ERP January 1951

The Economic Report

of the PresidentTRANSMITTED TO THE CONGRESS

Together With a Report to the President

THE ANNUAL ECONOMIC REVIEW

By the

COUNCIL OF ECONOMIC ADVISERS

Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

The Economic Reportof the President

TRANSMITTED TO THE CONGRESS

January 12, 1951

Together With a Report to the President

THE ANNUAL ECONOMIC REVIEW

By the


UNITED STATES GOVERNMENT PRINTING OFFICE

WASHINGTON : 1951


Additional copies of this report are for sale by the Superintendent of Documents,U. S. Government Printing Office, Washington 25, D. C.

Price of single copy, 50 cents


LETTER OF TRANSMITTAL

THE WHITE HOUSE,Washington, D. C., January 12,1951.

The Honorable the PRESIDENT OF THE SENATE,The Honorable the SPEAKER OF THE HOUSE OF REPRESENTATIVES.

SIRS: I am presenting herewith my Economic Report to the Congress,as required under the Employment Act of 1946.

In preparing this report, I have had the advice and assistance of theCouncil of Economic Advisers, members of the Cabinet, and heads of in-dependent agencies.

Together with this report, I am transmitting a report, the Annual Eco-nomic Review: January 1951, prepared for me by the Council of EconomicAdvisers in accordance with section 4 (c) (2) of the Employment Actof 1946.

Respectfully,

m


ContentsPage

THE ECONOMIC REPORT OF THE PRESIDENT 1The nature of the task 1The power of the American economy to perform the task . . 4The inflationary danger 6Principles for action 7

All of us must plan 7All of us must serve 8Sacrifices must be shared fairly 9We must develop all our resources wisely 10We must work with our allies in the common cause . . . 11

Government economic policies 12Expansion of production 13Health services and education 16Economic stabilization 17International economic programs 21

Summary of economic developments in 1950 21

ANNUAL ECONOMIC REVIEW, JANUARY 1951 (a report to the Presi-dent by the Council of Economic Advisers) 27


To the Congress of the United States:We face enormously greater economic problems, as I transmit this fifth

annual Economic Report, than at any time since the end of World War II.Although our economic strength is now greater than ever before, very largenew burdens of long duration are now being imposed upon it.

The United States is pledged and determined, along with other freepeoples, to check aggression and to advance freedom. Arrayed against thefree world are large and menacing forces. The great manpower underthe control of Soviet communism is,being driven with fanatic zeal to buildup military and industrial strength. We invite disaster if we underestimatethe forces working against us.

The economic strength of the free peoples of the world is, however,superior to that of their enemies. If the free nations mobilize and directtheir strength properly, they can support whatever military effort may benecessary to avert a general war or to win such a war if it comes. Theresources are on our side. The only question is whether they will be usedwith speed and determination. The answer will depend upon unity ofpurpose and of action—unity among the free nations, unity here in theUnited States.

Unity is imperative on the economic front. On this front, under theAmerican system, everybody is involved—every businessman, worker andfarmer; every banker and scientist and housewife; every man and woman.We can win our way through to ultimate triumph if we all pull together.Decisive action, essential to our safety, should not be halted by controversynow.

It is in this spirit that I transmit this Economic Report to the Congress.

The Nature of the TaskWe must understand the nature of our defense effort here at home. Our

job has three parts.In the first place, we must achieve a large and very rapid increase in

our armed strength, while helping to strengthen our allies. This means moretrained men in uniform, and more planes, tanks, ships, and other militarysupplies. Second, we must achieve, as rapidly as possible, an expansion ofour capacity for producing military supplies. Thus must be substantiallygreater than would be required to achieve our present targets for armedstrength; it must be large enough to enable us to swing rapidly into full-scalewar production if necessity should require. And third, we must maintain


and expand our basic economic strength—important both to military pro-duction and to our civilian economy—so that we can continue to growstronger rather than weaker if it should prove necessary to continue adefense effort of great size for a number of years.

The first part of this task—the primary military build-up—imposes themajor immediate burden on the economy.

For the fiscal years 1951 and 1952 combined, new obligational authorityenacted or anticipated for our primary national security programs—for ourmilitary forces, for economic and military aid to other free nations, foratomic energy and stockpiling, and for related purposes—will probablytotal more than 140 billion dollars. Actual expenditures on these programsin the fiscal year 1950, the last full year before the Korean outbreak, totaledabout 18 billion dollars. At the present time, they are running at an annualrate of somewhat more than 20 billion dollars. By the end of this calendaryear, they should attain an annual rate between 45 and 55 billion dollars,or from 25 to 35 billion dollars above the present rate. The actions weare taking should enable us, within twelve months, to expand this rate ofexpenditure very rapidly if necessity should require.

Current expenditures for these purposes now represent about 7 percentof our total national output. By the end of this year, this proportion mayrise to as much as 18 percent. This compares with the roughly 45 percentof our total output that we were devoting to defense during the peak yearof World War II. While the present program is thus very substantiallyshort of the requirements imposed by full-scale war, it nonetheless requires amajor diversion of effort. Furthermore, there will be a much more severedrain on some particular supply lines. By the end of the year, our expand-ing defense programs, including stockpiling, may be absorbing up to a thirdor more of the total supply of some of our basic commodities, such ascopper, aluminum, and natural rubber. While direct defense require-ments for steel may not total more than 10 percent of total output, theneeded expansion of our essential industrial capacity will require a muchgreater diversion of steel from ordinary civilian uses.

In terms of manpower, our present defense targets will require an increaseof nearly one million men and women in the armed forces within a fewmonths, and probably not less than four million more in defense productionby the end of the year. This means that an additional 8 percent of ourlabor force, and possibly much more, will be required by direct defense needsby the end of the year.

These manpower needs will call both for increasing our labor force byreducing unemployment and drawing in women and older workers, and forlengthening hours of work in essential industries. These manpower re-quirements can be met. There will be manpower shortages, but they canbe solved.

The second part of the job is to build up our capacity for producing mili-tary supplies—our military production base. For example, our present


aircraft program calls for capacity to produce 50,000 planes a year. Ourpresent program for tanks calls for the capacity to produce 35,000 tanks ayear. We are not now placing orders for that many planes or tanks, but weare getting ready to produce them if we need them.

There are many cases where our immediate production needs will requirethe diversion of plants now devoted to civilian production,, but we cannotbe satisfied with this solution alone. We must increasingly create newcapacity to meet defense production targets. This will give us more eco-nomic strength, which means more power in reserve for any contingency.The job is made easier because we still have substantial reserve plant andequipment, as a result of the industrial reserve policy instituted at the closeof World War II. It is a great program, but we can meet it.

The third part of the job is to increase our basic industrial strength—tobuild up our facilities for the production of steel, aluminum, power, andother basic commodities and services. This ability should be brought toa level where it can carry the present defense burden without the necessityfor irksome controls extending over a long period. This will also increaseour ability to meet any requirements for a greater military effort.

In the case of steel, for example, we must raise the capacity of the in-dustry from its present level of about 103 million ingot tons a year by enoughto support our defense effort and to sustain our civilian economy. TheCouncil of Economic Advisers estimates that this will require an increasein capacity to about 120 million ingot tons in the next three or four years.This estimate is not necessarily final. But it suggests the kind of growthwe are working for in our economy in the years immediately ahead.

To increase our steel supply, we must also increase our supplies of ironore. Output of the high-grade Lake Superior ore fields can be maintainedat present levels for only a few years longer. Thereafter, we shall have torely more and more on lower-grade domestic ores and on imported sup-plies. Expansion of domestic plants for treating low-grade ores, and ofore production facilities in Labrador and Venezuela, together with relatedtransportation facilities, is essential.

Electric power is another field in which we must expand capacitypromptly. At the present time, electric power is in short supply in thePacific Northwest, in the Tennessee Valley area, and in some other regions.The supply is expected to become increasingly short throughout the country,as demands will increase faster than the expansion of capacity now planned.Reserves will fall more and more below safe and desirable margins. Al-ready the reserve margin has practically disappeared, in areas where thepower shortage is most acute. Yet, expansion of capacity now planned inatomic energy, chemicals, and aluminum and other metals related to thedefense effort, will impose an additional load of 4 to 4J/2 million kilowattson our power facilities.

In the face of this situation, we should plan to increase our generatingcapacity by well over 20 million kilowatts during the next three years. The


major share of this expansion must come from private utility enterprises.The large public hydroelectric projects take more time, but I am recom-mending the development of additional public power capacity in the PacificNorthwest, in the Tennessee Valley area, at Niagara Falls, along the St.Lawrence River as a part of the seaway and power project, and elsewhere,to contribute needed additions to the power supply as quickly as they canbe built.

These are but two examples of the need to build up our productive capac-ity. If we were now engaged in full-scale war, we could not afford to devotemanpower and materials to these longer-range programs. But to fail to doso under present circumstances would be short-sighted and potentially costly.Action now is essential, to make us stronger year by year in all of the com-ponents which enter into any military strength that we may need in future.

The Power of the American Economy ToPerform the Task

There is no question that our economy can sustain the great exertions out-lined above, and still remain strong and grow stronger. The past perform-ance and present condition of the American economy make this plain.

In the ten years since this Nation decided that fascist aggression had tobe stopped, the growth of our economic power has been prodigious. Com-paring 1950 with 1940, our total output, in actual units of goods andservices, is more than 50 percent higher. Farm production is up 25 per-cent. The total labor supply has increased by 9 million, and civilian em-ployment by 13 million. In addition, we have more and better tools andequipment. Steel capacity is up more than 20 percent; oil refining capacityup 40 percent; electric power capacity up 70 percent. On our farms, thereare two or three times as many tractors, trucks, and power-driven machines.Farm use of electric power has gone up three or four times.

It is sometimes thought that most of this economic growth occurredduring World War II. True, under the dire necessity of wartime, weexpanded with very great speed. But during the past five years, we haveadded greatly to the productive strength attained before V-J Day. Morethan 90 billion dollars (in 1950 prices) have been invested by privateenterprise in plant and equipment. Total manufacturing capacity hasincreased by between 25 and 30 percent. Steel capacity is 12 percenthigher; that of our chemical and machinery industries, 60 to 70 percenthigher. Civilian employment late in 1950 was 8 million above the peakyear of World War II, and output per man-hour for the economy as awhole has advanced by about 10 percent.

There has been very recent demonstration of our economic power, andof our capacity for further growth. In the first half of 1950, the upsurgeof business recovery from the mild recession of 1949 was swift and com-


prehensive. This demonstrated the soundness of our economic structure.In the second half of the year, the pace of economic expansion becamemore rapid. Every part of the economy responded to the challenge ofinternational developments. During these six months, private investmentin construction, equipment, and additions to inventory reached the recordannual rate of 53 billion dollars. Taking the year as a whole, industrialproduction was 14 percent higher than in 1949, and by June had exceededthe 1948 peak. The total output of goods and services during the year1950 was 7 percent higher, in real terms, than during the previous year. Itis now running at an annual rate more than 10 percent above the averagefor 1949. Civilian employment increased by about 1.3 million from 1949to 1950, and there were more people in civilian jobs at the peak of 1950employment than ever before.

Our economic history shows that we have risen to our greatest heights inthe face of our greatest dangers. From the beginning of World War IIto the time of our peak effort, we stepped up farm output by 20 percent, andindustrial production by nearly 90 percent. Our total national output roseby more than 60 percent. If it had been necessary, we could have donemuch more.

We may not be able to add to our production so rapidly in the yearsimmediately ahead. We had more unused resources of manpower, plant,and materials in 1940 than we have now. There are now some relativeshortages of raw materials. On the other hand, as long as we avert a totalwar, we can devote a larger part of our total resources to building up oureconomy than we did after Pearl Harbor.

The accompanying Annual Review by the Council of Economic Advisersestimates, after careful examination of our economic resources, that we canand should achieve an annual rate of total output more than 7 percent abovethe current level by the end of this year. The estimates made by theCouncil at the start of 1950, concerning how much the economy could growin real terms during the year, were realized. I believe that this progresswill continue. We must plan and work together, to increase the totalproductive strength of our economy by at least 25 percent within the nextfive years.

We have not reached, and cannot foresee reaching, any final ceiling onour productive power. Throughout the years we have grown, despite upsand downs, and we will continue to grow. We have a growing population.We have business initiative and daring. We have workers of great skilland energy. We have the ability to make practical use of new scientificdiscoveries and inventions. We have, despite some shortages, bountifulnatural resources. Above all, we have faith, justified by accomplishment,in our economic system.

This great vitality of our economy provides the answer to the questionof whether we can sustain the burden of our defense program. In relativeterms, this burden at present is much less than it was in World War II.


At the peak of World War II, we were devoting about 45 percent of ournational output to defense. By the end of this year, we will be devotingabout 18 percent to defense. During World War II, even when defenseproduction was at its highest, we maintained a strong economy. Civiliansmade sacrifices, but they did not suffer.

Our total output today has reached approximately the 1944 peak. Moreimportant, we are now maintaining this rate of production with muchshorter hours and less strain upon facilities. Our productive potential isnot as fully mobilized as at the height of World War II. If we approachedthe same degree of economic mobilization, our total output would be verymuch greater, and so would our output of defense items. Our contem-plated defense program, even if it were doubled, would still be clearly withinour capabilities.

The Inflationary DangerWhile it is clear that we have the productive ability to meet even far

greater defense demands on our economy, we must not be misled into think-ing that we can make the change to a defense economy easily. It willrequire effort, restraint, and sacrifice by all of us.

The character of our economy must now be changed rapidly to meet thenew challenge. Those types of production which support the expandingdefense effort must be greatly enlarged. The part of our total nationaloutput going into defense should rise from 7 percent to nearly 18 percent,during the year 1951. By the end of the year, the expanding defenseprogram may be absorbing one-third or more of some basic materials.

In some respects, it will be harder to convert to defense production thanit was in 1940., Then, there were idle plants and men and materials whichcould be channeled into the defense effort. Since our economy has recentlybeen running full blast, the defense program will have to pull men andmaterials, as well as plants, away from existing peacetime uses. This willpull millions of people away from normal peacetime production.

Although we can increase production, we cannot do it quickly enough toexpand the defense program, and at the same time still have as much leftover for other purposes. We must put heavy restraints upon nonessentialbusiness activity. During the past few years, nearly 70 percent of ourgrowing national output has gone into consumption. This has led tohigher standards of living, which is the ultimate purpose of a peacetimeeconomy. But the total supply of consumer goods cannot be increasedthis year, and many types of goods must be sharply curtailed. Yet thepopulation will continue to grow; new families will continue to be formed;and more incomes for practically all groups will be generated by more pro-duction, more employment, and longer hours. The excess of consumerdemand over available goods will rise by many billions of dollars.

This will cause intense and mounting inflationary pressures, which mustbe counteracted.

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During 1950, even before the defense expansion gathered speed, inflationstarted to march. Wholesale prices rose almost 15/2 percent, and passedthe previous all-time peak in the second half of the year. Particular priceincreases were even more spectacular, with chemicals rising by 211/2 percent,and textiles by 24 percent. The average price of goods to consumers roseover 6 percent; and there was over a 4l/z percent rise to a new all-time peakin the six months from June to December.

Incomes also started to rise sharply. During the year, real weekly earningsin manufacturing, after adjusting for changes in prices, rose by 10 percent.Corporate profits before taxes rose by about 6 billion dollars above theprevious record year. Most types of income, particularly in the second halfof the year, rose faster than production.

If inflation continues to gain cumulative force, it will multiply the cost ofthe defense program. It will undermine production, destroy confidence,generate friction and economic strife, impair the value of the dollar, dissipatethe value of savings, and impose an intolerable burden upon fixed incomegroups. This must not happen.

To fight inflation, demand must be held down until supplies can catch up.This is why we must have a stringent stabilization program. It will meansacrifices by everybody. But under the conditions now facing us, restraintswill serve the interest of all.

Principles for ActionAs we prepare ourselves for the stern task which confronts us, we must keep

in mind five basic principles. These are: (1) all of us must plan; (2) all ofus must serve; (3) sacrifices must be shared fairly; (4) we must develop allour resources wisely; (5) we must work with our allies in the common cause.

All of us must plan

A defense emergency requires far more planning than is customary ordesirable in normal peacetime. The military build-up is a planned effort.The mobilization of industrial support for this military build-up is a plannedeffort. The industrial cutbacks and civilian restraints, necessary to achievemilitary and economic mobilization, are planned efforts. The major deci-sions as to how much goods and services must be left over for consumers, tomaintain a strong base for the whole undertaking, also require planning.In a defense emergency, all of these problems are interrelated.

In these critical times, it is recognized that Government must assumeleadership in this planning. It has the prime responsibility for nationalsecurity. It has access to the basic information. The most important op-eration toward this end is the broad programming of various majorrequirements; the balancing of these requirements against supply; and thedevelopment of policies to satisfy needs according to priority of purpose.


But the Government cannot develop these basic plans alone. The neces-sary experience and know-how are to be found throughout our wholeeconomic system. Through constant consultation, these talents should bedrawn into the whole planning effort. After the basic economic plans areoutlined, most of them will have to be carried out by businessmen, workers,and farmers. They will be able to carry out these plans better, if they havehad a chance to participate in creating them from the start.

These basic economic plans set general targets or goals. The detailsmust be filled in by people all over the country. It may become necessaryfor the Government to indicate that longer hours of work are desirable.But working arrangements are made between employers and employees.The Government may indicate that more steel is needed. But steel produc-tion is in private hands. The Government may indicate that more cottonwill be needed. But cotton is grown by farmers.

Businessmen always plan; and now they must plan how they can besthelp to make their country stronger. Labor organizations always plan;and now they must plan their contribution to the defense effort. Farmersalso plan; and they, too, must now plan to play their full role in the nationalsecurity effort. Government plans can aid, but cannot substitute for, thisindividual and group planning. To neglect this, would be to undermineone of the greatest sources of our economic strength.

All of us must serve

In a defense emergency, all those on the home front should serve, to thelimit of their ability, in the kind of work for which they are best fitted.

Businessmen should serve, by employing their financial resources andmanagerial skills to produce the greatest possible amount of the goods whichthe Nation needs. In the period ahead, businessmen will have responsi-bility for a much larger part of the investment program than during WorldWar II, when a very high percentage of investment in new capacity wasmade by the Government. Our ability to reach production goals willdepend in large measure upon how effectively businessmen do their job.

Farmers should serve, by increasing their output. They have less man-power than before World War II, but far more machinery and fertilizer, andfar better scientific methods. They can also serve, by making shifts in out-put which are responsive to the needs of the defense economy.

Workers should serve, by helping to improve productivity. They shouldseek out jobs which are essential to the defense effort. They should co-operate by working longer hours wherever it will help the defense effort.More people should seek work than in normal times.

Millions of others, in addition to businessmen, industrial workers, andfarmers, are now called upon to do their jobs more efficiently, and toreadjust their efforts to the needs of national defense.

For all to serve in full measure, it must be in a common cause and notprimarily for personal gain. This does not mean that we should undermine

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the incentives which lead to more production. But the rewards for in-creased production cannot be as great under a defense program as they arein normal peacetime. This is because most of the increased productionmust go into national defense, and consequently cannot be used to im-prove incomes or lift standards of living.

Each group and individual will be more willing to put forth greatereffort, if it appears clearly that everybody is doing the same. Businessmen,workers, and farmers will be willing to work harder, to the extent that theyfeel that they are working harder to serve their country, and not just tobenefit somebody else. There should be a sense of equality of service inthe defense program. Public policies must help to assure this.

Service by all is even more important than sacrifice, because it is work,and more work, that increases production.

Sacrifices must be shared fairly

No matter how efficiently we do our jobs, all of us must make sacrifices.Businessmen must make sacrifices. They must pay much higher taxes.

While profits should not be taxed to the extent which would jeopardizeproduction or destroy incentives, businessmen cannot expect to retain profitson the scale which would be expected during normal peacetime prosperity.They must also accept restraints and controls upon many of their businesspractices—including price policy and the use of materials and manpower—which are not customary in peacetime. They must be willing to withdrawfrom enterprises which are nonessential and wasteful during a nationalemergency.

Workers must make sacrifices. They must seek the jobs which needdoing, in the locations where these jobs must be done, instead of the jobswhich may be most pleasant in the locations which are most convenient.They must accept restraints and controls upon wages, designed to preventthe wage increases which would be attainable if more goods were beingproduced for wage earners to buy. While the right to bargain collectivelywill be preserved, workers—along with management—must find ways tosettle disputes without stopping essential production.

Farmers must make sacrifices. They should receive their fair share ofavailable national income. But they cannot expect to avoid their fair shareof the cost of national defense. Over the past two decades, farm standardsof living have risen substantially, and they needed to rise, because farmershad lagged far behind others in sharing the national income. But thatrate of progress cannot be continued in these perilous times.

All economic groups must pay much higher taxes.American families must make sacrifices. They can expect very sharp cur-

tailments in the supply of durable equipment which brings convenience andentertainment to the home. They will have to make their household goodslast longer, their automobiles and appliances3 their linen and clothes. Theymust save a larger portion of their incomes. Many of them must post-pone buying a new house.


These sacrifices will not prevent us from maintaining a strong and grow-ing economy, capable of supporting the current defense program or anygreater program that we may need to undertake. On the contrary, thesesacrifices will make for a stronger nation by curbing inflation. They willmake us stronger, not only by augmenting our military strength, but also byenabling us to increase the productive facilities which can lighten theeconomic burden in the long run.

It is essential that the sacrifices which are necessary in these critical timesbe shared fairly by all groups. Businessmen will be more cooperative insacrificing peacetime profit objectives and paying more taxes, if it is clearthat this is not being done just so farmers and workers can have moreincome. Farmers will be more cooperative in sacrificing peacetime farmincome objectives, if it is clear that this is not being done just so workerscan get more wages and businessmen can get more profits. Workers will bemore cooperative in sacrificing peacetime wage objectives, if it is clearthat this is not being done just to provide more profits for business or morefarm income. Professional people, civil servants, office workers, and thoseliving on fixed incomes^ will be willing to accept their share of necessarysacrifices, to the extent that it is clear that this is not being done just toprovide for other people more profits or wages or farm income. All willbe willing to make far more sacrifices for national defense and to keep oureconomy strong, if the burden is shared on a fair and equitable basis.

We must develop all our resources wisely

The rapid expansion of the defense program must be the first objective inall that we do. But military strength does not depend upon guns and armedforces alone. These forces must be equipped by our industry, fed by ourfarms, and supported by all the people. There must be a continuing balancebetween the build-up of military strength and the build-up of economicstrength.

In a total war, this balance would be very different from what it shouldbe now. In a total war, we would have total military mobilization, accom-plished by considerable depletion of other kinds of strength. In the currentsituation, we must place considerable stress upon economic strength, or runthe danger of being weak at some future time if total military strength shouldthen be required.

With these purposes in mind, we must apportion materials and manpowercarefully among military needs, stockpiling, and industrial needs. We mustdivide industrial supply carefully, so as to expand in some areas while con-tracting in others. We must divide total civilian supply carefully betweenindustry and consumers, so that we do not weaken manpower while im-proving tools.

The handling of our natural resources is a vital aspect of this problem.Many projects must be cancelled or deferred, but those necessary for defenseand essential civilian needs must go forward. If we allow our agricultural

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and range lands and our forests to deteriorate, and if we misuse criticallyneeded minerals and supplies of water, we shall become weaker each yearinstead of stronger. If we do not expand the use of some of these re-sources—as, for example, through carefully selected power developments—we cannot expect to reach the full potential of our industrial strength. Wecan cut down enough on the private and public use of materials and man-power for nonessentials to accomplish these essential projects.

Our human resources are our main economic strength. When we finallywin in the contest between freedom and slavery, it will not be primarilybecause of our superior technology. It will be primarily because we valuehuman beings, and because the free man can outproduce the oppressed man.

No danger could be greater than to concentrate so blindly upon buildingup our military strength that we neglected and impoverished the ultimatesources of that strength. Three examples will illustrate this principle.

First, we cannot afford in the immediate future to devote as large a partof our resources to the improvement of health services and facilities as wehad planned to do in normal peacetime. But we cannot maintain a soundbase for whatever military mobilization may be needed in the months oryears ahead, if we let sickness and inadequate health standards continue totake their heavy toll. We must devote somewhat more of our resourcestoward improving the health of the general public. Whether the childrenof today will be the soldiers or civilians of tomorrow, they must grow to astrong and healthy maturity.

Second, we cannot in the immediate future find the materials and man-power to build as many new schools and provide as many new teachersas we had planned to do in prosperous peacetime. But whether the youthof today is to become a soldier or a civilian citizen tomorrow, he must re-ceive the general education for citizenship and the technical training whicha modern army, a modern factory, and a modern farm all require.

Third, we cannot expect in the immediate future to achieve all of theexpansion of social security which we had planned for in prosperous peace-time. But some of the hazards which social security is designed to guardagainst are increased by the mobilization effort. Increased protectionagainst these hazards will make the mobilization effort more effective. Inaddition, the expansion of some contributory social security programs canbe an important factor in meeting the stabilization problems we will faceduring this period, because their immediate effect would be anti-inflationary.

In these three matters, we should give vigorous attention to meetinghuman needs in such a way as to increase our economic and militarystrength.

A strong America must be strong throughout.

We must work with our allies in the common cause

To meet the present danger, we must help to strengthen our allies,and they must help to strengthen us.

922781—51 2 II


The effort must be made by the community of free nations, workingtogether, and contributing their common strength in accordance with theirability to do so. As the single most powerful member of the communityof free nations, our country has the special responsibility of leadership.We must help other free nations to do their share effectively.

In two world wars, this country has been spared the ravages of war on itsown soil. Partly as a consequence, the United States has grown stronger,while some of the other free nations have become relatively weaker. Underthese circumstances, it would be wrong for us to shrink from bearing a largerpart of the burden now. We are able to bear it. We must bear it.

Since the Korean outbreak we have sharply shifted the emphasis in oureconomic assistance programs toward supporting the defense programs ofthe free countries associated with us, and we have greatly enlarged ourmilitary assistance program.

There is no water-tight distinction between military assistance and eco-nomic assistance. Our friends abroad need both. For their military ef-forts to be strong, their economies must be strong. When we contribute totheir military strength, we leave more of their own resources free toimprove their economic strength. When we contribute to their economicstrength, we leave more of their own resources free to build up theirmilitary strength. The relationship between the two types of assistanceshould be determined realistically on grounds of efficiency, and not byarbitrary labels.

The programs of economic assistance thus far undertaken have acWedgreatly to the strength of other nations friendly to us—nations believingin freedom and justice. This gain could be dissipated, if the militarybuild-up which they must now undertake should weaken their economies.

The close connection between a nation's economy and its military effortsmakes it impossible for peoples to be allies on one front and strangers onother fronts. When we join together for military purposes, we must alsocooperate for economic purposes. When we consider jointly the distributionof armed forces, we must consider cooperatively the use of strategic economicassets.

In this whole process of cooperation, the strongest must do the most, butall must do their part. While our resources are great, they are not unlimited.As we make a portion of our resources available for use by others, we expectthem to use this aid well and efficiently in the common purpose. In addi-tion, our aid will enable them in many cases to increase their production, fortheir use and ours, of materials which we do not have, or do not have in suf-ficient quantity.

Government Economic PoliciesThe actions of the Government are being redirected to meet the over-

riding demands of national security. The Budget I shall transmit next week

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provides only for urgent needs for Government activities and services in thisdefense period. Many Government programs are being sharply curtailed.The departments and agencies of Government are moving rapidly aheadwith their part in the defense effort, and deferring wherever possible anywork which is not immediately necessary.

The same principle should guide the Congress in enacting legislation atthis time. We must all put first things first.

Certain immediate tasks will confront the Congress at this session, as itenacts the legislation necessary to carry us forward. I mentioned thesebriefly in my Message on the State of the Union earlier this week. Some ofthem are discussed more fully in this Economic Report, and in the BudgetMessage to follow. In a number of cases, however, details are still beingworked out, and I shall transmit recommendations in later special messages.

The first priority, of course, attaches to the support of our own militaryservices and of our combined efforts, with other free countries, to build upthe strength of the free world. In both cases, we are concentrating on theurgent task of preparing stronger defenses against aggression. At the sametime, we are building a foundation for continuous growth in the ability offree men, in our country and elsewhere, to advance the cause of freedom.

Toward these ends, the economic policies of the Government should nowbe directed.

Expansion of production

Industrial production. Under the Defense Production Act, enacted lastSeptember, we have taken the first essential steps to give priority to defenserequirements out of current industrial production. In the field of prioritiesand allocations, where Government action has already been vigorous, stepshave already been taken (a) to insure that defense requirements for pro-duction materials and facilities are met on schedule; (b) to distribute theremaining available supply of critical materials and products equitablyamong other users after defense requirements have been satisfied; (c) toprovide materials for needed expansion of productive capacities; and (d) topromote conservation of scarce materials and the development of substi-tutes. The commodities affected have included aluminum, cobalt, cad-mium, copper, nickel, rubber, steel, tin, zinc, and other basic materials.Selective rather than general curtailment is now being put into effect, and acomprehensive materials control plan is being prepared for use when neces-sary. Priorities and allocations powers will have to be renewed by theCongress this year, if our production control program is to be continued.It is, of course, essential that this be done.

In placing orders, the Defense Department and the other agencies con-cerned are adjusting contracting and subcontracting policies to broadenthe supply base and to bring in more small producers. Procurement isbeing related more closely to geographic availability of manpower, mate-rials, and equipment resources. Procurement cost-price policies are being

13


centered upon efficiency problems. Greater uniformity of standards isbeing developed for all procurement activities.

In planning and carrying out the military procurement program,, theDepartment of Defense is giving major emphasis to obtaining productivecapacity broad enough to support a much larger military procurement pro-gram than the one now under way. Thus, the Department is spreadingorders among as many contractors as practicable, and tooling-up plants withreserve capacity, so that military procurement can be further enlarged onshort notice if necessary.

In addition, we have begun the work of obtaining increased plant ca-pacity in key industries, among them steel and aluminum. Two maintypes of assistance are now being furnished by the Government to helpprivate industry expand: accelerated amortization under the new tax laws,and long-term Government loans under the Defense Production Act. Theseaids will help to secure much of the needed expansion.

Under the authorization of the Defense Production Act, Governmentagencies have received requests for direct loans totaling more than 830 mil-lion dollars, and are processing requests for accelerated amortization involv-ing outlays for plant expansions totaling nearly 4 billion dollars. Of thoseon which approval has already been recommended, 66 from the steel indus-try alone represent capital outlays of more than 1 }4 billion dollars.

Our loan program for expansion of productive capacity and supplies willsoon require more funds than have so far been made available. The pro-gram will of course need to be continued in operation beyond June 30, 1951,the current expiration date. In addition, our present aid programs willneed to be backed up by legislative authority for direct government con-struction of industrial facilities, in those special cases where private enterprisecannot undertake the job even with the government assistance available.

These and other aspects of our economic mobilization laws are now underreview by the Director of Defense Mobilization. After he has completed hisinvestigations, detailed recommendations will be made to the Congress forappropriate revision of the Defense Production Act and other relatedstatutes.

In addition to our efforts to expand industrial capacity, steps are beingtaken to increase production of essential raw materials, both here andabroad. Through financial aids for exploration and development andlong-term expansion loans, authorized under the Defense Production Act,and through our stockpiling and foreign economic aid programs, we arestepping up the production and procurement of critical materials, both athome and abroad.

Iron ore constitutes one of our most serious potential shortages. As theAnnual Economic Review points out, we should be receiving large ship-ments from the new Venezuela and Labrador developments by 1954 or1955. This is urgently needed to meet the expected decline in ore produc-tion from the Lake Superior region. But to avoid extremely high-cost


transportation, and hence high-cost steel operations, we should start at onceon the St. Lawrence Seaway and Power Project, so that imported iron orecan be shipped efficiently by water to the great steel producing centers ofthe Middle West,

The St. Lawrence project is vital also to bring in a new source of powerfor industry in the Northeast. We must have more power, in this andother areas, if we are not to place sharp limits on our industrial capacity.

Agricultural production. Our farms are no less involved in the produc-tion effort than our factories and mines. The demand for farm productshas increased greatly since the Korean outbreak. Military needs for cottonand wool have risen sharply. Military food requirements are also rising, asmore men come into military service. There has been an exceptionally highcivilian demand for meats and many other foods, and this is expected tocontinue.

In the face of these rising demands, we now have low supplies of cottonand wool. Our food supplies, while entirely adequate for the time being,will clearly have to be increased. The Government is moving now to helpmeet the need for increased production, especially of cotton, corn, wheat,wool, and livestock. Acreage allotments and marketing quotas have beenset aside. Price supports at 90 per cent of parity have been announced forcotton and wheat for the 1951 crop year. Every effort is being made tobring the new cotton crop to a level 60 per cent above that of last year.

Our farms are now more mechanized than ever before. To get out theincreased crops, they will need a steady supply of farm machinery and spareparts. Fertilizers will be equally necessary to meet expanding productiongoals. Our farmers are using much more fertilizer than before the war,and will need still more to get the yields that we are after. Many of thethings the farmers need will be in short supply. Farm and industry require-ments will have to be balanced very carefully. But we will do our best tosee to it that the essential farm needs are met.

Manpower. We cannot produce in industry or agriculture without thetrained workers to do the job. As the defense production job speeds up, wewill have to be increasingly careful about the distribution and use of theskilled labor we have available. We will have to train more and more newworkers who are not now in the labor force. Major emphasis should beupon training and recruitment of unmarried women and married womenwithout young children. Support should be extended to nursery schools asan aid to mothers who want jobs.

Additional shifts and longer hours in some defense industries are beingencouraged. Industry hiring standards are being reviewed, to providesuitable jobs for more workers. Arrangements are under study to protectthe pension and seniority rights of workers who shift to defense jobs.Health, education, rehabilitation, and training programs are being reshapedto concentrate upon problems of defense workers. Existing housing, com-


munity facilities, and service programs are being modified, and constructionis being shifted to defense areas.

We are already setting up voluntary labor-management committees towork with the United States Employment Service in the principal defenseareas. These committees will help to shift workers into essential industries,and will gain cooperation in installing the most efficient hiring practices andpromoting the best use of skilled workers on the job. To provide better pro-tection of workers who leave their communities to take defense jobs in otherStates, the unemployment insurance system should be improved.

It is now quite clear that, just as in World War II, we will need speciallegislation to provide housing and community facilities and services fordefense workers in areas where adequate quarters are not now available.

We will need to encourage private construction of rental housing in theseareas. We will need publicly financed construction of housing and relatedfacilities where private enterprise is unable to handle the job. We willneed additional aid to community facilities and services in defense produc-tion centers. The Housing and Home Finance Administrator has submittedrecommendations for legislation to accomplish these purposes. I hope thatprompt action will be taken by the Congress.

Health services and education

It is clear that we cannot neglect the education and health of our people,without the most serious results for a long-run defense effort. Obviously,we will not now have available the resources to build or staff as manyschools and clinics and hospitals in as many places as we hoped to do innormal times. But the quality of essential services must be maintained andimproved, as fast as can be managed. This is imperative for the success ofthe defense job.

It is not enough to train people as workers—or as soldiers. They haveto be healthy enough to get a job and do it effectively. Right now, sick-ness is keeping about a million workers off the job every day. Right now,failure to meet health standards is making about a quarter of our youngmen unavailable for military service. During World War II, about sixmillion men were rejected by the armed services for physical or mentaldisabilities.

We cannot afford this waste of manpower, our most vital resource. Asa first step,, we must obtain more doctors, more dentists, and more nurses.The growing needs of the armed forces, piled on top of civilian needs,threaten the most dangerous shortages unless prompt action is taken by theCongress.

At the same time, we must expand our local public health services. Theyare essential to our civil defenses, and to the maintenance of safe healthstandards in our growing production centers.

As we move into a period when we will have an urgent need for allour trained men and women, we must face the fact that nothing can make

16


up for faulty basic education in our primary and secondary schools. Thisis as true for the men in military service, as for the factory worker or thefarm hand.

Our public school system faces the greatest crisis in its history. Morethan ever before, we need positive action by the Federal Government tohelp the States meet their educational tasks. We simply cannot afford tolet overcrowding, or lack of equipment or staff impair the basic educationof our young people.

Under legislation passed last year, the Federal Government is stepping upits aid to school districts overburdened as a result of Federal activities. Butspecial aid of this type to particular school districts will not come anywherenear meeting the general crisis which exists. Therefore, it is vital thatthe Congress act now to give the States general aid for school maintenanceand operation.

Economic stabilization

The Government has been moving ahead in several ways to stabilize thecost of living and hold down inflation.

Taxation. We should make it the first principle of economic and fiscalpolicy in these times to maintain a balanced budget, and to finance the costof national defense on a "pay-as-we-go" basis.

The Congress is to be commended upon the successful completion of twovitally important pieces of tax legislation since the middle of the calendaryear 1950. But it was commonly acknowledged that these were only thefirst steps. We must now, as rapidly as possible, take the next step, and itmust be a very big step, in view of the size of the new defense funds whichhave necessarily been appropriated and the required additions to thesefunds which will be set forth more fully in the Budget Message. Legislationshould be enacted, at this session of the Congress, to increase taxes by verymuch more than they were increased by the last two major tax bills whichthe Congress enacted.

These new taxes are required to finance the defense effort; and to helpkeep total spending within the capacity of current production, so that infla-tion does not reduce the purchasing power of the defense budget, reduce thereal value of people's savings, generate speculative buying and hoarding,and impede essential production. The real economic cost of this defenseeffort is that we must work harder, reduce consumption, and forego improve-ments in farm, business, and household equipment. This cost cannot be putoff into the future. It must be paid by the people now, one way or another,and it should be paid through taxation, in the manner consciously deter-mined by the Congress and not by the uncontrolled and inequitable inci-dence of inflation.

The new tax increases, now required, must press harder upon everysource of available revenue. Corporations should pay much higher taxes.Individuals should pay much higher taxes. Excise taxes should be higher

17


and more extensive. Many loopholes in the tax laws should be closed.In the near future, after further consultation with legislative leaders, newtax proposals will be transmitted to the Congress.

Taxation must be supplemented by greatly increased saving. Everydollar saved means a dollar less of inflationary price pressure. The alterna-tive to saving is not buying more goods now, because more goods are notnow available. The saving will give a nest egg with which to buy thegoods at a later time when they again become plentiful. The alternativesto more saving are either more taxes or inflation.

Savings help most in the defense effort, and do the most to hold downinflation, when they are invested in Government bonds. The Treasurywill continue its policy of reducing the amount of debt held by banks andplacing the maximum proportion of Government securities in the hands ofthe public, particularly individuals. The savings bond program supportsthis goal and encourages saving.

Credit controls. Controls over business and consumer credit also helphold down inflation.

Regulations W and X, issued by the Federal Reserve Board, have estab-lished higher down payments and shorter repayment periods for those whobuy durable goods and new one- and two-family houses on credit. Multi-family housing is now being brought under Regulation X. As the detailedrequirements for the defense program and other vital purposes becomeclearer, it may be necessary to make further changes in these regulations.These regulations are well suited to help deal with moderate reductions insupply. If circumstances force acute reductions, more direct measureswill be needed to assure equitable distribution. In the meantime, the au-thority to control housing credit through Regulation X should be enlargedby the Congress to include credit for the purchase of existing homes exemptunder the present law.

The Federal Reserve Board has also taken steps to restrain excessive banklending, by raising bank reserve requirements and allowing short-terminterest rates to rise.

Price and wage controls. We must use direct controls, as well as thesetax and credit measures, in order to deal with the problem of inflation.

In the case of prices and wages, considerable work has been done. Inaddition to the mandatory order affecting automobile prices, substantialprogress has already been made through negotiations towards securingeffective price stabilization in such basic materials as steel, copper, lead,zinc, and certain basic industrial chemicals. Negotiations to secure effectiveprice stabilization are under way with producers of other basic products. Anumber of regulations for mandatory action are in preparation.

We must achieve general stability as rapidly as possible, and hold it forthe duration of the present emergency. This will require the broad exten-

18


sion of price and wage controls to hold down the upward spiral. The staffsto apply broader controls are now being rapidly gathered.

In the case of prices,, the general policy must be to hold the price linewith utmost vigor, as the instances are rare indeed where further priceincreases are needed, either to stimulate production or to provide adequateprofit incentives. In these rare cases, some price adjustments subsequentto stabilization may become necessary to stimulate vital production.

It is my confident belief that price adjustments, after stabilization^ willnot be only in an upward direction. In many industrial lines, extensiveadditional production, made possible in many instances by military ordersadded to civilian orders, will result in lower costs, which can be passed onboth to civilian buyers and to the Defense Department.

To prevent excessive speculation in farm products, and wide fluctuationsin their prices, the Department of Agriculture should be granted authorityto control speculative trading and to strengthen its regulation of com-modity exchanges.

Price and wage stabilization must both be undertaken, because of theeconomic connection between prices and wages. It follows from this thatneither price action nor wage action can be decided upon in isolation. Thedecisions must be reconciled. They must be subject to central direction.But it does not follow that prices and wages are precisely similar, or can betreated identically. Prices are only one factor in the incomes of business,which may rise or fall independently of prices. But wages are the verylivelihood of millions of families. This makes wage stabilization the moredifficult part of the task. But it must be undertaken if prices are to bestabilized.

A more rapid rise of total wages available for spending than of the produc-tion of goods which workers can buy will not make more goods available, butrather will add to inflationary pressures. Since the amount of goods avail-able for consumers cannot be increased in the near future, and many types ofgoods must be severely contracted, the objective should be to limit corre-spondingly total spending of wages. Strong tax and savings programs arerequired, but stabilization of wage rates is also necessary. This is particu-larly necessary because, even with no wage rate increases, there will be anexpanding volume of total wages. Hundreds of thousands, of new workerswill be employed, and hours of work will be longer. Moreover, there are afew kinds of situations where adjustments in wage rates will be necessary anddesirable. But this should be done only upon a clear showing of necessity inexceptional circumstances. The predominant general rule should be toachieve stable wage rates until the flow of consumer goods can be increased.

It would be impossible to achieve lasting wage stabilization withoutholding the line on the cost of living. This makes it all the more importantto stabilize the price level. Unless this line is held, it will not be practicalto avoid some "cost of living adjustments" in wages in some cases. How-ever, there are many groups which could not be protected in this way. And

19


to extend such adjustments without limitation, even in all those cases whereit could be done, would add to the process of wages chasing prices and priceschasing wages. The only way out of this dilemma is to stabilize the cost ofliving, and to do it quickly.

Wage stabilization also involves the problem of incentives. Withoutincentives, it would be harder to sustain longer hours of work in defenseindustries, and to spur on workers toward their participation in efforts toimprove productivity. As we look forward to years of constantly increasingeffort to strengthen our economy, this problem of incentives cannot be over-looked. Yet the peacetime increases in wages, which normally provideincentives, would under current conditions add to inflationary forces. Con-sideration should be given to the suggestion that, where some wage adjust-ments become necessary over the long pull to provide incentives^ theincreased potential spending power should be diverted from the actualspending stream until inflationary pressures become less serious. Variousconstructive proposals may be developed to obtain this deferred effect.Wage adjustments related to increased social security contributions wouldbe one method. Other effective savings programs should also be considered.

I firmly believe that effective wage stabilization must draw heavily uponthe experience and viewpoint of workers and employers with practical ex-perience. That is the principle underlying the Wage Stabilization Board.The Board is to be commended for its policy of consultation with representa-tives of labor, management, and the public. I earnestly trust that a soundand fair wage stabilization policy will quickly result. Such a policy willprovide the best foundation for effective wage stabilization in detail. Theprinciples which I have outlined can be the starting point for a wage stabiliza-tion policy which will receive the cooperation of those who would be affectedand which will serve the best interests of the Nation in this emergency.

In the interest of economic stabilization all groups should consider whatthey receive before taxation. Of course, heavier taxes will make it harderfor everybody. But for any group to seek to adjust its income upward, tocounteract the higher taxes which the defense program is making necessary,would tend to relieve that group from its share in the cost of achievingnational security.

I am sure that every group will be willing to accept the necessary sacri-fices in this emergency, if the whole stabilization program is fair andequitable. Effective price and wage controls, much higher taxes on busi-ness profits, along with many other restrictions which will affect the wholepopulation, are all aspects of a comprehensive stabilization program inwhich everyone will do his part.

It is already plain that the present rent control law has been madeobsolete, in the light of the necessary curtailment in the rate of housingconstruction and the current inflationary pressures. Since rents are sucha key element in the cost of living, I recommend that the Congress extendand strengthen the rent control law.

20


International economic programs

Our program of military and economic aid for the strengthening of thecommunity of free nations, including our programs for underdevelopedareas, are of vital importance. They are closely related to other aspectsof our foreign economic policy. The defense program increases the im-portance of strategic raw materials, and we are already working with otherfree nations to increase the supply of these materials, and to distribute themfairly. We should take cooperative action with the free nations, to makesure that critical materials are used to strengthen the common defense offreedom, and are not diverted to other purposes. In a short time, I shallsend to the Congress detailed recommendations on our international eco-nomic programs.

Use of export controls and allocations will enable the United States tocarry out more effectively its part of international allocations agreements,and to distribute more efficiently other commodities in short supply.

The power to control exports, now scheduled to expire June 30th, shouldbe extended.

International trade policies should be adjusted to joint requirements.While the defense effort will require a wide increase in trade controls, alarge part of the world's trade will continue to be conducted in normalchannels. The common defense objective can be furthered by the reduc-tion of tariffs, quotas, and other trade barriers. To this end, the TradeAgreements Act should be extended, our customs laws and proceduresshould be simplified, and the import tax on copper should again be waived.

Summary of Economic Developments in 1950By June 1950, the economy had almost fully recovered from the mild

recession of the previous year. Employment and production were high,and prices were rising. The anticipated expansion of our defense program,following the Korean outbreak, led to still further increases in employmentand production. It created strong inflationary pressures.

In this situation, many economic indicators reached record highs, andmost of them are still rising. Higher employment, longer hours of work, andovertime payments raised wages and salaries and swelled the already highdemand of consumers. On all fronts, strong demand raised prices, and insome shortage areas the price advance was rapid. Increased volume athigher prices boosted business profits. The obvious need for greater produc-tive capacity stimulated business investment. Rising living costs and highbusiness profits led to increasingly successful efforts to obtain wage increases.

The record levels of employment, production, and business investmenthave demonstrated the vigor of our economy. But the spiraling rise inprices, wages, and profits is a warning that inflation endangers our economicprospects and our defense efforts.

21


Civilian employment averaged almost 60.0 million persons in 1950, com-pared with 58.7 million in 1949. The gain in nonagricultural employmentwas about 1.8 million, but farm jobs declined by about 500 thousand.Employment increased steadily throughout the year, except for a smallseasonal drop in the fall months. At the end of the year, employment was atan all-time record for December.

Unemployment, after reaching a peak of 4.7 million persons in February,dropped markedly through most of the year. It reached a low of 1.9 mil-lion in October, and then rose slightly in the last two months of the year.At the end of 1950, only 3.6 percent of the labor force was unemployed.This is near a practical minimum for a peacetime economy, but is notirreducible under present conditions.

Production of goods and services as a whole in 1950 was 7 percent greaterthan in 1949. This was a record for any postwar year, and apparentlywas close to the record reached in World War II. In the fourth quarterof 1950, total production was 10 percent higher than for the year 1949.

The physical production of goods alone (not including services) was11 percent greater than in 1949, despite a 2 percent drop in agriculturaloutput. Industrial production increased 14 percent. Gains were espe-cially marked in the case of durable goods. More steel was produced in1950 than in any previous year. The automobile industry operated at arecord rate during most of the year. Electric power rose 13 percent over1949. Construction, measured in physical terms, reached an all-time high,and averaged 17 percent above 1949.

Prices moved upward throughout 1950, the pace of the advance increas-ing sharply after the Korean developments at midyear.

Wholesale prices in December were at an all-time high, 10.9 percentabove the June level and 15.4 percent above December 1949. The priceincreases were not limited to a few commodities, nor to a few groups. Fora few weeks after the Korean outbreak, farm and food prices rose sharply.The rise in industrial prices, while at first less spectacular, was steady andpersistent. At times, the violent gyrations in prices of imported raw ma-terials have been in the spotlight. But now the rise in wholesale prices hasbeen quite general, affecting all major categories of goods.

Consumers' prices rose over 6 percent during 1950, the major part of therise occurring in the latter half of the year. They ended the year at arecord level. Rising living costs absorbed a considerable part of the gainsin consumer incomes.

Wages and salaries and other labor income rose continuously in 1950,reflecting wage rate increases, longer hours of work, and increased employ-ment. By the fourth quarter, they had reached a record high of 155.9billion dollars, 16 percent above the level a year earlier. Weekly earningsin all manufacturing industries rose from $54.43 in November 1949 to $62.06in November 1950, a gain of 14 percent.

22


CHART I

PEFSEIPERC+ 10

0

-10

-20

-30

-40

+20

+ 10

0

-10

+ 30

+ 20

+ 10

0

-10

+ 10

0

-10J/ NO£/ 6R*/ ON£/ AL

SOUR

VENTAGE CHANGES INJECTED ECONOMIC INDICATORSENT PER

LABOR FORCED

mm^^^\ Wmf^ UNEMPLOYMENT

TOTAL CIVILIAN(INCLUDING EMPLOYMENT

ARMED FORCES)

1949 TO 1st TO 2ndI960 *N^ f HALF OF 1950

B • • • '

-

•'••••••••••: ~~

PRODUCTION

"Mfiffifflft.

\tmmmtffi •'••'•'•'•'•'•' "\ wxwwmfo % AftRIDILTURAL^

TOTAL GOODS 9 INDUSTRIALAND SERVICES-^

INCOME

•:

Hi

PERSONAL ^^^ CORPORATE PROFITSDISPOSABLE F.RM AFTER TAXES(AFTER TAXES, PROPRIETORS'

PRICES-*'

•r •• ! _jALL COMMODITIES INDUSTRIAL i ALL ITEMS i

PRonnrTc 4/\ ^ J

WHOLESALE C°NS

fJMERS*

r ADJUSTED FOR SEASONAL VARIATION.3SS NATIONAL PRODUCT IN 1950 PRICES.LY AVAILABLE ANNUALLY.L COMMODITIES OTHER THAN FARM PRODUCTS AND FOODS.

CE: APPENDIX TABLE A- 48.

CENT+ 10

0

-10

-20

-30

-40

+20

+ 10

0

-10

+ 30

+20

+ 10

0

-10

+ 10

0

-10

23


Wage increases were widespread and substantial in the second half ofthe year, being accelerated by a continued rise in the cost of living and byexpectations of wage and price controls.

Profits of American business, before taxes, exceeded all records in 1950,reaching 40.2 billion dollars, or 46 percent above the level of 1949. Theyattained a peak annual rate of 48.0 billion dollars in the fourth quarter.The previous peak rate was 35.3 billion in the third quarter of 1948. Thehigher profits reflected increased output, greater sales, and higher prices.

Corporate profits after taxes, and net incomes of unincorporated business,also made new records. The net income of farm proprietors rose in thelatter half of the year. By the fourth quarter, it was 9.4 percent above thefourth quarter of 1949, although 25 percent below the postwar peak in thesecond quarter of 1948.

Money and credit expanded with the growth of the Nation's output andthe rise in prices. Many components of business and consumer debtreached new highs.

The housing boom stepped up the growth in residential mortgage debt,from an 11 percent increase during 1949 to 17 percent during 1950. Con-sumer instalment credit increased 22 percent in the first nine months of 1950,compared to a rise of 15 percent in the same period of 1949. Governmentpolicies helped restrain the rate of consumer credit expansion during the lastquarter of the year.

Total privately-held bank deposits and currency increased by 6.4 billiondollars, reaching 176 billion by the end of the year.

Personal income, at an annual rate of 233 billion dollars in the final quarterof 1950, was 14 percent greater than a year earlier, and more than 8 percentabove the second quarter of 1950. Although the annual rate of personaltaxes increased by over 2 billion dollars from the first half to the second halfof the year, personal income after taxes rose by 11 billion. The rise in pricespartly offset this increase, but there was a gain of about 2 percent in con-sumer purchasing power.

Consumption expenditures in the second half of the year far surpassedthose of any previous period, nearing an annual rate of 200 billion dollars.The increase was especially marked in the purchase of durable goods. Asubstantial part of the increased consumer expenditures was a reflectionof higher prices.

Personal net saving dropped from a rate of 6.5 percent of disposableincome in the first half of the year to a rate of 3.1 percent in the thirdquarter, reflecting the first wave of post-Korean buying. Then it rose to6.4 percent in the final quarter.

Private domestic investment in construction, equipment, and additionsto inventory rose very sharply, increasing 19 percent from the first halfof 1950 to the second half, and increasing 67 percent from the second halfof 1949 to the second half of 1950. In the second half of 1950, this invest-ment reached an all-time record of 53 billion dollars at a seasonally adjusted

24


annual rate. The increase during 1950 was most marked in the case ofproducers' durable equipment.

The investment trend was already upward before the Korean attack ledto an expansion of the defense program, and to a rapid further rise in in-vestment. Private and Government surveys indicate that business plansto spend more for plant and equipment in 1951 than in 1950.

The resumption of inventory accumulation during the first half of 1950was a factor contributing to business recovery. Economic developmentsmade it difficult for business to build up inventories immediately after mid-year; the strong demand forced some reduction in the third quarter. Butin the fourth quarter, inventory accumulation was marked.

The use of capital funds by nonfinancial corporations was almost 24billion dollars above 1949. Three-fifths of these funds were obtainedinternally from retained earnings and depreciation allowances.

Construction put in place in 1950 was 23 percent higher than for theyear 1949, and greater than in any previous year. The sharpest increasewas in housing. A peak of 149,000 new dwelling units was started in May,and approximately that level was maintained through August. In thefourth quarter, starts fell sharply, partly as a result of credit restrictions.

International developments greatly stimulated domestic demand andproduction, but the pressure of foreign purchases lessened. Exports in 1950were nearly 1.9 billion dollars less than in 1949. The surplus of exports overimports fell from 6.2 billion dollars in 1949 to an annual rate of 3.0 billionin the first half of 1950. An increase in our imports, after we decided tospeed up the rebuilding of our defenses, brought this annual rate down tothe probably transitory level of 600 million in the second half.

Both the volume and prices of imports increased substantially. In1950 our export surplus was less than our foreign aid, but this aid declinedsubstantially from the 1949 level.

Government transactions showed a close balance between receipts andexpenditures for the year as a whole. Gash receipts increased while ex-penditures fell in the second half of 1950. After a cash deficit of 4.2billion dollars (annual rate) in the first half, there was a surplus of 2.9 billionin the second half. But the effect upon business operations of the antici-pated increase in the military program more than offset any counter-inflationary impact of the cash surplus.

An increase of 1.1 billion dollars in Federal cash receipts from calendaryear 1949 to calendar year 1950 was due to higher economic activity, toincreased employment tax rates, and to higher withholding tax rates onindividuals in the closing months of the year. Collections from corporateincome taxes will increase substantially this year, reflecting high profits in1950 and increased tax rates.

HARRY S. TRUMAN.JANUARY 12, 1951.


The Annual EconomicReview

January 1951

A Report to the President

By the


922781—51 3


LETTER OF TRANSMITTAL

COUNCIL OF ECONOMIC ADVISERS,Washington,, D. C., January 9, 1951.

The PRESIDENT :SIR: The Council of Economic Advisers herewith submits a report, the

Annual Economic Review: January 1951, in accordance with section4 (c) (2) of the Employment Act of 1946.

Respectfully,

ffChairman.


ContentsPage

I. THE BROAD FEATURES OF 1950 33Recovery from the business recession 33The period of partial mobilization 34The period of intensified mobilization 39

II. GUIDES FROM THE PAST 43Conversion from peace to war, 1940-45 43

Magnitudes of expansion 43Sources of expansion 45Shifts in resource use 49Inflationary pressures 51The relevance of World War II experience 52

Conversion from war to a peacetime economy, 1945-50 . 53The general pattern of developments 54Labor participation and business investment . . . . 57Incomes and demand 59The implications of our current prosperity 61

I I I . THE MAGNITUDE OF THE TASK AHEAD 66The general nature of the task 66The size of the national security build-up 67Expanding production to meet the strain 70

Increased labor participation 70Expansion of productive facilities 72Obstacles to expansion 76Production goals for the end of 1951 76

Impact on civilian supplies 77Inflationary pressures 77How much defense can our economy support? 79

IV. ECONOMIC POLICIES FOR DEFENSE . . 84Three requisites for economic mobilization 84

The need for comprehensive programming 84The need for speed 85The need for public support 86

Maximizing our productive strength 87Industrial expansion . 88Basic resources 90Manpower 92Adjustment of agricultural production 96

31


IV. ECONOMIC POLICIES FOR DEFENSE—Continued page

Promotion of economic stability 97Mobilizing our financial resources 99Taxation 102Debt management 107General credit policy 107Selective credit controls 108Materials controls 110Policy for profits, prices, and wages 113

International economic policy 119Economic aid to foreign countries 119Control of commodities in world trade 122Commercial and financial policies 123

V. DETAILS OF ECONOMIC TRENDS IN 1950 125Employment and production 125

Employment 125Unemployment 127Production 127

Prices, wages, and profits 129Prices . 129Wages 133Profits 137

Money and credit 139The flow of goods and purchasing power 143

Personal income, consumption expenditures, andsaving 143

Business investment and finance 149International transactions 156Government transactions 159Summary: The Nation's Economic Budget . . . . . 164

APPENDIXES

A. STATISTICAL TABLES RELATING TO EMPLOYMENT, PRODUCTION,AND PURCHASING POWER 169

B. THE DISTRIBUTION OF INCOME AND SAVING IN THE UNITEDSTATES 221

C. THE NATION'S ECONOMIC BUDGET 231

32


I. The Broad Features of 1950

THE AMERICAN ECONOMY at the end of 1950 presented a fardifferent picture from that which would have been projected from

trends at the start of the year. Twice there occurred the sharply definedchanges in direction ©r speed which come from the shock of armed conflict.The outlook for 1951, and the appropriate national policies, will rest to agreater extent than for some years past on Federal activity stemming largelyfrom international developments. Whatever occurs, however, will startfrom the economy at the close of 1950, and the policies to be followed shouldmake full use of the experience already gained.

The economic history of 1950 divides into three distinct parts: the periodof recovery from the recession of 1949; the period of expansion of the de-fense program following the Korean outbreak on June 25; and the moreintense period following the beginning of major Chinese hostilities in lateNovember.

RECOVERY FROM THE BUSINESS RECESSION

The hesitant business recovery, which began in August 1949, grew into avigorous and sustained upward movement early in 1950. Industrial produc-tion increased more than 10 percent from February to June, and by thensurpassed the postwar record level established in 1948. Employment fol-lowed a parallel course. It furnished sufficient jobs, not only to absorb morethan one-fourth of the 4.7 million who were without work in February, butalso to match increases in a labor force which rose to new levels.

The final part of this Review discloses in detail the degree to which eachimportant factor in the economy supported the rapid recovery to a highprosperity level in June. Personal incomes, enlarged by the veterans' insur-ance refund of 2.6 billion dollars and by increasing wage payments, fed agrowing volume of consumers' expenditures. Residential constructionstarts, which had declined less than seasonally during the winter, sprangupward in March beyond the peak month of other postwar years and pro-ceeded at an unprecedented pace throughout the second quarter. Invest-ment in new plant and equipment, after a larger than seasonal decline inthe first quarter, expanded briskly in the second quarter. Businessmen bothreflected and contributed to the ebullience by indicating their purpose toundertake still greater programs of plant expansion.

This rising level of business activity in the early months of 1950 wasnot based upon transitory causes which might have been expected to

33


terminate expansion toward midyear. The payment of the veterans' divi-dend, which some observers overstressed, contributed to the recovery, butwas not the basic factor in recovery. Nor did the upward movement havethe ephemeral quality of an inventory boom. Producers and merchantswere cautious about accepting the bounding market as a firm foundationfor a reversal of their inventory policies. Manufacturing inventories (sea-sonally adjusted) did not exceed the September 1949 level until May 1950,and the increase in value from January to June was only 3 percent. Theincrease in value of retail inventories during the same period was 5 percent.In both cases, inventories were expanded less rapidly than sales.

Rising prices have often accompanied sustained periods of businessexpansion following recessions. They were not to be interpreted as aportent of coming inflation, when the price rise was within the moderatelimits recorded during the first half of 1950. It was not until the end ofApril that the weekly wholesale price index began to mount with any vigor.The total rise, from 151.1 in the first week in January to 157.4 in the lastweek in June, was about 4 percent. The index of industrial prices rose lessthan 3 percent during the same period. The volatile index of wholesaleprices of farm and food products opened the year near the lowest point since1946, and these prices increased more during the first half-year than thewholesale prices of manufactured goods. The slower-moving index of con-sumers' prices rose only 2 percent.

The changes in money supply and in bank credit during the first halfof 1950 were moderate. The increase in the privately-held money supplywas inconsequential, and the addition of 1.8 billion dollars to the loans ofall commercial banks was a rise of only 4.2 percent. There was, however,an increase of 11 percent in outstanding instalment credit. Nearly all ofthis occurred in the second quarter, indicating one point in the economywhere an inflationary potential might be developing. Residential mortgagecredit was also rising rapidly.

This rapid business recovery brought a speedy change in the fiscal con-dition of the Government. Treasury revenue from excise taxes and fromtaxes upon the wages of the growing body of employed workers beganto expand. Improving conditions also reduced demands upon the Treas-ury for the farm-price-support program and for unemployment insurancebenefits. In combination, these shifts resulted in a small budget surplusin the first half of the year.

THE PERIOD OF PARTIAL MOBILIZATION

The shock of the initial involvement in Korea fell upon an economywhich was experiencing a high level of prosperity, with few slack resourcesor signs that the boom forces were leveling off. There was prompt anduniversal recognition by the American people that a great defense effortmust be made. This meant that there would be imposed, upon an extended

34


economy, military demands for goods and for manpower which had to bemet by diverting factors of production from civilian uses.

The first result took the form of those mass movements which occasion-ally upset economic analysis based solely upon statistical data or assuminga regular pattern of economic behavior. There was a rush by consumers tobuy fantastic quantities of certain goods, even though such goods werebeing produced under conditions which assured the continuance of amplesupplies for many months. Local stocks of sugar were exhausted; merchantswere forced to limit purchases of nylon stockings; household linens flowedout of the shops and into the homes; automobile tires were eagerly seized;meat was crowded into deep-freeze units. Such movements, however short-lived they may be, continue to influence the economy long after the originat-ing incident has disappeared.

Although the supply situation did not warrant such panic buying, con-sumers were not wholly irrational. The goods they bought were importanthousehold commodities, the limitations upon which had been most sharplyfelt during the days of World War II shortages. The buying did not repre-sent any flight from the dollar; rather it was an effort to anticipate the needsof the future. Such buying would probably soon subside, and sales wouldsettle down when consumers found ample supplies in the shops and beganto use up what they had bought beyond their immediate needs.

The outburst of consumer buying was neither sufficiently great norsustained to require Government intervention to prevent demoralizationof markets. Nevertheless, it had lasting effects upon economic conditions.The consumers' price index made the unusually large jump of 1.4 percentbetween June 15 and July 15, as retail food prices moved upward. Therise in consumers' prices was followed by a round of wage adjustments, manyof them voluntary, that before the end of the year gave wage increases tomillions of workers in manufacturing and other nonagricultural industries.

The July bulge also caused merchants to flood manufacturers with ordersfor goods to replenish inventories which had been held at conservativelevels. (See chart 2.) Manufacturers in turn entered the markets forraw materials with large demands. Speculative buying of futures at risingprice levels began in the commodity exchanges. The upward pressureson raw material prices became a persistant inflationary factor throughoutthe second half-year.

While the heavy buying of nondurable goods was running its course,a more enduring trend of buying appeared in the markets for consumers'durable goods, especially automobiles and household appliances. Incidentalto this, there were heavy liquidations of personal savings and an acceleratedgrowth of instalment credit. Instalment credit continued to increaserapidly until action was taken to curb it.

