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F ebru ary

23, 1966

Printed for the use of the Joint Economic Committee





FEBRUARY 23, 1966

Printed for the use of the Joint Economic Committee



For sale by the Superintendent of Documents, XJ.S. Government Printing Office
Washington, D.C., 20402 - Price 45 cents

(Created pursuant to sec. 5 (a ) o f Public Law 304, 79th Cong.)
W RIGHT P ATMAN, Texas, Chairman
PAUL H. DOUGLAS, Illinois, Vice Chairman
J. W. FULBRIGHT, Arkansas

HALE BOGGS, Louisiana
HENRY S. REUSS, Wisconsin

Executive Director
Deputy Director
M a r i a n T . T r a c i ', Financial Clerk
H a m i l t o n D . G e w e h r , Administrative Clerk
Jam es W . K n o w le s ,
J oh n R. S ta r k ,

E c o n o m is t s

H . M oore

il l ia m

N elson D . M

S p e c ia l C o m m i t t e e


G eorge R . I den

cC l u n g


D onald A . W

T w e n t ie t h A n n iv e r s a r y

G rover W . E




W. H


of t h e


E m p l o y m e n t A ct


R a y m o n d J. S a u l n i e h


C. W

(M inority)

a l l ic h


S e s s i o n , 9:30 a . m ., I n t e r n a t i o n a l B a l l r o o m E
T h e W a s h i n g t o n H il t o n

o r n in g



Introduction and opening statement: Representative Wright Patman,
Chairman, Joint Economic Committee____________________________________
Opening statement: Grover W . Ensley, chairman, Special Committee on
the 20th Anniversary of the Employment Act of 1946___________________



m ploym ent



O b j e c t iv e s — A

20 Y


Str u c t u r a l A p pr o ach es to
E m p l o y m e n t A c t O b j e c t iv e s




U s in g

S e s s i o n , 12 N o o n , I n t e r n a t i o n a l
C e n t e r , T h e W a s h in g t o n H il t o n

F i s c a l a n d M o n e t a r y P o l i c ie s T
E m p l o y m e n t A c t O b j e c t iv e s

S e s s i o n , 2:30
T he W


P r ic e - C


B e h a v io r

p . m .,

I n t e r n a t io n a l B a l l r o o m E
H il t o n


A d m in is t r a t io n

E m ploym ent A


O b j e c t iv e s

of th e


m ploym ent


O b s e r v a t io n s F r o m

th e





u d ie n c e

Grover W . Ensley, presiding_________________________________________________
Edwin G. Nourse, first Chairman of Council of Economic Advisers.-Theodore J. Kreps, former Staff Director, Joint Economic Committee,
and emeritus professor of business economics in the Graduate
School of Business at Stanford University___________________________



Bertram M . Gross, professor of political science, and director, national
planning studies, the Maxwell Graduate School of Citizenship and
Public Affairs, Syracuse University_______________________________________
Gerhard Colm, chief economist, National Planning Association___________
Neil H . Jacoby, dean of the Graduate School of Business Administration,
University of California (paper read by Karl Brandt, professor emeritus,
Stanford University)_______________________________________________________
John W . Lehman, regional director, U.S. Bureau of Labor Statistics,
Cleveland, Ohio___________________________________________________________


a s h in g t o n

Kermit Gordon, vice president, The Brookings Institution________________
Paul W . McCracken, professor of business conditions, School of Business
Administration, University of Michigan__________________________________

Q u e s t io n s



Walter W . Heller, professor of economics, University of Minnesota________
Raymond J. Saulnier, professor of economics, Barnard College, Columbia
University_______________________________________________________________ _


B allroom




c h ie v in g

Leon H . Keyserling, president, Conference on Economic Progress. _______
Arthur F. Burns, president, National Bureau of Economic Research, Inc.,
and professor of economics, Columbia U n iv ersity .._____________ ________
L uncheon



Roy Blough, professor of international business, Graduate School of
Business, Columbia University____________________________________________
Henry C. Wallich, professor of economics, Vale University________________







Participants— Continued
Karl Brandt, professor of economic policy, emeritus, Stanford University-------------------------------------------------------------------------------------------------------George E. Outland, former Congressman from California, professor,
San Francisco State College_____________ ____________________________
James Tobin, professor of economics, Yale University------------------------Kermit Gordon, replying__________________________________________
Raymond J. Saulnier, replying____________________________________
Stephen K . Bailey, dean, Maxwell School of Citizenship, Syracuse
Walter Heller, replying____________________________________________
Jack Stieber, director of the School of Labor and Industrial Relations
and professor of economics, Michigan State University_____________
Leon H. Keyserling, replying____________ . ________________________
Sidney Koretz, economics writer_______________________________________
Kermit Gordon, replying__________________________________________
Louis K . Mather, economics writer____________________________________
Walter Heller, replying, _________ _______ __________________________
Richard Long, Federal Reserve Bank, Atlanta________________________
Kermit Gordon, replying__________________________________________
William Freund, Prudential Insurance C o____ ________________________
Walter Heller, replying____________________________________________
Additional comments—
Leon II. Keyserling_____________________________________________________
Bertram M . Gross_______________________________________________________
Henry C. Waiiich_______________________________________________________
Gerhard Colm___________________________________________________________


D inner Session , 7:30 p. m ., I nternational B allroom ,
T he W ashington H ilton
Grover W . Ensley, presiding_________________________________________________
Greetings from—
Representative Wright Patman, chairman, Joint Economic Committee.
Senator Jacob K . Javits, ranking minority member, Joint Economic
Messages from—
Former President Harry S Truman: read by Hon. Richard Bolling,
member, Joint Economic Committee________________________________
Former President Dwight D . Eisenhower: read by Hon. William
B. Widnall, member, Joint Economic Committee___________________
President Lyndon B. Johnson: read by Hon. Henry H . Fowler, Sec­
retary of the Treasury__________________________________________ ______
Summary of Symposium—
James W . Knowles, executive director, Joint Economic Committee____
Responses to Summary—
Senator Paul H. Douglas, vice chairman, Joint Economic Committee. .
Representative Thomas B. Curtis, senior minority member, Joint
Economic Committee_________________________________________________
Gardner Ackley, Chairman, Council of Economic Advisers_____________


History of the Employment Act of 1946________ ___________________________
Press release announcing formation of Special Committee on the 20th
Anniversary of the Employment Act of 1946 (dated Aug. 6, 1965)______
Press release announcing 20th anniversary of Employment Act of 1946 to
be marked by all-day economic symposium (dated Oct. 22, 1965)______
Advance program of economic symposium__________________________________
Press release announcing that economic symposium of Feb. 23 would be
moved to downtown hotel because of space limitations at the C apitol..
Biographies of members of the Joint Economic Committee and of par­
ticipants at economic symposium_________________________________________




3 0 4 — 7 9T II

e c l a r a t io n



P o l ic y

The Congress declares that it is the continuing policy and responsi­
bility o f the Federal Government to use all practicable means con­
sistent with its needs and obligations and other essent ial considerations
of national policy, with the assistance and cooperation of industry,
agriculture, labor, and State and local governments, to coordinate and
utilize all its plans, functions, and resources for the purpose of creating
and maintaining, in a manner calculated to foster and promote free
competitive enterprise and the general welfare, conditions under which
there will be afforded useful employment opportunities, including selfemployment, for those able, willing, and seeking to work, and to pro­
mote maximum employment, production, and purchasing power.


W E D N E SD A Y , F E B R U A R Y 23, 1906
C ongress of t h e U n it ed S ta tes ,
J o in t E co n o m ic C o m m it t e e ,

ashington, D.C.

M o r n in g S essio n , 9:30 a .m ., I n t e r n a t io n a l B allroom E a st ,
T h e W a s h in g t o n H il t o n

The symposium convened at 9:30 a.m., in the International Ball­
room East of The Washington Hilton Hotel, Representative Wright
Patman (chairman of the Joint Economic Committee) presiding.
Present: Representatives Patman, Bolling, Boggs, Reuss, Griffiths,
Curtis, Widnall, and Ellsworth; Senators Douglas, Javits, Miller, and
Also present: James W. Knowles, executive director; John R. Stark,
deputy executive director; Marian T. Tracy, financial clerk; Hamilton
D. Gewehr, administrative clerk; and staff economists William H.
Moore, Nelson D. McClung, George R. Iden, and Donald A. Webster

Representative P a t m a n . This morning the Joint Economic Com­
mittee begins another unique experiment in congressional procedures,
stimulated by the 20th anniversary of the Employment Act of 1946
under which our committee was created.1 The actual anniversary date
fell on February 20—last Sunday.
It is indeed fitting that we should again be experimenting with new
techniques o f economic investigation and debate as we begin the third
decade of the history of one of the most important experiments in
economic policy formulation in American history.
The act itself was inspired by the experience of boom, prolonged
depression, war, and by fear of repetition of the economic dislocations
which had so badly damaged the Nation in the 1930’s. Those of us
who labored to obtain national agreement on this statute believed that
there was a wide variety of policy tools available which were not being
adequately employed to prevent mass unemployment, depression, fall­
ing farm prices, bankruptcy, and loss of profits. We believed that
World War II had taught that proper coordination of Government
and private policies could—without adding any new powers or any
1 The Em ploym ent A c t o f 19^6, as Amended, W ith Related Laws, is available from the
Publications Office, Joint Economic Committee.




new interferences with the rights of free workers, businesses, and farm­
ers—produce a more stable, more prosperous, more rapidly growing
America without the constant fear of inflation or deflation.
We are convinced that the great objectives set forth in section 2 of
the act, together with the President’s Economic Report, the Council
of Economic Advisers, and this committee, have contributed to 20
years of better economic performance than would have occurred had
not this coordination of policy been made a matter of paramount
national concern. Not only have there been successes, there have
obviously been shortcomings to policy.
It was with this in mind that the committee encouraged a group
of five outstanding experts who have served under the act to design
this day’s economic symposium as a unique form of congressional
hearings. It is intended to be a device to solicit advice and counsel
as to where we have succeeded, where we have failed, and in what
directions public and private policies could be altered to improve this
Nation’s economic performance in the years ahead to the benefit of
all of our citizens. This is but the first step in our review.
Today we hear from experts assembled by Dr. Grover W. Ensley,
formerly our committee’s executive director, and the four individuals
who have served with him on the Special Committee on the 20th An­
niversary o f the Employment Act of 1946, and who have served also
with the Council of Economic Advisers—Dr. Walter W. Heller,
Dr. Raymond J. Saulnier, Dr. Gerhard Colm, and Dr. Henry
C. Wallich. We are indeed grateful to this special committee for
their unselfish and unpaid labors in the public interest on this occa­
sion. It is but a mark of the great contributions that they have made
in the past to the success of this statute and the machinery it created.
We nope that today’s deliberations will produce the basis for stimu­
lating many other individuals and organizations to advise the com­
mittee in the months ahead at our invitation as to where we might
go in further clarifying and promoting the objectives of the Employ­
ment Act. It is only by constant attention to the opportunities and
ideas for further progress that our national economic policies can be
constantly improved.
We are most grateful to all of you who have come here to partici­
pate, and we shall study with great attention and interest the results
of this and successive deliberations.
I would like to have inserted in the record a history of the Em­
ployment Act of 1946 which the committee staff has prepared; the press
releases issued by the committee announcing this economic sympo­
sium; the advance printed program; and the biographical sketches
of members of the Joint Economic Committee and of the participants
in today’s proceedings. (See appendix, p. 133.)
During the day—again in a unique departure from the usual prac­
tice—these sessions will bepresided over by the man who has acted as
chairman o f the Special Committee on the 20th Anniversaiy of the
Employment Act—Dr* Grover W. Ensley. Dr. Ensley is executive
vice president of the National Association of Mutual Savings Banks.
He was with the Joint Economic Committee as associate director from
1949 to 1951 and as executive director from 1951 to 1957.
Dr. Ensley, will you please take the chair ?
Dr. E n s l e t (presiding). Thank you very much, Mr. Chairman.



Dr. E n s l e y . Ladies and gentlemen, and participants in today's
economic symposium. Twenty years ago last Sunday, President
Truman signed the Employment Act of 1946. It had been passed by
unanimous vote of the Senate and by a large majority of the House of
Representatives. Passage of the act concluded a vigorous and pro­
ductive debate in which representatives of agriculture, labor, business,
government, and the academic and research community participated.
On February 20, 1946, a new chapter in the Nation’s economic and
political history was begun.
At the time he signed the act, President Truman said:
In enacting this legislation, the Congress and the President are responding
to an overwhelming demand of the people. The legislation gives expression to
a deepseated desire for a conscious and positive attack upon the ever-recurring
problems of mass unemployment and ruinous depression * * ♦. The Employ­
ment Act of 1946 is not the end of the road, but rather the beginning. It is a
commitment by the Government to the people— a commitment to take any and
all of the measures necessary for a healthy economy, one that provides oppor­
tunities for those able, willing, and seeking work. W e shall try to honor that

Later, in his memoirs, President Truman has observed:
Occasionally, as we pore through the pages of history, we are struck by the
fact that some incident, little noted at the time, profoundly affects the whole
subsequent course of events. I venture the prediction that history, some day,
will so record the enactment of the Employment Act of 1946.

Earlier, Congressman Patman, one of the original sponsors, urged
adoption of the conference report on the legislation, and concluded
his remarks by saying :
W e will always have some unemployment. W e cannot expect people to be
100 percent employed * * *. Yet we want a policy which, if carried into effect,
will cause us to have just as little unemployment as possible and provide maxi­
mum or full employment to the greatest extent possible for the people.

In the Senate, one of the principal architects of the legislation as
it was finally passed, Senator Robert A. Taft, said in support of the
W e declared a general policy of the Government to use all its means to bring
about a prosperous condition so that people looking for work may expect to
find work.

In the 20 years that have passed since the legislation was enacted,
the Nation’s economy has been subject to many and varying stresses
and strains. The domestic and international environments in which
the economy operates have also undergone many changes. Yet the
objectives for the economy as specifically stated or implied in the Em­
ployment Act have become increasingly acceptable, and the mechan­
ism established by the act for implementing public and private policy
has become increasingly sophisticated and responsive.
It is appropriate and gratifying, therefore, that the Joint Economic
Committee, with the full cooperation of the Council of Economic A d­
visers, took the initiative to present today’s economic symposium.



The special committee appointed by the Joint Economic Commit­
tee to plan and carry out this commemorative occasion is honored
to have this responsibility. The committee is grateful for the help
and support we have received in developing today’s program. A
scrupulous effort has been made to prepare a balanced ana compre­
hensive program of subjects and speakers. Specific subjects have
been assigned each speaker. Therefore he will not be able to free­
lance on any and all of the topics that he may choose.
We are, of course, pleased that our program has had the blessing
of the bipartisan leadership of the Joint Economic Committee and
of the Council of Economic Advisers. The special committee trusts
the audience and participants will find the day and evening stimulating.
More importantly, we hope this symposium will make a contribution to
the development and improvement o f public and private economic pol­
icy in the future.
In the interest of time, we have prepared biographical material on
the speakers, which was given to you when you entered the auditorium.
These will be inserted m the printed proceedings (p. 147). There­
fore when I call on each speaker I will only cite his connection with
the act and his present position.
To assure that the symposium proceeds on schedule, and to permit
time for audience participation this afternoon, the speakers have been
asked to stay within the time limits imposed by the special committee;
namely, 25 minutes for presentations in connection with the first four
subjects, and 12 minutes for those discussing the fifth topic. I will
notify the speakers when they have 1 minute to go and bring the
gavel down hard when the allotted 25 minutes or 12 minutes, respec­
tively, have been used.
May I venture an observation at the outset ? One of the greatest
achievements of the Employment Act during the past 20 years has
been the improvement in economic knowledge ana the use of that
knowledge by public and private policymakers. I believe that no
area o f American life has witnessed a more dramatic revolution than
in this area. The Joint Economic Committee and the Council of
Economic Advisers have tried hard to assimilate economic knowledge
and use it in generating consensus in the interest of designing and
administering economic programs to achieve the objectives of the
Employment Act. Too often we have neglected to recognize what
has been accomplished. I believe that today’s symposium will dem­
onstrate considerable consensus on objectives, on programs, and on
But while the consensus may have noticeably widened in the past
20 years, as the day progresses we will realize that there are still
many areas o f disagreement among responsible and well-qualified
experts and statesmen.
Today we will first examine the Employment Act objectives after
20 years. Then we will consider the analytical approaches in develop­
ing programs for achieving these objectives. The luncheon session
will be devoted to a discussion of Federal fiscal and monetary policies.
This afternoon we will start off with a discussion of price-cost be­
havior and Employment Act objectives, and conclude by considering
the administration of the Employment Act.



Time has been allotted for approximately 1 hour of questions from
the audience, with the session recessing promptly at 5 :30 this after­
noon. The reception in the terrace will begin at 6 :30 p.m. Dinner
will be served promptly at 7 :30. Following greetings and messages,
the dinner program will be devoted to a summary and appraisal of
the day’s symposium.
Now, let us turn to the first subject: “ The Employment Act Objec­
tives—After 20 Years.”
Our two distinguished speakers will consider such important ques­
tions as what was the original commitment of the Federal Govern­
ment under the Employment Act? Has passage of time changed
the consensus as to that commitment? Does the act give significant
weight to stability of prices ? What has been the effect of the Nation’s
international obligations on achievement of domestic economic goals ?
The first presentation is by Dr. Roy Blough, a member of the Coun­
cil o f Economic Advisers from 1950 to 1952, and now professor of
international business in the Graduate School of Business at Columbia
Dr. Blough.
T he E m ploym ent A


O bjectives — A


20 Y


Dr. B l o u g ii . Chairman Patman, Chairman Ensley, friends old and
new of the Employment Act. Much of the program of this symposium
is directed to a discussion of ways and means of achieving the objec­
tives of the Employment Act of 1946. An obvious starting point is
a review of what those objectives are, so that hopefully differences of
opinion regarding ways and means will meet head on instead of sliding
by each other inconclusively. However, there is no clear-cut distinc­
tion between objectives and ways and means. The Employment Act
objectives are not the ultimate goals of individual or social life, they
are themselves only ways and means to achieve those goals.
To analyze the evolution of Employment Act objectives it may be
interesting to compare briefly the situations at 10-year intervals,
starting 4 decades ago, in 1926, when traditional economic policies
were firmly in contr<3. It was, as I recall it, a time of complacency,
at least in governmental circles, regarding economic policy. Presi­
dent Wilson had refused to call a conference on unemployment after
the war, but the economy had righted itself rapidly. “ Back to nor­
malcy” had won in the election of 1920 and “ hands off of business” in
1924. In 1926, the party in power was firmly entrenched. The dom­
inant influence and moral authority of business were only weakly
challenged if at all, in the executive, legislative, and judicial branches
of the Federal Government. The economy was in good shape, with
rising levels of production, relatively stable prices, and an improbably
low recorded unemployment rate of 1 percent of the labor force. The
balance of international payments was satisfactory.
To be sure, agricultural surpluses were proving recalcitrant, while
the Florida land boom and collapse suggested an excess of euphoria.



But in general, the experience of the economy was demonstrating the
rightness o f such traditional doctrines as the annually balanced
budget, rapid retirement of the national debt, great freedom for busi­
ness, the gold standard, and a banking system geared only to the
changing credit demands of business. Say’s law of markets seemed
never more secure. While the germ idea of Federal responsibility for
the economy can be traced far back in American history, it seemed
irrelevant in 1926.
Ten years passed quickly; now it was 1936. Again, the party in
power was firmly entrenched, but there was no complacency now. The
puzzling 1929 crash and 1929-33 slide had been followed by some
recovery, but production had not yet returned to the level of 1929,
much less to that of 1926. While the population had gone up 14 per­
cent in 10 years, employment was lower, and the unemployed were
counted at 17 percent of the labor force.
The New Deal since 1933 had been experimenting with various plans
for recovery, but without notable success. Neither pump priming nor
the efforts to set a floor under price and wage competition, nor yet a
70-percent increase in the price of gold had restored prosperity or em­
ployment. The Government’s basic adherence to doctrines of “ sound
finance” was attested by the fifth tax increase in 5 years. However,
the new tax happened to be a tax designed to force the distribution of
corporate profits which engendered enormous business hostility. The
undistributed profits tax illustrated the shift in ideas that had taken
place. In 1926 the policymakers practiced, and the public accepted,
the idea that the pursuit of private interest by businessmen was enough
to promote the public interest and maintain high employment. By
1936 it was clear from the depression that this result had not followed;
the inference, however, was not so mudi that the economic policy was
wrongly conceived but rather that businessmen had been “bad boys”
and were not carrying out their responsibilities. This “ bad boy” con­
cept of business embittered the relations between the Government and
business throughout the period.
The year 1936 also saw the publication of J. M. Keynes’ book, “The
General Theory of Employment, Money, and Interest.” This was a
highly significant development for U.S. economic policy. The book
offered a persuasive explanation by a noted economist of why previous
efforts had been so disappointing, and proposed a more effective
Great changes in national policy are not made for minor reasons.
There must first be a destruction of faith in traditional principles and
policies, and then the creation of at least hope if not faith in new
principles and policies. The depression only gradually destroyed for
those in powr the faith in traditional principles and policies. The
Secretary of the Treasury tried hard to make them work, but when in
the autumn of 1937 he announced to a skeptical and derisive audience
of businessmen that a balanced budget was imminent, the economy
was already sinking into a new sharp recession. That was the last
effort to balance the budget as a method of getting out o f depression.
The shift to the essentially Keynesian ideas that the economy could
stagnate at a low-level equilibrium with large unemployment, and that
major governmental fiscal action might be necessary to raise demand



to a full employment level began to take place in national policy after
the recession of 1937-38.
There is no doubt in my mind that it was Keynesian thought, im­
ported and domestically cultivated by Alvin Hansen and others, that
was the chief basis for the hopes of the principal advocates of the
Employment Act in 1945 and 1946. But the battle for the new doc­
trines would surely have be a prolonged one had it not been for the
great object lesson of World War II. The acceptance of vast Federal
outlays and deficit spending in time of war are as much a part of the
American tradition as were minimum spending and balanced budgets
in time of peace. With the preparation for war and entry into it the
depression evaporated, and the problem shifted from underemploy­
ment and insufficient demand to overfull employment and excessive
demand that had to be suppressed by direct controls to avoid spiraling
wartime inflation.
During the war several nuclei of economists, mostly of the Keynes­
ian persuasion, were set up in the new war agencies and elsewhere.
New statistical tools and data were becoming available, thanks to the
work done by Simon Kuznets, the National Bureau, and others. The
inflationary gap was analyzed in the framework of a national eco­
nomic budget. A missionary campaign to win converts for Keynesian
principles among economists already in the Government had con­
siderable success, being made easier by the fact that Keynesian policy
toward war finance closely resembled orthodox policy.
Having drawn this sketchy background, I come to 1946 and the
Employment Act. A person reading the Employment Act and know­
ing the fears that motivated it w^ould be justified in concluding that
unemployment was the central concern of the Congress in passing the
act and would be the central concern in administering it. There were,
to be sure, certain inconsistencies that clearly indicated two philoso­
phies struggling, and ending in a compromise. For example, the
Federal Government was “ to coordinate and utilize all its plans,
functions, and resources” to achieve the purposes of the act, and was
to do it “ in a manner calculated to foster and promote free competitive
enterprise.” While planning and free competitive enterprise seemed
poles apart and were thought by many to be in conflict, I consider
their combination in practice to be the key to the successful manage­
ment of prosperity.
Notice what was not contained in the Employment Act. There
was no mention of inflation although the law was debated and passed
in a period of both open and repressed inflation. There was no men­
tion of balance of payments or international equilibrium. Surpris­
ingly, there was no mention of economic or social justice, or of the
distribution of income and wealth, let alone of redistribution. The
fighting words toward business of the 1930’s were completely absent.
These were scarcely accidental omissions; they were politically very
wise, and they reflected the new national unity that the war had
achieved. But they also reflected a basic shift in economic under­
standing. Depressions, it now appeared, were not caused by bad boys
o f business; the problem was more fundamental. Private business
enterprise would inevitably develop fluctuations and other deficiencies
that would require corrective or compensatory governmental action.
Thus, the big shift in policy and economics was on its way. Given sue-



cess for the new ideas in dealing with the postwar period, the old ideas
would gradually disappear and be replaced by a growing consensus.
The Employment Act was directed to the problem of unemploy­
ment, but I think the real concern was for the much broader subject
of the role of the Federal Government in the economy generally—what
various writers have called the management of prosperity. The very
first Economic Report of the President, issued in January 1947, said
little about employment and much about inflation and many other
matters, incorporating the President’s whole economic policy, domestic
and foreign. Even the embryo of the wage-price guidelines is there:
“For its own advantage as well as that of the country at large, labor
should refrain from demands for excessive wage increases that would
require price increases.” Subsequent reports of the President, as
we]l as the reports of the Council, continued to cover abroad scope.
Thus, even before the first report, the major immediate concern had
moved from unemployment to inflation. The combined economic ob­
jective, then was full employment with economic stability, that is, price
stability. Before long, economic expansion or growth also became
a major objective. Leon Keyserling, in particular, took the initiative
in the Council in the early promotion of this objective, linking it to
both employment and national strength. The combined objective thus
before many veal's became economic growth at high employment with
economic stability. This three-legged objective was generally ac­
cepted, but which of the three legs was the most important was widely
The Joint Economic Committee and its staff played an important
role in rounding out the objectives of the Employment Act. It was
well situated to do so, having forward-looking chairmen and com­
mittee members, a very able and imaginative staff, money, and no im­
mediate administrative or legislative responsibilities. The hearings
and symposia of the joint committee and its subcommittees gave the
academic community a much-appreciated sounding board for advanced
ideas. In the early 1950’s, the committee staff made projections of
potential economic growth and showed the failure of the economy to
achieve the potential. The committee stimulated concern for growth
also by publishing comparisons of Russian and United States growth.
It made extensive studies of the problems of low income groups. Its
monetary studies were influential in the change in policy toward the
Government bond market. One of its subcommittees under the chair­
manship of Wilbur Mills, now chairman of the Committee on Ways
and Means, laid notable foundations for future tax and fecal policy.
In these and other areas of policy the work of the joint committee
and its staff laid foundations for later adoption of effective tools of
analysis and goals of policy.

Let us move another decade to 1
956. The uncertain months of early
, 9 3 when the future of the Council of Economic Advisers had hung
- the balance, were a memory. The Council had been modified by
. t t t to put the chairman i charge, and the new Council had every
appearance of enjoying the confidence of the President and an in­
creasing inf u n e in the executive branch. The National Planning
Association sponsored a 10th anniversary symposium in which were
brought together the views of many members of Congress, leaders of
econoniie groups, and former members and s a f members of the




Council. It was a one-sided symposium in the sense that only friends
of the Employment Act were represented, but it reflected a wide range
of economic, governmental and academic interests.
There was much general agreement: that the need for and value
of Federal action in the economy had been demonstrated; that the
provision for machinery in the executive and legislative branches to
rationally appraise economic policies was a great advance; that the
phrase “ maximum employment, production, and purchasing power*’
was sufficiently comprehensive to embrace economic policies gener­
ally; and that the act had operated to stimulate business confidence
ana had promoted economic stability and growth.
Views diverged on a number of points in the 1956 symposium. With
respect to basic philosophy, Dr. Edwin Nourse, the first chairman of
the Council, differentiated between those who looked for the act to
launch the Federal Government on a comprehensive and continuous program for
engineering optimum performance for the whole economy

those who understood the act as merely stating a broad objective or ideal goal
toward which effort would be directed and as introducing additions to our
executive and legislative institutions which would aid the economy—both its
private and its public sectors—in moving more competently toward that goal.

Dr. Nourse placed himself in the latter group. In this, he seemed
clearly to be joined by the then current chairman, Arthur F. Burns,
who lor the symposium indicated agreement with those who believed
the Government could probably help in some degree to moderate economic
fluctuation without intruding unduly into private affairs or becoming a
dominant factor in our economy.

The other former Council chairman, Leon H. Keyserling, was firmly
in the optimum performance group. He called for presidential leader­
ship and initiative, noting that—
the commitment of the Employment Act to full employment economics, rather
than to countercyclical economics * ♦ * represents a profoundly valuable and
virile shift in mood and emphasis.

Most other participants in the symposium could be identified explicitly
or implicitly as being on one side or the other o f this general issue of
O f the many other significant matters dealt with in the 1956 sym­
posium, two seem particularly important to my subject today. The
first was a general recognition of the possible conflict at some levels
o f business between the objectives of high employment, rapid growth,
and stable prices. The resultant problem was recognized as difficult,
but there was a dearth of suggestions for reducing the conflict.
Another matter dealt with by some contributors implied a broaden­
ing o f objectives to take into account the many problems that were
present in an economy enjoying a generally high level of prosperity. I
quote from Senator Douglas:
Certainly we have not yet solved the problem of agricultural production and
income, nor, to list a few of the more obvious ones, have we solved problems of
chronically or temporarily distressed areas, the problems of dealing with rural
and urban low-income groups, the problems of establishing a more just Federal
tax structure, the pressing and troublesome need for freer international trade,
and the problems of preserving the free enterprise system against the encroach­
ment of monopoly and bigness.



Emphasis on these structural problems constitutes in my opinion
a significant expansion or at least reinterpretation of the Employment
Act objectives as originally visualized.
This brings me to 1966. In the decade since 1956, there have been
many exciting developments in the implementation of the Employ­
ment Act. New ideas have blossomed, while old ideas have reached
fruition, some under attractive new names.
As to the objectives themselves, perhaps the major new factor
has been the need to maintain satisfactory international economic
equilibrium. Our goal of managed prosperity now must comprise high
employment, rapid economic growth, stable prices, and international
equilibrium sufficient for us to bear our responsibilities as the world’s
leading banker. The balance-of-payments problem has reinforced the
need for stable prices.
Another factor causing concern in some quarters is the economic
and social instability inherent in rapid technological advance. While
it is important for rapid growth, technological advance, especially in
the form o f automation, also presents a possible threat to employment.
This problem should be met head on. Alleged solutions that would
reduce employment in hours or otherwise below the desires of the
individual worker would in my opinion represent the failure of busi­
ness and public policies.
The problems of various sectors of the economy and o f the distri­
bution of economic opportunities have recently achieved a much higher
position among fjolicy objectives. The dignity of the individual, the
relation of individuals to their economic groups, the distribution of
income, social justice, clean air and water, esthetic surroundings, the
problems o f racial minorities, education, health, the poverty of groups
within the society, urban slums—these are matters dealt with nowa­
days by the President in his economic report and by the joint com­
mittee in their studies, hearings, and reports. In some of these areas
positive contributions up to a point can be made toward the goals
of “ maximum employment, production, and purchasing power.” Be­
yond that point, issues involving serious conflicts of economic interest
are likely to develop. It is a serious question whether the managers
of prosperity can become politically involved in such controversies and
still maintain a national consensus on their central economic
The most difficult problem concerning the major objectives of the
Employment Act continues to be how to maintain stable prices at high
levels o f business activity. It has been a key problem at various times
over the past 20 years, but perhaps never more so than today. To the
extent that what is involved is a choice among objectives, one can ac­
cept more than frictional unemployment and make provision to mini­
mize the resulting hardships; and/or, one can accept some degree of
inflation and make provision for minimizing the resulting injury. In
a well-balanced economy, having high resource mobility, together with
responsible action by (government and the various economic groups,
the “ trade-off price” between inflation and unemployment ought to be
low. A continuing maximum effort is called for to reduce this trade­
off price to a minimum by social invention, better administration,
better economics, better planning by business and Government, better
public understanding, and more responsible behavior all around.



I have covered sketchily a span of 40 years. In one sense, economic
objectives can be said not to have changed much in that time. I would
think that the American dream, as a dream, is today pretty much
what it was in 1926—less optimistic, though more opulent, perhaps,
but much the same. Continuing high employment, rising incomes,
price stability, international equilibrium, prosperity for all—it is
hard to think of anyone then or now not supporting these economic
But obviously there have been changes. The acceptance by the
Government of responsibility for the economy and the growing con­
sensus that this has benefited all economic groups is the most obvious.
But there are others :
First, rapid population growth combined with greater industriali­
zation, urbanization, and general complexity of the economy has made
realization o f the objectives more imperative for the maintenance of
social peace and tranquility.
Second, important aspects of the American dream are now more
attainable, thanks to advances in the economy and economics.
Third, political power has shifted in the direction of persons and
groups to whom the economic objectives are more important and away
from those who have thought it more important to insure freedom to
use economic power without restraint regardless of its impacts.
Fourth, since about 1940, a new relationship has been developing be­
tween the private economy and Government, in which the importance
of both, and their mutual dependence, has been increasingly recognized.
Fifth, thanks in part to the development of a continuing dialog
among different economic groups, there is, I think, less tendency to
see problems in blacks and whites, less tendency to divide people into
the good guys—us—and the bad guys—them.
Sixth, continued economic growth has provided larger shares for
all major groups, quieting social conflict, while affluence has pricked
consciences and turned attention to sectors of the economy that have
not shared in the general prosperity.
These are all significant and constructive changes. We can look
back with considerable satisfaction, but in a time o f revolutionary
social change, of uncharted technological advance, and of international
upheavals, all largely beyond our control, we dare not be complacent
when we look forward.
I started out with the idea that there was such a conceptual entity
as the objectives of the Employment Act. I end these comments
recognizing that the matter is a highly susceptible one. Every person
has his own pattern of objectives, and the social consensus, or discord,
regarding objectives evolves with the changing times, which I suppose
is both as it should and must be.
I thank you. [Applause.]
Dr. E n s l e y . Thank ^ou very much, Professor Blough.
The second presentation on this subject is by Dr. Henry C. Wallich,
a member of the Council o f Economic Advisers from 1959 to 1961,
and now professor of economics at Yale University.
Dr. Wallich.

60-074— 66------- 2



T h e E m p l o y m e n t A ct O bjectives — A fter 20 Y


Dr. W a l l i c h . Chairman Patman, Chairman Ensley, Members of
the Congress, distinguished guests and friends, it is a tribute to a
law and to the law’s sponsors when 20 years after its passage no voice
is raised deploring that event. It is an even greater tribute when,
because it has worked well, there is widespread sentiment for strengthening that law. Both kinds of tribute, I believe, the Nation today
pays to the Employment Act and those who conceived it.
Credit is due also to American political institutions and processes,
and to the men who operate with and through them, for making the
Employment Act work. The founding fathers of the act had the wis­
dom to make it a flexible instrument. The Members of the Congress
and successive administrations have taken advantage of that flexibility
to adapt the act to ever-changing conditions.
The experience of these changing conditions must be our principal
guide to any extension of the act that we may want to contemplate.
But before entering upon an analysis of that experience, I would like
to examine briefly the elements of flexibility built into the act that
have permitted its creative adaptation to changing conditions.
They are to be found in the marching orders of section 2 of the
act: “The Congress declares that it is the continuing policy and re­
sponsibility of the Federal Government * *
The passwords to
prosperity there used are “maximum employment, production, and
purchasing power.” These are not the terms an academic economist
might have chosen. Employment and production are largely, though
not altogether, coextensive. “Purchasing power” is not a well-defined
term. A maximum of three different variables is something at which a
mathematician would wince—one cannot stand on three hilltops at
once. These three goals, moreover, are tied to the preceding part of the
sentence in a manner that leaves uncertain whether the “continuing
policy and responsibility of the Federal Goverment” is to promote
the three goals, unqualifiedly, or whether the Government’s policy
and responsibility is—
to use all practicable means, consistent with its needs and obligations and with
other essential considerations of national p o lic y * * * to promote maximum
employment, production, and purchasing power.

What I believe to read in this language is a desire of the legislator
to see the Government play a larger role in the pursuit of national
economic goals. The nature and content of these goals, however, was
to some extent left flexible.
Experience has shown the wisdom of this decision. The Govern­
ment’s “needs and obligations and other considerations of national
policy * * *” have changed repeatedly since the passage of the act.
In 1946, fear of a great postwar depression was the dominant con­
cern. This probably is the reason why price stability, which later
became a serious problem, was not specifically mentioned among the
objectives. As the avoidance of large-scale unemployment came to be
taken for granted, national interest shifted to economic growth. This
objective, too, was not mentioned in the act.



