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Given By
POST-WAR ECONOMIC POLICY AND PLANNING
HEARINGS
BBFORE THE
SUBCOMMITTEE ON FOEEIGN TRADE AND SHIPPING
SPECIAL COMMITTEE ON POST-WAR ECONOMIC
POLICY AND PLANNING
HOUSE OF EEPEESENTATIVES
SEVENTY-EIGHTH CONGRESS
SECOND SESSION
AND
SEVENTY-NINTH CONGRESS
FIRST SESSION
PURSUANT TO
H. Res. 408 and H. Res. 60
RESOLUTIONS CREATING A SPECIAL COMMITTEE ON
POST-WAR ECONOMIC POLICY AND PLANNING
PART 4
SEPTEMBER 25-29; OCTOBER 24-27; NOVEMBER 29-30;
DECEMBER 1, 1944; AND JANUARY 11, 1945
PROBLEMS OF FOREIGN TRADE AND SHIPPING
Printed for the use of the Special Committee on Post- War
Economic Policy and Planning
POST-WAR ECONOMIC POLICY AND PLANNING
HEARINGS
BEFORE THE
SUBCOMMITTEE ON FOREIGN TRADE AND SHIPPING
SPECIAL COMMITTEE ON POST-WAE ECONOMIC
POLICY AND PLANNING
HOUSE OF KEPRESENTATIVES
SEVENTY-EIGHTH CONGRESS
SECOND SESSION
AND
SEVENTY-NINTH CONGRESS
FIRST SESSION
PURSUANT TO
H. Res. 408 and H. Res. 60
RESOLUTIONS CREATING A SPECIAL COMMITTEE ON
POST-WAR ECONOMIC POLICY AND PLANNING
PART 4
SEPTEMBER 25-29; OCTOBER 24-27; NOVEMBER 29-30;
DECEMBER 1, 1914, AND JANUARY 11, 1945
PROBLEMS OF FOREIGN TRADE AND SHIPPING
Printed for the use of the Special Committee on Post-War
Economic Policy and Planning
UA^ITED STATES
GOVERNMENT PRINTING OFFICE
«579 WASHINGTON : 1945
ERlhtENUEi'fi Of DWUifef^
MAY 8 1945
SPECIAL COMMITTEE ON POST-WAR ECONOMIC POLICY AND
PLANNING
WILLIAM M.
JERE COOPER, Tennessee
FRANCIS WALTER, Pennsylvania
ORVILLE ZIMMERMAN, Missouri
JERRY VOORHIS, California
JOHN R. MURDOCK, Arizona
WALTER A. LYNCH, New York
THOMAS J. O'BRIEN, Illinois
JOHN E. FOGARTY, Rhode Island
EUGENE WORLEY, Texas
COLMER, Mississippi, Chairman
HAMILTON FISH, New York i
CHAS. L. GIFFORD, Massachusetts
B. CARROLL REECE, Tennessee
RICHARD J. WELCH, California
CHAS. A. WOLVERTON, New Jersey
CLIFFORD R. HOPE, Kansas
JESSE P. WOLCOTT, Michigan
CHARLES S. DEWEY, Illinois ^
Subcommittee on Foreign Tuade and Shipping
EUGENE WORLEY, Texas, Chairman
FRANCIS WALTER, Pennsylvania RICHARD J. WELCH, California
JOHN B. FOGARTY, Rhode Island CHARLES A. WOLVERTON, New Jersey
Marion B. Folsom^ Staff Director
Vkrgil D. Reed, Consultant He.nry B. Arthur, Consultant
Gdy C. Gamble, Economic Adviser
> Replaced in 79th Con^
2 Replaced in 79th Con?
by Jay LeFevre, New York,
by Sid Simpson, Illinois.
CONTENTS
Statement of — Page
Land, Vice Admiral Emory S. (U. S. Navy, retired). Chairman, United
States Maritime Commission 608
Macauley, Capt. Edward, (U. S. Navy, retired) member 643
Conway, Capt. Granville, Deputy Administrator, War Shipping Ad-
minist ration 663
Radner, William, general counsel, War Shipping Administration 668
Taylor, Wayne C, Under Secretary, United States Department of
Commerce 70 1
South Trimble, Jr., solicitor, Department of Commerce 705
Lyons, Thomas E., e>«cutive secretary, Foreign-Trade Zones Board. _ 715
McCoy, H. B., Chief, Division of Industrial Economy, Bureau of For-
eign and Domestic Commerce 718
Mack, J. A., Director, Field Service, Bureau of Foreign and Domestic
Commerce 721
Schnellbacker, E. E., Chief, Division of Commercial and Economic
Information, Bureau of F'oreign and Domestic Commerce 726
Hauser, Philip M., Assistant Director, Bureau of the Census 731
Ely, J. E., Chief, Foreign Trade Division, Bureau of the Census 733
I'airchild, I. J., Chief, Division of Trade Standards, Bureau of Stand-
ards 739
Burden, W. A. M., Assistant Secretary of Commerce 756
Stanton, C. I., Deputy Administrator, Civil Aeronautics Administra-
tion 758
Smith, Lt. Comdr. Paul, Chief, Aeronautical Chart Branch, Coast and
Geodetic Survey ^ 761
Reichelderfer, F. W., Chief, Weather Bureau 763
Currie, Lauchlin, Deputy Administrator, Foreign Economic Adminis-
tration 769
Ryder, Oscar B., Chairman, United States Tariff Commission 815
Dye, Alexander V., consultant. National Foreign Trade Council 849
Rosenthal, Morris S., executive vice president. Stein, Hall & Co '875
Minor, Clark H., president. International General Electric Co., New
York 906
Wolf, George W., president. United States Steel Export Co., New
York 927
Otterson, John E., American Maritiine Council 941
Patchin, R. H., vice president, W. R. Grace & Co., New York 959
Hoover, Calvin B., dean. Graduate School, Duke University, Durham,
N. C 987
Patchin, R. H. (continued) 1004
Roth, Almon E., president, National Federation of American Ship-
ping, Washington 1009
Clayton, W. L., Surplus War Property Administrator. 1029
May, Stacy, chairman, committee on international policj% National
Planning Association, Washington 1037
Acheson, Dean, Assistant Secretary of State 1072
Pierson, Warren Lee, president, Export-Import Bank, Washington 1099
Smith, H. Gerrish, president, Shipbuilders Council of America 1121
ni
SCHEDUUE OF EXHIBITS
No.
Intro-
duced
at p. —
15 Questions prepared by committee staff and answered by
Vice Admiral Land and staff
16 Post-war training for officers and seamen of the merchant
marine of the United States
17 Memorandum re H. R. 1585 from Maritime Commission.
18 Foreign-trade zones as an aid to trade and shipping ^
19 The Bureau of Foreign and Domestic Commerce, its
functions in international trade
20 Overseas trade functions of the United Kingdom Board
of Trade
21 Organization of the United Kingdom Board of Trade for
overseas trade
22 Export credits guarantee department of the United King-
dom,
23 Canadian Export Credits Insurance Corporation Act
24 Foreign Economic Administration
25 Proposal of National Council of American Importers
addressed to the National Foreign Trade Convention
26 A Practical Approach to a World Trade Board, by Otto T.
Mallery
27 Helpful Government Regulation Urged if World Adopts
Controls, by Morris S. Rosenthal
28 Maritime's Interest in the Air Market, by Almon E. Roth,
president. National Federation of American Shipping
29 Statement of Policy on Overseas Aviation, by the National
Federation of American Shipping
30, World War I Indebtedness to the Government of the
United States, July 1, 1944
31 United States exports (including re-exports) to and imports
of general merchandise from the Far East, 1926-39
32 Johnson Act; its relation to the Export-Import Bank
33 Shipbuilders Council of America for the fiscal year ending
Mar. 31, 1944
34 Letter and additional testimony, H. Gerrish Smith, presi-
dent. Shipbuilders Council of America
615
Appears
on p.
1160
658
697
717
1181
1183
1185
717
1186
770
1196
770
1198
770
770
808
1199
1201
1202
891
1203
903
1205
905
1211
1026
1026
1212
1216
1092
1219
1052
1092
1220
1220
1147
1221
1137
1222
POST-WAR ECONOMIC POLICY AND PLANNING
MONDAY, SEPTEMBER 25, 1944
House of Representatives,
SUBCOMMITIEE CN FoRETGN TraDE AND SHIPPING OF
THE Special Committee on Post- War
Economic Policy and Planning,
Washington, D. C.
The subcommittee met, pursuant to notice, at 10 a. m,, in room
1 1304, New House Office Building, Hon, Eugene Worley presiding.
Present: Representatives Worley (Texas), chairman; Cooper
(Tennessee) ; and Wolverton (New Jersey).
Also present : Representative Bland (Virginia) ; M. B. Folsom, staff
tiirector; H. B. Arthur, consultant; and Guy C. Gamble, economic
adviser,
Mr. Worley. The committee will come to order.
On January 26, 1944, Hon. William Colmer, of Mississippi, pre-
sented IIonse'Resolution 408 to the House for consideration. During
the course of his address he very ably pointed out the reasons why
the Congress should immediately give attention to meeting the chal-
lenges which the war had brought about. He laid particular stress
upon finding early answers to the grave problems which would follow
in the wake of war.
Mr. Colmer cited a paragraph from an address made by Hon, Sam
Rayburn, Speaker of the House, as follows :
We ai-e endowed, by nature and by our capabilities, with everything needful
for maintaining a high rate of employment in the United States after this war.
There is no reason under the sun why our people should not enjoy more goods
and services than they have ever known before. If we can be pro.sperous in war-
time, we can be prosperous in peacetime. If we can employ our people to forge
I weapons of war, we can employ them to make the instruments of peace. If our
national income can be higher than ever in time of war, it can be high in time
of peace. That is what the people will expect of us — you and me.
Continuing, Mr. Colmer said:
Siiecifically, but not to the exclusion of other fields of exploration, this com-
mittee should seek facts and figures and make recommendations on the following
vital post-war factors:
First. Equitable termination of war contracts.
Second. l)i.sposition of surplus war commodities and Government-owned plants
in a manner to protect the Government and prevent the fioodiug of domestic
markets.
Third. Insure the continuation of free eiiteri>rise and bring about, so far as
possible, a cessation of wartime regimentation of the people.
Fourth. Maintenance of the standard of the American way of life.
Fifth. New markets, both foreign and domestic, for increased production.
Sixth. Problems of deniobilizarion and effect on unemployment.
Seventh. Reemployment of demobilized soldiers and war workers.
Eighth. Public works — Federal, State, and local — to the extent necessary to
absorb the slack in employment by private industry.
607
608 POST-WAR ECONOMIC POLICY AND PLANNING
Ninth. Careful analyzation of Federal statutes to determine which will re-
tard and which will aid successful post-war conversion.
Tenth. Generally to study the problems and make recommendations for the
reconversion of a highly geared war machine economy to a peacetime basis with
a minimum of governmental direction.
The House adopted this resolution unanimously. To date, the
committee has successfully completed a portion of its task in rec-
ommending legislation which has been enacted, covering equitable
termination of contracts, disposition of surplus war commodities,
and creation of machinery for the orderly process of demobilization.
The remaining problems are now receiving most careful consider-
ation by the full committee and appropriate subcommittees thereof.
This particular subcommittee is concerned with foreign trade and
shi])ping. The question of our foreign trade and shipping in our post-
war economy is, undoubtedly, one of the most important which con-
fronts tliis Nation and the correct solution to the problems involved
will determine in large measure the degree of amity and good will
which will exist between the United States and foreign countries.
A cursory examination of the problem indicates the participation |
of lunnerous government agencies in formulating our foreign trade jj
l)olicies. The scope of the activities and interrelationship of these '
various departments should be studied and their plans and policies
carefully reviewed. The effect of these policies upon our domestic
and international welfare should be evaluated in order to make suit-
able and proper recommendations to Congress for the enactment or
repeal of any legislation which might retard or otherwise adversely
affect the position of this Nation and its relationship with other
nations of the world.
In an effort to determine what part our merchant marine will play
in the forthcoming world-wide trade and commerce, the committee
has ret^uested Admiral Emory S. Land, Chairman of the United
States Maritime Commission to appear. The committee is very glad
to welcome you. Admiral Land.
STATEMENT OE VICE ADMIRAL EMOEY S. LAND (UNITED STATES
NAVY, EETIEED), CHAIRMAN, UNITED STATES MARITIME
COMMISSION
Mr. WoRLEY. As I understand. Admiral, you have a prepared state-
ment that you yould like to read first.
Admiral Land. Mr. Chairman, I have a number of prepared state-
ments. I do not know that I want to take up your time to read them,
because .some of them are what I Avould call academic and historical.
You were kind enough to outline certain questioiis in a questionnaire
and we have endeavored, in a very brief space of time, to prepare
the answers. I would like to submit for the record some of the
answers that have been prepared rather than read them. However,
I am at your disposal.
A specific example is the description of the present Maritime Com-
mission and Wai- ShipjHng Administration. That is bound to be
hisloi-iral. It is necessarily long. While we think it might be edu-
cational, I doubt whether you would want me to read 21 pages of
descriptive inatter on the Maritime Commission and the War Ship-
ping Administration.
4
POST-WAR ECONOMIC POLICY AND PLANNING 609
Mr. WoRLEY. It is 21 pages long?
Admiral Land. Yes, sir.
Mr. WoRLEY. We would like to have it in the record.
Admiral Land. All right. I would be xevy happ}^ to insert that
in the record, as it gives an outline of the operations of the Maritime
Commission and War Shipping Administration, closely paralleling
the Merchant Marine Act, 1936, as amended, insofar as the Maritime
Commission is concerned.
(The matter referred to is as follows:)
United States MAKiTurE Commission
Commissioners: Chairman, Vice Admiral Emory S. Land (U. S. Navy, re-
tired) ; Vice Chairman, Rear Admiral H. L. Vickery, United States Navy; John
M. Carmody ; Edward Macauley : Thomas M. Woodward.
Creation and authority. — The United States Maritime Commission was created
by the Merchant Marine Act, 1936, approved .Tnne 29, 1936 (49 Stat. 1985; 46
U. S. C. 1111). The act vested in the Commission the functions, powers, and
duties hereinafter described and, in addition, those of the former United States
Shipping- Board under the Shipping Act, 1916 (39 Stat. 728; 46 U. S. C. 801-842),
the I\Iei-chant Marine Act, 1920 (41 Stat. 988; 46 U. S. C. 861), the Merchant
Marine Art. 1928 (45 Stat. 689; 46 U. S. C. 891-891x). the Intercoastal Shipping
Act, 19:^3 (47 Stat. 1425; 46 U. S. C. 843-848), and amendments to those acts (as
modified by the 1936 act), and transferred to it all property owned by the United
States and theretofore controlled by the Department of Commerce as the successor
to the powers and functions of the former United States Shipping Board by
virtue of Executive Order 6166, dated June 10, 1933. The act also dissolved
the United States Shipping Board Merchant Fleet Corporation and transferred
all its property to the Commission, its contractual obligations being assumed
by the United States. The 1936 act, as well as the other acts referred to, has
been amended in a number of respects.
Executive Order 9054, dated February 7, 1942, transferred to the War Shipping
Administration the functions, duties, and powers of the United States Maritime
Commission with respect to the operation, purchase, charter, insurance, repair,
maintenance, and requisition of vessels and the issuance of warrants with re-
spect to them, and assigned to the Administrator such part of the personnel
of the Maritime Commission, together with such records and public property,
as he may deem necessary to the full exercise of his functions and duties.
Purpose. — The policy declared in the Merchant Marine Act, 1936, follows: "It
is necessary for the national defense and development of its foreign and domestic
commerce that the United States shall have a merchant marine (a) sufficient
to carry its domestic water-borne commerce and a substantial portion of the
water-borne export and import foreign commerce of the United States and to
provide shipping service on all routes essential for maintaining the flow of such
domestic and foreign water-borne commerce at all times, (&) capable of .serving
as a naval and military auxiliary in time of war or national emergency, (c)
owned and operated under the United States flag by citizens of the United States
insofar as may be practicable, and (rf) composed of the best-equipped, safest,
and most suitable types of vessels, constructed in the United States and manned
with a trained and efficient citizen personnel. It is hereby declared to be the
policy of the United States to foster the development and encourage the main-
tenance of such a merchant marine."
Orgnnizntlon. — The act provides that the Commission shall be composed of
five members, to be appointed by the President with the advice and consent of
the Senate, with not more than three of its members from the same political
■party. The terms of office of the members first appointed are fixed at 2, 3, 4, 5,
and 6 years, respectively, and thereafter each is appointed for a tei'm of 6 years.
ACTIVITIES
The duties of the Commission include the investigation and determination of
the ocean services, routes, and lines from points in the United States to foreign
markets essential for the development and maintenance of the foreign commerce
of the United States and the determination of what additions and replacements
of the American merchant marine are required to create an adequate and well-
610 POST-WAR ECONOMIC POLICY AND PLANNING
balanced merchant fleet to provide shipping service on all routes essential foi.
the flow of the foreign commerce of tlie United States and investigation of other'
maritime problems arising under the act. j
Ship construction. — Under the 1936 act the Commission adopted, prior to the'
outbreak of the European war, and has been carrying out the long-range ship-
construction program of TKX) ships in 10 years. This program was accelerated at
the outbreak of the European wai', and has been further accelerated in order to
meet national defense and war requirements for the standard-type vessels de-
signed in accordance with the requirements and pui-poses of the 1936 act.
Under emergency and wartime legislation and appropriations, the Commission
is carrying out a program for the construction of a large number of merchant
ships and others of special tyiies. Included in this program are cargo vessels|
of the Liberty, Victory, and Standard C types, tankers, refrigerator vessels, as
well as various types of military and naval auxiliaries. The long-range program
under the Merchant Marine Act, 1936, had placed the ship-construction industry!'!
in the United States on a sound basis, capable of wartime expansion. (
The great bulk of the shipyard facilities being utilized in the merchant ship-;
building program have been constructed under the jurisdiction of and are owncdi
by the Maritime Commission. These Government-owned plants are operated byi
private concerns under contract with the Commission. The average number ofl
workers eujployed in Maritime Commission yards in July 1944, was 595,000. j
The Connnission's program resulted in the completion of more than 8,000,0!>Oj
tons, dead weight, of ships in 1942. For the entire year of 1943, the Commission i
completed approximately 19,000,000 tons. Since January 1. 1942, to September 1,'
1944, the total dead-weight tonnage built was 38,387,600. The dead-weight ron-:
nage of the American merchant marine January 1, 1942, was approximately,
11,000,000. These vessels, with the exception of those acquired by the military i
branches of the Government, are operated under the jurisdiction of the War!
Shipping Administration.
Construction-differential subsidy. — To aid a citizen of the United States '
in the construction of a new vessel to be used on a service, route, or line in;
the foreign commerce of the United States determined to be essential, the Com- '
mission is empowered to have the vessel constructed in a shipyard in the United
States, to pay such construction cost, and to sell the vessel to the applicant fori
an amount equal to the estimated cost of the construction of the vessel if it I
were constructed in a foreign shipyard. The difference between the cost of
constructing the vessel in the United States and the estimated cost of construct-!
ing the vessel in a foreign shipyard is term»8d a construction-differential subsidy,
but in no case may such subsidy exceed 50 percent of the cost of the vessel. '.
Under temporary emergency legislation the Commission is authorized to make
the determinations of estimated foreign costs on the basis of the conditions
existing during the period prior to September 3, 1939.
Aid may be extended to any citizen of the United States in the construction
of a new vessel to be operated in the foreign or domestic trade (excepting vessels
engaged solely in the transportation of property on inland rivers and canals
exclusively) in cases where no construction-differential subsidy is to be allowed.
If it is found that the national policy declared in the act and the building
program contemplated by the act cannot be realizM within a reasonable time,
after approval by the President, the Commission may have new vessels constructed
and old ones reconditioned.
Vessels constructed through the aid of subsidies must be oiierated exclusively
in foreign trade, or on a round-the-world voyage or a round voyage from the west
coast of the United States to European ports or a round voyage fronj the Atlantic
coast to the Orient which includes intercoastal ports of the United States, or
on a voyage in foreign trade where the vessel may stop at an island possession
or Territory of the United States. Temporary transfer of the vessel to domestic
trade may be made only with written consent of the Commission, and upon
the making of certain payments. In an emergency the Commission may, luidei;
certain conditions, ijermit the temporary transfer of the vessel to the domestic
trade.
Operating-differential .^ithsidii. — The Commission is empowered to grant an
operating-differential subsidy to aid a citizen of the UiHted States in the opera-
tion of a vessel to be used in an essential service, route, or line in the foreign
couimerce of the United States. The operating-differential subsidy, which is
intended to place the proposed operations of such vessels on a parity with those
of foreign competitors, is the excess of the cost of items of ojierating exnense
in which it is foTind the applicant is at a substantial disadvantage in competition
with foreign vessels over the estimated cost of the same items of expense if
POST-WAR ECONOMIC POLICY AND PLANNING 611
the vessel were operated under registry of a foreign country whose vessels are
substantial competitors of the vessels covered by the contract. The operating-
differential subsidy payments were reduced by mutual agreement during 1941
and the subsidy program was virtually suspended in May 1942 because of the
general requisition of merchant vessels owned by citizens of the United States.
Arqiiixitioii of obsolete vessels.- — The Connnission is authorized to acquire any
obsolete vessel or vessels not less than 17 years old, which have been owned by
citizens of th(> United States for at least 3 years prior to the date of such acqui-
sition, in excliange for credit on the purchase of a new vessel or vessels from the
Commission or on a new vessel or vessels constructed in a domestic shipyard and
documented undei' the laws of the United States. The general requisition of
merchant tonnage has brought about virtual cessation of this activity for the
duration of the war.
Construction reserve finids (sec. iill). — The C'ommission administers, under
regulations issued in conjunction with the Treasury Department, construction
reserve funds established by American shipowners, who may deposit therein
proceeds from insurance and indemnities received on account of total loss of
any vessel, proceeds from the sales of vessels, and earnings from operations of
vessels for use in the construction or acquisition of new vessels.
Transfer of ressels to aliens. — The Commission regulates the sales to aliens,
and the transfer to foreign registry, of vessels owned in w^hole or in part by
citizens of the United States and documented under tlie laws of the United
States.
Ship inortfjaue insiinince. — Under authoi'ity conferred by title 11 of the Mer-
chant r.larine Act of 1936, the Commission may, upon application of a mortgagee,
insure mortgages on all types of passenger and cai'go vessels, tugs, towboats,
barges, dredges, and fishing vessels owned by citizens of the United States.
To he eligible for such insurance, the mortgage must be to secure a new loan or
advance to aid in the construction, reconstruction, or reconditioning of a craft,
and tlie amount of the mortgage insured may not exceed 75 percent of the cost
of sucli new construction, reconstruction, or reconditioning.
Regulatory powers. — The regulatory powers possessed by the Commission ex-
tend to all common carriers by water engaged in foreign commerce of the United
States and to all ijersons carrying on the business of forwarding or furnishing
wharfage, dock, warehouse, or other terminal facilities in connection with com-
mon carriers by water. These powers are principally in relation to rates, fares,
'charge>^, regulations, and practices. The Commission possesses quasi-.iudicial
au^hority to receive and determine complaints of shippers, passengers, and
others alleging unreasonableness or unjust discrimination by common carriers
by water and others subject to its regulatory authority and the method for the
euforcenment of orders of the Commission, incluiling orders directing the pay-
ment of money in reparation for violation of statutory provisions, as prescribed
in tlie shipping acts. An important regulatory power vested in the Comipission
is the approval, disapproval, or modification of agreements entered into between
common carriers by water subject to its jurisdiction respecting cooperative
working arrangements. Tlie Commission's approval of such agreements, com-
monly referred to as conference agreements, excepts the parties thereto from
the operation of the Sherman Antiti'ust Act, Wilson Tariff Act, Clayton Act, and
supplementary acts and amendments dii'ected at monopolies in restraint of trade.
War Shipping Administration
OFFICIALS
Administrator ^ Vice Admiral Emory S. Land
(United States Navy, retired).
Deputy Administrator (for construction) Rear Admiral Howard L. Vickery,
I'nited States Navy.
Deputy Administrator (for vessel utiliza- Capt. Granville Conway.
ti^in and planning).
Deputy Admiinstrator (for labor relations, Capt. Edward Macauley (United
manning, training, and recruitment) States Navy retired.)
Creation and authoriti/. — The War Shipping Administration was established
within the Ofiice for Emergency Management on February 7, 1942, bv Executive
Order 9054, issued under the First War Powers Act (55 Stat. 838, ch. 593 ; U. S. C.
title 50 Appendix, sees. 601 et seq.) , and amended by Executive Order 9244.
612 POST-WAR ECONOMIC POLICY AND PLANNING
The ExtHUtive Order transferred to the Administrator the functions, duties,
and powers of tlie United States JNIaritime Conmiission with respect to tlie opera-
tion, purchase, charter, insurance, repair, maintenance, and requisition of ves-
sels and the issuance of warrants witli respect to them, and assigned to the Ad-
ministration such part of tlie personnel of the Maritime Commission together
with sucli records and public property as the Administrator may deem necessary
to the full exercise of his function and duties.
Pursuant to this authority all vessels owned by the Commission and all ves-
sels the ownership of which may be acquired by the Commission were trans-
ferred to the War Shipping Administration. Vessels under the control of the
War Shipping Adniinistration constitute a pool to be allocated by the Admin-
istrator for use by the Army, the Navy, other Federal departments and agencies,
and the Governments of the United Nations, in compliance with strategic military
requirements.
Provisions were made by the order for use of the services and personnel of
other Government agencies engaged in activities related to the operation of
shipping, for the employment of necessary personnel, supplies, facilities, and
services, and, with the approval of the President, for the transfer to the Ad-
ministration of funds and contract authority available for the use of the Marl-
time Commission.
Purpose. — The Administrator, appointed by and responsible to the President,
is authorized to perform the folhnving functions and duties :
1. Control the operation, purchase, charter, requisition, and use of all ocean
ve.ssels under the flag or control of the United States, except combatant vessels
of the Army, the Navy, and the Coast Guard, fleet auxiliaries of the Navy, trans-
ports owntd by the Army and the Navy, and vessels engaged in coastwise, inter-
coastal, and inland transportation under the control of the Director of the Office
of Defense Transportation.
2. Allocate vessels under the flag or control of the United States for use by
the Army, the Navy, other Federal departments and agencies, and the Govern-
ments of the United Nations.
3. Provide marine insurance and reinsurance against loss or damage by the
risks of war as authorized by title II of the Merchant Marine Act, 1936, as
amended.
4. Establish the conditions to be complied with as condition to receiving
priorities and other advantages as provided in the act of Congress, approved
July 14, 1941 (55 Stat. 591 ; 4(5 U. S. C, note preceding 1101).
5. Represent the United States Government in dealing with the British Min-
istry of War Transport and with similar shipping agencies of nations allied with
the United States in the prosecution of the war in matters related to the use of
shipping.
(!. Maintain current data on the availability of .shipping, in being and under
construction, and furnish such data on request to the War and the Navy De-
partments, and other Federal departments and agencies concerned with the
import or export of war materials and commodities.
7. Keep the President informed with regard to the progress made, and i^er-
form such related duties as the President shall from time to time assign or
deh'gate to him.
The functions pertaining to the operation of the United States INIaritime
SsTvice, the merchant marine cadet and cadet officer training program, and
Federal supervision over State marine and civilian nautical schools were placed
under the Vv'ar Shipping Administration by Executive Order 9198. of July 11,
1942. These functions h:id been transferred from the United Slates Maritime
Coimnission to the Commandant of the United States Coast Guard by Executive
Order 9083 of February 27, 1942.
Aciirities. — The Administrator collaborates with existing military, naval, and
civil departments and agencies of the Government performing functions con-
nected with wartime overseas transportation to secure the most effective utiliza-
tion of shipping in the prosecution of the war. With respect to the overseas
transportation of cargoes essential to the war production effort and civilian
economy, the Administrator is guided by schedules transmitted to him by the
Chairman of the War Production Board prescribing the priority of movement
of such conunodities and materials.
The Administrator is authorized to issue such directives concerning shipping
operations as he may deem necessary or appropriate, and his decisions are final
with respect to the functions and authorities so vested in him. He may exercise
his powers, authorit.y, and discretion through such officials or agencies and in
such manner as he may determine.
I
POST-WAR ECONOMIC POLICY AND PLANNING 613
The Administrator is authorized to estahlish committees or groups of advisers
representing two or more departments of the Federal (Jovernmeiit, or agencies
or missions of the United Nations, and he may appoint representatives to such
joint missions or l)(^•u•ds dealing witli matters within the scope of the Executive
order as may l)e established with the governments of the United Nations.
The Wai' Sliijiping Administration maintains oftiees in the principal ports of
the United S'.-s ■ ■ -md has designated representatives in other ports of the world
to expedite the transportation of cargoes and tlie movement of vessels.
WAIITIMIC SHlPinNG OPERATIONS
The most important responsibility of the War Shipping Administration in
the war has been to meet the shipping requirements of the Army and Navy.
During the course of the last year all demands of our Array and Navy for
ships have been nu>t to the point that no essential military cargo has been left
on the piei's lor lack of ships. The second responsibility of the War Shipping
Administration is to fuLill the commitments which have been made for the lift-
ing of lend-lease commodities, principally to our allies. The third responsibility
of tlie War Shipping Administration is to meet the quotas set liy the War Pro-
duction Board for the importation of raw materials essential to our war
industries. The fourth responsibility is to meet the goals established by the
State Department and the Foreign Economic Administration for shipments to
Latin-American countries.
In order to carry out these activities it was necessary to strip all nonessen-
tial shipping services to the bone ; to develop new methods of loading, to care-
fully scheilule and program the sources of supply to help meet requirements
with the nunimum use of shipping, to establish offices in the ports, staffed with
skilled American shipping men, to increa.se the capacity of the fleet, and to use
every effort to augment the inadequate staff in order that shortage of man-
power may not translate itself into the inefficient operation of ships.
Procurement of i-cssels. — One of the most urgent initial responsibilities of
the Administration was to secure complete control and utilization of the mer-
chant fleet of the United States, both of large and small vessels and as many
as possible of the .free neutral vessels, in order to keep open the essential lines
of military transportation of our allies. This was a particularly critical problem
during 10-i2. In all, approximately 1,500 large vessels, such as freighters
tankers, and passenger ships, about 2,!^00 small vessels, such as fishing boats,
tugs, yachts, barsies. etc. were procured.
The American-flag vessels were requisitioned under section 902 of the Mer-
chant Marine Act, 1936; the larger vessels were taken in pursuance to the gen-
eral requisitioning program of April 20. 1942. Certain foreign-flag vessels
which were "immobilized" in American ports were reqtiisitioned pursuant to
Public Law 101, Seventy-seventh (^ongress, and some neutral and Allied ton-
nage was acquired by voluntary charters or purchases made by the Adminis-
trator. In certain cases, friendly neutral or Allied governments were induced
to use their own requisiitoning powers to procure for the War Shipping Ad-
ministration foreign-flag vessels under their control, the owners of which had
refused voluntarily to make their vessels available to the United Nations pool
of shipping. The Ship Warrant Act also was used to advantage in this program.
Adrisonj Board on Juxt Conipen-sation. — The question of valuation of vessels
procured by the Administrator presented difficult and complicated problems.
Exhaustive studies were made of judicial, administrative, and other precedents
relating to tlie subject of valuation, jiart of which was later published by the
House Merchant I\Iariiie and Fisheries Committee as Committee Document No.
20. This material tor;ether with other data dealing on valuation of vessels was
presented by the Administrator to the Advisory Board on Just Compensation,
in connection with its delilierations under Executive Order No. 93S7. By that
order the President of the United States on October 15, 1943, appointed the
Advisory Board made up of three Federal circuit court judges. On December 7,
1943, this Board reported and established standai-ds in general consistent witli
the rates and values originally .set by the War Shipping Administration. (See
No. 20-A. House Committee on the Merchant Marine and Fisheries.)
Charters covering use of vessels. — Most of the large vessels requisitioned by the
Administrator were requisitioned for use and not for title and have been operated
during the emergency on a time or bareboat charter basis. ' Many of the smaller
vessels have been operated on the same basis. Uniform charters were drafted
for these purposes. These forms are known as WARSHIPTIME, covering large
614 POST- WAR ECONOMIC POLICY AND PLANNING
freighters, WARSHIPOILTIME, covering tankers, WARSHIPTIMEFORFLAG,
covering time charters of foreign-flag fi-eighters, WARSHIPTIMEOILPORFLAG,
covering time cliarters of foreign-flag tanliers, WARSHIPDEMLSE. providing uni-
form bareboat cliartei- for freigliters and tanlcers, WARSHIPPASSENGER, pro-
viih'ng a nniform bareboat charter for passenger vessels, WARSHIPSALVAGE,
providing uniform barelwat charter for vessels engaged in wrecking and salvage
service, WARSHIPTOW, providing uniform requisition charter for towboats and
a general small craft i-equisition charter covering bareboat operation of small
craft, such as fishing vessels.
Agency arravgemmts. — The physical operation of vessels by the War Shipping
Administration is handled through general agents, time chartered agents, and
berth agents employed by the Administrator. There are separate general agency
agreements covering large freighters, general agency agreements covering the
opiM-ation of large tankers, time chartered agency agreements covering the
op<>ration of time-chartered vessels, berth subagency agreements covering the
operations of berth subagents, general agency salvage agreements covering the
operations of wrecking and salvage vessels, and general agency berth service
agreements covering the operation of tugs and barges.
^tcvrdorivff, ship repair and terminal services. — Among the major operating
expenses in connection with vessels of the War Shipping Administration are
stevedoring, ship repair, and terminal services. Repair services are furnished
under a master ship repair contract covering the operations of approximately 175
repair contractors throughout the United States. The master contract was
developed jointly with the Ai'uiy and Navy in an effort to work out a uniform
basis for handling ship repairs by all three services with a resulting simplification
of auditing and administrative supervision. A uniform stevedoring contract,
adapted to the pecularities of the east. Gulf, and west coasts' stevedoring prac-
tices, is now in effect with over 250 stevedore companies of the United States.
Terminal contracts have been standardized for certain areas.
Seamen. — Seamen employed by the United States on vessels owned by or bare-
boated to the War Shipping Administration have the same general legal rights as
exist in commercial operation. This objective was not fully accomplished luitil
enactment of Public Law 17, Seventy-eighth Congress, effective March 2-1, 1943,
which preserved for seamen their peacetime rights with respect to social-security
benefits, compensation for injuries, and other matters.
The furnishing of adequate and efficient crews to War Shipping Administration
vessels at the various ports at the time of scheduled sailing is an important activity
in the operation of the merchant fleet in wartime. This involves advice as to
labor inventories pertaining to the manning of allied and merchant ships, co-
operation with the various Government agencies in securing adequate personnel,
;ind the development and supervision of pools of qualified seamen and officers, a
program of recruitment of qualified persons, cooperation with representatives of
allied countries for solution of problems, arul the making of arrangements to meet
personnel needs on American and allied ships. To keep the ships sailing thei'e
have b?en developed health and convalescent programs for the seamen, repatria-
tion of seamen, and activities for the rehabilitation of these men.
TRAINING PROGRAM
Under the congressional mandate in section 101 of the Merchant Marine Act,
1930, to develop a merchant marine "manned with a trained and eflicierd citizen
personnel," the United States Maritime Commission, as authorized by section
216 of the act, established, in 1938, the United States Merchant Marine Cadet
Corps and the United States Maritime Service to train American citizens for
both licensed and unlicensed positions on our merchant vessels.
The training program wa,s evolved from studies made on the systems in use
l)y the leading maritime nations of the world and of our own specific manning
jiroblenis. The result of these studies was incorporated in a report to the
Congress on January 1, 1939, entitled "United States Maritime Commission
Report to Congre.ss on Training Merchant Marine Personnel."
Designed in peacetime as a permanent, long-range program, the exigencies
of war and tlie resultant i-apid acceleration of the construction of new ships
have necessitated many changes and a tremendous expansion of training facili-
ties. The program is divided into three principal pha.ses : 1, refreslier courses
for experienced seamen; 2, upgrading courses for advancement in grade; and 3,
comi)lete courses for new men who have the required experience at sea to become
oflScers.
POST-WAR ECONOMIC POLICY AND PLANNING 615
By Executive order the training functions are under the jurisdiction of the
War Shipping Administration for the duration of the war and are exercised
by its training organization which, under the direction of Capt. Edward Ma-
cauley, Deputy Administrator, conducts the United States Merchant Marine
Cadet Corps, the United States Maritime Service, and the Federal supervision
of the State maritime academies authorized by law.
The function of the United States Mercliant Marine Cadet Corps to train
unmarried male citizens of the United States between the ages of llVz and 23
with a high school or college education, with an average allowance of 1 year
for each year of college, to become officers in our merchant marine, both in the
deck and engine departments.
The United States Maritime Service operates schools for seamen with re-
quired experience to qualify as officers; .scho(»ls at shipyards and manufacturing
plants for specialized training in different types of propulsion; school for new
men entering the industry to qualify for unlicensed positions in the deck, engine,
and stewards departments ; schools for radio operators, carpenter's mates, cooks,
and bakers ; assistant purser ; hospital corps men ; signal schools ; barrage
balloon schools; convoy procedure and communications courses; refresher
courses upgrading schools for all ratings ; and correspondence courses for men
at sea.
There are at present five State maritime academies which are operated by their
respective States, but which come under Federal supervision by reason of tlie
fact that they are partially supported with Federal aid. An annual Federal
grant of $25,000 is made to each of the academies and, in addition, the per
capita cost of nonresident cadets up to $25,000 for each academy is also paid
from Federal funds. During the war, each cadet is enrolled in the United
States Maritime Service which pays compen.sation, while in training, at the rate
of $G5 per month and furnishes uniforms, textbooks, and subsistence.
Admiral Land. I would like to submit for the record a reply as to
the question as to what is meant by "merchant shipping''? Does it
include inland and coastal shipping as well as overseas? Passenger
shipping? Oceanic ferry and barge? Supply vessels operated by
Government departments, and so forth?
Your question is cle.scriptive and is of some value in connection with
the investigation, but, if agreeable to you, I would submit that for
the record.
Mr. WoRLET. I believe in the interest of keeping the record straight
that we should insert the questions which have been asked together
with your answers.
Admiral Land. Yes, sir.
Mr. WoRLET. Is all of that in documentary form now?
Admiral Land. Yes.
(These questions and answers are marked "Exhibit 15" and are
found in the appendix, pp. 1160 to 1180.)
jNIr. WcRLET. Now, suppose. Admiral, if it meets with your approval,
that we go into various questions. As you know, this committee is very
hungry for whatever information it can secure as to the operations of
the merchant marine at the present time, its history, and Avhat plans
might be in the making for its future existence. So, if it is agreeable
with you, we will try to get a full and complete picture here simply by
virtue of questions and answers.
Admiral Land. I would be very happy to start off by saying that
there are two vitally important things : One is before the Congress at
the present time in a bill introduced by Judge Bland on the House side
and Senator Bailey on the Senate side, which we call our price-freeze
bill. This not only takes care of the post-war fleet, if and when the bill
is passed, primarily to avoid the mistakes tliat were made in the last
war, but establishes national policies, not leaving them in the hands
of the Commission but in the control of Congress.
516 POST-WAR ECONOMIC POLICY AND PLANNING
Then there should be added before we get through the proviso that
such reserve as there may be should be placed in sanctuary. That re-
striction was on the statute books in regard to our reserve fleet prior to
the war, and the only way it could be removed was by act of Congress. ;
It was done when the emergency arose. To my mind that is an excel- j
lent piece of legislation and should be continued.
This laid-up fTeet — reserve fleet — should be called a national defense
reserve and should not hang over the market, should be untouchable
except by act of Congress. In that way we will encompass a controlled ;
policy oi' the merchant marine in the United States and will be in a
])(!siti(;ii lo utilise it as may seem best, dei)eiiding upon conditions. 1 |
cannot too strongly accentuate tlie importance of tliis legislation and I ;
trust it may be oliacted before tl>e first of the year. That is in tlic
hands of the Congress.
While it is not a perfect piece of legislation, it is the opinion of the
Maritime Commission that it is the best way to attack and approac-h
the problem.
Mr. WoRLET. That is the problem of retaining the merchant marine ?
Admiral Land, Yes, sir.
Mr. WoRLEY. Why clo we need a merchant marine, Admiral Land'^
Mr. Bland. You mean by retaining the ships ?
Mr. WoRLEY. By the way, I would like the record to reflect that we
are honored in having Mr. Bland, chairman of our House Committee
on the Merchant Marine and Fisheries present with us.
Mr. Bland. Thank you very much.
Admiral Land. In answer to your question, Mr. Chairman, there are
two vital reasons for a merchant marine: One is an auxiliary of
national defense, or as an auxiliary to the Navy, and the other is to
carry the proper share of our foreign trade. The foreign trade of the
United States amounts to about 10 percent. I am not an economist,
but I have always had the idea that that 10 percent is what men liave
been looking for to make a fair return, and without that 10 percent,
no matter where it comes from, you do not have the economic stability
of the country to which it is entitled.
Mr. WoRLEY. I understand we can produce at least 10 percent more
agricultural products and manufactured products than we consume.
Is that correct?
Admiral Land. That is, over the year, generally correct. Some-
times we produce more and sometimes less, but our foreign trade fol-
lows along that percentage fairly closely. It is our hope and expecta-
tion that our foreign trade will be increased as a result of this horrible
war :^nd as a result of what we hope will be a proper and enduring type
of peace. Specifically, we should be in a position to take our share of
opciiin<r up the vast areas and populations of China. India, and Africa,
and expansion in the good-will policy of South America, and so on.
If the peace of the world is to endure we must have a meeting of the
minds of the nations of the world, which means an interchange of
])ro(lucts.
Mr. WoRLEY. Would more of the foreign nations try to develp tliese
products ?
Admiral Land. Undoubtedly. All we ask is a fair share, a fair
opportunity, equalized opportunity to secure i\ fair share of that
trade.
POST-WAR ECONOMIC POLICY AND PLANNING 617
Mr. "WoRLEY. Of whom would we ask that? The other nations?
Admiral Land. Dependinjr upon the peace terms. As I see it, it
could be handled by an international sliippin<x conference or inter-
national trade aofreements, or even by treaties, all of which have been
tried successfully at times and unsuccessfully at others, but all these
problems are perfectly capable of a reasonably satisfactory solution
if you have a reasonabl^'^ intelligent group of people and a meeting of
minds of that group.
The other point I wanted to raise in this discussion is that, in my
opinion, the merchant marine of 19-14:, or 1945, is entitled to some
greater respect than the merchant marine of 1939. To accom]>lish
that, without in any way hogging the commerce of the United Nations,
it is my best judgment that we should do this at the expense of the Axis
I*owers. 1 see no impossibility in making pastoral nations of those of
our enemies who have proven that the}' do not know how to keep tlie
peace.
I disagree entirely with the people who say that we are not a mari-
time nation. I disagree on this basis, that they talk in decades ai\d not
generations. If you follow the history of the American merchant
marine from the time our country was born you will find that we, at
various stages, were a very strong maritime nation, in fact, at times
the primary maritime nation of the world, so it is a curve of science,
or as the waves of the sea have been up and down.
With the coast line we possess, to say we are not a maritime Nation is
a misnomer; it is meiely whether Ave want to be or not. We have all
the attributes, all the abilities, all the knowledge, and all the brains
not only to operate, but to design, build, construct, and man a proper
merchant marine. I repeat that it is a question of generations and
not of decades.
Mr. WoRLEY. May I interrupt you, Admiral ? In those times when
we have dropped down, what factors have caused us to drop, say, to
third, fourth, and fifth place as far as other nations are concerned?
Admiral Land. Primarily Horace Greeley's maxim, "Go west, young
man." We cannot go west any more.
Mr. WoRLEY. Why?
Admiral Land. Because there is no more territory to expand, to
which we can go.
Mr. WoRLEY. Are there not any other territories that we can de-
velop ?
Admiral Land. We can always develop new territories, as well as
old territories, by intensive methods or incentive methods, but I think
the answer, as far as my knowledge goes, is that we went west for
sevei'al decades if not several generations and, therefore, lost interest
in keeping our merchant marine in a No. 1 position. But there is
no reas(m to continue that and it is necessary not to continue it, because
you cannot go west any more. We can develop the more densely pop-
ulated areas just as well as those that are not so densely po])ulated.
A fine example of that is transplanting the industrial New England
to the South. It is a question of our own talents and abilities to work
out these economic factors on an incentive basis or a concentric basis
or a spreading basis.
Theie is one other j)oint that I would like to draw your attention to
in connection with this maritime-nation business. If you will go
618 POST-WAR ECONOMIC POLICY AND PLANNING
back to the history of the Germans, to 1890, I do not think you will
find much of a German navy; I do not think you will find much of a
German merchant marine. So I again repeat, it is a question of dec-
ades which we shoukl omit and the question of generations should
obtain.
By the same token, if you go to Japan, in 1853 you never heard
of Japan having a navy or having a ship of any size, except the
sampan or junk. By 1890 they were still unknown and questionable,
and when the Russian-Japanese War came along they commenced to
come into the picture. Gentlemen, that is only 50 years ago, which
is a long generation. I see no reason why we should sacrifice the
American people. There is no reason why the Japanese Nation should
not be made a pastoral nation. I think it would do them a lot of
good.
Mr. WoKLEY. I think you might have something there.
Admiral Land. My main objective is to increase the American mer-
chant marine from what it was in 1939 to a reasonably proper-sized
merchant marine, and of a proper type, for 135,000,000 people, and I
have not the slightest hesitancy of doing it at the expense of the
Japanese.
Mr. WoRLEY. That is one thing that this committee is trying to find,
just how much of a merchant marine should we have after the war, and
for what purposes?
Admiral Land. The answer to that is, of course, in the lap of the
gods, both quantitatively and qualitatively. We have our rivers, lakes,
inland harbors, a large proportion of our shipping operates in those
channels, and will continue to operate and probably wall be expanded.
We have our intercoastal trade which is protected, and that will con-
tinue to operate, and there are those of us who vision increased world
trade.
The thing tliat concerns us and you, primarily, is our ocean-borne
trade, generally known as foreign commerce. My own belief is that
it should be expanded so that the over-all capacity figure is between
15,000.0a0 and 20,000,000 tons as against 11,000,000 in 1939.
Frankly, I do not want to do this as a piece of window dressing;
I want to do it as a piece of economics. No. 1, or as national defense,
No 2, or you can reverse those, depending upon your ideas. They
are both of equal importance. But I certainly believe that we should
have a merchant marine reserve as a national defense feature for an
indefinite period of time, because I am of the opinion that it will be
the greatest preventive of World War III.
We have plans to do that very thing under the statutory provisions
where we can lay up ships, say from 500 to 2,000 shi])s at a cost of
about $3,000 to $5,000 i^er ship per year. Take 1,000 ships at $5.0a0
a year, that is $5,000,000, and for 20 years it is $100,000,000. Compare
that cost to the taxpayers of the United States with the cost in war-
time somewhere in the neighborhood of $1,700,000,000 to build about
1,000 Liberty ships. So it is a matter of economics and a matter of
insurance.
A large laid-up fleet for the national defense is, to my mind, good
economy. They are a bit of an eyesore, people do not like it, but
with the welded ships we are producing here your maintenance cost
will be extremely small, relatively speaking, even in large quantities,
POST-WAR ECONOMIC POLICY AND PLANNING 619
and if we lay them up in a satisfactory condition in the beginning,
they will need very little attention over that time, and to my mind
it is very cheap.
In tliat way we take care of onr surplus, which is not disposed of
in accordance with Bland-Bailey bill.
Mr. Bland, "uay I ask, is that fifteen or twenty million tons at
present ?
Admiral Land. Yes.
Mr. Bland. As against what figure in 1939?
Admiral Land. Eleven million.
Mr. WoRLEY. It would cost from $3,000 to $5,000 a ship?
Admiral Land. Yes, sir; a ship per year.
]\Ir. AVoRLEY. You would hold that fleet in reserve? That fleet
would not engage in commerce ?
Admiral Land. No, sir. That is what I spoke of putting in sanc-
tuary and, as they speak of it in India, untouchable, except by law.
I want them in sanctuary and untouchable by statute, fully realizing
if an emergency arises, in 2 w^eeks Congress will act so that we can
make use of them. I do not like to leave it as it was in 1926, when
they could purchase this, that, and the other one for some emergency,
such as the coal strike. There would be a drug of ships on the
market.
Mr, Bland. The use of those ships in that coal emergency was au-
thorized by Congress in an appropriation bill, was it not?
Admiral Land. In 1926?
Mr. Bland. Yes.
Admiral Land. You have got the best of me. Judge.
Mr. Bland. I think there was an appropriation act that previded
the money that ])ut the ships to use, and, as the result, my recollection
of the report of the committee was that several million dollars were
saved to the grain people of the West. I have forgotten hoAv many
million. I think it was $6,000,000.
Admiral Land. I think that is true, sir. There was no law against
using the ships. That was an appropriation to repair them and put
them in operation. They hung over the market, unfortunately, from
the last war up until the time Congress put them in sanctuary, which
was 1938 or 1939. It was just bad business. We feeb and certainly the
Merchant ^Larine Committee and Commerce Committee both, so far
as I know, were strongly of the opinion tliat that should not happen
again.
Mr. WoRLEY. After the ships are laid up in sanctuary, Admiral
Land, hov*- many ships would that leave for foreign trade aiid com-
merce ?
Admii'-al Land. L^nfortunately, I cannot answer that question ex-
cept by asking you one. When is the war going to end? If you tell
me that. I will tell you how many ships w^e will need in foreign trade.
Mr. WoRLEY. Ycu have a better idea as to how many ships we have
now and hov\- many we will probably need on a stand-ljy basis.
Admiral Land. Let me give- you this bit of information. In 1939
there were 78,000,000 tons; in December 1943 there were 74,000,000
tons, of shipping in the world. Since December 1, 1943, there is a sur-
plusage over what existed in 1939. That surplusage will continue to
99579—45 — pt. 4-
620 POST-WAR ECONOMIC POLICY AND PLANNING j
be augmented as lonor as the war lasts, and my estimate is it increases
between tliree-quai'ters and one million tons a month.
So if I knew Avhen the war was going to be over, I could answer
that question fairly accurately. By the end of this year we will have
under the Amei-ican flag, under our control, something in the neigh-
borliood of 50.000,000 dead-weight tons of shipping.
Mr. Wi)i!LEY. 50,000,000?
Admiral Land. Yes, sir; starting out in 1939 with 11,000,000. We
will be the number one nation in the world in controlling merchant
tonnage.
Mr. AVoKLEY. Are we going to liave to use that excess, where we do
not need the sanctuary, for some useful purpose or scrap them?
Admiral Land. At the present time I am opposed to scrapping
them. It is my judgment that from 6 months to 3 years after the war
is over we will have practically complete use for every ship under the
American flag, for bringing the boys home, rehabilitation, U. N. R.
U. A. and other requirements. That will give us a chance to determine
what we want to keep, I trust in private operation and not in Govern-
ment operation; what our allies desire to purchase if and when this
bill is })assed ; and what we will have to lay up in permanent sanctuary,
which I call a merchant-marine naval reserve.
As I say, that may be anywhere from 1,000 to 2,000 ships. That is
10.000,000 to 20.000,000 tons of shipping. Those are not firm estimates ;
they^ are merely the best guesses that we can make under the conditions
existing today.
Mr. WoRLEY. Nobody knows today, of course, how many we will
need in sanctuary, how many we will need in foreign ti'ade, and how
many we will actually have to scrap. I was wondering if I could get
your ideas as to what you thought would be the best thing to do under
the circumstances as you see them now if we have some left over. As
I say, we are going to have to find either some useful purposes for
them in foreign trade or sanctuary, or else get rid of them or they will
be white elephants.
Admiral Land. You mean that those that are in sanctuary will be
white elephants?
Mr. WoRLEY. Not necessarily those in sanctuary. Assuming that
we agree 1,000 of them should be set aside as a safety measure, that
is going to leave an excess, since we have more shipping than we ever.^
had before, which we will either have to engage in foreign trade or ^
sell or scrap.
Admiral Land. That is right.
Mr. WoRLEY. Nobody likes to scrap ships, so we will have to develop !
('Ur foi'eign trade to use more of them in that maimer or else sell them.
Admiral Land. That is correct.
Mr. WoRLEY. How far do you think we should go in developing our
foreign trade first, assuming it is desirable to develop our foreign
trade, and then upon what basis do you think these ships should be
sold to other nations? Should they be sold to competing nations?
Admiral Land. I do not think that there is any doubt if they are ■
sold at all to foreign nations they will have to be sold to competing .
nations, because the only prospective purchasers are maritime nations.
By the same token, every maritime nation is a com])eting nation with
us.
POST-WAR ECONOMIC POLICY AND PLANNING 621
You have raised an interesting point. There is an industry that
should be devek>ped in this country known as sliip-breaking. Unfor-
tunately, when the act was passed the merchant marine was from 80 to
90 percent obsolete. A lot of it is still obsolete. It is the opinion of
those in the Maritime Commission that we should scrap the older ships,
which will in turn make a place for everything that has been built
(during the war, including Libertys, and that there should be set up
in these United States an industry known as ship-breaking. The Brit-
ish and Germans are fairly export in that. We never have been. We
take a ship, run it up to high tide, work on it between tides and do
what I call a half-baked job. There is an opportunity to set up a
small industry.
We are trying to encourage it among those who seem to have an
interest in it. We have a ship-wrecking yard on the west coast, the
Gulf coast, and the east coast, so we will encourage the turning in of
these ancient and obsolete ships as soon as they finish their war job.
There is a clause in the 1936 act that permits this turn-in. That, to
my mind, is an excellent method of keeping a reasonably modern
merchant marine and at the same time doing something for the ship-
builders. So many people lose sight of the fact that we have a
shipping industry. They talk about ship operations and forget
about the shipping industry. The shipping industry is made up of
three components : The builders, the operators, and personnel. When
I say the operators, I mean the shore personnel; when I say the per-
sonnel, I mean the seagoing personnel. They are the three main
functions of the shipping industry.
Sight is frequently lost of the shipbuilding industry, and that is
going to be the hardest hit. As I indicated previously, we can take
care of our operators for some 6 months to 3 years fairly satisfactorily
and taper off with some reasonably slow degree of going down-grade,
but the shi])builder is pretty much out of luck. Of course, they are a
far bigger industry, from a numerical point of view, running 700,000
to 800,000 in merchant-ship construction alone, while our sea-going
personnel and operating personnel is about 170,000.
Mr. WoKLEY. In that connection, and in relation to your sanctuary
plan — of course, we do not want any more wars, but assuming we have
one, sa}', 25 years from now — would those ships be obsolete or obso-
lescent at that time? Would they be able to cope with the new ships
that the enemy might manufacture in the meantime?
Admiral Laxd. Not on a competitive basis, no, sir, but on an operat-
ing basis ; yes. They are obsolete now. The Liberty ship, we make no
pretense about it, was obsolete when it was designed. The only reason
we built the Liberty ship, with its reciprocating engines for propul-
sion, was because we could not do anything else. There was no other
pro])ulsion machiner}- in the United States.
The answer, of course, is they will be obsolete, they will be more so
than they are now, but they will be operable, and this war has definitely
proven tliat anything that can float, that can be propelled or even
towed from place to place has served a most useful purpose. In my
judgment, it is a great preventer, a backstay. It is quite possible that
this war would not have come on us if there had been a tremendous
merchant-marine reserve in this country, because there isn't any ques-
tion in the minds of most of us that they depended upon the submarine
menace to win the war, and in 1942 they darned near did it.
622 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. WoKLEY. Will these Liberty ships and Victory ships make more
than 10 or 11 knots?
Admiral Land. The Liberty ships make II14 knots, but the Victory
ships are fine, up-to-date modern ships and will make 171/2 knots
with 8,r,00 horsepower turbines and 151/2 knots with the 6,500 horse-
power turbines.
The Victory ships are all modern installations, while the Liberty
shijis are all steam auxiliaries and steam propulsion.
ISlr. WoiJLEY. Incidentally, what are your present plans for the
dis[)osal of the Liberty ships?
Admiral Land. Theoretically, if this bill passes the Congress, we
should be able to dispose of some of these ships to our allies, so that
they would get back on what I call the even keel of 1939. Whether
they buy these ships or not, no one can tell; but that is the idea of
offering them first to our own citizens and then to the Allies at a set
price fixed by Congress and under set conditions fixed by Congress,
so that all hands and the ship's cook get a fair break.
I do not know what kind of a market there is going to be.
Mr. WoRLEY. There probably should be a pretty good market,
should there not, Admiral?
Admiral Land. I think, on the basis of losses that these countries
have suffered, there ought to be a first-class market, but I am just too
old to delve into somebody else's mind to find out what he is going
to do in 1945.
Mv. Bland. A recent questionnaire that has been conducted by us
indicates there will be very little, if any, demand for Liberty ships.
How mau}^ are there?
Admiral Land. There are 2,690 Liberty ships under contract and
about 2,300 have been finished. Quite a number have been lost. A
number have been allocated to foreign countries, the title remaining
in the United States, and others have been turned over to the Army
and Navy. As a snap estimate I would say there would be between
2,000 and 2.r)00 Liberty ships available in the summer of 1945, if we
do not curtail our program. If we cut back, that number will be
reduced, but it is impossible to even guess what that will be, because
our figures are estimates, primarily those given out by Justice Byrnes,
the War Production Board, and so on, based on the fall of Germany.
Germany hasn't fallen. The longer that is delayed the more of these
ships will be completed.
I would like to give you very briefly a little lesson in economy on
this shij) cut-back, and I will be quite brief. A Liberty ship cost about
$1,600,000— $800,000, material, and $800,000, labor. When you are
ready to lay the keel of a Liberty ship you will find that throughout
the yard, anywhere from 400 yards to a" mile at the head of the ways,
are parts of every section of that ship in the course of assembly. The
minute that keel is laid, this flow starts down by cranes, runways, and
locomotives to the ways. So, as a rough estimate, when we lay the
keel, we have spent about $1,200,000 to $1,300,000 on that ship.
Now, then, if the keel is laid, the question is. Shall you spend $300,000
more and have a completed unit that may be worth something, or shall
you scrap $1,800,000 of construction which you would get scrap steel
value out of? That is an economic problem that faces the Maritime
ComnussuMi on any cut-backs. Our policy at the moment is "If the
POST-WAR ECONOMIC POLICY AND PLANNING 623
keel is laid, then finish the ship," because it seems to be bad economy
to get scrap value for $1,300,000 for the thing rather than have an
operable unit at $1,600,000.
Mr. WoRLEY. In the series of questions that went in the record, there
are several questions wliich have not been included in your answers.
Admiral Land. That is correct.
Mr. WoKLEY. If you do not mind, I will ask you these questions.
What are the estimated values of the major classes of vessels we now
have ?
Admiral Laxd. Of the large ships, the Liberty, of course, is the
cheapest, about $1,600,000. Then we run up all the way through the
C-1, C-2, C-3. C-4, P-1, P-2, the various classes of tankers. I be-
lieve' it is going to be confusing to give j^ou figures on those Mr.
Chairman.
They are all in tlie Appropriation Committee hearings. I would
not like to trust to memorv for all of those classes, but the C classes
run around $2,500,000 to $3,000,000, and the C-4, of course, goes higher
than any when it is converted. The C— 4 cargo ship converted to
trooper runs from $4,250,000 to $8,000,000 as a ti'oop ship.
When you convert a cargo ship to a troop ship, involving all kinds
of naval conditions, the costs run up remarkably fast and are rather
meaningless from a merchant marine point of view.
Mr. WoRLEY. Could you give us now an idea as to the amount of
money the Government has tied up in the. entire merchant marine?
Admiral Land. Yes, sir. We have at the present time between
$12,000,000,000 and $13,000,000,000 in ships. If we carry through our
]:>rogram as approved nil the vray up, I mean the Joint Chiefs'of Staff,
War Production Board, Budget, and so forth, it is estimated to have
cost between $15,000,000,000 and $17,000,000,000 by June S0,_ 1945.
Mr. WoRLEY. Do I understand that the cost of these ships from
start to completion, runs about 35 to 40 percent more than in ordinary
times?
Admiral Land. That is correct. When you get into the smaller
sizes, wliy, I think that is modest. Tliere is always a difference of
opinion as to what the war cost is, but the best estimates which we had
are between 35 and 40 percent. That counts in overtime, increases in
cost of material, increases in wages, and so on. I think 40 percent is
a pretty fair figure.
Mr. WoRLEY. Let us assume after the war we will have $12,000,000,-
000 tied up in these ships.
Admiral Land. That is right.
Mr. WoRLEY. To whom could they be sold and for hoAv much? I
know that is almost an im]:)ossible question to answer, but your ideas
on it would be very helpful.
Admiral Land. We hope our fast ships will be sold to our American
operators, and. if not sold, will be chartered, again referring to the
Merchant IMarine Act and referring to the Bland-Bailey bill that is
under consideration. This bill not only evaluates the standard types,
long-range ty])es, but also gives an outline for tankers and a definite
fixation of price for Liberty. That means as a war loss we would
throw off the 3.5' to 40 jiercent. We would take off all the national
defense installation, such as degaussing, armor for the gun crews,
which are all considered as a war expense.
624 POST-WAR ECONOMIC POLICY AND PLANNING
FalliiK^ bark a«rjiin on the Merchant Marine Act, our operators are
allowx'd a siihsidv so thev may buy their ships built in this country at
the same cost as it" thev were buih in the lowest reliable market abroad.
That sul)si(iy does not go to the operator but to the shipbuilder. That
is the fundamental thing, the keystone of the arch of the Merchant
Marine Act of 19;5G.
Mr. WoitLEY. That is a subsidy to the shipbudder ?
Admiral Land. That is a subsidy to the shipbuilder.
Mr. WoiiLKY. Then the operator who buys it from the builder gets
the advantaire of that low cost?
Admiral Land. He gets an advantage of that to this extent, that
he can buy it for the same price abroad and he would patronize his
own industry, rather than the industry abroad.
Mr. Bland. In other words, the subsidy has taken care of the extra
cost of construction in this country, between this comitry and abroad.
Admiral Land. It puts us on a parity. That is all the Merchant
Marine Act does, i)uts us on a parity with our foreign competitors.
As a matter of general interest, there are a lot of alligator tears on
the oi)erating subsidy which goes to the operator but which, under
this act, in the period of 10 years enables us to recover 50 percent of
everytliing that he got over 10 percent. At most, it has only been
aboilt 8 to 3y2 million dollars a year for the 5 or 6 years that the Mer-
chant Marine Act was in operation.
Of tluit $21,000,000, about 80 percent goes to labor; in other words,
goes to our maritime seamen.
Mr. WoRLEY. In other words, we are supposed to make money out
of it.
A(hnii-al Land. That is right. They did make money. We are just
getting the trend of it now. We are going to get most of our operating
subsidy back. I will tell you, all the wails about the operating sub-
sidy amount to nothing. It is just a drop in the bucket. We are very
happy to find that out. We have only been finding that out in the
last year or so. Most of our operating subsidy is coming back,
Mr. WoRLEY. In that connection, do you suppose we can maintain
a proper sized merchant marine without a subsidy?
Adniii-al Land. I do not think so; no, sir. I have heard some very
bright people say that there should not be an operating subsidy, I
disagri'e with them at the present time, I would much rather keep
our standards of living, because I think our merchant marine per-
sonnel are entitled to it, and then let the economics determine whether
we get our money back or not,
Mr. WoRLEv, Could not we avoid a subsidy by developing foreign
markets?
Admiral Land. Tliat is what we are doing now, Mr, Chairman, In
order to get this paid back, we are going to have to develop foreign
markets. It looks to me, on the basis of 7 years' experience, that we
are going to get all the operating subsidy back. As I say, in 7 years
it only amounts to $2 1.000. 000. Tliat is just a loss of (me major ship.
Mr. WoRLKY, You say we get 5 percent, or half of their 10 percent
profit ?
Admiral Land, No. sir; I said anything over 10 percent would be
split nO-oO with them. In a good year, why, they would do better
than that. Of course, the history of shipping has been back and
POST-WAR ECONOMIC POLICY AND PLANNING 625
forth according to the curve of the signs, according to the waves of
the day. It is like in Egypt, they had 7 lean years and 7 fat years.
That is the reason that Congress very wisely put this on a 10-year
basis.
Mr. Worij:y. I was under the impression that over here in this
country we were able to outproduce, outnianufacture, and outbuild
any other nation; that we were able to build at the cheapest and most
efficient rate at any time.
Admiral Land. In some industries that is true and in some it is not;
and shipbuilding is one.
3klr. WoRLEY. What is the difference between the shipbuilding in-
dustry and, say. the automobile manufacturing industry?
Admiral Land. Quantity production.
Mr. WoRLEY. Quantity production?
Admiral Land. Yes. We forced quantity production on the in-
dustries in this war, standard design, no changes. The minute that
any operator is a free agent he is not going to be satisfied with the
standard ship. There are a dozen things he wants changed in it, due
to his own idiosyncracies, or due to the line or the service on which
he works, and so forth. Except in an emergency you haven't got
quantity production anyhow. An order of 4 ships was considered a
major order here in 1937, and we have done 3,400 here in 3 years.
Of course, that involves other things. The shipbuilding industry is
a highly paid industry, always has been. It is a highly skilled inclus-
try. We have never been able to compete in the cost of shipbuilding
since I can remember with the leading shipbuilding and maritime
nations in the world. It ranges anywhere from 331/3 percent to 50
percent, sometimes even more than that. That is true even in war-
time. Our figures on British construction, on ships built over there,
are anywhere from 30 to 40 percent less in cost.
INIr. WoRLEY. You mean in Great Britain?
Admiral Land. I mean in Great Britain. The same thing is true
to a lesser degree in Canada. Our wage structure is higher than the
Canadians. Of course, our material costs are about the same, except
where you fabricate, but don't forget that in a fabricated piece of
material there is a labor charge, and our standards of living, our
wages are so much higher than our foreign competitors that our prices
are higher.
Mr. WoRLEY. Then the Government has set up a subsidy, primarily
in order to maintain the high standards of wages and employment.
Are the other countries subsidizing their shipping?
Admiral Land. Directly and indirectly there are a good many sub-
sidies that do not meet the eye in various maritime countries in the
world. That is a long and controversial question. As to whether
they do something of this character, the answer is in the affirmative.
It is impossible to give details, because they vary at various times.
They all give aids of some kind or another.
When I say that, I do not mean every maritime country, but the
majority do.
Mr. WoREEY. We touched on this question recently, as to who are
the logical jmrchasers for any excess shipping that we have.
Admiral Land. After our people have had a chance at it I think
the Allied Nations should have an opportunity, as I say, under the
626 POST-WAR ECONOMIC POLICY AND PLANNING
restrictions which I hope will be laid down by the Congress, and after
that my present recommendation Avonld be to lay the ships up m this
sanctuary reserve, pending developments. I would at this time be
opposed to scra])ping. I am not at all sure that you would even get
any kind of a proper bid. If any scrapping program went into effect
I would spread it over a number of years awaiting the development
of the ship-breaking industry, watching the scrap market and be very
careful in putting it into effect, but at the present time I am opposed to
scrapping,
Mr. A^ ORLET. If I understand it correctly, when peace comes, we
will have a given nnmber of ships.
Admii-al Land. Yes, sir.
Mr. WoRLEY. And you propose to put a portion of them in
sanctuary?
Admii-nl Land. Yes, sir.
Mr. WcRLEY. As a safety measure?
Adniiial Land. Yes.
Mr. WoRLEY. Another portion you intend to use for our foreign-
trade shipping?
Admiral Land. Yes, sir.
Mr. WoRLEY. What is left you pro])ose to sell, of course, to our own
I)eople first, and then to our allies?
A^dmiral Land. Yes, sir.
Mr. WoRLEY. Under terms set up by Congress ?
Admiral Land. Yes.
Mr. WoRLEY. You are opposed to scra})ping any of them at the
present time?
Achniral Land. With the exception of these old, obsolete ships, 20-
year-old sl)ips. The new ships I am opposed to scrapping at any time,
as far as I can see.
Mr, WcRLEY. Do you have any idea as to what would be the ap})roxi-
mate scrap value of the ships that you would not utilize for sanctuary
or trade ])urposes, assuming that we did not need all of them for the
sanctuary and the trade purposes?
Admiral Land. If you scrapped them all at once, you would get
about $5 or $6 a ton. If you waited for your market, as we did through
1937 and 1938, you might get as high as $21 a ton. That is steel scrap.
Of course, there is a small amount of residual value in copper cable,
zinc, tilings of that kind, but it does not amount to very much in the
Liberty ship.
Mr. WoRLEY. The scrap value would not compare to what it would
cost to build, naturally.
Admiral Land. It cost about $160 to $220 a ton to build. That is a
dead-weight ton. The actual steel is about one-third the dead weight.
Let us say it is about $6 against $200.
Mr. Bland. Admiral, you have been speaking princi])a]ly about
carcfo ships; haven't you?
Admiral Land. Yes, sir.
Mr. Bland. What would you have to say about passenger ships, and
jiarticularly as to what effect the use of aviation would have on
])assenger ships?
Admiral Land. LTnfortunately, we are not in a very fine position as
to passenger ships. Our passenger ships have been converted by the
POST-WAR ECONOMIC POLICY AND PLANNING 627
Army and Navy. The reconversion would be a long and expensive
job. Man}^ of the ships are old. It is a question as to whether recon-
vei-sion is justified. We can use certain types that are under con-
struction now for troop purposes ; they can be converted to passenger
ships probably more expeditiously and. economically than you could
convert the older passenger ships. It is a condition that faces us for
which there is no help. We had to meet the congressional and Presi-
dential directives as to tonnage in 1942 and 1943, and for this year.
It may be corrected in whole or in part by reconversion. There may
be a backlog for some of the passenger companies to go in and build
l^roper types of ships. We hope that will be true. There is no definite
indication as to how much of that kind of construction is in the picture
at the present time.
There is a very strong drive and a very grave fear on the part of
all passenger-ship companies with regard to the future of aviation. I
say a ''drive." The drive is theoretical so far, but the claims of the
aviation people are that they will get away with most of the passenger
trade. Those of us in the shipping industry expect that they will
get away with what we call the cream. The man m a liui-ry will go by
air, but there will still be passenger trade on the surface of the seas,
most of us firmly believe, the first tourist travel when people have
time, holiday travel, and some for the love of the sea. What that will
be no one can tell, but that there will be some passenger traffic is un-
doubtedly correct, and that there will be a fine field for a combination
of surface and air is very definitely in the picture as determined by
questionnaires, theoretical Gallup polls, and what not, that have been
circulated in the industry.
Mr. Bland. They show about a 50-percent loss in traffic, do they not?
Admiral Land. Yes.
Mr. Bland. Passenger traffic?
Admiral Land. Yes; but they also show a marked preference for
combination travel, one way by air and one way by water. We con-
cede that the fast business traffic, transoceanic, will probably go by air,
but that is again a relatively small proportion. Our aviation friends
are wildly enthusiastic about the number of people that are going to
travel. As far as Americans are concerned, I concede that as prob-
able, but not necessarily factual. So far as some of these other nations
are concerned, I have some very grave doubts about- it. As a matter
of fact, we are far more travel-minded than the rest of the world
anyhow. It will be accentuated for a very short space of time, but it
might be curtailed as taxes mount and jobs fall. It is a gamble.
Mr. Bland. Admiral, may I ask you this question? In order to
undertake the aviation business, is it necessary to get from C. A. B.
a certificate of convenience and necessity? These are not handi-
capped by reason of present restrictions on them, as are surface car-
riers.
Admiral Land. That is true. The Commission is strongly on
record, with the strongest backing of the Merchant Marine and Fish-
eries Committee, that there should be no prohibitions or inhibitions
to transoceanic operations by steamship lines who desire to enter the
aviation field. In fact, that has culminated in an amendment pro-
posed by Judge Bland, to remove those prohibitions and inhibiticms,
if they "exist. We feel strongly that that should be enacted by the
628 POST-WAR ECONOMIC POLICY AND PLANNING
Coii^-ess. As far as I am concerned, I wish it were on the statute
books now, because I think we should have a fair break before the
C, A. A. and C. A. B. and not be delayed so long as other people
getting certificates. Then it would be too late for them to get in the
picture. I think it is a matter of great importance to the American
merchant marine, and of vital importance to those operators who are
in the passenger-carrying business.
Mr. Bland. Recently it was testified before the Merchant Marine
and Fislieries Committee that within a short while, as the war is
closed down, half of the planes will be returned or delivered by the
C. A. B. to ordinary, independent carriers, or to the Pan-American —
at least the aviation companies — whereas it will be from 6 months to
2 years before the passenger companies, the steamship companies,
could hope to reconvert or build ships for passenger service.
Admiral Land. I think that statement sums the whole matter up in
a nutshell and I concur definitely in the statement just expressed.
That is a fact as far as we see the picture.
Mi-. Woki.ey. You think then the shipping companies will suffer
a loss ?
Admiral Land. I certainly do.
Mr. Eland. Not oidy a loss in the passenger Inisiness but a reduc-
tion in mail and in high-class freight carriage.
Admiral Land. That is right.
INlr. WoRLEY. But will the Nation as a whole benefit as a result of
this?
Admiral Land. I do not think so, because I think you are crowding
out the steamsliip companies from a legitimate territory, the people
who have done all the exphjiatory work, having been in business there
since the first ship left the shores. So I think the Nation as a whole
will suffei- more than it benefits by such action. It does not seem to
me that it Avould be following in step with the democratic principles
under which we were put into being.
Mr. WoRLEY. Of course, that question comes up, for example, in the
manufacture of automobiles. INIany of these companies are engaged
in carrying out war production, and some of the companies are now
starting to produce automobiles, but these other companies will have
to wait. They cannot all start at the same time. If we look at it from
the standpoint of one company, don't you think we are looking at it
a little bit narrowly?
Admiral Land. I see no reason for giving the interloper a 2 years'
handicap over your long-time customer.
Mr. Bland. Let me ask you this : The ship operator might not nec-
essarily have a 2-yenr handicap. If he can get a certicate of con-
venience and necessity and can get his jilanes delivered to him just like
the others, is he not starting into that service to that extent along with
his competitor and not necessarily waiting for the 2 to G years within
which he can contract for a ship?
Mr. WoRLEY. We intend to go into that later on a little more thor-
oughly. Admiral. As I imderstand it, your committee and the Bul-
winkle conunittee are both studying that question.
Mr. Bland. I do not know about the Bulwinkle committee. Our
committee is giving full consideration to it. "We are trying to get action
as speedily as we can.
POST-WAR ECONOMIC POLICY AND PLANNING 629
Mr. WoELEY. Thei-e is one question here. Admiral. Wliat general
plans are there in otlier countries that you know of for acquiring or
building a merchant marine after the war^ xVre you familiar with
a 113^?
Admiral La>'d. I do not think there has been anything definitely an-
nounced by any other countries. They are all talking about it, they
are all thinking al)out it. You nuist remember up to very recently most
of the Allied nations have been countries in exile, with tlieir pe<jple
primarily domiciled in London. They haven't anything more than
what I would call conversational plans or blueprints. As to their con-
sidering these things, yes; but for most of them it is impossible to do
anything more than talk about it, because they haven't any country
that they can call their own. I am speaking primarily of Norway,
Denmark. Holland, Belgium, Greece, which countries are among the
leading maritime nations of the world outside of U. K. and the U. S.
There is plenty of thought, plenty of discussion, inside and outside of
Parliament on the question of the future of the British merchant ma-
rine, but if there is any well-developed or fonnulated plan, it has not
been announced, or probably w ill not be.
Mr. WoKLEY. Getting to another question, the cost of operation of
our merchant marine. How does it compare with the cost of operation
of other nations?
Admiral Land. Our costs are higher, based primarily on wages.
AVe require American citizenship and other nations do not.
Mr. WoRLEY. We require a man to be an American citizen before
he can work on our ships?
Admiral Land. Before he can serve on a ship ; yes. We have very
definite requirements in the Merchant Marine Act. At the present
time not less than 90 percent of the crew must be American citi-
zens. When we first enacted it there was an allowance on passenger
ships. To all intents and purposes, a man must be an American citizen
to serve on an American-flag ship. That does not bother these otlier
nations. They take them wherever they can get them, and sometimes
where they are efficient — whether they are or not, I do not know —
the cheaper they get them the more likely they are to do it. That is
particularl}^ true in the East India trade, and to some extent the China
trade. So we have that handicap right away. I do not want to break
the handicap down, I would rather support it by the operating sub-
sidy. I think it is a good law.
j\Ir. Bland. As a matter of fact, in the first act we passed we paid
G62/3.
Admiral Land. Yes; and then it was built up to 90 on certain pas-
senger ships.
Mr. Bland. At the time of the Morro Castle incident, the majority
of the men, as I recall, were on the 66% and the others were 331/3.
Mr. WoKEEY. W^e have touched on this question before. How much
subsidy, direct or indirect, are our carriers receiving as compared to
that received by other nations?
Admiral Land. That question is not capable of being answered.
>Mr. WoREEY. There are too many ways by which the other nations
subsidize their carriers, so it is impossible to determine it?
Admiral Land. Yes, sir; and there are things not published in re-
gard to these other nations. I spent 2 or 3 years of my life to find out
630 POST-WAR ECONOMIC POLICY AND PLANNING
how iimeh the Norynandie cost, how much the Frenchmen paid for it,
and I haven't found out yet.
Mr. WoRLF.Y, And the extent of our subsidy is a matter of record ?
Admiral Land. Yes.
Mr. WoRLEY. It is a direct cash subsidy?
Admiral Land. Yes, sir.
Mr. WoRLEY. Now, getting over to the training program, there
is one requiring the training of personnel for the maritime ships, is
there not ?
Admiral Land. In my judgment it is a permanent and positive \
requirement Avhich, I regret to say, this country never adopted until |
thi-s act was passed. It has been one of the best things that ever hap- '
pened to the American merchant marine. Long after you gentlemen I
have forgotten about the shipbuilding program, you will, I believe,
have something to be proud of in the training that you put in the
United States at Sheepshead Bay and the other training stations in
the United States. I have no hesitancy in saying it is of permanent
value. It will go down in history as one of the best things ever done
for the American merchant marine. The merchant marine grew like
Topsy for a century. The difficulties inherent in that sort of wild
growth became very patent, very evident after the last war. It was
not until after the passage of the Merchant Marine Act that the
training program was instituted, and I say it will never be canceled.
Mr. WoRLEY. How many men do you believe are necessary to oper-
ate the American merchant marine?
Admiral Land. We had between 30.000 and 40,000 in 1939. I
would like to see that built up permanently to something like 60,000
to 70 000, to take care of the type of fleet that I think this country
should have. We have at the ]u-esent time about 170,000, a dilution
of 4 or 5 to 1. This will be like other war emergency things. We
will retreat. As I have indicated, this will go rather slowly as
compared with some of the manufacturing industries, particularly
aviation and shipbuilding, so that our reconversion can be done not
quite so painfully as it done with some of the manufacturing, and I
trust it will be the survival of the fittest, both in operators and
persrjnnel.
Mr. WoRLEY. Mr. Wolverton had a question.
Mr. WcLVERTON. Admiral Land, I regret exceedingly that I was
late in arrival on account of my train being late. I realize any state-
ment you make in reference to American shipping is worth while. I
regret I did not have the opportunity of hearing your brief statement.
It may be that the same questions I will ask you have already been
covered. If such is the case, don't hesitate to say so. . I will then get
it from the record as taken by our stenographer.
I am particularly interested in the subject of our American shipping
having the right to utilize the air as a supplementary part of our for-
eign commerce. I have no doubt that you have very clearly defined
ideas on that subject. Is it your opinion that our merchant marine
could not successfully compete with the merchant marine of foreign
countries unless it has the right to go into aviation as a part of its
work?
Admiral Land. I think it will be under a serious handicap. Judge
Bland expressed my feeling and sentiment better than I could express
them myself just prior to the time you came in.
POST-WAR ECONOMIC POLICY AND PLANNING 631
Mr. WoLvERTON. I can say anything Judge Bland says is equally en-
titled to consideration.
Admiral Land. I think that there will be a serious handicap if pro-
hibitions and inhibitions are set up either by statute or by regulations
against the use of aviation in the American merchant marine trans-
oceanic commerce as a supplement to their operations, both as to
passengers and mail and high-class, lightweight freight.
Mr. WoLVERTON. It has seemed to me that when a merchant line is
opened and that route is pioneered by the shipping interest, together
with all the facilities that are necessary for its successful operation,
that it immediately set up a very worth-while organization that could
be utilized for air purposes as well as for shipping purposes. Is that
not true?
Admiral Land. I think you are quite right, sir.
Mr. "WoLVERTON. Whereas whatever pioneering is done by aviation
will require the setting up of new organizations as it goes into new
territory.
Admiral Land. That is right.
Mr. Blind. May I add something to what you asked a minute ago?
Are not almost all of the foreign countries, the British and others,
now amending their charters, or whatever you may term it, so as to
permit aviation in connection with their steamship business?
Admiral Land. That is generally understood to be correct, and
undoubtedly every effort will be made by these countries to do that
very thing. I might quote something here that I quoted before
Judge Bland's committee. When Lord Beaverbrook appeard before
the House of Commons he summed up the British situation very suc-
cinctly by this statement:
There is no monoply of operations ; there is a monoply of subsidies in aviation
in the British Empire.
Mr. WoLVERTON. Admiral, could you give us a picture of the special
requirements or restrictions which limit the operations of our ship-
ping between various countries?
Admiral Land. Well, only generally, that we have a protected
coastal trade that is in practice in maritime countries. The other
restrictions are not of very great importance, generally speaking.
They are covered by treaties and favored-countries clauses. I could
not give you that by memory. I could cite one example that obtained
before the war which shows some of the difficulties. The Fren^ch
Government passed a resolution, or a regulation, or statute, some-
thing of that kind or other, which required tliat 50 percent of the
oil that came into France must come in under the French flag. That
kind of a restriction obtained, and in various countries of the world
there are other restrictions, but, generally speaking, it is a fairl}^
open, competitive market as far as transoceanic traffic is concerned,
except, where some specific regulation of that character is promul-
gated by a government.
Mr. WoLMSRTON. Are there any conditions arising from the practical
operation of ships as they go into foreign ports whereby our vessels
are handicapped?
Admiral Land. Oh, j^es; there are probably minor charges of var-
ious kinds that may have some favored-nation clause, port charges,
toll charges, things of that kind. Usually those are ironed out either
632 POST-WAR ECONOMIC POLICY AND PLANNING
through conference agreements, by treaties, or by specific meetings
of the minds between the governments concerned.' Generally speak-
ing, there are not many of that kind. They do obtain, yes,'just the
same as we have a warrant system in time of war here, that we can
put sanctions on somebody that does not play ball. I imagine those
do obtain. The most serious things of that kind, of course, are canal
tolls. That is pretty well recognized throughout the world. They
determine as to where they buy and where they do not buy.
Mr. WoRLEY. In that connection though, I understand Japan re-
quired that all of her silk export be carried by Japanese ships. Do
you think we could, with wisdom, pursue a policy like that, to provide
that all exports we sell be transported by American ships?
Admiral Land*. I think that would ultimately result in what I call
a dog-in-the-manger thing that might reverberate very uneconomically
and certainly would be one of the prime movers in getting World War
III on our backs. I would not be for anything as drastic as that.
I would like to play 50-50 with any of them. If they do it we do it,
and if they do not do it then we do not do it. I am strongly in favor
of a policy of equality with these people.
As you stated, it is quite true that is one of the bases on which the
Japanese people have built a very strong merchant marine. Every
ship they built in the last 20 years is a potential combatant ship, with
gun foundations and possibilities of emplacements, and protection de-
vices of various kinds, so it can be converted almost overnight to a
combatant ship.
Mr. Bland. May I ask in that connection, with the chairman's per-
mission, if there was not at one time, in one of our tariff acts, a dif-
ferential in favor of goods that came into this country on American
ships, and it was never put into effect by the administration because
of protest of difficulties in connection with it ?
Admiral Land. I am afraid you will have to ask somebody else.
Mr. Bland. It seems to me there was a slight differential. I may
be mistaken.
Mr. WoLVEKTON. Admiral, some of us on this committee, including
Mr. AVelch, who is a member of the Committee on Merchant Marine
and Fisheries, and who unfortunately is precluded from being here
today, are of the opinion that in order to maintain our national econ-
omy in the days that are ahead it will require a very substantial for-
eign trade. Have you in your statement made this morning indicated,
from the standpoint of the merchant marine, how that foreign trade
could be built up?
Admiral Land. Well. 1 would not say that I liave covered the sub-
ject, but I have suggested the possibility of an increase in our foreign
trade in China and in India, in Africa, a continuation of our good-will
policy in South America and general expansion of world trade, which
seems to me to be not only possible but probable, and that aviation
itself will introduce new avenues, and new explorations, new friend-
ships which should be augmented through the interchange of goods.
I would like to put a string on that statement, that for every seller
you have got to have a buyer, otherwise you do not have trade, and
that any inhibitions and prohibitions that are put on international
trade by a specific country is bound to have repercussions. AVe have
to go into this with an open mind and not with prejudice, not with
POST-WAR ECONOMIC POLICY AND PLANNING 633
too much selfishness and too much pocketbook nerve in tlie picture if
it is to be successful in operation.
Mr. WoLVERTON. I am not so much concerned about that from our
standpoint as I am from the standpoint of others.
Admiral Land. I was speaking for the moment from an inter-
national point of view, not having any pocketbook interest in any of
this thing, from what I call an observer's point of view, because, after
all, I can alwaj^s get coffee and rolls off the Navy when I go back on
the retired list. I just think we have got to come into that with a
spirit of generosity, a spirit of understanding, if we are going to work
out the civilization and peace of the world as we visualize it. There is
no question in the world but what trade rivalries sometimes become
military rivalries, and human nature being wliat it is. we should use
our best endeavors to avoid that without getting all four feet in the
trough, no matter what nation it is.
Mr. WcRLEY. How do you propose to arrive at that understanding?
Admiral Land. I think by international agreement. There is no
reason in the world wdiy we should not be fairly decent citizens, no
matter what our age, sex, or condition may be. We have undoubtedly
reached a lot of agreements already, and we will undoubtedly reach
more, including some kind of peace agreements. Let us hope we will
do it slow enough so that they may be permanent. My only fear is
we may be too precipitous about it.
Mr. Bland. Does that involve cartels?
Admiral Land. I would hesitate to discuss that, Judge. I am not a
competent witness on that.
Mr. WoRLEY. We do not want to get you out of your jurisdiction.
Admiral Land. I am one that sits here and philosophizes on these
things without having very much intelligence or philosophy in his
system. But I repeat, j^ou can have international agreements. I see
no reason why that should not apply, and is bound to apply first to cur-
rency, finances, whatever you choose to call it. If you do not have that,
then the rest of it goes by the board. You and I may sit down here
and get an agreement on the cost of ships, or trade, or charter rates,
but if you do not have stabilization it is not worth the power to blow
it — you know where. That is the fundamental thing. After that you
build up on a stabilized exchange, or stabilized currency and then you
will be certain of your trade agreements. That applies to shipping,
it applies to aviation as well as on everything else. We have hacl it on
oils, we have had it on otlier things, and we will have an aviation con-
ference the 1st of November. We are bound to have this in connection
with the peace.
Mr. WoRLEY. Is the Maritime Commission participating in any of
the conferences, for example, with the State Department, or the De-
partment of Commerce, in determining the foreign-trade problems?
Admiral Land. Well, we are represented on any of the committees
that function here preparatory to matters of this kind, but these are
local and national and not international so far.
Mr. WcRLEY. You are not called in on international agreements or
conferences?
Admiral Land. Witli one exception. xVs you gentlemen know, and
as brought out in the answer to the first question here, the War Ship-
ping Administration is the optional member of the Ministry of War
634 POST-WAR ECONOMIC POLICY AND PLANNING
u)id Ti-aiisport in the United Kingdom that functions under the com-
bined Shipping Adjustment Boards, one located in Washington, one
located in London, and that in turn controls two pools of shipping, or
one, if you like, one control in London and one control in Washington,
and we have under our control practically the shipping of the world
under United Nations flags. That will be extended after the fall of
Germany to continue until 6 months after the fall of Japan, or some
such time earlier than that as may be agreed upon by the nations con-
cerned. Now* that set-up will shortly be implemented by what agree-
ments may be reached, but it is nothing more nor less than a con-
tinuation of these pools that we have hacl ever since we came into the
war. Beyond that I do not think the Maritime Commission or the War
Shipping Administration have been involved in any international
things. That, as I say, is nothing more than a continuation of what
has been in effect 3 or 4 years, some of us feel satisfactorily, because we
have controlled rather satisfactorily all of the United Nations ships
in this worldwide struggle.
Mr. WoRLEY. In short, the existence of the Maritime Commission
and merchant marine depends upon what our policy will be in the
future ?
Admiral Land. That is true.
Mr. WoRLEY. That policy is not determined by the Maritime Com-
mission?
Admiral Land. No, sir.
Mr. WoRLEY. Thank you.
Mr. WoLVEETON. Admiral, what do you find as the most potential
reason or reasons that enable one country to dominate in the foreign
trade of another country? For instance, we frequently hear it said
that in South America and some other countries in the past there was
a strong German influence, that their mode of doing business was such
that it appealed to those countries and enabled them to have an ad-
vantage. The same has equally been said of the British. Do you find
that other nations, or the businessmen of other nations, are awake to
situations that they take advantage of or, for some reason or other,
our business enterprises do not seem to grasp or measure up to?
Admiral Land. In my judgment, Ave are not a colonizing Nation.
We do not like to domicile ourselves permanently in these countries.
Other nations of the world do. I have seen, myself, all the points you
laised in South America. In one case it is a definite Italian colony,
in another case it is a British colony, or a German colony. They live
there, they stay there, they marry there, settle down, build houses, and
there is their home. We, as a people, generally speaking, have not
been willing to do that. We go there as businessmen, we stay there a
short space of time, we get what we can out of it, we try to give as
nnich and maybe more than we take, but our general attitude is not
to comingle, to intermarry, to settle down and live in these countries.
In other words, we are not successful as colonizers, or have not been
most of our existence. That will probably change. The contrary is
quite true in Honolulu, for example. We fairly well settled down
there long before -we took it over. At the present time it is pretty
faiily Americanized. That was not true in the Philippines, and
probably would not be true for generations, although some of our
people live there.
POST-WAR ECONOMIC POLICY AND PLANNING 635
But it certainly was never true in China, it is not true in India
and in South America. That, to my mind, is a semiphilosophic
answer as to why some other countries have been more successful than
we have in getting a financial toehold on certain segments of countries
outside of their own national realm.
Mr. WoLVERTON. Has long-term credit had a part in it?
Admiral Land. Yes, indeed, and various and sundry trade rela-
tions, trade agreements, cartels, conference agreements, things of that
kind have all had part and parcel in it.
Applying it to the merchant marine, let us take Norway, for ex-
ample. Norway only has two exports on which, materially, her
existence depends : lumber and fish. That is not enough to live on, so
they are dependent on maritime trade for their very existence. That
is probably true of Norway more than any other country in the world,
and she is one of the best sea-going countries that ever existed, as
operators, and so on.
Relatively speaking, that follows down the line with other countries,
Denmark is another case. Holland is another case. Of course, the
United Kingdom is notorious for always being a maritime nation from
times immemorial. I do not think you can possibly go into an inter-
national agreement and freeze Norway out and still have a merchant
marine. One of the answers I heard to that was to take all the Nor-
wegians and transplant them to the United States. They are good
citizens.
Mr. WoLVEETON. What I have in mind is not forgetting the fact
that this committee was set up as a post-war policy committee. There-
fore, looking into the future and recognizing the importance of foreign
trade, I would like someone, if they would, to put in our record their
thought as to the principles or the policies that should be adopted
either by Government or by business to build up foreign trade. We
have had experience in foreign trade that has been advantageous,
and we have had some that has been very disadvantageous, but the
sum total is that someone ought to give us a picture of formulated
recommendations, something that this committee would feel justified
in pressing as a solution, or a help in building up our future foreign
trade.
Admiral Land. Well, I would not like to set myself up as a compe-
tent witness to answer that question. You have a National Foreign
Trade Council in this country made up of some of the best citizens
of the LTnited States. They meet every year. They do exactly what
you indicate there. They do not always agree one with the other,
nor do their recommendations always fall on fertile ground. So it
is not a question that you or I could settle.
I would say the best body I know of in the United States to give
this committee recommendations, at least, would be the National
Foreign Trade Council of the United States, because on that council
are certainly some of the best brains we possess. They possess far
more knowledge of the subject than all the brains of the Maritime
Commission rolled into one. So I should hesitate to take on that
chore myself, because I do not think I am comiDetent to do it.
We have ideas, yes; but the Department of Commerce has better
ideas, with more experience, more trained personnel, who function
as a Government agency hand-in-glove with this National Foreign
99579 — 45 — pt. 4 3
636 POST-WAR ECONOMIC POLICY AND PLANNING
Trade Council, as does the State Department. In other words, we
think maj^be you will find that the Department of Commerce and
the Department of State are fairly tied in with this group of very
intelligent American citizens who^ in my judgment, could give you
specific, definite recommendations along the lines you are thinking.
Mr. WoLVERTON. The suggestions that you made, I have no doubt
will prove helpful and the committee will take advantage of it. Is
that council set up by private industry, or do Government officials
participate in this council ?
Admiral Land. It is a private organization. The Government
officials participate. They have their annual meeting the 9th, 10th,
and 11th of October in New York.
Mr. WoKLEY. Are you through. Admiral?
Admiral Land. I am all through. They are meeting here very
shortly, and to my mind, any such statement as the Congressman just
made, if it were transmitted to Mr. Thomas, the president of that
organization, I think they would be very happy to give you gentlemen
concrete, specific recommendations on this subject, because that is their
job. I am sure they would be happy to do it when they meet in final
conclave.
Mr. WoRLEY. We will endeavor to have them appear before the
committee.
Admiral Land. All right.
Mr. WoRLEY. Are there any further questions?
Mr. WoLVERTON. I have one or two more.
Mr. WoRLEY. All right.
Mr. WoLVERTON. I have emphasized this because I feel it is one of
the most important questions that this committee will have to con-
sider. It would seem to me, from some of the testimony that has
been given here, that the difference between success and failure in
maintaining our national commerce may be the amount of foreign
trade that we are able to have in the post-war period. Mr. Welch, a
valued member of this committee and also of the committee of which
Judo-e Bland is chairman, has expressed himself on several occasions
on that subject, and I think he has impressed all of us with the im-
portance of it.
Now, may I change the thought for a moment, noting that we will
^arry out your suggestion of contacting the National Foreign Trade
Council.
What do you look forward to in the post-war period as to our ship-
yards ? I am very much concerned about that. I am concerned as to
what shipyards can convert to other production. I am conscious of the
fact that the number of employees in those shipyards throughout the
country are looking with some concern to the future. What do you
think is the future of the shipbuilding industry ?
Admiral Land. To answer your question facetiously, Mr. Wolver-
ton, having been interested in the problem of the sliiplDuilder for 40
years, I look with alarm on the condition that faces the shipbuilding
industry of these United States; and if I could just drop out of the
picture here and not have to face my buddies of 40 years' standing
and trying to tell them what to do, I would be very happy to do it, be-
cause i do not know the answer. To answer concretely, let me refer to
what happened in the last war. The Emergency Fleet Corporation
POST-WAR ECONOMIC POLICY AND PLANNING 637
and Shipping Board set up 223 yards in these United States, which only
functioned at full capacity subsequent to the armistice. It lasted to
about 1920 or 1921, possibly finishing in 1922, but kt us say 1921,
Those yards were reduced in 1936 to 5 major yards, with 3 or 4 minor
yards. That is a reduction from 223 to 9. Some of the mistakes that
were made then we did not recommit. Some we may have. We have
made enough. We have under our own aegis some 80 yards, 30 to 50
major and the remainder minor. That is outside of the yards of the
Army and Navy, who have a good many more, mostly minor.
For the minor yards I see nothing. For a majority of the major
yards, I see very little except to close up shop as a war emergency,
finished business. For some of the best yards, particularly on the
west coast, there should be room for their existence on this basis: (1)
Repairs, (2) conversion, and (3) I trust some continuation of ship-
building, both naval and merchant marine, small in quantity but high
in quality, in order that the United States of America may maintain a
nucleus of the shipbuilding industry for all purposes, no matter what
they may be.
Just what that quantity and quality will be I havei \ enough brains
to tell you, but that they will be very seriously reduced in quantity to
my mind is an axiomatic fact, and the reduction in personnel, which I
mentioned some half hour ago, between 700,000 and 800,000 in mari-
time yards, and a grand total including the navy yards and the ship-
building of somewhere between 1,500,000 and 2,000,000 people will go
back to the peacetime normalcy of something in the neighborhood of
a minimum of 10 percent and a maximum of 20 percent of that em-
ployment.
You are quite right that you cannot convert a shipyard into a man-
ufacturing plant by the same process that you can convert other
plants in these United States to manufacturing plants, but that par-
ticularly refers to the automobile industry whose conversion prob-
lem, while difficult, is solvable. It is not true with the shipyards.
Most of them are of mushroom growth. They build specific ships, one
type, particularly the Liberty program, and I just do not see that there
is any existence for the large majority of them.
I hate to state that, but I think any thinking man that has examined
the situation will recognize the validity of the statement.
Mr. WoLVERTON. I might say to you that I have asked similar ques-
tions of others who have appeared before this committee and their
answers have not been any more optimistic than yours. I think it is a
matter of considerable concern, from the standpoint of employment
in the post-war period.
I think also it is important from the standpoint that you, in your
remarks, have indicated, you recognize ; namely, it is important from
a defense standpoint as well as a commercial standpoint. The ship-
building industry is one that brings mto its organization more trained
men than any other industry that I know of in this Nation of ours.
You just cannot organize or get together that kind of an organization
overnight, and if there is not some encouragement given to our estab-
lished yards, it would seem to me that we would be seriously handi-
capping our future national defense.
You are well aware of the conditions that existed immediately after
the last war, just as I am. I have lived in the Delaware River section
638 POST-WAR ECONOMIC POLICY AND PLANNING
and, therefore, have a personal knowledge of the shipbuilding situa-
tion. The conditions there after the last war were pathetic. Every
effort was made to keep those yards organized for a future possible
emergency.
I think that is a question that must necessarily be considered along
with the question of the unemployment that will necessarily arise as
a result of the closing down of yards such as you have indicated is
quite likely.
Admiral Land, I would like to draw a line of cleavage for the com-
mittee's consideration. We have in the shipbuilding industry what
we call our old-line yards, which you are no doubt familiar with,
many of them being on the Delaware and in that vicinity. Many of
the yards are Government facilities. Government-owned, Government
constructed, Government paid for, and, therefore, the losses will have
to be written off as a war cost and the suffering will not be so great.
Mr. WoLVERTON. Except from the standpoint of labor.
Admiral Land. I was going to add that. That does not fulfill the
unemployment question. There is that line of demarcation, and I
think we will have to consider that in trying to keep the nucleus of a
shipbuilding industry.
There is a possible solution and it will require congressional ap-
proval if it is put into effect; namely, you are going to maintain a
Navy X, whatever X may be, or Y or Z, and that in turn will sup-
port certain navy yards. It is my belief that this country will go
ahead with certain naval construction, very modestly, to be sure,
to keep up to date. You can do it on the basis of insurance, on the
basis of a national policy for defense, or for a proper kind of relief
for unemployment, rather than the familiar expression that is always
used of raking leaves, or what have you.
By the same token, you will do the same thing with your merchant
marine. I would trust that Congress and the Government as a policy
would permit the construction of certain passenger ships, for exam-
ple, of which there is a scarcity, so as to maintain this nucleus of
shipbuilding in those yards that are entitled, by virtue of their abili-
ties, to exist. In that manner we would then have the skeleton ship-
building industry which the Government will have to, in part, support,
as an insurance, as a national defense, and as defense relief for unem-
ployment, and a proper relief for unemployment should continue for a
definite period of time, depending upon conditions as they arise.
Now, that is not the millenium, but it offers some form of partial
solution to the problem. We are going to keep some sort of ship-
building industry in this countr}'^, I don't care whether it gets down
to 5 yards. I think we can support from 10 to 12 yards. And cer-
tainly with the repairs, the conversion, and some new building which
must take place, if this is properly distributed throughout the United
States, I think the American people will have to support it.
I think we will have to look to Congress for the appropriation to
support what I call a rational, decent, equitable policy for the ship-
building industry.
Mr. WoLVERTON. I am in full accord with the thoughts you have
expressed as to the importance of the Federal Government continu-
ing our shipbuilding construction.
POST-WAR ECONOMIC POLICY AND PLANNING 639
Mr. Bland. After the last war the New Eiifjland Shipbuilding &
Dry Dock put up one of the largest yards in this country and main-
tained its organization by building turbines, towers, and doing work
of that character.
Mr. WoLvERTON. Now, may I revert to a question which I should
have asked sooner. What part of our own trade has been carried
over the past 20 years, we will say, in American bottoms, do you know,
just generally?
Admiral Land. It varies from a low of 10 or 12 percent up to a
high of about 30 percent. Those of us that make a fetish of the
American merchant marine think we ought to increase it, and we
set the mark, at least I set the mark at 50 per cent. I should be
quite happy if we increased that from 30 to 40 percent by a gradual
process, tlie economics justifying the improvement, but I think the
mark ought to be theoretically on a 50 percent basis, because that is
the proper basis.
I would like to give you some examples of what these Axis Nations
did prior to the war. I may misquote now in these figures, but if
my memory serves me right, Italy carried 60 percent of her foreign
trade under her own flag; Germany 70 percent, and Japan 80 percent.
I do not consider that either equitable or just, because it is uneco-
nomical to do it on more than a 50-50 basis. I think we should have
the 50-50 basis, getting as close to it as the economics of the situa-
tion would justify.
Mr. WoRLEY. Did those countries find it economical to give their
trade the way they did, giving a preference to their own shipping?
Admiral Land. I suppose thej^^ found it economical in one way or
another, but the only country that I know very accurately about is
Japan whose shipbuilding industiy and ship-operating industry are in
the hands of five or six families, completely tied in with the Gov-
ernment when they needed support and supported by the Government.
I cannot answer you as to how much subsidy they got, because that is
a closed corporation, but they were controlled by the shipping mo-
nopoly in the Kingdom of Japan and the Government paid the
freight, as was necessary, and, as far as I know, none of these five or
six major families ever went into bankruptcy.
Mr. vVoRLEY. I just wondered if they found it economical and justi-
fiable, perhaps we could find out how they do it and do it ourselves.
Mr. WoLVERTON. My question. Admiral, was directed particularly
to our own trade.
Admiral Land. I answered you as correctly as I can, and I think
the figures are pretty accurate. If you go back 10 or 20 years, we
reached a low of 10 percent and we got to a high of 30 percent. In
1929 it was about 29 percent.
Mr. Bland. I think we got as low as 8 percent one time.
Admiral Land. Yes. Of course, in the gilded days of the clipper
ship we got up as high as 90 percent, and so I say don't go by decades
but go by generations.
Mr. WoLVERTON. Does the quality of the shipping have anything
to do with that ? You have made reference to the clipper ships. At
that time the American clipper ships were probably the fastest on the
oceans of the world, and I am wondering whether that element may
have been helpful to us in carrying that large percentage of trade
compared to now.
640 POST-WAR ECONOMIC POLICY AND PLANNING
Admiral Land. That is entirely correct, and tl^anks to the Con-
gress and the Merchant Marine Act we are now in a position, as of
today, where we have this quality of ships. We did not have it in
1936. We had nothing bnt hand-rae-downs from the last war. Again
repeating myself, we had from 80 to 90 percent of ships 20 years old.
Mr. WoLVERTON. There is a matter that came to my attention re-
cently that you probably could speak authoritatively on, and that is
with reference to our Liberty ships, the number of knots that they can
cover in an hour, and that lately — this is the part that I thought might
be significant — but that lately those cargo ships were being stepped up
in speed, and I have been told, or have read, that Great Britain was
getting the majority of those ships built in our American yards. Now,
whether they were built by us and disposed of under lend-lease or
whether they are by a British contract, I do not know. Is there any-
thing to that, that the British are now seeking to have built in our
yards ships that are faster than those that we constructed so many of
during the war ?
Admiral Land. No, sir; and if it were the title remains in the
United States. In the transfer of ships to foreign commerce under
the United Nations flags the title remains in the United States.
Mr. WoL\T2RTON. Dou't they contract for any on their own account?
Admiral Land. They did before we were in the war, the British con-
tracted for 60 ships, but they were the first Libertys, 30 in Portland,
Maine, and 30 in Kichmond, Calif. We also got what I call Liberty
type ships from Canada which are under British lend-lease and we
have turned over to the British in accordance with the so-called
Churchill-Roosevelt agreement something in the neighborhood of 200
ships, practically all of which are Libertys, and the title remaining
in the United States, with one exception of a task force of 13 C-l's
which were used primarily for military purposes and were very satis-
factory, part of the 200, and the title also remains in the United States.
Mr. WoLVERTON. Then it is true, is it not, that we are building
ships now that are faster than those that we built first ?
Admiral Land. Yes, sir; but those we are building for ourselves,
as far as I know.
Mr. WoLVERTON. You do not know that the British have contracted
for any ?
Admiral Land. No, sir ; I do not. We are still operating under lend-
lease and we are operating under the statute passed by Congress.
Mr. WoLVERTON. You Say the title remains with us?
Admiral Land. Yes, sir.
Mr. WoLVERTON. I am not concerned under those conditions, but I
would be concerned if I saw a competing maritime nation building
ships of greater speed, looking to them to take the place of our country
in trade that the clipper ships once took because of their speed.
Admiral Land. Yes.
Mr. WoRLEY. Admiral, we want to be considerate of you and your
time. Would it be convenient for you to come back at 2 o'clock, or
would you rather complete now ? The staff director had a few questions
here, and I believe Mr. Wolverton had some additional questions.
Admiral Land. I have got a War Production Board meeting at 3
o'clock. Could you turn me loose by that time, so as to attend that
meeting ?
POST-WAR ECONOMIC POLICY AND PLANNING 641
Mr. WoRLET. At three o'clock?
Admiral Land. Yes, sir.
Mr. WoRLEY. We will turn you loose by that time. Perhaps we can
finish here now. Mr. Folsom, the committee staff director, has a
few questions.
Mr. Folsom. I just have one or two questions.
You mentioned the desirability of a sanctuary in which you would
put a number of ships after the war.
Would not the number of ships you would put in that sanctuary
determine, to a very large extent, the activity which you would have
in the shipbuilding industry ? If you have a large number of ships in
sanctuary then you might soon have a demand for new ships, but if
you have a small amount in sanctuary then you would have so many
ships in America that you would not need to build new ones ?
Admiral Land. I think that is a very vital factor in the number that
go into a sanctuary. As far as our policy as of today is concerned, we
would anticipate putting in sanctuary Liberty ships only, but that is
today.
Mr. FoLSOM. In that case then there would be very little activity in
the shipbuilding yards for a long time, as far as cargo ships are con-
cerned.
Admiral Land. As long as they are untouchable, they would have
no effect on shipbuilding.
Mr. Folsom. I mean that class that would be left.
Admiral Land. The class that will be left, of course, is the fast ships.
That there will be plenty right away, yes ; and that is the reason I said
that the shipbuilding picture is not a very happy picture, except on
the three counts I mentioned, repairs, reconversion, and, I trust some
passenger ship construction of sufficient magnituTie to tide over the
best of our major yards. Undoubtedly there will be some ship con-
struction of small types. God only knows what the citizenry may
desire. But quantitatively, it will not amoimt to a great deal.
Mr. Folsom. Another question I had was in regard to the operating
subsidy. You mentioned the fact that the figures indicated that the
amount of subsidy in the last 7 years has been very small. You had the
benefit during that period of the last 2 or 3 years when you were oper-
ating at full capacity. Looking ahead for the period after the war,
would you not expect that the situation would change ?
Admiral Land. That is true up to the time we requisitioned all the
ships, but don't forget when we requisitioned all the ships all the
operators in the United States were merely on our pay roll, they are
our agents, so you cannot figure on any great profits after we requisi-
tion them, because, unfortunately, we are the major operators. I say
that with my tongue in my cheek, because we still use the operators to
actually run the ships, but they are not going to make any major
amount of profit on that, and of course our operating subsidy ceases.
Mr. FoLsoM. You are insured against loss?
Admiral Land. Yes.
Mr. Folsom. That would not be the case after the war?
Admiral Land. No, but given an even break on any kind of reason-
able foreign trade, the operating subsidy is always going to be small,
as far as we can visualize it. It does not disturb me in the least. There
are so many crocodile tears shed on this operating subsidy, but it is
642 POST-WAR ECONOMIC POLICY AND PLANNING
not worth the discussion taking place. It Is a figment of the imagina-
tion. We will get our bait back, and I think it will continue — I hope
so. It is perfectly possible, as the chairman said, if you fall down you
are not going to have any operating subsidy.
Mr. FoLSOM. Earlier in your statement, you thought it would be a
good idea to build up our own merchant marine. You have in mind,
in the case of Germany and Japan, we should leave them the coastwise
trade and we would take all the rest of it ?
Admiral Lakd. That is my general idea, that they should have the
coastwise, river, and harbor trade, and the rest should be divided be-
tween the United Nations.
Mr. WbRLEY. What would we do in the case of their ^ilk?
Admiral Land. We would just be their agent and transport it for
them.
Mr. WoL\'ERTO]sr. There was a question that came to my mind that
I meant to ask you, Admiral. Are you familiar with what policy has
been pursued by Japan that has enabled that country to carry 80
percent of its foreign trade in its own bottoms ?
Admiral Land. Yes, sir ; I am definitely familiar with that.
It is a Government-controlled monopoly, worked between four or
five or six families, tied right in with the Government, in which the
Government says, "We want so and so," and these people produce it.
The Government says, "You do so and so," as in the case of silk, anjd
silk was exported in Japanese bottoms.
Mr. WoLVERTON. What policy did they have which would prevent
American shipping from being a competitor? Was it a Government
policy or was it just the general conditions that enabled the Japanese
to operate so much cheaper that they naturally would get it without
any governmental policy ?
Admiral Land. You have hit on the meat in the coconut when you
say "cheaper." That is one advantage over us that they possess right
away, on their wage schedules. The other is they would make it
very difficult for you, as an American, to go over and get any return
cargo. You are getting into details there that I am not in a position
to answer.
Mr. Bland, Did not they require that purchases made by them in
other countries should be sent to them in ships under their flags?
Admiral Land. Yes. There are plenty things like that that ob-
tained throughout the world. They are particularly true of Japan.
You would have difficulty in getting coal, you would have difficulty in
getting oil, or water, or the cargo was not there, you would have to
wait, and in the meantime it would be at another pier, someone would
walk off with it, all kinds of tricks in the trade with which I am not
familiar, but I know they existed, and they existc particularly in
that country. They existed for 3'^ears, so it was extremely difficult for
an American ship and various other ships under foreign flags, as far
as^that is concerned, to get a suitable cargo out of the country.
Mr. WoLVERTON. This Nation has been so generous in its good-
neighbor policy and brotherhood policy that we just did not think
it was right to do those things, did we?
Mr. WoHLEY. That is largely a matter of opinion.
Admiral Land. I do not think we are all a bunch of lily-whites,
or anything like that, but I think we played the game pretty much
POST-WAR ECONOMIC POLICY AND PLANNING 643
four-square by lifts and braces, and I think we will continue to
do that.
Mr, WoLVERTON. I do not think you will have much respect from
anybody unless you stand up for your own rights.
Admiral Land. I agree with that.
Mr. WoRLEY. Congressman Allen of Louisiana is very interested
in having a question answered. It has a bearing on the foreign
shipping. Could you give us any idea as to the amount of commerce
on this proposed new sea channel from New Orleans to the Gulf of
Mexico 2
Admiral Land. I am afraid I could not answer that, no; I haven't
any idea. Any improvement in depth, course, distance, and so on,
is bound to be advantageous in carrying goods. This is a new proj-
ect. It is my understanding there are two or three routes that they
have not even decided amongst themselves yet, so how could anyone
make a guess as to what the saving would be or what the advantage
would be i Frankly, I could not answer the question. We will follow
that with a good deal of interest. We could probably make snap
estimates, but I would prefer not to do it, because I think it would
be entirely well up in the ether some place; it would not be accurate.
Mr. WoLVERTON. Maybe the Chief of Engineers from the War
Department made some studies on it.
Admiral Land. They have made some studies, and the Department
of Commerce has made some studies. Our investigating body, re-
search and finance, the people that are interested in it, are watching
the thing. It is too premature to determine with any degree of eco-
nomic accuracy what it wilj be.
Mr. WoRLEY. Are there any further questions?
If not. Admiral, we thank you very much for your testimony.
Admiral Land. Thank you very much for your courtesy.
Mr. WoRLEY. The committee will resume hearings at 2 o'clock.
(Pursuant to the adjournment for the noon recess, the subcommittee
reconvened at 2 p. m.)
Mr. WoRLEY. The committee will come to order.
The first witness to be heard this afternoon is Captain Macauley,
of the Maritime Commission.
Captain, would you state your official capacity?
STATEMENT OE CAPT. EDWAED MACAULEY, DEPUTY ADMINISTEA-
TOR, ACCOMPANIED BY COMMODORE TELEAIR KNIGHT, ASSIST-
ANT DEPUTY ADMINISTRATOR EOR TRAINING, AND HUBERT
WYCKOEF, ASSISTANT DEPUTY ADMINISTRATOR EOR MARITIME
LABOR RELi^'^IONS, WAR SHIPPING ADMINISTRATION
Captain Macauley. Well, I am a member of the Maritime Com-
mission, and also Deputy Administrator of the War Shipping Ad-
ministration— Deputy Administrator having supervision over re-
cruitment, training, manning, labor relations, and also the medical
program. In addition, I am Chairman of the Maritime Emergency
Board, which acts on bonuses and war risk insurance.
Mr. AVorley. That keeps j^ou rather busy, does it not. Captain.
Captain Macauley. It does indeed.
644 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. WoRLET. If yoii don't mind, there are a few general questions
I would like to ask you which we overlooked when Admiral Land was
on the stand this morning.
First, can you give us some idea of just what the Maritime Com-
mission is, in your own words? We have in the record a detailed
statement as to the authority and laws under which it operates, but
if you could give us some general idea of when it was created and
why it was created, its present function, and what part you think it
will play in tlie post-war world, we would like very much to have it.
Captain Macauley. The Maritime Commission was created by the
merchant marine law of 1936, and, of course, all the details of that
law are given in the book or pamphlet stating that law with its revi-
sions and amendments.
It may have been given in this morning's hearing — the scope of the
activities of the Maritime Commission was changed with the war;
that is, when the War Shipping Administration came into being the
War Shipping Administration took over the operation of the vessels
and the manning of the vessels from the Maritime Commission, leav-
ing the Maritime Commission with the entire building program and
with certain other duties it was required by law to carry on.
Then the majority of ships which were operating under private
ownership were requisitioned by the War Shipping Administration.
In fact, that was commenced by the Maritime Commission even before
the War Shipping Administration came into being. Those who were
the original operators have acted as the agents, or general agents, of
the War Shipping Administration. So that, in reality, except with
some of the time-chartered ships, the War Shipping Administration
is operating all vessels which are owned or have been taken over by
the War Shipping Administration, not only those under the United
States flag, but those under the Panamanian and Honduran flags, and
also some vessels under other foreign flags.
Mr. WoRLEY. The War Shipping Administration has taken over
those ships, too ?
Captain Macauley. Certain of them. You mean the foreign-flag
vessels ? Certain of them.
Mr. WoRLEY. Prior to 1936 did we have any Maritime Commission ?
Captain Macauley, Of course, we had the Shipping Board and the
old Emergency Fleet Corporation. I haven't sufficient knowledge to
give you any details on those.
Mr. WoRLEY. The Maritime Commission, under the 1936 act, was
created to build a better merchant marine and to pay more attention
to our foreign trade ?
Captain Macauley. Exactly ; that is what it was initiated for, be-
cause, as I understood it, our merchant marine was at a pretty low ebb
at that time.
Mr. WoRLET. You have plans, as I understand it, the Commission
does, to do what the Commission can do to see that that low ebb does
not come about again. Is that correct?
Captain Macauley. Absolutely. .
Mr. Worley. Now, in determining those plans, does your depart-
ment confer, for example, with the State Department, the Commerce
Department, and F. E. A., and other Government units that have to
do with foreign trade?
POST-WAR ECONOMIC POLICY AND PLANNING 645
Captain Macauley. We have, of course, liaison with all the Govern-
ment departments, but there is also a Post-war Planning Committee
appointed by the Commisison which is working separately. There
are some members of the Commission, two members of the Commission,
on that, and the members of the subcommittees are taken from both the
Maritime Commission and War Shipping Administration people.
Mr. WoRLEY. So far as the policy with respect to our foreign trade
and shipping goes, the Maritime Commisison does not go into that
field?
Captain Macauley. Well, they would certainly make recommenda-
tions.
Mr. WoRLEY. They would be interested in it and make recommenda-
tions ?
Captain Macauley. Yes, sir.
Mr. WoRLEY. But it has no authority to determine that policy ?
Captain Macauley. I would say that, on anything of that kind, they
would make recommendations to Congress.
Mr. Worley. Specifically, can you tell us what is the total civilian
employment in the merchant marine at the present time, and how it
relates to the past 10 years' employment?
Captain Macauley. I can ; and I would like to leave those figures
with you or furnish them later.
Now, the present total employment is 185,400. That includes 138,-
700 active seagoing personnel and what we allow as 20 percent shore
reserve. Those men are between voyages, either resting up or signed
off and about to sign on. Then included in that total also are the
15,000 manning Army Transport vessels and 5,000 manning Pana-
manian- and Honduran-flag vessels, in which we are allowed to employ
aliens.
!Mr. Worley. I missed that total figure. What was that?
Captain Macauley. The total, including those vessels owned or
operated by the War Shipping Administration, is 185,400, but that
also includes the Army Transport Service and the Panamanian-flag
and Honduran-flag vessels, and a shore reserve of about 20 percent.
iSIr. WoBLEY. How does that compare with your average for, say,
the past 10 years?
Captain Macauley. Now, for that we have to assume pretty much,
Mr. Chairman. In fact, we haven't got the average, but the general
figures that we have operated on, from our best information, the sta-
tistical information, are that in 1934 there were approximately 74,000
deep-sea seamen, licensed and unlicensed, and 1,000 in the Army.
Now, that is followed, we will say, by 1935, 73,000 and 1,000. Alto-
gether, in the total, including the shore reserve, 1934, 75.000; 1935,
74,000; 1936, 75,000; 1937, 75,000; 1938, 65,000; 1939, 70,000; 1940,
75,000 ; 1941, 75,000 ; in 1942, 75,000 ; and then 125,000 in 1943.
That is the statistical information.
Mr. Bland. Does that include the civilians working with ships?
Captain Macauley. No, Mr. Chairman ; that does not include them.
Those are only seagoing men, with the 20 percent reserve for replace-
ments and not on board ship. That has nothing to do with the men
in the operators' offices or with the longshoremen. Those are the
seagoing personnel.
646 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. WoRLEY. Can you give us any information as to how many
workers will be emjiloyed on the ships you expect to be retained in the
active service after the war?
Captain Macaulet. Well, Mr. Chairman, I don't know what we
expect to retain in the service after the war.
^Ir. WoRLEY. I don't either.
Captain Macauley. So I would hesitate to even approach that ques-
tion, but I think it may be of interest in what we are planning to do
that, from all we know, even after the war in Europe is ended they
will require all the tonnage we have to furnish supplies to Europe
and to furnish war equipment to Asia, and I don't see that we will
have any reduction until Japan is defeated, and even for some time —
how long I have no idea — after that. Whether in the post-war period
we will be operating all of our ships or some of the foreign nations
will be operating some of the tonnage we have now, I wouldn't be
able to say.
Mr. WoRLEY. Nobody knows the answer to that yet ?
Captain Macauley. Nobody knows; no, sir.
Mr. WoRLEY. Here is a very general question. How efficient is our
manpower in operating the United States Merchant Marine ?
Captain Macauley. That is a thing I could not give you figures on.
I think it is as efficient as, and from what I have seen and read I think
it is more efficient than, any other merchant marine, if that in any
way answers your question.
Mr. WoRLEY. We generally have better quarters on our ships, better
pay, better hours?
Captain Macauley. Better in every way, infinitely better.
Mr. Worley. Well, we generally have better ships ?
Captain Macaui^y. We have ; yes.
Mr. Worley. Here is another question which would probably be
difficult to answer. Can this efficiency we have been discussing be
measured in terms of tons per man employed on operations, not only
at sea, but also turn-around time in port and some recognition of the
load factor? Is that involved in it?
Captain Macauley. I think that might be determined, although, of
course, we have a huge turn-over among the men, and more in peact •
time than in wartime. To get that man-ton figure would probably
be difficult. We could probably get it but I don't think it would mean
much.
Mr. Worley. Why do we have such a big turn-over in the merchant
marine in peacetime?
Captain Macauley. Well, only a certain percentage — I don't know
what percentage — of the men continue to go to sea, to make that their
livelihood. Then a lot of them have to stay on shore for a while.
Mr. Worley. You consider that turn-over, their shore duty? Of
course, they are not on the pay roll except when they are at sea ?
Captain Macauley. That is what I mean.
Mr. Bland. They are employed for the voyage?
Captain Macauley. That is it.
]Mr. Bland. And signed off at the termination of the voyage?
Captain Macauley. It isn't continuous employment. They are
signed on for the voyage and signed off after the voyage, and it is all
voluntary, even in wartime.
POST-WAR ECONOMIC POLICY AND PLANNING 647
Mr. WoRLEY. Do 3^ou suppose there will be a large involuntary
unemplojanent of merchant seamen after the war or is the normal
turn-over enough to take care of the normal shrinkage in employment ?
Captain Macauley. Personally, I believe there will be considerable
unemployment in the merchant marine after the war unless we are
able to keep operating the large number of ships we will have available.
Even the most optimistic plans expect to put some of our ships in
reserve for the Navy. Now, those ships will not be employing crews.
So, after the post-war emergency period is over, I think we will
probably have considerable unemployment, but that will depend also
on the economic conditions on shore.
INIr. WoRLEY. You wouldn't want to hazard a guess as to about how
many you think will be unemployed after peace comes, as far as the
Maritime Commission is concerned?
Captain Macauley. No, sir ; I couldn't.
JSIr. WoRLEY. Is the training program required as a permanent
device, or is that primarily a wartime need ?
Captain ]SL\cauley. It is required by law, by the Merchant Marine
Act of 1936, as amended, and we had it in peacetime, but we have had
to increase it tremendously during wartime, and I think it is most
important and one of the best things that has been done to build
up our merchant marine.
Mr. WoRLEY. You think that we should continue that, regardless
of
Captain Macauley. Absolutely ; but not at the size it is now.
^Ir. WoRLEY. But in order to have a well-trained standing force?
Captain Macauijey. That is one of the things we are required to do,
according to the law, and it is most advisable.
Mr. WoRLEY. About how expensive is that training program ?
Captain Macauley. Frankly, I will ask Commodore Knight, of the
Maritime Training Service, to answer that. He is more familiar with
those figures than I am. He is the Assistant Deputy Administrator in
charge of the training program.
Mr. WoRLEY. Can you give us some idea. Commodore, as to the
average expense to the Government of conducting a training program ?
Commodore Knight. Mr, Chairman, it depends entirely on just
how large a program we are going to conduct after the war. We have
trained up-to-date, since the program was inaugurated, about 125,000
officers and men. We have not been satisfied that we have given them
the best training that could have been given them, because we have
had to do it in a hurry. We would like to retrain all of those men who
are going to remain in the merchant marine.
We have an annual program of at least a month refresher course
for all of those men, and we started that in 1938, before the war. It is
rather difficult to give any figure as to the cost of the program until we
know just exactly how much of a fleet we are going to operate and
how many men are going to stay in it.
ISIr. WoRLEY. It is hard for us to get much information on these
questions until we decide how big a fleet we are going to have?
Commodore Knight. That is true. But let's say, for instance, just
to hazard a guess, let's say we have a liundred thousand men ii; the
merchant marine. What we would like to do in the training program
is to offer training to each one of those men, retraining, for at least a
648 POST-WAR ECONOMIC POLICY AND PLANNING
month each year, and that is the way we scheduled it before the war.
In that way we would carry out the mandate of Congress which re-
quires tJie Maritime Commission to supply the merchant marine with
trained and efficient citizen personnel.
We can only train citizens. We don't train foreigners. It will be
confined principally to a refresher course, especially as we shake down
and get the number of men who are going to remain in the fleet and a
certain number of annual replacements. It wouldn't be necessary to
train those rej^lacements fiist, with the exception of a relatively small
number of officers through the Cadet Corps and State maritime acade-
mies, which are both going to longer terms, so that the academies and
the Cadet Corps expect to have a period of four years in which to train
an officer. Some of the foreign nations have a longer period.
So there Avould be a hiatus in there when we wouldn't be turning out
many men. By the time they got through a 4-year course, there would
be a need for a'nmnber of them, about 500 a year, we anticipate.
Mr. WoRLEY. About 500 a year trained as officers ?
Commodore Knight. Who graduate as new officers. That is what
we have planned on now. And perhaps 150 a year through the State
maritime academies.
Mr. WoRLEY. Can you give us. Commodore, for the benefit of the
record and the committee's information, a brief outline as to the whole
training program?
Commodore Knight. Yes, I could do that. We have a survey pre-
pared which I would be very glad to submit for the record that de-
scribes in detail every one of our activities. That would be a little
long to go through with, but I do have it.
We have officer training and training for unlicensed positions, up-
grading within the unlicensed positions and from unlicensed positions
to licensed officers.
The officer training is divided between the United States Merchant
Marine Cadet Cori)s and the five State maritime academies, on the
one hand, and for men up from the ranks, who have had experience
at sea, the required experience at sea, which has been reduced during
the war but will be extended again after the war, a 4-month course for
those men who have had sea experience to qualify them to sit for
license as officers.
Now about two-thirds of all the officers we have made have been
men up from the ranks and the others have been made from the Cadet
Corps and the maritime academies. Many of these young men are
college graduates, many of them have had several years of college,
all of them must have been high-school graduates, and tJiey have made
a very wonderful record for themselves.
We offer the same opportunities, of course, to men who have made a
profession of the sea and had training at sea and then have gone to
officers' schools of the United States maritime service or the State
academies for 4 months' training.
Then we have certain specialist schools, among them for radio oper-
ators, which have turned out a couple of thousand radio operators
who have been very essential in this war. We have had to go from
one .man on a ship to three. We haven't got them all on yet. The
Navy is assisting in it, but the Navy needs its men, so we replace those
very rapidly.
POST-WAR ECONOMIC POLICY AND PLANNING 649
Then we have another specialist course, which is for purser-pharma-
cist mates, and that is conducted in connection with the health pro-
gram. We are combining the two positions on ships today. Every
ship in modern times really needs somebody to look after the paper
work and take care of cargo and such as that, something the master
and first mate used to do and have not had time to do during the war,
and probably will not be able to do again.
In order to save money and combine jobs, in that the purser is busy
when in port and not busy when at sea, we have combined that position
with that of pharmacist mate, and we give those purser-pharmacist
mates 6 months' training and they can then go out pretty well quali-
fied to administer to the health of the men on the ships. That has
paid off in the results that have been obtained, and I think the opera-
tors themselves are very much in favor of a continuation of that
program.
Captain Macauley. I might say, Mr. Chairman, to interrupt, that
heretofore the cargo vessels had no medical personnel. Usually one
of the mates was given charge of the medicine chest and he gave such
doses as he thought advisable for different things. Now we have
proper medical attention on board ship and will have it on all ships
just as soon as we get enough men graduated.
Mr. WoRLEY. In peacetnne, of course, the operators of the ships
pay for it ?
Captain Macauley. That is right.
Mr. WoRLEY. The Government pays no salaries to these men at all?
Captain Macauley. Not when they are paid by the operators.
Mr. WoRLEY. They do provide the training ?
Captain Macauley. Provide the training.
Conunodore Knight. Then we have other specialist schools, spe-
cialist schools for cooks, bakers, carpenter mates, electricians, pump
men, and the various specialist trades that operate on a ship ; and, of
course, the great bulk of the program is the making of new seamen
for the deck, engine, and steward's department. Those are the men
who come in new, and we have had to have large numbers of them
during the war. Approximately a hundred thousand men have been
trained for the unlicensed positions, that is, ordinary seaman, wiper,
oiler, fireman, men in the mess department, and the cooks and second
cooks in the steward's department. We have included a combination
of the ratings required aboard ship.
That is, of course, the principal main training program. In addi-
tion to that, our program for this year envisages about 30,000 men to
be upgraded, that is, ordinary seaman to able seaman ; then when they
have had 14 months at sea to be upgraded to officers ; and then upgrad-
ings between the officers grades from third mate to second mate, to first
mate, and first mate to master. And the same relative grades in the
engine department. We have operated this program on the principle
of training these men while they are in port so as to take the man off
the job the minimum length of time and advance them to the higher
ratings.
Then, of course, we have the refresher courses for men who have
been on other jobs but had been seamen originally and wanted to go
back to sea. So the refresher course has also been part of the pro-
gram.
650 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. WoRLEY. Say John Brown is interested in getting a job with the
merchant marine. He has had no experience w^hatever. He is quali-
fied as an able seaman. Where does he go? Does he make applica-
tion ?
Commodore Knight, Yes ; he would go to one of our enrolling offices
and, provided he had the physical qualifications — we examine them
all for physical qualifications — he would be accepted as an apprentice
seaman and would be sent to one of three schools we maintain on the
three different coasts, at Sheepshead Bay, in New York, at St. Peters-
burg, on the Gulf, and at Avalon, on the California coast. We have
done that because it is more economical geographically to handle it
that way.
Mr. WoRLEY. He wouldn't have to pay any tuition?
Commodore Knight. No, sir. He gets paid while going through
the course.
Mr. WoRLEY. How much?
Commodore Knight. He gets $50 a month in those ratings.
Mr. WoRLEY. While he is being trained ?
Commodore Knight. That is right ; he gets that and his quarters,
subsistence, and uniform. The time for training an ordinary seaman
is 3 months ; an oiler, w^ater tender, or fireman is also 3 months. For
most men in the steward's department it is 6 to 8 weeks, depending
upon how quickly we need them.
The course for an officer who has been to sea is 4 months, and those
men get $126.
The course for radio operators is 5 months, 21 weeks, reduced from
32 weeks because we had to have them fast. They get $99 per month
at the radio school.
Mr. Bland. Is that necessary in order to get men to help carry on
this war, furnish seamen?
Commodore Knight. Absolutely, Judge Bland. It would not have
been possible, when you recognize that we have trained a hundred
thousand unlicensed personnel and 25,000 officers; you can readily see
that we could not have operated the fleet at all without them. Of
course, the rest of tlie men who have been recruited were men who had
already had experience at sea and were brought back by recruitment,
and mainly on account of the war recruitment, to take jobs. The job
has been done jointly between the recruitment service and the training
organization.
Mr. Bland. Can that be materially reduced after the war?
Captain Macauley. I would like to answer that question.
I think. Judge Bland, it would depend entirely upon how many
sliips are going to be operated under the United States flag and by
American operators. I think the training program will, in all prob-
ability, have to be reduced after the war.
Conunodore Knight. We confidently expect it to be reduced. In
other words, there won't be many new men getting in the unlicensed
ratings training.
Captain Macauley. As far as the recruitment and manning are
concerned, as soon as the ships are turned back to private ownership
its activities will be greatly reduced. We will have to do something
with the recruitment and manning service. That is what the War
Shipping Administration has taken over. The recruitment and man-
POST-WAR ECONOMIC POLICY AND PLANNING 651
ning was a wartime measure in order to assist and insure the manning
of the vessels.
Mr. WoRLEY. What is the status of these boys who entered the mer-
chant marine? They were exempt from military service?
Commodore Knight. As far as the training program is con-
cerned
Mr, WoRLEY. A man had his choice whether to go into the merchant
marine instead of going in the Army or Navy ?
Commodore Knight. He could, sir, up until the 1st of April of this
year, but on the 1st of April the manpower situation got so tense
and tight we were asked not to take any boys in the merchant marine
between the ages of 18 and 26, which were the ages the Army and
Navy wanted.
Since April we have recruited a great portion of our men below
the age of 18, and all of the masters we have consulted who operate
these ships have, so far as I know, testified that these younger boys
have made very excellent sailors.
We did that as a manpower problem, because they were not subject
to induction but did go into the merchant marine. At that time, on
the 1st of April, about 65 percent of the men in the merchant marine
were below the age of 26, and they were frozen into the industry.
In other words, as long as they remained at sea, even though they
were between the ages of 18 and 26, they were permitted to remain
at sea. Otherwise, we couldn't have operated the merchant marine.
Mr. WoRLEY. Did you have any difficulty securing recruits?
Commodore Knight, No, sir ; I can't say that we ever had any dif-
ficulty securing recruits except for the few weeks we stopped taking
the boys between 18 and 26 and until we determined we would take
them below the age of 18.
Mr. WoRLEY. How long a period of time do they volunteer for ?
Commodore Knight. Each one of them signs an agreement to go to.
sea for a year.
Captain Macauley. You are speaking of the trainees now ?
Commodore Knight. The trainees. They sign an agreement when
they come in to take the training to go to sea for a year.
Mr. Worley. Mr. Folsom has some questions, I believe.
Mr, FoLSOM, Our committee has recently issued a report on economic
problems for the reconversion years. Among others is the question
of unemployment insurance. It pointed out that the workers now
under unemployment insurance do not include maritime workers, and
the committee made this statement :
There is apt to be a sharp reduction in the number of maritime workers
needed after the war, and a plan should be developed for bringing those workers
under the unemployment insurance system.
I understand they have been working for a number of years trying
to develop a system for maritime workers. It is a very complicated
subject, I know. I would like to ask what progress you have made
and whether you have a definite plan you can submit to the committee
for bringing these workers under the unemployment insurance system.
Captain Macauley. Mr. Chairman, I would like to have Mr. Wyck-
off, who is the Assistant Deputy Administrator in charge of labor
relations, answer that question and any questions on insurance or
labor relations.
99579 — 45— pt. 4 4
652 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. Wyckoff. Merchant seamen have not been covered by any form
of unemployment insurance. I think the first bill that was introduced
was in 1938 or 1939.
Mr. Bland. Something like that — ^before the Ways and Means Com-
mittee.
Mr. Wyckoff. There have been several bills introduced since that
time. There is one pending now, as Judge Bland says, before the
House Ways and Means Committee.
Mr. Bland. As to that jurisdictional question, I would like to make
a statement. A bill was pending before the Ways and Means Com-
mittee. When the Ways and Means Committee reported some years
ago on unemployment, some of their members, Mr. Doughton, Mr.
Cooper and others, about abandoned their effort to bring in merchant
seamen and told the Merchant Marine and Fisheries Committee to
proceed with the subject.
The bill was introduced and it was considered for some time. Hear-
ings were held on it, but no action was taken. In fact, several bills
were introduced, two or three. Finally, in this Congress, I did not
introduce that bill, but I appointed a subcommittee, of which Mr.
Jackson, of Washington, was chairman, to consider the question of
unemployment insurance. He and his colleagues worked out a bill.
I do not know that it is entirely satisfactory, but they worked out a
bill which they were ready to introduce and which they submitted to
the Committee on Merchant Marine and Fisheries.
When he went over to the Capitol to introduce his bill, Mr. Jackson I
was confronted with the ruling by the Parliamentarian that this com-
mittee, Merchant Marine and Fisheries, had no jurisdiction over the
bill. We had had it for 2 years and all thought we had jurisdiction.
The matter was taken up with Mr. Raybum, and Mr. Rayburn held
it would have to go through the Merchant Marine and Fisheries, and
a bill which was agreed upon by Mr. Jackson and his subcommittee,
but which was never agreed upon by the Merchant Marine and Fish-
eries Committee as a whole, was then introduced by him and referred
to the Ways and Means Committee, where it is now pending.
I think that is a fair statement, isn't it, Mr. Wyckoff^
Mr. Wyckoff. Yes, sir.
Mr. Bland. Mr. Wyckoff has been very familiar with the proceed-
ings before the committee and did a considerable amount of work on
it, and. Mobile I think there are some amendments made in that bill,
the committee as a whole has never passed on it. Yet it was the
nearest approach to legislation that has ever been made.
Mr. FoLSOM. Does that cover seamen on inland waterways ?
Mr. Wyckoff. No ; the bill covers only merchant seamen, offshore
seamen ; fishermen are excluded, and seamen who work on the rivers
and Great Lakes are also excluded.
Mr. FoLSOM. Is that a contributory system ?
Mr. Wyckoff. Employers contribute but employees do not.
Mr. FoLsoM. You assume there probably will not be much unem-
ployment until 6 months after the Japanese war is finished, but after
that there will be some unemployment. You people recommend
strongly, I suppose, that something be done along those lines?
Mr. Wyckoff. Yes ; we do.
POST-WAR ECONOMIC POLICY AND PLANNING 653
Mr. Bland. Mr. Wyckoff has been working with the subcommittee
of the Committee on 'Merchant Marine and Fisheries. In view of a
letter I received today, I am a little surprised to hear that fishermen
and men on vessels on inland waters are excluded, because this letter
says they are included and ought to be excluded. I feel pretty much
the same way.
Mr. Wyckoff. That subject was pretty thoroughly discussed by the
subcommittee. There may have been some change after I last talked
with them about it.
The reason for the exclusions was this: Until May 1943 it was
thought that a State had no jurisdiction over the employment of sea-
men and that it was something exclusively within admiralty juris-
diction and hence exclusively within Federal jurisdiction, so that a
merchant seaman had no rights under any State system. It was sup-
posed he had no rights under any State unemployment act, even
though the State act was written in such terms that he would be
covered by the definition of what employees were covered.
In May of 1943 the United States Supreme Court handed down a
decision which made it very plain that a seaman could be covered by
State unemployment insurance systems if the State statute described
coverage in such a way as to include him. It was therefore felt by
the subcommittee that seamen working on lakes and rivers or fish-
ermen who ordinarily do not fish from State to State, could be more
conveniently covered by State legislation than under a national system.
Mr. WoRLEY. None of the benefits under the G. I. bill of rights are
available to merchant seamen, are they ?
Mr. Wyckoff. No.
Mr. FoLSOM. Do you have any plan for giving protection, such as
in the G. I. bill, to merchant seamen ?
Mr. Wyckoff. Yes, sir. The Administrator has written a letter
to Judge Bland outlining a program of that kind.
Mr. FoLsoM. Something similar to the G. I. bill of rights?
Mr. Wyckoff. Yes, sir ; something similar. And it also recommends
making some temporary provision by way of unemployment insurance.
Mr. FoLSoM. And it gives educational benefits?
Mr. Wyckoff. Ye^, sir ; it recommends educational benefits to take
care of these young fellows, the 16- to 18-year-olds whose education
has been interrupted.
It also makes provision for hospitalization of merchant seamen
and their dependents in marine hospitals, to which they already have
limited right of access ; and also for death and disability benefits and
loans similar to the loans to veterans.
Mr. WoRLEY. Your proposed bill is just about as broad as the G. I.
bill of rights?
Mr. Wyckoff. No; not as broad. It is modeled on it but is not
as extensive or comprehensive. What we have done is to make a
rex^ommendation that is consistent with the volunteer, civilian status
of seamen, and not to attempt to treat them as if they had been in the
military service.
Mr. WoRLEY. They can quit at any time, can they ?
Mr. Wyckoff. Yes; they can leave the industry at any time. But
they sign shipping articles by the terms of which they could be
required to stay at sea for a year.
654 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. WoRLEY. If that agreement is not enforcible, they can quit at
any time ?
Mr, Wyckoff, Not during a voyage. The license or certificate
could be taken away from them if they quit during a voyage without
the master's consent; that would constitute desertion. They would
also forfeit their pay.
Mr. Bland. My understanding was that there was a staff in the
Merchant Marine Section of the Maritime Commission that was under-
taking to write its recommendations in the form of legislation. They
have not yet been submitted.
Captain Macauley. It is about ready for submission to the Mer-
chant Marine and Fisheries Committee.
Mr. Bland. I was simply making the statement, since we are in
recess now and I don't know when many of them will be back.
Mr. Worley. Captain Macauley, I assume this training program
will continue in peacetimes. Is that correct ?
Captain Macauley, Well, it will continue on a i-educed progi'am.
Mr. WoRLEY. I was wondering just what justification there is for
the Government to train personnel for ships privately operated. It
seems to me analogous to the Government training of, say, mechanics,
or somebody who is not particularly skilled in making automobiles
or shoes, or something of that sort.
Am I correct in that anal3'sis ?
Captain Macauley. Not quite, Mr. Chairman. Of course, we have
helped, the Government has helped, and found it necessary to help, the
maritime industry, I think, to a much gi-eater degree than shore indus-
tries, other industries, for instance, on account of the competition
with foreign nations.
Now, if we had sufficient men who could go to sea as they used to
go, and as many of them do now, coming up through the "hawsepipe"
for their training — that started in the days of sailing ships — but now
a ship is a very different thing. It is a box of machinery, and it
requires much more carefully trained men, just as the difference
between a modern man-of-war and an ancient sailing frigate of the
past.
Mr. WoRLEY. Why can't the shipping industry offer enough induce-
ments by itself to get these men and tram them themselves, or sufficient
inducement so that these men will train themselves for these jobs?
You say competition ?
Captain Macauley. I couldn't answer that question, why the indus-
try does not.
Mr. WoRLEY. Why can't they make it more attractive for the men?
We subsidize, we offer a subsidy to a shipbuilder and operator on the
same basis with foreign countries. In addition to that subsidy, we
operate a training and personnel program. What other concessions
does the Government offer ?
Captain Macauley. None other, except the construction subsidy and
operating subsidy which has been allowed in the past.
Mr. WoRLEY. You think all of those are necessary for a successful
merchant marine?
Captain Macauley. I wouldn't venture to say so. That would be
only my personal opinion, because there is a considerable difference
of opinion as to the question of subsidies throughout the country.
Mr. WoRLEY. We have had a lot of discussion on that in the past
POST-WAR ECONOMIC POLICY AND PLANNING 655
year. It all seems to depend on who is subsidized. I was just won-
dering in my own mind why, with what I thought were advantages,
we can't compete with other nations without those subsidies.
Captain Macauley. We get a better class of men, Mr. Chairman,
by the training service. We are able to examine them and train them
and give them some discipline, and it has proved itself of great bene-
fit. For instance, until a short time ago, there was no physical exam-
ination required for men in the merchant marine, and the War Ship-
ping Administration put one into effect, with opposition from, we will
say, one of the unions, anyway. We put it into effect because it was
required for the health of the men, the health of the troops and pas-
sengers.
I'here was a tremendous amount of tubercular and venereal disease,
we found, that now we are able to keep off the ships, so that the food
handlers are clean and healthy, and the general health in the mer-
chant marine much improved.
In the old merchant marine, the men they got in that came through
the "hawsepipe," as it was called, and they didn't get much of a
chance, and living and working conditions were not much, and we got
pretty poor men, and they didn't have much encouragement to improve
themselves, either.
Mr. WoRLEY. Do you know whether other countries follow the same
policy in a training program ?
Captain Macauley. Some are. The British have had their school
ships for a long time ; the north country men — the Scandinavians —
have had their school ships. I think most all nations have had school
ships, but they have not, I believe, gone to the extent that we have, and
we hear a good many complimentary things being said by foreigners,
and especially the British, who come over here and take a look at our
some of our programs and see the results of them on the ships we
send to sea.
Mr. WoRLEY. No doubt that should make our ships better manned.
Does it increase our revenue in foreign trade ?
Captain Macauley. I don't think that the revenue in foreign trade
would be dependent on that. There are many other conditions that
would affect that.
Mr. WoRLEY. I was trying to justify it in my own mind.
Captain Macauley. It would improve the efficiency of our ships
and might in the long run lessen the cost of upkeep.
Mr. FoLSOM. It is a big advantage, too, in improving discipline in
time of war?
Captain Macauley. That is true; and discipline on board ship is
necessary in time of peace, too.
]Mr. WoLVERTON. What about the returning seamen who will be
getting out of the Navy after the war? There will be thousands of
them. In view of that fact and the necessity of giving them employ-
ment, is it necessary to train others?
Captain Macauley. We are prepared to adapt our training pro-
gram to make it just as large or just as small as may be required.
We have had to do that during the war, because we have had our
hills and valleys as to the requirements for men all during the war,
and we have adapted our training program accordingly.
Mr. Wol\-erton. When was the program originated ?
656 POST-WAR ECONOMIC POLICY AND PLANNING
Captain Macaulet, In 1938 ; and it was in accordance with amend-
ment to the Merchant Marine Act of 1936.
Mr. WoL\'ERTON. Prior to that, such training as was given was under
State jurisdiction, was it not ?
Captain Macauley. They had the State training ships. They had
the assistance of the Federal Government in furnishing ships and had
the assistance of officers; they were assigned ships. I don't know
when those vessels for training went out. I have seen them. Then
we did have the State training vessels which were also Government
vessels loaned to the State academies for training their candidates
for officers.
Mr. WoLVERTON. The State of Pennsylvania conducted such a
course, and I think Massachusetts did.
Captain Macauley. They do now for cadets. The old St. Marys, I
remember her.
Mr. WoL\^iRTON. They were supported by State appropriations.
Captain Macauley. And some assistance from the Federal Govern-
ment, and the ships were loaned by the Federal Government.
Mr. WoRLEY. After this boy, John Brown, finishes his training
school, in wartime, of course, he goes right on in. How does he get
a job? Do you assign him?
Captain Macauley. He is sent right from the training station to
the recruitment and manning organization, and they assign him to a
ship.
Mr. Worley. Does this man have to belong to any organization to
get a job?
Captain Macauley. No. We neither urge the man to join a union
nor urge him to stay out of a union. That is left up to him.
Mr. WoRLEY, Generally, do they join?
Captain Macauley. Generally, they do.
Mr. WoRLEY. That is left up to them ?
Captain Macauley. Yes. That is left up to them. We give them
information now as to what unions mean, but with no opinion as to
joining or staying out of a union, and with no instructions as to
what union to join.
Mr. WoRLEY. Would you furnish the committee with a copy of
those instructions ?
Captain Macauley. I would be glad to send you a copy of the
pamphlet issued by the War Shipping Administration entitled "How
to Get Your Bearings," which contains information in regard to the
unions.^
Mr. Bland. As a matter of fact, they won't stay on a ship long if
they don't join a union.
Mr. Worley. That is what I thought. Do you have any ships that
are not unionized?
Captain Macauley. Quite a number of them. On some of the tank-
ers they don't belong to unions, and they have independent unions
and independent companies.
Mr. WoRLEY. In peacetime, I suppose, it is the same procedure.
Captain Macauley. The same procedure.
Mr. WoRLEY. After the Government has invested its money in train-
ing men there is still one more hurdle to get over before this man can
be utilized ; namely, he must join a union?
^ On file with the committee.
POST-WAR ECONOMIC POLICY AND PLANNING 657
Captain Macaulet. No.
Mr. WoRLEY. I mean in effect.
Captain Macauley. He is not compelled to join a union.
I think most of the men feel it is to their advantage to join a union.
Mr. WoRLEY. Suppose one feels perhaps it is not to his advantage
to join a union?
Captain Macauley. Then he can go to sea on a ship that hasn't an
agreement with one of the unions.
Mr. W0R1.EY. But ships that do have agreements with unions must
have all union men ?
Captain Macauley. That would be in accordance with the provi-
sions of the collective bargaining agreement between the operators
and the union.
Mr. WoRLEY. Do you know any ships operating with nonunion
crews ?
Captain Macauley. Yes ; quite a number.
Mr. WoRLEY. During peacetime?
Captain Macauley. Yes. In fact, I believe there were more operat-
ing in peacetime than in wartime. Mr. Wyckoff can tell you more
about that.
Mr. Wyckoff. In the tanker trade about 50 percent of the vessels
are covered by union agreements. In the dry-cargo trade, on the other
hand, practically all of them are, about 98 percent.
Mr. WoRLEY. Without arguing for or against, we are trying to se-
cure information as to when these men are eligible after completing
their training program. So far as you know, as soon as the program
is finished, thej^ make a contract with the operating company m peace-
time?
Captain Macauley. Yes, sir.
Mr. WoRLEY. The procedure is the same in peacetime as you have
just described ?
Captain Macauley. Yes, sir. The collective-bargaining agreements
have not been abrogated during wartime,
Mr. Bland. I think the enforcement of contracts with seamen and
that sort of thing was broken down by the Jones Act many years ago,
when they stopped the arresting of deserters.
Mr. WoRLEY. Do you think there will be many States operating
these training schools after the war; do you have any idea?
Captain Macauley. I haven't any idea. Commodore Knight might
answer that. As far as I know, I have heard that the State maritime
academies will operate just the same. There are five of them now op-
erating. The States are not operating any unlicensed men schools, and
I don't believe any of them contemplate operating them after the war.
Mr. Bland. Commodore Knight can state whether I am correct in
this. I have a recollection that the Federal Government provides
$50,000 for each school.
Commodore Knight. Yes, sir; that is correct, and undertakes to
furnish them with a school ship belonging to the Government, if it
is available. Actually there are three of those ships being used now
by five schools. Three of them are joining up in the use of one larger
ship ; the other two, Pennsylvania and California, have a ship assigned
to them.
There are just five of those schools, California, Maine, Massachu-
setts, New York, and Pennsylvania. Those of Massachusetts and
658 POST-WAR ECONOMIC POLICY AND PLANNING
New York, have been in existence many, many years, starting back
in 1874, or New York did.
Mr. WoRLET. I am surprised Texas doesn't have a school. We have
our own Navy down there.
Commodore Knight. I should like to invite the attention of the
committee to a report we made to Congress on January 1, 1939, which
covered the whole development of the training program and compared
it with what had been done historically in other maritime nations.
That is available and might throw some light on this subject. We
spent a year studying training systems of other maritime nations,
and all of the leading maritime nations do subsidize and provide
training for their seamen.
Actually, the Japanese have a G^^-year course, and the Germans
a Sy^-year course. The British used to start them as apprentice sea-
men when they were 12 years old and keep them 6 years until they
became able seamen.
So all the maritime nations of any size have always had a training
program ; that is for a hundred years or more. We studied all of those
and combined it into this report on the basis on which our training :
program is really set up.
Mr. WoRLEY. I am sure the committee would like to have a resume
of this subject. We will be glad to have you submit that.
(The exhibit was marked "No. 16" and is found in appendix, p. 1181.)
Mr. Bland, In my Committee on Merchant Marine and Fisheries,
I would like to have a copy of it, too.
Commodore Knight. Yes, sir. I am sure you will find you have
one, but we will be glad to furnish you with another.
Actually we have always taken the position as to the training of
merchant seamen that they are engaged in interstate commerce, and
that it is a Federal question and not a State question. We think that
seamen have always been the wards of the Federal Government, that
they have been from time immemorial, and while we do have these
five State schools, an,d the Federal Government has contributed to
them over a period of many years, presently $50,000 a year under
certain circumstances, it still in our opinion is a Federal function, a
problem of the Federal Government, to furnish proper facilities for
the training of the merchant marine.
Mr. WoRiJEY. What would be the expense in carrying on the train-
ing program you visualize after the war is over ?
Commodore Knirht. It would be very much less than it is during
the war, of course, and I don't think you could fix an amount now
as to the cost.
Mr. WoRLEY. Could you give us an idea ?
Commodore Knight. No ; I don't think I could. I don't know how
many ships are going to operate, how many men are going to be in-
volved, and it is largely on a unit basis. I think it would be almost
impossible to arrive at an actual cost, but I will say this, that any
program that would be economically justified in my opinion, even with
a fairly large fleet, would certainly be half or less than half as much
as the })resent cost.
Mr. WoRLEY. The present cost is approximately what amount ?
Commodore Knight. For 1945, the appropriation was $65,000,000.
Mr. WoRLEY. For what year ?
POST-WAR ECONOMIC POLICY AND PLANNING 659
Commodore Knight. For fiscal 1945, from July of this year to June
of next year.
Mr. WoRLEY. Are there any other questions on that subject?
Mr. F01.SOM. What proportion of that is for seamen and what pro-
portion for oflicer training;?
Commodore Kxight. Roughly, about ten million of it is for the
Cadet Corps and the balance of it is for the training of officers up
from the ranks, upgrades, and those initially entering the industry^
in the deck, engine, and steward's department. The Cadet Corps costs
are about $10,000,000. That includes the United States Merchant
Marine Academy and two cadet basic training schools and the whole
cadet-training system.
Mr. Wori.p:y. Tliank you very much, Commodore.
Mr. Bland. The State schools only turn out officers?
Commodore Kntout. That is right, only turn out officers; and they
have a total enrollment in the five schools of approximately 1,100 at
the present time. Pre-war, the total of the five schools was about
500 altogether.
Mr. Bi.AND. My recollection is that at the time the bill was passed
providing $50,000 for each of those State schools, there was a provi-
sion made in there whereby it would take in students from other States.
Commodore Knight. That is correct, sir. They were already get-
ting $25,000 a year, and twenty-five thousand more was appropriated
to cover the per capita cost to the State for training boys from other
States, rather than their own State, for which they didn't feel justified
in using their own State funds. We have provided an extra twenty-
five thousand. Only two of the schools have made use of that, New
York and Maine. California, Pennsylvania, and Massachusetts have
not taken any boys from other States.
Mr. Bland. They get them only from their own State?
Commodore Knight. They get them only from their own State,
and they don't share in the extra twenty-five thousand.
Mr. Bi-AND. Which are those last three you named ?
Commodore Knight. The three which do not take boys from other
States are California, Pennsylvania, and Massachusetts.
Mr. Bland. I didn't know Maine was in it.
Commodore Knight. Yes; Maine has a new school. It is an up-
and-coming place.
Mr. Bland. Then you have six States?
Commodore Knight. No; Maine was added, and made five; Cali-
fornia, New York, Pennsylvania, Massachusetts, and Maine.
Mr. AVoRLEY. Captain Macauley, has the Maritime Commission,
taken over all private shipping?
Captain Macauley. Not all ; very nearly all.
Mr. WoRLEY. What has been left out ?
Captain Macauley. I couldn't tell in figiu'es of ships, but there are
a number of ships that still are under time charter, that are operated
by the owners or are under time charter to some of the operators.
Mr. Worley. Are they carrying on commerce now with countries
not at war, private operation ?
Captain Macauley. I think mostly in this hemisphere.
Mr. Worley. South America ?
i560 POST-WAR ECONOMIC POLICY AND PLANNING
Captain Macauley. Yes, sir ; some of the tankers may. Of course,
they are under our control ; that is, under the War Shipping Admin-
istration's control.
Mr. WoRLEY. They are privately operated and if they make any
profit they get the profit ?
Captain Macauley. That is right.
Mr. WoRLEY. Do they hire their own crews ?
Captain Macauley. They have certain men stand by, certain crews,
and come to our organization to make up their crews and vacancies
in their crews.
Mr. WoRLEY. We took over quite a number of ships from private
owners ?
Captain Macauley. Yes, sir.
Mr. Worley. Did we pay them cash for those ships ?
Captain Macauley. I would not be competent to go into that, Mr.
Chairman. That has been a question of considerable discussion ; and
also as to what the costs were. Those ships requisitioned were taken
over for use and the title at the present time remains with the War
Shipping Administration.
Mr. Bland. Requisitioned for title and requisitioned for use ?
Captain Macauley. Yes, sir.
Mr. Bland. Requisition for title involved the question of just
compensation.
Mr. WoRLEY. Is there anyone here from your department today
who would have information on that ?
Captain Macauley. That would come under operations. It would
not come in my department, as to the appraisal or the valuation of
ships.
Mr. WoRLEY. Is there anyone here today from operations ?
Captain Macauley. Not this afternoon ; I don't believe there is.
Mr. Worley. Are there any additional questions for Captain
Macauley ?
If there is any other information we haven't touched on, Captain
Captain Macauley. We would like to have the privilege of send-
ing down a considerable amount of information which might be of
interest to the committee, that is, publications, pamphlets, which we
have gotten out, that show what we have done and what we are
attempting to do, and also such statistics and figures as might be
appropriate,
Mr. Worley. We would be very glad to have them and will appre-
ciate your sending them.
Would you like to touch on any of those now ?
Captain Macauley. I don't believe so, Mr. Chairman. I would not
have them at my fingertips.
Mr. Bl^nd. If it is not asking too much, I would ask that dupli-
cates be sent to me.
Captain Macauley. Yes, sir. I think you have practically every-
thing we have gotten out, Judge Bland.
Mr. Worley. We appreciate your cooperation, and any time you
have information you think will be of value to this committee in its
work, we will appreciate having it.
Captain Macauley. Yes, indeed, sir. And anything that comes to
mind after this that you want us to get for you, that doesn't come
POST-WAR ECONOMIC POLICY AND PLANNING 661
down with these papers, we will be very much pleased to go after it,
because we would like to have on record what we have done, and what
we have alread}- furnished to the Committee on Merchant Marine
and Fisheries.
Mr. WoRLET. There is one question we have overlooked, about the
types of vessels after this war. Do you anticipate any shortage in
any given type of vessel, tankers or refrigerators ?
Captain Macauley. I woudn't be competent to answer that accur-
ately. That would be a question of opinion. For my personal opin-
ion, I don't see that there will be a shortage. It depends upon the
demand. There may be a shortage in fast vessels, but for our com-
plete program — I can't answer that personally. Admiral Land or
Admiral Vickery could answer it better than I can. I think our pro-
gram is adequate.
Mr. WoRLEY. All right, sir. Thank you very much.
The committee will stand adjourned until 10 o'clock tomorrow
morning.
(Whereupon, at 3:30 p. m., an adjournment was taken until 10
a. m., on Tuesday, September 26, 1944).
POST-WAEECONOMIC POLICY ANDTLANNIN(i
TUESDAY, SEPTEMBER 26, 1944
House of Representatives,
Subcommittee on Foreign Trade,
AND Shipping of the Special Committee on
Post- War Economic Policy and Planning,
Washington^ D. C.
The subcommittee met, pursuant to notice, at 10 a. m., in room 1304,
New House Office Building, Hon. Eugene Worley, presiding.
Present: Representatives Worley (Texas) and Wolverton (New
Jersey) .
Also present: Representative Bland (Virginia); Marion B, Fol-
som, staff director; H. B. Arthur, consultant; and Guy C. Gamble,
economic adviser.
Mr. Worley. The hearing will come to order.
Th purpose of the hearing this morning is to resume hearing the
Maritime Commission with particular emphasis on operation of the
merchant marine.
The first witness is Captain Conway.
Will you state your full name and present position with the Mari-
time Commission, Captain ?
Captain Conway. Granville Conway, Deputy Administrator of the
War Shipping Administration.
STATEMENT OF CAPT. GRANVILLE CONWAY, DEPUTY ADMINIS-
TRATOR, ACCOMPANIED BY WILLIAM RADNER, GENERAL
COUNSEL, WAR SHIPPING ADMINISTRATION
Mr. Worley. Captain Conway, for our information and for the
record, can you give us a brief statement concerning the operation of
the merchant marine in peacetime, and then compare that with the
changes that have come about in wartime ?
Captain Conway. Of course, in peacetime, Mr. Chairman, the
steamship companies managed their own affairs, operated their own
ships, dealt directly with the shipper; and in wartime the Maritime
Commission, the War Shipping Administration, requisitioned the ves-
sels and they are operated under the supervision of the War Shipping
Administration, with the steamship companies serving as agents for
the War Shipping Administration in direct operation of United States
controlled vessels.
We have certain designated areas in which we provide for berth
services. For instance, if ships were going to the United Kingdom —
this is exclusive of our military cargoes — we have what we call four
berth agents in that area. If the ships are operated from north of
663
664 POST-WAR ECONOMIC POLICY AND PLANNING
Norfolk, the United States Lines would be the berth agent. If it
was in Norfolk or Mobile, the Waterman Line would be the berth
agent.
Mr. WoRLET. What do you mean by the berth agent ?
Captain Conway. They are the ones that operated in that trade in
peacetime; that was their exclusive operation. For instance, the
United States Lines, as I say, operated to the United Kingdom, and
they are what we call the berth operators. They had a subsidized line
to the United Kingdom.
Mr. WoKLEY. Would it be helpful, Captain, if we were to take a
fictitious company, say the John Brown Co., and discuss the John
Brown Co. with relation to the functions of the Maritime Commission
in peacetime?
Captain Conway. You see, you divide it up in two ways, as I
say. Take the Brown Co.. which was not a subsidized operator. If
their ship was going to the United Kingdom, the cargo would be
handled by the United States Lines, if it was loading up north of
Norfolk.
Mr. WoRLEY. You have two categories?
Captain Conway. That is correct.
Mr. WoRLEY. One a subsidized line, and the other an unsubsidized
line?
Captain Conway. Yes, sir, speaking generally. Some unsubsidized
lines are also berth agents.
Mr. WoRLEY. Let's take up the unsubsidized line. Let's say the
Brown Steamship Co. is an unsubsidized line. What jurisdiction does
the Maritime Commission have over the unsubsidized Brown Steam-
ship Co.?
Captain Conway. Well, the unsubsidized companies which did not
operate liner services, pre-war, are general agents and husbands for the
ships. The berth agents handle the cargoes. We have what we call
an Allocations Division in Washington, and we will allocate those
ships for every individual voyage. We will tell them what ports they
are to go to for each individual voyage?
Mr. WoRLEY. That is in peacetime?
Captain Conway. No; it is wartime.
Mr. WoRLEY. Let's get it in peacetime, and then see the changes
that have been made by virtue of the war.
Captain Conway. In peacetime, if it is an unsubsidized line, they
are permitted to operate, of course, any place they wish to.
Mr. WoRLEY. They don't have to apply to the Maritime Commission
for permission to go anywhere they please?
Captain Conway. No. If it's peacetime, and they have their own
ships and pay their own bills, they are permitted to go anywhere they
choose.
Mr. WoRLEY. They can hire anyone they choose ?
Captain Conway. That is right.
Mr. WoRLEY. You have provided them with trained personnel upon
request ?
Captain Conway. Yes.
Mr. WoRLEY. That is the only jurisdiction you have over the unsub-
sidized line in peacetime?
Captain Conway. The subsidized line, you are talking about, in
peacetime ?
POST-WAR ECONOMIC POLICY AND PLANNING 665
Mr. WoRLEY. The unsubsidized line.
Captain Conway. I was just talking about unsubsidized. That is
what I described. The subsidized lines, thej^ have to run into those
areas which the Maritime Commission has set up.
Mr. WoRLEY. Why does the Maritime Commission set up a desig-
nated area ?
Captain Conway. Well, you have to have trade areas ; and they are
subsidized and they can only operate in those trade areas as a sub-
sidized line .
Mr. WoRLEY. Then, when they take a subsidy from the Government,
they subject themselves to Government regulation?
Captain Conway. Yes.
Mr. WoRLEY. Then the Government can tell them to go wherever
they please?
Captain Conway. Yes ; within the limitations of the 1936 act.
Mr. WoRLEY. Wherever it wishes them to go to develop trade; is
that correct?
Captain Conway. That is right.
Mr. WoRLEY. What are the factors in your instructions to them as
to where to go?
Captain Conway. Well, those trade areas have all been set up.
Mr. WoRLEY. By whom?
Captain Conway. By the Maritime Commission following those set
up by the old Shipping Board, but modified on a basis of economic
study and experience.
Mr, WoRLEY. Why do they set them up ?
Captain Conway. Because you have to have trade to these different
areas. I mean we wanted trade to all these different areas, and they
were set up that way. The Merchant Marine Act of 1936 requires
that essential trade routes be established by the Commission.
]\Ir. WoRLEY. That is what I am getting at. What sort of trade ?
For example, in taking silk from Japan, do we have an area out in
Japan where, in peacetime, our subsidized fleet would go to obtain
silk?
Captain Conway. No. We had an area, though, to Japan for our
ships, operated to Japan, even though we only carried a small per-
centage of the silk.
Mr. WoRLEY. We would send ships out to Japan with scrap iron
or cotton?
Captain Conway. That is right. I mean ships were routed to
Japan. Cargoes were not controlled ; only routes.
Mr. Worley. AVho determined that policy?
Captain Conway. The Maritime Conunission set up the route to
Japan.
Mr. WoRLEY. Upon your recommendation ?
Captain Conway. Upon the recommendation of the Maritime Com-
mission; yes.
Mr. Worley. I don't make myself clear. Wliy did you send ships
out there for scrap iron, or to sell
Captain Conway. We didn't send them out there for scrap iron.
Scrap iron was taken there.
Mr. WoRLEY. I know ! I was assuming that we did. We sent it out
there in our own bottoms?
Captain Conway. Yes.
666 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. WoRLEY. What I am trying to determine is did some other de-
partment of the Government recommend to the Maritime Commission
that this be done ?
Captain Conway. No ; there is no other department of the Govern-
ment in it. Obviously, we want to have trade routes. If we are going
to have a merchant marine, we have got to set up trade routes to all
these different countries.
Mr. WoRLEY. Take the question of tariffs ; you take those into con-
sideration in determining what product or commodity will be ex-
changed between the several countries ; you take all those factors into
consideration ?
Captain Conway. Yes; we estimate cargo volume in setting up
routes — we do not control the volume.
Mr. WoRLEY. You take into consideration the supply we have, for
example, of wheat. If we have more than we need, then does the
Maritime Commission say that we will sell that excess to some coun-
try in need of it?
Captain Conway. No ; the Maritime Commission has nothing to do
with that.
Mr. WoBLEY. That is what I am trying to determine, the jurisdic-
tion of the Maritime Commission in relation to our foreign trade.
You say the Maritime Commission determines these areas of trade
on its own initiative?
Captain Conway. Yes.
Mr. WoRLEY. Well, you say you don't have anything to do with
sending out, for example, wheat?
Captain Conway. No ; we don't control the cargo.
Mr. WoRLEY. That is what I mean, what I am trying to find out.
Who does control that?
Captain Conway. The shipper or consignee controls the cargo
movement.
Mr. WoRLEY. You just set up the jurisdictions where they can
travel ?
Captain Conway. Yes. Of course, the Maritime Commission has a
jDrogram by which they try to get the shippers to ship via American
ships, but we have no control over the cargo moving in those areas
other than persuasion,
Mr. WoRLEY. You just set up where they can operate?
Captain Conway. Yes.
Mr. Worley. What factors enter into that determination; the size
of the ships that different operators have, the speed of the ships, or
the types of ships?
Captain Conway. First, you have got to set up your trade routes.
We know we want a trade service to the United Kingdom. We con-
sider the amount of cargo moving there, the competition, nature of
cargo, port facilities, and so forth. These really determine the size
and speed of ships going there.
Mr. Worley. Competition with our own shipping companies?
Captain Conway. No; competition with foreign shipping com-
panies.
Mr. Worley. Well, sir, continue. I didn't intend to interrupt you.
Captain Conway. I wish to state that I have not participated in
peacetime commission policy formulation. My job in the War Ship-
ping now is primarily a war job, to take care of the military, see that
POST-WAR ECONOMIC POLICY AND PLANNING 667
the military is taken care of with all their requirements. But even
that does have some bearing on post-war.
We have started out now trying to freeze some of the ships in the
foreign services. For instance, take South America. We have frozen
ships in the west coast of South America and the east coast of South
American trades. We think it is going to save tonnage. We also
think that it puts the steamship companies back in a position where
they are really back in business again. We think that it is going to
cut out a lot of red tape of these various other agencies, having to get
permits and all such things as that to be able to ship the cargo.
For instance, just the other day one of the big shippers called up
this steamship company and wanted to know if they could send a
certain number of trucks to South America at a given time, and, inas-
much as these ships were all frozen in the trade, they knew exactly
what dates they were going to sail.
He said, "Yes; we can receive those trucks."
If it had been 6 months ago, when the ships were not frozen in the
trade, he would have had to say : "I can't tell you." That would have
meant that the shipper of those trucks would have had to put them in
storage, they would have been piling up. And then, in turn, you have
all this permit system and Government controls.
Now, since we have frozen these ships in this service, we are going
to release those shipments to South America. Of course our policy
in this respect must be limited by wartime demands on tonnage.
Mr. WoRLEY. We have discussed briefly peacetime?
Captain Conway. Yes, sir.
Mr. WoRLEY. You had control over subsidized shipping?
Captain Conway. Yes, sir.
Mr. WoRLEY. After the advent of the war, what changes took place in
relation to unsubsidized shipping?
Captain Conway. We took over all the shipping and put it in a pool.
No company then could operate on a fixed service. Those ships were
in a pool. They might come in on this trip and operate to the Army
in the Pacific. They might come back the next trip and operate to the
Army in the United Kingdom. They might, on the next trip, operate
to India.
Mr. WoRLEY. Getting back. Captain, you took them over, all ship-
ping?
Captain Conway. Yes, sir.
INIr. WoRLKY. Upon what basis did you take them over?
Captain Conway. We took them over on a requisition charter, some
on a time charter and some on a bareboat charter.
^Ir. WoRLEY. Did Congress enact that, give you that power as a
wartime measure?
Captain Conway. Yes, sir,
Mr. WoRLEY. Did we take title to those ships or did we lease them
or rent them ^
Captain Conway. Some we took title to, and some we took under
time charter, which is a form of charter hire; some we took under
bareboat charter hire.
Mr. Worlp:y. Title — that was outright purchase?
Captain Conway. Yes, sir.
Mr. WoRLEY. What was the second one ?
99579 — 45— pt. 4 5
668 POST-WAR ECONOMIC POLICY AND PLANNING
Captain Conway, Time charter.
Mr. WoRLET. What is that?
Captain Conway. That is where you take the ship and they keep the
crew on board, pay for the crew, and we pay them hire for the ship
with the crew and everything on board. They do the repairs and
all of that.
Mr. WoRLEY. You just rent it ?
Captain Conway. Yes, sir.
Mr. WoRLEY. What is the third ?
Captain Conway. Bareboat.
Mr. WoRLEY. What does that mean ?
Captain Conway. That means, on bareboat, that we pay for the
crew and we also pay for repairs.
Mr. Bland. You get nothing but the boat ?
Captain Conway. That's right.
Mr. WoRLEY. Under this title, when you bought them outright, how
many of those did we buy; do you know?
Captain Conway. To tell you the truth, I am not sure. I think
Mr. Radner should answer that.
Mr. WoRi.EY. How many ships in all did we take over — would you
mind, Mr. Radner?
Mr. Radner. There were about 1,000 to 1,300 large ships, including
ships taken for title as well as foreign-fla^ vessels. I assume that this
committee is interested only in large ships. There were also about
2,500 small craft, fishing and others not engaged in foreign commerce.
Mr. WoRLEY. All privately owned ?
Mr. Radner. All privately owned. Privately owned tonnage has
been reduced approximately 40 percent. I think they are now down
to about seven or eight hundred privately owned large ships, the
difference between the present number of ships and those we orig-
inally took representing ships taken for title for special military
purposes or ships that have been sunk while under charter.
The remainder of the ships are now under charter, and our pre-
dominant form of charter is the time-charter form.
Mr. WoRLEY. Thank you, Mr. Radner.
Do you have any idea how many were taken over under this title
category ?
Mr. Radner. I will give you an approximation. About 150, 1 would
say, were taken for title.
Mr. WoRLEY. Do you have any idea how many were taken over for
time charter?
Mr. Radner. I would say, of the large ships that have been taken
over, probably a thousand have been for time charter. That was the
predominant method of operation.
Mr. Worley. How about bareboat ?
Mr. Radner. Ships taken under bareboat were principally passen-
ger ships, ships used for carrying troops, or turned over to the
Army or Navy for military purposes. All cargo ships and tankers
were taken on time charter, except where the owners refused to
operate under time charter or where military requirements necessi-
tated bareboat.
Mr. WoRLEY. Under this title requisition method, how did the
Maritime Commission determine the type of those ships ? Wliat kind
of ships were they, generally?
POST-WAR ECONOMIC POLICY AND PLANNING 669
Captain Conway. They were all types of ships, some new ones and
some old-type ships.
Mr. WoRLEY. As far as the Government is concerned, which of
those three methods is the best, the soundest to employ, do you think?
Captain Conway. I think the time-charter method has proven itself
as good as any. Of course, when we take a bare boat, as a usual thing
we allow the general agent to go ahead and operate it anyway.
Mr. Worley. The time charter seems to be the method commonly
used here.
Captain Conway. Yes.
Mr. Worley. Did you have to resort to the title method when
you found an owner who didn't want to lease under this time charter?
Captain Conway. Well, there were very few of those. There were
a few, and in these cases we took over on. a bare-boat basis — not for
title.
Mr. Worley. You had the power, though, to take them over any
way you saw fit?
Captain Conway. Oh, yes.
Mr. Worley. Later on you negotiated a deal with the various
owners ?
Captain Conway. That's right.
Mr. Worley. Most of tliem seemed willing to take the time charter,
of the two ?
Captain Conway. Yes, sir.
Mr. Worley. How did you arrive at the value when you bought
the ships outright?
Captain Conway, Well, I think Mr. Radner can tell you better on
that than I can. He is the one who worked on that, that fixing of the
value.
Mr, Worley. If you don't mind, Mr. Radner, will you come down ?
Will you identify yourself, please?
Mr. Radner. William Radner, general counsel. War Shipping
Administration.
Mr. Bland. Just on that question, Mr. Chairman, you will find
many headaches.
Mr. Worley. I imderstand.
Mr. Bland. They finally had recourse to a special board appointed
by the President to fix rules whereby they would measure value.
That grew out of a controversy with the General Accounting Office.
They determined value should be as of a certain time under the law,
and these men fixed rules and regulations whereby just compensation
Ishould be determined.
Mr. Radner. Judge Bland has given you an adequate summary as
Ito this question of valuation.
' We operated under the Merchant Marine Act of 1936. Section 902
lof that act is the section which grants permission, upon the declara-
ition of an unlimited emergency, to the Maritime Commission, now
the War Shipping Administration, to requisition any ship needed for
war purposes, either upon a use basis or title basis, and it was under
that section, for th.e most part, that these requisitions were made.
There are other statutory authorizations not important enough to
mention for your purposes.
670 POST-WAR ECONOMIC POLICY AND PLANNING
Now, that statute, section 902, provides that all the owners should
receive just compensation, without certain prohibited enhancement
therein referred to.
There has been a considerable amount of difficulty in fixing rates
and values because of differences of opinion as to value — the ship-
owners taking one view at one extreme, the Comptroller General tak-
ing a view at the opposite extreme, and the War Shipping Adminis-
tration taking a view somewhat in the middle. As a result we have
been criticized by persons occupying both extreme views.
Now the rates and values determined by us, as we reported to Judge
Bland's committee in numerous documents which are on file there under
series 20 — to which this committee may wish to refer — represented a
very substantial saving, as compared both with what was done in the
first war and with market conditions in 1941. It is a very involved
and complicated subject.
Mr. WoRLEY. You think the Government drove a very good bargain
on the first 350 ships ?
Mr. Radner. Yes. We think our administrative practice is fair
to the owners and also fair to the Government and that we avoided
the pitfalls and mistakes made in the last war. And we are also able ■
to get the runaway 1941 market under control and to eliminate infla-
tionary practices that prevailed in 1941.
We think we have attained a fair and equitable result. There may
be some who disagree with that.
Mr. Bland. I can say that on the board which determined the rules -
were three very eminent judges. Judge Learned Hand, Judge Parker, 1
and Judge Hutcheson. The President finally, to resolve this con- '■
troversy, appointed those three judges, senior judges of the second,
fourth, and fifth circuits, and the advisory board has laid down these
10 rules for determining just compensation. They have been published
by the House Committee on the Merchant Marine and Fisheries.
Mr. WoRLEY. If you have an available copy, will you provide us
with it?
Mr. Radner. I will be glad to insert it in the record at this point.
Advisory Board os Just Compensation,
Washington, D. C, December 7, 19^3.
Dear Admiral Land: We are herewith enclosing our reiwrt as the Advisory
Board on Just Compensation. In it we have set forth in the form of rules the
standards and principles to be observed, in respect of the valuation of vessels
requisitioned for title or use by the United States, and in the disposition of matters
which have arisen and will arise in connection with the granting of insurance
upon and the voluntary chartering of vessels.
In arriving at the conclusions the rules embody we have been greatly aided
by the material contained in Document 20, in the hearings before the Bland
committee, and by the arguments and briefs filed at the public hearing held on
November 26 and 27. Because of the full and exhaustive character of these aids
to our deliberations, our labors have been greatly lightened, the time required
for them has been shortened, and our confidence in the correctness of the rules
we have embodied in our report as our best judgment in the premises has been
greatly enhanced.
It seems appropriate to comment briefly on the Comptroller General's ruling of
November 28, 1042. Contrary to the impression existing in many quarters, the
Comptroller General does not limit compensation in the case of requisitioned
vessels to values existing on September 8, 1939. That date is used merely as the
starting point for the determination of values. The necessity of allowing subse-
quent enhancement that is not directly caused by economic conditions resulting
from the emergency is specifically recognized by him. This standard does not
POST-WAR ECONOMIC POLICY AND PLANNING 671
necessarily exclude subsequent enhancement which directly reflects the economic
changes incident to the improvement in general conditions since 1939'.
It is obviously impossible to know^ without very extensive inquiry into the facts
to what extent any enhancement in value was due to that cause, and the order
which created the Board confined its duties to the establishing of "standards,
rules, and formulae." On this account we did not undertake to consider how far
the rules we are submitting would in practice reach different results from the rules
recommended by the Comptroller General. It is conceivable that in application
the difference might turn out to be far less than has at times been assumed, and
that the dispute would appear to be more in the reasoning by which the problems
were solved tlian in the answers reached.
We have been greatly impressed not only with the care and consideration which
the record disclose.^ that both you and the Comptroller General have given to the
matters involved, but with the moderation and judgment exercised by all con-
cerned in endeavoring to work out a solution consistent with the interest of
the United States and the justice of the case. In closing we take this opportunity
to record our great appreciation of the fact that this has been so.
Respectfully,
"(Signed) Learned Hand.
(Signed) John J. Parker.
(Signed) Joseph C. Hutcheson, Jr.
Admiral Emory S. Land,
War Shipping Administration, Washington, D. G.
REPORT OF the ADVISORY BO.IRD ON JTJST COMPENSATION TO THE WAR SHIPPING
administration
Pursuant to the order of the President of October 15, 1943, establishing it,
the board hereby "in accordance with the applicable provisions of the Con-
stitution and the laws of the United States," establishes "fair and equitable
standards, rules, and formulas of general applicability for the guidance of the
War Shipping Administration in determining the just compensation to be paid
for all vessels requisitioned, purchased, chartered, or insured by the Adminis-
tration."
Rule 1. — Just compensation for vessels requisitioned for title or for use is
to be determined on the basis of value as of the date of taking, subject to deduc-
tion on account of enhancement, if any, as hereinafter set out in rule 4, and
with allowance for any loss on account of delay in payment from the date of
taking, not exceeding the current commercial rate of interest. Value means
value on the American market, not on foreign markets.
Ride 2. — In the case of i-equisition of foreign-flag vessels under Public Law
101, just compensation should be determined as in the case of domestic vessels.
Rule 3. — Where market value cannot be determined by sufficient sales, or
hirings of vessels of like character, made at or about the time of taking, it is
to be determined by the Administrator from a consideration of cost of construc-
tion, acquisition cost so far as relevant, improvements, replacement costs, depre-
ciation, earnings, physical condition, appraisals for insurance or other purposes,
and any other relevant facts upon which a i-easonable judgment as to value can
be based. These various matters are to be given such weight by the Adminis-
trator, as in his opinion they are justly entitled to, in determining the price that
would probably result from fair negotiations between an owner willing to sell
and a purcha.ser desiring to buy.
Rule /f. — From the value at the time of taking, there should be deducted
any enhancement due. to the Government's need of vessels which has neces-
sitated the taking, to the previous taking of vessels of similar type, or to a
prospective taking, reasonably probable, whether such need, taking, or prospect,
occurred before or after the declaration of the national emergency of May 27,
1941. Enhancement due to a general rise in prices or earnings, whenever occur-
ring, should not be deducted. In the application of this rule neither the procla-
mation of limited emergency of September 8, 1939, nor the facts existing at that
time, are in themselves of significance. Tlie Board does not determine whether
any enhancement after May 27, 1941, other than as enumerated above as deduc-
tible, should be excluded; since the Board is advised that the value of ocean-
going vessels was higher on May 27. 1941, than at the time of taking, and that
any enhancement since May 27, 1941, in vessels of other tyiws, not deductible
under the foregoing, is attributable to a general rise in prices or earnings, and
should therefore not be deducted.
672 POST-WAR ECONOMIC POLICY AND PLANNING *
I
Rule 5. — The enhancement clause of section 902 (a) of the Merchant Marine '
Act of 1936, has no application to the valuation of chartered vessels for the
purpose of insurance.
Rule 6. — The enhancement clause of section 902 (a) has no application to ,
voluntary charters or purchases under Puhlic Law 101.
Rule 7. — In the event of loss due to a risk assumed by the United States in eon- j
nection with the use of any vessel where no valuation or other mode of compensa-
tion has been agreed to, just compensation should be determined on the basis of
value on the date of such loss. Where a redetermination or readjustment of rates
or values is effected pursuant to the terms of a charter or other agreement, just
compensation should be determined as of the date of redetermination. In both
cases the determination is subject to deduction on account of enhancement, if any, «
as hereinabove set out in rule 4. i
Rule 8. — Section 902 (b) of the Merchant Marine Act of 1936 has no application :
to vessels merely because they have received mail subsidies under the act of 1928.
The section has application only to vessels which have received a construction-
differential subsidy inider title V of the Merchant Marine Act of 1936 ; and a mail
subsidy is not a construction-differential subsidy within tlie meaning of section i
902 (b) of the act.
Rule 9. — Valuations agreed upon by the Administrator and owners are binding,
if not in excess of just compensation determined as above prescribed ; and settle-
ments should be made on the basis of such valuations with an allowance for any
actual loss due to the delay in payment from the date when such settlements would
have been made, if no objections had been raised, not exceeding the current
commercial rate of interest.
Rule 10. — Agreements fixing compensation for the title or use of vessels are not
binding in the valuation of vessels of owners not parties to the agreements. Such
valuations, however, if freely arrived at, may be considered along with other
factors as some evidence of value.
Learned Hand.
John J. Faekeb.
Joseph C. Hutcheson, Jr.
Decembee 7, 1943.
Those rules confirm substantially the administrative policies and
practices which had been followed by us before the Board was created.
Mr. Bland. The great trouble was that in the law there is a provision
that just compensation might not be enhanced by the cause necessitat-
ing the taking.
Mr. WoRLEY. That complicates the case.
Mr. Bland. Yes, So that where vessels were taken under that par-
ticular statute there was that obligation which the rulings of these
three judges were to cover.
Mr. WoRLEY, Under the time charter, will you state briefly again
what the time-charter plan is?
Mr. Radner. You can best compare the time to a bareboat charter
by comparing the rental of a furnished apartment —
Mr. WoRLEY. The time charter?
Mr. Radner. The time charter is comparable to the rental of a fur-
nished apartment, with maid service.
Mr. Worley. Fine. I can understand that.
Mr. Radner. You get the ship and crew and all the fixings. All you
do is use the ship, load it and unload it. The owner equips it and pro-
vides manpower to run it.
Mr. Worley. The maid service ?
]\Ir. Radner. Yes.
Mr. Worley. That seems to be the most popular. Is that the most
advantageous as far as the Government is concerned?
Mr. Radner. That all depends on the purpose for which it is used.
Our opinion was that the time charter was the most efficient way of
running ships, although very complex. You can imagine the diffi-
POST-WAR ECONOMIC POLICY AND PLANNING 673
culty ill trying to make a contract in Avartime for the use of ships
with all the services and equipment required. However, we felt that
this chartering was the metliod of getting maximum efficiency at mini-
mum cost. It left in private hands control, over such things as wages,
subsistence, stores and supplies, repairs, insurance, and other miscel-
laneous costs.
On a bare-boat charter basis, we take over the ship and all risks of
operating the ship that go with it. We furnish the crew, maintenance,
repairs, and everything that goes with it. So we felt, at the outset,
that we would get better efficiency, better economy in operation, if we
operated on a time-charter basis. We could also cooperate in that
way in preserving as far as practicable the peacetime relationships
between shipowner and labor, suppliers, repairers, insurers, and all the
other peacetime commercial relationships.
]\rr. WoiJLEY. Do you control the profits ?
Mr. Radxkr. Well, the time-charter rate is fixed at so much a dead-
weight ton a month. The basic rate was $4 per dead-weight ton a
month in 1942, The charter form has since been changed so as to
throw certain additional costs on the Government, and the rate has
been reduced now to about $3,25. I am giving you the freighter rate.
Mr. AVoRLEY. Do you keep track of the profits?
Mr. Radner. Yes; we pay the owner a fixed rate. He reports his
profits, and we use the report as a basis for readjusting the rate from
time to time.
There has been one basic rate adjustment since the initial effort,
based in part on the information furnished in that manner.
Mr. WoRLEY. In these negotiations you treated all ships, whether
they were subsidized or unsubsidized, alike ?
Mr. Radner. Yes, sir; no distinction as far as value is concerned
except in one respect. Ships built under the Merchant Marine Act
of 1936 with the aid of a construction-differential subsidy are en-
cumbered by an option in favor of the Government to buy the ship
for its actual book value, and those ships, of which I believe there are
less than 150 out of our 1,500, say, less than 10 percent, those ships
did get some special treatment on rates and values by reason of the
fact they were encumbered by the option.
All other ships, whether subsidized or not, had been purchased by
the owners without any restriction of that kind, so there was no basis
for distinction in fixing rates and values on the ground that one
was subsidized while the other was not.
Mr. WoRLEY. You say that only about a hundred and fifty ships
were under subsidy?
Mr. Radner. a hundred and fifty built with construction-differen-
tial subsidy under the Merchant Marine Act, 1936.
Under the Merchant Marine Act you could get an operating subsidy
for old ships as well as newly constructed ships, but you could get
a construction subsidy only on ships you built after 1937.
There had been less than a hundred and fifty ships built and sold
by the Maritime Commission under the Maritime Act of 1936 prior to
the outbreak of this war. As to the ships built under the 1936 act, the
Government paid anywhere from one-third to one-half the cost as a
subsidy. They were encumbered by an option in favor of the Govern-
ment under section 802 of the act, whereby they could be acquired
by the Government at book value. Those are the 10 percent.
674
POST-WAK ECONOMIC POLICY AND PLANNING
In addition to those ships, there were about 150 ships that had
received operating subsidies.
Mr. WoELEY. At the present time we have operating subsidies and
building subsidies. Is that correct?
j\Ir. Radner. The law provides for them. At the present time there
are no operating subsidies because the ships are all run by the Gov-
ernment.
Mr. WoKLEY. We have in peacetime ? The law is still on the books?
Mr. Radner. The law is still on the books; yes.
Mr. WoRLEY. There were about 1,500 ships in all taken over from
private enterprise?
Mr. Eadner. Yes. I am talking of ships over a thousand tons.
Mr. Worley. Over 1,000?
Mr. Radner. Over 1,000 tons.
Mr. WoRLEY. Now, what about the
Mr. Radner. I should like to add, in order that that 1,500 figure
may not be too misleading, I should think about 200 of those ships
represented ships tliat were not under the American flag. They were
ships under the Panamanian flag, and certain ships under other foreign
flags that we chartered on a voluntary basis.
Mr. Worley. Did we take over some Swedish and Danish ships?
Mr. Radner. We took over some Danish ships.
Mr. WoRLEY. You include in those all the foreign ships?
Mr. Radner. Yes. We have estimated our large-vessel fleet, with-
out adjustment for sinkings and losses and other events, at the peak
was about 1,300 privately owned.
Mr. WoRLEY. Did you use the same method of requisition and reim-
bursement for foreign ships as for our own ?
Mr. Radner. Those we acquired on a voluntary basis. We did not
have the power to requisition.
Mr. Worley. We had the power to freeze those ships over here,
though, didn't we, when we went to war ?
Mr. Radner. The law froze only those ships which were immobi-
lized, when Congress in 1911 passed Public Law 101, under which
ships immobilized in American waters could be requisitioned.
Under that act we requisitioned about 15 Danish ships and an assort-
ment of other ships, Italian and German and French, and what not,
all told about a hundred.
Table No. 1. — Vessels requisitioned under Public Laic 101 as of July 31, 1944
Flag
Total
Dry
cargo
Tankers
Flag
Total
Dry
cargo
Tankers
Danish
40
3
28
11
1
1
Ifi
1
38
2
26
?
1
16
1
2
1
2
2
Latvian
Greek
Yugoslav
Panamanian..
Honduran
Netherlands
Total
2
1
1
1
2
1
2
1
1
1
2
i
German
Italian
French
Estonian
Lithuanian..
Rumanian
109
102
7
In addition there were a number of free Panamanian ships owned
mostly by Americans.
Mr. Worley. Most of them vrere owned by Americans?
POST-WAR ECONOMIC POLICY AND PLANNING 675
Mr. Radner. Well, most of the tankers were owned ultimately by
American companies. They were owned by Panamanian corpora-
tions, the stock of which was owned in turn by American corpora-
tions.
We had no trouble in cases- where the ultimate beneficial ownership
was American in working out voluntary arrangements whereby they
accepted the equivalent of our time charter rate and value program.
In the case of Panamanian ships owned by foreigners, we had con-
siderable difficulty at the outset, but finally worketl out arrangements
with Panama whereby Panama agreed to requisition for us any ship
which was not voluntarily chartered to us. The owners then w^ere
faced with the choice of just compensation to be fixed by the Pana-
manian courts or voluntarily dealing w^ith us by taking our charter.
In all but one case they dealt with us.
Mr. WoRLET. They preferred that.
What plans do you have for the return of those ships after they are
no longer needed? Wliat do you propose to do with those ships?
Mr. Radner. Well, Captain Conway is as good a prophet as any-
body I know.
Mr. AVoRLEY. Captain Conway.
Captain Conway. Well, of course, number one, we must take care
of our military requirements and, as I see the picture, we will freeze
the ships in the services. We will try to get the companies' own ships
in their own trades. And, next, we will probably bareboat some ships
to those private owners.
Mr. WoRLEY. Yesterday Admiral Land — did you hear his testimony
yesterday ?
Captain Coxw^ay. No.
Mr. WoRLEY. He suggested we set up three categories for our mer-
chant marine; one, the sanctuary for military and naval ships; two,
to sell what we can to our own buyers, and give an opportunity after
that to foreign purchasers ; three, of course, to keep our present fleet ;
he was opposed to scrapping any of it.
Are your ideas along the same line ?
Captain Conway. Yes; but I think that it may be possible even be-
fore this whole thing is over, if we can take care of our military re-
quirements after the collapse of Germany, to get more ships back to
berth.
]Mr. WoRLEY. About how many of those fifteen hundred ships do you
think will return to private operation ?
Captain Conway. That is a hard thing to say. In the first place, the
fifteen hundred ships don't exist today, as many of those have been
lost.
Mr. WoRLEY. That is another question I intended to ask you a
moment ago, Wlio assumes the risk — of course, we do in the title
purchases, but in the time charter and bareboat proposition ?
Mr. Radner. In the case of time chartered ships, the United States
Government has assumed all so-called war risks and private under-
writers the marine risks.
Mr. WoRLEY. If they are lost do you use the same determination of
value as in the title requisition ?
Mr, Radner. Approximately, There are some minor variations,
but not many. The ship is under charter to us and we tender the
676 POST-WAR ECONOMIC POLICY AND PLANNING
owner at the time of the charter a fixed insurance vahie for war risk
purposes. The owner was free to go into the market and buy marine
insurance in any amount he wanted, and usually the marine insurance
exceeded our war risk insurance.
If a ship was lost we had to determine whether it was a marine risk
or a war risk, which was a technical legal problem. If it was a marine
risk, that was settled with the marine insurer. If it was a war risk we
paid. If undetermined, we advanced a portion of the loss and left it
to the courts to determine. We have about 50 tied up that way.
Under the new form of charter, an amended form gotten out in con-
nection with a rate change, the owner has the privilege of insuring the
marine risk, but all insurance nuist be covered in the American INIarine
Syndicate, and tlie valuation figure is fixed, except the owner has the
right, at his own expense, to carry more. We reimburse him only for
the premium cost on the fixed valuation. In the case of bare-boat ships,
we have all the risks, both marine and war, although we reinsure the
marine risks.
Mr. WoRLEY. The ships we have manufactured ourselves since the
war started, how do they differ from these others ?
Mr. Kadner. The ships we have built are Libertys mostly and
Victorys.
Mr. WoRLEY. As far as the operation is concerned ?
Mr, Radner. To contrast them with the other ships the ships we
built were handled administratively in the same manner as the bare-
boated ships. We have agents, about 75 general agents for cargo ves-
sels and 15 or 20 for tankers, and a numljer of miscellaneous agency
arrangements. Those agents, as general agents, operate those ships for
the account of the United States, under our direction and control,
under a general agency agreement. They get a fee for their manage-
ment services. Expenses are paid by the United States.
Mr. WoRLEY. Sort of like a cost-plus contract in war industry is the
way we build the ships ?
Mr. Radner. "Cost-plus" is an ugly word. I don't like to use it.
Mr. Worley. I know ; it's been used a lot. We built the ships and
they operated them, hired the personnel?
Mr. Radner. That's right. The agents are paid cost. They get
their overhead cost for management out of fixed fees. Actual com-
pensation was fixed by us on a fixed-fee basis ; no cost-plus in it at all.
Mr. Worley. No "plus" in it at all?
Mr. Radner. No "plus" in it at all.
Mr. WoLATERTON. The ships under your jurisdiction, do you turn
them over to other nations?
Mr. Radner. The only vessels made available by us to other gov-
ernments are those made available under the Lend-Lease Act. I think
a full report of that has been made available to Judge Bland's com-
mittee.
We have made available approximately 200 ships to Great Britain
under the Lend-Lease Act. We have made other ships available
under Lend-Lease to Belgium, Norway, Holland, China, Greece,
Poland, and Russia.
In the case of all governments other than Great Britain and
Russia, the ships we have made available are immediately time
chartered back by us, because the other governments are not in posi-
POST-WAR ECONOMIC POLICY AND PLANNING 677
tion to operate these ships at their own expense, or have not been
up until recently.
In the case of those 200 ships transferred to Great Britain, they
are transferred on a bare-boat basis and Great Britain pays all op-
erating expenses and we get all the dollar revenue. In effect we get
assistance from Great Britain in bearing part of the operating cost
of our merchant marine, and Great Britain, in turn, keeps 200 ships
going and an organization intact that otherwise might disintegrate.
ISIr. WoLVERTON. Do these other nations actually pay us for the
use of the ships or is that just a bookkeeping transaction in Lend-
Lease under which they are given assistance to pay us for the ships?
Mr. Radxei?. In the case of Great Britain, they pay us for the ships
the same way they pay us for any other lend-lease articles.
IVIr. WoLVERTON. How is that? I have never understood.
Mr. Radner. They obligate themselves to pay the fair use value
for the use of these ships in the final settlement.
Mr. WoLVERTox. You say they obligate themselves to do it. How
is that obligation determined and how is it fulfilled ?
Mr. Radner. Well, sir, you are getting into questions that are out-
side of our bailiwick.
Mr. WoLVERTON. You build the ships ?
Mr. Radner. We are the agency that provides the ships, at the
request of the Lend-Lease Administration, now the Federal Economic
Administration.
We are told that the Federal Economic Administration keeps a set
of books and charges Great Britain with these items. We have a
claim against Great Britain, as against any other Lend-Lease gov-
ernment, for the reasonable value of the use.
Mr. WoLVERTOx. You say "a claim" ?
Mr. Radner. A claim. Whether it will ultimately be liquidated in
dollars or other concessions of an international nature, I don't know.
Mr. WoLVERTON. Does that depend on whether Lend-Lease keeps
up, whether it will be liquidated or not ?
Mr. Radner. AVliether Lend-Lease keeps up ?
Mr. WoLVERTON. Yes.
Mr. Radner. I wouldn't think that is necessary to
Mr. WoLVERTON. In other words, are we getting cash from any-
body?
]VIr. Radner. For ships we get no cash except dollar receipts.
Mr. Worley. All of your transactions are under lend-lease?
Mr. Radner. All of our transfers to other nations with one minor ex-
ception. There is a little arrangement with Chile whereby we do
lend-lease certain ships to them but on a straight commercial rate per
dead-weight ton a month, and they pay that.
I am talking now about the Allied Governments. We don't get any
immediate cash consideration for ships, but, on the other hand, we
do get
Mr. Wolverton. Then what obligation do they assume ?
Mr. Radner. Here is what they do : In the first place, during the
war, they agree to operate the ships. Great Britain does, at her own
expense. Great Britain has also agreed to carry such of our cargoes
as are transported in these ships free of cost to the United States. If
Gre^it Britain carries cargoes for which she receives dollar revenue,
678 POST-WAR ECONOMIC POLICY AND PLANNING
those dollar revenues are piiid to the United States. So there is a sub-
stantial benefit to the United States from that arrangement, apart
from what we will ultimately get.
Ultimately, we have this claim against Great Britain for the reason-
able value of the use of those ships which will be settled by interna-
tional arrangements with other lend-lease claims.
JNIr. WoRLET. We retain title to those ships ?
Mr. Radner. Every one of them.
Mr. WoL^^RTON. You are more optimistic than I am in saying we
will get some return in the international field as fulfillment of the
obligation.
Mr. WoRLEY. On this subject of the books you keep for what our
iallies get, is there anything reflected on the books for what we owe
our allies for food and supplies ?
Mr. Radner. Of course, lend-lease works two ways. The predomi-
nant flow is from us to our allies, but there is a reciprocal flow from
them to us. For instance, substantially all of our disbursements in so-
called sterling areas, for repairs, stevedoring, and other ship's ex-
penses in foreign ports, except agency fees, and other minor qualifica-
tions, but generally speaking, except for agency fees, our disburse-
ments in sterling areas are paid by Great Britain under reverse lend-
lease, and the amount of that is of course credited against our claim
against Great Britain.
The British also pay any claims against American ships in foreign
ports, for damage to cargoes, and so forth.
Mr. WoLVERTON. If the ships are sunk, who bears the loss?
Mr. Radner. You mean lend-lease ships ? They do.
Mr. WoLVERTON. You mean they pay us?
Mr. Radner. It is charged to them. The risk of loss is on Great
Britain.
Mr. WoLVERTON. It is added to the bill ?
Mr. Radner., Added to the account payable.
Mr. Worley. Even though we retain title, they assume the risk of
loss?
Mr. Radner. They assume the risk of loss.
Mr. WoRLEY. How many ships have been transferred to our allies?
