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CONFIDENTIAL: The attached text of the Fourth Report to the
President, the Senate and the House of Representatives by the Director of War Mobilization and Reconversion MUST BE HELD IN
STRICT CONFIDENCE and no portion, synopsis or intimation may be
published or given out until noon, Eastern Standard Time. Monday.
October 1, 1945.
Release hour of noon, E. S. T.. Oct. 1, 1945. applies to
radio announcers and news commentators as well as to
the press. Extreme care must be exercised to avoid
premature publication.

Secretary to the President


• Jobs




By the Director of


October 1, 1945

A Summary of What the Agencies Have Done, What the Major PoKcies Are, and What Problems Lie Ahead



To Speed Production

To Promote Stabilization

To Speed Production


To Promote Stabilization


Office of Contract Settlement and contracting
agencies, War, Navy,
Maritime, etc.

To terminate unnecessary contracts
at once; to settle promptly; to
assist in financing contractors
pending settlement*

Contracts totaling $23,000,000,000 have
been cancelled since August 14;
settlement procedures set, personnel
trained and made available; contractor personnel trained; interim
financing system in operation.


Office of Contract Settlement, Surplus Property
Administration, contracting agencies.

To remove Government-owned supplies and equipment speedily so as
to permit rapid change-over; law
requires clearance within 60 days.

Warehouse space acquired, very few
requests for plant clearance not met
in 60 days up to now.

To get surplus materials, equipment
and plant into civilian use as fast as

To relieve inflationary pressure by
prompt disposal of consumers'
goods; to avoid breaking markets
by dumping*

Rules adopted to facilitate retentio
inventories and equipment by c
tractor. Regulation on plant disposal, including leasing, issued;
plants costing $32,000,000 sold, and
plants costing $96,000,000 leased.

jntinuous sales effort; consumers' Must find lessees or purchasers of surgoods costing $270,000,000 sold
plus plants. Must reconcile speed
to date.
with desire to avoid breaking markets.

Legislation governing disposal
of merchant ships and certain
phases of foreign surplus.


Surplus Property Administration and disposal
agencies—RFC (plant,
e q u i p m e n t , planes),
Commerce (consumers'
goods), Agriculture
(food), NHA (housing),
Maritime (ships), State
(property abroad).

War Production Board •.. < To eliminate restrictive orders
promptly; to assist in breaking

To prevent inventory hoarding and
scrambles for scarce items; to
encourage output of low-priced

Only 79 out of peak of 650 orders still in
force; simple priorities system retained for breaking bottlenecks.

Inventory control retained, en- Progressive elimination of controls as
forcement strengthened; controls
supply-demand position permits.
kept on scarcest items; priorities
Will maintain staff to break bottleassistance for low-priced garnecks and enforce inventory orders.

Continuation of necessary authority under Second War
Powers Act*

Labor Department, includ- To encourage manpower readjustment, to strengthen employment
ing USES and Retraining
service for bringing workers and
and Reemployment Adjobs together.
Security Agency.

To provide unemployment compensation on an enlarged basis
during the transition.

All controls dropped; number of USES
offices increased from 1,500 to 1,750;
manpower agencies consolidated.

Unemployment benefits being paid
by States.

Expansion and improvement of
USES facilities, development of
programs to retrain displaced
workers for new jobs.

Increase in unemployment compensation benefits and coverage. Continued Federal operation of USES during transition and additional funds.

Army, Navy, Selective
Service, Veterans' Administration.

To release men as fast as possible; to
provide veterans with vocational
guidance, education, financial and
medical aid for his readjustment.

(Mustering-out pay, veterans' readjustment allowances and other
benefits of GI Bill of Rights also
tend to support purchasing

Army and Navy schedules will release
9,700,000 men by June 30, 1946.
Provisions of GI Bill of Rights being
carried out. Information centers
established. Veterans' Administration strengthened.

Benefits being paid under GI Bill
of Rights.

Achievement of demobilization
schedule will require maximum effort of Army and Navy. Veterans'
Administration personnel and facilities must be expanded. USES
must gear up its referral pace to
demobilization schedule.

Clarification of veterans' reemployment rights. Liberalization of veterans' benefits.

Office of Price Administration.

To set reconversion prices promptly;
to give needed price incentives to
bottleneck breaking; to provide
individual relief in hardship cases;
to remove unnecessary ceilings.

To keep cost-of-living and general
level of production costs stable.

Reconversion prices set for washing
machines, other items; ceilings on
150 commodity groups lifted; special
formulas for hardship cases, small
business adopted. Some prices increased to encourage production.

Extends use of specific dollar-andcents ceilings and preticketing
to aid enforcement. Tightening
of eviction orders to strengthen
rent control.

Enforcement of all necessary ceilings, step-by-step removal of ceilings on particular products where
inflation pressure eases or which
are not important in cost-of-living
or production.


Labor Department, including War Labor

To minimize strikes; to permit wage
adjustments necessary to attract
workers into plants producing
bottleneck items.

To reestablish collective bargaining while retaining control over
wage increases which affect
prices; to prevent wage deflation.

Labor-management conference
for Nov. 5. WLB authorized to
increases necessary to reconversion.

Ixecutive Order 9599 restored free
collective bargaining while retaining control over wage increases which affect prices.

WLB to be terminated as soon after
the conference as other means are
developed to settle labor disputes.

Increase in legal minimum
wage, now 40j£ an hour.


OPA, Agriculture, PAW,
WPB, ODT, S F A ; ~

To remove rationing as soon

To restrain bidding 9 fur scarce,
essential consumers goods.

Rationing removed on gasoline, fuel
oil, processed foods, naphtha, stoves^
canned milk, cheese.
':""r"" ""'

Remove or relax rationing as snp=
plies ofjneat,. sugar, fats and oils,
etc., permit.

Continuation of rationing authority under Second War
Powers Act.


To readjust agricultural output to
peacetime needs; reduction in
some goals indicated.

To continue price support program
for at least two years* -

Reexamined food goals; removed about
half of food controls; eliminated
most set-asides for military n«

To eliminate subsidies as rapidly as
possible without upsetting markets. To develop a program of
long-run agricultural readjustment to bring United States output into line with world supplydemand position.

OWMR Construction Coordinator, WPB, OPA,
National Housing

To remove barriers to construction;
to speed production of construction materials.

To prevent scramble for building
materials, to curb inflation of
prices of houses, to have a shelf
of useful public works and to
initiate noncompetitive projects
when necessary to relieve undue
local unemployment.

Controls lifted on all construction
effective October 15; steps taken to
break bottleneck in brick, soil pipe,
other critical supplies.

State, Treasury, Foreign
Economic Administrat i o n , Export-Import
Bank, WPB, Agriculture.

To restore freedom of trade as quickly
as possible; to protect domestic
supplies and promote imports of
scarce materials essential to reconversion; to help finance United
States exports.

In particular cases to restrain,
foreign demands which might
exert undue pressure on domestic prices.

Controls removed on 80 percent of
exports; Export-Import Bank lending power increased.


To remove controls as rapidly as
transportation load permits.


To provide maximum incentive and
financial basis for reconversion.

OWMR, consulting with
Advisory Board.

To assure that the policies and operations of the several agencies are in
harmony with each other and with the basic objective of the period; to
promote adequate advance planning.







Need for prompt filing of contractors'
claims. Goal is to settle all cancelled contracts within a year.

Federal public works projects reviewed and a list of noncompetitive projects prepared; control of building materials prices

Needs machinery to carry out selective program of noncompetitive
Federal projects; needs cooperation of State and local governments on public works, needs cooperation of builders, lenders, and
purchasers on housing prices.

Additional funds needed for
planning and construction.

Must determine essential foreign
requirements and adapt program
to domestic stabilization needs.

Additional financing.

Pre-VJ-day tax bill enacted.

Continued public support of borrowing program necessary to minimize
inflationary sale of bonds to banks.

Prompt enactment of transition
tax program which balances
desire for tax relief with demands of anti-inflation program.

Continued, in consultation with other agencies, to review the development
and execution of the reconversion-stabilization program; Reconversion
Working Committee of 25 agencies established for interchange and consideration of plans; Deputy DirectorjfcyjgJProduction appointed in OWMR to
expedite plant reconversion; revpHiSutbacks to assure termination of
unnecessary work.

Must develop policies to meet new
conditions which will arise as transition merges with longer-run postwar situation.

Legislation recommended
President's message.

All controls on use of motor vehicles
removed, most controls on rail
freight traffic retained, ban on conventions lifted; special passenger
trains may now be operated.
To provide tax relief, stimulating
expenditures to extent consistent
with restraint of inflationary
pressure; to continue to sell
bonds for anti-inflationary purposes.




Washington, D. C, September SO, 1945.
The President.
The Honorable The President of the Senate.
The Honorable The Speaker oj the House of Representatives.
SIRS: AS Director of War Mobilization and Reconversion I hereby submit my quarterly report in accordance
with the requirements of the Congress as set forth in the
War Mobilization and Reconversion Act.
Since the last regular report of this office, I have made
two interim reports on immediate reconversion work.
They were "From War to Peace: A Challenge," issued
August 15; and "The Transition: Phase One/ 7 issued
September 6.
The present report deals with the pressing problems
and the immediate policies of the transition period of our
economy. My next quarterly report will deal with intermediate and long-term matters.

\\^.(JtL cL*.—



The President
The Director of War Mobilization and Reconversion


Cancellation of Contracts
Settlement of Contracts
Clearance of Plants
Manpower for Expanding Production
Expanding Supplies and Production
Financing Reconversion
Economic Stabilization
Anti-Inflation Measures
Anti-Deflation Measures




Disposal of Surpluses
Housing and Construction
Food and Agriculture
Overseas Problems
Demobilization and Veterans' Rights.
Release of Scientific Information




Where We Stand in Reconversion
The Rise and Fall of War Production
Before and After Armistice Day, 1918
Unemployment Compensation Rises.-'
Back to Civvies




War dominated the American economy 3 months ago when this
office submitted its third quarterly report to the President and the
Congress. Though Germany had been overwhelmed 2 months earlier,
the primary drive of this Nation was still to crush Japan and to maintain a high level of war production.
At that time, the output of civilian goods could be allowed to increase only gradually as munitions schedules tapered off. There was
still not enough manpower, not enough materials nor industrial
facilities to meet the combined war and civilian needs of our country.
This was the situation when, just 3 months after Germany fell—
earlier than many had thought possible—Japan was forced to capitulate to our arms. In the interim, munitions production had been
cut only 20 percent, the armed forces less than 1 percent. This combination of circumstances meant that we had not had time to progress
far along the road to reconversion.
Our preparation for reconversion, however, was well
advanced. Immediately on confirmation of Japan's surrender, the country and all branches of the Government acted
promptly and boldly. There can be no doubt that thorough
preparation by both business and Government has saved us
months of time and billions of dollars; it will reduce the
amount of our unemployment.
Simpler but Tougher
The collapse of Japan has simplified our problems in many ways.
After Germany's defeat we found it necessary to drive our economy
in two directions at once. We were committed to maintaining our
war production at a level three times greater than, the maximum output of Japan. At the same time, we were pushing for expanded production of consumer goods which already were pouring from our farms
and factories at a rate greater than this, or any other country, had ever
produced during peace.
Japan's surrender abolished this "split" in our economy. It enabled
us to devote all of our energies to reconversion.