Building operations were at a very high level when the Korean blow wasstruck. Then every builder began frantically to search out and buy all

35


CHART 2

MANUFACTURERS' SALES AND ORDERSNew orders ran well ahead of sales in the latter part of I960. Theaccumulation of order backlogs was especially rapid in the durablelines.

BILLIONS OF DOLLARS BILLIONS OF DOLLARS

- 10

- 5

1948 1949•J'NOT ADJUSTED FOR SEASONAL VARIATION.

SOURCE: DEPARTMENT OF COMMERCE.

1950 1948 1949 I960

materials needed for the completion of his 1950 operations, most of whichhe would normally have purchased as the work progressed. The multi-plied demand for building materials drove the regular market prices up-ward rapidly, and generated irregular markets in which commodities ex-changed hands at still higher prices. This excited buying eventuallysubsided. But it left its mark in the continuance of much higher pricesof building materials generally, although lumber prices declined temporarily.

Other business investment was immediately affected by the boomingmarkets, and by the expectation that a greatly enlarged defense programwould assure their continuance. Expenditures for new plant and equip-ment in the third quarter were substantially larger than those in the secondquarter, while plans were hastily enlarged for'far greater expansion in thefourth quarter of 1950 and in 1951. The effect upon additional invest-ment in inventories was immediate. Between July and October, manufac-turing and retail inventories increased 5 billion dollars.


The financing of new business investment by bank loans is a normalprocess in our economic structure. It has contributed greatly to our eco-nomic growth^ but may at times lead to difficulty by contributing to infla-tion. In the four-month period, July to October, the loans of all com-mercial banks increased more than 5 billion dollars, or 11 percent.

The central bank authorities became concerned over inflationary dangers,and in the latter part of August increased discount rates at the FederalReserve Banks and initiated open-market operations to make it less attrac-tive to the banking system and other lenders to sell Government securitiesfor the purpose of expanding loans. The responsibility of the FederalReserve to support the operations of the Treasury in refunding large matur-ing issues of securities limited the use of the general central banking instru-ments of credit restraint, and business loans of banks and other lenderscontinued to increase to new high records under the pressure of the stronginflationary forces in the economy.

The fiscal operations of Government did not contribute to inflationaryforces in the third quarter of the year, except insofar as anticipations influ-enced the plans and conduct of consumers, workers, and businessmen. Thethird quarter is one of relatively low revenue receipts by the Treasury, butthere was a modest budget surplus in that period of 1950. Budget expendi-tures for the Defense Department were less than in the third quarter of1949, and were slow in rising despite large increases in appropriations.Government contracts to purchase have economic effects long before pay-ments are ultimately made by the Treasury. But even these effects werelimited, since the business world received far fewer orders than it hadbeen led to anticipate from speculations in the daily press and tradepublications.

The force which directly sustained the rapid advance in economic activityduring the third quarter was civilian demand, buttressed by rising civilianincome, but without any extraordinary increment from Government sources.Producers were making goods for civilians, and not for defense, when theypushed up the industrial production index 6.6 percent between July andAugust, and continued to carry it forward, although less rapidly, during thenext two months.

The effect of the Korean outbreak, and of the resulting burst of buying byconsumers and by business firms, was a sharp rise in the prices of industrialraw materials, farm products, and foods. Many of these prices becamemore stable by the end of July. But a general advance of the index ofwholesale prices of industrial products continued, although with decreasingrapidity, until Thanksgiving Day, when they were 9 percent above the levelof the last week in June. Retail prices advanced more slowly, but this wasmerely a postponement of inflation, since the retail price level ultimatelyreflects earlier changes in wholesale prices.

In considering at midyear appropriate domestic economic policies to meetthe new situation, assumptions had to be made about the size and character

37


of the defense program. The assumption then adopted was that the defenseprogram would move forward in stages, with defense expenditure reachinga peak rate in two years. It followed that, for the first twelve months, thediversion of productive resources would not require drastic readjustment ofthe civilian economy. The initial program of the President to stabilize theeconomy was based upon this hypothesis.

The principal legislation requested and enacted to deal with the new out-look included additional military appropriations, higher taxes, and increasedcontrol powers. Additional appropriations of more than 15 billion, dollarsfor building up the armed forces, increasing military assistance to Europe,and enlarging stockpiles were requested in the course of the summer andwere approved. The President, in his first legislative proposal in July, rec-ommended an increase in taxes of 5 billion dollars. In response to thisrequest, the Congress enacted a tax measure imposing additional rates onindividuals and corporations to add about 4.7 billion dollars to the annualrevenue. In November, the President recommended an excess profits tax,and signified his purpose to request broader tax legislation in January.

The principal powers requested by the President, in recommending theenactment of the Defense Production Act of 1950, were to allocate mate-rials and limit their use, to limit credit to consumers and for new con-struction, and to furnish direct and indirect financial assistance to businessexpansion. Following the passage of the Defense Production Act of 1950,including authority to control prices and wages, official action was centeredupon establishing selective controls. These have the great advantage ofstriking directly at the point where it is desirable to apply restraint. TheFederal Reserve Board moved immediately to require larger down pay-ments upon automobiles and other consumers' durable goods than thosein many instalment contracts, and to shorten the period for full payment.A month later the Board tightened its requirements. The affected goodswere largely those in the manufacture of which it is necessary to use rawmaterials required for the defense program.

The Federal Reserve Board and the Federal Housing and Home FinanceAdministrator established regulations requiring larger down payments andshorter periods of amortization in the construction and sales of new houses.The Secretary of Commerce promulgated rules limiting exports of specificcommodities in short supply which were either directly required in defenseproduction or were of great importance to the domestic economy. TheNational Production Administrator prohibited the use of building mate-rials in structures for amusement and for a few other purposes. One ofthe first orders of the Administrator prohibited the accumulation of excessinventories of certain essential commodities. Vigor was shown in the exer-cise of authority to establish priorities. A basic regulation established pri-orities for purchases for defense. Such regulations, however, have thedefect that they take a part of an inadequate supply and leave all otherusers to battle more furiously for the remainder. To remedy this defect

38


with respect to some important scarce raw materials., orders were issuedto limit the amount which manufacturers might use in their operations.

Evaluation of the group of controls established during the five monthsfollowing the attack in Korea runs into the difficulty that causal relationsare very hard to establish in the economic world. Of some controls., suchas those restricting exports, it may be said with confidence that they hadpositive effect in reducing the total demand for certain goods. Of others,such as the regulation of the terms of instalment credit, it can be said thatthe expansion of instalment credit was virtually halted. But one cannotknow how far this was caused by the tighter credit terms, and how far itwas due to other influences affecting the purposes of consumers.

Price increases of raw materials and commodities at wholesale, whichgot under way in the summer of 1950, were checked near the end of thethird quarter. For six weeks before the blow from China, the wholesaleprice index advanced very slowly. The course of prices of basic raw ma-terials changed from an upward rush to a series of fluctuations. Wages, incontrast, continued to rise as new contracts were signed in many industries.A large number of these contracts included provisions for adjustment ofwages to further changes in the cost of living.

THE PERIOD OF INTENSIFIED MOBILIZATION

The initiation of heavy hostilities by China in late November blastedthe hope that the Korean campaign could be brought quickly to a close.The support of China by the Soviet Union disclosed dangers of incalculablemagnitude, and made necessary a vigorous increase in the speed and sizeof defense preparations.

The most important of the immediate changes in the Government defenseprogram was an increase of almost 100 percent in the draft calls ordered bythe Department of Defense for January and succeeding months. The planfor procurement for the armed services required substantial upward revision.Additional funds were requested of the Congress in December to finance theinitial phase of the revised procurement program, and were provided.There was no great change in the placement and scheduling of ordersbefore the end of 1950.

Industrial production in December remained close to the level establishedduring October and November. Employment, when seasonal adjustmentis made for the customary additions to the labor force and jobs incident tothe holiday trade, was likewise steady. Yet national income and con-sumers' income continued to rise under the impact of rising prices andrising wages.

Wholesale prices of industrial products, which had moved slowly fornearly two months, immediately pressed upward at the same fast rateat which they had advanced in July and August. In the four weeks

39


following the Chinese intervention the index rose more than in the precedingeight weeks, and more than in the four weeks following the Korea attack.Wholesale prices of farm and food products, after a sharp rise in the firstweek in December, were stable for two weeks and then bounded upwardagain.

The market conditions under which wholesale prices advanced rapidlyin December were very different from those of July and August. Christmasbuying by consumers was little if any greater, in unit volume, than in1949. Wholesale price rises in December seem to have been very largelythe result of two factors: first, an effort by sellers to increase prices beforethey could be frozen by price controls and, second, the evaluation by busi-nessmen of the pressure on prices which would flow from an accelerateddefense program, and a continuing upward trend of money incomes. Aninflationary spiral of rising costs of production, rising prices, rising wagerates, and still again rising costs was soon under way. (See chart 3.)

This new impetus to inflationary forces in December was not related toany deficit financing by the Treasury. A substantial budget surplus and alarger cash surplus was accumulated during the month. This rounded outa period of five months over which there was a net surplus, and a calendaryear in which the Budget was close to a balance. Bank credit, on theother hand, continued to add to the inflationary pressure at an acceleratingrate. Outstanding business loans of commercial banks in 94 leadingcities, which had expanded at an average weekly rate of 160 million dollarssince the end of June, increased more than 700 million dollars in the threeweeks following the China attack.

The important positive measures taken by Government during Decem-ber to stabilize the economy were quick action upon a corporate excessprofits tax bill, which was made ready for final enactment before January3; an extension of the rent control act; an order of the Federal ReserveBoard increasing member bank reserve requirements; additional allocationand limitation orders by the National Production Administrator affectingspecific materials, and in some cases specific uses; and an order establish-ing a Government monopoly in importing rubber.

Other measures were preparatory. The President issued a proclamationon December 16 declaring a national emergency, and immediately there-after established the Office of Defense Mobilization to which he assignedcontrol and direction of the exercise of the powers given to the President bythe Defense Production Act. Before the end of the month, the Directorof the new agency was coordinating the plans and operations of the severalgovernment offices under his jurisdiction.

The Economic Stabilization Administrator hastened the work of organ-izing a staff to administer price and wage controls, the need for whichpromised to be far greater under the accelerated defense program thanbefore. When the major automobile companies increased prices on their


CHART 3

WHOLESALE PRICESWholesale prices, after a moderate advance in the 1st half of I960,rose rapidly and on a wide front in the 2nd half of the year to newrecord levels. During the year farm prices scored the largestincreases, with food and industrial prices not far behind.PERCENT OF 1926 AVERAGE

220

200

180

160

140

120

100 I i ' ' ' i I i i

* FARM PRODUCTS

BOTHER THAN FARM

PRODUCTS AND FOODS(INDUSTRIAL PRODUCTS)

PERCENT OF 1926 AVERAGE

220

200

180

160

140

120

100

1948 1949

PERCENTAGE CHANGES

I960

DECREASE INCREASE

ALL COMMODITIES

FARM PRODUCTS

FOODS

OTHER THAN FARM

PRODUCTS AND FOODS(INDUSTRIAL PRODUCTS)

DECEMBER 1949 1 TO JUNE 1 950^•X^^--v:^T^:::::::::;:;A-^^:;>V;>v:v.v^'-;'l J U N E I960 TO^:^::-^//^:J:l:;^-\^^;^^::-°^ DECEMBER I960

2.8| PRE-KOREAN PEAK TO DECEMBER 1950

SOURCE:' DEPARTMENT OF LABOR.


new models, the Administrator issued his first mandatory order fixingprices at the December 1 level until March 1, 1951. This was followedby an order, in compliance with the statute, prohibiting wage increasesfor the same period. These orders had limited effect upon the infla-tionary forces that were affecting wholesale prices and the cost of living.But they were in a sense preparatory to much more extended action. TheAdministrator scheduled a series of conferences with producers of a numberof basic industrial commodities to consider means of holding down pricesof their products until his organization was prepared to administer moreextensive price and wage controls. This procedure closely followed theearly course of action to control prices in 1940-41. The precedent wasfurther adopted in appeals to businessmen to follow, voluntarily, a pricepolicy which the Administrator outlined in a formal statement.

At the end of 1950, the national economy was subject to forces ofinflation far more powerful than those which arose following the originaloutbreak in Korea. Originally the advance in prices, which had sloweddown during the mid-autumn, was accelerated under pressures whichpromised to continue until curbed by positive action. The outlook isthat to these pressures there will soon be added the direct effect of therapidly expanding military program, with its increasing draft uponproductive resources which have thus far continued to serve civilian needs.Clearly it will be necessary to resort to more direct action than has thusfar been taken to prevent inflation from continuing its destructive spiral.The policies now needed are treated more extensively in a later part ofthis Review.


II. Guides From the Past

THE ECONOMY at the end of 1950 is the foundation on which wemust build for the task ahead. But this economy was not built in a

day; and the experience of more than one year can contribute much toour understanding of the job to be done. The five years between 1940and 1945 witnessed a gigantic conversion from peace to war. The workimmediately before us now, measured by defense goals already defined, is ofsmaller magnitude. These goals are not based upon the prospect ofinevitable total war; they are a part, rather, of our continuing efforts toachieve a durable peace. Nonetheless, as the Nation now embarks upona program for conversion to defense, it would be folly to ignore an expe-rience into which so much effort was poured only a few short years ago.

The record of economic development between the cessation of hostilitiesin 1945 and 1950 is also of large significance today. That record exceededexpectation in reconverting from war to peace, without the prolonged dis-location of postwar periods in earlier times. The managerial and laborskills, the private financial mechanisms, and the public policies whichsmoothed and accelerated this transition, are national assets which shouldembolden us now as we face an even harder task. Moreover, these fiveyears have brought our economy to unprecedented levels of strength, judgedby every index of business activity and by all of the human and otherresources which enter into our total power. We are far abler than adecade ago to assume the heavy burdens now confronting us. Yet thevery fact that our resources are now being more fully used than theywere in 1940, makes more difficult in some respects the problem of redirect-ing a large part of our resources to national defense.

Thus the history of the past decade, in war and in peace, should encourageand guide us in the months and years ahead. If we evaluate this experiencecarefully, it can contribute immensely to the shaping of policies for thefuture.

CONVERSION FROM PEACE TO WAR, 1940-45

Magnitudes of expansion

The first major United States defense appropriation was requested inJune 1940, at the time of the fall of France. The estimates presented tothe Congress in January 1941, were described by the President as a budgetfor "total defense." The total of defense spending authority requested bythat time was 29 billion dollars, or nearly 30 percent of the total national

922781—51 4 -


output of the preceding twelve months. During the following year, 46billion dollars were added, bringing the total to 75 billion dollars over aperiod of 18 months in terms of the prices then prevailing. In 1950 prices,this was roughly equivalent to about 115 billion dollars. The budget pre-sented in January 1942, one month after Pearl Harbor, was called "a budgetfor a Nation at war in a world at war." From that date forward, the onlylimitations on our war efforts were the intensity of our purpose, the skillof our planning, and our physical capabilities. The dollars were madeavailable as rapidly as they could be used.

The results were stupendous. The dollars were used to train, feed, house,and clothe 12 million men in uniform, and to provide them and the armedforces of our allies with munitions of war. Victory was the final measureof success. The economic dimensions of this effort, however, were shownby the growth of Federal war expenditures. The 1941 rate was nearly 2l/ztimes the second half of 1940 rate, and the rate in 1942 was over 3 timesthe 1941 rate. Total war expenditures in 1944 were 135 billion dollars,or nearly 13 times greater than the rate during the second half of 1940.These comparisons are all stated at the 1950 price level, in order to makethem more meaningful.

Expenditures for munitions production more than doubled in 1941, andin 1942 were 3/2 times their 1941 level. In 1944, they stood at about 85billion dollars (in 1950 prices), or more than 13 times the annual rate inthe second half of 1940. This 1944 outlay represented production of96,000 aircraft, 18,000 tanks (nearly 30,000 had been produced in 1943),more than 30,000 ships and nearly 2 million tons of aircraft bombs. Itsupported the landings on the Normandy beaches and on the Pacific islands,and made good the tremendous attrition of full-scale combat. Had neces-sity dictated, it could have been still further increased.

But understanding of what took place would be superficial, if one lookedat the military effort alone. Behind this effort was a build-up of the eco-nomic strength which underlies striking power. This build-up was amplein scope and unparalleled in size. Total national production in 1941 wasabout 15 percent greater than in 1940. (See appendix table A-10.) In1942, it increased by nearly 15 percent again. In 1944, the peak year ofwar production, total national output was about 60 percent above the1940 level. The surge of industrial output was even greater. The indexof industrial production rose 30 percent in 1941 above the previous year,and rose a further 23 percent in 1942. It reached its peak in 1943. Inthat year, and again in 1944, it stood about 90 percent above the 1940level. Agricultural output increased nearly 20 percent between 1940 and1944, despite a substantial reduction in the farm labor force and con-tinued shortages of many farm supplies. The rise in total output not onlysupplied the primary military effort. It was also sufficient to service vitalindustrial expansion, and actually to achieve some general improvement inthe basic consumption standard of those employed at home. In short, a

44


CHART 4

CHANGES IN PRODUCTION & EMPLOYMENT1940-1944TOTAL PRODUCTION OF GOODS AND SERVICES^(BILLIONS OF DOLLARS, 1950 PRICES)

1940

INDUSTRIAL PRODUCTION(PERCENT OF 1935-39 AVERAGE)

1940

1944

AGRICULTURAL PRODUCTION(PERCENT OF 1935-39 AVERAGE)

CIVILIAN EMPLOYMENT(MILLIONS OF PERSONS)

GROSS NATIONAL PRODUCT.

SOURCES: VARIOUS GOVERNMENT AGENCIES.

major productive effort enabled us to grow stronger, not only on one vitalfront, but on several vital fronts. This conclusion is clear, even thoughthere are statistical difficulties in comparing peacetime output with waroutput. (See charts 4 and 5.)

Sources of expansionThe mainspring of this growth was an economy which possessed great

power and resiliency. Although total production rose by 60 percent between1940 and 1944, the level from which it started was very high by the stand-ards of any other country in the world. The years of common action tocombat depression, and to help those groups and areas which had beenhardest hit, had built new sources of strength into the economic structure.

From 1940 onward, the basic sources of expansion were three: the absorp-tion of unemployed manpower and other idle resources into production; theexpansion of productive capacity through enlarging plant and facilities; andthe recruitment of new workers—for example, more women—into the laborforce. Each of these three sources played a major role in the final result.

45


CHART 5

TOTAL OUTPUTTotal production of goods and services in 1944 reached a peak about 60percent above the 1940 level. In 1950, it was about 50 percent higherthan in 1940.

PERCENT OF 1940200

180

160

140

120

100

.INDUSTRIAL PRODUCTION

I I I I I

PERCENT OF 1940200

180

160

140

I 20

1001940 41 42 43 44 45

^INDEX OF GROSS NATIONAL PRODUCT BASED ON 1950 PRICES.

46 47 48 49 50

SOURCES: COUNCIL OF ECONOMIC ADVISERS; BASED ON DATA FROM BOARD OF GOVERNORSOF THE FEDERAL RESERVE SYSTEM, DEPARTMENT OF COMMERCE,AND DEPARTMENT OF AGRICULTURE.

They operated concurrently, and their contributions to the expansion ofoutput cannot be separately measured.

Between 1940 and 1944, the total number of people in the armed forces andcivilian employment combined rose by 17.3 million, or about 35 percent.Of this increase, 10.9 million went into the armed forces, and 6.4 millionwere drawn into civilian employment. To supply this increase, 9.9 million,or well over half, came from the increased participation of the populationin the labor force and normal growth, while 7.4 million were absorbed fromthe pool of unemployed which existed in 1940. Thus the expansion of thelabor force was more important than the reduction of unemployment inmeeting our manpower needs.

From the standpoint of timing, the major increases in civilian employ-ment came during the years 1940-42. The largest growth in the armedforces occurred during the next two years, particularly during the twelve-month period from mid-1942 to mid-1943, when 5 million men, or over 40


percent of the total increase, were put in uniform. This timing eased thejob of preparing for all-out war production.

The enlargement of labor effort did not come only from increases inthe number of workers. Between 1940 and 1944, average working hoursin manufacturing industries rose from 38.1 to 45.2 hours a week, or byabout 19 percent. In construction, they rose from 33.1 to 39.6, or nearly20 percent; and in bituminous coal mining, they rose from 28.1 to 43.4, ornearly 55 percent.

This tremendous increase in labor input was devoted largely to theproduction of finished munitions, civilian goods, and essential supportingservices. A substantial fraction, however, especially up to mid-1943, wasdevoted to enlargement of plant and facilities for the production of muni-tions and basic materials. During the five-year period from mid-1940 tomid-1945, investment in industrial and industrial-service facilities totallednearly 57 billion dollars (in 1950 prices), or nearly 4^4 percent of totalnational output. Of this total, over 16 billion dollars worth were put inplace in 1942 alone, the peak year. This represented nearly 7 percent oftotal national output.

The great emphasis in this investment program was on facilities for theproduction of ordnance, aircraft, ships and chemicals (including syntheticrubber). These categories alone accounted for almost 60 percent of thetotal outlays for war industry facilities during the five-year period. Thefactory space devoted to aircraft production was increased 13-fold fromJanuary 1940 to March 1944.

Other very large programs were undertaken for the expansion of basiccapacity in metals and metal products, machinery and electrical equipment,and petroleum and coal products; these categories accounted for another24 percent of the total. Rough estimates indicate that, between 1939 andthe end of 1945, the total capacity of all manufacturing industries wasincreased by as much as 30 percent. In individual industries, the increasein capacity was 12 percent for steel, over 50 percent for nonelectricalmachinery, and 70 to 75 percent for chemicals and electrical machinery.Electric generating capacity increased by more than one-fourth. In aneven shorter period, aluminum capacity increased nearly six-fold. In anumber of less essential industries there was little or no increase in capacity,and there were serious lags in maintenance, and modernization.

As shown in chart 6, these expansions of capacity supported very largeincreases in output. Between 1940 and 1944, steel production rose bynearly one-fourth; power output by about one-half; and aluminum pro-duction nearly quadrupled.

Direct Government financing played a major role in the World War IIexpansion program. Nearly 72 percent of the total war industrial facilitiesof the period were built with public funds. The major reason for this wasthat such a high proportion of the facilities constituted special types neededfor direct war materiel output, offering only limited prospects of economical

47


CHART 6

GROWTH IN PRODUCTION, 1940-1944

ALUMINUM STEEL

THOUSANDS OF SHORT TONS MILLIONS OF SHORT TONS0 300 600 900 0 50 1001 1 I 1

1944

ELECTRIC POWER-17

BILLIONS OF KILOWATT HOURS0 30 60 90T i l l

1 1 1

fc^^^^j

1., I

BITUMINOUS COAL

MILLIONS OF SHORT TONS0 200 400

1 1 I

150

I

6001

•940 w/mt/M w///////mmm&1944 I, I

PETROLEUM

BILLIONS OF BARRELS0 1 2 31 1 1 1

1940 &M%M%\

1944 | , j

-'FOURTH QUARTER RATE

SOURCES: DEPARTMENT OF INTERIOR, AMERICAN IRONFEDERAL POWER COMMISSION AND DEPARTMENT OF

1

FOOD

PERCENT OF 1935-39 AVERAGE0 50 100

1 1 I

VMrn^mzMa

AND STEEL INSTITUTE,AGRICULTURE.

% ' !

150

1

11111

postwar use. The facilities built for ordnance, aircraft,, and shipbuilding,for example, accounting in all for a little over half of total public and pri-vate outlays, were more than 90 percent Government-financed. In the ex-pansion of basic industries such as steel and machine tools, Government andprivate industry put up about equal shares, while the transport and utilityexpansions were financed predominantly from private sources.

Policies were developed to support expansion in ways which were or-derly, least disruptive of community life, and most compatible with ourenterprise system. Recruitment and training programs, special transporta-tion arrangements, day nurseries, special arrangements for part-time work—these and related policies were devised to secure maximum participationin the labor force. Investment policies, including direct Federal loans,loan guarantees, and accelerated amortization, were devised to securemaximum participation by private business in the needed expansion ofcapacity.


Shifts in resource useDespite the great increase in total output between 1940 and 1944, it was

not possible merely to superimpose the war program on our civilian econ-omy. Massive shifts in the use of resources were required. The size anddifficulty of these shifts were only partially indicated by changes in thebroad components of the labor force or of total national output, becausemany shifts were within major components, and virtually all major segmentsof the economy showed some expansion.

In 1940, Federal defense expenditures absorbed about 2 percent of thetotal national output of 184 billion dollars (all of these figures are based oncomputations in terms of 1950 prices). In the first quarter of 1941, the per-centage was about 7; in the first quarter of 1942, it was about 20; and in thefirst quarter of 1943, it was over 40 percent, or close to the wartime peak.In the peak war year 1944, war outlays absorbed about 45 percent of a totaloutput of nearly 300 billion dollars. Civilian consumption in the aggre-gate rose somewhat in every war year except 1942, being nearly 15 percenthigher in 1944 than in 1940. Per capita food consumption grew consider-ably, although the more equitable distribution meant declines in consump-tion for many. Nonetheless, there were marked and unfavorable changesin the range and quality of available consumer goods, which cannot beadequately accounted for in the statistics. Furthermore, there were manyindividuals and families whose tax payments rose substantially more thanincome, and whose standards of living declined markedly. As a proportionof total output, consumption declined from about 70 percent in 1940 toabout 50 percent in 1944.

War demand for particular types of materials, facilities, and skilled man-power was great enough to require the virtual elimination of productionof a number of durable consumer goods. Total production of all consumerdurable goods was cut by about one-half between 1941 and 1944. Fromrelatively small quantities at the beginning of 1940, direct military con-sumption of steel rose to more than 40 percent of total supply in 1944, andof copper and aluminum to two-thirds or more.

On the manpower side, only agricultural employment and domesticservice showed major and steady declines between 1940 and 1944, fallingby nearly 2 million. Construction employment rose by nearly a million—almost doubling—between 1940 and 1942, and then was cut back even moreas the expansion of facilities was sharply contracted. All other major areasof employment remained fairly stable, or showed increases, throughout thefive-year period. By far the major increase was in the metals, metal-work-ing, and other durable-goods industries chiefly devoted to munitions pro-duction. Employment in the durable-goods industries expanded from 5.3million in 1940 to 10.9 million in 1944. This was equivalent to nearly 60percent of the total increase in nonagricultural wage and salary workersbetween 1940 and 1944. (See chart 7.)

49


CHART 7

NONAGRICULTURAL EMPLOYMENT

MILLIONS OF PERSONS

60

50

40

20

MILLIONS OF PERSONS

60

OTHER

GOVERNMENT

>LOY

! '

'///,

V/ATURI

•

VIE

NJG

FvEj

NT ;

<.

Mff.ti

^i'

1

•-••••

-

x/y>

I1940 41 42 43 44 45 46 47 48 49 50

50

40

30

20

10

SOURCES: DEPARTMENT OF COMMERCE AND DEPARTMENT OF LABOR.


Inflationary pressuresThese very great increases in employment, working hours, and produc-

tion generated similarly large increases in incomes—even with adjustmentfor increases in prices and wage rates. Disposable personal income (in 1950prices) rose by nearly 45 percent, or roughly 55 billion dollars, between1940 and 1944; income before taxes rose even more. (See table 1.) Duringthe same period, the supply of consumer goods and services increased byless than 15 percent, for while total production expanded by 60 percent, ornearly 115 billion dollars, Federal war expenditures absorbed the whole ofthe increase, and the declines in private investment and net foreign invest-ment were not sufficient to permit a greater expansion of consumption.

The inflationary pressure caused by incomes rising so much faster thancivilian supplies was only partially counteracted by taxation. With gov-ernment expenditures rising much faster than revenues, and with restrictedcivilian supplies, there was necessarily a very great increase in personalsavings. They rose from about 5 percent of disposable personal income in1940 to nearly 25 percent in 1944. In 1944 private saving, both personaland business, totalled more than 60 billion dollars (in terms of 1950 prices).

TABLE 1.—Production and private income and expenditure, 1940 and 7944

[Billions of dollars, 1950 prices]

Item

Production:Total production of goods and services (gross national product)Total war production _

Income and expenditures:Disposable personal incomeRetained business receipts i . .

Total retained private income . -

Personal consumption expendituresGross private domestic investment

Total private domestic expenditures

Total excess of private income (-{-) or expenditures ( — )

1940

184.44.6

133.021.2

154.2

127.227.6

154.8

—.6

1944

298.5135.0

189.927.8

217.7

144.312.1

156.4

+61.3

* For definition, see appendix table C-3.Source: Based on data in appendix table A-10.

At no time during the war period, however, were taxes and funds ear-marked for savings sufficient to offset inflationary pressures. Between1940 and 1944, the index of consumer prices rose by 25 percent, and theindex of wholesale prices by nearly one-third. The bulk of these increasesoccurred before the inauguration of general price control in 1942, butstrong upward pressures nonetheless persisted, making the task of main-taining stable prices one of continuing difficulty. Furthermore, when thewar ended and controls were removed, the very large volume of liquid sav-ings accumulated during the war was a major inflationary factor in thereconversion period.


The relevance of World War II experienceThis resume of World War II experience has points of relevance to

the large though different defense effort now being undertaken. Itindicates that the economic aspects of mobilization, whether partial orcomplete, are not confined solely to servicing the military front. Policiesmust be directed toward achieving that balance between strength on thehome front and strength on the fighting front which provides the greatesttotal strength in terms of the strategy of the contest. The resume under-scores the importance of expanding production. But it also shows clearlythat a magnificent increase in production could not avert the necessityfor cutbacks and reallocations of manpower, materials, and equipment tonew purposes. And although the Nation started its defense effort ata time when there were many slack resources, this did not prevent therapid gathering of inflationary forces.

To meet these problems, many and varied policies were adopted andmade effective. Government expenditures, financial aids, and tax incen-tives contributed to the rapid expansion of total output. By the end of1943 they were setting the pattern of final demand for over 40 percentof national output, and largely guided the necessary shifts in manpower.Direct allocations of materials, and prohibition of nonessential uses, assuredthe availability of resources to meet these primary needs. Increased taxrates, savings campaigns, and rationing helped to restrain the pressure ofcivilian incomes on limited supplies. Direct price control and wagestabilization gave necessary support to these policies, and at the same timekept the remaining pressures from breaking out of bounds. It is a majorquestion, however, whether inflationary pressures could have been con-tained successfully over a longer period without higher taxation.

It is of high significance that, even with this necessary intensificationof public controls and centralized action, the great records of wartimeproduction were achieved in large measure without destroying—and infact, by enlivening—the dynamic initiative of enterprise all over thecountry. This not only helped us to win the war; it also left us in astrong position to move forward when hostilities ceased.

The value of this experience is not lessened because the problems wenow face are somewhat different from those which confronted us after1940. Experience is useful, not only in dealing with identical situations,but also in dealing with new variations. Besides, there are numerousimportant points of similarity between what we must now do and what wedid after 1940. That experience should be studied and drawn upon now.More detailed reference to its pertinence will be undertaken in the policysection of this Review.


CHART 8

CHANGES IN PRODUCTION & EMPLOYMENTSINCE 1944

TOTAL PRODUCTION OF GOODS AND SERVICES'17

(BILLIONS OF DOLLARS, 1.950 PRICES)

1944


1944

I960,


1944

I960


1944I960,

^ANNUAL RATE, SEASONALLY ADJUSTED.^SEASONALLY ADJUSTED.


CONVERSION FROM WAR TO A PEACETIME ECONOMY, 1945-50

In the Midyear Economic Review of last July, the Council undertookan analysis of developments during the preceding five years. This surveyoutlined the unparalleled height of peacetime productive power to whichthe American economy had ascended. The survey also revealed new mag-nitudes and modes of private economic behavior and public policy, whichsuggested new limitations on the applicability of traditional cycle analysis.The mildness of the 1949 business recession, and the speed and vigor of therecovery, led the Council to suggest that new factors of stability had beenbuilt into the structure of our system, and that this would contribute tofurther dynamic growth.

The tasks now confronting the Nation suggest a further appraisal of thesefive years in a somewhat different perspective. The economic situation nowis vastly different from what it was in 1940, when we began so vigorously tobuild up military strength and to adjust the rest of our economy to thisprimary task. In consequence, the Nation is now in a novel situation as it

53


faces a defense emergency. This, in turn, has great bearing upon what wenow need to do, and upon the speed and facility with which we can adjustto the accomplishment of new goals and the assumption of new burdens.

The general pattern of developmentsThe dominant feature of the beginning of the reconversion period was a

precipitate decline in war expenditures. From their peak of about 135billion dollars in 1944 (in 1950 prices), these expenditures dropped to onlyabout 25 billion dollars in 1946, or by more than 80 percent. They declinedstill further in 1947.

Despite this drastic contraction of the major single segment of demand,the total output of the economy fell by only about 15 percent between 1944and 1946. By the end of 1950, after the moderate setback in 1949, totaloutput stood close to the 1944 level. (See chart 8.)

Industrial production, weighted so heavily during the war by munitionsoutput, has varied much more sharply than total output. From a 1943peak of 239, the index of industrial production fell to 170 in 1946; or bynearly 30 percent. Since 1946, except for the 1949 setback, the index hasclimbed steadily, and by the end of 1950 was within 10 percent of its war-time peak year. (See chart 9.) Except for the industries which had con-centrated on munitions production, virtually all types of industrial outputat the end of 1950 were substantially above wartime peaks. In view of therecord of expansion and modernization of industrial facilities during thepostwar years, basic industrial capacity is now well above the 1944 level.

Agricultural production as a whole did not decline at all from its war-time levels, and in both 1949 and 1950 was well above those levels.Furthermore, there were substantial shifts in types of farm output, towardhigher-value livestock products more nearly in accord with the pattern ofconsumer demands at high levels of incomes.

The physical volume of total new construction in 1950 was more than 15percent above its 1942 wartime peak.

Thus in some areas of basic importance to long-term economic growthand to the steady improvement of living standards, production in 1950 wassubstantially above its wartime levels. Even though total output wasprobably no greater, it was attained with far less strenuous utilizationof plant and manpower. The capacity to produce was much greater.

The pattern of output in 1950 was predominantly adjusted to the needsof a prosperous peacetime economy. Total civilian consumption was one-third above the 1944 level. It absorbed about 70 percent of aggregateproduction, compared with about 50 percent in 1944. (See chart 10.)Residential construction in 1950 totalled 12.5 billion dollars, or nearly tentimes the 1944 level (in terms of 1950 prices). About 6*/2 million newpassenger cars, or 11 billion dollars worth, were produced in 1950, com-pared with practically none in 1944. A completely new product, television,

54


CHART 9

INDUSTRIAL OUTPUTTotal industrial output rose about 90 percent from 1940 to the wartimepeak in 1943, when it was very heavily weighted by munitions production.During 1950, although below the wartime peak, it was 60 percent abovethe 1940 level, and was rising rapidly.

POINTS IN TOTAL INDEX

250

200

150

100

50

1935-39 AVERAGE FOR TOTAL = 100

POINTS IN TOTAL INDEX

250

TOTAL INDUSTRIALPRODUCTION

'DURABLE MANUFACTURES^ +,'" V'^-- * ' « * ''• - "' "c "

200

150

100

50

1940 41 42 43 44 45 46 47 48 49 50

SOURCE: BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM.


CHART 10

CHANGING SHARES IN NATIONAL OUTPUTThe record of the past decade shows the growth and changing patternof the economy under the impact of World War IE, the conversion topeacetime, and the postwar resumption of expansion. Real consumptionhas expanded steadily to new all-time highs, while total output inI960 was only moderately below the wartime peak.BILLIONS OF DOLLARS

350

300

250

200

150

100

50

1950 PRICES

TOTAL GROSS NATIONAL PRODUCT

\ GOVERNMENT PURCHASES\f OF GOODS AND SERVICES

\

BILLIONS OF DOLLARS

350

300

250

200

150

100

50

1940 41 42 4*S '4*4* '4*5*" 46 47 48 49* 50

PERCENT OF TOTAL

100

75

50

25

PERSONAL CONSUMPTION EXPENDITURES:

PERCENT OF TOTAL

100

75

50

25

1940 41 42 43 44 45 46 47 48 49 50U GROSS PRIVATE DOMESTIC INVESTMENT AND NET FOREIGN INVESTMENT. SEE UPPER PART OF CHART FOR

DOLLAR VOLUME OF EACH ITEM.

SOURCE : COUNCIL OF ECONOMIC ADVISERS.

56


was being produced at a rate in the neighborhood of 2 billion dollars a year.Throughout the civilian economy, new peacetime records were beingestablished.

Labor participation and business investment

Between 1944 and 1946, the total labor force (including the armedforces) declined from 65.9 to 60.8 million, or by about 5 million. Overthis same period, the decline in the armed forces was about 8 million. Thusthere was an increase of about 3 million in the civilian labor force, althoughmany women and older people left the labor force, and many veteransresumed their education instead of looking for jobs. After 1946, both thetotal labor force and the civilian labor force steadily increased. By late in1950, the total labor force was close to the World War II peak year, 1944.The civilian labor force was higher than in 1944 by well over 8 million,or more than 15 percent; and civilian employment was also higher by morethan 6 million, or more than 10 percent.

Throughout most of the postwar period, with the exception of 1949 andthe first half of 1950, unemployment was little if any above what might beregarded as a normal peacetime average, between 2 and 2J/2 million, or3J/2 to 4 percent of the labor force. This level of unemployment, how-ever, was substantially above the 1944 average of 670,000 or 1.2 percentof the labor force.

Average weekly working hours, however, have declined substantially. Inmanufacturing, they fell from their 1944 peak of 45.2 to 40.4 in 1946, or byabout 10 percent. After that, they remained between 39 and 41. In otherindustries, declines of smaller magnitude took place. The eight-hour dayand the five-day week became widely established as an acceptable balancebetween work and leisure under going wage rates and aggregate demandfor labor. Thus there was a substantial decline in the intensity of laboreffort during the postwar period, measured by degree of participation in thelabor force by women and older people, by volume of unemployment inrelation to the total labor force, and by length of the work week.

With continuing high employment and intensive investment in mod-ernization and expansion of productive facilities, there has almost certainlybeen a substantial improvement in productivity. Although statisticalmeasurements in this field are necessarily lacking in precision, it seems likelythat output per man-hour for the economy as a whole has increased by atleast 10 percent during the past five years.

Business investment has been a major cause of this rise in productivity.Outlays during the postwar years for nonfarm plant and equipment havetotalled over 90 billion dollars, or 7 percent of total national output. (Seechart 11.) These expenditures rose substantially in every year until 1949,when there was a slight drop, and again increased sharply in the second halfof 1950. This very large volume of investment was devoted not only to the

57


CHART 11

NONFARM PLANT AND EQUIPMENT OUTLAYSThereaprivfacPrivtoteBILL

«| 25

20

15

10

5

0

•* PUI. . PO

SOUF

• , SECU

total physical volume of private and public facilities investmen:hed a wartime peak in 1942, which was equalled in 1948 byate investment alone. Government outlays for productivelities accounted for a large share of the total from 1941 to I94Zate outlays in I960 were 90 percent of the wartime peak foJl outlays, and 52 percent above 1940,ONS OF DOLLARS BILLIONS OF OOLl

1950 PRICES

—

—

^

* i

*

T~~™

PU

'

BLI

.

;:

- i

-"•*•

• > j

r-

|̂ L

* ;

i "•';

-

-

PR

',*

L,

IV ATE

•*•

HTTP*

< "

^;

^ j

I -

•*w

-

-

'v i

1 -

* :

; _,

1940 41 42 43 44 45 46 47 48 49

~

JJ

,

—

50

t

i.r

ARS

25

20

15

10

5

0

RTION OF THE TOTAL.

ICES: COUNCrL OF 'ECONOMIC ADVISERS; BASED ON DATA FROM DEPARTMENT OF COMMERCE,

RITtES AND EXCHANGE COMMISSION, AND BOAiRD OF GOVERNORS OF THE FEOJERAL RESERVE SYSTEM.,


enlargement of plant and equipment, but also to extensive modernizationprograms. These activities have established a base for further increases inproductivity, and have greatly enlarged our capabilities for the tasks ahead.

Steelmaking capacity is about 8 percent greater now than it was at theend of 1944, despite the retirement of much obsolete capacity just after thewar. Capacity for refining petroleum has increased about 28 percent inthe same interval, and electric utility generating capacity has risen nearly 40percent. Much more rapid growth has occurred in some important indus-tries such as chemicals and electrical machinery, which are estimated now tohave capacities about two-thirds larger than at the end of the war.

Changes in the production of individual basic industries have differedmarkedly. (See chart 12.) Output of crude petroleum at the end of 1950was more than 75 percent above the 1944 level; of electric power, morethan 50 percent; and of steel, nearly 15. Aluminum production, however,was moderately below the wartime peak, and coal production had fallennearly 20 percent.

Some estimates indicate that the over-all capacity of private manufactur-ing industry increased about 27 percent between the end of 1945 and theend of 1950, compared with 31 percent during the period 1939-1945. Inabsolute terms, the expansion was probably larger in the five postwar yearsthan during the war.

Since the Federal Reserve Board index of manufacturing productionis only now approaching the peak registered during the war, it might appearthat present capacity could support very much more than the present level ofoutput. But these possibilities should not be overrated in the face of themobilization task before us. The over-all estimate of expansion of capacityduring 1945-50 refers to the pattern of output of the past few years, and isless relevant to the considerably different pattern of output needed in thebuild-up of economic mobilization. Moreover, a significant part of thereported postwar increase in private industrial capacity for production ofcivilian-type goods did not represent a net addition to total capacity; itwas secured by reconversion of war facilities. Finally, some existing capacityof the less essential types may not be fully utilized in the next few years, asmanpower and materials are necessarily diverted elsewhere.

Incomes and demand

In the years from 1945 to 1950, the volume and pattern of private demandagain became the main influence upon the volume and pattern of pro-duction. This was true although, by prewar standards, government pro-grams remained large. Civilian consumption and private investment ac-counted for about 86 percent of total national output in 1950, comparedwith about 52 percent in 1944.

The deficiencies accumulated during a decade of depression and incom-plete recovery followed by five years of war, and the new wants generatedby high employment and high incomes, were tremendous. These high

922781—51 5 59


incomes, together with more than 150 billion dollars of wartime liquid sav-ings, gave an additional impetus to an economy released from the needs ofwar, comparable to the impetus imparted by the great volume of defenseappropriations from 1940 onward. As peacetime incomes and consumerspending continued to rise, business adjusted its investment plans to whatwere gradually recognized as permanently greater markets.

The expanding scope of business investment in productive facilities hasalready been outlined. The production of housing and durable goods forconsumers was even greater. The still larger output of nondurable goodsand services showed a slight but steady upward trend, despite the increasingabsorption of consumer savings and incomes by housing and durable goods.By 1950, total consumer expenditures, together with residential construction,amounted to about 203 billion dollars, or in the neighborhood of 40 percentabove the 1944 level.

During 1946-50, residential construction and output of durable consumergoods together totalled roughly 160 billion dollars (in 1950 prices), or 12percent of total national output over the whole period. Some 21 millionpassenger cars were produced^ and the total number of passenger cars onthe road rose from about 26 million at the end of 1945 to about 40 millionby the end of 1950. Between 4*/2 and 5 million new housing units wereput up, raising the total stock of housing by nearly the same amount.

The high and rising level of total production was necessarily accompaniedby high and rising incomes. Both in the aggregate and in composition, theoutput available to consumers after 1945 was much more nearly in accordwith the demand arising from those incomes than it had been during thewar. By the first half of 1950, there were reasonable grounds for believingthat we could look forward to a period of orderly economic expansion.

True, there had been considerable periods of time between 1945 and 1950which were characterized by strong inflationary pressures, notably after thehasty abandonment of controls in 1946. This inflationary experiencestemmed from many causes. But particularly, it indicated that financingtoo large a proportion of a war burden through borrowing, and too small aportion through taxation, leads to dangerously excessive purchasing powerin the postwar period when the cashing-in of wartime savings adds to thepurchasing power generated by current production.

There were times when the consequences of these inflationary pressuresseemed to threaten a major and sustained economic reversal. But evenwhen the first manifestations of deflation appeared in 1949, the underlyingfactors of strength appeared to be predominant. Many stabilizing factors—both private and public—had been developed to make the economy moreshock-resistant. The Council accordingly urged business to move aheadconfidently with its investment planning, and did not advocate the sharpshift in Government policies which a more pessimistic appraisal of the sit-uation would have called for. The recovery in the first half of 1950, before


CHART 12

CHANGES IN PRODUCTION SINCE 1944

ALUMINUM STEEL I/

THOUSANDS OF SHORT TONS - MILLIONS OF SHORT TONS0 300 600 900 0 50 100 150I I I !

1944 | t |

1 1 1 1

I i1950

ELECTRIC POWER £/

BILLIONS OF KILOWATT HOURS0 30 60 90I 1 1 1

!944 | . j

BITUMINOUS COAL

MILLIONS OF SHORT TONS0 200 400 600l i l t

1 i

1950

PETROLEUM i/

BILLIONS OF BARRELS0 1 2 31 t 1 1

1944 | ]

FOOD

PERCENT OF 1935-39 AVERAGE0 50 100 150I 1 1 1

1 1

1950

I/ I960- ANNUAL RATE, END OF YEAR.

SOURCES.- DEPARTMENT OF INTERIOR, AMERICANFEDERAL POWER COMMISSION AND DEPARTMENT

IRON AND STEEL INSTITUTE,OF AGRICULTURE.

the stimulating effect of the developments in Korea, was vigorous andextensive.

The implications of our current prosperity

Having reviewed five years of war and five years of peacetime pros-perity, the central question arises: What economic strength, actual andpotential, do we now have to throw into the scales on the side of humanfreedom? This question may be approached, first of all, by comparingour economic situation now with our situation in 1940 when we commencedin earnest to serve as the arsenal of democracy.

We now stand at the close of a decade of intensive economic growth,while in 1940 we were just emerging from ten years of depression andpartial recovery. Our total national output, in real terms, is more than50 percent higher than it was ten years ago. Our industrial output is 70percent higher. Our agricultural production is 25 percent higher. Ourlabor force is larger by more than 8 million people, and the actual number

61


at work and consequently absorbing training and skill is nearly 13 millionhigher. (See chart 13.)

Production in the durable goods industries, from which the bulk ofmunitions output comes, has increased more than 80 percent. Steel capacityis about 103 million ingot tons, compared with about 84 million at the end of1940; aluminum capacity is about 2l/<z times as great; electric powercapacity has expanded by 70 percent; and oil refining capacity by 40percent. Actual production in certain of these industries has expanded evenmore: steel by more than 50 percent, power by about 130 percent, andpetroleum by about 120 percent. (See chart 14.) We have 4 percent morefreight cars and nearly 80 percent more trucks in service, and both thesetypes of transport equipment have improved markedly in effective carryingcapacity. Stocks of consumer durable goods are substantially greater in pro-portion to the population. At the same time, however, it must be recognizedthat with respect to certain natural resources, such as high-grade iron ore,copper, sulphur, mercury, and high-grade saw timber, we are not in sofavorable a position as we were ten years ago.

CHART 13

CHANGES IN PRODUCTION & EMPLOYMENTSINCE 1940

TOTAL PRODUCTION OF GOODS AND SERVICES^(BILLIONS OF DOLLARS, 1950 PRICES)

1940


1940


19401950


1940I960

-'GROSS NATIONAL PRODUCT.

^ANNUAL RATE, SEASONALLY ADJUSTED



CHART 14

GROWTH IN PRODUCTION SINCE 1940

ALUMINUM

THOUSANDS OF SHORT TONS

0 300 600

STEEL17

MILLIONS OF SHORT TONS0 50 100

ELECTRIC POWER^

BILLIONS OF KILOWATT HOURSO 30 60

BITUMINOUS COAL

MILLIONS OF SHORT TONS0 200 400 600

1940

1950

PETROLEUM-7

BILLIONS OF BARRELS

O «

FOOD

PERCENT OF 1935-39 AVERAGE0 SO 100

-^1950-ANNUAL RATE, END OF YEAR.2/

FOURTH QUARTER RATE.

SOURCES: DEPARTMENT OF INTERIOR, AMERICAN IRON AND STEEL INSTITUTE,FEDERAL POWER COMMISSION AND DEPARTMENT OF AGRICULTURE.

By almost every available measurement, our current productive strengthhas far surpassed that of a decade ago. Total per capita output of con-sumption goods in 1950 was roughly 30 percent higher than in 1940; in thecase of consumer durables alone, per capita output was probably aboutthree-fourths higher.

We are also far better equipped than ten years ago in our supply ofmany of the facilities for maintaining our national security or for fight-ing if we must. We have a substantial reserve of plants and equipment forincreased production of military items. The privately-owned United Statesmerchant fleet now totals about 1,200 vessels of about 14 million dead-weighttons, compared with a tonnage of about 10 million at the beginning of 1940.In addition, there are 2,200 Government-owned vessels, most of which are inthe national defense reserve fleet. Our military bases and training facilitiesare far greater than in 1940. These provide a source of greater imme-diate strength; in addition, they mean that the resources which we had


to devote to the expansion of such facilities during the period after 1940are now free for other uses.

Not only is our economy enormously stronger than ten years ago, but on topof this we are in an excellent position to expand our strength. It is truethat we have fewer unutilized resources of manpower and basic industrialplant than in 1940; but this disadvantage—if it be called that—is at leastpartially compensated for by the fact that present plans do not call for sogigantic a military build-up as was undertaken successfully 'during WorldWar II. Thus we have a larger proportion of our resources available, aswell as larger absolute amounts, to devote to the further build-up of oureconomic strength in the years ahead.

Moreover, there is still substantial slack in our economy when measuredagainst the efforts which we should now exert. In addition to the roughly600,000 to 700,000 persons per year who will be arriving at working agethrough normal population growth, we can increase the effective strength ofthe civilian working force substantially by recruiting and training moresecondary workers, and by lengthening the work week by several hours with-out jeopardizing health or morale.

More important than manpower, in which we cannot exceed in numberthe forces arrayed against us, we have reserves of technology and inventive-ness which have been the major sources of our superior industrial strengththroughout this century. No one can calculate precisely how much we canadd to production through the further practical application of alreadyachieved scientific knowledge and already demonstrated ingenuity. But noone can doubt that our resources in this direction are enormous, if we usethem to the full in the factory and on the farm.

We expanded total output by about 60 percent during the war yearsbetween 1940 and 1944. Expansion by about 25 percent over the nextfive years—which would represent a less intensive effort, although start-ing from a period of less slack—would give us the supplies for both anenormous defense effort and a strong supporting economy, if these sup-plies were distributed efficiently according to priority of need. We coulddo far better than this, with an intensified effort on all fronts.

So much for our assets. Yet it cannot be denied that the conversionto defense problems is in some respects more complicated than in 1940.This is because we are now so much closer to the full utilization of our cur-rently available productive capacity than we were ten years ago. For ex-ample, it was easier in some respects after 1940 to bring unemployed peopleinto defense work, than it will be in the months ahead to shift them frompeacetime employment to defense work (although even here the skilled andcurrently employed worker will almost certainly prove more productive thanone who had been idle for a long time). The slack in the economy, for asubstantial period of time after 1940, meant that the step-up of over-all pro-duction resulted in a widespread improvement in living standards, especiallyamong those who had been partially or completely idle. On the contrary


now, because of the fullness of the living standards which we have recentlybeen enjoying, the vast increase in the defense "take" will certainly mean fora considerable period of time the abandonment of yearly gains to which thepopulation had rightfully been accustomed in an expanding peacetime econ-omy. Further, there will be need for sacrifice of some benefits now enjoyed,as well as of others that had been held in prospect. In short, we must nowmake a sharp and drastic switch from some types of highly rewardingactivity to other types of activity. This is more difficult in some ways, andcalls for more drastic policies of some types, than the drawing of idleresources of plant and manpower into defense production.

But despite all this, one salient fact remains of transcendent importance:Our total resources and productive power are far more adequate to servewhatever task may confront us than they were in 1940. The expandingdefense program, now getting under way, will require sacrifices of goods andservices by the people, measured against what they have recently been en-joying. But a defense program of this size, or considerably greater size,would still leave the people with a higher general standard of living thanthey had before World War II or during the course of that war. If, underthese circumstances, the fact that we have less slack in the economy than in1940 is used to support the argument that we consequently can less affordto meet whatever burdens our national security may require, that would betantamount to saying that the great prosperity and economic strength whichwe have achieved is a handicap rather than an asset.

A few years ago, it was said correctly that the Soviet Union would gainimmensely if there should be a depression in the United States. Such anevent would have weakened us immeasurably. It would be a grim ironyindeed if our prosperity had made us weaker for the tasks ahead than if wewere in a recession or mild depression. It is true that we must now showthe courage and vigor to convert employed strength to new purposes in-stead of drawing upon unemployed strength. But our prosperity could bea liability rather than an asset only if we had become soft and fat in becom-ing prosperous. That has happened to other civilizations before; but wecannot afford to let it happen to the United States. We must beat manyof our plowshares into swords; but let us start with the confident realizationthat we have more real power than ever before to do so.


Part III. The Magnitude of the Task Ahead

THE GENERAL NATURE OF THE TASK

IN 1940, the array of our enemies included the two greatest industrialnations in Europe and the Far East. In winning the war against them,

some people say that we may have overestimated their economic potentialand consequently their military strength. But even if this be true, it is ofsmall significance compared with the gains we derived, in setting ourproduction targets, from not underestimating our opponents.

It is true that, at the present time, the aggressor nations do not evenapproximate the actual and potential industrial strength of the United Statesalone—and far less, of the United States and the free nations associated withus. Steel capacity is often cited as a vivid illustration. The current ca-pacity of the Soviet Union and its satellites is estimated to be about 25 to 30million tons. That of the United States is about 103 million; and that ofWestern Europe about 60 million. Undoubtedly, measured by many otherindexes as well, and by skilled manpower and technical know-how, ourmargin of current superiority is large.

But the economic strength of the Soviet Union is both great and increas-ing. It is concentrated upon building up those sectors of the economywhich support military effort. Toward this end, the Soviet Union iswilling and able to compress and degrade the people's living standards,below levels conceivable in this country. Technical ability has been revealedto do new and difficult things. And because the Soviet Union demobilizedto a far lesser extent than did the Western Nations at the close of World WarII, its present striking power is formidable.

Confronted by this threat, the general nature of our economic task insupport of our primary defense build-up is three-fold. In the first place,and of first priority, our economy must provide the manpower and mate-rials to achieve a large and very rapid increase in the immediate militarycapabilities of ourselves, and to aid in building up the strength of our allies.Second, we must achieve as rapidly as feasible an expansion of our indus-trial mobilization base, sufficently large to enable us to swing rapidly intofull-scale war production if necessity should require. And third, reallyas a corollary of the other two propositions, we must service our industriesand our civilian population with enough goods and services, not to main-tain them in peacetime grooves, but at least to maintain them strong enough

66


to support quickly or in the indeterminate future any intensification of themilitary effort which circumstances may demand.

These three objectives cannot all be fully served. Consequently, theallocation of great but nonetheless limited resources among these three pur-poses is the task of economic and military mobilization—whether partial orcomplete. This task is in some respects more difficult than in a total war,because the outbreak of hostilities of that kind removes some of the im-ponderables from the scene. In the current situation, these imponderablesstill remain. We do not know whether the ultimate test will come, or whenit will come, if it comes. Yet in apportioning our total resources amongthese three purposes, there must be some guiding strategy as to which amongvarious contingencies should be given most weight. This is true becausethe apportionment of our resources which would be best on one hypothesis,would not be best on another. While we must retain enough flexibility toadjust our strategy rapidly if conditions change, there is no such thing asgetting fully ready for a variety of conflicting hypotheses.

The initial hypothesis must result from an appraisal of the internationalsituation, which in turn governs the speed and scope of the primary militarybuild-up. That must be determined by those directly responsible for inter-national and military policy, subject of course to the President and theCongress.

While that basic military determination in the very nature of things cannever be complete or final, its status at any particular time provides theframe of reference within which economic policies must be formulated.In this framework, the effects of the military effort must be analyzed andprograms formulated for the best use of resources to mesh our economicstrength with imperative military needs.

The size and scope of the primary military build-up, which provides thecentral frame of reference for economic analysis and programs, has nowbeen determined, at least for the time being. This permits the Councilto turn to an examination of the economic aspects of the new job beforethe nation.

THE SIZE OF THE NATIONAL SECURITY BUILD-UP

New obligational authority already granted or anticipated for nationalsecurity programs at the time of the President's Budget Message this Janu-ary will probably total much closer to 150 than to 100 billion dollars for thefiscal years 1951 and 1952 combined. The amounts for each of the twofiscal years will probably be roughly equal. These funds are intended toachieve as rapidly as possible a virtual doubling of our strength on the groundand in the air, and an increase of more than one-half in our naval strength.The funds are intended also to provide military and economic aid to friendlynations abroad; to enlarge the atomic energy programs; to expand ourindustrial mobilization base; and for stockpiling and other purposes.

The very large volume of obligational authority already granted or in

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CHART 15

NATIONAL SECURITY EXPENDITURESAS PERCENT OF GROSS NATIONAL PRODUCT

PERCENT OF 6.N.P.50

40

30

20

10

1950 PRICES

PERCENT OF 6.N.R50

40

TOTAL NATIONALSECURITY EXPENDITURES

ECONOMIC AND MILITARYAID TO FOREIGN COUNTRIES

U. S. ARMED FORCESAND RELATED PROGRAMS

30

20

10

J 01940 1944

A LARGE PART OF THE ECONOMIC AND MILITARY AID TO FOREIGN COUNTRIES IN 1944 WAS LEND-LEASE.

/'ANNUAL RATE, SEASONALLY ADJUSTED.

SOURCE: COUNCIL OF ECONOMIC ADVISERS; BASED ON DATA FROM BUREAU OF THE BUDGET.

prospect has already had a major impact upon the economy—far more thanwould be indicated by the moderate increase in expenditures which has sofar occurred. Expenditures, however, are the most useful indication of thesize and speed of the continuing procurement effort, and of the proportionof total output going to defense.

Federal expenditures on all these national security programs totalledabout 18 billion dollars in the fiscal year 1950, the last full year before theKorean outbreak. At the present time, they are running at an annual rateof somewhat more than 20 billion dollars, and by the end of the calendaryear 1951 they should attain an annual rate between 45 and 55 billion dollars,or from 25 to 35 billion above the rate a year earlier. The procurementeffort, twelve months from now, should enable this volume of expendituresto be expanded very rapidly if necessary. In addition to these direct Fed-eral expenditures, there will be major investment programs by private in-dustry to build or convert the facilities necessary for defense production.

These dollar figures represent present plans. Depending on events, it

68


may become necessary to increase them substantially. Attainment of pres-ent plans would mean that, between the end of calendar 1950 and the endof calendar 1951, the proportion of total national output devoted to ex-penditures on national security programs would increase from less than7 percent to possibly as much as 18 percent. This compares with an increasefrom about 4 percent in the last quarter of 1940 to 16 percent by the lastquarter of 1941, and to about 38 percent by the fourth quarter of 1942. Interms of relation to total output or absolute increases in defense expendi-tures, the acceleration of effort now under way is substantially below thatachieved in the first year after Pearl Harbor. (See chart 15.)

This effort will nonetheless impose a substantial strain on manpower,materials and facilities. In terms of manpower, the present target is toincrease the total strength of the armed forces by nearly 1 million men withina few months. Procurement objectives have so far been scheduled in detailsufficient only to permit the roughest appraisal of the total number of ad-ministrative and industrial workers that may be required. But this totalis unlikely to be less than 4 million persons by the end of this year, and maywell be considerably more. Thus the minimum manpower now estimatedto be required by the additions to our national security programs totalsabout 5 million, or nearly 8 percent of the average 1950 labor force; andthis total may be very much increased. A considerable proportion of thisadditional personnel must, of course, be drawn from other industries.

Because military procurement schedules have not yet been developed infull detail, and because of the need to relate purchases of basic materials forthe strategic stockpile not only to our own military procurement and essen-tial civilian need, but also to those of friendly nations abroad, assessment ofthe probable drain on basic materials over the coming twelve months is verydifficult at the present time. In the case of steel, for which there is no stock-pile objective and where supplies are far less tight internationally than theyare for a number of other basic materials, the direct requirements of nationalsecurity programs as presently known are unlikely to exceed 10 percent oftotal supply by the end of this year. Indirect needs for the expansion ofessential industrial and transportation facilities, however, will increase thispercentage substantially. In the case of materials like copper, aluminum,rubber and wool, however, national security requirements are likely to besubstantially greater, ranging up to one-fourth, one-third, or more of totalsupplies.

The direct requirements of our national security programs do not, ofcourse, include the total additional burdens that will be thrown on theeconomy by our present needs. There must be an expansion of productivefacilities not only for the production of munitions, but also for the produc-tion of basic industrial materials and services. The creation of an industrialmobilization base which would on the one hand be adequate for a very rapidexpansion to all-out military production if that should become necessary,and on the other hand support a long-continuing effort of the present size

69


without impairing our strength, is a task which is as challenging as the directdefense effort itself. The size and character of this task is discussed inthe following section.

EXPANDING PRODUCTION To MEET THE STRAIN

In earlier Reviews, the Council has stressed that even in peacetime theeffective operation of the American economy is based on continued growth;and that when growth does not occur, it is because of undesirable influenceswhich threaten stability as well. These influences require corrective actionin ordinary peacetime, and the principle of growth is even more applicablein times like these when we urgently need every bit of our strength.

The basic sources of our capacity to grow are two: manpower and pro-ductive facilities. In neither case is sheer quantity the only consideration.Training, quality, and the skill with which manpower and facilities areorganized to achieve our objectives, are also vitally important in the jobahead.

Increased labor participation

The size of the present targets for national security programs is notsufficiently great to call for an all-out labor effort of the peak World War IImagnitude, nor to give absolute guides as to the extent to which we shouldseek to draw into the labor force additional people beyond those whowould enter on the basis of normal population growth. Nor is the extentto which we should rely on lengthened working hours, as an alternativeto expansion of numbers, determined in the present situation. If, how-ever, our national security programs are to be fulfilled, and if, in addition,we are to increase our productive strength and maintain civilian consump-tion at reasonable levels, it is clear that a labor input substantially abovethe level of the past few years will be required.

In the present situation, it appears generally desirable to place greateremphasis on increased numbers rather than on lengthened working hours.This would mean a larger trained working force should full mobilizationbe forced upon us, and would forestall the fatigue and lowered productivitythat come from working many extra hours over prolonged periods. Butat least in the case of highly skilled labor in important industries, it isclear that longer hours will be required in order to produce essential goods.The balance which will in fact be struck among these two sources of in-creased labor effort, and the degree to which the total labor effort will infact be increased over the coming year, cannot be forecast, nor influencedby government policy with precision.

It is useful, however, to examine alternatives as a basis for appraisingour productive capabilities. An average increase, for example, of 2hours in weekly working hours throughout the economy, which would befeasible, could lay the basis for an increase in total output in the neighbor-hood of 5 percent, apart from any changes in productivity. Likewise, an

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CHART 16

LABOR FORCE UTILIZATIONThe total labor force in I960 was within 2 percent of the peak yearin World WarH, when over II million men were in the armed forces.Total civilian employment, however, was 10 percent above the wartimepeak year.MILLIONS OF PERSONS*

70

TOTAL LABORFORCE

60

50

40

30

20

10

MILLIONS OF PERSONS*

70

60

50

40

30

20

10

1940 41 42 43 44 45 46 47 48 49 50

A larger percentage of the population is in the labor force todaythan in 1940; however, it is considerably lower than the prevailingrate during World WarE.PERCENT

100

90

80

70

60

50

PARTICIPATION RATETOTAL LABOR FORCE

AS PERCENT OF NONINSTITUTIONAL POPULATION*

r L I I I _L I J_1940 41 42 43 44 45 46 47 48 49 50

*I4 YEARS OF AGE AND OVER.


