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the volume would be rather low. It had, in fact, been low when the loan program was restricted to farm housing and buildings only. This may account for the relatively low figure allocated this year.

Mr. BLATNIK. There is a question I meant to ask you earlier, Mr. Murray. You directed your comment to the needs of the rural areas and to that part of the public works program which would go into effect at once, namely, the $600 million program. Do you have any recommendation, or any opinion or thoughts whatsover to submit for the record on the rest of the program; that is, the so-called standby program where standby authority is provided and if certain economic conditions are met which indicate the beginning of a decline in the economy which appears to be leading us into another recession, then before too much of that time has elapsed, the President can trigger these public works programs to help stop the downturn.

Mr. MURRAY. In the framework of my presentation I would feel that if these changes were made in the standby it would certainly help the situation in the rural areas. In other words, you still have the same problem of a limitation of a 50-percent grant and the exhaustion of the local community's credit so that they cannot participate. I do not know how the legislation will finally be written or wedded to the numerous other bills that have been introduced. We particularly like some sections of Mr. Rains' bill with the emphasis on the smaller communities, but as a general comment it would seem to us that if this bill does not exclude these rural areas, because they are not designated, it would be a much greater help to the rural areas. We have many counties that are contiguous to these depressed counties, and in many instances these depressed areas are so sick that they may be beyond really helping and you may create bedroom cities which would be good places to live for an area 30 to 40 miles away where people can find a livelihood. However, in these contiguous counties, while they are not in such bad shape that they have been designated, still unless something is done and unless their economies are improved, they are going to be in the shape as the designated areas.

Mr. BLATNIK. The standby legislation does not include the limitation of an area redevelopment area or a surplus labor area.

Mr. MURRAY. We would be in favor of the fact that it does not have a limitation.

Mr. BLATNIK. Your main thesis is that there are rural areas, such as I have in my own district, which include small communities where help is needed now and need more help than is provided for under the existing immediate public works program.

Mr. MURRAY. Yes, sir.

Mr. BLATNIK. If there are no further questions of Mr. Murray, Mr. Overby, and Mr. Partridge, we thank you very much for your presentation.

Mr. OVERBY. Thank you.
Mr. PARTRIDGE. Thank you.
Mr. MURRAY. Thank you, sir.

Mr. BLATNIK. Our next witness will be Mr. Matt Triggs of the American Farm Bureau Federation.

Mr. Triggs, will you please take the witness chair?

STATEMENT OF MATT TRIGGS, ASSISTANT LEGISLATIVE DIRECTOR,

AMERICAN FARM BUREAU FEDERATION

Mr. Triggs. Thank you, Mr. Chairman and members of the committee.

Mr. BLATNIK. Mr. Triggs, for the record will you give again your full name, your official capacity, and title with the American Farm Bureau Federation?

Mr. Triggs. Yes, sir.

My name is Matt Triggs. I am assistant legislative director for the American Farm Bureau Federation.

Our statement has been distributed to you and I believe the most expeditious procedure would be for me to read it.

The opportunity of presenting the views of the American Farm Bureau Federation with respect to the issues under consideration by the committee is appreciated.

Farm Bureau is an organization of 1,600,000 farm families, voluntary members of 2,674 county farm bureaus in 49 States and Puerto Rico.

The interest of farmers in this issue will be obvious. Farmers fare best in an economy where employment is high and real income widely distributed.

The depth and persistence of unemployment indicates the economy is not operating as satisfactorily as it might and compels honest consideration of why this should be so and what corrective measures will improve the situation.

The view we will present for your consideration is primarily this: We do not believe that legislation to provide for an expansion of Federal expenditures for public works at this time, whether on a standby or immediate basis, is a desirable or an effective means of expanding employment; but rather that such action would have a longrun adverse effect on employment.

We have endeavored to set forth briefly below the specific reasons we believe this to be so.

1. Federal expenditures for virtually every purpose are expanding rapidly.

Federal budget expenditures during the past 20 years are summarized below:

Federal expenditures

(In billions of dollars) War years, 1942-46 average_

73. 4 Immediate postwar years, 1947–50 average

37. 7 1951-55 average

63. 1 1956-60 average

72. 7 1961 actual.

81.5 1962 estimated.

89. 1 1963 budget---

92,5 Source: Table B-55. Economic Report of the President. You will note the increase since the postwar years.

This does not include nonbudgeted expenditures which are also increasing rapidly.

An increase in Federal budget spending of $16.4 billion a year between 1956–60 and 1962 has not reduced the number of unemployed

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persons. We see no reason to suppose that a further increase in Federal spending will make any more impression on unemployment.

In 1960, total tax revenues of Federal, State, and local governments were 28.6 perecnt of net national product, the highest percentage in history. The percentage has been increasing steadily since World War II ("Federal Fiscal Issues," Tax Foundation).

We do not question essential expenditures for national defense. But expenditures for nondefense purposes are increasing even more rapidly. The 245-perecnt increase in Federal expenditures since the postwar years 1947-50 represents substantial increases in Federal responsibility for virtually every public purpose.

We believe that the paramount necessity for high defense expenditures should be at least partially offset by reduced expenditures for less essential purposes. The explosion in Federal spending for almost everything must be controlled if the strength of the economy is not to be sapped by excessive taxes.

Federal expenditures which necessitate taxation at levels which choke growth, stifle incentives, and absorb capital that ought to be invested in tools of production, can weaken our economic system.

2. We have apparently lost our capacity to balance tax revenues and expenditures.

Since 1930 there have been only 6 years in which the Federal budget has been in the black.