Overnight, the United States economy swung to full demobilization
and expansion, for peace. This abrupt change of direction brought the
inevitable shock of wholesale cancellation of contracts and disemployment. The extent of the switch-over can be seen from the figures on
war production. (See chart: The Rise and Fall of War Production.)
The change in our munitions production, in terms of annual rates,
goes like this:

First half of 1945
Just after VJ-day
End of 1945


Demobilization is proceeding fast. By the first of the year, men and
women will be returning to their homes at a rate of over a million a
month and, between VJ-day and next July, the armed forces will have
released 9.7 million—the Army 6.7 million and the Navy 3 million.
The significance of these figures is not only the speedy return of
husbands, sons, and daughters but also the release of vast resources
and manpower which can now be devoted to a full production economy
for peace.
In round numbers, the human effort devoted to war production or
combat will have declined by the equivalent of 10 million persons in
the period between Japan's surrender and the end of the year. During
1946, the equivalent of another 8 million will be released.
These are the statistics of our Nation's economic change over from
war to peace. They represent a shock to our economy—the necessary
* Includes all costs, except subsistence, for armed forces in this country and overseas, such as maintenance,'
repair, clothing, plus experimental production.

first steps by which our energies and resources have been released for
speedy reconversion and the expansion of our civilian economy.
An Economy of Mobility
With the rapid demobilization of industry and the armed services,
we are emerging from a taut economy—in which manpower, materials
and facilities had to be under a strict priority and allocation system—
into an economy of mobility. I t is no longer necessary to guide
industry step by step, and to program production of many civilian
items such as automobiles, refrigerators, railroad equipment and farm
There is now an ample supply of most of the materials and equipment needed for peacetime manufacture. There are twice as many
machine tools in use as before the war; there is several times the
aluminum capacity, many times the magnesium capacity.
Steel further illustrates the point. While the war was
on, direct military requirements took half of the country's
total production; and there was additional indirect military
consumption. With peace, supplies available for civilians
almost doubled—from 8,200,000 net product tons to more
than 14,500,000 tons per quarter. This represents a 30
percent increase over the all-time high of peacetime consumption in 1929.
Some materials will remain scarce—tin and rubber, and to a lesser
extent paper, pulp, textiles, and lead—but even these will be available
for civilian use in increased quantities within a few months.
As to facilities, some plants will have to retool, some companies will
have to add new machinery and erect new buildings to round out their
existing plants, but for the most part industry is in a position to go into
peacetime production promptly. In many plants minor rearrangement or readjustment will afford productive capacities well above prewar levels. The many Government plants—both large and small—
also are available to private business and can add greatly to our productive capacity.
During the war we have increased our national output
75 percent and we have done so with 12 million of our
strongest and youngest men and women in the armed
forces. We have built entire cities; we have expanded our
total plant almost 50 percent; made enormous strides in
scientific development. No goal that we have undertaken
in the great struggle we have passed through has been too
great for our united strength.
To attain our peacetime goal of full employment we have the same
national assets available—the plant and equipment, the skill of man-

agement, the wealth of raw materials, and, above all, the manpower
with newly acquired skills and knowledge.
But before we can get our business economy once more on a high
plane of production and employment we must make the switch-over
from war to peace.
It took us nearly 4 years to build up our war economy to the point
it had reached when Japan surrendered. Now we have the task of
reconstructing a large part of it for peacetime use, in a very much
shorter period of time. We are not seeking to go back to previous
levels of employment or output. We are seeking to expand our output rapidly to 40 to 50 percent above former peacetime levels.
This opportunity is not likely to be repeated in our lifetime. I t
is a great challenge, and our Nation is meeting it with determination
and vigor.
The Period of Paradoxes
We must recognize the fact that the transition to a stable and expanding economy will be marked by many abnormal situations. For
1. After a brief decline, there will be a period when business is
expanding, men are going back to work, and total employment is
mounting. Normally, we should expect to see unemployment declining at a time like this, but high unemployment will persist through
1946. This is because men and women will be coming out of the
armed services faster than industry can possibly reemploy them.
2. Several million of the persons who have worked during the war
will retire permanently from the labor force, but in spite of this our
total civilian laboi force will be increased more than 5 million during
the next year as the armed services demobilize.
3. Inflation and deflation will be at work simultaneously in different
parts of the economy. For instance, there will be buyers for more
automobiles than can be made for some time to come. This will also
be true temporarily in the case of most other durable goods, as well
as for some services and nondurable consumer goods, such as textiles.
However, many of the nondurables will be in excess supply and subject to deflationary pressures since those whose earnings are reduced
will be less able to maintain their purchases.
This simultaneous inflation-deflation holds the key to the rapidity
and extent of reemployment. It is worth further scrutiny.
There is likely to be a market for aJl the durables that can be made—
and more—in the immediate future. This applies to some nondurable
goods as well. Hence total employment in this part of the economy
depends on how fast management and labor set in motion the country's
industrial facilities, now greatly expanded over prewar levels. In
the coming months, the durable-goods industries will be unable to


reach their maximum employment, not because of lack of a market
but because of the time necessarily involved in organizing theflowof
The under-employment in this part of the economy, however,
affects demand for other consumer goods which are in plentiful supply
and hence holds down total employment in consumer-goods industries.
For example, if we could put additional millions of men to work within
the next few months in the construction and durable-goods industries,
their income and spending would provide added markets, and thus
generate jobs in those industries where supply is not a limiting factor.
Many problems we face at this time are a direct outgrowth of the
war. It is important to see precisely their nature if we are to take the
right steps to deal with them.
Unemployment during the transition—due to the unavoidable lag in
the expansion of peacetime industries—calls for different measures
than if the same .amount of unemployment were to occur a few years
hence. It would be a mistake, for instance, to provide for transitional
unemployment through a large public works program of a type which
would compete for scarce materials with private construction. Instead, we must do everything to speed the expansion of private construction and undertake public works which do not drain away scarce
items from private projects.
To deal with the unavoidable unemployment of the transition we
must make adequate provision for unemployment compensation. The
human needs of reconversion must be given at least as much attention
as the needs of physical reconversion.
Production, Jobs and Markets
In spite of the difficulties of the switch-over period, our goals are
clear, our strategy simple.
(1) A rapid expansion of peacetime production.
(2) Jobs for all those willing and able to work.
(3) Stable markets for business and agriculture.
Two things are indispensable to the attainment of these goals: first,
the utmost in cooperation and teamwork among all of us—management and labor, business and farmer, Federal, State, and local governments; second, the successful support of economic stabilization.
Broadly speaking, our strategy is one of increasing peacetime production as fast as is possible. Production of both goods and services
is the source of all employment. I t is the basis of our standard of
In our country peacetime production is in the hands of the farmers,
the businessmen, and the workers. Government is taking action and
adopting national policies that will help them get the job done.

For that part of the economy which does not lack markets but needs
manpower, materials, and additional plant capacity, Government
policies are aimed at helping business to get all three.
For that part of the economy which cannot employ more workers
because transitional unemployment or reduction in total wage payments prevents full development of markets, Government policies are
aimed at supporting income and markets.
The Government's "Hold the Line" policy to prevent inflation is
vital to the consumer and to business in both parts of the economy.
Runaway prices would be disastrous to everyone. We must not allow
that to occur.
We are beginning the task of reconversion with many things in our
favor. Cash, bank deposits, and Government bonds in the hands of
individuals are estimated at more than $140 billion, or 3 times the
highest prewar figure. The backlog of stifled wartime demand is huge.
There is great need for housing, automobiles, washing machines, refrigerators, and all of the so-called "consumer durable" goods that
have not been available for several years. Business itself needs
millions in new plants and deferred maintenance and, in the main, has
funds for these purposes.
Much depends on how fast these potential demands can be translated into production, sales, and jobs. Big as the backlog is, our economy cannot carry on out of accumulated savings alone. These savings
are largely in the hands of middle and higher income groups. There
are millions of families with little or no savings. The steady market
that business and agriculture need to reach full employment must
come chiefly from current wages and salaries.
There is much reason for optimism, none for complacency. And
our optimism must be of a rugged variety, capable of looking at
unpleasant as well as pleasant facts. Optimism based on ignorance
or failure to foresee the difficulties that lie ahead is too apt to give
way to quite unfounded panic.
There is every likelihood that business conditions during the next
6 months will be good in the sense that many businesses will be
expanding and profits increasing. At the same time there will be
substantial unemployment because it will take time, even under the
most propitious circumstances, for business to absorb the millions
of workers and veterans who will be looking for work. To reach full
employment will require a longer period and the continued efforts of
all of us.
There is a tendency for the optimists and the pessimists to form
opposite camps, each decrying the other. I am firmly optimistic
about the future. But I believe this optimism will be justified and


fulfilled only if each of us does his part. The Congress must provide
the necessary legislation. The Executive branch must and will be as
vigorous in its policies and programs to solve peacetime problems as
it was in solving wartime problems.
Business and labor have an especially-heavy responsibility. With
progressive removal of limitations on collective bargaining, it is to be
expected that there will be differences. These need not, and must not,
be allowed to develop into a serious block to rapid reemployment.
Both management and labor have the same long-run interest—more
production, more sales, and more jobs.
The people of the United States expect each of these important
groups to look at the other's side and to adjust differences in the
interest of getting the job done.


