Special Message to the Congress Upon Signing the Second Price Control Bill.

To the Congress of the United States:

I have today signed H.J. Res. 371 amending the price control laws and extending them for another year. I have signed this measure with reluctance.

I had hoped for a bill under which the government could with full confidence assure the people that prices would remain generally stable in these last few critical months of the transition to a free economy. This bill falls far short of that hope. I am advised, however, that it is the best bill the Congress will now pass. It is clear, moreover, that it is a better bill than the one I was forced to veto on June 29. If that bill had become law, inflation would have been inevitable. While the present measure by no means guarantees that inflation can be avoided, it offers a sufficient prospect of success to warrant the making of a wholehearted effort to keep our economy on an even keel until a flood of goods makes further controls unnecessary.

The behavior of prices and rents in the last four weeks has given the country a frightening foretaste of what would happen to the cost of living without price and rent control. Even though many factors were operating to restrain prices during this period, prices have nevertheless risen steadily and ominously.

The Bureau of Labor Statistics index of 28 basic commodities in the primary markets has shown an increase of 24.8% in the 26 days since June 28, 1946 as against an increase of only 13.1% in the three years and 42 days between the signing of the hold-the-line order on May 17, 1943 and June 28, 1946. Of this increase, only about 2% can be attributed to the removal of subsidies. These, it must be remembered, are prewholesale figures. The impact of the increases has not yet been fully felt by consumers. Retailers have for the most part held to their O.P.A. prices so long as their old inventories lasted.

These increases have occurred in spite of the restraining influences at work to keep prices down. I had requested that the price line be held while the Congress considered the enactment of a workable law. Businessmen hesitated to build up inventories at high prices and thus risk serious loss if prices were rolled back to the June 30 levels. This risk was heightened by the prompt passage in the House of Representatives of a resolution which would restore the June 30 prices and rents. In addition, consumer resistance to increased prices developed immediately.

In view of the alarming rise in prices which took place under these conditions, it is not difficult to predict what would happen if a free market were operating without restraint.

These facts demonstrate that the continuance of effective price control is a vital necessity to our people. There are millions of families for whom a sharp rise in living costs means immediate suffering. There are others who can get along well enough for awhile, but ultimately inflation exacts its toll from all.

The present legislation makes the task of staving off inflation even more difficult than it has been in the past. Clothing prices in particular will be difficult to hold at reasonable levels, and there are some other things that consumers will have to go without, or pay higher ceiling prices for them than they should. It is particularly unfortunate that many of these increases result from concessions to special interest pressures, rather than from the adoption of principles designed to expand production within a stable price structure.

The present bill, despite its inadequacies, is an improvement in many respects over the bill which I vetoed. In my veto message, I emphasized the disastrous consequences which would flow from the Taft Amendment and its companion the Wherry Amendment. These provisions are fundamentally changed in the present bill. A comparison of the two bills demonstrates this fact.

Although its professed objective was to increase production, the Taft Amendment would have required prices to be increased for already profitable industries even where no increase in production was possible. While the present bill will require some price increases where there will be no substantial expansion in production, it reduces materially both the number and the size of these increases.

It was mandatory under the Taft Amendment to increase prices so that all industries could earn the profits they earned in the year 1941 on every major item they make. This was a year of abnormally high profits. The base for measuring profits under the present bill is the year 1940, in which profits were more nearly representative of normal peace-time operations. At the same time, the use of 1940 margins of profit offers every incentive for full production because 1940 was a highly profitable year.

Another serious deficiency of the Taft Amendment is corrected by the present bill. It is obvious that costs go down as volume of production goes up. Yet that amendment would have compelled the Price Administrator to base prices on current costs even though it was perfectly clear that in many industries volume would be increasing so rapidly that the use of current costs would result in exorbitant prices. The present bill permits adjustments to be made for increases in volume that can be reasonably anticipated to occur within three months. This change will cut down substantially the price increases on consumer goods which were out of production during the war.

Another major objection to the Taft Amendment was the damage it would have done to compliance and enforcement. O.P.A. has developed uniform dollar-and-cent prices for many important products. This is the most readily understood and easily enforced kind of pricing. Since prices under the Taft Amendment were based on each individual manufacturer's own 1941 price, uniform prices could not have been maintained in any case where prices in 1941 varied. The present bill cures this defect. The formula works from the average price for the industry in the base period, and this permits the continuance of enforceable dollar-and-cent prices.

