of both production and income without waste of public funds and in full realization of the international impact of alternative types. of farm-support policies upon foreign trade and domestic employment. Preliminary data on agriculture and spot-check reports now becoming available in the census of 1950, indicate the vital importance of the study which the committee is undertaking of the effects of various farm-price-support programs on farm families at different income levels.

5. Likewise, the President's recommendation for the establishment of a Columbia Valley Administration and the authorization of the St. Lawrence seaway are proposals to which the committees in both Houses have been giving attention. Each of these proposals, if adopted, would have a substantial economic effect. Not only are progressively increasing amounts of power required to match the needs of a rapidly growing population and an expanding economy, but they are indispensable to maximum national strength. Altogether aside from the debate over public power, proposals such as these are obviously programs the authorization of which should depend upon the judgment of Congress, including such matters as if, how, and when they are to be fitted into the over-all Government program for national defense and the establishment of world peace and the extremely heavy expenditures thereby now being incurred.

6. Federal aid for education, Federal cooperation to improve local health services, and Federal grants to the States for surveys of needed school construction are all designed to increase human productivity,. improve human resources, and thereby promote business expansion. The spurt in our population since the war will increase the number of children in elementary schools by over 30 percent during the next 5 years. In many States the provision of additional facilities ought no longer to be delayed. In other areas the need for a program of Federal aid can await the final decision of Congress with respect to

revenue.

7. The expansion of social security is another policy designed to protect human capital resources and increase the productivity of our manpower. The House of Representatives has already acted favorably on this recommendation and the Finance Committee of the Senate is similarly urging favorable action, although with a few alterations in the House bill. During the past year the problem of industrial pension systems and their impact on employment and production has aroused such widespread interest that this committee has. requested the National Planning Association to undertake a comprehensive survey of private pension plans, with recommendations to be available during the next Congress.

8. With respect to rent control, both the House and the Senate have passed bills extending the present law for limited periods though areas that officially take affirmative action may thereby secure extention of rent controls for the full year. This recommendation is an illustration of the manner in which on many items the principal difference of opinion relates only to the speed with which Government. controls may properly be abandoned.

9. The foreign recovery program is part of the Nation's foreign policy. Congress has expressed its judgment by passing the substantive law which provides not only monetary aid to participating:

countries but technical aid and services to underdeveloped areas throughout the world. Such policies, implemented as they are by heavy expenditures, are bound to have a definite and substantial economic effect. These are eminently policies of the kind to which reference has been made earlier in this report; namely, policies which though they place a heavy drain on the resources of the country have been regarded as necessary and desirable because of the conviction that they will prevent economic disaster upon a world scale and promote world peace.

10. Congressional action upon the charter for an International Trade Organization is not to be expected at this session of Congress. It is advanced as a proposal which will promote world trade, a wholly desirable and necessary objective, but Congress in considering it must do so in the light of the effect of the charter itself in all its details upon the basic objective of world peace. The extent to which an International Trade Organization can be established before the peace treaties have all been written will largely affect the timing, if not the detail, of such a program.

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11. The provision of technical assistance for underdeveloped areas throughout the world, as included in the recently extended foreign recovery program, and the guaranties by the Export-Import Bank against risks involved in the investment of private capital abroad, provided in bills reported by banking and currency committees of both the Senate and the House, are designed to promote the development of foreign markets and the investment of private capital in foreign lands. Unless these markets are developed the world will lack the purchasing power necessary to sustain the expansion of facilities for production. When real peace comes and expenditures for national defense and foreign economic recovery are curtailed a vacuum will be created of most dangerous potential unless the underdeveloped areas of the world are expanded.

In order to appraise the impact here and abroad of such changes in economic assistance programs, this committee will endeavor to familiarize itself not only with the programs and policies which legislative and administrative bodies with responsibilities similar to ours are contemplating and putting into operation abroad, but with the work that is being done by the Economic and Employment Commission of the Economic and Social Council and other organs of the United Nations on "full employment" problems. The ability of the United States to sustain an intelligent foreign economic program will depend on the maintenance of a sound and active economy at home, such as was envisaged by the Employment Act of 1946.

12. Authority of the Board of Governors of the Federal Reserve System over banking reserves, its extension to FDIC insured banks, authority in the Board of Governors to regulate consumer credit and speculation on the commodity exchanges are suggestions which involve again the question of the extent and nature of central controls. The President's recommendation with respect to commodity speculation is not understood to involve any additional authority for the Federal Reserve System, but rather to amount to a redefinition and broadening of the powers of the Secretary of Agriculture under the Commodity Exchange Act. His recommendations with respect to the Federal Reserve System doubtless proceed from a realization of the fact that with a national debt of $257,000,000,000 desirable

national policy requires a close scrutiny over banking and commercial activities which could rapidly expand private debt.

