Statement on Signing Bill Extending the Defense Production Act.

I HAVE SIGNED S. 3302, which extends the Defense Production Act until June 30, 1972. If this measure were not approved, the act would expire and certain authorities essential to the conduct of our defense activities would not be available for an indefinite period.

Were it not for the need to extend the basic law, I would withhold my approval of S. 3302. This bill contains three provisions which in my view are objectionable, and does not include amendments to the Defense Production Act which were recommended by this administration.

First, the bill gives the President authority to establish controls on prices, rents, wages, and salaries at levels not less than those prevailing on May 25, 1970, and to enforce those controls by fines and injunctions. I have previously indicated that I did not intend to exercise such authority if it were given to me. Price and wage controls simply do not fit the economic conditions which exist today. The 1969 annual report of President Johnson's Council of Economic Advisers made the following comment on such controls with which I completely agree:

"Mandatory price and wage controls are no answer. Such controls freeze the market mechanism which guides the economy in responding to the changing pattern and volume of demand; they distort decisions on production and employment; they require a huge and cumbersome bureaucracy; they impose a heavy and costly burden on business; they perpetrate inevitable injustices. They are incompatible with a free enterprise economy and must be regarded as a last resort appropriate only in an extreme emergency such as all-out war."

If Congress believes that price and wage controls are needed in today's economy, despite all the evident disadvantages and against my strong recommendations, it should face up to its responsibilities and make such controls mandatory. When this bill was before the House, a motion to recommit the bill and report it back with a mandatory freeze on prices, rents, wages, and salaries was offered. The vote against the proposal was overwhelming--270 to 11.

Second, the bill establishes a Cost-Accounting Standards Board outside the executive branch of the Government, consisting of the Comptroller General and four members appointed by him, which would promulgate cost-accounting standards binding on Federal agencies and contractors and subcontractors in connection with the pricing, administration, and settlement of negotiated national defense procurement contracts in excess of $100,000.

I have no objection to this provision insofar as it provides for the establishment of cost-accounting standards. However, I am opposed to vesting that function in a board, independent of the executive branch, consisting of the Comptroller General and his appointees.

Conceivably, this aspect of the bill could be justified theoretically on the ground that the establishment of those standards will facilitate the congressional function of oversight of Federal expenditures. As a practical matter, however, the establishment of these standards will necessarily affect the negotiation and administration of Government contracts. Those functions are the responsibility of the executive branch under the Constitution.

The Comptroller General and the American Institute of Certified Public Accountants testified in favor of establishing an independent board within the executive branch. I fully agree with that approach. Since I am convinced that this provision of S. 3302 as presently formulated would unavoidably violate the fundamental principle of the separation of powers between the legislative and executive branches of the Government, I request the Congress to enact an amendment as soon as the House returns from its recess to place the functions of the Board in the executive branch.

Third, the bill limits guarantees of defense production loans under section 301 of the Defense Production Act to not more than $20 million for any single loan. Previously the act imposed no ceiling. I believe that this is an unnecessary and undesirable restriction which should be promptly repealed. It is an arbitrary limit which could interfere at some future time with the effective conduct of defense production activities.

Fourth, the bill does not include the substantive amendments to the Defense Production Act which the administration recommended. Among other improvements, these would have authorized appropriations for activities to expand productive capacity and supply under sections 302 and 303 of the act.

I urge the Congress to move promptly to enact the amendments necessary to provide a sound Defense Production Act.