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FINANCIAL MOBILIZATION FOR DEFENSE
by
KARL R. BOPP
Vice President, Federal Reserve Bank of Philadelphia
before the Philadelphia Chapter,
American Statistical Association
Christian Association Building, U. of P.
Friday, December 1, 1950, 6:30 p.m.
A LOOK BACKWARD
A.
1940 versus 1950
Fall of FranceBegin. our real
defense effort
June 1940
Invasion of
S. Korea
June 1950
49 mil.
8 mil.
125
61.5 mil.
3.4 mil.
199
5.7 (85%)
344,600
50,000
8.1 (101%)
857,200
143,000
Consumer price level • • • •
Wholesale price level . . .
100
100
175
200
Federal Gov*t taxes (fiscal)
Federal Gov*t debt .......
|6 bil.
$50 bil.
$65 bil.
Index of industrial output •
Steel capacity {% operated)
Motor vehicle production •
Sensitivity to inflation . .
B.
Low
Initial impact of Korean invasion
1«
2.
Government
a.
Talk and appropriations
b.
Taxes
Private sector of the economy
Spend
$37 bil.
$250 bil.
$170 bil.
High
®
*
'■ I
y /'J
M
/& 3
ö
/ o «3
- 2 -
II.
LOOKING AHEAD
A.
In real terms
1.
Manpower projections
(Millions of persons)
(Woody Thomas^Dept. of Agriculture
Outlook Conference - 10/30/50)
Needs
Armed forces
Defense . .
1.5
from 1.5 to 3*0
3.0________ from 1.7 to 4.7
Total . . .
4-5
Sources
Increase in labor force . • 1*7
Reduction in unemploy. . • 1.8_____
Total ...................
3 .$
Reduction in civilian workers
from 64*8 to 66.5
from 3*3 to 1.5
/ /
1.0
(2 million more working)
2.
Government Demands and Output Projections
(Annual rates at 3d quarter 1950 prices)
3d Quarter
_ 1950__________1951
v£
_____________
$62 billiona
G. N. P.......... $284 billion |300 billion0
Gov* t demands . . .
$43 billion
$19 billion
/ $16 billionb
$241 billion7^!238 billion - f C -
Civilian . . .
$3 billiond
a) C.E.D. estimates $35 billion militaiy, $27 billion non-military.
v
v" 7
b) Major factors accounting for
2 million more people working
Somewhat longer hours (why not 44 or 48 hr. normal week?)
Operate stand-by facilities
Additions to plant and qeuipment
Increased productivity
c) C.E.D. estimate. Woo<3y Thomas estimates $301 billion for second
quarter of 1951» M. Jos. Meehan estimates increase of 5% for 1951*
d) Moody Thomas estimates - $1 billion for 2d quarter of 1951»
3 . Summary of our problem in real terns
a.
Over-alls
Produce 5-6% more
Consume "-and invest 4-5% less
b.
Breakdown
(1)
Investment versus consumption
(2) Shift from durables to nondurables
and services
- 3 -
B.
Our problem in financial terms (Who shall bear the burden?)
1.
We will have $16 billion more income (before taxes)
but $3 billion less goods and services to buy.
/0
2. Government expenditures for 1951 • •
billion
Government receipts fiscal 1950 . •
Needed increase in receipts .......
Sources:
Expanded S.S. coverage
)
September 1950 tax increase)« • •
Greater G.N.P. , ,
)
Deficit • • • • • ................
$2l billion
•y%
H
billion
ÿ f billion
(Wooty Thomas estimates $11 billion)
3*
Expenditures not limited to current income
a. Liquidating past savings
b. Going into debt
C • Our options
1*
Let inflation proceed
a.
b.
2,
Why resistance to inflation has been weak
Why it is likely to increase
Fiscal, monetary and credit controls to limit demand
a.
Fiscal policy
(1)
^ut expenditures
• not merely automatic reductions
(2)
Raise $6-10 billion additional
- seasonal receipts
(The spring "shock* - advantage disadvantage -
(3)
speculative buying
believe inflation licked]
Excess profits tax (?)
(a)
Bad in principle
(b)
Administrative difficulties
- 30,000 claims settled in 5 years
- 20,000 remaining = $6 billion
(4)
Income taxes
(a)
(b)
b.
Corporate
Individual
Monetary policy
(1) Control volume of reserves
(2) Interest rate level and structure
c.
Debt management policy
d*
Selective credit ccntrols
i
-
3»
A -
direct controls
a.
Limited
b. Comprehensive
c• When appropriate
(1)
(2)
Large effort: 40-50% of output
Limited period
(3)
Patriotic enthusiasm
(Administrative problems)
Used the following at the beginning of speech:
Necessity of quantifying
Impossibility of doing it.
Magnitude to be reached.
Rate of increase.
Take it all with a grain - or a shaker - of salt.
Like txying to find answer to problem in logic.
The following is adapted from an examination in logic prepared recently
by the mathematician Walter Pitts of the Massachusetts Institute of Technology:
If a mathematician does not have to wait 20 minutes for a bus, then he
either likes Mozart in the morning or whisky at night, but not both.
If a man likes whisky at night, then he either likes Mozart in the morning
and does not have to wait 20 minutes for a bus or he does not like Mozart in the
morning and has to wait 20 minutes for a bus or else he is no mathematician.
If a man likes Mozart in the morning and does not have to wait 20 minutes for
a bus, then he likes whisky at night.
If
night
night
likes
a mathematician likes Mozart in the morning, he either likes whisky at
or has to wait 20 minutes for a bus; conversely, if he likes whisky at
and has to wait 20 minutes for a bus, he is a mathematician - if he
Mozart in the morning.
When must a mathematician wait 20 minutes for a bus?
The reader is not advised to tiy to work out the solution, for this problem
is practically impossible to handle verbally.
From:
SCIENTIFIC AMERICAN - December 1950, p. 22
(Distributed at meeting of A.S.A. on 12/1/50)
GROSS NATIONAL EXPENDITURE AND PERSONAL INCOME
Item
GROSS NATIONAL PRODUCT— TOTAL . . . .
Government, total
1/ . . . . . .
2nd Quarter
1950
3rd Quarter
1950
(In
of
40.2
40.8
/
.6
21,7
18,8
21.4
19.6
/
.3
.8
46,9
48 #4
/
1.5
21.3
12,2
9.1
22.3
3.4
4*0
22.8
13.5
9.4
27.1
- 1.5
- 1.0
/ 1.5
i 1.3
/
.3
/ 4.8
- 4*9
- 5*0
-
-
,
Producers1 durable equipment . •
Change in business inventories .
. . . .
Disposable personal income . • . •
Seasonally Adjusted —
2.0
3.3
1.3
185.2
198.4
/ 13.2
26.7
99.3
59.2
33.5
104.9
59.9
/
/
/
6.8
5.6
.7
215.1
224.8
/
9.7
195.6
204.7
/
9.1
10.4
6.4
o•
-*
PERSONAL INCOME ..................
-
i
Personal consumption expenditures •
/14,0
284.3
Gross private domestic investment .
2/
dolla]rs)
270,3
Federal . . . t .............
State and local .............
Net foreign investment
billions
Change
Annual Rates
Notes: 1/ Includes purchases of goods and services only and excludes transfer
payments, such as veterans* benefits* It includes grants under the
foreign aid programs*
2/ Excludes grants under foreign aid programs.
Source:
U. S. Department of Comnerce
@FedFRASER