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If businessmen and farmers plan their investment programs with the realization that a steadily expanding economy will provide markets for more food and more industrial products, these regularized investment programs in themselves will contribute to a high and stable rate of growth.

If business and labor plan their price and wage policies to encourage the balanced expansion of production and consumption, of jobs and markets, then our economic growth can be steady.

And Government, because it is the most powerful single force in the economy, has the clearest responsibility to plan its operations so that they will make the greatest contribution in the long run to economic stability and growth. Under current world conditions, this problem of Government is complicated. Government must now give prime consideration to our national security, which is even more vital than absolute economic stability or a uniform rate of economic growth.

The more effectively all of these forces within the American economy work together in this kind of planning for the future, the greater the likelihood that economic fluctuations will be ironed out and a steadier rate of growth maintained. The less effectively this is done, for example if important groups in the economy assume that the traditional business cycle is inevitable and conform their actions to this belief, the more difficult it will be to maintain steady growth.

It is noteworthy that efforts to encourage this kind of action have met with increasing response in recent months. Not only governmental agencies, but many planning organizations supported by business, and many business organizations themselves, are now following this same approach with hearty enthusiasm. They are studying future markets and how to serve them. This is one of the most concrete signs of progress. But it is only the first taste of what may be accomplished as this process continues in the American tradition.

(4) Full employment requires responsible Government as well as respon

sible private enterprise Private enterprise, under our free system, bears the major responsibility for full employment. This report has already set forth the basic features of that responsibility, and how much its exercise is contributing to the well-being of the American people. The role of responsible Government, while vital, is in a sense supplemental.

It is the duty of Government to help improve the environment in which private enterprise works. In normal times, this means the minimum use of direct control over materials, prices, and wages. As soon as we safely can, in view of the world situation and our own increasing productive ability, we should suspend operation of these controls. To aid in maintaining stability in the longer run, the Government should place principal reliance upon the careful use of fiscal and credit policy, along with the wellestablished regulatory and protective programs.

But in addition to encouraging an environment favorable to enterprise and exerting a stabilizing influence, responsible Government has an even more general task. This is to enable the people to develop together those resources which in their very nature cannot be developed otherwise. Public spending, as determined by the Congress and other legislative bodies throughout the Nation, represents a continuing determination by the people as to what part of their total productive power they wish to devote to the things which they must do together instead of doing separately.

While there should be true economy in public spending no less than in private spending, it is obviously superficial to regard public spending as unworthy by definition. Throughout our history, the American people have recognized that their public programs represent a high order of national priority, and are undertaken for this very reason. These services under current conditions include defense, foreign aid, benefits to veterans, social security, public education, and the like. And they include longterm resource developmental programs, aids to agriculture, aids to housing, and other efforts which, while clearly desirable in themselves, are also necessary to improve and to support the functioning of the free enterprise system.

All of these programs, like those of private industry, should be geared primarily to the long-run needs of the Nation. The pace and timing, how

, ever, are partly dependent upon changing conditions. For example, the speed-up of our defense efforts has caused us to cut back some other programs to avoid undue strain. If and when we can relax our defense efforts, we shall be able to push ahead with the other programs which serve the long-term peaceful needs of the people.

Since public spending diverts resources from private use, except in times of depression, the burden of this diversion is borne by the people whether or not taxes are imposed. But taxation serves to impose the burden more equitably, and in a manner least detrimental to the whole economy. For otherwise, particularly when the economy is running at very high levels, spending in excess of taxation aggravates inflation—the most unfair and damaging way of imposing the burden. Under present conditions of very high defense spending, we have made a good record of keeping close to a balanced budget, although we should have done even better. In times of very high prosperity but a lower level of defense spending, we should accumulate a budget surplus for the independently desirable purpose of reducing the large national debt.

If we should run into periods of declining economic activity, on the other hand, we would expect some decline in revenues. But this should not frighten us into cutting back those programs which the Nation needs, and which in fact would help to cushion the decline and to restore full employment. If a substantial part of our productive resources were lying idle because private enterprise could not utilize them, it would do good rather than harm to utilize them through public action even though this occasioned some deficit.

(5) Full employment can be maintained without inflation

It is not true that the goal of maintaining full employment must be sacrificed in order to avoid inflation. The postwar inflation was not a continuing process; most of it came in two major spurts. The first followed shortly after the war, when controls were prematurely abandoned before supply could come into balance with demand. The second took place in late 1950 and early 1951, under the impact of the Korean outbreak followed by the large-scale Chinese intervention.

The fact that these two inflationary spurts came under the peculiar conditions of an immediately postwar period or the first stages of preparation for defense against the possibility of future war is no reason to neglect the lessons of this experience. We live in a world where peace is neither complete nor certain, and where changes in the international situation could rapidly occur. It was a mistake to abandon controls too rapidly in 1946, and we should not abandon them too rapidly now, although the outlook for stability is better now than it was at that time. Similarly, we would have been much better off if price and wage controls could have been imposed more quickly after the Korean outbreak and especially after the Chinese intervention in late 1950, instead of early in 1951. But we were handicapped not only by the inadequacy of legislative authorization, but also by the absence of a standby organization ready to cope with the first wave of inflation. The sharp price increases between the Chinese attack and early 1951 were a dramatic illustration of the importance of adequate economic preparedness in a cold war world—a lesson we should not forget.

