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Volume 590, November 27, 1942
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Volume 590, November 27, 1942
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Henry Morgenthau, Jr. Papers
Diaries of Henry Morgenthau, Jr.
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DIARY
Book 590
November 27, 1942
Regraded Unclassified
- A -
Book Page
Agriculture, Department of
See Inflation
American Farm Bureau Federation
See Inflation
- B -
Board of Economic Warfare
Meeting - 11/27/42
590
14
a) Wooden Sailing Vessels: Discussion by
Nelson Rockefeller
- C - -
Coins
See Mint, Bureau of
- I -
Economic Stabilization Board
See Inflation
- I -
Financing, Government
War Savings Bonds:
Victory Fund Committees: Announcement to be run
in newspapers in 112 cities - 11/27/42
4
Payroll Savings Plans: Analysis of exposure to -
11/27/42
8
Flanders, Ralph E.
See Inflation
- I -
Inflation
Treasury letter on control through restriction of
consumer spending sent to Byrnes - 11/27/42
16,75
a) Rationing - role in a program for economic
stabilization
22
b) Subsidies - Government policy with respect to
use of in holding down cost of living (Department
of Agriculture publication)
45
c) Rationing of essential civilian goods -
probability of (Department of Agriculture
publication)
47
d) Economic Stabilization Board discussion of
relation between fiscal palicy and control of
excess purchasing power
52
1) Eccles' memorandum on
59
Regraded Unclassified
- I - (Continued)
Book Page
Inflation (Continued)
Treasury letter on control through restriction of
consumer spending sent to Byrnes (Continued)
e) National income and related data - White report
on
590
55
f) Byrnes' summary of action taken to date
57
g) Ben Cohen memorandum: "Tentative tax and savings
program for 1943"
69
h) Flanders' (Ralph E.) letter to Byrnes
99
1) Economic Stabilization Board meeting.
101,106
1) Discussion of McNutt memorandum (page 118)
on relationship between wage stabilization
and migration of labor
a) Discussion by Green, Murray, etc.
5) Agricultural wage control - Wickard memorandum
113
k) Jones and Lampson Machine Company and American
Farm Bureau Federation suggestions
135,137
1) First meeting of Economic Stabilization Board -
minutes of
147
m) Treasury Department: Role in Economic Stabilization
Board
154,167
n) Director of Economic Stabilization: Description
of Office of
190
o) Wage Restrictions: 1942 salaries in excess of 1941
salaries now permissible under certain circumstances -
Treasury release
192
1) FDR's salary discussed
194,228
a) Treasury release regarding
271
2) Sullivan press conference
197
3) Summary from Director of Economic
Stabilization
229,231,
244,245
4) Gaston memorandum on White House conference
to discuss
274
p) Anti-inflation bill - White House release on
280
1) Act itself
288
2) Conference report
290
3) House of Representatives report
292
4) Senate report
294
5) FDR's message to Congress
296
- J -
Jones and Lampson Machine Company
See Inflation
Regraded Unclassified
- M -
Book Page
McNutt, Paul V.
See Inflation
Military Reports
British operations - 11/27/42
590
12
Office of War Information report - 11/27/42
13
Mint, Bureau of
Coins: Stocks on hand and orders filed against them -
11/27/42
11
- R -
Rationing
See Inflation
Revenue Revision
Ben Cohen memorandum - "Tentative tax and savings
program for 1943": See Inflation
- S - -
Salary Limitation
See Inflation
Subsidies
See Inflation
- T - -
$25,000 Salary Limitation
See Inflation
- V -
Victory Fund Committees
See Financing, Government: War Savings Bonds
- W -
War Savings Bonds
See Financing, Government
Regraded Unclassified
1
The Secretary talked to Mr. Mack and
ld him to go ahead.
2
OFFICE
OF
TREASURY DEPARTMENT
WASHINGTON
THE
SECRETARY
November 27, 1942
MEMORANDUM TO THE SECRETARY OF THE TREASURY:
It has been the custom for a number of years to enter
into a general contract with the Potomac Electric Power Company
for power to be used by the Federal Government in the District
of Columbia and adjoining Maryland. These contracts have always
been made on the basis of rate schedules established by the Pub-
lic Utilities Commission of the District of Columbia.
Preliminary investigation indicates that there is justi-
fication for a re-negotiation of the present contract and the
establishment of a new basis for future contracts. The outstand-
ing facts disclosed are that the United States Government purchases
approximately 35 per cent of the energy sold by Potomac Electric
Power Company, that the average revenue at each premise of the
Government was about $4,280 in 1941, or 61 times the average reve-
nue from other customers, residential and commercial combined,
that the average cost of energy delivered from generating plants
and transmission lines was 0.514¢ per kilowatt hour, whereas the
average paid was 0.856₫ per kilowatt hour, and that the earnings
of the utility in 1941 exceeded a rate of 6 per cent, allowable
under the so-called Washington Plan, by $892,147, or a rate of
return of 7.17 per cent.
In accordance with the President's directive of Octo-
ber 22, 1942, to the Chairman of the Federal Power Commission,
the Commission has been consulted and it has assisted in the pre-
liminary inquiry.
We will be prepared, in the near future, to undertake
re-negotiation with the Potomac Electric Power Company to obtain
a reduced cost; and in view of our prior discussion in this regard,
I would appreciate your further thoughts on the matter.
FORDEFENSE
BUY
UNITED
STATES
SAVINGS
BONDS
49D STAMPS
your Cliffon' E. Mack
Director of Procurement
Regraded Unclassified
3
TANDARD FORM No. 14
APPROVED BY THE PRESIDENT
FROM
George Buffington
MARCH 10, 1926
BUREAU
Office of the Secretary
TELEGRAM
CHG. APPROPRIATION Expenses of Loans
OFFICIAL BUSINESS-GOVERNMENT RATES
10-1753
November 27, 1942
- M - -
Executive Managers, Victory Fund Committee, (names attached
To Presidents; Federal Reserve Banks:
Boston, Mass.
Chicago, Ill.
New York, N. Y.
St. Louis, Mo.
Philadelphia, Pa.
Minneapolis, Minn.
Cleveland, Ohio
Kansas City, Mo.
Richmond, Va.
Dallas, Texas
Atlanta, Ga.
San Francisco, Calif.
As you know, the Victory Fund Committees have been organized for
the purpose of inducing individuals, business.concerns, organizations
and associations to invest accumulated balances or idle funds in Govern-
ment securities. In carrying out this program the Secretary has given
instructions for Victory Fund Committees not to organize committees
representative of women's organizations, labor unions, foreign origin
groups, farmers, schools, and other associations of this character.
Please direct your regional managers and others that these instructions
must be followed. It is necessary to send you this communication because
we have evidence that in some communities the Victory Fund Committees
are creating an organization which duplicates the War Savings Staff. If
this continues, unnecessary confusion will develop which will be detri-
mental to the efforts of both the War Savings Staff and the Victory Fund
Committees.
BUFFINGTON
COPY
Regraded Unclassified
4
TREASURY DEPARTMENT
WASHINGTON
November 27, 1942.
Dear Mr. Secretary:
I am sending you airmail, under separate cover,
proof of the announcement to be run in newspapers on
Monday in 112 key cities. I hope you like it.
Enclosed herewith is a comment appearing in this
morning's Baltimore Sun about the aid the American
Bankers Association is giving the Victory Fund Com-
mittees. I am also enclosing a copy of a letter re-
ceived this morning from Frank Kent, which I believe
will amuse you.
Sincerely yours,
George Buffington,
Assistant to the Secretary.
Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury.
Enclosures.
1345 DEC ? bit is
FORVICTORY
BUY
UNITED
STATES
BONDS
AND
STAMPS
Regraded Unclassified
5
THE
SUN
SUN SQUARE
BALTIMORE,MD.
November 24, 1942.
Dear Mr. Buffington:-
The enclosed article has been sent to
all my papers and was printed in The Sun this morning.
I hope you will think it helpful. And I trust I did
not shock you and Mr. Hobbs too much by the warmth
with which I talked to you about waste. But, it real-
ly is a vital subject and I do wish the Treasury
would show more concern about it.
You may De interested in knowing that
your Committee here has just asked permission to re-
print 300,000 copies of this article for distribution
in this territory.
Occasionally the wall Street Journal
leaves out one of my articles. If they do not use this
one to-morrow or Friday, I suggest that you wire Mr.
W. H. Grimes, Editor, asking him to do so.
with best regards,
Sincerely,
Mr. George Buffington,
Assistant to the
Secretary of the Treasury,
Washington, D. C.
5
THE
SUN
SUN SQUARE
BALTIMORE.HD.
November 24, 1942.
Dear Mr. Buffington:-
The enclosed article nas been sent to
all my papers and was printed in The Sun this morning.
I hope you will think it helpful. And I trust I did
not shock you and Mr. Hobbs too much by the warmth
with which I talked to you about waste. But, it real-
ly is a vital subject and I do wish the Treasury
would show more concern about it.
You may De interested in knowing that
your Committee here has just asked permission to re-
print 300,000 copies of this article for distribution
in this territory.
Occasionally the wall Street Journal
leaves out one of my articles. If they do not use this
one to-morrow or Friday, I suggest that you wire Mr.
V. H. Grimes, Editor, asking him to do so.
With best regards,
Sincerely,
Mr. George Buffington,
Assistant to the
Secretary of the Treasury,
Washington, D. C.
6
THE BALTIMORE SUN - November 27, 1942
BANKERS WILL AID
Newspaper Ads
Newspaper advertisements pre-
U. S. VICTORY FUND
pared by the Treasury will be used
early in the campaign by banks at
their own expense. Some of the ad-
vertisements will be used by in-
Association Outlines Role In
dividual banks, others cooperatively
by groups of banks.
$9,000,000,000 Financ-
"The sale of $9,000,000,000 of
Government securities in December
ing Effort
is vital to the prosecution of the
war," the booklet concluded.
(By the Associated Press]
"Banks know the needs of the
New York, Nov. 26-The Ameri-
nation and stand ready to do its
can Bankers Association today out-
part. The banks will help America
lined to its membership of 14,000
-swiftly, eagerly, effectively, and
with all the skill, experience, and
banks plans for their participation
facilities at their command."
in the Treasury's $9,000,000,000 Vic-
tory Fund war financing campaign
in December.
The bank members of the organ-
ization have been sent a booklet de-
scribing how volunteer workers and
bankers could best make the cam-
paign a huge success.
Enrolled In Committees
Federal Reserve district key
bankers have been enrolled in Vie-
tory Fund committees and in sub-
committees in all States and most
counties and municipalities. About
45,000 volunteer workers-largely
from banks-will assist in the cam-
paign,
The volunteers will seek out in-
dividual investors, municipal and
county fund officials, endowed edu-
cational, social and religious irrsti-
tutions, fraternal organizations and
large and small corporation bank
depositors.
Variety Of Securities
Said the A. B. A.'s booklet:
"The December campaign in-
cludes a wide variety of Govern-
ment securities, many of them al-
ready well known and others new
in their appeal.
"Included are Treasury bills, cer-
ti cates of indebtedness, and tax
savings notes A and C, which are
rapidly. growing in importance.
There are included, too, the fa-
miliar United States saving bonds
of Series F and G, and Treasury
bqnds.
"One of your (the bank's) first
contributions to the success of the
campaign will be the preparation
of - prospect list of investors who
can and should purchase some of
the securities offered by the Treas-
ury."
$9,000,000,000
VICTORY LOAN
The Secretary of the Treasury has assigned to the Victory Fund Committees
the task of raising Nine Billion Dollars for the War effort. These funds are to
be raised during the month of December.
The War wheels turn swiftly now. Our guns boom over the Mediterranean, in
the South Seas, in Russia, in the hills of China, across the English Channel, and
on every ocean where our convoys pass. Behind them must stand our billions
-billions of dollars.
Every American should lend every available dollar to our Government. Every
American corporation with available cash should purchase suitable Treasury
issues. The Treasury Department has created issues of securities to meet the
requirements of all investors with accumulated savings or idle funds.
We offer on behalf of The United States Treasury a New Issue
2½% Victory Bonds of 1963/68
Available in coupon or registered form, readily marketable, acceptable as bank collateral, and paying interest semi-ienmally.
Price 100% and accrued interest.
THESE BONDS ARE SUITED TO TRUST FUND AND ESTATE INVESTMENT AND MEET THE REQUIREMENTS OF MOST
INDIVIDUAL INVESTORS. THEY MAY NOT BE PURCHASED UNTIL 1952 BY BANKS ACCEPTING DEMAND DEPOSITS
WE ALSO OFFER ON BEHALF OF THE TREASURY
1%% Treasury Bonds
United States Savings Bonds-Sories F
Due June 15, 1948 and yielding 134%
Due 12 years from date of issue and yielding about 2.57% if held
(Readily marketable bonds acceptable es bank collereral. These boods
40 maturity
will and favor with banks, individuals and corporations desiring a abort incm
Loveriment. They are issued in coupos and registered form)
(This Issue is not marketable bet may be redeemed by de under " hard
prices prior to manurity, sithough is ches Exte the pield is - the full 113%
Treasury Certificates of Indebtedness
These bonds are registered sad appeal particularly in (hase proferring to
have their assings recher than to receive estrent -
Due December 1, 1943 and yirlding Is of 1%
(The above issue appeals particularly - benks and ⑉ corporations with
large temperary cash balances.)
United States Savings Bonds-Series G
Treasury Tax Savings Notes
Due 12 years from date of issue and yielding 2.50% if held to
(Tas Nom are especially adspted DG individuals and corporations scoune-
maturity Interest payable semi-annually.
lating cash for de payment of Federal Income, - - ein assi-for
(This Issue la not marketable but may be redeemed by the - - kned
which shey are acceptable of par and airmal interest-sod for - of
prices prior - marrier, whingh in that case the is not the fall 1.50%
assignatily idle funda of individuals, corporations and public budies.)
These bonds are registered and are designed to provide current income.)
Detailed descriptions of the above issues are available of all Banks and Trust Companies. Selection should be mode
on the basis of individual requirements. Any Bank, Investment Dealer, Broker or other member of the Victory Fund
Committee will be pleased to discuss these issues with you, and to oct for you, without charge, in their purchase.
VICTORY FUND COMMITTEE
SECOND FEDERAL RESERVE DISTRICT
Regraded Unclassif
8
Analysis of Exposure to Payroll Savings Plans
November 21, 1942
Total number
Number exposed
Percent
in the
to payroll
of total
country
savings plans
(estimated)
exposed
Part A - Summary by Number of Organizations Exposed
I. Business organizations
469
472
99
(1) Firms with 5,000 employees or more
(2) Firms with 500 to 4,999 employees
5,607
5,778
97
(3) Firms with 100 to 499 employees
24,873
29,502
84
(4) Subtotal - large firms
30,949
35,752
87
(5) Firms with less than 100 employees
127,660
+
158,609
-
#
(6) Total business organizations
II. Governmental organizations
158,609
III. Grand total
Part B - Summary by Number of Employees Exposed
I. Business organizations
(1) Firms with 5,000 employees or more
8,639,444
(2) Firms with 500 to 4,999 employees
7,378,756
(3) Firms with 100 to 499 employees
5,646,812
(4) Subtotal - large firms
21,665,012
(5) Firms with less than 100 employees
3,138,305
24,803,317
32,800,000
76
(6) Total business organizations
II. Governmental organizations
2,181,131
2,700,000
81
(1) Federal Government
2,800,000
50
1,398,172
(2) State and local governments
5,500,000
65
(3) Total governmental organizations
3,579,303
28,382,620
38,300,000
74
III. Grand total
November 27, 1942
Treasury Department
Excludes agricultural employees, military personnel, employees on WPA or NYA or CCC service. projects,
proprietors, fire members, self-employed, casual workers and persons in domestic
e
Data not available.
Regraded Unclassified
9
Firms Employing 500 Persons or More Participating in Payroll Savings Plans
(As reported by the War Savings Staff's State Administrators)
:
Number of firms with payroll
:
Total
:
Percent of total having payroll
:
savings plans
:
number
:
savings plans
State
:
Apr. 18
:
Nov. 14
:
Nov. 21
:
of firms
:
Apr. 18
:
: (estimated)
Nov. 14
Nov. 21
:
:
:
:
:
:
Alabama
E
67
670
68
60
99
99
Arizona
9
14
14
14
64
100
100
Arkansas
16
17
17*
17
94
100
100
Northern California
122
130
130
131
93
99
99
Southern California
121
151
151
155
78
97
97
Colorado
25
31
31
31
81
100
100
Connecticut
114
152
153
166
69
92
92
Delaware
15
23
23
23
65
100
100
District of Columbia
32
50
50
51
63
98
98
Florida
28
44
F
48
58
92
92
Georgia
86
125
125
125
69
100
100
Idaho
11
11
11
11
100
100
100
Illinois
391
489
491
496
79
99
99
Indiana
88
145
146
165
53
88
88
Iowa
22
24
27
33
67
73
82
Kansas
23
25
25
25
92
100
100
Kentucky
38
49
49
51
75
96
96
Louisiana
29
51
51
51
57
100
100
Maine
48
54
55
55
87
98
100
Maryland
84
111
111
111
76
100
100
Massachusetts
237
316
316
326
73
97
97
Michigan
265
285
285
285
93
100
100
Minnesota
79
81
81+
81
98
100
100
Mississippi
26
34
34*
34
76
100
100
Missouri
103
132
137
139
74
95
99
Nontana
3
4
4
4
75
100
100
Nebraska
23
27
28
28
82
96
100
lievada
4
4
4
100
100
100
4
New Hampshire
29
32
32
32
91
100
100
New Jersey
142
194
196
197
72
98
99
liew Mexico
5
5
5
5
100
100
100
901
903
928
82
97
97
New York
759
North Carolina
103
136
137
140
74
97
98
North Dakota
o
o
o
0
-
-
-
Ohio
412
484
485
504
82
96
96
Oklahoma
31
52
52
52
60
100
100
Oregon
48
55
55
55
87
100
100
Pennsylvania
551
618
620
657
84
94
94
Rhode Island
61
77
77
84
73
92
92
South Carolina
84
98
98
100
84
98
98
5
5
5
100
100
100
South Dakota
5
50
87
88
93
54
94
95
Tennessee
Texas
63
117
119
120
53
98
99
Utah
8
10
10
10
80
100
100
Vermont
12
12
12
12
100
100
100
Virginia
93
102
102
102
91
100
100
100
100
49
73
734
73
67
Washington
West Virginia
36
77
47
100
100
77
77
Wisconsin
127
154
154
154
82
100
100
Wyoming
4
4
4
25
100
100
1
3
3
30
3
100
100
100
Alaska
Railroads
109
109
109
115
95
95
95
Total
4,864
6,051
6,076
6,250
78
97
97
November 27, 1942
Treasury Department
# Date are for November 14, inasmuch as no November 21 report was received.
Regraded Unclassified
10
Pirms Employing 100 to 499 Persons Participating in Payroll Savings Plans
(As reported by the War Savings Staff's State Administrators)
Number or firms with payroll
:
Total
:
Percent or total having payroll
:
savings plans
:
number
:
savings plans
:
State
:
:
:
of firms
:
:
Apr. 18
Nov. 14
Nov. 21
(estimated)
Apr. 18
Nov. 14
:
Nov. 21
:
:
:
:
149
256
256*
347
43
74
74
Alabama
43
71
71
71
61
100
100
Arisona
44
48
48+
109
40
labs
44
Arkansas
Northern California
512
714
718
718
71
99
100
Southern California
756
1,048
1,068
1,493
51
70
72
113
136
136
141
80
96
96
Colorado
Connecticut
277
555
561
719
39
77
78
21
58
59
65
32
89
91
Delaware
District of Columbia
52
159
164
208
25
76
79
Florida
147
217
219
219
67
99
100
93
94
133
391
392
419
32
Georgia
Idaho
31
33
33
33
94
100
100
1,300
2,029
2,070
2,253
58
90
92
Illinois
415
682
684
854
49
Bo
8o
Indiana
160
164
175
263
61
62
67
Iowa
276
288
288
299
92
96
96
Kansas
136
210
226
282
48
74
80
Kentucky
320
56
87
88
179
280
283
Louisiana
60
155
155
171
35
91
91
Maine
Maryland
177
343
345
405
44
85
85
Massachusetts
639
1,124
1,133
1,532
42
73
74
Michigan
689
1,001
1,003
1,303
53
77
77
440
446
84
99
99
376
440⑉
Minnesota
59
92
92*
107
55
86
86
Mississippi
688
706
706
67
97
100
Missouri
472
40
49
49
49
82
100
100
Montana
131
135
143
72
92
94
Nebraska
103
20
28
50
71
71
Nevada
14
20
New Hampshire
143
144
174
51
82
83
89
463
976
978
1,176
39
83
83
New Jersey
42
79
98
98
New Mexico
33
41
41
3,887
4,257
48
91
91
New York
2,060
3,870
85
282
480
481
565
50
85
North Carolina
North Dakota
20
20
20
70
100
100
14
Ohio
1,126
1,740
1,745
2,197
51
79
79
301
323
51
93
93
Oklahoma
166
301
294
294
306
69
96
96
Oregon
211
2,267
74
99
100
Pennsylvania
1,682
2,260
2,267
154
283
345
45
8i
82
Rhode Island
279
42
92
92
South Carolina
71
156
156
170
26
81
100
100
21
26
26
South Dakota
408
408
524
38
78
78
Tennessee
199
1,378
24
50
52
326
686
711
Texas
lale
44
82
100
100
Utah
36
59
68
68
74
80
92
92
Vermont
359
385
73
92
93
Virginia
281
356
455
51
78
78
Washington
234
357
357*
218
220
314
43
69
70
West Virginia
134
479
480
680
41
70
71
Wisconsin
278
17
23
23
74
100
100
Wyoming
23
2
2*
2
100
100
100
Alaska
2
49
49
52
94
94
94
Railroads
49
Total
15,360
24,873
29,502
52
84
84
24,658
November 27, 1942
Treasury Department
e Data are for November 14, inasmuch as no November 21 report was received.
Regraded Unclassified
TREASURY DEPARTMENT
11
INTER OFFICE COMMUNICATION
DATE November 27, 1942.
TO
Mr. Thompson.
FROM
Mrs. Ross.
In reference to your telephone conversation concerning stocks of
coins on hand and orders filed against them, I submit the following:
Five-cent
Halves
Quarters
Dimes
Pieces
Cents
Balances held*
$3,685,209
$2,654,748
$2,969,940
$ 54,545
$
51,130
Orders filed
for shipment*
695,000
710,000
855,000
370,500
20,000
*Close of business November 21st, from reports on hand.
In addition to the above-mentioned orders, the Treasurer's Office
has requests from the Federal Reserve Banks for coins that have not been
filed with the Mints. The Treasurer's Office only files the orders when,
in their opinion, the stocks in the Reserve Banks are low and require re-
plenishing. In the case of the one-cent coin, however, orders have not been
filed because of the limited supply of metals to manufacture them. If these
orders were filed, they would exceed the supply in the Mints.
The Mint has filled all orders for coin except for the one and
five-cent denominations. The shortage of strategic metals, of which you
are familiar, has caused the shortage in these two denominations. At the
present time, five-cent pieces are being manufactured and the backlog of
orders is gradually being reduced. It is only recently that the stock of
one-cent pieces has become depleted. We now await legislation to enable the
production of cents of a new alloy. If legislation is passed within the next
week (the bill has already passed the Senate), production can be started, it
is believed, the first ten days of January. In the meantime, I have started
a drive to bring hoarded one-cent coins back into circulation, which, it is
believed, will supply enough coins to alleviate the situation even though
the Mint's supply is exhausted.
R.J.R.
Regraded Unclassified
12
NOT TO BE RE-TRANSMITTED
COPY NO.
13
BRITISH MOST SECRET
0.5. SECRET
OPTEL No. 413
Information received up to 7 A.M., 27th November, 1942.
1. NAVAL
NORTHERN WATERS. On 26th el convoy of 31 ships from NORTH RUSSIA
resched vicinity of ICELAND (c).
2. MILITARY
LIBYA. There are indications Rommel intends to hold line MERSA
FRAGA-DIRES SUERA-MAATEN JIOFEROA MARADA but it is considered probable that with
his present week forces he may have to confine his strength to the main position
in the Northern Sector. On 25th, P United Kingdom Armoured Brigade was in contact
with enemy rearguard about 9 miles east of MERSA BREGA. Much digging was observed
in enemy main position which was well supplied with light anti-sircraft equipment.
FRENCH NORTH AFRICA. First Army began a general advance on TUNIS
and MIZERTA in evening 24th. No information yet received regarding progress.
3. AIR OPERATIONS
WESTERN FRONT. 26th. Fighters successfully attacked railway
and military targets in Northern France and Low Countries, also shipping off Dutch
Coast. Casualties - ours 6, nil, nil. Enemy 4, nil, nil.
26th/27th. 30 aircraft laid 45 mines in enemy waters.
FRENCH NORTH AFRICA. During 22nd and 23rd Lightnings from TEBESSA
operated in GABES-SPAX area and destroyed 12 Italian troop carriors and 3 other
aircraft in the air and on the ground, as well as 11 tanks.
Night 25th/26th. Wellingtons dropped 20 tons of H.E. on TUNIS
docks hitting oil cisterns and causing large fires.
23rd. Intense enomy air activity developed against roads in
MEDJES DD BAB-BEJA area.
mediterranean. 26th. Beaufighters shot down a northbound JU 52
off CAP.. BON.
LIBYA. 25th. 3 enemy air attacks against our armoured units in
JEDABYA area caused damage to vehicles and some casualties.
BURMA. 25th. Escorted Blenheims bombed MYINGYAN Roilway Station
(60 miles south west of MANDALAY).
Night 25th/26th. NINGALADON nirfield and HEHO were attacked.
Regraded Unclassified
11-27-42
NTELLIGENCE REPORT 51
TO THE DIRECTOR, OWI
1
111 n a R $ A the s , STATE I
A
OFFICE o
WAR INFORMATION
BUREAUOF
INTELLIGENCE
COPY No.
7
Henry Morgenthau, Jr.
Regraded Unclassified
CONTENTS
Page
EDITORIAL ATTITUDES
1
Thanksgiving
1
France
2
Germany
3
POPULAR REACTIONS
4
Confidence
4
Prescription for a Radio Series
5
Lend-Lease Repayment
8
DEVELOPING SITUATIONS
9
Farm Difficulties
9
Selective Service
12
The Press and Federal Employees
13
Confusion about War Aims
14
Regraded Unclassified
The period covered by this report is the
week of November 19 through November 24, ex-
cept where otherwise specifically stated.
Regraded Unclassified
EDITORIAL ATTITUDES
THANKSGIVING
The good cheer continued. A study of major headlines in 20 metropolitan
newspapers for the week indicated that 78 per cent of them blasoned good
news from one or another of the fighting fronts. Editorial comment was
scarcely less buoyant.
Commentators took time off from sober interpretation of the war to salute
the Navy. They tossed their hats in the air for the Boise. They paid
tribute to Admiral Callaghan and eulogized Admiral Halsey. Even on sober
second thought, most commentators agreed with the Houston Chronicle that
the naval battle around the Solomon Islands "is likely to rank among the
decisive naval victories of the world..."
There were almost equal plaudits for General MacArthur and his allied troops
pushing the Japanese back on New Guinea. The Patterson and McCormick news-
papers once more boomed the General as the great American hero. They ar-
gued that, given adequate troops and equipment, he could roll the Japanese
right back to Fujiyama.
Comment on the North African campaign assumed a somewhat less roseate hue
as editors, columnists and radio broadcasters speculated on the enemy's next
moves. The Birmingham Age Herald was among those pointing out that "If
Rommel could rally the remainder of his army... the allies would again be
facing a much more formidable job than that which has been tentatively
visualized as possible in the last week."
- 1 -
Regraded Unclassified
Some counterstroke by Hitler is generally anticipated. William Philip Simms,
in the Scripps-Howard newspapers, outlined the possibilities most commonly
considered: "He might try to cross Spain to get to Gibraltar and Morocco.
He might try to reach the oil fields of the middle East through, or by go-
ing around, Turkey. He might even try an invasion of England... Or, he
might consolidate his present hold on the continent, go on the defensive,
and at the same time launch a peace move."
Guessers pointed most frequently to Spain. They found cheer in General
Franco's reiteration of his neutrality. But the return of Serrano Suner to
a cabinet post aroused some apprehension. Raymond Gram Swing suggested,
on the air, that the Spaniards might be getting ready to stab General Eisen+
hower's North African expeditionary force in the back.
Interpretations of the battle for Tunisia were in agreement as to its stra-
tegic importance. According to the Denver Post, "When it is won by the
allies, they will be in a position to strike and strike hard at the most
vulnerable link in the Axis chain - Italy." Most prognostications were
extremely hopeful. The Cleveland Plain Dealer, for example, said that the
Axis, "outnumbered and underequipped.. cannot overcome through reinforce-
ments and new supplies the advantage held by the United Nations in North
Africa.
FRANCE
As soon as the President issued his statement defining General Eisenhower's
arrangement with Admiral Darlan, a flood of comment appeared, revealing
profound relief and agreeing heartily with Mr. Roosevelt. "Darlan ordered
- 2 -
Regraded Unclassified
Frenchmen to capitulate, and they did 80," the St. Louis Post-Dispatch
pointed out. "The fact that Eisenhower accepted this help certainly did
not mean that he was setting up & Vichy regime, American model, in North
Africa, or that he was attempting to dictate the future of France. That,
as the President said, will be determined by Frenchmen."
For the remnants of the Vichy regime, Laval in particular, commentators ex-
pressed only the utmost contempt. In cartoons, Laval was commonly portrayed
in the form of a mustached rat or a diminutive fuehrer. It is generally
assumed that the French people are overwhelmingly eager to share in a
United Nations victory.
GERMANY
A good many commentators expressed the view that Germany is weakening on
the political and economic, as well as on the military, fronts. Nazi ef-
forts to keep the news of North Africa from the German people, or to twist
its real significance, were viewed as indicative of low morale within the
Reich. Occupation of southern France was expected to raise transportation
difficulties. Numerous comments suggested that Italy's vulnerability to
air attack would have shattering effects on the outlook of Italians. The
food shortage throughout Europe might be aggravated by the loss of Algeria
and Morocco. Rumors of a rift between Hitler and his generals were occas-
ionally seized upon as further evidence of Nazi internal difficulties.
A few newspapers warned vehemently against placing any credence in such
rumors. The Christian Science Monitor regarded them as prefabricated in
Germany and declared that "The object of such moves is to catch the free
-
world in the snare of a 'cheap peace.' No one knows better than the German
militarists that there is no such thing. The rest of us should know it,
too, by now." And the Philadelphia Record cautioned that "The overthrow
of Hitler will not alone be victory. Nor will a deal with the Junkers be
peace." In general, it seems unlikely at this time that American press and
radio will rise easily to any "negotiated victory" bait.
POPULAR REACTIONS
CONFIDENCE
The rout of Rommel's forces in North Africa by the British Eighth Army gave
a striking boost to the confidence of Americans in England's war effort.
Just prior to news of the decisive British victory, and again shortly fol-
lowing it, the Princeton University Office of Public Opinion Research
posed the following question to comparable national samples:
DO YOU THINK THAT THE BRITISH ARE DOING ALL
THEY POSSIBLY CAN TO WIN THE WAR?
October 27
November 10
Yes
64%
74%
No
23
18
Don't know
13
8
Opinion on this topic has fluctuated sharply with the changing fortunes .of
war. Last February, immediately after the fall of Singapore, no more than
49 per cent of the American public were willing to credit the British with
making an all-out war effort.
- 4 -
Regraded Unclassi
Public confidence in the American war effort was similarly heightened by
the news of General Eisenhower's successful invasion of French North Africa:
DO YOU THINK THE UNITED STATES IS DOING ALL
IT POSSIBLY CAN TO WIN THE WAR?
October 27
November 10
Yes
67%
75%
No
28
22
Don't know
5
3
Although these questions have been asked with great frequency throughout
the year, this is the first time that the approval expressed for the
British war effort equalled that expressed for the United States.
PRESCRIPTION FOR A RADIO SERIES
As pointed out in last week's Intelligence Report, three people in ten of
a national cross section interviewed in November felt that they were being
given too little news about the fighting fronts. Either because recent
releases have failed to satisfy many individuals or because attacks on
Army and Navy information policy have shaken public confidence, dissatis
faction has mounted sharply since last summer. It is now at the highest
point since people were first questioned about the adequacy of military
news in February.
Persons interviewed in November were also asked: "Suppose a Government
official were going to make regular radio talks to the people - what
would you like to have him talk about?" Their replies, tabulated below
in general categories, point to the areas about which people want
authoritative information. Percentages add up to more than a hundred
- 5 -
Regraded Unclassified
because multiple answers were permitted.
Military progress of the war
40%
Domestic issues
20
What our leaders are doing
12
Civilian participation in the war
8
Post-war world
8
Production, shipping, equipment
7
Nothing
7
Miscellaneous
9
Not ascertainable
7
Responses sometimes showed quite specifically what questions people want to
hear discussed, and even what kind of approach they would be likely to ap-
prove. For example, the individuals who wanted more information about "the
progress of the war" were hungry not only for news of how U.S. troops are
faring in different parts of the world, but also for analyses of the probable
length of the war and the prospects for victory. They were insistent that
the treatment be frank. They wanted the complete war picture -- in the
words of one respondent, "Full discussion of all facts -- good, bad or in-
different." But many of them explicitly recognized the need for withhold-
ing any information which might be of value to the enemy.
The people who wanted to hear domestic issues discussed were in general a
hard-boiled lot. Many of them were clearly critical of the Administration,
and wanted explanations of policies of which they disapproved. Typical was
an individual who thought the official should use his radio time to account
for the Government's "favoritism" toward unions. Others wanted to hear
talks on problems which vexed them - the rising cost of living, the diffi-
culty of finding farm help. There was some irritated demand for talks ex-
plaining the need for various rationing programs.
- 6 -
Regraded Unclassifie
Most of the people who wanted more information about what the nation's
leaders are doing also manifested a critical tendency. They felt that
they should be acquainted with the duties of important officials, and recog-
nized that they were not. Many of them expressed an interest in Congress-
ional procedure and a desire for information about the measures considered
by Congress. A wide audience evidently exists for a series of down-to-
earth talks on the functioning and problems of a democratic government in
wartime.
The people who asked that civilian participation be discussed wanted clear-
cut instructions on what they could do to help win the war. There was a
widespread desire for facts about nutrition and for practical advice on con-
serving money and materials. Some people requested that the talks suggest
ways in which women, school children and other groups might participate in
the war effort.
The people who wanted the Government spokesman to talk about the post-war
world were particularly concerned about the nature of the peace and the
future role of the United States in world affairs. Those who wanted
authoritative information about production were interested not only in the
broad question of how well production is going, but in the way in which our
fighting equipment compares with that of other nations. Considerable curi-
osity was manifested about the shipbuilding program and the success being
experienced in getting supplies to the fighting fronts.
Seven per cent of the people interviewed were opposed or indifferent to the
proposed series of radio talks. Some of them said that they were well satis-
fied with the information they are being given at present; others were simply
- 7 -
Regraded Unclassified
uninterested. A recalcitrant few took the position that the official couldn't
tell the truth and that there would be no point in listening to him.
The better educated respondents were somewhat less prone than those who had
not completed high school to request that the military progress of the war
be discussed in the radio talks. In contrast, they exhibited considerably
more interest than the less well educated people in issues connected with
the peace and the post-war world. They tended to be somewhat more critical
than the less well educated and were notably more concerned about the nation's
financial situation. Few differences were evident on a regional basis, save
that people in the South were least inclined to demand explanations from the
Administration about its conduct of the war.
LEND-LEASE REPAYMENT
Nine Americans in ten believe that we should continue to send supplies to
our allies -- even if it means that we will have some shortages here at
home. But only four in ten believe that we should give our allies these
supplies. America is not yet ready for Sir Walter Venning's recent pro-
posal that bookkeeping be forgotten in connection with Lend-Lease.
There is, however, a pronounced trend in the direction of greater gener-
osity toward our allies. This is evident from responses to a question
which has now been asked of a national cross section four times this year:
DO YOU THINK WE SHOULD GIVE OUR ALLIES THE SUPPLIES
WE ARE SENDING THEM, OR DO YOU THINK WE SHOULD GET
REPAID FOR THEM IN SOME WAY AFTER THE WAR?
February
July
October
November
Give to allies
19%
Get repaid
35%
37%
75
39%
Don't know
58
55
6
54
7
8
7
- 8 -
Regraded Unclassified
In November, the group of people who felt that the U.S. should exact some
type of repayment from its allies was asked: "In what way should they re-
pay us?" Many respondents showed little awareness of the economic diffi-
culties repayment would involve. About.half of the group (26 per cent of
the entire sample) replied, "In money." Seventeen per cent felt that we
should be paid back in goods. Others felt that our allies should make
trade concessions to us after the war or turn over colonies or land to the
United States.
The belief that Lend-Lease balances can be cancelled through payment in
money and goods may be a source of serious trouble in the post-war world.
Quite apart from their military contributions in the common struggle against
the Axis, America's allies have made at least partial repayment in the form
of technical aid, patents and industrial processes. Dramatization of the
reciprocal nature of Lend-Lease may make Americans less insistent upon a
cash settlement of accounts, and educate them to the importance of inter-
national cooperation in the post-war economic order.
DEVELOPING SITUATIONS
FARM DIFFICULTIES
In addition to the widely publicized rural labor shortage, farmers now face
other serious difficulties which threaten food production. Reports re-
ceived by the Bureau of Intelligence from OWI field representatives and
correspondence panels indicate that the nation's food producers are now
- 9 -
Regraded Unclassified
handicapped by transportation problems and by a scarcity of farm machinery.
The scarcity of farm machinery, coupled with the labor shortage, may result
in an unfortunate shift in agricultural production. One Middle Western
correspondent observed: "The kind of farm production requiring most labor
is the kind the country most needs, such as dairying and meat production.
When help gets scarce, a farmer who is engaged in this kind of production
may be forced to turn to the only kind of production he can manage almost
alone with machinery. He grows more cereal crops. In other words, he
shifts from the kind of production we need to the kind we don't."
The tire shortage and difficulties in buying and repairing trucks trouble
farmers in getting their produce to market. Dairymen in some areas find
it impossible to meet the requirements of city health departments that
their milk trucks be insulated. Farmers and ranchers in southern plain
states fear that they will be unable to conduct their business under gaso-
line rationing because they already use passenger cars to do much of their
hauling. A report from South Dakota estimates that 30 to 40 per cent of
the trucks moving farm produce and supplies will be off the road within a
year, unless additional tires are made available. Truck registration has
badly snarled existing truck pooling arrangements among farmers and has
occasioned widespread resentment.
Because they are afraid that they will not have men and machinery to oper-
ate their farms, farmers in many parts of the country are reducing their pro-
duction. In the New York milk shed area, it is reported, 32 auctioneers
say they sold 40,821 head of cattle up to the middle of October this year,
- 10 -
Regraded Unclassifie
as compared with 25,125 for the same period in 1941. Agricultural war
boards in Wisconsin, a leading dairy state, report a new high in farm
auctions -- 3,000 sales listed so far this year Wool sheepmen in several
mountain states are reducing their flocks as much as 40 per cent because of
the lack of sheep herders. Parts of many crops, such as fruit, cotton, sugar
beet and garden truck were not harvested for lack of labor.
Remembering the costly investment they made during the last war and the
serious farm collapse after it, a growing number of farmers are reluctant to
expand their operations in order to increase production; they hesitate to
purchase seed, feed, livestock and other necessary items to produce crops
which they fear will not reach market.
The field men and correspondents report the following solutions suggested
by local farm leaders:
(1) Defer farm labor from the Army on the same basis as
other skilled or professional deferments.
(2) Allocate or ration labor to meet the needs of agri-
culture.
(3) "Freeze" farm laborers to their jobs.
(4) Make wider use of Japanese labor from relocation
areas and import more Mexican labor.
(5) Mobilize local citizenry to meet seasonal demands.
Aware of their responsibilities, many farmers urge an educational program
to acquaint city people with the importance of the farmer in the war pro-
gram and with the problems he faces. Informational measures seem needed
also to persuade farmers that the Government is genuinely aware of their
- 11 -
Regraded Unclassified
difficulties and is acting effectively to solve them. Their hired hands need
assurance that the work they do in the fields constitutes a patriotic ser-
vice to the nation. And the farmers themselves need to be reminded that their
production of essential crops is a vital part of the war effort.
SELECTIVE SERVICE
Interviewing conducted by the American Institute of Public Opinion indicates
that over-all satisfaction with the fairness of Selective Service has been
subject to only slight fluctuation during the last six months. In April and
October three-quarters of the people interviewed thought that the draft was
being handled fairly in their communities.
The people who expressed dissatisfaction with the operation of Selective
Service were asked: "In what way is the draft not being handled fairly?"
Significant differences are apparent between the criticisms voiced in April
and in October. On both occasions the most common complaint was that favor-
itism is shown by local boards - that money and politics talk - but this
accusation declined in relative importance between April and October. And
fewer complaints were made in October about draft boards taking too many
skilled workers or men who are physically unfit.
In contrast, there was a sharp rise in criticisms over inconsistencies among
local draft boards. People also protested more in October than in April that
draft boards "take married men while there are still single men around."
Similarly, there were many complaints about draft boards taking older men,
while young men are still left in civilian life - a complaint which no one
raised in the spring.
- 12 -
Regraded Unclassifi
Complaints about the number of farm boys being drafted also rose between
April and October, undoubtedly in reflection of the tight farm labor situa-
tion. It is encouraging to note that the policies about which increased
dissatisfaction was felt have already been modified, or are now in process
of being changed.
Save that farmers were slightly more critical than the rest of the nation,
there were no significant differences in satisfaction with Selective Service
by occupation, economic status, region, age, religion or nationality back-
ground. Nor was there any difference in attitude between people who have
members of their families in the armed forces and those who do not.
People who disapprove of the way President Roosevelt is handling his job were
distinctly more critical of Selective Service than those who approve of his
leadership. Their dissatisfaction may stem in large part from a generalized
distrust of the Administration. Previous studies have shown that the anti-
Roosevelt minority tends to be more critical than the President's supporters
of most phases of the war effort.
THE PRESS AND FEDERAL EMPLOYEES
Senator Byrd's charge that the Federal Government is the "chief offender" in
the waste and hoarding of manpower is receiving a good press. Most newspapers
did not have to be persuaded as to the merit of the Senator's viewpoint.
Criticism of the "overstaffing" of Government agencies has been common in
editorial discussion of the manpower crisis in recent weeks. One or two col-
umnists wouldn't let a piece on the African offensive go by without at least
a passing reference to boondoggling in Washington.
- 13 -
Regraded Unclassified
Thus Senator Byrd's statement provided an occasion for a return to familiar
ground. Of approximately 40 newspapers checked by the Bureau of Intelligence,
19, plus a pair of columnists, joined the excursion this past week. Only
Samuel Grafton dissented. He pointed to the work done by OWI employees in
connection with the African offensive as an example of loyal devotion to duty.
The widespread endorsement of the Byrd charges contrasts sharply with the
limited attention paid to Elmer Davis's speech of November 17 at the New York
Herald Tribune Forum. In this address Mr. Davis stressed the devotion, hard-
work and small pay of most Government employees. Few newspapers gave these
remarks more than the most perfunctory news coverage, and none of the papers
checked by the Bureau commented on them editorially.
The treatment of the President's order tightening deferments for Federal em-
ployees also suggests that the press puts a low evaluation on their services.
All of the ten newspapers commenting on the order approved it. A typical re-
action was that of the Cleveland Plain Dealer, which said that the order
"corrects the most glaring injustice in Selective Service management. Despite
the labor shortage, the Government has steadfastly refused to adopt a Spartan
code for itself."
CONFUSION ABOUT WAR 'AIMS
Recent statements of highest United Nations' officials have created the im-
pression that the war aims of the United States, England and Russia have not
yet been satisfactorily reconciled. There appear to be important differences
of opinion with respect to the treatment of colonies on the one hand and the
aggressor nations on the other.
- 14 -
Regraded Unclassifie
Whatever their intent may have been, and however they may lag behind actual
British practice, Prime Minister Churchill's remarks of November 10 on
colonial policy gave many people the impression that England is fighting
to preserve the status quo. Churchill declared: "We mean to hold our own.
I have not become the King's first minister in order to preside over the
liquidation of the British Empire." The tone and apparent significance of
this statement contrast sharply with the Atlantic Charter and with President
Roosevelt's address, a few days after Churchill's, on the occasion of the
seventh anniversary of the Philippines Commonwealth Government. In this
speech the President reasserted the principle that "the acceptance of
sovereignty (by the United States) was but an obligation to serve the
people of the Philippines until the day when they themselves might be
independent and take their own place among the nations of the world."
Senator Pepper severely criticized the Churchill statement in a speech at
Boston to a CIO convention and in a later interview. Although paying tri-
bute to Churchill as "the leader of a great nation," he deplored the fact
that "considerations of Empire had not been eliminated from the objectives
of the war." In his interview he declared: "I am sure that Mr. Churchill
did not intend to forget humanity in a moment when our fortunes were a
little better, and become a spokesman for Empire."
The Indian leader Rajagopalachariar interpreted Churchill's remarks as an
indication that Britain did not intend to give India her independence. In
an interview with New York Times correspondent Herbert Matthews, he said:
"You Americans are thinking only of war, but England wants to retain her
Empire. Will America fight for India after this war if during the war you
- 15 -
Regraded Unclassified
allow yourselves to be dictated to by Mr. Churchill. The American Govern-
ment can tell the British they must solve the Indian problem...
Stalin reopened the question of the post-war treatment of the Axis powers
with his statement of November 6, in which he reviewed the war and Soviet
international policy. After denouncing the absurdity of Hitler's declared
intention of destroying Russia and all her organized military forces, he
made it plain that Russia was fighting to annihilate Hitler's Government
and Hitler's Army, not to destroy and disarm.
"It is not our aim to destroy Germany, for it is impossible
to destroy Germany, just as it is impossible to destroy
Russia It is not our aim to destroy all military force
in Germany, for every literate person will understand that
this is not only impossible in regard to Germany, as it is
in regard to Russia, but it is also inadvisable from the
point of view of the future.
There is a possible contradiction between these words and Point Eight of
the Atlantic Charter, which states that "the disarmament of (aggressor)
nations is essential." Stalin's position also appears to be at variance
with recent statements of other United Nation's leaders, which have
tended to call for more and more severe treatment of Germany and Japan.
Illustrative of the trend was the speech by Foreign Minister Eden at
Glasgow on October 30, in which he declared: "Hitler is not an accident.
He is a symptom. Let no one forget that in the kind and generous moments
after the war... The problem of Germany will remain because Hitlerism
has inculcated this terrible doctrine into the young people of Germany."
Eden implied that Germany would have to be supervised for a long period
after the war.
-- --
16
Regraded Unclassifi
A
wash
the
and
1935 and and the
Regraded Unclassified
14
SECRE
Minutes of the Meeting of the Board of Economic Warfare
Held November 27, 1942, at 10:00 8. m.
A meeting of the Board of Economic "arfare was held in the Vice President's office
in the Capitol Building at 10:00 a. m., on November 27, 1942.
Those present:
The Vice President, Chairman of the Board
Fr. Dean Acheson, representing the 1 ecretary of tate
Mr. Pobert Patterson, representing the Secretary of Mar
Mr. Charles Fahy, representing the Attorney General
The Secretary of the Navy
Mr. Leslie Wheeler, repre' enting the Secretary of Agriculture
Mr. "/ayne Taylor, representing the Secretary of Commerce
Fr. Nelson Rockefeller, Coordinator, Inter-American Affairs
Mr. illiam Batt, representing the Chairman, War Production Board
Mr. Arthur Ban Buskirk, representing Lend Lease Administration
In Addition, the following persons were present:
Mr. W. L. Clayton, Department of Commerce
Mr. Harold H. Neff, War Department
Mr. Emilio F. Collado, State Department
Pr. Adlai Stevenson, Navy Department
Mr. James LeCron, Office of the Coordinator, Inter-American ffairs
Mr. Alexander Peabody, Office of Coordinator, Inter-American Affairs
Mr. John C. McClintock, Office of Coordinator, Inter-American Affairs
Mr. Vilo Perkins, Board of Fconomic Warfare
Mr. E. Gaumnitz, Roard of Economic Warfare
The Vice President opened the meeting and referred to the report on shipping, "Pro-
gress Report by the Coordinator of Inter-American Affairs on the Acquisition, Con-
struction and Operation of Small Vessels in the Intor-American Trades", dated
November 21, 1942, prepared by the Office of the Coordinator of Inter-American
Affairs.
In commenting on the report, Mr. Pockefeller drew attention to a contemplated modi-
fication in the program for wooden sailing vescels. Originally it had been
thought that goods would be transported by ocean-going vessels to certain points
from which smaller wooden sailing vessels might be used for distribution. On
reexamination, it appears much more economical in terms of critical materials to
build 500-ton freighters with Diesel power rathan 350-ton sailing vessels as
originally contemplated, allowa noe being made for the fact that 8. 500-ton freighter
would handle approximately three times the volume of a 340-ton sailing vessel.
Discussion developed the fact that the real bottleneck is in supplementary items
such as engines and auxiliary equipment and the tools and skilled: labor in the
manufacture of such equipment rather than in such broad categorios as stoel.
N. To the extent that items could be used which were in stock, no difficulty would
arise.
Regraded Unclassified
It was agreed that the wooden vessel construction program should not be pushed at
this ti-o if it were necessary to menufacture motors and certain other suxiliary
items. To the extent that motors now unused could be utilized, construction should
be geared to their vailability. It was also suggested that there be explored the
possibility of transferring cortain vossels and equipment now in the hands of the
Novy.
Food:
The Vico President referred to the "cport ":ood Supply Program--Intorim Deport,"
dated "ovember 21, 1942, prepared by the Office of Inter-Amorican Affairs.
Rockefeller opened the discussion by saying that in genoral the food problem in
Contral American areas was a matter of transportation, both poean-going and inter-
nol, involving such cuestions EF trucks, tires, reilrouds, coal and oil.
In general, there is available sufficient food in Latin America, if the area is
taken 65 e whole. "owever, cortain areas have surplusses and other deficits.
The attempts to increase food supplies in doficit arcas, and porticularly in areas
in which on attompt is being made to incroase the production of raw m. terials for
shipment to the U. S., clearly involves a slow process of qducation. In some areas
littlo statistical information is avoilable as to present production or needs.
Mr. LoCron, in responso to & quostion by the Vice President indicated that in the
Amezon Velley there were porhaps one and one-helf million people, end that food
imports into that aroa have amounted to cround €0,000 tons per year, though data
are not ovoilable as to production in the crea. in additional 250,000 rubber
workers would moan porhaps 100,000 - 130,000 tons more food. Mr. Cleyton esti-
mated that 400,000 additional poople would require some 300,000 tons of additional
food, sinco food supplios, in the arec wore clearly insufficient to support the
usuel population. In response to quostion by the Vice President, Mr. Clcyton
stated the t it vis hoped the 300,000 tons of food could bc coured in Southern
Brozil and moved in Prozilian ships.
I'r. Pockofeller stated that his office WES attompting to develop added local food
murplins in the Control Amorican cre, not only for consumption by the lourl people,
but for sold to the armed forces. The Coordinator's Office is guarantosing pur-
ohneo in conjunction with cortain of those development programs.
In terms of reduced shipping for the movement of foodstuffe, r. LeCron and Pr.
Rockef ller indio tod that the results of the food programs now undor wr.y, while
possibly showing FORM results in bout throe months, were extremoly difficult to
apprtiso in view of the abrenoo of basic statisticol data. It appoars, however,
that progress in the development of food production in Lotin Amorica would bo slow.
Horlth and Sanitation:
In response to quostion by the Vice Prosident, Mr. Pockefollor atcted that pro-
Ho gross on Hoalth end senitation programs WES much greator than the food program.
lont itso) If to quicker tongible results. with health and it WGS possible
pointed out that compar to the food program, the horlth rind sonitation program
to scoure results by supplying doctors, equipment, otc. to senitation to ostnblish
$25,000,000 ostablishing nurses training schools. Ho stated cooporation that the of
socured an office in and bogin action. Ho also stated that excellent an aroa had boon
was available for work in health end senitation and that his sum office
2
Regraded Unclassifie
15
expected to expond about $5,000,000 this year. Approxim toly 4,000 pooplo are now
employed, many being laborors ongaged in ditch and sowor projects. In response to
a specific question, Mr. Rockefeller stated that fair progress was boing made on
malaria control in the Amazon area.
The mooting was adjourned nt 11:20 C. m.
M
3
Regraded Unclassified
16
November 27. 1942
By dear Mr. Byrnes:
14m
P75)
a
on November 10; in response to your request, I sent
you a letter dealing with measures to control inflation through
the restriction of consumer spending. I now supplement that
letter with some comments on the use of subsidies to stabilise
the cost of living and to prevent inflation.
Because of their large possible cost and the dangers of
abuse, subsidies have & limited role. However, under special
circumstances, they can help accomplish three objectives:
(a) they can be useful in preventing an undue increase in the
cost of living, (b) they can help assure as adequate supply
of consumers' goods necessary to health and efficiency, and
(e) they can facilitate an equitable distribution of essential
goods among all consumers. The proper use of subsidies in
special aircumstances to attain these objectives would help
to prevent the further development of inflationary forees.
A rise in the price of goods or services that are
significant in the budgets of the low income groups, such as
breadstuffs, dairy products, and essential transportation,
may make it impossible for such people to purchase these
products in amounts necessary to maintain health and efficiency.
Nov. 28, 1942, 11:50 a.m.
Original letter sent to Mr. Byrnes
by special messenger (by Mrs. Wondrack
with 25 copies of mimeographed letter.
Regraded Unclassified
17
- 2 -
If a rise in the prices of such important goods or services
cannot be prevented in any other way, it may be desirable
to maintain price stability through a subsidy. In fast,
unless the prices of commodities that bulk large in the
budgets of the low income groups are kept relatively a table,
it will be difficult to avoid compensating increases in
wages with their t endeney to produce an inflationary spiral.
Subsidies may also be necessary to assure in adequate
output of important products needed for civilian consumption,
for our armed forces, and for the United Nations. There are
already some instances in which the supply of products vital
to the health of the nation is in danger of deelining because
of the greater attractiveness of alternative types of employ-
next OF production. go are apparently now feeed with this
situation for some of our more important food products.
Under such eircumstances, a subsidy may be necessary to assure
the maintenance of the present level of production without
an undesirable vise in prices.
The case in fever of subsidies is particularly clear
shere production of en adequate supply of essential goods
requires the utilisation of a relatively small additional
amount of resources involving higher costs of production.
Where such conditions prevail, subsidies can be used to
Regraded Unclassified
18
- 3 -
stimulate production from marginal resources without giving
a windfall profit to the bulk of the producers through a
uniformly higher price.
Repecially in wartine it is of the utmest importance
that the low income groups receive adequate supplies of -
modities vital for health and efficiency wherever subsidies
are proposed, careful sonsideration should be given to the
possibilities of rationing. In casse where even rationing
will not assure that these groups will be able to purchase an
adequate portien of the existing stocks at present market prices,
it will be desirable to assure through subsidies that a satis-
factory portion of the available supply goos to these groups.
There may, however, be instances in which the supply of an
essential commodity would be adequate for health and efficiency
if its consumption were equitably distributed. The ration-
ing of such a commodity may entirely eliminate the need for
a subsidy. Even where a subsidy is needed to maintain or to
increase production, the aggregate cost of a subsidy can be
minimised through rationing.
There are important limitations to the baneficial use
of subsidies even with respect to cost-of-living items:
(1) The total mount of subsidies granted should be kept
small since the granting of subsidies may increase the amount
Regraded Unclassified
19
- 4 -
of consumers' spending power that must be withdrawn through
fiscal or other devices. (2) Subsidies are liable to abuse.
Pressure groups are likely to secure or maintain subsidies
not in the public interest. (3) Subsidies should not be
used to reseve the berrier to cost inflation which is
normally provided by consumer resistance to price rison.
Consumer dissatisfaction with rising living costs constitutes
a whole some check on the unnecessary inflation of production
costs.
where subsidies are granted, the selective principle
should be followed as for as practicable. Subsidies should
be restricted as for as possible to producers the need them
to produce the additional output. They should also be
limited to commodities required for the maintenance of health
and efficiency. herever possible, rises in the prices of
cost-of-living items should be prevented through communies in
production and distribution rather than through subsidies.
Any a tage of production which has MA adequate profit margin
should be compelled to absorb increases in costs. shere sub-
sidies are granted, they should be strictly limited to the
minimum amounts requisite to attain the desired objectives.
The above comments are not intended to cover the use of
subsidies for other purposes, such as increasing the output
of var goods. Moreover, they are intended to be only a
Regraded Unclassified
20
- 5 -
general indication of the Treasury Department's views
on the use of subsidies for the purpose of stabilising
the cost of living and preventing inflation. We shall be
glad to examine any specific subsidy proposal which you
might wish to submit to us.
Sincerely yours,
(Signed) D. W. BELL
Acting Secretary of the Treasury.
Mr. James P. Hyrnes,
Director, office of Reenomic
Stabilisation,
white House,
Weshington, D.C.
Regraded Unclassified
OF
21
STRICTLY CONFIDENTIAL
Regraded Unclassified
REPORT ON RATIONIN
Revised
November 25, 1942 22
I. THE ROLE OF RATIONING IN A PROGRAM FOR ECONOMIC STABILIZATION
Rationing plays an integral part in economic stabilization in war-
time: it serves both to reinforce price control as a check on inflation, and
to augment production control by assuring the proper distribution of limited
civilian supplies.
A
Economic stability is threatened by increasing
demand, even while the supplies of consumers'
goods are being curtailed. If uncontrolled,
the disparity between supply and demand would
cause inflation and maldistribution.
The measures which have been taken thus far to convert
the national economy from a peacetime to a wartime footing can-
not achieve stability until they are complete and well integrated.
When the exigencies of war require a rediroction of the use of
men and materials, so that administrative decisions replace the
mechanism of a free market, government cannot ovado its respon-
sibility to correct any ensuing maladjustments which would be
dotrimental to tho war offort. In the present situation it is
cloar that we face such maladjustments. Where necessary, there-
foro, existing controls must bo oxtended and strengthenod, and
now onos must be Introducod.
Large scalo expenditures for direct war production,
coupled with genorally increased oconomic activity, arc, progross-
ively expanding tho volumo of income paymonts. Dospito all
offorts towards wago stabilization, and control through fiscal
policy (of which moro lator), this is croating a growing purchasing
power which promises to magnify the already largo domand for con-
sumors' goods. Pressure to buy is further intonsified by the
twin fears of higher prices and of shortages. Buying sprece and
Regraded Unclassified
23
- 2
hoarding are contagious.
At the same timo that demand threatons to run away,
supplies of the principal olements that enter into tho cost of
living are being curtailed. Voluntary or enforced conversion
of men, matorials, and facilities to war production, shipping
and other transportation difficultios, and shortages of fuol,
power, labor, and materials, all contributo to diminish the
flow of goods available for civilian consumption. The impact
of these shortages is unovon both in timing and in magnitude,
but in many fiolds, as soon as present inventorios run out, the
situation will be acuto.
In the absence of any controls, this progrossivo dis-
parity between domand and supply would result in inflationary
price adjustments, markot domoralization, and intolerably unovon
distribution of goods. The cost of living would soar, resources
would be wasted as labor and materials wore bid from ono use to
another, and with onch individual and business firm trying to
protoct itsolf in the chaotic scramblo for goods, only thoso with
the fattost purses would win out.
3
When pricos are controlled to check inflation,
the pressures on limitod supplies are intonsifiod.
Either prico control will broak down undor the
strain, or the distribution of goods will bocomo
intolcrable.
The imposition of price controls allevintes somo of
these dangers but aggravates others. As soon ns price riscs are
checked, tho pressuros on supply are increased. Although inflation
is stoppod, and goods no longor flow to the highest bidder, the
scramble for them becomes intensifiod. Sellers my operate on a
Regraded Unclassified
24
- 3 -
"first como, first scrved" principle. They may soll much to
favored customors and nono to others. Buying panics among con-
sumors and rotailors may roadily dovolop. Stocks will be de-
plotod to tho point whore they are inadoquato for normal business
turnover. Hoarding, discrimination, and black markots will
follow. Price controls my broak down under the pressure.
