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(Reference to the following will be found on p. 2011.)


AGENCY On behalf of the entire Economic Stabilization Agency, I want to reiterate as strongly as I can our position that we do not desire to continue the direct economic controls and the annoyances which go with them a moment longer than necessary for the stability and the safety of this country.

Speaking for myself, I don't like controls, and if this emergency were not of a nature to convince me the controls are absolutely necessary right now I would certainly not be administering them. Furthermore, I have found in all levels of my Agency a general conviction that the controls, while presently necessary, should be dispensed with as soon as possible. We are agreed on that.

Beginning months ago, the Office of Price Stabilization has progressively exempted from price control a variety of items which are not significant in the cost of living or in the general economy. In addition, we are now embarked on a program for suspending or relaxing price controls in certain so-called "soft market” areas.

The policies in connection with that program have been outlined in a progress report from the OPS Committee on Relaxation of Controls which has been submitted to you by Governor Arnall. I have reviewed those policies from the standpoint of their impact on the stabilization program generally, and I have approved them.

The program outlined by the OPS Committee provides for suspension or relaxation of ceiling price controls in appropriate soft market areas where prices are substantially below ceilings and where an easing of the controls would not have an unstabilizing effect on the price structure or on the economy generally. The scope of the program is limited however--of necessity-by these facts:

1. The American economy today is not a “soft” one. It is, rather, a hard economy with certain soft spots in it. The great majority of items subject to price control are either at or very close to their ceilings. Without the ceilings, the price level would undoubtedly be much higher.

2. The inflationary pressures inherent in the tremendous defense program in which the Nation is engaged are bound to increase as expenditures for defense continue to rise toward a plateau level of $65 billion a year.

3. There are a number of areas in large part at the raw material and primary producer levels-where prices are substantially below ceilings and supplies are in such good shape that, for the immediate foreseeable future, a revival of sharp inflationary pressures is not now anticipated. However, there are important other areas where prices now are soft but where, under readily foreseeable circumstances, inflationary pressures could quickly revive

and become serious. In addition to these broad economic facts, consideration has been given to the inescapable international fact that we are living in a period of extreme peril to our country and to the whole free world. We have launched our defense program in an effort to stem that peril, but while we step up our efforts to rearm, we cannot be sure from one day to the next that we will not suddenly face the intensified economic strain of a new international crisis.

For these reasons I agree that we should not at this time pursue any program of price decontrol for any important part of the economy—that is, the dismantling of the structure of price ceilings in the area or areas decontrolled.

It would be premature and exceedingly dangerous to throw away our carefully constructed barriers against a surge of price inflation in any important cost-ofliving or defense commodity, even though, in some cases, present market supply conditions may be favorable and prices may be low. Some of these presently low prices are highly volatile and could, in the absence of controls, quickly push up from current levels to extremely high ones.

To reimpose controls in an area which was completely decontrolled would be time consuming at the very moment when speedy action might be imperative. It would result in widespread confusion to business and to consumers and would, in many instances, cause more inequities and hardships to individual firms than could possibly result from keeping the present controls continuously in effect.

On the other hand, there is no justification for maintaining the burden of controls in areas where the controls do not presently serve a demonstrable economic purpose and where these controls can presently be suspended or relaxed without resulting in a wave of unstabilizing cause-and-effect reactions, and where they can be reimposed quickly and effectively whenever that might become necessary. I have, therefore, approved the policy of

(a) Suspending present ceiling price regulations, and substituting standby or inactive regulations, in soft market areas where it is practical and consistent with over-all stabilization policy to do so, and where the standby regulations can be restored quickly to active status under specified circumstances; and

(6) Easing or eliminating reporting and record-keeping requirements under existing ceiling price regulations applying to soft market areas whereever it is not practical or consistent with over-all stabilization policy to suspend the ceilings entirely. Vast and complex difficulties are bound to arise in connection with a suspension program-difficulties of properly defining and bounding a soft-market area, of determining the degree of "softness" in nonstandardized items where prices may vary widely between individual sellers, and of preventing any psychological wave of panic buying which could result from a public misunderstanding of the reasoning behind suspension actions.

For these reasons, considerable thought was given to the advisability of limiting policy recommendations on this subject to a program of easing the burden of reporting and record-keeping requirements in the soft market areas. Such a policy could perhaps be justified on the theory that ceilings which are far above market prices cannot do the seller any real economic harm and that therefore the only steps actually required to ease the burden of controls in these areas were those which would eliminate as much of the reporting and record-keeping red tape as possible.

