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    "title": "Report, The Road to Tokyo and Beyond, Third Report to the President, the Senate, and the House of Representatives by the Director of War Mobilization and Reconversion",
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    "ocrText": "THE ROAD TO TOKYO\n& BEYOND\non\n\"I'M'I . \"W'd FOR THAN\nREPORT\nSATURDAY - BELEASE BE JUNE FOR 30, RADIO JULY I, and MUST NOT\nEART E.S. ARCHIVES SERVICE RECORDS BOVERETENT AND OREGON\nHE\nPRESIDENT, THE SENATE\n&\nTHE HOUSE OF REPRESENTATIVES\nBy the Director of\nWAR MOBILIZATION\nAND RECONVERSION\nJuly 1, 1945\nTHE ROAD TO TOKYO & BEYOND\nDrd\nREPORT\nSE ARCHIVES.,RND Recorps\nUNIVERSITY\nTO THE PRESIDENT, THE SENATE\n& THE HOUSE OF REPRESENTATIVES\nBy the Director of\nWAR MOBILIZATION\nAND RECONVERSION\nJuly 1, 1945\nU.S. GOVERNMENT PRINTING OFFICE\nWASHINGTON\n1945\nSMOYER 3 отжот oT САОЯ BHT\nCONTEN12\nLETTER OF TRANSMITTAL\nOFFICE OF WAR MOBILIZATION AND RECONVERSION,\nWashington, D. C., June 30, 1945.\nThe President.\nThe Honorable The President of the Senate.\nAdditional copies of this report may\nThe Honorable The Speaker of the House of Repre-\nbe obtained from the Division of Public\nsentatives.\nInquiries, Office of War Information,\nSIRS: As Director of War Mobilization and Recon-\n1400 Pennsylvania Avenue NW., Wash-\nversion I hereby submit my quarterly report in accord-\nington 25, D.C.\nance with the requirements of the Congress as set forth\nin the War Mobilization and Reconversion Act.\nRespectfully,\nAND\nLIBRARY\nDirector.\nSERVICE*\nIII\nCONTENTS\nPage\nI. FACES TURNED WEST\n1\nII. FINISHING THE JOB\n3\nNeeds of the Armed Forces\n5\nFACES TURNED WEST\nIII. How AND WHY OF RECONVERSION\n8\nPolicy on Controls\n12\nThree months ago, when Justice Byrnes submitted the OWMR\nManpower in Reconversion\n14\nWar Production Board Controls\n15\nsecond quarterly report to the President and the Congress, America\nTransportation Controls\n17\nwas looking anxiously across two oceans.\nFuel Controls\n20\nWe were looking eastward across the Atlantic, where war in Europe\nIV. To SPEED THE SWITCHOVER AND CUSHION THE SHOCK\n21\nwas rushing toward its climax; and westward across the Pacific where\nDirect Aids to Business\n22\nDirect Aid to Individuals\n25\nthe pace of war was slower, but no less costly.\nV. SURPLUSES\n29\nNow, with the fighting at an end in Europe, the face of America\nVI. ECONOMIC STABILIZATION\n34\nturns westward, and we look across the Pacific toward Japan. The\nVII. FOOD\n41\nobjective has been clearly established by President Truman:\nVIII. AID TO LIBERATED EUROPE\n47\nIX. WHAT VJ-DAY MEANS\n51\n\"The primary task facing the Nation today is to win the\nX. THE BRIDGE BETWEEN TODAY AND TOMORROW\n57\nwar in Japan-to win it completely and as quickly as\nThe Postwar Tax Bill\n59\npossible.\"\nSmall Business\n61\nCompetition\n61\nThat is the objective, that is the primary task. And it would seem\nLabor, Management and Wages\n62\nthat our problems would become simpler with the cessation of fighting\nForeign Trade\n63\non one front, and the ability to concentrate all our energies against a\nSocial Security\n64\nFarm Program\n64\nsingle enemy. Militarily, this is probably true. Economically, it is\nPublic Works and Construction\n65\nnot. For VE-day brought with it some peculiar problems for our\nFiscal Policy\n66\nnational economy.\nOPERATIONS OF THE ADVISORY BOARD\n68\nWith two major wars on our hands, against two of the world's most\nGOVERNMENT REORGANIZATION\n71\npotent powers, national economy was geared to all-out war. It was a\nCHARTS\ngrim race to produce-desperately for defense, produce feverishly in\nThe 6,000-Mile Bridge Across the Pacific (map)\n4\norder to catch up to our enemies, produce overwhelmingly for the\nA Smaller Job Yet a Big One\n6\nknock-out blow in Europe.\nElbow-Room for Reconversion\n9\nNow the knock-out blow has been dealt, the war against Germany\nWhat Transition Means to Aircraft\n11\nhas receded into history, and World War II has been narrowed to\nDrop in Munitions Employment\n13\none front. And this narrowing brings with it certain subtle changes\nUnemployment Near Low\n15\nThe Job Ahead in Passenger Automobiles\n17\nto the inflexibility that had been imposed upon our industrial ma-\nWhy Traffic Controls Continue\n18\nchine. This does not mean any relaxing of spirit or determination:\nShift to the Pacific\n19\nWar production scheduled for the prosecution of the\nMain Reason For Textile Shortages\n35\nPacific War must be met. No American forces have\nShoes: A Case of Wartime Ingenuity\n36\nPerspective on Food\n42\ngone or will go into battle stinted of equipment, because\nLean Year For Some Foods\n43\nof production failure.\nThe European Food Supply\n48\nPrices-Before and After the Wars\n54\nThat is the job ahead, a job of sobering magnitude, a job of inde-\nPostwar Challenge\n58\nterminate length. But even while that job is being done, we must\nIV\n1\nmake our economy flexible enough to encompass other jobs, com-\npletely different in nature, yet comparable in magnitude.\nWhile we plan and produce for the destruction of Japan, we must\nplan and produce for the rebuilding of Europe, the rebuilding neces-\nII\nsary to help Europe get back on her feet, SO her countries will be\nrestored to economic health and stability. While we keep up pres-\nFINISHING THE JOB\nsure for sufficient manpower to produce the equipment needed to beat\nJapan, we must gear our economy to the absorption of the increasing\nLaying the Road to Tokyo\nnumber of workers who will be laid off as cut-backs gain momentum.\nWhile we must keep our sights and our energies firmly fixed on the\nThree years ago, while Great Britain and the United States were\nprimary objective of victory, we must work toward transition, the\nlocked in a death struggle with Germany, Japan rolled victoriously\nkind of well-timed transition that will prevent depression from\nacross the great distances of the Pacific and Asia until she controlled\ncoming to us as the guest of peace.\n17 million square miles of land and ocean!\nThese things we have been planning for and must plan for even\nToday she has been squeezed back to 7 million square miles. But\nmore vigorously. Now, with final victory in sight somewhere down\nthose last 7 million square miles are the hardest. They're closest to\nthe road, we must look ahead to a destination beyond victory, to the\nhome base for the Japanese, farther from home base for us. They are\nkind of America in which the victorious members of the armed forces,\ndefended by the strongest and best equipped of all Japnese forces.\ntogether with all citizens, may enjoy the fruits of their bitterly-fought,\nEngaging these troops and destroying them, forcing the capitulation\nhard-won victory.\nof Japan, involves the greatest movement of men and matériel ever\nOur obligations include:\nundertaken.\nIn this vast transfer of men and supplies, we shall move 3 million\n1. Making a durable peace so that the sons and daughters of our\ntroops out of Europe and many of them half way around the world,\nfighting men will not have to fight another war.\ntogether with the necessary matériel and supplies. Soon we shall\n2. Building a vital, invigorated peacetime economy in which\nhave nearly 6 million men in all branches of the service in the actual\nthere will be goods and jobs for all.\ntheater of combat.\nThose obligations have been solemnly accepted. Work toward their\nManila, our large advance base, is 6,200 miles from San Francisco\nfulfillment has been started, is well under way now, and will be carried\nand 14,000 miles from the major European ports. To land on the\non at accelerated pace. This work at present is travelling down five\nEuropean Continent, our main force had only to cross the English\nmain highways, highways which promise to converge at the ultimate\nChannel; in contrast, Manila is 1,760 miles from Tokyo. (See map:\ngoals of a world of durable peace, and an America of unprecedented\nThe 6,000 Mile Bridge Across the Pacific\nprosperity. They are:\nIn waging war against Japan, we must build airfields, fuel depots,\n1. Meet all requirements of the all-out Pacific War.\nroad and rail lines; we must clear or build harbors; we must construct\npower plants and power lines; we must provide barracks; we must\n2. Reconvert and expand civilian production as fast as\nbuild hospital facilities larger than the combined medical resources\npossible, both to increase the supply of goods, and\nof New York and Chicago.\nprovide jobs for those who have been released from\nThe Army Service Forces and the Army Air Forces will obtain\nthe armed forces and from war work.\nheavier ammunition and bomb supplies than were used in the war in\n3. Protect human resources as far as possible in the ines-\nEurope. We shall be able to drop as much as 10,000 tons of bombs\ncapable shock of reconversion.\nupon Japan in a single day, or double what Germany got during the\n4. Provide food and aid that will help the liberated coun-\ndays of heaviest assault. The ferocity of the war in the Pacific is such\ntries lift themselves to their feet and once more become\nthat more artillery ammunition will be expended there-as the battle\nself-sustaining.\nfor Okinawa indicates-than was used in Europe. Fully 3 million\nshells were fired in Okinawa. Some of the newer Japanese hide-out\n5. Work toward a high-level economy so America can\ncaves are built on two levels, and hence enormous firepower must be\nknow, in peacetime, the twin blessings of abundant\nused to drive out or kill Japanese concealed in them.\nproduction and full employment.\n3\n2\nThe Needs of the Armed Forces\nPrior to the crossing of the Rhine, munitions production schedules\ncalled for total output of $61 billion in 1945, about equal to the 1944\nachievement. This total was distributed fairly evenly through the\n90 MILES\nyear. In a series of successive cuts, which began shortly before VE-\nday, the 1945 program was reduced to about $50 billion. After a\ngradual decline in production during May and June, the schedules\nUNITED STATES\ncall for a faster drop, with production scheduled to stabilize in mid-\n1946 at a rate one-third below early 1945.\nCombat operations by the Army Service Forces and Army Air\nForces have been most directly affected by the end of European hos-\ntilities and they have cut their schedules accordingly. Planned pro-\ngramming this category of munitions, will be nearly down to the\nplanned one-front war level-24 percent below the January-March\nrate. In December 1945, we shall be producing 4,800 planes-2,600\nTHE 6,000 MILE BRIDGE ACROSS THE PACIFIC\nRequires several times as much shipping capacity,spanning twice as many miles, as the Bridge Across the Atlantic. And the average\ncurement for the ground army (ASF) in 1945 has been reduced 30\n3000 MILES\npercent since victory in Europe became imminent. Production in\nA merchant fleet of 2,800,000 DWT was\nrequired for 12 months prior to the invasion\nthe quarter just begun will be 21 percent below the first quarter rate\nand continued declines will bring the drop to 33 percent by the middle\nof 1946.\nChiefly as a result of reductions throughout the Army Air Forces\nprogram, total procurement of aircraft and related equipment for\nArmy and Navy in 1945 will be one-sixth below the plans based on two-\nfront war, By the fourth quarter of this year, procurement under the\nAircraft Resources Control Office, the agency responsible for pro-\nArmy and 2,200 Navy-as compared with the 6,700 planes-4,600\ndistance from the staging area to combat zones is ten times as great.\nArmy and 2,100 Navy-last January.\nThe Navy\nIn 6 years, we have multiplied our Navy by 32 times. Today it\nhas 46,130 ships, excluding smaller craft, more ships than there were\nin all the merchant fleets of the world in 1939. The Navy's stream\nof supplies is composed of over 5 million items, varying from\nbarometers to floating dry docks.\nTo keep one tanker a day delivering fuel oil from the Netherlands\nWest Indies to the Philippines requires 40 tankers en route, 40 tankers\nAUSTRALIA\nin return, and 20 tankers waiting to be loaded and unloaded.\nShips are being driven at a rate and under pressure that no fleet was\never driven before. Destroyers designed to be overhauled after 40,000\nCHINA\nAVG. 900\nMILES\nmiles have been at sea for 250,000 miles. Ships normally under way\nLINE\n30 percent of the time have been under way 75 percent of the time.\nThe problem of repair and maintenance thus becomes greater and\nmore difficult.\nNeither the Navy program nor the merchant ship program of\nthe Maritime Commission has been much affected by the end of\n4\n5\n652535°-45-2\nthe European war. Navy production (excluding aircraft) is sched-\nrequirements so that available resources may be released promptly\nuled to continue the gradual taper planned before VE-day, declining\nfor civilian production. I have frequently conferred on these matters\nonly about 12 percent from the first to the fourth quarter of 1945\nwith the Joint Chiefs of Staff and received their earnest coopera-\nand falling another 10 percent in early 1946. One important com-\ntion. The Joint Production Survey Committee, designated by the\nponent of the Navy program has a trend counter to the rest. Be-\nJoint Chiefs of Staff, has rendered distinguished service in con-\ncause of the Japanese suicide planes, and because our ships are oper-\nstantly reviewing all procurement programs. The Under Secretary\nating closer to the Japanese mainland, ship maintenance and repair\nof War has designated a special board to review all War Department\nare rising fast.\nprograms in the light of the current military situation. In addition,\nEven before VE-day, the construction of merchant ships was slated\nof course, the services themselves maintain well-developed control\nto fall rapidly during 1945 and 1946. Dry-cargo vessels and tankers,\nprocedures.\navailable or scheduled for delivery soon, appear adequate to meet\nIt is axiomatic that an army which does not have adequate supplies\nmilitary and essential export requirements. Unless unforeseen dif-\nloses lives-and battles. Come what may, our armed forces have and\nficulties develop in the Japanese war, the gigantic merchant ship-\nwill continue to have first claim upon the Nation's manpower, produc-\nbuilding program will cease entirely by mid-1946, after delivery of\ntion, and resources. A declining volume of military procurement\n55 million dead-weight tons of ships in 6 years.\nmust not be confused with a declining urgency for military orders.\nNotwithstanding the declining contour of the munitions program,\nthe production job is still big. Indeed, by the standard of any other\nProblems of Supply and Production\nnation of the world it would be impossible. A year from now, muni-\nThere are four major classes of problems, which, if not effectively\ntions, production is still scheduled at a rate of nearly $40 billion a\nhandled, could interfere with meeting of war production schedules:\nyear. That is nearly twice the estimated production of Germany at\n1. Shortages of materials and components;\nits peak. And it is far larger than the volume attained in this\n2. Labor shortages;\ncountry in 1942-the year immediately after Pearl Harbor. (See\n3. Technological problems: Production difficulties are an in-\nchart: A Smaller Job, Yet a Big One.)\nevitable accompaniment of new products or design changes\nThe Office of War Mobilization and Reconversion has made every\nin old products, and it always takes time to get a newly-\neffort to insure the translation of reduced military needs into reduced\ndeveloped or newly-modified item up to the scheduled rate\nof output;\nA SMALLER JOB, YET A BIG ONE\n4. Changing military requirements: As long as the war goes on,\nMunitions schedules for 1946 are (1) only one-third below last year's record pro-\nbattle experience will dictate sudden increases in requirements\nduction and (2) one-quarter above 1942.\nfor some types of weapons or equipment at a time when re-\n60\nTOTAL MUNITIONS PRODUCTION\n60\nMARITIME AND OTHER\nquirements for other types are declining.\nAt the moment, there are a few top-urgency problems in munitions\n50\n50\nend-products. In radar and in jet engines, the big problems are\nBILLIONS OF DOLLARS AUGUST 1943 PRICES\n40\nARMY-NAVY AIRCRAFT\nBILLIONS OF DOLLARS AUGUST 1943 PRICES\nprimarily in design, but there are minor problems relating to the\n40\nproduction of alloy metals. Basically, the problems of maintaining\nproduction at the rate required for the war against Japan lie pri-\n30\n30\nmarily in the fields of manpower and specialized materials shortages.\nNAVY\n(excl. Air Forces)\nRepairs for shipping are of top urgency. A ship out of action,\n20\n20\nuntil it rejoins the fleet is, for all practical purposes, a ship sunk.\nBattle damage during the first quarter of 1945 was substantial. At\nthe present time, lack of shipyard labor is the principal cause for\n10\nARMY (excl. Air Forces)\n10\ndelay in returning battle-damaged ships to action.\na\n0\nEssentially, the tasks of the period ahead will be to assure\n1942\n1943\n1944\n1945\n1946\npriority for munition production, to prevent flight from\nrate for\nfirst-half year\nwar production, and to maintain a strategic margin for\nemergencies.\n6\n7\nELBOW ROOM FOR RECONVERSION\nOne-third drop in munitions schedules releases resources for resumption of\ncivilian output.\n20\n20\nQuarterly Munitions Production\nIII\nHOW AND WHY OF RECONVERSION\nV-E DAY\nThe Army and Navy did not cancel contracts wholesale, plants did\nstore windows did not suddenly sprout new refrigerators and washing\nBILLIONS OF AUGUST 1943 PRICES\n15\n5)\n15\nThe coming of VE-day did not change the American economic\nenvironment overnight, as many persons had erroneously expected.\n10\n10\nnot shut down everywhere, mass unemployment did not develop, and\n5\n5\nBILLIONS OF AUGUST 1943 PRICES\nmachines. So notwithstanding that VE-day occurred on May 8 and\nthat some cut-backs had been instituted even before the German capit-\nulation, curtailment in war production to date has been modest.\n0\n0\n1943\n1944\n1945\n1946\nThe reason for that is redeployment logistics. When tanks, heavy\nguns, engineers' supplies, and other equipment are moved from\nEurope to the Pacific, they first must be freighted to a European port\nof embarkation, then disassembled for shipping, then methodically\nin such limited quantity that they won't stay there for long. But a\nloaded aboard ship SO as to facilitate unloading, and then in many\nyear from now the rate of production of civilian hard goods-in-\ncases shipped back to the United States for reconditioning after\ncluding both producers' and consumers' goods-probably will exceed\nwhich the freighting, disassembling, crating and loading process\nthe 1939 level, but will still be well below the 1941 high.\noccurs all over again.\nThe process of resuming civilian output may be likened to getting\nthe square pegs in the square holes and the round pegs in the round\nDrop Will Be Rapid\nholes, applying to materials and machinery as well as manpower and\nSuch detailed operations are time consuming and explain why, in\nmanagement. Because it is a job of putting parts of the economy\nthe early months of redeployment, most supplies have to go to the\ntogether in a series of successive adjustments, a perfectly synchronized\nPacific directly from U. S. factories. Once, however, European\nchange-over is too much to expect. The war production line that\nstocks begin to move in large volume to the Japanese front-once the\ncloses down today won't be set for civilian goods assembly tomorrow.