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You have pointed out that numerous factors, including the increased purchasing power of 60,000,000 people employed, the purchasing by the Government, the issuance of bank credit, and all of these various other items exert upward pressures upon prices, but the only operation which exempted from this entire trend is the speculation on the commodity exchange.

Mr. VAILE. Well, Senator, if you had the patience and I had the time, I could list you a very long list of other things that have no influence on price.

Senator O'MAHONEY. I have a lot of patience, and I assume you have a lot of time. Let us ask the chairman.

The CHAIRMAN. I have not much time.

Senator O'MAHONEY. Do you recommend anything to this committee to cure this situation which you do recognize?

Mr. VAILE. Yes.

Senator O'MAHONEY. Namely, the increase in prices?

Mr. VAILE. That is a perfectly fair question.

Senator O'MAHONEY. I hope you do not imply the others were not fair.

Mr. VAILE. It seems to me one that must be fairly met. I am not sure that I am in a position to meet it because, after all, I live in Minnesota, which is a long way from Washington.

The international political atmosphere, it seems to me, has an enormous amount to do with that particular question. But I would go this far: If, as one of the questions asked this morning seemed to imply, we are recognized to be in a position of cold war now-and are going to be during the next "X" months, and such wars may be pretty long-if because of that, in the wisdom of you people who have the responsibility of managing Government, feel that we must for the time being, have a controlled economy, my strongest urge would be that you do the entire job.

We had the experience in 1940 and '41 of selective price control. It is my feeling that it did not work satisfactorily. Read again your own deliberations that led to "General Max" for March 1942. Even that was not sufficient. If you are going to do the job, for Heaven's sake, control wages, too. And get us on an economy that is controlled, that does not press out somewhere like a balloon whenever you poke your finger in it with the individual control.

That, sir, is the only advice that I can give on that particular question.

Senator O'MAHONEY. What is the alternative?

Mr. VAILE. Well, the alternative, obviously, and the alternative for which one assumes we have fought two wars, is to let us muddle through as long as it seems to you at all prudent and safe to let the muddling-through continue.

Senator O'MAHONEY. That is the point. As long as it seems prudent and safe to continue to muddle.

Mr. VAILE. The only people who are in a position, it seems to me, to have an intelligent opinion on that question are the people who know the international situation far better than I do.

Senator O'MAHONEY. Can we, then, afford to continue to muddle through with a condition which has already produced, as you have testified here, a 90 percent increase in the cost of certain articles. articles which could be multiplied manyfold?

Mr. VAILE. That is right.

Senator O'MAHONEY. And which seems to me, certain to produc continued increases, unless something is done.

Mr. VAILE. That, of course, is the expectation, that it will continu to go up until or unless something is done, provided one or two o these items that I have listed here as causes of high prices do not reverse themselves. One of them is the addition to capital assets which is going on at present.

We had a period during the 1920's, as you will, of course, recall when we had a very rapid increase of capital assets. All of a sudden we stopped. One of the big causes of the great depression of the thirties was the abrupt stoppage of adding to capital assets, which included, of course, the dismissal of the people who were working in those industries.

You will recall that two-thirds of our unemployment came from the field which normally absorbs only a quarter or less of our total employment. That might happen again.

The CHAIRMAN. Not so likely, is it though, in construction?
Mr. VAILE. Not so likely.

The CHAIRMAN. Construction then was greatly overdone. I do not see any evidence that construction is overdone at the moment. Mr. VAILE. There is no evidence, Senator, that I know of, that construction is overdone yet. But remember that that is a selective thing, and it may very well be that construction of plants to make electric irons, or construction of plants to make air conditioning for houses, or construction of plants to make certain specific items will seem to be overdone pretty soon, in which case there will be unemployment in segments of the economy, which may be sufficient-I do not know.

Senator O'MAHONEY. And if prices continue to go up, and an increasing number of people find it impossible to buy, will that not result in curtailing the market and producing eventually unemploy ment?

Mr. VAILE. Yes. Of course, as yet and I am emphasizing the point that income is going up, and has gone up, and is high-as yet, while many people are not any better off than they were before the war, on the whole I would suppose that the rank and file is somewhat better off with the exception, perhaps, of housing.

