Senator MALONEY. What would that amount to? About 8 or 9 percent? Mr. HENDERSON. Yes. Senator MALONEY. That is interesting, because Mr. Odlum has said we could protect 130,000 or more firms with 2 or 3 percent. Mr. HENDERSON. Well, with not just the copper; with all the material. Senator MALONEY. What you say about copper is pretty much true of the other materials, is it not? Mr. HENDERSON. I do not think it is nearly so true as it has been about copper. Senator MALONEY. There has been much more noise about copper because it is the much more essential material? Mr. HENDERSON. That is right. I wanted to link this tailing-off of the rate of production with this rising price here [indicating on chart 20, p. 46, supra], because as you get into priorities and allocations, and as your defense plant increases, you are taking more and more away from civilian life. We have reached in the last month or so a rate of national income of more than $8,000,000,000. Senator BROWN. Per month? Mr. HENDERSON. Per month. By the middle of next year we will probably have reached $9,000,000,000 per month. That is in terms of the present price level. Senator TAFT. In that connection, Mr. Henderson, figures showing industrial production are in dollars or in volume of goods? Mr. HENDERSON. They are in volume of goods. Senator TAFT. How do you add airplanes to battleships? By an index of some kind? Mr. HENDERSON. Yes; this is the composite of all the individual items that the Federal Reserve Board keeps. Senator TAFT. I have always seen figures of industrial production in dollars. I did not know that there was another index. Mr. HENDERSON. This is the physical volume. Out of some $8,000,000,000 per month-take it for December-the defense spending will probably be $2,000,000,000. That is, we are reaching not only subsistence-taking subsistence and all the other payments-but about 25 percent of the national income for the de fense load. Senator MALONEY. Are taxes in that figure? Senator MALONEY. Tax payments? Income taxes? Senator Brown. He means as reflected in the wholesale prices. I presume they are. Mr. HENDERSON. Well, some of them are, but when I say $8,000,000,000 of national income, that is the value of all the goods and services that are produced. That is the sale price. Senator MALONEY. That is what I mean. Senator BROWN. Senator Maloney means in the wholesale prices. Of course, taxes are included in those prices. Mr. HENDERSON. Yes; if I had to hazard a guess as to how much of the additional facilities for producing armament had come into actual operation, I would say that it was about one-tenth. That is, we can expect after the first of the year plants like the St. Louis Cartridge Co., that came into production a couple of months ago, to come into production and build up additional production. But, at any rate, even though we get a certain amount of increase that way, this line [indicating on chart 23] will not lift very much, but actual expenditures, as I estimated before there was any war construction, were headed for $2,700,000,000 per month next year, or a total of $33,000,000,000. In other words, as that demand goes up, the amount of goods available to be taken up by the purchasing power created is considerably less. Senator BROWN. Let me see if I have it in mind. That is illustrated by the change from producing automobiles, for example, to producing shot and shell? Mr. HENDERSON. Yes. We were producing guns and butter for several months. We have been producing additional guns and additional butter more recently, but now the increase will take place at the cost of civilian goods. This chart [indicating chart 23], by the way, just indicates defense expenditures as a percentage of the gross national product. Senator TAFT. You testified this morning, I think, that there would be a national income of about $97,000,000,000 as we pass the 1st of July next year at that rate? Mr. HENDERSON. NO; I think that we will come close to about $97,000,000,000 in 1941. Senator TAFT. For the calendar year 1941? Mr. HENDERSON. For the calendar year 1941. That is on the basis of a slight change. By adding the taxes back in, it will be about $97,000,000.000. For the calendar year 1941, about $97,000,000,000. Senator TAFT. Have you any estimate for 1942? Mr. HENDERSON. On this price level, it can be as much as $110,000,000,000 and might be, with the rate of increase we are going through now in the price level, as much as $120,000,000,000. I would have been surer about that if we had had what amounted to a reasonable time for turning around with defense expenditures. With a victory program, I don't know. I just don't know. I think the dislocations that will come are bound to keep us from attaining that height. I wanted to show the impact of the defense program-that is, the defense program as it exists today-on two types of goods. These are the durable goods here [indicating on chart 24]. You can see how much more it is almost double. That is the civilian demand for your durable goods. When you get over to the cost of things that go into the cost of living, it is only a small amount, seemingly, in terms of the goods and services, but it represents a cut of about $6,000,000,000 which I said would have to be made up. But chart 24 shows the impossibility, it seems to me, of trying to control inflation purely by a withholding tax or any other kind of tax. Prices are made on individual commodities, and they tend to reflect without control the existing supply and demand situation and not the total supply and demand situation. I have done a job here (chart 25) which is entirely new. I did it for our own information on the basis of the 1941 price level, which was about 22 percent above what it was at the beginning of the war. We estimate, in order to get the authorized armament program, which is mentioned in terms of $67,000,000,000, that it would cost an additional $13,500,000,000. That is, on the basis of the rate at which the price level was increasing, that is what it would cost. CHART 23 DEFENSE EXPENDITURES AS A PERCENTAGE If you take the rate at which prices have increased since March, which as I indicated this morning has been the really dynamic periodbeginning in March, say, when we really began to get the real effects of price increases it would cost about $31,000,000,000 more to complete the defense program. Is that clear? I said this morning I believed that that increase represents almost the entire cost of the last war, which had about $13,500,000,000 of inflation in it. If there is a doubled program-I am assuming, as people do, that in a war effort everybody talks about doubling what was being done; that is, if we go up to the rate at which the Canadians are now going, which is about 45 percent of their national income, and I assume that we go up only to about that we would be spending $4,000,000,000 a month for the next 2 years on defense instead of spending about $2,500,000,000. If we did that, then we would be likely to have an additional cost of $50,000,000,000 above the existing price level. What I am trying to say is that, although you do not want to consider, Senators, taxation and appropriations in this committee, you are looking right into the face of what appropriations have to be in terms of a committed program, when you are looking at the question of inflation. 20 15 10 F M A M J 1942 5 SOURCES: Defense Expenditures through October, 1941 from Office of Production Management reports Defense Expenditures subsequent to October, 1941 and Gross National Product estimated by the Office of Price Administration. A 1940 0 |