\npipeline is filled-the draft on the domestic production will decline\nNor can each worker who gets his discharge slip from a gun factory\nrapidly. This is borne out by the official munitions schedules ap-\non Thursday expect to have a new job in a refrigerator plant on\nproved by the Joint Chiefs of Staff.\nFriday.\nFrom now on, the drop in munitions schedules is rapid. In the\nIt will take time to unwind the complicated war production ma-\n3 months since March (peak month of the year), munitions pro-\nchine: to terminate contracts; acquire and build warehousing space\nduction dropped about 10 percent but for the current 3 months it\nfor Government-owned inventories and equipment; clear plants; re-\nwill be down 20 percent from the March level and by the end of\nlease production controls; rearrange tools, dies, and fixtures; shift\nthe year about one-third, As a result, productive capacity, ma-\nthe flow of materials and components from munitions industries to\nterials and manpower will be released in virtually all durable\npeacetime plants; reestablish sales offices and sales contacts; relocate\ngoods industries right down the line through basic raw materials and\nworkers, both geographically and industrially; take the necessary\ncomponents. This assures elbow room for reconversion. (See chart:\nsteps to establish the rights of returning veterans.\nElbow Room for Reconversion.)\nSize of the Job\nUnless insurmountable bottlenecks occur, it seems reasonable to\nexpect that within the next 6 months the first automobiles, refrigera-\nThe statistical magnitude of the task is imposing. Today the\ntors, and washing machines will again appear on dealers' floors but\nFederal Government is the biggest single customer in the greatest\n9\n8\nnational market in history. Out of total production of goods and\nThe size and the complexity of the problem of industrial reconver-\nservices of more than $200 billion the Government spends $90 billion\nsion should be neither exaggerated nor oversimplified. Manufac-\nfor war. But eventually most of that government buying will cease\nturers have cleared their plants before, they have tooled, retooled,\nand private purchases by producers, wholesalers, retailers, and ulti-\nand set up assembly lines many times.\nmate consumers must take up where the Government leaves off.\nWhen war contracts were originally let, it was the prime contractor\nHowever, although Government buying amounts to nearly half of\nwho usually decided, on the basis of his knowledge of industry, where\nthe total now, by no means will half the economy be disorganized\nto place subcontracts, and his suppliers made the same decisions about\nwhen the Government curtails its expenditures. In the first place,\ntheir sources of supply. Now, as contracts are cut back, suppliers will\nthe Government buys a great many items that are essential in peace\nalso be cut back. This process gives some assurance of semiauto-\nas well as war: clothes, transportation, construction equipment, serv-\nmatic balance in the release of facilities. When the automobile\nices of all kinds. Thus many of our industries which have been selling\ncompany making tanks is released, it is likely that body builders,\ndirectly to the Army and Navy have kept in practice in their peace-\naxle manufacturers, and SO on will also be released. In other words,\ntime art; and workers in such plants may continue in the same plant\nthe very process of unwinding will be in accord with the general in-\nunder the same foreman.\ndustrial pattern of the country.\nHow Many Will Be Affected by Reconversion\nWHAT TRANSITION MEANS TO AIRCRAFT\nFurthermore, such occupations as farming, transportation, public\nutility work, printing and publishing, retail trade, mining, Govern-\nIndustry will shrink sharply and Pacific and Northeastern states will regain\ntheir pre-war dominance.\nment employment (except in war agencies) are not directly affected\n1500\n1500\nby physical reconversion. If we are successful in maintaining a high\nAircraft Employment by Region\nvolume of private production and consumption, most jobs should\ncontinue:\n1000\n1000\nJobs Not Affected by Physical Reconversion\nAgriculture\n7,750,000\nTransportation and utilities\n3,800,000\nThousands of Workers\nAll Other States\n500\nThousands of Workers\n500\nConstruction\n600,000\nPacific States\nMining\n800,000\n?\nTrade and service\n11,400,000\nNortheastern\nStates\nManufacturing:\n0\n0\nIron and steel\n800,000\nFeb. 1940\nNov. 1943\nMay 1945\nMar. 1946\n\"Post-war\"\nMachinery\n2,000,000\n125\nOther (mostly soft goods)\n7,700,000\n125\nDistribution of Aircraft Employment by Region\nGovernment (excluding war agencies, arsenals\n?\nand navy yards)\n4,400,000\n100\n100\nMiscellaneous\n5,350,000\n44,600,000\n75\nAll Other States\n75\nJobs Most Likely To Be Affected by Cutbacks\nAircraft\n1,600,000\nPercent of Total\n50\n50\nPercent of Total\nShips\n1,300,000\nPacific States\nOrdnance and signal equipment\n1,800,000\nWar chemicals\n300,000\n25\n25\nNortheastern\nFederal war agencies\n1,600,000\nStates\n6,600,000\no\n0\nFeb. 1940\nNov. 1943\nMay 1945\nMar. 1946\n\"Post-war\"\nTotal employment\n51, 200, 000\n10\n11\nOutstanding exceptions to this generalization are aircraft, ship-\nmula on reconversion goods (automobiles, refrigerators, etc.) which\nbuilding, magnesium, aluminum, and other industries in which war-\nwill expedite the resumption of civilian production and at the same\ntime expansion was enormous and conformed to no prewar industrial\ntime will guard against runaway price advances.\npattern. Aircraft illustrates the point. It is estimated that at most\n10 percent of the existing airplane-building capacity and even a\nToo Much May Mean Too Little\nsmaller portion of the new plants in the interior will be used to pro-\nHowever, during reconversion most industries and plants will have\nduce aircraft for peacetime markets. (See chart: What Transition\nto face hard-to-solve problems that only they, themselves, can solve\nMeans to Aircraft.)\nthrough their own initiative, imagination and resourcefulness. Al-\nthough the war agencies intend to give assistance to industry, labor,\nPOLICY ON CONTROLS\nand geographical areas in which there is acute distress, the main reli-\nThe impocts of cut-backs will be decidedly uneven by industry and\nance will be on management, workers and local organizations to over-\narea. For example, shipyards engaged in ship repair for the Navy\ncome their particular problems.\nand plants making B-29 Superfortresses are certain to be kept busy\nThe Federal Government does not have the personnel nor the expe-\nlonger than plants making products whose schedules go down sharply.\nrience to do detailed planning for individual businesses or communi-\nSimilarly, releases of steel, certain chemicals, and other materials\nties. Moreover, I am sure that neither labor, management, nor local\nwill not be of the right types. Nor will released manpower be of\ngroups want such minute direction from Washington for the country\nthe right skills in the right places to run the gamut of industrial\nas a whole-though I fear that in particular instances, when local\nrequirements.\ndifficulties seem especially severe, there will be protests that \"this case\nThis is understandable. The cut-backs are determined by changes\nis an exception.\" We must be especially careful lest the exception\nin Army-Navy requirements, not by what is best for reconversion.\nbecome the rule, lest we try to expedite SO much that we expedite too\nTherefore, though controls will be relaxed as promptly as possible,\nlittle, lest we have a repetition of the priorities inflation of 1942, when\nthey cannot be relaxed all at once. As a broad policy, controls will be\nthe Office of Production Management (predecessor to the War Pro-\nrelaxed in advance of releases of manpower and materials in order to\nduction Board) tried to help everybody and dissipated its energies in\ncut down the waiting period between a cut-back in war production\ndiffusion.\nand the start-up of civilian production. In this, the Government has\na responsibility to make the best use of released resources in recon-\nversion. To the extent that controls are useful to that end, the\nGovernment will exercise them. Within that frame of reference,\nDROP IN MUNITIONS EMPLOYMENT\ncontrols will be retained where necessary:\n600,000 workers have left war plants since beginning of 1945, 1,800,000 since\nNovember, 1943, peak.\n1. To protect war production.\n12,\n12\n2. To promote the smooth flow of materials into civilian\nproduction.\n3. To give small business equality of opportunity in the race for\ncivilian markets.\n10\n10\n4. To ward off inflation.\nFor example, the War Production Board will retain its triple A\nrating and its Industry Divisions to break major bottlenecks and expe-\nMillions of Workers\nMillions of Workers\n8\ndite production and reemployment. If a whole industry is tied up\n8.\nbecause it cannot get a key part, the War Production Board will try\nto free capacity, or schedule distribution or issue a priority SO as to\nbreak the bottleneck; or if a plant is unable to get moving because it\n6\n6\nlacks a small quantity of materials, again special measures may be\nJ\nF\nM\nA\nM\nJ\nJ\nA\nS\no\nN\nD\nJ\nF\nM\nA\nM\nJ\nJ\nA\n$\no\nN\nD\nJ\nF\nM\nA\nM\nJ\ntaken to prevent unnecessary hardship. For another example, the\n1943\n1944\n1945\nOffice of Price Administration has carefully worked out a price for-\n13\n12\n652535°-45-3\nMANPOWER IN RECONVERSION\nUNEMPLOYMENT NEAR LOW\nAs recently as 3 months ago, manpower was a basic war production\nMunitions cutbacks have not yet resulted in increased joblessness.\nbottleneck; 75 war production centers were classified as tight and\n10\n10\nseveral critical Army and Navy programs such as heavy ammunition,\nradar, rockets were running behind schedule because of shortage in\n8\n8\nskilled and unskilled labor. Today 63 areas are still tight and such\nindustries as ship repair, lumber. and textiles cannot reach maximum\nproportions because of labor scarcity. Yet manpower can no longer\nbe called a basic bottleneck.\nMillions of Persons\n6\n6\nAs the result of cutbacks in munitions schédules, 500,000 workers\n4\n4\nMillions of Persons\nhave been released from war plants in the 3 months ended May 31, and\nthe rate of lay-offs is accelerating. (See chart Drop in Munitions\n2\n2\nEmployment.) The impact has been uneven, and in such war pro-\nduction areas as Detroit, Buffalo, and San Francisco workers have lost\njobs faster than they have been able to find them. Such local unem-\n0\n0\nployment has given rise to fears of more general unemployment.\n1940\n1941\n1942\n1943\n1944\n1945\nHowever, the declines in munitions employment have not been ac-\ncompanied by increases in total unemployment. (See chart: Unem-\nsome 29 areas, involving 6 percent of the industrial population, will\nployment Near Low.) Unemployment compensation claims are just\nstill be short workers for war production.\nbeginning to increase noticeably. During the war, many industries\nhave been starved for workers-laundries, restaurants, bus lines, rail-\nWar Manpower Commission's Decontrol Program\nroads, public utilities, retail trade, and so on, and they have been\nThe War Manpower Commission decontrol program must take these\nabsorbing workers. True, the jobs offered are not always of the same\nproblem areas into account. Therefore, the War Manpower Com-\ncharacter or at the same rate of pay as munitions work. Nevertheless,\nmission will retain authority to exercise its four basic controls over\nit is fair to say that at the moment the laid-off munitions worker does\nthe hiring and release of workers by (1) putting ceilings on the num-\nnot lack, as a general rule, job opportunities.\nber of workers in individual plants; (2) giving certain plants priori-\nUnquestionably, however, in the near future decreases in munitions\nties in labor referral and directing workers to the plants whose pro-\nemployment will be accompanied by increases in unemployment. The\nduction is most urgent, (3) requiring workers to get statements of\nimmediate absorptive capacity of labor-starved industries is limited.\navailability in shifting from one war job to another, and (4) main-\ntenance of the 48-hour week in certain industries or areas.\nThe reconversion of industry will tend to lag behind the cutbacks in\nSince shifts in war schedules will affect different areas differently\nmunitions production, due to the time involved in rearranging plant\nand since there are wide variations in the looseness and tightness of\nfor peacetime operations. And those jobs which open up may not\nbe in the right locality or of the right type or rate of pay for the\nareas to begin with, the authority to relax controls is being vested in\nthe area and regional directors, based on criteria set forth in Wash-\nlaid-off workers.\nington and subject to central review. This is in keeping with the War\nInevitably, there will be some distressed areas. Six months from\nManpower Commission policy of decentralizing whenever possible.\nnow, the War Manpower Commission estimates that 10 communities\nwill suffer from acute unemployment, largely because reconversion\nWAR PRODUCTION BOARD CONTROLS\nopportunities for closed-down plants in these communities are few.\nThe War Production Board has been gradually removing its con-\nThe areas are comparatively small, however, involving less than one\ntrols SO as to anticipate releases of manpower, materials, and machin-\npercent of the industrial population. (Specific measures to meet this\nery from war production. Already about 200 out of some 650 orders\ntype of situation will be mentioned later.) Generally speaking, how-\nand schedules have been revoked, and many of the remaining have been\never, the supply-demand position in labor will continue in tight\nsimplified. At the same time, operation of the Controlled Materials\nbalance-as civilian production resumes on an expanding scale. The\nPlan has been relaxed to permit open market purchases of aluminum\nWar Manpower Commission anticipates that 6 months from now\n15\n14\nand brass mill products after priority orders have been filled. Begin-\nning this month, the same procedure will apply to steel. The policy\nJOB AHEAD IN PASSENGER AUTOMOBILES:\nof the War Production Board is as follows:\nTo get up as quickly as possible to prewar levels of production. Authorized re-\nsumption in second half of this year is just a beginning.\n1. War Production Board's primary goal continues to be the ful-\n1500\n1500\nQtr. Avg.\nfillment of war production requirements for a speedy victory\nin the Pacific.\n2. The War Production Board will also assure the maintenance\nof a sound war-supporting economy. Wherever possible, this\n1000\ngrant general priorities assistance to directly war-supporting\nactivities and to production of essential civilian items in\nThousands of Automobiles\n1000\nshould be done without special Government assistance. To\nthe extent and time necessary the War Production Board will\n500\n500\nThousands of Automobiles\nsuch short supply as to endanger the war-supporting economy.\nWhen generalized assistance has been eliminated, the Board\nAuthorized\nwill continue to assist such requirements, where necessary,\nthrough emergency spot assistance.\n0\n0\n3. The War Production Board, working with the procurement\n'29\n'32\n'35\n1936\n1937\n1938\n1939\n1940\n1941\n1942\n1943\n1944\n1945\n'46\nservices, will SO guide the distribution of procurement cutbacks\nand new contracts as to spread the load equitably over the\npriority to the most urgent war-supporting products. WPB will con-\nNation and to avoid, where possible, the creation of areas of\ntinue to use its Industry Divisions and emergency ratings to relieve\nparticularly acute local unemployment.\nhardships and break important bottlenecks.\n4. The War Production Board will facilitate rapid reconversion\nThe number of limitation, conservation, and scheduling orders re-\nto peace-time production through prompt removal of restric-\nmaining in effect after January 1, 1946, will be drastically reduced and\ntions which are no longer necessary, and, where required,\nwill probably not exceed 300. The rate at which construction activity\nthrough limited preferential assistance for production and ac-\ncan be accelerated will depend on the availability of lumber which is\nquisition of machine tools and other capital equipment, for\npresently in extremely short supply, but it is anticipated that declin-\nbottleneck construction, and for components necessary in\ning military requirements and increased manpower in the lumber in-\nreconversion. The automobile industry, as a major employer\ndustry will permit a considerable relaxation in lumber controls. It is\nof labor, is particularly important in this regard. (See chart:\nnot certain that all lumber and construction restrictions can be elimi-\nThe Job Ahead in Passenger Automobiles.)\nnated by the end of this year.\n5. As long as resources are inadequate to permit unlimited con-\nMany major industries will be reconverted by January 1, and the\nstruction, War Production Board will favor the most urgently\npipe lines of civilian items will be gradually filling sufficiently to per-\nneeded nonwar projects, especially those contributing to large-\nmit a small flow to reach the hands of consumers, but full-scale produc-\nscale future employment.\ntion of such items as automobiles and refrigerators will not be reached\n6. The War Production Board will seek to provide a fair oppor-\nbefore the latter part of 1946 and possibly not then if Japan has not\ntunity for small manufacturers, for veterans, and for new pro-\nbeen defeated.\nducers, and will discourage the preemption or hoarding of\nTRANSPORTATION CONTROLS\nscarce resources.\n7. Consistent with these objectives, the War Production Board\nThe American transportation system faces a tremendous task in the\nwill simplify and eliminate controls as quickly as possible.\nnext 6 months. It must serve not only the needs of a large war pro-\nIt is expected that by the first of next year the Controlled Materials\nduction program and an expanding civilian economy, it must simul-\nPlan can be completely eliminated and that all urgent production can\ntaneously operate as the central link in the redeployment of the Ameri-\nbe kept on schedule by means of a simplified priorities system, with top\ncan armed forces from Europe to the Pacific. By the end of the year\npriority given to military programs and, if necessary, a secondary\nmilitary travel will have reached a point far higher than the previous\n16\n17\npeak in early 1943. (See chart: Why Traffic Controls Continue.)\nDiscomfort and inconvenience in domestic travel will persist until\nSHIFT TO THE PACIFIC\nthe war with Japan is over.\nPrompt redeployment of troops and equipment is reflected in rise in freight cars\nIt is estimated that the railroads will have to carry 724 billion\nunloaded on West Coast, decline at Atlantic ports.\nton-miles of freight in the forthcoming year-only 3 percent below\n4\n4\nFreight Cars Unloaded for Export-Daily Average\n1944, peak year in railroad history. In addition, the redeployment\nand training of troops, liberal furloughs and relocation of labor dur-\n3\n3\ning the reconversion period added to essential civilian travel, will push\nThousands of Freight Cars\nAtlantic Ports\npassenger traffic up to 107 billion passenger-miles-10 percent above\nthe record created in 1944.\n2\n2\nWestern roads will bear the brunt of the redeployment burden.