100

90

80

70

60

50

-Do


increase of 2 million persons in civilian employment would permit an ex-pansion of output by roughly 3 percent. A substantial fraction of such anincrease could come from a reduction in unemployment, and from thenormal annual growth of 600,000 to 700,000 in the labor force. Changessuch as these in the intensity of labor participation in production wouldstill be substantially below the wartime peaks. Average weekly workinghours in 1944 were 45.1. The average labor force participation rate thenwas 63 percent, compared with 58.5 percent in 1950, and with the roughly60 percent for the end of 1951 implied above.

The lengthening of working hours and rapid expansion of civilianemployment, together with conversion difficulties, would tend to have anunfavorable impact on productivity. Such evidence as is available, how-ever, suggests that there would probably still be some rise in over-allproductivity, although perhaps at a somewhat lower rate than in pastpeacetime periods. (See chart 16.)

Expansion of productive facilities

As a result of the programs to expand capacity during World War IIand during the postwar period, and because our present defense pro-duction targets are smaller than those of World War II, we find ourselvesin 1951 facing a quite different set of needs for facilities expansion thanwas the case in 1940. While the creation of an adequate industrial mobili-zaton base will call for a considerable amount of new and enlarged capacityto produce munitions, that type of investment will probably be substantiallysmaller than in the years 1940-43, when we had to build up our munitionscapacity from scratch. Short of total war, investment of other types shouldremain on a much higher level than during World War II. This is necessaryif we are to carry a very heavy burden of primary defense for an indefinitelylong period, and at the same time maintain our productive capital for nec-essary growth of output.

The high desirability of expanding general industrial strength for thelong pull, however, should not prevent us from putting first things first.For some time to come, we cannot afford unrestrained and indiscriminateuse of resources for investment any more than for consumption. Over thecoming year, the prospective shortages of materials, skilled manpower, andspecialized facilities call for a selective pattern of investment, giving majoremphasis, in addition to munitions facilities, to the expansion of capacityfor the production of those basic industrial materials and services whichare of crucial importance both to a wartime economy and to an expandingpeacetime economy. Where expansion programs require several years tocomplete, it is even more important to start at once.

The steel and electric power industries present two outstanding examplesof the problem under discussion.

Iron and steel. The determination of objectives for the expansion ofiron and steel production illustrates the extent to which economic issues

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turn on the general strategy of the national defense program. For example,if total war in 1951 were regarded as inevitable, it would probably bean inefficient use of resources to start further substantial increases in steelcapacity now. It would be better, under that assumption, to use the avail-able steel for making weapons instead of for building more capacity; andto rely on enormous cutbacks in civilian use of steel to release enoughsteel for war purposes.

But our primary defense strategy does not now rest on the inevitability ofa total war in 1951 or in any other year. On the contrary, that strategyrests on a sufficiently rapid build-up of military strength—substantially shortof total mobilization—to deter aggression, while at the same time creatingan industrial mobilization base which would facilitate rapid achievement ofmaximum military effort if that should become necessary. This strategy,which contemplates a substantially increased military burden of indefiniteduration, must also allow for the servicing of industrial and consumer needsat a considerably higher level than would be permissible in an all-out waremergency.

The principal drain on resources involved in an expansion of steel-making capacity is the use of steel itself. If the quick adjustability of oureconomy to full-scale mobilization in case of need would of necessity beimpaired by plowing some steel back into expansion of steelmaking facilities,such expansion would be at best risky. But if the necessary steel can beborrowed from uses not essential to mobilization, there is a strong casefor the expansion of capacity. If we do become involved in a major conflict,it seems certain that a larger steel capacity would stand us in greater steadthan the equivalent amount of steel in the form of additional automobiles orcommercial buildings.

The prospective steel requirements for munitions production and essen-tial industrial uses are not so large as to call for elimination of so many ofthe major ordinary peacetime uses as was the case during World War II.While we shall have to reduce drastically the production of automobiles andother consumer durable goods over the next several years, and similarly cur-tail less essential types of public and private investment in construction andequipment, we still shall be able to devote sizable quantities of steel to suchuses. The cost of a steel expansion program is a slightly greater reductionof such types of output over the next few years. On the other hand, theconsequences of not expanding capacity adequately would be the indefiniteprolongation of a serious steel shortage requiring elaborate and irksomecontrols.

The rate at which we ought to expand steel capacity cannot be preciselydetermined. In part it must depend on the maximum rate at which ironore supply can be assured—a problem discussed below. It depends alsoon the balance between major types of steel consumption—notably publicand private investment, and consumer durables production—and other

73


activities which we should like to achieve. The cost in terms of resourcesof the expansion of capacity must also be considered. We should not pro-pose as an objective the meeting of all demands for steel four or five yearshence on an unrestricted basis, even if we could determine just how muchsteel that would take. It would be an extravagant use of resources to buildup a capacity capable of eliminating in short order the backlogs of steeldemand which will have been incurred in the next few years, in additionto meeting the long-run normal demand. In the type of long-run economicsituation we must contemplate, all resources will be scarce; for the presentwe should attempt only to bring steel production up to the point where itwill not be a principal deterrent to economic expansion, nor require theindefinite continuation of comprehensive controls.

Our analysis indicates that we should aim to bring steel capacity up toabout 120 million ingot tons within 3 or 4 years, or sooner if feasible. Thistakes account of such considerations as the increase in aggregate productionwe should be able to achieve; the amount of output that would be availablefor other uses; the probable use of steel in defense production; and the rateat which it would be feasible and desirable, given the probable volume offuture demand, to increase stocks of goods and equipment in the hands ofconsumers, business, and government. Some types of requirements, notablysteel for automobile production, are projected at rates somewhat below1950; while other types, like industrial machinery, exceed the 1950 level.

The cost of the additional blast furnaces, steel furnaces, and finishingfacilities would total about 2 to 2l/z billion dollars, in terms of present prices.This amounts to about 12 percent of total business plant and equipmentexpenditures in 1950. The finished steel requirements for the expansionwould total 3 to 4 million tons, or l/$ to J4 as much steel as was used inautomobile production in 1950, or two to three weeks' output of the steelindustry at the present rate of production. The copper requirements wouldrepresent about 5 percent of current annual supply, and aluminum require-ments 2 to 3 percent. An expansion of steel capacity from the present 103million tons to 120 million, therefore, does not appear to involve any drainon our resources which we could not fairly easily offset by moderate furthercurtailment in some less essential uses over the next few years. The steelindustry has already made application for accelerated amortization onapproximately this amount of expansion.

A much more difficult and pressing problem than expanding steel capacityitself is that of maintaining and expanding the supply of iron ore withoutwhich steelmaking facilities are useless.

There is, first, the immediate need for more ore-carrying boats on theGreat Lakes. Stocks of ore at lower Lake points are so dangerously lowthat some blast-furnace shutdowns may occur this winter and next. Sev-eral of the necessary boats are already under construction, and additionalones should be started as rapidly as the ways are vacated. In view of

74


prospective shifts in ore sources, these vessels should be convertible for use onthe salt water of the lower St. Lawrence River.

Recent estimates indicate that we shall also be hard pressed, for severalyears at least, to mine and import enough iron ore to keep our expandingsteel industry operating near capacity. In 1950, our ore consumption wasabout 109 million long tons. A steelmaking capacity of about 120 milliontons would call for about 130 million long tons of ore a year to keep itbusy. Output of the Lake Superior mines can be maintained at presentlevels for only a few years longer. Thereafter, supplies from that source willfall off fairly rapidly, and we shall have to rely more and more on imports(principally from Venezuela and Labrador, and to a much lesser degreefrom Chile, Brazil, and Liberia) and on refined low-grade ores such astaconite. The St. Lawrence seaway project must be begun immediately ifimported iron ore is to be economically available in quantity in our inlandsteel centers by 1956, when the flow of Mesabi ore will almost certainly havebegun to dwindle.

Electric power. The case for accelerated expansion of electric powercapacity is even more compelling than in the case of steel and iron ore.Present supply falls even more seriously below the demands that would arisein a full-scale war, and any major curtailment of less essential civilian usesis more difficult than in the case of steel.

The over-all national power generation capacity, under average hydro-electric conditions, was about 67.5 million kilowatts at the end of 1950,representing an increase of almost 10 percent during the year. The reservemargin came up to about 12 percent of load in 1950, having been restoredduring the past few years from a dangerously low level. According to recentestimates of planned public and private expansion, about 7 5/2 million kilo-watts of new capacity will be added during each of the next three years,representing a somewhat faster rate of expansion than has prevailed sincethe end of World War II. The annual rate of investment outlays involvedwill approach 3 billion dollars, covering generating equipment and also newand enlarged transmission and distribution facilities.

At the present time, electric power is in short supply in the Pacific North-west, in the Tennessee Valley area, and some other regions. The supply isexpected to become increasingly tight throughout the country as demandswill increase faster than the expansion of capacity now planned. Reserveswill fall more and more below safe and desirable margins. Already thereserve margin has practically disappeared in the areas where the powershortage is most acute. Expansion of programs in atomic energy, chemicals,aluminum and other metals related to the defense effort will impose anadditional load of 4 to 4% million kilowatts on our power facilities.

In the face of this situation, government policies must be adjusted tothe need to make capital, materials and workers available to the utilityenterprises to which we must look for the major expansion of electricpower capacity. Public hydro-electric projects take more time, but devel-

922781—51 6 75


opment of additional public power capacity in the Pacific Northwest, inthe Tennessee Valley area, at Niagara Falls, along the international sectionof the St. Lawrence River as a part of the seaway and power project, andelsewhere, can provide more than 6 million additional kilowatts of capacitywithin 5 or 6 years.

Relationship between military and industrial planning. The foregoingeffort to specify investment and expansion needs is sketchy. More precisionwill emerge through the more comprehensive study and planning now underway as to the general size and major classifications of investment and ca-pacity expansion. This will result in programs compatible with maximizingour total strength by achieving the wisest allocation of our resources betweenmilitary and civilian use, and among various segments of the civilian econ-omy. This more comprehensive industrial planning is linked with thecurrent effort to develop primary military requirements in more detail.For only to the extent that these primary requirements emerge, can therest of the economy be most effectively enlisted in their support.

Obstacles to expansion

The preceding discussions of labor effort and investment in productivefacilities have necessarily taken little account of the bottlenecks in indi-vidual materials, in key facilities and in skilled manpower that will certainlyoccur over the coming twelve months. These and other difficulties of aconversion period will tend to slow down the rapidity of expansion. Suchbottlenecks could become serious in the case of individual items and in indi-vidual localities. There is no way, however, in which to measure in broadterms their impact on production. Nor does the experience of World WarII, or the present size of military plans, offer any basis for believing that indi-vidual bottlenecks will become of such general importance as to impede thebroad expansion of output.

Production goals for the end of 1951

Under the Employment Act of 1946, the Council is called upon to define"needed levels of production" for the economy as a whole, as a primaryguide to economic policy. This we have done each year. In the face ofcurrent circumstances and problems, we feel that maximum production for1951 should bring an annual rate of output of about 310 billion dollars,at 1950 prices, by the end of the year. While this rate of growth is muchhigher than the average rate of growth sustainable in more normal times,it is not above the reach of our resources as we now should use them.

The total increase would be about 20 billion dollars, or about 7 percent,above the annual rate at the end of 1950. Roughly 15 billion dollars ofthis total gain could be expected to come from increases in employment andworking hours, and the remainder from increases in productivity. Thedegree to which over-all productivity is likely to increase during a periodof conversion, with major shifts in type of output and with many new


workers being brought into the labor force, is necessarily uncertain. Theamount here assumed is somewhat lower than appears to have occurred inpast peacetime periods.

IMPACT ON CIVILIAN SUPPLIES

Even with the large increase in total output which has been estimatedas attainable, the expanding defense program will have a major impactupon consumption and living standards. If the total output and nationalsecurity programs discussed in the preceding section are realized, somereduction in total per capita consumption may take place, and very sharpcuts in the production of individual items of consumption will be re-quired, at a time when total employment and working hours hadincreased substantially.

Defense needs for basic materials and skilled manpower can be ex-pected to force particularly sharp cutbacks in some areas. Production ofpassenger cars and other metal-using durable goods may well have to becut by percentages ranging from one-third to well over one-half below therecord levels of the second half of 1950.

It will be impossible, from the viewpoint both of total resourcesand particular supplies., to avoid sharp cutbacks in many types of privateinvestment in order to service the defense program. Already, steps havebeen taken to cut back investment sharply in certain less essential areas.During this year, housing will have to be cut back substantially and lessessential types of construction by much more. These cutbacks, and otherswhich must follow, should lead to a considerably lower level of totalinvestment in 1951 than in 1950. In short, both consumption andgeneral investment must be restrained to service the primary defense pro-gram more rapidly than total output can be expanded. The patternof investment in 1951 must be very selective, so that cutbacks in lessessential areas can be combined with the maintenance and in some casesexpansion of investment required for the achievement of an adequatemobilization base. If private judgment and Government policies are usedwith sufficient skill to effectuate this balanced realignment of investment,even a larger defense effort in future years would be more bearable. Thusthe problem of mobilizing our economic strength for the long pull rests veryheavily upon the programming and execution of realistic investment goalsgeared to priority of needs. Allocations, tax programs, and various incen-tives should be shaped to the nature of this problem.

INFLATIONARY PRESSURES

The expansion of our total national output, with selective emphasis uponvital lines of production, will help to ease the immediate burden of ourenlarged defense objectives. In the longer run, production, and moreproduction, is the most fundamental economic remedy.

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But production alone will not be enough to solve immediate problems.In the course of this year, as already indicated, national security programswill increase their take of the total output of the economy from about7 percent to possibly as much as 18 percent. The increase will be muchgreater in the case of particular types of materials, skilled manpower, andfacilities. Since it is manifestly impossible to increase production at thisrate, and according to this pattern, there must be a large-scale diversion ofresources from less essential uses to those having the highest priority. Thetotal volume of goods available for private consumption and investmentmust be cut. This gives rise to major problems of materials control, and tointense inflationary pressures.

While the supply of goods that buyers want will be cut back, consumerand business incomes will be sharply rising. During the course of 1951,there will be a general expansion of income resulting from the increase inproduction required to meet our defense objectives. Longer working hoursand more employment will result in an equivalent expansion in wage andsalary income, even without allowing for overtime pay, upgrading, and wageand salary increases. Gross farm income will also rise as production in-creases, apart from any allowance for upward price movements, as willcorporate profits. While, even under the current tax structure, increasedtaxes will absorb some of the increase in incomes generated, disposablepersonal incomes would, without prompt and substantial new tax action,increase much more than the supply of consumable goods.

Further increasing the dangers arising from the pressure of expandingincomes against limited civilian supplies is the fact that consumers alreadyhave more than 150 billion dollars in liquid assets, which can in largemeasure at their discretion be thrown into the markets for goods; and corpo-rations have almost as high a volume of liquid assets as at the end of thewar. Actual and anticipated shortages of particular materials and goods,and concern about continuing price rises, will, unless counteracted, greatlyreinforce the desire to spend money and to acquire tangible goods.

These facts would represent a very seriously inflationary prospect for thecoming year even if the past six months had been a period of reasonableeconomic stability. Yet the economy is now, and has been for some time,in the throes of a serious inflation. Between June and December of 1950,this general inflation raised wholesale prices 11 percent and consumer pricesby about 4l/% percent. Average hourly earnings rose about 4 percent be-tween June and November, and corporate profits before taxes were about 28percent higher in the fourth quarter than in the second. The rise in con-sumer prices occurred despite a generally adequate supply of consumer goods.Price rises, in considerable measure speculative, spread out from the primarycommodity markets through the cost structure generally, communicatingupward price tendencies to a wide variety of products. Wage increaseswere granted in many industries in amounts substantially above the risein the consumer price index. Neither the increase in primary commodity

78


prices nor the wage increases of 1950 have fully worked themselves outthrough the price structure of intermediate and final commodities; andmany classes of workers have been left behind in the wage advances of thepast six months.

If price and wage increases such as have characterized the last sixmonths were permitted to continue, consumers would be induced to drawheavily on their holdings of liquid assets—either to protect their standardof living and the real value of their savings, or for speculative reasons.The ability and incentives of business concerns to enter such a movementto convert liquid assets into goods would be even greater.

This leads to the conclusion, which will be amplified in the policy sec-tion of this Review, that anti-inflation weapons must be employed morewidely and more rapidly than in the period from 1940 to 1942. Themeasures now being planned and put into effect by the Economic Stabili-zation Agency are a reflection of the urgency of the task.

The main reason for the seriousness of the inflationary problem, how-ever, is not that we are now weaker but rather that we are now strongerthan we were then. Being more fully prosperous now, we have less roomto undertake new burdens without generating inflationary pressures. Ifwe were unwilling to convert the strength underlying this greater prosperityto meet the new challenge now confronting us, that strength would becomea liability rather than an asset. But if we are willing to channel thatstrength—of tools and manpower and skills—we shall find ourselves nowbetter able than ever before, and far more able than in 1940, to measureup to the responsibilities imposed upon us by world events.

How MUCH DEFENSE CAN OUR ECONOMY SUPPORT?

While a defense effort of the size now under way will sharply alter thecharacter of the functioning economy, there can be no question that thiseffort to achieve national security is well within the power of our resourcesand our skills. It is a far smaller effort than we have made in the past withfar fewer resources and skills; and it is a far smaller effort than we couldsafely and effectively make in the future if our national safety should so re-quire. It is an effort of a magnitude which will involve sacrifices and re-straints and changes in customary ways on the part of all of the people.These changes may be great, when measured against the habits of peacetime.But they are mild indeed when measured against the issues at stake, oragainst what the American people have done in their earlier history at timeswhen the national interest has taken clear and universal precedence overpersonal pursuits.

Deep as some of the needed cuts may appear, they could hardly be de-scribed as austerity. Per capita consumption at the end of 1951 would befar greater, perhaps by more than one-fourth, than in 1940, and evenfurther above 1929. (See chart 17.) By the standards of any other country

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CHART 17

PERSONAL CONSUMPTION EXPENDITURES1950 PRICES

TOTAL CONSUMPTION EXPENDITURESBILLIONS OF DOLLARS

200

150

100

50

1929 1939 1944 1946 1950

PER CAPITA CONSUMPTION EXPENDITURESDOLLARS1,500

1,000

500

1929 1939 1944 1946 I960

SOURCE: COUNCIL OF ECONOMIC ADVISERS.

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in the world, such consumption levels could only be described as luxurious.Moreover, consumers are currently better stocked with household equipmentand automobiles than ever before. At the present time, there is one auto-mobile for every 3.8 persons in the United States, compared with a ratioof one to 4.8 in 1940. Our housing standards, though far from beingfully satisfactory, are substantially better than at the beginning of WorldWar II.

Although over-all consumption levels will be high, many individualsand families will suffer much sharper cuts in their standards of living thanwould be indicated by the aggregate figures; and the general range of con-sumption goods will be much more restricted than in recent years, and lessin accord with consumer wants. This is the necessary meaning of highertaxes and restrictions on the use of basic materials.

The defense program will impose many restraints upon economic activityas well as upon personal consumption. But the restraints upon consump-tion will require sacrifice, not real hardship, and the restraints upon busi-ness activity will have no results justifying the complaint that the programis beyond the capacity of our economy.

The expanding defense effort which has thus far been defined may, ofcourse, have to be greatly expanded in future, or level off. Later on, thisReview will make some reference to the economic consequences of a largerdefense effort. At this point, suffice it to say that a leveling off of the rateto be reached at the end of the calendar year 1951 would impose in suc-ceeding years lesser and not greater strains upon the economy. This isbecause the economy would gradually "build up" to meet the new burden.By way of rough illustration, if the labor and investment efforts which willbe essential to accomplish the targets for 1951 are achieved and maintained,total national production at an annual rate should rise by about 25 percentwithin five years. This would bring us about 60 billion dollars above thecurrent level, which would be enough to absorb a yearly defense effort atthe levels to be reached at the end of this year, to maintain and expand ourproductive plant, and at the same time to bring per capita consumption fora growing population at least up to the level achieved in 1950.

Under current international conditions, however, economic analysis can-not stop short with an appraisal of the impact of the present defense targets.It must also help to appraise what the economy can sustain and support interms of its actual and potential resources, and to shed light upon whatvariations in this program—whether upward or downward—would still becompatible with the maintenance of the strong economy required to supportthe military effort.

This further responsibility is particularly apparent at a time when thereis an entirely appropriate debate throughout the nation on this very questionof what our economy can afford to do. The viewpoint is sometimes ex-pressed that if the military build-up should advance above some stated size,

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it would within a few years "bleed our economy white/' and thus accomplishthrough our own actions the purposes of the Soviet Union.

On this point, we can draw upon our own experience in World War II.We devoted as much as 45 percent of our total output to defense purposesand, far from wrecking our economy, we continued to build its basic pro-ductive capacity. The consequences were revealed when hostilities ended.In the light of this, the American people can certainly not take the positionthat the allocation of as much as 18 percent of our much larger resourcesto national security will reach or even near the limits of what we can doif necessity demands. Economies have not been wrecked because the peopledecided to do with fewer new pleasure cars and elaborate mechanicalamusements, or wear their topcoats for longer or get healthier by eating less.

This point is so important that the illustration needs to be made moreconcrete. Let us suppose that, by the end of the calendar year 1952, inter-national conditions made it desirable for us as a nation to be devoting 25percent of our total output to national defense. It should be feasible withincreasing efforts to expand total output by the end of 1952 by close to15 percent, or roughly 40 billion dollars above the present level. At thislevel of production, the allocation of one-fourth of our total output tonational security—if this should become necessary—would by no means beinconsistent with maintaining our fundamental economic strength and pro-ductive power. Marked changes in the composition of output would berequired, but nonetheless it would permit the maintenance of satisfactorystandards of living, although production of housing and many types ofconsumer goods would have to be more sharply restricted than presentlycontemplated. However, a large number of families and individuals wouldundergo a more marked reduction in living standards than would be indi-cated by the over-all figures.

To achieve these results, if this should become necessary, would requireharder efforts and more sacrifices than we are now being called upon tomake. But this larger effort, if it should prove imperative, would neitherwreck nor bankrupt the American economy. It would still represent amuch smaller effort than was achieved during World War II. Hours ofwork would not be as long; the percentage of the population of workingage serving in the labor force would be smaller; and the output of civiliandurable goods and of housing would be restricted to a much smaller degree.

An effort of this size would still leave us with enough resources to improveand enlarge our industrial capacity, and to maintain reasonable standardsin education, health, and housing. The over-all level of consumption wouldbe lower than the 1950 peak level, but it would still represent a high stand-ard of living. Even on a per capita basis, the level of consumption by theend of 1952, under these assumptions, would be far higher than in 1944.

Much of the discussion of "what our economy can stand" has involveda misuse of economic analysis, and has led to dangerously erroneous con-clusions. Every economy, even the most powerful, has ultimate limits upon

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what it can support; but in the case of our economy, these ultimate limitsare not threatened.

The tests now confronting us are not so much tests of our economy asthey are tests of our moral fiber and cohesiveness as a nation. They aretests not so much of our material capacity as of our courage and vision.

We have what it takes to purchase reasonable security in a troubledworld, but we cannot buy it cheaply. The way to protect ourselves is tobuild up our strength; and there are no bargain price tags on aircraft, tanksor guns. Giving up other things will be involved, because we cannot haveour cake and eat it too. But we must stop eating so much cake, when theaggressors are arming so many divisions.


IV. Economic Policies for Defense

THREE REQUISITES FOR ECONOMIC MOBILIZATION

THERE are three indispensable requirements for an efficient economicmobilization, whether partial or total. The first need is for a thor-

oughly comprehensive and unified programming operation, to balance com-peting requirements against available supplies. Such programming isessential to all policy, whether designed to direct resources to the highestpriority uses or to avoid disruptive inflation. The second need is for utmostspeed in accomplishing defined objectives. The third need is to conductthe economic mobilization program with a determination and fairness whichelicit general support from a public kept fully informed of the nature ofthe program and its implications.

The need for comprehensive programming

Economic mobilization means a vast and rapid shift in the use of ourresources, to which every policy must be attuned. This shift is executedthroughout the economic system. But in the very nature of a defense emer-gency, the Government must outline the basic needs and project the majorpolicies to satisfy them. The essentiality of a complete and always currentprogramming operation does not depend upon "full mobilization." Theimportance of a clear definition of what needs to be done does not dependupon how much needs to be done. In some respects, partial mobilizationrequires an even greater clarification of objectives than full mobilization.

The definition of all major requirements necessarily draws its frameof reference from the primary military program, because it is the militarybuild-up which is at the core of the whole effort. More and more precisionshould be sought, as rapidly as feasible, in the definition of what our pri-mary defense goals are at any particular time. And for the purposes ofeconomic adjustment to these primary goals, requirements in terms ofmanpower and materials are obviously more important than requirementsin terms of dollars. This emphasis is not inconsistent with realization thatprimary military objectives must remain reasonably fluid, and that forsecurity and other reasons they cannot be revealed in full even where theyhave become crystallized.

But it would be dangerous to assume that all other aspects of economicprogramming can be delayed until primary military programming reachesany particular point. There is an interrelationship between the two, which


requires to a considerable degree that they move forward simultaneouslytowards ever-improving clarification. Nor is it true that the other aspectsof economic programming consist solely in saying that whatever is nottaken for military purposes is available for other uses. These other usesmust in turn be subjected to constant programming, because some of thempromote our security and others do not. Our security in the long rundepends upon how we divide available resources between maintenanceand improvement of our national plant and tools on the one hand, andultimate consumer needs on the other. Within the industrial structure,it depends upon what kind of activities we carry forward vigorously andwhat kind we cut back. Above all, there should be a balance of how muchwe seek to achieve through cutbacks and restraints, as against how much weseek to achieve through expansion of total production.

The early experience during World War II afforded eloquent proof thatthe greatest obstacle to over-all efficiency was the slowness in developinga useful and comprehensive programming operation, and locating it ulti-mately at one point of authority. The Council now urges that the firststeps already taken in this direction be carried as quickly as practicable totheir logical conclusion. This does not mean that detailed operations can-not be parcelled out; but it does mean that the ultimate "budgeting" ofour resources for defense should be centralized. Budgeting, which is aprocess of reconciliation of competing requirements, cannot be done inseveral separate places.

The need for speed

Speed is of the essence in economic mobilization. This sound principleshould not be confused with the question of the size of targets. Speed doesnot mean, for example, that we should as rapidly as possible achieve totalmobilization; that is a matter of grand strategy. Nor does it mean thatmobilization should not proceed in an orderly fashion, with speed con-centrated first on the earlier steps and later on the subsequent steps ofthe program. But speed does mean that decisions as to targets shouldbe reached as quickly as possible, and that every effort should be madeto attain whatever targets are decided upon as rapidly as the basic programcalls for.

In economic mobilization, tardiness has a cumulative effect because of theinterrelationship among all the parts. Delay at one point generates evenmore delay at succeeding points. Indecision at one point promotes apathyat another. As an apt illustration, there may be debate as to when theGovernment should apply price controls over a given commodity. But oncethe Government has announced or intimated that it is going to do so, delayin accomplishing the result can only add fuel to inflation, speculation, andan enervating let-down on the part of the general public. Conversely,demonstrated celerity at one point awakens others more fully to the urgencyof the situation and consequently accelerates their own necessary actions.


Since our nation is now undertaking to catch up with the mobilized mili-tary strength of the aggressors, every day is precious.

The need for public support

The necessary concentration, during a defense period, of more authorityand responsibility in the Government than is customary in peacetime shouldnot blind us to the fact that nationwide understanding and cooperationmust be achieved. The very severity of the departure from customarymethods, and from the level of peacetime enjoyment of goods and services,makes such public understanding even more essential.

The whole American people should consider the extent of this departurefrom normalcy, as it affects our economy and our economic problems.

The objective of maintaining maximum employment, production, andpurchasing power, established by the Congress in the Employment Actof 1946, should be considered today in the light of circumstances verydifferent from those of peacetime. In the months to come, there willbe no general problem of unemployment, but instead one of encouragingthe entry of more men and women into a labor force too small to meet allour national needs. There will be no problem of inducing the expansionof purchasing power, but instead one of restraining the growth and theuse of purchasing power. Maximum production will be even more vitalthan in peacetime. But the major problem here will not be to devisenational economic policies to furnish incentives, markets, or capital toprivate enterprise, in general, but instead to channel our limited resources ofmanpower and of materials into lines of production which are most essential.

In the first months after the outbreak in Korea, it was perhaps justifiablein the formulation of national programs to give considerable weight tomaintaining our standards of living or even pushing them forward. Itwas also hoped that we might progress, although at a slower pace,with national policies of long-range social and economic value. It isstill necessary to seek balance between these longer-range objectives andthe requirements of national security, remembering that many of theseobjectives themselves are essential to defense. But in a national emergency,the weight to be given to the defense program grows vastly. The weightto be given to other objectives becomes correspondingly smaller.

The new effort will call for sacrifices not limited to those matters whichthe citizen himself directs, such as the buying of goods, the settlement ofwages, and the making and saving of profits. During the past generation,our people have greatly expanded the role of their Government towardadding to the supply of services which in our civilization make up a sub-stantial part of the requirements of comfortable living. The needs of theAmerican family for education, for highways, for libraries, and for manyhealth services, have been largely reflected in community action. We havesteadily enlarged the responsibility of the State for the conservation anddevelopment of natural resources, as sources of future goods and services.

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The demand for sacrifice now falls upon many of these operations ofGovernment, each of which may compete with defense requirements.Each of these operations must justify itself thoroughly under present con-ditions, before money, manpower, or scarce materials may properly beallocated to it.

Next to the primary need to meet defense requirements, the policies andprograms of greatest importance at this time are those which counteractor curb inflationary forces, and those which assist the expansion of produc-tive capacity. The trend of the economy at the end of the year was highlyinflationary, despite the progressive imposition of controls of an increasinglyrigorous character. The accelerated defense program will now intensifythese inflationary forces. The people must now choose between permittingserious inflation to proceed, and accepting sterner restrictions.

The American people are realistic enough to accept and help to imple-ment these restraints. But by the same token, they are realistic enough tobe slow in doing so, unless they know what greater purposes will be servedby the surrender or suspension of the lesser but nonetheless important pur-poses toward which they were oriented before the defense emergency.

Moreover, the Government can only to a limited extent, even in anemergency, tell the people what to do; for the most part, it must ask fortheir action and their cooperation. And their cooperation will be given mostenthusiastically if they feel that the burden is being shared equitably by all.

MAXIMIZING OUR PRODUCTIVE STRENGTH

This Review has constantly reiterated that production is at the heart ofour economic strength. Only by more total production year by yearcan we generate the enormous power which we will need. This is notnegated by the necessity to cut back sharply some lines of production,for the ultimate purpose even of these cutbacks is to get more vital produc-tion elsewhere and to enlarge the total. We have also indicated whyaccent on production may be even more vital, for the long hard pull whichnow seems to confront us, than in the event of total hostilities. And wehave taken a resolute stand against the proposition that there is but littlenew productive potential within the economy, although we were nearmaximum production by peacetime standards in 1950. The Americaneconomy has not reached an absolute ceiling prohibiting further progress.

The following discussion of production problems is somewhat general.This is in part because a general economic staff like the Council canhighlight problems, but must leave detailed decisions and execution tooperating agencies. It is also in part because many precise decisions on theallocation of our resources for various productive purposes must awaitthe further development of a comprehensive programming and priorityoperation.

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Industrial expansion

Selective industrial expansion. The need to devote a substantial portionof our resources to the primary military build-up limits our ability to expandproductive facilities of all types. The expansion, for the time being, mustbe highly selective, but it is nonetheless urgent. While highly selective, itshould be on a broader base than during World War II. This is true becausewe are not so short now as we were then of certain critical facilities;and also because, in the absence of total war, we can justifiably put moreemphasis upon the development of general strength for the long pull.

Legislation enacted after the Korean outbreak authorizes the use of manyof the same types of Government stimuli to selective private expansionwhich proved useful and essential in World War II.

Up to the end of 1950, 1,014 applications had been filed for the acceler-ated amortization privilege, covering 3.9 billion dollars of plant and equip-ment investment. Accelerated amortization had been approved by theNational Security Resources Board in 149 cases on a total of 1.0 billiondollars of outlays, or about three-fourths of the total investment contem-plated under these 149 applications.

Under the direct Government loan provision of the Defense ProductionAct, 136 applications had been filed by the end of the year for 822 milliondollars of loans; two loans had been granted, for a total of about 1 milliondollars.

At the end of 1950, after the initial three months of operations underthe loan guarantee program authorized by the Defense Production Act, theFederal Reserve Banks had received a total of 157 applications for thistype of assistance, totaling 82 million dollars. All of these requests werefor working capital for firms supplying the Defense Departments directly.Fifty-eight applications had been approved, for a total of 30 million dollars,while the remainder were pending.

Private enterprise and funds can and should play a larger part in plantand equipment investment than was the case in World War II. The ex-pansion program now needed places much less emphasis on temporaryneeds for war materiel facilities than the World War II program. Duringthe next few years at least, the major part of facilities investment must gointo expansion of basic industrial capacity, which will remain useful whenpeacetime conditions return. Private industry is currently in a muchbetter financial position than it was at the outset of World War II to carrythis load.

In most cases, the role of the Government should be limited to a pro-gramming of basic needs which will provide industry with a full conscious-ness of priorities of purpose, and to such controls over materials as willenable high-priority industrial expansion projects to get what they need todo the job. Government financial assistance and incentives should becentered upon projects required in the national interest which, because of


type, location, or other special cost factors, do not offer a prospect of rea-sonable long-term returns to private investment.

The incentives offered to private investors can be based on propereconomic considerations only if the Government has possible recourse to thealternative of direct construction. This was demonstrated in World War II.The effectiveness of Government policies for encouraging crucial typesof expansion should be improved by legislation empowering the Govern-ment to finance and construct facilities itself in special cases where reason-able available inducements to private investors are insufficient.It is becoming increasingly important that we develop and apply

standards of security dispersal regarding the location of new plants. Inthe present situation, very little can be done to alter the location of existingindustrial plants and associated community facilities, or to affect plantexpansion which is mainly a rounding-out of present facilities. New loca-tions, certainly those aided by the Government, should be established withsecurity in mind. Decentralization may be promoted locally within thecommuting radius of metropolitan and industrial centers, or may involvethe establishment of new plants in small or medium-sized cities beyond thisradius. There is also the broad decentralization which stems from plansto .develop regional economic strength.

The economic effects of the first type of decentralization are morelocalized, and involve mainly labor supply, transportation and communi-cations, a variety of community and industrial facilities, and housing.Wherever possible, expenses of such decentralization should be borneprivately; in some cases, governmental aid will be necessary.

The large regional type of decentralization affects the whole economiclocation patern of the Nation. It is desirable that new industry importantto security be located on the basis of careful consideration of the kindof defense and industrial expansion which each region can best supportin view of cost and market as well as defense considerations.

Electric power. The electric power outlook, as discussed earlier in thisReview, indicates a serious shortage of power—especially in some regions.The further development of power at Niagara Falls would bring in abouta million and a quarter kilowatts of very low-cost generating capacity by1955. The St. Lawrence seaway and power project would mean an addi-tional 940,000 kilowatts of installed capacity, which will be needed inthe area within a few years. A speeding-up of public power projects inthe Pacific Northwest, plus the starting of several new ones, could addabout 1,150,000 kilowatts in a region of critical shortage by 1954. TheTVA program is being expanded greatly, so that some 3 million additionalkilowatts should be available in that region by the end of 1953. Theseprojects should be carried forward promptly, to meet the inevitable loadsof defense production and other essential uses.

Increases in public power capacity will be much smaller than the in-creases in private power, which now are expected to total almost 20 million


kilowatts over the next three years, and probably will have to be steppedup. Necessary supplies of critical materials will have to be made availableif these power expansions are to be realized.

Atomic energy. In terms of human resources, the atomic energy enter-prise constitutes one of the largest bodies of scientific and technical per-sonnel in the country today. In terms of plant and equipment, it representsone of our largest specialized productive assets, ranking with the plantinvestment of the nation's leading industrial enterprises. Recently in-dustry has shown an increasing interest in participating on a profit andrisk basis in developing nuclear power. The Atomic Energy Commissionhas received exploratory proposals from industry, looking toward the de-velopment of dual-purpose nuclear reactors designed to produce powerfor private use and fissionable material for sale to the Government. Ifsuch development should appear technically and economically feasible,a number of new questions would be raised relating to such matters aspricing, patents, and the coordination of the private and public roles.These questions would become the joint concern of the Congress, thePresident, and the Atomic Energy Commission, as provided by the AtomicEnergy Act.

It is too early to calculate the contributions which this source of energymay add to our general productive strength. But certainly, in time, theircontribution will be significant. This is another reason why, in the futureas in the past, we may expect technological developments to add even morethan increases in manpower utilization to the productive power of theUnited States.

Basic resources

The prospect of a rapid build-up in national defense during the nextfew years, followed by an indefinitely long period during which we mustmaintain and improve our defenses, emphasizes sharply the need for max-imizing the productive capacity of our natural resources and the servicesour transportation system can yield, both for the short run and the longrun. In a very real sense, the long-run strength of the economy, for peaceor for war, will be measured by the availability of natural resources, theirquality, and the care with which we handle them. At this time, when themore strictly civilian expenditures of Government must be held in check, itis essential that we be highly selective in our minerals, soil, forestry, trans-portation, and water programs. While they must be affected by our lackof resources to do all the things which are important, those which are mostessential should be included in the program for industrial expansion.

This calls for intense planning to get the most efficient utilization ofavailable facilities. It also warns us that, if we are not to be penny wiseand pound foolish, we may need to make some highly selective additions tothese facilities despite the additional strain upon resources, and to be even

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more ruthless in slashing nonessentials. Roads, for example, range all theway from essential feeder lines for military and industrial mobilization toroads which add only to the pleasure or convenience of the peregrinatingpublic.

Minerals. In contrast to our stronger position now than before WorldWar II with respect to manpower and plant and equipment, we are lesswell off with respect to domestic supplies of the major strategic minerals.Net imports in metal equivalent, expressed as a percent of total U. S.consumption, increased from 1939 to 1949 by 4 percent for iron ore,13 percent for bauxite, 23 percent for zinc, and 40 percent for lead.For copper, we moved from net exports equal to 36 percent of U. S.consumption in 1939 to a 1949 net import position of 38 percent. Thispoints conclusively to the need for developing for these metals new sourceswhich are as safe as possible from enemy attack.

Both private and public policies should be directed toward assuringadditional supplies of iron ore as quickly as possible. Private companiesare going ahead with the Labrador and Venezuela developments, sothat by 1954 or 1955 the steel industry will be getting large tonnagesof iron ore from these sources. The St. Lawrence seaway and powerproject should be started immediately, to make additional iron ore avail-able in quantity in the great steel centers of Pittsburgh and the Great Lakesarea. Demands on construction materials and manpower for this projectwould not be large during the next year and a half. If we move swiftly,the seaway could be in operation for the 1956 season, when Lake Superiorore production is expected to be falling off. Increased emphasis shouldalso be given to research into technological methods for refining and usinglow-grade ores such as the taconites of the Lake Superior region.

Military and stockpile programs require large amounts of aluminum,copper, and many other metals., running in certain instances to a largepercentage of total supply. Selective capacity expansion programs shouldbe carefully related to the supplies of ores, electric power, and transportfacilities which can be made available. Strenuous efforts should continueto be exerted to increase our imports of certain minerals and metals withoutharming friendly nations. Careful use of technical and capital assistancecan lead to substantial increases in imports of some strategic minerals.

Discoveries of new petroleum reserves have been keeping pace withincreased production during recent years, but we cannot expect this tocontinue indefinitely. Prudence requires that we encourage imports ofpetroleum and petroleum products, especially from nearby sources, whileat the same time giving our full assistance to the development of foreignoil fields to supply friendly nations as well as ourselves. In addition, proc-esses for the production of synthetic liquid fuels from oil shale and coalare rapidly approaching the point where they can be developed privately.

Land and water conservation and development. The pattern of expendi-ture in these areas which should be followed in the next few years is influ-

922781—51 7 9*


enced greatly by the time schedule of the defense program. The rapidbuild-up of defense expenditures, with the accompanying draft upon ma-terials and other productive resources, will bring the defense part of thenational effort to a peak within two years under present plans. Thereafter,if widespread warfare does not occur, and as general production increases,more of our productive resources would be available for civilian needs andfor long-range programs of national development. This would give ahue of good fortune to a backlog of internal development projects, whichare now well advanced in construction and, having been suspended orcontinued at minimum pace, will then be ready for immediate resumptionon a speedy schedule.

In economizing on natural resources programs, we must be selective inwhat we curtail and what we allow to proceed. During the period ofdefense build-up, it will be necessary to curtail progress on certain develop-ment projects and programs for flood control, navigation, irrigation, andrural electrification. However, those uncompleted projects which willyield substantial amounts of hydroelectric power or municipal and indus-trial water supply needed for defense should be brought to completion assoon as feasible. Other developmental projects now well under way, andwhose benefits can be made available within about the next year and ahalf, in general should be completed so that the substantial investmentsalready made can be utilized. Other projects, whether started or onlyplanned, which will make substantial additions to productive capacity,should receive careful consideration.

In this period of selective curtailment of resource development programs,it is important for defense that a variety of basic-data gathering, survey,investigation and experimental activities be continued in the various riverbasins and other regions. Increasing pressures on our forest, range, andagricultural land resources resulting from the defense program requireadequate land management and conservation programs as basic supportsfor both military and industrial strength.

Manpower

The objective of full employment takes on new and broader meaning asa result of the defense program. Our manpower resources are a vital factorlimiting the ultimate expansion of our mobilization effort. It, therefore,becomes even more important to make full use of persons normally in thelabor force. This means that unemployment and underemployment shouldbe reduced to a minimum. To this point, our objectives remain the sameas they were prior to the defense program.

In addition, however, defense requirements now make it essential for usto take steps to assure that the members of the civilian labor force areemployed in ways in which they can individually contribute most to thetotal defense program. It means that every effort must be made to use thehighest skills which each worker possesses, since the high quality of our laborforce is a prime advantage.

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The demands of the defense program mean not only that we must useour normal work force fully and efficiently, but also that we must expandthe labor force by calling upon persons who do not normally seek employ-ment. It is especially vital to secure complete public understanding of ourmanpower needs and active community cooperation.

Expanding the labor force. In expanding the labor force, the most im-portant source is women, especially nonworking married women who donot have the responsibility of caring for young children. Women who workin defense jobs and who have children should be assisted, by means ofnursery schools and other child care and community facilities, to care fortheir families and their homes.

Another important group is the aged; they should be encouraged to jointhe labor force by stepped-up recruiting efforts, and by a relaxation ofthose hiring standards which bar older workers from jobs which they arecapable of performing. In the present state of partial but long-sustainedmobilization, we do not believe that teenagers should be encouraged toleave school and join the civilian labor force. We should carry on our vo-cational rehabilitation work to enable a large number of disabled men andwomen to become employable; we should train older women, younger per-sons not in school, and others. Vigorous programs should assist membersof minority groups to be utilized to the maximum of their capacities.

In addition to recruiting additional workers, we should utilize all of ourpresent workers. It should be possible to gain about a million more workersby a reduction in the present level of unemployment. Moreover, there areabout a million part-time workers who are willing and able to accept full-time jobs.

Longer hours. Some selective increases in the work week are neededimmediately. In certain defense industries, where it is necessary to expandproduction without waiting for expanded capacity, additional shifts should beinstituted. In other defense industries, shortages of critical skills indicatethe need for longer hours for skilled workers. There is not yet a clear andurgent need for adopting a general increase in the work week for the econ-omy as a whole. We should be ready to adopt such an increase as soon as itis needed, and in the meantime effort should be concentrated upon expand-ing the present labor force so that we will have more workers with experi-ence and training.

Improved utilization of the work force. Attracting workers to the jobswhere they are now most needed is at the heart of an effective manpowerprogram. Basic responsibility for this problem must continue to be borneby informed workers in their individual employment decisions. But thesedecisions must be guided and supported by more positive governmentalaction.

First, there should be further development of the management-labor com-mittees, now being established in many of the more acute labor market areas.These can help to provide essential local cooperation. Second, arrange-

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merits will be necessary to remove the impediments to voluntary transfers ofworkers from less essential to essential activities, and protect workers affectedby the curtailments in nonessential production. Such arrangements shouldsafeguard seniority and pension rights, and offer better protection on abroader basis during conversion unemployment. Third, we must make cer-tain that workers are most productively utilized while on the job. Hereemployers must assume basic responsibility for necessary training and upgrad-ing, for taking all possible steps to improve the supervision, mechanization,and other factors contributory to maximum productivity, and restrict theirhiring to the absolute minimum needed to meet production goals. TheGovernment should encourage and facilitate these actions.

Health^ education, and security. One of the thorniest questions con-fronting the whole defense effort is how to reappraise and redirect the publicservices whose necessary growth was resumed after World War II, andfor which further growth had been appropriately planned before the defenseemergency.

In education, for example, we cannot remedy the shortage of schoolbuildings at the pace which seemed eminently desirable a year ago. Onthe other hand, there is a high priority for promoting education and trainingin the health professions. Also the vocational education program, whichcomplements within-industry training, must be redirected toward greateremphasis on training for defense jobs. General education, which modernelementary and high school training affords, no less than specialized skills,is essential to the maintenance, of a vital citizenry, whether in the civilianlabor force or in the military. It would be wasteful beyond description,by any test., to deprive those not yet of military age of decent opportunitiesfor such training, and to force them, by lack of equipment or staffing, intothe streets instead of the schools. This would hardly make them moreserviceable in the event that an even larger military establishment shouldbecome essential by the time they will have reached the age of service.

In the case of health, it is obvious that widespread deficiencies in healthcare do not make for maximum national strength at any time. Obviouslywe do not now have resources to build as many hospitals in as many placesas we would like to do. On the other hand, certain features of healthprogress are now more vital than before and should be accelerated. Federalaid should be extended to local health units, with special emphasis on unitsin the more rapidly growing defense areas. As a part of a communityfacilities and housing program for rapidly growing defense areas, adequatehealth facilities and services, as well as schools, will be necessary.

In the case of social security, there are types of expansion wrlich wouldconstitute an immediate drain upon our resources, and which are less urgentby the test of national priorities than they seemed a year ago. But othertypes of social security expansion, such as old-age and survivor insurance,may be undertaken without an immediate drain upon our resources, andin fact over the next few years would be anti-inflationary by collecting more

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funds than they disbursed. Moreover, since the fight against inflation willmake it necessary to reduce the incentives which flow from wage increasesavailable for spending, some incentives may be substituted by granting somewage increases where necessary but withholding them from the purchasingpower stream by social security deductions which are a form of compulsorysaving. In any event, even without increases in wage rates, there will bean enormous increase in total wages earned, through additions to the laborforce and through longer working hours, at a time when it will be impossibleto increase the supply of consumer goods. Increased social security deduc-tions might provide one highly useful approach to this inflationary problem.

Because many of these services now under discussion are public ratherthan private in their nature, it may seem easier to curtail them than tocurtail nonessential private activity and spending. But in a nationalemergency, the question of who spends the dollar, while not unimportant,should be subordinated to the larger question of what use of resources willdo most to maximize our total strength. Nonessential Government outlaysshould by all means be cut; but essential public outlays should have priorityover nonessential private demand. This whole problem calls for a kind of"budgeting" process more discriminating than that practiced in peacetime.In terms of the over-all programming of requirements and needs upon whichthe Council has placed so much stress, the amount of materials, manpower,and money which we can and should devote to education, to health services,and to other factors in human efficiency and morale, should be carefully andconstantly weighed.

Housing and community facilities. The World War II experiencebrought into sharp focus the close relationship between industrial produc-tion and sufficient housing of adequate quality. Despite the nearly 5 mil-lion new nonfarm housing units which have been built since 1945, we havenot yet caught up with the requirements of a nation of our population, in-comes, and living standards. This was illustrated by the unprecedented andrising level of house construction in 1950. The defense emergency requiresthat we now set aside the praiseworthy targets for an even larger numberand more varied types of housing which were projected last year andearlier. If the housing goals set forth in connection with the recentcredit restrictions do not need to be reduced, they will permit a level ofhousing output at least sufficient to keep up with new family formationsand even to allow some reduction of overcrowding.

In areas of defense expansion, on the other hand, the housing supplywill need to be enlarged considerably. The emphasis should be upon rentalhousing serving the needs of middle- and lower-income families, along withnecessary community facilities. While private industry should be encour-aged to do as large a part of this job as it can, the experience in WorldWar II makes it clear that publicly-financed housing must serve a largerportion of this type of need than in ordinary times. More easily than

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privately-financed housing, such housing can be developed on a rentalrather than a sale basis, and is more suited to migrating defense workers.Such housing is also more easily susceptible to occupancy standards.And such housing can save somewhat more by way of critical materials,because its utility after the defense period need not be taken so largely intoconsideration, and because it may even be built on a temporary or mobilebasis if necessary—although previous experience casts some doubt uponlarge-scale resort to temporary housing in the current situation. Previousexperience also demonstrates that, wherever possible, such housing shouldbe built by local agencies, with Federal aid when needed, rather than bydirect Federal construction. The latter method has always seemed super-ficially to promise greater speed; but actually, it has usually proved slowerbecause of the high degree of interdependence among housing structures, theselection of sites, and municipal and other services which cannot be providedby the Federal Government.

The scheduling of housing for defense workers needs to be integratedmore closely with other aspects of the defense program. In addition, thegeneral determination of what volume of total housing can be permittedin the near future, throughout the country, will be made most wisely inthe framework of the complete resource programming operation whichthe Council has identified as a first need of the whole defense effort.Housing is so essential to our general strength, that decisions affecting hous-ing should rest upon the general strategy of the relative emphasis beingplaced upon immediate military needs and long-range economic strength.

Adjustment of agricultural production

The defense situation has significantly changed the farm outlook. Sur-pluses, which seemed difficult last June, present few problems today. Whileour agricultural policy continues to encourage abundance of farm productsin general, it is now concentrated on specific items which are in shortsupply.

The demand for farm products has increased markedly in recent months.Military needs for cotton and wool have greatly enlarged the markets forthese products. In addition, there is an exceptionally strong consumerdemand for meats and many other foods. Coupled with these high de-mands, we have low supplies of cotton and wool—although fairly liberalstocks of foods. And we will need to maintain large stocks of food and feedas an insurance against unpredictable demands and against the hazardsof weather.

In World War II, our food and fiber needs were met by a great increase inagricultural production. Total output of farm commodities increased byalmost 20 percent from 1940 to 1944. This was made possible by goodweather, by the rapid adoption of hybrid corn, and by using much morefertilizer and machinery. Since the war, output has remained at highlevels, despite gradual reduction in the number of persons working on farms.


It will doubtless be more difficult to increase farm output in the futurethan it was after 1940. Yet substantial gains are feasible. Programs arebeing readjusted to help bring about the highest possible total output, andespecially to encourage the production of the most needed commodities, suchas cotton, wool, corn, and livestock products. In the case of cotton, therewill be no 1951 acreage allotments or marketing quotas, and every effortis being made to produce a crop of 16 million bales, or 60 percent more thanthe 1950 crop. On January 5, it was announced that there will be noacreage allotments for wheat and corn in 1951. In the case of cotton andwheat, prices will be supported at 90 percent of parity. On the otherhand, there are now no supports on potatoes or on eggs.

Farmers are using less manpower than before the war. But they areusing three times as many tractors, twice the number of trucks, two andone-half times as much fertilizer, and two to three times as much electricpower and power-driven machinery. The increased use of steel in the de-fense programs, and possibly the increased use of nitrogen in explosives,make it difficult to avoid some bottlenecks in food production. But ourexperience with this problem in World War II indicates that these bottle-necks can be kept at a minimum by the careful scheduling of requirementsand by appropriate measures of allocation.

Although using less manpower, farmers are more dependent on skilledlabor than in prewar times. This could rapidly become a difficult problemif the defense program continues to expand. For the present, it is less seriousthan the problem of assuring needed materials and facilities.

PROMOTION OF ECONOMIC STABILITY

The diversion of large amounts of resources to the defense effort tendspowerfully to upset the economy by causing inflation, dislocating productionand employment, and distorting the distribution of essential goods amongthe population. Such instabilities, if not brought under control, wouldundermine production and the whole defense effort by imposing hardshipsand inequities on the home front. The vigorous promotion of economicstability thus supports our basic production effort just as expansion ofproduction buttresses economic stabilization.

Inflation is the principal threat to economic stability. Earlier in thisreview, we depicted the enormous inflationary forces which grow out of theexpanding defense program, and which have already begun to march evenbefore that program has gotten into high gear. The control of inflation ismuch more difficult than the expansion of production. The release of pro-ductive effort is gratifying in itself. The preponderant bulk of Americanproduction and production expansion will come through private initiativewith no more than general guidance from government. But the impositionof harsh restraints goes against the grain and requires all of us to do thingswe would very much rather not do. The reasons for a mighty productive

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effort are more or less self-explanatory; but to succeed with controls requiresa constant effort toward the enlargement of public understanding.

There are three main ranges of controls available: (1) the indirect con-trols, such as tax and credit measures, which absorb or restrict the growth ofexcess purchasing power; (2) direct controls over production and distri-bution, such as allocations and limitation orders, which distribute resourcesamong necessary purposes; and (3) direct price and wage controls, whichare designed to suppress the price-wage spiral.

All three of these types of control are now clearly needed. In effectivecombination, they can provide a sound platform of economic stability uponwhich an abundant and balanced production program can build. Eachis necessary to the other two and must be supported by the other two; inlarge measure, they are complements, not alternatives. This will be clearerif we examine their interrelations.

Allocations and limitation orders help to place goods where they aremost needed. An inevitable result is to reduce the supply available forother uses. But allocations and limitation orders do not reduce consumerdemand. If nothing else is done, prices will rise and some consumers mayfail to receive essential supplies. Accordingly it is necessary to make use oftaxes and other financial measures which reduce total purchasing power,and thereby reduce civilian demand for scarce supplies. These measurescan be aided further by imposing selective credit restrictions and specificexcise taxes, to curtail civilian demand for those products which are scarcebecause materials or plants are concentrated on defense production.

Even the most rigorous tax program designed to keep disposable incomesin line with available production requires the assistance of price and wagecontrols. If tax increases were followed by compensatory price and wageincreases, the effects of the tax program in holding down spending wouldbe largely nullified. Moreover, tax increases may be inadequate to checkspending if there is a large volume of liquid savings which both businessand consumers can use to buy goods. For the public to continue to holdthese savings and for it to save at the needed higher rate in the future,requires confidence in the stability of prices. Only broad, direct price andwage stabilization can now convincingly provide this confidence.

Also, effective stabilization of prices is necessary to make our allocationand priority system work effectively. As long as prices are not controlled,the orderly flow of materials to the most needed places would be disruptedand our production schedules disorganized. This makes all the more urgentthe need to stabilize prices if we are to achieve our production program.

It would be unwarranted, however, to embrace direct controls of pricesand wages in the hope that they offer a less painful and more palatableremedy than do higher taxes. Price and wage controls prevent incomesfrom rising and thus help limit the growth of demand. But they do notin themselves reduce demand; on the contrary, the lower the prices, the


greater the demand; and this provides a breeding ground for black marketsand evasion if purchasing power is not restrained. Disposable income mustbe reduced through taxation and other financial measures, or price andwage controls may be seriously undermined. Further, price controls mustbe supplemented by some direct controls over the kinds of civilian goodsproduced, if sellers are not to be able to sidestep price controls by varyingtheir products and shifting to higher-priced and higher profits lines.

It should be recognized that controls, particularly direct controls, wouldplace obstacles in the way of production unless the controls were carefullydesigned and competently administered. For example, delay in grantinga priority may hold up a defense order; or, wages in less vital industries maybe set relatively so high as to impede the recruitment of workers into themore vital ones; or, an error in price regulation may make it impossible toproduce and sell certain goods except at a loss. The risk of these and similarmistakes are costs which we must expect in using direct controls. If the infla-tionary forces in the economy were minor, these costs of controls would belikely to far outweigh the benefits which they contribute to production. Butwhen the inflationary forces are powerful, the losses to production resultingfrom direct controls are likely to be far smaller than the losses to productionif instability develops. It is the latter kind of situation which we facein a major defense mobilization. We must do everything within our powerto make the controls work smoothly, so as to interfere as little as possiblewith production.

While the interdependence and necessity of the different kinds of con-trols are clear, the emphasis in the last analysis must be placed upon thefinancial measures which drain off excessive purchasing power. Theseare basic for any long-run program, and without them, the others arebound to fail. This statement must be emphasized repeatedly becausetaxation seems to most people to be the most painful of stabilization meas-ures, and, as a result, there is a tendency to seek in the direct controls aneasy substitute. No economic mistake could be more serious. Indirectfinancial control measures, notably taxation, must be at the center ofstabilization policy in the defense economy.

Mobilizing our financial resources

The distinguishing mark of indirect controls is that they operate throughtheir effects on people's income and on their financial assets and liabilities.Their purpose is to mobilize the Nation's financial resources for the promo-tion of defense mobilization.

Defense mobilization requires the redirection of physical resources. Tosome extent this is done by direct order, as when men and women are draftedinto the armed services. But to a major extent, financial measures arerelied on to facilitate the redirection of resources. Financial mobilizationis thus the rechanneling of the flows of incomes and expenditures, receiptsand disbursements, in order to guide production in line with the require-

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merits of defense and to distribute equitably that part of the productavailable for the civilian population.

The instruments of financial mobilization include, on the one hand, gov-ernment expenditures whereby resources are commanded for the defenseeffort, and, on the other hand, a variety of measures for maintaining eco-nomic stability by reducing the competition of private demand for resourceswhich are needed for defense.

Foremost among these measures of financial mobilization is taxation,which withdraws spending power by compulsion from private hands. Theeffect of taxation in reducing consumer and business spending is limited bythe fact that it ordinarily does not impinge on past accumulations of funds.

A second measure is borrowing by government. To have an immediateeffect on private demand, borrowing must be accompanied by an increasein net saving or a reduction in real investment, or both. Borrowing alsohelps to reduce demand by absorbing liquid funds which would otherwisebe spent. Campaigns to sell government securities to the public promotethis objective. A sort of "induced saving" also results when goods subjectto price controls are in short supply, since people are thereby encouraged tosave until the goods can be purchased at a later date. Saving as an instru-ment of financial mobilization is voluntary^ and therefore more subject tounpredictable fluctuations.

A third measure of financial mobilization is credit control, whereby privateborrowing is reduced or restrained from rising. The impact of credit con-trol is limited, since it cannot prevent persons from spending their own assets.

It has previously been pointed out that financial measures and direct con-trols supplement each other in the maintenance of price stability. Thus,increased taxation is the basic financial measure on which government mustplace its greatest reliance if the gap between demand and supply is not toundermine price and wage controls. On the other hand, price and wagecontrols supplement taxation, since in their absence tax increases can belargely nullified through compensatory price and wage increases.

In one respect, the problem of financial mobilization, at least for thedefense effort now contemplated, is not so serious as it was in WorldWar II, since the present defense program does not require nearly so largea proportion of the national product as that war did. In several respects,however, the problem of financial mobilization is far more serious todaythan it was during World War II.

First, a longer period of mobilization is anticipated than was the case atthe beginning of World War II. Accordingly, the measures to be adoptedmust be adequate not merely for a few years, but possibly for an indefiniteperiod of years.

Second, World War II mobilization was undertaken when the country wasstill in a period of incomplete recovery, while the present defense mobili-zation is being added to a business boom which even before the Koreanattack had carried industrial production to postwar record levels and

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was being reflected in higher prices. In World War II, there was littlecredit expansion for business or consumption purposes, while thus far inthe defense mobilization nearly the whole expansion of credit has been forprivate uses.

Third, the country is entering the present defense mobilization at a timewhen there is a tremendous volume of accumulated liquid assets. A sub-stantial portion of the liquid assets is held in the form of Government debt.At the end of 1950 the debt outstanding not held by Federal Governmentagencies and trust accounts totaled 217.5 billion dollars, compared with41.1 billion dollars at the beginning of 1940. This debt has a high degreeof liquidity, so that for many persons and businesses it serves the functionof cash. The large volume of liquid funds makes it more difficult thanit would otherwise be to hold down demand through taxation. The largeamounts of savings bonds held by the public, resulting from the success-ful savings campaign of World War II, add to the importance of presentsavings programs. This is accentuated by the fact that a large part ofthe Federal debt which was incurred during the war will mature over thenext few years. Moreover, if and to the extent that the budget is notbalanced through current tax collections, further borrowing will benecessary.

Fourth, the country is entering the defense program with far highertax rates already on the books than was the case in 1940. For example,for 1939 there were less than 4 million taxable individual income taxreturns; the exemption of a married couple was $2,500, and the startingtax rate was 4 percent. Today there are approximately 43 million taxablereturns; the exemption of a married couple is $1,200, and the starting taxrate is 20 percent. In 1939, the top corporate income tax rate was 19percent; today it is 47 percent, with an additional tax of 30 percent onexcess profits. Clearly, it would be more difficult to obtain large additionalrevenues from increases in these taxes than was possible from the startingpoint of low rates and high exemptions at the beginning of World War II.

Fifth, effective stabilization measures need to be in operation morequickly and more completely than was necessary at the beginning of WorldWar II. This results, in part, from the tightness of the economy sinceincreased spending is reflected immediately in price increases. Moreover,the public is more conscious of the threat of rising prices than it was in1940. Then, mobilization followed half a decade in which price increaseshad been accompanied by recovery and the increase in employment, andin which deflation and price decreases seemed more probable and moredangerous than price increases. Since then, the public has experiencedsubstantial price rises which have affected not only their personal budgets,but also the financial assets upon which they rely for economic securityin later life. People's willingness to save more and spend less is dependentlargely on their being convinced that price stability will be achieved andmaintained.

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For this reassurance to be effective, it is imperative to stabilize prices aspart of the mobilization effort. This presents the old problem of the henand the egg. A high level of saving is important if prices are to be stabilized,but it is going to be difficult to achieve that saving unless prices are stabilized.Clearly, it will be necessary to move on this problem from every practicaldirection. In doing so, it should be with regard to both the immediatedefense period and the more distant time when resources and funds can beshifted back again into their more customary uses. An important goal formobilizing financial resources for defense is to reduce to a minimum theinflationary and other distorting effects on the economy in later years, as wellas in the immediate period ahead.

The three segments of policy most important to financial mobilization—taxation, debt management, and credit policy—are discussed in the immedi-ately following paragraphs. Other measures which directly reduce spendingor prevent the enlargement of incomes are discussed in later sections dealingwith priorities and allocations, and price and wage controls. While not inthemselves financial measures, they are necessary for the success of financialpolicies, under present or prospective conditions.

Taxation

The Council believes it to be of great importance to the future of thecountry that the firm and continuing policy of the Government be to paythrough taxation for the entire cost of the defense program at present andcontemplated levels. The reasons are clear and convincing. First, payingfor the defense program out of current taxes largely offsets the inflationarypressures resulting from increased government expenditures. Taxation issuperior to other methods of holding down spending by consumers andbusinesses. It does not rely on voluntary action. It does not interferewith the flexibility of market adjustments. It avoids the increase of debt,and obviates the danger that inflationary pressures of expenditures will notbe offset at the time of borrowing or may arise at some later date.

Second, paying through current taxes distributes the burden immedi-ately in a manner in which the Congress determines it should be distributed,not unpredictably and unfairly through inflation. When we pay as we go,those who serve in the armed forces will not have to pay taxes for increaseddebt service and debt retirement after they return to civilian life.

Third, there is no economic advantage in postponing taxes through bor-rowing, for the economic burden of the defense effort must be bornecurrently regardless of the manner in which the expenditures are financed.It is not the imposition of taxes to pay for defense that creates the economicburden of defense, and it is an illusion to think that through borrowing, theNation can escape or postpone paying the bill.