Senator O'MAHONEY. Then does it not boil itself down to this: Whether or not we shall on the one hand continue to muddle through until we have a bust or whether we shall attempt before we reach that desperate situation to do something about it by the exercise of the powers of government?

Mr. VAILE. Right. I think that is exactly what it boils down to. But let me repeat: That so far as I am concerned my judgment would be that it will be extremely difficult, if not impossible, to have any important useful effect on a positive or selective basis. If it is necessary to go into the control matter I hope you go into it both feet.

Senator O'MAHONEY. That is very logical. But in any event we do not want to do anything at all about the commodity exchange. Mr. VAILE. It does not seem to me that that is going to accomplish what you hope it will accomplish.

Senator O'MAHONEY. Thank you very much, Professor.

The CHAIRMAN. Professor Vaile, the answer is, is it not, to Senator Mahoney's question, that all buying increases prices except speculave buying, that every speculator sells as many bushels of wheat as e buys.

Mr. VAILE. That is right. He must sell his wheat.

He must find

buyer at the time he buys, and a seller at the time he sells. The CHAIRMAN. Yes, but every bushel of wheat he buys, he sells a orresponding number of bushels over the years.

Mr. VAILE. Yes. He must do so.

The CHAIRMAN. That kind of buying is different from the fellow who uys and never sells.

Mr. VAILE. Entirely. He takes nothing off the market. It is till there.

I am not sure this is pertinent to the question, but I think it is. some years ago, when there was no heat of controversy of this sort in his country, the Food Research Institute made a study of total peculative balance, profit, and loss, and it was their conclusion, as a esult of a 40-year study-a study covering 40 years, that is to sayhat the speculators as a whole lost money, which would seem to me o be somewhat tantamount to saying that the price was not moving ip as a result of the speculation.

The CHAIRMAN. Are there any other questions? Mr. Horan.

Representative HORAN. Mr. Vaile, you said you were not very well versed in international affairs. Your study of commodity exchanges and the elements of trading in futures certainly would make you amiliar with conditions in commodity exchanges or their equivalent in other countries where grain is produced, would it not?

Mr. VAILE. Oh, yes.

Representative HORAN. Could you tell us whether or not closing of the commodity exchanges and the control of wheat prices and the creation of Government monopolies in the production and distribution of wheat has resulted in increases of production in other countries? Mr. VAILE. At the moment I cannot answer that question factually. Of course the answer would run entirely in terms, it seems to me, of the price policy which was followed in those countries.

Who closed the exchanges? Why were they closed? Was the Government the principal buyer? If so, what sort of a price were they setting for the purchasing?

There are so many other factors that would come into the individual cases that it seems to me no definitive answer could be given except in terms of very explicit instances.

Representative HORAN. You would not care to advance or to venture an opinion as to whether closing a commodity exchange had the effect of decreasing production?

Mr. VAILE. Closing a commodity exchange alone, nothing else, I would say would have the effect of decreasing production. But it is so seldom that you would get that influence alone. I am not sure that you ever could.

Representative HORAN. It would decrease the fluidity of the exchange of goods and their movement in commerce, would it not? Mr. VAILE. Yes.

Representative HORAN. That was testified by Mr. Crawford in his excellent paper just preceding you.

Mr. VAILE. That is correct.

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Representative HORAN. You have used an unfortunate term, think, from my observation of this discussion, in using the term "muddling." I am not too sure but what we would be muddling i we were to entertain a complete control such as you suggested as the best alternative

Mr. VAILE. I have been associated with these matters of contro just enough to thoroughly agree with you.

Representative HORAN. Is it not true that we are not muddlin at the present time? Do we not have the Commodity Exchange Ac and Authority in full operation?

Mr. VAILE: Definitely; yes.

Representative HORAN. Is it not doing a reasonably good job? Mr. VAILE. In my opinion, it is doing an excellent job. Yes. Representative HORAN. You have commented to some extent of the activities of the business conduct committees of the exchanges themselves. I suspect that at least 90 percent of the members of the grain exchanges are responsible American citizens. Is that not right: Mr. VAILE. You are very conservative.