Nevertheless, it became customary to integrate the new concerns
of price stability and growth into the act by identifying “maximum
production” with growth and ‘‘maximum purchasing power” with price
stability. Employment remained employment, mien the economy
developed a persistent large balance of payments deficit, the possi­
bility of which had not been anticipated in the days of massive dollar
shortage, the policies appropriate tor dealing with that problem, too,
could be accommodated under “other essential considerations of na­
tional policy.”
As of today, then, I would say that the specific content that experi­
ence has given to the goals of the Employment Act is full employment,
growth, price stability, and payments equilibrium. Experience has
also taught us something about the compatibility of these goals, and
lms forced us to decide on priorities.
We cannot have a maximum of everything at once. We therefore
must try to establish the tradeoffs among goals; that is, how much of
one must be sacrificed to gain a little more of another. This is an
empirical question to which objective answers ought to be possible,
within reason. We must also ask ourselves, each for himself, how
much of one goal is worth sacrificing to get the obtainable amount
of another. This is a value judgment on which agreement is unlikely.
Employment and growth are generally judged broadly compatible.
Employment could Be raised at the expense of growth, to be sure,
by inhibiting automation and other productivity advances. But by
raising the rate of growth it is always possible to raise also employ­
ment, and that is the sensible way to deal with automation.
The principal conflict occurs between employment and growth on
one side and price stability and, in some circumstances, payments bal­
ance on the other. Economists’ efforts to measure the tradeoff involved
in trying to reduce unemployment at the expense of inflation have been
embodied in the so-called Phillips curve. Estimates made for the
American economy are not as firm as those available for the United
Kingdom. They seem to show that it would take unemployment well
in excess of 4 percent to achieve full stability of the consumer price
index or the GNP deflator. The experience of the last few years seems
to confirm this.
Personally I am skeptical of the durability of this approach. It
seems to rest on the assumption that people will never learn to discount
inflation. I f labor really continues to believe that a 6 percent wage
increase accompanied by 3 percent inflation is more than a 3 percent
increase with no inflation, it businessmen continue to believe tliat the
former increase is more costly to give than the latter, then unemploy­
ment can be permanently reduced by accepting more inflation. I doubt
that people are incurably afflicted with this kind of money illusion.
I f inflation can be predicted, it can be discounted. Labor, business,
consumers, investors will think in “real” terms; that is, in terms of con­
stant purchasing power. To achieve the same employment effect,
inflation would nave to be accelerated beyond the expected rate, and
when that new rate became expected, more acceleration would be
needed. Few people believe that constantly accelerating inflation is
a feasible policy. I conclude that the possibility of raising employ­
ment by accepting inflation exists only in the short run, until people



have caught onto the game. I f that is true, the cost of price stability in
terms of unemployment is very much lower than is commonly thought.
Just how large the level o f unemployment compatible with price
stability is, and what can be done to lower it, is an important matter to
which I shall return presently.
Next, let us contemplate the likewise much publicized conflict be­
tween price stability and economic growth. Some see a conflict be­
cause they equate growth with pushing employment to very high levels.
That is a palpable misinterpretation of the meaning of growth, al­
though a frequent one. Raising the rate at which existing productive
capacity is utilized is not growth. True growth consists in increasing
productive capacity itself. But a little reflection will show that
growth in productive capacity is not closely dependent upon the rate
of unemployment.
The principal factors through which a free market promotes
growth are investment in plant and equipment, and research leading
to technological advance. These are importantly influenced by the
rate of growth of demand, by the pressure of demand upon plant and
equipment capacity, and by the level of profits, both as incentive and
as source o f funds. Among these three stimulants to investment and
research, the rate of growth of demand and the operating rate of equip­
ment are not dependent upon the level of unemployment. GNP can
be rising rapidly at lower as well as at higher rates of unemployment.
Demand can press closely on plant and equipment capacity without
pressing equally hard on labor capacity. Only profits may be depend­
ent upon the level of unemployment—they are likely to be higher
when there is some amount o f inflation. But if inflation is of the cost
push variety, even that ceases to be probable.
It is clear that heavy unemployment would act as a disincentive to
investment and research in many ways. But the issue is not whether
heavy unemployment should be tolerated—it obviously should not.
The issue is whether growth could be promoted by reducing unemploy­
ment to the point where significant inflation occurs. The facts I have
cited suggest that growth would benefit little from such policy.
Growth would suffer if inflationary pressures are combated mainly
by high interest rates instead of by fiscal restraint. Proper fiscal pol­
icy can take us off the horns of this dilemma. I conclude that the
conflict o f price stability and growth is no deeper, and perhaps less so,
than that between price stability and full employment.
Similar conclusions follow when we examine the frequently men­
tioned antagonism between balance-of-payments equilibrium on one
side and full employment and growth on the other. Payments balance
requires, broadly speaking, that the United States inflate no faster
than other countries. Advocates of high inflation tolerance believe
this competition-imposed quasi-stability may be a drag on full employ­
ment and growth. Many, therefore, propose flexible exchange rates.
My own view, which I woidd like to note parenthetically, is that flex­
ible rates would get us from the frying pan of payments imbalance into
the fire of trade wars, exchange speculation, and accelerated inflation.
But, in any event, the dilemma that flexible exchange rates supposedly
would solve is itself more apparent than real. I f price stability is not,
in the long run, severely at odds with full employment and growth,
neither is payments equilibrium. Moreover, the price restraint that



needs to be applied in order to end a payments deficit is nonrecurring:
once domestic prices have become more competitive, we can live hap­
pily ever after with a strong balance of payments.
Growth could be hurt by balance-of-payments policies that take the
form of high interest rates to restrain capital outflows instead of
fundamental improvement in competitiveness. Defensively high in­
terest rates must remain a temporary measure. Aside from this, I be­
lieve in the longrun compatibility of payments balance with employ­
ment and growth.
It may be surprising to arrive at this happy conclusion about the
possibility of peaceful coexistence among our goals, at least in the
long run. It should not be. Truly competing objectives are those
that make demands upon resources—more investment for growth
versus more output for current consumption, moonshot versus poverty
programs, public versus private use of resources. Full employment,
growth, and price stability are not of this sort. Each moves in a dif­
ferent dimension. A rational society should have no permanent dif­
ficulty in reconciling them, though the learning period may be painful.
I have tried to show how the flexibility which the founding fathers
introduced into the Employment Act has permitted a reinterpretation
of its goals in the light of contemporary needs. Beyond that, I have
argued that while there are serious shortrun conflicts among some of
the goals that we now read into the act, these conflicts diminish in the
long run. Next, I shall proceed to raise questions about the present
explicit and implicit goals. Are they adequate as statements of our
purposes, or should the act be amended, be it by making implicit goals
explicit, or by defining targets more precisely, or by adding new goals ?
In undertaking this assessment, I should like first to raise some
general questions about the propriety of setting national goals in a
democratic society.
There are pitfalls that the goal setter must avoid. First, the goal
setter must bear in mind clearly that the Nation is nothing but the
sum of its citizens, and that a nation’s goals cannot be anything but
the totality of their enlightened self-interest. To argue differently
is to place democracy itself in jeopardy. For if the citizens’ goals
do not exhaust the national interest, then there must be somebody who
knows better than the citizens what decisions to make. Totalitarian
governments exalt the state and its goals against those of its people.
A democracy cannot.
Second, the goal setter must remember that his activity involves
certain logical perplexities that have never been satisfactorily re­
solved, It seems fair to demand that the process of democratic deci­
sionmaking meet certain criteria of reasonableness. Yet it has been
shown that the process often cannot meet these criteria. In other
words, public decisionmaking may either violate democratic standards,
or fail to demonstrate that it makes even the majority of voters better
off. To illustrate, if three Members of the Congress were to rank the
priorities of spending an added $1 billion on the poverty program, the
moonshot, and defense, each in different order, there would turn out
to be a majority of 2 to 1 favoring the poverty program over the
moonshot, the moonshot over defense, and defense over the poverty



Finally, even when it is clear that a majority is made better off by
implementing a public goal, there is a question how far it can properly
go in imposing its will upon the minority. In our system of checks
and balances, this question is less serious than in a parliamentary sys­
tem where even a small majority wields great power while it remains
in office. In our system a narrow majority rarely can impose anything
very serious upon the minority. The latter can usually bid away
enough votes from the other side to block a proposal. Nevertheless,
it should give the goal setter pause to think that, as broad goals are
reduced to specific decisions, wliat makes the majority better off makes
the minority worse off.
These thoughts, abstract as they are, counsel caution in setting na­
tional goals. The need for caution is underscored by the experience
of the Employment Act goals. If the goals of maximum employment,
production, and purchasing power were taken literally, they would
long be out of date. They would have failed to anticipate the problem
of inflation, the problem of growth as contrasted with mere “ produc­
tio n ,a n d the problem of the balance of payments. Interpreted in
this sense, the lesson of experience is that goals date very quickly and
that, raised to a high legal pedestal, they w be bypassed by the future.
I f the goals of the Employment Act are understood symbolically, as
I have argued they should be, they demonstrate the virtue of flexibility.
The lesson of experience, then, is that this flexibility should be pre­
served. We should not, by crystallizing the lessons of 20 years, try to
freeze the wave of the future.
In addition to these warning signals, however, the lessons of the last
20 years also contain many positive hints. Economic experience does
not necessarily lead to economic agnosticism. We have learned much
about the goals that are explicit in the act, and about those that are
About employment we now know7 what we did not know in 1946, that
it can readily reach a 96-percent level and, what few would have be­
lieved then, can reach this level quite possibly without massive budget
deficits. There is every reason to think that enough aggregate demand
can push unemployment still lower. The experience of continental
Europe, if not our own, shows that peacetime economies can achieve
less than 1 percent unemployment, although differences in definitions
may enter here.
At the same time we have observed, in the course of the past year,
that below 5 percent unemployment significant price and w^age pres­
sures develop. “ Full employment” seems to lie somewhere in the 4- to 5percent range. As I have argued earlier, the relation between unem­
ployment and prices probably is not a stable one. A small stable rate
of inflation will help to keep unemployment down only so long as labor,
business, and investors have not learned to discount it. But before this
discounting becomes general, there is a trade-off between unemploy­
ment and inflation, and we are now discovering what it is.
To improve this trade-off is an urgent policy goal. Two approaches
are available: to match the skill structure of the labor force to the skill
structure of jobs, by education and retraining, and to modify wage and
price setting habits of labor and business through the guideposts or
some other form of incomes policy. The subject of policy tools, how­
ever, I must leave to other speakers.



In time, we must succeed in reducing tlie level of “ full employment
unemployment” well below the 4- to 5-percent range. The experience
of 1965 lias shown that we cannot do it yet. With our employment
goals thus in a state of flux, I conclude that it would not be advisable
to write a precise employment target into the Employment Act.
The last 20 years also have taught us something about economic
growth. We now know that the rate that has prevailed in the United
States for so long as we have data is not easy to speed up. We did
not know this during the first fine flurry of growth enthusiasm during
the late fifties, when the sky was just an interim goal. We also have
learned that we are still quite uncertain about the quantitative effect
of particular actions to strengthen investment, research, and education,
We know enough to be able to say that measures in these areas will
accelerate growth. It would seem entirely reasonable for the voters
and the Congress to decide that, in the light of international and
domestic needs, we should accelerate growth. We can then adopt
particular measures and see how far they take us. But the lessons
of experience provide no basis for writing a particular growth rate
into the law. We do not know the measures required to reach that
rate, and we might not like them once we did know.
On the subject of price stability, the last 20 years have taught
us that perfect stability is very hard to achieve. We have also learned
that inflation, once it exceeds the 1- to 2-percent rate and becomes widely
expected, can be kept from accelerating and reduced to a slower
rate only at great cost. Even so, I am unable to share the view that a
low rate of inflation, of 1 to 2 percent, is only a minor nuisance and
a cheap price to pay for gains in employment and growth that, to boot,
I believe to be transitory. A good monetary system is part of our
social fabric, like our system of laws. Lack of trust in stable money
means lack of trust in all economic relationships. It lias been well
said that an inflationary economy is like a country where nobody
speaks the truth.
A government that inflates while professing to aim at stability, thus
denying its people the opportunity to anticipate inflation correctly,
may be acting in their interest in terms of employment and growth.
But if such benevolent deceit is justified in economic matters, why
not also in matters of war and peace, or any other ? I prefer truth.
Our balance-of-payments experience of the last 8 years has taught
us another lesson about inflation. I f the international value of the
dollar is to be maintained, and all that goes with it economically, po­
litically, and militarily, we must keep our international payments in
balance and hence inflation under control.
Payments equilibrium has become a major objective of policy in its
own right. I see no escape from it through flexible rates. It is the
only objective where a fairly precise target must be achieved. We
can choose our way of achieving balance?l3eyond the deficit justified
by amount of dollars the world wants, by exporting more, or invest­
ing less, or by borrowing abroad. But we cannot afford to run out
of international reserves.
Since stable prices as a goal can be found in the Employment Act
only by interpretation, ana payments balance only under the catchall
“ needs and obligations and other essential considerations of national
policy,” there is a good case for writing both into the act. I would



favor this amendment. However, I doubt that, up to the present, in­
flation and the payments deficit would have been fought any less
energetically had the two new goals always been set forth clearly
in the act. To amend the act, therefore, would not mean much without
a new resolve on the part of the people and the Congress to hold the
line hereafter.
Inclusion of price stability and payments balance would advance the
Employment Act in a direction that strikes me as desirable: toward
more qualitative goals. I use the term not in contrast to target goals,
but as focusing on the content rather than the amount of things. The
basic English of the Employment Act is heavily quantitative: a maxi­
mum o f everything. But employment, too, has qualitative aspects. A
job is not only a source of income, but the foundation of human dig­
nity. Stability and balance, which a poet once equated, are qualitative
concepts. As we become richer, it seems increasingly appropriate to
concern ourselves not only with “ how much?”, but also with “ how
The Great Society programs are designed largely to improve
our life qualitatively as well as quantitatively—through medicare,
education, the ending o f poverty, pollution control, a more beautiful
America. In time, I expect, our goals will become more social and
less purely economic. As new aspirations acquire the status of na­
tional goals, they should be given greater force by embodiment in the
Employment Act. Legislative pronouncements will have to reflect a
broadly felt need, however, if they are to amount to more than eco­
nomic New Year’s resolutions.
Economists can play an important role in the evolution of our goals.
Economics is a discipline that seeks to trace farflung interdependen­
cies, remote often in point of impact as well as in time. I f these lead
to conclusions sometimes beyond the borders of economics, they are
nevertheless worth following up. There are no disciplinary boundaries
in national legislation.
Economists can render the best service to the evolution of our goals
if we take advantage of these potentialities of our discipline. This
means to emphasize more strongly the long-run effects of our recom­
mendations. The short-run effects usually are sufficiently obvious to
be visible without benefit o f economic advice. We need not be dis­
mayed by the retort that in the long run we are all dead, or that the
long run unfortunately is a succession of short runs. It is equally true
that most short-run problems are the long-run consequence of some­
thing that was done years ago.
Knowing that in economics everything depends on everything else,
we should beware of the simple solutions to which human sympathies
make us prone. We ought to know better than to say “ there ought to
be a law” in the face of every malfunctioning of markets and institu­
tions. The cost of simple and direct solutions through government
intervention may be felt in complex and indirect ways. The malfunc­
tioning that arouses us often is the consequence of the simple and direct
solution sfiven to some other problem. And as representatives of a dis­
cipline that once prided itself upon having pulled away the “ veil of
money” that obscures real economic relationships, perhaps we should
be more hesitant in proposing the creation of a little more money as
the standard solution for all problems.



The first 20 years of the Employment Act have given economists
an unprecedented opportunity to place themselves at the service of the
community. The experience, I believe, has been mutually beneficial,
as transactions in free markets are supposed to be. Both sides can do
even better during the next 20.
Thank you. [Applause.]
Dr. E n s le y . Thank you very much, Professor Wallich.
In order to give time for you to stretch your legs, there will be a
5-minute recess. Those who have not purchased their luncheon or
reception and dinner tickets will find an opportunity to do so outside
at the information desk.
(A short recess was taken.)
Dr. E n s le y . Resuming the economic symposium, we will now turn
to the second subject, “Aggregate or Structural Approaches to Achiev­
ing Employment Act Objectives.”
What does the act call for by way of economic analyses of Federal
policymaking? Can goals and gaps be quantified or are qualitative
factors more important ? What weights should be given to these vari­
ous approaches?
The first presentation will be made by Dr. Leon H. Keyserling,
Vice Chairman of the Council of Economic Advisers from 1946 to
1950, and Chairman from 1950 to 1953. Dr. Keyserling is now the
president of the Conference on Economic Progress.
Dr. Keyserling.

ggregate or

S tru c tu r al A pproaches to A
A ct O bjectives

c h ie v in g

E m ploym ent

Dr. K e y s e r lin g . Mr. Chairman and friends, we had a very amicable
dinner last night for the participants in this program. I hope that,
after what some of us say here today, it won’t turn out to have been
the last supper.
Unaccustomed as I am to public reading, I nonetheless will have
to read today, and read very fast because of the time limitation. If
you miss anything because of the speed, you will be to that extent
better off, or at least happier.

Background of the Employment Act
The wise injunction of those who planned this program was that
we look to the future rather than bask in the glow of the past. We
should not assume that this calls for major shifts in die emphasis
which animated the original framers of the Unemployment Act. This
act had its root proposals during the late 1920’s, by a few leaders
who foresaw the problem of mass unemployment. But from the
very start these leaders never contemplated any narrow tests of eco­
nomic progress. They were interested not only in how fast we were
going but also in what directions ; not only in the size of GNP but
also m the speed at which we abolished poverty; not only in jobs but
in what we produced; not only in total national income but in how
it was distributed; not only in the aggregates but also in the com­



ponents. And they sought means compatible with these ends. The
Employment Act really projected a great experiment in planning
under freedom an economic experiment infused with social purpose.
A good synopsis of that purpose may be found in my 1944 postwar
planning essay, “ The American Economic Goal.” It spoke not of the
defensive purpose of avoiding downturns, but of the dynamic purpose
of realizing the full promise of America. It set as a prime goal in its
first paragraph the abolition of poverty, which is as much a social as
an economic purpose. Its proposal for joint determination by the
executive branch and the Congress of specific goals for progress, in­
tegrated with policies to achieve these goals, and, lifted to the center
of attention by inclusion in Presidential messages to the Congress, was
essentially an outline of the final act of 1946. The one new feature
of this essay, and of the act itself, was recognition that the New Deal
era, allowing for some splendid accomplishments, was handicapped by
the conflicting nature of its improvised and ad hoc policies, and that
we should sieze in the postwar period the opportunity for selective ap­
plication o f what we had learned about the unlimited potentials of a
reasonably coordinated and comprehensive economic policy during
World War II.
The broad purposes of the Employment Act shed much light upon
the subject assigned to me, and indicate that any rigorous dichotomy
between aggregate and structural approaches to attaining the act’s
objectives is unrealistic and misleading. I shall regard the aggregate
approach as looking at the economy as a whole and applying broad
measures to increase the total volume of spending on demand, depend­
ing upon whether the economy is too slack or too tight. And I shall
regard the structural approach as focusing upon the components of
economic activity and the relationship among them.
Employment problems: aggregate and structural aspects
The policies and performance in recent years, to which I shall ad­
dress some tempered criticism, have fallen short because they have not
achieved an appropriate blend of these aggregate and structural ap­
proaches. For example, no unemployed person can become employed,
unless he merely takes a job away from somebody els*, without addi­
tional spending in the aggregate. Moreover, experience, as I read it,
demonstrates conclusively that an increase in spending, whether direct­
ly by Government or induced by tax reduction, is the main approach
to reducing unemployment and that training or retraining are auxili­
ary approaches. The prime reason why it has taken us so long to get
within sight o f maximum employment is that this aggregate approach
has been used much too timidly.
Nonetheless, structural refinements of the aggregate approach are
essential. In numerous industries, the rate of advance in technology
and output per man-hour worked will remain more rapid than any
likely rate o f increased spending for the products of these industries,
as determined by consumer choices, no matter how much money is
jingling in their pockets. Here, there is not much opportunity to
achieve sizable portions of the 22 to 27 million new jobs needed during
the next 10 years to absorb the annual growth of the civilian labor
force, plus new types of jobs for those eliminated by technology. To
be sure, we might on paper solve the incremental employment problem



by stimulating the economy enough to produce 20 million more autos
each year than the year before, or 200 million more autos per year
by 1975. We would then have to dump most of them into the ocean,
and try to find room on the streets for the rest.
Quite apart from this, maximum employment is not nearly good
enough, regardless of what it yields. We do not need jobs which
produce 50 million more new gadgets each vear nearly so much as
we need new jobs which produce half a million new units of slum
clearance and rehousing each year. And if we redirect the structure
of spending or demand in accord with priority needs, the prospects
for sustained maximum employment over the next decade will become
very bright, because the immensity of these priority needs call for
yearly expansion of output far in excess of the rate of technological
change in these areas. But this restructuring of spending will not
come automatically through mere increases in aggregate demand. It
will require detailed planning and programs, which are also a condi­
tion precedent to the intelligent restructuring of the labor force
through training, retraining, and other measures.
World War II experience is much in point. In 1939, with 8
million unemployed, we were debating whether the causes were
aggregate or structural. But when war came, we stopped this largely
arid debate and got down to brass tacks. On the aggregate side, we
strove for maximum utilization of total resources, and we spent
enough to get it. On the structural side, we recognized priorities, and
combined selective cutbacks with selective acceleration. Every major
policy undertook this combination. And because we knew both what
we wanted and how much, we knew what to train the people for,
and found no great difficulty in matching the labor force to the jobs.

Fiscal policy
Coming back closer to the present, recent fiscal policies have shown
egregious disregard for an appropriate blend of aggregate and struc­
tural approaches. The 1966 Report of the Council of Economic Ad­
visers admits at long last the point I have been urging for many years,
that the three recessions since 1953 occurred because during the pre­
ceding upturn periods, investment in the plant and equipment which
add to our production capabilities was advancing much too rapidly
relative to the expansion of demand for ultimate products in the form
of consumer expenditures and public outlays at all levels of govern­
ment. And the Council is now concerned that, during 1964 and 1965,
this type of investment advanced more than twice as rapidly as GNP.
Despite all this, the legislative and administrative tax reductions
of 1962-65, having an annual value of close to $20 billion, directed
almost half of this amount to corporate tax cuts and to aspects of per­
sonal tax reduction designed to increase the rate of saving for invest­
ment purposes. This also served to limit or restrict policies pointed
toward adequate expansion of private consumption and much-needed
public services. All of this reminds me of the man who drives his
car up to the station and says, “Fill her up,” without much regard
for whether the gas is poured into the radiator, the oil into the tires,
and the air or the water into the gas tank.
In consequence, at least a third of the tax reduction was wasted.
Some went overseas to increase our balance-of-payments problem:


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some of it was used for the noneconomic function of bidding up the
stock market excessively; some of it was purely saved, or used to in­
crease consumption among those least entitled to enjoy these increases,
while almost a fifth of our people lived in poverty.
To be sure, these incontinent tax cuts have stimulated the economy
some; $20 billion a year thrown into the streets would have done that.
But a very different structuring of the tax cuts, and a very different
admixture of reduced taxes and increased public spending, would
have provided much more efficient immediate stimulus to the economy,
and been much more conducive to economic equilibrium in the long
Instead of bragging that unemployment now is the lowest since 1953,
CEA should note that, even today, unemployment is 30 to 50 percent
above the level consistent with maximum employment; that, due
to rotation, a 4-percent unemployment rate means that at least 15
percent of the civilian labor force suffers at least 3 months of unem­
ployment during the year, which drags them below the poverty-income ceiling, even if they were not there already because of substand­
ard wages; that the true level of unemployment today, taking into
account the full-time equivalent of part-time unemployment and the
concealed unemployment due to scarcity of job opportunity, is 7
percent and not 4 percent; and that the relatively higjh incidence of
unemployment among the vulnerables in Watts and in many large
cities is an explosive force of terrible portent, especially in view
of the rising tide of legitimate expectations. It is a national crime
to be tolerating so much unemployment after 13 years of excessive
unemployment, and CEA, instead of saying that we should move
cautiously toward further reduction of unemployment, should reread
the Employment Act, and, more important, read the faces of the
As excessive unemployment is a correlative of inadequate economic
growth, CEA should note that the real economic growth rate since
1961, or since 1963, has been^ considerably lower than during some
period in the past when we enjoyed reasonably full resource use with­
out price inflation; and that we need, in view of our openended in­
ternational obligations and our crying needs at home, to strive to
utilize fully the greatest nonsecret weapon of the United States, our
proven ability to expand production even more rapidly. In the long
run, this would be the best answer to inflation.
The CEA’s projection of expanded output for 1966, 5 percent in
real terms, should be compared with the 7 percent that we need for at
least 2 years, to get back to full employment, even by 1968.
So the tax cut has not worked wonders. More important still, the
primary purpose of fiscal policy through the Federal budget is not to
enable us to increase or decrease taxes, depending upon whether or
not we want to speed up or slow down the economy. The primary
purpose is to induce the goods and services which the Nation needs
most and cannot otherwise get. That is what the Federal budget is
all about. Largely in consequence of the excessive tax cuts, the fiscal
1967 budget continues a downward trend in domestic public outlays,
measured against the size of our national product. Some of the pro­
grams which sound more splendid remain only token programs.
These token programs are doubly dangerous in a nation where 81



million poor or deprived citizens have been aroused by the just aspira­
tions of the Great Society.
We all admit that, if the large additional outlays required by the
Vietnam war were to impose serious inflationary strains, we should
increase taxes to cut back on the least essential private consumption and
the types of investment which feed it. But we have gotten into a na­
tional mood which views very differently the high priorities of the
Great Society: rescue of decaying cities; replacement of slums in
which at least one-sixth of our people still live; rebuilding of obsoles­
cent transportation systems; clearing of polluted airs ana waters; re­
plenishment and enlargement of national resources; provision of
adequate medical facilities and personnel for the 40 percent of our
people who cannot yet afford it and who are not covered by medicare;
adequate expansion of educational personnel and facilities, and open­
ing of college opportunity to those among our young people who have
the ambition and ability to go there, but m 50 percent of the cases lack
the means; lifting social security and welfare payments above miser­
ably inadequate levels; improvements in minimum wages, and guaran­
tee of minimum adequacy incomes for all Americans, through a nega­
tive income tax or otherwise; waging of an effective war against
poverty on all fronts. To serve these great priorities, we remain
unwilling to restraint scores of billions of dollars of marginal or even
wasteful private spending. This is utterly unacceptable, no matter
how roaringly prosperous we may be.

Price-wage guideposts
Coming to another example, CEA’s wage and price guideposts,
whether viewed in aggregate or structural terms, have been inde­
fensible from the outset. The attempt to regulate wages but not
profits, to look upon wages as a factor in business costs but not in
consumer purchasing power, would not pass an elementary quiz
in economics, especially during years when, as the CEA now be­
latedly admits, investment fed by profits was relatively excessive and
ultimate demand relatively deficient. The guideposts have resulted
in nationwide real wage rate gains lagging far behind nationwide
average productive gams; prices have risen for reasons other than
excessive wage costs; and the efforts to compensate for the resulting
deficiencies in consumer purchasing power by tax reductions have
placed an excessive strain upon fiscal policies, and have left the Gov­
ernment without sufficient revenues to serve adequately our great
public priorities.
CEA’s attempts—in industries where productivity is advancing
fastest—to keep wage rate gains in line with nationwide average
productivity gains might be justified on ultimate social grounds if
the excessive profits which result were usefully diverted. This
could be done either by substantial price cuts benefiting all consumers,
including those receiving substandard wages, or by special taxes upon
these excess profits, with the proceeds used to help the poor. But
nothing of this sort has been attempted.
Also, almost nothing has been done to enable workers of the indus­
tries whose productivity gains have been below the nationwide average
to achieve wage rate gains in accord with this average. Contributing
thus to swollen profits and investment in some quarters, while neglect­



ing real needs elsewhere, the guideposts have been stacked to feed the
fat and starve the lean.
The 1966 guideposts, changing the rules in the middle of the game,
and substituting CEA’s guess as to productivity gains in the future
for the revealed record o f productivity gains during the past 5 years,
violates what Mr. Justice Brandeis in another connection long ago
called the average man’s sense of decency and f airplay.

Minimum-wage legislation
Nor is this all. CEA, in contrast with the proposal of the House
Committee on Education and Labor to lift the minimum wage to $1.75
by 1968, now tells us that the lift should be only to $1.60 by 1970.
Since when are guideposts designed to make average income gains
for all wage earners applicable to the poor and exploited? Since
when should a family move out of poverty only as fast as others
become even more affluent?
Beyond this, allowing for likely changes in the cost of living which
must certainly enter into an appropriate minimum wage, the CEA
proposal for 1965-70 would lift the minimum wage only by 3 percent,
which is below the guideposts. And more properly, based on 1963
when the $1.25 went into effect, the average annual increase in real
terms through 1970 would be only about 1.5 percent per year. And
this from a CEA which has propagandized from coast to coast the
urgency of personal tax cuts which increased by about 16 percent im­
mediately the disposable income of a married couple with two children
having an annual income of $200,000. What kind of a war against
poverty is this, which would take a breadwinner earning $1.25 an
hour in 1965 5 long years to reach $1.60, which would yield, even if he
worked 40 hours a week and 50 weeks a year, an annual income barely
above the poverty income ceiling, and well below the poverty ceiling
when allowance is made of changes in the cost of living, and 47 percent
below what the Department of Labor considers a “modest but ade­
quate” family budget, even without allowing for changes in the cost of
To lift the minimum wage even to $2 an hour by 1970 would add only
about 1y2 percent per year or about $2.6 billion a year to the total
wage bills of the affected firms. Would this be “inflationary” in
terms of aggregate demand, in an economy with a GNP averaging
far above $700 billion in the years immediately ahead? Would it
make price increases necessary ? Mostly not. Aiid in a few instances,
prices should be raised, even in accord with the guideposts, this to be
compensated for by the price cuts elsewhere which CEA has developed
no effective method to bring about.

Restraint of inflation, and monetary policy
CEA’s minimum wage position shows how faulty is the purely ag­
gregate approach to the whole problem of inflation. We debate
whether the timing of the Federal Reserve Board has been good or
bad from the viewpoint of stimulating or slackening up the economy
through utilization of the control of the money supply. But this
completely overlooks that some prices and incomes may need to be
raised, and others lowered, to improve economic equilibrium, improve
resource allocation, and to do simple justice.



I have estimated that, from 1952 through 1965, we transferred about
$60 billion of national incomes through rising interest rates alone.
This transfer, in the main, has been toward those in least need of in­
come supplementation. This transfer, in the main, has been away
from the homeowner of scant or moderate means; the worker buying
on time a secondhand automobile to get to work; the farmer trying
to hold on to his farm; the family buying on time a television set to
distract it from the fact that one or two of its potential breadwinners
cannot get jobs, or borrowing money on time to finance a catastrophic
illness or send a child to college. The Federal Government’s inter­
est payments on the national debt are now at an annual rate more than
$4 billion in excess of what they would now be if interest rates had
remained at the 1952 level; this sum is about 2y2 times the size of the
1967 budget item for the Office of Economic Opportunity.

War against poverty
The outstanding example of excessive reliance upon the structural
approach, as commonly defined, is the current war against poverty.
The main focus here has been direct contact with the poor, in efforts to
improve their personal characteristics through various uplift pro­
grams. This effort is worthy, but it impinges upon only a very small
fraction of the poor, and its success even here depends upon a wide
range of different efforts along more conventional lines.
About 40 percent of the poor, among senior citizens and families
headed by women who cannot or should not work, cannot be helped
much by training, retraining, or other types of personal processing.
They need increased incomes through expansion of established insur­
ance and welfare programs. About 60 percent of the poor are poor
because their breadwinners are unemployed part-time or full-time, or
employed at substandard wages, or Decause of some combination of
these factors. Programs on these antipoverty fronts need to be quan­
tified; they need to be integrated with the balanced use of all our
resources in terms of competing needs.
For these reasons, the war against poverty, instead of being treated
largely in isolation and brought into the CEA reports as an after­
thought or appendage, should be the main focus of these reports. For
at the very core of all our economic and related social efforts is the
need to lift to an American standard of living the 34 million Ameri­
cans who still live in poverty, and the 47 million others who live above
poverty but in depravation nonetheless. What could do more to as­
sure sustained maximum employment and production than to cultivate
with fervor this greatest undeveloped market in the world for our own
products, plus reconstruction of the oppressive physical environment
in which tney and many of the rest of us live?

Improved operations under the Employment Act
These are the challenges we face. They are both aggregate and
structural. We have the resources to meet them, the know-how, and I
believe the will. But this task can be vigorously commenced, in my
view, only when the Employment Act utilizes what I have called an
American economic performance budget. This should include these
major elements, projected for the most part a decade ahead:
Goals for sustained maximum employment. These should take
into account, not only what might be regarded as normal growth in the



civilian labor force, but also how the labor force participation should
be smaller or larger, in terms of our resources measured against pri­
ority pressures. Both retirement and educational policies would thus
become closely integrated with maximum employment policies. There
is hardly such integration now.
(2) Goals for sustained maximum production at maximum employ­
ment. The factoring in of projected productivity gains, breaking
away from excessive reliance upon historical trends, should place more
emphasis upon empirical evidence that sustained full resource use ac­
celerates productivity gains in the long run. We need more aggressive
programs to stimulate productivity advance.
(3) Goals for meeting the priorities of our national needs, both
private and public. These would involve breaking down maximum
employment and production goals into meaningful subcomponents,
indicating desirable readjustments in resource allocation and in the
structuring of the labor force*
(4) Goals for sustained maximum purchasing power, which really
means a pattern of income distribution which facilitates attainment of
the physical goals. While various patterns might serve this purpose,
high priority should be accorded to a pattern committed to liquidation
of U.S. poverty by 1975. And we should adopt supplementary meas­
ures which guarantee a minimum adequacy standard of living for
every American family.
(5) All policies ana programs in the performance budget should
be geared explicitly to the foregoing goals. The Federal budget, on
both the spending and tax side, should be an integral part of this per­
formance budget. So should monetary policy. And so should all other
policies and programs which allocate economic resources in a major
way, such as those relating to housing and urban renewal, social
security and welfare, and agriculture.
(6) Our international economic programs in the broadest sense,
and not merely the balance-of-payments problem in a conventional or
stereotyped sense, should be included in the performance budget.
Limited planning under freedom
Does this ask too much, distort the balance between private and
public responsibilities, militate against our institutions or freedoms ?
This kind of performance budget, by whatever name called, has been
developed by the Rockefeller reports, the National Planning Associa­
tion, the Conference on Economic Progress which I head, and others.
How can it be less than essential for our Government itself to seek
this unifying and purposeful approach to our great national problems ?
In fact, for CEA to do so across the economic field would be nothing
more than a full exercise of the requirement that it develop needed
levels of employment, production, and purchasing power. These
needed levels must be quantified in structural as well as aggregate
terms, because the reports under the Employment Act bespeak the
economic and related social goals of the American people. And be­
cause CEA has enduringly refected exercise of this mandate of the
act to any adequate degree, I favor the broad purposes of S. 3237, in­
troduced by Senator Joseph S. Clark after his magnificent inquiry
into the Nation’s manpower revolution.



By returning to the original intent of the Employment Act, we can
adjust planning under freedom to our domestic and worldwide needs,
steering between the Scylla of excessive centralization and Charybdis
of inadequate national purpose and cohesion. Through this method,
we can more effectively bring to bear upon all public policies the
watchful eye of a better informed and more soundly inspired Ameri­
can people.
Dr. E n s l e y . Thank you very much, Dr. Keyserling.
The second presentation on this subject will be made by Dr. Arthur
F. Burns, who was Chairman of the Council of Economic Advisers
from 1953 to 1956, and is now president of the National Bureau of
Economic Research.
Dr. Bums.

ggregate or

S tructural A pproaches to A
A ct O bjectives

c h ie v in g

E m ploym ent

Dr. B u r n s . The Employment Act which we celebrate today has had
its share of the vicissitudes of fortune that go with life. The bill orig­
inally proposed by Senator Murray ran into massive opposition in
the House, and many anxious months elapsed before the Congress
hammered out an acceptable compromise. The machinery established
by the act has not always functioned smoothly or as its designers may
have hoped. At times, the findings by the Council of Economic A d­
visers have lacked the detachment or the luster of science. A t times,
the pronouncements of the Joint Economic Committee have suggested
excessive partisanship or haste. In 1 year the Congress refused to
vote a full year’s appropriation for the Council’s activities, and its
ability to survive became doubtful. Despite such occasional setbacks,
the moral authority of the Employment Act has grown with the pas­
sage of time. Indeed, in the span of a mere 20 years, the act has ac­
quired the force of an economic constitution. The President, his
Council of Economic Advisers, the Congress, in some degree the en­
tire executive and administrative establishment, including the Federal
Reserve Board, now function under this “ constitution” when major
economic policies are developed.
As befits a constitution, the Employment Act lays down general
principles and procedures, but gives little guidance on how the Federal
Government is to discharge its new responsibility of promoting “max­
imum employment, production, and purchasing power.” To be sure,
the act stresses the importance of proceeding “ in a manner calculated
to foster * * * free competitive enterprise.” This constraint reaf­
firms our Nation’s commitment to the principle of freedom, but it does
no more than that. The act also specifies that the means employed
in furthering its objectives must be consistent with the “needs and ob­
ligations” of the Federal Government, with “ other essential consider­
ations o f national policy,” and with “ the general welfare.” In view
of this broad language, our successive Presidents have been able to
60-074— 66------- 3


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deal under the umbrella of the Employment Act with such objectives
of policy as stability of the general price level, faster improvement of
productivity, equality of opportunity, and equilibrium in the balance
of payments. However, the act itself is entirely reticent on these
matters, and therefore gives no clue to the way in which any of these
objectives is to be sought, or how the pursuit of one or another of them
may aid or limit the achievement of “maximum employment, produc­
tion, and purchasing power.” In short, the act practically leaves the
means for dealing with recession, unemployment, or inflation to judg­
ment concerning the individual case.
The flexibility inherent in the Employment Act has proved very
helpful to Government officials charged with its administration. In­
deed, economic life is so full of surprises that it is doubtful if the act
could have survived if the Congress has prescribed some formula,
whether the one suggested by the Murray bill or any other, for achiev­
ing maximum employment—to say nothing of maximum production
or purchasing power. At the same time, the sweeping but imprecise
mandate of the act has imposed an extremely difficult task on the
Council of Economic Advisers and the Joint Economic Committee,
and beyond them on professional economists as a class.
Taking the past 20 years as a whole, the administrators of the Em­
ployment Act have concentrated on the maximization of employment,
but they have not neglected other major objectives of national policy.
By and large, our economy has performed well during this period.
We have preserved the essentials of freedom in a revolutionary age,
when many other nations have lost or destroyed their freedom. Our
economy has continued to grow in size and efficiency. We have made
great strides in moderating the business cycle, and the fruits of in­
dustry have been widely distributed among our people. The Em­
ployment Act has contributed to these achievements by introducing
elements of order into economic policymaking and by providing as­
surance to both businessmen and consumers that economic storms
would not be left to themselves. We must not, however, gloss over the
lapses from full employment during the postwar period, or the series
of recessions, the deterioration in the value of the dollar, the chronic
deficit in the balance of payments, and the persistence of pockets of
poverty in our land of plenty. I f the efforts of the administrators of
the Employment Act have not always been successful, the reason in
large part is that they have worked with tools that are much too crude.
We need, in particular, better ways of determining whether, when,
or to what degree unemployment can best be attacked by overall
monetary and fiscal policies. Our Nation has relied preponderantly
on such policies during the past few years on the ground that aggre­
gate demand was deficient. This approach has certainly not been
wanting in plausibility. In view of the fact that we experienced a
recession in 1957-58, that the recovery which followed was incomplete,
that another recession occurred in 1960-61, and that a good part of
1962 was marked by sluggishness, there can be little doubt that a
deficiency of demand was a major cause of unemployment during much
of the period since 1957. However, the Council’s calculations of the
gap between actual and potential output, quite apart from being frag­
ile, cannot be treated as measures of demand shortage. I f aggregate
output falls short of its potential, the gap may have nothing to do with



any weakness of demand. It may instead reflect obstacles on the side
of supply or a failure of the constituent parts of demand and supply
to adjust sufficiently to one another. Since the structure of our econ­
omy keeps changing, these changes as well as difficulties on the demand
side must be reckoned with in a scientific diagnosis.
Let me note briefly a few of the structural factors. First, welfare
programs have grown very rapidly in recent years. A great merit of
these social measures is that they maintain a flow of income during
periods of unemployment, so that even poor men may practice some of
the discrimination in job choosing that comes as a matter of course
to the well-to-do. Our statistical measures, however, do not recognize
this voluntary aspect of unemployment, nor the fact that our social
legislation together with increasing prosperity have been tending to
increase it. Second, women and teenagers have become a much larger
factor in the labor force since the late fifties. But women are less
inclined or less able than men to end their unemployment by taking a
job in another city. Indeed, they are less prone than men to move to
another occupation or another firm within the city of their residence.
Moreover, married women commonly seek only part-time or inter­
mittent work. And since a large proportion of the teenagers in the
labor force are students, they, too, frequently seek part-time or inter­
mittent work. But a new entrant into the labor force rarely finds or
takes a job immediately; in other words, he is unemployed for a time.
Since these unavoidable intervals of unemployment are repeated for
intermittent workers, the volume of unemployment has tended to rise
as the intermittent work force has grown. Third, the obstacles to
rapid adjustment in the labor market have lately become larger. The
pace of technological change has quickened. The supply of part-time
workers has increased with sudden rapidity, while the evolution of
demand has been gradual. Also, the legally prescribed minimum
wage has risen much faster than the average wage at the very time
when the ranks of unskilled and inexperienced workers were swelling.
Hence, shortages of some types of labor and in some communities have
coexisted with surpluses in others to a larger extent than before.
It is developments such as these that the structuralist school has
emphasized rather than any deficiency of aggregate demand. And
just as the expansionist school has sought to fortify its claims by an
impressive array of evidence, stressing in particular the depressed
state of business investment in fixed capital between 1957 and 1963, so
the structuralist school has marshalled considerable evidence on the
high and rising level of overtime work, on the concentration of un­
employment among less educated workers, on the jump in the ratio of
the unemployment rate of Negroes to that of whites since the mid­
fifties, on the exceptionally high ratio of the unemployment rate of
teenagers to that of adult males during the past 3 years, and so on.
Most structuralists have been entirely ready to grant that easy money,
lower tax rates, and larger Federal expenditures—that is, the remedies
favored by the expansionists—would reduce unemployment. They
have insisted, however, that more lasting effects would be achieved by
attending to the structural causes of unemployment, and that the risk
of inflation would also be reduced in the process. Although their
views were heeded to some degree, as the Manpower Development and
Training Act o f 1962 and related legislation testify, the expansionist



theory proved more congenial to the mood of our times. Had it done
so to a lesser degree, I believe that unemployment would now be no
higher, while the danger of inflation would be smaller than it has
My purpose on this occasion, however, is not to press the relative
merits of this or that school of economic thought. My basic j)oint is
rather that existing information has prevented economic investigators
from reaching the precise diagnosis of the unemployment problem that
the Employment Act so plainly requires. The act declares that the
Federal Government has the responsibility of promoting “conditions
under which there will be afforded useful employment opportu­
nities * * * for those able, willing, and seeking to work.” To dis­
charge this responsibility, statistics are needed to determine to what
degree, if any, the aggregate demand for labor falls short of the num­
ber of “ those able, willing, and seeking to work”—that is, of the supply
of labor. But the aggregate demand for labor includes the unfilled
jobs as well as those that are being manned, just as the aggregate
supply o f labor includes the unemployed workers as well as those
who have jobs. Hence, to determine the relation between aggregate
demand and supply, information is needed on three magnitudes—
employment, unemployment, and job vacancies. Unhappily, while
we have comprehensive statistics on the first and the second, the data
on job vacancies are fragmentary, and it has, therefore, been impossible
to bring either the expansionist or the structuralist theory to a decisive
I f I read the Employment Act correctly, its implementation re­
quires continuous, carefully compiled, and comprehensive statistics
on job vacancies. It may be interesting to know whether the existing
unemployment rate is above or below 4 percent, but neither this con­
ventional figure nor any other can be relied upon to identify maximum
employment—or its equivalent in common usage, full employment.
What really matters for the purposes of the Employment Act is not
what figure on unemployment appears to correspond best to the con­
cept of full employment, but how the amount of unemployment that
actually exists compares with the number of job openings. When
unemployment exceeds job vacancies at prevailing wages, the demand
for labor is clearly insufficient to provide employment for everyone
who is able, willing, and seeking to work. At sucli a time, a deficiency
of aggregate demand exists, and a governmental policy that relies on
monetary, fiscal, or other devices to expand demand is, in principle,
suited to the Nation’s needs. On the other hand, when the number
of vacant jobs is equal to or larger than the number of the unem­
ployed, there is no deficiency of demand. A government that is seri­
ously concerned about inflation will not seek to expand demand at such
a time, but will instead concentrate its efforts on securing better
matching of the men and women who seek work with the jobs that
need to be filled. By equipping ourselves in the future with more of
the information needed to determine the true state of demand, we
should be able to pursue the objective of full employment with less
danger o f causing serious inflation.
This objective will be promoted by other improvements in eco­
nomic information. Our statistical system is the best in the world,



