proves how difficult it is to recover completely from a great depression once it has been allowed to occur; it does not prove that prosperity cannot be sustained once it is achieved. Moreover, the task between 1933 and 1939 was to achieve recovery and reform at the same time, which is a peculiarly difficult undertaking which we should never again be faced with in the same degree. The real test of the economic reforms then enacted came, not during the period when they were first put into effect, but in the period following World War II. It is against this later history that we must test the adequacy of these measures to avoid depression and maintain prosperity without war.

After World War II, the level of defense spending was reduced by an annual rate of well over a hundred billion dollars, expressed in the price level of today. While there were important war-created backlogs, the support for the very high levels of economic activity which prevailed from 1946 to mid-1950 was increasingly found in the satisfaction of the peacetime needs of our industries and our people. I have already cited the high significance of the quick rebound of the economy from the minor fluctuation of 1949, a rebound which was fully manifest before the new defense program was foreseeable. By mid-1950, only a relatively small portion of our economic activity could be attributed to the shortages created during World War II, and out of our total annual output of about 310 billion dollars (measured in the prices of today) only about 20 billion dollars, or less than 7 percent, was being devoted to national defense and related international purposes. This was prosperity without war.

Since our response to the communist aggression in mid-1950, our prosperity has of course been accompanied and stimulated by high and rising defense spending. But it is erroneous to say that this spending has been the main prop for our economy, because taxes have been correspondingly increased so that the defense program thus far has been on a pay-as-we-go basis and consequently has not added the amount of inflationary stimulus which would otherwise have been the case. In this respect, the situation. is very different from that during World War II, when only about half the cost of the war was being paid out of taxes. It should also be noted that defense spending draws resources away from production for civilian use; and in this sense, the increase in civilian supplies since mid-1950 has not been because of defense spending but despite it. We have not only been paying as we go for the defense program measured by taxes; we have also been paying for it as we go measured by the expansion of production.

Despite this vastly increased production, which has exceeded the expansion of the defense program, full employment has been maintained during recent months when a decreasing portion of our total national output has gone to defense spending and an increasing portion has been supported by civilian demand despite very high taxation. This trend is now continuing and, according to the accompanying appraisal by the Council of Economic

Advisers, it is likely to continue throughout 1953. Here we have a strong indication, once again, that prosperity need not depend upon war.

The reductions in defense spending in the years ahead, no matter how estimated, will be only a fraction of the reductions which we took in our stride after World War II. Meanwhile, we must continue to improve further our economic knowledge and understanding, and maintain and advance those policies which have stood so well the test of critical times. If we do this and only if we do this-nothing can be more certain in human affairs than that the American people will increasingly enjoy the blessings of prosperity, supported not by unfavorable world conditions but rather by the essential strength and soundness of our own economy.

The Promise Ahead

The past illustrates the wisdom of adhering to the principles which have just been outlined. The future will reward us well for so doing.

The potential for further growth and improvement in the American economy, even over the short span of the next 10 years, is challengingin production, in living standards, in correction of inequities, and in stable and more satisfying jobs. In addition, the opportunity and necessity for economic development in other countries of the free world represent a vastly important new frontier. With all of this, we need to sustain our national security lest opportunity be denied us altogether.

New frontiers of economic growth

Ten years from now, a labor force of 76 to 80 million, working more effectively with better tools but somewhat fewer hours per week, could produce annually about 475-500 billion dollars worth of goods and services-measured in today's prices. This is about 40 percent above the present level, and represents an average increase of slightly over 3 percent a year.

The consumer portion of total production could by then come to about 340-350 billion dollars. This would be about $2,000 for every man, woman, and child in the country, or about 40 percent more than each person received in 1952. Over the next 10 years, we should be able to raise the average income of all American families correspondingly.

With a gross national product of about 475-500 billion dollars, well over 40 billion dollars could be spent for new nonfarm plant and equipment; 15 billion or better for new housing; more than 15 billion on schools, highways, hospitals, resources development projects, and other public works. Investment in American agriculture could be substantially larger than the 1952 level of 5.5 billion dollars.

Growth in certain industries, such as plastics, man-made fibers, and electronics, undoubtedly will continue to far outrun average growth. Machinery and electrical lines will have to expand steadily, along with the basic

services of transport and electric power. Better housing, more and better automobiles, and a whole range of new or improved fixtures for the home, are well within reach over the next decade. A steady improvement in the American diet will take place.

We shall run into some difficulties. Certain raw materials, especially metals, may become scarcer and more costly. The base of natural resources will wear thinner. Consumption expenditures will have to expand persistently, to provide adequate markets for business.

But with intelligent and timely adjustment of private and public policies, to serve a fully employed and active economy, we can during the next decade reach the goals set forth above.

New frontiers of economic justice

The promise ahead is more than reaching certain levels of employment, production, and income. It also involves the further improved distribution of the benefits of economic growth, and special care for those who are less fortunately situated.