\nPacific Ports\n(See chart: Shift to the Pacific.) There are few pipe lines and water-\nThousands of Freight Cars\nways in the west-coast areas. Therefore, railway facilities must haul\nI\n1\npetroleum products far beyond planned capacity. The western lines,\nGulf Ports\n0\n0\nWHY TRAFFIC CONTROLS CONTINUE\n1941\n1942\n1943\n1944\n1945\nTransportation job for one-front war almost as big as for two-front war.\n1200\n1200\n120\n120\nRAILWAY Revenue Ton Miles\nRAILWAY Revenue Passenger Miles\nunlike the eastern networks, are fairly widely dispersed and in many\n900\ninstances single-track.\n900\n90\n90\nState of Equipment\n600\n600\n60\n60\nDespite increased deliveries of cars and motive power, railroad-car-\n300\n300\n30\n30\nrying capacity is not likely to increase. Wear and tear and obsoles-\nBILLIONS OF TON MILES\n0\no\n1939\n1944\n1945-46\nBILLIONS OF TON MILES\nBILLIONS OF PASSENGER MILES\nBILLIONS OF PASSENGER MILES\ncence are removing equipment from the rails at a rate almost equal to\n0\n0\n1939\n1944\n1945-46\npresent replacement.\nIncreased availability of busses, motortrucks, tires, and gasoline in\n160\n160\n40\nINTERCITY TRUCK Ton Miles\nINTERCITY BUS Passenger Miles\n40\nthe latter months of 1945 should materially lighten the present main-\ntenance problems in the highway transport field, and should provide\n120\n120\n30\n30\nfrom 5 to 10 percent more capacity in bus transportation. This will\n80\n80\n20\n20\nalleviate the passenger load of the railroads to some extent.\n40\n40\n10\n10\nRelaxation of Controls\nIn the face of this transport task, it would be a fallacy for the\n0\n0\n0\n0\n1939\n1944\n1945-46\n1939\n1944\n1945-46\npublic to think that normal traveling practices can be resumed any\ntime in the next 6 to 12 months. Bans on conventions must continue.\n20\n20\n40\n40\nLOCAL TRUCK Tons\nLOCAL TRANSIT Passengers\nFurther, the public is expected to refrain from unnecessary travel.\n15\n15\n30\n30\nThis applies to attendance at races. The lifting of the ban on horse\nBILLIONS OF TONS\n10\n10\nBILLIONS OF TONS\n5\n5\nBILLIONS OF PASSENGERS\n20\n10\n10\nBILLIONS OF PASSENGERS\nracing does not lift the ban on the use of special trains nor does it\n20\ncondone use of overtaxed transportation facilities to race tracks.\nMany controls on freight traffic will have to remain up to VJ-day\nand even beyond, such as full loading of freight cars for carload\n0\n0\n0\n0\nfreight, minimum loading of 10 tons per car for less than carload\n1939\n1944\n1945-46\n1939\n1944\n1945-46\nfreight, and the loading of refrigerator cars on return trips with\nNOTE, 1945-46 is estimate for 12 months ending June 30, 1946.\nordinary merchandise instead of sending them empty.\n18\n19\nOther railroad controls such as direction of the movement of tank\ncars, port control, and additional scheduling of trains will be re-\nmoved by the Office of Defense Transportation as soon as conditions\nwarrant. Present restrictions on the trucking industry will be lifted\nas soon as production of tires and trucks reaches a point that will\npermit all commercial operators to rehabilitate their fleets.\nIV\nFUEL CONTROLS\nTO SPEED THE SWITCHOVER AND\nPetroleum Products\nCUSHION THE SHOCK\nMilitary requirements for petroleum products for the war against\nJapan are almost as great as the requirements for the two-front war.\nThe Government's responsibility in reconversion goes beyond the\nThe intensification of naval warfare and the ocean-borne transpor-\nrelaxation, simplification, and elimination of wartime controls. The\ntation of troops and equipment over vast distances do not permit any\nGovernment must use its administrative powers to create conditions\ngreat increase in allowances for civilians.\nwhich will enable industry to resume civilian production as rapidly as\nIncreased use of shipping in the Pacific war has shifted the type\npossible.\nof requirement from gasoline to fuel oil. As a result, fuel oil avail-\nInevitably, when the demands of the Army and Navy drop sharply,\nable for civilians for the 1945-46 heating season is not likely to be\nany greater than during the previous season.\nthere will be some unemployment, business losses, and hardship.\nGasoline allowances have been increased slightly. The value of A\nSuch dislocations are unavoidable during the change-over-as plants\ncoupons has been raised 50 percent and the B mileage ceiling has been\nshift out of war production, as workers are discharged from war\nlifted to 650 miles throughout the country-from 325 miles in the\njobs, as a plant in a particularly war-swollen community closes down\nEast, 400 miles on the Pacific coast, and 475 miles elsewhere. Gaso-\naltogether and the community has to deflate itself to postwar\ndimensions.\nline deliveries for civilian consumption last year amounted to 478\nmillion barrels while military and export requirements amounted to\nIn the switchover, the Government cannot undertake to see that\n259 million barrels. In 1941, civilian consumption was 649 million\nevery plant stays in business, that every worker immediately finds\nbarrels, while military and export demand amounted to 46 million\na suitable job, that every company under all circumstances gets finan-\nbarrels.\ncial help; nevertheless, it can undertake specific measures to facili-\nOnly further reductions in military and export requirements or an\ntate reconversion and reemployment and to cushion the shocks. These\nmeasures take two forms:\nincrease in the supply of petroleum products from foreign sources for\nmilitary use will permit modification of present rationing controls on\n1. Direct aids to business.-Through distributing cut-backs\nfuel oil or gasoline.\nevenly, settling contracts promptly, clearing plants, establish-\ning flexible reconversion price and wage policies, disposing of\nCoal and Coke\nsurpluses and readjusting taxes and, as noted earlier, through\nIn view of the heavy requirements attending the war with Japan\naccelerating retooling of plants and breaking bottlenecks.\nand the lack of manpower for producing and distributing fuel on an\n2. Direct aids to individuals.-Through unemployment com-\nadequate basis, coal and coke may be seriously short next winter. The\npensation, readjustment allowances to veterans, and reemploy-\nSolid Fuels Administrator for War has found it necessary to limit\nment, retraining, and vocational guidance to war workers and\ndeliveries of eastern soft coal, most sizes of anthracite and byproduct\nveterans.\ncoke for domestic use to not over 80 percent of a normal supply next\nwinter.\nMany Government agencies share the responsibility of facilitating\nThese quotas reflect a severe reduction but they will be sufficient to\nreconversion-the War Production Board, Office of Contract Settle-\nkeep the public healthy. No increase in the quota appears possible\nment, Surplus Property Board, Office of Price Administration, War\nat this time without depriving industry of coal needed for war pro-\nLabor Board, War Manpower Commission, Retraining and Reem-\nduction and reconversion to the manufacture of civilian goods.\nployment Administration, Veterans' Administration. The Congress\nalso has a major responsibility in providing additional legislation.\n20\n652535°45-4\n21\nDIRECT AIDS TO BUSINESS\ntracts. Although the procurement agencies have statutory authority\nto make final settlements, they prefer to do so under a procedure which\nCut-Back Distribution\npermits them to ascertain the General Accounting Office's position on\nThe first hurdle in adjusting to a one-front munitions program was\nclaims previously paid but not yet reviewed by GAO. Experience will\ncleared in good style. Prior to VE-day, it had been feared that the\nindicate whether the procedure is effective.\nvolume of VE-day cut-backs by the Army and Army Air Forces would\nswamp the War Production Board's Production Readjustment Com-\nPlant Clearance\nmittee and force the committee to halt its review of the proposals. But\nThe problem of removing Government-owned property from con-\nthe terminations came through more gradually than expected and PRC\ntractors' plants in order to permit civilian production to go forward\nwas able to analyze the proposed cut-backs and fulfill its responsibility.\nhas not yet become serious. To date, the volume of property to be\nFor example, during the week between June 2 and 9, PRC reviewed\nremoved has been small and clearance prompt. For example, the War\ncut-back proposals involving $1.2 billion, shifting cut-backs among\nDepartment has been receiving about 3,400 requests a month to remove\nplants SO as to avert unnecessary geographical and industrial dis-\ntermination inventories from contractors' plants. At the end of May\nlocations, yet at the same time assure that remaining war production\nthere were only 57 such requests outstanding which had not been\nrequirements would be met on schedule.\nhandled within 60 days as required by the Contract Settlement Act.\nContract Settlement\nThe inter-agency Space Control Committee and the Reconstruction\nFinance Corporation have made progress in their continuing job of\nContract cancelations have risen from $700 million a month in the\nallocating, acquiring, and constructing storage space. However, as\nforepart of the year to $5.1 billion in the month of May. But the\nmore and more contracts are settled, the amount of property to be\nimpact on the machinery of contract settlement is yet to be felt.\nmoved will mount. The rate at which plants can be cleared depends\nTerminations generally do not take effect immediately-there is a\nupon the amount of storage space available and the rate of disposal\n\"run-out\" period; further, filing of claims by contractors takes several\nof surpluses. If disposal is rapid, space is continuously opening up;\nmonths.\nif slow, surpluses accumulate in storage and consequently in plants.\nThe contracting agencies are confident of their ability to meet the\nTwo regulations of the Surplus Property Board make it easier for\nbig load of settlements expected in the next several months. Regula-\ncontractors to buy Government-owned equipment and inventories,\ntions have been spelled out and procedures have been streamlined.\nand are discussed in the Surpluses chapter. They will reduce the\nPreparations have been made to develop agency staffs as rapidly as\nvolume of property to be cleared from plants and hence the volume\nnecessary. Similarly, contractors have been building up staffs to pre-\nof storage space that will be needed.\npare settlement statements and conduct negotiations promptly.\nTo speed up settlements with subcontractors, the Office of Contract\nReconversion Prices\nSettlement has worked out an agreement whereby all contractors have\nbeen authorized to settle claims up to $1,000 when the subcontractor\nThe fundamental characteristic of the Office of Price Administra-\nretains or disposes of all inventories. In addition, about 3,000 con-\ntion reconversion pricing formula is that it is flexible. It is designed\ntractors have been specifically authorized to make final settlement of\nto prevent a runaway rise in the prices of automobiles, refrigerators,\nsubcontractors' claims up to $10,000. Furthermore, under the con-\nwashing machines, and other consumer durable goods. Simul-\nsolidated termination program company-wide settlements will be made\ntaneously, however, the formula permits rapid decision, SO that hag-\nwith about 50 large companies who have many Government agencies\ngling over prices and profits will not delay the resumption of civilian\nas customers; in such cases one agency-such as the Army or the\nproduction and reemployment of released servicemen and war\nNavy-would undertake to settle for all agencies involved. Direct\nworkers.\ncompany-wide settlements also will be made with a limited number of\nThe problem in pricing goods coming back on the market is clear.\nlarge subcontractors each of whom has a large number of sub-\nProduction costs have changed since automobiles, refrigerators, and\nsubcontractors. Also pre-termination-the technique of advance\nother hard goods were last manufactured on a mass-scale basis.\nsettlement-has become increasingly useful.\nWages have increased generally; so have the cost of raw materials\nDifficulties with cost-plus-a-fixed-fee contracts persist and their rate\nand components; on the other hand, new production techniques have\nof settlement remains appreciably lower than that of fixed-price con-\nbeen developed, workers are better trained, management know-how\n22\n23\nis improved, and new machinery has been installed. It is not clear\ngaining will determine the differentials. When a plant changes the\nwhether increased productivity will offset the advance in wage and\nnature of its operations radically there may not be enough carry-over\nmaterials costs.\njobs to serve as reference-points for a whole wage structure. In such\nUnder those circumstances, a pricing formula must be applicable to\ncases prevailing rates in the area will serve as the standard.\na wide variety of cases. Our basic objective is to hold retail prices\nWage schedules determined in this manner must be reviewed by\nat 1942 levels. The Office of Price Administration formula affords\nthe War Labor Board for consistency with the Economic Stabiliza-\nmanufacturers a choice of pricing procedures and leaves room for\ntion Act, but reconversion need not be held up pending the outcome\nexceptions:\nof this review. Workers and management may proceed under the\nFirst, the manufacturer may use his 1942 ceiling prices.\nwage schedules they have reached and the War Labor Board, if it\nSecond, if the 1942 price schedule doesn't seem likely to offer a\nmakes changes, will not make them retroactive.\nsatisfactory profit to an industry, the Office of Price Adminis-\nReconversion Tax Assistance\ntration will work out what is called an \"increase factor\" which\neach manufacturer can apply to his 1941 prices. This factor is\nWe cannot afford a general tax revision at this time any more than\nobtained by taking 1941 industry-wide costs and adding (a)\nwe can afford a general elimination of price ceilings. But in taxa-\nlawful price advances in materials and components; (b) ad-\ntion, as in pricing, revisions have been developed to stimulate recon-\nvances in basic wage rates, and (c) the industry-wide profit\nversion within the framework of the stabilization program. The\nmargin in 1936-39 or some other appropriate period.\nCongressional Joint Committee on Internal Revenue Taxation and the\nThird, the Office of Price Administration will make adjustments\nTreasury have proposed these specific changes:\nfor special cases and for new firms on request.\n1. Advance the payment of refunds to which the corporate tax-\nSmall business and producers of new models will be permitted to\npayer is entitled under existing laws, in order to provide busi-\ncompute their own ceilings by formula-subject to later review. As\nnesses with additional working capital now.\nmuch of the work as possible will be delegated to the Office of Price\n2. Raise the specific excess-profits tax exemption from $10,000 to\nAdministration's field offices. The whole objective has been to attain\n$25,000 beginning in 1946 to encourage new and small busi-\nadministrative flexibility, avoid hardship, and accelerate reconversion\nnesses.\nand reemployment. The Office of Price Administration is now try-\ning to work out another formula whereby wholesalers and retailers\nI endorse, as did my predecessor, the immediate adoption of these\nwill be able to absorb manufacturers' increases SO that prices to con-\nproposals as reconversion aids.\nsumers may be held at 1942 levels.\nDIRECT AIDS TO INDIVIDUALS\nReconversion Wage Adjustments\nWe can minimize the dislocations in peoples' lives most effectively\nWhen a war plant converts to civilian production, wage rates will\nby providing an abundance of jobs. If jobs are found promptly,\nhave to be established for types of jobs which have not existed for\npeople will readjust promptly. It is only when a man can't find a\nmany years. The tank factory which begins automobile production\njob, when he feels economically unwanted, that readjustment becomes\nwill hire upholsterers and it will need wage rates for them. Or the\nan acute and often a psychological problem. That is why it is SO\ncompany using precision workers on airplane propellers may have to\nurgent to do everything possible to speed the reconversion process.\nset a new wage scale if they shift to less exacting peacetime opera-\nRegardless of how smoothly we manage the transition, some work-\ntions. The War Labor Board has established a procedure to permit\ners are going to be in the wrong places for jobs; and some plants won't\nthe wage rates on resumed civilian production to be determined\nbe able to start up because equipment or materials do not arrive or\nwithout delay and without either raising or lowering the general\ntooling-up takes long. Result Some unemployment. Furthermore,\nlevel of wages. Jobs which are the same before and after reconver-\nsoldiers, sailors, and marines will be returning from overseas. They\nsion will continue to carry the same wage rate. Collective bargain-\nwill want to get back into a normal peacetime life; they will be looking\ning will establish wage rates for new or changed jobs in relation to\nfor jobs; and they will require vocational guidance and perhaps\nthe continuing rates on the continuing jobs-that is, collective bar-\nretraining.\n24\n25\nLocation of Jobs\n3. The Veterans' Administration will guarantee the first $2,000\nOne of the most important Government functions during this\nof loans to purchase a home, farm, or business; about 15,000\nperiod-when the demand for labor will be high but uneven-will\nloans have been made to date. The loans are made by private\nbe to provide job-seekers with up-to-date information of what kind\nbanks or other lending institutions and terms of repayment are\nof help is needed and where. This is primarily a task for the United\nagreed to by borrower and lender.\nStates Unemployment Service. During the war the USES recruited\n4. Under the GI bill educational grants will be made to veterans\nmore than 2 million persons for war jobs away from their home towns.\nwho wish to return to school. About 25,000 veterans have taken\nReconversion will bring a reversal of that process. Through its\nsuch grants; the number may reach 300,000 one year after\n1,500 offices, the USES has built up Nation-wide contacts with em-\nVE-day.\nployers, labor unions, and individual workers. Employers in tight\nAdditional provisions have been made for veterans with service-\nlabor markets will be advised where labor is available; similarly\nconnected disabilities:\nworkers in distress areas will be told where out-of-town jobs still can be\nfound. And, of course, the USES will continue intra-area job-\n1. Such veterans are entitled to vocational rehabilitation to help\nplacement.\nthem train for jobs; about 15,000 are now in rehabilitation\nThe success of the USES operation depends largely on adequate\ncourses.\nfunds and efficient administration. The continuance of the USES on a\n2. Pensions are now being paid to about 541,000 veterans of World\nnational basis is as necessary in the preparation for peace as it was\nWar II or their survivors. By June 1946, the number of pen-\nin the mobilization for war.\nsions will have risen to over 1 million.\nAssistance to Veterans\n3. About 70,000 veterans are in veterans' hospitals-20,000 as the\nresult of this war. Construction is being rushed to increase\nWe have a special responsibility to the millions of veterans who will\nthe number of beds in hospitals from 93,000 to 126,000. This\nreturn looking for jobs. Therefore the Congress quite properly has\nwill meet needs through 1946; further expansion will be\nmade special provisions for them.