In any of those cases, grave dangers are imminent when-
ever the relative shortage exists in a connodity that is a
civilian necessity. Those consumors most urgontly in noed of
certain goods may not obtain enough to moot their minimum require-
monts. Public horale may suffer whon it is apparent that somo
persons are getting much more than othors, that tho hand-to-mouth
buyor or the conscientious non-hoarder is boing penalized, and
that equality of sacrifice is a pretonso. Moroover, severo
criticism will be levolled at the government for failure to assuno
its full rosponsibilitios. Any one of, those possibilitios may ro-
sulo in individual hardship, public dissatisfaction, and a dis-
ruption of the oconomy to tho point of scriously inpoding the war
offort.
C Rationing is the neans by which prico control can
bo sustained and maldistribution avoided. It
adjusts total domand to the available supply. and
assures the proper distribution of ossontial goods
anong individuals.
Rationing, if intolligently conceived and well administorod,
and if introduced in tine, can correct tho oporations of an upsct
markot and avoid these dongors. As such it is tho ossential countor-
part of price control, whon supplios are scarce relative to domand.
Regraded Unclassified
- 4 -
25
Rationing of consumer goods hns been subject to a groat
many nisundorstandings. It is in large part because of such mis-
concoptions that public controvorsy concerning cortain rationing
programs cxists. The limited previous exporience in this country
with rationing, togother with journalistic accounts of rationing
in Europe during and after World War I, has left the Ancrican pub-
lic with a distorted idea of the nature and purpose of rationing.
To most persons rationing is thought of in its nogativo aspoct.
It suggests pale, hungry, shabby women and children standing in
line pationtly waiting for their turn to buy what they know will
be far loss than enough to meet oven minimun health requirements.
It is looked upon as something to be undortakon only when shortngos
in rotail stores are 80 acuto that nany essential needs are boing
unfulfilled.
Actually, this noed not bo so; rationing need not be in-
posed only at a time of ncuto shortage. Rationing my bo used as
a provontive measure to insuro reasonable quantities of scarco Goods
for all consumers. If imposed early enough, whon stocks are still
high but supplics coming into sight thronton to bo loss, rationing
can maintain a high lovel of consumption, or it may slow down the
total rato of consumption in periods of relativo abundance and koop
up consumption in Intor poriods at a higher level than would other-
wise be possible.
Rationing is frequently thought of as something that
causes n sharp cut in production and sovore curtailment in con-
sunption. Actually, rationing is n. reans by which, if production
is curtailed or total demand is outrunning supply, oquitable shares
of limited resources may bo naintained.
Regraded Unclassified
26
- 5 -
In its positive aspect, rationing is a dovico to insure
that individuals got thoir nooded share of scarce goods. Trus
concoived, rationing does not connote a curtailment of total con-
sumption. For most persons it assuros larger supplies than they
would otherwise receive. It is the only noans of guarantooing
equality of opportunity for businessos to buy and of individuals
to consume fair shares of whatover is available after tho primary
necds of the war machine have boon filled.
II RATIONING PROGRAMS NOW IN EFFECT, IN PREPARATION, AND IN SIGHT
The Office of Price Administration has introduced rationing in a fow
limited fields whore shortnges wero particularly acute and sorious disruption
of the economy would follow from uncontrolled distribution. Those programs
have not nidod price control in general; only e. wide coverage of the principal
commodities which nako up the cost of living could accomplish this purpose.
A Nine rationing programs are now in effect: tires, automobiles
typewriters, sugar, bicycles, gasoline in seventeen states, and
men's rubber boots and rubber work shoes, fuel 011, and coffee.
To date, the Office of Price Administration, acting on directives
from the War Production Board, has instituted consumer rationing of the
following commodities; or groups of commodities:
Commodity
Effective Date of the Order
Tires
December 30, 1941
Automobiles
February 2, 1942
Typewriters
March 13, 1942
Sugar
April 20, 1942
Bicycles
May 15, 1942
Gasoline (East Coast)
Temporary Plan
May 15, 1942
Prosent Plan
July 9, 1942
Men's Rubber Boots and
Rubbor Work Shoos
September 29, 1942
Fuel Oil
October 1, 1942
Ooffoo
November 22, 1942
Regraded Unclassified
27
- 6 -
B
Anothor program has boon docided upon, and will bo started as
soon ns possible: national miloago rationing.
Tho docision has boon mado by tho rosponsible agoncios that the
Office of Prico Administration should oxtond gnsolino rationing over the
ontire country. This is to bo dono in tho form of -miloago rationing, and
is to bo intograted with tiro rationing. Subject to the vagarios of print-
ing, the distribution of matorials throughout the country, and the nd-
ministrativo dolays of porfocting plans and organization, this program
should be in offect by Docomber 1.
0
We bolieve that it will bo nocossary to ration all ossontial
food and clothing carly in 1943.
The oxtonsion of rationing to other fiolds deponds on a number of
fundamental policy docisions which have yot to bc mndo. Wo bolievo
that to protoct the cost of living and to assuro oquitable distribution
of the scarco basic nocossitics of civilian consumption, most itoms of
food and clothing will have to bo rationed ns quickly ns wo can got the
programs into oporation. A fow other itoms of durablo consumers' goods
my nlso roquiro cortificato rationing.
In onch of those fields wo have skoloton staffs making proliminary
studios of tho problems involved in rationing, and dovising tontativo
programs to bluo print our futuro oporations. Our ostimates show
progrossivo disparitios botwoon domand and supply in thoso fiolds and
indicnto that tho situntion in 1943 will bo explosivo unloss adoqunto
controls are imposod.
The urgoncy of tho situntion is ovident from the dnta bolow.
They are the bcst presont ostimatos of the shortages, exprossed in minimum
and mximum figuros. They have boon based on various assumptions about
the monsurement of donand and tho lovol of nilitary requirements.
Regraded Unclassified
28
- 7 -
No allowancos have boon nndo for major changes in manpower policy.
Excess of Donand
Doficit of Now Supply
Ovor Supply
Colonder Your 1943
Apparol
Min. 1,015 Million Linoar Yds.
21 por cent
Mrx. 2,353
If
11
F
55
#
II
Shoos
Min.
134 Million Pairs
43
If
If
Max.
175
#
#
56 #
If
Fiscal Yoar 1943
All Food
Max. 5,000 Million Dollars
25 por cont
Ment, Fish,
Poultry
Min.
776
#
#
15
If
If
Max. 1,810
11
II
35
#
#
III TECHNIQUES OF COMMODITY RATIONING
The nothods by which connodities or groups of commodities can be rationed
must be rolated to tho poculinritics of the problem involved. An offective
rationing program must includo tho following fonturos: tho nost oquitable
distribution of scarce civilian essontinls, tho caximun administrativo simplicity,
and the minimun disruption of the customary channels of distribution.
A
Each contodity presents differont problems, so each of our
rationing programs is in somo rospocts uniquo.
It is not possible to Gonoralizo successfully regarding the tochniques
by which the Office of Price Administration has rationed or is planning
to ration various commodities. The pattorn of noods for n. particular
connodity is too complex, and evon though many differences must be dis-
regarded in tho intorosts of administrativo simplicity, onch program must
be vijustod to its own poculiar problems. Thus, onch of the programs now
in offect or contemplated is uniquo -in many rospocts.
The programs now in oporation have boon designed with an oyo to the
organization of oach particular industry, its channels of distribution,
and the variations mong consumers' noods. The different rationing programs
have varied in the typo of rationing currency employed, in the amounts
issued, and in tho nonns of issuing that currency. They have boon adjusted
Regraded Unclassified
29
- 8 -
to the rolative scarcity of each product and the degroe to which it was
substitutable nnd each has cronted new administrative problems and a
difforent dogroo of administrative burdon upon tho organization.
B
The principal sinilarity among the various systems is the uso of
rationing curroncy which exchanges against rationed goods nt all
lovols of distribution. Tho currency my be usod in a cortificate,
a unit, or a point systen. Tho total amount issuod. must counto
donand to the available supply.
It is possible to indicato cortain respects in which all programs
are sinilar and to classify thom into three basic typos: cortificate
rationing, unit rationing, and point rationing. It is to be notod that
this classification is breed primarily upon tho typo of ration currency
usod; the poculiaritios of n. porticular comodity may require that soveral
of these systoms be usoć simultanoously.
Each type requires the uso of somo form of rationing "currency,"
n. cortificate or n. coupon which is mdo ovailable in dotormined quantitios
to the consumer rend. which becones his authorization to purchase a rationed
connodity. This rationing currency must be surrondored to the sollor in
oach transaction, and is usod by hin to roplonish his stock from his
supplier. Thus, while goods flow downstroam through the channels of
distribution, nlways exchanging against rationing currency, the currency
flows upstrom until it reaches tho nonufacturer. it that point it is
extracted from the syetom and dostroyed.
In contrast to other countrios where the currency scrvos ns the
unnufacturer's authorization to obtain allocations of scarce m torinls,
in this country such allocations are typically doternined indopondently
by the War Production Board. This requires that tho Office of Price
Administration, in establishing the volue of the rationing currency and
the total quantity to be issued must take care that the authorized donand
Regraded Unclassified
30
9 -
doos not excood the supply. Accordingly, rationing systems customarily
include provisions for taking physical inventory, and obtaining accurate
rocords of subsequent production, shipments, roccipts, and sales.
C
Cortificate rationing is usod when n scarco connodity must be
reserved for the nost urgent needs of a smll part of the
population.
Certificato mtioning. is the monns by which an oxtromely limited
supply of an essential commodity is reserved for the uso of thoso who
most nood it while othors whose noods are less urgont are excluíod. from
the narkot. It is the mothod by which tires, mutomobilos, typewritors,
bicycles, rubbor boots and rubber workshocs are boing rationed. Corti-
fication is nlso n foature of soveral other programs, in the senso that
special groups of consumers such ns industrial usors in sugar, obtain
thoir rationing currency in tho form of soparate certificatos issued by
Local War Price and Rationing Boards.
This is the nost costly and, administratively, the most difficult
typo of rationing program, sinco onch consumer must be donlt with
individually. It involves the construction of lists of elicible groups
or the ostablishmont of critoria of oligibility by which tho Local Boards
can dotormino in each caso whother or not to grant an application.
Accordingly, it is & mothod of rationing which can be used only sparincly
sinco a large number of applications would place nn intolorable burdon
on the field organization. Novortholoss any ossential connodity, tho
supply of which is loss than onough for oven por capita shares for all
consumors, or the nood. for which is limitod to particular (Toups, can
be distributed to the right hands only by such n. system.
Regraded Unclassified
31
10 -
A
Unit rationing is usod whon a scarce connodity for which there is
no substituto must be distributed ovenly to the ontire povulation.
Unit rationing is appropriato for c. mass consumption iton for which
thoro is no substituto. Sugar and shoos are ossential commodities that
lend thomselves primarily to this type no of rationing. Hore, it is possible
to distribute enough rationing currency to the entire population to last
then for on extonded period, and to insure oqual alinros on a per capita
basis of 3 commodity which otherwise night be distributod 80 unovenly
that somo consumers would receive none. It is not nocessary that all
consumers be trented aliko under this systems the Insic Casolino ration
is available only to car owners, and difforent shoo quotas will be
necessary for non, women, and children. The essential fonture of unit
rationing is that the consumer is civon n. supply of currency, in the form
of stams which he can spond at will during a spocified time poriod, and
there is no nocessity for individual hoprings to determine his need
before ho makes each purchase.
Although the administrativo burdon por transaction is only a fraction
of that involved in cortificate rationing, the soparato unit rationing of
mss consumption items should not be recommended if n. number of those
itons can be conbined in a point system. À host of separate programs,
ench with its own regulations, instructions, forms, rocords, and currency
would be highly undesirable as n matter of administration. However, in
every cnso whore n particular shortatc threatons, and no substituto is
available in the ovent of naldistribution, this tochniquo must be onployed.
M
Point rationing is us od, to distribute crouns of sinilar comodities
evenly to the ontire norulation, while proserving freedom of con-
super choico within this croup.
Point rationing has not been usod in this country ns yet, but is
the nothod we recommend for rationing the principal clomonts of the cost
Regraded Unclassified
32
11
of living: ford and clothing. It is the method used in a number of other
countries by which large groups of commodities can be rationed in & single
system, 80 that every consumer has an equal opportunity to obtain scarce
goods but retains his freedom of choice among them.
In effect, a point rationing system establishes a schedule of values
for inter-substitutable commodities which replaces the price system. Each
product within a group of similar products may be purchased only upon the
surrender of a specified number of point-stamps. The point value of each
product is determined with reference to the amount of material it contains,
its relative scarcity, its essentiality, and the pattern of demand for it
as compared with other commodities. Each consumer is given & certain quantity
of ration stamps to use within a specified time period. Within the limits
of his total points, the consumer has complete freedom of choice as to
which products he profers to buy.
The sum of the total points issued to all consumers must be closely
related to the aggregate point value of all commodities within that rationed
group. In the evont that conditions change, the system can be adjusted to
a new equilibrium-that is, if total supplies decline or if total expendi-
tures exceed supply, the time period within which points may be spont can
be extended. Should supplies increase, all point values may be lowered,
or additional stamps may be issued. If A particular commodity becomos
relatively scarce through an excess of demand over supply, its point value
my be raised. Conversely, if a particular commodity is not being sold ns
fast as it can be produced, its point value may be lowered.
It is important to note that this form of rationing can be used to
control large segments of civilian purchases within n single system.
Administrativoly, therefore, it is infinitely preferable to the porticularized
trontment involved in cortificate or unit rationing. It has, however,
Regraded Unclassified
- 12 -
33
certain limitations.
If point rationing is introduced at a time when there is great hetero-
gensity of the products covered, both in variety and in price, serious
problems of classification and grave possibilities of discrimination in
favor of the wealthy may onsue. Moroover, commodities for which there
are no substitutes do not fit well into point rationing. If they are par-
ticularly scarce, there is danger that thoir entire supply may be mal-
distributed and exhausted unless there is a specific restriction upon their
purchase. It is imperative that point rationing, if it is to be used, be
introduced at a timo when inventories are fairly well in balance and when
supplies are ample. Otherwise, many of its advantages are lost and an even
flow of goods is made impossible.
IV ADMINISTRATIVE PROBLEMS OF RATIONING
Reaching the decision to ration, deciding hew and whon, and organizing the
edministrative machinery to insure smooth operations is A complex end time-
consuming precess. Sometimes we cannot afford the delays which occur.
A Planning and operating a rationing program is 3 difficult adminis-
trative task requiring strong leadership, an extensive and woll-
trained organization, control over facilities necessary to
operation, and streamlined administrative procedures.
The docision to ration n commodity or group of commodities is meroly
the beginning of A long and complicated task. The problem requires many
fundamental policy decisions as well ns a multitude of administrative and
managerial matters. The task of instituting, on relatively short notice,
a program such R$ sugar rationing that affects almost every person in the
country or one like the rationing of heavy duty rubber footwear that ro-
quires careful individual consideration of some four million separate appli-
cations a year is frightening in its sizo and rosponsibility. Tremendous
Regraded Unclassified
- 13 -
34
administrative problems are involved in organizing and running a fiold or-
ganization stretching out to 5,600 Local War Price and Rationing Boards
in every part of the country.
It is necessary to have strong control over rationing policy and
procodure 80 that the various rationing programs will be consistent,
harnonious, and properly timed. It is also necessary to place the respon-
sibility for particular programs in the hands of competent people who can
bocone exports in their field. The necessity of achieving a balance between
general control and centralized responsibility, and of providing able
loadership, exists at all points from the formulation of the original
plan to the action taken by the Local Board.
Operations of the nagnitude of rationing necessarily require con-
sidorable personnel and substantial funds. Impacts on individuals are
nanifold, and are felt in the remotest parts of the United States. An
adequately operated program can have dangerous repercussions, affecting
the prosecution of the war, public morale, and the prostige of Government.
The best way to save money on enforcement is to provide facilities for
effective operation of rationing programs from the beginning.
Any rationing system requires nn intelligont and efficient field
staff. A balance must be achieved between central direction and local
discrotion. Lines of smooth communication between Washington and the
fiold must be maintained. Specialized groups handling the rationing of
particular commodities must be given adequate control over the speration
of their own programs in the field without creating a serios of uncoordi-
nated parallel lines throughout the organization. Solution of such problems
depends upon constant efforts to obtain qualified personnel at all levols
and to ostablish and improve administrative procedures.
Regraded Unclassified
- 14 -
35
The printing and distribution of materials can cause delays that are
often unpredictable and By in somo instances require rather basic changes
in the system itself. It might be possible to eliminate some of these dif-
ficulties; even at best, factors of this kind require very substantial al-
lownces of extra time in the preparation of any rationing program. The
task is tromendous in distributing, for instance, 160 million coupon books
or a variety of forms that must go to 5,600 War Price and Rationing Boards.
The fact that material's must be used by citizens in general and by a
large number of Local Boards distributed throughout the country neans that
the system and its documentation must be prepared in such n way that it will
be simple, easily understood, and relatively fool proof. This involves not
only the competent preparation of regulations. instructions, forms and
publicity but the designing of a system that will be workable and under-
standable.
Each step in the process of planning or operation involves clearance
anong various individuals or groups that my be concerned. The nost frequent
are clearances between the specialized operating group and the central
rationing personnel, between legal and operating porsonnel, between ration-
ing groups and government information services, and between those responsible
for rationing and the agencies responsible for printing and distribution of
materials. Clearances of this kind can multiply rapidly and can onsily
nullify. any good results expected from the original specialization of the
functions. The problem is most likely to become ncute when cloarance or
cooperation must be obtained among personnel who are separated in the or-
ganizational pattern 80 that decisions must-travel through soveral layers
of review before they roach a single point of determination. The respon-
sibility for rationing cannot be discharged effectively unless it is ACCOD-
paniod by power to take action and by control of the facilities necessary
to that action.
Regraded Unclassified
-15-
36
B
Rationing programs must be introduced before supplies are too
greatly depleted; the need for rationing must be sufficiently
anticipated to allow time for the preparation of the program.
One view of rationing holds that it is an instrument for use after ex-
isting inventories of goods have been used up, to distribute the small supplies
of new goods that may flow into the system. This view discards some of the most
useful functions of rationing, which are to save stocks of goods from undesirably
rapid depletion, to prevent the inequitable distribution that inevitably ac-
companies the "scare buying" of short stocks, and to spread the consumption of
necessary goods while there is something loft to spread.
If rationing is to be undertaken just at the time when the prossure on
inventories has reached a critical point but when inventory shrinking has not
become serious, both planning and actual decisions must take place while sup-
plies are still plentiful. Boldness may be necessary in making predictions
before as many facts are available as the planners would like to have. If the
decision is made too Inte, the damage of vanished stocks and unfair distribution
cannot be undone without diverting critical materials from vital war needs.
The physical process of planning and effectuating a rationing program is
unwieldy at bost. Some of this work, such as the gathoring of information on
the production, distribution, and time flow of commodities in a given field, may
be begun before actual decision to ration is made. It is not possible, however,
to work out specific plans until agreement has beon reached as to the necessity for
rationing, the commodities that are to be included, and the general system that is
to be used. It would be almost impossible to complete the printing and distri-
bution of a coupon book and the other maturials necessary for a point system in
less than three months after the finished material had gone to the printer. To
do the preliminary planning, the drafting of matorials, the instruction of the
field staff and other ossentials in less than six months after the decision to
ration anything but the simplest singlo commodity would involve extraordinary
effort. The importance of foresight and early decision cannot be overemphasized.
Regraded Unclassified
37
-16-
As an oxample, Wel cite below our estimatos as to the earliost dates on
which it would be possible to introduce rationing in the food and clothing fields,
even if there were in every case clear-out decisions today to go ahead at full
speed.
Earliest date rationing
Commodity
is feasible
Clothing:
Shoas
February, 1943
Textiles and Apparel
April, 1943
Foods:
Meats
February 15, 1943
Canned Goods
January 20, 1943
Fats and Oils
April, 1943
Dairy Products:
Cheese
February 15, 1943 (with
meats)
Butter
Fresh Milk
Condensed, Evaporated, and Dried Milk
In a number of cases, these dates are lator than the time at which
rationing would be advisable. The dolay can only rosult in depletion of in-
ventories, and may load to panic buying. If further dolays scriously jeopardize
total inventories or should cause unoven consumer or trade holdings of particular
commodities, it would be impossible successfully to distribute those products
through point system rationing. The much more costly and complicated devices
of unit or certificate rationing of each of the particularly scarce items would
have to be used instead.
Closely connected with timing is the special problem of advance publicity
on commodities like apparol. Goods of this type, usually somi-durable itoms
subject to hoarding, are particularly sensitive to panic-buying when supplies
become short. Thus it is not possible to make & public announcement in advance
Dairy products may not be rationed by an indopendent point system. Thore
are many reasons to believe that it would be better to handle the various
dairy products in conjunction with other programs; for instance, choese
boing a protein could be combined with monts. Buttor could be combined with
fats and oils; evaporated, dried and condonsed milk could be combined with
meats or possibly with canned goods. Fresh milk is ossentially a local
problem which would have to be handled soparately in each milkshed.
Regraded Unclassified
-17-
38
of the nctual rationing of such items, and trade sources cannot be consulted
to any appreciable degree while thu program is being planned. This increases
the difficulty of obtaining current information and of obtaining the coopera-
tion of the trade or the public in introducing the program.
It is imporative, therefore, that if apporol rationing is decided upon,
the decision be kept absolutoly secret.
C
Since successful rationing is largely dependent upon the
cooperation of the public, the rationing authority should
be accorded wide latitude in publicity.
Since successful rationing depends in no small measure upon community
and individual acceptance, the publicity attendant upon n program is a vital
Gloment. Unloss intolligent explanation is made of the necessity for rationing,
the program is likuly to be crippled.
Since reliance for administration falls on local boards, inadequate or
adverse publicity hampors their efforts. It scoms evident, therefore, that
once decision has been made to ration a scarce commodity, wide latitude in
publicity should be accorded the rationing authority.
V
OTHER PROPOSALS TO ELIMINATE OR REDUCE THE NEED FOR FORMAL COMMODITY
RATIONING
Suggestions have beun made that commodity rationing is so costly and com-
plicated that other means should be used to solve the problems which rationing
is designed to must. Production controls and voluntary rationing are proposed
es substitutes for formal rationing; fiscal monsures. such as taxation, com-
pulsory saving and expenditure rationing are designed to alleviate the pressure
on supplies by reducing total demand. None of these measures appears likely to
offer & real solution to the fundamental problem of distributing scarce goods
among consumers who noed them.
Regraded Unclassified
-18-
39
Production controls alone require rationing by the trade;
decisions as to the distribution of scarce goods among
consumers cannot be left in private hands.
It is frequently suggested that adoquato production controls combining
the allocation of scarce materials with the limitation un their use for non-
essential purposes art sufficient to insuro economic stabilization in a war
economy. It has boon stated that rationing can bo avoided if a sufficient
supply can be produced to moet civilian noods. According to this line of
argument, rationing becomes necessary only when total supply is inadequate for
total minimum needs. This approach, laying emphasis :8 it does on the pro-
duction side of the problem, completely overlooks the distribution side. A
total supply equal, say, to the rinount consumed in 1932, is far from adoquate
if Commond is in excess of that supply. The disparity between supply and demand,
even apart from its inflationary pressure upon price, inovitably loads to mal-
distribution.
We cannot rely upon the chance decisions of members of the trade to
minufacture the typus of civilian products which are noeded, nor to distribute
them to the geographical arons whore they are short. It is not sufficient oven
if it were fensible to allocate supplies within the trade down to the retail
level without going stop further. Retallers cannot be expected to maintain
equitable distribution among the consumers who ero besieging their stores for
scarco goods. Government cannot permit the retioning power to rust in private
hands.
Accordingly production controls, however ssential they ru to direct
scares mnterials to their must important uses, solvo only part of the problem
of oconomic st bilization. No measure shurt f controlling purchases by con-
sumers can be expected to insure proper distribution among individuals.
Regraded Unclassified
-19-
40
B
Voluntary rationing is defeated by individu/ self interest.
Suggestions have buen made that the government is too cynical with
respect to the essential hunuaty and willingness to sacrifice of the American
people. It has been held that far too much omphasis has been placed upon
enforcement and far too little upon voluntary compliance. This line of
argument is manifested in rocommondations that the government appeal for
voluntary rationing of scarce commodities -- gasless Sundays, montless
Mondays.
The position taken by OPA in this matter is that snd experience has
proven the inadequncy of voluntary rationing. However much individuals may
protest their willingness to sacrifice, as long as some individuals are un-
willing voluntarily to make that sacrifice, others cannot bu expected to do
SO. The natural reaction of American citizens whon rumors of throatoned
shortages reach their ears is to rush to buy. Rumors of rationing, of
limitation orders, and even of stylo restrictions have been used in the trule
to promote sales and have provided incentives for buying sproes by the public.
Although none would be happier than we if more statements of intent and
hortatory efforts were sufficient to check over-buying of scarce c immodities, We
are firnly c invinced that voluntary programs will not work.
Voluntary programs are likely to be absurd in S me instances,-we could
hardly promote tr userless Tuesdays. Some voluntary schemes aggravate the v.ry
situations they are designed to alleviate: e.g. "uno to a cust mer sales"
moroly start buyers making the rounds from ne store to another, and actually
stimulate buying by calling the consumers' attonti. m to scarcity. Finally,
AIR experience with a non-enforcenble, seni-voluntary, temporary gasoline
rationing program, and Canada's recent experience with voluntary sugar
rationing, has cast grave doubts in the practicality of any but the tightest
of rationing programs. The individual cannot be relied up in to protect the
interests of others.
Regraded Unclassified
-20-
41
Total demand can be reduced by taxation and 0 voluntary
C
and compulsory savings programs; these sensures cannot
be expected to go far enough.
Strong fiscal measures to reduce purchasing power could allevinte the
throat of general inflation if they ware sufficiently drastic. They also
could postpone the need for rationing. We urge that all such means be employed
to the fullest extent, but 170 are dubious NB to their ultimate success, and
convinced that, unaccompanied by commodity rationing, they are ineffuctive.
Taxation cannot bu expected to cope with the problem. The exporience
of other countries clearly shows that public tolerance of a tax burden is
limitod. Even under the greatest pressure, Congross has stopped for short
of what would be needed if inflation were to be stopped by 14 tax program.
A grent excess of purchasing power will still remain. A further limitation
n the .ffectivenoss of taxation as a means of limiting demand arisos from
the fact that taxati n would not only have to make a drastic cut in total
purchasing power, but would have to increase tremondously in progressiveness.
Otherwise, with a deep cut in supply, the income structure would pormit such un
inflationary volume Jf purchases as to exclude individuals it the lower and of
the income scale from the market.
Appeals for voluntary savings cannot bo rolied upon. The present V lune
of Treasury bond sales does not offer much encouragement. Moreover, such
saving tends to crente rostless money which at any timo can be injected into
the system, and which, accordingly, constitutes an inflnti n potential.
Compulsory saving appoars more promising. Simultaneously it cuts
expenditures nd brings revenue to the Treasury. It should be ensily explained
and accepted by the public, particularly because it emphasizes the virtues
of thrift. A small start has been made in this direction by the prosent tax
program. However, the essential inequity and the influtionary danger of such a
measure is that it cannot prevent those with capital accumulati ns from con-
verting their assets. Also, the sevority which would be necessary if compuls.ry
savings were effectively to curtail purchasing power raises many 5 the same
Regraded Unclassified
-21-
42
problems that are involved in sharp increasos in the tax rate. The progressive-
nuss required suggests the necessity of some form if expenditure rationing.
D
Exponditure rationing is an ingenious idea, but it does not
seem feasible at present and, like all other fiscal approaches
to the problem, it cannot assure the proper distribution of
those commodities which are particularly scarce.
Alth ugh it seems simple and clear-cut to limit the volume of expenditures
of onch person in the country, expenditure rationing is not so easy, 50 ef-
fectivo, nor SJ acceptable as it first appears.
As distinguished from compulsory savings which W /uld surely require
statutory authority, expenditure rationing could be introduced by the Executive.
This, of course, would raise delicate problems with the Congress, inasmuch
ns it is clearly a fiscal measure of the greatest nagnitudo.
Tromendous dislocation of the economy W uld follow the imposition of
expenditure rationing. For instunce, present inventorios consist of goods which
have been produced to meet the demands if individuals with wide varintions in
income. Costs and pricos vary accordingly, and are suitable for anything but
equal per capita expenditures. It is doubtful whether our political and
uc nomic system could stand the liquidation f high priced inventories which
would be necessary.
The mechanics of handling expenditure rationing currency, change-making,
and arranging its fl.w through the system, raises administrative problems no
loss sorious than point rationing.
The principal difficulty with expenditure rationing is that it, like
every fiscal measure, fails to meet me of the major problems which is
solved by commodity rationing. Expenditure rationing gives complete freedom
of choice to the consumer 18 to the bjocts fr which ho spends his money,
but fails to offer any solution to the problems £ changing supplies, especially
scarcities of particular essential goods, and shortages of non-substitutable
goods. Unit and point rationing such ns is recommended by the Office .f Price
Regraded Unclassified
-22-
43
Administration face these pr bloms and assure the prop distribution of
goods, not money. A unit system can handle the distribution of non-
substitutable items, and a point system can djust point values to offset
particular deficiencies if supply. If expenditure rationing wore instituted,
it is clear that a number of particular e mmodity rationing programs vuld
still be required. What is more, if it were introduced when supplies were
depleted and unbalanced, it, like point rationing intr duced too Into, would
have to be bolstured by a number of stly unit and cortificate systems.
Finally, it is-worth noting that expenditure rationing has not proved
palatable in England and is unlikely to be palatable hore. People are quite
propared to accept rationing in wartime with hositati.n. They are quite
prepared to seu many goods distributed in a sharo-and-share-nlike basis. On
the other hand, they are unwilling to see the same result accomplished thr ugh
a drustic increase in the progressiveness if taxation. For the same reason,
they will be unlikely to accept the drastically progressive expenditure
rationing which would be necessary to achieve the same result as must be
achieved through rationing.
VI RECOMMENDATION
Having canvassed the need for rationing, the alturn tive mothods which
could be employed, and the difficultios and time involved, we feel that a
number if bold decisi ns are imporative.
A
We recommend the immediate docision, nt t to be made public,
to ration All essential itoms of civilian food and clothing.
To serve the twin Jurp.ses of maintaining checks n infinti n and
issuring proper distribution of scarce commodities among consumers, we roc ammond
that commodity rationing be instituted to cover all mnjor items if the cust of
living: food and clothing. It is essential that those civilian nocessities
be made available to all, that they be evenly distributed and that they be
spared fr - inflation. As is matter of administrative simplicity, we favor
the use of point system rationing with inter-substitutuble items grouped in
Regraded Unclassified
-23-
44
.S fuw systems ns possible. Innsmuch us the administrative details of
putting such programs into operation will require considerable am unts if
time, we urge that this decision be made immediately. TO prevent upsets
of the market and buying panics, this decision sh uld not be made public.
B
This decision has wide implications; it would involve the
extension of controls over the quantity and the composition
if the busic civilian nocossities.
The docision to rati n is n decision in the wirt if G overnment to dis-
tributo scarce supplies on n fair and equitable basis am ng all consumers.
It is dictated by recognition of the fact that equitable distributi. of
scurce supplies cannot be assured through the normal operations if the market.
This decision, however, requires a broad extension if control over production
of civilian goods b /th as to quantity and ns to composition. In the absence
of such control, the quantity and composition of civilian goods are.left to
the free play of market forcus. The kind- and quality of goods produced will
bear n) relationship to the requirements of public policy. It may well
happen that the forces of the market will, through the kinds and prices of
goods pr duced, carmark for the use of 5 por cent of the populati n 30 r
40 per, cent if the total resources which aro available to supply the noeds
if the entire population. It follows that if rationing is to accomplish
its aim, control over the production of civilian E ds is essontial.
Regraded Unclassified
45
UN
D STATES DEPARTMENT OF AGRICUL
Washington, D.C.
GOVERNMENT POLICY WITH RESPECT TO THE USE OF SUBSIDIES
IN HOLDING DOWN THE COST OF LIVING
The time is rapidly approaching when for the first time in the
nation's history there will be real food scarcities for the United
States. In order to maintain food production at a satisfactory level
it may be necessary to increase returns to farmors for some commodities.
Although income to farmors is the highest on record, farmers are
still operating at a disadvantage, from the standpoint of income, with
other wartime industrics and activities. The 1942 per capita income
of farm people 10 $368 as contrasted with $981 as the non-farm por
capita income figure. Agricultural income accounts for only one-ninth
of the national income today as compared with one-sixth in 1918.
Not only is agricultural return low as compared with others, the
hours are much longer and working and living conditions are less attractive.
There is a steady exodus of workers from farms to the cost-plus war
industries. Agriculture is losing fifteen to twenty percent of its best
workers annually. In addition, equipment and materials for farmers are
curtailed. How long we can maintain production through patriotic appeal
and substitution of inexporienced workers is a matter of conjecture.
If it is nocessary in the national interest to increase returns to
farmers in order to maintain production, subsidies are proferable to
price increases which would have dofinito inflationary tendoncies.
Subsidies are already being used very successfully in agriculture to
keep up production and hold down prices. A notable example is the
Regraded Unclassified
46
- 2 -
present government program holding feed costs at 85 percent of parity.
In government payments this program costs around 200 million dollars,
but it is saving consumers one billion dollars a year on their grocory
bill. It may also be argued that this program results in a great saving
to the government itself in the form of lower prices for its wartime
purchases.
It must be recognized, however, that there is widespread opposition
among farmers and in Congress to the kind of subsidies involved in such
programs. It is my opinion that there will have to be a better under-
standing of the advantages of subsidies before we can obtain public
sanction and congressional appropriations for a food subsidy program
similar to the one used in the United Kingdom. It is my hope that there
can be an carly crystallization of opinion in this mattor.
/s/ CLAUDE R. WICKARD
Sccrotary
Regraded Unclassified
UNI
D STATES DEPARTMENT OF AGRICULTURE
47
Washington, D.C.
PROBABLE NECESSITY FOR RATIONING ESSENTIAL CIVILIAN GOODS
Food retioning should be expanded as rapidly as possible. All
essential food items for which the demand will excoed the supply for an
extended period should be included. Although farm production has been
running at record lovels for several years and 1942 production was 15
percent higher than a year ago and by far the largest in history, the
domand will exceed supply for a number of farm commoditios becauso:
1. Imports are reduced for such commodities as sugar, coffee
and vegetable oils.
2. Government purchases are extremely heavy, as is shown by the
following table:
1943 Military and
Lend-Lease require-
Commodity
ments in percent
of 1942 production
Meat
31
Milk and products in terms of milk
15
Eggs
28
Canned vegetables
36
Canned fruit and juices
43
Dried fruits
53
Dry beans
32
Dry peas
41
Lard
38
Soybean and Peanut Oil
14
3. Civilian purchasing power is highest on record.
4. There is need for accumulation of reserves against increased
demand in the future.
48
- 2 -
Therofore, rationing is necessary because:
1. It results in oquitable distribution botween individuals.
2. It rosults in equitable distribution of supplice through-
out the year.
3. It provents waste and hoarding.
4. It will enable us to obtain more benefit from our food supply
since it will tend to balance the need for the scarce protective foods
with the foods in greater supply. For example, fluid milk could be given
in grester quantities to children and mothers than to others who could
obtain their dietary needs from other sources.
It is recognized that rationing involves many administrative
difficultios yet a single comprehensive rationing program porhaps will
present less total difficulties than will result from a piecemeal approach
involving postponement until hoarding and scarcities occur.
Until such time as a comprehensive rationing program can be put
into effect, it seems desirable to acquaint the public with reasons
for rationing. It should be described as a means of proventing hard-
ships rather than causing hardships. Pending establishment of the total
rationing program, limitation and reservation orders of one kind or
another should undoubtedly be put into operation.
Also to prevent hoarding the public should be told that it will
have to deduct household stocks from ration allotmonts, and in flagrant
cases of hoarding a penalty should bo assessed.
/8/ CLAUDE R. WICKARD
Secretary
Regraded Unclassified
49
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE FOR EMERGENCY MANAGEMENT
OFFICE OF ECONOMIC STABILIZATION
WASHINGTON, D.C.
November 25, 1942
JAMES F. BYRNES
Director
Dear Sir:
I am enclosing copies of two memoranda by
Secretary Wickard and one by Mr. Henderson. I am send-
ing these by messenger so that you may have an opportun-
ity to study them before the Board meeting.
Very truly yours,
Janes Director.
3 Encls. - 6 copies of each
Honorable Henry Morgenthau
Secretary, Treasury Department
Washington, D. C.
OPVICTORY
BUY
ENITED
STATES
WAR
BONDS
AND
STAMPS
Regraded Unclassified
50
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE FOR EMERGENCY MANAGEMENT
a
OFFICE OF ECONOMIC STABILIZATION
WASHINGTON, D.C.
November 20, 1942
JAMES F. BYRNES
Director
Dear Mr. Secretary:
Enclosed are the minutes of our last Board meeting.
The next meeting will be held on Friday, November 27, at
eleven a. m.
We shall discuss:
1. Government policy with respect to the use
of subsidies in holding down the cost of living.
2. Probable necessity for rationing essential
civilian goods.
Some members of the Board have already submitted
memoranda dealing with these subjects. If you have not done
so, we should all be grateful for an expresion of your views.
Sincerely yours,
Director.
The Secretary of the Treasury,
Washington, D. C.
November 25, 1942
Copies for:
Mr. Bell
Mr. Gaston
Dr. White
Mr. Paul
Mr. Haas
51
MINUTES OF BOARD MEETING
52
The Economic Stabilization Board net on Friday, November 13, at
11:00 A. M.
Present: The Director (presiding), Mr. Morgenthau, Mr. Wickard,
Mr. Jones, Miss Perkins, Mr. Smith, Mr. Ecoles, Mr. Green, Mr. Flanders,
Mr. Johnston, Mr. Davis, Mr. Hamm (Acting Price Administrator), and Mr.
Lubin (Economic Advisor to the President).
A memorandum previously submitted by Secretary Morgenthau, dealing
with the relation between fiscal policy and the control of excess purchasing
power, was read.
Mr. Ecoles also read B. memorandum which ho had prepared, dealing
with the same general subject matter.
Secretary Jonos stated his intention to sot forth his views similarly
in a future momorandum. In genoral, he agrood with the genoral proposals for
compulsory savings dealt with in Secretary Morgenthau's memorandum. He also
stated a preference for somo form of sales tax, probably on a graduated basis,
as suggested in the Treasury memorandum.
Miss Perkins questioned Mr. Ecoles' statement with reference to the
length of the work week. She pointed out that the problem differed from in-
dustry to industry. The Fair Labor Standards Act does not, she pointed out,
prohibit a work week in excess of 40 hours, simply requiring the payment of
overtime on that basis.
Mr. Davis agreed with the observations made by Miss Perkins. He
also expressed the opinion that any change in the present basis of overtime
pay would increase the number of labor disputes, disturb production, and
Regraded Unclassified
- 2 -
53
perhaps lead to wage increases which would give the country an excessively
rigid post-war wage structure. Thoso demands for wage increases would be
occasioned by the fact that millions of workors in munitions industries are
now working many hours of overtime; and without some change in the basic wage
rate, ropoal of the prosent 40-hour overtimo statutos would cause a sharp re-
14
duction in thoir wookly oarnings.
Socrotary Lickard omphnsized the importanco of encouraging tho pro-
payment of dobt by farmers, and of rocognizing the nocessity for maintonance
and ropair on the farms during tho post-war poriod.
The Director expressed the opinion that the Board could, with the
guidance of the Treasury, formulate a common fiscal program, backed by the
united support of all groups represented on the Board. This program could
then be submitted to the President, and, after consultation with the Congres-
sional leaders, to the Congress. Secretary Morgenthau and other members of
the Board endorsed this suggestion.
Mr. Snith felt that the Board now had an opportunity to fit all
separate ocenomic problems togothor in a single pattern. He folt that, in
considering fiscal policy, we should think not meroly of the immodiato ocon-
omic future, but of the years ahoad.
Hr. Groon omphasizod the nocossity of taking into account tho neces-
sary oconomic transition from war-tino to poaco-timo in the future. Ho lso
statod that, in fixing the longth of tho work wook, it is important to maintain
the officioncy of the workor. Ho rominded the Board that n rocont British
survoy had demonstratod that production tondod to full off aftor about 54
hours of work by tho individual employee.
Regraded Unclassified
- 3 -
54
Mr. Johnston expressed the opinion that business recognizes the
necessity of both higher taxes and compulsory savings. He also felt that it
would be desirable to aim at financing 50% of the cost of the war on a "pay-
as-you-go" basis. lir. Johnston also emphasized the desirability of obtaining
united support for & single fiscal program.
Mr. Flanders pointed out that it is the wage-earner who has the
greatest stake in preventing inflation. He also stated that it would be
desirable to ain at a tax program which would nake our fiscal policy at
least as stiff as that of other countries, like Great Britain and Canada,
which are also attempting to deal with the probloms of B. war economy. He also
expressed the view that manpower was the key to many of our problems, includ-
ing that of tho civilian oconomy.
The mooting adjourned at 1,50 P.M. to most again on Friday, November
27th, at 11:00 A.M.
***
Regraded Unclassified
55
NATIONAL INCOME AND RELATED DATA
Calendar Years
Estimates
1942
1943
(billion dollars)
Gross national product
(value of gross output at
market price)
145
165
National income (at factor cost)
117
125
Net social security accumulation
3.0
3.5
Personal taxes paid, Federal
4.5
11.0
Personal taxes paid, State and local
1.5
1.5
Business tax liabilities
Federal
13.5
16.0
State and local
6.5
6.5
Federal expenditures
55.0
92.0
Federal tax collections
16.0
25.0
Deficit
39.0
67.0
Individual income less personal
taxes and social security
106.0
110
Available consumers goods and
services (at present prices)
74.0
68.0
Wholesale prices (1935-1939 = 100) Aug.136.1
Cost of living (1935-1939 = 100) Aug. 117.4
Treasury Department, Division of Monetary Research Nov. 13, 1942
56
Mr. Bell
Nov. 18, 1942
Mr. Gastom
Mr. White
Mr. Paul
Mr. Hass
Secretary Morgenthau
At the meeting with Jimy Byrnes this morning, they
asked me practically no questions. Jones announced that
he is in favor of & sales tax, and Davis said that he
likes our expenditure rationing.
Regraded Unclassified
57
FOR IMMEDIATE RELEaSE
November 1942
The following summary of actions that have been taken by the Office
of Economic Stabilization WELE released today by James F. Byrnes, Director of
Economic Stabilization.
1. I have asked the chairman of the War Production Board to
undertako a vigorous program of simplification and standardization
of production and distribution not morely to eliminate frills and
wasteful practices but, wherever necessary and advantageous, to
concentrato on the production of relatively fow types of goods
of standardized quality, design and prico.
Effoctivoly carriod through such a program oan combat tho rising cost
that throaton prico coilings, maintain at maximum the output of civilian goods
that is possible and bring tho prices of somo ossentinls down.
Such a program, too, would yiold considerable savings in monpower,
materials, machine capacity, transportation, fuol and other acuto war noods.
2. I have askod the Budget Buronu for n reviow of all sub-
sidios rolated to oconomic stabilization that now aro in force with
a view to determining whether thoso subsidios can bu discontinuod
or reduced or what alternatives are possible. As alternatives, I
have in mind, particularly, tho possibilities.of lowering profit
margins and of effecting coonomics and reducing costs by simplifying
and standardizing production and distribution.
3. I have askod that the Office of Civilian Supply undertake
a study to determine what are our bed-rook minimum civilian needs
consistent with the fullest war production.
It is not, of course, our intention to try to reduce civilians to
this bed-rook minimum. However, while a rough estimate at best, such n study
should be of value in planning such matters as tioning, subsidies, the ex-
tent to which simplification and standardization onn be pushed and manpower.
Both tho dotormination of those minimum civilian needs and simplifi-
cation and standardization of production and distribution are parts of what is
intended to be a positive program that will guarantoe our people the bnsic
living essontials that they must have at pricos that they om pay.
By roducing the number of varioties, stylos and models, oliminating
unnocossary costs, docoration, fancy packaging and the liko wo can cloar the
way for n fullor production of bnsic ossontinls.
The moro for-ronching tho moasuros takon to reduce 0X0088 sponding,
0.8 in the new tnx bill, the tightor our mempower situntion and tho more our
civilian 000nomy is contracted in favor of war production, tho greator will
be tho nood for such a positivo program to guarantoo our pooplo at lonst thoir
minimum ossontials.
That hns now booomo a fundamontal foature .of our policy of economic
stabilization.
Regraded Unclassified
- 2 -
58
II
The most immodinte task of tho Office of Economic Stabilization WAS
the implemonting of cortain provisions of the Presidont's Executive Ordor.
This can now bo snid to be fairly well completed.
In addition to dovelopmonts which alroady have been announcod, these
actions have boon takons
A. Tho coiling is boing liftod from agricultural wages for
tho timo boing, until tho Secrotary of Agriculture can dotormine
(1) the offoot of farm wagos on farm production in
the moro critical farm labor shortage arons, and
(2) where incronsos in farm wagos may threaton to
causo an incroaso in tho price coilings on farm products.
This was dono because agricultural wages in gonoral are substandard,
because we face a serious problem in holding, and if possible increasing, the
supply of farm labor, and because most agricultural employers employ fewer than
eight workers employers with not more than that number of workers already
have been exempted by the War Labor Board.
B. Machinory has boon worked out for handling wngo.increasos
which may affoct prico coilings.
In dispute casos it is the practico of the War Labor Board to have
a fact-finding invostigntion by a Panol which submits its rocommondations. It
has boen agroed that in such onsos the liar Labor Board will notify the Office
of Price Administration when the Panol reports its recommondations and that
OPA will be givon an opportunity to mnko its roprosontations before C. docision
is made.
In non-disputo casos, which would bo chiofly whore employers request
the right to grant wago incronsos, nt the timo of filing for such pormission,
the employer must state whether he believes the wage adjustment will nocessitate
a price increase. If it will, ho must filo an appliontion for such an increase
simultaneously with the Office of Prico Administration. OPA can then detormine
whothor p. prico incroaso would be roquired, notifying the War Labor Board.
Howovor, in both disputo and non-disputo cases whero a possible prico
riso booomos involved, the docision of the har Labor Board must bo approved
by the Offico of Economic Stabilization.
Regraded Unclassified
59
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
Office of the Chairman
November 13, 1942
My dear Mr. Byrnes:
If we are to control excess purchasing power and preserve
reasonable economic stability, we must resort to far more drastic measures
to ourtail civilian spending than those so far adopted. In the calendar
year 1943, we estimate that the gross product of our economic system - the
output of our farms, mines, and factories, plus services - will amount to
about $175 billion. Out of this vast output, the Government will take no
less than #90 billion for war purposes. After non-military governmental
functions are provided for and our essential needs for capital goods are
satisfied, no more than $70 billion worth of goods and services, valued at
present prices, will be available for sale to civilian consumers.
Out of the $175 billion spent for all goods produced, business
and Government will make total income payments to the buying public of about
$125 billions. Out of this sum, the Government will collect about $15
billion in personal taxes, leaving consumers about $110 billion of ex-
pendable income.
Thus, expendable inoome will exceed by about $40 billion the
value of the goods that will be available for sale. If the public follows
its customary savings habits, we may expect a considerable part of this sum-
to be used in paying debts, buying war savings bonds and other Government
obligations and saving in other forms. If we had no system of price control,
Regraded Unclassified
60
- 2 -
the pressure of the remainder that will be spent, not saved, would drive
up the cost of living by at least a third and probably much more. Às it
is, publicly quoted prices may not increase much; but the pressure of con-
sumer demand, unless we take strong measures to curb it, will be reflected
in illegal price increases, the growth of black markets, and, worst of all,
shortages of consumer goods everywhere. The general prevalence of such
shortages will be the indication to the public of the Government's failure
to meet this problem. If we do not tax much more heavily and ration much
more extensively, the costs of war will be brought home to the American
people by their sheer inability to find goods to buy. Of all the possible
ways of distributing the costs of war, this would be the most unfair and
hence the most resented.
It is the Government itself that has created this excessive do-
mand for civilian goods and services by its methods of war finance. If we
had been able to collect taxes and to borrow (from real savings) as much
as we intended to spend, there would be no inflationary gap in prospect.
We could have avoided any substantial incroase in the cost of living thus
far. The record shows how far we foll short of roalizing this idoal. Wo
have boon placing far too much reliance upon borrowing from the banks, far
too little upon taxes and the savings of the pooplo.
Credit croated by tho banks in buying Government securities is
the principal sourco of oxcossivo purchasing powor. In the middle of 1941
the commercial banks held #22 billion of Government securities. By the
middle of 1942 this had increased to $29 billion and by the middle of 1943
Regraded Unclassified
61
- 3 -
it will probably have increased to $66 billion. Thus bank holdings of
Government securities, which have been increasing at an accelerating rate,
will have tripled in this two-year period. As B. result, our money supply
has increased by approximately the same amount.
This record is not the inevitable result of the necessities of
war. The extent to which we are failing to meet the problem on the do-
mestio front is illustrated by comparison with what the British and Canadians
are accomplishing. Putting it in general terms, they are financing about
half of their expenditures by taxation. We are currently financing only
about one-quarter. Of the half that they borrow, about two-thirds is drawn
out of public spending power and only one-third from the inflationary process
of bank borrowing. The figures are just about reversed in our case. We are
getting only one-third of our borrowings out of spending power and nearly
two-thirds from the banking system. There are many differences between
American, British, and Canadian economic conditions, but none of them justi-
fies our failure to match their financial achievements.
Today our war expenditures are running at the rate of about $70
billion a year. By the middle of next year, they will have reached the
level of $88 billion a year. It is increasingly imporative that we meet
these inevitable costs of war by a financing program that will reverse the
trend we have been following.
I have stated the problem as I see it. What can we do about it?
We have alroady bogun to ration cortain scarco commodities. Rationing will
have to be pushed much further; just how far will depend upon the adequacy
Regraded Unclassified
62
- 4 -
of our fiscal policy. We all recognize the limitations on what price con-
trol and rationing can do by themselves. These limitations are not imposed
solely by the immense administrative problems that the rationing authorities
must solve. There is a more fundamental difficulty. The strongest ad-
ministrative machinery would crumble under the pressure of the excessive
purchasing power now flowing into the hands of the American public. A hard-
boiled fiscal policy is our only hope of reducing the pressure enough to
permit rationing to function.
In framing an adequate program, we must not lose sight of the
fact that purchasing power is excessive only because civilian supply is
deficient. We must attack the problem both on the production side and on
the financial side. We should do everything possible to keep the output
of civilian goods and services at the highest possible level consistent
with our first objective of maximum war production.
By far the most important means of increasing production is by
lengthening hours of work. The emergency we face calls for a 48-hour work
week. Organized labor won the 40-hour week after many years of effort and
struggle. It should be made unmistakably clear that the Government does
not propose to abolish but meroly to suspend the legislation guaranteeing
this achievement. In Great Britain, for all non-agricultural workers the
average working week is about 54 hours. The same group in this country
works only about 43 hours. It is abundantly clear that in view of our need
for production, our working week is too short. We should couple Federal
action with action to modify State laws that prevent the use of the 48-hour
Regraded Unclassified
63
- 5 -
week for specific classes of workers. At the same timo, we should impose &
blanket prohibition on working more than 60 hours a week except in grave
emergencies. Such a prohibition would reduce lay-offs, decrease accidents,
and increase efficiency on the job.
We should make B. more thorough-going conversion of our colleges
to military use. The only indispensable job for the colleges, under con-
ditions of total war, is technical training that will help win the war.
It is better to use existing training facilities in the colleges for the
armed forces than to build new facilities destined for the scrap-heap after
the war. In this way, we can economise the use of scarce building ma-
terials and labor.
We can also release resources for essential use by cutting down
advertising. At & time when the Government's declared policy is to ourb
civilian demand, advertising of all kinds continues to be devoted to
whetting the public's uppetite to buy. The Government does not merely
permit, it actually encourages, this misuso of resources. We continue to
allow generous deductions for advertising expenses under our tax laws,
virtually paying for private advertising out of the public treasury. We
continue to extend low postal rates to masses of useless printed matter.
In these ways we deliberately encourage appeals to the public that are
wholly inconsistent with the Government's program for conserving civilian
goods and making the most efficient use of our resources. A great deal of
labor and scarce materials are thus squandered, to say nothing of the
additional burdens on our already over-burdened transportation and postal
facilities.
Regraded Unclassified
64
- 6 -
On the fiscal front, we should aim at raising taxes and com-
pulsory savings equal to at least half of our exponditures. As much as
possible of our remaining requirements should come from borrowing from
the public. We should roduce borrowing from the banks with its infla-
tionary consequences, to a minimum. The British and Canadian experience
shows that it can be done.
In view of the urgency of the situation, it would be appropriate
for this Board to recommend to the President that ho send a special mes-
sago to Congress requesting tho deduction from wages and salaries, be-
ginning in January, of a 30 per cont withholding rate on income in excess
of the incomo tax exemptions. The Victory tax (already enacted by Congress)
should be increased from 5 to 11 per cent; and the Victory tax plus the 6
por cent normal tax and the 13 per cent initial- surtax rato should be with-
held at source on payments of wages and salarios. We cannot impose this
high withholding rato without adopting somo form of pay-as-you-go plan.
Raising the Victory tax will be futile unless wo mako suro that
taxpayers will not use the purchase of rodoemable or saloable Government
obligations as a means of escaping the part of the tax represented by the
post-war crodit. If we do nothing else, we should at loast insure that
taxpayers make such purchases out of current incomo and not by using idlo
cash, solling their socurities, or borrowing. We should mako compulsory
savings under the Victory tax truly compulsory and truly additional
savings.
Regraded Unclassified
65
- 7 -
The arguments for a heavy withholding tax are conclusivo. Only
in that way can the money now oxerting continually stronger inflationary
pressuros on the civilian markets be drawn off before it has an infla-
tionary offect. Onco spont, it not only has this offoot but the Treasury
may nover be able to colloct the funds, particularly from the millions of
now taxpayors. This is the timo to place them under & withholding systom
on a pay-as-you-go basis. Still another virtue is that funds aro thus
drawn currently into the Treasury.
Later, of course, as the Treasury has already warned the
country, we must have another general revision of the revenue laws and
tax rates must be further increased and various remaining loopholes closed.
Imposition of a withholding tax, such as suggested, can, however, be ao-
complished without a general revision. It is by no means sufficient by
itself to meet the problem before us, but it is something that can be done
promptly, and it is a vitally important step at this time.
It is generally recognized that as tax rates rise, voluntary
savings are likely to decrease and many taxpayers may redeem the war savings
bonds they hold to meet the increased tax payments. To the extent that
this occurs, it of course completely nullifies the anti-inflationary effects
of the sale of those bonds. Accordingly, it is clear that we not only must
have compulsory savings, but future issues of war savings bonds should not
be redeemable until after the war, at such time as the funds may be spent
without inflationary results. There is a place for voluntary savings, but
it should be supplemental rather than & main relianse.
Regraded Unclassified
66
- 8 -
On the borrowing front, steady progress is boing made in
elaborating and organizing the Government's program 80 as to reduce the
reliance upon borrowing from the commercial banks and the resulting in-
flationary creation of now deposits.
I have sought to outline some of the suggestions that seem to
me to be appropriate at this time, rocognizing that adoquate elaboration
of our tax system, to embrace possibly the so-called spending tax and
sales taxes must be postponed until later. I appreciate this opportunity
to present these suggestions at this time, and I would welcome a further
opportunity to furnish such additional material as may be necessary for a
more thorough consideration of the various proposals outlined.
Sincerely yours,
M. S. Eccles,
Chairman.
Honorable James F. Byrnes,
Director,
Office of Economic Stabilization,
Washington, D. C.
NATIONAL WAR LABOR BOARD
67
Department of Labor Building
Washington, D.C.
Office of the Chairman
November 12, 1942
Honorable James F. Byrnes,
Director,
Office of Economic Stabilization,
Washington, D. C.
Dear Mr. Byrnes:
At the meeting of the Board of Economic Stabilization to
be hold tomorrow, November 13, at 11:00 a.m., I should like to
inject into the discussion of measures designed to control excoss
purchasing power, some consideration of the effect of the cost
of production upon the available purchasing power of the country.
This effect exists in all production, but seems to me
poculiarly important in the production of war materials. All
of those things which tend to reduce the cost of production have
a deflationary effect. Thoso things include increased productivity
of workers, improved methods of production, increased efficiency
of management, etc.
If decreased costs of production are reflected in prices
the total amount of money paid for the goods produced is reduced
and the excess purchasing power is reduced. If tho docreased
costs of production aro not roflocted in pricos, thoy aro roflocted
in profits, and in part find thoir way back into the national
treasury by way of taxos on carnings, dividonds and excess profits.
It seoms to mo worthwhilo for the Board of Economic
Stabilization to considor this idea. Porhaps incontivos suit-
ablo to oncourago roduction of production costs may be suggosted.
In tho fiold of profits this is perhaps a matter of the
tax laws to be considored by the Treasury, and also a mattor of
contract pricos to bo considered by tho procurement agonoies.
In tho fiold of wagos it would soon that if carefully
and wisoly appliod a wago policy which allots to tho workors a
roasonable fraction of any saving in production costs, whore that
saving can be attributed to increased productivity of workers,
might do much to decrease the labor costs por unit of production and
correspondingly losson excoss purchasing powor.
Cordially yours,
(Sgd.) William H. Davis
William H. Davis, Chairman
National War Labor Board
Regraded Unclassified
68
11/11/42
Mr. Paul sent copies to:
Mr. Bell
Mr. Haas
Mr. White
Mr. Gaston
Regraded Unclassified
69
Secretary Morgenthau
November 10, 1942
Randolph Paul
There is attached, for your information, a copy
of a memorandum entitled "Tentative Tax and Savings
Program for 1943," which I received from Ben Cohen.
(Initialed) 1.1.9.
Regraded Unclassified
70
TENTATIVE TAX AND SAVINGS PROGRAM FOR 1943.
1. Tax Program
(a) Regular Taxes - Apart from social security
tax and spending tax below referred to, it might be
well for the present, instead of seeking a general
revision to the tax law, to concentrate on the plugging
up of major leaks and the correction of glaring inequities.
These inequities aret
(1) Depletion allowances for oil and
other mineral.
(2) Tax exempt securities. In taxing
income from outstanding tax-exempt bonds
and possibly also from future issues, tax
credit should be allowed equivalent to the
increased yield he might have obtained from
an equivalent investment in a taxable security.
Such credit would tend to maintain existing
market differentials between tax-exempt and
taxable securities.
(8) Joint Returns. Tax on joint return
basis might be applied only to combined income
in excess of $2500, permitting combined income
Regraded Unclassified
71
2.
under $2500 to be reported separately by
husband and wife. (Consideration might also
be given to permitting combined income under
$2500 to be equally divided between husband and
wife by whomever earned, thus giving all states
the benefit of the community property principle
on combined income under $2500 income.)
(b) Social Security Taxes. A substantial increase
in the social security tax would seen desirable and if
obtained would remove the need of applying the proposed
compulsory saving plan or the victory tax to the low
wage groups earning less say than $20 or $25 a week.
If coupled with increased coverage and benefits, this
would constitute an acceptable and highly benefitial
form of compulsory saving.
(o) A graduated tax on retail spending. It is
suggested that coupons be required for all spending
for essential consumption items (except those specifically
exempted by the government, because of their abundance,
or for special policy reasons such as might be present
in the case of milk and bread, the consumption of which
might be encouraged within the limits allowed under
Regraded Unclassified
72
3.
specific rationing schemes.) Each adult individual
should be entitled to a minimum amount of free
coupons, say $1,000, (coupons acquired in excess of
that amount would be subject to a graduated tax,
starting at 10% on the first $500 excess with an
additional 10% increase in the tax until the tax
reaches 100%, or there might be some advantage in
gearing the scheme from a $50 per month free coupon base.
2. Compulsory Lending, collectible at the source.
A stated percent, say 10 or 15 or possibly 20
percent, of all salaries, business drawing-accounts,
wages, in excess of $25 per week, a. similar percent
of all dividends and interest payments, a somewhat
smaller percent on all fees and commissions earned
by firms and individuals bearing their own overhead
expense. No interest should be paid on compulsory
lending, but principal should be returned within 5
years after the close of the war, with provision for
earlier payments in cases of actual need.