Our immediate goal for the transition period is clear. We are closing out war business as quickly as possible. At the same time, we are
taking every actioo to speed reconversion and expansion to full peacetime production and full peacetime employment.
The President, in his message to the Congress, laid down the policies and program which the agencies of the Government are carrying
out. It contains eight points:
"1. Demobilize as soon as possible the armed forces no
longer needed.
"2. Cancel and settle war contracts as quickly as possible.
"3. Clear the war plants so as to permit contractors to proceed with peacetime production.
"4. Hold the line on prices and rents until fair competition
can operate to prevent inflation and undue hardship on
"5. Hold wages in line where their increase would cause
inflationary price rises. Where price ceilings would not
be endangered, collective bargaining should be restored.
"6. Remove all possible wartime Government controls in
order to speed and encourage reconversion and expansion.
"7. Keep only those controls which are necessary to help
reconversion and expansion by preventing bottlenecks,
shortages of material, and inflation.
"8. Prevent rapid decrease of wage incomes or purchasing
The steps that would implement these policies had been planned
far ahead by the Congress and the executive agencies.
As far back as November 1943, this office initiated studies on the
problems of postwar readjustment. Principles were laid down for
terminating contracts, clearing plants, making loans to business, disposing of surpluses, and helping veterans and released war workers

to make prompt economic adjustments to a peacetime environment.
Those principles aided the Congress in framing legislation. This
office has worked continuously with all the Government agencies in
developing coordinated reconversion policies and procedures. Just
as the war program was the development of many minds and many
hands so has been the reconversion program.
Before the capitulation of Japan, the heads of agencies met with me
and made a final review of their VJ-day plans in open give-and-take
discussion. When Japan surrendered, the plans of our Government
were ready.
With the surrender, the Government swung into concerted action:

1. Issued Executive Order No. 9599 which laid down broad
policies to expedite reconversion and production expansion and
to control prices and wages and directed the war agencies to
carry them out.
2. Called on management and labor to confer on ways and
means to minimize work stoppages during the transition and
meantime to continue the no-strike, no-lockout pledge.
3. Submitted a program of needed legislation to the Congress,
stressing 21 points for speedy reconversion, for a stable economy,
and to help establish a prosperous future for our economy.
4. Sent to the Congress proposals to recapture appropriations
and authorizations for war expenditures.

1. Screened military programs so as to free maximum resources—manpower, materials, and industrial facilities—for
civilian output.
2. Established an inter-agency Reconversion Working Committee, chairmaned by the Deputy Director for Reconversion,
with responsibility for coordinating and carrying out the policies
for reconversion.
3. Appointed a Deputy Director for Production with responsibility for expediting release and use of supplies by industry.
4. Maintained continuous reviews with the heads of key
transition agencies—the Army, Navy, Maritime Commission,
War Production Board, Office of Price Administration, the Office
of Contract Settlement, War Labor Board, Agriculture, Labor
Department, and others—of all their plans for integrating their
programs and adjusting them to peacetime requirements. All
agencies took promptly the necessary steps to start reconversion
on its way.

The following sections tell in some detail how the various agencies
have functioned to fulfill their parts in the program for swift reconversion, how they will operate to meet the emergencies of the transition
period, and what they are doing to help the economy of the Nation
toward expanding production and employment.
The work divides itself into two main categories, (a) the closing out
of war business—cancelling and settling war contracts, clearing out
plants, removing controls that are no longer necessary; and (b) the
expediting of reconversion and expansion of production—channeling
materials, facilities and manpower into peacetime use; expanding
production of scarce items and preventing bottlenecks; preventing
run-away inflation and yet supporting purchasing power for a steady
and ample market.
Cancellation of Contracts
Before VJ-day, more than $38 billions in contracts had been cancelled by the Government agencies. This gave them, as well as
businessmen, considerable experience with procedures.
In addition, the War and Navy Departments had freshly surveyed
all their contracts, and divided them into three categories; (1) those
that could be cancelled 100 percent; (2) those that could be cut back;
(3) those that must be completed.
When the surrender of Japan was confirmed, cancellations went out
swiftly—more than 100,000 overnight—and brought unnecessary
war production to a halt. This promptness not only helped to speed
reconversion, but also reduced the total cost of war by every minute
of unneeded production that was saved. Government procurement
in the United States was costing, at that time, more than $100 millions
a day.
Orders for $23 billion in war goods were cancelled. Munitions production in September fell to a rate 60 percent below that of July. In
December, the drop will amount to 80 percent, leaving only as much
as is necessary for maintenance of the remaining armed forces.


Settlement of Contracts
Speedy settlement of contracts is essential to clearing the way for
production. I am satisfied that settlement will be accomplished
swiftly and efficiently under the program established and being
carried out by the Office of Contract Settlement and the contracting
After Germany surrendered, the contracting agencies expanded
their settlement staffs. Termination Coordination Committees,
organized by the OCS and contracting agencies in key industrial
centers, intensified their work. Training courses were expanded and
repeated to inform businessmen fully on Government procedure.
Increased personal contacts with contractors were carried on vigorously.
The record of accomplishment is good. The statistics of contracts
settled show that. The mutually satisfactory way in which Government and business have handled this task is also indicated by these
Although 157,000 separate terminations had been settled previous
to VJ-day only 17 cases had been carried to the Appeal Board of the
Office of Contract Settlement, and even fewer to the United States
Court of Claims.
The statistics of settlement:

Commitments cancelled previous to VJ-day
Commitments settled previous to VJ-day

$38. 5
23. 6

Of the $14.9 billion of commitments remaining unsettled on VJday, only $6.8 billiw. were cancelled previous to VE-day; the balance
of $8.1 billion represented terminations during the 3 months between
the surrender of Germany and the capitulation of Japan. By the end
of August, the total of unsettled contracts reached $36 billion.
Up to July, contracts were being settled at an average rate of
nearly $1.5 billion in cancelled commitments per month. This rate
must be increased to $4 billion per month in order to achieve substantially complete settlement within a year.
The main problem currently in increasing total settlements per
month is the slowness with which war contractors have filed claims.
The machinery is ready, but businessmen must submit their claims
before the machinery can function. I urge all those with cancelled
contracts to file claims at the earliest possible moment.
Interim Financing: Settlement of claims is going forward swiftly,
as I have indicated, but the Government realizes the importance to
businessmen of having immediate financial resources for reconversion
and expansion. Therefore, methods of providing funds, even before
settlement, have been set up. So far, only about one in five of the


contractors who filed a claim has requested interim financing. Mechanisms already in operation can handle a much greater volume.
Methods of interim financing, as set up by the Congress, include:
(1) Advancing partial payments to contractors up to 90 percent of their claims; (2) Advancing partial payments on the
basis of a gross estimate to a contractor who lacks time, or facilities, to submit a prompt, detailed claim; (3) Government
guarantee of loans through commercial banks in anticipation of
contract settlement. These, of course, supplement the usual
means of private financing.
At the present time, there are outstanding advances of $144 million
on cancelled Army and Navy contracts. Of this about $54 million
was paid against about $205 million claimed.
Clearance ot Plants
Prompt clearance of Government-owned property from war plants,
to permit retooling and realignment of the facilities for peacetime
production, is essential. Procedures established by OCS and the
contracting agencies have been providing clearance in almost all
cases within the time limit established by law.
Since June, requests for plant clearance each month have more
than doubled. It is expected that the bulk of all remaining requests
will come during the next few months. The Government is obligated
to clear the plants within 60 days after a request is made. So far,
the Government has been able to meet this obligation promptly.
Of 5,757 clearances of inventories during August following cancellation
of War Department contracts, 4,526 were completed in less than
40 days; of 1,250 clearances of Government-owned plant equipment
used on War Department contracts, 954 were completed in 40 days
and only 17 required more than 60 days.
One of the critical factors in plant clearance is space in which to
store the property removed from the plants. During the past year
the RFC has established storage facilities in the key industrial centers
of the country. Further space is required, however, to handle the
augmented inventories and equipment released by the end of the war.
Use of space in Government war plants, where production has stopped,
will meet most of the post VJ-day requirements, but their use for
storage will not be permitted to hold up the sale or lease of these
plants. The clearance situation is being reviewed constantly and
additional space is being acquired in areas where shortages threaten
to delay clearances.
Manpower for Expanding Production
Expanding peacetime production will demand increasing numbers
of workers. Men and women are being swiftly released from war


jobs and from the armed services, a necessary first step toward reconversion for peace.
In the first month after Japan's surrender, the jobs of more than
4,100,000 workers were affected by cancellation of war contracts. Of
these, 2,600,000 were laid off, while 1,500,000 others shifted immediately to peacetime production in the same plants.
After a peak of 1,600,000 in the first full week after Japan's surrender, lay-offs declined. Lay-offs of women were proportionately
larger than those among men. Between VJ-day and the first week of
September, total unemployment doubled to about 2 million. By
next spring, with demobilization running at better than a million
a month, unemployment may rise to about 8 million. The total
will depend on how fast reconversion and expansion can be
Finding Jobs: It is a prime aim of the entire country—business,
Government, farmers, as well as workers—to get released men and
women back to work as quickly as possible.
Since Japan's surrender, all resources of the Federal
manpower agencies have been devoted to the task of bringing jobs and job hunters together quickly (1) by removing
all manpower controls; (2) by accelerating registration of
released workers and recording their skills; (3) by an
aggressive drive to have employers list their requirements
with the United States Employment Service so that displaced
workers could be referred promptly to new jobs.
The USES offices also are assisting in handling claims for unemployment benefits and are recruiting workers for industries which
must be manned in order to break reconversion bottlenecks.
USES offices have on file more than 700,000 jobs, chiefly in wholesale and retail trades, service and construction, and in such manufacturing industries as food processing, textiles, and apparel. Nationally, such job opportunities total less than half of the number of
available workers.
More than 800,000 persons were placed in jobs in August alone, but
jobs and job hunters are not always in the same localities, nor do the
skills necessarily match. To meet this situation, the USES maintains
a Nation-wide clearance system through which workers may be placed
in vacancies in other parts of the country.
A counseling service also has been set up to help applicants obtain
jobs best suited to their particular skills and abilities. This is available not only to civilian workers but also to veterans and to handicapped persons who require special assistance.
Veterans: SpeciaJ assistance is provided for veterans at (1) all local
USES offices; (2) at Army and Navy hospitals for patients; (3) at
Army and Navy separation centers.