\nnecessary.\nIn addition to job-placement guidance from the United States Em-\nployment Service, the veteran can get help from his local Selective\nOne important piece of business remains unfinished. We should not\nService board, Veterans' Administration offices, and 950 community\nenter the reconversion period with uncertainties surrounding the re-\ninformation centers sponsored by the Retraining and Reemployment\nemployment rights of veterans. The provisions of the Selective Train-\nAdministration. At these various offices, the veteran will be apprised\ning and Service Act leave a number of questions unanswered. A com-\nof his rights under the GI bill, the Selective Service Act, and other\nmittee appointed by General Hines has been studying these questions\nlaws, and will be assisted in realizing them. The Army has estab-\nbut has not yet reported. Legislation clarifying the terms of the\nlished separation centers where specially trained personnel help to\nstatute may be necessary.\norient discharged soldiers.\nVarious types of financial assistance have been provided to help the\nUnemployment Compensation for Civilians\nveteran in his readjustment:\nThe existing unemployment compensation system is not adequate to\n1. Mustering out pay up to $300.\nmeet the needs of the reconversion period. Weekly payments, par-\n2. Unemployment allowances of $20 a week for a minimum of 24\nticularly for those workers with dependents, are not sufficient to pre-\nand a maximum of 52 weeks. About 120,000 veterans (about 1\nvent drastic declines in living standards. The duration of payments\nout of every 16 returned to date) have received readjustment\nin many States is SO short that many workers will exhaust their bene-\nallowances and about 35,000 unemployed veterans are now re-\nfits before they find another job.\nceiving such allowances. But these allowances are not ade-\nFinally, large groups are excluded from the program-agricultural\nquate for the difficult period ahead. I urge Congress to raise\nworkers, domestic servants, Federal employees (including workers in\nthe amount to $25 for veterans without dependents and to $30\nGovernment arsenals), employees of small firms, and others.\nto veterans with dependents. Also the payments should be for\nPresident Truman in his message of May 26 proposed that the\na minimum of 26 weeks regardless of length of service.\nFederal Government supplement payments under the State laws SO\n26\n27\nthat (1) the weekly payments can run as high as $25 a week and (2)\npayments continue for 26 weeks duration and (3) that the coverage\nbe extended to a wider segment of the population.\nI cannot emphasize too strongly that if we are to meet\nthe human needs of reconversion the Congress must make\nnecessary provisions. An adequate unemployment com-\npensation law is our number one legislative requirement\nV\nfor reconversion.\nSURPLUSES\nPurchases of the Army, Navy, Maritime Commission, and other\nagencies since 1940 already exceed $200,000,000,000. Before hostilities\ncease additional billions will have been purchased. Inevitably there\nwill be large surpluses-of weapons, raw materials, ships, plants, and\nmany civilian-type goods such as shoes, clothing, furniture, trucks, and\ncommunication equipment.\nHow and when these surpluses are disposed of bears directly on the\nspeed and orderliness with which the United States reconverts and will\nhave lasting effects on important segments of the domestic economy.\nThe Congress deliberated for an extended period on the development\nof surplus-disposal organization and policies. Those deliberations will\npay dividends in the long run. Out of them came a set of broad\nprinciples to guide the Surplus Property Board. Those principles are:\nTo dispose of surpluses promptly at a fair price and as far as\npossible through normal trade channels, and assure fair prices\nto the consumer.\nTo prevent the creation of monopolies, encourage the development\nof free competitive enterprise and small business, and stimulate\nproduction and employment.\nTo foster mutually advantageous economic relations between the\nUnited States and foreign countries by the orderly disposition\nof surplus property abroad.\nDuring the year ended May 31, 1945, property which cost $1,936,-\n000,000 has been declared surplus. It consists of contract termination\ninventories, plants no longer needed in war production and obsolete\nwar supplies.\nOf this $1,936,000,000, fully $1,224,000,000 is aircraft, of which\n$70 million has been sold for $17 million; the rest of this aircraft\nis largely unsalable.\nSome $287 million of all other property has been sold for $179\nmillion, or an average price of 62 cents on the dollar.\nThe amount of generally salable property still on hand (June 1),\nexcluding aircraft, is about $511 million at cost.\n28\n652535°45-5\n29\nOver the past few months, surplus disposals have increased. But\npeacetime activity after some alteration (aircraft, tank, gun-machin-\ndeclarations-as might be expected at this stage-still exceed disposals.\ning plants, etc.).\nSurplus declarations and sales to date are only a modest indication\nThe rapidity with which plants are put to use will have an im-\nof the volume to come. The shift from a two-front to a one-front war\nportant bearing on reconversion and postwar employment. Idle\nwill accelerate the movement of supplies into surplus. Despite present\nplants do not provide jobs. Moreover, the policies followed can have\nefforts to accelerate operations, the bulk of declarations-and- hence\nstriking effects on the Nation's economic structure. What happens\nthe main problem of disposal-must be deferred until after the defeat\nto airframe, steel, and nonferrous metal plants will affect the economy\nof the Pacific coast; how the Government disposes of aluminum prop-\nof Japan.\nerties will have an influence on the dominant position held by Alumi-\nBecause there is no way of knowing how much of our purchases will\nnum Co. of America; what is done with mammoth plants such as\nfinally be needed by the services, and because goods are distributed\nGeneva Steel, Provo, Utah (cost $200 million), Basic Magnesium, Las\nthroughout the world-in Army and Navy depots, in camps, in bases\nVegas, Nev. ($135 million), and the Chrysler aircraft-engine plant,\noverseas, and in stores with commanders in the field-reliable figures\nChicago, Ill. ($180 million), will affect the concentration of industry.\non eventual surpluses are not be be had. However, the Department of\nCommerce recently made an estimate which helps to provide some\nMerchant Ships\nperspective; yet the fact that it is only an estimate must be underscored.\nApproximately $90 billion of our war production, exclusive of\nDuring the war, the United States built up its merchant-ship ton-\nconstruction and industrial equipment, is estimated to be in existence\nnage and now has the largest merchant marine in the world. Other\nat the present time. Of this total, $65 billion is in guns, tanks, planes,\ncountries, such as France, Norway, England, and the Netherlands,\nwarships, ammunition and other combat items which are not generally\nlost tonnage. This has major implications for this country's interna-\nuseable by civilians, and about $25 billion is in civilian-type goods\ntional trade position and international relations.\nsuch as trucks, tractors, communication equipment, merchant ships,\nCongress now has under consideration special legislation to regu-\nfood, clothing, and housing.\nlate the disposal of our potential large surplus of merchant ships\nafter the war. This legislation should give full weight to the desir-\nCivilian-Type Goods\nability of helping our allies to participate in world trade and world\nshipping while they are rebuilding their merchant marine.\nAfter allowing for what will probably be consumed or remain over-\nseas and for what has no direct civilian use, it is suggested that some\nDisposal Agencies\n$10 billion of civilian-type goods (exclusive of construction and\nmerchant ships) will remain to be disposed of in the domestic market.\nThe Surplus Property Board which was set up last January to suc-\nThe total is roughly equivalent to 3 or 4 months' expenditures by con-\nceed the Surplus War Property Administration, has been rapidly\nsumers at the 1944 rate, but will vary widely by types. There might\nbuilding up personnel and procedures to cope with the problems it\nbe only 1 month's supply of some items, many years' supply of others.\nwill face. Over the past 3 months, it has issued a dozen special orders\nand nine major regulations establishing basic operating procedures.\nIndustrial Facilities\nThe Board lays down broad policies, delegates actual disposal to other\nagencies, and supervises their progress.\nPlant disposal is perhaps the most complex of all surplus problems.\nFor property in continental United States, the disposal agencies\nThe Government has invested approximately $16 billion to ex-\nare: the Department of Commerce (consumer goods), Reconstruction\npand our industrial facilities and now owns about one-fifth of the\nFinance Corporation (aircraft, plants, capital, and producers' goods),\nNation's manufacturing capacity. This includes almost all magne-\nMaritime Commission (ships and maritime property), War Food\nsium, aircraft, and synthetic-rubber capacity, and a large portion of\nAdministration (agricultural commodities and food), National Hous-\nsteel, chemical, machine-tool, aluminum, and shipbuilding facilities.\ning Agency (housing).\nNot all of this $16 billion of plant is disposable. About $6 billion\nRecently, responsibility for the disposal of consumer goods was\nis in facilities probably useful only for war production-smokeless\ntransferred from the Treasury Department to the Department of\npowder and ammunition-loading plants, for example. But the re-\nCommerce. In addition, the Office of the Army-Navy Liquidation\nmaining $10 billion could be (1) used directly in peacetime output\n(steel, chemical, rubber, machine-tool plants) or (2) converted to\n31\n30\nCommissioner was created; this Office has been delegated authority to\nwill be placed in all Federal Loan Agency offices, Reconstruction\ndispose of all goods in foreign countries except merchant ships.\nFinance Corporation disposal centers, etc.\nOther Surplus Property Board regulations provide for:\nThe Surplus Property Act, when passed, presented many difficult\nGranting of priorities to Government agencies and State or local\nquestions of interpretation. Many of these have been resolved by the\ngovernments;\norders and regulations that have been issued during the last 3 months.\nAssurances of a flow of surplus goods to farmers and rural areas;\nBy and large, it is becoming increasingly evident that adherence to\nDisposal of surplus aircraft at nominal prices to educational in-\nthe spirit-and even the letter-of the Surplus Property Act does not\nstitutions for nonflight use;\npresent insurmountable obstacles.\nArrangements whereby veterans can obtain surplus goods through\nAlthough considerable progress has been made, especially in recent\nthe Smaller War Plants Corporation;\nweeks, the Surplus Property Board has merely approached the tre-\nImplementation of the priorities system established in the Surplus\nmendous task of surplus disposal. Many problems remain to be\nProperty Act for disposing of nonindustrial real property.\nsolved, many new ones will be coming up. But as the personnel of the\nBoard and its disposal agencies expand, as more studies are made, as\nTwo other regulations recently issued are designed specifically to\nfurther experience is gained, techniques will be developed which will\nput surpluses to work in reconversion. One of these regulations en-\nreduce the task to manageable proportions. In the meantime, the\nables contractors to purchase promptly Government-owned inventories\nBoard is studying ways and means:\nin contractors' plants; the other enables contractors to purchase Gov-\nTo avoid glutting civilian markets and to prevent speculators\nernment-owned machine tools and equipment located in their plants.\nfrom siphoning goods out of normal disposal channels;\nThe orderly execution of both these regulations will speed industry's\nTo scrap largely unsaleable property promptly SO as to clear\ntransition to peacetime production and employment.\nplants, prevent the pyramiding of storage and maintenance\ncosts, and reduce paper work.\nTo Avoid Delays\nTo speed surplus declarations and to obtain advance notice SO\nIn taking this action, the Board had in mind the delays that would\nthat warehousing, handling methods, and sales can be planned\nresult if a sizeable portion of Government-owned inventories, machine\neven before property actually comes up for disposal.\ntools, and plant equipment had to be taken out of contractors' plants\nTo make the best use of existing stocks-both at home and\nand offered in the open market. The Board felt that the need for\nabroad-so that the Army, Navy, and other governmental agen-\nexpediting reconversion outweighed the possibility that granting a\ncies inadvertently do not purchase anew what is already on\npreference to contractors in possession would give them an advantage\nhand.\nin reconversion. Such inventories and- equipment are presumably\nThese are not all of our major problems, but they do suggest the\ndiffused among large and small companies throughout industry. It\nmagnitude and complexity of the task we face.\nis therefore believed that no industry or company will get a monopo-\nlistic advantage and that small business will not be hurt. Neverthe-\nless, the Board is watching the operation of these two measures closely\nand is prepared to institute such safeguards as may be necessary.\nDisposal agencies have tried various sales procedures. Farm equip-\nment and supplies have been sold by auction; materials and light\nplanes by sealed bid; general-purpose tools at a specified price; trans-\nport planes and certain plants by negotiation. The Reconstruction\nFinance Corporation has advertised surplus plants, and has circulated\nbrief descriptions among firms and individuals who might be inter-\nested. The Reconstruction Finance Corporation now plans to make\navailable comprehensive engineering surveys covering war plants and\nequipment owned by its Defense Plant Corporation subsidiary; these\n32\n33\nMAIN REASON FOR TEXTILE SHORTAGES\nEmployment is down 250,000 from peak in August, 1941.\n1500\n1500\nVI\nECONOMIC STABILIZATION\nafter VE-day\nThousands of Wage Earners\n1000\n1000\n\"Price, wage, and rationing controls must be continued\nInflation, despite the reduction of\nmunitions output, will be a continuing threat.\"\n500\n500\nThousands of Wage Earners\nThat statement is even more applicable today than when Justice\nByrnes made it in his April 1 report. For in the last 3 months, in-\nventories of civilian goods in the hands of manufacturers, wholesalers,\nretailers, and consumers, themselves, have generally declined, and the\n0\n0\n1939\n1940\n1941\n1942\n1943\n1944\n1945\nhousewife has been having an increasingly difficult time finding what\nshe wants in the stores.\nThe Office of Economic Stabilization emphasizes that the best anti-\nMeanwhile, the military services are making a constant effort to\ndote for inflation is increased civilian supplies. We are pushing pro-\nreduce their needs wherever possible; additional supplies are being\nduction of scarce items for civilians as hard as is consistent with the\nsought from foreign production, either in liberated areas or in Ger-\nmaintenance of war production. However, no near-term shift in the\nmany. (The United States has ample supplies of raw cotton.) And\nsupply-demand position is to be looked for; the facts are these:\ntextile manufacture is being directed by WPB and OPA into the\nproducts in which deficits are most acute, such as work clothes and\nTextiles\nchildren's garments. However, these actions won't be reflected over\nthe retail counter for several months.\nMilitary requirements for textiles in the months immediately ahead\nare greater than for a two-front war, partly because tropical environ-\nShoes\nments are hard on clothing, partly because of the need for multiple\nThe problem in footwear is similar to that of textiles. Longer pipe-\nsupplies for men who move back and forth between the tropics and\nlines and new climatic conditions have boosted military consumption,\ncolder climates, partly because of the long pipe lines across the\nthough again the services have cooperated in slimming down their re-\nPacific. At the same time, production of textiles has gone down. One\nquirements. But declining hide supplies, primarily the result of a\nreason has been the shift from civilian-type to the slower-woven, more\ndrop in imports, have limited shoe output.\ndurable, military-type fabrics. The principal reason, however, has\nThe shortage is most acute in work and children's shoes, and steps\nbeen the inability of textile plants to obtain manpower. (See chart\nhave been taken to increase production of these lines. Extraordinary\nMain Reason for Textile Shortages.)\nprogress has been made during the past year in manufacturing shoes\nRecently the War Labor Board ordered an increase in the rate of\nfrom nonleather materials, and the textiles needed for this purpose\npay in some textile plants and the new scale has been spreading\nhave been specifically earmarked. (See chart Shoes A Case of War-\nthroughout the industry as manufacturers seek to attract workers.\ntime Ingenuity.)\nBut some manufacturers at this point are unwilling to boost wages\nHousing\nwithout a compensating rise in price ceilings. The price-wage prob-\nHousing construction is going forward in the tightest areas and\nlem is being threshed out by an interagency committee which includes\nthe War Production Board has recently relaxed its controls mod-\nrepresentatives of the Office of Economic Stabilization, War Labor\nerately. Nevertheless, as previously noted, materials are not in suf-\nBoard, War Manpower Commission, War Production Board, Office of\nficient supply to permit widespread building, and therefore shortages\nPrice Administration, and other agencies.\nwill continue for some time.\n34\n35\nPrice control has served the people of the United States well during\nSHOES: A CASE OF WARTIME INGENUITY\nthis war. From the outbreak of World War I to the Armistice (52\nManufacturers, helped by WPB, have stretched the leather shoe supply with\nmonths), prices advanced 62 percent, or more than 1 percent per\nnon-rationed types.\nmonth. During the 70 months since August 1939, just before Ger-\n500\n500\nmany invaded Poland, the cost of living has increased 30 percent, or an\naverage of four-tenths of 1 percent per month; moreover, in the 25\n400\n400\nmonths since the hold-the-line order went into effect in May 1943, the\nGov't. Purchases\nrise in the cost of living has been only 1.7 percent, or less than one-\nMillions of Pairs of Shoes\nCivilian Non-rationed Types\nPrimarily Non-leather\n300\n300\nMillions of Pairs of Shoes\ntenth of 1 percent per month.\nThis superior performance is no accident. As far back as February\n1941, when ceilings were put on machine tool prices, the United States\n200\nCivilian Rationed Types\n200\nLeather\nstarted fashioning an integrated price control structure. The pillars\nof that structure were and are: Fiscal policy, price ceilings, wage con-\n100\n100\ntrol, and rationing. In contrast, during the last war there were no\nwage controls; rationing was confined to only a few products, such as\n0\n0\nsugar, and storekeepers were expected to limit customers voluntarily-\n1939\n1940\n1941\n1942\n1943\n1944\n1945\nEst.