Veto of the Price Control Bill.

To the House of Representatives:

I am returning without my approval H.R. 6042 amending the price control laws and extending them for another year.

The choice which H.R. 6042 presents is not a choice between continued price stability and inflation. It is a choice between inflation with a statute and inflation without one. The bill continues the Government's responsibility to stabilize the economy and at the same time it destroys the Government's power to do so.

If this bill were allowed to become law, the American people would believe that they were protected by a workable price control law. But they would not be protected and they would soon come to a bitter realization of that truth. It is only fair to tell them the facts now.

The lesson from our own experience after the last war, disastrous as it was to our farmers, our workers, our manufacturers, our distributors, and our consumers, has been too easily obscured by the annoyances and irritations and the occasional inequities of price control. The fact that inflation has already gutted the economy of country after country all over the world should shake our comfortable assurance that such a catastrophe cannot happen here.

For five years we have proved that inflation can be prevented. It still can be prevented if we have the will to prevent it. Today the opportunity of completing the transition from war to peace with an economy which is stable, sound and secure is within our grasp.

To avoid sacrificing this opportunity quires courage, wisdom and self-restraint. This winter and spring the tensions have been more acute than ever before. We are all weary and impatient of Government restrictions and controls. We are all eager for the day when we can pursue our own affairs in our own way. In such a mood there is the natural temptation to remove essential safeguards, prematurely.

This bill yields to that temptation. It would provide us with no real safeguards at all. It would start prices and costs climbing and keep them climbing. It would start the value of the dollar failing and keep it falling. Far from helping production it would retard it. In the end this bill would lead to disaster.

I shall not attempt to comment on all the bill's provisions. Some of them are entirely appropriate. Many others reflect minor concessions to special interest groups of the sort which the Congress has heretofore resisted. To these latter provisions I object on grounds of principle. But in the last days before the expiration of legislation so vital to the Nation's welfare I should not regard these concessions as a basis for withholding my approval from an extension bill.

My fundamental objection to the bill is to the numerous amendments which would raise the price of essential cost-of-living commodities. Of those by far the most damaging is the price raising amendment for manufacturers introduced by Senator Taft, (Section 11), operating in conjunction with the revised price raising amendment for distributors introduced by Senator Wherry (Section 10, Par. (t)), and with the special cost-plus amendments for automobile and appliance dealers first offered to the House Committee on Banking and Currency by Representative Crawford (Section 10, Par.

(q) and (r)).

The mainspring of this combination is Senator Taft's amendment. It is that amendment which would compel thousands of needless price increases amounting to many billions of dollars. The Wherry and Crawford amendments simply make sure that before the Taft amendment price creases for the manufacturers reach the consumer, they will be pyramided by generous wholesalers' and retailers' markups.

The provisions of the Taft amendment are complex but they wear a superficial reasonableness. I am sure, however, that Congress adopted this amendment without full appreciation of its consequences.

I wish it were possible to tell you exactly how many billions of dollars the American people would eventually have to pay for the Taft Amendment and its companion pieces. To attempt to do so, however, would be like trying to estimate the cost of a fire about to sweep a city before the first building had started to burn. Even to estimate the total amount of all the first round of price increases is not now possible.

Here, however, are a few examples which would enter into such a total.

The first impact of the Taft and Wherry Amendments in the crucial field of housing would be little short of devastating. The prices of nearly all building materials would be affected. The average increase of such materials, excluding lumber, would be approximately 20 per cent. This would completely disrupt the program recently approved by the Congress to provide veterans' housing at reasonable cost.

Ceilings for steel would have to be raised an average of $4 to $8 a ton. These increases would in turn be reflected in the ceilings of everything made of steel.

The average price of low-priced automobiles would be increased $225 to $250, on top of the substantial increases already granted.

Household appliances such as washing machines and refrigerators would increase from 25 to 30 per cent. Floor coverings would go up about 17 per cent; plumbing supplies, about 16 per cent; farm machinery, about 13 per cent.

The prices of clothing--already too high-would be increased by an estimated average of 15 per cent--more than half of which would be attributable to the Taft and Wherry Amendments and the balance to other amendments. This by itself would add about three billion dollars a year to the living expenses of American families.

These are only preliminary estimates of a few of the initial price increases. They do not take into account the further increases, for example, on automobiles, after steel, tires, safety glass, and other materials and parts have received their own increases.

The bill would cause some major increases in foods immediately. It would curtail subsidy payments so that the prices of certain foods would have to go up. Other foods would get immediate increases under the Taft Amendment but these would go to processors rather than to farmers. Like the wage earner, the white collar worker, and the millions of old people and others who must live on fixed incomes, the farmer is a victim of this bill.