The Veterans' Placement Service Board sets policies to help veterans
who seek special employment counseling so as to utilize skills acquired
in the armed services, or who seek work in which war-acquired disabilities will not handicap them unduly. .Veterans7 employment
representatives, each one a veteran, are attached to USES offices with
special counseling and training staffs. The service is similar at hospitals and separation centers. Each USES office also furnishes current information on all organizations which offer special services or
benefits to the returned veteran. Aid to veterans is discussed in
greater detail later (p. 36).
The USES offices are doing a vital and difficult job. Under Federal
control, information is exchanged on a Nation-wide basis and the
maximum amount of coordination is obtained in carrying out the
policies and mandates of the Congress in regard to workers and veterans. The President has transferred the USES to the Department of
Labor in a move to consolidate the manpower agencies for the difficult
work ahead.
A centralized national chain of employment offices, operating under
common policies and direction, is essential, if unemployed workers in
one part of the country are to find job opportunities in another, or
if employers are to find surplus manpower available for recruiting.
This information, made available through Federal operation of the
USES, is important to the swiftest possible reconversion and expansion of our economy. Therefore, the President recommended that
the Congress continue the United States Employment Service offices
under Federal control until the transition emergency is ended. I
strongly support the President's request.
War Prisoners: All prisoners of war will be shipped home by early
1946. American workers will replace prisoners-of-war, now engaged
in jobs outside prison camps, as rapidly as they are available, and the
Secretary of Labor is continually reviewing work contracts for
prisoners. Of the 414,000 prisoners of war in this country on September 1, about 140,000 were available for private employment.
Foreign Workers: In August, 175,000 foreign workers were employed in this country. By the end of the year the 68,000 Mexican
and 15,000 West Indian workers engaged in non-farm work will have
left the country. The Department of Agriculture also plans to
return the 85,000 foreign workers employed on farms, though a few
may be needed next year. Contracts for industrial work no longer
are being renewed.
Expanding Supplies and Production
Materials: With the exception of tin, rubber, and a few other
items, more of the raw stuff of manufacture is available right now for
peacetime production that has ever before been used in this country


in even peak peace years. Steel capacity is 30 percent greater than
1929, top consumption year; aluminum capacity is many times greater
than prewar; and production of lumber is expected to exceed 1939
This ample supply results primarily, of course, from our huge wartime increases in all lines of materials production. They have been
freed for peacetime use by the swift, concerted action of the Government agencies in cancelling war contracts and in removing unnecessary
Production: In addition to other steps already cited, Government
assistance to business in expanding production falls into three

Retention and strengthening, where necessary, of controls
scarce materials.
Priority assistance to break bottlenecks.
Stabilization of wages, prices, and costs.

These purposes are being accomplished through actions of the War
Production Board, the Office of Price Administration, and the National
War Labor Board, under the guidance of the Office of War Mobilization and Reconversion.
The War Production Board has adjusted its control system to the
needs of reconversion, removing those controls which restrict production but retaining others to assure that scarce materials and supplies flow into the most productive uses.
Two of the last broad controls were withdrawn by the War Production Board as of yesterday, September 30: (1) The former priorities
were replaced by a new, much simplified system; and (2) the Controlled Materials Plan was cancelled.
By October 31, the War Production Board expects to have in force
only 55 of a peak total of 650 orders and schedules over materials
and supplies.
The WPB has taken general action to help industry in stepping up
production as follows:
(a) Ordered its field staff to give special attention to enforcing
compliance with inventory controls. These controls are intended
to assure that scarce materials are not immobilized in excessive inventories but are used in current production.
(b) Forbidding duplicate orders on scarce materials.
(c) Revised and simplified its priority system. Priorities are being
used to break bottlenecks in key reconversion products and to expand
the production of scarce essential items, such as low-cost textiles.
(d) Gave free rein to industrial construction on August 14, 2 months
before all other construction controls were lilted (cancellation of
order L-41), and ordered its field staff to give spot assistance to
industrial expansion.


The Office of Price Administration will continue to stabilize the
cost of living and the general level of business costs. Consistent
with this general policy, it will suspend price ceilings, product by
product, as soon as this can safely be done, and will correct inequities
or maladjustments in present ceilings which would impede reconversion. So far the agency has taken these actions:
(a) Eemoved from price control a list of products and services
which are unimportant in the cost of living or in business costs.
More will follow.
(6) Suspended or removed ceilings from products for which demand
and supply are in reasonable balance. These include magnesium
and primary aluminum ingot and castings, some industrial machinery
and equipment, and automobile parts which are original equipment.
(c) Issued a " general rescue" order which permits a manufacturer
who is operating at a loss to secure an adjustment which will permit
him to cover costs. This order does not apply to reconverting manufacturers during the period of initial low volume production. It will
help other manufacturers who for any reason are unable to operate
under ceilings to stay in business during the transitional period of
price control.
(d) Developed flexible reconversion pricing formulas designed to
meet varying reconversion conditions. More than 90 percent of all
business will continue now to produce and sell the same type of products as in war, but for those products which have not been turned out
since 1941 or 1942, wartime pricing standards are not applicable.
The pricing formulas include—
First, any manufacturerer may sell at his 1942 ceiling price.
Second, any reconverting industry may request OPA to
calculate an industry-wide "increase factor" based on increases in costs during the war, plus the industry's average
rate of profit during a peacetime base period. This is added
to the 1941 cost.
Third, relief for "hardship cases" when an individual
manufacturer's costs have increased more than the average,
or when the manufacturer's industry does not request an
"increase factor", is provided on application. A similar formula is applied to the individual's 1941 costs and subsequent
cost increases.
In addition, a special formula has been set up for reconverting manufacturers whose annual volume is below $200,000, and for new small
manufacturers making peacetime products for the first time. Greater
leeway is allowed on profit and, under an "automatic pricing" plan,
each may set his own price and start selling in 15 days unless OPA
meantime disapproves.


The National War Labor Board, acting under authority conferred
in Executive Order 9599, is permitting voluntary increase in wages
which do not affect price ceilings, and has thereby gone far toward
reestablishing the normal procedures of collective bargaining. I t
will approve wage increases to correct inequities or maladjustments
which would impede reconversion. Any rise in wages which would
involve price increase must have the approval of this office.
The wartime activities of the War Labor Board in connection with
wage stabilization and compulsory arbitration of disputes have been
sharply curtailed and will be further diminished during the next few
Concerted Actions: All the agencies concerned are acting together
to expand production. For example, not enough bricks and other
clay products were being made to meet the needs of the important
and expanding construction industry. The War Production Board
had its field representatives visit plants and determine their requirements; priorities were given for needed machinery and equipment;
the OPA granted a general increase in prices; the USES spotlighted
the brick industry in local job referrals. Production, as a result, is
picking up; but the Government will watch developments closely, and
if additional action is needed it will be taken.
Financing Reconversion
The businesses of the country are, in general, in better financial
condition than ever before in our Nation's history, but this does not
apply equally to every individual business.
The Government has extended special tax relief to helpfinancereconversion. Under the income and excess profits tax laws, many
corporations will be entitled to refunds of taxes during the reconversion period. The Tax Adjustment Act of 1945 advanced the time for
payment of these refunds. All corporations which paid excess profits
tax will receive a refund of that part of the payment which was
originally earmarked by law as "savings." Corporations which
suffer a loss or drop in income below their exemption level will also
receive a refund of part of their wartime taxes. In addition refunds
will arise from recomputation of accelerated amortization on war
plants. Small business was assisted by an increase in excess profits
tax exemption from $10,000 to $25,000.
The Government, as detailed previously, is making speedy settlement of contractors' claims on terminated war contracts. The
Smaller War Plants Corporation is continuing its assistance to small
In addition, the Reconstruction Finance Corporation has instructed
its 31 loan agencies throughout the country to act in cooperation with
the Nation's commercial banks:


1. To finance plant reconversion and equipment or plant
purchases or expansion; to finance surplus property purchases.
2. To make loans in anticipation of settlement of war contracts.
3. To lend money to assist veterans to finance businesses or
4. To make commitments now for loans to be made at some
future date so that industry may go ahead with reconversion and
expansion plans.
5. To make an automatic guaranty of bank loans to industry
up to 75 percent of a top total of $250,000 per loan; and to participate in industry loans to any amount.
Real estate mortgage loans, to aid in erecting new buildings
for which there is real economic need, also may be made through
the RFC Mortgage Company.

Economic Stabilization
The Government's program of economic stabilization has these
prime objectives:
1. To prevent inflation and thus safeguard wage and
salary income from dissipation in high prices.
2. To facilitate an orderly process of reconversion which
would contribute to a high level of production and employment.
3. To help counteract declines in purchasing power due
to disemployment in the munitions industries.

The last war serves as a warning of what can happen if prices,
rents, and wage rates are permitted to go their own free way. The
rise in cost of living did not stop with Armistice Day. Between
the outbreak of World War I and the Armistice (52 months) prices
advanced 62 percent, or more than 1 percent per month. Then
from Armistice Day to June 1920 prices moved up another 29 percent,
or 1.5 percent per month.
This time prices and rents have been controlled much better.
During the 73 months since August 1939, just before Germany
invaded Poland, the cost of living increased 32 percent, or an average
of only 0.4 percent per month. Moreover, in 28 months since President Roosevelt's hold-the-line order was issued, the rise in the cost of
living has been only 4 percent, or 0.1 percent per month.
The constraint on prices this time is directly traceable to the
stabilization measures taken early in the war. As far back as February 1941, price ceilings were put on machine tools. That was only
a beginning. The Office of Price Administration put into effect its
general ceiling on all prices in April 1942. Wage controls, rationing,


Post-war boom in production and prices was followed by sharp slump,
and business failures soared.
Industrial 'reduction



