Have you given any thought on the idea that such a provision. might be included in this legislation, that would enable the President, during a conflict with, say, one or two nations on earth, to control the prices between other nations, all the others not in the war? General JOHNSON. It would certainly add to his strength, but at the present state of the world's gold supply, I do not know of any nation that is going to proceed with very much confidence toward engaging in an industrial war by reason of the fact that they havenot any gold, and we have most of it.

Mr. MAY. Your original statement was to the effect that most of our wars were the result of a desire on the part of the nations provoking them to control world trade.

General JOHNSON. That is right, or some part of it.

Mr. MAY. Or some commercial interest.

General JOHNSON. In fact, except for a few dynastic wars, I do not know of any other kind of war since the beginning of history. Mr. MAY. Do you not think that this legislation might appropriately contain some provisions that would broaden or extend the powers of the President to stabilize world markets in time of war with our gold reserves?

General JOHNSON. I do not know that I would express it that way. Mr. MAY. Of course, that is improperly expressed. I would like to hear your expression.

General JOHNSON. I think that the power you have already given him over gold, and I am just answering off-hand; this is a pretty heavy question

Mr. MAY. But this measure that we passed, as I understand it, is an emergency measure that will expire with the limitation of time, so that it may not be operative at a time when war may come. That is the reason why I asked this question.

General JOHNSON. I think that it is a very important weapon in the hands of an Executive engaged in war.

Mr. THOMASON. Perhaps this question has no direct bearing on this bill, but it has certainly an indirect bearing in view of your answer to one of the questions here.

Did I understand you to say that you would favor an increase in the Army?

General JOHNSON. Yes, sir; I did say I would.

Mr. THOMASON. There is a bill pending before this committee now, of which I am the author, to increase the Army by 50,000 men and 2,000 officers, spread out over the next 5 years.

What would be your reaction to such a bill?

General JOHNSON. I have not studied that in detail. I think that. the need now is for more units and more equipment and better equipment, the motorization and mechanization of tactical units, and I think that you have enough officers for the present.

Mr. THOMASON. But we need more men and equipment?
General JOHNSON. That is right.

Mr. THOMASON. I asked the question because I was afraid you would not be able to come back when the bill came before us.

Mr. HILL. You spoke of more units. The need is not for that so much as it is to fill out and maintain more completely the units that we have. Most of our infantry units are skeletons.

General JOHNSON. That would be cured by increasing the number of men, but what I mean are technical and staff units.

Mr. FITZPATRICK. In building commercial planes do you believe that they should be built so that in case of war they could help out? General JOHNSON. Yes, sir. However, I do not think that there is a great deal of difference.

Mr. FITZPATRICK. All of the European countries today, with their commercial lines, can turn in their planes in case of war.

As to this mass production of planes that would be built for $700 or $800 just for dividends and profit, they would not be of any benefit to the country.

General JOHNSON. We have to have mass production of planes in a modern war.

Mr. FITZPATRICK. But the mass production of planes of that nature would not be of any benefit during the war.

General JOHNSON. In my opinion, it would.

Mr. FITZPATRICK. A plane that would cost $700 or $800?

General JOHNSON. That is altogether a question of mass production. The reason that a modern plane costs so much is that it is all handwork.

Mr. FITZPATRICK. Could the planes built today be put out in mass production?

General JOHNSON. Any standard product, after it is standardized, can be converted to mass production, from a mine product to a ship. Mr. FITZPATRICK. Well, we have quite a few planes in this country, commercial planes, according to the testimony given to our committee, that could not be used in case of war.

General JOHNSON. That is a technical question that I do not know how to answer, but I do not see how anything that will put a man up in the air and transport him quickly could not be used in war. Mr. FITZPATRICK. But it would not be as effective.

General JOHNSON. It would not be as effective as a Martin bomber, of course.

Mr. FITZPATRICK. I suppose that it would be like sending out men with hand guns, which would not be as effective as sending them with machine guns.

General JOHNSON. You do send some men out with both hand and machine guns.

The CHAIRMAN. I will finish making the announcement, that the subcommittee will consist of myself, as chairman; Mr. Hill; Mr. Fitzpatrick, and Mr. Plumley.

It is very essential that the hearings should close as soon as possible. I will ask Captain Persons if he will communicate with the Secretary of War and The Assistant Secretary of War, and tell them that it is our desire that they should attend Monday, beginning at 11 o'clock, both of them, if you please, Captain, with such aides as they may see fit to have with them, and to bring the necessary and desirable data.

The hearing Tuesday will be devoted to hearing representatives of the American Federation of Labor, representatives of the Veterans of Foreign Wars, and representatives of any other patriotic or veterans' associations that have not so far indicated a desire to be

heard, and if there is anybody else who wishes to advise me in advance of a desire to be heard, and who can show me that they can make a real contribution to the subject—and I do not propose to have this committee converted into a sounding board for just anybody's dream, but anybody that can convince me that he has a substantial, practical contribution will be heard Tuesday.

