such wide latitude of action, is given the price controlling authorities in all foreign countries appears to reflect the conviction that price control must be highly flexible if it is to be successful. Superficially, two different standards appear to have been used abroad by the price-fixing authorities. Sometimes the maximum or standard prices have been determined by the cost of production, while oftener they have been based, in the first instance, on the price of the same commodity during a given past base period. Closer analysis, however, shows that practically all countries have followed essentially the same standard, namely, a base period price adjusted for changes in cost of production. Differences, however, exist in the base periods used in different countries and, what is of greater importance, in the methods ing supplies for essential military and civilian uses. 3. The control of supply.—Of the indirect controls, those on the supply side have a particularly close connection with price control. Most countries have found close cooperation between price fixing and control of supply and distribution necessary and even essential. They have realized that it is difficult to have strict control of prices without some control over supply and distribution. Some countries, for example, Great Britain and Canada, have achieved this cooperation by conferring the powers to fix the price of a commodity on the same authority charged with regulating its production and distribution and with procuring supplies for essential military and civilan uses. The Brtish experience indicates that those agencies which effectively control their industries and systems of distribution have been fairly successful with price control, while those which have not possessed such power have not been able to cope adequately with their problems. In other countries, notably Germany, the connection has taken the form of a collaboration between the different governmental agencies handling price control and supply. The relative failure of price control in Japan seems to be due, at least in part, to a certain lack of this type of cooperation. VI. THE EFFECTIVENESS OF PRICE CONTROL Various factors must be taken into consideration in appraising the effectiveness of any system of price control-the interference with ordinary economic processes which the control involves; the cost of the control machinery; the extent and the nature of evasions. The basic test remains, however, the actual course of prices during the period of the operation of the control. By this test Canadian price control has thus far been fairly effective. Since the war started wholesale prices in Canada have risen by slightly more than 20 percent, while the cost of living has increased 11 percent, but nearly one-half of this rise took place in the first month of the war (chart 36). In the first half of 1941 wholesale prices have advanced at an average rate of about 1 percent a month, while the cost of living has risen only 2 percent for the entire 6month period. The relatively small rise in the Canadian price level has been achieved in face of the increase of about 10 percent in the price of the American dollar, which governs a large portion of Canadian import prices, and in the face of the large armament program which now absorbs over one-third of the national income. The smaller extent of the price rise in the last half year is of interest in comparison with the more rapid advance in the United States in the same period (chart 37). While wholesale prices in Canada have risen about 7 percent since the beginning of 1941, they have advanced around 10 percent in the United States. Similarly, the rise in the cost of living in Canada over that period compares with an increase of slightly more than 4 percent in this country. British prices have increased considerably since the war started (chart 38). Wholesale prices are now about 60 percent above the level of August 1939 while the cost of living has risen nearly 30 percent. However, about one-half of the increase of the wholesale price level took place in the first 3 months of war, before the machinery of price control was very effective and before the Prices of Goods Act was passed. Part of this rise was due to special, nonrecurring factors such as the sharp increase in ocean freights and insurance rates. In the first half of this year the rise has been small, averaging less This basis is specially laid down, e. g., in the British Prices of Goods Act which, in sec. 3, fixes the maximum price at the "base price" (i. e., the price of August 21, 1939) plus the "permitted increase" defined in sec. 4 as "an amount not exceeding such increase as is reasonably justified in view of changes in the business, since the date as at which the basic price for the goods is to be ascertained. . *19 than 1 percent per month, compared to about 11⁄2 percent in the United States. The cost of living has risen less steeply but more continuously than British wholesale prices. In the last half year it has advanced at the rate of about 1 percent a month, somewhat more than the corresponding increase in the United States. The relative slowness of price rises in the recent period, however, is due partly to increased subsidies paid on some basic articles of consumption. While there seems little doubt that the effectiveness of British price control has increased considerably since the middle of 1940, it is still too early to say whether a system has been developed which can prevent a continuous and marked rise in the price level. It is clear, however, that controls recently have been considerably more effective in the field of industrial raw materiais and foods than in that of manufactured consumers' goods. The control of prices in France during the war appears to have been none too successful. Available indices indicate a rise of nearly 40 percent in the wholesale prices of food and raw materials between September 1939 and April 1940. Almost no information is available on price developments under the Vichy regime, but a further considerable increase has probably taken place. Sweden, although not a belligerent, has experienced a sharp rise in prices since the fall of 1939. Wholesale prices have risen about 50 percent and the cost of living has advanced about 33 percent, both without slowing down in recent months (chart 35). Much of the rise has been due to a sharp advance in the prices of imported materials, a factor largely outside the sphere of influence of the relatively mild system of price control. Developments have been similar in Switzerland,,wholesale prices rising about 60 percent and retail food prices about 25 percent. Official German price indexes show a rise of about 5 percent in the level of both wholesale prices and the cost of living since the war started. The actual rise in prices, however, is probably somewhat larger than that shown by the indexes. Nevertheless, there is little doubt that increases, both in wholesale and retail prices, have been kept within moderate limits and that the comprehensive system of price control developed since 1936 has proven effective, in conjunction with all the other authoritarian controls in force in Germany. Although prices in Japan have been frozen by ordinance at their levels of September 1939, even the official indexes show a considerable advance since that date. They indicate for both wholesale prices and the cost of living an increase of nearly 20 percent above the level of 1939, which in turn was considerably higher than the price level before the invasion of China in 1937. Actual prices probably have risen considerably more than the official indexes indicate. It thus appears that the Japanese system of price control, though very comprehensive on paper, has not been too effective in practice, probably because it was not accompanied by an effective check on a continuous inflationary expansion of money income. Mr. HENDERSON. Pretty generally it has been recognized that price control needs a definite statutory basis. And there is a statutory basis even in Germany and in Japan. The sphere of price control is usually quite broad, involving wholesale and retail prices and covering margins, and usually providing for some form of licensing. And that licensing feature, by the way, was the basis of control which Administrator Hoover undertook to use in the Food and Fuel Act. Pretty generally, wage control is separate from price control. It has been found in all of these laws, both in the totalitarian and democratic countries, that there must be flexibility in administration. No foreign country has found it advisable to lay down by law strict price standards or the detailed principles of price administration. In addition, we find that most countries have made auxiliary aids available in price control-directly, that is-and usually these are the power to buy and sell commodities and the power to license. And, in addition to those, the price control usually works in close harmony with the fiscal and monetary authorities. All of the countries have started with the administration of selected prices and have moved up from there as the necessity arose. They |