This, however, does not mean that the country would get any real protection, for long, in what it costs to eat. The same thing is true of rents. The bill does not direct any immediate increases in rents at all. But this does not mean that rents could be effectively controlled.

If I thought that this bill would make possible some genuine protection against soaring food prices and rents, I should hesitate long before disapproving it--despite the total impossibility of stabilizing the prices of other essential commodities. Our economy, however, cannot be half-stabilized. We cannot quarantine inflation. Higher prices for the things that farmers and landlords buy would inevitably force up farm prices and rents. In the case of farm prices, this is required by the parity provisions of the law. In the case of both farm prices and rents, general increases would be forced upon us by simple justice and the hard facts of business and economics.

This bill, therefore, gives only the delusion of protection against rising costs of food and shelter. It would delay their rise a little. But the delay would be long enough only to cause unnecessary hardship for farmers and landlords--not long enough to bring real benefits to consumers and tenants.

The spectacular increases in the prices of manufactured goods which the Taft Amendment and its companion amendments would cause, right at the beginning, are far in excess of anything which industry needs to earn generous profits and obtain full production. The increases are so large because the formulas for computing them are bonanza formulas.

The Taft Amendment puts into prices the profit per unit of sales which the industry received for the particular product in the year 1941. That was a year in which manufacturers and processors received a much greater profit out of each dollar of sales than in any one of the five peacetime years which preceded 1941 and more than in any one of the following five wartime years. Indeed, 1941 profit margins were half again as great as in the banner year of 1929. Today, however, the volume of sales is greater than that of 1941 and it is going to increase steadily if inflation does not stop it. Thus, at the very time when we should be getting the benefit of high volume in the form of lower prices, the Taft Amendment would inflate prices.

In the case of products like automobiles, washing machines and refrigerators which are just returning to the market, the Taft Amendment produces especially unreasonable prices. This is because the Amendment adds to prices all the abnormally high costs arising from temporarily low volume and change-over conditions.

The Wherry Amendment gives a final boost to prices by requiring the pyramiding of manufacturer's increases at the wholesale and retail levels.

Of course profits ample to provide the incentive for full production are what makes the American free enterprise system work. Prices must not be inflexibly held. Increases have been granted and more will have to be granted to remove impediments to production. The Taft Amendment, however, in the name of stimulating production, promises peak profits on every product even where production is already going at full blast and profits are eminently satisfactory. As industry after industry accepts the invitation of the Taft Amendment in an attempt to make good profits better, prices will go up and up.

In addition, the industries in real need of relief will tend to be lost in the shuffle. The OPA, already criticized for delay in these deserving cases, will be increasingly unable to act promptly to break production bottlenecks.

There is a grim irony in the fact that the Taft Amendment is defended as a stimulant to production when in fact it will greatly impede production.

The evidence is readily at hand. For weeks we have seen meat and other commodities withheld from the market in anticipation of higher prices. The simple fact is that the average business man or farmer who knows that his price will soon be higher will not sell any more goods this week than he has to--be they suits or sewing machines or cattle.

The manufacturer with a price increase pending would naturally slow down deliveries as much as his working capital and his storage facilities would permit. At the same time the knowledge that his suppliers had their own increases pending would lead him to do all he could to build up his inventories. But his suppliers would also slow down deliveries for the very same reason. As essential materials and parts were withheld from the market, production lines would gradually grind to a halt. Workers would pay their toll to this amendment in loss of employment. Consumers would pay theirs in lack of goods.

These cases would develop, not by hundreds but by thousands. As fast as price increases were granted, they would raise the costs of purchasing industries and form a basis for additional increases. Each one would bring its new slow-downs and new bottlenecks. It is plain to see why the enactment of the Taft Amendment as an aid to production would be a sorry jest. Production requires a reasonable stability in costs, a continuing flow of goods and a readiness to buy and sell. The Taft Amendment would result in erratic price and cost movements, a feverish effort to buy and a calculated reluctance to sell.

The Taft Amendment would wholly destroy the program of wage stabilization which has been so painstakingly, and at times painfully, developed during the months since V-J Day.

The Wage Stabilization Board has contributed greatly to that development. The representatives of industry, labor, and the public who compose it have brought what threatened for a time to become a runaway wage movement into a fair and orderly procedure with which virtually all unions and managements have cooperated. This nation still needs the continuing services of the Wage Stabilization Board.

