this legislation and in some of these amendments which are proposed than they had in World War II, and I do not believe that the people even know that those powers are being requested. The public does not read legislative documents very much, but here is the administration asking for tremendous additional power, which does not seem to be caused from the fact that anybody ever had that experience in World War II. Mr. BOLLING. We could have a long discussion on that particular point. You apparently would concentrate effort on essential military and civilian needs by stimulating production and employment in these areas through a free price and wage system. Now as our defense program gets into high gear, we will inevitably have serious shortages of material and manpower in the defense industries. As I understand your position, you would suggest that these shortages be overcome by letting the defense industries raise the prices and wages they pay, let them raise these prices and wages high enough to bid materials and labor away from other uses and thus concentrate our efforts on the defense program. Is that a correct interpretation? Mr. STEINKRAUS. No, sir; not entirely. I think the Defense Production Act has some very good clauses in it. We are not talking about wiping out the Defense Production Act by a long shot. We believe you can allocate some materials. There are some materials in short supply essential to the defense program which should be certainly given reduced control. I do not deny it. In my own industry we are having an awful time in getting enough copper, and everybody seems to know of the great shortages in copper and zinc in the world today. There is not enough to go around, and we favor taking whatever part of our production is necessary for the defense program, and if necessary, 100 percent of it, but not any faster than it is needed. Mr. BOLLING. Would you agree with allocations and priorities in that respect? Mr. STEINKRAUS. Yes, sir. Mr. BOLLING. Pursuing this problem brought about by the competition for labor, would you be prepared to see wages rise far and fast in the United States in such industries as aircraft, steel, aluminum, chemicals, motors and others contributing to defense, if we had this competitive move on by people who need labor for those plants, would you make no attempt to handle the stabilization of the wage situation by controls? Mr. STEINKRAUS. It seems to me the people to whom the Government entrusts large contracts for such orders are people of great skill and knowledge, and they would never do such a thing. We came into Indianapolis with a big war plant in 1941, and we went around to every industrial concern in the town and said, "What is the wage pattern in this community? We are going to have to meet the wage pattern, but we are going to shoot away over the top of that wage pattern, as that is disruptive." Mr. BOLLING. Of course, it would be disruptive, but let us say that you have a plant in Indianapolis, and there is only enough skilled labor for that one plant, and you do not have wage stabilization, then what is going to happen? If you do not have wage stabilization people in California and New York and other places are all going to bid and bid for that limited amount of skilled labor. Mr. STEINKRAUS. Labor does not move as rapidly as that. Mr. BOLLING. I think that there are some clear indications that there was a great deal of fluidity in the labor market in the last war, even with wage stabilization. Mr. STEINKRAUS. But the percentage was comparatively small. People went out West from the East, and one of the reasons why people went out West was because companies were not allowed to expand in the East in certain areas. Some companies moved whole segments out there. Take this Vought Co., they moved 1,500 people out to Dallas, Tex. Mr. BOLLING. In other words, you are saying that you do not believe that competition for the limited supply of labor would bid up the wages of labor very much? Mr. STEINKRAUS. No, sir; I agree I do not think that it would. Mr. BOLLING. You have in part of your statement which you did not read a page on which you indicate your opposition to subsidies because they reward the inefficient or the high-cost producer. In the defense period we will inevitably need the output of some of these high-cost producers in our industries where we face very serious. shortages. I think copper is an example. Mr. STEINKRAUS. Yes; I think it is. Mr. BOLLING. Do you consider it better, then, to let the prices paid to all producers go up to the level to get out the high-cost output? Mr. STEINKRAUS. No, sir; I think there are some very specific cases on metals, and I think it is only because we do not control all the metals we need in this country. You pay Chile 3 cents a pound more because the world market on that is higher than the domestic market. I think wherever you have a domestic market it is quite a different situation than where you have a world market, because a world market can take the products right away from you. The rest of the world, for instance, is paying as high as 50 cents, and our price in this country is 241⁄2 cents. Mr. BOLLING. Again in part of your