Mr. Radner, There are apjn-oximately 200 in the case of the British,
and I don't have the exact figures in the case of the others, which
probably would be a round 50.
Captain Conway. And, I might add, those ships, other than to
Great Britain, operate under our sole direction, carry our military
cargoes and others.
Mr. Worley. Wliat is your opinion as to the disposition of these
ships after the war ? Will they be returned to us ?
Mr. Radner. We are clearly entitled to their return.
Mr. WoRLEY. Do you treat those as a part of your total merchant
marine fleet?
Mr. Radner. Yes.
Mr. Worley. How many ships were left under private ownership ?
Mr. Radner. Now?
]\Ir. Worley. Yes; how many were when you took over, when you
requisitioned the ships you have now, the fifteen hundred?
Mr. Radner. Take that fifteen hundred and divide it into two
groups, about three hundred foreign and about twelve hundred Ameri-
POST-AVAR ECONOMIC POLICY AND PLANNING 679
can. I think we had about twelve hundred privately owned ships, and
it is now down to about eight hundred or less than that.
Mr. WoRLEY. There are eight hundred ships privately owned now
operating?
Mr. Radxer. I haven't the exact figures.
Mr. WoRLEY. They are carrying on trade and commerce now?
Mr. Kadxek. Oh, no.
Mr. WoRLEY. How many ships were left in private ownership?
Mr. Radxer. Not any. Every single American-flag ship a thousand
tons or over, capable of ocean transportation, is under charter to the
United States. The only exception to that would be some of the ships
on the Great Lakes. We don't do nuich in the Great Lakes.
Mr. "WoRLEY. There is no private shipping going on now for private
enterprise ?
Mr. Radxer. None at all.
Mr. WoRr.EY. You direct the flow of all our foreign trade and
connnerce ?
Mr. Radxer. Yes. That is Captain Conway's job, to make the
maxinnnn utilization of that huge fleet of ours in conjunction with
the British fleet, which is also handled on the s&me basis, and the
other Allied fleets. These fleets will continue to be so handled not only
for the duration of the German war but the Japanese war.
Mr. Blax^d. I am wondering what you are going to do with them
when the war is over.
Mr. Radxer. There is no answer to that question. Admiral Land's
answer yesterday to you is about as good as you can get.
Mr. Blax'd. Are you going to freeze everything in the hands of the
present operators?
Captain Coxw^ay. Judge, we certainly hope to carry at least 50
percent of our foreign commerce, and I think you might be interested
to know that even today we are carrying 50 percent of our commerce,
to South Africa, the Mediterranean, the Middle East, the Persian
Gulf, India, and the L^nited Kingdom.
Mr. Bland. I wonder what is going to be the chance of new men
getting into business, new operators.
Captain Conway. You mean other than are in the business now ?
Mr. Bl.vxt). Yes.
Captain Conway. That is a question that is going to be hard to
answer, I think. We have now approximately 75 companies in opera-
tion, and I know the War Shipping Administration and the Maritime
Commission have decided at the present time we don't require any
new operators to operate the number of ships that we have.
Mr. Worley, Along that line, you say we expect to carry 50 per-
cent of our own traffic. With all the ships we have and all the trained
personnel, why couldn't we carry a hundred percent ?
Captain Conway. We could probably carry a hundred percent after
the war is over if we operated everything that we have.
Mr. Worley. Why can't we do'that ?
Captain Coxway. You have other nations that have got to carry
some cargo, too.
Mr. Worley. I understand that the Japs carried 80 percent of their
own and built up a pretty good fleet doing it — not good enough, of
course.
680 POST-WAR ECONOMIC POLICY AND PLANNING
Captain Conway. Of course, we will have sufficient fleet after the
war is over to take up all the slack of Japan and Germany combined.
We are, in addition to carrying this huge military load, carrying 50
percent of lend-lease and commercial to overseas and, of course, to
South America we are carrying the major portion of the cargo freight.
Mr. WoRLEY. You are aiming now at about 50 percent after the war ?
Captain Conway. We are aiming at not less than 50 percent.
Mr. WoRLEY. You could make it a hundred percent ?
Captain Conway. In my opinion, 50 percent is about as high as
we can get. We certainly want to preach the gospel that we want to
carry at least 50 percent of the cargoes to and from this country.
Mr. WoRLEY. I understand we have never carried in all of our
history more than 50 percent.
Captain Conway. I wouldn't say in all of our history. \
Mr. WoRLEY. The clipper ships carried more ?
Captain Conway. Yes.
Mr. WoRLEY. Was that an account of the speed of the clipper ships ?
Captain Conway. Yes; speed and management and efficiency. We
carried as high as 90 percent in their heydey.
Mr. WoRLEY. Didn't other nations get into that thing also?
Captain Conway. They did eventually.
Mr. Bland. That was by reason of coal, steam ; a considerable factor.
Mr. WoRLEY. If we would improve our ships, make them faster,
more economical, more efficient, we might have more of the traffic ?
Captain Conway. I think right now we will be in an excellent posi-
tion to do that. We are going to have the best ships in the world,
we are going to have well-trained personnel, and we have good, ef-
ficient steamship operators.
That is something we did not have after the last war.
As you know, after the last war the ships were slow, the steamship
operators were not exj^erienced because they were mostly all new
operators. We didn't have the trained personnel we do at this time.
Also the steamship companies this time, I think, will be well financed.
Mr. WoRLEY. Those factors are important, but the most important
thing is whether other countries are going to be willing to trade
with us. Of course, the only way they will trade will be on a mutu-
ally profitable basis, and if we carry a hundred percent that lessens
the profits for the other countries.
Captain Conway. Yes. Of course, we never can hope to carry a
hundred percent, but I think, if some of the shippers will be kind
enough to the merchant marine, we can carry at least 50 percent.
Mr. WoRLEY. Hove do you mean, if the shippers "will be kind
enough?"
' Captain Conway. I mean if they will all get together and try to
ship on American ships, because we are going to have fast ships,
they are going to be well managed, and certainly we can deliver the
cargo as efficiently as the foreign lines.
We have had, I think, a splendid opportunity during this war to
observe the foreign operations, and I say without question that our
steamship operations are at least as efficient as those of foreign
nations. Take what I think is a good key to it, the ships missing
convoys. We have a committee up in New York which meets every
■week, and the ships missing convoys have averaged less than 2 per-
POST-WAR ECONOMIC POLICY AND PLANNING 681
cent. We have been doing as well as the foreign countries, if not
a little better, on the percent.
Mr. WoRLEY. Take our friend Brown. He has a bunch of trac-
tors he wants to sell which he has manufactured. He wants to
sell them to some foreign country. Does he come to you and ask for
space aboard one of these ships? Do you clear that?
Captain Conway. No; the shipper deals directly with the steam-
ship company. Of course, under these Government regulations, he
has to get all sorts of permits before he can ship.
]\Ir. WoRLEY. I mean in peacetime.
Captain Conway. In peacetime he deals directly with the steam-
ship company.
Mr. WoRLEY. He doesn't have to clear anything through the Mari-
time Commission?
Captain Conway. No, sir.
Mr. WoLVERTON. May I ask a question there, Mr. Chairman ?
]Mr. WoRLEY. Surely.
Mr. WoLVERTON. What has been the system by which foreign gov-
ernments have been able to dictate the use of their ships for the
transportation of things purchased in this country?
Captain Conway. The foreign governments?
Mr. WoLVERTON. Yes; foreign purchasers.
Captain Conway. Well, we have found in some instances, for in-
stance, Japan, that they did dictate an awful lot to their merchant
marine as to what they should carry.
Mr. Radner. I might interject there: You have the difference of
selling f. o. b. and f . i. o.
MrT WoRLEY. What is f . i. o. ?
]Slr. Radner. I mean c. i. f., cost including freight. I should not
have used f. i. o.
The trouble with our practice has been that the foreign shipper or
consignee has in the past been more patriotically alive to the neces-
sity of supporting his merchant marine than our importer or exporter.
^Ir. Worley. On that point, isn't it natural for an American pro-
ducer or shipper to j^refer to ship his stuff under the American flag?
Don't you think that would be natural ? .
Mr. Radner. It would seem to be.
Mr. Worley. Well, why wouldn't it?
Mr. Radnp:r. Well, for the reason that the buyer wants it shipped
under his flag.
Mr. WoLVERTON. Right there, after this war the nations of the
world will be coming to America for practically everything in the
way of manufactured goods. Their industries in many instances
have been destroyed; their economic situation, for one reason and
another, probably does not permit them immediately, at least, to pro-
duce for their own wants, and they come to America. We have got
the goods ; we have got the ships.
Now, is there any policy that can be recommended by which our
ships will be used in the post-war period to transport the goods to
these other countries, or are the purchasers in these other countries
going to dictate that they will use the ships we have turned over to
them or chartered to them, or what not?
682 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. Radner. It stands to reason, when yon are dealing with a man
on a str-aight business basis and competing for his business — let's say
if we were selling locomotives to South America
Mr. WoLVERTON. There won't be much competition in the im-
mediate post-war period, as I see it, because this is the one country
that will be able to produce the articles that the}' will need.
Mr. Radner. I think the wa}' the picture is A'isualized is that in
the immediate post-war period we are going to have such an enor-
mous percentage of the total tonnage. We therefore are going to
be carrying for several j^ears much more than 50 percent, if we keep
our ships going. The problems of getting a fair share of the trade
for the first couple of years is not going to be a serious problem. The
problem is going to arise after that.
Mr. AVoLVERTON. You mean after we turn over our ships to them?
Mr. Radner. Or after they build u}). There is an advantage in
turning ships over to them if you keep them from building up — keep
some control against excessive production.
Mr. WoLVERTON. The situation that has always been interesting to
me is how the foreign purchaser is able to dictate the ships in which
they will receive their goods.
We will use Great Britain as an illustration, because it is a great
maritime nation. "WHien they sell to us and their ship brings it over
and they are taking something back to a purchaser in Great Britain,
isn't it a common practice that the purchaser dictates it shall be taken
in a British bottom?
Mr. Radner. I think it is a practice, but nowhere near as connnoii
there as it has been in the Axis countries. We have carried a great
deal of cargo in American ships to and from Great Britain. For
instance, a great proportion of Scotch whisky has been transported
to the United States by American lines.
I think the British importers and exporters have a pro-British view
of shipping. Unfortunately, our exporters and importers have not
had a comparable view.
Mr. WoLVERTON. Back of that individual desire to promote their
own shipping is there any government policy involved in the matter,
or is it a matter entirely up to the purchaser ?
Mr. Radner. In the case of the Axis countries there probably has
been government policy involved. I don't think the situation has
been comparable in the democratic countries.
Mr. WoRLEY. As to these subsidized ships, they would have control
over those and they would be more interested in them to get their
money }>ack to pay for the subsidy. Isn't that correct ?
Mr. Radner. Yes ; but I don't know of any government policy other
than the encouragement from the board of trade, equivalent to the
Department of Commerce, encouragement to importers and exporters
to use British shipping, and encouragement of banking facilities
throughout the world, and various incidents of trade which the British
have mastered so thoroughly and which has given them this advantage
in international trade.
I think that is all there has been to it. There has been excellent
teamwork.
Mr. WoLVERTON. Has there been any consideration given by our
governmental agencies that have directly to do with shipping to the
POST-WAR ECONOMIC POLICY AND PLANNING 683
fornnilation of a policy that would utilize to a greater extent Amer-
ican bottoms in the carrying of American goods ?
Mr. Radner. I used to be with the Maritime Commission. In 1937,
when I first went with the Commission, and ever since then, the Mari-
time Commission has tried very hard to educate the shippers.
Mr. WoLVERTON. You see, that comes back to the personal situation
again. You say to encourage them. I am speaking about a gov-
ernmental policy.
Is there anything that can be laid down, or has any consideration
been given to a policy that would make more certain and sure the use
of American bottoms in the transportation of American goods?
Mr. Radner. Well, the whole policy of the Merchant Marine Act
of 1936 was to build up a fast, efficient, economically operated mer-
chant marine. That has been the fundamental policy. Judge Bland
has })een pushing that policy in his Committee for 10 or 15 years.
Mr. WoRLEY. That has to be supplemented by different policies.
Mr. Radner. Let's not forget that the American merchant marine
went to the dogs between 1920 and 1935. We had a large fleet, but it
was slow, old, and antiquated in comparison with the faster ships of
competing nations.
Mr. WoRLEY. Jytay I ask there, isn't that one reason they didn't use
American ships?
Mr. Radner. That undoubted^ly was an important contributing
factor.
Mr. Worley. Was it a contributing factor or one of the most im-
portant, in your opinion ?
Mr. Radner. Oh, I think it was an important contributing factor.
but I don't think it was any more important than the inertia of Ameri-
can shippers as far as American shipping was concerned.
Mr. Bland. And the possibility of retaliation.
Mr. WoRi.EY. We can agree, can't we, that the average American
shipper wants to ship on American ships?
Mr. Radner. No; the average American shipper, up to this war —
and we hope the war has reversed the trend — has been interested in
most cases in getting his goods there by the cheapest, fastest, and most
efficient method.
Mr. WoRLEY. I know patriotism generally resides in the pocketbook.
I just wondered if it went all through that, this c. i. f. and f. o. b. that
enters into the loading of a ship here.
Mr. Radner. Yes, The fellow who pays the freight usually controls
the routing.
Mr. WoREEY. Does the purchaser in the foreign country j)ay the
freight ordinarily?
Mr. Radner. In many countries. In Japan it was almost invariable
that he did. In other words, when they were sellers, they paid the
freight ; when they were buyers they also paid the freight. The freight
obligation was assumed so as to give them control of the routing.
And, of course, you had both (government encouragement and had
interlocking relationships between great business enterprises and shi^D-
ping in Japan,
They did quite an effective job, and Germans and Italians did some-
thing of the same sort. And then the question of foreign exchange
entered into it, also.
99579 — 45— pt. 4 6
684 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. WoRLEY. How can we change our position over here and make
it more favorable for shippers to ship in American ships?
Mr. Hadner. I think Judge Bland has the answer in the Merchant
Marine Act of 1936, with such improvements as may be found advisable
after experience.
The best answer is for us to provide the fastest and most economical
merchant marine in the world with frequency of sailings. I don't
think we can run ships cheaper than anybody else, but it must not cost
more to ship by American vessels, and it has not in recent years except
in the tramp field. In the tramp field we have never been able to
comDete with foreigners.
Mr. WoRLEY. There are not many of those tramps?
Mr. Kadner. No — ^but there have been a large number in peace-
time.
Mr. WoRLEY. In order to reduce our cost of shipping, in order to
maintain the high standards we have maintained in the merchant
marine, one result will probably be to increase subsidies from the
Government in order to compete with foreign countries?
Mr. Radner. Well, the Merchant Marine Act provides for a sub-
sidy. I doubt very much if, percentagewise, the amount of the sub-
sidy will increase after this war. It might even decrease, because
some of the labor costs of foreign nations have gone* up substantially
during the war, particularly the Chinese. The greater the number of
ships you operate in foreign trade, of course, the greater your ag-
gregate subsidy will be, although your unit cost may be less.
There has been no problem under the Merchant Marine Act of
American services maintaining rate parity with other foreign serv-
ices. There has been freight rate parity for years. Under the Mer-
chant Marine Act of 1936, the ships we did build could maintain
equal quality service with any foreign line, or even superior quality
service.
We had only about 150 ships built and sold under the 1936 act.
I don't know what the figures are — I think I have got them about
right. We must not exaggerate the size and scope of foreign trade.
In foreign trade in 1939, which was the last full peace year, we had
only about 2,000,000 gross tons of freighters in foreign trade, which
would work out about 3,000,000 deadweight tons, wouldn't it, Cap-
tain?
Captain Conway. Yes.
Mr. Radner. We had 3,500,000 deadweight tons in the foreign
trade. Our job is to increase that substantially, possibly to double it.
In 1939 we were carrying with .that about 25 percent of our commerce.
Mr. WoRLEY. Your problem is to what?
Mr. Radner. Our problem is to double that, if it can be done.
Mr. Worley, You think it can be done by having faster ships,
better ships, with the same economy of operation, or more economy
of operation. You think that is the answer, do you ?
Mr. Radner. Yes. We will have a large number of fast, new
ships, economical in contrast with the old ones. We also will have
enough tonnage to increase our participation to 50 percent. We
have the Merchant Marine Act of 1936 which permits us to subsidize
these ships in that foreign trade so as to achieve cost equality. There
is a need for some legislative vehicle to handle the sale of surplus
POST-WAR ECONOMIC POLICY AND PLANNING 685
shipping. That is a matter now pending before Judge Bland's com-
mittee.
Mr. WoRLEY. Do you think it will be advisable for us to require
that all shipping from here, all exports, be sent by American ships?
Do you think that would be going too far ?
Mr. Radner. Anyone interested in the merchant marine exclusively
would say that was a fine idea, theoretically. Actually, I am afraid
it won't work.
Mr. WoRLEY. It would be a unilateral proposition ?
Mr. Radner. Nations must both import and export.
Mr. WoLVERTON. Practically the only difference between what Mr.
Worley is suggesting and what you have suggested is that his is prac-
tically a hundred percent proposition, and you have said you hoped
we will be able to do 50 percent of it.
What do you base that hope on that we will build up our American
shipping to 50 percent?
Mr. Radner. I think it is more than hope. If we used the word
^'hope," that is too cautious a word. I think we can say we are confident
we can expect to have 50 percent of it.
Mr. WoLVERTON. Yes. What I would like to know is, What do you
base that confidence on that is different from what the present situa-
tion actually is?
Captain Conway. I think we ought to make it known to all these
different foreign nations that we intend to carry not less than 50 per-
cent of our foreign trade.
Mr. WoLM^RTON. How would you do that? How would you put
such a policy as that into effect? Would it be statutory, or be by
encouraging American shippers to utilize American bottoms?
Captain Conway. I think we have to encourage American shippers
to use American bottoms.
Mr. WoL%^RTON. How can you encourage them to do it when it is
cheaper, as has been pointed out here, for them to ship in other
bottoms.
Captain Conway. It isn't cheaper. We carry it at the same freight
rates as the foreign bottoms do.
Mr. WoRi.EY. The same rates ?
Captain Conway. Yes.
IVIr. WoRLEY. Then it is not cheaper?
Captain Conway. No; no cheaper.
Mr. WoRLEY. "Wliat other elements come in there to encourage
American shippers to ship by foreign boats?
Captain Conway. We have got to preach to him that he must ship
by Ajnerican shij^s. If he sells a truck for delivery to a foreign
country and the purchaser insists it come in a foreign bottom, he
usually abides by that.
Mr. WoRLEY. Then, no matter what encouragement we try to instill
in them over here, if the buyer insists on that truck being transported
by a ship of his own comitry, the producer is going to do that, the
shipper over here ?
Captain Conway. Unless we take some means of insisting
Mr. WoRLEY. What means are you going to take?
Mr. WoLVERTON. That is the very thing I am interested in. What
gives you that confidence that our foreign shipping will increase to a
point of 50 percent ?
686 POST-WAR ECONOMIC POLICY AND PLAXXIXG
Mr. WoRLEY. Staff Director Folsom, has a question.
Mr. Folsom. Isn't it true that one reason we have had such a small
percentage before the war is that, in the first place, we didn't have
so many ships, didn't have all the routes covered that shippers wanted ;
also that we didn't give as good service as some foreign lines, and the
rates were not attractive; and, on the whole, the shippers simply went
to the foreign lines to get more efficient service, where they could get
service to all parts of the world ?
If we are going to expect to get a higher percentage after the war
it should be based on the fact that we have more ships in operation,
covering more lines and more routes, and that we have faster ships
and give as efficient service and as low-cost service as competing lines.
And, in the final analysis, we have got to depend on that rather than
dictation from government to shippers that they have to use certain
ships.
Captain Conway. Yes; I think aftei- the war we will have faster
ships to compete with the foreignei-s.
Mr, Folsom. We will have a higher percentage of the total than we
did before the war?
Captain Conway. Yes; but I think it is extremely important to
start now to let them know that we expect to carry not less than 50
percent, so they can take that into consideration in their building
programs.
Mr. WoRLEY. It will depend on the efficiency of the ships?
Captain Conway. Yes, sir ; on the efficiency of the ships.
Mr. WoRLEY. I don't think you will ever want to dictate to a shipper
that he has to use a certain kind of ship. You have to make it to his
own interest to do that. Isn't that so ?
Captain Conway. Yes.
Mr. Bland. And cost of operation enters into it ?
Captain Conway. Yes, sir ; that is true.
Mr. WoRLEY. Our subsidy offsets that ; but that is the whole idea, as
I understand?
Captain Conway. Yes. sir.
Mr. WoRLEY. The subsidy is to put our vessels on a parity with the
others ?
Captain Conway. Yes, sir.
Mr. WoRLEY. You say we ought to let other countries know we are
aiming at 50 percent?
Captain Conway. Yes.
Mr. WoRLEY. Just how far would that be the policy ? Do you have
any authority to set that as the policy?
Captain Conavay. Of course, our whole policy is that we wish to
carry, and intend the carry, not less than 50 percent of the cargoes to
and from this country.
Mr. WoRi-EY. Whether you do or not will depend on the policy set
by some other branch of the Government?
Captain Conway. Yes, sir; and also on whether the shippers are
going to go along with us.
Mr. WoLVERTON. That is M^hat I am trying to understand, how you
can say you are confident it will be 50 percent when that human ele-
ment comes into it to which you have just referred.
PU6T-WAR ECOXOailC POLICY AND PLANNING 687
You are lioping to be al)le to get American shij^pers to use American
ships, you want to influence them to do it, and yet you say you can't
compel them to do it ?
Captain Conway. That is true.
Mr. WoLVERTON. I don't see where you can build up this confidence
that you speak of. I think the term that I used of "hope" carries all
the way through. I can't see the basis of your confidence, and, as a
member of this connnittee whose obligation it is to report to Congress,
making suggestions of policy, and so forth, I would like some concrete
plan to be presented to us that would gain our approval, that would
justify us in reconmiending to the Congress certain steps to be taken
in order that this advantage to American ships might be gained. But,
as long as w^e depend entirely upon the desire or the consent of the
shipper, why, I don't see how w^e can be any more certain in the future
than we weie in the past.
I don't think human nature, so far as the shipper is concerned, who
is the American producer, will be any different after the war than
it was before the war; and if the element of cost enters into it, it will
be just as pronounced after the war as it has been before, probably
more so.
I just feel at a loss, if I were called upon today by any Member of
Congress, if I were asked, "What does your committee suggest that we
should do?" I would have to admit that I am not in a position to
make any such recommendation.
I have been hopeful that, out of the wealth of experience of these
different governmental agencies that have to do Avith our shipping,
there would come some concrete suggestions and recommendations that
we could report to Congress in this important matter.
Mr. Radner. Mr. Congressman, I think we ought to emphasize that
the War Shipping Administration, with which we are both associated,
is interested in the wartime job; the Maritime Commission has the
post-war job.
The Maritime Commission has been working for several months,
through a post-war planning committee, on the development of post-
war plans.
Mr. WoLVERTON. That is what we want to hear.
Mr. Radner. Yes, sir. I think that program that is developing in
that channel will ultimately, perhaps, form the framework or at least
background for any recommendations this committee may wish to
make, and possibly this committee ought to hear from the Maritime
Commission officials directly connected with that activity, as far as
post-war planning is concerned.
Mr. WoLVERTON. That gives me some encouragement, what you have
just said; and I think, Mr. Chairman, it would be well to have repre-
sentatives of the Maritime Commission present to give us the result
of their study. It may be that they have not completed it, it may be
that they are not ready to make suggestions, but certainly this commit-
tee cannot afford to take a leap in the dark and make suggestions of its
own that we do not have the experience to make.
ISIr. Radner. Although it is out of otir field, I think we ought to ad-
just our thinking a bit in one respect. I think it is important, but I
think we have over-emphasized the question of shipper loyalty.
688 POST-WAR ECONOMIC POLICY AND PLANNING
The situation we will be in after the war will be pretty much the
same as that of a great, big, chain grocery going into a small town.
The grocery chain is in position to open up five or six stores with de-
luxe service and indulge in advertising. It is confident, because of the
fact it is able to go in there and open on every street corner, if necessary,
that it will get"50 percent of the local trade.
The Maritime Commission, when this war is over, is going to be in
position to do that same thing with ships. It will be no trick at all
to put enough fast ships in every trade to give more than enough service
for 50 percent of the trade.
While we have been concentrating our thinking on the shipper
relationship, we ought not to overlook the fact that actually interna-
tional shipping is competition between steamship companies. If you
get there first with the best ships, the largest number of ships and the
most frequent sailings, you are going to get the trade, just the same
way the chain store that invades a locality gets the grocery trade.
Mr. Bland. Carrying that thought further, haven't you got to dis-
tribute your trade more among the ports of this country, rather than
run it through a few particular ports ?
Captain Conway. That is true.
Mr. Kadner. I think that the future of the merchant marine has to
encompass the use of all ports where such use will increase the amount
of tonnage moving on American ships. In wartime we must disre-
gard all those considerations in getting maximum use of ships. Cer-
tain ports have been used for Army and Navy purposes, but the post-
war program has to encompass utilization of all these ports.
Mr. Bland. The ports of the country were used largely by foreign
shipping?
Mr. Radner. That is right. That takes you, if you develop it, into
the tramp field, because a lot of our tramp cargoes, like coal, moved
out of these out-ports, and that is one place where the American
industry has always been at a disadvantage. There is no solution to
that problem that anyone has been able to see as yet.
Mr. WoRLEY. What efforts have been made over here to encourage
our own buyers to insist that the product be transported in American
ships?
Mr. Radner. I think there has been in the last 10 years a consider-
able amount of persuasion tried on buyers, with considerable success.
I don't want anybody to think it hasn't worked. It has worked.
Mr. WoRLEY. Do you have any figures on that ?
Mr. Radner. No ; I haven't the figures.
Mr. Worley. You mentioned some a while ago, about comparison of
the 1939 year. Was it a million five hundred thousand ?
Mr. Radner. Gross tons.
Mr. WoRLEY. You don't have any figure as to how much we were
carrying before you started this persuasion program and how much
we were carrying after that ?
Mr. Radner. No; but I think some of the Maritime Commission
people can tell you specific instances of large industries that have in-
creased their patronage of American ships as a result of such
educational efforts. This was before the war. We made a lot of
people conscious of the merchant marine by the peacetime efforts of
Admiral Land and Admiral Vickery to increase consciousness of
American-flag ships.
POST-WAR ECONOMIC POLICY AND PLANNING 689
Mr. WoRLEY. The buyer can almost write his own ticket; at least,
they seem to in foreipi countries?
Mr. E.ADXER. I think it would depend on whether you have a buyer's
or seller's market.
Captain Conway. It does have a big effect, but all of our steamship
companies have very efficient traftic organizations that are out scouting
around among all the buyers and the shippers.
Mr. WoRLEY. You say that has an effect, where the purchaser could
pretty nearly dictate his own terms. All right, since this nation
exports more than it imports, wouldn't it stand to reason that, human
nature being what it is, tlie amount of freight we will carry will not
be as great as those who import, who buy our exports? Am I too in-
volved in that?
Mr. Kadxer. I think the only conclusion you can draw from that is
we are relatively at a disadvantage with foreign countries.
Mr. Worley. Because we export more ?
Mr. Radxer. Because we export more than we import.
Mr. WoRLEY. In order to increase our shipping, we have to import
more ?
Mr. Radx'er. Nothing would help shipping as much as a balance of
imports and exports, as well as an aggregate increase.
Sir. Worley. That brings up a question which perhaps the Maritime
Commission is not competent to testify on
Mr. Blax^d. There are various organizations in the country, are there
not, which are trying to bring about that result? For instance, the
Mississippi Valley Association has been trying to educate the people
for years on the necessity of shipping under the American flag.
Mr. Worley. Do you think they are perhaps trying to go along with
that and make some revisions in the Smoot-Hawley tariff?
Mr. Radx^er. I think that insofar as the steamship industry is a
significant factor in tariff policies, which I am afraid it is not, you
will find the steamship industry has always been for a low tariff.
Mr. Worley. Ordinarily we are not going to import anything that
will lower our own standard of living, and neither are other countries.
One way to increase our foreign commerce and shipping is to import
as much as we export, so you are right up against a blank wall.
How do you propose to overcome that. Captain ?
Captain Conway. I don't know.
Mr. Worli:y. Do you have any plans on that?
Mr. Wolm^:rtox^. You have never been able to get the American
people to travel for pleasure under the American flag to the extent
that they could, and encouraging them to ship, where it is a business
transaction, where dollars and cents enter into it from the standpoint
of profit. I don't see how you can be so optimistic, when we can't even
get them to do it when they travel for pleasure on foreign ships.
Mr. Radxer. It is quite the reverse. Wlien we travel for pleasure —
we Americans have always been suckers for foreign service, French
cooking, and so forth.
Mr. Worley. Particularly titles.
Mr. Radxer. Yes. You don't have to contend with that problem
when it comes to shipping a locomotive or bale of cotton.
Mr. Worley. There seems to be a lot of thought that some people
will be using air transportation instead of shipping.
690 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. Radner. American steamship companies are very much con-
cerned about the possibilities of air transportation and the danger of
their being frozen out of that field.
I don't want the impression created that American lines couldn't
hold their own with foreign lines. They have in recent years.
Mr. WoL-s-ERTON. You have built the Washingt07i, Manhattan, and
America down in Newport News.
Mr. Radner. And they are very fine ships.
Captain Conway. The Manhattan and Washington, I think, were
among the most successful ships in the North Atlantic service.
Mr. FoLSOM. The reason we didn't get our share of the trade is that
we didn't have enough ships?
Mr. Radner. That is it.
Mr. WoRLEY. Those ships were just as fast as foreign ships?
iSIr. Radner. Not the Queen Mary, the superliner ship.
Mr. WoRLEY. A question which should have been brought out a while
ago on ownership and transfer, and so forth : What changes in terms
of employment as between the Govei-nment and private owners have
been made affecting the pei'sonnel of these ships that were taken over,
as far as union agreements and compensation ? Can you give us some
idea on that ?
Captain Conway. There is practically no change whatsoever.
Mr. WoRLEY. About the same condition?
Captain Conway. Yes, sir.
Mr. WoRLEY. We have made no spex^ial commitments to restore own-
ership to former private owners of ships that we have taken over,
have we?
Captain Conway. Any commitment as to the time they would be
returned ?
Mr. WoRLET. Yes. /
Captain Conway. No.
Mr. WoRLEY. In the meantime, we continue the same operating
agreements ?
Captain Conway. Yes, sir.
Mr. WoRLEY. Do you propose, or do you know, to release to compet-
ing companies at the same time?
Captain Conway. Yes ; we propose when they are returned that it
will be simultaneously to all of them.
Mr. WoRLEY. So that one group won't have any preference or pri-
ority over the other?
Captain Conavay. That's right; yes, sir.
]\Ir. WoRLEY. I think we have covered most of these matters.
After peace is declared and when you come to the problem of dis-
posing of these ships, just how much work, actual physical work, will
you have to do on tlie average ship before you consider it fit for com-
merce? For example, your armored ships, which I understand are
about 20 percent inefficient now compared with what they should be
when some gear and other war paraphernalia is off — can you give us
an idea about that?
Captain Conway. Your armament and degaussing gear doesn't
interfere with the carrying of cargo except some little deck cargo,
which will not be a problem in post-war. It depends on what you
are using the ship for now. If you have converted it over to a troop
POST-WAR ECONOMIC POLICY AND PLANNING 691
ship, obviously there will be a tremendous amount of work to be done,
but an ordinary freight ship, it won't be too much.
Mr. WoRLEY. You don't anticipate a shortage of any particular
type of vessels, tankers or refrigerators or cargo ships?
Captain Conway. No, sir ; except for small reefers, small freighters,
and passenger ships.
Air. WoRLEY. Do you have any plans for continuing to assist in
the construction of new ships?
Captain Conway. Well, we hope to construct some small ships for
the Caribbean. That is one area where we haven't built, I don't believe
sufficient small ships.
Mr. WoRLEY. Why couldn't we use these big ships?
Captain Conway. They are too deep a draft, for one thing, and
too large to go into these small ports.
Mr. WoRLEY. "Wliat do you call a small ship, less than a thousand
tons ?
Captain Conway. No; what I have in mind is something about
3.500 or 4,000 tons.
Mr. WoRLEY. We don't have sufficient ships now ?
Captain Conway. We have lost a lot of those small ones, and
although we built some small ones for the Army and Navy, we still
think probably we will need some more of those; and obviously you
will need some more large passenger ships of the type of the Washing-
ton, Manhntfan, and America.
Mr. WoRLEY. Do you intend to build those?
Captain Conway. We hope to.
Mr. Bland. You are building refrigerator ships ?
Captain Conway. Yes; we are building refrigerator ships. Judge,
now, and converting several of our other type ships to refrigerator
vessels.
Mr. WoRLEY. You say you hope to ?
Captain Conway. We have.
Mr. WoRLEY. I mean these bigger ships, passenger ships, what will
it depend on, whether you do or not?
Captain Conway. I am sui'e we will, depending on getting together
with the steamship companies so they can see the picture. I think one
of the problems is this air transport.
Mr. WoRLEY. They are afraid to build now because they are afraid
of the air lines?
Captain Conway. That's right.
Mr. WoRLEY. Wlien do vou think your plans will have to be formu-
lated?
Captain Conway. As a matter of fact, we are working on plans now.
Mr. WoRLEY. I mean these new ships.
Captain Conw^ay. I say they are working on plans now.
Mr. WoRLEY. In tonnage, how much new construction do you esti-
mate there will be, or will that depend on this air controversy?
Captain Conway. For pa&senger ships, you mean?
Mr. WoRLEY. Yes.
Captain Conway. I can't give you how much tonnage. We have
a program there for rehabilitating United States Line ships in the
North Atlantic and some in tha Pacific.
Mr. WoRLEY. It is contemplated that the Government will assist?
692 POST-WAR ECONOMIC POLICY AND PLANNING
Captain Conway. By a construction subsidy ; yes.
Mr. WoRLEY. Only construction, not operation ?
Captain Conway. Both, sir.
Mr. WoRLEY. Well, here is a rather involved question : Do you be-
lieve that these ships, that is, our merchant marine, if purchased by
a foreign nation and operated under its own regulations by its own
personnel, would compete at an advantage or disadvantage with our
own ships ?
Captain Conway. Well, I believe if we would sell some of these
slower-type ships that we have to foreign nations that it will be
helpful to us.
Mr. WoRLEY. Do you suppose they will be interested in buying
these slower ships?
Captain Conway. I seriously doubt it.
Mr. WoRLEY. It is kind of hard to make a bargain if they are not
interested. You doubtless have some reason for not wanting to keep
them?
Mr. Bland. It seems that nobody is interested in the slower type.
Mr. WoRLEY. As I understand, you are to give priority on the sale
of ships to our own people first ?
Captain Conway. Oh, yes.
Mr. WoRLEY. However, you don't intend to put our better ships up
for sale ; you don't contemplate it at present?
Captain Conway. No, sir.
Mr. WoRLEY. Has the Maritime Commission adopted any policy
regarding the time at which they will put on the market the ships
that will be disposed of ?
Captain Conway. Not that I know of. I think Judge Bland's bill
covers that.
Mr. Bland. Also, Mr. Chairman, there is pending before the com-
mittee a bill, which I think will receive the recommendation of the
Maritime Commission, in fact two bills, one introduced sometime ago,
and we had on that a favorable report and some amendments were
suggested, and it could not reach the stage of consideration in the
House because of the recess of Congress. I don't know what we can
do in the short time between the 14th of November and the 1st of
January.
Captain Conway. I might say that I visualize that the steamship
companies who have purchased fast ships on the basis of having
sufficient tonnage to operate in a normal peacetime operation will
charter from us a number of these slower type vessels during what
we all think is going to be a big movement after the war, and that
when things then do get back to normal, undoubtedly we will lay
those Liberty ships up.
Mr. WoRLEY. In your sanctuary ?
Captain Conway. Yes, sir ; that is the way I picture it.
Mr. WoRLEY. When we entered this war the ships we had in the
merchant marine were obsolescent, according to testimony we had,
hardly fit for any purpose. Don't j'^ou suppose that same condition
will prevail in 25 or 30 years, if we get in another war, if we lay
these ships up in sanctuary ; that they will be at best obsolescent ?
POST-WAR ECONOMIC POLICY AND PLANNING 693
Captain Conway. I would say definitely no. The old ships we
constructed just after the last war have definitely done a wonderful
job and many of them are in operation right now.
Mr. WoRLEY. I am glad to hear that. That is contrary to the other
information I had received.
Captain Conway. They are all operating, except those that were
sunk. A torpedo would sink one of these just as quickly as it would
the Liberty or C-1.
IVIr. Worley. There were very few changes or improvements in the
new ones over the old ones ?
Captain Conway. No; but their machinery was all in good condi-
tion and they were all taken out and reconditioned and placed in
operation. As a matter of fact, the major portion of the ships we
took from the intercoastal trade were all old-type ships.
Mr. WoRLEY. Had those ships been to sanctuary ?
Captain Conway. Some had been in reserve and taken out and put
in coastwise trade. You take a ship and lay it up and it doesn't get
the abuse one does in operation. We took all the ships we had in the
laid-up fleet and put them in operation, and they did a good job.
Mr. Worley. I am glad to have that information.
This question of subsidies ; you are pretty well versed in the ques-
tion of subsidies and its present operation ?
Captain Conway. I know something about it; not all the details.
Mr. WoRLEY. Admiral Land testified yesterday that the operating
subsidy paid by the Government would be paid back within a short
period of time ; at least, that is my recollection of his testimony. Is
that your recollection ?
Mr. FoLsoM. He said they almost broke even.
Mr. WoRLEY, Can you supply us with information, say, for the
past 10 years of the yearly amount of the subsidy, plus the amount
of return the Government got back?
Captain Conway. No ; I cannot. Mr. Eadner could do that better
than I could.
Mr. Radner. We have submitted that to the Congress, but would
be glad to submit it for the record here.
IVIr. Worley. Can we have that ?
Mr. Radner. It covers only the period from 1937, when subsidies
became effective. It will show the special reserve funds, one-half
of which will be returned to the Government unless the funds are
exhausted by future losses. They will be about 60 percent of the
amomit of the subsidies previously paid.
Mr. Bland. You mean operating subsidy?
Mr. Radner. Operating subsidy.
Mr. Worley. You have figures on the shipbuilding, construction
subsidy?
Mr. Radner. The Maritime Commission has. We will be glad to
put them into the record. There is a recapture of profits in excess
of 10 percent from the shipbuilder under the terms of section 505 (b)
of the 1936 act.
INIr. Worley. Can we have the figures on that ?
Mr. Radner. Yes, sir.
694 POST-WAR ECONOMIC POLICY AND PLANNING
(The matter referred to is as follows:)
TABiiE 2. — Data on operating and differential subsidies
OPERATING DIFFERENTIAL SUBSIDIES i
Calendar years
Subsidy
accrued ^
Recapture
under
temporary
agreements '
Accrued
recapture
under long-
term agree-
ments <
Total
recapture
Percent
recapture
to
subsidy
1937
$3, 310, 950. 42
11,251,048.64
12, 030, 218. 33
12, 849, 259. 21
11,030,069.27
657, 892. 06
1938 -
1939
1940 . . - . . .--
1941
1942
Total
51, 129, 437. 93
$1, 524, 943. 19
$28, 865, 769. 52
$30, 390, 712. 71
59.44
1 Data obtained partially from statements submitted by operators which have not been audited by the
Commission.
2 No subsidy accrued after calendar year 1942.
3 Represents settlements based on final accountings with the Commission.
* Recapture accrued through Dec. 31, 1942, only. Excess profits (not exceeding total subsidy) under the
long-range agreements are not recapturable until at the end of each 10-year period, and then on the 10-year
average basis.
CONSTRUCTION-DIFFERENTIAL SUBSIDIES
Fiscal years
Amount
absorbed
Recapture
under
prime ship
construction
contracts
Recapture
under sub-
contracts
Total
1938
1939
$2, 260, 350. 52
6,074,621.90
43, 970, 556. 49
37, 196, 141. 46
50, 406, 273. 58
1940 - -
1941
1942
1943
Total
139, 907, 943. 95
$8, 677, 689. 58
$3, 128, 577. 61
$11, 806, 267. 19
Mr. WoRLEY. Has any subsidy money been paid back to the Gov-
ernment during this period of Government operation ?
Mr. Radner, No. The subsidy contracts have all been continued.
The recapture does not become effective until the termination of a 10-
year period. There is an accounting at the end of each 10-year period,
unless the contract ends sooner, in which case the accounting is at the
end of the contract.
The contracts were made in 1937 or 1938, so that the 10-year periods
or the contracts won't expire until 1947 or 1948. At that time there
will be an accounting and recapture.
Mr. FoLSOM. This information can be furnished us by years?
Mr. Radner. Yes ; we can furnish it by years. It has all been com-
piled, I know.
Mr. Worley. Admiral Land also testified that our largest subsidies
were to shipbuilders.
Captain Conway. Oh, I think that is true.
Mr. WoRLEY. I suppose the figures you will submit will give us a
picture of it?
Mr. Radner. Those are construction subsidies.
Mr. WoRLEY. Yes : construction subsidies.
POST-WAR ECONOMIC POLICY AND PLANNING 695
Mr. Radner. I think the point he was making is that the construction
differential subsidy Avas not to the ship owner ; the subsidy was to the
shipyard, ahhough in legal form to the owner, because what we were
doing was bringing American shipbuilding costs down to foreign
levels.
Mr. WoRLEY. The shipyard benefited ?
Mr, Radner. Yes. We have a law vvhich prohibits American oper-
ators from buying ships abroad and operating them in our coastwise
trade. Otherwise he could go out and buy them cheaper than he could
through the Maritime Commission.
Mr. WoRLEY. We have a law which prevents American ship owners
buying foreign ships ?
Mr. Radner. And operating them in our coastwise trade.
Mr. WoRLEY. We could also have a law which would prevent his
buying commodities in other countries and carrying them in anything
but American ships?
Mr. Radner. Well, you have your tariff.
Mr. WoRLEY. And that is the law; that is what it amounts to, in
effect ?
Mr. R\DNFJ{. That's right.
Mr. WoRLEY. Now, to sum up, just what do we get for our subsidy
money ?
Mr. Radner. We can put that all in the memorandum.
Mr. WoRLEY. Can you elaborate, just briefly?
Mr. Radner. Yes. I would like to have the record show I have no
formal connection, no present connection, with the subsidy program.
That is a Maritime Commission function.
The subsidy contracts provide that the shipowner, in consideration
of having his operating costs equalized with foreign competitors — that
is what the subsidy does — will run his subsidized ships in a specified
trade route, with a certain minimum number of sailings per annum.
Mr. FoLSOM. It is the operating subsidy you are talking about?
Mr. Radner. Yes; operating subsidy. He agrees also to limit sal-
aries to $25,000 a year, and generally to observe regulations and re-
strictions imposed by the Merchant Marine Act, 1936. He loses his
freedom of action, can't get out of his trade route, can't reduce the
number of sailings without the permission of the Government, can't
reduce the ports of call without the permission of the Government. He
is pretty well regulated. All he gets is equalization of costs with those
of his unregulated foreign competitors.
Mr. Worley, You made a statement a while ago that shipping was
not a Government agency. I have forgotten your exact words, but
the impression was that the shippers themselves had nothing to do
with the Government; that they were an enterprising group them-
selves, dependent on their own initiative.
Mr. Radner. That is the shippers ?
Mr. WoRLEY. I mean ship operators. I was a little confused in
the statement. I couldn't quite reconcile it with the fact that it
seems that all shipping, no matter what the country, is subsidized to
some extent by its own country, and therefore subject to those trade
areas you set up. In a sense they are not free agents, as I see it.
Mr. Radner. You are talking about foreign shipping ?
Mr. WoRLEY. No ; I am talking about our own compared to foreign
shipping.
696 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. Radner. That part of our own shipping which is subsidized
is in the foreign trade only and does not include tankers, which don't
get any subsidy. That part of it has lost its freedom of action, is
more or less under Government regulation and control, but has its
costs equalized to foreign levels. It is still entirely private and inde-
pendent. I should say it is roughly comparable to the status of the
railroads in the interior. On the other hand their foreign competitors
are usually free from such restrictions.
Mr. WoRLEY. Their course is pretty well charted ?
Mr. Radner. Yes. We put these ships on a track and they run
to a certain destination. They have to run at certain intervals and
maintain certain practices. We don't regulate the rates. The reg-
ulation isn't quite as severe as it is in the railroads.
Mr. Bland. That is the operating differential ; not the construction
subsidy ?
Mr. Radner. Exactly. There is no more reason to say shipping
isn't private enterprise than to say the railroads are not private enter-
prise because they are closely regulated. They are still a private
enterprise.
When you get to the construction subsidy, anyone who wants to
build a ship and agrees to comply with the act and run it on an
essential foreign trade route can get a vessel constructed with a sub-
sidy. His agreement is to run it on that trade route. There is no
recapture from him, no regulation of his salaries.
Mr. Bland. He enters into a contract with the shipbuilder, and
that shipbuilder gets the difference between the amount that would
be paid in a comparative shipyard ?
Mr. Radner. In a comparative foreign shipyard. It is really a
subsidy to the American shipbuilder.
Mr. Bland. But you get your ship under the American flag and it
must use — is it now a 100 percent American seamen?
Mr. Radner. It is at least 90 percent. It was graduated. [See sec-
tion 302 of the 1936 act.]
Mr. Bland. Yes, it was staggered; so it is probably a hundred
percent.
Mr. WoRLEY. In the most optimistic light, what do you suppose
would be the effect on our foreign trade and shipping if all subsidies
were discontinued?
Mr. Radner. On our shipping?
Mr. WoRLEY. Yes.
Mr. Radner. If subsidies were discontinued, I don't think any
major American company would continue in the foreign trade.
Mr. Worley. They don't have enough initiative and enterprise to
compete, standing alone, with other companies ?
Mr. Radner. Well, it is not initiative and enterprise. It is a case
of how big a handicap they can absorb, with all the initiative and
enterprise they have. You can't compete against a fellow who has
half of your costs. Initiative and enterprise are not American
monopolies and do not offset the foreign cost advantage.
Mr. Worley. What handicaps do we have that the other nations
don't have?
Mr. Radner. Costs.
Mr. Worley. Cheap labor?
POST-WAR ECONOMIC POLICY AND PLANNING 697
Mr. Radner, It is the one question of cost — cost of operation and
cost of construction. Assuming the American owner is as efficient
as the most efficient foreigner, when you put those two fellows in the
same race and give one of them half the costs
Mr. WoRLET. I would say he wasn't just as efficient; I would say
he was far more efficient.
Mr. Radner. The American far more efficient?
Mr. WoRLEY. Yes.
Mr. Radner. I suppose we all feel that way.
Mr. WoRLEY. Maybe I am wrong, but I like to feel that way.
Mr. Radner. Foreigners are pretty good ship operators.
Mr. Bland. Isn't it a fact the ships would go to foreign flags and
we would have no shipping?
Mr. Radner. Correct. If we had no subsidy program, the only
shipping you would have under the American flag would have to be
with foreign crews. That may not follow in certain trades. I am
not saying between the United States and Canada
Mr. Bland. Wouldn't there enter into that the right to requisition
them in time of war?
Mr. Radner. Yes ; from the point of view of national defense
Mr. Worley. I am not discussing that phase of it. I understand
we are going to have to maintain that, in accordance with the bill
Judge Bland is steering through Congress; we are going to have to
have that for national defense. But we are more concerned with
the economical operation of this. We are going to have, as you know,
approximately three hundred billions of dollars of debt somebody has
to pay.
(The memoranda are marked "Exhibit No. 17" and are found in the appendix
on p. 1183. )
Mr. Radner. I think we ought to file with the committee records
the economic survey the Commission made in 1937.
You will find in there a pretty good summary of benefits to Ameri-
jcan economy and foreign trade, particularly, of the subsidy.
Mr. Worley. Such as good will?
Mr. Radner. Such as good will; the idea of trade following the
flag, as applied to American-flag shipping.
I think there is no question in the minds of any of the people
operating ships that a large American merchant marine will have
a stimulating effect on American commerce; ships owned and op-
erated and manned by Americans interested in American trade and
trying to build up American trade.
One of the big jobs of the steamship companies' traffic depart-
ments is to devise ways and means of filling up space and getting
cargoes, imports and exports ; and over the years the ultimate inter-
weaving into that the relationship of banking, which the British have
done very effectively. All of those things are important in building
up international trade.
Captain Conw^ay. I think our foreign trade would fall off if we
didn't have an American merchant marine. You could have that
truck you are talking about built in an American factory, and if we
didn't have the shipping they could easily increase the price of ship-
ping it to the extent it could not be manufactured and sold in a foreign
country.
698 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. FoLSOM. If we can't build ships in competition with the world,
why should we subsidize that particular industry, except for the ship-
building nucleus we have to keep for the national defense?
Captain Conway, Isn't that about what we did prior to World War
I, and because we didn't have any shipbuilding industry we didn't
complete a single ship that carried foreign cargo during the war ?
Mr. FoLsoM. I assume we will keep the shipyards we have now, a
nucleus, for national defense.
Captain Conway. The wa}^ to keep them there is to keep them
building ships.
Mr. Bland. Have an organization.
Captain Conavay. Sure. If we hadn't had an organization built
up with the Bland bill, the Merchant Marine Act of 1936, with an
industry under way
Mr. FoLSOM. A number of shipyards expanded very quickly.
Captain Conway. We had the nucleus there.
Mr. FoLsoM. I assume you are going to have a nucleus again.
Captain Conway. We had a program of 50 ships a year.
Mr. Radnek. Suppose we doubled it, that is a very small production
compared to what we have today, but probably adequate to keep the
yards going on a so-called nucleus basis.
Mr. FoLSOM. What does that amount to in dollars?
Mr. Radnek. I don't know. If each ship carried a million-dollar
consti'uction subsidy, and half the ships were subsidized, that will be
$50,000,000 a year.
Mr. Bland. I may say that we have a standard in this country by
reason of the existence of certain jobs which have been maintained
through subsidy. There were organizations which were filtered out to
other yards and formed the basis of organizations themselves in the
other yards. I know in the Newport News Shipbuilding & Drydock
Co. people went to Wilmington and elsewhere and formed a nucleus to
build up those jobs so necessary for our production.
Mr. FoLSOM. You now feel, based on the operation of the last 7
years, that you can get by without very much of an operating subsidy.
Do you have any idea that some day in this country we might buiid
ships at as low a cost as in other countries ?
Mr. Radner. I don't want to agree that the operating subsidy will
not be substantial. I think it might be quite substantial. It is true
if you have anything like the condition we had in the last 7 years,
it will all be recaptured but we can't count on that.
Mr. FoLSOM. Do you think it is likel}'' we can ever build ships in this
country at foreign costs ?
Mr. Radner. Build ships at foreign costs? Not until we have
Utopia.
Mr. FoLSOM. You can make a lot of other things in this country at
lower cost with higher wages.
Mr. Radner. I think that was discussed in that economic survey.
Shipbuilding does not lend itself to the same degree of mechanization
and mass production as automobiles. We are turning out one or two
thousand ships a year, and that is considered remarkable, but we
probably turn out that many automobiles in a single day. You can't
get the economies, even in this enormous wartime production that is
comparable with peacetime mass production. There is not a sufficient
POST-WAR ECONOMIC POLICY AND PLANNING 699
demand. The Government yards operated by Henry Kaiser alone
probably could keep the whole world supplied with ships forever.
Mr. WoRLEY. There are just some things this country can make
cheaper than other countries, and other things that other countries
can make cheaper.
Mr. FoLSOM. I am looking at it from the point of the national
economy as a whole.
Mr. Radner. I would say that from the standpoint of the national
economj^, the preservation of shipbuilding by subsidies is far more
desirable than the preservation of other industries by tariff protection.
For the industries getting tariff protection, the protection is concealed ;
in the case of shipyards it is open. That should not change the ultimate
factual and the policy considerations, but it may make it
Mr. "WoRLEY. A tariff is first cousin to a subsidy ?
Mr. Radner. That is all it is; a tariff is a subsidy paid by the con-
sumers directly. A government subsidy is paid by the consumers
ultimately as taxes, but in the first instance is paid by the Government
and passed on to the consumers in the tax bill. I think there are a lot
of things on which we could save money if we were to cut out tariffs.
I think we could save more money there than if we cut out subsidies to
ships.
Mr. WoRLEY. This is an academic question — what do you suppose
would happen if Congress were to repeal all trade restrictions and
barriers, including subsidies of all types?
■ Mr, Radner. Oh, I think we would go through chaos for a while.
Mr. WoRLEY. Then what do you think would happen ?
Mr. Radner. My own honest opinion on that is we would have
a terrific decline in our standards of living because I don't think we
make enough gadgets cheaper than anybody else, like automobiles, to
keep the whole country going. Just imagine what would happen to
the farmer.
Mr. Bland. The history of shipbuilding, Mr. Folsom, shows that
we had even practically lost the art of building battleships, so that in
the days of President Cleveland, when we got out plans for the old
Texas, we had to buy them abroad.
Mr. WoRLEY. There is one other question — the question of restric-
tions on our shipping in foreign countries. Do we enjoy the same
privileges in ports of the world that all other ships do.
Captain Conway. I would say, generally, yes.
Mr. WoRLEY. There is no discrimination — no penalties?
Captain Conway. No, sir.
Mr. Radner. There are some isolated cases like New Zealand, where
they have lower charges for British ships.
Mr. WoRLEY. Don't they in all British colonies; Australia, for
instance?
Mr. Radner. No. That was peculiar to New Zealand. Australia
has a tax on stores consumed while in territorial waters which does
not apply to British vessels.
Mr. Bland. You had light dues when in a certain distance of a
lighthouse ?
Mr. Radner. Yes. Lots of those things that are discriminatory
we probably don't know about.
99579 — 45— pt. 4-
700 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. WoRLEY. Do we discriminate against any sliips that visit our
ports ?
Mr. Kadner. No, sir.
Mr. WoRLEY. They all receive the same treatment ?
Mr. Kadner. That's right.
Mr. Worley. Do you gentlemen have any information which you
think would be helpful to this committee in its task that we might have
overlooked and may have failed to ask for ?
Mr. Radner. No ; I can't think of any at this time.
Mr. Worley. If we overlooked any, it was purely unintentional.
We tried to ask all of them.
If you will provide us with that material requested
Mr. Radner. We will see that the record contains all the material,
together with other material we have submitted elsewhere, that we
think might be helpful.
Mr. Worley. And at any time during this investigation, if you run
across any information you think Avould be helpful to the committee,
we would appreciate it if you would supply it.
Mr. Radner. Yes, sir.
Mr. Bland. I might say that the committee report which was filed
by the Committee on the Merchant Marine and Fisheries in 1935 as
the basis for the 1936 act showed the conditions then existing in the •
merchant marine.
Mr. Radner. That is right. There was a series of reports around;
that time, all of them very valuable, and some of the testimony around
the reports was very valuable, like Al Haag's testimony.
Mr. Worley. On behalf of the committee, I would like to thank you
gentlemen and express our deep appreciation for the information you
have given us.
The committee will adjourn at this time until 10 o'clock tomorrow
morning.
POST-WAR ECONOMIC POLICY AND PLANNING
WEDNESDAY, SEPTEMBER 27, 1944
House of Representatives,
Subcommittee on Foreign Trade and
Shipping of tiie Special Committee on Post-War
Economic Policy and Planning,
Washington, D. C.
The subcommittee met, pursuant to adjournment, at 10 a. m., in
room 1304, New House Office Building, Hon. Eugene Worley presiding.
Present : Representative Worley (Texas) .
Also present : M. B. Folsom, staff director, H. B, Arthur', consultant ;
and V. D. Reed, consultant.
Mr. Worley. The committee will come to order.
The Subcommittee on Foreign Trade and Shipping resumes hear-
ings this morning with the Commerce Department. The committee
hopes through the examination of a series of witnesses from that
Department to determine just what part the Department, together
with its various subdivisions, plays in our foreign trade, and, inso-
far as is necessary to cover it, our sliipping.
It is very pleasant to have with us this morning the Under Secretary
of tlie Department of Commerce, Mr. Wayne C. Taylor.
As I understand, Mr. Taylor, you have a general statement to make ;
and then you will ask the heads of the various departments under
you to give the committee a brief resume of the functions of their
particular subdivisions of your department.
If you will state your name and position for the record, we will be
glad to hear you.
STATEMENT OF WAYNE C. TAYLOR, UNDER SECRETARY, ACCOM-
PANIED BY SOUTH TRIMBLE, JR., SOLICITOR, AND THOMAS E.
LYONS, EXECUTIVE SECRETARY, FOREIGN-TRADE ZONES BOARD,
DEPARTMENT OF COMMERCE
Mr. Taylor. Mr. Chairman, my name is Wayne C. Taylor, Under
Secretary of Commerce.
Mr. Worley. For the benefit of the record and the information of
the committee, Mr. Taylor, can you give us some background as to
just what the Department of Commerce does and what part it plays
in our domestic and foreign commerce, with particular reference to
its participation in foreign matters.
Mr. Taylor, In general, Mr. Chairman, the work of the Depart-
ment of Commerce is divided between what you might call the tech-
nical service aspects, such as tlie Weather 'Bureau, the Coast and
701
702 POST-WAR ECONOMIC POLICY AND PLANNING
Geodetic Survey, C. A. A., which are generally grouped togethery
and the economic and development aspects.
In order to present a picture perhaps more clearly to the committee,
we felt that we would save the teclmical group for this afternoon.
As they have very direct service in foreign trade and so naturally
fall together, we are asking Mr. Burden and the heads of those three
bureaus to be here this afternoon.
This morning we have what you might describe as the Secretary's
office, which has over-all supervision over all of the bureaus. There
are certain special functions which are not assigned to bureaus, such
as the Foreign Trade Zones Board.
Mr. WoRLEY. May I interrupt? When was the Department of
Commerce created and established by law?
Mr. Taylor. Mr, Trimble, you have that.
Mr. Trimble. 1903.
Mr. Taylor. There are certain questions having to do with dates
and legal functions that I thought Mr. Trimble could answer directly.
Mr. WoRLEY. Was it created by an act of Congress ?
Mr. Trimble. Yes, sir.
Mr. WoRLEY. What was the purpose for creating the Department
of Labor?
Mr. Taylor. Historically, as you probably know, it was the De-
partment of Commerce and Labor, and there was a regrouping of
functions at that time — no, the Department of Labor was split off
after that, wasn't it ?
Mr. Trimble. Originally the Department of Commerce and Labor
was created in 1903 and consisted of a number of bureaus, and the
Labor Division was separated in 1913 when the Department of Labor
was created, and the Division of Labor was transferred to the newly
created Department of Labor.
Mr. WoRLEY. Why was this particular Department of Commerce
created ? What was it created to do ?
Mr. Taylor. To promote the foreign and domestic commerce of the
United States. There has always been in the history of the Depart-
ment of Commerce a group of service functions which, frankly, might
have been assigned almost anywhere, but for convenience of admin-
istration they were grouped together in one department, and the
development and promotional aspects are related to them.
Mr. WoRLEY. Is your department concerned with the policy-making
provisions with respect to our foreign trade and commerce?
Mr. Taylor. Yes; it is. That is in the original act. Naturally, the
Department of Commerce does not do that alone. It consults, par-
ticularly on the foreign phases, with the Department of State, the
Department of the Treasury, and so on ; and on domestic phases
Mr. WoRLEY. Would you mind enumerating for the record the other
departments with which you confer in arriving at policies?
Mr. Taylor. The Department of State, the Department of the
Treasury, and naturally during this period, with the War and Navy
Departments. In fact, during the course of the entire history of the
Department, it consults with them to acquaint them with facts re-
garding security aspects. Then the Department of Agriculture — in
fact, it would be pretty hard to indicate any department or agency
we do not consult with.
POST-WAR ECONOMIC POLICY AND PLANNING 703
Mr. WoRLEY. Does your department have the final word in any
policies ?
Mr. Taylor. I don't think so, when you get out of the technical
field. For example, the Bureau of Standards has what you might
call the final word; the Patent Office has the final word; but that is
always subject to certain limitations.
Mr. WoRLEY. By another agency ?
Mr. Taylor. Well, either by another agency or by Congress or the
President.
Mr. WoRLEY. Pardon the interruption. You may continue, sir.
Mr. Taylor. Certain of these bureaus naturally have very specific
functions of their own which are laid down by Congress which give
them a major element of independence. The C. A. A., for example,
operates under very specific law : the Census Bureau operates under
very specific law ; the Bureau of Standards, and the Patent Office, So,
whereas the Secretary of Commerce, as such, works with them very
closel}^ on policj^ and operations, there are certain things that the Sec-
retary of Commerce cannot do, even if he wanted to, on account of
limitations which have been laid clown.
Mr. WoRLEY. By your organic act?
Mr. Tayt.or. All the acts which created the specific bureaus.
Mr. WoRLEY. Do all of those matters clear through the Secretary's
office ? Is it the duty of the Secretary to confer with the heads of the
other departments before the policy is finally determined?
Mr. Taylor. Yes,
Mr. WoRLEY. You may proceed.
IMr. Taylor. I will deal first with the Foreign-Trade Zones Board
of which Mr. Lyons is Executive Secretary. This Board was also
set up by a specific act of Congress, the Celler Act, which is concerned
with the development of foreign trade zones.
Mr. Lyons, the Executive Secretary of that Board, and Mr, Trimble,
who is the solicitor and alternate on the Board, will be very glad to
discuss any points of interest to the committee on that activity.
In addition to that we have the Inland Waterways Corporation
which, while it is itself a domestic operator, naturally has a great deal
of its traffic originating outside of this country. I will be glad to
answer any questions about the Inland Waterways Corporation.
The Bureau of Foreign and Domestic Commerce is the major service
agency of the Department dealing with specific problems and back-
ground information material and over-all policy.
Dr. Amos Taylor won't be able to be with us this morning for per-
sonal reasons.
Mr. WoRLEY. I understand he lost his boy in action yesterday.
Mr. Ta^tt.or. Yes. The rest of us will more or less pinch hit for
him.
On the over-all picture, I have given you a prepared statement
which, I think, will serve for your record. The same thing is true
for the other bureaus.
There are cei-tain specific aspects of the work and we have the ap-
propriate men present. There is Mr. Schnellbacher, Chief of the
Division of Commercial and Economic Information. In normal
times, and also now, that is one of the busiest units we have.
Mr. WoRLEY. Which one is that? ,
704 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. Taylor. That is the division of which the foreign trader, and
all potential foreign traders, ask any specific question about anything
that might come into his head. It is one of the more important
units so far as direct service to the business community and some of
the other departments.
Mr. Joseph Mack, the Director of the Field Service is also here. He
will discuss the work of the Field Service itself and its contacts with
the businessmen in the local communities, because we feel that that is
one of most important things we do. If the Government loses con-
tact with the problems of the individual businessman in his community
both he and the Government are operating more or less in a vacuum.
On the question of individual industries, individual commodities,
in the foreign field, Mr. McCoy is here. He is Chief of the Division of
Industrial Economy.
One more important over-all function of the Bureau has to do with
the field of the international balance of payments and everything
that grows out of that. Dr. Maffrey. who is head of that division, is
out of town today, but I will be very glad to try to cover any questions
you have on that. It is a field I have been familiar with for some
time.
The Bureau of Standards has one very specific function in the foreign
field which is that of trade standards, international trade standards.
Mr. Fairchild, who is the Chief of that Division, will discuss any
points.
As far as the Bureau of the Census is concerned, Mr. Ely, who is the
Cliief of the Foreign Trade Section, is here, and also Dr. Hauser, who
is the assistant Director of the Bureau.
In 1941, 1 believe it was, we consolidated the statistical work in the
Foreign Trade field as far as the gathering of statistics is concerned, in
the Bureau of the Census. Prior to that time it was in the Bureau of
Foreign and Domestic Commerce, but as the Bureau developed we
found it was better to consolidate, and then do the interpreting, if any,
in the Bureau of Foreign and Domestic Commerce, but the actual
gathering of statistics is in the Bureau of the Census.
So far as the general setting of the picture and what the problems
are, I feel that the report of your committee was so good on that — I
would like to have written it myself
Mr. WoRLEY. Be sure you get that in the record, Mr. Keporter. The
committee appreciates the compliment.
Do you have someone here from the Civil Aeronautics Administra-
tion?
Mr. Taylor. No ; that is on the afternoon schedule. We have three
other Bureaus, with Mr. Burden, who is the Assistant Secretary, in
charge of those three Bureaus, and we felt it was better to take them
all together.
Naturally, the part of civil aviation and communications in the trade
of the future is one of the most important things that the country has
to consider, and the relationships of the various types of shipping, of
which aviation naturally is one, I don't think can be segregated.
Mr. WoRLEY. Then those are the ones we are supposed to hear this
morning ?
I hope we can follow that schedule, but occasionally
Mr. Taylor. It is just a suggestion. Any way you would like to
vary from it is agreeable to us.
POST-WAR ECONOMIC POLICY AND PLANNING 705
Mr. WoRLEY, Is there any additional information you would like
to present as to the general tunctions of your office ?
Mr. Taylor. No. I think that anything you would like to have
specifically that isn't in the exhibits I have already given you, we can
furnish you.
Mr. WoRLEY. I intend to put these exhibits in the record at appro-
priate points.
Mr. Taylor. As far as the acts and amendments to the acts, I
thought that Mr. Trimble, who is available here, could answer those
details much better than I can, or introduce into the record anything
you would like to have.
Mr. WoRLEY. All right. The Chair will proceed with your first
witness.
Mr. Taylor. Would you like to have Mr. Trimble discuss the legal
background and creation of the Department of Commerce?
Mr. WoRLEY. I think that would be a good idea.
Mr. Trimble. Mr. Chairman, we have had quite a complicated
existence, and I thought maybe, after you finish with the bureaus, you
would want to know how the bureaus developed and the changes that
were made, and that I could give this in memorandum form and save
both time and effort by handling it in that way. However, any ques-
tions you would like to ask at this time, I will try to answer them for
Mr. WoRLEY. We are trying to correlate the various functions of
various Government departments. We are trying to get a picture of
the whole, of what looks like a jigsaw puzzle to start with, to deter-
mine exactly who, in what departments, determine our foreign trade
policy. We have to make recommendations to Congress for new
legislation, if necessary, or to repeal existing legislation, if necessary,
to promote our foreign trade and commerce.
In order to do that, we thought it would be advisable to get some
idea of the historical background of various departments and to find
out exactly what their jurisdiction was.
If you can give us just an outline of why the Department of Com-
merce was created originally, just what it has done, and how its power
has been enlarged in relation to foreign trade, I think it would be very
interesting and very helpful to the committee.
Mr. Trimble. I would be very glad to briefly outline it. The De-
partment was created in 1903 and its principal purpose was to pro-
mote and develop the foreign and domestic commerce of the United
States.
There were a number of bureaus transferred to the Department at
that time, Bureau of Lighthouses, Steamboat Inspection Service, Nav-
igation, Standards, Coast and Geodetic Survey, Statistics, Census
Office, Fisheries, Foreign Commerce, and Corporations.
Since its creation there have been a number of bureaus added to
the Department and others transferred to other departments, some of
which have been consolidated with branches in those departments.
Today the Department consists of the Secretary and Under Secre-
tary and an Assistant Secretary and some eight bureaus. In addi-
tion to that, the Secretary is also the Loan Administrator and has
supervision over R. F. C. and its related financial lending institutions.
The Bureaus in the Department today are the Bureau of Foreign
and Domestic Commerce, the Census Bureau, the Patent Office, the
706 POST-WAR ECONOMIC POLICY AND PLANNING
Bureau of Standards, the Weather Bureau, the Civil Aeronautics
Administration, the Coast and Geodetic Survey, and the Inland
Waterways Corporation.
Some of those Bureaus' principal functions are technical, such as
the Bureau of Standards. Some are research and development.
Others, like the Bureau of Foreign and Domestic Commerce and the
Census Bureau are principally statistical organizations.
There are also certain functions of those Bureaus that promote and
develop commerce.
Then we have the Patent Office which is concerned with the issuance
of patents. The Civil Aeronautics Administration is both a develop-
ment agency and a technical agency. They maintain aids to naviga-
tion, supervise the building of airports, and various other functions;
in connection with civil aviation.
The Inland Waterwaj^s Corporation is a successor of the old Inland
Waterways System operated by the War Department. Congress in-
corporated it and, in 1939, the functions were transferred from the
Secretary of War to the Secretary of Commerce, and the Secretary of
Commerce is now the head of that Corporation.
The Department, as I previously mentioned, had other Bureaus
which were transferred to other agencies, such as the Bureau of Light-
houses, which was transferred to the Coast Guard in 1939, the Bureau
of Mines, which was transferred to the Interior Department in 1934,
and, more recently, the Bureau of Marine Inspection and Navigation,
which was temporarily transferred for the war period to the Coast
Guard, and the Bureau of Fisheries, which was transferred to the
Interior Department in 1939.
I might say, in addition to some of the functions I have outlined,
that, since 1940, the De])artment has had supervision over the National
Inventors Council, a Council formed by the Secretary of Commerce
at the direction of the President to review suggestions and inventions
of private individuals that had some relation to the war effort.
Mr. WoRLEY. You are the Solicitor for the Department ?
Mr. Trimble. Yes, sir.
Mr. WoRLEY. Wliat are your duties principally?
Mr. Trimble, Well, I have general supervision of the legal work
of the Department and, in addition to that, I serve on a number of
boards and commissions. I am chairman of the Committee of
Alternates of the Foreign-Trade Zones Board. Mr. Lyons, the
executive secretary, will cover that sliortly.
I also serve as Acting Secretary, in the absence of the Secretary,
the Under Secretary, and the Assistant Secretary, and perform such
other duties as are assigned to me.
Mr. WoRLEY. Well, that gives us a good idea of the background.
Do you have any further information you think would be of value
to the committee ?
Mr. Trimble. I might say, in this connection, that the Secretary
and the Under Secretary and the other officials of the Department have
received very valuable aid from the committee of which Mr. Folsom
is a member, the Business Advisory Council of the Department. We
have been very fortunate in having that group to advise us on various
and sundry matters.
autit
Jilan
ffleni
'i till
POST-WAR ECONOMIC POLICY AND PLANNING 707
Mr, FoLSOM. I liave just been looking over this summary report
you have given us of the functions of the Department, especially with
reference to all the publications you have put out and all the studies
you have made. It is remarkable how much work you have done.
There is a question in my mind as to whether you get a wide distribu-
tion of all these to the concerns all over the country, especially the
small concerns, that might be in foreign trade, whether you have
adequate facilities to disseminate this information to small concerns
that might be interested.
Mr. Taylor. The answer to that is "No," but I think I would rather
have Mr. Schnellbacher tell you some of the details of that, and also
have that brought out during Mr. Mack's testimony.
The publications, the three major ones, have a comparatively large
circulation of their own. One of their chief values is the fact that
those articles are reprinted many, many times by other organizations.
That is one of the basic plans under which we operate, so that the
secondary distribution, let us say, is probably considerably greater
than the primary distribution.
Mr. FoLSOM. i had in mind special studies you have made in various
foreign fields, and also on special commodities.
Mr. Taylor. During the war period a great deal of that work has
been going on but the distribution has been curtailed for security
reasons.
In any plans for the future, we believe that is one of the most im-
portant things the Department can do, particularly in connection with
smaller concerns. Practically no small concerns can afford to have
their own, let's say, field service, nor can they afford to have their own
research division. The function of making available to any firm in
this country the basic information that has been gathered by the
Department, not only from other concerns and industries in this
country, but what is going on in the rest of the world, we believe to be
one of the Department's most important functions.
We have been very impressed by the experience of the Department
of Agriculture in that field, and our thoughts run along very similar
lines. The field offices, make available individuals in strategic sec-
tions of the country to whom the businessman can go and obtain an
over-all view, not only of his particular industry, but all over the
world, plus specific application of techniques, and so on. We think
it is one of the most valuable things than any Government agency can
do.
That is in no sense to be interpreted as telling them how to do it,
but as making available to them all of the information.
I think, if the committee could devote considerable inquiry into
consolidating that type of information so that it is always up to date
and always as complete as possible, it would be extremely useful.
Mr. WoRLEY. What prevents your doing that now?
Mr. Taylor. I would say the war period more than anything else.
For example, the Office of Strategic Services is gathering extremely
valuable information. Eventually we will get that information. The
same thing with the Army and Navy and various other agencies which
are out in the field.
The permanent organizations of, let's say, our Government in
foreign fi.elds, should obviously be consolidated, so that not only is
708 POST-WAR ECONOMIC POLICY AND PLANNING
I
duplication eliminated in the foreign field itself but duplication is
eliminated when information comes into Washington and flows out
to the business communities and to the country as a whole.
Mr. WoRLEY. About how much money is appropriated for your
Department ?
Mr. Taylor. I am going to have to ask Mr. Trimble. It is my recol-
lection it is about $75,000,000, isn't it?
The reason I am hesitating about that question is because the largest
end of the appropriation is in the field of civil aeronautics, which is
a very specialized field, and that depends on what the airport program
is, and so on.
For the promotional and service ends of the Department, which
are concentrated in the Bureau of Foreign and Domestic Commerce,
the appropriation during recent years has been extremely low. That
has been supplemented by allocations from other emergency organiza-
tions.
Mr. WoRLEY. The primary function of your Department is to en-
courage and promote all sorts of commerce, domestic and foreign ?
Mr. Taylor. Yes.
Mr. WoRLEY. If, after you have made a study and made a recom-
mendation, and another department is not willing to follow your
suggestion or recommendation, then what is the story? Somebody
else can veto your recommendation?
Mr. Taylor. With the operating agencies during this period, obvi-
ously that is the situation. We don't consider this as a normal period,
however.
Mr. WoRLEY. I mean in a normal period, in peacetime.
Mr. FoLsoM. In normal times you work mostly with individual con-
cerns, don't you, encouraging and helping them ?
Mr. Taylor. Either with individual concerns or with trade asso-
ciations, or groups of concerns. Of course, in the foreign field, that,
again is different, because the pattern is constantly changing, and my
own feeling is that during the war period we are evolving a pattern
which indicates what the organization of the future should be.
Mr. WoRLEY. What are some of those post-war problems with which
you think your Department will be faced ?
Mr. Taylor. Would you like me to talk about the organization, the
service aspects of it, or the policy aspects ?
Mr, WoRLEY. The policy, I believe. In your opinion — from your
information — give us your best guess as to what position this Nation
will occupy as soon as peace comes.
Mr. Taylor. Well, obviously, this country is the most important
industrial Nation in the world. There isn't any second. Therefore,
the importance of what happens in this country in its relation to the
other countries is primary.
All of the information that has been developed, for example, say
from 1920 to 1940, indicates that when conditions became uncertain
in this country that was reflected everywhere else in the world, the
chief reason being that we were the chief purchaser of certain types of
materials. So when we stopped purchasing them, the results were felt
in every corner of the world.
Mr. WoRLEY. Do you suppose we will stop purchasing them after
this war?
Mr. Taylor. I don't see how that will be possible. i
POST-WAR ECONOMIC POLICY AND PLANNING 709
Mr. WoRLEY. Why did we stop purchasing before the war ?
Mr. Taylor. I think we had a depression.
Mr. WoRLEY. Can you tell us what caused the depression ?
Mr. Taylor. Well, there were, naturally, a number of causes.
Mr. WoRLEY. Seriously, we had a depression. We came along and
we solved the depression temporarily.
Wliat problems will exist after the war which didn't exist before,
which caused this depression, and what steps does the Department of
Commerce propose to take to offset or prevent our stepping in the
same hole again?
Mr. Taylor. I am going to answer your first question first.
]Mr. WoRLEY. That is a rather broad question.
Mr. Taylor. Eather. I think I can give you a very simple answer
to our fundamental trouble following 1918, which was that we didn't
realize the importance of our relationship with the rest of the world
and, as a result of that, we didn't assume — I am hesitating between
the word "responsibility" and the word "leadership" — which that posi-
tion necessitated.
Mr. WoRLEY. Which position ? Our position in the world ?
Mr. Taylor. Our position as the leading industrial country, the lead-
ing actual and potential producer.
Mr. WoRLEY. Now, what responsibility rested on us?
Mr. Tayi.or. The responsibility, I would say,- would be that of ac-
tivelv participating in anything in the economic and political field
which is of world importance.
Mr. WoRLEY. Whether there was any inducement, and profit incen-
tive or not ?
Mr. Taylor. Obviously, there would have to be profit incentives,
and so on, but the fact is that we segi'egated certain factors which
related to the international field from each other and backed away
from certain ones, and then went rather spottily into others.
Mr. WoRLEY. Would you like to be more specific on this ?
Mr. Taylor. Without getting into the political side
Mr. WoRLEY. Political or economic, we would be glad to have any
suggestions.
Mr. Taylor. There is one phase which I think was brought out very
carefully and conclusively in a study which was recently published
by the Department, which was United States in the World Economy
from 1919 to 1939, which ti'eats rather specifically with some of the
things happened.
We, for example, changed our position from that of being a debtor
nation to a creditor nation.
Mr. WoRLEY. On that point, all the rest of the nations owed us
money. Couldn't pay ; they were not in position to pay. You think
we made a failure at that point in failing to do what? Failing to dis-
charge that responsibility-?
Mv. .Taylor. Partly a responsibility and partly an opportunity. I
would consider it more in the light of an opportunity at that period.
Mr. WoRLEY. What should we have done at that time?
Mr. Taylor. One of the things we didn't do was relate our lending
policy to trade itself. You are probably very familiar with some of
the things we did in the lending field, and there was practically no
relationship of the credits which were extended to the effect on indus-
try in a particular country.
710 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. WoRLEY. We are goinf^ to be faced with the same situation after
this war. We are going to be a creditor nation.
What specific proposal or general proposal do yon have that would
help us avoid doing what we did at the end of the last war? If you
can give us any specific suggestions we would like to have them very
much.
Mr. Taylor. Well, obviously, in order to have an intelligent, over-
all policy, you have to have over-all information. One of the things
that has been constantly brought out all during the period which
existed back in 1919 to 1939, and it has been brought out in all tha
conversations that have developed recently, such as U. N. R. R, A.
meetings, the Bretton Woods Conference, and so on, is that we must
have over-all information about the economy of other countries. And
it has to be over-all information on which all countries agi'ee. If it
is not comparable, it is just like matching elephants and chickens.
You see, there are so many systems.
I would say that is the most important single thing.
Mr. WoRLEY^ To secure the information?
Mr. Taylor. To secure the information and have it standardized to
the extent possible.
Mr. WoRLEY. We have that available ?
Mr. Taylor. We do not.
Mr. WoRLEY. Do you propose to have that available ?
Mr. Taylor. We will not have that available unless very specific*
steps are taken by this and other governments to have that information
collected and made available.
Mr. WoRLEY. By an international conference of some kind?
Mr. Taylor. And the continuity, because the continuity is the im-
portant thing. You can meet at a particular conference, which I have
done a number of times, and you will bring in some information that
is pretty good.
Mr. WoRLEY. We can't get information any other way ?
Mr. Taylor. Not continuously. There is no way in the world by
which any of the mechanisms that are being discussed can be success-
fully operated without information.
Mr. WoRLEY. Let's assume that we have all the necessary informa-
tion. Tlien what steps would you suggest be taken ?
Mr. Tayi>or. Depending upon the policies which have been deter-
mined by this and other governments, I think from that will grow
the type of permanent organization that our country has to have in
the field.
Mr. WoRLEY. Of course, that will depend on the policy of
Mr. Taylor. As I say, depending on that. But there are certain
fundamentals in any organization, regardless of what the pattern is,
which it seems to me are absolutely obvious.
Mr. WoRLEY. What policy do you suggest -Avould be desirable for us?
Mr. Taylor. I would rather talk ai30ut the organization and then
get in the policy a little bit later.
For example, in connection with our work with some of the Latin-
American countries with which I happen to be rather familiar, it is
quite apparent that those countries are going to develop far more
ra] )i(lly than they did, say, in the previous century. They have learned
certain skills; they have seen, for example, what some of our airplanes
can do.
POST-WAR ECONOMIC POLICY AND PLANNING 711
There is a general agreement, which has been expressed a number
of times — the two most recent ones being at the Rio Conference and
the recent meeting of the Inter- American Development Commission
at New York— that you have to have a general development of the
life of any particular country.
Mr. WoRLEY. Is that our responsibility, to try to develop the lives— —
Mr. Taylor. I think it is their responsibility and our opportunity
to work with that movement. If the movement is as strong as every-
body indicates it is, and, after all, our own history is the thing they
are all completely conscious of
Mr. WoRLEY. Specifically, do we want to encourage those countries
to change their standard of living in order to find a market for our
output?
Mr. Taylor. It is going to change in character constantly, just as
the industrial character of our country changed completely during a
60-year period.
Mr. AA ORLEY. Suppose those nations don't want to be awakened?
Mr. Taylor. I think that is entirely up to them, but if they do w^ant
to develop, I think it is to our advantage to assist them in every way
possible.
i\Ir. "VVoRLEY. Financially?
^Ir. Taylor. Partly financially; principally from the standpoint of
working with them on the development of the principal thing they
want to develop.
Mr. WoRLEY. You don't think a subsidy will be necessary?
Mr. Taylor. No, I do not ; not in any way. Of course, in the case
of most of the countries in this hemisphere, as a result t)f sales of
strategic materials they have made to us during this period, they
are in better financial condition than they have been at any time in
their history. That, if backed up by policy, directed in the lines in
which they themselves have indicated they w^ish it directed, is going
to be used to develop transportation, power, et cetera, and a certain
amount of industry. Tliey are a little slower in their industrial ideas
tlian they are in transportation facilities and power development.
Mr. WoRLEY. We have been buying from them during the war, and
after the war we want to sell to them ?
Mr. Taylor. And also, as a result of the war, we have not been able
to furnish them with the things that they want. Tliat has been thor-
oughly understood, not only by the governments of those countries,
but in our discussions with them.
That is a vision of probabilities, let's say, and possibilities, but there
has been a very definite spread of knowledge and understanding of
what those countries want to do.
I think you will find the same thing practically everywhere else in
the world. China, for example, has a series of ideas vehich it washes
to develop. Those ideas are not in terms of money nearly as much
as they are in terms of facilities and technical assistance as to how to
do things.
Mr. WoRLEY. That is the policy that you think should be followed
after this war that was not followed after the last war?
Jkfr. Taylor. That's right.
Mr. Worley. Do you think tliat will be a partial answer to the
problem? Is that the immediate problem that you see in your
Department ?
712 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. Taylor. Yes.
Mr. WoRLEY. The development of these fields, foreign fields?
Mr. Taylor. And that gets into all phases. One of the subjects
you are discussing is shipping. I don't think you can differentiate
various kinds of shipping. Every time we have tried to do that we
have gotten into considerable trouble — I mean in our domestic history.
Mr. WoELEY. It is all commerce.
Mr. Taylor. It is all commerce and it is all transportation.
Mr. WoRLEY. You can't have commerce without transportation.
Mr. Taylor. No.
Mr. WoRLEY. What other problems are there that we faced after
the last war that you think we will face after this one, so far as your
field is concerned ?
Mr. Taylor. Well, the problems that we faced after the last war
were, frankly, so minor in character compared to the ones we are
going to face after this war that I have a very strong feeling that our
approach has to be infinitely more positive and infinitely more
detailed.
Mr. WoRLEY. Then we will meet new problems after this war that
we didn't encounter after the last war?
Mr. Taylor. Yes.
Mr. WoRLEY. Can you give us some idea what those are ?
Mr. Taylor. Well, for example, the destruction in industrial plania
in Europe after the last war was very localized. All you have to do
is to read some of the reports in the papers to realize how widespread
it is now. Portugal, Switzerland, and Sweden are the only places I
can think of quickly in that entire European area, including the
British Isles, that have not been affected; and that destruction also
goes far into Russia as you know. Out in the Far East there has been
very, very widespread destruction, and I assinne it will be greatei
before the war is finished.
So that will leave the world in the position of a major portion of
its existing industrial plants having been either disrupted, destroyed,
or generally made ineffective. So the pressure on the industrial
plants of the United States, until there is a sorting out, reconstruc-
tion, et cetera, is going to be infinitely greater than it was after the
last war.
Mr. WoRLEY, It seems to me that will have two results: one, we
will be in better position to produce than other countries where indus-
try was destroyed.
Mr. Taylor. There is certainly going to be a demand for our
products.
Mr. WoRLEY. Secondly, we can sell them machinery to replace
that destroyed. Do you have any idea what your policy will be
on that?
I^r. Taylor. I think that the areas in which our industrial machin-
ery will be preferred will vary. That sounds like a rather vague
answer, but I don't see how it can be any other way.
For instance, take the north of Italy, which is a very highly indus-
trialized area. We don't know what has happened to that, but we
do know that that industrial equipment was built up over a period of ]
<> flrreat number of years, from very mixed sources. Some of those
sources were German, some French, some Swiss, and so on.
POST-WAR ECONOMIC POLICY AND PLANNING 713
Until you find out what the pieces are that you can put together
and look at it from a very long range point of view, it would be silly
to rush over a lot of parts for something that was going to be just
a temporary thing because there is a permanent relationship between
industries and trade areas. That, of course, has been largely destroyed
during this period, but I don't see how you can say today whether
it will be a good thing to have this country reequip northern Italy.
In fact, my own opinion would be that wouldn't be a very smart thing
to do because it is an unnatural relationship.
Mr. WoRLEY. This Nation has always encouraged the sale to foreign
countries of industrial machinery, hasn't it?
Mr. Taylor. To a large extent.
Mr. WoRLEY. Even though that industrial machinery competes with
our products over here?
Mr. Taylor. In the long run it usually has not worked that way.
That goes back to those periods when you keep one country doing
one part'icular thing. That just doesn't stand up.
Mr. WoRLEY. It is local conditions and economics which determine
that?
Mr. Taylor. I think our own history is the finest example of why
that is so.
Mr. Worley. Are there any additional problems that you know of
we will meet after this war which we didn't meet after the last war?
Mr. Taylor. Well, of course, the other thing that your committee
is specifically dealing with is shipping. Obviously that is an entirely
different problem than we had after the last war, both as to the char-
acter of the ships, the destruction of other fleets, and what you do with
them, and so forth. Personally, 1 think that has to be approached
quite differently, too.
One interesting thing about the utilization of the shipping is that,
if trade is as active as we believe that it can be, we may find that there
isn't a surplus of shipping at all.
Mr. Worley. That will depend on what?
Mr. Taylor. It will depend on the amount of goods to be carried.
INIr. Worley. You mean from here, one way ?
iVIr. Taylor. No ; I am talking about the world shipping situation.
Just going one way, of course, doesn't
Mr. Worley. How much of our own exports do you think we will
carry after the war?
Mr. Taylor. I think that is a question of national policy which
hasn't any direct relationship to the amount of exports themselves.
Mr. Worley. How much of our own traffic do you think we should
carry in our own ships ?
INIr. Taylor. I haven't any opinion on that.
Mr. Worley. Is your department concerned with that question?
Mr. Taylor. No; not directly, because that is a question of national
policy which is a very specialized thing.
Mr. Worley. Other than in encouragement of coinmerce do you
Mr. Taylor. The main thing is that it should be carried.
Mr. Worley. In our own ships?
ISIr. Tayi.or. No; the main thing is that it should be carried.
Mr. Worley. I see your point.
Do you make any recommendations or try to encourage our own
shippers over here to use American ships ?
714 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. Taylor. Yes, we do in general, but I don't think we do that, or
should do that, as positively as, let's say, an agency which is specifi-
cally charged with that duty.
Mr. WoRLEY. What agency is specifically charged with that, the
Maritime Commission?
Mr. Taylor. The Maritime Commission.
Mr. WoRLEY. You say you haA^e done it to some extent?
Mr. Taylor, Oh, yes".
Mr. Worley. Have you had much luck?
Mr. Taylor. It usually depends on the price.
Mr. Worley. The price of what?
Mr. Taylor. Of the shipping.
Mr. Worley. What determines that?
Mr. Taylor. Competitive rates.
Mr. Worley. I understand we have tried to keep our ships, by sub-
sidy, on a parity with other countries.
Mr. Taylor. I would say that is the only way you could do it, if that
is a positive decision in policy, or, putting it another way, if you don't
wish to compete on rates for policy reasons. I am not questioning those
policies in any way, because I think they are extremely important, but
the whole matter of shipping payments, and so on, is a very important
item in the balance of payments, you see, just like any other export or
import. If you want to force exports, you do certain things; and if
you want to subsidize, or do the opposite for imports, you do certain
things.
Mr. Worley. Your Department, then, thinks it is desirable but not
essential, that our own shippers use our ships?
Mr. Taylor. I would like to make myself very clear on that. I
think that there are other policies, such as the national defense, and
so on, wdiich are overriding, so that
Mr. Worley. It is more important to have a merchant marine for
national defense than it is for commerce? Did I state that correctly?
Mr. Taylor. Yes.
Mr. Worley. Then' your Department does not intend to lend any
particular emphasis to using American shipping after the war if we
can get commerce without it?
Mr. Taylor. Well, we will naturally carry out whatever the policy
of the United States is. That is our job.
Ivlr. Worley, You participate in creating that policy, don't you?
You make recommendations ?
Mr. Taylor. To some extent ; yes. At one time or another the De-
pa rtment was quite active in that field, but at the present time it is not.
Mr, FoLSOM, Just one question. One of the most important func-
tions of the Department in the field of foreign trade is to furnish in-
formation and statistics to exporters and importers. That naturally
has been curtailed during the war.
If you are going to perform an adequate service after the war, you
will have to build up that service, expand it rapidly. Is your appro-
priation sufficient for that, or will you have to have a larger appro-
priation to do that ? '^
Mr. Taylor. I think we obviously are going to have to have an in-
crease in the appropriation because whereas quite a bit of that will
fall on the Department of State, and so on, to find out what has hap-
pened in these co^uitries when it comes to filing that and getting it
POST-WAR ECONOMIC POLICY AND PLANNING 715
into shape very quickly so that it can be made available to our Gov-
ernment and to the foreign trade community, you have to have addi-
tional personnel in order to be able to fill in those gaps and be able to
present a complete and over-all picture.
Mr. FoLSOM. I had in mind particularly service to people in the
country who are interested.
Mr. Taylor. Well, ^xe are running into that already. Take a great
many of the veterans who are already getting back out of the service,
many obviously have an interest in foreign trade. We are already
handicapped by the physical number of people we have in field offices
to take care of them. We want to do as complete a job as we possibly
can, and each one of those interviews takes anywhere from 1 to 2 hours,
and then they come back.
Mr. Mack, 1 believe, will be able to give you some pretty good indi-
cations of that problem.
]Mr. WoKLEY. You don't know of any additional problems we will
meet after the war that you can anticipate?
Mr. Taylor. I probably do, but I think I have taken up enough,
time.
Mr. WoRLEY. No, no : that is our job, to find out these things. What
other problems do j'ou have that you know of ?
Mr. Taylor. Frankly, Mr. Chairman, I would prefer to have you
discuss some of these specific things with the other representatives
here, and if anything does occur to you
Mr. WoRLEY. In the meantime you can think up these additional
problems.
Mr. Taylor. I don't have any trouble thinking them up.
Mr. Worley. All right, we will proceed with your next.
Mr. Taylor. Would you like to have Mr. Lyons give you the very
specific problem of the foreign-trade zones, because I think that is an
important way in which we can stimulate foreign trade?
]\Ir. WoRLEY. All right, Mr. Lyons.
STATEMENT OF THOMAS E. LYONS, EXECUTIVE SECRETAHY,
FOREIGN-TRADE ZONES BOARD
Mr. Lyons. Mr. Chairman, I am appearing here in a dual capacity
today, both in connection with this Foreign-Trade Zones Board and
also to discuss the shipping activities of the Bureau of Foreign and
Domestic Connnerce. I will be as brief as possible, because the Under
Seci-etary has gone into the subject very extensively.
I will take the Bureau of Foreign and Domestic Commerce first.
The authority for both the Department and the Bureau to deal with
shipping matters is contained in the organic act creating the Depart-
ment. The Bureau's interest is twofold : (1) aid to shippers, and (2)
shipping economics.
With reference to aid to shippers, the Bureau supplies shipping
schedules to foreign countries, both of American vessels and foreign
vessels. Data on packing for export is most important. For years we
have been considered the worst offenders in the world when it comes
to export packing. Following the last war, many of our commodities
arrived in foreign markets unusable and unsalable. Since that time.
99579 — 45 — pt. 4 8
716 POST-WAR ECONOMIC POLICY AND PLANNING
the Department has prepared and distributed a number of important
studies, pointing out to American exporters how they should pack
their merchandise for shipment to foreign countries.
Modern Ship Stowage — that is a handbook we finished just prior to
our entrance into the war. It is a very detailed work and has saved
much valuable cargo space. I brought a copy with me for the record.
I think it is something well worth while for the committee to have to
indicate the work of the Bureau,
The Maritime Commission is placing a copy of Modern Ship Stow-
age on every ship it operates. About 2,500 copies have been purchased
for that purpose. Mr. Folsom inquired about the circulation of some
of the Department's publications, and I might say that there have been
15,000 copies of the book sold.
Research into shipping and shipbuilding subsidies abroad will be
necessary when this war is over. The basic subsidy information em-
ployed in drafting the Merchant Marine Act of 1936 was collected
through the foreign offices of the State Department and published
by the Bureau in 1932.
The Bureau also collected data on shipbuilding in foreign coun-
tries for the use of the Federal Government and the shipbuilding
industry.
The Bureau has conducted a number of studies on ocean-trade
routes, and will conduct other studies, probably in connection with
the Maritime Commission to determine the commodity flow in world
trade.
With that brief summary I will leave the Bureau and discuss the
matter of foreign-trade zones which we touched on briefly yesterday.
The Foreign-Trade Zones Act was enacted to facilitate the move-
ment of two classes of trade — transshipments and import goods
coming into the United States.
Under our tarifi^ laws, when foreign merchandise arrives at a port
of entry of the United States, some disposition must be made of it
within 48 hours or the Collector of Customs will take charge of it.
Disposal of foreign merchandise may be as follows: It may be
entered for consumption, where it loses its identity as foreign mer-
chandise and becomes a part of our domestic commerce; or it may be
entered for warehousing, under which a bond for double the amount
of the duty is posted, and where it may remain for 3 years. After
that time the goods must be exported or the duty paid and brought
into the United States.
The Customs regulations consist of something like 900 pages of
detailed requirements with which importers must comply in bringing
foreign merchandise into the United States. In many instances
importers employ the services of customs brokers who, for a fee,
varying with the service performed, will aid merchants bringing
goods into this country. These customs brokers perform a valuable
service and perform an essential service in connection with our im-
port trade.
The whole theory of the foreign-trade zone is to simplify the
processes of importing. The zone may be regarded as a stockaded
area in our ports of entry where foreign merchandise may be brought
POST-WAR ECONOMIC POLICY AND PLANNING 717
without customs formalities although it is under customs surveillance.
Foreign goods may be stored indefinitely without the expense of
customs bond and, subject to certain manipulations with domestic
merchandise, and then may be reexported. Such goods may be
brought into the United States by the payment of customs duties.
What the New York zone has accomplished may be illustrated by
the handling of tungsten ore, a very valuable commodity used in
connection with the manufacture of tool steel and lamp filament.
Tungsten ore formerly moved from China to Germany and England,
where it was refined and then shipped to the United States.
War demands necessitated the bringing of tungsten ore directly
to this country and the Maritime Commission diverted a ship from
Manila to the port of Saigon, French Indochina, where it picked
up 6,000 tons of tungsten and brought it to the New York trade zone.
Later the ore was refined and processed in the zone and brought into
the country upon the payment of proper duties.
That is merely an illustration of what the zone has done in aiding
the war effort. If that shipment had to wait for formalities to
determine where it could be taken, we might still be looking for it.
No doubt that type of zone operation will be continued after the
war is over and carried on in other foreign trade zones. This is an
indication of what these zones can do to attract essential raw ma-
terials to the United States for stock piling.
Plans now call for the establishment of foreign trade zones in New
Orleans and San Francisco. These zones must be established by
corporations, public or private as the legislation authorizing these
areas is merely permissive. The Federal Government is concerned
both with the establishment of these zones and their supervision after
they are established. We feel that they will perform a real service
in the promoting of foreign trade and shipping when peace has been
restored.
Mr. WoRLEY. You will be available for questions later, will you,
Mr. Lyons ?
Mr. Lyons. Yes, sir ; I will be right here. I have a memorandum
which I will file with the committee.
Mr. WoRLEY. All right ; it will be inserted in the record.
(The memorandum has been market "Exhibit No. 18" and will be
found in the appendix on p. 1185.)
Mr. WoELEY. I understood we would get an outline of the functions
of each subdivision.
Mr. Taylor. I think Mr. McCoy, who is Chief of the Division of
Industrial Economy, will start off for the Bureau of Foreign and
Domestic Commerce. Before Mr. McCoy describes one phase of the
functions of the Bureau of Foreign and Domestic Commerce, I should
like to submit, Mr. Chairman, a prepared statement giving a brief
outline of the origin, organization, functions, and activities of the
Bureau of Foreign and Domestic Commerce with respect to foreign
trade and shipping.
(This material has been market Exhibit No. 19 and is found in
the appendix on p. 1186.)
Mr. WoRLEY. Mr. McCoy.
718 POST-WAR ECONOMIC POLICY AND PLANNING
STATEMENT OF H. B. McCOY, CHIEF OF THE DIVISION OF INDUS-
TRIAL ECONOMY, BUREAU OF FOREIGN AND DOMESTIC COM-
MERCE, DEPARTMENT OF COMMERCE
Mr. McCoy. Mr. Chairman, since you have a formal statement out-
lining in general terms its functions, I shall speak principally of one
or two phases of the work of the Bureau of Foreign and Domestic
Commerce in connection with foreign trade.
As set forth in its organic laws, the promotion of foreign commerce
is one of the basic functions of the Bureau of Foreign and Domestic
Commerce. The Bui'eau is, and has been since its creation, a prin-
cipal agency of Government collecting and disseminating infoi'mation
on international trade and economic conditions throughout the world.
It is a recognized source of information in this field for Govermnent
and business. The Bureau's resources and facilities in the interna-
tional economic field have been designed to supply the Department and
other Government agencies with essential information as a basis for
the formulation of foreign commercial policy, and to provide business
with the necessary facts on and assistance in developing markets
abroad for exports and finding and promoting markets at home for
imports.
The sharp economic shifts in foreign countries and the drastic dis-
location of international trade resulting from the war, together with
the consequent readjustments that must be made, are so extensive and
basic in character as to result in substantial })c»st-war changes in the
industrial and commercial structure of many countries, which will
affect the character and volume of post-war international trade and
produce many permanent readjustments in ti'ade relations between
the United States and foreign countries. It is highly necessary that
these wartime changes in world production and trade, the shifts that
have occurred and will continue between pro<^liicing and consuming
countries with respect to goods moving in international commerce,
and other war-born developments, which are now fully emerging,
should be measured and analyzed for the vital needs of Government
in policy making, and for the equally important needs of business in
meeting current problems in foreign trade and planning for the future.
The magnitude of this task is obvious in view of the fact that the
collection of commercial and economic information from all foreign
countries was displaced by purely wartime reporting after 1939.
Purely wartime information does not meet the immediate needs of
either Government or business during the later stages of the war
period or the subsequent period of readjustment, transitional and
post-war periods, and is useful only as a supplement to basic surveys
that must be made for current requii-ements in connection with foreign
trade problems of the moment and future planning.
Furthermore, and most important, one of the largest tasks will
involve the acquisition, analysis, and dissemination of current eco-
nomic and commercial information on liberated and enemy countries,
with respect to which the Bureau's informational resources must be
completely reconstructed. For these areas, reliable current data have
not been available during the war. The incidence of total war, enemy
occupation, ])lunder, and sabotage, and the devastation of military
opeiations will have completely changed or destroyed the industrial
POST-WAR ECONOMIC POLICY AND PLANNING 719
and trafle structure of these areas. In a large measure, the war has
out-dated a large portion of the Bureau's informational resources on
foreign trade that was built up during 20 years preceding the war.
Mr. WoRi.Ev. You may proceed, Mr. McCoy.
Mr. McCoy. As has been mentioned before, the or'ganic law of the
Department and the Bureau, as a part of the Department, sets up the
Bureau as an agency for foreign trade promotion. That is one of its
basic functions, and it has been since its creation one of the principal
agencies of Government collecting and distributing information on
international trade and economic conditions throughout the w^orld.
The Bureau is the recognized source in Government for information
of that sort.
The Bureau's resources in that particular field and its facilities have
been designed so as to provide itself and other Government agencies
with essential information, first, as a basis to provide the Department
with facts upon which to determine commercial policy, and, second,
and probably equally as important, to provide business with necessary
facts to enable it to find markets abroad and to develop markets at
home for imports.
The general responsibility of the Bureau is for the development,
analysis, and distribution of economic and commercial information
from all foreign countries. The Bureau determines the needs of busi-
ness for foreign market information; for information on industrial
and commodity developments abroad, trends in international trade;
information on foreign business firms; tariff and customs regulations;
foreign laws affecting trading with and doing business in foreign
countries; taxes, aiid other economic and commercial information per-
taining to foreign areas.
Mr. WoRLEY. Cartels'?
Mr. McCoy. Every aspect of commercial information which contrib-
utes to a knowledge and understanding of our foreign trade and eco-
nomic relations, both export and import, with foreign countries.
The Bureau is in constant touch with the hundreds of businesses,
and business groups, through the various industry divisions in the Bu-
reau, which maintain direct touch with exporters and importers, both
in Washington and through the commercial agents in the field offices
of the Department, who are intimately acquainted with the average
business concern engaged in foreign trade and are thus able to deter-
mine exactly what is the most useful information in connection with
foreign trade.
Mr. WoRLEY. You say you have information about these other coun-
tries. Wcmld you repeat that ?
Mr. McCoy. It is the collection, analysis, and distribution of foreign,
economic information that pertains generally to all economic develop-
ments in foreign countries.
Mr. WoRLEY. That information would not be sufficient for the pur-
poses we were discussiug, Mr. Taylor?
Mr. JNIcCoY. It is a question of the degree to which it is to be done.
Mr. Taylor. Both degree and the time factor.
Mr. McCoy. Under Reorganization Plan No. 2 the functions of the
Department of Commerce with respect to the foreign services were
transferred to the Department of State. However, the transfer of
that function in no way involved any transfer of functions as far as
the Bui-eau itself is concerned in the promotion of foreign trade.
720 POST-WAR ECONOMIC POLICY AND PLANNING
Under arrangements made in accordance with law, the Secretary
of Commerce advises the Secretary of State with respect to commer-
cial and economic information desired from foreign countries. The
Foreign Services of the Department of State have instructions for
reporting to the' Department of- State with reference to foreign trade
matters. Information is furnished to other departments participat-
ing to the extent that we are sure that such requests as go abroad in-
corporate the needs of other agencies, and that there is no duplication
in making similar requests by other agencies which want specialized
information which may be obtained upon a general inquiry? That
coordination is done now in the Department of State itself. As a
matter of fact, many inquiries that now go abroad from the Depart-
ment of Commerce are general inquiries in collaboration with either
the Department of Agriculture, the Department of Labor, or other
agencies which may have a specific interest in the particular subject
to be covered.
This commercial and economic information gathered by the Bureau
is issued in a form readily available to exporters, importers, banks,
shipping companies, and all other interested and concerned with for-
eign trade, and it is, of course, broad in scope and rather specific in
character, so that it meets, we think, practically all the needs of Gov-
ernment and business.
It is quite evident now that the type of service which the Bureau
was able to offer business and Government before the war will not be
adequate after the war. Due to the considerable changes in economic,
industrial, and commodity developments abroad as a result of the war,
the type of reporting and analysis required to meet post-war needs
will be different.
With the international informational resources at the command of
the Bureau, Bureau officials, including, of course, the Secretary of
Commerce and Under Secretary of Commerce, are provided with the
necessary background to participate in policy formation. In addi-
tion to representation for the Department in policy matters by the
Secretary and Under Secretary, at the Cabinet level, the Director of
the Bureau, for example, represents the Department on the present
Executive Committee for Foreign Economic Policy. There are other
officials of the Bureau, industry and regional specialists who are mem-
bers of interagency committees and groups which are concerned with
the formulation of policy and make recommendations to higher
authorities.
We are much concerned that the services of the Bureau shall be
readjusted to meet post-war needs. There have been and will be fur-
ther economic shifts in foreign countries, and basic shifts in inter-
national trade resulting from the war which, with the readjustments
now being made, are so extensive and basic in character that un-
doubtedly they will affect the trade relations of the United States
with foreign countries, and, obviously between foi'eign countries.
It is highly necessary that we have an accurate picture of those
changes, both of those that have occurred during the war and the
implications of those changes as the world emerges from the war.
They should be measured in terms of the needs of those countries, the
extent to which the United States might participate in economic
developments and trade relationships with those countries, and, most
of all, the kind of information that American business, both impor-
\
POST-WAR ECONOMIC POLICY AND PLANNING 721
ters and exporters and others concerned with foreign trade, can use
for future planning.
This task is rather large. The magnitude is obvious in view of the
fact that the collection of such information from all foreign coun-
tries was largely discontinued in 1939 at the outbreak of the war in
Europe. Although we were not in the war at that time, the duties
of the consular offices throughout the world were devoted to purely
wartime activities. The economic and trade information that has
been collected from allied and neutral areas throughout the world
during this time for purely war use is not adapted to use for post-
war planning.
We need more general information and we need more specific in-
formation on international developments in certain industries and
commodities. Wartime data are useful, of course, as a supplement
to basic surveys we are now making in connection with the current
requirements for future planning.
Furthermore and most important, one of the largest tasks will in-
volve the acquisition, analysis, and dissemination of current economic
and commercial information on liberated areas. Obviously, in coun-
tries that have been devastated by war or have been occupied by
the Axis, in which there has been sabotage and destruction due to
military operations, there will be considerable changes made in the
industrial and commercial structures of those areas which will, of
course, influence the future development in those coutries to a large
extent.
To a large degree, the absence of any information from Axis coun-
tries or Axis-occupied countries, and the devotion of the Foreign
Service, which is our investigative agency abroad, to other matters,
places our information, at least a great deal of it, out of date. By
arrangements currently made with the Department of State and other
agencies, a broad program for the resumption of commercial and
economic reporting is now in process and some of it is actually in
operation.
The next important phase, after the collection and analysis and
putting into form of foreign commercial and economic information
for use by both Government and business, is its distribution, which
I believe Mr. Schnellbacher, in charge of the publications phase of
our work, could describe better than I can.
Mr. WoRLEY. Thank you very much.
jNIr. Taylor. I will change the order a little bit and have Mr.
Mack, the director of the field service, describe his functions first,
and then Mr. Schnellbacher.
Mr. WoRLEY. All right, Mr. Mack.
STATEMENT OP JOSEPH A. MACK, DIRECTOR OP PIELD SERVICE,
BUREAU OP POREIGN AND DOMESTIC COMMERCE, DEPARTMENT
OP COMMERCE
IMr. Mack. The Department of Commerce, recognizing the need
for providing facilities to business at points where businessmen will
be able to use the vast array of facts and figures gathered by the De-
partment, maintains offices at 26 business centers throughout the
United States. These offices are miniature bureaus of Foreign and
722 POST-WAR ECONOMIC POLICY AND PLANNING
Domestic Commerce. The information compiled and gathered by the
Bureau from various sources, both private and governmental, is made
available to businessmen and other Government agencies through
these 2(1 othces.
These offices have the primary responsibility of representing the
Department of Commerce throughout the United States with special
reference to informational services and facilities of the Bureau of
Foreign and Domestic Commerce and the Bureau of the Census, both
of which are the business promotion agencies of the Department of
Commerce.
The offices provide a coordinated, decentralized medium through
which businessmen can get information they want at a point where
they can use it. They carry on no regulatory functions whatsoever,
but are purely service organizations serving both business and Govern-
ment; serving business by disseminating the information that is
gathered, serving Government by gathering the information the De-
partment needs in the formulation of its general policies.
The activities of these offices cover the broad field of commerce and
industry, both foreign and domestic, although my particular interest
today is very largely in the foreign trade field which, I believe, is the
primary interest of the committee.
The activities of the field offices have for a number of years been
largely devoted to our foreign -trade functions, under our statutory
responsibility. The work we do in the field is to provide the informa-
tion to the business public which will enable the businessman to de-
termine on his own responsibility, first, whether he should go into the
export or import business at all ; secondly, having determined whether
he should go in or stay out, we then seek to provide all tlie information
he will need to carry on a successful business.
That involves furnishing information which shows the })Osition we
formerly occupied in those markets, developing new markets for an
expanding production, providing services of the greatest help to the
exporter during the reconversion period, pointing out the competitive
conditions he wdll meet in a specific market, what the tariff rates are,
wdiat the exchange restrictions are, what the import quotas are, who
the distributors are, whether he needs an agent or wants to operate
w^ith an importer or distributor. We provide him the names of poten-
tial distributors and agents, and, in addition, we supply special in-
formation on the particular individual or firm with which he wants
to deal.
We perform this service with the cooperation of tlie various divi-
sions of the Bureau which, in turn, have the support of the American
Foreigii Service in gathering the information, and it is one of our
most important responsibilities.
We recognize that businessmen have no other means of getting a
large part of this information, that private sources do not provide it.
We operate under a well integrated system; the material is gathered
by the Foreign Service, analj^zed by the Bureau of Foreign and Do-
mestic Commerce and put into the hands of the businessman through
the field service. This is an activity in which we have had more than
thirty years experience.
Mr. WoKLEY. Do you notice any increase in the number of clients
you have?
POST-WAR ECONOMIC POLICY AND PLANNING 723
Mr. Mack. Yes ; we do. We notice a definite increase, for two rea-
sons : First, a number of businessmen are considering^ for the first
time entering into foreign trade. They have heard a lot about oppor-
tunities in foreign trade. They know their productive capacity has
been increased here, and they want to analyze their opportunities for
the sale of goods in foreign countries.
In addition to that, we have the old-time exporter who has been
out of a particular market for some time and wants to get back in that
market. Through these various coordinated activities we carry on,
we seek to provide the businessman with all the information he feels
he needs to make a decision as to what action he will take in a partic-
ular area or in a particular field. By reason of the yeai-s of experi-
ence we have had in this field, we are able to advise foreign traders on
methods of doing business, the labor problems he will be confronted
with, 'in case he wants to operate a branch plant, and things of that
character.
When the war broke out, the controls that were exercised in foreign
countries remained in effect. In addition to that we added our own
controls, export control, exchange control, consignee control, and three
or four other controls. Those were superimposed on the controls
previously in effect in other countries. The controls we exercised here
had a profound influence, not only on the volume of business we did,
but the direction geographically that our foreign trade took, with the
result that our field offices became the field representatives throughout
the United States of the Foreign Economic Administration for the
dissemination of information pertaining to export control. We still
carry on that activity, and will continue to provide this essential infor-
mation to businessmen until export control is removed. And as our
own control;^ are relaxed, the controls exercised abroad are going to
become relatively of greater importance.
At the present time foreign duties, or other restrictions are relatively
unimportant. They want the goods, are ready to pay for them, they
have the exchange. In the post-war period, we will find foreign con-
trols again -exercising a greater influence not only on the direction but
on the volume of our trade.
The field offices are also the official representatives throughout the
United States of the Department of State. The information gathered
abroad is made available to business through our field offices. In addi-
ticn to that, we furnish to the Department of State information it may
need in the solution of trade problems in which it is involved.
In connection with my duties as Director of the Field Service, I, of
course, have to get around to our offices rather frequently. Just last
April I was out on the west coast, and I noticed a remarkable interest
out there in foreign trade. Practically every city I visited either had
formed new committees or reestablished old committes whose primary
fufuction it is to look into the possibiilties of foreign trade, and the
possibilities of developing markets for the products of a particular
area. For instance, in San Diego, Los Angeles, San Francisco, Port-
land, Seattle, they all had very active committees. We find the same
thing in Memphis, Atlanta, El Paso, Pittsburgh and the State of Con-
necticut has a committee aiow working very actively trjdng to develop
markets for Connecticut products.
Our field offices work closely with these groups, providing the infor-
mation they will require in determining just what the opportunities
724 POST-WAR ECONOMIC POLICY AND PLANNING
are. And, after tliey determine that, then we are prepared to deal
with individual businessmen in giving them the information they
require.
Mr. WoRLEY. It seems to me that is a very complete service.
Mr. Mack. We have had a lot of experience in it, and we feel that,
through this experience, we are able to tell the businessman specifically
the conditions he will meet in a foreign market, and provide him with
a means of actually getting in touch with people with whom he will do
business.
Mr. WoRLET. Do you take any steps to acquaint business people with
the information and services you offer, or do you wait until they come
to you ?
Mr. Mack. That is a practical question, and I am glad you brought
it up. A few years ago it had been determined tentatively to disband
the field service on the theory that due to restrictions on trade the
offices were not able to perform their functions. The House Appro-
priations Committee sent investigators out into about a dozen of our
offices to find out what we were doing, why we were doing it and how
we were doing it.
They came back with a definite recommendation that there was a
real need for the Department to take appropriate steps to advise more
businessmen as to the facilities and information we have.
We recognize that in the past we have fallen down in our merchan-
dising job. We have the material, but haven't been merchandising it
properly, and that is one of the defects we are seeking to overcome
right now. We are working very closely with trade associations and
chambers of commerce throughout the United States. In addition
to those 26 field offices, we have cooperative arrangements with 36
chambers of commerce throughout the United States, and through
them attempt, as far as possible, to let the business public in their
particular communities know what we do, how we do it, and what
we have available.
Mr. WoRLEY. Do foreign countries offer a service as good as this?
Mr. Mack. I don't think any of them go into it the way we do.
Ours is a trade promotion, trade preservation organization. That is
our primary function. As I mentioned before, we perform no regu-
latory function ; it is trade promotion and trade protection.
Mr. Taylor. I would not agree with Mr. Mack's statement about
other countries. I think other countries have goife into this more
completely than we have.
Mr. WoRLEY. They have gone into it more completely?
Mr. Mack. From the domestic side of it ?
Mr. Taylor. A combination of both.
Mr. Mack. Perhaps I misunderstood. As far as having people in
foreign countries lookins; after the interests of their particular na-
tionals, no doubt some foreign countries do perform greater services
than we do, but as far as making information and practical" assistance
available to business people in the particular country, I think we
perform a valuable service.
Mr. WoRLEY. I didn't get the distinction. You say other countries
have gone more thoroughly than we have into helping persons de-
velop foreign trade?
Mr. Taylor. Yes.
POST-WAR ECONOMIC POLICY AND PLANNING 725
Mr. WoRLEY. I don't see how you can get this more complete mi-
less
Mr. Taylor. It is really the over-all picture. From the standpoint
of making available information convenient to the American busi-
nessman, I think we do about as well as anybody, but
Mr. WoRLEY. Where do we fall down ?
Mr. Taylor. The over-all picture, I think, we do fall down on that.
jNIr. WoRLEY. What don't we do that other nations do ?
Mr. Taylor. I would have to refer you to a great deal of history
which, I think, would take quite a period.
jNIr. FoLSOM. You mean there is much closer coordination in other
countries between exporters and government?
Mr. Taylor. That "is right.
There is one other point Mr. JNIack stressed I would also like to
'emphasize, and that is the difference between a domestic customer and a
foreign customer. A domestic customer, if you know that his individ-
ual credit is good, that is about all you need to worry about. But when
the customer is in another country, it is not only the individual credit
of that customer but conditions in that country which may definitely
interfere with that customer being able to pay you. He may pay into
a pool but that doesn't mean that you, as an individual shipper, will
receive payment.
Mr. Worley. Is there any other information you wish to give us, Mr.
UVIack?
Mr. Mack. That about concludes my presentation.
Mr. FoLSOM. Mr. Mack just said he found considerable interest in
various cities as to exports. Did you find any interest in buying more
abroad ?
Mr. Mack. No ; I didn't, quite frankly, and I think that is something
that businessmen trying to promote exports should take into considera-
tion. I think there is a very definite need for study on the part of
business itself as to the interrelationship of exports and imports.
In the past, as you gentlemen know, we have always been interested
in exports, and many businessmen have been interested only in export-
ing, but I believe, if they are going to arrive at sound policies of their
own, they must also look into the entire subject of the relationships
between exports and imports and the ability to obtain dollars.
Mr. WoRLEY. For the goods, after they have sold them. Do you
provide any service for importers ?
Mr. Mack. Yes. I am sorry I didn't cover that. We provide the
same service for importers that we do for exporters ; the names of
suppliers in the foreign countries, sources of supply, basic information
on the development of a particular industry that produces raw or
semimanufactured goods needed in the industrial field or consumers
goods required in this market.
Mr. Worley. How many more are interested in export information
than in import information?
Mr. Mack. Importing, as you know, is largely centralized in some
of the port cities, such as New York, San Francisco, Philadelphia,
Boston, Houston, and New Orleans; whereas from the export an,gle
you get it all over, whether it is Dallas, Kansas City, or Memphis. We
have relatively very little interest in importing in those cities.
726 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. WoRLEY. Do you think we should develop more interest in
importing?
Mr. Mack. I think we should develop more interest in a study of
and better understanding of the particular problems we are going to
face and the important relationship between exports and imports.
Mr. WoRLEY. Who do you think should do that ?
Mr. Mack. I think w^e should do it.
Mr. WoRLEY. The Department of Commerce?
Mr. Mack. Yes; I think we have the facilities for doing it. For
instance, ever since the reciprocal agreements came into existence, we
have, through our offices, furnished information to trade associations
and individual businessmen as to what was in the agreements, when
hearings were to be held, the methods of presentation, and anything
businessmen might need in connection with the reciprocal trade agree-
ments program.
Mr. WoRLEY. You intend to develop information on that more fully,^
instead of stressing the importance of exports?
Mr. Mack. Yes ; I think that is important.
Mr. WoRLEY. Thank you very much.
Mr. Taylor. Mr. Schnellbacher.
Mr. WoRLEY. All right, Mr. Schnellbacher.
STATEMENT OF E. E. SCHNELLBACHER, CHIEF, DIVISION OF COM-
MERCIAL AND ECONOMIC INFORMATION, BUREAU OF FOREIGN
AND DOMESTIC COMMERCE, DEPARTMENT OF COMMERCE
Mr. Schnellbacher. I would like to commit a little lese majeste
in presenting some of the items here which are not in conflict with pre-*
vious speakers but, perhaps, develop a little of the philosophy of the
organization.
The Bureau of Foreign and Dimmest ic Commerce has been reorgan-
ized a number of times in recent years which I think is as wholesome
as it is bad, because the organization is pretty much in a state now of
standing on the outside of itself looking in at itself almost from day
to day.
In discussing the need for more information, I think the point is
that the Bureau should be so organized as to be expandable rather
than expanded ; thus, we are able to select from the mass of problems
the specific problems that are most important to deal with. And once
having reached a determination on that problem not to let that become
a vested interest in the Bureau but see it in its relative numerical
importance and then direct attention again to some other problem
which comes over the horizon and becomes the most important at the
time.
Mr. Worley. I am sorry, but I don't follow you.
Mr. Schnellbacher. The reason for the statement is tliat the Bureau
of Foreign and Domestic Commerce probably has information on
every subject that has to do with the field of foreign trade but in varying
degrees.
Now, I think our principal concern is at all times to know what are
the problems to which greater direction and greater study should be
given until that problem has been thoroughly met and dealt with, and
then direct attention to another problem, in other words, when we
POST-WAR ECONOMIC POLICY AND PLANNING 727
get into a particular area, we should retract when we finish that job
i and move into another area that demands consideration.
Mr. WoRLET. What do you mean ?
Mr. ScHNELLBACHER. I think the Bureau has to be at all times a
dynamic organization.
Mr. WoRLEY. I agree with you that it should be a dynamic organ-
ization, but commercial intelligence is concerned with what phase of
foreign trade?
Mr. ScHNELLBACHER. The immediate consideration of the Division
of Commercial and Economic Information is to maintain a comprehen-
sive file on everybody in the world who is engaged in international
trade. That job grew out of World War I when the blacklist was
discontinued at the end of the last war and there were turned over to
the Bureau the files left from the War Trade Board.
Mr. WoRLEY. It was your Department that certified the blacklist
that we recognize down in South American and other countries?
Mr. ScHNELLBACHER. The present blacklist is operated under the
direction of the Secretary of State, by proclamation of the President.
Mr. WoRLEY. Do you supply information ?
Mr. ScHNELLBACHER. We are a contributing agency to that work.
More important for the purpose of this hearing, we maintain a classi-
fied list of business organizations all over the world so that a man who
doesn't know where he can go to buy goods or sell goods can get the
names of people from us.
Mr. WoRLEY. You work, then, with Mr. Mack?
Mr. ScHNELLBACHER. And very closely with our Industrial Division,
which coordinates with us when it is about to go out and get market
information on specific commodities. We supplement that informa-
tion with the names of the people in that business, the potential cus-
tomers for the goods made in the United States, and the sources of
supply of raw materials needed in this production operation.
iVlr. WoRLEY. Maybe I am wrong, but isn't there a good measure of
duplication between your function and that of Mr. Mack, the field
service ?
Mr. ScHNELLBACHER. Nonc whatever. We only concern ourselves
with the specific names. Mr. McCoy's Division goes out and gets
market information. The Division of International Economy gathers
the economic information relating to foreign markets. All we do in
commercial intelligence, then, is list the names of the people actually
engaged in that business and maintain trade-directory reports on those
firms.
Mr. WoRLEY. As to their financial ability ?
Mr. ScHNELLBACHER. We dou't go fully into their credit status. We
simply try to have a report, which we call a sales-information report
or special report, which tells that this man is logically a fellow you
would want to consider as a potential business connection in your
specific field.
]\Ir. WoRLEY. Do you know whether other countries have the same
service ?
Mr. ScHNELLBACHER. Yes ; very definitely, sir. I think, with rela-
tion to the question raised before, the difference is this : that we are
inclined in our country to gather factual information and turn it
over to the businessman for his determination as to the application
of the information, whereas in most all the foreign countries the
728 POST-WAR ECONOMIC POLICY AND PLANNING
I
government stays right with the job from the time they gather it until
the time they tell the businessman how to use it. i
We are not a "must export or die" nation in our philosophy of
trade activities. For example, our firms that trade abroad are not |
engaged in espionage and all forms of economic penetration such as*
were the German firms in the hemisphere-security program.
If that would be the comparison, we fell very far short of what
Germany did in promoting the sale of German goods in foreign mar- ,
kets. We stop almost with the gathering of factual information,;
interpreting it, evaluating it, and making it available to the American'
businessmen for them to decide how they are going to apply it.
Our principal medium for keeping foreign traders advised is the;
Foreign Commerce Weekly. This is the mouthpiece of people in
the Bureau of Foreign and Domestic Commerce for the purpose of
bringing out late information and things which the various specialists!
regard as important to be brought to the attention of business. <
It has several feature articles in each issue, but the most important!
thing is that it is the textbook of the practical businessman who is.
concerned with any change that might occur in any foreign country
in relation to finance, tariffs, exchange problems, shipping, anything
which might affect his foreign business.
In addition, we have already resumed a service we had prior to the
war, but we have rebuilt it on a much better basis. We have an
airgram service now from all the countries from which it is possible
to get current economic information. That is staggered four times ^
a month in such a way that we have a montlily airgram on every
country from which it is possible to get current economic information.
It is airgramed so that we get it in print within 9 days after it has left'
the country from which it was sent by the Foreign Service officer.
So that Foreign Commerce Weekly is the mouthpiece of the Amer-
ican Foreign Service throughout the world. It is their vehicle for
getting information from any place in the world directly to the Amer- \
ican businessman. »|
Mr. WoRLET. You say your Department publishes that ? i
Mr. ScHNEixBACHER. Yes, our Department publishes that. It is a
weekly publication.
Mr. WoRLEY. How many subscribers do you have ?
Mr. ScHNELLBACHER. At the present time, about 6,000. ■
Mr. WoRLEY. Do you charge them anything ?
Mr. ScHNELLBACHER. Yes. The subscription price in the United
States is $4.50 a year, and our foreign subscription in normal times
at $7.90 is very substantial. It is restricted during the war.
The use in Government of this publication is almost as great as by
business, because the Department of State makes no effort to dissemi-
nate much of this material because of the fact that the Department of
Commerce does put it together and makes it available to other Gov-
ernment agencies. It is really a vehicle of the Department of State to
that extent. We assume the responsibility of getting that type of
information around to the other Government agencies.
Just an item here in connection with trying to deal with a current
problem. We have just come out with some factors in the post-war
export trade with the British Empire. To answer the question, Mr.
Folsom asked before, this job has been very widely broadcast in
POST-WAR ECONOMIC POLICY AND PLANNING 729
the press and in the trade papers, and the demand for this publica-
tion is ah'eady quite substantial.
Mr. WoRLEY. You have another demand for it. May I have a copy?
Mr. ScHisixLBACHER. Yes, sir [handing]. We have processed many
other types of studies. We are bringing out the statistical reports just
as fast as they are released from security.
The Bureau of Census gathers and disseminates the statistical infor-
mation and we do the studies through which the statistics are put
to specific use by business. They are put together in this type of
release: "United States Trade With Other American Republics for
1942." They are again approached in this sort of study: "United
States Trade with Uruguay," and so on down the line.
Then they are approached again from a commodity standpoint as
in a pulp and paper report which was gotten together for a 3- or 4-year
period in order to give an indication of the trend. Again, that is
purely statistical and leaves the businessman or the industry to pro-
ceed in working out their determinations.
"Foreign Trade After the War" w^as an effort on the part of
the bureau to project into the post-war era, and is based on the assump-
tion that, if you have a high level of production in your domestic
economy, what would be your foreign trade correlative? Your ex-
ports would be so much, and your imports should be so much to fit into
this post-war picture of a high level of economy in this country. That
report has provoked a tremendous lot of discussion in this country
and abroad.
You are probably already familiar with the United States in World
Economy. This book was reprinted by the British and 5,000 copies
distributed at their expense throughout the empire.
In Domestic Commerce, which is our domestic publication, we are
beginning to mention from time to time information that is of interest
to importers.
It is a curious thing, but our dealers in imported goods — I should
say that once goods are imported they become part of the domestic
market picture — do not always regard themselves as being in the
foreign trade.
Mr. WoRLEY. Are those publications regularly published?
Mr. ScHNELLB-ACHER. This is a monthly publication. It costs a dol-
lar a year. It started about a year ago with about 1,500 subscribers,
and the current issue is going to press with 12,500 paid circulation.
AVe can't promote it.
Mr. WoRLEY, You don't carry any advertising?
Mr. ScHNELLBACHER. No, sir.
Our third publication is again not quite pointed at foreign trade,
but I think I should mention it — Survey of Current Business. It is
important in the foreign-trade picture because it gives about the
most comprehensive information in our whole national economy —
income and production and all the industry statistics.
Next, to deal witli the day-to-day problems of the man in business
who needs information and guidance in business, this is the type of
publication we use for that purpose : Guides for the New and Pros-
pective Foreign Trader.
Believing that the philosophy in the United States is for the Gov-
ernment to provide factual information and permit the businessman
730 POST-WAR ECONOMIC POLICY AND PLANNING
to arrive at his own determinations, we try to tell him what are the
thinojs he ought to have in his mind in determining whether he is
going into foreign trade at all. We work out a type of special analysis
for him to follow through, and we seek to furnish him with published
material which he can use in arriving at his determination of the extent
to which he m ill engage in foreign trade.
Mr. WoRLEY, Do you ever have calls for information you can't
provide ?
Mr. ScHNEiXBACHER. Very rarely, sir. We always have some infor-
mation on a business subject. One of the functions of our organiza-
tion in the Bureau is to point out the gaps in current information
to the specialists in the organization, who can be studying and pro-
ducing information for that particular problem.
We have an inquiry reference service organization which is much
in the nature of a business library. Its techniques are highly de-
veloped in our field offices. We are constantly receiving requests for
which we are not always able to supply adequate information, and
those are tossed back to the consultants and analysts for their deter-
mination as to what might be done.
Mr. WoRLEY. Are those publications self-sustaining, or are they in
the red or black?
Mr. ScHNELLBACHER. Tliesc three printed periodicals are practically
self-sustaining at the present time. For this type of publication, U. S.
in World Economy, we have to buy 1,000 copies from the Superin-
tendent of Documents in order to get it printed. We only have two or
three of these a year on something we think is important enough.
Mr. WoRLEY. Special subjects?
Mr. ScHNELLBACHER. And then they are put on sale in the Super-
intendent of Documents' office, and in almost every instance our publi-
cations sell more copies out of the Superintendent of Documents'
office than the original cost to us, but we don't get the money. It
goes into miscellaneous receipts of the Treasury, and there is no way
for us to say that this publication is self-sustaining.
Mr. WcRLEY. But the money comes back anyway?
Mr. ScHNELLBACHER. The money comes back into the Government.
Mr. WoRLEY. I wondered if you had suHicient demand to make
these self-sustaining, if they were not, and what stei>s could be taken
to promote them ?
Mr. ScHNELLBACHER. Under wartime regulations of O. W. I., we
have not been able to promote any publication since Pearl Harbor.
This magazine here [Domestic Commerce] was recommended highly
by O. W. I. as a means of getting rid of about 173 types of smaller
processed publications. This went on a printed basis as entirely a
new magazine, in May of 1943, with, as I say, a little over 1,500 sub-
scribers. We have 10,000 subscribers and about 2,500 over-the-counter
sales made by the Superintendent of Documents, and no promotion
has gone into this publication at all because we are not allowed to
promote it.
Mr. WoRLEY. Could you provide the committee with copies of each
one?
Mr. ScHNELLBACHER. I brouglit thcsc down.
Mr. WoRLEY. Is there any other information ?
Mr. Shcnellbacher. Not tKat I know of.
POST-WAR ECONOMIC POLICY AND PLANNING 731
Mr. WoRLEY. Thank you very much. The committee will resume
hearings at 2 o'clock.
(Pursuant to the adjournment for the noon recess, the subcommit-
tee reconvened at 2 p. m.)
Mr. WoRLEY. The committee will be in order.
We would like to again recognize the Under Secretary of Commerce,
Mr. Taylor.
If you will, Mr. Taylor, proceed with your other witnesses and give
us a complete idea or complete picture of the operation of the rest of
your Department.
Mr. Taylor. I think I would like to start with the Bureau of the
Census, particularly its foreign-trade activities.
Dr. Hauser, Assistant Director of the Bureau, is present; also, Dr.
Ely, who is directly in charge of the foreign-trade aspects of it.
Mr. WoRLEY. Would you state your name, please?
Mr. Hauser. Philip M. Hauser, Assistant Director of the Bureau
of the Census.
Mr. WoRLEY. You may proceed.
STATEMENT OF PHILIP M. HATJSER, ASSISTANT DIRECTOR, BUREAU
OF THE CENSUS, DEPARTMENT OF COMMERCE
Mr. Hauser. Mr. Chairman, the Bureau of the Census, as the Under
Secretary pointed out this morning, is one of the bureaus of the
Department that is entirely a service bureau.
It has no regulatory or enforcement functions at all to perform.
The primary purpose of its existence is to collect, compile, and make
available to agencies of Government, private business, and industry^^
statistics which we hope, and which we believe from the standpoint of
the record, are useful for determination of policy and the conduct of
programs, both in private industry and business and in Government.
The Bureau's program in relation to foreign trade might be gen-
erally described as having two fundamental parts : First, that part
of the statistical output which is indirectly related to the field of
foreign trade, and, second, that which is directly so related.
I should like to take just a moment briefly to outline the former,
and then to have Dr. Ely, who is in charge of the Foreign Trade
Division, outline the foreign-trade statistics, the import and export
statistics.
Now, with respect to the former, it is perfectly clear that the for-
eign trade of the United States can be fully understood only in the
light of the total volume of production and distribution of goods and
services in our total economy.
. The Bureau of the Census, along with other agencies of the Gov-
ernment, is responsible for the procfuction of a large mass of statistics
I relating to our production, to our distribution, and to our human and
I material resources which are involved in these endeavors.
I Those statistics are of fundamental importance in providing a back-
I ground against which our foreign trade, as such, may be better under-
stood and appreciated — the role of foreign trade in our economy.
The specific fields which, perhaps, have the most direct relationship to
foreign trade are, first, statistics of industrial production which are
99579 — 45 — pt. 4 9
732 POST-WAR ECONOMIC POLICY AND PLANNING
provided for through bench-mark Censuses of Manufactures on the
one hand, and current industrial statistics on the other; the bench-
mark Censuses of Business which provides us with the fundamental
facts about distribution, and the bench-mark Censuses of Agriculture
which provide us with the basic information on agrictultural com-
modities. Not unimportant by any means, also, are the fundamental
statistics relating to the population, the people of this country, and ,
the labor forces.
It might be of interest to outline how these statistics are indirectly
related to foreign trade. First, it is well to point out that in this
morning's testimony it was stated there is an increasing interest on
the part of the American business community in export trade. Now,
that is not altogether an historical accident. The population statistics
have made it clear for some time that the rate of population increase
in this country has been rapidly decreasing. With that decrease there
has been necessarily a decrease in what we might think of as domestic
national market expansion.
It is rather striking to realize that the difference in the decimal
increase in population of this country between 1920 and 1930, when
we increased by some 17,000,000 people, and that of 1930 to 1940, when
we increased by approximately 8,000,000 people
Mr. WoRLEY. We went from 17,000,000 to 8,000,000 ?
Mr. Hauser. That is right ; in those two decades.
Mr. WoRLEY. Do you go into reasons for those declines ?
Mr. Hauser. That is possible, if you are interested, Mr. Chairman.
Mr. Worley. I mean, does your Department go into reasons for those
declines?
Mr. Hauser. Yes ; we deal with the explanation and interpretation
of the basic data as well as the presentation of them. The difference
in those rates of increase alone represents the population equal to
that of the entire State of Illinois, which might have been an addi-
tional part of our domestic market, but which we do not have as a
result of that decline in the rate of population growth.
I mention that as simply illustrative of how these other types of
statistics are definitely part of the picture and must be reckoned with
in any analysis of the foreign-trade situation. The foreign market
is one part of the total market with which we are all concerned.
So much for those indirect statistics. If the committee is interested,
in further detail, it can be provided. Tliey are quite voluminous,
and, of course, occupy a considerable part of the energies of the Bureau
of the Census.
With respect to the direct function, our direct part in foreign trade,
the Bureau of the Census occupies an entirely unique position as
entirely a special service agency. As the Under Secretary and other,
members of the Department have pointed out, tlie Bureau of Foreign
and Domestic Commerce in the Department is essentially a service
agency to the business community. In one sense, the Bureau of the
Census is a service agency to the Department of Commerce and to
the Bureau of Foreign and Domestic Commerce in the compilation
of foreign-trade statistics.
We collect and compile the trade data on import and export sta-
tistics, which then become marketed, so to speak, by the Bureau of
Foreign and Domestic Commerce, and packaged in such form that
I
POST-WAR ECONOMIC POLICY AND PLANNING 733
they can have the utmost usefulness to the business community. Tlie
Bureau of Foreign and Domestic Commerce and other agencies of the
Department do the interpreting and analytical work for the business
community.
A description of what that enterprise is can be given rather briefly
iby Dr. Ely. who is chief of our Foreign Trade Division.
Mr. Taylor. There is one very interesting point that Dr. Hauser
touched on, which is, that in the earlier stages of our development,
actually we imported our customers.
Mr. WoRLEY. We imported what?
Mr. Taylor. We imported our customers in the form of human
beings.
Mr. WoRLEY. Say that again.
Mr. Taylor. An individual is a consumer, you see, whether he is a
consumer in China or a consumer in the United States, but, as a result
of the innnigration policy which governed all the earlier years of our
development, actually we were importing customers.
INIr. WoRLEY. Yes ; I see your point, sir.
STATEMENT OF J. E. ELY, CHIEF, FOREIGN TRADE DIVISION,
BUREAU OF THE CENSUS, DEPARTMENT OF COMMERCE
Mr. Ely. I would assume the committee is familiar with the import
and export statistics which were published both for the use of the
Government and the public prior to the war.
Mr. Worley. Don't make any assumption that we are familiar with
them.
]Mr. Ely. I will mention two major sources of information prior
to the war. There was the annual volume on Commerce and Naviga-
tion, some thousand pages of import and export statistics arranged
in almost every possible order, broken down by commodities and by
customs districts through which it was shipped, as Avell as information
on trade with our noncontiguous territories, and information on
clearances and entrances of vessels.
Mr. WoRLEY. Was that gotten out by your department?
Mr. Ely. That is right. I only have a copy of the 1939 edition.
The 1940 is out of print, and the 1941 will come out of the Printing
Office pretty soon, I expect.
Mr. WoRLEY. Do you publish tliat annually?
Mr. Ely. Yes; generally about a j^ear after the end of the year
covered.
Mr. Worley. 1941 isn't available yet?
Mr. Ely. No; that has just been released by the secuijity authorities.
On December 7, 1941, the}^ suspended the publication of all import
and export statistics, including those for the month of October 1911.
Some were released. Just a few months ago the security authorities
allowed us to complete publication of 1941. They have since allowed
publication of other material. I will get into that later on.
Then, our principal monthly publication was the Monthly Summary
of Foreign Commerce of the United States, which contained informa-
tion on foreign trade and commerce not in as great detail as the annual
volume.
734 POST-WAR ECONOMIC POLICY AND PLANNING
Then, in addition to that, there were hundreds of mimeographed
releases turned out through which, say, 15 or 20 people got information
on specific commodities or a specific trade area. ,
During the war period, what happened was that all publications
were suspended and we went over into a war basis, preparing the mate-
rial for the war agencies. The Lend-Lease Administration made us
their agents to compile information on lend-lease exports, and these
figures have proved to be one of the best over-all records of lend-lease
activity. They are the ones that appear on the 90-day President's
report to Congress on Lend-Lease Operations.
It is obvious that statistics published very much more promptly
would be better for a service of that sort, because they are compiled
immediately rather than several months late as accounting records
tend to. We also show the commodities that go out of the country and
the countries to which they went.
Mr. WoRLEY. That is your function ? You keep track of lend-lease
exports ?
Mr. Ely. Of lend-lease exports for the Foreign Economic Adminis-
tration and its predecessor, the Lend-Lease Administration. The
figures are compiled in such manner that they can be added to the
other exports to get the complete over-all picture of our export trade.
Mr. WoRLEY. How often do you make those ; every year ?
Mr. Ely. Those are compiled every month. In fact, we prepared
special 5-day reports for the Lend-Lease Administration. They are
not in as much detail, but the monthly reports are quite complete, show
complete commodity data and detail as to each country. In addition
to that, for the Foreign Economic Administration, we prepare spe-
cial tabulations by the countries that rex][uisitioned the lend-lease mate-
rial and by where it was shipped and what vessel it went on. That
is for their own internal use in the F. E. A. That material never would
be published.
Mr. WoRLEY. You keep records of what we owe other countries under
the lend-lease ?
Mr. Ely. You mean what they have requisitioned and we haven't
yet sent them ?
Mr. WoRLEY. No; what we might owe them under reverse lend-lease.
Mr. Ely. Under reverse lend-lease — that is on the import side. We
are not yet doing it in a systematic manner. Those goods that come in
under reverse lend-lease and reach this country, we are going to keep
records on the import side.
Mr. WoRLEY. Who does that now ?
Mr. Ely. There has not been much coming into the country under
those circiunstances. Most of the reverse lend-lease has been given
to our forces abroad and it won't be very hard to go back and pick up
what has already come into the country and prepare records of it.
That, incidentally, has been recommended by a clearing house that
was set up under Executive order in the Foreign Economic Adminis-
tration. It set up a clearing house to coordinate all international
transactions.
Mr. WoRLEY. Who did you say had the jurisdiction of that now?
Mr. Ely. F. E. A., the Foreign Economic Administration. They
are now proposing to make a number of recommendations that I was
going to come to in a moment.
POST-WAR ECONOMIC POLICY AND PLANNING 735
In addition to preparing this material for the Lend-Lease Adminis-
tration, or, rather, the Foreign Economic Administration, we have
also continuously been preparing information on licensed exports for
the use of O. E. W., at the time, and now F. E. A. That was their only
method of obtaining information on exports under license, which was
obviously necessary for their own administrative purposes.
At the same time we have tabulated for the War Production Board
information on scarce commodities; and for the War Shipping Ad-
ministration we have been preparing information on the shipping
iweight of the commodities imported and exported.
This extra work done for war agencies since the war has meant a
considerable expansion of our own techniques. We have had to add
to our information the shipping weight of commodities for the War
Shipping Administration and other agencies, have had to prepare tab-
ulations identifying by which vessel the goods left the country or
entered the country. We have had to compile tabulations showing
export methods of transportation. In particular, we have been pre-
paring for war agencies tabulations of imports and exports by air.
Those we expect to be very valuable when they can be released. They
cannot be released at the present time.
Mr. WoRLF.Y. For security reasons ?
Mr. Ely. For security reasons, yes ; all the import and export figiu-es
cannot be released.
This clearing house that I mentioned, in addition to recommending
that we keep track of imports under the reciprocal-trade progi'am
in order that you might be able to see how much of the imports were
under that program, is in the process of making other recommenda-
tions in regard to keeping track of lend-lease goods returned to us
after the war. So far there have been none.
It is also recommended that we keep track of U. N. R. R. A. exports
generally so that those figures may be used principally by other agen-
cies, although the general public may be interested in having separate
tabulations of shipments or relief under the U. N. R. R. A. program.
It is also recommended that we keep track of imports by Govern-
ment agencies. There has been a vast increase in exports during the
war. The Government has made the exports by lend-lease. In the
case of imports it has been necessary to limit them very strictly on
account of space, and in some cases the Government agencies have been
doing the purchasing abroad.
The release of figures has been restricted during the war period,
but we are in the process of releasing information to the public, because
the security authorities have agreed to the release of information on
a delayed basis. We cannot release any information on strategic or
critical commodities. We cannot release any figures on trade with
South America that is more recent than 12 months; cannot release
any figures on trade with Canada and Mexico that is more recent than
6 months. We can only show the total exports of a'ny commodities
12 months after the export.
As a result of that activity, we are in the midst of turning out these
censored reports, and it is much more difficult to handle. You can't
turn out your regular reports ; they have to be censored first.
I can leave here a number that have come out so far, excluding in-^
formation that still cannot be released by the security authorities.
Mr. WoRLEY, We are interested in those reports.
736 POST-WAR ECONOMIC POLICY AND PLANNING
\
Mr. Ely. These are being distributed to the public on a sales basis
and also given to depository libraries on a peacetime basis, and they
are distributed to other agencies of the Government, say, the Depart-
ment of Agriculture, who wants to relay those figures to the public in
connection with its own work.
Mr, WoRLEY. How many members of the public would be interested
in that?
Mr. Ely. I think we are selling 100 or 200 copies of that at the pres-
ent time. It is rather difficult to get a high sale on something that is
12 months old in the way of figures.
There has been a public demand to get even that, and that does not
represent the complete distribution of the figures, because the Bureau
of Foreign and Domestic Commerce, as well as other Government
agencies, send it out together with their own interpretation of what
has happened.
One of the things that has happened as a result of the war is a con-
siderable increase in export commodity categories. Prior to the war
export tables showed some 1,400 commodities. As a result of the
need for greater detail on exports, the number of commodities have
been increased from 1,400 to 3,600, and it has meant a considerable
change in our whole procedure in order to get better accuracy. When
you haA^e a total of only twelve or fourteen hundred categories you can
afford to be much less accurate than when you are keeping track of
lend-lease material by size of tank and size of shell.
It has been necessary for us to compile a rather voluminous dic-
tionary so the shipper is able to find what his commodity is in terms
of our own definition before he makes a shipment out of the country, j
so that we can be sure our figures are as accurate as need be for the |
export agencies, Lend-Lease Administration, and so forth.
I think that covers our picture. We are anxious to get the informa-
tion out so that industry can be aware of the problems with which they
are faced and can determine what to do.
Mr. WoRLEY. Do other countries offer the same service or similar j
service ? i
Mr. Ely. In general, their published statistics are not as detailed as
United States statistics in terms of commodity classification. That
was true to some extent prior to the war and, I suspect, will be more
true after th^ war. You never know in the published statistics of
other nations whether the statistics compiled for the Government itself
were in more detail.
From my own use of the German statistics I have always felt that
they must have had more detailed statistics for their own use. Their
published statistics were very general; they hid more than they
revealed.
Mr. Worley. Is the information you compiled available to anyone ?
Mr. Ely. In peacetime it is. The only restriction is that it does
not reveal the activity of one business enterprise or one entitj^, a domes-
tic corporation.
Mr. WoRLEY. But people who are interested can secure it ?
Mr. Ely. That is right. That is the reason for having to declare
it confidential, because if you publish it here in the United States it
would be available outside the United States.
Mr. WoRLEY. But, in peacetime it is available to anyone upon re-
quest ?
POST-WAR ECONOMIC POLICY AND PLANNING 737
Mr. Ely. It is unrestricted; as free as water or air, supposedly.
Mr. WoRLEY. We get the same information from otlier countries?
Mr. Ely. What is published.
Mr. Taylor. That goes back to the point I was making this morn-
ing, ]Mr. Chairman. It is not in any way uniform and, in order to be
abte to establish any basis on which any international discussions
could take place, you have to have comparability of information, and
it has to be complete. m 1 1
Mr. WoRLEY. We give them most of the information available, but
it is a one-way road ?
IMr. Taylor. It varies with the country.
Mr. WoRLEY. Generally ?
iSlr. Taylor. Well, the other countries have not gone as far as we
have in the development of over-all statistics. For instance, one of
the things we ran into in IT. N. R. R. A. — you will remember the for-
mula was worked out as 1 percent of the national income — we have
spent a large part of our time since then showing other countries how
they can get national-income statistics. These did not exist and, in
cases where they did exist, they were not comparable.
Mr. Worley. We might have done too much bragging about that
time.
Mr. Hauser. Mr. Chairman, it may be proper to point out, too, that
this Government is in rather a peculiar relationship as far as the
release of detailed import and export statistics is concerned. If we
make our statistics very general, without sufficient commodity detail,
the individual businessman who is interested in either the import or
the export trade does not have the necessary information with which
most advantageously to operate his own business.
With respect to some of the foreign countries, detailed information
may not necessarily be made available to their businessmen,* because
the export or import business is directly controlled either through
the operation of cartels or by Government control. The American
businessman is forced in many instances to compete with what is, in
essence, a Government monopoly in other countries.
If we try to protect him, on the one hand, by not revealing details
on exports and imports, we may, on the other hand, hurt him by not
giving him enough information to compete. The complete picture
is one of the individual American businessman operating in world
markets in competition with cartels or control by foreign governments.
I think the statistical problem is merely part of a much broader
problem.
Mr. Worley. Do you have any additional information ?
Mr. Ely. No, sir.
Mr. Worley. Thank you very much.
]Mr. Ely. I can leave these exhibits of peacetime and wartime pub-
lications. There are a lot of copies of them.
]Mr. Worley. Thank you very much.
Do you have any additional comment on the operation of the Bu-
reau of the Census?
Mr. Taylor. No ; not at this time.
Mr. Worley. A statement presented by Mr. Ely will be inserted in
the record at this point.
738 POST-WAR ECONOMIC POLICY AND PLANNING
(The statement referred to is as follows :)
Functions and Responsibilities of the Foreign Trade Division,
Bureau of the Census
Under title 15 of the United States Code, sections 173 through 177, and title
46, sections 92 and 95; tlie Department of Commerce is responsible for the
collections, classification, tabulation, and publication of statistics on imports
and exports of the United States and trade between continental United States
and its Territories and possessions.
In recent years the work of compiling foreign-trade statistics has been con-
siderably expanded to provide additional information required by war agencies :
Since the inception of the lend-lease program, the Foreign Economic Ad-
ministration has been supplied with special current tabulations on lend-
lease exports. These tabulations are the official record of such exports ;
and show the amounts of each commodity exported by requisitioning country, •
lend-lease requisition number, vessels on which the shipments were made,
country of ultimate destination, etc.
The War Production Board is supplied with import and export information
necessary for its operations in allocating scarce materials and manufactured
products.
The Foreign Economic Administration obtains detailed information on
shipments under export license. Most of the increase in commodity detail ,
shown in export statistics since the beginning of the war (an increase of |
from 1,400 to 3,500 in the number of separate commodity classifications) |
was instituted at the request of the Foreign Economic administration and I
is predecessor agencies.
The War Shipping Administration and other war agencies are provided
with information on the shipping weight of exports and imports and the
quantities, values, and shipping weight of individual commodities carried
on vessels which were lost as a result of submarine warfare or other enemy
action. These tabulations, in addition, provide special information on the
lend-lease cargo lost.
This expanded program for providing information on United States foreign
trade results in a much clearer picture of the movement of exports and imports
than was available prior to the war and clarifies many problems of Govern-
ment, business, and industry both in war and peace.
Until recently no information on the foreign trade of the United States had
been released to the public since the beginning of the war except the grand
total value of imports and exports. Within recent months the security authori-
have allowed the release to the public of selected import and export statistics on
a 6 and 12 months' delayed basis. These statistics do not divulge any iuforma^
tion on imports or exports of strategic, critical, or military items.
Every effort is being made to provide business and industry with as much
information on United States foreign trade as may be released without giving
aid and comfort to the enemy. With the end of the war in Europe, it is hoped
that much of the information on foreign trade which has been compiled primarily
for the use of war agencies during the war period can be released to business
and industry for use In planning their post-war export and import activity.
Because of the vast improvement which has been made in export and import
statistics during the war period. It is anticipated that this information when
released will be far more valuable to the public than the information whicli
was provided before the war.
The foreign trade statistics program must continue to have as one of its
principle functions the providing of information on imports and exports which
will be most useful to other Government agencies engaged in international
operations. Under instructions from the President, a Clearing Oflice for Foreign
Transactions and Reports has been created in the Foreign Economic Adminis-
tration to coordinate the records on international transactions which are
compiled in various Government agencies. An important function of this
clearing ofiice is to Integrate import and export statistics with informaton com-
piled by other agencies. For example, considerable attention is being given by
the Clearing Office at the present time of the problem of making certain that
statistics on imports provide adequate information on Imports by United States
POST-WAR ECONOMIC POLICY AND PLANNING 739
Government agencies and on imports under the lend-lease reciprocal-aid program,
and that export statistics provide information on all types of exports, including
those sponsored by United States Government agencies.
The foreign trade statistics program of the Bureau of the Census will continue
in the post-war i)eriod, as it has during the war period, to emphasize the
importance of providing prompt, accurate, and sufficiently detailed statistics on
foreign ti'ade for use both by Government and business.
Mr. WoKLEY. Your next witness, Mr. Taylor ?
Mr. Taylor. Dr. Fairchild, of the Bureau of Standards.
Mr. WoRLET. You maj^ proceed.
STATEMENT OF ILER J. FAIRCHILD, CHIEF OF THE DIVISION OF
TRADE STANDARDS, BUREAU OF STANDARDS, DEPARTMENT OF
COMMERCE
Mr. Fairchild. I want to tell you, Mr. Cliairman, about the work we
are doing on export trade, with just a word of background.
Mr. WoRLET. Would you like the statement to go in the record ?
Mr. Fairchiu). Yes, sir. That is a prepared statement.
Mr. WoRLET. All right. Insert in the record the statement of Dr.
Fairchild.
(The statement referred to, together with a supplemental statement
later filed by Mr. Fairchild, is as follows :)
Commercial Standards For Foreign Trade
Statement, September 27, 1944, by I. J. Fairchild, Chief, Division of Trade
Standards, National Bureau of Standards, to the Subcommittee on Foreign
Trade and Shipping, of the House Special Committee on Post-war Economic
Policy and Planning
standards for export trade
For a number of years prior to World War II the Germans were actively
promoting the use of Gennan standards, especially in Latin America, and subsidiz-
ing, up to 65 percent of production costs, the exportation of German products.
England, too, through its Government, was taking over up to 90 percent of the
unpaid balance of exijort contracts and actively promoting the purchase of goods
according to British standards.
At the same time, some misguided exporters in this country were delivering used
and scratched plate glass, short pieces of wire, and otherwise dumping into Latin
America products unacceptable in this country, largely through misrepresentation
or incomplete descriptions.
Beginning with the fiscal year 1940, on approval of the Bureau of the Budget,
Congress appropriated small amounts to the National Bureau of Standards and
to the Bureau of Foreign and Domestic Commerce to aid industry in the
establishment of standards as a basis for exports and the translations thereof,
particularly into Spanish and Portuguese. Allotments for this work have been
continued in the subsequent appropriation acts.
The objectives as applied to standards for exports are essentially the same as in
the establishment of commercial standards for use in the domestic market. We
have been working quietly with industries asking our aid in bringing some order
out of tlie confusion and in improving confidence in the product at the point of
sale, not with the idea of making products uniform, nor to give up any design
differences, nor to surrender any selling points, trade names, trade brands, or
any other individual advantages, but rather to find some common ground or plat-
form on which exporters can stand together to improve public understanding and
acceptance of the product, to promote fair competition, to broaden markets and to
minimize the need for testing on behalf of the purchaser by encouraging the
exporter to guarantee voluntarily i>roper sizing, testing, grading, rating, or other
criteria of the product, generally hidden, according to the standard.
By means of the voluntary identifications or labels guaranteeing conformity to
the standard, the foreign purcliaser, whether large or small, can distinguish be-
740 POST-WAR ECONOMIC POLICY AND PLANNING
tween high quality goods rated or graded aceorduig to standards, aud those sold
merely on the basis of price or offered for barter.
It is believed that with modern mass-production methods, systematic inspec-
tion, and technical control of raw materials and processes, our country now sur-
passes foreign competition in the ability to produce uniform grades and types of
the highest quality of machine-made goods. However, speaking broadly, we have
not used standards with voluntary inspection prior to shipment, and voluntary
certification as to grade in order to clinch the recognition of and reputation for
quality as a sound foundation for the expansion of a more permanent and
profitable export trade. Buyers, both domestic and foreign, are eagerly search-
ing for assurance as to quality, and sellers are even more eagerly looking for)
means to promote sales, to expand, and to hold their markets.
The procedure is very similar to that for the establishment of commercial
standards for domestic trade. On specific request by the exporters, conferences
are held, standards developed and adjusted, and following acceptance in writing by
a satisfactory majority, these standards are published and promulgated in English
by the National Bureau of Standards. In the course of development, the Bureau
of Foreign and Domestic Commerce investigates the usefulness of proposed
standards from the standpoint of practical trade promotion, and obtains opinions
and suggestions from well-informed foreign buyers, in order that the standards
may have the maximum value as a means of increasing the prestige and sale of
American commodities abroad.
Approved standards are then translated into Spanish, Portuguese, or other
approprate languages according to the market opportunities, and after checking
with experienced exporters, the translations are published in these languages by
the Burefu of Foreign and Domestic Commerce. They are circulated through the
Department of State to the American Foreign Service ofl3cers for trade-promotion
purposes, and to libraries. Government departments, and other offices in foreign
countries, where they will be available for reference.
Fifteen such standards as a basis for exports have been established and pub-
lished in English, 11 of which have been translated and distributed in Spanish,
and 8 in Portuguese. A number of others are in the process of development or
translation.
STANDARDS FOR IMPORTS
There is a similar urgent need for standards to facilitate imports and to bring
. about better understanding between seller and buyer as to the types, grades, and
characteristics of imported goods. During the war large sums have been expended
for the importation of raw materials, such as manganese ore, caranauba wax,
fats, oils, and cinchona bark, which were not suitable for the intended purpose.
We hfive the approval of the Department of State and the Foreign Economic
Administration to undertake the voluntary, cooperative establishment of stand-
ards for imports.
SXTPPLEMENTAL STATEMENT ON COMME3SCIAL STANDARDS FOB FORKGN Tr.\DE
(By I. J. Fairchild, September 27, 1944)
"Diesel and Fuel-Oil Engines (Exiwrt Classifications), Commercial Standard
CS102E-42." is a good example of a voluntary standard worked out cooperatively
between industry and Government. This standard covers nomenclature and
definitions, standard sea-level ratings under specified conditions, altitude derat-
ings, minimum standard equipment, engine and accessory data, a uniform guaranty
label, and the manvifacturers' joint recommendations as to other necessary or
desirable equipment.
It interferes in no way with individual differences in design or selling points,
nor does it hamper future improvements, as it is based on the principle that each
manufj^cturer will retain his freedom of action as to design, and will, of course,
continue his individual trade name and/or trade brand to signify his respon-
sibility to the buyer for over-all performance and all of the other aspects of the
sale outside and beyond the scope of the standard.
As a result of numerous checks in Latin America through both private and
governmental channels, the industry is enthusiastic over the prospects of improv-
ing and expanding exports of Diesel and fuel-oil engines with the aid of this
standard.
POST-WAR ECONOMIC POLICY AND PLANNING
741
There are listed below the commercial standards already established as a basis
for export trade. It will be noted by the absence of the "E" in the identification
number that a majority of these are the identical standard used in domestic trade.
CSNo.
Titles, English edition
Translation and dls-
bution
Spanish
edition
Portuguese
edition
17-42
20-42
21-39
45-42
56E-41
60E-41
6S-38
69-38
70^1
71-41
72-38
77-40
90E-41
93-41
102E-42
Diamond core drill fittings
Staple vitreous china plumbing fixtures
Interchangeable ground glass joints
Douglas fir plywood (revision in process)
Oak flooring
Hardwood dimension lumber
Liquid hypochlorite disinfectant, deodorant and germicide
Pine oil disinfectant
Phenolic disinfectant (emulsifying type)
Phenolic disinfectant (soluble type)
Houshold insecticide (liquid spray type)
Sanitary cast iron enameled ware
Crawler mounted, revolving power shovels, lifting cranes, dragline,
and clamshell excavators (export classifications).
Portable electric drills (exclusive of high frequency) -..
Diesel and fuel-oil engines (export classifications)
Yes.
Yes.
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes.
Yes.
Yes.
Yes.
Yes.
Yes.
Yes.
Yes.
Mr. WoRLET. You may proceed.
Mr. Fairciiild. Prior to the war, the Germans were promoting the
purchase of goods according to their own standards. They had men
on the ground in Latin America, and they were subsidizing their ex-
ports to the extent of 65 percent of their own normal cost of pro-
duction,
Mr. WoRLEY. Who was doing that ?
Mr. Fairchild. The Germans. And the British were taking over,
according to the information we have, 90 percent of the unpaid bal-
ance of export contracts, particularly exports into Latin America.
The British also have had men on the ground actively promoting pur-
chase according to British standards.
Here are two volumes put out in Spanish by the British in 1942.
The first is British Industrial Practices, which is a sort of composite
handbook, mechanical, electrical, metallurgical, and textiles. It con-
tains tables to convert English systems into the metric and other prac-
tices used in Latin America.
Mr. WoRLEY. Is that a Government publication ?
Mr. Fairchild. This is put out by the British Standards Institu-
tion cooperatively with the Government.
This one is a composite catalog of British products offered for ex-
port from Britain. Both of these volumes are very well done.
Mr. Worlet. Where are they circulated ?
Mr. Fairchild. In Latin America, published in the Spanish lan-
guage.
Mr. WoRLEY. Are they made available to anyone, sir ?
Mr. Fairchild. Down there ; yes. They are rather scarce here.
Mr. Worley. Do you have any idea how many copies are in circu-
lation ?
Mr. Fairchild. We don't have any records, but I understand they
have been pretty liberal with them.
Mr. WoRLEY. Why do they send those documents down there ?
Mr. Fairchild. That is to promote understanding between the tech-
nical people and purchasers as to what is available from Britain and
the terms that they apply to their goods.
742 POST-WAR ECONOMIC POLICY AND PLANNING
In the fiscal year 1940 Congress gave the Bureau of Standards a very
small amount, $13,000, 1 think, to be exact, and an even smaller amount
to the Bureau of Foreign and Domestic Commerce, to assist our in-
dustries in developing commercial standards and translating them into
Spanish and Portuguese. Those allotments have been continued in
subsequent years.
JNIr. WoRLEY. That is $13,000 you say ?
Mr. Fairchild. Yes, sir.
Mr. WoRLEY. Is that enough for you to do the job well ?
Mr. Fairchild. Not Avell ; no, sir. The preparation of these stand-
ards is essentially the same as for our commercial standards for do-
mestic business. We cooperate with the industries to bring some order
out of the confusion of terminology and methods of testing and rating,
with no idea of standardizing the final product.
In other words, we are not trying to level off competition; we are
trying to stimulate competition, and the standards must never go so
far as to cover the item rigidly or completely.
Mr. WoRLEY. What sort of item; any manufactured products?
Mr. Faikciiild. All items within the bailiwick of the Department
of Commerce. That means other than foods, drugs, cosmetics, and
farm products.
The purpose is to improve the standing of the products by encourag-
ing the exporter to guarantee voluntarily proper size, grading, rating,
or other criteria of the product, generally hidden.
Mr. WoRLEY. We do that for the producer of this commodity, the
manufacturer ?
Mr. Fairchild. We work with our exporters to establish standards
and the Bureau of Foreign and Domestic Commerce translates them.
The manufacturers, through their own channels, and the Government
through the Department of State distribute the standards in Latin
America. The exporters conform to these commercial standards reg-
ularly without request from the buyer.
Mr. WoRLEY. This pencil here, for example, I don't know who makes
this, but some people in Latin America are interested in buying pen-
cils. In the functioning of your Department do you test that pencil,
examine it as to the type of lead in it, and make that information
available to them?
Mr. Fairchild. Normally no. Broadly speaking we do not test for
the public. We do testing for Government agencies or testing in the
way of research to obtain data on the commodity as a whole that would
be incorporated into such a standard, but we do not encourage testing
in our Bureau for the public. There are too many private laboratories
and inspection agencies that make their living, their bread and but-
ter, that way.
Mr. WoRLEY. I misunderstood you. I thought you said you tested
a given commodity so that the purchaser would know what he was
buying, a purchaser in another country.
Mr. Fairchild. No, sir. We have been requested by Latin America
buyers to do that over a long period of years, but it is not a thing we
like to do because it takes work out of the hands of testing laboratories
and inspection agencies, such as Robert W. Hunt Co., for example.
Mr. Taylor. I think if you would explain what an industrial stand-
ard is, that it would be helpful.
POST-WAR ECONOMIC POLICY AND PLANNING 743
Mr, Fairciiild. I think, Mr. Chairman, as an example, I will turn
in this supplemental statement as part of the record.
"Diesel Engines (CS102E-42)" provides a good example of how
these commercial standards operate. We worked with the industry
in conferences to develop the type of criteria that they wanted in the
standard.
Tliis pamphlet — we have it in English and Spanish — covers ma-
rine, stationary, portable, Diesel, and fuel-oil engines. It sets up
nomenclature, definitions, methods of rating, methods of testing, the
engineering data to be furnished with the engine, the parts that are
considered minimum equipment, and also a list of recommended spare
parts with which the buyer should equip himself.
This is made a matter of record as a government document follow-
ing written acceptances from the exporters that they will make it their
standard of practice.
Mr. WoRLEY. All the people who manufacture marine engines say
that they will try to make the standards you recommend the standard
type of marine engines?
Mr. Fairchild. They say they will rate them according to those
standards.
This is the type of label which they have adopted for application
to the engines when shipped. [Exhibiting label.] Some companies
are also applyiiig it on lend-lease engines, although that is not neces-
sary.
In the supplemental statement there is also a list of the 15 standards
established to date, 11 of which have been translated into the Spanish
and 8 into the Portuguese.
Even the translations are difficult matters because Spanish is not
a standardized language, neither is the Portuguese, and it is difficult
to find words which will convey the proper meaning to the various
areas.
In the course of development of these standards the Bureau of
Foreign and Domestic Commerce investigates the usefulness of the
proposed standards to foreign buj^ers and obtains comment through
official channels, American Foreign Service officers. Comment is also
obtained by our manufacturers through their own private representa-
tives. When those reports are received the standards are then ad-
justed.
I want to make it very clear that these are standards which we offer
to them already developed and the goods are labeled or rated accord-
ing to those standards as a means of assuring the quality or the ratings
as being above what might be offered on a purely price basis. No
attempt is being made to discourage at all the sale of goods according
to price. We sell lots of house dresses, for example, in Latin America
on a price basis. They may not be of the highest degree of color
fastness or breaking strength. As long as we can get that business
on a price basis, of course, we want to continue, but we want to enable
the foreign buyer also to distinguish between goods which conform
to quality standards and those which do not, because we believe it is
going to' be impractical to meet postwar competition, particularly
European competition, on a price basis.
We do believe that with modern mass-production methods and our
ability to make fine measurements and interchangeable parts, that
744 POST-WAR ECONOMIC POLICY AND PLANNING
our country now surpasses the world in its ability to produce uniform
grades and types of the highest quality of machine-made goods. Ours
IS an effort to get credit for delivering that high quality, high per-
formance.
In connection with Diesel engines, for example, and some of the
heavier machinery, we now produce precision bearings up to 20 inches
in diameter — an example of one of the things we have done in this;
country not paralleled anywhere in the world.
Mr. WoRLEY. In that connection, do other countries maintain a.
Bureau of Standards?
Mr. Fairchild. They have been very active in standards work, Ger
many and England and France too, pre-war, and a number of suchi
organizations are being set up in Latin-American countries, but they
of course, have a long, uphill pull to draft standards for most of their'
purchases. It is going to take them a long time to cover any fair'
percentage of the whole market.
After consulting with the Department of State and the P'oreign
Economic Administration, we have in mind also, sometime in the post-
war period, establishing standards as a basis for imports. As a nation
we have been importing something like 200 different raw materials,,
many of which, after the expenditure of large sums, have reached this ;
country only to be entirely unsuitable for the purpose. We have had
a lot of trouble with quartz and fats and oils, chinchona bark, and man-
ganese ore, largely because buyers and sellers did not understand one ■
another as to what was to be delivered, that is, the general character-
istics of the item.
It is not that we want to set up any barrier to imports, not that at
all. We want to know what sort of products are going to be received
so they will be allocated into channels where they will be useful.
I might leave another example of these publications. Here for ex-
ample, is one, "Crawler mounted, revolving power shovels, lifting
cranes, dragline and clamshell excavators (export classifications)
CS90E-41."
This industry has very recently formed an association known as the
Power Shovel and Crane Manufacturers Export Standards Associa-
tion, and a revision is under preparation to include in this standard
the small rubber-mounted shovels and cranes.
Mr. WoRLEY. Do you send these pamphlets out to those countries ?
Mr. Fairchild. We purchase rather a small number, 500 or 1,000,
something like that, and the industry itself pays for large quantities
and puts them in the hands of prospective buyers and their own agents
in South America.
Here is one on "Sanitary cast-iron enameled ware, CS77-40," of
which the industry purchased over 75,000 copies. A good many of
those were for domestic use, however. Copies were also forwarded to
the Department of State to be put into the hands of governments,
libraries, railroads, and large buyers in South America.
Mr. WoRLET. The manufacturing concerns do that themselves ?
Mr. Fairchild. They do that themselves ; yes, sir.
I think that is all I have to say unless you have some questions.
Mr. WoRLEY. Do you have anything to do with standards of ship
construction ?
POST-WAR ECONOMIC POLICY AND PLANNING 745
Mr. Fairchild. No, sir. I think our laboratories might do some
testing work to determine permissible stresses of new structures, and
that sort of thing, but my division does nothing of that sort.
Mr. Arthur. I have one question with respect to those labels which
have been prepared for certain products.
How broadly are they used and how many commodities are they
available for at the present time ?
Mr. Fairchild. You are speaking now of exports only ?
Mr. Arthur. Exports — the trade mark which says that it conforms
to a high American standard.
Mr. Fairchild. There are relatively few of them. We have those
15 standards established now for that purpose and we are encouraging
those industries to identify every article exported with that label ; not
to wait for the customers to request it but hand it to them voluntarily.
Mr. Arthur. Those are 15 items in our total export trade. How
much of a field does that represent? One-half of 1 percent?
Mr. Fairchild. It is probably less than that, although we have
deliberately tried to pick out important items, Diesel engines, shovels
and cranes, sanitary ware, disinfectants. We have a number of others
under preparation, but this work has gone rather slowly during the
war, naturally.
Mr. Arthur. There are other countries which have developed and
promoted standards for their important exports, like Danish butter,
which has a definite label attached, "Improved Danish Butter for Ex-
port." That is a well-recognized brand name and it covers a substan-
tial part of the total Danish exports, as I understand it.
Is there any program contemplated for the United States comparable
to that?
New Zealand has another, I believe?
Mr. Fairchild. I believe you will find in the Department of Agri-
culture they are doing something similar. In the Department of
Commerce we are not exercising that control. In Persia, too, they
have set definite minimums of the quality of Persian rugs that can
be exported from the country. That is governmental regulation.
We have not attempted to set up any arbitrary standards. In fact
we haven't any authority. The work in the Bureau of Standards is
almost wholly voluntary.
Mr. Arthur. The most widely known label is that containing a
statement saying "Made in America" on goods ; and that doesn't mean
anything with respect to quality, does it?
Mr. Fairchild. Not at all.
Mr. Taylor. There must be some relationship between the 15 and
the 3,600 commodity classification. That 3,600 classification does not
cover the individual manufacturers at all. That means there might
be a hundred manufacturers producing and exporting a particular
thing that would come in the 3,600 articles.
Mr. WoRLEY. Do you think your Department should expand its
functions ?
Mr. Fairchild. I think there is real need for this sort of work, to
inspire confidence at the point of sale where it is most needed, that is,
where the goods change hands.
Mr. WoRLEY. That is one way to stimulate exports. If they have
confidence in the product they are more likely to buy it.
746 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. Fairchild. That is not only our idea but it has been checked
by much experience. General Electric, Westinghouse, and a number
of others have checked through their own representatives in South
America and are all enthusiastic about the possibilities of such action.
In fact, our information indicates that the Latins are much more
inclined to watch labels on things than people in this country.
Mr. Arthur. Is that true of all large companies, that they would be
in favor of the development of standards, or do they want to promote
their own brands ?
Mr. Fairchild. Naturally they want to promote their own brands,
but this is a platform below brands. There is no idea of eliminating
brands. We want them to take the responsibility for a number of
things beyond the scope of the standards.
Over and above that you have the general reputation of the com-
pany, the number of distributing points, the likelihood of being in
business in another 5 years, the stocks of spare parts available and
services that they render. Even the commodity itself is never covered
completely in the standard. There is always room for improvement
in design and selling points, and that sort of thing. We are not
encom'aging complete standardization of the products.
Mr. Arthur. From the talks you have had with businessmen in
your efforts to develop the standards, would you say that you would
have the hearty support of businessmen or would there be considerable
opposition on the ground that it threatens to deal
Mr. Fairchild. We haven't run into any opposition, even in the
case of the large steel companies.
Mr. WoRLET. You think we are considerably behind other countries
in promoting export trade?
Mr. Fairchild. Very much behind other countries; yes, sir.
Mr. WoRLEY. Do you think that is primarily the Government's
fault, or primarily the producers' fault, or the manufacturers'?
Mr. Fairchild. Collectively, I think. It is hard to pin it down.
Mr. WoRLEY. Private enterprise has made numerous efforts, hasn't
it?
Mr. Fairchild. They have, within the last year or so, had one man
down in Soutli America employed through the American Standards
Association (funds provided by the Office of Inter- American Affairs).
One man can't do much in all those countries.
Mr. WoRLEY. During the last couple of years the}' haven't made
much effort?
Mr. Fairchild. That is right.
Mr. WoRLEY. Why?
Mr. Fairchild. They haven't been able to export products.
Mr. WoRLEY. In peacetime why shouldn't a big company here man-
ufacturing automobiles want to develop markets sufficiently in for-
eign countries to send somebody over there to take all the steps you
are taking?
Mr. Fairchild. Well, a number of them have, but I think, speaking
broadly, that our American manufacturers have been interested mostly
in the domestic market. It runs such a high percentage of the total,
something on the order of 97 percent, perhaps, and they have sought
a foreign market only in those periods when the domestic markets
fell off.
POST-WAR ECONOMIC POLICY AND PLANNING 747
]VIi'. AVoRLEY. We had testimony before the full committee several
months ago from the automobile industry and it seemed that they
couldn't wait until they could get into foreign markets. Of course,
they were looking for the saturation point over here first, and then
at that time to get into the foreign market. The testimony seems to
indicate they had relied pretty heavily on foreign markets before the
war and wanted to go back and develop them more.
We have had diflicidty with witnesses who seemed to be interested
in developing foreign markets in that they did not give us any specific
steps as to how they planned to develop those markets. In view of
your statements, they perhaps rely on somebody else, or just the
natural demand from those countries.
We are apt to have a lot of competition, aren't we, in building up
markets in those foreign countries ?
Mr. Fairchild. We are going to have more, I believe; yes, sir.
Mr. WoRLEY. We have always had pretty stiff competition.
Mr. Fairchild. Yes, sir.
Air. WoRLEY. You think we will have even keener competition?
Mr. Fairchild. I believe so.
Mr. WoRLEY. Then it is not only up to the Government but to pri-
vate enterprise itself, primarily, to try to develop the markets with
Government assistance.
Mr. Fairchild. Of course, as was said earlier this morning, in a
number of other countries business people and the government work
much closer together than they have done in this country and are
better integrated, and that is what I believe we n^ed here, to have
better cooperation between Government and business.
JNIr. WoRLEY. How can we do that ? What steps can be taken ?
Mr. Fairchild. Of course, my end of it is standards. I think I
should stick to that.
Mr. WoRLET. Can you give us an idea how you can get better co-
ordination and cooperation between business and Government?
Mr. Fairchild. We have had plenty of cooperation when we ap-
proach them on the level of these descriptions and ratings, methods
of testing ; never anything but the finest cooperation. We just haven't
had enough people to do the work; that is all.
Mr. WoRLEY. You mean in your department ?
Mr. Fairchild. Yes, sir.
Mr. WoRLEY. Do you have any suggestions or comments or infor-
mation, Mr. Taylor?
Mr. Taylor. No. This field of industrial standards is a very useful
field, but a rather specialized one.
Going back into our history, there were only certain companies
that felt that the export market was an important market for them.
Automobile companies are now in the forefront of that group. Vari-
ous other companies, when the domestic market dried up, would say,
"Let's sell that abroad." And in many cases where quality was not
the most important thing it was a place where you could get rid of
something you didn't want. Of course, a great many of the foreign
buyers were quite familiar with that and it didn't help our reputation
as a trading nation, as other countries approached it quite differently.
They felt it was important to them that there should be standards
of performance over a long period, if they were going to make per-
99579 — 45— pt. 4 10
748 POST-WAR ECONOMIC POLICY AND PLANNING
manent customers; and, frankly, all of our manufacturers didn't see
it that way.
Mr. WoRLEY. We just never have been very interested in develop-
ing foreign trade ?
Mr. Taylor. That depends again on the individual company and
the individual product.
Mr. WoRLEY. The over-all picture indicates we never have been very
interested in developing foreign trade.
Mr. FoLSOM. That is very spotty, isn't it?
Mr. Taylor. Very spotty. Take the Singer Sewing Machine Co.
There isn't any place in the world you can go and find any native who
hasn't heard of the Singer sewing machine.
They very consciously developed that. They developed means for
payment and means for servicing, and so on. Some of our other
companies did the same thing. They pronounce it in all sorts of dif-
ferent ways, but it is always the Singer Sewing Machine Co.
Mr. WoRLEY. The only way to develop our foreign markets is for
the producer to find at least an equally profitable market as he finds
at home ?
Mr. Taylor. And you also have to meet the requirements of the oth-
er market, which very often are considerably different from those of
our own.
Mr. WoRLEY. I am trying to find just why we haven't paid any
more attention than we have to foreign trade.
Mr. Taylor. Well, we were very busy developing our own country
and, during that development there were certain export products which
paid for a major portion of the development. Up to, if you want to
call it, the turn of the century, we were principally exporters of raw
materials.
Mr. FoLSOM. The question of prices and also duties enter into that?
Mr. Taylor. Not so much during that period.
Mr. FoLSOM. I mean in recent years.
Mr. Taylor. In recent years that has had quite a bit to do with it,
and our own policies did not conform, but even so it was possible to
develop certain types of things.
Mr. WoRLEY. The development period, what period was that?
Mr. Taylor. Of course, I don't think it is over yet.
Mr. WoRLEY. I know.
Mr. Taylor. Roughly, industrialization and so on was from 1848 or
1850 up to the present time, with big emphasis after our Civil War
and going through the First World War. Of course, the First World
War gave it a shove, and this war is going to give it a bigger one.
Mr. FoLSOM. How much do you think this lag in foreign trade has
been due to lack of coordination between Government and business?
I have in mind the Board of Trade in England. If we had a little
better coordination of policy
Mr. Taylor. I think it is extremely important.
Mr. FoLsoM. You are taking a step in that direction. Do you have
anything in mind by which you can bring about that coordination ?
Mr. Taylor. For one thing this country has never had an over-all
foreign-trade policy. I am inclined to think that is possible, but up
to the present time it has not appeared.
It is not only the question of sections of the country competing with
each other in trying to formulate that policy, which they do very ac-
POST-WAR ECONOMIC POLICY AND PLANNING 749
tively, as you know, but j^ou have certain segments of industry itself —
well, one industry will have a very definite interest in a particular type
of over-all polic}^ of our foreign trade, while another industry will
have exactly the opposite.
Until you have a method by which the policy for the country as a
whole can be first determined and then administered, I think we are
going to be at a material disadvantage in doing business in compari-
son with other countries.
Mr. WoELEY. We are just fighting among ourselves.
Mr. Taylor. And doing everything we can to see that only one seg-
ment is looked at at one time.
Mr. WoRLEY. That is not a very wise policy.
Mr. Taylor. I don't see how you ever can get the answer as long as
you look at onlj^ one segment at a time. You may get an answer that
is good for the man sitting there, that suits him perfectly, but a fellow
over on the other side of the room hears about it and you are cutting
his heart out.
Mr. WoRLEY. Who is the most guilty in that; Congress?
Mr. Taylor. No, I don't think so. I think all segments of the coun-
try tried in whatever way was possible to see that we only looked at
one segment at a time. That is very understandable. Congress itself
isn't organized so that it can» deal with the subject as a whole. The
various agencies, various segments of the country report to too many
different committees.
Mr. WoRLEY. In order to avoid that very thing, this committee was
created to work at the over-all picture.
Mr. Taylor. Yes, sir; but this is supposedly a temporary commit-
tee.
Mr. WoRLEY. Yes.
Mr. Taylor. I think that would be one of the greatest things —
whether it is this particular committee or another continuing commit-
tee— if there was one place in both Houses of Congress to look at the
whole picture, otherwise we are bound to make very fundamental mis-
takes. We are probably going to make them anyhow, but at least it
won't be because we haven't looked at the factors .all together.
Mr. WoELEY. That is why Congress created this committee, and the
Senate created the corresponding committee, to look at it broadly.
That is laying the basis for this question. With the apparent lack of
interest we have displayed in developing foreign markets and the rea-
sonably good way we have fared during our history, I was wondering
what is the necessity, which would be better, to eliminate these pro-
posed artificial lifts here and subsidies there, protecting against for-
eign enterprise, whether to leave them out, or just live within ourselves
and be a buying nation instead of an exporting nation. I am having
difficulty in making myself clear here, Mr. Taylor. I will try to ask it
this way : What would happen if we were to devote all of our attention,
all our productive capacity, to supplying our domestic markets and
forget about our foreign markets; what result do you see?
Mr. Taylor. Well, I think you could see two results: One, that we
would have to produce a great many substitutes in the form of raw
materials, for example. You know what our experience has been
during the war.
Mr. Worley. Synthetic rubber, for example ; we would have to man-
ufacture that?
750 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. Taylor. For a period of time you might have considerable ex-
pense in doing that. That is certainly the hard way to do it.
The other result would be that naturally the only market we could
talk about in the form of producing things for would be our own mar-
ket, because if you don't create the means of payment by the exchange
of goods and services, or a complete loan program, eventually trade
dries up and it dries up very fast, be it money, marbles, or chalk which
you have to do business with; and that can be expressed in a great
many different ways.
If we want to limit our market potentiality, to say nothing about
what is good for the rest of the world and how greatly that would
retard the development of the rest of the world, if we decide to do that,
we can do it, but we have to be very sure what we are doing.
Mr. FoLSOM. It would be much more difficult to maintam a high level
of employment, thouph, wouldn't it?
Mr. Taylor. That is right. You can think of all sorts of things
you could do, produce synthetic products, substitutes, et cetera. I
think it would have a very marked effect on our standard of living
while we were going through that period, and you couldn't tell what
you would come out with. It would mean practically complete control
over every phase of our economic life.
Mr. WoRLEY. Then we must have foreign trade in order to maintain
our standard of living ?
Mr. Taylor. If we follow in any approximate way the liberal prin-
ciples we advocate
Mr. Worley. We can't have prosperity and a high standard of liv-
ing without foreign trade.
Mr. Taylor. That is right.
Mr. Worley. Why can't we develop our foreign trade more and
have a higher standard of living ?
Mr. Taylor. We can, but, like a great many other desirable things
in life you can't have that development without actively working at it.
Take the military situation. During the twenties and early thirties
we could express ourselves very violently about a number of subjects,
but until we had the Army and the Navy and the armed forces to make
our statements good, it was so much — I don't say so much idle chatter,
because obviously when the time came we did have to live up to it —
but certainly in the foreign-trade field you can't have foreign trade
without actively organizing for it ; and the Government's part in that,
in my opinion, will change very materially as a result of the develop-
ments of the war period. It will be far more active from the stand-
point of servicing and coordinating — not actively engaging in it, but
it is a question of servicing, coordinating, and making it possible for
the citizens of another country as well as the citizens of this country
to be able to go to some one place which is very authoritative and say :
"What is the policy of the United States about this ?" Everybody will
know it.
When you get into the situation of a country which wishes to develop,
they can come to us — as many of them have during this period — and
say : "What is your opinion of our possibilities here, and how can we
develop them most advantageously?"
If you do it from that standpoint, rather than trying to sell them
some rather inferior products once, then you establish a permanent
relationship.
POST-WAR ECONOMIC POLICY AND PLANNING 751
In addition to that, you have this question of the ownership of par-
ticular properties. We have found ah'eady that joint ownership is
extremely desirable. Take some of our South American developments,
for instance, you get infinitely better results if you and a resident of
the other country go into partnership together, rather than, as many
countries did in tlie past, saying : "No ; we won't touch it unless we con-
trol it." That isn't any good any more.
Mr. FoLSOM. That has not always been successful. For many com-
panies which tried it, it didn't work.
Mr. Tatlor. That is true. That is also again a part of the past.
The market, in my opinion, is very definitely the other way at the
time. It is toward joint enterprises.
Mr. Arthur. What are the outstanding examples of some of those
joint enterprises now in operation?
]Mr. Taylor. You have a number of them in the utility field, trans-
portation, and so on. At the present time, in the industrial field we
have a whole series of them, largely in South America. I don't know
that the companies themselves — it isn't a trade secret or anything
like that.
Mr. Arthur. What industrial lines are they ?
Mr. Taylor. They vary — agricultural machinery, canning, textiles,
paper, raj^on, various types of chemicals, certain oil properties, bag
plants. I could go through quite a list, but in my opinion it is a very
definite trend and a very desirable one.
Mr. Worley. Joint ownership ; we own part and the foreign country
owns part ?
Mr. Taylor. It isn't that the foreign country is interested in that
approach as opposed to some of the previous ones, so much as it is they
wish to be guaranteed the latest American technical, let's say, know-
how. If you develop along those lines, whether that is expressed in the
form of a management contract for a particular period or whether in
joint stock ownership, and so on, that is the most important thing,
because American industrial technique is something that other coun-
tries are very, very interested in. Just selling them a machine and say,
"There it is, boys," that isn't quite good enough.
Mr. Worley. If our Govermiient owned, as a government a half
interest in those— —
Mr. Taylor. No ; this isn't as a government ; it is private enterprise.
Mr. Worley. And they are private individuals at the other end and
not the government ?
Mr. Taylor. That is right.
Now, there are certain governmental operations as a result of the
war, but those, I think, are strictly war developments. Some South
American countries had these development corporations. The Export-
Import Bank has financed certain of the things that those development
corporations do, but the Export-Import Bank does not own any stock
in the development corporations.
Mr. Worley. Does that come under your jurisdiction, the Export-
, Import Bank ?
Mr. Taylor. It used to. It does not now.
Mr. Worley. Who has jurisdiction of that?
Mr. Taylor. The Foreign Economic Administration.
Mr. Worley. That will probably revert to you after the war?
Mr. Taylor. I don't know.
752 POST-WAR ECONOMIC POLICY AND PLANNING I
Mr. WoRLEY. You had it prior to F. E. A. taking it over?
Mr. Taylor. Well, there is quite a history to the export-import
banks. i
Mr. WoRLEY. I believe you have another witness, Mr. Taylor.
Mr. Taylor. That is all with this particular group. The other group
deals particularly with aviation, and the Coast and Geodetic Survey,
navigation, and so on. Mr. Burden is here and he will act as
Mr. Worley. You haven't thought up any more of those post-war
problems ?
Mr. Taylor. I think I have talked on some of them. |
Mr. Arthur. Mr. Tajdor, I want to ask you about our balance of 1
international payments, or, rather, about our balance sheet's position
on international account.
Do you have, offhand, an idea as to whether this country is a debtor
or a creditor nation, if we cross off the books all of the debts owed us
by foreign governments as war debts from the last war and lend-lease
obligations during this war?
We have, as you have mentioned, balances in this country which we,
in fact, owe to foreign countries. There have been foreign accumula-
tions ; there have been considerable investments by foreigners with us.
There has been some liquidation of debts through the process of the
war.
Does that reduce us to a position where we are less a creditor nation
than before the war, and about where do we stand in that respect?
Mr. Taylor. If you exclude a good many of the things that have
taken place during the war period, I think that we would be far less
a creditor nation, let's say, than we were in 1929. There isn't any ques-
tion about that, because this process has been going on all during that
period. It was very accentuated during the period of the thirties,
and then it moved back and forth.
One of the things that accentuated it was the flight of other curren-
cies. So, at the present time we are acting as the banker or safe-
deposit vault, or whatever you want to call it, of a great deal of money
that came out of Europe and other parts of the world and came here
before the war.
That was particularly true when we were having all these currency
difficulties, some of which were expressions of fear about the war, some
of which were frankly speculative movements.
Some of that money has been used in connection with the war for war
purchases. A .great deal of it has not been and is still here.
Now, if you want to express that, let's say, current liability as part
of the position, as I think it should b(?, our position has been materially
changed, but until you get into lend-lease — how it will work out — and
until you discuss, as you did in your report, governmental debts — I
mean the last war's governmental debts — and various of these other
blocked accounts which are still in existence, I don't think you will get
the complete picture.
Mr. Arthur. Do you have people in the Department who could send
us a letter giving a summary of the figures of our own account, any
balance sheet position as a creditor?
Mr. Taylor. Yes, I can. We do that ; have done that regularly up
to the start of hostilities. We can indicate to you the latest figures
that we can release. I think you will find that the figure of the total
foreign holdings in this country has been somewhat exaggerated.
POST-WAR ECONOMIC POLICY AND PLANNING 753
I think I heard somebody — I don't know whether it was here or up
in New York— talking about $21,000,000,000, but it isn't that high.
Including these very quick liabilities — we call the quick liabilities
somewhere around six or seven — I can't keep those figures very well in
my head
Mr. Arthur. In this compilation I believe it would be useful to the
committee to have segregated those accounts due the United States
which are subject to redetermination after the war, plus other govern-
mental receivables such as obligations due the Export-Import Bank,
and then the balance of the debts due us.
On the other side of the account, if we can have some kind of break-
down to indicate the short-term or current items, as distinguished
from the long-term capital invested here, I think it would be very
helpful in giving us the picture.
Mr. Taylor. There are certain things we are not going to be able to
give you, but I think we can give you a perfectly' satisfactory over-all
picture.
Mr. WoRLEY. Generally, do we encourage the foreign investments
in this country ?
Mr. Taylor. Strangely enough, we don't express ourselves on that at
all. It is one of the most curious things.
In the early part of our development, obviously we did, because that
was the way we got the capital with which we developed our railroads
and various other things, but during recent years I fail to see that we
have expressed ourselves on that subject at all; whether rightly or
wrongly, we didn't express ourselves.
Recently, of course, during the war period, we have frozen various
funds, and so on, and so on, but prior to that time we didn't have an
investment policy either for foreign investments in this country or for
our own investments in other countries.
Mr. WoRLEY. Is there any law in this country now which would
prevent any foreigner from investing money in this country?
Mr. Taylor. No; except the current Treasury regulations or other
emergency things, and special cases.
Mr. WoRLEY. In peacetime ?
Mr. Taylor. In peacetime; no, A man has to qualify, as far as his
physical presence goes
Mr. WoRLEY. He has to be here ?
Mr. Taylor. That is, as far as his physical presence is necessary to
do certain things. We have a limitation, with which you are familiar,
on that, in the immigration policy.
The normal practice was, let's say in Paris, that anybody could go
into either a French bank or a branch of an American brokerage house,
and say : Buy me 500 shares or 5,000,000 shares — if he could — of any
corporation listed on the New York Stock Exchange. There were no
restrictions of any kind, and, of course, that was one of the methods
by which capital did come out of the other countries.
I think we in Government became curious about some of those things
in the late 1930's, because there was such a flight of capital this way,
but we as a country were not very curious about it.
Mr. WoRLEY. Did other countries, as a general rule, encourage or
discourage our investments there?
Mr. Tayt.or. It depends upon the state of development of a par-
ticular country.
754 POST-WAR ECONOMIC POLICY AND PLANNING j]
Mr. WoRLEY. Most of tliem are i^retty well along in development, |
aren't they ? I
Mr. Taylor. Oh, no. ... I
Mr. WoRLEY. As far as their age, their industrial development. |
Mr. Taylor. I wouldn't think so. i
Mr. WoRLEY. I don't mean they are as far along, perhaps, as we.
You can't say generally then that they are interested or disinterested ]
in our investing money in their countries? I
Mr. Taylor. I think most of them at the present time I
Mr. WoRLEY. In peacetime. !
Mr. Taylor. Well, in peacetime a great many of them have not ex- j
pressed themselves very definitely on that subject." That varies from, ,i
let's say, year to year, or from government to government. Usually :|
they have a far more positive approach to that subject. ■[
Mr. WoRLEY. We have had sort of a negative approach, negative;
policy, since we haven't put up barriers — insurmountable barriers?
Mr. Taylor. We did put up barriers to a great many things, but
with reference to the purchase of stock in an American company —
not a bit !
Whether that is a good thing, whether it is a bad thing, I think
should be discussed from the standpoint of national policy.
Mr. WoRLEY. Will you go into that question ? Does your Depart-
ment concern itself with that subject?
Mr. Taylor. We are prepared to discuss it.
Mr. WoRLEY. You will make recommendations to other departments ;
in reference to post-war considerations?
Mr. Taylor. Yes.
Mr. WoRLEY. You wouldn't want to give any suggestion?
Mr. Taylor. No ; because that particular phase of it is such a small
segment of over-all broad policy. If we should decide that our trade
policy should be an extremely liberal one, then we would also want
to be extremely liberal in connection with the flow of investments
back and forth, because they go together.
If, because of reasons which develop in other countries, we have
to switch that position to adapt it to the positions of other countries
in the world, then this other segment would have to fit in with it.
A liberal commercial policy does involve a great freedom of invest-
ment and funds flowing from one place to another. It does assume .
certain things which have not always been true ; but in terms of the )
perfect world, that is it.
Mr. Arthur. Mr. Taylor, your Department has groups, committees, ,
and others working on post-war problems that are likely to arise.
I think this committee would benefit greatly by having presented
to it such conclusions and policy recommendations as those commit-
tees can give us, even though they are merely progress reports. I
would like to make a request for such information as you develop the
program, in order to help us in our work.
Mr. Taylor. I think you will have to get that from the Depart-
ment of State, Mr. Arthur. Tlie chairmanship of the Economic i;
Policy Committee is there, and all the other committees flow from it.jj
There is no hesitation on my part to do it, but I think that is the |:
proper place to ask for it. ;
POST-WAR ECONOMIC POLICY AND PLANNING 755
Mr. Arthur. The committee structure stems from the Department
of State, and you are not undertaking any work on your own initia-
tive in that field ?
Mr. Taylor. That is right.
^Ir. FoLsoM. When Admiral Land was here Monday he spoke very
higlily of the Foreign Trade Council and the work they were doing
in the export and import field. Is there any tie-up between that For-
eign Trade Council and the Department of Commerce ?
INIr. Taylor. The Foreign Trade Council works with all the Gov-
ernment departments. In fact, I was talking with a mutual friend
of ours the other day who was part of that group and pointing my
remarks very much along the lines I was talking about here, that
there are too many places a businessman or representatives of busi-
ness organizations have to go.
Mr. WoELEY. You say "have to go," or can go ?
Mr. Taylor. Well, it is a little of both. Very humanly, right at
the present time, Washington and the world being very complicated,
there are 10 or a dozen shells that the pea might be under, and the
representative of a business organization has to be watching those
12 shells.
I think that is quite unfortunate, both from the standpoint of the
business community and from the standpoint of our national policy.
You ought not to have to go to that many places.
Shipping, naturally, is an extremely important phase of the work
of the Foreign Trade Council, so they work very closely with the
War Shipping Administration and the Maritime Commission. Then
there will be another group interested in another phase of it. Then
they will talk with us.
We may not tell an individual the same thing that somebody in
another agency which is also working with the Foreign Trade Council
might, and it is terribly difficult for the American businessman, and
it is also extremely difficult for the foreigner who wishes to do busi-
ness with us, whether it is the representative of a foreign government
or of a foreign firm who wishes to do business with us. He has to
spend entirely too much time covering the water front.
Mr. WoRLEY. Are there any additional questions?
On behalf of the committee and counsel, we would like to express
our deep appreciation for the information you have given us and
the cooperation.
May I ask if, in the course of your future work, you find any infor-
mation you think will be of value to this committee in its work, that
you will send it to us? We will appreciate it.
Mr. Taylor. I will indeed.
^Ir. WoRLEY. Thank you.
Mr. Taylor. It has been a great privilege to be here.
To complete the record of this morning, these are the figures of the
department's appropriations for 1945. These do not represent the
other agencies I mentioned. Foreign trade — the appropriation of the
entire Bureau of Foreign and Domestic Commerce that year, of which,
roughly, half might be called foreign trade — was $1,905,000, which is
pretty low.
Mr. Worley. Thank you.
Do you have the other figures there?
756 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. Taylor. Yes.
Mr. WoRLEY. Will you put them in the record.
Mr. Taylor. Yes, sir.
(The statement referred to is as follows:)
Appropriations for the Department of Commerce for the fiscal year ending
June SO, l9Jf5
Office of the Secretary, including National Inventors' Council $1,354,000
Bureau of the Census 12,915,000
Civil Aeronautics Administration (including Civil Aeronautics
Board) 35, 877, 000
Coast and Geodetic Survey 5,025,000
Bureau of Foreign and Domestic CouMnerce 1, 905; 000
Patent Office 5, 002,000
National Bureau of Standards 2,924,000
Weather Bureau 12, 700, 000
Total 78, 322, 000
Mr. WoRLEY. Will you give your name, please.
STATEMENT OE WILLIAM A. M. BURDEN, ASSISTANT SECRETARY,
ACCOMPANIED BY C. L STANTON, DEPUTY ADMINISTRATOR,
CIVIL AERONAUTICS ADMINISTRATION; F. W. REICHELDEREER,
CHIEF OF THE WEATHER BUREAU; AND LT. COMDR. PAUL SMITH,
CHIEF OF THE AERONAUTICAL CHART BRANCH OF THE COAST
AND GEODETIC SURVEY, DEPARTMENT OF COMMERCE
Mr. Burden. My name is William Burden, Assistant Secretary of
Commerce, Commerce Building, Washington.
I have general responsibility for three bureaus of the department:
The Civil Aeronautics Administration, which is concerned with the
technical aspects of aviation; the Coast and Geodetic Survey, which is
connected with charting our coasts, making geodetic surveys through-
out the country, and the making of aeronautical charts; and the
Weather Bureau, which, as you know, is responsible for providing
weather information for industry and the country as a whole.
The heads of those bureaus are here; Mr. Stanton, for the Civil
Aeronautics Administration ; Dr. Reichelderf er, for the Weather Bu-
reau; and Commander Smith, representing the Coast and Geodetic
Survey. They can give you the specific activities of those bureaus
insofar as they relate to foreign trade and shipping, which I under-
stand are the things you are particularly interested in at this hearing.
I might say, in general, however, that the activities of these bureaus
have a less close relationship to foreign trade than the activities of
bureaus that Mr. Taylor was discussing with you. Their activities
are more in the nature of providing technical services for American
companies operating abroad, and even in that field to a someAvhat
limited degree. In the field of aviation, the matter of giving route
certificates to our foreign air lines is a responsibility of the Civil
Aeronautics Board, which is in the framework of the Department of j
Commerce but reports directly to Congress.
Mr. WoRLEY. Is there any conflict between the Civil Aeronautics
Administration and the Civil Aeronautics Board ?
POST-WAR ECONOMIC POLICY AND PLANNING 757
Mr. BuRDEx, No. We have U\o entirely separate functions. The
Civil Aeronautics Board is the agency which has the responsibility
for giving air-line route certificates and setting air-mail rates ; estab-
lishing safety regulations and other such economic and judicial mat-
ters. The Civil Aeronautics Administration is the agency for the
enforcing of those regulations. We give the examinations to meet
the requirements they have set, and we see that the manufacturers
meet the requirements set b}' C. A. B.
The Civil Aeronautics Administration also operates the radio
ranges which constitute the radio facilities for all our air lines in this
<:ountr3^ That activity constitutes the bulk of its work as far as
personnel and appropriations are concerned.
We also provide certain high-powered radio facilities for foreign
air-line services, which do impinge on foreign trade in an indirect
fashion.
During the war, C. A. A. has transported a number of the domestic
radio ranges abroad at the request of the air forces, and they are
now being used by the Army and the Navy. In some cases our per-
sonnel are operating those ranges for the Army and Navy.
I think the most interesting field in which C. A. A. does impinge on
foreign trade is the encouragement of American exports abroad
through providing technical information on American aeronautical
practices to the civil aviation agencies of other governments. We
found in a rather interesting way the degree to which that practice
could be effective and, I think, the degree to which we had been
derelict in the past in work in that field, when we began the de-Ger-
manization program, so-called, of the air lines in South America.
That was a program I happened to have direction of in the R. F. C.
before I came with the Department of Commerce.
