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INTKKMM)IATE PROGRAM

March 28, 1940

ST^TELIIIJT

k.P.A. ^PKQt'KlATIQK

1. Present Business P o s i t i o n and Outlook
The Budget message was prepared at a ti;ue when business a c t i v i t y was e s t a b l i s h i n g a new h i ^ record.

The message

emphasized strongly t h a t many of the expenditure estimates were
based on an expectation of continued h i g h business a c t i v i t y , ^nd
t h a t i f t h i s expectation did not m a t e r i a l i z e , i t might be essent i a l t o reconsider the recommendations.
The expectation of continued high business a c t i v i t y has
d e f i n i t e l y f a i l e d to m a t e r i a l i z e .

I n d u s t r i a l production, a f t e r

advancing sharply from 103 i u August to e peek of 128 i n December,
has already returned t o i t s prewar l e v e l , and t h i s declinc hes
involved a reduction i n p r i v a t e employment of about 1,000,000.
The dosmwaxd movement, though i t bes sisckened somewhat
during recent ^eeks, s t i l l continues &nd there i s no clear i n d i c a t i o n t h a t we are approaching bottom.

At b e s t , s f u r t h e r period

o f business hesitancy seems almost c e r t a i n and the recovery therea f t e r modest and gradual.

On the other hand, the weight of the

evidence suggests t h a t business may decline s u b s t a n t i a l l y f u r t h e r
an6 t h a t the upward movement may be deferred u n t i l the t h i r d quarter
o f 1940 or even l a t e r .




For the calendar year
i t y can scarcely average higher

1940 the innex of i n d u s t r i a l

festiv-

t h t n 110 as COEpared w i t h 105 i n

1929, t h i s higher average l e v e l of a c t i v i t y , i f r e a l i z e d , nould
increase private employment barely enough t o o f f s e t the
growth

of 600,000 i n a v a i l a b l e workers.

annuel

A t best, the volume of

unemployment i n 1940 w i l l not be s i g n i f i c a n t l y below the 1939
average.
£.

Present &.P.A. Program
The * . P . A . r o l l s , now at £,300,000, are 600,000 lower

than i n Scomber 193a, when the volume o f business
employment were about the same as
off

another

priation.
f o r the

at present.

1'he I . P . A . suet l a y

800,000 by June 30 t o keep w i t h i n the present

Under

appro-

the o r i g i n a l Budget recommendation of #1,000,000,000

f i s c a l year 1941, the average

the coming

a c t i v i t y and

l e v e l of fc.P.A. employment i n

f i s c a l year w i l l be only 1,350,000 workers, fend l . P . A .

must cut i t s r o l l s

below 1,000,000 i n the autumn t o keep w i t h i n t h i s

average and leave some room t o meet enlarged w i n t e r needs.

Under

the present program, t h e r e f o r e , the number o f S.P.A. jobs i n the
autumn w i l l be 1,400,000 less then a t present and 2,200,000 lass
then i n December 1938.

The scheduled r e d u c t i o n from present l e v e l s

w i l l cut o f f the income of three m i l l i o n a d u l t s and over three
million children.




-3.

3.

jWa

f o r B^gganendatioaa
A cut o f 1,400,000 i n

r o l l s would have serious

p o l i t i c a l and economic e f f e c t s a t any t i m e .

Superimposed upon the

present sharp business d e c l i n e , the r e s u l t s stay be d i s a s t r o u s .
From 1926 through 1939 the

program provided employment f o r

an average o f 25 per cent o f th© unemployed; under the o r i g i n a l
reecesaendation f o r f i s c a l 1941 t h i s f i g u r e w i l l a t best average
o n l y 15 per cent and w i l l f a l l below 10 per cent i n th© autiasn.
The p r o v i s i o n f o r r e l i e f employment i s t h e r e f o r e extre&ely meeker,
judged by t h e standard© o f recent y e a r s .

