FULL EMPLOYMENT ACT OF 1945 TUESDAY, OCTOBER 23, 1945 HOUSE OF REPRESENTATIVES, COMMITTEE ON EXPENDITURES IN THE EXECUTIVE DEPARTMETS, Washington, D. C. The committee met at 10 a. m., Hon. Carter Manasco (chairman) presiding. The CHAIRMAN. The committee will come to order. This morning we have Mr. George Terborgh, research director of the Machinery and Allied Products Institute. You may proceed, Mr. Terborgh. STATEMENT OF GEORGE TERBORGH, RESEARCH DIRECTOR, MACHINERY AND ALLIED PRODUCTS INSTITUTE Mr. TERBORGH. Mr. Chairman and gentlemen of the committee, let me express, in behalf of the Machinery and Allied Products Institute, which I represent, our appreciation of the opportunity to comment on the full employment bill of 1945. We consider this one of the most important legislative proposals of recent years. We understand that three different versions of this bill are before the committee, and that testimony is invited on all. One draft, S. 380, was introduced in the Senate on January 22 last and referred to the Committee on Banking and Currency. It was substantially amended by that committeee before it was reported to the Senate and was further amended on the floor prior to passage, coming to the House and to this committee on October 1. Another draft, H. R. 2202, introduced in the House on February 15 and referred here, is identical with S. 380 before amendment. Another House bill, H. R. 4181, sent to this committee on September 25, is identical with H. R. 2202, save for a few minor additions. For the sake of simplicity and convenience, I shall confine my remarks entirely to S. 380 and H. R. 2202. These represent the same basic proposal at two stages of its evolution, the House bill reflecting the form in which it was originally introduced in both Chambers, the Senate bill incorporating subsequent amendments. Rarely have the broad objectives of a legislative proposal enlisted more universal sympathy and support than those of the bills now before the committee. Their declared purpose is to assure the continuous full employment of the Nation's labor force within the framework of a system of free competitive private enterprise, surely a consummation devoutly to be wished. In the language of the House bill It is the policy of the United States to foster free competitive enterprise and the investment of private capital in trade and commerce and in the development of the natural resources of the United States. The Senate version declares that It is the responsibility of the Federal Government to foster free competitive private enterprise and the investment of private capital. Needless to say, the Machinery Institute concurs wholeheartedly in this purpose. Disagreement and critticism can relate only to means, not to the end itself. Mr. HOFFMAN. Pardon me, Mr. Chairman-you say that disagreement can relate only to the means and not to the end. This bill proposes that the Federal Government take up the slack of unemployment. Do you mean to say that you approve of the Federal Government furnishing the money to provide jobs? Mr. TERBORGH. If you will permit me to develop that point in my statement Mr. HOFFMAN (interposing). I know, but you made the broad general statement, and I wondered if you meant it. Mr. TERBORGH. I mean that we agree with the broad purpose of the bill as I stated it, to maintain full employment and production within the framework of an economy of free enterprise. RESPONSIBILITY OF GOVERNMENT We believe the first responsibility of Government in the pursuit of sustained, high-level employment is to secure and maintain basically favorable conditions for private enterprise. This view is developed in a recent institute publication, the Bogey of Economic Maturity: The system of private enterprise is either dynamic or it is a failure. It is the first task of economic statesmanship, therefore, to create under the altered social, political, and economic conditions of today an environment hospitable to enterprise, sympathetic with its incentives and necessities, sanctioning its rewards. For this will prove in the end the only protection against the continued encroachment of public production and investment. While the achievement of basically favorable conditions for risktaking and enterprise is the first task of economic policy, in our view the responsibility of Government does not end there. Our economic system has displayed historically a tendency to instability, with periodic depressions, even in the most favorable environment. While there are many ways by which business itself can contribute to stabilization, and while these should be fully explored and developed, we must acknowledge that such measures are likely to be insufficient, and that Government must also play a role in mitigating the natural fluctuations of the economy. Both bills are on sound ground in emphasizing the desirability of Federal action in this field. While we thus accept Federal participation in principle, we must emphasize that the art of business stabilization is in its infancy. There is still vigorous controversy over the proper administration of even such long-established Federal powers as the control of money, banking, and credit. There is equal controversy over the correct application of Federal authority over taxation, labor, monopolies, agriculture, foreign trade and investment, and the like. The proper coordination. and administration of policies in these fields to secure the maximum of sustained employment will have to be learned by trial and error, over a period of decades. It is a delusion to think that the Government has already mastered its role in business stabilization. We must never forget that our problem is not simply to attain a continuous high level of employment by any means and regardless of cost. As usual, we are compelled to choose among conflicting values. Our goal is high and sustained employment in a free economy. cannot assume because certain totalitarian states have maintained full employment in an environment of all-pervasive economic controls, that we can achieve at once the same result in an environment of freedom. Neither can we assume that the high level of employment experienced in this country in wartime, under wartime controls and regimentation, proves we can maintain it continuously in peace with the controls removed. Our real goal, continuous high employment in a free society, is one which no country has yet attained, but