things are rather generally known. In the interests of perspective let me restate some of the things which have affected the general, price level:

1. Prices of many things have been held artificially low under the OPA controls. As soon as these controls were removed there was an upward surge of prices generally in response to the economic conditions already existing. In this connection, it is interesting to note, as already suggested, that cotton, which had not been controlled under OPA, has had but a slight increase in price since June 1946.

2. We have 60,000,000 people employed in the United States at present, which is a larger number than at any previous time in our history. These gainfully employed persons are enjoying high takehome wages, high farm incomes, and high corporate dividends. Consequently, purchasing power actually in the hands of consumers is extraordinarily high.

3. A major force leading to the high rate of flow of income into consumers' hands has been the series of wage increases that has occurred since VJ-day. These increases have raised the purchasing power of the rank and file without directly increasing the supply of the things which the rank and file buy. The inevitable effect has been an upward pressure on the prices of consumers' goods. This does not necessarily condemn the increases, but it does explain in part the rising price level.

4. In addition to the high current flow of distributed income, there exists the largest backlog of consumer savings which this country has ever known. In the cases of some individuals, at least, these savings are burning holes in their pockets and thus intensifying the desire to purchase consumer goods.

5. There were in June 1946 very large empty reservoirs of merchant inventories and of stocks of goods in consumers' hands. For at least 5 years the people of the United States had been shipping quantities of semi-worn-out clothing, first to China and then to Europe, and it had not been possible to replace clothing inventories at a corresponding rate.

Moreover, the size of the inventory of consumer goods normally held in the distributive channels is not appreciated. After the manufacture of certain consumer goods was discontinued in 1942, there remained on merchants' shelves certain of these goods, in some instances for as much as 3 years or longer before the reservoirs were entirely emptied. The time required for refilling of these reservoirs also has been underestimated.

6. There is still evident a distinct shortage of consumer durables relative to demand. I undertook just last week to place an order for a new automobile which I should very much like to have by June 1948, but I was informed that it would probably be 15 to 18 months before I could expect delivery. In the meantime, with the help of my wife, I may very well spend the money that I am now willing to spend for an automobile for whatever other commodities may be available. And that of course, in turn will force up the pressure on price on those other commodities.

The CHAIRMAN. I hope you will save the money, however, Professor. Mr. VAILE. I hope I will.

Senator O'MAHONEY. Then why blame your wife?

Mr. VAILE. I will refer the question back to you and your wife.

7. Pressure on the available supply of consumer goods is also being reased at the moment through the increases in consumer credit ich started with the ending of the controls in that field.

8. Ever since the close of the war there has been a continual excess exports from the United States over imports into the United ates. This means, of course, that money income distributed in yment for making goods finds less goods on which it can be spent the amount of the excess of exports.

9. Similarly, an unusual amount of capital assets construction is ing on at the present time. In connection with the making of these pital assets, money income is distributed to labor and material ppliers, but again this income finds no consumer goods on which it n be spent. This would not result in inflationary pressure if the come so distributed were absorbed in payment for the new construcɔn. But in fact much of the latter actually is being paid for by panding bank credit. Thus the income distributed in the conruction industries is in excess of the consumer goods on which it can ? spent.

All nine of these factors have contributed to the general rise in the rice level, to the increase, that is, of the ratio of money to goods in ir general economy.

The second part of this discussion deals more specifically with the vel of grain prices:

1. In the first place, all of the general forces just discussed are pertient parts of the explanation of the rise in grain prices. That is erhaps especially true of the first two points discussed above.

2. The demand for wheat is said by economists to be inelastic. hat is to say, we continue to bid for our share of wheat or wheat roducts when the supply is scarce, even though the price rises coniderably, and more than proportionally.

It is generally believed that a shortage of supply of, say, 10 percent, ill result in a rise in price by about 20 percent, or double the percentge of decrease in supply. Available data indicate that the domestic se of wheat for all purposes in the year commencing July 1, 1946, ust as the OPA controls were removed, was only about 76 percent of the 3-year average 1942-45. This reduction was not the result of ny shortage in demand, but entirely a reflection of shortage of supply. These facts alone might, on historic grounds, be expected to have ncreased the price of wheat by nearly 50 percent.