statement which you did not read, on page 18 you dismiss as unnecessary all of the changes in enforcement proposed in sections 104 (e), (f), (g), and (h) of the bill before us. Do you consider it a desirable situation that a man overcharging by $500 must pay a $1,500 fine, a man overcharging by $5,000 must pay $15,000, while a man overcharging by $50,000 cannot be made to pay more than $60,000, and a man overcharging by $500,000 cannot be made to pay more than $510,000? Do you feel that it is a good idea in the enforcement procedure to make it somewhat advantageous for the man who really breaks the law in a big way to get off with a relatively light fine? Mr. STEINKRAUS. If you are referring to the top of page 18, section 104, that means we oppose absolutely licensing business. That is pure regimentation. Mr. BOLLING. In the first paragraph you say: It seems to us that the Defense Production Act contains adequate enforcement powers. Therefore, the added provisions in section 104 (e), (f), (g) and (h) of your bill are unnecessary. You say first: While any law is on the statute books, all will agree that it should be enforced. I will agree with you on that. Then you say: It seems to us that the Defense Production Act contains adequate enforcement powers. Therefore, the added provisions in section 104 and so forth. The question I raise is pertinent to that first paragraph. I will reread it if you wish me to. Mr. STEINKRAUS. I am not sure about that. Mr. BOLLING. The present unintentional gap in the enforcement is that the man who really does a big job on overcharging gets off, cheaper proportionately than the man who makes a small overcharge and the amendment is designed to improve that situation. Now, I cannot believe that is the intent of your testimony to condone such a situation. Mr. STEINKRAUS. It does not sound sensible to me. Mr. STEINKRAUS. I would like to see where it is. You have an advantage of me, Congressman, you have your question all framed and I have not seen it before. Mr. BOLLING. Well, generally we understand that the interpretation of the law and with the enforcement powers of the law today is such that that situation which I have outlined could happen. A man who overcharges $500 would be liable to a fine of $1,500, while a man who overcharges $500,000 only is stuck $10,000 above the $500,000 that he is supposed unlawfully to have profited, so that the large violator has a greater incentive to attempt a violation, and that is the reason for the amendment which is proposed. Mr. STEINKRAUS. Well, Mr. Chairman, I think that this 104 (h) relating to the licensing of a businessman is unnecessary. Mr. BOLLING. No, sir; I have a question on that later. I am talking here about the enforcement. Mr. STEINKRAUS. Referring to matter of the amount of the overcharge, is there a desire to step up that amount? Is that the idea that Congressman is objecting to in our statement? I do not believe that there has been any weakness in the enforcement power in the present Defense Act. I would say that any one of them should be discouraged not by the amount of money he has to pay, but by the fact that he has had to be shown up as a fellow taking advantage of the Defense Act. Mr. BOLLING. Yes, I agree, but you agree also that if you are going to have treble damage procedure it ought to be trebel damages equally for the violator at the $500,000 level as well as the violator at the $500 level. There is no trap in this question. Mr. STEINKRAUS. Honestly, I could not tell you. This is a big bill, and I would prefer not to try to answer that. Mr. BOLLING. You oppose the licensing of business and say that the proposal has not attracted serious support on its merits, if I understand you correctly. Mr. STEINKRAUS. Yes, sir. Mr. BOLLING. I was under the impression that it was enacted during the First World War, and also during the Second World War. Mr. STEIN KRAUS. That is not so. Mr. BOLLING. I believe it was. That is all, Mr. Chairman. Mr. BROWN. Thank you very much, Mr. Steinkraus. Mr. STEINKRAUS. I am sorry to have taken so much time, Mr. Chairman. I want to thank you and the members of the committee for your very fair handling of a timid witness. STATEMENT OF W. D. LAWSON, PRESIDENT, AMERICAN COTTON SHIPPERS ASSOCIATION Mr. BROWN. Call the next witness. The CLERK. Mr. W. D. Lawson, president of the American Cotton Shippers Association. Mr. BROWN. I am in receipt of a letter from Mr. H. P. Williams of Athens, Ga., telling me he thinks a great deal of the witness who is now before us. Mr. LAWSON. Thank you. Shall I proceed, Mr. Chairman? Mr. LAWSON. My name is W. D. Lawson. My home is Gastonia, N. C. I am appearing in behalf of the American Cotton Shippers Association. The members of this association move approximately 85 percent of the cotton raised in the United States from farms to cotton spinners both domestic and foreign. This association is opposed to inflation. Inflation threatens the continuance of all business enterprise and the livelihood and well-being of every American citizen. We urge that it be attacked directly and effectively. An attack on inflation must increase the supply and reduce free buying power. The most fundamental and