but it is not keeping pace with the needs of our times. We learn, for
example, that unemployment amounted to 3.3 million this January.
What precisely does this figure tell us? A short answer is that it
reports the number of jobless persons who are able, willing, and seek­
ing to work. This answer, however, is incomplete and in some respects
misleading. In the first place, the figure includes an unknown num­
ber of individuals who, while they are willing to work and are seeking
work, are so handicapped physically or psychologically that they
would be unable to hold down a job even in a very tight labor mar­
ket. Second, the unemployment figure includes several hundred thou­
sand persons who actually have jobs; specifically, those who are wait­
ing—whether of their own choice or the employer’s—to start work
within 30 days, those who are searching for a new job while they are
absent from work, and those who have been temporarily laid off but
have definite instructions to return within 30 days. Third, the un­
employment figure includes an undetermined number who are not
looking for work diligently. A man who applied for a job as much
as 60 days ago, but made no other effort to find a job while waiting
for a reply to his application, may still be counted as unemployed.
Fourth, the unemployment figure includes a certain number of per­
sons, again of unknown magnitude, who are not looking for work in
any sense, either because they are temporarily ill, or because they are
waiting to be recalled from an indefinite layoff, or because they be­
lieve that no work is available in their community or trade. On the
other hand, the unemployment figure omits some, perhaps many, per­
sons who have stopped looking for work because they have estab­
lished that acceptable jobs are unavailable within their geographic
reach. Clearly, the unemployment figures which serve as a basis for
much of our policymaking are highly technical and somewhat dubious
aggregates. Not only is it desirable to refine the concept of unem­
ployment ; we also need to learn how to assemble and use statistics of
unemployment so that the parts which cannot be readily influenced
by broad fiscal or monetary policies may be approached by more direct
Other branches of our statistical system also show signs of age and
need to be revitalized—notably, the records of prices and wages. The
quotations that enter into price indexes of industrial commodities at
wholesale are largely based on list prices rather than actual market
transactions. But in the course of an economic upsurge, such as we
have been experiencing, discounts tend to become smaller, concessions
fewer, and premiums more frequent or larger. By neglecting these
changes, our price indexes have understated the advance of the whole­
sale price level since mid-1964. I f more accurate price indexes had
been available, we might have realized sooner that the remarkable
period of general price stability which began in the late fifties had
come to an end, at least temporarily.
Despite their element of bias, the wholesale price indexes have the
merit of comprehensiveness—an advantage that our measures of wage
changes lack. The fullest set of figures published by the Bureau of
Labor Statistics pertains to hourly earnings of production workers in
manufacturing. These figures represent hours paid for, not hours
worked, and hence do not allow for the increasing number of hours
paid for but not worked. They do not include fringe benefits—a factor



that has become of major importance to employers and employees
alike. A sizable and increasing fraction of employees are classified as
“ nonproduction” workers, and they are not covered at all in the wage
statistics. Finally, it is well to note that employees in the goodsproducing industries are now outnumbered by those in the service
industries, and that the statistical coverage of wage rates and earnings
in the service industries is meager.
But the records that are used most widely and on which businessmen
as well as Government officials have come to rely most heavily are the
estimates of gross national product; that is, the Nation’s total output
of goods and services. These figures not only inform us on past and
current economic conditions, but also serve as a basis for much of the
forecasting in which economists and others necessarily engage. As is
true o f so many parts of our statistical system, the gross national
product estimates are more dependable than comparable data for most
other nations. They are not, however, as good as they should be. The
July 1965 issue of Economic Indicators, for example, reported that the
grross national product in 1964 was $623 billion. The next month’s
issue reported the appreciably higher figure of $629 billion for the
same year. In fact, had it not been for certain changes of definition
that accompanied the statistical revisions, the latter figure would have
been $640 billion. Or to cite a more nearly current example, the in­
crease between the first and second quarters of 1965 was reported in
successive issues of Economic Indicators as $9.2, and $11.2 billion,
while the increase between the second and third quarters was reported
as $11.0, $11.6, and $12.7 billion. While I admire the constant striving
o f statisticians for promptness, precision, and conceptual relevance, I
also suspect that the initial underestimates of the growth in our
N ation’s output last year may have contributed to the somewhat tardy
realization by policymakers that slack in the economy was vanishing.
I have wondered over the years, and still do, how much might have
to be added to the cost of gathering our statistics so as to reduce, if not
eliminate, the need for sizable revisions in the future, and whether the
resulting benefits would not greatly outweigh the cost. I hope that the
Joint Economic Committee, which has often taken the initiative to
improve our statistical system, will seek answers to these questions.
Let me say, finally, that the implementation of the Employment Act
requires, besides better information, more realistic models of the work­
ings of our economy than are now current. Contrary to widespread
notions, neither the labor force nor the output per man-hour grows
steadily and smoothly, year after year. Nor is the gap between actual
and potential output like a bathtub that merely needs turning on of
the fiscal faucet to be filled. Experience teaches that productivity
increments tend to decline as full employment is approached. I f this
tendency is overlooked by the makers of policy, the bathtub may over­
flow. Experience also teaches that confidence is a basic factor in eco­
nomic life, and that it therefore makes a difference, even if we cannot
express it in a mathematical equation, how we seek to fill gaps. Arith­
metically, one dollar in the Federal budget is like any other, but from
an economic viewpoint the individual dollars differ. The great suc­
cess that attended the recent reduction of income tax rates cannot be
attributed solely to the arithmetical magnitude of the fiscal stimulus.
It was also due to the fact that the Government took numerous steps



to improve confidence after the unhappy steel price episode of April
1062, that the fiscal stimulus adopted in early 1964 took the form of a
tax reduction instead of an increase in expenditures, and that the tax
reduction became effective over the entire range of personal and cor­
porate incomes instead of being limited—as some well-meaning citi­
zens had urged—to individuals at the lower end of the income scale.
But just as confidence may be strengthened by creating a better en­
vironment for enterprise and investment, so also can it be damaged by
imprudent management of governmental finances or by arbitrary in­
terference with the workings of labor and commodity markets.
I wish to congratulate the present Council of Economic Advisers
and the Joint Economic Committee on their efforts to bring our evolv­
ing economic knowledge to bear on the Nation’s economic condition.
They need not be reminded of William James’ pragmatic maxim that
“ we have to live today by what truth we can get today, and be ready
tomorrow to call it falsehood.” [Applause.]
Dr. E n s l e y . Thank you very much, Professor Burns.
This concludes the morning session.
Luncheon will be served beginning at 12 m., in tlie international
ballroom center. That is directly to your right.
The archdiocese of Washington "has granted dispensation from
fast and abstinence for Catholics today at the luncheon, the reception,
and the dinner.
Remember, lunclieon starts promptly at 12 o’clock. Kindly be in
your seats.
We stand in recess.
(Whereupon at 11:45 a.m., a recess was taken until 12 m. of the
same day.)


L u n c h e o n S ession , 12 m ., I n t e r n a t io n a l B allroom C enter ,
T h e W a s h in g t o n H il t o n

Dr. E n s l e y (presiding). Good afternoon, ladies and gentlemen.
Once more, it is my pleasure to welcome you on behalf of the Joint
Economic Committee to the luncheon session of the economic sympo­
sium marking the 20th anniversary of the Employment Act of 1916.
The two speakers at this session together have 10 years of direct
involvement with the act. The subject under discussion at this lunch­
eon session is, “Using Fiscal and Monetary Policies To Further Em­
ployment Act Objectives.”
As with the other subjects discussed at this symposium, significant
questions as to future policy will be raised: What should be done
about a Federal tax system with a capacity to produce increasing reve­
nues in an expanding economy? What weights should be given to
expenditure programs, tax reduction, debt retirement? What is the
role of monetary policy in an expanding economy? How can fiscal
and monetary policies contribute to economic stability in a period of
mounting aggregate demand ?
I understand that by mutual agreement the first speaker will con­
centrate primarily on fiscal policy and the second primarily on mone­
tary policy.
Our first speaker is Dr. Walter W. Heller, Chairman of the Council
of Economic Advisers from 1961 through 1961, and now professor of
economics at the University of Minnesota.
Dr. Heller. [Applause.]

sin g

F isc al


M o n e t a r y P olicies To F u r th er E
A ct O bjectives

m ploym ent

Dr. H eller . Chairman Patman, Chairman Ensley, members of the
Joint Economic Committee, ladies and gentlemen. It is fitting that
we should observe, within a 1-week span, both the 20th anniversary of
the Employment Act of 1946 and the 5th birthday of its offspring, the
great expansion of the 1960's. For the policies for balanced growth
of the past 5 years were a direct response to the mandates of the
Employment A c t :
Mandates that President Kennedy revitalized in his call, late
in 1960, to “ return to the spirit as well as the letter of the Employ­
ment Act” and “ to deal not only with the state of the economy
but with our goals for economic progress.”
Mandates that 20 years of “ judicious interpretation” under
four Presidents have gradually translated into a four-dimensional



policy for full employment, rapid growth, price stability and
b al ance-of- payments equilibrium—an interpretation which Pres­
ident Johnson stamped with an explicit Presidential seal in his
1965 Economic Report.
This week spans also the second anniversary of the Revenue Act
of 1964, a fiscal milestone representing, in the President’s words, “ the
first time our Nation cut taxes for the declared purpose of speeding
the advance o f the private economy toward ‘maximum employment,
production, and purchasing power.’ ”
In raising high the banner of the Employment Act at their end of
Pennsylvania Avenue, Presidents Kennedy and Johnson did no more,
in a sense, than match the unflagging efforts of the Joint Economic
Committee at its end of the avenue. In its superb reports, staff
studies, and hearings, the committee has consistently held the banner
aloft. And in doing so, it has not only kept faith with the act but
kept pace with modern economics. In commenting on the so-called
policy revolution of the past 5 years, I have sometimes said that the
Nation has simply pressed into public service the economics taught
in its classrooms for 20 years and accepted as orthodox by 80 to 90
percent of its economists. I should have added that it is also the
stuff of which the Joint Economic Committee hearings, studies, and
reports have long been made. Indeed, the committee and its staff
could be pardoned for wondering what’s so new about the “ new
Like any good constitution, then, the Employment Act—our “ Magna
Carta.” o f full employment planning, as Alvin Hansen called it on its
10th anniversary—has proved sound in principle and flexible in prac­
tice. Bom largely of fears of unemployment and recession, its man­
date and machinery are equally adaptable to the task of managing
The mandate and the machinery are at hand—the question now
before us is whether we have the w ill and the wisdom to use them—
First, to maintain prosperity without inflation in an economy
where “ the smell of war is in the air” (as Otto Eckstein put it a
few days a g o ); and
Second, to maintain the economy’s momentum when the fresh
breezes of peace again prevail.
Part of the answer can be be inferred from the economic strategy
and statistics of the past 5 years. But for most of the answer, we
must look to the policy alternatives and actions that lie ahead of us.

Let me assure you at once that I don’t intend to dwell on the work­
ings and wonders of expansionary fiscal policy in the 1961-66 period.
Not that it didn’t work, and that it isn’t wonderful. But if it had
been as one-track-mindedly expansionary as casual critics often picture
it, it would stand us in poor stead today. Only by costarring higher
productivity and cost-price stability with demand expansion was sus­
tained growth made possible.



Track 1 : Demand expansion
To be sure, fiscal policy has had an expansionary bias. And with
good reason—it was aiming at a briskly rising target, our GNP poten­
tial, from launching pads $50 billion, or even $30 or $20 billion, below.
Moreover, policy erring on the side of expansion can normally bank
on a strong built-in corrective in the form of a $7 billion automatic
growth in Federal revenues each year (after allowing for the auto­
matic growth in transfer payments). Were it not for Vietnam, the
20th anniversary of the Employment Act would find us comfortably
contemplating the form and size of fiscal dividends needed to keep
us on the road to full employment, instead of wondering whether, even
if we are not exceeding the economy’s great and growing capacity, we
may be temporarily exceeding its speed limits*
Even in its demand-expansion aspects, the contribution of the 196166 fiscal experience to the objectives of the Employment Act is to be
counted not so much in advances in GNP, jobs, and incomes as it is in
the development and testing of new guides and approaches to policy:
The GNP or performance “ gap” and the associated estimates
of the economy’s potential and growth rate (concepts long fami­
liar to the Joint Economic Committee through the pioneering
work of its own staff), which have now7 passed the rugged test of
5 years’ use as benchmarks for policies to match demand with
capacities, culminating in the virtual closing of the gap as the
economy again reached a 4-percent level of unemployment last
The “ full-employment surplus” and the dynamics of “ fiscal
drag” and “ fiscal dividends” as aids in fiscal policy planning,
especially for the longer run.
The shift to “a continuous, rather than a cyclical, framev:ork''}
for economic policy (as the Council of Economic Advisers has
put it), relying heavily on discretionary fiscal actions rather than
built-in flexibility and focused chiefly on full use of a constantly
growing potential rather than on periodic battles against recession
and boosts to recovery.
Track 2 : Productivity and Cost-Price Stability
The 1964 tax cut, as the most dramatic expression of this new ap­
proach to policy, captured the public’s attention and imagination. Its
expansionary melody, quickly and easily learned, lingers on. But
the harmonics of economic policy for cost-price stability—a corequi­
site of sustained economic expansion—are more subtle and less readily
perceived. Yet they are no less important.
The discouraging pattern of recessions every 2 or 3 years has been
broken, not by a simple-minded devotion to demand stimulus, but by
a tight coupling of measures to boost demand with measures to boost
productivity and hold costs and prices in check—a combination de­
signed to harmonize the demands of full utilization of our economic
potential with the demands of high growth, cost-price stability, and
external payments equilibrium.
In seeking guidance for the future pursuit of Employment Act
objectives, one should give full weight to the central role of fiscal
policy in generating the sizable and sustained productivity advances
of the past 5 years—advances that in large part reconcile the rising


th e


income claims of business and labor with stable, or even falling, unit
costs of output. Moderation in wages and prices becomes more bear­
able when higher productivity, bigger volume, and lower taxes keep
take-home pay and profits rising merrily.
The search for ways and means to build a firm base of price-cost
stability for expansion began long before massive tax stimulants to
demand were proposed. A first line of defense against inflation was
provided by the legacy of price stability that grew out of the restric­
tive monetary-fiscal policies, economic slack, and high unemployment
that ushered in the 1960’s. But the hard task was to maintain that
stability while taking up the slack and restoring full employment. To
accomplish it, the following major steps were taken to speed up
productivity gains and forestall a resumption of the price-wage spiral.
Manpower measures were initiated early in 1961 as the fore­
runners of a long line of Federal investments in human beings
designed to increase their knowledge and skills, their mobility and
The monetary “twist,” also introduced early in 1961, held down
the cost of long-term funds for investment in new and more
efficient plant and equipment.
The wage-price guideposts, introduced in January 1962, sought
to induce noninflationary wage and price behavior among unions
and businesses exercising substantial market power.
Probably most important of all were the nearly $3 billion of
tax stimulants to investment put into effect in 1962 (on the basis
of Presidential recommendations made in April 1961).
The combination of tax credits, more liberal depreciation, and
cuts in corporate tax rates in the 1962-65 period played a key
role in increasing the ability of businesses to finance new invest­
ment and their willingness to take risks.
That these measures met their mark is confirmed by the unmatched
record of price and cost stability in 1961-65:
A rise of only 1.3 percent a year in consumer prices from 1960 to
1965 and of wholesale prices by only 2 percent for the whole 5
years is, as we know, a record no other industrial nation can match.
The record on unit labor costs shows that—
From 1960 to 1965, average unit labor costs in the private econ­
omy grew by only 0.6 percent a year, in contrast with an average
increase of 2.1 percent a year from 1953 to 1957 and 1.4 percent
between 1957 and 1960;
In manufacturing, unit labor costs actually fell between 1960
and 1965 as output per man-hour rose by an average of 4 percent
and hourly compensation rose only 3.6 percent. This decline con­
tinued in 1965.
The growth in average weekly spendable earnings in manufacturing
(worker with three dependents) was—
13.1 percent in constant prices and 20.5 percent in current prices
in the 5 years between 1960 and 1965, as against
3.9 percent in constant prices and 14.8 percent in current prices
between 1955 and 1960.
In drawing constructive lessons from this 5-year experience with
double-track fiscal policy—one track directed toward higher produc­
tion and demand, the other toward higher productivity and cost-price



stability—we now have to contend with the critics who are wringing,
or rubbing, their hands at the prospect of inflation. Some imply that
if the economic pressures of Vietnam were now to knock our expansion
a little off balance, it would discredit the policy experience of the en­
tire 1961-66 period. Lest they forget, as they now say “I told you
so”—they first told us so nearly 5 years and $200 billion of GNP ago,
nearly 7 million jobs and $20 billion of corporate profits (after taxes)
And yet, yesterday’s milestones don’t solve today’s problems. And
we do have problems. We can’t be quite certain what they are: In­
flation? Another jolt to the budget from Vietnam ? Readjustment
problems when Vietnam mercifully ends? But each of them poses
tough tests for fiscal policy.
The one uppermost in our minds as we meet today is the vexing and
perplexing problem of inflation. Of course, if Vietnam drops another
budgetary shoe, the fiscal fog would clear in a hurry, to use a mixed
metaphor. “If the necessities of Vietnam require it,” President John­
son said in his State of the Union Message, “I will not hesitate to re­
turn to the Congress for additional appropriations and additional
revenues.” And it seems likely that a nation which has accepted the
idea of tax cuts to overcome slack, to close a “deflationary gap,” would
understand tax increases to cool off an overheating economy, close an
“inflationary gap” growing out of Vietnam. (The echoes of World
War II and Korean economics in that phrase remind us that Key­
nesian fiscal policy is no newcomer to the firing line in Washington.)
But the President has also pledged that “if it should turn out that
additional insurance [against inflation] is needed, then I am convinced
that we should levy higher taxes rather than accept inflation—which
is the most unjust and capricious form of taxation.” Today, we face
the question of whether more insurance is needed: is there already
enough steam in the boiler to call for further restrictive measures, or
do the disquieting price and inventory figures of the moment reflect
only a flurry of inflation that will soon subside without additional
action ?
This is a 20th anniversary where we should think lofty longrun
thoughts. But what is more central to the longrun fate of economic
policy under the Employment Act than the question whether—in the
treasured but, treacherous territory of full employment— we can meet
and beat inflation? Coming face to face with this question is the
standard penalty for success in expansionary policy. If we can man­
age full prosperity without inflation—or, more realistically, without
a price-wage spiral—we will have reached a goal that has hitherto
eluded not only the United States but all of its industrial partners
in the free world.
in f l a t io n

: a clear a n d present d an g er ?

Having entered the promised land of relatively full employment
and production—indeed, the unemployment rate has entered the anni­
versary spirit by reaching that elusive 4 percent figure—we must con­
sider how close we are to the “maximums” of the Employment Act.
We must consider not only the costs of too little, but the dangers of
too much—



On one hand, one does not have to be either a Pollyanna or an
ostrich to believe that if Vietnam costs level out as now scheduled,
we may be able to “ ride this one out”—to the benefit of our em­
ployment and production goals—without getting into an infla­
tionary spiral.
On the other hand, one need not be a Cassandra to be disturbed
by the disquieting signs that the economy—years after the critics’
cries of “ wolf” were first heard, and only under the forced draft
of Vietnam—may now be heating up, and that we should now be
“ trimming sail.”

Riding it out
In weighing the costs against the benefits of further restrictive steps,
one must consider the risks of stunting the growth of our 5-year ex­
pansion before it has reached full maturity. True, unemployment
has reached the 4 percent interim target; but we have always under­
scored “ interim.” And given the young men who are in the Armed
Services, Job Corps, and Neighborhood Youth Corps, and given the
rising quality and mobility of our labor force, we should certainly
not settle for 4 percent. Also, we should remember that the Phillips
curve, describing roughly the trade-off between jobs and inflation,
describes a continuous phenomenon. We do not suddenly reach a
point beyond which we clearly must not pass—and before which we
clearly must not stop.
What is the evidence supporting a ride-it-out approach to policy?
As the Council of Economic Advisers has so effectively brought out
in its 1966 report, conscious Government policy for cost-price stabil­
ity—coupled with more effective private policies of inventory and cost
control, less speculation, better matching of plant capacity to markets,
and more moderation in wage-price policies than we have experienced
in any previous expansion in our history—have not only prolonged
expansion but built strong defenses against runaway inflation.
Productivity, unit cost, and profit margins all continue at healthy
levels, according to the latest available measures. In manufacturing,
in particular, unit labor costs remain remarkably stable.
To the extent that some of the present flurry of price rises reflect
the higher costs of marginal increments to output, it is largely a one­
time adjustment. Markups to squeeze out a bit more profit or to
cover a higher level of materials costs may be o f the same character.
To convert this type of price increment into a cumulative price-wage
spiral requires confirmation, so to speak, from the wage side; yet, few
bargains of nationwide significance are in the works this year; and
by 1967, when bargaining is again in high season, some of the upward
pressures should have relented.
Furthermore, as to the price increases that are already behind us, we
must remember that wholesale price increases to date consist in large
part o f advances in food, nonferrous metals, and other prices which
are not very responsive to restrictive tax and monetary measures. And
export prices have thus far been little affected.
Recent and projected increases in Federal purchases and business
investment suggest that we are going through a spurt which may level
off or even recede within 6 to 18 months, a period during which large
additions to the labor force and plant capacity will be coming on



stream. As table 1 shows (p. 47), the automatic growth of Federal
revenues would, at fiscal 1967 levels of Vietnam and other budget pro­
grams, generate a high-employment surplus of some $6 billion by fiscal
1968 (thus belying, by the way, the fears of those who, forgetting their
fiscal dynamics, condemn the President’s fiscal program as a “ one-shot”
affair). And at present, the full bite of our restrictive monetary-fiscal
measures has not yet been felt, in that—
The December discount rate increase has largely worked its
way through bank loan rates, but its full force is still to be felt in
the capital markets;
The January payroll tax increases have not yet had their full
impact—one recalls the first couple of months of delayed reaction
to the 1964 tax cut;
The force of the excise tax restorations and graduated individ­
ual income tax withholding is still ahead of us;
The same is true of the acceleration of corporate tax payments
and the stepped-up sales of Government credit instruments, meas­
ures which are fiscal in form but monetary in effect (and which
have thus put the hyphen back in monetary-fiscal).

Trimming sail
As these remarks suggest, we have thus far been remarkably well ad­
justed to the high-employment economy we have reached, and we have
important protections against inflation. Yet, in the face of the in­
escapable price pressures of the past few months, the growing psy­
chological shift from a buyers’ to a sellers’ market, and the prospects
for a continuing surge of investment demands—let alone the pos­
sibility of a further escalation of the economic demands of Vietnam—
one must hear the case for taking additional fiscal or monetary steps
What's at stake if we err on the side of too much expansionary force
is not only the well-known inequity of inflation and the deterioration
of our balance-of-payments position if cumulative inflation takes hold,
but also the fact that our attempts to stay on the track of full employ­
ment and high growth may be derailed when corrective—rather than
preventive—steps must finally be taken.
What’s at stake may also be the freedom of decision in both pricing
and wage bargaining. I f inflation were to get away from us, fiscalmonetary measures might be forced to yield to direct controls. The
inefficiency and inequities of such a step would be a huge price to pay
for “ too little and too late” on the fiscal-monetary side. As revealed
by various public opinion polls, the American people are willing to
tolerate some inflation as the price of prosperity, but not much—they
are distressingly ready to invoke price controls when they see the cost
of living on the rise.
Finally, what’s at stake may even include the growing confidence
and belief in positive economic policy. I f both expansion and faith
in expansionary policy fell victim to inflation, it would be another
incalculable cost.
What is the evidence supporting a “ trim some sail” approach to
policy ?
Investment in 1965, for the first time in nearly a decade, equaled
high employment private saving. Still rising sharply in 1966, invest­



ment now threatens to exceed high employment saving and exert in­
flationary pressure.
I f the limited data now available portend an inventory boom, we
are inviting trouble for the future—an inventory-boom economy is a
recession-prone economy.
The projection of Government, consumer, and investment demands
in the near future, according to present best estimates, is strong enough
to withstand restrictive fiscal and monetary action without under­
cutting our full employment momentum, at least through 1966.
The stability we continued to enjoy as unemployment dropped to 4
percent may be a poor predictor of what happens next. Unemploy­
ment will fall further, and we can only guess at how sharply our infla­
tion tradeoff rises from here.
Before we need fear a full-blown cumulative inflation, price mark­
ups need validation from excessive wage increase. Yet, something
less may still be too much. We must recognize how little we know about
the dynamics o f inflation and how roughly we must estimate the price
consequences of alternative states of demand in 1966.

The foregoing balance sheet on inflation makes one thing crystal
clear: that we should keep our policy powder bone dry and lose no
time in perfecting our contingency planning. I f today’s uncertainties
.resolve themselves in favor of trimming more sail, what principles
should guide our fiscal-monetary moves, and what measures should
I we employ? In considering that question, we focus on today-s
economy, but our basic perspective is the more general one of policies
for high-pressure prosperity.
Perhaps we should spend a moment on the point o f departure for
such policy today. In fiscal policy, our foot is off the accelerator and
is poised over the brake. The package of excise tax reversals, corpo­
rate tax speedups, and graduated withholding now moving through
Congress signals this change. I doubt that economics can tell as
precisely whether fiscal policy today is still a little expansionary, has
shifted into neutral, or is going a tit restrictive:
Our best single measure, the full-employment surplus, suggests
that we are shifting into neutral, that we are roughly striking t
high-employment budget balance on national income account
(after having run a surplus in the first half of 1965 and a con­
siderable deficit in the second).
A reading of the cash budget suggests restriction—indeed, the
SlT^-billion increase in cash revenues from fiscal 1966 to fiscal
1967 will be the biggest single-year jump in history.
But if we look at the rising tide of obligationdl authority—
nearly a $20-billion jump from fiscal 1965 to fiscal 1966—and the
accompanying spurt in contract-letting, we find some support for
the thesis that our budgetary impact is still expansionary.
In any event, the question is not so much whether we are at, a little
above, or a little below neutral in budget policy. The question is
whether further restrictive action is needed. Only the current and
prospective perform ance^ the economy—based on changing private
demands as well as changing fiscal impacts—can tell us that.



As for monetary policy, our foot is already on the brake. During
most of the expansion, monetary policy played a largely permissive
role. Constrained by the balance-of-payments problem, it nonethe­
less served the cause of expansion by meeting the growing credit needs
of the economy at no more than gently rising long-term borrowing
costs. Given the strong fiscal measures for demand expansion and
investment stimulus, these higher costs did not materially impair the
pursuit of domestic objectives. In December, as domestic demands
began to change, the Federal Reserve slipped out of the harness of
monetary-fiscal coordination and touched off a wave of interest rate in­
creases, for both buyers and sellers of money, that must be surprising
even to those who initiated the move.
Planning of further restrictive moves must be attuned to an eco­
nomic environment of uncertainty and change and to the demands
of a high-tension economy with slack in its future. Choices between
fiscal and monetary approaches and among specific courses of action
should be governed not only by the well-understood principles of
equity and efficient resource allocation but by considerations of flexi­
bility, speed, selectivity, and linkage between present and future.

Flexibility and speed
Flexibility of mind, approach, and program are vital to the Employ­
ment Act’s success in a world of change and uncertainty. This re­
quires willingness to shift or reverse gears, both in the basic direction
of policy and in its fiscal-monetary, tax-expenditure, consumptioninvestment and domestic-international emphasis. Doctrinaire adher­
ence to consumption stimulus in the past 5 years would have poorly
served our objectives of high growth, price stability, and international
competitiveness. Doctrinaire adherence to investment stimulus today
would poorly serve our current needs for price stability and our future
needs for full employment, as I shall show in a moment.
Flexibility of program calls for readiness to move taxes up as in­
flation pressures mount, and down as demand ebbs, to tighten or loosen
money as needed, or to shift between monetary and fiscal, general and
selective measures in response to changes in the structure of our eco­
nomic problem. And it calls for speed.
I would like to devote a moment to both of these.
The interlocking requirements of flexibility and speed often point
to monetary policy as the first line of defense. Habits of mind, ready­
made procedures, limited choices, and fairly general agreement on the
form of action once its direction is determined, all give monetary
policy a decided edge over fiscal policy in speed of action. To narrow
the gap calls for further change in our fiscal thinking and practice,
especially in taxation:
Habits of mind.—Tax cuts one year to remove slack should not bar
temporary tax boosts the next to remove unexpected tension created
by a Vietnam. This year’s excise tax reversals are a good beginning.
Limits on choices and agreement on form .—President Johnson’s call
for “ background studies by both the Congress and executive branch
* * * to permit quick decisions and prompt action to accommodate
short-run cyclical changes” would serve this end. In today’s circum­
stances, one should lose no time in hammering out the general contours
o f a temporary Vietnam add-on or surtax on our income taxes, for
60-074— 66------- 4



use as needed. Here, one has to strike a balance between speed and
adaptability. Both would be served by prior agreement on use of
individual and corporate income taxes and on a choice between per­
centage surtaxes and percentage-point add-ons. But unless agreement
were followed by verv early action, precise agreement on rates might
serve the interests of speed at the cost of adaptability to changing
circumstances. For example, if at a given time, investment is excessive,
profits are rising fast, and we have no excess profits tax (and, like
wage and price controls, it is so clumsy and inefficient, that it should be
used only as a last resort), we will want to raise corporate rates more
and individual rates less than under the reverse circumstances.
Streamlined 'procedures.—The need to keep open some options in a
“ precooked” tax package for the reasons just cited suggests that we
should not give up the search for shortcuts in tax procedures that are
consistent with the congressional prerogative in revenue matters. Per­
haps presidential deadlines can meet the need for speed—last year’s
speedy excise cuts and the rapid progress of this year’s tax package are
impressive cases in point. But recession and inflation don’t w
*ait. If
ways and means could be found to cut months to weeks or weeks to days
in the congressional taxing process in emergencies, the cause of stability
under the Employment Act would be well served.
High-speed income tax legislation, quickly translated into changes
in withholding and quarterly payment rates, would give the Federal
Reserve a run for the money in timely stabilization policy. Changes
in tax rates still would not be made quite as quickly as changes in dis­
count rates or reserve targets. But with the direct and swift effect of
tax rates on the income stream, compared with the slower workings of
monetary changes through interest rates and asset changes, fiscal policy
would have a fast-cutting edge.

Under this heading, let me make—and illustrate—just two points:
First, the differing selective effects of general measures should
be given full weight in making decisions on the use of such
Second, selective measures like investment credits and install­
ment credit curbs may be useful adjuncts to stabilization policy
under the Employment Act.
The current investment boom provides illustrations on both counts.
Just as new investment was the object of our fiscal affections as a source
of growth and cost stability in the past 5 years, it is becoming a candi­
date for our temporary disaffection as a source of inflationary pressure
today and possible overcapacity tomorrow. On one hand, each suc­
cessive revision of plant and equipment spending plans for 1966 sug­
gests a bigger capital boom, with resulting inflationary pressures. On
the other, our current level of investment is generating capacity in­
creases at a 7-percent annual rate—welcome muscle for a Vietnam
economy, but an unsustainable source of excess capacity under normal
growth conditions. So measures which selectively dampen investment
today and postpone it to a post-Vietnam tomorrow make good eco­
nomic sense.
In this setting, the selective impact of generally tighter money on
investment is not unwelcome. And temporary suspension of the in-



vestment credit would have a good deal of economic appeal on this
score. Administrative and political difficulties aside, partial suspen­
sion (not repeal) of the investment credit—possibly by temporarily
denying it to increases in investment—would usefully serve the dual
stabilization interest in investment that is “ gone today and here
Linking the 'present and future
Part of my point under this heading has just been made: the ideal
policy to use in a high-pressure economy is one that transfers demand
to a later, lower pressure economy. On this count, measures that reduce
the return on investment now, with a clear promise to increase it later,
are especially effective. As just noted, partially suspending the 7percent investment credit, with an ironclad guarantee to restore it,
deserves consideration in any program of added restriction.
Any income or excise tax increases considered in the current setting
should also be transparently temporary, both to provide the greatest
possible incentive for postponing expenditures to a happier day of
lower taxes and, more important, to provide a ready source of demand
expansion when Vietnam ends. Making an income tax increase re­
fundable, though not a resounding success in World War II, deserves
reconsideration under today’s changed circumstances.
Especially against the background of already tighter money, fiscafs
measures have a decided edge as means of coupling a cut in demand
today with a convincing promise of expanding it tomorrow. With the
increasing impact of our interest rates on those abroad, we may find
a growing ratchet effect in our interest rates and monetary policy:
what goes up may not come down so easily later in the face of high
overseas rates that would threaten to siphon funds out of this country.
So the longer run expectations effect of tight money today may not
be as strong an incentive to postponement of capital expenditures
as in the past.
Shortrun expectations effects in monetary policy also deserve at­
tention. The amount of anticipatory borrowing in recent weeks
strongly suggests that higher interest rates are still expected. What
wo need to do to stop this is quickly to get our rates, especially our
long-term rates, up as high as policy wants them to go, and then say so.
If, at the same time, short rates are high enough, the investor would
have little incentive to borrow short now and fund his debt later—he
would hesitate to lock himself in at high rates in the capital market
and would have no place to hide in the money market.
It is clear, then, that just as a number of the economic policies in­
troduced in 1961-62 were aimed, not so much at the problems of the
moment as at the more distant full-employment horizon, so our policies
today must keep the post-Vietnam horizon constantly in view.

While today’s economic planning is necessarily conducted with an
eye on the speedometer and one foot on the brake, we should also look
beyond the present period of rising defense needs and ask what choices
we must prepare for in the future.



To visualize these choices, suppose the war in Vietnam ends and
defense spending drops $10 billion by fiscal 1969 (to its fiscal 1965
level). This would parallel our post-Korean experience in that de­
fense spending declined from $50.4 billion in fiscal 1953 to $40.7 billion
in fiscal 1955. In this case, if we look only to the “ automatic” fiscal
changes that would occur—including the excise tax cut postponed
from this year and next and expected increases in person transfers
and interest costs, but not including other increases in nondefense
spending that will surely occur but whose magnitude we cannot now
predict—our high-employment surplus would rise to $22 billion by
fiscal 1969 and $30 billion by fiscal 1970, as table 1 shows. This would be
an enormous fiscal feast to portion out before it ended our prosperity
and seemed to make sages of those who would have the world believe
that our economy is now kept running only by war.
Even if defense spending were to level off at its fiscal 1967 rate,
table 1 shows a potential fiscal drag of some $12 billion developing
by fiscal 1969, and some $20 billion by fiscal 1970. We would be fight­
ing a war abroad and still have to take deliberately expansionary
fiscal steps to maintain the health of our economy at home. I f we
did not, having shown we can have both guns and butter in 1966,
we could find ourselves risking both war and recession in 1968. Our
great strength is that our economy is capable of so much. Our weak­
ness would be a failure to use it.
As Vietnam relents, and the fiscal harvest of economic growth again
becomes available for other purposes, how best can we deploy it to
serve the objectives of the Employment Act?
First claim, if money were sharply eased, and private investment
demand were strong, would be to hold some of the revenues as a highemployment surplus for debt retirement. But if money rates prove
to be stubborn, or if business investment and housing demands—with
or without easy money—do not rise to the occasion, rough balance in
the high-employment budget might be the appropriate target. How,
then, would we apportion our projected $20 billion or so of fiscal
dividends so that they would not turn into fiscal drag ?
Each of the claims on our fiscal dividends that has been honored in
recent years will surely have a share in any future apportionment as
well. We will see expanded Federal spending programs, tax re­
duction, and enlarged grants-in-aid. Yet, with substantial progress
toward some goals already achieved and advances toward others
barely begun, our priorities will now be different.
As table 2 shows, we have taken $48 billion of net expansionary
actions (at annual rates) in the past 5 years, representing—
A reduction of $14 billion in the high-employment surplus;
An absorption o f $34 billion of high-employment revenue
growth (at constant effective tax rates).
Major forms of fiscal dividends were—
Tax reductions o f $19 billion (less $3 billion of payroll tax
Increases in domestic nondefense purchases of $3 billion (not
including $5 billion for space) and in transfer payments of $9
A $5 billion increase in grants-in-aid.



In the current period, as shown in the second column of table 2,
we are veering sharply from civilian to defense spending, and from
income tax cuts to payroll tax increases (to finance transfer payment
T a b l e 1 .— F u tu re high-em ployment surplus under alternative defense
assumption # 1
[In billions of dollars]
Fiscal years

Drop in defense spending *.................................
Leveling-off in defense spending 3___ ________
Increase in defense spending *_ __ ............ .




+ 12

+ 30
+ 20
+ 10

t These estimates are necessarily approximate and rounded. All figures are on the national income ac­
counts basis. Excise taxes are assumed reduced according to the present administration proposals. Ex­
cept for the expected increase in personal transfers from the social insurance trust funds, total nondefense
expenditures are maintained at the sccond half of fiscal year 1967 level.
2 Accepts present budget estimates for fiscal year 1967. Over the following 2 fiscal years, defense spending
is assumed to decline by $10 billion—a decline corresponding to that following the Korean war; this brings
defense spending in fiscal year 1969 back to the fiscal year 1965 level.
3 Accepts present budget estimates for fiscal year 1967. Afterward, defense spending is assumed to level
off at the rate indicated for the second half of fiscal year 1967.
* Assumes defense needs grow from present estimates, raising defense spending estimates for fiscal year
1967 by $5 billion, for fiscal year 1968 by $5 billion more, and leveling off thereafter.

T a b l e 2 . — Factors changing the high-em ployment su rp lu s1

[In billions of dollars]
2d half 1960 to 2d half 1965 to
2d half 1965 1st half 1967
High-employment revenue growth (at constant tax rates)_________________
Payroll tax changes___ _______ ____
_____ ______ ______
Defense purchases_______________________ _ __ ____ *_________ ______
Space program purchases__________________________ __________
Domestic nondefense purchases___________________________ _____ ___ ___
-_, ____________ ________-____ ____ ____________ ____
Personal transfers
Interest and subsidy payments
. .
________ _________
Indirect business tax changes_______________________
. ___________
Corporate tax changes___- __________________ _______ _____ _____ ____ *
Personal income tax changes_____ ________ ___________ ________________
Net change in hlgh-employment surplus..................... ..........................





i Estimates are approximate and rounded. All figures are on the national income accounts basis.
Spending increases and tax reductions appear with a minus sign as they reduce the high employment surplus.

Against this background, what are the major claims on the fiscal
dividends in our future ?
Expenditures.—Important domestic spending programs must ex­
pand if they are to fulfill their promise in the design of the Great
Society. After being given second billing to tax reduction in the
first half of the decade and to Vietnam spending needs in the imme­
diate future, nondefense expenditure increases should be a more im­
portant factor after Vietnam subsides.
Tax cuts.— Something of a consensus seems to be developing, as it
should, that top priority in longer term tax reduction belongs to the
lower income groups. I say this against a background of recent tax
changes which have increased our reliance on payroll taxes and Statelocal property and excise taxes relative to income taxes.



Fiscal support for the States.—Additional support for hard-pressed
States and localities—through continued growth in Federal aids, per­
haps a new system of Federal tax credits for State income taxes,
direct revenue sharing, or other plans as yet unnamed—also have a
high-priority claim on our latent surpluses of the future.

As the Joint Economic Committee and the Congress face their
continuing commitment under the Employment Act—especially the
intensified problems growing out of Vietnam today and the transition
to peace tomorrow—they have a broad base to build on :
Twenty years of increasingly successful experience in carry­
ing out “ the spirit as well as the letter” of the Employment A ct;
Increasing agreement on basic strategy on fiscal monetary pol­
icy while still allowing for enough controversy and dissent on
tactics to satisfy even James McGregor Bum s;
Finally, and most important, a wider public understanding of,
and a deeper Presidential commitment to the mandate of the
Employment Act and the policies required to carry it out than we
have ever known before. [Applause.]
Dr. E nsley. Thank you very much, Professor Heller.
The second speaker on this luncheon session discussion of fiscal and
monetary policies as they are used to further Employment Act objec­
tives is Dr. Raymond J. Saulnier, who was a member of the Council
of Economic Advisers in 1955 and Chairman of the Council from
1956 to 1961.
Dr. Saulnier. [Applause.]

U sing F iscal


Monetary P olicy To F urther E mployment A ct
O bjectives

Dr. Saulnier. Thank you, Mr. Chairman. Mr. Patman and mem­
bers of the Joint Economic Committee, ladies and gentlemen. The
innocent bystanders of the world are subject to all kinds of risks, of
which inflation is one. My most recent encounter with this has been
my friend Walter Heller’s estimates of the amount of time that it was
going to take him to read his paper, which went from 25 to 30 to 35
But, Walter, it was a very good paper. I liked it, and I choose
to call your estimates a case of expansion and not inflation. [A p­
Walter and I have had a kind of side agreement on the subject
of these remarks. He has undertaken to talk primarily about fiscal
policy, and I thought I would say a few words about monetary policy.
I can’t say that this is exactly the program arrangement that would
be most exciting. But there is some sense to it. I really cannot think
of anybody who has been treated more generously by fiscal policy
than my friend Walter; and, if I may say so, I can’t think of anybody
who was tormented by monetary policy more than I was.



