Mr. RIGGLE. Yes.

Mr. BROWN. In what county?

Mr. RIGGLE. Loudoun County, Va.

Mr. BROWN. You have an organization in many of the States of the Nation?

Mr. RIGGLE. Yes.

Mr. BROWN. In how many?

Mr. RIGGLE. I think our membership is in practically every State in the country.

Mr. BROWN. You have offices here in Washington?

Mr. RIGGLE. Yes.

Mr. BROWN. Are there any questions?

Mr. BETTS. You suggest that title IV should be allowed to expire; you mean all but section 402 (a)?

Mr. RIGGLE. I said that the price control, wage stabilization provision of title IV should be allowed to expire.

Mr. BETTS. You mean the provisions of section 402 (a) should be retained in the law; is that right?

Mr. RIGGLE. Yes.

Mr. BETTS. That section relates to education of people voluntarily? Mr. RIGGLE. Voluntary programs of the type that were employed and implemented in connection with credit controls.

Mr. BETTS. That is much like we had just after the war began? Mr. RIGGLE. I should think that it would be in the line of the mobilization we had during the Liberty Loan drives, with local meetings under leadership, and programs of advertising and general information to the public and even personal visits.

Mr. BETTS. That is all I have, Mr. Chairman.

Mr. BROWN. Do you have anything further you desire to file for the record?

Mr. RIGGLE. No; not at this time.

Mr. BROWN. Very well; thank you for your statement.

Mr. RIGGLE. Thank you.

STATEMENT OF HON. SCOTT W. LUCAS, ON BEHALF OF THE AMERICAN FINANCE CONFERENCE

Mr. BROWN. The next witness is Hon. Scott W. Lucas, a very distinguished American citizen, a former Member of the House and a former United States Senator.

We are very glad to have you with us, Mr. Lucas, and you may proceed.

Mr. LUCAS. Thank you.

Mr. Chairman and members of the committee, I am appearing before you today on behalf of the American Finance Conference, a group comprising some 366 independent automobile sales finance companies operating through more than 1,300 offices doing business in all parts of the United States.

About 10 days ago I testified before the Senate Banking and Currency Committee on the companion bill to the one you are now considering. The burden of my testimony then was that regulation W issued by the Federal Reserve Board under the authority vested in it by title VI of the Defense Production Act of 1950 was so unconscionable and inequitable, at least insofar as it dealt with the

controls over the installment purchase of automobiles, that should Congress decide to extend the powers granted in title VI, the only sound way of meeting the issues presented would be for Congress to write a floor in the law.

Nothing has happened since I appeared before the Senate Banking Committee which would lead me to modify that conclusion. In fact, as I shall advert to in a few moments, developments in this intervening period only serve to corroborate my feelings. For this reason, a good deal of what I say to you today will be a repetition-a repetition of thought, in any event, if not of language.

As one who served in the House of Representatives for 4 years and in the United States Senate for 12 years, I am not unmindful of the magnitude as well as the seriousness of the problems which confront your committee as you consider legislation intended to continue that

act.

There is no escaping the fact that the Defense Production Act of 1950 represented a very grave departure from the normal relationship which exists between our Government and its citizens. The extraordinary power to impose controls over production, distribution, and credit was justified only because we were confronted with an extraordinary situation.

Wisely, I believe, the Eighty-first Congress provided for a termination date for many of these authorizations, for it thus assured the Congress an opportunity to reexamine the picture.

Now it seems to me that that reexamination must be made against the background of two large questions:

(1) Is the situation critical enough to justify the controls which are authorized; and

(2) If the answer to the first question is "yes," then has the exercise of the powers been calculated to accomplish their purposes, and have these controls been so equitable in their application as to justify their unrestricted continuation?

If the answer to the last query is "no," then we respectfully submit that a floor must be written into the law to protect adequately an important part of the automobile industry of America.

În appearing before you today, I want to invite your attention to one type of control-a control which finds its authority in title VI of the Defense Production Act of 1950. That authority expires on June 30 of this year. Under H. R. 3871, the authority to exercise that control would expire on June 30, 1953.