The privilege of applying compulsory pro tanto
credits on income tax might be allowed to a limited
extent in specified cases. The credits might be allowed
Regraded Unclassified
73
4.
for life insurance premiums, not exceeding a specified
portion of the taxpayer's income, or for the payment
of a limited class of debts or in the case of special
hardship such as that of a taxpayer whose income has
been sharply reduced from that of the preceding year.
Consideration should be given to extension the
compulsory lending scheme in appropriate form to
corporations, not 80 much because of its stabilizing
effect as because of its merits in reducing the cost of
financing the war and in reducing the need for high
pressure war bond campaigns.
3. If these proposals are properly integrated into
the tax system, it might be possible to drop the victory
tax entirely. It might also be possible to substitute
for, or add to the present high salary controls, a
special tax of 50% of all net income in excess of $25,000,
after the payment of all other taxes, of 75% of such
income over $50,000, and 100% of such income over $100,000.
Regraded Unclassified
Treasury Department
Division of Monetary R earch
Date Nov. 11, 19420
TO: Miss Chauncey
On Nov. 10, at 6:30 p.m. the
original and 1 carbon of this letter
were sent to the Secretary at his
home. He signed the original ("Henry
Morgenthau, Jr.") and returned to
Mr. White this morning.
This morning at 11 o'clock the
signed original and 25 copies of
mimeographed letter were sent to
Mr. Byrnes by special messenger.
L. Shanahan
MR. WHITE
Branch 2058 - Room 214}
Nov. 11, 1942
Mimeographed coptes sent by Dr. White to:
Mr. Bell
Mr. Gaston
Mr. Paul
Mr. Haas
Mr. Stewart
75
November 10, 1942
By dear Mr. Byrnest
We in the Treasury have been investigating a great
variety of measures intended to accomplish the objective
mentioned in your letter of October 9, 1942, to control in-
flation through the restriction of civilian spending. We have
been particularly interested in measures which combine effec-
tive inflation control with a substantial contribution to the
financing of the war. We welcome the opportunity to give you
some of our thoughts on these questions. We shall be glad to
submit more extended studies at your request, and also to
discuss them with you at your conveniense. Such discussions
should be helpful to cooperation in the related fields of
economic stabilization and fiscal policy.
No have come tothe conclusion, in the course of our own
investigations, that an effective and equitable solution of
the problem of inflation will require measures more fundsmen-
tal than any yet adopted. We are convinced that wage and
price eeilings alone emnet control inflation. Our estimates
Regraded Unclassified
76
- 2 -
indicate that, at present price levels, next year will -
a surplus of purchasing power of about $40 billion over and
above the supply of consumers' goods available during the
year. Unless much of this excess of $40 billion of purchas-
ing power is withdrawn, price veilings will be broken through
on & broad front, causing empty shelves, large-scale black
markets, widespread evasion and dealer favoritiem, and
illegitimate profits. In such a situation, distribution of
the necessities of life will be inequitable and wasteful,
and competition to buy the means of living will be reduced
to a time-consuming and discrderly scramble. Severe hard-
ships will be suffered, especially by families in the low
income groups.
We find that on the basis of the most optimistic 08-
timate possible, not more than $70 billion, at present prices,
of consumers' goods and services will be available for pur-
chase in the calendar year 1943. Income received by con-
sumers in the same period will be about $125 billion. Not
more than $15 billion of this consumer income will be taken
away by Federal, State and local taxes paid directly by in-
dividuals, including the new Federal taxes levied in the
revenue act just passed. Therefore individuals will have
left, to spend or to save, about $110 billion. If we are to
prevent irresistible pressure of excess demand for an in-
sufficient supply of goods, consumers must be induced --
Regraded Unclassified
77
- 3 -
through additional taxation or otherwise -- to refrain
from spending some $40 billion, or 04 out of every $11 of
the income they have remaining after present taxes.
It is true that voluntary savings are now being made
at an unprecedented rate. It has been estimated that in-
dividual savings . government bond purchases, insurance
premiums, currency and deposits, debt repayments, ets. -
during the second quarter of this calender year were at the
annual rate of $24 billion, which was approximately double
the rate for the same quarter of the preceding year. This
acceleration of savings is far greater than can be accounted
for by the large increase in individual incomes. It is with-
out doubt due in part to inability to buy automobiles and
certain other consumer goods and to the promulgation of the
general maximum price regulation. It has undoubtedly also
been strongly influenced by the campaign for reduced spend-
ing carried on in commection with the sale of war savings
bonds. It is doubtful, however, that this rate of voluntary
saving can be substantially increased or even maintained
during the coming calendar year in the face of substantially
increased taxes and somewhat higher living costs, unless
strong governmental action is taken. If prices rise, savings
will, of course, also rise, but the objective of our policy
must be to increase savings while at the same time prevent-
ing prices from rising.
Regraded Unclassified
78
- 4 -
If we are to reduce consumer spendings to the value
of supplies available at present prices, this governmental
action must immobilize an additional $16 billion of consumer
income in 1943 over and above the $24 billions of current rate
of saving.
To induse consumers to make gross savings of $40 billion
out of their next year's incomes is not sufficient. Those
consumer savings must be net, 1.0., after account has been
taken of the fact that some people will be eating into their
savings. If, for example, some individuals next year consume
their capital to the extent of $10 billion, other individuals
will have to save $50 billion to give us net individual sav-
ing, for the economy as a whole, of 240 billion.
There already exist abundant capital assets which in
effect are large pools of purchasing pewer that sould easily
be tapped for spending by individuals. We have outstanding
about $13 billions of United States Savings Bonds, all of
which could be presented for redemption in a short period.
Individuals hold billions of dollars of other securities,
which they might sell to other individuals, to business firms,
and to banks. Individuals hold billions of dollars of bank
deposits and currency in excess of any previous year's hold-
ings. Billions of dollars could be borrowed on insurance
policies. If more and more of the current income is taken
Regraded Unclassified
79
- 5 -
away by taxes or is immobilized through forced lending to
the Government, then these reserves of purchasing power will
be increasingly tapped by persons reluctant to accept a de-
cline in their standard of living, or desirous of cushioning
such a decline. If price stability is to be maintained,
we must see to it that these capital assets are not used to
increase consumption expenditures to a level in excess of
the available supply of goods at present prices. It will do
us no good merely to shift savings already being made from a
voluntary to an enforced status, nor will it do us much good
to require lending to the government that will come out of
accumulated savings represented by liquid assets in the hands
of individuals. If, with taxation on the basis provided by
existing law, we fail to add at least 840 billion to our
accumulated individual savings next year, prices will rise --
in an open or a concealed way.
The more taxes we obtain, the less net savings do we have
to induse. We have not nearly reached the economic limits of
taxation. Our first recourse should be to additional taxation.
There are three important advantages of withdrawing as much
Regraded Unclassified
80
- 6 -
excess purchasing power as possible through taxation. These
aret
(1) Each dollar of taxes avoids the accumulation of
a dollar of public debt. Therefore increased
taxation reduses the interest burden and gives
the Government greater fiscal freedom to meet
whatever conditions may arise in the post-war
period.
(2) Increased taxation reduses the danger of post-
war inflation that could come from the spending
of war-time accumulations.
(3) Taxation reduces the necessity for extensive and
administratively costly war-time controls on what
people may do with money that remains in their
possession.
Notwithstanding the advantages of taxation, it would be
highly unrealistic to contemplate tax revenue along traditional
lines on the scale requisite to absorb enough eurrent income
to bring the level of spending down to the level of goods
available for purchase at current prices. Even a doubling
of the present #15 billion of personal taxes would not
suffice, for if anything like $15 billion of new personal
taxes were enacted the level of voluntary savings would cer-
tainly not remain at $24 billion. Part of the increase in
Regraded Unclassified
81
- 7 -
taxes would merely replace savings. In fast, it is likely
that my effort to do the whole job by absorbing purchasing
power through taxation along traditional lines would in-
volve the levying of additional personal taxes well in excess
of $20 billion. In view of the magnitudes involved it will
clearly be necessary to supplement taxation by additional
measures designed to curtail consumer spending.
Specific commodity rationing and price control already
help to enlarge the volume of individual saving, but they
alone are inadequate. To extend specific rationing suffi-
ciently to cover the bulk of consumer spending would be costly
and irksome, although extensive specific rationing may have
to be adopted oventually. Therefore, we believe that other
measures should be considered in order to limit spending to
the necessary extent.
We have particularly examined four general measures,
any of which could contribute substantially to price stability
and to an equitable distribution of scares supplies. Each
would also give substantial direct or indirect assistance to
financing the war. These four measures are Compulsory Lend-
ing, Compulsory Saving, Expenditure Rationing, and Expenditure
Taxation. Two of these types of control are mentioned OX-
plicitly in your letter of October 9. We have chosen to dis-
Regraded Unclassified
82
- 8 -
cuse the other two at the same time because they are
closely related methods of dealing with the same question.
1. Compulsory Lending Compulsory lending is the legal
obligation to lend to the Govern-
ment an amount equal to a specified fraction of income, ex-
penditure or some other base.
Compulsory lending may have exemptions and graduation.
It may therefore be quite progressive in its incidence. It
would contribute to the control of inflation in the some
general way as taxation, namely, by withdrawing money from
the hands of consumers. If individuals had to lend some of
their funds to the Government - provided they did not nor-
mally save anything, did not have espital, and could not
obtain credit -- they would be compelled to reduce their
spending by an mount corresponding to their lending. In
general it is the lowest income groups who save little, have
few assets and limited credit; therefore a dollar ad thdrawn
by compulsory lending from a man in the lowest income groups
might cause almost a dollar's reduction in spending. At the
top of the income scale, a dollar withdrawn in compulsory
lending might cause no reduction at all in spending; the
compulsory lending obligation would be met out of accumulated
savings or out of current income which would have been saved
anyway. The effect on most individuals would be somewhere
between these two extremes, so that for them part of the funds
Regraded Unclassified
83
- 9 -
lent would case out of a reduction of consumption and part
out of the accumulated savings or out of now savings which
they would have made in any case.
It might also be desirable to require compulsory lend-
ing by corporations as well as by individuals.
The following advantages are claimed for compulsory
lending:
(a) It would justify a greater restriction of the
consumption of the lower income groups than if
this restriction were effected by outright
taxation;
(b) It would make larger levies on all income groups
politically acceptable;
(e) It would not reduce the incentive for individuals
to undertake harder and longer work for additional
pay as much as would additional taxes of corres-
pending amount;
(d) It would create a reserve of individual purchasing
power for the post-war period;
(o) It could provide a means of raising money to
finance Government expenditures with no obligation
to redeem or to pay interest during war-time.
However, any given amount of compulsory lending would be
less effective in redusing spending than the same amount of
taxes. Because the amount turned over to the Government
would be a loan to be returned after the war, there would
Regraded Unclassified
84
- 10 -
be less inducement to save in other forms, and individuals
with accumulated assets would be more willing to sell assets
or borrow on them to meet the lending requirement than to
meet & tax obligation. Persons who were already saving as
much as their current lending obligation or who had a large
amount of accumulated wealth might find no need to reduce
their spending at all. Therefore my compulsory lending
schedule would in practice be less progressive in its in-
cidence on consumption than it would appear to be at a first
glanee. The dollar value of the reduction of consumption
through compulsory lending would be much less than the dollar
amount of the compulsory lending.
These considerations suggest that, if use is made of
compulsory lending at all, it should be recognised that its
anti-inflationary effect will be largely restricted to the
lowest income levels. In order to reduce inflationary
spending by the high and middle income groups, it will be
essential to resort to supplementary devices designed to
effectuate the desired reduction in consumer spending.
2. Compulsory Saving Compulsory saving differs from
compulsory lending. Most proposals
for compulsory lending permit, as offsets against compulsory
lending to the Government, various forms of saving such as
the payment of insurance premiums, the repayment of debt,
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85
- 11 -
and the voluntary purchase of war bonds. Such offsets are
steps in the direction of converting compulsory lending into
compulsory saving.
By compulsory saving is meant a legal requirement that
every family or single individual save a specified fraction
of income. Compulsory saving necessarily contributes to the
control of inflation, compulsory lending need not. An in-
dividual might lend to the Government and yet not save, simply
by lending out of previously accumulated assets. An individual
might save and yet lend nothing to the Government. What is
primarily significant for inflation centrol is increased sav-
ing, 1.0., reduction in spending.
In principle, compulsory saving could provide an effec-
tive solution to the inflation problem. The total amount
allotted for expenditures on consumers' goods by all in-
dividuals and families could be fixed at the level of avail-
able supplies by requiring that the difference between total
income and total available supplies be saved in one form or
another.
A progressive system of compulsory saving would have
exemptions and graduation, just as would a progressive system
of compulsory lending. For instance, a married person with
no dependents might not be required to make any saving at all
out of the first $1,000 of income. Out of the next $500
of income he might be required to save 20 percent, out of the
Regraded Unclassified
86
- 12 -
next $500, 30 percent, and 80 on to a point where the
spending of further increments of income for consumer goods
and services would be prohibited.
It might be desirable to allow credite for personal
taxes, rents, medical expenses, tuition and extraordinary ex-
penses of other kinds. For instance, a single individual
receiving income at the rate of $2,500 during a given year
might be required to save $1,500 for that year. If he had
to pay #450 in personal taxes, $400 for rent, $50 for medical
expenses, and $100 for insurance premiums, these items might
account for $1,000 of his compulsory saving requirement,
leaving $500 that he would have to plan to save in other
forms -- vir bonds, etc.
This plan would solve one of the difficulties inherent
in simple compulsory lending plans, that 1s, the substitution
by individuals of the new compulsory saving for voluntary
saving which they would otherwise have made. It would also
make it impossible for individuals to show fictitious "saving"
merely through changing the form of previously accumulated
capital. This plan would fix total individual saving: it
would be irrelevant whether the individual saved in one
form or another, so long as he did not divert into current
consumption funds he was required to save. The Government
might borrow his funds directly, indirectly, or not at all.
In any case, his dollars would not be competing for goods
Regraded Unclassified
87
- 13 -
in the market. The Government might spend an amount equal
to his saving without fear that its expendi tures would
exercise any inflationary pressure.
Compulsory saving would simplify the problem of raising
funds for financing the war since individuals who were 60m-
pelled to save would probably invest a large part of their
saving in war bonds. To secure the fiscal advantages of
compulsory lending, it could be required that a stated pro-
portion of amounts saved be lent to the Government for the
period of the war - perhaps at sero interest. If such a
compulsory lending requirement were added to compulsory
saving, the requirement could be implemented through collec-
tion at the source.
It is absolutely crucial to this plan that a complete
report be secured of the net change in any individual's
capital position during the period in which he was obligated
to save. In calculating the savings requirement of any
individual, any purchase of assets or any savings credits
would have to be offset against sales of assets, declines
in deposits, etc. Only in this way could the compulsory
saving plan be protested against being vitiated by the use
of existing balances and credit.
Compulsory saving involves serious administrative
difficulties. The saving requirement would be for the same
year as that in which an individual received the income and
Regraded Unclassified
88
- 14 -
would not represent an mount he would be required to turn
over to the Government in a subsequent year. To help in-
dividuals keep their saving up to the level required by the
law, it would probably be necessary to have quarterly returns.
Whether an individual had complied with his compulsory saving
requirement could not, however, be finally determined until
the end of the period to which the requirement related, since
neither his income nor his savings would be known accurately
until then. An individual might unwittingly spend more than
his allotment because of unanticipated flustuations in income
or expenditure needs, and in any case he could not know that
he had complied with the saving requirement until after the
event.
The required amount of saving could be insured by issuing
to all consumers licenses to purchase only to the extent of
the expenditures to which they were entitled; in this case
compulsory saving would become Expenditure Rationing. Al-
ternatively consumers might be required to pay a regular
schedule of penalties for spendings above their exempt
minimum; in this case compulsory saving would become a type
of Expenditure Taxation. Further alternative sanctions for
excess spending are eriminal penalties, fines adjusted to
the individual circumstances, or punitive compulsory lending
requirements. The use of any of these last three sanctions,
however, would involve great administrative difficulties and
would cause widespread public resentment.
Regraded Unclassified
89
- 15 -
3. Expenditure Rationing Expenditure rationing is the
limitation of total consumer
expenditures by fixing the maximum amount that every family
or single individual is allowed to spend on rationed goods.
In principle, rationed goods should include all consumers'
goods that have any current cost in labor, materials, OF
facilities. Some classes of consumption goods and services,
however, might well be excluded from Expenditure Rationing,
such as: rents, tuition and medical care. Under an ex-
penditure rationing plan consumers' goods other than these
could be bought only with one's ration allowance, but the
consumer would be free to spend his ration allowance on any
commodities or services that he pleased. Furthermore, no
limitation would be imposed on the use of income in non-
consumption transactions, such as making gifts, paying taxes,
paying insurance premiums, buying real estate or securities,
OF saving in other ways. Business expenditures would, of
course, be excluded from expenditure rationing.
Under expenditure rationing the total amount allowed to
be spent on rationed goods for the whole economy during any
period would be adjusted to a level equal to the estimated
value of the supply of rationed goods available during that
period. In making the necessary computation, supplies would
be valued at the price level which it was desired to main-
tain. Changes in the total expenditure ration would be made
Regraded Unclassified
90
- 16 -
as the expected supply position changed and as more
accurate data became available.
Expenditure rationing would yield no revenue directly.
However, by limiting consumers' expenditures, it would force
them to save in one form or another. Therefore, individuals
would be likely to buy larger amounts of Government securi-
ties directly or to place their savings with institutions
who could in turn buy larger amounts of Government securities.
The impact of any expenditure rationing program upon
the various income groups would depend upon the schedules
adopted for allocating expenditures. If variations of in-
come, as well as size of family, were factors in determining
the permissible mount of spending allowed each individual,
there would be differences in permissible expenditures as
between income groups. However, the expenditure rationing
system could greatly reduce the inequalities in spending
that prevail now. For example, a family of four with an
income of $1,500 might be allowed to spend the entire $1,500
while a family with an income of $50,000 might be permitted
to spend no more than (say) $10,000. It would be easier to
reduce inequalities by limiting spending directly than by
limiting it through taking away agrt of income. On the
other hand, remaining inequalities might be resented be-
cause they have been given direct government sanction.
Regraded Unclassified
91
- 17 -
Expenditure rationing would attack the problem of
excessive consumer purchasing power directly, and would
determine the ration allowance from two items (current
income and family status) that are in most cases readily
ascertainable. For both of these reasons, the allotment of
spending power to individuals or income classes would be sub-
jest to more effective control than under a program. of taxa-
tion or compulsory lending.
It would still be necessary to have specific rationing
for some basic necessities that were disproportionately
scaree. However, in the measure that people with large in-
comes would be able to spend less on scarce commodities under
expenditure ture rationing, the need for specific rationing would
be reduced.
An effective rationing system would require the use of
a license to purchase, in coupon or other form. It might be
possible to solve this problem without the use of both money
and a coupon in every purchase.
The distribution of ration coupons or allowanses could
be integrated very closely with the present system of payment
of incomes:
(a) Persons employed for wages or salaries would file
statements with their employers showing their
marital and dependency status. on the basis of
these returns, the employers would distribute to
them the correct amount of ration allowances;
Regraded Unclassified
92
Regraded Unclassified
- 18 -
(b) Persons receiving income other than wages
or salaries would report the amount of their
income as well as their marital and dependency
status to a bank, post office, or local ration-
ing board. The institution to which this in-
formation was reported would be authorised to
provide individuals with ration allowances in
accordance with the expenditure rationing schedule;
(e) Persons with irregular incomes, seasonal incomes,
or living by depleting capital, would require
special consideration in the determination of
their ration allowances.
A partial check on the accuracy of ration allowances
would be obtained by requiring individuals to reconsile the
income declared for the purpose of obtaining ration allowances
with the income deelared for income tax purposes. For con-
sumers, such a system would have an internal self-enforeing
element, since the exaggeration of income would lead to
additional tax liabilities, while the under-statement of in-
come would diminish the size of the ration allowance.
The above description of expenditure rationing touches only
its most salient features. We have gone into expenditure
rationing in the Treasury in great detail and shall be glad
to give you a more extended study of this subject, should
you be interested inexploring it further.
93
- 19 -
4. Expenditure Taxation Expenditure taxation has al-
ready been the subject of some
public discussion in connection with the recent proposal for
& spendings tax submitted by the Treasury to the Senate
Finance Committee during consideration of the Revenue Act of
1942. We are not concerned in this letter with the details
of that proposal but rather with the general question of the
way in which a progressive spendings tax would bring about
the limitation of consumer expenditure necessary to avoid in-
flation.
The spendings tax would be a tax on consumption rather
than on income. It would provide for exemptions and for
graduated rates. It would impose a penalty on all spending
above the minimum subsistence level, a penalty that would be-
come increasingly severe and even prohibitive as spending in-
creased. Through graduation, it would be made to bear prim-
arily on conforts and luxuries rather than on necessities.
For example, under a spendings tax a married person with
no dependents might be allowed an exemption of $1,000 a year.
If he spent less than $1,000 on goods and services he would
pay no tax. A 10 persent tax might be levied on the first
$500 of consumption expenditure in excess of $1,000, a 20
percent tax on the next $500 and successively steeper taxes
on additional increments of spending. The tax might ultimately
reach rates of 100 percent or more. This would mean that an
Regraded Unclassified
94
Regraded Unclassifie
- 20 -
individual spending large sume on luxuries might be re-
quired to pay the Government as much as $1.00 or more for
every additional dollar he spent on consumers' goods. (A
part of this tax wight be treated as a post-war rebate, if
desired.)
All forms of savings would be exempt from the spendings
tax. The more important non-taxable uses of income would be
as savings for the purchase of war bonds and other capital
assets, repayment of debt, life insurance premiums, as gifts
and contributions, and as tax payments. In addi tion, it
might be desirable to exempt from the spendings tax certain
special types of expenditure, such as tuition fees, expenses
for medical care and perhaps rent and other items.
The spendings tax would reduce spending on consumers'
goods and services in two ways: first, the amount paid in
tax would be withdrawn from income and could not be used to
purchase goods and services; second, by penalising spending
the tax would provide a powerful incentive to save rather than
to spend. Although the savings induced by the spendings tax
would not necessarily be paid over to the Treasury, they none-
theless would be removed from the spending stream and would
be added to the pool of savings available, directly or in-
directly, for financing the war.
95
- 21 -
A sufficiently severe spendings tax could reduce total
consumer expenditures by any desired amount, and at the
same time contribute to a more equitable distribution of the
scarce supply of consumers' goods than would prevail without
the tax. The exemption provision would enable persons with
small incomes to obtain basic subsistence needs free of tax,
while the steeply graduated tax rates would operate to bring
about a greater proportionate reduction in spending by those
persons whose large expenditures would subject them to the
higher penalty rates. Individuals would be given an induce-
ment for saving in a way which is not possible with & con-
ventional income tax. By reducing their spending individuals
and families would reduce their tax liability and thereby
increase the funds available to them for expenditure without
penalty after the war or when economic conditions become such
as to permit abandonment of the tax.
In addition to controlling the total volume of expenditure
and its distribution among individuals the spendings tax would
provide some reverse to the Treasury to finance the war and,
by reducing expenditures for consumption, it would undoubtedly
increase the voluntary purchase of war bonds. It would also
encourage the repayment of debt and other forms of savings,
since these too would be free of tax.
The administration of aspendings tax would not require
that individuals keep a detailed record of all their expendi-
tures. The only report that would be necessary in addition
Regraded Unclassified
96
- 22 -
to the information already required for the income tax
would be information to determine changes in capital position
of the same kind as would be needed under compulsory saving.
The total taxable expenditures of an individual are equivalent
to his net income, minus or plus the net change in his assets
during the year. His taxable spendings could be determined,
therefore, from his net income and from the assets he held at
the beginning of the year and the assets he held at the end of
the year.
The final determination of liability under the spendings
tax would be made when the income tax return for the corres-
ponding year was filed. A combined form could be used for
the two taxes. However, collection of the tax would not
have to be delayed until the tax liability was finally de-
termined. Two methods could be used:
(1) The first bracket of the spendings tax could be
collected at the source from all income paid in
the form of wages and salaries, bond interest
and dividends. Collection at source based on
income instead of spending would involve no grest
hardship. The only persons who pay too much would
be those who save part of their income and hence do
not need for current consumption the extra amount
withheld, although they may need it for outstand-
ing savings commitments. Final adjustment of
Regraded Unclassified
97
- 23 -
tax liability would be made with the filing
of the return after the close of the year
(2) Individuals with expenditures subject to tax
rates above the first bracket would be required
at short intervals, say quarterly, to pay a
tentative tax based on the approximate amount
of their spending. A final adjustment of their
tax liability wuld be made with the filing of
a return after the close of the year.
This statement of the spendings tax is intended to be
only a general exposition of its principle features. To
bring out more fully its effect in restricting expenditure
on consumption at every income level, it would be necessary
to present a longer memorandum including a detailed schedule
of tax rates, their probable yield, and their effect in in-
dueing savings. No shall be glad to present such a study at
a later time should you be interested in going into the
possibilities of the spendings tax in greater detail.
Regraded Unclassified
98
- 24 -
Additional data are available on each of the four plans
discussed above, and we shall be glad to present them to you
at your request.
Sincerely yours,
/s/ Henry Morgenthau, Je:
Secretary of the Treasury.
Mr. James F. Byrnes,
Director, Office of Economic
Stabilisation,
White House,
Washington, D. C.
Regraded Unclassified
99
RALPH E. FLANDERS
Box 477
Springfield, Vermont
November 9, 1942
Hon. James F. Byrnes,
Director, O. E. S.,
White House,
Washington, D. C.
Dear Mr. Byrnes:
The prevention of inflation is desirable from the stand-
point of controlling the cost to the nation and its citizens of an
all-out war; but it is 8. prime necessity for safeguarding the future
of the wage earners of the country.
The problem is so clear in principle that it scarcely seems
necessary to put into words; yet it must be stated again and again
until comprehension becomes so general that it is translated into
action.
Briefly, the situation is this: As more and more manpower
is withdrawn from production of civilian goods and the rendering of
civilian services, there will be less and less to buy with the greatly
expanded civilian payrolls, the pressure of this purchasing power on
the diminished supply of goods and services will break through the
dam of O.P.A. price control, or widespread boot-legging and black mar-
kets will arise, or both. The wage earner will thus be required to
spend his expanded income on current expenses, with little or nothing
laid by for the uncertain future. The economic gains of labor will
be wiped out.
While the nature of the problem is clear, its extent is
not - at least from any figures publicly available. A clue is given,
however, by the announced Army program of 7,500,000 soldiers under
arms by the end of 1943. If we add 2,000,000 nen in the Navy, we
will have 9,500,000 men of all services in the field.
The consumption of munitions of all kinds in modern warfare
is enormous. To the mass which will re required by these 9,500,000
men we must add a comparable mass for the supply of the fighting
forces of the United Nations already in the field. If we can procure
the raw materials for this all-out production of war material, it is
clear that we must employ on war work every man, woman and child able
to work and not under arms, leaving in civilion occupations only the
minimum required for food, clothing and shelter, and the basic require-
ments of health and education.
Regraded Unclassified
- 2 -
This deepening situation of high payrolls and decreasing
goods must be met by sharply limiting purchasing power in the inter-
ests of the purchasers. It is now becoming necessary to reduce that
purchasing power by forced saving and by taxation. Voluntary bond
sales fall far short of the requirements. All the juice has been
squeezed from personal net incomes above $25,000, as ovidenced by
the Treasury's revelation that confiscation of all incomes above
that figure would yield a sum which is less than $1.50 for every mun,
woman and child in the country.
The situation clearly demands a new fiscal program, worked
out by the Congress, the Treasury and the Director. That program
must be in part one of taxation, in part one of obligatory purchase
of war bonds.
The war bonds must for the present be non-negotiable ex-
copt in provided-for emergencies, otherwise the bonds will find their
way into the banks and the saving will be fallacious, or they will
be sold at a discount and the market broken.
The program must be flexible. The balance between purchasing
power and purchasable goods and services is a fluctuating one, and the
division of purchasing power must be currently adjustable to the current
situation. That adjustment must be at the discretion and in the power
of the Director. This requirement for flexibility makes necessary the
immediate adoption of the so-called Ruml plan. Without it there is no
possibility of adapting the fiscal program to the current requirements.
In view of the above considerations it would soem advisable
for the Treasury and the Director to apply to the Congress for fiscal
legislation of the proper type, giving the required powers.
Sincerely yours,
(Sgd.) Ralph E. Flanders
Ralph 5. Flanders
Regraded Unclassified
100
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE FOR EMERGENCY MANAGEMENT
OFFICE OF ECONOMIC STABILIZATION
WASHINGTON, D.
November 5, 1942
AMES F. BYRNES
Director
My dear Mr. Secretary:
Our next Board meeting will be held
on Friday, November 13, at 11:00 a.m.
We shall discuss ways and means of
controlling excessive purchasing power. In
preparation for this meeting I should be grate-
ful if you could have a memorandum prepared,
setting forth your suggestions in this regard.
The memorandum could be circulated among the
Board members in advance of the meeting as the
basis for our discussion.
Sincerely yours,
James JAMES F. BYRNES
Honorable Henry Morgenthau
Secretary of the Treasury
Washington, D. C.
PVICTORY
BUY
UNITED
STATES
WAR
BONDS
-
STAMPS
Regraded Unclassified
101
MINUTES OF MEETING
The Economic Stabilization Board met on Friday, October 30th, 1942, at
2:30 P.M.
Present: The Director (presiding), Mr. Bell (Acting Secretary of the
Treasury), Kr. wickerd, Mr. Jones, Miss Perkins, Mr. Eccles, Mr. Henderson, Mr.
Taylor (Acting Chairman of the National War Labor Board), Mr. Lubin (Economic
Advisor to the President), Mr. Murray, Mr. Green, Mr. O'Neal, Mr. Patton, Mr.
Jonnston, Mr. Flanders and Mr. McNutt (by invitution).
1. The Director expressed regret that, because of a change in the time
fixed for the President's Cabinet meeting, the Board meeting had again been post-
poned from Thursday to Friday. It was decided that future meetings would be held
on Friday mornings at 11:00 o'clock.
2. Mr. McNutt's memorandum with respect to the relationship between wage
stabilization und the migration of lubor had boen circulated among the members of
the Board. The meeting was thrown open for comments upon this subject.
Dr. Taylor stated that the National War Labor Board had completed an
analysis of 1200 pending applications for volunteer wage increases. More than
800 of these applications were based upon the alluged necessity of increasing
wage rates in order to prevent the loss of labor. Dr. Taylor said that applica-
tions of this scrt would, in the absence of a clear manpower policy, place an
intolerable burden upon the War Labor Board. It will bu impossible, Dr. Taylor
assorted, to stabilize wages so long as wage ratos cre permitted to act as the
primary instrument for regulating the flow of manpower. In these circumstances,
the Wer Labor Board vould ba required to decide which occupations were more essen-
ticl than others; whether employers had incugurated satisfactory training and
upgrading programs; and other similar questions. This would involve an invasion
of the manpower field by the War Labor Board. The only alternative, Dr. Taylor
with letter of Then 1942
Regraded Unclassified
102
- 2 -
stuted, is a national manpower policy which makes wage adjustments a secondary
rather than a primary factor regarding the flow of manpower.
These were, according to Dr. Taylor, unanimous conclusions of the War Labor
Board.
In answer to queries by Mr. Green, Mr. McNutt expressed the opinion that
the stubilization of wages and the adjustment of inequalities were equally in-
portant elements in a successful manpower policy. Adjustment without stabiliza-
tion would involve & constant upward wage spiral, with no level to which adjust-
nents might be made. On the other hand, in the opinion of Mr. McNutt, rigid wage
freezing without adjustments to correct inequalities might lead to a loss of
norale and to dissatisfaction, with consequent losses in production. This would
be true even if compulsory labor market controls were instituted, in view of the
fact that compulsion, while capable of preventing the turnover and transfer of
workers, could not guarantee the necessary levels of productivity without a high
degree of cooperation upon the part of the individual worker.
Mr. McNutt, however, held the view that compulsory labor market controls
would prove necessary. In fact, indirect compulsion is already being applied
in the case of non-ferrous metal workers, lumbermen and certain agricultural
laborers. McNutt expressed agreement with Mr. Green's view, that, in the event
of a compulsory transfer of workers, seniority rights and the social insurance
benefits should be preserved on a uniform national basis.
Mr. McNutt also agreed with Mr. Green that C. national registration of
women should be held before the adoption of compulsory manpower control. However,
he stated that 39 million selective service questionnaires were already in possess-
ion of the United States Employment Service, but that the failure of the Congress
to make adequato appropriations held up the necessary work of analyzing this in-
formation.
Regraded Unclassified
- 3 -
103
Miss Perkins colled attention to the fact that several million workers are
stili registered with the United States Employment Service and suggested the re-
cruitment of these workers in war production. Mr. McNutt stated that a consider-
able number of these registrations were "not active" and that c great many of
the remainder were in the field of domestic service and other casual occupations.
Miss Porkins also referred to the existence of 1,700,000 unemployed workers, but
is. McNutt expressed the opinion that of those about 1,000,000 were unsmployable.
hr. Murray suggested & more complete study of the entire problem of war
mobilization bafore umbarking upon a program of manpower regimentation. The man-
power problem, stated Mr. Murrey, is inevitably tied up with the mobilization
of all our human and natural resources. Such matters as the allocation of war
contracts and the utilization of the facilities of small interprise are directly
related to manpower. Mr. Murray reiterated his opinion that labor will accept
whatever sacrifices and compulsions prove necessary for winning the mar, no mat-
ter how drastic; but labor does not believe that existing possibilities for the
effective mobilization for our total resources have been exhausted.
Mr. Patton expressed the opinion that dependency must give way to occupt-
tion as the primary criteria for the operation of selectivo service; and that
the local draft boards as now constituted were not technically capable of douling
with complicated occupational questions. Governor McNutt agreed with Mr. Patton.
sr. Patton also agreed with Mr. Murray's observations as to the necossity of
integrating procurement with manpower and the problems of the civil economy. Mr.
McNutt agrood, and advocated the croation of a Board consisting of the Joint
Chiefs of Staff, Mr. Nelson, Mr. Stettinius, Mr. Byrnes, and himself to doal with
too problem of relating manpower allocation to military strategy. Mr. Patton
also urgod the necessity of unabling the Secretary of Agriculture to administer
the entire food program, which is now split batwoon the Department of Agriculture
and the War Production Board.
Regraded Unclassified
- 4 -
104
Mr. Johnston stated his opposition to the use of compulsion unless it
proved absolutely necessary. He further advocated creation of a central authority
to allocate manpower among the armed services, wer production and the civilian
economy. Mr. McNutt agreed, but pointed to certain difficulties, such as the
traditional priority of the armed forces in all manpower allocation, with the
consequant reluctance of many persons to abandon the system of voluntary on-
listments. Mr. Johnston also emphasized the possibility of accomplishing much
through voluntary cooperation between labor and management and the local com-
munity, citing the experience of Muskegon, Michigan, where labor turnover and
piracy had been reduced almost to the vanishing point.
Mr. Flanders stated that, in his opinion, the government should proceed
at once to on all-out program of voluntary manpower control, with preparations
to move into compulsion. He also called attention to the existence of cost-plus
contructs as E disturbing factor in national economy, and to the disparity
between agricultural and industrial wages. Mr. Flanders further expressed the
opinion that wa had not yet approached the degree of total mobilization already
achieved by the onemy, and that the full utilization of all our resources would
require much moro delicate controls than those now contemplated.
Mr. Ecclos emphasized the gains which could be mode from incroasing the
officient utilization of our present manpower supply.
3. Secretary Wickard read a memorandum donling with the problem of agri-
cultural wages (circulated at the meeting). Miss Perkins, Mr. Henderson and
Mr. Putton all expressed general agreement with Mr. Wickard's recommendations,
which generally accorded with those contained in Mr. MoNutt's memorandum. Mr.
McNutt also called attention to the fact that one difficulty in recruiting agri-
cultural labor was the failure to obtain adequate appropriations for the Form
Placement Division of the United States Employment Service. Mr. O'Necl expressed
Regraded Unclassified
105
- 5 -
emphatic disagreement with the recommendations of Governor McNutt and Secretary
Wickard, stating that adequate farm prices and the deferment of farm laborers
would deal successfully with the farm manpower problom. Mr. O'Neal further said
that the Department of Agriculture's program for supplying labor to pick long
staple cotton in Arizona had failed, thus demonstrating the inadequacy of Mr.
Wickard's proposals. Mr. Wickard and Governor McNutt disngreed sharply with
Mr. O'Neal's statement, contanding that the situation would have baen adequately
hundled except for outside interforence.
Mr. Wickard reiterated his belief that for the present there should be no
ceilings on farm wages, and there was general agreement with this view. Mr.
O'Neal, however, reminded Mr. Henderson of his opinion that increases in farm
prices would be equally necessary to secure increased production.
The Board adjourned to meet again on Friday, November 13th, at 11:00
o'clock A. M.
Regraded Unclassified
106
THE UNDER SECRETARY OF THE TREASURY
WASHINGTON
October 31, 1942
MEETING OF THE ECONOMIC STABILIZATION BOARD
FRIDAY, OCTOBER 30, 1942
All of the members were present except the
Secretary of the Treasury and the head of the War
Labor Board. I attended in Secretary Morgenthau's
place.
Chairman Byrnes had invited Mr. McNutt of the
Manpower Commission to be present because of the dis-
cussion of the subject of the effect of wage stabili-
zation upon the migration of labor. He had submitted
previously 8. copy of the statement entitled "Wages
in Relation to the Labor Supply", which the Chairman
had sent around for every member to study. One came
to the Treasury the day before but I did not get a
chance to see it, 80 when he asked me to comment I
said I was sorry but I hadn't seen the statement until
that moment.
Mr. Eccles commented rather extensively and
drew an analogy between the labor front and the fiscal
front. He said we had tried on the fiscal front to
keep it on a. voluntary basis and it had been found
that what we could do on that basis WPB not sufficient
to meet the problem. Other measures will have to be
taken. He thought the time had come to really have
an all-out war effort and we ought to virtually draft
both capital and labor. He doesn't believe we are
going to have real success with controlling this whole
problem until we do that very thing.
The Acting Head of the War Labor Board said the
Board had given consideration to a number of different
types of cases. There was one type of case now coming
DEFENSE
before the Board since the Economic Stabilization order
went through which was of this character - the employer
BUY complains that he is losing employees because of the
UNITED
STATES
SWINGS
BONDS
vastures
Regraded Unclassified
107
- 2 -
higher pay of another plant close by. He said of the
1200 cases received in the last month or so, 800 or
900 were of this type. He does not feel that the
Board ought to consider this type of case unless there
are other factors involved and there must be other fac-
tors involved before the Board will take action to
grant wage adjustments. He said the Board is definitely
OI the opinion that its powers could not be used in any
way to control directly the flow of manpower.
Mr. Green of the American Federation of Labor
asked for clarification of paragraph 3 on page 3.
Mr. McNutt replied that we had to have stabilization
of wages before we could have any adjustment. In other
words, there had to be a base from which to start.
Mr. Green said that Dis organization had given a
prent deal of consideration to the matter of compulsion
in the employment and shifting of labor and they had
come to the conclusion that before you should use com-
nulsion for this purpose that the womanpower and other
related matters should be given consideration. In his
opinion women should be registered and registered im-
mediately. Mr. McNutt said he agreed with that and
that all of the registrants, including womanpower
should be classified. He asked Congress for an appro-
pristion of $6-1/2 million last spring to classify the
45 - 65 age group but did not get one cent. He asked
again in the last Deficiency Bill for the same amount
and they have just given him $5 million, which he told
them quite frankly would not be enough.
Mr. Green raised one more question which he said
would have to be considered carefully in the matter of
compulsory labor. You take people from one section of
the country where they have many rights such as hospi-
talization; unemployment compensation, disability com-
pensation and take them to another section where they
have none of these or at least they don't have some
of them, such P.S. hospitalization, which is a very
important factor; many of them in their present employ-
ment have seniority and they have retiremen privileges.
In his opinion it would be unfair to freeze these
employees in another job to which they are shifted and
Regraded Unclassified
108
- 3 -
something must be done to give them full protection of
=11 their rights.
Mr. Murray said that in his opinion we have wage
stabilization in this country. We have an organization
which was created by Congress to take care of wage
stabilization. He thinks that the question of compul-
sion is something that has not been thought through by
the Acministration officials. He thinks that the trend
at the present time is to rush into regimentation with-
sut thinking the matter through thoroughly. He believes
that there should be a complete study of the whole man-
Dower problem, including women, before we go to compul-
sion.
He said there are many crazy things done in the
Government service. There is no coordination. There
Fre many problems which affect the employment of labor.
Only last week, he said, Procurement Division contracted
to buy a. large number of chairs in Los Angeles, a place
where the labor market is as tight as it could possibly
be, and completely ignored the fact that New York has
2 surplus of labor and it would have been much better to
have placed that order in that market. Chairman Byrnes
ssked me if I would look into the matter and I told him
I would.
Mr. Murray criticised Mr. Eccles for comparing
Grent Britain and American labor problems. Most of
Great Britain's business is done in plants where they
employ no more than 200 employees. That is not the
case in this country. Little business is going out of
business and it is being helped in that direction by
Government officials. Only recently General Somerville
said before a Committee of Congress that little business
would just have to find some other means of livelihood.
This seemed to him preposterous when many of them are
equipped to put out the very things that are needed by
our Army and Navy without spending millions of dollars
to expand their plants. He gave information concerning
specific cases that came to his attention. Last April,
he said, one large company had come to Washington,
gotten priorities and contracts to build a $38 million
plent, entirely new, in the city of Chicago for the
Regraded Unclassified
109
- 4
nurpose of manufacturing armor plate. A gentleman in
Pittsburgh who already had a plant said that he could
start manufacturing armor plate immediately and for
an expenditure of probably less than $15 million. It
took a great deal of time and effort and pressure to
get this Government interested in that small Pittsburgh
manufacturer, but after several conferences they finally
awarded a contract to this gentleman. He began immedi-
ately to produce armor plate and is in full production
today, whereas the plant in Chicago, as he understands
it, will not be ready until next March.
He called attention to another case where there
was a large plant in Pittsburgh which previously employed
4,000 people in the manufacture of tin plate. Because
of allocations the tinplate industry has been practically
eliminated, so today that plant employs 600 women on
some rather small and insignificant jobs. Here is a
plant that should be compelled to convert to other war-
time purposes, but it is owned by a large concern and
they don't want to convert, SO it stands practically
idle.
AS he said before, wages in this country are
stabilized, he firmly believes, but he knows that the
cost of living is not stabilized. He is not satisfied
wi th our programs, particularly the tax program. He
said certainly it is not enough and it bears too
heavily upon the small income group. He wound up by
saying he is definitely in favor of the registration
of women, and at once.
Mr. Patton said he would like to make one comment
on Mr. McNutt's memorandum and he assumed that Mr.
mcNutt would probably agree with him, that the draft
boards throughout the country are not capable of
passing upon matters of deferment if the Government
should decide on deferment as B. policy in certain groups.
Mr. McNutt said he certainly agreed to that. He also
raised the question about dependency, saying that
dependency is certainly no longer a reason for deferment.
MI. McNutt said in his opinion dependency is out.
Mr. Patton said if we are going to compulsion it ought
to be all-out and not a piecemeal compulsion. McNutt
110
- 5 -
agreed that that should be done. He also said that
wage stabilization alone is not the answer to our prob-
lem. It must be a. whole, integrated program and we
just could not pick it up bit by bit and solve each
part as a unit.
Mr. O'Neal said he had a great deal of sympathy
with what Mr. Murray had to say about compulsion but
he felt that Mr. McNutt had completely covered the
situation in his memorandum. We apparently were not
ready for compulsion because Congress has not given
the money with which to carry it out. Mr. McNutt said
he did have $5 million and was now starting to work.
Then O'Neal and Wickard got into quite a heated
argument on the situation in Arizona with respect to
the employment of labor at minimum wages fixed by the
Secretary of Agriculture. Apparently Mr. O'Neal had
given out a statement for the paper that morning which
Mr. Wickard said had done a. great deal of harm and,
in his opinion, was going to cost the lives of a great
any American boys; that people are just not going to
plant cotton. If statements of that kind are made we
are going to find ourselves short; that this kind of
statement is very harmful and just should not be made.
Mr. Johnson said his organization does not believe
in compulsion of labor. He believes, however, there
should be a central authority which would have control
over all manpower. It should study the whole problem,
should know the size of our proposed army, should stop
voluntary enlistments at once, and labor and management,
SO far as the individual's problems are concerned,
should be left alone to work them out. He feels they
are doing a grand job along that line and should be
allowed to continue it.
Mrs. Perkins broke in at this point and said
there had been a great deal said about the lack of
knowledge in the Administration with respect to the
manpower problem. She wanted those present to know
that certain executive officers of the Government
had this knowledge and were using it as a basis for
many of their actions and proposals. However, the
111
- 6 -
Chiefs of Staff feel that this information would be
vital to the enemy and it is something that just can-
not be discussed except in certain groups dealing
directly with the problem. Mr. Patton said that dis-
couraged him a great deal because the representatives
of the public on this Committee can keep a secret and
een be trusted with this information and he thinks it
is unfortunate that it cannot be made available.
ATS. Perkins said probably it could be made available
to the Chairman and that there are certain people in
Congress, heads of responsible committees, which have
the information as representatives of the public.
Mr. Flanders said that we should explore all of
the voluntary possibilities to the extreme before we
go to compulsion. He feels rather strongly about that.
He also feels strongly about the necessity of getting
right down to the basic fundamentals of the problem.
We have got to know where we are headed. He does not
think the job can be done unless we know all about the
manpower problem, how big the Army is going to be, what
equipment is going to be needed, and after we learn that
we may find that a great deal less will he available
for civilian consumption than is estimated at this time.
Mr. Byrnes asked Mr. Henderson if his office had
given any study to the minimum needs of the civilian
population and what we could expect in the way of an
11-out effort by industry for war purposes. Henderson
said yes, he had given some thought to the matter and
he would be prepared to come before this Board and make
P statement on it. He said he would have to be away
during the week of the next meeting and he couldn't do
it then but that he would do it at some later date.
The Secretary of Agriculture was called upon to
read his statement, which he did and then asked for
the views of the Committee as to what they thought
about his conclusion in the last sentence on page 5.
41. Byrnes answered by saying that what the Secretary
of Agriculture wants to do is change the law. He feels
that the Act of October 2nd and the Executive Order
issued thereunder are in full force and effect; there
is only one person who can answer that question and
that is the President of the United States.
Regraded Unclassified
112
- 7 -
Secretary Jones said that he thought we ought
to congratulate the two gentlemen for having submitted
such complete and comprehensive memoranda on their
respective subjects and he thought there had been a
full and frank discussion of the subject matters before
the Board. He personally was not ready to act. He
needed a little more time for study and to think about
the problem. Chairman Byrnes said he felt the same way
about it but did not indicate that there would be fur-
ther discussion other than between him and the Secretary
of Agriculture and Mr. McNutt.
Chairman Byrnes brought up the question of future
meetings. He said it was a little difficult to know
when the President was going to change the Cabinet
Meeting from Friday to Thursday and he wanted to get
the views of the members as to whether it wouldn't be
better to meet Friday morning at eleven o'clock. No
one offered any objection to this and he said the
meetings would, therefore, hereafter be scheduled for
eleven o'clock every other Friday.
The statements made by Mr. McNutt and Mr. Wickard
are attached hereto.
DwB
113
UNITED STATES DEPARTMENT OF AGRICULTURE
OFFICE OF THE SECRETARY
Washington, D. C.
October 30, 1942
To:
James F. Byrnes, Director, Office of Economic
Stabilization
From:
Claude R. Wickard, Secretary of Agriculture
Subject: Agricultural Wage Control
In response to your request, I am herewith submitting my observa-
tions on the control of agricultural wages. When I speak of
agricultural wages, I refer to wages paid to persons working on
farms producing agricultural commodities.
The Act of October 2 and the President's Executive Order provide
that wages should be stabilized at specified levels unless adjust-
ments are deemed necessary to correct gross inequities or to aid
in the prosecution of the war. At this time, I believe that these
provisions regarding inequities and prosecution of the war are the
significant parts of the 1ct and the Order as far as agricultural
wages are concerned. As I see it, the principal problem in agri-
culture is to allow wages to rise so 6.6 to attract enough labor to
achieve farm production goals. Therefore, it appears that with
possibly a few exceptions, the law does not demand AL immediate
enforcement of ceilings on farm wages.
On the contrary, it seems that as far as wages are concerned there
is more neod for seeing that workers in agriculture are paid better
wages in order to provide an adequate labor supply to keep up
agricultural production.
Any system that attempts to put ceilings on all wages for farm labor
would encounter almost insurmountable difficulties in administration.
My views aro stated in more detail in the following paragraphs:
1. There is no present general need to hold down agricultural
wages. The disparity botween agricultural wages and wages
paid for other ossontial war industries constitutos a gross
inequity to the farm workers. For example, the average
hourly cash equivalent earnings of agricultural workers are
Regraded Unclassified
114
2-James F. Byrr -October 30, 1942
less than 30 cents per hour, while the average hourly Barnings
for workors in manufacturing industries ro ovor 80 cents on
hour. Agricultural wayes traditionally have been at tho
bottom of the ladder, and while the reports of the Depart-
munt of Agriculture show that farm wages have gone up
matorially, it must ba remembered that they started from
a very low point. By any reasonable standards, agricultural
wages aro not too high.
Not only are agricultural wages low, but hours of work
are long. For example, in my own State of Indiana,
where I have long worked on the farm, tho average farmer
and his employees work about 6% days a wook and they
rarely work less than 10 hours EL day. And farm workers
receive no ovortime.
2. Adoquate wages essential to production. The most scrious
problem involved in supplying the food for the United
Nations is that of maintaining an adequate supply of labor
on the farms of the United States. Farm workers cannot
be expected to stay on farms if the present wage disparity
continues ns wide as it is. Coilings at prosent lovels
on agricultural wages would soribusly interfore with ro-
moving this disparity and would hindor the effective pro-
socution of the war.
Thore may be a fow instances, especially in highly com-
morcialized agriculture, where nothing would be gained
by furthor risos in farm wagos, In such instances, con-
sidoration should be given to the application of a wage
coiling. Thoso instancos may bocome more frequent, but
it is doubtful if such wago controls can ever be applied
to all of agriculture.
3. A program of agricultural wage control for all farm labor
would oncountor serious administrative difficulties.
Agricultural labor diffors from industrial labor in that
farm workers are located on many small units while indus-
trial workers are more contralized. Thoro are moro than
six million farms. On many farms the work is performed
by tho operator and the unpaid mombers of his family,
whilo on many othors the operator of the farm is both cn
employer of labor and a laborer himself. Moroover, agri-
culture is highly soasonal. In agriculture, more than in
any other field, there aro great numbers of part-time work-
ers. Also thoro are great numbers such as boys and girls,
Regraded Unclassified
115
3-James F. Byrnes-October 30, 1942
old people, and the physically handicapped who cannot
perform a full day's work.
The problem is further complicated by the fact that
farm labor is not always paid in cash alone. Over
wide areas it is customary for farm labor to be paid
part in cash and part in perquisites, often referred
to as "furnish." These include meats, vegetables,
garden space, housing, use of milk cows, fuel, and
sometimes a share in the crops. It is apparent that
evaluating these items would add a heavy administrative
load to any general application of a wage control
program to agriculture.
The administrative difficulties of establishing wage
ceilings for all persons employed in agriculture seem
almost insurmountable.
4. Problems involved in increases in agricultural wages.
Although agricultural wages are still very low as com-
pared with industrial wages, there are indications that
some of the disparity will be removed by natural competi-
tive forces. In most areas in the United States the
scarcity of farm labor has been acute enough to bring
about rises in farm wages as shown by the fact that
these wages in July 1942 averaged about 25 cents an
hour as compared with about 16 cents an hour in July
1940. In order to improve farm wages in certain areas
as well as to have a better use of the existing supply
of labor, it is necessary that workers be moved from
surplus to deficiency areas.
The time will come, however, when existing prices of
farm products will not permit a further rise in farm
wages. In such instances, wage controls could be used,
but it must be remembered that if they are used alone,
the problem of production perhaps will become more
rather than less difficult. The only way to meet the
problem of farm production, if existing prices will not
permit wage increases, will be to increase returns to
farmers sufficiently to enable them to pay higher wages.
Increasing returns to farms can be accomplished only
by increasing prices, or by subsidies, or by some
combination of the two.
Experience indicates that a direct subsidy to laborers
would be impractical, because there would be no compensat-
ing return for farmers who accomplish their production by
their own labor and that of their families- If a subsidy
Regraded Unclassified
4-Jamus F. Byrn October 30, 1942
116
is to bo used, it appours that tho moro practical mothod
is to make the subsidy a part of the price of the product
and to accompany this by some findings of fair and roa-
sonable wages. Thus it can be soon that wago controls
aro inexorably involved in the ontiro agricultural program.
5. Problems of labor supply. I am positive that the Govern-
mont will have to tako action on many fronts in order to
obtain a bottor supply of farm labor. It will bo nocos-
sury to transport workers within the United States and
from Muxico. Also, wo are going to have to train largo
numbers of workers. Abovo all, thore must not bo trans-
portution or training of workers for the purpose of driving
wagos down. In order to attract workors to agricultural
omploymont it is nocossary to assure thom cortain standards
of wages and working conditions. Farmors who expoot to
obtain those workers have a right to know what those
standards aro before thoy contract for them through
Government aid. Therefore, it is necessary to sot up
boards to dotormino what the going wages are. Also, it
is necessary to set cortain minimum wages balow which no
compotent person working under these programs will bo
employed.
3 balieve that as long 18 the employer is voluntarily
sooking the aid of tho Government, thore is no question
of tho right of the Government to establish appropriate
standards. There are thoso, however, who boliove that it
is a violation of the powers or policy of the Fodoral
Government to givo workers definite assurances concorning
their wages in cases whore they are boing transported or
trained for farm work. lf the lattor view is to provail,
then the country should be informed immodiatoly of the
Government's inability to assist the war offort by training
and transporting farm labor.
6. Activities of tho Department of Agriculture in the farm
wage field. The Department, sinco 1937, his ostablished
fair and roasonable wuges for sugar boot and sugarcano
workors under the provisions of the Sugar Act.
Under the Department's labor transportation program farm
labor is moved into arcas whore thoro is 1 sharp seasonal
demand for labor. Under this program Moxican laborors have
Regraded Unclassified
117
5-James F. Byrnes-October 30, 1942
been moved to California for work in sugar beets, and
domestic workers have been moved to New York State for
picking tomatoes, to Connecticut for picking potatoes,
to Washington State for apple picking, to Michigan tq
harvest sugar beets, and we are now moving domestic
workers into Arizona to pick long staple cotton. In
connection with the Department's labor transportation
program, we have, during the past season, established a
number of wage boards which have determined prevailing
wages for different types of agricultural operations.
The War Manpower Commission announced on Wednesday a
program for stabilizing dairy, livestock and poultry
labor. Under this program, the Department of Agriculture
is directed to make investigations with respect to wage
rates on dairy, livestock and poultry farms and to take
such action with respect thereto as it may conclude will
assist these farms in securing and maintaining an adequate
supply of labor.
The Department of Agriculture is now preparing to carry
on investigations concerning wages in critical production
areas. It is my view that in the meantime the maximum
wage provisions of the Act of October 2 should not be
made applicable to increases in agricultural wages.
Regraded Unclassified
118
TIAGES IN RELATION TO LABOR SUPPLY
A STATEMENT
SUBMITTED TO
THE OFFICE OF ECONOMIC STABILIZATION
BY
PAUL V. MCNUTT
CHAIRNAN
MAR MANPOTER COMMISSION
OCTOBER 30, 1942
119
WAGES IN RELATION TO LABOR SUPPLY
The passage of the Act of October 2, 1942, amending the Emergency
Price Control Act, and the issuance of Executive Order Number 9250, TO-
viding for the stabilizing of the National Economy, marked an important
forward step in the solution of labor supply problems. The extension
of wage regulation to include all instances of increases or decreases
laid the foundation for a comprehensive and constructive approach to
this significant aspect of the total menpower program.
Before turning to a discussion of the relationship between wages
and labor supply, I should like to mention that both the Management-Labor
Policy Committee of the War Manpower Commission and the Commission itself
have considered this question, but neither has as yet taken any formal
action on it.
1. WAGES AND LABOR SUPPLY
The relation between wage rates and labor supply problems has
long been accorded official recognition. Decisions on wage adjustment
have frequently been influenced by manpower considerations. Action to
obtain wage stabilization agreements in the shipbuilding and construction
industries was initiated by Federal agencies with the primary objective
reducing employee transfer between establishments within an industry.
Although the opinions of the War Labor Board have seldom stressed
considerations of labor supply, manpower implications have obviously in-
fluenced the decisions. Many wage adjustments have been ordered to correct
Regraded Unclassified
120
- 2 -
inequalities between comparable jobs in a locality or Industry.
These adjustments have undoubtedly reduced the incontive for transfer.
The opinion an the Ranger Aircraft Engines case pointed out that
it was the practice of employers in the areal to refrain from hiring
persons employed by another plant engaged in war production; and went
on to say:
"It cannot be unstioned that it is very decirable to
elminate to the maximum extent possible, the migration of
workers from one plant to another. There is certainly et neod
for stabilization of manpower, as well as of wages. However,
it is not fair or reasonable to require a worker, either by
employer practice or by government policy, to reasin on ::is
job for the duration of the war unless reasonable adjustments
are made in his wages so that he is not discriminated Noninst
economically as & result of such as manpower stabilization
program.
"Thus, in this case, precisely because 16 is gesirable
to have the employees remain in steady employment et. the
Ranger plant for the duration of the war, they are entition
to have their Will e inequalities ironed out by 11. remeonable
wago adjustment."
A still more definite recognition by the w Labor Boned 31° the
inheront close relationship betwuen wag's and labor supply is to be
found in the recent decision in the non-ferrous metn16 case, This decision
not only awarded a wage incroase that was needed to attract and retain
workers, but also provided for a 48.3 payment plan to reduce absentacian
and placed, on the payment of back wabes, limits that night Insupo the
return of some workera who had left the industry in recent months. The
decision obviously indicates a conviction that wage determinations my
affoct coveral aspects of the total manpower problem.
Regraded Unclassified
121
- 3 -
More recently, an industry-wide decision covering tool and
die workers in the Detroit area was based largely on manpower con-
siderations. The opinion states: "Common sense dicisted the need for
avoiding a lowered morale and an ultimately larger labor turnover which
would almost inevitably follow & failure to elinimate the inequitable
rate relationship."
In view of the responsibility of the Tar Mangower Commission
for mobilizing and allocating the nation's manyower it is obvious
that it has an interest in the relative wage rates paid in different
occupations, plants, industries or localities. These differences have
a direct bearing on the relative attractiveness of alternate jobs.
If they are properly set, manpower allocation is greatly simplified
and cne of the major incentives for labor turnover is removed.
I should like to omphasize that the .ar Manyower Conmission
also has & real stake in wage stabilization. The development of
wage structure suited to the noeds of manyowor regulation must be a
gradual process. Only if waje stabilization is approximately achieved,
can the proper adjustment of wage differentials be accomplished. Little
can be gained by adjusting the wage rates in one plant to those paid
elsewhere in the community or industry, if the latter rates are unstable.
An effort to refine wase differentials without stabilization would be
as rutile as trying to get in step with a contipede.
It/my be suggested that my remarks regarding the general
importance of wage rates to labor supply problems are based on the
Regraded Unclassified
- 4
122
assumption of an unregulated labor market, and that the adjustment of
relative wage rates would be unnecessary if we would just get hard-
boiled enough to tell people what Jobs they must take. This opinion
was expressed by .r. Laphan of the har Labor Board when he said, with
reference to the recont non-ferrous metals decision:
"The real issue is not wages--it is manpower..
"There is only one roal solution, and that is to follow
such practices as have been adopted by Creat Britain, Australia,
and other nations now at war.
"The men in the front-line forces--Army, Havy, Mir--are
dispatched to our far-flung battle fronts as directed by our
Commander-in-Chiof.
believe those in the home army. are prepared
and willing to submit to the orders of the same Commander-
In-Chief, and to work where and as directed."