Quite apart froR the

p r i n c i p l e o f need, moreover, c u r t a i l m e n t o f r e l i e f employment, a t
a time nhen p r i v a t e employment i s d i m i n i s h i n g , accentuates the
c o n t r a c t i o n i n buying power and i n t e n s i f i e s the cupsuletive f o r c e s
of deflation.

The l e a s t t h a t prudence d i c t a t e s I s t h a t the Govern*

s e n t should not add t o the already I n c r e a s i n g number o f jobless.
I t a Should take measures t o check the d e c l i n e .

I . P . A . r o l l s should

be increased over t h e next three months t o 2,750,000 and held at
t h a t l e v e l u n t i l t h e c u r r e n t business d e c l i n e l a d e f i n i t e l y reversed.
This increase would o f f s e t about h a l f o f the d e c l i n e i n p r i v a t e
employment which has already occurred.
out o f private jobs, pins the new worker*

The remaining 5 0 0 , 0 0 0 thrown
costing on t h

labor market

a t the r e to of 50,000 a month, would be added t o the number without
jobs of say s o r t .




" 4"'

4.

H^o^aadat^o^s
I n order t o c a r r y out t h i s progress., i t i s reeo&mended t h a t

you ask Congress f o r t h e f o l l o w i n g a p p r o p r i a t i o n s f o r S.P.A. alone*
a.

b.

5*

An l a n e d l a t e d e f i c i e n c y a p p r o p r i a t i o n o f
1110,000,000 f o r the remainder o f t h i s
f i s c a l year,
An a p p r o p r i a t i o n o f 11,200,000,00c- f o r the
f i s c a l year 1941, w i t h the p r o v i s i o n t h a t
the fund® w i l l be a v a i l a b l e f o r expenditure
w i t h i n the f i r s t seven months o f the f i s c a l
year t o the f u l l e s t e x t e n t nece?ssary*

o"

nmmim

These reeooaeada t i o n s would i n v o l v e a n a x l a t t i increase
i n expenditures o f about # 7 5 0 , 0 0 0 , 0 0 0 between now and the end o f
January 1941 over t h e ®Bount i n d i c a t e d by the Budget f o r t h i s
period.

The increase would be o f f s e t t o t h e extent o f about

1800^000,000 by t h e excess o f t a x r e c e i p t s over the Treasury e s t i mates which i s no* assured by the c u r r e n t hesivy March income tax
c o l l e c t i o n s and by the Treasury* s s u b s t a n t i a l underestimation of
eusto&s revenues.
As o f February 1 , 1941, t h e r e f o r e , the Treasury cash
balance would be about #450,000,000 and the public debt about
144,500,000,000, a f t e r allowing f o r t h e additional W,P«A. expendi t u r e s here recommended.

These figures do not include any proceeds

from sew taxes reeomrsnded i n the Budget message.

Thus, the pro-

posed Increase i n I . P . A . expenditures can be met easily without
reducing the Treasury cash balance below a safe margin, without
exceeding the statutory debt l i m i t a t i o n , without using gold I n the
S t a b i l i s a t i o n l e a d , aad without the issuance o f s i l v e r c e r t i f i c a t e s .




-5-

The s t a t u t o r y debt f i g u r e o f 044,500 t 000,000 sa of
February 1, 1941, i s - r r i v e d A by c r r y i n g *«AVinga bonds «t
t h e i r ai&turity velue, i n

ccordnce sslth the a d m i n i s t r a t i v e

practice followed by tbe Treasury•

The maturity v&lns of tbeae

savings bor.de w i l l on t h a t date exceed the c- sfc redemption t
shown on the face of fch« bonds by «bout SI,000,000,000,

There

are sound l e g a l reasons f o r b e l i e v i n g t h a t t h i s involves &n overstatement by t n i s amount of the outstanding debt eubjcct t o
statutory limitations.
Febru ry