I refer to Regulation W of the Board of Governors of the Federal Reserve Board, authority for which is found in section 601 of the act, conferring power on the Board of Governors of the Federal Reserve System to exercise consumer credit controls. The particular aspect of the regulation W, as amended, to which I invite your attention is that part which requires a minimum of one-third down payment for new and used cars sold on the installment plan and which fixes the maximum maturity at 15 months.

I shall have occasion in a few moments to measure regulation W insofar as it applies to the installment sales of new and used cars against the criteria which I have named above; that is, accomplishment of purpose and equity in application. But I cannot refrain from pointing out that regulation W was made effective on September 18, 1950, only 10 days after the act was approved. You will recall that under

section 709 of the act, rules, regulations, or orders, or amendments thereto, issued under authority of that law were to be promulgated after there had been consultation with industry representatives, including trade association representatives. Assuming that there was "extensive consultation with trade groups before regulation W was initially issued," as Chairman Martin of the Board of Governors of the Federal Reserve Board stated to this committee when he testified before you on May 10 of this year, there certainly was no consultation before the issuance of amendment No. 1, effective October 16, 1950. That amendment-and bear in mind the requirement of industry consultation was applicable to amendments, too-reduced the maximum maturity of installment sales of automobiles from 21 months to 15 months. In fact, at the time the amendment was issued the Board accompanied the publication of the amendment in the Federal Register on October 17 with this statement:

Special circumstances have rendered impracticable and contrary to the interests of the national defense consultation with industry representatives, including trade association representatives, in the formulation of the above amendment; and, therefore, as authorized by the aforesaid section 709, the amendment has been issued without such consultation.

Mr. Chairman and members of the committee, the present defense legislation was enacted into law while I was serving as majority leader of the United States Senate. Without qualifying the position on this legislation I now hold, it might lead to the charge that I was acting in a selfish capacity, ignoring the basic philosophy in the bill which Ï supported in the Eighty-first Congress. I wish emphatically to state that had I had the slightest reason to believe that the Federal Reserve Board would use the delegated power in such an arbitrary and capricious manner as we find in regulation W, as amended, I would have favored a limitation upon that power by placing a floor below which the Federal Reserve Board could not reduce consumer credit.

I might add that immediately after October 16, 1950, when the Board used this extraordinary power over individual action, I telephoned Mr. McCabe, then Chairman of the Board, vigorously protesting the decision, requesting that the Board reconsider its action, and that the industry representatives be given an opportunity to be heard in accordance with section 709 of the Defense Production Act. That request was denied.

Mr. BROWN. When was that done, Mr. Lucas?

Mr. LUCAS. The amendment was issued, Mr. Chairman, on October 16, 1950, and it was, I would say, within 3 days after the amendment was promulgated that I telephoned from Chicago to Mr. McCabe protesting somewhat bitterly the decision that had been made, requesting that the Board reconsider it, and that consultation be had with the industry. As I say, that request was denied.

In view of what the Federal Reserve Board did in arbitrarily making regulation W more restrictive, I believe it is not unreasonable, in examining what the Board proposes to do with extended authority, to examine how they have acted under existing authority.

And I submit that if future conduct is to be of a pattern with the conduct obtaining in the case of the issuance of this amendment 1, then this committee had better take a long look before extending consumer-credit controls under present conditions; but if you do extend them, then we thoroughly believe that a limitation of the

Board's power must be written into law-in other words, a floor below which the Board cannot go.

This committee should also consider the following:

Section 708 of the Defense Production Act authorizes the Board of Governors of the Federal Reserve System to encourage financing institutions to enter into voluntary agreements and programs to restrain credit where such restraint will further the objectives of the act. A national committee known as the Voluntary Credit Restraint Committee has been created, with Hon. Oliver S. Powell, member of the board, as chairman. This action is in keeping with congressional intent. The experience of the Congress with rigid controls in the past has been anything but encouraging. Therefore, the voluntary creditrestraint program, requesting banks, life insurance companies, investment banks, and many other types of lenders not to extend credit of an undesirable character is a commendable step in the right direction against inflation. However, it makes one wonder why regulation W, as amended, became effective before the voluntary method was tried with financial institutions and dealers who handle installment credit upon automobiles. It would seem to me wholly unwarranted to make installment selling of automobiles the whipping boy of inflation in the absence of actions covering all segments of our economy.