Continuing deficit financing has resulted in a gradual increase in the general price level. Occasional short periods of price stability do not hide what is actually happening. For 78 consecutive months, since August 1955, the Consumer Price Index has advanced above the same month in the preceding year.

To state the same thing in different terms, the value of the dollar has been declining for a sustained period of 78 months.

There is no evidence to indicate this long-term trend will come to an early end.

To unbalance the budget further, at the beginning of a period in which economic activity is expanding, can only operate to accelerate the inflationary trend.

3. Inflation is the enemy of economic growth.

In addition to the distortions and inequities created by inflation, it is important to recognize the adverse consequences of inflation on economic growth and job creation.

With inflation, the annually available capital, whether derived from profits or depreciation reserves, is not able to buy the same facilities or finance the same number of jobs.

An example will illustrate the point. Supose a million dollar asset is depreciated over a 10-year period, but due to inflation it costs $1.5 million to replace it. What has really happened is that (1) the owner has paid taxes on a bookkeeping but fictional profit of $500,000; (2) inflation has destroyed a part of the real worth of the invested capital; and (3) the capital recovered by depreciation reserves is not adequate to finance the same number of jobs and productive capacity.

Although not always recognized, there is no segment of our population with a greater stake in a stable dollar than the unemployed.

The concern of many investors with respect to the effect of inflation leads to a diversion of capital into wasteful purpose. For example,

a

some of the steady increase in farmland prices during the past 15 years, unwarranted in terms of earnings, was caused by the purchase of farmland as a refuge from inflation.

During the 1960's the annual net increase in the Nation's work force will average 1.35 million workers. Nearly as many workers will be replaced by automation and other technological change. Substantial investments will be required to provide jobs for such workers. We cannot afford the adverse effect of inflation upon investment and resulting job creation.

4. Economic growth and employment comes for stimulus to the private sector rather than Government expenditures.

Economic growth is dependent on many diverse factors such as climate, natural resources, the energy and morality of a people, education, economic organization, a stable political system—the whole organization and traditions of a society.

Assuming the existence of the basic prerequisites, economists vigorously argue the relative importance of a growing effective demand on the one hand and the role of adequate investment on the other.

We do not propose to argue this issue. It cannot be settled by argument anyhow.

We do, however, wish to emphasize that the availability of comparative statistical data relative to investment and growth provides strong empirical support for the thesis that there is a striking correlation between economic growth and investment.

Where investment is a small percentage of gross national product, unemployment is widespread and economic growth slow.

Where investment is high in relation to gross national product, unemployment disappears and the rate of growth is high.

The countries that "plow back” the largest percentage of income into the economic system are those with the fastest growing economies and full employment.

This apparent close relationship between investment and growth is illustrated for the major industrial nations in the following data:

а

(In percent)

Average ratio of

total fixed investment to gross national product, 1950

to 1960

Average annual increase in gross national product

at constant prices, 1950

to 1960

Japani
Germany
Austria.
Italy
Netherlands.
France
Switzerland 2
Canada.
Sweden..
Belgium
United States.
United Kingdom..

23.1
21.4
21.4
20.2
22.8
17.3
23.5
23.3
20.3
16. 3
17.5
14. 5

8.5 7.5 5. 9 5.8 4.7 4.6 4.3 3, 7 3.5 3.1 3.0 2.6

1 Data for 1953-60. 2 Data for 1954 60.

Source: All data from "Capital Investment and Economic Progress in Leading Industrial Countries, 1950-60," George Terborgh, Muchinery and Allied Products Institute.

In the second column we have entered the average ratio of total fixed investment to gross national product for the 10-year period from 1950 to 1960. You will note that the United States is comparatively low in this scale.

In the next column we have entered the average annual increase in gross national product at constant prices during this same 10-year period. You will note that in the past 10 years the United States rates comparatively low.

Review of the above data strongly suggests that the persistence of umemployment in the United States in recent years is not due to inadequate Government spending, but rather to inadequate private investment.

It is the expectation of profit that causes people to invest money and create job opportunities. Unless people have a reasonable expectation of making a profit there will be no expansion of employment.

We do not believe that even on shortrun basis Government spending for public works to provide employment can make a significant dent on the amount of unemployment.

The effective approach to increasing employment is to find ways and means to encourage growth in the private sector. The key elements of such ways and means are incentives and sound money.

The crucial need for more jobs is defeated by concentrating our attention on Government spending and activity; defeated because Government spending and inflationary fiscal practices reduce the capacity of the private sector to grow and provide jobs.

Deficit financing is not the road to a strong, growing economy.

5. The substitution of government for private expenditures does not add to employment.

Money spent by Government provides employment. But the same amount of money left in the private sector, whether spent for consumption or capital investment, will provide a comparable amount of employment.

We do not increase net employment by taxing people and spending the tax money so collected to put people to work.

In fact, net employment is likely to be reduced by increasing the percentage of the gross national product that goes to taxes and Gorernment expenditures. The reasons this is so, in addition to those previously mentioned, are these:

(a) Private investment, being governed by market forces, goes where it is most needed and will provide most permanent employment.

(6) Public investment may be wisely directed, but may also be mis. directed for political and many other reasons, into less efficient and less useful purposes, thus providing less assurance of permanence of employment.

Expanded Government spending is a deterrent to the growth of a productive, private economy. Wealth siphoned off by taxes cannot be used to expand the Nation's economy.

6. The inflation in prices created by deficit financing would contribute to the adverse international payments situation.

An increase in Federal expenditures for public works at this time would have an inflationary impact on costs and prices.

The already adverse international balance-of-payments situation could be easily aggravated by such action.

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