\nthere was no point or coupon system. Most important of all, although\nsome prices were fixed, most were free.\nDurable Goods\nIt will be the policy of the Office of Price Administration to remove\nThe one field in which civilian supplies will increase sharply is\nprice ceilings whenever an abundance of supplies exists. The objec-\nconsumers' durable goods-automobiles, refrigerators, washing ma-\ntive is to eliminate price and companion wage controls as quickly as\nchines, and many electrical and metal products. But the flow of pro-\npossible-to permit the market to determine what should be charged\nduction will not start immediately, and when it does start will be only\nfor goods and to permit collective bargaining to establish wage rates.\na trickle relative to pent-up demand.\nHowever, inflationary pressures are too strong as yet to permit any\nrelaxation.\nFood, Clothing, Shelter\nFiscal Policy\nSince meat, sugar, fats, and oils are also short (as discussed later),\nit is proper to say that in all phases of the American standard of\nThe fiscal program of the Government will be to maintain the high\nliving-food, clothing, and shelter-demand exceeds supply.\nlevel of consumer and corporation taxes SO as to drain off surplus pur-\nThis general excess demand is likely to persist for some months even\nchasing power. This means no general tax reductions until VJ-day.\nthough consumer income is already declining as a result of decreased\n(However, specific changes in the tax law-to facilitate reconversion-\nwar production and employment. Upward price pressures will con-\nare in order, as is noted on p. 25.) Continuation of the Renegotiation\ntinue much longer for most consumer durable goods and housing.\nAct to prevent unreasonable corporation profits and reduce govern-\nSuch diverse tendencies would not normally exist side by side, but\nment expenditures is an integral part of an anti-inflation program.\nthis will not be a normal period. If war expenditures decline sharply\nSales of Government bonds to individuals have also served to siphon\nbefore reconversion has gained full momentum, demand for some\naway consumer purchasing power and should be pushed. Pay-roll-\ngoods and services may become inadequate while that for others is\ndeduction plans are especially effective.\nstill excessive. In this case, to insure a smooth transition to a full\nflow of peacetime output, we may need to sustain total income while,\nPrice Ceilings\nat the same time, we are resisting inflationary pressures in special\nfields. The fight against inflation-to safeguard war production\nThe General Maximum Price Regulation, which established ceilings\nagainst competing civilian demands at rising prices and to protect the\non all prices, has been in effect since the middle of 1942. The system\nAmerican family against rising living costs-must be continued.\nhas generally been successful. The Office of Price Administration\nhas managed to maintain ceilings by a careful check-up of markets, by\n36\n37\n652535°-45--6\nsubsidies, by adjustment of prices whenever it seemed urgent to in-\ncrease supply or to protect manufacturers, wholesalers, and retailers\nSuch adjustments can be made within the hold-the-line price pro-\nagainst loss.\ngram. Reconversion will bring reductions in manufacturing costs on\nTo be sure, intermittent difficulties have been encountered in black\nthree counts: (1) elimination or reduction of overtime premiums, (2)\ndown-grading of jobs which had previously been up-graded under\nmarket dealings. But as steps were taken to punish violators, increase\npressure of wartime labor shortages, and (3) increased efficiency\nsupply, and improve distribution, such difficulties have been brought\nhence greater output per worker. These savings in costs would permit\nunder control-as was the case in gasoline and as will be the case in\nsome rises in wages without a compensating rise in prices.\nmeat. Thus the price line has been, held-by varied and flexible\npolicies.\nUpward wage adjustments cannot be granted without considering\ntheir effect on the price level. The period ahead is one in which infla-\nUnder price control, dear goods tend to drive out cheap goods and it\ntionary pressures will persist. At the same time, deflationary forces,\nis hard to get production of low-priced, low-profit merchandise. This\nsuch as the decline in munitions employment and the work week, are\nhas applied particularly to textiles. Since cloth has been scarce, man-\ndeveloping. Therefore our task continues to be one of holding the line\nufacturers have preferred to use it in the production of articles which\nwithout, however, permitting a deflationary drop in purchasing power.\nyield them greatest return. The War Production Board and the Of-\nNevertheless, as part of the program to prevent inequities and hard-\nfice of Price Administration have taken and will take direct measures\nship, I recommend that Congress raise the minimum wage under the\nto see that low and medium priced items are produced.\nFair Labor Standards Act from 40 cents to\ncents an hour, with pro-\nThe textile experience has been a forewarning of what might happen\nvision for further permissive increase to a higher level by the industry\non reconversion products, such as automobiles and refrigerators. To\ncommittees provided for in the act. This is not SO great a change as\nguard against concentration on the higher-priced, de luxe models, the\nthe figures make it seem. Most industries covered by the Fair Labor\nOffice of Price Administration and the War Production Board will\nStandards Act have raised their rates voluntarily during the war-\nmeet jointly with representatives of industries to set a pattern of\nto attract new or hold old workers. And the War Labor Board has\nproduction which follows prewar proportions.\ngenerally approved proposals to boost substandard rates to 55 cents\nan hour.\nWage Controls\nRationing\nSince wages and salaries are the largest single element in costs,\nwage controls must be maintained if the price line is to be held. How-\nRationing of goods in short supply ought to be continued. It\never, wages and salaries are also the largest single element in consumer\nresults in a more equitable distribution of supply than catch-às-catch-\nincome, and we are entering a period in which munitions cut-backs\ncan purchasing and simultaneously is a means of keeping demand\nwill result in some unemployment and fewer hours of work per week.\nwithin the bounds of supply. Furthermore, rationing of certain\nThis means that wage-earner income will decline and raises an acute\ntypes of articles, such as automobiles, refrigerators, etc., serves the\nproblem of national economic policy.\nwar effort by giving priorities to war workers, doctors, nurses, and\nIn some industries the wartime increases in wage rates have not\nhospitals, police force, etc. In this, rationing of consumer goods is\nkept pace with the cost of living, and consumption standards have\nakin to the allocation of materials by the War Production Board; it\nbeen maintained by higher take-home pay due to overtime and other\nhelps to distribute the national resources efficiently.\nfactors. But now, as overtime declines, the standard of living of such\nworkers will fall below prewar, and possibly to hardship, levels.\nOver-All Economic Stability\nAlthough the price line in consumer goods has been held, by specific\nThis would not be in the public interest. We have asked\nmeasures designed to hold it, the general character of the war period\nworkers voluntarily to give up the right to strike. We\nhas been inflationary. The expansion in the production of goods and\ncannot afford to have interruptions of war production.\nservices has increased corporate profits as well as consumer income.\nBut the no-strike pledge implies an obligation on our part\nLiquid assets in the hands of individuals and business, at $230 billion\nto protect the worker's standard of living. Therefore,\nare 200 percent higher than in 1939. Such a volume of funds cannot\nwe must be prepared to make some upward adjustments\nbe counted on to lie fallow indefinitely. Indeed, the rise in the cost\nto compensate for severe declines in take-home pay.\nof urban and farm real estate and in the prices of stocks over recent\nmonths suggests that they had been seeking outlets.\n38\n39\nSuch advances so far have been moderate. However, this Office and\nthe Office of Economic Stabilization are well aware that a movement\nof funds into investment today can result in a speculative spiral\ntomorrow which might upset the entire economy and hurt war pro-\nduction. Studies are being made of ways to check such a development\nin its incipient stages-through credit measures.\nVII\nAll Agencies Must Help\nFOOD\nEconomic stabilization, as its name implies, goes beyond dollars and\ncents. It refers to the stability in the entire economic structure. And\nThe tight situation that we face today in food is attributable to four\nin the period ahead it will be necessary to use all agencies of the\nmajor factors:\nGovernment to keep the economy stable and sound. After all, the de-\nvelopment of the war program has been a product of many agencies,\n1. Total food production will decline this year for the first time\nthe policies of which intermeshed with one another. The Office of\nsince the war began.\nPrice Administration's price ceilings helped to prevent manufacturers\n2. Military demand is still rising, particularly because our supply\nof nonwar products from bidding away steel or copper from a muni-\nlines to the Pacific are longer, thus calling for more food to fill\ntions company and thus helped the War Production Board in its job.\nthe \"pipe line.\"\nSimilarly, the War Production Board's materials allocations and in-\n3. Relief needs in Europe are expanding sharply.\nventory controls, by preventing nonwar manufacturers from accepting\n4. The United States ate too much in 1944 and the first half of\nsupplies, kept down demand thus assisting the Office of Price Ad-\n1945; at one time it appeared that surpluses of some foods\nministration. And, of course operations of the War Food Adminis-\nmight develop, hence allocations to consumers were increased\ntration, Petroleum Administration for War, and War Manpower\nbeyond what subsequent production justified.\nCommission all form inseparable parts of this economic structure.\nThe inter-dependency of the war agencies came out clearly during\nIn general, the United States has eaten well during the war. That is\nthe weeks immediately before and after VE-day, when the Office of\nlargely because of the magnificent performance of American agricul-\nWar Mobilization and Reconversion called on each war agency to pre-\nture. Food output rose to one new high record after another, and,\nsent a specific one-front-war control program. It was the responsi-\nin 1944, was 38 percent above the prewar average (1935-39) ; and as\nbility of this Office and of the Office of Economic Stabilization to\nover-all production increased, farmers shifted from a peacetime to\ncoordinate the policies and proposals, SO that the lifting of a control\nwartime pattern SO as to produce the foods most needed.\nby one agency did not pull an important prop out from under another.\nThis high volume of production was traceable to some increase in\nunderstanding. The whole process of revising controls called for a community of\nacreage, sharply expanded use of commercial fertilizer, increased\nmechanization of farm operations, and more intensive cultivation.\nHowever, the programs have now been worked out, compromises\nAlso, there was a run of unusually good weather. As a result, in spite\nreached on what seemed insoluble problems, and the entire framework\nof record food requirements for the Army, Navy, and Lend-Lease last\nof controls has been improved as the ideas of one agency have been\nyear, per capita food consumption by civilians increased during the\nused to shore up the knowledge and operation of another agency.\nwar. (See chart: Perspective on Food.) It is true that supplies of\nparticular products-such as butter and top-grade beef-have been\nI cannot refrain from commenting on the spirit of CO-\nshort from time to time and that consumers, because of increased in-\noperation that prevailed during the entire period. It was\ncomes, have not been able to buy all they wanted at all times. But\na tribute to the American way of handling large and cen-\nlast year's increase was enough to put per capita food consumption at\ntral issues-through the give-and-take of open discussion\na new peak-10 percent above the prewar average.\nand honest, across-the-table criticism. I feel we are all\nThis year, though the per capita supply of food for civilians will\nbetter administrators as the result of it. Each man has a\nfall from 5 to 7 percent below last year, the available total will be\nsounder understanding not only of his own problems but\n2 to 4 percent above the prewar average. But because we ate a dis-\nalso of the others.\nproportionate share of our total supply in the first 6 months of 1945,\n40\n41\nthe quantity available in the second 6 months will be below the pre-\nwar average. And we face severe shortages in such important basic\nfoods as meat, sugar, and fats and oils. (See chart: Lean Year for\nLEAN YEAR FOR SOME FOODS\nSome Foods.)\nPer capita civilian supplies of fats and oils, meats and sugar in 1945 are below\n1935-39 average, wheat, a basic relief food, is above.\nMeat\nTOTAL U.S. SUPPLY\nPER CAPITA CIVILIAN SUPPLY\n1000\n1000\n300\n300\nThe United States meat supply this year is expected to amount to\nWHEAT\nWHEAT\nExcludes Non-food Use\n22.6 billion pounds, more than 6 billion pounds above the prewar\n800\n800\naverage, but 10 percent below the record-breaking total of 25.2 billion\nMILLIONS OF BUSHELS\nMilitary\n600\nExport\n600\nMILLIONS OF BUSHELS\n200\n200\npounds last year. Output of beef and veal is expected to rise to\nPOUNDS\nPOUNDS\nanother new high; pork production, however, will be down 20 per\n400\n400\n100\n100\ncent, largely because feed shortages led to a drop in last year's spring\nCivilian\n200\n200\nfarrowings.\no\n0\n0\n0\n1935-39\n'40\n'41\n'42\n'43\n'44\n1945\n1935-39\n'40\n'41\n'42\n'43\n'44\n1945\nAvg.\nAvg.\n10\n10\n60\n60\nPERSPECTIVE ON FOOD\nFATS AND OILS\nFATS AND OILS\nDespite high exports and military allocations, civilian supply is still above 1935-39.\n8\n8\nBILLIONS OF POUNDS\nBILLIONS OF POUNDS\n40\n40\n6\n6\n1935-39\nCivilian Consumption\nMilitary\nIncl. Mil. Relief\nPOUNDS\nPOUNDS\n4\n4\nExport\n20\n20\n1942\n2\n2\n0\n0\n0\no\n1943\n1935-39\n'40\n'41\n'42\n'43\n'44\n1945\n1935-39\n'40\n'41\n'42\n'43\n'44\n1945\nAvg.\nAvg.\n25\n25\n180\n180\n1944\nMEATS\nMEATS\nDressed Wt.\n150\nDressed Wt.\n20\n150\n20\n1945\n50\n100\nBILLIONS OF POUNDS\n15\nBILLIONS OF POUNDS\n120\n120\n15\n75\nPOUNDS\n90\n90\n0\n25\n125\nPOUNDS\n10\n10\n1935-39 CIVILIAN CONSUMPTION=100\n60\n60\n5\n5\n30\n30\n0\n0\no\n0\n1935-39\n'40\n'41\n'42\n'43\n'44\n1945\n1935-39\n'40\n'41\n'42\n'43\n'44\n1945\nAvg.\nAvg.\nAt the same time, requirements for the armed services (which in-\n9\n9\n125\n125\nSUGAR-Raw Basis\nSUGAR-Raw Basis\nclude relief feeding) are up from 4 billion pounds last year to 5.4\n100\n100\nbillion pounds, which is partially offset by a drop in exports. The\nMILLIONS OF SHORT TONS\n6\n6\ncivilian share of the total will be down from 19.3 billion pounds to\n15.6 billion pounds in 1945. And that comes to 120 pounds per\nMILLIONS OF SHORT TONS\n75\n75\nPOUNDS\nPOUNDS\n50\n50\nperson. This is only 3 percent below prewar.\n3\n3\nBut for the millions who rely on the corner butcher for their meat,\n25\n25\nthe per capita estimate of 120 pounds is overstated. An allowance\n0\no\n0\n0\nmust be made for above-average consumption by farmers and ranchers\n1935-39\n'40\n'41\n'42\n'43\n'44\n1945\n1935-39\n'40\n'41\n'42\n'43\n'44\n1945\nAvg.\nAvg.\nwho produce it, for the poundage that goes for commercial canning\nNote. Exports include Lend-Lease Military includes military relief feeding\nand institutional use, for the quantity served in meals by hotels and\n42\n43\nrestaurants, and for the \"shrinkage\" from carcass weight once the meat\nallowed for the Army, Navy, relief, and lend-lease, and 5,100,000 tons\nis trimmed and boned for retail sale.\nfor United States civilians-about 73 pounds per capita (the same\nShipments abroad are often over-emphasized as a cause of the do-\nrate as in the United Kingdom and Canada), as against 89 pounds\nmestic meat shortage. Although this country exports about 7 percent\nlast year. But we ate more than half of our 1945 sugar supply in\nof its production, military procurement abroad-in Australia, New\nthe first 6 months, SO consumption for the rest of the year must run\nZealand, and Argentina-offsets about half of this.\nat an annual rate of about 68 pounds.\nThe problem in meat is twofold:\nThat, briefly, is why the value of sugar-ration stamps for ordinary\n1. To increase production and slaughter. This is being done\nhousehold use had to be reduced 25 percent to a yearly rate of 15\nthrough an integrated program to boost price guarantees to\npounds per ration-book holder, and why the maximum allowance for\nproducers, payments to widen operating margins to cattle feed-\nhome canning was reduced by an equal percentage to 15 pounds a\ners, and additional subsidies for processors.\nperson, with a limit of 120 pounds for any one family. It has likewise\n2. To improve the distribution of meat, especially in urban\nbeen necessary to reduce allotments for institutional and industrial\nareas. Toward this end, the War Food Administration and\nusers.\nthe Office of Price Administration have taken steps to increase\nThe sugar shortage is likely to extend into 1946-until the Philip-\nthe volume of cattle flowing to federally inspected slaughter-\npine sugar industry is restored and the liberated countries can lift\nhouses. Since only federally inspected beef can move across\nsugar-beet production and processing to normal levels. In the mean-\nState lines, and since cities generally depend on interstate\ntime, a special labor force, including thousands of prisoners of war\nshipments, this means that more beef will flow to civilians in\nand nationals of neighboring countries, has been made available to\nthe cities. At the same time third-quarter military and gov-\ncontinental United States sugar producers. Steps are also being taken\nernmental allotments are down 10 percent from the second\nto insure full production of sugar in the off-shore areas so important to\nquarter. By July 1 the civilian population will receive 70\nour supplies: Cuba, Puerto Rico, and the Caribbean area in general.\npercent of the better grades of federally inspected beef as\ncompared with 40 percent in April and early May. As a\nFats and Oils\nfurther measure, all processors are now required to ship beef\nBecause of sharply reduced hog slaughter and consequently dimin-\naccording to. a \"normal\" distribution pattern; this will also\ntend to level the geographical peaks and valleys in supply.\nished lard production, United States supply of edible fats and oils is\nlikely to be down 13 percent this year to an estimated 6,950,000,000\nHowever, a more basic improvement in the meat situation cannot be\npounds. .At the same time, shipments to liberated countries will be\nexpected until late in the year, when marketings of livestock increase.\nup-fats and oils are a \"must\" in the human diet.\nMoreover, as long as consumer buying-power stays at high levels, the\nPer capita consumption of edible fats and oils (including butter)\narmed services continue to require large quantities from available\ndropped from a prewar average of 48 pounds to 45 pounds last year.