As I put my remarks together and got to thinking about a title, it
occurred to me that I might call it “A Few Kind Words for Monetary
Policy.” But as I got to working on it I changed my ideas about the
title, and thought I would call it “ The Dangers of Asking Monetary
Policy To Do More Than Its Own Work.” But in the end I have done
the decent thing, and have called it exactly what Grover Ensley has
insisted that I call it—not insisted but suggested, in his nice way—
“ Using Monetary Policy To Further Employment Act Objectives.”
What is most intriguing about the problems of economic policy is
that they are always changing. There was one set in the second half
of the 1950’s and another, very different, set in the first half of the
1960’s. Now, as we enter the second half of the 1960’s, and the third
decade of experience under the Employment Act, the economic prob­
lems have changed again, and very drastically. The change took place,
I would say, about midway in 1965; and because I believe that eco­
nomic policy has not yet adapted itself adequately to the new condi­
tions, most of what I have to say in these remarks will be about the
current position and outlook of the economy and their implications for
economic policy. But I should first like to comment briefly on the two
earlier periods. The central point of my remarks is that although we
must be willing to use monetary policy freely and flexibly to help
achieve the goals of the Employment Act, we must not ask it to do
more than its own fair share of that work. The three periods I have
identified illustrate three different aspects of this problem.
The second half of the fifties:
Monetary policy and the problem of cost inflations
In the second half of the 1950’s, the principal problems of economic
policy were threefold: First, to help eliminate cost inflation; second,
to stabilize the price level and to eliminate an inflation psychology that
gripped the economy; and, third, to correct the imbalance in interna­
tional payments that emerged in the closing years of the decade.
In many ways it was cost inflation that presented the greatest dif­
ficulty* There were demand factors in the upward movement of prices
that began in 1955, but a pervasive and powerful factor in it was the
inflation of labor costs, traceable to increases in cost per unit of labor
employed that seriously outran the rate at which productivity was be­
ing improved. There is concern today, and properly so, about average
labor cost increases just over 4 percent a year. But the problem was
much more acute in the second half of the 1950's. Believe it or not,
in 1956-57 total compensation per man-hour in the U.S. private econ­
omy was rising 6 percent a year, more than twice as fast as productiv­
ity was being increased. Reflecting this imbalance, labor costs per
unit of output in U.S. manufacturing were 15 to 20 percent higher in
1958 than at the beginning of the decade.
It would have been a grave mistake, of course, for economic policy
to have ignored this inflation of costs, and the inflation of prices which
(with some lag) went along with it. Indeed, had that mistake been
made, our fine country would still be suffering from it. There was
no option but to use monetary policy—and fiscal policy, too, for that
matter—to help bring about the needed correction. And using mone­
tary and fiscal policy to this end—jointly with moral suasion directed
to the leadership of labor and industry and with another component



of policy all too often ignored, namely, patience—the corrective proc­
ess was completed. By 1960, annual increases in total compensation
per man-hour had fallen to SV percent a year, at which level they
were broadly in line with the rate of productivity improvement.
Price stability soon followed. By mid-1959 the wholesale price in­
dex was stable and the rate of increase of consumer prices had been
reduced by about two-thirds. By 1960, both cost and price stabiliza­
tion had been achieved and the basis had been laid for the use of
monetary and fiscal policies in their positive and stimulative roles.
There is a point of view—though it carries a good deal less weight
nowadays than it did a few years ago—that to ask monetary policy
to help achieve a better balance between labor cost increases and
productivity improvement is to ask monetary policy to do more than
its fair share of the work of economic stabilization. But once cost
inflation has taken hold in an economy, certainly once it begins to re­
flect itself in price inflation, there is no option but to turn monetary
policy to this task, distasteful as it is. And the same is true of fiscal
policy. In this connection, I was interested to note that in the recent
report of the Council of Economic Advisers it was stated, and cor­
rectly so, that the reemergence of cost inflation would require that
monetary and fiscal policy be used in this negative and restrictive
capacity. I f there is any doubt about that necessity, its inevitability
can be illustrated by what has been happening in every economy of
Western Europe these past few years. There, one government after
another has been forced to turn to what are nowadays called “ stabili­
zation programs,” which consist primarily of monetary and fiscal
restraint, to help correct cost and price inflation that became plainly
A major part of the dialog over economic policy in recent years, in
Europe as well as in the United States, has consisted of a search for
some means of escape from the necessity of using monetary and fiscal
policy in their negative and restrictive capacities to help correct cost
inflation. To some, an alternative has seemed to be some species of
direct control, of which the numerical guidelines that have developed
in the United States are a mild illustration and of which the “ income
policies” o f Western European economies are more fully fledged exam­
ples. But the trouble with these solutions is that, if monetary and
fiscal policies prevent the economy from getting overheated, “ guide­
lines” or “ income policies” are unnecessary; on the other hand, if
monetary and fiscal policies overheat the economy, they are unwork­
able. Bearing this out, every country of Western Europe, no matter
how willing and well-positioned it may have been for exercising direct
controls over its economy, has found it necessary in the end to reverse
monetary and fiscal expansionism in order to bring cost and price
inflation under control.
Monetary and fiscal policy made it possible for the cost inflation
problem to be solved in the United States in the second half of the
1950? without recourse to direct controls. This was in the spirit of
the Employment Act, which directs us to seek solutions to national
economic problems in ways that will preserve and strengthen our free
institutions, not weaken them. The problem, however, is that when
cost inflation has been allowed to develop, monetary policy can be used



to help reestablish a balance between cost increases and productivity
improvement only at the expense of a retardation of economic growth.
This was pointed out in every Economic Report issued during the costinflation period of the 1950’s. It is part of the warning issued in the
January 1966 Economic Report, to which I referred earlier. And it
has been demonstrated time and again by recent developments in
Western Europe where, without exception, stabilization programs have
slowed growth as part of the task of reestablishing a better balance
between cost increases and productivity improvement.
But this is not a satisfactory solution. What we must find is a
solution that is both consistent with the maintenance of free institu­
tions and will not retard growth, even temporarily. Part of this solu­
tion must be a heightened sense of responsibility on the part of those
who have at their disposal the exercise of discretionary market power.
Part of it must be a strengthening of the competitive quality in mar­
kets. And part of it must be to avoid the overheating of the economy
that invites cost inflation in the first place.
Along with the task of designing selective measures to help eliminate
residual unemployment in a high employment economy, a problem to
which I shall turn in a moment, how to avoid cost inflation is one
of two top items of unfinished business as we enter the third decade
of experience under the Employment Act.
The first half of the sixties:
Monetary policy and the problem of residual unemployment
In the 1960? until recently, with a good relationship established
between labor cost increases and productivity improvement, the eco­
nomic policy problem has been very diiferent. During this period,
it has been possible to use monetary policy aggressively in its expan­
sionist role to help accelerate the rate of economic growth. Fiscal
policy is typically credited with having been the major, if not the sole,
expansionary force, but the fact is that monetary policy has been
used to the hilt in this capacity.
Thus, annual increases in commercial bank loans to business have
averaged just under 10 percent a year in the past 5 years. Annual
increases in consumer credit have averaged 9 percent. Despite a
relatively modest level of housing starts, increases in home mortgage
credit have averaged 8*4 percent a year; and other types of mortgage
credit have increased twice as fast. It is impossible to disentangle
the separate effects o f monetary and fiscal expansion in what is ac­
tually a joint result, but it is interesting to contrast the increase of
private debt—the part of total debt most directly influenced by mone­
tary policy—with the increase in public debt. In the past 5 years,
private debt has risen twice as fast as public debt.
Naturally, this expansion of credit has left- its mark on the money
supply. Construed narrowly, that is, defined as consisting of cur­
rency and the demand deposits of commercial banks, money supply in­
creased percentagewise four times as fast in the 5 years, 1961-65, as
in the preceding 5 years. Construed broadly, that is, defined to
include time deposits as well as demand deposits of commercial banks,
along with currency, money supply increased three times as fast per­
centagewise in the 5 years, 1961-65, as in the preceding 5 years.



To be sure, monetary policy launched no bold, headline-winning ex­
pansionary initiatives in this period; but it worked exceedingly hard.
In its essentially unspectacular, almost subterranean manner, with its
results recorded in numbers that even the experts find it not too easy
to read, monetary policy has been plugging away since 1960 as a
powerfully expansionary force in the economy. And quite in con­
trast to its flashier comrade in arms, fiscal policy, with its grand ges­
tures of large tax cuts and expenditure increases, monetary policy has
been getting precious little recognition in the process.
But lest these remarks be interpreted as suggesting that what we
have here is a contest in which top prize should go to the arm of policy
that somehow manages to be most powerfully expansionist, let me
hasten to add that there is such a thing as excessive expansionism.
And it is precisely the danger of excessive expansionism that we face
at this time.
How we have come to this point is easy enough to understand. We
have come to it because monetary and fiscal policies have been used
in a kind of “ double-barreled expansionism” to solve a problem of
residual unemployment which, as we reach full employment, should
be approached increasingly through selective measures of job training,
job counseling, and job placement. What is at issue here is not expan­
sionism ; what is at issue is the balance that should be struck, as specific
labor shortages develop, between expansionist and structuralist ap­
proaches to revsidual unemployment. To put it differently, the ques­
tion is not whether we should be waging war against the unemployment
that remains in a high-employment economy. Indeed, this is a war
we should be waging more vigorously than ever before. The question
is how to wage it with maximum impact on unemployment and with
minimum side effects in cost and price inflation. In short, the prob­
lem is how to eliminate residual unemployment without overheating
the whole economy.
It seems to me that the experience of the past few years underlines
the necessity of our being more ingenious and inventive in the devel­
opment and administration o f selective unemployment-reduction pro­
grams. In this connection, it would seem to me a good idea to
undertake a “ census of unemployment,” and to repeat it at least every
2 years. This would provide a "factual basis for the development and
administration of effective selective programs of job training, coun­
seling, and placement. Second, I wish the same support could be
developed in 1966 for a Businessmen’s Committee To Reduce Unem­
ployment as was developed in 1963 for a Businessmen’s Committee for
Tax Reduction. And, third, since I find myself in a mood today to
make suggestions for fiscal policy, I think we should be looking dili­
gently for a constructive way to use tax incentives to help eliminate
residual unemployment.
Happily, progress is being made in the development of selective pro­
grams for the reduction of residual unemployment; and for this we
can be grateful. Naturally, it will cost a good deal of money to do the
job effectively. But money should not be the limiting consideration.
The only limiting consideration should be government’s capacity to
make constructive use of funds in planning and carrying out the
needed programs.



I emphasize these matters in remarks on monetary policy because
monetary policy is of nece-ssity drawn into the process as blunt meas­
ures of aggregate-demand expansionism are relied on to do a job in
which selective measures of unemployment reduction should play a
much larger part. The risk of overworking monetary policy m this
capacity is, of course, the risk of overheating the entire economy./
And I believe that overheating is precisely the problem we face today/
This brings me to the present economic situation and to the outlook?
for 1966-67, and with that to the third type of situation in which, if
we are not careful, we will be asking monetary policy again to do
more than its fair share of the work of economic stabilization.
The 'period ahead:
Monetary policy and the problem of cooling off the economy
The crux of the problem we face today is that the closer we have
come to full utilization of our economic resources, the faster has been
the rate of increase of credit and of the money supply. Bank loans
to business rose 20 percent in 1965, compared with an average of 7
percent in the preceding 4 years. Consumer credit rose 12 percent,
compared with an average of 8 percent in the preceding 4 years. Total
private debt rose nearly 10 percent, still significantly faster than the
8V percent average increase of the preceding 4 years. The money
supply, narrowly construed, rose nearly 5 percent in 1965, compared
with 3 percent annually in 1961-64; broadly construed, the money
supply was up nearly 10 percent last year, in contrast to about 8Y
percent annually in the preceding 4 years.
And the rate of expansion of credit and money accelerated even
within 1965. Thus, the percentage increase of the money supply was
nearly three times as great in the last 6 months of the year as m the
first 6 months.
As we move into 1966 there is every indication that the pressure of
demand will mount. The rate of increase of personal income was ac­
celerating markedly as 1965 ended; there is no reason to expect it to
slow down. I f the volume of fixed investment expenditures by busi­
nesses runs ahead of projections in 1966, as may very well be the case,
they could increase at an even faster pace than in 1965. In any case,
we know that the order books of the machinery-producing industries
are distinctly heavier today—relative even to today’s very heavy ship­
ments—than they were a year ago. And the new order volume in these
industries is pointing sharply up. In view of what is happening to
prices, it would contradict everything we know from theory and ex­
perience if inventory accumulation failed to accelerate. Last week,
the wholesale price index was 3.8 percent higher than a year ago, ancl
its rate of increase has been accelerating in recent months. As recent
reports show, an acceleration of inventory accumulation is already
In the circumstances, not only is monetary restraint called for, but
fiscal restraint, too, yet it looks as if very little help is coming from
the latter. In the income and product accounts budget of the Federal
Government it is indicated that purchases of goods and services will
rise sharply in the first half of 1966. A $10 billion annual-rate-basis
increase is indicated between the second quarter of 1965 and the second
quarter of 1966. Currently, the economy is receiving a strong upward



thrust from this expenditure increase. The critical question is: What
will happen as the year develops, and as we move into 1967 % On this
point, budget projections tell us that the expenditures will be held
at roughly unchanged levels. That would be helpful, to be sure, but
how likely is it to happen ? No one, least of all no one outside Govern­
ment, can say with assurance which way Government spending will
move. We all devoutly hope that military spending can be reduced.
However, lacking a vigorous effort to prevent this from happening, the
trend of overall Federal expenditures suggests sizable increases for
as far ahead as we can see.
Hopefully, budget projections will prove to be correct. But even so,
there are two factors in the budget which give it more of an expansion­
ary impact than it appears to have.
First, there are the unusually large seigniorage profits. These are
officially estimated to total between $1y2 an(i
billion in the fiscal
years 1966 and 1967 combined. What this means is that budget ex­
penditures are, to this extent, being financed in a thoroughly infla­
tionary manner.
Second, there are the sales of federally held financial assets. These
have the effect of producing lower levels of expenditures and deficits
than would otherwise be reported in budgetary accounts. But they
do not affect the actual volume of spending and they do not reduce
the demands that the Federal Government places on the credit and
capital markets. The financial assets sold under this program have
to be marketed just as any new Federal debt has to be marketed; in
this sense they have the same impact as a Federal budgetary deficit.
They are, indeed, a kind of “ back-door deficit financing.” This could
be ignored if the amounts involved were small, but they are very large.
Indeed, sales of federally held financial assets are expected to reach
$3.4 billion in the current fiscal year and then to mount to $4.7 billion
in 1967.
Lacking new initiatives, it looks as though our earnest, hard-pressed
champion, monetary policy, is going to get precious little help in the
immediate situation from his gay companion, fiscal policy. And the
outlook for the longer run is not more reassuring. What help mone­
tary policy is getting in the 1966-67 budgets comes principally from
essentially nonrecurring factors, namely, from acceleration of income
tax collections. Even granted that life is just one nonrecurring in­
cident after another, one is troubled by the possibility that at some
point we may run out of such sources of budgetary assists and, worse
still, that we may run into a nonrecurring incident that will move the
budget in the wrong direction.
In short, monetary policy is being asked to carry a very heavy load
in this exceptional period, in which a war effort is being laid on top of
a boom. The question is whether it is prudent to ask monetary policy
to carry the full amount of this burden. I believe mjt. In making this
judgment, I have several technical points in mindf
First, interest rates are already at levels that are high by all U.S.
historical standards. It is one o f the most interesting and significant
features o f the first two decades of experience under the Employment
Act that, in that period, we had to complete a trip from the abnormally
low interest rate levels of 1946 back to the much higher levels prevail­
ing at the end of the 1920’s, the previous period of peacetime prosper­



ity. The entire trip, from 2y2 to W 2 percent, was made in less than
10 years, from 1952 to 1960, and it was not an easy trip, I can tell you.
Indeed, the path was enough to make the “ rocky road to Dublin” look
like the smoothest of paved highways. But it was an essential trip,
let there be no doubt about that. The question is: Where do we go
from here? Without meaning in the least to imply that there is any­
thing sacred about the existing level of interest rates—on the con­
trary, the worst mistake we could make would be to think that eco­
nomic balance requires interest rates to remain frozen at present levels—
I do want to say that the route past 4% percent takes us into
genuinely new interest rate territory and that we will be well advised
not to press the journey too rapidly. Above all, we should aim to move
smoothly and to avoid abrupt changes.
There are technical reasons both for expecting a trend to higher
rates and for striving to make the transition to them as smoothly as
possible. As for the trend, it seems to me that underlying economic
currents favor higher levels of interest rates and bond yields. First,
demand for capital is bound to swell in the years immediately ahead,
as the age distribution of our population shifts toward those who are
net borrowers rather than net savers.
Second, when we consider what could happen to Federal expendi­
tures in a nation engaged, as we are, in a large military effort, and in a
war against poverty on several continents overseas as well as here at
home, and when we consider that it is mainly nonrecurring items that
are being counted on in the fiscal 1967 budget, it looks as if, lacking
new initiatives from the side of fiscal policy, the basic budget position
of the Federal Government is moving further into deficit. This will
make the Federal Government a chronic net borrower in the years
ahead. As such, it will be contributing to the pressures making for
higher interest rates, not alleviating them.
Third, although I can’t be entirely sure of this, I expect the rate of
turnover of money will continue to increase in the years ahead, thus
continuing to limit the extent to which credit demands can be satisfied
by the creation of demand deposits. This means placing heavier reli­
ance on savings performed by other methods than the holding of in­
creased cash balances. It means correspondingly heavier upward
pressures on interest rates.
Fourth, the relatively low rate of growth of the money supply in
the second half of the 1950’s doubtless created a basis for more rapid
increases in the 1960’s. I expect, however, that this advantage has
by now been fully exploited. Again, this will throw us back on more
expensive ways of obtaining savings and will favor the drift to higher
levels of interest rates.
Fifth, the liquidity position of the commercial banking system has
reached the point where further large increases in bank credit out­
standing will require increasing recourse to relatively high-cost time
and savings deposits.
All of those circumstances, jointly with high and rising aggregate
demand, favor an upward trend of interest rates in the period ahead.
But it is not this trend that presents the problem. The problem is to
avoid breaking into new interest-rate ground too abruptly. Two
reasons for moving steadily and avoiding abrupt changes are especially
worth noting.



The first has to do with the ratio of total liquid assets to that part of
the total which we call money. One of the most important changes
that lias occurred in our economy since the writing of the Employment
Act has been the increase in this ratio. Since 1946, selected liquid
assets as a total have increased nearly three times as fast as the money
supply. Apart from what are obligations of the Federal Government,
these liquid assets are both the obligations and the lendable and investable resources of a variety of financial intermediaries. As such, they
are mainly invested in long-term assets. But those who hold the claims
as assets regard the funds which they represent as highly liquid and
readily available, that is, readily shiftable. They are readily shiftable.
But the point is that sudden shifts of such funds are potentially very
disturbing to financial markets and to the economy. Shifts can be
instigated by abrupt changes in bond yields and interest rates and the
shifting itself has the effect of carrying yields and rates to still higher
levels. The moral is, this is a process we had just better not get started.
The second technical reason for avoiding further large and abrupt
changes in bond yields and interest rates has to do with the stock
market. I think it goes without saying that the spread between yields
on debt securities and on equity stock is wide enough as things stand
without risking further large increases.
It happens that as this symposium is being held, the mood of finan­
cial markets is unusually sensitive. There is wide recognition of the
need to cool off the economy a bit, certainly to avoid any further heat­
ing up. But there is concern, too, that to ask monetary policy to do
this singlehandedly would escalate interest rates so far and so abruptly
as to risk serious financial disturbances. One is therefore justified in
asking what fiscal policy has to offer to ease the task. This is the time
for fiscal policy to show that it is a flexible instrument—an instrument
that can be used to restrain, as well as to expand, demand. How fiscal
policy should do this is, of course, an open question. But this much
seems clear to me—the first effort should be made in the area of ex­
penditure control; the tax system provides the second line of defense.
In any case, I see no acceptable alternative but to use fiscal policy
in the present and upcoming situation as an instrument of restraint.
To throw the burden entirely onto monetary policy would risk sharper
interest rate increases than it would be prudent to invite. And if,
with inadequate fiscal restraint we try to avoid increases in bond yields
and interest rates by allowing the money supply to continue to expand
as it has been expanding, then all we will have done in this 20th year
o f the Employment Act is to rediscover the world’s oldest formula
for inflation. And more than inflation is involved. What is involved
along with inflation is a potential widening and deepening of direct
controls over wages and prices. The stakes, in short, are very high,
indeed, as we begin the third decade of experience under the Em­
ployment Act.
L must not close these remarks with words that could suggest I
think we face an impossible policy problem in the months ahead.
That does not describe the situation. What we face is a difficult
policy problem. To put it differently: The passage ahead is full of
risks but I believe it is a navigable passage. And, along with millions
o f other Americans I am counting on its being navigated safely.
Part of the secret of doing this will be to let monetary policy do its



fair share of keeping our economy on a safe course. The rest of the
secret will be not to ask monetary policy to do more than its fair share
of this task, but to look to fiscal policy to help cool off the economy.
From this it follows that further increases in aggregate demand can­
not be used as aggressively as some would perhaps like to help reduce
further the unemployment that remains in our high-employment
economy. But we should be able to deal with this problem adequately,
and in the end more constructively, by means of selective measures of
job training, counseling, and placement. I think we ought to be
spending every penny that could be constructively used. The devel­
opment of these measures should be at the top of the current policy
It is not easy in our uncertain and changing world to find the right
combination of policies, and to get them into action at the right time.
The price of failure on the side of overexpansion is inflation, controls,
the disturbance of financial markets, and ultimately, a slowing of the
economy’s growth rate. The rewards of success, on the other hand,
are literally dazzling. They are continued, uninterrupted expansion
and continued, uninterrupted improvement of the economic welfare
of all Americans.
On the question of what the outcome will be, I am optimistic.
I look for success. This is partly because of my confidence in the
strength of the forces making for growth in the American economy.
It is partly because of my respect for the resilience of our economy
and its ability to make adjustments even to severe shocks. And it is
partly because on just such occasions as today’s celebration of the
20th birthday of the Employment Act we have our own way, through
free and open discussion, of finding the combination of policies that
will guarantee success. [Applause.]
Dr. E nsley. Thank you very much, Professor Saulnier. I think
you all will agree with me that we have heard two magnificent papers
by two very distinguished statesmen in the economic fraternity.
I would be amiss, if I did not, before we recessed, introduce our
distinguished chairman of the Joint Economic Committee, one who
opened the symposium this morning and one who will bring greetings
to the dinner this evening.
But on the chance that some of you may not have been here this
morning and some of you may not be with us this evening, I would
like very much at this time to have you rise for recognition of the
distinguished chairman of the Joint Economic Committee, Congress­
man Wright Patman, of Texas. [Applause.]
Thank you very much, Mr. Chairman.
The afternoon session will get underway promptly at 2 :30.
We now stand in recess.
(Whereupon, at 2 p.m., a recess was taken until 2:30 p.m. this
same day.)




S essio n , 2 :30
T he W

p .m

., I n t e r n a t io n a l B allroom , E ast ,
H ilto n

a s h in g t o n

Dr. E n s l e y (presiding). Welcome again to the economic sym­
posium celebrating the 20th anniversary of the Employment Act.
We begin this afternoon’s session with a discussion of “ Price-Cost
Behavior and Employment Act Objectives.”
In this area, a number of questions present themselves: What is
the effect of technological advances on the economy? What role,
direct and indirect, should the Federal Government play with respect
to distribution of income resulting from technological advances, in­
cluding such matters as wage-price guidelines, antitrust actions, and
the like ?
First to present his views is Dr. Kermit Gordon, a member of the
Council of Economic Advisers from 1961 to 1962 and now vice presi­
dent of The Brookings Institution.
Dr. Gordon.
P rice -C ost B ehavior



m ploym ent



O bjectives

Dr. G ordon . Mr. Chairman, members of the panel, Members of the
Congress, ladies and gentlemen. I, too, have an announcement to make.
To help me slip out from under the tyranny of our timekeeper, my
friend, Professor Wallich, has yielded to me the one and a half min­
utes of his time that he did not use. I hope that the timekeeper in
the spirit of the occasion will honor this commendable manifestation
of bipartisan cooperation.
It is characteristic of economic meteorology that each kind of econ­
omic weather creates its own special set of anxieties. The transforma­
tion of foul economic weather into fair does not dissipate anxiety,
but rather changes its character. My subject is properly a fair weather
anxiety, and its current timeliness should be, in a backhanded sort
of way, a cause for rejoicing.
Lest we allow our current concern over the danger of inflation to
distort our sense of relative values, it would be well to retrace briefly
the course we have had to follow in order to qualify for the privilege
of entertaining a well-founded anxiety about the prospect of inflation.
The road has not been easy; in order to earn the right to worry about
what President Johnson has called the “ welcome problems of prosper ity,” the United States has had to increase real gross national product
over the last 5 years by 25 percent; over approximately the same pe­
riod, we have had to reduce the number of persons unemployed by 1%
million, to create 7 million additional jobs, including 1% million jobs
60-074— 66------- 5



for teenagers and nearly a million jobs for non whites; we have had
to create an economic climate which has brought unprecedented profits
to business firms, opportunities for advancement to employees work­
ing below the level of their highest skill, solid employment gains to
Negroes at a most critical stage in the Negro’s struggle for economic
equality, and a new lease on life to communities all over the country
which were thought a few years back to be hopelessly mired in econ­
omic stagnation. We havehad to increase real spendable income per
person in these 5 years by more than we raised it in the preceding 12
years. We have had to put on a display of national economic vitality
which has caused people throughout the world to take another look
at the merits of our form of economic organization.
Thus, however sharp may be the disagreement on the proper therapy
for our current ills, there ought to be unanimity on the proposition
that we confront today the least disagreeable set of economic anxieties
that we have known for nearly a decade.
Our central anxiety today arises from the generally held view
that we are about to test again what has come to be regarded as the
grand dilemma of modern mixed capitalism. As among three basic
economic goals which are held in high esteem in our society—reason' ably full employment, reasonably stable prices, and reasonably free
economic institutions and processes—it is widely believed that we
may attain any two together, but not all three. I f we were willing
to substitute mandatory wage and price controls for free collective
bargaining and private price setting, it is easy to see how, at least,
in principle, we could have both full employment and price stability.
I f we were willing to depress the level of employment sufficiently, we
should have no difficulty in stabilizing prices and preserving free
institutions. And if we were willing to accept whatever price con­
sequences should ensue, we could certainly arrange—at least for a
time—to enjoy full employment in a setting of economic freedom.
But no one in the Western World has discovered the Rosetta stone
which gives us the key to achieving all three goals simultaneously.
The grand dilemma implies a particular view of the way wages
and prices are set in the modern system of mixed capitalism which
characterizes most of the advanced Western nations. It is no longer
argued that there is a clearly defined full employment threshold,
below which wages and prices will behave in a noninflationary man­
ner, and above which wages and prices will begin their inflationary
ascent. I f prices and wages did in fact behave in this happy fashion,
the grand dilemma could be resolved simply by managing correctly
the level of aggregate demand. But wages are determined and prices
set by groups which possess a measure of discretion in these decisions;
and this discretion can be used and has been used to introduce an
inflationary bias into wage and price setting at levels of economic
activity short o f full employment.
Though the apparent conflict between full employment and price
stability has never been far from the center of economic debate during
the last decade, it did not figure in the thinking of the authors of
the Employment Act. "Hie act is explicit in identifying high employ­
ment and the preservation of free economic institutions as goals of
economic policy, but nowhere is there explicit reference to the prob­
lem o f inflation. True, a master of constitutional exegesis, by strain-



mg hard, could probably extract the desired declaration of policy
from the act’s endorsement of the goal of “ maximum * * * purchas­
ing poAver,” but he would have to employ some shaky economics to
accomplish the feat. The fact is that inflation was not seen as a
major long-term problem at the time the Employment Act was
hammered out.
This is paradoxical, for the United States in 1945 was suffering from
a massive wartime imbalance between aggregate supply and demand,
the inflationary symptoms of which were partially suppressed by gen­
eral wage and price controls. But the climate of ideas within which
the Employment Act was shaped was attuned to the economic experi­
ence of the 1930’s, not to the economics of the war years. The com­
mon view, both of economists and of practical men, was that the war­
time boom was a respite from a condition of chronic depression, into
which the United States would relapse at the end of the war unless
heroic countermeasures were taken. The expectation of economic col­
lapse after the war was reinforced by memories of the events which
followed the end of the First World W ar; production and employ­
ment began to decline after the armistice, and these, together with
prices, fell sharply in 1921.
The predominant concern was with income and employment, not
with prices. When we entered the Second World War, both the
wholesale price index and the consumer price index were still below
the 1929 level. The brief runup in prices which occurred in 1937 had
occasioned little concern; in fact, in the early years of the New Deal,
the Government made deliberate efforts to raise prices, on the reason­
ing that since prosperity was often accompanied by rising prices, a
successful effort to raise prices might produce prosperity. Concern
for the balance of payments, which has figured so prominently in our
thinking about prices during the last several years, was virtually un­
known in 1945. We had $20 billion in gold, our international payments
position had been strong for many years, and we regarded balaneeof-payments ills as an affliction confined to other countries, like the
multiparty system.
But this relative indifference to the problems of inflation was soon
to end. With the lifting of controls in 1946, the huge reservoir of
liquidity accumulated during the war burst forth as effective demand,
and wages and prices rose sharply. Ironically, the very first major
inquiry of the Joint Economic Committee—in June and July 1947—
dealt with price developments, as did many subsequent studies and
hearings. The executive branch shifted gears just as quickly—Presi­
dent Truman’s first Economic Report, in January 1947, registered
disquiet over rising prices, and later reports employed an increasingly
strident tone in deploring price developments. It is worth noting
that if the widespread postwar expectation of imminent economic
collapse had not caused business firms and households to leaven their
buying plans with a measure of conservatism, the postwar inflation
would have been even worse than it was.
While the process by which an inflationary episode unfolds is never
simple, some inflations are nevertheless a good deal easier to categorize
than others. Both the 1946-48 eruption, and the panic-buying episode
which flared up during the 8 months following the outbreak of hos­
tilities in Korea in 1950, were fairly straightforward examples of ex-



cess-demand inflation. In both cases, aggregate demand surged ahead
o f aggregate supply on a broad front, and wages and prices responded
promptly and sharply. These two war-induced inflations, inciden­
tally, account between them for most of the increase in the price in­
dexes which has occurred in the 20 years since the end of the Second
World War.
The 1955-58 inflation, on the other hand, is not easy to categorize.
Indeed, the Joint Economic Committee has devoted lengthy hearings
and reports to an effort to understand exactly what happened in
those years. Yet, in a sense, the 1955-58 episode is more important
than the earlier and more violent inflations, for it shook many pre­
conceptions about the nature of the inflationary process, raised new
doubts about the compatibility of full employment and price stability,
and exerted a strong influence on current thinking about public poli­
cies toward prices and wages.
From May 1955 to March 1958 consumer prices rose by 8 percent
and wholesale prices by 9 percent. Compensation per man-hour in
the private economy rose a good deal faster than productivity, with
the result that labor costs per unit of output rose by 5y 2 percent in
1956 and Sy2 percent in 1957. Yet it would be hard to argue that
the period was marked by excess aggregate demand. Only during
the second half of 1955 did the rate of capacity utilization in manu­
facturing exceed 90 percent. The rate of unemployment bumped
along close to the 4-percent level from mid-1955 to mid-1957, falling
below 4 percent during only 3 months of the entire period.
Although total demand did not seem to be excessive for the econ­
omy as a whole, capacity was under some strain in the durable man­
ufactured goods sector. Automobiles had a spectacular year in 1955,
the steel industry operated close to capacity for the greater part of
the period, and parts of the machinery industries felt strong demand
pressure. The greater part of the 1955-58 rise in the index of whole­
sale industrial prices was directly attributable to price increases in
metals and metal products and machinery and motive products. Very
large multiyear wage settlements were negotiated in this sector, includ­
ing the 1956 steel settlement, the cost of which has been estimated at
8 percent a year. These settlements influenced the aspirations and
bargaining goals of labor unions in other sectors of the economy.
The 1955-58 inflation clearlj eroded our international competitive
position, and played a part m precipitating the severe balance-ofpayments weakness which developed toward the end of the 1950’s.
The price increases were concentrated in metals, machinery, and
transport equipment, and these commodities make up about two-thirds
o f total U.S. exports of manufactures. In steel, for example, U.S.
prices between 1956 and 1958 rose nearly 20 percent more than the
average price rise in five other major steel exporting countries. The
U.S. share of world exports of iron and steel products fell between
1956 and 1958 from 19 to 14 percent of the total; and our share of
exports of manufactures fell over the same years from 30 to 27^
It does not do justice to the complexities o f this episode to charac­
terize it simply as cost-push inflation. The existence of a high level
o f demand was clearly a prerequisite to the price and wage behavior
o f the period, as were the supply bottlenecks in the critically impor­



tant durable goods sector. Yet wage- and price-setting institutions
were also of central importance: some powerful labor unions were able
to negotiate outsize wage settlements on a multiyear basis; these wage
impulses fanned out to other sectors of the economy; and business
firms which enjoyed strong market power positions were able to widen
profit margins. In brief, during a period when aggregate supply and
demand seemed to be in reasonably good overall balance, and in which
the unemployment rate stayed close to the 4-percent level, the economy
demonstrated a modest but persistent inflationary bias.
This was the wage-price backdrop to the thinking of administration
policymakers as the economy began to emerge from its fourth postwar
recession in 1961. The surge of economic activity in 1961 was reas­
suring, but it again raised the specter of a renewed wage-price spiral
as the economy neared full employment. The lesson of 1959-60 was
fresh and clear—a heavy foot on the fiscal and monetary brakes had
indeed prevented an inflationary outbreak in 1959, but it also stalled
the recovery well short of full employment and triggered another
downturn. Moreover, the balance-of-payments position had become
critical; the gold outflow turned into a hemorrhage toward the end of
1960, and the early months of the new administration were marked by
an atmosphere of balance-of-payments crisis. The recognition that a
reserve currency nation with a wide margin of unemployment and
unused capacity possesses few acceptable techniques for adjusting to
a balance-of-payments deficit underscored the necessity of strengthen­
ing the U.S. competitive position by holding the line on prices.
It was in this setting that the Council of Economic Advisers, with
the endorsement of President Kennedy, enunciated the wage-price
guideposts in January 1962. The use of exhortation in the quest for
price stability was hardly new; Presidents Truman and Eisenhower
and others in their administrations had on numerous occasions pleaded
for “ responsible” wage and price behavior. But so long as responsible
behavior was left undefined, it was of little utility as a guide to con­
duct. After all, few labor unions or businessmen in the 1955-58
period would have characterized their wage or price decisions as
The element of novelty in the wage-price guideposts was thus the
effort to give some operational content to the notion of responsible
wage and price behavior. The purposes of the guideposts were (1)
to launch an educational effort to clarify the economic and arithmetic
interrelationships among prices, wages, productivity, and incomes, in
order to identify the kinds of wage and price behavior which are
broadly consistent both with economic efficiency and a stable price
level; (2) to help create a sanction in public opinion for noninflationary wage and price behavior, in order to influence indirectly the be­
havior of decisionmakers; and (3) to provide standards for responsible
wage and price behavior sufficiently operational to give useful guid­
ance to those who wished to honor the public interest in their decision­
making. The focus was not on all wage and price decisions, but on
the decisions of those groups which exercised important market power.
It was perfectly clear in the minds of the authors of the wageprice guideposts—as it is to their present custodians—that the guideposts were no substitute for monetary and fiscal action to prevent the
emergency of general excess demand. It was thought, however, that



there existed a band of unemployment rates, above which the guideposts were superfluous and below which they would be largely ineffec­
tive. While neither the width nor the position of this band could
be defined with precision, it was the prevailing hunch that in 1961
we were outside the upper limit of the band, and that, given the
labor market circumstances which existed at the time the guideposts
were enunciated, an unemployment rate markedly below 4 percent
would probably be below the lower limit of this band. It was felt,
however, that within the band the guideposts could have a constructive
influence in restraining inflationary wage and price behavior.
The educational purpose of the guideposts was of primary impor­
tance. Misconceptions about the interrelations among wages, profits,
prices, and output were prevalent both in labor and in business.
Spokesmen for labor often seemed to regard wages as incomes but not
as costs. They frequently fixed on the rates of productivity increase in
particular industries as appropriate standards for wage increases in
those industries; needless to say, if this standard were widely adopted,
the United States would in a short time have a grossly distorted and
inefficient wage structure. They sometimes talked as though the
steady increase in economy wide productivity were ascribable to higher
skills and greater effort on the part of workers, neglecting the major
influence on advancing productivity of the quantity of capital, im­
provements in technology, interindustry shifts, the quality of manage­
ment and organization, and improvement in the rate of utilization
of productive capacity.
On the management side, it was frequently held that any increase
in wage rates was inflationary; in fact, of course, the failure of wage
rates to rise would sooner or later force a decline in the general
price level. Also, it was frequently said that if wage rates rose at
the same rate as the economywide increase in productivity, the whole
o f the gain from increasing productivity would be captured by labor;
the truth o f the matter, which is now, t think, widely appreciated, is
that both labor income and property income would rise at the same
rate under these circumstances.
Whatever may be one’s view of the merits o f the guideposts, I
believe it must be conceded that they have had a salutary educational
effect. The debate over the value of the guideposts has served as a
cram course in wage-price economics. Public statements by labor
and business leaders, and reporting and discussion in the press, reveal
today a markedly higher level of sophistication concerning the eco­
nomic interrelationships among w ages, prices, productivity, and in­
comes. I f public opinion is to influence decisionmaking in the public
interest, it must be formed on the basis of clear understanding. We
have made notable progress in that direction in the last 4 years.
But have the guideposts worked ? Have they actually reduced the
inflationary bias of our price- and wage-setting institutions, or have
they been an exercise in futility? Lacking any means of determining
what would have happened to wages and prices these last 4 years in
the absence of the guideposts, we shall never know for certain. But
one cannot suspend judgment because conclusive proof is beyond
reach. My own guess is that the guideposts have in fact been a
restraining influence. This judgment rests in part on analysis which
indicates that annual rates o f wage increases in recent years are signifi­



cantly below the rates which w'ould be predicted from historical
relationships between wage increases on the one hand and unemploy­
ment rates and profit levels on the other. It rests in part on the
evidence of overt public action to restrain the rate of wage increase for
civil service employees and maritime workers. It rests also on the
knowledge that governmental influence has been brought to bear
effectively on a number of wage and price negotiations, openly in
some cases and privately in others. And it rests finally on the observa­
tion that every wage negotiation is an adversary proceeding, that the
negotiating positions of the parties can be strengthened or weakened
by public interest considerations, and that the guideposts are fre­
quently introduced into negotiations as such a consideration.
On the price side, the evidence is admittedly scanty. There have,
of course, oeen a few <iases of overt governmental intervention. But
apart from these, while it is hard to point to any price reductions in
which guidepost analysis has been an identifiable influence, there is
reason to believe that some prices have not been raised—or have been
raised less than they otherwise would have been—because of the
guidepost “ atmosphere.” And, of course, the guideposts have also
influenced prices indirectly through their effects on wages and hence
labor costs.
Though the guideposts have helped over the last 4 years to maintain
a wage-price environment even more stable than the degree of eco­
nomic slack would have led one to expect, it should be quickly pointed
out that other forces have been working in the same direction. More
vigorous foreign competition in the domestic market has helped. In­
flationary expectations may have been dampened by the virtually
back-to-back recessions of 1958 and 1960. The remarkably steady im­
provement o f productivity over the last several years—sustained by
tax policies designed to encourage investment—has helped to stabilize
unit labor costs. Expanded training programs and other measures to
improve the skill structure of the labor force have helped to avoid
skill bottlenecks, and the well-balanced structure of the economic ex­
pansion has meant the avoidance of capacity bottlenecks.
The specific standards set forth in the guideposts represent a com­
promise between the desire to achieve operational simplicity and the
desire to simulate the kinds o f wage and price behavior which would
characterize a highly competitive economy operating in the vicinity
of full employment. As a result, the standards are somewhat more
complex than one would desire and somewhat less faithful to the rigor­
ous model of a highly competitive economy than one would like. Much
of the technical criticism of the guideposts has centered on the possible
allocative and distributive distortions which could result under vari­
ous circumstances from the exact application of the guideposts. There
is merit in much of this criticism, though some of the counts in the
indictment seem to have more analytical elegance than real-world
It is also true, as critics allege, that the guideposts will inevitably
bear more heavily on the important and visible wage and price deci­
sions than on those which escape public attention. Furthermore, the
wage guideposts are more specific than the price guideposts and hence
easier to apply. And these criticisms do not exhaust the list of short­
comings of the guidepost policy.