Despite great progress in raising income levels and distributing these increases in a manner favorable to low and middle income groups, there are still many American families whose incomes are inadequate. In 1951, one-quarter of all families had less than $2,000 of spendable money income; 40 percent had less than $3,000. Some of these families have home-produced fuel and food which raise living standards. Some are aged couples, or other families with substantial assets to draw on; some are young single persons whose needs are less. But the picture does not justify complacency. The median liquid asset holding, excluding currency, for the under-$2,000 income group is less than $10; and about one-third have debts.

The problem of low income families is no longer caused by general unemployment, or generally substandard wages, or very low prices for farm products. The problem centers in families with special disabilities: racial minority families, broken families, families with sickness, families where there is lack of sufficient training and education for the principal wage earner, and farm families on substandard farms. Unskilled and service workers had an average family income of only $2,320 in 1951. We must press forward to reduce these disabilities, and to care for them when they are unavoidable.

It is feasible within a decade to raise all the families whose incomes are now below $4,000 annually to that level (measured in present-day prices), plus providing all the new families with this much income, in a full employment economy. We should set this as a target for a basic American standard of living for all within a decade. In fact, this would require less than half the total gain in personal incomes that we can achieve, leaving more than half for raising still further the incomes of families already above this basic standard.

In the mid-1930's, it was no exaggeration to speak of one-third of a Nation ill-fed, ill-clad, and ill-housed. Since then, the one-third has been reduced to one-fifth, or maybe less, on the old standards.

But as our power to produce increases, our standards and goals rightly increase also. The job ahead of us remains large. About one-fourth of our nonfarm dwelling units and a much higher percentage of our farm housing are substandard. Many families still suffer from malnutrition. The amounts spent in recent years for schools and hospitals have been far less, as a percent of total national production, than was spent in 1939. Living conditions in large sections of our cities are distressing, calling for vast slum clearance and redevelopment effort.

Despite much progress in social security since the real beginning of the program in 1935, important gaps remain. Farmers are not covered by old-age insurance. Some 5 million wage and salary workers are still outside the unemployment insurance program. Welfare assistance is not adequate to meet the requirements of many disabled people, uninsured old people, and their dependents. About half of our families find difficulty in meeting the cost of essential medical care.

Standards of adequacy change with the times. What is enough in a 250-billion-dollar economy is not enough in a 350-billion-dollar economy, and will be still less than enough in a 400- or 500-billion-dollar economy. For example, old-age insurance has not only been insufficiently adjusted for changes in the price level; it has not been brought into line with the fact that the economy of today and tomorrow can afford a higher standard of living among the old than the economy of yesterday. In our longrange programs, we should provide for growth as the whole economy grows. This will have economic as well as social benefits. For if the millions of our people who are beyond working age should be unable to join in the demand for more and better products, the total market would not be adequate to support our expanding productive power. What we do in these fields should not be regarded as measures necessary to save a weak economy from disaster. Instead, we should scale these efforts to what a strong and expanding economy can and should accomplish.

New frontiers of world development

The international responsibilities of the United States are carried out in part through its political and moral influence, and in part through the use of its vast economic strength. The deployment of much of its economic force abroad, in the form of military and economic aid, may appear to be at the expense of lifting living standards at home.

If there be any conflict between these two purposes, it does not permit the choice of one course to the exclusion of the other. Should the United States reduce sharply or prematurely the military and economic aid which is doing so much to strengthen the free world, this country might be forced to abandon the domestic gains which it plans for the future. For if commu

nism should gain abroad, we would have to become an armed fortress at terrific cost. The prerequisite of a free, strong, and prosperous America is full participation in the effort to create strength and prosperity throughout the free world.

In short, the free world cannot be permanently peaceful until the free world makes further progress toward full and more productive employment-toward release from the burden of the underemployment of its potential resources. Prosperity, like peace, is indivisible, and in our pursuit of a full employment policy at home we must never lose sight of this supremely important truth.

Hence our concern with the economic development of other free countries. This is especially true of the economically less developed countries and areas of the free world, where the provision of capital equipment and managerial and labor skills is a prerequisite to speeded up economic growth and improved living standards. As the momentum of industrial and agricultural growth gathers in these less developed areas, incomes will increase, and they will buy and sell more in other markets. As the level of world trade increases, the benefits to us will involve increased supplies of many raw materials, including critically needed strategic metals. We must import to live; and we must import more if we want to export at high and rising levels. We must work with other free nations to remove trade restrictions, and to make more effective the sound policy of reciprocal trade. We must not reduce aid so quickly as to undermine the improving foundations for trade.

America is now confronted with the challenge to make its fair contribution toward world peace and security. Happy will be the day when we can rise to the nobler challenge of participating more fully in the advancement of world prosperity. This may be our most significant contribution to human betterment in the second half of the twentieth century.

HARRY S. TRUMAN

JANUARY 14, 1953.

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