As you know, in that area the German Government had, in the
early thirties, provided aircraft at relatively low first cost and on some
very easy payment terms to air lines in Latin America. They
provided technical assistance in the form of German technicians to
assist Latin Americans in building up their internal air-line industry,
and also provided training for Latin-American nationals in Germany
in some cases at the expense of the Latin-American government and in
others at the expense of the German Government.
As a result, they had built up their transport position in Latin
America to the point that some 10,000 route-miles of air lines were
operating with German equipment, in most cases, under very heavy
German influence.
When we saw the war was coming on, it became clear that this
activity was a threat to our national security and the security of the
Americas, and we undertook its liquidation in partnership with
Latin-American governments.
In so doing we found it necessary to provide means for financing
the sale of aircraft to Latin-American countries on a reasonable pay-
ment basis.
American aircraft manufacturers, none of whom were financially
very strong before the war, as you remember, had been requiring 50
percent down and the remainder before shipment, which were pretty
stiff terms for a small, struggling air line.
758 POST-WAR ECONOMIC POLICY AND PLANNING
Through the R. F. C, we were able to provide credit facilities on
a 5-year 1-percent basis. All of those loans are being paid off and, so
far as I know, will be paid off in full.
We also provided technical assistance in the form of American
technicians who went down to assist Latin America in operating their
newly acquired United States equipment.
Mr. WoRLET. What comes within your jurisdiction, the Latin-
American countries or all countries ?
Mr. Burden. Insofar as the American Government has given techni-
cal assistance abroad, it has been given by the C. A. A. We have also
operated programs in American flight schools with funds provided
by the State Department whereby six or seven hundred Latin-Ameri-
can students have come up here and have been trained as pilots and
mechanics. We have a civil aviation mission operating in Brazil at
the request of the Brazilian Government, which is helping Brazilian
aviation schools to use American methods. Also they are writing
Iheir civil regulations in line with our own, which are generally recog-
nized as the world's standard.
We are considering a similar program in. cooperation with the
Chinese.
We think the result of this type of program, and the training in aero-
nautical matters, will be to provide a better market for our aero-
nautical exports.
Mr. WoRLEY. Do you mind if we begin with your first witness?
You will be available ?
Mr. Burden. I will be available most of the time ; yes.
I think Mr. Stanton, the Deputy Administrator, might start, if that
is agreeable with you.
STATEMENT OF CHARLES I. STANTON, DEPUTY ADMINISTHATOR,
CIVIL AERONAUTICS ADMINISTRATION
Mr. WoRLEY. Will you state your name and position, Mr. Stanton?
Mr. Stanton. Charles I. Stanton, Deputy Administrator of Civil
Aeronautics Administration.
Mr. WoRLEY. Can you give us some idea as to the part you play in
relation to foreign trade and commerce and shipping?
Mr. Stanton. Yes, sir.
The interest of the Civil Aeronautics Administration in the field of
foreign commerce is based on the provision of section 301 of the Civil
Aeronautics Act of 1938, reading in part as follows :
The Administrator is empowered and directed to encourage and foster the
development of civil aeronautics and air commerce in the United States and
abroad.
The act also provides that the Administrator shall enforce the safety
regulations of the Civil Aeronautics Board.
Accordingly, the Civil Aeronautics Administration is concerned
with the development of foreign markets for American aeronautical
products — aircraft engines and accessories. I believe it is generally ac-
cepted that American-made civil aircraft are unequaled by those made
in any other country. It is reasonable that this should be so, because
the United States offers a greater market for producers of civil aircraft
than does any other country at this time. It should be logical that
POST-WAR ECONOMIC POLICY AND PLANNING 759
.purchasers in other countries should look to American production to
fill their civil aircraft needs — particularly in the immediate post-war
period and probably thereafter until such time as the number of air-
craft used in any particular country might bring about the production
in that country of equally satisfactory aircraft.
As one of the phases in the develoj^ment of cooperation between the
American republics, for which annual appropriations have been made
for the last several j^ears, the Civil Aeronautics Administration has
been engaged in the training of pilots and technicians from the Cen-
tral and South American republics.
Mr. WoRLEY. How do we train those? Do they pay anything for
that training ?
Mr. Stanton. It was connected with the war and the building up
of Western Hemisphere solidarity.
Mr. WoRLEY. Do you consider that as a war measure rather than
for peacetime ?
Mr. Stanton. I think certain portions of it might well go on in
peacetime, as a matter of promoting our trade interests, but it was
started as a matter of promoting solidarity in the war that was loom-
ing at the time the work was started.
^Ir. WoRLEY. I see. You may proceed.
Mr. Stanton. Extensions of this sort of activity have been under-
taken in a modest way by sending specialists to several Latin- Ameri-
can countries to assist in the establishment of flying schools, training
methods, and standardization of governmental procedure with respect
to the safety control of civil aeronautics. These missions have been
undertaken only upon specific request of the countries involved. It
is obvious that this type of activity should indirectly, but favorably,
affect the demand for American aeronautical products.
The Civil Aeronautics Administration is, of course, vitally inter-
ested in, though not primarily responsible for, the extension of Ameri-
can commercial air routes to all the principal countries of the world.
The relation of the establishment of such commercial air lines to for-
eign trade opportunities is quite obvious. In connection with such
foreign air-transportation routes, the Civil Aeronautics Adminstra-
tion has the primary responsibility for ascertaining that the air navi-
gation and air terminal facilities available for the use of Amercan
air carrier aircraft are sufficient and satisfactory so as to enable our
air carrier operations to meet the safety regulations of the Civil Aero-
nautics Board. It also has the primary responsibility to see that
the type of aircraft and equipment used, the competence of the crews,
and the operational procedures adopted meet the safety regulations.
Accordingly, the Civil Aeronautics Administration must maintain
inspection offices in foreign countries, which we expect to increase in
number, in order to carry out these responsibilities.
Mr. WoRLEY. Which responsibilities?
Mr. Stanton. The responsibilities of seeing that the navigational
facilities, terminal facilities, methods and procedure of operation, the
condition of xVmerican aircraft, competence and experience of crews,
meets the requirements, the safety regulations, of the Civil Aeronautics
Board.
Mr. WoRLEY. Those will be our own ships?
Mr. Stanton. Those will be American aircraft ; yes.
760 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. WoRLEY. Your Department is concerned primarily with train-
ing and safety features of air travel ?
Mr, Stanton. Yes, sir.
Mr. WoRLEY. By private flyers and commercial lines?
]Mr. Stanton. Yes, sir.
Mr. WoRLEY. You exercise jurisdiction over all commercial air lines?
Mr. Stanton. Yes, sir. Domestic air lines and, of course, the safety
features of American-flag air lines operating into foreign countries.
Mr. WoRLEY. Does that include all American lines operating into
foreign countries?
Mr. Stanton. Yes, sir.
Mr. WoRi.EY. Do you propose to expand your own facilities domes-
tically after the war, with the increased use of airplanes?
Mr^ Stanton. Definitely.
Mr. WcRLEY. I was going to ask this question of j'ou : Do you sup-
pose that plane manufacturers themselves will try to encourage or
initiate any program along the safety factors that j'^our Department is
doing now, to encourage them to use more airplanes?
Mr. Stanton. No. They, in my opinion, will not do anything in
the way of planning the establishment of air-navigation facilities or
emergency landing fields or additional weather service.
They will, of course, constantly strive to make their aircraft more
safe and more reliable and simpler to fly.
We, of course, assist in that, help to encourage them to do that, but'
their particular part of the job of safety is making their aircraft bet-.'
ter and more reliable and simpler. Our job is to provide the facilities
to help people fly safely and not get lost. I
Mr. WcRLEY. Just like the automobiles made a desire for good roads? !
Mr. Stanton. Yes, sir. ,
Mr. WoRLEY. They will encoiu^age in every way they can the safety \
factors to make the planes safer and will encourage the Government to
provide all the facilities it will provide in order to get increased air
travel ?
Mr. Stanton. That is right.
Mr. WoRLEY. You have no jurisdiction avS to the granting of cer-
tificates of convenience and necessity ?
Mr. Stanton. No, sir. The determination of whether or not the
operation of a certain route, let's say, to a foreign country — and that is
true domestically — is in the interest of public convenience and neces-
sity or in the interest of national defense, is a function of the Civil
Aeronautics Board.
Mr. WoRLEY. You look after the safety primarily of these air lines?
Mr. Stanton. Yes, sir. When the Board issues a certificate of con-
venience and neceasity, we go into action by making a suiwey of the
routes they propose to fly, the equipment they propose to fly it with,
the type of operation and the type of maintenance, the type of crews,
and then we issue an operating certificate, if the operation will meet
the safety requirements. That is true both in the foreign field and the
domestic field. I
Mr. Arthur. I have one question. With respect to the safety reg-
ulations it seems to me that is clearly a governmental f miction. With
respect to training, I would like to ask you whether the enthusiasm that
is now prevalent with respect to the development of the air transport
POST-WAR ECONOMIC POLICY AND PLANNING 761
sind the whole aviation industry is not sufficient to stimulate and lead
to the development of proper training facilities, proper schools, and
jroper encouragement of improvement in aviation, without govern-
nental participation?
Mr. Stanton. Well, sir; the thing that I mentioned was the train-
ing of people from Latin-American countries. It w as connected with
the de-Germanization program that Mr. Burden spoke to you about.
The training was done under contract with existing commercial schools
in the United States, both the flying schools and the mechanical train-
ing schools and the technical colleges that gave aeronautical courses,
engineering courses.
The trend is, very certainly, to make training in all phases of
aeronautics a very active line of business for the next several years.
At what stage it may be desirable for the foreign countries or for
their citizens, to pay their own full cost of training, I do not know.
That is a function of the State Department, to determine what policy
we should follow in trying to bind the Western Hemisphere closely
together.
Mr. Arthur. Then you do not contemplate that your Administra-
tion will go into the work of training schools and training programs?
^Mr. Stanton. We only do that as a service agency to the State De-
partment, in carrying out those policies.
Mr. Arthur. Notliing is indicated in the line of your conducting
such training programs as a part of the retraining of veterans, dis-
charged soldiers, and so forth?
Mr. Stanton. Well, sir; that hasn't, so far as I know, been de-
termined as a matter of policy yet. I should imagine if that becomes
policy that our agency may be called upon to manage that.
Mr. Worley. Thank you very much. Mr. Stanton.
Mr. Lyons. Mr. Chairman, Mr. Burden had to leave. I would like
to introduce the two other speakers here so you will know the whole
set-up of the Department and they will have produced their papers
for the record.
Commander Smith, of the Coast and Geodetic Survey.
Mr. WoRLFA-. Commander Smith, you have to do with the Coast and
Geodetic Survey ?
Commander Smith. Yes, sir. I am representing Admiral Colbert,
the Director of the Coast and Geodetic Survey.
Mr. WoRLEY. Whom do you propose to start with?
Mr. Lyons. Go ahead. Commander Smith.
Commander Smith. As Mr, Burden has said, the Coast and Geodetic
Survey's interest in foreign trade and shipping is largely one of a
service agency.
The Director has prepared a brief outline of the functions, which
I may follow and turn over to the committee as a part of the record,
if that is agreeable.
Mr. WoRLEY. We will be glad to have it.
It may be inserted in the record at this point.
(The statement referred to is as follows:)
Coast and Gbxjdetio Subvey
1. Duties, functions, and interest in foreign trade and shipping,
(a) To supply basic geophysical data for commercial and Federal use.
(ft) To supply United States aviators with aeronautical charts for commercial
and private use.
762 POST-WAR ECONOMIC POLICY AND PLANNING
(c) To supply all tide and current predictions to the merchant marine and
the Navy.
(d) To supply the merchant iC'-rine and the Navy with charts and rp\ id
nautical information of coastal w aers of the United States and possespv- 3;
includes basic surveys for nautical charts and other purposes. ^
2. The relations of the Coast and Geodetic Survey with other agencies regs" ' i
the above.
(a) Civil Aeronautics Administration: Cooperates with C. A. A. in spe '
tions and requirements for aeronautical charts for commercial and private fly
(b) Navy Department: Supplies the Navy with all nautical charts and publi-
cations of United States territory, with aeronautical charts of United States and
special war charts; with tide and current predictions of major world ports and
waterways ; and other basic surveying and mapping data.
(c) War Department, Army Air Forces : Produces majority of the aeronautical
charts used by Army Air Forces. Corps of Engineers : Cooperates with the Chief
of Engineers in war-map production and provides basic surveys in accordance
with their requirements.
(d) Miscellaneous Federal agencies: Assists Government, State, and com-
mercial agencies in miscellaneous surveying and mapping matters.
(e) Exchanges with the principal foreign nations the data I'eferred to above.
The aims and objectives of the Coast and Geodetic Survey (pre-war, war, and
post-war) can be summarized in a brief statement: to produce adequate surveys,
maps, and charts for commercial, military, and private needs. Pre-war objectives
and responsibilities were to supply all shipping with nautical charts of domestic
waters, and aeronautical charts to aviators.
The Coast and Geodetic Survey has carried a large part of the war load
of map and chart production in this war. The greatest load has been in aero-
nautical and nautical charts required by military operations, and as the Survey
is primarily a service organization it seems to me that its major responsibility
is to keep well informed on developments in foreign as well as domestic trade
and commerce in order that its responsibilities will be met.
Post-war objective is to continue to supply nautical and aeronautical charts
to the merchant marine and aviation in the development of foreign trade by
sea and air.
Mr. WoRLEY. You may proceed, Commander Smith.
Commander Smith. I will mention only those functions of the
Coast and Geodetic Survey that apply to foreign trade and shipping.
They include basic geophysical data for commercial and Federal use,
primarily in that sense our magnetic studies for compass declination
for both surface ships and aircraft.
We supply United States aviators with aeronautical charts for both
commercial and private use. We supply all tide and current data for
use by the merchant marine and the Navy; that is, of all ports in the
United States and many foreign.
We also supply the merchant marine and the Navy with charts and
related nautical information of coastal waters of the United States and
our territorial possessions. This also includes such basic surveys as
we need to make to produce those charts.
As to the relations of the Coast and Geodetic Survey with the
Civil Aeronautics Administration, we cooperate with them in estab-
lishing the specifications for the minimum requirements for aeronau-
tical charts, both for commercial and private fliers.
Our biggest load during the war has been the supplying of a large
part of the aeronautical charts for our Army Air Force pilots. That
includes a wide variety of charts which runs into the thousands, most
of which during the past 2 years have been in the restricted category.
Mr. AVoRLEY. As I understand, you have a brief here of your func-
tions ?
Commander Smith. Yes, sir.
Mr. WoKLET. We have inserted that in the record, and there are one
or two questions I would like to ask.
POST-WAR ECONOMIC POLICY AND PLANNING 763
Commander Smith. Yes, sir.
))Mr. WoRLEY. Do you propose to ret lin all those services after the
v^f'M-'? Will it be necessary?
Commander Smith. There has been a very large expansion of the
•nautical chart production during the war, as well as the nautical
■A production. It is likely that, if our foreign trade and shipping
v'^'^gresses, there will be a considerably increased demand for such
charts over the demand that was experienced immediately prior to the
war, which was, of course, very low.
Mr. WoRLEY. Your Department provides weather information i'
our ships, no matter where they might be going ; you broadcast inf or
mation ?
Commander Smith. No, sir; that comes under the Navy Depart-
ment, not the Department of Commerce.
Mr. WoRLEY. In peacetime does that come under the Navy Depart-
ment ?
Commander Smith. Yes, sir; that comes under the Navy Depart-
/nent. '
Mr. WoRLEY. Merchant ships do?
Commander Smith. Yes, sir. That is a general broadcast service
that is put over naval stations.
Mr. AVoRLEY. Do you have any additional information you think
we would want ?
Commander Smith. No. sir. I would simply like to say that our
aims and objectives for the pre-war period, and the war period, and
the post-war era, have been and continue to be primarily to supply
safe and accurate charts for the merchant marine as well as the mili-
tary services of the country.
Mr. WoRLEY. Apparently you have done an execellent job in that
respect.
Comander S:mtth. Well, we like to think that we have.
Mr. WoRLEY. I am sui'e you have.
Thank you very much.
Mr. Lyons. Mr. Reichelderfer, you may proceed.
IVIr. Reichelderfer. All right, sir.
Mr. WoRLEY. You are the Chief of the Weather Bureau?
Mr. Reicheiderfer. Yes, sir.
Mr. WoRLEY. Do you have a prepared statement ?
Mr. Reichelderfer. I do.
]\Ir. Worley. Could we insert that in the record, and then you give
us the major points of it ? •
Mv. Reichelderfer. Yes, sir.
Mr. WoRLEY. It will be inserted in the record at this point.
(The statement referred to is as follows :)
Purpose and Function of the Weather Burkatt in Relation to Foreign Trade
AND Shipping
Although weathfr and climate are not articles of commerce, their influence
on foreign trade and shipping is fundamental. This influence is direct in some
cases as in storms which damage shipping and cause loss of cargo, and indirect
in other cases such as abnormal climatic conditions which increase or decrease
the normal supply and demand for articles of trade. Thc^ Weather Bureau can-
not produce weather and climate to order hut it can provide information neces-
99579 — 45— pt. 4 11
764 POST-WAR ECONOMIC POLICY AND PLANNING
sary for efficient planning and economical operation. Thus, its relation to trade
and shipping takes the form of advisory services rather than production of
marketable articles. The legal basis for these meteorological services is found j
principally in the act of October 1, 1890, 26 Stat., 653; the Civil Aeronautics ]
Act of 1938 and the annual appropriation acts vrhich make the Bureau responsible 1
for the forecasting of weather, the issue of storm warnings, and other meteoi'o-
logical services for agriculture, commerce, and navigation, and for the collection
and transmission of marine intelligence for couimerce and navigation, in the j
air as well as on the sea.
The purposes and functions of the national meteorological service of the
Weather Bureau in relation to foreign trade and shipping may be placed under
three headings :
(1) The direct service of storm warnings and other weather advices which
enable shippers to protect carriers and cai'go from storm losses, and often jwint
the way to economies in operation.
(2) The somewhat indirect service of furnishing information of weather and
climate as they greatly affect production in many industries and engineering
works, as well as in agriculture. Moreover, meteorological service can aid in
discovering and developing new markets for agricultural and industrial prod-
ucts, and taking opportune advantage of temporary markets largely dependent
upon weather. This becomes especially important in air commerce and fast
freight.
(3) The stimulus to and channels for international exchange of meteorological
data of benefit for general weather service to almost every field of business —
aeronautics, agriculture, commerce, construction, engineering, industry, mining,
transportation, and public utilities.
The functions of a national weather service may be described briefly. It ob-
tains weather observations daily, sometimes hourly, at points throughout the land
and on adjacent oceans, collects these at certain centers where the data are
processed and used to analyze the conditions of the atmosphere and determine
its trends. Reports and analyses are exchanged by wire and radio among na-
tional and international meteorological centers. There, weather forecasts and
warnings are prepared and issued by press and radio to all public and private
interests. This constitutes the daily or current weather service. The collected
meteorological data are also used to prepare climatological summaries which
present the facts of weather in form of averages or frequencies of occurrence.
These services include information of "three-dimensional" weather — that is, in
the upper air where aircraft pilots are interested, as well as near the ground.
In the actual operation of steamships and other shipping facilities, the Bureau's
storm warnings and shipping weather forecasts enable carriers to take pi'ecau-
tions against weather conditions that would otherwise cause serious loss, and
show where to find the best markets for many kinds of produce. While meteoro-
logical service of this kind applies especially to air commerce and the fast air
freight of the future, it often applies also to international trade by rail or sur-
face ship. Expert meteorological advice can make the difference between profit
and loss both 'if\ quality of product and in timeliness wliich brings fancy market
prices. New trade and new markets can be created and developed to a maximum
with the aid of meteorological information which indicates where, wlien, and by
what means of transportation. Meteorological service can show a multitude of
ways to exploit favorable weather conditions and reduce the operating losses from
ifnfavorable conditions.
In post-war international trade, if the United States is to meet foreign compe-
tition, its relatively high labor costs may have to be offset by increased efficiency
and mass production. Anything tliat contributes to this efficiency will improve
the Nation's competitive position. The meteorological service that contributes to
increased production and efficient operation requires an extensive organization for
collecting, processing, and exchanging weatlier information internationally.
Reports must be accumulated over long periods of years in order to derive reliable
climatological values, and it is necessary to have agi'eements among nations as to
standards of observations and reports, and provisions for regular and uninter-
rupted transmissions and exchange of daily reports. International exchange of
meteorological information is necessary because atmospheric conditions that
determine weather and climate are not confined within national boundaries. The
winds that produce the weather over any given country come from far distant
regions of land and sea. Since meteorological bureaus are dependent in part
upon the observations and reports obtained from ships and aircraft over unin-
POST-WAR ECONOMIC POLICY AND PLANNING 765
habited areas, they need the cooperation of shipping agencies in maintaining the
international exchange of weather reports essential to optimum use of Weather
Bureau services.
With reference to the relation of the Weather Bureau to other government
agencies, it is the function of the Bureau to serve as the general meteorological
service for all national interests and to serve as a clearing house for meteorological
information from all sources and channels, domestic and foreign. This committee
is interested primarily in foreign trade and shipping; therefore, the relationship of
meteorological services to agricultural production is not discussed in detail,
although the Bureau has an imix>rtant part in American agriculture and the work
of the Department of Agriculture. The basic services of the Weather Bureau are
not greatly changed in process of converting from peace to war and vice versa
because the general organization and requirements are the same and only the
interpretations and applications are materially different. The post-war plans of
the Weather Bureau are, therefore, essentially an extension of the meteorological
program that has developed during the last decade or two under the stimulus of
aviation needs and other American technical advances.
Mr. WoRLEY. You may proceed, Mr. Reichelderfer.
Mr. Reichelderfer. I think what I have to say can be summarized
very briefly by pointing.out that there are three general ways in which
our work may have a bearing on the particular work of this committee.
The most direct way is that there are many times when our storm
warnings or other devices can be very helpful in reducing the loss of
carriers or of cargoes.
In a second, and more indirect wa}^, we have a very fundamental
relation to the field of trade, not only as to agriculture, but as to many
industrial and other production fields. That may be expanded or
applied even to the extent of developing new markets through the
application of meteorological knowledge.
The third way is that it is through the facilities of shipping, particu-
larly ocean shipping, and now more recently air transportation, that we
get some of the information on atmospheric conditions over the globe.
This is essential, in turn, to permit us to render our service, and
that reacts not only on shipping and trade itself, but also on almost
every other national interest depending on the weather, and there are
many of them.
Mr. WoRLET. You say we get the reports from all over the globe ?
Mr. Reichelderfer. Yes, sir ; primarily the Northern Hemisphere,
but also some from the Southern Hemisphere.
Mr. Worley. Other nations get it how ?
Mr. Reichelderfer. Exchanges by radio are organized and set up
so that the information is transmitted back and forth daily in peace-
time. Exchanges are carried on now through secret means by the
United Nations during wartime.
Mr. Worley. Those are three good points, and, I think, very close
to the question we are studying here and are interested in.
Do you have any questions ?
Mr. Arthur. I wondered about the developments in the Weather
Bureau's work for the past some 10 or 12 years.
Your efforts primarily are of value as forecasts, I presume ; is that
not true ?
Mr. Reichelderfer. Primarily ; yes. Of course, everything we do is
directed toward the future; we are not so much interested in the past,
as such.
When you speak of forecasts, you mean the daily forecasts and what
you say is true, but we mustn't overlook the vei*y broad application of
766 POST-WAR ECONOMIC POLICY AND PLANNING
climatolo.gical information in determining^ what conditions are best
for industry, trade, agriculture, and so forth, I don't know that you
had that in mind.
Mr. Arthur. No ; I did not.
I assume, also, that your ability to predict the weather conditions
that apply to crops in various parts of the world would enable traders
and otliers to appraise quite promptly the prospective volume of goods
tliat may be available.
Mr. Reichelderfer. The daily meteorological reports and weekly
and monthly bulletins have a very direct influence on market quota-
tions. V/e do regularly publish forecasts a week in advance.
Mr. WoRLEY. Are they reliable ?
Mr. Reichelderfer. At the end of the week they are not sufficiently
accurate to justify publication. The curve of accuracy^ beginning"
with the aviation forecasts of a few hours, runs from 95 or 98 percent
down to the "no skill" base line, at the end of the sixth or seventh day.
That applies to the specific daily forecast and not to tlie general
monthly summary I referred to awhile ago.
Mr. Arthur. Your work has had to be broadened to cover laore
specific conditions, I presume, because of the particular needs of gov-
ernments for your service. For instance, the airplane operator wants
to know something affecting his operations that might not have been
of great importance some years ago. The shipper may want to Imow
something about whether there is going to be rain and freezing at a
particular time, whether icy roads are going to result.
Should the weather forecasting service be expanded to cover a lot
of other particular phases of the weather conditions?
Mr. Reichelderfer. There is always room for improvement. We
are, to a large degree, meeting the general demands for specific fore-
casts, and it is in that field that the advancements in meteorology have
been made in the last decade or two, rather than in the period covered
by the forecast, the period in advance.
We do very much more and very much better in specific forecasts
for shipping, for aeronautics, for the citrus industry, and a large
variety of specialties, than we were able to do a decade or two ago.
There is more to be done.
We expect the private practice of meteorology will be developed after
the war. There never has been private practice of the profession to
any great extent, but we think the extensive training programs during
the war will furnish enough meteorologists so that many bu inesses
and industries will employ a company meteorologist, and that some
of the need for expansion will be filled in that way.
They will, in turn, call upon the Weather Bureau for more basic
data to enable them to do their individual company jobs. The Bureau
has ahvays been active in that particular phase of meteorological serv-
ice, but I expect it to expand and inci-ease after the war.
I talked recently with a representative of one of the large railroad
companies. He pointed out some of the difficulties they have with
weather and climate, for which they have not found a solution, and I
am very sure that a company meteorologist could find the answer to
many of those needs which the AVeather Bureau has not been able to
meet simply because the Bureau does not have the facilities to go into
individual company requirements.
POST-WAR ECONOMIC POLICY AND PLANNING 767
Mr. WoRLEY. Do you have any additional comments?
Mr. Reicheldekfer. I think that covers the general points, Mr.
Chairman.
Mr. WoRLEY. Every morning I look to see what you have to say
before I look to see what has happened.
Thank yon very much.
Mr. Lyons. Mr. Chairman, I have here some copies of bulletins in
connection with air-transport developments and potential air-trans-
port developments for three countries in South America — Argentina,
Brazil, and Peru.
Mr. WoRLEY. Thank you very much. I want to have you back again
at some future meeting to develop this foreign trade zone situation.
Mr. Lyons. I will be glad to come back.
Mr. WoRLEY. Thank you and the members of your department. We
appreciate your cooperation.
Without objection, the committee stands adjourned until 10 o'clock
tomorrow morning.
(Whereupon, at 4:15 p. m., an adjournment was taken at 10
o'clock a. m., Thursday, September 28, 1944.)
POST-WAE ECONOMIC POLICY AND PLANNING
THURSDAY, SEPTEMBER 28, 1944
House of Representatives,
Subcommittee on Foreign Trade and Shipping of the
Speoial Committee on Post-war Economic
Policy and Planning,
WcRshi/ngton, D. C.
The subcommittee met, pursuant to adjournment, at 10 a. m., in
room 1304, New House Office Building, Hon. Eugene Worley pre-
siding.
Present : Representative Worley (Texas).
Also present : H. B. Arthur and Vergil D. Reed, staff consultants.
Mr. Worley. The committee will be in order.
The Subcommittee on Foreign Trade and Shipping resumes hear-
ings this morning by considering the Foreign Economic Administra-
tion, its functions and relations to the particular question of foreign
trade and shipping.
We are glad to have with us this morning, Mr. Currie, Deputy Ad-
ministrator of Foreign Economic Administration, who, I understand,
has jDrepared a statement outlining the functions of F. E. A.
After you have finished with your general statement, Mr. Currie,
we will try to ask questions that might not have occurred to you in
your outline which we think will be important to the work of this
particular subcommittee. AVe welcome you and appreciate your co-
operation in coming here.
Mr. Currie. Thank you very much.
STATEMENT OE LAUCHLIN CURRIE, DEPUTY ADMINISTRATOR,
THE FOREIGN ECONOMIC ADMINISTRATION
Mr. Currie. Mr. Chairman and gentlemen, I very much appreciate
this opportunity to discuss with the committee some of the problems
of foreign trade that will face this country after the war.
I understand that the committee has until the present primarily
concerned itself with the domestic post-war problems of the coun-
try. I should like to say at the outset that unless the domestic economy
can be kept in reasonably full operation in the post-war years, it
will not be possible to effectuate the foreign economic policies that
are needed. A constructive foreign economic policy will, however,
assist in the solution of our domestic problems. Our domestic and
our foreign economic policies are interrelated, each affecting the
other, and they can only be made fully effective if they are consid-
ered as complementary. The decision of the committee to consider
769
770 POST-WAR ECONOMIC POLICY AND PLANNING j
the foreign aspects of our post-war economic problems is, therefore,
a very welcome one, and of vital importance. We must look for-
ward and bend all pur energies toward the achievement of full em-
ployment and prodiiction at home and a high level of international
trade abroad.
It may be helpful to the committee if I first describe briefly the
major operations of the Foreign Economic Administration. These
activities are, of course, wartime activities but they have an impor-
tant bearing on the foreign economic problems with which the United
States will be faced after the war.
THE ACTIVITIES OF THE FOREIGN ECONOMIC ADMINISTRATION ^
In the first place, the Foreign Economic Administration regulates
commercial exports from this country through licensing procedures.
In order to conserve materials, resources, manpower, and shipping
for war purposes, it has been necessary to curtail our exports during
the war. Our post-war objective, however, will be to keep them up
and, with this end in view, the Foreign Economic Administration is
now lifting these controls whenever opportunity offers. Among the
controls which will be abandoned as soon as military- and foreign-
policy considerations permit are those designed to prevent strategic
supplies from reaching the enemy by way of neutral countries. This
again is, of course, a wartime activity.
The Foreign Economic Administration has also been engaged in
obtaining in world markets the strategic and critical materials which
the War Production Board and the War Food Administration deter-
mine are needed for war purposes. Where private importers have
been able to arrange for needed supplies, the F. E. A. has assisted them
by assuming war risks such as increased insurance rates or by pro-
viding loans, technical assistance, or equipment. Where the required
amounts of strategic commodities could not be brought in effectively
through commercial channels, the F. E. A. has itself procured the
needed strategic supplies and organized development programs where
necessary to bring forth the materials needed. In general F. E. A.
has procured abroad (1) where private importers were unable to obtain
supplies owing to price inflation in foreign countries and price ceilings
in this country, (2) where the output of submarginal mines and high-
cost plantations was needed for war purposes, and (3) where new labor
forces had to be recruited and housed in order to mine or produce
vitally needed war supplies. Where necessary, F. E. A. has arranged
to explore for new sources of vital supplies, built roads, repaired rail-
roads, and initiated new air transport services to give access to needed
supplies. In neutnil countries considerable purchases have been made
as a part of our economic warfare activities to prevent strategic materi-
als from reaching the enemy.
These procurement activities are all aimed at the successful prose-
cution of the war and the Foreign Economic Administration is pre-
paring to adjust them to the progress of the Avar. They will not all
be terminated until after the defeat of both Germany and Japan.
When Germany is defeated the F. E. A.'s activities will be reduced
accordingly, and will be directed to the support of the armed forces
in fighting Japan.
1 See appendix for exhibits 20 to 23, pp. 1196 to 1202.
POST-WAR ECONOMIC POLICY AND PLANNING 771
Tlie Foreign Economic Administration is also responsible for ad-
ministering the appropriations made by Congress under the Lend-
Lease Act. This act also is a war measure. Present military events
make it necessary to plan lend-lease policy anew for the period dur-
ing which we shall be fighting Japan. The type and quantities of
lend-lease supplies which will be furnished after the complete defeat
of Germany will depend on the strategic decisions which have been
m.ade for the defeat of Japan.
Consideration has also been given to the orderly and efficient liqui-
dation of the lend-lease program after complete victory over Japan.
Se^'tion 3 (c) of the Lend-Lease Act authorizes the practical and
sensible termination of lend-lease. It permits for a time the carry-
ing out of agreements to deliver supplies in procurement or production
for war purposes where the agreements were made prior to the termi-
nation of the basic provisions of the act. Under this authority it will
be possible to avoid canceling all contracts for vital supplies in the
process of manufacture when the war actually ends. Manufacture
can be completed and goods can be delivered to the foreign country
on credit or other terms under the provisions of the Lend-Lease Act.
This will ease the burden of contract termination and minimize the
amount of Government surplus property when the war is over.
The Export-Import Bank, which is a part of the Foreign Economic
Administration, has during the war exercised its authority to extend
and guarantee loans. Most of its activities have been directed toward
the financing of expoi-ts to Latin America, which will assist in the
production and transportation of strategic and critical materials
nee<led for war purposes.
The Foreign Economic Administration has, therefore, been occu-
pied with many of the vital problems of war. These operations
Inquire much detailed knowledge of foreign trade. They also yield
much information concerning our foreign trade of the future. We
have economic missions in nearly every country. These missions pro-
A'ide a flow of information reo;arding economic conditions in these
countries. The necessity for finding the way out from under most
of the present controls has compelled considerable thought concerning
the foreign trade problems of the United States after the end of the
war in Europe and Asia. I should like to offer to the committee the
results of our experience in the hope that we can assist Congress to
formulate a policy which will pave the way to national prosperity and
international peace.
SOME OF THE FACTORS AFFECTING THE POST-WAR FOREIGN TRADE OF THE
UNITED STATES
Our policies for the post-war world must be considered and formu-
lated in the light of the facts concerning our wartime economy. I
should like to summarize these facts before discussing possible Amer-
ican policy.
1. The United States will be the greatest industrial power and
almost the only important industrial Nation which has suffered no
physical war damage to its industrial or agricultural equipment and
no undermining of the health of its people.
2. The United States has enormously increased its manufacturing
plants and equipment during the war. Our gross national produc-
772 POST-WAR ECONOMIC POLICY AND PLANNING
tion has been far higher than it has ever been in the history of the
country, and despite war demands, our civilian population has con-
sumed more goods and services than ever before. Present figures
indicate that we are turning out about $196,000,000,000 of goods and
services a year, which is about double our highest production in any
year up to 1939 (which was 99.4 billion dollars in 1929). These fig-
ures, however, are not corrected for price changes. This tremendous
output was acliieved although some 11,000,000 young men and women
had been taken out of productive work. These in general in-
clude our most vigorous and efficient workers. If we fall greatly short
of this wartime achievement, we shall be faced with considerable un-
employment. It is apparent tliat this country will be under tremen-
dous pressure, and properly so, to find ways of achieving full em-
ploj^ment. One of the ways would be to export far more than ever
before.
3. Reasonably full use of these national resources will require both
thought and leadership. The curtailment of the war program will
call for a drastic change in the nature of production. At the same
time exports through lend-lease will be curtailed. These lend-lease
exports are now running at the rate of 11.5 billion dollars a year.
The loss of this business will be serious for both industry and agricul-
tui'e. The lend-lease exports alone represent nearly four times our
average total exports in pre-war years and nearly 6 percent of our
present national output of goods and services.
4. The reconversion necessitated by the drying up of the war and
lend-lease orders for goods will be partially assisted by the accu-
mulation of purchasing power available to make up arrears of mainte-
nance in industry, agriculture, and in the home. But to take the
place of Government spending for the war, it would have to amount
to about $90,000,000,000 a year. To maintain present employment
we shall need greatly expanded markets both at home and abroad,
and we need the markets more particularly to supply jobs for the men
and women returning from the armed forces.
5. During the war, and excluding all lend-lease exports, we are
exporting at the rate of $2,800,000,000 of goods and services a year.
During the decade fi^om 1929 to 1939 our exports ranged between
$2,100,000,000, and $4,000,000,000, which was about 4 or 5 percent of
our gross national production, just as we must raise our sights for
total production in post-war years and our standard of living, we must
also raise them for exports. I should like to point out to the committee
that merely to fill the gap left by lend-lease exports our present exports
must be raised from $2,800,000,000 to $14,300,000,000 (present lend-
lease exports being at the rate of $11,500,000,000 a year) .
Exports at this rate would have a very far-reaching effect on the
domestic economy. Money paid for goods for exports helps to main-
tain employment in the plants of the manufacturers producing those
goods. But the effects flow back to the mines, farms, transport, bank-
ing, insurance, and other parts of our industrial and economic system.
Manufacturers buy materials, equipment, and services from others.
The workers employed in turning out the export goods spend their
earnings on the things they need and desire. The manufacturers,
farmers, and workers producing these things also increase their ex-
penditures, so that the stimulating effects spread all through the
POST-WAR ECONOMIC POLICY AND PLANNING 773
economy. The effect on profits and employment, therefore, extends
far beyond the lines of goods exported. In many Imes, moreover,
larger volume means lower costs and the opportunity for lower prices
in this country. Since exports offset any tendency to general shrink-
age in our operations, their value greatly exceeds any measurement
based on the volume of exports.
6. Fourteen billion dollars would admittedly be a high level of
exports compared with the past. But we shall need to export much
more than before the war, and foreign countries will need much more
from us. The need for American goods abroad will far exceed the
need at any previous time. A great many countries, always less richly
endowed than the United States, have been more or less seriously
damaged. Their plants, the houses of their people, their railroads, and
bridges will have been bombed or dynamited. Their people will have
been weakened by malnutrition or by the pressure to apply the utmost
of their powers to resisting the enemy by long hours of production, by
home defense and firefighting, by underground resistance, and many
other ways.
Thus many of our potential customers will be impoverished. For
a time, relief from the outside will be necessary to prevent starvation,
but relief must be nothing more than a temporary measure. Never-
theless, these countries can begin to support and help themselves only
after their damaged economies have been repaired. Many of them,
therefore, will be desperately anxious to obtain supplies from abroad.
These people will turn to the United States for roadbuilding ma-
chinery, trucks, railroad equipment, utility equipment, industrial
machinery, and much more. Our armies have carried American
products and American methods across the world and have, as a part
of the military program, staged an impressive demonstration of these
products and methods. Wartime training in the United States of
foreign technicians under the lend-lease program has also acquainted
foreign countries with our equipment. The way has, therefore, been
prepared for increased exports.
There will also be many countries whose standard of living is low
partly because of their lack of capital. Their transportation, indus-
tr}', and agriculture are relatively primitive. But the war has increased
the determination of these people to improve their means of produc-
tion and their standard of living. They also need agricultural
machinery, transportation equipment, and machinery for the simpler
industries. American technical aid will also be required. These
countries are potential customers on a very large scale for a very
wide variety of consumers' goods as well as equipment. But their
needs can become effective in the markets of the United States only
after their standard of living has been raised above present, often
very low, levels.
7. One of the factors that will affect our exports of new goods
will be the disposal of surplus goods abroad. As in the domestic
market, competition with new production from this source will de-
pend upon the extent to which surplus goods can be disposed of in
places and for purposes that would otherwise not be markets for new
goods.
8. As the greatest industrial Nation, this country is especially in-
terested in the export of manufactured goods. Before the war, Ger-
774 POST-WAR ECONOMIC POLICY AND PLANNING
many was a very serious competitor in this field and Japan was in-
creasing rapidly in importance. German exports, when the Nazis
came to power, were about 1.6 billion dollars per year and increased
in 1938 to 2.2 billion dollars a year. Japanese exports in 19e38 were
$800,000,000. Both of these countries will be seriously crippled as
exporting nations.
Great Britain has always been an important exporting country.
In 1938 it exported products of United Kingdom origin to the value
of $2.3 billions. To finance its grim fight against the Axis Powers
before the United States entered the war. Great Britain dis-
f)osed of very considerable foreign investments. During the war
it has lost much of its shipping. If Britain is to live even on its
pre-war standard after war damage has been repaired, and take a
large share of the responsibility for maintaining the peace, it must
export more goods than before in order to pay for the same amount
of imports. Recent discussions in England indicate that the British
are fully conscious of the necessity for a vigorous policy to secure
export markets. The British Government is preparing to stimulate
and assist its manufa-cturers and exporters, and for some years it
has provided insurance against credit losses in foreign trade.
Canada has been increasing in importance as an exporter. In 1937
its exports exceeded $1,000,000,000. During the war there has been
very considerable industrial development in Canada and the Dominion
is looking toward increased exports after the war. The Dominion
Parliament has recently established the Canadian Export Credit
Insurance Corporation to insure exporters against certain losses on
■exports up to a total of $50,000,000. In addition, the Corporation
is authorized to provide, during the transition from war to peace,
loans and guaranties to foreign governments for the purpose of facil-
itating and developing trade. This Government financial aid is at
present limited to $300,000,000 outstanding at any one time.
The fact that these countries and others are seeking export markets
need not result in economic warfare Uetween them or between us
and them. But serious shrinkage in German and Japanese exports
will not alone make room for all the exports that the exporting nations
will wish to make. It will also be necessary to expand world trade
as a whole. Only in this way can the danger of nationalistic controls
of foreign trade, such as developed during the thirties, be avoided:
only in this way can American exports be raised to lev(els that will
aid in maintaining employment in this country without resulting in
unemployment elsewhere.
GOVERNMENTAL POLICY AND POST-WAR FOREIGN TRADE
I should now like to turn from some of the salient facts in the post-
war trade world to the Government policies which I believe will pro-
vide a sound basis for our foreign trade.
1. An adequate peace organization: The first requirement for
healthy international trade is, of course, military security. Efforts to
achieve national self-sufficiency are hardly conducive to the expansion
of international trade. We have made a start in dealing with this
problem at the Dumbarton Oaks discussions.
2. Full employment : Tlie second requirement is the fullest possible
employment and production in the United States and in the other
POST-WAR ECONOMIC POLICY AND PLANNING 775
peace-lovin<2; nations. The prosperity and economic well-being of
the United States is fnndamental to the economic well-being and
j)eace of the world. If we were to approach the present rate of pro-
duction, it would mean that we would buy much more abroad and
thus be able to sell more abroad.
3. Stable exchange rates : The next requirement is stable exchange
rates. Wide fluctuations in exchange rates increase the financial
risks of foreign trade, militate against foreign investment and invite
currency wars. We have begun to deal with those problems at the
Brett on Woods Conference.
4. The establishment of fair exchange rates : The establishment of
an adequate foreign trade may also call for action to ensure that the
foreign exchange rates established after the war do not place our ex-
porters at a competitive disadvantage. If foreign countries place an
excessively low value on their money in terms of the money of other
countries, their exports are stimulated and their imports discouraged.
In this country the executive branch of the Government no longer
has power to reduce the foreign exchange value of the dollar by re-
ducing its gold content. We must urge, therefore, that other countries
do not undervalue their money. Our initial share of post-war foreign
trade may be greatly affected by these foreign exchange rates. The
Treasury is fully alive to the significance of the problem.
5. Freeing blocked or frozen cui-rencies : During the war many cur-
rencies have been "blocked.'' The balances to the credit of foreign
countries can be spent in the country liolding the balances only under
severe restrictions. When those restrictions are removed the holders
of the balances will want to spend them. The exports of the countries
holding the balances will be stimulated wliile exporting by other
countries will have tougher sledding. This blocking of currencies has
unfortunately been a wartime necessity and it may take some time to-
release the balances that have been accumulating. But countries
sliould be free to spend the current money proceeds of their exports
in any market they may choose. To this end we should use our na-
tional influence and assistance if necessary to put an end to this block-
ing of balances as soon as it ceases to be needed to aid in prosecuting
the war. The adoption of the recommendation of Bretton Woods
would be most helpful in this connection.
6. Removal of import and export controls: It is to be hoped that
tlie whole complex of import and export controls will not long survive
the war. Most of these controls were established to prepare for the
war or to mobilize the resources of various countries during the war.
In the immediate period before the war, however, Germany, by a
series of clever devices in foreign trade, used its great industrial power
as a means of dominating many other countries. It declared economic
war years before it declared physical war. It made economic war-
fai'e an integral part of its policy of world conquest. Exchange con-
trols and barter deals preempted man}^ markets for Germany. These
methods must be eliminated as quickly and as thoroughly as possible.
As for our own wartime controls, I have already indicated the
program of the Foreign Economic Administration for the removal of
such controls as it administers.
7. Lowering tariff barriers : It will not be sufficient, however, to get
rid of controls that we associate directly with the war. In this and
other countries excessive import duties have for long imposed undue
776 POST-WAR ECONOMIC POLICY AND PLANNING
obstacles to the development of world trade. If we wish to be an
exporting country and to be paid for our exports and have the interest
and i^rincipal on our loans paid, we must also be an importing country, j
Bilateral and multilateral action to adjust tariffs and other trade re- \
strictions is necessary to a high level of international trade. But the i
absorption of additional imports will be possible only if over a period j
of time we succeed in achieving a high production and consumption j
economy with employment opportunities for all. |
The lowering of trade barriers will soon be a matter of prime I
interest. Article 7 of the master lend-lease agreement between the '
United States and the United Kingdom of February 23, 1942, states |
that: I
In the final determination of the benefits to he provided to the United States of j
America by the Government of the United Kingdom in return for aid furnished (
under the act of Congress of -March 11, 1941, the terms and conditions thereof I
shall be such as not to burden commerce between the two countries, but \
to promote mutually advantageous economic relations between them and the
betterment of world-wide economic relations. To that end, they shall include
provision for agreed action by the United States of America and the United
Kingdom, open to participation by all other countries of like mind, directed
to the expansion, by appropriate international and domestic measures, of pro-
duction, employment, and the exchange and consumption of goods, which are {
the material foundations of the liberty and welfare of all peoples ; to the !
elimination of all forms of discriminatory treatment in international commerce, j
and to the reduction of tariffs, and other trade barriers; and, in general to the
attainment of all the economic objectives set forth iu the joint declaration made
on August 12, 1941, by the President of the United States of America and the
Prime Minister of the United Kingdom.
The joint declaration here referred to is the Atlantic Charter.
Other countries look to this country for reassurance that we will
take action to implement these objectives. They must act soon, and if
they are left in doubt as to our desire to have international trade on as
high and free a basis as possible, they will be compelled to look out for
themselves and will turn again to restrictive nationalistic policies.
But if we take advantage of our opportunity for international leader-
ship, we can open up to private initiative enormous opportunities to
economic progress. In this progress the United States itself will
obtain a large share of the benefits. It is hoped, therefore, that rapid
progress can be made in the generalized system of reciprocal trade
agreements.
8. Orderly liquidation of surplus property: Particular care will
have to be taken to assure that the disposal abroad of surplus prop-
erty will interfere to the Ijeast possible extent with the export of
neAvly manufactured American products.
9. Financing exports : If we are to have a full flow of goods from
the United States during the transition from war to peace, extensions
of credit will doubtless be required. The principal difficulty in ob-
taining export orders will arise from the fact that many potential
foreign customers will lack the means of paymsent. Some neutral and
other countries have accumulated considerable quantities of dollars
during the war, but many others have not. There are t^vo important
waj^s in which these countries can obtain dollars: They can sell goods
and services to us, or we can extend credit to them.
In the immediate post-war period, the export of goods will be hin-
dered in many countries by either the necessity for reconversion to
peacetime production or the reconstruction of Avar-damaged indus-
POST-WAR ECONOMIC POLICY AND PLANNING 777
tries, agriculture, and transport. In some countries, tliese difficulties
will be temporary and foreign aid will be necessary only to obtain
the materials necessary for reconstruction before exports can be pro-
vided. In some of the less-developed countries, on the other hand,
such problems will be of long duration, and they will call upon us
continuously for capital assistance over a longer period. Thus the
ability of a number of countries to obtain dollars on loan will be one
of the principal determinants of our foreign trade after the war.
Experience in recent years with farm and home mortgages in this
country has shown that many borrowers who are poor risks at high
rates of interest and short-repajanent schedules become good risks if
the terms and maturities are adjusted to their capacity to pay. If
proper precautions are taken, I am convinced that we may safely re-
sume our foreign lending on a large and sound scale. Such fina-ncing
might take the form of low-interest rates and long maturities. In
addition, we would be wise to ensure that the proceeds of the loans
are used productively and contribute to the development of the bor-
rowing country's ability to service its foreign debts. General action
to stabilize foreign exchanges to provide against periodic collapses
in the world demand for the raw materials and other products of
debtor countries would further enhance the safety of their loans.
Some of the risks of these loans depend upon the political future
of the world. If there is political insecurity, men and resources
will be turned away from peaceful purposes to preparation for war.
Attempts to achieve economic self-sufficiency will result in inefficient
use of their resources. Governments acting in concert can greatly
reduce these risks. Since they alone can act to minimize the political
risks involved in foreign loans, governments can properly be expected
to assume such nonbusiness elements of risk and thus facilitate private
lending abroad.
There is much to be said for the nations' jointly guaranteeing
foreign loans. They then have a joint interest in the maintenance
of conditions that will permit the servicing of the loans. In essence
the International Bank for Reconstruction and Development provides
such a guaranty. It must be borne in mind, however, that the pro-
posed bank is designed to supplement and not to su])plant lending by
the member nations. In fact, additional lending by the United States
as well as other member nations will be necessary to finance reconstruc-
tion and development and maintain an export trade of the size that is
necessary for our domestic economy on a full employment and pro-
duction basis.
^Ye have already seen that the volume of wartime exports ap-
proached $15,000,000,000 and that this is roughly four times our peace-
time exports. From what we know of the needs of foreign countries
for imports and their presently inadequate ability to pay for them, it is
apparent that if a high level of exports is to be maintained it will be
necessary for the United States Government to make and guarantee
loans on favorable conditions in terms of the interest rates charged and
the periods for payment. I believe that we can afford to take some
risks, because to some extent we will be balancing one risk against
another. The alternative — failure to lend — m411 result in a reduction
in our exports from present high levels. The reduction of our foreign
markets, like a reduction in our domestic markets, may result in unem-
778 POST-WAR ECONOMIC POLICY AND PLANNING
ployment, the full cost of which is difficult to measure but which may
many times exceed any losses incurred in financing exports.
In addition to the extension of credit, careful consideration should
be given to proposals for extending the practice of guaranteeing
foreign loans. The idea is not, however, a new one. After the
Government insured bank deposits, there was never any hint of uncer-
tainty on the part of depositors. Moreover, loans have been guaran-
teed within this country by the F. H. A. and more recently, under war
conditions, by the P'ecleral Reserve System for war production and
contract termination purposes with considerable success. They have
also been guaranteed in the foreign field, to a limited extent, by the
Export-Import Bank. The guaranteed loan has the general advan-
tage that it necessitates the cooperation of the banker in appraising
the loan and distributing the issue. Moreover, bankers can be left
free to compete for the business of selling the bonds to the public.
Apart from the controls I have mentioned over the spending of the
loans to provide a means of servicing them, domestic business can be
left free to compete in selling the goods upon which the borrowed
funds are to be spent.
I have already mentioned the British and Canadian arrangements
to provide Government insurance (without subsidy) of foreign -trade
risks. Generally speaking, the arrangement is for the Government to
take part of the credit risk on a short or moderately long credit up to,
say, 10 years on individual transactions, or groups of transactions, in
the export trade. The usual banking facilities carry the remainder
of the risk. Premiums are fixed for each transaction, or set of trans-
actions, and are designed to cover all anticipated losses. The Export-
Import Bank of the United States has engaged in a number of com-
parable transactions.
I can foresee such large sales of industrial machinery, transporta-
tion and utility equipment of various kinds that even large manufac-
turers would be unwilling to tie up their own capital over relatively
long periods of time or take the risks involved. Government partici-
pation relieving bankers of part of the risk may make possible more
reasonable terms and thus assist the export trade.
Smaller manufacturers and smaller exporters will have even greater
need of financial assistance if exports are to be raised to a high level.
If we take into consideration past experience in this field, it would
seem that if we are to achieve the level of exports which we have had
during the war, relatively large scale financing will be necessary in
the peace. The scope of any such program will, of course, be a matter
for the Congress to determine.
In closing, I should like to make one point very clear. I do not
believe that whenever unemployment appears we should attempt to
eliminate it by indiscriminate foreign lending. In the longer run,
foreign loans must be made only wlien they facilitate additional pro-
duction out of which interest and principal can be paid. But we must
not be guided by present ability to pay. A soundly conceived pro-
gram of foreign lending, such as I have outlined, will lead to such
an increase in productivity throughout the world as will raise stand-
ards of living and increase ability to repay debts to levels never
hitherto approached. However, we must prepare to take payment
in goods and services.
POST-WAR ECONOMIC POLICY AND PLANNING 779
It is important that we recognize the absence of any foundation
in fact for the oft-expressed fears that industrialization abroad will
destroy this country's ability to export profitably. It is indeed reas-
suring that the forward looking business groups engaged in post-war
planning are themselves working actively to dissipate this myth.
Our foreign trade has actually been greatest with those countries
which, like Great Britain, have been relatively the most highly indus-
trialized. I am confident that in the future, too, industrialization
will be found to promote international trade.
The post-war world will be united in two objectives, namely, to
prevent still another and more destructive war and to maintain full
emplojanent and raise the standard of living of the people. We have
seen some of the factors which make it important for this country,
as a matter of self interest, to promote foreign trade in the interests
of full employment and production. Pacts to insure military secur-
ity, financial stability, and other similar and necessary purposes can
be successful only if they are accompanied by fidl employment and
production and a rising standard of living in this and the other coun-
tries of the world.
Mr. WoRLEY. We wish to thank you, Mr. Currie, for making suck
a s]3lendid statement.
Do you agree that to encourage foreign trade and shipping is a
sizable task?
Mr. Currie. Yes.
Mr. WoRLEY. Your agency is primarily a war agency, is it not?
Mr. Ci'RRiE. That is right.
Mr. WoRLEY. Will you go out of existence when peace is declared?
Mr. Currie. We are set up by an Executive order as a war agency,
but some of the activities of the agency will have to be continued,
regardless of the continuation of the agency itself.
Mr. Worley. Some of your functions, such as lend-lease?
Mr. Currie. Lend-lease will take time to wind up. The disposi-
tion of surplus goods abroad will take a number of years. The loan-
ing activities of the Export-Import Bank will continue under con-
gressional authorization.
At the present time we are also engaged in assisting the Army in
staffing the control commissions in ex-enemy countries. That is a
service we perform for the Army that will have to be continued
by some agency.
Mr. Worley. Does your agency make policy?
Mr. Currie. It makes policy within limitations. The over-all for-
eign policy is determined by the Department of State. Within that
framework we make a good many policies.
IMr, Worley. You have authority to carry out specific functions
under the Executive order and congressional action?
Mr. Currie. That is right.
Mr. Worley. But so far as your actual policy is concerned it is
dictated basically by the State Department?
Mr. Currie. In the field of foreign policy and foreign relations.
Mr. Worley. I am trying to establish just what field that is. It
seems to me that the foreign field is primarily your field.
99579 — 45— pt. 4 12
780 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. CuRRiE. There are many important economic policies that must
be determined within the framework of our foreign political policy
or our foreign relations.
Mr. WoRLEY. I see.
Mr. CuRRiE. "VVlien it comes to a question, for instance, of deciding
what ])olicies we should adopt in securing materials from some coun-
try, like mica, that is entirely our responsibility. We determine
where it is to be procured, the price to be paid, and other terms under
which it is procured. That is entirely our responsibility.
Mr. WoRLEY. Without authority from the State Department?
Mr. CuRRiE. That is right, but of course subject to our foreign policy
as determined by the State Department,
Mr. WoRLEY. I was wondering how much consideration had been
paid to those several points you make in your outline by the othei]
departments which will have jurisdiction, perhaps, after the war is
over.
Mr. CuRRTE. Many of these points I mentioned in this program are
not properly within our jurisdiction, but primarily under the juris-
diction of other departments.
The questions of exchange rates, foreign exchange, and blocking of
currencies are primarily in the province of the Department of the
Treasury. The question of tariff barriers is primarily in the province
of the Department of State and the Tariff Commission.
Mr. WoRLEY. Would you say they endorse these views?
Mr. CuRRiE. Yes, sir; to the best of my knowledge and belief this
is the policy of the Government departments.
Mr. WoRLEY. This is the first long-range over-all program the com-
mittee has had the advantaoe of securing and, whether it works or not,
I think you are to be commended for going into this as thoroughly
as you have.
If you don't object, would you mind taking these points up one by
one ?
Mr. CuRRiE. No ; not at all.
]Mr. WoRi.EY. There are a few questions on which the committee
would like to be enlightened. Your point No. 1 which is that —
Basically our post-war objective will be to keep our exports up, and with this
eud in view the Foreign Economic Administration is now lifting these controls
whenever opportunity affords.
The amount of goods we can export will determine in large meas-
ure the prosperity we enjoy here at home. That is true, is it not?
Mr. CuRRiE. Yes. There is a reciprocal relation there.
Mr. WoRLEY. Assuming that our domestic purchasing power re-
mains the same, then we will have to continue to export approximately
the same amount we are exporting under lend-lease.
Mv. CuRRiE. That is right.
Mr. WoRLEY. Say, between 10 and 12 billions of dollars.
Mr. CuRRiE. Our total exports now are running about 14 billions —
our own private exports, plus lend-lease.
Mr. WoRLEY. You think we could aim at $14,000,000,000?
Mr. CuRRiE. I think that would be necessary to maintain present
employment levels unless additional domestic consumption is induced.
If we are to maintain the present amount of employment in this coun-
try, which is now based partly on our total exports, we would have to
reach that goal.
POST-WAR ECONOMIC POLICY AND PLANNING 781
Mr. WoRLEY. Admiral Land testified this week that we were aiming
at carrying in our own ships 50 percent of our exports. How does
that goal compare with your $14,000,000,000?
Mr. CuRRiE. I have not calculated what it would mean in terms
of shipping tonnage.
Mr. WoRLEY. It is difficult to do that.
Mr. CuRRiE. It would obviously mean a very large amount of busi-
ness for our merchant marine — such a volume of tonnage.
Mr. WoRLEY. Assuming our shippers use our own ships.
Mr. CuRRiE. Yes.
]Mr. WoRLEY. Mr. Arthur, staff consultant, would like to ask you
some questions.
]Mr. Arthur. We have had some indications that the volume of
foreign trade should be related to our total national production and
national income. We expect to get the results of studies from the
Department of Commerce in that regard, and I assume that they will
give us some figures for our expected exports and imports.
Do you know whether their studies come close to the figure you have
of 1-4 billions of exports in the projection they are taking of national
income 't
Mr. CuRRiE. No ; I am not familiar with their studies, but, offhand,
I should say that they were not.
Both our imports and exports are a function of our national income,
but since a large part of our exports today is based on what is in eco-
nomic terms equivalent to an extension of credit througli lend-lease,
I am certain you could not anywhere near approach this volume of
exports in the next 4 years after the war without extension of credit,
and I don't suppose that those calculations envisage that.
Mr. Arthur. In other words, the 14 billions of exports represent
a disproportionate part of national income compared with our past
peacetime experience?
Mr. CuRRiE. Yes ; in terms of our past experience.
]Mr. Arthur. And a projection of that 14 billions of exports would
mean that exports would have a much larger ])art in our total national
economy than in the past two decades before the war?
Mr. CuRRiE. Yes. In the decade before the war our exports
amounted to only about 4 or 5 percent of our gross national product.
I should think they would have to be larger than that to meet tlie
problem.
Mr. Arthur. It might go to 8 or 10 percent, according to your
projection?
Sir. Currie. It might very well ; yes.
^Ir. Reed. Mr. Currie, I have noticed the studies that the Bureau
of Foreign and Domestic Commerce has made on tliat and, in keeping
with the remarks, I believe has set up as a goal after the war $7,000,-
000,000 of exports and $7,000,000,000 of imports.
That M'ould be more consistent with the past existing relationship
to our total national income?
Mr. Currie. Tliat is right, but I believe that study was based on tlie
assumption that pi-e-war relationships would continue after the war.
Mr. Reed. I realize we do have the facilities and possibilities of
l^roduction that would give us as much as you say, but do you think
the probabilities are very great that we would get, even with 160 to
782 POST-WAR ECONOMIC POLICY AND PLANNING
170 billion dollars of national production, beyond seven or eight
billion dollars of exports ?
Mr. CuRRiE. I think not immediateh', in the absence of foreign
lending.
Mr. Reed. Extensive foreign lending?
Mr. CuERiE. That is right. Only in that way can j'ou raise the
figure of exports very much above the figure you mentioned.
Mr. Reed. Have you seen any figiu^es — I realize these are extremely
questionable in some respects, but I have never seen any figures of
any kind as to how many people depend directly on exports and
imports.
Say under our pre-war levels, would you assume that as many as
5,000,000 people depend either directly or indirectly on our foreign
trade ?
Mr. CuRRiE. I am awfully sorrj'. Dr. Reed, I don't have the figures
in mind.
Mr. Reed. I simply wondered if you had run across any such figures.
I have never found any such figures myself, that I considered reliable,
but everybody is trying to find out what it does mean in employment
to get so much in exports and imports.
Mr. CuRRiE. I would be extremely glad to investigate and see if
I can throw any additional light on that.
Mr. WoRLEY. I have one additional question.
You mentioned that credit would probably be needed in oixler to
attain this volume of exports. Is that a temporary proposition,
thinking in terms of decades, and does it mean our exports will greatly
exceed our imports during that near period, or do we expect to im-
port as much as we export over the longer period of time in order
to balance the accounts?
Mr. CuRRiE. Over the longer period, of course, if the plan is soundly
conceived, we would have to balance the accounts and take our pay-
ments of principal and interest in the form of goods and services.
I think one substantial offset in the future could be the expendi-
tures of our tourists abroad, but, for the time being, the proposal
would envisage an excess of exports over imports.
I think we are now in the position of a local merchant in a region
that has been devastated by fire, flood, or drought, and he cannot help
being impoverished if all his customers are impoverished, and an
extension of credit under those circumstances that would increase the
well-being and prosperity of his customers would redound to his
benefit.
Mr. Arthur. You contemplate at some later date, if this level of
exports should be maintained over a long period of years, it Avould not
only equal but exceed this level you speak of, fourteen billions?
Mr. CuRRiE. That is right.
Mr. Arthur. The statement has been made that the British policy
of long-term credits to foreign nations has paid dividends in the form
of repatriation in periods of British emergency.
Have you given any thought to that aspect of the policy ; in other
woi-ds, not expecting repayment of these loans during normal peace-
time operations but rather accumidating foreign credit which will be
available as a strategic reserve, let's say?
Mr. Currie. I hope, Mr. Arthur, that the need for such a thing will
never arise.
POST-WAR ECONOMIC POLICY AND PLANNING 783
Mr. Arthur. In other words, you would, in your thinking, try to
plan the thing contemplating a definite repayment of those credits
in normal course of accounts.
Mr. CuRRiE. I think it should be : and that is why I emphasized the
fact that, in making these loans, care should be given at the time to
insure that the debt -paying capacity of the borrowing countries is
being increased correspondingly.
Too many of our loans in the twenties were made without any
tliought of ultimate repayment and used unproductively. They were
made at a high rate of interest and with short maturities. I think that
led to collapse of foreign economies in the whole decade before the
war.
Mr. Reed. Is there any reasonable way, Mr. Currie, that we can
insure the use of loans so that they go into increased production in
the country and increased purchasing power?
For instance, I have in mind two or three instances — you probably
do. too — in which most of it was frittered away, you might say, in
nonproductive uses entirely, not even in preparing for war or any-
thing of that sort, but got into other channels.
Is there any way you can control those loans so that they do actually
go into increased production and purchasing power?
Mr. Currie. I think you could make that a condition of the making
of the loan, that the project must be soundly conceived ; that the requi-
site talent and ability must be available for the erection and operation
of the proposed project, or, if not, that arrangements be made wnth
American technical firms to erect the project, and perhaps with a man-
agement contract ; that the project must be liquidated over a period
of years; that some care, either directly in connection with that proj-
ect or other parallel projects must be taken to increase the ability of
the country to sell more abroad to increase its debt-paying capacity.
I think all those things can be and should be made conditions of
those loans.
Mr. Arthur. Do you think we should have Government supervision
of all individual loans abroad to insure that that condition is met, or
do you think that private enterprise of itself will direct loans in those
sound channels ?
Mr. Currie. No: I think it would be possible only in the case of
direct Government loans or those loans which the Government under-
wrote through a guaranty system. I think in that case we would be
justified in laying down conditions to assure the soundness of the loan.
I am afraid it will be some time before you can expect a large volume
of private lending without any guaranty. The experience has been
so bad in the past that I think banks and exporters will be leary of
investing large amounts abroad without a guaranty.
Mr. WoRLEY. After this war is over, Mr. Currie, most of the na-
tions are not going to be in position to buy what we have to sell.
Mr. Currie. That is right if you are speaking in terms of large
amounts. "
Mr. WoRLEY. You propose to create purchasing power in those
countries for the express purpose of being able to buy what we have
to sell?
Mr. Currie. That is right.
Mr. WoRLEY. You do not believe that we can develop our foreign
trade in any other fashion?
784 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. CuRRiE. I wouldn't go so far as that, Mr. Chairman. I think
that our foreign trade will grow, but very much more slowly than it
would if we now help our potential customers to put themselves on
their feet,
Mr. AVoRLEY. How big a program do you suppose this would entail ?
Can you give us any idea how much money, for example, Great Britain
would require to carry out a part of your suggestion ?
Mr. CuRRiE. I am nfraid, Mr. Chairman, I am unable to give you
any idea of the magnitudes involved.
In the case of Great Britain, I doubt very much that she would
be a borrower. I think Great Britain pretty much intends to finance
her own reconstruction. That would mean, however, so far as Great
Britain does finance her own reconstruction, she would have that
much less to loan abroad arid that much less to export.
Mr. WoRLEY. It might be desirable to try to induce Great Britain
to borrow from us if it would increase our exports, might it not ?
Mr. CuRRiE. Of course, if Gi-eat Britain borrowed from us it would
temporarily increase her ability to purchase our goods.
Mr. WoRLEY. Wouldn't that be logical in accordance with the tenor
of your proposition ?
Mr. CuRRiE. It would be logical, but I think that Great Britain
is one of the countries of the world that will not need much assistance
from us in rehabilitating herself.
Mr. WoRLEY. As a matter of principle, if we can help one country
increase its desire or demand for additional things we have to offer,,
then it seems that we could do that with all countries, and increase
the desire all over the world and sell considerably more than we have
ever been able to sell.
Mr. CuRRiE. That is perfectly true, Mr. Chairman, but certain
countries probably will not need much assistance, like Britain and
Canada.
Mr. WoRLEY. We could not force it on them ?
Mr. CuRRiE. No ; but I have been speaking of countries which need
and desire our goods and which have not at present the ability to pay
for them.
Mr. WoRLEY. Now, we are going to owe about 300 billions of dollars —
I hope it is not any more than that — after this war is over.
Your plan contemplates Government loans; is that correct?
Mr. CuRRiE. Government loans and guaranties of private loans.
Mr. WoRLEY. The Government will have to underwrite those guar-
anties of private loans ; the Government will be liable for them ?
Mr. CuRRiE. Yes; we take a contingent liability there.
Mr. WoRLEY. Do you suppose we are going to he able to take on a
biffger job in the face of this $300,000,000,000?
Mr. Ctjrrie. I think so.
Mr. WoRLEY. I think so, too. I am glad to hear you say so. That
is why I was trying to get some idea of how mucli money would be
involved in carrying out to the fullest extent your idea.
You can't give us any idea on that score?
Mr. CuRRiE. I don't believe I can at the moment.
Mr. WoRLEY. You don't believe we can hope to increase our foreign
trade without taking those steps — I misstated you again, you cor-
rected me a minute aero.
! POST-WAR ECONOMIC POLICY AND PLANNING 785
You say that will be the main thing we wall have to do?
Mr. CuRRiE. I think we are going to be confronted with a job of
reconversion that is staggering in its magnitude. When you take out
some $90,000,000,000 expenditures from our domestic economy for
the war eifort, the gap that Avill have to be filled there is just terrific.
I hope you gentleman will make wise sugoestions for the domestic
field, but in addition to that I think we will need greatly increased
exports if we are to achieve full employment and make up this gap.
%h\ WoRLEY. I hope we do, too.
^Ir. Arthur. Expanding that point of full employment one step
further, the goods we are exporting do not increase our standard of
living in this country except as they provide employment and the
means of buying to workers and business in this country.
Mr. CuRRiE. Yes, our standard of living will be increased by the
imports, goods, and services we receive as payment for our exports.
Mr. Arthur. Would you, therefore, say that the amount of exports
that is desirable to this country is the amount that is needed to employ
the residual working force of the country that is not occupied in pro-
ducing goods for domestic consumption ; in other words, that it occu-
pies a residual position in planning for full employment?
Mr. CuRRiE. Well, it is very difficult, Mr. Arthur, to say which
would be the residual from the various types of expenditures — plant,
and equipment. Government expenditures, or foreign loans. I am not
sure what benefits there would be in picking any one of them out as
being the residual item. They are all necessary to make up your total
picture.
I should have mentioned Dr. Reed's point earlier. I don't think
we ouglit to concentrate on the direct employment resulting from.
exj)orts, because we do have a multiplier there which is as important
as the direct effect. Exports which are exactly offset by corresponding
imports are of benefit to the country in giving us goods we would not
otherwise get and giving us goods cheaper. They do not, however,
give you this multiplying effect. It is the additional goods over and
a))ove that which may be financed that give you your net stimulating
effect.
Mr. Arthur. I was thinking of financed exports in my statement
and trying to reach some basis for estimating how large these loan-
financed exports should be as a matter of national policy. Can that
be tied to a continuation of full employment in this country rather
than to continuing the wartime level of exports as the criterion for
determining how much that loan-financed export volume should be?
Mr. CuRRiE. Yes ; I think that would be the scientific way of going
at the problem. When I referred to our level of wartime expoi-ts,
I was merely presenting the factual picture.
I assume your committee in its studies will attempt to set forth the
arithmetic of the problem, the total amount of capital expenditures
that will be necessary to full employment, and that will give you
some indication of the amount of expenditures in the foreign field.
I just give you this figure today of the amount of exports, including
botli exports to lend-lease and private exports.
]Mr. WoRLEY. Where can we secure those figures, ]\Ir. Currie ?
Mr. CuRRiE. I am sure that your technical staff, Mr. Chairman,
could work that out for you. Any help that we can give, we will be
delighted to.
786 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. Arthur. We will be looking for help.
Mr. Reed. Mr. Ciirrie, I don't believe there is any way of estimating
it, but the first and important factor is how much will be our imports.
You have spoken of helping to finance exports. Do you see any gain
that could be made by lending assistance to finance imports, particu-
larly if we need large amounts for stock-pile purposes? Do you see
any advantage to be gained by Government assistance in financing
imports, or do you think that the sales competition itself between sup-
pliers will keep that at a level where they, themselves, in other coun-
tries, would take care of that financing?
Mr. CuRRiE. I should think the latter.
Mr. Reed. That we would not need any Government assistance at
all in financing imports of that kind ?
Mr. CuRRiE. No. There is an indirect effect. I think, as we in-
crease efficiency and productivity of other countries, we may expect,
as a byproduct, to get some imports more cheaply, but I don't think
there will be any particular need to finance imports themselves.
Mr. WoRLEY. I am trying to figure out the element of risk involved
in this. 1 think I have an analogy here. I don't know^ how close it
would be.
When I was practicing law, one of my clients came to me, and he was
in pretty bad shape and he owed me some money. He said he could
pay if I went on his note over at the bank for a small amount, so I
went on his note.
He went over to the bank and borrowed the money. With part of
that money he paid me what he owed me. The balance he took him-
self.
That was fine up to that point, but when the note came due he was
not to be found, so I had to go over and take up the note. As a result,
it was a loss to me, and that man hasn't paid me to this good day.
When we finance these governments in order to try to increase our own
purchasing power, just how much risk will we assume?
Of course, it is desirable, if we can do it without loss. "Wliat steps
can be taken to avoid a loss?
As I see it, if we have a cinch on a degree or portion of world trade
and commerce, which we undoubtedly will have, with the nations of
the world in the condition they will be in after the war is over — if we
have a virtual cinch on those markets, why should we risk more money
to develop more markets?
The conservative ajjproach, it seems to me, would be not to lend
money, but to take what we have now and rely on other means than
lending money.
What I am trying to ascertain, Mr. Currie, is how can you reduce
that risk and still obtain maximum return ? Can you give us any idea ?
Mr. Currie. I think if you analyze the element of risk in the past
it will give us some clew.
Mr. WoKLEY. Can you give us any indication on that ?
Mr. Currie. Some of the factors which have made foreign loans
risky in the past have been war and political and military insecurity.
Mr. Worley. How can we avoid the risk of war? Of course, we
cannot avoid that risk, but your plan is predicated on the accomplish-
ment of these other factors that go in there.
POST-WAR ECONOMIC POLICY AND PLANNING 787
xVssume that we have a peace Avhich will, as far as possible, elimi-
nate wars or make them less likely. That is your first assumption;
we must have that before your plan will operate.
Mr. CuRRiE. That is right ; and I think we have to proceed on the
assumption that we are now making plans and taking steps which,
if they do not abolish, at least greatly reduce the risk of wars and
the necessity for each and every country of the world maintaining
and building the largest possible military and naval establishments
they can carry. If we are not successful in that endeavor, all these
other plans become immaterial.
Mr. WoiiLEY. That is the foundation of your whole program.
Mr. CuRRiE. That is right.
Then, the next great element of risk has been the exchange risk.
Serious fluctuations in exchange have made it very difficult for private
lenders, particularly, to loan with any certainty whether they can get
back money of the same value.
Mr. WoRLEY. How much of that has been going on in the past? Do
3'ou have any idea how much loss has been sustained by private lend-
ers in the fluctuation of exchange ?
Mr. CuRRiE. Not in terms of billions — but you would have to think
of it in terms of billions.
Mr. WoRLEY. Unless we know what has gone on in the past, can
we fiet a very good idea of what we can do in the future ?
Mr. GuRRiE. There is one thing we can do about that ; and I think
a most promising start has been made by the Bretton Woods Con-
ference in recommending the establishment of the monetary fund.
That would be the most significant and constructive development
we have exer taken, if adopted, to insure a large measure of exchange
stability in the future, and that, at one stroke, will greatly decrease
the risk of foreign investment.
Mr. WoRLEY. Of course, that is all in the embryo stage.
Mr. CuRHiE. Yes.
Mr. WoRLEY. That is point No. 2.
Mr. CuRRiE. That is right.
Mr. WoRLEY. Your peace and then your international exchange, the
stability of your money.
Mr. CuRRiE. That is right.
Mr. WoRLEY. All right; what are the other foundations?
Mr. CuRRiE. The third factor I mentioned is that I think you have
to take care to adjust your loans to meet the borrowing capacity of
the borrowers.
Mr. WoRLEY. We have to increase that borrowing capacity, don't
we, by these loans?
Mr. CuRRiE. Their debt-paying capacity, I should say, their ability
to service loans.
I think, if you will recall, the typical home mortgage of the twenties
was a short-term loan, and usually there was a second, and in some
cases a third mortgage at very much higher rates, running up to 8
or 10 percent. That tvpe of loan invites default, because it is too
heavy a burden for the borrower to carry.
Mr. WoRLEY. Short term and high interest ?
Mr. CuRRiE. Yes. I think it is the path of wisdom to plan for longer
maturities and lower rates of interest to put it within the debt-paying
788 POST-WAR ECONOMIC POLICY AND PLANNING
capacity of tlie borrower. In that way you enhance your security, tb
payment of your loan.
Mr. WoRLEY. The details of this plan are that the Government itself
would lend the money. Would it lend it to the Government of the
foreign country ?
Mr. CuRRiE. It could do that.
Mr. WoRLEY. Or would it lend directly to private persons ?
Mr. CuRRTE. Lending directly to private people would more likely,
take the form of guaranteeing private loans of foreign exporters.
Mr. WoRLEY. This Government would guarantee loans made by our
people to people in foreign countries ? \
Mr. CuRRiE. That is right. So far all the loans we are making by '
the Export-Import Bank are directly to foreign governments or '
Mr. WoRLEY. I assume we would require proper security. Do you j
have any idea what kind of security ? :
Mr. CuRRiE. Your ultimate security is the debt-paying capacity of ,
the borrowing country.
Mr. WoRLEY, Of the country and not the individual ?
Mr. CuRRiE. Yes; in the case of private loans now, the British, in
their export guaranty system, guarantee the loans of private indi-
viduals to foreign importers and, in certain parts of their work, main--
tain rather elaborate credit files of tlie credit standing of individual'
merchants throughout the world.
One of the main sources of risk in the past has arisen from the pe-
riodic swings in employment, and from depressions.
It so happens that, characteristically, borrowing countries in the past
have also been raw material producing countries, and they usually
have been the hardest hit by collapse in the world markets for raw
materials. I think it is part of our planning to do everything we can
to insure a stable financial system throughout the world.
Mr. WoRLEY. That is true. It would be desirable to create this
stable financial situation throughout the world so we could sell more
goods.
Mr. CuRRiE, And the greatest contribution to that, Mr. Chairman,
would be stable conditions at home, because we are tlie largest buyer in
the world, and in the past it has been the collapse in the American
home market that has been a great factor in causing the raw material
producing countries to collapse.
Mr. WoRLEY. In trying to develop these markets, it might bring on
chaos or calamity over here?
Mr. CtTRRiE. On the other hand, the development of these markets
makes a contribution to the development and stability at home.
Mr. WoRLEY. That is right. It is tweedledum and tweedledee. I
am trying to get your ideas as to the best steps we can take to have our
cake and eat it, too, to have a stable economy over here and the maxi-
mum foreign trade and commerce.
After your financial plan, what is your fourth point?
I believe Mr. Arthur has a question.
Mr. Arthur. In connection with foreign loans, what Government
agency at the present time does the job of appraising the risks? Is
that the Export-Import Bank at the present time?
Mr. CuRRiE. Yes. The only agency established to make foreign
loans at the present time is the Export-Import Bank.
POST-WAR ECONOMIC POLICY AND PLANNING 789
Mr. Arthur. They are appraising the risks in terms of ability to
pay or tJie productivity of the enterprise financed?
Mr. CuRRiE. That is right.
Mr. Arthur. Are there not at least three conditions essential to
the soundness of these loans ? Let me state them, and then you restate
them correctly. One is the ability to repay in terms of the produc-
tiveness of the enterprise created ; secondly, the political stability of
the nations to which we make loans; and, third, the availability at
some time in the future of the foreign exchange required to make
that repayment, the transfer problem.
Does that fairly state it?
IVIr. CuRRiE. I could not possibly improve on that statement. I
think that puts it very well, indeed.
]Mr. Arthur. Are those taken into account by the Export-Import
Bank in its loans very fully, in your opinion?
Mr. CuRRiE. Yes; I believe they are. I think all those considera-
tions came into the granting of a rather large loan to the Volta Re-
dondo project in Brazil, for instance. It was the subject of very long
investigation on the soundness of the project, and consideration was
given to the political stability of Brazil and also to its foreign ex-
change position, which at the moment is very good.
Mr. Reed. As I recall, before the war, most of our trade was han-
dled on 90-, 120-, and 180-day paper.
]\Ir. CuRRiE. Yes.
]\Ir. Reed. And a lot of it cash.
Mr. Currie. That is right.
Mr. Reed. When you speak of long-term loans, what terms are you
thjnking in, 3, 5, 10 years?
Mr. Currie. It depends on the nature of the transaction.
Mr. Reed. On the country and the nature of the transaction?
Mr. Currie. The nature of the transaction; yes. In general, I
think the maturity of the loan ought to be related to the length of
life of the project or transaction. Heavy capital plants, like a steel
plant, can obviously carry much longer maturities than the sale of
merchandise.
Mr. Reed. With a shorter term, of course, on consumer goods that
disappear.
Mr. Currie. That is right, although variation from this principle
may be necessary in the immediate post-war period. I should have
mentioned earlier, Mr. Chairman, in listing the factors that would
enhance the safety of foreign lending, our willingness to accept
payment.
Mr. Worley. Yes; in what — goods and services?
Mr. Currie. In goods and services.
Mr. Worley. It is probable that other nations will be willing to
pay us in goods and services.
Mr. Currie. That is right. One of tlie difficulties in the past has
been that we have been happy to loan but have not been too happy
to receive payment, because we put a high tariff on the goods with
which these countries could pay.
Mr. Worley. Develop that a little more.
Do 3^ou think, in order to be successful in your program, we will
have to go so far as to remove all tariff barriers ?
790 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. CuRRiE. No ; I wouldn't go that far, but I would hope that we
would resume and continue the whole program of reciprocal trade
agreements, which contain the "most favored nation" clause and gen-
eralize the benefits to all countries.
We made an awfully good start on that before the war. and 1 hope
we can continue it after the war. If we can persuade other countries
to do the same, we can establish a basis for larger world trade.
I also look forward to great expansion of our tourist travel. Amer-
icans can go abroad and get payment in person, and, with the world
growing as small as it is through the development of air transport,
I think we can look forward to volumes of expenditures of tourist
travel far beyond anything experienced in the past, and that will
be of great assistance in enabling foreign countries to meet their pay-
ments to us.
Mr. WoRLEY. The ranchers down in my district are not very strong*
for Argentine cattle coming up there. Then I understand there are
some manufacturers in the East who are not interested in having
certain products come in without paying heavy duty. I think that is
rather generally true, depending on the given interests, as to whether
they are for or against reciprocal-trade agreements.
How would you meet that problem? Aren't you, by reducing the
taritf or eliminating the tariff, in a sense hurting home industry?
Are you looking at it from that point of view, or a broad point of view?
Mr. CuRRiE. That is a matter, Mr. Chairman, which is so far out-
side the province of the Foreign Economic Administration that I
w^ould hesitate to give any answ^er to it.
Mr. WoRLEY. But that comes in your plan.
Mr. CuRRiE. It is on the basis of bargaining. Every one of these
reciprocal-trade agreements are questions of bargaining and quid pvo
quo and I think, that in all good bargaining, both parties benefit,
but they are long, tortuous negotiations.
Personally, I have never taken any part in them and would hesi-
tate to give any opinion on them.
Mr. WoRLEY. Your program sounds good, if we could do it, but
I am just trying to see w^hat the practical difficulties might be in some
of your suggestions.
Mr. CuRRiE. There are many difficulties, but the achievement of
our objectives is so important that we must overcome them.
Mr. WoRLEY. You say that there would be some practical difficulties.
Mr. CuRRiE. Yes. On the other hand, we did make a good deal of
progress in lowering taritf barriers under the reciprocal trade agree-
ments program, and I think it is safe to say that the progi-am as a
whole is a popular program, well received and accepted by the coun-
try as a whole. I should hope we could continue that.
Mr. WoRLEY. I join you in the hope.
On page 12, Mr. Currie, you say :
The fact that these coTintries and others are sp*^kins pxpor^ markets need
not result in economic warfare between them or between us and them.
I was under the impression that when more countries began manu-
facturing 3^ou immediately had competition.
Mr. CuRHiE. You have competition, Mr. Chairman, but it always
seems to me there is a difference in the severity' of the repercussions
of that competition depending on Avhether you are struggling for a
!
POST-WAR ECONOMIC POLICY AND PLANNING 791
larger slice of the same pie or whether you all have a larger pie in
which to share,
I think we can nii':imize the violence of that competition if there is
a larger total volume of world trade. If there is no expansion of world
trade and Britain, for example, has to export more in order to main-
tain her standard of living, you can see that the violence of that com-
petition will be more intense than if there is a total increase, I think
we have to plan for a total increase in world trade rather than
struggle for a shrinking and small volume,
Mr. WoKLEY. You say :
But serious shrinkage in German and Japanese exports will not alone make
room for all the exix)rts that the exporting nations will wish to make.
Mr. CuRRiE. Yes. I think that is a matter of arithmetic. The
German exj^orts were about two billion three hundred million, and the
Japanese, eight himdred million.
^Ir. WoRLEY, I understand that it is contemplated they won't be
large exporters for awhile,
Mr, CuKRiE. No; and that gap will be taken up by other nations,
I assume,
Mr, WoRLEY. Will you tell us, in that connection, how Japan and
Germany built up their exports?
Mr. CuRRiE. In the case of Germany, as you know, she expanded
her trade considerably in the years inunediately preceding the war
through exerting economic pressure on the surrounding smaller coun-
tries and forcing them to take German goods as a condition of her
taking their exports and forcing down the prices of the exports of
these surrounding countries.
Mr, WoRLEY, How did Germany do that ? How did she force the
other countries to take her goods?
Mr. CuRKiE. Germany, being in the center of Europe, has always
been an important market, particularly for agricultural products of
other countries, and she used her dominant economic strength to get
more favorable terms and then brought pressure on those countries
not to buy from other countries but to take German goods. She used
various devices to do that, including threats, Germany went in for
a whole system of bilateral trades — we will take so much if you take
so nnich of our things — which, of course, is very much against our
national policy, since we are firmly committed to multilateral trade.
Mr, AVoRLEY, You think it is more desirable to have multilateral
trade than bilateral trade?
Mr, Ci'RRiE. Yes; by all means.
^Ir. WoRi.EY. But it worked in Germany. She built up her export
trade.
Mr. CuRRiE. It works for one country. But it will create an atmos-
phere nothing short of fatal for the Dumbarton Oaks conference.
Mr. WoRLEY. If it will work for one country, why wouldn't it work
for us, the United States?
Mr. CuRRiE. To put it in those terms, I don't think we are in as
strong a position as some other countries to use this weapon.
Mr, WoRLEY, On account of competition?
Mr. CuRRiE. Yes, Countries which are large importers of raw
products are in a favorable position to force their exports,
^Ir, WoRLEY. Germany is quite an industrial nation.
Mr. CuRRiE. Yes,
792 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. WoRLEY. The United States is quite an industrial nation, too.
Mr. CuRRiE. That is true ; but we are also a great raw material pro-
ducing nation, and we haven't got so many countries entirely depend-
ent on our market as Germany, so that I don't believe — I have never
examined this very much, Mr. Chairman, because it runs contrary to
my predilections.
Mr. WoRLEY. We are trying to get some idea as to the best pro-
cedure and the procedure we ought to follow after this war is over, and
I think we can do that by finding out what other countries have done
in the past and how successful they were.
Have you given much attention to the Japanese Empire and her
exports — how she built those up?
Mr. CuRRiE. Not very much. My impression is — it would have to
be verified — that she did not make use of so many of these German ]
devices but rather took advantage of her cheap labor and cheap types
of products, which were forced particularly in the far East and South
Pacific markets.
Mr. WoRLEY. To do that, we would have to lower our standards of
living over here.
Mr. CuRRiE. Yes.
Mr. Keed. Aren't we misleading ourselves a little? I have been
thinking about that question of dividing up what Germany and Japan
will not get. German}' and Japan, if they cannot export, would not be
importers, so' we would lose that total market.
Mr. CuRRiE. Yes; that cannot be pushed too far. I think it is a
fallacy just to take their exports and say those are available to other
countries.
The disappearance of Germany and Japan from world markets will
lead to a contraction of imports as well as exports; but in terms of»
say, Britain or the United States, it does open the markets that Ger-
many would otherwise have supplied in, say. South America. You
can't quite follow through all the ramifications, but I think individual
countries will gain as the result of the disappearance of Germany
and Japan,
Mr. WoRLEY. Japan seemed to be very much interested in develop-
ing her foreign trade in one fashion or another, but j^ou wouldn't
advocate our following the Japanese policy?
Mr. CuRRiE. I wouldn't like to make too sweeping a statement,,
because I am not too familiar with Japanese practices, but I think our
strength always lies peculiarly in what we consider the benefits of
mass production, which enables us to get such economies in the use-
of labor. It is in those fields that we can get the greatest advance-
ment in our trade; and in the fields where we are technically ahead
of other countries, and that, in turn, is due to the enormous size of
our domestic market, especially when we operate under conditions of
full employment.
Mr. WoRLEY. Another suggestion you make, on page 12, is:
It will also be necessary to expand world trade as a whole. Only in this way-
can the danger of nationalistic controls of foreign trade, such as developed during:
the thirties, be avoided.
Can you give us some idea as to the situation that developed during
the thirties — what particular practices we engaged in that you think
we should not engage in again ?
POST-WAR ECONOMIC POLICY AND PLANNING 793
Mr. CuRRiE. I had particularly in mind there the system that was
being developed by the Germans, bilateral deals, subsidizing exports,
bringing pressure to bear in order to push their own export markets.
Going back a little earlier, I think the Ottawa agreements tended
in the direction of setting up a bloc of nations which would grant
concessions within the bloc.
Then, during the war, many countries have learned the technique
of import controls and exchange controls, and there is some danger,
once you learn those controls, you would like to continue using them.
JNIr. WoRLEY. What sort of techniques do you mean ?
Mr. CuREiE. Of having licenses for all imports, licenses for all
expenditure of funds abroad; and, at the present moment, there is
quite a wave of that practice sweeping through Latin America. Most
of the countries now are adopting import control.
With some justice, they point out that unless they do so, the moment
we remove our controls after the defeat of Germany, and goods become
abundant, their nationals may buy very heavily here and so squander
their foreign exchange and lead to the importation of many goods
which may not be so necessary to their economy, and they want to be
sure that those funds are used for industrialization and development.
It is a reasonable case they put up, but, looking at the world as a
whole, the practice of government interference with private trade and
deciding what shall be imported, who shall spend what money for
what purposes, is I think, an undesirable trend. But it is a trend that
will be very difficult to combat if there is a small and shrinking volume
of world trade and if dollars remain the scarce currency of the world.
Unless we can assure these countries that dollars will not be scarce —
that there will be an expanding world trade and that they will all share
in multilateral trade — we may have to have these controls.
Mr. WoRLEY. We have to sell them on the idea that, by playing
ball with us, they will make more money.
Mr. CuRRiE. That is right. As you know, there was a fairly strong
group in Britain that was by no means enthusiastic over the Bretton
Woods proposals regarding the monetary fund. There is a fairly
large element in Britain which thinks that Britain should use its
curiency and exchange to improve its condition, and which says it is
by no means sure that the United States will follow through by main-
taining a high level of employment here and a high level of national
income. I think we are at the crossroads now.
Mr. WoRLEY.. Have we given any assurance that that will not be
the case ?
Mr. CuREiE. So far as the administration can give that assurance.
Mr. WoRLEY. Has the British Government given us any assurance
that it is for this program, this Bretton Woods Conference?
Mr. CuREiE. Oh, yes. The official policy of the British Govern-
ment is very definitely along the lines I have outlined.
Mr. WoRLEY. And the other nations?
Mr. CuRRiE. The other nations, too. So we got off to a very favor-
able start. I think we have to follow through.
Mr. AVoRLEY. There is no authority for that now?
Mr. CuRRiE. No. These were not ministers plenipotentiary — ^I
think they are called ; in other words, they cannot bind their govern-
ments. But they were Government officials, mostly finance ministers
and others, and their recommendations will be given great weight.
794 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. WoRLEY. They will probably be followed?
Mr. CuRRiE. Yes, sir; I hope so,
Mr. Reed. Do you foresee, Mr. Ciirrie. any great interference with
exports, such as the Stevenson Act on rubber and controls on nitrates
in Chile, and tea and a number of other materials, where, either by
controlling prices or other controls, they really exerted more control
of their exports than of their imports'? To what extent do you think
that can be done away with by international agreements? Is that
being considered in our reciprocal trade agreements?
Mr. CuRRiE. I am not sure, Mr. Reed, whether it has been considered
in connection with reciprocal trade agreements. There has been a
good deal of internal discussion in the Government of the desirability
of getting away from those restrictive agreements.
In addition, I think the ability of those countries to follow that
practice has been greatly decreased by the growth of synthetics.
Mr. Reed. In the case of Chile, for instance?
Mr. CuRRiE. In the case of nitrates by the production of synthetic
nitrates or ammonia ; and in the case of rubber, by the synthetic rub-
ber plants. So there are fewer countries that have a monopoly of
export goods.
Mr. Arthur. This is on a somewhat different line, Mr. Currie;
but you mentioned, on page 4 of your statement, that under lend-
lease authority —
it will be iwssible to avoid canceling all contracts for vital supplies in the proceas
of manufacture when the war actually ends.
And you state further —
Thi^ will ease the burden of contract termination and minimize the amount of
Government surplus property when the war is over.
Mr. Currie. Yes.
Mr. Arthur. Some of the other procurement agencies, as I un-
derstand it, have developed rather detailed plans for the cancelation
as promptly as possible of production activities as soon as the war
needs are concluded. I believe this committee, in its report, indicated
that it Avas not desirable to continue production for war purposes
merely to preserve a given level of employment.
On what basis does your policy, which differs from that of the other
agencies, have its foundation? What are the reasons why certain of
these contracts for production should be continued while others should
be canceled?
Mr. Currie. Perhaps, Mr. Arthur, I should have underlined the
words "on credit" here. Section 3 (c) of the Lend-Lease Act gives
us the possibility of completing the delivery of certain types of goods
after the President has declared the war at an end. Lend-lease, as
such, would end with the termination of the war, with the finding
of the President, or the expiration of the act, but it is possible for
us, in the case of things which have a peacetime utility, to make a
special agreement with the lend-lease countries whereby they would
say that they would like us to continue the manufacture of this
particular thing, for which they will pay us full value over a period
of years.
Mr. Arthur. In other words, in addition to your, power to make
expenditures for purposes which are directly war purposes, you are
POST-WAR ECONOMIC POLICY AND PLANNING 795
permitted to make loans for purposes that may not be required for
the prosecution of the war.
Mr. CuRRiE. No; no. All these things must be in connection with
the prosecution of the war, but many types of industrial goods may
be desirable for the prosecution of the war and yet have a useful
peacetime function : and it would be only in those cases that we could
conceivabl}' make arrangement with a country whereby they would
undertake to take those goods off our hands at a given price, to be
paid over a period of years.
Mr. Arthur. In a sense, you can be more liberal in determining
the surplus nature of these goods, even after the war may have been
won, and therefore we cannot conceivably tie it up with the prosecu-
tion of the war.
Mr. CuRRiE. Yes; because this 3 (c) section of the Lend-Lease
Act does permit you to cany on contracts made before the termina-
tion of the act for a period of 3 years after termination of the act.
You can see that it would be very much to our national interest, say,
to complete a mobile jDower plant which you may have half or three-
quarters constructed at the time of the termination of the war —
that to cancel that contract would be a net loss to everybody. If we
can dispose of that at its total cost and get paid over a period of
3'ears, it is very much to our interest to do so, and it may be to the
interest of the borrowing country, because, although it was originally
requisitioned for war use, it has a useful peacetime function too.
Mr. Arthur. In other words, it will tend to ease over some of the
transitional problems by providing useful employment which, by
the nature of the circumstances, although initiated for war, may be
now classified as a peacetime enterprise?
Mr. CuRRiE. That is right; and, to that extent, to the extent to
which this could be done, it would reduce the magnitude of our post-
war problem, of our cut-back and reconversion problem. Actually,
we have not concluded au}^ such agreements j^et, but we have been
exploring them.
Mr. Arthur. To turn to another problem of the committee not
directly related to foreign trade and shipping, do you have plans
developed for the orderly termination of contracts with the end of
hostilities in Germany and in Japan?
Mr. CuRRiE. Well, that is not our operating resjDonsibility.
Mr. Arthur. The commitment is a commitment in your
Mr. CiRRiE. We don't actually place contracts in the F. E. A.; we
ap])rove requisitioning.
Mr. Arthur. Once approved, they are free to go ahead, then, on
the basis of your approval. You do take steps to withdraw that
approval at the termination of hostilities?
Mr. CuRRiE. Yes ; on the goods that would be going under the lend-
lease program to foreign countries, we do have an interest and a
voice in deciding how much shall go, and we can cut off the shipment
of an}' goods at any time to any country ; but the actual handling of
that here, what is to be done to a particular contract, whether it is to
be canceled, we do not handle that.
Mr. Arthur. You are proceeding, then, and you have people in the
F. E. A. who are looking over and reviewing those commitments
Mr. Currie. Constantly.
99579 — 45 — pt. 4 13
793 POST-WAR ECONOMIC POLICY AND PLANNING
Mv. Arthur. With the idea of cutting them off when the time is
appropriate ?
Mr. CuRRiE. Yes; and that is a continuing thing. There is an ex-
amination all the time of the requisitions being submitted under lend-
lease, the flow of goods under lend-lease, and the diversions from one
country to another that take place in connection with the changing
needs of the war.
The primary responsibility on the military items is taken by the
services. Our major responsibility is for the nonmilitary items.
Mr. WoRLEY. On page 17 of your statement, Mr. Currie, subsection
8, Orderly Liquidation of Surplus Property, you suggest that —
particular care will have to be taken to assure that the disposal abroad of
surplus property will interfere to the least possible extent with the export of
newly manufactured American products.
Mr. Currie. Yes.
Mr. WoRLEY. Do we have any machinery abroad now which might
compete with American machinery?
Mr. CuERiE. Yes; very large amounts. We have engineering sup-
plies of all^ sorts, tractors, road-building machinery, bulldozers, that
whole range of material.
Mr. WoRLEY. I though you meant manufacturing machinery.
Mr. Currie. We also have furnished various countries under lend-
lease varying amounts of machine tools, to which we retain title, that
will have to be disposed of after their lend-lease use has terminated.
Mr. WoRLEY. That is a rather knotty problem that will have to be
disposed of. Why is it desirable to dispose of it without interfering
with production back here?
Mr. Currie. Because, I think, we must consider employment at
home, as well as the collection of dollars from abroad. It is conceiv-
able in certain cases that we might flood the market for years with
American goods being sold abroad, which might cause a great deal of
unemplojnnent and cause our exporters to lose their organizations or
foothold in that market, and I don't think it would be to our national
interest to push surplus goods too much at the expense of our new
production.
As you say, it is a difficult problem and there will have to be some
interference. Insofar as we can place the goods in countries which
would not otherwise take new goods, because of their economic condi-
tion, or in connection with relief and rehabilitation activities, I think
it would be to our interest to do so.
Mr. Worley. Does your department handle that, will it handle it,
the disj^osal of those commodities?
Mr. Currie. Yes; abroad.
Mr. WoRLEY. Can you give us any idea of your present plan of
disposal?
Mr. Currie. The policies are being laid down under the new act by
the three-man board. We are only an operating agency in that case.
There are six operating agencies, the Treasury, the Maritime Com-
mission, the War Food Administration, the War Shipping Adminis-
tration, the R. F. C, and the Foreign Economic Administration.
The board will determine the policies to be followed. I don't like to
antcipate the policies they will adopt. I just express the hope that the
policies they adopt will not interfere with our export trade.
POST-WAR ECONOMIC POLICY AND PLANNING 797
Mr. "WoRLEY. Are yon in position to give us any suggestions as to
how that ought to be done ?
Mr. CuRRiE. One thing that ought to be explored is the possibility
of using as many of these goods as possible for relief purposes where
they can be sold, but not sold in places which would be markets for
our new goods.
For instance, there will be many surplus goods left in Italy. It
would seem to be to our national interest to dispose of them on the spot
to the Italian people at as good terms as can be gotten for them rather
than bring them home or dispose of them in other markets.
Mr. WcRLEY. Our national interest, do you mean by that the finan-
cial position the Government would be in or the manufacturers of
those products ?
Mr. CuRRiE. I think you have various elements. I shouldn't think
you would take any single criterion in disposing of foreign goods.
You can't say that we will consider nothing but the highest net return
to the United States Government. I think that would be unfortunate.
If you took that as the criterion, you would have to balance that
against other considerations such as the effect on domestic employ-
ment and our national income.
It may not be to our interest to dispose of all these goods very
quickly, if, in doing so, we create a great deal of unemployment — the
closing down of our industries. Perhaps we will need a more orderly
liquidation, working it cut over a period of years.
Mr, WoRLEY. You are exploring tlie proposition now of disposing of
these to countries where otherwise they would have no markets?
Mr. CuRRiE. Yes ; and that is quite a proposition.
Mr. WoRLEY. There would be quite a competitive spirit between
some of the countries, some who could use them and some who want
them but can't buy them ?
i\lr. CuRRiE, Yes, It is conceivable you might work out an agree-
ment with a country to take a certain large block of our surplus equip-
ment, provided, at the same time, it took a certain amount of new pro-
duction, and in that way we wouldn't interfere with production.
There are various possibilities,
Mr, WoRLEY. About how much is the value of the surplus property
abroad ?
Mr. CuRRiE, We have no idea. We know it is very large in France,
Italy, north Africa, and various places in the Pacific.
Mr. WcRLEY, You don't think at the present time that it would be
desirable to bring those goods back over here ?
IVIr. CuRRiE, At the present time
Mr, WoRLEY. I don't mean at the present time; I mean after the
conclusion of hostilities.
Mr. CuERiE. After the conclusion of hostilities I would think it
would be rather a rare case where it would be worth our while to bring
those goods home rather than dispose of them abroad.
Mr. WoRLEY. Do you know whether we returned any after the last
war?
Mr. CuRRiE. Most of the supplies in France were disposed of to the
French Government by the armed services at the time. Some did get
back as reimports.
]Mr. WoRLEY. You mean they sold them back to us ?
Mr. CuRRiE. That is right.
798 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. WoRLEY. Did we make any money out of that?
Mv. CURRIE. No.
Mr. WoRLET. Has there been any provision made to prevent the
return of goods back here?
Mr, CuRRiE. I don't remember whether that provision was incor-
porated in the Surplus War Property Act.
Mr. Davidson. 1 think that discretion was given to the Surplus War
Property Board to prohibit the reentry of imports which would be
detrimental. I would have to check that with the law, but I believe
that is the fact.
Mr. CuRRiE. That is my impression.
Mr. Arthur. On page 16 you say :
The agreement between the United States and the United Kiugdcmi of February
23, 1942, states that : "In the final determination of the benefits to be provided
to the United States of America by tlie Government of the United Kingdom in
return for aid furnished under the act of Congress of March 11, 1941, the terms
and conditions thereof sliall be sucli as not to burden commerce bPtween tlie two
countries, but to promote mutually advantageous economic relations."
Are those terms implemented in the advances made under lend-lease
in more specific phraseology than that contained in this quotation?
Mr. CuRRiE. No. This particular section, which occurred in the
master agreement with the United Kingdom, has been incorporated in
lend-lease agreements with other countries, but there has been yet no
final settlement made of any lend-lease agreement.
Mr. Arthur. The whole settlement is no more definite then ?
Mr. Davidson. I think it should be pointed out that we have ditt'ereiit
types of agreements with dilferent countries.
For example, we have a special agreement with the French Com-
mittee of National Liberation which provides that they shall pay for
all civilian supplies that we provide to them. So, in that sense, we
have made a final agreement there.
We have special agreements with the countries of Latin America
wherein provision is made for part payment, according to certain
specified terms.
It is true that, with respect to the major lend-lease agreements with
Russia and with the United Kingdom, they have not been fully imple-
mented in the sense that there have not been further special agree-
ments. Even with those countries, however, we have made fui'ther
agreements which would look toward the final settlement, such as
the reciprocal-aid agreements we have made with Australia, Great
Britain, and other countries, and it is specified both in the nuister
agreement and in these reciprocal-aid agreements, that the reciprocal
aid furnished shall be taken into consideration at the time of the settle-
ment of the lend-lease account.
So that in that way certain phases of the lend-lease settlement have
already been agreed to.
Mr. CuRRiE. I think it is true, to answer Mr. Arthur, that as yet
there has been no attempt to implement this particular provision of
article VII.
Mr. Arthur. I am trying to get as clear an iniderstanding for the
committee as possible of the value to this country in putting its poli-
cies into operation of the obligations we have from other nations to
which we have granted lend-lease aid.
POST-WAR ECONOMIC POLICY AND PLANNING 799
How, specifically, would we undertake to use the lend-lease obliga-
tions in securing agi'eements with us on some reciprocal-trade agree-
ment after the war or some other international arrangement, such as
the agreement not to engage in empire preference or bilateral-trade
arrangements? Is the machinery set up at least to approach those
problems in a fairly definite way, or does this stand as a statement of
good intentions, without anything back of it to make it a forceful bar-
gaining item?
Mr. CuRRiE. I think that the negotiation of a reciprocal-trade agree-
ment would be conducted outside the framework of a lend-lease agree-
ment. I am almost certain of that, but that would really be the
res})onsibility of tlie State Department, not mine.
Mr. Arthur. This statement certainly indicates a spirit of coopera-
tion along those lines, or, at least, a cooperative frame of mind. It
does not go beyond that, however, as far as I can read the quotation.
Mr. CuRRiE. I believe that the State Department has been doing a
good deal of thinking on the ways and means by which the master
agreements may be implemented, but I would hesitate to speak for
them. I think you had better ask them.
Mr. WoRLEY. On page 17, Mr. Currie, under "Financing Exports,"
is this the main point of your thesis : "They can sell goods and services
to us or we can extend credit to them?" Am I correct in assuming
that, in order to build up our export markets we will have to take one
of those two steps ?
Mr. Currie. Yes; I think, apart from the expenditure of such bal-
ances as they have here at the moment, these will be the only two ways.
Mr. WoRLEY. Then, without extending credit to them, we will still
have to exchange goods and services in order to increase our foreign
trade.
Mr. Currie. That is right.
Mr. Worley. No matter what method the Government pursues in
financing, in lending money in order to encourage our foreign trade,
we will always have to import a considerable amount in goods or
services.
Mr. Currie. That is right.
Mr. WoRLEY. If there is no objection, the committee will recess until
2 o'clock.
(Whereupon, at 12 noon, a recess was taken until 2 p. m. of the same
day. )
afterkoon session
(The committee reconvened at 2 p. m., upon the expiration of the
recess.)
Mr. Worley. The committee will come to order. At the conclu-
sion of the hearing this morning, Mr. Currie was on the stand, and
we are glad to welcome you again this afternoon, Mr. Currie.
During the course of the testimony this morning the committee
did not fully develop the exact scope of the F. E. A., its origin, or
to some degree the scope of its functions, duties, and powers. We
would like, Mr. Currie, to devote a little time this afternoon to a
brief outline of the functions of F. E. A.
The first question I would like to ask is, When and how did the
F. E. A. originate?
800 POST-WAR ECONOMIC POLICY AND PLANNING
STATEMENT OF LAUCHLIN CUERIE— Resumed
Mr. CuRRiE. Mr. Chairman, F. E. A. was created by Executive
Order 9380, on September 25, 19-1:3. This order provided for the
consolidation of various Government agencies which were engaged
at that time in activities relating to foreign economic affairs. The
agencies consolidated included the Office of Economic AVarfare, the
Office of Lend-Lease Administration, and the Office of Foreign Relief
and Rehabilitation. Among tlie functions of the Office of Economic
Warfare transferred to F. E. A., were the activities of the former
Board of Economic Warfare, the Export-Import Bank, and the for-
eign activities of the Reconstruction Finance Corporation and its
subsidiaries, such as the U. S. Commercial Company. In addition,
F. E. A. was given responsibility for certain foreign-food programs,
formerly administered by the Commodity Credit Corporation, and the
foreign economic operations of the Office of Foreign Economic Co-
ordination. All in all, the foreign economic functions and staffs,
scattered formerly through 14 different agencies, Avere transferred to
F.E.A.
The basic purpose of the order was. to centralize in one agency all
activities relating to foreign economic operations of the United States
Government. These activities, by the terms of the order, are to be
carried out in conformity with the foreign policy of the United States
as defined by the Secretary of State.
Mr. WoRLEY. You are concerned only with economic operations
and not at all with economic policy ?
Mr. CuRRiE. We are not concerned with foreign policy ; no.
Later, I should add, it was proposed under Executive order, the
order that set up the Surplus Property Administration, that we be
designated as the agency to dispose of sui-plus property abroad, that
obviously being an economic operation.
Mr. WoRLET. Could-you give us some idea of its functions, duties,
and powers ? I believe you have covered the origm pretty well. Your
poAvers are derived from an Executive order ?
Mr. CuRRiE. Yes. Running over them briefly, we license all ex-
ports under the export-control statute. We administer the Lend-Lease
Act. We procure strategic commodities abroad in connection with the
war effort. We have certain responsibilities in connection with relief
and rehabilitation in liberated areas.
The President has designated us pursuant to an act of Congress
as the agency to handle funds for U. N. R. R. A.
We are engaged in economic warfare in all its aspects— blockade,
preclusive buying. We have worked closely with the Army in such
work as the selection of bomb targets, the assessment of bomb dam-
age, and appraising the economic strength of the enemy.
Of course, there is the activity of the Export-Import Bank, of
which Mr. Crowley is chairman of the board of trustees. He is also
President of the Petroleum Reserve Corporation, and acts as the
Chairman of the Rubber Development Corporation.
^ Recently we have been servicing the Army in supplying certain
civilian personnel for the Allied Control Commission in Italy, and
we expect to do some of that work in Germany, too, and perhaps
later in Japan.
^
POST-WAR ECONOMIC POLICY AND PLANNING 801
Mr. WoRLEY. We hope so. Now, what is the relation of the F. E. A.
at the present time to Lencl-Lease and U. N. R. R. A. ?
Mr. CuRRiE. Well, our activities in the field of exports have taken
two forms; one, restrictive, and one expansive. On the one hand,
we have undertaken some responsibility for acting as claimant agency
for the civilian economies of other countries.
Mr. WoRLEY. What do you mean by "claimant agency" ?
Mr. CuERiE. In assisting them to secure the minimum essential
supplies necessary for the conduct of their civilian economies during
the war. We appear as what we call a claimant agency before the
W. P. B. Requirements Committee. We act in behalf of foreign coun-
tries in presenting their needs for scarce materials, materials under
allocation in this country.
In many cases a block allocation is made for the foreign field, and
we, in accordance with reports from our missions abroad, try to
distribute them where they are most urgently needed.
]\Ir. WoRLEY. For example, would we be interested in supplying
some country a piece of machinery by which it could produce some
strategic war material?
jNIr. CuRRiE. Yes; exactly that type of thing. On the other hand,
if it is a scarce material and we are satisfied that the country does
not propose to use it in any way relating to the war effort, or for
maintenance of health and minimum standards, then we deny export
license.
Mr. WoRLEY. That is maintenance of health in foreign countries.
Of course, they pay for these commodities.
]\Ir. CuRRiE. Yes.
Mr. WoRLEY. Unless it is to our advantage to let them have them
under lend-lease.
Mr. Ci RRiE. This is a cash basis in all this field of work.
Mr. WoRLEY. You just act as an agent to help them get these com-
modities ?
Mr. CuRRiE. That is right. In the other aspect of our exports,
of course, we act as a claimant agency in another sense in lend-lease
countries for lend-lease supplies.
Mr. WoRLEY. Could you give us an instance of that?
Mr. CuRRiE. Well, our particular responsibility, as I mentioned this
morning, is in the field of nonmilitary lend-lease supplies. We screen
the requirements of Britain, Russia, China, and other Allies for
articles which are of a nonmilitary nature and yet which contribute
to the total war effort in those countries.
Mr. WoRLEY. You say you screen them ?
Mr. CuRRiE. Yes ; we screen them, or review their requirements.
Mr. WoRLEY. That is to see whether they really need them ?
Mr. CuRRiE. That is right.
Mr. WoRLEY. The second question is with regard to imports.
Mr. CuRRiE. On imports our activities have consisted largely in
assisting private importers to bring in goods which are necessary for
our total war effort, and in certain cases actually procuring them
ourselves, and in some cases going out and developing sources of
supply.
Mr. WoRLEY. We have done that to a considerable degree in Latin
America.
802 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. CuRRiE. Particularly in Latin America, but it is a world-wide
operation. We are the largest buyers in the world of glass eyes, for
instance, and we are the largest buyers in the world of pig's bristles.
Mr. WoRLEY. Do you mean that we cannot make those glass eyes
here, or what is the advantage ?
Mr. CuRRiE. We need them ; there is a great demand for them here.
We operate in this field almost exclusively under directives from the
W. P. B. They tell us what they need and in what quantities, and j
it is up to us to go out and get them. Of course, our procurement of
glass eyes is not a large operation, but it is an interesting one.
Mr. WoRLEY. I thought that by using that as an illustration we |
might get a good idea of the scope of your activities. I
Mr. CuRRiE. The bulk of the dollar value is in minerals and metals, j
Mr. WoRLEY. Yes; that was my understanding. Do you call that
preclusive buying?
Mr. CuRRiE. JSIo; that is buying of strategic materials.
Mr. WoREEY. That is, materials that we need ourselves rather than
to deprive the enemy of its source of supply.
Mr. CuRRiE. We have engaged extensively in wliat we call preclusive -
buying or preemptive buying — that is, bujdng things we don't need
very much, but the enemy does and we want to deprive him of it. We
have engaged in preclusive buying of tungsten in Spain extensively, j
of chrome in Turkey, and ball bearings in Sweden.
Mr. WoRLEY. Do you have any idea how much money we have
invested in that sort of buying?
Mr. CuRRiE. We have the information, but I haven't got it at my
finger tips.
Mr. WoRLEY. Would you consider that as a part of your surplus
j^roperty ? ,
Mr. CuRRiE. Yes; in some cases it would be surplus, but in many
cases there are war uses for these commodities.
Mr. WoRLEY. Over here in this country you have nothing to do with
it, I understand.
Mr. CuRRiE. That may or may not be. At the time of the termi-
nation of the war and the cancelation of contracts we may be engaged
in the purchase and shipment of certain commodities which will then
become surplus to our needs. We do not anticipate that that will be
a very large volume.
Mr. Reed. Is there any considerable extent of leaving the stocks at
the source, in your preclusive or preemptive buying, probably with
the intention never of taking them up actually physically, but selling
them back and disposing of them, or are they actually bought outright
for shipment or getting title to them in order to keep the enemy from
getting to them? If we actually don't need them, what do we do —
hold them there for disposal later?
Mr. CuRRiE. Most of the things are things we could use. They are
not awfiilly necessary, but we can use them. We have brought back
the bulk of our preclusive buying. There may be some stock piles still
in Spain, but I am not sure of tliat.
Mr. WoRLEY. Tliat Avas a mighty strong weapon — just as powerful
as any weapon we had for actual warfare.
According to present plans, what part will F. E. A. take in these
matters we have just gone over between the end of the European war
and the end of the war with Japan ?
POST-WAR ECONOMIC POLICY AND PLANNING 803
Mr, CuRRiE. At the present time we anticipate that with the con-
chision of the European war a great many commodities will pass
from the scarce to the abundant category and will be taken off from
W. P. B. allocation. We hope, as far as possible, to remove such
commodities through individual export license requirements when that
happens. We will put them under what we call the general license.
Now, it may not prove possible in all cases to do that because there
will still be a stringency of shipping to certain areas. We will have
to work out with other agencies some means of assuring, in the case
of scarce shipping, that the most essential commodities go to those
areas. Whether that will be done through export license or other
wa3'5 we are not quite sure, but our hope is to relax on export control
as rapidly as W. P. B. relaxes on material allocations.
We also anticipate that with the initial cut-back after the collapse
of Germany there will also result a cut-back in our requirements for
strategic materials, which will lead to a considerable curtailment of
our buying operations abroad.
Mr. 'WoRLF.Y. You antici])ate no new operations in strategic buying
to carry out the war with Japan?
Mr. CuRKiE. No;- but rather a continuation of certain programs. I
can't think of any new programs to be initiated.
]Mr. WoRLEY. What are your present plans for operation after the
war Avith Japan i
Mr. CuRRiE. I should anticipate at that time that the great bulk of
export coxitrol work will have passed, that is the export licensing.
There may still be a problem in connection with the maintenance of
the blacklist against certain unfriendly neutral firms which the State
Department has indicated will remain for a period after the War.
That may require some implementation. Whether it will be done
through export license, or through other devices, I am not sure. That
is the only case I could see where export licensing would continue after
the defeat of Japan.
Mr. WoRLEY. You say that it would continue ?
Mr. CuRRiE. It might conceivably. I am not sure it would, even
there.
Mr. WoRLEY. Ordinarily in peacetime the Commerce Department
handles that, does it not?
Mr. CuRRiE. No. In peacetime we have never had export licensing
and export controls. This is a new wartime activity.
Mr. WoRLEY. AVe never had export or import licensing?
Mr. CuRRiE. No; this was a wartime phenomenon.
IMr. WoRLEY. Have any of the other countries had export and im-
port licensing?
Mr. CuRRiE. Oh, yes. I cannot give you a list, but I know a number
of them had.
Mr. WoRLEY. That does not work exactly to our advantage, does it?
Mr. CuRRiE, Through the device of the lend-lease and the com-
bined boards, we have brought about a pooling of scarce materials in
most of the United Nations for the common end of the prosecution of
the war, so they have been handled in concert and after consultation
through the device of the combined boards, the Combined Raw Mate-
rials Board, the Combined Production and Resources Board, and the
i Combined Food Board.
804 POST-WAR ECONOMIC POLICY AND PLANNING |
Mr. WoELEY. But ill peacetime those other countries have the same
restrictions generally?
]Mr. CuRRiE. No; 1 think the export controls were inaugurated in
practically all countries ^Yitll the war, except in the case of Germany,
of course.
Then also, with the defeat of Japan I should suspect that prac-
tically all our economic warfare work will cease. There will be no
more selection of bomb targets, appraising of enemy strength, no more
blockade, and no preclusive buying. There may be some continuation
of the work in connection with the "black list," but apart from that
the economic warfare work will pass.
Mr. WoRLEY. This is rather a general question, but to what extent,
if any, will the present or future activities of F. E. A. promote our f
post-war foreign trade?
Mr. CuRRiE. Well, so far as the present activities are concerned, I
feel that a byproduct of the lend-lease program will be the promo-
tion of our post-v7ar foreign trade. A large part of the world will
have become accustomed to the use of American equipment and meth-
ods. I mentioned this morning the fact that we have trained foreign |
technicians in this coiintrj^ in the use of our products under the lend- :
lease program. We have established foreign missions throughout the
world. We have built up a staff now of some thousand people who
have acquired a good deal of familiarity with particular problems of ;'
particular countries, economic problems, and either with the Govern- '.
meiit or private business after the war that should be a valuable
national asset — that knowledge, and that training.
Mr. WoRLEY. We are colonizing to some extent.
]Mr. CuRRiE. That is right.
Mr. Eeed. To what extent do those goods which we send abroad,
consumer goods, foods, and soft goods, and even industrial goods for
that matter, bear the trade marks or identification of the producers
over here so that they would reap benefits from what you might call
sampling ?
Mr. CuRRiE. Mr. Davidson can answer that.
JMr. Davidson. Their identification as United States products is
assured in two ways : All lend-lease items that are capable of being
labelled are labelled as having their origin in the United States, and
in addition the manufacturer or processer of the goods is free to indi-
cate that it is a machine tool, for example, made by a particular manu-
facturer.
Of course, the Chevrolet truck or Ford truck, or whatever it is, would
bear its own trade name. We have made every effort to encourage
and promote the identification of all articles shipped under lend-lease
as of United States origin.
Mr. Reed. And showing the identity of the producer? In canned
goods, for instance, would the identity of the producer be on them?
Mr. Davidson, Yes, sir. I have some actual photographs which we
could show you of various products with their labels and with the
trade names of makers.
Mr. Reed. As a byproduct, there is no question about it — it has been
probably the biggest samj^ling campaign carried out in the world.
Mr. CuRRiE. That is right.
Mr. WoKLEY. Do you think they will like our samples ?
POST-WAR ECONOMIC POLICY AND PLANNING 805
Mr. Davidson. I think our experience shows they like our samples
veiy nuich.
iSIr. WoRLET. Do 3'ou think they will be willing to pay for them after
the war ?
Mr. Davidson. I think that in the post-war period they will be
anxious to buy goods in this market, and the problems that we have
been wrestlino- with have been those of working out the financial ques-
tions involved. The need will be there, and the desire will be there.
Mr. WoRLEY. The need and desire present, all they need is the pur-
chasing power.
^Ir. CuRiiiE. That is right. I don't think I answered the second
part of your cjuestion, Mr. Chairman, as to our future activities. That
is a little bit more difficult for me to answer, because I. am not sure
what the activities will be in the future.
In the field of surplus disposal, for instance, we feel that that is
an obvious opportunity to promote our post-war foreign trade. As
I indicated this morning, it is a two-edged weapon which may inter-
fere with new trade. On the other hand, in many cases it could very
well be the seed corn to encourage the later buying of American
products. There may be certain areas which can afford to get com-
modities which would not be in the market for new goods. The repeat
orders would com'e back here after they become used to American
products.
jMr. WoRLEY. We might provide them with parts.
Mr. CuERiE. That is right.
Mr. Da\t:dsox. I might just point out, Mr. Chairman, that that
will be a veiy real possibility in terms of developing our foreign trade.
Items which have been furnished under lend-lease, and which they
nni}^ retain under settlement arrangements, will require maintenance
and upkeep and repair parts, which will in many cases be solely ob-
tainable from the United States,
jMr. WoRi.EY. Will F. E. A. have anything to do with the rehabilita-
tion of devastated or economically undeveloped areas? Suppose we
restrict that to devastated areas.
Mr. CrRRiE, Yes ; we have various responsibilities in that field. We
are establisliing economic missions in all the liberated areas. Those
are eligible for lend-lease. We work with them on their requirements.
We work closely in connection with U. N. R. R. A. in connection with
its relief and rehabilitation activities.
Mr. WcRLEY. Ma}^ I ask this question : How does lend-lease compare
with U. N. R. R. A.'? I was under the impression that U. N. R. R. A.
was to replace lend-lease in a sense of providing assistance to these
devastated countries. Am I correct in that?
Mr. CuERiE. Yes, its field is primarily restricted to relief, whereas
lend-lease is restricted to the prosecution of the war.
We do not supervise U. N. R. R. A., but we are custodians of its
American contributions. We spend money for it at its request.
Mr. WcRLEY. But you participate in it?
Mr. CuRRiE. That is right. The American alternate on the U. N.
R. R. A. council is an F. E. A. man, for instance. Our supply
people work closely with the supply people of U. N. R. R. A. in making
up their programs.
Mr. WoRLEY. I wanted to clear that up in my own mind.
806 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. CuKRiE. In the case of Italy, the ranking American member of
the Allied Control Commission, which yesterday became the Allied
Commission, is a joint representative of the State Department and the
F, E. A. He has a number of civilian employees, as well as military,
being supplied by F. E. A., although in his capacity as president of the
Economic Section of the Allied Commission he, of course, works under
the direction of the Combined Chiefs of Staff,
Mr. WoRLEY. We will forget about the economically undeveloped
areas. You have nothing to do with rehabilitation.
Mr. CuRRiE. We are a point of contact, I may say, in the more
ecnomically undeveloped areas. We are a point of contact with their
Government officials and businessmen in the development of their
post-war plans for industrialization and matters of that sort. They
come to us initially in order to see whether they can get export licenses
for lieavy capital equipment at this time.
Mr. WoRLEY. Does that come under U. N. R. R. A. ?
Mr. CuRRiE. No.
Mr. WoRLEY. What does tliat come under?
Mr. CuRRiE. That is on a cash basis. It comes to us initially now
because we give export licenses and act as claimant for foreign coun-
tries. As a byproduct of this, there has been a good deal of discussion
between the technicians of our country and others >of plans for future -
development. In that way we have acquired a good deal of informa-
tion on the thinking and the requirements of China, Brazil, and many
other countries.
From time to time we have sent technical missions to these countries
to help and advise them on their own planning. That, I think, in
time will lead to exports from this country.
Mr. WoRLEY. Are those missions trying to overhaul the economies
of those countries, or are they just maJdng suggestions as to how they
might produce the things they want to sell to us?
Mr. CuRRiE. The orientation of the missions has been primarily to
aid in mobilizing those countries for the war. There was one mission
to India, the Grady mission, which made a lot of suggestions as to
things which could be produced in India and save shipping space.
There was the Cooke mission to Brazil which did the same thing.
Mr. WoRLEY. Do these missions seem to be generally successful ?
Mr. CuRRiE. They are greatly welcomed by the countries. They go
only at the request of the country, and they have been most apprecia-
tive of their suggestions and help. Unfoitunately, we have not been
able in some cases to implement their suggestions because of the
shortage of capital equipment.
I may say that at the present moment some of our people attached
to the Allied Commission in Italy are very busy assisting the Italian
Government in canvassing their needs for a minimum rehabilitation
Ijrogram in Italy to get the economic machinery started again.
Mr. WoRLEY. Do they make recommendations?
Mr. CuRRiE. Yes; the requests will come in from the Italian Gov-
ernment and are approved by the Allied Commission. In addition,
when the time comes when the Italians have some dollars themselves
to spend, some of the work will have been done ; some of the obvious
needs will have been canvassed to place orders here.
POST-WAR ECONOMIC POLICY AND PLANNING 807
Mr. Reed. The commitments for helping the devastated areas and
the economically undeveloped areas won't start, of course, immedi-
ately after the war?
Mr. CuRRiE. No.
Mr, Reed. I presume there is no way of knowing whether F. E. A.
or some other organization will carry that on, but undoubtedly the
policy of the Government will be to continue that assistance for some
time until the areas are economically back on their feet.
Mr, CuRRiE, Yes; I should think so,
Mr, WoRLEY, We covered this question reasonably well this morn-
ing, but could you give us a brief statement as to what are the major
difficulties you foresee in expanding our foreign trade, exports and
imports, over what they were prior to the war ?
Mr, CuRRiE. Well, Mr. Chairman, that was pretty well covered
in my statement this morning,
Mr. WcRLEY. Could you give us about a paragraph ?
Mr. CuRRiE. The difficulties center around the impoverishment of
so many of our potential customers and around our willingness to
accept what they have to sell us. That is putting it in a nutshell.
Mr. WoRLET. Therefore, in order to increase our exports we are
going to have to increase our imports. Does that follow — either the
goods or services ?
Mr. CuREiE. That is right.
Mr. Wop.LEY. Or else we can extend credit to those nations, and
does it then follow that we would thereby reduce our imports?
Mr. CuRRiE, Not reduce our imports, because to the extent to which
we build up our exports through assistance and financing, we will also
bring about a multiplied effect on increasing our own domestic em-
ployment, income, and spending, and thereby buy more abroad. So
the very act of making foreign loans will in turn help to encourage
and increase the volume of imports.
In many cases we will buy more, anyway, because many of our
imports in the past have been a function not so much of price here
and abroad, but of domestic activity here at home. For instance,
natural rubber. Our importations of natural rubber were far more a
function of the total number of motor cars we produced in this coun-
try than they were the price of rubber.
Mr. WoRLET. And always, Mr. Currie, hasn't it been true that in
peacetime in order to increase our exports we necessarily had to in-
crease our imports. Is that a fair statement?
Mr. CuRRiE, Yes; I should say so, in the absence of other sources
of Ijuying power.
Mr. AVoRLEY. Is that not true generally and broadly speaking ?
^Ir. CuRRiE. For the long rim; yes. For a shorter period, no.
Mr. WoRLEY. I mean the broad period, because other nations won't
trade unless it is mutually profitable, and we have to recognize that>
Mr. CuRRiE. That is right. For a short time it is possible for for-
eign nations to spend what dollar balances they now possess, but that
is a very short-run proposition.
Mr. WoRLEY. Then in the plan which you presented to us, the only
new element would be the financing of these countries to increase their
purchasing power so they can buy more.
Mr. CuRRiE. Yes, and that is not very new, I am afraid,
Mr. WoRLEY. No, but we never tried it on a very big scale.
808 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. CuERiE. The other elements of the program, I think, must go
along with that. I would not v.ant to be put in the position of advo-
cating that unless current and parallel action were taken to stabilize
currency, for instance.
Mr. WoRLEY. But you can't simply extend financial aid to carry out
to a successful conclusion the plans you advocate for increasing foreign
trade. There are several links in there that have to be accomplished
before you can hope to have any successful foreign trade: First, what
is the permanency of your peace ? Second, the international exchange
of money; The third is that we will have to import more in order to
export more.
Mr. CuRRiE. That is right.
Mr. WoKLEY. Those are the three things which must be, accom-
plished, and we are going to have to help tlie other countries by pro-
viding the financial ability. We must get money over there so that
they will have a bigger purchasing power.
Mr. Cui;rie. And those other points I mentioned will be helpful and
necessary ; that is, we hope that we will have after the war the establish-
ment of what, from our point of view, will be fair rates of exchange.
Mr. WoRLEY. Well, that is part of it.
Mr. CuRRiE. If other countries sliould take advantage of our posi-
tion and undervalue their money, it would be difficult for our exporters
to have any foreign market.
VCe hope as soon as possible after the war to do away with the system
of blocked and frozen currencies. At tlie present time, for instance,
it would be very difficult for us to loan to India, because all the dollar
proceeds of India's exports go into the sterling pool and are not availa-
ble to spend on our products.
Now, as a peacetime proposition, that migljt be much against our
interests.
Mr. WoRLEY. Your department is concerned with the cartel agree-
ments, is it not?
Mr. CuRRiE. Not directly, no, sir.
Mr. WoRLEY. You go into those to some degree, do you not ? ^
Mr. CuRRiE. The only place where we especially touch them is in our
bu5'ing of strategic commodities.
Mr. WoRLEY. I was going to ask this question : Do you find on the
whole that cartel agreements have been helpful or hurtful to this
country during this time of war?
Mr. CuRRiE. I don't know what our experience has been on that, Mr.
Chairman, I am ashamed to say. My offhand impression would be
that the}^ would be harmful, but I have not checked into it sufficiently.
We are fairly heavy purchasers of industrial diamonds, for instance,
which we do get from cartels, and two or three other items. But I
have not gone into it enough to give you a firm answer.
Mr. WoRLEY. Would you mind providing us with some information,
later on as to your experience with cartels?
Mi\ CuRRiE. I would be very happy to.
(This is marked "Exhibit No. 24" and is found in the appendix on
p. 1202.)
Mr. WoREEY. What suggestions do you have for overcoming any
of these difficulties? You have given us some very good answers.
POST-WAR ECONOMIC POLICY AND PLANNING §09
In your judoment, ^Yhat change in the nature or direction of our
foreign trade can be expected as a resuk, of or after the war is over?
Mr. CuRRiE. I really don't feel competent to answer that question,
]\fr. Chairman. There are just a few obvious things which occur to me
which were suggested by our discussion this morning. I assume that
in certain cases we may become heirs to the German or Japanese
markets.
jMr. WoRr^Y. To a portion of them?
INIr. CuRKiE. Yes. In general the trend in the past, and I suspect
in the future, has been toward those types of products which we have
been peculiarly good at in this country, the thinos that lend them-
-olves to mass production, or things technically superior in perform-
ance and quality to other markets.
I should expect that our great potentialities of our export trade
would be in those directions rather than in the raw materials.
]\Ir. "WoRLEY. There will be no change?
]Mr. CuRRiE. I should not expect any pronounced change in these
long-run trends at all.
^Slr. Eeed. Mr. Currie, there is one thing I wish to ask. Before the
war the tendency was very definitely toward trade flowing more north
and south. Naturally in 1890 and along there the flow was largely
from east to west. Now then, we have gotten to a place where in the
north-south trade for our particular country it has become a problem
of sending ships out lightly loaded and coming back with plenty of
cargo.
For instance, in the South American trade, very often we send
down ships lightly loaded in peacetime for the simple reason that we
are bringing up heavy returning cargoes and are sending high-value
low-bulk manufactured goods down.
Could you tell us anything as to whether that has an appreciable
effect on our ability to operate profitably our merchant marine? Is
that, in your opinion, a big factor in our power of operating a mer-
chant marine?
Mr. CuRuiE. I don't know, Di\ Reed, just how that would work
out. I have a great deal of faith in the potentialities of our South
American market for American exports. Countries like Brazil are on
thfe threshold of vast industrial development.
Mr. Reed. The probabilities are that the demand for goods will
increase, but you still have such high-value low-bulk cargo down
there as compared to the high-bulk, low-value cargo coming back.
The Grace Line steamers often return loaded, but go down with a
light cargo.
"Mr. Currie. I would prefer that you refer that question to Admiral
Land.
Mr. Worley. I think we touched on that question with Admiral
Land, but it seems that some other departments Avere handling that
particular phase of it.
Are you in a position to comment on the extent to which our export-
ers will have to sell to governments rather than to private purchasers?
Mr. Currie. I don't think, Mr. Chairman, that thei-e will l)e very ,
much change in the conditions that prevailed before tlie Avar in that
respect. All trade Avith Russia, of course, will bo carried on Avith the
Russian Government. For the time being, trade with France and
north Africa is beinp; conducted through govei-nmental channels. AVe
810 POST-WAR ECONOMIC POLICY AND PLANNING
have been assured by the Frencli that that is a wartime measure, and
it is due to the necessity of conserving their foreign assets now, and
their inability to introduce at this time a good system of import con-
trols. They have advised us that for the time being they feel that it
is necessary to canalize all purchases in metropolitan France and north
Africa through Government channels.
As I say, we have been assured that that is not contemplated as a
permanent condition. Apart from that, I might also mention China.
Certain purchases and certain sales will continue, I think, to be made
to the Chinese Government. It is almost entirely centralized now
through the Chinese Government agencies. There again we have
been assured that there will be a wide field available for private enter-
prise just as soon as China is reopened.
Mr. WoRLEY. Will that same situation prevail in regard to our own
importing? Will importers have to buy through Government chan-
nels ?
Mr. CuRRiE. Even at the present time they do not in most cases.
One of our corporations, the United States Commercial Corporation,
noAv acts on behalf of American importers and purchasers from north
Africa, for instance, where private trade relations do not exist at
present. j
That may prove to be necessary as a transition device in newly liber-
ated areas, in the case of Italy, for instance, before the regular trade
channels are established. We may have to do so,me of that in con-
nection with the Philippines. It will be a very short, and a transition
device.
Mr. WoRLEY. In general, what will be the stock-pile situation of the
imported materials at the end of the war? Could you give us any
idea as to that?
Mr. CuRRiE. The following information presents the status of the
stock-pile situation of the imported materijUs at the end of the war :
PosT-WAK Stock Piles
Estimates of what raw material stock piles will be left in this Government's
possession at the end of the war with Japan can obviously be made only with
the greatest uncertainty, for they represent the sununation of a wide variety of
demand and supply factors of which few can be predicted with even reasonable
accuracy.
It is, moreover, particularly difficult for the Foreign Economic Administration
to prepare such estimates because although this agency conducts our public
purchase programs abroad, it retains no responsibility over the stock piles
accumulated in this country except to transfer its own imports to them.
FACTORS AFFECTING STOCK-PILE ESTIMATES
The current situation in terms of accumulated stock piles and procurement
commitments is, of course, clearly defined. Government agencies have procured
more than 200 different types of commodities abroad, either to supplement our
own inadequate dome.stic production or to make possible expanded aid to our
allies. Of these, more than 100 are now held in Government stock piles.
In looking ahead, it is reasonable to assume that our foreign procurement j
for military purjwses will tend to decrease ; that the relief and rehabilitation
needs of liberated areas will tend to increase ; that domestic civilian consump-
tion demands will also tend to increase; and that the supply for some types of
foreign produced gocKls may be improved as our armies liberate former sources |
of production. But it is difficult to predict the timing of these developments
and the extent of their irapacts on the United States supply position. All manner ji
of uncertainties are involved. The length of the war against Japan and the [l
POST-WAR ECONOMIC POLICY AND PLANNING 811
shifts in military requirements whii-h will take place during its progress are
uncertain. The speed with which current procurement commitments will be
cut back and the rate at which war-induced restrictions on civilian production
will be relaxed are likewise still undelined. The scale of liberated areas demand
will be determined not only by the state of devastation to be left by the enemy
but also by our willingness to divert supply from our own citizenry and by
the availability of financing mechanisms for effectuating such transfers, neither
of which have yet been fully clarified. Important sources of foodstuffs and
other commodities may become available as our troops advance in the Pacific but
their effects on United States stock piles will depend on the timing of such
liberation and on the extent to which facilities for production remain un-
impaired.
These manifold uncertainties clearly render quantitative estimates impossible,
except such as would be subject to so wide a margin of error as to be worthless.
CONCLUSIONS
It is within the foregoing framework of uncertainties and lack of authorita-
tive responsibility, then, that the following conclusions are liazarded in response
to your conmiittee's request :
1. In the best current judgment of the Foreign Economic Administi-ation
officials, the end of tlie war with .Japan may find tlie United States in possession
of significant stock piles of tlie following commodities of which a sizable propor-
tion has been procured abroad under public purchase : Aluminum, antimony,
asbestos, bauxite, cadmium, chromite, cobalt, copper, cryolite, industrial dia-
monds, graphite, iodine, lead, manganese ore, mercury, mica, molybdenite, opium,
platinum, quartz crystals, quinine derivatives, rosin, shellac, strontium ores,
tantalite, tin, tungsten ore, wool, zinc, and zirconium ore.
It should be noted, however, for the information of the committee that the
War Production Board and the War Food Administration are more fully informed
about domestic Government stock piles than this agency. Moreover, both of
them also play a larger role than the Foreign Economic Administration in
determining the size of United States Government holdings through their
guidance of what shall be procured abroad for import into. this country and
through their control of domestic restrictions both on production and con-
sumption.
2. Most of the Government's stock piles of metals and minerals at the end
of the war with Japan, and mucli of its stock piles of other imported commodi-
ties, may well be absorbed into the strategic stock piles to be established under
section 22 of the Surplus Property Act of 1944 in accordance with the Army and
Navy Munitions Board's definition of United States defense needs. Only the
Board itself, however, can indicate the precise extent of such strategic require-
ments.
3. Of the remaining stock piles of substantially imported comnjodities held by
the Government, it is expectetf that virtually none will be in excess of relatively
immediate business demands witli the possible exception of the lower grades of
mica and quartz crystals and a small supply of bail bearings which were pur-
chased preclusively. Such a wholesale disappearance of war-accumulated stock
piles is particularly likely if di.sposal agencies should approve appropriate down-
ward price adjustments in accordance with peacetime market conditions.'
4. The foodstuffs which have been procured abroad in substantial quantities
for United States consumption have been sugar and molasses, fats and oils,
coffee, tea, and cocoa, and such miscellaneous commodities as tapioca flour,
cottonseed meal, and poultry, and turkeys. None of these is expected to be
present in sizable stock piles at the end of the war. In fact, it has been difficult
in respect to most of them to procure enough to meet current demand.
Mr. WoRLEY. This very substantially covers the information which
I requested.
Mr. CuRKiE. The W. P. B. will be chiefly concerned with it. The
only two obvious ones that occur to me at the moment, of course, are
wool and copper, but I dare say there will be others.
The most serious stock pile which will confront us is wool. I have
seen estimates that the world will have a 4-year supply of wool on hand.
99579 — 45 — pt. 4 14
812 POST-WAR ECONOMIC POLICY AND PLANNING
]Mr. WoKLEY. And if we don't bring in some from Australia, the
great wool-producing country, we cannot increase that country's pur-
chasing power?
Mr. CuEKiE, That is right.
jNlr. WoRLEY. If we cannot increase their purchasing power, that
Avill lessen our prospects for prosperity over here.
Mr. CuERiE. I believe the tariff people have made a special study
on wool. I believe you are having them here tomorrow.
Mr. ^I'oRLEY. What comments or suggestions can you make as to
how we can develop our foreign trade to make the maximum contribu-
tion toward full employment of our labor force and facilities? We
went into that question thoroughly, I believe.
Do you have any further comments or suggestions or infomiation
Avhich you think would be helpful to this committee, and in turn help-
ful to Congress, in trying to promote our prosperity after the war is
over ?
Mr. CuRRiE. I think that I incorporated all my suggestions in my
statement this morning, Mr. Chairman.
JMr. "WoELEY", I would like to say that we have thoroughly enjoyed
and appreciated both your cooperation, your personal cooperation and
that of your staff, and the information you have given us. Could
5'OU give us any idea as to how far you think the recommendations
you have made here today might be carried out in other departments
of the Government?
As I understand, you said several of the points you presented would
be utilized bj^ other departments. For example, the Bretton Woods
Conference.
Mr. CuRRiE. Yes. This statement does not purport to be a statement
of the whole Administration's ]3rogram for foreign trade. On the
other hand, I have no reason to believe that any of the points I men-
tioned would be inconsistent with the attitude of the other Government
departments. The peace organization is obviously a part of our pro-
gram. Full employment is. The financing of exports would be assisted
by the International Bank for Development and Reconstruction pro-
gi'am. Stable exchange rates have been one of the primary purposes
of (he Bretton Woods agreement. •
I feel that my views on the necessity of establishing fair exchange
rates and freeing frozen curriencies after the war would be endorsed
by the Treasury Department. Removal of import and export controls
is a matter within our province and upon which we speak with more
authority. The lowering of tariff barriers and trade barriers gen-
erally has been enunciated many times by Secretary Hull and has been
incorporated in the lend-lease agreement.
Mr. WoRLEY. He did not make any specific recommendations?
Mr. CuRRiE. No, other than the resumption of reciprocal trade agree-
ments. The orderly liquidation of surplus property, I think, will be
a matter which the new board, which has not yet been created, will
have to be concerned with. That will be one of its major problems.
In connection with the point on financing our exports, I think it was
made perfectly clear by our spokesmen at Bretton Woods that they
did not regard the proposed plan for the International Bank for
Reconstruction and Development as supplanting the necessity for
domestic action by the member countries, but was rather to supple-
ment loans by individual countries and not supplant them.
PO^T-WAR ECONOMIC POLICY AXD PLANNING 813
I think there is some disposition within the Government to feel
that we do need more facilities for financing our exports. At the
present time we have virtually no machinery or mechanism at hand
for aiding in the rehabilitation or reconstruction of the devastated
areas, for instance.
As for the Export-Import Bank, its loaning authority, is very
small. It is negligible in relation to the task. I (lo not think lend-
lease could properly be used for reconstruction of .luse areas where
(li'.t vec(/nstruction does not constitute a part of the war effort.
[r. WoRLEY. WeLl, there is no provision that it should be, is there?
^Alr. CuRRiE No; so that there is at the present time really no ma-
chinery at hand for this major task. Then, of course, there is the'
Johnson xVct which stands in the wa}'^ of private loans to certain
governments, and there is a prohibition in the charter of the Export-
Imnort Bank which prevents making loans to certain governments in
default in April 1934 to the United States Government, and that is a
very restrictive provision.
jSIr. WcRLET. You think some of these will have to be modified or
repealed in order to carry out your purposes ?
Mr. CiRRiE. I should hope so.
^Ir. WoRLEY. Well, if in the course of 3'our future experiences in
the F. E. A. you have any experiences or receive any information
which you think will be of help to this committee and Congress in
successfully meeting some of the problems we are going to find an
answer to, we would like very much to have that information.
Mr. Curries I should be very happy to assist in any way I can the
work of the committee.
Mr. WoRLEY. If you run into anything that 3'ou think will help
. let us have it.
Ir. CuRRiE. I shall do so.
Mr. WoRLEY. Thank you again, Mr. Currie.
The committee will stand adjourned until 10 o'clock tomorrow
morning, when we will hear from the Tariff Commission.
POST-WAK ECONOMIC POLICY AND PLANNING
FRIDAY, SEPTEMBER 29, 1944
House of Representatives,
SUBC0M3IITTEE ON FOREIGN TrADE AND SHIPPING
I OF THE Special Committee on Post-War
Economic Policy and Planning,
Washington^ D. C.
The subcommittee met, pursuant to adjournment, at 10 a. m., in
room 1304, New House Office Building, Hon. Eugene Worley presiding.
Present: Representative Worley (Texas).
Also present : Dr. Vergil Reecl and Mr. Henry Arthur, staff con-
sultants.
]\fr. Worley. The committee will come to order.
Tlie Subcommittee on Foreign Trade and Shipping continues hear-
ings this morning. We have asked the Tariff Commission to appear
before the committee supplied with ideas as to the scope of the work
done by the Tariff Connnission, and its relation to foreign trade and
shipping and other problems of both domestic and world importance.
We are very happy to have Mr. Ryder with us.
STATEMENT OF OSCAR B. RYDER, CHAIRMAN OF THE UNITED
STATES TARIFF COMMISSION, ACCOMPANIED BY LOUIS BALLIF,
CHIEF OF TECHNICAL SERVICES AND E. M. WHITCOMB, DIRECTOR
OF INVESTIGATION
Mr. Worley. I understand, i\lr. Ryder, that you have a prepared
statement to make.
]Mr. Ryder. Yes, I have a statement which I prepared which deals
with our work and with the laws under which we operate, and which
analyzes to some extent the work tliat we are doing with regard to
the many problems of foreign trade in the post-war period.
I am very glad to appear before your committee to do that. Perhaps
I should say that most of my statement is entirely factual, and any
conclusions arrived at are mine and not those of the Tariff Commission,
of course.
First. I might briefly tell of the history of the Tariff Commission.
It was established just 28 years ago this montli, in September 1916,
in the midst of the First World War. It was established as a biparti-
san body — three Democrats and three Republicans — to suppl}^ the Con-
gress with unl)iased, nonpartisan information on which it might rely
in determining policies with resj^ect to the foreign trade and tariff
problems coming into existence then, as now, as an unwelcome by-
815
816 POST-WAR ECONOMIC POLICY AND PLANNING
product of war. The Ways and Means Committee, in reporting the
bill creatin<r the Tariff Commission to the House of Representatives,
stated :
Two years of * * * war * * * are bringing abont economic changes
more varied and far-reaching than the world has ever before experienced. In
order to ascertain just what tiiose changes may be, the * * * Congress is
providing for a nonpartisan tariff commission to make impartial and thorough
study of every economic fact that may throw light either upon our past or upon
our fiiture * * * policy with regard * * * to the changed and chang-
ing conditions under wliich our trade is carried.
The Tariff Commission is, unlike other Government agencies, con-
cerned with matters of foreign trade in that it has no administrative
fimctions and is not, strictl}^ speaking, a part of the administrative
branch of the Government. It is a fact-finding organization charged
by law with reporting to the Congress as well as to the President and,
in fact, was established primarily to supply information to the Con-
gress. The bipartisan composition of the Commission was intended
to assure, and I believe has resulted in, the organization of a competent
staff and the attainment of a high degree of nonpartisanship and ob-
jectivity in the Commission's reports, practically all of which deal
with highly controversial matters. It is a matter of importance, I
think, that the Congress has at its service a fact-finding organization
on which every Member of Congress, whatever his party affiliation
and whatever his views, may rely on as a disinterested source of au-
thoritative information on tariff and foreign-trade problems.
The Tariff Commission has always regarded itself as primarily an
arm of the Congress and for that reason, if for no other, I welcome
the opportunitv of appearing before you.
The period up to 1939 :
Prior to 1922 the entire work of the Tariff Commission was under
the authority of Drovisions contained in tiie sections of the Revenue
Act of 1916 which established the Commission and outlined the gen-
eral scope of its functions. These provisions required the Commis-
sion to investigate and report to the Congress and the President on
such matters as the competitive position of domestic industries, the
operations and effects of United States customs laws, and the commer-
cial policies of foreign countries.
I will state that that is first a summary statement of the number of
different things that were covered in that act. It was given wide in-
vestigatory powers, including the power to require the submission of
costs of production. It was required to cooperate with various other
departments of the Government. Notwithstanding subsequent addi-
tional grants of power, these basic provisions — reenacted as sections
332 and 334 of the Tariff Act of 1930— have afforded the authority
for the basic work of the Commission and for its general investigations
and reports. They afford the authority for the great bulk of the cur-
rent activities of the Commission, including its work for war agencies,
on trade agreements, ivad en post war lariff and other foreign-trade
problems in response to the request of congressional committees.
In the early j^ears folloAving its organization in 1916, the Commis-
sion occupied itself with assisting in the many problems directly con-
nected with the First World War, in preparing extensive reports on
post-war problems of foreign trade and on international commercial
policies. It also made an analysis of the administrative provisions of
POST-WAR ECONOMIC POLICY AND PLANNING 817
the United States tariff, leading to a thorouoh revision of them in
1922. and it began the collection and analysis of information relating
to tlie thousands of commodity classifications contained in the Tariff
Act, In the early 1920's the Commission prepared numerous special
reports on important articles with respect to which the war and its
aftermath had raised special problems of tariff policy. In addition,
for use in the tariff revision of 1922, it prepared the first edition of
the Summaries of Tariff Information containing basic data — produc-
tion, imports, exports, and competitive conditions — on every item,
free or dutiable, involved in the foreign trade of the United States.
The Tariff Acts of 1922 and 1930 gave the Tariff Commission spe-
cial functions in connection with administering the flexible tariff
provisions — section 315 of the Tariff Act of 1922 and section SoG of the
Tariff Act of 1930 — with the prohibition of unfair acts in the im-
portation of goods — sections 316 and 337 of the acts of 1922 and 1930,
respectively — and with the provision for penalizing trade of countries
which discriminate against the commerce of the United States —
sections 317 and 338 of the two acts, respectively. Of these special
provisions, the flexible-tariff provision has been far the most impor-
tant. Under it the Commission is required to ascertain the facts
regarding differences in costs of production here and abroad in order
to assist the President in adjusting duties to equalize such differences.
In a strict sense, this provision, as distinguished from the general pro-
visions of sections 332 and 334 of the Tariff Act of 1930. did not
expand the Commission's powers of investigation; it merely gave to
the President added powers, in the exercise of which the fact-finding
functions of the Commission played an indispensable part. From
1923 through 1932 the Tariff Commission concentrated a large part
of its energies on cost investigations pursuant to this provision.
In these years, however, the Commission did not neglect its general
and more basic functions. It ]3ublished a number of extended surveys
and reports on specific commodities, and, in the later 1920's it expanded
and brought up to date the Summaries of Tariff Information. The
latest published edition of these summaries, brought out early in 1929^
was a constant source of reference in the consideration of the bill
which became the Tariff Act of 1930.
Since 1932 work under the flexible provision has been much reduced
in volume, although a number of important changes in duty, includ-
ing an increase in the rates on cotton print cloths, were made under
it in the period from 1933 to 1938. The Trade Agreements Act, passed
in June 1934, exempted tariff items included in trade agreements from
action under this section. After 1938, with the reduction in imports
from Japan, demand for action under this provision practically ceased.
At this point attention should be called to two other special pro-
visions of law under which the Commission has made investigations.
Under the National Industrial Kecovery Act it made investigations
to enable the President to determine whether it was necessary to
impose restrictions on imports in order to safeguard the codes of
fair competition made operative under that act. Under section 22
of the Agricultural Adjustment Act of 1933. as amended, it is pro-
vided that, after an investigation by the Tariff Connnission, the Presi-
dent may impose restrictions on imports tliat interfere with any pro-
gram undertaken under that act. Under this section the President, on
818 POST-WAR ECONOMIC POLICY AND PLANNING
findinjfjs of the Tariff Commission, has imposed quotas on imports of
cotton and wheat. In view of con<^ressionai acts during the war, guar-
anteeing for a period after the war minimum loan rates based on
specified percentages of parity on a hirge number of agricultural com-
modities, there is the possibility that Congress will find it necessary to
expand the scope of section 22 so as to authorize the imposition of
restrictions on imports which might be found to interfere with the
agricultural program undertaken under these laws.
For example, the present parity price for flaxseed is about $2.85 per
bushel. Unless there is a marked recession in the general price level
in the United States, the loan rate, 90 percent of parity, would be over
$2.50 per bushel for at least 2 years after the close of hostilities. The
present farm price of flaxseed in Argentina is about 71 cents per bushel.
Under existing trade agreements the United States import duty will
be increased from 321^ cents to 50 cents per bushel after the war.
I may say that the trade agreements reduced, for the period of the
war, the present rate in the Tariff Act of 65 cents to 321/25 with the
provision after the war that it go back up to 50 cents.
Mr. Worlp:y. I do not follow you there, Mr. Eyder.
Mr. Ryder. The duty for flaxseed in the Tariff Act of 1930 was 65
cents. That was reduced in the trade agreement with Argentina to
321/^ cents for the duration of the war because the feeling was, I think,
that shipping and things of that sort would control the importation
largely. After the war, the duty goes back not to 65 cents, but to 50
cents, so that the duty after the war will be 50 cents.
Mr. WoRLEY. Now, assuming that Argentina ships flaxseed and pays
a 50-cent dut}^ what would the price be?
Mr. Ryder. I discuss that later in my statement.
Adding the duty to present Argentine price, it is ajjparent that the
domestic price is likely to be considerably higher than the import price,
even allowing for transportation costs and assuming a substantial rise
in Argentine prices. It would seem certain that this situation will
attract a large volume of imports and thus greatly increase the cost of
the ])rice-support program.
Mr. WoRLEY. Just why was this done, this 50-cent import duty on
Argentina? What advantage did this country secure from setting
that duty at that price ?
Mr. Ryder. I do not know how to answer that. The duty was, I
believe, 40 cents in the Tariff Act of 1922. I think it was raised by
Presidential proclamation under section 315, and the present Tariff
Act made it 65 cents.
Flaxseed is one of the big items in our trade with Argentina, and up
until the last few years I think more than half our consumption was
imported from Argentina.
Mr. WoRLEY. Do you think this duty encouraged the importation?
Mr. Ryder. It was a concession we made in return for certain reduc-
tions on duties that they made on our products going into Argentina.
The Trade Agreements Act, which was passed in June 1934 for a
3-year period and which was extended in 1937, 1940, and 1943, requires
that information and advice be souglit from the Tariff Commission in
connection with the negotiation of trade agreements. Under that pro-
vision it is tlie particular and continuing function of the Commission
to present information regarding imported articles that may be made
POST-WAR ECONOMIC POLICY AND PLANNING 819
the subject of concessions by the United States in trade agreements.
In performing- tliis function, the Connnission has been continuously
enoaged in brino;ing up to date and expanding the Tariff Information
Summaries, which constitute the basic information on tariff questions
pertaining to individual commodities. It is, moreover, represented on
the many interdepartmental committees which advise the Secretary of
State and the President on the trade-agreements program.
Although from 1934 to the beginning of the war in 1939 work in
connection with trade agreements constituted the largest segment of
Commission activities, other work, mainly under its general powers,
continued on a substantial scale. Of particular importance were the
extensive reports prepared during this period on the trade and trade
policies of countries such as Japan, the Pliilippines, Germany, Italy,
and France. Almost as important were extensive reports prepared —
on the Commission's own initiative or in response to congressional
resolutions — on commodities such as wood pulp and nitrates present-
ing special import problems.
The period since the outbreak of World War II :
In describing the activities of the Commission in the period since
the beginning of the war two distinct phases should be emphasized :
(1) The period from the fall of 1939 to the end of 1943, when the
Commission directed its activities largely to immediate war problems;
and (2) the period which began about a year ago, when the Commis-
sion began to direct its activities more and more to the foreign trade
and related problems for the post-war period which the war and war-
time controls are creating and with respect to which information was
being requested by congressional committees.
Almost immediately after the beginning of the war in Europe in
September 1939 the Commission began work on a study of the current
and probable future effects of the war upon the volume and composi-
tion of United States imports and upon the ability of this country to
provide, by its own production or by importation, commodities neces-
sary for defense and civilian consumption. In particular an analysis
was made of the position of the United States as regards strategic,
critical, and other essential materials for which it had been dependent
mainly, or to a considerable extent, on imports. When the Office for
Emergency Management was establislied and undertook to acquire a
staff for the newly created defense agencies, it not only drew personnel
from the staff of the Tariff Commission but also — and this fact was
even more important — relied on certain important phases of its work
largely upon commodity information ac<?umulated in the Commis-
sion's files. The Commission cooperated to the fullest extent in these
matters and through formal and informal arrangements endeavored
to supply the needed information. As war agencies succeeded defense
agencies, the cooperative efforts of the Tariff Commission increased,
and every possible assistance was given to tliose charged with handling
the economic phases of the prosecution of the war.
Tlie assistance of the Tariff Commission to the war agencies still
continues, although during the past year the Commission has turned
its attention to an increasing degree to the post-war problems which the
war is creating. It has been possible to do this because the war agen-
cies have gained the experience necessary to enable them to meet with-
out assistance new war problems as they arise and they thus have come
to rely to a smaller extent upon assistance from the Tariff Commission.
820 POST-WAR ECONOMIC POLICY AND PLANNING
You know, of course, that every war brings in its wake many new
questions of international commercial policy. Certainly this was true
of the First World War, and it will be even more emphatically true of
the present war. In fact, it is no exaggeration to say that the questions
of foreign-trade policy which this war is creating and regarding which
the Congress must make decisions will be much the most complex and
difficult this country has ever faced. On the one hand, we shall have an
increased need to export if full agricultural production and full in-
dustrial employment are to be maintained. On the other hand, many
countries of the world will find it difficult to secure funds to buy from
the United States even as much as they bought from us in pre-war years.
Moreover, this Avar, as every other war, will have created new industries
which may desire restrictive action in respect to imports in order to
enable them to continue to produce at something like the level to which
they became accustomed during the war. This states the core of the
post-war foreign-trade problem of the United States in the simplest
terms and stripped of all details and all qualifications.
Mr. WoRLEY. Do you have answers to that problem? Do you go
on and give us the answers?
Mr. Ryder. Well, I will let you be the judge of that.
About a year ago the Tariff Commission began to plan work m
performance of the duty imposed on it by law of reporting to the
Congress on the changes being brought by the war in the foreig-n-
trade position of the United States and in important United States
industries. Scarcely had this work gotten under vray when, in De-
cember 1943, the Commission received from the Ways and Means
Committee of the House of Representatives a letter requesting it to
investigate the principal domestic industries which may have been
affected favorably or unfavorably by war changes and to report to
that committee the pre-war status and conditions of these industries,
the changes and new developments that have taken place during the
vrar, and, so far as possible, the probable post-war status of such
industries witli respect to foreign-trade and international competition.
About a month later the chairman of that committee wrote the Com-
mission requesting a report on the general trade position of the
United States after the war. In February 1944, the Finance Com-
mittee of the Senate wrote requesting similar investigations and re-
ports and, in addition, for report on changes since 1929, in the
international-trade policies of foreign countries, particularly as they
affect the industry and trade of the United States.
Tlius the Tariff Commission is again being called upon to do the
kind of work which caused it originally to be established and which
it is specially fitted, by its experience and its bipartisan organization,
to do. In response to the requests made by the House Ways and
Means and the Senate Finance Conmiittees, the Commission has ex-
panded its program of work on post-war problems and is giving this
program primary emphasis in its plans for the next 2 years. The
program calls for the preparation of the following reports:
1. A report on the effects of wartime-economic changes on the for-
eign trade and foreign-trade policies of the United States.
2. Special reports on the trade and trade policies of the various
countries of the world.
POST-WAR ECONOMIC POLICY AND PLANNING 821
3. A series of reports coverincr those United States industries which
have been substantially affected by the war in such manner as to alter
their competitive position in relation to the industries of foreign
countries.
Let us consider in order the subject matter of these three groups of
reports.
With respect to the report on the effects of war on the foreign
trade and foreign-trade policies of the United States, it will be suffi-
cient to discuss in a rather cursory way the principal wartime economic
changes which will be the subject of this report.
The war has brought, as you well know, vast changes in the char-
acter of the goods produced, in the methods of production, and in
the capacity to produce. These changes have been most far-reaching
in their effects in the United States, but they have also been of im-
portance in the United Kingdom, certain of the British dominions,
in the Soviet Union, and in Germany, although their effects in Ger-
many may be expected to be more than canceled out by effects of
the bombing and the invasion of Germany. Obviously, changes of
this kind will be important in determining the foreign-trade position
of the United States after the war. In a report such as we are prepar-
ing, however, they can be dealt with only in a general way. Of course,
they will be deall with in the specific reports for the different indus-
tries.
I\lr. WoRLEY. When will that repott be available ?
]Mr. Ryder. We hope to get it completed within the next 6 months
or so. but it is a very difficult problem in that we are handicapped by
a short staff.
Improvements in productive capacity and productive technique in
the United States certainly will increase our capacity to produce for
export ; it will also increase our need to do so, if full employment is
to be maintained. On the other hand, there is the possibility that
these improvements may reduce our ability to import goods in the
volume necessary to enable foreign countries to pay for increased
United States exports. Certainly this will be the tendency of the
establishment of a domestic rubber industry and in industries pro-
ducing nylon and other products competitive with raw silk. It will
also be the tendency of the greatly increased soybean-oil industry,
which after the war may continue to replace to a considerable extent
imported oils and fats.
In this connection consideration should be given to the fact that
the establishment of new mining and manufacturing industries in
Latin America may reduce her demand for American goods of cer-
tain types. On the other hand, it may increase her demand for certain
other types of goods, particularly for industrial machinery and
supplies.
The war has necessitated extensive governmental control of both
industry and trade — control of shipping, foreign exchange, exports,
imports, and of the allocation of materials. The primary questions
with respect to these controls are as follows :
AMiich, if any, of the controls will it be necessary to maintain for
a considerable time after the war and for how long a time?
How far have the wartime controls created conditions which will
affect tlie foreign trade and foreign-trade policies of the United
States after the war and after the controls are abolished?
822 POST-WAR ECONOMIC POLICY AND PLANNING
In t]iis connection it will be necessary to examine the controls in
foreign countries, as well as in the United States. Of particular im-
portance to tlie future of the United States trade are the controls
exercised during the war by the United Kingdom and Canada, the
two largest markets for the United States exports.
Special mention should be made of the control of foreign exchange
because of its important influence on world trade. The monetary and
exchange problems will, indeed, together constitute a most difficult
post-war problem affecting trade. Although this problem is not
within the scope of the Tariff Commission's functions, there are cer-
tain results of necessary wartime exchange controls which, because of
their post-war effects, must be discussed in its report. For example,
under the British wartime exchange control certain countries — par-
ticularly India and Argentina — which, during the war, have exported
to the United Kingdom far in excess of their imports from that coun-
try— have built up large sterling balances which have been blocked —
that is, which cannot be used in paying for goods purchased from
third countries like the United States. Theoretically, they can be used
to buy unlimited quantities of goods in the United Kingdom, but
practically their purchases there are severely limited by Great Brit-
ain's'ability to sell for export under war conditions.
This situation will make after the war for bilateral trading ar-
rangements by which the British can work off their accumulated in-
debtedness by direct shipments of British goods to the creditor coun-
tries. The avoidance of bilateral arrangements of this kind, which
are practically always detrimental to United States exports, may
prove difficult. Doubtless one of the principal reasons for the for-
mulation of the international monetary fund agreements was to remove
the pressure for such arrangements.
It might be mentioned in this connection that some of the Latin-
American countries have built up large dollar balances with us.
Although we have not, like the British, blocked these balances, yet
under war conditions it has not proved possible for these countries
to use these balances to import goods either from the United States
or from other countries.
In addition to discussing the probable effects in the post-war period
of wartime industrial, trade, and monetary control, the report will
deal in a thoroughgoing way with the probable effects of tariffs, quotas,
and other pre-war foreign-trade restrictions, if they should be con-
tinued after the war. The report will trace the tariff changes in the
United States in the interwar period — the two congressional tariff
revisions, the excise taxes on imports and on the processing of im-
ported materials, and the Trade Agreements Act and its operation.
It will also analyze the trend of changes in the foreign-trade policies
of other countries. Stress will be laid upon the development in the
1930's of quota systems, of bilateral trading arrangements which avoid
the use of foreign exch.ange. and of p'-^fereTUialtariff-', particularly
of the system'of British Imperial preferences.
Mv. WoRLEY. Wliat is a quota system?
Mr. Rydeh. a system M'hereby imports are restricted not as in the
old-fashioned way by tariffs, but by a limitation on the quantity which
will be permitted entry.
Mr. WoRLEY, Is that done by agreement?
POST-WAR ECONOMIC POLICY AND PLANNING 823
Mr. Ryder. No. We have a few quotas ourselves. We have a
quota on sugar under the Sugar Act, and we have quotas on the im-
ports of shingles, wheat, and cotton, and on tobacco under our Cuban
agreement.
Mr. WoRLEY. Would you elaborate more on preferential tariffs?
Mr. Ryder. Preferential tariffs are an old device by which a country
permits entry of imports from certain areas at lower rates of duty than
imports from the rest of the world. We have preferential duties
with Cuba.
The most important system of tariff preferences in the world are
the British Imperial preferences between the United Kingdom and
the various dominions and colonies.
A different type of governmental intervention in economic affairs
from those so far mentioned is found in the measures taken during
the war to insure adequate supplies of the materials required for
military and civilian requirements. Such measures have resulted in
a great expansion in production and productive capacity both here
and abroad; they have also result^ed in the creating of tremendous
surpluses of many commodities — copper, aluminum, and wool are a
few examples. The greatly expanded productive capacity, plus the
abnormally large surpluses, as you can very well realize, will result in
very perplexing post-war problems both of domestic and of foreign-
trade policy. The problem of foreign-trade policy in relation to
many agricultural commodities, such as wheat, flaxseed, and soy-
beans will be made more difficult by the operation of the laws guaran-
teeing mininnun loan rates, to which reference has already been made.
It will also be made more difficult by the great increase, under heavy
subsidy, of British production of agricultural products, particularly
of wheat. Should any considerable part of this increased prt/duction
be maintained after the war it will result in a decrease in the amount
of wheat and other agricultural products which the United Kingdom
will be able to take from the United States after as compared with
before the war,
Mr. WoRLEY, Have you any other instances of this type? I under-
stand the British had to subsidize their oAvn farmers.
Mr. Ryder. It was a matter of necessity, of course. They began
subsidization before we got into the war, in the early 30's, I think.
Before the war they had increased their wheat — I do not know
wliether it is in acres or bushels — something like from 20,000 to 40,000.
During the war, under heavy subsidy and without limitation, their
production has gone up to 120,000. At first they limited the acreage,
but during the war they took that limitation off.
^Ir. WoRLEY. Other countries have found, too, that they could pro-
duce things when necessary which they have been buying from us
quite a lot.
Mr. Ryder. The greatest war develo])ment of this kind has been in
the United Kingdom. I do not know whether there have been similar
develo])ments in other countries, or not.
Mr. Reed. There have been in Germany.
Mr. Ryder. Of course, there has been in the Axis-controlled coun-
tries, but I was leaving those aside. We have little information with
respect to them of course.
Mr. Worley. For exam])le. we have developed a synthetic rubber
which costs no more than that imported from the Dutch East Indies.
824 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. Kyder. We are just getting out a report on rubber. I think it
will be out next week. We could not be clear in our conclusions be-
cause the industry is changing so rapidly. It is inipossible to say
what the costs of producing synthetic rubber are going to be under
normal peacetime conditions, and it is difficult to say at what price the
plantation rubber people will be able to sell.
Those two factors cannot be known now, and you have to know both,
of course, to know what the competitive position of synthetic rubber
will be.
In this connection, another war measure in Great Britain which may
well have unfavorable repercussions on our agricultural exports to^
that country cannot be passed over without comment. That is the
purchase and sale of foodstuffs by the Government. This practice,
which grew up under the necessities of war, doubtless will continue
for sometime after the war, and there is a tendency in some quarters
to have it continued indefinitely. Governmental monopolies of im-
ports, of course, make unnecessary tariffs and quotas for protection of
domestic production. They present a most difficult problem of com-
mercial policy.
The discussion of wartime economic changes and their effects leads
up to the consideration, first, of the factors which will affect the
volume of United States foreign trade in the post-war period, and
second, the factors which should be taken into account in formulating
the tariff and other foreign-trade policies of the United States in that
period.
With respect to the factors which will determine the volume of
United States foreign trade in the post-war period, it will suffice to
say there that the war will leave the United States with an expanded
capacity to produce for export and with a favorable competitive
position for its principal export products. The magnitude of the
United States export trade will turn, therefore, upon the height of the
national incomes of the various foreign countries, upon the willingness
of those countries to import as evidenced by their import and other
foreign-trade policies, and upon their ability to obtain the dollars
necessary to pay for imports from the United States. The question
of how foreign countries may obtain the dollars necessary to pay for
the volume of imports they would otherwise buy from the United
States may well turn out to be the crucial one. As you know, in the
period between the two wars the United States maintained a large
excess of exports over imports, in the 1920's by wholesale lending and
in the 1930's by importing gold on a large scale, gold which we have
locked up unused in Kentucky. So long as this imbalance continues,
the removal or moderation of wartime trade controls, of quotas, and
of other restrictions and discriminations adversely affecting United
States exports will be difficult. Moreover, the continuance of this
imbalance might be a factor tending to strengthen the already strong
tendency in many countries for government control of trade.
In this connection, stress will also be laid upon the fact that the
war will reduce the dollars available to certain countries on account
of shipping services rendered the United States and on account of
returns on investments held in the United States. This is particularly
true of the British. Our payments to the British for shipping serv-
ices and in the way of returns on their investments in the United States
were important items in the pre-war balance of trade between the two
POST-WAR ECONOMIC POLICY AND PLANNING 825
countries. Both of these items will be much less important after the
war.
The balance-of-trade situation will thus be one of the most difficult
problems in the post-war period. This will be one of the considera-
tions favoring a liberal import policy.
Mr. WoRLEY. What do you mean by "liberal import policy"?
Mr. Ryder. I chose that expression because I mean a policy that
would allow a considerable expansion in imports.
Mr. WoRLEY. You assume, of course, that that would be to our
benefit.
Mr. Ryder. I am going to cover that.
Another consideration favoring such a policy, of course, is the
creditor position of the United States — a position into which we were
catapulted by the last war and which is being greatly increased by
this war. Still another is the need of increased exports to help remedy
the surplus situation with respect to certain agricultural products and
to assist in the full utilization of the greatly expanded industrial plant
capacity of the United States.
The Congress, however, in determining national policies regarding
foreign trade, will want to take into account the factors which may be
taken as weighing against a policy looking toward greatly increasing
imports. These will be brought out in the report. Among them are
the possible effects of the competitive impact of increased imports on
certain domestic industries — agricultural, mineral, and manufactur-
ing— the importance to certain sections of industries which might be
somewhat reduced by increased imports, and the necessity of main-
taining certain industries as necessary to national defense.
One final word on this subject. The future volume of imports will
depend not only on the tariff and other import policies of this Gov-
ernment but also on the magnitude of f he national income, which, in
turn, depends on business conditions. In fact, the size of the national
income is probably the more important of the two factors. This is
true even though there has been the tendency for imports in value to
decline in ratio to national income. However, in this connection, it
should be observed that under peacetime conditions the ratio tends to
rise in times of prosperity and high national income and tends to fall
in times of depression and low national income. If you would like
to look at them, we have some tables here show^ing the fluctuations.
Mr. WoRLEY. We would like to have that for the record, if you wilL
826
POST-WAR ECONOMIC POLICY AND PLANNING
(The charts referred to are as follows :)
Chart A
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POST-WAR ECONOMIC POLICY AND PLAXNKSTG
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Mr. Ryder. So nmcli — possibly too much — for some of the points
which will be covered in the Commission's report on the effects of
wartime economic changes on the foreign trade and the foreign-trade
policies of the United States. The second group of reports being
prepared in response to the requests of the House Ways and Means
and the Senate Finance Committees may be described much more
jbriefiy. These reports relate to the changes since 1929 in the trade
and trade policies of foreign countries, particularly as these changes
affect the industry and the trade of the United States.
99579 — 45 — pt. 4-
-15
828 POST-WAR ECONOMIC POLICY AND PLANNING
The Commission completed, in 1941, reports on the trade of each
of the Latin-American countries. It is now engaged in reports on the
changes the war has wrought in the trade and trade policies of these
countries. These reports, as they become ready in preliminary draft,
are being made available to various Government departments and to
the preparatory committee of the forthcoming Inter-American Tech-
nical and Economic Conference called puisuant to Resolution 25
adopted at the third meeting of the American republics in Eio de
Janeiro in January 1943.
The Commission has had in course of preparation for sometime
a report on the trade and trade policies of the British Empire, with
particular reference to the causes and results of the British imperial
preferential tariff system.
Although no formal reports have been planned on the Far East, the
Commission is devoting attention to some of the major trade problems
which will present themselves to the United States when hostilities
cease in the Far East.
Mr. WoRLEY. Mr. Ryder, you have made the statement that —
The Comniissioii has had in course of preparation for sometime a report
on the trade and trade policies of the Britisli Empire, with particular reference
to the causes and results of the British imperial preferential tariff system.
Would 3'ou say, as a general statement, that the British have found
that to be successful ?
Mr. Ryder. It is successful in one way, at least. It has been suc-
cessful in increasing the British exports to the dominions and British
imports from the dominions. It has increased inter-Empire trade,
but the question is whether that has not resulted in a corresponding
decrease, or at least some decrease, in their trade with other parts
of the world.
Mr. WoRLEY. H;is that been of value to the dominions?
Mr. Ryder. I would say that it has resulted in an increase in their
trade among themselves and with the United Kingdom. Whether
it has had unfavorable repercussions on their trade with non-Empire
countries is a difficult matter to decide, and there would be differences
of opinion on that point.
Mr. WoRLEY. That is a multilateral agreement with bilateral effects.
Mr. Ryder. It is about that. It is a complex situation resulting
from the agreements between the different dominions and the United
Kingdom.
Mr. WoRLEY. It is not what you would call a liberal policy?
Mr. Ryder. No; it is generally regarded that preferential systems
of that sort are more or less contrary to liberal import policies, ;
although it depends updii how you use the w^ord "liberal." It results,
no doubt, in greater trade among the Empire countries, and, there-
fore, from the standpoint of the trade among the Empire countries
alone, it increases trade. Whether it increases or decreases their
total trade with the world is a thing difficult to determine; and upon
that, opinions would greatly differ.
Mr. WoRLEY. That policy seems to have built up a rather prosperous, i
good-sized kingdom. That policy seems to have been successful, of ^
course, depending upon how y<'ii iise the word "successful."
Mr. RydT'.r. It was adopted, of course, right in the depth of the de- j
pression, and the depression had a good deal to do with the establish- j
ment of those Ottawa agreements as they were called. j
POST-WAR ECONOMIC POLICY AND PLANNING 829
That is one of the things which makes it difficult to jndge in regard
to them, because you start from an abnormal period in determining
their effects.
Mr. WoELET. Don't we follow the same policy to some extent with
our territories and possessions?
Mr, Ryder, Yes ; we have a similar arrangement with Cuba, and we
have complete free trade with Puerto Rico, With the Philippines we
had for a time almost complete free trade, but that was limited some
in later years.
Mr. WoRLEY. You don't think we follow that principle as closely
as the British Empire follows it?
Mr. Ryder. Yes; I would say we have, because we have complete
free trade with Puerto Rico, and we have a very high preferential
arrangement with Cuba, and we had something very closely approach-
ing free trade with the Philippines.
However, the arguments for and against, or the considerations for
and against, preferential systems are a little different when you havo
a country as closely related geographically, as is the case between Cuba
and the United States.
On the other hand, the British would no doubt retort that the politi-
cal ties are just as im])ortant as the geographical ones.
Mr. WoRLEY. Perhaps more so. Dr. Reed would like to ask a
question.
Mr. Reed, Mr. Ryder, in the case of the dominions, such as Canada,
and to a lesser extei\t Australia and South Africa, isn't there increas-
ing resentment in those dominions themselves against that arrange-
ment of imperial preference ? It is turning out definitely to Canada's
disadvantage, is it not?
Mr. Ryder. I have had a good many conferences with the Canadian
representatives, and I have yet to have one express that view. If there
is that view, it certainly is not expressed in official circles ; at least, they
do not express it to Americans.
Mr. Reed. Of course, they give a different reason for adopting the
policy. Tliey would probably cite the Smoot-Hawley tariff bill.
Mr. Ryder, My one guess is that the imperial preferences would
have been adopted anyhow without the Smoot-Hawley tariff bill. No
doubt that made it certain. It increased the pressure.
We are preparing, for example, a detailed study of our pre-war
imports from China proper, JNIanchuria, and Hong Kong and are
analyzing the effects which the war has had both on the production
of these articles in the Far East and on our domestic production and
consumption of the same articles and substitutes for them. We are
doing this primarily with a view to being able to advise the Congress
on the factors which will determine the composition and extent of our
imports from China and these other areas in the post-war period. We
are also making a somewhat similar study of our trade with Japan,
The Commission is also engaged in making studies of our trade
relations with the Philippines and with Puerto Rico, The Vice
Chairman of the Commission, Mr, Lynn R. Edminister, was appointed
by the President to serve as a member of the Philippine Rehabilita-
tion Commission, which will consider, among other things, the future
trade relations between the Philippines and tlie United States, The
Commission's report on our trade relations with Puerto Rico, now
830 POST-WAR ECONOMIC POLICY AND PLANNING
nearing completion, was undertaken at the request of the Senate
Committee on Territories and Insular Affairs for the purpose of ad-
vising it on the probable economic effects on Puerto Rico of inde-
pendence. These studies of our trade relations with the Philippines
and with Puerto Rico are important, not only for themselves but also
because of the light they will tlirow on the economic implications of
tariff assimilation by the United States of any other areas wdiich
may come under our jurisdiction temporarily or permanently follow-
ing the end of hostilities.
The third series of reports relate to the major commodities or in-
dustries M'hich have been affected by the war. Reports are now in
course of preparation on about 75 to 100 connnodities. With respect
to each of these commodities, these reports will review conditions of
liruduction and competition before the war and will indicate the
changes in these conditions made by the war and the problems
which will be encountered after the war due to these changes and to
.the general domestic and foreign economic situation which may be
expected to exist in post-war years.
Emphasis will be placed upon the problems of policy which the
Congress must face in respect to these industries. Reports on six of
the commodities to be covered have been completed. They are raw
wool, industrial alcohol, United States stock-pile wools, mercury,
dehydrated vegetables, and rubber.
Mr. WoRLEY. Would you provide the committee with copies of
those ?
Mr. Ryder. I would be glad to. Other important subjects on which
reports are in the course of preparation are listed below; in addition,
less extensive reports are being prepared on numerous other subjects:
Potash; nitrates; petroleum; starches; oils and fats used princi-
pally in foods and soap; linseed and other drying oils; magnesium;
lead; manganese; copper; textile machinery; iron and steel; shingles;
wood pulp and pulpwood; softwood lumber; newsprint; cattle and
beef; dried and evaporated milk; pottery; China clay; magnesite;
watches; zinc; aluminum; cheese; butter; eclible nuts; manila; rayon,
nylon, other synthetic fibers, and raw silk ; raw cotton ; cotton cloth ;
woolens and worsteds; plastic products; hides and skins; and leather.
It is important that the information which will be presented in
these reports be before the Congress well in advance of the time when
it considers post-war foreign-trade problems with the view to adopt-
ing policies regarding them. The Commission, therefore, is making
every effort to complete this series of reports at the earliest possible
date. However, the work involved is of such magnitude that, with
the staff that is available for it, only some of the more important re-
ports can be completed during t:he current year. This project is one,
therefore, upon which considerable work may be expected in 1946.
Mr. WoRLEY. Do I understand that you need a bigger staff?
Ml'. Ryder. If we are to get these reports out faster than we are
doing at present, yes, sir.
Mr. WoKLEY. Do you intend to ask the Appropriations Committee
for assistance?
]VIr. Ryder. No; we have requested some increase in the appropria-
tions in our own right but not any increase in our staff. We have been
operating not only by funds supplied by Congress, but on funds sup-
plied by other governmental agencies — the F. E. A., O. P. A., the War
POST-WAR ECONOMIC POLICY AND PLANNING 831
Food Administration, and, to some extent, the W. P. B. We are
asking that ^Ye be gi^-en those fnnds in our own right in order that we
may be able to use a larger proportion of our present staff on Con-
gressional work. But we are not asking for anything that would
mean an inc-i'":ise in our total staff.
Connected with this series of reports is one, prepared at the request
of a subcommittee of the House (\)mmittee on Agriculture, analyzing
wool cost data supplied by the Farm Credit Administration for the
year 1943. This report supplemented one previously prepared by
the Commission, in which costs for 1943 were estimatecl in advance
of the end of the year, using as a basis the data for earlier years and
certain known changes in cost factors. At the request of the same
subcommittee, the Commission now has in progiess a study to enable
it to estimate in advance costs for 1944.
I will say that if Congress wants these reports turned out faster
than we are able to do with our present staff, our staff would have to
be increased. I thought that was for Congress to say, rather than
for us.
I will say that these reports to which I have just referred take much
more time than all our other work put together. They are time
consuming and take most of the time of our commodity staff.
]Mr. AVcRLEY. Would you mind taking up one of these items and
giving us an idea of your approach to the problem and what you
do to secure the information?
Let's take cattle and beef. Could you give us some idea as to
your approach to the problem — how you work up your report?
ISIr. Ryder. Well, in getting up these reports we have first a com-
modity expert who specializes in cattle and beef. He also, by the
way, specializes in wool. He has a group of commodities. He has
spent years on those commodities and knows them pretty thoroughly.
We gather together all of the information we can get from the
Bureau of Census, from the Department of Agriculture, from the De-
partment of Commerce, and imports and production statistics; we
have a vast amount of material in our files. By correspondence and
by field work, interviewing, going out in the field, talking to the
cattle people, we get additional information; and when that is all
assembled, we write a report.
Now, in that work the conmiodityexpert usually has the assistance
of an economist who frequently goes with him in the field and prac-
tically always collaborates in writing the report.
That report, when completed by the experts, goes to a planning
and reviewing committee which reviews it and causes revisions to be
made in it.
When they are through with it, it comes to the commission, which
may also revise or liave it revised.
When it has gone through all of that, it is published. That is our
procedure in preparing reports.
We try to emphasize in those reports all facts which will throw light
on the competitive situation in the industry and its competition
with imports.
I think that is all I can say. We give all the information we can
about the industry, but we stress the facts which will throw light
upon the competition of the industry with imports.
832 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. WoRLEY. Then you would include in that report the status of
the cattle industry in other countries — all other countries?
Mr. Ryder. I do not know whether we would include all other
countries. The only countries we would include, if you confine it to
cattle, would be Canada and Mexico. If you were going to include
beef, you would have to take in various other countries — Argentina
and Uruguay, especially.
Mr. WoRLEY. Does that suggest a possible foreign market?
Mr. Ryder. Yes ; we frequently cover the question of foreign mar-
kets, although that is not the chief emphasis. We practically always
take up that question, because the ability of an industry to export
may throw a good deal of light upon its ability to withstand the
impact of imports.
Mr. WoRLEY. You generally do discuss it to some degree, anyway —
the possibility of a foreign market?
Mr. Ryder. Yes; and we have in preparation a report on cattle, I
think.
These commodity reports which we are getting up at the present
time deal with the important industries which have been affected
by the wai-. A good many of them have surplus situations in the
way of accumulations of stocks, and frequently surplus situations in
the way of excess capacity. Copper is an example; also aluminum,
and some of the others.
Then, we are covering certain industries that have always had |
considerable foreign competition. This competition usually has been i
greatly lessened by the war, but will be renewed at the end of the war. j
An example of that is pottery, cotton cloth, woolen cloth. j
Mr. WoRLEY. I understand that we have a good supply of wool
at the present time.
Mr. Ryder. Oh, yes. . .
Mr. Worley. How much do we have, approximately? I
Mr. Ryder. Mr. Ballif probably had those figures.
Mr. Ballif. I do not have the specific figures of the wool on hand,
but we have a sizable amount of foreign wool in stock piles which
amounts to about 200,000,000 pounds. Then we have a sizable
amount of accumulations of domestic wool which is supported by the
Army. About the only use of these domestic wools will be for mili-
tary purposes, because of the high price relative to the imported wool. |
That is going to create a serious problem as to how to get rid of these '
accumulated domestic wools as soon as the war demand disappears,
because the fact that domestic wool is way out of line with the price
of imported wool plus the duty.
Mr. Worley. How do you mean, "out of line?"
Mr. Ballif. It is much higher.
Mr. Ryder. The price at which we buy domestic wool is much {
higlier than the world price. The price at which the Government buys ^
domestic wool is much higher than the ])rice of imported wool.
Mr. Ballif. That is all included, Mr. Worley, in our report on stock-
pile wools which we will supply you. There is a very complete dis- '
cussion of that problem.
Mr. Worley. I was wondering why we have a surplus of imported
wool. Don't we have sufficient domestic wool to supply our demands?
Mr. Ballif. No ; we do not. We always import a sizable part of our
consumption of wool. During the war, of course, our imports v( ere
POST-WAR ECONOMIC POLICY AND PLANNING 833
greatly expanded to provide a safety factor in case our sources of
supply, such as Australia and the Argentine were cut off.
During the early part of the war we built up large stocks of wool
in this country as a war measure. Even in normal times we import a
quantity of raw wool.
Mr. Ryder. As I recall, a considerable part of the foreign stocks
here are owned by the British and a considerable part by us. Is that
right?
Mr. Ballit. There is a large stock pile owned by the British which
it was originally planned would be moved out of this country. What
will eventually happen to it, I cannot say at this time. Presumably
it will be moved out of the country.
Mr. Ryder. Of the stocks of foreign wools in this country, part are
owned l)y this Government and part by the British Government.
Mr. WoRLEY. I would like to say that you have made a very interest-
ing and thorough statement, Mr. Ryder.
Mr. Ryder. Thank you. I tried to cover the problems that are com-
ing up so that you would know our view of the problems, what the
problems were, and what we are trying to do in regard to theni.
Mr. WoRLEY. You do not have an answer ?
]\Ir. Ryder, No; the Tariff Commission affords all the information
and lots the other fellow do the answering.
Mr.WoRLET. Yours is purely a fact-finding function?
Mr. Ryder. That is right.
Mr. Worley. Do you have anything at all to do with the policy of
our foreign trade?
Mr. Rydeb. Not directly. The Tariff Commission's function, even
under the flexible tariff provision, has been a fact-finding function
chiefly.
Under that provision we found what the differences in costs are,
a very difficult thing, by the way. To the best of our ability we found
and certified the cost differences. On the basis of that, the President
acted or did not act, as he saw fit.
Mr. Worley. In your reports do you make any sort of recommenda-
tions, expressed or implied ?
Mr. Ryder. I would say it amounts to a recommendation. I do not
think we usually put it in the form of a recommendation.
Mr. Worley. Are they generally accepted by the policy-making de-
partments of the Government ?
Mr. Ryder. Yes ; usually. The Presidents, in acting under the flex-
ible provisions of the tariff, have either not acted at all or have acted
on our recommendations. In the case of section 22 of the Agricultural
Adjustment Act, to which I referred, I think action has always been
taken on our recommendation. Under that section we do recommend
what action shall be taken.
Mr. Worley. And other sections, you generally make no recommen-
dation ?
Mr. Ryder. That is right. In the case of trade agreements, there is
a country committee made up of experts from various Government de-
partments. This committee makes up a schedule of what we ask in the
way of concessions, and what we offer in the way of concessions.
Mr. Worley. Wliat is that, the country committee ?
834 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. Ryder. Yes. We supply that committee with all the infor-
mation we can get that will bear upon whether a concession should
be made in a particular product.
Mr. WoRLEY. What determines whether a concession should be
made ?
Mr. Ryder. Well, it is like everything else of that sort. It always
has to be a matter of judgment. There is no mathematical formula
by which you can tell whether a duty should be kept where it is, re-
duced, or increased.
Mr. WoRLEY. Can you give us an example where the matter of judg-
ment comes in ? Take manganese, or any instance you prefer.
Mr. Ryder. Well, in the case of manganese you have a domestic
production. We determine, so far as we can, what the conditions
of that domestic production are.
Mr. WoRLEY. By conditions, you mean the cost of producing it, the
labor supply, and the price for which it sells ?
Mr. Ryder. Well, we do not in most cases get the cost of produc-
tion. If we tried to get costs for every commodity, we would have;
to have a staff 10 times the size of our present staff. It is hard to
express it, because it varies from industry to industry; but we try
to get the factors that indicate the competitive position of the industry.
Among these factors are : What has been the effect on production of a
given product of changes in price levels? What is the employment
situation in that industry ? And, if we can get an index of cost, what
are the costs in the industry ?
Mr. Worley. You have the power to investigate the costs of pro-
duction ?
Mr. Ryder. Yes, we have the power of investigating and obtaining
costs of production.
As I say, we cannot do that for many industries, as it is a, very
difficult job; so in most cases we have to take whatever other indices
we can get of the competitive position of the industry. Cost is only
one of the elements entering into that determination. In most cases
you can get about as good an indication of the competitive situation
without getting costs as you can by getting them.
Mr. WoRLEY. By "competitive situation" you mean world-wide
competitive situation ?
Mr. Ryder. That is right. After determining the conditions of
domestic production we try to ascertain the conditions of production
in foreign countries; also to determine what is the transportation
situation, and the competition so far as transportation goes.
After all these facts are gotten together, the country committee,
using its judgment based on those facts, makes a recommendation for
a decrease or no change in the duty.
IMr. Worley. They make a recommendation for a decrease or no
change. They make no recommendation for an increase?
Mr. Ryder. No; under the trade agreements no increases are made
in duty, although technically an increase could be made.
There are three things you can do: you can do nothing; you can
decrease a duty; or you can "bind" the present tariff treatment, that
is, instead of reducing the duty of flaxseed, for instance, you could
make an agreement with the country not to increase that dut}', or not
to impose a duty on a free item.
Mr. WoRLEY. That would be a decrease in the duty, wouldn't it ?
I
POST-WAR ECONOMIC POLICY AND PLANNING 835
Mr. Eyder. No; we would agree not to increase the duty. We are
not agreeing to decrease it, but we will agree not to increase it.
In our agreements with some of the Caribbean countries, where
coffee is the main export to the United States, the main thing we
gave them was a binding of the free entry of coffee ; that is, we agreed
that we would not put a duty on coffee.
The third thing you can do is reduce the duty.
Now, on the facts presented, using its judgment, the country com-
mittee recommends either one of those three things. Then that goes
to a trade agreements committee, which goes over the whole thing
again, and they report to the Secretary of State and the President,
who make the final decision.
Mv. WoRr>EY. Who is on this country committee ?
Mr. Ktder. The membership varies from time to time and is dif-
ferent for each country. I could tell you the names of the agencies
on the committee: The State Department is chairman, of course,
the Tariff Commission, the Commerce Department, Agriculture, and
the Treasury. They have always been on it, those that I named, and
I thinlv the F. E. A. is on it, aiid probably the O. P. A., now. I am
talking about the trade agreements connnittee, not the comitry com-
mittee.
Mr. WoRLET. They screen the facts ?
; Mi-. Ryder. Yes, they make the final recommendation to the Secre-
tary of the State and the President.
Now, the Tariff Commission is represented on all those committees.
Theoretically, those men on that committee prasent the facts in regard
to the industries, and those are reviewed by the Commission ; whereas
in their serving on those committees, they serve in their individual
capacities, using their own j uclgment. Of course, the Commission does
not pass on it as a Commission.
Mr. WoKLEY. Then, it is up to the State Department in the final
analysis?
Ml-. Ryder. Yes, it is up to the State Department and the President.
Mr. WoRLEY. But generally they follow the recommendations made
by tliese committees?
' Mr. Ryder. Generally, but there have been exceptions.
Mr, WoRLEY. Do you consider any political considerations in your
analysis of these commodities?
Mr. Ryder. No.
Mr. WoRiiEY. You just determine whether it would be to our ad-
vantage or disadvantage to increase or decrease?
Mr, Ryder. The trade agreement authorities do, yes, but the Tariff
Commission does not. We give the facts as far as we can get them, and
as completely as we can get them. We do for the trade agreements
organization the same thing we do for Congress when Congress is
making a revision of the tariff — we give all the facts we can to throw
light on what should be done.
The decision is initially by these committeas I have referred to,
but ultimately by the Secretary of State and the President.
Mr. WoRLEY. iBut as a matter of law, you have no power to make a
policy of foreign trade ?
Mr. Ryder, No,
Mr. W0R1.EY. We have had quite a lot of discussion, Mr. Ryder, about
tariffs and subsidies. What is a tariff?
836 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. Ryder. Tariff, of course, is a tax levied on imports, and I be-
lieve the courts have held that what Congress calls excise tax on im-
ports is the same as a tariff, for instance, on petroleum, copper, and a
few other items.
Mr. WoRLEY. How does a tariff compare with a Government sub-
sidy ?
Mr. Ryder. Well, take rubber, for instance. If you are going to
do something to maintain all or part of the present synthetic rubber
capacity, you could do that either by a tariff or by a subsidy. You
could do it by levying a tariff on imports. That, of course, would leave
the domestic industry to compete with whatever imports might come
in over the tariff. You could not, by that means, control the size of
your synthetic rubber industry, and although the public would be
paying it they would not know they were paying the tax.
On the other liand, by a subsidy you can limit the amount of pro-
duction to which it applies. There are various types of subsidy, but
the simplest kind would be the subsidy of so much })er pound or ton
of rubber produced. That has a number of advantages, theoretically
at least. One is that you can limit the quantity on which it will be
paid.
If you want to maintain part of the imports of rubber in order to
help maintain our export trade, you would limit the amount subsidized,
say, to two or three hundred thousands tons. You would give a
subsidy on that amount, distributing, it of course, among the different
producers. That subsidy would have to come up in the annual appro-
priations bill. For that reason, it would be easier to get rid of than
a tariff.
Mr. WoRLEY. In fact, there is no difference ?
Mr. Ryder. Yes, there are considerable differences. TVIoreover,
most forms of subsidy do not raise the price of the entire amount
consumed as does an effective duty. The tariff is not at all selective ;
it is a matter of competition under the duty as to what size industry
you have. By a subsidy on the other hand, you can control the size.
Mr. WoRLEY. As far as the expense or cost to the Government is
concerned, is there any difference ?
Mr. Ryder. A subsidy is an expense to the Government; the tariff
is a source of revenue to the Government, the amount of the revenue at
a given rate of duty being dependent upon the magnitude of imports.
The tariff, however, insofar as it is effective, raises the prices of all
units consumed. Subsidies which are in the form of guaranties of
minimum prices may be operated so as to be much like a tariff in this
respect. A direct subsidy of so much per unit of product, however,
does not increase prices to the consumer — it may, under certain cer-
cumstances, reduce them — but, like all other subsidies, lias to be pro-
vided for out of Government funds.
Mr. Worthy. Have we always had tariffs in this country?
Mr. Ryder. Yes, we have always had a tariff. One of tlie first acts
passed by Congress was the Tariff Act of 1779, 1 believe.
Mr. WoRLEY. What did that do?
Mr. Ryder. Oh, that imposed a series of rates. It was a simple ■
tariff. I think the evidence was that it was chiefly for revenue needed
by the new Government. There was a protective intent on certain 1
items, particularly iron and steel. ■
POST-WAR ECONOAIIC POLICY AND PLANNING 837
Mr. WoKLF.Y. There is a difference between a protective tariff and
a revenue tariff, is there not?
Mr. RvDEH. It is not always easy to draw the line, but there is a dis-
tinction.
Mr. WoKLi'Y. Then we began with both points?
Mr. Rydek. I would say the first tariff had as its principal aim
revenue, but I think to some extent there was a protective purpose.
Mr. WoKLEY. We have had protective tariffs ever since?
Mr. Ryder. I would say that technically all of our tariffs since have
been more or less ])rotective. Some of the pre-Civil War tariffs, such
as the Walker Tariff of 1846 and the tariff of 1857, were very low, and
were not purely revenue tariffs by any means, but could be considered
more for revenue than anything we have had since then.
Mr. WoKLEY. When you say "protective tariff," just who is
protected ?
Mr. Ryder. The domestic producer, presumably, of the products
that are imported under the tariff.
Mr. Worley. And you decide, or it is decided, whether a tariff is
necessary as a result of the investigations which you -make? You
decide whether a tariff is necessary after an investigation of the degree
of competition, what the cost is to produce, and how to maintain our
standard of living here and at the same time obtain maximum prices
for those products.
A protective tariff, then, would protect any given industry?
Mr. Ryder. That is right.
Mr. Worley. Now, in the over-all picture, how do you think our
tariff system is operating — to our long-range benefit, or to our long-
range harm ? I know that is a very general question.
Mr. Ryder. It is a subject upon which there is a vast difference of
opinion. It depends largely upon the period you take. I do not
think there is any question that during the period from the Civil
War, roughly to say about 1900, or even 1910, the high tariff system
then prevailing resulted in a more rapid development of our indus-
tries than we would have had without it.
Mr. Worlj:y. That was during our developmental period.
Mr. Ryder. On the other hand, there was another factor in connec-
tion with that which is not often taken into account. That is that
we had free immigration and a high tariff, and the two together made
for a very rapid increase in the industrializati(m of the United States.
Mr. Worley. You say we had a high tariff and free immigration ?
Mr. Ryder. Not entirely free, but ]-elatively unrestricted immigra-
tion.
Mr. Reed. You increase the industry, and then import consumers.
Mr. Ryder. That is right.
Mr. Worley. You import workers, too?
Mr. Ryder. Yes: we imported labor to build up the industries, and
they, of course, furnished a wider domestic market for the industries.
The two worked together and made for very rapid industrial develop-
ment, probably the most rapid the world has ever seen in a given
length of time.
Mr. Worley. Do you think we will always need tariffs ?
Mr. Ryder. Always is a long time.
Mr. Worley. Well, so far as you can see.
838 POST-WAR ECONOMIC POLICY AND PLANNING
Mr, Ryder. I would say that with the industries that have been
built up, under our tariff system, and with the necessities of national
defense, the probabilities are that for an indefinite period in the future
in any policy we adopt there would be some element of protection.
Mr, WoRLET. It has been stated that the Smoot-Hawley tariff bill
of 1930 reduced our imports during the ensuing years to about 50 per-
cent of what they would otherwise have been. Keeping in mind that
the volume of exports is primarily determined by the volume of our
imports, will you comment on this as a factor in planning our post-
war foreign trade?
Mr. Ryder. Well, in regard to the first part of that question, there
was from 1930 to 1932 a very drastic reduction in our imports and
exports. That would have occurred with or without the Smoot-
Hawley tariff bill. No doubt tlie Smoot-Hawley bill was one of the
factors. How important it was in comparison with the other factors,
no one can determine.
In any case, there would have been a large decrease in our imports
and exports due to the depression. The depression was a main factor,
no doubt. Doubtless the Smoot-Hawley tariff bill, on certain items'
in which that bill increased duties, was a factor in making for further
decrease in imports than would have occurred just by the depression
alone. I think that is the only answer I can give.
Mr, WoRLEY, You think it is advisable in the post-war Avorld to
increase our export trade, our foreign market ?
Mr. Ryder. Manifestly, it would be to the interest of a large number
of industries which have a capacity for production beyond the ability
of the domestic market to consume to have increased exports, and a
good many of these industries are agricultural — cotton and wheat, for
instance. There are also manufacturing industries — automobiles,
typewriters, and numerous other articles.
No doubt an increase, as I said in my statement, in exports would aid
in preventing unemployment and lessening the surplus situation with
regard to certain articles like cotton and things of that kind. ■
On the other hand, I pointed out that certain repercussions would 1
conf I'ont Congress.
Mr. WoRLEY. We could not increase our export trade without ,
inci'easing our import trade.
Mr. Ryder. Not in the long run. Of course, you can, by a lending:
system or by taking gold, expand your export,s for a considerable period
without a corresponding expansion in imports. No doubt, for the
first few years after the war, we will have to do that. We will have to
loan on a large scale in order to enable the various counti'ies that
have been injured by the war to restore their industrial equipment.
I think we would be justified in having, for a long period, a fairly
liberal foreign lending policy. Of course, ultimately your i-eturns on
foreign investments equal your new loans.