Representative HORAN. I feel that if we can invite everybody to this party-and I want your opinion on this-and tell the people the whole truth, that perhaps we can improve upon the muddling of other controlled countries that have not advanced as far as the American people have advanced. Is that not right?

Mr. VAILE. I would agree.

Representative HORAN. I think we have a very tight situation, and I do not think the price of wheat is going to drop. Do you think it is?

Mr. VAILE. I see no reason why it should drop in the near future. Representative HORAN. But it is not entirely the fault of America,

is it?

Mr. VAILE. By no means.

Representative HORAN. It is the falling off of production elsewhere, is it not?

Mr. VAILE. That is right. And as a result of these forces, let me repeat what I have already said, perhaps; namely. that we started out 2 or 3 years ago I have forgotten if that is the exact number of years or not-with a considerable carry-over of wheat. We have used up that carry-over plus some of the finest crops, the largest crops, of wheat we have ever had in this country, until we are now down to a very low carry-over.

We come into the current situation with a shortage of corn for the rest of this year, with some fairly definite prospects that our wheat will be less plentiful next year than it was this.

We have a disappearance of wheat in this country; that is, a domestic use of wheat in this country, already below that of a few years ago by nearly 25 percent.

I see nothing in those situations that can possibly result in a lower price of wheat.

Representative HORAN. You used an example, Mr. James Patton, who got some temperature readings from Argentina in 1909 and took advantage of that to make a profit in speculation. Is it not apt to have been true that the price would have risen whether Mr. James Patton lived or not?

Mr. VAILE. It certainly would have risen. Certainly it would have isen. There was a world shortage of wheat.

Representative HORAN. What I want to know is whether or not, n your opinion, the control patterns in other countries are having in effect on the American price of wheat.

Mr. VAILE. Would you mind repeating that?

Representative HORAN. I want to know whether the control patterns which exist in Canada, and I understand in the Argentine, as far as the grower is concerned, and in other countries, are having any effect upon the price of American wheat.

Mr. VAILE. Yes; I am sure that it is. The export-import relationships of those countries is affecting world supply. The fact that the Argentine has sold some wheat at over $5 a bushel, that fact is affecting the world situation in one direction and affecting our supply of wheat, which is cheaper than that; the fact that Canada is selling some wheat to England at a price distinctly below our price is affecting it in the other direction.

Representative HORAN. And doing it reluctantly under a pattern. Mr. VAILE. Yes.

Representative HORAN. And they are under agrarian discontent, possibly.

Mr. VAILE. It seems to be so from the news we get in the press, and from talking with the occasional visitor.

Representative HORAN. Thank you.

Senator BALDWIN. Dr. Vaile, the other day we had an analysis of the persons who traded on the grain market in 1 day. In that analysis there were listed, of course, the people who you would expect to be in the market, the millers and others who would be looking for grain. But there are also listed some lawyers and judges, some 308 housewives, and an assortment of people who it is extremely difficult to understand why they would be in the wheat market or the commodity market. Does that sort of business, in your judgment, serve any useful economic purpose?

Does the fact that these people buy and sell in the market possibly serve any useful economic purpose?

Mr. VAILE. In the first place, there are some implications in the way you have asked your question which I would like to clear up. My wife has more time than I have to study the situations that affect the grain market. If she put her mind to it, I am sure she could do a pretty good job on it.

I do not know who these housewives are. But it is entirely possible that some of them, at least, have made a very intelligent study of the market, but I do not know whether they have or not. But merely to say, "the housewives are unintelligent speculators," seems to me to be begging the question.

Senator BALDWIN. I do not say that at all. I simply am asking you a very earnest and sincere question, and the question is this: What economic purpose does it serve for those who do not use grain but merely buy and sell it for speculative purposes? What useful economic purpose does that serve in a period when there is a world shortage of grain?

Mr. VAILE. I can answer that. That is quite a different question. Senator BALDWIN. That is the same question I asked before; exactly.

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