Fourth, the tax load required to finance a defense program of the sizenow contemplated would not be unduly heavy at anticipated economiclevels. Federal cash revenues collected during the fiscal year 1945

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amounted to about 27 percent of the national income. To pay forFederal expenditures at the level projected for the end of the calendaryear 1951 would not require a much higher percentage of national income.Such a tax load is heavy but not unbearable.

It is not to be concluded that a balanced budget could necessarily bemaintained during a major war. But the magnitude of the present andplanned defense effort is far from being as heavy a charge on the produc-tion of the country as was made during World War II. In general, adefense program that does not require a diversion of productive resourcestoo large to be sustained over a long period of time is not too large to befinanced through current taxation. We believe that from an economicpoint of view, a defense effort of present and contemplated size can andshould be financed through taxation during the period of the effort.

This is not the same as saying that during the relatively short build-upperiod when expenditures are mounting rapidly month after month, taxcollections can be kept equal to expenditures at all times. There aretime lags in the passage of tax legislation, and time lags in the collectionof taxes under new tax legislation. The shock of the tax bite on theeconomic system must also be considered. The adjustment to drasticallyhigher taxes of the taxpayer's personal budget, as well as his attitude, out-look, and expectations, takes time. With due recognition of this, whichmeans simply that taxes should be raised just as fast as possible, the pointmust be everlastingly stressed that there is to be no giving up the policyand goal of the balanced budget. There must be no let-up in tax increasesuntil balance is achieved and maintained.

It must be recognized that to balance the defense budget will requiretaxes at rates substantially higher, perhaps even drastically higher, thanhave ever been imposed before in the United States. The regular cor-poration income tax is already substantially above the wartime level. Ex-cise tax rates are at their wartime peak. Individual income rates are 3percentage points below the wartime peak, although, due largely to incomesplitting, tax liabilities for married couples are substantially lower. Thefact that the rates will have to exceed the wartime levels is regrettable,but should not be discouraging. It is generally recognized that taxes weremuch lower than they could and should have been during the last war.

The importance of reducing private spending influences the forms oftaxes which should be used in a tax program, as well as its size. Otherconsiderations are also important. A maximum productive effort should notbe discouraged. The tax burden should be distributed in an equitablemanner. The higher the tax burden becomes, the more important it is toavoid inequities which permit some taxpayers to escape paying their fullshare.

The individual income tax. We should continue to rely on the individualincome tax for a large part of the additional revenue which will be required

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for the defense effort. Drastic increases in rates will be necessary, whichwill make it more important than ever that the base be an equitable one.

There are numerous special provisions in the law which need to bechanged, in order that the base of the tax may be a fair one on which heavyburdens can be appropriately levied. Thus, the rates on capital gains aretoo low in relation to the rates on other incomes, while the holding period isso short that the hiding of ordinary income under the capital gains cloak isencouraged. The depletion allowed under the percentage depletion treat-ment is so excessive for some industries as to constitute a major inequity,and percentage depletion has been extended to industries where it has nojustification whatsoever. The split-income provisions of the Revenue Actof 1948 removed an inequity among certain married couples in differentStates, but introduced an extremely favorable concession for married couplesgenerally. If this concession cannot be removed, it should be taken intoaccount when considering the increase of income taxes. The exemptionof interest on State and local securities provides the anomaly that Statesand localities can sell securities at lower interest rates than the FederalGovernment. More important, a large part of the tax benefit accrues to thesecurity holder rather than to the State and local government. The defenseperiod would be an excellent time to remove this old-time anomaly fromthe tax law.

Income tax increases should be imposed at all levels, emphasizing the pro-gressive character of the tax structure; but by far the largest part of theadditional revenue must come from the middle and lower tax brackets.These are the brackets in which the great bulk of the income is located.Of the total net income shown on all taxable returns, 86 percent of theamount remaining after Federal income taxes is estimated to be receivedby taxpayers with net incomes of less than $10,000. To hold down con-sumption, which is vital to the control of inflation, the bulk of consumersmust be affected directly by the tax increases.

Estate and Gift Taxes. The estate and gift taxes have less direct anti-inflationary effects than most other taxes, but in the interests of distributingthe defense burden fairly, these taxes need to be overhauled and strength-ened. The structure of the estate and gift taxes permits large amounts oftransfers to be made with no tax or at a very low tax rate. These defectswere accentuated by the Revenue Act of 1948. The defective structure ofthe taxes should be corrected to make them fairer and more productive, andthe rates and exemptions should be set at such levels as to give their properand more adequate place in the tax structure.

Corporate taxes. Taxes on corporate profits were raised substantiallyin 1950, but there is room for further increase. Corporate profits beforetaxes in the second half of 1950 have been approximating a rate of about47 billion dollars. Federal, State, and local corporate taxes, including theexcess profits tax, will absorb at this rate of profits on a full year basis ap-proximately 24 billion dollars, leaving 23 billion dollars after taxes. Several

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billion dollars of this can be taken through further taxation and still permitcorporations to maintain reasonable dividend payments, and to continuenecessary programs of expansion without impairment of their financialposition (see chart 18). Heavy corporate taxes contribute to the anti-infla-tion program, because they limit the amounts corporations have available fordividends and for investment. Moreover, without a further substantial in-

CHART 18

CORPORATE PROFITSCorporate profits rose spectacularly during 1950 to reach thehighest levels on record, as sales and prices climbed tonew highs. Undistributed profits were the second highest onrecord and the volume of dividends swelled to new all-time highs.

BILLIONS OF DOLLARS

50

BILLIONS OF DOLLARS

50

ANNUAL RATES, SEASONALLY ADJUSTED

— 20

10

1950' NO ALLOWANCE FOR INVENTORY VALUATION ADJUSTMENT; SEE APPENDIX TABLE A-4

PRELIMINARY ESTIMATES BY COUNCIL OF ECONOMIC ADVISERS; ALLOWANCE HAS BEEN MADE FORTHE EFFECT OF THE HIGHER TAXES INCLUDING THE EXCESS PROFITS TAXES.

SOURCE: DEPARTMENT OF COMMERCE (EXCEPT AS NOTED)

crease in corporate tax rates, there may be an accelerated rise in securityprices, which feeds inflationary consumer spending and could easily spreadto other markets and run directly counter to the goals of the stabilizationprogram. Increasing the tax burden on corporations is essential also fromthe point of view of equity. It is not convincing to tell the public thatconsumption must be reduced and personal taxes greatly increased, whilecorporations maintain profits at very high levels. Wage earners can hardly

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be expected not to demand higher wages, if they see that corporations haveprofits that would permit substantial wage concessions without makingnecessary an increase in prices.

The excess profits tax, which was passed by the recent Congress, makesa major contribution to the corporate tax structure. It appears probable,however, that some of the allowances made are unnecessarily generous andremove from the excess profits tax some profits which should be taxed atthe higher rate.

Excise taxes. There is a particularly good reason for heavy increases ofexcise taxes on civilian goods which compete for materials and facilities withthe defense effort, and the supply of which will very likely have to be dras-tically reduced. In the absence of the most rigorously enforced price control,the price of such goods is almost certain to rise. There is no justificationlor such price increases going to producers or dealers, and the effect wouldbe to inflate business incomes and to stimulate workers to demand increasedwages. By means of heavy excise taxes on such goods, the price increasewould be diverted into the Federal Treasury in the form of tax revenue tothe extent that the goods were available. Such taxes would be particularlyappropriate on durable goods which are not essentials of life.

The rates of many of the other excise taxes might be increased somewhat.New items might be taxed, but to add substantially to the excise tax basewould involve the taxation of commodities of mass consumption. Theseare, in general, necessities of life, and to tax them would place an inordinateburden on low-income families. Circumspection will be required also inincreasing taxes on business-cost items, since these would most likely bepassed on in the form of higher prices and affect the cost of living and of thedefense program.

Increases in some excise taxes, which are reflected in the price structure,are a necessary device under current conditions. Yet it cannot be over-looked that such measures, in their very nature, bear more heavily onfamilies with limited means than upon families in higher income groups.To a degree, this may be unavoidable, because an economic mobilizationprogram cannot attempt to remove all of the differentials in real incomesand in consumption which are inherent in our economic system. None-theless, a defense program calls for sacrifices so great that there must beeven more emphasis upon considerations of equity than in normal times.Towards this end, should the situation become more critical and someshortages become acute, there would need to be relatively more emphasisthan thus far upon rationing and other devices, outside the price and taxstructure, to promote equitable distribution of certain types of goods.

State and local taxes. Since tax policies are not solely a matter of Federallegislation, it may be added that the State and local governments also canhelp to reduce inflationary pressures. With the existing State and local taxstructure, advancing prices and personal incomes tend to produce surplusrevenues, particularly for the States. To the extent that these surpluses

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occur, the State and local governments should build up reserves for lateruse rather than reduce the level of tax rates. In their expenditure policies,likewise, these governments should take all possible steps to conserve man-power and materials. By adhering to such policies during the last war,the State and local governments made a noteworthy contribution to economicstabilization. They can help again during the present emergency.

Debt management

Policies of debt management can make an important contribution to thesuccess or failure of our stabilization objective for the defense period andafterwards. The public debt today is more than five times as large as itwas at the beginning of the defense financing period prior to World War II.It comprises approximately one-half of the total debt of the country, andconstitutes a large portion of the assets of all the major investor classesof the country. Operations affecting the public debt have repercussionswhich are felt throughout every sector of the economy.

It is of major importance for the maintenance of economic stability thatthe public debt be bought and held by nonbank investors. Bank purchasesof government securities are accompanied by an expansion of bank credit.Under present conditions, it is even more important than during WorldWar II that the maximum amount of debt, including both new and re-funding issues, be sold to and held by the nonbank public. We believethat the Treasury should continue to use every effort to expand Governmentsecurity holdings of nonbank investors, particularly individuals.

An important objective of debt management policy has been the main-tenance of an orderly public market for United States securities. A stableand confident situation in the market for Federal securities is particularlyimportant during a period of large military expenditures when new andheavy demands will have to be made on the Nation's financial system.

The accumulated savings of the wartime period eased to a large extentthe reconversion of business in the postwar years and supported postwarprosperity. The highly liquid condition of the Nation's financial assets,however, also made for excessive demand and contributed to the postwarinflation. The achievement of monetary stability in the future will be madeeasier if the proportion of debt held in readily monetizable forms can bereduced.

General credit policy

Three purposes of credit policy which are particularly important inthe period ahead are, first, to facilitate the smooth transition of businessand industry to meet the requirements of defense mobilization; second, toassist Government debt management; and third, to minimize inflationarypressures. To achieve all three purposes at the same time presents some-thing of a dilemma, since smooth economic transition may require easilyavailable credit, while minimizing the pressure on prices calls for restrict-

922781—51 8 I07


ing the volume of credit at many points. The problem is pointed up by thefact that, during the second half of 1950, the rapid expansion of bankloans contributed to the inflationary pressures built up during that period.There is a real danger that, for a time at least, consumer and businessbuying, based on credit, will continue to be of a magnitude which willaggravate inflationary pressures. Because of the needs of debt manage-ment, however, general credit policy cannot be expected to be a majoranti-inflationary instrument during the coming period of intensive mobili-zation.

Finding the solution to this problem of credit policy will call for a carefulappraisal of the applicability under present and prospective conditions ofsuch traditional central banking techniques as changes in rediscount rates,reserve requirements, and open-market operations. It will undoubtedlybe necessary, at least in the immediate period ahead, to rely more on selec-tive than on general credit controls. It may be found feasible to extendselective controls to other kinds of loans than those to finance the purchase ofconsumers' goods, real estate, and securities, and to secure voluntary cooper-ative action on the part of banks to attain this objective. It is possible, andit may be found desirable, to regulate and limit the issue of new privatesecurities.

One hopeful element in the picture is suggested by the experience ofWorld War II, which supports the view that, if price controls and con-trols over inventories and facilities expansion are vigorously used, theproblem of inflationary growth of bank credit will be mitigated. Pricecontrol, combined with the diversion of materials from civilian production,may be expected to restrict new credit to that used for the promotion ofproductive capacity in the defense program.

Selective credit controls

At the present time, two major selective credit controls are in operation:Regulation W, which requires minimum down payments on purchases ofthe principal types of consumer durables; and Regulation X, which regulatesterms on residential mortgages. Regulation W was in effect during thewar and during most of the postwar period until June 30, 1949, at whichtime legislative authority expired. It was reinstituted on September 18,1950. Less than a month after the Korean outbreak, the President askedthe Government housing agencies substantially to tighten terms on allmortgage loans insured or guaranteed by them—roughly half of all mortgageloans. In October, a more comprehensive regulation covering conventionalloans on new one- and two-family dwellings, as well as Government-insuredor guaranteed loans, was put into effect. At the present time, the regulationis being extended to multi-family structures, principally by the requirementof maximum loan values. During World War II, the substantial reductionof private residential construction by direct controls minimized the need forcredit controls, although it would have been desirable to curb demand and

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limit the price rise on existing dwellings. In the postwar period, previous tothe Korean outbreak, overcoming the acute housing shortage was regardedas a primary aim of public policy, and accordingly, credit measures weredesigned to provide positive encouragement to residential construction.

Regulation W has had some immediate effect in curtailing demand, butto date the effect has been small, in comparison to the reduction in saleswhich will be necessary in the future. In the case of Regulation X, theeffects of the regulation cannot yet be appraised, to determine whetherfurther tightening of terms will be warranted. The large volume of workunder way, and commitments made prior to the date of the regulation,will assure the continuance of a relatively large volume of residential con-struction well into the spring months. This has delayed the full impactof the regulation.

The restriction of consumer credit and of housing credit inevitably bearsharder on the lower income groups which have used these forms of creditmost extensively. The restraint upon their buying imposed through thepresent regulation should not be considered a serious and unreasonablehardship. If, however^ much more severe restrictions on the supply ofconsumer durable goods and the construction of housing should becomenecessary, it would no longer be feasible nor equitable to achieve the neededrestraint exclusively through the device of making credit unavailable. Thiswould mean that the drastically reduced supply would go exclusively tothose who have the ready cash to pay for appliances or houses. In thecase of such drastic restrictions, other forms of allocating the remainingsupply would have to be considered. Such drastic curtailments are, how-ever, not contemplated at the present time. The sacrifices imposed onconsumers under present regulations are not great in comparison with thebenefit they derive from a successful policy of price stabilization.

In the case of housing, the adaptation of the program to a defenseeconomy will require modification of the over-all approach taken in Regula-tion X. Terms applicable to some housing construction may have to befurther tightened. In general, a more selective approach will be required.Measures will be needed to focus housing construction upon defense areas.Other measures will be needed to adjust the character of this housing—asto prices, rents, and size—to the needs of defense workers. Still other meas-ures may be needed with respect to the general housing program, so thatthroughout the country the limited supply of new houses may be made toserve first needs first. To encourage a larger volume of rental housing, legis-lation should provide the FHA with a special type of insurance authority,differing in terms from the current legislation and concentrating mainlyupon defense needs. A substantial volume of public housing will also beneeded, with reshaping to meet defense requirements.

One serious defect of the Defense Production Act of 1950 is that it doesnot contain authority to prescribe credit terms on the sales of existing homes,

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except on mortgages insured or guaranteed by the Federal Government.Exemption of these homes from credit regulation may result in a largerise in the price of existing homes, thus adding credit-created capital gainsto the spending stream. A rise in the price of existing homes would inten-sify inflation also, by affecting prices on new homes.

Materials controls

Priorities and allocations. Under the Defense Production Act enactedlast September, the National Production Authority quickly put into force abasic regulation under which the materials and components needed to filldefense orders were given priority over other business. Subsequently,recognition of the urgency of protecting certain other essential programsled to special assistance in providing steel for the accelerated building offreight cars and of Great Lakes vessels, primarily iron ore carriers. Stepshave also been taken to insure more equitable and orderly distribution ofpriority-rated orders, in a number of industries, by establishing maximumpercentages of output beyond which individual producers need not acceptfurther rated orders.

Orders have been issued cutting back nonpriority uses of aluminum,copper, zinc, rubber, tin, nickel, cadmium, columbium-bearing steel, andcobalt. The first purpose of these orders was to distribute the necessarycurtailment fairly evenly over the various nonpriority users, to avoid drasticdislocations of production and employment. These restraints also affordincentive to the directly-affected users to conserve scarce material, byredesign or substitutions, while maintaining their output.

By the end of the year, a number of orders had been issued which selec-tively curtail or prohibit certain less essential uses of the material in question,rather than curtailing all non-rated uses uniformly. For one material,cobalt, complete allocation was ordered.

The development of priorities and allocation controls since the Koreanoutbreak, as outlined above, has been patterned on methods employed im-mediately before and during the early stages of U. S. participation in WorldWar II. Some shortcomings in these types of controls are already becomingevident. For one thing, it has been impossible as yet to build effectivemachinery for insuring compliance with the increasingly complex patternof rules—a defect which should be remedied as rapidly as possible. Also,the system of curtailing non-priority uses of scarce materials by uniform per-centages at the level of primary shapes and semifinished products oftenfails to give the producer of finished products an adequate incentive tosubstitute, where feasible, components containing less of the scarce material.The basic shortcoming of the uniform horizontal-cut approach is that itmakes no distinction between more and less essential civilian uses. Thusit does not really maximize the production of the most necessary goods,and quite possibly does not even maximize total production.

The use of direct controls has thus far been limited almost entirely to

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aiding the direct defense programs, and the proportions of supply eligiblefor rated orders are still low. But these proportions are rising rapidly asthe pace of mobilization is stepped up. It should now be possible toprogress to the necessary next stage of more comprehensive and effectivecontrol, with far less lost motion than a decade ago. The exigencies ofcurrent mobilization call for all speed in staffing and other preparations forinstituting complete allocations of a few key materials, along the lines ofthe Controlled Materials Plan, at the earliest possible date. In the interim,there will be increased pressure for development and authorization of essen-tial civilian programs eligible for priorities assistance, on the footing nowrepresented by the freight car and Great Lakes vessels programs. It hasbeen realized from the start that a proliferation of such priority programsleads rapidly to a breakdown of the priority system. Advancing the datefor instituting allocations would shorten the interval to be bridged by apriorities system, and thus remove the danger of such a breakdown.

Even before complete allocations are in operation, it will be necessary toImpose further and more drastic cutbacks and prohibitions of selected leastessential end uses. The control agencies are moving in this direction. Inthe initial phase of the mobilization effort, the preference for uniform per-centage rather than selective cutbacks on civilian uses could be justified tosome extent, on grounds of maintaining production and employment ingeneral. But in the phase of mobilization which we have now entered,this justification loses weight progressively.

An improved system of direct control of materials should entail a carefulprogram for conserving scarce materials by all those who process, use, orhandle them in any way. Many of the practices evolved during WorldWar II to stretch supplies of scarce materials are being put to use again.Various sales-appeal features, such as chromium trim and nonessentialparts, can be removed from equipment. In the production of metal partsand alloys, use of substitutes for the more essential materials will bringgreat savings of scarce materials. The useful life of clothing, tools, andother commodities can be lengthened by the use of protective coatings andtreatments. Holding styles of articles to a limited number would reducethe need for maintaining large and varied inventories, and permit greatereconomies of production.

The search for substitutes, already under way, should be intensified. Themilitary research program is seeking substitutes for the copper used incartridge cases, for scarce alloy metals used in jet engines, and for manyother commodities. Federal agencies are conducting research in suchfields as new and substitute agricultural materials, new techniques of min-erals exploration, and new sources of minerals and substitutes. Programsare presently being conducted to standardize descriptions and unify termi-nology and classification systems for supply items.

Procurement. With the prospect that, during this year, the FederalGovernment will be buying an increasingly substantial share of the total na-

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tional product for defense purposes, procurement policies become a majorfactor in the mobilization of productive resources. Without effectivepolicies, there would inevitably be loss of output through disruption of pro-duction schedules, and inefficient and unbalanced utilization of the Nation'sresources of manpower and facilities. The policies followed in large-scalemilitary procurement have lasting effects on the competitive and geographi-cal structure of our industries, and on their ability to expand and adaptthemselves to the demands which will be made on them.

The most important general principle of sound procurement policy, atthis stage in the program, is that the supply base should be broadened as faras practicable. Contracts should not be piled on a few large and familiarsuppliers, but spread widely; and subcontracting should be actively en-couraged. Broad distribution of defense business will give many firms thebasic experience needed for subsequent rapid step-ups in war goods produc-tion. There are, of course, special cases in which a large procurementcontract could not be split up without excessive loss of time or efficiency;and as the mobilization proceeds, many plants should for technical reasonsdevote themselves exclusively either to military or nonmilitary output.But the basic objective of broadening the base of supply will remain valid.

Such a policy requires a major continuing effort to hunt out and develophitherto unused suppliers, particularly among the smaller firms. Thesefirms in the aggregate have much to contribute, but they are normally at adisadvantage in securing business where large quantities of goods are beingprocured in great urgency. The extra time and effort required for theirutilization will pay off increasingly as the pressure grows. Maximum prac-ticable latitude in specifications will be helpful.

To promote better utilization of facilities and manpower, to ease theburden on transportation, and to make essential supply systems less vulner-able to disruption by attack or sabotage, it is vital that procurement policytake account of the relative availability of resources in different communi-ties and plants. For the most part, there should be reliance upon coopera-tion by business, supplemented in exceptional cases by the use of Govern-ment powers to requisition facilities or to place mandatory contracts.

The pricing policies followed in procurement importantly affect efficiency.Although excess profit taxation and contract renegotiation are both usefulin recapturing some of the windfall gains of the emergency, neither takesthe place of a careful drawing of the original contracts in such a way asto encourage the cutting of production costs. Both in the initial letting ofcontracts and in subsequent renegotiation, the principle should be that thesupplier has an opportunity to secure extra profits by finding additionaleconomies, but not to retain extra profits which he may receive withoutconstructive effort on his part.

It is clear that, in order to implement a procurement policy which meetsthe needs sketched above, central formulation of standards and coordination

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of procurement activities are essential. Procurement policy must be closelytied to the other phases of the effort to expand production, and to avoiddisruptive price rises.

Policy for profits, prices, and wages

In a defense emergency, more widespread use of controls than in peace-time is essential. But controls obviously do not remove the need to formulatepolicy. On the contrary, controls make this even more essential, becausethe very purpose of controls is to achieve policy objectives with more rapidityand certainty than they could be accomplished without controls. Althoughtaxation is an authoritative indirect control action on the part of Govern-ment, one seldom hears the proposition advanced that there is no needfor tax policy to guide tax action. But there is more frequent expressionof the fallacy that the imposition of extraordinary or emergency controlsupon profits, prices, and wages does not equally depend upon sound policyfor their success. In these areas, consequently, the Council feels that itcan be most helpful by outlining policy guides, rather than by treating thosedetailed questions of formulae, timing, and application which must neces-sarily rest with specialized agencies charged with segments of the stabiliza-tion effort.

In peacetime, the function of profits, prices, and wages is to contributeto the most efficient use of our total resources for the purposes which theNation deems desirable. Prices serve to allocate products among buyers andto guide producers toward the most desirable products and the most eco-nomical methods of production. Profits provide incentives and directionto enterprise in making business investments and help supply funds for thatpurpose. Wages serve to provide purchasing power and work incentivesto a large part of the consuming public and lead to the most effective use oflabor.

In early 1950 the Council sought to outline profit, price, and wage pol-icies for peacetime stability and growth. We found the key to stabilityand growth in a continuing "balance" between investment and consumption.This balance on the one hand would enable business to make full utilizationof the labor force and of new technology toward the end of maximum pro-duction; and on the other hand would provide wage earners and other con-sumers with enough purchasing power to consume the goods produced,without excess demand leading to inflation or inadequate demand leadingto recession or depression.

The economy seemed to be in fairly good balance in early 1950, althoughsome further adjustments were needed. This led to the question of howthis balance might be maintained in future years, as the total output of theeconomy increased three percent a year on the average. It seemed clearthat the ratio of profits to the volume of business activity was in generalrewarding, and that the further growth of the economy would keep theseprofits rewarding (and even increase them in absolute terms) without the

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aid of further price increases. This disposed of the only argument thatcould legitimately be advanced for a rise in the general price level, namely,that business was not receiving sufficient funds to exercise its function in avigorous and growing economy.

The next question was whether the large share of increasing production,which over the years must find its way into ultimate consumption andhigher living standards, should be passed on in the form of a generaldeclining price level or a generally rising wage level. We observed that,while either approach was theoretically obtainable, the dynamics of theAmerican economy argued strongly for a fairly stable price level and arising level of incomes measured by increases in production and productiv-ity. Thus, in early 1950, we looked with general favor upon the new wageformulae which gave reflection to this economic philosophy. In all mattersof profits, prices, and wages, however, we recognize the need for individualvariations to promote efficient operations in a complex and variegatedeconomy.

The time has now come to reconsider this entire formulation of profit-price-wage policy, in the light of new facts which drastically change theuse to which we must put our resources. The central character of thischange has been discussed fully in other sections of this Review. We muststrive even harder to lift total production, although we must drasticallyalter its composition. But since so large a part of this total production willbe absorbed in the primary defense effort, the level of consumption, duringthe next few years at least, cannot rise as in normal peacetime and mayhave to move downward. Cutbacks in some types of investment must besufficiently drastic to permit expansion essential to the defense effort tomove forward even faster.

What do these new facts mean for profit policy? They indicate thatthe current general level of profits, which is much higher than the reward-ing level in early 1950, can be reduced further through taxation withoutimpairing the initiative or types of investment which are now urgentlyneeded. This is demonstrated more comprehensively in other parts of thisReview, including the discussion of tax policy. A further reason for com-pressing profits after taxes below the unprecedented high levels whichthey have now attained is that, unless this is done, it will be futile to attemptto achieve wage stabilization. We cannot afford a soft tax policy, in orderto take care of the exceptional instances where further incentives maybe needed to stimulate some types of business investment. These isolatedinstances should be taken care of by selective policies, such as tax amortiza-tion, selective price allowances, or financial aid.

These conclusions about profits have an important bearing upon pricepolicy under current and foreseeable circumstances. Every argumentwhich was advanced a year ago against increases in the general price levelapplies with multiple force now. The price level is already much higherthan a year ago, and inflationary forces are mounting. Further price in-

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creases in general can serve no economic function, and if these increasesgo much further they will do irreparable damage. There is no propositionof economics on which there is more general agreement than this. Conse-quently, the imposition of price controls having been initiated, this activityshould move forward with speed and decisiveness. It should seek, asrapidly as possible, along with other controls both indirect and direct, toachieve and maintain general price stability. Clearly, the determination ofthe items on which price controls should next be imposed, or in whatorder, or to what exact scope, is an operational function for the EconomicStabilization Agency, subject to the general direction of the Office ofDefense Mobilization.

Drastic action on the price front—and it should be drastic—does not meanthe use of only one technique of price control as has been urged in somequarters. We must be flexible in the use of pricing methods. The pricingtechniques, whether of the freeze, "dollars-and-cents", or margin controlvariety, must be skillfully and closely attuned to the peculiarities of in-dividual industries, labor markets, and distributive levels. It is necessaryto deal with wide differences among profit and cost conditions. It isnecessary to encompass a vast variety of commodities, some standardizedand others highly differentiated.

Any nation-wide program must sacrifice some desirable refinements inthe interest of speed, uniformity, administrative feasibility, and public ac-ceptance. In fact, more stress should be placed upon these latter considera-tions than upon the minutiae of differential treatment, because it is moreimportant to put brakes upon inflation than to get a perfect system ofcontrols. Nonetheless, discretion and discriminating judgment must beexercised, lest the objective of effective price control cut across other equallyimportant objectives. The most important of these other objectives isto maintain maximum production, and this requires, among other things,some flexibility in dealing with specific prices.

The prices of speculative farm products, such as cotton, wheat, andsoybeans are affected substantially by trading in futures contracts on thecommodity exchanges. In an inflationary period, excessive speculationin farm commodities would make price stabilization difficult, if not im-possible. One of the most effective ways of limiting speculative trading,without hindering legitimate hedging operations, is by regulating the mini-mum margins required fpr speculative deals. No Government agency nowhas authority to require adequate margins for this purpose. Such authorityshould be granted by the Congress without delay.

The experience of World War II revealed clearly that price controls,particularly in the case of low-priced lines and commodities subject tofrequent changes in style and model, must be reinforced by and meshedwith production and distribution controls. Since we will be diverting nearlyone-fifth of our production to the defense effort, it becomes all the morenecessary to ensure that resources available for civilian output are devoted

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to the most urgent civilian needs at least cost. With the imposition of con-trols to prevent an inflationary price spiral, we must recognize that a pricestructure geared to peacetime patterns of demand cannot be expected tobring about the pattern of output necessary to an advanced defense economy.While price and wage controls must be operated in such a manner asto provide adequate incentives to maintain maximum output, they cannot,except in rare cases, be used to determine the composition of output. Sucha task is not administratively feasible. It is more simply and properly thetask of the appropriate production controls.

In view of the particularly inflationary price performance of many ofthe scarce raw materials in international trade, and because of the inabilityof the United States to cope with this problem unilaterally by means ofsimple domestic price controls, every effort should be made to hasten thedevelopment of international agreements to allocate such materials andrestrain their price movements. Meanwhile, the United States purchasesof some commodities should be centralized in the hands of the Government,which, in turn, would resell them to domestic users. This has alreadybeen done in the case of rubber, and the immediate impact of this actionhas been a drop in its price.

The stabilization of wages, since it affects the very livelihood of millionsof families, depends for its success upon three pivotal points. First, holdingthe line on wages depends basically upon holding the line on the cost ofliving. When a ceiling is placed upon prices in a particular industry, itfollows that wages in that industry must take account of this price ceilingfrom the viewpoint of business costs and adequate profit margins. Butthe establishment of price ceilings in a particular industry is not a sufficientfoundation for holding the line on wages in that industry, if the prices ofthings which workers must buy continue to rise. Efforts to achieve wagestabilization cannot await a complete or perfect stabilization of the cost ofliving, because no practical aspect of economic stabilization can be delayeduntil some other aspect of the problem is completely solved. Nonetheless,success in holding the line on wages cannot be expected without practicalsuccess in holding the line on the cost of living. This requires vigorousaction on the price front, on the tax front, and on all fronts designed toachieve price stability both by indirect and direct controls. It requires muchtighter rent control, reinforced by adequate legislation for that purpose,because rent is so large an item in the cost of living of middle income andlow income families.

The second requisite for successful wage stabilization is a rounded pro-gram of economic stabilization which recognizes that excessive purchasingpower must be restrained in all major sectors in the economy, and that theimposition of sacrifices must be equitable. The Council feels that its recom-mendations with respect to corporate and other taxes, with respect to pricecontrols, and with respect to other types of restraints, provide a fair guide tothe achievement of this balanced stabilization program through legislative

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and administrative action. Wage earners are an important segment of theincome-earning population; but there are other important segments—officeworkers, professional people, farmers, and business groups. Each will bewilling to do more in support of the defense program, if all are doing theirshare. Much toward this end has already been accomplished.

A third consideration in effective wage stabilization is that there be con-sultation between Government and representatives of workers both in theformulation of policy and with regard to its execution. The Council hasfrequently expressed the high value which it places upon such conferences.

With these three pivotal points as a foundation, the economic objectiveof wage stabilization should be to prevent the total of all wages availablefor spending from rising greatly, during a period when the availability ofgoods for consumption cannot rise and, on a per capita basis, is likely to fall.

There are factors which will make it extremely difficult to achieve theobjective of holding total wages available for spending in line with theavailability of consumer goods. The obstacles are fairly obvious. In thefirst place, the great numbers of new workers called for by the defenseeffort, and the longer hours, will result in more total wage earnings evenwithout any increase in wage rates. In the second place, there will be a fewinstances where some wages must be raised to facilitate the recruitment ofworkers for defense production, by modifying some of the wage differentialswhich now exist. In the third place, there is the problem of ensuring thatsome incentives exist, particularly to effectuate shifts toward defense pro-duction. It may not be possible to achieve completely the objective ofholding wages available for spending in line with the availability of con-sumer goods, but every effort should be made to get as close to it asfeasible. Doubtful questions should be resolved in favor of stabilization.

In seeking to achieve this objective of wage stabilization as rapidly aspossible, two of the most difficult problems involve "cost of living" adjust-ments and "productivity" or other adjustments designed to provide in-centive for increased effort. The principal adjustments to cover increasesin the cost of living can not be entirely set aside, for to do so would makea particular sector of the population liable for any inability of the Gov-ernment to hold the line on the most important front of all. The gapshave not yet been closed in the defense line against increases in the costof living; and if these increases continued at a fast pace, the buying powerof workers would decline relative to the available supply of the consumergoods, instead of tending to maintain a constant relationship to it. Onthe other hand, only a small percentage of middle income and low incomefamilies in United States are now protected by "cost of living" adjustments;and to afford full protection to one group alone would be at the expenseof others and would not represent equality of sacrifice. There is no hardand fast rule which can be applied to this problem. Insofar as the Gov-ernment is successful in holding the line on the cost of living, the problemreduces itself to nominal proportions. So long as this effort is not successful.

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it is practical to expect that adjustments will have to be made in many cases,but that the relation and speed of these adjustments should be restrained toavoid the spiral which results when prices and wages and costs start chasingeach other.

The problem of wage increases to reflect increased effort, whether by"productivity" allowances or other methods arrived at by collective bar-gaining, is different from the "cost of living" adjustment problems. Inordinary times, as the foregoing discussion has indicated, such adjustmentsare a desirable way of passing along part of the benefits of increasing output.But during the defense emergency, over the next year or two at least, thedefense program will be absorbing the increased output and it will not beavailable for civilian use. Under these circumstances, one approach tohelp to keep total wages available for spending as nearly as possible in linewith the available supply of consumer goods, would be to restrain increasesin wage rates. A second approach to this same objective would be to per-mit some increases in these wage rates, in return for increased productiveresults, but to prevent these increases from finding their way into the spend-ing stream, by means of higher taxes, or larger social security deductions.Each of these two approaches has points of desirability. The first makesfor more uniformity, the second for more flexibility. From the viewpointof a smooth wage controls operation, and the promotion of harmoniousindustrial relations, one approach will work better in some instances andthe other approach will work better in other instances. The second ap-proach, to a degree, furnishes an incentive factor which might provevaluable for the long-sustained effort which we must now make to increaseproduction and to work harder and longer. This incentive factor, asapplied to the individual, may prove very important. In view of allthese considerations, perhaps some combination of the two approachesdiscussed in. this paragraph may prove necessary. In addition, labor canhelp in the stabilization effort by encouraging the purchase of bonds, asone of the means by which excess purchasing power can be kept away fromthe markets for goods.

In the case of wages even more than prices, some flexibility must bemaintained. Some wage adjustments may become necessary to correct clearinequities among rates for comparable work; to allow for legitimate jobreclassifications within given firms; to correct "substandards" of living;and, in certain instances, to assist in the recruitment of scarce labor skillsurgently needed by defense industries. But these adjustments should becarefully screened and held to a minimum. Otherwise, they will cumulatethe pressures which at best will make it very hard to hold average wage re-ceipts in line with the availability of goods or to prevent the total volumeof wages (including those paid to new workers and for longer hours) fromrising dangerously above the availability of goods.

From the time the OPA issued its first formal price schedule until theinstitution of general price controls in April 1942, fourteen months elapsed

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and the agency had developed an organization of 20,000 employees. Au-thority to stabilize wages was not granted for still another six months. Thistime, whatever the ultimate goal, the pace of action should be much morerapid. The Economic Stabilization Agency has power to put ceilings onwages as well as prices. It is already moving to hold basic industrial prices,to control selectively the prices and wages of some products; and to developgeneral price and wage standards to serve as a framework for price and wagepolicy and to identify the areas where controls become urgent because thesestandards are violated. The Agency should strive to accelerate action, inview of the inflationary potential now so clearly apparent, and in view of thefact that control action anticipated but not made effective in itself stimulatesspeculative inflation.

INTERNATIONAL ECONOMIC POLICY

In framing the economic programs to build up our national strength,we must bear in mind that this strength is bound up with that of otherfree nations, immediately as well as in the long run. The requirements ofdefense call for the adoption of some new economic programs in the inter-national field, for changes of emphasis in some of our present ones, andfor close coordination of our international and our domestic economic pro-grams. Certain broad principles imposed by these requirements can bestated at the present time.

Economic aid to foreign countries

With our economic resources strained by the burden of defense, everyuse of these resources implies the sacrifice of some alternative use. Underthese conditions, our foreign as well as our domestic programs must bedesigned so that they are effective and efficient in furthering the purposeswhich now have highest priority. In determining what we can afford byway of aid to other countries, we must take into account that such aid limitsthe expansion of goods available for domestic use. Against this considera-tion, we must balance the contribution that aid to friendly countries will makein sustaining or increasing our joint strength, taking into account the com-bined military, political, and economic aspects of our security interests.

The fact that our economy is operating under forced draft means not onlythat foreign aid programs must be screened to serve high priority purposes;they must all be under continuous survey to see that such purposes are carriedout, and that the programs are adjusted to changing conditions.

Aid to Western Europe should be related to the high priority requirementfor a rapid rebuilding of common defensive strength. This calls forthe fullest possible use of resources outside as well as inside the UnitedStates. In Western Europe is to be found the largest industrial potentialin the world outside the United States, and a skilled labor force exceedingin number either our own or that of the Soviet Union. It would be aformidable asset in the hands of a potential enemy. Western Europe

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can and should provide the major, part of the resources for its own re-armament. In some countries, notably Germany and Italy, the laborforce and plant capacity are not being fully utilized; production can beexpanded by placement of orders, if adequate raw materials and certainneeded ancillary facilities are made available. Hours of work and partici-pation in the labor force will have to be increased in Western Europe, asthey will in the United States. But resources needed for defense productionwill also have to be provided in Western European countries, as in theUnited States, by restricting both consumption and normal improvement ofthe capital stock.

Even this will not provide enough labor, material, and plant capacity.In order to obtain the most rapid possible build-up of defensive strength, we,with a much larger industrial potential in relation to population, shall haveto provide large amounts of military equipment and supplies to our NorthAtlantic Treaty partners.

Achievement of the necessary defensive strength in Western Europe willalso require provision of economic aid. Although most of these countrieshad been making substantial progress toward self-support, indicating thattheir resources were becoming more nearly adequate to the demands beingmade upon them at that time, these demands are now being much increased.Their own rearmament will greatly intensify the pressure on their economicresources. The rise in the prices of their raw material imports, more rapidthan that of their export prices, has already increased the volume of exportsrequired to pay for a given quantity of imports. This has put some addi-tional pressure on their resources. The full impact of this rise has probablynot yet been felt. More important, the increase in their armed forces and intheir own armament production will reduce the resources available to pro-duce goods for export, and for their own consumption and investment.Economic aid for recovery purposes, the need for which has been decliningrapidly, must give way to aid needed to support a strengthening of thecommon defenses.

The degree to which our aid takes a military or nonmilitary form does notindicate its essentiality to the defense effort. If one country can producemilitary goods most efficiently, the most economic use of common resourcesmay make it desirable for that country to produce more of these goodsthan its own military establishment requires. If this forces it to cut itsproduction of civilian goods below its requirements, a larger proportionof the aid it requires may take a nonmilitary form. Similarly, one countrymay make its greatest contribution in the form of manpower for the com-mon armed forces, and, as a result, have to cut its civilian production. Pro-vided that a country is making its maximum contribution to production andto curtailing nonessential use of civilian goods, such aid as it may require inmaking this contribution is essential to the common defense effort, whetherit takes a military or economic form.

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In reappraising foreign aid programs and shifting their emphasis, we mustcontinue to recognize that Soviet-dominated aggression is neither solelymilitary nor of short-run character. Some parts of the world are threatenedby Communist penetration but are not subject to direct military threat.In many areas where there is a direct military threat, this threat exists oris particularly dangerous because political social, and economic conditionsprovide a fertile soil for penetration of Soviet-Communist ideology. Insome of these cases, well-designed assistance in expanding production, evenof goods unrelated to military strength, can contribute to the essentialaspects of common security.

The productivity of some of the underdeveloped countries is also animportant element in the defense of the free world. Not only do these areasproduce the raw materials upon which essential production in the UnitedStates and other industrial countries depends; in addition, they must beable to provide for the essential needs of their peoples if they are to be keptfree from Communist domination. While there is a great production poten-tial in these countries, the difficulties are primarily inefficient techniques ofproduction, inadequate capital to develop the resources, and in many casesinstitutional obstacles. The large contribution which many of these coun-tries can nevertheless make to the common strength must be fully takeninto account. Increased demand for their products has already substan-tially improved their financial position and their ability to contribute.Present plans to help them increase their productive capacity are basedon a recognition that such increases contribute to our national security,both directly and indirectly, by improving the economic strength of thesecountries and reducing their vulnerability to subversion.

But the common danger and the greatly increased strain on our ownresources call for reappraising and, if necessary, altering the character andtime focus of such programs. Greater emphasis must be put on productionof raw materials which will be scarce in relation to important demands.Increased production of food in these countries would reduce the drainon the United States. It will also be necessary to shift emphasis to programswhich produce results quickly.

Expansion of productive capacity calls for private capital investment, andpublic investment by the Export-Import Bank and the International Bankfor Reconstruction and Development. Grants for technical assistance and,in some critical areas, capital development will be necessary. Despite pres-ent international tensions, measures to facilitate private investment can stillbe effective in certain areas and are particularly needed to expand rawmaterial production. It is desirable to enact legislation authorizing guar-antees to private capital against certain risks peculiar to foreign investment,and to continue efforts to negotiate investment treaties.

A carefully selective expansion of public investment is also required tosupport the security effort. The burden of lending to develop production,especially where security interests primarily of the United States are in-

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volved, requires the Export-Import Bank to play an active role. TheBank's uncommitted lending authority is now only about 500 milliondollars. This seriously restricts it. Its lending authority should be raisedby 1 billion dollars, from the present 3.5 billion dollars to 4.5 billion.

Control of commodities in world trade

Even vigorous efforts to expand foreign and domestic production of themajor raw materials cannot achieve results in time to prevent some im-portant cases of severe shortages,, sharp price rises, and maldistribution ofsupplies. For some commodities, these effects have already occurred. In afew cases, greatly increased United States demand or, as in cotton, reducedsupply, has in fact threatened to cut essential production abroad. Interna-tional collaboration is needed to improve the distribution of importantproducts in acutely short supply, so that nonessential uses in some countriesdo not deprive essential uses in others. The major concrete problems areto identify the commodities requiring such collaboration, to work out thepolicies which should govern their distribution, and to work out and putinto effect the mechanisms best suited for the purpose, both internationallyand within the countries affected.

It will become increasingly necessary to control the export of materialsin short supply in the United States which are necessary to our defense pro-gram, and to direct exports of some commodities to countries where theyare most urgently needed. For these reasons, as well as for obvious securityreasons, the power to control exports, which is scheduled to expire on June30, 1951, should be extended.

In view of emergency shortages of raw materials, and to implement inter-national arrangements for their distribution, the power to control imports,which also expires on June 30, 1951, needs to be extended.

It will also become increasingly urgent to secure close coordination be-tween the day-to-day operation of domestic and of international commoditycontrol programs. Where there is excess demand for commodities whichwe import or export, we must limit domestic use, not only to avoid takingmore than our agreed-upon share of world imports, but also to assure thatgoods are available for necessary exports. Fiscal and credit policies canhelp by restraining demand for the final products which use the particularraw materials. For example, controls which cut the demand for automo-biles also indirectly cut the demand for rubber. But such measures probablycannot suffice; international allocation of a commodity implies domesticpriority or allocation as well. The administration of these domestic con-trols must take into account the needs of other countries, not only for goodsused in defense production, but also for essential civilian goods and services.

Fiscal, credit, and allocation measures will exert some restraining influ-ence upon prices of the major commodities in world trade. But this influ-ence is likely to be limited. Violent price rises in these commodities createbalance of payments difficulties in the importing countries and, through

122


their effects upon costs, reinforce existing inflationary pressures. For theexporting countries, they raise real incomes but may also introduce a consid-erable element of inflation and lay the basis for future dislocations. Theadvisability of attempting to control them by international action dependson the extent to which the higher prices elicit increased production, whichdepends largely on the technical conditions of production for the particularcommodity and on how long the price increase is expected to last. Ingeneral, it seems desirable to place primary emphasis on vigorous meas-ures to reduce or eliminate nonessential uses.

Commercial and financial policies

With the virtual certainty of widespread labor and material shortagesfor an indefinite period, we must use all methods of increasing our availablesupplies which do not prevent friendly countries from satisfying their ownneeds. Commercial and financial practices which divert demand fromforeign to United States production put pressure on our resources; theirrelaxation can help to counter inflationary pressures.

First, various statutes require, with certain exceptions, that the FederalGovernment, and State and local government authorities receiving Federalfunds, buy only goods manufactured or mined in the United States or pro-duced from domestic materials. The defense effort generally, and es-pecially the stockpile program, will require increasing Government purchasesof imported materials. Such purchases will, in addition, relieve shortagesand inflationary pressures in this country. The Congress has just given thePresident emergency and temporary power to authorize Federal procure-ment in connection with national defense without regard to these and otherrestrictive provisions of existing law, when such procurement is in the interestof national defense. Under these new powers, the fullest possible use shouldbe made of foreign as well as domestic sources of commodities needed fordefense purposes, including stockpiling.

Second, the diminishing availability of goods in this country makesmore desirable a reduction of tariff barriers. Despite duty reductionsunder reciprocal trade agreements, many United States imports are stillsubject to high duties. For reasons which have often been explained, ourlong- as well as short-run policies require that we extend the Trade Agree-ments Act, which expires on June 12, 1951, and that customs procedures,which now also impede the entry of foreign supplies, be simplified by enact-ing the proposed Customs Simplification Act. But further action is desirablein the present inflationary situation. It would be desirable to enact tem-porary legislation, authorizing the President to make unilateral reductionsor suspensions of tariff duties and import restrictions on commodities inshort supply, as long as emergency conditions exist. This is desirable, notonly in connection with materials for further processing, such as copper, butmay also be desirable in connection with finished commodities.

922781—51 9 I23


Third, we place an additional strain upon our resources, and add todomestic inflationary pressures, when we require that Government loansor grants to foreign countries be spent on goods produced in the UnitedStates. Such aid is generally intended to supplement the recipient country'stotal economic resources, not to promote United States exports. If therecipient can obtain the particular commodities it needs more cheaplyfrom another source, it should in general be left free to do so. Untilrecently, it was probable that the "tying" of loans or grants affected pri-marily the composition rather than the total amount of United Statesexports; if the recipient of dollar assistance did not spend the proceedsin the United States, the country in which it did spend the dollars wouldprobably do so. Even under these conditions, there would be good reasonswhy it should be our general policy not to tie our aid to our exports. Now,however, it is probable that a smaller portion of aid spent in foreign countrieswould be re-spent here. A general policy of not tying dollar aid to UnitedStates goods would, therefore, help ease the inflationary strain of exportson our economy. At the same time, it would give other countries a greaterchance to earn dollars by exporting to the recipients of our aid. Sincesome of these countries may themselves be receiving aid from us, this policymay reduce their need for such aid. These principles were recognized inthe Mutual Defense Assistance Act, which provided that United Statesmilitary assistance for foreign countries may be used to obtain equipment,materials, and services from any source.

In general, all measures to reduce artificial barriers to imports and arti-ficial stimuli to exports tend to ease inflationary pressures in this country.Present circumstances offer the opportunity for taking these measures withlittle, if any, disturbance to related domestic industries, and with maximumbenefit to the American public as a whole.

124


Part V. Details of Economic Trends in 1950

EMPLOYMENT AND PRODUCTION

Employment

DURING the past year, there have been significant labor marketchanges. The civilian labor force averaged 63.1 million in 1950, com-

pared with 62.1 in 1949. For the year as a whole, almost 60.0 mil-lion persons were employed in civilian occupations, or about 1.3 millionmore than in 1949 and 0.6 million above the average of 59.4 in 1948. Non-farm employment increased by 1.8 million. Farm employment decreasedby about 500,000; part of this decline may be attributable to the availabilityof better paying jobs in industry, which tended to attract workers away fromthe farm. Unemployment averaged 250,000 less than in 1949. (Seechart 19.)

From 56.9 million in January 1950, with seasonal activity at a low point,civilian employment increased rapidly to an all-time high of 62.4 millionin the summer. It then declined seasonally to 61.1 million in the fourthquarter, or about 2.1 million above the average in the fourth quarter of1949. During the first half of 1950, this steady increase in the number ofpeople at work reflected the growing momentum of economic recovery.Employment was given an additional push in the third quarter, when theoutbreak in Korea led to anticipatory buying of consumer durables, whenexpenditures for expansion of plant and equipment increased, and whenmanufacturers began to build up their work forces.

Average .manufacturing employment in 1950 exceeded that in 1949by about 700,000, with the largest gains in establishments manufac-turing durable goods. In November 1950, 15.7 million persons wereenga/ged in manufacturing, compared with 13.8 million in November1949. Between June and November, 683,000 employees were added tothe payrolls of durable goods establishments. The most important risescame in electrical and nonelectrical machinery, primary and fabricatedmetals, instruments, and aircraft. As a result, employment in durablegoods manufacturing reached 8.6 million, climbing above the high levelof 8.4 million in November 1948. There was also a significant increasein employment in nondurable industries, with the November 1950 figureat 7.1 million, compared with 6.8 a year earlier. Employment in non-durable manufacturing increased by 358,000 between June and Novem-ber. Employment in the production of textiles, apparel, and foods

125


CHART 19

CIVILIAN LABOR FORCECivilian employment averaged 60.0 million persons in I960, 1.3million higher than in 1949. The increase was entirely in thenonagricultural segment of the economy, agricultural employmentdropping about a half million.

MILLIONS OF PERSONS'*

70

MILLIONS OF PERSONS'*

70TOTAL CIVILIAN

LABOR FORCE

20

10

30

:- 20

:- 10

J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D

1948 1949 I960

During 1950, unemployment averaged about 250,000 less thanin 1949. There was a striking improvement during the year. TheDecember level of 2.2 million, pr 3.6 percent of the civilianlabor force, was more than a million below December a year ago,when 5.6 percent of the labor force was unemployed.

10

5 -F*

AS PEI

J F M A M J J A S O N O

1948

UNEMPL

RCENT OF CIV

r*

p*r

,

VIL

m

I'MIA

El

^

YTLABOR

>

J F M A M J J A S O N O

1949

F(T?

)R CE

T «• ffr.

TrHJ F M A M J J A S O N O

I960

10

*I4 YEARS OF AGE AND OVER.


126


expanded seasonally; chemicals, paper, and rubber products made significantgains. Compared with November 1949, important gains in employmentalso appeared in contract construction, where there was a rise of about290,000; in trade, where there was a gain of about 270,000; and in theFederal Government, where a pronounced upturn in employment towardthe end of the year reflected the impact of the defense program.

The general tightening which took place in the labor market is shownby the change in labor market classifications between late 1949 and 1950.In November 1949, out of 139 major labor market areas surveyed, onlyfive were classified as having a tight or balanced labor supply (under 3 per-cent unemployed). By November 1950, out of 152 areas, 56 had beengiven this classification. In addition to this general tightening in thelabor market areas, serious shortages of certain skills had developed bythe end of the year in some parts of the country. In addition, nationwideshortages have emerged of certain professional workers who are of primeimportance to the defense effort. This is particularly noticeable in thescience and engineering professions.

UnemploymentThe general economic recovery during the first half of 1950, and infla-

tionary pressures in the second half, were mirrored in a marked improve-ment in the unemployment situation. Beginning with March, the numberof unemployed persons decreased almost steadily and more than seasonally,until in October unemployment was down to 1.9 million. The Decemberfigure of 2.2 million unemployed is more than a million below a year ago.The average number of persons unemployed for the year 1950 as a wholewas only about 250,000 less than for 1949. (See chart 19.)

At the end of the year 1950, 3.6 percent of the civilian labor force wasunemployed. Such a small percentage of unemployment indicates that weare nearing what is ordinarily considered to be the minimum for a peace-time economy. It is not irreducible, however, and the employment of morepersons now unemployed can help to meet pressing needs for a largernumber of workers and greater production. Production may also be in-creased by a fuller utilization of the 1.1 million persons who at the end ofthe year were working part-time, but who were able and willing to acceptfull-time jobs. (See appendix tables A-ll and A-12 for further statisticsof employment and unemployment.)

Production

Last January 3 the Council stated that to achieve maximum employmentit would be necessary to increase total production of goods and servicesby about 7 percent over 1949. As a result of the strong demand followingthe Korean outbreak, the economy actually produced 7 percent more goodsand services in the year 1950 than during 1949, and by the fourth quarterhad reached an annual rate 10 percent higher than for the year 1949.

127


These measurements of production of goods and services are based on grossnational product adjusted for price changes. (See appendix tables A-l,A-9,andA-10.)

Production of goods. Total physical production of goods during 1950was 11 percent above 1949, and reached a record high for any peacetimeyear, according to the physical production index which includes agriculturaland nonagricultural production. Comparison with war years is difficult,but apparently the 1950 output was close to the record reached in WorldWar II. (See appendix table A-16.)

Total agricultural output in 1950 was 2 percent below 1949, and 3 per-cent below 1948. Although the production of farm crops in 1950 wasthe fourth largest on record, it was 4J/2 percent below 1949, due mainly toa large drop in the output of cotton. The drop in crop production waspartly offset by an increase of 2 percent in the output of livestock products.Per capita food consumption in 1951 is likely to be about 3 percent higherthan last year.

Industrial production recovered early in 1950 from the 1949 drop andcontinued to increase throughout most of the year. For the year as a whole,the industrial production index was about 200 percent of the 1935-39average. This represented an increase of 14 percent above 1949, and morethan 4 percent above 1948. (See chart 20 and appendix table A-17.)

Gains in output occurred during 1950 in most industries. The outputof durables at the end of the year was 31 percent above that of a yearearlier. Steel production was about 96.5 million tons, almost 25 percentmore than in 1949, and an all-time record. The automobile industryproduced at a record rate during most of the year, turning out 8 millioncars and trucks for the year as a whole. Production was hampered bywork stoppages early in the year, but reached a peak in June.

Production of such consumer durable goods as household appliances,radios, and television sets leveled off toward the end of the year, after in-creasing sharply in earlier months.

As the defense program got under way in the second half, industriesrelated to the defense program, such as machinery, aircraft, shipbuilding,and railroad equipment, increased their output.

Total production of nondurable goods for the year was about 11 per-cent above the 1949 level. The output of nondurable goods increasedthroughout the first three quarters of the year, reached a peak in theearly part of the fourth quarter, and declined very slightly during therest of the year.

Mineral production was hampered in the early part of 1950 by thework stoppage in the coal mining industry, but then moved up to a levelabove the highest prevailing rate during 1949. Bituminous coal stocksheld by industrial consumers and retail dealers at the end of 1950 wereestimated to be only 700,000 tons below the postwar peak reached ayear and a half ago.

128


CHART 20

INDUSTRIAL PRODUCTIONTotal industrial production rose throughout I960, and averaged14 percent above 1949. Gains occurred in most industries, but wereespecially marked in industries manufacturing durable goods.

PERCENT OF 1935-39 AVERAGE300

250 -

200 -

150 -

100 I ' I I i ' I I I i I I

**\ /*- NONDURABLEMANUFACTURES

PERCENT OF 1935-39 AVERAGE300

- 250

- 200

- 150

i i i i i I i i i I I 100

1948 1949 I960

SOURCE: BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM.

Higher output was also registered by several important industries whichare not included in the industrial production index. Electric power out-put showed a steady expansion in the last half of the year, averaging about13 percent above 1949 for the year as a whole.

In physical terms, construction reached an all-time peak during thethird quarter of the year; for the year as a whole it was 17 percent over1949.

Production of services. Detailed figures are not available to showchanges in the output of most services. There was an increase of 4 percentin real (constant prices) personal expenditures for services from 1949 to1950, suggesting a roughly similar change in the total output of services.(See appendix table A-10.)

PRICES, WAGES, AND PROFITSPrices

Commodity prices as a whole moved upward throughout 1950, but thepace of the advance, particularly in wholesale markets, picked up sharplyafter the outbreak of the Korean hostilities at midyear. The prices of

129


most commodities followed a rough pattern of moderate strength in thefirst half of 1950, followed by rapid increases in the second half, whichbrought most indexes to all-time highs.

The general upsurge of prices in the second half of the year was notregular. It developed in a series of partially overlapping waves, thefirst of which reached a crest and flattened out with the temporarily goodnews from Korea in September. Following the intervention of theChinese in late November, price increases accelerated again.

The speed and force with which industrial prices responded to the newinternational dangers were exceptional when compared with most previousinflations. There was a good deal of price-raising by industries in anticipa-tion of the announced expansion of the defense program and of price control.

Wholesale prices. In December 1950 wholesale prices were 10.9 percentabove their level last June, and 15.4 percent higher than in December 1949.The all-commodity index exceeded the previous postwar 1948 peak for thefirst time in November 1950. Of the three major categories, farm productsscored the greatest over-all gain during the year, but foods and industrialproducts did not lag very far behind, and all three groups recorded priceincreases of over 10 percent during the second half of the year. The timingof their movements differed. (See chart 3 on page 41, and table 2.)

The 4 percent rise in wholesale prices during the first six months of theyear was mainly the result of increases in farm and food prices. Industrialprices rose 2.3 percent during the period in a slow but steady gain whichreflected the major recovery of the domestic economy.

Immediately after the Korean outbreak, the monthly rate of increasein wholesale industrial prices, which had averaged less than one-halfpercent during the first half-year, increased almost five-fold. The rateof increase averaged more than 2 percent per month during the thirdquarter, and much less during October and November. Following theChina attack, the rate of increase immediately accelerated.

The swiftness of the response of manufacturers' and other industrial pric-ing to the Korean situation exceeded what might have been expected frompast experience. It was not confined to a few industries. By mid-October,at the end of the "first wave," the prices of over 75 percent of the industrialcommodities in the BLS weekly wholesale price index had increased; 44percent had risen 10 percent or more, and 26 percent were up 20 percent ormore over their pre-Korean levels. These increases, in a .great many cases,were not forced by cost increases already incurred. In part, they were areflection of the enormous wave of consumer buying and of business ordersin the third quarter. And in considerable measure, no doubt, they repre-sented efforts to jockey into a favorable position in the event a price freezewere ordered.

The rise in industrial prices during the second half of 1950, while notablefor its generality, was by no means uniform among industrial groups.Textiles, recording the largest increase, rose 24 percent; chemicals and

130


CHART 21

WHOLESALE PRICESOF INDUSTRIAL PRODUCTSIndustrial prices, which were comparatively stable in the 1st half ofI960, rose with exceptional vigor in response to the Korean outbreak.All major groups advanced substantially, and most groups reachednew postwar highs.PERCENT OF 1926 AVERAGE PERCENT OF 1926 AVERAGE225 I 1 225

200 -

175 —

150

125 -

100 LJL

PRODUCTS**

TEXTILE PRODUCTS

- 200

175

- 150

- 425

100J F M A M J J A S O N Q J F M A M J J A S O N D J F M A M J J A S O N D

1948 1949 1950

225

200

175 —

225

- 200

- 175

- 150

- 125

100J F M A M J J A S O N D J F M A M J J A S O N O J F M A M J J A S O N D

1948 1949 1950* ALL COMMODITIES OTHER THAN FARM PRODUCTS AND fOODS.

SOURCE: DEPARTMENT OF LABOR.

100


allied products 21.5 percent; and metal and metal products 7.1 percent.Prices of building materials reached a peak in September, receded in Octo-ber and November because of a sharp drop in some lumber prices, andthen moved to an all-time high in December. (See chart 21.)

The inflation was marked, moreover, by the violent gyrations in thegenerally upward course of prices of imported raw materials directly de-manded for defense production. Tin, natural rubber, and wool were thenotable instances. Such prices were particularly sensitive to the militarynews from Korea. In the case of rubber, the institution of centralizedpurchasing late in December resulted in a substantial drop in prices.

For a few weeks immediately after the Korean outbreak, there was aprecipitous upshoot in wholesale farm and food prices. Thereafter, farmprices moved unevenly before beginning to rise again in late October, andwholesale foods roughly paralleled their course. Livestock and meats werethe principal moderating factors in the agricultural sector, reaching theirpost-Korean highs in the last week of August and thereafter entering aseasonal decline as hog prices dropped sharply. By late November, pricesof these products began to rise again. Other farm prices were much morebuoyant during the last four months of the year, with cotton, as a resultof a short supply and the sudden expansion in domestic and export demand,reaching all-time highs. Currently, beef cattle, veal calves, lambs, rice,wool, cotton, and cottonseed are the major farm commodities selling atprices above the minimum permissible ceilings provided for in the DefenseProduction Act. (Further details on wholesale prices may be found inappendix table A-24. Prices received and paid by farmers are shownin appendix table A-25.)

TABLE 2.—Changes in wholesale prices

Commodity group

All commodities

Farm products . _ - _ _FoodsOther than farm products and foods

Hides and leather productsTextile productsFuel and lighting materials. _ _ _Metals and metal productsBuilding materials ...Chemicals and allied products .. _ _ _Housefurnishing goodsM iscellaneous

Special groups:R a w materials - _ _ _ _ _Semimanufactured articles _ _Manufactured products

Percentage change

December1949 to

June 1950

+4.0

+7.1+4.1+2.3

+1.5-1.2+1.8+2.4+6.1-.7

+1.9+3.6

+5.1+2.6+3.7

June 1950to Decem-

ber 1950

+10.9

+12.9+10.4+11.5

+18.2+24.0+2.2+7.1+8.9

+21.5+14.3+22.5

i +10. 0i +16. 61+7.4

December1949 to De-cember 1950

+15.4

+20.9+14.9+14.1

+20.0+22.6+4.0+9.7

. +15. 5+20.7+16.4+26.9

i +15. 6i +19. 61+11.4

Pre-Koreanpeak to De-cember 1950

+2.8

-6.0-5.8+8.0

+6.1+12.5-1.5+4.8+7.8+.2

+13.1+13.7

!+.l1 +7.3'+.2

1 November 1950 used.

Source: Department of Labor. (See appendix table A-24.)

132


Consumers' prices. The consumers' price index by November 1950 was4.8 percent over December 1949, and 3.2 percent above the June 1950 level.It reached a record high in October, and continued to climb in the last twomonths of the year. Preliminary indications are that the index rose sharplyin December. (See appendix table A-23.)

A sharp rise in retail food prices after April accounted for much of theover-all increase in consumers' prices in the first half-year, and continuedto lead the index upward in July. Thereafter, however, because of a sea-sonal decline in fresh vegetable prices and, more importantly, because ofsome weakening of meat prices, the food component of the index leveledoff for several months. The other components, particularly apparel andhousefurnishings, supplied the principal upward force. Fuel and utilitycosts also rose substantially, and rents continued to edge higher. (Seechart 22 and table 3.)

However, in the second half of November, food prices began to move upagain sharply and by December 15 were 3.2 percent above the Novemberlevel and 5.7 percent above the pre-Korean level. Particularly spectacularwas the rise in egg prices which advanced 66 percent over the June level,accounting for more than half of the rise in retail food prices. Fats andoils, beverages, and dairy products also scored substantial gains. Whilecomplete data for December are not yet available, it should be noted thatthe estimated increase in retail food prices of 3.2 percent between Novemberand December will alone raise the consumers' price index for Decemberby about 1.4 percent above November. Since other retail prices haveundoubtedly also advanced, the total increase in consumers' prices inDecember will be substantially above 1.4 percent. This indicates a rise ofover 6 percent in consumers' prices during 1950, and of over 4J^ percentduring the second half of 1950.

TABLE 3.—Changes in consumers' prices

Item

All items .. . . . .