Mr. Worley. Before we can increase our exports, we are going to
have to make it mutually profitable to other countries; are we not?
Mr. Ryder, Oh, yes.
Mr, Worley, When you come to that point where it is a question
of our making a profit or that country making a profit, what happens?
Mr, Ryder. I suppose both sides make a profit ; otherwise it would
not continue very loi^g.
POST-WAR ECONOMIC POLICY AND PLANNING 839
Mr. WoRLET. Would we be willing to concede a loss here and there
on a given commodity in order to increase the trade?
Mr. Ryder. That would involve subsidizing a given industry.
Mr. WoRi-^Y. Have we done that ?
Mr. Ryder. We have had some expert subsidies on cotton for in-
I stance. But I cannot recall a subsidy on imports. That would be a
tariff in reverse. We have, however, used subsidies in place of duties
to protect certain industries. In the Tariff Act; of 1894, the duty on
sugar was replaced by a subsidy on sugar. That is the only instance
I can recall off-hand. It could" be done, of course, on a considerable
scale if it were desirable to do so.
Mr. Reed. Mr. Ryder, I agree with you entirely that we have these
three choices of taking gold or making loans in order to increase our
imports, but if you take the gold or make the loans, don't you just
postpone the headache, because they still cannot pay for it in the
long run except by imports of goods?
Mr. Ryder. That is right. Of course, a country like England,
which has large loans, may continue indefinitely to increase its for-
eign investments. As I pointed out, you get to a point where your
returns on your old investments exceed your new investments each
year. England reached that point long before this century began.
Mr. Rekd. If 3'ou keep it up, you simply raise your prices until you
cut your exports down.
Mr. Ryder. That is right.
Mr. Reed. One other thing. I realize that technically there is a
difference betw^een subsidies and tariffs, but economically do not
both have exactly the same effect; that is, the tariff, whether it is
protective or for revenue only, is, to the extent it raises the price
of imports, a subsidy to industries in an economic sense ?
Mr. Ryder. They have the same general effect. They have the
same tendency, but the differences are two in the main : One difference
is that in a subsidy you can be more selective. You put a tariff on,
and you never can predict exactly what is going to happen under
it. In a given subsidy you can limit the quantity to which the subsidy
applies, and then I think it is fair to say that it is easier if you want
to get rid of it to get rid of a subsidy than a tariff, since each year
Congress has to appropriate for it.
There are other differences depending on the type of subsidy used.
Important is the difference between the tariff' and .most forms of
subsidies in their effect on prices.
Mr. Reed. Then there is this question. In speaking of tariffs in
the past, of course, perhaps there was some justification during our
rapid industrial development — at least we assumed so — for protective
tariff's, but does not that change differ materially with the country?
For instance, we have not the same need now, since we have become
a mature industrial nation, as we would have during a period when
we were developing those industries. Has it not been true that, as
nations mature, the position changes?
Mr. Ryder. Yes. We now have a very diversified industrialized
economy, and the old infant industry argument is not as important as
it was then. Because of the national defense developments, there
might be some room for infant industry arguments now, but it is
certainly less important than it was in the earlier period.
840 POST-WAR ECONOMIC POLICY AND PLANNING
I would like to call attention in that connection to the fact that the '
emphasis, the center of oravity, I would call it, of our tariff problems |
has shifted from manufactured goods to raw materials, and certain j;
agricultural products. I
The grounds for maintaining protection are different. You would j
stress now the necessity in certain lines of national defense, certain {
sectional needs, probably, and what the old economist used to call ;
"vested interests — that is, interests dependent upon the tariff and \
which the Congress may want to pioiect from serious injury. Those j
fire the factors that have to be considered.
INIr. Rekd. Of course, the taritl' tliat we actually pay on goods is
much gi-eater than that shown on the tariff schedule. Do you have
an}' suggestions as to how we couUl keep fiom compounding such
tariffs?
For instance, I have in mind one specific product — and there are
others you may call to mind, I am sure. But there was a product which
used to be imported from Italy. When it came in and the tariff was
asserted, we will assume the tariff amounted to $100 — then the whole-
saler marked that up, say 20 percent, on his landed cost, which meant
that he added another $20 to the tariff. Then the retailer marked it
up 50 percent, so instead of paying $100 tariff, the consumer is paying
$170.
Is there any way to keep from compounding that, and still give '.
protection, giving the consumer purchasing power and still giving
protection?
Mr. Ryder. No, not unless you change the whole distribution system
and the system of marking up the costs. I do not see how you can do
that. Of course, that factor is more important in some products than
it is in others. ^
A good many products are imported directly by the people who are 1
going to use them, and there is little, if any, mark-up. ■
Mr. Reed. That would obtain with manufactured products?
Mr. Ryder. That is right, unless they were bought directly by chain
stores, and where there would be only one mark-up, I would say.
]Mr. Arthur. Mr. Ryder, I want to ask one question or two about
the matter of loans to facilitate imports by our customers — that is,
exports by the United States in the early post-war period?
Mr. Ryder. You mean subsidies on exports ?
Mr. Arthur. Loans to finance exports or to help countries which
will be importing from us. I wanted to know what considerations
seem to you important in the making of those advances. Should it
be tied directly to our trade? Should it be based upon a criterion of
neetl in foreign countries, or what?
Mr. Ryder. You mean criterion upon which we could base our loans i
to foreign countries ? j
Mr, Arthur. Yes.
Mr. Ryder. Of course, the Tariff Commission has never gone into
that phase of our export policy, but I have heard some discussion of
it from time to time by people from the Export-Import Bank.
Mr. Arthur. You have made studies, have you not, of the relative
costs and differences of production of particular commodities in dif-
ferent countries ? , J
Mr. Ryder. Oh, yes.
[
POST-WAR ECONOMIC POLICY AND PLANNING 841
Mr. Arthur. Is the Tariff Commission brought into discussions for
advances for the setting up of industries, for instance, in foreign
countries so that we will have some idea of the relative efficiency of
production in those different countries to whom we are making ad-
vances ?
Mr. Ryder. No, we have never been in on the formulating of our
own policies with regard to exports.
Mr. Arthuk. AVould you have material that would be helpful in
determining whether those bans were going to boomerang and result
in conmiodities coming back to compete with commodities produced in
this country?
Mr. Kyder. We might, in certain instances, have information that
, would help along that line.
Mr. Arthur. Well, if we were considering making advances to for-
eign countries, on Avhat basis do you think we could choose between
the enterprises that are seeking funds from this country? Congress
will probably be faced with that problem, and we would like help, if
you can give it to us.
Mr. Ryder. Of course, there are several different problems. If you
have an industry in a foreign country seeking foreign loans, and there
are other sources for th(;se loans than the United States, then it is just
a question of whether they want to make the loan or some other country
make the loan.
'J'hen, of cou r'-o, it niip;ht be that, for some period after the war, we
might be the sole or principal source of loans to certain countries.
Mr. Arthur. Do we want to make loans just to compeie in making
foreign loans?
Mr. Ryder. I would say yes, that it would be a good business policy
for our business concerns and banks to make loans to foreign countries
in competition with England and other countries in lending markets.
I do not see vrhy we should not. Of course, I think we should have
to be more careful than we have been in the past in some instances.
Mr. WoRLEY. Do you think tliat would be essential to the develop-
ment of our foreign trade?
IMr. Ryder. As I understand it, a reasonable loan policy is cer-
tainly very helpful in export trade. It is helpful in domestic trade,
as you know, and it is bound to be helpful also "in foreign trade.
Mr. Arthur. I think I can see this far ; that is, that it is a pouring
out of dollars which can be used to purchase our goods, but what I am
trying to narrow it down to is how you channel those dollars. What
are the considerations? You just don't want to pour them through a
funnel and, in general, assume that they will come back to us in the
purcliase of our goods.
There must be some discrimination in tlie placement of those dol-
lars that go out in the form of loans. Now, what are those criteria ?
Mr. Ryter. It seems to me, where you have a straight commercial
loan made presumably after an assessment of the risk, that there should
be no limitation on tJiat type of loan. The businessman or bank that
makes it may misjudge, but he frequently makes misjudgments in
domestic loans. If we are lending the Government funds through the
Export-Import Bank and, if particularly we are lending them on
special terms, then we might very well consider how economical these
industi-ies ai'e to which tlie loans are being made a/id so forth.
842 POST-WAR ECONOMIC POLICY AND PLANNING
Mr, Arthur. Well, I can perhaps push it a little further. I am
sincerely looking for help. I am not trying to press you beyond the ;
limit of your jurisdiction.
Mr. Ryder. I cainiot help you there. This is not my particular field, \
but I am glad to be as helpful as I can. j
Mr. Arthur. In making these advances, we are looking first to the i
risk in terms of the business risk. j
Mr. Rydkr. That is a straight connnercial matter. '
Mr, Arthur. We will also have concern over the political stability j
of the nation in which the funds are placed. We also, it seems to me,
have to give some consideration of getting back payment in terms of
the supply of foreign exchange that that country will be able to
accumulate at the time of repayment of the loan.
Now, how should this Government set up its lending operations to
give full and adequate consideration to at least those three problems?
Is it a State Department problem? Should the Tariif Commission
be pulled into it at some phase, and which of those three phases? ,
Should it be internationally handled in your opinion? It may be,
that this is asking for a personal opinion,
Mr, Ryder. You can distinguish from the immediate post-war
situation and that wdiich follows later, I think that in the immediate s
post-war situation there will have to be abnormal types of lending,
and there I think it is very well to have international organizations
such as were proposed at the Brett on Woods Conference, I have not
studied that in detail, but I think the general idea is a very good one.
As far as our side of it is concerned, I believe it is handled now by
the Export-Import Bank, which, I believe is now connected with the ]
F, E, A,, and by the State Department on the political side, the inter-
national political side.
We have never been in on that. We might be hel{)ful in certain
cases in certain aspects of it.
Mr. Worley. Mr. Ryder, the other day a witness told the committee
that he thought we could develop our foreign trade into a $14,000,-
000,000 industry. Do you agree with that ?
Mr. Ryder. I hate to deal with figures, especially when I have just
heard them. I do not think that you could expect that large aai
exportation ; certainly not as a regular thing at the present price level.
I should not think that an export like that could be jnaintained as a
regular matter unless there is a vast change in the situation over what
we have now.
Mr. WoRLEY. That w^as based on two propositions: First, a series
of steps that this Nation would have to take, and, second, it would
probably be a temporary proposition. But he was of the opinion that
we should aim at that figure.
Mr, Ryder. To maintain it?
Mr, Wor.LEY, Yes.
Mr. Ryider. I would doubt very seriously whether it would be pos-
sible to maintain an export of those dimensions at present price
levels. You would, in the long run, have to have imports at that level,
imports and services, taking them together. It would also depend,
of course, on the size of the national income to some extent. The
larger the national income, the larger your imports and exports.
1
POST-WAR ECONOMIC POLICY AND PLANNING 843
But unless we have a very much hxrger national income than has
been estimated, and, unless we have a very mtich larger ratio of im-
ports and exports to national income, I do not see how you could
arrive at a figure as high as that.
Mr. AVoiu.EY. What do you suppose will be otir expert volume?
Mr. Kydek. 1 would hate to say. I would not attempt to say what
would be our export volume. It should be, from all indications, if
we are able through this international bank or otherwise to finance it,
very much larger than normal for a few years after the war.
What follows after that will depend on very many factors, very
largely on wliether the world is having an increasing economy, in-
creasing national income the world over.
If we have that, and if we have policies favoring trade expansion,
we might have a very considerably larger export-import trade than
we had before the war. But without those conditions, I doubt if we
would.
Mr. WoRLEY. What can we do to create those conditions? What
steps can we take to increase our foreign trade ?
Mr. Ryder. Well, as I see it, there are two approaches. Probably
the more important, quantitatively, is the degree of prosperity, the
size of the national income. The larger the income, the larger your
imports and the larger your exports.
Mr. WoRLEY. Well, the amount of trade determines to some extent
the degree of prosperity, the amount of your export trade contribut-
ing to a good measure to what our national prosperity would be.
Mr. Ryder. All of these things are interrelated, of course. Also of
importance w^ill be your national policies regarding imports. In
other words, both sides will have influence.
Mr. WoRLEY. Generally, what would you recommend those policies
to be?
Mr. Ryder. I do not make recommendations.
Mr. WoRLEY. I want your ideas, not officially. We do not want to
press you, but you are in a position, through your recommendations
and ideas, to be very helpful to us.
Now, tell us what you think, w^hat your ideas are as to what the
policies should be.
Mr. Ryder. I could not answer that for two reasons: In the first
instance, the Tariff Commission has always refrained from making
reconunendations as to policy, because we always want to be in a posi-
tion where our facts, the things we furnish, will be taken as fair by
all sides, and as unbiased.
Mr. WoRLEY. That is why we think your ideas would be valuable.
Mr. Ry'der. Secondly, what should be our policies depends on so
many things that I could not foresee. What should be our policy in
regard to foreign trade would depend not only on what we would
like to do as a country, but on what other countries are going to be
willing to do. I would not want to make our policy in a vacuum, but
with some knowledge or agreements with leading countries in the
world— the United Kingdom, Canada, France, and various other
important countries.
INIr. WoREEY. ^Miat sort of agreement do you think we ought to
make with them i
99370 — 45 — i)t. 4 16
844 POST-WAR ECONOMIC POLICY AXD PLANNING
Mr. Ryder. What we would like to make, doubtless, is agreement
which would eliminate such things as imperial preferences, which
would eliminate various types of agreements such as the clearing
agreement which made it difficult for us to get into certain foreign
markets. We would like to eliminate policies which cause the in-
creased production of agricultural products in England, and other
countries under subsidy.
Mr. WoRLEY. Now, what would they like to see us do ?
Mr. Rydp:r. They would like to have us reduce our tariffs drasti-
cally.
Mr. Worley. It is like a couple of fellows trying to horse-trade;
that is all it amounts to, isn't it? We will go as far as it is necessary
to go so long as it is ])rofitable for us, and they will go as far as it is
necessary to go so long as it is profitable for them.
Mr. Ryder. That is the line upon which negotiations usually turn.
It is a very complex situation we have to face, and it is made very
much more difficult temporarily by the surpluses in a large number
of commodities, some agricultural, some mineral, and I think it ought
to be emphasized that you cannot look at your foreign trade policies
separate from your domestic policies. The two policies have to agree;
otherwise, they cancel out.
Mr. Worley. We have some pretty good horse traders in this
country, don't we?
Mr. Ryder. Oh, yes.
Mr. Worley. I hope ^^e maintain them and develop them more.
Mr. Arthur. I have one other question. You have, in the Com-
mission, had a good deal of contact with varirais industries which
feel they need protection and possibly with some tliat would be willing
to have less protection. Have workers appeared before your Com-
mission or presented their case to your Commission as to whether they
are willing, on the whole, to see less tarif restrictions, or whether they
feel they need more tariff restrictions?
Mr. Ryder. Well, in the past, working under section 336 of the
Tariff x\ct, the flexible tariff provision, we have had labor representa-
tives appear. Practically always when they appeared — and that has
not been very often — it has been either for an increase in duty, or
against any decrease in duty.
In the hearings before the C. R. I., the Committee on Reciprocity
Information, which holds hearings in connection vvith trade agree-
ments, in some cases labor unions have appeared before that commit-
tee. I was chairman of that committee for 3 years. I think practi-
cally always the unions appeared against reduction, but I do not know
whether you can judge from that, because there were a limited number |
of cases.
Mr. Arthur. Do you have ;in opinion as to the position that labor
would take in respect to the tariff? Would you say they are pro-
tective tariff advocators, or are they in favor of increasing our inter-
national trade to provide an outlet for more goods?
Mr. Ryder. From my knowledge of it, I would say that if they are
workers in a protected industry, they would be in favor of a higher
tariff. That is true of your pottery workers, and various others.
On the other hand, if you have workers in the industry on an export
basis, like automobiles, you will probably find them in favor of a.-
reduction. ^
SI
POST-WAR ECONOMIC POLICY AND PLANNING 845
Mr. Arthur. You feel they would be pretty much in harmcny with
•emplo'yers in those cases?
. Mr. Eyder. Pretty much so. The workers in each industry, as well
as the owners, usually look at things from the standpoint of what they
think is to the advantage of that particular industry.
Mr. Worley. I have a very broad question to ask you. What do
you suppose would be the effect if all countries were to remove all
trade barriers, all tariffs, and all restrictions on trade and have free
world trade in its pure essence? What do you suppose would be the
result?
Mr. Ryder. Well, I would say this: temporarily, particularly in
countries which have had very liigli tariff's, there would be a good
deal of dissatisfaction among industries who, because of the change
in policy, find it necessary to reduce their production.
Maybe in a few cases small industries would be out of business.
Usually, however, it would not be a question of going out of business ;
it would be a question of lopping off some of your higher cost pro-
duction. That would no doubt be the first result domestically in
various countries.
Of course, the long-run result would be that each country -vyould
produce less in certain lines and produce more in certain other lines.
Presumably, the increases would be in the lines where the countries
had the greatest advantage in production.
Mr. Worley. How would we stack up in that situation?
Mr. Ryder. Well, certain of our highly developed industries with
a high degree of mechanical and organizational efficiency, like the
automobile industry, would gain to a great extent by such policies.
Other industries would no doubt lose to some extent.
Mr. Worley. Is it not the purpose of these international confer-
•ences and meetings to try to effectuate a more liberal policy in trade?
Mr. Ryder. The policy of this Government since the passage of the
Trade Agreement Act. has been in that direction, and conferences with
foreign governments held under that act and the Lend-Lease agree-
ments have been in that direction.
Mr. Worley. If all l)arriers to trade were removed, there would be
no question but that all the peoples of the world would have access to
all commodities; commerce would flow freely.
Mr. Ryder. There would be no doubt but what there would be a
somewhat larger total world trade. That is assuming, of course, the
same national income, the same degree of prosperity.
Mr. Worley. We could not assume that, could we ?
Mr. Ryder. I say, assuming that. Now, if by a depression or other-
wise your national income in the various countries should be reduced
to half, then you probably would have a net decrease despite your
■change in policy.
Mr. Worley. But regardless of the income the purchasing power
would be adjusted too.
Mr. Ryder. But with the same income, no doubt the increase in
trade would be considerable.
Mr. Worley. The law of supply and demand would come into actual
and free operation.
Mr. Arthur. Under those conditions that Mr. Worley has men-
tioned, you would agree, would you not, that there would be an
increase in trade ?
846 POST-WAR ECONOMIC. POLICY AND PLANNING
Mr. Ryder, With the same world income — assuming the same in-
come.
Mr. Arthur. Also, it is your belief that trade represents a net gain,
to both traders, if it is intelligently conducted.
Mr. Hyder. I would say so ; yes.
Mr. Arthur. Would such a change as would be brought about by a
removal of these barriers then raise the standard of living in the
United States over a period of years ?
Mr. Ryder. Well, that again depends upon whether the net elfect
would be to raise the total national income.
Mr. WoRLEY. You say its effect would be to raise it ?
Mr. Ryder. I say that would depend upon whether the net effect —
and there would be effects both ways — would raise the national income,
and I presume the tendency would be in that direction.
Mr. Worley. Fundamentally, it is desirable to have a balance of
supply and demand. Is that correct?
Mr. Ryder. Yes.
Mr. Arthur. I am asking you for your judgment now, rather than
even a forecast. If the tendency would be to raise the standard of
living, your conclusion then is that removal of these trade barriers
would not result in a leveling-out process pulling us down to the level
of other countries, necessarily?
Mr. Ryder. That would depend on a great many factors. It would
depend upon the policy regarding wage conditions in various coun-
tries, and it would be a rather difficult question.
Mr. Arthur. That is a tough question, I realize.
Mr. Ryder. It is a question which is very difficult to answer. It
depends upon the purchasing power in the countries that would have
to take the greatly expanded exports necessary under those conditions.
Assuming everything to turn out favorably, you would have one an-
swer— the answer you indicate.
Mr. Arthur. Specifically, you mean what?
Mr. Ryder. A higher national income and standard of living.
Mr. Worley. But rather than risk that possibility, all nations have
built up a series of artificial barriers to protect their industries.
Mr. Ryder. Of course, since they have done that, you have the
problem of sustaining those industries; and there are very few coun-
tries that are willing to sacrifice important industries, even though
tJiey might be uneconomical.
Of course, you get the added factor of the necessity of maintaining
certain industries for national defense, and then you also get into the
question of sectional interests, the importance of certain industries
to which the tariff may be necessary in the economies of certain sec-
tions, and that sort of thing.
Dr. Reed. Wouldn't the tendency be in the case of lowering the
barriers toward free trade to reduce money wages but actually to
increase real wages? In other words, it would reduce the number of
dollars that a laborer gets per day, but he would probably get a
larger ]nunber of goods for the same dollar.
Mr. Ryder. That is the theory. How it would work out under
absolute free trade, I am not quite sure.
Mr. Reed. That is apart from the need of military protection.
There is some justification for some industries purely on a military
basis.
POST-WAR ECONOMIC POLICY AND PLANNING 847
Mr, Ryder. Yes ; I just pointed that out.
Mr. WoRLEY. We certiunly a])]Treciate your information.
Mr. Rydek. I am very (jlad to have been here. I ho])e I have been
of some hel]) to you, and if there is any further hel]3 we can be to .you,
please call upon us.
Mr. WoRLEY. You have impressed upon us some interesting prob-
lems which we will have to find answers to. If you will provide the
committee with these studies from time to time as they are published,
we will appreciate it.
Mr. Ryder. We have here some charts which we got up in connec-
tion with our work, showing the expansion in production during the
war, and the changes in the areas in which that production is located.
You might be interested in seeing them.
Mr. WoRLEY. You work in conjunction with W. P. B. in compiling
those figures?
Mr. Ryder. Yes.
Mr. WoRLEY. We went into those rather thoroughly several weeks
ago, Mr. Ryder, if those are the same figures W. P. B. has.
Mr. Whitcomb. I assume they are. We would be glad to leave these
charts for the committee to look at, if you wish.
Mr. WoRLEY. Yes ; if you Vill, we should like to examine them.
Thank you again, Mr. Ryder. If you have additional information
from time to time which you think would help tis, we would like to
have it.
The committee is adjourned.
(Whereupon, at 12:05 p. m., the committee adjourned subject to
•call of the Chair. )
POST-WAR ECONOMIC POLICY AND PLANNING
TUESDAY, OCTOBER 24, 1944
. House of Rei'Resentatives,
' SuBCXDMMirrEE ON Foreign Trade and Shipping
OF THE Special Committee on Post- War
Economic Policy and Planning,
Washington^ D. G.
The subcommittee met, pursuant to notice, at 10 a. m. in room
1303, New House Office Building, Hon. Eugene Worley, presiding.
Piesent: Dr. Vergil Reed, consultant, and Dr. G. C. Gamble, eco-
nomic adviser to the committee.
The Chairman. The committee will be in order.
This morning the Subcommittee on Foreign Trade and Shipping
of the House Special Committee on Economic Policy and Planning
reopens the second of a series of its hearings.
xV ])reliminarv examination of the functions of this subcommittee
revealed the participation of a number of Government agencies in
formulating policies in connection with our foreign trade; conse-
quently, the first hearings consisted of testimonies from representa-
tives of the Maritime Commission, the Department of Commerce,
the Foreign Economic Administration, and the United States Tariff
Commission.
Because of the involved and intricate nature of the problem, the
subcommittee is especially desirous of learning the points of views
and projected programs of private enterprise. The subcommittee is
primarily interested in measures to maintain employment at a high
level and fully realizes the importance of the role which foreign
trade and shipping can contribute to this goal. Recognizing the
economic dislocation in this trade due to the war, we are desirous to
learn the probable size and characteristics of our export and import
trade after the war and gain some knowledge of the problems of
expanding trade relationships, both fi'om a post-war and long-time
trend angle.
As the first representative of private enterprise, we will hear from
Dr. Alexander V. Dye of the National Foreign Trade Council.
Dr. Dye, will you take a seat at the table ?
STATEMENT OF ALEXANDER V. DYE, CONSULTANT OF THE
NATIONAL FOREIGN TRADE COUNCIL
Dr. Dye: Mr. Chairman, I regret very much that due to illness
the president of the National Foreign Trade Council. Mr. Eugene
P. Thomas, is not able to be here this morning. He has, however,
handed me a short statement which, with your permission, I shall
349
850 POST-WAR ECONOMIC POLICY AND PLANNING
read, and which represents no doubt, in part at least, what Mr. Thomas
would have said had be been here, and is as follows :
The National Foreij^n Trade Council was formed in 1914, as an
organization nationally representative in character, for the purpose
of coordinating the foreign trade ])romotion activities of the Nation.
It was also charged with the organization annually of a national
foreign trade convention, representative of the industrial and business
interests concerned directly or indirectly with American foreign
trade — exports and imports, direct investments, transportation, bank-
ing, and so forth,
Tlie thirty-first of tliese annual conventions was lield (his year on
October 9-11, inclusive, attended by approximately 2,()0Q delegates, a
large number of whom are not members of tlie council. At each of
these annual meetings of American foreign traders resolutions are
adopted, known as the final declaration of the convention. A copy of
this year's final declaration, unanimously adopted, is submitted to this
committee as a consensus of the views of the delegates to the conven-
tion on the major problems to be considered, in the effort to increase
the foreign trade of the United States.
The preamble to this series of resolutions relating to our major
foreign trade problems is precise in its declaration that the goal of
this and other nations is that of increasing living standards and the
highest level of employment, by increased production, increased trade,
and increased consumption. A prerequisite to the attainment of this
goal, in the words of the final declaration of the convention, is —
Thf" assurance of peace, of internal political and economic stability, of the
equitable treatment of foreign capital, the elimination of restrictive and discrimi-
natory trade practices, and of basic honesty among nations.
It is further emphasized that we are a part of the world in which we
live, that our own economy and the economies of other nations are
interlocked and interdependent, and that a greatly increased volume of
international trade ia indispensable to support the increased produc-
tion and the complete reconversion to the processes of peace that a
healthy world economy demands. The idea of international coopera-
tion, as opposed to isolationism, is considered to be basic to any sound
planning for the future.
In furtherance of these objectives, the convention strongly em-
phasizes the essential part that private enterprise must be free to take
in bringing about the restoration and expansion of our international
trade. It is I'ecognized that changes may be found necessary in the
relative positions of private enterprise and Government in business.
For this reason it is held to be of the highest importance that the
future line of demarcation between the two should be clearly defined in
order that no unnecessary minimization or impairment of the freedom
of private enterprise, as the traditional American way of progress,
shall be permitted to harass private traders with uncertainty as to
what constitutes the legitimate boundaries of Government in business.
Arising out of this is the further ])roblem of private enterprise in
international trade; its relations with foreign markets in which the
collective idea prevails under Government control. The declaration
of the convention with respect to this is as follows :
To trade widi peoples who follow a different philosophy of government and
trade, it Is not necessary to dilute our owti traditioiuil methods of government
and trade. On the contrary, we should hrmly maintain the strength and the
virtues of the American way of life.
POST-WAR ECONOMIC POLICY AND PLANNING 851
In this connection it slioukl be recalled that we had no difficulty in
the past in trading witli Soviet Kussia — a Government which has
been meticulous in the observance of its obligations, and which in the
future should form a most valuable market for our products,
especially in exports of heavy industry goods.
The difficulty in arriving at a post-war international trade policy
is fully recognized. Until political conditions and future national
economic boundaries are more clearl}' envisaged, any inunediate prog-
ress will be by a process of gradualism and adaptation to exceptional
circumstances in a world of varied national economies and conditions.
It is important, however, that no emergency post-war policies, applied
in exceptional circumstances, shall retard or render more difficult even-
tual approach to a long-term international trade policy acceptable to
all the Unit'ed States. The kej" factor in all planning for the fuUire
must be an international policj^ that will open the door in all countries
to increasing production, trade, and employment.
■ In our eliort to reconstruct the channels of international trade and
to establish stable and satisfactor}" trade relations with the rest of the
world, the convention favors the extension in its present form of the
Reciprocal Trade Agi-eement Act; that is, without requirement for
either Senate ratification or congressional approval. The convention
reaffirmed its belief that the reciprocal trade-agreements program is
the most effective way yet devised in our history to bring about the
reduction of tarift' barriers here and abroad and to foster a greater
volume of foreign trade.
It is the contention of the delegates to the convention, that the war
has accentuated the preponderant credit position of the United States
in its relations with the rest of the world ; that in order to maintain
a high level of employment and a rising standard of living in the
United States, we must greatly increase our imports as well as our
exports.
It is further pointed out that, in view of the creditor position of the
United States, any excess of goods and services furnished to other
nations beyond what we receive from them will eventually turn out to
be an economic loss to the Nation.
I respectfully refer the committee to the final declaration for the
convention's views relating to other major problems involved in the
effort to increase our foreign trade and to their proposals for a solution
of them. These include :
Private enterprise.
Monetary policy and exchange stabilization.
Direct private foreign investments.
Reciprocal trade agreements.
Treaties of friendship and commerce.
International business agreements.
The Webb-Pomerene Act.
Protection of American foreign property rights and interests.
Merchant marine.
Marine insurance.
Aviation.
Taxation.
Integration of foreign-trade protection and promotion.
Anglo-American combined boards.
Lend-Lease and Government purchasing practices.
Preserving distribution channels abroad for American goods.
Government controls affecting export trade.
852 POST-WAR ECONOMIC POLICY AND PLANNING i
Government controls affecting import trade.
Export price control. I
Surplus stocks.
That, gentlemen, is about the best I think I can do in trying to set
forth to yon the position of the National Foreign Trade Council. Un-
fortunately, I have with me only a very few copies of the final decla-
ration and those, while they are incomplete in text, are without the
index, but I shall be very glad to furnish for each member of the com-
mittee and anj^ others you desire a complete set, just as soon as they
come from the printer. I shall be very glad to answer any questions
which the committee might like to ask and which ai'e within my power
to answer.
The Chairman. I would like to say that we are very sorry that Mr.
Thomas was unable to be here today.
Dr. Dye. I shall so tell him.
The Chairman. And we do appreciate his statement.
Dr. Dye. Thank you.
The Chairisian. Would you mind, Dr. Dye, giving us scmie idea of
the nature of the Foreign Trade Council, for example, its member-
ship and its functions?
Dr. Dye. The National Foreign Trade Council was formed, as
stated, in 1914. The leading spirit in that was the late Mr. James A.
Farrell, Avho conceived the idea that all foreign traders would do well
and advance their interests materially if they coidd consult with each
other with regard to their connnon })rol)lems, so the National Foreign
Trade Council was organized as a council of foreign traders to consider
their problems among themselves and furnish each other mutually
with infoimation that might be helpful to some other member in sim-
ilar circinnstances.
One of their first acts was to sponsor the holding each year of a na-
tional foreign trade convention to which all those who were inter-
ested in au}^ way in foreign trade might come and consider their prob-
lems, and while the national foreign trade convention is sponsored by
the National Foreign Trade Council it is distinct from the council.
The council has about 1,000 members, scattered Nation-wide throiigh-
out the United States, consisting of those firms and individuals, mostly
firms, who are interested in foreign trade.
The Chairman. As I understand, you maintain a regular staff —
a research bui'eau.
Dr. Dye. It has only one office. There are no branches throughout '
the Nation. The head office is at 26 Beaver Street, New York City,,
and it has a staff of officers and a board of directors, and is a private
educational corporation.
The Chairtan. It is supported by assessments?
Dr. Dye. By membership dues.
Mr. Gamble. Does it come under the category of trade organiza-
tions, or is it more of an educational organization ?
Dr. Dye. I should consider it more in the nature of an organization
for disseminating information of mutual value to its members. It is
not exactly a trade organization. It is not an organization for profit.
It.s main id^a is for the mutual dissemination of information to its
members. It publishes no periodicals regularly except the one volume
each year of the proceedings of the national foreign trade conventicm
Avhich is published by the council.
POST-WAR ECONOMIC POLICY AND PLANNING 853
The Chairman. As I understand it, this declaration represents the
nnanimons vote of all the membership of your organization.
Dr. Dye. Yes, it was adopted unanimously, but, of course, it was
prepared by the declaration committee of 100, who then submitted the
declaration' to the convention for adoption and the convention adopted
it unanimously. But naturally there are divergences of opinion among
both the members of the council and the members of the convention.
The council, I should state also, is nonpartisan in its organization
and does not represent any particular trade except that of all those who
are interested in foreign trade, both export and import.
The Chairman. You have no minority report reflecting the disagree-
ment with the declaration?
Dr. Dye. None that I can recall.
The Chairman. Then we can assume generally that this does re-
flect
Dr. Dye. You may assume that this represents the well-considered
opinion of the foreign traders of the United States as an organization.
The Chairman. What problems did the association meet prior to
the outbreak of the war wdiich prevented foreign trade or disturbed
foreign trade?
Dr. Dye. Prior to the outbreak of the last World War the chief
difficulties in foreign trade were caused by the fact that each nation
tried to increase its exports and decrease its imports. While they
nuist have had the intelligence to know that one nation's imports are
another nation's exports, they apparently were not able to put that
intelligence into effect in practice but, instead, restricted imports into
each nation with the result that the total trade of the world was not
able to expand in a satisfactory manner and commensurate with the
progress of civilization in other directions.
That is about as concise as I can put it.
The Chairman. Then, no nation built up its export trade?
Dr. Dye. No nation built up its export trade to the fullest extent
with economic benefit to the nation. It is well known that Germany
did develop her export trade for the purpose of military advantage.
In other words, she subsidized her export trade and limited her im-
ports, but that was of no economic value even to Germany, but was of
military value, and she did increase her exports.
I wouldn't say that no nation increased its foreign trade for the years
immediately after the war. Of course, all nations did have a revival
of foreign trade immediately after the war, due to the fact that
foreign trade was practically nonexistent except for war purposes
during the First World War, and immediately after, of course, all na-
tions did increase.
There was, however, no permanent increase in foreign trade which
was commensurate with the general advance of civilization.
The Chairman. Do you suppose we will make the same mistakes after
this war ?
Dr. Dye. I don't think we will.
Tlie Chairman. Wliy not ?
Dr. Dye. I believe that the principal nations of the world are better
advised, that they have considered this matter more fully. For in-
stance, in the United States I tried, over the last 3 years, to keep track
of the organizations that were studying post-war policy. When the
number got up to some two-hundred-odd I lost track, but it shows the
854 POST-WAR ECONOMIC POLICY AND PLANNING
wide interest in post-war conditions which was not present after the
First World War and which I think is a very helpful sign, and I do
know that among the Allied Nations that there is tlie same interest in
foreign trade and the same discussions going on.
The Chairman. What do you suppose Congress can do to increase
foreign trade?
Di\ Dye.^Iu the first place, I think the first step that Congress could
take to increase foreigji trade is to extend the Keciprocal Trade Agree-
ments Act and to continue the reciprocal trade agreements program as
it stands. That, in my opinion, is the best device that has yet been
found in the United States for a sound increase in our foreign trade.
I do not need to go into a long argument in favor of that program-—
I suppose you are familiar with it — but that is my opinion, that it
is the best device which we have yet found for safely increasing our
foreign trade.
If I may go on a little further, the United States during the war
is devoting about 50 ]iercent of the total product of the United States
to war purposes. That 50 percent of increased production has not
been obtained by dividing the productive energy of the Nation in half.
It is an increase over and beyond what we were doing in 1938. That
increase has been brought about by a number of factors : First, tech-
nological improvement, Avhich increases production. Take the case of
petroleum alone. We now bring up to the surface of the ground
1,000,000 more barrels of petroleum per day than we brought up before
the war.
Not only that, but the petroleum is better quality. The 100-octnne
gasoline which we furnish our bombers is a superfuel. In fact, tlie
energy which is derived from petroleum alone in the United States
today would amount to the energy of 36 .able-bodied slaves, for every
man, woman, and child in the United States.
I cite that as only one product, but in every line of human endeavor,
in agriculture, mining, distribution, the railroads, we are doing more
work than ever before. Women liaA'e entei'ed employment. We ai'e
throwing more energy into our work. We have the advantage of
scientific development and we are developing a tremendous volume of
production and consumption. You cannot turn back that vohune
into the old channels of disuse. We have got to make some provi-
sion for continuing the high level of employment and high standard
of living, or this high production and this mighty force which we
have unleashed is going to create a serious danger.
What can we do? An increase in foreign trade will help that
situation very greatly.
The Chairman. Is that a complete answer?
Dr. Dye. It will do.
The Chairman. I mean, you tell us to build up our foreign trade
in order to absorb this excess
Dr. Dye. It will help a great deal. I don't think it will entirely
solve the problem, because the first thing Ave must face is to increase
our domestic production and consumption. An increase in our for-
eign trade depends primarily on an increase in our domestic produc-
tion and consumption and not vice versa.
The Chairman. Would you care to elaborate on that? How can
we increase our production and consumption, domestically?
POST-WAR ECONOMIC POLICY AND PLANNING 855
Dr. Dye. By making a gradual shift over, and yet as fast as may
be, from war production to tlie production of consumers goods —
production and consumption in the United States.
The Chairman, Are you familiar with the legislation Congress has
already passed on contract termination, demobilization, and disposal
of surplus goods?
Dr. Dye. Somewhat, but foreign trade is my field and I would rather
stick to the foreign-trade angle.
The Chairman. You mentioned the point that the foreign trade
would largely depend upon the conditions at home.
Dr. Dye. That is true. The value and the amount of foreign trade
which we are able to do will depend on the volume of production
and consumption which we can maintain at home, for the reason
that we must import in order to export. We are predominantly a
creditor nation. Any increase in the amount of goods and services
which we send to other nations will in the long lun turn out to be an
economic drain on the United States unless we can also increase the
amount of goods and services we receive.
If we have a high level of employment, a large amount of pro-
duction and consumption in the United States, we shall be able to
buy certain raw materials vvhicli we need from abroad to keep our
factories going. For instance, we shall need hides in the leather
industry, linseed oil in the paint industry, tungsten for metallurgical
products ; we shall need a number of raw materials.
With an increasing pay roll we shall be able also to increase the
import and consumption of foodstuffs, such as tea, coffee, bananas,
sugar, and a great many of the so-called luxury products, which range
all the wav from Irish linen to Scotch whisky, which Avhile they may
not contriLute to a higher standard of living some of our people want.
We shall thereby increase the total volume of foreign trade.
But the crux of the whole situation is this : Any increase in our
exports over what we take in under the present creditor position of
the United States must eventually result in giving the goods away,
unless we can counterbalance it by an increase in imports, and that can
only be done by maintaining a high standard of living and production
and consumption in the Uited States.
Tlie Chairman. And we are right back where we started.
Dr. Dye. Yes ; we are right back where we started.
The Chairman. We have to maintain a high production and a high
consum])tion over here, and therefore a high standard of living.
Dr. Dye. Yes, sir.
The Chairman. Your first answer was with regard to reconversion
from wartime to a peacetime basis. Would you go on and explain
the rest of the answer? Does that fully answer the question?
Dr. Dye. I think that is about all tliat I can say in the way of in-
creasing domestic production and consumption. It would depend en-
tirely on the goodwill, the courage, and the amount of initiative which
is left to private traders in the United States to carry on their business
with maintenance of the profit incentive, in my opinion.
The Chairman. Then all we need, in your opinion, to maintain high
production and higli consumption is orderly reconversion to peacetime
production, without wartime jestrictions and control ?
Dr. Dye. I think that is all we can do.
I
856 POST-WAR ECONOMIC POLICY AND PLANNING
The Chairman. Didn't we have that same situation existing prior
to our entry into the war? We were capable of producing, were we
not?
Dr. Dye. But we did not have a high level of either production or
consumption, or a sufficiently high level.
The Chaikman. Well, didn't we have a high level? The Govern-
ment did come in and buy a lot of excess agricultural products.
Wouldn't that indicate a high level of production?
Dr. Dye. That, of course, did increase the level of production in the
things that the Government bought. That is perfectly true.
The Chairman. But it did not increase the high level of consump-
tion which we have to have along with the production?
Dr. Dye. A high level of consumption must be present, because
our trade — all trade — depends upon an exchange of goods with each
other. We cannot trade, either nationally or internationally, by any
other metliod, and both from the national standpoint and from the
individual standpoint, it is what we buy that makes us happy and
not wliat we sell. We sell what we don't want in order to buy what
we do want, and in ni}^ opinion we have got to get back to this funda-
mental pi'inciple botli in national and international trade.
Tlie Chairman. It takes two to make a trade, in other words.
Dr. Dye. It takes two to make a trade. Men of good will must be
able to go out and buy and sell in the open market.
The Chairman. Did you see in the press a story with a London date
line headed "British begin major bid for post-war world markets,"
which reads :
London, October 19. — ^Bidding for post-war world markets, hundreds of com-
mercial travelers already have left England with Government help to start a
"Buy British" campaign around the world, the Daily Express said today. .
Harcourt .Johnstone, Secretary of the Department of Overseas Trade, said i
that while the Americans are making "more spectacular" eftorts to capture world
markets, England "is not going to be left out in the cold."
The Overseas Trade Department has made ti survey of 26 countries outside
the battle area of Europe for the "Buy British" drive and has organized 140
exporting industries, it was announced.
Do you know of any effort this Government or the citizens of this
Government are making corresponding to the efforts made by the
British?
Dr. Dye. No ; I don't know of any specific efforts, but I think it may
be safely assumed that they are doing and will do after the war aU
they can possibly do to increase their export trade, and very legiti-
mately so.
The position of the United Kingdom in that respect is different
from the position of the United States, to this extent — that foreign \
trade is very necessary to their national life. Before the war the ;
United Kingdom produced about 40 percent of their food. That is, J
40 percent on a calory basis, and 50 percent on a cost basis ; roughly |
that.
They had to import 60 percent of their food just to keep alive. In
order to do that, they had to export the products of mining and manu-
facturing. About 5 percent of the workers of the United Kingdom
])roduced the 40 percent of food that was raised at home; the other
t).") percent of the workers were engaged in mining and manufactur-
ing and producing goods for export in order that they might buy food
^ POST-WAR ECONOMIC POLICY AND PLANNING 857
and the raw materials necessary to maintain their national life, so
that their foreign trade is a vital necessity to that nation, and I think
it may be safely assumed that they must do everj^thing that they can
to increase their foreign trade.
The Chairman. You don't know of any spectacular effort this coun-
try is making to develop its post-war trade?
Dr. Dye. No ; I do not. I know of no spectacular effort at all.
The Chairman. Do you know of any effort?
Dr. Dye. Our foreign traders are thinking and planning, although
they are not doing a great deal at present because all their efforts are
devoted to the war. But they are thinking very seriously about those
things, making their own plans as to what they shall do as soon as
they have an opportunity to enter foreign trade.
The Chairman. You say that it takes two to make a trade. We
first have to buy if we want to sell. That is generally true?
Dr. Dye. That is generally true ; yes. That is a fundamental tnith
that we must accept in the situation.
The Chairman. How do you suppose purchasing nations will pay
for what we want to export ?
Dr. Dye. In the long run there is only one way in which they can
pay. and that is by furnishing us goods or services, or gold.
The Chairman. Goods or services or gold ?
Dr. Dye. Or gold. Now, as to gold, they will probably not — we
don't need the gold. I don't need to tell you that we have over half of
the world's gold now, that we are paying $35 an ounce for gold from
otlier foreign countries. We pay for that in United States currency,
which is a draft on the products of the United States and can only be
spent in this country, and can only be converted into things j^Miople
need through our furnishing goods and services to correspond to all
the currency and credit we supply.
■ We may postpone the furnishing of goods and services by other
nations for a long time, in two ways: (1) We can make loans, but we
must bear in mind when we make a loan that there is only one way in
which that loan, or even the service on the loan, can be brought back
to the United States, and that is in the form of goods and services.
The loan may stay out a long time, but it cannot come home an}'^
other way.
The Chairman. When j^ou say "We" make a loan, do you mean the
Government or private industry ?
Dr. Dye. It doesn't make any difference, either the Government or
private enterprise. There is only one way that that loan or the pro-
ceeds can come back home and that is in the form of goods and services
furnished to the United States or the citizens of the United States.
(2) Investments may postpone the return, perhaps, for a still longer
period. You may postpone the return for a very long time, but even-
tually even tlie investment or the return on the investment can come
home only as goods and services. You cannot get avmv from that,
because from a monetary standpoint the nations of the world are
divided into what we might call watertight compartments. If a man
sells his products in any foreign country he has to accept the currency
of that country in payment for those goods. If he wants to buy some-
thing from that countr}^ he can sjoend that currency there. If he
doesn't l^.e must exchange that currency with somebody who does.
858 POST-WAR ECOXOMIC POLICY AND PLANNING
Eventuality the balances of ti'ade between nations must be settled in
goods and services.
The Chairman. You are familiar, of course, with the Bretton
Woods Conference and the recommendations made at the conference?
Dr. Dye. I hesitate to use the word "familiar." I know of them.
The Chairman. Are you familiar with the subject sufficiently to
express an opinion ?
Dr. Dye. No, I wouldn't like to express an opinion, because of the
fact that I haven't studied the matter sufficiently. It might interest
you to know that the National Foreign Trade Convention on that
subject has made the following statement :
This convention recognizes that it is in the interest of this country to extend
sound cre<]it in one form or smother to assist other nations whicli are taking
steps to reliabilitate tlieir eeondniifs and monetary systems. We affirm that the
United States can malip an important contribution toward international monetary
stability by making determined efforts to put its own affairs in order and by
adopting policies with respect to tariffs and other trade restrictions which will
permit debtor nations to meet their engagements through the delivery of goods
and services.
This convention recommends that the National Foreign Trade Council appoint a
standing committee on international finance and charge such committee with the
responsibility of further study of the Bretton Woods agreemenfs and the rendering
of a report to the directors of the National Foreign Trade Council before the next
Congress convenes in January 1945 ; with recommendations as to whether, and
when, in its opinion, the agreements re international monetary fund and the inter-
national bank for reconstruction and development should be ratified by the Con-
gress of the United States, or what other steps should be taken by Congress to
facilitate cooperation with other nations in this field.
The Chairman. You made no recommendation either way ?
Dr. Dye. No; no recommendation has been made as yet, and, as ^
stated, a committee has been set up to give very careful study to this jj
and report to the directors as to whether or when the act should be
ratified, or what should be done by Congress, and that report is to be J'
made before the next Congress convenes.
The Chairman. During the 10-year period before we got into the
war, what was the volume of our exports?
Dr. Dye. Before we got into the war? I
The Chairman. Yes. |
Dr. Dye. As I remember it, and I hesitate to speak from memory {
when the exact data are so readily available, but as I remember it, it
was about $3,000,000,000.
The Chairman. That was the general average ?
Dr. Dye. That was the general average ; yes.
The Chairman. How much did we import during that time?
Dr. Dye. Slightly under that. Our exports are always a little over
our imports, or have been for a number of years. ]
Tlie Chairman. This post-war foreign market we are trying to ]
build ui^ — what do you suppose we ought to aim at, in terms of dollars?
Dr. Dye. Well, we ought to aim at the highest possible exports we
can obtain, without setting any figure in dollars, I don't see any prac-
tical value in setting a definite goal and saying, "We will export so
many dollars worth of material." We ought to export all the goods
we possibly can if we can get a sound way of paying for them without
economic loss to the United States, and I wouldn't say that it is worth
v.'iijk' to set any definite figure, except all that we can possibly do.
!
POST-WAR ECONOMIC POLICY AND PLANNING 859
The Chairman. Isirt that the crux of the whole matter, that we
should not export more than we can get paid for?
Dr. Dye. That is the crux of the whole matter. The whole crux of
it comes down to how much we can do, bearing in mind the general
welfare of our people. It all boils down really to that.
The Chairman. Do 3'ou gentlemen have any general questions? I
think I would like to have a few generalities, and then run through
some of these final recommendations.
Dr. Dye. Whatever you like.
Mr. Reed. Dr. Dye. do you consider, in practical exporting, the
Webb-Pomerene Act would need any change as a legislative instru-
ment? At present, I believe that when you enter into importing;, you
are subject to restrictions, but as long as you confine it purely to ex-
ports, which is a difficult thing to do, you can go ahead in combination.
Has 3'our organization made any reconnnendations as to what may
be done under the Webb-Pomerene Act?
Dr. Dye. Article 7 of the final declaration headed "The Webb-
Pomerene Act" reads as follows :
The principle expressed in the Export Trade Act (Webb-Pomerene Act) of
permitting groups of American exporters to operate collectively in export trade
is again endorsed by the convention. It is considered that the need for this
law will be greater during the post-war period than even before, and that such
a law is essential to enable American exporters in many industries to meet
foreign competition and to withstand the demands of foreign buying organiza-
tions. It is the sense of the convention that the administration of the Export
Trade Act should be vested in but one administrative agency.
Mr. Reed. Well, now, as to the extension of it, is it workable as it
stands, or should it be changed, and in what respect should it be
changed? There has been a great deal of criticism of it for many
years, that it ties our hands too much, and many of our concerns
are afraid to take advantage of it because the moment they do any
importing they become subject to prosecution.
One of our firms is at the present time under investigation for op-
eration under the Webb-Pomerene Act.
Dr. Dye. There is, I am sure, a general feeling among foreign
traders that the Webb-Pomerene Act should be clarified, due to in-
terpretations which have been placed on the Webb-Pomerene Act by
the courts.
Mr. Reed. So that it is a matter more of interpretation than it is a
change of the act itself?
Dr. Dye. Well, in view of interpretations which have been placed
on it, it is not now the value that it was to foreign traders. I think
that is the general opinion.
Mr. Reed. If they do any im]:)orting they are precluded from using
this act, so that it becomes really a handicap, because the first thing
they know, they find themselves in a position where they have to do
some importing, and then they find themselves open to prosecution
under the act. as I understand it.
Dr. Dye. I believe that is the position.
Mr. Reed. Do you have any suggestions as to how that could be
changed so that it would be a little more flexible?
Dr. Dye. Xo concrete suggestions, except that it should be clearly
known to foreign traders just what they can do under the act. 1
99579 — 45 — pt. 4 17
860 POST-WAR ECOXOMIC POLICY AND PLANNING
think they are quite willing to conform to what the law prescribes
if they can be quite sure what the law does prescribe.
Mr. Reed. Another question I have been constantly running into
in talking with foreign traders, Why don't we have a foreign trade
policy ? What are the elements of foreign trade and shipping policy ?
How do we know what they can do? Now, if the organization you
represent was laying out two or three basic foreign-trade policies
which you thought should be consistentlj^ followed as a course to
arrive somewhere, rather than for daj'-to-day operations, what would
those two or three basic policies of foreign trade be, so that the
foreign traders could understand that this is the Government's policy ?
Do you have any suggestions along that line ?
Dr. Dye. I might
Mr. Reed. The Britisher knows that his Government's policy with
reference to foreign trade is one, two, three and four. We have not
been in that fortunate position.
Dr. Dye. So far as we could declare a foreign trade policy for the
United States, I think we have stated, or I have stated, some of the
fundamentals.
Point No. 1 : Such a policy must always be considered in the light
of the greatest good to the greatest number; the second point is that
so far as possible private enterprise in foreign trade should be re-
stored. Next, that we must recognize the fundamental truth that
foreign trade is always, if it is profitable, a two-way trade, that we
must import as well as export; that we must recognize the funda-
mental position that the United States is now predominantly a credi-
tor Nation, and that comes back to what I have said, I am afraid,
with some repetition.
The Chairman, You mean the people do not recognize the fact
that we are a creditor Nation ?
Dr. Dye. I don't think many of them do recognize that we are
a creditor Nation. We are still, I am afraid, nationally under the
idea that the main idea is to export and export and export, without
stopping to realize that we must import in like measure, or we will
give away the goods and services of the United States.
Mr. Reed. And as we become a creditor Nation to a greater de-
gree, we have to do more and more of that?
Dr. Dye. As we become a creditor Nation to a greater degree it is
inevitable that we nmst. In other words, from now on, logically and
economically, our imports should exceed our exports. That is as
near, in a few words, as to what I can do in the monumental task of
laying out a policy.
The Chairman. Do you anticipate you will have any difficulty in
convincing the people in the Government?
Dr. Dye. I think they believe in such principles.
Mr. Reed. One other thing: We have always been handicapped in
the past by the amount of market information on foreign markets
that is available. For instance, most countries, when they try to
figure out the U. N. R. R. A. expenses, could not figure within a
billion of their national income. What would you say would be the
minimum of types of information that our Government should be
encouraged to collect, or what should be made available to exporters
and importers concerning foreign markets?
POST-WAR ECONOMIC POLICY AND PLANNING 861
In otlier words, what would be a skeleton of information which
should be made available to exporters and importers by the Govern-
ment that would assist them the most without being a waste of the
taxpayer's money in collecting such information?
Dr. Dye. Well, I think that the foreign traders should be fur-
nished with all the information which is in the possession of the Gov-
ei-nment and which would not be in any way injurious to the war
effort. At the present time, of course, we realize there is a great deal
of information in the hands of Government departments which can-
not be given to private traders.
But in the post-war period I think we should organize our Govern-
ment and cooperate with our private interests and enterprise in such
a way that there will be the most complete confidence and mutual flow
of information from the one to the other, because the most happy
situation would be that they supplement each other daily with the
information which they can furnish to the Government, and the
information which the Government can furnish them, and that I hope
will take place. There isn't exactly any minimum.
I think the men now in the Government, and who will be in the Gov-
ernment in the post-war period, will have sufficient intelligence to sift
out what is of value (and that can easily be collected) by constant
consultation with business as to what they need and what it is the^
appropriate function of the Government to furnish.
Mr. Reed. Is there any information on various countries of com-
parable nature available in such form that it can be fitted' together
into a complete picture ? We cannot now find data on any two coun-
tries which we can j)ut together, but we have to piece together widely
varying data.
Do you know if our Government has ever undertaken to encourage
or assist other governments in collecting and getting together any kind
of standard information that would be mutually advantageous, from
their standpoint to us, and from our standpoint to them, or is that
practical, in your opinion ?
Dr. Dye. Yes. in pre-war times we had frequently — not frequently,^
but at least quite a number of visits of statisticians and people in
Government departments from other countries who came to the United
States to study our methods of gathering trade statistics, in order that
they might go home and see if they were doing the best they could, and
in that way there was some cooperation. But I don't know of an}^
organized system, except that of the League of Nations. The League
of Nations, of course, did try to get uniform statistics, as far as possi-
ble, and tliey are published in a number of volumes of the statistical
reports of the League.
But we do need more uniformity, and at almost all meetings of for-
eign traders one of the declarations, as in this one, is that there should:
be an effort to secure uniform statistics from all countries.
Mr. Reed. One other question. You can answer this either off or on:
the record, so far as I am concerned.
"\^Tiat, in your opinion, is the reason why our shippers and our
tourists seemed to use our shipping to so little an extent before the:
war? Consistently, we heard from shipping men that Americans
would not use their own ships. I think I know some of the reasons,
but what, in your opinion, was the main reason that we suffered?
862 POST-WAR ECONOMIC POLICY AND PLANNING
Didn't we furnish as good service? Do we have any better chance of
encouraging our own exporters and importers to use our own ships
after this, than we had before the war?
Dr. Dye. Any general dechiration or statement of that sort is a bit
dangerous to make, because there are variations in the service. But
generally speaking, perhaps it was because of two main ideas in the
minds of Americans who used ships. One was the question of price,
and there were cheaper services furnished on some lines, particularly
between here and Europe, than the American lines charged. There
were also more expensive services.
But there was also, perhaps in the American mind, the idea that he
wanted to go abroad, that he wanted to see foreign things, and he
wanted to ride on a foreign ship.
But generally speaking, I think it was probably due to tlie fact that
the American public is not as well acquainted with the service which
American ships can give as they ought to be. I think that perhaps is
one of the main reasons, because they were not properly appreciative
of the service which American ships could render both in the way of
freight and passenger service.
And there is this that must always be borne in mind with regard
to freight. It has long been a tradition, not only tradition, but cus-
tom, that the exporter designates the steamship line on which his goods
shall go. Naturally, the importer in a foreign country designated
a foreign boat. So that is a very natural reason why the foreign boats
got the majority of freight.
.Mr. Reed. What do you think should be done on guaranteeing ex-
port credits? Let us leave out the idea of straight loans for the
moment. But what do you think the Government should do, if any-
thing, on straight export credits, that is, credit for goods and services
sent abroad. Have you any ideas on that ?
Dr. Dye. That is a much debated subject among foreign traders
themselves. Tliere are some wdio feel that we should, for instance,
meet the competition, say, of Great Britain, which does guarantee
credits, I believe, at the present time, up to 90 percent. It was started,
as I remember, in 1926, with some 40 or 50 percent guaranty of cred-
its and then as the v;ar became more threatening was advanced to
some 90 percent, and there was a feeling that in order to assist our
foreign traders our Government should likewise guarantee credits up
to a certain amount.
But there is this factor which must be considered : If the transac-
tion is one which ordinary commercial prudence would dictate might
be made, the commercial banks will usually supply credit for the
transaction. There is a shadow land, a varying zone in foreign trade
where perhaps private banks are not justified in taking the risk but
where the Government, particularly a Government to which exports
are a very vital necessity, could guarantee sound credit in excess of
the amount the exporter and the b:tnks would assume, and there might
be a legitimate field for that. But at the present time it seems to
me, quite frankly, that that field is filled or could be filled by the
Export-Import Bank.
Mr. Eeed. On a long-term basis, say 10 years
Dr. Dye. Perhaps not on a very long term, for in principle tliere
is really no difference between very long-term credit and the making
POST-WAR ECONOMIC POLICY AND PLANNING 863
of a loan or a foreign investment. What yon do is to take over and
gnarantee a very long-term credit which can be repaid only to the
United States by the import of goods and services, so you come back
pretty much to' the position of the ordinary straight loan,
Mr. Gamble. Dr. Dye, what is your attitude, or what is the at-
titude of the Council, toward lend-lease and its extension ?
Dr. Dye. I cannot tell you what the attitude of the Council as an
organization would be, because that attitude could be determined only
by the board of directors. There is a paragraph in the final declara-
tion on this subject which, if you like, I shall take a moment to read
to you :
Lend-lease is a war measure and shoidd be continued only as long as required
for the successful military prosecution of the war in Europe and the Far East.
Lend-lease should be restricted to the handling of such purchasing only as
cannot be done through regular commercial channels, and should not be used
to meet the civilian requirements of a country when such procurement can be
secured through conunercial trade channels.
The rapid reduction of cash-reimbursable lend-lease procedure is commended.
This procedure should be immediately abolished. Where fimds are available to
reimburse lend-lease in dollars, purchases should be made through commercial
trade channels. Cash-reimbursable lend-lease procurement of commercial items,
at United States Government prices, disturbs and renders impotent export and
import trade channels.
Commercial channels of distribution abroad are essential in the post-vs^ar
period. Government bulk pvirchasing of American goods for distribution by
governments themselves should be discouraged. Elfective supply and transpor-
tation assistance should be made available to private traders to enable essential
goods to move entirely through commercial channels both here and abroad rathei
than continuing bulk purchasing operations.
We recommend greater use by all Government agencies concerned of foreign-
trade advisory groups, both generally and in specific industries, to bring about
the prompt implementation of the above recommendations.
I think that states pretty clearly the position of the foreign-trade
interests.
The Chairman, Yoti have a copy of the final declaration before
you?
Dr. Dye. I have a copy and shall be very glad to furnish you with
copies just as soon as they are available.
• The Chairman. Would you mind turning to page 4?
Dr. Dye. Yes ; I have that.
The Chairman, That is headed "Private enterprise."
Then, on page 5, you say:
There nmst be neither private agreements nor Government monopolies oper-
ating in restraint of trade * * * There must be freedom of opportunity open
to all, to buy and sell in the best markets.
Do you find that?
Dr, Dye, Yes, "There must be freedom of opportunity, open to all,
to buy and sell in the best markets."
The Chairman, Are there any restrictions now, or were there any
in peacetime prior to our entry into the war? Was anyone denied an
opportunity to buy and sell, if they wished to do so?
Dr, Dye. I don't think there was, except in many countries there
existed quota systems, exchange control, unreasonably high tariffs,
and other barriers to trade, even in some cases absolute embargoes,
which constituted lack of opportunity. I think you are thinking par-
.ticularly of this country, and we have in mind the general trade situ-
ation of the world.
864 POST-WAR ECONOMIC POLICY AND PLANNING
The Chairman, There was no law or regulation or rule in this
country which would deny freedom of opportunity to buy and sell in
the best markets.
Dr. Dye. No. In this country, as I remember it, there is no hin-
drance to free trade except the high tariffs in some instances, but that,
of course, is not exactly a lack of freedom, because it is equal to all,
and our tariffs were the same for all countries and all peoples.
The Chairman. We talk a lot about freedom of enterprise and
initiative and the American way of life. I think, of course, everyone
subscribes to that, but there seems to be some confusion in some
sources as to what the Government should do in peacetime. What
restriction imposed by the Government, or what rules of law in peace-
time would operate to interfere with private initiative or enterprise?
If you can, will you give us some examples of what you think would
restrict private enterprise and initiative?
Dr. Dye. The whole question, Mr. Chairman, of private enterprise
is extremely difficult, because none of us has been able to define to the
satisfaction of everybody just what is private enterprise. J
The Chairman. When you say "freedom of enterprise," what do
you mean?
Mr. Dye. What I mean by freedom of enterprise is a freedom;
within established laws and regulations which are designed for the '
protection of all, for the human individual to operate, and I mean
particularly by private enterprise that he should be allowed the in-
centive of private profit. In other words, that, to my mind, is the key-
note to the whole question of private enterprise; that the profit motive
should be left to the human being to carry on, and in this day we
all realize that we do a great deal of collective activity in human
life. None of us is entirely free, none of us is entirely private. It ;
is just a question of the relationship between the amount of col-
lective activity which we shall do and the amount of private work
which we might do, with the profit incentive whereby we alone
receive the profits derived from our own efforts. It gets into a
rather theoretical and somewhat of a metaphysical discussion. But
that is what I conceive to be the right of private enterprise, and the
crux of that whole question of private enterprise is that a man should
be allowed to retain the profits which are due to his own efforts.
The Chairjian. ^Vhat laws have been passed by the Congress that
would restrict that?
Dr. Dye. Well, we do many things by collective activity which'
restrain the private individual. We have restrictions about the
movement of vehicles on the highways; we have harbors with regu-
lations; we have tariff's, among other things, which to some extent
limit the fi-eedom of the individual as to what he may do. But I
don't know that Congress can do anything more than to fully recog-
nize that the keynote of the dynamic force which has made our
Nation what it is today is private enterprise, in the sense which I
have indicated, and that it is vitally necessary to the preservation of
this country that we keep alive that principle and make it strong and
enduring.
The Chairman. I think you are eminently correct, but do you have
any suggestion as to what Congress might do to repeal any laws which
vou think interfere with that freedom?
i
POST-WAR ECONOMIC POLICY AND PLANNING 865
Dr. Dye. Not beyond the fact that we all recognize that many laws
and regulations in evidence now are due to the war effort.
The Chairman. That is true.
Dr. Dye. And those shoidd be repealed as soon as conditions per-
mit. But beyond that. I have no suggestions.
The Chairman. You think in peacetime our laws are sufficient to
permit profitable operation in foreign trade for anybody who wants
to operate?
Dr. Dye. They certainly have been.
Mr. Reed. Doesn't it depend a great deal on interpretation?
Dr. Dy-e. Well, that is another problem.
The Chairman. I see in your resolution No. 2 —
This convention recognized that it is in the interest of this country to extend
sound credit in one form or another to assist other nations which are taking
steps to rehabilitate their economies and monetary systems.
Dr. Dye. That is right.
The Chairman. If I understand your position, you think, since we
iire already a creditor nation, we will ha^e to continue that policy?
Dr. Dye. We shall have to extend, and I think should extend, sound
credit to assist other nations. In addition to that, we are, as you are
aware, preparing to give away, through the United Nations Relief
and Rehabilitation Administration, an amount which was calculated
at that time at $1,340,000,000 of goods as a sheer gift, and I think we
all endorsed that, but we shall have to extend credit to foreign coun-
tries, sound credit, and I think that is the position of the foreign
traders.
The Chairman. In the following paragraph you suggest :
We affirm that the United States can make an important contribution toward
international monetary stability by making determined efforts to put its own
affairs in order and by adopting policies with respect to tariffs and other trade
restrictions which will permit debtor nations to meet their engagements through
the delivery of goods and services.
Can you give us a better idea as to where our domestic affairs may
be out of order ?
Dr. Dye. I would hesitate to interpret a declaration of the conven-
tion of 2,000 individuals in that respect.
The Chairman. I understood it was a committee of 100.
Dr. Dye. Well, even a committee of 100, I should hesitate. But
my guess at what is meant is that eventually we must balance the
Budget. We must do so in the interest of the stabilit}'^ of our own
financial affairs, and that, I think, is what is intended — that we must
balance our Budget, our Federal Budget.
The Chairman. In your association you have many very success-
ful individuals.
Dr. Dye. Yes.
The Chairman. During the course of the discussion on this par-
ticular resolution, did anyone suggest how the Budget could be and
should be balanced ?
Dr. Dye. No, I can't recall any particular discussion except that I
think the eventual idea is that in order to balance the Budget it is
obvious that we must stop spending more than we take in.
The Chairman. I don't think there is any question about that. Is
that as far as vou can ffo?
866 POST-WAR ECONOMIC POLICY AND PLANNING
Dr. Dye. I think that is as far as we can go on that subject.
The Chairman. There is no disagreement on that at all. Continu-
ing—
By adopting iwlicies with respect to tariffs and other trade restrictions which
will permit debtor nations to meet their engagements through the delivery of
goods and services.
Will you elaborate on that?
Dr. Dye. Well, I think what they had in mind was that we should,
so far as possible, with an eye to the welfare of the entire Nation
and the maintenance of a high level of employment and production,
reduce our tariffs, provided we can get a compensating increase in our
foreign trade through a reduction of trade barriers in some other coun-
try, which brings us back to the reciprocal trade-agreements program.
The Chairman. Which you endorse.
Dr. Dye. Which we endorse.
The Chairman. On page 7, in the concluding paragraph of reso-
lution No. 3, you say :
The essential objective is that private investment capital be induced by at-
tractive terms and sound opportunities to flow to those areas where it can be
productively employed.
What do you suppose this Government can do to encourage that?
Dr. Dye. The one thing which the Government can do is, through
its foreign relations to try always to see that justice is obtained in
a foreign country in which investment takes place, and that the
same conditions of protection are accorded to such loans and invest-
ments in foreign countries as is given to loans and investments of
other countries in this country. That must rest on a mutual arrange-
ment. That is one thing which the Government could do.
The Chairman. Do you think it is desirable that we should en-
courage our own people to invest in other countries ?
Dr. Dye. I don't believe they need any encouragement. I think if
the outlook is attractive that they will take it, and I don't think there
should be any artificial stimulation of the investment of private
capital in foreign countries.
The Cil\irman. In other words, you think it is a good idea for
foreign governments to come over here?
Dr. Dye. Exactly; it has, and it does. That is what made our
country really very prosperous in the early days, the investment of
foreign capital in this country, which received justice and fair treat-
ment and made good profits and endured up to perhaps the First
World War when we were able to pay back most of the investments,
although quite a good many still persist. That is the way in which
all of these investments, I think, should be considered, on the basis
of mutual protection in accordance with international laws of justice.
The Chairman. You don't suppose that foreign capital would offer
too much competition to our own domestic capital?
Dr. Dye. No ; I don't think it would. There are many investments
in this country and the field is open in fair competition, and I think
we need bother little about that.
They will invest in this country if they see a good chance to make
money, and they do.
The Chairman. And if we saAV a chance in other countries?
J
POST-WAR ECONOMIC POLICY AND PLANNING 867
Dr. Dye. And if we saw a chance for private industries in other
countries, I should think we should go in.
The Chairman. Have you any idea how much foreign capital is
invested in the United States '?
Dr. Dye. No; but I think it can be secured through the Bureau
of Foreign and Domestic Commerce. They issue annually a book
called the Balance of Payments which I think gives you very accurate
information in that respect. Dr. Reed would be familiar with that.
(Dr. Dye advised subsequently that the amount at the end of 1940
was $9,785,000,000, which figure is still subject to revision upward
according to the Department of Commerce.)
The Chairman. Have you any idea how much we have invested
abroad ?
Dr. Dye. I am sorry to say at the moment I cannot remember, but
it is readily available.
(Dr. Dve advised subsequently that the amount at the end of 1940
was $11,181,000,000.)
• Mr. Reed. Would you preclude the guaranteeing of loans in those
areas where you coulcl not get private capital to invest?
Dr. Dye. Xo; I wouldn't preclude that, if you consider that as a
stimulus. I think that would be all right. The one thing I should
like to point out — well, we get back to the same old statement — that
private enterprise in making such loans, or even the Government,
should bear in mind that the return of the interest must be eventually
in the form of goods and services. That must always be borne in
mind.
The Chairman. On page 8, resolution No. 6, International Business
Agreements.
Dr. Dye. Yes.
The Chairman. Now, on page 5 of resolution 1, you say that there
must be neither private agreements nor Government monopolies oper-
ating in restraint of trade, and the first paragraph of resolution No. 6
says :
The question concerning cartels in foreign trade is not whether American busi-
ness favors or opposes them. It is rather to find the best method in the national
interest for Americans to play an active and effective part in a world in which a
substantial portion of trade and business is conducted by either governmental
or private cartels.
Would you mind giving the committee the benefit of your experi-
ence and information as to just what a cartel is? AVliat is your defini-
tion of a cartel?
Dr. Dye. I tried once to make a definition of cartel and it ran to
three pages, and I was still not satisfied. The question of what is a
cartel is really one thing that is very difficult to determine. Many
definitions have been attempted.
I think we all have the idea generally that a cartel is a combination
or an agreement between producers or buyers or sellers to substitute
cooperation for competition, and that such cooperation usually takes
the form of fixing prices or marketing areas, or some other definition
which may restrain trade. But I am afraid that that is not a satis-
factory definition, nor a full definition.
The Chairman. What is a satisfactory definition ?
Dr. Dye. As I say, I am not quite sure that I can make one.
868 POST-WAR ECONOMIC POLICY AND PLANNING
The Chairman. Well, am I correct in saying that a cartel is an
agreement between two parties by which the competitive effort is
abridged or injured?
Dr. Dye. A cartel might do that, but not all cartels do that.
The Chairman. Well, what cartels don't do that?
Dr. Dye. Well, a cartel in which an agreement is made that if they
do not furnish a competitive price, or if they do not furnish sufficient
service, or if for any reason they are not able to establish a quota of
business, they drop out of the cartel. And there are such cartels in
existence.
The Chairman. There are ?
Dr. Dye. Yes. Not in this country, but abroad. Or there were
before the war.
The Chairman. Generally, I think we have some idea of what we
mean by cartel.
Dr. Dye. I think we have a general concept of it, as we have both
stated. I think that is the general concept in the public mind of a
cartel.
The Chairman. Generally that they will interfere with or impair
or liave an adverse effect on competition.
Dr. Dye. Yes, and as stated in the declaration, a willing buyer and
a willing seller must not only be permitted to get together; they
must be encouraged to the maximum to do so. There must be neither
private agreements nor Government monopolies in restraint of trade.
I think we are all agreed on that.
There must be reasonable freedom of action under broad controls established
by law, and not by bureaucratic mandate. There must be freedom of opportunity
open to all, to buy and sell in the best markets.
I think that is a fair statement of the question of cartels. The rest
is a little long, but if you w^ould like to read it, or have it read
The Chairman. I have read it, and am interested in what you have
to say about it. But that does not answer the question we are facing in
Congress. Do you think, on the whole, that cartels are desirable or
undesirable ?
Dr. Dye. On the whole, they are undesirable.
The Chairman. Why?
Dr. Dye. Because they do restrain trade. But the problem which
faces us as foreign traders is not really whether they are desirable
or undesirable, or whether we approve them or whether we favor
them — —
The Chairman. Wliy?
Dr. Dye. The practical problem is they do exist and how are we go-
ing to carry on our foreign trade in the face of that existence ? That
is the practical problem which faces the foreign traders.
As it says :
Most foreign nations important in trade favor or at least permit the cartelized
system. They have done so in the exercise of their sovereignty and in response
to their ovpn economic needs. Attempting to convert them to our system appears
impracticable, not only because we should respect their autonomy but also because
of the numerous exceptions binder which each nation would insist and because
of the inevitable differences in enforcement policies.
So the problem we have is to go along with them and carry on our
foreign trade to the best advantage of the Nation, recognizing that
they do exist in most foreign countries, and that in the case of Soviet
J
POST-WAR ECONOMIC POLICY AND PLANNING 869
Russia it is perhaps 100 percent cartel, and we do have to do business,
with that country. But how, is the problem.
The Chairman. You then would favor the lesser of two evils ?
Dr. Dye. It is how we shall carry on in tlie face of what we believe is
an evil.
The Chairman. You believe the cartel is an economic evil, but as
long as others have subscribed to that evil, we must embrace it in order
to carry on trade ?
Dr. Dye. Yes ; and I would say this, which I believe is a fair state-
ment of the case, that in our country, which is devoted to the private
enterprise system, or has been hitherto, we believe cartels are an evil in
this country, but I would hesitate to say that for other countries which
are in an entirely different position. I would hesitate to criticize their
contiiniance of cartels because their economic needs, their entire posi-
tion, may be different, and I would not like to try to convert them to
the idea that they must abandon them.
The Chairman. Not that they must abandon them, but we should
adopt them.
Dr. Dye. Well, I don't know that they have made efforts
The Chairman. There has been evidence that since they have them,
we should also have cartels. Do you subscribe to that ?
Dr. Dye. Not necessarily. I know of no effort to establish by other
governments, or even individuals from other governments — to try to
convince us of the value of establishing a cartelized system in this
country. They just do, in the interests of their own economy, have
those cartels, and they feel they are the basis of their particular eco-
nomic purpose, and the question we have to face is. Shall we attempt to
persuade them to abandon cartels or shall we attempt to do business
with them as they stand?
The Chairman. Suppose Congress was to pass a law prohibiting
all cartels from doing business in this country?
Dr. Dye. It has. Isn't that in the antitrust law, the Sherman
Act?
The Chairman. That was my impression, but it seems to be operat-
ing in spite of the antitrust law.
Dr. Dye. I don't know of any cartels in this country operating.
The Chairman. Do you know of any instance where the effect of
the cartel system has been felt over here in spite of the antitrust, the
Sherman Act?
Dr. Dye. No; I don't know of any instance. Of course, we all
understand that the Webb-Pomerene Act was passed in order to
permit competition with countries in which they existed. That was
the sole purpose of the AVebb-Pomerene Act.
The Chairman. But there is some question as to whether the pro-
visions of the Webb-Pomerene Act have been construed to vitiate
the Sherman antitrust law.
Dr. Dye. I believe that question has been raised in the courts, that
is true. That is where we come back to the question that the whole
situation needs to be clarified.
The Chairman. You endorse the Webb-Pomerene Act?
Dr. Dye. Yes.
The Chairman. I see on page 12, under "Merchant marine" you
have in the last paragraph on that page —
That participation, ownership, or operation, by Am3rican shipping companies
in overseas aviation should not be prohibited by law, or by administrative regu-
870 POST-WAR ECONOMIC POLICY AND PLANNING
latioiis when found to be in the public interest ; otherwise foreign shipping com-
panies, generally free from such restriction, would have a competitive advantage
over, American shipping companies.
That is a statement of principle of the association ?
Dr. Dye. That is a statement of policy or principle of the conven-
tion ; yes.
The Chairman. Yonr membership includes aviation companies,
air-line companies, and the shipping industry as well? ,
Dr. Dye. Yes. There is a separate one on aviation but this is the
declaration of the convention in that respect.
The Chaieman. On the next page, you suggest —
That no fast vessels be sold or chartered to foreign operators, but utilized for
replacement of obsolete ships of the active American merchant fleet and the
enlargement of its operation.
Although you do suggest that we sell, after we put some ships
in sanctuary for protective purposes, what we can to American pur-
chasers, and then dispose of tlie balance to foreign purchasers. Is that
correct ?
Dr. Dye. That is in the statement in the next to the last paragraph.
The Chairman. But you suggest that no fast vessels be sold. Do
you suppose any foreign coimtries would be interested in the slower
type, obsolescent or obsolete types?
Dr. Dye. I think there is a possibility, yes ; of their being interested
in the so-called Liberty ships which are the slower moving ships. In
some countries there may be quite a little market for those. It is hard
to tell.
The Chairman. You suggest that we retain the best for our own
use?
Dr. Dye. Tliat was the interpretation of the convention: That
it would be better to retain for the American merchant marine the
fast vessels, for one reason. You will remember that it is only very
recently that we have started building fast vessels. The predomi-
nance of construction at the beginning was of the Liberty type of
ship, which was slower, but lately we have been constructing the
C-1, C-2, and C-3, ships which are faster, running from, I believe
16 to 18 knots, whereas the Liberty ships were around 9 to 11 knots
per hour.
The Chairman. In the second paragraph you suggest :
That new vessels be sold to American citizens for guaranteed operation ; pur-
chasers to be safeguarded by a fall clause against subsequent sale to others at
more favorable prices or terms.
What do you mean by that, that we sell ships when they are available
to a purcliaser for, say, a million dollars, and in spite of the fact that
we may have more ships we want to get rid of, we can't sell them under
$1,000,000 at any subsequent time ? Is that it ?
Dr. Dye. That means that in selling those to purchasers the Govern-
ment should safeguard the buyer by stating to him that no subsequent
sale would be made to others at more favorable prices or terms, because
it is obvious that if we sell a ship, say, to an American buyer at
$1,000,000 and then sold the same type of ships for a half-million
dollai's to some foreign purchaser, it would place the purchaser of the
ship who paid $1,000,000 in a disadvantageous position for operation.
That is the reason for the safeguarding with the fall clause, that in
POST-WAR ECONOMIC POLICY AND PLANNING 871
order that he may be assured that he will not be undersold and put at
a disadvantage by a subsequent sale at a lower price, he will be allowed
to operate his ship on a competitive cost. That is the reason for the
so-called fall clause, that there will not be a fall in the price to a subse-
quent purchaser that would run him out of business.
The Chairman. You think that is a sound principle for the Govern-
ment to follow in all such matters.
Dr. Dye. I think it is a sound principle for the Government to
follow in all things. Simply, a man must make a calculation when he
purcliases that, that he can operate with a net return on his capital of
so much. Then if that calculation is thrown out of gear by a later
sale to his competitor at a much lower price, of course he has really a
riMit to claim injustice.
Mr. Reed. Dr. Dye, what do you think the probabilities are for so-
called superliners after the war? Is there any economic justification
for our trying to get into that type with the airplane traffic probably
taking the cream of the trade ?
Dr. Dye. In conversations with shipping men I have found no idea
expressed at all that we should go into superliners, but many sugges-
tions to the contrary. I believe that a great majority of shipping men
are convinced that the day of the superliner is gone.
The Chairman. The following resolutions and recommendations
you have touched on rather generally, either in Mr. Thomas' state-
ment or your own statement.
Dr. Dye. I think we have, Mr. Chairman, covered the main points.
I should add, though, that if there are any others that occur to you
at any time, I am quite sure that Mr. Thomas or myself or some other
member of our organization would be very glad to appear before you.
The Chairman. We appreciate your cooperation.
On i^age 16, Dr. Dye, Resolution No. 16, "Preserving Distribution
Channels Abroad for American Goods." I have only glanced at it,
but can you elaborate on that please ?
Dr. Dye. That is the second pargraph of article 15, which says :
Lend-lease should be restricted to the handling of such purchasing only as
cannot be done through regular commercial channels, and should not be used to
meet the civilian requirements of a country when such procurement can be
secured through commercial trade channels.
What that means is that it is desirable, as long as it can be done,
that lend-lease sales and distribution in a foreign country should
be done through the usual commercial trade channels. Our exporters
have built up abroad many special trade-marks and brands which
are well known for their quality. They have their distributors abroad.
The feeling is that as soon as possible in distributing these goods
the}^ should be left to the channels of private competition in the
countries in order to enable them to distribute through those channels
as soon as possible.
The Chairman. It seems, according to the newspaper report I read,
that the Allies are already engaged in those operations.
Dr. Dye. You mean our other allies?
The Chairman. Our British Allies.
Dr. Dye. That I cannot say is true or not, but I do know that tnere
is a great pressure upon private traders in all countries, and there
is a constant feeling that the other fellow is going to get the edge
872 POST-WAR ECONOMIC POLICY AND PLANNING
over hiin in getting back to private channels of trade before lie does.
That is true in every country, I am quite sure, including our own,
that is true, and therefore great care must be exercised in the removal
of Government restrictions in order to give all of them an even break.
The Chairman. If I understood you, you said that most of the
efforts of those interested in the post-war market are now devoted to
winning the war.
Dr. Dye. Yes ; that is true.
The Chairman. And as soon as the war is over, they will be ready
to go out
Dr. Dye. There are stories that appear, and there is a great need
for careful examination and investigation of all of these stories, and
if there is a tendency in any country to take advantage and get private
traders into a private country before another country, I think it should
be taken up and fully investigated, and I am quite sure that that evil
would be corrected if it exists.
The Chairman. It is only fair, is it not, for all countries to be on
the same basis ?
Dr. Dye. Absolutely. That is the only way that I see it can be
done, and preserve harmonious relations between the countries, to let
them all have an even chance at the trade and remove restrictions
for all countries simultaneously so that private trade in all countries
may have an even chance at the trade which develops.
The Chairman. And that would be the result of negotiations and
agreements?
Dr. Dye. Oh, yes; that would have to be done through international
agreements.
The Chairman. Do you know of any agreement we have entered
into that would have that effect ?
Dr. Dye. I don't know of any definite agreements, but I do think
there is a complete understanding with the Allies on that subject. I
can't say offhand whether it has been written into any definite agree-
ments or not. Maybe it has.
The Chairman. After the war is over, do you think the traders
themselves should start in and try to build up and develop post-war
markets immediately without any encouragement or help or subsidy
from the Government ?
Dr. Dye. Yes; and I think they will. I don't think the foreign
trader needs any subsidy. I think he will develop the connections
in foreign countries which most exporters have, or did have. Those
connections have been disturbed in many cases. In some cases they
still exist, so far as they are able to ascertain, and connection can
be resumed and trade will be resumed in any market that is attractive.
I think all our foreign traders need is the green light and for you
to say, "Let's go."
The Chairman. And you would not need any additional legisla-
tion ; all you will need
Dr. Dye. Is the removal of wartime restrictions.
The Chairman. The removal of wartime restrictions?
Dr. Dye. I think that is all we need.
The Chairman. And you can take the excess production we have
now and go out and sell it to tlie world.
Dr. Dye. There will be, in my opinion, such a tremendous demand
for American goods all over the world that our trouble is not going
POST-WAR ECONOMIC POLICY AND PLANNING 873
to be a selling trouble but a trouble in getting; payment. We can sell
anything almost that the United States produces anywhere in the
world if we can just figure out a way to get paid for it. That is the
tough one.
The Chairman. Then, will you need some help from the Govern-
ment to insure those payments ?
Dr. Dye. Yes ; if the Government could give any help in that way
it would be helpful, bearing in mind always that any Government
assistance has to come back in the same way.
Dr. Reed. That would be just postponing the headache.
Dr. Dye. Yes ; you have to bear that in min,d. There is no way you
can eventually settle it — you can postpone it, and it will be wise in
many ways to postpone it.
The Chairman. Until the other nations are rehabilitated.
Dr. Dye. Until they can be rehabilitated, but always remembering
that sooner or later it has to be paid off that way.
The Chairman. It has to be paid in goods or services.
Dr. Dye. In goods or services. It has just got to come back that
way or not at all.
The Chairman. Or gold.
Dr. Dye. But we have about 60 percent of the world's gold now,
and I don't think that really we want to take any more gold. We
don't need any more gold ; we have got enough.
The Chairman. And that leaves only goods and services.
Dr. Dye. Practically only goods and services.
Mr. Reed. On the question of brands or trade-marks, naturally
lend-lease has been one of the best means of distributing those brands.
Do you foresee any special problems American exporters will have in
reestablishing the old brands and establishing new brands in foreign
markets? I can't see any special ones, but I wonder if you can.
Dr. Dye. I think the over-all effect, as you say, of making known
in foreign countries American goods and services, particularly since
Lend-Lease adopted, as they did quite a long time ago, the policy of
not obliterating brands and names, has been beneficial on the whole,
but there will be isolated or separate instances where the bulk of the
brand trade has been lost.
Mr. Reed. Would that be because of a reduced standard of living?
Dr. Dye. In some cases it would be because of the reduced standards
of living; in other cases it has been abolished, and it dropped out due
to the disappearance of the agent, or for some other reason, but I
don't think that is a serious problem. I think those are isolated in-
stances which can be ignored in the general situation.
The Chairman. Doctor, we appreciate your cooperation in appear-
ing before this committee and the information you have afforded us.
Do you have any additional information or suggestions you think
we should have ?
Dr. Dye. No, Mr. Chairman; I think we have covered the subject
as fully as time permits, but I repeat that if there are supplementary
questions that occur to you at any time we shall be most happy to
appear before you or furnish it by communication, or in any way you
desire.
The Chairman. Thank you very much.
The committee will adjourn until 10 o'clock tomorrow morning.
POST-WAR ECONOMIC POLICY AND PLANNING
WEDNESDAY, OCTOBER 25, 1944
House of Representatives,
Subcommittee ox Foreign Trade and Shipping of the
Special Committee on Post-War
Economic Policy and Planning,
Washington^ D. C.
The subcommittee met, pursuant to adjournment, at 10 a. m., room
1303, New House Office Building, Hon. Eugene Worley, presiding.
Present : Dr. Vergil Reed, consultant ; Marion Folsom, staff di-
rector, and Dr. G. C. Gamble, economic adviser to the committee.
The Chairman. The committee will be in order.
The Subcommittee on Foreign Trade and Shipping is meeting this
morning on the question of our foreign trade, its extension, and the
best methods by which that can be accomplished.
The first witness this morning is Mr. Morris S. Rosenthal, execu-
tive vice president of Stein, Hall & Co., Inc., representing private en-
ter])rise.
Mr. Rosenthal, will you take the chair?
The committee is very glad to have you here and we hope you will
be al)le to provide the answer to the problems with which we are faced.
I understand you have a statement you wish to make.
Mr. Rosenthal. I would like to make several points, if I may, Mr.
Chairman.
The Chairman. Go right ahead.
STATEMENT OF MORRIS S. ROSENTHAL, EXECUTIVE VICE PRESI-
DENT, STEIN, HALL & CO., INC., AND VICE PRESIDENT, NATIONAL
COUNCIL OF AMERICAN IMPORTERS
Mr. Rosenthal. It has seemed to me and some of the other mem-
bers of the National Council of American Importers that there are
certain specifics which I would now like to recommend to the com-
mittee
The Chairman. Mr, Rosenthal, pardon me. Will you give us some
idea of the business Stein, Hall & Co. is engaged in ?
Mr. Rosenthal. Our company are importers of raw materials, such
as burlap, starch products, palm oil, kapok, essential oils, natural gums,
and a number of other products. We also manufacture in the United
States certain vegetable adhesives and textile sizing materials in our
own factories, and are dealers in domestic starches as well.
In addition to speaking for my own company, I am authorized to
epeak for the National Council of American Importers, of which I
89579 — 45 — pt. 4 18 875
876 POST-WAR ECONOMIC POLICY AND PLANNING
am a vice president, and chairman of their post-war research com- '
mittee. The snggestiong that I am about to submit were discussed at \
a recent meeting of the post-war committee. \
The Chairman. How long has Stein, Hall & Co. been engaged in :
business? _ _ j
Mr. Rosenthal. We have been in business since 1866. I
The Chairman. And how long has your association been in exist- 1
ence ? '
Mr. Rosenthal. It was founded in 1921 and represents importers ;
of consumer goods as well as importers of raw materials.
The Chairman. You are principally concerned with importing. :
Are you at all concerned with exporting ? i
Mr. Rosenthal. To a lesser extent. That is a comparatively small I
percentage of our business, although we do some exporting as well. j
The Chairman, Most of your business is importing? j
Mr. Rosenthal, And manufacturing, i
The Chairman. And manufacturing?
Mr. Rosenthal. Yes, sir.
The Chairman. But not necessarily for export trade?
Mr. Rosenthal. No, sir ; largely for domestic consumption, some ■
of it being exported, but a minor part.
The Chairman. Most of your attention will be devoted to the
importers ? l
Mr. Rosenthal. Yes, sir. I
The Chairman. Proceed. j
Mr. Rosenthal. It has seemed to us that there is general agree-
ment on the need of expanding world trade in the post-war era in
order to assure our own American system of doing business with the .
full employment of our population and a decent standard of living |i
for all of our people.
The Chairman. You believe that will be necessary in order to in-
crease and maintain the prosperity of our country ?
Mr. Rosenthal. I believe that will be vital. If we accept that
as a premise, I do not think it is necessary for me to generalize on
the need and wisdom of that expansion.
1 would rather deal, if I may, with certain specifics that I would
like to recommend.
I think that one of our faults is to attempt to solve all of the prob-
lems in the economic world at once, and unless we are able to achieve
a perfect pattern, we delay in doing certain things that can be done
which will be helpful in the proper direction. It is also easy to
criticize adversely some of the plans that have been submitted for
international cooperation without adopting alternatives. For that
reason, I woidd prefer to submit certain specifics which are construc-
tive and which 1 do not offer as a cure-all, but which I do think will
be helpful.
First, we have already endorsed, and I would like to urge upon the
committee the speedy adoption of S. J. Resolution 120, submitted in
the Senate by Senators Kilgore, Truman, and Thomas, for the estab-
lishment of a Foreign Economic Commission. The membership of
that Commission would consist of a chairman to be appointed by the
President, representatives of both the Senate and the House, repre-
sentatives of certain administrative agencies of Government, repre-
POST-WAR ECONOMIC POLICY AND PLANNING 877
sentatives of industry, labor, agriculture, and the public, with an
appropriation to permit the employment of a staff of experts to make
an objective and intelligent study of the specific needs of foreign
trade both on imports and exports, so that we could have resulting
legislation which would give the necessary authority to the adminis-
trative agencies to carry out the policies of the Congress.
I believe that the resolution has also been introduced into the House
and is now in the respective Foreign AtTairs Committees of both the
Senate and the House.
We believe that such a commission, which would be composed of
members of the legislative body, as well as members of the executive,
coupled with representatives of industry, labor, agriculture, and the
public, wouUl provide a group of people that could make an intelli-
gent and objective study of the entire foreign-trade problem in the
light of the needs of our country, and we urge the speedy enactment
of that resolution to provide for that commission.
The Chairman. Aren't those functions, or part of them, at least,
performed in large measure by the Department of Commerce and the
State Department?
Mr. Rosenthal. I think they are performed in part by the State
Department through the reciprocal trade-treaty progi*am. At the
same time we know that there has been frequent conflict betw^een
the legislatiA^e and the administrative bodies, that there has frequently
been a feeling that the administrative bodies have exceeded their
authority, and it is our feeling that such a commission would pro-
vide a meeting ground for the legislative and executive, so that the
legislative could lay down clear policies and give definite authority
to the administrative to enable the administrative to carry out its
functions properly, and that it would also draw in representatives
of these major economic factors in our country and give them an
opportunity to participate in such deliberations.
The Chairman. It would be an investigatory body primarily?
Mr. Rosenthal. It would be investigatory, and recommendatory,
and it would be my hope that from such investigations, if the Con-
gress would provide the funds for an adequate staff, that legisla-
tion would speedily result from policies which the legislative and
administrative branches of our Government and the members of these
various public groups could agree upon in advance.
For that reason we urge the passage of the resolution by Congress.
The Chairman. We have had testimony before the committee from
the Tariff Commission and others. It seems from the testimony they
have given us. that they are doing just what would be accomplished
in this resolution.
Mr. Rosenthal. I think to some extent that is true, but it has been
my observation over a period of years that we have several adminis-
trative bodies of government each tackling that part of a problem
which is of greatest interest to that particular body; that these
agencies themselves have not always arrived at a common policy. I do
not mean to belittle any one of them. I was a bureaucrat for 2 years
with the Board of Economic Welfare, and I learned much of my
own negligence as a citizen in taking an interest in the affairs of
thf Govermiient. I learned much of how our Government works,
and I also achieved the greatest respect for that which is done by
these commonly called bureaucrats.
878 POST-WAR ECONOMIC POLICY AND PLANNING
But I believe if we could have one focal body which would draw
upon these various agencies of Government and act as a coordinating
group, out of which will come specific recommendations — based on
compromise, if you wnll — that may be arrived at from conflicting
opinions — we will do much to speed up legislative and administrative
action which is, unfortunately, too frequently delayed. It is in this
tying together that I envision the usefulness of this Foreign Economic
Commission.
The Chairman. It will act as sort of a flying wedge ?
Mr. Rosenthal. Very much so.
The Chairman. You don't think that the State Department, then,
and the Tariff Commission and the Department of Commerce are at
the present time concentrating information they are acquiring in any
responsible body ?
Mr. Rosenthal. I think that they are doing the very best that they
can, but I think they are not. I think that this Connnission would
help them. I have had some discussions with people in the Depart-
ment of State about this resolution, and it is my feeling that a com-
mission of that kind could be of help to the Department of State which
is doing the bulk of the work, to the Department of Commerce, to
the Foreign Economic Administration, which I think will have to
be continued for some time to come, in adopting a national policy on
foreign trade.
I think that the commission could also be extremely helpful, through
its composition, having such a broad composition, in the education
of the people of our coimtry to the importance of foreign trade in our
national economic welfare.
I have been about the country quite a bit since I left the Govern-
ment service, and I found that there is still a lack of understanding
of the part that we have to play in world-economic affairs, a lack of
understanding of the relationship of our own economic welfare to
that of other countries.
A commission of this kind, constituted as it would be, would present
something far stronger to the people of our country, out of decisions
it made, than any individual agency of our Government, or than any
individual committee of the Congress could do by itself.
Such a commission in itself would present to the country the feel-
ings of an objective group of men drawn from industry, agriculture,
labor, and the public, plus the legislative and administrative branches
of Government, and I think therein also such a commission could do
a great service.
I know the Tariff Commission is now making some very important
studies, some for the Congress and some on its own initiative and I
think those studies are worth while, and, as I have said before, I have
achieved a great respect for these various agencies. But I do think
they need to be tied together, and I think a commission of this kind
could not only tie them together, but serve to educate the people of
our country as they certainly need to be educated.
Dr. Reed. Mr. Rosenthal, your suggestion seems to hold possibil-
ities. I wonder, in setting up that commision, if you had in mind
purely a temporary connnission that would merely recommend, or a
continuing commission with certain executive powers?
POST-WAR ECONOMIC POLICY AND PLANNING 879
Mr, Rosenthal. The resolution provides for a recommendatory
body. The way in whicli our Government works — I am not certain
at this stage that such a commission coukl go beyond recommendatory
powers. I wouhl have hopes, however, that the commission would
be so highly regarded by the Congress and have so much of the back-
ing of the peo])le, that its recommendations would result in speedy
legislation which would authorize the administrative agencies of the
Government to act. I think that is of vital importance.
The world moves too quickly for us to be able to go along and
delay as we froc^uently have in the past on matters of importance.
We have to be prepared to act quickly, and it would be my hope that
the recommendations of this commission would be accepted.
Also, I feel this way : I think that it is impossible for us today in
a rapidl}' changjng world where we can envision some of the problems
of peace, but not nil, and where there will have to be speedy shifts
made for the benefit of our economy, to lay down a perfect pattern.
My suggestions are predicated on acts which I think are in the right
direction, and there again I think there may have to be changes. I
think a commission of that kind for a year or two might have only
limited authority, but at least to set up that commission now, and
not wonder what it is going to do 2 or 3 years from now, or what
powers it is going to have 2 or 3 years from now, is an important step
in the right direction.
The Chairman. We are glad to have your views on that piece of
legislation.
Mr. Rosenthal. My next point pertains to the Reciprocal Trade
Treaty Act. That act expires on June 12 of next year, and I would
like to recommend its extension by the Congress for an additional
period of 3 years. In connection wdth that extension we in the Na-
tional Council of American Importers feel that Congress should, so
far as possible, within the constitutional powers of the Congress
and administrative agencies, give greater powers to the Executive
than the jDresent act does in the negotiation of these treaties.
At the present time the powers conferred upon the President limit
the changes in tariff schedules and excise taxes and so forth to 50
percent up or down. No goods on the dutiable list may be trans-
ferred to the free list, and no goods on the free list may be made duti-
able. It would be my personal feeling, because I realize there are
some differences of opinion among foreign traders on this subject,
that if the President, who then acts through the Department of
State, and with the advice of the Tariff Commission, the Department
of Commerce, the Treasury Department and the Department of Ag-
riculture, would be permitted to remove tariffs entirely, or to place
duties on free goods, we would give the administrative part of our
Government a real bargaining power with other nations, and we
'WOlild have better results from this act.
I believe it important that our Congress give as great powers as
is proper for the Congress to do, to administrative agencies in rep-
resenting our Government to carry out the intent of legislation. The
intent of the Reciprocal Trade Treaty Act was to increase the flow
of foreign trade through making certain deals with other countries,
as a result of which we increased our imports, and in turn could
increase our exports.
880 POST-WAR ECONOMIC POLICY AND PLANNING
Always, when tariffs are raised or lowered, certain domestic in-
terests in the United States are affected favorably or adversely. That
is inevitable.
I feel the most important thing is for us to think in terms of the
economic welfare of our entire people. To me one criterion would
be that even if a domestic industry were affected adversely or favor-
ably, the test would be whether or not such deals result in a greater
employment of labor and capital through increased exports than we
would lose through increased imports ; and so affect adversely certain
domestic industries.
It is the net national result that matters, and I think that insofar
as possible we should trust to the agency of government which has
to do the negotiating and the bargaining with foreign countries,
that it will consider the over-all welfare of our country in making
the best possible terms in the light of the welfare of the whole and
not the welfare of any individual group, whether it be my company
or another company.
I have frequently been asked the question, "How would you like
it if the duties on goods that you manufacture were lowered, or
if the duties on goods that you import were increased?"
My answer is, as a individual, naturally I wouldn't like it. At
the same time, it would not be a tragedy to 140,000,000 people if a
certain few had to change jobs, had to. go into other businesses, or
look for other means of earning a living. For that reason I would
like to urge that the Reciprocal Trade Treaty Act not only be ex-
tended, but that as full powers as possible be conferred upon the
President, acting through the Department of State to negotiate trea-
ties with other countries.
The Chairman. Have you found any adverse effect that the re-
ciprocal trade treaties have had on any particular industry or busi-
ness?
Mr. Rosenthal. I haven't found any. There probably were some.
I think that certain industries were bound to be affected. Broadly
speaking, I think that our economy improved substantially in the
pre-war years of the thirties, after the depression. I have in my read-
ing and conversations with people heard gripes. There are always
gripes. I cannot recall that I have seen evidence of substantial ad-
verse results from the Reciprocal Trade Treaty Act to any specific
industry. On the other hand, there were very definite benefits.
Mr. Reed. Mr. Rosenthal, how would you tie in the reciprocal trade
agreement program — to what extent would it have to be tied in with
the most-favored-nations clause, and to what extent would that be
interrelated? Or would you throw out the most-favored-nations
clause and simply retain the reciprocal trade agi'eements?
Mr. Rosenthal. That has been a point on which there has been
disagreement. There are those who have felt that the multilateral
provisions of the Reciprocal Trade Treaty Act, as a result of which
an arrangement with one country has applied to the same product
produced by all other countries, has been unwise. In certain nar-
row applications, I have felt that way myself. On the other hand,
from my observation of the way in which the Departm.ent of State
has negotiated the treaties, they were able to select and describe com-
modities with discriminating care which were of particular impor-
POST-WAR ECONOMIC POLICY AND PLANNING 881
tance to the countries with which the treaties were made, and even
though the same goods came from other countries, the net results
were good.
As I personally believe that the "good neighbor" policy, .not only
with the Central and South American countries but throughout the
world, is our job of leadership, I would continue the multilateral pro-
visions of the act and trust to the Department of State to be able to
conduct these negotiations so that we have the proper benefits. I
think they have done a fine job in the past, and 1 think they will con-
tinue to do so. I think it is more important for us to take what may
be here and there a minor disadvantage applied to a specific com-
modity than to attempt to get into a bargaining area, where we at-
tempt to play one country against another country.
The Department of State has not only selected commodities of par-
ticular importance to the countries with which the treaties were made
but in the description of the commodities has been able further to
refine the treaties so that actual type and quality of the goods were
confined in a large measure to the country with which the individual
treaty was made and would benefit little, if any, other countries in
which the same general kind of goods might be made but which did not
make that particular type, quality, or description. And, in addition
thereto, the treaties contain clauses such as the trade agreement with
Switzerland, in which article XVI further protects the interests of the
United States. This article reads as follows :
The Government of the United States of America and the Government of
Switzerland reserve the right to withdraw or to modify the concession granted
on any article under this Agreement, or to impose qnantative restrictions on
any such article, if. as a result of the extension of such concession to third coun-
tries, such countries obtain the major benefit, of such concession and in conse-
quence thereof an unduly large increase in importations of such article takes
place : Provided, That before the Government of either country shall avail itself
of the foregoing reservation, it shall give notice in writing to the other Govern-
ment of its intention to do so, and shall afford such other Government an
opportunity within thirty days after receipt of such notice to consult with
it in respect of the proposed action ; and if agreement with respect thereto is not
reached within thirty days following receipt of the aforesaid notice, the Govern-
ment which proposed to take such action shall be free to do so at any time there-
after, and the other Government shall be free within fifteen days after such action
is taken to terminate this Agreement in its entirety on thirty days' written notice.
We are in favor of the continuance of that part of the act.
]\Iy next point deals with the Foreign Service personnel of our Gov-
ernment, our diplomatic personnel, and our consular officials. I would
like to recommend to the Congress that our Government establish a
university for the education of American Foreign Service personnel
as we now maintain Annapolis and West Point for the education of
our naval and military personnel : that the students, of course, be drawn
by competitive examination from all parts of the country, and from all
walks of life; that they be given a far more thorough education than
I think our present officials abroad have had in those studies that will
equip them to represent us properly.
One of the things that a number of us in foreign trade have felt over
the past 25 years is that too few of our officials abroad have had an
adequate education in the techniques of foreign trade so that they
have an understanding of the business problems of the American ex-
porter and importer and can represent us in those business problems.
882 POST-WAR ECONOMIC POLICY AND PLANNING
1 believe that the political relation between countries in the future
Avill depend very lai'<i;ely on their economic relations; and as we in
the United States have a business economy, a capitalist economy, our
welfare will depend upon our business and economic relations with
other nations of the world.
This does not apply to all of our Foreign Service personnel by any
manner of means; but I think, by the very nature of what we haA^e
done in the past, that we need to do a great deal in broadening the
education and scope of those who represent our Government in foreign
service.
In addition to the education that they must now have, which is
quite thorough in the field of international law, diplomatic relations,
the riglits of American citizens abroad, and so forth, I recommend
specific courses in foreign-trade technique ; that they know about ship-
ping; that they know about customs j-egulations; that they know about
finance, exchange, insurance; everything 'that we exporters and im-
porters have to know, so that they, located abroad, can be of help to
us.
I also believe that they should receive a thorough education in the
history and the customs and habits of the peoples of those countries
to which they are going so that they can really understand the peoples
of those countries and thereby better repiesent our Government,
That means a far greater concentration in the teaching of economic
geography, in the teaching of histories and cultures, not only of our
country but of the countries to which they are to be accredited.
I think, when our foreign representatives come home on leave, if,
in addition to having the vacations, which they certainlj^ deserve, and
if, in addition to the number of visits that they pay to various cities
where we businessmen can have brief conversations with them, they
have enough time to go into the business structure of our country, to
learn of the changes that have been made in our economy since they
were last at home, they and we would benefit greatly.
I would recommend that the trustees of such a university be not
only drawn from the Department of State and from perhaps other
agencies of Government, but also from representative people in for-
eign trade, from representatives of labor, of agriculture, and of the
public, so that again the people of our country as a whole would feel
that they are all vitally interested in those young men who are being
educated to do one of the most important jobs that any of our Govern-
ment officials do in adequately representing our Government and our
people abroad.
The Chairman. Do you know of any countries that do this?
Mr. Rosenthal. No, sir ; I do not ; but from my conversations with
tlie Department of State, I have the impression that there has been a
great improvement in our Foreign Service personnel over the last 20
or 30 years. But at the same time othe-r countries, such as Germany,
have given their consular officials a more thorough education in
busmess problems in the broadest sense than we have done with our
Foreign Service personnel.
I can give as a concrete example that comparatively few of our
American consuls abroad now know our customs regulations thor-
oughly and can guide exporters in foreign markets in how to ]:)repare
our i-ather complicated consular invoices, Math which I will deal in a
POST-WAR ECONOMIC POLICY AND PLANNING 883
moment. They have not been taught that. It is not that there are not
many men of intelligence. I have met a great many of them over 25
years. But I do not think they have been properly equipped, and
there, again, I do not think it is entirely the fault of the State Depart-
ment. I think we have not appropriated adequate funds for such an
important job, and I should like to add to my recommendation as to
the establishment of such a university that the Congress review the
compensation to our Foreign Service personnel with a view to increas-
ing it substantially.
I think it is generally agreed — I don't think there has been any dis-
agreement as to the inadequacy of what we pay our Foreign Service
personnel, from our ambassadors down to the consular clerks. I know
that we are far behind other countries in relative scales of
compensation.
Increased compensation will attract more worth-while people. I
think it is unfortunate — and I make this as a broad point — that busi-
ness olfers so much more to our young men in the way of tinancial
compensation than does Government service. I think that applies
throughout our Government.
I think it has applied to legislative bodies, National and State, as
well
The Chairman. Are you arguing for an increase in salary for Con-
gressmen ?
Mr. Rosenthal. Definitely. I asked a Senator not long ago how
that could be achieved, and I would like that to stand on the record.
But dealing with this subject, I would like to mention that I went
to north Africa for the Board of Economic Warfare shortly after the
invasion. I know what it cost to live abroad. Mr. Chairman, nobody
can live abroad decently on $7 a day traveling allowance when you
send a man abroad on a trip. It is impossible, just as it is impossible
for a man to live decently on $6 per day if he does much traveling
today in the United States.
If you take the entire scale of salaries of our Foreign Service per-
sonnel, they are hopelessly inadequate, I have heard of many cases
where a consul has had to do some entertaining, and he has had to
take his personal savings or give up his life insurance in order to do
it. When you consider the salaries of our Ambassadors are but
$17.500 — he may be able to do nicely in Paraguay on that, but he
certainly cannot live properly and do what he has to do as a representa-
tive of our country on that salary in any of the major capitals of the
world. Unless he is wealthy, he suffers.
The Chairman. During the course of your business dealings abroad
you have come into close contact with our foreign representatives,
have you not ?
Mr. Rosenthal. A good many of them.
The Chairman, Well, it is necessary for you to operate through
them, is it not ?
Mr, Rosenthal, In a great many cases we ask for their help. Usu-
ally such communications, by preference of our Government, are sent
either through the Department of State or through the Department
of Commerce, Legislation was enacted in 1939, as a result of which
our consuls and commercial attaches are under the Department of
State, even though a great deal of the information compiled by them is
884 POST-WAR ECONOMIC POLICY AND PLANNING
used by the Department of Commerce. We address our requests, as a
rule, to the Department of Commerce on commercial matters. The
Department of Commerce has had an excellent staff in the Bureau of
Forejign and Domestic Commerce, with a tremendous amount of
worth-while information. They have been very helpful to us.
The Chairman. Would you give us the benefit of the mechanics
of buying a given commodity for import into the United States ? Will
you take a specific item?
Mr. Rosenthal. Yes; if I may take burlap, with which I am par-
ticularly familiar. The mills in British India do not export them-
selves. They sell their output entirely to local dealers, many of whom
are exporters. We importers in the United States, those of us who,
like my own company, buy for resale, or a certain number of the lead-
ing bag manufacturers, buy directly from those exporters.
We may cable to them for offerings, or they may cable directly to
us the offerings that they wish to make. Some have agents in New
York or San Francisco to whom they cable their offerings, and those
agents, in turn, make those offerings to those who act as importers,
receiving a commission of 1 percent from the sellers in Calcutta for
their services in the sale of the burlap.
Our purchases are made, as a rule — that is prewar — either in pounds
sterling or in the Indian rupee on the basis of delivery to the vessel in
Calcutta within a certain month. We importers pay for the burlap
either by a transfer of the funds at the time it is delivered to the vessel
or through the establisliment of certain bank credits, as a result of
which the bank undertakes to meet certain time drafts drawn on it b}''
the exporter,"'-'and we, in turn, undertake to pay the bank in time for
the bank to meet its obligations.
Tlie Chairman. Is that a bank over here ?
Mr. Rosenthal. That would be a bank, if it is in dollars, over here ;
if it is in sterling, it would be a bank here asking a bank in London to
act for it in making the sterling payment.
The Chairman. In London?
Mr. Rosenthal. In London. Then the bank here guarantees the
bank in London, and the bank in London undertakes to notify the
exporter in India either by cable or by letter.
The Chairman. Why in London ?
Mr. Rosektilvl. Because the pound sterling is the currency used in
England, and that is where sterling funds are on deposit just as dollars
are our standard of currency.
The Chairman. You never do any business with the bank in India?
Mr. Rosenthal. Only if it is in rupees, and there we would not do
it direct unless we maintained a checking account with the bank in
India. Our bank in New York would get in touch with the bank in
India and ask that bank to pay in rupees, and the New York bank
would undertake to reimburse the bank in India. We, in turn, have
to make ari-angements for the purchase of the foreign currency, so
that we would receive the foreign currency at the time we have to pay
■for the goods, which might be 2, or 3 or 4 months after the goods are
shipped, depending on the terms of purchase.
The Chairman. In peacetimes do you have much difficulty with the
exchange ?
Mr. Rosenthal. Yes; we have had, certainly in the last 25 years
since World War No. 1, because of wide fluctuations in exchange rates,
POST-WAR ECONOMIC POLICY AND PLANNING 885
due to the instability of most countries of the ^Y0^1cl. As the values of
these moneys vary the cost of the goods to us in dollars will vary.
That is, if the price of the material itself in its home country, in its
own currency, which is the currency those people know as we know
dollars here, would stay the same, all would be easy. But if the pound
sterling Avould go from $4 to $5, that would mean an increase of 25
percent, or if it dropped to $3, it would mean a decrease of 331/3 percent
in the value of the goods. So you have a problem of trying to hedge
as best you can in foreign exchange to eliminate as nuich risk as
possible.
Large importers and exporters are able to reduce their risk substan-
tially because they have people in their employ Avho know something
of foreign exchange. For the average small importer and exporter
that is frequently difficult to do. He cannot study everything; he has
not a stalt or the money with which to pay a staff. Assuredly, fluctu-
ations in foreign exchange have made it extremely difficult for foreign
traders. I would like to deal with that more when I talk about the
international stabilization fund.
The Chairman. The Bretton Woods Conference?
Mr. ^Rosenthal. Yes.
The Chairman. You would say then generally that the fluctuations
of exchange have retarded our business abroad?
Mr. RosENTiLVL. Yes, sir.
The Chairman. Appreciably?
Mr. Rosenthal. Yes ; and have retarded that of every other country
in tlie world in which there are gyrations of foreign exchange. That
has applied not only to us, but to world trade generally.
Nov\\ as to burlap, we importers have our own freight contracts with
the steamship companies. There is a conference, as provided by the
Shipphig Act of 1916
The Chairman. Pardon me. Do you make any request as to what
ships will transport this burlap?
Mr. Rosenthal. We direct the transport. It works in two ways,
Mr. Chairman: If the exporter takes the freight contract, then he
selects the steamship company and the vessel on which the goods are
to be shipped. If the importer makes the freight contract, he selects
the vessel and the steamship company by which the goods are to be
shi])ped. And both export and import business is done on both bases.
Burlap happens to be one where we buy the goods, obligating the
-seller to deliver them to a vessel designated by us as importers. If
we bought the goods on the basis of what is called cost and freight,
whereby the seller includes the cost of the freight in his selling price,
the seller would make the freight contract, and he would select the
steamship company and the vessel that would carry the goods.
The Chairman. 'That is c. i. f. ^
Mr. Rosenthal. C. and f. C. i. f. goes a step further. In that
case, in addition to making the freight contract the seller also insures
the goods against marine loss or damage. In f . a. s. vessel and f . o. b.
vessel, the importers make the freight contract and undertake the
insurance. Under cost and freight, the seller pays the freight, but
the importer undertakes the insurance. Under the c. i. f ., the exporter
undertakes the freight and the insurance and both are included in the
selling price by the exporter to the importer.
886 POST-WAR ECONOMIC POLICY AND PLANNING
A\
1
The Chairman. We have had some testimony to the effect that very
little of our exports and imports are carried in our own ships. Have
iyou had any experience with that?
Mr. Rosenthal. If I may postpone that until I deal with certain.,
shipping matters, I think it might come in as one subject.
The Chairman. Yes.
Mr. Rosenthal. We make the freight contract as importers on tl
burlap, and we make our contracts of insurance wnth the insurance
underwriters. We then cable to the sellers in Calcutta the name of
the vessel and its approximate loading date, so that they can then
get in touch with the Calcutta repi'esentative of the vessel and arrange
for the actual date of delivery
While the goods are in transit they are at the risk of the importers.
If there is any loss or damage we importers have to file our claims
against the vessel or against the insui'ance underwritei's and pay the
seller in full. He has no further worries.
When the goods arrive we file the necessary papers with the collector .
of customs at the port of arrival to clear them through customs. We
then arrange for transportation to our customers, warehouses, or toj
our factories, as the case may be. We pay for the goods either before si
shipment or sometimes after shipment, according to the terms which is
we woi'k out with our sellers. Payment terms are fairly well stand- ]\
ardized in most of the important raw^ materials of the world. ']
The Chairman. Then you sell the burlap to manufacturers over !
here ? i
Mr. Rosenthal. We sell the burlap to bag manufacturers who do i
not choose to do their owm importing, or to textile mills which wrap
their grey goods in it, or to the automobile industry which uses it
for upholstery, or to anyone of some 100 different industries that use
it for one purpore or another. The same broad pattern is followed in
other commodities. There are minor variations in technique, but not
important.
Mr. Folsom. You mentioned a few moments ago that in 1939 the
foreign attaches were transferred to the State Department.
Mr. Rosenthal. Yes. I know a number of people who felt that
taking them away from the Department of Commerce might have
a bad effect.
Mr. Folsom. How did that work out?
Mr. Rosenthal. There are, of course, variations of opinion on that
betw^een the Department of State and the Department of Commerce.
I have thought much about this because in the Board of Economic
Warfare we had occasion to send people abroad, and naturally that
brought up discussions with the Department of State as to the rela-
tionship of our personnel to the senior American diplomatic official i
abroad. I have always been in complete accord with the position of i
the Department of State that the senior American diplomatic official
abroad must be senior to the representatives of otlier agencies of our
Government. I think it is necessary to have someone as senior who
represents us in the broadest sphere of policy. At the same time, I
am inclined to the opinion that the various agencies that need people
to be sent abroad should select them, should give them the specific j
technical training that they need, and thereafter, when tiiey go abroad,
they are resj^onsible to the agencies which employ them for the specific
work that they do.
POST-WAR ECONOMIC POLICY AND PLANNING 887
At the same time in matters of broad policy and their behavior as
American citizens they should be responsible to onr senior diplomatic
official. But they should not in any way be hampered by acts of
departmental prerojjatives in the exercise of 'functions with which the
senior diplomatic official is not conversant. There have been too many
cases of this and I think that the pre-1939 method is better, with more
consideration by the Department of State officials of the work to be
done abroad by representatives of other agencies.
The Chairman. You gave us a very interesting bit of information
as to imports. Can you give us some idea as to exports?
IVIr. Rosenthal. Yes, sir. A great many American manufacturers
do their own direct exporting abroad. They can do that in one of
three broad ways, with, of course, some variations. They can estab-
lish a branch office abroad. In many cases they form subsidiary cor-
porations under the laws of the countries in which they do business
because of the tax situations in those countries.
The Chairman. To avoid excessive taxation?
Mr. Rosenthal. To avoid taxation on foreign corporations doing
business there and also to avoid dual taxation. In other cases ex-
porters sell to import merchants in resell markets who resell to con-
sumers; and, third, they can appoint sales agents who sell for them on
a commission basis to the various buyers, either dealers or manu-
facturers.
Their offerings on commodities whose prices change rapidly would
be by cable. Other offerings could be by mail, particularly with air
mail as rapid as it is. The goods, in difficult times, would, of course,
be sold largely in American dollars. At other times, people sell in
foreign currencies. I think that depends largely on tlie countries to
which the goods are exported.
The Chairman. Wliich is the method most commonly used?
Mr. Rosenthal. Dolhirs.
The Chairman. No ; I mean of the three you mentioned.
Mr. Rosenthal. I would be reluctant to generalize. I think prob-
ably the largest manufacturers would establish, in many cases, their
own offices. Smaller manufacturers would find that the agency method
woukl be probably the most satisfactorj^ in giving them the widest
sale of their goods. Then also a large number of manufacturers who
do not care to go into the techniques of foreign trade themselves and
take the risks thereof, will make arrangements with what are called
export commission houses or export merchants, to sell their goods
for them. There are still a great number of such middlemen, because
there are the risks of foreign exchange, the understanding of the
techniques of ocean transportation and insurance. There is also need
for an understanding of the peoples of the countries with which
you do business; there is a need for the extensicm of longer term
credits in our exports to many parts of the world, particularly Central
and South America, than we as importers enjoy in our buying.
The Chairman. How do you find those representatives?
]Mr. Rosenthal. I beg your pardon?
The Chairman. How do you know where those markets exist ?
Mr. Rosenthal. You can use several methods. The large banks in
the United States, not only in New York and other seaboard cities, but
in important interior cities, maintain foreign banking relations. Fre-
quently I have gone to one of the banks with which our company does
POST-WAR ECONOAIIC POLICY AXD PLANNING
business and said : "We are looking for a sales agent in this particular
market. Would you write to your correspondents in that market and
ask them to recommend somebody and to obtain as much information
as is possible?"
We can write to the Bureau of Foreign and Domestic Commerce and
ask them to ask one of the consuls to give us similar information.
The Chairman. Have you found that service satisfactory?
Mr. Rosenthal. Yes, sir; we find both methods satisfactory. We
can get in touch with organizations such as the National Foreign
Trade Council and ask them to sound out some of their members to
see if they can recommend someone who is representing them well
but who wants to take on an additional noncompeting account.
So there are those various methods. Then, some companies, of
course, send their representatives abroad who will go to the markets
and scurry around themselves to see whom they can get to do the
best possible job.
My next point deals with the laws of customs procedure. We, in
the National Council of American Importers, feel that the laws of
customs procedure are unnecessarily complicated and overlegalistically
administered and so work a great hardship upon us in our importa-
tions. At this time the Tariff Commission on its own intiative is
making a detailed study. I don't want to bore you by going into a
number of the regulations.
The Chairman. You might give us a few.
Mr. Rosenthal. One of the most difficult things pertains to, I
think, section 402 of the Tariff Act of 1930 which deals with the value
on which duties are assessed on an ad valorem basis. That value is
supposed to be the wholesale market value at the time and place of
shipment. I think all of our agencies of Government have found it
extremely difficult to learn what the wholesale market value is. Fre-
quently the market value may change between the time a contract is
made and the importer resells the goods and the time the goods are
shipped. Very frequently it is impossible for our diplomatic officials,
no matter how diplomatic they may be, to learn something of the cost
of production and actual market values abroad for dutiable value.
There has been a great deal of difficulty on that.
One specific difficulty is that, as the result of the war, the British
enacted what is called the British purchase tax which I believe on
some goods run something over 100 per cent. That was put on by the
British as a means of increasing their revenue to defray the cost of the
war. It has been held, nevertheless, that the British purchase tax in-
creases the dutiable value of the goods, so that anything we may have
done with England in the way of the Reciprocal Trade Treaty Act
has been completely nullified by our having to pay duty not only on
what might be the fair price of the goods in England, but on the British
purchase tax on top of it ; and still that has been the interpretation of
the Treasury as to what the Treasury is compelled to do under the law.
You must bear in mind that the law imposes penalties on the im-
porter if he undervalues goods. We, in turn, must place a value on
the goods, not the cost price to us but the wholesale market value at
the time and place of shipment at the time we make the entry. If we,
even unintentionally, undervalue the goods, we are subject to fines
and even subject to charge of fraud, which is a criminal offense. With-
out my trying to make too detailed specific recommendations to the
POST-WAR ECONOMIC POLICY AND PLANNING 889
committee, because I am not an expert in customs procedure, I think
that the Laws of customs procedure could well be simplified — perhaps
taking the price that the importer pays for the goods, unless there is
a very radical fluctation in exchange rates affecting the market value
or some other violent change. The legalistic attitude is another
hidden barrier that handicaps foreign trade.
Not only that, but our Customs Service does not even have adequate
personnel to make a detailed study of foreign costs of production and
foreign market values on all of the ad valorem goods that we import.
So that is one section, for example, which could be simplified.
Another section is 481, which pertains to the contents of consular in-
voices. I don't happen to know them any more, having come down
here in 1941, and I haven't studied them since. But I recall that the
preparation of the consular invoices is very complicated. The average
exporter abroad certainly does not know our American customs laws
and regulations, and he is not going to study them. Our American
consular officials do not know all of the technicalities of consular in-
voices. These invoices should be made simple. We have no desire
to be guilty of fraud or anything like that, but they should be made
just as simple as is possible in giving the essential information, so
that if you make a minor technical violation you don't find you are
going to be fined heavily by the Treasury.
I recall one amusing instance of my own. One of olir customs laws
is that all packages must be marked with the country of origin. I
think the word is "made in" or "product of." One shipper in Belgium
used the French words "Origine Beige." That did not get by the
Treasury. There is a 10-percent fine for that. Obviouslv, the pack-
ages were marked. You could translate it in English, ^'Originated
in Belgium," but that was not done, and I think a number of these
regulations could be simplified.
Then the currency regulation is a difficult one, particularly for
periods of fluctuating currency. The Secretary of the Treasury pro-
claims, I think, on the first day of each quarter, that rate which is to
applj^ for that quarter, unless the rate changes by 5 percent more than
the buying rate, during the quarter, in which case it is the rate of
exchange on the day that shipment is made.
That sounds very well, but if I buy goods during the month of
October on a contract where they will not be shipped until next May,
if I am a wise importer, I will make my exchange contract now so as
to eliminate any risk by loss of exchange. I will forego the chance of
profit if I gamble correctly, as gambling on foreign exchange is a
rather foolhardy undertaking. But when the goods are shipped that
exchange rate may have fluctuated, and whereas I calculated duty on
one rate, I may find I am paying a substantially higher duty because
the rate of exchange changes.
I think a regulation of that kind might be changed.
Ma}' I add one more point in connection therewith?
American exporters complain bitterly about the customs regulations
of a good many of the countries to which we ship goods.
The Chairman. I was going to ask you about that. What can you
do about those ?
Mr. Rosenthal. You can't do anything about it so long as our own
customs regulations are as involved as they are. But I think there is
890 POST-WAR ECONOMIC POLICY AND PLANNING
something that is a definite bargaining point with other countries so
as to eliminate reguhitions that unnecessarily hamper trade.
The Chaikman. I intended to ask you long ago, when you described
your export technique, what restrictions you ran into in other countries.
Mr. RosKNTHAL. A good many other countries, as we do, require
that a document which is called a consular invoice, that is, a form
which the exporter must prepare, certify to, and then must have
certified by the consul of the importing country. Some of these
documents are difficult to fill in correctly. If they are not filled in
correctly when the importer makes his customs entry, he is subject
to a very heavy fine or confiscation of the goods, even though it is
a minor clerical error or an unintentional minor violation.
The Chairman. Do you suppose those restrictions were put on as
a barrier or an obstacle to trade ?
Mr. Rosenthal. No; I don't think that. I think they are put on
very frequently through some of the common faults of inefficient
people and a desire to be so technically accurate in everything you
do that you can't be caught making a mistake; that you are going
to be sure that the other fellow dots every "i" and crosses every "t."
I would doubt, broadly speaking, if they were put up as obstacles.
The consul frequently charges a fee. In some cases, it is merely
a few dollars, but he charges a fee for his services.
The Chairman. Our own fee is what ?
Mr. Rosenthal. Our own consular fee is $2.50. The fee itself is
not important. It is what has to go into the invoice and the difficulty
in getting a correct invoice. Foreign country fees vary from one
or two dollars. Some years ago (I think it has been changed),
Mexico had a 3 percent charge. That was simply another form of
import duty on all goods, as means of raising revenue.
For example, one regulation of some foreign countries is that the
shipping documents must arrive at the same time as the goods arrive.
In the United States we can post certain surety bonds if we don't
have the shipping documents. That is costly, too, Mr. Chairman.
If a surety bond is demanded for the various values assessed by the
Treasury, it is expensive. On one shipment it cost us $500 to post
a surety bond because the shipping documents were missing. That
particular collector, acting within his rights, was unwilling to ac-
cept a bank guaranty. Most collectors accept bank guaranties. That
is an expensive procedure to have to go through and pay, but it is
frequently difficult to have the shipping documents come on the same
vessel on which the goods are shipped. The vessel may not finish
loading until a few hours before sailing, and by the time you pay
the freight, if the freight must be prepaid, and you can get your ship-
ping documents back from the steamship company and go down to
the consul and get them validated, the vessel has sailed. A good many
foreign countries impose very heavy fines, up to the confiscation of
the goods. I believe that if we revise our customs regulations and
simplify them, which we think can be done materially, that, too, would
be a very substantial bargaining point in our relations with other
countries.
ISIy next point deals with steamship conferences. Under the Ship-
})ing Act of 1916, and continued under the Shipping Act of 1936,
steamship companies are permitted to get together in steamship con-
ferences as a result of which they arrive at uniform contracts of car-
POST-WAR ECONOMIC POLICY AND PLANNING 891
riage and uniform freight rates which otherwise might be in viola-
tion of our antitrust hiws.
I am in hearty accord with the principle of steamsliip conferences,
and I approve strongly of uniform ocean freight rates. I would
not have that changed — just as we have uniform railroad freight rates,
so the big shippers do not have the opportunity of making indi-
vidual bargains with railroads, so I think that all shippers should pay
the same ocean freight rate and not permit the large exporter or
importer to drive a better bargain because of his large tonnage.
The Chairman. T think that point, uniform freight rates on rail-
roads, is not quite as simple as that. I am sure you are aware of the
fact that it costs more to ship from Texas up here than it does to
ship from here to Texas. Do you have that same situation in ocean
freight rates?
Mr. Rosenthal. Yes, sir. Ocean freight rates vary widely, and
that is a point with which I wish to deal. The recommendations I
am submitting now were submitted by me to the National Foreign
Trade Convention in San Francisco in 1940,^ but war conditions made
it impossible to prosecute the matter further at that time.
The first deals with the Division of Regulation of the Maritime
Commission which supervises steamship conferences and the manner
in which they operate.
We feel that the primary function of the United States Maritime
Commission has been the building and the subsidizing of the American
merchant marine, so that we have an adequate number of vessels flying
the American flag. We feel, however, tiiat it is somewhat anomalous
to have that agency of government whose function is to build up the
American merchant marine and help maintain it at the same time
regulate the relations of those vessels and those who operate them
with the owners of cargoes, both exporters and importers. Hence,
we recommend that a separate regulatory body be created by the
Congress to function in the field of regulating the relationship between
steamship companies and shippers, as the I. C. C. functions in the
field of domestic transportation, and that the present Division of
Regulation be removed from the jjresent Maritime Conmiission. That
is not at all to belittle the Commission and the job that is being done.
We think it is an anomalous situation to have them build vessels
and subsidize vessels, operate some vessels themselves, and then also
regulate the relationship of those vessels with us, who are the shippers
of the cargo without which the vessels could not very well profit.
The Chairman. Just what is your contact, as an importer, with the
Maritime Commission?
Mr. Rosenthal. I have had occasional meetings with the Mari-
time Commission, the Division of Regulation, to discuss certain pro-
visions of steamship contracts. We have not had a great deal to do
with them, because the Division of Regulation itself, from my conver-
sations with some of the staff, has felt certain limitations imposed by
law, and because the major emphasis of the Commission has been
placed not on regulatory matters but on the building of the merchant
marine.
The Chairman. You know we subsidize many ships. I under-
stand, though, that if we were to load those ships, give them more
1 See appendix, exhibit No 25, p. 1203.
99579 — 45 — pt. 4 19
892 POST-WAR ECONOMIC POLICY AND PLANNING
business, the subsidy would necessarily be less. Have you made
any efforts alonjr that line? Have you made any studies?
Mr. Rosenthal. I have not made any detailed studies. It has been
my own policy to divide my business between various members of the
steamship conference, those flying the American flag and those of
foreign flags.
The Chairman. And the foreign flags ?
JVIr. Rosenthal. And the foreign flags, because conferences are
composed of both, Mr. Chairman.
The Chakman. Why do 3'ou use the foreign-flag ships?
Mr. Rosenthal. For two reasons : In the first place, it has been my
experience in certain services, and I would prefer not to deal with
individual steamship companies or conferences, tliat operators of
foreign-flag vessels have had a better understanding of cargo problems
than have had some American operators, and vice versa ; and, funda-
mentally, we have used those steamship companies which have given
us the best service.
The Chairman. What goes into that service, their handling of
your cargo ?
Mr. Rosenthal. The handling of the cargo, the care with which
cargo is loaded and unloaded, the rapidity with which cargo is loaded
and unloaded; a good many intangibles which constitute the rela-
tionship, such as giving j^ou information that you need, of working
with you to arrive at equitable freight rates and steamship contract
conditions. The sum total of what develops in your relations.
The Chairman. Our Government spends quite a lot of money each
year to train personnel for the merchant marine.
Mr. Rosenthal. That is operating personnel of the vessels them-
selves as distinguished from those who handle the cargo. Some vessels,
for example, can unload within a period of 2 or 3 days, and will handle
the goods on the piers so that the goods are quickly and easily available.
The Chairman. It is the foreign-flag ships that do that more
quickly ?
Mr. Rosenthal. In some steamship conferences, yes ; in others, no.
The Chairman. Well, generally?
Mr. Rosenthal. No, I wouldn't say generally. I would say that
would have been generally so 15 years ago. At the risk of hurting
the feelings of some of my friends, I would say that was generally so
in the period of the 1920's. I would say it is still so in certain instances.
If course, you use the best steamship companies in a conference. An-
other thing, it is in my opinion unwise for me, as an exporter and
importer, where there is a steamship conference that has from 4 to
12 members, to give all of my business to any one company. You
can never tell when vessels will be withdrawn from the service, or when
a vessel may break down, or where there will be delays for this, that or
the other reason. Hence, I divide my business.
Another thing is, you frequently cannot handle all of your month's
importations on one vessel. You do not have the warehousing facili-
ties. It would be too costly to put the goods into a public warehouse,
and you want to spread arrivals over a period of a month, so you divide
the goods up among different lines.
And, lastly, Mr. Chairman, if any of us were to take the position
that he woukt give all of the business to American lines, conversely
POST-WAR ECONOMIC POLICY AND PLANNING 893
importers and exporters abroad would give all of their business to
foreign-flag lines.
The CiiAiiotAN. Don't they give the larger percentage of their ship-
ping to their own ships? Don't they give a larger percentage to their
own ships than we do?
Mr. liosENTiiAL. In a great many cases, yes; in a great many, no.
Just as we, in a great many cases, would give the larger share to
American rather than to foreign-flag vessels.
The Chairman. I was under the im])ressi<)n that perhaps we did do
that, that Ave gave a larger share to our ships, but the facts do not
reveal that.
Mr. RosEXTiiAL. No, I think it will vary. I think the American
merchant marine has done its best job within the last 10 years. A good
many foreign-flag lines have been established far longer than our
lines have been established. It has been a selling job and a difticult
one, but I have noticed in certain of the trades with which I am
familiar a steady growth in American lines.
The Chairman. Doesn't it seem logical to you that in order to
build up and maintain a good merchant marine that we should use
our own vessels? It doesn't seem logical that we should use their
vessels more than we do the shipping facilities of other countries who
are also planning to build up their merchant marine?
Mr. Rosenthal. Within certain limits, Mr. Chairman. I have used
American shipping very substantially. I have not used it more than
I have done for the reasons I have given. But I would like to add this
point, which I think is important for consideration and on which I am
not qualified to speak as an expert, and on which I think experts must
speak. In considering our world trade and in considering our own
economic welfare I feel we are inevitably tied to the welfare of other
countries of the world. We saw, after all, what the depression in
central Europe and other parts of the world did to our own economy.
The Chairman. They seem to be pretty well tied to us.
]Mr. Rosenthal. They are tied to us. In some nations of the world
the income derived from the operation of the merchant marine is of
a greater importance to their national economy and welfare than it is
to the United States. That is one of the reasons why in the post-Civil
War period our merchant marine fell off. There were other invest-
ments in the development of our hinterland in the United States that
offered capital a better return than did ocean shipping which com-
peted with maritime nations such as the Scandinavian nations, Hol-
land, and England, which did not have either the natural resources
or the potential industrial development that we did and therefore
ocean shipping was of greater importance to them.
I think when we come to consider what we are going to do with our
surplus ships in the post-war period and when we try to decide how
much, if any, of our tonnage we will sell to other nations of the world,
when through our Maritime Commission and through American
steamship companies in conferences we Avnrk out with the owners of
foreign-flag vessels the number of A^essels of each line of each flag that
will be permitted to operate in a conference, I think that the relative
importance to national income must be considered.
Our chief need of the merchant marine is from the point of vieAv
of naval and military needs and in the carriage of our supplies in time
894 POST-WAR ECONOMIC POLICY AND PLANNING
of war. That is the reason we need a merchant marine badly. From
the money point of view, it brings us in a national income. It also
places us in a position of importance in our whole foreign trade field,
but that is a matter of rehitionship on which I am not qualified to
speak as an expert, but I have the feeling that we have to consider
that problem objectively when we come to a conclusion as to what
we are going to do with our surplus shipping.
Up to date these conferences have tried to work out for themselves
the number of vessels that each one of the lines will carry and, inci-
dentally, in a number of conferences foreign-flag vessels far outnum-
ber American-flag vessels. That is another reason why we have used
foreign-flag vessels in certain conferences.
The Chaikman. In arriving at your choice of ships, in the final
analysis it is which one will carry the cheapest?
Mr. Rosenthal. Not the cheapest. They all have the same
The Chairman (interposing). It is a business proposition,
Mr. Rosenthal. It is a business proposition with me as it is with
others.
The Chairman. A question of dollars and cents.
Mr. Rosenthal. Dollars and cents, plus the various services that
you need, would be, I think, a correct answer for me and others.
The Chairman. And what effect it will have on your business.
Mr. Rosenthal. Yes, sir. But at the same time I would like to
add that when new American lines have come into certain services I
have given them a certain share of the business and tried to work with
them to have them give me that kind of service. That is done also
when they themselves have tried to learn what our needs have been
and are willing to work with us.
Some years ago, I eliminated a certain American shipping com-
pany— and I have eliminated foreign lines as well — this particular
American shipping company stamped a clause on the ocean bill of
lading which was contrary to the terms of legislation. When I spoke
to them about it, the answer was, "Why should 3^011 worry ? We are
not going to enforce it."
I said, "I am speaking now as chairman of a committee of an asso-
ciation. It is not what I don't know. I am speaking of the little man
who may or may not know, and I think it is improper to include
that clause."
Now, I think that practice is faulty and should be discouraged.
The same thing has happened in foreign lines. We have all those
things that we consider, and it is difficult to point to any one reason
for giving a steamship company business. You have the sum total
of your relations with them, and you cannot get away from the per-
sonal equation of your relations with them, whether they are pleasant
or unpleasant, as affecting your determination.
The Chairman. What would be tlie effect of a law which compels
you to use American ships exclusively?
Mr. Rosenthal. Chaos.
In 1928 — I have forgotten the bill — but there was an amendment
introduced to a certain bill, I think it was by Senator Jones of the
State of Washington, which would have provided for certain favor-
able tariff rates on goods imported in American bottoms. I don't
know the details. I recall there was a ffreat deal of discussion at the
POST-WAR ECONOMIC POLICY AND PLANNING 895
time. It was defeated. It would have brought the same retaliation
that the Tariff Act of 1923 brought on us by other countries of the
world.
Again, I would merely be going back in history to attempt to
elaborate on that. That does not mean that we should not, as in
other things, attempt to work out intelligent and equitable rela-
tions with other countries as to the relative size of the various mer-
chant marines in foreign service, but I don't think we can go isola-
tionist in the field of shipping.
The Chairman, At the present time it is left up to the individual
as to what ships he will use?
]\Ir. Rosenthal. Yes.
The Chairjian. Let me ask you this : Wliat can American shipping
do to get more business from you ?
Mr. Rosenthal. Give us good service.
The Chairman. Now, can you be more specific ?
Mr. Rosenthal. I can cite a few points which come up in the course
of some of the suggestions I am going to make.
The Chairman. What do the foreign nations offer that we do not
offer?
Mr. Rosenthal. This is not universal. I don't think you can dis-
tinguish it in that way — what does foreign shipping offer that Amer-
ican shipping does not offer. I think it comes down to a basis of the
individual steamship company, what has it to offer that the others
have not — regularity of sailings ; speed during the course of the voy-
age; low marine insurance; speed in the unloading of cargo; when
they make a booking with you, they don't overbook the vessel so
much that you are running the risk of having goods shut out.
When the goods are unloaded from the vessel, they are unloaded in
good condition, stacked properly on the pier so that you can get de-
livery ; that the pier is not such a hodgepodge that the truck will be
kept waiting 6 hours, with the consequent demurrage you have to
pay for the truck.
There are innumerable technical matters such as the speed with
which the steamship company handles claims.
We had a claim for a very few dollars against a foreign line once,
some $45. They rejected it. That is their privilege. I have no
quarrel with that, but when I called up and asked for an explanation
of a certain clause in the contract ; I received the none-too-gracious
reply, ''Read it yourself ; I am too busy."
That steampship company happened to be a foreign line.
Cables went out that night to discontinue using it.
In addition to the mechanics of service, there are the human lela-
tionships in dealing with people, as to whether they are trying to help
you in your problems, such as if you go to a steamship line and explain
certain reasons as to why a certain freight rate should be reduced, you
at least have a sympathetic hearing on the subject and are not turned
down without any thought or consideration.
The Chair:man. Let me ask you this: Does this subsidy tend to
make these shipping companies who do not give the best service less
alert ?
INIr. Rosenthal, No, sir. Some of the best American lines with
which I have dealt are lines which are subsidized very liberally by our
896 POST-WAR ECONOMIC POLICY AND PLANNING
I
( jovernnient, and they are tops in service. I have not noticed that that
has had any effect whatsoever. It depends upon the competence of
the people that they employ.
I have in mind one or two American steamship companies, and i
haven't dealt wnth all of them — I have dealt with many of them — that
I Avould say are fully equal to any of the foreign lines and superior to
many.
The Chairman. You don't think the subsidy has any effect on the
initiative or enterprise?
Mr. Rosenthal. Not a bit.
I would like to make this additional point. A number of the steam-
ship conferences maintain their executive ofKces abroad, and I have had
one or two unpleasant experiences where I took a matter up and was
told that it had to be referred to some foreign port where the executive
office was located. A year would go by and I avouIcI receive no response
and neither would the Division of Regulation. So we wish to recom-
mend that every steamship conference should establish in the United
States a committee or agency w^hich would meet from time to time
with committees of the National Foreign Trade Council, being the
largest export association, the National Council of American Im-
porters, being an over-all association of importers, as well as with |
specific commodity associations whose commodities are exported or ,,{
imported by those lines and which would have sufficient authority to '
discuss and act upon such transportation problems as contract terms |
and freight lates and so forth. Thus we could not have the buck i
passed by having someone say, "I have to write to somebod}'' in Ham- I
burg or London or Liverpool or Rotterdam or Amsterdam," and so I
forth, "because I can't talk to you about this." !
Secondly, whereas the railroads publish their tariffs, steamship j
companies as a rule do not publish tariffs. You get the rates if you
call them up. I would like to have steamship companies publish
tariffs on export and import rates, which would be for sale to exporters
and importers at the cost of publication, and which w^ould be at all
times available to them, and that these tariffs would include an exact
copy of the steamship conference contract and the bill of ladinc: that
would be used.
Fourth, we recommend that steamship conferences adopt uniform
bills of lading. In one conference that I recall, there were two British
and two American lines. The two British lines used one bill of lading
and the two American lines used another.
Fifth, that the steamship conference should be required to make
public all contemplated changes in freight rates sufficiently in advance
of the date when such rate is to become effective, in order that Ameri-
can exporters or importers would have ample time to present their
views concerning the rates to the conference.
In my dealings with steamship conferences, I know of only one
that has always conferred with us as to the rate for the current year.
We work out the problem with them. That has been going on for well
over 15' years. The relationship has been a very satisfactory one.
I think they have enjoyed it, and I know we have. I think they have
profited, and I know we have. I think that should apply to all
steamship conferences, and not have a rate that is simply picked out {
of the air by the conference, and then you can't do anything about it,
POST-WAR ECONOMIC POLICY AND PLANNING 897
and you can't even get the conference to sit down and discuss it with
you.
I think the conference should follow the methods of the rate-making
agencies of railroads. I think they should publish their dockets, in-
cluding the contention for a change of rates, so that all interested
parties would have an opportunity of presenting their views.
The Chairman. These are private conferences, not with Govern-
ment sanction?
Mr. Rosenthal. The Division of Regulation has some powers in
regard to conference operations but not as to freight rates.
I think, so far as exporters go, they have at times — and I am not
prepared today to give specific instances — been handicapped by there
being lower freight rates from various countries of Europe to markets
in which we compete than there have been from the United States
to those markets.
The Chairman. Has the British Government, for example, sub-
sidized those lines ?
]Mr. Rosenthal. Not for specific rates, but other governments sub-
sidize their merchant marine as we subsidize ours. Offhand, I know
of no cases where specific rates have been subsidized by governments.
The Chairman, feut they do manage somehow or other to have a
cheaper rate than we have?
Mr. Rosenthal. That has happened.
The Chairman. Based on your experience, is that generally true?
Mr. Rosenthal. My experience has been limited in such cases but
I have been informed of a great many.
I think, Mr. Chairman, I would be correct in making this generali-
zation, that steamship companies have not studied adequately the
freight rates on individual commodities, both export and import, with
a view to understanding the effect of the freight rates on the volume
of commerce in those products, and the suggestions that I have made
might lead toward that end.
The Chairman. They are not quite as alert as they might be?
Mr. Rosenthal. They have not considered the matter as much as
they should have, and a good many steamship men with whom I have
discussed that, have admitted that to me in off-the-record conversations.
The Chairman. Do you know what plans they may have to do
something about it?
Mr. Rosenthal. At the moment I don't know of any.
Tlie CirAiR:\rAX. Based on what you have said, Mr. Rosenthal,
the best way to insure the use of our own ships is to get the shipping
companies themselves to go out and do a little more work; is that
right?
^Nfr. Rosenthal. Yes, sir.
The Chairman. They are not quite as much on their toes as com-
peting lines?
jNIr. Rosentifal. In a great many cases that is correct.
The Chairman. Generally — I don't want you to mention any speci-
fic cases, but generally
Mr. Rosenthal. It is correct to too great an extent. When I make
a statement, I like to tliink of a number of lines I know and get down
to proportions. I wouldn't want to say it is more or less than half,
but I would say it is so substantially correct as to warrant action on
their part.
898 POST-WAR ECONOMIC POLICY AND PLANNING
The Chairman, In order to get business they are going to have
to increase their operating efficiency.
Mr. Rosenthal. Yes.
Mr. FoLSOM. While they might not be uniformly as good as the
best in the foreign countries, you would still do business with the
foreign lines?
Mr. Rosenthal. Yes, sir; and I believe that should be done.
The Chairman, Why do you think that? Because it affects you
in dollars and cents?
Mr. Rosenthal. No, sir.
The Chairman. Why would you do it?
Mr. Rosenthal. I do it because I believe that unless you have
freedom of the seas and opportunity for competing lines to share in
the business, you get back to a shipping situation which would in
turn affect all of our foreign economic relations.
The Chairman. A cog seems to have slipped somewhere because
our own ships are carrying only a small portion of our exports and
imports.
Mr. Rosenthal. Our own merchant marine, pre-war, as I recall
it — and don't pin me down too exactly on these figures, I would be
glad to verify them later for the record — but, as I recall it, our pre-
war tonnage, out of a total of some sixty-odd-million tons, the Amer-
ican pre-war tonnage was something in the neighborhood of 10.
Dr. Reed. As I recall, for some years, it was around 10 or 12 per-
cent, but normally it is 25 or 30 percent.
Mr. Rosenthal, You mean of our foreign trade?
Dr, Reed, Total foreign trade,
Mr. Rosenthal. Yes; but in world tonnage, I think we ran some-
thing around nine to ten million tons out of some sixty-odd million
tons.
The Chairman. Of world tonnage?
Mr. Rosenthal, Of world tonnage, and some of our vessels, I
think, have been in other services than plying between American
ports and foreign ports. That is, not all of our tonnage has been
engaged in American-foreign trade, although the bulk of it apparently
was.
The Chairman. We are going to have a much larger tonnage after
the war is over.
Mr. Rosenthal. Yes, sir.
The Chairman. Do you know how we can increase the business done
by our own ships after the war ?
Mr. Rosenthal. Substantially I would say there must be arrange-
ments in the steamship conferences as to the relative shares of tonnage.
The Chairman, As to what ?
Mr, Rosenthal. Relative shares of tonnage between different lines,
because otherwise we get back into a cut-throat competition which
benefits no one. I think that is part of the international merchant ma-
rine relations which has to be developed, and I think what I men-
tioned before about the sale of our surplus ships, in attempting an
analysis of the effect of shipping on the maritime nations of the world,
as against the industrial part of the world, is all part of the problem
to which I am not able to give a solution. I think it requires a great
deal of study. I think the Maritime Commission is now studying that,
as is the Department of State, but I think that is one of the bases on
POST-WAR ECONOMIC POLICY AND PLANNING 899
which the American vessels can obtain an increased share as com-
pared to pre-war.
I would doubt if the American tonnage can now be 30 percent, for
example, of the world tonnage, total world tonnage, I don't think it
is practicable to expect that. Wliat the percentages should be is some-
thing that I think is a problem the experts have to study and work
out.
The Chairman. That is the problem we are faced with.
Mr. KosENTHAL, Ycs, sir ; but I think that is what has to come from
Admiral Land and his associates, Secretary Hull and his associates.
You see, I don't think, Mr. Chairman, that you can separate any of
these problems in international trade from the whole. I don't think,
for example, that the international bank and stable exchange rates will
solve all of our problems. I think you get dowji to where you have
to try to work out the entire economic set-up — the movement of goods
and services are primary, and the carrying of those goods and money
rates follow those, and I think that they require an analysis as to what
we are going to do, what share we are going to take in our own econ-
omy, and the economies of other countries in relationship to world
trade.
Dr. Reed. Admiral Land has mentioned repeatedly the idea of a
50-50 basis ; the carrying of 50 percent of our total foreign trade.
Theoretically that might be possible if we had 50 percent of the ton-
nage of the world, but it seems to me that it would not be well to
try to force any such situation.
]Mr. Rosenthal. I think so, but at the same time. Dr. Reed, I don't
know if this is practicable or not. I am not a shipping expert, but I
would like to see, for example, some of our American lines engaged
in commerce between other countries of the world. For example, we
have had Norwegian vessels engaged in trade between British Lidia
and the United States.
Dr. Reed. Not going into American ports. You mean the off-shore
lines that do not put into our shores?
Mr. Rosenthal. I would like to see American lines engaged in the
transport of cargo between foreign ports, in return for other lines
engaged in commerce similarly with us, when the country of origin or
destination is not necessarily their flag line. I don't know why Ameri-
can-flag vessels should not ply between the Netherland Indies and
South America, for instance
The Chairman. You don't know why they should not ?
Mr. Rosenthal. No; I don't know why they don't. I have never
asked that question, but I don't loiow why they should not. I think
they should.
The Chairman. Do you know whether they do or not ?
Mr. Rosenthal. Broadly s])eaking, they do not. I have heard of
isolated cases where that has been done, but I don't think our steam-
ship services have done it much.
Dr. Reed. Since the days of the clipper ships.
Mr. Rosenthal. That is right.
The Chairman. Speaking of the clipper ships, what has happened
between the time of the clipper ships and the present day that has
changed the picture? I unclerstand the clipper was a fast ship. Are
our present-day ships inferior?
900 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. Rosenthal. Tlie ships we ai-e building today are as fine as
any vessels that are built. We have one situation: American crews
are paid better than are foreign crews. I told a British steamship
friend of mine about a week ago that I did not think the solution
of that problem was to lower American wages; I thought it was to
increase British wages.
The Chairman, He probably did not agree with that.
Mr. Rosenthal. Well, not too wholeheartedly.
Our shipbuilding costs have been higher here than have l)een ship-
building costs in other countries.
The Chairman. The subsidy will offset that.
Mr. Rosenthal. Yes, sir. I don't know and I am not qualified to
speak as to whether or not the subsidy has extended to the point of
putting our lines ii^to service between other countries where they
would not touch American ports. I think psychologically it is im-
portant. We speak of proper international relations, trying to have
our people understand foreign peoples, and foreign peoples under-
stand us.
Dr. Reed. On the preference for any particular flag, so far as eco-
nomics is concerned, it is a matter on which you and I are agreed —
there are, however, such minor things as taking cargo up to the last
minute when another line will not, or more courtesy about this and
that, and so forth.
There is one thing I would like to ask here. As I recall, the same
stevedores unload foreign and American ships. So, as far as the
unloading services are concerned you get about the same service at
our terminals from one line as you do another?
Mr, Rosenthal. No, sir; because even though the same stevedores
handle various lines, there are different stevedoring companies. Some
steamship lines do their own stevedoring. They go out and employ
their own longshoremen. Of course, they are all vmion longshore-
men, but still, as in all business organizations, Government agencies,
and educational institutions, the spirit engendered by the manage-
ment, plays an important part in the service given by employees, and
that will vary.
The Chairman, Mr, Rosenthal, in determining which line you
select, whether domestic or foreign line, why do you select the foreign
line?
Mr. Rosenthal. The service, plus the personal relationships that
have been developed over a period of years.
The Chairman. Everything being equal, assume our own ships
would operate just as cheaply and give as good service?
Mr. Rosenthal. What I have tried to do in those cases has been
to take the number of vessels operated in a conference and divide my
business up among the different lines in proportion to the number of
vessels that they have had, when the amount of my cargo has been
important enough to talk about.
The Chairman. That is foreign and domestic?
Mr. Rosenthal. Foreign and domestic. What I have done is this:
if over a period of a year there are 72 vessels in a service, and of those
vessels 48 are operated by foreign lines and 24 by domestic, and every-
thing is equal, our relationships, the service given, and so forth, we
would give two-thirds to the foreign and one-third to the domestic.
POST-WAR ECONOMIC POLICY AND PLANNING 901
because I would divide my business equally among all the lines accord-
ing to the number of vessels they have.
That is the fairest method that I could arrive at.
The Chairman. Is that generally true of other concerns?
Mr. Rosenthal. No; I wouldn't say that is generally true, because
I think everybody has his own ideas as to how he works. Some com-
panies I know have given all their business to one line or another.
They may give it all to one American line, even if there are other
American lines.
The Chairman. Or they may give it all to one foreign line, even
if there are other American lines ^
Mr. Rosenthal. That is right. It is like the purchasing agent of
a cor]>oration. He arrives at certain policies and no two adopt the
same policies.
The Chairman. Here we have been appropriating money, subsi-
dizing ships, trying to get our ships to carry a lot of commerce and
build up world trade and have our own flag flying on the seas. Yet a
lot of people over here who are very interested in seeing that done, still
do not put their business in the proper channels to make it possible,
without some Government expense. We are trying to find out what
we can do to encourage the use of our own ships.
Mr. Rosenthal. In the conferences I know, I think the American
lines have gotten a fair share of the cargo. I am not acquainted with
all of them, and my knowledge of exports is less than my knowledge
of imports, but broadly speakiiig, I think, of the total amount of
tonnage handled over a specific route during the course of a year, that
the American lines have been doing increasingly better over the past
decade, even pre-war.
I think the records of a good many were quite satisfactory to them.
The Chairman. We don't want to spend all your time on one point.
Will you proceed?
Mr. Rosenthal. My next point deals with foreign-trade zones. A
foreign-trade zone is a small area which is set aside under Government
regulation and supervision in which goods can go without the payment
of customs duties, and which in Europe, wdiere the foreign-trade zones
originated, can be exhibited and also manufactured from raw materials
or semifinished goods, without going through any procedure of the
payment of duty and afterward obtaining a draw-back.
Until the last few years we had no such foreign trade zones in the
United States, but the Congress passed the Foreign Trade Zone Act —
I don't recall the exact year — as a result of which we now have one
foreign-trade zone at the port of New York.
In 1937 there were 742 tons at a value of $60,000 handled in that
foreign-trade zone, which in 1941 jumped up to 24,000 tons of some
$10,000,000.
The foreign-trade zones perform a useful service without: injury in
any way to our domestic commerce. Steamship companies cannot
afford to call at all of the small ports of the world. That would be true
of a good many of the steamship services originating in the Far East
which could not, for example, call at Central and South Amei-ican
ports, but where the goods can be imported through the port of New
York and then transshipped to Central and South America.
There are at the present time provisions whereby you can make
entries of goods in bond, and so on, and so forth, but they are cumber-
902 POST-WAR ECONOMIC POLICY AND PLANNING
some and costly. The foreign-trade zone has shown in these few
years even though its activities have been stimulated by the war,
that they can economically and efficiently handle that kind of trans-
shipping cargo. At the present time there are only three old piers up
on the Hudson River doing that. 1 would like to see the Foreign Trade
Zone Act liberalized to provide for two additional features : One is to
permit the importation of goods duty free which would have to be kept
in the foreign-trade zone for purposes of exhibition.
By special act that was permitted at the World Fair in New York,
and also at the World Fair at San Francisco, but it is not at the
moment permitted as a matter of permanent exhibition, and assuredly
there can be no harm in allowing goods to be imported and kept on
exhibition. The minute they leave the foreign-trade zone, if they
were to enter the rest of the United States, they would have to pay
duty, so that I do not think there is any valid objection to permitting
such exhibition of foreign goods.
The Chairman. Just as the farmer can bring his produce into town
and put it in the market.
Mr. Rosenthal. Exactly the same. I would like to see that, not only
for the port of New York, but I would like to see similar foreign-trade
zones established in other ports.
The Chairman. Are there similar zones in other countries ?
Mr. Rosenthal. Yes, sir. There was the Free Port of Danzig until
a few years ago ; Liverpool, Rotterdam, Hamburg, Bremen, Antwerp
were at one time or another free ports. They lessened in importance
with World War I. Prior to World War I, for example, the bulk of
the imports of our own company from the Netherlands Indies was
shipped first to Rotterdam or to Liverpool and then transshipped to
the United States. The results of World War I were to start direct
steamship service, so to some extent those free ports have been elimi-
nated, but there is an opportunity for a certain amount of trade with-
out any valid objections to free zones, as they cannot possibly hurt us
in any way, and if anything they can stimulate our foreign trade.
The next point is that the present act permits manipulation but
not manufacturing within the foreign-trade zone. I am not sure of
all the technical definitions. Repacking of goods would constitute
manipulation, but if you change their character at all it is manufac-
turing. I would like to see manufacturing permitted in the free trade
zones in the United States.
The Chairman. You mean actual manufacturing in that zone?
Mr. Rosenthal. Yes; manufacturing in the zone. Then if the
manufactured goods entered into the United States they would pay
duty, but then the manufactured goods can also be exported abroad,
in which case they would not pay duty.
Our present tariff act provides that if a manufacturer imports a !
dutiable raw material he may manufacture it for export, through
using certain special bonded buildings, or in his own factory if he.
goes througli extensive red tape, and obtains a draw-back of 90 percent
of the duty that he has paid. By the time he goes through the motions
of filing for draw-back and keeping the additional records a good many ',
manufacturers have estimated to me that they might get back 90
percent of the duty and not 99 percent.
There could be an objection on the part of a great many manufac-
turers located at inland points who have been doing some of that, in
I
POST-WAR ECONOMIC POLICY AND PLANNING 903
that they might suffer in the loss of exports if manufacturing were
permitted at the free zones and they would lose thereby. I think they
would.
On the other hand, I think the over-all good would be greater, be-
cause, after all, you have to pay railroad freight on the raw material
from seaboard to the interior; you have to go through the motion of
obtaining the draw-back, which is costly. You then have the railroad
freight on your finished goods back to seaboard, so that if you per-
mitted manufacturing in the free zones for export, you would save
the railroad freight from seaboard to interior, and back from interior
to seaboard, as well as all the other handling that jou have in the case
of the production of goods.
The Chairman. The railroads would not be heartily in favor of
that.
Mr. Rosenthal. Perhaps not. The railroads would lose a certain
amount of traffic, the inland manufacturers might lose a certain amount
of business, unless they themselves put up small factories in the free
zones, but I think the over-all results for the Nation would be prof-
itable and worthy of consideration.
1 Dr. Reed. Would 3'OU say that there should be one in New York,
I one in San Francisco, and maybe an additional one at New Orleans?
' Would you think that would be all that is necessary to do a good
job, without running into unnecessary resistance?
I Mr. Rosenthal. My personal idea is that three — New York, Gulf,
! and Pacific coast — would be ample in the beginning. What you get
I up against there is the difficult problem of the rivalry of municipali-
I ties, to decide Los Angeles versus San Francisco, versus Portland,
' versus Seattle ; New Orleans versus Mobile, versus Houston. I don't
k wish to attempt to solve that, but on the other hand, I do think that it
is a problem which must be solved. I don't think that we accomplish
anything by saying that because of rivalry of municipalities we will do
I nothing.
The next point deals with a very general subject — Dumbarton Oaks.
That is so much a field in which our Government officials and those
others who were called in as consultants are experts, that I am a
bit reluctant to attempt to testify. But I would like to say this,
and here I am not going to be as specific as 1 have been on these
other points I have made: We, in the National Council of American
Importers, assuredly endorse the principles of Dumbarton Oaks. We
think it is a very excellent beginning. At the same time, I think
there may be those who would disagree with me on this or that detail.
I also feel that that part of the statement made by the Department
of State which refers to the economic and social council as part of
the general assembly is worthy of greater consideration than was
given in the release of the Department.
I would like to leave, if I may, with the committee a very inter-
esting pamphlet written by Otto T. Mallory, called Practical Ap-
proach to a World Trade Board.^ I don't think that' it requires a
great deal of discussion on my part other than to say this : Unless the
nations of the world are willing to approach the problem of the
exchange of goods and services, steamship operations, and everything
that goes with their economic relations in an objective way, we are
^ See appendix, exhibit 26, p. 1205.
904 POST-WAR ECONOMIC POLICY AND PLANNING
going to continue the seiies of crises and wars that we have had during ,
the period of our lifetime.
I don't think that which is culled the political reluuunships of ,
countries can be solved in a political vacuum. I think we are beyond !
the stage where the relationship between two countries depended upon !
the personal relationships of the kings or emperors or any other rulers i
of those two countries, as to whether or not they got along, or whether |
their children married each other in their royal families. I believe
strongly that the economic relationships of the countries will dominate |
what we call their political relationships. And the economic rela- ;
tionships of the countries of the world will be affected by the stand-
ards of living of their peoples. While we must be primarily con-
cerned with the standard of living of our own people. I think that '
we must recognize that our own economic welfare is affected by the j
standards of living of other countries of the Avorld. 1 do not think |
that there can be a world at peace if there are vast areas in which \
there is hunger and no prospect of raising the standard of living |
for the people of those countries. The "have nots" will not allow the
"haves" to live in peace. Hence, I urge expansion of the economic
council along the lines of the world trade board that Mr. Mallory
proposes.
But I think such an organization has to get down to cases. I d(jn"t
think it is enough to orate about beautiful principles and to pass a
great many resolutions. I think we will solve these problems only
if we get down to cases, cases of exchange rates, cases of the number |
of vessels on different flag lines, and so forth. So, in urging the j
Congress to support the principles and the basic organization of \
Dumbarton Oaks, I would urge that we approve and authorize our f
administrative agencies to enter into a world-trade organization or i
world-economic organization which can study and make appropriate I
recommendations of specifics to our legislative body, and the legis- '
lative bodies of other countries of the world, for enactment, and not
merely for debate.
I would like to add something about Bretton Woods. I am not an
authority on money. I have heard a great deal of discussion — I have
seen pamphlets written for the recommendations that came from Bret-
ton Woods, and I have seen pamphlets written against it. In my dis-
cussions with some of the banks in New York, I felt that a great many
of them, not all of them but a great many of them, are agreed as to
the need for stabilization of international exchange. I don't think we
are going to achieve stabilization by wishing for it. I don't know
whether what came out of Bretton Woods is the greatest plan in the
world or not. But what I do feel is that we have to make a beginning
with some kind of organization, such as that fund, and an interna-
tional bank. I think we have got to get going and participate in an
organization speedily, so that we can provide intelligent long-term
credits to those countries that wish to develop their economies for pro-
ductive purposes.
The Chairman. Did you say Government or individuals? .
Mr. Rosenthal. The individuals should do it, but I feel certain^,
from a memorandum given me by one of the leading bankers in NeWi
York, that individuals are not going to be able to do all of this withiffl
the scope of what they consider sound private investment without some^
Government guaranty and help.
POST-WAR ECONOMIC POLICY AND PLANNING 905
The Chairman. That is the point I wanted to ask you about. In
your projected phin, just how much do you think the Government
will have to do, and how much will what we call private enterprise
have to do ?
Mr. Rosenthal. As a businessman, I would like to see everything
left to private enterprise and initiative that private enterprise can and
will do.
The Chairman. As a Member of Congress, I would like to see that.
Mr. Rosenthal. But I think we have to consider this, too : The trend
of thinking in a number of countries in Europe, even among the areas
still to be liberated, is that for some years to come their governments
will have to do a great deal in the regulation of their economies, a great
deal more than they ever did before.
I would like to submit also to the committee a copy of a brief article
that I wrote recently in the New York Journal of Commerce.^ In my
discussions with the representatives of some of these governments, I
have had the feeling that it is their feeling that they are going to have
to reguhite foreign trade and even some of their productive industries
for some time until they can reeducate their people to the ways of
peace, to the ways of free enterprise, and to the ways of political de-
mocracy. If that is the trend of foreign governments, then we in the
United States, as exporters and importers, in my opinion — there are
many who agree and many who disagree — must look to the adminis-
<^rative agencies of our Government to give intelligent assistance. It
is for that reason that I believe that the Foreign Economic Adminis-
tration, which is the successor to the B. E. W., with which I was once
connected, must continue certain of its export and import controls. I
wouldn't have those continued in a vacuum. I would have F. E. A.
work with committees of associations of exporters and importers, so
that each problem is tackled on the basis of its specific needs.
As to financing, it is true that we are in an unusually sound financial
condition compared to other countries of the world. I think that we
have found in our own history, as well as in the history of other coun-
tries, that our own trade has risen most with those countries that have
undertaken industrialization, even though it has resulted in some
competition with them. But the more highly industrialized countries
of the world have been our best customers.
We have a tremendous productive capacity in the United States.
Other countries will be increasing their productive capacity. There
are hundreds of millions of people in China, India, Africa, Central and
South America whose standards of living beggar description. We v/ill
benefit in our own economy if their standards of living rise.
To the extent that private banking and private enterprise cannot
finance the long-time building of a railroad or of an industry or of
long-term agricultural development, our Government should par-
ticipate in long-term loans, guarantee them, if necessary, as is pro-
posed in the international bank as advocated at Bretton Woods. I
think our Government will have to play a part. I think it is a delicate
balance as to how much the Government should do and how much
private enterprise can do. Private enterprise should do all that it
can. That delicate balance can be achieved only if there is close co-
operation between the administrative agencies and those who repre-
sent business through their various associations.
1 See appendix, exhibit 27, pp. 1211 to 1212.
906 POST-WAR ECONOMIC POLICY AND PLANNING
I have frequently urged upon my fellow businessmen that there has
been too much feuding and too much suspicion on the part of business-
men with Government agencies, and vice versa, and 1 think that we
have to recognize the need for a closer partnership between our Gov-
ernment and industi*y if we would succeed in achieving that balance.
Dr. Reed. The other day I heard Dr. Kung, who is the assistant of
Chiang Kai-shek, make this statement, which I think is so simple it
was rather shocking; nevertheless, it shows what can be done along
the lines you have mentioned. He said that there are 450,000,000
people in China, and if their purchasing power could be increased just
$5 apiece per year it would amount to $2,250,000,000 a year. That
certainly shows what can be done by increasing the purchasing power
of populations.
The Chairman. Do you know of any information you can supply us
that would be of help to the committee that we have not asked you
specifically ?
Mr. Rosenthal. No, sir. I would like to send to the committee, if
I may, certain documents.
The Chairman. You may do that.
Do you know of any questions that we have failed to ask you?
Mr. Rosenthal. I can't think of any now. I think you have been
very thorough in examining me.
The Chairman. Thank you very much for your cooperation.
The committee stands adjourned until 2 o'clock. I
(Whereupon, at 12 : 05 p. m., an adjournment was taken until 2 p. m., I
of the same day.) \
afternoon session
Mr. WoRLEY. All right, let us proceed. Mr. Minor, will you identify
yourself for the record ?
STATEMENT OF CLARK H. MINOR, PRESIDENT, INTERNATIONAL
GENERAL ELECTRIC CO., NEW YORK, N. Y.
Mr. Minor. My name is Clark H. Minor. I am president of the In-
ternational General Electric Co., New York.
Mr. WorIjEY. What business are 3^ou engaged in?
Mr. Minor. Electrical manufacturing and trade outside of the
United States and Canada.
Mr. WoRLEY. Is that a subsidiary ?
Mr. Minor. That is a subsidiary of the General Electric Co.
Mr. WoRLEY. How long have you been so engaged in foreign trade?
Mr. Minor. I have been in foreign trade business residing outside of
the United States 39 years and have only been resident of the United
States during that period since the World War, 1939.
Mr. WoRLEY. You may proceed.
Mr. Minor. It should be the function of our Government in plan-
ning its post-war economic program to provide a framework of sound
international trade policy within which the free enterprise system may
work. It should be the purpose of all our laws and regulations to
facilitate the exchange of goods and services in the largest possible
volume by providing reasonable security as well as rules of conduct
under which the private trader may carry on his normal activities. It
should be the function and the purpose of private enterprise to develop
POST-WAR ECONOMIC POLICY AND PLANNING 907
the maxiimun amount of world trade because upon this reciprocal flow
of goods and services our domestic prosperity as well as that of the
rest of the world depends.
In working out the details for any constructive plan of foreign trade
reconstruction we must recognize that certain fundamental principles
must form the basis for this work, regardless of the great political
and economic changes that have been brought about by the war.
The first step is to know what we want, wdiat other people want,
what things are economically sound and reasonably practicable of
attainment.
Our first requirement is a somid domestic economy. Since our
domestic economy is but a segment in the world economy, we have to
make sure that what we insist upon for ourselves harmonizes with
the other parts of the world economy.
Whether we like it or not, we will hereafter live in a world so small
and so closely drawn together that all nations are interdependent.
We cannot have prosperity and high standards of living in the United
States at the expense of other nations. Likewise, our prosperity de-
pends upon the progress toward better living conditions and employ-
ment in other countries. This calls for the closest cooperation between
the private traders as well as the governments of the world.
Our second requirement is collective security. Without peace there
can be no continued economic or financial security and only a pros-
perous world can long remain at peace.
It is generally recognized that the success of our post-war economy
will depend upon wdiether or not we can provide jobs at high wages
for all who desire to work. This objective can only be obtained
through an ever-increasing volume of production and the unrestricted
interchange of goods and services. We know that the former channels
of trade have been completely disrupted and that many of the eco-
nomic centers of gravity have been permanently shifted. The trade
channels must be reestablished, stability and balance must replace
the chaos created by a world upheaval. This means that trade barriers
of all kinds must be removed or adjusted.
The onl}' way to promote a sound world economy and to have full
employment at home and abroad is through the flow of goods and
services between the nations.
It seems logical, therefore, that the Reciprocal Trade Agreements
Act which provides for the negotiation of reciprocal adjustment and
removal of trade barriers should be made a permanent part of the
foreign trade policy of our country.
Economic warfare is an integral part of war and, while an extensive
system of government controls over private business transactions has
been essential as a war measure, those controls must be relaxed as
rapidly as conditions warrant if the incentive which is inherent in
the private enterprise system is to be restored. This process has been
well described as one of controlled decontrol. Stability of exchange
in a free market can only be the consequence of the gradual restora-
tion of active trade and investment.
Mr. WoRLEY. Pardon me, Mr. Minor, would you repeat that sentence
just before that about trade?
Mr. Minor. The stability ?
Mr. WoRLEY. Yes.
99579 — 45 — pt. 4 20
908 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. Minor. Stability of exchange in a free market can only be the
consequence of the gradual restoration of active trade and invest-
ment.
By that I mean stability Aoats from the normal activity of trade
and investment.
Mr. WoRLEY. You don't mean financial stability?
Mr. Minor. Beg your pardon ?
Mr. WoRLEY. You don t mean financial stability ?
Mr. Minor. No; the normal stability. I would point out, the sooner
trade is released from wartime controls to the initiative of private
traders the speedier will be our return to })rosperity.
It seems evident that the agencies whose genesis and functions were
l^rimarily to facilitate the war effort must, with the return of peace,
give way to the normal departments of government. In any event,
all functions of these wartime agencies should be eliminated to the
extent that they compete with private enterprise or exercise controls
over private business for the purpose of conducting the war.
The Department of Commerce, and especially its Bureau of Foreign
and Domestic Commerce, under w^hose guidance, with the aid of the
Department of State, business and industry formerly conducted trade
in other countries of the world, should again become an effective
operating organization for the promotion of foreign trade and in-
vestment through private channels.
The Webb-Pomerene Act was designed to permit American busine&o
enterprise to associate cooperatively in their export business in ways
not generally allowed in the domestic market. This act, mider the
jurisdiction of the Federal Trade Commission, should be modernized
and strengthened to make possible even wider cooperation in export
business. Our Nation needs a Federal Trade Commission to assist
and cooperate with business, both domestic and foreign, in establish-
ing a fixed set of rules that will, on the one hand, prevent unfair com-
petition and, on the other hand, promote the development of a sound
foreign trade policy.
The task of world trade reconstruction is a gigantic one. The
problem is complicated by every advance of science and industrial
progress by all social and political changes.
International consultation is essential in the rebuilding of the in-
tricate network of world trade. National differences can only be
adjusted through compromise and cooperation. There must be the
Avill to consult, the inclination to compromise on details, and the de-
termination to cooperate in the execution of agreements for the devel-
opment of world trade.
It is important that all international business agreements be filed
with some Government agency such as the Federal Trade Com-
mission for public assurance that they are consistent with our foreign
economic policy and that they do not involve practices that are against
the public interest.
Economic cooperation is, in my opinion, the only means by which
we can gain permanent world peace.
When nations of such diverse culture, customs, and political think-
ing as China, Russia, the British Empire, and the United States can
unite to win a war, it ouglit to be possible to arrive at mutually satis-
factory conventions for the purpose of winning the peace. Only in
this manner can we find practical ways of reconciling the differences
POST-WAR ECONOMIC POLICY AND PLANNING 909
of economic methods and policies which divide the nations of the
world. Only by international cooperation can we avoid the ruinous
practices of monetary devaluations, quotas, and excessive tariffs.
Some form of international commerci;il policj- organization should
undoubtedly be established to give effect to such rules, regulations,
and controls of international trade as will contribute to orderly world
markets, full employment, and bring peace and prosperity to all
nations.
Mr. WoRLEY. This is off the record.
(Discussion off the record.)
ISIr. WoKLLY. We want your opinion as a businessman with practical
experience in international trade and foreign commerce. First, is it
desirable to increase our foreign trade ?
You answered in the affirmative?
Mr. Minor. I Avoiild say it is essential to increase our foreign trade,
and foreign trade includes both export and import business.
Mv. WoRLEY. Your company has operated in foreign trade for a
good many years, has it not {
Mr. Minor. Yes.
Mr. WoRLEY. When did it start?
Mr. Minor. The International General Electric was organized in
1919.
Mr. Worley, 1919. It has been operating .steadilj'^ up until we got
in the war?
Mr. Minor. Right.
Mr. FoLSOM. But you personally did export business a long time
before that?
Mr. Minor. Yes, for 20 years before that I was in the foreign busi-
ness of the Western Electric Co.
Mr. FoLsoM. That company was engaged in foreign trade?
Mr. Minor. In foreign trade. They operated very much of the same
type of a business.
For instance in 1918 I built a telephone factory in China which is
still operating.
Ui\ WoRLET. 1918. At the end of the World War.
Mr. Minor. Just before I came with General Electric I was 4 years
in China.
Mr. WoRLEY. What commodities do you sell, export, mostly?
Mr. Minor. Every type of electrical apparatus from the largest
generator to the smallest lamp, and associated apparatus that go into
the power plants in any countr}', and the household appliance and
other electrical devices.
]\Ir. WoRLEY. Has your company enjoyed a steady growth in volume
of exports ?
Mr. Minor. I would say that our export business has always had
quite a definite relationship to the volume of the blisiness of the Gen-
eral Electric Co. in the domestic market, and I observe that when we
have prosperity • at home we usually have a larger export sale and
lai'ger import business.
For years I believed that export business filled a gap in the domestic
factories and that when your business at home was down you could
fill up your factory by going out and getting export business. The
statistics prove that that is not correct, and that the area of the world
that goes up and down together depends very largely on how closely
910 POST-WAR ECONOMIC POLICY AND PLANNING
we are knit to^jether by communications and contacts. As the sphere
of influence of the United States extends beyond our border we are
going up and we are going down together with a very much larger
percentage of the earth's surface.
Mr. WoRLEY. Then before we can have an increase in our foreign
trade we will have to remain stable and prosperous here at home. Is
that the conclusion that you have drawn?
Mr. Minor. I think that is sound. We must have a sound domestic
economy before we can hope to have an increased foreign business.
If our factories are unable to buy raw materials abroad, if we are
in such economic position that we do not want to buy products of
other nations, we place automatically a limit on the amount of goods
we can sell to other people and have them paid for.
Mr. WoRLEY. How do you suppose is the best way to arrive at a stable
and prosperous domestic state over here ?
Mr. Minor. We have to follow all those policies that will promote
the flow of goods and services across our borders. In other words, we
can no longer be self-sufficient and be prosperous.
Mr. WoRLEY. In order to be prosperous here we have to trade with
other nations ?
Mr. Minor. We have to trade with other nations. And we can only
trade with other nations if we help to make them prosperous.
Mr. WoRLEY. In order to trade with other nations we have to be
prosperous here ?
Mr. Minor. That's right. But if you want to increase the volume
of trade I personally believe you have to assist in the industrializa-
tion of other countries so that by increasing the income and pur-
chasing power of their people you create a demand for a larger number
of things that we might supply.
Mr. WoRLEY. Who do you think should extend this credit to lend
this money ? As I understand it you say that it is necessary in order
to increase our foreign trade that we rehabilitate in some other way
other nations who are prospective purchasers for what we have to sell.
Is that correct ?
Mr. Minor. Yes ; we have to work to create stability in all the coun-
tries with wliom we wish to do business. The mere making of loans
is of itself a temporary stopgap because loans have to be repaid.
They can only be repaid in the long run by goods and services, other-
wise we have defaults and have to write them oflF.
In the reconstruction period immediately after the war, where you
have absolute chaos, it may be in our self-interest to make substantial
loans through Government channels toward the program of recon-
struction to assist them in getting their industrial machinery alive
and going. Beyond that point you cannot support an unsound econ-
omy abroad by the device of granting loans. Each country must
eventually go on the basis of paying its own expenses and being sound
economically or your whole world structure begins to go down hill
instead of going up.
Mr, WoRLEY. Let me see if I understand what you mean. iTou
mean that in order to build up foreign markets we must lend money?
Mr. Minor. No, sir; not as a permanent policy except on the basis
of ability to repay.
Mr. WoRLEY. As a temporary measure?
POST-WAR ECONOMIC POLICY AND PLANNING 911
Mr. Minor. As a temporary measure to speed up restoration we
have to loan money. Yes ; I will put it that way.
Mr. WoRLEY. And even though there is a good possibility of our
losing the money we lend?
Mr. Minor. We have to measure the advantages we might get at
home and abroad, for instance, in a restored China, to use a name.
JNIr. WoRLEY. In a what?
Mr, Minor. Consider a Chinese government i-estored during a period
of 10 years, if you will, as against letting them go through a long
period of disorganization, lack of capital, and having their indus-
trialization program delayed perhaps for a century.
Mr. FoLSOM, Do you think those loans should be made by this
Government to the other government, or by private bank to private
bank on long credits during the reconstruction period?
Mr. Minor, Personally, I think that loans made through private
channels under some form of Government insurance would be more
effective than those made directly by the Government to the
Government.
Mr. FoLsoM. I saw in the paper the other day where your company
is going to sell some turbines to Russia.
Mr. Minor. Yes.
Mr. FoLSOM. I imagine that was probably on lend-lease. Assuming
lend-lease was not in, in that case you would sell these turbines, and
should the owner have some sort of a guaranty by the Federal Govern-
ment here or Federal insurance?
Mr. Minor. Well, in that particular case we considered the credit
of the Russian Government is as good as that of any other nation in
the world, and we have been prepared as a company within our finan-
cial resources to take certain orders on an equipment-trust basis, that
is, credits of short-term payments not over 5 or 6 years, and do that
quite independently. We have followed that policy with Russia since
1928, and we have had several hundred million dollars worth of busi-
ness with them, and without any credit losses.
There may be a limit, however, to that type of business if Russia is
planning a reconstruction program that runs into $3,000,000,000 or
$4,000,000,000; you are then talking in magnitude of funds involved
that is beyond the scope of private industry.
Mr, FoLSOM, Well, even similar companies might have difficulty in
making sales because of their limited capital resources ^
Mr, Minor, That is correct. But in my judgment, we should have
an expanded Import-Export Bank that would examine thd various
projects and the amount of money involved and on a sound basis guar-
antee the credit so that the manufacturer could discount the paper, or
make loans to the manufacturer to facilitate the smaller industries in
handling that work.
Mr. FoLsoM. That would be in addition to an insurance plan ?
Mr, Minor. That might be in addition to an insurance plan, but I
think for the average firm the insurance plan would be preferable.
Mr. FoLSOM. Well, how would that work? You would simply pay
a certain percentage ?
Mr. Minor. You would pay a certain service charge for the guar-
anty of the loan and the Government would, through this insurance
operation, expect to take a percentage of losses, just as a fire-insurance
912 POST-WAR ECONOMIC POLICY AND PLANNING
company recognizes that it is going to have some losses. But the
balance of premiums paid in would be sufficient to offset the losses.
Mr. FoLSOM. Does England have such a plan as that?
Mr. Minor. It is my understanding that England has been follow-
ing such a phm. And Canada is considering such a plan in a small
way.
Mr. FoLscM. How long has England had that ? Before the war,
wasn't it ?
Mr. MiN< R. I should think she had it 10 or more years before the
war..
Mr. Reed. The Canadian plan was only for some $50,000,000 or
something like that.
INIr. Minor. Yes, that is my understanding. The total amount in-
volved was relatively small.
Mr. FoLsoM. Was this particular transaction on the turbines under
lend-lease ?
Mr. Minor. It was not.
Mr. FoLSOM. Was it on sales contract ?
Mr. Minor. A sales contract witJi the security of the Russian Gov-
ernment and with payments starting with the order and every 6 months
for a 5-year period.
Mr. WoRLEY. Incidentally, do you suppose this lend-lease program
would fill the bill you were talking about a while ago — lending money ?
Mr. Minor. Well, it would be possible to have a modified lend-lease
that at the end of the war would take over the fulfillment of all out-
standing contracts that were for materials other than strictly mili-
tary, on a basis of repayment over a relatively long period of time and
at a very nominal rate of interest.
Mr. WoRiJ<:y. I undeistand that your position is that you want pri-
vate enterprise, private capital, to make as many loans as. they can or
as it can to these foreign countries, and then, in case private capital
cannot meet all these demands, you think the Government should come
in and underwrite any additional loans. Is that correct?
Mr. Minor. I think that states tJie case, yes.
Mr. Worley. Then in order to increase cur foreign markets we have
to have stability at home.
]\Ir. Minor. Right.
Mr. WoRLEY. And in order to have stability at home we have to in-
crease our foreign markets?
Mr, Minor. The two are tied up together, yes, sir.
Mr. WoRLEY. It is more impoi-tant to have stability at home first.
I know that nobody can give any definite answer to this but we are
back where we first started :
What, in your opinion as a practical experienced businessman, is
the best way to have stability here at home as soon as the war is over?
Mr. Minor. Well, I think that we should make up our minds to
have a declaration, supported by our rules, laws, and regulations, that
we ]5ropose to restore and support the private enterprise system, and
that we should create between government and industry a feeling of
cooperation toward developing the best interests of American busi-
ness, to replace a feeling of opposition to business, investigation of
business, and a suspicion of every ti^ansaction an American firm ever
had with anvone across our borders.
POST-WAR ECONOMIC POLICY AND PLANNING 913
I think fnrtlier that the jurisdiction of our country should be lim-
ited to the United States of America ; that our business relationships
with other nations should be covered by international covenants,
creatinfj; internationally the same framework of rules and regulations
in the international field that are essential for stability in our domestic
field.
Mr. WoKLET. Well, I think, generally speaking, your attitude re-
flects the attitude that most everybody else has. Certainly I think
that is true in Congress. It is our job not to try to retard foreign
trade arid commerce but to try to help.
Mr. Minor. Surely. I believe it should be.
Mr. WoRLEY. It is. That is the biggest duty we have. Because we
are all after the same objective. You say to restore, which presup-
poses that has been removed.
Mr. Minor. I say restore in the sense that we are stepping out of
a war period. Now in a war period everytliing is suppressed to bene-
fit the war effort.
Mr. WoRLEY. That is true.
Mr. ]\IiNOR. The time has come, then, when I say "restore," to put
it back on a free-enterprise basis. I believe there are many people
in this country that never intend to put it back on the old basis, and
that there is a very strong movement. It is only human nature that
it should be so; namely, that in the bureaus that are essential for a
vrar-control basis, they should desire to survive after the war and have
their jobs. Thus, why make an argument that the State can carry on
international business better than private business, and that is some-
thing which I think must be replaced by definite restoration of the
private-enterprise system.
Mr. WoRLEY. You don't think the Government has any business in
foreign trade, then?
Mr. Minor. I beg your pardon ?
Mr. WoRLEY. You don't think the Government, as such, has any
particular business in foreign trade?
Mr. JMiNOR. Government does not have the ability, or the know-
how to handle foreign business and to keep commercial transactions
separate from politics.
Mr. WoRLEY. Aren't other nations pretty closely identified with
their trading interests in one form or another?
Mr. Minor. Yes. When the war is over, of course, the Russian
business will be state-owned, state-controlled.
The British foreign business will be mider the friendly guidance
of their Export Credits Division.
Mr. WoRLEY. Is that a Government agency?
Mr. Minor. That is a Government agency. Underneath that agency
will be their trade associations where their industry by lines will be
cooperating; so that the British proposal in the export field will be
as effective as the combination of Government and industry can pos-
sibly make it.
In this country we have thought it wise to adopt a policy against
anything approaching monopoly or restriction of trade, and our
manufacturers are therefore not in a position to sit down and consult
as British industry consults with the approval and support of their
government.
914 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. WoRLEY. Does that put us at a disadvantage in competing with
them?
Mr. Minor. In my opinion, we have to separate what we consider
good domestically from what we are forced to do when we leave our
jurisdiction and go into the jurisdiction of another counti-y which may
have other ideas, and has established other methods of doing business.
In other words, I believe that it is not our job to convince the world
that our domestic rules and regulations are the best and, therefore,
should be adopted in Great Britain, or France, or any other country
you might name. Our job when we go abroad is to recognize that
the other fellow has adopted perhaps a different system, a different
program that suits him, and we therefore have to come into a field
where there is no successful way of doing business except by com-
promise, and cooperation, and international agreements.
Now, it is inconsistent, it seems to me, to have a situation where the
governments of the world can enter into a contract for the orderly
distribution and marketing of wheat — and I admit that such a con-
tract is an essential to keep a stabilized market — and at the same
time raise the question as to whether we have the right to enter into a
corresponding type of agreement on the part of American industry,
where it is equally essential to have that same kind of orderly distri-
bution with industrial products.
Mr. WoRLEY. You have particular reference to cartel agreements.
Is that it?
Mr. Minor. Most any international agreement is often referred to
as a cartel.
Now, about cartel agreements
Mr. WoRLEY (interposing). I was going to ask you, You are
familiar, are you not, generally, with cartel agreements?
Mr. Minor. With some.
Mr. WoRLEY. Haven't you had a great deal of experience in them?
Mr. Minor. I wouldn't say that. My knowledge is only incidental to
living abroad and trying to carry on international business.
Mr. WoRLEY. Well, I say as a result of your position.
Mr. Minor. Correct. Now, there are good cartels, there are bad
cartels — just as there is good and bad in all human relations.
Mr. WoRLEY. Would you mind giving your definition of what a
cartel really is ? I have heard any number of definitions. Would you
tell lis what your definition is?
Mr. Minor. Well, that is difficult to define, because there appears to
be no accepted definition as to what the word "cartel" means, but in
general it is an agreement between the competing elements of interna-
tional industry in order to obtain orderly markets, promote research,
bring about the adoption of international standards, development of
the technique of the industry, and to provide a greater volume of goods
for more people in the world for less money. Such agreements have
been more effective than any other device that has yet been found to
promote international business.
Mr. WoRLEY. That sounds like a good cartel.
Mr. Minor. That is a good cartel.
In addition, agreements involving a grant of patent rights and of
technical information are sometimes termed "cartels." Technical in-
formation is distributed internationally so that the art in the whole in-
dustry can advance certain given standards.
POST-WAR ECONOMIC POLICY AND PLANNING 915
As a rule firms are not prepared to give technical information with-
out having some assurance of protection in their home market.
The question at issue in all discussions of cartels seems to be whether
the restraints inherent in any agreement are reasonable or unreason-
able.
Mr. WoRLET. Who determines that?
Mr. Minor. Business can only determine that by knowing whether
the end results of the operation are against the development of sound
and expanding international trade or are restrictive of trade resulting
in lack of service to the public.
Tliis problem is going to be in international business whether you
call it a cartel or whether you call it something else.
I think that international agreements or cartels developed as an
economic necessity in international business due to the complications
that are inherent in highly industrialized and technical industry
throughout the world.
]\Ir. WoRLEY. How long have cartels been with us ?
Mr. Minor. I have no idea when the first agreements were made. I
would think they have always been a part of the system of interna-
tional commerce. Perhaps we have only called them cartels in the past
25 years.
Mr. Worley. You said there were good cartels and bad cartels.
Would you give us an illustration of a good cartel ?
Mr. Minor. I have tried to describe what I would call a good cartel.
Mr. WoRLEY. Well, I agree with you. What is a bad cartel ?
^Ir. jNIinor. a bad cartel is one that restricts production, that
hinders distribution, technical development, and that endeavors to get
an unfair price for a product.
I think those are some of the things that you find in a bad cartel.
Now, wdiether you would call the tin agreement which was a cartel
between corporations and certain of the foreign governments that
definitely restricted production and only allowed production to come
out at a given price, a good or bad cartel, I don't know. Nor can I say
whether in the long run it helped the world or hindered the world. It
has a certain similarity with the international wheat agreement.
Mr. Worley. That is tin?
Mr. Minor. Tin.
Mr. Worley. Well, give us an example in your opinion, or an in-
stance, a concrete example, of a good cartel agreement. Can you do
that?
Mr. Minor. Could I prepare a statement and submit it to you on
that?
Mr. Worley. You could.
Mr. Minor. Later?
]Mr. Worley. Yes.
JSIr. Minor. I would be glad, to do that.
Mr. Worley. All right. Then can we ask you what is a bad cartel ?
A specific instance of a cartel agreement which has resulted in harm.
Mr. Minor. Offhand, I don't know of any. Frankly, I think in most
cartels that have been severely criticized the criticism has been in-
fluenced by war psychology, the elements of damage have been exag-
gerated.
Mr. Worley. Well, that is why we ask you this information. We
want facts.
916 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. Minor. Unfortunately, I cannot ^ive you the exact facts that
you would like to know about these things.
Mr. WoRLET. Where can we get the best facts on the cartel agree-
ments that would help us ?
Mr. Minor. I understand there are in the International Foreign
Trade Council and in the United States Chamber of Commerce groups
that are specifically studying facts regarding cartels, and I would
reconmiend that you put in your record an historical report having to
do with international agreements that has recently been prepared by
counsel for the National Foreign Trade Council and was published
about 2 weeks ago.
Have you seen that, Mr. Folsom ?
Mr. FoLSOM. No; I haven't.
Mr. Minor. It has just been distributed.
Mr. Reed. Is that the report prepared by the council?
Mr. Minor. No; that is the report prepared by Mr. Micou, of the
law firm of Malet, Prevost & Micou, at the request of the council.
That is part of the work of this committee, and I would rely on that
source of information to get correct or specific information rather
than ask you to consider any offhand things I have said here about
the general principles of a good or bad cartel.
Mr. WoRLEY. I understand, though, that you don't know of any bad
cartels but you do know of a lot of good cartels and that you will
provide us with a memorandum of illustrations of a good cartel.
Mr. Minor. I can only so far as I know cartels.
Mr. WoRLEY. Yes.
Mr. Minor. I know of somQ that are good.
Mr. WoRLEY. Well, if you know — at least the impression I have is
that cartels today have a very black eye.
Mr. Minor. I realize that.
Mr. WoRLEY. And unless they are to continue to have a black eye
the whole facts and the truth ought to be known about all of them.
Because you know we have the Webb-Pomerene Act and antitrust
laws.
Mr. Minor. Well, Mr. Chairman, the problem is that everything
that seems to have an international flavor is called publicly in the press
a cartel.
I have seen an organization chart of our company published in the
press of this country and described as a great international cartel.
I have seen a diagram of the Phillips Lamp Co. in Holland showing
the main company and its subsidiaries throughout the world described
in glowing terms as a cartel.
Let me cite those two as good cartels, and yet in my judgment they
are merely organization charts and not a cartel at all.
That is the difficulty in giving a description as to what you call
cartel.
Mr. WoRLEY. We are generaly afraid or suspicious of those things
we know little or nothing about, and the suspicion of cartel agree-
ments and international — —
JVIr. Minor (interposing). That is why I have suggested in my
statement that all international agreements should be handled on
what I believe you would call the "fish -bowl'* method.
Mr. WoRLEY. You mean Government regulations?
POST-WAR ECONOMIC POLICY AND PLANNING 917
Mr. Minor, I mean that they should be recorded and be a matter of
public information.
Mr. WoRLEY. They are not that now, are they?
Mr. INIiNOR. They have been in some instances. So far as my own
company is concerned we have not made a contract abroad since 1924
that has not been filed with the Federal Trade Commission and w^hich
has not been a matter of public record, and I believe that all inter-
national agreements having to do with licenses, trade-marks, exchange
of technical information, should be filed so that they are a matter of
public record and so that the Government authorities may know that
they correspond to the announced policy of our Government.
Mr. WoRLET. Do other countries require the same procedure?
Mr. JNIiNOR. I don't know.
JNIr. WoRLET. You don't know that ?
Mr. Minor. I don't know.
Mr. WoRLEY. We hope to go into the question of cartels more thor-
oughly later on. Do you have any additional information or com-
ment you would like to provide us with at this time on the cartel
agreements ?
Mr. Minor, Nothing more except that I would urge that the work
that is being done through the chamber of commerce and the National
Foreign Trade Council be made available to this committee, because
that is where I think industry is making some of its most serious
studies.
]\Ir. WoRLEY. You do agree that it is a problem which deniands care-
ful and understanding consideration?
i\Ir. Minor. I think any situation such as the one created by the
publicity that has been given to the cartel problem demands a good
deal of consideration and definite correction.
Mr. WoRLEY. I have heard a great deal of criticism but not a whole
lot of defense of cartel agreements. That was why I was particularly
interested in giving you an opportunity to say or defend, make any
comment that you would like to make, as one who is interested in
them, representing a concern which is interested in them.
Mr. Reed. Mr. Minor, in your opinion would such a thing as the
control of prices through export taxes on enterprise constitute a car-
tel? Take the Stevenson Act where the Dutch and the British got
together finally, would yoti call that a type of cartel agreement, in
which the two of them, not a unilateral act, but the Dutch and the
British, and to a less extent France, got together on prices; would
you call that a cartel?
Mr. Minor. I would not consider an export tax a cartel but your
second example is what I would understand to come under the defini-
tion of a cartel.
Mr. FftLsoM. Wliat kind of specific legislation would you recom-
mend? I gather you would recommend modification of the Webb-
Pnmerene Act, that it be brought up to date.
Mr. Minor. I would suggest that it be made specific. The difficulty
under the Webb-Pomerene Act seems to be that it is only after 20 years
of operation that the work done under that act is now going through
a most critical and searching review as to where something has been
done that is illesfal.
918 POST-WAR ECONOMIC POLICY AND PLANNING
In some method that law should be so defined that you could operate
on it with reasonable assurance that having I'ead it you knew that you
were within the boundaries or the framework of that law.
Mr. FoLSOM. And you would recommend an extension of the Trade
Agreements Act ?
Mr. Minor. Yes.
j\Ir. FoLsoM. Without change?
Mr. Minor. Without change.
Mr. Reed. That would be without requiring the approval of the
Senate or Congress as a whole for specific agreements ?
Mr. Minor. Yes, sir. It seems to me that the adjustment of these
barriers and restrictions of trade are primarily questions that can
best be settled by the technical staff, the permanent staff, of the vari-
ous governments, and therefore for that reason I personally would
favor an extension without change.
Mr. WoRLEY. Other governments seem to operate more closely with
their private traders than we do over here.
Mr. Minor. Right.
Mr. WoRLEY. Does that not operate to put us over here to a disad-
vantage with them?
Mr. Minor. Well, the correction could be in your technical board,
your tariff staff, and your board of review without necessarily changing
the set-up of the law.
Mr. WoRLEY. In making the shipments abroad of your exports, how
do you go about determining who shall carry these turbines and these
lamp bulbs and all the other things which you sell ? Who determines
that presently?
Mr. Minor. In many cases your customers specify it.
Mr. WoRLEY. Is that generally true ?
Mr. Minor. I would say it is true in the majority of cases, especi-
ally if he is a national of a country that has some form of shipping
service.
Otherwise it is determined in the normal course by service, by fre-
quency of sailings, of accommodations of the ships that are available.
I think that would be my answer.
Mr. WoRLEY. Well, generally speaking, do foreign purchasers insist
these goods should be carried by their own ships ?
Mr. Minor. Yes ; for instance, if you w^ere to sell to the Dutch they
usually insist on Dutch ships.
The British are very apt to insist on British ships and the Brazilians
W'ill very often specify, particularly if the Government is the pur-
chaser, that we ship on Brazilian ships if they are available.
IMr. WoRLEY. The Japanese did that about 80 times out of every
hundred ?
Mr. Minor. Right.
Mr. WoRLEY. Does your concern do much importing or any im-
porting ?
Mr. Minor. Very little importing.
Mr. WoRLEY. Well, Mdiat imports you do buy
Mr. Minor (interposing). Practically we have had no importing
business for the last 10 years. We are studying the problem for the
future as to whether it would be wise for us to handle two-way busi-
ness, but we have so far adopted a policy of local assembly or manu-
facture as a contribution to the national industrialization in each
POST-WAR ECONOMIC POLICY AND PLANNING 919
country, and by that process reducing the amount of exchange that
is required in ptitting a given article on the h)cal market.
I might give you an example. If we were to export a radio set
100 percent manufactured in this country we might require $20 of
exchange to pay for it; but if we made the housing locally and the
loudspeaker locally and some of the other parts locally, we might
put the same product on the local market with the use of only a few
dollars of exchange.
Mr. WoRLEY. Getting back to your shipping references, I am sure
you are aware of the fact that our own ships haul less than 30 per-
cent of our entire foreign trade.
Mr. Minor. Right.
Mr. WoRLEY. Do you have any suggestions whereby we might in-
crease that percentage?
]\Ir. Minor. That is one place where I think you need an interna-
lional cartel, with the aid of government, that provides for a dis-
tribution under some regulations, of shipping accommodations and
facilities, the general use of any shij) going to any port.
Our policy as shippers has been to use American ships when avail-
able provided a restriction has not been placed upon us by the pur-
chaser.
Mr. WoRLEY. Do you have any hopes that as a practical matter that
will ever become a fact, your suggestion of an international cartel
on shipping?
Mr. Minor. I have a hope that if we can have an international
league or an association of nations to keep the political peace, that it
will seem perfectly natural to have some form of international asso-
ciation that will establish some general rules and regulations in the
economic and commercial field.
I think that is as essential toward keeping economic peace in the
world as it is to have a league of nations to keep your political peace.
Mr. Worley. AVell, they are closely tied together.
Mr. Minor. They are tied together.
Mr. Worley. Do you have any more specific suggestions as to how
Ave might best utilize our own ships?
Mr. Minor. I am afraid I don't have anything further to suggest.
I believe in the principle that wherever we can we ought to use
American ships.
Mr. Reed. Do you think we should continue to subsidize?
Mr. MiJ^OR. I have no opinion to express on subsidies.
Mr. Worley. Well, if we can give our ships enough trade there
would be no necessity for such, but aj)parently there seems to be an
alarming lack of desire on the part of our exporters and importers to
use our own shipping facilities, yet we spend money on subsidies to
keep them up on a par with other nations. We fail somehow to take
advantage of it.
Mr. Minor. I doubt if in the long run either shipping commerce
or any other form of industry can be considered as sound if it has
to depend on a Government subsidy, and in the long run if we cannot
compete in a given line, we have to give away. The only sound reason
for a subsidy is the extent to which any activity is essential for national
protection.
920 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. Reed. Would you apply that, Mr. Minor, to what you might
call reverse subsidies in the form of tariff' and say that in the long
run the same thing would apply as to principle ?
Mr. Minor. Generally speaking, I would say "Yes."
Mr. Reed. From the purely economic standpoint there is no ques-
tion about it if it cannot stand on its own feet it is not economically
sound then. There might be other reasons for keeping it up.