I disagree with the contention that there is a sharp
distinction between wage problems and manpower problems. by interest
in wages is not predicated on the existence of an unreculated labor
supply. On the contrary, it is based on the assumption that compulsion
will be used. Labor supply conditions have become too critical for the
possible success of purely voluntary measures. Compulsion through the
application of indirect sanctions is now being increasingly applied,
and I anticipate Congressional action which will permit the more forth-
right procedure of applying direct sanctions in annower regulations
What I wish to emnhasize here is that the wage structure is as
important under any for: of National Service legislation as it is under
voluntary measures, because any form of compulsion applied to the solution
of lubor supply problems must rest upon a foundation of widesoroad
Regraded Unclassified
123
- 5 -
acceptance. As I stated recently before the Senate Vilitary Affairs
Committee:
"The compulsory aspect of National Service legislation can be
grossly exaggerated. The power of compulsion is in essence a
protection to the [reat majority who not volurtarily. They
must be cade to feel that when they act voluntarily the Cov-
ernment approves their action, and is prepared to require
compliance by the for who refuse to cooperate."
Neither Great Britain use Australia has disregarded wr.ge
relationships since introducing National Service. Indoed, the must
careful adjustments of wure ratos have been -:-ude in order to facilitate
the redistribution of manpower in the interest of the war program. The
introduction of compulsory iscures does slightly modify the canpover
objectives of wa,re adjustment, but it does not remove the necessity for such
adjustment.
The objectives are modified in two respects. In th first place,
it is not ossential to obtain quite such a precise adjustment as would
otherwise be nocessary. Under compulsory measures an approximate
solution may be adequate. Mage inequities will continue to be inequities,
but their existence will not have quite such serious consequences as is
now the case. This is indoed forturate, since a high degree of precision
in the adjustment of our complex wa,re structure is scarcely attainable.
In the second place, ware differences need not be so -rest at
to induce transfer to, or retain workers in, essential employment, but at
least they must be such as to cause no marked resentment to the desired
allocation of individuals. The use of compulsion, while reducin the
significunce of rolative ware rates for minnower allocation, increases
their significance for employee norale and productivity.
Regraded Unclassified
124
6 -
Before turning to an explanation of the significance of the
was structure to each of the major problems of labor supply, allow me
to emphasize that wage ad justment is only one of many supplementary
steps that may be taken. The War Manpower Commission can take verious
types of direct action, and its work can be greatly assisted by the
decisions of other agencies.
This is well illustrated by the variety of actions taken to
obtain an adequate manning of the non-ferrous metal industries. Employees
in these industries have been placed under certain restraints to remain
on their present jobs. Gold miners are being induced to trensfer to
this employment. New procedures are being instituted to obtain prompt
action in the construction of essential housing facilities. Some
adjustments have been made in the conditions for tire rationing to those
workers. Solective Service quotas have been somewhat revised in the
principal mining states. Civilian workers who have transferred to Army
projects are being urged to return to the mines. And, na a last rescrt,
many former minors now in the Army are being temporarily furloughed.
From this it should be clear that my emphesis here on wage
considerations does not imply anything nore than that they are one of
the many aspects of a comprehensive attack on the problem of labor supply.
In my discussion here, it is at your request that I an focusing attention
chiefly on the wage question and on my interest in the activities of the
war Labor Board.
Regraded Unclassified
- 7 -
125
11. INVIUENCE OF MAGES JR SPECIFIC 302.17
In discussing the significance of wage considerations to specific
aspects of labor miny problems, it should be understand that I a
limiting my remarks to the civilian labor eupply and consting considers-
tion of our military mannower, since its allocation and utiliantion are
unrelated to wege factors.
The chief functions of the wat Inmpover Commission care to obtain
the maximum sizo, proper allocation, and optime utilization of the labor
supply. Each of these functions covers n variety of problems and requires
the use of various approaches. While page raton are not significant or
each of those problems, I should like to indicato the various SECUR that
do involve $2,70 conciderations,
:- Maximum Size of the Labor force
:3 obtain the siximum increase 1.1 our total force, 11 is
necessary to attract many vouen into the lower monthst, to
under cortain conditions the enployment 05 yours 100% the to betand
retirement of older noriters and pronote the re-catry of these
retired. The entrance of those persons into the labor names will -
nest cason be notivated rimarily by it decire to contribute is she of
An scuitable tage structure will, honever, facilitate Star:
process of industrial induction. The principle, alroad: -21
several C3802 by the -or Labor Board, of equal DEP for acual code require
less of not will be helpful in this respect. was sutoz MY considerably
influence the willingness of your people to sccept employment in intestry
Regraded Inclassified
- 8 -
126
or agriculture where such employment is not contrary to the policies of
the War Hanponer Commission. wage rates may also be a factor in retire-
ment decisions.
b. Proper Allocation of Labor Supply
Proper allocation of civilian manyower requiros that each person be
engaged in that activity which constitutes his maxious possible contri-
bution to the war program. This means that anloyees in essential jobs
must remain there and that those in the less essential jobs transfer to
more importent ones. In other words, transfer nuct be affected in time
cases and prevented in others. It is this aspect of the manpower program
which comes most readily to mind whenevor the relationship of the ways
structure to labor supply is mentioned.
I have alroady indicated ay opinion that relative was rates
are an oxtremely important aspect of this question, and that their
importance in no way decreases as we shift our reliance from voluntary
to compulsory neasures of labor market regulation.
I as sure that it it not necessary to emphasise that the adjust-
pent of our mage structure for manporer allocation purposes need not bo
exclusively in an upward direction. The basic objectives are: (1) an
equitable relationship between whys rates regardless of thoir general
level, and (2) the retention, insofer as possible. of the existing wage
levol, in crder to obtain a more accurate revision of inequitable rates
and avoid the dianstere of inflation. with reference to the first
objective, it would be immaterial, when two wage rates are inconsistent,
Regraded Unclassified
127
- 9 -
whether one is raised or the other lowered. with refurence to the
second objective, the choice between raising a low rate or reducing
a high one would depend upon the relationship of both rates to the
general wage level; and the rate that should be revised would be the
one most out of line with the general mago structure. Some cases may
arise where a. single high rate is so out of line with the general rage
level & to constitute a gross inequity and impede the effective
prosecution of the war. Such a situation is most likely to ariss
where & rate for an omergency war project ie set with the expecta-
tion that skilled workers will be employed, but where in fact
unskilled workers are being predominantly hired for the job at the
same rates paid to the skilled omployees. In such 2 case S downmard
revision, if it is found to be feasible under Executive Order Lio, 9450,
may be the only practicable way of obtaining cuch rege-rate relation-
ships as are desirable from the point of view of manuover allocation.
Obviously such situations will be rare.
Again. there may be occasions when, from the point of view of
labor supply, it is just as important to prevent a unco increase in
one instance na to obtain an increase in another instance. It in
possible that a'particular wage increase. in removin; a minor orded-
justment with some rates, would create is more serious malacjustment
with relation to other rates. In other words, when a maladjustment
is found, great cure must be exercised in determining which rates
Regraded Unclassified
128
- 10 -
should be altered, since a specific change might create more problems
than it would solve. It is also conceivable that n. raise, if (Tunted
in a particular plant, would "aid in the effective prosecution of the
were with respect to some singover considerations (as, for by
improving employee morale within the plant). but hinder the war offort
with respect to other manposer considerations (as, for examle. by
creating & desire on the part of sque workers to transfer to this
plant from nore important jobs claewhere).
It may be vell to emphasize again at U.is point that case
considerations are not the only factor influencing job transfer and
shot some instances of large scale transfer DAY conceivably be entirely
unrelated to the wage structure. Working conditions, resultation of an
employer, the nature of a promotion policy, and the adequity of hourding
and other community facilities are but to few of Li.o many possible CIVI-
tributing factors.
Veriation in the longth of the nork-weel in today = Chase
of job transfer. weekly carnings, sugmented by pendity 70%00 on 02/2020
bent in excess of 40,000.00, now frequently outsoigh hourly rates at
motive for transfer. Since the lower hours are non found is
the lover-wage employments, the prospective general observance of :
48-hour muet will appreciably reduce the present striking discremincies
in meekly earnings.
with these considerations in mind, I mould like to regrest that
- 11 -
129
the basic objective in mage adjustment, viewed tolely from the assuct
of mannower allocation, should be to attain a wage structure that will
induce, or at least facilitate, the decired volume of transfers to 2029
essential positions and will impedo transfere to less essential pond-
tions, insofar as such transfers are notivated by nage considerations.
If this objective were accepted, 12 would follow that wage rates or
weekly carnings should be increased for essential positions then de
plant is Bosing large numbers of workers to other plants engliged in
work of lesser importance, provided such transfer results largely from
more favorable wage rates in the latter plants.
C. Utilization of Labor Supply
The aspects of manpower utilization that are subject to the
influence of wage rates and nace practices are the wastes resulting
from excersive turnover and absenteeism. Labor turnover An any
particular industry, to the extent that it recults from the con-
siderations, is not necessarily caused by inter-inductry PACV cif-
ferentinle. It may be caused by differentials between various plents
in the industry or by & wage classification system within la paint that
precluded the reasonably rapid promotion 03 classification of recently
hirod vorkers. Thus it is clear that several aspocts of the valor
cystem may have a bonring on turnover ratot.
The possibility that a was alan Day corve SQ one needs of
attacking the problem of absentoelm her alrongy boon indicated by
the decision of the Wor Labor Bourd in the non-forrous nutale once.
Dere
- 18 -
130
III. WAGES AND THE AGRICULTURAL LABOR SUPPLY
I know that the Economic Stabilization Board and they of
the agencies represented on it share the concern with which the
ar ...npower Commission views the problem of annower in apriculture.
The adjustment and stabilization of agricultural WORN rates In Funda-
cental and essential to the solution of the very serious farm labor
supply problem which confronts the Nation. Unless ranid and effective
action is taken along this line, I seriously question that anything
else the ".ar --anpower Commission and other agencies of government can
do will prevent serious curtailment of form production next year.
Substantial increases in farr. ware rates are needed to incroase
the number of workers available for employment on form, and to record
the flat of workers fro... the land to better paying jobs in industry.
The lac: of uniformity in wares cald for commerable work JT. farso 10
causing heavy turnover of workers within a riculture. Statilization
of farm ware rates is t.eeded to reduce the rate of turnover whise 1.
seriously impairing offective utilization of the available labor supply.
in the absence of wage standards of any kind in a-riculture, the
ar Canpower Co mission and the United States Service have
encountored the greatest difficulty in distinguishing between envine
fare labor shortages and instances where employers have brought progr
sure on the government to recruit large oversupplica of Intor In order
to aintai: existing low vage levels. The voluminous reports of the
United States Employment Service clearly indicate that 100 WILLOS are
by for the most important sin-le obstacle to recruiting far. - labor.
Regraded Unclassified
- 13
131
In countless instances during the past year, where wage adjustments
have been made, alleged local farm labor shortages have disappeared.
A8 lato as Votober of this year, the Department of Aprioulture
reported that average for- wage rates for the United States, without
board, were 59.25 per month and $2.70 oor day. These rates fall short
of the equivalent of 30g por hour, even on a straight time basis, These
average rates which I have quoted include, by the way, the relatively
higher wages paid to milkers, poultrymen, sheepherders, tractor drivers,
and other skilled and specialized acricultural workers, as well as the
wages of the relatively unskilled laborers.
These are substandard wares by any criterion. The earnings of
many farm orkers are even more substundard, because of the intersitent,
uncertain, and seasonal nature of employment in certain types of gri-
culture. The special expenses incident to following the crops. and the
p.or living and workin conditions in seasonal types of agriculture
add to the disadvantages of farm work for mipratory laborers. Lairy
and general fars hands are more fortunate in having relatively steady
employment, but average earnings even of these workers are less than
(9) per month. The employment service reports orders on hand for dairy
workers which it has the reatest difficulty in filling, at wages below
:00 por month, even from Lew England, the middle Atlantic States, and
the mid-west.
There is little mondor that we face serious farm Intior supply
problems when 60 many alternative employment opportunities at better
may are now available. 1 as not at all convinced that furners could
Regraded Unclassified
132
- 11 -
not easily pay substantially higher wages at prevailing price levels.
On the contrary, there is strong evidence that fare wage rates could
be substantially higher without any necessity for compensatory price
adjustments or wage subsidies. I would like to give you some
estimates of net farm income and farm wage payments insued recently
by the Bureau of Agricultural [Conomics:
Wage Payments to Farm Laborers
Net Farm Income
Including Value of Perguisites
Year
(Millions)
("illions)
1936-40 (average)
$4,607
$ 381
1941
16,748
$1,191
1942
$9,785
$1,500
These estimates indicate that despite higher production costs,
including wages, net farm income this year for the United States will
be more than 3 billion dollars higher than last year, and more than
double the average annual net farm income for the five-year period
1936-40. Net farm income this year is the highest over reported. If
farmers lmd paid twice as much for labor in 1042 as it is estimated
they will have paid, net far: income, after deduction of all production
expenses including interest and taxes, would still have been hi-her than
in any preceding years except 1018 and 1013.
I an glad that the Leonomic Stubilization Director has recognized
the wage problem in agriculture and has requested that steps be taken
to meet it. Action of this kind is long overdue and cannot further be
postponed with safety.
Regraded Unclassified
133
15 , ,
The Mar aupower Commission would be more than willing to partici-
pate in any program which is contemplated along this line. Its ropre-
sentatives have participated in the work of the agricultural ware
boards which have been ostablished by the Secretary of Apriculture this
year in certain parts of the country where the overhment has paid
transportation expenses for farm workers. Through the United States
Employment Service, it has personnel of long experience with the farm
wage question as it affects recruiting and placement problems.
Finally, the "ar Manpower Commission is acutely aware of the vital im+
portance of fair ware standards to the success or fullure of its work
in agriculture.
In establishing machinery to deal with the agricultural ware
question, the following considerations might well apply:
1. Consideration al ht well be given to the establishment
of uprioultural wage boards composed of representatives of
management, labor, and the public, modeled somewhat Along
the successful English system.
2. Such boards should cover fairly large areas, perhaps one
or more average size states, if farming conditions are
relatively similar, in order to develop uniform rates of pay
for comparable types of work. If different wares provolled
within such areas, confusing complexity of rates would
develop which might lead to undesirable types of migration.
Regraded Unclassified
134
- 16 -
3. Findings of wage boards should be subject to review by a
National Wage Board or other appropriate agency. In
reviewing these findings, due consideration should be
given to wage rates in other occupations, the maintenance
of appropriate geographical differentials, and the main-
tenance of such uniformity in rates as appears desirable.
In conclusion, I want to say that the War Manpower Commission
recognizes that action on farm wages will not by itself solve the farm
labor problem. It 1s developing programs to recruit and train new
workers, to furnish necessary transportation, to decasualize employment
in special crop areas, to encourage the withdrawal of workers from
stagnant rural areas, and a whole range of other measures, some of
which are exemplified in the program for dairy, livestock and poultry
farms announced this week.
But I must emphasize that the success of these other measures
depends upon what is done with reference to farm wages. I feel that
farmers can afford to pay adequate wages, especially in view of the
prospect for a still further increase in farm income for 1943. There
will be every sort of pressure and opposition to any attempt to bring
this about. We must face this opposition. We must set our sights and
then follow through to our objectives.
Regraded Unclassified
135
JONES & LAMSON MACHINE CO.
SPRINGFIELD
VERMONT
HALPH E FLANDERS
Risa Office our in Secup am 1942
October 26, 1942
Honorable James F. Byrnes, Director
Economic Stabilization Board
The White House
Washington, D. C.
Dear Mr. Byrnes:
At our first meeting last Friday you asked the
non-governmental members of your Committee to
make suggestions in advance of the next meeting.
Among the suggestions which occur to me are the
following:
General Marshall has announced to Congress an
intention of organizing an army of 7,500,000 men
by the end of 1943. If a million men are still
under training at that time, and a million are
engaged in service of transportation, it still
leaves 5,500,000 in the active fighting forces
to which must be added two million odd for the
Navy, bringing our total of fighting men at the
time up to 7,500,000.
I would urge that we start to get a rough over-all
measure of the agricultural and labor manpower
required to feed, clothe, equip, and transport
men and supplies for e fighting force of this kind
in remote areas of combat. In making this rough
over-all estimate, we must not forget the furnishing
of food and military supplies to the armies of
the United Nations now actively fighting in the
field. From the standpoint of an arm-chair stra-
tegist, it would seem that these present active
fighting forces should have primary and not secon-
dary consideration.
Furthermore, that v.e must reckon or a high
volume of supplies for a highly mechanized army
goes without saying.
We should start to measure the size of this produc-
tion task now, for it will require such enormous
changes in our economy that they must be set in
motion at once if the desireIresult is to be
136
Honorable James F. Byrnes - 2 - October 20, 1942
reached B. year from now.
The menpower problem involved cannot be left for
later study and solution. While for the moment the
bottle-neck in arms production lies with materials,
yet the provision of more materials becomes et man-
nower problem in the last analysis.
Furthermore, the problem of manpower is 8 serious
one now. It is serious in agriculture and parti-
cularly in those branches of agriculture such as
dairy farming in which labor is en important element.
While it may be possible to keep farm price ceilings
down, this will not solve the problem of providing
en expanded output of agricultural products. This
13 & problem of manpower which we must face at once.
From what Leon Hende son said at our last meeting,
his staff has been making some over-all manpower
calculations. The War Production Board, the Army,
the Navy, and the Maritime Commission can doubtless
furnish data which must be correlated with the
independent analysis. I would presume there is
some branch of the government available for making
the correlation.
An approximate measurement of our task now will
save us from under-preparation on one hand and
from military establishments we cannot support on
the other. The effect of miscalculation on
inflation and on migration of labor is obvious.
Sincerely yours,
Walple
REF
par OFFICES
LEGISLATIVE DEPARTMENT
WASHINGTON 51
MUNSEY BUILDING
WASHINGTON, D. C.
137
beer
it
TION
10:34am
60,1942 AWB
TELEPHONE DEARBORN 1633
CHICAGO, ILL.
October 26, 1942
Honorable James F.Byrnes, Director,
Office of Economic Stabilization,
The White House,
Washington, D. C.
My dear Director Byrnes:
Pursuant to your request that Board members send you
suggestions in advance of our bi-weekly meetings, I submit the
following:
Because agriculture has always produced abundantly, the
American people have taken agriculture for granted, and people
find it hard to believe that present surpluses may prove inad-
equate to meet the situation. The result has been, in spite of
all the President and the Secretary of Agriculture have said
about food being just as important as munitions, that agriculture
has not been looked upon or treated as a major war industry. It
is high time that this situation were corrected. Since the
President has given you the duty and responsibility of carrying
out a program to stabilize our national economy, you have it in
your power to do a great deal to remedy this injustice. Thirty
million farm people are looking to you for action to change fun-
damental conditions that are forcing tens of thousands of farmers
to go out of business and other tens of thousands to curtail
their farm operations.
I should like also to point out that keeping farm prices
unless labor costs and other costs of production of industrial
at parity can not possibly control the inflationary processes
goods are also kept at comparable levels. Parity itself auto-
matically rises as the cost of manufactured goods rises.
Agriculture is facing a desperate situation with respect
to manpower. A survey by the U. .Department of Agriculture
beginning of the present emergency. Sixty percent of those leav-
indicates that 1,500,000 workers have left the farm since the
ing have gone to work in industrial plants, thirty percent have
been called to the armed forces through Selective Service, and
Regraded Unclassified
138
Honorable James F. Byrnes
- 2 -
ten percent have volunteered for military or naval service. If
this drain on the farm labor force continues, agriculture will
be unable to produce in 1943 the volume of food and fiber that
we must have to supply our Allies with the food that is urgently
necessary to sustain them.
I suggest therefore that you take appropriate steps to
secure the cooperation of the Selective Service System in a
program under which the local Selective Service boards will grant
occupational deferment to all workers who qualify as "necessary
men" in agriculture.
To stop the exodus of farm workers to highly-paid jobs
in industry, may I call your attention to the provisions of the
Anti-Inflation Law which became effective on October 2, 1942.
This law directs the Administrator of the Price Control Act, in
placing ceilings on farm commodities, to consider increases in
farm wage rates that have occurred since January 1, 1941, and also
to give adequate weight to the factor of increased labor costs.
If these provisions of the Anti-Inflation Law are liter-
ally interpreted and fairly applied, farm operators and tenants
will be assured of reasonable prices and income to keep them in
active production; employers will be in a position to pay reason-
able wages for experienced farm help; and wage earners will be
protected because the limited supply of farm labor will automat-
ically force farm wages up to competitive levels.
With respect to farm price ceilings, it has been suggested
that price ceilings on certain farm commodities be kept low in
order to keep food prices down, and that the Government pay sub-
sidies to producers of such commodities to supplement the price
received in the market place. I am certain that farmers are
strongly opposed to such procedure for the reason that retail food
prices are lower, in relation to industrial wages, than they have
been for 30 years. If the Government undertakes to pay subsidies
as indicated above, such subsidies are in reality subsidies to the
consumer, and yet the public would consider tham subsidies to the
farmer. If consumers were to become accustomed to food prices
kept low through government subsidy during the war, they would
be certain to demand continuation of subsidies after the war. It
would be hard to resist such demand, particularly if wages dropped
to lower levels. To inaugurate such a program now would be to
establish a very dangerous precedent. Congress has attempted for
ten years to assure parity prices to the farmer, and it has been
generally agreed that parity prices are fair prices; and yet now,
when the public is better able to pay parity prices for food and
fiber than ever before, the suggestion is made that farm prices
Regraded Unclassified
139
Honorable James F. Byrnes
- 3 -
be deliberately kept below parity in the interest of the consum-
ing public. I earnestly hope that the Government will not embark
upon any such program, because it is wrong in principle.
It has been suggested also that farm price ceilings be
lowered by the amount of Soil Conservation payments and other
government payments on each commodity. I submit that the Anti-
Inflation Law hitherto referred to does not authorize such pro-
cedure, but does plainly direct that no ceiling be imposed on farm
commodities or commodities processed from farm commodities, which
shall return to the producer less than the parity price of such
commodity or the highest market price of such commodity between
January 1, 1942 and September 15, 1942, whichever is higher.
Naturally, farmers believe that the mandate of the law should be
fully carried out.
In considering the problem of maintaining adequate pro-
duction on the farms of this country, we are dealing with hard,
economic facts - not with theory. I submit that in any realistic
approach to the problem our supreme objective should be to arrive
at a price which will secure adequate production. Farmers are
willing to make any sacrifice required to win this war, but if
they are denied prices which will enable them to secure the labor
that is absolutely essential to adequate production, then pro-
duction is bound to be curtailed. All that farmers themselves
and their wives and small children can do will not be enough --
they must have additional labor if they are to meet their pro-
duction goals for 1943.
I offer these suggestions for your earnest consideration.
Sincerely yours,
Edw. A. O'Neal - President
EAO LP
Regraded Unclassified
EXECUTIVE OFFICE OF THE PRESIDENT
140
OFFICE FOR EMERGENCY MANAGEMENT
OFFICE OF ECONOMIC STABILIZATION
WASHINGTON, D.C.
October 23, 1942
AES F. BYRNES
Director
Dear Mr. Secretary:
The next meeting of the Economic Stabilization
Board will take place on Thursday, October 29.
We shall discuss two subjects:
1. The effect of wage stabilization
upon the migration of labor.
2. The control of agricultural wages.
I have asked Chairman McNutt of the War Man-
power Commission to meet with us for these discussions.
All the members of the Board are, of course,
extremely anxious to have a full expression of your
views upon these vital matters.
Sincerely,
James Director Farmer
Hon. Henry Morgenthau
Secretary of the Treasury
Washington, D. C.
PVICTORY
BUY
ENITED
STATES
WAR
BONDS
AND
STAMPS
Regraded Unclassified
141
142
THE UNDER SECRETARY OF THE TREASURY
WASHINGTON
MEETING OF THE ECONOMIC STABILIZATION
BOARD, HELD IN THE OFFICE OF THE DIRECTOR
OCTOBER 16, 1942, AT 2:30 D. m.
Director Byrnes presided and all of the
members of the Committee were present with the
exception of the Secretary of the Treasury and
William Green. Each, however, had a representative
there. Mr. Bell, the Under Secretary of the
Treasury was there for the Treasury Department,
and Mr. Robert J. Watt represented Mr. Green.
Director Byrnes read the attached statement
concerning the work of his office. It gives the
matters that he has handled up to date and those
that are in the works for consideration. He also
is reviewing the situation with various agencies
to determine if there is a need for additional
legislation. He found that there was one instance,
to cover the matter of commercial rents, and that
is now being considered in the Congress.
He said he has asked for reports, as shown on
page three of the statement, on compulsory savings
and other proposed measures to control excess spend-
ing power; prospects of future rationing needs;
spacing of military and lend-lease purchasing; prospec-
tive subsidy needs and considerations which would
govern or limit the use of subsidies; wages of farm
labor; and the effect of stabilization of wages on
manpower problems, particularly on the migration
of workers.
He said that he would try to have a meeting
every fortnight and would try to arrange the meeting
on Thursday in order not to conflict with the Cabinet;
but if the President should change the Cabinet meeting
from Friday to Thursday, then he would change the
PO
VICTORY
meeting of this Board from Thursday to Friday, at
BUY
ENITED
2:30 in the afternoon.
STATES
WAR
BONDS
AND
Regraded Unclassified
143
- 2 -
He emphasized, as will be noted in the state-
ment, that each of the Departments and agencies
occupies a. certain definite field of activity in
carrying out the aims that he set forth in his state-
ment. He said, for example, that the Secretary of
the Treasury, among other things, has responsibility
for the sale of Government securities, the raising
of taxes, the siphoning off of excess purchasing
power, and of generally taking the profits out of
war. For the control of salaries he said he was also
looking for suggestion and guidance to the Secretary
of the Treasury.
He said that by the time of his next meeting
he would like for each Department and agency, and
this included the members of the Board outside the
executive departments, to prepare a. memorandum as to
what they are now doing, and as to what they can do
and how they can do it, to best bring about effective
operation of the functions specified in the executive
order. He said that if he could have these a few days
in advance of the next meeting, it would enable him
to digest them and see where there were conflicts and
overlapping functions in the various agencies.
Mr. Murray then made quite a statement as to his
experience in dealing with the War Labor Board and the
Office of the Price Administrator. He said he had a
great respect for Leon Henderson and they were personal
friends, but he thought his office many times got over
into the functions of the War Labor Board and he would
like some clarification or line of demarcation in the
functions of these two agencies in particular.
There was 8, great deal of discussion between
Messrs. Murray, Davis and Henderson on this point.
It finally was suggested by the representative of
the American Federation of Labor that Mr. Davis and
Mr. Henderson get together before the next meeting and
try to work out a line of operation or procedure to
be adopted for control of actions within their respec-
tive agencies, or in matters where the two are jointly
concerned, and submit them to the Director 80 that he
can make a decision in the matter.
144
- 3 -
The Director then asked if any one had any
suggestions as to procedure that could be adopted
for facilitating the work of the Board.
I said that I thought the memoranda. from each
of the members which he had requested might throw some
light on this point. While we had not given it much
thought in the Treasury, there were two suggestions
I would like to make for consideration. One was that
there be presented to the members at least twenty-four
hours before the meeting an agenda of the subjects
that would be up for discussion, and the second was
that possibly many of the subjects could be handled
better and it would facilitate the meetings if a sub-
committee could be appointed to study them beforehand
and submit concise reports for consideration. Many
of the Board members agreed with this. Henderson said
that he would like to have more than twenty-four hours
on the agenda. He also thought the sub-committee was
good because we should appreciate that many of these
subjects are being studied by the boys in the "back
room" and they had all the knowledge. In order for
the members to discuss them intelligently before this
Board, it would be necessary to discuss the matters
with these employees beforehand.
When it came Mr. Eccles' turn to offer a sugges-
tion he said he agreed heartily with Mr. Bell as he
thought that many of these subjects concerned two or
more departments and he. referred specifically to fiscal
and credit matters. He thought that it is highly de-
sirable that sub-committees be appointed to consider
many of the technical subjects that would have to come
before this Board for discussion. While he did not
say 80, I assume he had in mind the Treasury financing
and tax policies.
Mr. Eric Johnston, who is President of the
Chamber of Commerce, said that he felt that Justice
Byrnes' appointment to this position of Director of
the Board was one of the most popular that had been
made in Government service, and that the people were
looking to him to eliminate confusion from this whole
mess in Washington. He said he had just traveled
across the country and had interviewed many people
Regraded Unclassified
145
- 4 -
and there is a very definite feeling that Washington
lacks any plan for holding the price level.
At almost every turn of the discussion we came
back to the manpower problem. Mr. Flanders said that
he thought General Marshall a few days ago laid out
the pattern of the problem with which this Committee
would be confronted over the next year or SO, He
talked about an 8-1/2-million man armed force and he
said that this Committee would just have to find out
right away what effect taking 8-1/2 million men out
of the industries of the country would have, and that
is something that we have got to know, and know quickly.
Director Byrnes agreed with this and said that
he intended to have Paul McNutt, head of the Manpower
Commission, at the next meeting. I suggested to
Dr. Lubin that the charts prepared by Colonel Sanders
should be shown to the Board. He said he would talk
to Justice Byrnes.
The Director said that the individuals appointed
to this Board were appointed because of their official
positions. For example, he said Mr. Jones is not
appointed because he is Mr. Jones but because he is
Secretary of Commerce. He would like, therefore, for
all members appointed by the President to take their
work on this Board seriously and to attend every
meeting. He said he did not want alternates. If any
member of the Board, particularly one who was a Cabinet
officer, was out of town and could not attend, he
would expect the next official in that Department,
who was the acting head in the absence of the head,
to attend the meetings and be prepared to discuss
policy questions and help him make decisions on these
questions.
DWB
146
Outober n, 1943
My door Mr. Directors
Your letter of Outsber 20, enclosing
a essy of the simbes of the first meeting
of the Board of Economic Stabiliention,
has been reseived is the Treasury is the
absento of the Secretary. Upon Me return,
this material will be brought to Mr.
Bergestham's attention.
I
(Signed) H. S. Klotz
Rates, di of
Private Secretary
Benerable James 1. Rysuse, Muster,
Office of Because Stabilization,
Office for Bastgency Management,
Vashington, 1.6. 6.
GEF:el
Regraded Unclassified
EXECUTIVE OFFICE OF THE PRESIDENT
147
OFFICE FOR EMERGENCY MANAGEMENT
OFFICE OF ECONOMIC STABILIZATION
WASHINGTON, D.C.
October 20, 1942
JAMES F. BYRNES
Director
Dear Mr. Secretary:
I am enclosing to you a copy of the minutes of the
first meeting of the Board of Economic Stabilization.
Sincerely yours,
Honorable Henry Morgenthau
James JAMES F. BYRNES Hymer
Secretary of the Treasury
Washington, D. C.
Regraded Unclassified
148
OF OF ECONOMIC BOARD
Regraded Unclassified
The Koonomie Stabilisation Board held its first meeting
in the Conference Room of the East Wing of the White House at 2:30 Pollo
on Friday, Outober 16, 1942, with the Director presiding.
Present were the following:
Mr. Bell (Acting Secretary of the Treasury), Mr. Wickard,
Mr. Jones, Miss Perkins, Mr. Henderson, Mr. Davis, Mr. Ecoles, Mr. Murray,
Mr. Robert J. Watt (representing Mr. William Green), Mr. O'Neal, Mr. Patton,
Mr. Flanders, Mr. Johnston, and Mr. Lubin (Economic Advisor to the President).
The Director made & brief statement to the Board, outlining his
conception of its functions. He also reported on the neasures which he
had taken and which he contemplated for the near future. & copy of the
Director's statement is attached. (Press Release, mine, 11/16/42
The Director requested the head of each department or agency
represented 00 the Board to prepare, before the next meeting a memorandum
with respect to the part played by his particular department or agency in
the total stabilisation program, including a statement of measures under
consideration which are designed to assist in effectuating the policies
of Executive Order 9250. The Director and several of the other members
of the Board expressed the opinion that the relationship between economic
stabilisation and the national manpower policy was se close that it would
be desirable to invite Chairmen Mollutt of the Mar Menpower Commission to
attend the next meeting of the Board for & discussion of this problem.
The Director also invited the public members of the Board to
present memorands as SOOB as convenient outlining their suggestions as
to the most effective methods for achieving economic stabilisation and
a. fair distribution of the comonde burdens of the war.
The Director annownoed that future meetings would be held on
alternate Thursdays at 2:30 Po Bo, unless an emergency meeting of the
President's Cabinet required postponement until Friday. The Director
further requested, and all the members present agreed, that only the
members of the Board themselves should attend the meetings; and in the
case of necessary absemees, that alternates should not be sent. It was
agreed, however, that in case of the absence from Washington of any one
of the heads of my of the regular government departments, the acting
head of sush department would be permitted to attend.
The Rirector announced his intention, with the agreement of
the National War Labor Board, to place the control of farm wages under
the Department of Agriculture. All the members present agreed that this
step was desirable.
149
- 2 -
Regraded Unclassified
Mr. Murray commented upon the Director's reference to the
desirability of close liaison between the Office of Price Administration
and the Mar Labor Board, stating his hope that this would not lead to
interference.in wage matters by the Office of Price Administration.
Mr. Menderson, in reply, stated that he did not think it was
the function of the Office of Price Administration to act as advocate
before the War Labor Board, either in favor of or in opposition to wage
increases. His sole function, Mr. Menderson stated further, was to advise
the Director whether any particular wage increase would necessitate a
change in price coilings. This duty is imposed upon the Price Adminis-
trator by Executive Order 9250. This, Mr. Henderson stated, is & purely
factual determination, and does not involve any expression of judgment on
his part as to the desirability of either granting or denying any partie-
ular wage increase.
Mr. Davis expressed general agreement with Mr. Henderson's re-
marks but stressed the quantitative factor in all factual determinations,
For example, Mr. Davis said, & small wage increase might not necessitate
any change in price ceilings, whereas a larger increase would force such
a changes and it would be desirable for the National Mar Labor Board to
have possession of all the facts before making its determinations.
Naturally, Mr. Davis further stated, the Board would velcome such facts
from any source, but would retain full independence in the exercise of
judgment.
Mr. Murray stated that in the past subordinate officials of the
Office of Price Administration had disrupted collective bargaining re-
lationships between employers and organised workers, and expressed appre-
hension lest the independence of the War Labor Board should be impaired.
Mr. Natt suggested that the Mar Labor Board and the Office of Price Adminis-
tration prepare a statement as to the details of the proposed liaison
arrangements and submit it at the next meeting of the Board.
The Director then maquested the various members of the Board to
bring up any suggestions as to procedure or as to problems which they felt
the Board should consider. Many of the members expressed the opinion that
the relationship between esonomic stabilisation and the national manpower
program was the most pressing problem now in evidence, and that it should
be given imediate consideration. Miss Perkins, while not in disagrement
with these views, warned against flooding the War Manpower Commission with
a surfeit of advice.
Mr. Bell, Mr. Jones, and Mr. Henderson suggested the desirability
of submitting agenda to the members of the Board as far is advance of the
meetings as possible, BO that the heads of the various departments and
agencies could consult with their technical staffs in preparation for the
150
- , -
discussions. Mr. Patten stressed the desirability of anticipating those
problems which would be crusial six months or & year from the present, n
that the Director and the Board would not be overtaken by too many
emergencies.
At 4:30 the Board adjourned to meet again on Thursday, October 30.
Regraded Unclassified
151
C
o
P
Y
October 13, 1942
Dear Justice Byrnes:
I have your wire of October 13,
1942, advising that there will be a
meeting of the Economic Stabilization
Board at the White House at 2:30 p.m.
on Thursday, October fifteenth.
The Secretary is out of town
and has asked me to attend this meeting.
Sincerely yours,
(Signed) D. W. BELL
Under Secretary of the Treasury
Honorable James F. Byrnes,
Director of Economic Stabilization,
The White House,
Washington, D. C.
DWB:NLE
152
C
WESTERN UNION
0
P
Y
WF 35 35 GOVT - THE WHITE HOUSE WASHINGTON D C 13 1028A
HON D W BELL
DIRECTOR OF THE BUDGET
A MEETING OF THE ECONOMIC STABILIZATION BOARD WILL BE HELD
AT THE OFFICES IN THE EAST WING OF THE WHITE HOUSE AT 230 PM
THURSDAY OCTOBER 15TH. I HOPE YOU CAN ARRANGE TO BE PRESENT
JAMES F BYRNES DIRECTOR
230 PM 15th
Regraded Unclassified
153
154
BRAFT VIII
10/31/42
Memorandus
The Role of the Treasury Department
in Economic Stabilisation
In response to your request at the meeting of the Economic Stabilisation
Board on October 16, 1942, I an submitting this statement of what the Treasury
Department has done in the stabilisation program and of the further measures
to which it is giving consideration.
During the course of the present war, our Government has sought economic
stabilisation through the use of two general types of measures: first, fiscal
measures to keep income off the market for consumers' goods and, second,
neasures to fix prices and wages directly and to ration specific commodities.
It is of course with regard to the first type of measure that the Treasury has
its major responsibility.
Soon after the initiation of the defense program of the fiscal year 1941,
it became clear that the United States would need during the present war much
more drastic fiscal (as well as other) neasures for withdrawing income and
inducing savings than ever before in our national history. In the past 18
months much has been done; but much more remains to be done. The Treasury has
been urging and will contime to urge the enactment of taxes substantially
higher than those provided by present law. The Treasury has pushed and will
continue to push & program to stimulate voluntary saving. Taxes withdraw
income) savings take income off the market. Both reduce the pressure of pur-
chasing power on the price strusture.
However, the Treasury believes that the necessary withdrawal of income
or inducement of savings cannot be accomplished entirely by further action
VIII Pole of the Treasury etc. 08 31 1942
Regraded Unclassified
155
Regraded Unclassified
- 2 -
along traditional fiscal lines. In the calendar year 1943 consumer incomes
will be about 6125 billion before personal taxes and allo billion after such
taxes. Supplies of consumer goods available for purchase will not exceed
the considerate
$70 billion at present prices. The disparity between incomes and available
supplies must be expected to become greater during the further course of the
war. To prevent this disparity from producing a serious inflation we need
to supplement the traditional types of taxes and savings campaigns by new
measures to withdraw income through taxes and to induce or compel saving.
The fiscal program to date
Taxation
Since the beginning of the armament program the Treasury has constantly
pressed for increased taxes. In the fiscal year 1940, total Federal tax col-
lections were approximately $5.5 billion. Under the 1942 Revenue Act, total
collections for a full year of operation at the 1942 level of income would be
nearly $25 billion, or more than four times as much as in the fiscal year
1940. Some of this increase is attributable to the higher level of national
income. The greater part, however, is attributable to changes and additions
which have been made in the tax structure, The principal new taxes are the
excess profits tax in the Second Revenue Act of 1940 and the Vietery tax in
the Revenue Act of 1942. Taxes have been increased on corporate and
individual incomes, on estates and gifts, and on commodities subject to
excises.
The number of persons subject to the income tax has been greatly in-
creased. Exemptions under the individual income tax have been lowered three
times. In 1940 four million taxpayers paid tax on their 1939 incomes,
156
- 3 -
Under the Revenue Act of 1942 approximately 43 million taxpayers will pay
the Vietory tax, of whom some 27 willion will also pay the regular income
tax. The income tax now reaches all not incomes in excess of $500 for single
persons, $1,200 for married couples, and an additional 6350 for each dependent.
the Victory tax is levied on gross incomes in excess of $624 per income
recipient.
The Revenue Act of 1942 increases tax revenues by approximately the amount
initially requested by the Treasury Department on March 3, 1942. Since that
time, however, increases in expected Federal expenditures and the growing
seriousness of the inflation problem led the Treasury to revise upward its
revenue requests on two different occasions, once on May 6 and again on
September 3, 1942. These revisions raised the total amount of additional
revenue requested from $7.6 billion to $15 billion including post-war refunds.
The Revenue Act therefore increases receipts by only about half the amount
finally recommended by the Treasury. While the full estimated annual yield
under the Revenue Act of 1942 is $25 billion, actual tax collections under this
Act during the fiscal year 1943 will be approximately $21 billion. Large as
this amount is, compared to tax receipts in earlier years, it is only about
one-fourth of expected expenditures of 885 billion.
is a war revenue act, the Revenue Ast of 1942 has the following major
shorteomings:
1. It provides an inadequate amount of revenue,
2. It fails to include any substantial direct penalty on spendings
or inducement to additional savings,
Regraded Unclassified
157
- 4 -
3. It fails to provide collection at source under the individual
income tax, It does provide for collection at source of the
5 percent Vietory tax but only from wages and salaries.
4. It fails to eliminate a number of special privileges and loopholes
such as the tax exemption of interest on state and local securities,
the special treatment of married persons in community property
estates and of married couples with separate incomes, and the
special depletion allowances for oil wells and mines.
Borrowing
The Government is now borrowing by far the larger part of the funds
which it is spending. How these funds are borrowed has an important influence
on inflationary pressure. The Treasury borrowing program has two major anti-
inflationary objectives:
1. To encourage additional saving. Additional saving that reduces
consumer demand lessens inflationary pressure on prices and releases
resources for Government we, For this reason, when defense expendi-
tures began to grow rapidly in 1941, the Treasury began a campaign
to increase individual saving. This campaign was intensified after
the outbreak of the war.
2. To encourage the holding of savings in the form of Government
securities rather than in the form of deposite and currency.
Consumers are less likely to use past savings for current expendi-
tures if they are invested in government bonds than if they are
held in the form of deposits and currency. The Treasury has offered
Regraded Unclassified
158
- 5 -
a variety of securities particularly suitable to individuals and
to savings institutions and not available to commercial banks.
The Treasury's War Savings program has the dual objective of encouraging
additional saving by individuals and their investment in war bonds. This
program has contributed to the record-breaking volume of savings during the
current year. Both in absolute amount and as a percentage of income, savings
are higher than ever before.
the bond selling program has particularly emphasised Series E bonds.
These bonds are intended primarily for persons of small and moderate means
and have the attractive yield of 2.9 percent per annim if held to maturity.
The Treasury War Savings Staff has obtained the voluntary assistance of a very
large number of people in helping to push the campaign for new savings and
investment in Series E bonds.
A special effort has been made to sell Series I bonds by mans of the
payroll savings plan, which is an arrangement whereby employers are authorised
by their employees to make regular deductions from pay envelopes for the pur-
chase of these bonds. Already more than 20 million workers are setting aside
an average of 8 percent of their pay every payday for War bonds. So far
during the present calendar year, sales of Series B bonds have aggregated
about 4.5 billion, and the monthly rate is expected to continue to rise. A
very large part of these purchases is coming out of additional savings, as
shown by the steady growth in the proportion of receipts derived from the sale
of $25 and 850 bonds - from 17 percent of total sales in August 1941 to 50
percent in August of this year.
Regraded Unclassified
159
- 6 -
Purchases of Series E bonds by any one individual are limited to $3,750
issues price per year in view of the high interest rate paid. The savings
bond program offers two other series, Series F and e, yielding a somewhat
1
lower interest return with annual purchases by any one illvestor limited to
$100,000 issue price. Sales of Series 7 and G bonds have aggregated about
$2.5 billion 80 far this calendar year, making a total of $7 billion of sales
of the three series of war savings bonds this year. Commercial banks are
prohibited from purchasing any of these bonds.
The tax savings note, issued as part of a campaign to induce taxpayers
to set up recerves for future taxes, has also contributed to the holding of
savings in the form of Government securities. Tax savings notes are now out-
standing in the amount of more than 64 billion, and substantial increases in
the amount outstanding are being shown each month.
The Treasury has also offered long-term bonds not eligible for purchase
by commercial banks. In selling these and other securities directly to
investors, the Treasury has received aid from volunteer local sales organisa-
tions, known as Vistory Fund Committees,
The borrowing program described above is designed to finance require-
ments as much as possible by berrowing directly from investors other than
commercial banks. Borrowing from commercial banks has more serious in-
flationary pessibilities than borrowing directly from other investors, al-
though it must be recognised that borrowing from commercial banks is not
inflationary to the extent that it is offset by a reduction in the other
assets of the banks or by the accumulation of real savings in the form of
bank deposits. Borrowing from banks is being confined to securities of not
Regraded Unclassified
160
- 7 -
longer than 10 years maturity in order to keep the banks as liquid as possible
and to keep government interest payments to a minimum.
In the fiscal year ending June 30, 1942, the deficit was financed
approximately 30 percent by savings bonds, 20 percent by tax notes, 10 percent
by Government trust funds, 10 percent by marketable securities sold to
insurance companies, and 30 percent by marketable securities sold to other
classes of investors, largely commercial banks. With the growth in war spend-
ing since the end of the fiscal year, the proportion of borrowing from
commercial banks has increased substantially, notwithstanding the fact that
the Treasury has intensified its efforts to increase its borrowing from outside
the banks. A great deal more remains to be done, but it is doubtful whether
much can be achieved without recourse to more drastic means of control
involving direct restrictions of consumer spending.
The fiscal program
It 10 clear that our current neasures for the control of inflation are
inadquate in the light of the economic prospects for the coming year. In
the calendar year 1943 consumer incomes will be about $125 billion before
personal taxes and $110 billion after such taxes. Supplies of consumer goods
available for purchase will not exceed $70 billion at present prices. The
disparity between incomes and available supplies must be expected to become
greater during the further course of the war. To prevent this disparity from
producing a serious inflation we need to supplement the traditional types of
taxes and savings campaigns by new and drastic neasures. The Treasury is
prepared to make further recommendations in the field of taxation and borrowing
along the following lines:
Regraded Unclassified
161
- 8 -
Taxation
1. Substantial increase in taxation, primarily in two areas:
(a) Extension of the individual net income tax. This tax is
and should remain the primary instrument for tapping the incomes of
individuals. It is the fairest tax - have yet developed.
(b) Enactment of a graduated tax on consumers' spendings.
This tax is an excellent supplement to the individual income tax
in time of war. By exempting savings, it permits extension of
taxation beyond the point to which the individual income tax can
be pushed without undue hardship on persons with substantial fixed
commitments to pay insurance premiums, repay debt, or make other
forms of regular savings. Whereas the income tax reduses inflationary
pressure solely by taking peoples money away, the spendings tax re-
duces inflationary pressure also by indusing additional saving.
2. The elimination of special privileges and loopholes. The closing of
these loopholes will yield a substantial amount of revenue. Even more impor-
tant, however, it will eliminate the anomaly of continuing special tax
privileges to favored groups while asking the great bulk of people to bear
the burden of heavy wartine taxation,
3. The placing of the individual income tax on a substantially current
basis by collecting the larger part of the tax at source. Under present
methods of collection taxes on this year's income are not payable until next
year. This means that changes in tax rates and changes in national income
Regraded Unclassified
162
- 9 -
affect tax collections only after a esmaiderable lag, and that the in-
plementation of a decision to fight inflation through increases in taxes is
not effective for long time, Current collection will eliminate this lag,
and will hasten the adjustment of the texpayer's spending to his tax lia-
bility. It will serve the convenience of the taxpayer by collecting the tax
in small installments as income is received, and by providing safeguards
against the accumulation of tax liabilities that he will not be able to meet.
It will increase revenue by reducing less through default and by reducing the
possibility of evasion through non-reporting and understatement,
Borrowing
The Treasury intends to push its War Savings program, particularly
through the extension of the payroll savings plan. The goal is to increase
the mumber of persons covered in this program from the present 20 million
workers to 30 million by the end of this calendar year, and, at the same time,
to increase the average deductions under the program from the present 8 per-
cent of payrolls to 10 persent. During 1943, we hope to surpass these figures
considerably.
The rapid increase in Government expenditures requires a fundamental
change in the character of borrowing policy. The Treasury believes that
such more drastic measures than heretofore taken will be necessary to insure
an adequate volume of savings and to increase the amount of finameing done
outside of commercial banks. The extension of specific rationing and fur-
ther price controls will contribute somewhat to the necessary increase in
seving. However, to assure the effectiveness of control measures, excess
spending power must be prevented from coming on the market for consumer goods.
Regraded Unclassified
163
- 10 -
10 stated above, the spendings tax is particularly designed to restrict
spending and to induce the necessary amount of individual saving, If
sufficiently severe spendings or other taxes are not enacted, it will be
necessary to resort to Compulsory Lending, Compulsory Saving or Expenditure
are
Rationing. Measures of these types/discussed in our reply of
to your letter of October 9, 1942,
Regraded Unclassified
164
165
THE UNDER SECRETARY OF THE TREASURY
WASHINGTON
October 26, 1942
TO THE SECRETARY:
VII. filed
Here are copies of the draft of
letter we have prepared in answer to
AT, Byrnes' letter of October 9, 1942.
I an also enclosing copies of that letter
to refresh your memory on the questions
that he asked.
This draft has the approval of the
staff here in the Treasury and of Jake
Viner who was here on Friday. Walter Stewart
is here now and will go over it this after-
noon and tomorrow. In view of the fact that
Jimmie Byrnes wanted a copy over the weekend,
I gave it to him with the understanding that
he would consider it as a. draft and it would
be held for your signature. I thought maybe
you and Harry White could go over this draft
coming down on the plane. Just some leisurely
reading.
Dears
FORVICTORY
BUY
UNITED
STATES
WAR
BONDS
AND
STAMPS
166
October 24, 1942
Dear Jimmie:
As I promised you at the Cabinet
meeting this week, there are transmitted
herewith two copies of the draft of the
Treasury letter which we propose to send
you in answer to your letter of October 9,
1942. I should like to have one or two
other people look this over at the begin-
ning of the week and have it ready for
the Secretary's signature when he returns.
In the meantime you can study it with the
understanding, of course, that you consider
it as a draft.
Sincerely yours,
S/DAN
Honorable James F. Byrnes,
Director of Economic Stabilization,
The White House,
Washington, D. C.
DWB:NLE
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167
DRAFT VII
My dear Mr. Byrnes:
We in the Treasury have been investigating a great variety of measures
intended to accomplish the objective mentioned in your letter of October 9,
1942, to control inflation through the restriction of civilian spending.
We have been particularly interested in measures which combine effective
inflation control with a substantial contribution to the financing of the
war. We welcome the opportunity to give you some of our thoughts on these
questions. We shall be glad to submit more extended studies at your request,
and also to discuss them with you at your convenience. Such discussions
should be helpful to cooperation in the related fields of economic stabili-
sation and fiscal policy.
We have come to the conclusion, in the course of our own investigations,
that an effective and equitable solution of the problem of inflation will
require measures more fundamental than any yet adopted. We are convinced
that wage and price ceilings alone cannot control inflation. Our estimates
indicate that, at present price levels, next year will see a surplus of
purchasing power of about $40 billion over and above the supply of consumers'
goods available during the year. It seems certain that unless all of this
excess of $40 billion of purchasing power is withdrawn, or is withheld from
spending, price ceilings will be broken through on a broad front, causing
empty shelves, large-scale black markets, widespread evasion and dealer
favoritism, and illegitimate profits. In such a. situation, distribution
of the necessities of life will be inequitable and wasteful, and competition
to buy the means of living will be reduced to a time-consuming and disorderly
scramble. Severe hardships will be suffered, especially by families in the
low income groups.
I - October 24,1942
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We find that on the basis of the most optimistic estimate possible, not
more than $70 billion, at present prices, of consumers' goods and services
will be available for purchase in the calendar year 1943. Income received by
consumers in the same period will be about $125 billion. Not more than $15
billion of this consumer income will be taken away by Federal, State and
local taxes paid directly by individuals, including the new Federal taxes
levied in the revenue act just passed. Therefore individuals will have left,
to spend or to save, about $110 billion. If we are to prevent irresistible
pressure of excess demand for an insufficient supply of goods, consumers must
be induced - through additional taxation or otherwise - to refrain from
spending some $40 billion, or $4 out of every $11 of the income they have
remaining after present taxes,
It is true that voluntary savings are now being made at an unprecedented
rate. It has been estimated that individual savings during the second quarter
of this calendar year were at the annual rate of $24 billion, which was
approximately double the rate for the same quarter of the preceding year.
This acceleration of savings is far greater than can be accounted for by the
large increase in individual incomes. It is without doubt due in part to
inability to buy automobiles and certain other durable consumer goods and to
the promulgation of the general maximum price regulation. It has undoubtedly
also been strongly influenced by the campaign for saving carried on in conneo-
tion with the sale of war savings bonds, of which more than $7 billion have
been purchased by individuals so far in the present calendar year. It is
doubtful, however, that this rate of voluntary saving can be substantially
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increased or even maintained during the coming calendar year in the face of
substantially increased taxes and somewhat higher living costs, unless strong
incentives are provided by some new governmental action.
This governmental action must immobilize an additional $16 billion of
consumer income in 1943 over and above the current rate of saving, if we are
to reduce consumer spendings to the value of supplies available at present
prices. Moreover, after 1943, the level of supplies will shrink still more,
involving a drastic reduction in our standard of living during the further
course of the war. We must distribute this reduction in such 3. way as to
protect a basic minimum standard necessary to maintain health and efficiency.
To induce consumers to make gross savings of $40 billion out of their
next year's incomes is not sufficient. These consumer savings must be net,
i.e., after account has been taken of the fact that some people have eaten
into their savings. If some individuals next year consume their capital to
the extent of $10 billion, other individuals will have to save $50 billion
to give us net individual saving, for the economy as a whole, of $40 billion.
We have outstanding about $13 billions of United States Savings Bonds,
all of which could be presented for redemption in a short period. Individuals
hold billions of dollars of other securities, which they might sell to other
individuals, to business firms, and to banks. Individuals hold billions of
dollars of bank deposits and currency in excess of any previous year's
holdings. Billions of dollars could be borrowed on insurance policies. If
price stability is to be maintained, we must see to it that these capital
assets are not used to increase consumption expenditures to a level in
excess of the available supply of goods at present prices. It will do us
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no good merely to shift from & voluntary to an enforced status savings already
?
being made, nor will it do us any good to require lending to the government
that will come out of accumulated savings represented by liquid assets in
the hands of individuals. If, with taxation on the basis provided by existing
law, we fail to add at least $40 billion to our accumulated individual savings
naxt year, prices will rise - in an open or a concealed way.
There are many reasons why our first recourse should be to additional
taxation. The total tax liabilities of individuals to the Federal, State and
local governments on the basis of present law will be about 12 percent of their
X
aggregate individual incomes and less than a third of the increase in indi-
vidual incomes in three years. In the light of these figures it would seem
the very opposite of fiscal prudence to permit the public debt to accumulate
at the rate it will accumulate in the absence of substantial tax additions.
The advantages of withdrawing as much excess purchasing power as possible
through taxation are the following:
(a) Each dollar of taxes avoids the accumulation of a dollar of
public debt. Therefore increased taxation reduces the
interest burden and gives the Government greater fiscal
freedom to meet whatever conditions may arise in the post=
war period.
(b) Taxation minimises the necessity for extensive and adminis-
tratively costly war-time controls -on what people may do with
money that remains in their possession.
(c) Taxation reduces the danger of post-war inflation as a result
of the spending of war-time accumulations by individuals.
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Notwithstanding the advantages of taxation, it would be highly unreal-
istic to contemplate revenue taxation along traditional lines on the scale
requisite to absorb enough purchasing power to bring the level of spending
down to the level of goods available for purchase at current prices. Even
a doubling of the present $15 billion of personal taxes would not suffice,
for the level of voluntary savings would certainly not remain at $24 billion
if anything like $15 billion of new personal taxes were enacted. In fact, it
is likely that any effort to do the whole job by absorbing purchasing power
through taxation along traditional lines would involve the levying of new
personal taxes well in excess of $20 billion and reliance on voluntary personal
savings of considerably less than this figure. The tax method may however be
X
usefully employed not only to absorb excess purchasing power and to gain sub-
stantial additional revenue, but also to induce saving on the scale neces-
sary to close the inflationary gap.
Specific commodity rationing and price control already help to enlarge
the volume of individual saving, but they alone are insufficient. To
extend specific rationing sufficiently to cover the bulk of consumer spending
would be costly and irksome although extensive specific rationing may have
to be adopted eventually. Therefore, we believe that other measures should
be considered in order to limit spending to the necessary extent.
We have particularly examined four general measures, any of which could
contribute substantially to price stability and to an equitable distribution
of scarce supplies. Each would also give substantial direct or indirect
assistance to financing the war. These four measures are Compulsory Lending,
Compulsory Saving, Expenditure Rationing, and Expenditure Taxation. Two of
these types of control are mentioned explicitly in your letter of October 9.
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We have chosen to discuss the other two at the same time because they are
such closely related methods of dealing with the same question.
1. Compulsory Lending
Compulsory lending is the legal obligation to lend
to the Government an amount equal to a specified
fraction of income, expenditure or some other base.
Compulsory lending may have exemptions and graduation. It may therefore
be quite progressive in its incidence. It would contribute to the control of
inflation in the same general way as taxation, namely, by withdrawing money
from the hands of consumers. If individuals had to lend some of their funds
to the Government-and if they did not normally save anything, if they did not
have capital, and if they could not obtain credit--they would be compelled to
reduce their spending by an amount corresponding to their lending. In general
it is the lowest income groups who save little, have few assets and little
credit; therefore a dollar withdrawn by compulsory lending from a man in the
lowest income groups might cause almost a dollar's reduction in spending. At
the top of the income scale, a dollar withdrawn in compulsory lending might
cause no reduction at all in spending; the compulsory lending obligation would
be met out of saving out of current income which would have been done anyway
or out of accumulated assets. The effect for most individuals would lie some-
where between these two extremes, so that for them part of the funds lent
would come out of a reduction of consumption and part out of the accumulated
savings or out of new savings which they would have made in any case.
To insure that individuals who have control over corporations did not
avoid their liabilities for compulsory lending at nominal or zero rates of
interest by keeping their money as undistributed profits rather than distribu-
ting it as dividends, it might be necessary to require compulsory lending by
corporations as well as by individuals.
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The following advantages are claimed for compulsory lending:
(a) It would permit a greater restriction of the consumption of
the lower income groups than would be tolerable if this
restriction were effected by outright taxation;
(b) It would make larger levies on all income groups politically
acceptable;
(c) It would not reduce the incontive for individuals to undertake
harder and longer work for additional pay as much as would
additional taxes of corresponding amount;
(d) It would create a reserve of individual purchasing power
for the post-war period;
(c) It would provide a means of raising money to finance
Government expenditures with no war-time obligation to
redeem or to pay interest.
However, any given amount of compulsory lending would be less effective
in reducing spending than the same amount of taxes. Because the amount turned
over to the Government would be a loan to be returned after the war, there
would be less inducement to save in other forms, and individuals with
accumulated assets would be more willing to sell assets or borrow on them
to meet the lending requirement than to meet a tax obligation. Persons who
were already saving as much as the current lending obligation or who had a
large amount of accumulated wealth might find no need to reduce their spending
at all. Therefore any compulsory lending schedule would in practice be less
progressive in its incidence on consumption than it would appear to be on
paper. The dollar yield of any system of compulsory lending would be much
greater than the dollar value of the reduction in consumption which it would
accomplish.
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These considerations suggest that, if use is made of compulsory lending
at all, it should be recognized that its anti-inflationary effect will be
largely restricted to the lower income le vels and supplementary devices
would have to be a dopted to restrict adequately spending in the higher levels
of income.
2. Compulsory Saving
In the forms in which it has been publicly discussed,
there would be permitted, as offsets against
compulsory lending to the Government, various forms of voluntary saving such
as the payment of insurance premiums, the r epayment of debt, and the voluntary
purchase of war bonds. Such offsets are steps in the direction of converting
compulsory lending into compulsory saving.
By compulsory saving is meant a legal requirement that every family or
single individual save a specified fraction of income. Compulsory saving
differs from compulsory lending. Compulsory saving necessarily contributes
to the control of inflation, compulsory lending need not. An individual
might lend to the Government and yet not save, simply by lending out of
previously accumulated assets. An individual might save and yet lend nothing
to the Government. What is primarily significant for inflation control is
the reduction in spending.
In principle, compulsory saving could provide a completely effective
solution to the inflation problem. The total amount allotted for expenditures
on consumers' goods by all individuals and families could be fixed at the
level of available supplies by requiring that the difference between total
income and total available supplies be saved in one form or another.
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A progressive system of compulsory saving would have exemptions and
graduation, just as would a progressive system of compulsory lending. For
instance, a married person with no dependents might not be required to
make any saving at all out of the first $1,000 of income. Out of the next
$500 of income he might be required to save 20 percent, out of the next
$500, 30 percent, and so on to a point where the spending of further incre-
ments of income for consumer goods and services would be prohibited.
If it were desired to make allowances for extraordinary expenses of
various kinds, such expenses could be treated as credits against compulsory
saving liabilities. Credits might be allowed also for personal taxes,
rents, medical expenses, tuition and all forms of saving.
