TAKING THE PROFITS OUT OF WAR FRIDAY, JANUARY 25, 1935 HOUSE OF REPRESENTATIVES, Washington, D. C. The committee met, pursuant to adjournment, at 10 a. m., Hon. John J. McSwain (chairman) presiding. The CHAIRMAN. The committee will come to order, please, and take their places. We have met for the purpose of resuming the hearing upon H. R. 3. I am glad to note in the audience our former colleague, Mr. Edward W. Goss, of Connecticut, and I am glad to have him in our committee room this morning. As I have previously stated, I have notified by letter all the people that I could think of as having previously manifested any interest in this general subject. Consequently I notified the president of the Chamber of Commerce of the United States and I have from him a long 2-page letter, dated January 23, 1935. That letter is not very definite one way or the other, as I read it hastily. I will offer that letter for the record, to be printed. The reason I notified him was because in April 1917-and I remember this because I was then an active member of our local chamber of commerce-the Chamber of Commerce of the United States had a referendum and, on April 19, 1917, they submitted that referendum to the local chambers of commerce, and the first paragraph in the submission was this: There is abundant evidence that business men are not only ready but eager to do their full share in meeting the burdens imposed by the war, and the principle that a few should not be permitted to profit greatly by the war at the expense of the many is thoroughly sound and equitable. That is the first glimpse that I ever got of the suggestion of equalizing the burdens of war. And this, in our opinion, reflects the universal sentiment of business men throughout the country. The burden of taxation can be made lighter for all citizens if it is clearly understood that waste and extravagance, undesirable at all times, tend in war times to increase as a result of the cost of war. Borrowing leads to extravagance and, incidentally, to inflation, and therefore to increase in the price of war. War taxation leads to economy and therefore to stabilization of prices. On September 12, 1917, another referendum was had, under the subject of "No Special War Profits." The committee reported: Your committee studying the subject upon which you have asked it to report finds that the chambers of commerce of the United States, through the referendum vote of its members, which was taken in May 1916, is committed to the principle that there should not be a profit interest in war. And then, on July 13, 1918, by a report from the committee on the financing of the war, the committee quoted with approval this paragraph in their submission of April 1917, to wit: The principle that a few should not be permitted to profit greatly by the war at the expense of the many is thoroughly sound and equitable, and so forth, quoting the remainder of that paragraph. So, whatever may be the attitude of the Chamber of Commerce of the United States today, it seems to me that at that time it was very squarely committed to the proposition that a few persons should no profit to the detriment of the Government or of the many. I think that is the principle upon which we are proceeding. Mr. Clerk, will you file this letter from Mr. Harriman, president of the United States Chamber of Commerce, as a part of the hearing? (The letter referred to is as follows:) Hon. JOHN J. MCSWAIN, CHAMBER OF COMMERCE OF THE UNITED STATES, Chairman Committee on Military Affairs, House of Representatives. MY DEAR MR. CHAIRMAN: Upon reaching Washington today I find your letter of January 19, in which you refer to action taken by the Chamber of Commerce of the United States 17 or 18 years ago and are so kind as to invite me to appear at hearings yesterday. Apparently you have in mind referenda taken by the Chamber during the World War. As you may remember, our referenda are not polls. Our procedure is based upon the true referendum procedure, which begins with study and report by a committee as representative as we can make it, the recommendations of such a committee going to the organizations in the membership to ascertain if the recommendations are in fact in accordance with the views predominating in our organization membership. Before the Chamber of Commerce of the United States can have a position, there has to be a referendum procedure of this kind or a corresponding procedure based upon the votes of delegates in an annual or special meeting. The position which you describe, the chamber has not taken by vote of its membership. Moreover, there are two reasons weighing against any assumption that votes of our membership taken during the World War can now be used to indicate the position of the chamber. In the first place, our membership has grown to such an extent that the number of votes cast in referenda taken in 1917 and 1918 would today barely be sufficient to meet the quorum requirement in our procedure. In the referendum taken upon a committee report in April 1917, upon financing war, 505 organizations cast ballots. In our referendum on national defense taken in the early part of 1934, 913 organizations cast ballots, and in the referendum which closed at the end of 1934, respecting the National Industrial Recovery Act, 927 organizations filed ballots. You will find enclosed copies of the referendum pamphlets through which there was submitted to our membership the report of our