PRICE-CONTROL BILL

THURSDAY, AUGUST 7, 1941

HOUSE OF REPRESENTATIVES, COMMITTEE ON BANKING AND CURRENCY, Washington, D. C. The committee met at 10:15 a. m., Hon. Henry B. Steagall (chairman) presiding.

The members present were: Messrs. Steagall, Williams, Spence, Ford, Brown, Patman, Barry, Sacks, Gore, Mills, Monroney, Lynch, Kopplemann, Boggs, Hull, Wolcott, Gifford, Crawford, Gamble, Kean, Miss Sumner, Messrs. Smith, Kunkel, Rolph, and Dewey.

The CHAIRMAN. The committee will come to order. Mr. Henderson, the committee will be glad to have you resume your discussion of this bill. Mr. Williams desires to submit further inquiries to you.

STATEMENT OF LEON HENDERSON, ADMINISTRATOR; AND DAVID GINSBURG, GENERAL COUNSEL, OFFICE OF PRICE ADMINISTRATION AND CIVILIAN SUPPLY-Resumed

Mr. WILLIAMS. In the first place, Mr. Henderson, I would like to clear up the record on some things that were said yesterday, in order that I may have a clear understanding of the situation, and one of those things is about installment buying and selling.

On page 6 of this bill, or rather, beginning at the bottom of page 5, it reads like this:

Whenever in the judgment of the President such action is necessary or proper in order to effectuate the purpose of this act, he may, by regulation or order, regulate or prohibit, with respect to any commodity, speculative or manipulative practices, selling, marketing, or inventory practices

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The thing I want to call your attention to here is the "selling practices" the President may regulate or prohibit selling practices. And the question some of us have in mind is as to whether or not that does not cover the question of installment selling and buying.

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Mr. HENDERSON. I think I can say to the committee that in drafting the bill it was not the intent to cover installment selling through that language, and that selling practices relate to open-end orders and the like, by which evasions of a price ceiling might be carried out.

It may be that some language is necessary to make it clear, but it was not the intent to bring installment-selling practices in by means of that language.

Mr. WILLIAMS. Well, I understand you think it ought to be in the law somewhere, if it is not?

Mr. HENDERSON. That is correct.

Mr. WILLIAMS. And it is your impression, as I remember it, that it was already covered by some banking legislation?

Mr. HENDERSON. That is correct. And we have spent several months studying the Banking Act in relation to installment credit

extensions.

Mr. WILLIAMS. And I asked you at that time, and I am wondering if you are able to give us now just what that law is what that legislation is?

Mr. GINSBURG. The law is section 2 of the Emergency Banking Act, 1933; that is, the act of March 9, 1933.

Mr. WILLIAMS. Have you a copy of that act there?

Mr. GINSBURG. No, sir; I have not.

Mr. WILLIAMS. I believe it would be entirely proper if the chairman cares to, to read that into the record at this point.

The CHAIRMAN. Let me ask Mr. Ginsburg which specific provision of the Emergency Banking Act of 1933 he has in mind as affording machinery for the control, restriction, or prohibition of installment selling.

Mr. GINSBURG. If you would have no objection, Mr. Chairman, I think it would be well to pass consideration of this until Mr. Eccles appears. I believe it is more a matter in his bailiwick than ours here.

Mr. WILLIAMS. Not at all, so far as I am concerned. You are the one now who says it is in there and, if it is in there, we want to know where it is now.

Mr. GINSBURG. I am simply saying it is in there on the representation of the Legal Division of the Federal Reserve Board. I am perfectly willing to indicate to you the provisions in the law which they believe confer that power.

Mr. WILLIAMS. I understood you did indicate that and the Chairman asked you what they were.

The CHAIRMAN. I have the act before me. I think I am entirely familiar with it; I am quite familiar with its purpose. Before Mr. Ginsburg has an opportunity to read the statute, this much is certainly beyond dispute: The Emergency Banking Act of 1933 was passed to deal with an emergency in the banking world that existed at that time, for the purpose of opening the banks under such conditions and such regulations as would enable them, we thought, safely to deal with the situation. I submit that installment buying was never mentioned, was never considered as such in any conference that I attended, or on the floor of the House. It was passed on the 9th day of March to deal with the banking emergency; but, in any event, this much would seem to be beyond dispute that the act, insofar as it could deal with the matter of installment buying, by control or regulation of banking transactions, would be limited to the national banks, or certainly to the member banks of the Federal Reserve System. It could not go beyond that.