But just as we have rejected the idea of complete price decontrol in these areas, so we have also rejected the idea of maintaining all of the price controls in active status merely because they may not be hurting any one. We do not think the Government should be satisfied with keeping controls merely because they don't do any harm, but rather believe we should be under the positive obligation of setting aside those controls which need not now be kept in active status.

Thus we have the dual responsibility of easing controls where we can while at the same time assuring the Nation in these perilous times of adequate protection against the ravages of further inflation.

To protect the public interest in the process of suspending or relaxing price ceiling requirements, we must be certain:

1. That we have adequate machinery for measuring the trend of prices in the soft-market areas chosen for suspension action so that we can be informed of changing conditions as they occur; and

2. That we have the means for transforming standby controls into active controls whenever necessary in order to prevent inflationary price increases. The OPS has been engaged in a series of pilot studies aimed at applying the proposed suspension standards and safeguards to those areas where soft markets can be clearly defined. Areas where prices are standard and quoted daily lend themselves readily to the use of these standards. In some of these areas, decisions on suspension actions have already been reached by the OPS and having been reviewed within the Economic Stabilization Agency from the standpoint of their effect upon stabilization generally, are being announced and made effective by the Office of Price Stabilization today.

In the meantime, the OPS is proceeding with additional pilot studies to explore the possibility of similar action in other areas where the difficulties of carrying out a suspension program are much more complex.

In its study of this problem, the OPS is concerned primarily with the effects of its proposals on the structure of price stabilization. OPS relies necessarily on the ESA Administrator, in consultation with officials of the other constituent organizations of the Agency, to analyze and weigh the effects upon the rest of the stabilization program of the price suspension actions it recommends.

In my review of the OPS recommendations, I have weighed carefully the possible impact on stabilization generally of the proposed program of ceiting price suspension in qualified soft market areas.

Conscious as I am of the close relationship between price stabilization and wage stabilization, I have considered the possibility of taking simultaneous parallel suspension action in both prices and wages. However, after careful study, I am convinced that such action is neither practical nor necessary in the public interest.

Prices of a particular commodity may be below ceilings and possibly even depressed, but wages in the industry as a whole or in the locality may, for reasons

of manpower supply or other factors, actually be pressing hard against the wage stabilization limits. The same plant furthermore may be engaged in the production of some commodities selling below ceiling prices and of others where the ceilings are currently necessary to hold prices in check.

The complexities of the labor market are such that selective suspension of wage stabilization controls cannot be based solely on the behavior of prices in limited soft areas without jeopardizing the whole structure of wage stabilization and thus undermining price control.

On the other hand, a price suspension program which resulted in a weakening of price control would undermine the structure of wage stabilization. That, too, must be avoided.

Under the program outlined, not only would the suspension actions be limited to items which are so soft in price that the present ceilings are ineffective in the market place, but the stand-by controls would be designed to cope with any sudden sharp upward movement of prices. Thus none of the protection afforded by the present price ceiling regulations would be removed in any way.

The program is a realistic and reasonable one which does not err either in the direction of weakening the structure of stabilization or in the other direction of controlling for controls' sake.

(Reference to the following will be found on p. 2293.)


PRODUCTION ACT OF 1950 By virtue of the authority vested in me by the Constitution and statutes, including the Defense Production Act of 1950, and as President of the United States and Commander in Chief of the armed forces, it is hereby ordered as follows:

PART 1. PRIORITIES AND ALLOCATIONS SECTION 101. The functions conferred upon the President by Title I of the Defense Production Act of 1950 are hereby delegated as follows:

(a) To the Secretary of the Interior with respect to petroleum, gas, solid fuels, and electric power.

(b) To the Secretary of Agriculture with respect to food, and with respect to the domestic distribution of farm equipment and commercial fertilizer.

(c) To that commissioner of the Interstate Commerce Commission who is responsible for the supervision of the Bureau of Service of the Commission, with respect to domestic transportation, storage, and port facilities, or the use thereof, but excluding air transport, coastwise, intercoastal, and overseas shipping.

(d) To the Secretary of Commerce with respect to all materials and facilities except as provided in paragraphs (a), (b), and (c) of this section 101.

SECTION 102. Each delegate referred to in section 101 of this Executive order shall, in connection with carrying out the priorities and allocations functions delegated to him by such section, (a) receive from appropriate agencies of the Government information relating to the direct and indirect military, other governmental, civilian, and foreign requirements for materials and facilities, (b) review and evaluate such requirements in the light of available materials and facilities, and (c) exercise his priorities and allocations powers in such manner as will in his judgment promote adequate supplies and their proper distribution.