3. It is, of course, understood by everyone that as purchasing power increases we eat somewhat more, and more expensive, food. Increased per capita consumption of wheat and wheat products was, of course, to be expected during these years of high income, and individual consumers would bid against each other, thus forcing up the price, if the supplies of wheat were inadequate to permit an increased physical level of consumption.

4. The actual exports of wheat and wheat products have been an important factor in limiting the supply of wheat available for domestic consumption. At the present time there is not only the pressure of export of some 500,000,000 bushels of wheat and wheat products, but there is also uncertainty as to the extent to which this figure may be increased. I want to emphasize that point.

This uncertainty is one of the forces that is holding the spot or cash price materially above the price of May futures.

Incidentally, it may be pointed out that the fact of high spot prices relative to futures prices is strong evidence that it is not specula tion in futures prices that is causing the high price of wheat, but rather the current demand on the part of those who want actual present possession of the wheat in order to insure themselves of a physical supply adequate for their season's needs.

5. It is well known, of course, that the 1947 corn crop was very short. This has materially increased the demand for other grains for feeding purposes and is a major factor in the present price of all grains.

In recent years we have increased the per capita consumption of meat from about 135 pounds to about 155 pounds per year, and with incomes remaining high it will be difficult to reduce this per capital consumption figure except by rather sharp increases in prices. Consequently, it will be difficult to reduce the feeding of grains to livestock in order that a supply of meat and meet products may be available. 6. Added to the shortage of the corn crop is the prospect of a winter wheat crop below normal of the last 3 years. Just how serious this may turn out to be is not known, but it is an element of uncertainty which cannot be dismissed as an influence on the increase of present grain prices:

The CHAIRMAN. May I go back a moment? Is it not true that the feeding of grains to livestock has been reduced? The figures show lower weights, and so forth?

Mr. VAILE. Yes. There does seem to be some reduction that has already occurred. And as a result the most recent estimate of the Department of Agriculture has reduced by about 50,000,000 bushels. as I recall it, the quantity of wheat that will be fed to livestock during the current year.

The CHAIRMAN. The high price of wheat has a direct result in feeding less to livestock?

Mr. VAILE. That I suppose would be certainly true unless or until the pressure on the meat supply raises the price of meat correspondingly.

The CHAIRMAN. Yes; I mean for the present.

Mr. VAILE. For the moment, yes.

Representative HORAN. Might I ask a question that fits right there? It is estimated that a high percentage of our total grain supply is fed to livestock; is it not?

Mr. VAILE. Yes; when you consider corn particularly. Of course, that is true.

Representative HORAN. I would like to have your opinion on an over-all basis as to whether or not there would be any validity to a consideration of white flour, which would increase, of course, the amount of coarse available for livestock feed. Is there any possibility of reducing the amount of whole grain that would be fed to our livestock if we were to manipulate white flour for export, rather than whole grain?

Mr. VAILE. I am not familiar enough with the demand abroad to know to what extent the mill feeds that would result from milling the wheat abroad are essential there. That would be part of your overall answer to the question, at least.

Of course, you are quite correct in saying that we could feed as many people with flour direct, by shipping merely the flour, as saving the

rans here, of course.

But whether that would really fit the world ›roblem better I am not in a position to say. It is a question that I have not looked into at all.

Representative HORAN. I do not know the answer to it. It is an ntriguing question.

Thank you.

Mr. VAILE. It is.

The CHAIRMAN. You may proceed.

Mr. VAILE. 7. In connection with the two points just raised, it may be pointed out that Secretary Clinton P. Anderson in testifying before this committee recently-if I read his testimony correctly-said that the Government had undertaken, with some success, to buy supplies of wheat for export at moments when the price had temporarily declined. To the extent that the Government was successful in this undertaking, it must be obvious that the civilian market price—that is the local domestic market price-was higher on the average, than it would have been without this governmental policy.

8. Another governmental policy that has contributed to the high price of food grains is the goals that were set for potato production in 1947. As a result of these goals, the harvested acreage of potatoes, one of the best substitutes for wheat, was down about 15 percent in 1947 as compared with 1946.