Poi W Boo

t -/7


Cost of

Armirt CO



• ^ ^

^ A n nil ic«

PostV ar DoprMsfoh










rafm rnai




Business F lilures






















and the Government's fiscal policy were aH devised to attain and
maintain economic stability.
Buying and Production: The problem during the war was clear:
The Government was purchasing increased quantities of munitions
and other supplies; employment was rising. But, because manufacturers were producing more and more for the Government,
increases in output of civilian goods did not keep pace with the increases in consumer incomes. So it was necessary to exercise
restraint over prices.
Today, notwithstanding the withdrawal of the Government
from the market, inflation pressures still persist in certain
parts of the economy. To release all controls might easily
lead to a repetition of the 1919-20 boom and collapse. (See
chart, Before and After Armistice Day, 1918.) Our objective,
for the longer run, is a steady advance in production and
employment. When we achieve a high level of production
and employment, we do not want it followed by a sharp
deflation and depression. We must keep price controls to
prevent an inflationary rise in prices which would be the
inevitable forerunner of collapse.
Price stabilization has depended for its success on the work of
many agencies and the meshing of many policies. When supplies
of consumer goods were inadequate to meet demand, the Office of
Price Administration, Department of Agriculture, War Production
Board, Petroleum Administration for War, and other agencies undertook rationing of civilian purchases. Although its main purpose
was to provide a fair distribution of goods, rationing also had the
effect of curtailing demand and so reduced the upward pressure on
Likewise when the War Production Board set limitations on production of certain products and allocated supplies of steel,, copper,
chemicals, and lumber to the most urgent war requirements, it
restricted nonwar orders and so also let out some of the steam under
Reconversion Products: Because the production of durable goods
for consumers will lag behind demand for them, the Office of Price
Administration must continue to keep such prices in check. As
noted previously, a flexible pricing formula has been developed; it is
designed to protect the consumer but at the same time to afford
manufacturers, large and small, incentive to expand output rapidly
and promptly.
Low-Cost Items: One of the major stabilization problems of the
war period has been the disappearance of low-cost items. With a
sellers' market in most products, manufacturers have tended to concentrate production on goods of higher quality which normally show


higher profit margins. This problem has been particularly acute in
textiles. The special priority and price increases adopted earlier this
year have not yet altered the situation.
There is no prospect that the sellers' market in textile products,
particularly cottons and worsteds, will disappear for several months.
Production for civilian use will expand, but demands will be very
high, and inventories are dangerously low. It will therefore be
necessary to continue for the present the WPB program of scheduling
fabrics to producers of low-cost goods, and the OPA Maximum
Average Price Orders which insure that each manufacturer produces
low-cost as well as high-cost items. Some modifications, tolerances,
and exemptions have been announced, but the program must continue until the return of a normal market makes competition effective.
In the transition period, with millions of servicemen returning who
require outfitting, millions of workers unemployed, and reductions in
the take-home pay of additional millions in employment, it is even
more important than during the war to insure an adequate supply of
moderately priced suits, overcoats, dresses, shirts and shorts.
Rationing: Although Army-Navy demands have dropped, it nevertheless is necessary to maintain some rationing, allocation, and
similar controls during the transition. However, as soon as supplies
become sufficient, restrictions will be done away with. Thus rationing of gasoline, fuel oil, and canned goods have been eliminated by
the OPA and point values on many foods have been reduced. Similarly, most WPB priorities and allocations have been eliminated;
those that remain are confined to a comparatively few scarce materials
and products.
Inventory Controls: As WPB releases materials from priorities
controls, it is undertaking to expand its check-up on inventories. The
objective is to prevent hoarding of supplies during the early stockbuilding phase of the transition. This will reduce price pressures on
supplies and, even more important, facilitate reconversion and reemployment.
Export-Import Controls: In view of the inadequacy of the supplies
of certain commodities throughout the world, the Government must
undertake to distribute supplies fairly among the various foreign
claimants, and ourselves. It must also prevent excessive demands
which would either generate price pressure, or deprive some economies
of essential materials and supplies. Therefore, some export controls
to allocate foreign purchases will have to stay in force.
However, this is not a one-way proposition. The United States
has obligations not to preempt world supplies of scarce materials.
Therefore, it will be necessary to collaborate with other countries,
through the Combined Boards, and in other ways, in apportioning
world supplies of scarce goods, such as leather and tin. In order to
carry out such international undertakings, we must retain a relatively


few import controls, including Government purchase of foreign
supplies. These controls also help to make key commodities available on the domestic market at prices consistent with stabilization
Certain other controls of a different type are necessary to enable us
to provide critically needed supplies for the devastated countries of
Europe and Asia. We may have to set aside for export a specific
proportion of the output of some commodities, as we now do with
textiles. In other cases, priorities may have to be granted for the
procurement of relief and rehabilitation supplies. If this is not done,
we may be unable to make good our international undertakings
despite our grants of financial assistance.
Most export-import controls on specific items have already been
dropped and the rest will go as quickly as world supply comes toward
a balance with world demands.

Notwithstanding the inflationary pressures in the supply-demand
position for most goods, the outstanding economic fact of the reconversion period is that the Government is withdrawing from the market.
Just before VJ-day, war expenditures amounted to about 42 cents out
of every dollar of goods and services produced in the United States.
By the beginning of next year, they will be down to 20 cents and by
the end of 1946 to about 10 cents out of every dollar.
In gross figures, the Nation's output which during the first half of
1945 was at an annual rate of $206 billion—including $87 billion of
war expenditures—will probably have fallen by more than $40 billion
by the year's end.
The effects of this sharp contraction in Federal outlays have already been evident in lay-offs from war plants. As a direct result,
for the first time in more than 6 years the national income—the money
people have with which to buy goods and services—will slide off.
That is bound to affect the general course of business and it poses
one of the basic problems of the period.
The first requisite of supporting purchasing power is high employment. To that end, the Government has undertaken to speed reconversion and expand production. In addition, a program has been
worked out to assist released war. workers and discharged servicemen
to find jobs. When jobs cannot be found—and unemployment during
reconversion is unavoidable—unemployment compensation will help
maintain consumers' purchases and thus minimize the effect of loss of
Unemployment Compensation: Reconversion lay-offs are reflected
in a sharp rise in the volume of claims for unemployment compensation. The total number increased almost 200 percent to 961,000 in the


Claims filed increase slowly between V-E and V-J days, sharply thereafter.






V-E Day

April 5

12| 19 26 2


16 23 30

7 14 21 28 4 11 18 25


8 15

week following Japan's surrender. By September 21, 2,008,000 different individuals had filed claims for compensation, and about 1,516,000
of these were still claiming out-of-work benefits. (See chart: Unemployment Compensation Rises.)
But only 7 out of every 10 nonfarm workers are protected. Maritime workers, Federal employees, including
those who work in Government arsenals, Navy yards, and
other Federally owned and operated plants, and in some
States employees in small establishments cannot collect
benefits. It is discrimination to exclude such woikers, who
have served so well during the war.
Persons who drop from the labor market are not eligible for unemployment compensation, nor are persons who refuse "suitable" employment.
Difficult decisions must be made by claim handlers in determining
whether a specific job constitutes "suitable" employment. In appraising suitability, such yardsticks as wage rates, occupation, skill, and
location of job are taken into account. Sound public policy requires
a careful balancing between extremes.
Take-Home Pay: As many industries shift back to a 40-hour
week, take-home pay will shrink. The elimination of overtime work
at premium pay will reduce unit labor costs. At the same time shifts
in the volume and composition of output will alter manufacturing
costs. Both management and labor must continuously explore the
effects of these changes to determine progressively to what extent


there are cost reductions and, if so, to what extent they can be passed
on either in the form of increased wage rates or decreased prices.
This is an extremely d fficult but important problem during the transition—one that the Government, labor, and management must solve
in the interest of rapid reconversion and long-run stability. The wage
earner's income is essential to a broad market for goods and services.
To meet the conditions of the transition period and to impart greater
flexibility to the collective bargaining machinery, President Truman
has authorized employers to grant wage increases voluntarily on the
condition "that such increases will not be used in whole or in part as
the basis for seeking an increase in price ceilings or for resisting otherwise justifiable reductions in price ceilings." Also the President
authorized the War Labor Board to approve increases necessary to
correct maladjustments or inequities which would interfere with the
effective transition to a peacetime economy, even if a price rise results;
such proposed increases, however, have to be approved by the Office of
War Mobilization and Keconversion.
So long as wage controls continue, proposals of employers to reduce
wage rates are subject to decision of the War Labor Board. Up until
now these cases have been relatively few. But peacetime production
has brought a set of new conditions as to type of product worked on,
type of performance and method of payment, so that the number of
such cases is increasing.
Higher Minimum Wage: One vital element in a program to maintain purchasing power and living standards is an effective minimum
wage program. For the several million workers who still receive
substandard wages, the reconversion period will bring special problems. During the war, overtime work and steady work have helped
this group—but the legal minimum wage of 40 cents per hour is far
too low to buy a decent standard of living.
When the Congress enacted the Fair Labor Standards Act hi 1938,
it set the goal of a 40 cent minimum wage as the first step toward assuring a minimum standard of income for all workers in interstate commerce. This goal has been achieved but due to the rise in living
costs it provides no more real purchasing power than 30 cents did
when the Act was adopted.
The President has termed the 40 cent standard obsolete—it should
be substantially increased. Our ultimate goal should be to provide
a minimum wage which will give all American workers a chance to
buy a fair share of what we can produce. This cannot be done in
one step—it will call for gradual progress over a period of years. But
the next step must be taken now.
Taxation: Increased taxes have been an effective means of siphoning off some of the inflationary spending power of business and individuals during the war. Correspondingly, reduction of taxes during


the immediate transition period can be a potent influence against deflation. As pointed out by Secretary Vinson in the third quarterly
report of this office, the modernization of our Federal tax structure
and its integration with State and local tax policies is a key to all
our efforts to reach full employment. Much work has been done in
laying the groundwork for the postwar tax program by the United
States Treasury and the Joint Committee on Internal Kevenue
Because a measure of this importance will undoubtedly take time
to put into the form of a well-rounded program, it appears desirable
to have an interim tax adjustment for the immediate future. I
recommend for the consideration of the Congress the following threepoint transition tax plan:
1. Repeal of the 3 percent normal tax on individual incomes. Removal of this tax would restore purchasing power
to every person who pays an income tax and is particularly
important in the low income groups.
2. Establishment of a definite date for the reduction of wartime excises to the 1942 level. In the absence of such
action, these temporary excises will not come to an end
until six months after the President or the Congress proclaim a formal cessation of hostilities. This reduction
will also restore purchasing power to those groups on which
the maintenance of mass markets depends. Further reduction of excises, desirable from a long-run economic
standpoint, should await the consideration of a more permanent tax program.
3. Repeal of the excess-profits tax to become effective
as of January 1, 1946. This tax was an indispensable
wartime safeguard against inflation and profiteering. In
peacetime, it acts as a brake upon enterprise and expansion.
Its repeal would stimulate business expansion and make
funds available for higher wages, lower prices, or increased
Public Works: Public works will also be a factor in creating employment during the reconversion period. The Government will
resume construction of those urgent projects which have been deferred
because of the war, and will initiate such new projects as have the
greatest need and economic return. In general, types of construction
which seriously compete with private industry for critical materials
will be postponed until there is some slack in the construction industry.
In the meantime, the Federal agencies will continue their planning
work to complete preparations for an enlarged public works program
us needed to supplement private construction.