Thus the t r u e margin of s s f e t y on

1941, w i l l be tbout 41,000,000,000 i rger than the

Treasury f i g u r e s , under current l u t a i n i s t r a t i v e p r a c t i c e , reveal.




f p
C

w

^

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w

t

Mareh 28, 1940

STATEJfEKT OS W. P. A. APPROPRIATION

1. Present Business P o s i t i o n and Outlook
The Budget message was prepared a t a t i n s when business
was e s t a b l i s h i n g a new h i g h record.

activity

The message emphasised

s t r o n g l y t h a t many of the expenditure estimates were based on an
expectation of continued hig£ business a c t i v i t y , and that i f

this

expectation d i d not ^materialise, i t might be e s s e n t i a l t o reconsider
the recoESTtendations.
The expectation o f continued h i g h business a c t i v i t y has
d e f i n i t e l y failed t o materialise.

I n d u s t r i a l production, a f t e r

advancing sharply fro® 103 i n August t o a peak of 128 i n December,
has a l r e a d y returned t o i t s prewar l e v e l , and t h i s decline has
involved a reduction i n p r i v a t e employment of about 1,000,000.
The downward movement, though i t

has slackened somewhat

during recent weeks, s t i l l continues and there i s no clear i n d i c a t i o n t h a t we are approaching bottom.

At b e s t , a f u r t h e r per-

i o d o f business hesitancy seems almost c e r t a i n and t h s recovery t h e r e a f t e r modest and gradual.

On tfee other hand, the weight of the

evidence suggests t h a t business may decline s u b s t a n t i a l l y f u r t h e r
and t h a t t h s upward movement may be deferred u n t i l the t h i r d
quarter of 1940 or even l a t e r .




-2f or the calendar year 1040 t h e index e f i n d u s t r i a l a c t i v i t y ear. scarcely average higher than 110 a * com pa red with 106 l a
1939| t i l t

higher average Itvrel of a c t i v i t y , i f r e a l i s e d , would

increase p r i v a t e employment barely

enough

growth of 600,000 i n a v a i l a b l e workers*

t o o f f s e t the annual
At b e s t , the volume ef

unemployment i n 1940 w i l l net be s i g n i f i c a n t l y below the 1959
average*
2. Present

P. A. Program

The fc. P. A. r o l l s , now a t 2,300 # 000, are (500,000 lower
than i n December 1936, when t h e volumes o f business a c t i v i t y and
employment were about the same as a t present.

The £.P.A. must l a y

o f f m o t h e r 300,000 by Jane 30 t o keep w i t h i n t h e present appropriation.

Swter t h e o r i g i n a l Budget reeeamendatl «n o f $1,000,000,000

f o r the f i s c a l 3 car 1941, t h e average l e v e l of B.P.A, employment i n
t h e o q r l a g f i s c a l year w i l l fee only 1,360,000 workers, and
mxst cut i t s r o l l s below 1,000,000 i n the Autumn t o keep w i t h i n
t h Is average and l e a r e so*** room t o meet enlarged t i n t e r needs,
tinder t h e presert progrs®, t h e r e f o r e , t h e number o f W. P.A. jobs
i n ths Autumn w i l l be 1,400,000 less t h a n a t present and 2,200,000
less t h a n i n December 1938.

The scheduled r e d u c t i o n from present

l e v e l s w i l l cut o f f t h e income e f t h r e e m i l l i o a a d u l t s «*.d ever
three m i l l i o n

children.

3. Basis for Keccamendat•• me
A c u t o f 1,400,000 l a

P.A. r o l l s would have serious

p o l i t i c a l and economic e f f e c t s at any t i m e .



Superimposed uooe

3-

the present sharp business d e c l i n e , t h e r e s u l t s may be d i s a s t r o u s .
Proa 1936 through 19S9 t h e W.P.A. program provided employment f o r
en average of 25 per cent of t h e unemployed; under t h e o r i g i n a l
recoasaendation f o r f i s c a l 1941 t h i s f i g u r e w i l l at best average
only 15 per cent and w i l l f a l l below 10 per cent i n t h e Autumn.
The p r o v i s i o n f o r r e l i e f employment i s t h e r e f o r e extremely meager
judged by t h e standards of r e c e n t years.