Mr. Minor. In a well-organized world where there is peace and
flow of goods between the people of the world, no industry should
be established in any place w4iere it is not economically sound to
operate.
Mr. Reed. In other words, under ideal conditions ?
Mr. INIiNOR. Under ideal conditions.
Now, there are variations from that. We have to recognize special
conditions. The major reason is, of course, the question of national
defense and national interest. If we go back to self-sufficiency and
high protection and we w^ant to make things in our own country for
the pride of doing it with the aid of a subsidy, it is not a permanently
sound thing to do, in my judgment.
Mr. WoRLEY. We can produce an awful lot of stuff over here after
the war is over that the rest of the world will want, Mr. Minor. Is
that true ?
Mr. Minor. No question about it, and for the first several years they
will buy because they have to, because it is the only source of supply,
and practically without regard to what it costs, using tlieir accumula-
tion of gold and exchange as far as they can; but that is a temporary
situation.
Mr. WoRLEY. They run out of that.
Mr. Minor. This period will be relatively short so that our planning
should be of the kind that provides the maximum flow when this
abnormal period has disappeared.
Mr. Wori:ey. But the only way w^e can put them in a position to
pay for our goods now is to loan them some money to do it with?
Mr. Minor. Well, yes. Now, aren't we all in this position : If v. e
have all been playing poker and you have got all the chips and then
the rest of us say to you, "You want us and we would like to get back
and play poker again but you have got to stake us to some chips.*'
The United States is in that position, and if we want this world to
go on we may find it profitable to pass out some of the chips.
Mr. WoRLEY. Well, don't you find a lot of times it all flows back
the other way and the other fellow is not willing to give us?
Mr. Minor. When you have got them all back again and the game
is over you are going through another world depression and you have
got to make up your mind whether you are better off living in that
world with all four of us sitting around here broke or passing out
some more chips.
Now, it is your own self-interest. It isn't what we want. We want
to live, naturally, but we can get along without your chips in a very
meager way. But you have got to come downi to our level sooner or
later, and your chips just burden you, that's all.
Mr. WoRLEY. Those are yellow chips too, aren't they?
Mr. Minor. Any color. Any color.
POST-WAR ECONOMIC POLICY AND PLANNING 921
Mr. Gamble. Mr. Minor, all the evidence so far has spoken of very
high production and very high consumption. We received a piece of
evidence this morning from the October issue of the Whaley -Eaton
Service [reading] :
The British tend to become a little panicky over the possibility of America's
trade superiority after the war, due to their almost unlimited production capacity.
The same fear is noted elsewhere in Europe. Thus, each of the liberated coun-
tries wants to take from America only what is needed for immediate rehabilita-
tion. Long before the invasion, the French were taking the position that they
would not want to import from the United Sates either capital or consumer goods
that they themselves could later produce, except as immediately needed. They
wanted hieir own domestic market for their own steel production, as an illus-
tration.
As an example suppose we took a target that is aimed lower. What
suggestion would you have in this beautiful rosy picture? What sug-
gestion would you have under that circumstance?
Mr. ]MiN0R. I don't know just what is the correct answer to that
question.
We may be talking of more employment than we are going to have;
there is a great difference of opinion as to the deferred demand that
awaits us to work on ; these are all speculations as to the future.
I do have a feeling that many of the foreign nations are fearful that
we will misuse our economic power in the post-war period.
I think it is a fact that we probably will be the most powerful and
have a greater possibility of forcing our way in any market than any
nation ever had in the world ; but the big problem is whether we know
how to use this power to the mutual advantage of ourselves and
others.
I think we must restore and assist the British Empire to come back
and be an associate with us, economically strong, if together we are
going to deal with the state organizations that will develop in other
countries and keep peace in the world. We do disturb our British
friends by exaggeration of figures as to the enormous production
that we are going to have and our power to go outside and control
the markets of the world; and therefore she is planning to protect
her own interests.
We have to assume a very generous attitude in our apj)roach m
international relationships, to avoid misunderstanding.
]Mr. Gamble. I would imagine you have an engineering background
and I wonder what your factor of safety is.
Mr. Minor. I think there are plenty.
Mr. WoKLEY. We hear an awful lot of talk, Mr. Minor, as to what
this Nation should do in overtures made to other countries, economi-
cally and otherwise, after this war is over.
It seems to me that has been largely a one-way road. Don't you
think that it is to our interest, too, to find out how they can also co-
operate with us ?
Do you know of any evidence, any thought now going on about
other nations, as to what thev can do to encourage — to help us help
them?
Mr. Minor. Well, human nature does not work that way. If you
have a rich uncle you seldom figure out how you can help him, but,
rather, what he might do for you.
922 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. Gamble. You might want to bo remembered in his will. ;
Mr. Minor. That is true.
Mr. Gamble. Do you think the burden is entirely upon us, then?
Mr. Minor. I wouldn't say that the burden is entirely upon us, but
a larger burden is on our shoulders in proportion to our excess of
economic strength as compared to the others. Again, it brings us
back to the point I tried to stress in the beginning — you are going
to get results internationally through consultation, through interna-
tional agreements, and, eventually, through the setting up of a mech-
anism where the representatives of industry of different countries can
get together and adjust differences.
]SIr. WoRLEY. That is where your Government comes in. And you
don't like governmental interference^
Mr. Minor. I would not use the word "interference." I do not
object to, but favor. Government controls if you will first define the
framework within which we are supposed to operate. :
If Government control means interference in reaching every com-^
mercial decision, then it is going beyond the realm of reason. :
Mr. Worlet. Could you be just a little bit more specific?
Mr. Minor. I beg your pardon?
Mr. WoRLEY. Could you be just a little more specific?
Mr. Minor. Well, the background of sound policy is to have a
framework of laws under which our various operations will be done.
Mr. WoRLEY. Let me ask you this : In your immediate post-war ■,
plans for International General Electric Co., I suppose you intend!
to send out salesmen all over the world to try to sell your product. Is:
that correct ?
Mr. Minor. Yes; surely.
Mr. WoRLEY. There is no other answer to it, nothing else to be done ? '
Mr. Minor. That's right.
Mr. WoRLEY. You don't want the Government to subsidize you or
your salesmen in sending them out ; you want them to go out and find
their own market just the best they can. You want the Government
to lay off?
Now, when you make a contract with some foreign purchaser who
cannot pay you, that is when the Government should step in and lend
money in order to afford him an opportunity to buy your products.
Is that correct?
Mr. Minor. I would never ask the Government to give the man a
penny to buy my products.
Mr. WoRLEY. Well, I understood you advocate loans directly by the
Government or underwritten by the Government to enable foreign
countries to buy from us what we have to sell.
Mr. IVIiNOR. To buy materials for the reconstruction that is essen-
tial for them to reestablish a sound economy; and beyond that to
loan money for constructive purposes that can over a period of years j
repay those loans.
Mr. AVoRLEY. Well, the sale of turbines for power production, would
that be a part of the rehabilitation process of the country?
Mr. Minor. Yes. It might. For instance — ^but there you have the
thing right now of some of our Government administrations plan-
ning to buy certain power plants, certain sewer systems, equipment
for sewer systems, to take care of situations in occupied areas of
POST-WAR ECONOMIC POLICY AND PLANNING 923
Europe which are the first step — or are the first step following
U. N. E. R. A.
Now, U. N. R. R,. A. is purely a charitable venture, I take it. The
next is a semicharitable venture, in some cases of which they can
pa}' and others they cannot pay.
But those are not the type of businesses in which the industry is
primarily interested.
JNIr. WoRLEY. All right. What are you primarily interested in?
You are interested in a market.
Mr. jNIinor. I am interested in a market.
Mr. WoRLEY. You are also interested in getting paid?
Mr. INIixoR. That's right.
Mr. WoRLEY. Otherwise you are not going to sell?
Mr. Minor. That's right.
Mr. WoKLEY. Where does the line of demarcation come in there?
Where is the money going to come from that will buy your product?
Mr. Minor. So long as a country remains poor and has an unsound
economy it cannot buy and we cannot sell. We must follow such a
policy as will tend to raise their standards of living, and increase their
purchasing power.
jVIr. AVoRLEY. How are we going to do that ?
Mr. Minor. By local industrialization.
Mr. WoRLEY. Well, how are they going to industrialize if they don't
have the money to do it, Mr. Minor? They cannot buy what they
have to have in order to industrialize. You are the only one who can
sell them that. They cannot buy from you without money. How are
they going to do it?
I think you answered that awhile ago when you said they would
have to have money from us in order to buy the stuff.
Mr. Minor. They will have to have money, and it should be put into
works that are productive so that it can eventually be paid back;
whether it is advanced by the Government or by industry.
Mr. WoRLEY. What works are productive?
Mr. Minor. The building of roads, construction of power plants,
the establishment of communications, certain ports that enable com-
merce in that country to move.
Things that are not productive would be to build parks and play-
grounds and other things which are very nice but which do not create
purchase power in that country. Money to build a power plant if
you will, or to build certain types of industries which go into opera-
tion which increase the wages in the country, thereby increasing pur-
chasing power, create a situation where that country has more to sell
than if it remained purely an agricultural country ; and if the loans
are made in relationship to production they should be able to repay
them out of production over a reasonable period of years.
Mr. WcRLEY. Assuming that it is a productive venture.
Mr. jNIinor. RiMit.
Mr. Worij:y. But you contemplate loans from one government to
another rather than to an individual?
]\Ir, Minor. My thought was that such loans are required primarily
for tile immediate post-war reconstruction period and not as a perma-
nent policy.
Mr. WfRLEY. A temporary proposition?
99579 — 45— pt. 4 ?1
924 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. Minor. A temporary proposition. I think it is a matter of
our self-interest as to whether we would like in a given country to
have them struggle back to a higher standard of living and a sound
economic position over 50 years, or reduce that period by 50 percent
if we give them some
Mr. WoRLET (interposing). Chips.
Mr. Minor. That's right. Some chips.
Mr. WoRLEY. You think it is a good idea that we lend them some
chips?
Mr. INIiNOR. I think the background of what we do is our own
self-interest.
Mr. WoRLET. Well, I assumed that to be true. We would make
money by lending them money.
Mr. Minor. I have discovered generally speaking that if you want
to get something, you have to give something; and you cannot have
any great success without creating a two-way traffic.
Mr. WoRLET. Are j^ou as a businessman in favor of the recom-
mendation of the Bretton Woods Conference?
Mr. Minor. The Bretton Woods Conference only covers part.
There must be a whole series of Bretton Woods, and private industry
must combine with Bretton Woods.
To my mind Bretton Woods was very important, not because of
the detail to anything they agreed to, people will differ about that.
The important thing was that it was a first international conference
where representatives tried to get together, and they probably found
an answer that is far from being perfect.
I would much prefer to see our own bankers control their own
loans rather than turn it over to some international group.
Mr. WoRLEY. So long as they can.
Mr. Minor. Yes.
If we wait for a perfect answer we will never have a plan. And
I look upon Bretton Woods merely as a start in a given direction of
international cooperation.
Mr. WoRLEY. You are not going to sell your product overseas un-
less you make a profit out of it ; are you ?
Mr. Minor. That is true because it is only by making a profit that
we remain in business.
Mr. WoRLEY. But when it comes to a point where this country can-
not build power plants for productive purposes without help from
someone, then you are willing for someone to come in and help. Is
that correct?
Mr. Minor. Yes; but there is also a big question as to how much
that power plant is actually needed and whether the project is sound.
Mr. WoRLEY. Of course. But would that be likely to influence your
judgment a great deal if you had an opportunity to make a big sale
here? Would you concern yourself a great deal with just how badly
they needed it? If I am selling an automobile I am not concerned
with what use you put it to.
Mr. Minor. Certainly, I would.
Mr. WoRLEY. It won't make much difference what they use it for,
will it, if you can sell it and make a profit out of it?
Mr. Minor. Yes ; we are very much concerned.
There are two ways of doing business. One is to load them up
with all you can sell without regard to the consequences.
POST-WAR ECONOMIC POLICY AND PLANNING 925
You usually pay for it after aAvhile. And business you get that
is not an economically sound project is bad business, for a Govern-
ment or for a company.
I turned down cold a proposition just a short time ago because my
engineers said it was not economically sound.
That kind of a project you should always turn down.
Mr. WoRLET. Were they able to pay for it?
Mr. Minor. They claimed they would be able to pay for it. We
don't think their studies are sound, therefore we think they could
not pay for it. Therefore we were not interested in it.
Mr. FoLsoM. Regarding specific legislation, if we are going to do
anything on long-range credits we would have to have some sepcific
legislation for it?
Mr. ]\IiN0R. I think we would.
]\Ir. FoLSOM. You don't know of any provision for it now ?
Mr. Minor. I don't know of any provision for it now. I think it
would logically fit in with or be associated with the legislation that
created the Export-Import Bank; that we ought to have one financing
institution through which" all items of that kind cleared so that you
had a group of men who are expert in the field of financing foreign
projects.
Mr. WoRLEY. Do you have any additional suggestions or comments,
that you think might have been overlooked in the questioning?
Mr. Minor. I don't thing I have.
Mr. WoRLEY. That we have not asked, that you think would be
helpful to us. If you think of anything at a later date we would be
glad to have any information, suggestion, or comment that you might
have.
On behalf of the committe I would like to express our appreciation
for your kindness and cooperation.
Without objection the committee stands adjourned until 10 o'clock
tomorrow morning.
(Thereupon, the committee adjourned to meet tomorrow, Thursday,
October 26, 1944, at 10 a. m.)
POST-WAR ECONOMIC POLICY AND PLANNING
THURSDAY, OCTOBER 26, 1944
House of Representatives,
Subcommittee ox Foreign Trade and
SHirpiNG OF the Special Committee on
Post- War Economic Policy and Planning,
Waskington, D. C.
Tlie subcommittee met, pursuant to adjournment, at 10 a. m., room
1303, New House Office Buildino-, Hon. Eugene Worley, presiding.
Present: Dr. Vergil Reed, consultant; and Dr. G. C. Gamble, eco-
nomic adviser to the committee.
The Chairman. You may proceed, Mr. Wolf.
Will it be satisfactory to jow if we interrupt you from time to time
to have you elaborate on your statement?
STATEMENT OF GEOEGE W. WOLF, PEESIDENT, UNITED STATES
STEEL EXPORT CO., NEW YOSK, N. Y.
]Mr. Wolf. If I may suggest it, may I read a statement I have in
this booklet, and then go on to this.?
The Chairman. Yes.
Mr. Wolf. This is headed "International Trade."
Objective : To establish world solidarity and prosperity through the
liealthy flow of international trade in volume and in channels to effect
a balance of world economy.
Responsibility: The governments and foreign traders of all na-
tions— governments by formulating and administering internal poli-
cies to control and encourage the fair trade practices constructive
to international commerce in all its phases, and by negotiating and
giving effect to international arrangements and agreements for the
jDromotion of the equitable interchange of goods and services; traders,
by cooperative functioning within the foreign trade framework estab-
lished by government, and by collaborating with government in effect-
ing desirable internal and external adjustments of conditions of trade.
Problems : The national and international prosperity of the peoples
of all countries can be attained only through free access to world trade,
and only to the extent that this unequivocal right is made the basic
principle of all commercial policy will there be world prosperity in
its true sense. The relative competitive positions of nations have for
practically all time been fundamentally at variance and have been the
seeds of most of the world's evils.
Disequilibrium among nations economically and competitively gave
rise to many types of bilateral arrangements to find markets for their
goods and thus employment for their people. These dealt with tariffs,
927
928 POST-WAR ECONOMIC POLICY AND PLANNING
exchange regulations, credit controls, blocked currencies, and others,
in the establishment of territorial or trade spheres of influence. There
were also many instances of colonial exploitation in an effort to bal-
ance the home economy. The result was confinement of much of the
world's trade to restricted and unnatural channels, with an ultimate
shrinkage of opportunity and volume on a world basis, perpetrating
wars and more wars to adjust the inequalities.
At the end of this war large sections of Europe's industries will have
been destroyed or dismantled and practically all marketing organi-
zations of private enterprise will have ceased to exist. Former trade
experts in many instances will have followed the migration of popu-
lations. International commercial transactions during the war period
will have been handled chiefly through governments or government
agencies.
The reestablishment of private industries and private trade will
mean the formation of new marketing machinery and the rise of new
trade centers. Various interests will be grouping together in efforts
of self-protection and privilege. There will be the question of the
settlement of debts arising out of prosecution of the war; the extent
to which governments should have a part in international commercial
relations; instances of so-called overcapacity and overproduction;
trade controls — import, export, and exchange; shipping and trans-
portation problems ; and, in the case of our own country, strong com-
petition and problems of production at world prices.
The future of world trade depends upon the real statesmanship
with which these problems are handled, and it is recommended that
in the planning and negotiating for their solutions the following prin-
ciples be observed as guides in reaching the ultimate aims :
1. All forms of preferential restricting of the opportunity to trade
are unhealthy for world prosperity, and every effort should be made
in the reestablishment of foreign trade on a peacetime basis to outlaw
controls of this type, including preferential treatment through terri-
torial or trade spheres of influence or by reason of colonial or political
affiliation. The world's internationartrade should be open to com-
petitive participation by all nations on a basis of equal opportunity.
The Chairman. Will you pardon an interruption there?
Mr. Wolf. Yes, sir.
The Chairman. Do I understand this to mean the removal of all
trade barriers and tariff restrictions, and any other kind of restric-
tions which would restrain ?
Mr. Wolf. I don't go that far. There are many other restrictions
than those which are just as iniquitous as tariffs, per se. I think
every country has the right to put on the tariffs that it deems neces-
sary in order to protect its home industry, but there are administra-
tive barriers and other artificial means to restrict and to discriminate
as between countries for other than economic reasons. Those are the
ones I am referring to principally, and of which we had many ex-
amples just prior to the outbreak of this war, and of which no one
country was blameless.
The Chairman. You don't believe, then, that tariffs per se are
iniquitous?
Mr. Wolf. That is right.
POST-WAR ECONOMIC POLICY AND PLANNING 929
2. Such trade regulations and controls as are deemed desirable
should take into consideration all phases — import, export, and ex-
change— as to control. One leads to maladjustments in the others.
3. Centers of trade should be natural to the source of the products
distributed or the areas supplied.
4. The abolition of cartel systems, commercial activities of trade
associations and protection of group interests on a basis of special
pri\alege.
The Chairman. You think cartels are not desirable ?
Mr. Wolf. I think there is great danger, Mr. Chairman, in classi-
fying every international tracle agreement as a cartel. I prefer to
think of a cartel as a restrictive trade agreement but not all trade
agreements are restrictive.
The Chaieman. What, briefly, is a cartel ?
Mr. Wolf. By usage, cartel has a very unsavory connotation.
The Chairman. That is right.
Mr. Wolf. And as a result of that unsavory connotation, unfor-
tunatel};', beneficial trade agreements are in the minds of too many
classed as cartels and as such are looked upon not only with suspicion
but with disgust.
There ara international business agreements which are good for the
contracting parties and the peoples and the economies of the con-
tracting parties, and I should not like to give the impression that I
just classify all international business agreements as restrictive and,
therefore, in the accepted sense of the word, cartels.
The Chairman. I was under the im^Dression that most cartel agree-
ments were restrictive.
Mr. Wolf. If you define cartel
The Chairman. I mean, by usage.
Mr. Wolf. I would define cartel as an international business agree-
ment which is without shadow of doubt restrictive, but I would not
classify all international business agreements as cartels therefor.
The Chairman. You use cartels here
Mr. Wolf. In the accepted sense.
The Chairman. In the accepted sense.
Mr. Wolf. 5. Payment of international war debts through the ex-
change of goods and services, including lend-lease, and extending
not only as between the debtor and creditor nations but for the re-
habilitation of other parts of the world.
The Chairman. Can you elaborate on that?
Mr. Wolf. I elaborate on that later on, and if I may refer back to
it — I mean, I blow that up.
The Chairman. Very well.
Mr. Wolf. No. 6. Government's activities in international trade
relations should be confined to providing a healthy atmosphere and
sound foundation for the promotion of international trade through
equitable international regulations and arrangements. This extends
to agreed-upon economic commodity adjustments, when the supply
of goods should be handled by commercial firms on a commercial
basis rather than through Government agencies.
7. Expansion of capacity for the supply of war materials should
ultimately present no problem of overcapacity or overproduction.
930 POST-WAR ECONOMIC POLICY AXD PLANNING
except in the case of actual munitions of war and any excess of these
l^hmts could be converted or dismantled. All other surpluses should
find places in the world where there are those scarcities. To bring the
standards of living of all peoples of the world to a more comparable
and better level, there is plenty of need for food and goods of all kinds.
8. Special stress should be laid upon the expansion of trade opportu-
nities through the renewal and extension of reciprocal trade treaties
and negotiations on a multilateral basis.
9. Adequate shipping services and capacity will be most highly
essential to foreign trade in the post-war program recovery, and too
much stress cannot be placed on the necessity of adequate facilities in
these respects. Special attention should be given to a study of the
operations of the Maritime Commission, merchant marine, shipping
conference, customs requirements, and other regulatory and func-
tional organizations affecting export and import trade, with a view to
providing ample ship bottoms and facilities for improving and expe-
diting the handling and transportation of shipments of goods from
point of embarkation to destination.
10. Adoption of polices by our United States Government for the
internal regulation for foreign trade which will permit and encourage
the production and marketing of American-made goods 'to compete
with world prices, because in the final analysis our own economy and
prosperity always bear a direct relationship to our position in the
world's trade.
Of crucial importance to the success of international agreements and
understandings, hence international relations, once such agreements
are put into operation, is the observance of their letter and spirit in
the formulation and execution of administrative measures to imple-
ment them. There has been growing concern that solemn agreements
made between nations have too often been voided in whole or in part
by both contracting parties through administrative practices which
avoid or obviate the purposes of the agreements. Unless corrective
measures are taken to eliminate such practices, it is feared we are in
serious danger of being justly charged with bad faith.
Never was there a time so fitting for the complete overhauling of
the mechanism of international trade and the institution of principles
of free access to the world's commerce. Not a day should be lost in
planning and now negotiating for the "pilot planting" of these prin-
ciples after the w^ar, from which the tentacles of multilateral trade
may reach out to free the commercial exchange of goods among all
nations for the reestablishment of world economic stability and pros-
perity.
As a necessary and first prerequisite to any contribution by the
United States of America, we must have enabling legislation granting
to the Chief Executive and tlirough him to the Secretary of State
power to negotiate and commit this country tariff-wise for time periods
not necessarily limited to the tenure of office of the political party
in power.
Fear, not unfounded presently, exists in world diplomatic channels
as to the continuance of any commitments of the United States, and
nmch, short of acceptance of the thesis that we must radically change
our form of government to one more like that of England, if we are to
cooperate effectively in world affairs, could be done.
POST-WAR ECONOMIC POLICY AND PLANNING 931
III conclusion, one could not do better than to quote here the words
of Mr. Donaldson Brown, vice chairman of General Motors Corpora-
tion, as the creed and motivating force of American industry in pur-
suing its objectives for preparing the way for industrial reconversion
on a basis to assure peacetime prosperity after the war :
If everyone engaged in industry will face realistically the facts with which
he is surrounded, possessed of a high sense of social obligation, actuated by
the connnendable motive of enlightened self-interest, and witli consciousness
of the human equations iiivolved, then we need not worry about the future of
American industry or the future of America. The plain, unassuming, but uncon-
troveriible merit of management's performance will defeat any attempt to
substitute for the free competitive enterprise system that hybrid form of State
capitalism which would black out individual initiative and substitute political
influence for proven experience and understanding. It will defeat any action
that would deprive America of that inherent resource of industrial management
which America needs so sorely today, and which will be needed just as sorely
for the tremendous task of reconstruction.
The Chairman. You say that we must have legislation granting
the Chief Executive power to negotiate and commit this country
tariff-wise for periods not necessarily limited to the tenure of office
of the political party in power. That would be rather difficult to do,
wouldn't it?
Mr. Wolf. I realize that, Mr. Chairman, but I believe that one of
our (lifKculiies is the fear of other nations to make agreements because
of tlieir belief that such agreements will not be lasting. I mean, last-
ing for any considerable time.
The Chairman. Doesn't that operate both ways ?
Mr. Wolf. It does operate both ways, but unfortunately my obser-
vation has been it always operates to our adisadvantage.
The Chairman. Something seems to have operated to our disad-
vantage.
Mr. Wolf. A great many of these things do.
The Chairman. We are trying to find out just what it is.
Mr. Wolf. Yes.
The Chairman. Does that complete your statement?
Mr. Wolf. No. I would like to blow that up.
The Chairman. Very well.
Mr. Wolf. It has been quite generally assumed that lend-lease will
extend into the post-war era for some time to assist in the problem
of relief. Lend-lease should be replaced as soon as practicable by
private channels because the longer lend-lease and such agencies as
the Foreign Economic Administration continue in operation after the
war, the longer it will be before trade can seek out normal channels and
reestablish an entirely open market interchange of goods and services
so necessary to the balancing of our own and world economy.
One of the major international considerations is an international
system of clearing international balances. In fact, this is the very
keystone of post-war economic prosperitj' both domestic and inter-
national.
The Chairman. Does that objection have to do with the Bretton
Woods Conference?
Mr. Wolf. Oh, definitely. At the time this was written, the Bretton
Woods Conference was not spoken of, but we were considering the
White and Keynes plans, and I understand that Bretton Woods is the
outcfrowth of that.
932 POST-WAR ECONOMIC POLICY AND PLANNING
If the government of any importing country is to operate for any
considerable period of time at a continual deficit, and the income of
its people has to go to taxes and loans to such an extent that produc-
tion is hampered, it will require — even demand — imports from other
countries — and most likely the United States — to maintain what is
believed its rightful standard of living. But it will not have exports
to pay for such loans. The point where the credit of that country
would break, regardless of any academic system for stabilization of
currencies, would come about rapidly; and if it did not come about
rapidly, the collapse would be all the more drastic when it did come.
Following World War I, great unrest was built up in the European
countries, and this unrest laid the foundation for the developments
that in retrospect to all of us and prospect for all too few made cer-
tain of the war in which we are presently engaged.
The point I am talking about has to do with the conditions that
will prevail in the post-war world if any important proportion of the
population of any one major country should be paid by government
for doing nothing thus given buying power that would enable them to
take things for which they gave nothing, directly or indirectly.
When men are employed they produce more than they consume.
The effect of giving men work instead of dole is amazingly construc-
tive. The incentive to work is greater than ever. Happiness does not
come from being a citizen of a country that goes into debt in huge
amounts and that cannot be utilized except through waste because the
productive power of men is not being exercised. This is not rebuild-
ing.
The Chairman. You must have a market for that production.
Mr. Wolf. It is necessary first, before you can produce to have the
tools to produce, and of course there is no use producing unless you
know you have a market, because in any business, whether an indi-
vidual business or the business of a country, you do not produce just
to produce. You produce to distribute and use.
The Chairman. We are trying to find out where there will be a
market for our production. There is no use producing if we cannot
sell what we produce.
Mr. Wolf. That is right. We don't want to give it away.
Mr. Reed. Mr. Wolf, in that connection we do have this: Assuming
that the goods are being utilized, the production of goods themselves
actually creates a market for them. The payment of wages and so
forth creates a market for the goods, assuming they are useful goods.
Mr. Wolf. That is right, up to a certain point.
Mr. Reed. And that is what makes depressions. If you can't com-
sume as much as you produce, it is just too bad.
Mr. Wolf. That is right. I am talking here especially in regard
to foreign countries, not domestic.
Mr. Reed. But the same thing applies. As long as they are utilizing
the goods, , the more production there is in other countries, the more
power to consume other goods.
Mr. Wolf. That is right.
Under such conditions, those who work might not be able to pro-
vide enough to take care of the consumption of all nor to produce
enough goods which might be imported from the other countries that
were needed to meet the demand. Under conditions such as these the
depreciation of the exchange of the importing country would grow
POST-WAR ECONOMIC POLICY AND PLANNING 933
at a continuously increasing rate and the effect upon tlie people would
be to lower their standard of living. If such a situation continued,
chaos would grow apace and there would again be that state of des-
peration as result of which the countries involved would begin to
raise trade barriers against one another.
Under conditions, however, of natural employment the prevention
of the movement between the countries that would lead to such a
condition would lie in the normal pressures that come from supply
and demand and would be translated into exchange rates between the
two countries. This in turn w^ould create an increase in costs to the
importing country which would tend to decrease imports and as the
risk of credit grew, increases in the interest rates would further act
to hold up imports.
This clearly shows the futility of making foreign loans to offset
developing conditions of a character just described unless foreign
exchanged derived from the work of the people can be created from
the use of such loans.
Foreign loans are only useful and justifiable when the proceeds of
such loans are utilized in a manner conducive to the creation of for-
eign exchange. Instances of such wise use are many.
When the banks of Holland and Germany loaned money to the
United States to build the railroads in the West, the expenditure of
such moneys resulted in the increase in the production of grains and
meats. The United States was then able to export more of these
commodities than was possible before the railroads were built.
Again when the British advanced money to Peru to build the rail-
road from Lima into the upper valley of the Andes, it became pos-
sible for Peru to export more metals and to sell these metals abroad,
thus producing foreign exchange and furnishing the means to service
and amortize the loan.
But if any government borrows funds from abroad and these funds
are absorbed in the national economy of that country without increas-
ing the ability of that country to produce and to export, the result
will be dissipation of export balances made by other operations, and
no one will benefit.
The various countries of the world have different resources, differ-
ent as to both kind and quantity, and have peoples with varying
characters of ability, in climates and terrains that make for different
kinds of production and bilateral trade cannot meet the needs of the
world. Trade, to be effective and to make possible the highest standard
of living to the most people, must be multilateral.
The way to protect international post-war trade is to start the
countries off without trade barriers and let them rebuild the exchange
of goods on a natural and normal basis.
The movements of the foreign exchanges are the result of the activi-
ties of men in the production, in the exchange of goods and services,
and in the extension of credit.
Supply and demand are the positive forces that are created by these
activities, they determine the trend of the exchanges. Governments
can step in and strangle the foreign exchanges, or they can allow those
engaged in foreign trade and credits to move on a basis of protection
but not interference.
The actual field of the forces of supply and demand can only lie with
those who are active in the markets. Government action undertaken
934 POST-WAR ECONOMIC POLICY AND PLANNING
for the protection of its people and the preservation of the rights of
all is as far as Government should go if it is not to npset the intricate
and delicate movement of services, goods, and credit which, combined,
express themselves in foreign exchange trends.
In the ultimate, Ave must realize that it is the acts of men which
are at the bottom of the trends of the international exchanges. This
is true in every phase of human endeavor. We cannot solve these
problems by means of statistics or theories that are not based upon
the fact that the acts of men control. Consequently, w-e must concen-
trate our attention on the methods necessary to make it possible for
men to live and prosper — there are no other means for rebuilding
the w^orlcl, and if we do not act in this way we Avill build surelj^ the
foundation for another world war.
Any system adopted for the stabilization of foreigu exchange and
payment of international trade balances should be based on a return to
a gold standard by establishment of a stable international unit of cur-
rency backed by gold to facilitate its functioning, with a revolving
working fund of this currency. It should also provide an equitable
basis of national participation; an orderly method for determining
relatiA^e exchange values in the common international currency ; reduc-
tion as far as possible of exchange controls; elimination of bilateral
clearances and blocked balances ; establishment of reasonable periods
for the payment of balances; effective utilization of accumulated bal-
ances; and maintenance of equilibrium in international balances.
The Chairman. That is a very good statement and very informing.
On page 6 you say :
The way to protect international post-war trade is to start the countries off
without trade barriers and let them rebuild the exchange of goods on a naturjil
and normal basis.
How can that be done ?
Mr. Wolf. I don't really mean that you should take all restrictions
off.
The Chairman. No ; I understand that.
Mr. Wolf. I don't believe there are any trade spheres of influence —
I don't think that any country has the right to set up a sign and
say, "This is our backyard, and the rest of you keep out."
I don't believe that political boundaries with barriers between them
necessarily follow trade centers that have been set up for centuries
and which have grown and evolved. They had reached the point where
there was a natural flow of commerce that might to the uninitiated
seem to have no reason, but they had grown and evolved for centuries.
If you come along and draw some lines on a map and say, "Beginning
now, we are not going to pay any attention to those. It is going to be
this way," you throw the economic balance of that particular region
into a clash of gears. We liad good examples of that in Europe after
the last war, and you had chaos.
The Chair:man. How is this, as a practical matter, going to elimi-
nate these trade barriers ?
]Mr. Wolf. Well, I think we are making efforts to do it tlirough
Secretary Hull's reciprocal trade policy, and if we will adhere to that
and stick' to it and not be diverted off our course, and not give in to
the siren calls of some of the other nations -
The Chairman. That is difficult.
Mr. Wolf. Eventually we will approach our objective.
POST-WAR ECONOMIC POLICY AND PLANNING 935
The Chairman. Your company is engaged primarily in the export
trade, is it not ?
^Ir. Wolf. That is right, sir.
The Chairman. Do yon do any importing at all?
Mr. Wolf. Yes, sir.
The Chairman. About what is the ratio between your imports to
exports ?
Mr. VroLF. I don't have tlie figures, x
The Chairman. Eoughly.
Mr. Wolf. It is ab(jut 25 percent import.
The Chairman. How long has your company been engaged in ex-
porting?
Mr. Wolf. Since 1903.
The Chairman. How did your volume of exports in 1903 compare to
what they were in 1939?
Mr. Woij'. Well, of course, when we first started it grew up grad-
ually, and I would rather take what it was before the First World
War, if 3'OU don't mind, compared witli 1939.
The Chairman. I am trying to get at how much it increased, and
the reasons for the increase.
Mr. Wolf. Taking from 1916, as against 1939, which was before
World War I as against just before World War II, we had only
increased about 25 percent.
The Chairman. What accounted for that increase ?
Mr. Wolf. Well, it is accounted for by the fact that as the indus-
trialization of the nations that are sometimes referred to as the agri-
cultural, or backward nations from an industrial standpoint, pro-
ceeded, they demanded more steel products, and we were able, through
distribution efficiency, to get — I say "we,'' I am talking about the
American industry — to get our share, an increasing share of the mar-
ket as against the Old World steel producing countries, so that we were
able not only to increase our absolute shipments but our proportion of
world shipments. I am talking about American industry now, not
about my particular company.
The Chairman. How much of the world's supply of steel came
from this coimtiy?
Mr. AVoLF. That is a difficult question to answer, Mr. Chairman,
because the movement of steel and steel products across international
boundaries might be erroneously taken as the world exports. That
is not quite true. I will give you an example : Luxemburg, Belgium,
and also Germany, Poland sent large quantities of semifinished mate-
rials as between those countries which in turn was converted in the
importing country into finished products, finished steel, and then
exported. So, the ultimate, the delivery of the steel to the one who
was going to fabricate it is really what you call the world exports
and not the movement of semifinished between countries. If you
take the first figure of the movement of steel across borders, that
amounted to about 14 to 15 million tons a year in a normal year,
but the actual exports of steel to countries that use it for finished
was only about half of that.
The Chairman. You woidd say that the steel industry of the United
States got its share of the business?
936 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. Wolf. On the later, not on the volume, because naturally we
have a lot of that going on in this country— movement of semifinished
from one manufacturer to another.
The Chairman. To what do you attribute that gain ?
Were we able to sell the steel cheaper or did we furnish a better
grade of steel ?
Mr. Wolf. No ; because we gave an equal or maybe a little bit better
product, the availability, price, and terms, which controls the mer-
chandising of the steel or of any product, and its sale.
The Chairman. Do you look for any increase in your exports after
the war?
Mr. Wolf. For X years, and I don't know what X means, after
the war, and until the world stabilizes, which I hope and pray it will
stabilize, I think that we are going to have a tremendous increase.
The Chairman. How do you suppose you will get paid for your
product after the war is over, assuming that the Government takes
no action? Assuming after the war is over the same situation will
prevail that existed prior to the war, how will you get paid?
Mr. Wolf. I think that the extension of Mr. Hull's program of
reciprocal trade arrangement that we could have an expanding world
economy and increase the total volume of business, and if we are
selective in giving credit to the nations for productive enterprise,
as I mentioned, whereby they in turn can raise the whole economic
level within that country and produce more, which they can sell on a
multilateral basis and create foreign exchange with which to pay us,
I think we can approach balancing international payments.
The Chairman. If I understand you correctly, it will be necessary
for us to lend money to these other countries ?
Mr. Wolf. Yes.
The Chairman. To build up their purchasing power?
Mr. Wolf. To build up their purchasing power; yes, Mr. Chair-
man, but not to lend money to be absorbed in internal economy, to
be expended on nonproductive expenditures, such as nice apartment
houses, and all of that, which are very desirable but which do not
enable them to produce.
The Chairman. You advocate that our Government, not individuals,
should offer to loan or underwrite the loans to the other governments ?
Mr. Wolf. I think that, in connection with private enterprise — both.
The Chairman. All right. Private enterprise should lend all that
it is capable of lending to individuals in the given countries ?
Mr. Wolf. That is right, and Government should not compete with
private enterprise in the stability of the loan, as judged from the
investment and return on the investment.
The Chairman. Let us take your case. You want to sell some steel
to X, an individual in X country.
Mr. Wolf. Yes.
The Chairman. He is not able to buy or pay for all the steel you
are willing to sell.
Mr. Wolf. That is right.
The Chairman. How would you carry out that transaction ?
Mr. Wolf. Well, there are many ways that we can do that, which
would be good business.
The Chairman. How?
POST-WAR ECONOMIC POLICY AND PLANNING 937
Mr. Wolf. For example, we could — and it is done every day — we
could give credit to that country.
The Chairman. To the individual?
Mr. Wolf. To the individual in that country, if we believed that
he was in a sound business, without risk to our economy. We could
extend a long-term credit of everything over our out-of-pocket costs,
demanding that he pay or secure, without risk, up to our out-of-pocket
costs, and give him credit on a long-term basis for everything over
the out-of-pocket cost. I am talking about the individual now.
The Chair:man. Yes.
Mr. Wolf. That would help that country.
Now, if it was a good loan and the security of the investment was
assured and the return on the investment was assured, that would
also be a good risk for the Government to take, but I don't think Gov-
ernment should compete. I think it should work hand in hand with
private industrj^ and investigate every case.
The Chairman. Suppose they wanted to buy more than they could
pay for, or than you are willing to risk ?
Mr. Wolf. If you mean, Mr. Chairman, more than they could pay
for — more than they could eventually pay for in any reasonable period
of time, we wouldn't lend it to them.
The Chairman. Let us assume it is a reasonable risk. We will make
that assumption first, and that private capital does not want to under-
write the loan.
Mr. Wolf. Yes.
The Chairman. Then, it is your idea that the Government should
step in and underwrite that portion of the loan that private capital
does not wish to handle ; is that correct?
Mr. Wolf. That is right.
The Chairman. You say this money should be loaned for produc-
tive purposes. Can you give some idea of the type of productive pur-
poses you have in mind ?
Mr. Wolf. The building of railroads to open up the country, the
building of communication and transportation in an over-all broader
sense in countries where it gives them more productive potentiality;
in farm lands, the opening up of farm lands to irrigation to increase
the productivity of the country — any project that will enable those
people to be self-sustaining.
Mr. Reed. Do you include factories?
Mr. Wolf. Oh, yes; factories of all sorts. But I don't believe in
having them build a factory which is uneconomical. I will give an
example: Many countries in the world have aspired to going into
their own steel industry. They can go into their own steel industry,
and we could also raise bananas up in Canada if we wanted to, but if
they haven't got the necessary wherewithal and riches in their own
country to do it, and it is only for, let us say, political or military
reasons, or reasons of false prestige or pride, I don't believe in making
those sorts of loans.
The Chairman. You don't believe that we will be able to carry out
the program you have in mind unless we set up a policing agency of
some sort?
Mr. Wolf. I think there will have to be a very close integration of
Government power and private-industry power to lend, but on the
basis of hard business considerations.
938 POST-WAR ECONOMIC POLICY AND PLANNING
The Chairman. In exporting' your product in peacetime, what de-
termines your selection of the particular ship which will carry that
product to its destination?
Mr. Wolf. Availability of service in its fullest sense, I mean :
Does the ship go there? Are its rates competitive? Is it going thei-e
at the time we want it to be there, which is again determined by the
demands of the customer when he wants it.
The Chairman. Is it your custom generally to specify what ship?
Mr. Wolf. Very seldom.
Mr. Reed. That brings up a question, Mr. Wolf.
Does your company, as such, operate your steamers?
Mr. Wolf. No, sir; our company as such does not operate the
steamers. That is a separate subsidiary, and that subsidiary, tlie
Isthmian, as you probably know, in many territories of the world does
not have any service. South America is an example. They have no
service to South America.
Dr. Reed. Do you require a profit out of that line, or do you sim})ly
charge it up to distribution costs?
Mr. Wolf. That company is independent, the same as though they
had no connection with us.
Dr. Reed. It is entirely separate, and besides being an industrial
line, from your viewpoint, it is carrying other goods
Mr. Wolf. It has to stand on its own feet.
Dr. Reed. And it is able to make a profit without subsidy?
Mr. Wolf. I can't answer that. I don't know about the operation
of the Isthmian, but I would select another line just as much as I
would the Isthmian. Again, that depends on whether they have a
ship going to the right place at the right time to meet the demands of
the customer.
Dr. Reed. Perhaps you can enlighten us a little on this : There is a
tendency, of course, for these steamship services to go industrial. The
ones that really have been the most profitable lines are the ones that
are hitched into an industrial concern, and usually they have been
able to operate without a subsidy.
Mr. Wolf. Without knowing too much about it, I don't know but
what I would say they are able to assure cargo both ways.
Dr. Reed. That is what I would assume. If they took down nearly
as much as they bring up, that gives you a pretty good proposition.
Mr. Wolf. Yes, sir.
The Chairman. How do you find our home shipping interests com-
i^ared to foreign shipping lines as to availability and the other require-
ments you mention?
Mr. Wolf. That is a very difficult question to answer. I might
anticipate what you mean
The Chairman. Here is what I mean : Our ships under the Ameri-
can flag carry less than one-third of our total export and imjjort trade.
They have to be subsidized in order to get them in all the ports of
the world. We train men, the Government pays to train operating
personnel for them; the Government has done practically everything
it can do to encourage the use of our own ships. Yet they ai-e carry-
ing less than one-third of our own commerce. How can we correct
that? What will we have to do to encourage their use by you as
an exporter?
POST-WAR ECONOMIC POLICY AND PLANNING 939
ISIr. Wolf. I would say this, and again I am speaking out of my
realm, but I am only giving an opinion that is just an opinion and
is not based upon intimate knowledge of the conditions, but I would
say that, again, if that condition exists it is because we have not
offered equal availability and service, because I am sure that every
American manufacturer would prefer our American ships if they
were available.
The Chairman. Assuming the efficiency and the rates were the
same.
My. Wolf. That is right, if they were the same.
The Chaieman. But unless they are the same, unless the service
is as good
Mr. AVoLT. That is right, and, again, availability means that they
have complete coverage, frequency of sailings, the character of serv-
ice, cost of service, and so forth, but I am sure other things being
equal, everyone would prefer our American ships.
The Chairman. Apparently other things are not equal, otherwise
we would be carrying more of our exports and imports, w^ould we not?
Mr. Wolf. Again, I think we have not had the ships available.
The Chairman. Do you think we will have them available after
this war?
Mr. AVoLF. When I read the tonnages, I would think so; yes, sir.
The Chairman. Do you have any further information you desire
to give the committee?
iSIr. Wolf. I don't believe I do have, Mr. Chairman.
The Chairman. You don't want any Govermnent interference in
the post-war trade, do you?
Mr. Wolf. No, sir; but I don't mean by that that Government has
not got a place.
The Chairman. In a supervisory capacity.
]Mr. Wolf. In a helpful capacity ; yes.
The Chairman. That is what we want you to tell us, what we can
do that will help in our foreign trade.
Mr. Wolf. And I believe that by really earnest, sincere desire to
cooperate with the people who are engaged in foreign trade that it
would be a rare exception where either Government or business, if
you sit down around a table and work our your problems, where you
could not arrive at a pretty good solution.
The Chairman. And in conference with each other.
^Ir. Wolf. And in conference with the people who are engaged in
that trade.
The Chairman. Has that been generally true in times of peace?
jNIr. Wolf. Well, I think it has been signally true of my dealings
with the Export-Im])ort Bank, and the way they helped.
The Chairman. On the whole, do you find Government agencies
cooperative?
Mr. Wolf. I have never had any difficulty with Government agen-
cies. I have always found them very frank. Maybe that was be-
cause I was frank. I think it is a two-way street.
]Mr. Reed. I would like to ask just two more questions.
On page 5 of the second statement you read, you say that —
trade to be effective and to make possible a higher standard of living to the most
people must be multilateral.
99579 — 45 — pt. 4 22
940 POST-WAR ECONOMIC POLICY AND PLANNING
But in the reciprocal trade agi^eements we have basically what are
bilateral arrangements, with the most-favored-nations clause
Mr. Wolf. Which makes them multilateral.
Mr. Reed. There is nothing else in there except the most favored
nations clause
Mr. Wolf. That makes them multilateral.
Mr. Reed. That would make them multilateral. I was wondering
if there was anything else except the most favored nations clause.
Mr. Wolf. No
Mr. Reed. They are basically bilateral agreements, but they have a
multilateral effect because of that clause.
Mr. Wolf. Yes, sir ; that makes them multilateral.
Mr. Reed. Then, another thing, on page T you mention —
any system adopted for the stabilization of foreign exchange and payment of
international trade balances should be based on a return to a gold standard
* * *
Do you mean that literally, that we must get back to a gold standard,
or that we must merely tie to gold ? For instance, I can't imagine
other countries of the world being quite so stupid as to get back to
the gold standard while we have 60 or 70 percent of the gold. How
would you solve that ?
Mr. Wolf. Maybe I can best answer that question by asking you a
question. If we don't tie to gold or something that has a stable value,
what do we tie to ?
Mr. Reed. I agree you will probably have to tie in some way to gold,
but I wondered if you meant the old concept of an out and out gold
standard rather than simply tieing to it through an international bank
of some sort. j
Mr. Wolf. Whether you actually ship gold from one country to
another, I don't think is either here nor there, if that is what you mean,
but I do think we have to have some unit of value to tie to, and I don't
know anything except gold, and throughout the centuries they haven't
found anything equal to it, and if you don't tie to gold, I don't know
what you will tie to.
Mr. Reed. I agree with that, but what troubles me is how are you
going to get this gold into circulation again ?
Mr. Wolf. Maybe I gave the wrong impression when I read this
statement, that the restoration of world trade depends upon our lend-
ing capacity or willingnes to lend.
Mr, Reed. And that will be repaid in goods and services rather than
gold.
Mr. Wolf. Yes ; and we have to increase the purchasing power of
the countries to which we lend through increasing their productive
power to raise their standards of living ; that is, I think, a byproduct of
all this, and not the first objective.
Mr. Reed. Of course, assuming a freedom of interchange, your gold
standard or any other standard is merely a convenience, but because
of interferences in many ways with trade, we have made it more than
a convenience ; we have made it a problem.
Mr. Wolf. That is right.
Mr. Reed. If we have freedom of flow of trade, I agree all you need
is just enough to keep the books adjusted, but with these artificial
interferences with trade you simply make the problem more difficult
if you put yourself on a gold standard, because we have all the gold.
J
POST-WAR ECONOMIC POLICY AND PLANNING 941
Mr. Wolf. That is right, but, again, through trying to expand the
Avorld trade, and lift the economic level in those countries through
sound investments on our part, I think we contribute in that we help
those people to help themselves, but I don't think we help them if we
give them something for nothing.
Mr. Keed. Nor do I. In other words, as long as they are in a posi-
tion to produce and become buyers, gold becomes less of a problem.
Mr. Wolf. That is right.
Mr. Reed. I don't think we are very far apart on that.
The Chairman. Do you have any additional comments or sugges-
tions to make?
Mr. Wolf. No, sir.
The Chairman. Thank you very much, Mr. Wolf.
The next witness is Mr. J. E. Otterson, representing the American
Maritime Council.
STATEMENT OF JOHN E. OTTERSON, REPRESENTING THE AMERICAN
MARITIME COUNCIL
The Chairman. We are sorry, Mr. Otterson, to have inconvenienced
you by changing your time.
Mr. Otterson. That is all right, sir. I would have appreciated
more time so that I could be a little better prepared, but if you will
be patient with my lack of preparation we perhaps can forgive each
other.
The Chairjvian. Do you have a statement you would like to read?
Mr. Otterson. The American Maritime Council has been making
a series of studies of various problems relating to the future of the
American merchant marine.
The Chairman. Can you tell us what the American Maritime Coun-
cil is?
IMr. Otterson. It is a private body supported by subscriptions from
companies in the industry.
The Chairman. The shipping industry?
iNlr. Otterson. The shipping industry. It was organized a couple
of years ago for purposes of research and study, and has been engaged
in research during that time, and it has made a number of reports
and is working on a number of reports at the present time.
In looking over the material which we have, I thought I might
select something that perhaps would be a little different than other
material that has been brought before this committee. An outline of
this may be covered by the introduction to the study that we are
making at the present time comparing the British method of carry-
ing on foreign commerce with the American method. The intro-
duction to this study is as follows:
After the First World War we sought to escape our destiny. We
were inclined to political and economic isolation. We left to other
nations the solution of those problems that could not be solved with-
out us. We are too large an entity in world affairs to be ignored or
excluded either by our own act or the decision of others.
The interdependence of all nations requires that we play our part.
The policies after the last war led to another more devastating and
all-embracing war — the policies after this war must be shaped to pro-
tect the world and mankind against future wars.
942 POST-WAR ECONOMIC POLICY AND PLANNING
First and foremost among those policies is the necessity for greater
and freer interchange among nations. The surphises of the one must
serve the needs of the other. As part of our participation in world
affairs we are under the necessity of promoting and encouraging world
trade and of building up our own foreign commerce, both exports
and imports, as a contributing factor in the solution of world economic
and political problems. In this study we are not seeking to solve
these larger political problems but rather to address ourselves to the
narrower problems of our own economic needs, and on this account
to the necessity for increasing foreign trade.
From the standpoint of our own economy we shall be confronted
with the simple fact that we can produce more than we can consume
under a peacetime economy. We are in danger of having unemploy-
ment as a permanent part of our national economy.
The stimulated and improved production methods of the war
period have further increased our productive capacity over pre-war
levels. The depression years preceding the war made it clear that
with a national income of $80,000,000,000 we shall have 10 to 12 mil-
lion unemployed. We need a national income of 130 to 140 billion
dollars to insure prosperity and pay interest on our national debt.
Such a national income can be achieved only through increased
consumption either through domestic consumption or through the
sale of our products abroad.
Increased domestic consumption means I'aising our standards of
living to the level of extravagant living. We are already out of bal-
ance with the rest of the w^orld.
The Chairman. Do you propose that we raise the others or get
down to their level ?
Mr. Otteeson. I think we have got to continue to rise, but I think ,
we have to stimulate a rise in the level of other nations. J
The Chairman. Do you mention later on how we can do that ?
Mr. Otterson. Yes ; I hope to make some suggestions.
Increased foreign trade is an economic necessity essential to the
building up of our national income to prosperity levels. The reasons
for increased foreign trade are as compelling with this country as
with any other nation in the world not excepting the British Empire.
We shall have need to seek and hold every dollar of income that is
available to us.
We shall end this war owning more than one-half of the world's
tonnage and with a merchant fleet twice the size of that of Britain.
This is in no sense a measure of our position as a maritime nation.
Ships without foreign commerce are merely a burden and a liability.
They are merely the facility with which commerce is carried on.
Foreign trade is of the essence. We must develop those forces that
will stimulate and increase our foreign trade and create the demand
for the merchandise which the ships will carry.
The size of a merchant marine "sufficient to carry a substantial
proportion of our foreign commerce'' will obviously depend upon
the volume and character of our foreign commerce and the proportion
carried in American bottoms.
Various suggestions have been made as to the size of a post-war
merchant fleet ranging from 15 to 20 million tons compared with the
pre-war American merchant fleet of 9,000,000 tons and the pre-war
British merchant fleet of 18,000,000 tons.
POST-WAR ECONOMIC POLICY AND PLANNING 943
If we assume tliat our post-war fleet engaged in domestic commerce
"is the same as before the war and that we shall carry 50 percent of our
foreign commerce in American bottoms, operating on 1929 basis of
carrying capacity, then a fleet of 15,000,000 tons means that our for-
eign commerce would be 2.4 times its 1938 level, and a fleet of 20,000,-
000 tons means foreign commerce equal to 3.6 times pre-war. The
1929 level was about three times the 1938 level.
The British have declared that they must increase their foreign
commerce by 50 percent over its pre-war level. Other nations have
like ambitions. Russia presents a new, vital, and aggressive, if un-
known, factor.
The competition for world trade will be keen.
As confident Americans we are inclined to believe that any desirable
objective is within our grasp. When it comes to foreign commerce we
should not be too sure. We displayed a little Yankee trading instinct
for a period of 50 to 60 years of our short history, but we have lost our
keenness through the pursuit of domestic riches. We are not today
a great maritime people nor by instinct or interest active or keen
world traders.
Public opinion in America has not been developed to the point
where it accepts the necessity of an increase in foreign trade as a part
i of our national economy. Our industrial, commercial, financial, and
j j)olitical structure is built around considerations of domestic economy
I and not around considerations of foreign policy or foreign trade. We
must balance the emphasis.
We have a higher wage level than that of any other nation in the
world. We are dependent upon mass production to enable us to com-
pete in the markets of the world. We must search these markets to
determine wliere and how American goods can be sold in large quanti-
ties. We must cultivate the taste and need of foreign countries for
American products.
At the same time we must increase our imports in order that nations
to which we sell can pay for the goods that they buy. We must cul-
tivate at home the taste and need for foreign products. Other nations
require the economic assistance of increased American consumption
•of their products; we must assist their purposes in order to further
our own.
We shall find that many nations to which we desire to sell cannot
produce and sell to us sufficient merchandise to pay for their purchases
from us. We shall have to develop foreign credits and investments in
foreign countries sufficient to furnish them with the capital and credit
necessary to their trade with us.
The development of ourselves as a great foreign-trading nation in-
volves radical and extensive changes in our national philosophy and
psychology and in our economic, financial, and political structure. We
shall have to change, strengthen, consolidate, and coordinate Govern-
ment agencies dealing with foreign trade and to bring about a cooper-
ative and coordinated effort upon the part of American commercial
interests seeking foreign trade both among themselves and in rela-
tionship to the Government.
The British are the greatest nation of world traders and the greatest
maritime nation in the world and have been for centuries. Since they
have developed successful methods of carrying on foreign trade on an
. economic basis and are maintaining a successful merchant marine it
944 POST-WAR ECONOMIC POLICY AND PLANNING
is desirable and necessary that we examine the organization methods
and procedures by which the British have accomplished this result,
and we must in turn examine our own industrial, economic, and poli-
tical structure in comparison to determine the suitability and adapta-
bility of our organization methods and procedures to carry on foreign
commerce in sufficient volume to absorb our overproduction and to
meet our economic needs.
In undertaking such a study we are confronted throughout with the
necessity of dealing with the question of subsidies. It might be well
to define in advance what we mean by subsidies.
Subsidy is "pecuniary aid directly granted by Government to an
individual or commercial enterprise deemed productive of public
benefit." This is the narrow definition of the word "subsidy," a defi-
nition which rules out any but pecuniary aid.
More broadly, subsidy is defined as :
aid ; assistance ; any gift of money or property made by one person to another
by way of financial aid ; a grant of funds or property from a government, as of
the State or a municipal corporation, to a private person or company to assist '
in the establishment or support of an enterprise deemed advantageous to the
public ; a subvention. In practice subsidies are chiefly granted in aid of trans-
portation enterprises, as to ship, canal, air transport, or railroad companies.
* * * A subsidy may be a simple gift or may consist in the payment of an
amount in excess of the usual charges for any service, as in carrying the mails,
or of funds to aid in establishing a service or equipment larger or more powerful
than the state of trade would warrant, as the building and keeping in service
of vessels designed for use as cruisers or auxiliaries in wai-. Subsidy is often
inexactly used to designate an entire payment for services, as for carrying
mail, which, properly speaking, includes compensation for actual services and
a subsidy proper, consisting of the sum paid in excess of the compensation.
That broader definition is the one that appears in Webster's Inter-
national Dictionary.
According to this broader definition, subsidy may be either money
or property, aid or assistance, or a subvention.
"Property" is defined as :
any valuable right or interest considered primarily as a source or element of
wealth ; anything, or those things collectively, in which a man has a right pro-
tected by law ; that to which a person has a legal title.
In the development of the great maritime nations of the world the
granting of a legal title to certain rights and the amassing of work-
ing capital and wealth which came from the possession of those pro-
tected interests were the factors which built the mercantile power of
the Nation. To catch the true significance of the part subsidies have
played in the growth of mercantile marines we must accept the broader
definition of the word and think in terms of any form of aid, not only
that which flows from the Government, but that which results from
the operation and functioning of national policies.
The acceptance of the broad definition is essential to a study of aids
enjoyed by British foreign trade and shipping throughout the cen-
turies of their development. The British countenance and encourage
indirect aids and monopolistic advantage sometimes difficult to dis-
cover and segregate. Whatever is in the interest of British foreign
trade and shipping is accepted as in the interest of the Nation and
the Empire, so that the maritime industry is not regarded as receiv-
ing favor as a special industry. Foreign trade to the British is not
merely one of their industries to be balanced against another — it is
the cosmos of all their industries. Politically it is the current of world
POST-WAR ECONOMIC POLICY AND PLANNING 945
affairs coursing in British veins; economically it is the ebb and flow
of world tides bringino; wealth to British shores.
We in America are inclined to think of subsidy in its narrower
sense, that is, governmental financial aid. The garden utensil be-
comes a spade. To treat it indirectly or to have it hidden in some
benefit derived from property rights is likely to lead to a charge of
indirection or a suspicion x)f concealment. We like to have a precise
measure of our public favors. To us foreign trade and shipping is
just another industry and not a service to all industry.
A study of our own situation in comparison with the British leads
to the conclusion that we must avail ourselves of all possible aids to
our foreign trade and shipping under whatever name. We must ac-
cept foreign trade as an essential to our national welfare and any-
thing in the interest of foreign trade as being in the national interest
and in turn benefiting all other business and industry by expanding
our economy to prosperity levels.
If we must refer to subsidy as a direct grant, I prefer to think of it
as a subsidy to our foreign trade rather than our merchant marine.
The latter is merely the instrument or the vehicle in the transaction
and not the principal. Furthermore, it is only one of the instruments.
Any effort to increase our foreign trade must contemplate the use of
all of the facilities of transportation, communication, and education.
The British have already voiced objection to our granting subsidies
and have warned us as to the danger of a subsidy race between nations.
In considering this question we should not overlook the indirect aids
which have been extended to British foreign trade and shipping that
are responsible for the growth of the British merchant marine and its
dominant position in the world of trade today.
The Chairman. Isn't that a case of the kettle calling the pot black?
Great Britain has practically always extended subsidies to its foreign
trade.
Mr. Otterson. That is what I am trying to say ; that she, through
the centuries, has subsidized her merchant marine and foreign trade
in various and sundry ways. All of her national policies are directed
toward aiding her merchant marine and her foreign commerce. Do-
mestic economy is subordinated to considerations of international
economy.
If we can organize Government and industry in this country so as
to extend to our foreign trade and shipping the benefits and aids that
are present in the British system by reason of the national devotion
to the cause of shipping and the organization and facilities available
to British shipping throughout the world by reason of the British
established and entrenched position, we shall then have little need for
a direct financial subsidy. The benefits which accrue to shipping from
favorable broad national policies and practices far outweigh the
measured benefits of a precisely determined subsidy.
A knowledge of the history of the development of British foreign
trade and shipping and an understanding of the forces which have
contributed to its progressive growth and its dominant position today
is so essential to the solution of our own problems that we have under-
taken to deal fully with it in the notes which follow under these
headings :
"British policies of state in support of British foreign trade and
shipping."
946 POST-WAR ECONOMIC POLICY AND PLANNING
"British international trade policies in relationship to other na-
tions."
''British industrial policy afTectinjj foreign trade and shipping."
''British industrial and connnercial organizations: Purposes, poli-
cies, and activities."
"Relationship between Government and business in Great Britain."
"Post-war outlook for British foreign trade and shipping."
"Summary of British position."
Following the consideration of the British scene we have under-
taken to review the American scene in much the same manner by way
of comparison and contrast and to arrive at certain conclusions as to
those things which are essential to the development of our position as
a great maritime nation and to raising our national economy to pros-
perity levels.
Tlie study to which I refer is quite a long one and has not been
concluded, so I am not proposing at this time to offer it as part of
your record, but I have taken from it a few notes here that boar on
the question of what the British policy is in comparison to the
American policy.
Dr. Eeed. When will that conclusion be available?
Mr. Otterson, When will the paper as a whole
Dr. Peed. No; you mentioned some conclusions that you arrived at.
Mr. Otterson. I will try to outline those today.
Dr. Reed. You have the conclusions?
Mr. Otterson. I have some conclusions. They will be available in
a little more organized sense in the course of the next 30 days.
The Chairman. Will you let us have a copy when it is available?
Mr. Otterson. Yes, sir; and if you like I will send you a copy of
the whole study.
Tlie Chairman. We would like to have that.
Mr. Otterson. It is a fairly large document, as you can see.
The conclusions, or the notes which I referred to, are as follows :
We have had various proposals relative to the size of the American
mercliant marine after the war — these proposals running as high as
20,000,000 dead-weight tons.
If we are to have a fleet of 20,000,000 tons and we assume that
coastal and intercoastal trade remains the same as before the war, it
means that our fleet engaged in foreign commerce must be 3.4 times
the fleet so engaged before the war.
With a merchant fleet of 15,000,000 tons, the fleet engaged in foreign
commerce will be 2.3 as large as the fleet so engaged before the war.
It is obvious that if we are to support such a substantial increase
in the size of our merchant fleet engaged in the foreign commerce we
must of necessity increase our foreign commerce accordingly.
In any effort to increase our foreign commerce we must reckon with
the British.
The British are foreign trade-minded and maritime-minded.
To them the merchant marine is as important as the British Navy.
The British Navy exists to protect their merchant marine and to pro-
tect their trade throughout the world, and to maintain their sea
channels.
The existence and prosperity of the British Empire de]^end upon
foreign trade. The British Government policies are derived from
considerations of foreign trade.
POST-WAR ECONOMIC POLICY AND PLANNING 947
The national economy is built around conceptions of foreign trade.
Domestic economy is subordinate to international economy.
Political thought and philosophy is subordinate to commercial
thought and philosophy growing out of foreign trade.
There is complete unity and harmony between political and com-
mercial policies. Commercial policies control. Political idealism is
absent.
The political, financial, military, and naval strength of the British
Empire is behind the maintenance and extension of its foreign trade.
The leaders of British thouglit are internationally-minded.
Political thought and political leadership unanimously support
any proposal in support of British foreign trade. There is no op-
position.
This comes about through continuity of Empire policy through five
centuries or more.
England has gone to war to promote and extend her position in the
field of foreign trade. Some of her wars have been trade wars.
No political career in England could be based on a policy in op-
position to the maintenance and extension of British foreign trade.
There is no insolationist policy or thought.
Great Britain is essentially an industrial nation importing raw
materials and foodstuffs and exporting manufactured products.
Agriculture is a minor factor in her domestic economy, completely
subordinate to considerations of industry and commerce. There is
no political conflict between the industrialists and agriculturists. The
importation of foodstuffs is an established and recognized institution.
Unity of thought between political and commercial leaders springs
from centuries of acceptance of British commercial policy built around
conceptions of foreign trade.
Complete symjjathy between political and commercial leaders is a
fundamental of British government set-up.
Government policies are determined by the needs of Britain's world
trade.
An important factor in the maintenance of sympathy and unity
between political, commercial, and industrial leadership is the fact
that London is both the political and commercial capital of the Bi-itish
Empire.
Political, commercial, industrial, and financial leaders are in con-
stant dail}^ contact.
They have intimate acquaintance. They fraternize politically and
socially. They are all motivated by the same thought; namely, the
commercial welfare of the British Empire.
Commercial leaders go into Government, political leaders go mto
commerce.
The British respect wealth, power, position, influence, and prestige.
None of these qualities is a bar to political prestige. Accumulated
wealth, public and private, is the foundation stone of the British
Empire.
The great private fortunes of Britain with their investments m
British industry and their investments abroad have been the ultimate
resource of the British Empire in national crises and international
wars. T • 1 1 t -n.
Britain's position as an international credit Nation has been built
and maintained upon the use of private weakh invested in undertak-
'948 POST-WAR ECONOMIC POLICY AND PLANNING
ings that are contributory to the national welfare and to the extension
and maintenance of British foreign trade and political influence.
The British have given jDolitical protection to their private invest-
ments abroad.
Considerations of foreign policy are dominant.
British thought today contemplates an increase of 50 percent in the
foreign trade above pre-war level.
When such a thought is voiced by British commercial, industrial,
and financial leaders, it at once becomes the policy of the Government,
and a unified Nation is behind it.
The British have no antitrust laws. Trust-busting is not a political
pastime nor the open door to a political career.
Large corporations, interlocking directorates, trade associations,
controlled prices, international cartels, federations of industry, and
boards of trade, all on a scale to influence and control national policies,
are encouraged and respected. The bigger and more powerful they
tecome, the better.
Britain has developed a group of industrial, commercial, and finan-
cial leaders in the field of international commerce which is unequaled
in the world.
British political and diplomatic representation abroad is devoted
to the cause of British international trade, and anything that pro-
motes British trade becomes at once a part of British foreign policy.
Contrast this with the American scene.
If we are to increase our foreign commerce in the face of a declared
British policy of increasing British foreign commerce, we must be
prepared to compete with the British set-up.
Let us start with an analysis of our own situation in relationship to
foreign trade.
To begin with, we are not foreign-trade-minded and have not been
since 1850. We have been absorbed since that time in our domestic
economy.
Political and business careers in this country are built around do-
mestic rather than international economy.
Certain elements in our domestic economy are by nature in con-
flict with essential elements in the development of international
economy.
Whereas England imports more than she exports, we shall have diffi-
culty in finding imports to balance our exports without coming in con-
flict with the interests of domestic producers.
Our domestic economy has been built around the maintenance of
competition.
We have stringent antitrust laws.
Large corporations and monopolies, federations of industry, trade
associations, international cartels, are subject to political suspicion and
attack.
As yet no distinction exists as between the organization that is desir-
able and essential for the encouragement of foreign trade and the or-
ganization that conforms to our American plan governing our domestic
economy. To compete successfully with Britain in the foreign field we
must have industrial, commercial, and financial units of organization
that are comparable in size, position, influence, prestige, and political
backino; to those of the British.
POST-WAR ECONOMIC POLICY AND PLANNING 949
The development of such organzations devoted to the extension of
our foreign trade and the coordination of American industry and
finance in the field of foreign trade to a degree comparable with the
British set-up is probably not possible under the American laws or
under our American political philosophy.
The urge to change this condition must spring from an informed
public opinion.
We have nothing exactly corresponding to the Federation of British
Industries (F. B. I.) , with its members, with its representatives abroad,
■with its very active agents in foreign countries, and with its tre-
mendous influence upon British legislation and political thought.
Without a change in public opinion such an organization could not
be brought together in America as a supplementary arm of govern-
ment without subjecting its proposers and administrators to political
:attack and accusations.
If we are to have an organization abroad devoted to the extension
of American foreign trade, and an organization in this country able
and powerful enough to coordinate our domestic and international
economy in the interests of foreign trade capable of bringing about
coordination between business and industry, on the one hand, and the
Oovernment, on the other, it is probable that such an organization
will require to be constructed under governmental rather than private
iiuspices and leadership.
Whether this is brought about by a coordination of efforts of busi-
ness and industry or whether it is l3rought about by the development
of Government interest, activity, and leadership, its success depends
upon sympathetic public opinion behind the constructive cooperation
between business and Government in foreign trade.
This means that the barriers which now exist must be broken down.
Political careers can no longer be built upon attacks upon big busi-
ness and industry and upon a prohibition against business and in-
dustry exercising influence upon political thought and legislation.
The cooperation and coordination between Government and business
as it exists in England would be considered an outlawed lobby in this
country, in complete political and public disfavor.
We are handicapped in this country by the fact that the political
capital is separated from the commercial and financial metropolis.
This is no mere physical separation ; it is an intellectual and pscho-
logical separation as well.
The businessman who visits Washington too frequently is politically
suspect.
Business interests which seek legislation favorable to their objec-
tives become lobbyists in danger of public and political ostracism.
If business leaders, political leaders, business officers, and Govern-
ment officers could be brought into daily contact, into intimate social
and business associations, it would greatly promote unity of thought
and purpose as between the business and political world so essential
to the development of our foreim political business standard.
To solve this problem in an American way, the following is sug-
gested :
Set up a Government agency composed of representatives of Gov-
ernment departments, which shall be the national foreign trade
commission, the purpose of which will be to encourage, foster, and
promote foreign trade and shipping.
950 POST-WAR ECONOMIC POLICY AXD PLANNING
This commission should be set up in such a manner and under such
instructions as will contemplate a friendly, cooperative, and coordi-
nated relationship between the agencies of government and business.
In order that this national foreign trade commission may have a
coordinated business agency with which and through which to work,
it is recommended that there be set up an American federation of
industries. This American federation of industries should be com-
posed of representatives from industrial associations interested in
foreign trade and shipping.
This federation should be the coordinating instrument through
which the national foreign trade commission would finiction in its
contact with business and industry. Each of the organizations repre- |
sented in the American federation of industries should have a corre-
sponding committee that would coordinate the thought and action of
such organization and coordinate the efforts of its members with the]
policies developed by the American federation of industries in asso-
ciation with the national foreign trade commission.
Permit our business to function legally in international trade un- '-,
der prevailing conditions. I
Such organizations, with the required legislation, could put ourl
foreign commerce and merchant marine on a footing so they could |
expand and compete on an equal basis in the world's markets.
The Chairman. May I ask you now how many shipping companies
are members of 3^our association?
Mr. Otterson. Well, a great many of the shipping companies co-
operated in carrying on these studies, and members of their organi-
zations have worked Vvdth us. So far as contributions are concerned,
only about 25 have contributed so far.
The Chairman. About how many shipping companies are there
in this country? By shipping, I mean those engaged in transporting.
Dr. Reed. Isn't it between 32 and 35 ?
Mr. Otterson. I was going to say between 30 and 50, but I haven't
the figures.
Dr. Reed. I understand it is from 32 to 35.
The Chairman. Do most of these companies belong to your coun-
cil?
Mr. Otterson. Yes.
The Chairman. About what percentage of those lines are sub-
sidized ?
Mr. Otterson. Well, with the exception of the coastwise trade, they
are practically all subsidized.
The Chairman. Do you know how much of our export and import
trade our own ships have carried during the past 10 years before we
went into the war?
Mr. Otterson. Well, just before we got into the war it was about
25 percent. A little earlier, 10 years before, it had gotten up to about
33 percent. Before the First World War it was under 10 percent.
The Chairman. We have had testimony showing that it has ranged
all the way from a low of about 10 percent up to about 30 percent.
Mr. Otierson. That is right, sir.
The Chairman. Do you think that is a healthy condition?
Mr. Otterson. No, sir.
The Chairman. AVhat do you suppose could be done to encourage-
the use of our own ships?
POST-WAR ECONOMIC POLICY AND PLANNING 951
Mr. OTTERbON. WoU, I think that some of the suggestions that are
contained in the conckisions I have given perhaps will answer the
question in part. I would be glad to discuss it further.
The Chairman. What do you suggest that we do ?
Mr. Otxerson. I think the most important thing is to coordinate
the agencies of Government, on the one hand, that have to do with
our foreign trade.
The Chairman. Well, now, which agencies?
Mr. Otterson. Well, the Maritime Commission, Department of
Commerce, Department of State, the Export-Import Bank.
1'he Chairman. I was under the impression that they did work
in unison.
Mr. Otterson. I don't believe that the coordination is as complete
as it could be or should be. At the present time our foreign com-
merce representation abroad is largely centered in the State Depart-
ment. Formerly it was in the Connnerce Department. As it stands
now, the Department of Commerce deals with our domestic com-
merce and the Department of State with our foreign commerce. That
may lead to a subordination of foreign commercial policies to foreign
policies of state.
The question of the emphasis as between the two, I think, is im-
portant.
With the British, the emphasis is on the commercial side, and their
policies of state and diplomatic policies are to a very considerable
extent controlled by their commercial policies. They are prepared
to adopt policies of state that serve their commercial purpose. That
has been their history for generations.
The Chairman. You say the immediate answer is to concentrate
the different functions of the various agencies in one department?
Mr. Otterson. I should like to see one department, one govern-
mental agency, to which any shipper, exporter, or importer could go
who desires to carry on foreign commerce, or where any manufacturer
could go, where he could get an authoritative decision from the Gov-
ernment agency.
I The Chairman. A Government decision on what question ?
Mr. Otterson. On what policy he sliould adopt and what freedom
he will have in carrying on foreign trade. On the other hand, I believe
it is equally essential that the commercial interests — industrial and
commercial interests that have to do with and are interested in for-
eign trade — should likewise be coordinated. I don't think there is a
proper coordination between our manufacturers, our exporters and
importers, and our shippers in the interest of increasing American
foreign trade.
Dr. Reed. I think what you are aiming for is something more or
less like the British Board"^ of Trade, which, although it is strictly
business, works so closely with government that it is a quasi-govern-
ment institution and reflects the policies to be put into effect. We
have nothing, as I understand it, in this country that reflects our
policies to a central point on commercial things as the Board of Trade
of Great Britain does. Is that correct ?
]Mr. Otterson. That is right, sir, and I have in mind also the Britivsh
Federation of Industries — the Federation of British Industries, I
think is the name.
952 POST-WAR ECONOMIC POLICY AND PLANNING
Dr. Reed. That works too, as I recall, quite closely with the British
Government and again reflects government policies.
Mr. Otterson. I think even to a broader extent than the board
of trade. As a matter of fact, the board of trade is one of the asso-
ciations that is represented in the Federation of British Industries.
The Federation of British Industries is, I believe, the broadest body
of British industries, commercial, political interests — it has the broad-
est scope of any of the British organizations.
Dr. Reed. Much the same as what we call either the chamber of
commerce or a trade association, is it not ?
Mr. Otterson. It is more than either of those, and it is more than
a manufacturers' association, or any other body that we have in this
country. It, in effect, is the coordinating body for all of those. Its
purposes are directed primarily toward the development of Britisli
foreign trade. They have representatives in all foreign countries
that are looking out for British commercial interests in those coun- ,
tries, and any industry in England that wants to engage in foreign
trade can go to this British F. B. I. and get the information and the
assistance tliat is necessary to put them in business and to see that
they get their share of foreign trade.
The Chairman. Don't we have that same service in the Department
of Commerce '?
Mr. Otterson. I don't think to such an extent, and I don't think
it is as effective as it would be if it were an organization among busi-
ness interests themselves, which I think would have greater freedom
than a government department would.
In other words, if those representatives abroad are representatives
of a commercial organization or association, they could engage in
commercial activities that might not be proper to a governmental de-
partment that is under the restraint of conforming to policies of state
or diplomatic relationships. I think the British do it both ways.
They handle it in behalf of the government, and in addition they
have this very powerful body which acts for the British industry.
The Chairman. This body very largely determines what the gov-
ernmental agencies do.
Mr. Otterson. I think the Federation of British Industries is so
powerful that it could almost dictate government policies — certainly
could influence them.
The Chairman. Do you think that would be healthy over here ?
Mr. Otterson. I think we would have to get adjusted to it. I don't
think it is a thing that would be immediately acceptable under our
political philosophy. I am only pointing it out as something that
we might have to come to if we are going to achieve our ambition of
being a great maritime nation.
The Chairman. That is what we want you to do.
Mr. Otterson. And if we are going to compete with the British,
which is a good goal to shoot at, because they are the masters
The Chairman. They have done pretty well.
Mr. Otterson. They have done pretty well.
I have as part of this study a little description of what the
F. B. I. is, the Federation of British Industries. If you would like,
I think perhaps it would take less time if I read part of that.
POST-WAR ECONOMIC POLICY AND PLANNING 953
The Chairman. May I ask you this question: You have offered
one sohition for increasing the use of our own ships. That is, a cen-
tral agency. Do you have anj- other sohition than that?
Mr. Otteeson. Having brought about better cooperation from the
Government side, greater coordination of the agencies of Government,
greater coordination of commercial agencies, then the problem is to
have coordination between the Government agencies and this com-
mercial agency, whatever it is, and I think if those three things could
be done, that it will assist greatly in developing our foreign trade
and in developing the use of our ships for carrying our own trade.
The Chairman. You think, then, that is a full answer, or is it
a partial answer?
Mr. Otterson. I think that that is a full answer in the sense that
if we do it fully, that it embraces the other things that we have to do.
The Chairman. The reason the committee is interested in that is
because shippers have appeared before this committee, both import-
ers and exporters, and answered our question as to why they use
foreign ships by saying that it all depends on availability, efficiency,
speed, and the rates. Dollar value is what they are looking for.
Has that been your experience ?
Mr. Otterson. Well, I think they would be much better qualified
to testify regarding that than I would. I am not a shipper. I am
not an exporter or importer, but it is my impression that it is not
so much a comparison between the operation of the British ship and
American ship as related to a particular transaction, as it is that
the whole British scheme, considered in a world-wide sense with all
of their control over commercial organizations abroad and harbor
facilities and booking and insurance — that they can offer, in many
instances, a better all-round service than we can.
The Chairman. How can we do that? Aren't our ships as fast
as theirs?
Mr. Otterson. Our ships are as fast and as good as theirs.
The Chairman. Aren't our rates as reasonable as theirs ?
ISIr. Otterson. That I am not able to say, whether our rates are
as reasonable as theirs, in all instances or not. I think they have a
better organization abroad for getting the business than we have,
and for seeing that it gets into British ships.
The Chairman, Presumably, then, we should have an organization
ourselves abroad in order to compete.
Mr. Otterson. That is right, sir.
The Chairman. How can we do that?
Mr. Otterson. I think the first step is this suggestion that I make
about coordination.
The Chairman. A central agency to control
Mr. Opterson. A central commercial agency that will combine the
interests of all of our shippers and exporters and importers, and see
that they get proper representation abroad; that they get proper
service in all of the auxiliary senses necessary to bring the trade to
them.
The Chairman. I assume the shipping interests over here have
salesmen who contact the exporters and importers in order to get
business.
954 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. Otterson. Yes; eacli one in his own line, but the British have
out these national salesmen who are working for all British interests.
The Chairman. They come over here and solicit business?
Mr. Otterson. Yes; they are all over the world, studying markets,
and studying the requirements of different nations, advising their
home industries and manufacturers what is needed in this market and
that market.
The Chairman. I was under the impression that our Department
of Commerce did the same thing. Do you know whether the mem-
bers of your council take advantage of the facilities in that connec-
tion offered by the Department of Commerce?
JNIr. Otterson. Oh, yes ; I am sure they do.
The Chairman. Have you found it adequate, or lacking?
Mr. Oti'erson. I think it is helpful. I wouldn't say that it is all
that anyone would require. Of course, the Department of Com-
merce uiider the present governmental set-up today is not directly in
touch with our commercial representatives abroad, except through
the Department of State.
The Chairman. Is that true of the British now ?
Mr. Otterson. No; the British have a commercial organization
as well as a diplomatic organization.
The Chairman. Assuming the Government takes action to encourage
our people to use American ships, what percentage of the post-war
ccmimerce do you suppose we should carry?
Mr. Otterson. I don't think it would be feasible for us to carry
more than 50 percent.
The Chairman. Do you think that 50 percent would be desirable
and helpful?
Mv. Otterson. I think we should endeavor to carry 50 percent.
The Chairman. If all other nations would agree on that, that would
be a fair proportion, would it not?
Mr. Otterson. Yes; but I don't think you can get an agreement
out of the British that would recognize that. As a matter of fact,
the British have rather carefully avoided taking any position in this
matter so far.
The Chairman. Then, unless the Government does take action,
you would see no hope for increased use of our shipping service ; am I
correct in that ?
Mr. Otterson. Well, unless the Government takes action, you are
then dependent upon the activity of the individual shipping company
or ex[)orter or importer, and how progressive and effective he is in
getting business. But he will obviously succeed better if he has the
assistance of government and the assistance of other agencies.
The Chairman. A lot of peo})le would look on that as govern-
mental interference ratlier than support, would they not?
Mr. Otterson. Well, I think it can be administered either way. It is
certainl}^ desirable that it be administered as support. But industry
would have some protection against that if they organized themselves
under some strong association such as the British Federation of
Industries.
The Chairman. Under that plan of governmental supervision,
would that mean that all ships would have to designate the route they
followed? I am trying to get exactly what you have in mind, just
what this centralized agency would do.
POST-WAR ECONOMIC POLICY AND PLANNING 955
Mr, OiTERsox. Tlie governmental agency?
The Chairman. Yes.
Mr. Otterson. Well, I think it would do what the Department of
Commerce undertook to do, and do it more fully and completely than
has ever been done before. I don't think that Government agency
would enter into the routing of individual ships. It might havelo do
with laying out of trade routes which might be assigned to certain
companies to operate, but those companies would have to be left with
freedom to operate in an efficient commercial manner on their assigned
or designated trade routes. We huxe such trade routes at the present
time more or less laid out by the Maritime Commission.
The Chairman. "WHien a ship takes advantage of a subsidy it also
yields up some of its freedom, does it not ?
Mr. Otterson. Yes.
The Chairman. In other words, the Government lays down certain
requirements as to route and so forth ?
Mr. Otterson. Yes, the Government by extending a subsidy obvi-
ously acquires certain rights of control.
The Chairman. Is that satisfactory and acceptable to the shipping
companies ?
Mr. Otterson. I don't think there is any serious complaint at the
present time.
The Chairman. You may continue.
Mr. Otterson. I think I should like to read a little description of
what this British Federation of Industries is.
This appears in the chapter under "Trade Associations."
A high degree of self-cliscipliue has developed In British industry through these
volunteer associations. Early in 1942, the Board of Trade requested the principal
employers and commercial organizations of England to submit their ideas and
proposals on post-war economic policy. In response, reports were submitted
during May and June of 1942 by the four principal employers' associations, namely
the Federation of British Industries, the Association of British Chambers of
Commerce, the London Chamber of Commerce, and the British Employers Federa-
tion, or the National Union of Manufacturers.
As those four associations represent in a broad way British business activities,
their reports may be regarded as more or less official statements of the position
of British industrialists and businessmen.
The proposals for industrial reorganization differ in detail, but all feature
what is referred to as economic or indu.strial planning. The Federation of British
Industries maintains its belief in and support of voluntary associations, recom-
mends that each industry or section of industry should possess a trade asociation
with clearly defined functions to suit its needs and so organized as to be capable
of their efficient performance.
The British Employers' Associations draw the conclusion that a post-war
international trade system must be organized on a new basis. It must be a
directed system in the sense that the exporters themselves must be organized to
carry on trade cooperatively and they must have the aid and guidance of
Government.
Trade associations increased very greatl.v, both as to numbers and power,
during World War No. 1, and the same thing is true of their evolution during
World War No. 2. Their influence and power in post-war Great Britain is indi-
cated in their numbers. There may be as many as 2.500 national or regional
trade associations in the United Kingdom today, and since 1940 some 280 export
groups have been formed.
As related to the F. B. I. :
This organization figures largely in British industry and commerce and has
representatives from many different kinds of industry and trade; it is an over-all
organization which can si>eak for industry, for shipping or for trade. Among the
99579 — 45 — pt. 4 ^23
956 POST-WAR ECONOMIC POLICY AND PLANNING
most important of its members are the Association of British Cliambers of Com-
merce, the Chamber of Shipping, British Empire Producers Association, Empire
Economic Union, Empire Industries Association, the National Association of
Industry and Commerce, and the National Union of Manufacturers.
Since tlie Federation of British Industries has the largest membership and is
apparently the most active of all the organizations, a brief presentation of its
set-up and the scope of its worli is given below.
The annual report for 1938 of the British P^ederation of Industries, commonly
referred to as the F. B. I., says, "In relation to the report of the special import
subcommittee appointed to provide a considered view of the Federation as to a
policy to be recommended to the Government with regard to the questions which
would come under consideration at the Imperial Conference, a report was finally
decided upon which received the approval of the Grand Council in February 1930
as (he considered view of industry."
Employers Parliamentary Association began in 1915 to work for an establish-
ment whose main object was to afford the means for bringing the industrial
interests of the country as a whole into closer touch with the Government, not in
any spirit of hostility, but with the view of achieving complete and cordial cooi>
eration between the state and industry for national .advantage.
The Federation of British Industries was organized in 1916 with a membership
of 3 associations and 50 individual firms. So rapid was its growth that in Novem-
ber 1919 Sir Vince Caillard could say in a meeting of the as.sociations, "Directly
and indirectly we represent 18,000 firms of combined capital of £5,000,000,000."
In June 1923 the Federation membership was listed as 107 associations and
1,798 Arms. Since 1923 its position has been greatly strengthened.
Speaking of the formation of the British Federation of Industries the Labor
Reseaj'ch Department has this to say :
"It means that there had arisen a new force of cohesion which could exercise
a most powerful influence on the activities of Government and the organs of
popular opinion."
It goes on further to say:
For purposes of administration, the Federation of British Industries has
operating departments, technical, intelligence, and statistics, transport, freight,
industrial routes, taxation, insurance, exhibition, trade openings, F. B. I. regis-
ter, membership and finance.
The overseas organization has sections as follows:
(1) American and Far East; (2) Empire; (3) Europe and the Near East.
District offices are maintained in Birmingham, Bradford, Bristol, Leeds, Lan-
castershire, Livei'ixiol, London, and home counties in Manchester, Northampton,
Nottingham, Sheffield, and the Scotch office in Glasgow.
Representatives of the F. B. I. are in every country, not only serving the in-
terests of British industries in those countries, but also .securing information
on the industry of the country and the activity of competitoi'S, working closely
with consuls and diplomatic representatives, making secure British supremacy
in world trade.
The Grand Council of the Federation of British Industries is composed of the
following: A president, past presidents, 46 vice presidents, 23 district represent-
atives, S cooperative membei's, 24 industrial groups — a total of 448 members.
The executive committee for the same period had 158 members.
The Chairman. Our time is rimnino; out on us. We would be glad
to have you put that information in the record.
Might I ask you this question : What would happen to shipping
companies if we were to eliminate all subsidies? The purpose of the
subsidy in one sense is to maintain the standard of living; is that
correct ?
Mr. Otterson. The purpose of the subsidy?
The Chairman. Yes: the operating subsidy.
Mr. Otterson. Well, I think it is probably madje necessary by the
fact that we have a higher standard of living, and desire to maintain
it.
The Chairman. It is designed to put our shipping companies on
a i)ar with other shipping companies of foreign nations. They carry
more of our own coods than we do.
POST-WAR ECONOMIC POLICY AND PLANNING 957
Now, if we were to remove that subsidy, do you suppose that our
own shipping companies would carry less and less of our own exports
and imports, or more and more?
Mr. OiTERSOx. I think if 3'ou remove the subsidy entirely, that you
would cut down on the number of ships that could be operated under
the American flag in foreign connnerce.
The Chairman. I am trying to determine whether the subsidy
operates to make our own shipping companies less alert than they
would be if they had to depend entirely and exclusively on getting
more business in order to live.
]Mr. Ottekson. I don't think that danger is very real.
The Chairman. If our ships operated to the full, they would be
able to make enough money without requiring subsidies, is that
correct ?
Mr. Otterson. Yes.
The Ch All MAN. And as a matter of good government, don't you
think it would be wise for the Government to take all of the steps
necessary to encourage our ships to do that without a subsidy?
IMr. Otterson. Weil, I think the Government should encourage the
use of our own ships. I question whether, as a practical matter, under
those conditions today that the subsidy could be eliminated with a
constiuctive result.
The Chairman. I understand that some years ago a bill was intro-
duced which would compel our importers and exporters to use Ameri-
can bottoms. Do you think that would be a good law or bad law ?
Mr. Otterson. Well, I should think it would result in some form of
retaliation upon the part of other foreign countries.
The Chairman. The other countries without having such a law do
carry a larger percentage of their own exports and imports than we
carry of ours.
Mr. Otterson. That is right, but the British accomplished that by
some form of rebates to shippers who used British bottoms.
The Chairman. I understand they have carried about 80 percent
of their shipping in their own bottoms ; is that correct ?
Mr. Otterson. I think that is about right.
The Chairman. Has she suffered any retaliatory action from other
nations ?
Mr. Otterson. I couldn't answer that.
The Chairman. Have the British suffered any retaliatoiy action?
Mr. Otterson. I think that they have done it in such a clever way
that it has not invited retaliation.
The Chairman. But the effect is still there.
Mr. Otterson. Yes. I think we would be justified in some form of
retaliation if we wanted to meet some of the things the British are
doing to help their ships.
Dr. Reed. Has the subsidy been of any use to us in overcoming any
of those discriminations at all ? We have three types of subsidy. We
have the operation subsidy, the construction subsidy, and the counter-
vailing subsidy. To your knowledge, has the countervailing subsidy
been of practical benefit to us?
jNIr. Otterson. That I am not in position to answer.
It seems to me, from the standpoint of economics, there is a little
too much emphasis placed on this question of subsicly. Actually, in
dollars and cents, and as related to our national economy, or our for-
958 POST-WAR ECONOMIC POLICY AND PLANNING
eign trade economy, it is not a large item. We have had subsidies
since 1845, I believe, up to 1938, a period of close to 100 years, and I
think the average ajmual subsidy during that time was about three
and one-half million dollars, and that included contracts for carrying
the mail.
Now, a subsidy to support the kind of fleet that we are contem-
plating after the war, that is, a fleet in the neighborhood of 15,000,000
tons, would be somewhere around sixty to seventy -five million dollars,
which, after all, is the price of one battleship. I don't think it is a
large enough factor in our national economy to be made a great issue.
The Chaieman. The members of your council will probably be
interested in buying some of the ships this Government has left after
the war, will they not ?
Mr. Otterson. Undoubtedly.
The Chairman. Can you give us any idea what standard might
be used in disposing of those ships ?
Mr. Otterson, No; I haven't any information on that.
The Chairman. Do you think we should sell our best ships to
American interests first? Our fastest and most efficient ships?
Mr. Otterson. Yes. I think it is important that the American
merchant marine should have fast ships. We should, as a matter of
fact, have the fastest ships in the world, because we have the highest
cost of operation. It is therefore desirable to make a particular
voyage in the shortest possible time.
The Chairman. If we had the fastest ships in the world, don't you
think that would help shippers patronize their own country?
Mr. Otterson. Yes; I think it will be a factor. Of course, you
have to balance the cost of speed against the cost of slower operation.
The Chairman. Do you think that the other ships should be sold to
competitive nations ?
Mr. Otterson. Yes; I think they should under certain controls. I
don't think we should sell them merely for the purpose of liquidating
an investment. I think the sale of them should be under the control
of some broader policy than that.
The Chairman. Do you think we should hold a certain number
in reserve over here as a matter of defense, safety ?
Mr. Otterson. Yes ; I think we should, for the time being. I ques-
tion very much, if we have 10 or 15 years of peace, whether we will
want to go on holding such a reserve. Under present conditions it
would be a prudent thing to do, but I would like to see that reserve
minimized and gradually decreased as we get control of the factors
which have to do with making war. If we are satisfied that we have
set up a proper organization for maintaining peace, then I think
there might be a gradual liquidation of this reserve.
The Chairman. Do you have any additional suggestions or com-
ments ?
Mr. Otterson, I think not at this time, sir.
The Chairman. You will provide us with a copy of your complete
study, will you ?
Mr. Otterson. Yes, sir.
The Chairman, We thank you for your appearance and the sug-
gestions you have made.
Without objection, the committee stands adjourned until 10 o'clock
in the morning.
POST-AVAR ECONOMIC POLICY AND PLANNING
FRIDAY, OCTOBER 27, 1944
House of Repkesentattves,
Subcommittee on Foreign Trade and SiiipriNG
OF the Special Committee on Post- War
Economic Policy and Planning,
Washington^ D. G.
The subcommittee met, pursuant to adjournment, at 10 a. m., in
room 1303, New House Office Building, Hon. Eugene Worley, pre-
siding.
Present: Hon. Eugene Worley (presiding).
Also present : Hon. Schuyler Otis Bland ; Marion Folsom, staff di-
rector; Dr. Vergil Reed, consultant; and Dr. G. C. Gamble, economic
adviser to the committee.
The Chairman. The committee will be in order.
The Subcommittee on Foreign Trade and Shipping resumes hear-
ings this morning, and the first witness scheduled is Mr. R. H. Patchin,
vice president, W. R. Grace & Co.
Mr. Patchin, as you know, this subcommittee is trying to ascertain
facts in relation to our foreign-trade problems, and what recommenda-
tions it can make to Congress to increase, if it is desirable to increase,
our foreign trade and shipping.
This week has been devoted to hearing individuals in private busi-
ness. We have had some very good testimony, some very good sug-
gestions, and I would like you to give us the benefit of your experi-
ence in foreign trade and shipping, and any suggestions you think
will be helpful to this committee in making proper recommendation
to Congress.
Will you first tell us how long W. R. Grace & Co. has been in busi-
ness and just what phases of shipping it is concerned with.
STATEMENT OF ROBERT H. PATCHIN, VICE PRESIDENT, W. R.
GRACE & CO., NEW YORK CITY
Mr. Patchin. The business of W. R. Grace & Co. was founded in
Peru about 1850. The founder was William R. Grace, who was born
in Ireland. I might sketch the development of the business as an
example of how foreign-trade enterprises grow.
As a boy William R. Grace ran away to sea and went to New York
about 1848. There were hard times in New York; he got no job, and
he went home. Shortly thereafter he went to Peru, where he started
in business in a firm of ship chandlers which purveyed supplies to
the sailing ships which came from all parts of the world for cargoes
of guano, which was one of the chief fertilizers in that era before
959
960 POST-WAR ECONOMIC POLICY AND PLANNING
Chilean nitrate of soda was so freely used and chemical fertilizers
had come into the ])icture. He progressed rapidly in the business,
which soon took on his name.
One day in Lima he met a Yankee shipmaster who took him to
dinner on his sailing ship in the port of Lima, where he met the ship-
master's daughter, a beautiful young American girl. It was a case
of love at first sight.
William R. Grace proposed. The young lady was interested, but
said if she was married it certainly was not going to be in any far
away place like Peru, and he would have to come to her home in
Maine.
He went to Maine and she returned to Peru to share and encourage
his career. She was a woman of great character.
In a few years Mr. Grace fell ill; the doctors gave him only a year
to live. He went to New York with his wife, so that when he died
she might be near her people.
But he didn't die. He set up business, took a desk in a shipping-
office in South Street, New York City, began to trade with his own
company in Peru, which by this time was in charge of his brother,
and that was the beginning of the international business of W. R.
Grace & Co. During 94 years it has developed in transportation first
by sailing ships around Cape Horn to the west coast of North
America, then by steamer through the Straits of IMagellan, later by
steamers through the Panama Canal. The Grace Line also operates
steamships from the west coast of the United States to the west coast
of South America, and from New York to the Caribbean.
In 1927 W. R. Grace & Co. and Pan-American Airways joined in
forming the jointly owned Pan-American-Grace Airways, Inc., which
operates from the Panama Canal south to all the countries of South
America and over the Andes to the boundary of Brazil and to Bueno'5
Aires, Argentina, on the east coast.
The Chaibman. Is that called "Panagra?"
Mr. Patchin. That is called Panagra, and in length of route, mile-
age, it is second, in the American commercial international field, only
to Pan-American Airways.
From the very early days I- have mentioned W. R. Grace has been
an exporter and importer of the products of this hemisphere, has a sub-
stantial domestic business in a number of the republics and has success-
fully developed a, large industrial operation in sugar plantations, mills
and refineries, cotton and woolen mills, a certain amount of mining, and
other domestic enterprises in various South American countries.
The Chairman. Your company interested itself in these industrial
developments ?
Mr. Patchin. Sometimes we set them afoot and developed them
wholly by ourselves. In many cases, national capital of the respective
countries is associated with us in the financing and in the management.
The Chairman. That adds to your cargo, does it not ?
Mr. Patchin. Yes; it has contributed to an expansion of the total
economy of the countries which gives rise to cargo. However, I should
add that the Grace-owned cargo shipped by various Grace enterprises
is only a small fraction of that carried by vessels of the Grace Line,
which are common carriers.
The Chairman. About how many ships do you have ?
POST-WAR ECONOMIC POLICY AND PLANNING 961
Mr. Patchin. In peace, we range between 20 and 25, of which 5
to 7 were passenger vessels.
The Chairman. And the bahmce cargo ships?
Mr. Patchin. And the balance cargo vessels.
The Chairman. What are your plans for post-war expansion ?
Mr. Patchin. In shipping?
The Chairman. Yes.
Mr. Patchin. We already have purchased from the Maritime Com-
mission a substantial number, 12 or more, of the C-2 type of fast cargo
vessels, which have a capacity of about 10,000 tons, a speed of nearly
17 knots, economical propulsion, and ample gear for the rapid loading
and discharge of cargo.
The Chairman. That is quite an investment, isn't it? How many
did you say you bought ?
Mr. Patchin. Fourteen. Some have been lost. We are negotiating
for more.
The Chairman. They are supposed to be delivered after the war?
Mr. Patchin. Some have been delivered, others are being delivered
as completed, some are yet to be completed. None of them are operat-
ing for our own account. As you probably know, all privately owned
vessels have been requisitionecl by the Government for the w^ar effort.
Except for those which have been turned over to the Army and Navy
for operation with their own crews, privately owned vessels have gen-
erally been left with their owners for operation, where and as the
Government directs, the owner for the time being becoming only an
agent and receiving for his own none of the revenue, all of which
accrues to the United States Government. The profit and loss account
is solely for the Government.
In addition to that, practically all privately-owned American ship-
ping companies have been assigned newly built vessels by the Govern-
ment which they operate as agents for the War Shipping Administra-
tion. Thus the American ship owner who was operating lines in for-
eign trade prior to the war has ceased for the time to be an owner, in
the business sense, and is serving as an agent. He receives only fees
for his agency service in operating or otherwise serving the ships.
For the use of his own vessels he receives charter hire which would be
rental to the layman, on a basis the Maritime Commission has set, and
which it has stated, even boasted, is far less than was paid in the last
war, and awarded by the courts in the last war.
The American merchant marine is the one industry which has been
wholly taken over by the war, not only the ships, but the private ship-
ping organizations and they are happy to serve in this capacity.
The Chairman. With these 12 or 14 ships you bought, and which
will be turned over to you after the war need is over, what do you pro-
pose to do with them, Mr. Patchin ?
Mr. Patchin. We will place them in service in our accustomed
trades, which, for the present are being served by such other vessels as
the War Shipping Administration is able to spare from combat areas,
in order to keep the economy of the other American nations going.
Dr. Rked. Mr. Patchin. with your 12 or 14 ships, I presume you
are not taking back those ships which you had prior to the war. Are
those in addition to your present ships which have been requisitioned?
Mr. Patchin. Well, of the five passenger ships which we owned at
the outset of the war, three have been sunk in action, so we only have
962 POST-WAR ECONOMIC POLICY AND PLANNING
two passenger ships remaining, and the cargo ships that we owned
before the war, and still own, are pretty old and have to be replaced.
Dr. Keed. Those are the ones that used to go around the Horn and
through the straits?
Mr. Patchin. I do not remember whether they operated through
the straits. Possibly some of them did.
Dr. Keed. Do you intend to serve merely with that fleet the west-
coast route and Colombia, perhaps Venezuela, or do you intend to go
into the east-coast service, too ?
Mr. Patchin. Not in the east-coast trade, the tonnage which we
will have at the end of the war will be in excess of that needed in
our accustomed trades and routes where we operated before the war,
if the trade on those routes should not be larger than before. We hope
that trade will be larger. But we are interested to develop certain
new routes where they may be needed in the interest of American
commerce.
Dr. Reed. Would that include the Caribbean routes, or purely South
American ?
Mr. Patchin. Well, we pretty well cover a certain segment of the
Caribbean already.
The Chairman. Do you have approximately 25 ships now?
Mr. Patchin. Yes; we would, with these.
The Chairman. And these new shij)s you buy will
Mr. Patchin. No; we haven't 25 of our old ships remaining; be-
cause as we bought some of these new vessels we let some of the old
ones go, sold them. The total fleet, new and old, will run about
20, I should say.
The Chairman. After you buy these others, will you have about
the same size fleet, 20 ?
Mr. Pi^TCHiN. Yes; about the same size but we expect to expand
operations after the war if conditions are propitious.
The Chairman. Then, there will be no increase in your shipping
facilities over the pre-war capacity?
Mr. Patchin. There will be an increase in the total capacity, and
in the average speed which is equivalent to more ships.
Dr. Reed. What will that be a gain of? Will it be as much as one-
eighth on your speed ?
Mr. Patchin. Well, ship for ship, the C-2 cargo carrier is worth
in operation on a long trade, where dispatch is prompt, and the ships
are kept stepping along — the C-2 freighter is worth two pre-war
freighters in terms of efficiency.
Dr. Reed. That is, you get twice the turn-around?
Mr. Patchin. Approximately.
The Chairman. Do you sujDpose, Mr. Patchin, there will be an
increase in foreign trade after the war?
Mr. Patchin. Well, that is a subject that I was going to discuss
under foi-eign trade, and give the reasons why I think so.
The Chairman. Do you have a prepared statement?
Mr. Patchin. Yes. I have just the one copy, but others will be
here in a moment, and when they come I will pass them to you.
The Chairman. All right.
Mr. Patchin. If you want me to proceed with this
The Chairman. You can use your own judgment, if you think you
cover the questions we are interested in.
POST-WAR ECONOMIC POLICY AND PLANNING 963
Mr. Patchin. Is there anything more on this pliase?
The Chairman. No ; we were discussing generally the question until
you had read your prepared statement. If'j^ou don't mind, we might
interrupt you in the course of your reading.
JMr. Patchin. Yes. I think our situation is typical of other well
developed steamship lines. The feeling is, generally, that no better
cargo ship has been built than those of the C class, the C-1, C-2,
and C-3, Avith the C-2 being possibly the best all-around ship.
The Chairman. Do you suppose other shijDping companies will be
interested in buying the fast ships we have left after the war?
Mr. Patchin. I think a great many of them have already com-
mitted themselves for that, and have in mind an even greater commit-
ment in the future.
The Chairman. I didn't know that you could buy ships now.
Mr. Patchin. Yes; you can buy a ship now on the conditions laid
down in the Merchant Marine Act, but you don't get the use of the ship.
The Chairman. Until after the war.
IVIr. Patchin. Your wife goes down and christens one of these
ships, they hoist the Grace flag over it, and it is taken away from you.
The Chairman. How do you negotiate those sales ?
Mr. Patchin. There is a Ships Sales Division of the Maritime Com-
mission. You make known your wishes and you have to enter into a
contract to maintain that ship on a trade route found by the Com-
mission to be an essential route. It would be veiy difficult to go down
and buy just one ship with the idea that you could run her anywhere
you wanted to. They have to be committed by contract to operation
for a period of 10 j^ears.
The Chairman. Title passes to the purchaser at the end of that
time?
Mr. Patchin. Title passes to the purchaser immediately but the
Commission takes a mortgage to secure the balance of paj^ment over a
period of years where the ship is to be operated on a route found by
the Maritime Commission to be essential to trade and commerce and
the national interests of the United States. A contract is made for
service calling at certain specified ports, maintaining the vessels with
practically an all-American crew, and subject to all of the other terms
and restrictions of the Merchant Marine Act of 1936, including, in
most cases, an operating differential subsidy designed to cover pre-
cisely, and not to exceed, the difference between the actual cost of
operating that vessel and what it would cost to operate the vessel were
it operated on the manning scale of foreign vessels actually competing
with the American ship so aided. ^
Fifty percent of any profits, calculated over a period of years, is to
be refunded to the Government if the profits exceed 10 percent of the
capital actually invested in the business.
The Chairman. Do j^ou find that arrangement generally satis-
factory ?
]Mr. Patchin. That has been a reasonably satisfactory policy.
The Chairman. Do you have any suggestions as to how it might be
improved?
Mr. Patchin. It is supposed to place the ship operator on a parity
with his foreign competitor. The restrictions imposed on the Ameri-
can owner under these operating contracts are very considerable. He
cannot sell his vessel foreign without the consent of the United States;
964 POST-WAR ECONOMIC POLICY AND PLANNING
he cannot witlidraw it from the service without substantial sacrifice of
advantages ah-eady gained.
In tlie event of war, lie must, if so ordered by the Government, sur-
render his ships at their fair actual value without any enhancement
growing out of the circumstances causing the taking. In short, he is
cut off from a good many of the possibilities of profit which have
accrued to shipowners through the ages wlien shipping has been a
rather lean business, in peace, and h;\s recovered its loss in periods
when war or other emergency made ships scarce and raised the level
of ship prices, during which active maritime nations have often sold
their old ships to advantage and replaced wdth new.
I make no complaint about the act in that respect but merely allude
to some of the factors surrounding its administration.
We liave gone a long way to find a stable shi])ping policy after the
deplorable 50 or 60 years of vacillation in shipping policy . The indus-
try is thankful for the progress that lias been made, jyid for the tenacity
with which the Merchant INIarine Committee of the House, headed by
Congressman Bland, Avho is here, and the Maritime Commission are
holding to the statute in which the Congress has expressed the national
shipping policy, the Mei'chant Marine Act of 1936.
The Chairman. Our merchant marine was in a deplorable condition
prior to 1936, was it not ?
Mr. Patchin. I wouldn't say it was in a deplorable condition.
There is a general tendency to underestimate the progress that was
made under the Merchant Marine Act of 1928, A fair number of ships
were built between 1928 and 1933 when the act came under attack and
its administration was paralyzed. The act of 1928 was giving oppor-
tunity for the rehabilitation of a number of lines which, after World
War I, had been established between the three coasts of the United
States and the chief markets of the world, in addition to old estab-
lished American lines which had been operating for many years, some
of them dating from sailing-ship times.
The Chairman. The merchant marine, then, is in better shape today
than it was in 1936, would you say?
Mr. Patchin. I think so, definitely.
The Chairman. On account of the merchant marine act?
Mr. Patchin. Yes, sir.
The Chairman. We have had some discussion, Mr. Patchin, and
evidence to the effect that our own ships have carried anywhere be-
tAveen a low of, I believe, 6 percent, to a high of approximately 30
percent of our own commerce.
How much of our own exports and imj^orts do you think our own
ships should carry ?
Mr. Patchin. Well, that will differ in different trades.
The Chairman. Well, generally? ■
Mr. Patchin. I think over-all, the goal set by Admiral Land in
declaring we ought to carry 50 percent of American commerce in
American bottoms — —
The Chairman. "Do you agree with that?
Mr. Patchin (continuing). Is sound and reasonable, and still falls
short of the higher percentage which the British ships, German,
Italian, and some others have carried of their own commerce. But I
wish to emphasize that this goal should always be qualified by the
POST-WAR ECONOMIC POLICY AND PLANNING 965
term "over-all," because in some trades we will carry substantially
jnore than 50 percent, and in some trades we will carry less.
The Chairman. Are those countries you mention over-all carrying
more than 50 percent of their own commerce ?
Mr. Patciiin. Yes, sir. They were in peace.
The Chairman. Do you think it desirable that they should do that?
Mr. Patchin. Yes, sir. In general I think it is desirable because
they provide adequate and effective service.
The Chairman. Now, let me ask you this : Don't we provide ade-
quate and effective service?
]Mr. Patchin. AVe have, but we haven't provided enough of it to
command a greater part of the carriage of American foreign trade.
The Chairman. How do you suggest we provide enough of it ?
Mr. Patchin. By continuing to modernize the merchant fleets oper-
ating on the various services, by establishing new services where they
are required, and where American-flag service is not now given.
The Chairman, How do you mean "required"? How do you mean
establish services where required? Required by whom?
Mr. Patchin. Required in our own foreign trade, or even the for-
eign trade of the world at large.
The Chairman. That is, finding new markets
Mr. Patchin. Finding new markets, yes, sir; and further develop-
ing old ones. There are places where we have not had as much direct
service as we might. Up to 1939 we had not gotten around to provid-
ing additional service there.
The Chairman. Who do you think will find those new markets?
Mr. Patchin. I think American foreign traders, and the steamship
companies themselves, as they further explore the situation, and the
opportunities of the post-war era.
The Chairman. On their own initiative?
INIr. Patchin. On their own initiative, with the aid of the Maritime
Commission, the Department of Commerce, and other agencies of the
Government who see the need.
The Chairman. Using those agencies as sources of information?
Mr. Patchin. Yes, Then, of course, there is a prospective
vacuum in the suspension of Axis service which operated from the
United States to many foreign markets and carried in all possibly
10 or 11 percent of our total foreign commerce as well as a substan-
tial part of world trade wholly foreign to the United States. I be-
lieve the United States should move into a substantial part of the
Axis position.
The Chairman. Some of the shippers who appeared before the
committee, those engaged in import and export business, say that our
shipping is not used more because generally it does not offer the effi-
ciency and availability of many foreign companies. Is that com-
ment correct?
Mr. Patchin. I wouldn't like to generalize. I think on most lines
the American service is as efficient and reliable and on some lines
superior to foreign services. On some routes American ships may
not be as frequent as all of the foreign services combined. We know
the British carry approximately as much of our foreign trade as
do American ships, so it is obvious if we carry less than 30 percent,
there must be at least twice as much foreign tonnage over all offered
966 POST-WAR ECONOMIC POLICY AND PLANNING
to the shippers in this country as there are American ships. If an
American line is not getting the business because it does not provide
enough service, it should provide more service, and to this end it
must not only provide the ships, but it must make its service better
known to the shipping public.
Progress in shipping is made not only in the ships and in the de-
velopment of a favoring policy by Government. A vital factor is
the business and professional competence of the operator. Great
progress was made between World War I and now in winning the
good will of shippers; in convincing shippers, particularly those
abroad, that the Yankees were in the trade to stay; in making the in-
fluence of American shipping felt in the shipping conferences which
have so much to do with the establishment of rates and practices.
That is one of the ways that the British merchant marine proved
highly successful.
The British did not operate the cheapest ships in the world, but
over a long period of years they gave the most satisfactory service.
When later other nations challenged them, and in some cases pro-
vided equally good or better service, then the foreigners won some-
thing substantial away from the British.
The American shipping industry will win its larger position by its
own efforts and not merely because it is put on a parity of operating
costs by governmental policy, important though that is.
The Chairman. In what way or ways, if any, has the Government
itself contributed to that lack? What laws or restrictions has the
Government imposed which would discourage an increase in shipping?
Mr. Patchin. Well, I think the Merchant Marine Act, through the
construction and operating differential subsidies has largely offset the
higher cost of building and operating American ships. There are some
obsolete features of our laws which are hampering, and which should
be removed.
There are questions of measurement and load-line and other de-
tails of our navigation laws which restrict us through the rather rigid
administration, and leave us at a disadvantage compared to other
countries which have more liberal laws in that respect or which per-
haps do not administer them as rigidly.
But I believe Admiral Land is fully conscious of the need for cor-
rection of those disadvantages. I wouldn't characterize any single
one of them as a maior disadvantage.
The Chairman. "What steps can the Government take, if any, to
encourage our own shippers to use our own ships more?
Mr. Patchin. Well, I recall that when the merchant marine of
this country was in a position where it carried less than 10 percent of
our commerce, prior to World War I, the reports from our consuls
published, first by the State Department, then when the Department of
Commerce was organized, by that Department, constantly deplored
the lack of direct American shipping services from the United States
to the markets where they were located.
Now, we have those shipping services well established, and I believe
that every report that is published from commercial attaches and
commercial agents, or the nmnerous specialists we maintain abroad
and at home seeking to promote American commerce abroad should
include a paragraph calling attention to the existence, by name, of
the American shipping service that operates the area dealt with in
POST-WAR ECONOMIC POLICY AND PLANNING 967
such reports. I might say that I made this suggestion long ago to
the Department of Commerce, but it has never been carried out. I
think there was some idea, possibly emanating from certain indi-
viduals or certain offices of the State Department, that that would
be unduly plugging or playing our own game. It would not be just
an advertisement for individual lines, but it would call attention to
the existence of a national service and a national institution, which
every American steamship company is.
The Government builds these ships at the American cost, and sells
them at the equivalent of the foreign cost, and aids by money their
operation on an equal basis with the foreign ship. The Government
is the big partner in the American merchant marine and, as the price
of its previous neglect it has found its impact in this war delayed, the
progress of our armed forces retarded, and a shipbuilding bill for
the taxpayer rolled up which will amount to $19,000,000,000.
The Chairman. I agree with you.
Mr. Bland, I wonder if the investment of American capital in
foreign shipping lines, or the interest of American citizens in foreign
ship lines, has something to do with the successful operation of foreign
ships to the detriment of our own ships ?
Mr. Patchin. It may have well been, sir. Prior to the Merchant
Marine Act of 1936, the higher cost of American shipping made it
impossible to operate competitively.
Mr. Bland. I have reference to the foreign exporters — Americans
engaged in activities who had investments in foreign ships.
Mr. Patchin. Yes, sir.
Mr. Bland. To what extent did that participate?
Mr. Patchin. You are asking?
Mr. Bland. Yes.
Mr. Patchin. Well, I think it just meant that much need for ship-
ping services went foreign instead of to the American flag. But if
you refer to the time before any equalizing aid was made possible,
there was not much choice. Since then it is a different matter.
^Ir. Bi^\ND. But since the shipper in this country had his money
invested in a foreign ship, in whole or in part, he was certainly inter-
ested in
Mr. Patchin. Saving that ship.
Mr. Bland. Getting business for that ship.
Mr. Patchin. No question about it. I merely mentioned that in
Government Commerce Reports mention should be made inviting
attention to the existence of American shipping on the various trade
routes.
The Chairman. You don't think that compulsory measures should
be employed by the Government to compel a shipper to use our own
vessels ?
Mr. Patchin. No ; I do not believe that should be done, but I think
that the United States Government itself, after the war, should patro-
nize the privately owned merchant marine instead of maintaining a
lot of Army and Navy transports to transport commercial cargo and
personnel to distant bases,
I don't mean that the Army and Navy should be entirely denuded of
i transports, in peace but a good deal of their materiel and some of
their personnel moving to distant bases could be shipped on cargo
and passenger steamers of the American merchant marine as the
968 POST-WAR ECONOMIC POLICY AND PLANNING
British do, and avoid the expense of a hirge peacetime auxiliary fleet
for the Army and Navy.
Let an active, well-manned, well-conditioned American merchant
marine be the peacetime auxiliary of the Army and Navy, with the
merchant officers and men enrolled in the Naval Reserve.
I wouldn't favor compulsory patronage by private shippers be-
cause that simply invites a corresponding compulsion by foreign gov-
ernments on their shippers.
The Chairman. On that point, Mr. Patchin, I don't know whether
other governments compel their shippers to use their own ships, but
somehow or other, that fact has arrived.
Mr. Patchin. That happens.
The Chairman. Why?
Mr. Patc HiN. There is a greater favoring spirit toward their own
merchant vessels in foreign maritime countries, which have a keener
appreciation of what the merchant marine means to them.
In Japan, whose merchant marine carried as high a percentage of
its own commerce as any great maritime nation, all the people live
close to the sea. The national policy was geared to maritime ascen-
dency, if not supremacy. The Japanese who would ship on any other
vessel, except for some very good or unusual reason — well, he did
not look very good to the government or his fellow citizen. And the
British just have it in their bones to patronize British ships. The
average British merchant, even in a foreign country, has great diffi-
culty in believing any other ship could possibly be as good as a
British ship.
The late James A. Farrell, president of the United States Steel
Corporation, and founder and chairman of the National Foreign Trade
Council, used to say that if we could have a favoring spirit toward
the American merchant marine among our people that would be the
greatest possible aid it could win.
The Chairman. How do you propose to get that spirit?
Mr. Patchin. I have mentioned one thing, but the main thing is
The Chairman. Carry it out nationally ?
Mr. Patchin. Yes.
The Chairman. The Government spends a lot of money to train
operating personnel for the merchant marine.
Mr. Patchin. Exactly.
The Chairman. We spend a lot of money subsidizing ships, help-
ing them to get on a par with other nations. Yet we get, after that,
but one-third of the shipping that everybody agrees we are entitled
to. Now, somebody has fallen down somewhere. Who is it?
Mr. Patchin. I don't think it is a question of falling down. These
things are a matter of gradual growtli. I believe if the war had not
come along the merchant marine would have made great progress with
the fine new ships that, providentiall}^ were being constructed, due
to'the foresight of the Maritime Commission and the respective mari-
time committees of Congress.
The Cha'r:',ian. Now, we are going to have the best ships in the
world after the Avar.
Mr. Pachin. We will have the best ships in the world, but j^ou can't
count continuously on having the best ships. Others will build good
ships, too.
The Chairman. I am sure of that.
POST-WAR ECONOMIC POLICY AND PLANNING 969
Mr. Patchin. In addition to that, traffic depends greatly on who
routes the traffic. There are a considerable number of shippers m the
United States, inland and elsewhere, who do not know what ships
their o-oods go overseas on. Perhaps they sell f. o. b. the port of Nesv
York'^or Norfolk, or somewhere else, and then the foreign buyer has
control of the routing on the shipment from there. I think m some
foreign countries exporters have been encouraged and influenced to the
practice of selling c. i. f., which means "cost, insurance, and freight,
is included in the price to the foreign buyer delivered in the foreign
port. This leaves in the hands of the seller the choice of the line that
carries the goods overseas.
I believe that was the general Japanese practice.
Tlie Chairman. Do we do that?
Mr. Patchin. Anyone can do that if he wishes to take the trouble
to do it unless the buyer objects.
The Chairman. How much trouble is involved ?
Mr. Patchin. Well, it simply means that an exporter should quote
the foreign customer on a c. i. f. basis at destination. He can thus
influence the routing as a part of the transaction.
The Chairman. Then, in the final analysis, it is going to be a selling
proposition. . . . t i v^- ^
Mr Patchin. Yes, sir; it is a selling proposition. In addition to
that the steamship company should widely advertise its service. Most
lines do, and also keep up their own traffic organizations wherever
there is enough business to justify the expense. ^ ^ ^
I have mentioned, already, I think, the United States Government,
instead of operating a vast military and naval transport fleet after the
war should, as far as practicable, rely on the privately operated Amer-
ican merchant marine, and the merchant marine, to deserve that busi-
ness should make the necessary adjustments to give the right kind
of service to the Army and Navy. Of course, they should each have a
certain transport fleet manned by their own personnel, but tor much o±
their vast traffic the merchant marine could serve well and econom-
icallv. ^ 1 • ^ p
For instance, the Panama Railroad Steamship Co. for many years
has oi^erated two or three ships of its own exclusively to haul cargo
to the Panama Canal and personnel to and from the Panama Canal,
and to a certain extent it engages in traffic competitively with privately
owned steamship lines. • -, i .in i
The Panama Ptailroad Steamship Co. was organized when the Lanal
was beino- built, and there were very few American lines down there;
none in fact, and the ships were needed. But it continued afterward,
althouo-h there are probably 20 or 25 American steamship lines oper-
atino- to or through the Panama Canal now. They have never been
willmo- to give up that operation, although steamship interests have
believed that it stood the Government a net loss. The Government, as
you know, does not figure interest and some other items that a commer-
cial company must. , c. • -^ i u ^i 9
Mr Bland. They claim there is a profit m it, don t they ^
Mr P\tchin. Yes; they do; but I don't know whether they hgiire
their interest and depreciation on the same basis, or how far back that
^^The Chairman. Do vou find any evidence, Mr. Patchin, that the
subsidy retards or has aiiy adverse effect on our shipping?
970 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. Patchin. Well, of course, as you know, Mr.. Chairman, only a
comparatively small percentage of the total American merchant ma-
rine is subsidized.
The Chairman. I understood that.
Mr. PxVTCHiN. The coastwise trade is not subsidized by money pay-
ments, although it does have a monopoly of the coastwise operation,
and there are many lines in the foreign trade which are not subsidized.
I do not believe it retards shipping, because the subsidy is not a
bounty of the nature some governments pay to their shipping. It is
simply an equalizing payment. Nobody could make money just out
of the subsidy alone
The Chairman. But it does guard them against a big loss, does it
not?
Mr. Patchin. No, sir; it does not. It equalizes the operating ex-
penses, but if you lose your shirt the Government does not increase
the subsidy one penny. You can go to the poorhouse without being
able to get any additional subsidy under the existing law.
Mr, Bland. In other words, it is only the operating differential?
Mr. Patchin. Yes.
The Chairman. I was aware of that fact, but to the extent that it
does equalize the operating differential
Mr. Patchin. Well, if you did not have it and incurred losses to
the extent of the difference in cost of operation, you might say a sub-
sidy would have saved you that much if you had had it. Of course,
no subsidies are being paid now and have not been for more than
2 years.
The Chairman. We are talking about peacetimes.
Mr. Patchin. Yes; but the general public talks about a subsidized
American merchant marine even now. Admiral Land has said the
amount of earnings which the Government has derived from the requi-
sitioned ships of private owners far exceeds the subsidies paid out
for a considerable time past.
What was the last question you asked me ?
The Chairman. I was talking about this operating differential.
What part does the guaranty play in the operation of ships ?
Mr. Patchin. We have tried to figure out how much the operating
subsidy would represent of the total operating expenses of a C-2
freighter. If you could operate a line of such vessels diligently and
speedily, and that means getting them in and out of port rapidly,
as well as running them at full speed at sea, keeping down your ex-
penses of loading and discharging cargo, and so forth, the operating
differential would be a small fraction of the total expense. The
achievement of efficiency in ship operation is one of the chief problems.
The Chairman. I was surprised at the testimony that we have had
that our own ships, in operating personnel, were not as efficient as
most other countries.
]\Ir. Patchin. That they were not ?
The Chairman. I was surprised that thej^ were not as efficient as
other countries.
Mr. Patchin. I do not believe whoever made that statement could
have had any over-all close observation of American ship operation.
The job that the American merchant marine has done in this war, in
moving the
The Chairman. I am talking about peacetimes.
POST-WAR ECONOMIC POLICY AND PLANNING 971
Mr. Patchin. On our own lines we run a faster schedule and get in
and out of port quicker than any of our competitors.
The CnAiR.^rAN. I am not talking about Grace Line.
Mr. Patciiin. But that is true of a number of other lines. American
ship operation in peacetime is highly efficient.
The Chairman. I was under that impression, but they say in se-
lecting a ship to carr}" their goods, bring them in or send them out,
they look at it on the basis of dollars ancl cents, what ships are avail-
able, the efficiency, speed, and the general service given.
Mr. Patciiix. Well, on many routes there are probably twice as
many or even more foreign-flag sailings as American-flag sailings.
That is inherent in tJie fact that less than 30 percent of American
foreign trade is borne on American ships. That means a man who is
a regular and frequent shipper has to avail himself of foreign ships
because they are sailing at times when American ships are not sailing.
But I do not believe that the cargo is any less safe or less well
handled on American than foreign ships. As a rule, the rates obtain-
ing are the same. They are fixed under conference agreements author-
ized by law ancl filed with the Maritime Commission, so there isn't
much to be gained there. Business methods of American shipping
compare favorably with those of their foreign competitors ; the shipper
gets as prompt settlement of his claims and receives at least as courte-
ous and decent treatment from American lines the same as from the
foreigners, and better than many. But it is not enough to be just as
good. You have to speed up and be better. And I think many Ameri-
can lines are better. That is part of the game and that is what many
American lines do.
The Chairman. By giving better service we could increase our ship-
ping by 30 percent, you believe ?
Mr. Patchin. I think so, over-all,- if we provide more sailings and
more lines.
The Chairman. You think it is primarily the job of the shippers
themselves to go out and find new markets and exercise their own skill
and know-how in getting this new business?
Mr. Patchin. Yes; I think in anybody's business he is the first
fellow who has to make that business succeed.
The Chairman. You don't want any Government help; you just
want a green light to go out and do the best you can.
Mr. Patchin. I understand you to mean aid in helping American
shipping to get business. They ask, I believe, no aid other than that
contained in the Merchant Marine Act and the trade promotional
functions of our Government. They hope they will receive the favor-
ing spirit which other governments and peoples accord their own
shipping.
The Chairman. "Well, I wish you well.
Mr. Patchin. The administration of American shipping policy
should be animated by the realization that to enable American ship-
ping companies to buy a very large number of high-class ships that
have been built by the Government in this war, they must command
investment capital from the public at large. The public at large will
not provide that investment f^apital unless it thinks shipping is an
established and reasonably profitable business. «
99579 — 45 — pt. 4 24
972 POST-WAR ECONOMIC POLICY AND PLANNING
There is no vast accumulation of capital in the coffers of shipping
companies which can do this thing.
Mr. P^OLSOM. I think there is a bill pending before Judge Bland's
committee setting up a basis for the sale of these ships after the ^yar.
Will you make a comment on the method that bill provides for the
selling of these ships ?
Mr. Patciiin. Well, it is axiomatic that any ship operation must
have capital cost at least as low as its foreign competitors, so I believe
that establishes the necessity of meeting the foreign construction costs.
Mr. FoLSOM. Do you think, due to the fact that there v\'ill be a big
surplus of these ships on hand, that the price should take that into
consideration, and that the ships should be sold on that basis?
Mr. Patchin. Yes; it should be ti}ken into consideration, but I do
not think ships should be sacrificed just to get rid of them. Early pur-
chasers should be protected by a fall clause in the event ships are sold
at lower prices.
Mr. FoLSOM. Do you think there will be ships sold on that basis?
Mr. Patchin. Yes; I think there will be a substantial number of
ships sold. A great deal will depend on the outlook for world trade
as a whole.
The Chairman. Are there any more questions?
Mr. Patchin. Now, I have a statement relating to trade in general,
which I will proceed to read.
Dr. Eeed. a number of years ago, we were at a considerable dis-
advantage in the west coast trade of South America with the British
or north European operators.
For instance, as I recall, at one time, we had a freight rate of $24
per ton from New York on a certain commodity; the British had one
of $10 per ton. There were a number of other items — I don't remem-
ber them all offhand. To what degree has that been remedied?
Mr. Patchin, I believe that prior to the war they had been pretty .
well equalized.
Dr. Reed. And they will remain fairly well equalized ?
Mr. Patchin. I believe so. Some countries and lines may force
very low rates to force merchandise into a country. Prior to the war,
the Germans did that, not only by cutting the freight rates but by the
manipulation of foreign exchange. If we get into a post-war world
where exchange is controlled and manipulated to gain trade advantage -j
a publi'^hed freight rate may mean very little. I
Dr. Reed. Most of the conference rates, to some of the foreign
countries, at least, are not available to public inspection.
Mr. Patchin. I do not know about all of them. They are in this
country and in Great Britain and other countries generally. In most
countries the shipping public has access to the rates, because confer-
ences exist in nearly all trades and their tariffs are publislied.
Dr. Reed, There is a European and South Pacific and western
C07iference
Mr. Patchin. There are conferences on nearly all of the great trade
routes.
Dr. Reed. A west coast-San Francisco trade route is under the
coiiference.
Mr. Patchin. They are practically all in. It is pretty highly or-
ganized for the purpose of assuring stability of rates and regularity of
service.
1
POST-WAR ECONOMIC POLICY AND PLANNING 973
Even before we got into the war, the Grace Line decided that it
would maintain the pre-war rates just as long as ife- possibly could
until forced to put them up by increased expenses, and it did that. It
was necessary, however, immediately, for instance, to abolish the
abnormally low rate (m cement from Europe and some things of that
kind. Washington recognized the justice of some correction of that.
The Chairman. You have been an interesting witness, too interest-
ing for our own good. We have spent too much time asking you
questions, and we are running short of time.
If you don't mind, vs'e will insert this statement in the record and
call it your testimony.
(At this point the witness summarized the prepared statement which
follows :)
INIr. Patchin. If after the initial burst of peacetime trading sub-
sidies, the world slips back to trade of pre-war dimensions, there will
simply not be enough prosperity to go around. What is needed is for
all nations to join in the making of a larger world-trade loaf. If the
world can recover the confidence, buoyancy, and progressive growth
that it had in the last half of the nineteenth century, there should be
enough prosperity to go around, and it will fortify peace.
Reputable economists, in the Government and out, have estimated
that to carry the vastly increased public debt and provide reasonably
full employment, the United States must attain, after the war, a normal
total national income of $140,000,000,000 a year. This cannot be done in
an impoverished or trade-restricted world. We have learned that pur
national economy does not stop at the water's edge. The United States
cannot produce all the things it needs nor consume uil that it must
make in order that its citizens may have the satisfac ory employment
they desire. Hence a greatly increased foreign trade is essential to
domestic prosperity. Since our total national incon\e in 1937 was only
$65,000,000,000, the attainment of a level of $140,000,000,000 after the
war will require approximately a doubling of production of goods and
of services, with a corresponding expansion of overseas trade.
Manifestly this goal is based on a considerable degree of hope and
faith, but these are by no means intangible factors, for the war has
proved that we have the productive capacity and Dumbarton Oaks
has given reason to believe that the peace-loving nations will lift the
clammy hand of fear which arrested the progress of the world even
before World War I. Unless the United States and other nations can,
through liberal trade relations, burst the restrictions that created want
and unemployment in many lands, nobody will be happy, despite
their sacrifice of blood and treasure. And this will be true right here
in the United States, for it is vain to hope that the United States can
prosper in an impoverished world. The program of the United States
should be based on the determination, declaration, and adherence of
certain principles. To this end the following steps and principles are
suggested :
1. C0LLECTI^■E SECURITY
Without peace there can be no continued economic or financial sta-
bility. The success of some such program as that being discussed at
Dumbarton Oaks is, therefore, basic to financial reconstruction.
974 POST-WAR ECONOMIC POLICY AND PLANNING
2. INTEGRITY OF THE UNITED STATES DOLLAR
The dollar has become the world's basic currency and accepted stand-
ard of value. For monetary stability there must be some anchor pointy
and the dollar is this point at present. It is so recognized throughout
the Bretton Woods plan. There is nothing immutable about its
soundness, however, and its continued integrity can only be assured
by (a) the fixed value of the dollar in terms of gold; (b) a sound
National Budget; (c) elimination of waste and extravagance in Gov-
ernment expenditure.
Plans such as those of Bretton Woods calling for the expenditure
of vast amounts must be studied in the light of other demands upon
us and must carry sufficient assurance of accomplishing their objective
to justify the expenditure.
3. RECONSTRUCTION OF BRITISH ECONOMY
England today faces a critical economic and financial problem, and
Great Britain is the key to the economic recovery of Europe and the
British Empire. The Bretton Woods proposals would not adequately
buttress the British position, in view of the necessity for expenditure
for economic reconstruction and the huge sterling short-term balances.
Britain's problem turns on her ability to compete industrially with
the rest of the world.
4. SOUND INTERNAL POLICIES OF INDIVIDUAL COUNTRIES
Unless some degree of sound principle governs the political, eco-
nomic, and financial policies of the individual countries who may be-
come parties to the Bretton Woods plan, success of the plan is im-
possible. Individual countries which choose to conduct their internal
affairs in a reckless and unsound manner cannot be saved from the
inevitable consequences by the Bretton Woods plan or by any other.
We need assurance at least as to the proposed policies of the partici-
pating countries.
5. REDUCTION OF TRADE BARRIERS
The capacity of the countries of the world to maintain stability
will depend upon the flow of trade, and it must flow in two direc-
tions. This means that the excessive trade barriers of all kinds and
variety which impeded trade before World War II must be reduced.
The reciprocal trade agreements policy of the United States author-
ized by Congress and in effect since 1934 is the outstanding step
taken in this direction. This policy should be maintained in full
vigor without Gripping amendment such as requiring the agreements
each to be approved by Congress before taking effect.
6. MUTUAL CONSULTATION
One of the best features of the Bretton Woods proposals is the
provision for international consultation on financial problems. Such
consultation through central banks, the finance committee of the League
of Nations, and the Bank for International Settlements was helpful
before the war. It is essential to any post-war program, and it will
take place adequately only if there is a regular mechanism for it and
the will to consult.
POST-WAR ECONOMIC POLICY AND PLANNING 975
7. FREE FLOW OF CREDIT AND CAPITAL.
The proposed international bank would provide only a small part
<of the total flow of credit and capital between countries. Private
-enterprise must provide the major part of this flow. This calls for the
removal of such barriers as the Johnson Act and the uncertainties as
to the settlement of the war debts and lend-lease. It also calls for a
favoring atmosphere in which obligations are carried out and capital
investment abroad is made secure and attractive.
S. PROTECTION or AMERICAN INTERESTS
A principal method at our command for protecting the rights of
American citizens and enterprises abroad and for exerting an influence
toward sound economic practices lies in the power of making loans.
If we surrender this power to an international body we surrender a
considerable part of our influence. In the main we need a policy of
making loans directly so that we may know to wlioni we are lending,
to what use the proceeds are to be put, what are the assurances of re-
payment, and what are the economic policies to be followed, especially
with regard to providing equal opportunity for American trade with-
out discrimination.
The influence of the declaration of such principles by the United
States would be potent and persuasive upon other nations which look
to this country for sound and liberal economic leadership.
The vital question is whether world commerce shall be open or
-closed. Secretary of State Cordell Hull well expressed the American
philosophy in his speech of April 9 in which he said :
The heart of the matter lies in action which will stimulate and expand pro-
duction in industry and agriculture and free international commerce from ex-
cessive and unreasonable restrictions. These are the essential prerequisites to
maintaining and improving the standard of living in our own and in all coun-
tries. * * * Trade caimot develop unless excessive barriers in the form of
tariffs, preferences, quotas, exchange controls, monopolies and subsidies, and
others are reduced or eliminated.
There should be no back-sliding from this objective. There is a
natural cleavage between the views of the prosperous, buoyant na-
tions of the Western Hemisphere and some others not stricken by
war and the views of the majority of European nations, weakened
and discouraged and seeking desperately for guaranties of security
and stability. For them we can feel only sympathy and it is in our
own interest as well as theirs that we stand ready to cooperate in aid-
ing their recovery providing it is sought on sound lines contributing to
not only their, but the world's permanent recovery and the proper
kind of life which human ideals deserve.
It is doubtful if the desired goal can be achieved in a world perma-
nently divided into regional trading and currency areas in which pref-
erential tariffs and exchange controls seek the advanjtage of the
regional members to the disadvantage of those outside. This would
simply substitute economic warfare for the armed conflict which we
hope to abolish or reduce to negligible proportions in the future.
The policy of the United States is opposed to such methods although
some of our practices, actual or proposed, are in conflict with it, such
as heavy subsidies to make possible the export of commodities of
■which we may have, temporarily, surpluses. The Atlantic Charter
976 POST-WAR ECONOMIC POLICY AND PLANNING
and the mutual aid agreements relating to lend-lease policy are op-
posed to unreasonably restrictive trade practices although we now see
some advocates of managed trade and managed currency seeking to
reconcile them to the Charter which lifted the hopes of the world
when adopted. Also opposed to such methods is our own reciprocal
trade agreements policy under which 30 agreements have been made
with 26 countries, covering a large part of the earth's surface. The
reciprocal tariff concessions have been extended by the parties to those
agreements to all other countries with which they maintain most-
favored-nation relationships. This has created a network of mod-
erate and mutual tariff reduction reinforced by mutual pledges and
npncliscrimination. This, and particularly the nondiscrimination
pledges, constitutes a tangible factor of fairness and moderation right
in the midst of today's world economy.
It should not be chipped away or upset. It is difficult to see how
any nation, party to one of these agreements, could resort to highly
preferential and discriminatory policies without violating it and I
believe no important nation will lightly desert its obligation nor sacri-
fice its advantage under a reciprocal trade agreement which it now
has with the United States. In searching for solutions of pending
difficulties we should not forget the spade work that has been done
and the ground gained under the reciprocal trade agreements policy.
Although competitive tariff raising was formerly the chief vexation
of world trade another menace has arisen, namely, control of mone-
tary change. This was practiced in a clever and destructive form by
Germany which, in preparation for the war, adopted a bilateral trade
policy in which it paid for imports in Aski-marks, and in many other
kinds of marks good only for the purchase of German goods. In the
pre-war stress of trade some other nations copied this system to a
limited extent.
During the war many nations have resorted to exchange controls
justified by the necessities of their war economies. The United States
has imposed on dollar exchange only such restrictions as were neces-
sary to prevent funds frcim being used to enemy advantage. The
result is that the American dollar is today the strongest, tlie freest,
and the most sought after currency in the world.
True, foreigners holding some billions of dollar credits have been
unable to use them in the purchase of goods from the United States,
but this is because the goods cannot be spared from -the war effort
and not because we are managing dollar exchange as Britain and
other nations are managing their exchange. Now we hear from abroad
suggestions that countries less fortunate than we propose to aid their
recovery by a continuance of exchange control for an indefinite period.
For example, in Britain riiere is advocacy of the creation of a more
or less permanent "sterling area" on the ground that Britain will
emerge from the war weakened financially and commercially and
burdened by debt, denuded of gold and part of her foreign invest-
ment and must, therefore, increase her pre-war exports by 50 percent.
It is proposed that slic accomplisli this by creating a trade group in-
cluding the United Kingdom, the colonial empire, most of the over-
seas dominions who can be induced to join, plus foreign nations,
particularly in western Europe who can likewise be so persuaded
and that the members of this group or area shall trade perferentially
POST-WAR ECONOMIC POLICY AND PLANNING 977
with each otlier, sterling- exchange being used as the medium to this
end, Britain's power as the workl's hirgest single purchaser of pri-
mar}^ commodities' would be used as a trump card or lever to induce
the other members of the area preferentially to purchase British
goods. London would be the banker for the entire area which would
cover about 40 percent of the world's surface. This would be nothing
less than an economic league cutting clear across the world's trade
routes, comprising not merely the members of the British Empire
who prior to the war practiced a preferential trade practice among
themselves but certain foreign nations as well. The United States
would be on the outside, Russia would be on the outside, China would
be on the outside; Canada has indicated, probably because her trade
relr.tions are more import tint with tlie XTniled States than in Britain,
that she will have none of it.
The obvious comment would be, well then, let the other nations
form their own league or leagues, but that is not the way to achieve
a better world economy. As an escape from Britain's serious predica-
ment, this "sterling area," especially as advocated by the Economist,
of London, has the merit of ingenuity and of frankness in that its
authors suggest that it be set up with the benevolence of the United
States. This polite gesture justifies the comment that American frank-
ness might better take the form of advice that the plan will not work to
the long-range advantage of either Britain, the British Common-
wealth, or the world as a whole. But we should not confine ourselves
to s^nnpathy and advice, we will have to prove to Britain that our way
is the better, that a nation of her trading traditions and skill has more
to gain in an expanding world economy, that an expanding American
economy will otFer her a larger export market, and that American
capital is at her disposal for sound, constructive purposes.
This British project is mentioned because it reflects the yearning of
a certain element of British opinion for security rather than oppor-
tunity. With this we cannot fail to have sympathy. It is also im-
portant because British prestige is such that any policy seriously ad-
vocated in Britain is likely to have its imitators elsewhere. The
"sterling area" idea has not been officially adopted by the Government
as a peacetime policy although it is in effect as a wartime exj^edient,
but British opinion and poli-^y is in a considerable state of flux. The
lesser nations of Europe as they regain their freedom are feeling
around for policies that will meet their immediate needs and there
is danger that they may not see the woods for the trees. This makes it
highly important that the United States Government should give an
excellent lead and that it should set a high example of trade liberality.
This can best be done by adherence to American principles rather than
by diluting our traditional methods of government and of free enter-
prise business.
The final declaration of the Thirty-first National Foreign Trade
Convention presented to you early this week sets forth the credo
of American foreign traders, which 1 will not repeat further than
to say that they do not believe it is necessary to change our form
of government or way of doing business in order to trade with peoples
wlio practice a different philosophy of government and of business,
sucli as Russia or such as Britain and other European countries may
become.
978 POST-WAR ECONOMIC POLICY AND PLANNING
As a greater foreign trading nation, the United States must, of
course, have tools and facilities for an expanding commerce. First
among these is a larger merchant marine.
LARGER MERCHANT MARINE
You have already heard compelling reasons why our national de-
fense must have a large merchant marine, and you know that cost
in time, money, and blood which has been imposed on us by not
having had adequate shipping and shipbuilding when the war came.
But you must wonder whether, as you have often been told in pre-
war years, the benefits from maintaining ourselves in strength on
the seas may not be bought at a high price economically. For example,
we may spend on a large merchant fleet perhaps $40,000,000 per year
in subsidies due to high xVmerican wage scales, treating the sum as
insurance that we will have sufficient naval auxiliaries and trained
seamen ready on the instant in case of emergency, and knowing that
the dollar cost of maintaining this fleet is far less than the cost of
building one after war begins, as two emergencies have shown. We
also know that the tax dollars so spent pay American-scale wages
to American workmen and find their way as taxes back to the Gov-
ernment, so that the effect is similar to that of expenditures on the
Navy — the only difference being that our civilian branch of the Navy,
that is, the merchant marine — earns most of its money itself and needs
little in taxes and promotes our commerce in so doing.
FOREIGN EXCHANGE FALLACY
But you may have in mind that old bogey often brought out in
pre-war years to scare you gentlemen and American export groups
away from supporting our ships. That bogey is the argument that
foreign countries pay in part for our exports with dollars earned by
carrying American goods, and therefore if we have a large merchant
marine Ave will lose a substantial part of our export trade, wliile \
foreign nations will be thrown into want and political instability. ;
We have analj'zed this argument and find it largely false.
Department of Commerce statistics show that the dollar-exchange i
earnings of foreign countries from their steamship lines in the 20
years from World War I to World War II averaged less than
$40,000,000 per year and paid for less than 1 percent of our exports
during the period. Calculations made by us also show that even
if we carried 60 percent of our exports, imports, and passenger traffic
in American ships instead of about half this figure, as was actually
done, the accounts would have still been somewhat in favor of the
foreign interests. We would still have spent more abroad than would
foreign lines here, due in part to such items as higher per capita spend-
ing by American seamen and high foreign port dues as compared with
ours, and especially to the fact that trans-Atlantic and trans-Pacific
passenger traffic is essentially American in origin so that dollars, rather
than pounds, francs, or yen are taken in as revenue both ways. It
follows that when talk about the distressing effects on other nations
of maintaining a large American merchant marine is heard this is
either special pleading, deals with economic minutiae, or is simply
uninformed.
POST-WAR ECONOMIC POLICY AND PLANNING 979
History has demonstrated American shipping was inadequate before
World War I and before World War II for either our commerce or
defense.
Between World War I and World War II American shipping lines
were firmly established in regular and frequent service between the
three coasts of the United States and all foreign markets but less than
30 percent of our foreign commerce was being carried in American
ships. Admiral King and General Marshall have officially testified
that the impact of our armed forces when we got into the war was
greatly delayed by the lack of ships and we now see how powerful
it has become when the Herculean shipbuilding job by Admirals Land
and Vickery has given us plenty of ships for ourselves and our allies.
There is great historical significance in the American shipbuilding
and ship-operating record in this war. First the United States is the
only place were ships, both combat and merchant, could have been built
swiftly enough to replace those sunk by submarines. Britain lacked
the necessary shipways, material and manpower to build such an
armada. Neither had we at the outset but we were able to build the
waj'^s, channel our productive resources into them and to train the
merchant personnel which today is giving us competent shipmasters
often younger than 25 years. This simply meant that in World War
II — and it was true of World War I also — the center of gravity of mari-
time power shifted to the United States. We have become a great
maritime power without choice and it is no longer a question of our
desire — we simply have to continue in that role unless we want to let
the fleet decay and build another if another war comes. Meanwhile,
it is to be hoped that the splendid fleet created will be judiciously ad-
justed to a useful peacetime life and will not be traded away at the
peace table or anywhere else.
The Chairman. The article you mentioned, written by you, will ap-
pear in the record at this point.
(The article referred to is as follows :)
More Foreign Trade — More Jobs !
(By Robert H. Patchin, vice president W. R. Grace & Co. and Grace Line)
The job-producing possibilities of a greater foreign trade and a larger niercliant
marine are being somewhat overlooked. This is probably due to the erroneous
notion that the foreign trade of the United States is but a small part of the total
business of the country. By lumping the value of our exports and imports and
comparing it with the national total of goods and services it has been iwssible
to show that foreign trade accounted for only about 10 percent of the whole.
This however, is grossly misleading because many large industries vital to the
welfare of the Nation export from 10 to .50 percent of their production. For
example 14 percent of automobile production normally is sold abroad, 17 iwrcent
of agricultural implements and machinery, 28 percent of tractors, 36 percent
of power-driven metal-working machinery, 49 percent of Imseed oil. 18 percent
of printing and bookbinding machinery, 29 percent of tobacco leaf. 30 peirent of
sulfur and 31 percent of dried fruits. Prior to the depression of the thirties W
percent of the cotton crop was exported ; in 1938, 30 percent.
IN TERMS OF EMPIX)YMENT
This is of interest not only to exporters but to workers everywhere. It means,
for example, that automobile exports accounted for 1% months of the total an-
nual employment in that industry. Likewise for 2 months' employment m the
field of agricultural implements and machinery ; 31/3 months m the tractor indus-
try and 4% months in the power-driven machinery industry; 1% months 111 tiie
printing and bookbinding industry. These examples are typical of many
980 POST-WAR ECONOMIC POLICY AND PLANNING
orders. Anj-one can deduce from the large volume of agricultural products nor-
mally exported the extent to which agricultural labor as well as industrial is
dependent upon foreign markets.
Everyone knows that, in order to carry the national debt and provide a rea-
sonably high level of post-war employment, the total national economy must be
expanded. Back in 1938 the national income was $65,000,000,000. This year
it will probably exceed $140,000,000,000. To keep it well o^•er $100,000,000,000
will require a permanent step up from pre-war levels of agricultural, mineral,
and industrial production, and of the services that make up our economic exist-
ence.
The Committee for Economic Development estimates that a total of 55,000,000
jobs is necessary to a wholesome level of post-war production and employment.
It is pretty well established by experience that domestic prosperity cannot be
maintained in an impoverished world. Nor can it be done without greater for-
eign trade both export and import. The relation thereto of a greater active
merchant fleet is obvious. And in World War II a new generation has been bred
to the sea. This human national asset should be fostered. .;
UNITED STATES NOT SELF-SUFFICIENT
The United States cannot produce all the things it needs. Nor can it consume
all the things it must grow and make in order to provide a high level of em-
ployment. Exijorts and imports are bound, in the opinion of experts, to assume
a larger importance to the national welfare in terms of employment — jobs.
But the jobs are not merely those in field or factory. Every item of export
and import trade requires an infinite variety of labor and service before, during,
and after the article takes form. For tliis reason no satisfactory enumeration is
possible of the amount of employment in man-hours or the number of jobs for
which our foreign trade is responsible. Nor do trade statistics provide the key.
The Department of Commerce lists agricultural exports as such, but this is not
and cannot be complete. Many agricultural products enter into manufactured
exports but are not credited to agriculture in the export statistics. But the
skill and labor of the farmer are here just as well utilizjxl as in the case of wheat
shipped abroad in the grain or as flour. For that matter vastly more corn is
exported in the form of lard and pork than in grain.
FAB-REACHING EFFECTS
American exports, valued in 1939 at $3,177,176,000, create employment from
the time a hoe is struck in the ground, or a ton of iron ore is taken from the
earth, until loaded aboard ship and delivered in a foreign market. In between
are farm hands, railway and truck workers, salesmen and buyers, bankers, in-
surance men, exporters, clerks, stenographers, telephone operators, longshore-
men, steamship officers and seamen, public officials — everyone, in fact, who has a
part in commercial life is to some degree dependent on foreign trade. And this
is true of imports as well as exports. For an import article, from the time it is
landed on the dock, creates labor as it moves on through successive stages of
transportation, processing, and sale to ultimate consumption. From 20 to 25
percent of all factory raw materials normally used in this country are imported
and enter into the production of finished manufactures and foodstuffs.
The Department of Commerce in a study of post-war foreign trade calculates
that exports mav reach a total value of $7,000,000,000 and imports a value of
$6,300,000,000 iii 1948, as compared with approximately $8,100,000,000 and
$2,000,000,000, respectively, in 1938.
Those planning jobs for returning soldiers and sailors and workens released
from war industry should realize that foreign trade is vital to domestic prosperity.
A growing foreign trade may well go far to save the country from post-war
depression and strengthen its part in world recovery.
The Chairman. Is there anything else?
Mr, Patctttx. I am snbmittin.fr for the committee a Factual Anal-
ysis Refutes Merchant Marine Bogey, which is a repi'int from the
Grace Log.
POST-WAR ECONOMIC POLICY AND PLANNING 981
[Reprinted from the Grace Log, January, February, March 1944]
Factual Analysis Refutes Merchant Marine Bogey
In considering the post-war jwsition of American shipping a nnmber of writers
have touched upon the fact that foreign countries pay in part for exports from
this country with dollars earned by carrying American goods. They then draw
the conclusion that the United States cannot afford to maintain a large merchanr
marine since this would involve a disastrous loss in exports. This persistent
appeal to the alleged self-interest of the United States has been examined from
the standpdint of past performance and future possibilities and found to be mis-
leading. The following analysis of transportation balances relates to the fore-
going point alone.
INFLUENCE ON EXPORTS
First, from statistics issued by the Department of Commerce in the United
States in the World Economy (Economic Series No. 23), it appears that net
foreign earnings from transportation did not cover, on the average, in the
period between ^"\'o^ld Wars I and II, more than 1 percent of the value of
our exports.
Second, it can be shown that if there should be a reduction in the relative
volume of our exports brought about by smaller earnings of foreign shipping
this would be more than counterbalanced by increased domestic employment
due to the existence of a larger American merchant fleet and the stimulation
which improved American shipping lines would give to export trade.
Third, the post-war possibilities for shipping now appear so favorable that a
large proportion of our war-built merchant marine can probably be placed in
foreign trade without actually reducing the favorable balance of payments for
foreign nations below the pre-war average. In a word, the actual balance of
shipping payments means little to our trade, and in any event the balance is
not likely to differ post-war substantially from that previously experienced.
DEFINITION OF "TRANSPORTATION BALANCE"
Before going into actual transportation balance of the United States, let iis
define the term. This has nothing directly to do with gross earnings of Amer-
ican or foreign shipping companies but only those earnings which affect the
foreign exchange balances of the nations concerned. Bearing this matter of re-
ceipts of various currencies in mind, net transportation balance is the diffei'ence
between the shipping and the related payjnents which we make to foreigners
and similar payments which they make to us.
In computing this balance, the Department of Commerce includes as "Re-
ceipts," freights on exports carried in United States vessels, expenses of foreign
vessels in United States ports, fares paid by foreigners traveling on American
ships, and certain receipts in connection with international railroad operations.
"Payments" comprise the reverse of these items, with ocean freight including
actual payments on American imports carried in foreign .ships. Exports carried
on foreign vessels and imports carried on American vessels do not affect the
balance of payments, and hence are ignored by the Government authorities.
The difference between "Receipts" and "Payments" is the net transportation
balance.
A SIGNIFICANT BECOED
In the 20 years from 1919 through 1938 American exports averaged $4,052,-
000,000 per annum. In the same period foreign countries had a net favorable
transportation balance with the United States averaging only $44,000,000 per
aniuim and actually considerably less than this if rail traffic were omitted. The
net transixn'tation balance against us was $36,000,000 in 1938 when about one-
fourth of American foreign trade was carried in American fhips, according to
the balance of payments report of the Department of Commerce. In 1937 — a
year of high world freight rates — the net balance was $129,4(M),000 in favor of
foreign vessels. And 1937 was the most prosi>erous year for world shipping
since 1929. If it can be shown that a change in the proportion of our trade
carried by American vessels in that year would not have had an unfavorable
effect on our economy, then it is believed that the balance of payments argu-
ment can be shown to be fallacious.
The accompanying table shows the shipping accounts for 1937 as reported by
the Department of Commerce ("The United States in the World Economy,"
982
POST-WAR ECONOMIC POLICY AND PLANNING
p. 210) when our ships took about 20 percent of our erports, 32 percent of our
imports, and about 23 percent of our passengers, together with a computation
of what the account would have been if American ships had carried 60 percent
of our imports and exports and GO percent of our passengers. (This figure is-
taken only as an example for the puri)oses of a theoretical computation. Other
great maritime nations carry by far the greater part of their own trade and
much world trade besides. American ships bore more than 90 percent of our
trade more than a century ago. )
Actual and theoretical transportation balance
[In millions of dollars]
1937 actual
1937 theo-
retical [60
percent]
Receipts:
1. Freight received on ocean traffic:
(n) U. S. Exports
(6) Cargo between foreign ports
2. Fares collected from foreign nationals
3. Expenses of foreign vessels in United States ports
4. Rail traffic receipts. -
Total -
Payments:
1. Freight paid foreigners on United States imports.
2. Passenger fares collected from Americans
3. Expenses of American vessels in foreign ports
4. Rail payments ,
Total.-
Net balance of transportation payments --.
65.2
3.7
9.3
142.2
15.7
165
4
25
90
l(i
236.1
300
186.4
96.7
45.6
36.8
107
50
120
37
365.5
323
-129.4
It can be seen that the carriage by American ships of even 60 percent of our
foreign trade in 1937 would have changed the balance of payments by a total of
only $106,000,000. This would assertedly have reduced our exports by this amount,
or about 3.2 percent. Although this is by no means certain let us assume that it
did so.
In 1837 the total output of goods and services in the United States was?
$87,700,000,000 and this was produced by a labor force of 45,000,000 making an
average production of $1,971 per ijerson. During this year American shipping in
foreign trade aggregated 5,700,000 dead-weight tons. Our ships took only 20 per-
cent of American exports and 32 percent of American imports. The loss of
$106,000,000 in American exports would, at the average of $1,971 per person
found as the average productivity in 1937, have involved in theory the throwing
of 54,000 persons out of work.
THE EMPLOYMENT FACTOR
But if American shipping had carried 60 percent of the traffic in 1937 it would
have had to have 13,500,000 dead-weight tons in operation instead of the actual
5,700,000. This would have meant that at least 58,000 more officers and men
would have been needed and this would offset the 54,000 theoretically unemployed
which were previously calculated. But to maintain an additional 7,800,000 tons
of American shipping would involve the building of these ships, and at an average
20-year life, this would mean the building of more than 385,000 dead-weight ton?:
per year. To build this about 12,000 more workmen would have been employed
in shipyards and an equal number in steel mills and industries indirectly con-
tributing to shipbuilding. The American laid-up fleet in 1937 was adequate
neither in number nor quality to provide the additional vessels above-mentioned.
Several thousand more men would have been needed in repair yards since
American ships would have been repaired here while foreign vessels are repaired
abroad. Additional thousands would have been required in industries furnishing:
vessel supplies. At a reasonable minimum a loss of 54,000 persons in export em-
ployment might have involved 86,000 new jobs in shipping and related industries.
Thus, even if the balance-of-payments argument were true, there would be no-
employment loss to the United States through the building up of the American!
POST-WAR ECONOMIC POLICY AND PLANNING 983
merchant marine. On the other hand, experience having shown that the improve-
ment of American shipping services in numbers, speed, and frequency stimulates
conuuerce, it is perfectly sound to count on increased employment in the growing
and making of more export goods.
THE NErr RESULT
It is obvious that in a year when shipping companies did not have the excep-
tional earnings of 1937, the net shift in the balance of shipping payments, and
hence the net theoi-etical reduction in our exports, would be less, while employment
in shipping would not decrease in as great a proportion since shipping varies
less th;in the volume of cargo handled and this varies less than the level of freight
charges. It follows that employment in the United States would have been
somewhat more favorable if we had kept a large merchant marine in pre-war
years, rather than the reverse.
If the matter is looked at from a dollar basis rather than an employment one,
much the same conclusions follow, for by the terms of the balance-of-paymeuts
argument the sums not earned by foreigners, and hence not spent for our exports,
would be earned by Americans and spent for shipbuilding, seamen's wages, repair
(■f ships, vessel supplies, fuel, taxes, etc., to the same amount as the dollar value
of exports supposedly lost.
SHIPPING PAYMENTS ARE SMALL ITEM
In actual fact, it is difficult, to date, to find any connection between fluctua-
tions in foreign earnings of American dollars through shipping services and
thictuations in our exports. Our exports seem to depend more upon general
foreign demand than upon any nice balance in the tiny item of shipping pay-
ments. Very respectable economic theory would also tend to show that if
American shipping earned more in a particular year through the carriage of
foreign trade, there would tend to be a slight increase in American prices,
wages, and employment and that this would result in an increase in the volume
of goods imported.
An interesting discussion of this point can be found in the Quarterly Journal
of Economics for February 1943, page 216, where the guess is hazarded that
the increase in imports in a case of this kind might equal half of the primary
shift in the balance of payments. If this is correct, then any change in the
balance brought about by more American shipping would be comi)ensated for
to the extent of 50 percent by increased imports, which would then allow similar
increased exp*u-ts. This would mean that only half the people theoretically
unemployed through loss of exports would actually be unemployed in this manner
and that the balance of employment would, therefore, be still more in favor
of maintaining a large merchant marine.
If American vessels earn more foreign currency by carrying more cargo and
passengers, they gain invisible exports and acquire more foreign exchange,
certainly not a disadvantage.
[Reprinted from the Grace Log, January, February, March 1944]
Shipping and the National Defense
TIip current active discussion of the future of the American merchant marine
has not yet come down to details. The exchange of ideas remains quite general
and for the most part has been confined to mere assertions of opposing points
of view, without going very deeply into the reasons why a merchant marine
is or is not desirable for this country. There are given below certain considera-
tions which should be in our minds when we begin a serious discussion of post-war
shipping.
Th'^ primary functions of a merchant marine are to meet promptly and ade-
quately the needs of commerce and defense, and its desirability to a" nation de-
pends upon the relative strength of these two needs, the possibility of using
the .ships of other nations, the direct and indirect costs of maintaining adequate
national tonnage and the economic and military benefits to be derived there-
from. Manifestly, the.se factors must have different weight with different coun-
tries, for a small nation must in general depend upon larger nations for defense,
and may also be unable to afford independent shipping services to carry its
overseas trade. The United States is not in this category.
984 POST-WAR ECONOMIC POLICY AND PLANNING
The United States is a major world power, liaving only one-fifteentli of the
area and population of the earth hut nearly one-half of its wealth and manu-
facturing facilities, the largest export trade and second largest import trade
and a general standard of living that is the envy of other lands. It is fortunate
in its neighhors and has not needed to maintahi armies against them and, in
fact, ranked in 1038 well helow many Balkan nations in army strength. It was
in 11)38 the major "have" Nation since it had put its resources into the produc-
tion of wealth i a her than weapons and had depended upon the Atlantic and
Pacific Oceans, its Navy and its friendship with the British Empire and France,
to see that those who preferred to loot rather than build were kept at a safe
distance.
SHIPPING A DILVWBRIDGE
It considered the ocean a moat preventing access by potential enemies but
failed to make sure that shipping — the drawbridge across the moat — was hinged
on our side, and could be let down or pulled up at our pleasure. On the west, the
drawbridge belonged to Japan, and on the east to Great Britain, Germany, Nor-
way, Italy, and the other European maritime nations. We had in name a fairly
large merchant marine, due to inclusion of huge tonnages of old coastal vessels.
Great Lakes ships and laid-up craft remaining from the last World War, but
in world overseas trade our ships were outnumbered about 12 to 1 and our pro-
portion was decreasing year by year. Our naval position was better, since we
had a fleet only slightly smaller than that of Great Britain and amounting to
almost 25 percent of the world total, but in essence our future was dependent
upon the active assistance or at least benevolent neutrality of the British mer-
chant and naval fleets. In like manner Great Britain depended upon the French
Army and the armies of France's European allies.
This dependence on others was based on two considerations: First, that main-
tenance of adequate armies by Great Britain, and of an adequate merchant
marine and armies by us, was expen.sive in time of peace; second, that time
would be available in ease of war to build up to the necessary level. But
others were also doing their own calculating, and the Axis noted that while in
commerce time may be money, in war money is not a substitute for time.
EFFECT OF DELAYED STAET
There was not time to go to Poland's aid nor time to counter the German
coup in Norway. The time lag between German construction of planes and
tanks and counterconstruction by the Allies, was such that the Axis force —
already in being — struck dovi^n the Anglo-French armies before the greater re-
sources of the Allies could right the balance. There was a period of many
months when it looked as though Great Britain would go the way of France
and leave the United States to face alone a probable attack by enemies many
times stronger in armies, air forces, and merchant ships and somewhat su-
perior to us in naval power. If Great Britain had been forced to surrender
and deliver to the Axis even a part of the British Navy and merchant marine,
the Axis would have been able to invade this hemisphere at will and quite
possibly such an invasion could have succeeded. In fact, it looked as though
even a flight of the British Navy to Canada would do no more than post-
pone matters, for due to our peacetime neglect the shipyards of Europe and
Japan were so far in excess of our own in capacity that they could outbuild us
in a year or two and then attack before we could expand our facilities and catch
up with them. At the least, the Axis could hope to hold the Old World and
perhaps much of South America indefinitely from mere lack of ships in our
hands to transport our armies before the enemy dug in.
When the air campaign against Great Britain failed the submarine campaign
began and it was Axis calculation that the small merchant marine of the United
States, and our smaller shipbuilding capacity, would render it impossible for
US to prevent eventual starvation of the British and the occupation by the Axis
of at least the British territories in Africa and the East.
PRICE OF PEACETIME SHIPPING ECONOMIES
That campaign came uncomfortably close to succeeding. To defeat it and to
move our armies abroad the United States has been building 50,000,000 dead-
weight tons of new merchant ships at a total cost of over $12,000,000,000. Add-
ing in the many more billions which have had to be spent by our Navy and
POST-WAR ECONOMIC POLICY AND PLANNING 985
Army, and in the future will be spent, td make up for time and opportunity
lost by inadequate overseas transportation, it becomes evident that we are pay-
ing an excessive price for our i^eacetime shipping economies.
Putting aside the nearly fatal loss in time, caused by not having adeqxiate
shipping In being or adequate shipbuilding facilities already built, let us
consider for a moment this matter of direct money loss caused by forced emer-
gency construction. As everyone knows, the cost of constructing merchant
vessels is niu<-h higher under emergency war conditions than it is in time of
peace, ard the standardized ships being tui-ned out for war i^urposes are not
of as high quality as those which we could luive prevLou.sly constructed had we
been more foresighted. We thus lose both tiriie and money through our mistaken
"econimy" and our reliance on the ' m(u-e econ.omical" transportation furnished
by others. It would be just as sound by abstract economics and as foolish by
considerations of Cjommon prudence to hire Japanese at a fow cents a day to man
our battleships as it has proven to be to depend upon tlie "more economical"
merchant tleets of others in a world where wars may come again and where
ships not in ,our hands may be used against us.
COMPARISON OF COSTS
But, returning to direct costs, we can calculate that if the ships now being
built had been constructed in time of peace they would have cost not over six to
eight billion dollars. Of course we could not have .operated any such fleet in
time of peace and therefore the direct saving of four to six billion dollars indi-
cated is hardly realistic. We could, however, easily have operated an additional
10.(HJ0,t)tK) tons of merchant shipping anil the construction .saving on this would
have been of the order of $1,000,000,000. Further large sums would have been
saved on emergency shipyard construction, and we would have had much less
of a strain in the last 2 years on our labor supply and steel, so that munitions
would have been produced faster and at lower cost.
To operate the additional 10,000,000 tons in time of peace would have cost us
perhaps as much as $40,000,0 :0 per annum in operating subsidies, but over the
whole 20-year life of a shii> this would not equal the total amount which we now
waste in additional construction costs, and we would have had the tonnage
availalile for instant use, manned by trained sailors, and thus would have saved
months of time in bringing this war to an end. Every day the war lasts costs
us ,$2.")0,000,0O0, and the cost in soldiers' lives of our initial maritime weakness
can only be speculated upon.
ATTACK MIGHT HAVE BEEN AVOIDED
Also a larg«n" merchant marine under American control in time of peace would
have implied a smaller merchant marine under Axis control, for in the lo years
preceding lltoS it was our merchant marine which decreased year by year and It
was predomiiumtly Axis shipping which moved into the gap which our tonnage left.
A smaller Axis merchant marine would have greatly weakened the war potential
of these aggressor nations, and this should be borne in mind in assessing the
cost to us of maintaining ships in future. If only a fair part ,of the postulated
10,001 1,000 tons of American shipping had been operated in the Pacific, the great
commercia} fleet developed by Japan largely t>ut of United States trade profits
would have b^'en relatively smaller. Japan would probably never have struck
at Pearl Harbor had the disparity, in merchant fleets not been so strongly in her
favor.
This somewhat lengthy review of the v^'ar is given solely to bring out points
which have been much neglected in current discussion of post-war shipping plans.
It is true that the United States must deiiend in part for its future security on
cooperation with the United Kingdom and with the other maritime nations of
western Euroiie, but it decidedly does not follow that it is to our interest — or
fundamentally to world interest — to see the preponderance of naval or maritime
strength in Briti.^h or continental European hands. With development of rocket
planes and other devices now merely hinted at. Great Britain is no longer a
secure base and it might be overrun in any future war as easily as Norway,
Netherlands, and France were in this one, or as Belgium was in the war preceding.
In such a case, the only hope for the British would rest in having power instantly
available in the hands of the United States to control the sea and thus be able
to move its forces to the rescue.
986 POST-WAR ECONOMIC POLICY AND PLANNING
A TWO-WAE LESSON
The history of two wars shows that the democratic world no longer can rely
primarily upon relatively small countries adjacent to potential aggressors as
sources of shipping service or naval power in time of war. Also, even in the
First World War we found that British shipping and shipbuilding were not
adequate to serve the commerce and war effort of the Allies, and that a very
large and expensive emergency shiplmilding program had to be undertaken by
this country. In an even more serious war we find the British and other foreign
merchant marines and shipbuilding capacity even less adequate, due not to any
unwillingness to build or operate, but to the fact that Great Britain, Netherlands,
Norway, etc., simply are not big enough in population or industry to be any
longer the primary workshop in any modern war, and with the growth of air
power, are exposed to bombing and to 'blitz"' capture by European enemies.
In spite of considerable efforts, the British Empire has been unal)le in this
war to do more than replace its naval losses. In merchant shipbuilding it has
fallen considerably short of such replacement. For obvious reasons the other
allies, of course, can build little in this war. This means that the United States
has had to carry by far the greater part of the burden of needed merchant and
naval construction and operation, and it has been admitted by British represent-
atives that without our construction, the war miist have been lost before now.
Fortunate indeed for this country and the United Nations that, due to the
broadly conceived Merchant Marine Act of 1936, the United States did have a
"pattern," its shipbuilders were launching fine modern liners and freighters and
these were being ably operated by the American flag lines. It was this vital
nucleus of experienced management and seagoing personnel that enabled the lines
to accept and so creditably discharge the great task so suddenly thrust upon
them by the war. For it is a fact, not even yet generally known, that our
enormous overseas merchant marine today is being operated for the War Shipping
Administration by the private steamship companies.
INFLUENCE] IN TIME OF WAR
If we had previously maintained as a national policy a larger active mei'chant
marine and a larger shipbuilding industry, the war might have been won by this
time, since it has been the shipping shortage which has until recently prevented
full exertion of our strength and allowed our enemies to fortify their conquests
so as to make recapture costly in dollars, time, and lives. Of course, as we have
pointed out, we could not have maintained, in time of peace, all of the shipping
and shipbuilding required to win this war, nor could any other nation maintain
this, but we could have gotten off to a running start rather than a walking one,
and have saved many months in attaining maximum biiilding output and in
training crews. Even a month cut off the length of the war would save the
Treasury nearly $8,000,000,000.
The primary consideration for the United States is the need for a large
merchant fleet in time of emergency. The weak geographic location, relatively
small population, and dispersed power of our potential democratic allies in any
future war is such that we cannot afford to rely upon them for our defense
upon the sea. In any future war the tonnage and shipbuilding facilities of our
present Allies might easily be seized by an aggressor, and hence considerations
of national policy should dictate that the United States maintain in the future,
a Navy, an Air Force, and a merchant marine fully adequate in themselves
to maintain us successfully in any emergency which might arise.
EFFECT ON FOP.EIGN SHIPPING
By maintaining a large share of world shipping and shipbuilding in the
future we will, of course, decrease the potential shipping and shipbuilding of
other countries. Had this been done in previous years both our present allies
and our present enemies would have had less tonnage but on net balance our
allies would have benefited because a larger proportion of world tonnage would
have been in United Nations hands. There is an apparent conflict in this matter
between the short-term interests of the British, Norwegians, Netherlanders, and
other Allies, and their long-term interests. A smaller American merchant
marine in time of peace means more dollars to foreign shipping interests and
yet in time of war it may mean ruin to our allies and ourselves not to have
the United States strong at sea. This dilemma has beer frankly faced by Sir
Arthur Salter, head of the British Shipping Mission, who recently reminded
POST-WAR ECONOMIC POLICY AND PLANNING 987
Parliament that the American merchant marine sliould not be looked upon as
something which threatened British interests but as an instrument which had
three times in this war saved the British Empire from destruction.
CHEAPER TO MAINTAIN THAN TO BUILD
We believe that if our own statesmen and our foreign friends bear in mind
that this world is not yet perfect and that some other Hitler may arise in the
future, they will scarcely desire to limit the American merchant marine. Unless
we maintain powerful naval forces, and a merchant marine large enough to
make such forces effective, any major war which may be fought in the future
may either be fought on our own soil or else may see the destruction, one by one,
of our allies and friends elsewhere, for lack of ability on our part to roacli' them
in time. A larger American merchant marine is necessary as national insurance
and what we will have to pay to keep the policy effective is only an insig-
nificant fraction of the sums which our neglect of American shipping has cost
us twice in 2-5 years.
This war has shown that at sea in any future conflict we must depend upon
ourselves rather than upon allies ; that maintaining a large merchant marine
in time of peace is cheaper than improvising one in a national emergency,
and that the high cost of building and operating American tonnage as com-
pared with foreign tonnage is something which we will simply have to endure in
the same fashion that we endure the cost of maintaining a preponderant Air
Force and Navy.
NEED TO INCREASE WORLD TRADE
We realize that to maintain a large American merchant marine will involve
expense to the American Government since we pay our sailors and shipyard
workers much more than similar workers get abroad. We also realize that we
must operate our ships in order to have them effective for einergency use, since
although it is possible to lay up tonnage it is not possible to lay up skilled sailors.
This means that we must carry a larger amount of world trade than in 1939 and,
unless means can be found for increasing the total of world trade — which is
the statesmanlike thing to do — that this will mean fewer dollars earned by for-
eign shipping companies.
A calculation prepared by the Department of Commerce shows that foreign
countries had average net earnings of only some $40,000,000 per annum from
the United States through shipping services in prewar years. This is mentioned
here to show the insignificant nature of this economic factor as compared with
the costs incurred in national defense. A slight increase in American tourist
travel abroad or a decrease in our tariffs would easily make up for any loss ex-
perienced by foreign countries through our maintenance in future of a mer-
chant marine adequate for our defense and the general defense of the democratic
world.
The Chairman. That will receive the attention of the committee,
and we thank you for 3^our cooperation in appearing before the com-
mittee and the "information you have given us.
The next witness is Calvin B. Hoover, dean of the graduate school
of arts and sciences at Duke University.
STATEMENT OF CALVIN B. HOOVER, DEAN, GRADUATE SCHOOL,
DUKE UNIVERSITY
The Chairman. You are familiar, I presume, with the duties of
this subcommittee, Mr. Hoover?
Mr. HooMi:R. Keasonably so. Well, I don't know whether one could
say reasonablv so ; let us say a little.
The Chairman. We would like to have any information you can
give us which we can recommend to Congress to determine; first, if
we should have any increase in our foreign trade and .shipping; second,
how can we bnng'it about, if that is desirable. That is what we are
trying to find the answer to.
99579 — 45 — pt. 4 25
988 POST-WAR ECONOMIC POLICY AND PLANNING
Have you a statement you would like to read ?
Mr. Hoover. Yes ; I do ; if I may.
The Chairman. We would be glad to have you do so.
Mr. Hoover. Before I do so, perhaps I should say this, because it
seems to me rather important that one's connections should be made
quite clear. The statement, a least a part of which I would like to
read, I worked up in connection with a report for the Committee for
Economic Development, but this statement does not at all represent
the Committee for Economic Development. What I propose to pre-
sent is a summary of my major recommendations and conclusions in
the report to that committee. This report has not been accepted by
the Committee for Economic Development as yet. It may not be
approved at all. The arrangement is that the committee, having hired
me — and I may say I have received substantial compensation from the
Committee for Economic Development in connection with this sub-
ject— is obligated to publish it unless in the judgment of a committee
of economists it does not prove to be of proper scholarly quality to
merit publication. That may happen. If it is published, it may not
be published quite in this form.
It seems to me essential that I say this. This is merely my personal
opinion, but my personal opinion as developed in the course of this
study for the C. E. D. Likewise, this statement does not represent in
any way whatever the university for which I work.
The Chairman. This is simply your own personal opinion ?
Mr. Hoover. That is right. If the committee would be good enough
to interrupt me at any time they like, or if I am too long-winded, if you
will be good enough to stop me, I will just stop at any time.
I will begin by reading what I call the case for our participation in
an international program for expanding world trade. I shall not read
all of that statement, however, because I think the case for expanding
world trade is pretty well known.
As the present conflict draws to a close the nations of the world are
confronted by the necessity for developing a policy and program for
reviving world trade. It could not be hoped that the almost wholly
unregulated type of international trade of the days before 1914, feasible
in a world in which foreign trade was almost exclusively between
individuals or private corporations and in which governments ab-
stained from dominating national economic life, could be now revived.
I make a considerable point of that. Some of our bankers are cur-
rently asking, "Why don't we just get rid of the restrictions on
international trade and be done with it, and get back to the situation
that existed prior to 1914?" We are, however, in a very different
world at the present time, a world in which the national form oi
economic organization varies from that in Soviet Russia, in which
substantially all trade and industry is carried on by the Government,
to countries like our own, in which private enterprise is an outstanding
characteristic of the economy. In between is the type of cartelized
organizati(m of industry which seems to be developing in Great Britain,
for example, and the type of planned economy, such as General de
Gaulle has proclaimed in France, which has l3een accompanied, for
example, by the Government taking over the coal mines of France.
In a world of that sort it is quite unreasonable to suppose we could
return to the free trade of 1914.
POST-WAR ECONOMIC POLICY AND PLANNING 989
The Chairman. What is your program for handling that ?
Mr. Hoover. I try to say something about that here. "Wliatever I
do say in the time available will obviously be just scratching thei
.surface.
The chairman has asked me how I would deal with this sort of
situation, and I shall try to say something on that, but before I do,
I should point out to begin with that I do not masquerade as an expert
in international trade. An expert in international trade, I think, is
someone who can tell you what the duty on sesame seed was in the
Fordney-McCumber Act, or tell you what the items in the trade between
the islands of Timor and New Zealand were in some given year. I do
not know these things, and there is a whole list of other things I don't
knoAv also. I have no doubt you realize this but I just wanted to
make the point.
An opportunity does exist, hovrever, for the replacement of rigorous,
detailed, and comprehensive governmental control of foreign trade
bj' individual nations by a policy of international cooperation in posi-
tive measures for the expansion of world trade.
In other words, as I say, it is not merely a matter of removal of
restrictions. We have to do some rather positive things, substituting
in part international regulation and cooperation for foreign-exchange
control and similar measures now enforced by individual nations under
the pressure of immediate national necessity.
These systems of rigid national controls of foreign trade were often
operated from the viewpoint of the shortest run national self-interest.
Thej^ took little account of damage which might be inflicted upon the
domestic economy of any other nation. They often resulted in a form
of competition for international markets aptly labeled the "Beggar
Thy Neighbor" policy. In the desperate effort to combat the catas-
trophic unemployment of the great depression of the 1930's, however,
these nations had had little choice but to supplement governmental
control of their domestic economies by similar control of their foreign
trade.
I make that point because they are sometimes spoken of, these na-
tional controls, as though some evil genius had invented them just for
the fun of being evil. Actually, they arose to a considerable extent
out of desperate necessity connected with the great depression of the
thirties.
The Chairman. Do you have any ideas or suggestions how we can
avoid another depression ?
^Ir. Hoover. I do have some ideas on it. I don't want to go into
that much here, because this is supposed to be mainly about inter-
national trade, and if I were to go into my own ideas about how to
avoid depressions generally in the domestic economy, I would take
rather more time than I think you have.
The Chairman. Isn't it your idea that in order to be prosperous in
our foreign trade we must be prosperous at home?
Mr. Hoover. Yes, it is ; and that is what I cover here.
The Chairman. But you don't cover how to be prosperous at home.
Mr. Hoover. I have very definite ideas and I could hold forth at
great length, but you don't need to be alarmed. I won't do it.
The Chairman. I thought maybe you had
Mr. Hoover. I have no little gadget that will do it; I am sorry.
990 POST-WAR ECONOMIC POLICY AND PLANNING
For however unfortunate the effects this governmental control of
the national economy had upon international trade, it did achieve a
considerable degree of success in relieving domestic unemployment,
in each country — a matter that is sometimes overlooked, incidentally.
The stubborn resolve of substantially all nations not to expose their
domestic markets in the post-war period to the unrestricted aggression
of other nations such as has taken place in the past through unilateral
devaluation of currencies, exchange control, granting of export sub-
sidies and the like is consequently not to be wondered at. Indeed, few
countries appear willing to expose their domestic econoinies in the
post-war world to the effects of wholly unregulated international trade.
The Chairman. They don't want to go so far as to abolish all restric-
tions ?
Mr. Hoo\'ER. That is right, and more particularly they don't want
to do it "sight unseen." They want to see under what circumstances it
is to be done, and what we and other countries will do.
The Chairman. They won't do it unless it is profitable to them.
Mr. Hoover. That is right, entirely so.
In consequence, the alternative to rigid and potentially predatory
national controls of foreign trade is likely to be found, not in an effort,
almost certainly abortive, to induce countries to remove their controls
through the individual good will of each country, but in international
bargains or agreements for the removal of some controls, agreements
on the limiting circumstances under which others may be retained,
while eliminating, likewise by agreement, some of the objectionable
features of those which are retained. Above all, international insti-
tutions for facilitating and regulating world trade would in many
instances have to be provided in lieu of national controls. Since the
national controls of foreign trade were developed and intensified dur-
ing the great depression of the 1930's, it is possible, however, that a
period of full employment — that is the point you were making, Mr.
Chairman — in most countries during the post-war period would even-
tually make posible the relaxation or removal of national controls of
foreign trade on a scale much beyond anything likely to be achieved
in the immediate future.
That is to say, after the whole world had, say, 5 years of experience
with substantially full employment in the vei^ important countries,
then one might be able to go much further in the direction of removing
restriction from trade between countries than is possible under condi-
tions where nations still, live in fear of a depression such as that of
the thirties.
It is true that if the peace which brings this war to an end should
be recognizable as only a truce, while the nations rearm and choose
sides for a new conflict, there can be no doubt that national controls
of foreign trade would not only be continued but would be greatly
intensified. If, on the contrary, the peace which closes the war offers
the prospect of permanency, an extraordinary opportunity is afforded
for international cooperation in restoring a larger measure of freedom
of international trade.
We cannot i^ossibly know now that the nature of the coming peace
settlement will indeed be such as to afford this opportunity. There
is strong reason, however, for us to develop our national policy in the
field of international trade on the assumption that some form of world
POST-WAR ECONOMIC POLICY AND PLANNING 991
organization will grow out of the peace settlement which will provide
the necessary international security upon the basis of which a freer
flow of international trade could be developed. If this hope should
fail our position in international trade would not be immediately
critical. We would have adequate time to adjust our policy to meet
the national control policies of other nations should that be necessary.
If, however, we do not give evidence of our support of a policy of inter-
national cooperation in facilitating world trade, the opportunity
which exists might not reappear.
Both national self-interest and humanitarian considerations argue
for participation by the United States in an international program
which would facilitate a greater volume of interchange of goods and
services between nations based upon mutual economic advantage. No
one can deny that such a program could not be carried out without
meeting great obstacles and overcoming great difficulties. Certainly
such a program would likewise entail sacrifices which would partially
offset its advantages. If all the essential elements of the program
could be put into operation, however, it would enable us to increase
our total national income through participation with other countries
in the benefits of international specialization and division of labor.
The United States should afford leadership in such a program. In
the Atlantic Charter, in the lend-lease agreements, in the speeches
of the President, the Vice President, and the Secretary of State we
have repeatedly given other countries reason to believe that we intend
to take, such action.
The contrast between our high standard of living and that of most
other countries of the world, causes these countries to look to the
United States for leadership in international measures to improve
standards of living. The repeated statements made by American
officials and publicists that raw materials should be accessible to all
countries on an equal footing, have also aroused great expectations.
By means of our participation in an international program for facili-
tating world trade we could make a definite contribution to the satis-
faction of these aroused expectations. This contribution, if all the
essential elements in an international program could be put into opera-
tion, would not only be, on balance, cost less to the United States but
would actually be of economic benefit to ourselves.
It is exceedingly unlikely that substantial progress by other coun-
tries in an international program for the amelioration of trade con-
trols and barriers and the development of international institutions
to further world trade could be made without the full participation
of the United States. If we did not participate in such a program,
or if such a program failed to eventuate for any reason, it is probable
that a system of trading blocs, based upon economic and geograph-
ical considerations, such as those of the former "sterling area," would
be formed. The development of political friction as a result of com-
petition for raw materials and markets under such conditions might
be accompanied by the growth of political as well as economic rivalry
with the United States.
Through our participation in a program for facilitating world
trade a major step would be taken toward the maintenance of a peace-
ful post-war world. If the necessary elements in such a program, as
outlined below, could be carried out, the prospects for a sustained
992 POST-WAR ECONOMIC POLICY AND PLANNING
advance in standards of living in most countries of the world would
be tremendously improved. The attainment and improvement of
higher standards of living for substantially all countries would mani-
festly provide a most favorable climate for all forms of peaceful
international collaboration.
Just as national controls of the domestic economy have in turn pro-
duced barriers and controls in international trade, the amelioration
of barriers and controls in international trade and the development
of functioning institutions to facilitate such trade might be expected
to diminish the strength of forces pushing toward national control of
the domestic economy which has become so prevalent throughout the
world. The failure to carry out such a program might be expected
to have the opposite effect.
A SEVEN-POINT PROORAM
The essential elements in a program for the expansion of inter-
national trade and of freeing this trade from the more constricting
and generally objectionable forms of national control would be :
(1) Participating in a plan for international stabilization of
currencies.
(2) Participation in an international bank which would provide
loans for reconstruction and development.
(3) Securing international agreement with regard to means for
the elimination or effective regulation of cartels.
(4) Lowering our protective tariff in a substantial degree in return
for reciprocal action by other countries. Refraining from using the
tariff as a means for eliminating foreign competition with our war-
born industries.
(5) The settlement of lend-lease on a basis which would not dis-
rupt the general structure of the international balance of payments.
Just as stated, that is a mouth-filling series of words. I will spell
it out so that it means something as I get into the discussion.
(6) The determination of our mercantile marine policy on the basis
of the minimum requirements of national security, comparative cost
of service, and concern for equilibrium in the international balance of
payments.
(7) Carrying out a dynamic program for attaining and maintain-
ing a high level of domestic employment. This is the most important
of all the elements in the program.
Reciprocal concessions and obligations by other countries would, of
course, have to be a condition of our participation in the first six
steps of this seven-point program.
Now, I come to a discussion of each one of these points. That is,
of course, a mere summary discussion. I have a long report here
which I shall not file.
The United States should ratify the international agreement setting
up the International Monetary Fund.
I have purposely stated this quite positively, so there can be no doubt
it is what we are talking about.
This fund provides for international currency stabilization with
opportunity for adjusting rates of exchange Avhen necessary.
One might easily object to that sentence, because it seems to say
almost two different things. One might argue, "If you adjust rates
POST-WAR ECONOMIC POLICY AND PLANNING 993
of exchange, they are not stable," but as I see it, absolute stability of
exchange rates is practically an impossibility, so your choice is between
competitive exchange depreciation and some sort of agreement by
Avhich it can be done, if it must be done, in some reasonably orderly
fashion.
Freely fluctuating national currencies might appear to be a solution
for the dilemma which would be created by the coexistence of con-
trolled national economies and free international trade. In practice,
the national interests of individual countries almost never permit
national currencies to fluctuate freely.
Some people have asked me, "Why not just let exchange rates go
anywhere they will, and then they will act as an equilibrating factor?"
If you do that in practice it never works out. They cannot fluctuate
freely. The choice is consequently between national exchange controls
or an international stabilization agreement. Without some means for
agreement between nations on exchange rates, reciprocal agreements
to reduce tariffs become impracticable since somewhat the same result
can be obtained by a comitry depreciating its currency as by raising
its tariff.
In other words, if you made a tariff bargain and the other countries
remain free to juggle their currency in any way they like, they could
largely nullify the effect of any agreement you might get.
The Chairman. How do you propose to avoid that?
Mr. Hoover. I would try to avoid it b}^ a greater degree of stabiliza-
tion of the exchanges than would take place if the Nation were ab-
solutely free to change rates any time they wished. The Interna-
tional Monetary Fund constitutes an effort to achieve currency stabil-
ization without putting exchange rates in any unyielding strait jacket.
The ratio set between the pound and the dollar by a stabilization
agreement should be such as to permit a larger net flow of goods and
services to the United States tlian before the war. Such a ratio might
help to correct our pre-war tendency toward a net export surplus and
the British pre-war tendency toward a net import surplus.
It is, of course, a bit of an effort to have your cake and eat it, too,
but some compromise along this line seems to be almost a necessity.
The Chairman. Did you say it is just a bit difficult to have your
cake and eat it too?
Mr. Hoover. Well, let us eliminate the word "bit."
In oi'der to restore production and trade in the world at the earliest
possible moment, ratification by the United States of the International
Bank for Eeconstruction and Development is recommended — bank, as
distinct from the fund.
The problem of obtaining a balanced flow of investment funds
from countries which produce surplus capital to countries which
have use for capital equipment and which are able to pay the interest
on investment loans through an excess of exports of goods and services
over imports at the time when interest payments or repayments of
principal would have to be made, is not easy of solution.
It is essential that whatever is done through direct national initia-
tive or through international agreement should contribute to achiev-
ing a stable and durable equilibrium in our international trade and
investment. In the postwar period it would be undesirable, as I see
it, for the United States to develop a greater export of goods and
994 POST-WAR ECONOMIC POLICY AND PLANNING
services than that for ^yhich we would be willing to accept payment
in the predictable future through imports of goods and services.
That is another way of saying that a large export surplus, having
regard to service as well as goods, which we would finance by means
of some unending lend-lease or some credit device of one sort or an-
other, I would not consider a healthy condition of international trade
at all. I think it has very great dangers if that situation develops.
It is bound to come to an end some time. If you want that export
surplus, you must indeed finance it, but it seems to me that the whole
case for international trade depends upon the assumption that you
get back something for it. Personally, unless you put it on an out-
right charity basis, I don't believe in giving anything away in inter-
national trade.
The Chairman. I don't believe other countries do either.
Mr. Hoover. No ; I don't think they do.
The pronounced tendency of our economy to overexport and under-
import needs to be counteracted, not merely by reductions in trade
barriers, but to a much greater extent by increasing purchasing power
on our domestic market.
We are back to the same thing we were talking about at the begin-
ning. That is, there is an idea current about international trade
that it is a way of getting rid of stuff. Personally, if we are going
to get rid of stuff, I would prefer to get rid of it, say, to sharecroppers
in the South or to some other portion of our population that has been
underprivileged, rather than to give it to the Patagonians, let us say,
to choose the name of a race which will arouse no ill will by my
mention of it.
If we do have an export surplus of goods and services, we must be
prepared to make investments abroad in approximately the same
amount, or the export surplus would come to an end, quite likely
accompanied by an international economic crisis.
Now, investment, if you can distinguish it from loans, is a much
sounder way of filling up the gap between what we import and what
we export. I would argue that in the long run we must be willing
to accept at least repayment of interest on these investments in terms
of a;oods and services, or that will peter out, too, and have undesirable
national and international consequences.
The Chairman. You are speaking of Government loans and not
private ?
Mr. Hoover. No; I don't think there is a danger, as a matter of
fact, that we are going to have too much private lending. But that
is possible; I think we had too much private lending during the
period of 1920, in proportion to the amount of stuff we were taking
back. An indebtedness was built up which could not very well be
liquidated, and I think that was one of the factors in producing the
depression. It was not the most basic one, but a factor nevertheless.
The Chairman. Do you think it is healthy for our own capital to
seek foreign outlet?
Mr. Hoover. Yes, I do; but only on the assumption that we then
try our best to organize our international trade so that we will be
willing to take back the interest or dividends that is due us on that
capital. I wouldn't think that it would be in the national interest to
invest capital, from which you get no return. In tlie long run you can
only take a return in goods and sei-vices, if you are going to get paid
POST-WAR ECONOMIC POLICY AND PLANNING 995
for it at all. I realize all these things I am saying are quite well known
to yon all.
Mv. FoLSOM. Why do yon speak of just interest? Because the prin-
cipal and interest has to be paid back in goods and services.
IMr. Hoover. Quite right; it certainly does. It does in the case of
any one business, or any one line. The lender must get his money back,
but if there happens to be simultaneously somebody else who is loaning
abroad at the moment when your fellow is getting his repaid, then you
have no necessary difRculty in your international balance of payments.
Dr. Reed. It is a three-cornered affair.
Mr. Hoover. That is right.
If we do not invest sufficiently to match the surplus in our balance of
payments, countries which have large import surpluses resulting in
deficits in their balances of payment would have to restore exchange
control and other trade barriers or make an effort to attain equilibrium
in their balances of payment by devaluing their currencies.
Perhaps that point should be explained a little bit. One of the
problems which is going to confront us will be the case of a covmtry
like Great Britain, for example, which if they do not control their
imports in some fashion or other during the first years, would simply
be in an intolerable condition. They simply would not have the funds
to pay for all the imports the people in Great Britain would very
much like to have. Confronted by that situation, they can do one of
two things, or a combination of them : They can continue some manner
of exchange control as long as necessary, or they can devalue their
currency, or combine these methods. To the extent that we make loans
to help them tide over this period, that facilitates their situation rather
considerably, but it raises a very serious problem as to how far we
would be justified in loaning funds which, after all, have to be obtained
in one way or another from our citizens.
Disorderly depreciation of national currencies would, of course,
present the gravest problems to any international plan for currency
stabilization. That is to say, if you had an international service which
"was not matched by investments, one way out of it for the country
which was getting too much imports would be to deflate its currency,
^and if that were done in a disorderly fashion it would certainly create
very great difficulty for international trade. Without some degree
of international agreement on the exchange rates of national currencies
it would be extremely difficult to carry out any general plan for the
relaxation of national trade barriers and controls.
In the period immediately after the war it seems probable that the
international flow of private capital would be insufficient to meet
either the needs of countries which would like to borrow funds or the
desires of countries which would be glad to lend capital which could
be made available through an export balance' in goods and services.
Even though means could be found for stimulating the lending of
capital funds, unless means are provided for the pajanent of carrjdng
charges on such loans by limiting them to the ability of the borrowing
country to meet the need for foreign exchange when payments begin
to come due, either for principal or interest, a serious financial crisis
would later become almost unavoidable. An international institution
for encouraging and guiding the flow of international investment
such as that agreed upon at Bretton Woods i]i the agreement for the
996 POST-WAR ECONOMIC POLICY AND PLANNING
International Bank for Reconstruction and Development would go
far toward meeting the needs of this situation.
Perhaps I should say here too that I am quite skeptical about financ-
ing foreign trade by loans. I have already made that point. To do it
permanently, I think is a very bad thing indeed.
The Chairman. Do you advocate temporary loans'?
Mr. Hoover. I was going to say, during a limited period, to get
international trade back on its feet ; yes. I think the kind of thing that
is proposed through the bank and in some degree thi'ough the opera-
tion of the fund, is quite justifiable, and then I would think we ought
to stop there, unless a new case is made. I repeat again that it seems
very bad that we should sort of gradually ease into something through
a continuation of what we now do as a war measure, like continuing
lend-lease on indefinitely. I don't know that anybody has seriously
proposed it, and yet there has been some discussion about the possi-
bility of continued lend-lease. Though I come to that in another con-
nection, I would say again that any lending which is done in the post-
war period should be examined on its own merit and should not be
continued as some part of the war program.
The Chairman. Do you think private enterprise would be able to
handle most of these loans ?
Mr. Hoo\^R. I think so. That is to say, if I understand you, the
bank is so set up that most of the lending is supposedly to be done by
private individuals or corporations, with guaranty by the Govern-
ment. I believe only 20 percent of the capital of the bank can be used
for direct loans by Government. It is my understanding it is in-
tended to be even less than that, so that such lending as is done by
the bank would be done by private concerns. We should not overlook
the fact, however, that it Avill be with a Government guaranty, to the
extent that we participate in that guaranty, if loans should not be
repaid it would certainly be a charge on this Government.
No program for the removal of barriers and controls in interna-
tional trade should be carried out in disregard of the problem of
cartels. Cartellization of industry which in many countries received
an immense impetus from the depression has been accelerated and
strengthened by the war. By means of cartels many of the same
undesirable purposes served by tariffs, exchange control, and other
forms of trade barriers are achieved.
It is a rather interesting thing that there are a dozen different de-
vices by which you can control trade in the national interest or in
the interest of individual concerns in the national economy, and one
government could claim their hands are just lily white because they
do not have any cartels, but they may have tariffs ; and another coun-
try may use exchange controls; or you come to the complete case of
it, as in Soviet Russia. Soviet Russia, for example, does not need
any exchange control or any tariff. Tariffs would be almost entirely
meaningless, because the Government organization simply decides
"Shall we buy, or shall we sell?" It is a far more complete instru-
ment of control than would be true of any tariff or exchange control
or cartel arrangement.
An international program for freeing the channels of international
trade would need to be accompanied by the outlawing of cartels in
international trade by participating countries or, since this solution
• POST-WAR ECONOMIC POLICY AND PLANNING 997
is likely to be difficult of attainment — as a matter of fact, I think it is
impossible — by the regulation of such cartels to the extent necessary
to prevent emasculation of a program for freer international trade.
An international commission for the study of the cartel problem is
recommended. An international regulatory institution might be
expected to develop out of such an investigational commission.
You see, that involves the whole problem of commodity agreements,
for example. That is one of the places on which we take, sometimes,
a rather holy attitude. We tell the other nations that we are quite
opposed to cartels, but that we just love commodity agreements; and
these other nations are inclined to say, "Well, what you call a com-
modity agreement is what we call a cartel."
The Chairman. What is your definition of cartel?
Mr. Hoover. I don't know whether I could give a simple definition.
A cartel is any group or organization of individuals or corporations
which restrains trade. That would be one kind of a definition, and
one used generally. It is pretty unsatisfactory, I am afraid, for car-
tels can take almost every kind of form. For example, they need not
be actually an agreement between two concerns. If one of our large
corporations buys an interest in a foreign corporation, they may
attain what amounts to a cartel without any cartel agreement what-
ever. They may interchange directors on their boards.
The Chairman. The effect is the same, is it not ?
Mr. Hoover. The effect is very much the same.
The Chairman. Do you think there are good cartels and bad
cartels ?
Mr. HooA-ER. That is a tough one. I have, of course, heard it before.
I have heard the question asked and I am always in some difficulty in
answering it. I would question very much whether there were any
good cartels, unless they were regulated either by government, if it
were operating domestically, or internationally, if it were operating in
the international scene. The problem is exceedingly complicated.
American businessmen quite naturally enough, say: "Suppose we are
going to trade abroad and foreigners can form cartels, and suppose we
are stopped by our United States law from so doing. Well, that is
unfair." Of course, we have the Webb-Pomerene Act, which enables
them to do certain things which they would not be able to do in
domestic trade. That raises a very serious problem, one that is so
complicated and difficult that I think a study of it is necessary, very
likely to be followed by some sort of international agreement, and an
international agreement which would have to be implemented by some
sort of commission. I do not for the moment try to outline the nature
of that commission.
The Chairman. When you say they should be controlled or super-
vised by the Government, would that remove the evils of cartel agree-
ments ?
Mr. Hoover. In many cases it would not. Indeed, particularly in
domestic trade, so far as the United States is concerned, I think we
should follow even an extreme anticartel policy, so far as that possibly
and practicably can be done. I would favor the same thing in our
international trade if I were not somewhat aware of the facts of life,
and did not know that this is likely to be very difficult to follow out.
I can't give a decided answer because I believe it requires a study be-
yond any yet undertaken.
998 POST-WAR ECONOMIC POLICY AND PLANNING
Dr. Eeed. Doctor, we have never been able to agree among ourselves
on a definition of sin, and we can't classify right and wrong very well,
but wouldn't you got so far ag to agree that we are getting into the
cartel business in the control of wheat?
Mr. Hoover. That is precisely the point I was making a while ago,
and foreign governments are inclined to say that — not formally,
perhaps, or in diplomatic communications, but where economists get
together and we discuss it with British or Swedish or some other
enonomists, they always make that point. They say, "You gentlemen
are so holy about cartels, how about commodity agreements ?
Now, of course, the point is made, and in some connections can be
made quite properly, that commodity agreements are commonly made
in the interest of some quite large number of producers, like the wheat
producers. It is true they are different from some kind of cartels,
but at certain points they begin to have a resemblance. You just can't
deny that.
The Chairman. Again we are sorry to say we are running out of
time, and if you don't mind, we will include the rest of your statement
in our record.
Mr. HG0\rER. Very well.
The United States should substantially lower its protective tariff,
conditional upon reciprocal action by other countries.
Our standard of living would be raised by exchanging the goods in
the production of which our human, natural, and capital resources
render us more efficient for the products in the production of which
each country with which we traded is more efficient. Such a program
of reduction of barriers to international trade would have the effect
of increasing competition in our domestic market and of reducing
tendencies toward monopoly in our price structure. The increased
competition of foreign produced goods in our wholesale and retail
markets would require American producers with which these goods
were competitive who wished to stay in business to lower their prices
and, if possible, their costs of production. Those who could not pro-
duce goods at costs below enough to compete with imported goods
would have to transfer to the production of other goods, primarily
those goods the markets for which would have been improved through
the increased export demand resulting from lowering the tariff.
It must be recognized, however, that this would not be wholly with-
out risk or difficulties. Under conditions of depression or of threat-
ened depression, the probably increased flexibility of prices attained
might be a source of instability in the domestic price structure. Pro-
visions against dumping in our tariff law might have to be further
developed and strengthened. To the degree that this lowering of our
protective tariff was effective in increasing purchasing power for
American goods in foreign markets, employment in industries pro-
ducing for export would be increased. Employment in industries
the protection of which was lowered could be expected to be reduced.