committee on financing the war, submitted under date of April 19, 1917, the report of our committee on control of prices during the war, submitted to our membership on September 12, 1917, and the report of our committee on financing the war submitted under date of June 13, 1918. You will notice that through these reports the chamber became committed to advocacy of a maximum amount of taxation for the purpose of meeting the costs of the war to the greatest extent possible through taxation, in order that the inflationary tendencies of borrowing, and the inevitable consequences of such tendencies might be kept to a minimum. The chamber advocated, for war purposes only, high taxes of all kinds, including an excess-profits tax upon business enterprise of all sorts and a war-profits tax upon concerns actually receiving war profits. At the same time the chamber was equally insistent that these taxes should be so levied that they did not prostrate industry but permitted it to keep intact its necessary resources. It may not be inappropriate for me to add, by way of reflecting the views and experiences of our membership at that time, that it was just as hard after the war to get repeal of such taxes, which in their very essence were suitable only during a time of war, as it had been originally to get acceptance of them for war purposes. As for the referendum in the fall of 1917 respecting control of prices during the war, you will observe that the control urged then by our members did not correspond in all respects with the provisions of the bill which you have introduced. The business men's organizations at that time in our membership were wholeheartedly in favor of the controls then proposed under the war -conditions of the day, but were fearful controls would be so imposed as to be poorly adjusted to actual conditions and consequently have destructive effects which scarcely could be intended. You will observe that our members have dealt with subjects of this kind, and dealt with them promptly and emphatically, when a state of war has existed. I am confident that our members will be as prompt at any time in the future when war becomes imminent, then advocating principles which are directly applicable to whatever conditions exist at the time. Under the circumstances, I am not in a position to endeavor to represent the position which our membership would take today, if there were occasion for action. Very respectfully yours, H. S. HARRIMAN, President. The CHAIRMAN. Now, a word as to the procedure. Mr. Baruch, gentlemen, was the chairman, as you know, of the War Industries Board; and ever since the war he has taken every opportunity to give the Government and the citizens of the country the benefit of his experience in that capacity and of the reflections and observations that he made, based upon that experience. Almost annually he has lectured to the Army War College and to the Army Industrial War College. He has written numerous articles for magazines that I have read; and he has appeared, to my certain knowledge, before the Committee on Military Affairs in 1924, when I was acting as the representative of the committee, and before the War Policies Commission, in 1931. In 1931, before the War Policies Commission, Mr. Baruch presented a pamphlet which he had prepared, of about this size, with great care, constituting the most thorough and comprehensive analysis of every angle of the problem. I have been informed that the collecting of the data and material that went into that pamphlet cost Mr. Baruch many thousands of dollars-I do not know of my own knowledge-and it was printed, so I am informed, at his own expense. I know it was not printed at Government expense. I repeat today before he testifies whatever may be the issue during the examination, what I said then: irrespective of any differences of opinion he and I may have about details, that I believe future generations are under obligation to Mr. Baruch for the unselfish and the patriotic fight that he has made to help and also to lead in this effort to accomplish a more equitable and a fairer distribution of the burdens of any future war that we may unfortunately get into. (During a discussion which was not reported, by direction of the chairman, Mr. Baruch produced some printed booklets.) The CHAIRMAN. I want to say that this is a most magnificent statement. There is no lawyer and no student of the question that can do other than say that that is an analysis of a most splendid sort. I am glad that we have some copies of this valuable booklet. Now, as to the procedure, gentlemen: I suggest, gentlemen, that we permit the witness to proceed directly with this statement; and that each of you have a piece of paper and pencil in front of you to write down any idea that occurs to you; and, in the order of seniority, each member of the committee will be given a chance to interrogate Mr. Baruch, beginning with Mr. Hill on my right, and then Mr. Andrews, on my left, and alternating in that way, as you know we do, and I believe we will save time and make progress in that way. Mr. THOMASON. Can't we let him conclude his own statement without interruption? The CHAIRMAN. That was what I was endeavoring to suggest. that he be permitted to make his statement without interruption. STATEMENT OF BERNARD M. BARUCH, OF NEW YORK The CHAIRMAN. Mr. Baruch, I thank you, on behalf of the committee, for coming, and if you have any general statement to make in connection