which all free countries must seek. That none has yet progressed far along the road is evident from even a casual reading of various white papers on full employment policy. The institute has no illusions that this road will be an easy one, or that the goal will soon be attained. But neither does it despair of eventual success. Its position has been stated in a recent publication, an Appraisal of the Fatalistic View of Capitalism: Fear of a recurrence of the great depression has come to be a specter that haunts even our feasts, like Banquo's ghost. That such a catastrophe must be prevented is an axiom of present-day politics. It is axiomatic also that Government must play an important role in this undertaking, a role that will break new ground and raise problems of exceptional difficulty. To exercise the specter of depression, by means that preserve the autonomy of private enterprise and leave its vitality unimpaired, is the greatest challenge to the economic statesmanship of this era, a challenge that can be successfully met only after much fumbling and groping, much trial and error, much painful experience. But that it will be met, there is every reason to hope, and much reason to believe. THE SPENDING PANACEA Both bills under consideration admonish the Federal Government to develop and pursue a carefully planned program covering all aspects of economic policy. In the words of the Senate bill, it is to Cover taxation; banking, credit, and currency; monopoly and monopolistic practices; wages, hours, and working conditions; foreign trade and investment; agriculture; education; housing; social security; natural resources; the provision of public service, works and research; and other revenue, investment, expenditure, service, or regulatory activities. Just how these numerous functions and activities-most of them embroiled in controversy among experts and all of them subject to political pressure, are to be neatly coordinated in the pursuit of full employment, neither bill offers the slightest hint, nor is there evidence that their proponents have any idea. It appears, indeed, that the enumeration is perfunctory, and that the real reliance is placed on "Federal investment and expenditure." It is on this and this alone that the so-called guaranty of full employment rests. It is clearly taken for granted in the House bill that if the Government cannot generate and maintain a state of continuous full employment by other means it can always fall back on "investment and expenditure" to fill the gap. It is assumed, therefore, that with the possession of this omnipotent instrument, this soverign economic panacea, the Government is in a position to guarantee perpetual full employment and to endow its citizens with a new natural right—the right to a job. To the extent that continuing full employment cannot otherwise be achievedthe bill declares it is the further responsibility of the Federal Government to provide such volume of Federal investment and expenditure as may be needed to assure continuing full employment. The institute's position on Government spending as an economic remedy is well presented in the Bogey of Economic Maturity, to which I referred earlier. It is as if they (the advocates of Government spending) had discovered an economic panacea, to be applied indiscriminately whenever anything is wrong, regardless of the nature of the malady. They appear to have lost interest in other remedies or in efforts to correct the specific maladjustments that generate underspending. Instead, these maladjustments are simply to be overridden or smothered by an outpouring of governmental expenditure. This oversimplification represents one of the most ominous delusions of the present day. There is a world of difference between the proper use of deficit financing, conjoined with policies calculated to minimize the need for it, and its improper use as a panacea. Applied as an economic cure-all, with no attempt to rectify by other means the underlying difficulties that make its employment desirable, it is a dangerous device. We do not question that compensatory fiscal policy may provide at times a useful, and even necessary, measure of contracyclical action. The day has passed when Government can deal with depressions simply by whistling or wringing its hands, and this device should be included in the armory of weapons it can deploy. It would be the grossest self-deception, however, to think that we have at present either the knowledge, the experience, or the institutional mechanisms to apply this weapon in a closely controlled and scientific manner. * ** To conceive of this device as a simple and all-sufficient mechanical solution for our economic ills is simply naive. We should be the last to question the desirability of varying Government spending in such a manner as to exert the greatest practicable influence on the stabilization of economic activity. We must remember, however, that the bulk of the Federal outgo (and this is true in State and local administrations as well) consists of fixed charges or relatively stable items not subject to marked contracyclical variation. For this reason the discussion of compensatory spending usually centers largely on public works. But not only is there a decided limit to the volume of public construction that can be developed without resorting to boondoggling projects, on the one hand, and without encroaching on private industry, on the other; there are narrow limits also to the possibility of hoarding during prosperity a backlog of first-class projects for use in combatting unemployment during depressions. Unless the decision as to the timing of State and local public works is effectively federalized there is but limited possibility of the accumulation, in anticipation of a future depression, of any sizable volume of non-Federal public-works projects which local jurisdictions are currently ready and willing to pay for. Moreover, most major public construction projects are so slow in getting into fullscale operation, and so difficult to cut off short of completion, that they provide at best a tardy and clumsy instrument of contracyclical policy, The bill refers, of course, to "Federal investment and expenditure," which we take to be synonymous with spending for public works and for other purposes, respectively. The nature of possible noninvestment expenditure is indicated only in the most general way-"for public |