The reciprocal trade agreements program should be utilized to
lower national tariffs and other trade barriers until a multilateral in-
ternational agreement can be worked out at a later time.
Lend-lease, a law enacted in the interests of national defense in a
world at war, should not be used to serve other purposes. Lend-lease
should be regarded as a cost of war and repayment of goods and serv-
ices actually consumed during the war should not be required.
POST-WAR ECONOMIC POLICY AND PLANNING 999
Lend-lease slioiild not be continued after the close of hostilities. If
financial assistance must be extended to any country after the war it
should be done upon the basis of evidence newly presented. Such a
decision should be made by Congress, after weighing economic and
political considerations which should not be confused with the imme-
diate military necessity upon which lend-lease was based. The more
than thirty billions of dollars worth of material which will have been
advanced by the United States Government through lend-lease, inso-
far as this material has been expended by the governments receiving
it, should be considered a war expense and repayment should not be
required, A policy which required repayment of a major portion of
lend-lease would hopelessly disrupt the whole structure of the inter-
national balance of pajanents. It would likewise poison with inter-
national ill-will the whole post-war period.
To the extent that materials of value for peacetime purposes fur-
nished under lend-lease remain after the close of hostilities in the
possession of foreign governments or on order in this country, they
should be sold abroad by the United States Government to those for-
eign governments from which the best net return could be obtained.
The proceeds should, of course, accrue to the United States Treasury.
The principle should be firmly established that all goods received
after cessation of hostilities were to be paid for." Provisions against
the reexport of such goods to the United States would, of course, be*
required. A considerable portion of these supplies could no doubt be
disposed of for relief purposes. In the case of disposal for relief pur-
poses the principle of sale rather than gift should be followed, wher-
ever possible. All ships chartered to other nations under lend-lease
should be turned back to the United States. Their disposal should
be simplj^ part of our general mercantile marine policy.
Our mercantile marine policy should be founded upon three major
considerations. The first is national security ; the second is compara-
tive cost ; the third is stability of the international balance of pay-
ments.
A merchant marine of 10,000,000 tons of new, fast ships available
for active service, plus a laid-up reserve of six or eight million tons
additional would apparently meet the minimum needs of national
securit}'. This compares with our pre-war merchant marine of some-
what over 8,000,000 tons, a considerable portion of which was obsoles-
cent, and part of which was not actually in service. This would leave
a tonnage of from fifteen to twenty million tons, depending upon when
the war ended and when severe cuts in our shipbuilding program
began, to be sold (not lend-leased) to other countries whose merchant
marines have been seriously depleted by the war.
We should have to pay large subsidies out of the United States
Treasury in order to operate the shipping which we retained. Addi-
tional subsidies would have to be paid out to keep a portion of our
shipbuilding industry in operation. This is the price which has to be
paid for this aspect of national security. We should not, however,
allow our bill for subsidies to be any larger than absolutely necessary^
Consequently we had better hire part of our shipping done by foreign
merchant fleets since the cost would be so much lower. Money thus
earned by merchant fleets of foreign ownership is needed by these
countries as a means of payment for goods'imported from the "United
States.
1000 POST-WAR ECONOMIC POLICY AND PLANNING
Tlie maintenance of a high level of employment in the United States
would be the most fundamental condition for keeping a program for
the expansion of international trade in operation.
The evidence indicates that the greatest factor in determining the
volume of our imports, on which so many countries depend so heavily
for their purchasing power in international trade, is the level of our
industrial activity. This is primarily due to the fact that such a
large part of our imports are raw materials and other goods used in
further production. If our industry is operating at a high level these
raw materials and other goods are imported in great amounts. Under
conditions of depression these goods are imported only in much
smaller amounts, almost regardless of how low prices may go. In
other words, during prosperity our imports are large, in depression
they are low.
Thus, curiously enough, the order of causation between foreign trade
and domestic employment is contrary to that claimed both by the
advocates of tariff protection and by uncritical enthusiasts for ex-
panding our foreign trade. In actuality, if strong measures are taken
by the National Government whenever necessary to maintain domes-
tic employment, foreigii trade need not be feared as a cause of unem-
ployment. On the other hand, expanding our foreign trade should
not normally be considered a means of increasing domestic employ-
ment. It is true that under conditions of economic depression or its
threat, measures aimed at contracting our imports and expanding our
exports would often increase domestic employment, if these measures
were not offset by retaliatory measures on the part of other nations.
Such expansion of our own employment would usually be at the cost
of causing unemployment in other countries, however.
Internal measures which are successful in expanding domestic
employment, so long as they are not accompanied by measures re-
stricting foreign trade, almost invariably result in an expansion of
the volume of international trade. This relation between domestic
employment and international trade is not peculiar to the United
States. It characterizes the economy of all important capitalistic
industrial countries as well.
The importance of the United States as a market for raw materials
produced by other countries is so great that prosperity in hardly
any other important country would be possible if depression ruled
in the United States, unless other countries resorted to extremely close
control of their foreign trade. Consequently, the volume of world
trade is peculiaji'ly dependent upon domestic employment in the
United States.
The major cause for the multiplication and intensification of bar-
riers and controls in international trade during the years preceding
the present war was the fear of economic depressions. Hardly any
country, when faced by the fact or even serious threat of economic
depression can be expected to refrain from putting trade controls into
operation. The maintenance of domestic employment at high levels
in each country is of great aid to the maintenance of domestic employ-
ment in other countries if it is done without "dumping" on the markets
of other countries and without resort to barriers against trade with
other countries. The successful operation of a program for the
relaxation and amelioration of national controls of foreign trade thus
largely depends upon preventing world-wide depressions.
POST-WAR ECONOMIC POLICY AND PLANNING 1001
OUR POST-WAR FOREIGN TRADE PROSPECTS
It is probable that tliere will be a strong export demand for Amer-
ican products during the first year or 18 months after the end of the
war with Germany. The need for the replenishment of world inven-
tories and the reconstruction of devastated areas plus the fact that
some of our peacetime competitor's will be out of the market for some
time to come indicates that 'this will be so. In spite of serious balance
of payments difficulties for Great Britain and a few of the other
belligerent countries, the holdings of gold and dollar resources of most
other countries insures that adequate means of payment during this
initial period will exist. After this period of abnormal demand is
satisfied more general balance of payment problems are likely to arise.
The future of world trade after the end of the initial post-war
period depends upon the success of the national programs of full em-
ployment which are going to be initiated in practically all industrially
advanced countries and upon the success of the programs of capital
construction which will be carried on in many of the less industrialized
countries.
It is highly desirable that the operation of these full employment
programs should be facilitated by carrying out a program of inter-
national economic cooperation in the expansion of world trade along
the lines sketched out above. It is not an absolute certainty that
such a program for developing a compromise between national con-
trols of the domestic economy and a large measure of freedom of in-
ternational trade would prove feasible. It is of the utmost impor-
tance, however, that a sincere and energetic effort to set up such a
program should be made and that a like effort should be made to
insure its successful operation. If such an international program
were unsuccessful and if nations should have to return to bilateral
agreements, exchange control, bulk purchases by governmental agen-
cies and so on, it would be of the greatest advantage if there could
be as little international acrimony and recrimination as possible with
respect to the responsibility of any particular nation for the failure
of the effort to attain a greater degree of freedom in international
trade.
The United States is exceedingly fortunate in having an economic
position so strong that we can afford to take leadership in the move-
ment toward freer international trade and can afford to continue to
support that movement as long as any hope for its success still exists.
The present prospect for its success is strong. We would be able
to carry out a progi-am of domestic full employment under almost
any form of organization of world trade which might eventuate.
Consequently, our national program to reach optimum levels of em-
ployment does not need to wait in fear of developments on the in-
ternational economic scene. We should vigorously lead and support
international economic cooperation but we should not wait upon its
results to carry forward equally vigorous national policies directed
at attaining the highest practicable level of domestic employment.
The Chairman. You have mentioned seven propositions for solu-
tion, that you claim are an answer to our post-war problems.
Mr. Hoover. I wouldn't say that, Mr. Chairman.
The Chairman. Well, a partial answer.
Mr. Hooat:r. Let us by all means stress the "partial."
1002 POST-WAR ECONOMIC POLICY AND PLANNING
The Chairman. Those are your suggestions after careful study of
the post-war problem. Do you know whether any of those have been
tried before?
Mr. Hoover. Certainly some of them have. I recommend here
that we continue the reciprocal trade agreements, for example.
Well, we have done that. We have to admit that we have had no
very astounding results flowing from it. It is partly a matter of
how long they have been in operation, partly the limitations that
have been placed on them as to how far you can cut duties, and so on.
I don't think by any means that a reduction of tariff, however at-
tained— and I recommend it in this statement — is going to give you
any sovereign remedy for the problems of international trade. A lot
of people believe so, and vrhile I favor a reduction of tariti's, under
very carefully worked out circumstances, and based on reciprocal
concessions b}^ other countries, I don't regard it as the Utopian solu-
tion that other people do.
The Chairman. How about the other six points? Have any of
those been tried before ?
Mr. Hoover. Excuse me if I refresh my n^.emory from the list so
that I will be thinking in the same terms in which you are speaking.
If you take the first one, international stabilization of currency, there
have been some efforts made at that, of course. We had the tri-
partite agreement between France, the United States, and Great
Britain before the war.
The Chairman. Did that work ?
Mr. Hoover. It worked for a while, and then it broke down.
The Chairman. Why did it break down ?
Mr. Hoover, Because of the general pressure of the depression, I
would say, which made it just impossible to keep the currency
stabilized.
The Chairman. That was designed to relieve the depression.
Mr. Hoover. It was, but I don't think it did it. I don't think, among
other things, it provided the necessary flexibility in the arrangement
which it is to be hoped the fund would provide.
Participation in the International Bank, which would provide loans
for reconstruction and development. I don't believe there has been an
international bank of this type before. That would be something
new.
The elimination of cartels. Thci-e, of course, have been various
treaties which incorporated agreements with respect to actions that
would come under the head of cartels, but so far as I know nothing
definitely along that line has been done, to the extent I have recom-
mended here.
The Chairman. The Webb-Pomerene Act would be the closest.
Mr. Hoover. That was one effort on our part to permit our corpora-
tions in foreign trade to meet competition by cartels from other
countries.
The tariff I have covered, certainly, very sketchily. The settlement
of lend-lease. I have not covered that. I stated very briefly that I
would favor the cancelation of lend-lease to the extent that materials
which had been obtained had been actually used up in the war. Goods
that were left over after the war is over, I think, should be paid for
or we should recover them and sell them. That is a very inadequate
U'eatment of the matter and that, of course, is a new thing, except of
POST-WAR ECONOMIC POLICY AND PLANNING 1003
course as we have the example of our war debt from the previous war,
and on the whole I think those were handled quite unsatisfactorily.
The mercantile marine, I haven't had a chance to go into. That has
been covered by the previous witness.
]\Ir. FoLsoM. I notice from your statement you think about 10,000,-
000 tons will be sufficient for the merchant marine. On that basis we
wouldn't carry 50 percent of our trade, would we ?
Mr. Hoover. No; I don't think you would, quite. It depends, you
see — in 1939, statistics, which are usually used, show that we had
somewhat in excess of 8,000,000 gross tons of ocean-going shipping,
but a very large part of that was obsolete, so that this 10,000,000, which
1 would recommend would consist of the best ships, the Victory models
and similar types, would in its carrying capacity be very much in
excess of the capacity of the 8,000,000 gross tons which we formerly
had of which a very large proportion was obsolete.
Of course, there is nothing miraculous or sacred about that figure
of 10,000,000. After all, we have, for the purposes of argument, to
take some round figure, and that I have done.
I repeat that it would not carry as much as 50 percent, quite, I think,
of our foreign trade. That would depend on whetlier our foreign
trade was just the amount that it was before the war, or whether it
increased to the amount that you would have on the basis of a national
income of, say, $140,000,000,000. I am now using substantially the
same data with respect to income as was used by the previous witness.
If we double the national income from about $71,000,000,000, which it
was in 1937, which was one of our best pre-war 3'ears, to $140,000,-
000,000, then we would likewise be doubling the amount of our im-
jDorts and exports, roughly, or rather, more than that, I should say.
Anyhow, it would take this up to around seven billion or not too far
from seven billion.
Under those circumstances, the 10,000,000 tons of shipping would
not carry the 50 percent. Of course, when you say 50 percent, we
all recognize, I am sure, that in a sense, if a nation carries 50 percent
of its trade, it carries all of its "share" of trade, because the im-
ports of one nation are the exports of another, so that if every nation
carries 50 percent of its own imports and exports, it would be carrying
100 percent of — I don't know any other term than "share", and that
is a very bad term, but that gives you an idea, perhaps.
Mr. 'Folsom. Would you agree with the previous witness relative
to the unimportance to the foreign country of its shipping, as he
explained it?
Mr. Hoover. No ; I wouldn't quite agree. First, I don't think that
the amount earned in foreign exchange is the most significant figure.
I would rather think during a period when sterling is exchangeable
freely into other foreign exchange, it wouldn't make any particular
difference whether it was in sterling or other foreign exchange. The
total contribution to British foreign-exchange resources which the
shipping would make is enormously important. If you take it as a
percentage of national income of Great Britain, it does not seem a
large figure. The earnings of British shipping were substantial, how-
ever. Of course, if we carry 50 percent of our international trade in
our own bottoms, that alone would not reduce the British balance of
payment tremendously. I can't give you the figure offliand.
99579 — 45— pt. 4 26
1004 POST-WAR ECONOMIC POLICY AND PLANNING
The same sort of argument, of course, would follow with respect
to every industry which has any type of protection. Any American
industry which is protected, almost without exception, could argue
quite honestly, as the shipping industry which is protected in effect by
subsidies instead of tariff does argue, "Protection for our industry
doesn't affect the international balance of payments much." It is the
aggregate that counts, however.
That doesn't bring my position in complete conflict with that of the
previous witness by any means, but I think the point should be made.
Any diminution in the earnings of the merchant marines of countries
like Norway or Great Britain or some of the others will make their
balance of payment position somewhat more difficult.
However, the needs of national security come first. So far as the
United States is concerned, I wouldn't let the British balance of pay-
ments, however difficult it might be, be a reason for modifying in any
important degree the quantity of shipping which we require from the
standpoint of national security. Likewise, if it were true that we
could carry our goods without subsidies as cheaply as the British
could, or more cheaply, I would favor carrying as much as we could.
The British would have to look out for themselves so far as I am con-
cerned.
Mr. FoLsoM. But you assume we will have subsidies ?
Mr. Hoover. Yes. The facts are we have to have subsidies, and I
quite recognize that, and I think from the state of the world we must
subsidize the merchant marine so that we have a large enough one to
give us the minimum merchant marine necessary for national security.
I certainly don't know with exactitude what that amount is. I don't
think anybody else knows. It is impossible of determination. Some
people's judgment is better than others on that point.
The Chairman. I think you were down to No. 4, were you not ?
Mr. Hoover. In fact, in one way or another I think I have pretty
well covered the subject except No. 7, which I put great emphasis on,
carrying out a dynamic program for maintaining a high level of do-
mestic employment. This is the most important of all the items in
the program. It is a very basic fact that in periods of prosperity we
hoth import and export lots of goods, and the variations that take
place in our international trade largely reflect changes from prosperity
to depression. If you want to get more international trade, the way
to get it is to have a maximum of national prosperity.
The Chairman. Well, we want prosperity.
Mr. Hoover. That is true, but how to get prosperity, that is cer-
tainly another question.
The Chairman. Thank you very much, Mr. Hoover. We appreci-
ate your cooperation.
The committee stands in recess until 2 o'clock.
afternoon session
Mr. Worley. The committee will be in order. Mr. Patchin.
FURTHER STATEMENT OF ROBERT H. PATCHIN
Mr. Patchin. Since W. R Grace & Co. is engaged largely in trade
between the United States and countries of Latin America and trade
.between those countries — ^between various of those countries — and since
POST-WAR ECONOMIC POLICY AND PLANNING 1005
there is great interest in this country in our Latin-American relations,
I would like to add to what I said this morning on other subjects by
observing that the best assurance of good economic relations between
the United States and Latin xA.merica is to be found in a flourishing
two-way trade.
The idea widely prevails among the uninformed in the United States
that in peacetime the United States does not have very much trade
with Latin America, that it is largely dominated by European coun-
tries, and that they are better entrenched than w^e are.
Nothing could be more inaccurate. With Latin America as a w^iole
the United States has more trade than any other country. With some
of the countries of Latin America we have more trade than all other
countries combined. That pertains to those nearest to us.
In peace we normally sell to every Latin-American country except
Argentina more than any single foreign country and in Argentina over
many years we have been second only to Britain.
Mr, WoRLEY. Well, do we import more from those countries than we
do from other countries ?
Mr. Patchin. From many of the countries of Latin America we im-
port more than any other country and from some of them more than
from all other countries combined.
JNIr. WoRLEY. Is that the reason we did so much more business when
we sold them so much more goods.
Mr. Patchin. Yes. American enterprises also have a very large in-
vestment throughout Latin America in mines, oil fields, agricultural
plantations, public utilities, sea, air, and land transportation and in-
dustries. Our total investments of this character exceed those of
Britain. In the utility field American companies now operate enter-
prises formerly operated and established by British interests.
The normal conditions of trading between the United States and
Latin-i\jnerican countries are favorable. During the war they have
been less favorable because we have not been able to spare from the
war effort the goods which they need for their life and economy but
we have given them enough to carry on.
On their side they have supplied us with many materials urgently
needed for our war effort and without which we and the other United
Nations could not have so well prosecuted the w^ar.
Mr. WoRLEY. We do more business with the Latin-American coun-
tries than any other country in the world; is that right?
Mr. Patchin. By and large we have more trade with Latin America
than any other single country except in the case of Argentina where
the British lead us.
Mr. WoRLEY. Now, what causes that?
Mr. Patchin. In where?
Mr. WoRLEY. In Latin America. What causes our big trade?
Mr. Patchin. We require a vast amount of their raw materials and
foodstuffs. Some years we have imported more than $100,000,000 of
coffee from Brazil "in a single year, and we manufacture many things
that they need.
jSIr. Worij:y. If we could develop that in other sections of the world
that would be the answer to our problem?
Mr. Patchin. Exactly. Also our economy is somewhat comple-
mentary to theirs. They are for the most part as yet producers of raw
and semimanufactured products and we are a large industrial nation
1006 POST-WAR ECONOMIC POLICY AND PLANNING
and the interchange of goods is natural. There are, of course, some
competitive lines of production.
Most of those countries are agricultural, still we export a consider-
able amount of agricultural products to Latin America in the form of
finished foodstuffs, and as constituent parts of other manufactures.
Many farmers do not realize how large agricultural products enter
into nonedible manufactured exports. For example soybeans help to
make paint. Corn makes alcohol, and many other things used in in-
dustrial products largely exported. Those things go out not as agri-
cultural exports but as a component of manufactured exports to the
benefit of American farmers but which are not classified as farm
exports.
Now, if we can make Latin America feel that she not only has here a
large market for her products but that it is an assured market and if
we could ease our tariff restrictions sufficiently to admit what in our
consumption would be a very small amount of competitive products,
we would take the edge off a certain resentment.
For example, to step into a tender spot so far as Congress is con-
cerned, if we would cede 1 percent of our meat consumption to the
importation of frozen meat from Latin America, it would be a very
beneficial thing to them and could hardly impair our prosperity or
the welfare of the livestock industry, in my humble opinion, not being a
livestock man but simply reasoning on the law of averages.
Mr. WcRLEY. We have a lot of cattlemen down in the Texas Pan-
handle, most of whom would not agree with that.
Mr. Patchin. That is true. They say the presence of foot-and-
mouth disease in any country, even of as vast an extent as Argentina,
presents a danger of infection to our industry which should forbid the
importation of any frozen meat whatsoever.
But the objection in the past has even extended to importation of
tinned meats, in which there is no danger of conveying^ such infection,
because the meat has been cooked, and we had in the Congress a reso-
lution to forbid the Navy to buy Argentina tinned corned beef.
Now, I do not think Argentina has acutely suffered, because she has
had a big market for meat in Europe — frozen meat in Europe — but this
has certainly been a very sore point with her.
If the two-way trade with our neighbors could be well fortified and
encouraged, there would be established a degree of mutual material
interest that would make unnecessary certain other more complicated
policies that are supposed to be helpful to relations.
The fostering of cultural relations is of the utmost value. It should
be continued.
The industrialization of Latin America by means of capital from
the United States is beneficial and has been carried on successfully.
It has a relation to our total economy, because the large American-
financed and managed enterprises in Latin America are among the
largest customers of the United States. They buy large quantities of
machinery and equipment and supplies.
That industrialization, however, should be protected along sound
and productive lines that will return interest and amortization on the
capital so invested.
Nothing can be so important as a mutually beneficial two-way trade,
between individuals rather than governments.
POST-WAR ECONOMIC POLICY AND PLANNING 1007
If you should get into intergovernmental trading of which there is
some advocacy you would be balancing trade relations on a couple of
points like that [indicating]. When trade is left to private enter-
prise you have thousands of points that are supporting the trade struc-
ture.
If an individual fairly sells something to somebody in Latin Amer-
^ica who loses money, he feels no resentment.
If a government lends money or sells merchandise and it is not repaid
and government has to press to get it repaid, it is likely to caus'e feeling.
I believe that in general the political and commercial relations be-
tween the United States and Latin America are better than ever before.
Those who for the moment may be a little pessimistic must have
expected a sort of a perpetual honeymoon, which is seldom realized in
life.
On the other hand, it is possible in life to have a well-settled married
life not without some occassional friction; but on the whole abounding
in contentment, happiness, and prosperous existence. That has been
reasonably attained among the nations of this hemisphere.
That is about all I have to say.
Mr. WoRLEY. Do you suppose we will have that after the war ?
Mr. Patchin. I see no reason why we should not.
Mr. WoRLEY. It seems strange that this country has practically
everything that other countries want to buy.
They want to buy very badly. It seems strange that we cannot
work out some way to sell what we have to sell and buy some of the
things back from them that they want to sell and build up this good,
prosperous, foreign trade.
Mr. Patchin. Of course we have had a big foregn trade in the past.
It has not been negligible.
Mr. "WoRLEY. That has not been very big, has it, Mr. Patchin ? Has
it ever rej^resented more than 10 percent of our
Mr. Patchin (interposing). Ten percent over all. But in many,
many, industries it has run to 25 and 35 percent, and those are key
industries in this country and vital to our welfare.
Mr. WoRLEY. That would be manufactured products, machinery,
primarily ?
Mr. Patchin. Machinery, and there are a lot of farm products
both as foodstuffs and in industrial form.
In recent years our exports of cotton have suffered but formerly a
great deal of cotton went abroad. A great deal of tobacco goes
abroad today.
I think the labor that goes into the production of tobacco, perhaps
3 months of the year, is represented in the export of that product;
in the automobile industry perhaps 2 months of labor; and so on.
But on the import side there is a large range of products competitive
with ours of which we import less than 3 or 4 percent of our total con-
sumption ; in many cases less than 1 percent.
Now, it would seem not unreasonable to relax our tariff sufficiently
to allow that proportion to increase.
I do not believe that even the most extreme of the tariff protection-
ists ever claimed that you should have a monopoly or anything so
closely approaching a monopoly as would admit, say, only 5 percent of
the competitive product.
1008 POST-WAR ECONOMIC POLICY AND PLANNING
It is sometimes said, "Well, the 5 percent is all right but it would
only be the entering wedge for more and it might easily npset our
price structure."
Well, a price structure so delicately adjusted as that is hard to con-
ceive, and it might be we could put a stop on the amount of goods
that would be permitted to enter so they would not amount to an
inundation, which nobody wishes to have. And speaking for freer
and more liberal tariff relations I wish to disclaim being either a
free trader — I don't know of any free traders anywhere — or of even
wishing to see the producers in the United States displaced in any
large and important and disastrous degree by the production from
other countries.
But there should be a happy medium. If there could be some
relaxation to permit an enlargement of things now so scantily im-
ported and yet stop short of an inundation or drastic competition
and large loss of employment, I tliink the importation of such
articles might be increased to the value of half a billion dollars on
these items alone, which would be a substantial offset to our usual
excess of exports over imports. Unless imports are enlarged the excess
of exports would have to be covered by export of capital, which is
somewhat hazardous unless the interest and amortization of that ex-
port of capital can be eventually returnable in goods or services.
Mr. WoRLET. We have had some suggestions before the full com-
mittee that we conserve some of our natural resources and buy from
other countries ; that we completely stop the production of gypsum,
we will say
Mr. Patchin. Of what ?
Mr. WoRLEY. We will say gypsum or some natural resource. What
do you think of that idea ?
Mr. Patchin. Well, there is no doubt we are depleting at a rather
disturbing rate some of our natural resources. The remaining supply
is not inexhaustible, and since 1932 we have been excluding a number
of products of which we have not too much remaining in domestic
sources.
Foreign copper has been practically excluded since 1932 from do-
mestic consumption in the United States, by a 4-cent-a-pound duty.
Petroleum was excluded until one of the reciprocal trade agreements,
I believe with Venezuela, reduced the duty which allowed some to
get in. Coal is pretty well kept out; lumber and one or two others.
Not all of those are irreplaceable. Lumber can be replaced of course.
But there isn't a very reassuring backlog of copper, and if we could
go back to the former praeticei of importing, say, 25 percent of our
copper needs, possibly the whole situation would work out better.
But to stop entirely the production of things which we can economi-
cally produce in the United States and build up large stock piles of
the foreign product except for military needs is an expedient of which
there is a great deal of difference of opinion.
Producers generally have a great deal of fear of stock piles, which
they think hang over the market in a very disturbing way.
Mr. WoRLEY. Thank you very much.
Mr. Bland. I want to congratulate Mr. Patchin.
Mr. WoRLEY. We understand, Mr. Koth, that you were in a Liberty
ship coming over here.
POST-WAR ECONOMIC POLICY AND PLANNING 1009
Mr. Roth. That's right. From out in the wilds of New Jersey.
[Laughter.]
Mr. WoELEY. I didn't know whether you were held up by that or the
parade downtown.
Mr. Roth. Wasn't the hour 2 : 30 ?
Mr. WoRLEY. It is now. [Laughter.]
Mr. Roth. Well, I apologize.
Mr. WoRLEY. That is all right. We understand these transporta-
tion problems.
The next witness, of course, is Mr. Almon E. Roth, president,
National Federation of American Shipping.
AVill you give the committee some idea of the position of the
National Federation of American Shipping?
Mr. Roth. Yes ; I shall be very glad to.
STATEMENT OF ALMON E. HOTH, PRESIDENT, NATIONAL FEDERA-
TION OF AMERICAN SHIPPING, INC., WASHINGTON, D. C.
The National Federation of American Shipping is an over-all organ-
ization comprised of five of the principal associations which represent
shipowners; that is, people who are in the shipping business and were
before the war and expect to be in it after the war, and which com-
prises within its constituent membership about 95 percent of all the
tonnage which was owned and privately operated in this country at
the beginning of the war; that is, the owners of that tonnage. It has
among its members the tankers and colliers and coastal vessels, inter-
coastal vessels, and overseas operators.
Mr. WoRLEY. Is it like the American Maritime Council?
Mr. Roth. The American Maritime Council was organized pre-
viously to do somewhat the same service and has not been as active
recentl}', but did have a number of people who are now in the over-all
organization. It wasn't as comprehensive as the federation.
Mr. WoRLEY. How old is the federation ?
Mr. Roth. It was organized in January of this year and began func-
tioning about the first of March.
We have our principal office in Washington at 1341 Connecticut
Avenue.
Our directors usually meet in New York because that happens to
be the place of business of most of the principal companies.
Mr. Worij:y. This federation is interested, I presume, in building
up foreign trade after the war.
Mr. Roth. Well, the Federation was formed primarily for the pur-
pose of providing a central organization which could study the
problems which may especially confront it and if possible arrive at
some unanimity of opinion as to how they might best be solved and to
speak in an authoritative voice for shipping in somewhat the same
manner as the American Association of Railroads speaks for the rail-
roads and very much like the British Shipping Council speaks for
the British industry.
Mr. WoKLEY. You have a prepared statement?
Mr. Roth. I do. I don't know how you would like to have that
done. I can read it and have you interpolate, if that is satisfactory.
Mr. WoRLEY. That is quite satisfactory. We will interrupt you as
you go along.
1010 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. Roth. I tliou<?lit as a matter of record it probably was as well
to put into the proceedings of this hearing some reasons why we need
an American merchant marine, although I think this committee is
fully conscious of that. I thought as a matter of record we should
make a full presentation, not only of some of the problems that involve
shipping in the post-war period but some of the fundamental reasons
why this country should keep in mind this need.
Mr. WoRLEY. We will be very glad to have you do so.
Mr, Roth. The magnificent victory of our Navy over the Japanese
fleet, coupled with General MacArthur's landing in the central Philip-
pines, marks the turning point in the Pacific war and is another dra-
matic attestation of the power of the American Merchant Marine as
an auxiliary to our Army and Navy.
As a result of the difficulties which we have faced due to the lack
of shipping, and because of the important role which merchant ships
will continue to play throughout tliis war, the American public is for
the moment merchant marine-minded. There is hardly a family in
this broad land which does not have a very direct and personal stake
in the adequacy of our American merchant marine.
Millions of our sons and daughters have been carried to far distant
shores in merchant ships. The speed with which they will be returned
to their homes and families, when the war is ended, will depend largely
upon the number of ships available for their transportation. In the
meanthne their comfort, their health, and their efficiency as fighting
men will depend upon our ability to furnish them with requisite equip-
ment and supplies. No single factor bears more directly upon the
probable length of this war than our ability to transport men and
equipment by ships and to keep them properly supplied.
But we must not be misled into false security.
If history repeats itself the popular interest of the moment is no
guarantee of continued support for a strong merchant marine once
the war has ended.
For many 5^ears it has been the declared national policy to maintain
a merchant marine adequate for purposes of defense and sufficient to
carry our domestic water-borne commerce, and a substantial portion
of our foreign trade.
Unfortunately, however, we have been long on preachment and
short on practice.
The First World War, like this conflict, found us woefully unpre-
pared with shipping facilities. Then, as now, we built shipyards and
ships without regard for cost in a frantic race against time.
When the war ended we immediately folded our hands and allowed
our new merchant marine, built at such great cost and effort, to rust
and rot. We did not build one new dry-cargo ship in the United
States for use in foreign trade between 1922 and 1936. We became a
fifth-rate maritime power. There grew up in this country a con-
siderably body of fallacious public opinion which held that we did not
need a merchant marine ; that, indeed, an adequate merchant fleet was
a positive national detriment because other countries, unless allowed
to sell us shipping services, would not buy our products.
Wlien this war struck the United States two fortuitous circum-
stances saved us from the full consequences of our folly.
POST-WAR ECONOMIC POLICY AND PLANNING 1011
Fortunately, in 1936, Congress authorized a program which called for
the construction of 500 ships during the next 10 years. Although the-
first ship under this program was not launched until April 1939, the
Maritime Commission, under the able chairmanship of Admiral Land,
and the efficient vice chairmanship of Admiral Vickery, had done much
valuable planning and spadework before the outbreak of war. This
pre-war planning greatly facilitated our ship-construction program.
The second fortuitous circumstance, which too often has been over-
looked, was that, notwithstanding the lack of popular interest m our
merchant marine, we did in fact have at least the nucleus of an efl&-
ciently managed and operated maritime industry. This nucleus has
proved invaluable in our war effort.
The shipping industry began converting to a full wartime basis
well before Pearl Harbor. Today it is the only major transportation
facility in the country which is wholly devoted to war purposes.
Every one of its ships, and practically all of its shore establishments,
have been engaged in full-time war pursuits since Pearl Harbor.
Not many Americans understand that, while the Maritime Com-
mission has carried on and supervised the gigantic tasks of building
ships, the major portion of our tonnage is actually operated by Ameri-
can private shipping firms. In cooperation with the War Shipping
Administration our private operators have kept our ships moving
in all the seven seas and to and from ports where American ships never
have called before. . . .
The splendid tribute which the Maritime Commission recently paid
to the ship operators, through the medium of the Victory Fleet Day
celebration, is a well-deserved recognition of their outstanding con-
tribution to the war effort. _ ,,. , . . -n
Because of the tendency of the American public to forget quickly
the lessons of war, it seems advisable to summarize, for the records
of this hearing, the reasons why this Nation requires an adequate
merchant marine in both war and peacetime.
IMPORTANCE OF OUR MERCHANT NAVY TO NATIONAL DEFENSE
The need of an adequate American marine to serve as Army and
Navy auxiliaries in time of war is obvious. _ _
There should be no doubt in the mind of any American citizen that
the cost of this war in terms of lives, time, and money has been
greatly increased by our lack of sufficient merchant ships at the
outset of hostilities. The tragic lack of ships and the extent to which
this deficiency hampered our fighting forces run like a theme through
the recent reports of Admiral Ernest J. King, commander in chief of
the United States Fleet, and Gen. George C. Marshall, Qiief ot Stall
of the United States Army.
Admiral King said, in part :
No maritime nation has ever been able to fight a war successfully without an
adequate mercliant marine, something we did not have when the two-ocean Navy
was authorized. Although we had made some progress and had for some months
been increasing our defenses in the Western Hemisphere, our armed forces and
our production were not adequately expanded and developed to permit our taking
the over-all offensive in any theater. The Army Ground and Air I orces and our
shipping were not yet prepared to move overseas in sufficient strength for an
offensive and the Navy, even without the losses sustained at Pearl Harbor, could
not alone carry the war to the enemy. We were therefore forced to assume the
1012 POST-WAR ECONOMIC POLICY AND PLANNING
defensive in both oceans, while preparations for an amphibious war were inten-
sified.
General Marshall in his report said, in part :
Our developments were made in the light of limited resources in troops and
equipment at the time and a continued lack of sulticient ocean tonnage or landing
craft, or both, and were influenced also by the length of the turn-around required
of ocean shipping and the limited dock facilities available. For both Great
Britain and the United States, military operations in the Pacific area and in the
Far East created unprecedented logistical problems with respect to shipping.
Time and space factors dictated our strategy to a considerable degree. To
laud and maintain American forces in Australia required more than twice the
shipping tonnage necessary for similar American forces in Europe or north Africa,
shipping limitations precluded the early dispatch of large bodies of ground troops.
Still quoting General Marshall:
In planning the north African campaign, the military desired to make initial
landings to the east of Algiers, but the lack of shipping and of landing boats
and aircraft carriers at the time made this procedure impracticable. It was
desired to carry out the operation early in the fall, but it was necessary to
delay until November in order to receive a large number of craft from the ship-
yards and provide and train the crews for the operation of these vessels.
In speaking of the volume of shipping required for the conduct of
modern warfare, General Marshall said :
The tremendous amount of shipping required for a modern army is not gen-
erally understood. For instance, in computing initial shipping requirements, an
average of 6 measurement tons of cargo space per man is required. Maintenance
requirements average one measurement ton per man per month.
Admiral Nimitz, now directing attacks almost in the shadow of
the Japanese homeland, recently sent this message to the American
public :
The sea lanes of the Pacific, which have been extended westward more than
4,000 miles in the last year, are crowded with merchant ships engaged in supply-
ing our offensive against Japan. Without these ships of the American maritime
industry, wholly devoted to winning the war, our substantial progress would
not have been possible. This war has fully confirmed the necessity for a strong
and sound merchant marine to be maintained in time of peace. The convincing
way in which this fundamental fact has been demonstrated in the Pacific is
a tribute to the ability and patriotism of the American merchant marine and
augurs well for the future.
At the moment we are quite properly acclaiming our successful in-
vasion of the Philippines ; but let us not forget that it has taken us 2
years and 7 months to fight our way back to the Philippines. The loss
of our fleet at Pearl Harbor made it impossible for us to reinforce
General MacArthur's garrison at Bataan, and lack of shipping, more
than any other factor, has delayed the hour of his return. In the
meantime, we have paid a terrific cost in precious human lives for our
lack of preparedness.
The peacetime functions of our merchant navy are of vital impor-
tance, even though they are not so obvious or spectacular as its wartime
usefulness.
The effectiveness of the availability of an adequate peacetime
merchant marine, as insurance against war, has not been sufficiently
stressed. Ample shipping facilities constitute a potent form of in-
surance against foreign aggression. All potential aggressors realize
that our naval forces would be little value without an adequate ton-
nage of supply and aujxiliary vessels. No one can doubt that Japan's
decision to wage war against this Nation was predicated upon the
POST-WAR ECONOMIC POLICY AND PLANNING 1013
knowledge that this country hieked, not only fighting ships, but also
the merchant ships which would be required to wage an immediate and
effective war in far-distant expanses of the Pacific.
No doubt Germany, by the same token, counted upon the inadequacy
of our shipping facilities in appraising her chances for success when
they plunged the world into conflict.
It is generally recognized that the principal hope for maintaining
future world peace depends upon the willingness and ability of the
Allies to police the world against future wars. Our Nation's responsi-
bility, in this connection, will require the maintenance of a navy several
times the size of our pre-war fleet. This means that our merchant
marine, as an auxiliary to that navy, must be strengthened correspond-
ingly.
The Merchant Marine Act of 1936 declares that —
It is necessary for * * * the development of its foreign and domestic com-
merce that the United States shall have a merchant marine suflScieut to cari-y
its domestic water-borne commerce and a substantial portion of the water-borne
export and import foreign commerce of the United States, and to provide shipping
service on all routes essential for maintaining the flow of such domestic and
foreign water-borne commerce at all times.
This declaration is based upon the following practical considera-
tions
Experience has proved that the possession of a domestic-flag mer-
chant marine is essential to continuity of service by American shippers.
The Maritime Commission, in its Economic Survey of the American
Mea'chant Marine, issued under date of November 10, 1937, laid;
great stress upon this essential function of our merchant marine. I
call your attention to the following conclusions in this report :
The principal advantage which accrues to our foreign commerce from the
possession of a domestic-flag marine is tliat it provides a measure of insurance
against possible interruption of service. For more than half a century, prior
to the World War, the bulk of our exports and imports was carried by foreign
A-essels. Several times during that period we were deprived of a considerable
part of the foreign fleet which customarily served our trade. In the present
unsettled condition of international affairs the United States should avoid undue
dependence upon foreign carriers likely to be withdrawn at a moment's notice.
In the event of war, even with the United States remaining neutral, dependence
on foreign ships would place our overseas trade at the mercy of other nations.
During the World War the withdrawal of alien vessels resulted in a serious dis-
location of our foreign trade at a time when we enjoyed an unprecedented oppor-
tunity to expand our business with other nations. Total world tonnage was
reduced by the destruction of vessels, idleness of the tonnage of the Central
Powers, and the use of ships for military pui'poses by the Allies. American
overseas trade was further affected by the diversion of tonnage to the imperative
commercial needs of other countries.
The most serious reduction in foreign-flag tonnage occurred in trade routes far
removed from the war zone. Direct trade with the Allies was maintained and
^ven improved since these nations looked to the United States for increased sup-
plies. It was necessary, however, for the United States to secure foreign vessels,
to recondition old vesels and build new ones, to divert coastwise steamers to
overseas trade routes, and to press into service sailing ships and antiquated
steamers in order to provide service to foreign markets.
The experiences of the present war have served to emphasize the need
of American tonnage to carry strategic materials to our shores follow-
ing the withdrawal of foreign tonnage for war uses by our allies and
neutrals.
The maintenance of an American merchant marine will insure us
against the possibility of discrimination against our goods on the
1014 POST-WAR ECONOMIC POLICY AND PLANNING
part of foreign lines. Although the Maritime Commission found, in
the above economic survey, that there was little evidence at that time
to support charges of discrimination, it did point out the possibility
of such discrimination in the future, and said, "However, the trend
toward nationalized shipping may increase the potentialities of dis-
crimination in the future — a consideration that should not be ignored.
In any event, the existence of a domestic-flag fleet gives us a weapon
to be used if and when discrimination occurs."
Since this report was written, the trend toward nationalized ship-
ping has continued.
Mr. WoRLEY. Now, Mr. Eoth, Dr. Reed has a question.
Mr. EoTH. Yes, Dr. Reed.
Mr. Reed. That discrimination will still have to be proven to me to
be a sound basis for argument for a maritime fleet. In all of the years
that I have been connected with shipping, I do not think I have ever
seen one instance of discrimination on the part of a foreign-flag vessel
except the type of thing you mentioned where they had to pull off
their vessels for foreign service. It was simply that they had to take
them for national protection.
Now, I have heard that claim of discrimination but I frankly and
honestly have never seen an instance of it in all the years I have
been in foreign trade; and I would still like one or two instances of
that called to my attention.
Mr. Roth. All right, I will do the best I can to prove some instance.
Mr. Bland. There has been a very interesting book written on dis-
crimination of American shipping.
Mr. Roth. I was going to ask Mr. Reed whether he wouldn't agree
that it is a potential.
Mr. Reed. Oh, yes.
Mr. Roth. And as the trend goes toward nationalization the tend-
ency increases.
Mr. Reed. I will agree with that. I think it is to their advantage ta
discriminate, because they want the business. If they don't discrimi-
nate and, if you don't, they don't get it.
Mr. "Woeley. I understand that most of the other nations carry most
of their own shipping in their own bottoms, and I have also heard it
said that if we would do that it would give rise to retaliation. Now,.
have we taken any steps to retaliate against other countries?
Mr. Roth. I don't think it would give rise to retaliation. Every-
thing else being equal I think that we will agree that these nationals
will do what they can to promote trade for their country, because in
many instances the shipping interests and the shipper are in close
collaboration.
For instance, in Japan they did tie in and did everything they could
to provide Japanese trade. Isn't that a fact?
Mr. Worley. About 80 percent I think.
Mr. Reed. That i? a situation which we unfortunately do not have.
Mr. Roth. Well, I think we will all agree, however, that the Japa-
nese, whether it be the Government or shipping interests or whatever^
never would give a break to the American ships in the markets of the
world. Would they?
Mr. Reed. Well, of course, he has many advantages that we cannot
reach so far. I will admit that. For instance, wages.
Mr. Roth. But those are not the only advantages.
POST-WAR ECONOMIC POLICY AND PLANNING 1015
It may be difficult to prove the rebates and things which our ship-
pers claim went on but it certainly has been common talk. •
But the fact that the Japanese handle 80 percent of their business
would be some indication that they did some way control that.
Mr. Eeed. I think so.
I can tell you of one or two instances where the British discrimi-
nated against their own shipping because they said they had to
take the American shipping when they could get it. They said, "I can
take my own whenever I need it."
Mr. Both. But I believe if you had a British line and an American
line both serving South America that the British shipper would give
the break to the British ship.
I would like to think that the American line would do the same
thing.
Mr. WoRiJiY. Are we as realistic?
Mr. Roth. We haven't had enough merchant marine to make it of
a very potent effect. We haven't had a big enough merchant marine
to make any very great impression on the world commerce in recent
years.
The most imporjtant thing — and I think we can all agree on this —
is the question of the quality of the service.
The Maritime Commission found it to be a fact that the operation
of American vessels in many trades improved the services available
to our exporters and importers. It stands to reason that foreign lines
will be inclined to gear their services to the needs of their own national
trade, rather than to those of the United States.
The American merchant marine will be an effective agency for
the development of new foreign trade and commerce.
American shipping companies maintain offices and agents in for-
eign countries which can and should be utilized to greater advantage
than heretofore for the development of new business for American
exporters and importers.
Several of our leading American shipping companies have demon-
strated the possibility of developing markets for American products.
By and large, however, we have not been as energetic in this field
as the British, the Dutch, and several other nations. We need to
develop a more energetic and effective collaboration between sliipping
companies and American producers and importers.
Mr. WoRLEY. Don't you think that is an answer, Mr. Roth— per-
sonal enterprise on the part of the shippers themselves and the ship-
ping companies?
Mr. Roth. It is a correlated effort.
A man told me the other day of a shipping agent in China who was
on his toes. He contacted one of the largest plumbing supply manu-
facturers in this country. They put their sales organization to work
with the shipping company and they developed a lot of business for
the United States. . i i i. t
Now, that is the type of thing all ship companies try to do, but i
think we can do it much better than we have in the past.
That is not true of all of our shipping companies. Some having
related commercial operations to their shipping have done a lot to
brincT the two together, but I think that is one field which we have got
to press and develop through joint action of our shippers and through
our Department of State, which I am happy to know is going to in-
1016 POST-WAR ECONOMIC POLICY AND PLANNING
crease the service it will render in points which will aid shippers and
shipping alike. I understand the past week they have stated they
were going to expand that particular service.
This committee has heard much during these hearings concerning
the necessity of providing foreign countries with some means of ex-
change which will enable them to purchase our goods and services.
One of the principal sources for post-war income of foreign countries
will be the American tourist trade. It is estimated that American
tourists will spend huge sums in foreign countries once the oppor-
tunity to visit them is afforded. Many of these dollars will be used
for the purchase of American products in these various countries.
Who could better promote this Ajnerican tourist business than Ameri-
can passenger lines ?
Assuming that Congress and the American public are fully deter-
mined to hereafter maintain an adequate merchant marine, I should
like to direct your attention to some of the brass-tack problems which
we must solve if the foregoing objectives are to be accomplished.
In analyzing the prospects for successful private operation of our
American merchant marine, it is important that we take a long-time
viewpoint. This analysis, therefore, will be based upon factors and
conditions which seem likely to prevail during the next 20 to 30
years.
It is also important to differentiate between our domestic shipping
and our overseas shipping. It should be borne in mind that domestic
shipping does not receive any subsidies for either construction or
operating differentials. Under present laws American ship operators
are not permitted to purchase vessels in foreign markets for use in
domestic service. Operators who engage in foreign trade, on the
other hand, are permitted to either purchase tonnage from foreign
shipyards, at prices which are substantially lower tlian American costs
of construction, or buy American-constructed ships with the benefit
of construction differential allowances which reduce their cost to the
foreign cost of construction.
There is a tendency on the part of the public to think of our mer-
chant-marine problems solely in terms of foreign competition and
prospects for international trade, and to pay little attention to the
fact that domestic shipping is concerned with competition with rail
lines, trucks, and busses.
If we are to have an adequate American merchant marine, both
domestic and foreign shipping must earn a reasonable profit under
competitive conditions which are quite distinct and different.
In this connection it is important to note that as of June 30, 1939,
our active American merchant marine amounted to 9,303,228 tons, of
which only 2,803,900 tons was engaged in foreign commerce. The
balance, or roughly 70 percent, was employed in domestic trades.
It is quite evident that post-war competition for both branches of
our merchant marine will be the keenest whicli we have ever faced.
In the domestic field the commerce which was formerly serviced by our
water carriers is now being handled by their rivals, the railroads
and truck lines. There is every indication that these rival forms of
transportation will do everything possible to hold this business. Our
coastwise and intercoastal steamship companies, which have been fully
engaged in the war effort, must therefore start from scratch and
recapture their patronage.
POST-WAR ECONOMIC POLICY AND PLANNING 1017
Some months ago Admiral Land made the observation that the prin-
cipal hope for the enlargement of our American merchant marine lay
in the baking of a bigger pie of international trade. No one can
predict what size the pie will be. It seems certain, however, that
irrespective of its size, post-war international trade will have to be
divided among an enlarged number of participants.
Several of our South American neighbors, including Argentina,
Brazil, and Chile, have indicated their intention of expanding their
merchant marine fleets.
Canada is planning an extension of its tonnage.
South Africa is planning to build and operate ships.
China hopes to carry its domestic commerce in its own bottoms, and
to participate to some extent in international trade.
Mr. WoRLEY. Do you suppose these nations will be interested in buy-
ing some of our surplus ships?
Mr. EoTH. I think they will be very interested in chartering them.
I will have something to say on that a little later.
No one seems to knoAV what Russia's plans may be, but there are
indications that Russia also intends to enter the maritime field.
It may surprise you to learn that even Switzerland is now operating
eight merchant ships, and is talking seriously of maintaining a post-
war Swiss merchant marine.
All of the traditional pre-war maritime nations are hoping to ex-
pand their shipping facilities in the post-war period. With this ap-
parent universal enthusiasm for national flag services, there is a strong
likelihood that we may again witness an overtonnage of world require-
ments. Our British cousins are keenly conscious of this possibility.
In a recent statement by the British Shipping Council, it is sug-
gested tliat post-war shipping should be conducted by private enter-
prise under free competition subject to international agreements: To
keep freight rates at an economic level and to adjust the supply of
ships to demand through the reorganization of the post-Avar machinery
of the Liner Conference, Tanker Pool, and Tramp Shipping Admin-
istrative Committee.
I am not prepared at this time to say how or through what agencies
the above objectives can be accomplished, but I do agree that they are
higldy desirable.
At first blusli. it might seem that shipping losses during the war, and
the likelihood that the United States may withdraw some of its excess
tonnage from active service and impound it as a defense reserve, would
prevent overtonnage. These two factors, however, will be largely if
not entirely offset by the increased shipbuilding activities which many
countries contemplate.
Let us now examine the advantages and disadvantages which Amer-
ican private industry will face in the highly competitive post-war
field of shipping.
It is obvious that our principal, and possibly our sole advantage,
lies in the fact that we will have the world's largest merchant marine
fleet at our disposal when hostilities end. At the moment, the United
States is operating approximately 40,000,000 tons of shipping. At
the beginning of the war we had approximately 11,000,000 tons of
merchant ships, and England had approximately 30,000,000 tons. As
a result of the misfortunes of war and our gigantic building program,
the tables are now turned. It is estimated that England will have
1018 POST-WAR ECONOMIC POLICY AND PLANNING
approximately 10,000,000 tons and that we shall have in excess of
30,000,000.
There is an old saying that all that glitters is not gold, which may
well apply to our vast tonnage of the moment. Our advantage with
respect to available tonnage is subject to the following qualifications:
There is no assurance that we shall have a surplus, or even a suffi-
cient number of fast and economical ships of the C and Victory types
available for private operation. It is generally conceded that the
Liberties, of which we will have approximately 2,300 ships, are not well
adapted to the requirements of most types of both foreign and domestic
service.
We shall be at gre^t disadvantage so far as passenger tonnage is
•concerned. Many of our best passenger liners have been lost during
the war, and others have been so radically converted for war purposes
that there is little likelihood of their reconversion for passenger serv-
ice. In some cases it has been estimated that the cost of reconversion
would approximate the cost of new construction.
In view of the avowed plans of our foreign competitors to reestab-
lish their fleets with modern, specialized vessels as early as possible,
the advantage which we will enjoy on account of our existing Ameri-
can tonnage, at best, will be a temporary one.
There is a tendency on the part of many of our citizens to assume
that the availability of our vast tonnage insures the maintenance of an
adequate post-war American merchant marine. This is a false as-
:Sumption. In the last analysis, the ability of this Nation to operate
and maintain a sound and adequate American merchant marine, will
depend upon the ability of American shipping companies to render
services at reasonable costs, in competition with foreign steamship
lines and other forms of domestic transportation.
Such service must be rendered on a basis which will not only pro-
vide reasonable operating profits but will also permit the replace-
ment and modernization of American merchant ships. In other
words, even if we have vessels, and even if cargoes are available, our
American ships eventually will disappear from the seas, as they have
in the past, unless they can be operated profitably in competition with
our competitors. In the long run, the crux of the matter lies in
our ability to compete, rather than in the availability of ships or
the volume of world commerce.
We must face the fact that we shall be at a serious disadvantage so
far as operating costs are concerned. It is generally agreed that our
operating costs in the pre-war period were at least 50 percent higher,
on the average, than those of our competitors. This serious adverse
differential will no doubt continue to plague us. There is no point
to be gained by glossing over the true facts. In order to compete
successfully we must overcome this operating differential, and this
is equally true whether we have private operation or Government
operation.
And I cannot overstress that. In the long run the crux of the
matter lies in our ability to compete. We have got to be realistic
in this thing and face the fact that we will be at a very serious disad-
vantage so far as operating costs are concerned
Mr. WoRLEY. Is that why our merchant marine went down prior
to the war, because we could not compete with other countries ?
Mr. Roth. That is the crux. ^
I
POST-WAR ECONOMIC POLICY AND PLANNING 1019
Mr. WoRLEY. In an effort to bolster them or help that we passed this
bill in 1936 to help them with operating differentials. Did that have
any effect?
Mr. Roth. It did have an effect. We were on the upgrade as a
result of the policy laid down in 1&36.
But here is an interesting thing :
Only about 17 percent of the over-all tonnage of the merchant ma-
rine was subsidized, and by my own figures 70 percent of it was not
entitled to subsidy because it was not engaged in foreign trade. There
are disadvantages in the subsidy arrangement. It calls for certain
Government controls and restrictions. The shipowners prefer the
independence of action and judgment, but even so, if it had not been
for the act there is no doubt but what we would be in a much worse
position than we are in. We do have a more efficient and a faster-
growing merchant marine than we had a few years before.
Our experience with Government operation following the last war
conclusively demonstrated that the Government is as allergic to red
ink as private operators. As soon as operations began to show great
losses the Government disposed of its fleet at the best prices obtain-
able and abandoned any hope of successful Government operation.
Another practical difficulty which this Nation will face in its efforts
to maintain a sound American merchant marine will be the reluc-
tance of American investors to risk their capital in the shipping
business. Frankly speaking, the past record of shipping earnings
does not inspire confidence in the future.
I hope you will not assume from what I have said that American
private enterprise intends to throw in the sponge and admit its in-
ability to operate successfully. American ship operators are pre-
pared to tackle the tough job which lies ahead, but they are troubled
by many uncertainties and perplexing problems.
They find it extremely difficult to make definite plans for the fu-
ture, in the absence of more accurate information, as to costs of ne"v^
tonnage, volume of cargoes, resumption of private operation, future
rate structures, international agreements concerning allocation of ton-
nage and trade routes, and a multitude of other indeterminate factors.
There has been some criticism, both in this country and abroad,
concerning the apparent reluctance of ship operators to present con-
crete post-war shipping plans. Ship operators are not too disturbed
by this criticism of their failure to produce blueprinted solutions of
the many inherent difficulties which are involved in successful private
operation. As practical businessmen, they know there is no black
magic in so-called post-war plans.
The extent to which individual companies will restore or expand
tlieir fleets will be worked out as and when factual data affecting their
ability to successfully operate cei'tain routes and trades are developed.
In many instances it may prove wise to charter rather than purchase
vessels, pending future developments.
While it is impossible to blueprint tlie future of the American
merchant marine, it is important for us to give attention at this time
to certain objectives and measures which will enhance the prospect of
successful private operation.
I shall not attempt to fully develop these various items, but will
merely outline them.
99579 — 45— pt. 4 27
1020 POST-WAR ECONOMIC POLICY AND PLANNING
We must reduce the cost of operation by increasing efficiency at
sea and ashore.
Generally speaking, it has been possible to maintain high wages
and high standards of living in this country only because man-hour
output in our basic industries has been high in comparison with other
countries. The same principle applies to shipping. The following
measures will increase efficiency : Piers and other port facilities should
be improved and modernized. Most European ports have been de-
stroyed. In all likelihood, they will be fully modernized when
restored. Many American port facilities are greatly in need of
modernization.
Mr. WoRLEY. Mr. Patchin, with the Grace Line Co., testified this
morning that his company had already bought 12 or 13 ships, or were
negotiating, with the Maritime Commission. Do you know whether
the members of your federation are likewise purchasing from the
merchant marine ?
Mr. Roth. Mr. Patchin 's company is a member of our federation.
But you cannot take the experience of one, two, or three, or four
leading shipping companies as typical. The W. R. Grace Co. is one
of our most successful concerns ; it has confined its operations largely,
as have United States Lines and Matson, to well -developed trade
routes.
The fact these people are in a position where, through their energy,
they have built up a nice business for themselves does not mean we
can assume that others can buy ships at this time. There are not many
American ship lines that do operate on the basis of the three or four
individually mentioned here.
Now those people know they are in a market which they will prob-
ably hold.
They have been in there a long time, they have been successful
operators, and can go ahead with more assurance than people who
are counting on trade from Africa or Europe or Asia.
You will find other operators who are today buying ships, but
there aren't many of them who can tell you how many they can use.
As a matter of fact, the Maritime Commission has just written
a letter to Judge Bland saying that it cannot tell yet what trade
routes will be available after the war.
You have the Maritime Commission and the Navy spending some
$82,000 for promoting a report by Harvard University to provide
the answers they expect us to make now.
It is not bothering us but the fact is nobody knows these answers
Mr. WoRLEY. Well, we want your criticisms, suggestions, and com-
ments and everything you have to offer.
Mr. Roth. I am afraid I have disproved the point that the ship-
owners are not bothered by these criticisms, but the Maritime Com-
mission and the Navy are spending $82,000 to get the answers.
Mr. WoRLEY. Who "is spending $82,000?
Mr. Roth. The Navy and the Maritime Commission to get a survey
on some of these answers.
Mr. WoRLEY. By Harvard University?
Mr. Roth. That's right. And it is a grand thing to do. But I
think it is unfair to criticize shippers for not now knowing what
POST-WAR ECONOMIC POLICY AND PLANNING 1021
they can do when these agencies are going out and getting Harvard
University to give the answers to some of these questions.
Mr. WoELEY. Mr. Folsom has a question.
Mr. FoLSOM. You mentioned that the Matson and Grace Lines are
exceptions to the rule. Do you think it is due to the fact they had a
higher category than that of other countries in line ?
Mr. Roth. I believe that Matson, Grace, and the United States
Lines are exceptions because they have been successful in building
up trade and business on their routes. That is one of the things
that the American merchant marine, by and large, has been derelict in.
Mr. Reed. Mr. Roth, I suppose you include in that consolidation of
lines there a lot of small ones where they would probably be better
off if they consolidated their lines as the British have consolidated
their lines. Would that be one of the indications ?
Mr. Roth. I would not care to express an opinion on that at this
time. The Attorney General may be after me. I would hesitate to
venture an answer. It wouldn't be worth anything. It would be a
horseback opinion.
Mr. Reed. That is one of the strengths of the British line, that
it has its tentacles out to get trade in another place when it declines
in one place.
Mr. Roth. When the Attorney General speaks of participation by
steamships in air transport as a restraint of trade, I am a little
skittish in talking about combinations of any kind. Personally I
think that is an absurd position to takCj and I don't hesitate to say so.
Management must survey its functions with a view to possible
savings and increased efficiency in administration and supervision.
All arbitrary make-work practices and arbitrary restrictions on
individual output, both ashore and at sea, should be abolished.
We must make the fullest possible use of labor-saving machinery.
The last two items are particularly essential to a reduction of our
loading and discharging costs, which sometimes run as high as 40
percent of operating expenses.
Arbitrai-y make-work rules, which have been imposed upon the
shipping industry by maritime unions, have greatly increased the
costs of operation. In some ports the refusal of longshoremen to
permit full use of labor-saving devices has largely nullified techno-
logical improvements. I refer to such practices as unreasonable limi-
tations on the number of trailers which a jitney can haul; insistence
that jitneys return to the ship's side in a fixed order of rotation, irre-
spective of the distance which they travel in delivering cargoes to
points of varying distances; insistence that cargo be loaded to the
jfloor of the dock instead of directly on slingboards; refusal to use
lift trucks.
The most potent and costly restriction on output is the limitation
on the size of the sling load which the I. L. W. U. has forced upon
Pacific coast operators. To illustrate, longshore contracts on the
Pacific coast limit the number of sacks of cement which can be loaded
on a sling board to 20 sacks. In a recent experiment where the United
States Navy handled 28 sacks to the sling load and reduced the num-
ber of men in the gang from 18 to 14, the man-hour production in-
creased 123 percent.
The theory behind these restrictive practices and make-work rules
is that it is greatly to the advantage of labor, at times of slack em-
1022 POST-WAR ECONOMIC POLICY AxNTD PLANNING
ployment, to increase work opportunity by curtailing the output of
the individual. This theory does not take into account the fact that
when the cost of production increases the over-all opportunity for
work is curtailed, or even completely lost, by the inability of the
shipping companies to compete for business at the greatly increased
costs which result from such restrictive practices. In other words,
unless these make-work practices are eliminated, labor may find that
it has killed the goose that lays the golden eggs.
The best interests of labor itself require that the American ship-
ping industry be not hamstrung by such restrictions on output in the
fierce competition which it must face in the post-war period.
We must plan for attractive accommodations and the finest possible
service on our passenger liners if we expect to obtain and hold our
post-war share of passenger traffic. Preliminary discussions with
prominent officials of our maritime unions indicate that they fully
appreciate the necessity of good service and are prepared to cooperate
in achieving the same. It is not too early to begin conferences be-
tween labor and management for the purpose of accomplishing this
end.
We must plan and provide for continued ship construction and
modernization.
It is essential that our American merchant marine be equipped at
all times with modern and efficient vessels. Other nations are laying
great stress upon the need for continued progress in ship design and
construction. New vessels which they build to replace their war losses
are likely to be more efficient than our war-built tonnage. British
shipping interests are insistent upon the need for specialized vessels
to serve particular trades and routes.
A recent Associated Press dispatch from London states :
The General Council of British shipping today advocated the full use of all
available shipping after the war, but urged early scrapping of war-built vessels
in favor of ships constructed for specific purposes.
Now, that is due to the fact that we find that we have to have spe-
cialized types. We have got to have our ships so designed that you
can swing your load to advantage, to save on cost of handling
lumber
Mr. WoRLEY (interposing). Who will build those ships, the British
Government or private shipowners ?
Mr. Roth. I take it they will be built in private shipyards over
there.
Have you seen the report which the President submitted and dis-
cussed with Admiral Land?
Mr. WoRLEY. No ; I haven't. J
Mr. Roth. The press report is from the New York Times of Octo- |
ber 26, 1944, where, following a conference between President Roose-
velt and Mr. Kaiser and Admiral Land, Admiral Land and Mr. Kaiser
were authorized to make a statement, and this is the summary given
by Vice Admiral Land [reading] :
"The President recognizes," Admiral Land said later, "that a program for the
orderly replacing of present vessels over a period of time with improved and
more efficient models will be necessary to maintain a proper American merchant
marine. The Maritime Commission has previously worked on designs and some
new developments. First attention to vessels for war has necessarily restricted
such activity.
POST-WAR ECONOMIC POLICY AND PLANNING 1023
"Now we will proceed with the studies and designs. Construction of these new
types will be scheduled to prevent interference with vessels and materials re-
quired for war. Contracts will be awarded only on a basis of competitive bids."
Mr. Kaiser said :
"Simply stated, the plan as discussed is to accelerate now the Maritime Com-
mission's development, design, and construction of greatly improved types of
passenger, cargo, and coastwise vessels. Most of present maritime ships were
designed before the war and will compete in world trade for some time. 'How-
ever, to keep abreast of world maritime development it is necessary that the
United States inaugurate now a bold program of such development and con-
struction,' the President said. 'Thus we have new ships ready to replace present
ones and thereby maintain the future competitive position of the American
merchant marine.' "
So apparently we see eye to eye with our British cousins on the need
of having specialized and special designed ships.
Now, continuing the Associated Press Dispatch from London:
"Lost vesssels have been replaced largely by one type of ship, the KXOOO-
tonner," the report said, adding that "permanent operation of a large volume of
war-built vessels would invite disaster both for the maritime industry and the
shipyards.
"The sterilization of unsuitable shipping might seem extravagant, but the
price would be cheap if England could secure an efficient merchant marine
containing various types of vessels."
By the same token, the United States cannot lag behind in tech-
nological advances and hope to compete against more modern and
efficient foreign vessels. Our best vessels of today will become com-
petitively obsolete in a relatively few years.
Ti-ansfers to foreign nations should be by sale rather than charter.
If American operators invest their money in war-built tonnage,
it is only fair to require that our foreign competitors do likewise. In
such an event we shall have a parity of capital structure and com-
petition will be on the basis of comparable vessels during the period
of active use thereof.
It has been suggested in some quarters that this country should
lease its surplus tonnage to foreign competitors on favorable terms,
until such time as they can build themselves new tonnage. Since such
new ships undoubtedly would be more modern and efficient than our
own war-built tonnage, such a course obviously would be greatly to
the disadvantage of American shipping.
In view of this country's contribution to the Allied cause through
its gigantic and expensive shipbuilding program Isuch voluntary
sacrifice of our own interest hardly seems called for.
We should strive for the restoration of private operation at the
earliest moment consistent with military requirements. In the mean-
time, it seems highly desirable to protect our competitive position
by freezing American vessels in their customary trade routes when-
ever possible, even though operations are still for Government ac-
count. Our War Shipping Administration is fully conscious of the
necessity of protecting the interests of American shipping and this
matter safely can be entrusted to its competent hands.
At the moment the shipping facilities of the Allied countries and
major neutrals are being pooled in one joint arrangement for the
prosecution of the war. Centralized control and allocation of ships
and cargoes have resulted in vast savings of time and space, and have
greatly increased the efficiency of the Allied war effort.
1024 POST-WAR ECONOMIC POLICY AND PLANNING
Announcement recently has been made of the extension of this
arrangement for a period ending 6 months after the end of hostilities
in Europe and the Pacific area. One of our major and most difficult
post-war problems will be to unscramble this international pooling
arrangement and effectuate the resumption of private enterprise as,
when, and where it becomes possible.
The new international contract for the extension of joint shipping
operations provides that the contracting governments agree not to
release from control any ships under their authority or permit them
to be employed in any nonessential services or for any nonessential
cargo unless the total over-all tonnage is in excess of the total over-all
requirements, and then only in accordance with a mutually acceptable
formula which shall not discriminate against the commercial shipping
interests of any nation and shall extend to all contracting governments
an equitable opportunity for their respective tonnages to engage in
commercial trades.
It should be noted that the formula by which commercial operations
are to be resumed has not yet been agreed upon. It will not be a
simple matter to work out a formula for the resumption of commercial
operations which will be mutually acceptable to all countries involved.
The successful operation of the joint pool to date gives hope, however,
for continued harmony and satisfactory solutions.
It is essential that any formula for the disposal of war-built tonnage
to private operators take into account the necessity for capital struc-
tures which will permit profitable operations. While the prices fixed
in H. R. 4486 may meet the needs of our foreign operators, I am quite
sure that no one will contend that they are low enough to permit suc-
cessful operation in the domestic trade.
Over a period of some 20 years our intercoastal shipping as a whole
lost money operating with vessels which were capitalized at much
lower values than those fixed in this bill.
If we cannot devise a formula at this time which will meet the needs
of the domestic trade, let us be frank and say so and not pass legislation
which will tie the hands of the United States Maritime Commission by
fixing prices at levels which do violence to known facts, and preclude
future sales at prices which are based on earning possibilities.
The important consideration in fixing sales prices should be the
ability of our merchant marine to operate successfully at the prices
fixed, rather than the fixing of a formula which will relieve the
Maritime Commission from responsibility for exercising judgment in
accordance with the facts as they develop.
The fact that it is difficult at this time to base prices on unknown
earning possibilities is no justification for adopting a handy yard-
stick.
Construction and operating subsidies must be continued as provided
for in the Merchant Marine Act of 1936.
The same reasons which made it necessary to provide parity allow-
ances to encourage the development of our foreign shipping during
the pre-war era, will pertain to post-war conditions. In this connec-
tion it is important to note that so-called subsidies are not bounties
to shipowners, but parity allowances which inure to the benefit of our
shipj^ards and American seamen. These equalization allowances are
designed to encourage the construction of ships in American shipyards
POST-WAR ECONOMIC POLICY AND PLANNING 1025
and to make possible the payment of high wage scales to our merchant
marine personnel.
Some of our foreign competitors have contended that our construc-
tion and operating differentials constitute a form of unfair competi-
tion. Nothing could be further from the truth. If construction and
operating differentials are correctly estimated, the American operator
who receives such allowances will have no undue advantage over his
foreign competitor. He will merely start from scratch on the basis
of equalized operating costs.
When we realize that this Nation spent in excess of $15,000,000,000
to provide itself and its allies with vital shipping facilities for the
prosecution of this war, the amount which we may spend in parity
payments for the purpose of maintaining an adequate and efficient
American merchant marine, as insurance against war, seems relatively
insignificant.
We must take every possible measure to provide American private
operators with essential cargoes and a fair share of passenger business.
To this end, the following steps should be taken :
The unquestioned right of American steamships to engage in inter-
national air transport should be affirmed at the earliest possible date.
Other great maritime nations, including France, Sweden, the Neth-
erlands, Britain, and Canada, are organizing to employ the airplane
to supplement their regular steamship operations. Unless American
steamship lines are permitted to do likewise, they will be placed at a
great disadvantage in the post-war competition for overseas passenger
business.
American domestic air lines are prepared to enter the overseas
passenger and express cargo business inmiediately upon the cessation
of hostilities.
It is a well-known fact that foreign passenger lines, notably the
British, were never converted to war as fully as were our own passenger
liners, and can be restored to normal conunercial service at a much
earlier date. American steamship companies will have no passenger
ships for months, and perhaps years to come, with which to service
the trade routes they pioneered over many decades, at the expenditure
of many millions of dollars, and years of endeavor.
Unless steamship companies are permitted to participate in over-
seas air transport, offering first an air service to their regular cus-
tomers, adding to this the services of surface ships when they become
available, the steamship companies are likely to find themselves out
in the cold so far as their traditional passenger and light cargo
operations are concerned.
Our country must always have passenger steamers as important
adjuncts to our Navy. Every passenger ship is a potential troop
carrier.
At the moment the planning of the construction of new passenger
vessels is being hampered by uncertainty as to the possibility of using
air transport to supplement steamship services.
American steamship lines have built up connections and facilities
which will be of tremendous value for the development of American
aviation interests. From the standpoint of aviation, as well as the
steamship business, it would be sheer folly for this Nation not to take
advantage of steamship know-how and overseas contacts and facilities
to develop our transoceanic business.
1026 POST-WAR ECONOMIC POLICY AND PLANNING
I especially call the attention of this committee to the proceedings
of the recent hearings before the House Committee on Merchant
Marine and Fisheries (H. R. 52), dealing with the subject of air
transport by steamship companies.
Your particular attention is directed to the letter from Admiral
Land to the Merchant Marine and Fisheries Committee, which is
incorporated in these proceedings, and the action which the subcom-
mittee has taken in support of the right of steamship lines to engage!
in air transport.
I should also like to file, for your records, the following documents :
(1) Statement by Almon E. Roth, president of the National Feder-
ation of American Shipping, before the eighteenth annual meeting of
the Propeller Club of the United States, dated October 19, 1944,
entitled "Maritime's Interest in the Air Market." ^
(2) Statement of policy, issued by the National Federation of
American Shipping, on behalf of applicant steamship companies.
(3) Brief issued by the National Federation of American Shipping
prepared by Mr. Sam G. Baggett, general counsel of the United Fruit
Co., in collaboration with Mr. J. Raymond Hoover, of the District of
Columbia bar.
(4) Copy of a study by the distinguished authority on transporta-
tion. Dr. T. W. Van Metre, of Columbia University, entitled "Ameri-
can Transportation Policy."
Mr. WoRLEY. We will be glad to have them.
In that connection, we are running short of time. Could you men-
tion briefly the other three points ?
Mr. Roth. Yes. And I will now.
Private industry must be protected against competition by Gov-
ernment-owned vessels which may be taken off the market and re-
served for national defense purposes, and later restored to active serv-
ice. It is unreasonable to expect private industry to risk its capital
in the purchase and operation of ships unless it is assured of sudh
protction.
Government and military supplies should be transported in privately
operated ships insofar as may be practicable.
Mr. WoRLEY. Are you in favor of that sanctuary principle ?
Mr. Roth. I am for such ships as we need to set aside. I think it
would be a mistake to over-ton our ships and that would be the only
way that we could take care of our needs and our national defense
requirements.
There is no good reason why either the Army or the Navy should
continue to carry Government supplies over commercial routes, in
times of peace, provided that such supplies can be transported by pri-
vately operated American ships at no increased cost to the Gov-
ernment.
Experience has shown that private industry can handle many mili-
tary supplies and Government supplies at lower cost than the Gov-
ernment itself.
Deterrents to private investment in shipping must be minimized.
There is a natural reluctance on the part of investors to risk their
capital in a business unless they have freedom of initiative and judg-
1 Documents 1 and 2 are marked "Exhibit No. 28" and "Exhibit No. 29" and are found
in the appendix on pp. 1212 to 1219. Documents 3 and 4 are in committee files.
POST-WAR ECONOMIC POLICY AND PLANNING 1027
ment in the operation of that business. Government restraints and
controls, which interfere with such freedom of action, should there-
fore be eliminated or at least minimized to the greatest possible ex-
tent. It is inherent in the system of private enterprise that the
investor who risks his money should be given the opportunity to exer-
cise his judgment in the conduct of the operations which determine
earning capacity.
Nonsubsidized operators should be given encouragement for the
creation of replacement reserves by tax relief and otherwise. Such
reserves should be usable for the purchase of either new or old tonnage,
in accordance with the business judgment of the operator.
I am fully aware of the advisability, from the standpoint of our
national defense, of encouraging the use of new and modern ships. On
the other hand, I think it is important that we should not lose sight
of the fact that, even from the standpoint of our national defense, it
is better to have old ships in successful operation than no ships at all.
Experience has shown that it is impracticable from an economic stand-
point to purchase and operate new equipment in some of our coastal
and intercoastal trades.
And on that point I would like to include as part of my statement
this statement by Mr. Donald S. Morrison :
Congress and the Maritime Commission have time and again recognized the
value of domestic and other unsubsidized shipping to national defense and
the important part these facilities play in our economic life. The experience
of the past 4 years has strikingly emphasized the availability of domestic ship-
ping in times of national emergency ; and the discontinuance of most domestic
shipping services during the war has impressed American industry vpith the
realization that low-cost water transportation is essential to its complete develop-
ment in times of peace.
If then, we start with the premise that the maintenance and development of
domestic and other unsubsidized shipping sei'vices are in the public interest,
the question to be answered is whether adequate unsubsidized service can be
maintained and developed without relief from taxation, and if not, what relief
is necessary to effectively accomplish this result.
From the point of view of an intercoastal operator, I think it is clear that
adequate reserves for replacements cannot be set aside from earnings without
relief from wartime taxation. Maritime Commission reports show that inter-
coastal lines lost many millions of dollars in the interval between the two World
Wars. These losses cannot be recouped nor can funds be provided for replace-
ments from wartime earnings with an excess-profits tax of 95 percent. The
experience of our company shows that, since the I'equisitioning of its fleet by
the Government in January 1942, up to the end of September 1944, the aggregate
net earnings from requisition hire fall far short of covering the cost of building
2 new cargo ships of the same general type as the 32 that were made available
to the Government when ships were in great demand and their earning power
substantial.
To be equitable the tax relief accorded intercoastal carriers should not be
less than that accorded subsidized lines who compete directly with them, and
to be effective it must cover the period of high earnings and heavy taxation.
The extent to which the intercoastal owner may be prejudiced by this dis-
crimination is not measured merely by the subsidized competition operating in
the trade before the war, but must take into consideration the many other
routes, involving intercoastal transportation, on which operating subsidies may
be granted, as well as the possible transfer to intercoastal operation of many
vessels built or paid for from tax-exempt earnings.
Another tax discrimination against the unsubsidized owner arises out of the
construction placed upon section 511 of the Merchant Marine Act by the Com-
missioner of Internal Revenue which denies the owner, who has established a
construction reserve fund, the right to replace vessels lost or requisitioned under
section 112 (f) of the Internal Revenue Code.
1028 POST-WAR ECONOMIC POLICY AND PLANNING
The practical consequences of this ruling are that it compels the owner to
decide within 60 days of the collection of proceeds from a loss or requisitioning,
or in the year in which such loss or requisitioning takes place, whichever is the
earlier, whether or not he wishes to replace the lost ship with a ship built sub-
sequent to December 31, 1939, and of a type to be approved by the Maritime
Commission. Having once set up a construction reserve fund, the owner is
on that account denied the use of tax procedure otherwise available to every
taxpayer.
The development of an unsubsidized merchant marine cannot be promoted by
requiring a decision materially affecting the type of ship to be acquired long in
advance of the time when the requirements of post-war commerce are known
and the earning power of shipping property can be intelligently appraised.
Neither can this be accomplished by attempting to compel the owner to invest
his capital in ships built by the Maritime Commission, if, in his experienced
judgment, some other vessel better meets his requirements or represents a
sounder and more profitable investment of his capital. Private enterprise and
initiative will be discouraged if the judgment of a Government bureau is sub-
stituted for the experienced judgment of the shipowner as to the type of ship
required in his business and the price he can afford to pay for it, under penalty
of being deprived of the right to tax procedure universally recognized as equitable
and made available to all other enterprise.
The Maritime Commission has opposed enactment of legislation that would
clarify section 511 on the grounds that such legislation would not result in per-
manent improvement in the type and quality of the merchant marine. The
Commission does not indicate, however, how the type and quality of the merchant
marine can be improved by requiring the owner to decide long in advance the
type of ship which would best suit his needs under conditions that have not yet
been determined, or by substituting their judgment for that of the owner as to
what he can afford to pay for his property.
If the Commission believes it to be in the public interest that the owner invest
his capital in certain types of vessels required in the national defense, then, this
can be accomplished under a system of private enterprise only by making it
at least equally profitable for the owner to so invest his funds but, to suggest
that the owner invest his capital unprofitably or even less profitably in the hope
that somehow, in the long run, the Commission may see to it that he is not
prejudiced thereby, merely substitutes bureaucratic control for private enter-
prise under which success of the enterprise is dependent more on the favors
extended by the bureau rather than on the judgment, efficiency, and enterprise
of the owner.
Jurisdiction over matters relating to shipping should, be centralized
and clarified. A recent survey shows that shipping must deal with
104 different governmental agencies, committees, and departments.
Mr. WoRLEY. In this country?
Mr. EoTH. In this country. We have that in the form of a chart
which I will be very happy to furnish to Mr. Reed.
Mr. WoRLEY. Could you give us a list of those 104 agencies ?
Mr. Roth. I have them on a chart.
Mr. WoRLEY. We will be glad to have it.^
Mr. Roth. I will be glad to furnish it.
Authority over some phases of shipping is either misplaced or
divided among two or more agencies.
Finally, we must do everything possible to convert the present war-
time enthusiasm for an adequate American merchant marine into
practical peacetime support of our merchant fleets.
In the words of a resolution recently adopted by the American
Legion, "American exporters and importers must be encouraged to
patronize American-flag ships to insure their 'sailing full and down.' "
"American cargoes for American ships" must become more than a
mere slogan. It must become a practical reality if we are to succeed
^ In committee flies.
POST-WAR ECONOMIC POLICY AND PLANNING 1029
in maintaining a sound, privately owned and operated American
merchant marine in the post-war period.
It will not be a simple matter to accomplish this objective because
we all know that, despite patriotic inclinations, shippers will be prone
to use those shipping services which offer them the cheapest and most
efficient service.
In the last analysis, the chances for the maintenance of an adequate
post-war American merchant marine will depend upon our ability to
operate with reasonable profits in the keen competitive fields of both
foreign and domestic shipping.
Thank you very much for listening so long.
Mr. WoRLEY. You are going to have to get on your toes and stay on
your toes.
Mr. Roth. We are going to have to reduce our cost of operation,
because we will face the same post-war situation on that as we did in
the pre-war which led to decline of the American merchant marine.
That is the key to the whole thing, to my mind.
Mr. WoRLEY. Thank you very much, Mr. Roth, for your very in-
teresting and informative statement. If you have anything further
you can locate us here.
Mr. Roth. I am still trying to find some answers. I will be very
glad, indeed, to cooperate with the committee.
Mr. Bland. If you two gentlemen find them, will you be kind
enough to pass them over to me ?
[Laughter.]
Mr. WoRLET. The next witness is Mr. W. L. Clayton, Surplus War
Property Administrator.
STATEMENT OE W. L. CLAYTON, SURPLUS WAR PROPERTY
ADMINISTRATOR
Mr. WoRLEY. Mr. Clayton, this committee is interested in foreign
trade and shipping and is charged with the duty of making investiga-
tions to determine, first, if it is desirable for us to increase our foreign
trade; second, if that is desirable, how can we best do it; what assist-
ance will be necessary through the Government; what the Govern-
ment will have to do and what private individuals will have to do.
We will make reports back to the Congress of recommendations
upon which they can act to encourage our foreign trade and shipping.
The first week we had as witnesses members of many government
agencies which had jurisdiction on some of the questions involved in
shipping. This week we have had visitors representing people ac-
tually engaged in that business.
During the course of some of the committee meetings we thought
it would be a good idea to ask some witnesses who have had experience
in private enterprise in foreign trade and shipping and who had had
experience in government so that they could give both views. We
think that you are the best man we could find for that purpose.
We would like to ask you for any information, comments, or sug-
gestions you might have that will enable us to make suitable recom-
mendations back to the Congi'ess, either as a private businessman or
as one occupying a responsible position in the Government.
Mr. Clayton. Well, Mr. Chairman and gentlemen, I think that it
is not only desirable that we increase our foreign trade post-war as
1030 POST-WAR ECONOMIC POLICY AND PLANNING
compared to pre-war, but I think that it is absolutely essential that
we do so if we are to achieve anything like a satisfactory state of
employment in the post-war period.
When war started in Europe in 1939 we had about forty-six and
one-half million people employed in the United States.
We now have a total of approximately 65,000,000 workers, includ-
ing the men and women in the armed services.
It has been estimated by the Committee for Economic Develop-
ment, I believe, that if we could keep employed post war one-half of
those 20,000,000 additional workers over the prewar period, in other
words, if we could have about 57,000,000 people employed post-war,
that would be a satisfactory state of employment, any substantial
number less than that of post-war workers would be an unsatisfactory
state of employment.
Now, I think that to employ any such number of people post-war
we would all agree it is necessary that we greatly expand our pro-
duction post-war. If we do that it is going to be necessary to use a
great many of the facilities we have created for war purposes.
As you know, during the war, there has been relatively little new
private construction in industry but we have had about 15 billion
dollars worth of construction of plants and facilities by the Govern-
ment during the war.
Many of these plants and facilities can easily be converted to peace-
time production, and, as I said a moment ago, I think it will be neces-
sary to use those facilities if we are to employ 57,000,000 people after
the war.
Now, if we use these facilities largely, we will inevitably produce
a great deal more of some things than our domestic population can
possibly use or consume; the result being that we will have to find
markets abroad.
If we are to find markets abroad for the sale of these products we
must buy more foreign goods as well, because in the end the only
way these goods of ours can be paid for is by dollars which will be
created by the sale to us of foreign goods and services; or as the
gentleman who just preceded me said, by the expenditures of Amer-
ican tourists abroad.
How soon this tourist trade can be resumed, none of us know. It
is admitted that in due time it will be a substantial sum.
But by and large the only way that foreigners can pay us is to sell
goods to us. In other words, an exchange of goods.
I think what is necessary to be done to bring about an expanded for-
eign trade is fairly simple.
In the beginning until foreign countries can reconstruct and recon-
vert and get into position to produce and sell us a surplus of goods,
it is going to be necessary to extend some credits.
Mr. WoRLET. Government credit?
Mr. Clayton. I think Government credit.
As you know, at Bretton Woods a tentative agreement was reached
between some 40 nations for the setting up of an international invest-
ment bank with a capital of about ten billions dollars, and that bank
would be in a position to extend very substantial credit abroad for
reconstruction and development.
POST-WAR ECONOMIC POLICY AND PLANNING 1031
Obviously, whatever credits are extended will provide a buying
power for our goods and for the goods of other industrial countries
like Great Britain who are in a position to furnish goods.
It will most of it be capital goods, machinery, and equipment and
things of that sort.
But, in my opinion, such loans would be very unwise — as loans made
following the first war turned out to be extremely unwise — if our set-up
is not such that in due time, as these countries get into production and
increase their wealth and productivity and their exportable surpluses,
we are in position to participate in tlie purchase of those goods and
thereby create the dollars which will be used to amortize and retire
these debts and to buy our goods.
Now, aside from the necessity of loans which I think is there in the
post-war period, in order to create a condition precedent to a sound
operation, I think it is going to be necessary to reduce our tariff to
some extent.
Mr. WoRLEY. All tariffs?
Mr. Clayton. If you mean all rates on everything, I wouldn't say
that. I think it ought to be done in a scientific way, by careful study
as to what perhaps can better be imported to afford a market for
foreign countries that will be buying our goods, and with the least
harm to our industries which have been built up on the basis of tariff
protection.
I haven't prepared any statement, Mr. Chairman.
Mr. WoRLEY. Well, what you have said has been very interesting,
if you care to go on with that.
Mr. Clayton. Well, I think — of course, I do not want to get into a
tariff argument, because that is generally a very fruitless argument
with anybody — but I think the feeling that a great many people have
in this country that our standard of living or our high wages are
the product of a protective tariff is very unsound.
As the gentleman who just preceded me said, our high standard of
living is due largely to our technological progress and our mass pro-
duction and our ability to combine men and capital and experience
into the production of goods in mass quantities at low unit cost, and,
stated in a little more general terms, as I think the economists all
agree, it is due largely to the high proportion of land and capital to
population that we have in this country.
All countries that have a large proportion of capital and land and
wealth to the population have a higher standard of living, obviously,
than the countries that have a small proportion of capital and land to
population.
So I think that while we would have to be careful in tariff revision
to see that we did not take steps which would be so drastic as to
greatly undermine any particular industries, with a careful study of
the situation, we can find many instances in which substantial reduc-
tions can be made in order to greatly increase the flow of goods between
our country and foreign countries.
I think the experience of the Hull trade agreements program has
proven that, and I believe that that same princif)le could be carried
on in the post-war period so that we would have reciprocal reductions
in tariffs and trade barriers between countries which would greatly
enlarge our trade and help to enlarge the trade of the world, with a
resultant increased standard of living in our country and elsewhere.
1032 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. WoRLEY. Do you believe that before we can increase our foreign
trade we will necessarily have to adopt either the recommendation of
the Bretton Woods Conference or some similar recommendation 'i
Mr. Clayton. I think that we will have to have a mechanism for
extending substantial credits in the few years following the end of the
war, because I don't believe that otherwise we can sell the volume of
goods that we should sell, that the world will need, and that we need
to sell in order to keep full employment in this country.
Following the war there is going to be a simply enormous demand
for all kinds of goods which we produce, all over the world,
principally capital goods, in order to reconstruct and develop
backward countries and help repair the damage and destruction of
war ; and we can sell almost any amount that we can make if some way
can be found for the buyers to pay for it ; and, as I say, for a few years
they will not be able to pay by shipment of their own goods, because
they will not be able to get into production quick enough. Of course,
a good many of them have gold and foreign exchange. There are
many countries that have very large balances in this country, and they
will be in position to buy immediately; and a good many countries
have gold which, if they care to part with that, will provide a buying
power in the United States.
But if we want to build the foundations for a permanent expansion
for our foreign trade, which I think is highly essential if we are to
maintain a satisfactory condition of employment in this country, it
will be necessary to effect some further reduction in our protective
tariff, which is still very high even after the Hull trade agreement
programs have brought it down about 25 percent.
Mr. WoRLEY. As you know, down in Texas a lot of people grow
cotton. That is true in part of my district. They are wondering
what are the prospects for an increased production of cotton and its
sale after the war, and all agricultural products.
Mr. Clayton. Well, that depends a great deal oii the ability of the
foreign countries to buy it.
We had, as you know, prior to 1930, a very great trade in United
States-grown cotton all over the world. It was preferred to any
other cotton of similar character. We had built up a goodwill and a
demand for that cotton, which brought into this country every year a
very large revenue from all over the world.
It is a long story, and I don't think you want me to go into it now.
The things that have happened since 1930 have served to greatly
restrict that market, and in the meantime other competitive cotton-
growing countries have greatly increased their production, so that we
would have an uphill fight to recover very much of our trade. But
one of the principal things that made it impossible for us to continue
to market that cotton, in my opinion — market it abroad — was the
passage of the Smoot-Hawley tariff bill in 1930, which made it ahnost
impossible for any foreign country to find the dollars with which to
buy our goods; and in consequence, they either had to cut down
greatly the volume of purchases of our goods or buy them cheaper.
Both things happened, to some extent.
These tariffs that keep the other fellow's goods out are just as effec-
tive in keeping our in, or letting them out only at starvation prices to
the producers ; and that is what happened in cotton in the early thir-
ties.
POST-WAR ECONOMIC POLICY AND PLANNING 1033
Mr. FoLsoM. In regard to these loans, could you tell us what type
of loans they should be — whether they should be from our Govern-
ment to another government or whether they should be guaranteed
loans to private companies, or whether there should be credit insur-
ance or something along that line ?
Mr. Clayton. Well, they should probably take all the different
categories you have mentioned.
For example, we have the Export-Import Bank, which is in posi-
tion to finance export and import trade with what we would call short-
term credit, say up to 2 to 3 years.
Then the proposed International or United Nations Investment
Bank would grant long-term credits for reconstruction and develop-
ment.
By long-term I would say 10, 15, maybe 25 years.
They could be direct to the government, from the bank to the gov-
ernment ; but the idea is, they would largely be to enterprises or de-
velopment projects within a country which would be guaranteed by
the country in which the development was being done and that the
United Nations Bank would guarantee the obligations, and the secu-
rities would then be floated among private investors ; so that the actual
money would be put up by private investors, with the guaranty of
this bank.
That is the plan generally.
I think, following the war, we ought to have, and we will have in all
probability, investment of very large sums of American capital by
American businesses, American corporations, abroad, in the construc-
tion of branch factories, branch offices, or branch businesses of one
kind or another.
I think that is a very sound development and of itself will provide
a certain amount of dollars for the purchase of our surplus production.
And then — that takes in about the three principal categories of lend-
ing, say, of investing abroad — the investing by our private corpora-
tions in the way of building branch factories, and so on ; investment by
private capitalists in this country guaranteed by the United Nations
Investment Bank ; and the investments by that bank in the securities
of governments abroad.
In those three ways we should reach a pretty high volume within 5
years after the war of foreign investment by this country, by citizens
of this country and the two banks, which ought to give us the founda-
tion for very good export trade.
But I want to reemphasize that all of this will be extremely unsound
unless our whole international economy picture is put on a basis where
those people will in due course be able to repay us what they have
borrowed. The United States industries, which have planted their
branches abroad, will be able to receive dividends from the work of
those industries — which also depends upon our willing-ness to buy
foreign products.
Mr. FoLSOM. One means of paying for exports of ours was shipping
services. If we reached a point where we carried a much higher per-
centage of trade in our own ships, we would cut down the buying power
of these foreign countries.
Mr. Clayton. That is true ; and I listened to Mr. Roth testify with
a great deal of interest. I just hope we are not going to find this
1034 POST-WAR ECONOMIC POLICY AND PLANNING
country post-war adopting a policy of trying to keep all the ships that
we will have on hand working in merchant trade in the post-war
period.
In 1939 the world had a total of 72,000,000 dead-weight tons of
ocean shipping, of which our share was lli/^ million tons.
I do not think that I am saying anything that I should not say to
say that if we go along with the shipbuilding program that we have
today until the middle of 1945 the United States will have about 56i/2
million dead-weight tons of ocean shipping, and the world as a whole
will have 95 million dead-weight tons of ocean shipping.
So that we will have acquired by the accident of war an enormously
disproportionate share of the world's shipping.
In my humble judgment, there is only one thing to do under those
circumstances, and that is to try to sell some of those ships to the other
shipbuilding and ship-operating nations of the world — in other words,
the other maritime nations of the world who have lost their ships
during the war — try to sell to them before they build new ships.
If we wait, if we try to charter our ships to them, if we try to oper-
ate them and wait on the situation, what we will find in due time is
we will have our ships tied up in the rivers doing nothing, just as we
did after the last war, and reduced in value to almost nothing, and
the other maritime nations of the world will have built up their mer-
chant fleets and will be doing the business.
I am not a shipping man, but I have had to do with ships all my lifi
in foreign trade, and that is my very humble opinion of it.
Mr. WoRLEY. You do not think, then, that we should scrap any of
our ships?
Mr. Clayton. No; I do not think it would be necessary to scrap
any of our ships.
Mr. WoRLEY. You think that we should sell them to those who will
compete with us?
Mr. Clayton. I think, first of all, we have to take into considera-
tion what number of ships we may need for national defense. I
have no idea what that would be. There are competent authorities,
I suppose, who can fix that figure. And we should provide for that
in some way.
Maybe they should be laid up and saved for that purpose so as
to keep that category of ships entirely separate and apart from what
we try to operate as a merchant business — merchant-shipping business.
Then I think that the remainder should be offered to other mari-
time nations at a figure which will induce them to purchase those
ships instead of building their ships themselves, because if they build
their ships and add to the world tonnage of 95,000,000 dead-weight
tons, which will be 23,000,000 more than the world had in 1939, we
will have a very bad situation in shipping.
Mr. WoELEY. You would suggest that these ships be offered to our
own domestic concerns, would you not ?
Mr. Clayton. Certainly, if they wish to buy them.
Mr. WoRLEY. And then the balance offered to the others, whatever
we consider as excess?
Mr. Clayton. I think so ; but I do not think that we should couple
with the purchases in this country a subsidy program which would
be based on trying to retain in this country in operation the fifty-
POST-WAR ECONOMIC POLICY AND PLANNING 1035
five or fifty-six million tons, or any substantial part of that tonnage,
of ships which we acquired by the accident of war. Because I do
not think it is an economic thing to do. As Mr. Folsom mentioned,
for one thing, if we do it we deprive other countries of the ability
to create by their shipping services the dollars with which they could
buy our goods; and I think we would have subsidized something
for ourselves that we could have got just as well and cheaper from
others.
In other words, we would be buying in the dearest market.
Mr. WoRLEY. Do you think we might be penny wise and pound
foolish in trying to carry 50 percent of our own commerce?
Mr. Clayton. I do not see why we should fix 50 percent or 75 per-
cent, or any other percent, of our commerce that we ought to carry.
I just do not see any sound reason for a formula of that kind. We
might just as well say we will carry it all.
We had, as I said before, about III/2 million dead-weight tons of
ocean shipping when the war started. As Mr. Roth said, a good
deal of it was in the coastwise trade, which is not protected in the same
sense that our other shipping is protected. It had protection by ex-
clusion from that service of any foreign shipping.
Mr. WoRLEY. Sort of a cartel agreement.
Mr. Clayton. I do not think we ought to adopt a subsidy program
with the idea of carrying 50 percent of our foreign trade. I just do
not see the basis for it. I do not see the soundness of it.
Mr. WoRLEY. What do you think should determine how much
of our own commerce we would carry or should carry, Mr. Clayton ?
Mr. Clayton. I think — as I say, I am not in the shipping business,
have never been in the shipping business, and I certainly do not pre-
tend to speak with any authority whatever, but I have had to do
with ships and shipping people all my life, and I have given a great
deal of thought to it, and I would be glad to give you my idea of it
for what it is worth, if anything.
But I think one of the principal things that militates against the
ability of the American flag to compete on the high seas is the con-
struction cost of a ship, which has to be built in this country.
We have shipping companies that operate without a subsidy. There
are several. I know of one in particular that has operated very suc-
cessfully without a subsidy, and they have built their ships in this
country, too.
So that I think if we would equalize or subsidize, if you please — I
hate the word — but if we would subsidize the difference in the con-
struction cost, we would find that we would have quite a sizable mer-
chant marine which for one reason or another could absorb the
operating margin or differential against them; because, as I say, it
has been^done and been done successfully even without any subsidiza-
tion of the construction cost.
I would like to see it tried anyway and see if by that means we
couldn't build up a sound merchant marine of reasonable proportions.
And I think the construction subsidy has a good deal more to
recommend it than the operating subsidy because obviously if we
require that the shipping company, which wants to fly the American
flag, must have their ship built in this country, then we ought to make
it possible for them to have it built here.
99579— 15— pt. 4 28
1036 POST-WAR ECONOMIC POLICY AND PLANNING
And I think that is something that can be defended a good deal
easier than the operating subsidy.
Mr. WoRLEY. Any questions, Mr. Keed?
Mr. Reed. No.
Mr. WoRLEY. There are a lot of questions I would like to ask you.
After we try to digest the information we have had today, if there are
any remaining answers you think you can provide, we will be glad to
have you.
Mr. Clayton. Thank you, sir.
Mr. WoRLEY. Thank you very much, Mr. Clayton, for coming.
Without objection the committee stands adjourned.
POST-WAR ECONOMIC POLICY AND PLANNING
WEDNESDAY, NOVEMBER 29, 1944
House of Representatives,
Subcommittee on Foreign Trade and
Shipping of the Special Committee on
Post- War Economic Policy and Planning,
Washington^ D. G.
The subcommittee met , pursuant to notice, at 10 a. m., in room 1304,
New House Office Building, Hon. Eugene Worley presiding.
Present: Hon. Eugene Worley (presiding) and Hon. Richard J.
Welch.
Also present : G. C. Gamble, economic adviser, Mr. Marion Folsom,
staff director, and Mr. H. B. Arthur, consultant.
Mr. Worley. The committee will be in order.
The subcommittee on Foreign Trade and Shipping of the House
Post-War Committee has been engaged for the past several months
in trying to find answers to some very difficult questions concerning
our f oreigTi trade and shipping.
First, the committee would like to know: Is development of our
foreign trade desirable ? If it is, then how are the best ways to do that ?
We understand, Mr. May, that you can provide all of the answers to
those questions this morning. As I understand it, you have a prepared
statement you would like to read and then may we feel at liberty to
interrupt you during your reading of that ?
Mr. May. At any time, and I will try to answer questions after-
wards if you wish.
STATEMENT OF STACY MAY, CHAIRMAN, COMMITTEE ON INTER-
NATIONAL POLICY OF THE NATIONAL PLANNING ASSOCIATION
Mr. Worley. Will you give your name for the record and state
whom you represent?
Mr. May. My name is Stacy May. I am here at your request, as
chairman of the international committee of the National Planning
Association under whose auspices a report on America's new oppor-
tunities in world trade has just been released, and as the person who
chairmaned that committee I have been asked to come and present in
general the information that was put forward in this report.
INIr. Worley. For the record, Mr. May, would you give us some idea
as to your background in economic matters?
Mr. May. Yes, sir. I have taught in the field of economics for a
good many years at a number of American colleges and universities,
Amherst, Cornell, Dartmouth, and Columbia.
1037
1038 POST-WAR ECONOMIC POLICY AND PLANNING
I was in the social-science division of the Rockefeller Foundation
for about 8 years previous to June 1940, and my duties there were to
try to keep in touch with the work in economics and the other social
sciences of the United States and abroad and to direct a fellowship
program that attempted to steer scholars who were interested in work-
ing with other scholars in their field to the places where the most in-
teresting work in their field was going on.
I came down here in June 1940 to direct research and statistics, as
it was then called, for the National Defense Advisory Council, which
was then changed to O. P. M., and then to the W. P. B. Our organiza-
tion was then called, with the W. P. B., the Bureau of Planning and
Statistics, and with that organization our work was generally to de-
velop the framework of organization to back mobilization for war
production.
Mr. WoRLEY. You appeared before the full committee several
months ago ?
Mr. May. Yes.
Mr. WoELEY. And gave us some very interesting and very informa-
tive testimony. At that time I believe you were with the War Pro-
duction Board ?
Mr. May. I am no longer with them. I have recently taken a posi-
tion with McGraw-Hill Publishing Co.
Mr. WoRLEY. Is that a part of this association ?
Mr. May. No; it is not. This association has no business affiliates
as such.
I believe Mr. McGraw and other members belong to the National
Planning Association, but that is completely fortuitous, so far as I am
concerned, and they join as individual members with other business-
men, labor leaders, and so forth.
Mr. WoRLEY. Could you ^ive us some idea as to make-up of the
National Planning Association?
Mr. May. I believe I can cover that satisfactorily, if I can read my
statement.
Mr. WoRLEY. Go ahead.
Mr. May. The National Planning Association is a private, non-
profit, research, and educational organization now entering its elev-
enth year of work. The association has long felt that national policies
develop as economic interest groups recognize their interdependence.
Its work, therefore, is largely done by committees composed of per-
sons from business, labor, agriculture, and the professions. These in-
dividuals come together to study national problems which affect
them all.
I will interpose here and point out to you that the board of trustees
of the National Planning Association is listed in the front cover of the
full report which has been submitted to you. The names and titles
are as follows :
William L. Batt, chairman.
Robert J. Watt, vice chairman.
Clinton S. Golden, vice chairman.
Stacy May, vice chairman.
Beardsley Ruml, vice chairman.
Theodore W. Schultz, vice chairman.
H. Christian Sonne, chairman, executive committee.
James C. Willson, chairman, finance committee.
S. T. Henry, treasurer.
POST-WAR ECONOMIC POLICY AND PLANNING 1039
Emll Rieve, secretary.
Morris L. Cooke.
E. J. Coil, director.
Charlton Ogburn, counsel.
S. Sloan Colt, Luther H. Gulick, Alvin H. Hansen, Marion H. Hedges, Ernest C,
Kanzler, Murray D. Lincoln, James G. Patton, Clarence E. Pickett, William H.
Schubart, George Soule, Philip C. Staples, Charles J. Stilwell, Charles W. Taussig,
and Charles E, Wilson.
The Committee on International Policy is in itself a joint com-
mittee, in that it is composed of individuals experienced in business,
labor, and agriculture. The personnel of that committee is on page
IV at the beginning of the book and is as follows :
Stacy May, chairman ; assistant to the president, McGraw-Hill Publishing Co.,
and economist to the company.
Frank Altschul, vice chairman ; president of General American Investors, Inc.
Solomon Barkin, director of research, Textile Workers Union of America.
Edward J. Brown, president. International Brotherhood of Electrical Workers.
Wallace Clark, consulting management engineer, Wallace Clark & Co.
Charles Colby, professor of geography. University of Chicago.
Milton Eisenhower, president, Kansas State College of Agriciilture.
E. W. Gaumnitz, executive secretary. National Cheese Institute.
Carter Goodrich, professor of economics, Columbia University.
Allan B. Kline, vice president, Iowa Farm Bureau Federation.
Grover Loening, consultant on aircraft, War Production Board.
Joseph D. McGoldrick, comptroller, city of New York.
Charlton Ogburn, counselor at law.
Robert H. Patchin, vice president, W. R. Grace & Co.
Clarence E. Pickett, executive secretary, American Friends Service Conmaittee.
Clarence Poe, editor. Progressive Farmer.
Victor Reuther, assistant director, war policy division. United Automobile
Workers, Congress of Industrial Organizations.
William Howard Schubart, partner, Lazard Freres & Co.
Theodore W. Schultz, professor of agricultural economics, University of
Chicago.
Robert J. Watt, international representative, American Federation of Labor.
Robert West, president, Esmond Mills.
You will note that it is composed of professional and businessmen,
and there are labor representatives and people interested in agriculture
on it as well.
It is the committee's basic belief that no sharp line can be, or should
be, drawn between national and international problems. Matters
that seem purely domestic in character have international repercus-
sions, and international action often requires domestic readjustments.
The committee has felt that problems of foreign policy are often
studied as if they were totally independent of our domestic problems
and policies. For this reason, the committee has been making a study
of the function of foreign trade and investment in relation to the use
of America's productive facilities and manpower in a full employment
post-war economy. The committee's report — America's New Oppor-
tunities in World Trade, which has been presented to you as an ex-
hibit— is being released to the public today.
I shall attempt to outline its policies in summary form. Please, as
the chairman has suggested, feel free to ask any questions.
The key post-war problem facing the United States is that of learn-
ing how to operate our gigantic economic plant at full capacity for
post-war production, without sacrificing the individual's political and
economic freedoms — freedoms which must be fostered if the purposes
of our form of government are fulfilled. »
1040
POST-WAR ECONOMIC POLICY AND PLANNING
When the war is won, the United States will be the world's greatest
industrial power and the world's greatest creditor Nation, As a con-
sequence of our gigantic wartime effort, we have brought into being
a great expansion of our industrial plant. The magnitude of some
of these expansions may be seen from the following data :
Unit
Production,
1939
Peak wartime
production,
1943
Merchant ships.. _
Aircraft
Aluminum .-
Maimesium
Steel
Copper
Lead
Machine tools
100-octane gasoline
Synthetic rubber..
Tons
Dollars
Pounds
Pounds
Tons
Tons
Tons
Dollars
Barrels daily
Tons
462, 100
$280, 000, 000
327, 089, 000
6,700,122
52, 798, 714
1,009, ,515
498, 000
$200, 000, 000
28, 340
2, 250
19, 784, 300
$25, 000, 000, 000
2, 257, 000, 000
391, 701, 000
88, 837, 000
1, 402, 000
635, 000
$1, 322, 000, 000
340, 000
900, 000
We have listed here the annual production of the United States
for 1939 for a variety of important fields, and then we have lisbed
on the right-hand the annual rate of production at the 1943 peak, which
is very high.
Mr. WoELEY. Which dollar do you use, Mr. May, the 1939 dollar or
the 1944 dollar?
Mr. May. On this table there is no correction for prices and there
is not only a price inflation that is simply the upping of prices be-
tween 1939 and 1943, but there is in some of the finished munitions'
items here, an additional bias in that munitions being made very
quickly, and so forth, are somewhat higher priced than some of the
commodities.
Therefore, the exact relationships here are not correct, but this is
put down as a table to give some field of magnitude and the price
differences when you are talking in terms of merchant ships which
are in tons, have absolutely no price story, obviously.
A number of these are in physical units. Only a few of them,
machine tools and aircraft are in dollars and they are uncorrected,
but when you are talking of the expansion of aircraft from $280,000,000
rate of production in 1939 to $25,000,000,000, the point is made without
refinement, sir.
The Nation's total production capacity has been increased by almost
50 percent during the war and now comprises nearly one-half of the
total capacity of the world. We have been able to devote something
like $90,000,000,000 of our annual production to military purposes
and, at the same time, to continue the production of the bulk of our
normal peacetime civilian goods.
We obviously have cut down and eliminated certain consumers
durables. We have eliminated certain construction and things of
that sort, and yet all of our indices, even allowing for quality deteriora-
tion, show a remarkable holding up of civilian consumption during the
war period.
In some lines of producers' goods we will have productive capacity
of a size at least twice — and that is a conservative statement, in
many cases it may be several times that — that likely to be needed to
meet the maximum domestic requirements.
POST-WAR ECONOMIC POLICY AND PLANNING 1041
Airplanes and ships would be an example where it is more than twice
in terms of capacities.
Attempts to transfer immediately this unneeded productive capacity
and labor to other uses would result in unemployment and financial
loss. It will take time to achieve an over-all balance by expanding
some lines and contracting others.
What the United States will be able to produce most advanageously
after war happens to be what the larger part of the war-riddled
and ill-equipped world will wish to buy; machines and equipment
to rebuild destroyed or deteriorated factories and to provide more
fruitful employment for the world's manpower. Exports can thus
provide not only employment, but a period of 5, 10, or 20 years in
which the presently distorted industrial structure can be corrected in
an orderly and far less painful manner.
That is, if we are able to export the things for which there seems
to be the greatest demand insofar as we are able to build up that
market, it means we won't have to make adjustments downward in
those fields as rapidly as we would otherwise.
Mr. WoRLEY. We can export it, but can they pay for it ?
Mr. ]\Iay. That is the very important question that we are trying
to deal with.
Mr. Worley. You will discuss that ?
Mr. IVIay. We will certainly discuss that. In the minds of those
who prepared the report it is the greatest question.
The needs for trade exist ; the problem therefore is : How can other
nations secure the dollar exchange to buy American goods and to pay
for American capital invested abroad ?
Mr. WoKLEY. Would you mind going back to the point where you
say "The needs for trade exist." Could you give us briefly the reasons
why you think the need for trade exists ?
Mr. ]May. We have outlined that very considerably in the report
and very considerably in our summary. It will be referred to a little
later, but I should answer it here in these terms.
There now have been collected from a variety of countries of the
world — many of them were brought in as budgets at Rye in the con-
ference that was recently held — a series of outlined budgets of what
countries would like to get from the American markets. Many of
them were accompanied by statements that loans would be necessary
if these orders were to materialize.
I have talked to the people who attended the Rye conference, al-
though I did not myself attend, and one was saying last night that
he would not attempt to give an over-all summary of what the i)udgets
might amount to, but the figures were colossal.
As I will point out later in the report — I will have to repeat, I am
afraid, as I read it — it has been carefully calculated that the capital
increment, increment to the capital of the world at the general rate
of increase, projected at the general rate of increase that has been
prevalent in the past, would amomit to something like $13,000,000,000
a year.
There are very few places now that have excess funds for cap-
italization that could meet that kind of a demand. There are very
few places in the world that have the capacity to meet that kind of a
demand, and on top of it to meet a demand for perhaps several billion
1042 POST-WAR ECONOMIC POLICY AND PLANNING
dollars a year for at least a period of 5 or 6 years after the war — over
$5,000,000,000 a year for rehabilitation of war damage.
Now, when you sum it all up there is expressed on the part of the
nations themselves when they get into conferences, what it is they want.
Many of them have submitted protocols, even though on a semiofficial
basis, at least, and there is a demand that has already been expressed
as a need that is so much larger than any figures we are willing to
talk about that I think the demand in terms of need can be accepted.
The question is: "Can it be made a practical demand?"
I personally think there could be no doubt, sir, of the appetite for
the kind of products that American can produce in volumes that can
only be satisfied if a considerable American production can flow
into them. I think the question, as I will try to point out, is the one
that you have raised, that is, can this be implemented so it can be done
on a business basis.
Mr. WoRLEY. I have not read your statement, so if there is any repe-
tition I will assume full responsibility for it.
Mr. May. Our foreign trade outlook immediately after the war
will be largely determined by (1) our willingness to accept foreign
goods and services in payment for goods foreigners will want to buy,
and which it is in our business interest to sell ; and (2) our willingness
to assure borrowing nations that we will accept their exports in pay-
ment for the long-term credit it is in our interest to extend.
Those are the two points that our report as a whole tries to make,
sir; at first the only two things that are really important are the goods
account, the balance of trade in goods, and the loans.
There are a series of service items and invisible exports, but the
general balance on those which may trip either way, is so small that it
doesn't make very much difference. Therefore, if we are to have a
big volume of exports it will depend upon the volume (a) of our
imports, and {h) upon long-term capital loans we may make.
Mr. WoELEY. Suppose we could import so much more than we export
that it would not be necessary to extend credit.
Mr. May. That is correct, sir.
Mr. WoRLEY. Will you expound on that?
Mr. May. We may hit it pretty sharply, if I may defer that.
The international committee has attempted to analyze the probable
elements of the Nation's post-war foreign trade in terms of the past
trends and in terms of the emerging post-war conditions. On the
basis of the trade outlook revealed by these analyses, the committee
has considered the changes in our trade and investment policies to be in
keeping with the post-war needs of the United States and of the world
economy.
The committee feels strongly that the policies affecting the over-
seas part of the Nation's economy have now become too important in
their implications for national prosperity and world peace to permit
tolerance of piecemeal methods.
From now on the foreign trade and investment decisions of the
United States must be expressed and coordinated in terms of national
long-term interest. The committee believes that this Nation has great
opportunities in world trade after the war. We must define these
opportunities as objectives to be attained through reasonable policies
at our command. It is with no sense of false optimism, but rather with
POST-WAR ECONOMIC POLICY AND PLANNING 1043
a feeling of considered realism and hope, that we approached this
subject.
We have drawn up a projected foreign-trade budget for 1950 to
which I should now like to refer, but which is treated in considerable
length in the report.
Making use of the lessons of our past, the committee has worked out
a foreign-trade budget which estimates what our foreign trade might
look like, in composition and magnitude, in such a post-war year as
1950. if our general policies after the war as regards tariffs, export
credit, and investment, were practically unchanged from those we had
before the war.
I will make that a little clearer, if I may. What we have said is
this : Both political parties have enunciated, as part of their intention,
the achievement of something like full employment in the United
States, and stated that is a desirable objective and is one that they will
do their best to achieve.
Mr. WoRLEY. I believe there was some mention of 60,000,000 jobs.
Mr. May. In another report of the National Planning Association
for which this committee is not responsible but which we took over
and used as datum, we accepted for the year 1950 full employment
as yielding, at 1941 prices — a national income of $140,000,000,000.
That would equalize, in terms of gross national product (which allows
for depreciation, and so forth), about $170,000,000,000. It represents
about 60,000,000 people employed over the year at a 40-hour week.
There are certain allowances from that of something like two and
a half million people, predicated as remaining in the armed services,
which may be right or wrong — somebody had to guess at this point
and we allowed for a working force of 61^2 million people and about
one and a half million fractionally unemployed.
You always have people leaving jobs and registering in the offices
on a turn -over basis.
Mr. WoRLEY. You make a distinction between unemployed and
unemployable?
Mr. May. These are not unemployable. They are employables but
always in a system which is free, which it is hoped it will remain, you
have people leaving one job and waiting for the next one. You can
certainly count that it would not be the same million and a half that
would be unemployed during the year.
In any event, I might add in accord with the footnote, that there
is some"^ dispute about this particular number as representing full
employment, and this is definitely in line with the Department of
Commerce, the C. E. D. definition, and the Federal Reserve Board's
figures.
Mr. Welch. I hope you are right.
Mr. May. I hope they are right, and I respect your implied pes-
simism because I don't think it is anything to
Mr. Welch. It is not pessimism. I am an optimist. But both
candidates for President in the last campaign proclaimed time and
time again that they aimed to employ 60,000,000 men in this country
in useful occupations.
Mr. May. I personally believe, sir, that it is difficult, but it can be
done, and is well worth striving for.
1044
POST-WAR ECONOMIC POLICY AND PLANNING
I also believe that foreign trade, while it can contribute usefully
to this field, is not decisive. That is, foreign trade will not make or
break full employment in the United States.
Mr. Worley. It will supplement our own domestic economy?
Mr. May. It will supplement, but may I parenthetically throw
this in. The budgets for exports that we are talking about, and there
are two, one that we think would be achieved with full employment
without much change of policy, of $7,000,000,000 exports, as I will
point out, and the other of $10,000,000,000 that is possible to achieve
if there is enough conviction about it and a drive toward it.
The first of those, taking the general average man-year produc-
tivity, would account for a little less than 2i/2 million men employed
through the year, that is, the $7,000,000,000 of exports ; and the other
about 31/^ million people.
Those are important segments but, when you are talking about a
60-million economy, either a 2V2-niillion or 3V2-i^illion employment
is a small section of it, and I think people in this field can do a dis-
service to it by overemphasizing it.
Nevertheless, I think it is an important subject which cannot be
ignored.
This budget, which follows, gives a picture of our foreign trade
at full employment, assuming no major changes in policies. The
budget was worked out carefully, item by item, and estimates were
made with comparisons for 1929 and 1939 for imports, for shipping
and other services, and exports.
Projected budget — Balance of international payments in 1950 under assumed
continuation of pre-war trade and investment policies
[In millions of dollars]
Net
Subtotals of net
Receipts
Outgo
Receipts
Outgo
1. Merchandise trade:
Exports, $7,003 (estimated as permitted by supply of dollars
on other accounts)
Imports. $5,000 (estimated at level corresponding to full em-
ployment in the United States)
2,000
100
2,000
. Services and other current transactions:
Shipping; .
Travel expenditures .. .. - -.-
600
200
Personal and institutional gifts
Interest and dividends
600
Other Government items..
100
Excess payments on service transactions
300
3. Capital movement:
American lonfi-term capital invested abroad
1,000
700
Gold and short-term capital
Net outflow of capital .. . .
1,700
Balance .. .....
2,000
2,000
These estimates are not based on mere mechanical projections of
pre-war relations. We have tried to take into account possible
changes whenever these changes could be estimated, as, for example,
the decrease in the post-war imports of crude rubber and of raw silk,
brought about by the recent developments of synthetic rubber and of
rayon and nylon.
POST-WAR ECONOMIC POLICY AND PLANNING
1045
Now, I may say a word more about our method here, sir, that goes
into the items that appear on this budget and on the three budgets
which follow this page, where we break down our imports by major
categories on tables 1-A, 1-B, and 1-C and there we have taken the
1929 volume of imports and value of imports, the 1939 volume and
value, and then we have projected through to 1950 in terms of what
seemed to us a reasonable expectancy upon the basis of past relation-
ships to 1950.
Now, as the report explains, what we did was this : Since very im-
portantly our imports, our raw materials, and semi-manufactures to
feed our industrial machine — a very important segment, something
like two-thirds or 60 percent or in that general category — the volume
of these imports tends to vary with the volume of our economic
activities.
Therefore, we have taken our past economic activities and have seen
how close our relation was between our production record in the past
and our imports of the various material items.
Table 1-A. — Past and projected imports of principal critical raw and
seniiprocessed materials
[Values in millions of dollars]
Commodity
Unit
1929
Volume Value
Volume Value
Projection, 1950
Volume
(1941)
Value
(1941)
Asbestos (unmanufactured) .
Bauxite -
long
long
Burlaps
Casein and lacterne.
Chromite
Copper
Diamonds (industrial) .
Hides and skins (raw).
Lead...
Manganese
Nickel (bars, plates, and manu-
factures).
Petroleums (crude and semi-
processed).
Rubber (crude).
Silk (raw)
Tin (bars, blocks, pigs, etc.)
Vegetable fibers (unmanufac-
tured, except cotton).
Wool (unmanufactured).
Zinc
Thousand
tons.
Thousand
tons.
Million pounds
Million pounds
Thousand long
tons.
Million pounds
Thousand carats..
Million pounds
Thousand short
tons.
Thousand long
tons.
Million pounds
Million barrels
Million pounds
Million pounds
Million pounds
Thousand long
tons.
Million pounds
Million pounds...
234.3
380.8
643.6
27.6
317.6
974.3
46.9
515.7
116.7
664.3
96.7
1, 262. 9
87.1
195.2
238.0
102.2
29.3
Subtotal.
$11.2
1.8
77.4
3.3
2.7
153.5
4.1
137.3
13.1
8.5
19.1
241.0
427.1
91.8
40.2
38.9
1.1
1, 368. 6
216.6
320.2
441.4
15.8
217.5
461.3
3, 569. 0
323.5
95.4
657.8
129.4
61.3
1,114.2
51.6
157.0
197.0
99.5
147.8
$9.1
3.8
28.0
.9
3.8
44.1
9.7
47.1
7.1
8.6
29.0
41.6
178.1
120.9
70.6
16.5
22.4
3.6
644.9
300
2,000
1,000
60
900
600
5,200
500
700
1,750
250
1,000
900
20
220
300
400
1,200
$15
15
100
5
10
60
15
70
50
30
55
750
160
50
110
30
120
25
1,670
1046
POST-WAR ECONOMIC POLICY AND PLANNING
Table 1-B. — Past and projected imports of principal competitive agricultural
commodities
[Values in millions of dollars]
Unit
■
1929
1939
Projection, 1950
Commodity
Volume
Value
Volume
Value
Volume
(1941)
Value
(1941)
Cheeses - -.
Million pounds
Million pounds
Million pounds
Million pounds
76.4
223.3
2, 174. 0
369.6
$22.2
53.3
179.9
39.8
37.5
61.5
.4
209.3
59.1
70.9
1, 794. 0
346.2
489.0
11.4
5,806.6
3.9
$12.8
7.5
84.2
32.4
23.8
47.7
48.3
124.6
9.0
85
100
2,000
500
1,000
16
7,500
4
$15
Cotton (unmanufactured)
Fats, oils, and oilseeds (oil con-
tent).
Fish and fish products . - .
10
250
60
Grain, grain preparations, and
35
fodders and feeds.
Meat and meat products
Million pounds
Million proof gal-
lons.
Million pounds
415.0
.1
9, 776. 8
150
Spirits
65
Sugar (cane)
170
10
Subtotal
603.9
390.3
765
Table 1-C.^ — Past and projected imports of other commodities
[Value in millions of dollars]
Commodity
Bananas
Cocoa and cocoa beans
Coffee
Diamonds (jewel)
Drugs, herbs, leaves, and roots,
etc.
Fertilizers and materials
Gums, resins, balsarrs
Iron ore and concentrates
Lumber and sawmill products. -.
Manufactures (finished)
Spices _-
Tea
Tobacco (unmanufactured)
Woodpulp and newsprint (equiv-
alent cords).
Wool (carpet)
Other crude and semimanufac-
tured materials.
Other foodstuffs
Subtotal.
Total
Unit
Million bunches,.
Million pounds. _-
Million pounds
Thousand carats..
Million pounds
Thousand long
tons.
Million pounds
Million long tons.
Million board feet.
Million pounds
Million pounds
Million pounds
Million pounds
Thousand cords...
Million pounds
Million pounds.
1929
Volume Value
65.1
507.6
1, 482. 3
771.4
130.8
2, 310. 0
131.6
3.1
1, 543. 0
88.1
89.4
C8. 1
7, 300. 0
175.0
$36.0
49.5
302.4
51.9
10.6
72.3
31.5
8.1
44.0
769.5
18.6
25.9
53.8
247.7
47.0
515.4
142.7
2, 426. 9
4, 399. 4
1939
Volume Value
57.1
663.8
2, 013. 8
642.0
114.0
1, 374. 0
128.4
2.4
718.3
139.0
97.8
82.4
7, 600. 0
143.4
$29.1
27.6
139.5
35.4
11.7
32.5
14.2
5.9
2u. 1
295.0
14.4
21.1
36.9
201.0
25.7
267.7
63.1
1, 240. 9
2, 276. 1
Projection, 1950
Volume
(1941)
85
700
2,300
1,500
150
200
225
6
3,000
100
95
80
13, 000
200
Value
(1941)
$50
40
180
100
20
30
15
100
800
10
25
40
400
50
600
2,580-
5,015
Table 2. — Composition of freight and shipping account, 1937
[In millions of dollars]
RECEIPTS
1. Freight received on ocean traffic : Total
{a) On United States exports carried in United States
vessels $65. 2
(&) On cargo carried between foreign ports in United States
vessels > 3. 7
$68. 9
2. Ocean passenger fares paid by foreigners traveling on American
ships, including passenger expenditures on board 9. 3
3. Expenses of foreign vessels in United States ports 142. 2
POST-WAR ECONOMIC POLICY AND PLANNING
1047
Table 2. — Compositioit of freight and shipping account, 1937 — Continued
Rail traffic:
(a) Freight on intra-Canadian traffic carried by American
railroads- $1. 6
(6) Freight on United States exports carried within Canada
by American railroads 3. 7
(c) Freight on Canadian exports and imports carried
through the United States 7.9
(d) Freiglit on Mexican exports and imports carried
through the United States 2. 5
$15.7
Total receipts 236. 1
PAYMENTS
Ocean freight paid on United States imports carried in foreign
vessels 186. 4
Ocean passenger fares paid by Americans on foreign vessels, in-
cluding passenger expenditures on board 98.7
Expenses of American vessels in foreign ports 45. 6
Rail traffic:
(a) Freight on United States transit traffic routed via Can-
ada on Canadian railroads $18. 2
(6) American railroad operating expenses in Canada 18.6
36.8
Total payments
Table 3. — Past and projected exports
[In millions of dollars]
365.5
1929
1937
1950
Agricultural goods '-. ---
Machinery 2
Automobiles and vehicles ^
Other metals and manufactures <
Petroleum and products, chemicals, wood and paper, textiles, etc.'.
$1, 693
607
591
537
1,729
$797
479
410
502
1,111
$1, 000
2,000
1,200
1,100
1,700
Total -
5,157
3,299
7,000
' Includes: Unmanufactured cotton, including linters; leaf tobacco; citrus fruits; other fruits and prepara-
tions; wheat and flour; meat products; rice; animal oils and fats, edible; eggs and dairy products; fodder
and feeds; vegetables.
2 Includes: Electrical machinery and apparatus; industrial machinery; agricultural machinery; office
appliances and other machinery.
3 Includes: Passenger cars, engines, parts and accessories; trucks and busses; aircraft parts and accessories;
all other.
* Includes: Iron and steel semimanufactures; steel-mill products; iron and steel advanced manufactures;
non ferrous metals.
> Includes: Crude petroleum, motor fuel and gasoline, kerosene, fuel oil and lubrication oil; chemicals;
wood and paper; textile manufactures; rubber and manufactures; naval stores, gum and resin; coal and re-
lated fuels.
Secondly, we have looked to see how close their relationship was
with the national income as a whole.
And, third, for many items where there was no real relationship that
seemed to hold good in the past between the amount that was im-
ported and the production or income level, we saw whether they were
correlated closely with population.
Tea, for instance, correlates pretty closely with the growth in the
United States opulation.
We said, "If you get this higher level, if it is possible to get this
higher level, a certain amount of imports would have to go in almost
willy-nilly."
1048 POST-WAR ECONOMIC POLICY AND PLANNING
If your tariffs were too high, but you nevertheless set out to achieve
this level of output, you would have to bring them in over the tariffs
and pay the price for them.
That is what our first projections are, and that is the way they were
made.
As suggested in the last sentence that I read to you, we then looked
at certain fields in which the technologies had changed so largely that
although there was a trend in the past that could be closely established
between the rate of imports and the volume of economic activity here,
we said, "That probably isn't going to hold in the future in the same
relationship." For instance, we now have a big synthetic-rubber in-
dustry and we don't believe that crude rubber imports will follow the
same relationships as in the past.
Mr. WoRLEY. You have taken into consideration the development of
new products that are a result of the war ? For example, I understand
Great Britain has grown a tremendous amount of wheat this year. In
your study do you take into consideration the continuation of these
plants over here and over there ?
Mr. May. We have tried to, sir. This is our import rather than the
export side that we are looking at now. But we try to get a group
of people together who have been studying these commodities very
closely for a long period of time and to include everything in our
judgment that we were able to believe was significant. The budgets
may not be correct. They are not a prediction, sir, because what we
are saying is that these will only be achieved if we achieve a full em-
ployment level.
Mr. WoRLEY. Here at home?
Mr. May. Here at home.
Mr. WoRLEY. And if we do not do that
Mr. May. This will not materialize on this level, sir, because the
very important part of it, as you will see when you look at the budget
is that we are counting on imports to the extent of $5,000,000,000.
Mr. WoRLEY. Which budget is that ?
Mr. May. This is the projected budget on page 1044.
Mr. Welch. Does that include rubber ?
Mr. May. That includes all the important items, including rubber,
and the break-down is given in three tables which 1 cited a moment ago,
but this is a summary table.
Mr. Welch. Why should we not continue to manufacture our own
rubber ?
Mr. May. We are premising the fact that we will do that. I have
said that instead of giving rubber imports anything like the full im-
pact they would have had in the 1950 Budget, we have cut the rubber
imports down to a very small fraction of what they would have been
if we were not making our own synthetic rubber, sir, and we have
allowed here the operation of a very important segment of our present
synthetic rubber production, only eliminating a small fraction that
represents very high-cost plant operation that we believe would not
be competitive in the synthetic rubber market.
Again, there must be judgments in this, sir, but we have given weight
to this kind of consideration and we have markedly cut down the
rubber imports that would otherwise have been expected at a high
level of economy.
POST-WAR ECONOMIC POLICY AND PLANNING 1049
Mr. WoRLEY, Doesn't that illustrate just what we are going to have
to do in this country in order to increase our foreign trade ? By that
I mean, of course, we can manufacture synthetic rubber but by doing
that we deprive the Dutch Indies of a market for their rubber. If we
are going to trade, wouldn't it be proper for us to let our synthetic
rubber go ?
Mr. May. I would say first it would be profitable on a straight
economic basis insofar as your synthetics are not better for some pur-
poses than natural rubber.
On the other hand, I think you have an extremely important
strategic question that is raised here that cuts across your straight-
trading economic considerations.
Mr. WoRLEY. That is at the root of all these questions.
Mr. May. Yes, it is. This happens to be one on which we were pretty
badly burnt, and for a very personal opinion — and I don't think
this represents particularly' a committee opinion, because I don't know
that the committee was asked to express one — but I would believe it is
worth while giving some weight to the strategic considerations and,
therefore, allowing our imports in this field to suffer somewhat in order
that we might not be caught again without a reasonably adequate
supply of rubber to go along with.
That is personal judgment. It may be wrong.
Mr. Welch. How many workers are engaged in the manufacture of
synthetic rubber in this country at this time?
Mr. May. I don't think I can answer that, sir. The figure that
sticks in my head is something like 20,000. You will get a larger figure
than that for employees of the rubber industry, but most of them are
simply processing the rubber and would be operating no matter what
rubber you were getting. I am not at all certain of that figure. It is
from a memory of some months back.
Mr. Welch. It appears to me to be too low.
Mr. May. It may be. Do you know anything about it, Mr. Arthur?
Mr. Arthur. I don't have the figure in mind.
Mr. May. I had better not stick to my answer. It is an easy figure
to get but it is not a terrifically high employment in the synthetic
plants themselves. I may be grossly underestimating it, but I am
quite certain it is not 100,000.
Mr. Arthur. We can secure that for the record.
Mr, May. It should be gotten for the record, sir, and it is an easy
figure to get.
(The figures requested are as follows: The Bureau of Labor Sta-
tistics in a study made in September 1943 estimated that in 26 buta-
diene plants, 6 styrene plants, 19 plants engaged in the synthesis of
buna-type rubbers, and 4 plants producing buta and neoprene, total
employment was 19,978, wage earners alone comprising 15,120.)
Mr. WoRLEY. Along that same question, Mr. May, a few individuals
and a few countries get something for nothing. We can't develop our
foreign trade unless we make innumerable concessions, can we ?
Mr. May. I think that all foreign trade is giving and taking. I
would be very disappointed if we did not have a clear national policy
as to what we wanted to do, as to what we thought was best for this
country and best for the world. In making concessions, we should be
quite sure that our concessions were being made in terms of other con-
1050 POST-WAR ECONOMIC POLICY AND PLANNING
cessions that would also contribute to the kind of a world economy
that we thought was good for the world and for us.
Mr. WoRLEY. Good for the world and good for us ?
Mr. May. Yes ; I think the two are generally synonymous. I don't
think there is an important conflict between our interest and the world
interest.
Mr. WoRLEY. Don't you think our own policy and that of other gov-
ernments will be predicated upon what is good for the individual
country ?
Mr. May. Yes ; I think they generally will be. I think our tremeii
dous danger is that we will get one groUp of people within a country
who represent a specific interest, saying, "This is the interest of the
United States," and selling that to others who don't pay enough at-
tention to discriminate.
I think, for instance, that the interests of our producers of heav>
goods, heavy metal manufactures, are very clearly not on the side of
promoting exports which can be only done if we take large imports.
Mr. WoRLEY. And extend credit?
Mr. May. And the extension of credit on a reasonable basis. I will
try to go into that.
Mr. WoRLEY. But they are more interested in imports which will
not affect their exports?
Mr. May. That is right, but they are interested in the raw material
import which it is to their advantage to have at the cheapest possible
price and in large quantities.
I think more and more the people who are interested in the heavy
metal industry in the United States — I am using that as an example
because there are many others — are beginning to see that it is not to
their interest to keep out foreign goods from coming into the United
States, because unless some foreign goods come into the United States
to give a sufficient volume of credits, they can't sell their output abroad.
I believe in general the world will be benfited from the greatest
possible exchange of goods from the building up of undeveloped areas
into developed economic areas.
Mr. WoRLEY. Don't you think that world benefit will be incidental
to the main reason behind the country development?
Mr. May. I am willing to put it on our own interest, well-considered
and long-time interests, and stand on that. I don't think those are in
general conflict with the world interests.
Mr. Welch. What is the volume of trade between this country and
rubber-producing countries ?
Mr. May. Well, our table 1-A, sir, shows what the volume of trade
has been in terms of import of crude rubber. In value in 1929 it was
$241,000,000; in 1939, when it had been interfered with by the war,
it was $178,000,000 ; and our projected 1950 is only $160,000,000, which
seems a slight drop, but it is a tremendous drop that you would have
at this high level of production for the United States that we have
premised, and we are premising here less than half of it being still im-
ported less than half of the supply we will use, instead of all of it.
Mr. WoRLEY. How much did those countries buy from us before
the war?
Mr. May, I can't give you from my head, sir, the break-down for
the rubber-producing countries as such, but largely, of course, it has
been the Far East.
POST-WAR ECONOMIC POLICY AND PLANNING 1051
Mr. WoRLF.Y. Nearly all from the Far East. Is that not a fact?
Mr. May. Yes ; nearly all.
Mr. WoRLEY. What did the Far East buy from us in return for the
millions and millions of dollars of rubber we bought from them?
Mr. May. The balance of trade with the Far East has been an un-
balanced one so far as we are concerned. The 1937 break-down, as I
remember the figures, was something like this:
The Far East had over-all exports during the year of 1937 of some-
thing like $5,000,000,000. About $2,500,000,000 of that was raw ma-
terials, about $1,500,000,000 was semimanufactures, and about a little
over $1,000,000,000 was finished manufactures.
Now, we' took in all about $1,000,000,000 out of the $5,000,000,OOJ
from the Far East. In other words, we took about 20 percent of the
Far East's exports. We took about 30 percent of the raw material
segment; and of the other segment, the agricultural products and
manufactures, we only took about one-tenth. Therefore, we were a
very good customer to the Far East.
Our total imports amounted to something like $1,000 000.000 a year.
We never exported to the Far East as much as $1,000,000,000. It was
considerably under. As I remember the ratio it was about two-thirds
of that amount that we exported to them. The remainder was made
up largely by a multilateral trade.
Mr. WoRLF.Y. The Far East bought from the Netherlands and
Britain; did it not?
Mr. May. The story was never well balanced. It was a straight
triangulated trade that had gotten pretty well grooved, in which we
were importing from them about $1,000,000,000 in the 1937 level and
ex]>orting to them about $600,000,000 odd, if I remember the figures
correctly.
They were exporting to certain foreign countries other materials —
some of their manufactures and things of that sort — and we were
on a triangulated exchange, we were taking payment on their credits
to Europe, and we were getting from the Far East payment for all
of our exports, and in addition they were collecting somewhat from
some of our exports in other cases.
^\r. WoRLEY. Who was coming out on top ?
Mr. May. It was a reasonably balanced story. There was not a
very important loan story to the Far East in the last few years be-
fore the war. It was on an exchange basis rather than on a straight
bilateral exchange balance.
Mr. WoRLEY. I understood you to say that they bought in exchange
for this $1,000,000,000 we bought from them, something like $600,-
000.000 from us.
Mr. May. I believe those are the figures.
Mr. Welch. AVhat commodities did they buy from this country
to reach the enormous sum of $600,000,000?
Mr. May. They bought petroleum, petroleum products in consider-
able number, many manufactured goods, machinery and textiles.
Mr. Welch. Would you give us a break-down of their purchases
from this country before the war?
Mr. May. The Far East?
Mr. Welch. The rubber-producing countries in the Far East.
99579 — 45— pt. 4 29
1052 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. May. It is very easy to get for you, sir. I can't give them to
you out of my head.
Mr. Welch. You will give the break-down of the figures to the
committee for the record ?
Mr. May. I will be glad to see that those are furnished.
(The figures requested are in the Appendix, Exhibit 31, p. 12t20.)
Mr. Welch. My reason for asking the question is that I have in
mind the great danger of post-war unemployment.
Mr. May. I think that is right, sir.
Now, on our budget that I referred you to, the crucial items are the
ones that follow the first item. Our general thesis was that having
looked at the demands for American products, the demands would
hold up all right for anything we would be able to achieve, but we
would have to be paid for it, and that would depend on what dollar
balances were available.
So we tried to estimate what our imports would be if we could
achieve something like a full employment level. Our projections
came out to full imports, the break-down of which is given to you
in table I, A, B, and C, but they total about $5,000,000,000 without
marked change in our commercial policy.
Mr. WoRLEY. That presupposes simply exports and imports, not
any financial transactions?
Mr. May. We have the merchandise account of straight imports
and exports in the first two items.
Now, if you are having $7,000,000,000 of exports and only $5,000,-
000,000 of imports, we would be exporting $2,000,000,000 more than
we were importing, and we would not be paid for it unless there were
available from other sources certain dollars of exchange.
Mr. WoRLEY. What do you mean by "othei* sources"?
Mr. May. The other items explain that, sir. This is goods only.
Now, there are a variety of other current transactions that go on
between trading nations.
The sum total of those, which is given in the far right-hand column,
we believe in 1950 would give them additional dollar credits of some-
thing like $300,000,000, in addition to what they would get through
the imports tliey ship to us from other nations. That is made up
of a composite of various items, the first of which is shipping.
We have always in the past — tliat is not true for a few years in
our past history — but generally in the past, the shipping balances have
been against us. That is, Ave have purchased more shi})ping services
of all kinds than we have received from other nations.
It has averaged in a recent number of pre-war years about $75,-
000.000 a year credit to other Nations as against our services to them.
Tliat is summarized to you on table 2 which comes after the three
tables to which I have referred you on tlie break-down. You can
see a typical year. 1937.
Mr. WoRLEY. Incidentally, do you think that is a fair proportion
for this country?
Mr. May. No; I think, as you will see on this budget, we have
premised that that would tr-ip in the other direction and that prob-
ably even after nuiking what we think are all reasonable shipping ad-
justments, the balance will flow in the other direction and that we
will be getting $10(),()00,00() a yeai- on shipping account that adds, if
POST-WAR ECONOMIC POLICY AND PLANNING 1053
you like, on the deficit side of this purticiihir account, but is excess
payments to us from them rather than excess payments to them
from us.
Mr. WoRLEY. You don't think the development of our own shipping
facilities would jeopardize our foreijrn trade, do you?
Mr. May. I don't think it will jeopardize our foreion trade, sir,
but obviously since that has been one of their sources of dollar credit,
when you trip it on the other side you are losing some of their pur-
chasing power.
Mr. WoRLf:Y. Therefore, it would jeopardize it?
Mr. jNIay. To that extent ; yes. The volume, I don't think will be
sufficient to be decisive one way or the other, but it becomes another
ex})ort item and, therefore, it competes with our other exports for
dollai- balances available, and takes away from the dollar balance on
the other side.
We have premised that would happen here m the post-war period.
Mr. Welch. Mr. May, what percentage of our exports and imports
sliould be carried on American-flag ships?
Mr. Mat. I think the generally accepted goal that is talked about
by the Maritime Commission and most of our shipping people, and the
Government agencies, is something like 50 percent of our total export
trade.
Mr. Welch. Maximum or minimum ?
Mr. May. I think it has been stated as a goal to achieve, sir, because
we have not carried anywhere near that amount in the pre-war years.
Therefore, the 50 percent is put as a desirable goal to be reachecl.
Mr. Welch. In the days of the clipper ships it was between 75 to
90 percent, and it dropped until in the days of the First World War
it was 8 or 9 percent.
Mr. May. That was unfortunate. Our foreign trade, you under-
stand, our exports and imports, and our exports are somebody else's
imports, and they have the same kind of ambitions about shipping,
possibly, as we have. Many nations, of course, in the world are tre-
mendously more involved, so far as importance to their economy is
concerned, in their shipping balances than we in the United States.
In our huge economy the shipping portion of it is a very tinv
percentage.
Mr. Welch. I wish you would explain to the committee a little more
thoroughly why we should be less concerned than any other maritime
nation.
Mr. May. If my language led you to that conclusion, sir, it is badly
stated on my part.
What I said was that, budgetwise, in terms of over-all economy of
the Nation on a dollars-and-cents basis, our total revenues for ship-
ping are a relatively small amount of the total foreign exchange
balances of the United States.
For a number of countries they are an extremely important item,
and for several of them the most important item of their total foreign
trade.
You will see in this account I have given you. sir, that the total
receipts of the United States from its shipping in 1937 amounted to
$236,000,000. Our total pavments in 1937 for all ocean services were
$365,000,000.
1054 POST-WAR ECONOMIC POLICY AND PLANNING
Now, in the over-all Budget of the United States, that is in terms
of our oross national product, or even in terms of our foreign-trade
budget, that is a modest amount, and it is not a decisive percentage one
^Yay or the other. The balances are very small, between our outgo and
our income, around $100,000,000 a year. That is not a very decisive
item in our foreign-trade budget even when our foreign trade has
been down to the two-and-one-half- or three-billion-dollar level.
A one-hundred-million-dollar balance is a very small percentage.
But there are other nations to whom the revenues from shipping
services are a very important percentage of all their foreign-trade
revenues.
That is all I was trying to say, sir. As a maritime nation, I think
shipping has importance to us beyond the straight revenues and ac-
counting position it acquires in our budgets.
I was not trying to discount that at all, sir. But I was saying that
to the best of my knowledge the people most concerned in this field now,
and who have stated positions on it, have more or less agreed that the
carriage of 50 percent of our foreign trade in United States bottoms
is a reasonable goal to put forth for the future.
And, if you like, if you carr}^ more than 50 percent of the total of the
trade, you are doing it at the expense of somebody else, because half
of your foreign trade by definition — not alwaj-s true for a shorter
period of time, but more or less true by definition — is exports as well
as imports, and there is a mutuality in it.
I don't know if that answers your question, sir. Does it ?
Mr. Welch. It has been stated repeatedly, and only yesterday when
the good-roads bill was under debate before Congress, that we should
increase our national income to $100,000,000,000 a year in order to meet
our post-war obligations. In fact, it was stated that we will have a
national debt of $300,000,000,000 after this war.
Will it not be necessary to increase our foreign trade in order to
raise our income to $100,000,000,000 a year?
Mr. May. I think our national income to give anything like full
employment after the war, will have to be higher than $100,000,000,000
a year, sir. Our figure, as I said, for national income was $140,000,-
000,000. That corresponds with full employment.
Yes, I think it is highly desirable, I think it is absolutely necessary
and inevitable, that if we are to run an economy of that level, our
foreign trade will inevitably increase along with the other part of it.
You can't avoid some increase.
Now, whether it increases proportionately, whether it helps you
achieve this or whether the volume and kind makes an impediment
against the achievement, it is a very important problem. What we
are aiming at here is to define the kind of foreign trade budget, first,
that wouhl be reasonably consistent in terms of the past levels of for-
eign trade to our national income, and, secondly, to premise somewhat
higher the foreign trade part of our budget of a kind that we believe
would actually help us in achieving the high level of economy that is
our goal.
Mr. Welch. What is the relationship between our American mer-
chant marine and our foreign trade ?
Mr. May. Well, the carriage, the extent of operation of our mer-
chant marine, is one of the items — the revenues we will get for it is one
POST-WAR ECONOMIC POLICY AND PLANNING 1055
of the reveiuie items — that conies into the United States in return for
exports.
In this case the export is the service of sea carriage.
On the other side, the amounts we pay to other carriers, i\t we
aren't usinfj our own, are imports. That is, we are paying for imports
of the carriage service.
What I have been trying to say to you, sir, is this: In the past we
have always imported — not always, but generally — more shipping
service than we have exported, but not by a sufficiently large amount —
an average of something like $75,000,000 a year is the excess — to be
very decisive.
Now, in the post-war period we have assumed in this normal budget
with our trade policies resting about where they are, that the balance
will trip in the other direction, and we will actually be exporting
more shipping service than Ave will import by about $100,01)0,000 a
year.
Mr. "Welch. Is it not a fact that a privately owned American
merchant marine such as operated in this country before the war,
found markets for surplus commodities?
Mr. Mat. I hesitate to answer your question because I don't think
it is one that I know enough about, but I would not have thought
that our merchant marine as such was a broker, an import broker,
may I say, for finding xVmerican export outlets.
I may be quite wrong on that, but I doubt whether it was a decisive
element in that particular field.
Mr. Welch. No; they don't act as brokers. They are advance
agents of prosperity.
Mr. WoRLEY. Let's send out more.
jSIr. Welch. We should have more. The American merchant ma-
rine should be encouraged rather than handicapped as it is at the
present time, due to laAvs that have been enacted by Congress.
Mr. May. That is a question, sir, that I don't think I have the
background to warrant my speaking on.
It is obvious that at the end of the war we are going to have in
our possession a merchant fleet that is far greater than could possibly
be used for American foreign trade on any definition of the amount
of foreign trade that could be practically carried in American bot-
toms that I have ever seen. That raises another series of problems
that I think have to be met head on.
I agree that our policy toward our merchant marine is a very impor-
tant one and it is certainly one on which we ought to be very firm
and ouglit to have very definite decisions.
Mr. Welch. Unless the present restraints that Congress has placed
on our American merchant marine are removed, I doubt if anybody
would want to take over those ships.
Mi-. May. Well, there ;ire other markets than the United States
for them, sir, and I think some will have to be recognized.
Mr. Welch. Foreign trade is the most highly competitive trade in
the world. Our American merchant marine, the men who own our
ships, should have equal opportunity with other maritime countries.
Mr. WoRLEY. I don't want to argue with the gentleman from Cali-
fornia. He knows more about shipping in a minute than I would
1056 POST-WAR ECONOMIC POLICY AND PLANNING
know in a year, but I was under the impression that we have been very
kind to our merchant marine.
The testimony we have had previous to now is that we, by training
the personnel for the merchant marine and by offerijig subsidies which
put them on a par with other shipping reguhitions. had been very
kind to our merchant marine.
I find that not since the early clipper days have we carried more than
50 percent
Mr. May. That is true.
Mr. Welch. AVe carried nearly 100 percent in the days of the clipper
ships.
Mr. May. May I go to my budget for the moment ?
The sum total of these items, and these are nets, not taking the total
of the trade but only the excess between our exports and imports of
service items, payments to us in this year would be: Shipping,
$100,000,000; interest and dividends from our past debts, something
like $500,000,000.
Against that would be the balance of ti-avel expenditures abroad,
$600,000,000; personal and institutional gifts, continuous remittances
of Nationals to their home countries, $200,000,000; and other Govern-
ment items, embassies, some military and things of that sort,
$100 000,000 so that $300,000,000 comes out in these items in their favor,
and becomes a part for meeting part of this export deficit.
The post-war investment on the part of the United States in terms
of long-term credits would probably not be more than $1,000,000,000
a year. That is somewhat of the level where it operated in the thirties,
somewhere between $1,000,000,000 and $1,500,000,000, and we are prom-
ising $1,000,000,000 a year because it is part of our thesis that the loans
should not be made unless they could be made safely.
The $700,000,000 is an estiniated figure that is probably not far from
accurate, of their transactions in selling the American securities they
hold and the flow of new gold to the United States.
Mr. WoRLEY. You mentioned loans that should be made if they
could be made safely. By whom? By the Government?
Mr. May. I don't think that is the decisive point. We have assumed
throughout the report that the great bulk of investment would be
private investment. The question is. What criteria are used in mak-
ing those investments. And the criteria we have used is, it is only a
good investment on a long-term basis if there is a considered judgment
that will increase productivity over a long period of time or will
enable us to ship to them on a triangulated basis.
Mr. WoiiLEY. We have had witnesses interested in the export field
who are strong for private capital invested in foreign countries up to a
point. That is, they seem to be willing to take the good risks but they
go further and advocate an additional credit extension not b}^ them-
selves but by the Government.
Mr. May. We do the same, sir.
There are a number of ventures, and I think they have been small
rather than the larger part to a considerable degree, which are general
development ventures. It may well be that there are very important
opportunities for mineral developments in a particular area, and
it may be highly impractical to invest money safely with hope of
return in the deA'elopment of those mineral resources if, for instance,
it is a hopeless malaria area.
POST-WAR ECONOMIC POLICY AND PLANNING 1057
T am giving' this merely as an example. It may be necessary that
there should be a considerable health pr()<^ram in the area. The health
program probably would be a Government profiram.
It mi<iht be well, a very Avell considered long-time investment, to
extend some loans to a foreign government for health and sanitation
in such an area that had develo}>mental policies.
Your loans would not of themselves generate any revenue. They,
however, make possible, if they are well considered, enough mineral
development on a sound basis so that the government to whom the
loan was extended would have a nuich broader and better taxation
base than it had before, and would be able to pay back its debt over
a long period.
Now, that kind of a loan could very appropriately be a loan from a
government to a government. It would not of itself generate funds
or exports that would allow repayment, but it might create conditions
that would allow a development tluit would probabl}^ be a good private
risk.
Mr. WoRLET. It would probably be a pretty shaky investment,
wouldn't it?
Mr. May. I don't know that it would. Like every loan to govern-
ment it depends upon the prospects of the government and its fiscal
numagement and a variety of other things.
But I think there are areas in the world certainly where well con-
sidered development plans for roads, for sanitation and health, and
things of that sort might over a reasonable period of years be very,
very safe loans.
They are no safer than the will to pay and than the general fiscal
management that the government will have. That is certainly true.
In any event, then, our $7,000,000,000, as you can see, turns out to
be a residual figure. We are saying in eifect that our exports will have
a big demand and they will reach a level that is made practicable
by the dollar exchange that is available. So we have premised here
that on a high levelof economy for the United States in the year
1950 we will have about $5,000^000.000 of imports, perhaps $1,000,-
000,000 of long-term loans made consistently with our pre-war prac-
tices during the twenties, that there would be about $700,000,000 of
short-term capital that could be made available for paying for Ameri-
can exports, and that the balance of our service transactions generally
would create about $300,000,000 purchasing power.
Therefore, we come out with the $700,000,000 figure.
The tables that I have referred you to break that figure of $5,000,-
000,000 down, and they were made in the way that I suggested and I
will not go into them in detail unless you wish me to.
Mr. WoRLET. No, that is all right.
Mr. May. I might make a few observations about the $5,000,000,000,
however.
This budget which assumes no major changes in foreign-trade
policy is not so different in absolute dollar amounts than what hap-
pened in 1929, although in 1929 we had far fewer people than we will
have in 19 lO, and our gross national production in that year was only
$99,400,000,000,^ as compared with $170,000,000,000 estimated for full
employment in 1950.
In 1929 we exported $5,500,000,000 as against this $7,000,000,000—
I should warn you about the price differential in there — and we im-
1058 POST-WAR ECONOMIC POLICY AND PLANNING
ported $4,500,000,000 as contrasted with this $5,000,000,000 at a higher
level.
To provide full employment in 1950 our gross national product must
increase by about 70 percent, and if you put in your price diffei-en-
tials, it would be something like 90 percent on the budget, whereas
this budget indicates that our exports would increase only 35 percent
and our imports only 14 percent.
Exports in 1929 represented 5.2 percent of our gross product. In
the projected budget exports would represent only 4.1 percent of our
gross product in 1950. The proportion of imports Avould decline from
4.4 percent in 1929 to 3 percent in 1950.
Here, then, is admittedly an historical projection, but one that is
carefully drawn.
We thought that it would be valuable to see, if we are going to try
to get the full employment and to run this kind of economy ; that is,
a foreign trade projection that is somewhat consistent with it, not
done on a mechanical basis, but only insofar as the relationship seemed
to hold, and we came out with one that gives foreign trade a smaller
place in our economy than it had in 1929, although not far different
from the average pre-war situation over the past 20 or 30 years, and,
as I have suggested, we have broken that down by commodities.
We have also broken down on table 3 the export picture that we
think would be consistent with this $7,000,000,000 of exports. We
have not broken them down as finely because we think it is a much
more difficult job than our import break-down, the reason being that
on the import side we have our own figures and can relate our imports
to the various segments of our economy that we can measure.
To relate exports you would have to do that with each individual
nation with the changes that have occurred in tliose nations because of
the war, and we simply don't have that much information about them.
But, according to the best judgments we could give it, the agricultural
goods, exports in 1950, will be about $1,000,000,000, machinery about
$2,000,000,000, automobiles and vehicles $1,200,000,000, other metals
and manufactures $1,100,000,000, and other products, petroleum and
petroleum products, chemicals, wood and paper, textiles, and so forth,
$1,700,000,000.
Mr. WoRLEY. On your agricultural-goods estimate, Mr. May, why
shouldn't we have a bigger projection than $1,000,000,000 on agricul-
tural goods ?
Mr. May. For a variety of reasons, but I think the most important
ones are that most of tlie agricultural experts we have consulted, or
who have worked with us, are of the opinion that there has been a
steady downward trend of agricultural exports and with the pegging
of agricultural prices at a very high level we have priced ourselves out
of a number of export markets.
Mr. WoKLEY. Do you tliink that is a healthy ])olicy ?
Mr. M\Y. No. On the whole I think the general tendency of the
United States to be less of an agricultural exporter and more of an
industrial exporter is a reasonable development story that is paralleled
in most of the industrialized nations of the world, and I think there
are many areas in which our differential advantages over other nations'
production are greater than in the agricultui'al field. •
POST-WAK ECONOMIC POLICY AND PLANNING
1059
I tliiiik your question is a ven' broad one and could get back into a
detailed consideration of whether the prices of agricultural products
are the best possible prices and so forth.
I am not attempting to answer what I don't think I am really quali-
fied to answer, but the general tendency of a relative increase in our
industrial exjiorts and a relative decrease in our agricultural exports
I don't think is unwholesome.
Mr. WoRLEY. There is no comparison between that projection or
estimate and the one for machinery?
Mr. ]\Iay. That is right. It seems to us that there are going to be
big agricultural demands immediately after the war, but we will have
n period of o or 4 years after the war ends completely, and thereafter,
in which those adjustments are to be made.
Agai^i it is a judgmerit sir. I don't tliink anybody could guaran-
tee these particular budgets as something that could be attained.
And yet it seemed to us that there was some value in trying to put
iliem down in a reasonable relationship and I hope the conmiittee will
find it useful.
Now, I refer you directly to the next budget which is as follows:
Reconttnended budget — Bulance of international payments in 1950 given capital
exports of $3,000,000,000 and additional imports of $1,000,000,000
[In millions of dollars]
Net
Subtotals of net
Receipts
Outgo
Receipts
Outgo
1. Merchandise trade:
Exports, $10,000 (estimated as permitted by supoly of
dollars on other accounts) . _. . ... _._ _.
Imports, $0,000 (estimated at level corresponding to full
employment in the United States plus import expan-
sion due to recommended programs to reduce tariffs,
stockpile critical raw materials, and increase certain
ra-.v materials imjiorts to conserve domestic resources).
Excess of receipts on merchandise trade
4,000
4,000
2. Services and other current transactions:
Shipping
Travel expenditures _
600
200
Personal and institutional gifts
Interest and dividends
600
Other Government items ,.- -
100
Excess of payments on service transections -
300
"i. Long-term capital movement:
3,000
700
Gold and short-term capital
Net outflow of capital. _
3,700
Balance ...
4,000
4,000
We have said in effect that this first budget is what we would expect
to happen if our commercial policy is kept without any important
change, but with other policies effective so that we achieve this level of
income.
Now, in many ways it is not satisfactory. It is not satisfactory for
these reasons:
First, it isn't helping us to achieve a high level of economy.
Secondly, this $7,000,000,000 of exports probably is not sufficiently
large to provide a satisfactory outlet for that part of our industrial
economy that has expanded most rapidly during the war.
1060 POST-WAR ECONOMIC POLICY AND PLANNING
Now, if we can find an important export market for our heavy metal
goods manufactures, I think there is no question but what it will serve a
very real purpose in the United States in the way of mitigating, soften-
ing the post-war readjustment. We have felt that anything that
can be done to soften that adjustment through winning legitimate
markets is good.
Secondly, we have felt that the world very desperately needs re-
habilitation after the war as rapidly as the revSources of the world can
supply it, and that we have, to a unique degree, the possibilities of
supplying it.
Third, we believe that the dimension of credit for rehabilitation and
normal development — the former being the most important — of the
world is of such a large dimension that if the United States credit
extensions should be at the rate of only $1,000,000,000 a year, the gen-
eral rehabilitation and movement toward industrialization and im-
provement of the bases for production output of the world would be
seriously held up.
Mr. WoRLEY. Will you say that again, please? I didn't follow you.
Mr. May. We believe if the United States limits its long-terra foreign
investments to $1,000,000,000 a year — which we think is all that is
likely to happen unless affirmative steps are taken — that that would
be disastrous to the world because we think the world needs capital
funds at such a high rate, and we think that the United States will be
the only really major creditor country in a position to extend credits
at the end of the war.
We think that the orderly rehabilitation and economic development
of the world will be seriously retarded if the United States is un-
willing or unable to extend credits.
Mr. WoRLEY. Then the United States Government should take those
affirmative steps. Is that your position ?
Mr. May. I am not tliinking of the United States Government. I
am thinking of the United States as an entity, and by far the great
bulk of it is private loans. But unless long-term credit can be gotten
from the United States at a greater amount than $1,000,000,000 a year,
I think the work of rehabilitation of the world will be greatly retarded.
Now, remember, we should not allow more than we can loan on good
terms and repayment of which will be guaranteed.
Mr. WoKEEY. Don't vou think that restricts it?
]\Ii'. May. Not to $1 000 000,000 a vear. The figure we have chosen
is f 3 ,000,000,000 a year in the post-war decade.
The demand for capital goods investment in the world runs in terms
of the normal increase at something like $18,000,000 000 a year, as I
have told you. That is the line of development in capital goods to the
world as estimated by a very competent economist and checked by
other people.
Mr. WoRLEY. Am I correct in saying the world will need about
$13,000,000,000 of credit? Is that your position? Is that correct?
Mr. INIay. Per year for capital development purposes.
Mr. WoRiJ^Y. And you are of the opinion that only $1,000,000,000
of this amount will be furnished by private capital. Is that correct?
Mr. May. No.
Mr. WoRLEY. $3,000,000,000?
POST-WAR ECONOMIC POLICY AND PLANNING 1061
Mr. May. No. I am talkino: about the United States on the $1,000,-
000,000 or $3,000,000,000. I don't think we should or will do all of this
by any means.
Mr. WoHLEY. I am trying to find out how much risk private capital
is willing to take. How much of that $13 000,000,000 do you think
private capital will be willing to undertake?
Mr. May. I can't give you a good answer to the question, sir, but I
think this. I think that the $13,000,000,000 demand, which I think is
added to and brought uj) to about $15,000,000,000 for at least 5 or 6
years after the war, or after this period, after 1950, in terms of long-
time rehabilitation, for war damage, is more like $15,000,000 000 a year
instead of $13,000,000,000.
:Mr. WcRLEY. Let's say $15,000,000 000.
IVIr. May. I think there is not going to be capital accumulation in
the post-war period at that rate.
Now. I think the United States will probably be called upon, that
tliere will be demands on the United States for credit extension, of
almost half of this, something like $8,000,000,000. I don't think that
we are going to meet it because I don't think that we can find really
safe investments that are truly constructive in the sense that a good
and sound and hardheaded business judgment will accept the fact that
this loan is apt to generate sufficient exporting capacity in the country
over a period of years to pay for it, and that mechanisms can be
worked out whereby the increase in export capacity that is generated
can fl jw in the foreign trade and will be acceptable in the form of im-
ports to pay for the funds advanced.
Mr. WoRi^EY. You don't think private capital is going to risk more
than what figure ?
Mr. May. I hope if we develop a series of international institutions
such as the international bank and the monetary fund — I think the
fund is important also — I think that if those instruments whicli have
);)een proposed are developed well and intelligently and with United
States participation
Mr. Welch. Mr. Ma}', tlie questions I asked you were not intended
in either a critical or a pessimistic sense.
Mr. May. That is perfectly all right, sir.
Mr. Welch. On the other harid, I want to compliment you on the
splendid statement you have made and the information you have given
the committee.
It is necessary for me to leave now, Mr. Cliairman.
Mr. May. I appreciate that. I have no doubt about it. If we par-
ticipate in the international bank and the fund, if we accept this cred-
itor role very seriously — hardheadedly — in the sense that it is a creditor
role and not a Santa Clans role, if we strengthen some of our institu-
tions such as the Export -Import Bank, if we mobilize the intelligences
of some of the agencies of government and set up committees for
giving business sufficient information and see that it is gathered and
made available to them — information that points out certain oppor-
tunities— if you develop a sufficient world responsibility so that there
can be confidence that loans that are made and that have been carefully
scrutinized will be repaid and that they are being made upon a basis
that allows repayment. I think that will need for the good faith
side of it and for this conviction that tliere is a will to repay, an inter-
1062 POST-WAR ECONOMIC POLICY AND PLANNING
national organization like the international bank. But I think if
all those steps are taken it is reasona])le to tliink that our extension
of credit could be of the dimension of $3,000,000,000 a year.
Mr. WoKLEY. When yon say "our," who do you mean?
Mr. May. I am thinking of long-term credits extended from Amer-
ica and by far the great proportion of it coming from private-fnnds
investment.
Mr. Worley. Now. if all those steps are taken, the total amount of
capital the Government of the United States and private capital over
here would be willing to invest would be $3,000,000,000. Is that
coi'rect ?
Mr. May. That is correct.
Mr. Worley. WHiich will leave a void of $12,000,000,000?
Mr. May. I believe it will not be a complete void by any means.
Mr. Worley. A difference, I sliould have said.
Mr. May. That is right. The United States, I believe, is going to
be about the only major creditor nation that is in a position to extend
long-term loans. I tliink Canada and Sweden and Switzerland will
also be able to, bnt on a very small scale compared to oui"S, and I think
certain other nations snch as Great Britain will export some capital
loans bnt they won't be net exporters for a long time.
Tlierefore,"! think this difference between the $3,000,000,000 and the
$15,000,000,000, if a number of steps are taken, would either not be
satisfied or would have to be taken out of the current standai'd of
living of the world, which is the normal way of building up cajutal
investment, but at a time when it is very difficult for major segments
of the world to draw down on current consumption levels which have
been very seriously depleted during the war.
I think there may be for a period a slowing up of capital accumula-
tion on a world-wide basis.
Mr. Ajjthur. May I ask a question to clarify the meaning of the
$13,000,000,000 to $15,000,000,000? That applies to the net increase in
capital of the world?
Mr. May. That is right.
Mr. Arthur. It includes both domestic and international new capi-
tal flotations? It is the total amount of capital formation in the
world ?
Mr. May. That is right.
Mr. Arthur. And the $3,000,000,000 you are speaking of is the
founding of that capital formation through advances from the United
States to the foreign countries?
Mr. May. That is right.
Mr. Arthur. Of the $13,000,000,000 to $15,000,000,000 a consider-
able part will be represented by net capital formation within the
United States, which presumably will be financed here ?
Mr. May. That is right.
Mr. Arthur. The demand, as you say now, is likely to be derived
from capital raised within other countries of the world?
Mr. May. That is correct.
Mr. Arthur. One further comment. That volume of capital for-
mation is one of the premises upon which you make your estimates
of the world demands for raw goods?
POST-WAR ECONOMIC POLICY AND PLANNING 1063
Mr. AiAT. Yes. It is one of the evidences but there are very great
supporting evidences on even a higher dimension than terms of these
budgets that are brought into us either in connection with post lend-
lease commitments, parts of lend-lease protocols that the countries
have suggested if lend-lease terminates they will keep as a firm
demand on a clear-payment basis, in terms of what each of them has
brought into the several conferences that have been held, such as the
Eye conference. There is tremendous existing evidence of a sustain-
ing demand other than this more or less formalistic calculation.
Mr. Worij:y. How much help will other countries need from the
United States in order to rehabilitate themselves so they can buy from
us? What connection is there between that question and your $13,-
000.000.000?
Mr. May. As nearly as we can calculate what we are apt to be
asked for on the part of other nations in the way of help, it will
amount to something like $8,000,000,000 a year for a considerable
nuinber of years. That is not a firm figure. It is a built-up figure,
parti}' from the general over-all estimating, and partly from piecing
together a set of tentative requests that have been made in various
forms at various conferences.
It is likely we will be called upon to supply credit at a dimension of
something fike $8,000,000,000 a vear.
Mr. WoKLEY. How nnich of that $8,000,000,000 will private capital
be willing to assume ?
Mr. May. I have said that private and public loans in the United
States — I am assuming the great bulk will be private loans, let us say
75 percent — I don't think a willingness will be found to do more than
$3,000,000,000 a year, and I think to put it on a $3,000,O00.CO0-a-year
basis and to make it safe and constructive in the sense of making loans
that will generate a real expectancy of repayment — I don't think they
ought to be made on any other basis — that that opportunity will prob-
ably not develop to more than a $3,000,000,000 extent.
I think that we will have a tremendous potentiality of savings look-
ing for good investment outlook or opportunities.
We will have this big accumulation during the war in funds and
War bonds and savings accounts and so forth. I think then there will
be tremendous investment funds in the United States.
On the other side, I think there will be a tremendous — as I have
suggested, perhaps a $8,000,000,000 demand on the other side.
Hov.ever. I don't think these two can get together by any means if
we appl}^ tlie criteria that I think must be ajiplied, whicli is sound
investment with the expectancy that the investment will be repaid.
I would just like to add one thing more, Mr. Chairman. By and
large, even in a long period of time, I think you wipe out the third
item in our budget. I think you have to balance your merchandise and
seiwice trades over a long period of time, that the continuous flow of
capital on a loan basis gets you into trouble because this item -of in-
terest rates on our receipts side tends to increase. If 3'ou are going
to be repaid for your loans it increases geometrically with the loans.
In other words, the longer you furnish credit to the rest of the
world — and there is a real reason for doing it^ — but as long as you do
it 3'ou have to recognize that the return of interest on that and the
additional amortization means that funds have to flow back in repay-
1064 POST-WAR ECONOMIC POLICY AND PLANNING
ment, and that means you take it largely in terms of goods. There-
fore, that will automatically increase your imports.
So the longer you run an economy such as our first budget in export
trade, with $7,000,000,000 of expoi-ts and only $5,000,000,000 worth of
imports, let alone our second budget which is even more unbalanced
with the $4,000,000,000 instead of $2,000,000,000 differential, the longer
you do that the more you are connnitting yourself to a policy of hos-
pitality to imports because you eventually have to move over to an
economy in which you are not only being paid essentially for your
exports by imports, but you are being paid in addition through im-
ports for these loans you have extended, both the interest and the
amortization.
Therefore I think you have to know that you are committing your-
self to that policy and have to accept that as a wise policy for the
United States.
That means reversing a lot of our thinking.
Mr. WcRLEY. I believe it does.
Mr. May. And that is no mean chore.
On the other hand, our thinking was adopted when we were largely
an agricultural country and a debtor country, and when we needed an
export balance, what we call a favorable balance of trade, because we
had to have some additional outgo to pay the interest on the funds
that we had borrowed of Europe and pay for the equipment that we
got from Europe.
Now, I think our story is reversed, and our attitudes about these
budgets will have to be reversed correspondingly, and I think that has
to get down to our attitude about budgets and our economic thinking.
The reasons we believe that at the end of the war you should not
attempt this immediate readjustment are about threefold.
First, you don't reverse yourself and cut down tariff structures over-
night. I think we should move to that direction, but you can do more
harm than good if having built up an economy on that basis you sim-
ply throw them all out the window, which won't be done.
Second, we believe at the end of the war the world will need capital
goods and will need some credits to a degree that it will not need
them 20 years after the war, let us say.
Third, we believe that the United States, because of this imbalance
that is deliberately built for the purpose of fighting the war swiftly,
is so heavily weighted on the production of goods that we will have
to taper down as rapidly as possible, and the export markets seem to
provide the way to cut down instead of cutting off suddenly.
And, fourth, we believe that at the end of the war we will have very
large credit facilities that can be extended and should have opportu-
nities for outlet if they can be legitimate opportunities for legitimate
outlet.
Mr. WoRLET. That will depend on the cooperation of other
cotintries ?
Mr. May. That is right. And in those terms, there is justification
for deferring the balancing of our merchandising and service ac-
counts for at least a 10-year period subsequent to the ending of the
war, and the immediate readjustment period thereafter. But we
think when you do it you have to be cognizant of the fact that you
are at that point making your decision to reverse. You should start
POST-WAR ECONOMIC POLICY AND PLANNING 1065
your gradual adjustments of current policies and general outlook at
that time in order to be ready to accept payment as the payments
really become due.
That is the general thesis of our report, sir.
Mr. WoRLEY. The balance of the statement will be incorporated in
the record.
Mr. May. Very well, sir.
(The balance of the statement is as follows:)
THE RECOMMENDED BUDGET
The committee believed that foreign trade should play a larger
role, and therefore prepared a recommended budget which is felt to
be of the general magnitude and type desirable around the year 1950,
both from the standpoint of maintaining domestic full employment,
and of discharging the responsibilities of the United States in the
post-war world.
Our need for export markets to employ our war-expanded industrial
capacity is balanced by the world need for production equipment to
repair war damage and enable economic development. We are likely
to be hard pressed to find employment for our current savings, and a
huge backlog of past savings, whereas the world needs capital for re-
construction and development. Unless the United States, the world's
only great creditor nation, meets this need for capital, the economic
development and activity of the world as a whole will be seriously and
long depressed. By meeting the world capital need we can gain a
temporary, but substantial, stimulus to domestic production and, in
the end, profit from the greater stability and buying power which
industrialization will cause abroad.
Therefore, because of the special circumstances and urgent needs
which such a course of action would serve, the committee suggests that
capital exports be increased to about $3,000,000,000 in the early post-
war period, an amount which must be considered as very conservative
in the light of world needs and our own readjustment problems. The
committee recommends that imports be increased through special
measures by $1,000,000,000.
These measures would result in an opportunity for commodity ex-
ports of $10,000,000,000.
The increase of $1,000,000,000 in imports is analyzed as follows :
The committee proposes that tariffs be selectively reduced, starting
immediately with commodities that can stand foreign competition.
The domestic market could absorb a greater supply of some com-
modities, while transfers of the affected domestic interests into new
employments in some cases could be easily accomplished. If such a
moderate tariff adjustment policy were adopted at the war's end, we
believe that, given full employment, the resultant increase in imports
might amount to at least $700,000,000 annually by 1950. By contrast
to the total trade volume envisioned, this is a very small increase.
We also propose that the Government, as a measure of national
security, as well as a means of providing necessary dollar exchange to
customer and borrower nations, build up a stockpile of critical and im-
portant raw materials on a Government-earmarked, guaranteed non-
commercial basis of a size sufficient, together with Mexican and Cana-
1066 POST-WAR ECONOMIC POLICY AND PLANNING
dian production, to assure this country's economic independence for a
reasonable period of time, say, 3 years, in case of military eniergency.
This program should be administered so as to avoid inflationary pres-
sure in periods of high demand, so as to help bridge seasonal and other
short-term market disturbances, and to counter contractionist effects
which may result from the termination of international relief de-
mands. It should come into operation gradually as the peak-demand
period expected immediately after the war is passed, or -^by about
1950. We suggest that this program be conceived in terms of imports
totaling $2,000,000,000 in the first post-war decade, or an average
additional import volume of $200,000,000 per year.
Finally, we suggest that a Government program be initiated to
encourage larger than normal imports of materials for which do-
mestic supply is declining or approaching depletion. Such a pro-
gjrani could be implemented by various means, for example, by
tariff reduction where this would affect the import volume (as in
the case of copper and zinc), by assisting in the development of new
foreign sources of needed materials and by educational programs,
and legal safeguards against improvident and unnecessary exploita-
tion of domestic resources. We suggest $100,000,000 annually as a
reasonable figure for increased imports under such a national re-
sources conservation program during this period.
Exports of $10,000,000,000 and imports of $6,000,000,000, as recom-
mended, may seem to be very substantial figures. We must keep in
mind, however, that this is the trade recommended on the basis of
a $170,000,000,000 economy, and is not out of line with the relative
trade we had in the 1920's.
Whereas exports in 1929 were 5.2, percent of our gross product, the
recommended $10,000,000,000 of exports would be only 6 percent of
our 1950 gross product. In 1929, imports were but 4.4 percent of
the gross product, and the reconmiended imports of $6,000,000,000
would be only 3.5 percent of the 1950 product. The committee there-
fore feels that the recommended increases in exports and imports
are conservative.
On capital account, the connnittee recommends investments abroad
of $3,000,000,000 a year. This, too, is a conservative figure when
related either to world needs or to our past experience.
It is possible that the United States will have an opportunity to
furnish half of the $13,000,000,000 estimated to be required annually
by the capital importing countries for economic development. In
addition, this country will probably be asked to furnish approxi-
mately 1.8 billion dolhirs a year for 10 years after the war for i-e-
construction needs — about one-fourth of Euro])e's total needs. World
requests of this country for capital might reach 8.3 billion dollars a
year.
The committee considers it impracticable to contemplate capital
exports of this magnitude. It feels that capital loans should be
constructive investments and should effect a genuine increase in the
boi-rower's jDroductive capacity so as to create the means of repay-
ment.
The committee believes that industrialization of other nations will
improve our future trade opportunities. It is sometimes argued that
if we equip otlier nations with industrial facilities they will no longer
POST-WAR ECONOMIC POLICY AND PLANNING 1067
buy our manufactures. We would be creatinji!;, it is said, compe-
tition for our own industries.
There is no justification in our past exj^erience for such beliefs.
Our trade with the industrial nations of Europe has been greater
in volume since we became an industrial nation by importing capital
from Europe. Our trade Avith Canada, the most industrialized nation
of the "Western Hemisphere exce])t the United States, is almost as
great as our total trade with all the other countries of the Western
Hemisphere. Yet Canada has only 12,000,000 people, as compared
with 130,000,000 in the other countries.
A policy of cajiital investment abroad means, however, that we
nuist gradually and deliberately increase our im])orts of foreign
products if our loans are to be rej)aid. Eventually the United States
must import a far greater volume of foreign goods and services if'
foreign trade is to be kept at a high enough level to contribute sub-
stantially to the full use of our productive capacity.
The counnittee believes that tarifl's cannot, and should not, be sud-
denly torn down. It does reconnnend, however, that this country
promptly adopt a positive policy for the systematic and gradual
reduction of our tariff structure.
The restrict ionist policies which were adopted by America during
its nonindustrial and debtor period are no longer appropriate. Actu-
ally, they prevent foreigners from paying their financial obligations
to us, depress our own export opportunities, and depress the world's
trade level in general.
Because of its combination of skilled labor, modern equipment,
and mass production, the connnittee maintains that American indus-
tries can compete with those of foreign countries. We also believe
that the fear that comj^etition with ''cheap foreign labor" would
destro}'' American labor standards and the American standard of
living is without real sribstance. If we do business with the rest of
the world, export demands will increase employment and production
in our efficient and high-wage industries and encourage the transfer
of workers from low-Avage industries and marginal agriculture, both
of which depend upon substandard wages and working conditions.
While the reconnnended connnodit}^ and capital exports will pro-
vide an invaluable period of gradual adjustment, for the long run
ii will be necessary to reverse the commodity trade balance and to
provide an import surplus out of which our financial claims on the
rest of the world can be paid.
The ability of borrowing countries to repay the loans made to them,
])lus the interest and dividends, depends largely on their attainment
of income and prosperity sufficient to furnish surplus funds for trans-
fer abroad and their ability to obtain exchange through exports. If
imports are not eventually raised to an adeciuate volume we will
lose, first, our foreign investments and the income on them, and in
the end we will inevitably h^se our export markets as well.
In order that we may increase our investments and expand our
imports, the committee makes the following reconmiendations:
1. The Government should establish the machinery to make a com-
prehensive review of our tariff for the purpose of working out means
of selective tariff i-eduction along lines of national, as distinguished
99579 — 43
1068 POST-WAR ECONOMIC POLICY AND PLANNING
from special group, interest. This is necessary in order to plan im-
port expansion, and, thereby, trade expansion in general. Such ma-
chinery might well consist of a conmiission on national foreign trade
policy established by the Congress, and composed of representatives
from both Houses of Congress, the Departments of State, Commerce,
Agriculture, the Treasury, and Labor, and the United States Tariff
Commission, the Foreign Economic Administration, and the Office
of the Coordinator of Inter- American Affairs.
2. The United States vigorously support establishment of the pro-
posed International Bank for Reconstruction and Development and
exert an affirmative influence to enlarge its potential scale of opera-
tions.
3. The powers of the Export-Im})ort Bank to underwrite capital
equipment exports by private enterprise and powers of the Recon-
struction Finance Corporation to underwrite foreign investment by
American coj-porations be extended in order to facilitate the maxi-
mum volume of private capital exports on approved projects which
can be accomplished on a unilateral basis.
4. A foreign investment commission composed of representatives
of the State, Commerce, and Treasury Dejiartment, the Securities and
Exchange Commission, the Export-Import Bank, and the Reconstruc-
tion Finance Corporation be established to coordinate information and
exercise general supervision over American investment from all
sources, whether puljlic or private or joint public and private. So
far as possible the commission would attempt to foster balanced pro-
grams of capital development and, through information service, pre-
vent unproductive and uneven capital flow. These activities should
be cooperatively related to the investment program of the Interna-
tional Bank.
5. Where private capital cannot be secured, and where reasons of
national interest advise projects in addition to those undertaken by
the Bank for Reconstruction and Development, large scale, long-term
Government loans be extended to foreign governments or to })rojects
underwritten by foreign governments for the development of trans-
port, communication, and irrigation, and other basic facilities neces-
sary to create future opportunity for productive capital investment
and for other purposes. The Government should in all cases obtain
assurances from the governments of capital receiving countries that
capital lent for such purposes will be expended under government
responsibility for repayment and application for the purposes in-
tended.
6. All purely negative regulations directed at the restriction of for-
eign loans and investment be removed. The Johnson Act which pro-
Jiibits all but ordinary commercial loans to countries in default on
war debts in 1984 and, therefore, prohibits reconstruction loans to
most European countries, should be repealed.
7. Long-term investment programs for countries or major projects
•be coordinated with long-term trade agreements, and import expan-
sion programs to guarantee a sufficient volume of dollar exchange for
service payments aiul capital return.
8. In order to provide for a sufficient supply of short-term foreign
.exchange, the United States take responsible part in establishing an
.adequate international exchange stabilization mechanism.
POST-WAR ECONOMIC POLICY AND PLANNING 1069
The committee emphasizes that it is the United States which has the
principal power of decision and of leadership in the expansion and
development of freer world trade. The interest of the United States
clearly lies in multilateral trade. If the United States fails to take
the initiative in opening and enlaroing the channels of trade, there is
the likelihood that other nations will be forced to intensify their ex-
change controls, extend bilateral agreements and develop trading
blocs to the exclusion of the United States.
Whether or not our national policies can be made effective in world
affairs depends upon our ability to formulate a national policy. If
we are able to define our national interest with clarity and coherence,
and to mobilize our legislative, executive, and administrative resources
for making it effective, there is almost nothing that we cannot accom-
plish in the field of international economic arrangements.
Mr. WoRLEY. On behalf of the committee I would like to express my
appreciation to you for your appearance here and, if from time to time
you come across information or make studies which you think w^ill be
of value to this committee we should be glad to have them.
Mr. May. AVe will be glad to submit them.
Mr. WoRLEY. Thank you very much, sir.
The committee will stand in recess until 10 o'clock tomorrow morn-
ing.
(Whereupon, at 12 o'clock, the committee recessed until Thursday,
November 30, 1944, at 10 a. m.)
POST-WAR ECONOMIC POLICY AND PLANNING
THURSDAY, NOVEMBER 30, 1944
House of Representati\^s,
SUKCOMMITTEE ON FoREIGN TkADE AND
Shipping of the Special Committee on
Post- War Economic Policy and Planning,
W ashington, D. C.
The subcommittee met, pursuant to adjournment, at 10 a. m., in
room 1304, New House Office Building, Hon. Eugene Worley pre-
siding.
Present: Representatives Worley (presiding), Fogarty, and
Walter.
Also present : Marion Folsom. statf director; G. C. Gamble, economic
adviser; and H. B. Arthur, consultant.
Present also: Hon. Dean Acheson, Assistant Secretary of State;
Emilio Gollado, Chief, Division of Financial and Monetary Affairs,
Department of State; and Bernard F. Haley, Director, Office of Eco-
nomic Affairs, Department of State.
Mr. AVoRLEY. The committee will be in order.
The Subcommittee on Foreign Trade and Shipping of the House
i Committee on Post-War Economic Policy and Planning has been hold-
I ing hearings for the }>ast several uionths in an effort to ascertain tlie
true facts bearing on the foreign-trade and shipping juoblems of the
United States in the post-war world.
During the course of its work it has had before it witnesses repre-
.senting the various governmental departments and also representa-
tives of various business enterprises who are concerned with the for-
■eign-trade problem.
All of that testimony has been very helpful and very valuable. We
liave had suggestions from private enterprise that the Government
should have a well-defined policy. Some say we have no policy.
■Others have testified we have in some respects a vacillating policy.
We don't knoAv yet just what kind of a i)olicy we will have, and we
would like to knoAV from the Department of State, Mr. Acheson, if,
in your opinicm, as representative of the State Department, we should
•develop our foreign trade and connneix-e after the war.
If so. how can it best be done; what has been the policy of the De-
])artment of State in the past in relation to these questions; and what
might we expect in the future?
The committee is very glad to have you before us, Mr. Acheson.
As I understand, you would like to read a formal statement first and
then we can ask questions later.
Will you proceed?
1071
1072 POST-WAR ECONOMIC POLICY AND PLANNING
STATEMENT OF HON. DEAN ACHESON, ASSISTANT SECRETARY OF
STATE
Mr. AcHEsoN. I much appreciate this opportunity to discuss with
5'ou some post-war international economic problems and to tell you the
lines along which we have been working in the Department of State.
What we are all working for is peace abroad and liberty at home.
These go together. Without security, few nations can follow courses
which lead to high and rising standards of living. On the other
hand, there can be little international security in a world in which
the life of the people is unsatisfactory and insecure. This is recog-
nized in the proposals of the Dumbarton Oaks Conference, and we
need to remember it in our consideration of economic problems.
The principal economic goal of this country — of workers, farmers,
businessmen, and Government — is the maintenance of full employ-
ment and prosperity, free from excessive fluctuations, with steadily
rising levels of income. If we could achieve this we should have
made a colossal contribution to the solution of our own and the world's
problems of security and prosperity. If our national income con-
tinues to move back and forth between $60,000,000,000 and $150,000,-
000,000 there is little prospect of success for any international eco-
nomic program. There is unanimous agreement that the object of
public policy and private endeavor must be to assure that the produc-
tive capacity of this country, which we have proved in time of war,
shall continue to be maintained for the satisfaction of the needs of
peace.
The maintenance of high levels of income and employment will
result in pa it from the need of the rest of the world for the goods
and services Avhich this country can supply. The markets of the
world have always absorbed a substantial part of our output. In
addition, the devastation which has fallen on the war-torn areas has
increased the need of those countries for the food, clothing, and ma-
chinery whicli this country can sujiply to them. Other parts of the
world have had their production suspended or diverted into emer-
gency channels because they were unable to obtain many of the goods
which they would have used in peacetime for industrial and agricul-
tural development. They, too, will need many things.
To a limited extent, we shall make some of these goods available
as relief for immediate distress arising out of the war. The Congress
has already authorized the appropriation of $1,350,000,000 as the con-
tribution of this country to the work of the United Nations Relief
and Rehabilitation Administration. This will meet only a very minor
part of the needs of these countries. No one would pro})ose that the
bulk of the long-term needs of the world for American goods should
be met by direct contributions. Other countries must, therefore, have
the means of paying for the goods which they require from us, either
in the form of goods and service sold to this country, or by the tempo-
rary deferment of payment through the extension of credits. There-
fore we shall need to extend short-term credits to countries which are
unable immediately to produce for export in amounts adequate to pay
for their imports and longer-tei-m credits for many of the capital goods
which those countries will need for reconstruction and for economic
development.
POST-WAK ECONOMIC POLICY AND PLANNING 1073
This, however, is only part of the picture. To some extent the
opportunities to wliich I have just referred are of a nonrecurring
nature, and they would not by themselves operate to sustain a large
market for American products over a long period of time. If we are
to receive repayments for credits extended and if we are to maintain
the foreign markets which are required for a high level of employ-
ment and activity in this country, both we and other countries will
have to reexamine and revise our past policies under which interna-
tional trade was put in shackles and production was restricted or
diverted into costly and uneconomic lines.
The dilficulties and dangers of the post-war situation will be acute.
There has been enormous destruction of plants and transport. Gov-
ernments everywhere have taken detailed charge of economic affairs
in order to prosecute the war effectively and have learned the tech-
niques of economic warfare. Many countries have had to dispose of
their foreign assets and other sources of their earnings from abroad
and will find it difficult or impossible to make payment abroad for
the things that they must have. This country, like the rest, will be
faced with problems of great magnitude and difficulty in the recon-
version of industry and the readjustment of agricultural production.
In these circumstances it would be easy for each nation to attempt
to meet its immediate problems by reducing its imports, forcing its
exports, and thus endeavor to throw upon others the burden of ab-
_sorbing its potential unemployment. It will not only be easy to drift
into these policies, but it would be inevitable, unless we plan together
to expand prosperity in all countries.
Fortunately, our own self-interest dictates that we should collabo-
rate with other countries in this endeavor. In article VII, of the
mutual aid agreement of February 23, 1942, with the United Kingdom
and in similar agreements with many of our other allies, we have
already jointly recognized our coimnon need for the expansion of pro-
duction and employment, and the exchange and consumption of goods.
The language of this article, as you will recall, reads as follows:
In the final determination of the benefits to be provided to the United States
of America by the Government of the United Kingdom in retnrn for aid fnrnislied
under the Act of Congress of March 11, 1941, the terms and conditions thereof
shall be such as not to burden commei'ce iietween the two countries, but to pro-
mote mutually advantageous economic relations between them and the better-
ment of world-wide economic relations. To that end, they sl'all include pro-
vision for agreed action by the Ignited States of America and the T'nited King-
dom, open to participation by all other countries of like mind directed to the ex-
pansion, by appropriate international and domestic measures, of production, em-
ployment, and the exc^ange and consumption of goods, which are the material
foundations of the liberty and welfare of all peoples; to the elimination of all
forms of discriminatory treatment in international commerce, and to the reduc-
tion of tariffs and other trade barriers: and, in general, to the attainment of all
the economic objectives set forth in the Joint Declaration made on August 14,
1941, by the President of the United States of America and the Prime Minister
of the United Kingdom.
At an early convenient date, conversations shall be begun between the two
Governments with a view to determining, in the light of governing economic
conditions, the best means of attaining the above-stated ob.iectives by their own
agreed action and of seeking the agreed actif)n of other like-minded Governments.
In carrving into action the common agreement expressed in article VII. the
United States has both a great opportunity and a great responsibility. Because
of our preponderant economic and financial strength, we are in a position to
assume leadership in the promotion of the necessary international economic poli-
cies and we have an obligation to do so. Many rrt^her countries will feet tbat they
1074 POST-WAR ECONOMIC POLICY AXD PLANNING
cannot ventui-e to eoninilt themselves to the kind of intern;itional economic policy
envisaged in article VII unless they can be reasonably certain tliat the United
States can be counted on to give these principles full support. Tliey took for some
assurance that this country will stand ready through the processes of trade and
investment to make available to them goods that they will need; that we will
maintain a high level of prosperity in this country and reduce our own obstacles
to trade, so that tliey may have pr()si)ects of malving repayment for the goods we
sell to them. If wo give tliis assurance and .join with them in the maintenance
of stability in the foreign exclianges, essential to both investmrnt and trade, then
there is every prospect that they will be willing to .loin witli lis in these measures
upon wliich depend tlie prospects of an increasing and stable prosperity throughout
the world.
FOKEIGX INVEST.AIENT : THE FINAKCING OF IJECONSTI UCTION AND ECONOMIC
DEVELOPMENT
As I have already indicated, our own ])i-()blems of reconversion
will be diminished and reconstruction and further economic develop-
ment of the rest of the world will be hastened if our capacity for pro-
ducing capital goods can be utilized to satisfy the needs of other areas.
In large part this is a problem of opening the channels of international
capital movements and reviving the flow of foreign investment. The
market for capital equipment has alwaj's de})ended on long-term
credit. The need for this credit will be greater than ever because of
the devastation of war.
The wise investment of United States capital abroad benefits the
United States and the world at large. It provides an immediate mar-
ket for United States products and, by developing foreign countries,
increases the purchasing power of the peoples of those countries for
foreign products including those of the United States, It contributes
directly to economic expansion, to full employment, and to high levels
of national income both here and abroad.
The international flow of long-term capital has been disrupted for
years, by war, political uncertainty, and past excesses and abuses.
It is unlikely that large stuns of money will be invested abroad unless
con.structive action is taken. This means action to make private in-
vestment possible and action to fill in the gaps by governmental assist-
ance when private investment, at reasonable rates, is not forthcoming.
One such ste]i was taken by the conference at Bretton Woods, at
which plans for the International Bank for Reconstruction and De-
velopment were worked out and an agreement drawn np which is now
before the United Nations for their consideration.
Private foreign lending mtist be on a basis which protects the in-
terests of both investors and recipients of the capital if it is to revive
and serve its purpose. The bank is designed to promote this condition,
in part by making direct loans itself but mainly by guaranteeing loans,
placed through regular private investment channels, which meet cer-
tain standards approved by the bank. Such loans would need to be
scrutinized both from the .standpoint of their investment soundness
and their broad economic aspects. Loans would not be guaranteed
if they imposed onerous or unreasonable conditions upon the bor-
rower, or if the bank considered them undesirable from the standpoint
of the investor.
The bank would eliminate certain risks and spread widely these
risks which could not be avoided, and it would do this in ways which
supplement and supi:)ort, rather than compete with, private invest-
POST-WAR ECONOMIC POLICY AND PLANNING 1075
ment. The risks, under the agreement, would be spread internation-
ally among the member countries.
The bank ^yould greatly help in regularizing the flow of investment,,
in reducing wide fluctuations therein, and in raising the levels of eco-
nomic activity in the nations of the world.
A second step is the supplementation of the resources of the Export-
Import Baidv, which, since 1934, has assisted in financing the export
of agricultural products, industrial machinery, and other capital goods
by underwriting short-term credits and making long-term loans for
construction autl development projects. It has operated principally
in collaboration with and tlirough private American banks, manufac-
turers, exporters, and engineering firms. The present funds of the
bank are very small in relation to the extensive needs, and they are,
to a large extent, alreadv utilized. The bank now has available for
new operations only about $200,000,000.
The Export-Import Bank has proved a most useful instrument by
which this Government could aid in counteracting the economic dis-
locations arising out of the war. It is now being asked to make loans
for the reconstruction of devastated plants and transport systems,
for restocking, and for the rebuilding of trade. The needed expan-
sion of its activities would not be in competition with, but as a supple-
ment to, those of the International Bank for Reconstruction and
Development. It can, moreover, continue to be useful in financing
medium and short-term United States foreign trade and in other oper-
ations not directly within the province of the International Bank.
The Export-Import Bank, finally, is a going institution wath 10 years
of experience and can be of special assistance in meeting immediate
and urgent needs pending the establishment of the International Bank,
which will necessarily require time.
The United States Government has before it at present requests for
loans from several foreign governments. The Expoit-Import Bank
is the logical agency through which to extend whatever financial aid
this Government proposes to extend directly to other countries in the
transitional and post-war period. If the bank is to make some of
these loans, however, it needs to be relieved of the ban on loans to
governments which are in default to this Government.
It would be equally desirable to remove the ban imposed by the
Johnson Act on private lending to governments in default to this
Government. That act, as well as the provisions of the Export-
Import Bank statute just referred to, was directed at governments in
default on debts arising out of the First World War. Conditions
have changed greatly since this act was adopted but it still stands in
the way of extension of urgently needed loans to the principal Euro-
pean governments and is therefore a barrier to American participa-
tion in the rehabilitation of international trade. The unavailability
of private capital, due to the act, increases the need for Government
loans for reconstruction and other purposes.
FOREIGN EXCHANGE STABILITY
A second broad field in which national action and international col-
laboration are requisite, both for the restoration of long-term invest-
ment and of current foreign trade, is the assui-ance of orderly relations
and stability in the foreign exchanges. Foreign investment and finan-
1076 POST-WAR ECONOMIC POLICY AND PLANNING
'cial transactions that are spread over a period of time require reliable
currency units and the assurance that interest and ])rincipal can be
converted into the lender's own currency as they fall due. Exporters
are not inclined to export unless there is reasonable assurance that
they will fj^et paid in money of definite value which can readily be
ti-ansferred into their own currency. If trade does not move because
of faulty currency and exchanoe conditions, production is slowed down
or hindered, and workers are unemployed. We need to be sure there-
fore that we have a foreign exclianoi;e mechanism adequate to carry
the load imposed on it by the world's investment and trade
requirements.
An exchanjje i-ate by its nature concerns more than one country.
Orderly and satisfactory international fip.ancial relationships are im-
possible unless nations have some understandin<>; in this field and work
together toward conunon ends. Machinery foi- such cooperation would
be provided by the international monetary fund, the proposed agree-
ment for which was drawn up at the United Nations Monetary and
Financial Confei-ence held at Bretton Woods last July.
The plan represents the joint efforts of the technical experts of 44
nati(ms to define the "'rules of the game" in the field of currency and
exchange. It is the outcome of discussions between these experts over
an extended period.
The fund is designed to {)rovide machinery for making the cur-
rencies of its members as freely interconvertible as possible. Such
interconvertibilit}' would be at established rates, and would make
possible the conduct of foreign trade and other financial transactions
with a mininnim of risk and difficulty arising from the existence of
different currency systems. The plan proposes a system wherein
traders would be able to buy or sell in any market of the world, wher-
ever this can be done to tlie greatest advantage. It discourages ar-
rangements whereby trade is artificially restricted or channeled here
or there, but instead aims toward the establishment of a broad multi-
lateral trading system wherein trade can expand and its full benefits
be realized.
Other countries are waiting to see what action the United States
will take with respect to this proj)osal, the formulation of which has
been sponsored to a large extent by this Government. Our action will
be considered as an indication of whether the United States is going
to participate in a cooperative approach to international economic
questions in the post-war period.
I should like to emphasize that the accomplishments of the Bretton
Woods conference, if approved by the United States, will have carried
us nmch further than is conmionly recognized toward the accomplish-
meiits of the objectives which we all share as set forth in article VII
'of the mutual-aid agreements. The proposed articles of agreement
for the fund and the bank are not merely financial documents. To-
gether they would establish two institutions which can go very far
indeed toward restoring the conditions under which an orderly inter-
national trade can again be established. In providing for the inter-
convertibility of currencies, for the ready availability of any country's
currency, for the earliest possible elimination of exchange controls
and instruments of economic warfare, and in numerous other ways,
these instruments would of themselves accomplish a reduction in many
POST-WAR ECONOMIC POLICY AND PLANNING 1077
ot" the restrictions on trade and would eliminate the use of some of the
most flagrant devices for discriminating against the trade of the
Ignited States by other countries.
RESTORING A XI) ENLARGING TRADE
Commercial policy : The measures vrhich I have discussed so far are
largely in the nature of facilitating devices affording assurance that
trade will not languish because of exchange instability or because of
the absence of means of covering temporary gaps in the international
balance of payments. More than financial measures alone are needed,
however, if we are to realize over the long pull the potential bene-
fits of an expanding world economy. The pre-war network of trade
barriers and trade discriminations, if allow^ed to come back into oper-
ation after this war, would greatly restrict the opportunities to revive
and expand international trade. Most of these barriers and discrimi-
nations are the result of government action. Action by governments,
Avorking together to reduce these barriers and to eliminate these dis-
criminations, is needed to })ave the way for the increase in trade after
the war which we must have if we are to attain our goal of full
employment.
In order to achieve this, we need to continue and to extend the
eifort that we have made, through the reciprocal trade agreements
program, to encourage an expansion of private foreign trade on a
nondiscriminatory basis. As a preliminary step, the special wartime
controls of trade should be demobilized as rapidly as the wartime
shortages, wliich gave rise to those controls, disappear. With respect
to long-run adjustment of the pre-war network of trade barriers
and discriminations, we are presented with a unique opportunity for
constructive action in cooperation with other countries. Conversion
from war to peace must occur in every country. The direction of
that reconversion, the kinds of investments which businessmen will
make, will depend in major part on the foreseeable regime of public
regidation of production and trade. We therefore propose to seek
an early understanding with the leading trading nations, indeed with
as many nations as possible, for the eiTective and substantial reduc-
tion of all kinds of barriers to trade. The objectives of such an en-
deavor w^ould be :
To eliminate all forms of discriminatory treatment in international
commerce.
To make exchange restrictions on commercial transactions unneces-
sary, and to enable the financial arrangements proposed at Bretton
Woods to have their full effect.
To achieve the progressive elimination of quotas, embargoes, and
prohibitions against exports and imports.
To reduce import tariffs.
To lay down fair rules of trade, with reference to government
monopoiies and state trading, including trade betw^een countries where
private enterprise prevails and those where foreign trade is managed
by 1 he state.
To create an international trade organization to study international
trade problems and to recommend practical solutions.
We propose, in other words, that this Government go on with the
Avork which it has been doing during the last 10 years, even more
1078 POST-WAR ECONOMIC POLICY AND PLANNING
vigorously, with more countries, and in a more fundamental and sub-
stantial way. The contribution of the United States to such a major
effort for the reduction of trade barriers woidd obviously have to be
in large part in the field of reduction in our tariff, since in peacetime
the tariff is the principal measure that we have employed for restrict-
ing imports. It is our purpose in the Department of State to press
forward as firmly as we can in the general direction I have outlined,,
consulting fully witli the appropriate committees of the Congress.
If exploratory discussions with representatives of other governments
give encouragement to our efforts, a trade conference of the United
and associated Nations should be lield at the earliest practicable date
for the negotiation of an agreement for the reduction of all kinds of
barriers to trade. This agreement would, of course, be submitted to
to the Congress for its consideration.
Private trade restrictions: Obviously our efforts to mitigate re-
strictions on production and trade will not be wholly effective if we
permit business enterprises by agreement among themselves, to impose
restrictions on output, to divide markets and to maintain prices. For
this reason, a rounded international economic policy must take cog-
nizance not only of governmental ]y imposed restrictions but also of tlie
restrictive practices of international business agreements and of pri-
vate combines.
In the time available I shall not be able to discuss in any detail the
nature of the so-called cartel problem and its relations to the other as-
pects of commercial policy. These have been the subject of investiga-
tion by several congressional committees in recent years, however, and
their findings and reports are, of course, available to you.
Among the problems of public policy which international cartel
arrangements ju-esent is the central question of the relation of private
restrictions on j roduction and trade to our objective of the maxinunn
material well-being of the people of this and other countries in an
expanding world economy. By making connnodities less plentiful
and higher priced than they would otherwise be, such activities oli-
viously reduce standards of living and opportunities for employment.
By suppressing competition and in some cases by limiting research
and access to new technology on reasonable terms, they tend to retard
industrial efficiency and to limit employment and income. In addi-
tion they diminish or remove some of the economic incentives for the
transfer of productive resources out of relatively inelHcient uses and
substitute the will of private interests for the decisions of the public
in many aspects of commercial policy.
The letter of the President to the Secretarj'^ of State of September
6, 1944, sets forth succinctly the general framework within which the
executive agencies of this Government are studying this question. In
his letter the President points out that the American tradition in
opposition to private monopolies —
goes hand in glove with the liberal principles of Intorntitional trade * * *
Cartel practices which restrict the free flow of goods in foreign commerce will
have to be curbed. With international trade involved, this end can bo a* hieved
only through collaborative action by the United Nations.
Under that mandate the executive agencies of the Government are
attempting to determine the most fruitful means of reaching inter-
national agreement for the curbing of private restrictions on inter-
national connnerce.