I wonder, therefore, if the Congress realized when it voted for the Taft Amendment that it was voting to destroy the present wage stabilization program and the usefulness of the Wage Stabilization Board. Under the existing program the Board has the task of determining the limit of wage increases which an employer can use as the basis for price increases. Its determinations of these limits have played a vital role in bringing about innumerable wage settlements. The Taft Amendment, however, provides that, "in determining costs for the purposes of this section, all costs shall be included." The Office of Price Administration advises me that under this provision it would be required to recognize all wage increases, as a basis for price increases, even if the Board had not approved them and regardless of their amount.

This is the beginning of an inevitable spiral of uncontrolled inflation--a race between rising wages and rising prices. Farsighted leaders of both labor and management know that nothing can be gained--and everything lost--by simply letting prices and wages chase each other.

Yesterday I received a letter from the National Wage Stabilization Board, which Board represents industry, labor and the public. The Board advises that it believes that uncontrolled inflation will result from this bill. Furthermore the Board states, "It is our unanimous judgment that the proposed legislation presents no possibility of wage stabilization or of the achievement of the balance between wages and prices which is essential to economic stability."

This bill provides a sure formula for inflation:

1. A first round of sharp and widespread price increases;

2. Production slowdowns due to price uncertainties;

3. Renewed demands for further wage increases due to higher living costs;

4. Higher production costs due to production slowdowns and stoppages and to higher labor costs;

5. A cost-plus pricing amendment which requires higher production costs to be translated immediately into higher prices.

And all this at a time when the supply of goods is still far below the record demand.

The formula would lead to disaster even if it could be assumed that price control could be administered in an orderly fashion, and that the Office of Price Administration would be able to build up a staff adequate to its new burdens. The fact is, however, that these assumptions are unreal. The OPA could not discharge the responsibilities, which the Taft Amendment and the other price-raising amendments would thrust upon it--either with its present staff or with any staff that it might conceivably recruit.

Moreover enforcement and compliance with price regulations are dependent on the general stability of prices over considerable periods of time. Once prices were set in continuous upward motion compliance would deteriorate rapidly. Little hope could be held out for compliance with ceiling prices fixed under the Taft Amendment.

The reason for this is that the ceiling price of each individual manufacturer would depend upon the price which that particular manufacturer charged in the base period-usually October 1-15, 1941. To this base period price each manufacturer would be entitled to add a uniform increase factor representing cost increases incurred by the industry generally since that time.

Under this system, obviously, every manufacturer who had a different price in the base period would have a different ceiling price now. Uniform ceiling prices would become impossible, except in those industries which charged uniform prices in the base period. Thus, most of OPA's dollar sand-cents regulations, which are the most readily enforceable kind, would be wiped

out.

Proof of any ceiling price violation would require proof of the price which the particular manufacturer charged during a 2 week period 5 years ago. Every enforcement proceeding would thus become a time consuming and often futile historical investigation.

In these circumstances, the formal structure of price and rent control which the bill retains would be wholly ineffectual to stem the tide of inflation which it would set in motion. Unable to cope with the deluge of industry demands for higher ceilings under the new pricing formulas, and increasingly aware of the futility of its task, OPA's administrative staff would disintegrate. After irreplaceable losses from its ranks had reached a certain point, the consequence would not be more administrative delay; it would be complete collapse.

In the face of these alarming consequences to the country if the present bill should become law, I urge the Congress with all the earnestness at my command to reconsider the whole problem of stabilization.

In that reconsideration, let us see just where we stand today. Under the existing stabilization laws, production has recovered remarkably from the shock of war's end. Output of civilian goods already surpasses the 1941 level and employment exceeds that level by six million. This record has been achieved in spite of shortages of critical materials and parts and in spite of extended work stoppages in basic industries. The major labor-management disputes are settled, and we are moving rapidly toward the realization of our post-war objectives of full production and full employment in a sound economy.

There still are shortages, but they will be progressively wiped out in the months ahead if business and labor stick to their job of producing the most possible goods in the shortest possible time. This can happen only if business has assurance of reasonable stability in its costs, and if labor has assurance that its real wages will not be cut sharply by rising living costs.

We can look ahead to a steady easing of other inflationary forces. The efficiency of production is bound to increase and bring with it an upsurge in total output. If the stabilization laws are renewed in effective form, it is expected that the Federal budget will be balanced during the coming year, thus eliminating the deficit which was a basic source of inflationary difficulties.

As the inflationary pressures lessen, commodity after commodity can be removed from controls and we can emerge with a stable economy in which the traditional American free enterprise competitive system can take command. Not until then will the law of supply and demand keep prices at reasonable levels. So long as demand far exceeds supply, the law of supply and demand will drive prices up.