For instance, a single individual receiving income at the rate of $2,500
during a given year might be required to save $1,500 for that year. If he had
to pay $450 in personal taxes, $400 for rent, $50 for medical expenses, and
$100 for insurance premiums, these items would account for $1,000 of his
compulsory saving requirement, leaving $500 that he would have to plan to save
in other forms - war bonds, cash, bank deposits, etc. It should be noted
that the saving requirement would be for the same year as that in which he
received the income and would not represent an amount he would be required
to turn over to the Government in a subsequent year.
This plan would solve one of the difficulties of simple compulsory lend-
ing plans, that is, the substitution by individuals of the new compulsory
saving for voluntary saving which they would otherwise have made. It would
also make it impossible for individuals to show fictitious "saving" merely
through changing the form of previously accumulated capital. This plan would
fix total individual saving: it would be irrelevant whether the individual
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176
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saved in one form or another, so long as he did not divert into current
consumption funds he was required to save. The Government might borrow
his funds directly, indirectly, or not all (if he hoarded them). In any
case, his dollars would not be on the market for goods. The Government
might spend an amount equal to his saving without fear that its expendi-
tures would exercise any inflationary pressure.
Compulsory saving would simplify the problem of raising funds for
financing the war since individuals who were compelled to save would
probably invest a large part of their saving in war bonds. To secure the
fiscal advantages of compulsory lending discussed above, it could be
required that a stated proportion of amounts saved be lent to the Govern-
ment for the period of the war - perhaps at zero interest. If such a
compulsory lending requirement were added to compulsory saving, the
requirement could be implemented through collection at the source.
It is absolutely crucial to this plan that a complete report be
secured of the net change in any individual's capital position during the
period in which he was obligated to save. In calculating the residual
savings requirement of any individual, any purchase of assets or any savings
credits would have to be offset against sales of assets, declines in deposits,
etc. Only in this way could the compulsory saving plan be protected against
being vitiated by the use of existing balances and credit.
Compulsory saving involves serious administrative difficulties. To
help individuals keep their saving up to the level required by the law, it
would probably be necessary to have quarterly returns. Whether an individual
had complied with his compulsory saving requirement could not, however, be
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finally determined until the end of the period to which the requirement related,
since neither his income nor his savings would be known accurately until then.
An individual might unwittingly spend more than his allotment because of
anticipated fluctuations in income or expenditure needs, and in any case he
could not know that he had complied with the saving requirement until after
the event.
The required amount of saving could be insured by issuing licenses to
purchase to all consumers only to the extent of the expenditure to which they
were entitled; in this case compulsory saving would become Expenditure
Rationing. Alternatively consumers might be required to pay & regular schedule
of penalties for spendings above their exempt minimum; in this case compulsory
saving would become a type of Expenditure Taxation. Further alternative
sanctions for excess spending are criminal penalties, fines adjusted to the
individual circumstances, or punitive compulsory lending requirements. None
of these last three sanctions could be administered without considerable costs
and hardships.
3. Expenditure Rationing Expenditure Rationing is the limitation of total
consumer expenditures by fixing the maximum
amount that every family or single individual is allowed to spend on rationed
goods. In principle, rationed goods should include all consumers' goods that
have any current cost in labor, materials, or facilities. The following
classes of consumption goods and services, however, might well be excluded
from Expenditure Rationing, each for separate reasons: rents, tuition, medical
care, and possibly several other classes. Under expenditure rationing
consumers' goods other than these could be bought only with one's ration
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allowance, but the consumer would be free to spend his ration allowance on
any commodities or services that he pleased. Furthermore, no limitation
would be imposed on the use of income in non-consumption transactions, such
as making gifts, paying taxes, paying insurance, buying real estate or
securities, or saving in other ways. Business expenditures would, of course,
be excluded from expenditure rationing.
Under expenditure rationing, the total amount allowed to be spent on
rationed goods for the whole economy during any period would be set at a
level equal to the estimated value of the supply of rationed goods to be
available during that period. In making this computation, supplies would
be valued at the price level which it was desired to maintain. Changes in
the total expenditure ration would be made as the expected supply position
changed. Since total purchasing power would be fixed at a level equal to
the value of supplies available for purchase, average prices would remain
relatively stable.
Expenditure rationing would yield no revenue directly. However,
by limiting consumers' expenditures, it would force them to save in one
form or another. Therefore, individuals would be likely to buy larger
amounts of Government securities directly or to place their savings with
institutions who could in turn buy larger amounts of Government securities.
In any event, the Government would be free to borrow from individuals or
banks an amount equal to individual saving without fear that such borrow-
ing would be inflationary.
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The impact of any expenditure rationing program upon the various income
groups would depend upon the bases adopted for allocating expenditures, If
variations of income as well as size of family were factors in determining
the permissible amount of expending allowed each individual, there would be
X
inequality in permissible expenditures as between income groups. However the
expenditure rationing system could greatly reduce the inequalities in spending
that prevail now. For example, a family of four with an income of $1,500
might be allowed to spend the entire $1,500 while a family with an income of
$50,000 might be permitted to spend no more than (say) $10,000. It would be
easier to reduce inequalities by limiting spending directly than by limiting
it through taking away a part of income. On the other hand, remaining inequali-
ties might be resented more deeply, because of their having direct government
sanction.
Expenditure rationing would attack the problem of excessive consumer
purchasing power directly, and would determine the ration allowance from an
item (current income) that is in most cases readily ascertainable. For both
of these reasons, the distribution of expenditure among individuals or income
classes would be subject to more effective control than under a program of
taxation or compulsory lending.
It would still be necessary to have specific rationing for some basic
necessities that were disproportionately scarce. However, in the measure that
people with large incomes would be able to spend less on scarce commodities
under expenditure rationing, the need for specific rationing would be reduced.
The administrative costs and the inconveniences of specific rationing would be
kept at a minimum.
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An effective rationing system would require the use of a license to
purchase, in coupon or other form. It might be possible to solve this
problem without the use of both money and a coupon in every purchase. Such
a solution has been explored in the Treasury, and we should be pleased to
discuss it with you if you wish to go further into the administration of
Expenditure Rationing.
The distribution of ration coupons or allowances could be integrated
very closely with the present system of payment of incomes:
(a) Persons employed for wages or salaries would file statements
with their employers showing their marital and dependency
status. On the basis of these returns, the employers would
distribute to them the correct amount of ration allowances;
(b) Persons receiving income other than wages or salaries would
report the amount of their income as well as their marital
and dependency status to a bank, post office, or local ration-
ing board. The institution to which this information was
reported would be authorized to provide individuals with
ration allowances in accordance with the expenditure rationing
schedule;
(c) Persons with irregular incomes, seasonal incomes, or living by
depleting capital, would require special consideration in the
determination of their ration allowances.
A partial check on the accuracy of ration allowances would be obtained
by requiring individuals to reconcile the income declared for the purpose of
obtaining ration allowances with the income declared for income tax purposes.
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For consumers, such a system would have an internal self-enforcing element,
since the exaggeration of income would lead to additional tax liabilities,
while the under-statement of income would diminish the size of the ration
allowance.
The above description of expenditure rationing touches only on its
most salient features. We have gone into expenditure rationing in the
Treasury in great detail and shall be glad to give you a more extended study
of this subject, should you be interested in exploring it further.
4. Expenditure Taxation Expenditure taxation has already been the sub-
ject of some public discussion in connection
with the recent proposal for a spendings tax submitted by the Treasury to
the Senate Finance Committee during consideration of the Revenue Act of
1942. We are not concerned in this letter with the details of that proposal
but rather with the general question of the way in which a progressive
spendings tax would bring about the limitation of consumer expenditure
necessary to avoid inflation.
The spendings tax would be a tax on consumption rather than on income.
It would provide for exemptions and for graduated rates. It would impose
a penalty on all spending above the minimum subsistence level, a penalty
that would become increasingly severe and even prohibitive as spending
increased. Through graduation, it would be made to bear primarily on
comforts and luxuries rather than on necessities.
For example, under a spendings tax a married person with no dependents
might be allowed an exemption of $1,000 a year. If he spent less than $1,000
on goods and services he would pay no tax. A 10 percent tax might be levied
on the first $500 of consumption expenditure in excess of $1,000, a 20 per-
cent tax on the next $500 and successively steeper taxes on additional
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increments of spending.' The Tax might ultimately reach rates of 100 percent
or more. This would mean that an individual spending large sums on luxuries
might be required to pay the Government as much as $1.00 or more for every
additional dollar he spent on consumers' goods.
All forms of savings would be exempt from the spendings tax. The more
important non-taxable uses of income would be as savings for the purchase
of war bonds and other capital assets, repayment of debt, life insurance
premiums, as gifts and contributions, and as tax payments. In addition,
it might be desirable to exempt from the spendings tax certain special
types of expenditure, such as tuition fees, extraordinary expenses for
medical care and perhaps rent and other items.
The spendings tax would reduce spending on consumers' goods and services
in two ways: first, the amount paid in tax would be withdrawn from income
and could not be used to purchase goods and services; second, by penalizing
spending the tax would provide a powerful incentive to save rather than to
spend. Although the savings induced by the spendings tax would not
necessarily be paid over to the Treasury, they nonetheless would be removed
from the spending stream and be added to the pool of savings available,
directly or indirectly, for financing the war.
A sufficiently severe spendings tax could reduce total consumer expendi-
tures by any desired amount, and at the same time contribute to a more
equitable distribution of the scarce supply of consumers' goods than would
prevail without the tax. The exemption provision would enable persons
with small incomes to obtain basic subsistence needs free of tax, while the
steeply graduated tax rates would operate to bring about a greater pro-
portionate reduction in spending by those persons whose large expenditures
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would subject them to the higher penalty rates. Individuals would be given a
reward for saving in a way which is not possible with a conventional income tax,
By reducing their spending individuals and families would reduce their tax
liability and thereby increase the funds available to them for expenditure with-
out penalty after the war or when economic conditions became such as to permit
abandonment of the tax,
In addition to controlling the total volume of expenditure and its distri-
bution among individuals the spendings tax would provide some revenue to the
Treasury to finance the war end, by reducing expenditures for consumption,
it would undoubtedly increase the voluntary purchase of war bonds. It would
also encourage the repayment of debt and other forms of savings, since these
too would be free of tax.
The successful administration of a spendings tax would not require that
individuals keep a detailed record of all their expenditures. All that would
be necessary in addition to the information already required for the income
tax would be information to determine changes in capital position of the same
kind as would be needed under compulsory saving. The total taxable expendi-
tures of an individual are equivalent to his net income, minus or plus the net
change in his assets during the year. His taxable spendings could be deter-
mined, therefore, from his net income and from the assets he held at the begin-
ning of the year and the assets he held at the end of the year.
The final determination of liability under the spendings tax would be
made when the income tax return for the corresponding year was filed. A
combined form could be used for the two taxes. However, collection of the tax
would not have to be delayed until the tax liability was finally determined.
Two methods could be useds
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(1) The first bracket of the spendings tax could be collected at
the source from all income paid in the form of wages and
salaries, bond interest and dividends. Collection at source
based on income instead of spending would involve no great
hardship. The only persons who pay too much would be those
who save part of their income and hence do not need for current
consumption-although they may need for outstanding savings
commitments-the extra amount withheld. Final adjustment of
tax liability would be made with the filing of the return
after the close of the year.
(2) Individuals with expenditures subject to tax rates above the
first bracket would be required at short intervals, say
quarterly, to pay a tentative tax based on the approximate
amount of their spending. A final adjustment of their tax
liability would be made with the filing of a return after the
close of the year.
This statement of the spendings tax is intended to be only a general
exposition of its principal features. To bring out more fully its effect
in restricting expenditure on consumption at every income level, it would
be necessary to present a longer memorandum including a detailed schedule of
tax rates, their probable yield, and their effect in inducing savings. We
shall be glad to present such a study at a later time should you be interested
in going into the possibilities of the spendings tax in greater detail.
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Each of the four general types of control over consumers' expenditures
that are discussed above has some merit, but their merit is by no means
equal. Compulsory lending might be the easiest to enact and administer, but
it is uncertain in its effects on expenditure and dubious in its incidence.
Any plan which makes possible substantial Treasury borrowing at zero interest,
even for a few years, has a strong argument in its favor. Compulsory saving
could in principle be both effective and equitable, but it has great adminis-
trative difficulties. Expenditure rationing could be effective, equitable,
and administratively practical but (a) it would involve considerable adminis-
trative costs and (b) though it is capable of controlling expenditures and
diminishing inequalities of consumption in a precise way, it might arouse
considerable opposition by giving precisely defined inequality a legal sanc-
tion. Expenditure taxation is less certain in its results than expenditure
rationing, but (a) it is easier to administer, (b) it yields some direct tax
revenue, and (c) it permits greater freedom of choice to the individual both
as to savings and spending.
For these reasons it is the Treasury's position that expenditure taxation
should be first on the agenda for immediate consideration.
In September, the Treasury urged that a spendings tax be enacted. This
does not mean that the Treasury regards the choice from among the methods
discussed above as a closed issue, nor does the Treasury feel that we must
necessarily adopt one of them to the complete exclusion of the others. Indeed,
the spendings tax proposal submitted by the Treasury to the Senate Finance
Committee also incorporated compulsory lending at zero interest. The Treasury
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has also given considerable study to expenditure rationing and submitted a
memorandum embodying the results of its studies to the President through Judge
Rosenman on July 30, 1942.
We would be glad to discuss these questions with you further at your con-
venience, and a more extended analysis of each of the alternatives may be
considered at that time.
We are restricting this letter to the discussion of the control of con-
sumer expenditures. We shall submit our views on the use of subsidies at &
later time.
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187
October 12,1942
Dear Jimmie:
I have your letter of October 9,
1942, asking for a report which would
consider the extent to which the control
of civilian purchasing power could be
effectuated by compulsory savings and
by the rationing of spending.
As I told you at luncheon, you
can rely upon the Treasury to help you
in every way possible to carry out the
heavy duties which have been imposed
upon you by your appointment to this
position. I have turned your letter
over to Under Secretary Bell and he has
already started work on it.
Sincerely yours,
$ Henry
Honorable James F. Byrnes,
Director of Economic Stabilization,
Office for Emergency Management,
Washington, D. 0.
DWB:NLE
EXECUTIVE OFFICE OF THE PRESIDENT
188
OFFICE FOR EMERGENCY MANAGEMENT
OFFICE OF ECONOMIC STABILIZATION
WASHINGTON, D.C.
MES F. BYRNES
October 9, 1942
Director
ay dear Mr. Secretary:
I have been thinking over our talk at lunch yesterday and
it occurred to me that it would help me a great deal in grappling
with the problem of the control of civilian purchasing power if you
could have a report prepared which would consider the extent to
which the control of civilian purchasing power could be effectuated
by (a) compulsory savings and (b) the rationing of spending. I am
sure that you have given a great deal of thought to the potentialities
of both of these techniques which connect closely with the Treasury's
fiscal policies.
I hope that you will also give me the benefits of your
thoughts on the question of the considerations which should guide me
in directing or refraining from directing the use of subsidies to
insure maximum production and distribution and to prevent a rise in
the cost of living.
Jane lours JAMES F. sincerely, BYRNES Byones
againstic Can. Quaton (aul
Hon. Henry L. Morgenthau,
White
Secretary of the Treasury.
Have
Ours Dennis Brough
PYICTORY
BUY
Choocial the Russ Clausy
ENITED
STATES
WAR
BONDS
-
STAMPS
Regraded Unclassified
189
190
CHAPTER XVIII--OFFICE OF ECONOMIC STABILIZATION
Subchapter A--Office of the Director of Economic Stabilization
By virtue of the authority vested in the President by the
Constitution and the laws of the United States, and particularly by
the Act of October 2, 1942, entitled "An Act to amend the Emergency
Price Control Act of 1942, to aid in preventing inflation, and for
other purposes" (Pub. Law 729, 77th Cong.), the following amendments
to the regulations promulgated by the Director of Economic Stabiliza-
tion, with the approval of the President, dated October 27, 1942 (7 F.R.
8746), are hereby promulgated,
1. E 4001.1 is amended by adding the following subsections
thereto:
"(k) The terms 'approval by the Secretary of Agricul-
ture' and 'determination by the Secretary of Agriculture' shall, ex-
cept as may be provided in regulations prescribed by the Secretary,
include an approval or determination by an agent or agents of the
Secretary duly authorized to perform such act.
"(1) The term 'ngricultural labor' shall mean persons
working on farms and engaged in producing agricultural commodities
whose salary or wage payments are not in excess of $2,400 per annum.
The Secretary of Agriculture may by regulation issue such interpre-
tations of this term as he finds necessary."*
2, The following sections are added immediately following
E 4001.5 and preceding an 4001.6:
" § L001.5a. Authority of the Secretary of Agriculture.
Notwithstanding the provisions of 88 4001.2, 4001.4, L001.6, and L001.7,
the Secretary of Agriculture shall have the authority to determine
whether any salary or wage payments to agricultural labor are made
in contravention of the Act or any rulings, orders or regulations pro-
mulgated thereunder: Provided, however, That the provisions hereof
shall not be construed to affect the authority of the National War
Labor Board under the provisions of Executive Order No. 9017 (7 F.R.
237) as extended by Section 1, Title III of Executive Order No. 9250
(7 F.R. 7871, 7873). Any such determination by the Secretary shall
be conclusive upon all Executive Departments and agencies of the Govern-
ment in determining the costs or expenses of an employer for the purpose
of any law or regulations, either heretofore or horeafter enacted or
promulgated, including the Emergency Price Control Act of 1942 or any
maximum price regulation thereof, or for the purpose of calculating de-
ductions under the revenue laws of the United States, or for the purpose
of determining costs or expenses under any contract made by or on behalf
of the United States. Any determination of the Secretary made pursuant
to the authority conferred on him shall be final and shall not be sub-
ject to review by The Tax Court of the United States or by any court in
any civil proceedings.
" § 1001.5b. Wage and salary increases for agricultural
labor. Considering that the general level of salaries and wages for
agricultural labor is substandard, that a wide disparity now exists
between salaries and wages paid labor in agriculture and salarios and
wages paid labor in other essential war industries, and that the reten-
tion and recruitment of agricultural labor is of prime necessity in
supplying the United Nations with needed foods and fibers, and in order
to correct and adjust these gross inequities and to sid in the effecti ve
prosecution of the war, no increases in wages and salari 68 of agricul-
tural labor shall, notwithstonding any other provision of any rules,
orders or regulations under the Act of October 2, 1942, be doemed in
Regraded Unclassified
- 2 -
191
violation of the Act or of any rules, orders or regulations there-
under, unless and until the Secretary of Agriculture determines and
gives public notice of his determination that, with respect to areas,
crops, classes of employers, or otherwise, increases in salaries or
wages for agricultural labor may no longer be made without the approval
of the Secretary of Agriculture.
4001.5c. Wage and salary decreases for agricultural
labor. No employer shall decrease wages or salaries paid to agricul-
tural labor below the highest salary rate or wage paid for such work
between January 1, 1942, and September 15, 1942, without the approval
of the Secretary of Agriculture.
⑉8 4001.5d. Rules, orders and regulations of the Secretary.
The Secretary of Agriculture may make such rulings and issue such orders
or regulations as he decms necessary to enforce or otherwise carry out
the provisions of the regulations in this part."*
3. "§ 4001.10(a) is amended in the following particular:
The phrase "the Board or the Commissioner, as the case
may be," is amended to read "the Board, the Commissioner or the Secre-
tary of Agriculture, as the case may be, "."
4. "§ 4001.14 is amended in the following particular:
The phrase "The Board and the Commissioner" is amended to
read "The Board, the Commissioner or the Secretary of Agriculture, as
the case may bo,
5. Nothing herein shall be interpreted to prevent the Socre-
tary of Agriculture from utilizing any other authority now or hereafter
visted in him to insure an adequate supply of agricultural labor through
salary or wage stabilization and otherwise to secure agricultural pro-
duction necessary for the effective prosecution of the war through
programs of procurement, transportation, distribution, housing, medical
care, price support, or otherwise.
APPROVED:
FRANKLIN D. ROOSEVELT
THE WHITE HOUSE
November 30, 1942.
JAMES F. BYRNES
Economic Stabilization Director
* ss 1 to 4, inclusive, issued under Pub. Law 729, 77th Congress,
approved October 2, 1942.
Regraded Unclassified
192
TREASURY DEPARTMENT
Washington
FOR IMMEDIATE RELEASE,
Press Service
Friday, November 6, 1942.
No. 33-97
The Treasury Department announced today that 1942 sal-
aries in excess of 1941 salaries are now nermissible under nn
amendment to the Wage and Salary Repulations when such 1942
salaries are required by the terms of n bons fide contract
entered into by employer and employee prior to October 4,
1942.
The announcement followed issuance by the Office of
Economic Stabilization of an amendment to its original Wage
and Salary Regulations. Under the original Regulations re-
strictions on salaries in excess of $25,000 did not become
effective until January 1, 1943. As a stop gap and to pre-
vent the payment of unwarranted bonuses and salary increases
in the two-month interim, the original Regulations provided
that such total compensation paid to an individual in 1942
could not exceed that paid in 1941. The immediate termina-
tion of compensation to those persons whose 1943 salary had
already exceeded their 1941 salary in some instances where
prior commitments had been made created a hardship. The
modification of Paragraph (o) of section 4001.9 of the Regu-
lations will alleviate this condition and permit payment for
services rendered during the balance of the calendar year.
The Department emphasized that the amendment relates
solely to 1942 salaries and has no effect whatsoever on the
application of the $25,000 limitation for 1943, and further that
employers and employees should arrange their contractual re-
lationships for 1943 so as to comply with the salary limita-
tions. Relief granted under this amendment will in no
instance carry over into 1943.
The text of the amended regulation is as follows:
Regraded Unclassified
193
TITLE 32 -- NATIONAL DATE E
CHAPTER XVIII -- OFFICE OF ECONOMIC STABILIZATION
SUBCHAPTER A -- OFFICE OF THE DIRECTOR OF
ECONOMIC STABILIZATION
PART 4001 -- WAGES AND SALARIES
Paragraph (e) of section 4001.9 of the Regulations
relating to stabilization of wages and salaries, pre-
scribed by the Economic Stubilization Director and ap-
proved by the President on October 27, 1942, (7 F. R.
8748) is amended to read as follows:
"(e) Unless payment thereof is required under
a bona fide contract in effect on October 3, 1942,
no amount of salary shall be paid or authorized to
be raid to 0)* accrued to the account of any employee
or received by him after October 27, 1942, and before
January 1, 1943, if the total salary paid, authorized
accrued or received for the calendar year 1942 exceeds
the amount of salary which would otherwise be allow-
able under paragraph (a) of this section and also
exceeds the total salary naid, authorized, accrued
or received for the calendar year 1941."
The foregoing amendment shall be effective as of
October 27, 1942.
(This regulation is issued pursuant to the authority
contained in E. 0. 9250, 7 F. R. 7871; section 4001.15,
Regs. of Economic Stabilization Director, datad October 27,
1942, 7 F. R. 8748.)
(=) James F. Ryrnes
Economic Statilization Director
November 5, 1942.
Regraded Unclassified
Y
P
194
0
C
November 5, 1942
My dear Mr. President:
Arrangements have been made to comply with the request
in your letter of October 27, that future payments of your salary
as President shall be made subject to regulations issued by the
Economic Stabilization Director pursuant to Section 7, Title II,
of Executive Order No. 9250.
AS you know, under paragraph 7, Section 1 of Article II
of the Constitution, the salary of the President may not be dimin-
ished during the period for which he shall have been elected. In
view of this provision, it is assumed that it would be agreeable
to you if the Treasury should follow a procedure similar to that to
which you assented with respect to the return of part of your salary
in connection with Title II of the Economy Act of March 30, 1933,
which provided for a reduction in compensation of Government employ-
ees. Under this procedure, two checks would be drawn in your favor,
one of which you would endorse as follows:
"Pay to the Treasurer of the United States for
deposit as miscellaneous receipts. This payment
is made in order that I may conform with regula-
tions issued by the Economic Stabilization
Director, pursuant to Section 7 of Title II of
Executive Order No. 9250."
Regraded Unclassified
195
- 2 -
Under paragraph (a) of section 4001.9 of the Regulations
of the Economic Stabilization Director, approved October 27, 1942,
the so-called salary ceiling, computed under rates provided by the
Revenue Act of 1942, would be $67,200. Out of that sum the recipi-
ent would have to pay approximately $42,200 in Federal income and
Victory taxes, leaving a net of $25,000. Paragraphs (b) and (c) of
section 4001.9 permit additional allowances of salary under certain
conditions for payment of customary charitable contributions and
for required payments on fixed obligations and insurance policies.
You may wish, therefore, to give further instructions with respect
to the determination of the amount of your salary to be returned
to the Treasury pursuant to your letter of October 27.
In any event, under paragraph (f) of section 4001.9, no
part of your 1942 salary as President need be returned by you; such
adjustment would begin with your salary payment for January, 1943.
Faithfully yours,
(Signed) H. Morgenthau, Jr.
The President
The White House
EFB:JB
11-4-42
Regraded Unclassified
(T. D. 5176)
196
TITLE 29 - LABOR
CHAPTER VIII - COMMISSIONER OF INTERNAL REVENUE
PART 1001 - SALARY STABILIZATION UNIT
TREASURY DEPARTMENT,
Office of Commissioner of Internal Revenue,
Washington, D. C.
TO COLLECTORSOF INTERNAL REVENUE
AND OTHERS CONCERNED:
On October 27, 1942, the President approved regulations relating to wages
and salaries prescribed by the Economic Stabilization Director under the Act of
October 2, 1942, entitled "AN ACT to amend the Emergency Price Control Act of
1942, to aid in preventing inflation, and for other purposes" (Public No. 729,
77th Congress, 2d Session) and Executive Order No. 9250, dated October 3, 1942
(7F.R. 7871). Those regulations conferred on the Commissioner of Internal Revenue
authority to administer the provisions thereof relating to the stabilization and
limitation of certain salarios. In the exercise of the authority so conferred on
the Commissioner of Internal Revenue, the following regulations are horoby
promulgatod.
TABLE OF CONTENTS
Sec. 1001.1. Salary Stabilization Unit
1001.2. Authority of Unit
1001.3. Regional Offices
AUTHORITY: Secs. 1001.1. to 1001.3., inclusive, issued under Pub. Law 729,
77th Cong., 2d Sess.: E.O. 9250, 7 F.R. 7871; Regs. of Economic Stabilization
Director, dated October 27, 1942, 7 F.R. 8748.
Sec. 1001.1. Salary Stabilization Unit. -- There is established a Salary
Stabilization Unit, which shall be under the supervision of a deputy commissioner
of internal revenue, appointed in accordance with law, and which shall be inde-
pendent of all other units of the Bureau of Internal Revenue,
Sec. 1001.2. Authority of Unit. -- The Commissioner of Internal Rovenue may
confer upon the deputy commissioner in charge of the Salary Stabilization Unit
such powers and duties as ho shall doem necessary for the effective administration
of the provisions of this Treasury docision.
Sec. 1001.3. Regional Offices. -- The Commissioner of Internal Revenue may
establish such regional offices as he shall deem necessary for the effective
administration of the provisions of this Treasury decision.
GUY T. HELVERING,
Commissioner of Internal Revenue.
Approved: October 29, 1942.
JOHN L. SULLIVAN,
Acting Secretary of the Treasury.
(Filed with the Division of the
Federal Register October 29, 1942.)
Regraded Unclassified
ROUGH COPY
MR. SULLIVAN'S
PRESS CONFERENCE
For Treasury Department
October 29, 1942
Use ONLY 197
MR. SULLIVAN: Before we start out I want to tell you gentlemen that
this morning we have just issued a Treasury decision
establishing in the Bureau of Internal Revenue a
Salary Stabilization Unit which will be separate
from the other units in the Internal Revenue Bureau
and which has authority to set up regional offices.
Just how many we will have and where we will have
them will depend upon the necessity as it is shown
by our experience. I have copies of this decision
here if you want them. (Copies distributed)
of
Who is to head that office, Mr. Sullivan?
That will be announced later.
Q
Have you found a building big enough to house
the personnel?
A
I think that probably you men will have many ques-
tions that we cannot answer this morning because,
as most of you know, we will have to get out regu-
lations to implement and clarify the regulations
that Director Byrnes released Tuesday afternoon.
I expect that those regulations will be ready in
two weeks or 80, and we will get them out just as
soon as we can.
I have been very much pleased by the restraint you
fellows have shown by not taking shots in the dark
about what the regulations that Director Byrnes
issued were going to say, and I think you did your
public a great service. This is not a simple
problem, and it is one in which it is very easy for
the public to be confused. I am very grateful to
you for sitting tight until those regulations came
out rather than conjecturing about what they might
be, and I think that probably you will have an
opportunity for the same kind of service in regard
to these regulations we are going to publish. We
will get them out as quickly as we can, and once
they are out we will be very happy at any time of
day or night to answer any questions you fellows
want to ask us.
Regraded Unclassified
198
- 2 -
This is not going to be an easy job - to clarify all
of this to the public - and we are going to rely on
you fellows to help do that job for us, and I want
it strictly understood that at any time when anybody
is writing a story, if you are in doubt don't take a
chance, call me. You can always get me through the
switchboard here or get me at home, and don't take
any chances, fellows, because this is just too
important. Just come to us at any time and we will
give you as straight an answer as we can.
O.K., go ahead.
Q
How are partnerships covered under the regulations -
that-is, the limitations on partnerships, if any?
A
You mean are the salaries covered?
Q
That is right.
A
It depends on whether it is a proprietary interest or
a salary.
Q
But in the case of a partnership which may be com-
posed of two people and say they take down so much
for their own use, say a salary of eight thousand--
A
Of course all of the earnings of the partnership
are taxable to the individual partners.
Q
That is true, but it would not be subject to double
taxation when they did not take it down - I mean
under the--
A
No, it would not.
or
Are you going to have forms, additional forms, on
your income tax blanks to require corporations to
show salary increases?
A
There will undoubtedly have to be further informa-
tion given to us. Whether that will be on a separate
form or an addition to the existing form is a question
that has not yet been decided. We will try to do it
in a way that will give us adequate information, with
the least inconvenience to the income tax filer.
Regraded Unclassified
199
- 3 -
a
How about obvious efforts to circumvent the regula-
tion by & man hiring his wife and paying her twenty-
five thousand dollars a year?
A
You know better than that. We catch them every
day and disallow them as a business deduction.
That is not any new problem that is created by the
Act or by the regulations. We already cover that.
And you will note that in these regulations there
is one clause which specifically provides that
nothing in the act - nothing in these regulations
in any way minimizes the powers the Internal Revenue
Bureau now has to disallow an unreasonable business
expenditure.
Q
What about. lawyers who are serving, perhaps, more
than one client?
A
That depends very much, just as in the case of
movie actors and radio stars, and BO forth - that
depends very largely upon the nature of the contract
between the individual and the company. Just as in
the case of Social Security taxes, the specific
facts in an individual case govern and it depends
upon whether or not there exists the relationship
of employer and employee, master and servant, and
so on and BO forth. Each of those will have to be
decided on its own merits. In the case of a lawyer
who is employed exclusively by one client, devotes
all of his time to the client, I think it is pretty
clear that he is covered. The other cases depend
upon varying facts.
Q
On a fee basis?
A
That is just one of the many facts that will have
to be taken into consideration.
Q
You have not determined it as yet?
A
It depends on the facts in each case as they come
in, just as in the case of the Social Security tax.
o'
What about doctors who work solely on feel
Regraded Unclassified
200
- 4 -
A.
The same answer. There are many large corporations
that have doctors who devote all their time to
accident work within the plants. They are clearly
covered, of course.
{
Mr. Sullivan, in the case of a moving-picture actor,
for example, who works for three different companies,
let's assume he gets twenty-five thousand dollars
from each of those companies in the course of a
year. When you figure out the deductions allowed,
fifty thousand was the total he should have re-
ceived under this act. What company gets soaked
for paying him the extra twenty-five thousand
dollars?
A
I would like to answer that question first by
clearing up what may be a misunderstanding in your
mind. You use the figure fifty thousand. I think
you will find that BO far as this above twenty-five
thousand dollars provision is effective it is only
above sixty-seven thousand two hundred dollars.
Your question, I presume, is that you want to know
whether the last fellow who pays him above the
sixty-seven thousand limit is the one who 18 in
trouble.
Q
They might be paying him simultaneously, more or
less.
A
The answer to that is that all will be regarded as
participating in the violation of the act. In
those instances where a person is receiving sal-
aries from more than one corporation it is up to
him and the corporations to get together and adjust
the salaries among themselves. If the sum total
paid is in contravention of the act all are held
to have violated the act.
Q
How are you going to get around cases where a nan
has several clients - or, the movie actor has
several contracts and he has a business expense
and that would be the equivalent of a gross instead
of a net? How do you get around that? I mean you
are putting a limitation on his gross, not his net.
Regraded Unclassified
201
- 5 -
A
It is a limitation on his gross salary.
Q
Even though he has to pay a lot of expense out of
those salaries?
A
That 1s right.
Q
This sixty-seven thousand two hundred figure, would
that mean that President Roosevelt would return the
difference between seventy-five thousand and sixty-
seven thousand two hundred in bringing his salary
under the twenty-five thousand limit?
A
Well, the Act exempts statutory salaries.
Q
But he has written--
A
I understand that he has indicated his salary 1e to
be covered, and the adjustment that he requested
would mean a downward adjustment that would bring
him to the allowable figure.
of
He might have other deductions, personal de-
ductions?
A
They would not enter into this matter.
Q
Must that adjustment be made at the beginning of
the salary year or can it be turned back at the
end of the salary year?
A
Well, the adjustment could be made either way, just
80 long as the individual does not receive during
the year more than the allowable amount.
Q
Suppose an employee is paid thirty-five thousand,
or, we will say, seventy thousand, during the year --
then at the end of the year he is permitted to turn
back the excess to the paying corporation?
A
I don't think you will find it is going to work
out that way.
Q
He gets some deductions and things that give him
the advantage, arranged in advance.
Regraded Unclassified
202
6
A
I don't think it will work out that way. I think
the salary will have to be paid at a regular rate
that will arrive at the proper amount.
Q
Coming back to Mr. Flynn's question, taking the
case of a movie actor who has three thirty-thousand-
dollar contracts, would he not be allowed to deduct
the ten percent he has to pay his agent, in filing
that?
A
No:
Q
That would be the same in the case of an advertising
agency, too, then, wouldn't it, that pays a com-
mission? That is, an individual who has an agency
that is a single proprietorship?
A
Well, he isn't-
Q
He isn't covered at all?
A
No.
Q
Take an author who writes a book and pays ten per-
cent to his agent, surely that ten percent is de-
ducted but he never gets it.
A
I don't see how he is covered, anyway. That is
not salary or wages.
or
Royalties don't come under it at all in any form?
A
No, generally speaking - unless the royalties are
paid as a form of salary.
Q
To return to this paying movie stars three salaries
from three different firms, if I understood your
interpretation to that, then any individual or any
firm who paid this said movie star any part of his
income during that year would be subject to prose-
cution for violation of the law even though he
might have in all good faith paid it far before
that star had gone over the limit.
A
I am sure you have seen the way we operate well
enough to know that we would not do that sort of
Regraded Unclassified
203
- 7 -
thing. In the case where an employee - or, rather,
a person hired by the corporation - had misrepre-
sented facts to the corporation, we would not in-
voke the sanctions in that kind of & case.
Q
But the point I was trying to bring out was that
under that interpretation literally the responsi-
bility would rest with any firm or corporation to
see to it to check on the other sources of income
of each employee.
A
Just 80 far as it relates to other salaries, yes,
Q
Have you any figures on the number of people
affected by the twenty-five-thousand-dollar limit?
A
I think there are twenty or twenty-four thousand
persons who received in excess of twenty-five
thousand dollars a year.
MR. CANN:
That is correct.
Q
That is not all earned income, though, is it? I
mean, that includes investment income and every-
thing?
MR. SULLIVAN:
That is earned income.
Q
Twenty-four thousand?
A
Twenty to twenty-four - it varies in there.
or
The list the Treasury gave out of corporation
salaries of over seventy-five thousand included
only seven hundred names for 1940.
MR. SULLIVAN: That is over seventy-five thousand, I think. The
question asked was over twenty-five thousand.
Q.
In the testimony before the Ways and Means
Committee on the super-tax I thought they said
only fourteen thousand would be hit by that tax.
It was a very small number, it seemed.
A.
I don't recall that figure. I am giving you the
figure I received from the Internal Revenue Bureau.
Regraded Unclassified
204
#: It 8
Q
Mr. Sullivan, in Section 4001 there appears twice
the same language, once applying to the War Labor
Board and once to the Commissioner of Internal
Revenue. It reads: "Any determination of the
Board mado pursuant to the authority conferred on
it shall be final and shall not be subject to
review by The Tax Court of the United States or
by any court in any civil proceedings." Now, that
applies to the Board, and then later to the
Cammissioner.
A
The determinations of fact made by the Board or by
the Commissioner of Internal Revenue are not review-
able.
Q
Does not that abrogate the constitutional right of
appeal to the courts. If it means to abrogate
that right doesn't it ascribe to the Board and to
the Commissioner something like infallibility?
A
No, I don't think there is any pretense of in-
fallibility here.
Q
Under what section of the law-
A
Excuse me, I have not answered the real part of the
question on the constitutionality. Mr. Wenchel, will
you take care of that? He asked as to whether or
not denying the right of appeal from a finding of
fact by the Commissioner of Internal Revenue or the
War Labor Board is a violation of the Constitution.
That was your question, wasn't it?
Q
Substantially that, yes.
MR. WENCHEL:
It is just a question of the determination of a
fact question, and I don't think that violates the
Constitution.
Q
In other words, whatever the War Labor Board says,
on the one hand, or whatever the Commissioner of
Internal Revenue says, is final? There is no
appeal anywhere?
MR. WENCHEL:
No appeal.
Regraded Unclassified
205
- 9 -
Q
There is an appeal on the law itself, isn't there?
MR. SULLIVAN: Certainly. Mr. Wenchel meant there was no appeal
from the findings of fact rendered by the Commissioner
or the Board.
MR. WENCHEL:
That is right.
Q
Like any other finding of fact by a Governmental
agency?
MR. WENCHEL:
A finding of fact, for instance, by the Board of
Tax Appeals has been held by the Supreme Court not
to be reviewable by a Circuit court.
Q
But an individual is not precluded from challenging
the constitutionality of this law by any means?
MR. WENCHEL:
Certainly not.
or
What is the section of the law that authorized
closing the courts to persons who might feel
themselves aggrieved?
MR.. WENCHEL:
The provision that authorizes the President to
control or fix salaries and wages.
Q
Could you cite me the section of the act, Mr.
Wenchel, that authorizes that?
MR. WENCHEL:
I don't have the Act before me. The President in
turn delegates that to the Commissioner or the War
Labor Board.
Q
Yes, I understand, but under what authority -
specific section?
MR. WENCHEL:
I don't have the Act here.
{
Just the broad general language, is it, or is
there some delegation?
MR. WENCHEL:
That is Section 1 of Public Number 729, Act of
October 2.
Regraded Unclassified
206
- 10 -
Q
You construe that as authority for closing the
courts to appeal?
MR. WENCHEL:
Pardon?
Q
Do you construe that as authority for closing the
courts to appeal?
MR. WENCHEL:
On finding of fact, yes. I again repeat that the
Supreme Court has upheld the findings of fact by
the Board of Tax Appeals as being final - the
findings of fact. Questions of law, of course,
can be appealed. But you cannot appeal a finding
of fact of the Board of Tax Appeals to the Circuit
courts.
Q
I am glad you brought that out because the im-
pression is pretty general you cannot appeal at
all. You could appeal on the application of all
those facts to the courts, could you not, sir?
MR. WENCHEL:
Pardon?
Q
I say the impression is pretty general that there
is no appeal. from these findings, but from what you
say I gather that there is an appeal on the application-
MR. WENCHEL:
An appeal on the question of law but not on the
question of fact.
Q
I see.
Q
How do you plan to coordinate your work with the
War Labor Board with regard to those employers
who are in the twilight zone between the War Labor
Board's jurisdiction and yours with respect to
salaries under five thousand?
MR. SULLIVAN: We think the twilight zone has been pretty well
eliminated. You Bee, under this order we have
all salaries except those below five thousand
dollars which are not executive, administrative,
or professional in character, and where the
executive, administrative, and professional em-
ployees are not represented by a duly-recognized
labor organization--
Regraded Unclassified
207
- 11 -
Q
Will you define executive, administrative and
professional?
A
Yes, Just take the same definition of those three
terms that are used in the regulations under the
Wages and Hours Act.
of
Mr. Sullivan, I have two questions here that are
just specific questions I would like to ask you.
In the first place, the law specifically - or,
the order specifically - permits the reduction of
salaries above five thousand dollars. Would that
be construed to prevent a union, for example,
negotiating and obtaining from an employer A con-
tract under which the employer agreed for the
duration of the contract not to reduce salaries
in excess of five thousand dollars?
A
I think you are not asking a tax question there,
are you?
Q
Well, I am meaning to.
A
I think the answer is no, but I am not sure that
we are the ones to pass on that. Maybe I did
not understand your question.
Q
Well, the question is - it has come up in my
office - where the union is negotiating a new
contract with the management and the union
wants to know whether it is proper to ask the
management to put in the contract A sentence
which says that salaries above five thousand
dollars shall not be reduced for the duration
of the contract.
A
That is quite proper - quite proyer as far as
these regulations are concerned.
Q
The other thing I am asked to Ask you is, in the
calculation of salaries of course dividends paid
to an employee would not be included AB a part
of the salary?
A
They would not where the dividends were bona fide
dividend payments.
Regraded Unclassified
208
- 12 -
Q
Mr. Sullivan, the War Labor Board is setting up
a regional arrangement to channel its cases. Are
you going to have any procedure like that?
A
Yes, you will find that there is provision for
that in the Treasury Decision I just gave you.
We, too, will have to have regional offices.
of
I wanted to ask, how would the difference over
the sixty-seven thousand be trented by the
corporation?
A
You mean in the event that a salary in excess of
that permitted by the regulations were paid? We
would disallow the entire salary payment to that
employee.
of
I mean the excess over sixty-seven thousand would
simply go into the corporation funds to be taxed
to the corporation.
A
You mean where they would reduce the salary of an
employee so it would be down to that figure?
Q
Presumably that is what they would do, is it
not?
A
Then, of course, the amount by which they reduce
would be retained by the corporation and hence
be subject to the corporate income tax.
Q
In the case of a movie actor who contracts and
is paid by the single picture in which he appears
and might be paid, say, fifty thousand dollars
a picture, and makes, say, three pictures a
year - how would that be considered?
A
He is in the employ of the one company?
Q.
Not necessarily.
Regraded Unclassified
209
- 13 -
A
Well, just as in these other cases I gave you,
it depends very largely upon the nature of the
contract and the type of employment.
{
Suppose it is different companies.
A
That is the same--
Q
He is not committing himself to work three
hundred and sixty-five days out of the year or
fifty-two weeks out of the year.
A
I understand that, but it doesn't make any
difference, because you will note that the regu-
lations cover a salary at whatever time the
salary is earned.
©
Suppose that man's contract definitely calls for
three pictures a year for one employer at twenty-
five thousand dollars a picture, net - whatever
would give him that - and he makes twenty-five
thousand and then says to the employer, "I can't
work any more because I can't earn any more, If and
the employer sues him for breach of contract, for
refusal to make other pictures.
A
I can't give you the answer to that. That is some-
thing to be straightened out between them.
Q
Isn't there an exemption for a single performance?
A
Not that I am aware of.
Q
Like getting payment for one job?
A
Not that I am aware of, if he is employed for that
job.
or
There is none?
A
I didn't see it in the regulations: I saw it in
the Wall Street Journal. (Laughter)
Q
The term salary could cover income from commissions?
That is, an advertising salesman--
Regraded Unclassified
210
- 14 -
That is right. There is a broad distinction to bear
in your minds, and that is that a wage is remunera-
tion paid on an hourly, daily, or piecework basis.
Q
But does not cover dividends as might be paid out
by the company to its employees?
Q
Wasn't that what you said?
A
Yes, bona fide dividends are not covered by this Act.
Q
What about bonuses? Can an employer be restricted
in the amount of a Ohristmas bonus he can give?
Well now, let's get that straight, because I think
it will be pretty important to a good many people.
The type of concern that usually gives its
employees five dollars and ten dollars at Christmas,
has been doing it year after year, certainly they
can go ahead and do it this year. Now, when you
come to talking about substantial bonuses, you
have run into something else. You will recall that
the provisions relating to salaries in excess of
twenty-five thousand dollars don't 60 into effect
until January 1, 1943 and because this 18 so, we
had to protect ourselves against very large salary
payments to some executives during the last three
months of this year. That is why you find the pro-
vision in the regulations that the total salary and
bonus payments made this year in the field where the
twenty-five thousand dollars limitation operates
shall not exceed the total salary and bonuses paid
last year. As a matter of fact, the way it works
out that provision does not affect anybody who 18
not receiving more than about fifty-four thousand
dollars this year. But please make it clear that
on these customary Christmas bonuses and payments
of that type to employees there is no prohibition.
Regraded Unclassified
211
- 15 -
Q
Mr. Sullivan, you just mentioned the five, ten,
and fifteen dollar bonuses as a usual Christmas
bonus for some concerns. Well, now--
A
Please don't use those figures as meaning that
twenty or twenty-five is bad. I was just merely
trying to distinguish that from the type of bonus
that would come under the other limitation.
Q
There are some corporations - I know of one news-
paper that gives bonuses regularly of a week or
two weeks or even three weeks pay - would that
be a normal bonus?
A
If they have done that customarily in the past.
Q
Suppose they do it in good years and are unable
to do it in bad years?
A
And this is a good year? It is still a customary
bonus.
{
How about a company that has never paid a bonus,
but has offered an incentive plan to its workers?
A
And that plan was prior to October 39
©
Yes, sir.
A
I think that that probably would be all right.
Q
That would include bonuses paid for particular
efforts or exceptional work or something like
that?
A
That is right.
Q
How about this kind of an attempt at evasion of the
effect of the twenty-five thousand dollar limitation-
where an individual makes a salary of a hundred
thousand dollars a year and prior to this year that he
is issued a block of stock by the company,
stock to pay dividends on the next year, and his
salary is cut back?
Regraded Unclassified
212
- 16 -
A
What is the date of the transfer of the securities?
Q
Any time between now and the first of the year.
A
Well, that is income to him.
Q
Yes, he would have to pay income tax on the income
this year.
A
Certainly.
Q
But at the same time he would get the benefit of
dividend payments next year which would bolster
his net income.
A
That doesn't make any difference. Suppose
instead of taking stock in that corporation
he bought War Bonds, which is a very good idea,
fellows-- (Laughter)
I mean if the stock is given to hin by the company
he works for?
A
All right, it is given to him as a bonus - it
is taxable as income. Now, it doesn't make any
difference whether he leaves that stock in the
corporation or whether he buys stock in a
corporation across the street.
of
Well, the picture I am trying to paint is this:
that by doing that the hundred thousand salary
he got this year will be reduced to a net of
twenty-five thousand dollars next year, but in
addition he would get dividends from the stock
which he did not hold.
A
Yes, but he might very well have put that money
in any other corporation. Dividends are not
included in this.
of
Yes, but he didn't actually have the money - the it
was given to him as stock, we will say, for
purpose of evading the twenty-five thousand
dollar limitation.
Regraded Unclassified
213
- 17 -
All right, he pays his income tax on it this year.
If as a result of that - and this is a transaction,
you told me, after October 3 - if as a result of
that his total salary for this year would be in
excess of his salary last year, that corporation
18 not going to be allowed to distribute that
stock to him.
Q
How about a case where a man has been doing work
for two years and gets paid on the third year
something like a hundred and fifty, a hundred and
seventy-five thousand?
A
As I told you, we are going to have another set
of regulations out in two weeks. Maybe we can
meet again at that time and I will be very happy
to answer that at that time.
Q
Mr. Sulliven, what about the practicing specialist,
the doctor, the lawyer, the professional in business
for himself who from a number of fees gets an in-
come considerably in excess of twenty-five
thousand dollars?
A
He is not covered by the Act. Now, remember that
I said earlier that the lawyer who works for a
single concern, the doctor who devotes all his
time to a single concern, is covered. There are
several in-between cases - between the case I
cite and the case you cite where he may or may
not be covered, and that will depend on the
facts in the individual case.
Q
I understood that distinction; that is the
reason I said from a large number of fees.
A
That is right. I just wanted to be sure I had
in mind what I thought you had in mind.
Q
Isn't it possible, Mr. Sullivan, for an attorney,
for instance, to act as the legal representative
for a company in an area and whatever is paid by
the company as a retainer would be considered as
a salary although in addition he might also have
A general practice?
Regraded Unclassified
214
- 18 -
A
That depends very largely upon the nature of
the retainer.
Q
Mr. Sullivan, but I mean in that case, what con-
sideration is given to the fees he then gets from
his general practice?
A
I think--
Q
That is, for instance, a man might be - we will
say a man 16 here in Washington and he is a legal
representative for General Motors and he is being
paid twenty-five thousand dollars a year for that
job, 80 that would not catch him on this deal,
but he 18 also operating a general practice here
in Washington picking up cases as they come along,
and that would--
A
He probably is not covered.
Q
In other words, he is presuming that some such
attorney might be seeking an evasion of this.
The simple way to do it in case he were employed
by one firm alone would be to scurry around and
dig him up three or four more clients.
A
That doesn't change the situation at all, no.
or
Why?
A
Because he already has a contract with this other
outfit that he devotes his exclusive time to them.
Q
Then a change in that contract between now and the
time the law goes into effect would be disregarded.
A
Well, I don't know. I don't know about that. It
depends upon whether it 18 obviously an attempt to
evade or whether it is something that they had in
good faith discussed before and have correspondence
on, and BO on and 80 forth. I an very hopeful that
the phrase you used "simple" to evade, will not come
to pass.
Q
What is the definition of a salary agreement? Is
that any agreement, also an oral agreement?
Regraded Unclassified
215
- 19 -
A
I think that that is pretty much a general term
and covers a variety of types of agreements.
Q
Mr. Sullivan, could & movie actor or a lawyer
evade this thing by being sure he worked for
three or four different companies during the
year instead of just one?
A
No.
OF
How about incorporated movie actors like Bing
Crosby, Incorporated?
A
I don't think that the factor of incorporation
would alter the circumstances,
or
Mr. Sullivan, in regard to the salaries over
twenty-five thousand for the rest of the year,
would a man like Eugene Grace, who has gotten
a large increase in '42 over 141, be compelled
to turn back that extra money?
A
When did he get the increase?
of
Earlier this year. That is presuming he did.
The newspapers report to that effect.
A
Yes, If he is up - I Am presuming he is over
the fifty-four thousand. If he isn't, we will
take un A collection for him. (Laughter) If
he is over the fifty-four thousand and he has
already been paid more than he received last
year, he is through collecting for 142.
or
Will he have to give back some?
A
No, he doesn't have to give back what he
received prior to October 3. the effective
date of the Act.
of
But it would be possible then for that man's
income to be terminated?
A
October 27, I beg your pardon, is the date
of the regulations.
Regraded Unclassified
216
- 20 -
Q
It would be possible then for his income to be
terminated as of October 27 if he has already
exceeded the fifty-four thousand?
A
It would. That is, when he exceeds the '41
salary providing he is still above fifty-four
thousand,
Q
Well, that is what meant, too, that is, in
the case of a man that has been getting--
A
I want to be sure that you had that AS excess
over the 141 salary.
O'
Yes.
Q
The regulation I read gives recognition to
other Federal taxes. Does it take into con-
sideration State taxes at all?
A
No.
or
That does not produce double taxation in any sense?
A
I think not. This is not a taxing statute.
Q
Mr. Sullivan, the employees of the departments
who are not organized would come under - that is,
the salaried employees would come under the
Bureau of Internal Revenue?
A
If they are administrative, executive, or
professional, yes.
D
Supposing they were not?
A
On their salary?
Q
Yes, on their salary.
A
What class of employees are you talking about?
of
About sales people, people employed in delivery
departments, packing departments - assuming they
were not organized.
A
They would come under the War Labor Board,
unless they are executive, managerial, or
professional?
Regraded Unclassified
217
- 21 -
of
Page 9, paragraph C, Mr. Sullivan - it says there
that "In any case in which an employee establishes
that, after resorting to his income from all
sources, he is unable, without disposing of assets
at 8. substantial financial loss resulting in undue
hardship, to meet payments for the following" -
does that mean that if he has cash in the bank or
securities and he can sell at the same price he
bought them for, that he must do that before he
gets an exemption?
That is a good question. You will note that the
preceding paragraph, paragraph (b), relates to
charitable contributions. Now, there is a little
distinction in the treatment of charitable contri-
butions from the treatment of life insurance,
payments on fixed obligations, and Federal taxes,
In the first CABE, of charitable contributions,
the test is whether or not his income from all
sources is insufficient to make the customary
payments, The test on life insurance premiums,
on taxes, and on payments on fixed obligations
is whether or not from all of his resources,
including his assets, he is able to do it. Now,
that necessarily vests in the Bureau a great
deal of discretion. Certainly we would not feel
that A person should sell a piece of real estate
he owned in A depression town - a town that was
temporarily going through a depression - in
order to meet these payments. There is a wide
fièld within which the Commissioner will have to
exercise his discretion as to what constitutes
R. hardship. and at what figure assets would have
to be disposed of to represent a substantial loss.
or
Well then, it means that if B. man has stock
which he can sell at the same, or virtually the
same, figure, at which he bought it, he must first
dispose of his stockholdings.
A
No, I wouldn't want to make that statement,
because although he is holding the stock at the
same figure that he paid for it, there are cer-
tain circumstances under which that might
represent a genuine hardship. I mean that stock
Regraded Unclassified
218
- 22 -
might be one that has sensonal fluctuations,
and it might be at the bottom of a cycle.
I won't attempt to interpret or predict the
rules the Commissioner will follow in exer-
cising that discretion. I think I can assure
you that he will exercise it wisely and
equitably.
Q
Suppose the man's only holdings are Government
bonds which are practically stable? Is he
required to cash those in?
A
I think that that would likely be trented very
much as though it were cash in the bank,
although I still am not predicting what rules
the Commissioner is going to follow.
Q
He would be required to cash them in?
A
No, I can't answer any of these questions
categorically. Those are matters for the
Commissioner of Internal Revenue to determine
on the facts in the individual case.
or
That means, Mr. Sullivan, that all these
questions of doubt mean that before the cor-
poration can fix the salary for any particular
individual, he has got to determine the finding
in that particular case?
A
That sounds like a pretty big order, but it
really isn't so. In the first place you haven't
got 50 many fellows who are earning above sixty-
seven thousand two hundred dollars. You haven't
got RO many of those who are on the borderline.
I don't think many of them are going into bank-
ruptcy next year, and although it sounds like
a pretty big order, when you boil it down we
are not going to have very many cases and it
is not going to be very difficult.
Q
Nevertheless, that is true where it 10 so7
A
That is right. If the corporation is paying
more than sixty-seven thousand two hundred
dollars to an employee who has had A bad
season at the track and hasn't anything in the
bank, then maybe they had better inquire. But
I don't think there are very many up in those
brackets who spent the season at the track,
Regraded Unclassified
219
- 23 -
Q
You said a minute ago that - I thought you said
that anybody below five thousand who is not in
an executive, administrative, or professional
capacity was handled by the War Labor Board.
Why is this clause in here, the Board handles
people under five thousand dollars provided
they are represented by labor organizations?
A
Well, the Board handles them. It handles the
administrative, executive and professional
people if they are represented by labor organ-
izations.
Q
I see, In other words--
A
It is "or," not "and." Do you get it? Anybody
alse troubled by that?
Q
I have another question back to this one where
the man has had a sizeable increase in his
salary in 142 prior to October 27, and that
would mean, then, that his income should be
shut off? However, it may be possible that
the man is not paid very frequently during the
year.
A
And that he has already exceeded-
Q
No. no, his payments so far have not come up
to what he got last year.
A
All right, he can still get un to what he got
last year.
Q
How do you arrive at that fifty-four thousand
dollar figure? I understand the sixty-seven
thousand, but I don't understand the fifty-four.
MR, SURREY:
It 1s computed on the same principle, except
that this year we do not have the Victory Tax.
The fifty-four thousand dollar figure is the
amount necessary before taxes to arrive at
twenty-five thousand dollars after taxes this
year, just as sixty-seven thousand will be the
amount for next year.
Regraded Unclassified
220
- 24 -
MR. SULLIVAN: To spell that out a little further, the reason
for that is that it is only the fellows above
twenty-five thousand dollars who are not
affected by this Act right this minute. The
rest of the Act and the rest of the regulations
don't affect them until January 1. It 1a
just this closing the loophole on increases
between now and December 31.
Q
Here 1e a question. I haven't seen anything
that indicates what kind of control there is
in the area between five thousand dollars and
the twenty-five thousand dollar net income -
what control is there to be exercised?
A
Exactly the same as there 1s above. We have
the power to disallow as a deduction the entire
salary that is paid in the case of an unauthor-
ized increase.
Q
But ien't there a provision in the original
Executive order setting up the Office of
Economic Stabilization that says there can be
increases over five thousand dollars if the
man is doing a better job, or something like
that?
A
Yes, and in these regulations that were issued
the day before yesterday.
Q
But the thing 1s, you 800, that it does not make
any difference whether the man who is earning -
if B man is earning over twenty-five thousand
dollars net and say he is working eight hours
a day, and if he works twelve hours a day next
year he gate nothing more - he cannot got any
more. But a man who is earning between five
thousand and twenty-five thousand net in privileged.
then, if he exerts his energies to still be
commonsated in advance - that is, you have not
frozen those salaries, have you?
A
That is correct.
Regraded Unclassified
221
- 25 -
of
Mr. Sullivan, in the case of a particular
Employee who threatens to leave and his boss
says, "I would like to give a raise if I can
get permission from the Commissioner of
Internal Revenue", can he agree to make that
raise retroactive to the date they made that
agreement? In other words, he says, "I will
give you a raise as of today if I can get
permission." Would the Commissioner of
Internal Revenue thon allow that to be
rotroactive?
A
I think that it will probably be worked out
that the increase will be permitted on the
approval by the regional office before
approval by the Commissioner here in Washington.
Q
How many regional offices are you setting up?
A
I don't know. We will probably have twelvo
or fiftoon and as many more as are needed to do
the job. I think I saw in the paper today -
and you follows can correct me - that the War
Labor Board is setting up ton, isn't it?
of
Ton.
A
Whon I say twolvo or fiftoon, I just don't
know - maybe it will work out to be ton and
maybo they will have to be in the samo places, I
am not sure. There will be seven of
them opened within the next ten days, and
Mr. Cann, Assistant to the Commissioner of
Internal Revenue, can give you the location of
those seven if you would like them.
Q
We would.
A
Go ahead, Norman.
MR. CANN:
Seattle, San Francisco, Los Angeles,
Chicago, Detroit, Philadolphia, Now York.
Q
How large a force, Mr. Sullivan, do you
estimate will be required to do this job?
Regraded Unclassified
26 -
222
A
I don't think we can answer that question
for you today.
Mr. Cann has suggested you might be interested
in knowing that to do this work we are not
taking in new men. We are selecting the
cream of the existing crop in the Bureau,
all men who have been with us more than ten
years, and are turning this job over to them.
We feel that this is a very important operation, and
even our best men are going to be taxed to do this
job quickly and efficiently.
Suppose part of a man's income is covered by
a statute and the rest is a private salary?
A
Well, I think you have asked ono of those other
questions that we would profer to put off until
we have drawn up the Treasury regulations. I don't
want to be cutting you short. I mean that is
just one of the things we have not decided.
Thero are a lot of them, and there will be
more.
Mr. Sullivan, how can you relate this sixty-
seven thousand figure with the tentative tax
which the employer is to arrive at which does
not include deductions, in which he applies
the rates under the regulations?
A
You see, that sixty-seven thousand two hundred
dollar figure is the amount of salary which after
taxes would leave the employee a net of twenty-
five thousand.
of
Presumably would include deductions and all,
but-
A
No, no deductions.
Q
Isn't it possible, too, that that figuro will
bo changed if and when Congress enacts another
tax measure increasing the rates?
A
You see, there is no figure in the regulations.
The language of the regulations works out to a
under the rates that are included in the Revenue Act
figure of sixty-seven thousand two hundred dollars
of 1942. Now, as those ratos change that figure
may change, if these regulations are still in
effect. But the language of the rogulations
will not nood to bo changed.