POST-WAR ECONOMIC POLICY AND PLANNING 1079
Commodity agreements: Some commodities entering into interna-
tional trade, particularly some foodstuffs and raw materials produced
by many thousands of small individual producers, are particularly
susceptible to extreme fluctuations in prices and to maladjustments in
the scale and character of production. Even before the war there
were a number of commodities which were in chronic surplus; the
normal market price mechanisms were not sufficient to achieve natural
readjustments. The war, of course, has greatly accentuated existing
maladjustments and has created many new maladjustments in com-
modities. For example, the United Nations, shut off from their nor-
mal sources of suppl}^ of many items, have greatly expanded their
own output of those products that formerly were obtained from enemy
or enemy-occupied territories. When the war ends and old sources
of supply are reopened, there may be tremendous surpluses of these
commodities. Another type of surplus is likely to arise where pro-
duction has been expanded many times over to meet a war demand
that is much heavier than normal peacetime requirements. Here, too,
serious surpluses may result.
The problem presented by such potential surpluses is twofold.
First, by creating chronic depression among producers they reduce
the purchasing power of these groups and in some cases of entire
countries. This in turn undermines efforts to maintain full employ-
ment and rising levels of income in all countries. Second, the gov-
ernments frequently attempt to buttress the position of the producers
of such surplus commodities by various unilateral policies of price
support and by the reservation of domestic and colonial markets for
their own producers. The aggregate effect of these efforts is often
to demoralize the world market and precipitate international trade
warfare. In some cases these disordered conditions may foster the
growth of producers' arrangements which seek to impose an artifi-
cially contrived scarcity upon the world market.
International action for dealing with such jjroblems in the past,
chiefly in the form of commodity agreements, has been deficient in
that it was chiefly directed towai:d the artificial restriction of output
and bolstering of prices without removing the fundamental causes
of the disequilibrium. Such commodity arrangements have not, for
example, typically provided any incentive for the transfer ^f excess
capacity and productive resources into other uses. If international
commodity arrangements can be coupled with appropriate machinery
designed to facilitate these basic adjustments, commodity agreements
may, in specific cases, serve a useful function in assisting such adjust-
ments to be made and in easing the otherwise distressed position of
the producers during the transitional period.
It will be desirable, consequently, to seek agreement between gov-
ernments that all international commodity arrangements of this type
should be based upon an acceptance of certain fundamental principles,
in order to insure that such arrangements shall subserve the broader
purposes of an expanding world economy. Thus such arrangements
should provide for equal representation of the interests of exporting
and importing nations, that is, of both producing and consuming na-
tions. Such arrangements should also afford expanding market op-
portunities for the more efficient world producers as compared with
relatively less efficient producers of the commodity in question. In
1080 POST-WAR ECONOMIC POLICY AND PLANNING
cases where world productive capacity is clearly in excess of what will
normally be required for the satisfaction of world demands at reason-
able prices, international commodity arrangements should include
programs for the shifting of high cost resources out of the overex-
panded industries into new and productive occupations. Connnodity
agreements of this type should run for a definite time period, and
provision should be made for the periodic review of their operations
by an international agency which would facilitate cooperation between
governments in the solution of international commodity problems.
It should be emphasized that the purpose would certainly not be to
promote indiscriminate recourse to international commodity agree-
ments as a permanent or general method of organizing international
trade. The purpose would be, rather, to furnish a means whereby
special problems of burdensome commodity surpluses can be deah.
with by international cooperaticm, and to forestall the development
of dangerous international rivalrj^ in the disposal of surpluses at any
price.
INTERNATIONAL ECONOMIC ORGANIZATION
It will have been obvious from my foregoing remarks that there is
a close relationship among the various elements in our international
economic policy. All are designed to contribute to tlie same end but
each makes use of the tools most appropriate to the problem v/ith
which it directly deals. In my introductory remarks 1 also referred
to the intimate relationship between our objectives for full employ-
ment and material well-being on the one hand, and for world security
on the other. Full success in each field will be dependent upon prog-
ress in all others, and advance in one will facilitate and quicken
progress in the others. The problem which this poses for us is to be
able to see our economic policy as one piece and to keep its various
parts mutuall}^ consistent without falling into the danger of insisting
that before we venture upon action in any one field i)r()gress must
have been made in all others. There is no more real danger in the
field of international economic collaboration than that we shall fall
into futile debates of the chicken and the egg variety.
One safeguard against these dangers is to be found in provision
for a central international organization which, without having pri-
mary responsibility for any one field, would be able to keep an eye on
the picture as a whole. This we may hope to accom])lish through the
general United Nations organization projected at tlie Dumbarton
Oaks Conference. One of the major organs of this body is the Eco-
nomic and Social Council in which is vested, under the authority of
the general assembly, responsibility for facilitating solutions of inter-
national economic problems. Without losing their individual identity
provision would be made for establishing close relationship between
the Council and the various specialized agencies which will be re-
quired to facilitate international collaboration in the various fields in-
cluding those to which I have referred above. Among these agencies
we already have the well-established International Labor Organiza-
tion, which brings to bear upon international economic problems in its
sphere, the views of labor, management, and government.
As a result of the Hot Springs Conference an interim commission
of the United Nations has recently completed a proposal foi" an inter-
national organization in the field of food and agi'iculture. Similarly,
POST-WAR ECONOMIC POLICY AND PLANNING 1081
tlie Bretton Woods proi)osals are expected to gi\e rise to two other
organizations, the International Monetary Fund and the International
Bank for Reconstruction and Deveh)pnient. We shall also need inter-
national organization as a contiiuiing international forum on the
problems of international trade, connnodity arrangements, and pri-
vate business agreements. Most of these bodies, it may be anticipated,
will be fact finding and advisory; the fund and the bank will have
operating functions; all of them will have in common the objective
of promoting those conditions and adjustments in tlie economies of
all countries of the world which will be conducive to reaching and
maintaining an expanding world economy. The advisory and con-
sultative functions of the Economic and Social Council can help to
insure that the activities as well as the objectives of all of the various
specialized bodies are in fact harmonious and consistent with each
other.
So far as machinery is concerned, we shall have envisaged as much
as seems possible and practicable. WHiether the machinery will work
will depend mainly upon the economic })<)licies wliich the nations of
the world are willing to follow. The major contribution which the
United States can make to the eifectiveness of this machinery and to
its own prosperity is the adoption of policies designed to facilitate
its participation in world trade and finance in a manner commen-
surate with its power and responsibility.
Mr, WoRLEY. Thank you very much, Mr. Acheson, for the splendid
and informative statement.
Most eA'eryone has agreed we wish to develop our foreign trade.
Would you give us briefly the reasons why you believe we should
develop our foreign trade ?
Mr. AcHEsox. Yes ; I shall be glad to, Mr. Chairman.
I think the way to approach the development of our foreign trade
is to start by looking at our own situation.
There are many fields in international relations where idealism and
good will play an important part. I don't think in the long run they
will pla}' an important part in business.
Business is based on other considerations than those. Therefore,
any policy that is not based on examining our own situation and seeing
what our own relation to foreign trade is will, in the long run, not be
successful.
If we start out doing that Ave will see at once the very broad field
of common good which there is between us and other countries regard-
ing our own interests.
In the first place, our own interest is to maintain the full employ-
ment which we have at the present time and expand it sutKciently ito
absorl) the twelve million or more men and women who will come back
from the services.
If we do not do that, it seems clear that we are in for a very bad time,
so far as the economic and social position of the country is concerned.
We cannot go through another 10 years like the 10 years at the end
of the twenties and the beginning of the thirties, without having the
most far-reaching consequences upon our economic and social system.
Mr. Walter. When you speak of expanding employment have you
in mind the many people who are tempoi-arily employed and would
not beemplo3'ed were it not for the fact that we ai"e at war?
1082 POST-WAR ECONOMIC POLICY AND PLANNING
IVIr. AcriESON. Yes; I have that in mind, Mr. Congressman, but
wlien yon take out the number temporarily employed and consider
the ones who are coming back from the armed services, you will
find we have a net addition to take care of.
Many of the people now employed are employed on a pail-time
basis, many women are working on a part-time basis, but you will
find, I believe, that when everybody who does not have to work and
is working for patriotic reasons goes back to his other activities, you
will still have people to employ.
When we look at that problem, we may say it is a problem of
markets. You don't have a jiroblem of production, llie United
States has unlimited creative energy. The important thing is
markets.
We have got to see that what the country produces is used and is
sold under financial arrangements which make its production
possible.
So far as I know, no group which has studied this problem, and
there have been many, as you know, has ever believed that our domes-
tic markets could absorb our entire production under our present
system.
You must look to foreign mai'kets.
Some estimates go as high as $10,000,000,000 of exports n vear.
We could argue for quite a while that under a difierent system
m this country you could use the entire production of ihe country
in the United States.
Mr. WoBLEY. What do you mean b}" that?
Mr. AcHESON. I take it the Soviet Union could use its entire pro-
duction internally.
If you wish to control the entire trade and income of the United
States, which means the life of the people, you could probably fix
it so that everything produced here would be consumed here, but
that would completely change our Constitution, our relations to prop-
erty, human liberty, our ver^^ conceptions of law.
And nobody contemplates that. Therefore, you find joii must look
to other markets and those markets are abroad.
It happens that these other markets are ([uite as anxious for our
goods as we are to sell them. They alwaj^s have been to some extent.
but now that is true as never before.
This war has created a colossal demand such as has never existetl
before. But it is only a wish and not an economic demand unless
there is purchasing power put behind it.
Mr. WoRLEY. Isn't there very little purchasing power behind these
demands ?
Mr. AcHESON. There could be very considerable purchasing power
kiehind the demand.
Mr. WoRLEY. At the present time ?
Mr. AcHESON. At the present time there is very little. The war
has destroyed the productive power and the foreign excliange and
other assets which many countries have had, but the great thing
which creates purchasing power in the long run is people. Those are;
the greatest assets in the world.
An energetic, driving human being is a tremendous asset.
If those people can be permitted to go to work and if they can de-
velop their own countries, if they can increase their productive capac-
POST-WAR ECONOMIC POLICY AND PLANNING 1083
ity they will become a very increasing market for all goods including
our goods.
Those "people, therefore, are of interest to us from two points of view.
First, they will need a great deal of capital equipment, not only to
restore their countries but to begin to develop their countries.
At the present time this country is almost the only source of much
of this equipment. We have the most efficient production, the most
advanced technologies, and we are the producers who obviously can
produce and sell.
Mr. Walter. But in the period during which they are rebuilding
they are, of course, going to manufacture and produce. Then, of
course, ctimes the problem of accepting those goods in competition
with our own manufactures.
Mr. AcHESON. I understand that problem and what I am trying to
do is to b'4ng that out in answer to the chairman's question. But the
first thing that I want to bring out is that we need these markets for
the output of the United States.
If I am wrong about that, then all the argmnent falls by the way-
side, but my contention is that we cannot have full emploj^ment and
prosperity in the United States without the foreign markets. That
is point '^ne, and if anyone wants to challenge me on that we will go
oA^er it a/rain.
Mr. WbRLEY. I think we are agreed on that.
Mr. AOheson. How do we go about getting it? What you have to
do at the outset is to make credit available. In this particular situation
you have to make credit available for two purposes. One is the tempo-
rary purpose of getting over the difficulty of the next 3 or 4 years which
these countries will have in buying their current consumable imports.
Take the Greeks, the Poles, or the British. At the end of this war
there will be a period of 3 or 4 years when what they have to export
will not equal what the}' have to import immediately to eat and live.
That is the field of short-term credits.
You have to find some way to get over that, and that is important
for our business, also, because we will be selling much of that material.
Mr. WoRLEY. In that connection, Mr. Acheson, short-term credit by
private capital or government?
Mr. Acheson. I don't believe private capital can possibly do it.
Mr. WoRLEY. Why not ?
Mr. Acheson. I don't think there is enough private capital willing
to engage in that activity, which is quite risky. Thei-e will be a lot
of losses. The interest rates which private lenders will require in these
circumstances will be too high.
Some countries have a high-credit standing. I think in a public
hearing it would be invidious to name those who have and those who
have not, but you can readily see that some countries could go to a
bank and some could not, and borrow money.
Mr. Walter. Have you given any thought to the possibility, assum-
ing that we will have to extend credit now to people who are not good
credit risks, of establishing some sort of a system whereby the people
to whom credit is extended establish themselves as good risks ?
Mr. Acheson. Yes ; I have thought about it a great deal and I want
to develop that too.
99579 — 45 — pt. 4 31
1084 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. Walter. I think the American people would be willing to
extend credit where, let us say, it is just a moral risk, with the idea that
ultimately those creditor nations would demonstrate their willingness
to cooperate to the extent that they would become good credit risks.
Mr. AcHESON. Let me make one statement before taking up what
you have asked, Mr. Congressman, and that is the longer term credits
which are necessary to enable these countries to buy the capital equip-
ment which under all circumstances has to be paid for over a long
term.
Now, the question that has just been asked. These people have to be
given an opportunity to establish themselves as good credit risks and
the only way that can be done is to give them an opportunity to engage
in trade. That is the only way in the world they can become good
credit risks.
Mr. Walter. "Wlien I used the term "moral risk" I had in mind a
bank's conception.
Mr. AcHEsoN. That is what I have in mind, and if this were my
money and I were lending it to someone abroad, I would not dream of
lending it to anyone if I knew that the borrower was not going to
have an opportunity to get into an expanding world trade, because I
would know that no matter how honest he was or how desirous of
cooperating, he was not going to be able to obtain the means of repay-
ment if there wasn't an expanding foreign trade.
And that brings me to another question you ask: What about im-
ports, what about goods?
It is obvious that the only way a person is a good credit risk is
through this machinery — we will extend him some credit to tide over
temporary deficiencies and he buys tractors and what not and goes to
work. He must dispose of his product, and that must be disposed of
in an expanding international trade.
Most foreign countries, if not all of these countries we are talking
about, live on international trade, partly with us and partly among
themselves. That must be growing. If it is small and static we are
going to get into all sorts of troubles fighting for exports to various
markets and getting imports into our own countries, and we are going
to stop international trade. These fellows will not have anything with
which to repay their loans to us, and they are not good risks, and the
whole thing will blow up.
If we have in this country a very high level of national income and
if we are able to maintain that level, the matter of imports is not going
to bother us. On the other hand, it will help us.
If we have a national depression, with the national income shrink-
ing to $60,000,000,000, everybody regards imports as a menace. If the
national income is kept up, normally, even under a high tariff, im-
ports increase during times of prosperity.
If the restrictions can be reduced and the whole volume of trade
is increasing, then there is no problem of our receiving imports at all,
and unless we do receive imports we cannot begin to have the volume of
exports which we need.
If it is true, as some people say, and I am not an expert in these
matters, that we need a volume of exports somewhere in the neghbor-
hood of $10,000,000,000 a year, it is impossible to think of that in
terms of credit. You couldn't extend credit like that. By far the
greatest part of it will have to be made up through imports.
POST-WAR ECONOMIC POLICY AND PLANNING 1085
Mr. WoRLET. How much credit do you imtigine countries will need
in this transitory period?
Mr. AcHESON. If the committee would permit me, I would like to
ask Mr. Collado, who is the Chief of our Division of Financial and
Monetary Affairs, to give his view on that.
Mr. Collado. I imagine you mean from the United States ?
Mr. WoRLEY. Yes.
Mr. Collado. The capital needs of these countries for reconstruc-
tion will, of course, be very great. The capital needs of the war-
devastated countries, and other parts of the world such as Latin Amer-
ica, and so forth, will be very great. They will raise a large part of
their funds locally, to pay for local labor, and so forth, and they will
also take care of quite a lot of their capital needs as time goes on
b}' production within those countries.
I would hesitate to hazard a guess on the capital needs or even the
amount that could come from capital exporting nations. I think that
the capital exports of the United States during the first 5 or 8 really
post-Avar years — not 1945 or 1946 but as soon as things begin to
straighten out a little better — will probably be in the neighborhood of
$3,000,000,000 a year.
That is a much larger figure than we have ever achieved in the past.
"We have never had net capital exports of very much over $1,000,000,-
000 in the best of years, and we have had considerably smaller
figures than that in most years.
Mr. AcHESON. Mr. Chairman, I think in this connection there is
another observation that might be made and that is that this busi-
ness of exporting capital is much more difficult than has generally
been assumed. There is a common view that the world could just
take all the capital goods we can possibly give, if there were no finan-
cial considerations involved. I think that is not the case.
There are very definite limitations on the amount of capital over a
period of time which any country, particularly undeveloped countries,
could absorb. Take a country which is undeveloped economically.
It is not merely a question of sending machiner}^ The}' have to have
peojjle who can work the machinery.
The Soviet Union has discovered it has been a long job to train
workers. You could not take fairly backward agricultural workers
and put them on the assembly line. It is not merely a matter of
manual training, but you have to change the whole economy of the
country. Several times the Soviet Union has found it has gone too
fast on capital improvement.
Mr. WoRLEY. Do you think this Government should undertake the
res))onsibility of helping educate these people in other countries?
Mr. AcHESON. I think primarily this is a matter for each country
to undertake itself. Whenever a country wants help from the United
States we ought to be willing to give it, and we have done so under
our arrangements with many of the countries in this hemisphere.
They have asked for technical commissions from the United States
to come and examine this or that industry and make recommenda-
tions or set up technical schools. If they want that help we should
cooperate, but we should not force ourselves on people. They know
their problems better than we do, and our attitude must be one of
helpfulness and not one of aggressiveness.
1086 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. Arthur. May I ask a question to help us in our analysis ? Do
you have an estimate available of the United States present credit
position, exclusive of those obligations which may be subject to nego-
tiation after the war, such as lend-lease and possibly the World
War I loan accounts ?
We have acquired large balances of foreign countries in this coun-
try now, and those represent what we owe abroad, even though it
is on short term. Do you know where the net balance stands at the
present time ?
Mr. AcHESON. I would again like to refer that to Mr. Collado.
I assume what we have on that subject we would have obtained
through the Treasury or the Federal Reserve System.
Mr. Collado. As Mr. Acheson said, we do not have any independ-
ent information on the subject, but we have had some available to us.
Exclusive of any World War I obligations and of any unsettled
arrangements arising out of this M^ar, the net balance is pretty
nearly even at this time.
We have quite a considerable volume of long-term investments
abroad, and foreign countries have relatively large amounts of gold
and other balances in this country. The distribution of those assets
of those countries is very uneven.
While a few countries have much greater than normal balances,
many of the larger European trading nations have balances much
smaller than before the war.
The net position — I would want to check the figures, of course — if
you take an over-all long- and short-term balance, would probably
not be much over a billion, a billion and a half, or two billion dollars
in creditor status to the United States.
Mr. Arthur. Then we are only a small creditor nation, exclusive
of wartime obligations ?
Mr. Collado. Exclusive of the very important factor of the com-
position of the credits. Ours are long-term credits of a long-term
capital nature, investments abroad, government obligations, and in-
vestments in utilities, manufacturing enterprises, mines, and so forth.
Foreign assets in this country are almost entirely of a banking
nature, the short-term assets of individuals and banks.
Much the bulk of foreign investment in this country is short term.
A great deal of that has arisen under the special circumstances of war.
For example, the balances of Latin-American countries in general
have risen very markedly. That has not been a form of voluntary
investment of their capital in the United States. It has been a result
of lack of available American exports, shortages of shipping, and other
situations which made it impossible for them to spend their money. It
must be distinguished from the normal long-term case of an investing
nation.
Mr. Arthur. Would you say that, aside from war accounts, we
are not a great creditor nation at the moment, excepting as we are a
creditor on balance and, in addition, our credits are likely to be long
term, whereas our obligations to other nations are short term? Still
we are not in a position comparable to that of England before World
War I. You would classify her as a great creditor nation. Or Hol-
land or Switzerland, and so forth.
Mr. Collado. As things stand today, we are not only the largest
creditor on long-term account but we are one of the few countries in
POST-WAR ECONOMIC POLICY AND PLANNING 1087
the world whose potentialities as a capital investing nation are un-
questioned.
I refer to the position of Canada as a capital exporting nation, and
several of the European nations are in the same circumstances. Their
status compares with the United States, but they are smaller.
The Canadian position is relatively great compared to the size of
the country and its population, but compared to the figures of the
United States potentiality, it is much smaller.
The United States is a potential capital exporter on a scale vastly
greater than any other country or group of countries that can be en-
visaged over the next several years, at least.
Mr. Arthur. I have one other question, if I may, Mr. Chairman.
With respect to the flow of goods which accompany our net lending
operations that we contemplate during the early post-war period, can
you explain for the record briefly the reversal of that process? How,
if we are great beneficiaries during a period when we are having our
funds flow out of the country, will we also be beneficiaries during a
later period when both the servicing and the repayments create a re-
turn flow to this country? What are the complications that we can
face now with equanimity, representing a capital movement in one
direction that will not cause us concern when the capital movement
turns and is in the other direction ?
Mr. AcHEsoN. Subject to the fuller explanation of some of my col-
leagues, I should say, Mr. Arthur, you are not going to get to the
point during any period which we are discussing, where the outflow
of capital will cease from the United States. You may in 25 years or
some years way ahead, but what we are most definitely contemplating
is that the flow of lending of foreign investments by the United States,
must be something which continues.
Now, there will be increasing payments in forms of interest, amorti-
zation, dividends, and that sort of thing. But as long as there is need
for capital in the world — and we can't see the end of that period —
this is the place where those countries are going to come, because this
is the place it exists. Therefore, this is not a matter of making three
or four big loans in the next year and then stopping. This process
will go on.
You referred to capital exporting nations in the period before World
War I. That is the history of those nations — that there is a continuity
of lending.
We have here two men who know much more about this than I do,
Mr. Collado and Mr. Haley, who is Director of our Office of Economic
Affairs, and I would like to have Mr. Haley pick this up and discuss
it fully with you, if the committee will permit that.
Mr. WoRLEY. Proceed, if you please.
Mr. Haley. Mr. Chairman, I think we have two illustrations of
the sort of thing Mr. Acheson was just speaking of: First, in the
experience of the United Kingdom ; and secondly, m our own country.
The experience of the United Kingdom as a capital lending country
in the decades before the Great War was that the United Kingdom
developed to a point where it was steadily importing more goods
than it was exporting.
The excess of imports over exports represented a return to the
United Kingdom on earlier capital exports which had been made
over and above current capital exports.
1088 POST-WAR ECONOMIC POLICY AND PLANNING
From the point of view of the United Kingdom as a whole, that
represented a basis on which the United Kingdom people had a
higher standard of living than they otherwise would have had. It
meant that their total national income in terms of goods was higher
by virtue of the fact that they were importing more goods and
services than they were exporting.
In the case of England, that situation developed very gradually,
without a serious internal disturbance. It meant that in the middle
of the nineteenth century they did have to reduce their tariff to a low
level in order to take advantage of their capital position.
The same sort of transition occurred in our own country at an
early date but in reverse. In our early history we were a capital
importer on balance, and we imported more goods than we exported,
the import excess representing a flow of goods into this country
which was being invested in the development of the Nation.
Then there came the time when our payments on interest and divi-
dends to foreign investors exceeded current year-by-year investments
in this country by foreigners, so that our excess of imports over
exports changed to an excess of exports over imports, and during
the period from 1873 and up to the time of the First World War
we had an excess of exports over imports, which represented pay-
ments to foreigners of interest and dividends over and above any
inflow of capital that still remained. To some extent this meant
we were producing more goods in this country in terms of value
than we were in a position to consume, because we had to pay interest
and dividends to foreign capital.
However, with the Great War our situation changed substantially,
and although our position varied slightly during the twenties and
thirties, on balance we were certainly a capital exporting nation.
Now, we are placed again, as I see it, in a position where if we are
going to maintain full employment and if, in order to do that, we
are going to assist the countries of the world with which we trade
to keep on a high economic level, it is again going to be necessary for
us to expand capital exports, probably on a larger scale than ever
before, which will make it possible for us still to maintain during
that period an excess of exports.
But gradually, as the interest and dividend paj^nents owing to
us increase, we shall gradually see over the next 25 to 30 years a
diminishing balance as between exports and imports of goods, and a
gradual transition in which we might begin to reap the rewards of
our dividends and interest just as the British did before the First
World War.
I am using a good deal of speculative analysis. When we talk
about 25 or 30 years from now, it is simply guesswork.
But there is no reason why the transition should not be a wholesome
one, providing we are successful in helping other countries and co-
operating with them in reaching a sensible economic system.
Mr. Arthur. If we continued to be a net exporter of commodities,
we would in effect be exporting what we produce for something as
unsubstantial as a flow of paper representing the obligations of those
who are using our goods. Should we not, over a period of time, con-
template a return flow, if we are looking at the full picture, from a
selfish point of view ?
POST-WAR ECONOMIC POLICY AND PLANNING 1089
Mr. Haley. I think that is part of the task. The answer to your
question is "yes." Certainly, to gain the full advantages of our posi-
tion as a capital exporting countr3\ we should look forward to the
time when the interest and dividends will make it possible for us to
enjoy a higher national income than we otherwise might have.
But I don't agree with your statement that at the present time ex-
jDorting our substance with apparently nothing in return but a piece
of paper is bad business.
It is true that if it were possible for this country alone to produce
just as much as it otherwise would produce, and export nothing, then,
with a wall around ourselves, we could have a higher national incomQ
than if we exported goods in the form of capital.
But you can't isolate our country and maintain as high a standard
of living and national income as you can if you aid in the rehabilitating
of other countries by exporting capital and making possible a higher
level of world prosperity.
Mr. Arthur. In other words, if we temporarily give away a piece
of the pie, that is attended by the forces which make the pie itself
much larger?
IMr. Haley. That is correct.
]Mr. AcHEsoN. That is correct.
Mr. WoRLEY, You would get a bigger piece of pie ?
Mr. AcHEsoN. That is right.
Mr. WoRLEY. Mr. Acheson, I don't know whether it will come as
a surprise to you or not, but we have had some criticism from witnesses
directed toward the State Department and they say it has not a well-
defined position.
The average exporter or importer seems to have a great deal of dif-
ficulty in knowing what he can do and what he can't do. Can you
see any justification for those criticisms?
Mr. AcHEsoN. I think in order to make a very helpful answer I
would have to know a little more about the nature of the criticism.
Some of the criticism which has come to my attention has to do with
the inevitable difficulties which the exporter and importer get into
during the period in which we now find ourselves, the war period.
If that is what you mean I would be glad to talk about that.
Mr. WoRLEY. No. That is quite understandable. I think most of
the testimony was during the peacetime period. Then too, it was
concerned with what the State Department might have in mind for
the post-war period.
Do you know of any case where anyone engaged in foreign trade
woukfhave any difficulty with the State Department in so engaging,
prior to the war ?
Mr. Acheson. I am still a little bit at sea, Mr. Chairman. The type
of thing which is often asked of the State Department is a question
which is beyond the knowledge of any man that I know of.
Mr. WoRLEY. We often get inquiries like that here on the Hill, so
I can appreciate that.
Mr. AcHESnx. Very often people come to the State Department
and want to know what the policy of the United States is going to be
in regard to many of the questions about which I have been talking
this morning. "\Vhen they get the answer, which is that the policy
of the United States is something which is developed over a period
1090 POST-WAR ECONOMIC POLICY AND PLANNING
of time by an interplay between the executive branch of the Depart-
ment, the Congress of the United States, and the people of the United
States ; that it would be necessary to give this exporter or importer a
wholly false impression by telling what we would like to see done,
and we say, "We are not going to do that because we don't want to de-
ceive you, we can't tell whether the Congress will approve or the
people will approve. We can't tell before we get the matter before
the Congress." That appears to them to be flabby and ill-informed
and wishy-washy, and that sort of thing, but that is the way the Gov-
ernment of the United States operates and is intended to operate
under the Constitution.
If some of us sitting in the State Department could give these defi-
nite answers it would seem there is a different Government in the
United States than the Constitution envisages.
I believe the people coming to us are told as fully as is possible at
the present time. People are asking about dealings of American busi-
ness with foreign business which involve cartel arrangements. All
we can say to them is that the policy of the State Department is
against those operations.
We show the letter the President wrote, and we gave them this
information long before the letter was a matter of public knowledge.
But, whether that is ultimately what is going to be worked out with
these other nations, whether that is the view Congress is going to
support, all that lies in the future.
There is an understandable desire on the part of all human beings
for certainty, and in this world at the present time there isn't any
such certainty. People come to us and ask us if in investing in South
America they should have their own subsidiaries, or whether they
should have a majority interest in a corporation organized in a for-
eign country. That isn't something the State Department can work
out. That involves the other country.
We tell them what the policy of the other country is, so far as we
know it. We tell them the attitude which we take in our negotiations
with those countries, but to say, "This is it, boys," is beyond the
capacity of man. You can't do it.
A good deal of the criticism, 1 think, comes from a desire for cer-
taint}^, where certainty is impossible.
Mr. WoRLEY. You don't believe that the State Department should
handle all of our relations with foreign countries in all phases of
foreign trade, do you ?
Mr. AcHESON. if I understand your question correctly, the answer
is "Yes." Our view in the State Department has always been that
the handling of affairs with foreign nations seemed to us, under the
laws of the United States, to be in the hands of the Secretary of State
under the direction of the President, and that the Secretary of State,
assisted by the organization known as the State Department, was the
President's principal Secretary in dealing with that phase of affairs.
Therefore, relations in foreign countries with foreign governments
and discussions between this Government and other governments,
should be conducted through that channel in order to have an orderly
and unified policy.
It is obvious that in almost every field the relations between the
United States and other countries will involve departments outside of
the State Department. In many cases, they will involve the Depart-
POST-WAR ECONOMIC POLICY AND PLANNING 1091
ment of Commerce, or the Department of Agriculture, or the Treasury
Department, or the Department of the Interior, or the Department
of Justice in this cartel field we have been talking about, or a number:
of departments.
Obviously the policy cannot be that the Department of State decides
substantial questions which fall within the jurisdiction of some other
department. There the necessity is to bring the whole Government
together, to have the views of everyone, particularly of the depart-
ment most intimately concerned, fully explained, and to make recom-
mendations to the President, which are recommendations of all his
assistants in the Government.
When we do that and get a directive from him, we think the only
orderly way to carry out the policy is to put it in our hands as th^
foreign affairs agency of the United States and let us deal with the
foreign country.
Mr. WoRLET. Do you think the bank and monetary fund should be
under the recommendation of the State Department ?
Mr. AcHESON. That is a very difficult question on which I don't think
I had better express an opinion. So far as the broad relations of the
bank or the fmid with other international economic agencies or the
Dumbarton Oaks organization is concerned, the answer is "Yes."
So far as the technical operations of the bank and the fund are
concerned, there are other departments of the Federal Government
which deal with that matter directly and which are far more techni-
cally skilled than the State Department can be, and in that aspect,
obviously, they must be called upon.
Take a situation in which it is even more clear. We have a recom-
mendation before us, as you know, from the Interim Commission on
Food and Agriculture to set up a permanent institution in the field
of food and agrculture.
Mr. WoRLEY. Is that the Hot Springs
Mr. AcHESON. It came out at the Hot Springs meeting.
There is a whole field in which the Department of Agriculture is
highly competent, highly specialized. It would be absurd to believe
that people in the State Department could undertake to deal with and
know about all those matters with which that institution should deal.
Mr. WoRLEY. But the State Department should have the final re-
sponsibility for adopting or rejecting recommendations out of the De-
partment of Agriculture or the Treasury Department or any other
department ?
Mr. AcHESON. Yes ; I assume that the food and agriculture organi-
zation will make recommendations to the governments of all the coun-
tries concerned. Those recommendations will be thrashed out by peo-
ple who have the technical knowledge. They will come to the Gov-
ernment of the United States and ought to be dealt with by the
Department of State.
The Deparment of State would not undertake to substitute its judg-
ment on an agricultural matter for that of the Department of Agri-
culture. But it would say that how this matter is going to affect
our international relaions is something which should be handled
through the Department of State.
IVIr. WoRLEY. In your testimony you mentioned the fact that other
countries were now applying for loans from this country. Am I
correct in that?
1092 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. AcHESON. Yes.
Mr. WoRLEY. Could you give us some idea as to the identity of those
countries and the amounts for which they are asking?
Mr. AcHESON. I don't know, Mr. Chairman, whether that is a mat-
ter on which I would be free to speak or not.
Mr. WoRLEY. Don't answer that if you think that you are not free
to do so.
Mr. AcHESoN. I have some hesitation because I don't know whether
this is a matter of public knowledge or not.
I think I can say fairly freely that all of these requests are requests
which involve legislation. They are not matters which can be dealt
with in the executive branch of the Government.
There are provisions of law at the present time which make it im-
possible.
Mr. WoRLEY. Can you give us some idea how much other nations
owe the United States as a result of loans made during the last war
which would be affected by the Johnson Act ?
Mr. AcHESON. I haven t the figures with me. Those are all con-
tained in published reports. If you wish, I will have those put in
the record at this 'point.
Mr. WoRLEY. Very well.
(These data are marked "Exhibit No. 30" and are found in the
appendix on p. 1219.)
Mr. WoRLEY. You advocate the repeal of the Johnson Act, as I
understand it? (See exhibit 32 in appendix, p. 1220.)
Mr. AcHESON. Yes, Mr. Chairman.
Mr. WoRLEY. Do you think that will be necessary, plus the creation
of some sort of international bank and fund before we can develop our
foreign trade properly ?
Mr. AcHESON. Yes ; I do.
Mr. WoRLEY. And you also recommend the reduction of tariff bar-
riers and all other obstacles to free trade. Do you find the United
States in a cooperative spirit ? Do you find the same spirit prevailing
among other countries in the dealings and negotiations you have had ?
Mr. AcHEsoN. Yes; I think there is a cooperative spirit. I think
the other countries have exactly the same difficulties which we find
in this country, when one begins approaching the matter of tariff
barriers.
Shall I go on with this or shall I go back to the Johnson Act ?
Mr. WoRLEY. They go together, don't they ?
Mr. AcHESON. Taking up, first, the Johnson Act, the matter Avhich I
mentioned in my prepared statement and which I would like to stress
now. I understand that it is the policy of the United States to leave
in the hands of private enterprise everything that private enterprise
can and wants to do, and the Government should come in to assist and
supplement and further what private enterprise is doing.
By fostering the Johnson Act, you are going contrary to that.
Now, the whole purpose of the Export-Import Bank is clearly writ-
ten into the statute. It shall do notliing that private enterprise could
do. What it does do is to guarantee those loans made by private
capital.
In order to further that line, which is the one that all representa-
tives of this Government have strongly urged in dealings with other
governments, we don't want to come up against a block at home.
POST-WAR ECONOAIIC POLICY AND PLANNING 1093
Now. as to the other countries, I think there is a cooperative spirit.
The}' find themselves faced at the outset with the same uncertainties
about the general future that we are faced with, but also with the
great uncertaint}- as to what will be possible in the country.
"Whatever their restrictions may be, whether tariff controls or ex-
change quotas or what not, they find themselves in the position at this
moment wliere they can't take those off. They have a very small
amount of foreign exchange which must be used for the most vitally
important tilings for their countr}^ If they leave it free, so that those
who own it may buy livestock and so forth, they don't have enough
rails to fix their railroads, and food and so on.
Insofar as you can make it possible for them to remove the restric-
tions, they are willing to remove them, and one of the most helpful
things in the world is the monetary fund.
I said earlier, much too much attention has been paid to the purely
financial side of that and, in my meetings with the bankers and busi-
nessmen, they all begin to talk about how the fund works and whether
it is too large or too small. But the really important thing is the
removal of restrictions and discriminations and the liberalizing of
international trade. They were willing to agree on that at Bretton
Woods, because the fund makes it possible.
Mr. WoRLEY. In the post-war world, Mr. Acheson, for the first few
years after the war, I assume we will have no competition because
most other nations are not in a position to compete with us very much.
Or will they be?
Mr. Acheson. At the outset, there will be comparatively little com-
petition. Some of the countries will have, at once, as soon as the war
is over, in some cases before the war is over, to increase their exports
because they will be absolutely destroyed if they don't.
Take the situation of the British. The moment the war is over
and lend-lease is not available to the British, they will have a tremen-
dous gap between their present imports and exports. They must
meet some part of that gap. They can't meet all of it, but they must
meet some part of it by an increase in their exports and, therefore,
there will be competition in those items of export in which the British
will be able to engage.
Similarly, I suppose with the French and the Belgians and also
Luxemburg and Holland — it will be some time before they can do
any exporting.
Mr. WoRLEY. Do you suppose the British will have any desire to
allow us a part of their present markets?
Mr. Acheson. I think nobody has a desire to do that, but I think
they will be willing to do it if we can work out the arrangements
which make it possible for them.
Mr. WoRLEY. What sort of arrangements?
Mr. Acheson. Those arrangements are what you work out through
the fund and the bank, and througli the extension of direct credits.
If you boil the whole thing down from technical to simple terms,
the British must expand their exports. Wliere can they do it? In
the Empire under the preferential arrangements they have a market
in which they have a head start. If nothing is going to be done in
any other field that is the only nest egg they have, and they will cling
to it.
1094 POST-WAR ECONOMIC POLICY AND PLANNING
However, if you can liberalize credits, if you can create a situation
in international trade so there will be an expanding market, then they
will be willing to consider liberalizing the whole business. But if
this is all that exists and the other countries are flat on their backs,
and there is no trade with them and they can't sell in Europe and can't
sell in the Far East, it is going to be very hard.
Mr. FoLSOM, You will recall, after the last war, many loans were
made by private investors and I imagine they assumed they would be
productive but many turned out not to be, and we had pretty disas-
trous results? What machinery would you set up this time to avoid
these same mistakes in these loans that are made by the International
Bank or by the Government direct?
Mr. AcHESON. I think that involves several steps. In the first
place, so far as loans which are made through the International Bank
are concerned, those will be subjected to very close scrutiny by a re-
sponsible agency of the bank itself, so that you will have two checks
on loans through the bank. One will be the examination by the pri-
vate banker who proposed to make the guaranteed loan. He must be
satisfied that it is something he wants to sell to the public.
Then he has to take the loan to the bank and, if the bank guar-
antees it, the bank will give it a second going over before it agrees to it.
Another security which can be added would be some extension of
the powers of the Securities and Exchange Commission to examine
loans of this sort and require the same sort of full discussion about
them which is required in regard to domestic financing.
But perhaps the most important safeguard of all will be the de-
velopment of an informed and educated and professional attitude
by American bankers toward foreign loans. That has been some-
thing which was rather new to American bankers. They didn't know
much about it.
Other nations which have been doing this for a great many years
had had a great deal more experience and a great deal more of a
professional attitude toward it.
Dutchmen have been making loans for centuries, Englishmen have
and Frenchmen have. They go about this thing in a professional
way.
This was a little new to American bankers. They regarded it as a
magnificent thing that came out of the blue, and you could place
loans anywhere, the rate of interest was 8 percent and this was a
bonanza. But they have learned a lot and as the United States be-
comes a capital exporting country, I think you will have an invest-
ment profession which is a real profession.
Mr. FoLSOM. You didn't comment in your statement about the
Webb-Pomerene Act, did you ? Should not the small exporters know
what they are doing in the way of working out arrangements for
increasing the export moneys ?
Mr. AcHEsoN. I think that is entirely a part of the whole question
of what is going to be done about what is known as cartel practices.
There are three general approaches to that matter. One is that
cartel practices are a fine thing and everyone should engage in them;
another is that they are fairly bad practices but inevitable and, there-
fore, you have to have registration ; and the third one is that these
practices don't need to exist at all, that they are bad practices and
POST-WAR ECONOMIC POLICY AND PLANNING 1095
by international agreement and through international machinery and
through international enforcement they can be stopped.
If you have the third sort of approach your attitude toward the
Webb-Pomerene Act would be very different. If it is necessary for
American businessmen to get together in some way to compete with
foreign groups of some sort, you undoubtedly have to clarify and
strengthen the Webb-Pomerene Act. But before anyone can have a
judgment on that I think it is necessary and desirable for this Gov-
ernment to take up with other governments the question of how far
they will be willing to go in stopping some of these practices.
Mr. FoLSOM. For clarification, can you explain to us briefly the
difference between the commodity agreements you discussed and
cartels?
Mr. AcHESON. Yes. The first and basically important difference is
that cartels are private agreements between private manufacturers to
maintain prices and exchange technical knowledge and that sort of
thing. They are arrangements between individuals and they have no
governmental supervision, sanction, or effect.
What we are talking about in commodity agreements is agreements
which are entered into between goverments. It is the government
which represents the whole people and which enters into the agree-
ment ; the government sets up machinery through which the interests
♦ of all sections of their own population and of other countries will be
represented. That is one great difference.
The other difference is that in most cases these commodity arrange-
ments are in relation to commodities, mostly agricultural, sometimes
mineral, which are produced by a large number of people.
This is not a question of four, five or six great corporations getting
together and deciding what they are going to do. If you take wheat
or cotton as examples of commodities in which commodity arrange-
ments may be desirable, you will find that thousands of producers all
over the world are producing these commodities.
It is not a cartel arrangement.' The man who is growing wheat in
the West or in Argentina or Australia or Canada hasn't got a great
technical staff to work out what the price will be and so forth. He
is growing wheat because he has to grow wheat and has not discovered
anything else he can grow.
^Vliether the price is high or low these people in the spring go out
and get to work and in the summer or fall they harvest. That sort
of thing can only be handled by governments who will get together
on the problems of their respective countries.
The problem is not merely that the price of wheat or cotton goes up
or down. The problem conies from the effect on the purchasing
power of millions of people and sometimes whole countries which are
dependent on these commodities.
Take commodities like copper and nitrate. Copper and nitrate
mean Chile, and if both of those disappear it means the whole country
is absolutely flat on its back. It is not purely a business matter. It
is a matter of what happens to a country, the market for whose entire
product disappears.
That is a matter for international concern and countries have to
get together.
1096 POST-WAR ECONOMIC POLICY AND PLANNING
The same is true of wheat, which means in a large part Canada and
Australia, Argentina and the United States are also very much
interested.
Mr. Arthur. When the problem then calls for action, rather than
have cartels, you would at least impose rather extensive government
controls over that economic activity. Is that a fair way of stating it ?
Mr. AciiESON. You may or may not superimpose government con-
trols over i^rocluction within a country. "VVliat the commodity agree-
ment does is to have Government agreement as to the movement of
that commodity in international trade. Each country can do what it
likes about the commodity in its own country. It can leave it free
or control it or do whatever its system calls for.
But each country says, "We agree that in the international move-
anent we will not dump a lot of this stuff in the international market.
Our part of the international trade will be so much." The producing
countries will work out with the consuming countries the price to be
paid for that part that it is agreed should move in international trade
under the agreement.
Mr. Walter, In the working out of the program we have been
discussing, naturally many treaties will have to be negotiated. Don't
you think it would be advisable at this time to amend the Constitution
so that those treaties may be approved by the Senate in a manner
different from the method now approved?
Mr. WoRLEY. So the House can come in ?
Mr. AcHESON. I think I will have to ask for mercy on that question.
As you know, we have a new Secretary of State who is about to be
sworn in and I don't think I want to embarrass him by expressing
personal views.
Mr. Walter. Mr. Acheson, I am very apprehensive of the possi-
bility of there never being a treaty referred to the Senate, and naturally
so. I say that advisedly.
Treaties are bein^ negotiated daily under other names and it cer-
tainly seems to me that we ought to discourage that practice. It seems
to me the only way it can be discouraged is by providing a more prac-
tical, if you please, method of approving a treaty.
Mr. Acheson. Well, this gets us into a matter which is being debated
very fully before the subcommittee of the Senate Committee on Com-
merce at the present time.
It seems to me, however, that whatever the answer is on this broad
question, there are a class of these undertakings and arrangements
which must be carried out through action of Congress.
Now, what the line is between a treaty and an agreement, I will
leave to those learned in these subjects. The one point that I should
like to stress is the need for reasonably prompt action on these pro-
posals. If you have first of all to ratify a treaty, and secondly, to
obtain an authorization for ap])ropriation by the Congress, and, third,
appropriations by the Congress, it seems to me we have almost
masochistically damaged ourselves with the rest of the world.
There isn't anything in the Constitution that requires us to take
extreme views about this matter and to deliberately set up a machinery
which takes months and months an<l months and shows lack of political
imagination when we need it very badly.
POST-WAR ECONOMIC POLICY AND PLANNING 1097
Take, for example, the U. N. R. R. A., United Nations Relief and
Rehabilitation. The articles of that organization were presented
November 9, 1943. A bill was sent up to Congress about the 7th
of December 1943. That bill recited the agreement and authorized
the appropriation of $1,350,000,000 for participation in the work of
the organization. The United States could withdraw from it at any
time. There was no commitment beyond saying: "We will associate
ourselves with this, and we will support it."
That went on for several months. We had exhaustive hearings,
which were all right. It was finally passed along in the spring,
and all that did was to say an authorization was made. An appro-
priation bill was introduced and sometime about the end of June
1944, an appropriation measure was finally signed by the President.
There we had almost 7 months to make up our mind whether we
were going to go along with it. There wasn't any real divergence
or difference of opinion. There might have been discussion as to
the amount of money. There was less discussion about that than
any other part of the bill.
The British Parliament within a month or two of the signing spent
2 hours one morning in which the Chancelor explained U. N. R. R. A.
to the House of Commons and asked authority to include in the gen-
eral vote of credit for war purposes an amount equal to the British
contribution. The authority was given and the necessary action was
completed in 2 hours.
We ought to work much more slowly, because this country is much
larger, and it is very important that all sections of the country shall
know about pending legislation, but the difference between 7 months
and 2 hours in one morning is too great.
When you get a matter which can perfectly well be dealt with by a
statute, let's go ahead and do that.
Mr. WoRLEY. Are there any additional questions ?
(No response.)
Mr. WoRLEY. We appreciate your testimony very much, Mr.
Acheson. It has been very helpful.
May I ask one final question? Let's assume that the United States
had some sorf of an international peace agreement to maintain peace.
Other than that, it takes no steps whatever. It forgets about the
Brett on W^oods recommendation and the various other conferences
we have had. We do not enter into any sort of international agree-
ment so far as our trade or economic matters are concerned.
Looking at it at its blackest, darkest spot, what would you suppose
would be the result ?
Mr. AciiEsoN. I should take a very dark view, indeed. Your ques-
tion is that if we do work out some general organization
JNIr. WoKLEY. For peace.
Mr. AciiEsox. But not any of these other things. What that really
would mean would be hard to interpret. Under the general organiza-
tion, there would be machinery for consulting and making reconnnen-
dation to the governments on all these subjects which your question
presupposes we would have not dealt with.
If we did not deal with them merely because no one had ever thought
of dealing with them, you could take them uj) through the general
roeace organization, thrabh out the same sort of things we have already
1098 POST-WAR ECONOMIC POLICY AND PLANNING
done, and recommend them to the governments. All that would hap-
pen would be a serious loss of several years' time just when we need
these things.
If, however, your question meant that the Congress and people of
the United States said : "We don't want to enter into agreements of
this sort," I think they would have taken a highly inconsistent position
and that the peace organization would be doomed to earlj^ failure.
They would say, in effect, to the world, "We are not a rational peo-
ple; we are highly emotional. When you talk about peace we will
join you in this organization, but when it comes to doing anything
about eradicating the underlying causes of war, you canx count on
us for that."
Mr. WoRLEY, You don't think there would be a peace agreement
without collateral agreements of an economic nature?
Mr. AcHESON. I don't see how it would work, Mr. Chairman. If
we tried to do that it would really mean that we would be relying ex-
clusively on the use of force. I don't believe that would work.
It seems to me, as you look at the history of the United States, you
find one factor in it which has never been properly stressed.
People have talked about the Constitution and how the Constitu-
tion and the Supreme Court did the job.
But the reason that the Constitution has worked and has such a high
place in everybody's thinking at the present time is that there was in
the Constitution a provision for the Congress. This document was
not a final document, in that it did not by any means contain all the
answers. It has been supplemented and amplified and developed in
tune with the changes through which this country has developed for
175 years by the legislation of Congress.
It is not enough to have a Supreme Court. All a court can do is to
interpret the law as it existed some time or other.
It is not enough to have an executive. All he can do is to call out
policemen and troops, unless he has laws laying down lines of action
and giving him authority for their execution. So a court and an
executive are not enough, and will not carry the Nation along in the
changes that will take place from time to time.
You must have a body or bodies that consider new questions, make
new policies, and the tiling has to be living and has to be in tune with
the problems of the time.
In the type of association between nations which we are working for,
this need will be filled through these proposed agreements and through
the creation of this new organization, one of whose functions will be to
propose whatever additional agreements on particular subjects may
be considered necessary.
Mr. WoRLET. Thanks again on behalf of the committee for the very
fine cooperation and information which you have given.
If at any time in the future you run across any information or data
that you think may be helpful to this committee, we should like very
much to have it.
Mr. AcHEsoN. Thank j^ou very much, Mr. Chairman. I am grateful
for the opportunity of being with you.
Mr. WoRLEY. Without objection, the committee will be in recess
until 10 o'clock tomorrow morning.
(Whereupon, at 12 noon, a recess was taken until tomorrow, Frida}',
December 1, 1944, at 10 a. m.)
POST-WAK ECONOMIC POLICY AND PLANNING
FBIDAY, DECEMBER 1, 1944
House of Represextatives,
SUBC03IMITTEE ON FOREIGN TrADE AND SHIPPING,
OF THE Special Committee on Post -War
Economic Policy and Planning,
Washington, D. O.
The subcommittee met, pursuant to notice, at 10 a. m., in room 1304^
l^ew House Office Building, Hon. Eugene Worley presiding.
Present : Hon. Eugene Worley (presiding) , Hon. Richard J. Welch^
Hon. William M. Colmer, and Hon. Charles L. GifFord.
Also present : G. C. Gamble, economic adviser ; and H. B. Arthur,
consultant.
Mr. Worley. The committee will be in order.
The Subcommittee on Foreign Trade and Shipping resumes the
hearing this morning and has asked Mr. Warren Lee Pierson, Presi-
dent of the Export-Import Bank of Washington, to appear before us
this morning to tell us what the Export-Import Bank is; what it does ;
and provide us with any and all information that he thinks is pertinent
to the question of foreign trade and shipping.
We appreciate your cooperation, Mr. Pierson, and if you will
proceed
STATEMENT OF WARREN LEE PIERSON, PRESIDENT, EXPORT-
IMPORT BANK OF WASHINGTON
Mr. Pierson. Thank you, Mr. Chairman.
Originally created under the National Industrial Recovery Act by
Executive order on February 2, 1934, the Export-Import Bank was
continued as an agency of the United States by act of Congress
approved January 31, 1935.
The Export-Import Bank has wide banking powers subject only to
their being utilized to facilitate exports and imports and the exchange
of commodities between the United States and any of its territories
and possessions and foreign countries or agencies or nationals
thereof. By act approved September 26, 1940, provision was made
for making loans to assist in the development of the resources, the
stabilization of the economies, and the orderly marketing of the
products of the countries of the Western Hemisphere.
The capital of the Export-Import Bank was first fixed at $11,000,000,
represented by $1,000,000 of common stock held jointly in their official
capacities by the Secretaries of State and Commerce, and $10,000,000
of preferred stock was acquired at par by the Reconstruction Finance
99579— 45— pt. 4 32 1099
1100 POST-WAR ECONOMIC POLICY AND PLANNING
Corporation. When incorporated, the capacity of the bank to make
loans was governed by the amount of preferred stock which the
Reconstruction Finance Corporation would agree to purchase.
By a succession of acts later adopted by Congress, the lending au-
thority of the bank was limited to $100,000,000, then increased to $200,-
000,000, and finally, on September 26, 1940, to $700,000,000; all of
which is provided by the Reconstruction Finanos Corporation.
Under existing law, the bank terminates on January 22, 1947.
Since its creation the bank, including the Second Export-Import
Bank, which was liquidated June 30, 1936, has made commitments of
$1,195,227,754.97.
it has actually disbursed $477,836,912.19.
Repayments to date have amounted to $252,018,901.80.
Outstanding loans are $225,818,010.39.
Approved but undisbursed commitments aggregate $364,232,704.34.
In other words, outstanding loans, plus approved but undisbursed
commitments, amount to $590,050,714.73; or, put it this way: There
is an additional lending power unused at the present time of about
$110,000,000.
During the period of its operations the bank has authorized com-
mitments which have been canceled or expired from nonuse in the sum
of $353,158,138.44.
All of the amounts given here are as of the close of business on
November 29, 1944.
The bank is conducted under the direction of a board of trustees,
approved by the President, made up of representatives of the Depart-
ments of State, Treasury, Agriculture, and Commerce, as well as of
the Reconstruction Finance Corporation, the Foreign Economic Ad-
ministration, and the bank itself.
During the past 10 years the Export-Import Bank has made loans
of many different types. These may be summarized as follows:
Loans to stimulate the sale and export of agricultural surpluses.
Loans to stimulate the sale and export of heavy capital goods
Mr. WoRLEY. Pardon me, Mr. Pierson, along there, what did you
say?
Mr. Pierson. I said we had made loans to stimulate the sale and
export of agricultural surpluses; loans to Italy, Poland, Spain, Czech-
oslovakia and other countries.
I might add that all of those loans have been paid in full, with
exception of the Polish.
Mr. WoRLEY. Were those loans in existence before the war or during
the war?
Mr. Pierson. The loans to Italy, Poland, and Czechoslovakia were
before the war. Also the loan to Spain was made just before the
war — in August 1939.
Mr. Worley. And they have all been repaid?
Mr. Pierson. They have all been repaid with exception of the
Polish. And as a matter of interest, the Polish loan is still being
regularly serviced.
Two, loans to stimulate the sale and export of heavy capital goods
such as railroad and communication equipment, electric power plants,
road-building machinery, and similar items.
Three, loans to assist in the stabilization of currencies of Latin-
American countries.
posttWAr economic policy and planning 1101
Mr. WoRLET. Are those loans in o;ood shape now ?
Mr. PiERsoN. Yes; there are no defaults at the present time by any
■of the governmental borrowers.
Four, loans to provide foreign countries with dollar exchange so
that United States exporters' bills might be paid in dollars.
I might explain in that connection, Mr. Chairman, that around
1937-38 many countries were unable to provide dollar exchange. The
American exporter received payment in local currency but the foreign
importer was unable to translate that into United States dollars. The
bank made several dollar loans to the central banks of other countries,
and these have all been liquidated.
Mr. WoRLEY. That was to stabilize the currency ?
Mr. PiERsoN. Yes.
]Mr. WoRLEY. Mr. Arthur.
]Mr. Arthur. Mr. Pierson, that function would be handled by the
monetary fund?
Mr. Pierson. I think it would be.
Mr. Arthur. That was the function that was contemplated.
Mr. Pierson. Yes, sir.
Five, loans to small exporters and importers with good records for
experience and business ability but lacking capital sufficient to meet
commercial bank standards.
Mr. WoRLEY. Pardon me there, Mr. Pierson, what is the relation
between three and four, loans to assist in the stabilization of currencies
of Latin- American countries and loans to provide foreign countries
with dollar exchange?
Mr. Pierson. Well, the difference is one of form rather than of sub-
stance. In our minds the loans to stabilize the currency would be
loans which might or might not have a direct connection with existing
trade. In other words — take a country now which has no exchange
control, Peru might be an example, or Mexico, such a countiy without
excliange control is sometimes faced with speculative demands for its
currency.
In other words, persons seeking to buy dollars in large amounts may
depress the value of a foreign currency.
The knowledge that the central bank has sufficient dollars to meet
that type of demand will immediately stop the speculation.
Mr. WoRLEY. Yes.
Mr. Pierson. Now, the fourth category would represent a situation
where an American manufacturer had shipped goods to a foreign
country, the foreign buyer had paid for the goods in his own currency,
and the central bank in his country had felt it unwise to exchange it for
dollars.
ISIr. WoRLEY. Thank you. Mr. Arthur.
Mr. Arthur. How could an agency accomplish these exchanges for
stabilization purposes?
Mr. PiERsox. Well, it is an agency which can do it.
It may well be that the monetary fund with a larger capital and
operating on a wider scope could do it better, but to date we have been
able to do it.
Mr. xVrthur. What are the major functions under your Export-Im-
port and under the monetary fund ? Just so we can get in focus what
the diti'erences are in considering that major problem.
1102 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. PiERsoN. Well, perhaps some one from the Treasury could ex-
plain this better but I would say the Export-Import Bank would be
handling it solely on the responsibilitj^ of this Government, whereas,
the monetary fund would have the responsibility of all the partici-
pating governments.
Mr. Arthur. Well, isn't it true that the monetary fund will have
such a large proportion of its assets contributed by this country that
there isn't a great deal of difference between those two approaches?
In the one case we openly say we are doing it through a United
States agency, of course.
The other is a matter of form that enables United States contribu-
tions to a world agency to perform a similar function.
Now, do you think that function would break down if it were left
in the hands of the Export-Import Bank or some similar agency?
Mr. PiERSON. Well, as far as this country is concerned a United
States agency could do the job.
I would think, however, that it would be better to have an agency
upon which other governments are also represented and have some
responsibility, because sooner or later it is going to be to the interest
of this Government to have trade active between not only the United
States and other countries but between foreign countries themselves.
In other words, I personally belong to the school, I think, which
favors multilateral rather than bilateral trade, and anything which
we can do to facilitate that is an advantage, not onlj^ to us but to the
rest of the world.
Mr. Arthur. Thank you.
Mr. Pip:rsox. In our activities we have made a real effort to reach
all segments of the foreign trade community, by which I mean our
transactions have not been confined to the large firms. Although in
some respects the heavily capitalized and experienced manufacturers
are often best equipped to do export and import business, we have found
many smaller businessmen with adequate experience in the field.
Wlien these can give evidence of their ability to handle business but
do not have capital sufficient to get proper banking facilities, we have
opened revolving lines of credit of up to $20,000 available to them upon
condition that their own bank will handle the actual transactions.
Some of those accounts over the past several years have started with
loans as small as $10,000 and this amount has turned over as many
as 25 times.
Mr. Worley. Could you give us an illustration of how that is
handled by the Export-Import Bank?
Mr. PiERSON. Well, an outfit might have as little capital, say, as
$5,000 or $6,000 and be selling that much goods abroad over a period
of 90 days.
Mr. WoRLEY. That would be a domestic concern ?
Mr. PiERsoN. Yes ; it would be an American firm.
The commercial bank might say, "I am sorry, your capital is not
enough to handle this business, because we must look to something
besides the actual foreign paper as collateral and your $5,000 or
$6,000 isn't a sufficient cushion to back the $18,000 worth of business
you want to do.
Mr. WoRLEY. In other words, the commercial bank would not
handle it?
POST-WAR ECONOMIC POLICY AND PLANNING 1103
Mr. PiERsoN. Well, a commercial bank would not regard it as a
safe risk.
Mr. WoRLEY. Yes.
Mr. PiERsON. Actually this foreign paper may be gilt-edged, but
in the past we have found that the average commercial bank does
not want to look only to a foreign bill for reimbursement, and in
those situations, if we find the firm has a good record, both in expe-
rience and integrity, we have told the commercial bank if they will
advise us of this situation we will establish a credit of up to $20,000
for the exporter, depending upon the amount of business involved.
Provided, the commercial bank will handle all of the paper work
and transfer of documents.
Mr. WoRLEY. You do not use the same standards in determining
the safety of the risk of a loan that the commercial bank uses. Is
that correct?
Mr. PiERsoN. Well, I think we are more liberal in the appraisal of
the value of the foreign paper than the commercial bank. But
there is nothing strange in that, because we have no depositors and
there will be no sudden demand on us from people who have placed
money in our custody.
So it is not a criticism of the commercial bank if they do not feel
able to do some of the things we do.
Mr. WoRLEY. Then the commercial bank handles all the trans-
action ?
Mr. PiERsoN. That is right ; they do all the work, and we divide
the interest between us.
Mr. WoRLEY. How do you divide that ?
Mr. PiERSOisr. Well, on these small transactions we ordinarily give
the commercial bank about three-fourths of the interest and we take
a quarter.
That varies with the type of transaction and the amount involved.
Mr. WoRLEY. They risk no capital ? The commercial bank risks no
capital ?
Mr. PiERsoN. Well, usually in these cases they are loaning the same
borrower a certain amount of money on their own account.
What we are doing, in effect, is to bolster the capital account of the
exporter.
Mr. WoRLEY. Mr. Arthur.
Mr. Arthur. In securing the release of funds for transfer in pay-
ment of our exports, do you have a different status than a private
bank of this country in the securing of an exchange because you are a
Government agency?
Mr. PiERSoN. Well, that is a very practical question.
I think that the answer is that we do.
A Government agency has a certain amount of prestige in dealing
with a foreign central bank that an individual exporter does not have.
Mr. Arthur. Well, now, is that prestige because the Government,
having you as an arm, backs you up more strongly than our State
Department backs up private banks ?
Mr. PiERSoN. No ; I wouldn't say so. I just think everbody respects
the United States Government, any part of it.
Mr. Arthur. But they do not respect individual businessmen of this
country in the same way when their only support would be through
backing by our State Department, presumably.
1104 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. PiERSON. I would like to pass that question. I mean to say T
would not want to admit your premise — the State Department is seldoraj
called upon to back an individual exporter.
The Department is not a collection agency, and I do not think any
of us would want it to be.
Mr. WoKLEY. Proceed.
Mr. PiERSON. Six. Loans to Latin- American banks for the estab-
lishment of letters of credit in the United States authorizing payment
against certificates of completion of merchandise and inland bills of
lading. In effect, these loans were and are designed to relieve the-
situation brought about through wartime shipping difficulties, and'
also the difficulties of supply.
I might explain in that connection that the usual export trans-
action— the loan against the ordinary export transaction — is ordi-
narily made only when shipping documents are provided.
By "shipping documents" I mean that the goods have been placed
on a ship and insured, and the other formalities have been observed..
Since the war ships frequently have not been available and before
we set up this particular line, foreign purchasers were required to
put up money for goods which may be 15 months or 2 years in the
making; and we found this was quite a service, both to the foreign
purchaser and to our own exporter.
The local man was able to get his money when the goods were com-
pleted, and the foreigner was not obliged to keep the money on deposit
for this long period of manufacture.
Seven. Loans to establish basic industries in less-developed coun-
tries, for example, a steel plant in Brazil and Mexico, hydroelectric
plants in Uruguay and Chile, refrigeration units in Cuba, and others.
Mr. WoRLEY. Could you give us an illustration of the negotiation)
of a loan ?
For example, let us take a steel plant in Brazil or in Mexico.
Who starts the ball rolling?
Mr. PiERSON. Take the steel plant in Brazil.
Having perhaps the richest iron deposits in the world, the Bra-
zilians have for a generation been trying to establish a basic steel'
industry. They have tried to interest foreign capital, and for one
reason or another it never came about.
In 1936 one of our large steel companies went to Brazil with a staff'
of engineers and made a careful study of the whole project.
Mr. Arthur. Was that a private concern ?
Mr. PiERSON. Yes; a private concern.
They came back with a very optimistic report as to the possibilities;
of establishing a steel industry in Brazil. They were about to go
forward with it, in a purely private capacity, when they suddenly
decided — this was in '37 at that time — they needed funds for expan-
sion in the United States and determined not to proceed.
The Brazilians wero very disappointed and sent a mission to the
United States to see what could be done with governmental help and^
after a series of negotiations, we arranged to make a $20,000,000 credit
available upon condition that they would enter into an agreement with
an experienced engineering firm for the carrying out of the proposed
projects.
POST-WAR ECONOMIC POLICY AND PLANNING 1105
This was done, and since that time the work has gone ahead. The
original conception of a $20,000,000 plant has been expanded con-
siderably and at the present time our total commitment is $45,000,000.
Mr, AA'oRLEY. Yes.
Mr. PiERSON. I should explain that the Export-Import Bank com-
mitment is only for United States goods and services, and that the
materials and labor required in Brazil are being paid for by Brazilian
capital.
In Brazil, the Government and private industry are cooperating in
carrying out the undertaking.
Mr. WoRLEY. The Export-Import Bank pledged $45,000,000 in all?
Mr. PiERsoN. That's right.
Mr. WoRLEY. To be paid for goods and services?
Mr. PiERsoN. That is correct.
Mr. WoRLEY. That is, the Export -Import Bank pays the domestic
producer of the goods and those who contribute the services first?
Mr, PiERSON. That is right.
Mr. WoRLEY. What security do you have for that $45,000,000?
Mr. PiERSON. We have the guaranty of the Bank of Brazil, which
is one of the oldest and most important banking institutions in the
country and which is owned jointly by the Government and private
interests, although it is under Government control; and also the guar-
antv of the Brazilian Government itself.
Mr. WoRLEY. Of the full $45,000,000?
Mr. PiERSOx. Of the full amount ; yes, sir.
Mr. WoREEY. Why is it desirable for this country to build a steel
plant in Brazil? Won't that be a competitor with us later on?
Mr. PiERSON. No; I think it goes back to the question of what is
best for United States trade, an industrialized Brazil or a colonial
Brazil ; and on the experience we have had for the past 50 years we
are satisfied that our best customers are the industrial countries.
The stock example would be of course our trade with the British
and, while I dislike even to mention them, our trade with Japan before
the war as an industrial country was greater than the much larger
China.
Mr. WoREEY. Yes.
Mr. PiERSON. AAHiereas as industry, such as a steel mill, might take
away certain export items from this country, rails for example, on
the other hand, its development will stimulate so many other things
that on balance I think our trade will substantially increase.
Mr. WoRLEY. Yes. Now, the Export -Import Bank negotiates these
loans without investigation or approval of the State Department or
anyone else. Is that right ?
Mr. PiERSON. We do not make a loan until it has been approved by
the various agencies represented on our board, which is State Depart-
ment, Treasury, Commerce
Mr. WoREEY. The board of trustees passes on all the loans?
Mr. PiERSON. Yes. The policy of whether or not to make the loan
is determined by the State Department.
In other words, the State Department does not interfere with our
operating arrangements but it determines the policy.
Mr. WoRLEY. Now, what rate of interest will we be receiving from
Brazil, 4 percent ?
1106 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. PiERSON. Interest in Brazil has varied from 3.6 percent to the
short-term loans to the Bank of Brazil, to 4 percent, and in some of
the cases 5 percent, on small transactions.
Mr. WoRLEY. That is a pretty good rate of interest nowadays,
isn't it?
Mr. PiERSON. Well, it is fair.
Mr. WoRLEY. And the loan is in good shape ?
Mr. PiERSON. Yes.
Just take Brazil for example, as a matter of interest ; we have actu-
ally disbursed on our Brazilian business — and when I say Brazilian
business, I really mean American exports to Brazil — in excess of
$86,000,000, of which about $33,000,000 has been repaid, and, and it is
all current.
Mr. WoRLEY. Most other governments when they make application
for a loan come to Washington to negotiate, all of these various depart-
ments go into the question thoroughly, and then the board of trustees
finally passes on any action taken by the Export-Import Bank; is
that right?
Mr. PiERSON. That is right. Our engineers and examiners make
up a report as thorough as necessary under the circumstances, and
that is presented to the board of trustees for approval or disapproval.
Mr. WoRLEY. Yes. In all contracts it is provided that American
concerns shall supply or provide all of the goods or services or par-
ticular products.
Is that correct ?
Mr. PiERSON. That is right.
Mr. Welch. Mr. Pierson, should we not give serious consideration
to the decentralization of the steel industry in the United States
before promoting it in Brazil or any other foreign country ?
Mr. PiERSON. I am not sure, sir, that I understand your question.
I don't believe there is any financial problem
Mr. Welch. The steel industry is confined to an area that is within
about 1,000 miles of this city. That includes the Messaba mines in
Minnesota, the processing, the mills, and everything that goes with
the steel industry.
Mr. PiERSON. Well, I am a Calif ornian. We are getting a steel mill
out there now.
Mr. Welch. A small one. It will go with the war, in all prob-
ability.
Mr. PiERSON. Well, on the coast they hope not. I don't believe,
however
Mr. Welch (interposing) . It will unless it receives aid.
Mr. Pierson. Pardon?
Mr. Welch. It will unless it receives help.
Mr. Pierson. I do not believe that doing this work in Brazil takes
away anything from our own industry. I believe there is plenty of
capital available to expand the steel industry in the United States.
Mr. Welch. Well, that capital is used in the extension and devel-
opment of the steel industry in a very narrow area of the United
States.
Mr. Pierson. Well, your thought is we should expand it in the
United States first?
Mr. Welch. Absolutely.
POST-WAR ECONOMIC POLICY AND PLANNING 1107
Mr. PiERSON, Well, I think we could do that — —
Mr. Welch. In the interest of national defense. Ninety-five per-
cent of the metals that were used in the construction of ships on
the Pacific coast before and since the war were produced within 600
or 700 miles of this room.
Mr. PiERSON. Yes.
Mr. CoLMER. ]\Ir. Worley, if I may
Mr. WoRLEY. Oh, yes.
Mr. CoLMER. I think what Mr. Welch is trying to get across, he
thinks maybe we ought to expand this thing out toward the west coast.
I am not trying to be a bit facetious here. Out there they think it
should not all be concentrated in one area ; namely, in the East.
I am just trying to be helpful, Mr. Welch.
Mr. Welch. I appreciate that, Mr. Chairman.
Mr. PiEKsoN. Well, I might very well agree with Mr. Welch.
Mr. Welch. It might include the Southland. They produce excel-
lent ores in the South. There are 26 States in the Union that produce
splendid iron ore.
Mr. Worley. This is off the record.
(Discussion off the record.)
Mr. Worley. Will you continue now.
Mr. Pierson. Eight. Loans to accelerate the construction of the
Inter-American Highway and roads connected therewith leading into
areas of potential markets. Similar advances were made by the bank
to provide equipment and supplies for the Burma Koad leading to
China.
Nine. Loans to increase the production abroad of commodities
which are useful to the producing country and which will improve
their foreign-exchange position.
Mr. Worley. Pardon me again, Mr. Pierson. I do not follow.
You are probably more acquainted with that than we are now. Those
loans for construction for highways in other countries, how are they
negotiated ?
Does the government in the other countiy ask us for money to
develop tlie highways ?
Mr. Plerson. Yes; the road programs usually start by requests
from the goverimient, although the Inter-American Highway has
been a subject in which all of the governments concerned have spon-
sored for many years.
Mr. Worley. Well, now, the advances for the equipment and sup-
plies for the Burma Road, they were actuated by military necessity,
were they not ?
Mr. Pierson. Well, these advances were made several years ago for
road-building equipment, tools, and supplies.
Mr. Worley. Who pays for that ?
Mr. PiERSox. They were loans made to a corporate entity owned
by the Chinese Government.
Mr. Worley. Wliat was that?
Mr. PiERSox. It was an American corporation owned by the Chi-
nese Government. Repayment was made in the form of goods sent
from China.
Mr. Worley. Mr. Arthur ?
1108 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. Arthur. Can you give us an idea of the delineation between
the Export-Import Bank and lend-lease and a subject suitable for
lend-lease or one or the other purposes?
Mr. PiERSON. Well, all the Export-Import Bank transactions are
out-and-out loans and are expected to be repaid in full.
And, so far, they have been.
Mr. WoRLEY. Including the Burma Road ?
Mr. PiERSON. Yes. The Chinese loans are all current.
Mr. Arthur. Well, ho^Y is it decided to gi-ant lend-lease or require
that repayment of loan be made through the Export-Import Bank?
Mr. PiERSox. I do not think I can answer that question, because
the applications made to us are on the basis of out-and-out loans,
and what the officials of Lend-Lease, what their criteria may be, I do
not think I am in position to testify.
Mr. Arthur. You mean you do not give consideration as to whether
or not funds might have been available through lend-lease to these
borrowers ?
Mr. PiERSON. Well, for example, on this loan that was made to
China, it was before there was lend-lease.
Mr. CoLMER. You do not think you could compete with lend-lease,
do you ?
Mr. WoRLEY. Well, the natural thing would be to exhaust every-
thing it could exhaust under lend-lease.
Mr. PiERSON. I think that would be a normal approach.
Mr. CoLMER. My thought was that maybe it would be advisable to
take over all of lend-lease. And maybe we can get some of it back.
Mr. WoRLEY. You might have something there.
Mr. PiERSON. I think the record will show that I have not entered
into this discussion.
Mr. WoRLEY. Yes.
We are going to be faced with the problem after the war, or before
the war is over, as to whether to continue the Export-Import Bank,
whether to enter into the Bretton Woods agreement, and various
other matters, and we are trying to find from you what relation your
Export-Import Bank bears to the lend-lease program.
Mr. PiERsoN. Well, I should suppose that lend-lease is justified
primarily by the defense of the United States.
Mr. WoRLEY. For war purposes. A loan to the Chinese for the
improvement of Burma Road if necessary.
Mr. Col:mer. Mr. Chairman, pardon me, I understood from the wit-
ness that that was prior to lend-lease.
Mr. PiERSON. That is right.
Mr. Arthur. Would it be desirable that the Chinese Government
should seek funds with which to pay you off so that the Burma Road,
which is subject to fire and destruction, would become a lend-lease
obligation ?
Mr. PiERSON. I do not think I am in a position to answer that.
I am trying to stay within my own jurisdiction.
]\f r. WoRLEY. Well, suppose we pass on to No. 9.
Mr. PiFJ?soN. Nine. Loans to increase the production abroad of
commodities which are useful to the producing country and which
will improve their foreign exchange position. '
Ten. Loans to stimulate the production and expedite the transpor-
tation of strategic materials needed in the war effort.
POST-WAR ECONOMIC POLICY AND PLANNING 1109
Our thought on that is that anything which aids a country to meet
its obligations is to our advantage and if we can aid in the production
of something abroad which will improve their dollar exchange posi-
tion, that will assist us.
Mr. WoRLEY. Well, now, do you favor other countries producing
commodities which will compete with the products we produce?
Mr. PiERsoN. No ; we have limited this type of aid to noncompeti-
tive products.
During the war it has been rubber and quinine and items of that
character.
Mr. PiERsoN. Loans to stimulate the production and expedite the
transportation of strategic materials needed in the war effort.
In that connection, we have aided in getting iron ore which is re-
quired by the British and ourselves; also rubber, in Ecuador and
several other countries; minerals, in Peru and Bolivia.
The foregoing loans or credits have been set up with varying con-
ditions. In some cases the Export-Import Bank has provided the
borrower with the total amomit required; in others it has participated
with the interested American manufacturer or shipper, or with an
American financial institution. In some instances the funds have
been advanced directly by the bank to the borrower but in recent
years not only the facilities but the cash resources of commercial
ijanks have been utilized wherever feasible. This device has not
only contributed to the earnings of private banks but, what is more
important, has aided them to maintain their experienced personnel
during a difficult period. At the same time the Export -Import Bank
has been able to operate with a modest-sized staff.
The management of the Export -Import Bank has always regarded
it as an institution for the furtherance of United States trade and
one which should supplement rather than compete with private banks.
Xo pains have been spared to implement this basic policy.
Mr. Arthur. Mr. Pierson, how many do you consider a moderate-
sized staff?
Mr. Pierson. We have 65 people.
Mr. Arthur. You sometimes engage other people?
Mr. PiERsoisr. We sometimes engage engineers to make a survey.
As of today I think we have 61 or 62 people.
Mr. Arthur. And you have made some actual advances.
Mr. Pierson. We have actually advanced about a half billion
dollars.
We have made commitments of $1,195,000,000.
]Mr. WoRLEY. You sav you have made commitments of how much?
Mr. PiERSox. The amount is $1,195,000,000.
Mr. WoRLEY. You have made commitments of that?
Mr. PiERSOX. That is right.
It is fair to state, I think, that uji to this time the operations of
the bank have been successful and have been carried out without
loss to the Government. It is recognized that due to the advent of
war, it is possible that some losses may be incurred which could not
reasonably have been anticipated when the loans were made. How-
ever, from the date of creation to November 15, 1944, the Bank has a
backlog of earnings, after paying all expenses, of $37,329,324.32.
A word about future activities: Whether or not the bank shall
itake an increasingly active part in financing foreign trade of the
1110 POST-WAR ECONOMIC POLICY AND PLANNING
United States will depend upon the attitude of the Congress toward
increasing its lending authority and extending its existence beyond
the present termination date which is January 22, 1947. Based upon
past experience the Bank should be able tojtep up its operations very
considerably in the future without assuming undue risks.
As heretofore indicated, existing powers of the bank are quite
broad and probably require no substantial amendment. It may be
desirable, however, to consider the repeal of the legislation which
prevents the bank from lending to countries which were in default
to the United States Government on April 13, 1934. This provision
was adopted in 1940 in order to bring the bank within the restric-
tions of the Johnson Act. Doubtless the Congress will want also to
consider the advisability of repealing the Johnson Act itself.
The continued existence of the bank is neither inconsistent with
nor competitive with the proposed International Bank for Recon-
struction and Development approved at Bretton Woods. There ap-
pears to be ample need in our economy for both institutions, and in
many respects the activities of one might properly and usefully sup-
plement or complement that of the other.
The Export-Import Bank can continue to serve a useful purpose
for the United States by carrying out projects and transactions of
particular interest to the foreign trade of this country. It has the
same relation to United States industry as does the Export Credits
Guarantee Department of the United Kingdom to British industry.
More important than providing easy credit for exports is the de-
velopment of a clear understanding on the part of the exporting
community that their business must necessarily be limited by the
amount of foreign exchange which can reasonably be expected to be
created over the period of the credits, giving due consideration to
the necessity for providing a certain minimum of exchange in order
to carry on essential future day-to-day business. It is impossible to
emphasize too strongly that the average exporter often has little
realization of the foreign exchange problem and of the fact that
exports made on credit are a charge agail^st future sales abroad.
I know that others who have appeared before this committee have
spoken at length regarding the direct relation between the volume
of exports and imports. All I will say, therefore, is that everyone
must bear in mind that laws and regulations which prevent goods
from entering a country also keep goods from leaving that country.
In conclusion I would say that it is desirable in my opinion, first,
to increase the lending authority of the bank, and, second, to con-
tinue its existence as an agency of the United States for an addi-
tional period beyond January 22, 1947.
Mr. WoRLEY. Thank you for a very good statement, Mr. Pierson,
a very informative statement. You see no conflict between the con-
tinuation of the Export-Import Bank and the Bretton Woods Con-
ference, presuming it is adopted ?
Mr. PiERSON. Not any.
Mr. WoRLEY. You think one would supplement the other?
Mr. PiERsoN. Yes, sir.
Mr. WoRLEY. Now, would you care to comment upon the Johnson
Act, what you tliink Congress should do?
Mr. Pierson. Well, I feel that the Johnson Act has an adverse effect
upon our foreign trade in that it prevents a lot of private financing
POST-WAR ECONOMIC POLICY AND PLANNING 1111
at the present time wliich without the Johnson Act, I think, would
go forward, or would after the war.
Mr. WoRLEY. A lot of people who have money over here want to
invest it in foreign countries after the war. The Johnson xlct pre-
vents them from making such investments ?
Mr. PiEKsoN, You have to limit that statement, Mr. Chairman. The
Jolmson Act simply prevents loans to a foreign government which is in
default to the United States Government.
Mr. WoRLEY. What countries are in default now to the United States
Government ?
Mr. PiERSON. I have an opinion rendered by the Attorney General
which I will be glad to leave with you, opinion rendered May 5, 1934
[producing paper].
Mr. WoRLEY. Does it give there the number of governments ?
Mr. PiERsoN. It includes some of our most important customers.
Mr. Welch. Mr. Pierson, you referred to rubber. Will you give
the committee the benefit of your opinion as to whether we should
continue the production of rubber in this country or import it after
the war ?
Mr. Pierson, Mr. Welch, I do not know enough about the subject to
give an intelligent answer.
Mr. Welch. I thought perhaps you did, inasmuch as you referred
to it.
Mr. Pierson. No ; our activities in rubber have been through devel-
opment corporations of other countries interested during the war in
getting out rubber.
On the whole this rubber has been high-priced rubber, and probably
after the war would cease to be of importance.
Mr. WoRLEY. Is that all, Mr. Welch?
Mr. Welch. That is all.
Mr. Worley. Mr. Chairman?
Mr. CoLMER. I would like to ask the witness to amplify the loaning
authority of the bank.
What did you have in mind there, Mr. Pierson ?
Mr. Pierson, You mean as to the amount?
Mr. Colmer. Well, that is what I am asking. You concluded your
statement by making two recommendations. One was to increase the
lending authority.
Mr. Pierson, Yes.
At the present time, as shown in the early part of my statement,
we have actual loans or actual commitments amounting to approxi-
mately $590,000,000.
We have a total lending power of $700,000,000.
I think if the bank is to continue as an active agency this ceiling
of $700,000,000 should be increased.
Mr. Colmer. Well, your recommendation is confined to increasing
the lending power?
Mr. Pierson. Yes. And continue the term which expires now
in 1947.
Mr. Colmer, In other words, you think the bank should be con-
tinued and the ceiling should be raised?
Mr, Pierson. That is right.
1112 POtST-~A?, I v ::: p i: -y avi> ?i_^.xxi2cg
-- 7 liencTc: mtry jost now. the thought of
- - - - ^^' P- . :-_it this conntrr should embark
_ : iisistance to fore^n countries. I
I . I lome to no condnsion myself.
II r we did do something like
_ red in the enactment of
- on of the disapproval
: _ 7«E^ of assistance.
: - I . sir. if It is : ihat the Johnson
A - ^---- c^ ^ .c -_ : -— irloans .s made to certain
_ zj^its foIlowTng V z. it was xc-esses ccanmitted
CT - binders of this xniitry :
T _-- amoimt of defaidts which occurred in the twenties were
- jansw
I am in agre^nent with that thooght. sir. bat I just
^ : r we are going to be able to go after this war in being
._- -_ :-j everybody.
We _ _- to be in a had fix oareelves when this thing is over :
we wiii y.<:.-.'jiT owe in excess of §300i,000;|000j000 when this war is
OTer.
It just seons to me there is a big broad fmidamental qnestion there
of jn^. lv"w far this coontry can go on that prt^ram.
A - : ." of these loans to foreign governments after the last war
— T _ - iiLiT oat of it.
.^ : jontries were practically bankrupt after the last war.
w- T -^n them money with which to bay onr products.
T r : It that that was not going to be paid, so we stopped
thiii:i: _:ne of the money bade
l^j 1 - ..ynooe.
7A : _ _ :s rather resented our even talking about
- : iTi'T-ons.
■* _ -d War we got around that or circum-
Xow. the bi^' i is whether it is going to pay us
- - -^ - --;-:= that we operated on the last
- bankrupted ourselves. These
I - jr the econ<HniMs to decide, but I
: es serious consideration.
I - lonomist but I willbe gladto take
- •' - - r^^T. after we made these loans after the
-'- to repay thean throu^ adopting a series
: :* that fact now that any large-scale lending
- jre : that along with loans which will be
-is this country and ship them abroad.
. at least a part of the payment in the
; . . _: _ _ r V ; r foreign customers.
' e do that, certainly we shcnld restrict our loans, very
POST-WAB ECONOMIC POLICT AND PLaXXIXG 1113
Mr. CVtattb. Then if I miderstand toq CK<TTix:zlT
Mr. PiEESC»x. » interpKisin^ » . I saw Mr. Staev ^l^v'i statement be-
fore this committee, which I thotight was very Ulzirdii2.img : I beiiere
he has covered it mnch better than I can. I go along with his ap-
proach on it.
Mr. CoLMES- If I understand toq correctlT then^ Toor thou^it is
unless we are going to proceed mca^e or less upon a theorr of free
trade, mutual-trade pacts, and so csl. that we had. better draw in and
not make these loans.
31r. PiEESC'X. Well. now. I am a Calif omian. and I do not want
Miss Lamb or somebody to say I am ccwning out for free trade, or I
won't be able to go home : but I am saying we must be willing to accept
payment of a substantial part of our exjxM-ts by imports.
I am not adrccating. and I do not think any of us are advocating,
that it would be advisable to adopt free trade overnight.
Perhaps a modified tariff would be a better idea,
Mr. OiACEH. Perhaps reciprocal trade agreements then!
Mr. Piiss<:ix. I am willing to go along with that.
Mr. CoutEE. Well, what I am thinking about, to be realistic aboot
it. when yon are loaning the money to foreign c-onntries and in the
foreign country it is fine.
But then the public awakens a few years later and sees we just made
a mess of it. We have been trying to be big br>:4iers to everytoiy,
and they resent it.
In other words, what I am trying to say is that I am expecting in
a few years a change of feeling, a change of public opinion, jtist as
we had the last time as the result of these loans.
While we were making these loans to these coimLtries just after the
last war and they were buying our products we were assisring to habili-
tate and everything was fine untfl pay day came. They di-in't pay
olf . regardless of what the cause, whether it was tariff or whatever
it was. and public opinion shifted back the other way.
That is something that Members of Congress have to consider.
Mr. Ptersc'X. Yes.
I would like to add this, Mr. Chairman :
Please understand I am confining my remarks entirely to the ExTK-rt-
Import Bank and I have no comments to make on lend-lease or any
other Government fiscal policy.
The Export -Imp <rt Bank does not make loans because it thinks it is
being good to scanebody.
All of our lc»ans are made not only with the idea that we are aiding:
in carrying out a productive project but in ctmnection with it we are
helping the Tnited States, and we expect repayment : and the record
supports us in saying that we will get repayment.
I do not think any loan about which there is serious doubt of tdti-
mate repayment should be made.
Mr. Cci-SCEE. Do not misimderstand me either. As lon^ as your
instituticHi can hold its own and travel on its own and even ^ow a
profit as I think you have shown here, I am for it.
As I suggested a moment ago. I wc>uld like to see it take over the
whole lease-lend thing if you can make it weak on that basis,
I am thinking ab<^ut the whole jHcrure.
Thank you. Mr. Chairman.
Mr. WoKLET. Thank vou. Mr. Chairman.
1114 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. Colmer is chairman of the full committee.
You have made a profit of $37,000,000 since the creatior of the Ex-
port-Import Bank?
Mr. PiERsoN. Yes, Mr. Chairman.
I do not want to exaggerate the importance of that, 'because the
Bank has been operating for a number of years, but it i proper to
say I think that not any of the loans that the bank has ' would
have been made by private institutions, and to the exte^ "500,-
000,000 worth of business has been of value to the Unite .es, the
bank has served a useful purpose. >
Mr. WoRLEY. Your bank encourages lending by prjv te institu-
tions whatever they care to risk? ^ .,
Mr. PiEEsoN. We try in all cases to see if they cannot gee the money
from private sources, and if they cannot get all of it, to get some
of it.
Mr. WoRLEr. How much larger lending power do yo ■ think you
ought to have?
Mr. PiEESON. That is question we have not considered, "n the past
we have come to Congress when we approached our lim and asked
for authority to increase our funds. ,
Speaking just for myself; I think that would be a g >d idea to
continue.
Mr. WoRiiEY. You have no idea of how much additional lending
power ?
Mr. PiERSON. Well, I have read in the paper various sums, two to
seven billion dollars.
Mr. WoRLEY. One was 12, I think.
Mr. PiERSON. I haven't noticed that one.
Mr. WoRLEY. Not your bank, but the amount of money the other
countries would like to borrow.
Mr. PiERSON. I think I would rather not make an estimate.
Mr. WoRLEY. All right. Mr. Arthur?
Mr. Arthur. What proportion of your investment loans have re-
sulted in direct exports by the United States ?
What proportion of your loans have been long-term loans?
Mr. Pierson. Well, I think that probably 90 percent of them are
direct exports.
A hundred percent will be exports eventually.
Mr. Arthur. The only thing you lend for is to facilitatv^ purchase
of United States goods?
Mr. PiERSON. No; under this last amendment of the act we can
lend money in Western Hemisphere countries to use in the stabiliza-
tion of their economies and for the orderly marketing of the'r products.
Loans in that category have been very modest in amou -
Mr. Arthur. Well, as I recall your testimony you meniioned that
the Export-Import Bank takes risks that are not acceptable, .o private
lenders. The reasons that have been mentioned are, firs, you can
undertake these risks because you have no liability to depositors ; and
second, that you have the Government's authority, which gives you
greater prestige in collecting the loans.
Are those the only reasons ?
Mr. PiERSoN. I do not like to use that second one as a reason. I
think my answer was made in connection with a collateral question.
POST-WAR ECONOMIC POLICY AND PLANNING 1115
Mr. Art'Iur. Will you review the reasons for the record so that we
can have them.
Mr. PiEEsON. Yes.
I thiiik ;'ie sole reason that the Bank can do business which would
be unsuitalVe to private institutions is that it does not have obligations
to deposit'^^'^'-s, and it lias the express approval of Congress to make
loans ',' ' ■"•^^'^iitate our export and import trade.
IVr ' /; ; "i^. Well , it has obligations to those who provide its capital,
which'i^ ' * -'^^people of the United States.
You fee^Jiiat the United States through the E. F. C. is then willing
to underr.f.'te risks which individual financial institutions are not, at
the presen ime at least, willing to undertake ?
Mr. PiERSox. Well, I feel that Congress has so decided when they
authorized the Bank to carry out this type of business.
We try to protect the interests of the United States, as you can
see from fHc record.
Mr. Wc .EY. Quite often the individuals are not in position to make
these adv ..ces.
We ha^ '^had testimony from witnesses representing private enter-
prise. T .-■■.y want all the shackles removed so they can go into foreign
countries • ^nd lend the money where they can make the safest loans.
Howev r, they are uniformly of the opinion that where the loan
may be to'd shaky they want the Government to come in on that, for
one reason, so they can sell more products.
JNlr. PiERsoN. Well, the export community is very glad to sell goods,
and ver}^ happy to have somebody make it possible; but I think it is
understandable that a commercial bank would not undertake a 10- or
15-year foreign loan because of the fact that it has obligations to meet
the demands of the depositors.
JNIr. WoRLEY. Won't we be faced with choosing the lesser of two
evils after this war? That is, we either lend money to foreign coun-
tries so that they can rehabilitate themselves and buy more that we
produce, or draw back in our shell, let them rehabilitate themselves
on their own, and take whatever consequences that follow.
Is that the picture you see ?
Mr. PiERSON. Well, I think that is probably a fair statement.
I think that if our loans can be made in such a way as to assist the
borrower to increase his production and improve his standard of living,
it will evt^ntually result in benefit to this country.
Mr. WoRLEY. Yes ; that is the whole point, is it ?
There is no point in this country or any other country being altruistic
about it. .^
Mr. Pttrson. That would be iiiy idea.
Mr. "WjV^RLEY. I do not think Congress should approve any plan to
lend mo~:'j^ unless Congress has some reasonable assurance that there
will be bo^iefits received as a result of that.
, Mr. PitRSON. Can we take this off the record?
Mr. WoRLEY. Yes. AVe do not want to get you out of your jurisdic-
tion. Off the record.
(Discussion off the record.)
Mr. GiiTGRD. May I inject a question? Am I privileged?
Mr. WoRLEY. You certainly are.
99579 — 45 — pt. 4 33
1116 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. Welch. Is it in connection with the question I asked?
Mr, GirroRD. I thought you had finished.
Mr. Welch, Well, I would like to have the benefit of Mr. Pierson's
opinion off the record.
(Discussion off the record.)
Mr. WoRLEY. Mr. Gifford?
Mr. GiFFORD. Mr. Pierson, I am on the Banking and Currency Com-
mittee and I believe the officials of the Export-Import Bank have come
before that committee.
Mr. Pierson. Yes, sir; we have, in the past.
Mr. GiFFORD. Well, you would in the future.
Mr. Pierson. Yes.
Mr. GiFFORD. You have gone quite a ways from $11,000,000 to $700,-
000,000, and as I recall it, when you were before our committee, I
carried in my mind that the express formation of an Export-Import
Bank was to stabilize currency in other countries, but particularly, so
that our exporters could get their money in dollars, and that you would
loan banks, especially in South America, so that they could pay our
people in dollars.
Mr. Pierson. That is right. And the large part of our business has
been that.
Mr. GiFFORD. A large part?
Mr. Pierson. Yes. sir.
Out of memory now, there was a $19,200,000 loan and a $27,000,000
loan to Brazil, a $25,000,000 to Pern.
Mr. GiFFORD. To the Bank of Brazil and the Bank of Peru?
Mr. Pierson. The Govenment banks.
Mr. GiFFORD. How many of those Governments are on the black
list because of the Johnson Act?
Mr. Pierson. Not any of them.
Mr. GiFFORD. Not any of the South American countries?
Mr. Pierson. Not any of them.
Mr. GiFFORD. So that you could loan the Government. Have you
loaned the Government any money direct, the Brazilian Government?
Mr. Pierson. No, sir; we haven't loaned any money direct to the
Government of Brazil.
Mr. GiFFORD. We thought that your use was the loaning to the banks
so that our exporters could get, directly, their money. Now, you are
loaning to the producers, aren't you, now ?
Mr. Pierson. We have done both.
Mr. GiFFORD. The exporters in this country, do you loan to them?
Mr. Pierson, In effect the exporter gets the money, whether you
loan it to the Bank of Brazil or whether you loan it directly here.
The purpose of putting out a loan is to provide or replenish the
working capital of the American exporter who wishes to handle or
has handled a piece of business.
Mr. GiFFORD. You loan direct to the exporter so he can do the busi-
ness, then he has to wait for the foreign country to repay him, and
you have to wait until he is repaid to get dollar exchange?
Mr. Pierson, We have done it both ways. We have loaned directly
to the foreign central bank and the proceeds of those loans have gone
to an American foreign exporter to pay for export bills then frozen ;
and we have also loaned to a foreign entity to permit it to buy goods
from an American exporter.
POST-WAR ECONOMIC POLICY AND PLANNING 1117
Mr. GiFFORD. So many agencies of our Government, the Smaller
War Plants, for instance, are increasing their capital so they loan
money for our people, and, isn't the Export-Import Bank getting to
be a bank for oui* own country directly rather than facilitating the
other countries ?
I thought it was, as I repeat again, to stabilize the currency of those
countries and to loan to their banking people so they can pay our
people in dollars where they lack exchange, depending on business to
bring about future conditions so that they would have exchange.
]\Ir. PiERsoN. That is true, we have always been interested, espe-
cially prior to the war, in promoting the direct sale of heavy Ameri-
can goods abroad.
Mr. GiFFOKD. Were you the original appointee? Who was presi-
dent ?
Mr. PiERSON. Mr. George Peek was president at first.
I have been president since 1936.
Prior to that I was the general counsel.
I have been Avith the bank since its creation.
Mr. GirroRD. I rather fear that even my committee, Mr. Chairman^
is not fully able to comprehend exactly what the Federal Export-
Import Bank is doing.
^Ir. WoRLET. Well, it seems to be doing a good job.
Mr. GiFFORD. What is that ?
Mr. AVoRLEY. It seems to be doing a good job.
Mr. GiFFORD. I think so.
They say they have no losses, but you have about half the loans
you have made still unpaid?
Mr. PiERSON. That is right.
Mr. Geftord. But that does not convince me — there are loans way
back as far as 1921.
There are necessary losses, yes ; and usually governmental agencies
do not report losses simply because they are holding them.
Our President in 1936 went over the assets of the country.
I for one insisted, and Mr. Jones insisted, that they mark off with
a stroke of the pen two and one-half billion dollars of assets.
I do not want that kind of bookkeeping.
I do not take the position that there can be no losses in this kind of
activity.
You don't want the government agencies showing no losses if they are
carrying assets that should be marked off.
Mr. Worley. How do you estimate these ?
Mr. PiERsoN. Well, we have no loans in default, or only inconse-
quential loans.
Mr. GiFFORD. My loans at my bank have been in default and they
have renewed them indefinitely. And this $200,000,000 still owing
you, of course, it would be interesting to know who ow ^s them.
Have you loaned money to contractors on account of the war effort?
What do you mean by loaning money to increase the transportation
facilities? You say that in your record here. Did that loan go to
a country ?
Mr. PiERsoN. For example, a loan is made to a foreign railway,,
with which to buy cars in the United States.
Mr. GiFFORD. And for how long a term ?
1118 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. PiERSON. Well, such loans have ranged from 4 to 8 years.
Mr. GiFTORD. Quite a long time.
Mr. PiERSON. But no longer than similar transactions are handled
at home.
Mr. GiFTORD. They might be renewable.
Mr. PiERSON. Yes ; but as a matter of fact, one aspect of our activities,
which I think is a good one, is that all these loans amortize quarterly or
half yearly.
Mr. GiFFORD. I am all for this, Mr. Pierson. But I think the trouble
is
Mr. PiERSON. We have alwaj^s had the cooperation of your com-
mittee.
Mr. GiFFORD. I do not want to be convicted later on that I did not
ask the question.
We are all old enough to know what Government agencies have done
to cover losses, and I am unable to agree that everything is so beautiful
on these things, because I have seen too much of it.
Two and one-half billion dollars to tell the whole Nation that we
had in assets — I do not understand why men in high places should
tell our people that, and I want them marked off at times. I do not
like the former loans carried as an asset way back to 1921.
Do you ?
Mr. PiERSON. No, sir.
Mr. GiFFORD. I do not know who audits your accounts.
Mr. PiERSON. Well, the national bank examiner makes examination
of our bank as he does of other national banks.
Mr. GiFFORD. I do not believe he is as particular with losses as my
bank.
Mr. PiERSON. Well, at least he has reviewed everything we have
done in great detail and has full knowledge of all transactions.
Mr. GiFFORD. Off the record.
Mr. WoRLEY. Off the record.
(Discussion off the record.)
Mr. PiERSON. These large Brazilian loans, $45,000,000 for a steel
plant, that is directly guaranteed by the Bank of Brazil.
Mr. GiFFORD, Where will they get the money?
Mr. PiERSON. From coffee and other exports.
]Mr. GiFFOKD. You will loan them the money so they can repay it?
Mr. PiERSON. It won't be necessarj^ I think, in Brazil.
Mr. GiFFORD. It was necessary, and it may be.
Mr. PiERSON. That is a consideration we will get to. I want to be
sure that you do not misunderstand our
Mr. GiFFORD (interposing). Of course I don't understand it. I
agree to that.
Mr. PiERSON. Let me give a concrete example of a typical loan.
We will say we are shipping a thousand freight cars to Brazil,
m;anuf actured by an American car company.
We will say the amount of that is $2,000,000.
The railroad in Brazil gives its notes payable over a period of 5
years to the American company, those notes having been guaranteed
as to principal and interest by the Bank of Brazil.
The American company brings those notes to us and we purchase,
we will say, a 75 percent interest in them. And that is the transaction.
POST-WAR ECONOMIC POLICY AND PLANNING 1119
Mr. GiFFORD. You read of the silly dollar sign — you have heard of
that. You read of the Johnson Act. It seems we have a responsi-
bility we do not understand ; and I confess it, and I would feel very
badly if I received an appeal from a gentleman who didn't understand
either.
You have gone from 11 million to 700 million, and you came to my
committee wanting an increase. You said you didn't know how much.
And is that increase to lend direct to exporters and importers, our
own citizens?
1 thought originally it was to stabilize dollars ; then we would wait
on the country or their banks for their business to be such that they
could repay.
Mr. PiERSoN. I think we are doing in large measure what you
thought we were doing when we get a guaranty of a bank on a loan.
Now, we do do some additional business, and I have explained'
some of the items here.
JNIr. GiFFORD. The guaranty of the bank for the loan — they can
only pay you when they get hold of the dollar exchange.
Mr. PiERsoN. That is right, but we have to remember that these
banks have had a very_ respectable record for meeting their obliga-
tions, and the}^ are anxious not to incur one that they cannot meet.
Now, it may be necessary sometimes to extend a loan. That hap-
pens everywhere.
Mr. GiFFORD. Most of these Government agencies make that same'
report to us. They have several lesser corporations that control loss
of money ; if there is anything to be lost, they form a separate corpor-
ation. You might know that of your own. There are many ways of
showing good balances with no losses.
Off the record.
Mr. WoRLEY. Off the record.
(Discussion off the record.)
Mr. GiFFORD. I don't criticize the losses. I expect you to havej
them. If you didn't have them it would be very suspicious to hear.
Mr. PiERsoN. That would be like the lawyer who have never lost
a case — he hasn't tried many, perhaps.
Mr. GiFFORD. If you can operate without losses, I wouldn't think
so. And I suppose you have them. And they may not be behind in
their payments, but that doesn't mean anything if you renew it.
Mr. PiERSON. That is right. Off the record.
Mr. WoRLEY. Off the record.
(Discussion off the record.)
Mr. GiFFORD. I didn't realize the Export-Import Bank was loaning
direct to our own citizens that way.
Mr. PiERSON. Only within the framework of an export-import
transaction.
Mr. WoRLEY. Are you through, Mr. Gifford ?
Mr. GiFFORD. Yes, sir.
Mr. WoRLEY. Are there any additional questions, Mr. Colmer ?
Mr. Colmer. No.
Mr. AVorley. Mr. Arthur ?
Mr. Arthur. What is the range in maturity of the various loans
that you make ? How long a loan have you made ?
Mr. PiERSON. I think the longest loan is 18 years.
1120 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. Arthur. Do you have the power to resell loans that you have
made to banks or private investors?
Mr. PiERSON. Yes.
Mr. Arthur. Have such resales been made in any volume?
Mr. PiERSON. No. As a matter of fact, we haven't offered them.
We have the power to do so.
Mr. Arthur. Would there be a market for such loans which would
replenish your capital, rather than requiring you to have further
capital ?
Mr. Pierson. I think some of our short-term loans could be sold
after a period to commercial banks.
Mr. Arthur. Do you think there is a deficiency in the facilities of
this country for making longer term loans to foreign borrowers ?
Mr. PiERSON. Well, our commercial banks do not handle loans of a
type commonly accepted by British and other foreign banks, I believe.
Mr. Arthur. Well, in this country that would typically be an in-
vestment banker's function, wouldn't it?
Mr. PiERSON. That is right, and they have limited theirs to direct
advances usually, rather than on a project basis.
Mr. Arthur. Is there a field there where private capital isn't taking
advantage of all the activities?
Mr. PiERSON. I think so. I think it is partly due to the Johnson
Act and partly due to the losses which occurred as a result of the ex-
cesses of the twenties.
Mr. Arthur. You think your bank is ahead, then, of the private
banking profession ; you feel there is some opportunity to make such
loans where private investment bankers have not yet reached the point
of making such loans ?
Mr. PiERsoN. I think that is true. I think the private investment
firms will gradually undertake such transactions.
Mr. Arthur. Is the availability of funds in your bank making it
possible for borrowers abroad to secure better interest terms than they
might have been willing to pay if they had had to come to private
bankers in this country?
Mr. PiERSON. I think the answer is probably "Yes." Although more
recently the investment houses have looked upon a 4-percent obliga-
tion as a reasonable one.
Mr. Arthur. In foreign loans?
Mr. PiFRSON. I have talked with them, and they think 4 percent is
about right.
Mr. WoRLEY. Any further questions ?
(No response.)
Do 3^ou have any additional information or suggestions you think
would be helpful ?
Mr. PiERSON. I don't think I have, Mr. Chairman. I have a lot of
pictures here and other data covering projects of the bank.
Mr. WoRLEY. We will examine them at this time. On behalf of the
committee, I want to thank you for your very excellent presentation
and suggestions.
The committee stands adjourned.
POST-WAR ECONOMIC POLICY AND PLANNING
THURSDAY, JANUARY 11, 1945
House of Representatives,
Subcommittee on Foreign Trade and Shipping
OF the Special Committee on Post- War
Economic Policy and Planning,
Washington^ D. G.
The subcommittee met, pursuant to notice, at 11 a. m., in room 1304,
New House Office Building, Hon. Eugene Worley presiding.
Present: Representatives Worley (presiding), Welch, and Walter.
Also present : Representative Schuyler Otis Bland, chairman of the
House Committee on Merchant Marine and Fisheries; G. C. Gamble,
economic adviser; H. B. Arthur, and Vergil Reed, consultants.
Mr. Worley. The committee will be in order.
The Subcommittee on Foreign Trade and Shipping resumes this
morning for the purpose of hearing Mr. H. Gerrish Smith, president
of the Shipbuilders Council of America,
Mr. Smith, I am reasonably sure you are familiar with the objec-
tives of this particular subcommittee. We would like to have from you
whatever information you can give us as to how we can best improve
our foreign trade after the war if, of course, you think it desirable that
we should do so, and what i^ftrt shipping and shipbuilding will play in
that. We realize, of course, the hundreds of thousands of people who
are engaged in shipbuilding and the tremendous amounts spent on
those projects and the part the Government is taking in trying to help
the shipping industry.
With that as a preface, we would like to have you proceed.
STATEMENT OF H. GERRISH SMITH, PRESIDENT, SHIPBUILDERS
COUNCIL OF AMERICA
Mr. Smith. The Shipbuilders Council of America has noted with
much interest the hearings before your committee on the subject of
the merchant marine and foreign trade, and has noted in particular
the committee's interest on the subject of shipbuilding. The commit-
tee is to be commended for its intelligent and patriotic effort to prepare
in advance plans for meeting the problems of shipping, shipbuilding,
and ship repairing which will be presented to the Nation in the period
immediately following the war. Through this advance study. Con-
gress should be able to avoid the disastrous mistakes made after the
First World War, both with reference to our national defense and an
adequate merchant marine. It is particularly interesting to note the
1121
1122 POST-WAR ECONOMIC POLICY AND PLANNING
committee's indicated recognition of American foreign trade as an es-
sential factor in our domestic economy.
Believing that your committee will be glad to have a factual pic-
ture of the part the ship-building and ship-repairing industry has
played in both World Wars I and II, I have been requested by our
membership to present to you a statement on this subject, both as to
what the industry has done and what, in the opinion of the council,
should be the position of the industry in the future welfare of the
Nation.
MEMBERSHIP OF THE COUNCIL
The membership of the Shipbuilders Council consists of 51 ship-
building and ship-repairing yards, 31 allied industries members, and
1 association member. The membership list embraces practically all
of those ship-building and ship-repairing yards that were engaged in
the industry prior to the war in the construction and repair of seagoing
vessels, also a large number of those yards which have come into being
and whicli have been engaged in building both commercial and naval
vessels during the war period, and, in addition, many allied marine
industries.
THE SHIP-BUILDING AND SHIP-REPAIRING INDUSTRY
Twice within a generation the United States has been draw^n into
world wars at times when both its naval and merchant fleets were be-
low the needed strength even for peacetime conditions. In World
War I, shipbuilding was the largest war industry. In World War II,
it became the second largest war industry, with a total value to date of
ships built and building for the Navy and the merchant marine in
excess of $40,000,000,000.
The industry built over 19,000,000 dead-weight tons of merchant
ships in the year 1943 and approximately 16,300,000 dead-weight tons
in 1944, and a volume of naval vessels in each of these years that re-
quired a man-hour production equivalent to that expended in the
construction of merchant vessels. Maximum employment in private
shipyards and navy yards for the building and repair of vessels of all
types reached a total of approximately 1,700,000 late in 1943, of which
over 10 percent were women, with a probable equal employment in
those marine industries supplying material and equipment to the ship
builders and ship repairers.
The records also show that approximately 12,300 vessels of all
types, each of a minimum of 1,000 gross tons, were repaired in 1942;
17,172 in 1943 ; and 12,858 in the first 7 months of 1944, or at an an-
nual rate of 22,000 vessels. Some of these vessels may have been in
and out of the repair yards several times each year for necessary re-
pair work occasioned by the arduous service in which they are en-
gaged during wartimes. Aviation is the only war industry whose
cost of output has equaled or exceeded that of shipbuilding.
I trust your committee will permit me to go into some detail regard-
ing the shipbuilding industry, as it is an industry peculiar unto itself
in many ways, and dissimilar from any other industry.
POST-WAR ECONOMIC POLICY AND PLANNING 1123
THE SHIP ITSELr
A ship is a hiijhly complex machine. Its hull is a curved form of
complicated structure which must be designed so as to assure a maxi-
mum of speed with a minimum of resistance and having sufficient
strength to operate with a proper margin of safety under all condi-
tions of weather. In addition it must have reliable machinery and
auxiliar}' equipment, adequate stability, and the greatest practicable
safety and comfort for passengers and crew.
NO DUPLICATION IN PEACETIME
In peacetimes, a shipyard seldom has under construction at one
time two vessels that are identical and very rarely three or more. In
consequence, shipbuilding is a highly specialized industry. A vessel
is a made-to-order product and its cost is controlled very largely by
the cost of labor in building it. It places a vessel, therefore, entirely
outside of the category of mass-production articles such as automo-
biles, sewing machines, farm machinery, and many other products;
hence ship construction is not adaptable, except in an extremely limited
degree, to the principles of mass production.
It is true that some of these principles have been applied during the
present war-construction period, but only to a limited degree. This
was made possible by the fact that for the first time in the history of
shipbuilding 300 or more ships of a single type have been built in 1
shipyard. Even such multiple production cannot be compared with
the mass production of automobiles, where a hundred thousand, per-
haps five hundred thousand, have been built from the same patterns
and models. This limited opportunity in shipbuilding, to apply some
of the principles of multiple production, largely will disappear when
the industry reverts to its peacetime activities and volume ceases.
The above brief recital of the highly specialized character of ship-
building indicates why Government aid is necessary in the building of
ships for foreign trade which have to compete with lower-cost foreign
ships — a matter that will be touched upon later in this statement.
THE INDUSTRY
There is probably no other industry that requires as many different
types of employees — technical, mechanical, and clerical — as are to be
found in the shipbuilding industry.
The technical employees. — The industry depends for its existence on
the maintenance of a staff of technical employees and a nucleus of
administrative and mechanical employees, familiar with all phases of
the industry.
It is the technical employee who keeps abreast of the advances and
developments in the art and science of naval architecture and marine
engineering, and who, from continuous occupation and experience,
exercised in his profession over a period of years, is able to cope, in
competition with those corresponding men to be found in other mari-
time nations, in the design of hulls and machinery of all types of both
Government and merchant vessels. Without such a staff of technical
employees there could not be a successful shipbuilding industry.
1124 POST-WAR ECONOMIC POLICY AND PLANNING
When the first American battleships were in contemplation, the
United States Government purchased plans from a foreign govern-
ment for their construction, because there was not in existence in this
country at that time a technical staff of ship designers competent ta
assume the responsibility of designing the major features involved in
the construction of those battleships.
At the outbreak of World War 1, there was a very limited staff of
technical employees existing in the industry. There was little diffi-
culty in promptly obtaining the physical shipbuilding facilities
needed, but the deplorable lack of technical personnel, which con-
trolled the preparation of new designs and workijig plans, seriously
handicapped the war program. As a result of this condition construc-
tion was limited almost wholly to the duplication of existing types,
and virtually no attempts were made to develop new designs, especially
of naval vessels.
The history of shipbuilding has been one of high peaks of activity
and serious periods of depression. On several occasions during the
past 50 years a large proportion of its technical skill has drifted into
other lines of endeavor and has lost its touch with ship design, solely
because there were no ships to build and no work to do. This was very
acutely true in the period 1922-28, when the industry was at an
extremely low ebb of activity and shipyards were idle.
A lifesaver for the industry was the Merchant Marine Act of 1928.
Under the provisions of this act 31 combination passenger and cargo
vessels, together with some vessels of other types were built. These
vessels were all of the highest class, comparable to the best built or
building at that time by any foreign nation, and they gave the tech-
nical branch of the industry an opportunity for survival and a chance
for experience in designing these special type vessels. Thus, the
American shipbuilding industry was in a much better condition to
meet the production demands of the current war than it was when the
First World War broke out.
Mechanical employees. — A nucleus of skilled mechanical employees^
continuously at work in the industry — men of all-around experience,
acquired by years of continuous operation, also is necessary to its
preservation. Approximately 35 trades are directly involved in a
shipyard in the building of any vessel.
It was this small nucleus of mechanical emplo3'^ees who possessed
the know-how in the industry at the start of the present war program
of shipbuilding that became the supervisors and teacher? of others.
Substantially all of those experienced men who had been retained in
the industry have become supervisors and teachers. They have trained
both men and women to perform special operations in shipbuilding
which has been possible because of the building of so many vessels
of the same type where the work on which they are employed is of a
repeat type from day to day. The ability of the industry to produce
so large a tonnage of ships in so short a time has been due to duplica-
tion of types for war use, and the possibility of quickly training a
large, constantly increasing staff of employees to do the work.
SHIPBUILDING AS A PEACETIME INDU8TRT
The private shipbuilding industry builds and repairs merchant
vessels of all types ; it builds a portion of the naval vessels authorized
by Congress. The industry builds and repairs, in general, most of
POST-WAR ECONOMIC POLICY AND PLANNING 1125
the vessels for other Government departments. Xaval building in
both private yards and navy yards will be discussed later in this
statement.
Besides its hull and machinery, a ship involves in its construction
and outfitting substantially all the equipment of a modern hotel in
which people must live and be provided with comfortable accommoda-
tions, must be fed and entertained, while the ship itself must have
navigational communication and other installations necessary for its
safet)^ in all weathers at sea. In consequence, without exception,
practically every industry in every State in the Union benefits directly
or indirectly from the production of materials and equipment that
go into the building of a ship.
A study made some years ago by the Shipbuilders Council of a
program of various types of vessels building, to the value of about
$75,000,000, indicated expenditures for the various classes of mate-
rial about as shown on exhibit A. A further study indicated that all
of those States of the Nation, listed on the same exhibit, were involved
in the supplying of material of the types as shown and listed.
SHIPBUILDING OUTPUT DURING THE PAST 3 0 YEARS
Meix'hard shiphuilding. — Exhibit B shows the gross tonnage of
ships built in the United States in each year from 1914 to 1943, inclu-
sive— a period of 30 years. This statement includes only vessels each of
2,000 gross tons or over and shows production on the east coast, the
Pacific coast, the Gulf coast, the Great Lakes, and the rivers. The last
column in this exhibit shows the percentage of the total 30 years' out-
put that has been built in each year of the 30-year period. It is
interesting to note that from 1917 to 1922, inclusive, when the First
World War merchant shipbuilding program was started and com-
pleted, the amount of building during those 6 years was 29.1 percent
of the 30-year total and that during the present World War period
the percentage of the 30-year total for the 4 years 1940 to 1943, inclu-
sive, has been 62.4 percent. In other words, an industry that over a 21-
year peacetime period produced only 8.5 percent of the total 30-year
production has been called upon during two World War eras — cover-
ing a period of 9 years — to produce 91.5 percent of the total 30-year
production, indicating a prodigious expansion of the industry in each
of these two war periods.
PROBUCmON BY TYPE
An additional exhibit C shows the production of merchaat ships
by type of ship — cargo, passenger and cargo, and tanlier — in each
year of the same 30-year period. Of particular interest in this exhibit
is the almost total discontinuance of cargo shipbuilding over a period
of 10 years — 1928 to 1937 — and is further marked by lapses in the
building of both tanker and passenger vessels since World War I.
This exhibit indicates very definitely the failure of the country to
keep its merchant marine up to date over a long period of years pre-
ceding World War II.
1126
POST-WAR ECONOMIC POLICY AND PLANNING
EXPANSION or THE INDUSTRY
No report on shipbuilding output would be complete without em-
phasizing the tremendous expansion in the industry that has taken
place during the present war. The total number of seagoing vessels
of 2,000 gross tons or over delivered in 1938 was 26, in 1039 was 28, in
1940 was 53, in 1941 was 103, in 1942 was 746, in 1943 was 1,896.
The tonnage production in 1943 was 67 times that of 1938, 52 times
that of 1939, 28 times that of 1940, 17 times that in 1941, and 21/3 times
that in 1942. These figures reveal that the industry in 1943 increased
its pre-war output of 1938 about 67 times.
Repairing. — It is impossible to show the growth in the ship-repair-
ing industry in the same manner as in the ship-building industry. It
is seldom that two jobs in a ship-repair yard are alike. It is true, how-
ever, tliat the volume of work done by the sliip-repair yards in the last
3 years is many times that done in peacetimes, and it has been shown
that from the beginning of 1942 to the end of July 1944 no less than
42,000 seagoing vessels have been in ship-repair yards for voyage re-
pairs, general overhaul, drydocking, conversions, and for other
purposes.
Naval outpvt. — Exhibits D-1 and D-2 show the displacement ton-
nage of naval vessels built in private shipyards and in Government
navy yards in each of the years 1914 to 1943, inclusive. Exhibit D-1
covers the group known as combatant vessels. Exhibit D-2 covers the
group known as auxiliary vessels. In addition to the number of
vessels covered on these exliibits should be added the following : Steel
landing craft built in private shipyards and navy yards.
Number of vessels
Year
Private
yards
Govern-
ment navy
yards
Total
1942 -
655
745
17
78
672
1943 - - -
' 823
Total - - -
1,400
95
1,495
Also steel and wooden coastal transports, gasoline tankers, cargo
vessels, salvage vessels, submarine chasers, motor torpedo boats, mine-
sweepers, patrol craft, patrol craft escorts, district patrol craft, and
tugs:
Number of vessels
Year
Private
yards
Govern-
ment navy
yards
Total
1942 --
691
1,282
1
0
692
1943—
1,282
Total..
1,973
1
1,974
POST-WAR ECONOMIC POLICY AND PLANNING 1127
In addition, many other miscellaneous craft were built, some self-
propelled and some nonpropelled, as follows :
Covered lighters Small harbor tugs Floating workshops
Ferryboats Water barges Salvage pontoons
Garbage lighters Open lighters Sludge removal barges
Gasoline barges Fuel-oil barges
Seaplane derricks Oil-storage barges
Quite recently the Secretary of the Navy stated that almost 65,000
vessels of all types, with a total displacement of more than 9,000,000
tons, have been built for the Navy since the European war began.
Tliirty-six percent of that tonnage were combatant ships, 29 percent
were auxiliaries, and 22 percent were landing craft. A large number
of both combatant and other ships have been built and transferred
on lend-lease for use by our allies. These include the larger types
of landing craft, PT and PC boats.
On a basis of employment, approximately 80 percent of this naval
building has been done by the private shipbuilding industry.
Exhibits D-1 and D-2 evidence the great yearly fluctuations over
the past 30 years in the building load of naval vessels, and some years
in which there were no deliveries from either private shipyards or
Government navy yards.
Before discussing the prospects for ship building and ship repair-
ing after the war it is important to outline what the industry should
be if it is to be maintained in readiness to meet a future national
emergency. The importance of this subject seems self-evident for the
following reasons :
Two wars within a period of 25 years have demonstrated the vital
importance of shipping, and of ship building and ship repairing, tO'
the assurance of victor3^ Ships have been a vital factor in the concktct
of all wars in which the United States has been engaged. This was
true in the quasi war with France in 1799 ; the war with the Barbary
Pirates; the War of 1812; the Civil War; the Spanish-American War;
to a lesser degree the War with Mexico, and to the greatest degree
World Ware I and II. The United States could not have been a
decisive power in either of the two World Wars without ships or with-
out shipbuilding. These wars could not have been fought successfully
without ships; in fact, without ships the Allies might have faced
defeat. More American ships at the outbreak of the present war
certitinly would have shortened the war, possibly by a year.
The American shipbuilding industry in actual being made possible
tlie tremendous production of ships in so short a time — ships so
vitally needed for the greatest of all emergencies. It was only by
a fortuitous chain of circumstances that the industry was virile and
well equipped to meet the tremendous demand for war expansion.
It has been shown that an experienced technical staff and nucleus
of skilled mechanics must be kejDt in continuous employment in peace-
time, if they are to be available to meet the added burden placed on.
the industry in a time of national emergency.
The possibility of serious liquidation in the industry in the post-
Avar era cannot be ignored. It is more than a mere industry prob-
lem— it is in essence a vital national problem, having a direct influences
upon the peacetime security and economy of this Nation. The future'
well-being and stability of both the ship-building and shi^^-repairin"
1128 POST-WAR ECONOMIC POLICY AND PLANNING
industry, in the final analysis, therefore, should be a matter of grave
public concern. The industry, obviously, cannot hope to maintain
its current employment of about 1,500,000. That plainly is impos-
sible; there must be a survival volume, however, of building and
repairing, if the industry is to continue the employment of the essen-
tial types and classes of executive, administrative, technical, and
mechanical personnel, necessary for its preservation.
It is difficult to visualize the minimum employment in the industry
that will maintain it in an efficient operating condition. Based on
my own experience in the industry over a pleriod of many years,
however, with a knowledge of its periods of prosperity and decadence,
and with a realization of the cost to the Government in the produc-
tion of ships for World Wars I and II, I venture the assertion that
an average permanent force of 150,000 men, including those operating
in the private ship-building and ship-repairing yards and in the pro-
duction of marine equipment for the building and repairing of ships
in peacetime, is vital to the future security and important to the
economic welfare of the Nation. Furthermore, there should be kept
intact not only those facilities and equipment in going yards, but
such additional facilities and equipment as will permit of rapid ex-
pansion in the event of another emergency should be preserved in
sanctuary.
EMPLOYMENT IN THE INDUSTRY OVER A 17 -YEAR PERIOD
Because of the great fluctuation in volume of shipbuilding over
the years all kinds of employment in all types of ship building and
ship repairing has been marked by recurrent ups and downs. Exhibit
E shows the average employment in the industry by years from 1923
to 1939, inclusive, and by quarters thereafter. These figures for pri-
vate yards cover employment in the construction of merchant vessels,
naval vessels, and the repair of merchant vessels in peacetime with
some employment on the repair of Government vessels in wartime.
The figures for the navy yards cover the employment on the building
and repair of naval vessels.
It is interesting to note that employment in the industry covering
ship building and ship repairing in both private yards and navy
yards increased 14 times from September 1939 when the war began
to the peak of employment in November 1943, and in the private
shipyards alone this increase was even greater, being in November
1943, 18 times the figure for September 1939.
WORKING HOURS AND EARNINGS IN THE INDUSTRY
Exhibit F shows the average hours worked per week, average hourly
rate per employee and average weekly earnings per employee in the
industry for quarters from January 1, 1933, to July 1944. This
statement also shows similar data for general manufacturing and
from 1936 to 1944 similar information in the durable-goods industry
as well as in general manufacturing. Ship building and ship re-
pairing are durable-goods industries and the earnings in these indus-
tries have always been the highest or close to the highest in the
durable-goods group.
POST-WAR ECONOMIC POLICY AND PLANNING 1129
Workinf;: hours over this period have been, in general, on the 40-hour
basis, ahhough under the requirements of the Ship-building and Ship-
repairing Code of the National Industrial Recovery Act the working
hours in private yards were restricted on Government vessels to 32
hours a week and on merchant vessels to 36 hours a week, although the
32-hour limitation was ultimately extended to 36 hours, the same as
for merchant work.
Entirely aside from the necessities of national security and economic
welfare the maintenance of a reasonable capacity for ship building
and ship repairing should receive serious and sympathetic considera-
tion because of its great importance in connection with the problem of
post-war employment. Through the maintenance of the ship-builcliiig
and ship-repairing industry on a satisfactory operating basis some
of the shock of the inevitable unemployment following the war can
be cushioned. The men and women who would be retained in the
yards will be those of high skill who would find it more difficult to
locate jobs elsewhere, whereas this task would not be so difficult with
the unskilled and semiskilled who would constitute the bulk of those
that would have to be released.
Because of the fact that it is a highly specialized industry, ship-
yards and ship repair yards are not easily adapted to other lines of
work, and those skillecl workers now in the industry must either be
retained in it or must seek a livelihood in trades with which they are
not familiar. Shipbuilding workers have performed a masterful job
in the war effort and deserve all the consideration an appreciative
Oovernment can accord them.
READINESS OF THE INDUSTRY TO MEET AN EMERGENCY IN 1914 AND 19 39
The industry was in a much better position in 1939 to meet the de-
mands of an emergency than it was at the outbreak of the First World
War in 1914. In that earlier period there was a very small volume of
work under way in the building of either naval or commercial vessels.
By the time the United States entered the First World War (in April
of 1917), the industry was then in a much better position to meet an
emergency than it would have been in 1914. This was due to the heavy
demand for commercial vessels, contracts for which had been placed
by foreign owners and operators with American shipyards.
At the outbreak of the war in 1939 this country was in a still stronger
position than in 1917 due to the fact that there had been a fairly con-
tinuous program of naval building for some years past, and due to the
Merchant Marine Act of 1936 under the provisions of which a long-
range program of merchant shipbuilding was under way.
In both World Wars, however, the enormous expansion of facilities
occasioned considerable delay in acquiring and in outfitting new
shipyard sites. On the theory that World War I was "the war that
would end wars" substantially all of the shipyard facilities in opera-
tion during World War I, except the few plants required to carry on
peacetime activities, were liquidated, so that almost none of the former
emergency facilities were available for use in World War II. Only
five major shipyards continued in operation after the conclusion of
the First World War program. This fact prompts careful considera-
tion of this matter in the disposition of facilities now existing which
will be touched upon later.
1130 POST-WAR ECONOMIC POLICY AND PLANNING
RELATION OF SHIPBUILDING TO SHIPPING
The ship-building and ship-repairing industry is interested in all
of those factors which involve the future of the American merchant
marine, because there cannot be an effective shipbuilding industry
without the demand for ships that arises from the operation of a siz-
able and profitable merchant marine.
Trade, both domestic and foreign, creates a demand for ships, and is
obviously of vital interest to the shipbuilding industry. Domestic
trade alone would not require the tonnage or the variety of types of
ships necessary for a merchant marine, adequate to meet the demands
of the country in a time of war. Both from the standpoint of our
domestic economy and our national security, tlierefore, vessels in our
foreign trade as well as in our domestic trade are esseritial.
The domestic water-borne trade of the United' States is restricted
to American-built ships, and with a few exceptions such restrictions
have been in effect for over 125 years. Foreign-built vessels are not
admitted to this trade. Competition, however, is keen with railroads,
busses, trucks, airplanes, and oil pipe lines, but in spite of this competi-
tion, shipping must have a place in the future of domestic transporta-
tion because of its generally lower cost of carriage.
In the foreign trade the situation is quite different. Vessels may
be constructed in either foreign shipyards or American shipyards and
engage in American foreign trade, but in order to qualify for the
advantages offered under the acts of Congress, particularly the Mer-
chant Marine Act of 1936, they must be built in American shipyards..
THE COST DIFFEBENTIAL IN FOREIGN TRADE
As previously stated, sliipbuilding is a highly specialized industry
and that part of the cost which is incurred in an American shipyard,
as compai'ed with the cost in a foreign shipyard, is directly propor-
tional to the prevailing labor costs in the respective countries. So far
as material is concerned, there are some types of material produced in
such quantities in the United States that the price more nearly ap-
proaches that in foreign countries, but the cost of all special types of
marine equipment is again closely related to the comparative labor
costs in the United States and abroad. Because of these facts Amer-
ican-built ships engaged in foreign trade are immediately subjected to
a higher cost of operation due to {a) the higher initial cost of the
ships, and {h) to the higher cost of their operation, than foreign-built
and foreign-o]5erated ships wherein the prevailing wage scales and
standards of living are lower than in the United States. In order to
equalize the opportunity to American labor, therefore, and to assure
our workers employment in building ships for these foreign-trade
services there must be some Government compensation to the owner
that will enable him to buy his ships in the United States at the same
price he would pay abroad for a vessel for operation in the same trade
services, and compensation to equalize his cost of operation with that of
his foreign competitor.
These compensations frequently are referred to as subsidies, but
their purpose is solely for nn equalization of opportunity and they
are not different in character from the tariff which protects the Amer-
ican producer. Such compensation will continue to be necessary in
POST-WAR ECONOMIC POLICY AND PLANNING 1131
the future unless foreign wage scales and standards of living are raised
to an equality of those in the United States, or unless the reverse
happens, which is not likely nor desirable.
FACTORS CONTROLLING THE FUTURE OF SHIPPING
Among the matters affecting the future of ship operation and which
will exercise a substantial control over the demand for and design of
ships are such matters as :
1. The approval or disapproval of the use of the airplane by over-
seas steamship companies to supplement the operation of their services.
If steamship companies are permitted to use airplanes to further
develop their services, such use will have a direct effect upon the
type of surface ships that will be needed. Shipbuilders at the present
time are delayed in the development of post-war designs because this
problem has not yet been determined.
2. The cost at which existing ships can be purchased by operators
and the policy of the Government as to the disposition to American or
foreign buyers of surplus ships not needed for commercial services.
This matter directly controls the demand for additional vessels both
as to numbers and types.
3. The policj' of the Government as to immigration in the future
which will have an important effect on the particular design of ships
for such mass transportation,
4. Decisions at the peace table as to the degTee of participation by
the United States in the carriage of its own and other foreign trade
which might have an important bearing on the number and types of
shi]Ds and the details of their design.
Many other factors, perhaps, will have a bearing on the future of
American shipping and the ship-building and ship-repairing industry.
FUTURE or THE INDUSTRY AFTER THE WAR
It is impossible to visualize at the present time what the status of
shipbuilding will be after the war.
Admiral Land has stated that as of October 1 of this year there were
in existence American vessels of the following types, viz :
Four hundred and forty C-type ships, the finest cargo vessels afloat ; 370 fast
ocean-going taniiers and 90 Victory ships. Buttressed by coastal cargo ships,
coastal tankers, oceangoing tugs, special purpose vessels, and more than 2,300
Liberty ships — our merchant fleet is the largest possessed by any nation.
There were in the building program at that date no less than 1,200
uncompleted ves.sels of various types, each of 2,000 deadweight tons or
over, so that by the end of 1945 the United States will have a fleet of
merchant vessels equivalent to at least one-half of world tonnage at
the outbreak of the war.
With this vast fleet of ships, of which a large percentage are of types
necessary for a permanent merchant marine, the outlook for new coi>-
struction is not encouraging. There is still a lack, however, of certain
types of ships, principally the combination passenger and cargo type,
or the strictly passenger type of wiiich many will be needed. Most of
the vessels of these types that Avere in the merchant fleet at the outbreak
99579 — 45 — pt. 4 34
1132 POST-WAR ECONOMIC POLICY AND PLANNING
of the war have been taken over by the armed services, and there is no
assurance that they will be released to their original owners. If
they are released, the cost of their reconversion will be great, so there
is uncertainty as to whether new ships of these types will be built;
whether some of the older ships that are in these services will be
returned or whether some of the special types built for the war effort
will be converted to commercial use.
SHIP REPAIRING
The ship repairing branch of the industry will be very active for
some years in maintaining the merchant vessels that will be required
for the repatriation of troops, the carriage of relief supplies to allied
and conquered nations, the return of fighting equipment, and the un-
doubted demand for American materials in the rehabilitation of
devastated areas.
Repairs during wartime have been limited to essentials, in order to
keep ships in service. Extensive repairs to these merchant vessels
will be necessary for their preservation in peacetime services, or for
lay-up, and will provide a considerable volume of work for some
time. Employment in the repair industry alone, however, will not
be sufficient to preserve the shipbuilding and ship-repairing industry
in the minimum necessary state of efficiency.
NAVAL VESSELS
Subject to war casualties, the Nation should have at the end of the
war a three-ocean Navy — possibly a four-ocean Navy. At the end of
hostilities there undoubtedly will be found a number of naval vessels
only partially constructed. Their completion would help to stabilize
or balance employment during the tapering-off period. What the
post-war demand for the construction of new naval vessels may be
is very much in doubt. The experience gained in the war undoubtedly
will determine the necessity for Government vessels of new types —
and the existence of such a need should provide another source of de-
mand for shipbuilding. This is a matter for Congress and our
.-administrative authorities to determine.
Naval-ship construction has always been a factor of great impor-
tance in the development and maintenance of the shipbuilding indus-
try, particularly during the past 60 years. Members of the industry
share with all other American citizens the desire that the country
should have available at all times a Navy of sufficient numbers and
types of vessels to meet any possible national emergency.
SHIPBUILDING FACILITIES
At the outbreak of the war in 1939 the private shipbuilding and ship-
repairing facilities were adequate to meet any probable peacetime
requirements. They were not, however, sufficient to meet the tremen-
dous expansion program for emergency shipbuilding and repairing
made necessary by the war. There are no reliable figures to show the
actual investment in shipbuilding and ship-repairing facilities in
1939, nor the cost of reproducing existing facilities as of that date.
It was estimated, however, that $200,000,000 was fair valuation at that
time.
POST-WAR ECONOMIC POLICY AND PLANNING
1133
To meet the war demand for the building and repairing of ships,
extensive additions to facilities have been made. In some instances
these expenditures have been borne entirely by the Government, in
other instances they have been provided on a 5-year amortization basis,
in still other instances the costs have been partly borne by the Govern-
ment and partly by private capital; fourthly the necessary invest-
ment has been made by private interests.
It appears that facilities existing in 1939 for building ships 300
feet long and over have been increased about three and one-half times.
Some of the facilities are entirely new and did not exist at all before
the war; others are additions to facilities that did exist at that time.
In 1939 there were in operation or in such condition that they
promptly could be put into operation about 113 building ways capable
of building seagoing vessels of 300 feet or over in length, located in
32 ship yards and distributed as shown on the table below. At the
present time there are in existence approximately 520 building ways
in 71 yards capable of building seagoing vessels geographically dis-
tributed as shown in the table below.
Summary of building ways,
300 feet long
and over
1939
1944
Number
of yards
Number
of ways
Number
of yards
Number
of ways
East coast
14
4
8
68
10
18
24
11
24
233
Gulf coast -
90
West coast -. -
153
Total (3 regions)
26
6
96
17
59
12
476
Great Lakes.
44
Total (4 regions)
32
113
71
520
In addition to the expansion of building ways shown, a consider-
able number were added on the Great Rivers, mostly for the building
of various types of naval vessels.
SURPLUS FACILITIES
A problem of deep interest to the shipbuilding industry, and one
that requires the most thorough consideration, is the disposal of sur-
plus facilities when the present emergency ends. It is self-evident
that some facilities must be liquidated, as there is no possible prospect
of either building or repair work in peacetime that will utilize all of
the existing facilities. A healthy industry requires the operation
only of sufficient facilities to insure reasonable competition. Keeping
in operation an excess of facilities can only result in destructive com-
petition harmful to the industry and which in many instances may
lead to bankruptcy.
The decision on post-war facilities should take into consideration
private capital invested in the industry and what additional facili-
ties provided by the Government should be taken over by private
industry and retained to meet the requirements of peacetime opera-
tion in both ship building and ship repairing. Further, there should
1134 POST-WAR ECONOMIC POLICY AND PLANNING
be put into sanctuary and kept available for emergency use such
additional facilities as are deemed necessary to make certain that the
industry can expand quickly to meet any future emergency. This
lesson should be learned from the experience of the First World War
when practically none of the emergency shipbuilding facilities were
retained. They were in some instances dismantled and in other in-
stances allowed to go to decay, but such as were left were of negli-
gible value for use in World War II.
THE ACT or 192 0
Ship building and ship repairing in the United States has always
been promoted largely by legislation. All naval building, of course,
is the result of acts of Congress, based on recommendations of the
military authorities as to national needs.
In recounting the commercial vessels built from the outbreak of
World War I to date, it will be seen that their construction has also
been largely encouraged by legislation. Merchant vessels built dur-
ing the World War I era were, of course, almost wholly for war pur-
poses. Subsequent to the war and in order to encourage the building
of additional vessels of types needed to maintain and develop a strong
American merchant marine, the Merchant Marine Act of 1920 was
passed. This law provides for construction loans at moderate rates
of interest aild tax exemption of profits, if such profits were reserved
and applied to the construction of new tonnage.
While the act of 1920 did encourage the building of some com-
^mercial vessels, nevertheless, our merchant fleet up to AVorld War II
consisted mostly of wartime-built vessels with very few replacements,
and while other nations were keeping their fleets modernized the
American merchant fleet was rapidly obsolescing.
Exhibit I, part I, shows by numbers, by types, and by years the few
vessels built under the construction loan fund, section li, of the Mer-
chant Marine Act of 1920.
Exhibit J shows by types and by years the gross tonnage of Ameri-
can vessels whose construction was aided by section 23 (tax-exemption
section) of the act of 1920.
THE ACT OF 192S
The fact that only a very small nmnber of vessels were built under
the provisions of the Merchant Marine Act of 1920 prompted the
Merchant Marine Act of 1928, the primary purpose of which — as
developed in the hearings before congi-essional committees and in dis-
cussions of the bill in the House and Senate — was to encourage the
building of vessels necessary to supplement those already in service.
This act did result in the building of a number of very high-grade
vessels, but there was no incentive in the law for the building of ves-
sels of the purely freight type.
Exhibit I, part II, shows the vessels constructed under the pro-
visions of title III, the construction loan fund of this act. It will be
noted that there Avere 31 high-grade vessels of the combination pas-
senger and cargo type, 9 tankers, and 2 cargo vessels constructed.
POST-WAR ECOXOMIC POLICY AND PLANNING 1135
MERCHANT MARINE ACTT OF 19 3 6
While under the provisions of the act of 1928 a small number of
important vessels were added to the merchant marine ; there was much
criticism of the mail-pay and interest rate provisions of the act.
This fact, together with the failure of the act to encourage the build-
ing of cargo vessels, led to the enactment of the Merchant Marine Act
of 1936, which created the Maritime Commission and charged it with
the responsibility of developing a long-range building program.
Under the provisions of this act, the Maritime Commission per-
fected a plan for building 50 vessels a year over a period of 10 years,
which was well started at the outbreak of the war in September 1939.
By that date contracts had been awarded for 1 high-grade passenger
vessel, 9 vessels of the passenger and cargo type, 48 cargo vessels,
and 12 tankers.
This series of constructive acts shows the interest of Congress in
our American merchant marine. Without the encouragement to
shipping and shipbuilding provided in these acts, the shipbuilding
industry would have been in a serious plight when war came, and
it would have taken a much longer time to get started on the pro-
duction of ships to meet the tremendous demands that have been
made upon the industry for the war effort.
An effort has been made in this statement on the history of the
ship-building and ship-repairing industry to point out some of the
matters that are of special post-war importance and, in summarizing,
the following considerations should form the basis of governmental
policy in respect to post-war economic problems in the ship-building
and ship-repairing industry :
1. The ship-building and ship-repairing industry is a national
necessity, and if this vital industry is to be available to meet a
national need in a time of emergency it must be kept in an efficient
operating condition at all times.
2. The basic foundation of the industry is a highly trained staff
of technical, mechanical, and administrative employees.
3. It requires from 1 to 3 years to build combatant vessels. There-
fore, if it is made necessary to wait until the actual development of an
emergency before construction of needed warships can be begun, it is
obvious that there will be a dangerous delay in the completion of the
vessels and in all likelihood the acute period of the crisis shall have
passed before they can become available.
4. While merchant A^essels can be constructed more quickly than
combatant vessels, it should be noted that it was approximately a full
year from the start of the Liberty ship progi^am to the date of the
delivery of the first of these vessels. There is an inevitable lapse of
time between the inception of a building program and the period when
completed ships begin to become available.
5. Therefore, if vessels are to be in readiness at the outbreak of an
emergency, whether of the combatant or merchant type, they must be
held in reserve or provided in peacetime, so that they will be instantly
available in the event of war.
6. It is a well-established fact, too, that the possession of an ade-
quate Navy and merchant marine by a peace-loving nation tends
strongly to restrain potential aggressors who otherwise might be more
inclined to begin or provoke hostilities.
1136 POST-WAR ECONOMIC POLICY AND PLANNING
7. The merchant marine performs its important peacetime function
in carrying and developing the Nation's trade. But it is even more
vitally needed as an indispensable auxiliary of the Navy and Army.
To be constantly and immediately available as an auxiliary to the
armed services, the merchant marine must be maintained in active
operation in peacetime, for only ip that way can the necessary per-
sonnel be trained and kept available. The coastwise trade of the
United States is not suiRcient alone to support a merchant marine of
the size required as an auxiliary to the Army and Navy. It follows,
therefore, that the transportation in Amlrican ships of a substantial
proportion of the Nation!s forM^ti trade also iis necessary if the mer-
chant marine is to be de(BopefR,nd maintained in sufficient size and
efficiency to be ready .for action in time of war. *^Promotion of over-
seas commerce, therefore, becomes vitally important in the develop-
ment of an adequate American merchant marine.
8. The Liberty ship is a purely war weapon and should be treated in
the same category as other war expendables, except insofar as these
vessels are suitable from an operating standpoint to supplement other
services. Therefore, no thought should be given to their inclusion in
the permanent merchant marine,
9. Important legislative acts protecting shipping and shipbuilding
have been suspended in several instances becatise of the war emer-
gency. Such acts should be brought back into full force and effect as
quickly as possible after the war ends.
Among the various important problems to be considered immedi-
ately in preparation for peace are —
(a) Labor liquidation. Labor has rendered a highly efficient and
patriotic service in the building and repairing of both war and mer-
chant ships. It seems probable that more than a million employees
now so engaged will have to seek work in other industries. They
are entitled to sympathetic consideration in the conversion of industry
to peacetime operations.
(b) Treatment of shipyard facilities provided by the Government
to enable the shipbuilding and ship-repairing industry to meet the
demands of the war. This is a highly important question, both from
the standpoint of the welfare of the industry and to insure the reten-
tion of sufficient stand-by facilities for operation if peace should again
be disturbed. There must be continued in operation shipbuilding
and ship-repftir plants adequate for peacetime needs. But extreme
care should be taken to make certain that there should not be kept
going enough of the Government-owned wartime facilities to make
impossible the successful operation of private yards. By the same
token, the equipment to be reserved for possible future emergency
use should be placed in sanctuary where it cannot constitute an ever-
present threat to the going yards.
In determining these questions, there undoubtedly will have to be
some liquidation or dismantling of the less efficient and more uneco-
nomical wartime yards.
(c) The question of the facilities to be retained in sanctuary and
those to be disposed of will have to be determined on the basis of the
size of the merchant marine that is to be maintained in permanent
operation and held in reserve. The more ships held in sanctuary
the less the facilities that will have to be reserved, because those ships
POST-WAR ECONOMIC POLICY AND PLANNING 1137
in sanctuar}'^ will be readily available and will not have to be built in
case of another emergency. This determination of the size of the
peacetime merchant fleet cannot be made definite until answers are
provided to the questions as to what policies shall be adopted in regard
to airplane operation by the steamship companies, the question of post-
war immigration, the sale prices of ships, and other factors herein
outlined which are unavoidable in reaching solutions of the problems
of the shipbuilding and ship-repair industry.
{d) The shipbuilding aiid ship-repairing industry appreciates the
work done by the Special Mouse .Committee on Post-War Economic
Policv and Planning Uiat has resulted in the passage of the Contract
Settlement Act of 1944 and -the* SuifPs Iflfe)erty Act cff 1944.
Prompt financial^ settlement of terminlxed contracts that have
already resulted from changes in the war program and that will con-
tinue to result from inevitable cut-backs in production as the war
approaches an end is of the utmost importance in the readjustment
of the industry to peacetime operations.
Keasonable progress in the disposal of surpluses apparently is being
made w^herever cut-backs have been made. However, it is important
to emphasize that the volume of surpluses will be so vast that its
disposal will be a continuous process, possibly for years. Speed in
completing this disposal is a matter of great importance in the recon-
version and rehabilitation of industry for peacetime functions.
In conclusion, let me emphasize that the future of the shipbuilding
and ship-repairing industry is in the balance. Its fate may depend
upon the policies adopted and legislation enacted in connection with
the problems of economic stabilization after the war. In light of the
fact that the preservation of a healthy and vigorous industry is essen-
tial to national security and economic welfare, direct and adequate
provision should be made to safeguard against any possibility that
this vital national industry may be allowed to fall into a condition
where it could not promptly respond to the needs of the Nation if
war again should be forced upon us.
(Exhibits A, B, C, D-1, D-2, E. F. I, J, and attachment, submitted
by Mr. Smith, are as follows :)
1138
POST-WAR ECONOMIC POLICY AND PLANNING
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POST-WAR ECONOMIC POLICY AND PLANNING 1139
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1140
POST-WAR ECONOMIC POLICY AND PLANNING
Exhibit B. — Table showing gross tonnage of steel self-propelled merchant
vessels by geographical regions, built in the private shipyards of the United
States and delivered in the years indicated below
[Includes only vessels of 2,000 gross tons and over]
East coast
Great Lakes and rivers
Gulf coast
Year
Gross tons
Percent of
year
Gross tons
Percent of
year
Gross tons
Percent of
year
1814
83, 495
101, 443
194, 248
272,422
531, 396
1, 686, 236
1, 287, 524
690, 470
115, 107
44, 802
26, 892
25, 647
37, 741
81,764
61, 728
38, 444
143,244
150,949
145, 470
49,527
9,544
19, 022
63, 428
116,409
148, 294
241, 062
398, 957
519,279
2, 024, 189
4, 448, 969
64.0
83.9
55.6
43.2
31.8
52.9
55.8
56.9
70.2
35.8
32.2
31.7
69.8
52.8
95.2
67.0
94.7
100.0
100.0
100.0
100.0
100.0
100.0
95.5
79.9
100.0
89.7
69.3
37.5
35.6
34, 833
4,614
82, 656
178,918
316, 422
445, 442
139, 674
2,677
22, 600
67, 235
49, 424
55, 365
16, 302
73, 179
26.7
3.8
23.6
28.5
18.9
13.9
6.0
.3
13.8
53.8
59.1
68.3
30.2
47.2
1915
1916
1917
1918
1919
32, 760
165, 084
90, 550
7,953
1.0
7.1
8.7
4.9
1920
1921
1922 .
1923....
1924
1925
1926
1927
1928
1929
15,863
7,964
27.6
6.3
1930
1931..
1932
1933
1934
1935..
1936,.
1937..
5,443
37,364
4.5
20.1
1938
1940. .
2,345
7,416
51, 470
166, 925
.5
1.0
1.0
1.3
27, 879
42,320
689, 004
1,718,102
6 3
1941
5 7
1942
12 8
1943
13 8
13, 657, 692
44. 8 1, 784, 131
6.9
2, 773, 652
9 1
Pacific coast
Total, United States
Year
Gross tons
Percent of
year
Gross tons
Percent of
30 years
12, 131
14, 837
72,584
177,955
824, 144
1, 025, 850
720, 376
354,000
18, 148
12, 947
7,286
9.3
12.3
20.8
28.3
49.3
32.2
31.1
34.1
11.1
10.4
8.7
130, 459
120, 894
349, 488
629, 295
1, 671, 962
3, 190, 288
2,312,658
1, 037, 697
163, 808
124, 984
83, 602
81,012
54,043
154,943
64,820
57,395
151, 208
150, 949
145, 470
49,527
9,554
19, 022
63, 428
121,852
185, 658
241, 052
444, 727
749, 105
5,392,953
12,499,873
0.4
4
1916
1 2
1917
2 1
5 5
1919
10 5
7 6
1921
3 4
5
1923
4
3
1925 .
3
2
1927.
5
3,092
3,088
4.8
5.4
2
1929
2
5
1931
5
.5
1933
.2
.1
1935
.1
.2
19.37
.4
6
1939
8
15,546
180, 090
2, 628, 290
6, 165, 877
3.5
24.0
48.7
49.3
1 5
1941.
2 4
17 4
1943...
41 1
Total, 30 years
12, 236, 241
40.2
30,451,716
100.0
POST-WAR ECONOMIC POLICY AND PLANNING
1141
Exhibit C. — Table shoioing gross tonnage of steel self-propelled merchant vessels,
hy types of ships, built in the private shipyards of the United States and
delivei'ed in the year^ indicated below
[Includes only vessels of 2,000 gross tons and over]
Cargo
Tanker
Passenger
-cargo
Total
Year
Gross tons
Percent
of
year
Gross tons
Percent
of
year
Gross tons
Percent
of
year
Gross tons
Percent
of 30
years
1914
85, 542
92, 675
187, 529
382, 292
1, 465, 520
2, 894, 641
1, 829, 782
269, 030
78, 442
75, 524
41, 232
62, 162
16, 302
73, 179
65.5
76.6
63.7
60.7
87.7
91.3
79.1
25.9
47.9
60.4
49.4
76.7
30.3
47.3
44,917
11,709
155, 896
247, 003
182, 852
279, 098
390, 960
554, 595
44, 073
15, 513
6,546
34.5
9.7
44.6
39.3
10.9
8.2
16.9
.53.5
26.9
12.4
7.8
130, 459
120, 894
349, 488
629, 295
1, 671, 962
3, 190, 288
2, 312, 658
1, 037, 697
163, 808
124, 984
83, 602
81,012
54, 043
154, 943
64, 820
57, 395
151, 208
160, 949
145, 470
49, 527
9,544
19, 022
63,428
121,852
185, 658
241, 052
444, 727
749, 105
5, 392, 953
12, 499, 873
0.4
1915
16, 510
6,063
13.7
1.7
.4
1916
1.2
1917
2.1
1918
23, 690
16, 549
91,916
214,072
41,293
33, 947
35, 824
18, 850
28,789
51, 294
44, 190
23, 614
50,311
108, 968
129, 348
49, 527
1.4
.5
4.0
20.6
25.2
27.2
42.8
23.3
53.2
33.0
68.2
41,1
33.3
72.2
88.9
100.0
5.5
1919
10.5
1920....
1921
7.6
3.4
1922
.5
1923
.4
1924 ..
.3
1925
.3
1926
1927
8,952
30, 470
20, 630
9,096
92, 933
41, 981
16.5
19.7
31.8
15.8
61.4
27.8
.2
.5
1928
.2
1929
1930
24, 685
7,964
43.1
5.3
.2
.5
1931
.5
1932
16, 122
11.1
.5
1933
.2
1934
9,544
100.0
.1
1935 . .
19,022
63,428
121,852
137, 930
119,429
148, 509
267, 979
612, 121
2, 163, 147
100.0
100.0
100.0
74.3
49.5
33.4
35.8
11.3
17.3
.1
1936
.2
1937
.4
1938
43, 476
91, 560
227, 275
423, 019
4, 678, 988
10,116,973
23.4
38.0
51.1
56.4
86.8
80.9
4,252
30, 063
68, 943
58, 107
101, 844
219, 753
2.3
12.5
15.5
7.8
1.9
1.8
.6
1939 ..
.8
1940 ...
1.5
1941
2.4
1942 . .
17.4
1943
41.1
Total, 30 years.
23, 193, 458
76.2
5, 790, 641
19.0
1, 467, 617
4.8
30,451,716
100.0
Exhibit D-1. — Table showing number of and displacement tonnage steel conv-
batant naval vessels built in the pHvate shipyards of the United States and
in the Government navy yards and delivered in the years indicated below
Private yards
Navy yards
Total, private and
navy yards
Year of delivery
Number
of vessels
Displace-
ment
toimage
Number
of vessels
Displace-
ment
tonnage
Number
of vessels
Displace-
ment
tonnage
1914.-
15
36, 871
3
7
1
3
15
5
9
6
4
4
1
1
1
27,408
8,135
31, 400
3,087
42, 609
5,493
41, 488
38, 347
4,800
3,640
2,000
2,000
2,000
18
7
20
11
81
127
90
35
11
27
11
6
1
2
1
1
6
3
2
2
9
8
22
64,279
1915
8,136
1916...-
19
8
66
122
81
29
7
23
10
6
100, 405
37, 104
62, 145
171, 966
102, 619
67, 452
6,680
118, 600
26,750
10, 250
131, 805
1917
40, 191
1918 .. . -
104, 754
1919....
177, 459
1920
144, 107
1921
105, 799
1922
11,480
1923
122, 240
1924..-.
28,750
1925
12,250
1926
2,000
1927
2
66,000
66,000
1928
1
2,710
2,710
1929
1
3
1
1
1
5
10,000
30,000
10,000
10,000
10,000
27,900
10,000
1930 .
3
2
1
1
4
8
5
15,460
20,000
1,540
1,110
40,000
11,360
8,430
45,460
1931
30,000
1932..-.
11,540
1933-
11,110
1934
67,900
1935
11,360
1936
17
35,920
44.350
1142
POST-WAR ECONOMIC POLICY AND PLANNING
Exhibit D-1. — Tabic showdng 7iumber of and displacement tonnage steel combat-
ant naval vessels built in the private shipyards of the United States and in the
Government navy yards and delivered in the year iiulicated below — Continued
Private yards
Navy yards
Total, private and
navy yards
Year of delivery
Number
of vessels
Displace-
ment
tonnage
Number
of vessels
Displace-
ment
tonnage
Number
of vessels
Displace-
ment
tonnage
1937...
10
13
16
12
15
94
387
42, 360
72, 900
32, 600
31, 705
45, 915
342, 760
883, 470
17
7
11
15
16
35
158
33,940
27, 250
33, 010
22, 690
91,915
89, 835
301, 840
27
20
27
27
31
129
545
76, 300
1938
100, 150
1939
1940
05,610
54, 395
1941
137, 830
1942
432, 595
1943.-..
1, 185, 310
Total
963
2, 392, 372
344
913, 497
1,307
3, 305, 869
Note.— This section includes battleships, aircraft carriers, cruisers, destroyers, destroyer escorts, frigates,
submarines, gunboats.
Exhibit D-2. — Table shoiving number of and displacement tonnage steel auxil-
iary naval vessels built in Hie private shipyards of the United States and in
the Government navy yards and delivered in the years indicated below
Private yards
Navy yards
Total, private and
navy yards
Year of delivery
Number
of vessels
Displace-
ment
tonnage
Number
of vessels
Displace-
ment
tonnage
Number
of vessels
Displace-
ment
tonnage
1914 .
1
2
1,408
10, 730
1
3
2
5
11
7
2
5
3
1
4
4
16
62
1,408
1915..
1
2
3
14, 500
29, 000
29, 500
25, 230
1916...
29, 000
1917
2
11
6
7,600
32, 848
7,146
37, 100
1918
32, 848
1919...
1
2
3
3
1
14, 800
25, 858
39, 325
31,200
10, 600
21, 946
1920
25, 858
1921. .
2
27, 850
67, 175
1924
31,200
1926
10, 600
1940 ..
4
1
10
61
36, 500
9,180
93, 765
382, 765
36, 500
1941... .
3
6
1
12,640
21. 690
9,000
21. 820
1942
115.455
1943.
391, 765
Total.
100
609, 792
26
238, 113
126
847, 905
Note. — This section includes the following categories of naval auxiliaries: Seaplane tenders, destroyer
tenders, motor torpedo boat tenders, repair ships, aircraft-carrier escorts, submarine tenders, submarine
rescue vessels, minelayers, ammunition ships, oilers, fuel-oil ships, storeships, transports.
Exhibit E. — Total employment in United States shipyards in the construction
and repair of naval and merchant vessels
Year
Total
number
employed
Employed in private
yards
Employed in navy
yards
Number
Percent-
age
Number
Percent-
age
1923
87, 800
75,600
76, 600
79,900
81,300
68,800
84, 100
85,200
70,700
60, 800
68,100
55,500
55, 000
58, 000
60,300
47, 300
60,300
63, 900
49, 400
39, 700
77.6
73.4
71.8
72.6
74.2
68.8
71.8
75.0
69.9
65.3
19, 700
20,100
21,f00
21,103
21, COO
21, 500
23, 800
21,300
21,300
21, 100
22 4
1924...
26.6
1925
28.2
1926
27.4
1927
25.8
1928
31.2
1929
28.3
1930
25.0
1931
30.1
1932
34.7
POST-WAR ECONOMIC POLICY AND PLANNING
1143
Exhibit E.
-Total employment in United States shipi/ards in the construction
and repair of naval and merchant vessels — Continued
Year
Total
number
employed
Employed in private
yards
Number
Percent-
age
Employed in navy
yards
Number
Percent-
age
1933 ----
1934
1935
1936
1937
1939^January
April-. -
July....
October
1940 — January
April...
July....
October.
1941 — January
April...
July....
October.
1942— January
AprU...
July
October.
1943— January
April
July
October.
1944— January
April...
July
56,500
65, 300
68, 500
92, 400
101,700
94, 600
101,600
113, 700
119,600
131,800
137, 200
151,700
177, 300
215, 500
255, 500
304, 300
380, 000
468, 700
588, 700
803, 300
1, 038, 600
1, 277, 100
1, 477, 700
1, 627, 800
1,721,500
1, 714, 600
1, 684, 900
1, 629, 900
1, 561, 200
33, 800
44, 400
48, 700
62, 300
67, 700
59, 200
61, 700
68, 600
73, 600
79, 000
79, 400
88, 900
102, ,500
119,200
147, 700
183, 200
233, 900
307, 700
396, 000
586, 600
792, 600
1, 002, 300
1, 183, 100
1,316,900
1, 388, 400
1, 388, 900
1, 358, 900
1,298,900
1, 235, 000
59.8
68.0
71.1
67.4
66.6
62.6
60.7
60.3
61.5
59.9
57.8
58.6
57.8
55.3
57.8
60.2
61.6
65.6
67.3
73.0
76.3
78.5
80.1
80.9
80.7
81.0
80.7
79.7
79.1
22,700
20. 900
19, 800
30, 100
34, 000
35, 400
39, 900
45, 100
46, 000
52, 800
57, 800
62, 800
74, 800
96, 300
107,800
121, 100
146, 100
161,000
192, 700
216, 700
246, 000
274, 800
294, 600
310, 900
333, 100
325, 700
326, 000
331, 000
326, 200
40.2
32.0
28.9
32.6
33.4
37.4
39.3
39.7
38.5
40.1
42.2
41.4
42.2
44.7
42.2
39.8
38.4
34.4
32.7
27.0
23.7
21.5
19.9
19.1
19.3
19.0
19.3
20.3
20.9
Exhibit F. — Table showing hours and wages in shipbuilding versus durable goods
and general manufacturing during period January 1933 to July 1944
Month
Average hours per week
Average hourly rate per
Average weekly
earnings
for employees
employee
per employee
Ship-
General
Dur-
Ship-
General
Dur-
Ship-
General
Dur-
build-
ing
factur-
iDg
able
goods
build-
ing
factur-
ing
able
goods
build-
ing
manu-
factur-
ing
able
goods
29.7
37.5
(')
0.598
0.427
(')
$17. 76
$16.01
(')
31.5
38.0
(')
.562
.429
(')
17.70
16.30
(')
33.6
42.3
(')
.564
.427
(')
18.95
18.06
(')
30.5
35.7
(')
.668
.517
(')
20.37
18.46
(')
30.1
33.7
(')
.696
.533
(')
20.95
17.96
(')
31.2
36.2
(')
.695
.541
(')
21.68
19.58
(')
31.6
33.4
(')
.741
.556
(')
23.42
18.57
(')
30.1
34.5
(')
.771
.554
(')
23.21
19. 11
(')
31.8
35.2
(')
.750
.564
(')
23.85
19.85
(')
32.2
36.4
(')
.739
.571
(')
23.80
20.79
(')
32.6
35.2
(0
.733
.569
(')
23.90
20.03
(0
33.5
38.2
(')
.759
.564
(')
25.43
21.54
(')
34.6
37.3
37.8
.760
.573
.616
26.56
21.59
$23.60
36.2
38.7
40.7
.749
.573
.619
27.60
22.66
25.68
35.9
38.5
39.7
.761
.672
.616
27.55
22.39
24.84
36.2
40.5
42.4
.768
.573
.618
27.78
23.46
26.45
35.9
39.6
40.7
.782
.587
.643
28.40
23.83
26.33
37.9
40.4
42.1
.816
.629
.703
31.06
26.12
29.87
36.9
38.0
38.7
.816
.648
.724
30.22
25.16
28.23
37.3
37.6
39.1
.830
.655
.730
31.49
25.17
28.61
36.4
33.3
32.2
.842
.652
.705
31.21
21.66
22.90
36.4
34.3
33.5
.842
.642
.701
31. 57
22.05
23.80
37.0
35.0
33.4
.831
.631
.688
30.90
21. 95
23.32
86.9
37.6
37.5
.832
.634
.696
30.75
23.90
26.86
37.5
36.6
36.1
.837
.644
.710
31.00
23.80
26. f3
37.6
36.6
36.6
.831
.642
.710
31.22
23.79
26.92
37.6
36.7
36.2
.832
.637
.702
31.71
23.64
26.31
38.3
39.1
40.1
.842
.636
.713
32.26
25.81
29.71
1933— January
April...
•Tuly....
October.
1934— January
April
July....
October.
1935— January
April...
July....
October.
1936— January.
.\pril...
July
October.
1937— January.
April
July....
October.
3938— January.
April...
July....
October.
1939— January
April...
July....
October.
1144
POST-WAR ECONOMIC POLICY AND PLANNING
Exhibit F. — Table showing hours and wages in shipbuilding versus durable goods
and general manufacturing during period January 1933 to July 1944 — Continued
Month
Average hours per week
for employees
Ship,
build-
ing
General
manu-
factur-
ing
Dur-
able
goods
Average hourly rate per
employee
Ship-
build-
ing
General
manu-
factur-
ing
Dur-
able
goods
Average weekly earnings
per employee
Ship-
build-
ing
General
manu-
factur-
ing
Dur-
able
goods
1940— January
April...
July....
October.
1941 — January
April--.
July.-..
October.
1942 — January
April...
July
October.
1943— January
April
July....
October.
1944 — January
April...
July....
38.2
38.6
39.3
41.7
42.0
42.8
44.8
45.4
48.2
49.2
48.5
47.6
46.9
47.7
47.9
47.9
45.7
47.3
47.3
37.4
37.2
37.3
39.3
39.0
40.0
40.3
41.1
41.5
42.4
42.4
43.6
44.2
45.0
44.4
45.4
45.2
45.0
44.7
38.1
38.2
37.9
41.0
40.6
41.5
41.5
42.9
43.7
44.7
44.7
45.7
45.9
46.8
46.0
47.2
46.6
46.5
45.8
.846
.859
.862
.877
.893
.906
1.013
1.059
1.079
1.080
1.133
1.209
1.216
1.246
1.264
1.313
1.306
1.330
1.330
.663
.665
.667
.673
.689
.708
.744
.770
.801
.819
.850
.866
.919
.944
.963
.9S8
1.002
1.013
1.019
.727
.729
.727
.739
.758
.785
.826
.853
.889
.910
.946
.988
1.017
1.040
1.060
1.086
1.099
1.110
1.118
32.32
33.25
34.03
36.93
37.69
39.17
45.54
47.84
52.42
53.30
55. 19
57.57
57.24
59.50
60.55
62.91
59.67
62.89
62.90
25.51
25.33
25.25
27.13
27.74
29.17
31.22
32.89
35.11
36.63
38.52
37.79
40.62
42.48
42.76
44.86
45.29
45.55
45.52
28.96
28.92
23. 52
31.42
31.93
33.54
35.84
37.92
40.91
42.57
44.61
45. 26
46.68
48.67
48.76
51.26
51.21
51. 67
61.20
POST-WAR ECONOMIC POLICY AND PLANNING
1145
a
0)
1
o
$3, 841, 669
8, 196, 551
1,949,562
8, 796, 522
12,740,348
S3
CO
1
i
t>-i
o
9,978
24, 033
5, 945
22, 504
36, 131
00
OS
1,600
13, 199
3,065
7,960
36, 459
«5
a;
e
Im-*— . ■*«
•^
S3
o
o
i
s
o
a
■ o
e
a
o
O
o 1 1 1 1 1
CO 1 ' 1 1 1
00 ! 1 1 1 1
g ; : ; : ;
O
CO
■c
o
2
O
o i 1 i 1 i
OS 1 1 1 1 ;
IN 1 1 1 i 1
IN
Q.Ef
i\\\\\
!
s
3
N 1 ! 1 1 1
e^
>>
"3
13
"o
OS
05 OS Ol Ol OS OS
"3
I
$6, 587, 226
17,383,188
36, 290, 884
51,801,448
29, 343, 697
CO
8
5<
18, 200
48, 891
104, 045
111,327
67, 548
o
CO
18, 575
39, 735
78, 929
70, 796
43, 961
IN
«10 00C<liO
CO
o C-) o ! 1
s2§ i ;
1
CO
9,097
44, 995
26, 650
ONCO 1 1
lO ■'J'CO 1 1
,-1 1>.-^ 1 I
1
rtiraeo i 1
a>
1 1 Im 1
i ; i^ :
1 i iig ;
CO
: ; 2 i
: i is i
2"
1 1 in i
o
1 ! I?4 1
M
?5 coco COCO
Ol 03 05 05 05
"3
O
1146
POST-WAR ECONOMIC POLICY AND PLANNING
"3
O
E2co
o q
52
72, 650
254, 380
40,695
30, 461
13, 502
16, 220
17, 516
59, 756
1
1
107, 435
304, 090
63,861
43, 690
14, 175
24,500
26,000
68,300
o
1-
f-H CO
en
CO
2
.2
03
o
Eg CO
o a
52
8,299
16, 138
8,318
16, 220
16, 302
33, 519
CD
03 Mq
12, 000
24, 000
1 12 noo
24, 500
24, 000
49, 800
O
CO"
1 rH C^ .-( CS C^ ■*
^
o
CUO
s
a
p a
1 lO 1 ^ 00 ' 1 CO
CO
1 -^
'OJa m
c3 M q
Pes"
1 CO 1 CO C^ 1 1 »o
CO
a ^
!c<l li-l .-1 1 IrH
•o
IP
a
o q
0-"
72, 650
216, 272
20, 580
11, 407
9,005
•6s3 m
03 613 q
fi|2
107, 435
309, 640
29, 801
16, 590
'"""2,"o6o'
13, 000
oo
p
ROCOCO I l^rH
o
O
o q
52
l(NcO 1 1 1 1 1
liO ^ 1 1 ( 1 1
'•-^00
IcT-T 1 1 1 1 1
73^ W
03 bijq
loo i 1 1 ' 1
:g8 1 : 1 1 :
i^lM 1 . 1 1 ■
o
1 lOM 1 1 1 1 1
t~
'3
><
o^iMco-^incot^
cs(Mc^r5cqMC-)C-<
3
o
^ 5
POST-WAR ECONOMIC POLICY AND PLANNING
1147
[Attachment as part of Exhibit J]
New American vessels to lohose eonsiruction aid loas contributed by
exemption under section 23 of the Merchant Marine Act, 1920
tax
Name of owner
American Hawaiian Steamship Co
Associated Oil Co
Atlantic & Caribbean Steam Xavigation Co
Atlantic Refining Co
Columbia Steamship Co
Crowell & Thurlow _.
Franklin Steamship Co -
Interlake Steamship Co _
Kinsman Transit Co
Munson Steamship Line..
Old Dominion Steamship Co-.
Pacific Mail Steamship Co,.
Pan American Petroleum & Transport Co _
Peninsular & Occidental Steamship Co
Pioneer Steamship Co-
Standard Oil Co. of California ._
Standard Oil Co. of New Jersey
Sun Oil Co
The Texas Co
Union Oil Co. of California
United States Steel Products Co
Vacuum Oil Co
Wilson Transit Co
Total
Estimated
amount of
taxes waived
$3, 128,
17,
59,
»120,
38,
486,
49,
281,
31,
1225,
56.
9,
I 2, 930,
69,
117,
138,
I 6, 000,
I 2, 436,
154,
91,
392,
469,
26,
941.08
163. 79
541.88
985. 00
298. 72
135. 32
458. 19
615.47
667. 45
000. 00
655. 04
652. 75
308. 98
001. 83
315.99
481. 62
000. 00
965. 93
924. 98
858. 30
272. 24
860. 98
257. 24
17, 332, 362. 78
Total cost of
new vessels
$13, 540,
2, 116,
830,
362,
1. 060,
3. 205,
1, 033,
5, 247.
1.617,
3. 221,
1, 580,
2, 262.
15, 746,
2, 142,
894,
18, 409,
34, 088,
9, 408,
1, 643,
4, 592,
4, 135,
4, 015.
785,
437. 95
000. 00
000, 00
955. 00
358. 33
125. 11
700. 00
941. 50
000. 00
436. 95
000. 00
472. 59
716.00
906. 55
520. 51
948. 80
512.84
286. 28
925. 99
253. 02
924. 93
927. 75
536.88
131, 941, 886. 98
' Owners' estimate of revenue and taxes involved.
- Maximum amount allowable in favor of vessel constructed (owners' computation).
Source: Thirteenth Annual Report of United States Shipping Board,
]Mr. WoRi.EY. I would like the record to reflect that the subcommittee
is honored in having Congressman Bland, chairman of the House
Merchant Marine and Fisheries Committee, with us this morning.
We are very glad to have you here, and any legislation that this com-
mittee recommends will probably go through your committee, so we
want you to feel perfectly free to ask any questions.
Mr. Bland. I wonder how many shipyards are operated that are
not included in the 51 members of your council. It seems to be an
over-all coverage.
Mr. Smith. The Kaiser yards are not members of our council, and
some of the newer yards, like the two Jones yards, at Brunswick, Ga.,
and at Panama City, Fla.
Mr. Bland. I wondered if it would be well to show the break-down
in the United States, the number.
Mr. Smith. I will be glad to file as a part of the record the entire
membership of our council, which I think j^robably would be helpful.
(See appendix, exhibit 33, p. 1221.)
Mr. Bland. Does that include all ?
Mr. Smith. No; but wherever I have used statistics, it covers the
entire industry.
Mr. AVoRLEY. You speak for the great majority?
Mr. Smith. I speak for the great majority. Our membership
covers a large representation, on the Atlantic coast, the Pacific coast,
the Gulf, Great Lakes, and the largest yard on the great rivers.
]Mr. WoRLEY. And tliis association has been in existence since 1920 ?
Mr. Smith. Yes.
99579 — 45 — pt. 4-
-35
1148 POST-WAR ECONOMIC POLICY AND PLANNING
The primary object of my appearance on behalf of the shipbuilding
industry is to give a story of the shipbuilding industry and show how
it has been possible for the industry to accomplisli the results that
have been accomplished during this war and during World War No. 1,
and primarily to bring out those factors that are essential if the
industry is to be prepared in the future to meet a further emergency,
and having in mind that, while we have been credited with having
done a good job, we nevertheless, in another emergency, might be in a
situation where it would be necessary to do a still better job and
where we would find that before new ships could be ready and de-
livered, the war might be over or so far along that the country would
be severely handicapped in meeting such an emergency.
Our council has been very much interested in the hearings that
your committee has held, and I have had the pleasure of reading sub-
stantially all of the statements that have dealt with shipping, and we
have noticed numerous references to shipbuilding in those hearings.
I feel that the committee is to be highly commended for its intelligent
efforts to prepare in advance plans for meeting the problems of ship-
building and ship repairing which will be presented to the Nation
immediately following this war.
Mr. WoRLEY. Of course, Mr. Smith, we appreciate that very much.
Mr. Smith. That is the feeling of our industry. We are particu-
larly interested in noting the committee's interest in foreign trade,
which is an essential factor, not only in connection with shipbuilding
but in connection with the preservation of the shipbuilding industry.
I might say with reference to World War No. 1 that of the entire
merchant program initiated after the United States went into the
war in April 1917 up to the time of the armistice in November 1918
not a single merchant ship got into the war. The only ones that got
in were those that were building for private account or foreign ac-
count, contracts for which had been placed prior to our entry into the
war, all of which shows the time lag essential in a program of new
building in order to have ships available at an early date.
Mr. WoRLEY. I understand the figure of total employment has de-
creased lately.
Mr. Smith. There has been a falling off of about 2^0,000 in private
industry in the past year.
Mr. WoRLEY. Is that because they could not get the help ?
Mr. Smith. They could not get the help. It has been going off a
little every month since November 1943.
Mr. WoREEY. And we are short better than 200,000 people?
Mr. S-aiith. We are short 200,000 people who could be used to
advantage at the present time. It should be noted that in 1938 the
equivalent figure to the 1,700,000 was 94,()00; in other words, employ-
ment has gone up about 18 times.
Mr. WoRLEY. With reference to these technical employees, do you
think you Avill have difliculty in retaining this group?
Mr. Smith. We are going to have great difficulty.
Mr. WoRLEY. Why?
Mr. SiiiTH. Because of the prospect of only a small volume of
shipbuilding for some time to come, in view of the large accumulation
of ships we now have.
Mr. WoRLEY. AVill that not be true generally of all your employees?
Mr. Smith. It will be true of all employees. We must have heavy
POST-WAR ECONOMIC POLICY AND PLANNING 1149
liquidation, but if you can retain your teclniical staff and a sufficient
luimber of your skilled mechanical staff, the rest can be built up to
meet the situation as it goes along.
ISIr. WoRLEY. As I recall, we went from about 00,000 in 1930 to
1.700,000 in IdU.
Mr. Smith. That is right.
Mr. WoKLKY. And of course a proportional part of that was your
ti-ained teclniical personnel.
Mr. Smith. Not so many trained technical personnel, but trained
production men. Some trained technical men, yes; but the leaders
were those of long technical experience who had devoted their lives
to the industry, and they are really the ones who are responsible for
making it possible to have designecl both our naval and our merchant
ships.
Mr. WoRLEY. How do you propose to retain the trained employees?
Mr. S-AiiTii. We have got to follow the prospects as far ahead as we
can see them and study every opportunity to keep those men employed.
That is one of the basic problems with wdiich we are confronted and a
basic problem for the country if we are called upon to meet another
emergency.
]\Ir. AVoRLEY. That is a basic problem which we face in all lines of
endeavor. Where we have complete employment today, after the war
it is going to be a question whether Ave can provide jobs for them.
Each industry will suffer, the airplane industry, the automobile in-
dustry, the shipbuilding, and all other industries.
Mr. Smith. They will all suffer some, but the shipbuilding industry
is unique unto itself, because in shipbuilding you include practically
everything that goes into any kind of a structure. It is a highly spe-
cialized industry, with a curved ship form, and all of the problems in-
volved in the design so as to be able to get maximum speed with mini-
mum resistance, and you also have your machinery problems.
Mr. WoRLET. Mr. Arthur, our committee consultant desires to ask
a question.
Mr. Arthur. ]\Ir. Smith, can you clarify for us the relationship
between the design of building in private industr}', that of the Mari-
time Commission and that of the Navy, so we can see how these vari-
ous groups of skilled workers were employed before the war?
Mr. Smith. If I understand clearly the answer you are seeking, the
design of ships originates, of course, with the department or the indi-
vidual who wishes to buy them; but neither the Navy Department nor
the ^Maritime Commission gives you a complete set of plans; you get
nothing but the general arrangement features and it is up to the ship-
builder to prepare all of the designs himself in the building of the
ship. They are then passed upon and approved by the procurement
agency.
Mr. Arthur. The Navy, of course, designs its own ships ?
Mr. Smith. No : only the general arrangement plans.
Mr, Arthur. So the total employment job, so far as designing is
concerned, is in the hands of the private shi])building organization?
Mr. Smith. To give you a picture, I might say that on the battle-
ships built by private shipyards, the cost of the designs, as I remem-
ber it, was in the vicinity of $4,000,000 pre-war cost, for technical
work performed by the shipyards in order to produce the ships. So
3'ou can see that certainly the major part of the work involved is in
1150 POST-WAR ECONOMIC POLICY AND PLANNING
the detailed development of the various features incorporated in the
general design and in the specifications.
Mr. Arthur. And those designs were drawn up on Government
order in the case of naval vessels ?
Mr. Smith. Yes.
Mr. Arthur. Was it on private order in the case of the boats de-
signed in the Maritime Commission?
Mr. Smith. In the Maritime Commission it was a three-cornered
proposition, the owner, the Maritime Commission, and the shipbuilder
working together until they got the general features and specifica-
tions worked out, after which the ship was in the hands of the builder
to design the ship to meet the specified requirements.
Mr. Arthur. The Maritime Commission had the responsibility to
keep our ship-design practices up to date, and I wanted to see how
that fed into the actual employment of the technical personnel.
Mr. Smith. Have I made it clear in what way it does that?
Mr. Arthur. Yes ; I think so.
Mr. Smith. I have mentioned the fact of a limited number of tech-
nical men at the outbreak of World War No. 1.
Mr. WoRLEY. Mr. Walter?
Mr. Walter. Are there as many designers employed when two
ships are identical as when there is only one ?
Mr. Smith. No. The design for two ships being identical, naturally
there is less work on the designing features.
Mr. Walter. When the original plans are prepared, a great many
architects are required for the design of each ship, but when they are
duplicated, obviously some of those men are thrown out of employment.
Mr. Smith. That is right. One of the features of building we have
always urged is that wherever possible, if you can build two ships
of a type instead of one, you are going to reduce your costs and simplify
your problem.
Mr. Walter. By doing that you increase the i)roblem of employ-
ment.
Mr. Smith. Well, by building two, you decrease the demand for
technical employees, to be sure. It is the opportunity to Avork on
various types in order to keep up to date with what is going on in the
rest of the world, that builds up your staff of technical employees.
In my statement I mentioned a matter along the line of the ques-
tion you have just asked. One of the important results of the Mer-
chant Marine Act of 1928 that has not been recognized is that out of
that act there were 31 high-class ships of many types built, and that
enabled our technical people to be fully employed and it brought them
right up to date with the most .modern experience anywhere in the
world because of the many different types involved in the building of
those ships.
In one of the exhibits it is brought out that about half the cost of a
ship goes to the people who supply the equipment and material that
go into it.
Mr. Worley. About half?
Mr. Smith. Approximately half. One yard might build its ma-
chinery and another might not, but, by and large, that is approximately
the figure.
Mr. Worley. The other half is labor?
POST-WAR ECONOMIC POLICY AND PLANNING 1151
Mr. Smith. The other half is expended within the shipyard in the
building of the ship itself, which is essentially assembling. The out-
put of naval vessels in 1944 was equivalent to four times the total pro-
(hiction in the 25 years preceding the war.
Mr. WoRLEY. You mentioned the cost differential in foreign trade.
Would you mind discussing that?
Mr. Smith. There is a big cost differential between building ships
in the United States and building them in any other foreign maritime
naticm.
Mr. WoRLEY. Can you tell us why that statement is true ?
Mr. Smith. The reason for that is due to the fact that the labor
rates in the United States are so veiy much higher than they are in
these foreign countries.
Mr. WoRLEY. Is that true in times of depression as well as in times
of prosperity?
Mr. Smith. It is. The rates in the United States have gone up
generally in about the same proportion as they have in Great Britain
during the war, so that the differential remains approximately the
same.
]\Ir. "VVoRL-EY. A moment ago you said half the cost of a ship went for
materials.
Mr. Smith. That is right.
Mr. WoRLEY. I assume the other half goes for labor.
Mr. Smith. That is right.
Mr. WoRLEY. How do our material costs compare to those of most
other countries ?
Mr. Smith. Some of our material costs where the production is high
and the purchasing power in this country is very great, are more nearly
in relation to the costs abroad, but when you come to any specialized
equiiDinent that is made specially for a ship in the United States, like
a machinery installation which is of a single design and no duplicate
of any other, you have there a problem smilar to that in the shipyard ;
it is proportional to the labor cost ; but when you get materials that are
produced in great quantities, the costs in the United States and abroad
are more nearly the same.
Mr. WoRLEY. Do we have any tariffs which would prevent the im-
portation of materials which might compete with materials we use to
produce ships?
Mr. Smith. I believe not at the present time. There have been
efforts on occasion to purchase materials abroad, but it has never been
exercised to any great extent. Because of the difficulty of getting the
material when wanted, it has never worked successfully. I am speak-
ing of steel particularly.
Mr. WoRLEY. That is the major part of the material?
JSIr. Smith. Yes.
Mr. WoRLEY. Then the Government makes no effort to protect the
producer of raw material, but we do by subsidy protect the labor that
goes into the ship?
Mr. Smith. Under the tariff; I cannot give you the status under
the present tariff laws, but there are certain materials which are pro-
tected, and the subsidy on a ship is very much in the same category.
Mr. WoRLEY. The tariff and the subsidy are first cousins, are thev
not?
Mr. Smith. Yes ; they are first cousins, certainly.
1152 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. WoRLEY. We have been very much interested in the whole
question of subsidy and what part it will play in the post-war picture.
Do you think it should continue after the war ?
Mr. Smfth. I think it must, and I will tell you why :
In order to maintain a sizable merchant fleet you must have both
foreign and domestic trade. The ships in our domestic trade alone
would not be adequate in number or tonnage to keep a sufficiently large
merchant marine in active operation and to keep our operating per-
sonnel up to the required pitch.
Mr. WoRLEY. Mr. Welch.
Mr. Welch. Is it not a fact all maritime nations before the war
subsidized their merchant marine?
Mr. Smith. Most nations have.
Mr. Welch. France, Britain
Mr. Smith. And Germany and Italy. Great Britain never called
it a subsidy, but the aids were there, and if you looked a little further,
you could find them.
Mr. Welch. You think we would handicap our foreign trade if we
discontinued the subsidy?
Mr. Smith. Yes.
Mr. WoRLEY. Mr. Walter.
Mr. Walter. How does the cost of operation of our ships compare
with that of other nations ?
Mr. Smith. I cannot give you the figures on the relative cost of
operation, but I can give them on the cost of building, approximately.
However, in the operation they are higher. More men are required
on the ships and they get higher pay, and taking all factors I think
the Maritime Commission has shown very definitely that in peacetime
operation the differential that exists is very substantial.
Mr. Walter. Mr. Smith, it would be possible to fix the cost of
operation at about the cost figure for operating vessels of other na-
tions, and since we have all of these ships available, if that is done,
we can compete favorably with other nations.
Mr. Smith. If we can compete on an equal basis of cost we can
compete favorably. The American ship cannot get any higher price
for its passengers or cargo than a foreign ship, and since it is going to
cost tliem more to carry passengers or cargo, they are handicapped
unless the cost of operation is balanced in some way.
Mr. WoitLEY. F)ut it seems that even if that is so, they have been
carrying better than an average of 30 to 40 percent.
Mr, Smith. Going back to pre-World War No. I, it was down to
about 8 ]iercent. The maximum was shortly after the last World War,
when it reached close to 50 percent.
Mr. Walter. Suppose we had crews of about the same size as those
used in tlie operation of other nations' ships and then had a subsidy
wliich would take care of the differential in wages, then, of course,
the cost of operation would be the same.
Mr. Smith. If you can g;et the cost of operation the same, then you
are on a competitive basis. That differential is simply what might be
called a parity figure ; it goes to labor ; it does not go to tlie operator
or building except to take care of the higher direct costs that he has,
principally labor.
Mr. WoRLEY. Mr. Arthur.
POST-WAR ECONOMIC POLICY AND PLANNING 1153
Ml'. Arthur. How about our ships that operated without subsidy ;
were they able to compete ?
Mr. Smith. There are certain services where there may not be the
competition, and in those services there is no subsidy. The subsidy
at the present time applies to about half of the ships in foreign trade,
but if you have foreign lines operating in the same services you have
to subsidize.
Mr. .Welch. Mr. Smith, we are all, naturally, interested in peace-
time business, and we know we must provide peacetime business for
merchant ships after they are built. In your wide experience and
knowledge of foreign laws governing international commerce, do you
have information that any foreign government maintains agencies of
government that restrict or prohibit their merchant marines from o})-
erating air lines parallel to their surface shipping routes in overseas
trade ?
Mr. Smith. I have no information to the effect any foreign govern-
ment has any restrictions of that character.
Mr. AVelch. You would know if they had it ?
Mr. Smith. I think I would. I have kept fairly well up-to-date
on the situation and I think I would know.
]\Ir. Welch. In this connection may I refer briefly to a statement
made by me yesterday which appears in today's Congressional Record :
The American merchant marine is at the crossroads; it is at the most crucial
1 eriod of iis entire history. It cannot meet the competition of foreign maritime
nations unless it is given the opportunity to meet them on common ground.
Our merchant marine must be given the same right to operate overseas air trans-
port in identically the same manner as I'ritish and other competing maritime
nations. Those nations have no Civil Aeronautics Board to make restrict ivf^
rulings detrimental to their merchant marine. This is a merchant marine mat-
ter of supreme importance, to which the House Committee on the Merchant
Marine and Fisheries gave close attention during the last Congress.
The Merchant Marine Committee is presided over by the distin-
guished gentleman from Virginia, Judge Bland, whom we are honored
to have with us this morning.
Mr. Smith. Shipbuilders, I might say. Congressman, are very sym-
pathetic to the point of view that airplane services by such steamship
services as need them for proper development of their foreign trade,
that the steamship services should be allowed to operate airplanes in
connection with them. It is my personal feeling, and I am quite sure
it is the feeling of all of our members, that they would not only be
seriously handicapped by a faihire to grant them that right, but that
such failure might be a very serious handicap to the future of our
merchant marine.
iSIr. WoRLEY. Do you anticipate very keen competition from air
lines in the post-war trade world?
Mr. Smith. As between themselves?
Mr. WoRLEY. No; as between the air industry and the shipping
industry.
Mr. Smith. I think so, to the extent of what you might call first-
class passenger travel and certain high-gi'ade commodities.
Mr. WoRLEY. Perishable commodities?
Mr. Smith. Perishable commodities, where the insurance is heavy
and based on time; essentially, high-priced perishable commodities.
Undoubtedly there will be a consid(!rable amount of that service that
will go to the airplane.
1154 POST-WAR ECONOMIC POLICY AND PLANNING
Mr. WoRLEY. Do you think that would be serious competition ?
Mr. Smith. It will certainly influence considerably the type of ships
to be built. From our st<uid])oint it has this feature : If the shipowner
is not able to operate a certain volume of airplane services, it will cut
down his business and affect the tyi)e of ship he is ojoino; to build. The
designs now under consideration are controlled by that one factor:
Are they going to have airplanes or not ?
Mr. WoRLEY. Does not the Government give a subsidy to most air
lines in the f omi of mail contracts ?
Mr. Smith. I understand it does, and I understand it is continuing
to do so, although I do not have the figures.
Mr. WoRLEY. Mr. Walter.
Mr. Walter. Does the cost of insurance on foreign vessels give to
the foreign nations an advantage over us?
Mr. Smith. Well, I would be unable to — I have no figures in mind,
but this would be my comment on that question : If you are insuring a
vessel that costs $1,000,000 abroad and $1,500,000 in"the United States
your insurance, of course, is higher on the American ship than on
the foreign ship.
Mr. Walter. I am not thinking of that espeically. but of the pos-
sibility, for example, of Lloyds giving to a British vessel better rates
than they give to ours.
Mr. Smith. I doubt that is so. The insurance companies insure
and reinsure, and I think some of our business is still covered abroad.
I doubt whether there is any difference there.
Mr. WoRLEY. Mr. Welch.
Mr. Welch. To your knowledge, Mr. Smith, do foreign govern-
ments require imports and exports to be carried on their ships?
Mr. Smith. Some governments have done so. I believe Italy used
to be very insistent on immigrants, for instance, coming to the United
States in Italian ships. My answer would be generally that it is
so to a limited degree.
Mr. WoRLEY. It has been up about 80 percent.
Mr. Smith. Yes; a very high percentage. In general, what you
buy, you ought to be able to specify the method of shipment; j^ou
probably would have the right to specify how it should be shipped,
unless you have some general agreement, some international agree-
ment, or an agreement between companies as to what they will do. .
Mr. Walter. That being the fact, do you think it would be wise in
discussing the over-all peace plan, to make certain we are not dis-
criminated against in that respect?
Mr. Smith. Yes ; I think it is well to look into all factors in which
there is any possible discrimination. I would not be able to give
you information of what discrimination there may be. I do know
this: I understand there are certain restrictions applied to some of
our ships in foreign ports that do not apply to their ships in our
ports. I do not know how far that extends.
Mr. WoRLEY. We have had evidence before the committee that our
buyers are not too much concerned whether the goods are shipped in
our own bottoms or those of someone else.
]\Ir. S^iiTH. I think there has been a lack of realization of what the
effect of shipping in our own bottoms means to our merchant marine.
Mr. WoRLEY. But all of these people have stated they are very
positive we need to maintain a good merchant marine, but how can
POST-WAR ECONOMIC POLICY AND PLANNING 1155
that be done without our own people patronizing it? That is diffi-
cut for me to see.
Mr. Smith. Well, the effort must bo increased to interest our own
people in shipping in our own ships.
Mr. WoRLEY. How would you stir up that interest ?
]\Ir. Smith. That is a difficult proposition because those who are
seeking trade are seeking business and are very active for foreign
lines as well as for our own lines. It is just a matter of watching for
every opportunity to increase shipments in our own ships. That is
one of the real factors that has failed in the past to give us the sup-
j^oit we should have for our own merchant marine.
Mr. Walter. If we are going to have a strong merchant marine,
everyone has to cooperate to that end.
Mr. Smith. You are absolutely right. If we do not have one that
is strong, after what we have been through in two wars, we are going
to pay the penalty at some time in the future.
Mr. W0RLF.Y. Mr. Welch.
Mr. Welch, Britain has stated repeatedly in the past that its pur-
pose in maintaining a great navy was for the protection of its merchant
marine ; is that not a fact ?
Mr. Smith. Yes; that is one of its arguments — protection of its
trade in peacetimes.
Mr. WoRLEY. You mentioned the future of the industry after the
war. Can you tell us briefly what you think it will be ?
Mr. S:mtth. The future does not look any too bright for building
for some time to come. There will be a good deal of repair work for
a considerable time; we will be repatriating our troops and bringing
back equipment and supplies from abroad. We hope there will be a
demand for some of our equipment to go abroad and that the repair
plants will be very busy.
Mr. WoRLEY. Do you mean to sell our own products?
Mr. Smith. To sell our products — durable-goods products.
Mr. WoRLEY. Could you give us your idea of what we should do with
the ships after the war; will we need them?
Mr. Smith. Tlie best information I have is that of the cargo type
of the better class we will have none too many. The Liberty ships,
we will have a surplus, and of the tankers we will have a surplus.
Mr. WoRLEY. AVhat do you suppose we should do with the Liberty
ships and tankers and other excess ships?
Mr. S:mith. I think we should have in sanctuary a sufficient number
of ships to be reasonably able to face an emergenc}^
Mr. WoRi.EY. What kind of ships would yt u place in sanctuary?
Mr. Smith. A suitable number for the emergency we are now in.
If we can use all of our higher-class ships, of course, it is better to have
them in operation. Therefore, the greater number of ships to be laid
up would be Libertys and tankers. But when we get through with
that we will have a surplus, undoubtedly. I think the Liberty ship
is expendable the same as any other war material. It has served its
purpose. It was built for a special purpose. I think to the extent
they are a suitable type of ship for the promc^tion of our trade they
should be retained, and that the balance of them — the best thing to do
with them probably is to sell them or scrap them.
Mr. WoRLEY. Should we sell them to foreign nations who will un-
doubtedly compete with us in our foreign trade ?
1156 POST-WAR ECONOMIC POLICY AND PLANNING
Mr, Smith. I cannot speak for tlie industry as a whole on that, be-
cause there is a divided opinion. But my own opinion is, we are just
as well off to sell any of the Liberty ships they want to buy, but that
we should not sell them the high-class ships until we have served our
own needs.
Mr. WoRLEY. You would suggest we sell our own ships, first, to our
own people; and, secondly, a sanctuary as insurance against future
need, and then sell the balance ?
Mr. S.-^riTH. Yes.
jMr. Worij:y. Do you suppose tho:e Liberty ships v.'oidd be very
much sought after by other countries? The> are pretty slow and
make only 10 or 11 knots.
Mr. Smith. About 11 knots. They are not the ones they would like
best.
Mr. WoRLEY. They would like our Victory ships.
Mr. Smith. Or the C type.
Mr. BiiAXD. Should we let them have those lower-class vessels so
they may be able to use them while they are building the higher-class
vessels which are competitive with our own ships?
Mr. Smith. You mean, is it better that they should have them, know-
ing they are building and will have others in operation within a year
or two, or is it better to give them none ?
]Mr. WoRLEY. That is what we would like to know.
Mr. Smith. It is susceptible to both points of view. I would be
against allowing them to buy and operate any ship in our competitive
services on more favorable conditions than granted to our own ships.
Mr. BiiAND. In connection with the chairman's question on the air
lines and the restrictions imposed by the Civil Aeronautics Board, I
would like to say that one of the most active lines, the United Fruit,
withdrew its application for the construction of passenger ships be-
cause of the possibility that they would not be allowed to operate aii'-
planes in competition with Pan American and others.
Mr. Smith. The shipbuilding industry looks upon that very se-
riously.
Mr, Bland. They withdrew their application. They had an ap-
plication for construction of four passenger ships, and they with-
drew that application because there is so much doubt about their being
permitted to use airplanes.
Mr. Welch. In that connection I might say it has not been very
long since United Fruit were operating under a foreign flag, and if it
is necessary to suit their convenience they can again change and en-
joy the right to coordinate their shipping with the air in foreign trade.
So they are not denied anything by the ruling of the Civil Aeronau-
tics Board.
Mr. Smith, is it your opinion that we are building at the present
time the ty])e of ships necessary to meet foreign competition, post-war?
Mr. Smith, Our C type ships, and to a lesser clegree, with minor
changes, the Victory type
Mr. Welch. The Victory is a good ship,
Mr, Smith. It is a good ship. Some of our special types are quite
suitable for service in foreign trade.
Mr. Welch. The C is a good ship.
Mr. Smith. The C is a good ship. There are some special types
beins built now that can be converted at not too hm\\ a fi<rure and be-
POST-WAR ECONOMIC POLICY AND PLANNING 1157
come good ships. The Libertys, I think, would have very limited
demand. There Mould be some.
Mr. WoRLEY. Dr. Reed.
Mr. Reed. Suppose, in connection with the sanctuary ships, we gave
the maintenance of those ships while they are in sanctuary to the ship-
yards, how much of a factor would that maintenance be in retaining at
least the labor part of your staff? Of course, it would not have any
influence on the technical staff, but how nmch of an important factor
would it be in helping the shipyards maintain their labor staff?
^Ir. Smith. It would be very minor. If Admiral Land is right,
the cost of maintaining ships is from $3,000 to $5,000 a year, and
the chances are tliey might be near a shipyard or they might not.
x\lr. Reed. Ordinarily they would be put in fresh water.
Mr. Smith. To the extent possible; yes.
Mr. WoRLEY. Won't the desirability or necessity of maintaining the
sanctuary depend on the type of peace we enter into? Assume in
the peace negotiations all nations agree we will disarm; what then?
Mr. Smith. I have been through two wars. I would not trust the
future to anything except retention of a substantial volume of our
own ships for a period of years until the world is much more stable
than it is today. I would not like to feel it w^ould be safe for us
for a moment
Mr. WoRLEY. Even if other nations did that?
Mr. Smith. What did we do in 1921 ? We had a disarmament con-
ference in which we scrapped seven battleships and four armored
cruisers, and a lot of people think we made an error there.
Mr. WoRLEY. As far as the Japanese treaty was concerned, appar-
ently that is so. But, coming back to the main question, you are not
very optimistic as to the future of the shipbuilding industry?
Mr. Smith. I am not very optimistic as to its future, as I have
indicated in my conclusions. I have in mind that the shipbuilding
industry is part and parcel of this whole picture. You cannot have
ships without shipbuilders, and you cannot have operation without
trade. Therefore, we are interested in trade and in operation because
it is on the need for ships that we exist. I think that this war as
well as the last one has proved that the shipbuilding industry is a
national necessity, and that is the reason I am here. I feel that those
matters that will make it possible to exist and be ready in another
emergency — those are what I have tried to make clear, and I have in
mind that nothing except a shipbuilding industry in existence at the
time an emergency arises, with an adequate staff of technical em-
ployees and a moderate staff of skilled employees, will make it possible
to meet the kind of emergency with which we have been confronted
in the last few years. Notwithstanding the fact, I think the industry
has done a good job; it was 1 solid year from the time work started in
building plants for the building of Liberty ships before the first one
was delivered. That was a big lag, and we may be confronted with
another war in which we have no time to get ready. Therefore the
problem in the shipbuilding industry is to be as near ready to produce
at the time as possible, in order to cut that lag to the least possible
moment.
Mr. WoRLEY. The committee would like to express its appreciation
for your appearing here this mornine, Mr. Smith, and also to our
former colleague in the House, the Honorable Winder Harris, for
1158 POST-WAR ECONOMIC POLICY AND PLANNING
arranging for you to appear. We think the information contained in
this record will be very helpful to us, and if from time to time you
have any connnents or suggestions which you think will be of help
to the committee, we will be glad to have them.
Mr. Smith. I will be glad to furnish them. I may have some
thoughts which might be helpful to the committee.
Mr. WoRLEY. Dr. Reed.
Mr. Reed. Mr. Smith, as I have listened to your testimony, I have
been very much interested in the approach you have had. The mer-
chant marine has three functions — national defense, an instrument of
national policy, and the carriage of merchandise. Throughout your
statement you have stressed the function of national defense. Do you
infer by that that we should place our subsidization of construction
on the basis of national defense? From the pure commercial stand-
point you do not defend subsidies, but from the national defense
standpoint?
Mr. Smith. I defend it also from the trade standpoint.
Mr. Reed. The question is getting your goods where you need them
at the cheapest price. If you get them there at the cheapest price,
what does it matter who carries them, except for the national defense?
Mr. Smith. I have not emphasized that much. I believe our own
shipping promotes our own trade. It helps us develop markets and
keep them. If you will look back over the records you will find that
from 7 to 12 percent of our entire production is foreign trade. The
higher you maintain that, the better off you might be in a depression.
That constitutes the difference between prosperity and serious eco-
nomic disaster.
Mr. Reed, Is that dependent on our ships so long as we get good
service over the route? Many of our subsidized lines really are not
economically justified, in the first place. It is true we want to keep
ships on some routes although they have never paid, but what is the
iustification for operating under a subsidy on the lines which have
"British or Norwegian shipping and still come out even?
Mr. Smith. There are a good many records in the last war where
they built up trade that did not exist before. That is a matter of
record, and I believe if our trade is properly handled we are going to
have more foreign trade if we have a substantial merchant marine
of our own. The two reasons for a merchant marine are national
defense and economic prosperity.
Mr. WoRLEY. Domestic?
Mr. Smith. Domestic prosperity. It is easier, of course, to show
any individual where national defense makes it imperative than it
is to tell him where he is going to save money by shipping in an Amer-
ican ship.
Mr. Reed. That is what I am getting at.
Mr. Smith. I believe you get more business by carrying in your
own ships; you are going to increase your trade.
Mr. Reed. One of the reasons we have not been able to get as much
trade on our ships as other nations have got — I was just thinking of
the lines about which I have seen publicity during peacetime, and they
are nil foreign lines that come to my mind, such as the Cunard Line,
the Hamburg- American, the Japanese lines ; the United States Lines,
and the United Fruit — outside of those it is hard to recall lines who
publicized. Is that not true ?
POST-WAR ECONOMIC POLICY AND PLANNING 1159
Mr. Smith. I think it is true that they need to be better known.
Mr. Reed. Thank you.
Mr. WoKLEY. Mr. Welch.
Mr. Welch. Mr. Smith, is it not a fact that Sweden has taken ad-
vantage of her neutral position and is building a splendid fleet of
ships specially designed for peacetime trade?
]Mr. Smith. According to the records that I have, Sweden has built
about a million tons of probably very high-grade ships since the war
began.
Mr. AVelch. a superior type to those we have at the present time ?
Mr. Smith. I do not see why they should be superior to our tankers
or C-tvpe ships.
]Mr. Welch. Our tankers will probably have to be changed some-
what, which can be done by minor alterations ; but they are building
a type of ship especially designed for competition in peacetime trade?