While the above review is neither exhaustive nor perhaps entirely complete as to the forces influencing prices-for example, I have not mentioned the sort of thing which Secretary Snyder discussed with you the other day, the control of the monetary system-nevertheless, it is perhaps sufficient to show clearly the principal forces that have contributed both to a rise in the general price level since June 1946 and the specific price movements of the commodities traded on the grain exchanges.

I want to repeat that there is no evidence that suggests to me as an economist that the operations on the grain exchanges themselves have in any sense caused the price rise on grains to be greater than it would have been with a closer or different regulation of these exchanges. The CHAIRMAN. Are there any questions?

Senator O'MAHONEY. I gather from your testimony, Mr. Vaile, that the only buying which does not affect the price of grain is the speculative buying.

Mr. VAILE. The buying which affects the price of grain, it seems to me, is the buying which takes grain off the market. The only selling that affects the price of grain is the selling that puts grain on to the market.

Senator O'MAHONEY. Do you think that the transactions on the commodity exchange, which apparently result in the sale and resale over and over again of "X" bushels of wheat, have no effect at all, but the sale of specific amounts of wheat or grain which result in taking the grain off the market, does have an effect?

Mr. VAILE. Let me preface my answer to that, Senator, if I may, by saying that I, like the Secretary of Agriculture, have never either bought or sold grain. On the other hand I have watched it done a good many times. I have spent a good many hours on both the Chicago Board of Trade and the Minneapolis Grain Exchange. And I think it is quite possible, for the way in which futures are sold, to influence the price by an eighth of a cent, perhaps by as much as a

quarter of a cent, temporarily. That may be up, it may be dow depending on the way in which it is done, and who is doing it, wheth somebody who other traders believe must have some new informatio about the market, has come in to do it. And I think it is quite poss ble to get those minor, temporary effects on the market by trading futures.

But the volume of trading in futures, the frequency in trading futures, whether it be measured in terms of 1 day or 1 week, or 1 mont or longer, does not affect the judgment of the people who are buyin and selling cash grain. They are looking at other indices in makin and are placing their bids or offers for cash grain in terms of tho other indices.

Senator O'MAHONEY. You give the impression, therefore, that business which produces nothing, because it is confined for 90 percen of its extent, according to the testimony of Mr. McClintock, to me transactions which never result in the delivery of a bushel, that som such transactions, though they deal absolutely in the price whic the public must pay, do not affect that price, they are insulated, the are set off, they are as far removed from the realities of life as thoug they were conducted upon the moon.

Is that the sort of testimony you want to give us?

Mr. VAILE. No.

Senator O'MAHONEY. That is what you say, is it not?

Mr. VAILE. I think you misunderstood my testimony to a limite extent. In the first place there are traders in futures who are makin a very careful study of supply and demand situations and who ma very well be fully as well informed, perhaps better informed in ind vidual cases, than the merchants or the millers regarding those basi situations. It may very well be, therefore, that even so good an experienced an operator as Mr. Cate, who testified here to you as miller, may be affected in his judgment somewhat by someone of h acquaintances who is a speculative dealer.

I am inclined to put in a sentence here about the famous case James Patton, in 1909, as I remember it, when the rumors of the fro in Argentina came to this country and were denied. Mr. Patton g some information regarding temperatures, not whether or not th crop looked good, but what were the actual temperatures, and mad up his mind on the basis of that objective information that the cro was injured and that there would be a shortage a few months late He was right. He was a speculator. He was dealing primarily i futures.

He had an influence on the market. He had an influence on th market because his trades were based upon information growing ou of the supply and demand conditions.

If a person of that sort has the confidence of other traders, what h does will influence the other traders. If he does not have the cor fidence of other traders it is doubtful if it will do more than this eight or a quarter of a cent movement that I am speaking of.

Senator O'MAHONEY. At any rate you presented a very interestin statement, Mr. Vaile, in which you have pointed out that since th lifting of OPA controls prices of commodities which you have liste here have risen from 2 to 500 percent, an average of 90 percent o the whole.