Mr. PATMAN. Could you read the language, Mr. Chairman?

The CHAIRMAN. I suggest that he read section 2 of that act in the record right now.

Mr. GINSBURG. Shall I read the entire section, or just the provisions which I think revelant to this inquiry?

The CHAIRMAN. I was going to ask you to read the provisions which you think are relevant.

Mr. GINSBURG. Let me say first, Mr. Chairman, I do not think it is wise for us, that is, for Mr. Henderson's staff, to enter into a discussion of the merits of the thing. I am merely indicating that was the provision of the act which has been identified to us as relevant in this connection. That provision reads as follows:

During time of war, or during any other period of national emergency declared by the President, the President may, through any agency that he may designate, or otherwise, investigate, regulate, or prohibit any transactions in foreign exchange

And this is the relevant language, I believe

transfers of credit between or payments by banking institutions as defined by the President.

That, I believe, is the statutory basis for the control of installment credit indicated to us by the Federal Reserve Board.

The CHAIRMAN. The Federal Reserve Board does not hold the view that the Emergency Banking Act of 1933 confers upon them specific authority?

Mr. GINSBURG. No; I think it confers that authority, if it does confer it, upon the President.

Mr. DEWEY. Mr. Chairman, I just want to suggest that that is a paraphrasing of a certain portion of section 2 and, as they are entering that, why not offer the entire section?

The CHAIRMAN. He is going to do that.

Mr. DEWEY. I thought he was just going to offer that part of the section he read.

Mr. GINSBURG. No, sir.

The CHAIRMAN. He was pointing that out specifically, but he is going to incorporate the entire provision of the law in the record.

(The matter above referred to follows:)

Sec. 2, Emergency Banking Act, March 9, 1933 (48 Stat. 1, ch. 1), as amended by Act of May 7, 1940:

"During time of war or during any other period of national emergency declared by the President, the President may, through any agency that he may designate, or otherwise, investigate, regulate, or prohibit, under such rules and regulations as he may prescribe, by means of licenses or otherwise, any transactions in foreign exchange, transfers of credit between or payments by or to banking institutions as defined by the President, and export, hoarding, melting, or earmarking of gold or silver coin or bullion or currency, and any transfer, withdrawal or exportation of, or dealing in, any evidences of indebtedness or evidences of ownership of property in which any foreign state or a national or political subdivision thereof, as defined by the President, has any interest, by any person within the United States or any place subject to the jurisdiction thereof; and the President may require any person to furnish under oath, complete information relative to any transaction referred to in this subdivision or to any property in which any such foreign state, national or political subdivision has any interest, including the production of any books of account, contracts, letters, or other papers, in connection therewith in the custody or control of such person, either before or after such transaction is completed."

Mr. WILLIAMS. Since there is some question about the law and, in fact, a great deal of question in my mind-in fact, I am thoroughly

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convinced it is not in the law, anyway-you think it ought to be? Mr. HENDERSON. Yes, sir; and may I say, Mr. Williams, I have long familiarity with consumer credit. I was the head of the department in the Russell Sage Foundation which conducted research into that, and my successor, and also my deputy, Mr. John Hamm, spent a great deal of time on the effect of installment credit on the upswing and on the downswing, and it was evident to us that there was an acceleration on both grades. And some months ago, seeing that this problem was related to efforts to maintain price control, particularly as it related to the consumer durable goods brought incompetition with defense goods, I took the matter up with the Federal Reserve and asked them whether authority did exist for the control of installment credit. And, as Mr. Ginsburg has indicated, there was a representation made to us that it did exist.

I have not examined into the legal status of that because I am not a lawyer. I do know, and repeat, that it is of such critical importance that, if the law does not cover it, then there should be a law.