The Committee on Post War Construction has recommended that
additional funds be appropriated to plan more Federal, State and
local public works for the transition period. It is important that
there be a large shelf of projects which can be started whenever
the need arises.
At the present time, the Government has plans prepared for
$1.5 billion in public works to be spread over several years. These
include reclamation, flood control, veterans' hospitals, and others.
This is exclusive of the authorized highway program, still requiring
appropriations, which provides for some $500 million a year for 3
years to be matched by State and local funds.
State and local governments will be encouraged to undertake public
works of the same type as the Federal Government. About one
billion in such projects could be started in the immediate future.
The $17,500,000 formerly provided by the Government to assist them
in planning further works will be exhausted by October 15 and the
President has recommended that additional funds be provided for
this purpose.


Numerous special problems have arisen as a direct result of the war
which require special attention in peace. These include (1) surplus
disposal; (2). the stimulation of construction, especially home-building; (3) food supplies and agricultural adjustment; (4) transportation;
(5) overseas supply; (6) demobilization of the armed forces, including
aids to veterans; (7) scientific developments. They are discussed in.
the following sections.
Disposal of Surpluses
The real task of selling surplus war property began in earnest with
the end of the war.
Primarily the Surplus Property Administration—the Surplus
Property Board until late September—must stimulate maximum
peacetime use of surplus war materials and properties. This responsibility is intensified as war plants, other capital equipment and
a great variety of consumer goods are added to the growing pile of
surpluses which before VJ-day were composed largely of obsolete and
worn out aircraft.
In the last quarterly report of this office there was a brief description of the first nine major regulations of the Board. Since July, the
formulation of basic policies by the Board has been almost completed
by two other important regulations.
One regulation, designed to hasten disposal of surplus plants and
their use for private peacetime production, establishes negotiated sale
or lease as the normal method for disposing of plants; it provides for
the mandatory governmental priorities and sets forth the basic
policy of giving preferential treatment to local and small firms in
contrast to national and large firms.
The other regulation now being prepared will permit distribution
on generous terms of educational and medical supplies and equipment
to non-profit and Federal, State and local governmental health and
educational institutions. To implement this regulation the Board,
has allocated funds to the Federal Security Agency, Public Health


Service, and Office of Education to enable them to determine the
relative needs of the various applicants for these surpluses.
This program speeds the disposal of medical and educational goods
representing an original cost of hundreds of millions of dollars and will
offer new opportunities for health and education to millions of people.
Prior to Japan's surrender actions had been taken by the Board to
facilitate the exercise of veterans' preference as required by the act.
By early August more than 3,000 applications from veterans for
surplus war goods with which to establish themselves in businesses
had been received by the Smaller War Plants Corporation. Procedures have been worked out so that veterans may purchase up to
$2,500 in surpluses directly through SWPC, which as a Government
agency can buy goods before they are offered to the public.
Inquiries from veterans have been rapidly increasing, particularly
for machine tools and industrial equipment items. It is apparent
that access to the accumulation of Government surpluses will afford
one of the most potent and effective means of establishing thousands
of new small businesses throughout the country.

Classes of Surpluses
Surpluses that are of immediate importance fall into four main
1. Surplus industrial equipment and supplies and surplus war
plants. The efficiency with which the Government carries out its
program of surplus plant disposal may, for many years to co'me, be the
rod by which the success of surplus property disposal is measured.
Consumer goods are expendable; their usefulness is relatively shortlived. But a generation hence today's war plants can be producing
goods for peace. The Government owns some 708,473 items of
industrial equipment—about half of them machine tools—and it
owns about 1,700 plants. The total cost was over $16 billion. Not
all of these plants, not all of this equipment is usable in a peacetime
economy; but a large part is. The utilization of this property is
essential if we are to attain high level production and high level
employment. Finally, putting these plants and equipment to work
promptly will enable us to discard our wartime controls more quickly
by increasing production to supply hungry markets and thus check
inflationary pressures.
Of immediate interest are the large quantities of industrial supplies
and raw materials—paper, steel, industrial diamonds—in Government
stocks and contractors' inventories. Here the great problem is speed.
There is an urgent demand for most of these supplies today. In use
today they would speed reconversion and expand production; 6 months
from now they will have far less value or utility.
2. Goods usable by civilian consumers. The demand for these
goods at the present time is, of course, tremendous. The prompt sale


of these goods can be of real assistance in the stabilization program.
The Commerce Department, charged with their disposal, promoted
throughout September a vigorous sales program on a national fixed
price basis. This class of surpluses has more than doubled since
Japan's surrender, and at the end of August the Commerce inventory
of surpluses stood at more than $323 million.
3. Surplus property abroad. There are billions of dollars worth of
surplus installations and movable goods abroad. A good deal of this
consists of combat items without peacetime utility; but there is a
great amount of urgently needed equipment and supplies. The
inventory of this material in Europe is now being completed. A
considerable volume of material is already being transferred to
UNRRA. Negotiations are going forward with foreign countries
looking toward large sales on a Government-to-Government basis.
Sales abroad must hurdle the great difficulty of a lack of dollars in the
hands of the countries where the goods are most urgently needed.
Accordingly, arrangements are being made under vhich in a number
of countries local currency will be accepted in payment. This
currency will be convertible over a period of years under agreed conditions. The Government is also exploring the possibility of receiving
other benefits tangible or intangible in return for surplus property.
One important organizational decision in this field has just been made.
The State Department is to be designated a disposal agency and the
function of the Army-Navy Liquidation Commission will be transferred to this Department which will also take over the Lend-Lease
and UNRRx^ functions from the Foreign Economic Administration.
4. Merchant ships. The United States has the largest merchant
fleet in the world, far beyond our normal needs. Disposal of surplus
ships must await passage of new legislation.
There will, of course, be other large categories of surpluses: (1)
military construction, such as airfields, cantonments and bases; (2)
war housing, including living accommodations for war workers and
community facilities such as hospitals and schools built as Federal
projects; and (3) aircraft. There are already in inventory unsaleable
airplanes costing about $2,373,000,000. These will be scrapped.
Disposal Progress
Surpluses by the end of September totalled an estimated $5.6
billion—of which some costing $647 million had been disposed of for
around $344 million—as indicated by the following summaries:


Surplus property account, all agencies
[In millions of dollars]


Total disposals (at original cost)








Leases, loans, donations
Inventory, end of period
Received for sales




Ratio: Selling price to cost




Net declarations
[In millions of dollars]




September (esti- through
end of
mated) September


Other agencies -

_- _











Reconstruction Finance Corporation




Original cost of items sold
[In millions of dollars]




September (esti- through
end of
mated) September

Reconstruction Finance Corporation





Other agencies.











Inventory at end of period
[In millions of dollars]




Reconstruction Finance Corporation




Other agencies







i September estimated totals are cumulative totals.

A great many amendments to the Surplus Property Act of 1944 have
been proposed. Recently, upon recommendation of the President,
the Congress provided for a single Administrator to replace the threeman Surplus Property Board; under this amendment the essential
policy decisions can be made more easily and promptly and can keep
pace with fast-moving changes in the surplus property disposal job.
The techniques and procedures for,handling surplus property have
improved greatly in the last 3 months-. The results of this improvement will show in the next quarter.
Housing and Construction
The construction industry can be a great additional source of jobs
and investment in our economy. I t will be slow in reaching the high
level that is ultimately expected—as much as $12 billion to $15 billion
a year—but some increase in building is already begun.
To assist builders and their supply industries to get started quickly,
the War Production Board has revoked Order L-41, effective October
15.* This order formerly restricted building of houses and other construction. Previously, the WPB had lifted all controls over industrial construction and ordered its field staff to give special spot
assistance to speed all such projects.
Demand for new houses is expected to exceed supply for some years.
Home construction lagged during depression years and has been far
below needs during the war. In addition, millions of veterans will be
...returning and there has beea a 17 percent increase in the number of
marriages between 1940 and 1944.
Private house building is already under way. During the third
quarter, 1945, while L-41 was still in force, 72,000 new homes to cost
$8,000 or less were authorized and started under National Housing


Agency priorities. With relaxation of controls, construction of more
than 85,000 houses is expected to start in the fourth quarter. Estimates are that over 400,000 homes will be begun in the coming year.
Until early 1946, some difficulties may well occur in obtaining certain supplies and building materials. While this situation continues,
price ceilings and inventory controls will be kept in force to assure fair
distribution and to encourage builders.
In order to combat inflationary dangers, as well as to lend all
possible assistance to private construction, the Government will—
1. Through inter-agency action undertake an active campaign
to increase the supply of scarce building materials and, if necessary, grant price and wage increases and priorities to break bottlenecks.
2. Strengthen inventory controls to prevent hoarding of building materials so that building will not be delayed by artificially
created shortages.
3. Strengthen price control of building materials to counteract
inflationary pressure.
4. Do everything possible to discourage excessive and unsound
lending on mortgages and enlist voluntary cooperation of banks
and other lending institutions to minimize the danger of inflated
prices due to excessive demand.
5. Call representatives of industry groups including real estate,
building supplies, and construction to Washington to map out a
voluntary program to increase quickly the production of all
materials and facilities needed for an expanded home-construction
industry, and also to help fight inflated building costs and realestate prices.
6. Provide, through the National Housing Agency in conjunction with industry representatives, an information and advisory
service on home values available to any prospective home buyer
regardless of whether Federal assistance in financing is involved.
Food and Agriculture
Three months ago there was considerable anxiety about food
shortages. Since Japan's surrender, the situation has improved substantially and the prospect is for adequate supplies of most foods.
There are three main reasons:
1. Since VJ-day military requirements for food have been cut
about 40 percent and gradual additional cuts over the next few
months will turn back considerable quantities of various foods to
civilian channels.