Food .ApparelRent .-. . . -Fuel, electricity, and refrigeration , . . - . _ , _HousefurnishingsMiscellaneous _ _ _

December1949 to *

June 1950

+1.6

+3.7—.4

+1.4-.6—.1—.1

June 1950to Novem-

ber 1950

i +3.2

2+5.7+5.4+1.2+3.5+9.2+3.3

rDecember

1949 toNovember

1950

i +4.8

a +9. 6+5 0+2.6+2.9+9.1+3.2

Pre-Koreanpeak to

November1950

1 +0.6

» -.2-3.3+1.2+1.6+1.8+3.2

Percentage change

1 Incomplete data for December indicate a substantial further rise in that month.2 December 1950 used.Source : Department of Labor. (See appendix table A-23.)

Wages

Wages and salaries, which had remained relatively steady throughout1949, rose continuously in 1950, as wage rate increases, longer weekly hours.

133


CHART 22

CONSUMERS' PRICESConsumers' prices reached new high levels in I960. A sharp in-crease in food prices began in the 2nd quarter of the year, butthe rise was not steady. Most other components were stable inthe 1st half of the year but advanced steadily and rapidly inthe 2nd half.PERCENT OF 1935-39 AVERAGE PERCENT OF 1935-39 AVERAGE220

200

180

160

140

120

ALL ITEMS^

100 I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I (00

1948 1949 I960

220

200

180

160

140

120

PERCENTAGE CHANGESDECREASE INCREASE

ALL ITEMS-17

DECEMBER (949 TO JUNE 1950

JUNE 1950 TO NOVEMBER 1950

FOOD

APPAREL

RENT

•ALSO INCLUDES HOUSEFURNISHINGS, FUEL, ELECTRICITY, REFRIGERATION, AND MISCELLANEOUS GOODS ANDSERVICES NOT SHOWN ON THIS CHART.

£/PERCENTAGE CHANGE TO DECEMBER 1950.

SOURCE: DEPARTMENT OF LABOR.

134


and increased employment were reflected in workers' incomes. In the fourthquarter of 1949, aggregate wages and salaries and other labor income (seeappendix table A-5) were at a seasonally adjusted annual rate of 134.6billion dollars. By the fourth quarter of 1950, they had risen by over 21 bil-lion, to a new high of 155.9 billion. About half of the increase during theyear may be attributed to increased employment. The other half may beattributed to increased hours, higher wage rates, and increases in other laborincome.

In November 1949, average hourly earnings in all manufacturing in-dustries were $1.392. By November 1950, they had risen about 12 cents,to a new high of $1.510. The increase has been especially pronouncedsince August. In the durable goods manufacturing segment, there was anincrease of about 13 cents between November 1949 and November 1950,compared with an increase of about 9 rents in nondurable goods manu-facturing.

Average weekly earnings showed an even sharper increase, due largely tothe increase in the length of the work week in many industries, with conse-quent overtime pay. Such earnings in all manufacturing were $54.43 inNovember 1949, and by November 1950 they had risen to $62.06. Theincrease in durable goods manufacturing was sharper than in nondurablegoods; average weekly earnings in durable manufacturing increased byabout $9.50 during the period, while those in nondurable manufacturingincreased by half this amount. Real weekly earnings in all manufacturing,measured by changes in the consumers' price index, rose by almost 10percent between November 1949 and November 1950.

Average weekly hours in all manufacturing increased from 39.1 hoursin November 1949 to 41.1 hours in November 1950, a gain of 2.0 hours.The upward trend was markedly greater in durable goods manufacturing,where the rise was 2.8 hours to 41.8 hours a week, than in nondurable goodsmanufacturing, where the rise was 0.9 hour to 40.2 hours a week. (Sta-tistics on wages, hours of work, and earnings are shown in appendix tablesA-13,A-14,andA-15.)

Wage negotiations. The pattern of wage negotiations and contract set-tlements during 1950 divided into two distinct parts. During the first halfof the year, contract settlements were generally moderate by postwar stand-ards, with emphasis on supplementary benefits. After September, a land-slide movement developed for sizable wage increases, accompanied in someinstances by fringe benefits.

During the first half of the year, contract settlements with general wageadvances were made most frequently in nonmanufacturing industries, par-ticularly in construction. The most important settlement was the renewalof the General Motors contract, with a provision for a five-year term withcost-of-living adjustments, "productivity" increases of 4 cents each yearthroughout the life of the contract, and a pension plan and increased socialinsurance benefits.

135


After the Korean development, pressures built up for wage increases asthe labor market tightened, the cost of living began to increase, and profitsreached new highs. Late in August and in September, a movement forrapid and sizable wage increases developed in the mass production indus-tries, led by a round of wage increases in the automobile industry. Someof the wage increases were based in part on cost-of-living adjustments,within the terms of existing contracts. General Motors production workers,for example, received a 5 cents cost-of-living adjustment at the beginningof September, in consequence of the rise in the consumers' price indexbetween April and July and another increase of 3 cents in December. InAugust, Chrysler employees were granted an increase of 10 cents an hour,without the formality of a wage reopening, and without a change in theterms of the three and a half month old contract. However, the contractwas changed in December to include the General Motors wage arrange-ment, bringing an additional increase of one cent. On September 4, Fordand the UAW-GIO set aside a contract four months before a permissivereopening date to negotiate a new agreement with wage provisions similarto the General Motors arrangement, and with an immediate cost-of-livingincrease of eight cents an hour which was later raised to 11 cents. Otherautomobile companies quickly fell into line.

The wage-increase movement spread rapidly during the last fourmonths of 1950, accelerated by the continued rise in the consumers'price index, and by expectations of wage and price controls. Most in-creases were granted in manufacturing industries. Through formal orvoluntary wage reopenings, adjustments became widespread in meat pack-ing, textiles, apparel, petroleum, rubber, glass, and the major metalworkingindustries (including basic steel, aluminum, aircraft, electrical machinery,and agricultural implements). A substantial number of workers in non-manufacturing industries (particularly maritime, telephone, and the rail-road industries) also received wage increases. In addition, a large numberof unorganized clerical and production workers have received wage increasessince midyear 1950. Even when all of these groups are included, it is prob-able that somewhat less than half of the workers in private nonagriculturalemployment have participated in the wage adjustments which have beenmade since the Korean outbreak.

During the past few months, second adjustments were common whichsupplemented increases negotiated earlier in the year. Many of these secondadjustments were prompted by a desire to revise agreements which wereconcluded before the Korean outbreak. In many cases, wage increases weregranted by voluntary action on the part of employers, either by consentingto discuss wage matters with union representatives prior to formal wagereopening dates, or by offering increases prior to formal negotiations. Thiswillingness of many employers to consider wage increases made it possiblefor so many organized workers to receive increases within such a shortperiod of time.

136


During 1950, two devices to cover future adjustments under long-termcontracts came into prominence: the first, cost-of-living escalator clauseswhich tie wage rates or cost-of-living allowances to changes in the BLSConsumers' Price Index; the second, stipulations regarding adjustmentsto be made in 1951 or later without reference to price developments.A large number of workers are covered by contracts which provide oneor both arrangements. According to BLS estimates, about ll/<2. millionorganized workers are now covered by cost-of-living escalator clauses.Close to the same number, but not always the same workers, have beenpromised a specified increase or increases in 1951 or later. The combina-tion of the two devices, commonly identified as the General Motors formula,appears in many contracts.

As a result of these developments, wage increases in the second half of1950 have contributed materially to the underlying inflationary situation.In many instances, increases in wage rates have been followed by priceincreases. In other instances, price increases have encouraged demandsfor wage increases. Between the second and fourth quarters of 1950, thetotal increase in aggregate wages and salaries, which resulted from moreemployment, longer hours, higher wage rates, and other increases in laborincome, amounted to almost 15 billion dollars.

Profits

The year 1950 witnessed the largest total profits in American businesshistory, reflecting record levels of sales and prices. (See chart 18 on page105.) For 1950 as a whole, corporate book profits before taxes (not adjustedfor inventory valuation) were 40.2 billion dollars, compared with 27.6 billiondollars in 1949, and 33.9 billion in 1948, the previous record year. (Seeappendix tables A-32 through A-36 for statistics on profits.)

The recovery movement in the first half of 1950 had, by the secondquarter, already brought profits to new record levels and with the tre-mendous expansion in business during the second half of the year, profitsrose to even higher levels. By the fourth quarter, corporate book profitswere at an estimated annual rate of 48 billion dollars before taxes, comparedwith an annual rate of 27.6 billion in the fourth quarter of 1949, a rise ofalmost 75 percent. Prior to 1950, the previous peak was reached in thethird quarter of 1948, with corporate book profits at an annual rate of35.3 billion dollars.

Corporate book profits after taxes also reached new highs. (The taxliabilities reflect the higher income taxes already passed, including theeffects of excess profits taxes.) In the fourth quarter of 1950, corporatebook profits after taxes (not adjusted for inventory valuation) were runningat an estimated annual rate of 24.5 billion dollars, compared with 16.9billion dollars in the fourth quarter of 1949, and with the previous peakof 21.9 billion in the third quarter of 1948. Corporate book profits after

137


taxes in 1950 were 21.9 billion dollars, compared with 17.0 billion in 1949,and 20.9 billion in 1948. The 1950 profits after taxes represented about 5percent on sales, and over 9J4 percent on net worth, compared with under4J/2 percent and 8 percent, respectively, in 1949.

Net income of nonagricultural unincorporated businesses and the pro-fessions (not adjusted for inventory valuation) also made new records. Inthe fourth quarter of 1950, it was running at an annual rate of 25.9 billiondollars before taxes, compared with 20.3 billion in the fourth quarter of1949, a rise of 28 percent. For 1950 as a whole, net income of unincor-porated business amounted to 24.7 billion dollars, compared with 20.3billion in 1949. (See appendix table A-4.)

Net income of farm proprietors in the second half of 1950 increased inresponse to higher farm prices. By the fourth quarter of 1950, net incomeof farm proprietors before taxes was at an annual rate of 14.0 billion dollars,compared with 12.8 billion dollars in the fourth quarter of 1949. How-ever, the fourth quarter level was about 25 percent below the postwar peakannual rate of 18.6 billion in the second quarter of 1948. For 1950 as awhole, net income of farm proprietors was 13 billion, slightly below the1949 level.

Although profits rose generally throughout 1950, the rate of rise differedsharply among different industries. During the first half of 1950, and par-ticularly in the second quarter of 1950, the increase in profits was mostmarked for manufacturers of durable goods. This reflected the relativelygreater level of output and demand for these industries. During the secondhalf of the year, the rise in profits was most marked for producers of non-durable goods, where prices rose relatively more than for the durable goodsproducers. But, during the third quarter, profits before taxes were higherthan in the two previous 'quarters for every major manufacturing group.

In addition, the sharp rise in over-all profits was reflected in a strikingimprovement in the position of small firms. In the third quarter of 1950,the smallest manufacturing corporations, those with assets of less than250,000 dollars, showed the largest relative improvement in their profitsafter taxes, compared with the corresponding quarter of 1949. However, ona before tax basis the return on net worth and on sales for these firms con-tinued to be below that of the larger corporations. Particularly in the caseof return on sales, the smallest firms in the third quarter earned 6 percent onsales before taxes, compared with 16 percent for those firms with assets of 100million dollars and over. On an after tax basis, the smallest firms in the thirdquarter had a return on net worth somewhat above that for the larger firms,while their return on sales continued to be substantially below that for thelarger firms.

138


TABLE 4.—Corporate profits as a source of funds after allowing for changes in costsof replacing inventories

[Billions of dollars, annual rates, seasonally adjusted]

Period

19461947 - -1948194919502 - -

First halfSecond half 2

Corporate profits

Beforetaxes

23.530.533.927.640.2

33.347.0

After taxes

13.918.520.917.021.9

19.724.0

Changes incosts of

replacinginven-tories i

5.25.82.0

-2.24.7

1.67.7

Net fundsavailable

from corpo-rate profits

after allowingfor changesin costs ofreplacing

inventories

8.712.718.919.217.2

18.116.3

1 Inventory valuation adjustment with sign reversed.2 Estimates based on incomplete data; by Council of Economic Advisers. Profits after taxes include an

estimate for the effects of higher income taxes, including excess profits taxes.

Source: Department of Commerce (except as noted).

In appraising the availability of profits as a source of funds, account mustbe taken of the effects of changes in prices, particularly in the replacementcosts of inventories. (See table 4.) In periods of rapid price increase suchas 1950, more funds are needed to finance inventories even without anyincrease in the physical volume of stocks held. Such requirements reducethe availability of profits for such purposes as expansion of plant, dividends,the financing of accounts receivable, and the building-up of liquid assets.

The net availability of funds from corporate profits after taxes, afterallowing for the change in costs of replacing inventories was 17.2 billiondollars in 1950, about 10 percent below 1949, the previous peak. Therewas also a large use of bank credit, as well as considerable flotation of securityissues, to finance the tremendous expansion in business activity. (See ap-pendix table A-37 and "Corporate Finance33 in the section on Business In-vestment and Finance.)

MONEY AND CREDIT

The expansion of outstanding public and private credit during 1950reflected the speed, dimension, and directions of growth in the nation'soutput. The movement was almost entirely in business, consumer, andState and local government indebtedness. Several types of private creditincreased with extraordinary rapidity, especially during the third quarter,and many reached new highs during the year. On the other hand, the grossFederal debt declined slightly.

The housing boom stepped up the growth in the outstanding volume ofresidential mortgage debt, from an annual rate of 11 percent in 1949 to 17

922781—51- -10 139


CHART 23

CONSUMER CREDITAfter expanding at a record rate during the summer of I960, instal-ment credit outstanding leveled off in the 4th quarter as the antici-patory buying of durable goods slackened and credit restrictions tookhold. Total consumer credit continued to rise during the latter partof the year because of seasonal additions to charge accounts.BILLIONS OF DOLLARS BILLIONS OF DOLLARS

20

J F

1948 1949 1950END OF MONTH

_!/ PRELIMINARY ESTIMATES BY COUNCIL OF ECONOMIC ADVISERS.

SOURCE: BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM (EXCEPT AS NOTED).

percent in 1950. Consumer instalment credit, which helped implementthe strong demand for automobiles and other durables, increased 2.4 billionor 22 percent during the first nine months of 1950, compared to 1.3 billionor 15 percent during the same period of 1949. During the third quarter of1950, when buying of consumer durables reached its peak, the instalmentdebt of consumers expanded almost as much as during the first threequarters of 1949. (See chart 23 and appendix table A-26.)

Total loans and investments of commercial banks expanded not muchmore in 1950 than in 1949, but there were marked differences in the move-ments of the various components. In 1949 the rise of 5.9 billion dollars,or 5.2 percent, in the earning assets of banks was mainly in holdings ofGovernment securities and other investments, which increased 5.4 billionor 7.5 percent, while the increase in loans was but 0.5 billion or 1.2 percent.In contrast, the increase of 7.0 billion, or about 5.8 percent, in loans andinvestments of all banks during 1950 resulted entirely from new loans, chieflyto business. Loans to all classes of borrowers jumped nearly 10 billiondollars, or 22 percent, while investments in Government and private securi-

140


ties dropped about 2.7 billion or 3.5 percent. (See appendix table A-27.)Business loans of commercial banks, after a somewhat less than usual sea-sonal decline in the first half of the year, moved upward more than season-ally during the second half. These loans attained the record high of morethan 22 billion in December, about 30 percent above the December 1949total. During 1949 business loans outstanding had dropped nearly 10percent.

Total bank deposits and currency held by individuals, business firmsand State and local governments increased by about 6.4 billion dollarsin 1950, the largest expansion since 1946, to reach an all-time high ofmore than 176 billion at the end of the year. Though some factors suchas gold exports and a net drop in the ownership of Government securitiesby the banking system as a whole, tended to pull the volume of depositsand currency down, these factors were far more than counterbalanced bythe growth of loans and by bank investments in State and private secu-rities. (See table 5.) Adjusted demand deposits, which had increasedonly slightly between December 1948 and December 1949, declined 0.7billion during the first half of 1950, partly because of seasonal tax pay-ments. During the latter half of the year demand deposits climbed morethan 7.0 billion dollars, principally because of loan expansion, to about92 billion, which was more than 7 percent above the December 1949 level.During the first half of 1950 time deposits increased 1.1 billion, but theywere drawn down 0.8 billion in the second half. The net increase in timedeposits in 1950 was 0.3 billion compared with 1.1 billion in 1949. (Seeappendix table A-28.)

TABLE 5.—Factors changing the volume of deposits and currency

[Billions of dollars]

Factors

Loans of commercial and mutual savingsbanks _

Securities of U. S. Government held by bank-ing system 3

Securities of State and local governmentsheld by commercial and mutual savingsbanks _ _

Treasury deposits *Monetary gold stockOther factors, net . -

Net change in deposits and currency '__

Changes in volume 1

1948,total

+5.2

-6.0

+.7-1.3+1.5-1.0

-.9

1949

Total

+1.4

-.2

+1.2-.5+.2

-1.4

+.7

Firsthalf

-1.1

-3.3

+.5+.8+.3-.7

-3.5

Secondhalf

+2.5

+3.1

+.7-1.3

—.1-.7

+4.2

1950

Total 3

+11.3

-3.9

+1.9+.5

-1.6-1.8

+6.4

Firsthalf

+2.5

-1.7

+1.0-.7-.2-.7

+.2

Secondhalf 2

+8.9

-2.3

+.9+1.2-1.4-1.1

+6.2

* Signs preceding figures in columns indicate change from the previous period. An increase is denotedby a positive figure and a decrease by a negative figure for all factors except Treasury deposits, where thereverse is true.

2 Estimates based on incomplete data; second half by Council of Economic Advisers.s Includes commercial banks, mutual savings banks, and Federal Reserve banks.4 See footnote 1 above.8 See appendix table A-28 for aggregate money supply and its components.

NOTE.—Detail will not necessarily add to totals because of rounding.Source: Board of Governors of the Federal Reserve System (except as noted).

141


During the first half of 1950, credit expansion supported consumer andbusiness demand to a degree that was not generally excessive for a recoveryperiod, though it contributed to higher prices for some commodities. Afterthe Korean outbreak, with the accelerated growth of business and consumercredit, heavy liquidation of accumulated savings and rising personal in-come, private demand surged to an inflationary level. In the second halfof 1950 the growth of credit was subjected to several restraints. Federaland State bank supervisory authorities pressed banks to restrict their loansand investments. In August, the Federal Reserve System raised rediscountrates from \l/z to 1% percent, and at the same time modified its programof open market operations. The purpose of the increase in discount rateswas to make borrowing additional reserves more costly for member banks.The objective of the new open market policy, without which the discountrate rise would have little effect, was to limit sales of Government securi-ties by banks and others and thus restrict creation of new bank reserveswhich could be used as a basis for further credit expansion. At the endof December, the Federal Reserve Board announced increases, effective inJanuary and February, 1951, in the cash reserves required of memberbanks.

Though interest rates, in general, rose only slightly during the first halfof 1950, the policy adopted by the Federal Reserve System in Augustbrought sharp increases in short-term rates. The rate on Treasury bills,which rose from 1.09 percent at the beginning of the year to 1.17 percentat the end of July, reached 1.38 percent by the end of December. The yieldon 9-12 month Government issues averaged 1.44 percent in the fourth quar-ter of 1950, compared to 1.09 percent in the fourth quarter of 1949. Rateson short-term open market loans to private borrowers moved with the rateson Government obligations of like maturity. (See appendix table A-31.)

Selective controls on consumer and real estate credit were also imposed.In September the Federal Reserve Board applied regulations to consumerinstalment credit which required minimum downpayments and set maxi-mum maturities on instalment loans for the purchase of automobiles andother durables. In October, terms were substantially tightened. As aresult of the regulation, and the subsidence of late summer buying whichbegan before the regulation was put into effect, total instalment creditincreased less than 2 percent during the fourth quarter of 1950, comparedto 10 percent during the same period of 1949.

Action to restrict residential construction was first taken on July 19, whenterms were tightened on Government insured or guaranteed real estateloans. In October, under authority granted by the Defense ProductionAct, a more comprehensive regulation was put into effect. Minimumdownpayments and maximum loan maturity periods were prescribed fornew conventionally financed one- and two-family houses, and the sameterms, with some preference for veterans, were applied to new andexisting houses insured by the Federal Housing Administration and the

142


Veterans Administration. On all types of housing the severity of theterms increased progressively with the price of the house. In general,the terms required by the October regulations were substantially morestringent than typical terms charged by lenders previously. The actionstaken to tighten housing credit terms have contributed to a large drop inthe volume of applications for Government insured or guaranteed loans.At the present time multi-family structures are being brought under acredit regulation. But because of the large construction backlog not af-fected by the new regulations it will be a number of months before theregulations can result in substantial decline in housing production.

THE FLOW OF GOODS AND PURCHASING POWER

Personal income, consumption expenditures, and savingPersonal income. Personal income attained an annual rate of 233.4

billion dollars, seasonally adjusted, in the fourth quarter of 1950. Thiswas 14 percent higher than during the same period of 1949, and more than8 percent higher than the second quarter of 1950. The rise was mostimpressive between the second and third quarters when increases in eco-nomic activity and prices pushed the total up from 215 to 225 billion dollars(annual rate), despite a 3 billion decline in transfer payments. From thethird to the fourth quarter there was a further rise of about 85/2 billiondollars in total personal income. (See chart 24.)

Wage and salary receipts and other labor income rose rapidly in thesecond half of 1950, attaining a peak level of 156 billion dollars in thefourth quarter, or more than 20 billion dollars above a year earlier. A gainof 7.3 billion dollars between the second and third quarters resulted forthe most part from longer hours and rising employment. A further gainof 7.5 billion dollars from the third to the fourth quarter was due largelyto rising wage rates.

Farm income, which had dipped to a postwar low in the second quarterof 1950, gained over 2 billion dollars (annual rate) between the secondand fourth quarters, rising to the level of 14 billion dollars. Rising farmprices were largely responsible for the increase. However, while all of theother major components of income were at higher levels in the fourthquarter of 1950 than in 1948, farm income was only 79 percent of its 1948level.

Business and professional income advanced 2.4 billion dollars betweenthe second and third quarters of 1950 to a peak of 24.7 billion dollars(seasonally adjusted annual rate). Profits in retail trade showed the great-est gain, owing to the greatly increased volume of consumer purchases. Inthe fourth quarter there was some decline. Dividends increased substan-tially in the second half of this year, reflecting a 14 billion dollar increasein corporate earnings.

The volume of Government transfer payments fell, from an annual rateof 17.6 billion in the first half of the year to the more normal level of 11.2


CHART 24

PERSONAL INCOMEPersonal income increased by 16 billion dollars between 1949 and I960,with all categories except farm proprietors' income participating inthe rise. The increase was most marked in the 2nd half. Total incomereached a record high of over 233 billion dollars (seasonally adjustedannual rate) in the final quarter.BILLIONS OF DOLLARS BILLIONS OF DOLLARS250 250

200 - - 200

150 - — 150

ANNUAL RATES. SEASONALLY ADJUSTED

IOO — — 100

if OTHER INCOME CONSISTS OF RENTS, INTEREST, AND DIVIDENDS.

?J PRELIMINARY ESTIMATES BY COUNCIL OF ECONOMIC ADVISERS.

•SOURCE: DEPARTMENT OF COMMERCE (EXCEPT AS NOTED).

144


billion in the third quarter, as payment of the National Service Life Insur-ance dividend was completed. In the fourth quarter, the statutory increase,about 70 percent, in the average benefit paid recipients of Old-Age andSurvivors' Insurance was offset by declines in benefits to the unemployedand other payments.

Personal tax payments rose by 2 billion dollars (annual rate) fromthe first to the second half, due partly to rising incomes and partly tothe increase in withholding rates on October 1. The rise in tax liabilitieswas considerably greater than the increase in collections, and there willbe a sharp step-up in collections in the first half of this year.

Owing to rising tax payments, the increase in personal income aftertaxes from the first to the second half was only 11.0 billion dollars, comparedto an increase of 13.3 billion in total personal income. A considerable frac-tion of the rise in income was offset by a rise in prices of consumer goods,but when disposable income is adjusted for changes in prices, there was again from the first to the second half of about 2 percent in purchasing power.This places the second half about 8 percent above the 1948 level. On aper capita basis, real income in the second half of this year (annual rate)was about 4 percent above 1948., (Appendix tables A-5 through A-8 givefurther detail on personal income.)

Personal consumption expenditures. The annual rate of consumptionexpenditures almost reached the 200 billion dollar mark in the third quarterof 1950, and receded only slightly in the fourth quarter as purchases ofdurables and nondurables reached heights surpassing those of any previousperiod. A spurt in consumer purchasing took place between the secondand third quarters, when news of the crisis in Korea transformed a moderateupward trend into a buying spree for durable and semi-durable commodities.The quarterly rise of 13 billion dollars (annual rate), or 7 percent, wasthe greatest on record, both in dollar terms and percentage-wise. In1946, when similarly large increases were recorded, a larger part of therise was the result of higher prices. (See appendix table A-2.)

Over one-half of the increase from the second to the third quarter wasaccounted for by purchases of durable goods. Even in the first half ofthe year, durable goods purchases had accounted for a higher percent ofdisposable income than in any previous period. This may be attributed,at least partially, to the distribution of the veterans' insurance dividend.In the third quarter, durable goods expenditures rose to 16.9 percent ofincome, or an annual rate of 33.5 billion dollars. (See chart 25.)

The fourth quarter rate of total consumption expenditures was some-what below that in the third quarter. Increases in the nondurable goodscategory and in services partially compensated for a moderate decline inpurchases of durable goods.

The first buying wave for durable and household goods prospectivelyin short supply began in July and had apparently subsided somewhat beforethe Regulation W credit restrictions were imposed on September 18. Con-

145


CHART 25

CONSUMPTION EXPENDITURESFOR DURABLE GOODS

Expenditures for durable goods in the last half of I960 were 5 billiondollars (seasonally adjusted annual rate) above the 1st half of the yearand 7 billion above the last half of 1949.

BILLIONS OF DOLLARS

40

30

20

10

EXPENDITURES FOR DURABLE GOODSANNUAL RATES, SEASONALLY ADJUSTED

2 3 41948

1 2 3 41949

BILLIONS OF DOLLARS

40

30

20

10

I 2 3I960

The proportion of disposable income spent for durable goods rose toover 16 percent, an all-time high, in the 3rd quarter of 1950.

20

15

10

EXPENDITURES FOR DURABLE GOODSAS PERCENT OF DISPOSABLE INCOME

I 2 31948

I 2 31949

I I

20

15

10

1 2 3 4 -1950

^PRELIMINARY ESTIMATES BY COUNCIL. OF ECONOMIC ADVISERS.

SOURCE: DEPARTMENT OF COMMERCE (EXCEPT AS NOTED).

146


trols were tightened on October 14 to restrict demand further. Neverthe-less, durable goods purchases in the fourth quarter were still in excess ofany previous period except the immediately preceding quarter.

The general rises in the prices of consumer goods in the second half of1950 were probably sufficient to account for about half of the increase indollar volume, limiting the increase in the physical volume of consump-tion to about 3^2 percent, between the first and second half of the year.

Personal saving. The volume of personal saving dropped from an an-nual rate of 10.4 billion dollars in the second quarter to 6.4 billion dollarsin the third quarter during the post-Korean wave of consumer spending.(See appendix table A-7.) Saving in the first half of the year, in whichpersonal income was augmented by the National Service Life Insurancedividend, had averaged 6.5 percent of disposable income, a fairly high ratefor peacetime. In the third quarter, consumer instalment credit mountedrapidly, savings accounts were drawn down, and redemptions of Series Ebonds ran considerably in excess of sales. Unspent portions of the NSLIdividend were in many cases added to spending. As a result, savingsdropped to 3.1 percent of income in the third quarter. (See chart 26.)However, in the final quarter of the year, despite a rise in tax collections,saving rose to a rate of 6.4 percent of income.

The distribution of income, expenditure, and saving. There was anincrease of 2 million spending units receiving money incomes of less thanS2,000 from 1948 to 1949, despite the fact that total personal income de-clined only about 1 /2 percent. Higher unemployment, a substantial dropin farm income, and greater frequency of farm and business losses weremainly accountable for the increase in the number of spending units withvery low incomes. While unemployment averaged only 5^2 percent of thelabor force in 1949, three out of every ten employees in the major occupa-tional groupings were unemployed one month or more during the year.

In 1950, expanded economic activity benefited many lower-incomefamilies. However, many other families at the lower end of the incomescale, particularly fixed income recipients, do not benefit from a rise ineconomic activity, while they do suffer from concomitant price rises. Ac-cording to the Survey of Consumer Finances, sponsored by the Board ofGovernors of the Federal Reserve System, pensions, allowances, annuities,or contributions are the chief source of income for about one-fifth of allunits having annual money incomes of less than $1,000. In October, along-recommended step was taken to raise the income of one large group offixed income receivers, the recipients of benefits from old-age and survivors'insurance. The average benefit for aged couples was raised from $41 toabout $75 per month, and the eligibility requirements were relaxed.

In 1950, as in previous years, the expenditures of the two-fifths of thepopulation with lowest incomes probably exceeded their incomes. In 1949,as shown in table 6, the lowest one-fifth of the nation's spending units, thosewith incomes below $1,280, dissaved an amount equal to over one-half of

147


CHART 26

PERSONAL INCOME, SPENDING, .AND SAVINGPersonal consumption expenditures declined somewhat in the 4thquarter of I960 after reaching a peak of over 198 billion dollars(seasonally adjusted annual rate) in the 3rd quarter. Disposableincome continued to rise.BILLIONS OF DOLLARS BILLIONS OF DOLLARS

210

200

190

180

170

160 -

ANNUAL RATES, SEASONALLY ADJUSTED

DISPOSABLE PERSONAL INCOME(PERSONAL INCOME LESS TAXES)

2 3 41948

PERSONAL CONSUMPTIONEXPENDITURES

2 3 41949

210

200

190

180

170

- 160

—*—I I I O

2 31950

The rate of saving dropped sharply immediately after the Koreanoutbreak but increased again in the 4th quarter.

15

10

PERSONAL NET SAVINGAS PERCENT OF DISPOSABLE INCOME

n

15

10

2 3

1948

2 3

19493 4V

1950I/ PRELIMINARY ESTIMATES BY COUNCIL OF ECONOMIC ADVISERS.


148


their income. Only the top two-fifths, those with incomes in excess of$3,200, saved an appreciable amount.

The dissaving in the lowest income quintile is attributable to only about40 percent of the spending units in the quintile; about 20 percent of theunits just "make ends meet," and an additional 35-40 percent have posi-tive savings. A high proportion of the dissaving in the lowest incomebrackets is done by a relatively few units with low or negative incomes butlarge assets. The exceptionally heavy dissaving on the part of lower incomegroups in 1949 to some extent reflects the fact that many farmers andbusinessmen suffered income declines during the year, which brought theminto income brackets below their accustomed level.

The acquisition of durable goods on a wide scale in the postwar period hasbeen the major cause of dissaving by many families. In 1949, 66 percent offamilies with negative saving also purchased consumer durables, which isconsidered a consumption expenditure. The volume of consumer debt hasrisen consistently, while many families have reduced their holdings ofliquid assets in the postwar period. The median size of liquid asset hold-ings (Government bonds, bank deposits, and saving and loan shares) perfamily has declined each year since 1947, and there has been an increase inthe number of units with no assets. Owing to the fact that the number ofspending units has been increasing, total liquid asset holdings have grownsomewhat. According to the most recent Survey of Consumer Finances,the median liquid asset holding in early 1950 was about $250. (Statisticson the distribution of income and saving may be found in appendix B.)

TABLE 6.—Proportion of income spent or saved, by income groups, 1949

Spending units ranked bysize of annual money

income

Lowest fifthSecond fifth ..Third fifthFourth fifthHighest fifth

All spending units __

Incomerange

Under $1,280$1,280-2,289$2,290-3,199$3,200-4,499

$4;500andover

Percent of income of each fifth used for—

All uses

100100100100100

100

Federalincome

taxliability »

2456

12

8

Selecteddurable

goods ex-penditures 2

161111109

11

All otherexpendi-

tures

13991847963

76

Netsaving 3

-57-6

(<)5

16

5

1 Estimated personal tax liability on income, apart from capital gains and losses. Other taxes are includedin "all other expenditures."

2 Includes automobiles, furniture, radios, television sets, and household appliances.3 The definition of saving used here is not identical with that of personal net saving as denned for the

national income accounts. See 1960 Survey of Consumer Finances, Part IV, Appendix I.4 Less than one-half of 1 percent.

Source: Board of Governors of the Federal Reserve System.

Business investment and finance

During the second half of 1950, gross private domestic investment inconstruction, equipment, and additions to inventory rose to the all-timerecord level of nearly 53 billion dollars at a seasonally adjusted annual

149


rate. (See table 7 and chart 27.) This was an increase of 19 percent fromthe first half of 1950 and 67 percent from the second half of 1949. Thecorresponding increases in consumer expenditures were only 8 and 10 per-cent, respectively.

TABLE 7.—Gross private domestic investmentl


Period

19481949 . -1950 2

1949— First half .Second half

1950— First halfSecond half 2

1949 — First quarterSecond quarterThird quarterFourth quarter

1950 — First quarter .Second quarterThird quarterFourth quarter 2 .

Total grossprivate

domesticinvest-ment

43.133.048.5

34.431.6

44.352.7

37.531.332.131.2

41.746.948.457.0

Construction and equipment

Total

37.636.846.2

36.936.6

41.750.7

37.236.636.336.9

39.843.650.051.5

Nonfarmresidentialconstruc-

tion

8.68.3

12.4

7.78.9

11.613.2

7.87.68.29.5

11.012.213.512.9

Otherprivate

construc-tion

9.19.09.3

9.38.6

9.09.6

9.49.28.78.6

8.99.19.4

10.0

Producers'durableequip-ment

19.919.524.5

20.019.0

21.127.9

20.119.819.418.7

19.922.327.128.7

Increasein inven-

tories

5.5-3.7

2.4

-2.5-5.0

2.72.0

.3-5.3-4.2-5.7

2.03.4

-1.55.5

1 See appendix table A-3 for further details.2 Estimates based on incomplete data; fourth quarter by Council of Economic Advisers.

NOTE.—Detail will not necessarily add to totals because of rounding.Source: Department of Commerce (except as noted).

In the fourth quarter of 1950, gross private domestic investment wasrunning at a seasonally adjusted annual rate of 57 billion dollars, or 19percent of the total national output of goods and services. This is thehighest proportion yet on record.

The most dynamic major component of business investment in the latterhalf of 1950 was the purchase of producers' durable equipment, which roseabruptly to a record rate nearly 32 percent higher (after allowance fornormal seasonal variation) than that of the first half of 1950 and 47 percentabove the second half of 1949. At the end of the year, equipment purchaseswere at or near all-time record levels, and the inflow of new orders formachinery still exceeded deliveries.

Government restrictions imposed in the summer and fall curtailed sometypes of construction, primarily housing, although the momentum of pre-vious starts kept house building at the year's end above the level of a yearearlier. Nonresidential building activity rose steadily through the year, toreach a record level of outlays in the fourth quarter.

Inventory accumulation proceeded at a moderate rate during the firsthalf of 1950, in contrast with the sharp liquidation that had prevailedthrough most of 1949. The sudden post-Korean upsurge of consumer and

150


CHART 27

BUSINESS INVESTMENTPrivate outlays for producers' equipment, housing, and nonresidentialconstruction all rose to record levels in I960. Inventory accumulation wasonly briefly interrupted by the post-Korean buying rush.

BILLIONS OF DOLLARS

60

BILLIONS OF DOLLARS

60

I/ PRELIMINARY ESTIMATES BY COUNCIL OF ECONOMIC ADVISERS.



business demand temporarily depleted inventories, but by the end of thethird quarter inventories were growing again. During the fourth quarter,there was a rapid accumulation of inventories as sales leveled off and pro-duction continued to rise.

Plant and equipment. A significant revival in business investment inproductive facilities became evident during the second quarter of 1950.This played an important part in the general upsurge of production, em-ployment, and income after the 1949 recession. By the second quarter, therate of outlays for producers' construction and equipment was nearly backto peak 1948 levels, and was rising rapidly. (See appendix tables A-3 andA-19.) The dollar value of new orders for machinery already exceededthat of any previous time since World War II, and contracts for nonresiden-tial building, in terms of floor space, were at a new high since late 1947.

The stimulus of the expanding defense program in the second half of1950 was thus superimposed on an already buoyant investment trend. Asit became clear that for a considerable period existing capacity would beinadequate to meet demands and that the construction and equipping offacilities might become progressively more costly and difficult, businesshastened to step up its plans and commitments for investment. The majoremphasis was on purchases of machinery and other equipment, which rosefrom 19.9 billion dollars (seasonally adjusted annual rate) in the firstquarter, and 22.3 billion in the second quarter, to 28.7 billion in the fourth.Even after allowing for price increases, this rate of private investment inequipment far exceeded the previous peak reached in 1948. New ordersfor machinery, by August, were being placed at more than double the rateof a year previous. Though ordering slackened off slightly after the initialpost-Korea rush, it continued through the rest of 1950 to run well aheadof the rate of deliveries. (See chart 2 on page 36.) The unfilled-ordersbacklogs of machinery producers, which had touched a postwar low at theend of 1949, rose gradually in the first half of 1950 and very rapidly in thesecond half, to levels not experienced since early 1948.

Foremost in the investment boom of the latter half of the year were themanufacturing industries. Purchases of railroad and highway transportequipment also rose rapidly and the expansion of utilities continued at arapid pace.

As the year ended, business was planning to continue investment inplant and equipment at a high rate. Private and Government surveysof investment plans for 1951, made late in 1950, indicated a substantiallylarger total outlay in 1951 than in 1950, particularly in the industrial sector.(See appendix table A-19.) With continued high earnings and readilyavailable outside capital, business seemed likely to continue spending onplant and equipment at very high rates, subject to the influence of mate-rials shortages and Government controls.

Nonfarm inventories. The resumption of inventory accumulation dur-ing the first half of 1950 was an important factor contributing to business

152


recovery. By the second quarter of the year, nonfarm inventories werebeing accumulated at an annual rate of 4.0 billion dollars, compared witha rate of liquidation of 4.7 billion dollars a year in the fourth quarter of1949. There was thus a net change of nearly 9 billion dollars in terms ofseasonally adjusted annual rates. (See appendix tables A-3, A-20, andA-21, and chart 27.)

Economic developments following the outbreak in Korea increased thedesire of business to build up inventories, but made it more difficult to do so.Despite the sharp rise in output during the third quarter and the enormousincrease in new orders, consumer buying was so great that stocks fell offslightly. During the third quarter, nonfarm inventories were being reducedat an annual rate of about a billion dollars.

This reduction was primarily in manufacturers' stocks of finished goods.The book value of finished-goods inventories held by manufacturers de-clined by more than 9 percent during July and August. During the sameinterval, there were increases of about the same percent in stocks of rawmaterials and goods in process. These increases were in part necessaryto maintain the higher levels of output, though the sharp rise in materialsprices provided additional inducement to accumulate materials.

The book value of retailers5 inventories was higher at the end of the thirdquarter than at the beginning, but the rise was not steady. (See appendixtables A-20 and A-22.) In July, inventories declined; in August, themounting tide of deliveries overtook the rate of consumer buying, andinventories began to rise again. The increase was greater in nondurablethan in durable goods lines.

In the last five months of the year, with the leveling-off in consumerbuying from the summer peak and the continued rise in output, inventoryaccumulation was resumed in both trade and manufacturing. In thefourth quarter it reached a seasonally adjusted annual rate of 6.0 billion dol-lars, the highest since 1948. (See appendix tables A-3 and A-20.) Par-ticularly noteworthy was the increase in nondurable goods inventories.

Corporate finance. In 1950, the use of capital funds by non-financialcorporations was higher than in any previous year, and almost 24 billiondollars above 1949. Plant and equipment outlays, which by the end of theyear had reached the 1948 peak rate, accounted for nearly half of thistotal. The other half was required for a sizable expansion of inventoriesand customer accounts and for a substantial addition to corporations'liquid asset holdings. The shift from a 5-billion-dollar liquidation of inven-tory book values and accounts receivable in 1949 to an expansion of 13 billiondollars in 1950 involved an 18-billion-dollar increase in the need for funds.At the end of the year, corporations' total holdings of Government securitieswere about as large as at the end of World War II.

Corporations were able to finance more than half of their total require-ments internally, from retained earnings and depreciation allowances.Despite record disbursements of dividends, accounting for about 40 percent


CHART 28

SOURCES AND USES OF CORPORATE FUNDSIn 1950, total corporate expenditure on fixed and working capital was at arecord level. More than half of the expenditure was financed from retainedearnings and depreciation reserves.

-5BILLIONS OF DOLLARS

5 10 15 20

SOURCES

RETAINEDEARNINGS

DEPRECIATIONRESERVES

.t, (iOTHER SOURCES

USES

PLANT ANDEQUIPMENT OUTLAYS

CHANGE IN |i|iji£ij;H:!H:;:i:!|ii;iINVENTORIES

OTHER USES

1949

-'PROFIT ESTIMATES FOR oso BY COUNCIL OF ECONOMIC ADVISERS.^NEGATIVE ITEM IN 1949 RESULTED FROM DECLINE IN TRADE PAYABLES, FEDERAL INCOME TAX LIABILITY, AND BANK LOANS.

SOURCES: DEPARTMENT OF COMMERCE ESTIMATES BASED ON SECURITIES AND EXCHANGECOMMISSION AND OTHER FINANCIAL DATA (EXCEPT AS NOTED).

of earnings after taxes in 1950, compared with 45 percent in 1949 andabout 35 percent in 1948, 12.5 billion dollars of earnings were retained forinvestment, an amount which was only slightly exceeded in 1948. Becauseof the increase in tax rates and sharply rising corporate profits, corporationtax liabilities rose 7.0 billion dollars.

External sources of funds provided about 19 billion dollars, the largestamount in any postwar year. Bank loans increased by about 2.5 billiondollars, and trade debt by about 3.5 billion, much larger expansions thanoccurred in 1948. This was in sharp contrast to 1949, when corporationswere retiring both bank and trade debt. (See chart 28 and appendixtable A-37.)

154


Total net new issues of securities in 1950 were about 1.5 billion dollarssmaller than in 1949, and nearly 2 billion smaller than 1948. The volumeof stock issues, on the other hand, was larger than in either of the twoprevious years, due mainly to the more favorable market for floating newstock issues. Hdwever, corporations were still not using the stock marketas a major source of capital.

Construction. Total new construction in 1950 reached a record levelof 27.7 billion dollars, compared with 22.6 billion in 1949, the previous high.This was an increase of 23 percent. The pattern was one of expansionthrough most of 1950, with declining tendencies beginning to appeartoward the end of the year. (See appendix table A-18.)

In December 1950, total new construction was running at a seasonallyadjusted annual rate of 29.7 billion dollars, or 21 percent above the levelof a year earlier. Private construction was at an annual rate of 21.2 billiondollars, a rise of 20 percent, while public construction was at an annual rateof 8.5 billion, an increase of 24 percent.

The trends of major categories were sharply different in 1950. Privatenew construction increased greatly through October, thereafter decliningslightly as a substantial drop in residential construction was not whollycompensated by large increases in industrial and commercial construction.-Public construction fluctuated within a narrow range through August,but then rose sharply in each succeeding month. Total constructionincreased steadily until December, when it fell off slightly, with the increasein public outlays more than offsetting the decrease in private outlays duringthe last few months.

More nonfarm housing units were started in 1950 than in any previousyear. The total was over 1.3 million, more than 30 percent higher thanthe slightly more than 1 million started in 1949, the previous peak year.But there was a sharp reversal of trend during the year. The peak of149,000 monthly starts was reached in May and a level of over 140,000starts was maintained through August. Thereafter, in part under theimpact of the credit restrictions on residential construction, housing startsdeclined sharply and in the last three months of the year fell below thelevels of the corresponding months in 1949.

Beginning in the spring of 1950, private nonresidential constructionclimbed steadily. Increases in industrial and commercial construction ac-counted for much of the increase during the final months of the year.New recreational construction tapered off following the National Produc-tion Authority's October order designed to eliminate most types of suchconstruction, but this category represents only a very small fraction oftotal construction. Electric and gas utility construction totaled about thesame in 1950 as in 1949; construction of railroad and telephone and tele-graph facilities declined.

The largest increases in new public construction between 1949 and 1950were for schools, highways, and for military and naval construction which

922781—51 11 155


CHART 29

EXPORTS AND IMPORTSOF GOODS AND SERVICES

A rapid growth in imports practically eliminated the U. S. export surplus inthe 2nd half of 1950.

BILLIONS OF DOLLARS25

BILLIONS OF DOLLARS35

EXPORTS OF GOODSAND SERVICES-*'

IMPORTS OF GOODSAND SERVICES-^

10 -

5 - - 5

-/ INCLUDES INCOME ON INVESTMENTS.

& PRELIMINARY ESTIMATES Q,Y COUNCIL OF ECONOMIC ADVISERS.


had begun to reflect the impact of the defense program by the end of theyear. A major step-up in military and naval construction will appearduring this year.

During 1950, the Department of Commerce composite index of con-struction costs rose about 9 percent. The increase in the wholesale price oflumber was about 20 percent. In the hourly earnings of constructionworkers, it was about 4 percent.

The seasonally adjusted composite index of the production of buildingmaterials increased by about 19 percent during 1950. For the year as awhole, nearly all such materials were produced in record volume.

International transactions

Although the expansion of domestic economic activity and the rise ofprices in the second half of 1950 were the result of international develop-ments, these developments made their influence felt on the economy mainly

156


by stimulating domestic demand, rather than by increasing foreign purchaseshere or by reducing the supplies available to us from abroad. In fact,1950 saw a reduction in the net demands upon American output arisingfrom international transactions.

In early 1950, exports of goods and services were at the lowest levelssince termination of the Lend-Lease program after World War II.Although a rise began late in the summer of 1950, such exports were nearly1.9 billion dollars less for the year as a whole than they were in 1949. Im-ports of goods and services, on the other hand, which had been rising steadilysince the summer of 1949, rose even more sharply in the second half of1950 than in the first half, and for the year as a whole were 2.6 billion dol-lars higher than in 1949. As a result of these changes, the surplus of UnitedStates exports over imports of goods and services, which had amounted to6.2 billion dollars in 1949, fell to an annual rate of 3.0 billion in the first halfof 1950, and to an estimated annual rate of 600 million dollars in the secondhalf of the year. (See table 8 and chart 29; also appendix tables A-38through A-47 for detailed statistics on international transactions.)

TABLE 8.—United States exports and imports of goods and services


Period

19461947 .1948..._1949 .19502...Annual

194<

195(

rates:)— First half

Second half)— First half

Second half 2

Exports ofgoods andservices l

14.719.817.116.014.1

17.514.413.614.7

Imports ofgoods andservices l

7.08.3

10.49.7

12.3

9.79.5

10.614.1

Surplus ofexports ofgoods andservices 1

7.811.56.76.21.8

7.64.93.0.6

1 Includes income on investments.2 Estimates by Council of Economic Advisers; based on incomplete data.


There were substantial increases both in the quantity of goods broughtinto the country and in their prices. Although merchandise imports hadbeen rising steadily throughout the first half of the year as domestic businessactivity rose, they were given a sharp impetus, following the aggression inKorea, by the decision of the United States and its North Atlantic Treatypartners to strengthen their defenses. These developments gave rise tolarge purchases abroad to meet the needs of current and expected increasesin production, and for stockpiling purposes. Imported raw materials suchas rubber, wool, tin, wood pulp, burlap, and other products rose sharplyin price, in some cases to twice their June levels. These price rises havenot yet been fully reflected in the dollar value of our imports. (Seechart 30.)

Foreign countries were able to get along with a smaller volume of net

157


goods and services from the United States, in large part because of con-tinued increases in Western European production. For Western Europeitself, this made possible a reduction in its total imports of certain majorproducts and an expansion of exports without impairment of domesticconsumption or investment. For countries in other areas, it made possiblea shift of imports from the United States to Western European sources ofsupply.

The changes in our merchandise trade, which brought it into virtualbalance in the second half of the year, greatly reduced the dollar difficultiesof foreign countries which had characterized earlier postwar years. Theexpanded United States demand for foreign products has vastly increasedforeign earnings in this country. Many of the Western European countriesand Japan have been able not only to increase their direct sales to theUnited States, but also to improve their competitive position in other areasbecause of the relative fall in their export prices resulting from devaluation,the rise in our export prices, and the tighter supply situation in the UnitedStates. South America, the Far East, and Africa were able to earn dollarson balance in their merchandise trade with the United States. WesternEurope was able to cut its trade deficit with us drastically between the firstand second halves of the year. Moreover, the financial position of someWestern European countries, the United Kingdom in particular, was greatlyaided by the increase in dollar earnings of raw-material-producing countrieswhose monetary reserves they hold or in which they have investments.

In the first half of 1950, the United States export surplus was less thanour foreign aid. In the second half of 1950, the export surplus fell stillfurther below the volume of our aid, although this aid itself was reducedduring the course of the year. (See appendix table A-38.) Partly becauseour aid exceeded our export surplus, but also partly because of a speculativeoutflow of capital in the third quarter of the year, foreign countries in theaggregate were able to accelerate greatly the process of rebuilding theirdepleted gold and dollar reserves. The main increases were in the sterlingarea and Canada. Japan and a number of raw material exporting coun-tries outside the sterling area, chiefly in Latin America, also made largerelative gains or were able to pay off short-term debts. The rebuilding ofthese reserves proceeded during the second half of 1950 at an even morerapid rate than it had in the nine months between the widespread devalua-tions of foreign currencies and the middle of 1950. The rapidity of im-provement in the financial position of the United Kingdom was so greatthat it was possible to suspend aid to it under the European RecoveryProgram.

The decision to increase the defensive strength of the Western World,coming on top of a recovery of economic activity in the United States, hascreated a new problem of inflationary pressures on a world-wide scale.In many countries a considerable degree of internal financial stability hadbeen achieved, though often the stability was a precarious one. In the

'58


CHART 30

PRICES OF IMPORTS

Prices of U.S. imports (average unit value) have risen 20 percentsince the currency devaluations of September 1949, and 13 percentsi'nce June .1950, when hostilities broke out in Korea.

PERCENT OF SEPTEMBER 1949

160 -

140 -

PERCENT OF SEPTEMBER 1949

— 160

— 140

120 -

100

- 120

100

I/ ALSO INCLUDES MANUFACTURED FOODSTUFFS AND FINISHED MANUFACTURES NOT SHOWN ON THIS CHART.


second half of 1950, expanded defense needs were beginning to reducesupplies available for civilian use by absorbing manpower., materials, andindustrial facilities. At the same time, actual and anticipated increases indefense expenditures were increasing effective money demand in countriesaccounting for the bulk of the world's consumption. Thus, inflationarypressures were again being activated throughout the world.

Government transactions

Total cash payments of Federal, State, and local governments in thesecond half of the calendar year 1950 were running at a seasonally adjustedannual rate of almost 60 billion dollars. This was about 3 billion dollarslower than in the first half of the calendar year. Cash receipts were runningat an annual rate of about 4 billion dollars higher than in the first half of theyear. The reduction in public payments changed a total cash deficit ofmore than 4 billion dollars for the first half of 1950 into a surplus of around3 billion dollars for the second half. (See chart 31 and table 9.)

159


TABLE 9.—Government cash receipts from and payments to the public


Receiptj>r payment

Cash receipts:Federal.. _State and local

Total cash receipts

Cash payments:FederalState and local

Total cash payments _ _ __

Surplus (+) or deficit (-):FederalState and local

Total, surplus (+) or deficit (— )

CalendaryearJ949

41.316.3

57.6

42.617.5

60.2

-1.3-1.3

-2.5

Calendar year 1950

Total i

42.418.4

60.8

41.919.5

61.4

+.5-1.1

-.6

First half

41.117.7

58.8

44.019.0

63.0

-2.9-1.3

-4.2

Secondhalf i

43.818.9

62.7

39.919.9

59.8

+3.9-1.0

+2.9

i Estimates based on incomplete data.NOTE.—Detail will not necessarily add to totals because of rounding.Source: See Appendix C.

The counter-inflationary impact of the surplus on the expansion ineconomic activity was lost in the effect of the large amounts of contractsplaced both by Government and by consumers and business acting in antici-pation of an enlarged defense program. The accelerated pace of economicactivity after the outbreak of the Korean war was in fact largely due tothe actual and anticipated increase in defense activities of the Government.Government expenditures have not yet reflected much of the increase inthese defense activities, but a rapid increase in expenditures must be ex-pected to occur during the course of 1951.

Cash payments by the Federal Government. The decrease in Federalcash payments to the public, between the first and the second half of thecalendar year 1950 was due to the large National Service Life Insurancedividend paid out in the first half of the year. Excluding the NSLIdividend, cash payments were running at an annual rate of about onebillion dollars higher in the second half of the year than in the first half.Significant declines took place in expenditures for the price support program,in payments to veterans and international programs, and in the net purchaseby the Federal National Mortgage Association of government-insured andguaranteed mortgages. Increases occurred in social security payments, par-ticularly because of the increased benefits under the amended Social Securitylaw.

Expenditures by the military services, which declined in the first half ofthe calendar year, increased by an annual rate of 3.5 billion dollars in thesecond half of the year. But until the beginning of the fourth quarter,they were running only about the level of the year 1949.

160


CHART 31

GOVERNMENT CASH RECEIPTS FROMAND PAYMENTS TO THE PUBLICFederal cash payments to the public in the 1st half of 1950, includingthe National Service Life Insurance dividend, exceeded receipts by 2.9billion dollars (seasonally adjusted annual rate). In the 2nd half ofthe year receipts were 3v9 billion larger than payments. State andlocal governments had cash deficits in both periods.

FEDERAL

BILLIONS OF DOLLARS, ANNUAL RATES, SEASONALLY ADJUSTED

^DEFICITSURPLUS'

RECEIPTS PAYMENTS

I960, FIRST HALF

RECEIPTS PAYMENTS

I960,SECOND HALF

STATE AND LOCAL

BILLIONS OF DOLLARS, ANNUAL RATES, SEASONALLY ADJUSTED

RECEIPTS PAYMENTS

1950, FIRST HALF

DEFICIT

RECEIPTS PAYMENTS

I960, SECOND HALF

CALENDAR Y E A R

SOURCE: SEE APPENDIX C.

161


TABLE 10.—Federal cash payments to the public by junction


Function

Military servicesInternational security and foreign relations. __Veterans' services and benefitsSocial security, welfare and healthAgriculture and agricultural resources.InterestOtherDeductions from Federal employees' salaries for retire-

mentClearing account for outstanding checks and telegraphic

reports

Total Federal cash payments to the public

Calendaryear 1949

12.96.07.12.73.04.37.1

-.3

-.2

42.6

Calendar year 1950

Total i

13.74.18.93.31.34.16.9

-.4

-.1

41.9

Firsthalf

11.94.4

11.83.12.44.27.2

-.4

-.7

44.0

Secondhalfi

15.43.96.13.5.2

4.16.6

-.4

+.5

39.9

1 Estimates based on incomplete data.

NOTE.—Detail will not necessarily add to totals because of rounding.Source: See Appendix C.

A month by month comparison shows that the expenditures for defensebegan to rise appreciably only during the last quarter of the year. Expendi-tures by the military services were 1.6 billion dollars in December 1950,compared with about 1.0 billion dollars in June 1950, the last month be-fore the Korean outbreak. The increase in expenditures does not, how-ever, fully reflect the actual progress in military programs. During thefive-month period from July through November, obligations incurred by theDefense Department for military purposes exceeded comparable expendi-tures by about 7.5 billion dollars. Procurement has an impact on the econ-omy when contracts are placed as well as when payments are made. In theinitial period, work on contracts is financed largely by business funds, andis only later reflected in Government expenditures. (See tables 10 and 11.)TABLE 11.—Federal cash payments to the public by type of recipient and transaction


Classification of payment

Direct cash payments for goods and services; excludingmilitary services:

To individuals for services rendered .To business and international institutions for goods

and servicesLoans and transfer payments to individualsLoans, investments, subsidies and other transfers to

business and agriculture..Loans and transfer payments to foreign countries and

international institutions .Military services— cash payments for goods and services 2.Clearing account for outstanding checks and tele-

graphic reports _ _ _ _

Total Federal cash payments

Calendaryear 1949

3.3

3.011.3

6.9

5.812.5

-.2

42.6

Calendar year 1950

Total i

3.2

3.413.5

4.8

3.913.1

-.1

41.9

First half

3.3

3.316.4

6.1

4.211.4

-.7

44.0

Secondhalfi

3.2

3.610.6

3.6

3.614.8

+.5

39.9

1 Estimates based on incomplete data.2 Differs from the estimate of military service payments in table 10 above by the exclusion of certain

transfer items here included with loans and transfer payments to individuals.

NOTE.—Detail will not necessarily add to totals because of rounding.Source: See Appendix C.

162


Federal cash receipts. The increase in cash receipts from calendaryear 1949 to calendar year 1950, and especially from the first to the secondhalf of 1950 (seasonally adjusted), largely reflected the increase in eco-nomic activity. In addition, the increase in rates of employment taxes thatbecame effective January 1, 1950, added to cash collections. Because oflags in collection, the additional revenue resulting during the last fewmonths of the year from the Revenue Act of 1950 was only a modeistamount, collected through increased withholding tax rates. The 1950collections of the corporate income tax reflected the lower profits of therecession year 1949, and collections from corporate income taxes will in-crease substantially this year, reflecting both the high profits of 1950 andthe increases in tax rates. (See table 12.)

TABLE 12.—Federal cash receipts from the public


Source of cash receipts

Direct taxes on individualsDirect taxes on corporations _ _ _ _ _Employment taxes _ _Excises and customsSurplus property receipts _Deposits by States, unemployment insuranceVeterans' life insurance premiums - _OtherRefunds of receipts

Total Federal cash receipts from the public

1949

18 412.02.57.9.5

1 0.4

1.4-2.8

41.3

Total i

19 39.93.48.6.2

1 2.5

1.5—2.2

42 4

1950

Firsthalf

18 49.93.48 2.3

1 i.5

1.4—2.2

41 1

Secondhalfi

20 19 93.49.0.1

1.3.5

1.6—2.2

43 8

* Estimates based on incomplete data.

NOTE.—Detail will not necessarily add to totals because of rounding.Source: See Appendix O.

The Federal budget deficit, the cash surplus, and changes in the nationaldebt. The foregoing analysis has been in terms of the consolidated cashstatement of Federal cash payments and Federal receipts. While the con-solidated cash statement is a preferable means of measuring the impactupon the economy of government transactions on the flow of funds andincomes, it is also important to consider the conventional budget. (See table13.) Surpluses or deficits in the conventional budget decrease or increasethe national debt held by the public and Government trust accounts. Theconventional budget is the basis of the appropriations recommended by thePresident and voted by Congress.

In calendar 1950 the budget, measured in conventional terms, showeda deficit of 422 million dollars. There was an excess of cash receipts fromthe public over cash payments to the public of about 500 million dollars.Though there was a deficit in the conventional budget, the gross publicdebt dropped 423 million dollars in calendar 1950 because of a surplusof trust and clearing account receipts, and a drop in the Treasury's general

163


TABLE 13.—Federal receipts and expenditures: Budget totals and consolidated cash totals

[Billions of dollars, annual rate]

Receipt or expenditure

Budget totals, not adjusted for seasonal variation:Receipts (net) - _ _Expenditures _

Budget surplus (-{-) or deficit (— )

Consolidated cash totals:Not adjusted for seasonal variation:

Cash receipts from the publicCash payments to the public

Cash surplus (+) or deficit (— )

Adjusted for seasonal variation:Cash receipts from the public .- -Cash payments to the public

Cash surplus (+) or deficit (— )

Calendaryear 1949

38.141.7

-3.6

41.342.6

-1.3

41.342.6

-1.3

Calendar year 1950

Total i

37.838.3

-.4

42.441.9

+.5

42.441.9

+.5

First half

38.738.4

-K4

43.043.7

-.8

41.144.0

-2.9

Secondhain

36.938.1

-1.2

41.840.1

+1.7

43.839.9

+3.9

i Estimates based on incomplete data.NOTE.—Detail will not necessarily add to totals because of rounding.Source: Treasury Department and Bureau of the Budget.

fund. In the calendar year 1949 the public debt had increased 4.3 billiondollars. (See appendix tables A-29 and A-30.)

State and local transactions. State and local government expenditures,after a very rapid rise in the immediate postwar years, increased at a slowerpace in 1949 and 1950, although demands for additional school, highway,and other facilities remained pressing. To a large extent, this flattening ofthe trend was forced by a reversal of the favorable financial position in whichmost State and local governments emerged from World War II. (Seetable 9 above.)

The expansion of general business activity, beginning in 1950 and acceler-ating sharply after the Korean invasion, had a marked effect upon manytypes of State and local revenue. The sales tax, an important revenuesource in many States, showed rapidly increasing yields. During the secondhalf of calendar year 1950, State and local cash expenditures advanced mod-erately above the level of the previous year or of the first half of 1950 despitedelay in some projects because of increasing costs of construction. Cashdeficits of State and local governments for the second half of the calendaryear 1950 are estimated at an annual rate of 1.0 billion dollars, somewhatsmaller than the deficit of the preceding half-years.

Summary: The Nation's Economic Budget

In order to form a statistical picture of the total domestic economy,it is necessary to bring together in a single statement the description of theflow of receipts and expenditures within the separate segments of theeconomy, under the influence of the forces and events which have beendiscussed in this part of the Review with respect to each segment.

164


This comprehensive statement, The Nation's Economic Budget, is set forthand treated in great detail in Appendix G. Being a double entry statement,it must always be in balance, and for every change in any item there must becompensating changes in one or more of the other items. It is presented inthree divisions, for the year 1949, for the first half of 1950, and for the secondhalf of 1950. Sharp changes in economic currents have taken place betweeneach of these periods, and the Economic Budget shows how these changeshave affected, in quantitative terms, the money flow within and among theprincipal sectors of the economy. It also indicates how the necessarybalancing changes have actually occurred during the past year. (Seechart 32 and table 14.)

TABLE 14.—-The Nation's Economic Budget, calendar years 1949 and 1950


Economic group

CONSUMERS

Disposable incomeConsumption expenditures

Personal net saving (-}-)

BUSINESS

Retained receipts _Gross private domestic invest-

mentExcess of receipts (+), or in-

vestment (— ).

INTERNATIONAL

Cash loans abroad _Net foreign investment

Excess of receipts (+), or in-vestment (— )

GOVERNMENT

Cash receipts from the publicCash payments to the public

Cash surplus (+), or deficit

ADJUSTMENTS(To arrive at gross national

product)

For receipts 2

For expenditures 3

Difference between adjust-ments

Total gross national product.

1949

Re-ceipts

187.4

30.2

1.1

57 6

—20 7

255.6

Ex-pend-itures

178.8

33 0

4

60 2

-16.8

255.6

Excessof re-ceipts(+)or

expend-itures(-)

+8.6

—2 8

+.7

—2 5

—4 0

1950, first half

Re-ceipts

196.6

30.1

—.2

58 8

—18 5

266.8

Ex-pend-itures

183.8

44.3

—1 8

63 0

-22.5

266.8


expend-itures(-)

+12 7

—14.2

+1.6

—4 2

+4.1

1950, second half 1

Re-ceipts

207.6

28.4

.1

62.7

—8 2

290.6

Ex-pend-itures

197.7

52.7

-3 4

59 8

-16.2

290.6


expend-itures(-)

+10.0

-24.3

+3.5

+2.9

+7.9

1 Estimates based on incomplete data.2 Includes receipts which do not arise from current production and hence are not a part of the national

income: Transfers to individuals, Government interest, cash loans abroad, and the difference between taxliabilities and cash receipts. Also includes statistical discrepancy.

3 Includes all cash payments which are not payments for goods and services and hence are not includedin the gross national product.

NOTE.—Detail will not necessarily add to totals because of rounding.Source: See Appendix C for more detailed treatment of the Nation's Economic Budget.

165


CHART 32

THE NATION'S ECONOMIC BUDGET

Business and consumer expenditures rose more than receipts fromthe 1st to the 2nd half of 1950, while the Government cash deficitgave way to a small surplus.