SECTION 103. (a) Each delegate referred to in section 107 of this Executive order shall be a claimant before the other such delegates, respectively, in the case of materials and additiinal facilities deemed by the claimant delegate to be necessary for the provision of an adequate supply of the materials and facilities with respect to which delegation is made to the claimant delegate by the said section 101.

(b) Each delegate under section 101 of this Executive order may, with the approval of the Chairman of the National Security Resources Board, designate agencies and officers of the Government, additional to the claimants referred to in section 103 (a) of this Executive order, to be claimants before such delegate with respect to stated materials and facilities.


SECTION 201. (a) Except as provided in section 201 (b) of this Executive order! the functions conferred upon the President by Title II of the Defense Production Act of 1950 are hereby delegated to the officers to whom functions are delegate! by section 101 of this Executive order, respectively, according to the designations of materials and facilities set forth in paragraphs (a), (b), (c), and (d) of the said section 101.

(b) The functions conferred upon the President by sections 201 (b) and 2010 of the Defense Production Act of 1950, exclusive of determinations with respect to the termination of the need for the national defense of any property requisitioned under Title II of the said Act, are hereby delegated to the Administrator of General Services.

PART III. EXPANSION OF PRODUCTIVE CAPACITY AND SUPPLY Section 301. The Department of the Army, the Department of the Vary, the Department of the Air Force, the Department of Commerce, the Department of the Interior, the Department of Agriculture, and the General Services Administration, in this Part referred to as guaranteeing agencies, and each delegate under section 101 of this Executive order shall develop and promote measures for the expansion of productive capacity and of production and supply of materials and facilities necessary for the national defense.

Section 302. (a) Each guaranteeing agency is hereby authorized, in accordance with section 301 of the Defense Production Act of 1950, subject to the provisions of this section, in order to expedite production and deliveries or services under Government contracts, and without regard to provisions of law relating to the making, performance, amendment, or modification of contracts, to guarantee in whole or in part any public or private financing institution (including any Federa: Reserve Bank), by commitment to purchase, agreement to share losses, or otherwise, against loss of principal or interest on any loan, discount, or advance, or on any commitment in connection therewith, which may be made by such financing institution for the purpose of financing any contractor, subcontractor, or other person in connection with the performance, or in connection with or in contemplation of the termination, of any contract or other operation deemed by the guaranteeing agency to be necessary to expedite production and deliveries or services under Government contracts for the procurement of materials or the performance of services for the national defense.

(h) Each Federal Reserve Bank is hereby designated and authorized to act, on behalf of any guaranteeing agency, as fiscal agent of the United States in the making of such contracts of guarantee and in otherwise carrying out the purposes of the said section 301, in respect to private financing institutions.

(c) All actions and operations of Federal Reserve Banks, under authority of or pursuant to the said section 301 of the Defense Production Act of 1950, shall be subject to the supervision of the Board of Governors of the Federal Reserve System. Said Board is hereby authorized, after consultation with the heads of the guaranteeing agencies, (1) to prescribe such regulations governing the actions and operations of fiscal agents hereunder as it may deem necessary, (2) to prescribe, either specifically or by maximum limits or otherwise, rates of interest, guarantee and commitment fees, and other charges which may be made in connection with loans, discounts, advances, or commitments guaranteed by the guaranteeing agencies through such fiscal agents, and (3) to prescribe regulations governing the forms and procedures (which shall be uniform to the extent practicable) to be utilized in connection with such guarantees.

SECTION 303. Within such amounts of funds as the President shall have made available, and upon the certificate by the Secretary of the Interior in respect of metals and minerals (except as to paragraph (c) of this section), or by the Secretary of Agriculture in respect of lumber, or by the appropriate delegate referred to in section 101 of this Executive order in respect of other materials and facilities, or by such other officer or officers of the Government as the President may designate, as to the necessity for loans, purchases, or commitments, as the case may be:

(a) The Reconstruction Finance Corporation is hereby authorized and directed to make loans (including participations in, or guarantees of, loans) to private business enterprises (including research corporations not organized for profit) for the expansion of capacity, the development of technological processes, and the production of essential materials, including the exploration, development, and mining of strategic and critical metals and minerals, as authorized by and subject to section 302 of the Defense Production Act of 1950.

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