\nsupplies, and a program of relief-feeding must be carried on, civilians\nAnd for 1945 as a whole, indications are that average per capita use\nwill not be able to buy the meat they want.\nwill be in the neighborhood of 40 pounds, a drop of more than 16 per-\nSugar\ncent from the prewar standard. Because of large consumption in\nthe first half, the annual rate over the rest of the year will decline to\nBecause of a severe drought in Cuba, less-than-expected supplies\n37 pounds per person. (This, however, is large by recent European\nfrom Puerto Rico, and wartime disruptions in European countries\nstandards. Under German occupation, such countries as France,\nwhich normally supply a major part of their own needs, the world\nBelgium, and Holland consumed as little as 20 pounds per capita.)\nsugar situation is very tight. In fact, total sugar available to United\nMeasures are being taken to ease the tightness in fats and oils. Pig\nNations' countries is about a half-million tons short of last year's con-\nsumption. This leaves a smaller supply for the United States, yet\nproduction will increase this fall; top limits have been removed on\nmilitary and export demand is 29 percent higher this year than last.\nweights at which hogs are eligible for price support (this will en-\nIn April, food officials of the United States, Canada, and Great Brit-\ncourage feeding to heavier weights), and quantity shipments of copra\nain met in Washington to decide on a fair distribution among all claim-\n(dried coconut meat for coconut oil) from the Philippines will be\nants, including newly liberated areas. A total of 1,800,000 tons were\nstarted as soon as the military situation permits.\n45\n44\nWheat\nProduction of a number of important foods will be up this year as\ncompared with 1944, namely, milk, fresh and frozen fish, and some\nfresh vegetables; wheat will approximate last year's record crop.\nWheat is the one basic food that has been, and should continue to be,\nin ample supply throughout the war; and it will go far to make up\nVIII\nserious food deficits abroad. But the prospect here is not entirely free\nof problems. Railroad cars for shipment to seaports are insufficient;\nAID TO LIBERATED EUROPE\nport facilities in Europe have been damaged; the quantity of bags and\nbagging available in North America is not enough to handle the large\nvolume of shipments involved. In spite of these difficulties, substan-\nThe United Nations have freed Europe from the Nazis but-\ntial shipments of wheat and flour have already been sent abroad and\nAgriculture has been disorganized;\nthe rate is increasing. However, liberated Europe cannot live by\nTransportation facilities have been wrecked;\nwheat alone. Shipments of wheat must be supplemented by at least\nPlants have been destroyed;\nmoderate quantities of sugar, dairy products, fats and oils, and peas\nCoal mines have been damaged;\nand beans.\nPower plants have been sabotaged;\nIn spite of all that can be-and is being-done, America must face\nMore than 20 million people have been uprooted from\ntheir homes.\nthe fact that the over-all supply of food for home consumption will\ncontinue to be less than demand for at least a year. Meanwhile, cer-\nLiberated Europe is desperately short of food, clothing, fuel, medi-\ntain steps are being taken to relieve some of the worst difficulties:\ncal supplies, and shelter-the basic items for human existence. In\nFood goals for 1946 are being set at continued high levels.\naddition to that, it needs minimum quantities of materials, machin-\nery, and equipment to get back on its feet as a \"going concern.\" A ship-\nThe War Production Board is increasing the flow of steel and\nload of seed, fertilizer, repair parts, farm equipment, and coal-mining\nother critical materials for farm equipment and farm supplies.\nmachinery now may save a dozen shiploads of food, fuel, and medicine\nFood handling facilities on the Pacific Coast are being enlarged\nlater on.\nand modernized to relieve civilian food distribution in that area\nAside from humanitarian considerations, the United States has rea-\nfrom the pressure of heavy military shipments.\nsons for helping liberated Europe. We have learned that we cannot\nThe Foreign Economic Administration is intensifying its efforts\nignore what is happening in other parts of the world. Economic dis-\nto locate and utilize available supplies in other parts of the\ntress in Europe is scarcely SO far removed from this country as thou-\nworld-beans from Mexico, vegetable oils from Africa, etc.\nsands of miles of ocean might suggest. Economic conditions are di-\nHowever, we must rely mainly on production to expand supply.\nrectly related to political stability. And without political stability in\ncontinental Europe there is little hope of realizing world peace and the\nAnd we must take every practical step to conserve the food we have.\nprogressive international relations we seek.\nFood is a prime requirement in liberated Europe. Generally speak-\ning, a grown person needs about 2,000 calories a day to subsist and\nconsiderably more-some 2,600-if he is to do active work. But Greece\ncan produce only enough food to supply 970 calories for its people,\nAlbania 1,015, Norway 1,115, the Netherlands, 1,630, and Belgium,\n1,795. To provide even a bare subsistence diet, these and other lib-\nerated countries must supplement their domestic food supplies with\nimports. (See chart The European Food Supply.)\nComputing our calorie supply by the same methods used for Europe,\neach person in the United States will have an average of 3,050 calories\na day this year, about the same as before the war. And a relatively\nsmall amount of food from us can mean a great deal to Europe. For\n46\n47\nTransition Period\nTHE EUROPEAN FOOD SUPPLY\nRelief for Europe is now in a transition period. As each country\n1944-45 output of many areas has to be eked out to reach subsistence require-\nments (2,000 calories) let alone pre-war diet.\nwas liberated, the Army-because of military necessity-assumed re-\nsponsibility for supplying minimum needs. As planned, this respon-\nSELECTED LIBERATED AREAS\nImports necessary to\nsibility is now being turned over directly to the governments them-\nreach pre-war diet\nselves (as in France), or to the United Nations Relief and Rehabili-\nCzechoslovakia\nDomestic Production, 1944-45\ntation Administration, in cooperation with the respective govern-\nments (as in Greece and Yugoslavia).\nYugoslavia\nUNRRA consists of 44 member countries and is supported by a\nPoland\ncontribution based on the national income (for the year ended June\n30, 1943), of each of the member countries which was not invaded.\nFrance\nIt provides relief at the request of the Army or the government in\nneed-and then only if that government has insufficient foreign ex-\nBelgium\nchange to pay for its supplies. Right now, UNRRA is operating\nin Greece, Yugoslavia, Czechoslovakia, Poland, Albania, and-to a\nNetherlands\nlimited extent-in Italy. Moreover, in cooperation with the military,\nNorway\nUNRRA is helping millions of slave laborers and other displaced\npersons to return to their homes.\nGreece\nLast March, Justice Byrnes established the Inter-Agency Com-\nmittee on Foreign Shipments, consisting of representatives of the\nSELECTED CONQUERED AREAS\nImports necessary to\nForeign Economic Administration (chairman), Army, Navy, War\nreach pre-war diet\nFood Administration, War Production Board, War Shipping Admin-\nGermany\nDomestic Production, 1944-45\nistration, and State Department. Its task is to coordinate the export\nof all civilian supplies including those for relief and rehabilitation.\nItaly\nThe Committee is reviewing existing supplies, examining present\no\n1000\ncommitments, and developing a unified program for the export of\n2000\n3000\nCALORIES PER DAY PER CAPITA\ncivilian supplies in the light of our capacity and the needs of our\nmilitary forces and the domestic economy. It has prepared a series\nof \"balance sheets\" for commodities and goods in short supply; such\nas food, textiles, machinery, transportation equipment, materials, and\nfarm equipment. These balance sheets (1) weigh the world avail-\nability of each scarce item against the total demand, and (2) the ex-\nexample, if the United States were to cut down its calorie supply by\ntent of that demand upon us in relation to our own supplies. These\nonly 8 percent it would be enough to increase the daily supply of the\nare the bases for determining just how far we can go in exporting\nabove five food-poor countries by more than 80 percent and give them\ncivilian supplies-for whatever purpose-without endangering our\nthe 2,600 calories a day needed for an active population.\nrequirements at home.\nThe rate of United States relief shipments to liberated areas has in-\nThe Committee recently arranged through the Army-Navy Liquida-\ncreased sharply since the beginning of the year. In some items, such as\ntion Commissioner, for the Army to turn over its surplus equipment\nmeat and fats and oils, the amount that can be sent abroad is limited\nand supplies in Europe to the Foreign Economic Administration\nby shortages at home; in others, such as wheat and cotton, the limiting\nwhere desired for transfer to liberated countries. Under the plan,\nfactors are shipping tonnage and unloading facilities. In other words,\n16,000 used trucks are being turned over to the Foreign Economic\nbecause of domestic food shortages and the tightness in merchant ton-\nAdministration; also some medical supplies. As a result of this\nnage, we are not in a position to ship all the food that liberated areas\npolicy, critically needed equipment is made available to Europe\nneed; however, many other countries are making their contributions.\npromptly; materials, manpower, and shipping space are saved at\nhome; and our surplus property abroad is reduced.\n48\n49\nThe European countries want to help themselves. Hence, in co-\noperation with the United States and the United Kingdom, there\nhave been set up (1) the Emergency Economic Committee for Eu-\nrope, (2) the European Coal Organization, and (3) the European\nCentral Inland Transport Organization. Each of these has repre-\nsentatives of most of the liberated countries as well as the United\nIX\nStates and the United Kingdom. The primary task of these bodies\nis to make the maximum use of Europe's resources, to explore ways\nWHAT VJ-DAY MEANS\nand means of filling the Continent's requirements at home before\ncalling on the United States or the United Kingdom for aid.\nThe United States is not supplying Europe single-handed.\nJust as the Federal war agencies were prepared for VE-day, SO must\nThrough the Combined Food Board, Combined Production\nthey also be prepared for VJ-day. They must have on tap a variety\nand Resources Board, and the Combined Raw Materials\nof plans for a variety of contingencies-particularly they must have\nBoard, the United Kingdom is sending coal, clothing, trans-\nplans for an early defeat of Japan as well as a late one.\nportation equipment, shoes; Canada is sending trucks,\nThe timing makes a great difference. Today 45 percent of Ameri-\ntractors, industrial machinery, nonferrous metals; Brazil\ncan energies are concentrated on war and war-supporting activities;\nand Mexico are sending textiles; Argentina, leather; India,\na year from now, as military needs gradually decline, only about 30\njute. And each of these nations-together with Australia,\npercent will be required. Similarly, employment in the munitions\nUruguay, New Zealand, Cuba, British Empire countries, and\nproduction will taper off from about 8.6 million workers to less than\nthe French and Belgian colonies-is sending food: wheat,\n6 million. And whereas today the automobile, refrigerator, electrical\nflour, fats and oils, beans, peas, rice, meat, sugar, canned\nequipment, and other consumer durable goods industries are only\nand frozen fish.\nstarting to reconvert, a year from now the reconversion process will\nAs conditions on the continent return to normal, more countries\nhave been well advanced, civilian production will be accelerating\nmay be expected to participate in the job of helping Europe get on\nrapidly, and manufacturers will be prepared to take on workers. At\nits feet. Sweden is already making locomotives for the Netherlands\nthe same time, many workers discharged from war plants will have\nand should soon be shipping pulp and paper to Europe in general.\nfound jobs. Hence the later VJ-day comes, the fewer war workers will\nSwitzerland is manufacturing locomotives and mining equipment\nhave to be absorbed, the smoother will be the transition, and the shorter\nwhich will help to relieve transportation and coal shortages.\nthe lag between cut-back disemployment and reconversion reemploy-\nNevertheless, there is no gainsaying the fact that the United States,\nment. Conversely, the shorter the war, the greater will be the VJ-day\nas the biggest producing nation, has been-and must continue to be-\ndislocations. We are determined to achieve victory as soon as pos-\nthe biggest single supplier of relief to Europe. And because United\nsible. That will save lives, and that's what counts. All agencies are\nStates military authorities are relinquishing their responsibility for\nconcentrating on winning the war quickly. Simultaneously, they are\nsupplying European civilians, because UNRRA's funds and oper-\ngetting ready to meet the problems which an early VJ-day will bring.\nations are limited, and because the lend-lease appropriation now\nunder consideration by Congress will provide only for war-supporting\nMost Controls Will Go\nrequirements, new legislation is necessary to assure adequate financing\nBut regardless of when VJ-day comes, the problems will be much\nof our supply program for liberated countries. This financing will\nthe same. Indeed, those problems are already with us: contract can-\nnot take the place of long-term credits; it will be used for wake-of-\ncelations and terminations, plant clearance, handling of surpluses,\nwar requirements only.\nmustering out veterans, handling unemployment claims, dropping\nRecently, a special mission headed by Judge Rosenman made a sur-\ncontrols. Thus getting ready for VJ-day is a continuing process.\nvey of the supply system for liberated Europe. The result was a\nBut when VJ-day comes the scale of operations will move up. The\nrecommendation to explore ways and means of improving our supply\nvolume of terminations, of surpluses to be sold, of unemployment\nprocedures. Such a study is now being made by the Office of War\nclaims will increase sharply.\nMobilization and Reconversion with the aid of the Bureau of the\nVJ-day will signal the removal of most wartime controls. Today\nBudget.\nit is necessary to see that manpower, materials, and machinery are not\n50\n51\ndiverted from war production and, therefore, to maintain many\nshoes, certain foods, and other items. Automobiles might have to be\nrestrictive orders on production, distribution, and prices. After\nrationed for a brief period until such essential users as the police\nVJ-day, the job before us will be to move resources out of war pro-\nforce, doctors, nurses get taken care of also refrigerators to hospitals\nduction into civilian production. Thus after VJ-day, many War\nand houses in tight areas.\nProduction Board controls will be a hindrance rather than a help.\nBut there are exceptions even to this generalization. Unless VJ-day\nDanger of Deflation\nis much longer delayed than expected, a few materials will still be too\nVJ-day will bring a sharp contraction in munitions employment.\nshort to permit unrestricted bidding for them. Not only would prices\nWorkers will be discharged from plants making planes, shells, tanks,\nrise, but also essential requirements might not be met; speculative\nguns, and ships. Also overtime will drop and shifts from high to low\nhoarding might prevent the necessary flow of materials into the indus-\nwage industries will be speeded up. This will result in a drop in the\ntrial economy. Crude rubber and tin, the supply of which comes\nincome and hence in the purchases of these workers.\nlargely from Japanese-held areas, are cases in point. Hence, con-\nTo be sure, many workers have built up savings during the war;\ntinued allocation of a handful of commodities may be necessary after\nalso unemployment compensation benefits will tide them over the\nVJ-day.\nunemployment period. But even liberal unemployment benefits are\nFurther, we may have to continue our efforts in directing the pro-\nlow compared with wages, and families whose incomes drop will cur-\nduction of low- and medium-priced textiles and shoes-at least until\ntial their expenditures-they will not buy quite so much groceries,\nsupplies come much closer to demand than they now do. And to pro-\nthey will put off getting shoes or clothes; they will introduce economies\ntect liberated areas and foreign economies which depend on the United\ninto their scale of living. Such curtailment of expenditures could\nStates for supplies, manufacturers may have to continue to set aside\nbring about secondary unemployment-in retail stores, in textile\ncertain proportions of their output for export. We may also have to\nproduction, and SO on. As one group of workers is laid off, others are\ncontrol exports to protect domestic supplies of short items.\ninevitably affected.\nThe controls after VJ-day will have one common purpose-to\nThis presents a real danger. The remembrance of the depression\nsmooth the transition between a war and peacetime economy.\nis clear to most of us. At the first development of widespread unem-\nWhether controls are necessary and for how long will be determined\nployment, even those who are not unemployed may feel economically\nby when VJ-day comes. Suppose the Japanese were to surrender a\ninsecure and will freeze on to their savings and spend less. This\nyear from now. By that time, most of the kinks will have worked out\nwould be bound to deflate demand; manufacturers would be less\nof the reconversion process, most if not all of the bottlenecks in peace-\nanxious to expand; and instead of coming out of the war with an\ntime production will have been broken, and a chain of supply will\nexpanding economy and jobs for released veterans and war workers\nhave been established from producers of raw materials to manufac-\nwe will face another depression.\nturers of end products to wholesalers and retailers. Under such cir-\ncumstances, retention of bottleneck-breaking and scheduling functions\nInflation Danger\nwould be superfluous. But if VJ-day were to come two or three\nBut there is another possibility; economic history may well repeat.\nmonths from now, before industrial supply-chains had been reestab-\nDuring and after every war, prices have risen sharply then declined\nlished, those functions would be temporarily useful to keep the\nsharply. (See Chart: Prices-Before and After the Wars.) So far\npipe line flowing evenly and maximizing production.\nduring this war we have managed to hold prices in check. We cannot\nPrice Controls\nafford to give up the fight just when it seems won. The point is that\ncash and cash-assets are at record levels (p. 39), and that most people\nAgain in price control, the timing-the state of reconversion-will\nafter VJ-day will still have good incomes. Expanding expenditures\ndetermine how many exceptions must be made to a general policy of\nof this group could offset contraction in purchases of the unemployed\nremoving ceilings. Today specific shortages persist in many seg-\nand induce an inflationary price spiral. Moreover, once production\nments of the standard of living-food, textiles, shoes, and in all dur-\ndid get started, manufacturers, wholesalers, and retailers, might buy\nable goods, housing, automobiles, electrical appliances. None of these\ninventories, fearing prices would rise. This would lead to a repetition\nshortages is likely to be corrected in the next three months. There-\nof the 1919-20 boom and collapse.