, de 85th Coiress} JOINT COMMITTEE PRINT THE RELATIONSHIP OF PRICES TO ECONOMIC STABILITY AND GROWTH COMMENTARIES SUBMITTED BY-ECONOMISTS FROM LABOR AND INDUSTRY APPEARING BEFORE THE JOINT ECONOMIC COMMITTEE CONGRESS OF THE UNITED STATES OCTOBER 31, 1958 Printed for the use of the Joint Economic Committee UNITED STATES GOVERNMENT PRINTING OFFICE 31942 WASHINGTON: 1958 For sale by the Superintendent of Documents, U. S. Government Printing Offi- Washin.-tnn A, n r. - 'PAA (I JOINT ECONOMIC COMMITTEE (Created pursuant to se: 5 (a) of Public Law 304, 79th Cong.) WRIGHT PATMAN, Representative from Texas, Chairman JOHN SPARKMAN, Senator from Alabama, Vice Chairman HOUSE OF REPRESENTATIVES SENATE RICHARD BOLLING, Missouri PAUL H. DOUGLAS, Illinois HALE BOGOS, Louisiana . J. W. FULBRIGHT, Arkansas HENRY S. REUSS, Wisconsin JOSEPH C. O'MAHONEY, Wyoming HENRY 0. TALLE, Iowa RALPH E. FLANDERS, Vermont THOMAS B. CURTIS, Missouri ARTHUR V. WATKINS, Utah Virginia CLARENCE E. KILBURN, New York JOHN D. HOBLITZELL, JR., West RODERICK H. RILEY, Executive Director JOHN W. LEHMAN, Clerk JAMES W. KNOWLES, Economist in Charge II LETTERS OF TRANSMITTAL OCTOBER 31, 1958. To Members of the Joint Economic Committee: The papers transmitted with this letter were submitted by 15 leading economists from labor and industry who were invited to com- ment on the analyses and issues raised by the 47 experts from the colleges, universities, Government, and research groups who partici- pated in the first two stages of the study: The Relationship of Prices to Economic Stability and Growth. These commentaries are presented in advance of the committee's hearings, to be held December 15-18, to provide members of the com- mittee, the public, the contributors, and the eight academic experts who have been invited to return as panelists an opportunity to ex- amine all of the commentaries before they are developed in oral state- ments and discussions at the hearings. WRIGHT PATMAN, Chairman, Joint Economic Committee. III LETTERS OF TRANSMITTAL-Continued OCTOBER 27, 195i8. Hon. WRIGHT PATNrAN, Chairrman,Joint Economic Committee, House of Representatives, Washington, D. C. DEAR MR. PATMIAN: The papers transmitted with this letter were submitted by 15 of the 16 leading economists from labor and industry who have been invited to appear before the Joint Economic Committee in public hearings December 15-18 as part of the committee's study: The Relationship of Prices to Economic Stability and Growth. One paper has not yet been received. This is in accordance with instruc- tions to the staff approved by the committee October 7, 1957. The papers are presented as submitted by the contributors without additions or deletions. They are arranged by panel topics in the order in which they are scheduled for discussion at the hearings. The committee study on prices has been undertaken in four stages. The first phase consisted of a compendium of papers prepared by 47 economists from the colleges, universities, Government, and research groups, published as a committee print March 31, 1958; the second stage was a series of hearings in the form of panel discussions, held May 12-22, in which these contributors participated. The third and fourth stages of the study now underway consist of the commentaries by the labor and industry economists and the subsequent public hear- ings with these contributors and eight of the contributors to the first compendium as panelists. RODERICK H. RILEY, Executive Director. V OUTLINE OF MAJOR TOPICS AND NAMES OF CONTRIBU- TORS TO COMMENTARIES ON THE RELATIONSHIP OF PRICES TO ECONOMIC STABILITY AND GROWTH Page I. Employment Act Objectives and the Stabilization of Prices - IX Barkin, Solomon, Director of Research, Textile Workers Union o America, AFL-CIO: Maximum Employment and a Selective Economic Control Policy. 1 Ellis, Ira T., Economist, E. I. du Pont de Nemours & Co: Commentary on Employment Act Objectives and the Stabiliza- tion of Prices -43 Kassalow, Everett M., Director of Research, Industrial Union De- partment, AFL-CIO: The Relationship of Prices to Economic Stability and Growth- Employment Act Objectives and the Stabilization of Prices-- 49 Sprinkel, Beryl W., Economist, Securities Analysis Department, Harris Trust & Savings Bank, Chicago, Ill.: Maintaining Economic Growth, Stability, and Stable Prices--- 63 II. The Analysis of the Causes of Price Changes and of the Effects of Price Changes on Economic Activity -85 Fackler, Walter D., Assistant Director, Economic Research Depart- ment, United States Chamber of Commerce: The Relationship of Prices to Economic Stability and Growth-_ 91 Henle, Peter, Assistant Director of Research, AFL-CIO: Price Movements in Recent Years - 103 Hitchings, George P., Manager, Economic Analysis Department, Ford