Mr. Smith. I think that is right. According to the record as I
have seen it recently reported in the foreign press, they have built
about a million tons.
Mr. Bland. They are building Norwegian ships, too; are they
not ?
]Mr. Smith. 1 think that covers ships for whatever nation they
may be building, I think some of them are for Norway.
Mr. WoRLEY. If there are no further questions, the committee stands
adjourned subject to call.
(Thereupon, at 12:25 p. m., the committee adjourned, subject to
call.)
EXHIBITS
Exhibit No. 15
Questions prepared by committee staff and answered by Vice Ad-
miral Land and staff.
(1) "Wliat is meant by mercliant shipping V Does it include inland and coastal
shipping as well as overseas? Passenger shipping? Oceanic ferry and barge?
Supply vessels operated by Government departments, etc?"
The meaning of the term "merchant shipping" deijends somewhat ou the cir-
cumstances in which it is used. Normally it refers to shipping engaged in com-
mercial transportation; that is, the carriage of passengers and cargo for re-
muneration. Broadly, it includes all vessels operating in ocean, coastwise, and
inland water trades such as dry-cargo carriers (freighters), tankers, passenger
vessels, barges, and ferries. Merchant shipping does not include pleasure craft
such as yachts, special service vessels such as Coast Guard patrol vessels, survey
vessels, or naval craft, whether these are fighting ships or naval auxiliaries such
as submarine tenders, base ships (ships serving military bases), etc.
Discussions of merchant marine policy, however, generally refer to ocean-
going shipping, since the field of international shipping competition is largely re-
stricted to oceangoing shipping in foreign trade.
In time of war a very large proporton of the available merchant shipping is
required for war purposes, including the transportation requirements of the war
production program. At such times, therefore, the term "merchant shipping"
is likely to refer to all ships which carry i)assenger and freight, even though
they ai'e used to carry military supplies in military service ; however, vessels
specially built or converted for fighting or auxiliary military use are not included
in the term "merchant tonnage." In some instances, howevei", the line of dis-
tinction between a merchant ship serving a military purpose and a ship con-
verted from merchant to military type is somewhat difficult to draw. Thus
while some ships are specially built as troop transports, others have been con-
structed as merchant ships and thereafter converted for troop transport service,
and the extent of conversion may vary considerably. Consequently there is no
clear-cut line of demarcation between a merchant jjassenger ship used as a troop
transport and a troop transport which has been converted from, but is no longer,
a merchant ship.
Where exact statistical data are necessary, it i,s essential to adopt the most
expressive terms and use them precisely. For instance, such terms as the fol-
lowing are currently used : Merchant ships in merchant service, merchant ships
in military service, military ships of merchant type, military ships converted from
merchant type, etc.
(2) "With respect to capacity; what is the meaning of tonnage capacity as
commonly used? How is annual capacity usually figured? What are good and
poor performances with respect to load factors?"
There are two principal methods used to indicate the cargo capacity of a
merchant vessel, dead-weight tonnage and cubic capacity. Briefly, dead-weight
tonnage is the amount by weight, in long tons of 2.240 pounds, which can be
safely loaded into a sliip, i. e., the difference in weight between its displacement
tonnage light, or lightweight (weight of water displaced by the empty ship)
and its displacement tonnage loaded (weight of water displaced by the fully
loaded ship). However, the .dead-weight cargo capacity is less than vessel dead-
weiglit cai)acity by the amount of fuel, w;tter, stores, etc., which the shi-j must
carry. As these requirements vary according to the length of the voyage, the
dead-weight cargo capacity likewise varies; moreover, the dead-weight capacity
itself varies slightly according to the voyage since vessels can be safely loaded
1160
POST-WAR ECONOMIC POLICY AND PLANNING 1161
to a moderately greater draft in .some waters such as in tropical latitudes, than
in other generally stormier waters.
HinA-ever. since tlie density of cargo varies the cubic volume of the cargo hold
of a ship is also important. Various terms are used to indicate the cubic capacity
of a ship. It may be indicated by determining its gross tonnage, net tonnage,
grain cubic and bale cubic. While gross tonnage is frequently used as the
measure of the size of a ship it is not particularly desirable as a measure of
the cargo capacity in terms of volume; roughly it is a measure of the volume
of most of the enclosed spaces of a vessel in terms of 100 cubic feet to the ton.
Certain parts of these measured spaces are required for operation of the vessel
and therefore are not available ff>r cargo or for passengers.
Net tonnage is roughly that part of a ship's gross tonnage after the spaces
required for its operation have been deducted; it is also measured in terms of
100 cubic feet to the ton and indicates space for the accommodation of pas-
sengers and cargo but it is not a good indicator of the actual capacity of a ship
for revenue purposes because in calculating net tonnage the allowance for
eliminating certain space which cannot accommodate passengers and cargo
is sometimes too liberal. Grain cubic and bale cubic, measiired in cubic feet,
are the most accurate indications of the cargo capacity of a vessel in terms of
volume. In determining a vessel's grain cubic capacity, measurement is made
of the spaces available for cargo in the holds regardless of the depth of the
girders, and grain cubic is therefore significant only for cargo which is shipped
in bulk and is of a flowing nature such as grain or coal, so that it can flow into
the interstices between the girders, etc. The bale cubic of a vessel is somewhat
smaller than its grain capacity since it measures only the spaces available for
commercial purijoses which are clear between the girders and can, therefore,
be used to accommodate package freights, etc. The bale cubic of an ordinary
cargo ship of about 10.000 tons deatl-weight is likely to range somewhere around
500,000 to TOO.OOO cubic feet depending upon the design of the ship. If space is
taken up liy passenger accommodation.s, or by special installations such as refrig-
eration, the bale capacity is proportionately reduced. Tankers built for trans-
porting liquid cargoes in bulk are often measured by their barrel capacity, i. e.,
tiie number of barrels of liquid cargo they can carry. Barrel capacity is ob-
viously related to dead-weight tonnage and cubic capacity and varies somewhat
according to the particular product carried. Thus since gasoline is lighter than
crude oil, a tanker which is so designed that it can be loaded "full and down"
with gast)line, i. e., with sufficient gasoline cargo to fill its entire cubic and dead-
weight cargo capacity, will 'oe loaded down to its dead-weight cargo capacity
with the heavier crude oi\ before its tanks are full. Roughly, however, the
baiM'el capacity of a tanker runs scmiewhere around 7 barrels to the dead-weight
ton for petroleum and its products, varying somewhat according to the density
of the cargo.
'"Annual capacity" depends on the cargo capacity of a ship, its speed, and
the distance to be covered and varies, therefore, according to the trade in
which employed and the time consumed in port, whether for loading and un-
loading, overhauling and repair, or any other reason, and of course a factor in
annual capacity is the vessel's "turn around" which means the time required for
a complete voyage from the time the vessel is ready in the loaded position to
leave its home port on one voyage to the time it is again in the same position
on the next. The turn around depends of course on speed, distance, and other
factors and the amount of cargo which can be carried depends upon the size
and design of the ship and the nature of the cargo.
Owing to the many factors involved it is difficult to give any measure of
good or poor performance with respect to load factors : only in unusual circum-
stances can it be expected that a ship will be loaded "full and down," with both
its cubic and its dead-weight capacity fully taken up. Moreover, in the liner
services, whether a cargo liner, cargo and passenger, or passenger, the importance
of regularity of operations according to predetermined .schedules may compel
tlie ship to sail before enough cargo or passenger traffic has accumulated to fill it.
(3) "What are the main types of ve.'^sels classified according to (a) specialized
uses; (b) class of ves.sel (Liberty. Victory, other)? AVhat are the main char-
acteristics of the classes of vessels with respect to size and speed, etc.?"
Merchant vessels may be classified into the following principal categories ac-
cording to the use for which they are designed. Tliese categ(jries leave out certain
speci:^l types such as tugs, cable ships, cattle boats, and harbor ci-aft:
1. Passenger vessels designed primarily for the transi)nrtation of passengers
with very limited capacity for carrying mail and express and jjossilily some high-
class rreirht.
1162 POST-WAR ECONOMIC POLICY AND PLANNING
2. Combination passenger and cargo or cargo and passenger vessels : These, as
the name implies, are designed to carry passengers and cargo. In some, the use
for passenger carrying purposes predominates and they may be called passenger
and cargo vessels. Such vessels are likely to have capacity to accommodate per-
haps two to four hundred pa.ssengei's. The term cargo and passenger vessels
may be used to indicate those designed mainly for cargo carrying, but having
a limited passenger capacity ranging from 13 up to one or two hundred. The
term "combination passenger and cargo vessels" is used to refer to any cargo-
carrying vessel vi^hich has accommodations for more than 12 passengers and has
the necessary equipment, licenses, etc., to carry such a number.
3. Refrigerated vessels include all vessels, the greater part of whose cargo
capacity is equipped with refrigeration for the carriage of perishable products.
Many such vessels also have substantial passenger-carrying capacity.
4. Tankers are specialized vessels designed or equipped for the transportation
of liquid cargoes in bulk. Occasionally tankers are used to carry such cargoes
as grain.
5. Bulk carriers are designed for the carriage of "dry cargo" in bulk, and
include vessels specially equipped for the carriage of coal, grain, ore, etc.
U. Freighters are vessels deisigned to carry dry cargoes, which have no passen-
ger capacity or capacity to carry not more than 12 passengers. A subdivision
of freighters coming increasingly into prominence may be referred to as the
cargo liner which is a modern fast freighter equipped with sufiicient specialized
cargo-handling devices 'tween-decks, etc., to carry general cargo speedily and effi-
ciently on a definite schedule in a particular trade. Many such vessels are equipped
with refrigerator chambers and with deep tanks for the carriage of liquid car-
goes, but not to a sufficient proportion of their total cargo capacity to class tliem
as tankers or as I'efrigerated vessels. The Maritime Commission long-range
types (CI, C2, C3, etc.) are examples of cargo liners. The tei'm "tramp" is gen-
erally used to refer to slower, less specialized freighters, frequently older than
cargo liners, engaged in sea.sonal or other freight carrying activities without
predetermined itineraries or schedules. They operate from voyage to voyage
wherever cargo offers.
Statistics of seagoing ships including short-sea and coastal, as well as ocean-
going tonnage, are generally confined to vessels of 1,000 gross tons and over.
Lloyd's Register of Shipping covers all sorts of vessels of 100 gross tons and over.
A cross classification of merchant ships, which is of some value, distinguishes
between ocean-going, short-sea, or coastwise and inland vessels. In the statistical
reports of the United States Shipping Board and the Maritime Commission, spe-
cial attention has been given to ocean-going steam and motor merchant vessels of
2,000 gross tons and over.
In genei'al, the .speed of merchant vessels varies from a minimum of at least 5
or 6 knots (very few are slower) to aboiit 30 knots. At present the greatest
number of vessels operate at .speeds between 10' and 12 knots. Generally pasi-ien-
gor-carrying vessels are the fastest ; specialized vessels with refrigerated capacity
or cargo liners are usually faster in speed than older freighters; the range of
speed for a modern cargo liner is likely to fall between 12 and IS knots and for
a passenger cai'go liner betvreen l.j and 22 knots, but there are many exceptions.
(4) "What has been the change of status in ownership in United States ship-
ping since before the war? How does the situation with respect to Government
and private ownership in the United States compare with that of other countries?"
Most of the merchant shipping built in the United States during the war has
been at Government expense under the Maritime Commissi<'ni's construction
program and these vessels remain largely under Government ownership at the
pretsent time. As a result, tJie greater part f>f our seagoing merclumt shipping
at the present time con.sists of Government-owned tonnage.
The situation is somewhat the same in the United Kingdom but to a lesser
degree and with ivspect to a smaller volume of tonnage, since merchant ship-
building in the United Kingdom during the war has been very much smaller than
in the United States; moreover, the British fleet consists to a larger extent of
privately owned pre-war tonnage. Wartime merchant vessel c(mstruction in the
United Kingdom has included some construction for private account, and in
addition the British Government has sold some of its war-built tonnage, for
delivery of title after the war, to private British shipping companies and to some
of the Allied countries, including Is^orway and the Netherlands.
Substantially all the Canadian war-built tonnage has been for Canadian Gov-
ernment account and is owned by the Canadian Government, except for 90 vessels
POST-WAR ECONOMIC POLICY AND PLANNING 1163
purchased by the United States and transferred to Great Britain under lend-lease
account, with titles remaining in the United States. Elsewhere, outside of the
Axis countries, shipbuilding has been on a much lower scale and confined princi-
pally to a few neutral countries, particularly Sweden, where merchant ship-
building has been for private account. There is, at present, insufficient definite
information with respect to wartime shipbuilding developments in Axis countries
to provide a definite answer with respect to those countries.
(5) "Inventory of shipping capacity. How has the merchant shipping capacity
of the world changed since pre-war? Of the leading individual countries?"
The table filed witli tlie committee presents a very rough and tentative com-
parison of total sea-going tonnage of the world (including vessels of 1,000 gross
tons and over but excluding river, harbor, and Great Lakes traffic) as it stood
in 1939 and as it appears likely to stand after another year or so of war, assum-
ing current building programs are completed, that United Nations' losses will
not increase markedly and that Axis losses will be very heavy. In order to
include allowances for Axis tonnage, very broad estimates have had to be in-
cluded. The break-down by principal countries is primarily by nationality of
ownership, but this is not very different from nationality of registry.
Owing to the various assumptions and hypotheses which have had to be taken
into account in preparing this comparison, it is very general and tentative and
subject to substantial modification in the light of future developments and the
completion of current studies, but it should serve to give a broad general indi-
cation of the changes resulting from the war.
(6) "What was the United States share of world shipping carriage before the
war? What estimates have been made of the United States share in post-war
world shipping?"
Only very broad estimates can be made of the total volume of the world's
ocean-borne commerce. It is believed that in the 12 years preceding the outbreak
of war in 1939, the total varied somewhere between a minimum of 200 and a
maximum of 300 million long tons annually.
The total volume of United States water-borne imports and exports in our
foreign trade (excluding Gi'eat Lakes traffic) in the same period varied between
a minimum of just under 50,000,000 tons in 1933 and a maximum of 92,000,000
tons in 1929. The average annual volume of United States water-borne exports
and imports combined for the 5-year period 1925 to 1929 was nearly 88.5 million
long tons and 62.5 million long tons for the 5-year period 1933 to 1937. Since
each country's exports are some other country's imports, it is necessary to divide
these combined United States import and export figures by two in order to make
them compai'able to the estimated world total. As a very rough estimate, there-
fore, it may be said that the volume of the water-borne foreign commerce of
the United States was probably somewhere about 15 percent of the total volume
of world's sea-borne commerce. In addition, the American merchant marine
carried a substantial volume of cargoes in the coastwise, intercoastal, and non-
contiguous trades, which are reserved in normal times to American-flag shipping.
Roughly, something approaching one-third of the world's sea-going merchant
tonnage was employed partly or wholly in the water-borne commerce of the
United States in the year 1938, including our domestic coastwise, intercoastal
and noncontiguous traffic, as well as our foreign water-borne commerce. All
of our coastwise, intei'coastal, and noncontiguous water-born commerce was
carried in American-flag vessels and this traffic accounted for the employment
of considerably more than one-half of our active sea-going merchant fleet; the
remainder was engaged in carrying about one-third of our foreign water-borne
connuerce. American shipping engaged only incidentally and to a slight degree
in the carriage of commerce between foreign countries.
(7) "How large a merchant marine do you consider the United States should
retain in active service after the war? How much surplus does this mean will be
in existence in United States hands? How many merchant-marine vessels were
scrapped and how many laid up after the last war?"
Admiral Land has estimated post-war American merchant marine requirements
(exclusive of a reserve fleet of laid-up tonnage) at 15 to 20 million dead-weight
tons, including inland and Great Lakes tonnage. If the inland and Great Lakes
tonnage is excluded from the estimate and an allowance included for merchant-
type tonnage to serve the military establishments, such as vessels serving over-
sea military bases, a probable range of requirement somewhere between 12 and 15
99579 — 45 — pt. 4 -36
1164
POST-WAR ECONOMIC POLICY AND PLANNING
million tons is indicated. The exact figure depends upon the volume of our
water-borne commerce as a whole, including the volume of our coast-wise and
intercoastal commerce and the volume of our water-borne foreign commerce as
well as the percentage of our participation in its carriage.
As regards supply, it appears that we are likely to emerge from the war with
a total of sea-going merchant tonnage under American ownership amounting to
somewhere between 50 and 60 million dead-weight tons. If we assume a peace-
time requirement of about 15,000,(MX) tons, this would indicate a gross surplus of
35 to 45 million dead-weight tons from wiiieh, however, may be deducted whatever
tonnage may be deliberately sterilized and laid up as a resen'e fleet for emer-
gencies and a substantial portion of old tonnage, perhaps amounting to as much
as 7,000,000 dead-weight tons, which will be obsolete and ready to be scrapped
as soon as the present intense demand for tonnage declines. The greater part of
the anticipated tonnage over and above requirements for active operation will
consist of more than 2,000 Liberty ships.
Between October 1920 and the effective date of the Merchant Marine .Act of
1936, the number of United States Shipping Board vessels which had been sold
with obligation to scrap them was 703 totaling 3,728,576 dead-weight tons and
sold for $5,366,240.
The attached table shows the total number and tonnage of steam and motor
merchant vessels laid up in the United States as of June 30 for 7 different years
between 1923 and 1941, indicating those owned by the United States Shipping
Board and those privately owned. Gross tonnage figures only are available prior
to 1932, but dead-weight tonnage figures are given for later years. For these
vessels the dead-weight tonnage is roughly one and one-half times the gross
tonnage.
American steam and motor merchant vessels laid up in the United States at
the close of the fiscal years 1923, 1927, 1930, 1932, 1936, 1939, 191,1 ^
Period
•
U. S. Shippins
Board owned
Other
Total laid up
Num-
ber
Gross
tons
Num-
ber
Gross
tons
Num-
ber
Oros_
tons
June 30, 1923 - -
919
513
280
4, 019, 695
2, 560. 951
1, 558, 233
2 139
3 99
< 111
479, 777
343, 305
414. 975
1, 058
612
391
4, 499, 472
June 30. 1927 ....--. . .'
2, 904, 256
June 30, 1930
1, 973, 208
Num-
ber
Dead-
weight
tons
Num-
ber
Dead-
weight
tons
Num-
ber
Dead-
weight
tons
June 30. 1932 . ..
258
198
117
15
2,218,291
1, 730, 989
1, 057, 139
126, 269
5 396
157
M89
16
2,809,617
894, 652
1, 333, 573
50, 718
654
5. 027. 908
June 30, 1936
355 2.625.G41
June 30, 1939
306
31
2, 390, 712
JuneSO, 1941 - -.
176, 987
^ TJ. S. Maritime Commission, Division of Economics and Statistics, Sept. 22, 1944.
- Includes 2 Panama K. K. vessels of 8,402 gross tons.
^ Includes 2 Panama R. R. vessels of 21,991 gross tons.
' Includes 1 Panama R. R. vessel of 11,081 gross tons.
^ Includes 1 Panama R. R. vessel of 14,500 dead-weight tons.
<> Includes 2 Panama II. R. vessels of 8,205 dead-weight tons.
(S) "In planning disposal of surplus shipping, wliat information can you give
us about the urgency and needs of other countrie.s for shipping capacity?"
The table filed with the committee comparing pre-war and post-war world
shipping indicates the probable change in position of the chief maririme coun-
tries so far as the total deadweight tonnage of their seagoing shipping is con-
cerned. However, these totals conceal very important changes with respect to
the composition of their tonnage: It does not show the changes in composition
with respect to ships of specialized character such as passenger-carrying, re-
frigei-ated, or tanker toniuige, oic, and changes in average s'ze. More detailed
information in this regard will be available when enrrent studies are included.
The prospective post-war shipping !'<>qnircinents of these foreign countries
will also depend upon the ra*^e to which, and the volume in which, their com-
POST-WAR ECONOMIC POLICY AND PLANNING 1165
merce, and the commerce of the world as' a whole, will he restored and increase
after the war.
(9) "Will there he a shortage of some types of vessels after the war, for
instance tankers, refrigerator, passengers, etc?"
By reason of the necessary concentration of wartime construction on vessels
most suited to meet w^ar-program re(iuirenients and which could he produced in
the shortest time, and on tlie other liand of losses ranging over all types and
sizes of vessels, the composition of post-war merchant fleets will differ "radically
from the pre-war composition. Post-war requirements are likely to differ some-
what from pre-war requirements, hut this is not su.sceptible of accurate antici-
pation at present. It seems likely, from present indications, that while there
will he an over-all adequacy of large, slow freighters, of tankers, and even pos-
sibly of faster freighters, there will be some immediate post-war shortage of small
coastal vessels of 1,U(X> to 3,500 dead weight, refrigerated ships of all sizes, special
type ships, and passenger vessels with substantial passenger capacity.
The extent to which post-war overseas air services will compete for passenger
trafiic otherwise carried by surface vessels is a matter of conjecture; it seems
probable, however, that a considerable portion of the traffic will go by surface
vessels and that this will require the post-war construction of s<mie additional
vessels with passenger-carrying capacity.
(10) "What general plans have been announced by other countries for ac-
quiring or building a merchant marine after the war?"'
The only indication as yet available of the general post-war merchant marine
plans of other maritime countries is to be found in occasional statements by
various officials and other parties interested in shipping. These statements do not
present specific, definitely formulated plans, nor do they have definite official
character. They are of some interest as indicating the currents of thought in
regard to the subject in the different countries, but cannot be taken as expressing
definitely formulated plans.
Brief indication of the character of sucli statements published from time to
time during recent years is given below.
Canada. — Canada has tentative plans for expanding the activities of its mer-
chant marine. It intends to use at least 20i) ships of 4,500 and 10.000 dead-
weight tons. It contemplates using at least 150 ships as tramps to move exports
from west coast of Canada to markets and 75 ships to move biUk commodities
from the east coast of Canada to markets. — C. D. Howe, Canadhm Minister of
Munitions and Supply in New York Journal of Commerce. Mirch 30, 1914.
Arfientina. — Argentina plans to build up a merchant fleet of no less than 100
ships to use after the war in Inter-American trades. The State fleet now con-
sists of 37 vessels. — Jose Bares, general manager of Argentine S'tate Fleet in
New York Journal of Commerce, January 10, 1944.
Biilyana.- — The Bulgarian Government had plans for the construction of 8
small passenger and 2 freiglit vessels for use on tlie Black Sea and 0 smaller
passenger and freight vessels; also 8 freighters of 1,000 tons, 3 tankers of 3,000
tons, 0 vessels of 3,501) ton, and (i vessels of 6.5()() tons for traffic in the Aegean
Sea and overseas lines. — Svensk Flagg, November 25, 1941.
Chile. — Chile would like to purchase vessels to form a modern merchant
marine. — El Mercurio, May 6, 1943.
Chuia.— The Chinese foresee the need for reconstituting the small mercantile
marine which existed in 1936 into a modern fleet of considerable magnitude.
Dr. Lin (economist on the stalf of the China News Service in New York) has
stated that China may buy 500 surplus American ships of all types immediately
after the war. Chiang Kai-shek is reported to have estimated China's needs at
31/2 million tons during the first 10 years after victory. — Shipping World, March
8. 1944 ; New York Journal of Commerce, December 30, 1943.
Denmark. — Denmark is interested in special type craft, particularly timber-
carrying vessels of about 4..500 dead-weight tons and self-trimming colliers. —
Lloyd's List, December 30, 1943.
Ecuador. — The Ecuadorian Steamship Co. has $5,000,000 for the acquisition of
suitable vessels. — E! Comercio, January 8, 1944.
Eire. — The Eire Government has decided to maintain a state-sponsored shipping
and insurance concei-n after the war. — John Leydon, chairman of Irish Shipping,
Ltd., and Secretary to the Ministries of Industry, Commerce, and Supplies, Ship-
ping World, March 8, 1944.
1166 POST-WAR ECONOMIC POLICY AND PLANNING
France. — France intends to reconstitute lier tonnage of 3,000,000 gross tons
through purchasing, chartering, as well as building. Her need of small and
medium-size colliers of 1,000 to 2,200 gross tons is great. — Shipbuilding and
Shipping Record, December 3, 1942 ; S. Gardanez, Lloyd's List, February 15, 1944.
Greece. — The United Greek Shipowners' Committee have formulated plans for
the purchase of 50 liners of various sizes at a cost of $75,000,000 to $100,000,000;
330 tramps at a cost of $350,000,000 ; and 30 large and small tankers at a cost
of $60,000,000. — Fairplay, March 9, 1944 ; New York Journal of Commerce, January
3, 1^4.
Mexico. — The Mexican Minister of Navy has stated that Mexico can use cement
vessels, coastal vessels, and small Diesel-driven craft of 1,200 tons or more carry-
ing capacity. — Liverpool Journal, June 3, 1943.
Netherlands. — The Netherlands needs at least 30 coastwise vessels and it is
willing to purchase them at the right price. It has plans for an intensive replace-
ment scheme in the post-war period and it intends to resume its pre-war position
as soon as possible. Its pre-war fleet amounted to 3,000,000 tons while its annual
construction capacity was 250,000 tons.— Kersten, P. A., Netherlands Minister for
Commerce, Industry, and Shipping, Lloyd's List, December 30, 1943.
Nonvai/. — The replacement of Norway's merchant fleet is considered among its
more important post-war problems. Two and one-half to three and one-half
million gross tons must be replaced at reasonable prices, suitable for peacetime
trading, and obtainable within a few years. Norway's yards even at best can
supply only a minute fraction of its needs. Swedish yards are booked to capacity
with domestic orders for years to come and Great Britain can only build a
fraction of Norway's needs within a short space of time. One-half of Norway's
tanker fleet must also be replaced. The speed with which Norway can solve
her replacement problems seems at the present time closely linked to America's
shipping policy. — Arne Sunde, Minister of Shipping of the Royal Norwegian
Government, Lloyd's List, December 30, 1943.
Polavd. — Poland's iK)St-war plans include a merchant marine of 180 to 200
ships totaling from 600,000 to 800.000 gross tons. Such a fleet would enable it
to carry not quite 50 percent of her maritime trade.
Poland wants to obtain her merchant tonnage during the first year or two
after the war, since an adequate fleet is one of the main prerequisites for the
swift restoration of the country. Polish shipyards will not be able to contribute
much in this period toward the restoration of the merchant fleet. — Jan Kwapinski,
Polish Minister of Industry, Trade, and Shipping, Liverpool Journal, July 14,
1942; Fairplay, July 16, 1942; Shipping World, March 8, 1944.
Spain. — According to the general rejuvenation plan, the Spanish fleet will, after
the breaking up of obsolete units, attain 2,000,000 gross tons in 10 years, an
amount which is considered as absolutely necessary for its national require-
ments.— Schiffbau, January 1, 1943.
The Spanish fleet of the futui'e will be cast in as general a mold as possible,
and future construction will take the form of special t.vpe vessels for fish and
fruit cargoes, ore carriers, tankers, cargo liners, and passenger-cargo ves.se]s.—
Liveiiiool Journal, January 13, 1944; Foreign Conunerce Weekly, March 13, 1943.
SiritzerUmd. — M. Jaquet, Director of the Swiss Shipping Co., urges that
Switzerland have, even after the war, a fleet of its own with its size depending
on overseas imports. Twenty-five ships of 200,000 tons would be sutficient for
the country's needs, and a total tonnage of 120,000 gross tons would be the mini-
mum limit. Such a fleet would be able to carry all 1938 imports into Switzer-
land.— Foreign Commerce Weekly, August 15, 1942.
Upon favorable conditions and on the assumption that the Government would
release the renewal funds (set aside for extraordinary expense), Swiss owners
might be able in the next 6 to 8 years to build up a fleet of 6 to 8 oceangoing vessels
of 7,000 to 10,000 dead-weight tons, 2 or 3 smaller steamers, and a considerable
number of coastal vessels, making up a fleet of 80,0<)0 or 90,000 tons. — F. Frank,
Director of the Swiss Shipping Co., New York Journal of Commerce, April 8. 1944.
Turkey. — Turkey, as soon as the war is over, intends to take up the question of
the renewal of the Turkish mercantile marine to maintain its position in Eastern
Mediterranean shipping. Before the war some tonnage had already been ordered
in Great Britain and Germany. — Scandinavian Shipping Gazette, October 15, 1941.
Union of Soviet Socialist Republics. — Russia expects to go in intensively for
merchant ships under her own flag, but her facilities will not satisfy building
requirements ; large orders will have to be placed abroad.
For a considerable time Russia's shipyards will be fully occupied with re-
equipping their country's own coastal and intercoastal .shipping routes, also
POST-WAR ECONOMIC POLICY AND PLANNING
1167
home-built vessels to service tlie great inland river routes.— D. W. Rudorff,
Shipping Word, March 15. 1^4.
Yugoslavia. — Yugoslavia cannot replace its lost tonnage at wartime prices. The
Yugoslav Merchant Navy must be rebuilt and considerably enlarged after the
war to restore the national economy of the country and provide employment for
her seamen. — N. Filipovic, Deputy Head of the Shipping Department of the
Royal Yugoslav Government, Lloyd's List, December 30, 194o.
(11) "The Committee would like to have information regarding the relative
operating costs of our merchant shipping as compared with that of important
other nations."
(12) "How do wages of American maritime workers compare with those of
other nations? AVhat part of oi>erating costs of merchant ships is represented
by wages? How do wage costs in the United States merchant marine compare
with those of other important shipping nations — on the basis of average wage
rates? And on the basis of cost per ton handled?"
These questions can best be answered jointly.
Since the operating costs of merchant vessels under foreign registries differ
according to their nationality, there is no single difference between foreign
and American operating costs, the actual differentials depending upon the foreign
flag from which the competition runs and the service or trade route involved.
Some indication of such differences is to be found in the rates of operating
differentials approved for subsidy purposes by the Maritime Commission under its
pre-war long-range contracts. These subsidies cover generally cost differentials
between American operators and their principal foreign competitors with respect
to the items of wage costs, subsistence costs, stores and supplies, repairs, and
insurance.
The subsidy rates were calculated by computing the costs of wages, subsistence,
repairs, etc., for the American ship as if it had been manned, wages paid, repaired,
and otherwise operated under the registries of the principal foreign competitors
in tl^e specilic service in question, and comparing the results with equivalent costs
for operation under American registry. The resulting differentials were ex-
pressed in terms of percentage of the American costs ; i. e., the costs of the foreign
competitor were estimated to be below the American costs by the percentages of
the American costs indicated. Some illustrative examples are shown below, all of
them based on conditions as they existed in 19.38. These examples are representa-
tive in an illustrative sense rather than as indicating averages.
Cargo line to the Orient, 19S8
Break-down of foreiRn competition
Wages:
Japanesp, 67 percent
British, 20 percent
Norwegian, 13 percent
Subsistence:
Japanese, 67 percent
Britisii, 20 percent
Norwegian, 13 percent
Maintenance (stores and supplies):
Japarese, 67 percent
British, 2U percent
Norwegian , 13percent
Repairs:
Japanesp, 67 percent
British, 20 percent
Norwegian, 13 percent
Insurance:
Hull:
Japanese, 67 percent
British, 20 percent
Norwegian, 13 percent
Protection and indemnity:
Japanese, 67 percent
British, 20 percent.- -
Norwegian, 13 percent
Differen-
tial (per-
centage
of Ameri-
can costs)
63
34
50.5
24
20
20
57.1
50
55
20
20
20
33 W
mi
331.6
Weighted
differen-
tial
42.2
6.8
6.6
29.7
""5.' 7'
16.1
4
2.6
38.3
10
7.2
1.3.4
4
2.6
22.3
6.7
4.3
Compos-
ite
weighted
differen-
tial
55.6
35.4
55.5
33^4
1168 POST-WAR ECONOMIC POLICY AND PLANNING
Cargo line to the Mediterranean, 193S
Break -down of foreign competition
"Wages:
Italian, 6n percent
Scandinavian, 30 percent
British, 10 percent
Subsistence:
Officers and crew:
Italian, 60 percent
Scandinavian, 30 percent
British, 10 percent
Passengers:
Italian, 60 percent
Scandinavian, 30 percent
British, 10 percent
Maintenance (stores and supplies) :
Italian, 60 percent
Scandinavian, 30 percent
British, 10 percent
Repairs:
Italian, 60 percent
Scandinavian, 30 percent
British, 10 percent
Insurance (hull):
Italian, 60 percent
Scandinavian, 30 percent
British, 10 percent
Cost of deductible average claims:
Italian, 60 percent
Scandinavian, 30 percent
British, 10 percent
Protection and indemnity, illness and injury:
Italian, 60 percent
Scandinavian, 30 percent
British, 10 percent..
DifTeren-
tial (per-
centage
of Ameri-
can costs)
58.5
53.8
39.0
42.1
23.2
20
20
20
40
40
40
55
30
30
45
45
45
55
30
30
33^
33 ^i
33H
Weighted
differen-
tial
35.1
16.14
3.9
25.26
6.96
12
6
2
24
12
4
33
9
3
27
13.5
4.5
20
10
3.333
Compos-
ite
weighted
differen-
tial
32.22
45.
45.
33^^
Cargo line to United Kingdom, 1938
Break -down of foreign competition
Wages:
British, 82 percent
Netherlands, 9 percent
German, 9 percent
Subsistence:
British, 82 percent _._
Netherlands, 9 percent
German, 9 percent
Maintenance (stores and supplies)
British, 82 percent
Netherlands, 9 percent
German, 9 percent
Repairs:
British, 82 percent
Netherlands, 9 percent.-.
German, 9 percent
Insurance:
Hull:
British , 82 percent
Netherlands, 9 percent
German , 9 percent
Protection and indemnity-
British, 82 percent
Netherlands, 9 percent
German, 9 percent
Differen-
tial (per-
centage
of Ameri-
can costs)
38
38.5
65.7
31.6
26
60.2
33^^
33^^
62.1
50
50
71.5
20
20
54. 36
33}.^
mi
62.1
Weighted
differen
tial
31.18
3.465
5.913
25.91
2.34
5.418
27. 333
3.0
5.589
41.0
4.5
6.435
16.4
1.8
4.892
27. 333
3.0
5.589
Compos-
ite
weighted
differen-
tial
40.558
33. 668
35. 922
51.935'
35. 922
POST-WAR ECONOMIC POLICY AND PLANNING
1169
A further example showing how these operating differential subsidies were
computed is shown below (the figures refer to pre-war years) :
METHOD FOE COMPITING OPERATING DIFFERENTI;^L SUBSIDIKS
An American line operating a fleet of six typical freighters is used for the
purpose of illustration. The substantial foreign competition is British, German,
and French in the following order:
I. Foreign competition
Percent
British < 60
German 30
French 10
II. Differentials
[American cost = 100 percent]
Item
Wages
Subsistence
Maintenance, _
Repairs
Insurance:
Hull
Protection and indemnity
British
German
Percent
Percent
42
51
33 >.^
36
33)^
40
50
52
25
25
15
15
Percent
38
30
30
40
25
15
III. Annual American costs per vessel
Wages , $42,000
Subsistence 7, 000
Maintenance (supplies and equipment) 9,000
Repairs 16,000
Insui-ance:
Hull 12,000
Px-otection and Idemnity 2,500
Total 88,500
IV. Determination of composite weighted differential
Break -down of foreign competition
Differen-
tial per-
Weighted
centage
differen-
of Ameri-
tial
can cost)
42
25.20
51
15. .30
38
3.80
331.6
20.0
36
10.8
30
3.0
33 V6
20.0
40
12.0
30
3.0
50
30.0
52
15.6
40
4.0
25
15.0
25
7.5
25
2.5
15
9.0
15
4.5
15
1.5
Compos-
ite
weighted
differen-
tial
Wages:
British, 60 percent
German, 30 percent
French, 10 percent
Subsistence:
British, 60 percent
German, 30 percent
French, 10 percent
Maintenance:
British, 60 percent
German, 30 percent
French, 10 percent
Repairs:
British , 60 percent
German, 30 percent
French, 10 percent
Insurance:
Hull:
British, 60 percent
German, .30 percent
French, 10 percent
Protection and indemnity:
British, 60 percent
German, .30 percent
French, 10 percent
Percent
33.8
35.0
49.6
25.0
15.0
1170
POST-WAR ECONOMIC POLICY AND PLANNING
V. Applying the composite weighted differential to the American cost to arrive at
the amount of the subsidy
Wages
Subsistence.
Maintenance
Repairs
Insurance:
Hull
Protection and indemnity
Total --
American
operating
costs (per
vessel)
$42, 000
7,000
9,000
16, 000
12,000
2,500
88, 500
Com-
posite
weighted
differ-
ential
Percent
44.3
33.8
35.0
49.6
25.0
15.0
Amount of subsidy
Per vessel
B 18, 606
2,366
3, 150
7,936
3, 000
3,750
38,808
Fleet of e
vessels
$111,636
14, 196
18,90G
47, 616
18, 000
22,500
232, 848
Note. — Subsidy equals 43.9 percent of American operating costs.
The following additional material relating to the operating costs of merchant
vessels conveys some further general information relating to ship operations in
the immediate pre-war period. In this connection it is to be emphasized that
there is always difficulty in securing trustworthy data on foreign operating
costs, because of unwillingness to disclose what is considered confidential trade
information. Furthermore, operating costs are always changing, and varying
between nationalities, operators, ships, and the trade routes in which the ships
are employed. The attached exhibits indicate the variety of statistical and
analytical problems inherent in endeavors to determine comparative costs of
operation of American and foreign-flag services.
Exhibit I, "Wages of Seamen," taken from the publication Merchant Marine
Statistics, 1938, United States Department of Commerce, Bureau of Marine
Insi>ection and Navigation, page 120, shows the comparative wages paid at
that time certain ratings on American-flag vessels and on vessels under prin-
cipal foreign flags.
Exhibit II, "Operating Costs of Various Types of Ships," taken from page 57
of the August 1944 issue of the Marine News, gives some information from a
private source as to the proportion of operating costs on various types of ships
going to defray certain expenses incidental to crew wages, fuel, repairs, etc.
Wages of seamen — Comparative wages on steam and motor cargo vessels of
5,000 gross tons and over, of principal maritime nations, Jan. 1, 1938
Nation
Deck depart-
ment
Engine depart-
ment
Radio
Steward depart-
ment
First
mate
.\ble
seaman
Chief
engineer
Oiler
grade 1
Chief
steward
Mess
steward
American:
Private
$200
204
119
125
140
132
86
39
130
113
119
$72
73
48
42
35
50
27
14
50
42
44
$305
311
173
1.54
222
212
86
60
177
139
177
$84
82
54
45
37
64
33
17
57
$128
126
93
72
99
116
68
40
146
72
73
$133
129
76
71
53
76
28
22
37
79
79
$62
U. S. Maritime Commission
British.
58
49
Danish
French..
33
German
26
Italian
25
Netherlands
Swedish .
45
Note. — All wages, except American, are taken from consular reports. The American figures are averages
taken from reports of the shipping commissioners. The wages on foreign vessels are stated in United States
equivalents of the foreign values, taken at the exchange rate on Jan. 1 of the year named. When more
than 1 rate has been reported for foreign vessels, due to length of service or other conditions, the highest
is usually ,,'iveri in tne table.
The wages for foreign seamen are basic pay rather then average wages and do not include grants for vaca-
tion, away-from-home allowance, tropical trade or miiform allowances, pensions for long service, or bonuses
of any kind.
These figures are not to be used for differentials for any particular trade or route.
Source: Merchant Marine Statistics, 1938, U. S. Department of Commerce. Bureau of Marine Inspection
and Navigation, p. 120.
POST-WAR ECONOMIC POLICY AND PLANNING 1171
OPERATING COSTS OF VARIOUS TYPKS OK SHIPS
Percent
For a 12-knot 8,500-ton cargo ship in the American Scantic Line service :
Crow wages 15
Sustenance '. 3
Fuel 15
Supplies and equipment 4
Repairs and maintenance 6
Insurance 7
Port charges and other port expenses 12
Cargo expenses 33
Agency fees and brokerage 5
Of this, power (including fuel, lubricants, engine supplies, repairs and main-
tenance, and engine-room crew) is about 29 percent.
For cargo-passengt'r service to South America by a 17,000-shaft-horsepower
18-knot ship, the break-down given is :
Percent
Crew wages 21
Passenger and crew sustenance 13
Fuel 12
Supplies and equipment 6
Repairs and maintenance 6
Insurance 6
Port charges and other expenses 10
Cargo expenses 17
Agency and brokerage expenses 9
Of this, the cost of power is about 23 percent.
The fox'egoing percentages are based on pre-1940 costs. From more recent
data we have prepared a break-down based on 1940 and 1941 costs, with the fol-
lowing results :
For a C3 cargo vessel operating to South America : Percent
Wages 10.4
Sustenance 1. G
Fuel 10.4
Supplies and equipment 2. 7
Maintenance and repair and other vessel expenses 5. 6
Insurance 5. 8
Depreciation 7. 3
Wharfage, dockage 4. 2
Stevedoring 24. 2
Other cargo expenses 1*»- 9
Cargo agency fees 11- 7
Of this, power represents about 20 percent.
Source : The Marine News, August 1944, p. 57 (by D. C. MacMillan, with George G.
Sharp, naval architect).
(13) "How much subsidy, direct or indirect, are our carriers receiving as
compared with that received by other nations?"
A summary of the shipping and shipbuilding subsidies of the principal foreign
maritime nations was given in Senate Document No. 60, Seventy-fourth Congress,,
fourth session. March 1935. Data on subsequent developments on the subject
have been collected in the research files of the Maritime Commission and a revised
summary is being initiated, but owing to the shortage of staff due to concentra-
tion upon the war effort, this work has not proceeded sufficiently far to provide
an answer to the question at this time.
(14) "How will our post-war merchant marine compare in speed and efficiency
of operation with the ships owned by other nations and with the ships which
would be likely to be built for merchandise trade purposes by private companies
or by other nations?"
Generally the most efficient units of our post-war merchant fleet, from which
the greater part of our active fleet will undoubtedly bo constructed, will consist
principally of long-range type vessels of (he Maritime Commission program : these
should compare very favorably on the whole with the tonnage which foreign
companies will operate in the early post-war years. However, there will be
some problems of adaptation of available tonnage to particular peacotime needs
1172 POST-WAR ECONOMIC POLICY AND PLANNING
and it will also be necessary to bear in mind the importance of keeping our ship-
building and shipping activities abreast of post-war technological developments,
since post-war rebuiiding of foreign merchant fleets may be expected to improve
considerably their modernity and eflSciency.
(15) Special restrictions on shipping. — "Can you give us a picture of the
special requirements or restrictions which limit the operations of our shipping
between various countries? What special privileges are accorded our own ves-
sets in American ports and in the carriage of American imports and exports'/
What part of our own trade has been carried over the past two decades in Ameri-
can bottoms? How much shipping between foreign countries has been carried in
American bottoms? Would United States shipping stand to gain or lose by a
systematic elimination of port and carriage restrictions through reciprocal agree-
ments or otherwise?"
In addition to restrictions maintained on coastwise traflic of various foreign
countries, which are comparable to the American restriction of coastwise traffic
between American ports to vessels of American registry, tiiere are some restric-
tive or discriminatory provisions aftectiug shipping in international trade. On
the whole, however, there are not a great many of these. As a general rule, the
treatment of shipping in international trade is governed by the provisions of
treaties of commerce and navigation based on the principle of national and most-
favored-nation treatment, under which the same schedules of traffic rates on the
cargoes, port dues and charges on the ships, etc., are applied regardless of the
flag. Departures from this principle are generally exceptions to the customary
jjractice.
So far as international shipping competition is affected by restrictions and
discriminations, these are more in the nature of private commercial relation-
ships and understandings, agency connections, etc., rather than official prescrip-
tions. It is therefore generally difficult or impossible to define or evaluate such
practices or their influence upon international shipping competition.
Except for the extension of United States coastwise laws to certain United
States territories and outlying possessions, there are no special privileges of
any significance accorded American vessels in American ports in the carriage of
American imports and exports.
That part of our own trade which has been carried in American bottoms is
shown in the attached copy of Maritime Commission Regular Report No. 399,
Comparative Summary of Water-Borne Foreign Commerce, calendar years, 1921
to 1940, inclusive. There are not sufficient data available as to the amount of
way-cargo, or shipping between foreign countries, carried in American bottoms
to justify any statement at this time.
United States shipping would in general stand to gain by the elimination of
such special restrictions and discriminations as exist.
(16)^ National defense re quire merits. — "How large a merchant marine should be
held ready for auxiliary use by the armed forces in case of war? IIow is this
determined? What legislative provision governs the time and volume of ships
that may be sold to foreign interests?"
It is not possible to state national defense requirements in terms of specific
numbers and types of ships since it is not possible to anticipate precisely what
military operations would become necessary in some future national emergency.
Moreover, the shipping requirements of a global war, as present experience well
shows, far exceeds demands of normal peacetime commerce. For national de-
fense purposes, therefore, it is essential to have first of all an operating merchant
marine to provide a nucleus for expansion to meet emergency need. Under
the general policy established in the Merchant Marine Act of 1936, this is
envisaged as an active merchant fleet providing water-borne transportation
sufficient to carry our domestic water-borne commerce and a substantial portion
of our import and export foreign commerce and to provide service on all essential
trade routes. Such routes are defined in section 211 of the act of 193G as "The
ocean services, routes, and lines from ports in the Unitetl States or in a Terri-
tory, district, or possession thereof, to foi*eign markets, which are, or may be,
determined by the Commission to be essential for the promotion, development,
expansion, and maintenance of the foreign commerce of the United
States * * *_
In this sense a merchant marine for national defense purpose would be com-
po.sed of the most modern and efficient types of vessels, manned by capable
POST-WAR ECONOMIC POLICY AND PLANNING 1173
and well-trainetl pei-soiiel and operated by efficient shipping companies. It
involves also the maintenance of an active shipbuiklint;- organization capable
of expansion in time of need. It is also desirable that insofar as vessels
constructed to meet the war program are found to be in excess of the peacetime
requirements of commerce, but are still capable of giving reliable service in
emergency, that they be laid up in a national emergency reserve, sterilized by
legislation so tliat they will not overhang the commercial shipping market.
Such a reserve should also include vessels which have been converted from
merchant service to meet the special military recpiirements of the Ai-niy and
Navy, which may be found in excess of the j>eacetime operating i-equii-ements
of the military forces and with respect to which the costs of reconversion to
merchant use are likely to be excessive.
Legislative provisions relating to time and volume of ships which may be sold
to foreign interests include section 9 of the Shipping Act, 1916, requiring Mari-
time Commission approval for transfers of interest or ownership to a person not
a citizen of the United States, and any transfer of registry to a foreign flag, in
case of a vessel or interest therein owned by citizen and documented under the
laws of the United States ; section 6 of the Merchant Marine Act, 1936, authorizing
sale of vessels to aliens if deemed unnecessary to the promotion and maintenance
of an efficient American merchant marine and after offering of vessel for sale to
citizens of the United States; section 508 of the Merchant Marine Act, 19816,
authorizing sale of vessels of no further commercial or military value either to
citizens or to aliens ; section 36 of the Shipijing Act, 1916, requiring Maritime
Commission approval during wartime for transfer of vessels to foreign registry,
sale, or mortgage to a foreigner, or for a contract to consti-uct a vessel for
foreign account.
"Is the need for subsidy an admission of inefficiency on the part of our merchant
marine? To what extent is subsidy needed simply to offset competing subsidies
granted by other nations ?"
Apart from war needs, if our merchant marine is a less efficient carrier (from
a total money cost standpoint) than ships of other nations, would it not be better
to produce more automobiles or other exportable merchandise and permit for-
eigners to secure some of the dollars needed to pay for them as a result of income
from their shipping service? Apparently, an American worker can produce more
dollars' worth of product in an automobile factory than on shipboard. Is it not
in the national interest (military consideration aside) that he produce the
automobile?
The basic reason for which ship subsidies are required if an adequate merchant
marine is to be maintained under the American flag is the higher level of Ameri-
can wage rates and living standards as compared with foreign maritime nations.
In part these higher standards are specifically expressed and established by legis-
lation relating to manning and working standards on merchant vessels. The
construction and operating differential subsidies provided under the Merchant
Mai-ine Act of 1936 are designed and formulated to offset these competitive cost
differentials.
In some instances, perhaps, resulting particularly from special commercial
relationships. American operators are able to maintain vessels in operation under
the American flag in competitive foreign trades without operating subsidies. If,
however, an adequate American merchant marine as envisaged in the Merchant
Marine Act is to be established in post-war commercial operation, operating sub-
sidies will be necessary, and if an iidequate shipbuilding industry is to be main-
tained as required for national defense, construction differential subsidies will be
necessary. Recapture provisions of the operating differential subsidy, however,
insure that subsidy payments which prove to be unnecessary are in the end re-
turned to the Government.
While provision exists in the Merchant Marine Act for the payment of counter-
vailing subsidies to offset competing foreign subsidy grants, no actual applica-
tion of snrh foreign subsidy has been made in the past.
A healthy merchant marine is an integral part of our world-wide commercial
policy, and it will serve as a positive and constructive element in the development
of foreign trade, both export and import.
Other maritime nations, particularly Great Britain. Germany, Italy, Union of
Soviet Socialist Republics have used their ships and shipping organizations to
foster trade and to divert it to their own commercial channels.
1174
POST-WAR ECONOMIC POLICY AND PLANNING
(17) "What is the total civilian employment in the merchant marine at the
present time and over the past 10 years?"
Year and month
1934
1935.
1936
1937
1938
1939
1940
August 1940.
January 1941
June 1941....
January 1942
June 1942 .__
January 1943
June 1943....
January 1944
June 1944
Total
71,400
71, 750
67, 250
72, 500
64, 600
70, 300
63, 750
67, 450
61, 400
76, 250
63, 550
70, 150
63, 500
113,000
140, 150
172, 900
Actively employed in
United
State-
flag mer-
chant
marine '
56, 300
56, 600
53, 000
57, 200
50, 900
52, 400
51, 000
51, 700
49, 100
51, 300
47, 400
47, 400
52, 900
75, 000
104, 300
125, 300
Army
Transport
Service ^
900
900
900
900
900
900
(')
2,550
(')
3,900
3,900
4,800
(')
13, 650
13, 650
13, 500
Pan-
Hon-
duran 3
(»)
(»)
(»)
(')
(»)
3,000
(')
(»)
(»)
6,250
(»)
6,600
(')
6,700
(.')
6,400
Shore
Reserve *
14,200
14, 250
13, 350
14, 400
12, 800
14,000
12, 750
13, 200
12, 300
14, 800
12, 250
11,350
10, 600
17, 650
22, 200
27, 700
• Estimates for 1934-39 represent average monthly employment based on the number of active vessels
shown on Quarterly Report on the Employment of American Steam and Motor Merchant Vessels of 1,000
Gross Tons and Over. From 1940 the estimates are tho.se shown on table O. T. 1 (a) Number, Gross Tons,
Dead-weight Tons, and Estimated Licensed, Radio Operator, and Unlicensed Personnel of Active America
Flag Steam and Motor Merchant Vessels of 1,000 Gross Tons and Over, Engaged in Deep-Sea Trades, by
Service and Type of Vessel, issued monthly.
2 Data from Army Transport Service.
3 Based upon number of vessels under control of U. S. Maritime Commission-War Shipping Admin-
istration.
< Except for the Army Transport Service, estimated as follows: Prior to 1943 as 25 percent of those actively
employed, subsequently 20 percent; for the Army Transport Service as 10 percent of those actively employed.
' Information not avail.ible.
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post-war economic policy and planning 1181
Exhibit No. 16
Post- War Training for Officers and Seamen of the Merchant Marine of the
United States
In order to implement the mandate of Congress given to the United States
Maritime Commission in section 101 of the Merchant Marine Act, 1936, to see
that our merchant marine is manned with trained and efficient citizen personnel
it is necessary that a permanent training program for merchant seamen be main-
tained. Such a program was inaugurated by the Maritime Commission in peace-
time in 1938 and has been greatly expanded during the war to meet the needs
of our vastly enlarged fleet. Something over 125,000 officers and seamen have
been trained and placed on our merchant vessels since the program was started.
The training given under the exigencies of war has not been sufficient to insure
the desired skill of our merchant crews and it is necessary that those officers
and seamen who remain in our peacetime fleet be retained and upgraded.
It is quite probable that there will be no drastic reduction in the size of our
merchant fleet for several years following the war because of the rehabilita-
tion requirements of devastated countries and the maintenance of our armed
forces which will remain abroad during the period of adjustment but the fleet
will definitely be gradually reduced and a large number of its present personnel
must be absorbed by other industries. Many men now at sea left other oc-
cupations to take a more active part in the w-ar effort and will return to their
former jobs, but it is definite that there will be a surplus of seamen for a time
until they have gone into other industries. Those who like the sea and are
adapted to a seafaring life are the ones who will remain in the maritime
industry.
We approach the problem of post-war training, therefore, with the knowledge
that it will not be necessary to train many new men for some time and then
only in such numbers as are needed for normal replacements after the adjust-
ment period.
The present training facilities will, of course, be curtailed but certain of these
must be maintained on the Atlantic, Pacific, and Gulf coasts and probably ex-
tended to include the Great Lakes.
Upgrading is and always will be essential. The requirements for sea time for
upgrading will return to prewar standards, but facilities must be made avail-
able to supply instruction to those who are qualified by sea experience to sit
for licenses for higher grades. To this end of the United States Maritime Service
officers schools at Fort Trumbull, New London, Conn., and Alameda, Calif.,
should be continued in operation and all present officers in the fleet should be
given an opportunity to take additional training at these schools. During the
war upgrading facilities have been maintained in the ports of Boston, New
York, New Orleans, Los Angeles, San Francisco, Portland, and Seattle. These
facilities can be dispensed with after the war by transferring these activities
to the permanent training stations which are retained.
The United States Merchant Marine Cadet Corps operates the United States
Merchant Marine Academy for the advanced training of officers and the cadet
basic schools at San Mateo, Calif., and Pass Christian, Miss., for preliminary
training supplemented by sea training on merchant ships. The entire course of
training will cover a period of 4 years extended from the present wartime emer-
gency period of 2 years or less. These facilities were designed to accommodate
only one-half of their present wartime and crowded complements. They will
be reduced to their normal capacities and because of the 4 years' course it will
be that number of years before any officers are graduated except those who
remain in training at the close of the war. The total number to be graduated
annually will be less than 500 officers which will be needed for replacements.
During the war there have been at times as many as 7,800 cadet-midshipmen
in training at the academy and the cadet basic schools and on merchant ships.
This number has now been reduced to 5,200. After the war the complement
of trainees at the academy will be reduced to 1,200 for advanced training; at
the cadet basic school at San Mateo, Calif., to 400 ; and at the cadet basic school
at Pass Christian, Miss., to 200. Training at the cadet basic schools is pre-
liminary training prior to .service on merchant ships.
There are 5 State maritime academies located in California, Maine, Massa-
chusetts, New York, and Pennsylvania. Most of these schools have been in
existence for many years and have made a valuable contribution to our mer-
chant marine. They are operated by the States in which they are located
1182 POST-WAR ECONOMIC POLICY AND PLANNING
with Federal contributions and under Federal supervision as to minimum stand-
ards. Tliese schools also train merchant officers. Their courses of training will
be extended to at least 3 years and their complements will be reduced so that
approximately only 200 officer replacements will be graduated annually. The
complement of trainees at the 5 State maritime academies during the war has
been about 1,100. It is recommended that the total complement for the 5 schools
after the war should be reduced to 750.
It has been necessary to train a large number of radio operators and no new
ones will be needed for some time, but it is definitely planned that radar will
be installed on most merchant vessels and training in the use of that equipment
must be provided. The United States Maritime Service now has two radio
schools, one at Gallups Island in Boston Harbor, and the other at Hoffman
Island in New York Bay. The school at Gallups Island will be closed and the
one at Hoffman Island will be devoted to radar training and refresher courses
for radio operators.
There are now thx*ee schools at which seamen are trained for unlicensed
positions in the deck, engine, and stewards departments abroad ship. These
are located at Sheepshead Bay, Brooklyn, N. Y., St. Petersburg, Fla., and
Avalon, Catalina Island, Calif. The Avalon station is leased for the duration
of the war only and will be closed. The other two will be reduced in com-
plement and will be used to give annual additional training to the unlicensed
personnel who remain in the fleet. Specialist refresher courses will also be
■conducted at Sheepshead Bay for ships carpenters, electricians, pumpmen, re-
frigeration engineers, hospital corpsmen, pursers, cooks and bakers, stewards,
and other ratings. Refresher courses for unlicensed seamen for annual addi-
tional training will be conducted at the present Alameda, Calif., station of the
United States Maritime Service.
Seven training ships, exclusive of auxiliary station craft, have been attached
to the unlicensed personnel schools of the United States Maritime Service during
the war. It is planned that three of these vessels would be retired from service
and four of them retained. One of those to be retained would be used for the
training of engineers.
During the war it has been necessary to maintain graduate stations at all of
the principal ports in order that graduates from the various schools might be
immediately available for shipment on an hour's notice. After the war it will be
possible to eliminate these stations almost entirely.
During the drive for recruits for training to meet the war emergency it has
been necessary to maintain enrolling offices at strategic centers al lover the coun-
try. Most of these will be closed and only such facilities will be retained as are
necessary to enroll men for upgrading and refresher courses at principal ports.
The United States Maritime Service has made use of several plants manu-
facturing marine engines and several shipyards for practical training purposes.
This is a desirable method of training because of the modern equipment available
without the necessity of a permanent investment. Such training is also susceptible
of economic administration and it will be continued where desirable.
One of the most important units of the training program is the United States
Maritime Service Institute, located at 30 West Fourty-fourth Street, New York
City, which conducts correspondence courses in nautical and other subjects for
seamen while at sea. During the war the operations of the Institute have been
somewhat curtailed because war conditions have not been conducive to study
aboard ship. Already, however, the demand for these courses is increasing very
rapidly. The interest of seamen in studying while at sea is astonishing and
gratifying. They have both the time and the inclination to improve their mihds
and their skill in the seafaring profession. The United States Maritime Service
Institute offers a great opportunity for providing additional facilities for men at
sea. It is contemplated that a number of courses will be added to the institute
as this is a very economic method of providing for the education of seamen.
Never was there a greater opportunity than now to make it possible for every
officer and seaman who remains in the maritime industry after the war to perfect
himself in his chosen vocation. In-training in industry is the order of the day.
The Maritime Commission intends that every man on our merchant vessels shall
be furnished with all possible aid to self -betterment to the end that the personnel
of the United States merchant marine shall be outstanding among the maritime
nations of the world.
POST-WAR ECONOMIC POLICY AND PLANNING 1183
Exhibit No. IT
ExTEAOTS From Memoeandum From Maritime Commission on H. R. 1585
(Me. Boykin)
United States Maritime Commission,
Washington, July 7, 1941.
Hon. S. O. Bland,
Chairman, Cojumittee on the Merchant Marine and Fisheries,
House of Representatives.
De.\r Judge Bland: On June 19, 1941, you advised that the Committee on the
Merchant Marine and Fisheries will hold an executive session on Wednesday,
July 9, for the consideration of H. R. 1585, a bill relating to the establishment of
construction reserve funds, and requested the Commission to have present at
that time such representatives as it may designate to furnish pertinent informa-
tion. There is transmitted herewith a memorandum on H. R. 1585 to which are
attached two drafts of legislation incorporating certain modifications of the bill,
the nature and purpose of which are set forth in the memorandum.
A member of the legal staff of the Commission will be present at the hearings.
Sincerely yours,
Thomas M. Woodward,
Vice Chairman.
memoeandum re H. E. 1585
4: H: H: 4: ^ , 4: ^
The desirability of attaching the above provisions to H. R. 1585 appears even
more clearly on a detailed examination of the provisions applicable in respect
of subsidized operators under the 1936 act. Many considerations flow to the
Government from the recipients of such subsidy either in positive benefits or in
forbearance from actions otherwise lawful. When the Government confers
privileges in addition to tliat of the flag, it customarily exacts additional and
specific considerations therefor in the national interest. As above stated, the
only specific consideration under the present section 511 of the bill, H. R. 1585,
is the requirement of construction in the United States and documentation under
the laws thereof.
Vessels constructed with construction-differential subsidy may receive Govern-
ment aid up to one-half of the American cost of the vessel and the privilege of
paying for 75 percent of the remaining cost, with interest, over a period of years.
In return for this construction subsidy, the Government receives tlie following
benefits :
1. The right to specify the route upon which the vessel is to operate.
2. The right to approve the plans and to specify and pay for the incorporation
into the vessel of national-defense features of no value for commercial purposes
and some of which may be a commercial detriment.
3. The right to requisition the vessel in emergency under terms far more favor-
able to the Government than is the case with vessels which do not receive con-
struction subsidy.
4. Registry of the vessel under the laws of the United States for at least 20
years.
5. The vessel, if a cargo vessel, must carry a crew composed lOO percent of
American citizens, and if a passenger vessel, 90 percent, as compared with 75
percent if not subsidized.
Vessels receiving construction-differential subsidy may not operate in protected
trade except when such operation constitutes a specified portion of a foreign
voyage, or with the Commission's consent for a temporary period not exceeding 6
months in any j-ear ; and in the case of any such operation in protect(^d trade, the
owner must pay the Commission a proportionate part of the construction-
differential subsidy.
Under present law, a vessel may receive the benefits of section 511, and, in
addition, if the owner so desires and otherwise qualifies, the benefits and restric-
tions of construction-differential subsidy. This also would be true if section 511
were amended as proposed in H. R. 1585.
Vessels receiving operating-differential subsidy are placed on a "parity" with
their foreign competitors with respect to certain operating costs. This is effected
when the Government pays to the ship operator the excess in the cost of American
labor employed upon the ship and of American materials required in its
1184 POST-WAR ECONOMIC POLICY AND PLANNING
maintenance and operation, over and above the corresponding costs borne by the
foreign competitor. The operator also is relieved from Federal taxation of
earnings deposited in the reserve funds (which reserve funds he is required to
maintain) except earnings withdrawn from such reserve funds and paid into the
operator's general funds or distributed as dividends or bonuses.
In return for such assistance the Government receives the following positive
benefits :
1. Assurance for at least the period of the contract, of adequate American-flag
service of an essential foreign-trade route through —
(a) Confinement of operations to such route.
(b) Prescription of number of sailings.
(r) Perpetuity of service through requirement of a long-range program for the
replacement of obsolete tonnage, and the requirement of reserve funds from which
such replacements are to be made, and by reason of which maintenance of service
is assured.
2. The vessel, if a cargo vessel, must carry a crew composed 100 percent of
American citizens, and if a passenger vessel, 90 percent, as compared with 75
percent if not subsidized.
3. Officers, if eligible, must be members of the United States Naval Reserve.
4. Right to recapture, up to the full amount of the operating-differential subsidy
paid, one-half of all profits in excess of an average of 10 percent per annum upon
the capital investment necessarily employed in the business.
5. Use of American supplies and materials whenever practicable, and per-
formance of repairs in the United States, except in emergency. (The latter
requirement results in performance of repsiirs in the United States even though
the domestic cost exceeds the foreign cost plus the tariff on such repairs.)
. In addition to the positive benefits accruing to the Government by reason of
operating-differential subsidy, the recipient of such subsidy is required to operate
under a considerable number of restrictions. Although apparently these re-
strictions were imposed primarily to safeguard the application of the subsidy to
carry out the purposes intended by Congress, a number of these restrictions
result in incidental public benefits. Some of these restrictions are: Government-
prescribed manning and wage scales and working conditions, restriction of com-
petition with other American-flag operators, maintenance of adequate reserve
funds. Government-prescribed accounting system, regulation of ancillary activi-
ties sucli as stevedoring, towboat, and kindred services, regulation of foreign-
flag and domestic-trade affiliations, agencies, etc., limitation of salaries of execu-
tives, and other restrictions.
Vessels receiving operating-differential subsidy may not operate in protected
trade except upon certain portions of foreign vo.vages, as specifically authorized
by law, and upon proportionate reduction of subsidy.
From the foregoing, it appears that the measure of tax exemption accorded
to recipients of operating-differential subsidy is intended ijrimarily to safeguard
the Government's interest in the establishment and maintenance of service upon
es.sential trade routes and adequate replacement of obsolete tonnage, and that
the benefit conferred upon the operator is merely incidental. The measure of
tax exemption accorded by section 607 (h) is not in all cases a benefit conferred
in addition to cost "parity," as has been suggested. To the extent that com-
peting foreign-flag vessels Jiave received tax concessions from their govern-
ments, the i)rovisions of section 607 (h) merely cari\v out the general "parity"
theory of the act. Furthermore, in view of the 10-year recapture provisions of
the act, sul)sidy received from time to time during the period could not reason-
ably be ti-eated as income in the yeor of receipt. The act, therefore, provides
for taxation (as of the year of withdrawal) of amounts withdrawn from the
statutoi'y reserve funds and paid into the contractor's general funds or dis-
tributed as dividends or bonuses, and results in a measure of tax exemption
similar to that proposed by the bill, with respect to funds invested in new
ship construction. It has been pointed o\it that when subsidized vessels operate
in protected trade for a portion of an otherwise foreign-trade voyage, repay-
ment of proportionate subsidy is required by the law, but no repayment is
exacted by reason of the advantage which the subsidized operator enjoys with
respect to taxation. Whether this situation results in unfairness to the com-
peting unsubsidized operator in protected trade would appear to depend upon
the operation of the recapture provision in each particular case, since the profits
which the subsidized operator earns in protected trade are subject to the re-
capture provision of the act.
POST-WAR ECONOMIC POLICY AND PLANNING 1185
A contractor under operating-differential subsidy may also receive a con-
struction-differential subsidy (with attendant obligations), but this is not
necessarily true. His operation in protected trade is strictly limited. He
could receive the benefits of the present section 511 v^^ith respect to a vessel
which does not constitute a part of this subsidized program, but could not re-
ceive the benefits of H. R. 1585 even with respect to a vessel not constructed
for his subsidized fleet, because H. R. 1585 limits eligibility to operators who
are not receiving the subsidy, without regard to whether the ship to be con-
structed is for the subsidized fleet or not. This particular limitation does not
appear to be sound. The same operator may have two services, a subsidized
service and an unsubsidized service. There seems to be no reason why he
should be denied the benefits of H. R. 1585 when setting aside gains and earn-
ings derived from the unsubsidized service for the replacement of the unsub-
sidized vessels. The present section 511 contains no such limitations.
The underlying reason for the essential-routes policy on which the subsidy
legislation is predicated, is to insure that adequate shipping service will be
available to American businessmen, farmers, manufacturers, etc., shipping
(•ver such routes, under circumstances when business, from the ship-operator
standpoint, is poor as well as when it is good, either seasonally or basically.
It may be contended that because foreign-flag lines compete with both subsi-
dized and unsubsidized American lines on the same routes without restriction
as to the movements of their vessels, and because an American operator who
is receiving subsidy should be able to compete with an American operator who
is not, the bill should place no operating restriction on vessels aided by it.
The essential point of difference is that both foreign-flag vessels and unsubsi-
dized American vessels are free to quit the route in question when times are
bad, but the subsidized lines are not, if they are to keep their subsidy contracts.
The 1936 act stresses long-range trade development, as opposed to temporary
considerations, and it appears that if the Government is to encourage competing
operators on the same route, it should at least be empowered to assure itself
that no great harm would be occasioned thereby to its investment in the long-
range project.
Exhibit No. 18
Fokeign-Trade Zones as an Aid to Trmjk and Shipping
(Thomas B. Lyons, executive secretary, Foreign Trade Zones Board)
In addition to his many duties concerning foreign trade and shipping exercised
through the several bureaus of the Department, the ?^eeretary of Comirferce Is
Chairman of the Foreign-Trade Zones Board. The Spcretary of the Treasury
and the Secretary of War are also members of this Board which was created by
an act of Congress in 1934 (48 Stat. 998, 1001). Coordination of the Board's
work is carried on through a Committee of Alternates consisting of the Solicitor
of the Department of Commerce, the general counsel of the Bureau of Customs,
and the assistant to the Chief of Engineers, T'nited States Army.
A foreign-trade zone is a segregated, fenced-off, and policed area within a port
where ships may dock and discharge cargoes from the world over without cus-
toms intervention. Foreign goods may be stored indefinitely without the expense
of customs bond and subject to certain manipulations with domestic merchandise
and then reexported. When forei.L'-n merr-handise is brought from Ihe zone into
customs ten-itory it must comply with all customs requirements, including the
payment of duty. Foreign-trade zones are designed especially to aid our import
and consignment trade.
Substantial quantities of es.sential raw materials are produced in so-called
colonial countries where no local market exists or skilled labor is available to
refine them. The Tariff Commission in 1910 (S. Doc. 2.39. 67th Cong., 2d sess.)
estimated that so-called colonial products conservatively valuod at $4,000,000,000
annually irfoved indirectly to oonsumine: markets. The Tariff Commission's
study indicated that most of these r-oinmodities were first taken to primary
European markets where they were warehouse(l. processed, and then resold for
world distribution. This procedui'e enabled the pror-e.-^sing country to retain
control of the channels of distribution as well as shipping. Prior to the enact-
1186 POST-WAR ECONOMIC POLICY AND PLANNING
ment of the foreign-trade zones law, proponents pointed ont tbat the establish-
ment of these zones here would serve to attract substantial quantities of colonial
cargoes direct to American ports, thereby helping out both foreign trade and
our merchant marine. Experience in the New York foreign-trade zone since its
opening in 1937 has fully demonstrated that this facility has distinct advantages
over the bonded warehouse and drawback systems.
Formerly all Sumatra tobacco was shipped to the Netherlands where it was
sold to buyers who had gathered there from the world over. After the Nazi
invasion of the Low Countries in 11T40 the Sumatra tobacco crops for both
1940 and 1941, valued at nearly $50,000,000, were shipped to the New York
foreign-trade zone for storage, auction sale, and distribution. A considerable
quantity of this tobacco later was reshipped to Canada, Sweden, Switzerland, and
Latin America. In a letter to the Secretary of Commerce, the Dutch owners
of this tobacco stated that, "If there had not been available in the United States
a foreign-trade zone where our tobacco could be stored and manipulated prior
to actual importation, it would not have been possible to transfer the world
tobacco market from Amsterdam to the United States." It might also be pointed
out that had not the foreign-trade zone ottered a haven for this tobacco, much of
it would have been lost to the Japanese.
The New York zone has also been used for the storing and manipulation of
products of Latin-American countries. When normal commercial relations are
resumed it is expected that owners of such commodities will utilize it in increas-
ing numbers. In this respect these zones will serve a valuable purpose incul-
tivating better trade relations with those areas which are of special interest to us.
Under the law, both public and private corporations may apply to the Board
for a license to establish foreign-trade zones in our ports of entry. The New
York foreign-trade zone is the only one in actual operation, but officials of several
other ports, including San Francisco and New Orleans, have definitely deter-
mined to establish a foreign-trade zone as soon as war conditions permit. The
Foreign-Trade Zones Board is of the opinion that foreign-trade zones will aid
materially in the post-war development of our foreign trade. The Board's 19-12
annual report stated : "If local interests in our major ports fail to formulate
definite plans for the establishment of foreign-trade zones immediately upon
the termination of hostilities, the Congress might consider legislation which will
permit appropriate action by the Federal Government to provide these essential
facilities."
In addition to providing an invaluable facility for the assembling and re-
distribution of world-wide commerce, the foreign-trade zone will also provide an
incentive for the construction of modern integrated terminals in our ports, vitally
needed to service our post-war merchant fleet.
Exhibit No. 19
THE BUREAU OF FOREIGN AND DOMESTIC COMMERCE— ITS FUNC-
TIONS IN INTERNATIONAL TRADE
Duties as Decreed by Congbess
In the organic act creating the Bureau of Foreign and Domestic Commerce,
August 23, 1912, section 175, title 15 of the United States Code sets forth its duties
as follows :
"It shall be the province and duty of the Bureau of Foreign and Domest'c
Commerce, under the direction of the Secretary of Commerce, to foster, promote
and develop the various manufacturing industries of the United States, and
markets for the same at home and abroad, domestic and foreign, by gathering,
compiling, publishing, and supplying all available and useful information con-
cerning such industries and markets, and by such other methods and n.ieans as
may be prescribed by the Secretary of Commerce as provided by law * * *."
How BuREiAU Fosters, Promotes, and Develops Foreign Trade of United States
The statutory functions of the Bureau of Foreign and Domestic Commerce
assume far-reaching importance as the war comes nearer and nearer to an end
and as the transition from a wartime to a peacetime economy looms ahead. The
extent of conversion to war production by industry was without precedent. The
POST-WAR ECONOMIC POLICY AND PLANNING 1187
problems of reconversion anrl readjustment, already forced on the country, are
correspondingly complex and difficult.
According to its legislative mandate, the Bureau is responsible for developing
and distributing essential facts to aid business in finding export markets abroad
and foreign sources of supply for goods needed in the United States.
Under Reorganization Plan No. 2, the Secretary of Commerce instructs the
Secretary of State with respect to investigations, reports and surveys to be made
by the Foreign Service for the use of the Department of Commerce in promoting
foreign trade. In carrying out this function, the Bureau appraises the need of
business for data on industrial, commodity, financial and general economic and
commercial developments abroad. It prepares the necessary instructions, re-
quests for information and reporting details for transmittal to United States
missions abroad.
The requirements of the Bureau for specific information needed in the for-
mulation of foreign trade policies are included in these requests to the State
Department.
Information gathered by the Bureau on foreign economic and commercial de-
velopments is too comprehensive and detailed to set forth in full detail. Briefly
summarized, the Bureau endeavors to supply to business and to Government all
significant information — facts and figures — that affect our foreign trade and
our economic relations with foreign countries. Certain aspects of this program
are specifically referred to in succeeding pages.
Bureau's Role in Foreign Trade Policy
Through its staff of specialists, the Bureau actively participates in the formula-
tion of national policy on foreign trade. Thus it is able to contribute wide and
practical knowledge of commercial, industrial, and economic developments abroad
and the relationship of these to our domestic industry.
The Director of the Bureau, as well as chiefs of divisions and individual foreign
trade and industry specialists, are members of interagency committees of a
policy character. For example, the Director is a member of the Executive Com-
mittee on Foreign Economic Policy. Other Bureau officers and members of staffs
serve on interagency cartel and commodity agreement committees, and on com-
mittees specializing on trade agreements, changing priorities, cooperation with
Latin American countries and many others,
C7URRENT CONCERN
The current concern of the Bureau is to give all possible assistance toward the
solution of reconversion and post-war problems. Insofar as the international
field is concerned, the Bureau's objectives call for a broadening and extension
of long established techniques for fostering, promoting, and developing our foreign
trade. These techniques are directed in the following channels :
1. Trade promotion.
2. Economic analysis.
3. Statistics.
In combination, these three phases of the Bureau's activities mesh into a com-
prehensive, smoothly geared service that has been used by the foreign trade
fraternity since the inception of the Bureau. In fact, no single group in our
business economy has taken advantage of the facilities of the Bureau of Foreign
and Domestic Commerce more consistently than exporters and importers.
War and the many necessary restrictions have severely hampered the normal
international activities of the Bureau. Yet those engaged in foreign trade have
been served with considerable vital information.
All possible data has been collected and that which could not be disseminated
for security reasons has been analyzed as in pre-war days. Thus the Bureau's
storehouse of facts and figures has been continually enriched in preparation foP
an expanding and improved service when peace is declared.
In the meantime, a gradual lifting of the wartime restrictions within the past
year is permitting a release of an ever-increasing amount of pertinent data and
statistics.
Two types of service are furnished foreign traders — personal and published aids.
Personal service is available either from the Bureau in Washington or from
the Department of Commerce field offices. As to the latter, in cases where
facilities for fulfilling a request are lacking, the field office immediately contacts
the proper specialist in the Bureau.
1188 POST-WAR ECONOMIC POLICY AjSTD PLANNING
The vast majority of the information compiled and then carefully analyzed by
Bureau specialists is brought out in published form. Thus it can receive the
widest possible distribution.
Trade promoiion.
One of the most important phases of the Bui*eau's trade-promotion activities
is its commercial-intelligence reporting service which is an outgrowth of World
War I. Wartime controls of that period had necessitated a vast collection of
data on firms and individual businessmen in foreign countries. Shortly after
the armistice, the Bureau gained possession of these files. These formed the
nucleus of the —
World Trade Directory. — This directory is made up of individual reports giv-
ing important details on the sales organizations of foreign firms and their quali-
fications for handling United States merchandise. By 1940 the commercial intel-
ligence files listed more than ], 000,000 names of foreign firms and individuals.
And in the case of 650,000, detailed reports were available.
Requests for the World Trade Directory service have continued all during the
war. btit from January to June 1944 the demand tripled over the same period
in 1943.
Trade lists, trade opportunities. — Trade lists giving foreign buyers, agents,
exporters, and producers have been sought by an ever-growing number of busi-
nessmen. The loug-famili'ar trade opportunity service rose from oblivion to
almost pre-war importance in the last 6 months.
Proclaimed List for Blocked Nationals. — To carry on any form of foreign trade
during wartime, it is imperative to know the political status of foreign importers,
exporters, agents, and distributors. The Bureau, through close cooperation with
the State Department, is able to supply the information through the Proclaimed
List for Blocked Nationals.
Thus, the Bureau helps protect American firms from loss through dealing with
politically undesirable connections.
A progressively revised list of persons and finns deemed to be enemy nationals
is available from the United States Department of State, Washington, or the
field offices of the Department of Commerce.
Ciirrent reporting service. — In addition to the politic'al standing, Americans
trading abroad require all manner of information on the foreign firms or indi-
viduals with whom they plan or are now doing business. The Bureau's current
reporting service is one source in Government for such up-to-the-minute details.
Foreign trade controls. — The Bureau, operating through the field offices, makes
available to American exporters 'and importers changes and developments in
the regulations and pi'ocedures of the United States wartime foreign trade con-
trols. It also assists foreign traders in solving specific problems arising from
controls of the Foreign Economic Administration, War Production Board, and
other related agencies.
Reporting on business conditions abroad.— Data gathered by the American
Foreign Service are collated by the Bureau and serve as current source material
for a wide variety of services to those engaged in international trade.
For the further convenience of American businessmen, reports covering indus-
trial and commercial information are sent to the field offices. In this wtiy manu-
facturers, merchants, exporters, and importers get current information on —
1. Market conditions abroad ;
2. Foreign restrictions and controls on importing and exporting both raw
materials and finished goods ;
3. Tariff rates and documentary requirements ;
4. Food and drug regulations;
5. Trade-mark and patent requirements ;
6. Foreign economic policies ;
7. Foreign trade statistics ;
and other important information gathered and analyzed by international spe-
cialists in the Bureau.
American insurance indu^itrp abroad.— The Bureau continues to promote the
interests of the American insurance industry abroad. It fosters the development
of international commercial arbitration and the cooperation of the American
bar in attacking legal barriers to foreign trade.
Replacement of Axis-controlled drug firms. — Through its long-established con-
tacts with drug distributors in this country, the Bureau has taken a leading role
in developing a program to replace Axis-controlled drug firms in Latin America
with United States suppliers.
POST-WAR ECONOMIC POLICY AND PLANNING 1189
Adjusting trade disputes.
The Bureau is constantly promoting good will among American foreign traders
through facilitating the adjustment of trade disputes. In this role the Bureau
and tlie field offices cooperate with the Department of State.
Reciprocal trade agreements.
The Bureau is a source of information on reciprocal trade agreements either
in effect or under announcement. It also supplies foreign traders on request with
copies of the texts and analytical studies of individual agreements, as well as
general data and statistics on the program as a whole.
As an active participant in the interdepartmental trade agreement effort, this
Bureau specializt>s on tlie foimulation of proposals for tariff and other concessions
by foreign countries on United States export products.
ECONOMIC ANALYSIS
The Biu-eau is the major source in Government for data on foreign exchange
developments, foreign trade financing, foreign public finance and banking, and
the currency situation abroad. It prepares the official annual report on the
balance of international payments of the United States.
Follow-up to United States in icorld economy.
One of the notable achievements in the Bureau was the publication of The
United States in the World Economy which clearly indicates the need for an
expanding two-way trade, flowing in as well as out of this country. As an impor-
tant follow-up to this study, international analysts of the Bureau ai'e furnishing
information on the historical and current balance of payments. They are also
reporting on the international investment position of the United States.
China Legal Section.
Each of the geographic units of the Bureau maintains detailed information
regarding the laws, regulations, and decrees of foreign countries with whicli
businessmen must be concerned.
The most recent addition to these facilities is the China Legal Section. Its
purpose is to study China's commercial laws and, in consultation with American
business leaders and legal and economic authoi'ities, to aid in developing, both
in this country and in China, a suitable legal framework for United States post-
war trade with China.
The section is also prepared to cooperate with any other Government agency
in examining proposed Chinese or American legislation which would be likely
to achieve closer Chinese-American commercial and economic relationships.
Economic Informntion Service.
International specialists in the Bureau have a thorough knowledge on the
many aspects of foreign trade that must be complied with in doing business
outside the United States. Among them are: National budgets, taxation, ex-
change restrictions, tariffs, quotas, customs regulations, trade and commodity
controls, trade practices, commercial treaties, legislative proposals and enact-
ments, and commercial laws.
All such important infoi'mation is supplied either by the Bureau or by 1 of
its 26 field offices.
Currently the Bureau is reestablishing the flow of detailed information on
foreign markets. Questionnaires have been prep.'ired to obtain up-to-the-minute
reports on such subjects as the tastes, buying habits, and purchasing power of
the populations of many countries.
Pnhlished aids.
Because of wartime shortages of manpower, paper, and other strategic ma-
terials, many regular reports and studies published in pre-war days on inter-
national subjects have been discontinued temporarily.
The importance of some of the analyses made by lUireau specialists has war-
ranted (heir being published from time to time. Aside from these, however, a
constant source of reporting activities of current interest is the Bureau
periodical — •
Foreign Commerce Weekly. — Business, professional, and Government people
have long considered this a standard textbook on the economics of international
trade. It serves as the mouthpiece for Bureau specialists. It also carries many
important contributions by ranking officials in other Government agencies and
departments.
1190 POST-WAR ECONOMIC POLICY AND PLANNING
Late airgrams Is a new feature appearing in eacli issue of tliis official periodical.
Submitted by offices of the United States Foreign Service in Latin America, the
reports furnish spot news of an economic nature on the other Americas. Through
a system of rotation all countries are frequently covered.
Among other regular features that are particularly helpful to foreign traders
are up-to-the-minute News by Countries and NeAvs by Commodities.
Special Latin-America Series. — A considerable number of reports on the other
Americas have already been released in these three general fields: (1) Industrial
development; (2) agricultural, pastoral, and forest products; and (3) trade
problems.
To meet the anticipated development in air transport a series on air cargo
potentials between the United States and each Latin-American republic was
instituted. Several of these reports are now available.
International Reference Service. — This was a pre-war service that contained
basic information on foreign markets, industries, and commodities. It will soon
be resumed on a subscription basis.
Foreign Commerce Yearbook Series. — The initial reports in the International
Reference Service will be badly needed information to bring up to date as much
as possible the Foreign Commerce Yearbook, last published in 1939. While the
volume cannot be reprinted in its entirety at present, separate reports by coun-
tries will be issued. These will contain summaries of the principal economic
statistics on each country covered. The first will be on Colombia.
Industrial Reference Service. — Plans are also being laid for the reestablishment
of this service. Through subscribing to it, exporters and importers can get a
continuing service of information gathered by the Bureau on their particular
industry or specific commodities.
inteknational statistics
For security reasons a ban was placed on the public release of wartime foreign-
trade statistics in September 1941. The compiling and analysis of such statis-
tics, however, have gone on insofar as possible. Results have been furnished,
on a confidential basis, to war agencies.
Until April 7, 1944, there was a serious gap in the international statistics that
the Bureau could provide those engaged in foreign trade. On that date the
Secretary of Commerce announced that certain of these could be made available.
Since then further relaxation has taken place, permitting the dissemination of
additional statistics.
Among reports obtainable from either the Bureau or the field offices are :
United States Trade With the Other American RepuUics. — Statistics on export
and import trade with other American Republics in 1942 and complete figures
for 1941 and 1940. The information has been compiled as follows : Analysis
of the trade with summary statistical tables ; detailed statistical tables of exports
to and imports from the other American republics by commodities and countries.
In both cases information on trade in military, strategic, and critical commodities
is excluded.
Summary of Foreign Trade of the United States — Calendar Year 19^1. — This
provides background information on our external trade not available from other
sources. Contains analyses and statistical tables of our exports and imports by
both countries and commodities.
Foreign Cotintry Statistics. — Of equal importance, trade statistics of foreign
countries are being released, providing an indispensable measure of the extent
and character of foreign markets.
Both parts of this statistical service— foreign country and United States trade
statistics — are necessary tools with which foreign traders can conduct their
market analyses effectively.
United States Trade With Western Hemisphere Countries. — Reports give sta-
tistical data in summary form for 1942 on all commodities except a list of strategic
and critical items. The series will eventually cover all Western Hemisphere
countries. To date data on more than a dozen countries have been released.
Principal Pre-war Imports of For Eastern Comitries From Regioyis Outside
Japanese-Occupied Asia.- — Import statistics have been broken down for each of
the countries to show the principal commodities which formerly came from out-
side regions.
Statistics &// Commodities.
On July 1, 1944, the Secretary of Commerce announced that revised security
regulations permitted the release of many more figures on the United States
foreign trade.
POST-WAR ECONOMIC POLICY AND PLANNING 1191
Except for figures on military, strategic, and critical commodities, complete
information is now being released on the total exports and imports of individual
commodities on a 12-month delayed basis. Details on the country of destination
for exports and country of origin for imports are barred, however, with the
following exceptions :
Complete information on trade with each of the Latin-American Republics,
Alaska, Puerto Rico, and Virgin Islands, on a 12-mouth delayed basis is available
with the exception of military, strategic, and critical commodities. And in the
case of Canada and Mexico, figures only will be relea.sed with a G-months' delay.
Reports on individual commodities now available in published form are : Pulp
and Paper Trade Statistics of the Other American Republics, 1938-41 ; Latin
American Plastics Industi'y and Trade; and South American Organic Chemical
Industry and Trade. Monthly reports are also being released on sugar, molasses,
and confectionery, and pulp and pajDer — containing both domestic and foreign,
statistics.
Bureau's Role in Relation to Ocean Shipping
In a broad sense, the Bureau's services in fostering, promoting, and developing
foreign trade encompass the vital role played by ocean shipping in our foreign
commerce. Although emphasis is placed on assisting those engaged in foreign
trade, the collection and analysis of world-wide shipping operations and facilities
is equally useful to transshipping companies. It also provides essential informa-
tion for governmental agencies charged with formulating foreign economic and
merchant marine policies.
Basic facts are gathered on the movement of cargo in international shipping.
Estimates are made of shipping requirements for our foreign commerce. Calcu-
lations are made of international balance of payments related to shipping services.
Studies are conducted on the relation.^hip of shipping costs to selling prices of
goods and the comwtitive status of United States products in foreign markets.
In addition, the Bureau carries on special investigations and surveys designed
to reveal courses of action that will lead to the development of better shipping
services at the lowest co.st.
The competitive status of American trade in relation to foreign business is
aLso a matter of primary concern to the Bureau. In this respect, the amount,
quality, and price of shipping services between the United States and foreign
countries requires continuous scrutiny. This information is provided to both
Government and industry by the world-wide intelligence service maintained by
the Bureau.
In the domestic field, the Bureau participates in studies by the Government
designed to determine the economic feasibility of waterway improvements. It
also concerns itself with the integration of inland transport and shipping to
afford the most economical means for handling exports and imports.
For industry, the Bureau maintains a research and intelligence service.
Typical of its research are the handbooks it has published on packing, stowing,
and the control of ocean freight rates. The handbook on packing provides a
ready reference for exporters, indicating the types of containers (with specifica-
tions for their construction) best suited for shipment of the various commodities
entering our foreign trade.
The manual on stowage was published to promote the safe carriage by sea of
American exports and imports. Until its release, there had been a dearth of
information readily available on the subject and the Bureau received continual
calls for advice regarding stowage methods and equipment conforming to the
latest technological developments.
The manual on the control of ocean freight rates in foreign trade is an
intensive study of greater implications than the title implies. Much effort
has been spent in recent years on improvements in naval architecture and marine
engineering. These improvements have added greatly to the inherent economies
of ocean transportation.
Full advantage can be derived from such improvements, however, only by the
most efficient organization of shipping. This, both in its private and govern-
mental capacity, must have as its object a minimum of wasteful competition
among shipowners and a maximum of coordination between shipowners and
merchants. The Bureau's handbook deals with this more fundamental aspect
of rate control, and also with measures for the prevention of discriminations
and unfair practices. In short, it is a comprehensive survey of conference organ-
ization and procedure in the interest of carriers and shippers, as well as the
Government.
1192 POST-WAR ECONOMIC POLICY AND PLANNING
In addition to the functions on sliipping already described, the Bureau main-
tains an information service. This is world wide in scope and provides the
Government and industry with news coverage and staple information relating to
foreign shipping, ports, and allied subjects. The vast collection of data, together
with the advice of its experienced staff, are drawn upon continuously by shippers
and carriers alike.
THE bureau's POST-WAK OBJEXHTVES
Since early in 1943, the Bureau has sought by every possible means to assist
those in international trade in their preparation for the reconversion period and
the peacetime era to come. Without in any way neglex^ting its first job — the war
effort — this Bureau has carried on a definite post-war program.
Many of the economic and statistical reports already listed were designed with
a view to furnishing business with basic material for analyzing their future
foreign markets. One of the earliest and most essential of these was —
Foreign Trade After the War. — This is an appraisal of the potential post-war
market in foreign trade. It is not a prediction of how much the United States
will Import from foreign countries or of how much American exporters will sell
abroad. But it is a guide to approximate what this in-and-out flow may amount
to under given assumptions.
The most important of these assumptions is that the domestic economy will
function at capacity levels. If this happens, it is calculated that imports should
total around $6.3 billion and exports about $7 billion, both in terms of 1942 prices.
Foreign Market Prospects After the War. — Industrial analysts in the Bureau
are using Foreign Trade After the War as a basis for projections in various
commodities and industries. These are being published from time to time in
Foreign Commerce Weekly in a series that will cover all major fields.
The first 10 of these have been reproduced in a booklet entitled "Foreign
Market Prospects After the War." Subjects covered are drugs, motion pictures,
farm machinery, electrical goods, office machinery, organic chemicals, leather,
plastics, and plastic materials, pulp and paper, and shipping.
Geographic specialists in the Bureau have concentrated on studying the out-
look of their particular areas. The following indicate the type of reports being
made available to foreign traders :
Some Factors in Post-War Export Trade With British Empire. — This is a
comprehensive analysis of the more important factors that will affect the
United States export trade with the United Kingdom. These factors are:
Imperial preferential tariff system ; the extent of industrialization within the
various parts of the Empire; the extent of protection afforded against foreign
imports; the supply of dollars; and the liquidation of wartime controls.
Continental Europe's Post-War Economy. — A detailed analysis of likely eco-
nomic conditions after the peace.
Information on Lihcrated Areas. — Since the invasion of North Africa, interna-
tional specialists in the Bureau have studied and compiled important informa-
tion dealing with the resumption of communications and eventually trade with
liberated areas. Resulting reports on north Africa and Italy have been published
in Foreign Commerce Weekly.
In addition, circulars giving pertinent facts on the subjects are prepared in
the Bureau and distributed to interested American businessmen through the
field offices.
This program will be continued to cover all enemy-held countries as they are
reoccupied.
Post-war reference sources.
The Bureau has witnes.sed a tremendous upsurge of interest in international
trade, particularly during the past year. Hundreds of businessmen whose activ-
ities have always centered in the domestic markets have evidenced a strong desire
to broaden their sphere after the war. They have been contacting the Bureau
and the field offices in ever-inceasing numbers to get advice and suggestions on
carrying on foreign trade.
Realizing the importance of sound preparation not only for the protection of
these newcomers to the field but also for the successful expansion of American
international trade as a whole, the Bureau prepared —
Guides for the neio and prospective foreign trades. — Here l,s a carefully de-
signed pamphlet that outlines the various steps the would-be foreign trader must
take before attempting to enter the complex international field. It stresses the
POST-WAR ECONOMIC POLICY AND PLANNING 1193
importance of conducting a market analysis and tells how it should be done.
Soui'ces of practical aid and a carefully selected list of reading references deemed
helpful in making the preliminary investigation of inteinational commerce are
also given.
Foreign trade. — This is the title of a recent compilation of reference sources
for the seasoned foreign trader. It is a comprehensive list designed for those
who may want to review or study further the many aspects of the subject.
CUBEENT FOREIGN ACTiVIT ES
The Bureau of Foreign and Domestic Commerce is intensifying its efforts in
preparation for en expanding two-way international trade after the war. In
addition to serving the present needs of exijorters and importers, as evidenced
in this report, the Bureau has made lengthy strides in promoting foreign trade
on a sound and permanent basis. The following indicates the scope of its cur-
rent program :
Trade promotional services.
The Bureau is cooperating closely with the Department of State on a program
to reinstate certain important types of reporting that have been severely curbed
or completely blacked out during the war. These will include —
Market surveys. — These will cover ijertinent factors affecting sales, trade pros-
pects, channels of distribution, specific business leads, foreign and domestic com-
petition, transportation facilities, credit and exchange, and economic condi-
tions.
Aijeney service. — Here the experienced foreign trader is provided with the
names of interested prospects to act as foreign representatives.
Trade opportunities. — Plans are well under way to again publish these in For-
eign Commerce Weekly. They will provide leads on selling, buying, and handling
goods.
World Trade Directory reports. — A marked stimulus is being jjlaced behind
Wiu-ld Trade Directory reporting to the end that Americans trading abroad can
be a.ssured the most complete and ui)-to-date sales information possible. Every
attempt is also being made to extend and improve the quality of trade lists.
Industry and commodity developments.
What have been the wartime developments in foreign countries? Tlie foreign
trade fraternity requires the answer to this question in planning for the future.
To till this recognized need, industrial and commodity specialists of the Bureau are
preparing questionnaires on .specific developments. They have also planned
certain foreign market studies. Both of these tasks will be carried out by Amer-
ican Foreign Service officers.
When completed, the reports will provide businessmen with essential data for
planning export and import trade. They will also provide the Government with
authentic background information and will serve as a guide in formulating
foreign economic policy.
Reports under icay.
Many specific studies are now under way and will be published in the near
future. Among them are —
Projections of United States imports by commodities. — These reports on the
outlook of our imports in the post-war era will be based on the assumptions in
Foreign Trade After the War. They will cover commodities, both singly and in
groups. Results will be published in Foreign Commerce Weekly.
United States balance of payment s during the icar. — Detailed facts on our in-
ternational transactions during the war are scheduled lo be ready for general
release as soon as possible after the war.
These will cover all the usual questions in balance of payments analysis.
Special attention will also be given to our dealings with particular countries
and country groups as compared with over-all totals, and to the role of Govern-
ment in our international transactions. It is planned to release an interim
report by the end of 1944 and these will include statistics for 1943.
Position of the pound sterling since 1919. — A study is being made of the va-
rious items entering into the British balance of payments. Such subjects as the
trade, shipping, investments, and other factors affecting the position of the pound
sterling since 1919 will be contained in the final report.
1194
POST-WAR ECONOMIC POLICY AND PLANNING
Ultmiate objective.
The foregoing represents the highlights of plans and projects under way.
They point to the fact that the Bureau of Foreign and Domestic Commerce has
laid the foundations for serving more effectively than ever before those it repre-
sents in Government — private enterprisers engaged in international trade.
Dsportment of Commerce Field Offices
-^ REGIONAL orriccs \
Q DISTRICT Offices
HOW FIELD SERVICE FOSTERS, PROMOTES, AND DEVELOPS FOREIGN TRADE OF UNITED
STATES «
The 26 field oflBces bring the Department of Commerce and its bureaus to the
businessman in his own territory, providing easy access to the wealth of material
prepared by the Bureaus of Foreign and Domestic Commerce and the Census.
Personal sei'vice.
Staffs, while limited in size, are experienced in the application of data and
statistics to the solution of specific marketing and distribution problems. Thus
they give valuable personal aid in supplying pertinent information to meet the
needs of individual businessmen.
In addition, the Field Service has always provided up-to-date reporting on
the complex regulations and controls exercised abroad, as well as market pros-
pects and information on establishing channels of distribution. Today the
oflBces offer a service — exclusive in many ways — that those in international com-
merce constantly use.
TTie men and women in the field oflSces also perform a valuable service to the
Bureau of Foreign and Domestic Commerce and other Government agencies by
furnishing a first-hand picture of economic conditions in their areas. Main-
taining close contact with foreign traders, they are in a ijosition to report on the
problems, needs, and plans of exporters and importers.
PuWished aids.
To keep those in international trade informed on important developments in
exporting and importing, the field oflices prepare and distribute:
Foreign Commerce News Bulletin. — A weekly letter which reports constantly
changing regulations, tariffs, and other facts in the foreign trade field.
As the official representative of the Foreign Economic Administration, each
field office has immediately available and can supply the following publications
of the Foreign Economic Administration to those engaged in international trade:
Comprehensive Export ^chedtile. — Covers all official regulations relating to
export control that have been decreed and published by the Foreign Economic
Administration.
POST-WAR ECONOMIC POLICY AND PLANNING 1195
Current Export Bulletin. — These bulletins supplement the Comprehensive
Export Schedule and are issued for the guidance of all concerned with export
control regulations and interpretations.
Sources of printed material.
Each field oflSce serves as a convenient source of published material distributed
by the Bureaus of Foreign and Domestic Commerce and the Census. Each is
authorized to sell the publications for which charges are made, and to take sub-
scriptions for the Department publications.
In addition, the offices keep in touch with the activities carried on by many
private business agencies, and furnish information as to the services rendered by
such groups along foreign, as well as domestic trade lines.
HOW BURE.VTT IS ORGANIZED TO SERVE INTERNATIONAL TRADE
Of the seven divisions in the Bureau of Foreign and Domestic Commerce, four
concern themselves with the international trade of the United States. These ai'e
the Divisions of International Econonay, Industrial Economy, Commercial and
Economic Information, and the Field Service.
To give the most efficient service, the above-mentioned divisions are organized
as follows:
Director: Amos E. Taylor.
Assistant Directors: O. P. Hopkins, R. C. Miller.
Liaison officer, representing Bureau with State : Donald W. Smith.
Division of International Economy : James H. Edwards, chief.
Foreign law adviser.
Industrial property adviser.
International Economics and Statistics Unit:
Balance of Payments Section.
Consultant on C-ommereial Policy.
Foreign Country Trade Section.
United States Trade Section.
Comparative Statistics Section.
Trade Agreements Unit.
Trade Controls Unit.
Geographic Units :
American Republics Unit.
British Empire Unit.
European Unit.
Far Eastern Unit.
Russian Unit.
Division of Industrial Economy: H. B. McCoy, chief.
Chemical Unit.
Construction Unit.
Drugs and Pharmaceuticals Unit.
Fats and Oils Unit.
Foodstuffs Unit.
Industrial Projects Unit.
Leather Unit.
Lun>ber Unit.
Machinery and Motive Products Unit.
Metals and Minerals Unit.
Motion-Picture Unit.
Pulp and Paper Unit.
Rubber Unit.
Specialties Unit.
Texile Unit.
Transportation Unit. . , ^ „ ^^ , „,. , , • *
Division of Commercial and Economic Information : E. E. Schnellbaeher, chief.
Commei-cial Intelligence Unit:
Foreign Sales Section.
Inquiry and Reference Section.
Publications Unit.
Trade Associations Unit.
Field Service, Director: Joseph A. Mack.
99579 — 45 — pt. 4 38
1196 POST-WAR ECONOMIC POLICY AND PLANNING
Location of offices : Managers
Atlanta, Ga C. Parker Parsons
Boston, Mass Harold P. Smith
Buffalo, N. Y John J. Love
Charleston, S. C C. W. Martin
Chicago, 111 George C. Payne
Cincinnati, Ohio Miss Emma Herrier
Cleveland, Ohio Frederic L. Roberts
Dallas, Tex Carl F. Bartz
Denver, Colo Mrs. l^lizabeth Pettus
Detroit, Mich Kichard Stephenson
Houston, Tex Thomas U. Purcell
Jacksonville, Fla William A. Dunlap
Kansas City, Mo Frank P. Churchill
Los Angeles, Calif Walter Measday
Memphis, Tenn Noland Fontaine
Minneapolis, Minn Will F. Kissick
New Orleans, La Harold C. Jackson
'New York, N. Y John F. S.nnott
Philadelphia, Pa William M. Park
Pittsburgh, Pa Charles A. Carpento'
Portland, Oreg Howard E. Waterbury
Richmond, Va C. Koy Mundee
St. Louis, Mo, Clyde Miller
San Francisco, Calif John J. Judge
Savannah. Ga Joseph G. Stovall
Seattle, Wash Philip M. Crawford
Exhibit No. 20
Foreign Economic Administration
overseas trade functions of the united kingdom board of trade
I. The Department of Overseas Trade.
In the United Kingdom the Board of Trade bears the chief responsibility for
overseas trade and foreign commercial relations. In order to get over difficul-
ties about the division of function in foreign trade matters between the Board
of Trade and the Foreign Office, a plan for dual control was devised in 1917
which has set an interesting precedent. In that year by statute a new depart-
ment, known as the Department of Overseas Trade, was established which is
jointly responsible to the Board of Trade and the Foreign Office.
According to the scheme joint control is centered in a single Minister who
serves as Parliamentary Secretary to the Board of Trade and Parliamentary
Under Secretary to the Foreign Office. In the administration of overseas
commercial services the Department of Overseas Trade acts as an agent of the
Board of Trade on certain matters, as an agent of the Foreign Office on others,
and as an agent of both on others.
The Department of Overseas Trade is primarily concerned with the machinery
of trade rather than commercial policy and is set up to give service to traders.
One of its major functions is to collect and disseminate commercial intelligence
regarding :
1. Rates of duty.
2. Foreign competition abroad.
3. Openings for trade.
4. Public instructions.
5. Conditions of local trade and credit.
Until recently the Department of Overseas Trade administered the three
groups of commercial services :
(a) Trade Commission Service (Dominion and Colonial),
(ft) Comercial Diplomatic Service,
(c) Consular Service.
Groups (6) and (c) are now being fused in a joint Foreign Service under the
Foreign Office. The Board of Trade and the Department of Overseas Trade
POST-WAR ECONOMIC POLICY AND PLANNING 1197
will be i-epresented on the Promotions Board of the Personnel Department of
the Foreign Office when appointments to commercial diplomatic posts are under
consideration.
//. Commercial Relations and Treaties Department.
In contrast to the Department of Overseas Trade, the Board of Trade, through
it Commercial Relations and Treaties Department, is concerned with com-
mercial policy. The President of the Board of Trade is the Cabinet minister
responsible to Parliament lor commercial policy.
Though the actual negotiation of trade agreements is the responsibility of
the Foreign Ohice, usually the initiation comes from the Commercial Relations
and Treaties Department. Officers of the Commercial Relations and Treaties
Department frequently act as negotiators for the Foreign Office as well as
advisers. Problems arising under the operation of agreements are handled
by the Department as well as matters of unfair trade competition abroad, repre-
sentations to foreign and Empire governments on all trade matters and com-
munications to other government departments as to the effect on overseas trade
of existing or contemplated legislation and administration. The Department
publishes summaries of foreign tariffs and other trade regulations and legislation.
The Commercial Relations and Treaties Department has three divisions: the
General Division, which deals with over-all c<mimerci;il policy matters ; a Country
Division ; and a Commodity Division. The Country Division maintains close
liaison with the country desks in the Foreign Office and consults particularly on
such problems as the effect of political considerations on export policy.
All formal approaches to foreign countries on commercial matters have to be
made through the Foreign Office, which is also the channel through which in-
structions are sent to British diplomatic representatives in foreign countries.
The Dominions Office acts in a similar way vis-a-vis countries within the British
Commonwealth. In general it can be said that the Foreign Office is staffed
primarily to handle political matters and uses the staffs of the Department of
Overseas Trade and the Commercial Relations and Treaties Department for
advice, trade information, and assistance in negotiation.
///. Other functions concerning overseas trade.
In addition to the work of the two departments discussed above, the Board
of Trade carries on the following activities related to overseas trade :
1. Industrial and Export Council (JB^O). — The Council consists of 18 members
drawn from industry, labor, and government, including for the government the
Treasury, Ministry of War Transport, Ministry of Economic Warfare, the Raw
Materials Department of the Ministry of Supply, and the Ministry of Labour.
A representative of the Foreign Office attends. The President of the Board of
Trade is the chairman and the Secretary to the Overseas Trade Department is vice
chairman. The business members of the Council xmdertake the execution of
policy decisions within the trade.
An executive committee of four members has been appointed with authority
to organize British exporters into export groups.
2. Committee of Export Groups. — The export groups were organized in 1940.
In 1942 a Central Committee of Export Groups was appointed, which is attached
to the Industrial and Export Council. During the war the export groups have
been used (a) to transmit to the Government applications for licenses to import
certain machinery and supplies; (&) to allocate raw materials among members
for export orders; (c) to keep track of permitted exports; and (d) to make
preparations to regain lost markets after the war and to consider post-war trade
plans.
The groups serve as a link between the export trade and the Government by
providing an opportimity to the Government to present its po'nt of view to the
trade and affording the trade an opportunity to present its point of view to the
Government. As business bodies the export groups are able to offer practical
guidance arising out of business experience.
3. Export Credits Gnnrnntee Department. — This Department administers the
Export Guarantees Act which provides Government credit facilities for exports.
4. Post-War Export Trade Committee. — This committee is attached to the
office of the Parliamentary Secretary of the Board of Trade — Parliamentary
T'nder Secretary to the Foreign Office. It consists of 11 members, 7 officials of
the Board of Trade and. Department of Over.«eas Trade and 4 businessmen. The
Secretary of the Department of Overseas Trade is the chairman. Its terms of
reference are to make a comprehen.'sive study of .special pro])lems which will con-
front British exports after the war.
1198
POST-WAR ECONOMIC POLICY AND PLANNING
5. Export and import control. — Export control for designated strategic supplies
and import control have been established as war procedures. The Export Licens-
ing Department is attached to the Commercial Relations and Treaties Depart-
ment, and the Import Licensing Department for private trade is attached to
the Industries and Manufacturers Department. The range of goods handled by
the Import Licensing Department is very limited because the principal imports
are procured by the Government.
IV. Relations vnth Business.
The role of the British businessman within the Board of Trade is significant.
Businessmen sit upon the Industrial and Export Council, the Export Trade
Committee, and the Advisory Council of the Export Credits Guarantee Depart-
ment. The old trade associations have been organized into export groups and
a Committee of Export Groups has been established under the Industries and
Export Council to perform a two-way function of bringing the businessmen's
point of view to the Government and the Government's point of view to the
businessmen.
POST-WAR ECONOMIC POLICY AND PLANNING 1199
Exhibit No. 22
ExpoET Credits Guakantee Department of the United Kingdom
The scheme for the British Export Credits Guarantee Department was origi-
nally set up in 1919 to help British firms to overcome the difficulties and hazards
of international trade resulting from the war and has been continued In revised
form ever since. Before the present war there were five major revisions of the
scheme— in 1921, 1926, 1930, 1937, and 1939. During the war a number of changes
have been made to assist exports under wartime conditions. The major purpose
has remained, namely, to establish and encourage "trade, or any branch of trade,
between the United Kingdom and any country."
/. The organization of the Export Credits Guarantee Department.
1. The minister in charge is also the secretary of the Overseas Trade Depart-
ment.
2. Advisory Council.
(a) Membership: Experts in industry, banking, and insurance,
(ft) Powers: The Council by statute must be consulted and guarantees,
including terms, are given only on their recommendation.
3. Executive Committee of Four. The Committee has no, statutory functions,
but is used for consultation on general administrative policy.
4. Branch oflices. There are branch offices in Manchester, Bradford, Birming-
ham, Sheffield, Glasgow, and Belfast. In 1936 a special permanent representative
was sent to China to advise the Department on the standing of Chinese importers
because it was felt that China presented a special problem.
5. Sections.
(a) Status Section: Investigation of standing of foreign buyers.
(6) Economic Section: Information on economic and political conditions
in country of destination of the proposed shipment.
(c) Underwriting Section: Examination of application and assessment of
rislvs subject to approval of the Advisory Committee.
(d) Contracts Section : Drafting of policy.
e. Claims Section: Examination of claims received from policyholders.
f. Special Section: Handling of large medium terms transactions and all credit
agreements with foreign governments.
//. Credit facilities.
The primary function is to give guaranties in connection with the export, or an
agreement for the export, of goods to any country. The credit facilities offered
cover the following :
1. Guaranties of solvency covering short-term transactions (up to 6 months),
(a) Specific insurance policy of a single customer for a specified amount
(usually 50 to 75 percent of value). This was the chief business prior to
1931.
(6) Comprehensive policy (1931) :
(1) Insures against insolvency the whole of an exporter's business
for 1 year (open .credit or bills of exchange). The object is to spread
the risk.
(2) Two types of policies:
i. Insurance up to 75 percent of losses up to an agreed
maximum,
ii. Insurance at a lower premium covering 85 percent above
an agreed first loss.
(3) Exporters submit names of buyers and ask for specified amounts
of revolving credit for each.
(4) Transfer Addendum (1935) : Optional supplementary policy is to
protect against risk of transfer due to new foreign exchange restric-
tions in the buying country. Originally it covered 75 percent of sterling
value of sales to solvent buyers. In 1940 maximum cover was raised to
90 percent and included war risks. Exchange fluctuations are not
covered.
(5) Now covers most of short-term business.
1200 POST-WAR ECONOMIC POLICY AND PLANNING
2. Medium term guaranties (up to 10 j'ears) :
(«) Coverage includes purchasers of plant, machinery, and other capital
equipment.
(&) Exports to private purchasers are guaranteed against insolvency.
Exports to public bodies are guaranteed against default.
(«") Reasons — Few manufacturers are in a position to finance large con-
tracts for 5 years or more and bankers are frequently unvpilling to lock up
funds. Tlie Department furnishes exporters with lirst-class security to
facilitate obtaining funds.
(d) Under the £10,000,000 agreement with the Union of Soviet Socialist
Republics in 1936 tlie Department endorsed and sold on the market Soviet
5-year, 5Vj percent notes. These notes were guaranteed both as to principal
and interest.
(e) Under agreement with Turkey in 1936 a special trading company to
sell Turkish products for free exchange to build a steel plant, etc., was set up.
3. Preshipment policy (1940).
(a) Secures the exporter against 90 percent of risk of loss if he is not
able to deliver goods ordered, particularly special order goods with little
resale value.
(&) Causes include (a) insolvency of buyer before shipment; (&) impo-
sition of import restrictions; (c) occurrence of war, hostilities, or civil
disorder.
4. War-emergency policy of "all-in" policy (1940) — standard form — gives pro-
tection against loss for —
(a) Buyer's insolvency (85 percent guaranty).
(&) Exchange restrictions due to foreign exchange control in buyer's
country (90 i)ercent guaranty).
(c) Events in buyer's country preventing payment for goods shipped or
pi-eventing delivery (90 percent guaranty).
(d) Additional handling, insurance, and freight charges caused by inter-
ruption or diversion of voyage (90 percent guaranty) .
5. Cost, insurance, and freight policy (1940). Grants cover against any rise
in marine insurance, Government war-risk insurance, and freight rates within
agreed period.
///. Aggregate liability.
The act of February 28, 1939, set the limit of aggregate habilities outstanding
at any time at £75,000,000. Of the total outstanding, not more than £7,500,000
may be for guaranties on exports of goods not produced or manufactured in the
United Kingdom. Under wartime powers these statutory limits have been sus-
pended.
Whereas previously all guaranties were judged on a commercial basis only, the
1939 act provided that guaranties up to a specified amount could be given when
"expedient in the national interest." The limit was set at £60,000,000, exclusive
of liability for interest in the Overseas Trade Guaranties Act, July 6, 1939. Only
£6,0(W,000 of the amount can be used for goods not produced or manufactured in
the United Kingdom. These credits are intended to assist the rearmament pro-
grams of certain nations.
IV. Premiums.
Premium rates are determined by individual contract negotiations. Factors
considered include —
(1) Exporter's annual turn-over.
(2) Loss experience in past years and outstanding claims.
(3) Department's credit records on old or new customers,
(4) Prevailing economic and political conditions in foreign markets.
(5) Percentage of cover applied for.
V. Acquisition of guaranteed securities.
The board of trade may, with the consent of the Treasury, acquire securities
which have been guaranteed in the exercise of powers under the act, to be held
or disposed of as it thinks fit. Also it may collect any sums falling due on these
securities, whether by way of principal or of interest. (July 6, 1939, revision.)
POST-WAR ECONOMIC POLICY AND PLANNING
VI. The following table presents the data on business done.
12U1
Period
Total value
of credits
guaranteed
Maximum
liabilities
assumed
Proportion
of maximum
liabilities to
total credits
(percent)
Annual average for iii-yeai period ending Sept. 30, 1934
Annual average for 18-raonth period ending Mar. 31, 1936
Fiscal years, Apr. 1 to Mar. 31, 1936-37 .
£9, 021, 000
20, 188, 900
33, 184, 065
42, 940, 029
49, 927, 654
63, 245, 029
95, 136. 358
108, 038, 999
63, 982, 752
50, 169, 063
£4, 769, 400
5, 979, 700
12, 480, 544
14. 436, 401
19,335.717
23, 454, 380
40, 656, 551
52, 546, 603
32, 716, 388
25.263,052
52.8
29.6
35.4
1937-38
33.6
1938-39 _ .
36.6
1939-40— -
37.0
1940-41
42.7
1941-42
48.6
1942-43
51.1
1943-44
50.3
CONCLUSIONS
From 1926 through 1939 the Department conducted its business without loss
to the taxpayer and had accumulated a reserve of £3,000,000. Even under the
new wartime guaranties, which were definitely intended as a subsidy to the
export trade, a deticit of only £1,000,000 has been accumulated which will be
reduced in all likelihood.
The Export-Credits Guarantee Department has been placed on a permanent
basis and will be used as an agency for export promotion in the post-war world.
Plans are under way for increasing its usefulness by extending its facilities,
which will be presented to Parliament this year. It is of interest to note that
occasionally large firms have suggested that the facilities tend to create com-
petition from smaller organizations which would not be able to engage in export
trade or credit without the support of the Department's guaranties.
Exhibit No. 23
Canadian Expoet-Cbedits Instjbance Corporation Act
SUMMARY
The Canadian Export-Credits Insurance Act which was passed on August 2,
1944, by the Canadian House of Commons combines the salient features of the
British Export-Credit Guarantee Department and the Export-Import Bank of
Washington. The purpose of the act is to promote the revival of trade between
Canada and other countries by: (1) Authorizing the establishment of an Export-
Credit Insurance Corporation to extend governmental export-credit insurance
to Canadian exporters and (2) empowering the Minister of Finance under the
authorization of the Governor In Council to provide governmental credits or
guaranties to foreign governments or their agents during the transitional period
from war to peace. In the latter type of assistance, the foreign government
must guarantee the Government of Canada against loss in connection with the
loans and guaranties extended.
1. Provisi(ms concerning activities of Canadian Export-Credit Inmranee Cor-
poration.
(a) Type of insurance. — The Export-Credit Insurance Corporation may Insure
exporters against loss caused by insolvency, delays in collection, and transfer
difficulties In connection with the export of Canadian produced goods.
(6) Capitalization. — The Corporation is to be financed by a capital stock and
paid in capital surplus of $5,000,000 each, to be subscribed by the Minister of
Trade and Commerce.
(c) Terms of insurance contract. — The terms and conditions upon which the
Corporation may enter into any contract of insurance such as (1) the rate or
rates of premiums and (2) the terms of coinsurance, are to be formulated in
the bylaws of the Corporation.
1202 POST-WAR ECONOMIC POLICY AND PLANNING
(d) LiaMlity under contracts outstanding. — The total amount of the liability
of the Corporation under the contracts of insurance issued- and outstanding at
any one time may not exceed 10 times the amount of the paid-up capital and
surplus of the Corpoi*ation.
2. Provisions concerning assistance to foreign governments iy Minister of Finance.
(a) Type of assistance. — During the transitional period from war to peace, the
Minister of Finance, under the authorization of the Governor in Council, may
provide loans and guaranties to foreign governments or their agents for the
purpose of facilitating and developing trade. This bill specifies that such credit
assistance should include :
(1) Guaranties of the obligations of a foreign government or its agent
assumed under a contract to purchase Canadian goods from an exporter ;
(2) Loans to a foreign government or its agent to finance the purchase of
Canadian goods; and
(3) The purchase, acquisition, or guaranty of any security issued by the
foreign government or its agent in payment for Canadian goods.
The Minister of Finance may provide credit assistance described in (1), (2),
and (3) above only if the foreign government concerned requests the Canadian
Government for a guaranty or loan and undertakes to indemnify the Govei'nment
of Canada against loss.
(b) Aggregate amount of guaranties, loans, and securities. — The act provides
the following limitations on the volume of loans, guaranties, and securities that
may be outstanding at any one time :
(1) The aggregate amount of guaranties outstanding at any one time may
not exceed $200,000,000; and
(2) The aggregate of the amount of loans made outstanding at any one
time, and the value of securities purchased or acquired and held at any one
time may not exceed $100,000,000.
(c) Terms of assistance. — The Governor in Council is authorized to determine
the terms and conditions upon which any guaranty, loan, purchase, acquisition,
or guaranty of securities shall be made.
(d) Time period. — The provision for direct credit assistance to foreign govern-
ments is limited to a 3-year period. (It is expected that the main need for direct
credits will arise in the transitional post-war years.)
Exhibit No. 24
Foreign Economic Administration
expekienoe of foreign economic administration in dealing with international
cartels in forb3gn procurement
This Statement is brief and general, because a lengthy and detailed examination
would be necessary to cover the hundreds of commodities which the Government
has procured abroad during wartime.
In the effort to overcome domestic shortages of many critical and strategic
materials by expanding imports from foreign countries. Foreign Economic Ad-
ministration has often found it difficult to persuade foreign companies to expand
production. In some cases this i-eluctance may have been due to the existence of
international cartels. However, there are other factors which have resulted in
the same diflSculty, such as the fear on the part of foreign corporations that they
would be left with post-war surpluses and the unwillingness of foreign mining
corporations to use up their higher-grade deposits during the period of war and
high taxes. Even to make guesses as to the extent to which cartel agreements
h.'Hl interfered with foreign procurement would require a large staff and careful
analysis of numerous complicated negotiations.
According to the list of cartels prepared by the Department of .Justice, many
of the commodities involved in Foreign Economic Administration procurement
were, prior to the war, cartel controlled. Some of these agreements have been
reported as suspended for the duration of the war. Even in such cases, it is
possible that the car*^el pattern of action continued through informal consulta-
tion.
POST-WAR ECONOMIC POLICY AND PLANNING 1203
In certain specific industries, such as tin and industrial diamonds, tlie cartel
organizations have admittedly remained in existence during the war. In the case
of tin, an agreement by the governments of the producing countries was renewed
in London in September 1942. Although this agreement sets quotas for all produc-
ing countries. Sir John Campbell, Chairman of the International Tin Committee,
stated in November 1942 :
"The policy of the Committee is to secure the maximum possible production of
tin during the war period and the quotas will unquestionably be adjusted from
time to time as may be necessary in order to secure that objective."
However, one producer was of the opinion that the mere continuance of the
quota system could have the effect of restricting production since producers
would tend to hold back production 1 year so that they would be certain of their
quota the following year.
In industrial diamonds, the British De Beers syndicate has been the sole outlet
for supplies to the United Nations. The syndicate has exclusive contracts with
producers in Africa who produce about 95 pi^rcent of the world's output. Up to
the present time the syndicate has made a sufficient supply of industrial diamonds
available for the United States war effort. The real problem has been in con-
nection with a United States stock pile which the syndicate has refused to permit,
apparently in the fear that their rigid price policies might be jeopardized if any
sizable quantities were outside their control. In early 1943 this Government
negotiated with the syndicate and the British Government for the establishment
of a United States stock pile of industrial diamonds. This was rejected in favor
of a United Nations stock pile in Canada. Despite requests by our Government
to examine this stock pile, up to the present time this has been refused.
Since all of the corporations, parties to Foreign Economic Administration pro-
curement contracts, were located abroad and in many instances were foreign
owned and controlled, no agency of this Government possesses the adequate
powers to make the investigation. The need for certain materials from abroad
has been so urgent for the United States war effort that all efforts were directed
to securing the immediate flow of goods to this country. Had there been regis-
tration of cartel agreements, as has been proposed, the documents would have
served the useful purpose of indicating the character of the restrictive arrange-
ments in existence and the firms involved. Even this would not have been wholly
satisfactory, however, since in wartime few firms would admit the continued
existence of such agreements.
In this connection it might be worth while for your committee to make inquiries
of experiences with cartels from the agencies engaged in foreign procurement
prior to our entrance into the war. In 1939, 1940, and 1941, we were, officially,
on a peacetime footing; and the. activities of cartel organizations were less
restricted than following the United States' declaration of war. The Recon-
struction Finance Corporation, and such subsidiaries as Metals Reserve, as well
as the Treasury Department, were engaged in foreign procurement during that
period.
OCTOBEE 17, 1944.
Exhibit No. 25
Peoposal of National Council of American Importers Addressed to the
National Foreign Trade Convention
Under the Shipping Act of 1916, steamship companies are specifically permitted
to combine in steamship conferences for the establishment of standard contract
conditions and uniform ocean freight rates covering the carriage of goods from
the United States and impoi-ted into the United States. As a result, the steani.ship
companies through their conferences have been enabled to present a united front
in laying down the conditions and rates of carriage.
Shippers, on the other hand, both exports and importers, have, in the main,
acted as individuals or through individual conunodity groups limited in the
number of members and have, therefore, frequently been compelled to accept
conditions and rates which have been not only inequitable but also have been
obstacles to the successful conduct of their business. From time to time there
have been strong individual protests, but due to lack of concerted action on the
part of shippers, little progress has been made toward achieving sati.'^factory
results. In a booklet. Control of Ocean Freight Rates in Foreign Trade, No. 185
1204 POST-WAR ECONOMIC POLICY AND PLANNING
of the trade promotion series, published by the Bureau of Foreign aud Domestic
Commerce, a recommeudatiou is quoted from the investigation by the British
InipL'rial Shipping Committee a number of years ago, in which it was strongly
recommended that the shippers' associations combine in cooperative action toward
the adequate protection of their proper interests.
The National Council of American Importers, Inc., in preliminary conversa-
tioub with repiesentativLS ol the United States Maritime Commission has dis-
cussed certain important phases of this subject. While present conditions of
war make this time inopportune to accomplish all that is necessary in the matter
of ocean contract conditions and freight rates, nevertheless, export and import
associations can well lay their plans now for action that can be taken at an
appropriate time. We have, therefore, the following specific recommendations to
lay before the National Foreign Trade Convention ;
(1) The National Foreign Trade Council should offer its facilities as the focal
organization for exporters, with which individual export trade aud product
associationis will cooperate so that the transportation committee of the National
Foreign Trade Council can prepare a detailed program to lay before the United
States Maritime Commission for subsequent action.
(2) The National Council of American Importers, Inc., should offer its facilities
as the focal organization for importers, with which individual import trade and
product associations will cooperate so that the transportation conunittee of the
National Coimcil of Aruerican Importers, Inc., can prepare a detailed program
to lay before the United States Maritime Commiission for subsequent action.
(3) The transportation committees of the National Foreign Trade Council
and the National Council of American Importers, Inc., should appoint a joint
subconiniittee which can represent all of the individual export and import inter-
ests in the presentation of this program to the United States Maritime Commis-
sion and, if necessary, to the chairman of the proper committee of the Senate
and the House of Representatives for legislative action.
(4) Specifically, there are the following suggestions some of which have al-
ready been submitted by the National Council of American Importers to the
United States Maritime Commission and which the National Foreign Trade Con-
vention should consider as an initial program.
(n) Each steamship conference should establish in the United States a commit-
tee or agency to meet from time to time with the transportation committees of the
National Foreign Trade Covincil and the National Council of American Im-
porters, Inc., respectively, and which will have sufficient authority to dirscuss and
act upon such transportation problems as contract terms, freight rates, etc.
(6) Steamship companies should publish tarilfs on export and import rates for
sale to exporters and importers at the cost of publication and which are at all
times available to them. These tariffs should include an exact copy of the con-
ference contract and the bills of lading.
(c) Conferences should adopt uniform bills of lading.
(d) Conferences should be required to make public all contemplated changes
in freight rates sufiiciently in advance of the date when such rate is to become
effective, in order that American exporters or importers may have ample time
to present their views concerning rates to the conference.
(c) Conferences should follow the procedure of the rate-making agencies of
railroads. They should publish their dockets, including the basis for the con-
tention of a change in rate, so that all interested parties may have an opportunity
of presenting their views.
(f) More publicity should be given to dates of meetings and subjects to be
considered by conferences, so that American exporters and iniportei-s may com-
municate with the conferences on various subjects at opportune times.
(fj) Steamship companies should present to American exporters or importers
a memorandum of all changes proposed in existing contracts at least 4 months
prior to the effective date of any new contract.
(h) The terms of all conference contracts should he reasonable, fair, and equi-
table both to conferences and American exporters nnd importers.
(i) The present Division of Regulation of the United States Maritime Commis-
sion should be made independent from the Commission, and should be given
authority to regulate ocean transportation and port terminal facilities. It
should also formulate a sound foreign transportation program in consultation
with foreign-trade associations, steamship conferences, independent steamship
companies, port terminal operatoi"s, and others directly interested. It seems
anomalous that the United States Maritime Commission should not only act as
owners and operators through its subsidy program but also be charged with
the regulation of ocean transportation.
POST-WAR ECONOMIC POLICY AND PLANNING 1205
(5) There are a great number of specific commodity associations among ex-
porters and importers. But they concern themselves largely with problems
pertaining to the marketing of their products and are not active in matters per-
taining to the technique of exporting and importing. There are also other asso-
ciations, such as the National Industrial Tratfic League, which devotes its
major attention to domestic traffic problems and, therefore, is not active in the
field of ocean transportation. Then there are chambers of connnerce and
municipal civic associations that deal only with local pi"oblems and who, there-
fore, also do not operate broadly in the field of ocean transportation. The
National Foreign Trade Council and the National Council of American Importers,
Inc., were organized to help exporters and importers in matters of foreign-trade
technique. They are the logical channels for united foreign-trade action, as
well as being the organizations best capable of furthering the general interests
of exporters and importers in all phases of foreign trade technique. Their
transportation committees, should, therefore, act as a clearing house in trans-
portation matters, in marine and war-risk insurance problems, in customs matters,
and in other broad export and import problems through which all of the in-
dividual groups who do relatively little in this field can most effectively coop-
erate for the benefit of all concerned.
It is our suggestion that the National Foreign Trade Convention approve in
principle the suggestion for organization made herein, as well as the specific
initial objectives presented now, in order to enable the National Foreign Trade
Council and the National Council of American Importers to proceed further.
MoERis S. Rosenthal,
Chairman, Committee on Transportation of the National Council of
American Importers, Inc.
Source : Twenty-seventh National Foreign Trade Convention, San Francisco, .July 29, 30,
and 31, 1940.
Exhibit No. 26
[Reprinted from the Annals of the American Academy of Political and Social Science,
Philadelphia, July 1944]
A PRACTICAL APPROACH TO A WORLD TRADE BOARD
(By Otto T. Mallery)
President Woodrow Wilson proposed a World Trade Board during the drafting
of the Covenant of the League of Nations. In the first draft the World Trade
Board was mentioned. In the second and subsequent drafts it was omitted. In
explanation of this, President Wilson said some years later that the World Trade
Board was thought unnecessary because article 23 of the Covenant was sufficient.
This article declares for an "equitable treatment of the commerce of all members
of the League." This belief proved mistaken, for no implementing measures were
ever taken for such an equitable treatment of commerce.
This shows the weakness of relying on general principles. Such a general
principle occurs also in point 4 of the Atlantic Charter about equal access to raw
materials. General principles are useful in formulating ideas, but are insuffi-
cient to carry them out. Let us therefore seek a practical approach for the
creation of the World Trade Board, not in general principles but in a specific
contract already signed in behalf of the United States and 15 of the United
Nations. This solemn contract is section 7 of the master lend-lease agreement,
which reads :
"In the final determination of the benefits to be provided to the United States
of America by the Government of * * * in return for aid furnished under
the Act of Congress of March 11. 1941. the terms and conditions thereof shall be
such as not to burden commerce between the two countries, but to promote
mutually advantageous economic relations between them and the betterment of
world-wide economic relations. To that end, they shall include i)rovisioii for
agreed action by the United States of America and the Government of * * *
open to participation by all other countriefs of like mind, directed to the expansion,
by appropriate international and domestic measures, of production, employ-
ment, and the exchange and consumption of goods, which are material foundations
of the liberty and welfare of all peoples ; to the elimination of all forms of dis-
1206 POST-WAK ECONOMIC POLICY AND PLANNING
criminatory treatment in international commerce, and to the reduction of tariffs
and other trade barriers; and, in general, to the attainment of all the economic
objectives set forth in the Joint Declaration made on August 14, 1941, set forth
in the Atlantic Charter.
"At an early convenient date, conversations shall be begun betvpeen the two
Governments with a view to determining, in the light of governing economic
conditions, the best means of attaining the above-stated objectives by their own
agreed action and of seeking the agreed action of other like-minded Governments."
The World Trade Board would be that best means.
Bases of Wobld Teade Board
The lend-lease agreements differ fundamentally from the Atlantic Charter.
The Atlantic Charter is an expression of ideals signed by two individuals, one
representing tlie United States who signed before the United States had legally
entered the war. The master lend-lease agreement is a solemn contract signed
for the United States Government with the approval of Congress and signed by,
other nations because of definite advantages to be received in return for definite
service rendered. If this solemn agreement in section 7 regarding trade barriers
is not good, nothing else in international relationships can be trusted. If this
contract does not stand up, then there is no use putting any faith in future
promises which may be contained in possible alliances or in agreements for
international policing. Therefore let us accept this contract as the foundation
of international relationships and as the practical approach to a World Trade
Board.
We will also base the World Trade Board upon American experience with
existing institutions, beginning with that of the Federal Trade Commission in
promoting fair trade practices. We will entrust the World Trade Board with
the duty of promoting reciprocal trade agreements on the Hull pattern, but
among a group of nations instead of between only two nations at a time. The
set-up of its conferences should be modeled on those of the International Labor
Organization. The powers of the World Trade Board should not be those of a
legislature, but should be similar to those of the International Labor Organiza-
tion, viz, to adopt specilic agreements and measures which have to be ratified by
home governments before they become operative.
Thus the World Trade Board would be a composite resulting from the experi-
ence of lend-lease agreements, the Federal Trade Commission, the Hull reciprocal
trade agreements, and the International Labor Organization. Its objectives will
be found in the Suggested Draft for World Trade Board presented later Jli
this article.
Before discussing the administrative duties of the Board we shall first examine
why such a board is necessary and then why it seems to be a probability.
Necessity for Boabd
A World Trade Board is necessary because greater exports will be necessary for
the United States than ever before if our standards of living are to rise. These
increased exports will not come out of policies which impoverish our overseas
customers, but only out of those which enrich them. Therefore the raising of
the standards of living of customer countries is a condition precedent to the
long-run increase in our own exports and of our own standard of living. Trade
barriers, discriminatory trade policies, and economic warfare did not and will
not raise the standards of living of our customer countries or of ourselves. The
policies of the past will not do. We need to understand very clearly what their
consequences were, for instance, those (V the Hnwle.v-Smoot Tariff Act of 1030
and of the British reply to it, the Ottawa minerial Preference Agreements of 1931.
These measures were an attempt to stem the tide of world unemployment which
had resulted from the trade policies of th" victor nations sinr-(» the Versailles
Treaty. The victor nations controlled the trade of the world. They were
supreme, yet their economic warfare against one another reduced world trade
and lifted unemployment to unprecedented levels. They sought to remedy this
situation by raising tariffs still higher and by creating preferential mark'^ts in
their colonies and within their imperial .systems. The Ilawley-Smoot Tariff Act
and the Ottawa Imperial Preference Agreements did not remedy the situation,
which grew worse. They not only did not protect employment at home, but they
helped to produce the longest, deepest, and widest period of unemployment both
at home and throughout the woiid.
POST-WAR ECONOMIC POLICY AND PLANNING 1207
After the Hawley-Smoot Tariff Act was iu full effect, unemployment never fell
below 7,400,000 in the United States during the 9 years up to World War II.
The League of Nations reported 30,000,000 unemployed in Europe and North
America. The attention of Americans was not yet upon Asia, but Japan had
been more seriously disrupted than the United States. The shock to Japan
was so severe that it drove out of office a liberal government and put into power
a militant government determined to make up by conquest (Manchuria, September
1931) for lost markets and declining trade.
Unemployment turned out to be not wholly a national but partly an interna-
tional problem, which was aggravated by the national measui-es adopted.
The Hawley-Smoot Tariff Act and the Imperial Preference Agreements together
inaugurated a further drop in world trade so that by 1933, after their full effect
had been felt, the dollar value of the foreign trade turn-over of the 75 principal
countries had fallen to 35 percent of the 1929 level. For many years thereafter
and up to the beginning of the global war, United States exports were a smaller
percentage of the total trade of the world. The quantum of world trade in 1935
was only S5 percent of the predepression level (1928) and never exceeded that
level up to 1938, inclusive. High trade barriers and colonial monopoly had
boomeranged against both noncolonial and colonial powers and invited war.
A peace to be durable had to be endurable.
Not many realized this truth then, for the United States was pressing the
Kellogg-Briand Fact to outlaw war as a national policy at the same time that
it was passing laws to outlaw foreign goods as a national policy. The two
policies were contradictory. When each great state and colonial empire closed
its markets to others, it gave the others a choice between unemployment and
war. War as a national policy, renounced by the Kellogg-Briand Pact, was
invited by the monopolizing of markets.
Thus unemployment at home and aggression abroad were partly the conse-
quences of short-sighted nationalistic and imperialistic trade policies. The World
Trade Board is necessary if this is not to happen again.
Possibility of Creating Board
Granting that a World Trade Board is necessary, why do we think it is possible?
There are four encouraging reasons.
First, there is an evident trend among the smaller nations of Europe toward
breaking down trade barriers. One example of this trend was the proposed fed-
eration of Yugoslavia, Greece, and Poland, initiated by their exiled governments
in 1941. This would mean more than a removal of discriminatory tariff barriers.
It would amount to a customs and economic union based on a political federation.
This proposal appears to have been silenced by Russia for the time being, but
we hope not permanently. A similar trend is seen in the announcement by
Belgium, the Netherlands, and Luxemburg that they were progressing toward
the establishment of a customs union. This arrangement would go into effect
after the liberation of the territories and after action by the respective parlia-
ments. This is a continuation of an effort by these countries and the Scandi-
navian countries before the war to increase the trade of each by lowering the
tariffs of all. From such farsighted countries we may confidently anticipate
support for a World Trade Board.
The second encouraging fact is the solemn contract concerning the abolition
of trade barriers signed by the United States Government and 15 of the United
Nations in the master lend-lease agreements.
The third reason for believing in the possibility of a World Trade Board is
the resolution of Senators Thomas, Kilgore, and Truman to create a Foreign
Economic Commission. Their joint statement said :
"The future peace depends on the abandonment of political nationalism and
economic imperialism and autarchy. Our policy before the war of making recip-
rocal-trade agreements * * * was good policy. * * * Only by expanding
such good-neighbor policy * * * can we forestall the growth of areas of
economic disaffection which eventually enlarge into world wars.
"The future peace depends on an economically healthy United States, and we
cannot have economic health without a volume of foreign trade above and
beyond anything we have ever had before.^ "
This statement endorsed not only our present reciprocal-trade agreonTents made
between two countries at a time, but also, by implication, similar ones which might
be made by a group of countries at a time ; that is to say. the kind of multilateral
trade agreement which would be developed by a World Trade Board.
1 Congressional Record, March 7, 1944, p. 2327.
1208 POST-WAR ECONOMIC POLICY AND PLANNING
The fourth reason for believing in the possibility of creating a World Trade
Board is that some of its preliminary parts already have been formed. Our
Government has chosen to go about it piecemeal, beginning with the United
Nations Food and Agricultural Administration and the United Nations Relief
and Rehabilitation Administration. After food and agricultural products have
been successfully handled by an international organization, why not other objects
of trade? If so, this means the setting up of a World Trade Board. The piece-
meal method has advantages. Each piece in proving itself also proves the neces-
sity for another and larger piece of international econorcfic machinery. Before
the World Trade Board is created we shall probably have an international bank,
an international airways administration, and others. Each new institution will
malie the World Trade Board more necessary and more probable.
If we conclude that the World Trade Board is both necessary and possible, we
then come finally to its composition, functions, and methods of operation. A
preliminary and tentative draft is appended. It contains doubtful points and
]-equires the combined efforts of many otlier students before it would stand the
acid test of use. The writer would like to correspond with other students of the
subject,
Basic Assumption
The basic assumption of thi.s draft is that there will be some kind of inter-
national political organization and that either subordinate to it or parallel to it
will be the World Trade Board. It is also assumed that neither the United
States, Britain, nor Russia would delegate to the World Trade Buard the writing
of their tariffs, but that they would carry out the contract contained in the lend-
lease agreements by using the World Trade Board as a means of eliminating dis-
criminatory treatment in international trade. This would open the way, step by
step, to a larger area of agreement.
This is the great need of the post-war world — to enlarge the area of agreenfent
and to fortify the will to agree. Everything that force and destruction can
accomplish will have been done. Only cooperation and mutual agreement will
remain by which to carry out the purposes for which men have prayed and
died.
Agreement is easier to attain on such specific projects as the World Trade
Board will undertake than by attempting to pass universal laws. An agree-
ment to do something tomorrow is more valuable than an alliance that promises
to do something 10 years hence when conditions may have changed. The World
Trade B')ard will be concerned with agreements to take effect tomorrow, specific
and of recognized mutual advantage. Therefore let us have faith that the living
standards of all people, reduced by war, can be restored by a constructive and
durable peace. For there will be more for all when the world's resources are
more wisely and irfore equitably exchanged.
Suggested Dbaft for World Trade Board
i. objectives
A. "Negative objectives.
1. Not a legislature.
2. Not possessing power to write a trade agreement binding on any member
nation, except after ratification by the member government.
3. Not dependent upon universal membership, although potentially open to all
who will meet its terms.
4. Not covering all possible subjects ; not merchant marine, not exchange con-
trol (expectation of a separate international organization for each of these).
B. Posit we objectives.
1. To increase world trade by increasing the trade of each member nation.
2. To increase world trade by eliminating discriminatory trade policies, by
n>duciiig trade bnrriers, and by carrying out the contract contained in section 7
of the master lend-lease agreement.
3. To draft exploratory ncfultilateral trade agreements among a group of mem-
ber nations, such drafts to be considered by conferences of the technical trade
advisers (not plenipotentiaries) of member nations.
POST-WAR ECONOMIC POLICY AND PLANNING 1209
4. To formulate codes of international fair trade practice.
5. To register and control cartels.
6. To explore the possibilities of opening colonial systems to equal access.
7. To afford all the United Nations now, and the neutral and former enemy
countries as soon as practical after peace, a continuous method of substituting
trade agreements for trade warfare.
8. To invite all the United Nations, but to be ready to start with only a few
countries, with the expectation that it will soon be evident to others that it Is
unprofitable to stay out.
IT THE CONSinUTKiN
The World Trade Board would come into being as a result of a conference of
the United Nations in the same way as the United Nations Food and Agricultural
Administration.
The constitution of tlie World Trade Board would be modeled upon that of the
International Labor Organization, because the latter has resulted in more and
more agreement on as highly controversial subjects as tariffs. The World Trade
Board would consist of three functional groups :
1. The Governing Body : Whether the Governing Body should be composed
wholly of government representatives or partly of employer and worker repre-
sentatives is open for discussion. In either case, the single memfber or the ma-
jority of the group from a given country would have a vote equal to its share of
the total of world trade. Every member of the United Nations willing to con-
form to the conditions of membership would have representation on the Governing
Body. After the original set-up, new members, including neutral and Axis
nations, would be admitted under conditions to the determined by the Governing
Body.
2. The Director and the technical and research staff (called the Trade Pro-
motion Service) : The Trade Promotion Service (technical staff') is to study how
the volume of trade may be increased by trade agreements among a group of
member nations. At present this is not done for a group of nations but only for
two nations at a tinfe (Hull reciprocal treaties), or between countries in the same
political system (British Commonwealth of Nations and dependencies).
3. Trade Conferences : Held periodically at the call of the Governing Body
and composed of the technical advisers of member governments, not of policy-
making oflScials.
The Governing Body would appoint the director, adopt the budget, and
conduct the affairs of the whole.
^^■heu a government proposed changes in its own tariffs, the Director would
order a study of the proposal by the Ti'ade Promotion Service and report the
result to the government in question.
The Director would be the executive officer. He would order and supervise
technical trade and tariff studies to be made by the staff (Trade Promotion
Service). He would, upon orders of the Governing Body, submit tlie resulting
draft of trade agreements to periodic trade conferences composed of technical
trade advisers of member governments. When a draft trade agreement had been
initiated by the percentage of technical trade advisers stipulated in the call for the
Conference, then it would be submitted to member governments for ratification.
jn. CONDITIONS OF MEMBERSHIP
A nation to become a member would agree :
A. To implement section 7 of the master lend-lease agreement, which con-
cerns the elimination of discriminatoi-y treatment in international commerce and
the reduction of ti-ade barriers.
B. To place before its legislative authority for consideration all drafts of
proposed applicable trade agreements which its technical advisei's at a World
Trade Conference had certified as in conformity with section 7 of the master lend-
lease agreement, which provides, inter alia, "for promoting the advantageous
economic relations and the betterment of world-wide economic r(>lations."
C. To submit changes in tariffs, etc., while they were under consideration by the
home government, so as to give the Board time to make a study and an ad-
visory report to the home government as to the probable long-run results, in-
cluding the effect upon the other nations, probable retaliatory actions, and prob-
able loss of trade in other items.
1210 POST-WAR ECONOMIC POLICY AND PLANNING
D. To make public the Board's advisory reports before a final vote is taken
upon changes in tariffs, etc.
E. To file intergovernmental commercial and commodity agreements v^rith the
Board.
F. To require all its national corporations to register their international
marketing agreements with the home government, such home government to
transmit copies to the Board. Such agreements vpould include price controls,
cross-licensing of patent arrangements, and others to be specified.
G. To undertake that goods subject to international marketing agreements
ajid not registered with the Board may be penalized in international trade by
any country and by the Board without such action being considered discrim-
inatory.
H. To make and enforce regulations to loenalize the passage of goods through
its customs house originating from nonregistered corporations.
I. To appoint representatives of producers, workers, and consumers to help
in formulating codes of international fair trade practice. These would be sub-
mitted to each government for ratification.
J. To use the Board's research facilities and supply it with every opportun-
ity to obtain complete information.
K. To pay a share of the operating expenses of the Board based on each nation's
share of world trade.
IV.i FtTNCTIOiNSi OF THE BOABD
A. Research (the secretariat with an international civil servant staff).
B. Administrative Functions :
1. To call and conduct conferences leading toward multilateral trade agree-
ments. A recommendation by such a conference on any subject would not be
binding unless ratified by the home government concerned. Where the topic
concerns the International Labor Organization, its representatives should be
invited to attend as observers.
2. To receive notices of proposed tariff changes from member nations and to
report on their economic consequences to the initiating nation and to other
member nations.
3. To keep a file of commercial and commodity agreements between member
nations and also those involving nonmember nations.
4. To register private international marketing agreements, patent agreements,
etc., and to control cartels by making regulations. These regulations when rati-
fied by a member nation to be enforced by that nation and by the Board.
Any practice prohibited by these regulations would constitute an unfair inter-
national trade practice. Eventually these regulations would become the basis of
international law enforceable by all international and national agencies.
5. To formulate codes of international fair trade practice, applicable to all forms
of international trade, with the assistance of representatives of producers, labor,
and consumers. Such codes when ratified by member nations to be a part of
enforceable international law.
6. To summon for a hearing corporations charged with violations of a fair
trade practice code and to issue "cease and desist" orders against them.
Otto T. Mallery, Philadelphia, was a member of the Penih^ylvania
State Planning Board and has served on a numher of groups for the study
of lahor and industrial relations, including the President's Conference on
Unemployment, 1921. He was economic adviser to the United States
delegation to the International Labor Office and reporter of the Public
Works Committee in 1937. Ee is a director of the American Academy
of PoUtioal and Social Science. He is joint author of Business Cycles and
Employment (1923) and anithor of Economic Union and Durable Peace
(1943).
POST-WAR ECONOMIC POLICY AND PLANNING 1211
Exhibit No. 27
[Reprinted from the Journal of Commerce, 63 Park Row, New York, Wednesday, October
11, 1944]
HELPFUL GOVERNMENT REGULATION URGED IF WORLD
ADOPTS CONTROLS
Complete Return to Individualistic Foreign Trade Held Impossible If Other
Governments Trend Toward Nationalistic Operation
By Mon-is S. Rosoitlial, executive vice president. Stein, Hall & Co., Inc.; vice
president, National Council of American Importers; formerly assistu7it director
of the Board of Economic Warfare
Since the outbreak of the war in Europe in 1939 and from the inception of
foreign trade controls by our Government, chambers of commerce and trade asso-
ciations have passed many pious resohitions urging the termination of all govern-
mental controls for foreign trade on the day that the last shot is fired. It seemed
to me when I first read one of tliese resolutions, as it seems to me now, that
those who think solely of ending all governmental control or regulation of ex-
ports and imports fail to appraise properly probable post-war economic
conditions.
Much of their thinking is wishful. A nostalgic longing for the good old days
is natural, and business was easier in the pre-war years. But business was also
easier in the twenties than it was in the thirties, and it was easier before World
War No. 1 than it was in the twenties. This attitude may also be due in part
to the great American indoor sport of griping about whatever the Government
does, whether it be the municipal authorities, State oflicials, or the Federal
bureaucrats.
It is forgotten too frequently that in a democracy the Government is of our
choosing and that we are our own Government. It is important for us as business-
men to work wisely and wholeheartedly with Government agencies, not only for
our national welfare but also for our own business welfare. And there are times
wlien governmental regulations and controls help.
INDUSTRIAL GOODS FOR EUROPE
It is generally agreed that the rebuilding of a Europe devastated by mechanical
warfare will require vast supplies of industrial equipment as well as consumer
goods. The demand may well continue for some years to come. Substantial
quantities must be supplied by tlie United States. Russia has already indicated
a desire to buy heavily. The Governments of Holland, Belgium, and Norway,
among others, have made reference to their great needs. Whether this export
demand comes 6 months or a year after the war is over, we can look forward to
a period of large volume business from European markets needing our goods.
Before American foreign traders request x'emoval of export licensing and import
controls they should first think of what foreign governmental policies are likely
to be and how these policies are likely to affect u.s. Governments in exile have
had buying missions in the United States for the past 3 or 4 years. Until recently
each mission bought only for its colonies. The Belgian mission bought for ship-
ment to the Belgian Congo. The Netherlands mission bought for the Dutch West
Indies. The French mission bought ff)r French Africa. None of these missions
could purchase and stock-pile for Continental Europe, as the supplies were not
available.
MISSION BUYING PLANS
But they have developed organizations here. Some of these organizations liave
planned and are now prepared to buy for their mother countries. Evidently these
governments believe that it will not be possible to restore private export and
import business in their countries for some time to come. There is, too, a feel-
ing on the part of some governments that it may be necessary for them to
nationalize their more important production industries in order to rehabilitate
themselves quickly. In this event, foreign buying missions here will of necessity
continue to buy much, if not all, of that which is to be imported from the United
99579 — 45 — pt. 4 39
1212 POST-WAR ECONOMIC POLICY AND PLANNING
States. These governments will very likely exercise control over their exports
so that they can gradually work toward balancing what they import against
what they export.
It would be advisable, too, for our exporters to study carefully trends in British
foreign trade policy. England will finish the war in a seriously weak financial
condition. Many of their businessmen as well as their Government officials have
expressed the opinion that a centralized control of England foreign trade is
important if they are to recapture a large share of the export trade which they
had prior to the war. And they believe that only through governmental aids and
controls will they be able to expand their exports.
FOREIGN TRADE CONTROLS
Similarly there are strong indications that other foreign governments are
thinking of greater post-war foreign trade controls. Their actions will have
a profound effect upon our own economy and our own way of doing things,
I think it vital that American foreign traders realize this. While all may prefer
that the countries of Europe speedily restore business to private operators and
while they may be antipathetic to the current thinking on the port of foreign
governments, the right of people and their governments to take those measures
which they believe will most speedily restore their economies must be recognized.
American manufacturers, exporters, and importers must devote more of their
thinking and acting so that they can cope with the changed world trade
conditions.
Undoubtedly our interests will need a continuance of some of the controls
that our Government has exercised during the past few years. Therefore, each
should analyze carefully the trend of governmental control, particularly in the
field of foreign trade, and then work out with appropriate departments or
agencies of our Government the minimum of governmental regulations that will
help American foreign traders.
American foreign traders should furthermore interest themselves in and, to
the extent possible, participate with agencies of our Government that are help-
ing in the formation of international economic agencies such as the proposed
International Bank which was discussed at the Bretton Woods Conference.
Such organizations may not please everyone. Nevertheless, cooperative effort
on the part of nations is necessary if the economies of foreign countries are to
be stabilized. We must participate and assist in this effort or we will hinder
our own post-war development.
TREND TOWARD CONTEOL
From much that has been said, I think that many businessmen as individuals
and in their trade associations may make the mistake of "bucking a trend" as
did those who in 1930 talked about prosperity being around the corner and as did
those who felt that the totalitarian developments of Germany and Italy would
not lead to a war which would embroil us. And it is not possible for us to
return to a completely individualistic foreign trade without helpful governmental
regulation as long as there is a trend toward nationalistic control of foreign
trade operations by other governments.
Exhibit No. 28
Maritime's Interest in the Air Market
By Almon E. Roth, president, National Federation of American Shipping, Before
Panel on Transoceanic Air Commerce, Eighteenth Annual Meeting of the
Propeller Club of the United States, October 19, 1944
Nine leading American passenger lines have indicated their interest in the
air market by filing applications with the Civil Aeronautics Board for certifi-
cates of convenience and necessity. These applications are based upon the
principle that a steamship line has both the legal and equitable right to supple-
ment its surface operations with air-borne transport upon a proper showing
before the Civil Aeronautics Board of its ability to serve the public interest
and convenience.
POST-WAR ECONOMIC POLICY AND PLANNING 1213
The National Federation of American Shipping has endorsed this principle,
and takes the position that the fact that an applicant for a certificate before
the Civil Aeronautics Board is a steamship company, should not operate as a
discrimination against it, in the consideration of its indivdual case on the
merits.
The Civil Aeronautics Board in the dicta used in the American Export case,
has indicated that it is not kindly disposed toveard steamship participation in
air transport, and that certificates will not be granted except under the most
limited circumstances. The Civil Aeronautics Board takes the position that it
is the declared policy of Congress to rigidly limit steamship carriers in the
air transportation field. This conclusion by the Civil Aeronautics Board is
based upon the false assumption that it is the intent of Congress to prohibit
one type of carrier from making use of another in its operations.
We are at a loss to understand hove anyone can seriously contend that it is
the intent of Congress to prohibit steamship lines from using airplanes to supple-
ment their surface operations in view of the following specific provision in the
Merchant Marine Act of 1936 :
"Section 212 of the Merchant Marine Act of 1936 authorized and directed the
Commission 'to study and to cooperate with vessel owners in devising means
by which * * * (2) there may be constructed by or with the aid of the
United States express liner or superliner vessels comparable with those of other
nations, especially with a view to their use in national emergency and the use in
connection with or in lieu of such vessels of transoceanic aircraft service.'
[Italics supplied.] It can hardly be said that Congress looked with disfavor
upon the use of aircraft by a steamship carrier when it directed that Govern-
ment aid should be furnished in devising means by which aircraft might be
used in connection with or in lieu of vessels in transoceanic service."
The discussions before the Merchant Marine and Fisheries Committee, in
March 1938, on H. R. 9738, commonly known as the Lea bill, clearly indicate
that it was the intention of Congress to permit surface carriers to engage in
air transport.
In this hearing, the chairman of the Intel-departmental Committee, C. M.
Hester, indicated that the only requirements a steamship company would have to
meet, in connection with applications to the Civil Aeronautics Board, would
be the general requii'emonts for the issuance of certificates of convenience and
necessity. At this hearing, Col. Edgar G. Gorrell, president of the Air Transport
Association of America, made the leading statement on behalf of air companies.
In speaking of the pui-poses of the proposed Lea bill. Colonel Gorrell said, "If
shipping or other transportation companies wish to engage in air transportation,
there is no reason why they should stand on any different basis from any other
person desiring to enter this business."
Furthermore, it is common knowledge that scores of railroads are now
operating bus lines and truck lines with the full approval and sanction of the
Intel-state Commerce Committee. Some railroads have even operated steamship
lines with such approval. This practice certainly negates the contention that all
forms of transportation must be kept separate and disinct.
The National Federation of American Shipping has published a brief, prepared
by Mr. Sam G. Gaggett, general counsel of the United Fruit Co., in collaboration
with Mr. J. Raymond Hoover of the District of Columbia bar, which we think
proves that the position which the Civil Aeronautics Board has taken is legally-
unsound.
The Federation has also published a study by Prof. T. W. Van Metre, of Colum-
bia University, which proves that the participation by steamship companies
in air tran.sport is in accord with a sound national transportation policy.
We should be very glad to furnish copies of these documents to anyone who
may be interested in the same.
The applicant steamship companies propose to provide air transport only
in connection with their regular steamship service serving their customary trade
areas, subject to this exception.
It is recognized that instances may occur in which sound financial operation
and public convenience require that the areas to be .served should be further
extended. The Civil Aeronautics Board has already suggested that applicants
amend their petitions by indicating their willingness to serve points not named
in their applications if the Board should find that the public interest requires air
servce at such points. The applicant steamship companies have indicated their
willingness to conform to the findings of the Board in such circumstances.
1214 POST-WAR ECONOMIC POLICY AND PLANNING
The applicant steamship companies do not seeli to serve points in the internal
United States. Nto steamship company has requested authority to serve with
air transport any United States point of departure which is not also a point
of steamship departure.
The American passenger lines are keenly interested in the overseas air trans-
port market, for the following reasons :
(1) Other great nmritime nations, including Fi-ance, Sweden, the Netherlands,
and Britain, are organizing to employ the airplane as part of their regular steam-
ship operations. Unless American steamship lines are permitted to do likewise,
they will be placed at a great disadvlantage in the post-war competition for over-
seas passenger business. ^
(2) It should be pointed out that foreign steamship companies face no legal
bar against their operation of aircraft. More than 80 IJritish shipping companies
'are now in a position to enter the overseas aviation field as a result of having
amended their charters through court permission to this end. They may operate
aircraft without Government sanction, provided they do not seek subsidies.
The British viewpoint was well stated by the late Lord Essendon in an article
entitled "Ships Must Grow Wings," in the British shipping magazine Fair Play,
under date of July 20, 1944. In this article, Lord Essendon says, "It is no exag-
geration to say that the future of the shipping industry hinges largely upon the
extent and rapidity of the expansion of air transport. Shipowners must there-
fore take a share in the development of civil aviation, recognizing that this
newer and faster, though more expensive, means of travel will inevitably absorb
a share of overseas transport heretofore the exclusive function of shipping."
Studies which have been made by American steamship companies fully support
Lord Essendon's apprehension concerning the inroad of air transport upon the
steamship passenger business.
(3) Recent polls indicate that as high as 50 percent of overseas passenger
tr'afBc may be carried by airplanes. The time element is the important factor
working against the ships, particularly, on long runs requiring many days of
steady steaming, where the airplane could cover the distance and make the turn
around 8 to 10 times faster than the fastest ship. This time element, it was
disclosed by the polls, was almost as important a consideration in tourist travel
as in business travel overseas. The 2-week vacation period will still be the im-
portant determinant for the majority and here the airplane works tremendously
to the advantage of the tourist in extending the time he may spend ashore in
foreign lands.
(4) These studies further indicate th'at a very considerable number of pas-
sengers desire to travel by air, by means of a combined tyi)e of service, with
passage one way by air and one way by ship. Preference for this two-type service
runs jfrom 30 to 50 percent, depending upon the area and local conditions. We
are firmly convinced that if the steamshij) companies are lafforded the oppor-
tunity of furnishing a coordinated sea and air .service to the public, they will be
able to develop additional passenger business of this type which will, to a large
extent, offset the decrease in surface transportation which will result from &n
increased use of air transport.
Authority to operate airplanes in conjunction with established steamship
I'outes is a matter of vital public interest. The public demands the utmost in
economical and efficient transportation service. The applicant steamship com-
panies know that they can meet the public demand if they are permitted to supply
air service in their operations, and on routes which they developed long before
international aviation was even contemplated. The continued effective opera-
tions of these routes in the post-war period is 'a matter of vital importance to
the whole Nation. The bitter lessons of two world wars have shown us what it
means to have a strong merchant marine. We must insist that that merchant
marine be given every legitimate advantage. We certainly must not allow its
effectiveness to be impaired by denying it a privilege that will be granted to the
ships of other nations and to our own domestic air lines.
Our country nmst always have pas.senger steamers as important adjuncts to
our Navy as a matter of public policy affecting our national security. Every
pa.ssenger ship is a potential troop carrier. Even the shortest memory can recall
our desperate need for troop carriers at the outset of this war. Our whole
strategy revolved around the availability or unavailability of troop ships and
their supplementary supply vessels. Admiral King and General Marshall have
already given expert testimony on this. But if we reeded fresh confirmation,
concerning important operations in the Pacific in which we are now actually
involved, we had it only last week. Admiral Nimitz, now directing attacks almost
POST-WAR ECONOMIC POLICY AND PLANNING 1215
in the shadow of the Japanese homehind, sent this message to the American
public:
"The sea lanes of the Pacific, which have been extended westward more than
4.000 miles in the last year, are crowded with merchant ships engaged in supplying
our offensive against Japan. Without these ships of the American maritime
industry, wholly devoted to winning the war, our substantial progress would
not have been possible. This war has fully confirmed the necessity for a strong
and sound merchant marine to be maintained in time of peace. The convincing
way in which this fundamental fact has been demonstrated in the Pacific is a
tribute to the ability and patriotism of the American merchant marine and augurs
well for the future."
The matter of the public interest penetrates every phase of the ship-air con-
troversy. Numerous important benefits would flow to the traveling and shipping
public by virtue of the coordinated service. Over the years, American steamship
companies have built up connections in international trade which will have tre-
mendous value when peacetime commerce is resumed. They are familiar with
foreign government restrictions and regulations, with customs and immigration
intricacies, and the thousand and one other problems which domestic tran.sporta-
tion does not encounter. What could be more natural, or more desirable, from
the standpoint of the American public, that this familiarity and experience be
utilized in a combined, sea-air transport?
Lower operating costs and lower fares and rates would be made possible. A
steamship company would be obliged to increase its overhead very litle, especially
as to short staff, to service its air operations. Shipping companies maintain far-
flung networks of foreign and domestic agencies and offices for the solicitation and
promotion of business and for the handling of cargo of all types. They also
maintain, repair, and supply facilities which would be readily utilized for the
servicing of airplanes and steamers alike.
Ever since this coimtrj^ was founded, its merchant marine has pioneered in
the development of its overseas commerce. It has carried the American flag
into every port of the world. It has been a builder of national prestige and of
national security, as well as an agressive salesman for our goods and products.
Shipping companies have risked their capital to build trade routes where none
existed. They have developed new territory, thereby opening new fields to the
American manufacturer and exporter. They have built or helped finance hotels
and other tourist facilities. They have spent huge sums in promotional activities
and in developing reciprocal-trade areas.
American shipping companies were among the first to recognize the advantages
and the future role of the airplane in overseas transportation.
They were among the first to encourage and develop its use. For example :
A shipping company built, despite discouragements, what is still the only
American-flag competitor of Pan American Airways in the Atlantic.
It was another .shipping company which, by investing large sums of its own
capital and by the use of its facilities, aided in the establishment of the only
American-flag commercial overseas service in the Pacific.
It was a company with .shipping interests which jointly pioneered the first air-
transport service under the American flag to the west coast of South America.
No steamship company objects to air competition, or to sharing the benefits
of the pioneering done by our steamship lines. Rather the industry welcomes it,
for ocean shipping believes in progress and in the advancement of scientific aids
to transportation. But steamship companies do object to being told that they
may not meet this new competition on an etjiial footing, that they must enter the
keenly competitive post-war arena with a distinct handicap.
We believe that there are strong equitable rea.sons why steamship lines should
be i)ermitted to engage in overseas air transport.
Ocean shipping is the only form of transportation which has been wholly de-
voted to war purposes. It began converting to a full war footing long before
Pearl Harbor. Since shortly after war was declared, every American shipping
company has been working hammer and tongs for the Government. There is no
regular overseas commercial passenger-ship service anywhere under the Ameri-
can flag today.
Meanwhile, other forms of transportation have been able to continue their
regular commercial operations on a partial basis. Some of them are even carry-
ing more freight and passengers today than ever before in their history. In
contrast, our steamship lines cannot know when they will regain control of their
vessels, when or under what circiunstances they will be able to resume normal
trade, or what conditions their vessels will be in at the end of the wa'r. Tliey
1216 POST-WAR ECONOMIC POLICY AND PLANNING
have sustained heavy losses, immeasurably greater than any other form of
transportation. And even those vessels in comparatively good condition must
remain in Government service for a long time after the peace. They vpill be en-
gaged in the gigantic task of bringing home millions of our troops from all over
the world.
While our foreign competitors also have lost many vessels, the fact remains
that they will be able to resume their passenger liner service at an earlier date
than American vessels can be restored by the Government to private ownership
and reconverted for commercial service after the war. In the meantime it is
extremely important that American steamship lines be permitted to reestablish
their trade contacts by engaging in air transport, for which facilities will be
available immediately.
Utilization of aircraft in conjunction with surface equipment is a natural
evolution of overseas transport ; as natural as the transition from wood to steel,
and from sail to steam.
For all these reasons, it appears that the right of steamship companies to
establish integrated sea-air service is a sound, realistic, and practical policy,
important to our national economy and to our national security. To say to our
shipping industry that they are forbidden to use airplanes to provide the public
with all the advantages of coordinated service would be a stubborn impediment
to progress. As pointed out by Dr. Van Metre, every consideration of national
safety and of a prosperous post-war economy demands that our merchant marine
should enter into aviation. It should be urged and aided to do so. Such is the
plain intent and purpose of a sound national transportation policy.
Exhibit No. 29
Statement of Poucy on Overseas Aviation
By the National Federation of American Shipping, Washington, D. C.
The whole subject of overseas aviation is vital to the economy, prestige
and security of our Nation, and to the future strength and well-being of the
American merchant marine.
Several leading American steamship companies have applied to the Civil
Aeronautics Board for certificates authorizing them to inaugurate overseas air
service in conjunction with their regular steamship operations and serving
trade areas which they have pioneered and developed through the years.
The following statement of policy, on behalf of the applicant steamship com-
panies, discusses this important subject.
STATEMENT OF POI-ICY BY THE NATIONAL FEDERATION OF AMERICAN SHIPPING OK
BEHALF OF AMERICAN-FLAG OVERSEAS STEAMSHIP COMPANIES WHICH HAVE AP-
PLIED FOR CIVIL AERONAUTICS BOARD CEETIFICATES AUTHORIZING THEM TO PROVIDE
A COORDINATED SEHVICE OF AIRPLANES AND SURFACE SHIPS IN THEIR OVERSEIA.S
OPERATIONS
1. Competition.
The applicant steamship companies affirm their belief in the principle of
competition in overseas air transportation, under proper Government regulation.
2. Number of services on a given route.
They recognize that the question of whether
(a) any overseas air route shall be served by a single air service or by two
or more such services, and
(1)) whether such services should be rendered by a steamship company or by
any other type of company
is a matter for determination by the Civil Aeronautics Board in accordance
with established principles governing the issuance of certificates of convenience
and necessity in overseas transport.
3. Area to te served.
The applicant steamship companies propose, subject to the exception noted
in the following paragraph, to provide air transport only in connection with
their regular steamship services, serving their customary trade areas.
POST-WAR ECONOMIC POLICY AND PLANNING 1217
It is recognized that instances may occui* in which sound financial opei'ation
and public convenience require that the areas to be served should be further
extended. The Civil Aeronautics Board has already suggested that applicants
amend their petitions by indicating their vpillingness to serve points not named
in their applications if the Board should find that the public interest requires
air service at such points. The applicant steamship companies indicate their
willingness to conform to the findings of the Board in such circumstances.
4- Service to internnl United States points.
The applicant steamship companies do not seek to serve points in the internal
United States. No steamship company has requested authority to serve with
air transport any United States point of departure which is not also a point
of steamship departure.
5. The question of discri^nination.
The applicant steamship companies hold that the fact that they are steamship
companies, rather than some other kind of company, should not operate as a
discrimination against them in the consideration of their individual cases, on
the merits, by the appropriate Government authority.
They ask only equality of consideration — on the same footing as any other
applicants. They believe that such equality is in the best interest of the na-
tional defense, and of American shippers and travelei-s on overseas commercial
routes,
6. Effect upon the American merchant marine.
If deprived of equal treatment, the applicant steamship companies believe
that a substantial and important segment of the American merchant marine
may be jeopardized after the war.
It is well-known that foreign shipping companies are preparing to offer a co-
ordinated sea-air service in the early post-war period. It is also well-known that,
in all likelihood, foreign ship operators will be able to resume their passenger liner
service at an earlier date than American passenger vessels can be restored by the
Government to private ownership and reconverted for commercial service after
the war.
Further, it is generally recognized that the general cargo trafiic tends to go
where the passenger and fast express trafl3c goes. The ability to provide a satis-
factory and complete passenger and fast express service in competition with
foreign shipping has, therefore, a direct bearing upon the position of American
shipping in overseas cargo carrying.
7. The national defense.
The essentiality of a strong and sound American merchant marine as an auxil-
iary of the Army and Navy during emergencies and in war has been emphasized
repeatedly by highest military authorities. As an auxiliary, it must consist of
both cargo vessels and passenger liners for use as troop ships when the need
arises.
It is therefore the conviction of the applicant steamship companies that it
is contrary to the best interests of national defense to place artificial resrictions
and handicaps upon the American merchant marine, or any substantial segment
thereof, in its relation to other forms of transportation and to foreign competition.
8. The "separation" theory.
The applicant steamship companies hold that, in the case of overseas transport,
the argument that each form of transportation should be rigidly separated from
every other form, is inconsistent with the evolution of a sound overseas transport
policy.
It is the concept of the applicant steamship companies that the only true
criterion is, and has been, the public interest. The Interstate Commerce Com-
mission, for example, while disapproving in some cases the acquisition of an
established carrier of one form by another carrier of a different form, has con-
currently permitted one form of carrier to institute new service utilizing another
form. Thus, railroads have been permitted to initiate new bus and truck service
where the Commission was satisfied that the public interest would profit and
no harmful monopoly would result.
The steamship companies are asking only that the same privilege may be
accorded them.
1218 POST-WAR ECONOMIC POLICY AND PLANNING
9. Clarifying legislation.
It is the belief of the applicant steamship companies that due to misunderstand-
ings and uncertainties as to national policy, it is desirable that Congress reafBrm,
at an early date, the right of overseas steamship companies to receive consideration
by the appropriate Government authority on an equal footing with other types
of companies proposing to establish overseas air transport.
10. Difference betiveen overseas and infernal transport.
Especially required is a fuller understanding of the fundamental distinction
between overseas and internal commerce and transportation.
This distinction has been recognized throughout the Nation's history in law
and in administrative policy, and should not be overlooked now.
While a government may exercise a higii degree of control over conditions
governing its internal commerce and transportation, it has only partial control
over conditions governing overseas commerce and transport. In the latter case,
control is sharply limited by such variables as foreign competition, foreign trade
restrictions and regulations, foreign jurisdiction over terminal facilities, and the
like.
Thus, considerations which might apply in the case of internal transp/ort often
cannot be applied in the case of overseas transport.
11. Development of air transport.
The applicant steamship companies believe that the national interest demands
the fullest development and utilization of overseas air transport.
American shipping companies were among the first to recognize the advan-
tages and the future role of the airplane in overseas transportation.
They were among the first to encourage and develop its use. For example :
A shipping company built, despite discouragements, what is still the only
Ajnerican-flag competitor of Pan American Airways in tlie Atlantic.
It was another shipping company which, by investing large sums of its own
capital and by the use of its facilities, aided in the establishment of the only
American-flag commercial overseas service in the Pacific.
It was a company with shipping interests which jointly pioneered the first air
transport service under the American flag to the west coast of South America.
12. Why a coordinated sea-air service?
The applicant steamship companies believe an obligation rests upon them to
provide their trade areas and customers, whom they have long served, with the
most modern, complete, and eflicient transport service available.
Utilization of aircraft in conjunction with surface equipment is a natural
evolution in overseas transport, as natural as the transition from wood to steel
and from sail to steam.
A complete sea-air service under a single management would result in many
advantages to the shipper and traveler due to such factors as:
Economies of overhead.
Efficiency of coordinated management and operation.
Interchange of weather reports and of ship and plane iwsition.
Communication between units en route, either on the surface or in the air.
Experience in dealing with overseas and foreign trade conditions such as cus-
toms regulations, money exchange, immigration, public health quarantine, and
sources of traffic.
Complementary character of sales and promotion activities on behalf of surface
shipping and air transport.
The natural affinity between sea and air transport, such as similarity of operat-
ing conditions, terminology, disciplinary standards and navigation ; and the use
of free right.s-of-way, public navigational aids and public terminals.
These advantages of unified operation should result in lower fares and shipping
rates to travelers and shippers.
The applicant steamship companies desire to resume service to their customers
at the earliest date consistent with military requirements. The ocean shipping
industry is the only major form of transportation which has been devoted wholly
to war purposes.
POST-WAR ECONOMIC POLICY AND PLANNING
1219
It is the belief of the applicant steamship companies that when permitted to
resnme commercial service, they should he allowed to provide a full, complete,
and modern transportation service which would be at least the equal of any
rendered by foreign competitors and assure a front rank position for the American
flag in world transportation.
Exhibit No. 30
World War I. indebtedness to the Qovernment of the United States, July 1, IdH
OBLIGATIONS PAYABLE IN DOLLARS
Country
Total indebted-
ness
Principal
unpaid '
Interest post-
poned and pay-
able under
moratorium
agreements
Interest accrued
and unpaid un-
under funding an
moratorium
agreements
Funded debts:
Belgium..
$495, 263, 077. 60
170, 484, 850. 31
23, 919, 170. 81
8, 704, 800. 15
4, 529, 589, 934. 38
26, 024, 539. 59
6, 263, 764, 782. 58
36, 437, 695. 10
2, 674, 567. 89
2, 047, 231, 659. 34
9, 875, 762. 05
8, 848, 573. 28
299, 332, 204. 20
73,111,160.13
63, 088, 593. 78
$400, 680, 000. 00
165, 241, 108. 90
16,466,012.87
7, 941, 403. 92
3, 863, 650, 000. 00
25, 980, 480. 66
4, 368, 000, 000. 00
31, 516, 000. 00
1, 908, 560. 00
2, 004, 900, 000. 00
6, 879, 464, 20
6, 197, 6S2. 00
206, 057, 000. 00
63, 860, 560. 43
61, 625, 000. 00
$3, 750, 000. 00
$90, 833, 077. 60
Czechioslovakia
5, 243, 741. 41
Estonia . . ..
492. 360. 20
2 763, 396. 23
38, 636, 500. 00
6, 960, 797. 74
Finland
France
627, 303, 434. 38
Germany (Austrian in-
44, 058. 93
debtedness) 3..
131,520,000.00
449, 080. 00
57, 072. 75
2, 506, 125. 00
205, 989. 96
185, 930. 46
6, 161, 835. 00
Great Britain
1, 764, 244, 782. 58
Greece
4, 472, 615. 10
Hungary
708, 935. 14
Italy.
39, 825, 534. 34
Latvia
2, 790, 307. 89
Lithuania
2, 464, 960. 82
Poland
87,113,369.20
Rumania
9, 250 599 70
Yugoslavia * . .
1, 463, 593. 78
Total
14,058,351,371.19
11, 230, 903, 272. 98
184, 728, 289. 60
2, 642, 719, 808. 61
Unfunded debts:
Armenia..
26, 793, 083. 46
438, 449, 173. 08
11,959,917.49
192, 601, 297. 37
14, 833, 165. 97
Russia
245, 847, 875. 71
Total
465, 242, 256. 54
14, 523, 593, 627. 73
204, 561, 214. 86
11,435,464,487.84
260, 681, 041. 68
Grand total
184, 728, 289. 60
2, 903, 400, 850. 29
OBLIGATIONS PAYABLE IN REICHSMARKS
Germany;
Army costs (reichsmarks) . .
1,051,173,832.75
2, 200, 140, 000. 00
997, 500, 000. 00
2. 040. onn. onn_ m
53, 673, 832. 75
Mixed claims (reichs-
marks)
160, 140, 000. 00
Total (reichsmarks).
3, 251, 313, 832. 75
3, 037, 500, 000. 00
213, 813, 832. 75
' Includes principal postponed under moratorium agreements and principal amounts not paid according
to contract terms.
2 Also includes interest postponed and payable under agreement of May 1, 1941, and the joint resolution
approved Juno 12, 1941 (Public Law No. 110, 77th Con?.).
3 The German Government has been notified that the Government of the United States will look to the
German Qovernment for the discharge of the indebtedness of the Government of Austria to the Govern-
ment of the Untied States.
* This Government has not accepted the provisions of the moratorium.
Note. — The United States Treasury figures as of July 1. 1944, covering the so-called
■war debts of foreign governments to the Government of the United States arising from
the First World War and also the German Government's obligations in respect of mixed
claims awards and the costs of the American Army of Occupation are given in the follow-
ing tables. In the case of Finland there has been no default in respect of any payment
due prior to the payments due December 15, 1944. All the other governments are in de-
fault in respect of these obligations so that such governments are affected bv the Johnson
-Act.
1220
POST-WAR ECONOMIC POLICY AND PLANNING
Exhibit No. 31
United States exports {including reexports) to, and imports of general merchan-
dise from the Far East, 1926-39 ^
Country
1928-30 average
1931-36 average
1936
Exports
Imports
Exports
Imports
Exports
Imports
British India '
53, 512
12,649
136, 869
249, 829
28,067
3,669
50. 509
82, 979
26, 807
5,021
70, 340'
British Malaya..
167. 997
Burma'
Ceylon .
2,584
33,850
1,886
73,688
2,391
72
109, 021
18, 043
7,531
246, 036
.36, 106
87, 467
724
114,114
477
119
140, 506
12. 062
3,362
379, 632
1,065
10, 194
1,221
47, 680
1,242
535
62, 571
10. 154
2,8.36
169, 567
9, 355
37. 973
754
89,174
161
29
47, 775
5,652
2.073
148, 186
1,275
13, 752
3,120
60, 350
2.161
3,428
46. 819
8,550
3,342
204, 348
13. 963
Netherlands Indies ..
69, 805
French Indo-China..
4, 187
Philippine Islands ...
101,679
Thailand
243
Other Asia . ... ..
34
China
74. 232-
Hongkong . . . .
8,541
Kwantung
3,988
Japan
171, 744
Total
571, 2&3
1, 160, 669
338, 801
473, 620
379, 173
686,750
Country
1937
1938
1939
Exports
Imports
Exports
Imports
Exports
Imports
British India '...
British Malaya.
43, 747
8,836
9.5, 942
242, 872
33, 441
8, 855
3,322
1,344
27, 518
3,128
86, 464
3,267
2,349
34.719
21,288
17,005
239, 662
58, 354
112, 274
224
16, 349
as. 751
7,137
94. 244
311
3.874
47. 189
3.367
1.626
126, 762
42.811
9,971
4,065
1. 602
35. 420
8.246
99, 939
4.518
2,951
55, 614
18, 121
1,546
232, 184
66, 401
148, 967
Burma '
426
Ceylon
Netherlands Indies
1,724
25, 050
2,532
85, 032
3,682
4,445
49, 703
20.266
16. 068
288,558
20,706
115.187
6,577
126, 061
527
1,441
103,622
9,213
3.708
204, 201
20, 108
92. 971
French Indo-China
9,611
Philippine Islands
yi, 927
Thailand
380
Other Asia
6,807
China
61,831
Hongkong
3, 570
Kwantung
9,857
Japan
161,212
Total
549, 645
930,060:
481,363
540, 462
531, 193
665, 750
• Data from Foreign Commerce and Navigation cf the United States, Calendar Year 1940, pp. XIV and
XV. Compiled by U. S. Department of Commerce, Division of Foreign Trade Statistics.
Exhibit No. 32
THE JOHNSON ACT
[Public — No. 151 — 73d Congress]
[S. 682]
AN ACT To prohibit flnancial transactions with any foreign governuient in default ou its-
obligations to the United States
Be it enacted ty the Senate and House of Representatives of the United States
of America in Congress assembled, That hereafter it shall be unlawful within
the United States or any place snb.iect to the jurisdiction of the United States for
any person to purchase or sell the bonds, securities, or other ol)li.iiations of, any
foreign government or political subdivision thereof or any organization or asso-
ciation acting for or on behalf of a foreign government or political subdivision
thereof, issued after the passage of this Act, or to make any loan to such foreign
government, political subdivision, organization, or as.sociation, except a renewal
or adjustment of existing indebtedness while such government, political subdivi-
sion, organization, or association, is in default in the payment of its obligations,
or any part thereof, to the Government of the United States. Any person violat-
ing the provisions of this Act shall upon conviction thereof be fined not more than
$10,000 or imprisoned for not more than five years, or both.
Sec. 2. As used in this Act the term "person" includes individual, partnership,
corporation, or association other than a public corporation created by or pursuant
POST-WAR ECONOMIC POLICY AND PLANNING 1221
to special authorization of Congress, or a corporation in which tlie Government
of the United States has or exercises a controlling interest through stock owner-
ship or otherwise.
Approved, April 13, 1934.
Act passed in 1940 bringing Export-Import Bank under provisions of the
Johnson Act.
[Public — No. 420 — 7Gth Congress]
[Chapte:b 34 — 3d Session]
[S. 3069]
AN ACT To provide for increasing the lending authority of the Export-Import Bank of
Washington, and for other purposes.
Be it enacted ty the Senate and House of Representatives of the United States
of America iti Congress assembled, That section 9 of the act approved January-
Si, 1935 (49 Stat. 4), as amended, is amended (1) by striking out "$100,000,000"
and inserting in lieu thereof "$200,000,000", and (2) by inserting before the period
at the end thereof a colon and the following : "Provided further, That the aggre-
gate amount of loans to any one foreign country and the agencies and nationals
thereof which are hereafter authorized to be made and are outstanding at any
one time shall not exceed $20,000,000, and such amount shall be in addition to the
amount of loans heretofore authorized or made to such foreign country and the
agencies and nationals thereof : Provided further. That the Export-Import Bank
of Washington shall not make any loans to any government which was in de-
fault in the payment of its obligations or any part thereof to the Government of
the United States on April 13, 1934, or in violation of international law as in-
terpreted by the Department of State or for the purchase of any articles, except
aircraft exclusively for commercial purposes, listed as arms, ammunition, or im-
plements of war by the President of the United States in accordance with the
Neutrality Act of 1939".
Approved, March 2, 1940.
Exhibit No. 33
Membeeship SHiPBUiLDEais Council of America for the Fiscal Year Ending
March 31, 1944
shipbuilding and shipeepaiking Dravo Corporation :
members Pittsburgh, Pa.
Wilmington, Del,
Alabama Dry Dock & Shipbuilding Co. Electric Boat Co.
The American Ship Building Co. Federal Shipbuilding & Dry Dock Co.
Cleveland, Ohio General Engineering & Dry Dock Co.
Lorain, Ohio Gibbs Gas Engine Co. of Florida
Bath Iron Works Corporation. Houston Shipbuilding Corporation.
Bethlehem Steel Co.. Shipbuilding The Ingalls Shipbuilding Corporation
division : Kensington Shipyard & Dry Dock Oor-
Boston, Mass. poration
Quincy Mass. Manitowoc Ship Building Co.
Staten Island, N. Y. The Maryland Drydock Co.
Brooklyn, N. Y. Merrill-Stevens Dry Dock & Repair Co.
Twenty-seventh Street Moore Dry Dock Cn.
Fifty-sixth Street New Enq;land Shipbtiilding Corporation
Hoboken, N. J. Newport News Shipbuilding & Dry
Baltimore, Md. Dock Co.
Sparrows Point. Md. New York Shipbuilding Corporation
San Francisco, Calif. Norfolk Shipbuilding & Dry Dock Cor-
San Pedro, Calif. poration
California Shipbuilding Corporation Pennsylvania Shipyards, Inc.
Consolidated Steel Corporation, Ltd., The Pusey & Jones Corporation
shipbuilding division St. Johns River Shipbuilding Corpora-
Ornnge, Tex. tion
Wilmington, Calif. Seattle-Tacoma Shipbuilding Corpora-
Craig Shipbuilding Co. tion :
Cramp Shipbuilding Co. Tacoma. Wash.
Delta Shipbuilding Co., Inc. Seattle, Wash.
1222
POST-WAR ECONOMIC POLICY AND PLANNING
Exhibit No. 33 — Continued
Southeastern Sliipbuildine: Corporation
Sun Shipbuilding & Dry Dock Co.
Tampa Sliipbuilding Co., Inc.
Todd Shipyards Corporation :
Brooklyn Division
Hobokeu Division
Seattle Division
Todd Galveston Dry Docks, Inc.
Todd-Johnson Dry Docks, Inc.
Toledo Shipbuilding Co., Inc.
Western Pipe & Steel Co.
ASSOCIATION MEMBER
New York and New Jersey Dry Dock
Association
ALLIED INDUSTRIES MEMBERS
Air Reduction Co., Inc.
American Engineering Co.
American Locomotive Co. (Die.sel engine
division)
The Babcock & Wilcox Co.
Baltimore Copper Paint Co.
Bendix Aviation Cox'poration
Buffalo Forge Co.
Buffalo Pumps, Inc.
Carrier Corporation
Chicago Pneumatic Tool Co.
Combustion Engineering Co.
Crane Co.
Cutler-Hammer Co., Inc.
DaLaval Steam Turbine Co.
Electro Dynamic Works of Electric Boat
Co.
Foster Wheeler Corporation
General Electric Co.
General Motors Corporation, Cleveland,
Diesel engine division
Henschel Corporation
Plyde Windlass Co.
Kearfott Engineering Co., Inc.
Lukens Steel Co.
E. L. Post & Co.
Sperry Gyroscope Co., Inc.
B. F. Sturtevant Co., Inc.
P. S. Thorsen & Co., Inc.
Warren Engineering Corporation
Waterbury Tool Co.
Welin Davit & Boat Corporation
Westinghouse Electric & Manufacturing
Co.
Worthington Pump & Machinery Cor-
poration
Recapitulation
1941
1942
1943
Shipbuilding and shiprppairing members - z
34
1
30
38
1
30
38
1
Allied industries members
31
Total
65
69
70
Exhibit No. 34
Shipbuilders of Amejrica,
New York, N. Y., January 17, 19^5.
Hon. Eugene Worley,
Special Committee on Post-War Economic Policy and Planning,
Washington, D. C.
Dear Congressman : I have received and have looked over the statement made
by me before your committee on January 11, and I wish at this time to express
appreciation on behalf of the shipbuilding industry for the opportunity you gave
me for this hearing.
At the hearing, Mr. Arthur questioned me with reference to the preparation of
designs for ships and may have been under the impression that the major part
of the design work for naval vessels is done by the Navy Department and for
merchant vessels by the Maritime Commission. I believe the statement made by
me in connection with this matter is clear that the major part of all design work
in the building of a ship must be done by the shipbuilders' own organizations, or
by naval architectural groups employed by them.
In connection with this matter and in order that it should be clear in your
records, I am pleased to enclose extracts from statements by —
Admiral Land, Cliief, Bureau of Construction and Repair, Navy Depart-
ment ; and Admiral S. M. Robinson, Chief, Bureau of Engineering, before
Nye committee, January 21, 22, 23, 24, 25, 29, 30, and 31, 1935 (pt. 18). Re-
POST-WAR ECONOMIC POLICY AND PLANNING 1223-.
I)ort of the Committee on Naval Affairs, House of Representatives, Seventy-
Eighth Congress, second session, iiursuaut to House Kesolution 30, a resolu-
tion authorizing and directing an Investigation of the progress of the war
effort, December 11, 1944 (H. Kept. No. 2056) , pages 217 and 218.
Since my I'eturn from Washington, I have obtained information that will
throw further light as to the cost of design work. At present levels, the cost
of the detailed plans of the latest-type battleship are estimated to be from $7,500,-
000 to $9,000,000 ; heavy cruisers about $3,750,000 ; light cruisers about $3,000,000 ;
destroyer (1,600 tons), $1,500,000; destroyer (2,200 tons), $2,u00,000 ; submarine
$1,400,000 on designs to be prepared by the builder.
These figures are given to show the tremendous cost of producing the many
thousands of plans that are necessary for each ship in connection with its building.
The cost of plans on commercial vessels, is, of course, much less, but even
there the expense involved if their preparation is large.
Very truly yours,
H. Gekrish Smith, President.
(Enclosures.)
Testimony of Admirai. E. S. Land, CniEF, Bureau of Construction and Repair,
Navy Department, Before Nye Committee January 21, 22, 23, 24, 25, 29, 30,
AND 31, 1935 (Part 18)
Admiral Land. The 1933 program under discussion coders four light cruisers,
the Brooklyn, at the New York yard ; the Philadelphia, at Philadelphia ; and the
Xashville and Savannah at New York Ship. The contract with the New York
Ship was let on August 3, 1933. On the same date allocations were made to
New York and Philadelphia. The contract plans were not drawn for the.se light
cruisers by the Navy Department, as is its custom, owing to the fact that this
large program consisted of seven new designs, a greater number than had ever
before obtained in the history of the Navy Department.
Three sets of contract plans were contracted for, namely, carriers, Newport
News ; light cruisers, at New York Ship ; and heavy destroyers at New York Ship.
The other four sets were prepared by the Navy Department with some major
assistance on submarine plans from the Electric Boat Co.
The contract plans for these light cruisers at New York Ship were materially
delayed, behind the date of contract award, due to the fact that they had to be
prepared by contract, and they were signed in December 1933 by the Secretary of
the Navy. I think the date was December 15, but I am not positive of that date.
The time elapsed from August 8 to December 15 in preparation of contract plans.
Mr. Raushenrush. Is it possible for the men in tlie navy yard to proceed in
all this building without the remainder of the plan«. or do they have to wait
until all the plans are completed before they can go ahead?
Admiral Land. No ; they can proceed with what plans they have. Plans are
progressive. Starting in with merely hull plans, after the lines are laid down in
the mold loft floor. Then they progressively come out as hull and structural
plans, following along in due course with engineering plans, for machinery
Installations, piping, wiring, and so forth. It is a progressive matter, and just as
a matter of actual fact, plans of a ship practically are never completed until
the ship is .scraped and ofl the Navy list, because we keep running plans from the
time that the contract plans are prepared, and we keep booklet plans and all kinds
of alteration plans of all ships in the bureaus and in the home yards, as well as on
hoard ship, so that actually the plans are never entirely completed until the ship
demises.
navy's ability to design
Senator Vandeni erg. May I ask Admiral Land whether the Navy is equipped
to completely design a cruiser within its own engineering facilities?"
Admiral Land. Yes ; that is not only possible but probable. We are not fully
equipped to do it in any rapid length of time, becau.se we have insufhcient jjer-
sonnel to do all the design work that is involved in a combatant ship of the type
of a cruiser. It can be done, but we could not do it particularly expeditiou.sly
with our present set-up.
Senator Ct.ark. How long has it been since the Navy actually did design a
cruiser. Admiral?
Admiral Land. We make contract plans, which are proper to design the ship,
but when we get into five and .seven thou.sand plans, we do not make them ; we
do not make the largest percentage of them. They are made by the successful
1224 POST-WAR ECONOMIC POLICY AND PLANNING
contractor, and they are marie by the subcontractors, all the way back to the men
who build a pump or a blower or a motor. We could do it, but it would not be
economical and would not be efficient with our present set-up. It would take a
great many more men under Admiral Robinson and myself, and it would take
more men in the navy yards to make a complete design to include every contract
plan and working plan down to the last detail in the construction of a man-
of-war.
Senator Clark. The Navy formerly did that work. Admiral, did it not?
Admiral Land. Not to my knowledge. It never has. I can go back about 35
years.
Senator Clabk. Do you consider it an economical practice, Admiral, to have
the plans drawn by the contractors themselves?
Admiral Land. It has been established over a long joeriod of years, and over
long experience, that it is the most economical way to do it, because we have
not had a regular shipbuilding program in this man's Navy of ours. We have
humps and hollows. When you have a hump, why, we can employ and keep busy a
large number of high-class technical men. When we have a hollow, we cannot,
and they like to get fixed employment, where they are somewhat assured. Also,
we are a training school, to a large degree, and I say "we" meaning particularly
Admiral Robinson and myself, as we lose our expert men from time to time to
go to outside concerns. That is not true only of the shipbuilding industry but
elsewhere.
Senator Vandenberg. If you are asking me, I am not trying to detail this thing
down to the boiler room. I am interested in the general inquiry as to whether
the Navy is dependent upon the private shipyard for designs, speaking abstractly
and generally, and it is my understanding that under the set-up today they
are absolutely dependent upon the private shipyards. Is that correct?
Admiral Land. I would not say absolutely, Senator. We are, in a way, de-
pendent upon them, but, as I say, by a great augmentation of our forces, we
could do this. It would not be economical and probably would not be efficient,
because we would then become standardized in the Navy and would not have
the benefit of the design and engineering information which exists in the ship-
building woiid in the United States.
Senator Vandenberg. I understand that. Let me get back to this matter again.
I understand you to say that you might augment your forces and become in-
dependent.
Admiral Land. That is possible.
Senator VANDENBEf?G. All right. That still leaves us with this contemplation,
as I understand it, that during the last 20 years, and at the present moment, you
are dependent upon outside shipbuilders for design.
Admiral Land. In a sense of the term, that is correct.
Senator Vandenberg. Actually that is a fact, is it not?
Admiral Land. We are not dependent for contract plans except in an emergency
program. We are dependent upon detailed design ; yes.
Senator Vandenberg. Now, to what extent does that put you at the mercy of
the outside shipbuilder?
Admiral Land. I do not think it puts us at their mercy ; no, sir, as I understand
the term. We always have the whip hand in any situation of that kind, and if
anybody tries, through vicious attributes, to perpetrate something on the Navy
Department, we are in a position to go ahead and do it ourselves. We have been
doing it, for years. I can cite instances in the manufacturing game where it
looked as if we were being treated pretty hard, and we talked it over and found
out the reason.
Admiral Land. We have tried the other one. I cited an instance. We were
doing it with the gunboats. I would like again to draw the committee's attention
to this fact ! It is well known in the United States that the private shipbuilders
think they are better designers than the Navy Deparment, and the Navy Depart-
ment thinks they are just as good as the private shipbuilders. To get the best
results it stands to reason that a little competition is the life of trade, and if
we are going to make the progress which you gentlemen expect the United States
to make in connection with design and construction of combatant ships, it seems
reasonable to me to have this competition between the private shipyard designers
and the Navy Department designers to get the best results and the cheapest.
Senator Vandenberg. That is what I have been trying to discover, if there is
any competition ; and I have not been able to discover any. It seems to me instead
of a monopoly in the Navy with respect to the designs, the monopoly exists ex-
ternally with the Navy, and to a substantial degree they are at the mercy of the
private shipyard. Is that an erroneous statement?
POST-WAR ECONOMIC POLICY AND PLANNING 1225
Admiral Land. I think it is only a half truth, because we are not at the mercy
of them, as I have explained. If we are being jammed and feel we are getting
the worst of it, we can always take the thing away from them.
Senator Barbour. Admiral, with the chairman's i)ermission, if it is a fair
question, I would like to ask you this : Assuming that you had a situation where
war should be inmiinent, would it mean that your navy yards would be greatly
t^ngaged with last-minute alterations and repairs and supplementing carriers of
one kind or another with armament and equipment? In other words, would
your yards be used, certainly, to a very unusual extent, and would it not then
he of advantage to the country to have private yards that could go along with
the building of new boats?
Admiral Land. Yes, sir. Our exiierience in the last war very definitely proved
that. When engaged in war, no navy yard can carry out shipbuilding. It has
to concentrate all its efforts and expand to the limit to take care of repairs,
alterations, and conversion jobs.
Admiral Rorikson. Senator, we make up the designs for these ships always.
We design the ship. That is, a general design. We call them contract plans.
That is the plan of a ship.
Senator Vandenbekg. You could not build the ship from that?
Admiral Robinson. We could not build the ship from that, but you can use
that to make the details for building the ship. For example, every plate which
goes into a ship has to have a plan for it. The shipbuilder makes his plan and
shows where the holes are going to be punched, and he shows the foundation of
the ship. Those are all detailed plans. They have to be made when the ship
is being made. It takes a year or two to make them. They are not actually
finished until the ship is finished. Those two things go together. The Navy
Department originates the plan and the shipbuilder or, in our case, the navy
yard, furnishes the plans. In certain cases we depart from that and let the
shipbuilders make contract plans as well. That was done in that particular
case unuer discussion, because there were so many plans called for that summer
that We could not in the Navy Department, with our force, get them all out. We
took tne way which we tlionght would be most expeditious to build them and had
the .shipbuilders submit this as a part of their contract woi'k.
That, as a matter of fact, resulted in a delay in getting the plans for the ships
because it took 3 or 4 months that the Navy Department would have devoted
to that work and have had ready when the contract was made, had to be done
after the contracts were let. In that case that was the development of a contract
plan by the shipbuilders.
That is not a usual procedure. The Navy Department ordinarily makes its
own contract plans. There ai'e exceptions, and we have exceptions right along,
but that is the usual procedure.
Then the developments having to do with the thousands of detailed plans
T\'hich have to be gotten out are carried out by the shipbuilders or the navy
yards.
That is a c<miposite picture. The Navy Department makes a part of the plans
«nd the shipbuihler makes a part of them.
In no way could the Navy Department itself make all the plans which go into
the building of a ship. Some of those plans have to be made on the spot. They
could be made at a navy yard, or at a private shipyard, or wherever the ship is
bfing built, but they could not all be made on the original private design ; they
have to be made when the plans are being designed. The man making them
has to go down on the ship and see what is there in many instances.
[H. Rept. No. 2056, 78th Cong., 2d sess.]
Invfstic.atioxs of the F'bogress of the War Effort
Report of the Committee on Naval Affairs, House of Representatives, Seventy-
eighth Congre.ss, .second session, pursuant to House Resolution 30, a resolution
authorizing and directing an investigation of the progress of the war effort,
December 11, 1944
The design work performed in the Navy Department with respect to new-ship
■construction is divided into three successive stages: (1) Preliminary design,
(2) contract plans and .specifications, and (3) detailed working plans.
In the first stage, after the High Command has indicated its requirements and
the General Board has determined the number, size, and general characteristics
of the shii>s desired, small-scale studies and calculations as to displacement,
1226 POST-WAR ECONOMIC POLICY AND PLANNING
speed, plane capacity, armament and ammunition, protection, and cruising radius
are prepared. The general dimensions are fixed, preliminary lines discussed,
and models and small-scale plans are prepared which show the form of the
hull, the general location of armament and machinery, the arrangement and
distribution of protection, and the dimensions of the principal strength members
of the ships. From 30 to 60 plans are required in this stage of the work, which
are drawn almost entirely in the Bureau.
After these basic determinations are made, the contract plans and specifica-
tions are prepared. These include the arrangement and plans for hull and
machinery, armor and armament, plans showing the dimensions of principal
strength members and the chai-acteristics, arrangement, and desired capacity
of all auxiliary systems — all prepared in such size and detail so as to permit
the builder to estimate the cost. Detailed specifications covering the construc-
tion and outfitting are prepared and careful estimates of weights and calcula-
tions of stability are made. These plans, delineating all the essential features
of the ships, form the basis for the contracts. The number of such plans
required vary from 20 to 11.5, depending on the type of vessel. In most instances
these contract plans are prepared in the Bureau, although in a few instances
these plans have been prepared by the shipbuilders or a design agent.
After the contract plans and specifications reach the shipbuilders' hands, a
large number of detailed working plans have to be prepared by the shipbuilders
or his design agent. The development of the details of construction on these
•plans is worked out and submitted for approval to the supervisor of shipbuilding
or to the Bureau. From 3,500 to 9,000 of such detailed working plans are re-
quired. This work is carried on either by the shipbuilder or by his design
agent.
Since this stage of the design work is so intimately connected with the actual
construction, it would have been wholely impracticable for the Bureau to
attempt to perform it, even if it had been possible to find adequate space and
to recruit into the Navy the enormous working staif required. Even with
this delegation of responsibility for preparing detailed working plans to the
shipbuilder or his design agent, the Bureau has had to expand its design staff
from 474 in 1940 to 1,725 at the present time. In addition to this Bureau
personnel, some 11,000 oflicers and civilian personnel are engaged in perform-
ing similar planning, design, and drafting services in the nine navy yards.
In addition to the difficulties which further recruitment in the Bureau would
have involved, it was felt desirable to make the preparation of the detailed
plans the responsibility of the shipyards, so that the designers would be In
close contact with the actual construction.
It has been the custom of the Bureau of Ships, in furtherance of its multiple
shipbuilding programs, to designate a particular yard as the leading yard and
certain other yards as following yards. When the construction of many ships
of a particular class was contemplated, it has been felt desirable to "fix the
responsibility for the preparation of the detailed working plans in one leading
yard for the entire class of ships, no matter where built. The responsibility
for procurement for the entire program has also been centralized in this leading
yard. As a consequence it has been possible to standardize the designs, to
make uniform materials, engines, electrical systems, and other component parts,
and to effect greater economy and speed in construction. Thus one leading
yard has the responsibility for furnishing the working plans to, and procuring
the necessary materials for, all the yards participating in a particular ship-
building program. The following yards only have the responsibility of build-
ing the ships assigned to them from the plans and materials furnished them.
This designation of leading yards has enabled the Bureau of Ships to go forward
with its shipbuilding programs with far greater efficiency and speed. Some
of these leading yards have performed these design and procurement functions
themselves and have set up design and procurement offices within their own
yards for this purpose ; others have seen fit to utilize outside design agent.
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