2. The weather has been such that the food production this
year will almost equal the records of 1944 and 1942.
3. Changes in Government programs had accomplished some
improvement in the meat situation even before VJ-day. These
changes, as outlined in the last report of this office, were made
about 3 months ago and altered subsidies to cattle feeders and
set-aside quotas. The result was a better distribution of meat,
making more available to large cities at some distance from areas
of production. In addition, the present program is encouraging
the feeding of cattle to heavier weights which will tend to increase
total output of meat.
The easing of the general food situation which resulted from these
three factors has made it possible for the Government to relax many
food controls. The Office of Price Administration since VJ-day has
discontinued the rationing of canned milk, canned fruits, and vegetables and cheese. The point values for meat, butter, and other foods
have been lowered. In addition, the Department of Agriculture has
been able to drop about half its orders regulating the distribution of
food by processors and dealers.
Some foods still are relatively short, particularly sugar, fats and
Sugar: World sugar stocks are still low and rationing is necessary,
but the situation may ease by next spring if the Cuban crop is good.
Also helpful is the fact that the beet-sugar crop in the United States
this fall is expected to reach 1,350,000 tons, in comparison with less
than 1 million tons produced last year. Beet sugar from this larger
crop will be on the Nation's tables by next spring.
Fats and Oils: The world shortage of fats and oils is expected to
continue until the middle of 1946, though supplies will increase just
as soon as imports of copra and oils can begin to flow from the Far
With this improved food situation at home, it is very
important that immediate arrangements be made to supply
foods to the liberated areas of the world where the need
continues very great, especially to Europe and to
parts of Asia. Food supplies already in the pipe lines
under Lend-Lease authorization, which was discontinued
after VJ-day, are currently going forward on cash or credit
terms. But these supplies will not last much longer.
Further assistance can be provided through our contributions to
the United Nations Relief and Rehabilitation Administration and by
loans to foreign governments to help them buy in this country. As a
temporary measure, I have authorized the Commodity Credit Cor-


poration to purchase certain foods that were under Army contract,
mainly meat and dairy products. These will be made available to
UNRRA and to foreign governments when the necessary financial
arrangements have been completed.
Program: We have a three-way program for food and agriculture—
(1) to make sure that all groups of the American public have access
to good diets; (2) to produce foods for distressed liberated areas overseas; and (3) to assure that farmers continue to have good incomes from
continued high output.
Our farmers have accomplished a prodigious job during the war,
despite shortages and the loss of workers to war factories and to the
armed services. The Government has promised to support farm prices
and farm income in the transition period. This promise must be
carried out fully. But it must be done in ways that leave farmers free
from unnecessary restrictions, that provide good diets for American
families, that enable us to keep export outlets for staple crops, and that
avoid the piling up of excessive surpluses.
During the postwar period of readjustment, some farm prices are
quite likely to be out of line with realistic supply-demand prospects.
The Government must therefore undertake to induce farmers to direct
their energies away from certain products that were needed for war
purposes and into products that will be needed to maintain a high and
stable rate of consumption in peacetime. The problem bears directly
on the long-term stability of agriculture.
Since VJ-day, the load on the American transportation system has
eased considerably. Unrationed gasoline which permits unrestricted
use of private automobiles, combined with decreased military movements, have relieved the burden on railroads.
It is now estimated that for 1945 the railroads will carry a total of
665 billion ton-miles of freight—10 percent below 1944; and 87 billion
passenger miles—9 percent below last year's peak load.
Further declines are expected in 1946, taking passenger traffic
approximately to the levels of 1941-42 and freight traffic during the
first 6 months of next year 35 percent below 1944. Rising production
of civilian goods should increase traffic considerably in the latter half
of the year.
Most of the wartime restrictions on transportation have been lifted
by the Office of Defense Transportation. It is anticipated that after
November 1, 1945, the only wartime controls still necessary will be
(1) to assure an adequate supply of railroad passenger equipment for
demobilization of the military forces; (2) to avoid freight congestion
at the ports; (3) to assure an adequate supply of freight cars by regulations on loading.


Rationing of new trucks and commercial vehicles will be discontinued on November 1, although preference must be given to transfer
certificates through November 30.
Overseas Problems
The reconstruction needs of foreign countries, particularly the
liberated areas, are large. They need great quantities of our equipment and goods that they can use in the next few years. The more
they get and the more quickly they get it, the more rapidly can they
begin to reestablish their economies on a sound basis: the more rapidly,
also, can the whole world look forward to general economic recovery,
expanding trade, and high levels of employment.
The immediate problem is how to provide a steady flow of goods
and equipment in spite of the inadequacy of the current resources and
earnings of war-torn areas to finance their tremendous import needs.
Financial settlements are also basic to any reestablishment of full
world trade. Great Britain, although never invaded, has ended the
war with a very serious financial problem. Unless—with our assistance—it is solved, Great Britain and the sterling block cannot become
full participants in world trade. Prompt and decisive action in this
field are necessary. During the war, Lend-Lease provided the essentials. With Lend-Lease no longer in the picture, several financial
devices are possible:
(1) There remains to be appropriated to UNRRA for the
current year an additional $550 million out of funds
previously authorized, and the Congress soon will be
asked to contribute $1,350,000,000 more for the year
beginning next January.
(2) Goods that were on order under Lend-Lease on VJ-day
can be obtained by certain foreign governments on special long-term arrangement, but such supplies are small
compared with total requirements and most Lend-Lease
governments had no such arrangements.
(3) The lending power of the Export-Import Bank was
recently increased from $700 million to $3.5 billion.
But it now appears that authorization for a still greater
amount will be necessary.
(4) The new International Bank for Reconstruction and
Development will help, but it will not be functioning
for some time.
(5) Special over-all financing programs must be worked out,
with appropriate congressional authorization, with Great
Britain and perhaps certain other major countries.


Many countries desiring goods and equipment from the United
States will have gold and foreign exchange to spend for a portion of
these goods. However, these gold and foreign exchange holdings are
unevenly distributed among the nations of the world, so that many
countries most desperately in need of goods and equipment have
little or no cash resources on'which to draw.
After the transition period is over and the world is back on its
feet economically, foreign countries again will have goods for sale
abroad and will still want large quantities of American products. I t
appears likely that, with a high level of employment, we can look
forward to exports and imports at levels much higher than in even the
best of the years before the war. These higher levels are more likely
to be achieved if we continue along the road of alert international
trade and financial policy.
Demobilization and Veterans9 Rights
Demobilization of the men and women of the armed forces is being
increased rapidly. During September, about 600,000 men and women
have been returned to civilian life although, at the beginning of the
month, the scheduled number was 443,000. The Army has scheduled
the release of 6.7 million men and women and the Navy of 3 million
between VJ-day and June 30, 1946. A rate of a million a month will
be exceeded by November, as a result of a recent step-up in the Army's
scheduled discharges. (See Chart: Back to Civvies.)
In both services, releases are based upon an announced point system.
Though the two systems differ in detail, in general both provide that
older men and women, those with the longest service, and most overseas service, and those with persons dependent on them, shall be discharged first. Special consideration is given to hardship cases. Doctors and nurses are being returned to this country for demobilization
by the fastest possible transportation. In the Army, the number of
credits required under the point system will be regularly reduced;
then, during the winter, done away with. At that time, all who have
served 2 years or more will be eligible for discharge.
The services will require 75,000 recruits monthly as replacements to
release veterans of long, or combat, service. Two recommendations
are before the Congress to accomplish this purpose—one to encourage
volunteers and one allowing induction of men for 2-year periods.
The current Selective Training and Service Act expires next May and
action must be taken by the Congress to assure the necessary replacements.
The rapid demobilization of the armed forces between now and
mid-1946 will test the effectiveness of our program for assistance to
veterans and our adminstrative machinery for carrying out these


Releases are scheduled to exceed one million a month by November.









The stepped-up plans of the Army and Navy will place a heavy
load on all agencies ^concerned with veterans' programs—the Veterans'
Administration, the United States Employment Service, t h e
Retraining and Reemployment Administration, and the Selective
Service System.
The basic administrative machinery for handling the various programs already exists, and action has been taken to strengthen it
for the task ahead;
1. A general reorganization of the Veterans' Administration
has been announced, and personnel are being recruited as rapidly
as possible to deal with the fast swelling volume of claims and
applications for various types of benefits and assistance.
2. Transfer of the United States Employment Service and
the Retraining and Reemployment Administration to the
Department of Labor, announced by the President on September
18, will permit greater integration of the programs dealing with
retraining find reemployment of veterans and nonveterans alike.
3. The facilities of the Veterans Information Centers have
been strengthened in recent months. There are now about
8,000 such centers operated by the Veterans' Administration,
the United States Employment Service, and Selective Service
local boards, as well as some 1,500 community information centers
established by the Retraining and Reemployment Administration in cooperation with local communities.
Through legislation and through action of the executive agencies, a
comprehensive program for aid to veterans has been developed.
Under the so-called GI Bill of Rights, grants are available to veterans


who wish to return to school, and there is provision for guarantee of
loans to qualified veterans who wish to purchase homes, farms, or
businesses. Pensions and special vocational training rights are
available to disabled veterans. Medical and hospital care are provided to those who need it, and unemployment allowances of $20 per
week are paid, for periods as long as 52 weeks, to those veterans who
are not immediately successful in finding civilian jobs.
Comprehensive as these programs are, they still need to be clarified
and liberalized in some respects by appropriate legislation. The
Veterans' Administration has recommended a number of amendments
designed (1) to provide better hospital and medical care; (2) to improve the provisions relating to vocational rehabilitation and education; (3) to liberalize the loan guaranty; (4) to increase benefits for
disabled veterans; and (5) to liberalize the National Service Life
Insurance Act. These will no doubt receive prompt and favorable
consideration by the Congress.
If the Congress grants increased benefits to unemployed civilian
workers, then the similar allowance paid to unemployed veterans
should be brought in line with the new standard established. In
addition, technical improvements in other features of the readjustment allowance program are needed to avoid inequities.
The most serious flaw in the present program for aid to veterans
is the uncertain status of veterans' reemployment rights under existing legislation. Under the Selective Training and Service Act these
rights cease to exist upon a declaration by the President or the
Congress that hostilities have terminated, and in any case not later
than May 15, 1946.
Legislation to assure the continuance of reemployment rights for
veterans should be speedily enacted. Since the present provision is
ambiguous and inequitable in some respects, the exact nature of the
rights provided in the new legislation should be very carefully considered.
Release of Scientific Information
During the war over $2 billion was expended by the Federal Government for research and development projects related to the national
defense, and another $2 billion in experimental production. jjThe
scientific advances thus achieved have benefited almost every field
of endeavor. Wartime security made it necessary to keep secret all
information regarding many of the mdst valuable developments.
In most cases that need no longer exists.
The fruits of the work done in Government laboratories or
with the aid of Government funds are of the highest importance to the future of science. In the hands of industry and
agriculture these new products and new methods should


prove a potent factor in speeding reconversion, in opening
opportunities for new industries, new skills, and additional
Important advances in science and technology were also recorded
in enemy countries during the war years. As liberation and occupation progressed, vast scientific and technological data were gathered
by the missions from Government agencies operating in the field.
A relatively small portion of this enemy scientific and industrial
intelligence has thus far been studied and analyzed; yet it already is
clear that this information also will prove of the greatest value to
American science and industry.
To assure the prompt release and dissemination of both types of
scientific data described above, the President has issued two Executive orders, Nos. 9568 and 9604, establishing a Publication Board
under the chairmanship of the Director of War Mobilization and
Reconversion. Other members of the Board are the Secretary of
Commerce as vice chairman, the Attorney General, and the Secretaries of Labor, Agriculture, and Interior. Provision has been made
for liaison officers from the Army, Navy, Office of Scientific Research
and Development, and National Advisory Committee on Aeronautics.
Functions of the Bo&rd are to—
1. Recommend to the War and Navy Departments the prompt
release of all scientific information where such release will not
jeopardize national security.
2. Assure the speedy, full, free, and public dissemination of
this scientific information.
The Director of War Mobilization and Reconversion has delegated
to the Secretary of Commerce, as vice chairman of the Publication
Board, all operating functions under both Executive orders. To
carry these out, the Secretary has established, within the Department, the Office of the Publication Board.
Because of the great mass of material, it cannot be assumed that
all data can be made immediately available to business, industry,
and academic institutions. However, the Office of the Publication
Board is expediting the work and hopes to accelerate the flow of
information before the end of the year. Inquiries for specific categories or areas of information may be directed to the Office of the
Publication Board.
As a measure to stimulate future scientific research and development, the President has recommended to the Congress the establishment of a central Federal research agency. It is important that a
single coordinating control over such work be instituted in order to
achieve a national research policy and a balanced Federal research