Quite apart from the

p r i n c i p l e o f need, moreover, c u r t a i l m e n t o f r e l i e f employment,
a t a t i n e when p r i v a t e employment i s d i m i n i s h i n g , accentuates the
c o n t r a c t i o n i n buying power and i n t e n s i f i e s t h e cumulative forces
of deflation.

The l e a s t t h a t prudence d i c t a t e s i s t h a t the Govern-

ment should not add t o the already i n c r e a s i n g number of j o b l e s s .
4. Recommendat ions
I n order t o maintain W.P.A. r o l l s at t h e i r present l e v e l
of 2,300,000 workers u n t i l the decline i n private employment has
been d e f i n i t e l y reversed, i t is recossended t h a t you ask Congress
for the following a p p r o p r i a t i o n s ^ ^

7.

a. An isetediate deficiency appropriation of 180,000,000
for the remainder of this f i s c a l year.
000

b. The appropriation of #},000,000,/recommended i n your
Budget message f o r the f i s c a l year 1941, but with the
added provision that the funds be nade f u l l y available
for expenditure w i t h i n the f i r s t seven months of the
f i s o a l year.
These recommendations w i l l merely permit W.P.A. to maintain
i t s present r o l l s j they w i l l not enable W.P.A. t o add t o i t s r o l l s




any o f t h e worker* nam being l a i d o f f by privet© i n d u s t r y , nor any
o f th* new * r r k © r « earning on th© labor » r k e t at the r a t e o f 50,000
a south.

Or. both humane end economic grounds, t h i s c o n s t i t u t e s s

minima* program.
6. Set bad o f Financing
fcainfcens&ce o f

employment s t an average l e v e l o f

2,200,000 wrtotirs. through January 1041 would i n no way i n t e r f e r e
w i t h the f i « c a l progres o u t l i n e d i n the Budget message l a s t January.
Although t h i s wo«ld i n v o l v e a mxiwum increase i n expenditures o f
about $600,000,000 over t h e amount in»aiest«d by the Budget f o r t h i s
p e r i o d , the increase would be o f f s e t by t h e excess o f t a x r e c e i p t s
over th© Treasury estimates which i s so* assured by t h e c u r r e n t
heavy March income t a x c o l l e c t i o n s end by the ?reasury*s s u b s t a n t i a l
underestimation of customs revenues*
As of February 1, 1941, t h e r e f o r e , the Treasury cash balance
would be about |T00,000,000 suae the public debt

about

$44,600,000,000,

a f t e r si lowing for the a d d i t i o n a l * . ? . A . expenditures here recommended.
These figures do cot I n c M e any proceeds from mew taxes recosmended
i n t h e Budget messare.

Thus, the proposed Increase i n ft.P.A. ex-

penditures can be sset easily Without reducing t h e Treasury cash
balance be lev a safe margin, without exceeding the statutory debt
l i m i t a t i o n , without using gold i n the S t a b i l i s a t i o n Fund, and without the issuance of s i l v e r c e r t i f i c a t e s .




/
,f

/

-6-

The s t a t u t o r y debt f i g u r e of H4,600,000,000 as o f February 1,
1941, i s a r r i v e d at by c a r r y i n g savings bonds at t h e i r saaturity value,
i n accordance w i t h the admini s t r a t i v © p r a c t i c e f o l l o w e d by t h e Treasury,
The m a t u r i t y valua o f these saving* bonds w i l l on t h a t date exceed
t h e cash redemption value sheen on t h e f a c e of the bar.cs by about
11,000,000,000.