COMMENT ON SUBCOMMITTEE REPORTS AND RECOMMENDATIONS

No further detail in the way of recommendations need be offered at this time inasmuch as the Joint Committee on the Economic Report during the past year, through four subcommittees, has made intensive studies of major economic problems facing the Nation, including, in addition to the price increases in steel in December 1949, most of the areas covered by the President's Economic Report. Staff studies, hearings, committee and subcommittee reports on these problems have already been published and transmitted to the Congress early this session. These reports contained specific recommendations with respect to the steel industry; monetary, credit and fiscal policy; investment; unemployment; and low-income families. These recommendations are summarized in appendix A, item VIII of this report. Many have already been embodied in bills now before the Congress, some are part of the proposals already made by the President in special messages, e. g., those on taxes and on small business.

It is significant to note the degree of unanimity of the members of the four subcommittees with respect to their reports. The Monetary, Credit, and Fiscal Policies Report was signed by four subcommittee members. Though not filing a minority statement, Representative Patman reserves judgment on some of the major recommendations. In addition, three footnote dissents were registered on specific points. The Unemployment Subcommittee Report was unanimous. The Low-Income Subcommittee Report was signed by four of the five members, Representative Rich filing minority views. The Investment Subcommittee Report, while agreed upon by all, was signed by three members, the other two members filing a supplemental statement. In view of such almost unanimous action on the part of the respective subcommittees, we feel that their recommendations merit serious consideration by the appropriate legislative committees, in compliance with section 5 of the Employment Act of 1946.

One issue considered by the Subcommittee on Monetary, Credit, and Fiscal Policies has continued to be a topic of particularly lively debate-namely, the question of the relationship between the Department of the Treasury and the Board of Governors of the Federal Reserve System, in particular the impact of debt-management policies on the scope and effectiveness of monetary controls and fluctuations. in the interest rate. With a Federal Government debt of over $250,000,000,000, a 1-percent rise in the interest rate involves an increase of $2,500,000,000 in the annual Federal budget. The small increase in interest rates that has occurred since 1945 is in part reflected in the increase of over $1,000,000,000 in the interest obligations the Government has this year despite the fact that the total Federal debt is somewhat lower. How much further should interest rates be allowed to rise or should they be reduced or should they not. be allowed to rise any more? What policies should be given priority? The position on this thorny problem taken by the Subcommittee on Monetary, Credit and Fiscal Policies was as follows:

an appropriate, flexible, and vigorous monetary policy, employed in coordination with fiscal and other policies, should be one of the principal methods used to achieve the purposes of the Employment Act. Timely flexibility toward

easy credit at some times and credit restriction at other times is an essential characteristic of a monetary policy that will promote economic stability rather than instability. The vigorous use of a restrictive monetary policy as an antiinflation measure has been inhibited since the war by considerations relating to holding down the yields and supporting the prices of United States Government securities. As a long-tun mattter, we favor interest rates as low as they can be without inducing inflation, for low interest rates stimulate capital investment. But we believe that the advantages of avoiding inflation are so great that a restrictive monetary policy can contribute so much to this end that the freedom of the Federal Reserve to restrict credit and raise interest rates for general stabilization purposes should be restored even if the cost should prove to be a significant increase in service charges on the Federal debt and a greater inconvenience to the Treasury in its sale of securities for new financing and refunding purposes.

We recommend as means of promoting monetary and debt management policies that will contribute most to the purposes of the Employment Act.

That Congress by joint resolution issue general instructions to the Federal Reserve and the Treasury regarding the objectives of monetary and debt-manement policies and the division of authority over those policies. These instructions need not, and in our judgment should not, be detailed; they should accomplish their purpose if they provide, in effect, that (i) in determining and adminstering policies relative to money, credit, and management of the Federal debt, the Treasury and the Federal Reserve shall be guided primarily by considerations relating to their effects on employment, production, purchasing power, and price levels, and such policies shall be consistent with and shall promote the purposes of the Employment Act of 1946; and (ii) it is the will of Congress that the primary power and responsibility for regulating the supply, availability, and cost of credit in general shall be vested in the duly constituted authorities of the Federal Reserve System, and that Treasury actions relative to money, credit, and trans actions in the Federal debt shall be made consistent with the policies of the Federal Reserve.