Regraded Unclassified
223
- 27 -
Mr. Sullivan, there is still one thing I am
not quite clear on--
A
You are way ahead of me, if there is only
one thing. (Laughter)
One thing I can think of at the moment. It is
this. This would prevent a man from getting a
higher salary from the same employer during
this period than he got before for the same
work. Does it prevent him from getting a
higher salary from some other employer if he
changes jobs, provided that other employer
has been paying a higher salary for that type
of work?
A
In some cases yes and probably in other cases
no. I think that probably some classifications
will be worked out here. I can't say that
thoy will. I can forosoc that there night be
a threat of such a shifting that it would be
necessary to work something out.
I think you realize that that is
something that applies more to wages than it does
to salaries.
or
It does as a rule. However, I was just
thinking of a stenographer, for example,
whom one man pays forty a week to and another
pays thirty. Can the girl leave the thirty
a week and take the forty, or does that
limitation apply to the salary she earns
rather than the company that pays it?
A
That is-
In the case of a man whose employer considers he
really should have been paid more for the
same sort of work is there any procedure
by which that employer-
A
Yes, he asks the Commissioner of
Internal Revenue - he sets forth all the facts
and says, "If I make this increase will it be
approved?"
Q
Isn't it true, though, that there are some
exceptions already, though-
A
Oh, yes.
It isn't necessary to come to the Commissioner
every time you want to raise a salary?
Regraded Unclassified
224
- 28 -
No, that is correct. You will find that on
page seven, and for those six Cases that are
listed there he can go ahead and make his increases.
Now, for instance, here is an increase for indivi-
dual merit within established salary rate changes.
That does not mean that every increase that is
made for morit is going to be approved because it
may turn out that some cousin of the boss who is
doing much poorer work this year than last year
gots ono of those. I noan, wo are not procluded
from inquiring into whother or not those wore
reasonable increases under this catogory.
O'
That would only be developed, though, if you
started an investigation, because if the employer
decided that he WAS giving a merit increase, the
langunge there indicates-
A
That is very likely so, but I am just pointing
out that this is not going to be permitted to
become a tochnique of evasion by just saying
that this comes under paragraph (e) or paragraph
(1), or something like that. It does not tie our
hands in the matter. Neither are the increases
restricted to these six classifications. There
will undoubtedly arise other good grounds for
increasing salarios.
Q
Is it necessary for an employer to have in
operation A standard employment salary in ordor
to make the raisos in those various classifications?
The language there indicated that that might be
the caso.
A
The langungo indicatos that that might bo tho
caso, but I think that thore will be many
instancos, of omployers who have loss formal
systems of advancement that will satisfy us.
or
They have to bo submitted, though?
A
Yos, in caso of doubt.
of
An employer can go around to one of tho regional
offices and find out whother a particular raiso
falls within one of those classifications, cnn ho?
Regraded Unclassified
225
- 29 -
A
Yes.
OF
The City of Philadelphia is planning a blanket
salary and wage increase for the beginning of
next year. What can they do about it, or
can't they-
A
When did they agree on it?
of
Some time before the campaign got hot. (Laughter)
But it is supposed to be a cost of living-
A
Was this before October 37
Q
It was an informal promise of the city
council before that date.
A
Let them bring it in and we will pass on it.
of
But a city may have--
of
What can you do about salary raises of
that sort by municipalities and States? Is
there any way you can reach municipalities?
A
Oh, yes, it is provided in here - lot me get
the correct langungo for you - "Thoso regulations
shall be applicable to any salary or wage paid
by the Unitod States, any State, torritory, or
possession or political subdivision thoreof, tho
District of Columbia or any agency or instrumontal-
ity of any one or more of the forogoing, except
whore the amount of such salary or wagos is fixed
by the statute."
or
I was just wondering how you could reach thom,
like the Governor of South Carolina-
A
Wo could 60 after tho employoo.
Q
"By statuto" - doos that mean wholly Fedoral
statute or would it bo possible to onnet a
Stato statuto?
A
Yes, State.
or
How about a municipal ordinance, which is not
considered a statuto?
A
That is not considered n statute.
Regraded Unclassified
226
- 30 -
Q
Mr. Sullivan, on this Philadelphia case the
War Labor Board has ruled with respect to wages
that increases promised before October 3 for a
future date have to be reviewed. That would be
different from the interpretation that you gave
with respect to salaries.
A
Then you correct what I said because we are
talking now largely about wages and not salaries.
That is their problem and not ours.
Q
With respect to your answer about the girl who
is getting thirty dollars now and she finds -
A
I don't think I answered it.
Q
I WAS wondering what your answer was.
A
I knew I did not answer it. I WAS coming back
to that. Let's go over that again. Go ahead.
Q
It WAS just & question in the case - let's say
we have two employers, one who normally pays
forty dollars a week for a stenographer and
the other normally pays thirty dollars a week
for a stenographer. The man who is paying
thirty cannot raise her to forty under that law?
A
That is right.
Q
But can the girl quit and go over to the man
who is paying forty if he needs A stenographer?
A
I think it may work out that way unless we can
devise something.
Q
Do you contemplate freezing persons in their
present jobs?
A
No, I don't think that is the function of the
Treasury Department.
Q
Could you tell us where classified employees
of the Federal Government stand under this?
Are they exempt?
A
Under the Ramspeck bill you mean?
Q
The Ramspeck bill is exempt?
A
Yes, the increases under it are permissible.
Regraded Unclassified
227
- 31 --
Q
What about the general salary determinations?
A
Well, you have got these six classifications.
Q
Are they covered by statute? Would you say that
a Federal employee working for you is covered by
statute or is he in the classification covered--
A
He 18 covered by the Ramspeck bill,
Q
Is he covered by this regulation?
Q
Is he subject to the regulation or is he exempt
from the whole regulation?
A
Well, he is and he isn't. He is subject to the
Act, but regulations permit increases under the
Ramspeck bill.
Q
How about an ordinary merit increase for &
lawyer who has been working for forty-five
hundred?
A
This is permissible and is already provided for
in the regulations.
a
What about an excentional increase that - say
you might be of the type that if he were a
private employer you would say, "That is not
a merit increase." Too much of an increase
seems to be an evasion.
A
I haven't had one since I got here. I don't
know what you are talking about. (Laughter)
No, I don't think you run into that very much,
do you?
of
Thank you, Mr. Sullivan.
A
I am very grateful to you all, and just
remember any time we can help clarify anything
please call us up because we are relying on
you fellows to help us do this job.
Regraded Unclassified
THE WHITE HOUSE
WASHINGTON
October 27, 1942
Dear Mr. Secretary:
Though I have been informally advised that my
salary is not covered by Section 7, Title II of Executive
Order 9250, and any regulations issued to make such section
effective, it is my desire that my salary as President shall
be subject to any regulations issued by the Director under
such section. I would, therefore, thank you to handle the
future payments of my salary BO as to comply with said
regulations.
I am mailing a copy of this letter to the Director
of Economic Stabilization for his information.
Very truly yours,
Honorable Secretary Henry of the Morgenthau Treasury Jr.
Washington, D. C.
Regraded Unclassified
FOR THE PRESS
229
OCTOBER227, 1942
FROM THE OFFICE OF JAMES F, BYRNES, DIRECTOR OF ECONOMIC STABILIZATION.
SUMMARY OF SALARY REGULATION
0. 8. S. #3
These regulations deal principally with the administrative
responsibilities given the War Labor Board and Treasury Department
in the regulation of salaries and with the limitation on salaries
not to exceed $25,000 a year, after certain taxes.
As to the $25,000 a year limit
This applies only to salaries because that is the
extent of our power under the Act. The control of income from
other sources could be affected only by taxation which requires
an Act of Congress.
1. The regulations forbid the payment to any employee
of an amount of salary which, after deduction of the
federal income taxes on the whole salary, would ex-
ceed $25,000.
2. Additional payments of salary may be made to take
care of customary charitable contributions where the
recipient of the salary has no other sources of income
which can be utilized for this purpose without undue
hardship.
3. Additional payments of salary may also be made to
take care of payments on life insurance policies and
fixed obligations which were in force on October 3,
1942 and past income taxes due. Such allowances how-
ever will be permitted only where the recipient of the
salary has no other source of income which can be
utilized for these purposes and only where the recipient
can show that he is unable to meet these payments with-
out disposing of assets at a substantial loss, involving
undue hardship.
4. No allowance, of course, will be made for life
insurance policies or fixed obligations entered into
after October 3, 1942.
5. Where a person has more than one employer, all his
salaries will be totalled to arrive at the $25,000 limit.
6. If a company pays a salary in excess of these regula-
tions, the entire salary paid, and not simply the amount
in excess of the $25,000, will be disregarded for tax
purposes.
7. Violations may also be punished under the penal
provisions of the Second Price Control Act.
8. For administrative reasons, it would be impractical
for this limitation on salaries at $25,000 after taxes
to be put into effect before January 1, 1943. However
in the meantine increases in salaries at this level
without the approval of the Treasury are forbidden along
with other salary increases,
9. This regulation applies to public salaries as well
as private ones, except for salaries specifically fixed
by federal or state statute. The President is the only
federal employee with a statutory salary exceeding
$25,000. The President was advised of this by the
Director. However, the President has written the Secre-
tary of Treasury asking that future payments of his
salary be made in compliance with the regulations.
Regraded Unclassified
230
- 2 -
As to Administrative Responsibilities.
These regulations bring under the War Labor Board
a. wage payments and
b. salary payments not in excess of $5,000
where such an employee is represented by
a duly recognized or certified labor
organization or where the employee is not
employed in a bona fide executive, adminis-
trative or professional capacity.
All other salaries come under the jurisdiction
of the Treasury Department.
This division of responsibility was worked out
by the War Labor Board and the Treasury Department.
-
Regraded Unclassified
231
TITLE 32 - NATIONAL DEFENSE
CHAPTER XVIII - OFFICE OF ECONOMIC STABILIZATION
SUBCHAPTER A - -- OFFICE OF THE DIRECTOR OF ECONOMIC STABILIZATION
PART 1001 -- WAGES AND SALARIES
By virtue of the authority vested in the President by the
Constitution and the laws of the United States, and particularly
by the Act of October 2, 1942, entitled "AN ACT to amend the
Emergency Price Control Act of 1942, to aid in preventing in-
flation, and for other purposes" (Public No. 729, 77th Congress,
2d Session), the following regulations are hereby promulgated.
Sec. 4001.1. Definitions. -- When used in these regulations,
unless otherwise distinctly expressed or manifestly incompatible
with the intent thereof --
(a) The term "Act" means the Act of October 2, 1942,
(Public No. 729. 77th Congress) entitled "AN ACT to amend
the Emergency Price Control Act of 1942, to aid in prevent-
ing inflation, and for other purposes".
(3) The term "Board" means the National War Labor Board
created by Executive Order No. 9017, dated January 12, 1942
(7 F.R. 237).
(c) The term "Commissioner" means the Commissioner of
Internal Revenue.
(d) The term "Code" means the Internal Revenue Code,
as amended and supplemented.
Regraded Unclassified
- 2 -
232
(e) The term "salary" or "salary payments" means
all forms of direct or indirect compensation which 18
computed on a weekly, monthly. annual or other compar-
able basis, except a wage basis, for personal services
of an employee irrespective of when rendered, including
bonuses, additional compensation, gifts, loans, commis-
sions, fees, and any other remuneration in any form or
medium whatsoever (excluding insurance and pension bene-
fits in 8 reasonable amount).
(f) The term "salary rate" means the rate or other
basis at which the salary for any particular work or
service is computed either under the terms of a contract
or agreement or in conformity with an established custom
or usage.
(g) The term "wages" or "wage payments" means all
forms of direct or indirect compensation which is com-
puted on an hourly or daily basis, a piece-work basis,
or other comparable basis, for personal services of an
employee irrespectove of when rendered, including bonuses,
additional compensation, gifte, commissions, loans, fees,
and any other remuneration in any form or medium whatso-
ever (but excluding insurance and pension benefits in a
reasonable amount).
(h) The term "insurance and pension benefits in &
reasonable amount" means
(1) contributions by an employer to an em-
ployees' trust or under an annuity plan which
meets the requirements of section 165(a) of the
Code, and
Regraded Unclassified
233
- 3 -
(2) amounts paid by an employer on ac-
count of premiums on insurance on the life of
the employee which amounts are deductible by
the employer under section 23(a) of the Code,
except that if such amounts are includible in
the gross income of the employee under the Code,
the amount in respect of each employee may not
exceed five percent of the employee's annual
salary or wages determined without the inclusion
of insurance and pension benefits.
(i) The terms "approval by the Board" and "de-
termination by the Board" shall, except as may be
otherwise provided in the regulations or orders of
the Board, include an approval or determination by
an agent of the Board duly authorized to perform such
act; and such approval or determination. if subsequent-
ly modified or reversed by the Board, shall nevertheless
for the purpose of these regulations, be deemad to have
boon continuously in effect from its original date until
the first day of the payroll period immediately following
the reversal or modification or until such lator datn
as the Board may direct.
(j) The terms "approval by the Commissioner" and
"detormination by the Commissioner" shall, except as may
b.) otherwise provided in regulations prescribed by the
Commissioner, include an approval or dotormination by an
Regraded Unclassified
234
-
agent of the Commissioner duly authorized to perform such
act; and such approval or determination, if subsequently
modifind or reversed by the Commissioner, shall novertheless
for the purpose of those regulations, bn doomed to have been
continuously in effect from its original date until the first
day of the payroll period immodiately following reversal or
modification or until such later dato as the Commissioner
may direct.
Soct. 4001.2. Authority of National War Labor Board --
The Board shall, subject to the provisions of sections 1. 2, 3. 4.
8. and 9 of Title II of Executive Order No. 9250, of October 3.
1942, have authority to determine whether any --
(a) Waga payments, or
(b) Salary payments to an employee totaling in
amount not in excess of $5,000 por annum where such
employee
(1) in his rolations with his employer is
represented by a duly recognized or certified
labor organization, or
(2) is not employed in a bona fide execu-
tive, administrativo or professional capacity
are made in contravention of the Act, or any rulings, orders or
regulations promulgated therounder. Any such determination by the
Board, made under rulings and order issued by it, that a payment is
in contravention of the Act, or any rulings, orders, or regulations
pronulgated thersunder, shall be conclusive upon all Executive De-
partments and agencies of the Government in determining the costs
or expenses of any employer for the purpose of any law or regulation.
Regraded Unclassified
235
- 5 -
either heretofore or hereafter enacted or promulgated, including
the Emergency Price Control Act of 1942 or any maximum price regu-
lation thereof, or for the purpose of calculating deductions under
the revenue laws of the United States, or for the purpose of de-
termining costs or expenses under any contract made by or on behalf
of the United States. Any determination of the Board made pursuant
to the authority conferred on it shall be final and shall not be
subject to review by The Tax Court of the United States or by
any court in any civil proceedings.
Sec. 4001.3. Rules, Orders and Regulations of Board. --
The Board may make such rulings and issue such orders or regula-
tions as it deems necessary to enforce and otherwise carry out
the provisions of these regulations.
Sec. 4001.4. Authority of the Commissioner of Internal
Revenue. -- The Commissioner shall have authority to determine,
under regulations to be prescribed by him with the approval of
the Secretary of the Treasury, whether any salary payments other
than those specified in paragraph (b) of section 4001.2 of these
regulations are made in contravention of the Act, or any regulations
or rulings promulgated thereunder. Any such determination by the
Commissioner, made under such regulations, that a payment is in
contravention of the Act, or any rulings or regulations promulgated
thereunder, shall be conclusive upon all Executive Departments and
agencies of the Government in determining the costs or expenses of
any employer for the purpose of any law or regulations, either here-
tofore or hereafter enacted or promulgated, including the Emergency
Price Control Act of 1942 or any maximum price regulation thereof,
Regraded Unclassified
236
- 6 -
or for the purpose of calculating deductions under the revenue
laws of the United States, or for the purpose of determining
coste or expenses under any contract made by or on behalf of
the United States. Any determination of the Commissioner made
pursuant to the authority conferred on him shall be final and
shall not be subject to review by The Tax Court of the United
States or by any court in any civil proceedings. No increase in
a salary rate approved by the Commissioner shall result in any
substantial increase of the level of costs or shall furnish the
basis either to increase price ceilings of the commodity or ser-
vice involved or to resist otherwise justifiable reductions in
such price ceilings.
Sec. 4001.5. Rules and Regulations of Commissioner. -
The Commissioner may prescribe such regulations with the approval
of the Secretary of the Treasury, and make such rulings R8 he
deems necessary, to enforce and otherwise carry out the provisions
of these regulations.
Sec. 4001.6, Salary Increases. -- In the case of a salary
rate of $5,000 or less per annum existing on the date of the ap-
proval of these regulations by the President and in the case of
A salary rate of more than $5,000 per annum existing on October 3.
1942, no increase shall be made by the employer except as provided
in regulations, rulings, or orders promulgated under the authority
of these regulations. Except as herein provided, any increase made
after such respective dates shall be considered in contravention
of the Act and the regulations, rulings, or orders promulgated
thereunder from the date of the payment if such increase is made
Regraded Unclassified
231
237
- 7 -
prior to the approval of the Board or the Commissioner, as the
case may be.
In the case, however, of an increase made in accordance
with the terms of a salary agreement or salary rate schedule and
as a result of
(a) individual promotions or reclassifications,
(b) individual merit increases within established
salary rate ranges,
(c) operation of an established plan of salary
increases based on length of service,
(d) increased productivity under incontive plans,
(e) operation of a traince system, or
(f) such other reasons or circumstances as may be
prescribed in orders, rulings, or regulations, promul gatod
under the authority of these regulations,
no prior approval of the Board or the Commissioner is roquired.
No such increase shall rosult in any substantial increase of
the lovel of costs or shall furnish the basis either to increase
price coilings of the commodity or sorvice involved or to rosist
otherwise justifiable reductions in such price coilings.
Soc. 4001.7. Docreases in salarios of less than $5,000. --
In the caso of a salary rata oxisting as of the close of October 3,
1942, under which en employee is paid a salary of loss than $5,000
per annum for any particular work, no docrease shall be mado by
the employer bolow the highest solary rato paid 10r such work
botwoen January 1, 1942, and September 15, 1942, unloss to correct
gross inoquities or to aid in the effective prosecution of the
Regraded Unclassified
238
- 9 -
(not including section 466) as if such amount of salary were the
net income (after the allowance of credits applicable thereto),
the surtax net income, and the Victory tax net income, respective-
ly, and (2) without allowance of any credits against any of such
taxrs.
(b) In any case in which an employee establishes that his
income from All sources is insufficient to most payments custom-
arily made to charitable, educational or other organizations de-
scribed in section 23 (o) of the Code, without rosulting in undue
hardship, then an additional amount sufficient to meet such payments
MAY be Daid or authorized to be naid to or accrund to the account of
any employee or received by him during the taxable year even though
it excends the amount otherwise commuted under paragraph (a).
(c) In any CASO in which an employee establishes that, after
resorting to his income from all sources, he is unable, without
disposing of Assets At A substantial financial loss resulting in
unduo hardship, to ment payments for the following:
(1) Required payments (excluding accelerated
payments) by the employee during the taxablo year
on any life insurance policies on his life which
were in force on October 3, 1942,
(2) Required payments (excluding accelerated
payments) made by the employee during the taxable
year on any fixed obligations for which he was
obligated on October 3, 1942,
(3) Federal income taxes of the employee for
prior taxable years which are naid during the tax-
able year, not including Federal income taxes on
Regraded Unclassified
239
8 I I
war. Any decrease in such salary rate after October 3, 1942,
shall be considered in contravention of the Act and the regula-
-
tions, rulings, or orders promulgated thereunder if such decrease
is nade rior to the approval of the Board or the Commissioner,
as the case may be.
Sec. 4001.8. Decreases in salaries of over $5,000. - In the
case of a salary rate existing as of the close of October 3, 1942,
under which an employee is paid & salary of $5,000 or more per
annum, no docrease in such rate mado by the employer shall be con-
sidered in contravention of the Act and the regulations promulgated
thereunder (see section 5 (b) of the Act); provided, however, that
if by virtue of such ducrease the new salary paid to the employee
is less than $5,000 por annum, thon the validity of such decrease
below $5,000 shall be determined under the provisions of section
4001.7 of these regulations.
Sec. 4001.9. Limitation on Certain Salaries. - (a) No
amount of salary (exclusive of any amounts allowable under para-
graphs (b) and (c) of this soction) shall 00 paid or authorized to
be paid to or accrued to the account of any employee or received
by him during the taxable year which, after reduction by the
Fodoral incomo taxes on the amount of such salary, would exceed
$25,000. The amount of such Fedoral incono taxes shall be do-
tormined (1) by applying to the total amount of salary (exclusive
of any amounts allowable under paragraphs (b) and (c) of this
section) paid or accrued during the taxable year, undiminished by
any deductions, the ratos of taxes imposed by Chapter 1 of the Code
Regraded Unclassified
- 10 -
240
the allowance under paragraph (a) for any prior year, an
additional amount sufficient to mont such payments may be
vaid or authorized to be paid to or accrued to the account of
any amployee or received by him during the taxable year, oven
though it exceeds the amount otherwise commuted under peragraph (R).
(a) In the case of An individual who is an employee of more
then one parson, the aggregate of the salarios received by such
individual shall, under such circumstances AS may be set forth
in regulations promulgated under the authority of these regula-
tions, be treated ns if noid by A single employer,
(A) No amount of salary shall be paid or authorized to be
paid to or accrued to the account of any employee or received by
him after the date of annroval of these regulations by the Presi-
dont and before Jenuary 1, 1943, if the total salary naid, nu-
thorized, accrund or received for the calonder year 1942 exceeds
the amount of salary which would otherwise be allowable under
paragraph (a) of this section end also exceeds the total salary
DAID, authorized, accrued or received for the calendar year 1941,
(f) Except ns provided in paragraph (e) of this section,
the provisions of this section shall be applicable to salary unid
or accrued after December 31, 1942, regardless of when authorized
and regardless of any contract or agreement made before or after
such date.
Sec. 4001.10. Effect of unlawful payments. -- (a) If any
wage or salary payment 1s made in contravention of the Act or the
regulations, rulings or orders promulgated thereunder, as deter-
mined by the Board or the Commissioner, AS the CASA may bA, the
entire amount of such payment shall be disregarded by the Execu-
tive Departments and all other agencies of the Government in
Regraded Unclassified
241
- 11 -
determining the costs or expenses of any employer for the purpose
of any law or regulation, including the Emergency Price Control
Act of 1942, or any maximum price regulation thereof, or for the
purpose of calculating deductions under the revenue laws of the
United States, or for the purpose of determining costs or expenses
of any contract made by or on behalf of the United States. The
term "law or regulations" as used herein includes any law or
regulation hereafter enacted or promulgated. In the case of
wages or salaries decreased in contravention of the Act or
regulations, rulings or orders promulgated thereunder, the amount
to be disregarded is the amount of the wage or salary paid or ac-
crued. In the case of wages or salaries increased in contravention
of the Act or regulations, rulings or orders promulgated there-
under, the amount to be disregarded is the amount of the wage or
salary paid or accrued and not merely an amount representing an
increase in such wage or salary. In the case of a salary in ex-
cess of the amount allowable under section 4001.9 of these regu-
lations which is paid or accrued to an employee during his tax-
able year in contravention of the Act or regulations, rulings or
orders promulgated thereundor, the amount to be disregarded is
the full amount of such salary and not merely the amount repre-
senting the excess over the amount allowable under such section
4001.9.
(b) Payments made or received in violation of any regula-
tions, rulings or orders promulgated under the authority of the
Act are subject to the penal provisions of the Act.
242
- 12 -
Sec. 4001.11. Exempt employers. -- The provisions of sec-
tions 4001.6, 4001.7 and 4001,8 of these regulations shall apply
only in the case of an employer who employs more than eight indi-
vidulla.
Sec. 4001.12. Sulary Allowances under Internal Revenue Code. --
No provision of these regulations shall preclude the Commissioner
from disallowing as a deduction in computing Federal income tax any
compensation paid by an employer (regardless of the number of em-
ployees and of the amount paid to any employee) in excess of a
"reasonable allowance" in accordance with the provisions of section
23 (a) of the Code.
Sec. 4001.13. Statutory Salaries and Wages. -- These regu-
lations shall be applicable to any salary or wages paid by the
United States, any State, Territory or possession, or political
subdivision thereof, the District of Columbia, or any agency or
instrumentality of any one or more of the foregoing, except where
the amount of such salary or wages is fixed by statute.
Sec. 4001.14. Territories and Possessions. -- The Board
and the Commissioner shall have the authority to exempt from the
operation of these regulations any wages or salaries paid in any
Territory or possession of the United States where deened neces-
sary for the effective administration of the Act and these regula-
tions.
Sec. 4001.15. Regulations of Economic Stabilization Director. --
The Director shall have authority to issue such regulations as he
deems necessary to anend or modify these regulations.
Regraded Unclassified
243
- 13 -
Sec. 4001.16. Effect of Executive Order No. 9250. - To the
extent that the provisions of Executive Order No. 9250, dated
October 3. 1942 (7 F.R. 7871) are inconsistent with these regula-
tions, such provisions are hereby superseded.
JAMES F. BYRNES
Economic Stabilization Director
Approved:
FRANKLIN D. ROOSEVELT
The White House.
October 27, 1942.
Regraded Unclassified
244
COPY
October 27, 1942.
Dear Mr. Cohen:
Enclosed herewith are an original and three copies
of the proposed regulations respecting control of salaries
and wages to be issued under the provisions of the Act of
October 2, 1942. These regulations embody the changes
discussed in your office yesterday.
Sincerely yours,
Stanley S. Surrey,
Associate Tax Legislative Counsel.
Mr. Benjamin V. Cohen,
Assistant to the Director,
Office of Economic Stabilization,
The White House,
Washington, D. C.
Inclesures.
Regraded Unclassified
245
TITLE 32 - NATIONAL DEFENSE
CHAPTER VIII -- OFFICE OF ECONOMIC STABILIZATION
SUBCHAFTER
REGULATIONS OF DIRECTOR
PART 4010 -- REGULATIONS RELATING TO
WAGES AND SALARIES
Sec. 4010.1. Introductory. -- By virtue of the authority
vested in the President by the Constitution and the laws of the
United States, and particularly by the Act of October 2, 1942,
entitled "Ali ACT to amend the Emergency Price Control Act of
1942, to aid in preventing inflation, and for other purposes"
(Public No. 729, 77th Congress, 2d Session), the following regu-
lations are hereby promulgated,
Sec. 4010.2. Definitions. -- When used in these regulations,
unless otherwise distinctly expressed or manifestly incompatible
with the intent thereof --
(a) The term "Act" means the Act of October 2, 1942,
(Public No. 729, 77th Congress) entitled "AN ACT to amend
the Emergency Price Control Act of 1942, to aid in prevent-
ing inflation, and for other purposes".
(b) The term "Board" means the National War Labor Board
created by Executive Order No. 9017, dated January 12, 1942
(7 F.R. 237).
(c) The term "Commissioner" means the Commissioner of
Internal Revenue.
(d) The term "Code" means the Internal Revenue Code,
as amended and supplemented.
Regraded Unclassified
- 2 -
246
(e) The term "salary" or "salary payments" means
all forms of direct or indirect compensation which is
computed on a weekly, monthly, annual or other compar-
able basis, except a wage basis, for personal services
of an employee irrespective of when rendered, including
bonuses, additional compensation, gifts, loans, commis-
sions, fees, and any other remuneration in any form or
medium whatsoever (excluding insurance and pension tene-
fits in a reasonable amount).
(f) The term "salary rate" means the rate or other
basis at which the salary for any particular work or
service is computed either under the terms of a contract
or agreement or in conformity with an established custom
or usage.
(g) The term "wages" or "wage payments" means all
forms of direct or indirect compensation which is com-
puted on an hourly or daily basis, a piece-work basis,
or other comparable basis, for personal services of an
employee irrespective of when rendered, including bonuses,
additional compensation, gifts, commissions, loans, fors,
and any other remuneration in any form or nedium whatso-
ever (but *xcluding insurance and pension benefits in a
reasonable anount).
(h) The term "insurance and pension benefits in a
reasonable amount" means
(1) contributions by an employer to an -m-
players' trust or under an annuity plan which
meets the requirements of section 165(a) of the
Code, and
Regraded Unclassified
247
- 3 -
(2) amounts paid by an employer on ac-
count of premiums on insurance on the life of
the employee which amounts are deductible by
the employer under section 23(a) of the Code,
except that if such amounts are includible in
the gross income of the employee under the Code,
the anount in respect of each employee may not
exceed five P rcent of the employee's annual
salary or wages determined without the inclusion
of insurance and pension benefits.
(1) The terms "approval by the Board" and "de-
termination by the Board" shall, except as may be
otherwise provided in the regulations or orders of
the Board, include an approval or determination by
an agent of the Board duly authorized to perform such
act; and such approval or determination, if subsequent-
ly modified or reversed by the Board, shall nevertheless
for the purpose of these regulations, be deened to have
been continuously in effect from its original date until
the first day of the payroll period imnediately following
the reversal or modification or until such later date
as the Board may direct.
(j) The terms "approval by the Commissioner" and
"determination by the Commissioner" shall, except as may
be otherwise provided in regulations prescribed by the
Commissioner, include an approval or determination by an
Regraded Unclassified
248
248
- 4 -
agent of the Commissioner duly authorized to perform such
act; and such approval or determination, if subsequently
modifi or reversed by the Commissioner, shall nevertheless
for the purpose of these regulations, be deened to have been
continuously in effect from its original date until the first
day of the payroll period immediately following reversal or
modification or until such later date as the Commissioner
may direct.
Sec. 4010.3. Authority of National War Labor Board. --
The Board shall, subject to the provisions of sections 1, 2, 3, 4,
B, and 9 of Title II of Executive Order No. 9250, of October 3,
1942, have authority to d=termine whether any ----
(1) Wage payments, or
(2) Salary payments to an employee totaling in
abount not in excess of $5,000 per unnum where such
employee
(a) in his relations with his employer is
represented by a duly recognized or certified
labor organization, or
(b) is net enployed in a bona fide execu-
tive, administrative or professional capacity
are nade in contravention of the Act, or any rulings, orders or
regulations promulgated thereunder. Any such determination by the
Board, made under rulings and order issued by it, that a payment is
in contravention of the Act, or any rulings, orders, or regulations
pronulgated therounder, shall be conclusive upon all Executive De-
partments and agencies of the Government in determining the costs
or expenses of any employer for the purpose of any law or regulation,
Regraded Unclassified
249
- 5 -
either heretofore or horeafter enacted or promulgated, including
the Emergency Price Control Act of 1942 or any naximin price regu-
lution thereof, or for the purpose of calculating deductions under
the revenue laws of the United States, or for the purpose of de-
termining costs or expenses under any contract nude by or on behalf
of the United States. Any determination of the Board nade pursuant
to the authority conferred on it shall be final and shall not be
subject to peview by The Tax Court of the United States or by
any court in any civil proceedings.
Sec. 4010.4. Rules, Orders und Regulations of Board. --
The Board may make such rulings and issue such orders or regula-
tions as it deems necessary to enforce and otherwise carry out
the provisions of these regulations.
Sec. 4010.5. Authority of the Connissioner of Internal
Revenue. - The Connissioner shull have authority to determine,
under regulations to be prescribed by hin with the approval of
the Secretary of the Treasury, whether any salary payments other
than those specified in subparagraph (2) of section 4010.3 of these
regulations are nade in contruvention of the Act, or any regulations
or rulings promulgated thereunder. Any such determination by the
Commissioner, nade under such regulations, that a payment is in
contravention of the Act, or any rulings or regulations promulgated
thereunder, shall be conclusive upon all Executive Departments and
agencies of the Government in determining the costs or expenses of
any employer for the purpose of any law or regulations, either here-
tofore or hereafter enacted or promulgated, including the Energency
Price Control Act of 1942 or any naximum price regulation thereof,
Regraded Unclassified
250
- 6 -
or for the purpose of calculating deductions under the revenue
laws of the United States, or for the purpose of determining
costs or expenses under any contract made by or on behalf of
the United States. Any determination of the Commissioner nade
pursuant to the authority conferred on hin shall be final and
shull not be subject to review by The Tax Court of the United
States or by any court in any civil proceedings, No increase in
a salary rate approved by the Commissioner shall result in any
substantial increase of the level of costs or shall furnish the
basis either to increase price ceilings of the commodity or ser-
vice involved or to resist otherwise justifiable reductions in
such price ceilings.
Sec. 4010.6. Rules and Regulations of Commissioner. -
The Commissioner may prescribe such regulations with the approval
of the Secretary of the Treasury, and nake such rulings us he
deems necessary, to enforce and otherwise carry nut the provisions
of those regulations.
Sec. 4010.7. Salary increases. - In the case of a salary
rate of $5,000 or less per annun existing on the date of the ap-
proval of these regulations by the President and in the case of
a salary rate of more than $5,000 per annum existing on October 3,
1942, no increase shall be made by the employer except as provided
in regulations, rulings, or orders promulgated under the authority
of these regulations. Except as herein provided, any increase made
after such respective dates shall be considered in contravention
of the Act and the regulations, rulings, or orders promulgated
thereunder from the date of the payment if such increase is made
Regraded Unclassified
251
- 7 -
prior to the approval of the Board or the Commissioner, as the
Case may be.
In the case, however, of an increase made in accordance
with the terms of a salary agreement or salary rate schodule and
as a r-sult of
(a) individual promotions or reclassifications,
(b) individual merit increases within ^stublished
sulary rate ranges,
(c) operation of an established plan of sulary
increases based on length of service,
(d) increased productivity under incentive plans,
(a) operation of a traince system, or
(f) such other reasons or circumstances as may be
prescribed in orders, rulings, or regulations, promulgated
under the authority of these regulations,
no prior approval of the Bourd or the Commissioner is required.
No such increase shall result in any substantial increase of
the level of costs or shall furnish the basis either to increase
price cellings of the commodity or service involved or tn resist
otherwise justifiable reductions in such price ceilings.
Sec. 4010.8. Decreases in salaries of less than $5,000. --
In the case of a salary rate existing as of the close of October 3,
1942, under which an employee is puid a salary of less than $5,000
per annum for any particular work, no decrease shall be made by
the employer below the highest salary rate paid for such work
between January 1, 1942, and September 15, 1942, unless to correct
gross inequities or to aid in the effective prosecution of the
Regraded Unclassified
252
- 8 -
war, Any decrease in such salary rate after October 3, 1942,
shall be considered in contravention of the Act and the regula-
tions, rulings, or orders promulgated thorounder 1f such decrease
is mado prior to the approval of the Board or the Commissioner,
as the case may be.
Sec. 4010.9. Docreases in salaries of over $5,000. -- In the
case of a salary rate existing as of the close of October 3, 1942,
under which an employee is paid a salary of $5,000 or more per
annum, no decrease in such rate mado by the employer shall be con-
sidored in contravention of the Act and the regulations promulgated
thoroundor (see scction 5 (b) of the Act); provided, however, that
if by virtue of such docrease the now salary paid to the employee
1E loss than $5,000 por Annum, thon the validity of such decrease
below $5,000 shall be determined under the provisions of section
4010,8 of those regulations.
Soc. 4010.10. Limitation on Cortain Salaries. -- (n) No
amount of salary (exclusive of any amounts allowable undor para-
graphs (b) and (c) of this soction) shall be paid or authorized to
be paid to or accrued to the account of any employee or received
by him during the taxable year which, aftor reduction by the
Federal income taxes on the amount of such salary, would exceed
$25,000. The amount of such Federal income tax 8 shall be do-
termined (1) by applying to the total amount of salary (exclusive
of any amounts allowable under paragraphs (b) and (c) of this
section) paid or accrund during the taxablo year, undiminishod by
any deductions, the rates of taxes inposed by Chapter 1 of the Cade
Regraded Unclassified
253
- 9 -
(not including section 466) as if such amount of salary were the
net income (after the allowance of credits applicable thereto),
the surtax net income, and the Victory tax net income, respective-
ly, and (2) without allowance of any credits against any of such
taxes.
(b) In any case in which an employee establishes that his
income from all sources is insufficient to meet payments custon-
arily made to charitable, educational or other organizations item
scribed in section 23 (o) of the Code, without resulting in undue
hardship, then an additional amount sufficient to meet such payments
may be paid or authorized to be paid to or accrued to the account of
any employee or received by hin during the taxable year even though
it exceeds the amount otherwise computed under paragraph (a).
(c) In any case in which an employee establishes that, after
resorting to his incone from all sources, he is unable, without
disposing of assets at a substantial financial loss resulting in
undue hardship, to neet payments for the following:
(1) Required payments (excluding accelerated
payments) by the employee during the taxable year
on any life insurance policies on his life which
were in force on October 3, 1942,
(2) Required payments (excluding accelerated
payments) made by the employee during the taxable
year on any fixed obligations for which he was
obligated on October 3, 1942,
(3) Federal income taxes of the employee for
prior taxable years which are paid during the tax-
able year, not including Federal income taxes on
Regraded Unclassified
- 10 -
254
the allowance under paragraph (a) for any prior year, an
additional amunt sufficient to neet such payments may be
paid or authorized tn be paid to or accrued to the account of
any employee or received by hin during the taxable year, even
though it exceeds the amount otherwise conputed under puragraph (a),
(e) In the case of an individual who is an employee of more
than one person, the addregate of the salaries received by such
individual shall, under such circumstances as Day be set forth
in regulations pronulecated under the authority of these regula-
tions, be treated as if paid by a single employer.
(e) No amount of salary shall be paid or authorized to be
paid to or accrued to the account of any employee or received by
hin after the date of approval of these regulations by the Presi-
dent und before January 1, 1943, if the total salary paid, au-
thorized, accrued or received for the calendar year 1942 excerds
the amount of salary which would otherwise be allowable under
paragraph (a) of this section and also exceeds the total salary
paid, authorized, accrued or received for the calandar your 1941.
(f) Except as provided in paragraph (e) of this section,
the provisions of this section shall be applicable to salary paid
or accrued after December 31, 1942, regardless of when authorized
and regardless of any contract or agreement made before or after
such date.
Sec. 4010.11. Effect of unlawful payments. -- (a) If any
Wave or salary payment is nade in contravention of the Act or the
regulations, rulings or orders promul.gated thereunder, 48 lieter-
mined by the Board or the Commissioner, as the case may be. the
entire amount of such payment shall be disregarded by the Execu-
tive Departments and all other agencies of the Government in
Regraded Unclassified
255
- 11 -
determining the costs or expenses of any employer for the purpose
of any law or regulation, including the Emergency Price Control
Act of 1942, or any maximum price regulation thereof, or for the
purpose of calculating deductions under the revonue laws of the
United States, or for the purpose of determining costs or expenses
of any contract mado by or on behalf of the United Stntes, The
term "law or regulations" as used heroin includos any law or
regulation hereafter enacted or promulgated, In the case of
wages or salaries decreased in contravention of the Act or
regulations, rulings or orders promulgated therounder, the amount
to be disregarded 1s the amount of the wage or salary paid or AC-
crued, In the case of wages or salaries increased in contravention
of the Act or regulations, rulings or orders promulgated there-
under, the amount to be disrogarded is the anount of the wage or
salary paid or accrued and not meroly An amount ropresenting an
increase in such wage or salary. In the case of a salary in CX-
coss of the amount allowable under section 4010.10 of these rogu-
lations which is paid or accrued to an employee during his tax-
able year in contravention of the Act or regulations, rulings or
ordors promulgated therounder, the amount to be disrogarded 1s
the full amount of such salary and not morely the amount repre-
senting the excess over the amount allowable under such section
4010.10.
(b) Payments made or received in violation of any regula-
tions, rulings or orders promulgated under the authority of the
Act are subject to the penal provisions of the Act.
Regraded Unclassified
256
- 12 -
JUC. 4010.12. Exempt employers. - The provisions of sec-
tions 4010.7, 4010.8 and 4010.9 of those regulations shall apply
only in the case of An employer who employs more than eight indi-
viduals.
Sec. 4010,13. Salary Allowances under Internal Revenue Cade-
No provision of those regulations shall procludo the Connissioner
from disallowing as a deduction in computing Federal income tax any
componsation paid by nn enployer (regardless of the number of on-
ployecs and of the amount prid to any employee) in excess of n
"reasonable allowance" in accordance with the provisions of section
23 (a) of the Code.
Sec. 4010.14. Statutory Salarios and Wages. - These regu-
lations shall be applicable to any salary or wages paid by the
United States, any State, Territory or possession, or political
subdivision thereof, the District of Columbia, or any agency or
instrumentality of any one or more of the forogoing, except where
the amount of such salary or wages is fixed by statute.
Sec. 4010.15. Territories and Possessions. -- The Board
and the Commissioner shall have the authority to exempt from the
operation of these regulations any wagne or salarios paid in any
Territory or possession of the United States where docned neces-
sary for the offective administration of the Act and thoso regula-
tions.
Sec. 4010,16. Regulations of Economic Stabilization Director. -
The Director shall have authority to issue such regulations ne he
doens necossary tn arend or modify these regulations.
Regraded Unclassified
257
- 13 -
Sec. 4010.17. Effect of Executive Order No. 9250. -- To the
extent that the provisions of Executive Order No. 9250, dated
October 3, 1942 (7 F.R. 7871) are inconsistent with these regula-
tions, such provisions are hereby superseded.
Economic Stabilization Director
Approved:
The White House.
258
OCT 2 4 1942
My dear Director:
I full sending you copies of proposed regulations
respecting the handlin of calaries under the Price
Stabilization Act. Except for several changes, which
1 understand have been informally cleared with you,
these regulations conform to the docisions made in
your office on Friday. The changes mentioned above are
as follows:
The status of Federal, State and minicipal
employees has been unchanged from that existing in prior
regulations as the ar Labor Board believes that it will
be advisable at this time not to divide jurisdiction of
Federal, State and menicipal employees in a fashion
different from the manner in which jurisdiction is divided
between Treasury Department and the ar Labor Board as
respects all other employees; no explicit provision is
made for delegation of authority to the oversments of
the various territories and possessions, inasmuch AT the
section authorizing the Director to issue regulations
will permit such delegation of authority in the future
if it becomes advisable.
These regulations have the joint approval of the
Treasury Department and the War Labor Board.
Sincerely,
(Signed) Bandolph Paul
Non. James F. Byrnes,
Director, Office of Economic
Stabilization,
The White House,
ashin ton, D. C.
sen/kfa 10/24/42
Regraded Unclassified
259
33 NATIONAL DEPARTMENT
CHAPTER VIII OFFICE OF ECONOMIC STABILIZATION
SUBCHAPTER
REGULATIONS OF DIRECTOR
PART 4010 REGULATIONS RELATING 90
WAGES AND SALARIES
See, 4010.1. Introductory. - by virtue of the authority
vested in the President by the Constitution and the laws of the
United States, and particularly by the Act of October 2, 1942,
entitled "AN ACT to and the Imergency Price Centrol Act of
1943, to aid in preventing inflation, and for other purposes"
(Publie Be. 729, 77th Congress, 24 Session), the following regn-
latiens are hereby premigated.
See. 4010.3. Definitions. - When used in these regulations,
valess otherwise distinctly expressed or manifestly incompatible
with the intent thereof -
(a) The term "дог" means the Act of October 2,
1942 (Public No. 729, 77th Congress) entitled "AN AOT
to amound the Emergency Price Centrol Ast of 1942, to
aid in proventing inflation. and for other purposes."
(b) the term "Board" neans the National Var
Labor Beard created by Recentive Order No. 9017,
dated January 12, 1942 (7 1.1. 237).
(a) The term "Coumissioner" neens the Commis-
siener of Internal Revenue,
(a) the term "Gode" mosts the Internal Revenue
Code, as amated and supplemented.
Regraded Unclassified
- 2 -
260
(o) The term "salary" or "salary payments" means
all forms of direct or indirect compensation which is
computed on a veekly, monthly, annual or other compar-
able basis, except a wage basis, for personal services
of an employee irrespective of when rendered, including
bonuses, additional compensation, gifts, leans, commis-
sions, fees, and any other remineration in any form or
medium whatsoever (excluding insurance and pension bene-
fits in a reasonable amount).
(f) The term "salary rates means the rate or other
basis at which the salary for any particular work or
service is computed either under the terms of a contract
or agreement or in conformity with an established custom
or usage.
(g) The term "vages" or "wage payments" means all
forms of direct or indirect compensation which is com-
pated on an hourly or daily basis, a piece-work basis,
or other comparable basis, for personal services of an
employee irrespective of when rendered, including bonuses,
additional compensation, gifts, commissions, loans, fees,
and any other remmeration in any form or medium whates-
over (but excluding insurance and pension benefits in a
reasonable amount).
(h) The term "insurance and pension benefits in a
reasonable anount" means
(1) contributions by an employer to an -
playees' trust or under an annuity plan which
meets the requirements of section 165(a) of the
Code, and
Regraded Unclassified
261
- 3 -
(3) anounts paid by an employer on as-
count of premiums on insurance on the life of
the employee which amounts are deductible by
the employer under section 23(a) of the Code,
except that if such anounts are includible in
the gross income of the employee under the Code,
the amount in respect of each employee may not
exceed five per cont of the employee's annual
salary or vages determined without the inclusion
of insurance and pension benefits.
(1) The terms "approval by the Board and "de-
termination by the Board" shall, except as my be
otherwise provided in the regulations or orders of
the Board, include an approval or determination by
an agent of the Board duly authorised to perform such
not; and such approval or determination, if subsequent-
ly modified or reversed by the Beard, shall nevertheless
for the purpose of these regulations, be deemed to have
boen continuensly in effect from its original date until
the first day of the payrell period immediately following
the reversal or medification or until such later date
as the Board my direct.
(j) The terms "approval by the Commissioner" and
"determination by the Commissioner" shall, except as may
be otherwise provided in regulations prescribed by the
Commissioner, include an approval or determination by an
Regraded Unclassified
262
- 4 -
agent of the Commissioner duly authorized to perform such
act; and such approval or determination, if subsequently
modified or reversed by the Commissioner, shall nevertheless
for the purpose of these regulations, be deemed to have been
continuously in effect from its original date until the first
day of the payroll period immediately following reversal or
modification or until such later date as the Commissioner
may direct.
See. 4010.3. Authority of National Var labor Board. -
The Board shall have authority to determine whether any -
(1) Wage payments, or
(2) Salary payments to an employee totaling in
amount not in excess of $5,000 per annus where such
employee
(a) in his relations with his employer is
represented by a duly recognised or certified
labor organisation, or
(b) is net employed in & bona fide execu-
tive, administrative or professional capacity
are made in contravention of the Act, or any rulings, orders or
regulations promulgated thereunder. Any such determination by the
Beard, made under rulings and orders issued by it, shall be cos-
elusive upon all Executive Departments and agencies of the Govern-
ment in determining the costs or expenses of any employer for the
purpose of any law or regulation, either heretofore or hereafter
emacted or premulgated, including the Emergency Price Control Act
of 1942 or any narimus price regulation thereof, or for the
Regraded Unclassified
263
- 5 -
purpose of calculating deductions under the revenue laws of
the United States, or for the purpose of determining costs or
expenses under any contrast made by or on behalf of the United
States. Any determination of the Board made persuant to the
authority conferred on it shall be final and shall not be
subject to review by The Tax Court of the United States or by
my Court in any civil proceedings.
See, 4010.4. Rules. Orders and Regulations of Board. -
The Beard my nake weeh rulings and issue such orders or rega-
lations as 18 deems necessary to enforce and otherwise carry out
the provisions of the Act.
Sec. 4010.5. Authority of the Commissioner of Internal
Revenue. -- the Commissioner shall have authority to determine,
under regulations to be prescribed by his with the approval of
the Secretary of the Treasury, whether any salary payments other
than those specified in subparagraph (2) of section 3 of these
regulations are made in contravention of the Act, or any regula-
tiens promulgated thersunder. Any such determination by the
Commissioner made under such regulations shall be conclusive upon
all Executive Departments and agencies of the Government in do-
termining the costs or expenses of exy employer for the purpose
of any law or regulations. either heretofore or hereafter enacted
or promulgated, including the Emergency Price Centrel Act of
1942 or any maximum price regulation thereof, or for the purpose
of calculating deductions under the revenue laws of the United
States, or for the purpose of determining ceste or expenses
under any contract made by or on behalf of the United States.
Any determination of the Commissioner made pursuant to the
Regraded Unclassified
264
- 6 -
authority conferred on him shall be final and shall not be
subject to review by The Tax Court of the United States or
by any Court in any civil proceedings.
See. 4010.6. Rules and Regulations of Commissioner. -
The Commissioner may prescribe sush regulations with the approval
of the Secretary of the Treasury, and make such rulings as he
deems necessary, to enforce and otherwise carry out the provisions
of the Act.
See, 4010.7. Salary increases.- In the case of a salary
rate of $5,000 or less per annum existing on the date of the
approval of these regulations by the President and in the case
of & salary rate of more than $5,000 par annum existing on
October 8, 1942, no increase (except as provided in section 4010.10)
shall be made by the employer except as provided in regulations,
rulings, or ordere presulgated under the authority of these regu-
lations. Except as herein provided, any increase made after such
respective dates shall be considered in contravention of the Act
and the regulations, rulings, or orders promulgated thereunder
from the date of the payment if such increase is made prior to
the approval of the Board or the Commissioner, as the case my be.
In the case, however, of an increase made in accordance
with the terms of a salary agreement or salary rate schedule and
as a result of
(a) individual promotions or reclassifications,
(b) individual morit increases within established
salary rate ranges,
(e) operation of an established plan of salary
increases based on length of service,
Regraded Unclassified
265
- 7 -
(d) increased productivity under incentive plans,
(o) operation of a trainee system, or
(f) such other reasons or circumstances as may be
prescribed in orders, rulings, or regulations, promulgated
under the authority of these regulations,
no prior approval of the Board or the Commissioner is required.
No such increase shall result in any substantial increase of
the level of costs or shall furnish the basis either to increase
price coilings of the commodity or service involved or to resist
otherwise justifiable reductions in such price ceilings.
See. 4010.8. Decreases in salaries of less than $5,000. -
In the case of a salary rate existing as of the close of October 3,
1942, under which an employee is paid a salary of less than $5,000
per annual for say particular work, no decrease shall be made by
the employer below the highest salary rate paid for such work
between January 1, 1942, and September 15, 1942, unless to correct
gross inequities or to aid in the effective prosecution of the
var. Any decrease in such salary rate after October 3, 1942,
shall be considered in contravention of the Act and the regulations,
rulings, or orders promulgated thereunder if such decrease is made
prior to the approval of the Board or the Commissioner, as the
case may be.
Sec. 4010.9. Decreases in salaries of over $5,000. - In the
case of a salary rate eristing as of the close of October 3, 1942,
under which an employee is paid a salary of $5,000 or more por
annus, no decrease in such rate made by the employer shall be con-
sidered in contravention of the Act and the regulations promulgated
thereunder (== section 5 (b) of the Act): provided, however, that
Regraded Unclassified
266
- 8 -
if by virtue of such decrease the new salary paid to the employee
is less than $5,000 per anam, then the validity of such decrease
below $5,000 shall be determined under the provisions of section
4010.8 of these regulations.
800. 4010.10. Limitation on Certain Salariec. - (a) No
amount of salary (exclusive of any amounts allowable under para-
graphs (b) and (c) of this section) shall be paid or authorised to
be paid to or accrued to the account of any employee or received
by him during the taxable year which, after reduction by the
Federal income taxes on the amount of such salary, would exceed
$25,000. The amount of such Federal income taxes shall be de-
termined (1) by applying to the total amount of salary (exclusive
of any amounts allowable under paragraphs (b) and (e) of this
section) paid or accrued during the taxable year, undiminished by
any deductions, the rates of taxes imposed by Chapter 1 of the Code
(not including section 466) as if such amount of salary were the
net income (after the allowance of credits applicable thereto), the
surtax net income, and the Victory tax not income, respectively, and
(2) without allowance of any credits against any of such taxes.
(b) In any case in which an employee establishes that his
income from all sources is insufficient to meet payments customarily
made to charitable, educational or other organizations described in
section 23 (o) of the Code, without resulting in undue hardship,
then an additional amount sufficient to meet such payments may be
paid or authorised to be paid to or accrued to the account of any
employee or received by his during the taxable year even though
it exceeds the amount otherwise computed under paragraph (a).
Regraded Unclassified
267
- 9 -
(e) In any case in which as employee establishes that,
after resorting to his income from all cources, he is unable,
without disposing of assets at a substantial financial loss 10-
sulting in undue hardship, to meet payments for the following:
(1) Required payments (excluding accelerated
payments) by the employee during the taxable year
on any life insurance policies oui his life which
were in force on October 3, 1942,
(2) Required payments (excluding accelerated
payments) made W the employee during the taxable
year on any fixed obligations for which he was
obligated on October 3, 1942,
(3) Federal income taxes of the employee for
prior taxable years which are paid during the tax-
able year. not including Federal income taxes on
the allowance under paragraph (a) for any prior year,
an additional amount sufficient to meet such payments say be paid
or authorized to be paid to or accrued to the account of any -
ployee or received by him during the taxable year, even though it
exceeds the amount otherwise computed under paragraph (a).
(d) In the case of an individual who is an employee of more
than one person, the aggregate of the salaries received by such
individual shall, under such circumstances as say be set forth
in regulations promulgated under the authority of these regula-
tions, be treated as if paid by a single employer.
(a) No amount of salary shall be paid or authorized to be
paid to or accrued to the account of any employee or received by
Regraded Unclassified
268
- 10 -
his after the date of approval of these regulations by the
President and before January 1, 1943, if the total salary paid,
authorised, accrued or received for the calendar year 1942 ex-
coods the amount of salary which would otherwise be allowable
under paragraph (a) of this section and also exceeds the total
salary paid, authorized, accrued or received for the calendar
year 1941.
(f) Except as provided in paragraph (e) of this section,
the provisions of this section shall be applicable to salary paid
or accrued after December 31, 1942, regardless of when authorised
and regardless of any contract or agreement made before or after
such date.
See. 4010,11. Effect of unlawful payments. -- (a) If any
vage or salary payment is made in contravention of the Act or the
regulations, rulings or orders promulgated thersunder, as deter-
wined by the Board or the Commissioner, as the case may be, the
entire amount of such payment shall be disregarded by the Execu-
tive Departments and all other agencies of the Government in
determining the costs or expenses of any employer for the purpose
of any law or regulation, including the Emergency Price Control
Act of 1942, or say maximum price regulation thereof, or for the
purpose of calculating deductions under the revenue laws of the
United States, or for the purpose of determining costs or expenses
of any contract made by or on behalf of the United States. The
term "law or regulations" as used herein includes any law or
regulation hereafter enacted or promulgated. In the case of
wiges or salaries decreased in contravention of the Act or
Regraded Unclassified
269
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regulations, rulings or orders prosulgated therewnder, the
amount to be disregarded is the amount of the vage or salary
paid or ascrued. In the case of vages or salaries imcreased
in contravention of the Act or regulations, rulings or orders
promulgated thersunder, the amount to be disregarded is the
anount of the wage or salary paid or accrued and net nerely
an amount representing an increase in such vage or salary.
In the case of a salary in excess of the amount allowable under
section 4010.10 of these regulations which is paid or accrued to
an employee during his taxable year in contravention of the Act
or regulations, ralings or orders premulgated thereunder, the
amount to be disregarded is the full amount of such salary and
not morely the amount representing the excess over the amount
allowable under such section 4010.10.
(b) Payments made or received in violation of any regula-
tions, rulings or orders presulgated under the authority of the
Act are subject to the penal provisions of the Act.
See. 4010.12. Anount employers. - The previsions of sections
4010.7, 4010.8 and 4010.9 of these regulations shall apply only in the
case of an employer who employs more than eight individuals.
See. 4010.13. Salary Allovances under Internal Revenue Code. -
No provision of these regulations shall preclude the Commissioner
from disallowing as a deduction in computing Federal income tax
say compensation paid by an employer (regardless of the number
of employees and of the amount paid to any employee) in excess of
a "reasonable allowance in accordance with the provisions of
section 28 (a) of the Code.
Regraded Unclassified
270
- 13 -
Sec. 4010.14. Statutory Salaries and Wores. - These regu-
lations shall be applicable to any salary or vagos paid by the
United States, any State, Territory or possession, or political
subdivision thereof, the District of Columbia, or any agency or
instrumentality of any one or more of the foregoing, except where
the amount of such salary or vages is fixed by statute.
Sec. 4010.15. Territories and Possessions. - The Board
and the Commissioner shall have the authority to exempt from the
operation of these regulations any wages or salaries paid in any
Territory or possession of the United States where decmed necess-
ary for the effective administration of the Act and these regula-
tions.
Sec. 4010.16. Regulations of Economic St-bilization Director. -
The Director shall have authority to iesue such regulations as he
deems Recessary to amend or modify these regulations.
Sec. 4010.17. Effect of Executive Order No. 9260. - % the
extent that the provisions of Executive Order No. 9250, dated
October 3, 1942 (7 F.R. 7871) are inconsistent with these regula-
tions, such provisions are hereby superseded.
Economic Stabilisation Director
Approved:
The White House.
Regraded Unclassified
271
COPY
October 26, 1942.
Dear Mr. Russell:
I am enclosing a memorandum respecting the appli-
cation of the proposed salary regulations to the salary
of the President. This is being sent to you at the request
of Mr. Randolph Paul.
Sincerely yours,
/s/ Stanley S. Surrey.
Stanley S. Surrey,
Associate Tax Legislative Counsel.
Mr. Donald Russell,
Assistant to the Director,
Office of Economic Stabilization,
The White House,
Washington, D. C.
Enclosure.
CONFIDENTIAL
Regraded Unclassified
272
Regraded Unclassified
MENORANDUM
October 26, 1942.
Purmant to section a of the Act of October 2, 1942, providing
that the President may not under the authority of such Act suspend
any other law or part thereof, the proposed regulations regarding
salaries provide in section 14 that the regulations shall not be
applicable to governmental salaries fixed by statute. Under
section 14, consequently, the $25,000 salary limitation would be
inapplicable to Federal salaries. Thue, the salary of the President
is not affected by that limitation. If the President desires
voluntarily to bring himself within the spirit of that limitation,
he could do se by giving back to the United States that portion of
his $75,000 salary which is in excess of the amount allovable under
the $25,000 limitation.
Assuming that no salary allowance is made under the undue hard-
ship clause for charitable contributions, life insurance premiums,
required payments on fixed obligations, and Federal taxes, the amount
allovable under the limitation would be, at the rates of tax fixed
by the Revenue Act of 1942, $67,200. It should be noted that the
first year to which the $25,000 limitation as such 10 applicable is
1943, 80 that salaries for 1942 are not affected by that limitation.
CONFIDENTIAL
888:hdr 10-26-42
273
274
October 3, 1942.
MEMORANDUM
TO:
Secretary Morgenthau
FROM: Mr. Gaston
Wrr.
Miss Roberta Barrows, at the White House,
attempted to get me on the phone at 6:00 o'clock
last night when I was on my way home. I called her
back and she told me that there was to be B. meeting
with the President at the White House at 8:45, which
I was asked to attend. She asked me if I knew what
was to be the subject of the meeting. I told her I
did not. She then told me the names of some of
those who were to be present, including Jesse Jones,
Francis Biddle, Leon Henderson, Harold Smith, Sam
Bledsoe, of Agriculture, and Will Davis. A little
later Randolph Paul got me on the phone and said
that Sam Rosenman had called him over to the White
House during the afternoon and that he was about to
go back again. Sam had shown him a penciled draft of
a so-called directive, presumably to be addressed to
the director of the new Economic Stabilization Authority,
instructing him that salaries were to be limited to
$25,000 8. year, after taxes, and Randolph was told
that this was to be enforced through the War Contracting
Agencies and also through the Bureau of Internal Revenue,
which was to disallow expenses for salaries above this
amount. Rosenman had also told Randolph, casually and
incidentally, that the Executive Order creating the
Economic Stabilization Authority had been redrafted
so as to leave out the paragraph specifically exempting
the Secretary of the Treasury from obedience to
directives by the head of the Authority, but that in-
stead reference to Treasury powers had been eliminated
from the paragraph outlining the functions of the new
Authority. Sam explained that the reason for this was
that there had been objection by the other departments
and agencies to this specific exemption of the Treasury
Department and that it stuck out like a sore thumb,
but that the new language would accomplish the same
effect. Randolph was permitted to glance at the para-
graph outlining the Authority's functions and it
Regraded Unclassified
275
- 2 -
seemed to confirm what Rosenman had said. Not knowing
definitely what was to be the subject of the evening's
meeting and in view of these conversations between
Rosenman and Paul, it seemed to me that it might be
better for Randolph to represent the Treasury at the
meeting. I put in a call for you over the Treasury
switchboard and found that you were then talking to
Stephens, who had called me a few minutes before to
ask me for advice as to whether he should call you
and tell you about the meeting and that I was planning
to go. Randolph called me back after his second trip
to the White House to report that Rosenman had accepted
his redraft of their proposed directive. While I was
talking with him the operator told me that you were on
the line in response to my call and I asked Randolph
to stay on. I outlined the situation to you and
Randolph said he thought I should go, since I would
be in a better position to ask for delay on both the
matters he had discussed with Rosenman. You agreed
with this and said you would rely on me to protect the
Treasury's interests.