There a r e sound l e g a l reasons f o r b e l i e v i n g t h a t

t h i s involves an overstatement by t i l s aeount of the outstanding
debt subject t o s t a t u t o r y l i m i t a t i o n s ,

Thus t h e t r u e margin o f

s a f e t y on February i , 1941, w i l l be ^bcut %1,000,000,000 l a r g e r
t h a i t h e Treaaurv f i g u r e s , on t h « basis o f c u r r e n t a d m i n i s t r a t i v e
1
practice, reveal.




March 28, 1940

STATEMENT OH W.P.A. APPROPRIATION

Present Business P o s i t i o n q i f l O q t ^ f r
The Budget message was prepared at a time when business a c t i v i t y was establishing a new high record.

The message

emphasized strongly that many of the expenditure estimates were
based on an expectation of continued high business a c t i v i t y , a n d
that i f t h i s expectation did not m a t e r i a l i z e , i t might be essent i a l to reconsider the recommendations.
The expectation of continued high business a c t i v i t y has
d e f i n i t e l y f a i l e d to m a t e r i a l i z e .

I n d u s t r i a l production, a f t e r

advancing sharply from 103 i n Angust to a peak of 128 i n December,
has already returned to i t s prewar l e v e l , and t h i s decline has
involved a reduction i n private employment of about 1,000,000.
The downward movement, though i t has slackened somewhat
during recent weeks, s t i l l continues and there i s no clear indicat i o n that we are approaching bottom.

At best, a further period

of business hesitancy seems almost c e r t a i n and the recovery therea f t e r modest and gradual.

On the other hand, the weight of the

evidence suggests that business may decline substantially f u r t h e r
and that the upward movement may be deferred u n t i l the t h i r d i n e r t e r
of 1940 or even l a t e r .




-2-

For the calendar year 1940 the Index of i n d u s t r i a l a c t i v i t y can scarcely average higher than 110 as compared with 105 i n
1939; t h i s higher average l e r e l of a c t i v i t y , i f r e a l i z e d , would
increase private employment barely enough to offset the annual
growth of 600,000 i n available workers.

At best, the volume of

unemployment i n 1940 w i l l not be s i g n i f i c a n t l y below the 1939
average.

2.

Present W.P t A t Program
The W.P.A. r o l l s , now at 2,300,000, are 800,000 lower

than i n December 1938, when the volume of business a c t i v i t y and
employment were about the same as at present.

The W.P.A. must l a y

o f f another 800,000 by June 30 to keep within the present appropriation.

Under the o r i g i n a l Budget recommendation of 11,000,000,000

f o r the f i s c a l year 1941, the average l e v e l of W.P.A. employment i n
the coming f i s c a l year w i l l be only 1,350,000 workers, and W.P.A.
must cut i t s r o l l s below 1,000,000 i n the autumn to keep within t h i s
average and leave some room to meet enlarged winter needs.

Under

the present program, therefore, the number of W.P.A. jobs i n the
autumn w i l l be 1,400,000 less than at present and 2,200,000 less
than i n December 1938.

The scheduled reduction from present l e v e l s

w i l l cut o f f the income of three m i l l i o n adults and over three
m i l l i o n children.




-3-

3.

Basis f o r Recommendations
A cut o f 1,400,000 i n W.P.iL. r o l l s would have serious

p o l i t i c a l and economic e f f e c t s a t any t i m e .

Superimposed upon the

present sharp business d e c l i n e , the r e s u l t s nay be d i s a s t r o u s .
From 1936 through 1939 the W.P.A. program provided employment f o r
an average o f 25 per cent o f the unemployed; under t h e o r i g i n a l
recommendation f o r f i s c a l 1941 t h i s f i g u r e w i l l a t beat average
o n l y 15 per cent and w i l l f a l l below 10 per cent i n t h e autumn.
The p r o v i s i o n f o r r e l i e f employment i s t h e r e f o r e extremely meager,
judged by the standards o f recent y e a r s .