The committee will stand adjourned until Monday morning at 11 o'clock.

(Thereupon, at 11:55 o'clock, the committee adjourned until Monday morning, January 28, 1935, at 11 o'clock.)

TAKING THE PROFITS OUT OF WAR

MONDAY, JANUARY 28, 1935

HOUSE OF REPRESENTATIVES,
COMMITTEE ON MILITARY AFFAIRS,

Washington, D. C.

The committee met at 11 a. m., Hon. John J. McSwain (chairman) presiding.

The CHAIRMAN. The committee will come to order, please, for the further consideration of H. R. 3.

We are pleased to have the Secretary of War present this morning. Mr. Secretary, I will ask you to make such general comment as you see fit to make concerning H. R. 3. Proceed, please.

STATEMENT BY HON. GEORGE H. DERN, SECRETARY OF WAR

Mr. DERN. Mr. Chairman, I appreciate the courtesy of being in vited to express my views on H. R. 3, which is now being considered by your committee. I ask the privilege of making a brief statement on the general subject to which the bill relates.

I am in hearty sympathy with the efforts that are being made to prevent profiteering in war. A movement of the kind you are undertaking cannot fail to gain the support of all fair-minded people. To permit anyone to make an excessive profit out of the exigencies of war is unfair to the soldiers in the front-line trenches, and also to the citizens at home who, by their thrift, work, and sympathy, are supporting the group actually engaged in combat. Although I have read H. R. 3, I have not had opportunity to make a thorough study of the possible effects of all of its provisions. However, I think it would be appropriate to state that primarily the object in war is to gain a complete and quick victory. The welfare of the country certainly demands that nothing be permitted to stand in the way of this paramount objective. In order to achieve this end, the full productive effort of the country will be required. In a modern war not only the armed forces but the whole Nation, with all its resources, is engaged in the effort. The maintenance of the national morale demands that all elements of the population shall be treated with equal fairness and justice, and hence it seems highly important that profit be limited if not eliminated in war. Nevertheless, this worthy undertaking must not be allowed to assume any form that will hamper, cripple, or destroy the more vital thing of producing the necessary war materials when they are needed. The preservation of the country must come first.

The stimulated requirements of war for raw materials, fabricated products and services tend to cause a rise in price levels. Without control price levels would soar to exaggerated heights, hence there must be Government control of prices in war. This is necessary, not only to prevent unfair and excessive profits from being made by individuals or corporations, but also, in a larger sense, for the purpose of holding down the cost of the war.

The fixing of price levels is a major element in taking undue profits out of war, but it is not the only element. Price fixing alone cannot accomplish the desired result. It must be supplemented by reasonable and effective procedure in letting contracts, and also by excess-profits tax laws. During a war the enlarged requirements for war materials make it necessary to use the product of the highcost producer as well as that of the low-cost producer. It therefore becomes necessary to set prices at a level which will make it possible for each producer to turn out his share of the Nation's requirements without loss to himself. With such a price level, the low-cost producer is bound to make large profits. The only way to overcome this difficulty is to take the excess profits away from him through taxation.

From the experience of this Nation, as well as others, the War Department is forced to the conclusion that in the event of war the major portion of our war supplies must be produced by private industry. It might prove suicidal to try to depend upon Government-owned plants alone. Assuming this premise, it follows that, so far as practicable, American private industry should be prepared to perform its war mission. This means that in time of peace, industry should produce some war supplies, because any industry that has once produced an article is thereafter better qualified to produce it speedily in time of war. In brief, our vital industrial problem in war is to produce the necessary war supplies, and to do it first, so that our enemy can gain no advantages from our shortage. Time is the vital element. This fact cannot be repeated too often.

I may say that I fully concur in the proposals to license the manufacture and sale of essential war supplies and I do not think such procedure would be in the least detrimental to the national defense.

The word "munitions", in the military sense, means whatever materials are used in war for defense or for annoying the enemy. Usually it also includes provisions, clothing, and military stores of all kinds. However, the word "munitions" is sometimes used in a more restrictive sense as meaning simply ordnance and ammunition. Speaking in this sense, the manufacture of all munitions in Government arsenals in time of peace would probably remove any objectionable features that may have developed in connection with the munitions industry, but the result might at the same time be detrimental to national defense. In time of war, if history means anything, private industry, under civilian management, but under suitable Government control, would still have to be our main reliance.

One element of weakness is the time that will be required to reach maximum production. The Government will be placed at a serious initial disadvantage if it is forced to turn to an industry entirely