\nfore a quick defeat of Japan would not immediately alter the need for\nThus, we must be prepared for inflation and deflation, or for a\nsome price controls; nor would it do away with the necessity to ration\ndelayed inflation after an immediate deflation following VJ-day.\n52\n53\nThe basic cure is the same; to step up production which increases sup-\nply on the one hand and reemployment on the other. Toward this\n001 1926\nend, we must get rid of controls that are not needed and retain controls\n200\n150\n100\n50\n0\nthat help. However, if reemployment is slow, if a deflation spiral\nSECOND WORLD WAR\n1940\nthreatens, then the Government must be prepared to take positive\naction to bolster income and create jobs through public works.\nDuring the war, many Federal, State, and local Government\n1930\nprojects-highways, post offices, schools, hospitals, police stations—\nhave been postponed because the materials and manpower were more\n1920\nFIRST WORLD WAR\nurgently required in war work. VJ-day will offer the first oppor-\ntunity to cut into the piled-up backlog of public construction on\n1910\na large scale.\nOver 185 years of American history, major conflicts have resulted in sharp price rises, followed by sharp declines.\nAMERICAN\n1900\nAlready, some projects are planned, financed, and\nSPANISH-\nready to go. But the total volume ought to be far larger,\n1890\nto permit a strategic selection of projects to fit into post-\nVJ-day conditions. Only if we have a large shelf of\n1880\npublic works in the blueprint stage will we be able to\nquickly get a building program under way. Under such\n1870\nconditions speed would be of utmost importance to\nquickly provide interim employment to get our economy\nCIVIL WAR\n1860\non the upgrade again, in the event that mass unemploy-\nment develops before business has had time to reconvert.\n1850\nIn this connection, private business should advance its\nPRICES BEFORE AND AFTER THE WARS\nMEXICAN WAR\nplans to the blueprint stage now.\n1840\nThe construction industry cannot jump into the breach right away.\nIt has a reconversion job. Hardware, plumbing, and other equipment\n1830\nmust be manufactured. Stocks of building supply dealers all over the\ncountry must be replenished, and contractors must rebuild their organ-\n1820\nizations. During this period of reconversion in the construction indus-\ntry, the government must be particularly careful not to compete with\nWAR OF 1812\n1810\nprivate construction. Public projects should be timed to fill in the\nlulls when private construction falls off, when the industry is not oper-\n1800\nating at capacity, and when public construction will be most effective\nin cushioning a decline in employment.\n1790\nI should like to point out again the need to increase unemployment\nbenefits to cushion the shock of unemployment during the switchover\n1780\nperiod. If the end of the war comes abruptly and unemployment\nREVOLUTION\ndevelops on a larger scale than we anticipate, adequate unemployment\n1770\ncompensation will be that much more urgent.\nUp To All of Us\n1760\n200\n150\n100\n50\n0\nInevitably VJ-day will bring dislocations and unemployment. And\n001 1926\nGovernment agencies have to be ready whenever VJ-day comes-to\nclear the decks for all-out reconversion-to cancel contracts, render\n54\n55\nfinancial assistance to contractors, help returning servicemen and dis-\ncharged war workers find jobs, remove controls, guard against infla-\ntion, and be prepared to check deflation.\nYet, though the Government can and will do all those things, the\nreal job in achieving a swift transition will fall upon industry, labor,\nand agriculture-on the businesses, farmers, and workers who com-\nX\nprise our economy. Though the Government can facilitate reconver-\nsion, though it can take positive measures to support income or prevent\nTHE BRIDGE BETWEEN TODAY\ninflation, attainment of a high level of production and consumption\ndepends on the initiative, resourcefulness, imagination, and know-how\nAND TOMORROW\nof all of us. Moreover, to withstand the economic shock after VJ-day,\nwe shall need the tolerance, understanding, and good will that have\nserved SO well during the war.\nThe Congress, in setting up the Office of War Mobilization and\nReconversion, directed me, subject to the direction of the President, to\n\"formulate or have formulated such plans as are necessary\nto meet the problems arising out of the transition from\nwar to peace.\"\nKeeping an eye to the future is a mandatory function in the work of\nthis office.\nIn 1939, our national output hit its highest peacetime level, higher\nthan in 1929, higher than in any previous year of our history-$89\nbillion. Five years later that record figure was dwarfed by a new\nrecord output of $200 billion. Prices were higher but the quantity\nof goods and services produced in 1944 was over three-fourths again\nas high as in 1939. We succeeded in piling our new wartime economy\non top of a peacetime economy; in achieving feats of production no one\nbelieved possible. In SO doing, we opened a totally new vista of what\nthe future can hold. (See chart Postwar Challenge.)\nThe word \"reconversion\" carries with it a sense of going back to what\nexisted before. In many ways, we do want to go back to the comforts\nand pleasures of peacetime America. But as far as our national\neconomy is concerned it would be disastrous to go back, for we would\nbe going back to the misery of mass unemployment.\nAfter the war, the American economy must be dynamic, with ex-\npanding business, expanding markets, expanding employment, and\nopportunity. The American people are in the pleasant predicament\nof having to learn to live 50 percent better than they have ever lived\nbefore. Only the defeatist can scoff at this inescapable fact that we\nmust build our economy on that basis.\nThis expansion must be brought about by positive policies on the\npart of business, agriculture, labor, and local, State, and Federal\nGovernments.\nThe time to start hammering out these policies is now, while the\ntransition is still young.\n56\n57\nEspecially important are the plans which individual businessmen\nFrom the following nine-point agenda a postwar economic charter\nare now making for postwar activities. The stimulation of business-\nfor a steadily rising American living standard must be built:\nmen to plan for expansion after the war which is being carried on by\n1. Taxation. A complete modernization of tax laws to help\norganizations such as the Committee for Economic Development, local\nachieve stable high levels of employment and production.\nChambers of Commerce, and by other national and local trade associa-\n2. Small business. A program to foster small business and\ntions is of great significance and encouragement.\nencourage the birth of new business.\nThe vast reservoir of liquid assets-currently estimated at $230\n3. Competition. A fair, vigorous anti-monopoly program be-\nbillion or almost three times the 1939 total-adds a completely new\ncause competition is a keystone to our free society.\nfactor to our economy. These financial resources, plus the great need\n4. Labor, Management, and Wages. Measures to reduce indus-\nfor goods which has been built up during the war, can be a self-starter\ntrial strife, the broadening of the minimum wage laws and the\nfor our postwar economy, and if handled right, a \"fly-wheel\" for years\nencouragement of a high wage policy by business.\nto come. How high businessmen aim, how resolutely they act will be\nan important factor in building a bridge from the present wartime\n5. Foreign Trade. The breaking down of artificial barriers to\npeak to steady high levels of employment and production, with subse-\ntrade and positive measure to encourage world trade.\nquent profit to all hands.\n6. Social Security. The broadening and expansion of unemploy-\nment compensation, old-age pensions, health and education\nThe Role of Government\nprograms of Federal, State, and local governments.\nWe know that the efforts of business and labor, to reach and main-\n7. Farm Program. Measures to assure the farm population an\nopportunity to enjoy the same standard of living, health, and\ntain this new level of activity, important as they are, will not be\neducational facilities as the rest of the American people.\nenough. Thoughtful persons realize that the Government must\nshoulder major responsibility in adopting constructive policies to help\n8. Public Works and Construction. A long-term program of\nus reach and hold high levels of production. We can clearly see the\npublic works tied in with the government's fiscal policy, and\nareas in which Government must take action.\na program to encourage far greater volume of private con-\nstruction for housing than we have ever had in the past.\n9. Fiscal Policy. A fiscal policy aimed at maintaining the\neconomy at or near full employment, and coordinating all gov-\nernment programs that have either an inflationary or defla-\ntionary effect.\nPOSTWAR CHALLENGE:\nTo achieve a production-consumption level almost twice prewar.\nThe Congress and the various executive agencies of government have\n200\n200\nbeen working diligently in all these areas of economic policy. Pri-\nPRODUCTION OF GOODS AND SERVICES\nvately supported agencies, including the labor unions and farm or-\nConstant Prices\nganizations, are also hard at work seeking answers to these problems.\nThe Office of War Mobilization and Reconversion, as directed by\n150\n150\nthe Congress, is working with all these groups in seeking to determine\npolicy and to make recommendations, where necessary, for action by\nIndex-1939=100\n100\nIndex-1939=100\nthe Congress. In this report, I shall not do more than to discuss very\n100\nbriefly the nature of some of the problems and the direction in which\nsolutions must be found.\n50\nTHE POSTWAR TAX BILL\n50\nI regard the modernization of our tax structure as the foundation\nof our entire program to reach and maintain full employment after\n0\n0\nthe war.\n1914\n1919\n1924\n1929\n1934\n1939\n1944\n58\n59\nIn our complicated economy it is not easy to see the ultimate effects\nIn this sphere, local and State Governments have an important\nof taxes, on whom they fall nor what they mean to the prosperity of\nresponsibility too. The Treasury, the Bureau of the Budget, and\nthe people. After the war, Government revenue needs will be three\nthe Council of State Governments, have taken steps to coordinate\ntimes what they have ever been in peacetime. The federal tax struc-\nfiscal policies of local, State, and Federal Governments during the war.\nture will, therefore, be a far bigger factor in the economic health and\nMeans should be set up whereby as far as possible local, State, and\nFederal postwar fiscal policies can be jointly arrived at and jointly\nstability of our Nation than ever before.\nI believe the following principles should guide us in constructing\ncarried out.\nour tax program:\nSMALL BUSINESS\n1. Taxes should be levied in such a way that they have the least\nharmful effect on the expansion of business investment and\nBasically, small business needs what all business needs-a market\nthe creation of jobs, because productive employment is the\nand an economic environment that will supply the incentives and the\nsource of our standard of living, of all income, and of the rev-\nopportunity for expansion. However, small business does have some\nenue which the government collects from taxes.\ndisadvantages, just as it has some advantages. Special needs of small\n2. Taxes should be levied in such a way that they have the least\nbusiness include (1) technical knowledge to improve the management\nharmful effect on the maintenance of mass markets and mass\nfactor; (2) adequate sources of financing.\npurchasing power because that is the basis of business, labor,\nStudies show that the lack of managerial know-how, lack of such\nand agricultural prosperity.\nrudimentary tools of management as accounting, stock control and SO\n3. Taxes must be fair among people.\nforth, are big factors in small business failures. There is evident need\n4. Tax policy should be integrated with a fiscal policy designed\nfor agencies of Government to put at the disposal of small businessmen\nto prevent inflation and deflation.\ninformation-an easy-to-understand set of management tools, with\nAcceptance of these principles means, in my opinion, that the per-\nbusiness itself helping to formulate the program.\nsonal income tax must be the chief source of tax revenue and the base\nGood precedent for this is found in the work of the Department of\nmust be broad.\nAgriculture. By placing information and knowledge at the disposal\nIt means that we should eliminate as far as possible the sales and\nof farmers, the Department has helped raise the efficiency and pro-\nexcise taxes, because they not only put an unfair and hidden tax\nductiveness of every type of American farm. The Government can\nburden on those with low incomes, but they also restrict markets for\nperform a comparable service for American business, particularly\nsmall businesses which would want such service.\nbusiness.\nThe excess-profits tax should be repealed after VJ-day. Taxes on\nThe problem of providing working capital for small business has\nbusiness earnings should be modified, bearing in mind, on the one hand,\nreceived special attention during the war. Emergency legislation\nthe revenue needs of the Government and, on the other hand, the in-\nenacted early in the war, or carried over from the prewar period, au-\ncentive for risk-taking and expansion to be gained by the modification.\nthorized Federal agencies to make direct loans to business enterprises,\nThe Congress, well aware of the vital importance of the post-war\nto participate in loans made by private institutions, or to guarantee\ntax structure, has been working for some months through the Joint\nor insure such loans. Many small firms will be seriously affected if\nCommittee on Internal Revenue Taxation on a postwar tax bill. The\nthese emergency sources of working capital are withdrawn before the\nTreasury has been cooperating in this study and the Secretary of the\nend of the reconversion period. These powers should be continued\nTreasury set up an interdepartmental committee to assist in studying\nthrough the reconversion period and restrictions prohibiting their\nthis problem.\nuse in financing nonwar production must be removed. The difficulties\nThere is an important benefit to an early adoption of a postwar tax\nsmall businesses face in acquiring long-term and equity funds call\nfor additional measures, which are already under study by the\nprogram.\nAs the Advisory Board of this Office has pointed out, the\nCongress.\nsooner uncertainties in postwar tax structure are removed\nthe sooner business management will be inclined to make\nCOMPETITION\nfirm commitments for expansion and the faster men can\nbe put back to work following the wholesale cancelation of\nCompetition has always been the heart of America's economic vital-\ncontracts that will occur with the unconditional surrender\nity. It is also the center of our economic philosophy. In the transi-\nof Japan.\n61\n60\nwhen conducted in a spirit of understanding and tolerance on both\ntion and postwar period, we shall have an unparalleled opportunity\nsides. Such understanding is evidenced in the growing realization\nto extend the area of effective competition. In this connection, the\nwithin the ranks of labor, that a requisite of higher wages is higher\nencouragement of new and small businesses is basic.\nproduction per man. To protect unorganized labor and to safeguard\nThe Surplus Property Board has established the policy of plant\nmarkets for business, the Government, as noted elsewhere in this\nand equipment disposal to avoid greater concentration of economic\nreport, should put a floor under wages.\npower and to foster competition wherever possible. This same policy\nWe must make a determined effort to substitute arbitration and\nwill guide all government agencies in the reconversion period.\nother orderly procedures in the place of strikes and violence, with their\nObviously of major importance is the/enforcement of the existing\ninevitable hardship to the worker and great economic loss to the\nantitrust laws. During the war, enforcement has been suspended in\nNation.\nsome fields. The scale of operations was never very large. The max-\nimum budget of the Antitrust Division was $2,325,000-about what\nwe spend on the Smithsonian Institute. As soon as the primary needs\nFOREIGN TRADE\nof the war permit, we should get on with the job of carrying out the\nThe fundamentals of the United States foreign economic policy are\nintent of the antitrust laws. Many American businessmen recognize\nsimple and clear:\nthat the principles of free enterprise require vigilance in combating\nmonopolistic practices. Businessmen cannot, as the late President\nA. We want our consumers and businesses to have the right to\nRoosevelt stated \"term each antitrust prosecution as a persecution.\"\nbuy and sell in markets without discrimination. Only in this\nCongress has before it a number of proposals intended to make\nway can we secure the most efficient use of division of labor\nour patent system more consistent with the national policy for preserv-\namong nations with the maximum advantages to our American\ning competition. Some steps must be taken to assume that the right\nstandard of living.\nto derive profit from the use of an invention is not used as a means\nB. We want to cooperate with other nations in promoting world\nof dividing markets, restricting output, or setting prices.\npeace and economic and financial stability. The United States\nIt is not enough to have an anti-monopoly policy. We must have\ncannot be an island of stability in a sea of instability nor can\na positive program to encourage competition. We must seek out the\nworld stability be achieved without American prosperity and\nelements in our economy that are necessary to its survival and organize\ncooperation.\nour institutions accordingly.\nC. We want to promote the free international movement of capi-\nLABOR, MANAGEMENT, AND WAGES\ntal as a means of channeling American investment into the\nuses which are most productive to us.\nJust as the new conception of close, intelligent relations between\nmanagement and labor was important in achieving the miracle of war\nThis is neither a \"give-away\" policy nor a \"beggar-my-neighbor\"\nproduction, SO can it be important in a comparable miracle of peace-\npolicy. It is a policy for realizing the greatest advantages of mutually\ntime production.\nbeneficial exchange and cooperation.\nThe Labor Charter, sponsored by the Chamber of Commerce of the\nIt is equally clear that there are a number of measures which must\nUnited States, the American Federation of Labor, and the Congress\nbe taken to achieve the foregoing objectives.\nof Industrial Organizations, is an indication of the new spirit of team-\n1. Renewal of the Trade Agreements Act, the 50 percent re-\nwork that was born of the war and which it is SO vital to preserve as\nduction limit to apply to the rates existing in 1945. Ratifi-\none of our postwar national assets.