Numerous conferences were held with company officials in Washington and at the various plants during which representations were made to the Office of Price Administration that price increases of varying amounts were required to meet increased material costs. The problems of the smaller and weaker units were presented. The members of the industry requested price increases substantially greater than those which the Office finally determined could be instituted without its objection. E. Examination of changes in market prices for raw materials that have occurred since June 16, 1941, does not reveal the true picture of changes in 6 When reference is made to the Office of Price Administration that includes the Office of Price Administration and Civilian Supply prior to August 28, 1941. See appendix B. 8 See discussion in sec. V. material costs that have been incurred by tire companies since June 16, 1941. The price increases on tires and tubes that have recently been put into effect were based in large part on increases in material prices that took place prior to June 16, 1941. In essence, what the Office did was to hold up increases in tire and tube prices until several months after prices of raw materials had risen. In postponing an advance in prices due to increased material costs, the Office of Price Administration had two objectives. In the first place, the intervening period took into account the fact that manufacturers had accumulated at lower prices inventories both of materials and finished tires. The delay also afforded an opportunity to the Office of Price Administration to obtain certain cost and earnings data from the companies. F. The following is a short table setting forth the increase in selling prices shown by an analysis of the cost data submitted by the companies to be required to cover increases, during 1941, in the unit cost of manufacturing tires (which cost is analyzed in more detail in sec. IV below): Element of cost: Cotton fabric. Other materials. Total Required increase in selling pricespercent 4 -62 334-54 34-34 1/2-1 9 -14 On the basis of these cost determinations, taken in the light of the earnings positions of the companies set out further in section V, the Office of Price Administration determined on October 11, 1941, to interpose no objection to increases in wholesale prices of tires and tubes of 111⁄2 to 13 percent over June 16, 1941, prices. This amounted to an increase of only 61⁄2 to 8 percent over prices prevailing at the time of the announcement, since on July 30, 1941, wholesale prices had been raised 5 percent over June 16, 1941, levels. The Office of Price Administration had not objected to that earlier increase because of a preliminary showing of increased costs. G. There has been a curtailment, not an increase, in the production of automobile tires and tubes since June 16, 1941. During the first 6 months of 1941 the production of automobile tires and tubes reached record levels. The increased volume of production operated to offset considerably the increased material costs incurred by the companies. Since June 1941, however, the rate of production of automobile tires and tubes has been declining sharply, as a consequence of the curtailed consumption of crude rubber described in appendix B. H. As to the increase in the Federal excise tax 10 on tires and tubes effective October 1, 1941, it should be noted that although the Office of Price Administration has entered no objection to the passing on of the dollar amount of the Federal excise tax, the present method of price quotation adopted by tire and tube manufacturers, at the request of the Office of Price Administration, is designed to prevent pyramiding of the tax through the application of dealers' margins. I. The present consumer list prices of tires and tubes, adjusted to include not only the recent advance in prices, but also the increased tax, are still below the consumer list prices for the same items which were in effect in September 1939 before the outbreak of the war in Europe. J. There is no justification, therefore, for the statement that the recent advance in the prices of automobile tires and tubes demonstrates the futility of selective ceilings. The advance in prices was due to an advance in the price of an imported commodity and in the price of an agricultural commodity to a point below parity." Under Mr. Gore's bill, both these price advances would have been permitted. Prior to June 16, 1941, the market prices for crude rubber, cotton, and other materials had risen above the level prevailing at the beginning of the year. Since June 16, 1941, the Office of Price Administration in collaboration with the Rubber Reserve Co. acted to stabilize the price of crude rubber. But the price of raw cotton, the other principal element of cost in the manufacture of tires, continued to register substantial advances. 10 Imposed by the Revenue Act of 1941, approved September 20, 1941. "It was not until September 1941 that the price of raw cotton rose slightly above parity. |