To the extent they were not taken, in private action or in legislation, the inflation was not sufficiently arrested.

Because inflation was not sufficiently arrested, the postwar economy encountered its first recessionary test in 1949. When this occurred, the various reports under the Employment Act measurably helped the Government and the business community to understand that episode and to meet it successfully. In much the same fashion, the Council of Economic Advisers, in its current Economic Review, the Joint Economic Committee, and other Government agencies are now laying foundations for successful transition to a more civilian-oriented economy in the years ahead.

And finally, there has been a strengthening in practice of the Employment Act's third great purpose, that of positive, continuing maintenance of an economy operating at maximum-which means growing-levels of employment, production, and purchasing power. In some ways this has been the most significant accomplishment under the Act, sometimes lost sight of by those who believe that the Act has not yet been tested because we have not had a depression to challenge its effectiveness.

The periodic reports under the Employment Act have helped to express in a practical way the possibility and promise of an expanding economy. In 1948, when there was some sentiment that employment and production were at abnormally high levels and that there must be a serious downturn before progress could be resumed, the reports under the Act pointed out that an economy like ours must move forward to remain healthy. By mid-1950, despite the slight recession of 1949, and before the Korean outbreak led to increasing defense outlays, the economy was registering levels of production and employment higher than in the boom year 1948. Immediately after the Korean outbreak, when there was some doubt as to whether we could greatly accelerate our security efforts without imperiling the civilian economy or without great and prolonged shortages of civilian goods, the work under the Employment Act was fundamental to the program of over-all economic expansion which the Government adopted. What has happened since is in some respects even more striking than what happened during World War II. Starting with productive resources not nearly so slack as they were in 1939, and without the extreme pressures of total war, our national output has risen from about 285 billion dollars in 1948 (the peak before Korea) to an annual rate in excess of 350 billion dollars at the end of 1952, both measured in 1952 prices. The difference between these two figures is far greater than the increase in total security efforts, and consequently per capita civilian supplies and per capita incomes after taxes and adjusted for price change are higher now than in 1948. This is a remarkable record. It reflects the practical application of the philosophy of the Employment Act, and it opens up limitless prospects for the years ahead if the same approach is maintained and further improved.

CHART 4

TOTAL NATIONAL OUTPUT

In spite of the increase in expenditures for national security, expenditures for civilian purposes are higher now than in 1948.

While the details of action must change with the times, I believe it worthwhile now to set forth a few economic principles for the future-principles arising out of experience, and already justified by what their application. has achieved.

Basic Economic Principles for the Future

(1) Full employment must be a constant objective of policy

Under the Employment Act, full employment means more than jobs. It means full utilization of our natural resources, our technology and science, our farins and factories, our business brains, and our labor skills.

The concept of full employment values ends as well as means; it values leisure as well as work; it values self-development as well as dedication to a common purpose; it values individual initiative as well as group cooperation. In the broadest sense, full employment means maximum opportunity under the American system of responsible freedom.

And it is a concept which must grow as our capacities grow. Full employment tomorrow is something different from full employment today. The growth of opportunity, with a growing population and an expanding technology, requires a constantly expanding economy. This is needed to abolish poverty and to remove insecurity from substantial portions of our population. It offers the prospect of transforming class or group conflict into cooperation and mutual trust, because the achievement of more for all reduces the struggle of some to get more at the expense of others. Although our dedication to full employment has made great strides within recent memory, we cannot afford to be complacent. We cannot assume that henceforth what needs to be done to promote the maintenance of full employment will be done. None of us-regardless of party—should let the idea of full employment degenerate into a slogan bandied about for narrow political advantage. Like freedom, it needs to be guarded zealously and translated into action on a continuing basis. Moreover, if we fail in this, our very freedom may be placed in jeopardy.

The enemies of our free system say that, in the long run, we cannot succeed in this task. They point to history and to the false conclusions which Marx drew from the defects of nineteenth century industrialism. They point also to the calamity of the great depression of the early thirties. They argue that general economic insecurity must grow remorselessly in our society, leading ultimately to collapse and revolution. These enemics say that time and history are on their side. But history and time are on our side if we use our opportunities wisely.

This does not mean that we know enough to avoid economic fluctuations completely, or that we would want to even if we could. In a dynamic, free economy, the consumer is sovereign. Business is always seeking to anticipate the nature and intensity of consumer demand. In response to anticipated or actual changes, the economy is marked by a ceaseless shifting of resources from areas of lesser to areas of greater demand; existing industries are growing or contracting; new industries and products make their appearance, requiring new skills; prices and employment are being accommodated to the ebb and flow of demand; investment decisions are adjusted to changing conditions.