I reached the Treasury about 8:15 and reviewed the
situation with Randolph before going to the White House.
The President saw us in the study at about 9:00 p.m.
Those present were: Senators Barkley and Prentiss Brown,
Congressman McCormack, Jesse Jones, Francis Biddle, Leon
Henderson, Harold Smith, Will Davis, of the War Labor
Board, Sam Bledsoe, of Agriculture, Oscar Cox and Isadore
Lubin. Sam Rosenman stuck his head in the door a couple
of times, once to call Oscar Cox out for a conference,
but was not present through the meeting. Harry Hopkins
came in as the meeting was breaking up.
Almost the entire meeting was devoted to & dis-
cussion of the Stabilization Bill, which had gotten
through conference and been passed late in the after-
noon. The President had the official No. 1 copy of
the engrossed bill before him and signed it near the
end of the conference. I noticed that Leon Henderson,
who sat at my right, also had a copy of the engrossed
bill. Francis Biddle had only the latest Senate print,
vir
Regraded Unclassified
276
- 3 -
which was the same B.S I had with me. The President
congratulated the leaders, especially Barkley and Brown,
as having done a magnificent job and asked them a
number of questions as to their understanding of the
bill. He showed particular interest in the compromise
language which, after providing that parity shall be
the guide on agricultural prices, permits the "weighting"
of the cost of farm labor as & final factor. The con-
sensus appeared to be that this language did not mater-
ially disturb the parity formula. The President, in
this connection, took considerable time in talking
about his conversations with people in various parts
of the country during his trip about agricultural labor.
The substance was that the problem of farm labor scarcity
was being solved by the use of school children and by
townspeople who suspended business in order to get out
and help with the harvest. A dairyman from Maine told
him that he expected to take care of his hand-milking
problem by getting boys attending school to help him,
and the President told how various towns in California
had shut up shop for a day or two so that the whole
population could go out and work the fields. He thought
this was a matter that Lubin couldn't get at in his
statistics.
Something was said about the policies which the
different agencies were to follow in giving interpreta-
tion to the Act and the President said flatly that the
agencies would not determine the policies but that they
would get their orders from "Mr. X". Turning to me,
he said that would not apply to the Treasury Department
and explained in much the same terms as Rosenman had
explained to Randolph Paul that he had thought it best
to eliminate the specific exemption as to the Treasury
and instead to eliminate from the powers of the Authority
all reference to Treasury functions. "The Treasury will
not be affected," he said. After the meeting Davis said
to me that the President's statement in that respect
was not quite accurate because of the provision in the
bill regulating salaries. I told him I knew of that
provision.
Regraded Unclassified
277
- 4 -
There was reference to the so-called Norris Amend-
ment to the bill, which would have given the President
complete power over public utility rates. The substitute
provision permits "timely intervention" by agencies of
the Federal Government in any application for change of
rates by any regulating authority and there is a 30-day
waiting period before the hearing. Barkley said that
Norris accepted this substitute provision and he believed
it would accomplish the necessary results, with which
the President seemed to agree, as he pointed out that
it would give an opportunity for delay and for complete
publicity.
The President questioned the various people around
the room as to their opinion of the effectiveness of the
bill. Everybody agreed that it gave very broad powers
to the President, but doubt was expressed that it would
completely prevent increases in the cost of living.
Oscar Cox thought it might hold increases within a range
of 10%, to which Sam Bledsoe agreed, and the President
called them pessimistic. When the President said that
the director of the Authority would have complete con-
trol over policy, Barkley interjected that he had dis-
cussed with Leon Henderson the policies to be applied
and had given assurances to the Senate based on Leon's
statements. He thought it was necessary to interpret
the bill in the light of Congressional intent and that
this statement of his ought to be taken into consideration.
The President said he would issue a statement on
the signing of the bill, and Barkley said he hoped he
would be able to include some praise of the manner in
which Congress had acted. The President agreed he would
do this and in that connection mimicked the almost tear-
ful plea made to him by Sam Rayburn when the President's
message asking for the bill was about to go up. Rayburn
had asked the same thing as Barkley was now asking.
After the meeting broke up, I spoke to the Presi-
dent and said that I hoped his statement would not
give the impression that this bill was the complete
answer to controlling the cost of living. I said we
wis
Regraded Unclassified
278
- 5 -
thought that there must be a further tax increase and
some fiscal legislation to control spending. The
President replied that he intended to say in his state-
ment that the authority granted under this bill must
be supplemented by other legislation in the tax and
fiscal field.
m
279
-
280
2393
FOR THE PRESS
IMEDIATE RELEASE
OCTOBER 3, 1942
EO 9250
The President, last night, immediately after signing
the anti-inflation bill passed by the Congress yesterday, in-
structed Price Administrator Henderson to fix rent ceilings
throughout the entire United States in all areas, city and rural
alike. A copy of this letter to the Price Administrator is
attached.
He also issued instructions to the Price Administrator
to place ceilings immediately upon all agricultural commodities
which were exempt under the original Emergency Price Control Act
but which are no longer exempt under the statute passed yester-
day. These commodities include chickens, eggs, cheese, butter,
potatoes, and flour. A copy of the President's letter is at-
tached hereto.
The President issued the following statement with refer-
ence to the statute:
"The Congress has done its part in helping substantially
to stabilize the cost of living. The new legislation removes the
exemption of certain foods, agricultural commodities and related
products from the price controls of the Emergency Price Control
Act, with the result that I have today taken action to stabilize
90% of the country's food bill. It leaves the parity principle
unimpaired. It reaffirms the powers of the executive over wages
and salaries. It establishes a floor for wages and for farm prices.
"I am certain that from now on this substantial stabili-
zation of the cost of living will assist greatly in bringing the
war to a successful conclusion, will make the transition to peace
conditions easier after the war, and will receive the whole-
hearted approval of farmers, workers and housewives in every part
of the country."
Today the President signed an executive order relating
to wages, salaries, profits and farm prices. A copy of the
executive order is attached.
The President today announced the appointment of Mr.
Justice James F. Byrnes as the Director of Economic Stabilization.
Mr. Justice Byrnes has resigned from the Supreme Court to accept
this position.
The President in announcing the appointment of Justice
Byrnes said:
"Justice Byrnes is one of the foremost authorities in
governmental administration in the United States. He knows the
oconomic problems of this country whether they concern labor, the
farmer, the consumer, the small retail store, or the manufacturer.
I would never have asked him to resign from the Supreme Court were
it not for the fact that this job is one of the most important
positions in this country. I know the American people can be sure
that in keeping down the cost of living ho will be fair to every-
one.
"This position calls primarily for judicial considera-
tion. The organization will therefore be small because the ad-
ministrative action will be carried out by the existing agencies.
"Justice Byrnes' patriotic action in accepting this ap-
pointment deserves the praise and commendation of all our citi-
zens."
Regraded Unclassified
281
EXECUTIVE ORDER
9250
PROVIDING FOR THE STABILIZING OF THE NATIONAL ECONOMY
By virtue of the authority vested in me by the Consti-
tution and the statutes, and particularly by the Act of October 2,
1942, entitled "An Act to Amend the Emergency Price Control Act
of 1942, to Aid in Preventing Inflation, and ior Other Purposes",
as President of the United States and Commander in Chief of the
Army and Navy, and in order to control so far as possible the
inflationary tendencies and the vast dislocations attendant
thereon which threaten our military effort and our uomestic
economic structure, and for the more effective prosecution of
the war, it is hereby ordered as follows:
TITLE I
Establishment of an Office of Roonomic Stabilization
1. There in established in the Office for Emergency
Management of the Executive Office of the President an Office of
Economic Stabilization at the head of which shall be an Economic
Stabilization Director (hereinafter referred to as the Director).
2. There is established in the Office of Reonomic
Stabilization an Economic Stabilization Board with which the
Director shall advise and consult. The Board shall consist of
the Secretary of the Treasury, the Secretary of Agriculture, the
Secretary of Commerce, the Secretary of Labor, the Chairman of
the Board of Governors of the Federal Reserve System, the Director
of the Bureau of the Budget, the Price Administrator, the Chair-
man of the National war Labor Board, and two representatives each
of labor, management, and farmers to be appointed by the President.
The Director may invite for consultation the head of any other de-
partment or agency. The Director shall serve as Chairman of
the Board.
3. The Director, with the approval of the President,
shall formulate and develop as comprehensive national economic policy
relating to the control of civilian purchasing power, prices, rents,
wages, salaries, profits, rationing, subsidies, and all related
matters -- all for the purpose of proventing avoidable increases
in the cost of living, cooperating in minimizing the unnecessary
migration of labor from one business, industry, or region to
another, and facilitating the prosecution of the war. To give
effect to this comprehensive national economic policy the Director
shall have power to issue directives on policy to the Federal du-
partments and agencies concerned.
-
4. The guiding policy of the Director and of all de-
partments and agencies of the Government shall be to stabilize
the cost of living in accordance with the Act of October 2, 1942;
and it shall be the duty and responsibility of the Director and
of all departments una agencies of the Government to cooperate in
the execution of such administrative programs and in the develop-
ment of such legislative programs as may be necessary to that end.
The administration of activities related to the national economic
policy shall remain with the departments and agencies now responsible
for such activities, but such administration shall conform to the
directives on policy issued by the Director.
TITLE II
Mage and Salary Stabilization Policy
1. No increases in wage rutes, granted as a result of
voluntary agreement, collective bargaining, conciliation, arbitra-
tion, or otherwise, and no decreases in was rates, shull be
Regraded Unclassified
282
- 2 -
authorized unless notice of such increases or decreases shall
have been filed with the National War Labor Board, and unless
the National War Labor Board has approved such increases or
decreases.
2. The National War Labor Board shall not approve
any increase in the wage rates prevailing on September 15, 1942,
unless such increase is necessary to correct maladjustments or
inequalities, to eliminate substandards of living, to correct
gross inequities, or to aid in the effective prosecution of the
war.
Provided, however, that where the National War Labor
Board or the Price Administrator shall have reason to believe
that a proposed wage increase will require a change in the price
ceiling of the commodity or service involved, such proposed
increase, if approved by the National War Labor Board, shall
become effective only if also approved by the Director.
3. The National War Labor Board shall not approve a
decrease in the wages for any particular work below the highest
wages paid therefor between January 1, 1942 and September 15,
1942, unless to correct gross inequities and to aid in the
effective prosecution of the war.
4. The National War Labor Board shall, by general
regulation, make such exemptions from the provisions of this
title in the case of small total wage increases or decreases
as it deems necessary for the effective administration of this
Order.
5. No increases in salaries now in excess of $5,000
per year (except in instances in which an individual has been
assigned to more difficult or responsible work), shall be granted
until otherwise determined by the Director.
6. No oecrease shall be made in the salary for any
particular work below the highest salary paid therefor between
January 1, 1942 and September 16, 1942 unless to correct gross
inequities and to aid in the effective prosecution of the war.
7. In order to correct gross inequities and to pro-
vide for groater equality in contributing to the war effort,
the Director is authorized to take the necessary action, and to
issue the appropriate regulations, so that, insofar as practicable,
no salary shall be authorized under Title III, Section 4 to the
extent that it exceeds $25,000 after the payment of taxes allocable
to the sum in excess of $25,000. Provided, however, that such
regulations shall make que allowance for the payment of life in-
surance premiums on policies heretofore issued, and required pay-
ments on fixed obligations heretofore incurred, and shall make
provision to prevunt undue hardship.
8. The policy of the Federal Government, as established
in Executive Order No. 9017 of January 12, 1942, to encourage free
collective bargaining between employers and employees is reaffirmed
and continued,
9. Insofar as the provisions of Clause (1) of section
302(c) of the Emergency Price Control Act of 1942 are inconsistent
with this Order, they are heroby suspended.
TITLE III
Administration of Wage and Salary Policy
1, Except as modified by this Order, the National War
Labor Board shall continue to perform the powers, functions, and
duties conforred upon it by Executive Order No. 9017, and the
Regraded Unclassified
283
- 3 -
functions of said Hoard are hereby extended to cover all in-
dustries and all employees. The National War Labor Board shall
continue to follow the procedures specified in said Executive
Order.
2. The National War Labor Board shall constitute the
agency of the Federal Government authorized to carry out the
wage policies stated in this Order, or the directives on policy
issued by the Director under this Order. Tue National War Labor
Board is further authorized. to issue such rules and regulations
as may be necessary for the speedy determination of the propriety
of any wage increases or decreases in accordance with this Order,
and to avail itself of the services and facilities of such State
and Federal departments and agencies as, in the discretion of
the National War Labor Board, may be of assistance to the Board.
3. No provision with respect to wages contained in any
labor agreement between employers and employees (including the
Shipbuilding Stabilization Agreements as amended on May 16, 1942,
and the Wage Stabilization Agreement of the Building Construction
Industry arrived at May 22, 1942) which is inconsistent with the
policy herein enunciated or hereafter formulated by the Director
shall be enforced except with the approval of the National War
Labor Board within the provisions of this Order. The National
War Labor Roard shall permit the Shipbuilding Stabilization
Committee and the Wage Adjustment Board for the Building Con-
struction Industry, both of which are provided for in the fore-
going agreements, to continue to perform their functions therein
set forth, except insofar as any of them is inconsistent with
the terms of this Order.
4. In order to effectuate the purposes provi sions
of this Order and the Act of October 2, 1942, any wage or salary
payment made in contravention thereof shall be disregarded by
the Executive Departments and other governmental agencies in
determining the costs or expenses of any employer for the purpose
of any law or regulation, including the Emergency Price Control
Act of 1942 or any maximum price regulation thereof, or for the
purpose of calculating deductions under the Revenue Laws of the
United States or for the purpose of determining costs or expenses
under any contract made by or on behalf of the Government of the
United States.
TITLE IV
Prices of Agricultural Commodities
1. The prices of agricultural commodities and of com-
modities manufactured or procussed in whole or substantial part
from any agricultural commodity shall be stabilized, so far as
practicable, on the basis of levels which existed on September 15,
1942 and in compliance with the Act of October 2, 1942.
2. In establishing, maintaining or adjusting maximum
prices for agricultural commodities or for commodities processed
or manufactured in whole or in substantial part from any agri-
cultural commodity, appropriate deductions shall be made from
parity price or comparable price for payments made under the
Soil Conservation and Domestic Allotment Act, as amunded, parity
payments made under the Agricultural Adjustment Act of 1938, as
amended, and governmental subsidies.
3. Subject to the directives on policy of the Director,
maintained or adjusted jointly by the Secretary of agriculture
the price of agricultural commodities shall bu established or
Regraded Unclassifie
284
- 4 -
and the Price Administrator; and may disignement between them
shall be resolved by the Director. The price of any comodity
manufactured or processed in whole or in substantial part from
an agricultural commodity shall be established or maintained or
adjusted by the Price Administrator, in the same auministrative
manner provided for under the Emergency Price Control Act of 1942.
4. The provis ions of sections 5(a) and 3(c) of the
Emergency Price Control Act of 1942 are hereby suspended to the
extent that such provisions are inconsistent with any or all
prices established under this Order for agricultural commodities,
or commodities manufactured or processed in whole or in substantial
part from an agricultural commodity.
TITLE V
Profits and Subsidies
1. The Price Administrator in fixing, reducing, or
increasing prices, shall determine price ceilings in such a
manner that profits are prevented which in his judgment are
unreasonable or exorbitant.
2. The Director may direct any Federal department
or agency including, but not limited to, the Department of
Agriculture (including the Commodity Credit Corporation und
the Surplus Marketing Administration), the Department of Com-
merce, the Reconstruction Finance Corporation, and other corpora-
tions organized pursuant to Section 5d of the Reconstruction
Finance Corporation Act, as amended, to use its authority to
subsidize and to purchase for resale, if such measures are neces-
sary to insure the maximum necessary production and distribution
of any commodity, or to maintain cuiling prices, or to prevent
a price rise inconsistent with the purposes of this Order.
TITLE VI
General Provisions
1. Nothing in this Order shall be construed as
affecting the present operation of the Fair Labor Standards
Act, the National Labor Relations Act, the Walsh-Hooley Act,
the Davis-Bacon Act, or the adjustment procedure of the Railway
Labor Act.
2. Salaries and wages under this Order shall include
all forms of direct or indirect remuneration to an employee or
officer for work or personal services performed for an employer
or corporation, including but not limited to, bonuses, additional
compensation, gifts, commissions, fees, and any other remuneration
in any form or medium whatsoever, (excluding insurance und pension
benefits in a reasonable amount as determined by the Director);
but for the purpose of determining wages or salaries for any period
prior to September 16, 1942, such additional compensation shall
be taken into account only in casus where it has been customerily
paid by employers to their employees. "Salaries" as used in this
Order means remuneration for pursonal services regularly paid on
a weekly, monthly or annual basis.
3. The Director shall, ao far as possible, utilize the
information, data, and staff services of other Federal departments
and agencies which have activities or functions related to national
economic policy. All such Federal departments and agencies shall
supply available information, data, and services required by the
Director in discharging nio responsibilition,
Regraded Unclassified
285
- 5 -
4. The Director shall be the agency to receive
notice of any increase in the rates or charges of common
carriers or other public utilities as provided in the Fore-
said Act of October 2, 1942.
5. The Director may perform the functions and*
duties, and exercise the powers, authority, and discretion
conferred upon him by this Order through such officials or
agencies, and in such manner, as he may determine. The
decision of the Director as to such delegation and the manner
of exercise thereof shall be final.
6. The Director, if he deems it necessary, may
direct that any policy formulated under this Order shall be
enforced by any other department or agency under any other
power or authority which may be provided by any of the laws
of the United States.
7. The Director, who shall be appointed by the
President, .shall receive such compensation as the President
shall provide, and within the limits of funds which may be
made available, may employ necessary personnel and make
provision for supplies, facilities and services necessary to
discharge his responsibilities.
FRANKLIN D. ROOSEVELT
THE WHITE HOUSE,
October 3, 1942.
286
FOR THE PRESS
IMMEDIATE RELEASE
OCTOBER 3, 1942
The President today addressed two letters to Leon
Henderson, Administrator, Office of Price Administration, the
texts of which follow:
I have signed the cost of living stabilization bill.
I wish that you would consult with the Secretary of
Agriculture and immediately establish ceiling prices for eggs,
chickens, butter, cheese, potatoes, flour and such other foods
as can be controlled under existing laws.
In line with my recent message to the Congress, you
should consider present governmental payments to agricultural
producers, and subsidy payments in arriving at the minimum
ceiling prices.
This Government is determined to use all of its powers
to prevent any avoidable rise in the cost of living.
That part of the nation which has not yet been desig-
nated within defense rental areas should now be so treated. we
should make no distinction between city and country residents
as to their participation in the total war effort. Certainly
the contribution of agriculture to the effective prosecution of
the war is clear. Therefore, our rural population equally de-
serves to have its rents stabilized.
1 wish you would immediately issue appropriate orders
to prevent rent increases on urban and rural dwellings. In
such areas as you deem appropriate to reduce current rents, I
am sure you will proceed to take such action as may be neces-
sary.
Regraded Unclassified
287
288
[PUBLIC LAW 729-77TH CONGRESS)
[CHAPTER 578-2D SESSION]
(H. R. 7565)
AN ACT
To amend the Emergency Price Control Act of 1942, to aid in preventing Infla-
tion, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled, That in order to
aid in the effective prosecution of the war, the President is authorized
and directed, on or before November 1, 1942, to issue a general order
stabilizing prices, wages, and salaries, affecting the cost of living;
and, except as otherwise provided in this Act, such stabilization shall
so far as practicable be on the basis of the levels which existed on
September 15, 1942. The President may, except as otherwise pro-
vided in this Act, thereafter provide for making adjustments with
respect to prices, wages, and salaries, to the extent that he finds
necessary to aid in the effective prosecution of the war or to correct
gross inequities: Provided, That no common carrier or other public
utility shall make any general increase in its rates or charges which
were in effect on September 15, 1942, unless it first gives thirty days
notice to the President, or such agency as he may designate, and con-
sents to the timely intervention by such agency before the Federal,
State, or municipal authority having jurisdiction to consider such
increase.
SEC. 2. The President may, from time to time, promulgate such
regulations as may be necessary and proper to carry out any of the
provisions of this Act; and may exércise any power or authority con-
ferred upon him by this Act through such department, agency, or
officer as he shall direct, The President may suspend the provisions
of sections 3 (a) and 3 (c), and clause (1) of section 302 (c), of the
Emergency Price Control Act of 1942 to the extent that such sections
are inconsistent with the provisions of this Act, but he may not under
the authority of this Act suspend any other law or part thereof.
SEC. 3. No maximum price shall be established or maintained for
any agricultural commodity under authority of this Act or otherwise
below a price which will reflect to producers of agricultural com-
modities the higher of the following prices, as determined and pub-
lished by the Secretary of Agriculture-
(1) The parity price for such commodity (adjusted by the
Secretary of Agriculture for grade, location, and seasonal differ-
entials) or, in case 8 comparable price has been determined for
such commodity under and in accordance with the provisions of
section 8 (b) of the Emergency Price Control Act of 1942, such
comparable price (adjusted in the same manner), or
(2) The highest price received by such producers for such
commodity between January 1, 1942, and September 15, 1942
(adjusted by the Secretary of Agriculture for grade, location,
and seasonal differentials), or, if the market for such commodity
2
[FUB. LAW 729.)
3
(Pun. Law 720.)
was inactive during the latter half of such period, a price for
(b) Nothing in this Act shall be construed to prevent the reduc-
the commodity determined by the Secretary of Agriculture to
tion by any private employer of the salary of any of his employees
be in line with the prices, during such period, of other agricul-
which is at the rate of $5,000 or more per annum.
tural commodities produced for the same general use;
(c) The President shall have power by regulation to limit or
and no maximum price shall be established or maintained under
prohibit the payment of double time except when, because of emer-
authority of this Act or otherwise for any commodity processed or
gency conditions, an employee is required to work for seven consec-
manufactured in whole or substantial part from any agricultural
utive days in any regularly scheduled work week.
commodity below a price which will reflect to the producers of such
SEC. 6. The provisions of this Act (except sections 8 and 9), and
agricultural commodity a price therefor equal to the higher of the
all regulations thereunder, shall terminate on June 30, 1944, or on
prices specified in clauses (1) and (2) of this section: Provided, That
such earlier date as the Congress by concurrent resolution, or the
the President may, without regard to the limitation contained in clause
President by proclamation, may prescribe,
(2), adjust any such maximum price to the extent that he finds
SEC. 7. (a) Section 1 (b) of the Emergency Price Control Act
necessary to correct gross inequities; but nothing in this section shall
of 1942 is hereby amended by striking' out "June 30, 1043" and sub-
be construed to permit the establishment in any case of a maximum
stituting "June 30, 1944".
price below a price which will reflect to the producers of any agri-
(b) All provisions (including prohibitions and penalties) of the
cultural commodity the price therefor specified in clause (1) of this
Emergency Price Control Act of 1942 which are applicable with
section: Provided further, That modifications shall be made in maxi-
respect to orders or regulations under such Act shall, insofar ns they
mum prices established for any agricultural commodity and for
are not inconsistent with the provisions of this Act, be applicable in
commodities processed or manufactured in whole or substantial part
the same manner and for the same purposes with respect to regula-
from any agricultural commodity, under regulations to be prescribed
tions or orders issued by the Price Administrator in the exercise of
by the President, in any case where it appears that such modification
any functions which may be delegated to him under authority of
is necessary to increase the production of such commodity for war
this Act.
purposes, or where by reason of increased labor or other costs to the
(c) Nothing in this Act shall be construed to invalidate any pro-
producers of such agricultural commodity incurred since January 1,
vision of the Emergency Price Control Act of 1942 (except to the
1941, the maximum prices so established will not reflect such increased
extent that such provisions are suspended under authority of section
costs: Provided further, That in the fixing of maximum prices on
2), or to invalidate any regulation, price schedule, or order issued
products resulting from the processing of agricultural commodities,
or effective under such Act.
including livestock, a generally fair and equitable margin shall be
SEC. 8. (a) The Commodity Credit Corporation is authorized and
allowed for such processing: Provided further, That in fixing price
directed to make available upon any crop of the commodities cotton,
maximums for agricultural commodities and for commodities proc-
corn, wheat, rice, tobacco, and peanuts harvested after December 31,
essed or manufactured in whole or substantial part from any agri-
1941, and before the expiration of the two-year period beginning with
cultural commodity, ns provided for by this Act, adequate weighting
the 1st day of January immediately following the date upon which the
shall be given to farm labor.
President by proclamation or the Congress by concurrent resolution
declares that hostilities in the present war have terminated, if pro-
SEC. 4. No action shall be taken under authority of this Act with
respect to wages or salaries (1) which is inconsistent with the
ducers have not disapproved marketing quotas for such commodity for
provisions of the Fair Labor Standards Act of 1938, as amended, or
the marketing year beginning in the calendar year in which such crop
the National Labor Relations Act, or (2) for the purpose of reducing
is harvested, loans as follows:
the wages or salaries for any particular work below the highest wages
(1) To cooperators (except cooperators outside the commercial
corn-producing area, in the case of corn) at the rate of 90 per
or salaries paid therefor between January 1, 1942, and September 15,
1942: Provided, That the President may, without regard to the limi-
centum of the parity price for the commodity as of the beginning
tation contained in clause (2), adjust wages or salaries to the extent
of the marketing year;
that he finds necessary in any case to correct gross inequities and
(2) To cooperators outside the commercial corn-producing area,
in the case of corn, at the rate of 75 per centum of the rate specified
also aid in the effective prosecution of the war.
SEC. 5. (a) No employer shall pay, and no employee shall receive,
in (1) above;
wages or salaries in contravention of the regulations promulgated
(3) To noncooperators (except noncooperators outside the com-
by the President under this Act. The President shall also prescribe
mercial corn-producing area, in the case of corn) at the rate of 60
per centum of the rate specified in (1) above and only on so much
the extent to which any wage or salary payment made in contra-
of the commodity as would be subject to penalty if marketed.
vention of such regulations shall be disregarded by the executive
departments and other governmental agencies in determining the
(b) All provisions of law applicable with respect to loans under the
Agricultural Adjustment Act of 1938, as amended, shall, insofar as
costs or expenses of any employer for the purposes of any other law
they are not inconsistent with the provisions of this section, be appli-
or regulation.
cable with respect to loans made under this section.
Regraded Unclassified
4
[Pus. Law 729.]
(c) In the case of any commodity with respect to which loans may
be made at the rate provided in paragraph (1) of subsection (a), the
President may fix the loan rate at any rate not less than the loan rate
otherwise provided by law if he determines that the loan rate 80 fixed
is necessary to provent an increase in the cost of feed for livestock and
poultry and to aid in the effective prosecution of the war.
SEC. 9. (a) Section 4 (a) of the Act entitled "An Act to extend the
life and increase the credit resources of the Commodity Credit Corpo-
ration, and for other purposes", approved July 1, 1941 (U.S.C., 1940
edition, Supp. I, title 15, sec. 718a-8), is amended-
(1) By inserting after the words "so as to support" a comma and
the following: "during the continuance of the present war and until
the expiration of the two-year period beginning with the 1st day of
January immediately following the date upon which the President by
proclamation or the Congress by concurrent resolution declares that
hostilities in the present war have terminated,".
(2) By striking out "85 per centum" and inserting in lieu thereof
"90 per centum".
(3) By inserting after the word "tobacco" a comma and the word
"peanuts".
(b) The amendments made by this section shall, irrespective of
whether or not there is any further public announcement under such
section 4 (a), be applicable with respect to any commodity with respect
to which a public announcement has heretofore been made under such
section 4 (a).
SEC. 10. When used in this Act, the terms "wages" and "salaries"
shall include additional compensation, on an annual or other basis,
paid to employees by their employers for personal services (excluding
insurance and pension benefits in a reasonable amount to be determined
by the President); but for the purpose of determining wages or sala-
ries for any period prior to September 16, 1942, such additional
compensation shall be taken into account only in casés where it has
been customarily paid by employers to their employees.
SEO. 11. Any individual, corporation, partnership, or association
willfully violating any provision of this Act, or of any regulation
promulgated thereunder, shall, upon conviction thereof, be subject to
a fine of not more than $1,000, or to imprisonment for not more than
one year, or to both such fine and imprisonment.
Approved, October 2, 1942.
Regraded Unclassified
289
whom
THE
290
77TH CONGRESS
HOUSE OF REPRESENTATIVES
REPORT
2d Session
No. 2513
TO AID IN STABILIZING THE COST OF LIVING
OCTOBER 2, 1942.-Committed to the Committee of the Whole House on the
state of the Union and ordered to be printed
Mr. STEAGALL, from the committee of conference, submitted the
following
CONFERENCE REPORT
[To accompany H. R. 7565]
The committee of conference on the disagreeing votes of the two
Houses on the amendment of the Senate to the bill (H. R. 7565) to
amend the Emergency Price Control Act of 1942, to aid in preventing
inflation, and for other purposes, having met, after full and free
conference, have agreed to recommend and do recommend to their
respective Houses as follows:
That the House recede from its disagreement to the amendment
of the Senate and agree to the same with an amendment as follows:
In lieu of the matter proposed to be inserted by the Senate amend-
ment insert the following:
That in order to aid in the effective prosecution of the war, the President
is authorized and directed, on or before Norember 1, 1942, to issue a
general order stabilizing prices, wages, and salaries, affecting the cost
of living; and, except as otherwise provided in this Act, such stabilization
shall 80 far as practicable be on the basis of the levéls which eristed on
September 15, 1942. The President may, except as otherwise provided
in this Act, thereafter provide for making adjustments with respect to
prices, wages, and salaries, to the extent that he finds necessary to aid in
the effective prosecution of the war or to correct gross inequities: Provided,
That no common carrier or other public utility shall make any general
increase in its rates or charges which were in effect on September 15, 1948,
unless it first gives thirty days notice to the President, or such agency as
he may designate, and consents to the timely intervention by such agency
before the Federal, State, or municipal authority having jurisdiction to
consider such increase.
SEC. 2. The President may, from to time, promulgate such regulations
as may be necessary and proper to carry out any of the provisions of this
Act; and may ezercise any power or authority conferred upon him by this
2
STABILIZE THE COST OF LIVING
STABILIZE THE COST OF LIVING
3
Act through such department, agency, or officer as he shall direct. The
President may suspend the provisions of sections 3 (a) and 3 (c), and
Sec. 4. No action shall be taken under authority of this Act with respect
clause (1) of section 302 (c), of the Emergency Price Control Act of 1942
to wages or salaries (1) which is inconsistent with the provisions of the
Fair Labor Standards Act of 1938, as amended, or the National Labor
to the extent that such sections are inconsistent with the provisions of this
Act, but he may not under the authority of this Act suspend any other law
Relations Act, or (2) for the purpose of reducing the wages or salaries for
or part thereof.
any particular work below the highest wages or salaries paid therefor
SEC. 3. No maximum price shall be established or maintained for any
between January 1, 1942, and September 15, 1942: Provided, That the
agricultural commodity under authority of this Act or otherwise below a
President may, without regard to the limitation contained in clause (2),
price which will reflect to producers of agricultural commodities the higher
adjust wages or salaries to the extent that he finds necessary in any case
of the following prices, as determined and published by the Secretary of
to correct gross inequities and also aid in the effective prosecution of the
war.
Agriculture-
(1) The parity price for such commodity (adjusted by the Secre-
Sec. 5. (a) No employer shall pay, and no employee shall receive,
tary of Agriculture for grade, location, and seasonal differentials) or,
wages or salaries in contravention of the regulations promulgated by the
in case a comparable price has been determined for such commodity
President under this Act. The President shall also prescribe the extent
under and in accordance with the provisions of section 3 (b) of the
to which any wage or salary payment made in contravention of such regu-
Emergency Price Control Actof 1942, such comparable price (adjusted
lations shall be disregarded by the executive departments and other
in the same manner), or
governmental agencies in determining the costs or expenses of any em-
(2) The highest price received by such producers for such com-
ployer for the purposes of any other law or regulation.
modity between January 1, 1942, and September 15, 1942 (adjusted
(b) Nothing in this Act shall be construed to prevent the reduction by
by the Secretary of Agriculture for grade, location, and seasonal
any private employer of the salary of any of his employees which is at the
differentials), or, if the market for such commodity was inactive
rate of $5,000 or more per annum.
during the latter half of such period, a price for the commodity de-
(c) The President shall have power by regulation to limit or prohibit
termined by the Secretary of Agriculture to be in line with the prices,
the payment of double time except when, because of emergency conditions,
during such period, of other agricultural commodities produced
an employee is required to work for seven consecutive days in any regularly
acheduled work week.
for the same general use;
SEC. 6. The provisions of this Act (except sections 8 and 9), and all
and no mazimum price shall be established OF maintained under authority
regulations thereunder, shall terminate on June 30, 1944, or on such
of this Act or otherwise for any commodity processed or manufactured
earlier date es the Congress by concurrent resolution, or the President by
in whole or substantial part from any agricultural commodity below a
proclamation, may prescribe.
price which will reflect to the producers of such agricultural commodity
SEC. 7. (a) Section 1 (b) of the Emergency Price Control Act of
a price therefor equal to the higher of the prices specified in clauses (1)
1942 is hereby amended by striking out "June 30, 1948" and sub-
and (2) of this section: Provided, That the President may, without regard
stituting "June 30, 1944".
to the limitation contained in clause (2), adjust any such marimum
(b) All provisions (including prohibitions and penalties) of the
price to the extent that he finds necessary to correct gross inequities; but
Emergency Price Control Act of 1942 which are applicable with respect
nothing in this section shall be construed to permit the establishment in
to orders or regulations under such Act shall, insofar as they are not
any case of a maximum price below a price which will reflect to the pro-
inconsistent with the provisions of this Act, be applicable in the same
ducers of any agricultural commodity the price therefor specified in
manner and for the same purposes with respect to regulations or orders
clause (1) of this section: Provided further, That modifications shall be
issued by the Price Administrator in the exercise of any functions which
made in mazimum prices established for any agricultural commodity and
may be delegated to him under authority of this Act.
for commodities processed or manufactured in whole or substantial part
(c) Nothing in this Act shall be construed to invalidate any provision
from any agricultural commodity, under regulations to be prescribed by
of the Emergency Price Control Act of 1942 (except to the estent that
the President, in any case where it appears that such modification is
such provisions are susponded under authority of section 2), or to in-
necessary to increase the production of such commodity for war purposes,
validate any regulation, price schedule, or order issued or effective under
or where by reason of increased labor or other costs to the producers of
such Act.
such agricultural commodity incurred since January 1, 1941, the man-
SEC. 8. (a) The Commodity Credit Corporation is authorized and
mum prices RO established will not reflect such increased costs: Provided
directed to make arailable upon any crop of the commodities cotton, corn,
further, That in the fizing of mazimum prices on products resulting from
wheat, rice, tobacco, and peanuts harvested after December 31, 1941, and
the processing of agricultural commodities, including livestock, a gener-
before the expiration of the two-year period beginning with the 1st day of
ally fair and equitable margin shall be allowed for such processing: Pro-
January immediately following the date upon which the President by proc-
vided further, That in fixing price marimums for agricultural commodities
lamation or the Congress by concurrent resolution declares that hostilities
and for commodities processed or manufactured in whole or substantial
in the present war have terminated, if producers have not disapproved
part from any agricultural commodity, as provided for by this Act, ad-
equate weighting shall be given to farm labor.
Regraded Unclassified
4
STABILIZE THE COST OF LIVING
STABILIZE THE COST OF LIVING
5
in the calendar year in which such crop is harvested, loans as follows:
marketing quotas for such commodity for the marketing year beginning
or to both such fine and imprisonment.
of not more than $1,000, or to imprisonment for not more than one year,
(1) To cooperators (except cooperators outside the commercial
And the Senate agree to the same.
corn-producing area, in the case of corn) at the rate of 90 per centum
marketing year;
of the parity price for the commodity as of the beginning of the
That the Senate recede from its amendment to the title of the bill.
HENRY B. STEAGALL,
(2) To cooperators outside the commercial corn-producing area,
CLYDE WILLIAMS,
in the case of corn, at the rate of 75 per centum of the rate specified
BRENT SPENCE,
in (1) above;
JESSE P. WOLCOTT,
(3) To noncooperators (except noncooperators outside the com-
CHARLES L. GIFFORD,
mercial corn-producing area, in the case of corn) at the rate of 60
Managers on the part of the House.
per centum of the rate specified in (1) above and only on 80 much of
ROBERT F. WAGNER
the commodity as would be subject to penalty if marketed.
ALBEN W. BARKLEY,
(b) All provisions of law applicable with respect to loans under the
J. H. BANKHEAD,
Agricultural Adjustment Act of 1938, as amended, shall, insofar as they
PRENTISS M.BROWN,
are not inconsistent with the provisions of this section, be applicable with
FRANCIS MALONEY,
respect to loans made under this section.
ROBERT A. Taft,
(c) In the case of any commodity with respect to which loans may be
Managers on the part of the Senate.
made at the rate provided in paragraph (1) of subsection (a), the Presi-
dent may fuz the loan rate at any rate not less than the loan rate otherwise
provided by law if he determines that the loan rate 80 fixed is necessary
to prevent an increase in the cost of feed for livestock and poultry and to
aid in the effective prosecution of the war.
Sec. 9. (a) Section 4 (a) of the Act entitled "An Act to extend the life
and increase the credit resources of the Commodity Credit Corporation,
and for other purposes", approved July 1, 1941 (U. S. C., 1940 edition,
Supp. I, title 15, sec. 713a-8), is amended-
(1) By inserting after the words "80 as to support" a comma and the
following: "during the continuance of the present war and until the ez-
piration of the two-year period beginning with the 1st day of January
immediately following the date upon which the President by proclamation
or the Congress by concurrent resolution declares that hostilities in. the
present war have terminated,".
(2) By striking out "85 per centum" and inserting in lieu there of
"90 per centum".
(8) By inserting after the word "tobacco" a comma and the word
"peanuts".
(b) The amendments made by this section shall, irrespective of whether
or not there is any further public announcement under such section 4 (a),
be applicable with respect to any commodity with respect to which a
public announcement has heretofore been made under such section 4 (a).
SEC. 10. When used in this Act, the terms "wages" and "salaries"
shall include additional compensation, on an annual or other basis, paid
to employees by their employers for personal services (excluding insur-
ance and pension benefits in a reasonable amount to be determined by
the President); but for the purpose of determining wages or salaries for
any period prior to September 16, 1942, such additional compensation
shall be taken into account only in cases where it has been customarily
paid by employers to their employees.
Sec. 11. Any individual, corporation, partnership, or association
willfully violating any provision of this Act, or of any regulation pro-
mulgated thereunder, shall, upon conviction thereof, be subject to a fine
Regraded Unclassified
STABILIZE THE COST OF LIVING
7
reflect such increased costs. There is also included the same provision
contained in the House bill relating to the fair and equitable allowance
of a margin for the processing of agricultural commodities. There is
also included a provision to the effect that in fixing price maximums
for agricultural commodities and for commodities processed or manu-
STATEMENT OF THE MANAGERS ON THE PART OF THE HOUSE
factured in whole or substantial part from any agricultural commod-
The managers on the part of the House at the conference on the
ity, adequate weighting shall be given farm labor.
The provisions of section 4 of the conference substitute, placing
disagreeing votes of the two Houses on the amendment of the Senate
to the bill (H. R. 7565) to amend the Emergency Price Control Act
limitations upon the authority which may be exercised under the act
with respect to wages and salaries, follow the provisions of the Senate
of 1942, to aid in preventing inflation, and for other purposes, submit
amendment, except that the President's authority to make adjust-
the following statement in explanation of the effect of the action
ments may be exercised only to the extent that he finds necessary in
agreed upon by the conferees and recommended in the accompanying
any case to correct gross inequities and also aid in the effective prose-
conference report:
The House bill and the substitute agreed to in conference are in
cution of the war.
In order to carry out the recommendations of the President with
general substantially similar but they differ in a number of respects,
respect to establishing a floor for the prices of agricultural commodities,
as follows:
the conference substitute contains provisions which raise the loan rate
Section 1 of the House bill directed that stabilization shall so far as
for basic agricultural commodities to 90 percent of the parity price
practicable be on the basis of levels which existed on August 15, 1942.
therefor; except that the President is authorized to fix the loan rate
The conference substitute directs that stabilization shall so far as
for any commodity at any rate not less than that otherwise provided
practicable be on the basis of the levels which existed on September
by law if he determines that such action is necessary to prevent an
15, 1942.
increase in the cost of feed for livestock and poultry and to aid in the
The conference substitute directs that the President shall issue,
effective prosecution of the war. The loan rates provided for in the
before November 1, 1942, a general order stabilizing prices, wages,
conference substitute are to be maintained until the expiration of a
and salaries affecting the cost of living. No such requirement was
included in the House bill.
2-year period after the end of the war. The conference substitute also
In section 1 of the House bill the President's authority to make
provides that for a similar period the Secretary of Agriculture shall
undertake to maintain at 90 percent of the parity or comparable price
adjustments was confined to the making of adjustments' to the extent
that he finds necessary to correct gross inequities." In the conference
the price for any commodity the production of which he has under-
substitute this authority is given to the extent that he finds necessary
taken to encourage.
HENRY B. STEAGALL,
to aid in the effective prosecution of the war or to correct gross in-
CLYDE WILLIAMS,
equities."
BRENT SPENCE,
In section 1 of the conference substitute there is included a provision
JESSE P. WOLCOTT,
requiring that no common carrier or public utility shall make any
CHARLES L. GIFFORD,
general increase in its rates or charges whlch were in effect on Sep-
Managers on the part of the House.
tember 15, 1942, unless 30 days' notice is given to the President or to
such agency as he may designate, and consent is given for the inter-
vention by such agency before the public body having jurisdiction
of the matter. The House bill contained no such provision.
Section 3 of the House bill provided that for the purposes of the act
parity prices and comparable prices for any agricultural commodity
shall be determined as authorized by existing law but shall also in-
clude all farm labor. This provision is not contained in the conference
substitute. The provision in the conference substitute relating to this
subject appears in section 3. It makes no change in the parity formula
provided for under present law. It provides that modifications shall
be made in maximum prices established for any agricultural commod-
ity, and for any commodity processed or manufactured in whole or
substantial part from any agricultural commodity, under regulations
to be prescribed by the President, in any case where it appears that
such modification is necessary to increase the production of such com-
modity for war purposes, or where by reason of increased labor or
other costs to the producers of such agricultural commodity incurred
since January 1, 1941, the maximum price so established will not
6
291
292
77TH CONGRESS
2d Session
}
HOUSE OF REPRESENTATIVES
REPORT
No. 2472
AMENDING THE EMERGENCY PRICE CONTROL ACT OF
1942, TO AID IN PREVENTING INFLATION, AND FOR
OTHER PURPOSES
SEPTEMBER 21, 1942.-Committed to the Committee of the Whole House on the
state of the Union and ordered to be printed
Mr. STEAGALL, from the Committee on Banking and Currency, sub-
mitted the following
REPORT
[To accompany H. R. 7565)
The Committee on Banking and Currency, to whom was referred
the bill (H. R. -) to amend the Emergency Price Control Act of
1942, to prevant inflation, and for other purposes, having considered
the same, report favorably thereon without amendment and recom-
mend that the bill do pass.
In his message to the Congress dated September 7, 1942, the Pres-
ident urged the importance of stabilizing the cost of living, including
stabilization of wages and the price of farm commodities.
The continued expansion of buying power, in the midst of scarcity
of commodities, necessarily tends to bring about price levels that
promote inflation. In addition, the enormous expenditures in connec-
tion with the war program create enlarged circulation of money and
increase of bank credit. It is therefore necessary to use the various
powers of Government if we are to restrain and prevent unwholesome
and destructive developments.
It is believed that the measure herewith reported will aid in pre-
venting further inflationary tendencies and further dislocation of our
domestic economy during the war.
Section 1 authorizes and directs the President to stabilize prices,
wages, salaries, and other factors affecting the cost of living. It
directs that such stabilization shall so far as practicable be on the basis
of the levels which existed on August 15, 1942, but permits the Presi-
dent to provide for making adjustments with respect to such prices,
wages, salaries, and other factors, to the extent that he finds necessary
to correct gross inequities.
Section 2 authorizes the President to promulgate regulations neces-
sary and proper to carry out the provisions of the act; authorizes him
to exercise any authority conferred upon him by the act through such
2
AMENDING EMERGENCY PRICE CONTROL ACT
AMENDING EMERGENCY PRICE CONTROL ACT
3
department, agency, or officer as he shall direct; and authorizes him
to suspend any provisions of law relating to the establishment or
such earlier date as the Congress by concurrent resolution, or the
President, may prescribe.
maintenance of prices, or to wages, salaries, or other factors affecting
the cost of living which are inconsistent with the purposes of the net.
Section 7 amends existing law for the purpose of carrying out the
Section 3 prohibits the establishment or maintenance, under the
recommendation of the President with respect to the placing of a
act or otherwise, of any maximum price for any agricultural com-
floor under prices of farm products. It authorizes and directs the
modity below a price which will reflect to producers of agricultural
Secretary of Agriculture to make loans and purchases and to carry on
commodities the higher of the following prices, as determined and
other operations with respect to conbasie agricultural commodities
published by the Secretary of Agriculture: (1) The parity price
for which he finds it necessary to encourage the expansion of production
(adjusted by the Secretary of Agriculture for grade, location, and
and with respect to basic agricultural commodities, so ns to support
seasonal differentials), or, in case a comparable price has been de-
the price for the producers of such commodities at not less than 90
termined under and in accordance with the provisions of section 3 (b)
percent of the parity price therefor, or at not less than 90 percent of
of the Emergency Price Control Act of 1942, such comparable price
the comparable price therefor if a comparable price bas been estab-
(adjusted in the same manner), or (2) the highest price received by
lished. Loans, purchases, and operations are to be so made and car-
farmers between January 1, 1942, and September 15, 1942 (adjusted
ried on only in the case of agricultural commodities harvested after
by the Secretary of Agriculture for grade, location, and seasonal
December 31, 1941, and before the expiration of the 3-year period
differentials). Section 3 also prohibits the establishment or main-
beginning with the 1st of January immediately following the date upon
tenance, under the act or otherwise, of a maximum price for any
which the President proclaims the termination of hostilities in the
commodity, processed or manufactured in whole or substantial part
present war. It is provided that in the case of agricultural com-
from any agricultural commodity, below a price which will reflect to
modities upon which loans are made, such loans shall be made at 90
the producers of such agricultural commodity a price therefor equal to
percent of the parity price therefor, or at 90 percent of the comparable
the higher of the prices specified in clauses (1) and (2) above. The
price therefor if n. comparable price has been established.
foregoing provisions are qualified by a proviso authorizing the Presi-
Section 8 provides for a penalty, in the case of any willful violation
dent to adjust the price for any commodity between January 1, 1942,
of the act or of any regulation promulgated thereunder, of a fine of not
and September 15, 1942, to the extent that he finds necessary to
more than $5,000, or imprisonment for not more than I year, or both.
correct gross inequities.
Section 9 amends section 1 (b) of the Emergency Price Control Act
Section 4 prohibits the taking of any action with respect to wages
of 1942, so as to extend the time for the termination of that net, by
or salaries, under the net, (1) which is inconsistent with the provisions
striking out "June 30, 1943" and substituting "June 30, 1944" This
of the Fair Labor Standards Act of 1938, as amended, (2) which is
will mean that the Emergency Price Control Act of 1942 and the
inconsistent with any recommendation or order of any agency of the
legislation here being reported to the House will have the same termi-
nation date.
Federal Government affecting the wages or salaries of employees
CHANGES IN EXISTING LAW
whose cases were pending before such agency on September 15, 1942,
and were undetermined on the date of the enactment of the act, or
In compliance with paragraph 2a of rule XIII of the Rules of the
(3) with respect to wages or salaries which have not reached B. 15-
House of Representatives, changes in existing law made by the bill
percent increased cost-of-living level above the wages or salaries paid
are shown as follows: Existing law proposed to be omitted is enclosed
on January 1, 1941, or (4) for the purpose of reducing the wages or
in black brackets, new matter is printed in italics, existing law in
salaries for any particular work below the highest wages or salaries
which no change is proposed is shown in roman.
paid therefor between January 1, 1942, and September 15, 1942. The
foregoing provisions are qualified by B. proviso authorizing the Presi-
AN ACT To extend the Ilfo and Increase the credit resources of the Commodity Credit Corporation, and
dent to adjust wages or salaries to the extent that he finds necessary
for other purposes
to correct gross inequities.
Be it enacted by the Senate and House of Representatives of the United States of
Section 5 provides that no employer shall pay, and no employee
America in Congress assembled, That section 7 of the Act approved January 31,
shall receive, any further increase in wages or salaries, unless approved
1935 (49 Stat. 4), as amended, is hereby amended by deleting from the first sen-
tence thereof the term "June 30, 1941" and inserting in lieu thereof the term
by the President or such agency as he may designate. It also pro-
"June 30, 1943".
vides that the President shall prescribe the extent to which any wage
SEC. 2. Section 1 of the Act approved March 8, 1938 (52 Stat. 107), as amended,
or salary payment made in contravention of the net shall be disre-
is hereby amended by deleting from the second sentence thereof the term "on the
garded by the executive departments and other governmental agencies
basis of market prices at the time of appraisal" and inserting in lieu thereof the
term "on the basis of the cost, including not more than one year of carrying
in determining the costs or expenses of any employer for the purposes
charges, of such asseta to the Corporation, or the average market prices of such
of any other law or regulation. It is further provided that the section
assets for a period of twelve months ending with March 31 of each year, which-
shall not apply to any employer who regularly employs lesa than
ever is less;".
SEC. 3. Section 4 of the Act approved March 8, 1938 (52 Stat. 108), BH amended,
eight persons, nor to any employee of an employer who regularly
is hereby amended by deleting the term "$1,400,000,000" and inserting in lieu
employs less than eight persons.
thereof the term "$2,650,000,000."
Section 6 provides that the provisions of the act, and all regulations
SEC. 4. (a) Whenever during the existing emergency the Secretary of Agri-
promulgated thereunder, shall terminate on June 30, 1944, or on
culture finds It necessary to encourage the expansion of production of any non-
basic agricultural commodity, he shall make public announcement thereof and
Regraded Unclassified
4
AMENDING EMERGENCY PRICE CONTROL ACT
AMENDING EMERGENCY PRICE CONTROL ACT
5
he shall 80 use the funds made available under section 3 of this Aet or otherwise
(teelf. When the cost of living spirals upward everybody becomes poorer, because
made available to him for the disposal of agricultural commodities, through a com-
the money he has and the money he earns buys BO much less, At the same time
modity loan, purchase, or other operation, taking into account the total funds
by many billions of dollars. The national debt, at the end of the war, would be-
the cost of the war, paid ultimately from taxes of the people, is needlessly increased
available for such purpose for all commodities, 80 as to support a price for the
producers of any such commodity with respect to which such announcement
was made of not less than 85 per centum of the parity or comparable price therefor.
come unnecessarily greater. Indeed, the prevention of a spiraling domestic economy
is a vital part of the winning of the war itself.
The comparable price for any such commodity shall be determined and used by
I reiterate the seven-point program which I presented April 27, 1942:
the Secretary for the purposes of this section if the production or consumption
1. To keep the cost of living from spiraling upward, we must tax heavily, and
of such commodity has 80 changed in extent or character since the base period
in that process keep personal and corporate profits at a reasonable rate, the word
All to result In & price out of line with parity prices for basic commodities. Any
"reasonable" being defined at a low level.
such commodity loan, purchase, or other operation which is undertaken shall be
2. To keep the cost of living from spiraling upward, we must fix ceilings on the
continued until the Secretary has given sufficient public announcement to permit
prices which consumers, retailers, wholesalers, and manufacturers pay for the
the producers of such commodity to make a readjustment in the production of the
commodity, For the purposes of this section, commodities other than cotton,
industries, things they buy; and cellings on rents for dwellings in all areas affected by war
corn, wheat, tobacco, and rice shall be deemed to be nonbasie commodities.
3. To keep the cost of living from spiraling upward, we must stabilize the ru-
(b) It is hereby declared to be the policy of the Congress that the lending and
muneration received by individuals for their work.
purchase operations of the Department of Agriculture (other than those referred
received by growers for the products of their lands,
4. To keep the cost of living from spiraling upward, we must stabilize the prices
to in subsection (a)) shall be carried out so as to bring the price and income of the
producers of nonbasie commodities not covered by any such public announce-
5. To keep the cost of living from spiraling upward, we must encourage all
ment to A fair parity relationship with other commodities, to the extent that funds
citizens to contribute to the cost of winning this war by purchasing War bonds
for such operations are available after taking into account the operations with
respect to the basic commodities and the commodities listed in any such public
essential. with their earnings instead of using those earnings to buy artícles which are not
announcement and the ability of producers to bring supplies into line with demand,
6, To keep the cost of living from spiraling upward, we must ration all essential
Suc. 5. The Secretary of Agriculture is authorized and directed to make loans and
commodities of which there is a scarcity, so that they may be distributed fairly
purchases and to carry on other operations with respect to nonbasic agricultural com-
among consumers and not merely in accordance with financial ability to pay high
modities for which he finds it necessary to encourage the expansion of production and
prices for them.
with respect to basic agricultural commodities, harvested after December 31, 1941,
7. To keep the cost of living from spiraling upward, we must discourage credit
and before the expiration of the three-year period beginning with the Int day of Jan-
and installment buying, and encourage the paying off of debts, mortgages, and
wary immediately following the date upon which the President proclaima the termi-
other obligations; for this promotes savings, retards excessive buying, and adds
nation of hostilities in the present war, regardless of the for which such com-
to the amount available to the creditors for the purchase of War bonds.
modilies are produced or used, so as to support the price for the producers of such
In my message of 4 months ago, I pointed out that in order to succeed in our
commodities at not less than 90 per centum of the parity price therefor, or at not less
objective of stabilization it was necessary to move on all seven fronts at the same
than 90 per centum of the comparable price therefor if a comparable price has been
time: but that two of them called for legislation by the Congress before setion
established under this Act. In the case of agricultural commodities on which loans
could be taken. It was obvious then, and it is obvious now, that unless those
are mnde, such loans shall be made at 90 per centum of the parity price therefor, or
two are realized, the whole objective must fail. These are points numbered 1
at 90 per centum of the comparable price therefor if a comparable price has been
and 4-namely, an adequate tax program and a law permitting the fixing of price
established under this Act.
ceilings on farm products at parity prices.
I regret to have to call to your attention the fact that neither of these two
EMERGENCY PRICE CONTROL ACT OF 1943
essential pieces of legislation has as yet been enacted into law. That delay has
now reached the point of danger to our whole economy.
SECTION 1.
However, we are carrying out, by Executive action, the other parts of the
(b) The provisions of this Act, and all regulations, orders, price schedules,
seven-point program which did not require congressional action,
and requirements thereunder, shall terminate on June 30, [1943] 1944, or upon
Price cellings have been fixed on practically all commodities (other than certain
the date of & proclamation by the President, or upon the date specified in a
exempted agricultural products), and on renta in war-production areas of the
concurrent resolution by the two Houses of the Congress, declaring that the
United States.
further continuance of the authority granted by this Act is not necessary in the
This process of keeping prices and rents at reasonable levels constitutes one
interest of the national defense and security, whichever date la the earlier: except
of the most far-reaching economic steps that this Nation has ever taken-in
that as to offenses committed, or rights or liabilities incurred, prior to such
time of peace or war.
termination date, the provisions of this Act and such regulations, orders, price
Our experience during the last 4 months has proved that general control of
schodules, and requirements shall be treated BA still remaining In force for the
prices is possible-but only if that control is all-inclusive. If, however, the costa
purpose of sustaining any proper suit, action, or prosecution with respect to any
of production, including labor, are left free to rise indiscriminately, or if other
such right, liability, or offense.
major elements in the costs of living are left unregulated, price control becomes
impossible. If markets are flooded with purchasing power in excess of available
goods, without taking adequate measures to siphon off the excess purchasing
power, price control becomes likewise impossible.
[R. Doc. No. 834, 77th Cong., 2d seve.]
Our entire effort to hold the cost of living at its present level la now being
MESSAGE FROM THE PRESIDENT OF THE UNITED STATES TRANSMITTING A RECOM-
sapped and undermined by further increases in farm prices and in wages, and by
MENDATION THAT CONGRESS PASS LEGISLATION PLACING A FLOOR UNDER
an over-continuing pressure on prices resulting from the rising purchasing power
PRICES OF FARM PRODUCTS
of our people.
WASHINGTON, D. C., September 7, 1948.
Annual wage and salary disbursements have increased from 43.7 billion dollars
To the Congress of the United States:
in 1939 to an estimated 75 billion dollars in 1942. This represents an increase
of 71 percent. To obtain A full appreciation of what that increase means, we
Four months ago, on April 27, 1942, I laid before the Congress a seven-point
should remember that 75 billion dollars is more than our total national income was
national economic policy designed to stabilize the domestic economy of the United
during any single year in the 1930's. Due to constantly increasing employment
States for the period of the war. The objective of that program was to prevent any
overtime, and wage-rate increases, the annual wage and salary bill for the entire
substantial further rise in the cost of living.
It is not necessary for me to enumerate again the disastrous results of a runaway
country has been rising by more than A billion dollars A month.
cost of living-disastrous to all of us, farmers, laborers, businessmen-the Nation
Regraded Unclassified
6
AMENDING EMERGENCY PRICE CONTROL ACT
AMENDING EMERGENCY PRICE CONTROL ACT
It is impossible for the cost of living to be stabilized while farm prices continue
to rise. You cannot expect the laborer to maintain a fixed wage level if every-
This drastic increase has been caused, and will be caused, eldefly by the fact that
thing he wears and eate begins to go up drastically in price. On the other hand,
number of food commodities are exempt under existing law.
it is impossible to keep any prices stable-farm prices or other prices-if wage
In the case of these exempt commodities the increases are even more startling.
rates, one of the most important elements in the cost of production, continue to
percent per month since May 1, 1042.
The cost of such food used by wage carners has been rising at an average of 3½
Increase.
But even if the process of stabilization of all prices and wages at present levels
Prices received by farmers have risen 85 percent since the outbreak of the war
were to be brought about, there would still remain the great upward pressure on
in September 1939, and these prices are continuing to rive. Cash farm income,
the cost of living created by the vast amount of purchasing power which has been
including Government payments, has increased from 8.7 billion dollars in 1939
earned in all sections of the country. The national income has been increasing
to substantially more than 15 billion dollars in 1942. This in an increase of about
75 percent.
since January 1, 1941, at the average rate of 2 percent each month. This pur-
chasing power now exceeds by an estimated 20 billions the amount of goods
The movement of uncontrolled food prices since May 18, 1042, the date when
which will be available for purchase by civilians this year. The result obviously
price regulation became effective, has been NO drastic as to constitute an immediate
is that people compete more and more for the available supply of goods; and the
to stabilize wages.
threat to the whole price structure, to the entire cost of living, and to any attempt
pressure of this great demand compared with the small supply-which will be-
come smaller and smaller-continually threatens to disrupt our whole price
Within 2 months after the date that price regulation became effective, the prices
structure.
of controlled foods actually fell seven-tenths of ] percent. But uncontrolled foods
A recent study by the Bureau of Labor Statistics has shown Very strikingly
advanced 7.3 percent during the same period, and are still going up.
how much the incomes of the average of families have gone up during the first
To give some specific examples: From May to August of this year round steak
quarter of 1942. If we assume that the income for the first quarter of 1942 is &
and pork chops, which are controlled, showed a slight decline; but during the
fair basis for estimating what the family Income will be for the entire year, the
same period lamb, which was uncontrolled up to July, advanced more than 10
results of the study show that whereas less than one-fourth of all families in the
percent, and chickens have advanced more than 16 percent.