Such a Federal research agency would have these functions:
1. To promote and support fundamental research and development projects in all matters pertaining to the defense and security of the Nation.
2. To promote and support research in the basic sciences and
in the social sciences.
3. To promote and support research in medicine, public health,
and allied fields.
4. To provide financial assistance in the form of scholarships
and grants for young men and women of proved scientific ability.
5. To coordinate and control diverse scientific activities now
conducted by the several departments and agencies of the
Federal Government.
6. To make fully, freely, and publicly available to commerce,
industry, agriculture, and academic institutions the fruits of research financed by Federal funds.


It is too early to make a definitive progress report on reconversion.
The first 47 days since the capitulation of Japan have been devoted
largely to clearing the decks—cancelling contracts; clearing plants;.
laying off and rehiring war workers; taking on help in retail stores,
service industries, and the like; retooling and rearranging assembly
lines. But that in itself is progress—the progress of making ready.
In this initial period, reconversion statistics—on how many automobiles have been made or how many refrigerators—are not meaningful. What is important is not industry's production today, but
what it will be tomorrow.
The test of reconversion will be jobs—how rapidly the economy
absorbs released war workers and returning veterans. Two factors
modify the task of reemployment:
1. Not everyone released from a war plant or from military duty
will be a job hunter. During the war, the labor force was swelled
by some 7 million "extra" workers—housewives, retired men and
women, and younger workers of school age. Some were drawn in by
high wages, including premium overtime pay; many women with their
husbands in service wanted to work to help win the war. Before*
VJ-day possibly 1 million of these "extra" entrants into the Ia?b©tr
force had withdrawn. Now that the war pressure is off, now that
servicemen are returning and will find jobs, many additional "extra"
workers will no longer wish employment. Already there is evidence*
that women are leaving the labor force for their homes. Also many
returning veterans will desire additional schooling.
2. During the war, with labor scarce, the 48-hour workweek was
generally in force. Fewer workers were spread over more jobs.
Peace has reversed the process. The workweek is being reduced and
more jobs—along with more leisure—are being created. Furthermore,
the metal-fabricating industries are rapidly expanding. And the
industries which were starved for workers during the war—laundries,
bus lines, retail stores, and the service trades generally—are hiring:
Yet it is unlikely that economic absorption of workers—either
through retirements from the labor force or increased employment—


•can keep pace with the demobilization of troops in the next 6 to 9
months. We must face the fact that substantial unemployment lies
Some Other Problems
That, in itself, will not stamp reconversion successful or unsuccessful. I t takes time for industry to turn around—to stop work on
munitions and retool for work on peacetime products. During the
change-over, unemployment will unavoidably increase. And there
will be many difficulties and problems. The shift from war work has
caused reductions in the take-home pay of workers. Many businesses
which have lost war contracts will have to struggle to rebuild volume.
And it goes without saying that for those who are unemployed, the
months ahead will be trying and discouraging. Jobs will not always be
in the right places or of the right types when workers need them.
That forces the country to emphasize, as a human necessity, uninterrupted and rapidly expanding production. Though we cannot
avoid all unemployment, we can make it as short as possible. If
industry is expanding—if jobs are opening up—then returning
servicemen and discharged workers will not be out of work for long.
That is why this office and other Government agencies are placing
so much emphasis on getting production moving; on breaking bottlenecks; issuing priorities to key reconversion industries; and making
sure that all businesses—large and small—have equality of opportunity in getting supplies and materials and in creating jobs. Management and labor, however, must both participate.
Management and Labor
The President has placed the War Labor Board, the United States
Employment Service, and the Ketraining and Reemployment Administration in the Department of Labor so as to coordinate the activities
of these various agencies and to expedite reemployment. But a necessary part of such expedition is the prompt, peaceful settlement of
labor-management differences over wages, conditions of employment,
and the like. To say more would be to underscore a reconversion
"must" that needs no underscoring.
In the final analysis the character of reconversion will be determined by the Congress.
In what has been said in this report the need for legislation was
both explicit and implicit at many points.
The President in his report to the Congress on September 6 set
forth, in a comprehensive 21-point program, the economic and human
needs for reconversion and the legislation needed to carry out the


program. Accordingly, no useful purpose could be served by repeating
the individual points here. The importance and urgency of legislation on such matters as full employment, transition tax adjustments,
broadening and raising unemployment compensation and raising
minimum wages, is adundantly clear.
The United States can achieve a smooth, orderly transition to a high
level peacetime economy only if the Senate and the House of Representatives provide the executive branch of the Government with
appropriate and necessary authority to fulfill its responsibilities. I
know that the people of the United States can count on the Congress
to act with wisdom, foresight, and promptitude.
We have already come a long way in reconversion. The initial
shock is over. Most war contracts have been cancelled, most layoffs are behind us. Though the Government is withdrawing from
the market on a record scale, there is an offset in pent-up, recordbreaking demand for goods of all types by consumers and producers
both at home and abroad.
Furthermore, during the war the Nation has built up an unexampled economic strength; more trained workers than ever before
in our history; and a greatly enlarged productive capacity.
We needed this strength in war; we can and must reemploy it in.


Many steps taken by this Office and other war agencies in dealing
-with the problems of reconversion and expansion were planned after
consultation with the Advisory Board. I want to express my appreciation to the Board—to its chairman, O. Max Gardner, with whom
I conferred daily just before and after the capitulation of Japan—and
to all its members. In addition to Governor Gardner, the members of
the committee are: William Green, Philip Murray, T, C. Cashen,
Eric Johnston, George H. Mead, Nathaniel Dyke, Jr., E. A. O'Neal,
. J. G. Patton, A. S. Gross, William H. Davis, and Mrs. Anna Rosen.berg.
At the first full meeting of the Advisory Board after I took
foflice, I submitted to the Board a list of 11 key problems upon
which I solicited its advice and recommendations. The Board has
made these problems its primary concern in subsequent meetings.
They are—
.1. Review of cutbacks and production schedules with special
.consideration of the size of the Armed Forces, inventories,
reserves, redeployment, demobilization, post VJ-day procurement, etc.
[2. Programming of civilian production including a thorough consideration of the role of WPB in the reconversion process,
inventory controls, priority aids, small business, essentiality
of end-products, areas of distress, etc.
3. Draft policies, considering especially the continued induction
of workers essential for reconversion.
4. Reconversion pricing, reviewing the elements in the formula
of the OPA, administrative ability of the agency to handle
hardship cases, high costs in initial stages of production,
treatment of small establishments, etc.
;5. Reconversion wage policy, considering the factors affecting
changes in take-home pay, necessary revision of wage policy
and its impact on price policy.
,6. Surplus disposal, with special attention given to speeding the
declarations, leasing or sale of facilities, adequacy of ware-


houses, disposition of consumer type goods, foreign disposal,
monopoly issues, priorities, administration, etc.
7. Amendment of the Fair Labor Standards Act, reviewing the
present standards, outlining wartime changes in cost of living
and earnings of low income groups, and considering alternative
proposals for amendment.
8. Review of the United States Employment Service with respect
to the handling of veterans, migration of workers, adequacy of
staffs, appropriations, Federal or State control, etc.
9. Liberated area needs from the United States, impact on domestic supplies, financing provisions, administrative problems,
UNRRA, etc.
10. Over-all economic prospects for the next 2 years with particular
attention to the policy implications.
11. Veterans affairs— review of policies, programs and procedures
of all Federal agencies affecting the return of veterans to
civilian life.
After Germany surrendered, the Advisory Board, along with the
xest of the office, was dealing intensively with the difficult problems
of fostering a partial reconversion while conducting a one-front war.
The Advisory Board recommended that the War Production Board
undertake a program of reconversion assistance embracing (1) all-out
production drives covering materials in short supply, (2) forceful
execution of special measures to break reconversion bottlenecks, (3)
• effective control over inventories, (4) deliberate and affirmative collaboration with OPA in arrangements designed to assure the production of low-cost items as one means of holding down the cost of living.
These recommendations were put into effect. Well before VJ-day,
the Board, at my instance, turned its attention to reconversion
OWMR deputies and staff members have continued sitting at
meetings of the Board to report upon and to discuss progress and
problems in reconversion. These sessions have been particularly
useful to us; they have afforded my staff and me an intimate and frank
reaction of the general public, labor, industry, and agriculture to
Government policies.
As in the past, the members of the Board have continued to confer
with officials and experts in charge of major governmental programs
outside this office and to advise with me concerning the inter-relationships and the impact of their programs upon the reconversion program
as a whole.
^ In order that the Congress, this office and other Federal agencies
might formulate reconversion decisions on the most informed basis,
the Advisory Board has asked that special detailed statistical reports


on the resumption of peacetime production and employment be made
available periodically.< These special reports are now being developed
in collaboration with the War Production Board and agencies concerned with employment and business conditions generally.
The Board has engaged Murray W. Latimer, chairman of the
Railroad Retirement Board, and Arthur S. Meyer, chairman of the
New York State Mediation Board, as research director and conference
director, respectively, to supervise the study of guaranteed annual
wage plans. This study was undertaken at Presidential suggestion.


Additional copies oj this report may be
obtained from the Bureau of Special
Services, Bureau of the Budget, llfiO
Pennsylvania Avenue NW.,
Washington 26, D. C.