However, charges of precipitous and ill-considered action based on the short period of time for study and consultation and charges of failure to consult with industry members along with the voluntary credit-restraint program must be subordinated to the more objective approach of analyzing the purposes for which the regulation was issued, and seeing whether operations under the regulation achieve its purpose. Now, Mr. Chairman and members of the committee, what were the declared purposes of regulation W? They are two:

(1) To check inflation by reducing the credit available to the public for purchase of goods that are in short supply; and

(2) To save essential materials by reducing the demand for durable goods.

Before going ahead, let me make one thing crystal clear: Neither I nor the group for which I speak contends that it is unnecessary to curb inflation and to conserve essential materials. I am anxious that you understand our position on this point, for I assure you that I would not be here if I thought that opposition to regulation W meant the promotion rather than the retarding of inflation, of the dissipation rather than the conservation of essential materials.

Perhaps the second justification-that of conserving critical materials should be taken up first and dismissed quickly. I have already mentioned that regulation W applies equally to used cars as well as to new cars. I shall welcome any help from this committee toward explaining how credit control on used cars conserves materials. I should hope that before this hearing ends the chairman or some member of the Federal Reserve Board would explain this economic fallacy.

As to new cars, it is obvious that the manufacturer depends upon the availability of materials going into the cars. There is ample power in the Defense Production Act for the allocation of materials to automobile manufacturers, and, in fact, that power has been exercised. No amount of curbing consumer demand is going to make scarce materials plentiful. It must be readily obvious to this committee

that you can't control the manufacture of new cars by making it impossible for those who need them to buy them. As long as manufacturers are going to be able to get the steel, aluminum, copper, and so forth, which go into their cars, they are going to make cars; and if these materials are critically necessary for the defense effort, the present law confers ample jurisdiction on the Executive to reduce the amount of such materials available for automobile manufacturing and to divert those materials for defense activities.

As a matter of fact, announcement was made only recently that there was to be a reduction in the amount of steel made available to automobile manufacturers.

And we submit, Mr. Chairman, that is the real way in which to attempt to control inflation as far as automobiles are concerned, to get at the source of supply of automobiles, and not to use it upon a very infinitesimal part of the economy affecting automobiles.

Incidentally, this cut-back of steel will probably mean that the industry as a whole will produce about 70 percent of the cars produced last year. Since the industry produced 6,658,000 cars in 1950, there will be produced approximately 4,600,000 cars in 1951-hardly an austere car-producing schedule.

I must confess that I find it hard to see how any critical materials are conserved by a regulation which tells a man who needs a car that he cannot buy the car, already made, mind you, unless he pays one-third down and the balance in not in excess of 15 months. Incidentally, are the materials in a car not critical if the car happens to be purchased on an all-cash basis?

The principal argument for the exercise of the extraordinary control in regulation W is, of course, that it checks inflation. Let's use Federal Reserve Board Governor Powell's definition of "inflation": "If the total demand for goods exceeds the supply, prices go up. This is inflation."

Now, Mr. Chairman and committee members, I do not hold myself out to be an economist. However, in my many years on Capitol Hill and especially in my service as a member of the Senate Finance Committee, I have been exposed to a tremendous amount of education on this subject. It has been my understanding that inflation is caused by the creation of new money through extension of credit. There must be a distinction made between sources originating new money, and sources distributing the new money that is created. The only originating sources of new money are the Federal Reserve System and the credit program of the Federal Government. This consumer credit which we hear and talk about so much is not an originating source of new money-it is an avenue for the distribution of the new money.

I believe that a valid test is the relationship between installment sales credit and total consumer purchasing power. Installment sales credit outstanding at the end of 1950 was only 3.85 percent of total consumer purchasing power. Let me emphasize this: That it is against this small volume-3.85 percent of total consumer purchasing power that regulation W applies. And this figure of 3.85 percent, bear in mind, is related to all installment sales credit outstanding. The automobile portion, the part we are now speaking of, would represent about 2 percent of total consumer purchasing power affected by regulation W. (The amount of outstandings as of the end of

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