-50

BILLIONS'OF DOLLARSANNUAL RATES, SEASONALLY ADJUSTED

0, 50 100

CONSUMERS

I960,

FIRST HALF

1950,

SECOND HALF

BUSINESS

I960,

1950,

SECOND HALF

INTERNATIONAL

1950,

FIRST HALF

I960,

SECOND HALF

GOVERNMENT

1950,

FIRST HALF

1950,

SECOND HALF

CONSUMERS

BUSINESS

INTERNATIONAL

GOVERNMENT

Transferf payments

EXCESS OF RECEIPTS (+), EXPENDITURES (-)1950, FIRST HALF 1950, SECOND HALF

-25 0 +25 -25 • 0 +25

SOURCE: SEE APPENDIX C.

166


For the second half of 1950 as a whole, gross national product, at a sea-sonally adjusted annual rate, which appears as the total figure in the Nation'sEconomic Budget, reached a record level of about 290 billion dollars. Thiswas nearly 9 percent above the rate of 267 billion dollars in the first half ofthe year. About half of this rise was due to price increases; the growth inphysical volume of output was less than 5 percent.

The decision of the United States to undertake a large-scale prepared-ness program had its impact on the economy, in 1950, largely throughanticipations of businessmen and consumers. In terms of actual Govern-ment expenditures, national defense, and international programs rose only3 billion dollars (at an annual rate) in the second half of the year. TotalGovernment payments even showed a decline, while receipts rose.

The increase in activity and in inflationary pressure between the firstand the second half of the year was thus primarily attributable to privatespending. While all categories of consumer expenditures increased,expenditures for durable goods, which were already at unparalleled highrates, rose 20 percent, compared with a rise of 5 percent for nondurablegoods and services. Expenditures for producers' durable equipment ad-vanced 32 percent. Total private domestic investment reached a levelof nearly 53 billion dollars (annual rate) in the second half of the year,an increase of nearly 20 percent over the first half.

The rise in private incomes, while impressive, was less rapid than thatin expenditures. The rate of personal net saving declined from an annualrate of 12.7 billion dollars in the first half of 1950 to 10.0 billion in the secondhalf, partly as a result of expanding consumer credit and cashing of Govern-ment bonds by many families. In the business sector, investment expendi-tures exceeded retained receipts by 24.3 billion dollars (annual rate) in thesecond half of 1950, compared with 14.2 billion in the first half.

The Nation's Economic Budget, in summary,, portrays an economy whichis undergoing a boom in expenditures for both producers' and consumers'durable equipment, stimulated by anticipation of a large and expandingdefense program.

167


Appendix AStatistical Tables Relating to Employment,

Production, and Purchasing Power

CONTENTSNational income or expenditure: Page

A-l. Gross national product or expenditure, 1929-50 171A-2. Personal consumption exDenditures, 1929-50 . , 172A-3. Gross private domestic investment, 1929-50 173A—4. National income by distributive shares, 1929—50 174A-5. Personal income, 1929-50 175A-6. Relation of national income and personal income, 1929—50 . . . . 176A-7. Disposition of personal income, 1929-50 177A-8. Total and per capita disposable oersonal income in current and 1950

prices, 1929-50 178A-9. Gross national product or expenditure in 1939 prices, 1929-50 . . . 179

A-10. Gross national product or expenditure in 1950 prices, 1940-50 . . . 180Employment and wages:

A—11. Labor force, employment, and unemployment, 1929—50 181A—12. Number of wage and salary workers in nonagricultural establishments,

1929-50 182A—13. Average gross weekly earnings in selected industries, 1929-50 . . . . 183A-l 4. Average hourly earnings in selected industries, 1929-50 184A—15. Average weekly hours in selected industries, 1929—50 185

Production and business activity:A-l 6. Physical production index of goods and selected services, 1929-50 . . 186A-l 7. Industrial production index, 1929-50 187A-18. New construction activity, 1929-50 188A-l 9. Business expenditures for new plant and equipment, 1929—51 . . . . 189A—20. Inventories and sales in manufacturing and trade, 1939-50 190A-21. Manufacturers' inventories by stage of fabrication and as ratios to

sales, 1946-50 191A-22. Sales, stocks, and outstanding orders at 296 department stores,

1939-50 192Prices:

A-23. Consumers'price index, 1929-50 193A-24. Wholesale price index, 1929-50 194A-25. Indexes of prices received and prices paid by farmers, and parity ratio,

1929-50 195

169


Money, banking, and credit: page

A-26. Consumer credit outstanding, 1929-50 196A—27. Loans and investments of all commercial banks and weekly reporting

member banks, 1929-50 . 197A-28. Deposits and currency, 1929-50 198A-29. Estimated ownership of Federal securities, 1939-50 199A-30. United States Government debt—volume and kind of securities,

1929-50 200A-31. Bond yields and interest rates, selected years, 1929-50 201

Corporate profits and finance:A-32. Profits before and after tax, all private corporations, 1929-50 . . . . 202A-33. Sales and profits of large manufacturing corporations, 1939-50 . . . 203A-34. Relation of profits before and after taxes to stockholders' equity,

private manufacturing corporations, by industry group, 1948-50 . 204A-35. Relation of profits before and after taxes to sales, private manufactur-

ing corporations, by industry group, 1948-50 205A-36. Relation of profits before and after taxes to stockholders' equity and to

sales, all private manufacturing corporations, by size class, 1948-50. 206A-37. Sources and uses of corporate funds, 1946-50 207

International transactions:A-38. The international transactions of the United States, 1947-50 . . . . 208A-39. United States exports and imports of goods and services, by area, 1937

and 1947-50 209A—40. United States Government grants, other unilateral transfers, and loans

to foreign countries, 1947-50 210A—41. United States merchandise export surplus, by area, 1936—38 quarterly

average and 1947-50 211A—42. United States merchandise exports, including reexports, by area,

1936-38 quarterly average and 1947-50 212A-43. United States domestic merchandise exports, by economic class,

1936-38 quarterly average and 1947-50 213A-44. Indexes of quantity and unit value of United States domestic mer-

chandise exports, by economic class, 1936—38 quarterly average and1947-50 214

A-45. United States general merchandise imports, by area, 1936-38 quar-terly average and 1947-50 215

A—46. United States merchandise imports for consumption, by economicclass, 1936-38 quarterly average and 1947-50 216

A—47. Indexes of quantity and unit value of United States merchandise im-ports for consumption, by economic class, 1936-38 quarterly averageand 1947-50 217

Summary:A-48. Changes in selected economic series since 1939 and 1949 and dur-

ing 1950 218

170


Statistical Tables Relating to Employment,Production, and Purchasing Power

TABLE A-1. Gross national product or expenditure, 1929-50


Period

1929

19301931193219331934 _

1935 .19361937 - -19381939

19401941 . ._ _19421943 -1944

194519461947 _.-19481949

1950 *

1949— First half. _Second half.

1950— First half _ _ _ .Second half 1

1949— First quarter -Second quarterThird quarter _Fourth quarter

1950 — First quarter .Second quarterThird quarter. - -Fourth quarter 1

Grossnationalproduct

103.8

90.975.958.355.864.9

72.282.590.284.791.3

101.4126.4161.6194.3213.7

215.2211. 1233.3259.1255.6

278.8

Personalconsump-tion ex-

penditures

78.8

70.861.249.246.351.9

56.262.567.164.567.5

72.182.391.2

102.2111.6'

123.1146.9165.6177.4178.8

190.8

Grossprivate

domesticinvestment

15.8

10.25.4.9

1.32.8

6.18.3

11.46.39.9

13.918.310.95.77.7

10.728.730.243.133.0

48.5

Net foreigninvestment

0.8

.7

.2

.2

.2

.4

-.1-.1

.11.1.9

1.51.1-.2

-2.2—2.1

-1.44.68.91.9.4

-2.6

Govern-ment pur-chases of

goods andservices

8.5

9.29.28.18.09.8

9.911.711.612.813.1

13.924.759.788.696.5

82.830.928.636.643.3

42.1

Annual rates, seasonally adjusted

257.0254.1

266.8290.6

258.8255.2254.4253.8

263.4270.3284.3297. 0'

177.9179.8

183.8197.7

177.4178.4179.0180.6

182.4185. 2198.4197.0

34.431.6

44.352.7

37.531.332.131.2

41.746.948.4}57.0

1.2-.3

-1.8-3.4

1.01.3.1

-.7

-1.7-2.0-3.3-3.5

43.643.0

40.643.6

42.944.343.242.8

41.040.240.846.5

* Estimates based on incomplete data; fourth quarter by Council of Economic Advisers.NOTE.—Detail will not necessarily add to totals because of rounding.Source: Department of Commerce (except as noted).

022781—51- 171


TABLE A-2.—Personal consumption expenditures, 1929-50


Period

1929

19301931 -193219331934

19351936193719381939

19401941194219431944

19451946194719481949

1950 < _

1949— First half . . _.Second half

1950— First halfSecond half *

1949 — First quarter _Second quarterThird quarterFourth quarter . .

1950 — First quarter __Second quarter.Third quarter .Fourth quarter *

Totalex-

pendi-tures

78.8

70.861.249.246.351.9

56.262.567.164.567.5

72.182.391.2

102.2111.6

123.1146.9165.6177.4178.8

190.8

Durable goods

Total

9.4

7.35.63.73.54.3

5.26.47.05.86.7

7.99.87.16.87.1

8.516.621.422.923.8

29.4

Auto-mo-bilesand

parts

3.2

2.21.6.9

1.01.4

1.92.32.41.62.1

2.73.3.7.8.9

1.14.26.67.59.5

12.1

Other

6.1

5.14.02.82.52.9

3.34.14.64.14.6

5.16.46.46.06.2

7.412.414.815.414.4

17.4

Nondurable goods

Total

37.7

34.129.022.722.326.7

29.432.935.234.035.3

37.644.052.961.067.1

74.985.895.1

100.998.5

101.8

Foodi

19.7

18.114.811.411.514.3

16.318.520.019.019.3

20.724.430.535.338.9

43.050.356.659.958.6

60.6

Cloth-ing 2

9.2

7.96.85.04.65.6

5.96.56.76.67.0

7.48.8

11.013.715.3

17.118.619.120.018.6

19.0

Other

8.9

8.17.46.46.26.9

7.27.98.68.48.9

9.510.811.411.912.9

14.816.919.421.021.3

22.4

Services

Total

31.7

29.526.622.820.620.9

21.723.324.924.725.5

26.628.531.234.437.4

39.744.549.153.756.4

59.6

Hous-ings

11.4

11.010.29.07.87.5

7.67.98.48.78.9

9.29.9

10.611.111.7

12.213.014.616.117.2

18.3

Other

20.2

18.516.413.812.713.4

14.115.416.516.016.5

17.418.720.623.325.7

27.531.434.537.639.2

41.3


177.9179.8

183.8197.7

177.4178.4179.0180.6

182.4185.2198.4197.0

22.725.0

26.832.0

22.423.024.725.3

26.926.733.530.5

8.710.3

10.913.2

8.29.1

10.210.4

10.811.013.513.0

14.014.7

15.919.0

14.213.914.614.9

16.215.620.017.5

99.397.8

98.4105.2

99.499.297.697.9

97.499.3

104.9105.5

58.958.3

58.762.6

59.158.758.458.3

58.259.162.562.6

19.218.1

18.119.8

19.319.118.018.1

17.718.419.719.8

21.221.4

21.623.0

21.021.421.221.5

21.421.922.823.1

55.957.0

58.660.4

55.656.256.657.4

58.159.259.961.0

16.917.5

18.018.6

16.817.117.317.6

17.918.118.418.7

38.939.6

40.741.9

38.839.139.339.8

40.341.141.542.3

* Includes alcoholic beverages.2 Includes shoes and standard clothing issued to military personnel.3 Includes imputed rental value of owner-occupied dwellings.4 Estimates based on incomplete data; fourth quarter by Council of Economic Advisers.NOTE.—Detail will not necessarily add to totals because of rounding.Source: Department of Commerce (except as noted).

172


TABLE A-3.—Gross private domestic investment, 1929-50


Period

1929

1930193119321933 . _1934

193519361937- . .19381939

19401941194219431944

19451946194719481949

1950 8

1949:1st half . . .2dhalf

1950:1st half2dhalf8 .

1949:1st quarter2d quarter3d quarter4th quarter. _.

1950:1st quarter2d quarter3d quarter4th quarter 8 _ _

Totalgrosspri-vate

domes-tic

invest-ment 1

15.8

10.25.4.9

1.32.8

6.18.3

11.46.39.9

13.918.310.95.77.7

10.728.730.243.133.0

48.5

Nonfarm producers'plant and equipment

Total i

9.8

7.64.62.52.33 10 Q

5.26.64.75.7

7.49.35.84.66 3

8.715.520.323.422.5

26.9

Equip-ment2

5.6

4.32.81.61.62 2

2.93.94.73.44.0

5.36.64.13.54 7

6.310.714.616.716.1

20.2

Con-struc-tion i 3

4.2

3.41.81.0.7.9

1.01.31.91.41.7

2.12.71.71.11 6

2.44.85.76.76.4

6.7

Farm equipment andconstruction

Total *

1.1

.9

.5

.3

.34

.6

.81.0.8.8

1.01.31.0.9

1 2

1.42.43.84.64.7

5.4

Equip-ment

0.8

.7

.4

.3

.3

.3

.5

.61.8.6.6

.81.0.7.69

1.11.62.53.23.4

4.3

Con-struc-tion

0.3

.2

.10)(7)

.1

.2

.2

.2

.2

.2

.3

.3

.33

.3

.91.31.41.3

1.1

Resi-dential

con-struc-tion

(non-farm)"

2.8

1.41.2.5.34

.71.11.41.52.7

3.03.41.81.0

8

1.14.06.38.68.3

12.4

Otherpri-vatecon-

struc-tion e

0.5

.5

.4

.2

.11

.1

.1

.2

.2

.2

.2

.3

.1(7)

.2

.6

. 71.01.3

1.5

Net change in busi-ness inventories

Total

1.6

-.3-1.4-2.6-1.6—1 1

.91.02.3

-1.0.4

2.33.92.1-.9

o

7Q.I-.85.5

-3.7

2.4

Non-farmafter

revalu-ation

adjust-ment

1.8

-2 7-2.6-1.3

2

.42.11.8.

-1,1.3

2.03.4.8

-.5— 3

-.66.31.44.4

-3.1

2.9

Farm

-0.3

-.2.3

(7) 2— 1 3

.5-1.1

.5

.1

.1

.2

.51.3-.4— 5

-.1-.2

-2.21.2-.6

-.6


34.431.6

44.352.7

37.531.332.131.2

41.746.948.457.0

22.922.0

23.630.0

23.222.622.221.9

22.624.729.230.9

16.216.0

17.423.0

16.416.016.115.9

16.418.322.423.6

6.76.0

6.37.0

6.86.66.16.0

6.26.46.87.3

5.04.3

4.86.0

5.05.14.64.0

4.65.15.76.2

3.83.0

3.84.9

3.73.83.32.8

3.54.04.75.1

1.31.2

1.21.0

1.31.31.31.2

1.21.11.11.0

7.78.9

11.613.2

7.87.68.29.5

11.012.213.512.9

1.21.4

1.51.6

1.21.31.31.4

1.51.51.51.6

-2.5-5.0

2.72.0

.3-5.3-4.2-5.7

2.03.4

-1.55.5

-2.2-4.0

3.42.5

.1-4.5-3.2-4.7

2.74.0

-1.06.0

-.3-1.0

-.6-.5

.2-.8

-1.0-.9

-.7-.6-.5-.5

1 Items for 1945 and earlier years are not comparable with those for later years, nor with figures shown inappendix table A-18.

2 Total producers' durable equipment less "farm machinery and equipment" and farmers' purchases of"tractors" and "business motor vehicles." These figures assume that farmers purchase 85 and 15 percent,respectively, of all tractors and motor vehicles used for productive purposes.

3 Industrial buildings, public utilities, gas- and oil-well drilling, warehouses, office and loft buildings,stores, restaurants, and garages. Includes hotel construction prior to 1946 only.

4 Farm construction (residential and nonresidential) plus "farm machinery and equipment" and farmers'purchases of "tractors" and "business motor vehicles." (See footnote 2.)

5 Includes construction of hotels, tourist cabins, motor courts, and dormitories since 1946 only.6 Includes religious, educational, social and recreational, hospital and institutional, miscellaneous non-

residential, and all other private.7 Less than 50 million dollars.s Estimates based on incomplete data; fourth quarter by Council of Economic Advisers.



TABLE A—4.—National income by distributive shares, 1929-50


Period

1929

19301931193219331934 .

19351936...19371938 -- .1939..-

1940 -1941194219431944

19451946194719481949 . .

1950 •

1949_First halfSecond half

1950— First halfSecond half5 ._

1949— First quarterSecond quarterThird quarterFourth quarter. _

1 950— First quarter. _Second quarterThird quarter5

Fourth quarter 5 _.

Totalnation-

alin-

come l

87.4

75.058.941.739.648.6

56.864.773.667.472.5

81.3103.8137.1169.7183.8

182.7180.3198.7223.5216.8

236.2

Com-pen-

sationof em-ploy-ees2

50.8

46.539.530.829.334.1

37.142.747.744.747.8

51.864.384.9

109.2121.2

123.0117.1128.0140.2140.6

152.2

Business and pro-fessional incomeand inventory

valuationadjustment

Total

8.3

7.05.33.22.94.3

5.06.16.66.36.8

7.79.6

12.615.017.2

18.720.619.822.121.0

23.2

In-come

ofunin-

corpo-ratedenter-prises

8.1

6.34.72.93.44.3

5.06.26.76.16.9

7.810.212.915.117.2

18.822.421.322.520.3

24.7

In-ven-toryvalu-ationad-

just-ment

0.1

.8

.6

.3-.5-.1

-.1-.1

.2-.2

-.1-.6-.4

2-.'l

-.1— 1.8-1.5-.4

.7

-1.5

In-come

offarmpro-prie-tors

5.7

3.92.91.72.32.3

4.93.95.64.44.5

4.96.9

10.511.811.8

12.514.815.617.713.4

13.0

Rent-al in-come

ofper-sons

5.8

4.83.62.52.02.1

2.32.73.13.33.5

3.64.35.46.16.5

6.36.67.17.57.3

7.4

Corporate profitsand inventory

valuationadjustment

Total

10.3

6.61.6

-2.0-2.0

1.1

3.04.96.24.35.8

9.214.619.924.324.0

19.218.324.731.829.9

35.5

Cor-po-rateprof-its

beforetax 3

9.8

3.3-.8

-3.0.2

1.7

3.25.76.23.36.5

9.317.221.125.124.3

19.723.530.533.927.6

40.2

In-ven-toryvalu-ationad-

just-ment

0.5

3.32.41.0

-2.1-.6

-.2-.7(4)

1.0-.7

-.1-2.6-1.2-.8-.3

-.6-5.2-5.8-2.0

2.2

-4.7

Netinter-est

6.5

6.25.95.45.04.8

4.54.54.44.34.2

4.14.13.93.43.1

3.02.93.54.14.7

5.0


218.3215.4

223.0249.2

218.8217.8216.7214.2

216.9229.1243.7254.7

141.0140.1

145.1159.2

141.5140.5140.0140.2

142.3147.9155. 2163.2

21.320.6

21.824.6

21.521.120.720.6

21.422.324.724.4

20.420.1

22.426.8

20.720.120.020.3

21.623.327.825.9

.9

.5

-.6-2.3

.81.0.7.3

-.2-1.0

3 1-1.5

14.312.5

12.213.6

14.913.712.212.8

12.811.713.314.0

7.47.2

7.27.5

7.47.47.27.3

7.37.17.47.6

29.630.1

31.639.3

28.830.431.828.4

28.235.038.140.5

27.427.9

33.347.0

28.326.428.227.6

29.237.446.048.0

2.22.2

-1.6-7.7

.53.93.7.8

-1.0-2.3-7.9-7.5

4.64.8

5.05.0

4.64.74.84.8

5.05.05.05.0

1 National income is the total net income earned in production by individuals and businesses. Theconcept of national income currently used differs from the concept of gross national product in that it ex-cludes depreciation charges and other allowances for business and institutional consumption of durablecapital goods.

2 Includes wage and salary receipts and other labor income (see appendix table A-5), and employer andemployee contributions for social insurance (see appendix table A-6).

3 See appendix table A-32 for corporate tax liability (Federal and State income and excess profits taxes)and corporate profits after taxes.

4 Less than 50 million dollars.5 Estimates based on incomplete data; corporate profits and total national income for third quarter and all

items for fourth quarter by Council of Economic Advisers.


174


TABLE A-5.—Personal income, 1929-50


Period

1929 ._

193019311932 .19331934

19351936 .193719381939

19401941 _ . _1942 _ _19431944 _

19451946. .1947 _19481949

1950 8

1949— First halfSecond half _ . _ .

1950— First half .. _Second half8

1949— First quarterSecond quarterThird quarter.Fourth quarter

1950— First quarterSecond quarterThird quarter-Fourth quarter 5

Totalpersonalincome

85.1

76.264.849.346.653.2

59.968.474.068.372.6

78.395.3

122.7150.3165.9

171.9177.7191.0209.5206.1

222,4

Salaries,wages,

and otherlabor

income *

50.5

46.339.230.529.033.8

36.842.145.942.845.7

49.561.581.4

104. 5116.2

116.9111.1122.3134.9134.9

145.2

Proprie-tors' and

rentalincome 2

19.7

15.711.87.47.28.7

12.112.615.414.014.7

16.320.828.432.835.5

37.542.042.447.341.7

43.5

Dividendsand

personalinterestincome 3

13.3

12.611.19.18.28.6

8.610.110.38.79.2

9.49.99.7

10.010.6

11.413.214.516.117.2

18.6

Transferpayments

1.5

1.52.72.22.12.2

2.43.52.42.83.0

3.13.13.23.03.6

6.211.411.811.212.3

15.1

Nonagri-culturalpersonalincome 4

76.8

70.060.146.243.049.5

53.462.866.562.166.3

71.586.1

109.4135. 2150.5

155.7158.8170.8187.0188.2

205.2


207.7204.6

215.8229.1

208.6206.8203. 8205.4

216.4215.1224.8233.4

135.4134.5

138.3152.2

135.7135.2134.4134.6

135.5141.1148.4155.9

43.040.4

41.445.7

43.842.240.140.7

41.541.245.446.0

17.117.3

17.819.4

17.117.116.817.8

17.717.919.119.6

12.212.5

18.211.9

11.912.412.512.5

21.614.911.911.9

188.7187.8

199.3211.0

189.0188.4187.3188.2

199.3199.3207.2214.9

1 Differs from "compensation of employees" in appendix table A-4, in that it excludes employer and employee contributions to social insurance. Includes wage and salary receipts and other labor income—com-pensation tor injuries, employer contributions to private pension and welfare funds, pay of military reservistsnot on full-time active duty (pay for full-time active duty included in military wages and salaries), directors'fees, jury and witness fees, compensation of piison inmates, Government payments to enemy prisoners ofwar, marriage fees to justices of the peace, and merchant marine wai-risk life and injury claims.fe 2 See appendix table A-4, for major components.! r_ 3 See appendix table A-32. for dividend payments.

* Nonagricultural income is personal income exclusive of net income of unincorporated farm enterprises,farm wages, agricultural net rents, agricultural net interest, and net dividends paid by agricultural cor-porations.

5 Estimates based on incomplete data; fourth quarter by Council of Economic Advisers.

NOTE.—Detail will not necessarily add to totals because 01 rounding.Source: Department of Commerce (except as noted).


TABLE A-6. Relation of national income and personal income, 1929-50


Period

1929.'. .— .

19301931193219331934 _

19351936 -.193719381939 -

19401941194219431944

19451946194719481949 _ _ .__

19502.-- .-.

1949— -First halfSecond half



1950— First quarterSecond quarter _Third quarter 2Fourth quarter 2

Nation-al

income

87.4

75.058.941.739.648.6

56.864.773.667.472.5

81.3103.8137.1169.7183.8

182.7180.3198.7223.5216.8

236.2

Less:

Corpo-rate

profitsand in-

ven-toryvalu-ation

adjust-ment

10.3

6.61.6

-2.0-2.0

1. 1

3.04.96.24.35.8

9.214.619.924.324.0

19.218.324.731.829.9

35.5

Contri-butions

tosocialinsur-ance

0.2

.3

.3

.3

.3

.3

.3

.61.82.02.1

2.32.83.54.55.2

6.16.05.75.25.7

6.9

Excessof

wageac-

crualsoverdis-

burse-ments

0.2-.2

0)0)0)0)0)

0)

Plus:

Gov-ern-

menttrans-

ferpay-

ments

0.9

1.02.01.41.51.6

1.82.91.92.42.5

2.72.62.72.53.1

5.610.911.110.611.6

14.4

Netinter-

estpaidby

Gov-ern-

ment

1.0

1.01.11.11.21.2

1.11.11.21.21.2

1.31.31.52.12.8

3.74.44.44.54.7

4.8

Divi-dends

5.8

5.54.12.62.12.6

2.94,64.73.23.8

4.04.54.34.54.7

4.75.86.67.57.8

8.9

Busi-ness

trans-fer

pay-ments

0.6

.5

.6

.7

.7

.6

.6

.6

.6

.4

.5

.4

.5

.5

.5

.5

.5

.6

.7

.7

.7

.7

Equals:Per-sonal

income

85.1

76.264.849.346.653.2

59.968.474.068.372.6

78.395.3

122.7150.3165.9

171.9177.7191.0209.5206.1

222.4


218.3215.4

223.0249.2

218.8217.8216.7214.2

216.9229.1243.7254.7

29.630.1

31.639.3

28.830.431.828.4

28.235.038.140.5

5.65.6

6.87.1

5.75.65.65.7

6.76.86.97.3

-.10)

P)0)

.1-.3(00)

(0(00)0)

11.411.8

17.611.2

11.211.711.911.8

20.914.211.211.2

4.64.7

4.74.8

4.64.64.74.7

4.74.74.84.8

7.87.8

8.29.6

7.97.77.48.2

8.18.29.49.8

.7

.7

.7

.7

.7

.7

.7

.7

.7

.7

.7

.7

207.7204.6

215.8229.1

208.6206.8203.8205. 4

216.4215.1224.8233. 4

1 Less than 50 million dollars.2 Estimates based on incomplete data; corporate profits and total national income for third quarter and

all items for fourth quarter by Council of Economic Advisers.

f NOTE.—Detail will not necessarily add to totals because of rounding.f Source:'-Departmentjof Commerce (except as noted).

176


TABLE A—7. Disposition oj personal income, 1929-50

Period

1929

19301931193219331934

1935 _1936193719381939

19401941194219431944 . . .

1945194619471948 ._1949

1950 i

1949— First halfSecond half . _ _ _ _ .


1949— First quarterSecond quarterThird quarter. _ . _ _ _ .Fourth quarter ___

1950— First quarterSecond quarterThird quarter.Fourth quarter J

Personalincome

Less:Personaltax andnontax

payments

Equals:Disposa-

blepersonalincome

Less:Personal

con-sumptionexpendi-

tures

Equals:Personal

netsaving

Billions of dollars

85.1

76.264.849.346.653.2

59.968.474.068.372.6

78.395.3

122.7150.3165.9

171.9177.7191.0209.5206.1

222.4

2.6

2.51.91.51.51.6

1.92.32.92.92.4

2.63.36.0

17.818.9

20.918.821.521.218.7

20.4

82.5

73.763.047.845.251.6

58.066.171.165.570.2

75.792.0

116.7132.4147.0

151.1158.9169.5188.4187.4

202.1

78.8

70.861.249.246.351.9

56.262.567.164.567.5

72.182.391.2

102.2111.6

123.1146.9165. 6177.4178.8

190.8

3.7

2.91.8

-1.4-1.2-.2

1.83.63.91.02.7

3.79.8

25.630.235.4

28.012.03.9

10.98.6

11.3

Netsaving aspercentof dis-

posableincome

4.5

3.92.9

-2.9-2.7-.4

3.15.45.51.53.8

4.910.721.922.824.1

18.57.62.35.84.6

5.6


207.7204.6

215.8229.1

208.6206.8203.8205.4

216.4215.1224.8233.4

18.718.7

19.221.4

18.718.718.718.7

19.019.520.022.9

189.0186.0

196.6207.6

189.9188.2185.1186.8

197.5195.6204.7210.5

177.9179.8

183.8197.7

177.4178.4179.0180.6

182.4185.2198.4197.0

11.26.2

12.710.0

12.59.86.26.2

15.010.46.4

13.5

5.93.3

6.54.8

6.65.23.33.3

7.65.33.16.4

1 Estimates based on incomplete data; fourth quarter by Council of Economic Advisers.


177


TABLE A—8.— Total and per capita disposable personal income in current and 1950 prices,1929-50

Period

1929 - _ - .

1930 _1931193219331934

1935193619371938 _ _ . .1939

19401941194219431944

194519461947 - _1948—1949

1950 3

1949— First half..Second half


Total disposable per-sonal income (billions

of dollars)

Currentprices

82.5

73.763.047.845.251.6

58.066.171.165.570.2

75.792.0

116.7132.4147. 0

151.1158.9169.5188.4187.4

202.1

1950prices 1

115.9

108.5103.689.588.695.6

104.9118.0122.4115.3124.7

133.0152.3172. 4179.4189.9

188.4183.9178.8188.6190.1

202.1

Per capita disposableincome (dollars)

Currentprices

678

599508383360408

456516552505536

574691867970

1,065

1,0821,1251,1771,2851,256

1,332

1950prices l

952

882835717706756

824921950888953

1,0081, 1431,2801,3141,375

1,3501,3021,2411,2871,274

1,332


189.0186.0

196.6207.6

190.9189.4

200.4204.1

1,2721,240

1,3001,361

1,2841,263

1,3261,338

Population(thou-

sands) 2

121, 770

123, 077124, 040124, 840125, 579126,374

127, 250128, 053128,825129, 825130, 880

131, 970133, 203134, 665136,497138, 083

139, 586141, 235144, 024146, 571149,215

151, 772

148, 639149, 947

151, 188152, 511

1 Dollar estimates in current prices divided by the price index of personal consumption expenditures.This price index was based on the Department of Commerce data, shifted from 1939 base.

2 Estimated population of continental United States including armed forces overseas; annual data as ofJuly 1 and semiannual data as of April 1 and October 1. Population of continental United States on April1, 1950, including armed forces overseas was 151,132,000, according to the 1950 Census. Estimates madeprior to the 1950 Census and used in this table put total population, including armed forces overseas, at151,188,000 on April 1, which is] 56,000 higher than the official results of the 1950 Census. Intercensalestimates used here for 1941 through 1950 will be adjusted later to take care of this small difference.

3 Estimates based on incomplete data; fourth quarter by Council of Economic Advisers.Sources: Department of Commerce and Council of Economic Advisers.

178


TABLE A-9.— Gross national product or expenditure in 1939 prices, 1929-50*


Period

1929

1930 -.-1931193219331934

19351936 _ _1937_19381939 ._

19401941 .194219431944

19451946 . _19471948 .1949

19503....

Totalgrossna-

tionalprod-uct

85.9

78.172.361.961.567.9

73.983.987.984.091.3

100.0115. 5129.7145.7156.9

153.4138.4138.6143.1142.3

152.4

Personal consumptionexpenditures

Total

62.2

58.656.651.851.154.0

57.262.865.063.967.5

71.376.675.878.081.1

86.395.798.3

100.0102.0

107.4

Dur-able

goods

8.0

6.45.33.93.84.4

5.46.67.05.76.7

7.78.95.75.04.6

5.310.412.312.612.9

15.8

Non-dur-able

goods

29.1

27.727.525.224.927.0

28.631.832.933.435.3

37.140.141.342.644.5

47.950.249.549.750.4

51.4

Serv-ices

25.1

24.523.922.722.422.6

23.224.425.124.825.5

26.527.628.830.432.0

33.235.236.437.738.8

40.2

Gross private domesticinvestment

Total

14.9

10.15.91.11.63.5

6.79.3

11.46.39.9

13.717.19.35.46.6

8.320.319.322.817.7

25.1

Newcon-

struc-tion

7.4

5.43.82.11.51.7

2.23.13.83.34.9

5.46.13.31.92.0

2.66.06.98.07.9

9.2

Pro-duc-ers'dur-able

equip-ment

6.1

4.83.31.92.02.7

3.64.85.53.94.6

6.07.24.43.65.1

6.79.9

11.812.611.9

14.5

Changein

busi-ness

inven-tories

1.5

-.2-1.1-3.0-1.8-.8

.91.42.1

-1.0.4

2.33.81.6-.1-.5

-1.04.4.6

2.2-2.1

1.4

Netfor-eignin-

vest-ment

0.8

.6

.3

.2

.1

.3

-.1-.2

.11.0.9

1.2.7

-.4-2.1-2.2

-1.82.74.81.4.5

-.4

Government pur-chases of goods

and services

Total

7,9

8.79.48.98.7

10.1

10.111.911.412.713.1

13.821.145.064.371.3

60.619.616.119.022.0

20.4

Fed-eral

1.3

1.51.61.72.33.1

3.04.94.45.35.2

6.113.838.358.265.4

54.612.88.5

10.812.8

(4)

Stateandlocal

6.6

7.37.87.26.47.0

7.17.16.97.47.9

7.77.36.76.16.0

6.06.87.68.29.2

(4)

Pri-vategrossna-

tionalprod-uct 2

81.5

73.567.757.456.562.0

67.676.480.976.483.7

92.1106.2116.5125.3133.0

129.7125.6128.8133.2132.0

142.0

1 See "Survey of Current Business," January 1951, for explanation of conversion of estimates in terms ofcurrent prices to those in terms of 1939 prices.

2 Total gross national product less compensation of general government employees.3 Estimates for 1950 are tentative, based on published figures for first three quarters and forecast of fourth

quarter.4 Not available.

NOTE.—Detail will not necessarily add to totals because of rounding.Source: Department of Commerce.

179


TABLE A-10.—Gross national product or expenditure in 1950 prices, 1940-50l


Peri-od

1940__1941__1942__1943__1944__

1945__1946__1947__1948. _1949__

19503.

Totalgrossna-

tionalprod-uct

184.4215.0245.7277.1298.4

289.1254.0252.3263. 0260.0

278.8

Personal consumptionexpenditures

Total

127.2137.1135.1138.7144.3

153.8170.7175.1177.7181.1

190.8

Dur-able

goods

14.416.710.69.38.6

9.919.323.023.423.9

29.4

Non-dur-able

goods

73.679.681.984.488.3

94.899.398.198.599.8

101.8

Serv-ices

39.240.842.645.047.4

49.152.154.055.857.4

59.6

Gross private domesticinvestment

Total

27.634.619.410.512.0

15.039.236.545.334.5

48.5

Newcon-

struc-tion

12.914.57.84.44.7

6.114.316.218.818.6

21.7

Pro-ducersdur-able

equip-ment

10.112.27.56.28.6

11.216.620.021.320.2

24.5

Changein busi-

nessinven-tories

4.67.94.1-.1

-1.3

-2.38.3.3

5.2-4.3

2.4

•KT AJNetforeigninvest-ment

1.1(2)

-1.8-5.3-5.6

-5.23.67.4.8

-1.0

-2.6

Governmentpurchases of goods

and services

Total

28.543.593.0

133.2147.7

125.540.533.339.2

" 45.4

42.1

Fed-eral

12.728.579.3

120.7135.5

113.226.517.722.326.5

22.7

Stateandlocal

15.815.013.712.512.2

12.314.015.616.918.9

19.4

1 These estimates represent a rough conversion of the Department of Commerce series in 1939 prices to1950 prices. (See appendix table A-9.) This was done by major components, using the implicit price in-dexes for 1950. Although it would have been preferable to redeflate the series by minor components, thiswould not substantially change the results except possibly for the war years, and for the series on changes inbusiness inventories.

2 Less than 50 million dollars.a Estimates based on incomplete data.

NOTE.—Detail will not necessarily add to totals because of rounding.Source: Council of Economic Advisers.

180


TABLE A—11.—Labor force, employment, and unemployment, 7929-50

Period

Monthly average:1929 _..

1930193119321933.1934

19351936193719381939

194019411942 _19431944

1945 _ . . .-_19461947 -19481949

1950

1949— First halfSecond half

1950— First halfSecond half-- _

1 94.9 — JanuaryFebruary-March.AprilMayJune _ _ _ _ _JulyAugustSeptemberOctoberNovemberDecember

1950— January. _.FebruaryMarch _AprilMayJune. .July-AugustSeptember _OctoberNovemberDecember

Totallaborforce

(includ-Singlarmedforces)^

Civilian labor force

Totalcivilianlaborforce

Employment 2

Total Agri-cultural

Nonagri-cultural

Unem-ploy-ment

Thousands of persons, 14 years of age and over

49, 440

50, 08050,68051, 25051, 84052, 490

53, 14053, 74054, 32054, 95055, 600

56. 03057, 38060, 23064, 41065, 890

65, 14060, 82061, 60862, 74863, 571

64, 599

62, 73264, 411

63,77665, 422

61, 54661, 89662, 30562, 32763, 45264, 86665, 27865, 10564, 22264, 02164,36363, 475

62, 83563,00363, 02163,51364, 10866, 17765, 74266, 20465, 02065, 43865, 45364, 674

49, 180

49, 82050, 42051, 00051, 59052, 230

52, 87053, 44054, 00054, 61055, 230

55, 64055, 91056, 41055, 54054,630

53, 86057, 52060,16861, 44262, 105

63, 099

61, 24962, 960

62, 42963, 769

60,07860, 38860, 81460, 83561, 98363, 39863, 81563,63762, 76362, 57662, 92762,045

61, 42761,63761, 67562, 18362, 78864, 86664, 42764, 86763,56763,70463,51262, 538

47,630

45, 48042, 40038, 94038, 76040, 890

42, 26044, 41046, 30044, 22045, 750

47, 52050, 35053, 75054, 47053, 960

52, 82055, 25058, 02759, 37858, 710

59, 957

58,06059, 359

58, 55561, 358

57, 41457, 16857, 64757, 81958, 69459, 61959, 72059, 94759, 41159, 00159, 51858, 556

56, 94756, 95357, 55158, 66859, 73161, 48261, 21462, 36761, 22661, 76461, 27160, 308

10, 450

10, 34010, 29010, 17010, 0909,900

10, 11010, 0009,8209,6909,610

9,5409, 1009,2509,0808,950

8,5808,3208.2667,9738,026

7,507

7,9408,112

7, 2337,781

6,7636,9937,3937,8208,9749,6969,6478,5078,1587,7107,8786,773

6, 1986,2236,6757,1958,0629,0468,4408,1607,8118,4917,5516,234

37, 180

35, 14032. 11028, 77028, 67030,990

32, 15034, 41036, 48034, 53036, 140

37, 98041, 25044, 50045, 39045, 010

44, 24046, 93049, 76151, 40550,684

52, 450

50, 12051, 247

51, 32253, 578

50, 65150, 17450, 25449, 99949, 72049, 92450, 07351, 44151,25451, 29051, 64051, 783

50, 74950, 73050, 87751, 47351, 66952, 43652, 77454, 20753, 41553, 27353, 72154, 075

1, 550

4,3408,020

12, 06012, 83011, 340

10, 6109,0307,700

10, 3909,480

8,1205,5602,6601,070

670

1, 0402,2702,1422,0643,395

3,142

3,1893,602

3,8742,410

2,6643,2213,1673,0163,2893,7784,0953,6893,3513,5763,4093,489

4,4804,6844,1233,5153,0573,3843,2132,5002,3411,9402,2402,229

Unem-ploy-ment

as per-cent oftotal

civilianlaborforce

3.2

8.715.923.624.921.7

20.116.914.319.017.2

14.69.94.71.91.2

1.93.93.63.45.5

5.0

5.25.7

6.23.8

4.4- 5.3

5.25.05.36.06.45.85.35.75.45.6

7.37.66.75.74.95.25.03.93.73.03.53.6

1 Data for 1940-50 exclude about 150,000 members of the armed forces who were outside the continentalUnited States in 1940 and who were therefore not enumerated in the 1940 census. This figure is deducted bythe Census Bureau from its current estimates for comparability with 1940 data.

2 Includes part-time workers and those who had jobs but were not at work for such reasons as vacation,llness, bad weather, temporary lay-off, and industrial disputes.

NOTE.—Labor force data are based on a survey made during the week which includes the 8th of themonth.

Detail will not necessarily add to totals because of rounding.

Sources: Department of Labor (1929-39) and Department of Commerce (1940-50).

181


TABLE A-12.—Number of wage and salary workers in nonagricultural establishments, 1929-50l

[Thousands of employees]

Period

Monthly average:1929

19301931193219331934

19351936193719381939

19401941194219431944 _._

194519461947 . _19481949

1950 4

1949— First halfSecond half—

1950— First halfSecond half <__

1949 — JanuaryFebruaryMarch..AprilMayJuneJulyAugustSeptemberOctoberNovemberDecember

1950— JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptember *..October 4

November 4..

Totalwageand

salarywork-

ers

31, 041

29, 14326, 38323, 37723, 46625, 699

26, 79228, 80230, 71828, 90230,287

32, 03136, 16439, 69742, 04241, 480

40, 06941, 41243, 37144, 20143, 006

44, 089

42, 99343, 019

42, 71045, 467

43, 44943, 06142, 91842, 96642, 73142,83542, 57342, 99443, 46642, 60142, 78443, 694

42, 12541, 66142, 29542, 92643, 31143, 94544,09645, 08045, 68945, 89945, 756

Manufacturing

Total

10, 534

9,4018,0216,7977,2588,346

8,9079,653

10, 6069,253

10, 078

10, 78012, 97415, 05117, 38117, 111

15, 30214, 46115, 24715, 28614, 146

14, 854

14, 30713, 986

14, 22015, 487

14, 78214, 64914,47514, 17713, 87713, 88413, 75714, 11414,31213, 89213, 80714,031

13, 98013, 99714, 10314, 16214, 41314, 66614, 77715, 45015, 68215, 81915, 707

Dura-ble

goods

(3)

(3)(3)(3)(3)(3)

(3)(3)(3)(3)

4,683

5,3376,9458,804

11, 07710, 858

9,0797,7398,3738,3157,465

7,980

7,7127, 218

7,5688,391

8,0447,9237,8197,6567,4417,3927,2557,3027,4096,9867,0507,303

7,3427,3247,4187,5487,8097,9647,9788,2948,4258,6128,647

Non-dura-ble

goods

(3)

8(3)(3)(3)(3)(3)(3)(3)

5,394

5,4436,0286,2476,3046,253

6,2226,7226,8746,9706,681

6,875

6,5956,768

6,6537,096

6,7386,7266,6566,5216,4366,4926,5026,8126,9036,9066,7576,728

6,6386,6736,6856,6146,6046,7026,7997,1567,2577,2077,060

Min-ing

1,078

1,000864722735874

888937

1,006882845

916947983917883

826852943981932

905981883

870939

991986981984974968943956948

»593917940

*861«595

938939940946922950946941936

Con-tractcon-

struc-tion

1,497

1,3721,214

970809862

9121,1451,1121,0551,150

1,2941,7902,1701,5671,094

1,1321,6611,9822,1652,156

2,3172,0442,267

2,0702,563

2,0161,9261,9472, 0362,1372,2052,2772, 3402,3412,3132,2442,088

1,9191,8611,9072,0762,2452,4142,5322,6292,6152,6202,537

Trans-porta-tionand

publicutili-ties

3,907

3,6753,2432,8042,6592,736

2,7712,9563,1142,8402,912

3,0133,2483,4333,6193,798

3,8724,0234,1224,1513,979

4,009

4,0163,942

3,9034,114

4, 0544,0243,9753,9914,0214,0314,0073,9923,9593,8713,8923,930

3,8693,8413,8733,9283,8854,0234,0624,1204,1384,1354,114

Trade(2)

6,401

6,0645,5314,9074,9995,552

5,6926,0766,5436,4536,612

6,9407,4167,3337,1897,260

7,5228,6029,1969,4919,438

9,519

9,3589,518

9,2819,757

9,3889,2929,3109,4789,3429,3369,2209,2139,4099,5059,607

10, 1569,2469,1529,2069,3469,3269,4119,3909,4749,6609,7669,880

Fi-nance

1,431

1,3981,3331,2701,2251,247

1,2621,3131,3551,3471,382

1,4191,4621,4401,4011,374

1,3941,5861,6411,7161,763

1,813

1,7521,772

,797,828

,731,735,749,757

1, 7631,7741,7801,7801,7711,7671,7661,7701,7721,7771,7911,8031,8121,8271,8311,8371,8271,8221,821

Serv-ice 2

3,127

3,0842,9132,6822,6142,784

2,8833,0603,2333,1963,321

3,4773,7053,8573,9193,934

4,0554,6214,7864,7994,782

4,770

4,7604,803

4,7464,793

4,7234,7124,7204,7684,8044,8344,8514,8364, 8334,7944,7684,738

4,7014,6964,7084,7574,7904,8264,8414,8274,8174,7574,724

Gov-ern-

ment(Fed-eral,

State,and

local)

3,066

3,1493,2643,2253,1673,298

3,4773,6623,7493,8763,987

4,1924,6225,4316,0496,026

5,9675,6075,4545, 6135,811

5,904

5,7765,847

5,8225,986

5,7645,7375,7615,7755,8135,8035,7385,7635,8935,8665,7836,041

5,7775,7425,7695, 9155,9005,8325,7415,7936,0046,0396,037

1 Includes all full- and part-time wage and salary workers in nonagricultural establishments who workedor received pay during the pay period ending nearest the 15th of the month. Excludes proprietors, self-employed persons, domestic servants, and personnel of the armed forces. Not comparable with estimatesof nonagricultural employment of the civilian labor force reported by the Department of Commerce (ap-pendix table A-ll) which include proprietors, self-employed persons, and domestic servants; which countpersons as employed when they are not at work because of industrial disputes, bad weather, or temporarylay-offs, and which are based on an enumeration of population, whereas the estimates in this table are basedon reports from employing establishments.

2 Data for the trade and service divisions, beginning with 1939, are not comparable with data shown forearlier years because of the shift of the automotive repair service industry from the trade to the servicedivision.

3 Not available.4 Estimates based on incomplete data.« Data reflect work stoppages in bituminous coal mining.NOTE.—Detail will not necessarily add to totals because of rounding.Adjustments have been made to levels indicated by data of unemployment insurance agencies and the

Bureau of Old-Age and Survivors Insurance through 1947, and have been carried forward from 1947 bench-mark levels, thereby providing consistent series.

Source: Department of Labor.

182


TABLE A-13.—Average gross weekly earnings in selected industries, 1929-50

Period


19301931 . .-193219331934 . . ..

19351936193718381939

19401941 .194219431944

1945 _1946194719481949

1950 6

1949— First halfSecond half- _.

1950— First halfSecond half 6.

1949 — JanuaryFebruaryMarchApril. _.May__JuneJulyAugustSeptember __.OctoberNovemberDecember

1950— January .FebruaryMarchApril...MayJuneJuly—-AugustSeptember 6 __October 6

November 6_.

M anuf actur in g

Total

$25. 03

23.2520.8717.0516.7318.40

20.1321.7824.0522.3023.86

25.2029.5836.6543.1446.08

44.3943.8249.9754.1454.92

58.97

54.6455.13

57.0860.85

55.5055. 2054.7453.8054.0854. 5154.6354.7055.7255.2654.4356.04

56.2956.3756.5356.9357.5458.8559.2160.3260.6861.9962.06

Dura-ble

goods

$27. 22

24.7721.2816.2116.4318.87

21.5224.0426.9124.0126.50

28.4434.0442.7349.3052.07

49.0546.4952.4657.1158.03

62.86

57.9058.01

60.6865.04

58.8358.4957.8357.2157.2157.8257.3157.8958.6958.1756.8259.19

59. 4059. 4759.7461. 0161.5762.8663.0164. 3365.1866.3966.29

Non-durablegoods

$22. 93

21.8420.5017.5716.8918.05

19.1119.9421.5321.0521.78

22.2724.9229.1334.1237.12

38.2941.1446.9650.6151.41

54.43

50.8052.11

52.9955.87

51.3551. 3351.0749.6750.4150.9751. 5551.3152.5952.4752.0752.69

52. 9153.0653.0452.1752.8353.9254.7355.6555.5256. 6656. 80

Bitumi-nouscoal

mining

$25. 72

22.2117.6913.9114. 4718.10

19.5822.7123. 8420.8023.88

24.7130.8635. 0241.6251.27

52. 2558.0366.5972.1263.28

67.90

70.9454.99

64.5071.29

76.3273.56

7 70. 5472. 3372.98

7 59. 907 47. 947 49. 517 52. 467 63. 10

68.177 48. 74

7 47. 367 49. 83

78.7572.7968.3769.9269.6871.0471.7972.65(2)

Build-ing con-struc-tion

(2)

(2)(2)(2)(2)

$22. 97

24.5127.0130.1429.1930.39

31.7035,1441.8048.1352.18

53.7356.2463.30

* 68. 8570.95

73.11

70.8071.03

70.3475.88

70.8870.5369.8370.3371.8171.4471.2871.9570.6971.8070.2170.26

68.7667.0068. 8370.7072.9373.8274.0275.9975.6277.90(2)

Class Isteamrail-

roads

$28. 49

27.7626.7623.3423.0924.32

26.7628.0129.2030.2630. 99

31.5534.2538.6543. 6846.06

45.6951.2254.1760.3461.73

5 62. 93

5 60. 39« 61. 00

s 62. 575 63. 28

60.2161.6460.0062.5160.6957.2760.3762.6460.9858.9861.6061.45

61.6962.3763. 7361.6961.7564.1961.1965.4663.18(2)(2)

Tele-phone

(2)

(2)(2)(2)(2)(2)

(2)(2)

$29. 8131.5331.94

32.4432.7433.9736.3038.39

(3)44.0444.7748.9251.78

54.48

50.9052.71

53. 5255.44

49. 8450. 8450.8250.5851. 8451.4651. 9051.5752.6153.2954.4052.49

53. 1353.6952.9853. 4453.7254.1954.9654.7155.7656.33(2)

Whole-sale

trade

(2)

(2)(2)(2)(2)(2)

(2)

8(2)(2)(2)(2)(2)(2)(2)(2)(2)

$51. 9955.5857.55

59.85

57.2357.84

58.8060.89

57.2456.8256.8857.1257.8357.4958.1857.1057.3558.3657.8658.20

58.1458.2758.5658.7959.1159.9361.1060.9060.3061.25(2)

Retailtrade

(2)

(2)(2)(2)(2)(2)

(2)(2)(2)(2)(2)

(2)(2)(2)(2)(2)

(2)(2)

$40. 6643.8545.93

47.72

45.5646.32

46.7648.68

45.5145.1444.9545. 3145.9846.4546.9546.8746.5846.0645.6345.83

46.5846.2646.2646.4746.9448.0648.9948.9948.4848.24(2)

Hotels(year

round) 1

(2)

(2)(2)(2)(2)(2)

(2)(2)(2)(2)(2)

(2)(2)(2)(2)(2)

(2)(2)

$29. 3631.4132.84

33.65

32.6032.99

33.2634.03

32.4132.4732.5332.3532.9932.8532.9032. 9332.9032.8433.1333. 24

33.0633.5133.0733.2633.3433. 3333.5133. 9233.9634.72(2)

1 Money payments only; additional value of room, board, uniforms, and tips not included.2 Not available.3 Not available. Series beginning April 1945 includes only employees subject to provisions of the Fair

Labor Standards Act and is not comparable with preceding series which includes all employees. BeginningJune 1949, data relate to nonsupervisory employees.

4 Not strictly comparable with previous data.5 Preliminary average; does not include any retroactive wage payments.6 Estimates based on incomplete data.7 Data reflect work stoppages, or 3-day workweek.

NOTE.—Data are for production workers in manufacturing and mining, hourly-rated employees in rail-roads, and for all nonsupervisory employees in other industries. Data are for payroll periods ending closestto the middle of the month except in railroads where monthly data are used.

Adjustments have been made to levels indicated by data of unemployment insurance agencies and theBureau of Old-Age and Survivors Insurance through 1947, and have been carried forward from 1947 bench-mark levels, thereby providing consistent series.

The half-year data are straight arithmetic averages of the monthly figures and not strictly comparablewith the annual averages which have been weighted by data on man-hours.


183


TABLE A-14.—Average hourly earnings in selected industries, 1929-50

Period


19301931193219331934

19351936193719381939

19401941194219431944

19451946194719481949

1950 6

1949— First halfSecond half- _

1950— First halfSecond half 6.

1949 — JanuaryFebruaryMarchAprilMayJuiie - _ -JulyAugustSeptemberOctober __NovemberDecember

1950 — JanuaryFebruaryMarch _ _AprilMayJuneJulyAugustSeptember6..October 8November * > _ _

Manufacturing

Total

$0. 566

.552

.515

.446

.442

.532

.550

.556

.624

.627

.633

.661

.729

.853

.9611.019

1.0231.0861.2371.3501.401

1.460

1.4021.401

1.4321.483

1.4051.4011.4001.4011.4011.4051.4081.3991.4071.3921.3921.408

1.4181.4201.4241.4341.4421.4531.4621.4641.4801.5011.510

Dura-ble

goods

(2)

8$0. 497

.472

.556

.577

.586

.674

.686

.698

.724

.808

.9471.0591.117

1.1111.1561.2921.4101.469

1.529

1.4681.470

1.4971.560

1.4671.4661.4641.4671.4671.4751.4771.4731.4821.4581.4571.476

1.4851.4831.4861.4991.5091.5221.5331.5391.5631.5771.586

Non-durablegoods

(2)

(2)(2)

$0. 420.427.515

.530

.529

.577

.584

.582

.602

.640

.723

.803

.861

.9041.0151.1711.2781.325

1.372

1.3241.327

1.3541.390

1.3271.3231.3231.3211.3231.3241.3321.3191.3281.3251.3251.334

1.3431.3501.3531.3551.3581.3651.3751.3741.3811.4061.413

Bitumi-nouscoal

mining

$0.681

.684

.647

.520

.501

.673

.745

.794

.856

.878

.886

.883

.9931.0591.1391.186

1.2401.4011.6361.8981.941

2.000

1.9431.941

1.9912.008

1.9471.9411.9381.9341.9461.9511.9101.8971.9431.9781.9991.919

1.9331.9622.0092.0222.0052.0152.0142.0012.0112.007(2)

Build-ing con-struc-tion

(2)

88

$0. 795

.815

.824

.903

.908

.932

.9581.0101.1481.2521.319

1.3791.4781.681

< 1. 8481.935

2.017

1.9281.941

1.9902.044

1.9181.9301.9331.9341.9301.9241.9221.9321.9381.9441.9471.964

1.9761.9881.9951.9861.9981.9952.0062.0212.0662.083(2)

Class Isteamrail-

roads

$0.636

.644

.651

.600

.595

.602

.651

.659

.676

.712

.714

.717

.751

.824

.897

.938

.9421.1161.1701.3091.419

5 1. 547

M.346* 1. 482

« 1. 5448 1. 549

1.3331.3431.3181.3591.3671.3541.3691.3541.5401.5371.5431.547

1.5501.5671.5321.5461.5361.5321.5531.5331.560(2)(2)

Tele-phone

(2)

(2)(2)(2)(2)(2)

8$0.774

.816

.822

.827

.820

.843

.870,911

(3)1.1241.1971.2481.345

1.394

1.3251.367

1.3821.405

1.2981.3171.3271.3241.3431.3401.3481.3431.3631.3771.4021.367

1.3801.3911.3761.3811.3811.3861.3951.3921.4081.426(2)

Whole-sale

trade

(2)

I(2)(2)(2)

(2)(2)

88(2)(2)(2)

$1. 2681.3591.414

1.473

1.4081.419

1.4561.489

.403

.403

.401

.407

.421

.416

.426

.403

.409

.427

.425

.423

.432

.446

.453

.466

.463

.476

.494

.489

.478

.494(2)

Retailtrade

(2)

(2)

88(2)(2)(2)(2)(2)(2)(2)(2)(2)(2)(2)(2)

$1. 0091.0881.137

1.176

1.1321.141

1.1561.194

1.1321.1231.1211.1271.1411.1471.1481.1461.1501.1401.1381.126

1.1531.1451.1481.1561.1621.1751.1891.1921.2001.197(2)

Hotels(year

round) 1

(2)

(2)(2)(*)(2)(2)

8(2)

• 8(2)(2)(2)(2)(2)(2)(2)

$0. 650.709.743

.768

.736

.749

.758

.776

.735

.738

.731

.732

.738

.745

.746

.745

.746

.743

.753

.759

.753

.765

.755

.756

.756

.761

.765

.771

.779

.791(2)

1 Money payments only; additional value of room, board, uniforms, and tips not included.2 Not available.3 Not available. Series beginning April 1945 includes only employees subject to provisions of the Fair

Labor Standards Act and is not comparable with preceding series which includes all employees. BeginningJune 1949 data relate to nonsupervisory employees.

* Not strictly comparable with previous data.5 Preliminary average; does not include any retroactive wage payments.« Estimates based on incomplete data.

-fi^u-juotiiiciiucs iiavtBureau Of Old-Age aim out vivuis ±iisuiam;t; Lmuugu iwt/, aim iiave ueen carried lurwaru irum iy4:/ uenuii-mark levels, thereby providing consistent series.



184


TABLE A-15.—Average weekly hours in selected industries, 1929-50

Period


19301931193219331934

19351936193719381939 . -.-

1940 - _1941194219431944

19151946194719481949

1950 4

1949— First halfSecond half- _

1950— First halfSecond half *.

1949 — January _FebruaryMarchApril .MayJuneJulyAugustSeptember. __OctoberNovember. _ _December

1950 — JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptember < _ _October*November*..

Manufacturing

Total

44.2

42.140.538.338.134.6

30.639.238.635.637.7

38.140.642.944.945.2

43.440.440.440.139.2

40.5

39.039.4

39.941.0

39.539.439.138.438.638.838.839.139.639.739.139.8

39.739.739.739.739.940.540.541.241.041.341.1

Durablegoods

(0

0)(l)32.634.833.9

37.341.040.035.038.0

39.342.145.146.646.6

44.140.240.640.539.5

41.1

39.439.4

40.541.7

40.139.939.539.039.039.238.839.339.639.939.040. 1

40.040.140.240.740.841.341.141.841.742.141.8

Non-durable

goods

(0

841.940.035.1

36.137.737.436.137.4

37.038.940.342.543.1

42.340.540.139.638.8

39.7

38.439.3

39.140.2

38.738.838.637.638.138.538.738.939.639.639.339.5

39.439.339.238.538.939.539.840.540.240.340.2

Bitumi-nouscoal

mining

38.4

33.528.327.229.527.0

26.428.827.923.527.1

28.131.132.936.643.4

42.3.41.640.738.032.6

33.9

* 36. 528.3

32.335.5

39.237.9

5.36.437.437.5

530.7525.1526.1527.0531.9

34.1525.4

524.5525.4

39.236.034.134.734.635.535.736.20)

Build-ingcon-

struc-tion

0)

0)0)(00)28.9

30.132.833.432.132.6

33.134.836.438.439.6

39.038.137.6

337.336.7

36.3

36.736.6

35.437.1

37.036.536.136.437.237.137.137.236.536.936.135.8

34.833.734.535.636.537.036.937.636.637.4C1)

Class Isteamrail-

roads

44.8

43.141.138.938.840.4

41.142.543.242.543.4

44.045.646.948.749.1

48.545.946.346.143.5

40.7

44.941.4

40.540.9

45.245.945.546.044.442.344.146.439.638.340.039.9

39.839.841.639.940.241.939.442.740.50)C1)

Tele-phone

(0

0)0)(00)0)

0)(038.838.939.1

39.540.140.541.942.3

(2)39.437.439.238.5

39.1

38.438.6

38.739.4

38.438.638.338.238.638.438.538.438.638.738.838.4

38.538.638.538.738.939.139.439.339.639.5C1)

Whole-sale

trade

C1)

P)0)0)0)0)

0)0)0)0)0)

0)0)0)0)0)

0)(l)41.040.940.7

40.7

40.640.8

40.440.9

40.840.540.640.640.740.640.840.740.740.940.640.9

40.640.340.340.140.440.640.940.940.841.0(0

Retailtrade

0)

80)0)C1)

0)0)

80)

0)0)

80)

0)(040.340.340.4

40.6

40.240.6

40.440.8

40.240.240.140.240.340.540.940.940.540.440.140.7

40.440.440.340.240.440.941.241.140.440.30)

Hotels(year

round)

P)

C1)P)0)0)0)

0)C1)0)P)0)

0)P)P)0)(0

P)0)45.244.344.2

43.9

44.344.1

43.943.8

44.144.044.544.244.744.144.144.244.144.244.043.8

43.943.843.844.044.143.843.844.043.643.9

P)

1 Not available.2 Average for year not available because new series was started in April 1945. Beginning with June 1949data relate to nonsupervisory employees only.3 Not strictly comparable with previous data.

* Estimates based on incomplete data.* Data reflect work stoppages, or 3-day workweek.NOTE.—Data are for production workers in manufacturing and mining, hourly-rated employees in rail-

roads, and for nonsupervisory employees in other industries. Data are for payroll periods ending closest tothe middle of the month except in railroads where monthly data are used.

Adjustments have been made to levels indicated by data of unemployment insurance agencies and theBureau of Old-Age and Survivors Insurance through 1947, and have been carried forward from 1947 bench-mark levels, thereby providing consistent series.



185


TABLE A-16.—Physical production index of goods and selected services, 1929-50

[1935-39 =100!]

Period

Weights: 2TotalNonagricultural _.

192919301931193219331934193519361937 .19381939

19401941194219431944194519461947194819491950 5 - -1949— First half

Second half1950— First half

Second half 5 .

Production of goods

x Totalpro-

ductionof goods

100.0

11095846872748799

11093

109122153184206201178161174183174194

(3)(3)(3)(3)

Agri-cultural

pro-duction

19.5

9795

10410193799685

108105106110114128125130129134129141140137

(4)(«)(«)0).

Nonagricultural production

Total

78.0100.0

113957960677385

10311190

110125162197225218190168185193182208186179198218

Indus-trial

produc-tion

65.681.6

1109175586975

8710311389

109125162199239235203170187192176200181171189211

Con-struc-tion

9.011.1

157132109685059

70102103103121

127162168956163

115133157168197162173194199

Electricand gasutilities

5.87.2

88

87847677818797

104100111

123141158183191

187188214243247276248246269283

Production ofselected services

Trans-por-

tation

1171048973768388

10111095

106

117146185220230

217198208209190206

197183197214

Tele-phoneand

telegraph

110106101918486

9098

102102108115126135143147158182196207212

(3)

%(3)(3)

1 All half-year data have been seasonally adjusted except the electric and gas utilities for which no satis-factory adjustment factor is available.

2 Computed from the Department of Commerce national income data. The weight factors are percent-ages of the national income for each industry to the total for the 6 industries. The agriculture weight ex-cludes net rents paid by landlords living on farms, imputed rents, and subsidy payments. The weightfor construction has been adjusted to include force account and other construction done outside of the con-tract construction industry, the weights for other industry groups to exclude such construction. Manu-factures and minerals of the industrial production index were weighted into the total indexes separatelybut only the total industrial production index is shown here. See appendix table A-17 for the individualcomponents of the index of industrial production.

3 Not available.* Because of the extreme seasonal nature of agricultural crop production, only an annual index has been

computed.• Estimates based on incomplete data.NOTE.—A composite index of production of goods and services has not been compiled because of the

inadequate data for measuring the production of services. The only service production data used were fortransportation and for communications by telephone and telegraph. Data for measuring such servicesas wholesale and retail trade, finance, insurance, real estate, Government, and communication other thantelephone and telegraph were inadequate for separate indexes and for an index for all services other thantransportation, telephone, and telegraph.