Let us remember further that inflation and collapse in the United States would gravely jeopardize our efforts to build the kind of international economic relations that will provide a solid basis for world peace. The whole structure of international prices, currency values, and financial and trade relations is still unsettled. Because of our position and influence in world trade and finance, inflation and collapse in this country would shake the entire world.

In short, the most serious difficulties of the transition from war to peace are already behind us if only we have the wisdom and fortitude to see to it that the forces of inflation, so long held in check, are not unleashed when victory is all but won.

Therefore I call upon the Congress to act and act now by passing a bill which will give the nation adequate assurance of completing a successful transition to a sound peacetime economy. Such a bill should contain the following provisions:

First. The bill should provide for extension of the stabilization laws for a full year.

Second. The bill should authorize the continuance of stabilization subsidies on a scale sufficient to avoid serious increases in food prices during the next six months and to permit the orderly termination of subsidies during the first half of 1947. In my judgment, an authorization for the expenditure of a billion and a quarter dollars during the year as a whole is the minimum necessary for these purposes.

Third. The bill should lay down a Congressional policy with respect to the termination of price controls and subsidies. I approve the provisions of paragraphs (a), (b) and (c) of the proposed new Section 1A of the Price Control Act contained in Section 3 of the present bill. These provisions call for the orderly removal of all price controls and subsidies during the course of the coming year, with the exception only of those commodities which, on or before April 1, 1947, the President finds to be still in critically short supply and for which he asks and secures authority for continued control to be administered by some established department or agency of the Government other than the Office of Price Administration.

I would not oppose the formulation of standards for the decontrol of particular commodities, as provided in H.R. 6042, or the establishment of an independent Price Decontrol Board to review these applications-provided that the standards were modified to make sure that during the next crucial six months, ceilings do not have to be lifted where it is clear that serious price rises would result. The spelling out of detailed standards and the establishment of new and complex administrative machinery, however, do not seem to me to be necessary. If the Congress lays down the declaration of decontrol policy contained in paragraph (b) of the proposed new Section 1A, permitting administrative flexibility in its application, I give my personal pledge that the policy will be carried out to the full in spirit as well as in letter.

I ask the Congress also, if it gives me responsibility for carrying out a measure of the kind I am urging, to permit me to do this through a unified or effectively coordinated administrative organization and not to handicap me by legislating an unsound split of authority.

Fourth. The adjustment of product prices to make possible the maximum total production is, of course, one of the fundamental requisites of good price administration during this final transition period. I do not believe that any change in the present law is necessary to assure that such adjustments are made. To put the matter beyond doubt, however, I would not object to a provision which expressly requires the adjustment of price ceilings wherever this is necessary and would be effective to increase the total production of needed goods.

The great majority of the American people want an effective price control law. They are entitled to have it. Under such a law, we can win the war against inflation just as decisively as we won the war against the Axis.

Most members of the Congress have not yet had an opportunity to take an unequivocal position on this issue. As the present bill became more and more heavily loaded with amendments during its four and one-half months' progress through the Congress, the issues became more and more obscured. Members who wanted more effective price control were found voting for the bill, or for particular amendments to the bill, on the basis that these were the best that could be secured. Side by side with them were members who wanted to weaken price control or get rid of it altogether.

It is most unfortunate that the Congress has delayed final passage of a bill down to the eve of the very date of termination of the existing law.

As far back as September 6, 1945 I urged the Congress to pass an extension of the price control act at an early date so as to avoid the uncertainties which have made control more difficult for the last few months. Had this been done there would now be no necessity for these last-minute decisions. I repeated my request to the Congress to extend price control legislation without crippling amendments again and again--on January 21, 1946, May 22, 1946, May 25, 1946 and June 11, 1946.

Nevertheless just before the expiration of all price control there has been presented to me, by the Congress, an impossible bill.

I cannot bring myself to believe, however, that the Representatives of the American people will permit the great calamity which will befall this country if price and rent control end at midnight Sunday. On behalf of the people I request the Congress to continue by resolution the present controls for the short period of time necessary to write a workable bill.

The fight against inflation is never easy. We are battling against economic forces which have caused us untold misery after every previous war and which have overcome or are threatening to overwhelm many of the nations engaged in this war.

We shall not win this fight by soft measures.

All of us who must play a part in the decision of this issue face a solemn responsibility. We stand at an historic moment. Our actions will be judged by the American people and judged again by history.

HARRY S. TRUMAN