American step is to increase production, which is our free enterprise system means increasing incentives and reducing obstacles. Diversion of labor and effort from productive enterprise to nonessential Government employment and nonproductive controls should be avoided. Until production is effective free buying power should be reduced by: Higher taxes, designed to curb spending for consumer goods, but not so high as to discourage savings and investment in productive enterprises. Unnecessary increase of free buying power should be avoided by: (1) Stopping Government deficit financing; (2) Cutting Government nondefense expenditure; (3) Careful expenditure of heavy defense appropriations; (4) Curbing credit expansion. Quoting Mr. C. E. Wilson, Director of the Office of Mobilization, "Direct price controls treat only the symptoms of inflation, not its basic cause.' Inflation results only from acts of commission or omission of the Government, not of the citizens. Government controls remove the direction of production from the hands of those understand, to those who do not. With your permission I shall now attempt to show you why price ceilings on raw cotton are unworkable and any attempt at enforcement would call for an immense expenditure of money and manpower. Cotton is planted in the spring and harvested in the fall. Harvesting is done either mechanically or by hand and then taken to the cotton gin to separate the seed from the fiber. The fiber from the gin is packed into bales weighing approximately 500 pounds and then sold. The majority of the cotton is raised by small farmers and they usually wish to turn into cash immediately. There are always numbers of cotton shippers bidding on the cotton and with competition keen the farmer can be sure he gets the maximum price on his cotton the day he sells it. Cotton from these thousands of farmers is bought by shippers, segregated into lots of approximately the same grade and staple, and sold to the cotton mills all over the United States and foreign countries. The shipper thus performs two very definite economic functions by, first giving the farmer a daily market for his product and, second, by providing a constant source of supply to the cotton spinners of the world. Cotton shippers are not interested in the actual price of cotton except that it represents a fair return to the producer and allows the mill buyer an equitable return on his investment. According to the Office of OPA and unbiased sources the average cotton shipper's profit is about one-half of 1 percent on each bale he buys. You wonder how anyone could operate on such a small profit. This remarkable record is made possible by a cotton marketing mechanism refined by generations of experience to an extreme degree of flexibility and speed. It can be compared to a fine watch. It is more vulnerable and sensitive to the intrusion of arbitrary regulations than almost any other segment of the national economy. This is particularly true of our cotton futures markets. Being the only free markets left in the world to the trade they are constantly receiving buying and selling orders from all over the world. One of the main reasons that price ceilings on cotton are unworkable is that classing of cotton is not an exact science and no two bales are exactly alike, any more than two people are exactly alike. In classing, two samples are drawn one from each side of the bale with a coupon inserted showing the number of the bale. The value of the bale to the shipper is determined by the examination of this sample. Five factors make up this valuation: (1) Color-the brightest and whitest cotton has the highest value; (2) the amount of foreign matter in the sample-that is, parts of twigs ar leaf which the gin failed to remove; (3) the staple-that is, the average length of fiber in the sample; this may be any 1 of 20 different lengths; (4) preparation, showing smoothness in ginning; and (5) other variables tested mechanically, such as fiber tensile strength, uniformity, and fineness. According to the United States Department of Agriculture there are over 400 different classifications of domestic cotton. This does not include hundreds of other variations recognized by the trade. When you realize that this classification of grade and staple is all done by the human eye and hand you can see that there is a high probability of error. It is very difficult for two classers to agree exactly on a small lot of 100 bales of cotton and even the same classer will not agree with himself on the same lot if he classes it on different days. For this reason most merchants have one classer to class cotton into stock and another to check the class on mill shipments, in accordance with the requirements of individual mills. For your information the United States Department of Agriculture has done an excellent job in promulgating grade and staple standards for the world cotton trade to use. The value of these grades and staples varies daily according to the amount produced in each crop and the mill demand for certain qualities. By contrast the OPS has fixed prices on a cotton crop that has just been planted. I have in my hand one of their 16-inch staple types. |