Quite apart from the

p r i n c i p l e o f need, moreover, c u r t a i l m e n t o f r e l i e f employment, a t
a time when p r i v a t e employment i s d i m i n i s h i n g , accentuates the
c o n t r a c t i o n i n buying power and i n t e n s i f i e s the cumulative f o r c e s
of deflation.

The l e a s t t h a t prudence d i c t a t e s i s t h a t the Govern-

ment should not add t o the already i n c r e a s i n g number o f j o b l e s s .
But t h i s i s not enough.

The Government should do more than merely

a b s t a i n from adding to the already i n c r e a s i n g number o f j o b l e s s .
I t should take energetic measures t o h a l t the d e c l i n e .

I.P.A.

rolls

should be increased q u i c k l y t o 3,000,000 and h e l d a t t h a t l e v e l u n t i l
the c u r r e n t business d e c l i n e i s d e f i n i t e l y reversed.

4.

Recommendations
I n order t o c a r r y out t h i s program, i t i s recoiamended t h a t

you ask Congress f o r the f o l l o w i n g a p p r o p r i a t i o n s * / ^ ^ (P. J/.




oJU^ju

:
;

-4-

a.

An immediate d e f i c i e n c y a p p r o p r i a t i o n o f
1150,000,000 f o r the remainder o f t h i s
f i s c a l year.

b.

An a p p r o p r i a t i o n o f | l , 2 0 0 , 0 0 Q / f o r the
f i s c a l year 1941, w i t h the p r o v i s i o n t h a t
the funds w i l l be f u l l y a v a i l a b l e f o r
expenditure w i t h i n the f i r s t seven months
o f the f i s c a l year.

000

Method pf F i f i a n c ^
These reccasmendations would i n v o l v e a maximum increase
i n expenditures o f about #800,000,000 between now and the end o f
January 1941 over t h e amount i n d i c a t e d by the Budget f o r t h i s
period.

The increase would be o f f s e t t o the extent o f about

$500,000,000 by the excess o f t a x r e c e i p t s over the Treasury e s t i mates which, i s now assured by the c u r r e n t heavy March income t a x
c o l l e c t i o n s and by the T r e a s u r y ' s s u b s t a n t i a l underestimation o f
customs revenues.
As o f February 1 , 1941, t h e r e f o r e , the Treasury cash
balance would be about #400,000,000 and the p u b l i c debt about
000

# 4 4 , 5 0 0 , 0 0 0 , / a f t e r a l l o w i n g f o r the a d d i t i o n a l W.P.A. expenditures
here recommended.

These f i g u r e s do not Include any proceeds from

new taxes recommended i n t h e Budget message.

Thus, the proposed

increase i n WJP.A. expenditures can be met e a s i l y w i t h o u t reducing
t h e Treasury cash balance below a safe margin, w i t h o u t exceeding
t h e s t a t u t o r y debt l i m i t a t i o n , w i t h o u t using g o l d i n the S t a b i l i z a t i o n Fund, and w i t h o u t t h e issuance o f a i l v e r




certificates.

-5-

The s t a t u t o r y debt f i g u r e of $44,500,000,000 as of
February 1 , 1941 i s a r r i v e d at by c a r r y i n g savings bonds at
t h e i r m a t u r i t y value, i n accordance w i t h the a d m i n i s t r a t i v e
p r a c t i c e followed by the Treasury.

The m a t u r i t y value of these

savings bonds w i l l on t h a t date exceed the cash redemption value
shown on the face of the bonds by about $1,000,000,000.

There

are sound l e g a l reasons f o r b e l i e v i n g t h a t t h i s involves an overstatement by t h i s amount of the outstanding debt subject t o
statutory l i m i t a t i o n s .

Thus the t r u e margin o f safety on

February 1 , 1941 w i l l be about 11,000,000,000 l a r g e r than the
Treasury f i g u r e s , under current a d m i n i s t r a t i v e p r a c t i c e , r e v e a l .