Sources: Based on the following data:Agricultural production: Department of Agriculture index of farm output which measures the physical

volume of farm production for human use.Industrial production: Federal Reserve index of industrial production.Construction: Department of Commerce value of new construction activity deflated by their index of

construction costs and converted into relatives with 1935-39 as 100.Electric and gas utilities: Based on the following series: Electric power produced by utilities as reported

by the Federal Power Commission, and sales of manufactured and mixed gas to consumers as reported bythe American Gas Association. The two series are converted into relatives with the average for the period1935-39 as 100. The relative series are combined into an index with electric power given a weight of 85and gas 15, the respective percentages of the revenues of each of the utilities to the total revenues producedby both in the base period 1935-39.

Transportation: Department of Commerce index of transportation.Telephone and telegraph: Based on Department of Labor production indexes for 1935-49 and on a series

of Works Progress Administration for 1929-34. These indexes are for class A telephone carriers and theprincipal wire-telegraph and ocean-cable carriers which file annual reports with the Federal Communica-tions Commission.

186


TABLE A-17.—Industrial production index, 1929-50

[1935-39=100, adjusted for seasonal variation]

PeriodTotal

industrialproduction

Manufactures

Total Durable NondurableMinerals


19301931193219331934

19351936193719381939

1940..1941194219431944

19451946194719481949

19501

1949—First halfSecond half._

1950—First halfSecond half i

1949—JanuaryFebruaryMarch _AprilMayJuneJulyAugustSeptemberOctoberNovemberDecember

1950—JanuaryFebruaryMarchApril -__MayJuneJuly..AugustSeptemberOctoberNovember LDecember»_.

110

9175586975

8710311389109

125162199239235

203170187192176

200

181171

189211

191189184179174169161170174166173179

183180187190195199196209211217215216

110

907457

8710411387109

126168212258252

214177194198183

209

188179

198220

196193184179175168178184176179188

192192194199204208206218220226225226

132

67415465

8310812278109

139201279360353

274192220225202

214189

220254

227225223212201194185193199175181203

209207211222231237235247251262260266

8479707981

9010010695109

115142158176171

166165172177168

187

167170

181193

175173168162161161154165172177177176

179180181180181184181195194196195194

107

9380677680

11297106

117125129132140

137134149155135

149

143126

138159

149149136148145133123129119112141132

130118144140145151144159164166162161

i Estimates based on incomplete data.


922781—51- -13 187


TABLE A-18.—New construction activity, 1929-50[Value put in place, millions of dollars]

Period

1929 _

1930 -1931 _.193219331934

19351936 ---193719381939

194019411942 --1943 _1944

194519461947 --1948 __ .1949

1950


1950 — First half.Second half . _. _

1949 — JanuaryFebruaryMarchApril _MayJune _ _ -JulyAugustSeptemberOctoberNovemberDecember

1950 — JanuaryFebruary... .MarchAprilMayJuneJulyAugustSeptember. _ .OctoberNovp.mhprDecember.. ._ _

Totalnewcon-

struc-tion^

10, 793

8,7416,4273,5382,8793,720

4,2326,4976,9996,9808,198

8,68211, 95714, 0758,3015,259

5,63312,00016, 62721, 57222, 594

27,715

Private construction

Totalpri-vate

8,307

5,8833,7681,6761,2311,509

1,9992,9813,9033,5604,389

5,0546,2063,4151,9792,186

3,2359,638

13, 13116,66516,204

20, 648

Resi-den-tial

build-ing

(non-farm)

3,625

2,0751,565

630470625

1,0101,5651,8751,9902,680

2,9853,5101,715

885815

1,1004,0156,3108,5808,290

12, 500

Non-resi-den-tial

build-ing

(non-farm)

2,694

2,0031,099

502406456

472713

1,085764786

1,0251,482

635233351

1,0203,3413,1423,6213,228

3,767

Otherpri-

vate 2

1,988

1,8051,104

544355428

517703943806923

1,0441,2141,065

8611,020

1,1152,2823,6794,4644,686

4,381

Public construction

Totalpublic

2,486

2,8582,6591,8621,6482,211

2,2333,5163,0963,4203,809

3,6285,751

10,6606,3223,073

2,3982,3623,4964,9076,390

7,067

Mili-taryand

naval

19

2940343647

37293762

125

3851,6205,0162,550

837

690188204158137

180

Non-resi-den-tial

build-ing

659

660612415230363

328701550672970

6151,6463,6852,0101,361

937354599

1,3012,056

2,310

High-ways

1,266

1,5161,355

958847

1,000

8451,3621,2261,4211,381

1,3021,066

734446362

398895

1,5141,8562,129

2,425

Otherpub-lic a

542

653652455535801

1,0231,4241,2831,2651,333

1,3261,4191,2251,316

513

373925

1,1791,5922,068

2,152


22, 10423,084

26, 32429, 106

22, 09222, 34422, 26021, 87621. 99622, 05622. 00822, 23622, 76423, 20823,82024,468

24, 94825, 60826, 14826, 72427, 00027, 51627, 99628, 65629, 12429, 44829, 74829,664

15, 91216, 496

19, 56021, 736

16, 12816, 16416, 10415, 70815, 66015, 70815,82815, 86415, 99616, 50017, 13617, 652

18, 21619, 29619, 10419, 77620, 22020, 74821, 43221, 88822, 03222, 10421, 75621, 204

7,7128,868

11, 76013, 240

7,9087,8247,7407,5007,5727,7287,9928,1128,4729,0249,504

10, 104

10, 50011, 58011, 40012. 00012, 30012, 78013, 32013, 68013, 74013, 50012, 84012, 360

3,4183,038

3,3724,162

3,6003,5643,4803,4203,3123,1323,0843,0482,9162, 9403,0963,144

3,2523,3243,3003,3483,4803,5283,6603,7803,9724,2844,6204,656

4,7824,590

4,4284,334

4,6204,7764,8844,7884,7764,8484,7524,7044,6084,5364,5364,404

4,4644,3924,4044,4284,4404,4404.4524,4284,3204,3204,2964,188

6,1926,588

6,7647,370

5,9646,1806,1566,1686,3366,3486,1806,3726,7686,7086,6846,816

6,7326,3127,0446,9486,7806,7686,5646,7687,0927,3447,9928,460

126148

126234

120132120120120144132144144156156156

132144120120108132120168216276288336

1,9322,180

2,1602,460

1,8961,9321,9561,8961,9441,9681,8961,9922,3762,4122,2682,136

2,1122,1962,1722,1362,1722,1722,1002,1722,3282,5802,7722,808

2,1522,106

2,2562,594

2,1602,2202,1242,1242,1842,1002,1122,1362,0281,9202,0762,364

2,1961,8362,5562,4482.2682,2322,2922,4002,4962,4002,7723,204

1,9822,154

2,2222,082

1,7881,8961,9562,0282,0882,1362.0402,1002,2202,2202,1842,160

2,2922,1362,1962,2442,2322,2322,0522,0282,0522,0882,1602,112

* Excludes construction expenditures for crude petroleum and natural-gas drilling, and therefore does notagree with the new construction expenditures included in the gross national product.

a Includes public utility, farm and other private construction, not separately shown.8 Includes residential, sewer and water, miscellaneous public service enterprises, conservation and devel-

opment, and all other public construction not separately shown.Sources: Department of Commerce and Department of Labor.

188


TABLE A—19.—Business expenditures for new plant and equipment^ 1929—51

[Millions of dollars]

Period

1929

1930193119321933 _1934

19351936 . . .1937 _ __19381939 _.

1940 _1941194219431944

19451946 .194719481949

1950*1951 «

1949— First half.Second half—

1950— First half. ..Second half*

1949— First quarterSecond quarterThird quarterFourth quarter.

1950— First quarter. _Second quarterThird quarterFourth quarter 5 .

1951— First quarter •

Total »

9,165

7,6104,7122,6082.1373,080

3,7385,0776,7304,5205,200

6,4908,1906,1104, 5305,210

6,63012, 04016, 18019,23018, 120

18, 13021,880

Manufacturing and mining

Total

3,596

2.5411,435

930992

1,460

1,7902,4503,3301,8302,310

3, 1404,0803,1702,6102,890

3,6506.4708,1509,1407,990

8,64011, 390

Manu-factur-

ing

(')

(8)(3)

881,930

2,5803,4002,7602,2502,390

3,2105,9107,4608,3407,250

7,95010, 570

Mining

(3)

88380

560680410360500

440560690800740

690820

Transportation

Rail-road

840

865360164101218

166306525238280

440560540460580

550570910

1,3201,350

1,1401,360

Other

(«)

(4)

8(4)(4)

1<i390340260190280

320660800700520

430620

Electricand gasutilities

(4)

8(4)

888

480

550710680540490

6301,0401,9002,6803,140

3,2203,440

Com-mercial

andmiscel-

laneous 2

4,729

4,2042,9171,5141,0441,402

1,7822, 3212,8752,4521,850

1,9802,4901,470

730970

1,4803,3004,4305,3905,120

4,7005,070

Annual rates, not adjusted for seasonal variation

18, 24018,000

16,06020, 200

17, 84018, 64017,48018, 520

14, 80017,32018, 76021, 640

19, 240

8,2207,760

7,3809,900

8,1608,2807,4808,040

6,6808,0808,920

10,880

9,440

7,4607,040

6,7609,140

7,4007,5206,7607,320

6,0807,4408,200

10, 080

8,760

760720

620760

760760720720

600640720800

680

1,4801,220

1,0601,200

1,4401,5201,2401,200

9201,2001,1201,280

1,280

540520

340520

520560560480

320360480560

600

2,9203,360

2,8203,620

2,7203,1203,1603,560

2,6003,0403,2803,960

2,960

5,1005,160

4,4404,940

5,0405.1605,0405,280

4,2404,6404,9204,960

4,920

1 Excludes agriculture and outlays charged to current account.* Commercial and miscellaneous include trade, service, finance, and communication for all years shown.

Prior to 1939, miscellaneous also included transportation other than railroad, and electric and gas utilitieswhich are not available separately for these years.

» Not available separately for years prior to 1939.* Included in commercial and miscellaneous prior to 1939.* Estimates for fourth quarter of 1950 and first quarter of 1951 are based on anticipated capital expendi-

tures reported by business in a survey made between mid-October and mid-November; anticipated ex-penditures for the year 1951 are based on a survey made in December.

NOTE.—These figures do not agree with those shown in column 2 of appendix table A-3 and included in thegross national product estimates of the Department of Commerce, principally because the latter cover cer-tain equipment and construction outlays charged to current expense. Figures for 1929-44 are FederalReserve Board estimates based on Securities and Exchange Commission and other data.

Detail will not necessarily add to totals because figures are rounded to the nearest 10 million dollars.

Sources: Securities and Exchange Commission and Department of Commerce (except asjioted).


TABLE A-20.—Inventories and sales in manufacturing and trade, 1939-50

[Adjusted for seasonal variation]

Period

1939

19401941194219431944 .

19451946194719481949

1949— First half...Second half_

1950— First half...

1949— JanuaryFebruary. __MarchApril ..MayJuneJulyAugustSeptember..OctoberNovember. _December..-

1950— JanuaryFebruary...MarchAprilMay.JuneJulyAugustSeptember 4.October*November4.

Total manufacturingand trade

Millions ofdollars

Inve

ntor

ies

*

20, 172

22, 18428, 77231, 01331, 14330, 887

30, 57142, 38950, 79456, 75651, 608

54, 40251, 608

54, 241

56, 75856, 60456, 43855, 95255, 02554, 40253, 36152, 73652, 86152, 53952, 11451, 608

52, 02451, 82552, 48452, 90653, 55354, 24153, 24354, 49656, 40158,46559, 775

04

1CO

11, 109

12, 52016, 41219, 24022, 37224, 084

24, 18127, 57633, 58137, 00334, 848

35, 23034, 535

36, 724

35, 12035, 41835, 97334, 84534, 83435, 23333, 75035, 91135, 99533, 59634, 40433, 550

34, 24435, 30536, 59935, 64538, 65239, 89641, 98245, 27542, 14241, 82841, 530

Rat

io

of

aver

age

inv

en

tori

es

tom

on

thly

sal

es 3

1.73

1.681.531.60.36.30

.27

.29

.41

.46

.56

1.601.53

1.43

1.621.601.571.611.591.551.601.481.471.571.521.55

1.511.471.431.481.381.351.281.191.321.371.42

Manufacturing

Millions ofdollars

Inve

ntor

ies 1

11, 465

12, 81916, 96019, 28720, 09819, 507

18, 39024,49828, 92032, 27628, 879

31, 21828, 879

30, 028

32, 63532,64632, 44532, 16431. 73331, 21830, 40829. 74329. 32028, 92728, 66528, 879

29, 03528, 99029, 07329, 38429, 65930, 02829, 83029, 85830, 73231, 78432, 700

Jj

5,100

5,8528,168

10, 42512, 82213, 788

12, 88312, 61715, 91817, 81116, 666

16, 85916, 527

17, 874

16, 78617, 03217, 35916, 60916, 53616, 83116, 04417, 72017, 62115, 79816, 22115, 756

16, 21616, 87717, 79717, 20619, 30919,83820, 26922, 95621, 15421, 22921, 200

Ra

tio

of

aver

age

inv

en

tori

es

tom

onth

ly s

ales

3

2.11

2.061.781.771.511.45

1.481.661.711.721.85

1.911.79

1.64

1.931.921.871.941.931.871.921.701.681.841.781.83

1.791.721.631.701,531.501.481.301.431.471.52

Wholesale trade

Millions ofdollars

Inve

ntor

ies

*

3,175

3,3254,1823,8583,6843,980

4, 6386, 6658,6539,5119,031

9,0029,031

9,493

9, 4649,4799,2939,3309,1539,0029,0919,0619,1869,1379,1139,031

8,9919,0359,1299,3849,4789,4939,2889,5629,876

10, 14110, 419

1Po3CO

2,505

2,8023,6204,0124,2734,561

4,9836,6017,7548,3557,509

7,6627,360

7,652

7, 7237,6807,8907,4227, 5397,7187,1577,5227,5187,1207,5537,291

7,1737,3277,6777,3598,0168,3599,0139,6378,8558,8408,940

Ra

tio

of

aver

age

inv

en

tori

es

tom

onth

ly s

ales

3

1.21

1.161.031.02.86.86

.82

.811.031.091.23

1.221.24

1.20

1.231.231.191.251.231.181.261.211.211.291.211.24

1.261.231.181.261.181.131.04.98

1.101.131.15

Retail trade

Millions ofdollars

Inve

ntor

ies l

5.532

6,0407,6307,8687,3617,400

7,54311, 22613, 22114, 96913, 698

14, 18213, 698

14, 720

14, 65914, 47914, 70014, 45814, 13914, 18213, 86213, 93214, 35514, 47514, 33613, 698

13, 99813, 80014, 28214, 13814, 41614, 72014, 12515, 07615, 79316,54016, 656

«CO

£c3

CO

3,504

3,8664,6244,8035,2775, 735

6,3158,3589,909

10, 83710, 682

10, 71610, 648

11, 198

10, 61110, 70610, 72410, 81410, 75910, 68410,54910, 66910, 85610, 67810, 63010, 503

10, 85511, 10111, 12511, 08011, 32711, 69912, 70012, 68212, 13311, 75911, 390

Rati

o

of

aver

age

inv

en

tori

es

tom

onth

ly s

ales

3

1.53

1.471.461.711.381.31

1.201.111.221.321.34

1.351.33

1.26

1.401.361.361.351.331.331.331.301.301.351.361.33

1.281.251.261.281.261.251.141.151.271.371.46

* Book value, end of period.* Monthly average shown for year and half year and total for month.' Average inventories based on centered averages of end-of-period figures.* Estimates based on incomplete data.

NOTE.—The inventory figures in this table do not agree with the estimates of "change in business inven-tories" included in the gross national product since they cover only manufacturing and trade rather than allbusiness, and show inventories in terms of current book value without adjustment for revaluation.

Source: Department of Commerce.

190


TABLE A—21. Manufacturers* inventories by stage of fabrication and as ratios to sales, 7946-50

[Not adjusted for seasonal variation]

Period

1946194719481949

1949— First halfSecond half—

1950— First half

1949— JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptember _ _ -OctoberNovemberDecember

1950— JanuaryFebruaryMarchApril-MayJune..JulyAugustSeptember 2 _ _October 2

Total manufac-turing

Book value ofinventories atend of period

(billions ofdollars)

Mate-Irialsif andgoods

inprocess

17.419.820.817.6

18.717.7

18.0

20.920.820.419.819.418.718.518.117.817.517.417.6

17.817.817.917.918.018.018.519.019.720.7

Fin-ishedgoods

7.29.3

11.611.3

12.311.3

11.8

11.912.112.212.212.212.311.911.611.311.211.211.3

11.511.411.411.411.511.811.310.710.810.8

Durable goods industries



Mate-rialsand

goodsin

process

8.810.110.99.0

10.09.0

9.3

11.111.211.010.710.410.09.89.59.39.08.89.0

8.99.09.19.19.39.39.59.7

10.010.3

Fin-ishedgoods

2.73.74.54.4

5.14.4

4.6

4.74.95.05.15.15.14.94.64.44.34.34.4

4.54.54.64.64.64.64.44.14.04.1

Ratio of aver-age inventories

to monthlysales i

Mate-rialsand

goodsin

process

1.561.511.411.44

1.511.37

1.17

.58

.59

.42

.50

.56

.43

.61

.32

.25

.39

.37

.33

.34

.321.111.201.101.031.18.97

1.03.99

Fin-ishedgoods

0.50.52.56.68

.69

.67

.59

.67

.69

.64

.71

.76

.71

.81

.65

.61

.66

.66

.64

.66

.66

.57

.61

.55

.51

.56

.43

.42

.39

Nondurable goods industries



Mate-rialsand

goodsin

process

8.69.79.98.7

8.78.7

8.7

9.99.79.49.29.08.78.78.68.58.68.68.7

8.98.88.88.88.78.79.09.39.7

10.4

Fin-ishedgoods

4.55.67.17.0

7.27.0

7.2

7.27.27.27.17.17.27.07.06.96.96.97.0

7.06.96.86.86.97.26.96.66.66.8

Ratio of aver-age inventories

to monthlysales 1

Mate-rialsand

goodsin

process

0.94.95.94.93

.99

.87

.89

1.031.04.93.99.98.95

1.00.84.81.82.87.92

.94

.94

.84

.92

.85

.83

.82

.71

.79

.80

Fin-ishedgoods

0.47.54.60.73

.75

.71

.70

.74

.76

.70

.76

.77

.77

.82

.68

.66

.66

.70

.74

.75

.73

.65

.71

.67

.68

.65

.53

.55

.54

1 Average inventories based on centered averages of end-of-period figures.2 Estimates based on incomplete data.

NOTE.—Detail will not necessarily add to totals because of rounding.Source: Department of Commerce.

191


TABLE A-22.—Sales, stocks, and outstanding orders at 296 department stores, 7939-50

Period


1940 ..-1941194219431944

1945194619471948__ __1949 ~ _ _

19503 .


1950— First halfSecond half3 .

1949 — JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctoberNovember _December.. __ _

1950— January _February _ _MarchAprilMayJuneJuly .AugustSeptemberOctober .November 3

Millions of dollars 1

Sales(total formonth)

128

136156179204227

255318337352333

323

304362

298352

267256321348322313234283334344397583

256247320319330317292331370361406

Stocks(end ofmonth)

344

353419599509535

563715826912861

944

863860

8711,031

797856924914880807759803864954990788

787854920926906833789918

1,0291,2071,214

Out-standing

orders(end ofmonth)

(2)

108194263530560

729909552465350

471

302398

333637

389381313239207283390413494445350296

390393326271248369693755702593444

Ratio ofstocksto sales

2.69

2.602.693.352.502.36

2.212.252.452.592.59

2.92

2.842.38

2.922.93

2.983.342.882.632.732.583.242.842.592.772.491.35

3.073.462.882.902.752.632.702.772.783.342.99

Ratio ofordersto sales

(*>

0.791.241.472.602.47

2.862.861.641.321.05

1.46

.991.10

1.121.81

1.461.49.98.69.64.90

1.671.461.481.29.88.51

1.521.591.02.85.75

1.162.372.281.901.641.09

Ratio oforders

to stocks

(»>

0.31.46.44

1.041.05

1.291.27.67.51.41

.50

.35

.46

.38

.62

.49

.44

.34

.26

.24

.35

.51

.51

.57

.47

.35

.38

.50

.46

.35

.29

.27

.44

.88

.82

.68

.49

.37

i Not adjusted for seasonal variation.* Not available.* Estimates based on incomplete data.NOTE.—These figures represent retail sales, stocks, and outstanding orders as reported by a sample of

296 of the larger department stores located in various cities throughout the country and are notestimates of total sales, stocks, and outstanding orders for all department stores hi the United States. Dataare not available prior to 1939.


192


TABLE A-23.—Consumers' price index, 1929-50

For moderate-income families in large cities

[1935-39=100]

Period

1929 . _

19301931 _ . . .19321933 _ . .1934 _

1935 _ .19361937 .19381939 .

19401941 .194219431944 . .

1945 _ _ _ _ _19461947 _ - -19481949 _

19501


1950— First halfSecond half i - _ _

1949 — January 15 _ _February 15March 15 _April 15May 15 . _ _ .June 15July 15August 15September 15October 15November 15 ___December 15 _ _

1950— January 15February 15 _ _March 15April 15May 15 -June 15July 15 ___August 15September 15October 15November 15December 15 . _

Allitems

122.5

119.4108.797.692.495.7

98.199. 1

102.7100.899.4

100 2105.2116.5123.6125.5

128.4139.3159.2171 2169.1

170 6

169 6168.6

167.8173.9

170.9169 0169.5169 7169.2169.6168.5168 8169.6168 5168.6167.5

166.9166.5167.0167.3168.6170.2172.5173.0173.8174.8175.6(2)

Food

132.5

126 0103.986 584.193.7

100.4101 3105.397.895 2

96 6105.5123.9138 0136.1

139.1159.6193 8210 2201 9

204 2

202 6201 2

198 0210.4

204.8199 7201.6202 8202.4204.3201.7202 6204.2200 6200.8197.3

196.0194.8196.0196.6200.3204 6210.0209.0208 5209.0209.5216.3

Apparel

115.3

112 7102.690 887.996.1

96.897 6

102.8102.2100 5

101 7106.3124.2129 7138.8

145.9160.2185 8198 0190 1

187 2

193 3187 0

185 0189.9

196.5195 1193.9192 5191.3190. 3188.5187 4187 2186 8186. 3185.8

185.0184.8185 0185.1185. 1185 0184.7185.9190 5193.4195.0(2)

Rent

141.4

137.5130.3116 9100.794.4

94.296 4

100.9104.1104.3

104 6106.2108.5108 0108.2

108.3108.6111.2117 4120 8

123 9

120 2121 4

123.1124.8

119.7119.9120.1120 3120.4120.6120.7120 8121.2121 5122.0122.2

122.6122.8122.9123.1123.5123.9124.4124.8124.8125.0125.4(2)

Fuel,elec-

tricity,and re-friger-ation

112 5

111 4108 9103 4100.0101.4

100.7100 2100.299.999 0

99 7102.2105.4107 7109.8

110.3112.4121 1133 9137 5

140 8

137 4137.6

140.0141.8

138.2138 8138.9137 4135.4135.6135. 6135 8137.0138 4139.1139.7

140.0140.3140.9141.4138.8138 9139.5140.9141 8143.1143.7(2)

House-fur-nish -ings

111.7

108.998.085.484.292.8

94.896.3

104.3103.3101.3

100.5107.3122.2125.6136.4

145.8159.2184.4195 8189.0

189.5

192.4185.5

185.3194.6

196.5195. 8193.8191.9189.5187.3186.8184.8185.6185 2185.4185. 4

184.7185.3185.4185.6185.4185.2186.4189.3195.4199.8202.3

(2)

Miscel-laneous

104.6

105.1104.1101.798.497.9

98.198.7

101.0101.5100.7

101.1104.0110.9115.8121.3

124.1128.8139.9149.9154.6

156.7

154.3155.0

155.1158.6

154.1154.1154. 4154.6154.5154.2154.3154.8155.2155.2154.9155.5

155.1155.1155.0154.8155.3155.3156.2158.1158.8159.5160.5(2)

* Estimates based on data available through November 15, except for food.J Not available.

Source: Department of Labor*

193


TABLE A-24.—Wholesale price index, 1929-50

[1926=100]

Period


19301931193219331934

1935 _ ..193619371938.1939

1910194119421943. _ .1944....

19451946194719481949

19501



1949— January...FebruaryMarch...April.MayJuneJulyAugust _SeptemberOctober __NovemberDecember

1950— JanuaryFebruaryMarchAprilMay...June _JulyAugustSeptemberOctoberNovemberDecember 1

All

com

mod

ities

95.3

86.473.064.865.974.9

80.080.886.378.677.1

78.687.398.8

103.1104.0

105.8121.1152.1165.1155.0

161.4

157.5152.5

153.8169.0

160.7158.4158.6157.1155.8154.5153.6152.9153.5152.2151.6151.2

151.5152.7152.7152.9155.9157.3162.9166.4169.5169.1171.6174.5

Far

m p

rodu

cts

104.9

88.364.848.251.465.3

78.880.986.468.565.3

67.782.4

105.9122.6123.3

128.2148.9181.2188.3165.5

170.5

170.8160.5

160.5180.5

173.0168.9171.8170.8171.5168.8166.2162.3163.1159.6156.8154.9

154.7159.1159.4159.3164.7165.9176.0177.6180.4177.8183.7187.3

CO1ft

99.9

90.574.661.060.570.5

83.782.185.573.670.4

71.382.799.6

106.6104.9

106.2130.7168.7179.1161.4

151.6

163.2159.7

157.4175.0

165.8161.6162.9162.9163.8162.4161.3160.6162.0159.6158.9155.7

154.8156.7155.5155.3159.9162.1171.4174.6177.2172.5175.2178.9

Other than farm products and foods

1E-i

91.6

85.275.070.271.278.4

77.979.685.381.781.3

83.089.095.596.998.5

99.7109.5135.2151.0147.3

152.3

149.6145.1

146.8159.5

152.9152.1151.0149.0146.9145.5145.1145.0145.3145.0145.0145. 4

145.8145.9146.1146.4147.6148.8151.5155.5159.2161.5163.5165.9

o>6c3<B M

«!s!8°T3

W

109.1

100.086.172.980.986.6

89.695.4

104.692.895.6

100.8108.3117.7117.5116.7

118.1137.2182.4188.8180.4

191.9

180.9180.0

180.2203.6

184.8182.3180.4179.9179.2178.8177.8178.9181.1181.3180.8179.9

179.3179.0179.6179.4181.0182.6187.2195.6202.9208.5211.6215.8

S§

19

90.4

80.366.354.964.872.9

70.971.576.366.769.7

73.884.896.997.498.4

100.1H6.3141. 7149.8140.4

147.7

142.8138.2

137.2158.2

146.1145.2143.8142.1140.4139.1138.0138.1139.0138.0138.0138.4

138.5138.2137.3136.4136.1136.8142.6149.5158.3163.1166.0169.7

bO.aI-i•"•8"2-3S «»*a

1ft

83.0

78.67.70.66.73.

73.576.77.676.573.1

71.776.278.580.883.0

84.090.1

108.7134.2131.7

133.3

133.3130.1

131.7134.9

137.0136.2134.4131.9130.1130.0130.1129.6129.9130.6130.2130.4

131.4131.3131.5131.2132.1132. 7133.4134.4135.1135.4135.6135.6

1as18§1a*o>S

100. 5

92.184.580.279.886.9

86.487.095.795.794.4

95.899.4

103.8103. 8103.8

104. 7115.5145.0163.6170.2

173.5

172.6167.8

169.3177.7

175.4176.3175.4172.4168.9167.1167.9168.2168.2167.3167.3167.8

168.4168.6168.5168.7169.7171.9172.4174.3176.7178.6180.3184.1

iW>.S§p

PQ

95.4

89.979.271.477.086.2

85.386.795.290.390.5

94.8103.2110.2111.4115.5

117.8132.6179.7199.1193.4

205.9

197.6189.3

195.6216.2

202.3201.5200.0196.5193.9191.4189.0188.3189.4189.3189.6190.4

191.6192.8194.2194.8198.1202.1207.3213.9219.6218.9217.2220.0

1|wd"3 §o a

II&

94.0

88.779.373.972.175.3

79.078.782.677.076.0

77.084.495.594.995.2

95.2101.4127.3135.7118. 6

122.6

120.4117.0

115.9129.3

126.3122.8121.1117.7118.1116.7118.0119.6117.6115.9115.8115.2

115.7115.2116.3117.1116.4114.5118.1122.5128.6132.2135.5139.1

be£

Sm

Sf3§•SMtoJ3O

W

94.3

92.784.975.175.881.5

80.681.789.786.886.3

88.594.3

102.4102.7104.3

104. 5111.6131.1144.5145.3

152.9

147.3143.2

145.8160.0

148.2148.5148.2147.1146.3145.3143.0142.9142.9143.0143.4144. 2

144.9145.2145.5145.8146.6146.9148.7153.9159.2163.8166.8167.9

1

1

82.6

77.769.864.462.569.7

68.370.577.873.374.8

77.382.089.792.293.6

94.7100.3115.5120.5112.3

121.1

114.7109.8

112.1130.0

117.3115.3115.7115.6113.5111.0110.3109.8109.6109.0109.7110.7

110.0110.0110.7112.6114.7114.7119.0124.3127.4131.3137.6140.5



194


TABLE A-25.—Indexes of prices received and prices paid by farmers, and parity ratio, 1929-50

[1910-14=100]

Period


19301931193219331934

19351936193719381939 .

19401941194219431944

19451946.194719481949

1950...

1949-First halfSecond half...

1950—First halfSecond half...

1949—January 15February 15-_March 15April 15 .-May 15June 15July 15 ._August 15September 15 _October 15.—November 15 _December 15..

1950—January 15February 15._March 15April 15May 15June 15July 15August 15September 15.October 15November 15.December 15..

Pricesreceived

148

12587657090

1091141229795

100123158

21922196

22062234275285249

256

256242

241272

265255258256253249246244247242237233

235237237241247247263267272268276

Prices paid(including in-terest, taxes,

and wagerates)

160

151130112109120

124124131124122

124132151170182

189207239259250

256

254248

251260

255252255254253252250249248246246246

249248250251254255256258260261263265

Parityratio i

92

8367586475

92937877

8193104113108

113115110100

100

101

96105

104101101101100

100

949695969797103103105103105108

* Ratio of prices received to prices paid (including interest, taxes, and wage rates).2 Includes subsidy payments between October 1943 and June 1946.Source: Department of Agriculture.

195


TABLE A-26.—Consumer credit outstanding, 1929-50


End of period

1929

193019311932 ..19331934

19351936193719381939 .

19401941194219431944

1945 _1946194719481949

19508

1949— JanuaryFebruaryMarch.AprilMayJuneJuly...August.. _SeptemberOctober...November.December

1950— January _ .FebruaryMarchApril...MayJuneJuly ..AugustSeptember.October »November aDecember 3

Totalconsumer

credit

6,252

5,5704,6363,4933,4393,846

4,7735,9336,5136,1287,031

8,1638,8265,6924,6004,976

5,6278,677

11, 86214, 36616, 809

20, 000

13, 79613,40913, 46013, 76414. 03714, 31314, 37914,61114, 95715, 33615, 88416, 809

16, 36816, 15916, 33816, 63917, 07717, 65118, 29518,84219, 32919, 40119, 41220,000

Instalment credit

Total

3,158

2,6882,2041,5181,5881,860

2,6223,5183,9603,5954,424

5,4175,8873,0482,0012,061

2,3644,0006,4348,600

10, 890

13, 500

8,4248,3398,4298,6308,8889,1239,3359,6229,899

10, 16610, 44110,890

10, 83610, 88411,07711,32211, 66712, 10512, 59813, 00913, 34413, 39313,31913,500

Automobilesale credit

1,318

928637322459576

9401,2891,384

9701,267

1,7291,942

482175200

227544

1,1511,9613,144

4,200

1,9651,9962,1052,2412,3862,4992,6102,7612,8762,9863,0853,144

3,1793,2563, 3553,4703,6003,7903,9944,1074,2134,2274,1794,200

Other »

1,840

1,7601,5671,1961,1291,284

1,6822,2292,5762,6253,157

3,6883,9452, 5661,8261,861

2, 1373,4565, 2836,6397,746

9,300

6, 4596,3436,3246,3896,5026,6246,7256,8617,0237, 1807,3567,746

7,6577,6287,7227,8528,0678,3158,6048,9029,1319,1669,1409,300

Chargeaccounts

1,749

1,6111,3811,1141,0811,203

1,2921,4191,4591,4871,544

1,6501,7641,5131,4981,758

1,9813, 0543,6123,8543,909

4,100

3,4573,1693,1213, 2323,2353,2743, 1233,0643,1233,1973, 4543,909

3,5063,2333,2113,2413,2903,3923,5273,6363,7413,7033,7394,100

Otherconsumer

credit 2

1,345

1,2711,051

861770783

859996

1,0941,0461,063

1,0961,1751,1311,1011,157

1,2821,6231,8161,9122,010

2,400

1,9151,9011,9101, 9021,9141,9161,9211,9251,9351,9731,9892,010

2,0262,0422,0502,0762.1202,1542,1702,1972,2442,3052, 3542,400

i Includes other sale credit and loans including repair and modernization loans insured by Federal Hous-ing Administration.

mer<Federal! , „

»Estimates based on incomplete data; December by Council of Economic Advisers.

NOTE.—Detail will not necessarily add to totals because of rounding.Source: Board of Governors of the Federal Reserve System (except as noted).

196


TABLE A-27.—Loans and investments of all commercial banks and weekly reporting member banks,1929-50 »


End of period *

1929— June « _ _

1930— June* _..1931— June '1932— June'1933— June'..1934— June 3

1935 — June *19361937 . ...19381939

19401941194219431944

1945 ...194619471948 _. _-.1949

19506

1949 — January _ _FebruaryMarch _._ . __AprilMayJuneJulyAugust _ _SeptemberOctoberNovemberDecember

1950 — JanuaryFebruaryMarchAprilMayJune-July 8August 8

September 8

October*November c

December *

All commercial banks

Totalloansand

invest-ments

49.4

48.944.936.130.432.7

34.639.538.338.740.7

43.950.767.485.1

105.5

124.0114.0116.3114.3120.2

127.2

114.6113.3112.6112.5113,4113.8114.7117.9118.5119.5119.7120.2

121.2120.6120.3120.3121.2121.8122.3123.3123.7124.5125.5127.2

Loans

35.7

34.529.221.816.315.7

14.916.417.116.417.2

18.821.719.219.121.6

26.131.138.142.543.0

52.7

42.542.042.441.340.941.040.541.241.741.842.743.0

42.943.143.743.844.144.846.047.349.049.951.752.7

Investments

Total

13.7

14.415.714.314.017.0

19.723.121.222.323.4

25.129.048.266.083.9

97.982.978.271.877.2

74.5

72.171.370.271.272.572.774.276.776.977,777.077.2

78.377.576.676.577.177.076.476.074.674.673.974.5

U. S. Gov-ernmentobliga-tions

4.9

5.06.06.27.5

10.3

12.715.314.215.116.3

17.821.841.459.877.6

90.674.869.262.667.0

62.3

63.062.260.962.063.263.264.466.766.767.666.967.0

68.067.165.865.566.165.865.064.262.562.561.862.3

Othersecuri-

ties

8.7

9.49.78.16.56.7

7.07.87.17.27.1

7.47.26.86.16.3

7.38.19.09.2

10.2

12.2

9.19.19.39.29.39.59.8

JO.O10.210.110.110.2

10.310.410.811.011.011.211.411.812.112.112.112.2

Weekly reportingmember banks

Totalloans(net)

16.7

17.014.711.38.98.5

8.09.29.48.48.8

9.411.410.310.813.0

15.8«19.4

23.325.624.9

31.6

25.321925.024.023.723.923.023.524.023.924.624.9

24.624.624.924.925. 025.626.427.328.529.130.631.6

Commer-cial, indus-trial, andagricul-

tural loans

(<)

(<)(4)

I0)W ,6

3.84.4

5.06.76.16.46.5

7.3•11.3

14.615.613.9

17.8

15.415.214.914.213.613.212.913.013.413.713.813.9

13.913.913.813. 513.413. 613. 914. 715.716.317.117.8

1 Excludes mutual savings banks.2 Reporting date nearest end of period.8 June data are used because complete end-of-year data prior to 1936 are not available for TJ. S. Government

obligations.4 Not available prior to May 12,1937, when the loan classification was revised.• Series revised to extend coverage. Previous figures not strictly comparable.«Estimates for all commercial banks based on incomplete data; December by Council of Economic

Advisers.

NOTE.—Detail will not necessarily add to totals because of rounding.

Source: Board of Governors of the Federal Reserve System (except as noted).

197


TABLE A-28.-Deposits and currency, 1929-50


End of period 1

1929

1930 _1931 _193219331934

1935193619371938 _ .1939_

1940 _ _1941194219431944

19451946.__ _194719481949

1950 «

1949 — January, ,FebruaryMarchAprilMay _ _ - .June...JulyAugustSeptemberOctoberNovemberDecember

1950 — JanuaryFebruaryMarchAprilMay _.JuneJuly 8

August 8

September 8_. _ _October 8 ._November8..December 5

Totaldeposits

andcurrency

55, 521

54, 43949,00445, 81142, 81351, 122

55, 71860, 45060,96463, 19168,359

75, 23882, 811

104, 306127, 959155, 960

180, 806171, 657175, 348176, 121177,313

183, 500

174, 900174, 400172,600172, 000171, 300171, 602171, 500173, 800174, 400174, 900175, 300177,313

177, 100176, 200176,000176, 100176, 700178, 568178, 200179, 200180, 000180, 300181, 300183, 500

Foreignbank

deposits(net)

563

656403169

-22-13

426479564607

1,217

1,8961,4981,6152,2652,157

2,1411,8851,6822,1032,150

2,400

2,2002,2002,1002,0001,8001,9271,9001,9001,9002,0002,1002,150

2,2002,2002,3002,4002,4002,5552,5002,4002,3002,5002,3002,400

UnitedStates

Govern-ment

balances 3

403

535740788

1,3034,865

4,0193,6114,5854,5183,889

3,3344,977

11, 39213, 30623,578

27, 8725,7683,6584,8995,382

4,900

4,5005,9006,4004,6003,9004,0493,2005,0006,2005,3005,1005,382

5,2005,9006,6005,4005,1006,0495,4005,8006,1004,8004,8004,900

Deposits adjusted and currency(privately-held money supply)

Total

54,555

53, 24847, 86144, 85441, 53246, 270

51, 27356, 36058, 81558, 06663, 253

70, 00876, 33691, 299

112, 388130, 225

150, 793164, 004170, 008169, 119169, 781

176, 200

168, 200166,300164, 200165, 500165,600165,626166, 300166,900166,300167, 700168, 100169, 781

169, 700168, 200167, 100168, 400169, 200169, 964170, 200171,000171, 700173,000174, 200176, 200

Demanddeposits

adjusted a

22, 809

20,96717, 41215, 72815, 03518, 459

22, 11525, 48323, 95925, 98629, 793

34, 94538, 99248, 92260, 80366, 930

75, 85183, 31487, 12185, 52085, 750

92, 100

85,40083,40081, 10082,40082, 50081, 87783, 10083, 40083, 10084, 30085,00085, 750

86,40084, 50083,20084,30085,00085,04086, 50087,40088, 10089, 40090, 70092, 100

Timedeposits <

28,189

28,67625, 97924,45721, 71523, 156

24,24125, 36126, 21826, 30527, 059

27, 73827, 72928, 43132, 74839,790

48, 45253, 96056, 41157, 52058,616

58,900

57,60057, 80058,00058, 10058,20058, 48358,40058, 40058, 40058, 40058,00058, 616

58,70059,00059,30059, 50059, 50059, 73959, 40059, 10059, 00059, 00058, 70058,900

Currencyoutsidebanks

3,557

3,6054,4704,6694,7824,655

4,9175,5165,6385,7756,401

7,3259,615

13, 94618, 83723,505

26, 49026, 73026, 47626, 07925,415

25, 200

25, 20025, 10025, 10024, 90025,00025, 26624, 90025, 10024, 90024, 90025,10025,415

24,500•24,70024,60024,60024,70025, 18524,40024, 50024, 50024,60024,80025,200

1 Reporting date nearest end of period.2 Includes Treasury cash and balances at commercial, savings, and Federal Reserve banks.8 Includes demand deposits, other than interbank and U. S. Government, less cash items in process of

collection.4 Includes deposits in commercial banks, mutual savings banks, and Postal Savings System.8 Estimates based on incomplete data; December by Council of Economic Advisers.


Source: Board of Governors of the Federal Reserve System (except as noted).


[ TABLE A-29.—Estimated ownership of Federal securities* 1939-50

[Billions of dollars—par values!*]

End of period

1939

1940194119421943 - -1944

19451946194719481949

1950

1949 — January .FebruaryMarchAprilMayJuneJulyAugustSeptemberOctoberNovember _ _ _December

1950 — JanuaryFebruary. _MarchAprilMayJuneJulyAugust .SeptemberOctoberNovember .December

Gross debt and guaranteed obligations outstanding

Total »

47.6

50.964.3

112.5170.1232.1

278.7259.5257.0252.9257.2

256.7

252.7252.7251.7251.6251.9252.8253.9255.9256.7256.8257.0257.2

256.9256.4255.7255.7256.4257.4257.6257.9257.2257.0257.1256.7

Held byU.S.

Govern-ment

agenciesand trust

funds

6.5

7.69.5

12.216.921.7

27.030.934.437.339.4

739.2

37.437.537.737.537.538.338.538.939.439.339.339.4

39.038.437.637.337.437.838.038.138.939.039.2

739.2

Held by public

Totalheld bypublic

41.1

43.354.7

100.2153.2210.5

251.6228.6222.6215.5217.8

7217.5

215.2215.2214.0214.0214.4214.5215.4217.0217.3217.5217.7217.8

217.9218.0218.1218.4219.0219.5219.6219.8218.4217.9217.9

7217.5

Stateand localgovern-ments8

0.4

.5

.71.02.14.3

6.56.37.37.98.0

78.0

7.87.97.97.98.08.08.08.18.08.08.08.0

8.08.08.48.48.38.28.38.38.28.18.1

78.0

Com-mercialbanks 4

15.9

17.321.441.159.977.7

90.874.568.762.566.8

761.0

62.762.160.561.862.763.064.666.466.567.366.866.8

67.466.464.965.265.865.664.664.062.162.161.3

761.0

FederalReservebanks

2.5

2.22.36.2

11.518.8

24.323.322.623.318.9

20.8

22.122.321.721.119.719.318.517.518.017.317.718.9

17.817.717.617.817.418.318.018.419.619.319.720.8

Nonbankprivatecorpo-rations

andassocia-tions «

12.2

12.816.828.242.056.8

66.460.558.856.558.0

760.5

56.956.857.656.957.557.557.558.258.058.358.758.0

58.459.260.660.260.660.361.361.661.261.261.5

760.5

Indi-viduals*

10.1

10.613.623.737.652.9

63.763.865.365.466.2

767.2

65.766.166.266.366.466.666.766.866.866.666.566.2

66.366.666.666.867.067.267.467.567.367.367.3

767.2

1 United States savings bonds, series A-D, E, and F, are included at current redemption values.2 Securities issued or guaranteed by the U. S. Government, excluding guaranteed securities held by the

Treasury.3 Includes^trust, sinking, and investment]jfunds of State and local governments and their agencies, and

Territories and insular possessions.4 Includes commercial banks, trust companies, and stock savings banks in the United States and in

Territories and insular possessions; excludes securities held in trust departments.«Includes insurance companies, mutual savings banks, savings and loan associations, dealers and brokers

and foreign accounts in this country. * Beginning with December 1946, the foreign accounts include invest-ments by the International Bank for Reconstruction and Development and the International MonetaryFund in special non-interest-bearing notes issued by the U. S. Government; beginning with June 30,1947,they Include holdings of Federal land banks.

e Includes partnerships and personal trust accounts.7 Estimates based on incomplete data; by Council of Economic Advisers.


Source: Treasury Department (except as noted).

199


TABLE A-30.—United States Government debt—volume and kind of securities, 1929-50


End of period

1929

19301931193219331934

19351936193719381939

194019411942 - - -1943 _._1944

1945 __.19461947 _ _1948 - -1949 ___

1950 _

1949 — January _FebruaryMarchAprilMayJune..July-AugustSeptemberOctoberNovemberDecember

1950 — JanuaryFebruary —MarchAprilMayJuneJulyAugust..SeptemberOctoberNovemberDecember _.

Grosspublic

debt andguaran-

teedissues^

16.3

16.017.820.824.031.5

35.139.141.944.447.6

50.964.3

112.5170.1232.1

278.7259.5257.0252.9257.2

256.7

252.7252.7251.7251.6251.9252.8253.9255.9256.7256.8257. 0257.2

256.9256.4255.7255.7256.4257.4257.6257.9257.2257.0257.1256.7

Interest-bearing public debt

Marketable publicIssues 2

Short-term

issues 3

3.3

2.92.85.97.5

11.1

14.212.512.59.87.7

7.58.0

27.047.169.9

78.257.147.745.950.2

58.3

45.445.244.043.843.944.644.445.046.446.146.150.2

49.949.851.551.652.052.452.252.256.956.055.958.3

Treasurybonds

11.3

11.313.513.414.715.4

14.319.520.524.026.9

28.033.449.367.991.6

120.4119.3117.9111.4104.8

94.0

111.4111.4111.4111.4111.4110.4110.4110.4109.1109.1109.1104.8

104.8104.8102.8102.8102.8102.8102.8102.896.796.796.794.0

Nonmarketablepublic issues

UnitedStates

savingsbonds

0.2.5

1.01.42.2

3.26.1

15.027.440.4

48.249.852.155.156.7

58.0

55.455.755.956.056.156.356.556.556.656.756.756.7

57.057.257.357.457.557.557.657.557.458.058.058.0

Treas-Lury

tax andsavings

notes

2.56.48.69.8

8.25.75.44.67.6

8.6

4.64.64.44.54.74.95.76.86.97.37.57.6

7.98.08.08.18.38.58.68.98.99.08.98.6

Specialissues4

0.6

.8

.4

.4

.4

.6

.7

.62.23.24.2

5.47.09.0

12.716.3

20.024.629.031.733.9

33.7

31.831.831.931.831.932.833.033.433.933.833.833.9

33.532.932.131.831.932.432.532.733.433.533.733.7

Nonin-terest

bearingdebt

0.3

.3

.3

.4

.4

.5

1.0.7.6.5.6

.6

.5

.91.41.8

2.41.52.72.22.1

2.4

2.22.12.12.02.02.02.01.91.91.91.92.1

2.02.02.22.22.22.22.12.12.22.22.22.4

Fullyguar-

anteedsecuri-

ties

0.23.1

4.54.74.65.05.7

5.96.34.34.21.5

.6

.3

.1

0*1

(')

(J)

s)5)fi)

*)5)

(S)

lio6'84

65

?i

(5)(')

* Includes postal savings bonds, depositary bonds, Armed Forces leave bonds, and 2^j percent Treasuryinvestment bonds, not shown separately.

* Includes amounts held by Government agencies and trust funds which aggregated 5.4 billion dollarson December 30,1950.

8 Includes Treasury bills, certificates of indebtedness and Treasury notes.4 Issued to United States investment accounts.' Less than 50 million dollars.NOTE.—Detail will not necessarily add to totals because of rounding.

Source: Treasury Department.

200


TABLE A-31.—Bond yields and interest rates, selected years, 1929-50

[Percent per annum]

Period

1929 average1933 average1935 average _ _1937 average1939 average

1941 average1943 average _

1945 average _ _1946 average1947 average1948 average..1949 average

1950 average 6

1949— First quarter.Second quarterThird quarterFourth quarter

1950— First quarterSecond quarterThird quarterFourth quarter 6_—

U. S. Government securityyields

9-12monthissues

(2)

88(2)0.75

.81

.82

.881.141.14

1.26

1.221.201.061.09

1.141.191.271.44

Long-term bonds

Partiallytax-

exempt *

3.603.312.792.742.41

2.051.98

1.66(5)(5)(8)«

(5)(5)(s)(•)(5)(6)8(8)

15 yearsand over,taxable

2.47

2.372.192.252.442.31

2.32

2.402.382.242.20

2.242.312.342.38

High grade cor-porate bond

yields(Moody's)

Aaabonds

4.734.493.603.263.01

2.772.73

2.622.532.612.822.66

2.62

2.712.712.632.60

2.582.612.632.67

Baabonds

5.907.765.755.034.96

4.333.91

3.293.053.243.473.42

3.24

3.463.463.413.34

3.243.253.253.22

Bankrates onshort-term

businessloans

(3)(3)(3)(5)

2.1

2.02.6

2.22.12.12.52.7

(3)

2.702.742.632.65

2.602.682.63

(3)

Bankersaccept-ances 90days-NewYork

5.03.63.13.43.44

.44

.44

.44

.61

.871.111.12

1.15

1.191.191.061.06

1.061.061.181.31

FederalReserveBank

discountrate-NewYork

5.162.561.501.331.00

1.00*1.00

*1.00U.OO

1.001.341.50

1.59

1.501.501.501.50

1.501.501.611.75

1 Average of yields on all outstanding partially tax-exempt Government bonds due or callable after 12years, in 1929 and 1933; and after 15 years, from 1935.2 Not available before August 1942.3 Not available.

* From October 30, 1942, to April 24, 1946, a preferential rate of 0.50 percent was in effect for advancessecured by Government securities maturing in 1 year or less.8 No partially tax-exempt bonds due or callable in 15 years and over.6 Estimates based on incomplete data.

Sources: Treasury Department, Moody's Investors Service, and Board of Governors of the FederalReserve System.

201


TABLE A-32.—Profits before and after tax, all private corporations, 1929-50


Period

1929

19301931 . .19321933 - --1934 _ .

1935 _ . . _ . _19361937 _ _ • .__19381939

19401941 . ...19421943 .1944

194519461947 _19481949

1950 3


1950 — First halfSecond half 3

1949 — First quarter .Second quarter _Third quarterFourth quarter .__

1950— First quarterSecond quarter .Third quarter 3

Fourth quarter 3

Corporateprofitsbefore

tax

9.8

3.3-.8

-3.0.2

1.7

3.25.76.23.36.5

9.317.221.125.124.3

19.723.530.533.927.6

40.2

Corporatetax

liability *

1.4

.8

.5

.4

.5

.7

1.01.41.51.01.5

2.97.8

11.714.413.5

11.29.6

11.913.010.6

18.3

Corporate profits after tax

Total

8.4

2.5-1.3-3.4-.41.0

2.34.34.72.35.0

6.49.49.4

10.610.8

8.513.918.520.917.0

21.9

Dividendpayments

5.8

5.54.12.62.12.6

2.94.64.73.23.8

4.04.54.34.54.7

4.75.86.67.57.8

8.9

Undis-tributedprofits

2.6

-3.0-5.4-6.0-2.4-1.6

-.6-.3

(2)-.91.2

2.44.95.16.26.1

3.88.1

12.013.49.2

13.0


27.427.9

33.347.0

28 326! 428.2

t.27.6

29.237.446.048.0

10.410.7

13.623.0

10.910.010.810.6

12.015.122.423.5

16.917.1

19.724.0

17.416.417.316.9

17.222.223.624.5

7.87.8

8.29.6

7.97.77.48.2

8.18.29.49.8

9.19.4

11.614.4

9.58.7

10.08.7

9.114.014.214.7

1 Federal and'State corporate income and excess profits taxes.2 Minus 8 million dollars.' Estimates based on incomplete data; third and fourth quarters by Council of Economic Advisers. Cor -

porate tax liability for the second half of the year includes an estimate for the effect of the higher taxes in-cluding the excess profits tax.

NOTE.—No allowance has been made for inventory valuation adjustment. See appendix table A-4 forprofits before tax and inventory valuation adjustment.



202


TABLE A-33.—Sales and profits of large manufacturing corporations, 1939-50


Period

1939 _

1940—1941194219431944

1945 „ _1946194719481949

1949— First half.. _Second half

1950— First half

1949— First quarter .Second quarterThird quarterFourth quarter

1950 — First quarterSecond quarter. _.Third quarter 2

Durable goods industries(106 corporations) l

Sales

6,748

8,75012, 80615, 36220,63322,085

18, 16112, 38719, 50223,59123,914

Profits

Before taxes

734

1,2262,1752,3262,3892,192

1,288607

2,3123,1073,192

After taxes

597

830982782755726

574295

1, 3551,8361,889

Nondurable goods industries(94 corporations) 1

Sales

3,843

4,2575,4856,4087,6078,263

8,3718,940

11,31313,36412, 790

Profits

Before taxes

476

617980

1,0691,2931,339

1,1331,4261,7872,2081,843

After taxes

400

443538438506529

555908

1,1671,4741,211

Totals for period, not adjusted for seasonal variation

12, 44011, 474

13, 202

6,1206,3206,2575,217

6,0057,1977,846

1,6291,563

2,136

830799866697

8961,2401,402

957932

1,191

487470508424

496695778

6,2946,496

6,709

3,2433,0513,1633,333

3,2513,4583.908

893949

1,085

496397446503

504581774

577634

661

321256292342

308353464

1 See Federal Reserve Bulletin, June 1949, and subsequent issues, for similar data for the following industrygroups: primary metals and products, machinery, automobiles and equipment, foods and kindred products,chemicals and allied products, and petroleum refining.

2 Estimates based on incomplete data.


Source: Compiled by the Board of Governors of the Federal Reserve System and based on publishedreports of various industrial corporations.

922781—51- -14 203


TABLE A--34.—Relation of profits before and after taxes to stockholders' equity, private manufacturingcorporations, by industry group, 1948-50

Industry group

All private manufacturing corporations..

FoodTobacco manufacturesTextile mill productsApparel and finished textiles ._ _ _Lumber and wood products

Furniture and fixturesPaper and allied products _ _ _Printing and publishing (except newspapers).Chemicals and allied productsProducts of petroleum and coal . .

Rubber productsLeather and leather products ___ ._Stone, clay, and glass products. _Primary nonferrous metal industriesPrimary iron and steel industries

Fabricated metal products _ _ . _Machinery (except electrical and transporta-

tion)Electrical machinery. _ _Transportation equipment (except motor

vehicles) -Motor vehicles and parts

Instruments; photographic and optical goods;watches and clocks

Miscellaneous manufacturing (including ord-nance)

All private manufacturing corporations _

Food -Tobacco manufacturesTextile mill productsApparel and finished textilesLumber and wood products

Furniture and fixturesPaper and allied productsPrinting and publishing (except newspapers) _Chemicals and allied productsProducts of petroleum and coal

Rubber productsLeather and leather productsStone clay, and glass productsPrimary nonferrous metal industries.Primary iron and steel industries

Fabricated metal productsMachinery (except electrical and transporta-

tion) ---Electrical machineryTransportation equipment (except motor

vehicles) .Motor vehicles and parts

Instruments; photographic and optical goods;watches and clocks

Miscellaneous manufacturing (includingordnance)

Percentage ratio of profits (annual rate) to stockholders'equity

1948total

1949

Total Thirdquarter

Fourthquarter

1950

Firstquarter

Secondquarter

Thirdquarter

Before Federal taxes

25.6

21.321.930.920.530.4

26.826.724.025.026.7

21.517.824.322.323.8

27.5

27.327.6

14.234.7

22.6

20.7

18.5

19.520.213.013.314.2

14.617.319.021.215.2

13.611.121.213.017.0

17.8

19.322.2

12.537.6

20.0

12.4

18.8

23.222.010.816.012.8

13.214.821.222.414.0

10.812.824.49.2

14.4

20.4

17.217.6

11.646.8

19.2

13.6

18.0

18.019.616.09.6

14.8

16.820.812.022.814.0

18.412.420.413.210.4

16.8

16.032.8

12.034.0

20.8

14.8

19.6

15.616.418.011.616.8

15.620.820.425.212.8

14.810.820.416.020.0

18.4

18.429.2

12.039.2

20.8

10.0

24.8

20.419.217.210.428.4

23.623.216.828.416.8

21.212.832.422.026.8

24.8

24.431.2

17.655.2

26.0

14.8

31.2

28.825.226.026.438.0

29.228.824.036.420.4

38.025.239.226.829.2

34.0

26.841.2

19.258.8

33.2

29.6

After Federal taxes

16.1

12.913.718.812.219 3

16.016.414.615.819.8

12.410.415.014.114.7

17.0

16.616.1

8.219.8

14.0

12.2

11.7

11.812.67.67.69.0

8.110.711.413.211.9

8.66.2

13.28.09.9

10.4

11.613.5

7.821.9

12.1

7.1

12.0

14.413.66.49.68.0

7.29.2

13.214.011.2

6.87.2

15.25.68.4

12.0

10.410.8

7.227.2

11.2

7.6

11.6

10.812.49.65.2

10.0

9.613.26.4

14.811.6

12.47.6

13.28.86.4

10.0

9.620.8

7.620.0

13.2

8.8

12.0

9.210.010.86.4

10.4

8.412.812.815.610.0

9.66.4

12.410.411.6

11.2

10.817.2

7.222.8

12.8

5.2

15.6

12.412.010.45.2

18.0

15.214.49.6

17.613.2

13.67.2

20.014.816.0

15.6

14.818.4

10.432.4

16.0

8.4

17.6

16.413.214.416 422.8

16.016.414.420.814.0

22.414.822.016.015.2

19.2

14.822.0

10.028.8

18.8

16.8

Sources: Federal Trade Commission and Securities and Exchange Commission.

204


TABLE A—35.—Relation of profits before and after taxes to sales, private manufacturing corporations,by industry group, 1943-50

Industry group

All private manufacturing corporations-

Food _Tobacco manufacturersTextile mill productsApparel and finished textiles __ ._LuTTlbcr flTid wood products

Furniture and fixturesPaper and allied productsPrinting and publishing (except newspapers).Chemicals and allied productsProducts of petroleum and coal

Rubber productsLeather and leather productsStone, clay, and glass productsPrimary nonferrous metal industriesPrimary iron and steel industries.


tion) -Electrical machineryTransportation equipment (except motor

vehicles)Motor vehicles and parts

Instruments; photographic and optical goods;watches and clocks _. _ .

Miscellaneous manufacturing (including ord-nance) . -

All private manufacturing corporations.

Food . . - _ .Tobacco manufacturesTextile mill productsApparel and finished textilesLumber and wood products

Furniture and fixtures _Paper and allied productsPrinting and publishing (except newspapers).Chemicals and allied productsProducts of petroleum and coal __

Rubber products _ _ _ _Leather and leather products „ _ _Stone, clay, and glass products .Primary nonferrous metal industriesPrimary iron and steel industries


tion)Electrical machineryTransportation equipment (except motor

vehicles)Motor vehicles and parts

Instruments; photographic and optical goods;watches and clocks.

Miscellaneous manufacturing (includingordnance)

Profits in cents per dollar of sales

1948total

1949

Total Thirdquarter

Fourthquarter

1950

Firstquarter

Secondquarter

Thirdquarter

Before Federal taxes

11.1

5.68.3

13.55.1

15.4

9.213.88.5

13.917.4

8.25.6

13.914.212.2

11.5

12.010.1

7.012.0

12.5

9.5

9.3

5.58.26.93.79.3

5.910.57.4

13.212.0

6.03.9

13.910.710.9

8.7

10.69.1

6.313.5

11.6

6.2

9.5

6.58.55.94.38.1

5.79.58.6

14.511.6

4.54.3

15.78.89.9

9.5

10.27.9

6.115.4

11.5

6.9

9.3

5.38.27.82.69.4

6.112.04.3

14.410.9

8.24.3

13.611.39.3

8.4

9.712.5

6.214.3

11.7

6.7

10.1

4.87.49.03.5

11.2

5.912.38.5

15.610.7

6.64.2

14.113.512.7

9.7

10.711.3

6.215.3

12.6

5.5

11.8

5.68.18.93.3

15.2

8.413.66.8

17.113.5

7.84.9

18.915.915.1

11.4

12.611.7

8.617.8

14.3

7.7

13.5

7.510.111.46.3

18.5

9.515.69.4

20.515.2

11.47.4

20.517.115.7

13.0

13.614.0

9.318.0

16.8

12.5

After Federal taxes

7.0

3.35.18.23.09.8

5.58.45.28.8

12.9

4.73.38.69.07.5

7.1

7.35.9

4.06.9

7.8

5.6

5.8

3.35.14.12.16.0

3.36.54.58.29.4

3.82.28.66.76.4

5.1

6.45.6

3.97.9

7.1

3.6

6.0

4.05.33.52.56.2

3.15.75.49.19.1

2.92.59.75.65.7

5.7

6.24.8

3.79.0

6.7

3.9

6.0

3.25.24.71.46.4

3.57.72.39.29.0

5.52.78.77.75.7

5.1

5.77.9

3.98.4

7.4

4.1

6.2

2.84.65.41.97.1

3.27.55.49.68.2

4.22.58.68.57.5

5.9

6.46.7

3.78.9

7.7

2.9

7.4

3.45.05.21.69.7

5.48.43.8

10.610.7

5.02.7

11.710.59.0

7.1

7.77.0

5.110.5

8.9

4.5

7.6

4.35.46.53.9

11.1

5.39.05.6

11.710.5

6.64.3

11.610.28.2

7.3

7.67.5

4.88.8

9.4

7.0


205


TABLE A-36.—Relation of profits before and after taxes to stockholders' equity and to sales, allprivate manufacturing corporations, by size class, 1948—50

Assets class (thousands ofdollars)

All sizes

1 to 249 -260 to 9991,000 to 4,9996,000 to 99,999100 000 and over

All sizes

1 to 249250 to 9991,000 to 4,999 _--5,000 to 99,999100 000 and over

All sizes

1 to 249250 to 999 . ..1,000 to 4,999.5,000 to 99,999100,000 and over _

All sizes

1 to 249 . ___250 to 9991,000 to 4,9995,000 to 99,999 _.100,000 and over

1948total

1949

Total Thirdquarter

Fourthquarter

1950

Firstquarter

Secondquarter

Thirdquarter

Ratio of profits before Federal taxes (annual rate) to stockholders' equity

25.6

15.523.824.826.426.1

18.5

9.814.115.517.723.2

18.8

14.016.016.017.230.8

18.0

.410.413.617.620.8

19.6

8.813.217.218.421.6

24.8

15.221.221.623.627.2

31.2

26.430.428.831.232.0

Profits before Federal taxes in cents per dollar of sales

11.1

4.07.49.0

11.313.2

9.3

2.75.26.59.0

11.8

9.5

3.86.06.98.9

11.9

9.3

.13.95.79.1

12.6

10.1

2.55.17.39.5

12.8

11.8

4.27.48.5

11.314.4

13.5

6.29.8

10.313.316.0

Ratio of profits after Federal taxes (annual rate) to stockholders' equity

16.1

8.814.214.816.116.9

11.7

4.97.89.0

10.813.5

12.0

8.49.29.2

10.413.6

11.6

-2.05.68.0

11.214.0

12.0

4.07.2

10.011.213.6

15.6

9.612.813.214.817.2

17.6

19.218.816.417.217.6

Profits after Federal taxes in cents per dollar of sales

7.0

2.34.44.57.08.6

5.8

1.42.93.85.67.6

6.0

2.33.44.05.57.6

6.0

-.62.03.35.88.4

6.2

1.12.74.25.88.1

7.4

2.74.45.27.09.2

7.6

4.56.05.97.48.9


206


TABLE A-37.—Sources and uses of corporate funds, 1946-501


Source or use of funds

Uses:Plant and equipment outlays -Inventories (change in book value)Change in customer receivablesCash and U. S. Government securitiesOther current assets. .

