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While this constitutes a good record as far as the manufacturers themselves are concerned, by no means does it prove that the cost of living has not gone up or that it will not go up even further.

Obviously, if manufacturing costs, including the price of raw materials, semifinished goods, labor costs and taxes go up, there will be further increases in the prices manufacturers must charge, and this in turn will be reflected in the prices which wholesalers and retailers must charge, and hence in the cost of living of the people as a whole and thus in the cost of the war program itself, and also in the dislocation and maladjustments following the war's end.

The question is, How can we best keep down to a reasonable point the cost of living of the average citizen? How can we have the best chance of avoiding the kind of inflation which might cut in half the value of the worker's pay check, which might double the price of everything he has to buy? We believe that a severe inflation could be prevented if we follow with vigor all of the following policies:

1. Cutting to the bone every nondefense expenditure-Federal, State, and local-including postponement of every public works project not vital to national defense.

2. Avoiding waste in defense spending.

3. Raising a substantial portion of the cost of the defense program by widely spread taxation and borrowing the remainder from the savings of the country instead of from the banks.

4. Decreasing civilian production only as much as is necessary to permit succussful pursuance of our war program.

5. Releasing the Government stocks of farm commodities as the cost of living tends to rise.

6. Holding installment buying in check.

It would not be necessary to consider adoption of price control if the six preceding steps were all in operation and were being followed with sufficient vigor.

The plain fact is that some of these policies have been followed hardly at all and others with insufficient vigor.

Senator TAFT. Would you, however, advocate a taxation equal to the entire cost of the defense program? That is what would be necessary in order to eliminate price control.

Mr. DALLAS. How is that?

Senator TAFT. You seem to advocate adequate taxation, and does that mean for the raising of a substantial proportion of the defense program? You certainly would not advocate raising 100 percent of the defense program in taxes, would you?

Mr. DALLAS. The idea of taxing and borrowing means that the money comes from the savings of the people. If people invest in bonds they do not have that money to spend in competition with the defense program.

Senator TAFT. Do you see any possibility of such a program as my question suggested?

Mr. DALLAS. No. I mentioned here six steps.

Senator TAFT. I agree with the six steps. It would not be necessary to have price control if those were taken up vigorously, would it? Mr. DALLAS. It might be. That is a matter of opinion. It is difficult in wartime to prevent some inflation.

Senator TAFT. What proportion of the defense program do you think should be raised in taxes? The plan seems to be to spend $35,000,000,000 next year. If we add $5,000,000,000 to our taxes we still have a deficit of $17,000,000,000 and you cannot begin to sell that to savings. Are you in favor of raising taxes until we get up to twentyfive or thirty billion dollars, or would you go that far?

Mr. DALLAS. You might raise a part of it through taxes and a part through borrowing from the savings of the people, and a part through borrowing from banks, and so on, and avoid inflation to that extent. To the extent that you go out and borrow through banks and take money out of circulation and of spending by the people, you are rescuing inflation.

Senator TAFT. We either have to raise to within $5,000,000,000 in taxes for the defense program or we have to have a system of price control. Frankly, I do not think we should try to impose $30,000,000,000 in taxes. I do not think it is feasible to do that.

Mr. DALLAS. Inasmuch as these six steps have not been taken yet it is unnecessary to consider that; or, rather, it is necessary to institute some price control.

Senator TAFT. That is what I wanted to know.

Senator BROWN. You may proceed, Mr. Dallas.

Mr. DALLAS. We have entered the war in which we are now engaged without a definite national price policy, and it is equally obvious that we should have such a policy and have it soon if we are to escape unnecessary economic hardships.

The immediate and post-war dangers of inflation are so great that price control legislation may unfortunately be necessary in order to guard against serious inflation.

I say "unfortunately" because price control may cause economic dislocations as serious as those it seems to cure, and because in order to be successful over a long period it would have to be enforced through dictatorial powers. But the normal laws of supply and demand are necessarily interferred with in a war period. It may, therefore, in view of the serious consequences of any severe inflation, prove desirable during a relatively short war emergency to attempt price control. It should be observed, however, that the effectiveness of any price control in preventing inflation will be determined by1. The extent to which inflation has already occurred or germinated before price control starts.

2. The scope of price control.

3. The administration of price control and safeguards against abuse.

4. The extent to which other possible barriers to inflation are followed.

As for the extent to which inflation may already have germinated it must be said, I believe, that we probably cannot escape some price rise during this war period. This price rise might, under the best of circumstances, be at least slightly inflationary due to the fact that over a period of many years deficit financing has permeated our economic system with the germs of potential price inflation.

We believe that price control could not even substantially prevent inflation unless it provided for, or was preceded or accompanied by, control of the prices of all commodities, rents, and services.

There can be no effective or fair control of finished-goods prices unless all principal elements of cost are included. This should specifically include either prior or simultaneous control of rents, interest rates, farm prices, and wages. Wages constitute a very large percentage of the final cost of any article and in any short period on the average higher wages will mean higher costs and higher prices.

If general price control is to be effective it should include all principal cost elements since otherwise economic dislocations will result which will fail to prevent or substantially curb inflation.

If we seek to control prices without controlling the elements of cost which determine prices you will have one of these three situations resulting: Either costs will keep on rising and you will have continued liftings of permitted prices, and no real benefit to the public; or costs will rise, permitted prices will not, people cannot afford to produce, production will fall, consumers in general and defense producers in particular will suffer from a lack of materials; or costs will rise, prices will rise in fact although not permitted by law, and price control will break down.

We are not suggesting the precise level or point at which Congress should seek to establish control of such cost items as wages and farm prices, but we do state that if price control is to be truly effective there must be controls of all major cost elements, including both farm prices and wages, and that these must be started from some agreed-on base. The great importance of wages alone is seen in these facts: The constitute 16 percent of the value of manufactured products. They constitute 36.8 percent of value added by the actual process of manufacture that is, the value of the products produced less the cost of materials, supplies, containers, fuel, purchased electrical energy, and contract work.

Accumulated labor costs in materials, fuel, containers, transportation, and other distribution processes, service industries all mean that perhaps two-thirds of the prices paid by ultimate consumers represent sums paid out for labor.

With specific reference to the need for wage control if general price control is to be effective, I direct your attention to this official statement issued by the Canadian Department of Labor last July, being a supplement to the Labor Gazette, July 1941:

* *

If there is no ceiling on wages inflation is almost inevitable and the wage earner will be the first and most serious sufferer *. All are agreed that none shall profit from the war. This policy is expressed in the Government's efforts to control and tax profits, to control prices and rents. It must be rounded out by control of wages, for they constitute two-thirds of the national income *. No class in Canada should be given preferred treatment in sharing the war burden.

* *

Similarly, Mr. Eccles well said September 29:

The fact is that you cannot leave wages and salaries which are the main factor in prices to rise indiscriminately and be realistic about preventing inflation.

Again, Mr. Chairman, I direct your attention to this statement appearing in the September 28 National Legislative Bulletin of the American Legion-this Legion bulletin says:

Only a few phases of the Legion's universal service plan are yet to be enacted. The principal part is price control and the Legion's viewpoint is that such

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