with this matter we will be pleased to have it. By the way, let me say that I take no particular pride in the terms of H. R. 3. Members and witnesses can shoot it to pieces, just as they see fit, without hurting my feelings. The point was to get something before this committee to go to work on. Then a subcommittee will be appointed to add to and to strike out whatever the hearings and the discussions disclose as necessary, and to revise the bill, which will then be introduced by myself, if I am still alive, because I want to claim the authorship of that bill anyhow. In that way we will let the bill go into the House as a clean bill, without any committee amendments, and it will be such as to justify its passage through the House without any House amendments. Now we will be glad for you to proceed in your own way. Mr. BARUCH. Mr. Chairman and gentlemen, of course, I thank you for the very complimentary remarks that your chairman has made, and I wish they were all true. But even if they are not true, little things of that sort are sweet to one, and there is a little bit sticks and makes life a little bit brighter. I am glad to come here to advocate something that I found, by my experience in the war, in dealing with the realities of the war, the supplying of the Army, and the care of the civilians is quite necessary. I have endeavored in this statement, as briefly as I could, to comment upon the bill as it was presented to me. And then I will leave it to the committee to ask me questions in any direction that they may wish, in reference to any remarks that I make or any particulars in the bill. I wish to assure you that there is no question, no matter how searching it may be, that I will not be glad to answer. The McSwain bill embraces in broadest outline the proposition for removing the profit motive from war recommended to the War Policies Commission of the Seventy-first Congress. It also provides means by which organizations can be set up to direct the conduct of war so that although the profit motive is eliminated the country is made impregnable during hostilities and protected against social let-downs and economic chaos, which are the tragic aftermaths. There was presented to the War Policies Commission a somewhat similar draft, for the basis of discussion only. In the debate among lawyers of the Department of Justice and others, many technical and statutory questions were raised. Studies were made of other war legislation and the opinion of courts thereon, and, as I recall it, several modifying suggestions were thus developed most of which were later given to the Commission. None of these altered the essence of the broad propositions laid down by the McSwain bill. It was, however, the legal opinion that any such statute would require several additional sections to take care of particular cases. The I am naturally not prepared to discuss these refinements. drafting of appropriate and complete legislation should be undertaken at the direction of this committee by the legislative drafting service. In this matter one finds himself working in ground far from fallow. Effective pioneering in this field was begun by the War Industries Board during the World War and has been carried on intensively, if somewhat sporadically, ever since. As a result of many investigations and of much constructive effort a vast amount of valuable data has been classified and a voluminous record of pertinent opinion and conclusions accumulated. In relation to the elimination of profits due to war, there are a number of agencies working on this problem. The War Policies Commission, of which your chairman and Mr. Vandenberg of the Nye Committee were members, made a very exhaustive study, which, I understand, your committee and the Nye Committee are now working on for the purpose of making concrete recommendations. You doubtless are aware that under section 5A of the National Defense Act of 1920, Congress specifically charged an officer of the executive branch, The Assistant Secretary of War, with the continning duty of assuring adequate provision for the mobilization of material and industrial organizations essential to war-time needs. Pursuant to authority of this statutory mandate, The Assistant Secretary of War maintains a considerable staff and has prepared and has continuously kept up to date for several years, a complete plan for industrial mobilization and supply of munitions against the event of a major war. The last edition of this plan addresses the necessity of guarding against excess war profits and the whole plan has to do with the problems of munitions and supplies. Recently these plans and most of these details have been under the careful and searching scrutiny of the Nye Committee. I look upon the action contemplated in this bill as being sufficient to place this country in a position immune against attack. While it removes the war-profit motive, it has other great advantages. By keeping prices down to peace-time levels and thus eliminating doubling and trebling of war prices, it vastly increases the Nation's financial strength for war. It also insures against conditions following in the wake of war such as this depression in which, some 16 years after the armistice, we are still engulfed. The rest of the world will be on notice that we are prepared in a manner in which no other country is prepared, with all of our moral, spiritual, and physical resources ready to be thrown to the fullest |