All these points are relevant and important; they are not, however,
conclusive. As seems to be the case in too many debates, the proposi­
tion which the negative side is attacking is not tfie same as the proposi­
tion which the affirmative is defending.
The case for the guidepost policy does not rest on the contention that
it is without serious imperfections. The case for the guidepost policy
rests, rather, on the proposition that any alternative strategy for deal­
ing with the grand dilemma would be more objectionable—that there
is no better way to seek to resolve the apparent conflict among full
employment, price stability, and the preservation of free economic
institutions. The alternatives are (1) to pursue a full employment
policy and accept such inflationary consequences as may ensue; (2)
to maintain enough slack and unemployment in the economy to stabi­
lize the price level; (3) to pursue a full employment policy and in­
stitute mandatory wage and price controls; and (4) to strip decision­
makers of market power by breaking up concentrations both in busi­
ness and labor.
With all of its warts and blemishes, the guidepost policy—or some­
thing very much like it—seems preferable to any of these alternatives.
Opponents of the guidepost policy have a responsibility, it seems to
me, either to deny the existence of the problem to which the guideposts are addressed or to advocate one or another—or some combina­
tion—of the alternative policies for dealing with it.
In the further evolution of the guideposts, there will certainly be
occasions when governmental intervention in particular price or wage
decisions is necessary. But if such intervention should become the
sole or even the principal sanction for adherence to the guideposts, then
the policy w ill surely fail. In an economy as large, as decentralized,
and as diverse as ours, occasional calls from Washington will not
change the way businessmen and workers think about price and wage
problems. Yet the future of the guideposts will depend precisely on
the way decisionmakers think about their responsibilities. Prof. J. M.
Clark said it very cogently 6 years ago in a book about the wage-price
It is a fundamental principle of any society based on voluntary action that
the amount of freedom that can be retained— freedom from public controls on
the one side and from the coercions of private actions on the other— is measured
by the extent to which the need for public coercion is lightened by the members*
voluntary acceptance of the requirements of living together.

I f we are to strengthen voluntary acceptance of the canons of con­
duct proposed in the guideposts, we shall need continued strong
governmental leadership; more direct participation in the develop­
ment of guidepost institutions and policy by leaders of business, labor,
and the public; broadened public understanding of the benchmarks
of responsible wage and price behavior; and the ultimate and power­
ful sanction of an alert and informed public opinion.
No one can be confident that the effort will succeed, but no other
course offers a better longrun chance of avoiding inflation while honor­
ing the commitment of the Employment Act to the goals of maximum
employment and production and the preservation of free economic
institutions. [Applause.]
Dr. E n s l e y . Thank you very much, Dr. Gordon.



The second speaker this afternoon is Dr. Paul W. McCracken, mem­
ber of the Council of Economic Advisers from 1956 to 1959 and now
professor of business administration at the University of Michigan.
Dr. McCracken.
P rice-Cost B ehavior and E mployment A ct Objectives
Dr. M cCracken. Mr. Chairman, the stern strictures of the chair­
man here in regard to the time allotted to us has imposed on me, as
is true for most of the other participants, the painful task of excising
a good many pages of priceless prose. I dare say that when this ven­
ture is concluded, Grover, we ought to cite you to the Anti-Vivisection
What is the relevance of the Nation’s price-cost performance to the
objectives of the Employment Act? This question may not be the
most fundamental issue of economic policy before us today, but it is
probably a leading candidate for the most vexatious piece of unfinished
business. The price-cost question naturally divides itself into about
three questions. How important is a reasonably stable price-cost level
to the more fundamental objectives of full employment and rising
levels of living widely shared? Is there a market-power dimension
to the price-level problem? Third, what are the policy implications
o f these matters for the objectives of the Employment Act?

Certainly the case for attaching high priority to a reasonably stable
price level seems to be a persuasive one for reasons concerned with both
our external and our domestic economic performance. Given the large
noncurrent burdens on our balance of payments, the sharp recovery
in the balance on current account, after it had dipped into a deficit
position in 1959, probably made the difference between an interna­
tional dollar crisis and an external payments position that has been
tolerable even if not comfortable. From 1954 to 1959 the U.S. export
price index increased 8 percent compared with 3 percent for other
industrial nations as a whole. During the next 5-year period (195964), however, our export prices rose only 3 percent, a markedly better
record than the 8 percent in the first half of that decade and somewhat
better than the average for other industrial countries. The fact that
the U.S. price level did perform much better by international standards
is undoubtedly relevant to our improved payments performance on
current account in recent years.
In the domestic economy a reasonably stable price level is desirable
in itself for many obvious reasons. A rising price level does, for
example, pose problems of equity. Some incomes are, if not fixed,
at least sticky. The real purchasing power of financial assets held
by those of moderate means is more adversely affected than those held
by the affluent. The empirical evidence about the relationship bet ween



price increases and rates of domestic economic expansion is more com­
plex, but it presents no persuasive case that acceptance of a more
rapidly rising price level enables a country to achieve a more rapid
rate o f economic progress. The record of 39 nations for the period
1950 to 1960 and 1960-63 reveals no significant relationship between
rates of growth of GNP (total or per capita) and the rate of in­
crease in the price level. In studies (largely of developing nations)
by the International Monetary Fund there seems, in fact, to be some
evidence of an inverse correlation between rates of economic growth
and the rapidity with which the price level was rising.1 Countries
with a relatively stable price level have done somewhat better on
the average than those experiencing strong upward pressures on
the price level. There are persuasive reasons for expecting that
things might work out this way. The pervasive expectation of con­
tinuing inflation does disturb economic decisions. The pattern of
capital formation is distorted. It encourages an outflow of domestic
capital, and it impedes the inflow of capital from the outside. On
all of these matters there is supporting empirical evidence.
The relationship between the rate of growth of output and the
rise in the price level for more developed nations such as the United
States is again indistinct. For 17 of these nations in the 1950’s there
seems to be no discernible relationship between the rate of rise in the
price level and the rate of growth in real per capita GNP. For
total output there was a faintly perceptible negative relationship,
but too low to be statistically significant. I f we limit ourselves, m
our quest for a price-level target, to the criterion of growth rates,
international experience does not lend support to the view that a
moderately rising price level is essential or inimical to vigorous
growth in developed nations.2 The desirability of a strong position
on price-level policy must then rest heavily with such considerations
as equity or our external economic position.
Suppose we turn now to the second question. Is there more to the
problem of a stable price level than good monetary and fiscal policy ?
Is there a market power dimension to the problem? The decision
does not automatically go to the affirmative. From 1909 to 1929
(excluding 1914-20) there were 14 years of rising business activity.
In eight of these the price level rose, in three there was no change, and
in three the price level declined from that of the preceding year. On
the average the price level rose 1 percent per year for these 14 years.
1 Cf., fo r example, Graeme Dorrance, “ The Effect of Inflation on Economic Development,”
staff papers, March 1963, pp. 1—
2 Computations were made for 17 developed nations fo r the period 1950-60. They were :
Australia, Austria. Belgium, Canada, Denmark, France, W est Germany, Italy, Japan.
Netherlands, New Zealand. Norway, Portugal, Sweden, Switzerland, United Kingdom, and
the United States. The terms w ere: G— rate o f growth in real total G N P ; G y r a t e of
growth in real per capita GNP ; P— rate of rise in the cost o f living. GNP growth rates are
from the United Nations Yearbook of National Accounts, 1905, and the rate of increase in
the cost o f living was computed from data in International Financial Statistics. The
results a r e :
(7 = 5.5 —0.30P



For the period 1949-65 there were also 14 years of economic expansion.
The average price rise was 2.3 percent for these 14 years, and in only
one expansion year (1955) did the price level recede. The average
rise in rising years, however, was greater in the 1909-29 period
than after 1949. The principal difference between these two periods
yeems to be the lesser frequency of any price decline at all, during
expansion years, in the postwar period. The record does not seem
to suggest that the price level now is prone to rise more rapidly during
an economic expansion than in our earlier history. I f anything it
may be less so.
Our experience in the late 1950’s was, of course, undeniably disturb­
ing. From mid-1956 to mid-1958 the price-cost level was rising too
rapidly, and after mid-1957 it was also a period of subnormal employ­
ment. Even that period in retrospect nas its extenuating circum­
stances. Some of the wage adjustments that were pushing our cost
level upward were the result of negotiations conducted in the ebul­
lient climate of 1955. Moreover there was a swelling wave of inflationmindedness. The proportion of people, for example, expecting the
price level to continue rising for the long run tripled from 1953 to
1957. Here was a phenomenon of social psychology bearing perhaps
some resemblance to the Salem witch hunts or the Communist hunts
of the McCarthyism era. In retrospect these ground swells always
seem a bit perplexing and inexplicable, but they are real and influ­
ential while they last. These expectations of inflation, the inflationmindedness, considerably overshot the basic facts of economic life,
of course, but for a time they were an important force nudging the
price-cost level upward. Business response to union demands was in
part reflecting these assumptions. Union demands for wage adjust­
ments in turn were responsive to this climate. Each settlement, there­
fore, was followed by the higher prices that gave another thrust to
the rising price level, seemingly confirming the wisdom of making
decisions on the assumption that an age of inflation was ahead.
The disinflationary policies of 1957 to 1959 (except for a brief inter­
lude from mid-November 1957 to about July 1958) were probably too
severe, but they did perform the desirable function of puncturing
this bubble of inflation-mindedness. And the more moderate pace
of the price level in recent years dates from mid-1958—not, as all good
things in economic policy are sometimes alleged to do, from January
Even so there probably is an element of the market-power phenom­
enon in the tendency for our price-cost level to edge higher. Since
1960 the price level has continued to drift upward at the rate of per­
haps li/4 percent per year, and costs per unit of output (in the cor­
porate sector) have shown a comparable rise—even though unem­
ployment averaged 5.8 percent of the labor force. Moreover, the rise
m both the price level and costs per unit of output were apparently
at a somewhat greater rate in 1965. This is a less impressive per­
formance than, for example, the 1920’s (1922 to 1929) when unem­
ployment averaged about 4 percent, and the price level increased at
the rate o f only 0.2 percent per year. (The average annual rate of
increase in output from 1922 to 1929 of 4.7 percent was also higher than
the 4.5 percent average from 1960 to 1965.)



What, then, are some of the elements of a price-cost policy for the
Nation? Clearly this has become once more an urgent question. The
economy by the latter part of last year had regained reasonably full
employment, and the tolerances began to narrow sharply. Once again
we are in a zone where strengthening the capability of the economy
to resist inflation, always desirable, must be given even higher priority.
Measures to avoid a rise in aggregate demand that outruns the
economy’s productive capability are now, of course, fundamental.
Whatever differences may exist about other dimensions of the pricelevel problem, there would be a wide measure of agreement that in­
flationary pressures cannot be contained in an overheated economy.
The most fundamental and basic requirement for a reasonably stable
price level is, therefore, fiscal and monetary policies that do not crowd
demand too hard against the economy’s capability to produce. This
is hardly controversial, in principle, and issues of fiscal and monetary
policy have already been discussed, so we can move on to other matters.
There seems to be some measure of agreement that a modern in­
dustrial nation should have a wages or incomes policy. In the 1961
O.E.E.C. study on “ The Problem of Rising Prices,” the panel of dis­
tinguished economists agreed that negotiated wage increases were
“ decisive in explaining why some countries have failed to a far greater
extent than others to achieve price stability.” 3 On the problem of
wages their report is quite explicit. “ In the view of the majority of
the group, the essential element to be stressed, first of all, is that the
stabilization authorities must have a wages policy for dealing with
the problem o f wages—just as they must have monetary ana fiscal
policies for dealing with the problem of demand.” 4
[ Our own venture into incomes policy has been via the guidelines. It
has, on the whole, been a constructive step. It was the logical sequel
Jto extensive academic and professional discussion, antedating the 1962
'Economic Report, about the relationship between wages and prices.
This ancillary discussion included increasing attention to the prob­
lem in successive Economic Reports during the Eisenhower Adminis­
tration. The articulation of the guidelines has focused public atten­
tion and understanding more squarely on the problem, and in their
absence it is reasonable to suppose that we might have had a somewhat
higher price-cost level today.
We need to recognize, however, that the guideline approach also
involves some important risks. For one thing there is danger that
preoccupation with inevitably only a few highly visible price or wage
settlements will cause inattention to the more fundamental matters
of monetary and fiscal policy in the strategy for maintaining a reason­
ably firm cost-price level. The excessive rate of credit expansion in
the closing months of 1965, at a time of a few highly visible price
controversies, reminds us that this is not an academic matter. There
is, in fact, real danger that an overly expansive policy, as in 1954-55,
will force a sharp reversal, as in 1956-57.
* P. 45. The authors o f the report were William Fellner, Milton Gilbert, Bent Hansen,
Richard Kahn, Friedrich Lutz, ana Pieter de Wolff.
* P. 56. Cf. also Henry Smith, “ Problems o f Planning Incomes,” Lloyds Bank Review,
January 1966, pp. 30-40.



Another danger is that the guideline approach, if it becomes de facto
or de jure a program for extensive price control, would impede the
mobility and fluidity of the economic system. And the more effective
(and, therefore, extensive) the guideline program becomes, the greater
is this danger. The trouble fundamentally is that the articulation of
the guidelines principles largely ignores the role of changes in de­
mand in our system. Our economy depends for its efficient operation
on extremely complex and sensitively adjusting pricing relationships
that serve as the communications system for promptly reflecting the
ever-changing pattern of demands.5 There is not much recognition
of this in the enunciation of the guidelines. “ The general guidepost
for prices,” says this year’s Economic Report, in the strong language
of italics, “ is that prices should remain stable in those industries where
the increase of productivity equals the national trend; that prices can
appropriately rise in those industries where the increase of produc­
tivity is smaller than the national trend; and that prices should fall in
those industries where the increase of productivity exceeds the national
trend” 6 On the next page we learn that increases above this may be
appropriate to reflect increases in unit material costs, if not otherwise
offset, or to correct an inability to raise capital. This latter exception
is quite explicitly not considered to be “ widely applicable in the
present environment.”
Now this simply describes a cost-plus economy. It will not do even
as a short statement of our pricing system. A rise in prices for in­
dustries with a productivity rise below average may be quite inappro­
priate and inconsistent with economic efficiency if the industry is
declining and should be extinguished. Price increases may be a de­
sirable means of signaling for increased production of a product even
when the industry has average or above-average gains in productivity
if demand has intensified.
These are not academic matters. An economy whose pricing system
operates according to the guidelines as enunciated would certainly
find its capability for progress weakened.7 Half of our gains in out­
put have come from uncovering more effective ways of utilizing pro­
ductive resources of labor and capital, and through open competition
diffusing these across the economy generally. A cost-plus economy
would tend to prolong the lives of decaying industries, and it would
slow responses to areas of increasing demand.
The problem here is fairly clear. It is the danger of attempting
to apply an aggregative macroeconomics rule relevant to the general
price level to the ever-changing relationships among specific prices
m microeconomics. The pricing system that we would get if this
cost-plus pricing were fully implemented would, to an observer from
the University o f Mars, look like a highly primitive and crude version
of what we now have.
Problems o f equity will also inevitably become more difficult if at­
tempts to apply the guidelines to specific situations become more ex­
tensive. Even though the guidelines recognize exceptions, most situa­
5 My colleague, P rof. Charles N. Davisson, pointed out to me the fu ll significance o f this
• E conom ic Report, January 1966, p. 90.
7 C f. A rthur F. Burns, “ Wages and Prices by Formula,” Harvard Business Review,
M arch-A pril 1945, pp. 55-64.



tions will actually be measured against the average. The steel wage
settlement is an example. I f it was on the 3.2-percent average, it
really exceeded the guidelines because it has been jan industry with
more than its share of unemployment, wage rates were relatively high
already, and profits have been relatively low. These are conditions
that, according to the Council’s articulation of the guidelines, call for
a below-average wage settlement. Yet the settlement was pronounced
to be right on target—because it came out on the average.
The procedures for singling out price and wage candidates for .at­
tention will inevitably be uneven and capricious. Steel would be
apt to get the works even though prices of some other products in the
aggregate might be just as important. The price which, according
to the guidelines, ought to go down and does not would probably be
safer from official wrath than the price that ought to stay put but
goes up. And there is the question of equity as among wage settle­
ments. The USW or U AW member is apt to find his income more
affected by guidelines than a member of the construction union. And
it is almost inevitable that a larger proportion of the wage area will
be under surveillance than of prices. An industry that has one major
labor contract may have hundreds of prices. This is bound to create
political strains that either weaken the guidelines or force the Gov­
ernment in the direction of price control.
Another important dilemma of the guidelines approach (or any
variant that is some de facto form of direct price or wage control) is
that it introduces some upward biases of its own. Because price
increases when needed may involve some abrasive moments, there
would be considerable incentive to resist any price declines. And
there would be strong incentives to take the maximum price rises that
could plausibly be attributed to such exogenous factors as wage settle­
ments or higher material costs.
There is also an issue of government here. We have probably gone
about as far down the guideline road as is appropriate in the absence
o f legislative action. A form of price-wage control could ultimately
come to have the force of law because of the formidable power that
the Federal Government can assemble against any miscreant in pric­
ing or wagemaking. I f these programs are to become significant
instruments of economic policy, the Congress should debate the issue
and, if persuaded of their wisdom, take the necessary legislative
steps to authorize administration action. The come-let-us-get-together
approach can be a device that builds up a power structure in Govern­
ment which circumvents the legislative process, and in the private
sector which circumvents the normal market disciplines of competition.
This is not desirable in our political system or in our economy.
The basic reservation about the guideline approach, however, is the
evidence that it is o f quite limited practical effectiveness. There has
not been much displacement in the relationship between our price-level
performance and the pace of the economy. In their paper before the
American Economic Association 5 years ago Professors Samuelson
and Solow suggested that to achieve a stable level of labor costs per
unit o f output unemployment might have to be 5 to 6 percent, and
to achieve “ the nonperfectionist’s goal” of 3 percent unemployment
the price index might have to rise 4 to 5 percent per year.8 I f we
8 Paul A. Samuelson and Robert M. Solow, “ Analytical Aspects o f Anti-Inflation P olicy,”
American Economic Review, Proceedings, May 1960, p. 192.



make a simple linear interpolation between these two points of their
modified Phillips curve, the 4.6 percent unemployment rate for 19G5
would imply about a 1.7-percent rise in the price index. The Consumer
Price Index actually rose 1.7 percent from 1964 to 1965, and the rise
would have been somewhat higher except for the effect on the index of
reduced excise taxes. The guidelines do not seem to have been holding
the rise in the price level to anything markedly different from what
would have been expected, given our volume of unemployment. More­
over, international experience also suggests cautious expectations about
what guidelines can accomplish. The trend of wages and prices in
European countries does not suggest that the incomes-policy approach
is apt to provide strong defense against inflation. Tne results from
the United Kingdom’s policy for incomes and prices, launched just
over a year ago, are not auspicious, and the next version will apparently
be legislation to require advance notice of price changes and of
wage negotiations.9
The articulation of the guidelines, let me repeat, has been useful.
It has certainly given the whole subject greater public visibility and
understanding, and that has been helpful. Their job is to make a mar­
ginal contribution—to field the few wild-ball price and wage situations
that might occur—under circumstances where fiscal and monetary
policies are the basic defense against inflation. At the same time the
hard evidence here or abroad does not suggest that they are a strong or
highly effective anti-inflationary weapon. And if they divert atten­
tion from more fundamental matters of fiscal and monetary policy,
they could give the price level an upward bias while they are also re­
ducing the capability of the economy to sustain vigorous economic
progress. At this point they would collide squarely with any reason­
able interpretation of the Employment Act’s section 2.
It is, however, high time that we move on to other matters. One pos­
sible contribution to a more stable price level is squarely within the
domain of the Federal Government’s operational activities. The fact
is that important Government programs and actions give a direct and
significant upward thrust to the price-cost level. At a time when ris­
ing food prices have been a significant factor in the higher cost of liv­
ing, which in turn will influence wages, the Government will spend on
agriculture an estimated $4.3 billion this fiscal year and $3.4 billion
in fiscal year 1967. Proposals to increase the minimum wage are
inimical to the objectives of the Employment Act if we are concerned
about price-cost-level problems, and if we are also trying to draw into
regular employment those in the labor force only marginally employ*
able. Secretaries o f Labor in their administration of the Bacon and
the Walsh-Healey Acts have usually interpreted prevailing “ mini­
mum” wages for Government contracts to be synonymous with union
rates even in localities where these rates had no real relevance to local
situations.1 Obviously the rationale that these programs reflect “poli­
tical realities” will no longer do. Political gain is to the political
arena what profits and wages are to the economic arena. A Govern­
®Cf Ray Vicker, “ Holding the Guidelines,” W all Street Journal, Feb. Tt 1966, p. 14.
Also International Financial News Survey, Jan. 14, 1966, p. 10.
1 Gordon F Bloom and Herbert R. Northrup, “ Economics o f Labor Relations (Irwin,
1961), pp. 549-550.



ment requesting unions and managements to rise above their selfinterest on wage and profit decisions can be asked to lead the way itself
in some of these operational programs.
I f society decides to channel more of its national income into the
public sector, and to do so via sales and excise taxes, it makes no sense to
have this affect the Consumer Price Index. In an era where demands
in the public sector are going to be heavy, we have arranged things
so that the use of a tax with substantial popular support would quite
directly push upward our most widely used measure of changes in
the price level. During 1965 the Consumer Price Index rose 2 percent,
but the rise would have been 2 percent except for the reduction
of excise taxes. And we are in the odd position of increasing excise
taxes in 1966 to counter inflation, though their increase will directly
raise the price index—and directly and indirectly have an effect on
wage movements.
It would be in the public interest for the Joint Economic Committee
to conduct an exhaustive study of all Federal programs that have a
direct effect on costs and prices. They might be found to be con­
Few things are more effective in neutralizing the exercise of pow­
er than availability of alternatives. Even our powerful corporations
cannot force or cajole consumers into buying what they do not want.
They cannot because the consumer has alternatives. I f the gas com­
pany suffers from delusions of grandeur, it will be brought back to
earth by marginal shifts of energy requirements to electricity or oil.
I f Chevrolet buyers were to feel abused, Ford or Chrysler would be
eagerly ready with alternatives. A part of our price-cost policy
could usefully be exploration o f ways to widen alternatives further.
The increasing internationalization of economic life offers a major
opportunity. The alternative of imports has already served as a
significant restraint on the dour ritual of large increases in wage rates
duly succeeded by ample price increases. In some cases it has had
a notably therapeutic effect on more aggressive product development.
Further relaxation in constraints on the availability of alternative
foreign products and services would make a useful contribution to the
Nation’s price-cost performance, and it would also make for better
jobs and a stronger economy. The administration is to be commended
for its insistence on adjustment assistance for hardship cases as trade
barriers are relaxed, rather than the route of blocking tariff reduc­
Thing;s which might increase the ease with which capital could
be substituted for labor must also be classed in the category of broad­
ening alternatives. It is a grisly thought, but the labor cost per unit
of classroom output might be under less severe upward pressure if
a teaching machine could more readily be substituted for professors.
Capital budgeting came upon the industrial scene belatedly, but it
has made great strides. I f the capital budgeteers and the capital goods
engineers could increase the substitutability of capital for labor, we
would come close to getting the best of three worlds—an upgrading
of jobs; a more stame cost-price level; and an accelerated rate of
economic progress.



Suppose that even with appropriate fiscal and monetary policy,
supported by as much marginal help from other policies and pro­
grams as it is reasonable to expect in this world, the price level is
still not quite stable. This is probably a reasonable expectation. The
last sustained period of full employment, vigorous economic growth,
and a stable price level was the period from about 1922 to 1929. And
for the entire period from 1900 to 1929 (excluding the war periods),
80 percent of the expansion years saw some rise in the price level.
The objective of a stable price level is an important one, but it does
remain a facilitating and not a fundamental objective. It is important
largely to the extent that it is essential for full employment, vigorous
economic growth, and high and rising levels of incomes widely and
equitably shared. We miust not be so obsessed by building the bridge
over the Kwai that we lose sight of the larger picture. It would be
better to retain the motility and adaptability of our free-market econ­
omy, for example, than to contract economic arthritis through exten­
sive direct intervention into the specifics of economic life—out of
zeal for a flat price index. It is possible, however, that emergent
inflation-mindedness may become a problem. We must in that case
contemplate occasional episodes of disinflation. These might briefly
reduce the proportion of the labor force employed by perhaps a per­
centage point. It should, however, be quite possible to achieve results
through short periods of moderately reduced growth, still avoiding
any significant recedence in the economy. Episodic disappointed
inflationary expectations would probably be enough to serve as a
reminder that caution is appropriate even if the general trend is up
because it is also necessary to survive shorter run contingencies.
It is to be hoped that a stable price-cost level becomes possible with
full employment. The fact is that with the existing state of the arts
of economic policy severe insistence on price-cost stability is a recom­
mendation for the distortions of suppressed inflation that enervate the
economy—and probably for a lower trend rate of growth. Obviously
we cannot close down the economy until we know more about achieving
a stable price level without retarding the economy’s growth. We
therefore face the inevitable problem of feeling our way along with
a mix of real growth, high employment, and some concession to the
price level—with the mix itself changing a bit from time to time—if
we are to achieve the maximum rise over a long period of time in
widely diffused levels of living.
Since the act which we honor today was signed, every President has
explicitly recognized the importance of a reasonably stable price level
to the performance of our economy and to the quality of our Nation’s
economic life. This clearly continues to be the case, and it is wise.
As is true of our objectives for employment, production, and purchas­
ing power, we sometimes fall short of our price-level goal, and we shall
probably have our shortfalls in the future. We can, however, say of
this goal what Beardsley Ruml said of the Employment Act’s objec­
tives two decades ago when he told a Senate committee that “ this
statement of the goal of our sincere efforts to attain it will make the
60-074— 66------- 6



reality much closer to the ideal than if the ideal had never been
expressed.” [Applause.]
Dr. E n s l e y . Thank you very much, Professor McCracken.
The final subject of this afternoon’s session deals with “ Admin­
istration of the Employment Act.”
Here again, a number of questions present themselves: What are
the most constructive roles and relationships of the President, the
Council of Economic Advisers, other executive agencies, the Joint
Economic Committee, other committees, the Congress as a whole,
the non~Government groups? Four individuals have been chosen
to bring us their thinking in this important area. Each has been
allotted 12 minutes.
First we have Prof. Bertram M. Gross, staff adviser to the con­
gressional sponsors of the Employment Act and Executive Secretary
of the Council of Economic Advisers from 1946 to 1952. Professor
Gross is now director of national planning studies for the Maxwell
Graduate School of Citizenship and Public Affairs at Syracuse
Professor Gross.

d m in is t r a t io n

of t iie


m ploym ent




Professor G r o s s . Mr. Chairman; advisers, admirers, and critics
of Presidents; fellow members in the great society of economic plan­
ners; and other politicians.
Is economics a science ?
I believe that the speeches of my predecessors may have dispelled
any lingering doubts you might have had on this subject. But I
would suggest that their comments have demonstrated that economics
does provide a scientifically designed language for presenting per­
sonal bias in objective terms and providing politicians and admin­
istrators with ammunition they really need in carrying on modemstyle group conflict.
Although administration is not a science either, I do not see how
I can be as controversial as those who have preceded me.
Now, the amending of Senator Murray’s original full employment
bill did not stop when an improved version became law in February
1946. That is when the processes of real-life amendment began.
In the first stages, the act’s administrators set their sights on
economic stability of different types. They then shifted to sus­
tained growth, with stability. We are now on the brink o f a great
shift to “ quality of life” objectives which, while including growth
with stability, go much further. None of us yet quite knows how
much further they will go.
These objectives have been vigorously, if vaguely, presented in the
President’s vision of a Great Society in which economic activity



serves other human needs in addition to economic security and ma­
terial affluence.
In a certain sense these shifts have resulted from the initiative
and interaction of Presidents, advisers, agencies, Members of Con­
gress, and interest groups. All of these, of course, take part in the
governmental process of reconciling competing interests, goals, pres­
sures, and policies.
But in a deeper sense, these shifts mirror the changing condition
of man in a period of great transformation throughout the West, the
transition from industrialism to post industrial ism.
The more obvious aspects of this transformation are often referred
to as “ explosions” in population, in urbanism, or, as the organiza­
tional, scientific, technological, or cybernetic “ revolutions.”
These explosions and revolutions are moving at accelerating rates.
They are all the more confusing because, at the same time, we are
experiencing the birth pangs—unheralded, unanticipated, and, for
some people, totally unseen—of a new w^orld society. This new world
society of bad neighbors is already characterized by increasingly in­
terdependent and interpenetrating nations, megalopolitan world cen­
ters, world-spanning organizations and world-oriented elites, polycentric conflict with intersecting and shifting coalitions, and more
complex economic relations than any economic professors have tried
to study. These many changes hold forth tremendous potentialities
for good and evil, for new freedoms and new despotism, for spiritual
enrichment and moral impoverishment. What combinations may
result will depend in part upon the ability of national leaders to
guide an unsystematic social system whose complexities defy full
comprehension or control.
Under these conditions of uncertainty, I am afraid that many of
us are trying to face tomorrow’s problems with the ideas, concepts,
and, if you will, guidelines of 1946, 1956 and, God help us, 1966.
Generals are not the only ones who trv to refight the wars of the past.
In a society of intermingling generations, when too many of us refuse
to fade away, the ideas of the past may easily capture, confuse, or
alienate the minds of the young and prevent any of us from under­
standing the present. These words are an introductory warning
against the calm remainder of my remarks.
What I shall discuss today is nothing more than the continued
application in the future of three unusually simple principles em­
bodied in sections 2, 3, and 4 of the Employment Act: first, presi­
dential reporting; second, the use of experts; and third, congressional
initiative. The first of these, indeed, is embodied in the section 3,
article II of the U.S. Constitution.
First, in his annual messages to Congress, the President of the
United States should really report—and perhaps I should say for
the first time—on the ustate of the Union” The provisions in the
Employment Act for an annual Economic Report were a small step
in this direction. They were based upon a recognition of the tre­
mendous power of ordered information and a presidentially initiated
dialog on where we have been and where we might want to go. As
a result, the President’s state of the Union messages are now backed
up by two sophisticated informational packages: the Economic Re­
port and the budget message.



This style of Presidential reporting has had an enlightening in­
fluence on private policies. It has even helped to promote some
coordination in our last refuge of competitive enterprise, the Federal
Government. These reports have gone a long way toward destroying
economic illiteracy among the Government, business, labor, and pro­
fessional leaders of America.
But as presently conceived, these messages deal mainly with the
monetary reflections of reality. Their logic of internal improvement
leads more deeply into purely economic analysis. This, I am afraid,
may well continue to spread the new Philistinism, the bookkeeper
philosophy that anything important in life may be reduced to a
common money denominator.
Now, I am not prepared to discard anything that is called the Gross
National Product. But even if it were the “ Gordon national product,”
I would be concerned in this day and age—when quality changes
are not reflected in market sector prices, and when the nonmarket
sector is increasing at a very important rate—by the fact that GNP,
far from being an indicator of social welfare, is becoming an increas­
ingly spurious aggregate.
Now, the President has already moved toward increasingly explicit
statements concerning human needs and performances in manpower—
through a special report—and in health, education, and a few other
fields. But as Senator Javits has suggested in his proposals for na­
tional goals, the handling of these subjects requires more than “glit­
tering generalities.” It also requires a frank facing up to the fact
that our currently compiled social indicators are shockingly inade­
quate. In some areas, such as the F B I’s crime index, the state of
statistics, misinterpretation, and underlying concepts is little short of
In my judgment, we need a new style State of the Union Message,
backed up not only by an improved economic report and budget mes­
sage, but by a “ Social Report of the President.” In this way, I
believe that the President could give Congress every year a more
comprehensive and coordinated accounting on where we have been
and where we might choose to go.
Such modernized Presidential reporting, backed up by specialized
technical documents, could provide individuals and groups with
serious information for developing their own plans and policies. It
could provide new starting points for an informed dialog in a society
in which some people, although certainly not all, may conceivably
move toward greatness.
Second, in handling his new tasks„ the President should get co­
ordinated help not only from economists, but from experts in all fields
relevant to the guidance of significant national change.
Now, the Employment Act was bom with the help of an incredible
number of experts in many fields. Under the act, the various Council
economists have pioneered the new techniques of analysis and new
policy concepts. Indeed, it was the Council, going far ahead o f the
economics profession outsideof the Government, that first established
sustained growth as an essential goal of national policy among Western
Yet in some respects, the Council has fallen in love with the political
value o f its professional image. Its commitment to dealing with real-



life problems sometimes moves in inverse proportion to its loyalty to—
if I may borrow the ultra-Marxian words of Arthur Bums—“profes­
sional economists as a class.”
Yet national policymaking requires something more and something
better. Specifically, Great Society programs require an imaginative
broadening of economic bookkeeping into national social accounting.
This task cannot be performed easily or mechanically. It will re­
quire the creative use of expertise in many areas.
In 1946, there already existed in economics a body of organized
data and synthesizing theory with clear—and clearly controversial—
policy implications. In the next 20 years, new data and new theory
are needed. While some Council role in this venture seems inescapa­
ble, new instruments are necessary, and action, I believe, is now
underway to establish them.
Third, and finally, we need a full-dress congressional inquiry into
alternative concepts of the Great Society and the relation of Great
Society programs to the dynamics of change in America and the
world. The Employment Act was born through congressional initia­
tive. Many achievements in economic policy and performance since
then have resulted almost entirely from the initiative of the Joint
Economic Committee. In this area of executive branch activism, it
seems to me that a rebirth of congressional initiative is needed to keep
agencies on their toes, to bring hidden issues into the open, and to
rescue the creative ideas that may always get knifed in the secret
alleyways of large Government bureaucracies.
We need the continuing stimulus of such legislative proposals as
those offered by Senator Clark on manpower and Senator Javits on
national goals.
Now, in a previous period of major change in America, we had a
broad-gaged, bipartisan congressional inquiry under the TNEC. To­
day, at a time o f still greater and more confusing change, we need
another grand inquiry into where we are and where we may choose
to go. We need a congressional inquiry that rises above the prepara­
tions for the next elections, and that utterly rejects the idea-— popu­
lar in this room—that nature, like universities, is organized into intel­
lectual disciplines.
In the years ahead, the Joint Economic Committee has the distinc­
tive opportunity to conduct a Great Society study that will illuminate
this challenging period of social, economic, and institutional trans­
formation and choice.
salute the indefatigable Representative Wright Patman, of Amer­
ica, not merely of Texas, for the initiative he has already taken in
this direction to the Joint Economic Committee’s Subcommittee on
Economic Progress.
Back 21 years ago in a few months, he and Senator Murray took
the initiative on a venture whose results none of us then could have
possibly predicted. I believe a still greater same promise lies ahead
in the future.
Thank you, Mr. Chairman. [Applause.]
Dr. E n s l e y . Thank you very much, Professor Gross.
Next we have Dr. Gerhard Colm, senior staff member of the Coun­
cil of Economic Advisers from 1946 through 1952, and now chief
economist for the National Planning Association.
Dr. Cohn.



A d m in is t r a t io n op t h e E m p l o y m e n t A c t

Dr. C o lm . Mr. Chairman, friends and foes of the Employment Act.
Most of what I have to say on the administration of the Employ­
ment Act, asking your pardon if an economist goes into such a strange
field, flows from what previous speakers have said. But I shall not
waste my precious minutes on courtesies to the previous speakers.
The legislative and executive machinery under the Employment
Act exists today pretty much at it was established 20 years ago. With
regard to the Council of Economic Advisers, competent experts in
ublic administration predicted at that time that the machinery would
og down in friction among the Council, the Budget Bureau, and
other agencies. They believed that a more thorough reorganization
in the Executive Office was needed. That there was less friction than
expected is due, I believe, to the quality of, and the cooperation among,
the individuals in key positions throughout the period.
It is less surprising that only few changes have been made in the
structure and operation of the Joint Economic Committee. Its estab­
lishment was welcomed 20 years ago as a promising innovation and
has received little criticism in the interim period. Nevertheless, des­
pite the high caliber of its members and the excellent and devoted
work by the committee and its staff, it has not yet entirely fulfilled
the original expectations. It was hoped that the committee would
act in an advisory capacity not only to Congress as a whole but es­
pecially to its legislative committees. Actually, its impact stems
primarily from the educational effect of hearings, from the influence
individual committee members have on pending legislation, and from
the excellent pioneering staff studies.
Many things have happened during these last 20 years that have
deeply affected the task to be performed under the Employment Act.
Twenty years ago the main concern was with depression and mass
unemployment of the kind that was experienced during the 1930’s.
Actually, during most of the period the main concern was, first, with
inflationary tendencies which resulted as an aftermath of World War
II in connection with the Korean war and is now threatening as a re­
sult of the Vietnam war. Second, we were concerned with the fre­
quent though limited recessions of the fifties.
Gradually, however, the emphasis has been shifting from combat­
ing recessions to promoting sustainable and steady economic growth.
Anticyclical policies seek to influence the aggregate demand
through monetary and fiscal policy. Our concern in this connection
is with arrangements for some flexibility in expenditures and tax
policy, and for coordination between fiscal and monetary policies. In
spite of the 20 years’ experience, no provision for greater flexibility
in tax and expenditure policies has been made. Also, the reader of
newspapers, the Congressional Record, and the proceedings of some
hearings may gain the impression that the coordination between monetary and fiscal policies is not yet entirely perfect, in spite of tlie pro­
gress made during the last 15 years.




While the procedures for dealing with cyclical developments need
to be improved, it is of equal if not greater importance to consider the
consequences of the increasing emphasis on growth-supporting
When Government policy only aims at influencing the total amount
of effective demand, it doesn’t make too much difference what combina­
tion of and what kind of changes in expenditures, tax, and monetary
policies are adopted because as long as we are influencing aggregate
demand in the right direction, the desired effect on the business cycle
can be achieved, even though different policy requirements require
different sizes of effort. The situation is quite different when we are
seeking to support sustainable and steady economic growth. Here
we must be concerned with those factors that either promote or ob­
struct expansion, which requires much more detailed diagnosis and
more detailed consideration of a great number of individual policy
The evaluation of the effect of the various Government programs
and policies on economic growth implies two requirements. Olie is
that even the next steps have to be seen in the longer time perspective;
the second is that the specific steps must be evaluated in the whole con­
text of the interrelation of national goals and economic growth. Eco­
nomic growth is not an end in itself. It is important mamly because it
increases the means for achieving the national goals set by society and
individuals for themselves. In turn, achieving our national goals—
for example, in education, health, and research—lays the groundwork
for and supports larger economic growth.
The recently initiated procedures to evaluate the programs of the
Federal agencies in terms of clearly defined long-term goals is a
promising step in the right direction. In a way, the President and
his advisers, in formulating the Government program, always have
weighed what can be done within the limits of available resources in
pursuit of national defense, social, cultural, and economic objectives.
It would be desirable if the Economic Report would present longer
range estimates of the resources likely to become available over a
period of time and their likely use for individual consumption, busi­
ness investment, and Government programs under the President’s pro­
posals. This is the original idea of using long-term national economic
budget projections in the Economic Report.
At the time of the great debate in 1945 Congress did not insist on
having in the Economic Report a national economic budget spelled
out for future years as it had been proposed. It was felt, rightly, that
we did not yet have enough experience with economic projections to
incorporate a specific requirement of that kind in a basic statute.
Recognizing the experimental work done by various Government
agencies— including the Joint Economic Committee—and by private
research organizations, we can say with confidence today that the time
is ripe for including in the Economic Report such long-term projec­
tions of potential resources and their use under proposed Government
programs. These longer term projections should be both in terms of
the gross national income and product account—in spite of Bertram
Gross’ strictures—and in terms of a manpower budget.
What I am recommending here would have a number of adminis­
trative consequences.