This process requires the flexibility which is so characteristic of our economy. Some errors of anticipation are inevitable. The expansion of capacity may appear temporarily excessive, inventories may have been overbought, and waves of excessive optimism and pessimism may appear in the economy. These factors must lead to some fluctuations in the general level of business. This is the price we pay for a dynamic economy, and it it is not too high for what we gain.

But while some economic fluctuations may remain necessary or even desirable, it does not follow that we should not try our best to maintain full employment, or that we should wait until small recessions begin to spiral before seeking to reverse their course or to prevent them from growing into large depressions. Such a passive attitude is fraught with danger. For all experience has taught us that, when the economy starts to roll down hill, it becomes progressively more difficult to check the decline. It is far easier, and a far more rewarding task, to maintain the momentum of a growing economy than to reverse a downward spiral. Thus the essence of sound economic policy is constant vigilance and prompt action. The Employment Act is not an antidepression measure; it is a pro-prosperity measure. It does not call for quiescence until hard times; it calls for daily vigor, in the American tradition, to make tomorrow even better than today. (2) Full employment requires the maintenance of economic balance

Expansion is vital, because our population is growing, the number of those seeking jobs is growing, and their individual productivity is growing. But expansion cannot continue smoothly unless it is based on a sound and fair distribution of the increasing product. Our economy is built upon mass markets. Unless each important sector receives a workable share of the expanding output, the expansion will come to an end because the market demand will be lacking. Growing capacity to produce requires growing ability to buy.

I have already cited the great gains we have made in bringing about better balance in our economy during the past quarter century. But while our economy now seems to be in fairly good balance, there are signs of some trends in the opposite direction. It is none too early to note these. While agriculture is highly prosperous, the most recent period has witnessed a relative inability of agriculture to join in the gains which other groups have registered. Even in absolute terms, there has been for a year or so an adverse trend in farm incomes. This may be looked upon with favor by those who believe that the farmer's prices have been relatively too high, or that he has received more than his fair share of the national income, during recent years. But it will not be looked upon favorably by those who know that, even at the peak, the farm population as a whole did not attain real parity of income with other major sectors of the population. Nor will it be looked upon with favor by those who realize from bitter experience that any decline in relative farm prosperity is not a good omen for the economy as a whole. This is a problem of economic balance which requires active attention and far-reaching efforts.

A second area, in which we should strive for even better economic balance, is in the wage structure. While the gains made by the strongly positioned wage earners have undoubtedly tended to lift labor standards generally, and while most of the working population has made real gains, there is now need for relatively more stress upon helping those at the bottom of the wage structure. This places a large responsibility upon public programs, not only

such programs as minimum wage laws, but also those which by developing natural resources, facilitating private industrial growth, and improving the level of education and health, raise the productivity of these types of workers.

There is also need for even better balance between the opportunities open to large and to small business, through the further encouragement of competition and the strengthening of those laws designed to prevent unfair competition and to restrain monopoly; and also through more positive programs to make the benefits of ample credit and full access to the new products of science and research and invention available to business regardless of size or financial power.

And finally, there is need to work toward even better economic balance in and among the different geographical regions of the country, through improved protection against discriminatory practices, and through Federal programs designed toward the strengthening and further equalization of opportunity for human and material development. Top priority on this list, of course, should be accorded to the broader extension of adequate health services, housing, and educational facilities, and to the further development of natural resources and industrial potentialities.

(3) Full employment requires planning ahead

While the Employment Act calls for an appraisal of recent economic trends and foreseeable future trends, it places main emphasis upon future needs and how these needs may best be satisfied. It imposes the responsibility to define what maximum levels of employment, production, and purchasing power we should seek to attain in the year or years immediately ahead. It requires also that we state the policies, both private and public, best suited to reach these goals.

Thus the Act rejects the idea that we are the victims of unchangeable economic laws, that we are powerless to do more than forecast what will happen to us under the operation of such laws. Instead, the Act correctly asserts that our economy within reasonable limits will be what we make it, and that intelligent human action will shape our future.

In accord with this faith in human progress through human endeavor, the reports under the Employment Act several years ago began to estimate what levels of employment and production should be our goals for the years ahead, taking into account the material and human resources at our disposal. These estimates were then used to analyze what kind of purchasing power, what relative flows of income to investors and consumers, to businessmen and workers and farmers, would be most conducive to the achievement of these employment and production goals.

This was primarily an effort in economic education, and not a blueprint for central planning in the manner of the totalitarian states. It was in the American tradition of planning-which means the cooperative effort to look ahead and to work together toward making the future better than the present. The idea has been that, if our private and public policies are geared to planning for economic growth, we can achieve this growth.