Motor Co.: Causes of Price Changes and Effects on Economic Activity - 121 Seligman, Ben B., Director of Research, Retail Clerks International Association, AFL-CIO: Price Stability and Retailing -143 III. Private Pricing Policies and the Effects of Public Policies -171 Livingston, S. Morris, Consulting Economist, Chicago, Ill.: The Limits of Private Price Policy -175 Tongue, William W., Economist, Jewel Tea Co.: Administered Prices and the Control of Inflation - 195 Wishart, James H., Research Director, Amalgamated Meat Cutters and Butcher Workmen of North America, AFL-CIO: Comments on the Compendium of Papers on the Relationship of Prices to Economic Stability and Growth (secs. VI and VII)- 207 IV. Formulating Public Policies for Economic Stability and Growth --- 219 Gilbert, Richard V., Consulting Economist, Westport, Conn.: Economics for Cold War --- 221 Melnicoff, David C., Manager, Economic Analysis, The Pennsylvania Railroad: Some Comments on Public Policies for Economic Stability and Growth -231 Ruttenberg, Stanley H., Director, Department of Research, AFL-CIO, and Nat Goldfinger, Assistant Director, Department of Research, AFL-CIO: Formulating Public Policies for Economic Stability and Growth_ 239 Teper, Lazare, Director of Research, International Ladies' Garment Workers' Union: Prices and Steady Economic Growth: An Issue in Public Policy Formulation -259 VII I EMPLOYMENT ACT OBJECTIVES AND THE STABILIZATION OF PRICES Ix The participants in section I of these commentaries were asked to concentrate their comments on the analyses and issues raised by eco- nomists who contributed to panel I of the compendium of last March. We reproduce below the topics and questions which were posed to those contributors at the time they began work on their papers. I. Employment Act objectives and the stabilization of prices: A. What price behavior would be consistent with the attainment of the other policy objectives of the Employment Act "of creating and maintaining, in a manner calculated to foster and promote free competitive enterprise and the general welfare, conditions under which there will be afforded useful employment opportunities, including self-employment, for those able, willing, and seeking to work, and to promote maximum employment, production, and purchasing power" in both the short run and the long run? Under what con- ditions would stabilization of prices be inconsistent with attainment of Employment Act objectives? B. What does "economic stability and growth" mean when used in reference to a dynamic private enterprise economy? C. What changes in the distribution of income and wealth usually accompany changes in the general price level, and what weight should these be given in assigning priorities among the various objectives of the Employment Act? 1. What are the effects of price level changes upon the different income groups, especially upon the so-called "fixed income" groups? 2. How are holders of various types of assets affected by price level changes? 3. How do various types of debtors-financial and non- financial, corporate, individual, farmers, and small- business men-fare under conditions of changing price levels? 4. What is the effect of changing price levels on the rela- tive position of Federal, State, and local govern- ments, considering their traditional revenue sources, their expenditure programs and debtor positions? X MAXIMUM EMPLOYMENT AND A SELECTIVE ECONOMIC CONTROL POLICY Solomon Barkin, Director of Research, Textile Workers Union of America CONTENTS I. Maximum employment or price stability: A. Administration thwarts recovery with general credit control. B. Business leaders accent inflation, not unemployment. C. New setting for discussion: Initial recovery, widespread unemploy- ment and inflation fears. D. Economists' positions: 1. Add "price stability" as policy objectives. 2. Act's present objective adequate. 3. "Maximum employment and production" preeminent objectives. E. The issues: 1. Separate declaration for "stable prices" undesirable. 2. Unions blamed by classically oriented economists or employer apologists. 3. Indirect monetary controls slow in taking effect and cause recession. 4. The issue is not indirect controls versus runaway inflation. 5. Economic growth has occurred in periods of rising prices. 6. Formal priority for price stability means continuing high levels of unemployment. 7. Indirect monetary controls create inequities. 8. Concepts and measures of price stability inadequately defined. F. Conclusion. II. Price restraints through specific controls: A. Administered oligopolistic prices should be open to public examination: 1. Antimonopoly laws have prevented some monopolistic con- spiracies and practices but have not restored traditional competition. 2. Big business