Total uses

Sources:Internal:

Ketained profits andldepletion allowances. ._Depreciation allowances. __

Total internal sources

External:Change in trade debtChange in Federal income tax liabilityOther current liabilities _Change in bank loansChange in mortgagesNet new issues

Total external source

Total sources

Discrepancy (sources less uses)

1946

11.611.24.8

—4.7—.7

22.2

7.64.3

11.9

4.0-1.6

1.83.3.6

2.3

10.4

22 3

+.1

1947

15.07.17.51.0

—.1

30.5

11.65.2

16.8

4.42.3.4

2.6.8

4.4

14.9

31.7

+1.2

1948

17.55.02.4

.5

25.4

12.86.0

18.8

.9

.8(3)

1.1.6

5.9

9.3

28.1

+2.7

1949

16.1-4.6

3.0-.2

13.8

8.66.7

15.3

-2.2-2.4

-1.8.7

5.4

-.4

15.0

+1.2

1950 2

17.06.56.56 5.5

37.5

12.57.0

19.5

3.57.01.02.51.04.0

19.0

38.0

+.5

1 Excludes banks and insurance companies.3 Estimates based on incomplete data; by Council of Economic Advisers. Total sources and uses are derived

from unrounded figures while the components have been rounded to the nearest 0.5 billion dollars.3 Less than 50 million dollars.


Sources: Department of Commerce estimates based on Securities and Exchange Commission and otherfinancial data (except as noted).

207


TABLE A-38.—The international transactions of the United States, 1947-50

IMillions of dollars]

Type of transaction

Exports of goods and services:Recorded goods 2 - -Other goods3 _

Total goodsServicesIncome on investments

Total exports

Imports of goods and services:Recorded goodsOther goods 3_

Total goodsServices. _ .Income on investments

Total imports

Surplus of exports of goods and serv-ices:

Recorded goodsOther goods

Total goods

Services.. _Income on hi vestments

Total surplus of exports

Means of financing surplus of exportsof goods and services: fi

Liquidation of gold and dollarassets by foreign countries

Dollar disbursements by:International Mone t a ry

Fund .International Bank

Uni ted States Governmentsources: •

Unilateral transfersLong- and short-term loans-

United States private sources:RemittancesLong- and short-term capi-

ital*

Total means of financing. _Errors and omissions

1947total

15,340637

15,9772,6731,146

19, 796

5,756344

6,1001,940

249

8,289

9,584293

9,877

733897

11, 507

4,462

462300

1,9473,895

665

756

12, 487-980

1948total

12, 653774

13, 4272,2901,375

17, 092

7,124709

7,8332,239

284

10,356

5,52965

5,594

511,091

6,736

780

203176

4,161907

652

869

7,748-1,012

1949total

12, 042295

12,3372,2961,323

15, 956

6,622522

7,1442,242

329

9,715

5,420-227

5,193

54994

6,241

2

9938

5,304643

515

616

7,217-976

1950

Total i

10, 233(4)

(4)(4)(4)

14, 142

8,951(4)

(«)0)(4)

12, 327

1,282(4)

(<)

(4)(4)

1,815

-3, 573

3,957190

435

1,084

2,093-278

Firstquarter

2,37771

2,448488335

3,271

1,88873

1,96152977

2,567

489-2

487

-41258

704

-455

-1217

1,02176

109

75

831-127

Secondquarter

2,51094

2,604539379

3,522

1,92767

1,994592125

2,711

58327

610

-53254

811

-679

11

1,13139

113

114

72982

Thirdquarter

2,44667

2,513536425

3,474

2,386130

2,51678998

3,403

60-63

-3

-253327

71

-1, 579

-82

89243

95

645

90-19

Fourthquarter*

2,900(4)

8(4)3,875

2,750(4)

C4)(4)(4)

3,646

150(4)

(4)

(4)(4)

229

-870

91332

118

250

443-214

1 Estimates based on incomplete data; fourth quarter by Council of Economic Advisers.2 Figures for recorded exports of goods in 1947 have been adjusted to include goods shipped to United

States armed forces abroad for distribution to civilians in occupied areas in order to make them comparablewith figures for subsequent years. Such shipments are included in exports as recorded by the Bureau ofthe Census beginning in 1948 but were not so included hi prior years.

3 Includes goods sold to or bought from other countries that have not been shipped from or into the UnitedStates customs area and other adjustments.

* Not available.' All figures for means of financing are on a net basis.fl Excludes subscriptions to the capital of the International Bank for Reconstruction and Development

and the International Monetary Fund. For detail see appendix table A-40.7 Excludes net purchases of notes issued or guaranteed by the International Bank consisting of 7 million

dollars of long-term and 1 million dollars of short-term notes hi 1948,1 million dollars of long-term notes infirst quarter of 1950, and net sales of 1 million dollars of long-term notes hi each of second and third quarters


208


TABLE A-39.—United States exports and imports of goods and services, by area, 7937 and 1947-50


Area

Exports of goods and services: 2

ERP countriesERP dependenciesEurope, except ERP countries. ..Canada and NewfoundlandLatin American republicsOther 4

Total exports

Imports of goods and services: 2ERP countriesERP dependencies ._Europe, except ERP countries- _.Canada and Newfoundland .Latin American republicsOther4

Total imports

Export surplus of goods and services: 2ERP countriesERP dependenciesEurope, except ERP countries...Canada and NewfoundlandLatin American republicsOther 4

Total export surplus

1937

1.60.18.13

1 2.64

^4.55

1.33.50.15

1 2.29

4.27

0.28-.31-.03

0.28

1947

7.22.93.56

2.694.823.58

19. 80

1.79.59.23

1.522.731.43

8.29

5.43.34.33

1.172.082.15

11.51

1948

5.92.86.27

2.494.273.28

17.09

2.27.76.24

2.053.101.94

10.36

3.65.10.03.44

1.171.34

6.74

1949

5.40.93.21

2.573.613.24

15.96

2.26.73.18

2.022.951.57

9.72

3.14.20.03.55.66

1.67

6.24

1950

Total i

(3)(3)

14.14

112.33

I

1.82

Firstquar-

ter

Secondquar-

ter

Thirdquar-ter

Fourthquar-ter i

Annual rates

4.36.58.18

2.093.302.58

13.08

2.27.85.21

1.883.401.66

10.27

2.08-.27-.03

.21-.09

.92

2.82

4.42.52.18

2.893.572.52

14.09

2.68.82.21

2.342.991.79

10.84

1.74-.31-.04

.54

.58

.73

3.24

4.05.64.20

2.723.892.39

13.90

3.02.90.23

2.844.162.46

13.61

1.02-.26-.02-.12-.27

06

.28

i815.50

(3)(3) «-

(3}^

14.58

1

.92

1 Estimates based on incomplete data; fourth quarter by Council of Economic Advisers.2 Includes income on investments.3 Not available.4 Includes international institutions.NOTE.—Detail will not necessarily add to totals because of rounding.Source: Department of Commerce (except as noted).

209


TABLE A-40.—-United States Government grants, other unilateral transfers, and loans to foreigncountries, 1947-50


Type of aid

A. Unilateral payments:UNRRA and post-UNRRACivilian supplies distributed

by the armed forcesTransfers to PhilippinesChinese aidKorean aid programGreek-Turkish aidInternational Refugee Or-

ganizationInterim aidEuropean Recovery Pro-

gram 2Mutual Defense Assistance

ProgramOther

Total unilateral payments.Less unilateral receipts

Equals: Net unilateral pay-ments _ _

B. Long-term loans and investments:Lend-lease creditsSurplus property including

ship salesExport-Import Bank loans___United Kingdom loanSubscriptions to:

International BankInternational Monetary

FundEuropean Recovery ProgramOther

Total long-term loans andinvestments

Less repayments

Equals net long-term loansand investments, includingInternational Bank andInternational MonetaryFund

Less subscriptions to Inter-national Bank and Inter-national Monetary Fund.__

Equals net long-term loansand investments, exclud-ing International Bankand International Mone-tary Fund

C. Outflow of short-term capital(net)

Total net unilateral pay-ments, loans and invest-ments, excluding Interna-tional Bank and Interna-tional Monetary Fund(A+B+C)

104.7

total

761

1,00991

74

1512

288

2,250303

1,947

273797

2 850

317

2 745

161

7,143294

6 849

3,062

3,787

108

5,842

1QJQ

total

84

1,448130168

348

89546

1,398

133

4,344183

4,161

2

192454300

47618

1 442443

999

999

-92

5,068

1Q4Q

total

2

1,05920310930

171

71

3,732

182

5,559255

5,304

4

24163

42559

675205

470

470

173

5,947

Total i

(3)(3)(3)(3)(3)

(3)

(3)

(3)(3)

(3)(3)

3,957

(3)

(3)

(3)

(3)(3)

C8")w

162

162

28

4,147

Firstquarter

121399

2235

18

770

543

1,06241

1,021

1

50

5418

12351

72

72

4

1,097

1950

Secondquarter

138273

1814

17

850

6640

1,17342

1,131

58

3028

11697

19

19

20

1,170

Thirdquarter

1303532

13

8

548

14050

92937

892

40

496

9556

39

39

4

935

Fourthquarter*

(3)(3

(3)(3)(3)

(3)

(3)

(3)(3)

(3)(3)

913

(3)

(3)(3)

(3)(3)

(3)

X3)

32

32

945

1 Estimates based on incomplete data; fourth quarter by Council of Economic Advisers.2 Includes aid to Indonesia of 16 million dollars in first quarter, 21 million dollars in second quarter, and

1 million dollars in third quarter of 1950.* Not available.Source: Department of Commerce (except as noted).

210


TABLE A—41.—United States merchandise export surplus, by area. 1936—38 quarterly average and1947-50

Period

Quarterly average:1936-381947 .1948 _ - ...19491950s

1949— First quarterSecond quarter ___ _ ___Third quarterFourth quarter ._ _ _ .

1950— First quarter _ _ _Second quarterThird quarter 5

Fourth quarter 3 _

Quarterly average:1936-38194719481949

1949— First quarterSecond quarterThird quarter _Fourth quarter

1950— First quarter..Second quarterThird quarter <

Totalmer-chan-dise

exportsurplus

Can-ada i

OtherWesternHemi-sphere

ERPcoun-tries 2

OtherEurope Asia2

Aus-traliaand

OceaniaAfrica

Millions of dollars

1202,3961,3821,354

320

1,5481,7731,216

883

48958360

150

2724688

102(4)

94188125

2

-7524

(4)

-7449214113

(4)

17415910811

-8524

-206(4)

1301,150

802807

(«)

910999668654

547521258

(4)

173

6(4)

81313

-12-11-12(4)

-61313183237

(4)

283290217160

9718

-81(4)

1341-317

(4)

20112513

-12-15-18(4)

151239871

(4)

601127041

-39n

-58(4)

Percentage of total

100100100100

100100100100

100100100

22.510.36.47.5

6.110.610.3

.2

-1.48.96.7

-5.818.715.58.3

11.29.08.91.2

-17.44.1

-343. 3

108.348.058.059.6

58.856.354.974.1

111.989.4

430.0

.83.0

.4

.5

.7

.1

.3

-2.5-1.9

-20.0

-50.813.113.217.5

18.316.417.818.1

19.83.1

-135. 0

10.81.7

-.21.3

1.3.6

2.11.5

-2.5-2.6

-30.0

12.55.17.15.2

3.96.35.84.8

-8.0-1.2

-96.7

1 Includes Newfoundland and Labrador.2 Turkey is included with ERP countries and excluded from Asia. Exports to and imports from Ger-

many are included with those of ERP countries and, in the postwar period, relate almost wholly to tradewith the three western zones.

*3 Estimates based on incomplete data; fourth quarter by Council of Economic Advisers.4 Not available.8 Data by area exclude "special category" exports of 172 million dollars in the third quarter of 1950, which

are included in total exports. Thus, the export or import surplus by area will not add to the total exportsurplus in this period.

NOTE.—Detail will not necessarily add to totals because of rounding. See also footnote 5.Source: Department of Commerce (except as noted).

211


TABLE A-42,—United States merchandise exports, including reexports, by area, 1936-38 quarterlyaverage and 1947—50

Period

Quarterly average:1936-381947194819491950 3_

1949— First quarter. _ __Second quarterThird quarterFourth quarter

1950— First quarterSecond quarterThird quarter 8_Fourth quarter 3

Quarterly average:1936-38194719481949___

1949— First quarterSecond quarterThird quarterFourth quarter

1950 — First quarterSecond quarter...Third quarter 8 _

Totalexportsinclud-ing re-exports

Canada *

OtherWest-ern

Hemi-sphere

ERPCoun-tries 2

Other A . 2Europe Asia

Aus-traliaand

OceaniaAfrica

Millions of dollars

7423,8353,1633,0102, 558

3,3373,3742,6932,638

2,3772,5102,4462,900

115528486490

(4)

472571473444

397530506

(4)

1361,017

841724

(4)

836739670652

641668705

(«)

2821,3241,0461,018(4)

1,1601,189

843881

787764582

(«)

311184941

(4)

42463539

323336

(4)

122562507533

(4)

611592482448

399381336

(4)

23803849

(4)

54504744

363830

(4)

32205196155

(4)

163186142130

849678

(4)

Percentage of total

100100100100

100100100100

100100100

15.513.815.416.3

14.116.917.616.8

16.721.120.7

18.326.526.624.1

25.121.924.924.7

27.026.628.8

38.034.533.133.8

34.835.231.333.4

33.130.423.8

4.23.11.51.4

1.31.41.31.5

1.31.31.5

16.414.716.017.7

18.317.517.917.0

16.815.213.7

3.12.1.2.6

.6

.5

.71.7

1.51.51.2

4.35.36.25.1

4.95.56.34.9

3.53.83.2

i Includes Newfoundland and Labrador.* Turkey is included with ERP countries and excluded from Asia. Exports to Germany are included

with those of ERP countries and, in the postwar period, relate almost wholly to exports to the three westernzones.

» Estimates based on incomplete data; fourth quarter by Council of Economic Advisers.* Not available.6 Data by area exclude "special category" exports of 172 million dollars in the third quarter of 1950,

which are included in total exports. Thus, exports by area wiil not add to total exports in this period.NOTE.—Data, in this table cover all merchandise, including reexports, shipped from the United States

customs area to foreign countries including, in 1947 to 1950, goods destined to United States armed forcesabroad for distribution in occupied areas as civilian supplies.

Detail will not necessarily add to totals because of rounding. See also footnote 5.


212


TABLE A—43.—United States domestic merchandise exports, by economic class, 1936-38 quarterlyaverage and 1947-50

Period

Quarterly average:1936-381947._1948 _19491950 »

1949— First quarter _ .Second quarter . . .Third quarterFourth quarter

1950— First quarter .Second quarterThird quarterFourth quarter >


1949— First quarterSecond quarter. _Third quarterFourth quarter

1950 — First quarterSecond quarterThird quarter _

Totaldomesticexports

Crudematerials

Crudefoodstuffs

Manu-factured

foodstuffs

Semi-manu-

factures

Finishedmanu-

factures

Millions of dollars

7313,7913,1332,9822,522

3,3023,3442,6662,615

2,3502,4782,4112,850

167400372445

(')

466549329436

431506424

(2)

34337316335

(')

396349325270

200180171

(2)

42439328222

(2)

256270174186

140151156

(2)

130446343339

(2)

386387310272

256271271

(2)

3582,1681,7731,641

(2)

1,7981,7891,5291,450

1,3241,3701,388

(a)

Percentage of total

100100100100

100100100100

100100100

22.810.611.914.9

14.116.412.316.7

18.320.417.6

4.78.9

10.111.2

12.010.412.210.3

8.57.37.1

5.711.610.57.4

7.88.16.57.1

6.06.16.5

17.811.810.911.4

11.711.611.610.4

10.910.911.2

49.057.256.655.0

54.553.557.455.4

56.355.357.6

i Estimates based on incomplete data; fourth quarter by Council of Economic Advisers.* Not available.

NOTE.—Data in this table cover all domestic merchandise shipped from the United States customs areato foreign countries including, in 1947 to 1950, goods destined to United States armed forces abroad for dis-tribution in occupied areas as civilian supplies.



213


TABLE A-44.—Indexes of quantity and unit value of United States domestic merchandise exportsby economic class, 1936-38 quarterly average and 1947-50

[1936-38=100]

Period

Quarterly average:1936-38194719481949 . .1950 2


1950 — First quarterSecond quarterThird quarter

October

Quarterly average:1936-381947... _1948194919502

1949 — First quarter _Second quarterThird quarterFourth quarter

1950— First quarterSecond quarterThird quarter..

October _

Totaldomesticexports

Crudematerials

Crudefoodstuffs i

Manu-factured

foodstuffs i

Semi-manu-factures

Finishedmanufac-

tures

Quantity indexes

100275214221187

233243200200

181194184

196

100123100126126

12915593

125

125143112

123

100397362435279

495438439368

287275266

304

100478350297230

317366235271

215251228

218

100203144150124

162167144128

121126125

127

100332257253218

264268236228

208221220

235

Unit value indexes

100188200185178

193188182179

177174179

187

100195223212217

216212212208

206212226

240

100248255225193

233233216214

202190188

190

100218223177156

191175175163

155143163

174

100169184174167

184179165164

164166168

178

100182193181177

190186181177

178174176

182

1 Indexes of crude and manufactured foodstuffs, particularly those of unit value in 1950, are influenced bylarge shipments of surplus food products. These shipments vary in kind and quantity from month tomonth and are sold at prices considerably below market quotations.

2 Average of ten months.NOTE.—The indexes of quantity are a measure of the volume of trade after the influence on value of changes

i n average prices has been el iminated. The indexes of unit value provide a measure of change in the averageprices at which trade transactions are reported in official foreign trade statistics, including change in averageprices that result from changes in the commodity composition of trade. The indexes for 1947 to 1950 arebased on data which include goods destined to the United States armed forces abroad for distribution tocivilians in occupied areas.


214


TABLE A-45.- -United States general merchandise imports, by area, 1936-38 quarterly average and1947-50

Period


1949— First quarterSecond quarter _Third quarterFourth quarter.

1950— First quarterSecond quarterThird quarterFourth quarter 3

Quarterly average:1936-381947 _19481949


1950— First quarterSecond quarterThird quarter ..

Totalgeneral

im-ports

Can-ada i

OtherWest-ern

Hemis-phere

ERPcoun-tries 2

OtherEu-rope

Asia aAus-traliaand

OceaniaAfrica

Millions of dollars

6221,4391,7811,6562,238

1,7891,6011,4781,755

1,8881,9272,3862,750

88282398388

(4)

378383348442

404478502

(4)

143568627611

(4)

662580562641

726643911

(4)

152174244211

(4;250190175228

240243324

(4)

30454935

(4)

34333336

444448

(4)

183249324296

(4)

328303265288

302363417

(4)

10394131

(4)

34392231

495247

(4)

17829884-

(4)

103747289

123103136

(4)

Percentage of total

100100100100

100100100100

100100100

14.119.622..323.4

21.123.923.525.2

21.424.821.0

23.039.535.236.9

37.036.238.036.5

38.533.438.2

24.412.113.712.7

14.011.911.813.0

12.712.613.6

4.83.12.82.1

1.92.12.22.1

2.32.32.0

29.417.318.217.9

18.318.917.916.4

16.018.817.5

1.62.72.31.9

1.92.41.51.8

2.62.72.0

2.75.75.55.1

5.84.64.95.1

6.55.35.7

1 Includes Newfoundland and Labrador.2 Turkey is included with ERP countries and excluded from Asia. Imports from Germany are included

with those of ERP countries and, in the postwar period, relate almost wholly to imports from the threewestern zones.

3 Estimates based on incomplete data; fourth quarter by Council of Economic Advisers.4 Not available.NOTE. Data in this table cover all merchandise received in the United States customs area from foreign

countries. General imports include merchandise entered immediately upon arrival into merchandisingchannels, plus entries into bonded customs warehouses.



215


TABLE A-46.—United States merchandise imports for consumption, by economic class, 1936-38quarterly average and 1947—50

Period



1950 — First quarterSecond quarterThird quarterFourth quarter l




Total im-ports forconsump-

tion

Crudematerials

Crudefoodstuffs

Manufac-tured

foodstuffs

Semi-manu-

factures

Finishedmanu-

factures

Millions of dollars

6151,4161,7731,6482,205

1,7571,5901,5011,744

1,8721,9042,3442,700

190441537463

(2)

503449424478

536513631

(2)

85254318333

(*)

340302287403

423346516

(2)

95164183185

(2)

182198194167

185213275

(2)

126311408355

00

396336306381

416480542

(2)

120246327311

(2)

336305290315

312352380

(2)

Percentage of total

100100100100

100100100100

100100100

30.931.130.328.1

28.628.228.227.4

28.626.926.9

13.817.917.920.2

19.419.019.123.1

22.618.222.0

15.411.610.311.2

10.412.512.99.6

9.911.211.7

20.522.023.021.5

22.521.120.421.8

22.225.223.1

19.517.418.418.9

19.119.219.318.1

16.718.516.2

* Estimates based on incomplete data; fourth quarter by Council of Economic Advisers,a Not available.NotB .—Imports for consumption include merchandise entered immediately upon arrival into merchandis-

ing or consumption channels, plus withdrawals from bonded customs warehouses for consumption.Detail will not necessarily add to totals because of rounding.Source: Department of Commerce (except as noted).

2l6


TABLE A—47.—Indexes of quantity and unit value of United States merchandise imports forconsumption, by economic class, 1936-38 quarterly average and 1947-50

[1936-38=100]

Period

Quarterly average:1936-381947191819491950 1. - -

1949— First quarterSecond quarterThird quarter _ _Fourth quarter

1950 — First quarterSecond quarterThird quarter _.

October

Quarterly average:1936-38— ._19471948 .1949 ...1950 » ..

1949 — First quarterSecond quarter _Third quarterFourth quarter


October

Totalmports forconsump-

tion

Crudematerials

Crudefoodstuffs

Manufac-tured

foodstuffs

Semi-manufac-

tures

Finishedmanufac-

tures

Quantity indexes

100108123120145

121116111131

137135154

170

100129139125151

129118116136

152139155

169

10096

109119114

121116104135

12194

125

122

100839197

119

9310510088

98113143

132

100130149143213

140129130169

188213219

266

10084

103101121

1059894

106

107119126

155

Unit value indexes

100213235224236

235224220217

223229248

263

100180203195202

206200193185

185194215

238

100311343330448

330306324352

410433485

498

100208212202201

205199205201

199199203

210

100191217198187

225208187180

176179197

215

100245266258250

267261258249

245248253

258

1 Average of ten months.

NOTE.—The indexes of quantity are a measure of the volume of trade after the influence on value of changesin average prices has been eliminated. The indexes of unit value provide a measure of change in the averageprices at which trade transactions are reported in official foreign trade statistics, including changes in averageprices that result from changes in the commodity composition of trade.


217


TABLE A-48.—Changes in selected economic series since 7939 and 7949 and during 1950

Source:Appen-

dixtableNo.

A-l

A-4

A-7

A-8

A-10

A-ll

A-13

A-16

A-17

A-18

A-19

A-20

A-23]

Economic series

Gross national productPersonal consumption expendituresGross private domestic investment .Net foreign investmentGovernment purchases of goods and

services _ ._ ...

National incomeCompensation of employees _ _ ._ _

Personal incomeDisposable personal incomePersonal net saving

Per capita disposable personal income:Current prices1950 prices

Gross national product, 1950 prices: Total ..Personal consumption expendituresGross private domestic investmentGovernment purchases of goods and

services

Labor force, including armed forcesCivilian labor force

"RmploymfintNonagriculturalAgricultural

Unemployment

Average gross weekly earnings:Manufacturing. . .Bituminous coal miningBuilding construction

Physical production index of goods: TotaL._AgriculturalNonagricultural ._ _

Industrial production : TotalDurable manufacturesNondurable manufactures.Minerals.-., .._

New construction: TotalPrivate

ResidentialNonresidentialOther private .

Public

Business expenditures for new plant andequipment ._

Inventories: Total _Manufacturing _.Wholesale tradeRetail

Sales: TotalManufacturingWholesale tradeRetail

Consumers' price index; All items. ._FoodApparelRent -

1939=100

1949

280265333

44

331

299294

284267319

234134

156151179

168

1141121281408436

230265233

160132165

161185154127

276369309411508168

348

256252284248

314327300305

170212189116

1950

Total 2

305283490

W

321

326318

306288419

249140

167159254

156

1161141311457833

247284241

178129189

183217172141

338470466479475186

349

(4)(4)(«)(4)

33172214186119

Firsthalf

292272447

(3)

310

308304

297280470

243139

8(4)

1151131281427541

239270231

(4)(4)180

173202166130

321446439429480178

309

269262299266

331350305320

169208184118

Secondhalf a

318293532

(3)

333

344333

316296370

254140

(4)(4)(4)

(4)

1181151341488125

255299250

8198

194233177150

355495494530470193

388

ii4)

(4)(4)(4)(4)

175221189120

Percentagechange i

1949 to19502

+9.1+6.7

+47.0(3)

-2.8

+8.9+8.3

+7.9+7.8

+31.4

+6.1+4.6

+7.1+5.3

+41.8

-7.3

+1.6+1.6+2.1+3.5-6.5-7.5

+7.4+7.3+3.0

+11. 5-2.1

+14.3

+13.6+16.8+11.3+10.4

+22.7+27.4+50.8+16.7-6.5

+10.6

+.14)

34)8g+.9

+1.1-1.6-4-2.6

1950,firsthalf,

to 1950,secondhalf 2

+8.9+7.6

+19.0-88.9

+7.4

+11.7+9.7

+6.2+5.6

-21.3

+4.7+.9

(4)(4)(4)

(4)

+2.6+2.1+4.8+4.4+7.6

-37.8

+6.6+10.5+7.9

(4)(«)

+10.1

+11.6+15.5+6.6

+15.2

+10.6+11.1+12.6+23.4-2.1+9.0

+25.8

334)4)

3+3.6+6.3+2.64-1.4

218


TABLE A-48.—Changes in selected economic series since 1939 and 1949 and during 1950—Continued

Source:Appen-

dixtableNo.

A-24

A-25

A-26

A-32

A-39

A-42

A-45

Economic series

Wholesale price index: All commoditiesFarm productsFoodsOther than farm products and foods

Prices received by farmers _Prices paid by farmers (including interest,

taxes, and wage rates)

Consumer credit outstanding, end of period _rnstfllrnfint credit

Profits before taxProfits after tax__. ..

Dividend paymentsUndistributed profits

International transactions in goods andservices:

ExportsImports _ _ _Export surplus

Merchandise exports, including reexports

General merchandise imports

1939=100

1949

201253229181

262

205

239246

425340205767

63515228

s 2, 229

6406

6266

1950

Total 2

209261215187

269

210

284305

618438234

1,083

631152895650

6345

6360

Firsthalf

199246224181

254

206

251274

512394216967

52985247

5 1, 082

6329

6307

Secondhalf 2

219276249196

286

213

284305

723480253

1,200

532353305571

6360

«413

Percentagechange 1

1949 to19502

+4.1+3.0

6.1+3.4

+2.8

+2.4

+19.0+24.0

+45.7+28.8+14.1+41.3

-11.4+26.9-70.8

-15.0

+35.1

1950,firsthalf,

to 1950,secondhalf 2

+9.9+12.5+11.2+8.7

+12.9

+3.6

+13.3+11.5

+41.1+21.8+17.1+24.1

+8.2+33.5-47.2

+9.4

+34.6

1 Changes are computed from data as reported and therefore may differ slightly from changes computedfrom the indexes shown here.

2 Estimates based on incomplete data.a Indexes and percentage change not computed because data change from positive to negative values.< Not available.61937=100.61936-38 average=100.

922781—51- -15 219


Appendix BThe Distribution of Income and Saving in

the United States

CONTENTSPage

The distribution of income 223The distribution of saving and liquid assets 225Statistical tables:

B-l. Distribution of spending units and total money incomebefore and after Federal income tax, by income groups,1949 226

B-2. Distribution of characteristics of low and high incomegroups, 1949 227

B-3. Percentage of spending units within various incomegroups having income from selected sources, 1949. . . 227

B-4. Proportion of spending units owning various types ofassets, by income groups, early 1950. . 228

B-5. Summary of saving of positive and negative savers, 1948and 1949 228

B—6. Money income and positive, negative, and net saving ofeach fifth of spending units, 1948 and 1949 229

B-7. Major types of expenditures of spending units reducingliquid assets during 1949, by income groups 229

B-8. Median liquid asset holdings by income level, early 1947,1948, 1949, and 1950 230

221


The Distribution of Income and Saving in theUnited States

The distribution of income

As the people of the United States are called upon to devote an increasedproportion of productive effort to defense, they can consider themselvesfortunate that the period just ended was one of great progress in raising liv-ing standards. Not only has total personal income increased, but, as com-pared with the prewar period, a higher proportion of income now goes to themiddle and lower income groups. Disparities between the quality and styleof goods available to low and higher income groups have been narrowed.The outstanding example is perhaps automobiles, where low-priced cars arein elements of serviceability and many elements of style equal to those inhigh-priced ranges. The clothing of the average working girl is neat andmodish, and to the casual observer little different from that of her wealthiersister; the variety of foods on sale in working-class neighborhoods rivalsthat of high income localities.

Nevertheless, there are still large numbers of families in the UnitedStates with small or inadequate incomes. According to the 1950 Survey ofConsumer Finances* in 1949, 33 percent of the spending units in theeconomy had less than $2,000 money income before taxes, and an additional21 percent had between $2,000 and $3,000 income before taxes.2 (Seetable B-l.) Allowing for Federal income taxes, the proportion of spendingunits below $3,000 is raised to 59 percent. State and local incomes taxes arenot included in these computations, but in general they are not very im-portant for lower income groups.

Table B-2 summarizes some of the data with regard to characteristics oflow income families which have been assembled by the Survey of ConsumerFinances. These data indicate that there are some factors which tend tomitigate the degree of disparity between the status of the very low and

1 The Survey of Consumer Finances has been conducted annually in postwar years forthe Board of Governors of the Federal Reserve System by the Survey Research Centerof the University of Michigan. The detailed findings of the Survey may be found in theFederal Reserve Bulletin.

The Bureau of the Census data on family income in 1949 collected in connection with theCurrent Population Survey and the 1950 Census of Population will be published in the nearfuture.2 A spending unit consists of all persons related by blood, marriage, or adoption who livetogether and pool their income for major items of expense. A family may contain morethan one spending unit; for example, an aged couple dwelling with children may haveseparate financial arrangements. Family income is on the average higher than spendingunit income. According to the Survey of Consumer Finances for 1950, the mean familyincome in 1949 was $3,760 as compared with a mean spending unit income of $3,270.

223


middle income groups. For example, as compared with higher incomegroups, a greater percentage of the under-$2,000 group are one-person units,a larger fraction are retired persons, who in some cases have adequatesavings, and a greater proportion live in rural areas, where costs of livingmay be somewhat lower. Of those living in rural areas, a considerablefraction are farm families, who may produce food and fuel for their ownconsumption.

After these qualifications are made, however, it is apparent that there stillremains an economic and social problem of great magnitude. For exam-ple, 54 percent of the under-$ 1,000 group and 65 percent of the under-$2,000 spending units have heads between the ages of 25 and 64 years, aperiod of life in which earnings should be adequate. Over half live inmetropolitan or other urban areas. A lack of adequate education is indi-cated in a large number of cases, since only 29 percent of the under-$ 1,000group progressed beyond grammar school. The position of families whomust depend on the earnings of a woman head is particularly unfortunate,due to the pressure of family responsibilities and the discrimination againstwomen in gainful employment. In the under-$2,000 family income group,according to statistics of the Bureau of the Census for 1948, 26 percentof nonfarm families of two or more persons (whose heads were between21 and 64 years old) were headed by women, as compared with only6 percent in higher income groups.1

Table B-3 shows that in 1949 a much smaller proportion of the under-$2,000 income units received wages and salaries than in higher incomegroups, while a relatively high proportion received pensions and allow-ances. The large number of units at all income levels receiving pensionsand allowances as compared to interest, dividends, and rents is one of themore interesting findings of the consumer survey. In the $7,500-and-overgroup, a surprisingly small proportion, 60 percent, received wages and sal-aries, while 43 percent received interest and dividends. A relatively largenumber in the upper income groups also received entrepreneurial income.

The fact that expenditures of the lower income groups exceed the incomeof those groups by large amounts year after year indicates that some lowincome units have previously been in a more favorable position. Family in-come tends to rise with age of the head until about 45 or 50, after whichit declines. Temporary business reverses, fluctuations in farm prices, sick-ness, and chance factors also contribute to shifting families from one incomelevel to another. More data are needed on the degree of shifting upand down the income scale which families undergo over a period of years.The Survey of Consumer Finances shows that around 67 percent of theunder-$2,000 income group in 1949 were in the same or lower incomegroup in the preceding year.2

3 "Materials on the Problem of Low-Income Families," assembled by the staff of theSubcommittee on Low-Income Families of the Joint Committee on the Economic Report.81st Cong., 2d sess., Table 6, p. 13.2 Owing to a relatively large number of cases in which previous income was not ascertain-able, these proportions are not exact.

224


About half the spending units in the under-$2,000 income group haveassets worth at least $1,000, while one-fourth have assets worth $5,000or more. As shown in table B-4, 44 percent of the under-$ 1,000 grouphave liquid assets, as compared with 69 percent for all income groups, and24 percent own automobiles. The fact that a larger proportion of thisincome group own homes or farms than in the population at large indicatesa disproportionate number of units with heads in older age classes.

Distribution of saving and liquid assets

In 1949 about 60 percent of spending units had net savings, about 35percent had expenditures in excess of income, and the remainder aboutbroke even. Spending units with incomes in excess of expenditures saved23 billion dollars, compared with 14 billion of negative saving on the part ofspending units with deficits, as shown in table B-5. There was thus a netsaving of 9 billion dollars in 1949 as compared with 11 billion in 1948.1 Themean saving of all units in 1949 was $180 as compared with $220 in 1948.

As shown in text table 6, the lowest one-fifth of income units spent anamount equal to one-and-one-half times their incomes in 1949. The middlefifth broke even and the upper income fifth saved about 16 percent ofincome. The saving of this fifth, however, more than counterbalanced allthe dissaving done by the lower segments of the population. Thus theupper income groups accounted for 131 percent of total net saving of allunits in 1949, as shown in table B-6.

Sixty-two percent of positive saving (i. e., saving of all families with netpositive saving) in 1949 was concentrated in the top one-fifth of incomereceivers, while negative saving was more widely distributed. However,the lowest fifth of income receivers not only dissaved much more heavily inrelation to their incomes than did upper income receivers, but actually per-formed a disproportionately large amount (30 percent) of total negativesaving.

The purchase of durable goods (which is not included in saving) wasan important reason why saving was low or negative for many families inthe last two or three years. In 1949, 66 percent of spending units withnegative saving purchased durable goods, in comparison with only 46 per-cent of positive savers. Of the negative savers, 54 percent increased their in-debtedness and 58 percent decreased their holdings of liquid assets (bankdeposits, saving and loan shares, and U. S. Government bonds). TableB-7 shows the major reasons given for reducing liquid assets in 1949 byspending unit respondents. Medical expense was the most frequent rea-son given, being cited by 43 percent of units reducing assets. Purchaseof automobiles or other durable goods was given as a reason for reducingassets in 26 percent of cases. In some cases, liquid assets were converted

3 This concept of saving differs from that of net saving in the national income andproduct accounts. See Appendix I to Part IV, 1950 Survey of Consumer Financesfor a discussion of differences.

225


into other types of tangible assets, such as homes, or into business equities.While a large proportion of spending units have dissaved in each postwaryear, in early 1950 most units were found to have assets greater than out-standing liabilities, indicating that in all probability the same units did notdissave year after year.

The last table (B-8) shows the postwar decline in median liquid assetholdings by income level. Not only has the median holding declined fairlysteadily for all income groups, but the percentage of units with no liquidassets (outside of currency) has grown. Since there has been a steadygrowth in the number of spending units, total holdings of liquid assets havegrown somewhat since the end of the war.

TABLE B—1.—Distribution of spending units and total money income before and after Federalincome tax, by income groups, 1949

[Percent]

Income groups

Under $1,000$1,000-$1,999$2,000-$2,999___$3,000-$3,999 .$4,000-$4,999— . _ _$5,000-$7,499$7,500-$9,999$10,000 and over

All cases

Median income *Mean income 6

Spending units l

BeforeFederalincome

tax

14192119111123

100

$2, 700$3,270

After Fed-eral income

tax (dis-posable in-income) 3

1521231811822

100

$2, 600$3, 000

Total money income 2

BeforeFederalincome

tax

29

16191519

} ,0

100

After Fed-eral income

tax (dis-posable in-income) 3

21119211616

} »100

1 The spending unit consists of all persons related by blood or marriage who live in the same dwelling unitand pool their income for major items of expense.2 Income data for each year are based on interviews during January, February, and March of the followingyear.

3 Money income after deduction of estimated Federal personal income tax liability. See Appendix to PartIII, 1950 Survey of Consumer Finances, for method of estimating disposable income. Money incomefigures exclude capital gains or losses and tax estimates make no allowance for such gains or losses.

4 The median amount of income is that of the middle spending unit when all units are ranked by size ofincome.

6 The mean amount is the average obtained by dividing aggregate income by the number of spending units.

Source: 1950 Survey of Consumer Finances, sponsored by the Board of Governors of the Federal ReserveSystem, and conducted by the Survey Research Center of the University of Michigan.

226


TABLE B—2.—Distribution of characteristics of low and high income groups, 1949

[Percent]

Characteristic of spending unit

Size:One personTwo persons . _ _Three or more persons

Race: 1

WhiteNegro.- . _ _ _

Place of residence:Metropolitan areaOther urban areaRural area _ _ _

Number of income receivers:NoneOne .Two or more _ _

Age of head:Under 25 years25-64 years. ...65 years and over

Occupation of head:RetiredFarm operators ....Unskilled and service workersAll other occupations

Education of head:No educationGrammar schoolHigh school and colleges

All spending units 2

Money income before taxes

Under$1,000

442927

8315

143551

38413

115435

14241547

96129

100

$1,000-$1,999

372825

8910

234136

8317

206514

8111863

44748

100

$2,000-$2,999

242749

927

283933

8119

14778

47

1772

24553

100

$3,000 andover

92962

973

393823

6832

4905

259

83

12969

100

1 Less than one-half of 1 percent were "other" race.2 Detail for each characteristic will not necessarily add to 100 because of a small percentage of non-ascertain-

able cases.Source: Same as appendix table B-l.

TABLE B—3.—Percentage of spending units within various income groups having income fromselected sources, 7949 1

[Percent of units within each income group]

Money income before taxes

Under $1,000$1,000-$1,999$2,000-$2,999$3,000-$3,999$4,000-$4,999$5,000-$7,499$7,500 and over

AH spending units, _.

Wages andsalaries

46758691918760

78

Pensionsand allow-

ances

3836282324189

28

Interestand divi-

dends

978

11122043

12

Rent

7689

121323

9

Selected source of income

1 In addition 9 percent of spending units had income from farming and 9 percent from unincorporatednonfarm business.

Source: Same as appendix table B-l.

227


TABLE E-4.—Proportion of spending units owning various types of assets, by income groups,early 1950

[Percent]

Previous year's money income beforetaxes

Under $1,000 _. _..$1,000-$1,999 _ _$2,000-$2,999$3,000-$3,999_ _ __$4,000-$4,999$5,000-$7,499 _ _ _ _ _$7,500 and over

All income groups

Liquidassets 1

44546874869499

69

Auto-mobile

24375463748289

55

Home orfarm 2

50324046556266

46

Other realestate 3

9111216182644

16

Businessinterest «

3556

101536

8

Corporatestock •

2257

101030

7

1 Includes all types of U. S. Government bonds, checking accounts, savings accounts in banks, postalsavings, and shares in saving and loan associations and credit unions. Excludes currency.

2 Owner-occupied home or farm.3 Real estate other than home or farm on which owner is living. Includes lots, one- or two-family houses,

apartment houses, summer or week-end homes, commercial or rental property, farms owned by nonfarmersand additional farms and land owned by farmers, and other types.

* Full or part interest in a nonfarm unincorporated business or privately held corporation.* Common and preferred stock of corporations open to investment by the general public. Excludes stock

of privately held corporations, U. S. Government securities, and bonds of corporations and State, local, andforeign governments.


TABLE B-5.—Summary of saving of positive and negative savers, 1948 and 1949

Item

Spending units (millions) :All units _ _

Positive saversZero saversNegative savers

Aggregate saving (billions of dollars) :All units (net saving)1

Positive savers 2 _ _ _.Negative savers 2 _ __

Mean saving (dollars per spending unit) :All units (net saving) r , , . _ _ _ _ _ _ _ „, ^ , _.„.,„

Positive savers 2

Negative savers 2 _ _ _ _ _

1948

51

323

16

11

24—12

220

750—800

1949

52

313

18

9

23—14

180

750—790

1 Net saving does not entirely correspond conceptually with personal net saving as denned in the nationalincome and product statistics. (See chart 26, pp. 147 and 149, and table C-2.) For an explanation of thedifferences, see Appendix I to Part IV of the I960 Survey of Consumer Finances, Federal Reserve Bulletin,November 1950.

2 Aggregate and mean saving of units with positive or negative saving rather than of all items of positive ornegative saving.



228


TABLE B-6.- -Money income and positive-, negative, and net saving of each fifth of spending units,1948 and 7949

Spending units ranked by size ofincome

Lowest fifthSecond fifthThird f i f th _ _ _ _ _ _Fourth fifthHighest fifth

All spending units

Percentage of total accounted for by each fifth 1

Money income 2

1948

411172246

100

1949

411172345

100

Positive saving 3

1948

36

121960

100

1949

26

121862

100

Negative sav-ing*

1948

2615161825

100

1949

3018181618

100

Net saving fi

1948

-22—4

82197

100

1949

-41-12

121

131

100

* Income and saving data for each year are based on interviews in January-March of the succeeding year.The figures in this table cannot be used to measure precisely changes in income and saving because of thelimited size of the sample. However, it is believed that the data show with reasonable accuracy the natureof certain broad changes which occurred in the pattern of income and saving during these years.

The surveys for 1948 and 1949 differ somewhat in their definitions of saving, as discussed in the 1950Survey of Consumer Finances, Part IV, Appendix I.3 Annual money income before taxes; revised from data presented in the "Annual Economic Review,January 1950" by the Council of Economic Advisers, tables B-4 and B-5, p. 144.8 Positive saving comprises the saving of all spending units with money incomes in excess of expenditures.4 Negative saving comprises the dissaving of all spending units with expenditures in excess of moneyincome.

• Net saving (plus or minus) is positive saving less negative saving for the combination of all units in eachincome quintile.


TABLE B—7.—Major types of expenditures of spending units reducing liquid assets during 1949,by income groups 1

[As percent of spending units reducing liquid assets in each income group]

1949 income of spending units reducing liquidassets

Medical _ _Food, clothing, and nondurable goods *Automobiles and other durable goods -Investments and reduction of debt 3Other large outlays *

All incomegroups

4334261841

Under$2,000

4149131635

$2,000-$4,999

4631301638

$5,000 andover

3817352557

1 Data are not comparable to the 1949 survey findings on reduction of liquid assets because of changes inthe wording of the questionnaire. This table is based on answers to two questions asked of spending unitsreporting reductions in liquid assets: "What sort of things did you use this money for?" and "Did you haveany large expenses we did not talk about, for instance, doctor and hospital bills, expenses for moving ortrips or the like?"2 Reported as reasons for reduction of liquid assets.

3 Investments include purchases of securities and real estate and investment in privately owned business.< Includes repairs and additions to houses, travel, amusement, education, taxes, car repairs, moving, and

farm operating expenses.Source: Same as appendix table B-l.

229


TABLE B-8.—Median liquid asset holdings by income level, early 1947, 1948, 1949, and 1950

Income before taxes

Under $1,000$1,000-$1,999$2,000-$2,999$3,000-$3,999_._ _ .$4,000-$4,999 ,$5,000-$7,499$7,500 and over

Median holdings of all unitsMedian holdings of those with liquid assets-

Percent ofspendingunits ateach in-

come level,1949

1419211911115

Median liquid asset holdings

1947

0$40480900

1,4002,7507,250

$470$890

1948

0$.80240490840

1,7606,290

$350$820

1949

0$80150270500

1,3504,500

$300$790

1950

0$10160350500

1,1304,270

$250$810


230


Appendix C

The Nation's Economic Budget

CONTENTSPage

C-l. The Nation's Economic Budget, calendar years 1949 and 1950. 235C-2. Consumer account, calendar years 1949 and 1950 236C-3. Business account, calendar years 1949 and 1950 237C-4. International account, calendar years 1949 and 1950 . . . 237C-5. Government account (Federal, State, and local), calendar

years 1949 and 1950 238C-6. Federal cash receipts from the public other than borrowing,

calendar years 1949 and 1950 239C-7. Federal cash payments to the public by function, calendar

years 1949 and 1950 239C-8. Federal cash payments to the public by type of recipient and

transaction, calendar years 1949 and 1950 240

23I


The Nation's Economic Budget

The Nation's Economic Budget provides a comprehensive view ofnational economic activity by major economic groups. Such a summary isgiven in table C-l. It shows the total gross national product or expenditureas well as the receipts and expenditures of the major economic groups andthe net additions or absorption of saving of these groups for calendar year1949 and the first and second halves of 1950.

Column 1 indicates the major flow of receipts or income. This columncontains not only income arising from current production but also receiptsof government transfer payments and interest. The total of incomes fromcurrent production, shown in roman type, adjusted for the statistical dis-crepancy between total receipts and expenditures, gives a total equal to thegross national product. Transfers to individuals, government interest, andnet cash loan transfers abroad are not included in this total. Total govern-ment cash receipts, which differ from receipts arising from current produc-tion by the amount in line 13, are also shown.

In column 2 of this same table are expenditures for current output bythe four major economic groups: personal consumption expenditures,gross private domestic investment, net foreign investment, and govern-ment expenditures for goods and services. These, shown in roman type, areequal to the gross national product. Total government cash transfer pay-ments are also shown.

Government cash transfers, on the expenditures side in column 1, areshown as receipts by consumers, and by foreign countries and internationalinstitutions. The sum of these transfer receipts, however, does not exactlyequal government transfer payments. This is due to the use of somewhatdifferent bases for measurement of various components of receipts and pay-ments. For example, government interest payments are recorded on acash basis; interest receipts in the consumer account are recorded on a netaccrual basis and include interest paid by government corporations. Thedifference resulting from the two methods of estimating is included in theadjustment item (line 20).

Column 3 shows the excess of receipts (+) or expenditures ( — ) for thevarious accounts. These items include personal net saving, the governmentcash surplus or deficit, the excess of international receipts or investment, andthe excess of gross investment over business receipts. The total excess ofreceipts must equal the total excess of expenditures, since national income

233


and product are conceptually equal. Personal net saving., for example,which is an excess of receipts, must be matched by an excess of investment bybusiness or a government deficit, or both. But the adjustments made in thereceipts items (column 1) must also be made in column 3 in order tobalance the positive and negative items.

While the summary table on the Nation's Economic Budget gives a com-prehensive view of the economy, additional detail is needed for analyticalpurposes. Such detail is shown in the tables that follow, the "accounts"for the major economic groups. More complete statistics on nationalincome and product and their constituents are published in the "Survey ofCurrent Business," July 1950. Some of this detail can be found in appendixA of this review. Another source of the data relating to the Federal Gov-ernment is the Budget of the United States. The Council's Review ofJanuary 1950, appendix A, contains a more extended discussion of theNation's Economic Budget.


TABLE G-l.—The Nation's Economic Budget, calendar years 1949 and 1950[Billions of dollars, annual rates, seasonally adjusted]

Economic group

CONSUMERS1 "Disposable income arising from nvirrfmt prndnfitior)2. Government transfers and net interest payments

3. Disposable personal income " . -4. Personal consumption expenditures5. Personal net saving (-J-) _ _ .

BUSINESSfi. Rfitainp.d business rftopipts from current production7 O-ross private dom.Astifi investment8. Excess of receipts (+) or investment (— )

INTERNATIONAL9 U S Government cash loan transfers abroad

10. Net foreign investment11. Excess of receipts (+) or investment (— ) . _ . _ . _

GOVERNMENT (Federal, State, and local)12. Tax payments or liabilities13 Adjustment to cash basis

14 Cash receipts from the public15 Purchases of goods and services16 Government transfers

17 Cash payments to the public18. Excess of receipts (+) or payments (— )

ADJUSTMENTS19 For receipts relating to gross national product20 Other adjustments

21. Gross national product

1949

Receipts

171.216.3

187.4

30.2

1.1

56.21.4

57.6

-2.0—2.0

255.6

Expend-itures

178.8

33.0

.4

43.316.9

60.2

255.6

Excess ofreceipts(+)or

expendi-tures (— )

+8.6

—2.8

+.7

—8.5

-2.0-2.0

1950, first half

Receipts

174.222.3

196.6

30.1

— .2

62.2—3.4

58.8

&266. 8

Expend-itures

183.8

44.3

—1.8

40.622.4

68.0

266. 8

Excess ofreceipts(-f-)or

expendi-tures (-)

+12.7

-14.2

+1.6

-4.2

&

1950, second half 1

Receipts

191.816.0

207.6

28.4

.1

76.2-13.5

62.7

-5.7+13.6

290.6

Expend-itures

197.7

52.7

-3.4

43.616.2

59.8

290. 6

Excess ofreceipts(+)or

expendi-tures (-)

+10.0

-24.3

+S.5

+2.9

-5.7+13.6

Ul

i Estimates based on incomplete data; third quarter profits and all fourth quarter data by Council of Economic Advisers.NOTE.—Items relating to current production of goods and services are shown in roman type. Transfer payments and receipts and subtotals including them are in italics; they are not

included in the gross national product.Detail will not necessarily add to totals because of rounding.Sources: Based on the national income and product statistics of the Department of Commerce and on Federal cash receipts from and payments to the public compiled by the

Bureau of the Budget. See also footnote 1.


Explanatory notes to table C-l:

Lines 1-5: See table C-2, Consumer account.Lines 6-8: See table C-3, Business account.Lines 9-11: See table C-4, International account.Lines 12-18: See table C-5, Government account.Line 19: The adjustments bring the estimates on the receipts side into

agreement with those on the expenditure side of the accounts. Theyinclude the statistical discrepancy less "subsidies less current surplus ofgovernment enterprises." The statistical discrepancy represents the dif-ference between the two independent estimates of gross national product:income received from current output and expenditures for this output."Subsidies less current surplus of government enterprises" are includedin national income, but not in the gross national product.

Line 20: Other adjustments are net and are the amount necessary for bal-ancing the excess of receipts ( + ) and excess of expenditures ( — ) . Theyare required because some items of government cash payments are eithernot recorded in private receipts at all (such as purchases of existing assets),or they are recorded in a different time period from that in which pay-ment is made. Government cash receipts also include some items notdeducted from private incomes, or deducted in a different period.

TABLE C-2.—Consumer account, calendar years 1949 and 1950


Receipts or expenditures

Personal income arising from current production of goods andservices:

Wage and salary receipts and other labor incomeFarm proprietors' incomeBusiness and professional income 2 . ...DividendsPrivate interest and rental income ._Business transfer payments

Total -

Plus: Net interest paid by government _ _Dividend on National Service Life InsuranceOther government transfers to individuals _ _ .

Equals: Total personal incomeLess: Personal tax and nontax payments _. _.

Equals' Disposable personal incomeLess : Personal consumption expenditures 3

Equals: Personal net saving (-}-)

ADDENDUM

Personal income arising from current production . __Less* Personal tax and nontax payments

Equals: Disposable income arising from current production

1949

134.913.421.07.8

12.0.7

189.9

4.7

11.6

206.118.7

187.4178.8

+8.6

189.918.7

171.2

Total i

145.213.023.28 9

12.4.7

203.4

4.82 7

11.7

222.420.4

202.1190.8

+11.3

203.420.4

183.0

1950

Firsthalf

138.312.221.88 2

12.2.7

193.4

4.75 3

12.3

215 819.2

196 6183.8

+12 7

193.419 2

174.2

Secondhalf i

152 213.624.69 6

12.57

213 2

4.81

11 1

229 121.4

207 6197.7

+10.0

213.221 4

191. 8

i Estimates based on incomplete data; fourth quarter by Council of Economic Advisers.> Includes adjustment for inventory valuation.* For detail, see appendix table A-2.


236


TABLE G-3.—Business account, calendar years 1949 and 1950


Receipts or investment

Corporate profits before tax _

Less: Corporate tax liability . . _Dividend payments

Equals: Corporate undistributed profits

Plus: Capital consumption allowances 2

Corporate inventory valuation adjustment 3

Equals: Retained business receipts from current production

Less: Gross private domestic investment 4

Construction . _Residential (nonfarm)Other private construction

Producers' durable equipment .Change in inventories

Equals: Excess of receipts (+) or investment (—)

1949

27.6

10.67.8

9.2

18.82.2

30.2

33.0

17.38.39.0

19.5-3.7

-2.8

1950

Total i

40.2

18.38.9

13.0

20.9-4.7

29.2

48.5

21.712.49.3

24.52.4

-19.3

Firsthalf

33.3

13.68.2

11.6

20.1-1.6

30.1

44.3

20.611.69.0

21.12.7

-14.2

Secondhalfi

47.0

23.09.6

14.4

21.7-7.7

28.4

52.7

22.813.29.6

27.92.0

-24.3

1 Estimates based on incomplete data; third quarter profits and all of fourth quarter data by Council ofEconomic Advisers. Corporate tax liability for second half includes an estimate for the effect of the excessprofits tax.2 Includes capital consumption allowances on noncorporate capital, including residences.3 The adjustment measures the excess of the value of the change in the volume of nonfarm business inven-tories, valued at average prices during the period, over the change in the book value of nonfarm inventories.4 For additional detail, see appendix table A-3.


TABLE C-4.—International account, calendar years 1949 and 1950

[Billions of dollars, annual rates]

Receipts or investment

U.S. Government cash long-term loans (net) 2

Plus: Cash payments to International Monetary Fund andInternational Bank 3

E quals : U . S . Government cash transfers on loans (receipts)

Surplus of exports of goods and servicesLess: Net unilateral transfers *

Government 8

Private

Equals: Net foreign investment _

Excess of receipts (+) or investment (— ) _ _

1949

0.9

.2

1.1

6.2

5.3.5

.4

+.7

1950

Total i

0.2

-.3

-.1

1.8

4.0.4

-2.6

+2.5

Firsthalf

0.3

-.5

-.2

3.0

4.3.4

-1.8

+1.6

Secondhalfi

0.1

.1

.6

3.6.4

-3.4

+3.5

1 Estimates based on incomplete data; fourth quarter by Council of Economic Advisers.2 Includes only cash withdrawals under loan agreements. Does not include noncash transactions such aslend-lease and surplus property credits.3 Cash payments on subscriptions. In the first half of 1950 the International Monetary Fund returnedover 500 million dollars of cash (annual rate) to the U. S. Treasury in exchange for United States notes.4 Net unilateral transfers are included with government or private expenditures for goods and services.For example, remittances (gifts) made by American citizens to relatives or charitable groups abroad areincluded with consumer expenditures. Government aid in the form of grants is included in governmentpurchases of goods and services. Thus, net unilateral transfers must be deducted from the export surplus toavoid double counting.5 Unilateral aid included in appendix table C-8 is on a Daily Treasury Statement basis and is gross.


237


TABLE G-S.—Government account (Federal, State, and local), calendar years 1949 and 19501


Receipts or expenditures

Receipts:Tax and nontax payments or liabilities: 8

FederalState and local

TotalAdjustment to cash basis:

Noncash receipts *Excess of cash receipts over tax liabilities or payments «.

Cash receipts from the public

Expenditures:Purchases of goods and services:

Federal . _ .State and local

Total .Other government payments:

Transfers to individuals.Cash interest payments to the public *Loans to foreign governments and subscriptions to In-

ternational Bank and International Monetary Fund 7_All other 8

Total

Cash payments to the public

Cash surplus (-J-) or deficit (—) . _ __

ADDENDUMFederal:

Cash receiptsCash payments _ _ _

Surplus (+) or deficit (— ) _

State and local:Cash receiptsCash payments

Surplus (+) or deficit (— )

1949

39.217.0

56.2

—1 8+3.2

57.6

25.318.0

43.3

11.64.3

1.1

16.9

60.2

-2.5

41. 342.6

-1.3

16.317.5

—1.3

Total 2

50.119.1

69 2

— 1 2-7.2

60 8

22.719.4

42.1

14.44.2

-.1.8

19.3

61.4

-.6

42.441.9

+.5

18.419.5

—1.1

1950

Firsthalf

43.718.4

62.2

—1 3-2.1

58.8

21.818.8

40.6

17.64.2

-.2.8

22.4

63.0

—4.2

41.144.0

—2.9

17.719 0

—1.3

Secondhalf2

56.419.8

76 2

—1 2-12.3

62 7

23.620.0

43.6

11.24.1

.1

.8

16. 2

59.8

+2.9

43.839.9

+3/9

18.919 9

—1.0

* This table reconciles cash receipts and payments to the public with estimates of government receiptsand expenditures included in the national income and product accounts. Cash receipts or payments repre-sent the consolidated cash accounts of the Federal Government, including the trust funds, and State-localgovernments. All intergovernmental transactions are excluded. The receipts of government corporationsand the Post Office are offset against expenditures and the net expenditure included as a cash payment.Grants-in-aid to State and local governments are included as a cash payment of the Federal Governmentand not included as either a receipt or payment of the States or localities.

2 Estimates based on incomplete data.3 Personal and indirect business tax payments, corporation tax liabilities, and contributions for social

insurance. Estimate for second half of year includes an estimate for the effect of the excess profits tax.4 Consists of deductions from government employees' salaries for retirement funds, and government

contributions to retirement funds, National Service Life Insurance and U. S. Government life insurancefunds.

^Includes excess of corporation tax receipts over liabilities and excess of personal tax receipts overpayments. Cash receipts also include some items of miscellaneous receipts not included in tax and non-tax payments, such as receipts from sales of surplus property.

6 Does not agree with net ^nterest paid by government (appendix table C-2) which is on a net accrualbasis and includes interest paid by government corporations.

7 See appendix table C-4, International account.8 Includes all other cash payments less noncash payments for goods and services. Other cash payments

include net payments by government corporations (except capital formation), net prepayments, and theexcess of checks paid over checks issued. Noncash purchases of goods and services include deductionsfrom government employees' salaries for retirement funds and the government contribution to such funds.


238


TABLE C—6.—Federal cash receipts from the public other than borrowing, calendar years 1949 and1950


Cash receipts

Direct taxes on individualsDirect taxes on corporationsEmployment taxes _Excises and customs. -.Surplus property receipts .Deposits by States, unemployment insuranceVeterans' life insurance premiumsOther .Less: Refunds of receipts

Total Federal cash receipts from the public

1949

18.412.02.57.9.5

1 0.4

1 4—2.8

41.3

Total i

19.39,93.48.6.2

1.2.5

1 5—2.2

42 4

1950

Firsthalf

18 49.93.48.2.3

1.1.5

1 4—2.2

41 1

Secondhalf i

20.19.93.49.0.1

1.3.5

1 6— 2.2

43 8



TABLE C—7.—Federal cash payments to the public by function, calendar years 1949 and 1950


Function

Military servicesInternational security and foreign relations _Veterans' services and benefitsSocial security, welfare, and healthA griculture and agricultural resources _ _ -InterestOther .Deductions from Federal employees' salaries for retirementClearing account for outstanding checks and telegraphic reports-

Total Federal cash payments to the public

1949

12.96.07.12.73.04.37.1-.3—.2

42.6

Total i

13.74.18.93.31.34.16.9-.4—.1

41.9

1950

Firsthalf

11.94.4

11.83.12.44.27.2-.4-.7

44.0

Secondhalfi

15.43.96.13.5.2

4.16.6-.4

.5

39.9

i Estimates based on incomplete data.NOTE.—Detail will not necessarily add to totals because of rounding.


TABLE G-8.—Federal cash payments to the public by type of recipient and transaction, calendaryears 1949 and 1950


Cash payments

Direct cash payments for goods and services, excluding militaryservices: a

Payments to individuals for services rendered:Civilian wages and salaries (excluding Post Office) :

Federal3 ._ .Grants- and loans-in-aid for performance of speci-

fied services, net 4

Total

Payment to business for goods and services:Public works:

Federal.Grants-in-aid and loans for public works

Other goods and services 5 _Payments to foreign countries and international institu-

tions for goods and services _

Total

Loans and transfer payments to individuals:Social insurance and public assistance:

Federal emplovees' retirement benefit paymentsOld-age and disability benefit paymentsUnemployment insurance benefit payments .Grants-in-aid for public assistance -

Keadjustment benefits, pensions, and other payments toveterans 6

Loans to home owners, net-Interest 7_.Other

Total

Loans, investments, subsidies and other transfers to businessand agriculture:

Farmers:Price support, net (including supply program)International Wheat AgreementOther loans and direct subsidies to farmers-

Business:Home mortgage purchases from financial institutions. ..Loans, netDirect subsidy payments . .

Subsidy arising from the postal deficitInterest T _ __ ._

Total

Loans and transfer payments to foreign countries and interna-tional institutions:

European Recovery Program loans and grantsOther loans (net withdrawals) _ _Other grants9

Subscriptions to the International Bank and MonetaryFund (net cash withdrawals)

Total . . . .

Military services—cash payments for goods and servicesClearing account for outstanding checks and telegraphic reports.

Total Federal cash payments to the public .

1949

2.5

.8o O

1.5.4

1.0

.1

3.0

,21.01.91.1

5.5-.21.3.5

11.3

1 9(8)

.6

.6

.2(8)

.63.0

6 9

4.1(*)

1.5

.2

5.8

12.5-.2

42.6

Total i

2.6

,6

3.2

1.7.6

1.0

.1

3.4

.31.31.61.2

7 9—.21.2.3

13 5

.1

.7

.4

.2(8)

62.9

4 8

2 8(8)

1.2

-.3

3.9

13.1-.1

41.9

1950

Firsthalf

2.7

.6

3 3

1.7.6.9

.1

3.3

.31.12.21.1

10.5—.31.2.3

16 4

1 0.1.8

.4

.2(8)

.63.0

6 1

3.3.1

1.3

4.2

11.4-.7

44.0

Secondhalfi

2 6

6

3 2

1.76

1.2

.1

3 6

.31 5.9

1 2

5 3—.11.2

3

10 6

—1 0.1.6

.4

.1(8)

.52.9

3 6

2 4(8)

1.2

3.6

14.8.5

39.9

See footnotes on following page,

24Q


1 Estimates based on incomplete data.2 Differs from the national income concept of "government purchases of goods and services" by excluding,

in addition to military services, farm price support expenditures and unilateral aid to foreign countries.Grants to States and localities for public works, here included as a Federal expenditure, would be includedin the national income accounts as a State and local expenditure. There are other less significant differ-ences between the two concepts.3 Excludes payroll deductions for Federal employees' retirement.4 Includes all grants-in-aid and loans to public bodies0 j to public bodies for purposes other than public works and publicassistance. Includes, in addition, one-third of Federal expenditures for veterans' tuition, books, andsupplies.

6 This figure is obtained as a residual by deducting all other expenditures from total cash payments to thepublic. Owing to the fact that data are incomplete for calendar year 1950, the residual is subject to a highmargin of error.6 Includes cashing of terminal-leave bonds, mustering-out pay, and National Service and Governmentlife insurance refunds and benefits in addition to veterans' pensions and readjustment benefits. Includesonly one-third of payments for veterans' tuition, books, and supplies.7 Includes a small amount of interest on tax refunds in addition to interest on the public debt. In addition,it includes payment of about 150 million dollars to business and about 50 million dollars to individuals in1949 resulting from a nonrecurring change in the method of reporting interest payments. Interest paid tobusiness includes over 100 million dollars of interest paid each year by the Federal Government to Stateand local governments. Interest in appendix table C-2 is net, and is on an accrual rather than a cash basis;it includes interest paid by State and local governments and by government corporations.8 Less than 50 million dollars.

9 Includes expenditures for Mutual Defense Assistance Program.NOTE.—Detail will not necessarily add to totals because of rounding.

241


ERP January 1951

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