The Wherry Amendment would have restored to wholesalers and retailers the percentage markups which prevailed on January 1, 1946. In the months since that time O.P.A. has not passed on to consumers all the increases granted to manufacturers. Instead, the distributors have been required to absorb some of the increases. This was a fair policy because the sales volume was so high that even with reduced markups distributors were generally faring far better than in any recent peace-time year. The present bill gives to distributors the markups which prevailed on March 31, 1946. This change in date means that, without hardships to distributors, consumers are assured of considerably lower prices than would have been required under the Wherry Amendment.

Thus, price increases will be far fewer, and those that occur will be far smaller, under the present bill than under the vetoed measure. The saving will be most significant in the basic industries, like steel. Since price increases in basic materials mean price increases in all the industries using those materials, an alarming upward spiral of costs and prices on a wide front seemed inescapable under the vetoed bill. Now there is a sound basis for the hope that such a spiral can be prevented.

Furthermore, by drastically reducing the number and size of required price increases, the present bill minimizes two other dangers inherent in the vetoed bill. First, the administrative burden on the Office of Price Administration, while still serious, is not impossible, as it was under the vetoed measure. Secondly, the danger of widespread interruptions of production while industry is waiting for price increases is materially lessened. Unless, however, the Congress promptly provides O.P.A. with an adequate appropriation there are bound to be serious delays in the granting of required price adjustments. These delays would in turn mean slow-downs in production. And it is maximum production that will hasten the day when price control can safely be abandoned.

Finally, the vetoed bill contained a clause which would have destroyed wage stabilization by requiring the inclusion of unapproved wage increases as costs in the price increase formula. That clause has been omitted from the present bill. The invaluable work of the Wage Stabilization Board can therefore be continued.

I regret that the Congress did not comply with my request to refrain from compelling administrative changes that will make our task more difficult. Good government requires that a law be administered consistently in all the fields where it is applicable. Consistency of policy is difficult to achieve when, as in the present bill, the Congress has provided for division of responsibility. I am confident, however, that the Price Administrator and the Secretary of Agriculture will work closely together to maintain unified policies.

I shall proceed promptly to appoint the Price Decontrol Board provided for by this statute. We are all anxious, on the one hand, not to cling to these controls too long and, on the other hand, not to release them too soon. The standards prescribed by the Congress for removing and restoring controls are reasonable standards. As I said in my veto message, I have not been opposed to the creation of an independent board to resolve these difficult questions of timing the removal of controls. I propose to point as members of the Board men in whose judgment and fairness the Congress and the country will have complete confidence.

Price control is but one of the means of combatting inflation. Under the best of circumstances price control alone could not preserve economic stability. Because of the defects in the present legislation and because of the months of delay in its enactment, it is all the more apparent that more extensive use of the power to allocate scarce materials may be required and that sterner fiscal and monetary measures than would otherwise be called for may prove to be necessary.

In order to bring spendable income more closely in balance with the supply of goods, attention must be given to strong anti-inflationary policies such as further reduction of Federal expenditures. If, despite such measures, inflation still threatens, consideration must then be given to the formulation of a more rigorous tax policy. Such a tax program would, I realize, be unpalatable at a time when we are doing our utmost to increase production, but if it is the only alternative to the ravages of inflation, we would have no choice.

I pledge the administration to do its full part in this struggle, but it must not be forgotten that the battle against inflation is not the government's battle alone--it is the people's battle as well. Consumers must vigorously resist exorbitant prices. Black markets cannot be suppressed solely by enforcement measures. Businessmen must, as controls are progressively removed, exercise self-restraint and forego the opportunity for short-run gain from profiteering in favor of the long-run advantage of stable prices and fair profits.

If it appears that all the efforts of the government and the people will not be enough under the present legislation, I shall have no alternative but to call the Congress back in special session to strengthen the price control laws and to enact such fiscal and monetary legislation as we need to save us from the threat of economic disaster.

HARRY S. TRUMAN