United States received Be much as $2,500 in 1941, more than one-third will have
To take another example: Lard, which is a controlled product, dropped nearly
$2,500 or more in 1942. This shows how much the purchasing power of the
5 percent; whereas, butter, which is uncontrolled, went up more than 6 percent or
average American family has gone up as a result of war production and how
twice the normal seasonal rate. Oranges have gone up more than 25 percent,
essential it is to control that purchasing power by taxation and by investment in
although the normal seasonal increase is only about 6 or 7 percent.
war bonds.
Uncontrolled agricultural commodities include some of the most important of
We also know that as the war goes on there will not be an adequate supply of
the foods and include the grain foods necessary for livestock. When you con-
all civilian goods; that only through strict rationing, wherever necessary, will
sider that In this category are wheat, corn, oats, barley, rye, dry beans, cotton,
these goods be equitably distributed. We are determined that no group shall
sweetpotatoes, apples, sheep, butterfat, wholesale milk, chickens, eggs, and oranges
suffer a shrinkage of its normal quota of basic necessities because some richer
you can realize how important these products are to the pocketbook of the house-
wife.
group can buy all the available supply at high prices.
The greatest danger is in dairy products, which are, AS you know, most im-
In normal peacetimes the ordinary processes of collective bargaining are
portant Items in the American diet. Butter, cheese, and evaporated milk are
sufficient in themselves. But in wartimes and particularly in times of greatly
exempt under the Price Control Act. The prices for these have been going up 60
increasing prices, the Government itself has a very vital interest in seeing to Rt
fast that they constitute A serious threat to an adequate supply of fluid milk,
that wages are kept in balance with the rest of the economy. It is still the policy
of the Federal Government to encourage free collective bargaining between
Unless we are able to get control of butter, cheese, and other dairy products in the
very near future, the price of milk in large cities is certain to go up.
employers and workers; and that policy will continue. Owing to the fact that
If wages should be stabilized and farm prices be permitted to rise at any rate
costs of production are now, in so many cases, being passed on to the Govern-
like the present rate, workers will have to bear the major part of the increase.
ment, and that 50 large a percentage of profits would be taken away by taxation,
This we cannot ask. The Congress must realize that unless the existing control
collective bargaining between employers and employees has changed a great deal
over farm prices is strengthened, we must abandon our efforts to stabilize wages
from what it was in peacetimes. In times of danger to our economy the Govern-
and salaries and the cost of living. If that occurs, workers and farmers alike
ment itself must step into the situation to see to it that the processes of collec-
will not only suffer a reduction in real income, but will bring upon themselves and
tive bargaining and arbitration and conciliation are not permitted to break up
the Nation the unparalleled disaster of unchecked inflation.
the balances between the different economic factors in our system.
The reason why price cellings have not already been imposed on all food prod-
War calls for sacrifice. War makes sacrifice a privilege. That eacrifice will
uota is, as you know, that paragraph 3, of the Emergency Price Control Act
have to be expressed in terms of a lack of many of the things to which we all have
prohibita such cellings until farm prices B5 a whole have gone up beyond parity
become accustomed. Workers, farmers, white-collar people, and businessmen
prices-far beyond-as high BE an average of 16 percent beyond.
must expect that. No one can expect that, during the war, he will always be
Although that restriction upon establishing ceilings for farm products usually
able to buy what he can buy today.
la referred to as the 110 percent of parity limitation, It is much worse than that.
If we are to keep wages effectually stabilized, it becomes imperative, in fair-
The statute provides other limitations which are more drastic. Cellings cannot
ness to the worker, to keep equally stable the cost of food and clothing and shelter
be imposed, under the statute, on any product at a level below the market price
and other articles used by workers.
on October 1, 1941, or December 15, 1941, or the average price for the period July1,
Prices and rents should not be allowed to advance so drastically ahead of wage
1919 to June 30, 1929, or below 110 percent of current parity, whichever of those
rates that the real wages of workers as of today-their ability to buy food and
four levels is highest. As a result, the lowest average level for all farm commodi-
clothing and medical care-will be out down. For if the cost of living goes up as
ties at which ceilings may be imposed is not 110 percent, but 116 percent of
fast as it is threatening to do In the immediate future, it will be unjust, in fact
parity-some of the commodities going almost ne high as 150 percent of parity.
increase. impossible, to deny workers rises in wages which would meet at least & part of that
Even more important is the psychological effect of such onfair privi'ege, It
provides fuel for fires of resentment against farmers AS a favored class. After all,
The cost of all food used by wage earners-controlled and uncontrolled-has
parity is, by Its very definition, a fair relationship between the prices of the things
been going up at the rate of 1½ percent per month since the price ceilings were
farmers sell and the things they buy. Calculations of parity must include all
set in May 1942. If this rise should be permitted to continue, the increased cost
of food to wage earners next May would be more than 15 percent over the level
costs of production including the cost of labor. As a result parity prices may
which existed when the ceilings were set.
shift every time wage rates shift. Insisting that the ceilings on no farm com-
modity shall ever he lower than 110 percent of parity is asking for more than a
This would be equal to imposing A 15-percent sales tax on all food purchased
by wage earners. Obviously no one would consider imposing such a tax.
fair price relationship with other prices.
In fact, the limitations on agricultural ceilings are now being cited by other
groups as a reason for resisting economic controls that are needed in their OWD
Regraded Unclassified
8
AMENDING EMERGENCY PRICE CONTROL ACT
AMENDING EMERGENCY PRICE CONTROL ACT
9
are fields. in effect. The limitations will be a rallying point for such opposition as long as they
As I urged in my message of April 27, 1942, "the original and excellent objective
the people-to whom they belong.
When the war la won, the powers under which I not automatically revert to
of obtaining parity for the farmers of the United States should be restored."
day, formulated and enacted whatever was required to do the job before it-
calling for the most drastic measures. The Congress, alive to the needs of that
In March and April 1933, this Nation faced a threatening domestic situation
First, to hold the line against inflationary price increases, Second, to get the
Our policy with respect to farm products should be guided by three principles:
ciple of parity for agriculture.
required production of necessary farm products. Third, to maintain the prin-
any special group looking for advantages for Itself.
without long debate, without party polities, and without heed to the pressures of
which prevailed at some recent date, whichever is higher. In most cases the
Agricultural ceilings should be permitted at either parity or at the price levels
nitely more critical than it was 10 years ago. We are fighting & war of survival.
I need not argue the point that the situation facing the Nation today la Infi-
formula would preserve the general structure of wholesale and retail price con-
of the war will be imperiled by a runaway domestic economy.
Nothing can yield to the over-all necessity of winning this war, and the winning
preserve the parity principle.
trols, and would also call out the volume of production needed. Also, it would
As & part of our general program on farm prices, I recommend that Congress in
In regard to increasing the total of our food production, one of the worries
crops. The time is soon coming when in many parts of the country we shall have
that a farmer has today in the shortage of labor for cultivating and harvesting
floor under prices of farm products, in order to maintain stability in the farm mar-
due time give consideration to the advisability of legislation which would place &
ket for & reasonable future time, In other words, we should find a practicable
to use seasonally the help of women and grown young people. I feel certain the
method which will not only enable us to place A reasonable ceiling or maximum
Nation will cooperate wholeheartedly.
price upon farm products but which will enable us also to guarantee to the farmer
It not only would be unfair to labor to stabilize wages and do nothing about the
that he would receive a fair minimum price for his products for 1 year, or even 2
cost of food; it would be equally unfair to the farmer, For we must all remember
years-or whatever period in necessary after the end of the war, Every farmer
that the farmer's wife buys many articles of food at the store for the use of her
disaster of 1920 will not overtake him again.
if we act promptly and wisely, stabilize the farmers' economy NO that the post-war
remembers what happened to his prices after the last war. We can, I am sure,
housewife. own family, and high prices hurt her pocketbook as much BB that of the city
What is needed, therefore, in an over-all stabilisation of prices, salaries, wages,
The farmer, instead of looking forward to a new collapse in farm prices nt the
and profits, That is necessary to the continued production of planes and tanks
end of the war, should be able to look forward with assurance to receiving a fair
and ships and guns at the present constantly increasing rate.
We cannot hold the actual cost of food and clothing down to approximately
established by legislation.
minimum price for 1 or 2 years after the war. Such a national polley could be
the present level beyond October 1. But no one can give any assurances that
In computing parity, we should continue to use the computations of the Bureau
the cost of living can be held down after that date.
of Agricultural Economics made under the law as it stands today. And in deter-
Therefore, I nak the Congress to pasa legislation under which the President
mining whether a commodity has reached parity, we should Include all the benefits
would be specifically authorized to stabilize the cost of living, including the price
received by the farmer from his Government under the A, A. A. program, allocable
of all farm commodities. The purpose should be to hold farm prices at parity,
to the particular commodity. For it la unfair to give a farmer & parity price, and,
or at levels of a recent date, whichever is higher.
in addition, to pay him benefits which will give him far more than parity.
I ask the Congress to take this action by the 1st of October. Inaction on your
I have confidence that the American farmer who has been doing 80 much in the
part by that date will leave me with an inescapable responsibility to the people
battle of production of food will do as much in this struggle against economio
of this country to see to it that the war effort la no longer imperiled by threat of
forces which make for the disaster of inflation; for nobody knows better than the
economic chaos,
farmer what happens when inflationary, wartime booms are permitted to become
In the event that the Congress should fail to net, and not adequately, I shall
post-war panies.
accept the responsibility, and I will not.
With respect to point seven of the program of April 27, 1942, we have made
At the same time that farm prices are stabilized, wages can and will be stabilized
certain credit rulings designed to curtail unnecessary buying; and whatever else
also, This I will do,
has to be done along these lines will be done.
The President has the powers, under the Constitution and under congressional
With respect to point aix, rationing is now in effect on some commodities, and,
acts, to take measures necessary to avert a disaster which would interfere with
when necessary, will be extended to others.
the winning of the war,
But with respect to point 1-a fair tax program-that still waits upon the Con-
I have given the most thoughtful consideration to meeting this issue without
gress to act.
further reference to the Congress. I have determined, however, on this vital
One of the most powerful weapons in our fight to stabilize living costa is taxation.
matter to consult with the Congress,
It is a powerful wespon because it reduces the competition for consumers' goods-
There may be those who will say that, if the situation is as grave as I have
especially scarce foods,
stated it to be, I should use my powers and act now. I can only say that I have
The cooperation and self-restraint of the whole Nation will be required to sta-
approached this problem from every angle, and that I have decided that the course
bilize the cost of living. The stabilization of the cost of living cannot be main-
of conduct which I am following in this case is consistent with my sense of respon-
lained without heavy taxes on everyone except persons with very low incomes.
sibility as President in time of war, and with my deep and unalterable devotion
With such increases in the tax load, unfair tax distribution becomes less and less
to the processes of democracy.
tolerable. We can rightfully expect the fullest cooperation and self-restraint only
The responsibilities of the President in wartime to protect the Nation are very
If the tax burden is being fairly levied in accordance with ability to pay.
grave. This total war, with our fighting fronts all over the world, makes the use
This means that we must eliminate the tax exemption of interest on State and
of executive power far more essential than in any previous war.
local securities, and other special privileges or loopholes in our tax law.
If we were invaded the people of this country would expect the President to
It means that in the higher income brackets, the tax rate should be such as to
use any and all means to repel the invader.
give the practical equivalent of & top limit on an individual's net income after
The Revolution and the War between the States were fought on our own soil,
taxes, approximating $25,000. It means that we must recapture through taxation
but today this war will be won or lost on other continents and remote seas.
all wartime profits that are not necessary to maintain efficient all-out war pro-
I cannot tell what powers may have to be exercised in order to win this war.
duction. Such provisions will give assurance that the sacrifices required by war
The American people can be sure that I will use my powers with & full sense
are being equitably shared.
of my responsibility to the Constitution and to my country. The American
Next to military and naval victory, & victory along this economic front is of
people can also be sure that I shall not hesitate to use every power vested in me
paramount importance. Without it our war production program will be hindered.
to accomplish the defeat of our enemies in any part of the world where our own
Without it we would be allowing our young men, now risking their lives in the air,
eafety demands such defeat.
on land, and on the sea, to return to an economic mess of our own making. The
least that we at home can do for them is to see that our production Increases every
Regraded Unclassified
10
AMENDING EMERGENCY PRICE CONTROL ACT
day that 80 as to give them the weapons of war with which to fight, and to make
confidence and security.
our economy at home continues to be one to which they can return with sure
FRANKLIN D. ROOSEVELT.
THE WHITE HOUSE,
Hon. HENRY B. STEAGALL,
Washington, September 16, 1942.
The House of Representatives.
I the parity formula in connection with the legislation I requested on September
MY DEAR MR. STEAGALL: My attention has been drawn to proposals to revise
index of the prices which farmers pay that is used in computing parity prices.
understand that it is proposed to include certain allowance for farm labor in the 7.
I should like to make clear my unalterable opposition to any recomputation of
parity at this time. In my message of September 7 I stated, "In computing
parity, we should continue to use the computations of the Bureau of Agricultural
my policy.
Economics made under the law as it stands today." This will continue to be
buy. Calculations of parity must include all costa of production including the
a fair relationship between the prices of the things farmers sell and the things they
Earlier in my message I stated, "After all, parity is, by its very definition,
and it is fair because it now includes the labor cost incorporated in the prices of
cost of labor." By that I meant what the language states-that parity is fair,
the things which farmers buy. It is this which brings farmers into a fair relation-
ship does. with other groups. This is the purpose of parity. This the present formula
The parity principle for which this administration has stood since 1933 was
now, and to offer the public 100 percent of a new and higher parity, would be to
a good standard for peacetime-it is a good stand for war. To recalculate parity
offer stabilization, yet destroy the possibility of achieving it.
Sincerely yours,
FRANKLIN D. ROOSEVELT.
293
the
SW
st
will
2
STABILIZING THE COST OF LIVING
STABILIZING THE COST OF LIVING
3
To keep the cost of living from spiraling upward, wo must stabiliso the
A recent study by the Bureau of Labor Statistics has shown very strikingly
remuneration received by individuals for their work.
how much the incomes of the average of families have gone up during the first
4. To keep the cost of living from spiraling upward, wo must stabilize the
quarter of 1942. If we assume that the income for the first quarter of 1942 la a
prices received by growers for the products of their lands.
fair basis for estimating what the family income will be for the entire year, the
5. To keep the cost of living from spiraling upward, we must encourage all
results of the study show that whereas less than one-fourth of all families in the
eitizens to contribute to the cost of winning this war by purchasing War bonds
United States received as much as $2,500 in 1941, more than one-third will have
with their earnings instead of using those earnings to buy articles which are not
$2,500 or more in 1942. This shows how much the purchasing power of the aver-
essential.
Age American family has gone up as & result of war production and how essential
6. To keep the cost of living from spiraling upward, we must ration all essential
it is to control that purchasing power by taxation and by investment in war bonds.
eommodities of which there is a searcity, 50 that they may be distributed fairly
We also know that as the war goes on there will not be an adequate supply of
among consumers and not merely in accordance with financial ability to pay high
all civilian goods; that only through striet rationing, wherever necessary, will
prices for them.
these goods be equitably distributed. We are determined that no group shall
7. To keep the cost of living from spiraling upward, we must discourage credit
suffer a shrinkage of its normal quota of basic necessities because some richer
and Installment buying, and encourage the paying off of debts, mortgages, and
group can buy all the available supply at high prices.
other obligations; for this promotes savings, retards excessive buying, and adds
In normal peacetimes the ordinary prodesses of collective bargaining are
to the amount available to the creditors for the purchase of War bonds.
sufficient in themselves. But in wartimes and particularly in times of greatly
In my message of 4 months ago, I pointed out that in order to succeed in our
increasing prices, the Government Itself has a very vital Interest in seeing to
objective of stabilization it was necessary to move on all seven fronts at the same
It that wages are kept in balance with the rest of the economy. It is still the
time; but that two of them called for legislation by the Congress before action
policy of the Federal Government to encourage free collective bargaining between
could be taken. It was obvious then, and it is obvious now, that unless those
employers and workers; and that policy will continue. Owing to the fact that
two are realized, the whole objective must fall. These are points numbered one
costs of production are now, in 80 many cases, being passed on to the Govern-
and four: Namely, an adequate tax program, and A law permitting the fixing of
ment, and that so large a percentage of profits would be taken away by taxation,
price ceilings on farm products at parity prices.
collective bargaining between employers and employees has changed a great
I regret to have to call to your attention the fact that neither of these two essen-
deal from what it was in peacetimes. In times of danger to our economy the
tial pieces of legislation has as yet been enacted into law. That delay has now
Government itself must step into the situation to see to it that the processes of
reached the point of danger to our whole economy.
collective bargaining and arbitration and conciliation are not permitted to break
However, we are carrying out, by Executive action, the other parts of the
up the balances between the different economic factors in our system.
seven-point program which did not require eongressional action.
War calls for sucrifice. War makes sacrifice A privilege. That sacrifice will
Price ceilings have been fixed on practically all commodities (other than cer-
have to be expressed in terms of a lack of many of the things to which we all have
tain exempted agricultural products), and on rents in war-production areas of
become accostomed. Workers, farmers, white collar people and businessmen
the United States.
must expect that. No one can expect that, during the war, he will always be
This process of keeping prices and rents at ressonable levels constitutes one of
able to buy what he can buy today.
the most far-reaching economic steps that this Nation has ever taken-in time of
If we are to keep wages effectually stabilized. it becomes imperative, in fairness
peace or war.
to the worker, to keep equally stable the cost of food and clothing and shelter
Our experience during the last 4 months has proved that general control of
and other articles used by workers.
prices is possible-but only if that control is all-inclusive. If, however, the costs
Prices and rents should not be allowed to advance RO drastically ahead of wage
of production, including labor, are left free to rise indiscriminately, or if other
rates that the real wages of workers as of today-their ability to buy food and
major elements in the costs of living are left unregulated, price control becomes
fast as it in threatening to do in the immediate future, it will be unjust, in fact
clothing-and medical care-will be cut down. For if the cost of living goes up as
impossible, If markets are flooded with purchasing power in excess of available
goods, without taking adequate measures to siphon off the excess purchasing
impossible, to deny workers rises in wages which would meet at least a part of
power, price control becomes likewise impossible.
that increase.
Our entire effort to hold the cost of living at its present level in now being
The cost of all food used by wage earners-controlled and uncontrolled-has
sapped and undermined by further increases in farm prices and in wages, and
been going up at the rate of 1% percent per month since the price collings were not of
by an ever-continuing pressure on prices resulting from the rising purchasing
food to wage' earners next May would be more than 15 percent over the level
in May 1942. If this rise should be permitted to continue, the increased cost
power of our people,
Annual wage and salary disbursements have increased from 43.7 billion dollars
which existed when the ceilings were set.
in 1939 to an estimated 75 billion dollars in 1942. This represents an increase of
This would be equal to imposing a 15 percent sales tax on all food purchased
71 percent. To obtain a full appreciation of what that increase means, we should
by wage earners. Obviously no one would consider imposing such a tax.
remember that 75 billion dollars is more than our total national income was dur-
This drastic increase has been caused, and will be caused, chiefly by the fact
ing any single year in the 1930's. Due to constantly increasing employment,
that number of food commodities are exempt under existing law.
overtime, and wage-rate increases, the annual wage and salary bill for the entire
country has been rising by more than a billion dollars a month.
The cost of such food used by wage earners has been rising at an average 3%
In a the caso of these exempt commodities the increases are even more starting. of
It in impossible for the cost of living to be stabilized while farm prices-continue
to rise. You cannot expect the laborer to maintain a fixed wage level if every-
percent Prices per received month by since farmers May have 1, 1942. risen 85 percent since the outbreak of the war
thing he weare and cate begins to go up drastically in price. On the other hand,
in September 1939, and these prices are continuing to rise. Cash farm income, in 1939
It is impossible to keep any prices stable-farm prices or other prices-If wage
to substantially more than $15,000,000,000 in 1942. This is an increase
including Government payments, has increased from $8,700,000,000 of about
rates, one of the most important elements in the cost of production, continue to
increase.
75
But even if the process of stabilization of all prices and wages at present levels
The percent. movement of uneontrolled food prices since May 18, 1942, the date immediate when
were to be brought about, there would still remain the great upward pressure on
price regulation because effective, has been M drastic BE to constitute and an attempt
the cost of living created by the vast amount of purchasing power which has been
throat to the whole price structure, to the entire cost of living, to any
earned in all sections of the country. The national income has been increasing
to
since January 1, 1941, at the average rate of 2 percent each month. This pur-
Within stabilize 2 wages. months after the date that price regulation became effective, But uncon- the
chasing power now exceeds by an estimated 20 billions the amount of goods
prices trolled foods advanced 7.3 percent during the same period, and are round steak
of controlled foods actually fell seven-tenths of 1 percent. etill going up.
which will be available for purchase by civilians this year. The result obviously
is that people compete more and more for the available supply of goods; and the
pressure of this great demand compared with the small supply-which will become
and pork give chops, which are controlled, showed A slight decline; but during
To some specific examples: From May to August of this year the same
smaller and smaller-continually threatens to disrupt our whole price structure.
Regraded Unclassified
4
STABILIZING THE COST OF LIVING
STABILIZING THE COST OF LIVING
5
period lamb, which was uncontrolled up to July, advanced more than 10 percent
and chickens have advanced more than 16 percent.
that the farmer's wife buys many articles of food at the store for the une of her
To take another example: Lard, which is a controlled product, dropped nearly
own housewife. family, and high prices hurt her pocketbook as much as that of the city
5 percent; whereas butter, which is uneontrolled, went up more than 6 percent OF
twice the normal sessonal rate. Oranges have gone up more than 25 percent
What in needed, therefore, is an over-all stabilization of prices, salaries, wages,
although the normal seasonal increase is only about 6 or 7 percent.
and profits. That in necessary to the continued production of planes and tanks
Uncontrolled agricultural commodities include some of the most important of
and ships and guns at the present constantly increasing rate.
the foods and include the grain foods necessary for livestock. Whon you consider
We cannot hold the actual cost of food and clothing down to approximately the
that in this category are wheat, corn, oata, barley, rye, dry beans, cotton, sweet-
present level beyond October 1. But no one can give any assurances that the
cost of living can be held down after that date.
potatoes, apples, sheep, butterfat, wholesale milk, ebickens, eKKy, and oranges
you can realize how important these products are to the pocketbook of the
Therefore, I ask the Congress to pass legislation under which the President
housewife.
would be specifically authorized to stabilize the cost of living, including the price
The greatest danger is in dairy products, which are, as you know, most important
of all farm commodities. The purpose should be to hold form prices at parity,
or at levels of a recent date, whichever is higher.
items in the American diet. Butter, cheese, or evaporated milk are exempt under
the Price Control Act. The prices for these have been going up 80 fast that they
I nak the Congress to take this action by the let of October. Inaction on your
constitute a serious threat to an adequate supply of fluid milk. Unless we are
part by that date will leave me with an inceeapable responsibility to the people
able to get control of butter, cheese, and other dairy products in the very near
of this country to see to it that the war effort is no longer imperiled by threat of
future, the price of milk in large cities is certain to go up.
economie chaos,
If wages should be stabilized and farm prices be permitted to rise at any rate
In the event that the Congress should fail to act, and act adequately, I shall
like the present rate, workers will have to bear the major part of the increase,
accept the responsibility, and I will net.
This we cannot ask. The Congress must realize that unless the existing control
At the same time that farm prices are stabilised, wages can and will be stabilised
also. This I will do.
over farm prices is strengthened, we must abandon our efforts to stabilize Wages
and salaries and the cost of living. If that occurs, workers and farmers alike
The President has the powers, under the Constitution and under congressional
will not only suffer a reduction in real income, but will bring upon themselves
acts, to take measures necessary to avert a disaster which would interfere with
and the Nation the unparalleled disaster of unchecked inflation.
the winning of the war.
The reason why price cellings have not already been imposed on all food prod-
1 have given the most thoughtful consideration to meeting this issue without
further reference to the Congress. I have determined, however, on this vital
ucts is, as you know, that paragraph 3 of the Emergency Price Control Act
matter to consult with the Congress.
probibits such cellings until farm prices as a whole have gone up beyond parity
prices-far beyond-as high as an average of 16 percent beyond.
There may be those who will say that, if the situation is as grave as I have
stated it to be, I should use my powers and act now. 1 can only say that I have
Although that restriction upon establishing ceilings for farm products usually
is referred to as the 110-percent-of-parity limitation, it is much worse than that.
approached this problem from every angle, and that 1 have decided that the
course of conduct which I am following in thie case is consistent with my sense
The statute provides other limitations which are more drastic. Ceilings cannot
be imposed, under the statute, on any product at a level below the market price
of responsibility BS President in time of war, and with my deep and unalterable
on October 1, 1941, or December 15, 1941. or the average price for the period
devolion to the processes of democracy,
The responsibilities of the President in wartime to protect the Nation are very
July 1, 1919, to June 30, 1929, or below 110 percent of current parity, whichever
of those four levels is highest. As IL result, the lowest average level for all farm
grave. This total war, with our fighting fronts all over the world, makes the use
of executive power far more essential than in any previous war.
commodities at which cellings may be imposed is not 110 percent, but 116 persent
If we were invaded, the people of this country would expect the President to
of parity-some of the commodities going almost as high as 150 percent of parity.
Even more important is the psychological effect of such unfair privilege. It
use any and all means to repel the invader.
The Revolution and the War between the States were fought on our own soil,
provides fuel for fires of resentment against farmers BLH a favored class, After
but today this war will be won or lost on other continente and remote seas.
all. parity is, by its very definition, n fair relationship between the prices of the
I cannot tell what powers may have to be exercised in order to win this war.
things farmers sell and the things they buy. Calculations of parity must include
The American people can be sure that I will use my powers with a full sense of
all costa of production including the cost of labor. As a result parity prices may
shift every time wage rates shift. Insisting that the ceilings on no farm com-
my responsibility to the Constitution and to my country. The American people
can also be sure that 1 shall not hesitate to use every power vested in me to
modity shall ever be lower than 110 percent of parity is asking for more than a
accomplish the defeat of our enemies in any part of the world where our own safety
fair price relationship with other prices.
demands such defeat.
In fact, the limitations on agricultural ceilings are now being cited by other
When the war is won, the powers under which I act automatically revert to the
groups ne a reason for resisting economie controls that are needed in their own
fields, The limitations will be a rallying point for such opposition as long as they
people-to whom they belong.
In March and April 1933 this Nation faced a threatening domestic situation
are in effect.
As I urged in my message of April 27, 1942, "the original and execllent objective
calling for the most drastic measures. The Congress, alive to the needs of that
day, formulated and enacted whatever was required to do the job before it-
of obtaining parity for the farmers of the United States should be restored."
without long debate, without party polities, and without heed to the pressures of
Our policy with respect to farm products should be guided by three principles:
First, to hold the line against inflationary price increases. Second, to get the
any special group looking for advantages for itself.
I need not argue the point that the situation facing the Nation today is infi-
required production of necessary farm products. Third. to maintain the principle
nitely more critical than it was 10 years ago. We are fighting a war of survival.
of parity for agriculture.
Nothing can vield to the over-all necessity of winning this war, and the winning
Agricultural cellings should be permitted at either parity or at the price levels
which prevailed at some recent date, whichever is higher. In most cases the
of the war will be impariled by a run-away domestic economy.
formula would preserve the general structure of wholesale and retail price controls.
due time give consideration to the advisability of legislation which would place a
Aa a part of our general program on farm prices, I recommend that Congress in
and would also call out the volume of production needed. Also, it would preserve
the parity principle.
floor under prices of farm products, in order to maintain stability in the farm method market
for a reasonable future time. In other words, we should find a practicable
In regard to increasing the total of our food production, one of the worries that
farm products but which will enable us also to guarantee to the farmer 2 that
which will not only enable us to place a reasonable celling or maximum price upon he
a farmer has today is the shortage of labor for cultivating and harvesting eropr.
The time is soon coming when in many parts of the country we shall have to use
or whatever period is necessary after the end of the war. Every farmer remembers if act
would receive a fair minimum price for his product for 1 year, or even years-
seasonally the help of women and grown young people. I feel certain the Nation
will cooperate wholeheartedly.
what happened to his prices after the last war. We can, I am sure, disaster we
It not only would be unfair to labor to stabilize wages and do nothing about the
promptly and wisely, stabilize, the farmers' economy so that the post-war
cost of food; it would be equally unfair to the farmer. For we must all remember
of 1020 will not overtake him again.
Regraded Unclassified
6
STABILIZING THE COST OF LIVING
STABILIZING THE COST OF LIVING
7
The farmer, instead of looking forward to a new collepse in farm prices at the
The country's basic standards of living are being increasingly
end of the war, should be able to look forward with assurance to receiving a fair
threatened by the upward pressure of uncontrolled items. For
minimum price for I or 2 years after the war. Such a national policy could be
established by legislation.
example, from the middle of May to the middle of August, the price
In computing parity, we should continue to lise the computations of the Bureau
of uncontrolled food items advanced 9.8 percent ns contrasted with
of Agricultural Economics made under the law as it stands today. And in de-
the price of controlled foods which dropped 0.3 percent. This in-
termining whether a commodity has reached parity, we should include all the
crease in the prices of uncontrolled foods, which occurred at a rate
benefits received by the farmer from his Government under the Agricultural
Adjustment Administration program, allocable to the particular commodity.
of 40 percent a year, was responsible for substantially all of the
For it in unfair to give a farmer a parity price, and, in addition, to pay him benefits
increase in the cost of living during that period. These uncontrolled
which will give him far more than parity.
items represent 40 percent of all the food purchased by an average
I have confidence that the American farmer who has been doing su much in
American family. Existing limitations of section 3 (n) and section
the battle of production of food will do an much in this struggle against economic
forces which make for the disaster of inflation; for nobody knows botter than the
3 (e) of the Emergency Price Control Act of 1942 make it impossible
farmer what happens when inflationary, wartime booms are intited to become
adequately to deal with this situation.
post-war panies.
This resolution authorizes the President to suspend section 3 (a)
With respect to point seven of the program of April 27, 1942, we have made
and 3 (e) of the Emergency Price Control Act of 1942. Prices re-
certain credit rulings designed to curtail unnecessary buying; and whatever elso
has to be done along these lines will be done.
ceived by farmers have risen 85 percent from August 1939 to August
With respect to point 6, rationing is now in effect on some commodities, and
1942. Prices paid by farmers have risen only 22 percent in the
when necessary, will be extended to others.
same period. As a result, the index of all farm prices has gone up
But with respect to point 1-a fair tax program-that still waits upon the
from 70 percent of parity to 107 percent of parity. These gains are
Congress to net.
One of the most powerful weapons in our fight to stabilize living costs in taxa-
protected by the joint resolution. No maximum price may be es-
tion. It is 14 powerful weapon because it reduces the competition for consumers"
tablished or maintained for any agricultural commodity or for any
goods-especially scarce foods,
commodity processed or manufactured in whole or substantial part
The cooperation and self-restraint of the whole Nation will be required to sta-
from any agricultural commodity below the price which will reflect
bilize the cost of living. The stabilization of the cost of living cannot be main-
tained without heavy taxes on everyone except persons with very low incomes.
to the producers of agricultural commodities either a parity price
With such increases in the tax load, unfair tax distribution becomes lesse and less
for that commodity or the highest price received by the producers
tolerable. We ean rightfully expect the fullest cooperation and self-restraint
between January 1 and September 15, 1942, adjusted for grade, loca-
only if the tax burden is being fairly levied in accordance with ability to pay.
tion, and seasonal differentials.
This means that we must eliminate the tax exemption of interest on State and
Thus the joint resolution insures, that the farmers will receive
local securities, and other special privileges or loopholes in our tax law.
It means that in the higher income brackets, the tax rate should be such as to
parity income, while nt the same time insuring that the prices for
give the practical equivalent of a top limit on an individual's net income after taxes,
agricultural commodities will not rise to such a further point as to
approximating $25,000. It means that we must recapture through taxation all
threaten our entire national economy.
wartime profits that are not necessary to maintain efficient all-out war production.
The situation with respect to wages and salaries is equally serious.
Such provisions will give assurance that the sacrifices required by war are being
equitably shared.
Since 1939, hourly wage rates in all manufacturing industries have
Next to military and naval victory, IL victory along this economic front in of
advanced about 30 percent and the aggregate of wages and salaries
paramount importance. Without it our war production program will be hin-
paid out has advanced 71 percent. From January 1, 1941, to May
dered. Without it we would be allowing our young men, now risking their lives
in the air, on land, and on the sea, to return to an economic mess of our own
1942, unit labor costs increased at the average rate of 1.1 percent per
month. Unit labor costs will unquestionably increase still further,
making.
The least that we at home can do for them is to see that our production increases
even spart from increases in wage rates, as a consequence of the loss
every day so as to give them the weapons of war with which to fight, and to make
of skilled workers, introduction of less skilled labor and inevitable
sure that our economy al home continues to be one to which they can return with
transportation and other delays.
eonfidence and security.
FRANKLIN D. ROOKEYELT.
At present, salaries are wholly uncontrolled, and wage decisions of
THE WHITE House, September 7, 1942,
the War Labor Board are limited, under existing authority, to dis-
putes brought before it by the parties. But full control of wages and
II
salaries must proceed simultaneously with control of food cost. Wages
and salaries cannot be wholly stabilized if the costs of the food that
THE NEED FOR LEGISLATION
the employee buys continues to rise.
The facts presented in the President's message and in testimony
Higher wages and higher farm incomes give impetus to the rising
before your committee disclose clearly that certain basic factors
inflationary tides in still another way, by expanding consumer pur-
affecting the cost of living are inadequately controlled in large part
chasing power at n. time when the volume of consumer goods, services,
because of existing limitations upon administrative powers. In
and other needs are rapidly diminishing.
recent months, the economic situation has passed from the critical to
Drastic action is imperative if we are not to have disastrous inflation.
That action cannot wait until tomorrow, next week or next month.
the dangerous. There are impending immediately over the horizon
By then it will be too late. It must be taken now. To insure that
such extreme inflationary increases in the cost of living ns may
there will be no delay the joint resolution requires the President on
jeopardize our entire war program and our economic stability.
or before November 1, 1942, to issue a general order stabilizing prices,
wages, and sularies affecting the cost of living.
Regraded Unclassified
8
STABILIZING THE COST OF LIVING
STABILIZING THE COST OF LIVING
9
III
to be taken under the resolution for the purpose of reducing wages or
salaries for any particular work below the highest wages or salaries
ANALYSIS BY SECTIONS
paid therefor between January 1 and September 15, 1942, except
Section 1 of the joint resolution, na reported, authorizes and directs
that the President may adjust such wages or salaries to the extent that
the President, in order to aid in the effective prosecution of the war,
he finds necessary to correct gross inequities.
to issue a general order on or before November 1, 1942, stabilizing
Section 5 of the joint resolution as reported prohibits employers
prices, wages, and salaries, affecting the cost of living, and provides
from paying, and employees from receiving, wages or sularies in con-
that such stabilization so far as practicable shall be on the busis of
travention of regulations promulgated by the President. A penalty
of not more than $1,000 is provided for willful violations of such
the levels which existed on September 15, 1942, except as otherwise
regulations. The President may also provide the extent to which
provided in the joint resolution. The President may thereafter pro-
any wage or salary payment made in contravention of such regulations
vide for making adjustments with respect to prices, wages, and salaries
to the extent that he finds necessary to correct gross inequities, and
shall be disregarded by governmental agencies in determining the
costs or expenses of employers.
in case such adjustments are by way of increases he may also act to
the extent that he finds necessary to aid in the effective prosecution
Section 6 of the joint resolution as reported provides for terminating
the resolution and all regulations thereunder on June 30, 1944, or
of the war. Existing controls with respect to rents are not affected.
on such earlier date as the Congress by concurrent resolution, or the
Section 2 of the joint resolution as reported authorizes the President
President by proclamation, may prescribe. An exception is made
to promulgate such regulations as may be necessary and proper to
in the case of sections 8 and 9 relating to loans upon agricultural
carry out its provisions, and to exercise any power or authority con-
commodities by the Commodity Credit Corporation, since such
ferred upon him by the resolution through such department, agency,
sections are applicable to crops of the commodities for any calendar
or officer as he shall direct. Provision is also made for the suspension
by the President of sections 3 (a) and 3 (c) of the Emergency Price
year which begins during the continuance of the present war.
Section 7 (a) of the joint resolution as reported extends the life of
Control Act of 1942 to the extent that such sections are inconsistent
with the provisions of the resolution, and it is also provided that he
the Emergency Price Control Act of 1942 from June 30, 1943, to
June 30, 1944.
may not under the authority of the resolution suspend any other
Section 7 (b) provides for making applicable to regulations or orders
law or part thereof.
issued by the Price Administrator in exercising any functions delegated
Section 3 of the joint resolution as reported provides a now price
to him under the resolution, all provisions (including prohibitions and
limitation for the establishment or maintenance of maximum prices
penalties) of the Emergency Price Control Act of 1942 which are ap-
for any agricultural commodity or for any commodity processed or
plicable with respect to orders or regulations under such net. This
manufactured in whole or substantial part from any agricultural com-
makes clear that all provisions of the Emergency Price Control Act,
modity. This new basis would not permit action to be taken under
including administrative, procedural, and punitive sections, are appli-
the joint resolution or otherwise with respect to the establishment or
eable to regulations issued pursuant to any authority conferred under
maintenance of such maximum prices if such prices will not reflect to
this joint resolution, as well as to regulations issued or to be issued
producers of agricultural commodities either (1) the parity or com-
by the Administrator under the Price Control Act.
parable price for the commodity (adjusted by the Secretary of Agri-
Section 7 (e) provides that nothing in the resolution shall be con-
culture for grade, location, and seasonal differentials), or (2) the highest
strued to invalidate any provision of the Emergency Price Control
price received by such producers for the commodity between Jan-
Act of 1942 (except sections 3 (a) and 3 (e) of such act) or to invalidate
uary 1 and September 15, 1942 (similarly adjusted), whichever is
any regulation, price schedule, or order issued or effective under such
higher. The President may, however, without regard to the limita-
act. This section is intended to make it clear that any regulation
tion contained in (2), adjust any such maximum price to the extent
heretofore or hereafter issued and valid under the Emergency Price
that he finds necessary to correct gross inequities. This is not true,
Control Act is not in any way impaired.
however, with respect to the limitation contained in clause (1).
Section 8 of the joint resolution as reported provides that, for crops
It is further provided that modifications shall be made, under regula-
for the year 1942 and subsequent years which begin during the con-
tions to be prescribed by the President, in such maximum prices if it
tinuance of the present war, the basic loan rate for the mandatory
appears that such modifications are necessary to increase production
loans made by the Commodity Credit Corporation on the six basic
of the commodity for war purposes, or if it is satisfactorily shown that
agricultural commodities (wheat, corn, cotton, rice, tobacco, and
by reason of increased labor or other costs to the producer of the
peanuts) shall be 90 percent of parity instead of 85 percent of parity
agricultural commodity the maximum prices 80 established will
as provided by present law. In other respects these loans will be made
result in gross inequities.
subject to the provisions of present law. Loans will not be made on
Section 4 of the joint resolution as reported imposes limitations
crops for which producers have disapproved marketing quotas.
upon any action taken under the authority of the resolution with
Section 9 of the joint resolution as reported amends section 4 of the
respect to wages or sularies, No action is to be taken which is incon-
act of July 1, 1941 (the Stengall amendment), which now provides
sistent with the provisions of the Fair Labor Standards Act of 1938,
that whenever the Secretary of Agriculture finds it necessary to
as amended, or the National Labor Relations Act. Also, no action is
encourage the expansion of production of any nonbasic agricultural
Regraded Unclassified
10
STABILIZING THE COST OF LIVING
commodity, he shall use the funds available to him so as to support
(through commodity loans, purchases, or other operations) a price for
such commodity of not less than 85 percent of the parity or compar-
able price. The amendments made by this joint resolution provide
(1) that when the Secretary has undertaken to support the price of
an agricultural commodity under this section, such support shall be
continued until the end of the present war, (2) that the price shall be
supported at not less than 90 percent of the parity or comparable price
(in lieu of the present 85 percent), and (3) that for the purposes of the
section peanuts shall be regarded as a basic commodity.
Section 10 of the resolution as reported defines the terms "wages"
and "salaries" to include additional compensation on an annual or
other basis paid by employers to their employees for personal services
(excluding insurance and pension benefits in a reasonable amount to
be determined by the President); but for any period prior to Septem-
ber 16, 1942, such additional compensation is to be taken into account
only where it has been customarily paid. This means that additional
compensation of employees in the form of bonuses, insurance or pen-
sion benefits, or other forms will be subject to stabilization and regu-
lation under the joint resolution. In cases where emplóyers have
customarily paid such compensation in the past, they could, subject
to the power to make adjustments to correct gross inequities, continue
to make such payments. In cases where such compensation has not
been customarily paid in the past, its payment in the future would
be regarded as a wage or salary increase for the purposes of this joint
resolution. However, an exception is made with respect to insurance
and pension benefits, in a reasonable amount to be determined by
the President, so that employers may in the future provide such
benefits for their employees even though they have not provided such
benefits in the past.
Regraded Unclassified
295
296
77TH CONGRESS
2d Session
}
HOUSE OF REPRESENTATIVES
DOCUMENT
No. 834
PLACING A FLOOR UNDER PRICES OF FARM PRODUCTS
MESSAGE
FROM
THE PRESIDENT OF THE UNITED STATES
TRANSMITTING
A RECOMMENDATION THAT CONGRESS PASS LEGISLATION
PLACING A FLOOR UNDER PRICES OF FARM PRODUCTS
SEPTEMBER 7, 1942.-Referred to the Committee on Banking and Currency and
ordered to be printed
WASHINGTON, D. C., September 7, 1942.
To the Congress of the United States:
Four months ago, on April 27, 1942, I laid before the Congress a
seven-point national economic policy designed to stabilize the domestic
economy of the United States for the period of the war. The objective
of that program was to prevent any substantial further rise in the cost
of living.
It is not necessary for me to enumerate again the disastrous results
of a runaway cost of living-disastrous to all of us, farmers, laborers,
businessmen-the Nation itself. When the cost of living spirals
upward. everybody becomes poorer, because the money he has and
the money he earns buys so much less. At the same time the cost of
the war, paid ultimately from taxes of the people, is needlessly in-
creased by many billions of dollars. The national debt, at the end of
the war, would become unnecessarily greater. Indeed, the prevention
of a spiraling domestic economy is & vital part of the winning of the
war itself.
I reiterate the seven-point program which I presented April 27,
1942:
1. To keep the cost of living from spiraling upward, we must tax
heavily, and in that process keep personal and corporate profits at a
reasonable rate, the word "reasonable" being defined at a low level.
2. To keep the cost of living from spiraling upward, we must fix
ceilings on the prices which consumers, retailers, wholesalers, and
manufacturers pay for the things they buy; and céilings on rents for
dwellings in all areas affected by war industries,
2
PLACING A FLOOR UNDER PRICES OF FARM PRODUCTS
PLACING A FLOOR UNDER PRICES OF FARM PRODUCTS
3
3. To keep the cost of living from spiraling upward, we must stabi-
the 1930's. Due to constantly increasing employment, overtime, and
lize the remuneration received by individuals for their work.
wage-rate increases, the annual wage and salary bill for the entire
4. To keep the cost of living from spiraling upward, we must stabi-
country has been rising by more than a billion dollars a month.
lize the prices received by growers for the products of their lands.
It is impossible for the cost of living to be stabilized while farm
5. To keep the cost of living from spiraling upward, we must
prices coutinue to rise. You cannot expect the laborer to maintain &
encourage all citizens to contribute to the cost of winning this war by
fixed wage level if everything he wears and eats begins to go up
purchasing War bonds with their earnings instead of using those
drestically in price. On the other hand, it is impossible to keep any
earnings to buy articles which are not essential.
prices stable-farm prices or other prices-if wage rates, one of the
6. To keep the cost of living from spiraling upward, we must ration
most important elements in the cost of production, continue to
all essential commodities of which there is a scarcity, so that they may
increase.
be distributed fairly among consumers and not merely in accordance
But even if the process of stabilization of all prices and wages at
with financial ability to pay high prices for them.
present levels were to be brought about, there would still remain the
7. To keep the cost of living from spiraling upward, we must dis-
great upward pressure on the cost of living created by the vast amount
courage credit and installment buying, and encourage the paying off of
of purchasing power which has been earned in all sections of the
debts, mortgages, and other obligations; for this promotes savings,
country. The national income has been increasing since January 1,
retards excessive buying, and adds to the amount available to the
1941, at the average rate of 2 percent each month. This purchasing
creditors for the purchase of War bonds.
power now exceeds by an estimated 20 billions the amount of goods
In my message of 4 months ago, I pointed out that in order to
which will be available for purchase by civilians this year. The
succeed in our objective of stabilization it was necessary to move on
result obviously is that people compete more and more for the availa-
all seven fronts at the same time; but that two of them called for
ble supply of goods; and the pressure of this great demand compared
legislation by the Congress before action could be taken. It was
with the small supply-which will become smaller and smaller-
obvious then, and it is obvious now, that unless those two are realized,
continually threatens to disrupt our whole price structure.
the whole objective must fail. These are points numbered 1 and
A recent study by the Bureau of Labor Statistics has shown very
4-namely, an adequate tax program and a law permitting the
strikingly how much the incomes of the average of families have gone
fixing of price ceilings on farm products at parity prices.
up during the first quarter of 1942. If we assume that the income for
I regret to have to call to your attention the fact that neither of
the first quarter of 1942 is a fair basis for estimating what the family
these two essential pieces of legislation has as yet been enacted into
income will be for the entire year, the results of the study show that
law. That delay has now reached the point of danger to our whole
whereas less than one-fourth of all families in the United States re-
ceived as much as $2,500 in 1941, more than one-third will have
economy.
However, we are carrying out, by Executive action, the other parts
$2,500 or more in 1942. This shows how much the purchasing power
of the seven-point program which did not require congressional action.
of the average American family has gone up as a result of war produc-
Price ceilings have been fixed on practically all commodities (other
tion and how essential it is to control that purchasing power by taxa-
than certain exempted agricultural products), and on rents in war-
tion and by investment in War bonds.
We also know that as the war goes on there will not be an adequate
production areas of the United States.
This process of keeping prices and rents at reasonable levels con-
supply of all civilian goods; that only through strict rationing, wher-
stitutes one of the most far-reaching economic steps that this Nation
ever necessary, will these goods be equitably distributed. We are
determined that no group shall suffer a shrinkage of its normal quota
has ever taken-in time of peace or war.
of basic necessities because some richer group can buy all the available
Our experience during the last 4 months has proved that general
control of prices is possible-but only if that control is all inclusive.
supply at high prices.
In normal peacetimes the ordinary processes of collective bargaining
If, however, the costs of production, including labor, are left free to
are sufficient in themselves. But in wartimes and particularly in
rise indiscriminately, or if other major elements in the costs of living
times of greatly increasing prices, the Government itself has EL very
are left unregulated, price control becomes impossible. If markets
vital interest in seeing to it that wages are kept in balance with the
are flooded with purchasing power in excess of available goods, with-
rest of the economy. It is still the policy of the Federal Government
out taking adequate measures to siphon off the excess purchasing
to encourage free collective bargaining between employers and workers;
power, price control becomes likewise impossible.
and that policy will continue. Owing to the fact that costs of pro-
Our entire effort to hold the cost of living at its present level is now
duction are now, in so many cases, being passed on to the Govern-
being sapped and undermined by further increases in farm prices and
ment, and that so large a percentage of profits would be taken away
in wages, and by an ever-continuing pressure on prices resulting from
by texation, collective bargaining between employers and employees
the rising purchasing power of our people.
has changed B great deal from what it was in peacetimes. In times
Annual wage and salary disbursements have increased from 43.7
of danger to our economy the Government itself must step into the
billion dollars in 1939 to an estimated 75 billion dollars in 1942. This
situation to see to it that the processes of collective bargaining and
represents an increase of 71 percent. To obtain a full appreciation of
arbitration and conciliation are not permitted to break up the balances
what that increase means, we should remember that 75 billion dollars
between the different economic factors in our system.
is more than our total national income was during any single year in
Regraded Unclassified
4
PLACING A FLOOR UNDER PRICES OF FARM PRODUCTS
PLACING A FLOOR UNDER PRICES OF FAHM PRODUCTS
5
War calls for sacrifico. War makes sacrifice n. privilege. That
Uncontrolled agricultural commodities include some of the most
sacrifice will have to be expressed in terms of B lack of many of the
important of the foods and include the grain foods necessary for live-
things to which we all have become accustomed. Workers, farmers,
stock. When you consider that in this category are wheat, corn, oats,
white-collar people, and businessmen must expect that. No one can
barley, rye, dry beans, cotton, sweetpotatoes, apples, sheep, butterfat,
expect that, during the war, he will always be able to buy what he
wholesale milk, chickens, eggs, and oranges, you can realize how
can buy today.
important these products are to the pocketbook of the housewife.
If we are to keep wages effectually stabilized, it becomes imperative,
The greatest danger is in dairy products, which are, na you know,
in fairness to the worker, to keep equally stable the cost of food and
most important items in the American diet. Butter, cheese, and
clothing and shelter and other articles used by workers.
evaporated milk are exempt under the Price Control Act. The prices
Prices and rents should not be allowed to advance so drastically
for these have been going up so fast that they constitute a serious
ahead of wage rates that the real wages of workers BS of today-their
threat to an adequate supply of fluid milk. Unless we are able to get
ability to buy food and clothing and medical care-will be cut down.
control of butter, cheese, and other dairy products in the very near
For if the cost of living goes up as fast ns it is threatening to do in the
future, the price of milk in large cities is certain to go up.
immediate future, it will be unjust, in fact impossible, to deny workers
If wages should be stabilized and farm prices be permitted to rise
rises in wages which would meet at least 8 part of that increase.
at any rate like the present rate, workers will have to bear the major
The cost of all food used by wage earners-controlled and un-
part of the increase. This we cannot nsk. The Congress must realize
controlled-has been going up at the rate of 1½ percent per month
that unless the existing control over farm prices is strengthened, we
since the price ceilings were set in May 1942. If this rise should be
must abandon our efforts to stabilize wages and salaries and the cost of
permitted to continue, the increased cost of food to wage earners next
living. If that occurs, workers and farmers nlike will not only suffer
May would be more than 15 percent over the level which existed when
at reduction in real income, but will bring upon themselves and the
the ceilings were set.
Nation the unparalleled disaster of unchecked inflation.
This would be equal to imposing a 15-percent sales tax on all food
The reason why price ceilings have not already been imposed on
purchased by wage earners. Obviously no one would consider im-
all food products is, as you know, that paragraph 3 of the Emergency
posing such IL tax.
Price Control Act prohibits such ceilings until farm prices as a whole
This drastic increase has been caused, and will be caused, chiefly
have gone up beyond parity prices-far beyond-as high BB on aver-
by the fact that a number of food commodities are exempt under
age of 16 percent beyond.
existing law.
Although that restriction upon establishing ceilings for farm prod-
In the case of these exempt commodities the increases are even
ucts usually is referred to as the 110 percent of parity limitation, it
more startling. The cost of such food used by wage earners has been
is much worse than that. The statute provides other limitations
rising at an average of 3% percent per month since May 1, 1942.
which are more drastic. Ceilings cannot be imposed, under the
Prices received by farmers have risen 85 percent since the outbreak
statute, on any product at a level below the market price on October
of the war in September 1939, and these prices are continuing to rise.
1, 1941, or December 15, 1941, or the average price for the period
Cash farm income, including Government payments, has increased
July 1, 1919 to June 30, 1929. or below 110 percent of current parity,
from 8.7 billion dollars in 1939 to substantially more than 15 billion
whichever of those four levels is highest. As a result, the lowest
dollars in 1942. This is an increase of about 75 percent.
average level for all farm commodities at which ceilings may be
The movement of uncontrolled food prices since May 18, 1942, the
imposed is not 110 percent, but 116 percent of parity-some of the
date when price regulation became effective, has been so drastic as to
commodities going almost as high as 150 percent of parity.
constitute an immediate threat to the whole price structure, to the
Even more important is the psychological effect of such unfair
entire cost of living, and to any attempt to stabilize wages.
privilege. It provides fuel for fires of resentment against farmers as
Within 2 months after the date that price regulation became
a favored class. After all, parity is, by its very definition, a fair
effective, the prices of controlled foods actually fell seven-tenths
relationship between the prices of the things farmers sell and the
of 1 percent. But uncontrolled foods advanced 7.3 percent during
things they buy. Calculations of parity must include all costs of
the same period, and are still going up.
production including the cost of labor. As n. result parity prices may
To give some specific examples: From May to August of this year
shift every time wage rates shift. Insisting that the ceilings on no
round steak and pork chops, which are controlled, showed n slight
farm commodity shall ever be lower than 110 percent of parity is
decline; but during the same period lamb, which was uncontrolled
asking for more than B. fair price relationship with other prices.
up to July, advanced more than 10 percent, and chickens have ad-
In fact, the limitations on agricultural ceilings are now being cited
vanced more than 16 percent.
by other groups as a reason for resisting economic controls that are
To take another example: Lard, which is a controlled product,
needed in their own fields. The limitations will be a rallying point
dropped nearly 5 percent; whereas, butter, which is uncontrolled,
for such opposition as long as they are in effect.
went up more than 6 percent or twice the normal seasonal rate.
As I urged in my message of Ápril 27, 1942, "the original and ex-
Oranges have gone up more than 25 percent, although the normal
cellent objective of obtaining parity for the farmers of the United
seasonal increase is only about 6 or 7 percent.
States should be restored."
Regraded Unclassified
6
PLACING A FLOOR UNDER PRICES OF FARM PRODUCTS
PLACING A FLOOR UNDER PRICES OF FARM PRODUCTS
7
Our policy with respect to farm products should be guided by three
The responsibilities of the President in wartime to protect the
principles: First, to hold the line against inflationary price increases.
Nation are very grave. This total war, with our fighting fronts all
Second, to get the required production of necessary farm products.
over the world, makes the use of executive power far more essential
Third, to maintain the principle of parity for agriculture.
than in any previous war.
Agricultural ceilings should be permitted at either parity or at the
If we were invaded the people of this country would expect the
price levels which prevailed at some recent date, whichever is higher.
President to use any and all means to repel the invader.
In most cases the formula would preserve the general structure of
The Revolution and the War between the States were fought on
wholesale and retail price controls, and would also call out the volume
our own soil, but today this war will be won or lost on other continents
of production needed. Also, it would preserve the parity principle.
and remote seas.
In regard to increasing the total of our food production, one of the
I cannot tell what powers may have to be exercised in order to win
worries that a farmer has today is the shortage of labor for cultivating
this war.
and harvesting crops. The time is soon coming when in many parts
The American people can be sure that I will use my powers with a
of the country we shall have to use seasonally the help of women and
full sense of my responsibility to the Constitution and to my country.
grown young people. I feel certain the Nation will cooperate whole-
The American people can also be sure that I shall not hesitate to use
heartedly.
every power vested in me to accomplish the defeat of our enemies in
It not only would be unfair to labor to stabilize wages and do noth-
any part of the world where our own safety demands such defent.
ing about the cost of food; it would be equally unfair to the farmer.
When the war is won, the powers under which I act automatically
For we must all remember that the farmer's wife buys many articles
revert to the people-to whom they belong.
of food at the store for the use of her own family, and high prices
In March and April 1933, this Nation faced a threatening domestic
hurt her pocketbook as much as that of the city housewife.
situation calling for the most drastic measures. The Congress, alive
What is needed, therefore, is an over-all stabilization of prices,
to the needs of that day, formulated and enacted whatever was re-
salaries, wages, and profits. That is necessary to the continued pro-
quired to do the job before it-without long debate, without party
duction of planes and tanks and ships and guns at the present con-
politics and without heed to the pressures of any special group looking
stantly increasing rate.
for advantages for itself.
We cannot hold the actual cost of food and clothing down to ap-
I need not argue the point that the situation facing the Nation today
proximately the present level beyond October 1. But no one can
is infinitely more critical than it was 10 years ago. We are fighting
give any assurances that the cost of living can be held down after
a war of survival. Nothing can yield to the over-all necessity of
that date.
winning this war, and the winning of the war will be imperiled by a
Therefore, I ask the Congress to pass legislation under which the
runaway domestic economy.
President would be specifically authorized to stabilize the cost of
As n part of our general program on farm prices, I recommend that
living, including the price of all farm commodities. The purpose
Congress in due time give consideration to the advisability of legisla-
should be to hold farm prices at parity, or at levels of a recent date,
tion which would place & floor under prices of farm products, in order
whichever is higher.
to maintain stability in the farm market for a reasonable future time.
I ask the Congress to take this action by the 1st of October. In-
In other words, we should find a practicable method which will not
action on your part by that date will leave me with an inescapable
only enable us to place a reasonable ceiling or maximum price upon
responsibility to the people of this country to see to it that the war
farm products but which will enable us also to guarantee to the farmer
effort is no longer imperiled by threat of economic chaos.
that he would receive B. fair minimum price for his products for 1
In the event that the Congress should fail to act, and act adequately,
year, or even 2 years-or whatever period is necessary after the end
I shall accept the responsibility, and I will act.
of the war. Every farmer remembers what happened to his prices
At the same time that farm prices are stabilized, wages can and
after the last war. We can, I am sure, if we act promptly and wisely,
will be stabilized also. This I will do.
stabiliza the farmers' economy so that the post-war disaster of 1920
The President has the powers, under the Constitution and under
will not overtake him again.
congressional acts, to tako measures necessary to avert a disaster
The farmer, instead of looking forward to a new collapse in farm
which would interfore with the winning of the war.
prices at the end of the war, should be able to look forward with assur-
I have given the most thoughtful consideration to meeting this
ance to receiving a fair minimum price for 1 or 2 years after the wor.
issue without further reference to the Congress, I have determined,
Such a national policy could be established by legislation.
however, on this vital matter to consult with the Congress,
In computing parity, we should continue to use the computations
There may be those who will say that, if the situation is ns grave
of the Bureau of Agricultural Economics made under the law as it
as I have stated it to be, I should use my powers and act now. I can
stands today. And in determining whether a commodity has reached
only say that I have approached this problem from every angle, and
parity, we should include all the benefits received by the farmer from
that I have decided that the course of conduct which I am following
his Government under the A. A. A. program, allocable to the particular
in this case is consistent with my sense of responsibility as President
commodity. For it is unfair to give a farmer a parity price, and, in
in time of war, and with my deep and unalterable devotion to the
addition, to pay him benefits which will give him far more than parity.
processes of democracy.
I have confidence that the American farmer who has been doing so
Regraded Unclassified
8
PLACING A FLOOR UNDER PRICES OF FARM PRODUCTS
much in the battle of production of food will do as much in this struggle
against economic forces which make for the disaster of inflation; for
nobody knows better than the farmer what happens when inflationary,
wartime booms are permitted to become post-war panics.
With respect to point seven of the program of April 27, 1942, We
have made certain credit rulings designed to curtail unnecessary buy-
ing; and whatever else has to be done along these lines will be done.
With respect to point six, rationing is now in effect on some com-
modities, and, when necessary, will be extended to others.
But with respect to point I-a fair tax program-that still waits
upon the Congress to act.
One of the most powerful weapons in our fight to stabilize living
costs is taxation. It is a powerful weapon because it reduces the
competition for consumers' goods-especially scaree foods.
The cooperation and self-restraint of the whole Nation will be
required to stabilize the cost of living. The stabilization of the cost
of living cannot be maintained without heavy taxes on everyone
except persons with very low incomes. With such increases in the
tax load, unfair tax distribution becomes less and less tolerable. We
can rightfully expect the fullest cooperation and self-restraint only
if the tax burden is being fairly levied in accordance with ability to pay.
This means that we must eliminate the tax exemption of interest on
State and local securities, and other special privileges or loopholes in
our tax law.
It means that in the higher income brackets, the tax rate should be
such as to give the practical equivalent of B top limit on an individual's
net income after taxes, approximating $25,000. It means that we
must recapture through taxation all wartime profits that are not neces-
sary to maintain efficient all-out war production. Such provisions
will give assurance that the sacrifices required by war are being
equitably shared.
Next to military and naval victory, a victory along this economic
front is of paramount importance. Without it our war production
program will be hindered. Without it we would be allowing our
young men, now risking their lives in the air, on land, and on the sea,
to return to an economic mess of our own making. The least that we
at home can do for them is to see that our production increases every
day so as to give them the weapons of war with which to fight, and
to make sure that our economy at home continues to be one to which
they can return with confidence and security.
FRANKLIN D. ROOSEVELT.
C
Regraded Unclassified