Nonetheless, this peculiar problem of dealing with near-war situations should not be confused with the more general and enduring problem of maintaining full employment without inflation. Since early 1951, despite the pressure of the defense program, we have achieved a reasonably stable price level while enjoying full employment, and the prospect is that we will continue to do so this year. This does not mean that we have thus sar learned fully how to reconcile enduring full employment with adequate price stability. Much more work needs to be done in this direction, in the field of fiscal policy, monetary and credit policy, and other public policies which are not limited to use in emergency periods. Even more important, we must learn more about the value of individual and group self-restraints, about the general economy and its interrelationships, and about those private price and wage policies which may contribute most to a stable and growing economy.

But we should guard against the dangerous solution of trying to avoid the problem of preventing inflation by abandoning the pursuit of full employment. Stable prices do not outweigh the disadvantages of a sluggish or static economy; and downward-spiralling prices are certainly no blessing in a declining economy.

While striving vigorously to avoid inflationary movements, we must realize that our primary purpose is full production and employment, and the

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fair distribution of this abundance among all people in all groups. Price policy, like all other economic policy, should be constantly tested against these objectives; it should not be allowed to obscure them.

These comments apply to monetary policy. That policy can contribute to economic stability. For example, during the inflationary period, as part of a comprehensive program to combat inflation, I made recommendations to the Congress which were not accepted to restrain inflationary bank credit through changes in reserve requirements. More recently, some changes in monetary policy have occurred, affecting bank credit, the bond market, and interest rates. This is one weapon in the anti-inflation armory, but price stability since early 1951 has been the product of many economic forces and Government programs in the field of taxation, credit restraints, and material and price-wage controls, and has resulted largely from increased production.

Monetary policy is a tool which must be used with great wisdom and skill. It is the function of monetary policy to control the expansion of credit, so that the total money supply will be commensurate with the needs of the economy, avoiding on the one hand excessive credit creation which might lead to speculative abuses, and avoiding on the other hand contractions in the money supply which would interfere with production, employment, and investment. A money supply which is in balance with the level of economic activity, adequate credit at reasonable rates of interest, and, above all, the distribution of the money supply on a fair and workable basis among individuals and groups have been essential to our growing prosperity.

Just as a money supply which is redundant can have unfortunate inflationary consequences, so an inadequate supply of money, or of credit, can push backward the businessman who must borrow to operate, the farmer who traditionally depends upon credit to produce and market his crops, the home owner who wants a decent house that he can afford to live in, and the worker who is not willing to accept lower production and more unemployment in exchange for lower prices.

We must and can find ways to price stability which do not threaten to bring on the very hardships they are intended to prevent. Excessively tight money, which means higher cost of capital, may reduce prices, but it does so by depressing productive efforts. The sound method to stabilize prices is not to reduce incomes, but to expand productive effort and the output of goods. (6) Full employment requires that group interests be reconciled with the

general interest Big business, big labor, and big farm organizations are permanent parts of the American economy. Few of us would change this if we could, for much of the economy's dynamism and productiveness depends upon this very circumstance. Nonetheless, thoughtful and continuing efforts are required to keep an economy of large groups from damaging conflicts of interest.

There is the problem, first, of maintaining fair and peaceful bargaining among the powerfully organized private groups. The Government can help in this by protecting the development and encouraging the maintenance of balanced bargaining power.

Beyond this, however, there is the problem of reconciling the interest of particular groups with the general interest. The net bargains of the organized groups—as is sometimes the case, for example, with a “price-wage spiral”-do not always add up to the public interest. Nor do they protect the broad interest of weakly organized consumers.

Government intervention into such situations should proceed cautiously, and be more inclined to wield the instruments of persuasion than those of authority. Above all, the effort-in both public and private quarters, should be to set the particular problem in an economy-wide framework. It is essential, for instance, that the best available thinking of farmers and farm experts be brought to bear on the farm policy problem. But this is not enough; the needs of consumers, of industry, of national security—to name but a few—must also be weighed carefully in the process of developing a farm program. This, indeed, is the theme of the Employment Act, and why utilization of its machinery is essential to the treatment of economic matters affecting the whole Nation.

Finally, there is the fundamental problem of reconciling the effective operation of an economy of large groups with the maintenance of effective competition. For competition is the shield of the often inarticulate consumer; and by opening doors to new ideas, new enterprises, and new successes, it is a prime source of economic progress.

The Government has a long record of concern with this problem. That concern must not be allowed to flag; the cutting edge of competitive markets must not be allowed to dull. At the same time, there is no need to stimulate those speculative excesses of competition which stampede markets into violent upward and downward fluctuations. Moreover, our action in this sphere must not be the creature of stereotype. We must be quick to recognize and encourage new forms of competition, so long as they work to the advantage of the public.

(7) Full employment does not depend upon war

Some people say that full employment is possible only during war, or only while meeting the shortages caused by war, or only while building defenses to fight another war if it should come. This idea is fallacious, although it may have some utility if it warns us to prepare for the new economic problems of a more peaceful world.

The two depressions which we suffered after World War I came when the country had no substantial economic policies to prevent them, and no commitment to a policy of full employment.

It is true that the economic recovery between 1933 and the outbreak of World War II in 1939, while very substantial, was not complete. This

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