First, I believe one reason why the Council has not concentrated
more on longer range problems is the fact that they are far too busy
(including recruitment of new members and staff because of an ex­
traordinarily high rate of turnover).
Second, we should recognize the increasing importance of techno­
logical developments for long-term economic growth. The Office of
Science and Technology could make a very important contribution
to the development and framing of technologically oriented programs
which are desirable in themselves and could promote economic growth.
The Office should act as a link between operations under the Employ­
ment Act and the scientific community.
Third, I wonder whether it would not be useful for a high-ranking
assistant of the President to act as a program coordinator in the
Executive Office. He would receive program proposals from the vari­
ous Government agencies and also from private groups. These pro­
posals would be screened and those selected for consideration would be
evaluated in financial terms by the Budget Bureau, in economic and
manpower terms by the Council of Economic Advisers and the Labor
Department, and in technological terms by the Office of Science and
Technology. I welcome Bertram Gross’ suggestion that programs
should be appraised also from the aspect of their contribution toward
the achievement of our various social objectives. I ’m not proposing
a computerized machinery to which all proposals are given as an
input and out of which comes an optimum program which reconciles
economic, social, and political goals with potential resources. What
I have in mind is a somewhat more systematic collection and process­
ing of information which would make possible a prudent evaluation
of priorities and the economic and social effects or Government pro­
grams in existence or being considered, thereby going beyond the
cost-effectiveness approach. Everything I ’m suggesting is now done
in the heads of the great number of people who advise the President,
but I believe that the use of available techniques would enable a more
systematic economic and social program assessment and formulation.
Fourth, the Council has had to act frequently as a fire brigade for
the President, particularly for the implementation of the price-wage
guidelines. I believe that it is essential for a policy in support of eco­
nomic growth to inject the public interest into the process of price and
wage determination in a more orderly manner. I don’t want to sup­
port exactly the wage-price guidelines as formulated at present. I
also don’t want to advocate price and wage controls in peacetime. I
would favor, however, the establishment by law of an office for pricewage-productivity analysis which would work under the general direc­
tion o f the Council o f Economic Advisers but would have its own oper­
ational responsibility. This office would establish, on request o f the
President, special committees for crucial industries to study the effect
o f proposed price and wage actions on economic growth, productivity,
and price stability. The President could bring these findings, if he
wished, to the attention of Congress.
None o f these suggestions implies a drastic change from the kind of
organization which has developed and which has been tested over 20
years. However, today we see more clearly than 20 years ago what is
required and what is feasible to make our economic and social system



work in a period of rapid technological developments, great inter­
national uncertainties, and a growing social consciousness.
Thank you very much.
Dr. E nsley. Thank you very much, Dr. Colm.
Next, we have a paper prepared by Dr. Neil H. Jacoby, a member of
the Council of Economic Advisers from 1953 to 1955, and now Dean
of the graduate school of business administration at the University
of California. Dr. Jacoby is detained in California and cannot arrive
until late this afternoon. We have arranged to have his paper read,
however, by Dr. Karl Brandt, professor emeritus of Stanford Uni­
versity, and a member of the Council of Economic Advisers from 1958
to 1961.
Dr. Brandt.
Im p r o v in g t h e A d m in is t r a t io n

o f t h e E m p lo y m e n t A c t o f


Dr. B randt. Mr. Chairman, distinguished members of this sym­
posium, ladies and gentlemen. This morning when Dr. Ensley asked
me to read Dean Neil Jacoby’s paper I accepted promptly for two
reasons: because I share the views this distinguished colleague of mine
holds, and also because I considered it as an opportunity for express­
ing a little token of gratitude for the greatest education I ever got in
my life about what makes this huge and dynamic economy tick and
how the Executive and the Congress assist in its performance; namely,
during the time I served on the Council under President Eisenhower.
Dean Jacoby’s paper has the title, “ Improving the Administration
of the Employment Act of 1946.”
My thesis is that the Employment Act of 1946 advanced the eco­
nomic welfare of the American people by a significant quantum dur­
ing its first 20 years of operation, and that modest changes in the act
and in its administration by the Council of Economic Advisers and
the Joint Economic Committee of Congress could measurably enhance
its contribution during the years ahead.
The performance of the U.S. economy during the period 1946-65
was significantly better than during the 20 years preceding World
War II. Production averaged closer to the capacity of the economy,
unemployment was reduced, and fluctuations of price levels were much
less extreme. The fruits of economic progress were more widely dif­
fused among groups in society and among regions of the Nation.
O f course, this superior performance must be attributed partly to
the absence of deep worldwide depressions since World War II, partly
to striking advances in the use of powerful new monetary, fiscal and
credit instruments for controlling the economy, and partly to more
effective machinery for international economic cooperation. Even
without an Employment Act, the American economy would have trod
a smoother course of expansion in the postwar era than it did during
the generation prior to World War II.
Yet there is persuasive evidence that the administration of the Em­
ployment Act in and of itself added an important increment of eco-



nomie welfare. It achieved this result by performing three valuable
functions. It set goals and objectives for national economic perform­
ance, and thereby stimulated long-range planning activities
throughout American business as well as Government. It provided
machinery for coordinating Federal economic policies designed to at­
tain those goals. It greatly expanded our knowledge of economic
theory and policy by establishing an administrative process for edu­
cating the Executive, the Congress, economists, and the public.
Without the Employment Act—a condition now difficult to envis­
age—postwar changes in Federal economic policies would have been
less timely and effective. Postwar recessions would have been longer
and deeper. Postwar booms would have brought more price inflation,
inequity, and distortion of investment. From personal experience
I know that the recession of 1953-54 was shortened and moderated by
the influence of the Council of Economic Advisers exerted through the
President and the Congress. A rigorous evaluation of the activities
of the Council and the Joint Economic Committee over the past 20
years would probably demonstrate that they have indirectly added
billions of dollars a year to the Nation’s output and income.1
The obligation of the President to transmit an annual Economic
Report to the Congress has compelled each administration to define
its goals and to propose a set of coordinated economic measures to
attain them. The hearings of the Joint Economic Committee on these
reports have been an immensely valuable forum for public education
in economic policy. The manifest rise in the economic sophistication
of Americans, and the broad consensus that has emerged on Federal
fiscal policies, are among the great achievements of our age. For them,
the Employment Act may take primary credit.
Yet, the administration of the Employment Act can be improved.
I shall refer to two desirable changes.
First, the Employment A ct should contain a more precise and com­
plete statement of national economic goals. It is time to incorporate
into the act a less ambiguous and limited objective than the present
injunction to seek “ maximum employment, production, and purchas­
ing power.” The work of the President’s Commission on National
Goals in 1960, and 20 years of debate in and out of Congress, provide
a basis for a clearer and better balanced statement of our national
economic purposes.
There will always be room for differing interpretations of any statu­
tory statement that is likely to be enacted. Yet it is obviously desirable
to include in a statement of goals reference to price levels, international
economic balance, efficient resource allocation and balanced distribu­
tion of incomes, as well as to employment and production. An inclu­
sive and complete statement of national economic purposes in the Em­
ployment Act—and in the Federal Reserve Act as well—would provide
the executive with better guidelines for formulating its annual eco­
nomic policy proposals. It would lessen the uncertainty and raise the
confidence of other countries in American economic leadership. The
1 A scientific study should be made o f these activities. The early years of the Council
o f Econom ic Advisers were analyzed by Edwin B. Nourse in “ Economics and the Public
Service” (New Y ork : H arcourt Brace k Co., 1953). Aspects of the initial period of the
Eisenhower administration were treated in my own book, “ Can Prosperity Be Sustained?’'
(New York : Henry H olt k Co., 1956). Useful material is contained in the book by Edward
S. Flash, Jr., “ Econom ic A dvice and Presidential Leadership” (New Y o r k : Columbia Uni­
versity Press, 1965).



Joint Economic Committee should now begin the task of formulating
such a statement.
Second, the Council of Economic Advisers should give more atten­
tion to structural economic problems and policies. Section 4(c) of the
Employment Act makes it the duty of the Council to—
develop and recommend to the President national economic policies to foster and
promote free competitive enterprise, to avoid economic fluctuations, or to diminish
the effects thereof, and to maintain employment, production, and purchasing

Given its heavy responsibility to monitor the operation of the econ­
omy, and to propose coordinated policies to avoid cyclical fluctuations,
it is natural that the Council has focused its energies on economic
guidance over the short and medium period ahead. This preoccupation
has let it neglect structural problems, which need to be resolved if
the U.S. economy is to grow at the maximum sustainable rate. The
Council should have the professional manpower and budgetary sup­
port to discharge its statutory responsibility to “ foster and promote
free competitive enterprise,” as well as to avoid economic fluctuations.
The list of structural problems is formidable. It certainly includes
problems of tax structure, of maintaining competition in markets for
labor as well as for industrial products, of barriers to international
trade, of international liquidity, of agriculture, of education, of trans­
portation and communications, and of financing State and local gov­
ernment services. Policy studies of many of these problems are being
made within or outside of the Federal Government. Yet the Council
has not coordinated the attack on structural problems to the degree
that it has organized countercyclical policies. Its recent attention
to tax policies to foster economic growth is commendable; but a much
wider range of structural issues is involved. Many of these problems
can be approached fruitfully in the broad context of modern “ systems
In preparing two affirmative changes in the administration of the
Employment Act, I reject two other changes which have often been
Third, the semi-autonomous authority of the Federal Reserve Sys­
tem over monetary policy should be maintained. The well-publicized
dispute o f the Federal Reserve Board over increases in the discount
rates of Federal Reserve banks again raised the question whether pres­
ent machinery for coordinating economic policy is adequate. Some of
those who considered the Board’s decision to be wrong argued that the
President should have final authority over monetary policy.
We are not here concerned with the merits of a particular monetary
action, but with the basic propriety of present organizational arrange­
ments. These were studied at length by the Commission on Money
and Credit. It concluded that the semi-autonomous authority of the
Federal Eeserve Board over U.S. monetary policy should be pre­
served.2 I agree. Present informal consultations between the Federal
Reserve authorities and the principal economic and fiscal officers of the
administration have, in fact, nearly always produced consensus on
appropriate monetary actions and their coordination with fiscal and
other policies. Since the famous “ accord” of March 1951, instances
3 See ch. 10 o f M oney and Credit: The R eport o f the Commitaion on Money and Credit
(Englewood C liffs: Prentice Hall, Inc., 1961), especially pp. 84-87, 266-267.



of divergent judgments by the President and the Board have been very
The Federal Reserve Board was properly given a measure of
autonomy in order to remove monetary policy decisions one step from
the political arena. It constitutes a kind of “monetary judiciary” that
is compatible with our federal system of divided powers, checks, and
balances. A semi-autonomous monetary authority is an accepted part
of governmental organization in the leading nations of the West. I f
the United States were to abandon this principle now, foreign con­
fidence in the dollar would be impaired.
Fourth, the President should not use the Employment A ct as an
authority for promulgating detailed national economic plans, but the
Council should play an active coordinating role in making long-term
policy planning studies. Devotees of national economic planning have
been critical of the fact that no President has seen fit to specifiy in
numbers the amount of national production and employment to be
sought. None has proposed specific measures to precisely close the
gap between probable and potential output and employment. Critics
have charged that this was contemplated by the Employment Act,
and the language of section 3 of the act certainly permits of such an
The practice of the President and the Council to deal with short­
term national economic goals in general and qualitative terms rather
than in specific numbers has been wise and should be continued. Any
definition of “ full employment” is necessarily imprecise and debat­
able within fairly wide margins. Our knowledge of the magnitude and
timing o f the effects of Federal policies upon aggregate demand is
rough and incomplete. Each year brings novel and unexpected
economic forces into play that require the President and Council to
alter their assessments. To ask the President to publish a set of num­
bers each January would be to delude the public. It would risk dis­
crediting the Executive, if the numbers later proved to be far wrong.
The Employment Act has been and is, in a broad sense, an instru­
ment of national economic planning. But it is a peculiarly Ameri­
can approach to planning. It contemplates a loose, indicative, educa­
tional type o f planning that better serves our dynamic, competitive,
market economy than would the highly structured plans of the Soviet
Union, or o f India, or of France.
Although American economic welfare would not be advanced by
the publication of elaborate national economic plans, it would be ad­
vanced if the Council of Economic Advisers were responsible for
making long-range economic policy planning studies. Such studies
should evaluate the consequences of alternative economic policies for
meeting future national contingencies. For example, the Council re­
cently studied policies for meeting the contingency of a sharp reduc­
tion in defense spending. It should also have on-the-shelf studies of
optimal policies for adjusting the economy to sharp increases in de­
fense spending, to marked changes in technology, to radical shifts in
international relations, and other exogenous factors. The Office of
Emergency Planning and the Department of Defense now carry out
parts of this responsibility. The Council should insure that all o f it
is performed, and act as coordinator of the effort. Long-range eco­
nomic policy planning studies are needed by the President and the



Congress for making current decisions. Because such planning stud­
ies have a longtime perspective and evaluate alternative routes toward
defined goals, they can help to insure that current decisions approach
optimality. [Applause.]
Dr. E n s l e y . Thank you very much, Professor Brandt.
At the conclusion of the next paper, there will be a 10-minute inter­
Concluding our consideration this afternoon of the administration
of the Employment Act is Mr. John W. Lehman, a member of the staff
of the Joint Economic Committee from 1947 to 1962—15 years. Mr.
Lehman is now Regional Director of the Bureau of Labor Statistics
in Cleveland.
Mr. Lehman.

d m in is t r a t io n

of t h e


m ploym ent



Mr. L e h m a n . Dr. Ensley, interested and durable friends of the
Employment Act. It is a special joy to be again among so many who
were my associates and to speak to this audience about the reflections
I have had from now over 3 years and almost 300 miles away. These
observations are also made from the other side of that mysterious and
undefined space that separates the executive branch from the legisla­
tive branch of our Federal Government.
As we now move into this final talk of the day, note that the planners
of the program, to their credit, have avoided the hackneyed and really
not very productive session which such anniversary celebrations
typically include. That is the one which begins, or is entitled “The
Next 20 Years,” or “The Next 50 Years,” or whatever time it is that
they are commemorating. Maybe this is because the program commit­
tee observed the prudent humility the framers of the Employment
Act themselves had about trying to specify what the Joint Economic
Committee would be doing beside their annual reviews of the Presi­
dent’s Economic Report. The act’s author handled this very deftly
by the simple, broad provision that the Joint Committee should
“ * * * make a continuing study of matters relating to the Economic
Report.” How wise indeed were these draftsmen when we look at
the actual accomplishments of the Joint Economic Committee under
this portion of their charter. I propose now to take one last look back
at those accomplishments, to see how essential the continuation of this
kind of flexibility is to fulfill our hopes for the future.
What, then, are some of the activities of the Joint Economic Com­
mittee that could hardly have been anticipated in 1946? To start,
who would have expected that the Joint Economic Committee would
become a publisher of economic textbooks? It did—as many a college
reference shelf and class assignment sheet will attest.
Or that the committee would bring the kind of reciprocity between
academe and the Congress that would prompt a reference shelf
writer 18 years later to say that—
The Joint Economic Committee is the nom de plume of the world’s largest class
in economics, in which astute and overworked Congressmen and Senators take
turns being pupils and instructors to most of the Nation’s economists.



The committee surely was not set up to be the voice urging and
defending adequate and proper economic statistics, but it has been
and it continues to be, in the clearest of tones.
Nor did anyone, I suspect, ever anticipate that the Joint Economic
Committee would virtually have to invent a hearing format and
method in order that the wide-ranging views of many kinds of
witnesses could be fairly and effectively presented. The use by the
Joint Committee and other congressional groups of the roundtable,
seminar-type hearing, and the compendium of witness papers pre­
pared and distributed in advance is so common now as to make us for­
get their origin.
Or who would have thought in 1946 that an experimental hearing,
bringing together physical and social scientists in 1955 for a discussion
of Automation and Technological Change, would have highlighted
the need for improved educational standards at all levels, 3 years
before the traumatic impact of Sputnik I ? And it was the Joint Eco­
nomic Committee which about that same time began the series of pio­
neering studies that have led us through the maze of economic statistics
we must tread if we are to understand comparative rates of growth
between the United States and the Soviet Union.
What Member of the 79th Congress, rising to speak after the passage
of the Employment Act, would have considered predicting that there
would be enacted in the 89th Congress, nearly two decades later, a half
dozen major pieces of legislation, with identifiable roots in hearings
and studies of the Joint Economic Committee? Let me make clear
there is no intention to claim too much for this exploratory and educa­
tional function of the Joint Economic Committee. Nevertheless, it is
true that the Joint Economic Committee has itself or through its sub­
committees conducted studies which brought the tools and Council of
Economic Advisers to bear on almost every field of legislation passed
within the last year: aid to higher education, programs for Appa­
lachia, manpower retraining, improvements in social security, tax
reduction for economic stimulus, aid to elementary and secondary
education, and the whole antipoverty program.
While the committee’s interest begins with the economic stability
aspects of whatever problem is under consideration, it is important to
note that an adequate understanding of the economic policy implica­
tions in a given area often requires help from other disciplines. As
we already have noted, to understand the economic impact of automa­
tion required the physical scientist to tell the committee what the phys­
ical limits of the application of automation were, and only the educator
could speak adequately on the training requirements that new tech­
nology would have to meet.
The committee’s studies of social security and pensions were devel­
oped because of economic concerns about the impact of such programs
on manpower and the needs for maintaining overall demand. But the
committee found it needed not only the counsel of economists but the
help of actuaries, administrative specialists, and experts from the area
of social welfare. As a result of these appearances by scientists other
than economists, including the political scientists, the impact of Joint
Economic Committee studies has almost automatically spread to other
than economic legislative areas.



Not only have the Committee's studies affected a broad range of
legislation but their direct influence, both current and long range,
on the actions of executive agencies has been impressive. Today's
concerns over restoring excise tax cuts and increasing tax rates remind
us of the Joint Economic Committee's unanimous resolution in July
1950 calling for an immediate increase in taxes to finance the Korean
war on a pay-as-you-go basis and how it changed current policy of
that time. There was the Treasury-Federal Reserve “ accord” which
came out of the Subcommittee on Monetary Policy's studies and hear­
ings—and the new or improved statistics initiated as a result of the
studies of the subcommittee working so intensively in that area.
Studies of balance of payments and foreign economics bore fruit in
the Trade Expansion Act and some of the corrective measures involv­
ing the balance of payments. The Agriculture Subcommittee’s presentation of alternative agricultural programs also shows how hear­
ings and reports lay the ground for executive as well as legislative
We could go on through study after study to illustrate in depth this
role the Joint Economic Committee had in the early identification of
public economic problems and in the long, ofttimes repetitive process of
public education so essential to the acceptance of an idea. As Walter
Heller noted, we could document the development of the “ New Eco­
nomics” of last year’s tax cut in the studies of the Fiscal Policy
Subcommittees, in the “ Study of Employment Growth and Price
Levels,” and that 1954 best seller, “ Potential Economic Growth in the
United States in the Next Decade”
We could follow through the long series of hearings, special studies,
and reports of the Subcommittees on Low-Income Families, beginning
with their 1949 report on “ Low-Income Families and Economic Stabil­
i t y which first put dimensions on the problem by identifying the poor
by age groups and other significant characteristics. That the poor
are always with us may have been acknowledged through the centuries
but the recognition that they are still here amidst affluence must be
credited to a significant degree to the many years of hammering away
by the Joint Economic Committee—right up to the paper in the
Study of Employment, Growth, and Price Levels on “ Th-e Low-Income
Population and Economic G r o w t h that provided much of the am­
munition for the opening guns of the war on poverty.
But time does not permit, and hopefully the argument does not
require, that this assessment continue. The desirability of the Joint
Economic Committee continuing to look ahead to problems and possi­
bilities several years beyond those of any given year’s President’s
Economic Report seems without question.
There is a special advantage, too, in these kinds of studies as dis­
tinguished from hearings on an immediate piece of legislation, which
I think must not be overlooked. The studies provide a unique oppor­
tunity to establish at an early stage the general areas of conclusion
upon which all or nearly all members of the Committee can agree.
I am well aware of that respected theory of political science which
says the way to preserve the two-party system is for each party to
strive vigorously to set forth its own point of view independent of the
other in order that the voter can best make his own choice. I submit,
however, that in the case of economic judgments, which often represent



an infinite range of variations even within parties, it may well be that
a greater contribution to the voter’s best choice can be made by first
striving to see what areas and principles the members of both parties
can agree on. With these areas of agreement set aside, the issues re­
maining become more manageable for the voter to make his own value
judgments. Many of the Joint Economic Committee’s studies in broad
economic policy areas provide the reader with exactly such an
What form this kind of synthesizing will take in the next 20 years,
what kinds of innovation and education the Joint Economic Com­
mittee will carry out under its Employment Act mandate for “ con­
tinuing studies of matters relating to the Economic Report,” I have
already foreclosed us from forecasting. But there is little doubt that
those who will come to this platform 20 years from now will look back
with equal amazement on the range and significance of the Committee’s
accomplishments between 1965 and 1985. [Applause.]
Dr. E n s l e y . Thank you very much, Mr. Lehman.
We will now have about a 7-minute break and when you reassemble,
I suggest that those who would like to ask questions gather around
the floor microphone which is located at the back of the auditorium.
We stand in brief recess.
(Short recess.)

u e s t io n s



b s e r v a t io n s





u d ie n c e

Dr. E n s l e y (presiding). Will you please come to order?
We have allotted the remaining time this afternoon to questions
from the audience. Our panel of today’s speakers is strong minded
and not easily drawn off base, so don’t hesitate to call out challenging
questions. Please keep your questions to 2 minutes so there will be
plenty of time to have a number of questions.
I might say the participants, in giving their answers, will be asked to
confine their remarks to not more than 2 minutes.
As you know, the Joint Economic Committee is planning a com­
pendium of reactions to this symposium so any extended remarks
should be reserved and submitted to the joint committee for possible
inclusion in the followup publication.
As you have been advised, we will use the floor microphone at the
rear of the auditorium. When you are recognized, please clearly
identify yourself for the record and indicate to whom you wish to
di rect. you r quest ion.
Now, iny eyes fall on a very distinguished member of the economics
profession, one who has been attentive here all day. No program
commemorating the 20th anniversary would be complete without a
few words from the first Chairman of the Council of Economic A d­
visers, the person who launched and gave professional status to a
new arm of the President, serving from 1946 to 1949. I think it most
appropriate that we start this discussion period with a few remarks
from our distinguished dean of Chairmen, Dr. Edwin G. Nourse.
Dr. J s o tjr s e . Thank you, Mr. Chairman, and friends. I know that
I speak for everyone who has been here today in saying that the special
committee has served us a rich and intellectual ‘feast. I think that



the sustained high level of the economic discussions luis been
I f any of you came thirsting for blood, particularly on the arena
of wage-price guidelines or something of that sort, you may have been
disappointed or at least disillusioned and thought this was an exercise
in peaceful coexistence. I am reminded of the urchin who with great
effort straggled over a high fence and dug his way under the flap of a
circus tent, only to find that what was going on was a revival meeting.
I referred to this as a “ rich and intellectual feast,” but I hope I will
not be abusing my privileges by saying that it has occurred to me
that it was not a balanced diet. Of the 12 speakers on the program,
11 were former members of the Council of Economic Advisers or its
top staff. Only one spoke, from the viewpoint of the Joint Economic
Committee, John Lehman, the last speaker.
The Congress in its wisdom created two agencies having different
functions but comparable importance for the interpretation and imple­
mentation of the act. I think John Lehman did a brilliant job of
pointing out the distinctive services which the Joint Economic Com­
mittee has rendered.
O f course, I am aware that two Senators and two Representatives
from the committee appear on the program tonight. Yet, I am not
altogether reassured that after-dinner speaking will fully redress
the balance with this all-day session of speakers from the Council of
Economic Advisers.
Even if 2 Senators and 2 Representatives outweigh 12 academicians,
there is a third side of this triangle of the Employment Act that has
been strongly neglected.
The Employment Act specified that the purposes of what we now
call “ national growth and stability” should be pursued “ with the
assistance and cooperation of industry, agriculture, and labor.” Those
sectors of the private economy were active contributors to the draft­
ing and acceptance of the Employment Act and I submit that their 20
years’ experience in its application should yield something of unique
value in our effort to see the goals of maximum employment, produc­
tion, and purchasing power “ in the round.”
As Mr. Lehman pointed out, the joint committee in its publications,
has developed a new format of congressional hearings that has had
that widely rounded character. But no witness from the private
sector has been called in this hearing.
I will sign off with a one-sentence question which I suspect may
occur to future readers of these proceedings: Did passage of the Em­
ployment Act of 1946 mark a subconscious or intentional departure, or
revision of, the traditional American principle of “ checks and bal­
ances” and toward monolithic central government ?
That seems to me a question which, in the next 20 years, we shall
have to face. [Applause.]
Dr. E n s l e y . I notice the hand of my distinguished predecessor on
the Joint Economic Committee and I recognize him as Dr. Theodore
J. Kreps, emeritus professor o f business economics in the Graduate
School of Business at Stanford University.
Professor Kreps.
Dr. K e e p s . The group I miss among the excellent speakers at this
day’s gathering are the business economists of the country, notably



various members of the Committee for Economic Development.
They played an important role in the history of the Employment Act.
I think of Meyer Kestnbaunrs statement that it would be a serious
error to imply acceptance of the erroneous and dangerous view that
nothing, for example inflation, has status as an objective of national
economic policy unless it is mentioned in the Employment Act.
Though local and national industry and commerce, like traffic on
the highways, requires flexible governmental regulations, conscientious
and intelligent enforcement agencies, safe equipment and safe roads,
the most important variable continues to be the manager at the steering
Like the automobile, our free enterprise economy is a complicated
servomechanism which, when competitive and running at an accel­
erated speed for an unusually long tune, generates a most intoxicating,
hypnotic, and treacherous sense of power and euphoria. There may
have been too much of that here today.
Mesmerized by the hum of automated processes. !>eguiled by the
swift flow by of traffic and scenery, drivers are tempted to relax and
to ignore speed and stop signs to such an extent as to invite disaster.
As is true of the automobile, the economy, despite its built-in regu­
lators and snubbers, has no cosmic or invisible hand on the steering
wheel or accelerator or brakes other than that which is channeled
through the intelligence and purposes and character of human oper­
atives. Booms and busts, like traffic snarls and crashes, are not decreed
from on high but depend on the skills and responsible actions of all
decisionmaking units, whether consumer household managers, busi­
ness executives, labor leaders, or government officials.
I might phrase the question something like this: Since no matter
how good the mechanism is, human beings are tempted to test how
much it can do, how much it can stand, is the Council of Economic
Advisers paying adequate attention to the insights and problems of
the business economists who advise corporate policymakers?
Business managers cannot leave the problem of making decisions
entirely to econometric equations and other servomechanisms. In
addition to economic guidelines there are human problems of will­
ingness to work, keeping faith with customers, with workers, with
lenders, in short, of honesty, integrity, and character. It is during
periods of prosperity that character tends to disintegrate, effort to
diminish, rates of productivity to decline and slovenly practices to
emerge. It is the boom that fires the drive for speculative profits in
the stock market and in real estate to a fever pitch, culminating in
flagrant violations of tried and tested investment principles. Human
decisionmakers seem unable to recognize and summon the zeal as
quickly to counteract the perils of prosperity as thev muster to get
rid of depression.
Basically, it is not the stars, or may I say the economic mechanisms
that cause our troubles. It is ourselves. Too often we yield to this
temptation to place the blame on others for our problems and we all
have our favorite scapegoats. No one can earn his freedom, includ­
ing the freedom to be a businessman unless he can somehow behave
responsibly, as responsibly as every driver has to behave.
I wonder whether we are gearing our economic policies and our
research sufficiently to the management decisions which business econ­



omists try to illuminate, especially those decisionmaking units with
which Senator O’Mahoney was so much concerned; namely, the large
aggregates of economic power. Many of them larger than any State
governments, all of them creatures of government and granted every
power from the people. The Joint Economic Committee has per­
sistently developed hearings and monographs in this area but the
Council has been silent.
Similarly, what is the Council doing to strengthen and encourage
State governments to set up economic councils as California has done?
For it is especially at regional, State, and local levels that business
economists become indispensable for developing the kind of disag­
gregated data of most use in their area and in their industry. The
Joint Economic Committee and its congressional members have again
rendered yeoman service in collating the insights of business econo­
mists. But I wonder whether the Council could not do a bit more to­
ward helping labor and business decisionmakers to translate national
guidelines into State and local operational policies and programs.
Thank you.
Dr. E n s l e y . Thank you very much. Professor Kreps.
I believe one of your colleagues, Professor Emeritus Karl Brandt,
has some remarks to make. As they will take longer than the time al­
lotted, I suggest that they be made a part of the record at this point.
Professor Brandt was a former member of the Council of Economic
Advisers, 1958-61.
(The statement follows:)
S tatem ent

P rofessor K a r l B r a n d t , P rofessor of E c o n o m ic
P o l ic y , E m e r it u s , S ta n f o r d U n iv e r s it y


Adapting the Objectives of Our International Economic Policies to
the Growth and Stability Goals of the Employment Act
On this occasion of hearings of the Joint Economic Committee of the
U.S. Congress most befitting the celebration of the 20th anniversary
o f the Employment Act of 1946,1 want to address myself to the adapta­
tion of the major objectives o f our international economic policies
which is both desirable and soon probably mandatory for the assur­
ance o f attaining the growth, stability, and optimum employment
goals of the Employment Act. I will confine my remarks to a few
aspects of such adaptation.
In his Economic Report o f January 1966 the President has defined
four objectives of the international economic policies in this order:
1. To keep the dollar strong by correcting the remaining balance-of-payments deficit;
2. To work toward reduction of trade barriers:
3. To improve the international monetary system on behalf of
worldwide economic growth jointly with other industrial nations;
4. To assist those economically less advanced countries which

are prepared to help themselves.

I shall refer particularly to the last objective, which inevitably can­
not command the same priority as the three former ones.
The experience of 20 years’ cooperation between the executive branch
of the Government ana both houses of the legislative branch via the



Joint Economic Committee is a most valuable asset in guiding the co­
ordinated functioning of our domestic and foreign economic policy
with prudence as well as vision.
Such coordination and adaptation of national goals to specific for­
eign policy objectives has become painfully difficult. Within these
past decades of incessant political and military turbulence extraordi­
nary changes have occurred in political-economic geography and the
dimensions of economic intercourse among enormously increased num­
bers of independent nations of the world make mere pragmatism inade­
quate. Among the changes that have occurred perhaps the most sig­
nificant ones are those in the economies of the predominantly still
rural and industrially less advanced or developing countries. In many
of them, remarkable economic growth has been distored by ill-advised,
overambitious policies, a progressive decline of foreign credit sound­
ness, and hectic inflation which aggravates social injusticesj corrodes
the people’s faith in the fairness and justice of the economic system,
and thereby threatens political chaos.
Simultaneously, in many less developed countries with a rich endow­
ment of natural and human resources, inappropriate, one-sided pushing
of urban industrial and specifically metropolitan economic develop­
ment jointly with vague plans of so-called agrarian reform and unfor­
tunate measures of dingism on food and agriculture are forcing
indigenous private capital into flight from the countryside into big
cities, if not abroad. These policies invariably impair domestic food
production and impoverish the farm and village people,
The unfortunate policies of many developing countries are dia­
metrically opposed to the wise orientation and guiding principles of
economic growth and development incorporated in the Employment
Act and in the basic framework of a free competitive market economy
and private enterprise to which it adheres. Those policies ignore even
more the experience the administration of the Employment Act has
accumulated on governmental assistance to the decentralized decision­
making private enterprise economy with the tools of fiscal and mone­
tary policy.
The impact of these policies will not remain confined to those still
chiefly primary product-exporting countries—but will inevitably have
an unfortunate secondair and painful often multiangular impact on
the industrial countries, first among them our now so prosperous coun­
try with its booming economy.
In the present situation, which places extraordinary responsibility
on our NatimCs fiscal and monetary self-discipline to counteract immi­
nent inflationary dangers and overheating of the performance of
demand, an overexpansion of such programs as “ food for peace,” law
480, or in general charitable largesse in foreign aid can only increase
the strains and stresses—on top of what the war in Vietnam may
The complex inflation control mechanism, with its fiscal and mone­
tary policy tools and proper timing for shifting gears, is difficult
enough to operate without such excess ballast as applying Marshall
Plan ideas to utterly different needs and circumstances.
The most honorable, warm-hearted humane motives for effective
foreign aid and the vote-getting appeal of such motives in partisan
domestic politics must be weighed m the scales against cool-headed



rational economic policies. Then there cannot be any doubt that if
the developing nations of the free world apply to their domestic
development and their foreign economic policy the essence of our
experience with the Employment Act, this will be worth immensely
much more to them than reliance on and pressuring for aid from the
Federal Government of the United States. I f the intelligently interpreted self-interest of these nations demands the adoption of the basic
philosophy of the Employment Act as much as does our men policy
of economic growth and stability without inflation—then the goal of
peaceful partnership in foreign trade, investm-ent and mutual defense
of freedom requires the utmost restraint in giveaway actions and un­
requited exports of goods, services, or capital, particularly in the next
IS months.
In the financial centers of the 10 leading industrial countries which
endorse the stability of the U.S. dollar as the world’s measuring rod
of value, the fact is recognized that at this juncture of economic
history—20 years after the passage of the Employment Act—the
world is short of capital, is beset by genuine inflationary pressures,
and has to heed the ominous teaming in the fact that in some markets
of continental Europe even highest interest rates on bonds no longer
attract buyers.
Dr. E n s l e y . I now see the hand of a former Congressman from Cali­
fornia who was one of the original sponsors of the Employment Act
back in 1945 and 1946, former Congressman George E. Outland, and
now a professor at the San Francisco State College.
Would you like to ask a question or make an obseiyation?
Mr. O u t l a n d . I would like to make a brief observation if I could,
Mr. Chairman.
Somebody said earlier that we shouldn’t look back. As a member
of the first Joint Economic Committee, and as a chairman of 116
Congressmen of the House of Representatives, cosponsors of the
original bill, I would like to look back just a moment at our original
Just two of them. First, we were wholeheartedly committed to the
principle that every American who is able to work and desires work
has the right to work, the opportunity for useful, remunerative, regu­
lar, and full-time employment. And I quote the then Secretary
of Agriculture, now Senator Anderson, “ the right to a job which
this bill proposes to make a basic policy of our Government, is as
important to the preservation and sound functioning of democracy as
are the time-honored rights of free speech, free press, and freedom of
Secondly, and I quote again, this time from the much-emasculated
statement of policy in section 2—“ it is the policy of the United States
to secure the existence at all times of sufficient employment opportuni­
ties to enable all Americans who are able to work and willing to work
freely to exercise this right to employment.”
Thank you very much.
D r . E n s l e y . Thank y o u .
I now recognize Professor James Tobin of Yale University, and
a member of the Council of Economic Advisers from 1961 to 1962.
Professor Tobin.



Professor T o b i n . Y o u have good eyesight. I will ask the question
of my colleague, Mr. Gordon.
When I heard him list the purposes of the guideposts, one reflection
I had as one of the authors of the original 1962 report was that I
would scarcely have predicted they would be a major source of discus­
sion 4 years later. We felt, in fact, a little scared to face our colleagues
in the economic profession whom we knew would make the usual
cynical remarks of academicians about the ineffectuality of moral
suasion. I know Professor Gross said we shouldn’t worry about that.
I am reminded of Ted Sorensen’s saying that the most expendable
things you fellows bring to Washington are your professional repu­
But I see that guideposts are still being discussed so perhaps they
were not so empty after all.
The serious question is this: Isn’t one major purpose, which Mr.
Gordon didn’t mention, that the Government itself needs guideposts?
Does the Government not need them when it is in any case for other
reasons inextricably involved in wage and price negotiations or wage
and price decisions? For example, it seems clear that regardless of
guideposts, there are certain industries and certain kinds of collective
bargaining and other processes in the economy so important that no
government of whatever party is going to remain just a spectator.
National labor disputes in major industries will not be permitted to be
solved by industrial warfare without Presidential or Vice-Presidential
intervention at some stage. Government mediation or arbitration is
involved in many other cases, by statute and by practice. In other
cases, the Government is involved as a purchaser, as a giver of subsi­
dies, as a manager of stockpiles, or as the executor of legislation such
as the Davis-Bacon Act already referred to.
In summary, doesn’t the Government itself need some guides to how
it acts, or how its mediators act, in whatever interventions the Gov­
ernment has for other reasons to make in wage and price decisions or
Dr. E n s l e y . Thank you very much. That is in the form of a ques­
tion which Kermit Gordon should address himself to.
Dr. G ordon. I always find it very difficult to disagree with Professor
Tobin. In this case I fully accept his amendment to my earlier re­
marks. I think it is a very important amendment.
We should bear in mind that the Federal Government’s involvement
in labor disputes and collective bargaining did not begin with guideposts. There have been many, many episodes of Federal involvement
going back over the years. The guideposts have helped to clarify the
objectives which the Federal Government should seek when it" does
become involved in these situations.
In the absence of a clear awareness of the cost and price implica­
tions of particular collective bargaining solutions, there is a tendency
for the Federal Government to enter these disputes with an objective
which was put by another of mv former colleagues as the goal of
peace at any price level. Labor peace at any price level is not the ap­
propriate guide for the Federal Government when it does become in­
volved in a labor dispute situation.
I would also like to add to what Professor Tobin said, the relevance
of the canons of conduct in the guideposts to such matters as civil



service salary determinations. Another example which I alluded to
briefly in my talk is the question of maritime wages, in which the
Federal Government, through the operating subsidy formula, tends to
bear the burden of increases in the level of maritime wages. In both
of these cases, the guideposts have in fact been invoked, I think, in a
constructive direction—so that I would freely accept Professor Tobin's
amendment to my earlier list of objectives of the guideposts.
Dr. E n s l e y . Dr. Saulnier, would you like to comment on this also ?
Dr. S a u l n i e r . Just to say, in reference to Jim Tobin’s question, that
we did establish in 1958 a Committee—it is described in the Economic
Report of January 1959—on Government Actions Affecting Costs and
However, I would not be describing the life of that Committee and
its affairs correctly if I said that its activities were popular with the
Government agencies affected. Most of those whose actions had an
impact on costs and prices were anything but enthusiastic about it.
But a committee of this sort is a good, sound idea, and I think it is a
piece of machinery that we would be well advised to build into the
operation of the Council of Economic Advisers. The Council seems to
me to be the best place for it, and I can’t think of a better name than
the Committee on Government Actions Affecting Costs and Prices.
Dr. E n s l e y . Thank you very much, Dr. Saulnier. I recognize Dean
Stephen Bailey of the Maxwell School of Citizenship, Syracuse Uni­
versity, who wrote the prize-winning book, “ Congress Makes a Law,”
which is the story of the legislation of the Employment Act.
Mr. B a i l e y . I want to address my remarks to Dr. Heller’s stunning
speech this afternoon and particularly to that section which deals with
the need for greater flexibility in the application of fiscal policy. I
am particularly concerned about the role of the U.S. Congress in this
We have been told for years that there was no chance of having the
Congress delegate to the President responsibility for adjusting tax
rates, and yet we all know that the present machinery for adjusting
tax rates is an extraordinarily cumbersome one. It is time consuming.
By the time the legislative process has run its course on tax legisla­
tion, the fiscal result may be contraproductive.
Obviously, the need is for speed and dispatch in manipulating tax
rates, and this seems to me inevitably to mean that some delegation of
responsibility for tax adjustments must be granted to the President.
1 am wondering under these circumstances whether it is not possible
for Congress to apply to this area a device which unfortunately I think
luis been misapplied in many other areas: the device of committee
clearance. Essentially, this would mean that the President would
recommend, say, a short-run tax reduction or tax increase which would
go into effect within 30 to 60 days unless a House committee, a Senate
committee, or a joint committee had in the meantime vetoed the Presi­
dential proposal.
The number of instrumentalities in the Congress to handle this kind
of committee clearance is substantial—the Joint Committee on In­
ternal Revenue Taxation, the Joint Economic Committee, the Senate
Finance Committee, the House Ways and Means Committee. It seems
to me that this is an area of public policy in which committee clear­
ance of administration proposals would be both useful and germane.