Mr. WILLIAMS. Well, I am dead sure, I think I can say, as one who was here when that legislation was passed, that that question never entered into the mind of any Member of Congress-that I ever heard of, at least. I know it never entered my mind that there was ever and intention, as the chairman has already indicated, at any time, by banking legislation, to enter the field of installment credit. If someone else had that idea, I never yet have heard of it. For that reason, it came as a complete surprise to me to think there was such authority existing now.

The CHAIRMAN. If the gentleman will permit me to interrupt. I will say that I am sure his knowledge of the situation will accord with my recollection. I think it is well known that what we were trying to do by the passage of that act was to enable the banks to engage in all enterprises that would make it possible to resume business, and not to put any sort of limit on them. We were not worried about that in the discussion; we were trying to get them to do business.

Mr. WILLIAMS. Since in your opinion, Mr. Henderson, this phase we are now discussing is a very important part of a threatened inflationary movement, I think it would be very appropriate for you to discuss what effect installment buying and credit has on inflation, or tends to hasten it.

Mr. HENDERSON. May I make a general statement now; then, with the permission of the committee, file a brief memorandum on the economic effects of installment selling which I have had prepared for me by the experts on my staff?

Mr. FORD. Mr. Chairman, might I ask one question there?

The CHAIRMAN. Yes.

Mr. FORD. Would not unchecked installment buying nullify many of the other attempts to check inflation, or modify them?

Mr. HENDERSON. It would help to nullify and it would put particular pressure on the demand for and, therefore, the price of consumer durable goods that will be limited in production at the same time there is an enormous increase in wages.

In effect, what installment credit does is really to make an addition to the purchasing power that is available in the market. And where

I said the pay rolls had gone up over 50 percent, if you would assume there was another expansion of one, or two, or three billion for installment credit, it has the same effect on the market and the demand for consumer goods as if it had appeared in the pay rolls as of the time of the contracting of that loan.

We have in the defense program now a decided scarcity of many of the metals. I indicated some of them the other day when I talked about the 32 that had been analyzed. Now, those scarcities, rather than any desire to limit the output of any of the consumer-goods industries, are pressing heavily and unevenly on the demand for these metals. That means, regardless of whether or not an orderly procedure for curtailment or substitution in automobiles, refrigerators, heating appliances, vacuum cleaners, and on down the list, is adopted, there will be necessity for a reduction. Now, that carries with it, just as a priority order carries with it, the necessity of keeping that price in control for the protection of consumers and the prevention of inflation. If there existed, running concurrently with the power to curtail the production of the goods and the power to fix the price of the goods, the power to curtail or limit the terms of installment creditbecause installment credit is customarily used in part for the purchase of those commodities-the job of maintaining reasonable stability in the economy would be greatly enhanced. Or, to put it the other way, in your terms, Mr. Ford: If you had an unbridled potential installment credit expansion, it would nullify the efforts toward price stability.

Now, the problem of keeping prices in line all the way down from the producers of consumer durable goods to the ultimate purchaser, the consumer, is a difficult one. We know from the normal peacetime studies which have been made in the Russell Sage Foundation that an increase of 1 percent in the down payment, or a decrease of 1 percent in the time that the installment period runs, will ordinarily bring a 1-percent reduction in the demand. Or, to put it in another way, if you are selling these highly desired consumer durable goods and you lengthen the term in which you allow a man to pay for them, or you reduce the amount of the down payment which you require, you can expand your market in a 1-to-1 relationship. And of course the limiting factor on the extension of the term or contraction of the down payment has been the fact that the risk of collection of the principal amount also moves forward in the same order; that is, letting a man buy a consumer durable good which wears out in 3 years and letting him have 3 years to pay is bad business.

Another phenomenon in the installment credit business-and that goes for all kinds of extension of credit and loans to individualsis that we have a marked increase when there is a rising tide of prosperity; that is, the risk to the vendor is less because of a more assured certainly of pay rolls. And, of course, a man undertakes that obligation when he has gone back to work and when he has a prospect of continuing to get good wages.

The reverse is true on the down side.

The householder contracts his expenditures and his long-term commitments when there is a prospect that his work and pay rolls are going to be foreshortened.

Now; because of those unusual effects, it has always seemed to