To this proposal the Council of Economic Advisers, in reply to a questionnaire by this committee, raised the following objections:1 Despite the drumfire of criticism which has been directed at the debt-management policy from certain financial quarters, the judgment of the President that it has been "eminently successful" is wholly justified by the record of the past 5 years. Our economy was unshaken by an immediate postwar slump which brought a decline of more than 60 percent in production of durable goods, a substantial decrease in nondurable production, and an increase in unemployment even when millions of war workers were withdrawing from the labor force. The policy made available abundant and cheap credit to business when it then endeavored to carry its share of the responsibility in the race with inflation by increasing productive capacity. It also helped to reduce a critical housing shortage. It contributed to the conditions under which the expected flood of liquidation of savings bonds did not materialize, and sales of savings bonds have continued in large volume. It preserved a solid credit position for the Government when the great economic question arose whether the end of inflation would become the beginning of economic collapse. It has even added to the prosperity of some custodians of funds who disdain it but who would have wholly inadequate outlets for the swollen deposits created by the war if they did not know that they can safely invest in Government bonds because the market price will be supported.

This is the record of the policy which the subcommittee would now abandon. What is the record of the proposed substitute policy of flexible monetary and credit control by the Federal Reserve System, when we look to its service in establishing economic stability? The subcommittee speaks of the desirable characteristics of central bank operations, and it is entirely justified in praising them for flexibility and because they are indirect and do not entail positive action by Government which limits the freedom of businessmen. But when it comes to

considering their effectiveness in attaining the objectives of the Employment Act, the subcommittee only says that we can draw no conclusions from experience because we have never really tried to use these policies to counteract serious inflation or deflation.

We do not read history that way. For 35 years, Federal Reserve discount rates have been shifted up and down. For 25 years the System has carried on open-market operations. Changes in reserve requirements have been one of the tools of control for more than a decade. * * *

1 Hearings before the Joint Committee on the Economic Report on the January 1950 Economic Report of the President, 81st Cong., 2d sess., pp. 66-67.

Repeatedly, in its discussion of this problem, the report of the subcommittee speaks of the need for "vigorous" use of central bank power. We assume that it is meant that history furnishes no guide to action because central bank operations have never been vigorous enough. If this also means that the writers of the report look to the Federal Reserve Board to interpret the proposed congressional directive as an instruction to use its power more vigorously in a future inflation than they were used in the past, the joint resolution would indeed threaten untold damage to Treasury operations. Before this war, the Board has only twice been called upon to consider action in a period of important inflation. In 1920, it ran the discount rate up to 7 percent. In 1929, it pushed the rate up until it reached 6 percent. The debate still goes on, whether the high discount rates caused the ensuing catastrophes or whether the economic collapse was in each instance due to forces which not even 7 and 6 percent discount rates could quell. But certainly the Reserve Board is not open to the criticism that it has not used its power vigorously. If that record shows that even more violent effort would be necessarily in order to make central bank operations effective to curb an inflationary movement, we believe the conclusion should be that these particular anti-inflationary devices are altogether too dangerous to justify giving to them the premier position among the arsenal of weapons to gain economic stability.

In view of the extraordinary gravity of the problems of debt management, inflation, and flexible use of monetary and fiscal controls, this committee feels it necessary to urge further careful study of this problem not only inside but outside the Government, by all groups, whether financial, industrial, academic, labor, or institutional that seek a maximum use of financial, fiscal, and monetary controls as instruments for achieving maximum employment opportunity.

Of correlative importance, a major and comprehensive study should be made of the present status of competition in our major industries, and methods whereby free competitive enterprise can be preserved, restored and strengthened. One task for such a study would be that of evaluating bigness peril points. What are the factors that bring about bigness? In howfar is bigness inevitable and compatible with the principles of the Employment Act of 1946? How large can government, business, labor and agricultural organizations become before they in fact nullify freedom of entry and fair competitive opportunity? Such peril points to free enterprise are difficult to estimate, even in terms of the percent of output or of sales or of employment or of assets concentrated in the hands of one or a few firms. Such bigness peril points are even more difficult to estimate in terms of other leverages equally strategic and vital such as political influence at State, local, and national capitals; direct and indirect controls over patents, raw materials, sources of credit, prices, and news channels; open and clandestine managerial, legal, and financial interrelationships; and many other mechanisms for the zoning and exercise of economic power now becoming apparent since the end of World War II in actions under the antitrust laws, in reports of numerous cartel and other economic investigations, and especially in the wealth of new information that is being yielded by the decennial census of population, manufactures, and commerce of 1949. In the light of postwar national responsibilities to maintain high-level employment and continuous preparedness, a fresh appraisal of the status of competition is urgently required for intelligent formulation of wise national policy.

The accompanying staff report, which is submitted herewith as evidentiary material and not as indicating the conclusions of the committee, provides more recent supplementary information on several of these problems, and indicates additional areas that the committee plans to explore during the coming year.