I hope that the U.S. Congress will take a hard look again at this
uestion of whether it is not possible to devise some protections for the
Congress at the same time that increased discretion in fiscal affairs is
given to the President.
Dr. E n s l e y . Thank you very much, Dr. Bailey. Dr. Heller, would
you like to comment on this question ?
Dr. H e l l e r . Dean Bailey’s proposal is an extremely interesting one,
and yet the experience in the parallel proposal made in President Ken­
nedy’s Economic Report in January 1962 does not generate a great
deal of confidence that the Congress is willing to accept this kind of
interference with its revenue prerogative, even with the safeguards
suggested. Because, indeed, what President Kennedy called his “ pro­
gram for sustained prosperity”—standby public works expenditure
programs, standby tax cuts, and recession-induced step-ups in unem­
ployment compensation payments—got a very frigid reception in
Congress, in spite of the fact that something similar to the safety
device you suggest was built in ; namely, that the President would be
given the power to temporarily lower the individual income rates by
up to 5 percentage points but only after his proposal had lain in the
Congress for 30 days, during which time, in effect, the Congress as a
whole (not a special committee, as Dean Bailey suggests) would exer­
cise veto power.
And I remember—if I can personalize this for a moment—only too
painfully, when I appeared before the Senate Finance Committee in
November 1963, and was ready for questions on the proposed tax cut,
and, instead, one of the first—if not the first—questions came from
Senator Smathers, who said, “ professor,” and I knew I was in for
trouble, he said, “ professor, were you a professor of law or a professor
of economics ?” This is a free translation. And then I got a lesson in
congressional prerogatives from Senator Smathers. I think this con­
sideration may have played a considerable role in the successive modi­
fications of this proposal that have come from the White House.
President Johnson last year suggested that Congress and the execu­
tive branch should figure out how to speed up their procedures, and
this year suggested rather that the Congress and the Executive in effect,
precook or partially precook a tax package for possible use if infla­
tionary developments or further Vietnam costs were to require it.
I still hold, I think, with Dean Bailey, to the hope that we can de­
velop not only some precooking but some speeding of procedures by
close cooperation between the Executive and the Congress, always with
proper protection of the congressional prerogative.
Dr. E n s l e y . Thank you very much.
There is a question down here. W ill you identify yourself for the
record, please? Indicate whom you would like to have answer a
Mr. S t i e b e r . My name is Jack Stieber. I am director of the School
of Labor and Industrial Relations and professor of economics, Michi­
gan State University.
Dr. E n s l e y . T o whom do you wish to address your question?
Mr. S t i e b e r . Any member o f the panel who wishes to may answer it.
Dr. Gordon has pointed out that the guideposts were not designed
for a period during which unemployment was much below 4 percent;
in other words, the period that we are now entering. What is an




appropriate wage-price policy for such a period and how can it be
implemented ?
This is not the time to discuss such a difficult or controversial kind of
issue; however, one thing is clear. Any policy that is developed to
replace or modify the guideposts, and I think such a policy is inevitable,
must have the cooperation of labor and management, something which
the current guideposts do not have. This indicates that consultation
with labor and management in the development of any policy would
be essential.
I suggest that the best available body to effectuate such consultation
is the President’s Advisory Committee on Labor-Management Policy,
which was established with a great deal of fanfare by President Ken­
nedy in 1961, but which has been allowed to lapse into inactivity dur­
ing the last 2 years.
In its early"deliberations, the committee, despite its diversity of mem­
bership has shown that it is able to reach a consensus on such contro­
versial issues as the tax cut, the handling of emergency labor disputes
and measures to deal with the impact of automation. In establish­
ing the committee, President Kennedy asked it to make recommenda­
tions on a sound wage and price policy. Why not throw this problem
to the committee now ?
Dr. E n s l e y . Thank you very much.
I am going to ask Leon Keyserling to address himself to that
Dr. K e y s e r l i n g . Well, first of all, I want to make clear that I am
not against the idea of guideposts. In fact, I was recommending
guideposts long before they were adopted, on the ground that no set
of fiscal and monetary policies could regularize and promote our eco­
nomic growth satisfactorily, without adjustments in the private econ­
omy, and that the Government did have an interest in promoting such
But I think the current guideposts have been profoundly wrong
because they, for all practical purposes, have regarded the problem
of price movements and wage movements as ends in themselves and
not recognized that they are not ends at all; nor is control of “infla­
tion” an end in itself.
The very first question that should be asked in national economic
policy is, how are we going to get full use of our resources, because
this is the real wealth of nations.
The second question to be asked, within the proper limits of Govern­
ment responsibility, is how do we want to divide and allocate those
resources to meet the priority needs of a great people.
I think the guideposts neglect these considerations, and, as I said,
this is the most shocking thing happening today, and indicates a tre­
mendous diversion from the socialmindedness of 20 years ago. If we
did ask these two questions first, then we could devise proper guide­
lines as to prices and wages and profits, because we would tnenl)e re­
lating these mere mechanics to the resource allocations which are the
end purposes. Then we would have something with which we could
go to labor and management and others on the basis of indicating why
we want to do what we want to do, which is the first precondition to
a sense of responsiveness on the part of an informed people.



Now, because the guideposts do not do that, of course, they have
been atrociously unfair and misguided in other respects. They were
projected at a time when the Council itself recognized that we were
suffering from a deficiency in demand. Yet, they were designed en­
tirely to restrain demand and not at all addressed to the problem of
the function of wages in the consumer economy. As I said before,
this doesn’t pass an elementary test in economics.
Secondly, insofar as the guideposts tried to restrain wage increases
in the most highly productive industries in accord with a nationwide
productivity average, but imposed no restraints upon the resultant
excess profits, they failed to acknowledge that wages should be related
to profits and not just to prices. It is wages and profits that deter­
mine ultimately the relationship between investment and consumption,
which is so important. Because the guideposts neglected this, they
resulted in swollen and exacerbating profits in the high production
industries and, therefore, could not even win or ask for the assent of
The guideposts would not have been so vulnerable if after having
General Motors grant wage increases far less than the productivity
advances in that industry, as clearly indicated by their fantastic
profits, we had drained of? those profits through an excise profits tax
and used the proceeds to develop programs for the poor, or forced the
auto companies to reduce their prices. Instead of that, we plied them
with more tax concessions, and we did nothing about bringing the wage
earners in the low-productivity industries up to the nationwide average
productivity gains. You can’t expect anything like this to appeal to
any fair person.
Let’s get the guideposts on some kind of a sensible and fair basis,
and then let us ask the question, which again could only be done
against the screen of a “ nation's economic budget,” should the Gov­
ernment, even in times like the present, intrude itself into the pricewage structure at all on an ad hoc basis, when it is not devolving
adequately its fiscal and monetary policies? Shouldn’t it try to
straighten out its own house in the field of established Government
policies? I still maintain that, in a situation short of total war, if the
Government had a good fiscal policy, a good monetary policy, a good
social security policy, a good housing policy, a good agricultural pol­
icy, a good international economic policy/it could get by very well,
and let labor and management engage m collective bargaining and
I may be wrong on this, but at least the Government should do
what it has been doing well, before it gets into trying to do every­
thing ; and then, if it does have to get into price-wage management, it
should do it by established statutory authority with a firm set of rules
and not have an advisory body to the President, on an ad hoc, random
basis, getting into prices and wages.
I was trying to get a better wage for transport workers in New York,
and the CEA didn’t go along with the results. It didn’t say anything
when some more powerful unions went above the guidelines to a much
more elaborate extent, and I do not imply that these unions were not
justified, as the current guideposts are all wrong anywav. But the
CEA decided instead to pound these people, working" under the
ground, and paid inadequate wages because the subways were being



run at a fare below costs. This is what is going to happen when you
have these kinds of policies evolved by this kind of body. I think, if
we are going to have wage controls, we have to apply the controls to
wages, prices, and profits and we have to do it by an established reg­
ularized standardized legislative procedure.
I am against assigning to the President the discretionary authority
to raise and lower taxes, and here is why. First of all, let’s look a little
bit at the experience.
President Kennedy, who pledged to be a vigorous President, and
who came into office at a time when there was tremendous unemploy­
ment—and it got worse for a while under him—took 2 years to make up
his mind whether to ask for a tax decrease. It took him 2 years.
Congress processed it twice as fast as it took him to make up his mind.
Twice as fast. He had the advice of all the economic advisers who
were urging him to do it.
I want a vigorous and effective President, but I raise this question:
Aren’t there some fundamental questions of economic policy, going to
social values, that are legislative in their grounds? I think that de­
termining how much taxes the people should pay, and how these
should be distributed—I think this is legislative in its grounds and,
furthermore, on the whole over my 33 years in Washington, I think
the Congress, at least as much as the Executive, has been a force on the
side of progressive and equalitarian polices. [Applause.]
Dr. E n s l e y . Thank you very much.
Who has the next question ? Will you identify yourself ?
Mr. K oretz. My name is Sidney Koretz. I am a dues-paying mem­
ber of the American Economic Association.
My question follows up the question of Dr. Tobin to Dr. Gordon. As
a matter of fact, I asked some people here whether I should ask this
question and they said “ No,” since this was a session on macroeco­
nomics, not microeconomics. My question has to do with a new pro­
gram that is coming into effect next July; namely, the medicare
Now, just before this program was passed, Senator Russell B. Long
said on the Senate floor that this “ comprehensive, far-reaching, ana
imaginative program will be better judged by an economist than by
an actuary” (p. 15582, Congressional Record, July 9, 1965).
The question that Dr. Tobin raised was about guidelines to Gov­
ernment programs, as well as what Government tells private business
to do.
In the discussion of the medicare program, if you look through the
records of the House Ways and Means Committee and the Senate Fi­
nance Committee, you will find that whenever there was consideration
whether a certain measure involving costs should be adopted, a ques­
tion was asked of the actuaries of the Social Security Administration,
and they came up with some answer about a certain percentage of pay­
roll or something like that. This was used as a basis for choice l>etween adoption and rejection of any measure. Presumably, the main
consideration was “ actuarial soundness.” According to the only book
I have been able to find on the subject, Prof. Dorrance C. Bronson’s
Concepts of Actuarial Soundness in Pension Plans (1957), there is
no agreement what the term “ actuarial soundness” (or related terms)
means (see ch. 2, “ Concepts of Actuarial Soundness—Various View­



points’'). It is true that “ economic feasibility” hasn’t been defined
clearly either. Nevertheless, it is recognized that “ economic feasibil­
ity” has an element in it of human activity rather than being limited
to actuarial passivity.
This shouldn’t be a speech, but a question. The question is for Dr.
Kermit Gordon since he has been appointed Chairman of the Health
Insurance Benefits Advisory Council. The question is whether up to
now the economist hasn’t been completely crowded out? I want to
present one bit of evidence and then I will sit down. The Budget
Bureau informs me that they intend to classify medicare payments
for hospital and other medical services as transfer payments, not as
purchases of goods and services. It seems to me that if you were
only concerned with costs to funds, but not to people, this would be
OK. But when you consider, as an economist, real costs to real peo­
ple, you have to consider that now for the first time social security
money is going to be spent for the beneficiaries and not by them.
Don’t we delay coming to grips with the economic problem of getting
the most from limited resources by classifying this as “ transfer pay­
ment” rather than a purchase of goods and services?
Dr. E x s l e y . I will toss the ball to Dr. Gordon.
Dr. G o r d o n . I will be very brief. I think to pursue this question
very far would be a little outside the bounds of our discussion today,
altfiough I would be happy to discuss the administration of the medi­
care program with the gentleman who asked the question.
I judge that the central question is whether the actuaries have el­
bowed the economists out. I don’t think this is the real issue here.
I think there are some very important actuarial issues involved in
planning the medicare program, and actuaries are pretty good at
analyzing actuarial issues.
I f the gentleman is willing to stretch a point and accept the proposi­
tion that I am an economist, I would point out that I am chairman of
the committee that advises the Secretary of H EW on the administra­
tion of the program, and I did testify on the program when it was
under consideration, I think the economists have at least a foot in the
Dr. E n s l e y . Thank you, Dr. Gordon. Will the next questioner
please identify himself for the record ?
Mr. M a t h e r . Mr. Chairman, and fellow travelers down the broad
Keynesian highway of permanent economic boom. I am not a pro­
fessor. That leaves me in the minority. My name is Louis K. Mather
and I am an economics writer. I would like to say that I am very
happy to have been present at this great second enlightenment, the
second dawning of Keynesian economics in America. It makes me
feel 25 years younger.
Keynesian economics means more than stimulation of demand.
There is a certain misunderstanding of Mr. Keynes here in America
today. In the New York Times recently an editorial bitterly attacked
Keynes and the new economics for our present problems. Keynes
faced up to problems like ours in his day. He wrote a book, a very
small book, called “ How To Pay for the 'War.”
Does the distinguished panel think that this is a good time right
now for people to read this book ?
Dr. E nsley. Shall we refer your question to one of our tax people?
Do you want to comment on that, Dr. Saulnier ? Dr. Heller?



Dr. H e l l e r . Apparently, the great second enlightenment didn’t
strike the questioner today. In the course of my comments today, I
was plainly referring to Keynes’ “ How To Pay for the War,” when
I noted that Keynesian economics had been on the Washington firing
line in World War II in fighting inflationary gaps. That, as I recall,
is about 25 years ago.
Dr. E n s l e y . Thank you very much. Mr. Long, I believe you have
a question?
Mr. Long. My name is Richard Long, Federal Reserve Bank, A t­

The news media recently noted that some textile union leaders did
not feel obliged to stay within the guideposts. Are greater guideposts to wage increases justified in a low-wage industry, even if the
industry isn’t growing, m one of the best periods of prosperity and
has a very high level of demand ?
Dr. E n s l e y . Thank you. Would you like that addressed to Dr.
Gordon ?
Dr. G o r d o n . This is not a session, I hope, on the interpretation of
the guideposts. I would point out, however, that the guideposts, as
originally enunciated and repeated each year since then, cover in one
of the several exceptions the case in which wages are abnormally low
because of the weakness of labor organization in particular local labor
I confess I am not sufficiently well informed about the specific char­
acteristics of this case to say whether the case is covered by that
exception, but the exception was directed to cover the principles of
the kind of case you raised.
Dr. E n s l e y . All right, next question.
Mr. F r e u n d . My name is William Freund of the Prudential Insur­
ance Co.
I think it would be appropriate here to recognize Grover Ensley
for the outstanding work that he has done, especially from 1951-57.
Professor Heller said that we have contingency planning. I f it is
true that it will be time consuming to get legislation through Congress
to raise taxes, should the need be recognized later ? Isn't it necessary
to have more than contingency planning to anticipate this need through
forecasting? That is, to act early rather than to wait for the appear­
ance of firm signs of inflation because of legislative delays.
Dr. H e l l e r . As I reviewed in the course of my paper, Mr. Freund,
I suggested there are two possibilities on the inflation front; one that
we could ride it out, that a good deal of pressure may be concentrated
in a short period right now, a good many of the price adjustments may
be one-time adjustments, that the concentration of the Vietnamese
expenditures? and particularly of the contract-letting and so forth
may be peakmg very soon if today’s budget projections hold firm.
On the other hand, we do risk a great deal on the inflationary side if
it gets out o f hand. There are some disquieting signs. I f they were
the beginning o f a spiral, we should act now. But I don’t think it is
clear enough at the moment that we ought to take further restrictive
actions right now to slow down our further progress in production and
in employment. But what we should lose no time in doing is to get a



program ready to go fast, if it proves that the ride-it-out posture is
wrong. And, consequently—I put that under contingency planning.
That means people in the Treasury, people in the White House, people
in the Council of Economic Advisers, should today—if they haven't
already—put together a package that would be ready to go at a mo­
ment’s notice, working with the congressional committees on this score
for the purpose of moving it through the Congress in the shortest
possible time.
Dr. E n s l e y . Thank y o u , Dr. Heller.
Does any member of the panel have a further brief observation ?
Dr. Kyserling ?
Dr. K e y s e r l i n g . My objection to it has been that we are thinking
of taxes as a means of stabilizing the economy. Taxes, as Mr. Justice
Holmes said, is the price we pay for civilization.
We talk about deferring tax increases until there is an inflationary
threat, but don't ask whether we need tax increases to meet the much
greater threats of the Watts all over the country, or to meet the needs
of the old people living on a miserable poverty benefit payment, threequarters or them in poverty, or to remedy the blighting of our cities.
We are really saying that these things are not an emergency. I happen
to think that they are as great an emergency as the war in Vietnam,
and that the two are interconnected in terms of our objectives as a
Nation and a people.
As long as we remain in the frame of talking about tax increases or
reductions, only to fight inflation or deflation, but not at all to meet
the basic purposes of a great nation, we couldn’t be more wrong.
Dr. E n s l e y . Professor Gross would like 30 seconds.
Dr. G r o s s . I shall merely comment on the question raised by former
Chairman Nourse concerning the effect of the Employment Act on
the constitutional separation of powers.
The act as it was passed represented a complete break with the oldfashioned public administration which viewed rational action as some­
thing that must take place only under Presidential hierarchy and
centralized decisionmaking.
It embodied and built upon the constitutional principle of separation
of branches of government. But Dr. Nourse, I do not think that is
sufficient unto the future. Truly rational decisionmaking in the next
years requires a much greater rebirth of congressional initiative than
I see on the horizon at this moment.
Dr. E n s l e y . Professor Wallich has 30 seconds that he would like
to use at this time.
Dr. W a l l i c i i . On the question of tax increase, it seems to me we
have to count on a substantial lag in the effect of any action we take.
So, looking toward the future, and trying to guess the probabilities, it
seems clear to me that 6 months from now we will be facing substan­
tial pressures. We have to act on this admittedly uncertain informa­
tion, uncertain forecast, and I would say, therefore, that we should
now move toward a tax increase. This, incidentally, is also a way of
meeting certain needs that have been written into the budget, and we
find that since we can’t have these without paying taxes, we have reason
for facing the raising of taxes now.



Dr. E n s l e y . Dr. Colm h a s 30 s e c o n d s t h a t h e w o u l d lik e t o u se n ow *
Dr. C o l m . On the question of flexibility, I would suggest that Con­
gress now begin consideration of a tax increase, perhaps on the basis
of a bill which has no effective date. The effective date could then
be determined by a congressional joint resolution to be signed by the
President; or if conditions develop that make such a tax increase un­
necessary, it will remain on the shelf. That I think is much prefer­
able to any proposal for discretion which Congress would never con­
sider-—I also think that it is preferable to this clearance procedure
which has been proposed.
By the way, this proposed j oint resolution would give the Joint Com­
mittee for the first time a legislative function.
Dr. E n s l e y . Thank you very much, Dr. Colm.
As you can see from the clock, it is near 5 :30.
We conclude this afternoon’s session. Those of you who wish to
attend the evening session and have not yet purchased a ticket, might
still be able to get one at the information desk.
The proceedings of today’s symposium will be quickly put into
volume form and sent to all ticket purchasers for whom we have
The special committee looks forward to seeing you all on the terrace
of The Washington Hilton at 6:30 where the reception will be held
preliminary to the dinner which will get underway promptly at 7 :30.
Be sure and be in your assigned dinner seats at 7 :30.
We now stand recessed.
(Whereupon, at 5 :30, the symposium recessed to reconvene at 7 :30
for dinner.)



in n e r

S e s s i o n , 7 :30 p . m ., I n t e r n a t i o n a l B
T h e W a s h in g t o n H il t o n

allroom ,

The dinner session was held in the International Ballroom of The
Washington Hilton, the program commencing at 8:45 p.m., Dr.
Grover W. Ensley presiding.
Dr. E n s l e y . Secretary Fowler, Chairman Patman, Dr. Ackley,
honored guests, ladies and gentlemen. Welcome to this evening ses­
sion of the economics symposium, commemorating the 20th anni­
versary of the Employment Act of 1946.
The special committee appointed by the Joint Economic Committee
to plan and carry out this occasion is deeply appreciative of the op­
portunity to develop today’s program.
Walter Heller, Raymond Saulnier, Henry Wallich, Gerhard Colm,
and I wish to acknowledge the assistance that we have received in
shaping today’s program from Government, from research and inter­
ested groups, and from many private citizens.
In particular, we express our thanks to the bipartisan leadership of
the Joint Economic Committee and the Council of Economic Advisers
for their enthusiastic support.
We are most fortunate tonight to bring together so many public
officials and private citizens who were instrumental in the passage of
the Employment Act and who have participated in the drama of the
past 20 years since the act was signed into law.
You have been given a list of the distinguished people seated at the
head table. I will not take the time for their separate introductions.
Their names will be included in the record of today’s proceedings.
We are particularly honored, of course, to have so many members of
the President’s Cabinet here tonight.
Let’s all join in giving those at the head table and our guests
a special round of applause. [Applause.]
There is one gentleman at the head table, however, that I would
like to have stand for your special recognition. He was the first
Chairman of the Council of Economic Advisers, serving from 1946
to 1949—Dr. Edwin G. Nourse. Won’t you stand? [Applause.]
Thank you very much, Dr. Nourse.
S eated



D a is


F irst tier

The Honorable James S. Duesenberry
Mrs. Arthur M. Okun
Mr. Gerhard Colm
Mrs. William McChesney Martin, Jr.
Mr. James W. Knowles
Mrs. Arthur F. Burns
60-074— 66

Second tier

The Honorable Robert F. Ellsworth
The Honorable Martha W. Griffiths
The Honorable Kermit Gordon
Mrs. Paul McCracken
The Honorable Henry C. Wallich
Mrs. Hale Boggs


th e



F irst tier —Continued



D a i s — C o n t in u e d

Second tier —Continued

The Honorable Leon H. Keyserling
The Honorable Thomas B. Curtis
The Honorable Charles L. Sehultze
Mrs. Jack Miller
Mrs. William B. Widnall
The Honorable Edwin Nourse
The Honorable Richard Bolling
Mrs. Raymond J. Saulnier
The Honorable Walter W. Heller
Mrs. Carl Albert
The Secretary of Commerce, The Hon­
The Honorable Roy Blough
orable John T. Connor
Mrs. Paul H. Douglas
Mrs. Walter W. Heller
The Honorable Wright Patman
The Secretary of Housing and Urban
Mrs. Gardner Ackley
The Secretary of the Treasury, The
Development, The Honorable Robert
Honorable Henry H. Fowler
C. Weaver
Mrs. Leon H. Keyserling
Mr. Grover W. Ensley
Mrs. Henry H. Fowler
The Honorable Jack Miller
The Honorable Gardner Ackley
Mrs. Kermit Gordon
Mrs. Grover W. Ensley
The Honorable Hale Boggs
The Honorable Paul H. Douglas
Mrs. Henry S. Reuss
Mrs. Roy Blough
The Honorable Raymond J. Saulnier
The Honorable Jacob K. Javits
Mrs. Robert F. Ellsworth
The Honorable Carl Albert
The Honorable Henry S. Reuss.
Mrs. Richard Bolling
Mrs. Henry C. Wallich
The Honorable William B. Widnall
The Honorable Paul W. McCracken
Mrs. Charles L. Sehultze
The Honorable Arthur F. Burns
Mrs. James W. Knowles
The Honorable William McChesney
Martin, Jr.
Mrs. James W. Duesenberry
The Honorable Arthur M. Okun

In the audience there are a number of distinguished people who,
in addition to the number of those seated at the head table, were
instrumental in the passage of the Employment Act and I name but
a few.
William A. Barrett, Representative from Pennsylvania; Daniel J.
Flood, Representative from Pennsylvania; Alvin H. Hansen, Littauer
professor of political economy, emeritus, Harvard University; Chet
Holifield, Representative from California; Frank E. Hook, former
Representative from Michigan; George E. Outland, former Repre­
sentative from California; H. Christian Sonne, chairman of the Na­
tional Planning Association; Mrs. Chase Going Woodhouse, former
Representative from Connecticut.
Let’s all join and give them a good hand. [Applause.]
There were those who gave leadership and displayed great states­
manship in moving the legislation in the Congress. They are no
longer with us but all of us pay tribute to their memory. They in­
clude, and I list them alphabetically, Senator and Vice President
Alben W. Barkley, Senator James E. Murray, Senator Joseph C.
O’Mahoney, Senator Robert A. Taft, Senator Albert D. Thomas, Sena­
tor Charles W. Tobey, Senator Robert F. Wagner, Vice President
Henry Wallace, and Secretary of the Treasury and Chief Justice Fred
M. Vinson. [Applause.]
I would like to present two stalwart staff people who have served
continuously for the 20 years in the administration o f the Employ­
ment Act. They are Miss Frances James, senior economist for the
Council of Economic Advisers; and Mrs. Marian Tracy, financial clerk
of the Joint Economic Committee.
Will these two ladies please stand and receive our recognition.



Today’s symposium is conducted under the auspices of the Joint
Economic Committee. To bring greetings from the committee are two
national leaders.
First I will call on the distinguished chairman of the committee,
a member since its formation and one of the original sponsors of the
legislation in the House—the Honorable Wright Patman of Texas.

Representative P a t m a n . Chairman Ensley, Secretary Fowler, and
other members of the President’s Cabinet, my colleagues in Congress,
distinguished guests, ladies and gentlemen, it is a great pleasure and
privilege to welcome you this evening. It would take too long to
mention by name the number of distinguished people who are here
tonight, and I shall not try to do so; but your presence is a tribute to
the great importance that the Employment Act has assumed in the
development of our Nation.
One gentleman, I believe, is entitled to special recognition. He was
in Congress. I worked closely with him at the time. He is now a
professor of economics at the San Francisco State College, and he
came all the way from San Francisco to attend this meeting. He
did more than just an ordinary Member. He testified before the Sen­
ate committee and the House committee in favor of this act and he
was elected chairman and served as chairman of the steering com­
mittee in the House of Representatives of more than 100 members.
He did so much toward the passage of this act that I think he is en­
titled to special recognition. I refer to Prof. George Outland, of
California. Will you stand up, please? [Applause.]
Naturally, I am very proud. It was my privilege to sponsor and be
the author of the Employment Act in the House in 1946. While I
never dreamed at that time that 20 years later we would be celebrating
its great success in this fashion, I do know that all of us who worked
on it were deeply aware of the necessity for this legislation. But it
was beyond my fondest hope that I would have the honor of chairing
so distinguished a committee as the Joint Economic Committee—or
look back on such a tremendous record of constructive performance
as this act has given us over the last 20 years.
This day has been devoted to an intensive review and analysis of
the Employment Act’s performance over the last 20 years by a group
who should know best—the able economists who have been associated
with its operation for the last two decades. I f those of us who par­
ticipated in the formation of this act can take some credit, it is a piece
of legislation that has stood up remarkably well. Your review is
proof of that. Whatever reforms are suggested—they do not run to
the heart of the legislation nor are they urgent. And this is one of
the reassuring messages that your convocation has given us.
Now, we still have a lot to do and more people to hear, so I am not
going to use any more time. You know how deeply your attendance
here is appreciated. On behalf of the committee, I want to thank and
commend those of you who participated in this symposium. You
have participated in creating a permanent record to aid lawmakers
and public officials in future years. We are grateful, too, to Dr.
Grover Ensley and his distinguished associates. It is their initiative



and energy that has brought about this magnificent occasion today.
At this point, I will ask Dr. Ensley to resume his chairmanship.
Dr. E n s l e y . Thank you very much, Mr. Patman.
Also here to bring greetings from the Joint Economic Committee
is the distinguished senior Senator from New York, and the ranking
minority member of the committee, the Honorable Jacob Javits.
Senator Javits.

Senator J a v i t s . Thank you very much, Dr. Ensley. I join my
chairman, Wright Patman, in expressing our gratitude to you for
making this a magnificent celebration, truly commemorative o± a great
piece of legislation.
I also join with our chairman in expressing gratitude to the members
of the Cabinet who distinguish this occasion by their presence, and
to the members and former members of the Council of Economic A d­
visers, led by Dr. Ackley, and to all of those who have been associated
with its work. Their contributions are evident in the work we do in
the symposium today—and in the total result of our efforts in the
economic and social fields.
Our committee has been called the “ think committee.” I would like
to add to what our distinguished chairman has said to you about the
durability and effectiveness of the legislation which created our
We do not have legislative jurisdiction in the Joint Committee and
you would think, therefore, that it might be dismissed as just another
advisory committee. On the contraiy, assignments to the Joint Eco­
nomic Committee are sought assiduously by Members o f the House
and Senate, many of whom are here today; I, too, am honored to be a
member. The places are kept when Members join the committee; it
is considered a mark of privilege, indeed a mark of distinction, to be
a member o f the Joint Economic Committee because, in a sense, you
have been chosen by your party to be a member of a committee wnich
is distinguished by its intellectuality, its deep interest in the major
economic issues facing the country, and the very real amount of home­
work which it does in such complex fields.
Thus the act is not only durable in terms of its results for the coun­
try but also in terms of its impact on the Congress.
I speak here today to extend greetings and thanks to those who
authored the law, who have made it work in past years, and to those
who do so today, and to you who participate in our celebration here
today. I extend these greetings on behalf of the Republican mem­
bers on the committee—Representatives Tom Curtis, Bill Widnall, and
Bob Ellsworth, and Senators Jack Miller and Len Jordan, who are all
This was essentially a bipartisan or nonpartisan act. The chairman
has already read the roll o f those who were its principal stimulators.
Among them were distinguished members o f both parties, Senator
Alben Barkley, Senator Bob Wagner, Senator Murray, Senator Taft,
and Senator Vandenberg.



I had a conversation with one of the economists who is here today—
a distinguished former member of the Council of Economic Advisers—
during our reception and I said, “ We don’t want national planning.
We prefer the kind of approach laid down in the Employment Act
through the development of our economic thinking and economic
activities.” And he said, “It is a shame that we had to give the
Communists such a good word as ‘planning.’ ” He continued, “ I am
against central planning, but this is the democratic equivalent of
And perhaps a good deal more needs to be done in terms of the
definition of economic goals and efforts to pursue them.
The act has been durable because it has met the test of time. The
objectives and principles of the act remain and survive thoroughgoing
discussion like today’s with the same validity that they had 20 years
We understand that the means to implement these objectives and
ideas must be adequate to meet the new conditions. We must harness
automation to the benefit of all our people. We must define our
national economic goals, both short and long term, and we must invoke
service in the public interest from the private sector in order to realize
these goals.
This committee is one of the great links between government and
business and in using the term business, we must never forget that the
only way the term should be used is to include not only management
and labor, but nonprofit organizations, farmers, trade unions, and also
the enormous complex of foundations and voluntary organizations.
We need to improve the quality of our statistical information about
ourselves—and the committee has rendered yoeman service in this—
and also about those who would subvert our system: the Soviet Union,
the central European bloc, and I hope tomorrow we will even analyze
carefully Communist China and its own economy, and what it means
to our economy, and to our objectives in the world.
And so the Joint Economic Committee—of which I have been a
member for the past 7 years and in which I take enormous pride (and
I might say that goes for all my colleagues in the minority)—together
with the Council of Economic Advisers, has been a vital instrument
in focusing the attention of the Congress and the American people on
our problems and it has been so vitally important today in developing
the answers.
I express the gratitude of, certainly, the people of my State. I
hope you will forgive me if I feel that it is the gratitude of the
Xation that I also express to all of you who participated in our work,
to those who have been on the Council, to those who testified before
our committee—and that is an enormous labor, because this is a very
exacting committee and a very exacting task—and to those who helped
in studies and in staff work. Finally, I express gratitude to the
wives of these men whose support has been invaluable in our work.
To all of you, our gratitude.
Thank you.
t)r. E n s l e y . Thank you, Senator Javits.
It is a great honor for me and for the members of the Special Com­
mittee that the two living former Presidents of the United States have
seen fit to contribute to this commemorative symposium.



From former President Harry S Truman, who signed the Employ­
ment Act on February 20, 1946, comes the following message, to be
read by the Honorable Richard Bolling, of Missouri, and a member
of the Joint Economic Committee.
Congressman Bolling.
Representative B o l l i n g . Mr. Chairman, Mr. Secretary—I quote:

“ Twenty years ago today, as President of the United States, I signed
into law the Employment Act of 1946. It was a gratifying moment.
It was made especially so by the fact that a few years earlier as a
Senator from Missouri I served on a subcommittee that in a time of
war looked forward to a time of peace and developed the essentials
of what was to become the Employment Act.
“ When I signed the act nearly a generation ago, I observed that ‘the
Employment Act of 1946 is not the end of the road, but rather a be­
ginning.’ That road has been a long one and not always smooth, but
we have navigated its hills and hollows, ruts, detours, and sudden
curves with increasing skill and always in the right direction.
“ In this pursuit of our national goals we have learned that success
requires courageous government, vigorous private enterprise, and
imaginative labor leadership and—most important—active and en­
lightened cooperation among them to serve the common interest of
sustained economic growth and increased opportunity. The ultimate
success of the Employment Act will take nothing less than total dedi­
cation to the service of individual freedom and human dignity.
“ It is significant that the Joint Economic Committee has chosen this
anniversary date for a bipartisan rededication to the great objectives
of the Employment Act and a reconsideration of our national goals
and the means of achieving them.
“ It is useful to look back in a candid appraisal of accomplishments
and errors. It is even more important to look ahead. There is still
a great deal o f unfinished business. There is still much to learn about
the policies that can be used.
“And, perhaps most important of all, there is still the need for a
general recognition that what must be done can be done. I believe
this anniversary celebration can serve these purposes and thereby take
an important step toward the realization of the objectives of the act,
and that means toward the realization of a greater and better society.”
Dr. E n s l e y . Thank you very much, Mr. Bolling.
During his 8 years in the White House, President Eisenhower ad­
ministered the Employment Act with dedication and conviction.
From General Eisenhower has come the following message which I
have asked the Honorable William B. Widnall, of New Jersey, and
a member of the Joint Economic Committee, to read to us now.
Congressman Widnall. [Applause.]



Representative W i d n a l l . Dr. Ensley, fellow guests at the head
table, and friends of the Employment Act of 1946. [Reading:]

“ I am happy to send greetings to a meeting called to celebrate the
20th anniversary of the passage of the Employment Act.
“That our Federal Government is explicitly committed under that
statute to use its full resources to achieve vigorous, inflation-free eco­
nomic growth is a fact that is continuously proving its worth.
“ There are vitally important values also in the agencies that were
created by the Employment Act. The Joint Economic Committee of
the Congress through special studies and public hearings has become
a major instrument in promoting better economic understanding.
And the Council of Economic Advisers is an indispensable means by
which the executive branch of Government can obtain the trained
economist’s objective advice on economic and financial questions.
“ I am especially grateful for this opportunity to register my per­
sonal appreciation of the services rendered to me and to my adminis­
tration by the members and staff of the Council of Economic Advisers,
under the leadership of Dr. Arthur Burns and his successor, Dr. Ray­
mond Saulnier. Their work was done in the best tradition of the
professional counselor and precisely in the manner contemplated by
the Employment Act.
“ With the dedication of Government policy to full employment
within the framework of an enterprise system with a stable currency
that the Employment Act makes explicit, and with the facilities for
shaping and evaluating policies and programs that the act created
in the Joint Economic Committee and the Council of Economic Ad­
visers, the Nation is without a doubt in a greatly strengthened position
to achieve the best economic performance of which it is capable and
to play a fully constructive role in the world’s economy.”
Dr. E n s l e y . Thank you very much. Mr. Widnall.
Now, ladies and gentlemen, a high point of this 20th anniversary
celebration—greetings from the President of the United States, Lyn­
don B. Johnson—which will be brought to us by the Secretary of the
The distinguished Secretary of the Treasury, the Honorable Henry
H. Fowler. [Applause.]
Secretary F o w l e r . Dr. Ensley, Chairman Patrnan, Senator Javits,
ladies and gentlemen, the President’s message is as follows:

Your symposium today celebrates one of the great turning points in
the economic and political history of this Nation.
Twenty years ago, the Nation’s economy had just emerged from
almost 4 years of test by fire, immediately following a decade of test by



ice. Men of vision and good will in both political parties, in labor as
in business, in the universities and professions as in Government, were
resolved that we should learn from these experiences; that depression
and mass unemployment equally with unbridled inflation must be and
could be mastered; and that only the Federal Government’s leadership
could accomplish it.
Their resolution was reflected in the Employment Act o f 1946.
To be sure, some regarded the declaration that the Federal Govern­
ment must accept a share of responsibility for the performance of the
American economy as a revolutionary threat to our system of free
enterprise. Others regarded the commitment to maximum employ­
ment as a pious gesture toward a visionary objective.
The last 20 years have demonstrated that the Employment Act was
neither dangerous nor visionary. Instead, the act, and the machinery
it created, have allowed us to develop an increasingly fruitful partner­
ship between business, labor, and Government in the great task of
building a better society for all Americans.
The success of that partnership is demonstrated by the present state
of our economy. Our prosperity is unequaled; and our growth rate
and price stability are the envy of the world.
Our recent gams prove the dynamism of our prevailingly private
economy. They also show the contribution of sound and positive
Government policies.
In developing an awareness of problems, in improving our knowl­
edge and understanding, and in designing appropriate policies, the
machinery created by the Employment Act has proved its value many
times over. Hearings and reports of the Joint Economic Committee
have educated the Congress and the Nation on all aspects of our econ­
omy. The advice of the Council of Economic Advisers has helped
four Presidents and their administrations to propose and to carry out
policies that have preserved and advanced our economic strength.
And the requirement of an annual Economic Report of the President
has spurred coherence and consistency in the farflung activities of the
many agencies of Government, and, at the same time, made a major
contribution to public understanding of economic policy.
But most important of all was the spirit of the act: the recognition
that all plans and policies of Government should be bent toward pro­
tecting and promoting the health of our economy.
The knowledge we have gained and the policies we have designed
to achieve and maintain full employment, to avoid inflation, to speed
our economic growth, and to eliminate poverty, demonstrate man’s
ability to master his social as well as his physical environment. They
are achievements worthy of celebration.
After 5 years of record expansion, we now face the new task of
sustaining full employment without inflation. I have recommended
a budget and fiscal policy which, in the best judgment of my advisers
and myself, will allow us to sustain solid expansion without overheat­
ing the economy. But this is an area where, in spite of all we have
learned over 20 years, we still have little experience. We have no
choice but to advance with courage tempered by caution. We will
need to watch unfolding events closely, and to remain flexible in our
tax and other policies so that we can change quickly if the need should



The task of managing economic policy so as to achieve high employ­
ment without overheating will always be difficult.
It is made more difficult at the moment by the fact that we are in a
transitional period. The rapid growth of output which has enabled
us to reduce unemployment has placed special—and temporary—
strains on some of our raw material resources. And the problems of
matching men and jobs during the transition to an era of high employ­
ment are more difficult now than they will be after we have maintained
high employment for sometime.
To make the transition to sustained high employment without in­
flation will test our energy and ingenuity. And it requires us to seek
new ways in which business, labor, and Government can cooperate
to avoid inflationary wage and price movements.
These are grave challenges, out I am confident that we shall meet
The years ahead can bring economic and social achievements which
will far outpace the gains of the past. It is our task so to set the goals
and to lay the plans that 20 years from tonight men looking back can
honor our vision and our resolution as we tonight celebrate the events
of 20 years ago. [Applause.]
Dr. E n s l e y . Thank you very much, Secretary Fowler, for bring­
ing us this inspiring message of the President.
Today has been, we think, a most productive one, with many thought­
ful and perceptive views presented and many significant issues raised.
To try to summarize these presentations is probably well nigh im­
possible. Here to try to do so is a distinguished economist, one who
has served the Joint Economic Committee since 1949 and who, along
with others of Ms efficient committee staff, has been our right arm in
planning and carrying out this commemorative symposium.
I introduce at this time the executive director of the Joint Economic
Committee, Mr. James Knowles. [Applause.]

Mr. K n o w l e s . Mr. Chairman, Mr. Patman, Secretary Fowler, dis­
tinguished guests, ladies and gentlemen.
When President Harry S Truman signed the Employment Act on
February 20, 1946, some viewed it as without substance, while others
saw a giant step toward destruction of free enterprise.
After 20 years, there is a wider area of agreement about the act,
its objectives, its institutions, and economic policy than anyone would
have believed possible 20 years ago. However, the past 7 hours of dis­
cussion by 12 of the most outstanding individuals who ever served
under any one piece of legislation has provided ample proof not only
of this wider agreement but also that there is continued healthy
divergence of views.
Since I have been asked to summarize these 7 hours in 15 minutes,
I cannot hope to do justice to every nuance of today’s papers. In­
stead, I shall extract for your consideration a few strands of thought
which seem to me to run through the entire woof and warp of the
I can only say I hope I have a few friends left after I finish these
comments on the brilliant papers they gave this day.



First, at the start of the day the question was raised as to whether
it is necessary and/or wise to rewrite,qualifyor add to the economic
objectives spelled out in section 2 of the act in an attempt to provide
explicit language and directions for successive generations of policy­
Among the candidates for addition heard today were economic
growth, price stability, equilibrium in our international balance of
payments, the efficient allocation of resources, the balanced distri­
bution of income, and several related social objectives. These have
been dealt with from the beginning by the President and the Council
o f Economic Advisers in the Economic Reports, as well as by the
Joint Economic Committee. The first subject for hearings by the
committee was the problem of rising prices; and another early subject
was low-income families, a foreshadowing in 1949 of today’s war on
In fact, in the first full Congress following the establishment of
this committee, all but one report was on the subject of inflation from
the committee created to discuss unemployment.
The issue seems to be whether to attempt periodically to rewrite
the objectives of the Employment Act in the language and perspec­
tive congenial to successive generations of policymakers, or to keep
to more general language like that in the present section 2, reinter­
preting it from time to time in the light of changing conditions.

Second,in view of the increased level of economic literacy of today
versus that of 20 years ago,it is a bit surprising to find economists stul
talking with sweet reasonableness about the appropriate “ trade-off”
between rising prices on the one hand and unemployment on the other.
I am puzzled by the suggestion that more poverty, disease, filth,
and discrimination imposecF upon the disinherited is an acceptable
alternative to some modest loss of the value of savings or income
from inflation. Are we still under the illusion, despite classic mar­
ginal utility analysis, that the increased suffering that we would
force on the defenseless, who start each day wondering whether they
can survive, is comparable to the disutility to the well provided for
from a small loss of income or value of assets from inflation? It
would be more useful to the Joint Economic Committee: I am sure,
as well as to the executive branch, to hear how we can improve the
economy so as to eliminate both structural inflation and structural
Let us make no mistake; our problem is not one of determining
how large a general price rise we will trade for so many jobs for
the unemployed, nor is it one o f agreeing on the number o f people
we will throw into involuntary unemployment in order to “ buy”
some added price stability. Rather, our task is to comply fully
with section 2 of the Employment Act, working tirelessly to dis­
cover and put into effect policies that sooner or later will lead to
realization simultaneously of a stable general price level and jobs
for all those able, willing, and seeking to work. We cannot in good
conscience rest content with any lesser achievement.