\ncation of the Bretton Woods Agreement establishing an\nAmerican business is coming to realize that a high wage policy is\nInternational Bank for Reconstruction and Development,\nin the long-run interest of everyone because it helps create the markets\nand an International Stabilization Fund.\nnecessary to move goods from farm and factory-to store shelves-\n2. Strengthening of the Export-Import Bank to allow it a\nto the homes of America. And these high wages are necessary to\nbroader sphere of operation.\nachievement of the high standard of living which we can and must\n3. Repeal of legislation prohibiting loans to governments in\nattain. Labor will continue to bargain for higher wages and man-\ndefault of their obligations to the United States.\nagement is recognizing the right of collective bargaining as a proper\npart of an economic democracy. This bargaining is most effective\n63\n62\nCongress has taken favorable action on one of these measures. I sin-\nPresent legislation provides for maintaining supports under farm\ncerely hope it will approve all of them in the near future.\nI urge also a prompt clearing-up of all foreign government debt to\nprices. How successful these supports are will depend on general\nbusiness conditions and the maintenance of purchasing power. It\nthe United States on a realistic basis. It is most important that we do\nnot enter into the postwar period with the channels of international\nmay well be that price supports might tend to encourage the produc-\ntion of some farm products at a time when this should no longer be\ntrade blocked by controversies over obligations growing out of either\nencouraged. At the same time, price supports might discourage mar-\nWorld War I or II.\nketing of agriculture produce if prices were out of line with consum-\nSOCIAL SECURITY\ners' incomes.\nNevertheless it is absolutely essential that the Government make\nThe United States is a country of enormous physical resources.\ngood on its commitments given to farmers during wartime to encour-\nYet its greatest asset-the ultimate source of all its vast wealth-is\nage production. Justice Byrnes stated in his report of April 1, 1945:\npeople. Unless we take proper measures to give every child the right\nstart in life-through education and adequate medical facilities-we\n\"Situations may arise\nin which it would ultimately\nare guilty of wanton waste. Unless we guard the grown individual\ncost the Government less, and be to the long-time interest\nagainst the full shock of the inevitable dislocations of our highly\nof the producers, to permit the prices to decline below the\nmechanized civilization, we are unnecessarily callous.\nauthorized support level, and make up the difference with\nIt is most desirable that the States play their part in providing\ndirect Government payments.\"\nprotection for their own citizens. Because concerted action of this\nI urge that this idea be given most thorough study. The main-\nnature takes time, it is not too early to consider the general structure\ntenance of prices under the present system is in effect a payment which\nof a more adequate social security system.\nthe government requires the consumer to make to the farmer to take\nWe need to consider broadening the coverage of unemployment\ncare of a price situation that would put the farmer at a disadvantage\ncompensation; old-age and survivors' insurance; the provision of sick-\nwith the rest of the population. However, if the Government makes\nness and disability benefits; provision of better medical care; the\nthis payment direct, it has the advantage of permitting the consumer\ninstitution of more adequate grants-in-aid to the States for hospitals\nto get more for his money, thus encouraging increased consumption.\nand health centers; and better equalization of educational\nIt allows farm prices to reach their natural level and thus puts the\nopportunities.\nfarmer in a better position to compete in the foreign market. And\nSocial Security is vital not merely as a humanitarian but as an\nthe surplus payments can be SO adjusted that the farmer can be steered\neconomic policy. Adequate protection against the major hazards of\naway from those crops which are not profitable to produce.\nmodern society is a necessary factor in maintaining mass purchasing\nI am attempting to do no more in this report than to draw attention\npower, which in turn is the basis of full employment.\nto the profound problems that will be upon us as soon as the rest of\nFARM PROGRAM\nthe world gets back into farm production. We must be prepared to\nthink and act accordingly. Businessmen must realize that the farm\nDuring the war, agricultural production has increased more than\nproblem is their problem, just as farmers must realize that unemploy-\n30 percent and at the same time, the number of people living on farms\nment in industry inevitably means hardship to them.\nhas dropped 20 percent.\nThis is a record of which to be proud but it suggests that after the\nPUBLIC WORKS AND CONSTRUCTION\nwar there will be a problem of finding markets for farm produce\nWe have a tremendous building job ahead of us. After a decade of\nor of making basic agricultural readjustments.\ndepression and five years of war there is a great accumulated demand\nThe basis of any sound prosperity for farmers must be the mainte-\nfor houses, streets and roads, community facilities and, in many indus-\nnance of our business economy at or near full employment. This is\ntries, new productive capacity. It has been estimated that if we were\nnecessary to provide a demand for farm products and to avoid a dis-\nto supply our population with adequate healthful housing in the post-\nastrous dip in prices which even the supports which the present law\nwar decade we should need 1,250,000 new nonfarm dwellings a year-\nprovides would be hard put to prevent. Conditions of full employ-\none-third more than we ever built in the best year.\nment will also be necessary to allow the excess farm population to\nThe prospect of achieving a high, stable level of total output depends\nfind productive and profitable employment in towns and cities.\nin large part upon the timing and volume of construction activity.\n64\n65\nIn the late 20's, construction employed over 2 million men per year\nThe management of a budget of this size will have a tremendous\ninfluence on the level and stability of the whole economy. Whether\non site and about an equal number in supporting industries. By 1933\nor not to manage the budget is no issue. It must be managed. But\nthis employment had fallen 60 percent.\na budget which is entirely the result of uncoordinated consideration of\nDuring the war, construction rose to an all-time high rate of $13\nbillion a year, but it has now dropped to about $4 billion. Postwar\nparticular projects and policies can have perverse effects upon the\neconomy as a whole. We need to consider and formulate a total budget\nit should rise to an annual level of at least $15 billion, if we are to\nin relation to the total economic situation. A fiscal policy developed\nfulfill our needs.\non this basis can stimulate private expenditures either by reducing\nWe need foresighted plans for construction-plans by private busi-\ntaxes or increasing public spending whenever private spending appears\nness, by local, State, and Federal Governments. These plans should\ninadequate to sustain full employment. It can raise taxes or reduce\ninclude a program of useful Federal projects. They should include\nGovernment spending whenever the level of private spending threatens\nlow-cost housing in areas which the private construction industry\ninflation. Further, each type of tax and each type of expenditure\ncannot be expected to provide. The timing and aggregate volume of\nmust be appraised in terms of economic consequences.\npublic projects should be integrated with a fiscal policy whose object\nOn the expenditure side of the budget the item most susceptible to\nis to stabilize our economy at high levels of production and employ-\nflexible planning is public works. Expenditures for most other Gov-\nment. Cooperation is needed with State and local authorities, pro-\nernment functions cannot be varied greatly. But both the aggregate\nviding them with information and helping them to time and adapt\nvolume of useful public works over long periods and the year-to-year\ntheir programs to the total economic picture. Facts on population\ntiming may be adjusted over a considerable range without sacrifice of\ngrowth and movements, vacancies, costs, prices and other factors\nefficiency or utility.\ninfluencing the construction market should be made available by the\nAppropriate use of budgetary policy for economic stabilization will\nGovernment to the construction industry and the public generally.\nrequire improvement of existing techniques for fiscal planning. The\nThe Government can make a great contribution in promoting the\nAdministration must be prepared to submit a government budget\nscience of city planning, efficient construction methods, and the appli-\nframed and analyzed in relation to the total national budget; the\ncation of modern architecture to the small home.\nCongress must be equipped to consider and, if necessary, revise the\nThe construction industry appears to have lagged behind\nbudget on the same basis. The Full Employment Bill, which I have\nAmerican business as a whole in technological advances\nendorsed in principle, establishes a mechanism for discharging this\nand in progressively reducing the cost of its product to the\nnecessary function of government-budgetary planning-in a way\npublic, thus increasing markets. There is a great need\nwhich will help fulfill the necessary responsibility of government, full\nfor a thorough examination of this important area in our\nemployment.\neconomy, especially with relation to restrictive practices,\nwhether they apply to materials, labor, or financing. If\nways can be found to free up this great industry the result-\ning benefits to the housing standards of the individual and\nto the stability of our whole economy would be incal-\nculable.\nFISCAL POLICY\nThe postwar Federal budget will be large. It is reasonable to expect\nthat the Government will be spending, on the average, about $25 billion\na year, about three times the prewar budget. Tax receipts will be far\nlarger than ever before. The legacy of the war-in debt, obligations\nto veterans, and maintenance needs of the armed forces-accounts for\nmost of the increase. Also, we shall want to enjoy some of our in-\ncreased national income:in the form of increased public services.\n67\n66\nThe informal discussions of the Board have provided an invaluable\nmeans through which I have been able to obtain the frank opinion and\njudgment of individual members and the advice and recommenda-\ntions of the group on a wide range of detailed problems. In addition,\nOPERATIONS OF THE ADVISORY BOARD\nthe Board has formulated two major statements of objectives and\nprinciples. The first deals with objectives for the postwar economy\nof the Nation; the second sets forth a series of reconversion prin-\nDuring the quarter covered by this report, the Advisory Board,\ncreated under the act establishing this Office, has continued its regular\nciples calculated to facilitate a smooth transition to a prosperous post-\nwar economy. The two statements are here summarized:\nsemimonthly meetings. It has been my pleasure to attend and par-\nticipate in discussions at all of the meetings of the Board. My depu-\n1. Military victory over Japan and Germany will prove empty\nties, general counsel, and staff members have joined in these meetings\nof meaning if we fail in rebuilding a peacetime economy far\nas well. In the intervals between meetings of the Board, and espe-\nstronger and more productive than before the war. The mag-\ncially during the critical period immediately before and after VE-\nnificent cooperation of industry, labor, and farmers on the\nday, I have had frequent informal conferences with the Board's\nhome front has resulted in unprecedentedly high levels of\nChairman, O. Max Gardner, and with individual members.\nwartime production, income and employment. National sol-\nThe agenda of Advisory Board meetings during this quarter have\nvency and a stable peace require the maintenance of those high\nbeen devoted to discussion of the key problems of war mobilization\nlevels into the peacetime economy. Pursuant to that objective,\nand reconversion with which this Office has been currently dealing.\nthe following five convictions constitute our declaration of\nRecent deliberations of the Board have dealt intensively with the\nfaith in the future of the Nation\nchanges in administrative policy and operations occasioned by the\nshift from a two-front to a one-front war. Thus, for example, the\nThat full employment can and will be attained here in the\nagenda of two meetings of the Board were given over to consideration\nUnited States.\nof cut-backs in munitions procurement schedules and to requirements\nThat it can be achieved under our system of competitive free\nof the civilian economy during the reconversion period.\nenterprise. In the conversion period, bold ventures by all our\nPlans for the continuation and modification of wage,\ncitizens are necessary and the role of Government must be posi-\nprice, manpower, and materials controls and the inter-\ntive. This does not call for any compromise with traditional\nrelationship between these various controls have occu-\nAmerican institutions and relations of Government, labor, busi-\npied the attention of the Board on the agenda of two other\nness, and agriculture.\nmeetings. At a meeting early in the past quarter, the\nBoard considered the relation between revision of the\nThat the full use of our resources of materials and manpower\nFederal tax structure and the expansion of the civilian\ncan produce a national income which, properly distributed,\neconomy in the reconversion and postwar periods.\nwill bring about sound and stable business and industrial ac-\nOther subjects which have been explored by the Board include\ntivity, higher real wages, better health, housing, and education\nreports on current world food problems and the allocation of food\nfor all.\nreserves and output, the disposal of surplus property abroad and\nThat the veterans returning when war is finally at an end\nunemployment compensation. The Board has made initial inquiries\nwill then find a respected and secured place in the economic life\ninto the many problems relevant to the attainment and maintenance of\nof the Nation.\nhigh levels of employment, production, and income in the reconversion\nThat this Nation can and will in that way help the needy\nand postwar periods.\nOfficials of the armed services and of civilian agencies of Govern-\nin devastated lands abroad to alleviate their misery and enable\nment have met with the Advisory Board to discuss the agenda sub-\nthem again to provide for themselves.\njects enumerated above. Deputies and staff aids from my Office, while\n2. Reconversion plans, while assuring all-out production for the\nparticipating in these discussions, have also provided the Board with\ndefeat of Japan, must anticipate the impact on the domestic\ntechnical information and judgment on the subjects considered.\neconomy which will be felt when that production is terminated.\n68\n69\nThe following principles are suggested as useful guides for\nreconversion planning between VE- and VJ-days:\nThe full supply of the requirements of the armed services\nneeded to defeat Japan is of first importance and not suscepti-\nble of compromise; the prudent use of our resources calls for\ncareful determination of military requirements and their close\nscrutiny with reference to the needs of the civilian economy,\nGOVERNMENT REORGANIZATION\nthe minimum requirements of which are essential to continued\nwar production.\nTwo paragraphs in Title I of the War Mobilization and Recon-\nThe production of civilian goods and services must be built\nversion Act deal with the importance of government reorganization.\nup as rapidly as possible; the holding back of the pressures of\nSection 101 (c) (5) charges the Director to\ninflation while carrying the load of continued war production\n\"cause studies and reports to be made for him by the\nclearly demands a maximum effort to increase civilian produc-\nvarious executive agencies which will enable him to deter-\ntion; should military requirements continue at a high rate it\nmine the need for simplification, consolidation, or elimi-\nwould be preferable to increase total national production rather\nnation of such executive agencies as have been established\nthan accept further decreases or even moderate increases in\nfor the purpose of the war emergency, for the termination\ncivilian goods and services; the higher the volume of civilian\nor establishment by statute, of executive agencies which\nproduction at the point when Japan falls the greater will be\nexist under Executive Order only\nthe opportunity to complete the reconversion without an\nPursuant to this provision of law, I have requested the Bureau of\neconomic upset.\nGovernment expenditures must be brought more closely into\nthe Budget to carry out a comprehensive survey of the war agencies\nline with Government receipts; our aim being a vigorous high\nSO that I may submit to the President and the Congress appropriate\nrecommendation.\nlevel peacetime economy in which total production substantially\nThe President has requested the Congress to authorize him to con-\nequals present war and civilian production combined and in\nsolidate agencies, transfer and redistribute functions and generally\nwhich money income constantly increases in relation to costs\nreorganize the Executive Branch of the Government. Such power,\nand prices-a smooth conversion to that type of peacetime\nhowever, would not be absolute: under the President's recommenda-\neconomy requires reduction of Government expenditures as\ntion, action taken by him would be subject to suspension by a con-\nrapidly as possible by holding down the prices of war materials\ncurrent resolution of the Congress. I heartily recommend the\nand reducing war production as rapidly as the real strategic\nenactment of this legislation requested by the President.\nrequirements permit; during the reconversion period tax\nWhen the Bureau of the Budget has completed its survey, I shall\nrevenues must remain at high levels to reduce the gap between\nmake further recommendations to the President and the Congress.\nGovernment expenditures and receipts.\nSection 101 (c) (6) required the Director to\nThe Advisory Board's Chairman has appointed a committee con-\n\"institute a specific study, for submission to the President\nsisting of Eric Johnston as Chairman, Mrs. Anna M. Rosenberg, Philip\nand the Congress, of the present functions of the various\nMurray, and Albert S. Goss to formulate and expedite the study of the\nexecutive agencies in the field of manpower, and develop\nguaranteed annual wage, in accordance with the request of the late\na program for reorganizing and consolidating such\nPresident Roosevelt that the Advisory Board undertake such an\nagencies to the fullest extent practical\ninquiry. The Committee has developed the broad outlines of the study\nand a staff is being organized to conduct the necessary research and\nI have instituted such a study, and it is nearly complete. However,\nfact-gathering.\nbefore transmitting recommendations to the President and the Con-\ngress, I desire to confer with the newly designated Secretary of Labor\nupon his accession to office and get the benefit of his advice and counsel.\n70\n71"
}