Third, there have been suggestions—and many before this day—
that the act be altered to specify in greater detail the contents re­



quired in the annual Economic Reports and to provide neatly laid
out mechanics for the determination and execution of policy by the
Council and the joint committee.
As far as I can see, there has been not a single suggestion for added
information, a new procedure, or a new policy for which reasonable
men could not find m the original statute the injunction to proceed,
the power to proceed, and the institutions to carry matters forward.
It is amazing to me that this should be so.
The statute, after all, was drafted 20 years ago.
I think we should all be prepared to make changes when a case
can be made for change, but we should be careful not to lose in the
process the broad sweep and the great flexibility that the present
anguage incorporates.
None of us can forecast the future with precision.
The glory o f the Employment Act is that, whether they knew it
or not, the drafters of tliis statute created a basic and enduring law
o f great flexibility in its procedures and in the institutions it created.


Fourth, there w widespread agreement that one of the principal
benefits of the act teas the education of policymakers in and out of
Today’s discussion again revealed how far we have come in de­
veloping economic debate at a level of literacy, factual precision,
and analytical rigor that would have been unknown 20 years ago.
This does not show, however, in some neat formulation that the
Council or the joint committee can present to the Appropriations
Committee in justifying our budgets.
It has been suggested that the distinguished members of the Joint
Economic Committee have for many years been teaching professors
o f economics what is relevant when a policy decision must be made
against a deadline, and, in turn, professors have educated the commit­
tee, and through them the Congress, and the public? in many of the
issues o f modem economic analysis. This activity will doubtless con­
tinue to have more to do with the achievement of the objectives of the
Employment Act than the specific recommendations from year to year
by the Council of Economic Advisers and the Committee.
Fifth, running through these papers is the realization that these
institutions created under the act hare been centers of research, inno­

vation, and experiment.

New ideas have been welcomed and have been spread throughout
Government and the private economy. In Congress, the Joint Eco­
nomic Committee has pioneered the use of the panel discussion form
o f hearing, the compendium of papers by the witnesses published in
advance o f hearings, the staff study paper, and a myriad of other de­
vices before unknown, or known but little used. Today's economic
symposium is one more of these experiments. Both the "Council and
the Committee have been active in developing and in taking up from
the best economic thought and literature ideas to put into general policy
debate such as potential gross national product, the full employment
budget, what is sometimes called “ fiscal drag,” and many others.
Both experience and today’s debate suggest that the two institutions
must continue to be alert to improvements in knowledge of how the
economy operates, and how policy instruments work, so as to bring to



bear the maximum of objective fact and rigorous economic analysis
to the problems o f public and private economic policy.

Sixth, economic policymaking—public and private—can be im­
proved only by making sure that those who must make decisions have
the most accurate, most up-to-date. and most complete factual infor­
mation possible.
This requires the finest system of public and private statistical re­
porting that science can design and our wealth support. I am happy
that my principals on the Joint Economic Committee have given nonpartisan support to a long series of improvements in statistical report­
ing. I believe it is clear from today s discussion that we should all
continue to be alert to every opportunity to improve this system, for
failure to do so will have real perils.

Seventh, our speakers today stressed the need for keeping the longer
term look constantly^ before policymakers. Changes in expenditure
programs or tax policy have effects not merely for a few months but
for many years into the future.
Furthermore, the economy is constantly changing in ways that often
send waves o f change through the economy in a predictable as well as
unpredictable fashion over long periods. Whether practice follows the
advice o f those who advocate very explicit statistical projections, or of
those who prefer a more general literary format, may turn out to be
less important than that we periodically take a look at where we seem
to be headed in future years. I think most would agree that the anal­
ysis in such models is far more important than mere numbers. The
numbers are a vehicle for concise expression and a tool for insuring
logical consistency. The analysis generates the enlightenment that
helps the policymakers.

An eighth strand of the debate concerned the relative roles of broad
aggregate monetary and fiscal policies on the one hand, and precise
economic surgery upon structural problems on the other.
I hope the participants will pardon me if I summarize their debate
as a meaning that all of these are necessary for success, that it is dan­
gerous to put too much reliance on any one policy tool separately, and,
simply put, good policy is a carefully coordinated blend of every tool
you can find.
This is a hard enough job without throwing anything away.

Ninth, when the economy reaches full employment and our problem
becomes one of maintaining stable prices and economic growth, private
policymakers must carry an increasing share of the total burden of
policy formulation and execution.
This point found expression today mainly in differences over the
formulation o f wage-price guidelines and tlieir role in the economic
policy mix. I gather that all would agree, however, that no matter
what Government officials do, full employment, stable prices, and eco­
nomic growth cannot be realized year after year if private wage-price
policies are formulated and carried out in a manner significantly in­
consistent with these objectives. The free market economy does not
operate like some sort of mechanism, foreordained to success regard­
less o f the fallibility of the participants. Policymakers, I find from
experience in both business and Government, seem to be no more infal­
lible when on a private payroll than when on a public payroll. There



are, rules of the game within which management and labor must learn
to operate if the free private market economy is to provide maximum
profits, maximum employment, and maximum real wages, and do this
without inflation. But this debate and our economic history suggest
to me that if we do not learn the rules of the free market economy and
acquire the will to live together within them, sooner or later political
extremists will mobilize support for efforts to substitute dictation for
freedom as the basis for our political and economic system.
Last, and not least, anyone observing these 20 years must be struck
by the role flayed by individuals.
It really does make a difference to the history of this act that there
was a Truman, an Eisenhower, a Kennedy, and a Johnson. It made
a difference that there was an O’Mahoney, a Taft, and a long series
o f distinguished successors on the Joint Economic Committee. It
made a difference that there was a Nourse, a Keyserling, a Burns, a
Saulnier, a Heller, an Ackley, and a host of others of great ability
on the Council. And I think it made a real difference that the Joint
Economic Committee insisted on a professional and supporting staff
of distinguished abilities, headed in its formative years by Hardy,
Kreps, and Ensley. The act worked the way it did with its successes
and its failures because people made right decisions and, unfortu­
nately, a few wrong ones. In the future, the act will be a greater
success, not merely because the machinery is remodeled, or the state­
ment of objectives sharpened, but mainly because of the quality of
the personnel who administer it. Our successors must be better than
we are, with more wisdom, knowledge, integrity, and courage, if
performance under the act is to improve.
This seems a suitable place to stop, ending with lines that hark
back to an earlier era of a more literary style of public discourse.
John Masefield, the English poet laureate, supplied poetic lines which,
I am sure, you will recall:
“ I must go down to the seas again,
To the lonely sea and the sky,






1 *

The economic sea can indeed be lonely for the private or public
policymaker trying to navigate the economic shoals when economic
visibility is low. We, indeed, have a tall ship to steer—the richest,
most productive, most dynamic and free economy the world has ever
known. And we should all pray that the Lord will grant vision to
us and our successors that we may find a clear channel between the
shoals o f depression and deflation on the one side, and the rocky
reefs of inflation and speculative boom on the other, holding our
course with an eye ever on that shining star of economic navigation,
the Employment Act of 1946.
Thank you. [Applause.]
Dr. E n s l e y . Thanks very much, Jim.
We have asked three dedicated Americans and distinguished econ­
omists in their own right to respond to this summary.
First, I will call on the vice chairman of the Joint Economic
Committee, who has been a member of the committee since 1949,
the Honorable Paul H. Douglas, Senator from Illinois. [Applause.]





Senator D o u g l a s . D r . Ensley, ladies and gentlemen, friends. In
one o f his essays Anatole France remarked that the dead lend them­
selves very readily to reconciliation and that it is a happy instinct of
history and of mankind, after the passage of time, to join together in
loving unity both the proponents and the original bitter opponents of
measures, and to classify them as deep and undying friends who all
worked together for the same end.
This is fortunate, that mankind does this, because it lessens the
tensions o f history.
But it is also well to remember that the Employment Act, like all
institutions, was bom out of conflict, struggle, and a good deal of
It so happens that my wife was the politician of the family when
the Employment Act was passed. She was a Member o f Congress and
furnished me with copies o f the Congressional Record which I read
in great detail.
I am delighted that there are so many o f the veterans who helped
to pass the Employment A ct—both on the floor of Congress and in
work behind the scenes—who are here tonight; and also for the tribute
that has been paid to men like Bob Wagner and Jim Murray, no longer
with us, who helped so tremendously in the passage o f that act. These
men and women still bear on their bodies and in their souls some of
the attacks which were made upon them because they dared to initiate
a measure calling originally for full employment and compromising
on “ maximum” employment.
But now, after 20 years, the bitterness is dying away and nearly all
groups in the community not only accept the measure, but also believe
that they originated it. [Laughter.]
I would not be one for a minute to rob them of their happy illusion,
except to say that history must be served.
Now, I believe that the procedures which were set up and the in­
stitutions which were created have enormously raised the level of eco­
nomic literacy. The work o f both the Council o f Economic Advisers
and the Joint Committee has, I think, made the bureaucrats down­
town, the members of the departments, and the attaches of the White
House, somewhat more aware o f what the issues before the Nation
actually are, and has alerted them to some o f the problems which have
been involved.
I am quite certain that we in Congress have benefited from the act.
We have been forced to devote ourselves to issues which might have
been passed by. We have received expert advice. We have argued
with each other. In the process, with the materials that have been
developed, the discussions in Congress now are far more deliberate,
far more informed, more closely approach the realities o f life, than was
true 30 or 40 years ago.
I think we have also had a very good influence on the economists
themselves, and that they are a much better educated group of men
than they were some years ago. [Applause.]
I f there have been any confined in the ivory towers, they at least
make ventures out o f those towers, and they now see some of the
difficulties involved.



I believe we have helped our newspaper friends. There are a few
good newspapers in the country and we have improved them; perhaps
we have made some newspapers that were not so good better than
they otherwise would have been. [Laughter.] It has been a constant
source of joy to me to be a member of the committee. I must admit
that I take a great deal of pleasure whenever I see my dear friend,
Wright Patman, unload on the Federal Reserve Board. [Applause.]
I think at times people may have thought that Wright was not
fully informed, but when he goes into the intricacies of the operations
o f the Federal Reserve Board, I have discovered that there is no one in
that handsome palace who can keep pace with him and that those
who come to scoff, remain to tremble. [Laughter.]
I think it was Dick Bolling who first stressed the importance of
growth, over 15 years ago, and I must say when he first mentioned this,
I stared at him with some amazement. But through the years he kept
pushing this emphasis and it has helped.
I want to pay tribute to the minority, also. I think through the
years we have come to understand each other better and to agree that
we want truth. Now, truth is a many-sided, many-faceted thing, but
we want a common body of facts which can be accepted as correct so
that we will drink pure water in our discussions, and what we carry
through will be solidly based.
I want to say also that the staff of the committee has been of ex­
traordinarily high quality. I have never known the politics o f a
single member o f the staff. I never want to know the politics of a
single member o f the staff—although I sometimes suspect them.
The committee and the staff have together spaded into the public
consciousness a lot of issues which would otherwise have been ne­
glected : the issue of monopoly, about which we have not been able to
do anything, but which is a good thing for the American public to
keep in mind; the issue o f poverty, because the study on low-income
families to which Dr. Ensley and others referred furnished really the
basis for the extraordinarily moving book by Mr. Michael Harrington,
“ The Other America,” which in turn prodded the New Yorker and
John Kennedy into action.
In attempting to understand the balance of payments and the prob­
lems which arise in this connection, I think our hearings and the mate­
rial which we have developed have been of enormous value. We have
even been able to prod the Treasury into favoring an international
currency. O f course, the Treasury never admits that, and no gov­
ernmental bureaucrat ever admits that Congress has a good idea
or provides any stimulation. But some day I want to write a book,
in reply to those who believe in the administrative state, about how
Congress educates the civil servant. [Applause.]
Well, has it all been talk, has it all been publication, has it all been
words—or has it actually paid off ?
Let me ask this question: “ Is it wholly without significance that we
have now passed 20 years since the conclusion of the greatest war in
history without a severe depression ?”
As I see economic history, every great war o f the past has been fol­
lowed by a depression within not more than 10 years. This was true
of the War o f 1812, true of the little Mexican War, true of the Civil



War, which was followed in 187o by the prolonged panic, and true of
World War I.
We came through World War II with its tremendous dislocations
and its price inflation, which was partially concealed in the Consumers
Price Index which the Government cooked up. And yet there was no
subsequent depression. This has been an enormous gain in the condi­
tions of human life, and we should keep in mind that the impetus
which gave rise to the Employment Act came not from the economists
but came from the people contemptuously referred to as “ do-gooders,”
and from the unions, who knew the hardships which millions and tens
of millions of people had suffered in the great depression which broke
out in 1929, and who were determined that so far as they were con­
cerned, it should not happen again.
They, in a sense, as in many of these matters, are the unsung heroes
of the origin of the act.
Well, we have gone for 20 years without a depression and the gain,
not merely in economic prosperity, but in human happiness, has oeen
Has this been purely accidental ? Possibly, but I doubt it. I think
that one major reason has been that the country, whether consciously
or unconsciously, has adopted the compensatory theory that govern­
mental expenditures and monetary policy should be used to prevent
depressions. While there may be differences on the surface about the
degree of action or the emphasis upon one factor or another, this has
been a policy of the Government, whether admitted or not, under both
political parties and various schools of thought.
Now, I do not want to rub salt in present political discussions but I
would like to ask a second question.
Is it accidental that in the last 5 years there has been no recession ?
We had four recessions—not depressions, but four recessions—from
1949 to 1960. The first was in 1949. Many of my Democratic friends
were very angry at me because I called it a recession at the time, but it
was one. Then came the recession of 1954, the recession of 1958, and
the recession of 1960.
We have now operated for 60 months without a recession. We have
not only operated without a recession but we have operated at a very
high rate of economic growth, well over 5 percent last year, probably
on the 5-year average very close to 5 percent. And on a per capita
basis, three and a half percent a year.
We have attained a tremendous rate of economic growth—and while
our reduction in unemployment has not been as great as many of us
had hoped, it has been considerable. And we have done it with com­
paratively stable prices—at least up to date—the most stable wholesale
and retail price level o f any industrial nation in the world.
But we should not boast too much, because I remember that there
were many economists who, in the summer o f 1929, were saying that we
lived in a new economic era. My dear friend, Irving Fisher, was
making speeches and writing pamphlets saying that depressions had
vanished from the American scene—and then he lost his shirt in the
great depression which broke out a few weeks afterward. And mil­
lions suffered far more.
But while the jury is still out, I suggest the question o f whether this
absence o f recession is purely accidental is proper to ask.



In addition, I think that it is worthwhile inquiring whether, in
addition to the compensatory policy—which in my judgment has dem­
onstrated itself as a guard against depression—whether if you have a
.considerable amount of unemployment and a considerable percentage
of idle capacity, an expansionary fiscal and monetary policy may create
monetary purchasing power which otherwise would not be there and
<help to join capital and jobs and produce more goods than would other­
wise be produced.
At least that is a question for us to ask and it should not be shirked.
Those who object should have full opportunity to be heard.
One of the excellent things I believe we have introduced at the joint
committee is that we have offered full scope for conflicting points of
view. We have asked that the facts be accurate and that there be no
personal attacks, but we welcome a divergence of opinion. And even
those of us who feel very strongly and have a given point o f view like
to take as our maxim the doctrine of Jefferson whicn he wrote as the
guiding principle for the University of Virginia: “ Here we are not
afraid to tolerate error so long as reason is left free to combat it.”
Now, as to what is error and as to what is truth, Pilate asked that
question long ago, but he would not stay for an answer. We not only
stay for an answer, we seek that answer. And I believe we are getting
■closer approximations.
So in conclusion I want to thank the pioneers, those here and the
many scattered over the Nation, who wanted the act, fought for it, and
carried it on. We are in their debt for the fact that in the midst of
many differences we can get as great a degree of reconciliation, and as
great a degree of united purpose, as we have.
Thank you very much. [Applause.]
Dr. E n s l e y . Thank you very much, Senator Douglas.
Next, to give us his response to this summary, the Honorable
Thomas B. Curtis, senior minority member of the Joint Economic
Committee, and a member of the committee since 1955.
The Congressman from Missouri, Mr. Curtis. [Applause.]

^Representative C u r t is . Mr. Chairman, my distinguished colleagues
in the executive branch o f the Government, and my colleagues in the
legislative branch of the Government, good citizens and friends of
the Employment Act. It is a great pleasure to be here, and particu­
larly to listen to the history of the Employment Act which I can only
hear about because I did not have the pleasure of living it.
My response, however, to the summary is a brief look ahead into
:the future.
I agree that the Employment Act of 1946 indeed was a milestone in
our economic history because it established a viable procedure for the
formulation and review of economic decisionmaking at the highest
levels, both in the legislative and the executive branches.
It is important to review the past—and the past record of the
Employment Act has been one of success. But the record is not
cloudless. Our stake in the future—in the 1970’s and 1980’s—requires
a hard look at ways to improve the established procedures.


th e


Today I propose that we refine these procedures in order to establish
a better public dialog on economic affairs. I propose for the consid­
eration and response o f this distinguished group that a new, addi­
tional, advisory, research and information organization be established
under the Employment A ct to enable minority party representatives
in Congress better to analyze and present minority alternatives to our
administration economic policy decisions. This “ minority economic
council” would be responsible to whichever party does not control the
White House, and would be funded by Congress.
At the heart o f the procedures of the 1946 Employment Act is the
idea that debate and discussion about economic objectives is a healthy
and constructive goal. This is one of the principal themes of the
literature on the Employment Act.
In spite o f these Employment Act procedures, debate on economic
issues is today not extensive enough or thorough enough. It needs
further development: principally, it needs a better informed, institu­
tionalized challenger able to create more intelligent public discussion
even of the most technical issues. Through such improved debate,
economic policy issues would be refined and clarified.
The complaint is often heard that Congress has abdicated one of
its most important constitutional functions—full debate in a public
forum where cross-examination and rebuttal are possible. The rea­
sons for this are in part institutional, to be sure; most issues are
“ debated” in congressional committees rather than in the House of
Representatives and the Senate. But even in committees the process
o f debate is hampered by the lack of adequate professional staff, and
the resort to closed executive rather than public committee sessions
open to the press and concerned citizens.
The need for “ help for Congress” has become a commonplace, as
public awareness of the complex organizational problems of Congress
grow. I hold that one of the most urgent organizational needs of the
Congress is for professional staff, especially for the minority.
The need is especially acute in the area of economic policy. The
size and diversity o f the economy and of the Government’s role in it
require better understanding. In 1948, 2 years after the Employment
Act when the economy had “ cooled off” after the years of wartime
spending, the gross national product (in 1958 dollars) was $323.7
billion and the fiscal year 1948 Federal administrative budget was
$32,955 billion. 1965 GNP was $609 billion in 1958 dollars and the
fiscal year 1967 Federal administrative budget is an estimated $112,847
billion. The budget for this tremendous amount, to which should be
added for completeness trust fund account expenditures of $32,153
billion, is both an economic document of very great complexity and a
political document of great importance. Adequate understanding of
the economic impact of the budget as a whole is as important as under­
standing it program by program, item by item, yet congressional facil­
ities do not exist for analyzing the effects of the total budget.
The Employment Act’s sponsors correctly saw the need even in 1946
for proper procedures through which to manage the huge new eco­
nomic power of the Federal Government. Correspondingly, the Pres­
ident’s Council of Economic Advisers has become accepted as one of
the most important offices in the executive. Though the Council is



itself small, it can draw on the almost limitless statistical and pro­
gram resources o f the other 14 executive departments and countless
other agencies. The Council o f Economic Advisers, rooted in aca­
demic institutions, has kept open its line of communication with
academic and other economic thinkers. It and the executive depart­
ments which also retain consultants are lodestones for professional
economists throughout the country. Thus, while the executive has at
its command vast internal resources and a strong attraction for pri­
vate advisers, the minority party in Congress by comparison has no
such resources, nor innate attraction.
This is a problem of the preponderance of executive branch knowl­
edge, combined with power, over the minority, and, essentially, this
problem is an institutional one. No mechanism in our society can
now focus dissent on economic issues. The minority in Congress
must have the research resources necessary to suggest workable alter­
natives to Government policy in all important economic areas. I be­
lieve there is considerable dissent in our society, within its broader
consensus.^ Our problem is how to channel that dissent—to create a
way to bring informed dissenters together to devise and propose crea­
tive alternatives based on their expert knowledge.
The institution I propose would provide a means o f using existing
knowledge to refine existing programs and to create new and better
ones. It should be financed by congressional appropriation. It
should assist whichever party does not control the White House.
It should have a full-time professional staff which would establish a
research organization extending to centers of learning and economic
thought throughout the country. It should provide travel money
for persons contributing their time and knowledge, and a center in
Washington in which to meet. It should be a means whereby busi­
ness, labor, agriculture, and academic economists, and any other prac­
ticing economists, could influence public policy through contributing
to sound decisionmaking.
This “ minority economic council” would report to a “ board of di­
rectors” comprised of the minority leaders o f the House and Senate,
the ranking minority members o f the House-Senate Joint Economic
Committee, the House Ways and Means and the Senate Finance
Committees, the House and"Senate Appropriations Committees, and
the House and Senate Banking and Currency Committees. Its re­
sources would be made available to all the Minority Members in
Congress. It would be established formally by amendment to the
Employment Act.
O f course, there are obstacles to such a plan. There will be objec­
tions both from members of the other party and from within my
own party. There will be difficulties convincing those persons—
whose talents we would wish to utilize—that their abilities are needed.
The greatest single problem mav well be encouraging private persons
to speak out publicly, to stand up and be counted no matter what
party is in power. But the merit and advantages of what I propose
should be apparent and persuasive.
The effects of the growing role of the Federal Government in the
colleges and universities are becoming serious. Substantial propor­
tions o f the budgets o f academic institutions come from the Federal



em ploym ent

ACT OF 1 » 4 6

Government. Competition for such funds among universities is
A t the same time Government finances programs at universities
it finances individuals at those universities. College presidents, de­
partment heads, and students enjoy the reflected prestige of the pro­
fessor called to consult with the administration in Washington.
These pressures could militate against the bright, ambitious scholar,
businessman, labor or civic official coming to Washington to con­
tribute his knowledge to the minority party.
The fundamental problem is again a systemic one. The present
system reduces the incentive to criticize by creating allegiances between
priva/te consultants and Governments; thus it operates to favor the
party in power. The losers, in terms o f better performance of our
economy, are American men and women. A countervailing change in
the present system is required to allow latent voices of dissent and
constructive suggestions to be heard.
Other obstacles against creation of the institution I propose would
be determining its role when Congress is held by one party and the
executive by the other. Also we can ask, what would be the role of
the organization when one party controls one House and the other
party controls the other ? These structural problems can be solved.
Among the problems a newly formed minority economic council
might turn its attention to are the following:
1. Generalized wage and price “ guidelines” are being applied with­
out having been understood or sanctioned as a valid instrument of
economic policy, and I would argue, the means of their enforcement
have been illegal.
2. In concentrating on aggregate economic policies equally valid
specific approaches that can also reduce unemployment have been
minimized. Manpower development and training programs are un­
coordinated and redundant and so are grossly inadequate to meet
needs. No effort, for example, has been made to integrate manpower
trained for the Armed Forces with civilian skill categories and de­
mands. In my book, “87 Million J obs” (Durell, Sloan, & Pierce,
1963), I proposed a computerized inventory of job vacancies which
is still an urgent need.
3. The economic impact of the Nation’s war effort is not under­
stood. Beyond its budgetary costs, war spending is having reallocative effects on the Nation’s resources which are vital but largely
#4. Inflation is an immediate and pressing concern. Prices, espe­
cially o f food, have risen sharply. The Bureau of Labor Statistics
reported recently that the wholesale price index for January 1966 in­
creased by 0.5 percent, or at an annual rate of 6 percent. The im­
portance o f this rise is that it is generalized—it includes the indus­
trial, as well as the agricultural commodities. Moreover, this increase
hides the suppressed price increase which would have occurred in the
absence of artificial and arbitrary administration intervention to hold
down selective industrial price increases in the face o f generalized
inflationary pressures.
5; The tax system is elaborate to the point where too many economic
decisions are made on the basis o f their tax consequence rather than
on their economic merit.



6. A decade of public housing efforts has not solved the povertyrelated problem of adequate housing for low-income groups and other
directly related environmental problems. Our previous efforts may,
in fact, have aggravated the housing problem. This problem, largely
one o f the supply of the commodity of housing, has been badly mis­
handled in a period when rapid suburbanization has taken precedence
over the older problems of urbanization and “derustification” of our
7. The Negro is our greatest underutilized resource, representing as
a group a vast untapped reservoir of human talent and productive
ability. The Negro is the unfortunate legatee of the withdrawal of
economic power and ability from the city to suburbia and he bears the
brunt of the age-old problem of rural man’s adjustment to urban
society. The lack of jobs, the Negro’s most urgent need, is mostly a
structural problem. Unions and other economic, as well as social,
forces have retarded this utilization. Aggregate economic policies
cannot hope to solve these basic structural problems—nor can politi­
cally motivated, misguided “ poverty” programs which are not based on
adequate understanding of who is poor and how the poor can be helped.
We must provide job training and basic education programs directly
related to local industry needs and pull down the organizational bar­
riers that stand between the man on the street and the man at work
producing for a greater America.
8. The “ aged,” increasing in proportionate size and retained agility,
represent a vast economic resource which to a large measure is discarded
at great economic and human cost beyond an arbitrary age limit. We
forget that age is a relative concept, and that age limits built into
Federal and other programs misrepresent the ability to contribute to
9. The large number of new programs for the promotion of educa­
tion has left educational institutions gasping in bewilderment, yet we
have not defined the objectives of our education systems or related
them to the vast amount o f training and retraining done in the nonacademic and military worlds. A burning, unresolved issue is, “ How
is our educational system to be guided and coordinated?”
10. Foreign economic policy is bankrupt. Supposedly based on
principles, it is a succession of ad hoc responses to immediate needs.
As a congressional delegate to the current trade negotiations under
the General Agreement on Tariffs and Trade (G A T T ), I am aware
at firsthand that we have not begun even to talk about and understand,
much less to meet, the needs of developing countries through trade.
Nor, after years of trying, have we found the key to success m devel­
opment aid policy. Instead of helping countries increase per capita
wealth we have, through our programs, increased their reliance on
artificial temporary income resources, often substituting U.S. Gov­
ernment funds for local private funds, without creating in them the
will and the ability to solve their own problems. Administration
fiscal and monetary policies generate inflationary price rises which
increase pressure to buy cheaper imports and discourage export sales.
All o f these issues, and many more, deserve the attention of the
minority research organization I propose. These comprehensive re­
search efforts could be mounted in different ways, depending on the
nature o f the problem. An example of the kind of project I have in



mind is “ Operation Employment,” an effort of Republicans in the
House of Representatives in 1961 to address the structural problems
of unemployment in the most enlightened way. About 60 House
Republicans established committees to study all the associated problems
of employment and unemployment. Each committee was aided by a
panel of private experts. These committees reported and debated their
findings in the House of Representatives. The result was the Man­
power Development and Training Act of 1962.
Essentially this proposal for a minority economic council is an ap­
peal for your ideas and comments. I propose it fully aware that as a
concept it faces many of the same obstacles that Senator Murray and
his Employment Act faced 20 years ago. But what I propose is a
logical corollary to the Employment Act. Its result would be better
decisionmaking in economic affairs.
The legislative year 1946 was a time of great ferment. It saw pas­
sage both of the Employment Act and also of the Congressional
Reorganization Act. Twenty years later the substantive and institu­
tional problems facing us are as great as they were then, and they re­
quire equally bold solutions. I am convinced that what I propose
would help meet these problems. [Applause.]
Dr. E n s l e y . Thank you very much, Mr. Curtis.
Finally, and with the last word, I can think of no one I am happier to
call upon than the Chairman of the Council o f Economic Advisers,
who has been a member of the Council since 1962, and chairman since
1964, the Honorable Gardner Ackley. [Applause.]

Dr. A c k l e y . Mr. Chairman, Mr. Patman, I think no one should
envy my role as the last speaker in a day very full of words—brave
words, wise words, laudatory words, critical words, scholarly words,
even political words.
By now the chance that I might present any new thought or reflec­
tion is completely obliterated. And in your sated condition, you
might not recognize it if I did. I stand on the borderline between the
great work that has been done here today and the more mundane work
that will be done here in a few minutes—when a crew will descend on
this room to clean up, throw away the debris, sweep the floor, and
rearrange the room for another meeting tomorrow.
This feeling of standing on a borderline in time extends to a large
dimension. I am the sixth of the Chairmen of the Council of Eco­
nomic Advisers, happily all here tonight. But tomorrow morning I
will be the only chairman to enter that granite pile at 17th and Penn­
sylvania Avenue. Arthur Okun and Jim Duesenberry and I feel a
kinship with the 18 others who have preceded us as Council members,
many o f them here today. But tomorrow, we are the Council. W e
bridge the past that has been celebrated today and the future that
must be wrestled with tomorrow.
And if we have learned anything today—it is that the future will
not duplicate the past. The years since 1946—like the 20 preceding
them o f which Rov Blough reminded us—have been years of continu­
ous change. Evolving, adapting, digesting; buffeted, swayed, trans­
muted; the machinery and the meaning o f the Employment Act



come down to this hour the product of all those men and ideas and
events that have shaped our past. And they move into a future
dimly seen in a dark glass—that crystal ball that Dave Lusher and
Frances James keep so assiduously polished, but which remains so
And as I mention her name let me pause to pay tribute to the
Council’s chief statistician, Miss James. The Council’s twin institu­
tion at the other end of the avenue has several distinguished links
with the earliest days of the Employment Act. But at our end, only
Frances James preserves our tie with the founding of the Council.
And she remains, as she has at all times been, one of the most valuable
and dedicated members of the Council’s staff.
As I have tried to sort through the often divergent—even conflict­
ing—views expressed here today I find only two points of unanimity.
But they are the two most fundamental points about the Employment
First, despite all our disagreements and diversity, there has been
no challenge to the central thesis of the Employment Act—that the
Federal Government has an affirmative, positive, continuing responsi­
bility for helping our economy to prosper and to grow.
Today almost no one—certainly none of our principal speakers
here—dissents from this central proposition. Yet 20 years ago there
were many who had doubts, and 40 years ago there were no doubts—
almost everyone who mattered knew that the Government had no
responsibility that extended beyond the efficient management of its
own affairs.
The second central point of agreement is that the goals and tasks
o f economic policy must evolve and alter over time. They could not
have been set down in detail for all time in 1946; they cannot be
spelled out today to be applicable for the years to come.
Some feel that we should codify what we have already learned
through amending the act; others see no gain and possible danger
in such amendment. But all of us agree that the goals and instru­
ments of economic policy 10 or 20 years hence will differ from those of
today by as much as our concerns differ from those of 1946.
This second point of agreement leads into what is a recurrent though
far from universal theme of many comments today. Since change
is the ceaseless condition of our economy, the Council and the Joint
Committee should spend more of their effort looking farther down
the road ahead.
I am more inclined to agree with Dean Jacoby that we should be
making longer term studies than with Colm or Keyserling that we
should publish long-range projections. But I agree with them all
that our horizons needi^ngthening.
One limitation on the Council’s ability to take the longer look that
I agree we need is that we have become much too useful in dealing
with short-range, immediate problems. Our small resources are con­
stantly strained in helping to put out fires that, if we had been better
able to forecast 1, 2, or 5 years ago, might have been at least partially
avoided. Yet clearly it is important to put out fires, and to use the
best resources at hand to do it.
I f we could enlist or free up the resources to do it, we should cer­
tainly be devoting more of our effort to the medium and longer run.
In cooperation with the Budget Bureau, we should be exploring more




fully the future impact of Federal programs, especially the new and'
growing ones—both the overall demands they will make and the*
contributions they will achieve, and their particular impacts on in­
dustries, regions, and skills. We need to do more work than we havedone on the capital requirements, both public and private, of an^
expanding economy, so as to provide better guidance for fiscal and
other policies that affect our ability to accumulate capital. We need’
to know more than we do know about the occupational requirements
of the future in order to provide better guidance for today’s programs
o f education and training.
What these examples suggest is not only the need for us to have'
a better telescope—to let us look further ahead—but also a better
microscope—to look in a more disaggregated way at the pieces and
parts of the economy. Both of these might seem to imply a relative*
shift of the Council’s efforts from firefighting to more basic studiesaimed at fire prevention.
One solution perhaps would be to enlarge the Council staff, which *
is now little if any bigger than it was 5 or 15 years ago. But if we
were to become much larger we would lose the flexibility, adaptability,
and speed which are our greatest assets. And members of our staff"
might tend to lose that sense of identification with and participation in
the great problems of national economic policy which spur them to a
quantity and quality of effort no larger organization could command..
But what the Council itself does is less important than what gets
done in the Federal Government, with the cooperation and the initia­
tive o f all the economic talent in all the agencies. By placing econ­
omists close to the White House, the Employment Act enlarged the
role o f economists in Federal policymaking. It gave economists in the*
research and operating agencies more confidence that their findings
will have an impact on decisionmaking right up to the Presidential’
level. A t the same time, the Council is in a unique position to channel
to the rest o f the Government’s economic intelligence apparatus ideas
about the types of data and studies most needed for key policy deci­
sions. Many of these agencies have considerably greater depth o f
personnel than the Council, and some are more insulated from pres­
sures for quick day-to-day decisions. I must confess, however, that the
Council has not in all cases fully discovered how best to mobilize and*
focus and coordinate this work to contribute to the larger policy issues
that lie down the road ahead.
But the problems o f the day and hour remain. They have been the'
subject of much comment today. Does our present mix of fiscal and
monetary policies strike the right balance between stimulus and re­
straint ? How can we deal most effectively with the tendency for prices
to creep upward and wages to advance more rapidly than productivity
whenever the economy comes reasonably close to its employment goals ?
Are we moving as fast as we should with our manpower and related’
programs? How can we make markets more competitive without
actions which would destroy the delicate consensus on which effective
policies must rest?
On all o f these questions we need the most thorough analysis o f
which economists within or without the Government are capable;
On many o f them we also need—as Arthur Bums reminds us—better*
and more timely data than we have.



Anyone who feels any responsibility for economic policy in this
21st year of the Employment Act—and all of you must or you would
not be here—recognize that today’s problems are more difficult than
any we have faced in recent years.
When the economy is slack and unemployment is high, it is not
hard to know what policies to recommend. The problems of sustain­
ing high-level prosperity are far more difficult. Still, as the Presi­
dent said in his Economic Report, they are “ the problems we have
been waiting to encounter * * * the welcome problems of prosperity.”
As we study the words that have been said today—the wise words
and the critical words—we in the Council of Economic Advisers will
find much to guide and inspire us as we go back to work tomorrow,
determined to do our part to help carry out the mandate the Council
received 20 years ago:
“ To develop and recommend to the President national economic
to foster and promote free competitive enterprise;
to avoid economic fluctuations or to diminish the effects thereof; and
to maintain employment, production, and purchasing power.”
Dr. E n s l e y . Thank you very much.
Ladies and gentlemen, honored guests, and all who have helped
to make this 20th anniversary of the Employment Act a rewarding
experience, again permit me to thank you on behalf of the special com­
mittee for your cooperation and courteous attention.
May I remind you that the entire verbatim proceedings of this
symposium will be published by the Joint Economic Committee and
will oe mailed, where addresses are available, to all here tonight.
W e trust it will be a significant contribution to economic literature
and to the development of public and private policies in the best
interests o f the people.
The hour is late.
This economic symposium now stands adjourned. Thank you very
(Whereupon, at 10:20 p.m., the symposium was adjourned.)


H istory

of the

E mployment A ct



Even at the height o f the war years, the sharp memories of depres­
sion spurred ideas of postwar planning to avoid unemployment. On
January 6, 1944, a year before the introduction of the Employment
Act, and 2 years before its final passage, Congressman Patman, the
House leader in the subsequent fight for this legislation, advised his
constituents that “ employment is the most serious postwar problem
ahead o f us.” Two weeks later, he said:
“ I f our postwar industry does not absorb the unemployed, jobs must
be created. Unemployment will create an internal problem more in­
sidious and dangerous than war. Violence, hatreds, and persecutions
between races, groups, and nationalities will flare into bloodshed.
Booming o f cannon and blockbusters will have been less destructive
than mass unemployment. Our first postwar consideration must be
jobs or we shall face disunity and incredible suffering.”
The idea o f a separate full employment bill evolved from the early
planning for reconversion and the debate over the proper role o f the
Federal Government in the postwar economy. Congressman Patman,
as chairman of the House Small Business Committee, endorsed the
establishment o f the Postwar Planning and Economic Committee of
the House of Representatives, and commended its efforts to “ give great
heed to all programs which might better insure full employment and
maximum utilization of our productive facilities after the war” (vol.
90, Cong. Rec. p. 7025,78th Cong., 2d sess. (1944)).
However, the first specific legislative proposal for full employment is
to be found in the August 1944 “ Patton amendment” 2 added to Sena­
tor Kilgore’s reconversion bill (S. 1823).
The Kilgore bill included ambitious and far-reaching provisions to
cope with postwar economic adjustment. O f particular note was the
proposal for the establishment of a Bureau o f Programs which was
to be responsible for “ full employment and full production planning.”
The Patton amendment provided a specific framework for attaining
full employment. It established a $40 billion investment level as that
necessary for attaining full employment. The Joint Committee on
Internal Revenue Taxation, with the assistance of the executive agen­
cies, was to be charged with the responsibility of determining the level
o f prospective total investment and, if a deficiency existed, compensa­
tory measures would be undertaken.
1 This brief history has been compiled from the follow in g sou rces: (1 ) “ Congresw Makes
a L a w : The Story Behind the Employment A ct o f 1946," by Stephen K. Bailey, Colombia
University Press (1950) : (2 ) the Congressional R ecord ; (3 ) files, press releases, and cor­
respondence files o f Hon. W right Patman, Member o f Congress.
* Based on a draft written by Russell Smith and James Patton, of the National Farmers



th e


In October 1944. the Congress passed a much narrower measure
establishing an Office of War Mobilization and Reconversion. The
employment provisions of the Kilgore bill were stripped from the
However, there was considerable feeling that the limited recon­
version legislation was inadequate. Senator Murray had been par­
ticularly impressed by the “ Patton amendment” which he felt had
brought a new frame of reference to the thinking about the problems
o f postwar employment. He therefore sent the “ Patton amendment”
to the executive agencies and departments for their reactions, with
the idea of drafting a new legislative proposal.
The first published draft of Senator Murray’s full employment bill
appeared in December 1944, in a yearend report of the War Contracts
Subcommittee of the Senate Committee on Military Affairs, entitled
“ Legislation for Reconversion and Full Employment.” Using this
working draft, Senator Murray sought the support of cosponsors for
his bill in the Senate. On January 22, 1945, he introduced a revised
draft—the full employment bill (S. 380)—in the Senate under the
cosponsorship of Senators Wagner, Thomas, and O’Mahoney. (On
July 28, an official announcement was made of the cosponsorship of
Republican Senators Morse, Tobey, Aiken, and Langer.) Following
the reading of the bill, it was referred to the Banking and Currency
Committee chaired by Senator Wagner.
Due to its activities concerning the Bretton Woods Agreement and
the OP A, the Senate Banking and Currency Committee was unable to
hold hearings on S. 380 until the summer of 1945. Preliminary hear­
ings by a subcommittee headed by Senator Wanner were set for July
30 and 31, to be followed by more extensive hearings after the summer
recess. The witnesses for the first 2 days consisted o f five Senators
and two Representatives who sponsored the bill in the House. Fur­
ther hearings, originally planned for early October, were quickly
rescheduled for August 21 when the war came to a sudden end. Be­
tween August 21 and September 1, 63 witnesses were heard by the
Senate subcommittee. (A full listing of the witnesses appearing is
attached.) On September 18, Senator Wagner submitted the sub­
committee report, and the full committee met to discuss and vote on
a series o f amendments the following 2 days.
A motion to report the bill favorably passed on September 20, and
the Senate began consideration o f S. 380 on September 24. The bill
was passed by a majority of 71 to 10 on September 28.
Progress in the House o f Representatives was not so rapid. The
original full employment bill, H.R. 2202, was introduced by Congress­
man Patman, on February 15,1945.
During the spring, Congressman Patman worked at securing co­
sponsors for the bill. By June he had secured the support of about
75 o f his colleagues. An informal meeting was held by the sponsors
at the end o f May, at which Representative Patman was delegated to
name a steering committee for the activities of the group. The mem­
bers o f the steering committee were as follow s: Representative George
Outland, chairman; Representative Andrew Biemiller, secretary; Rep­
resentatives Walter Brehm, John Fogarty, Walter Granger, Estes
Kefauver, Matthew Neely, Mary Norton, Luther Patrick^ George
Sadowski, Charles Savage, and Wright Patman, ex officio. This



group was able to enlist 116 Congressmen as cosponsors of the bill.
(The entire listing is attached.)
A t the June 11 meeting of the steering committee held in Congress­
man Patman’s office, he urged his colleagues, “ We must make this a
great crusade for the most constructive single piece o f legislation in
the history of this Nation.” Throughout the period surrounding
Congressman Patman’s introduction of the full employment bill there
were many meetings and conferences held in Speaker Rayburn’s
“ Board of Education” room and Congressman Patman’s office. The
participants at these meetings included the congressional sponsors of
the legislation, staff personnel, and representatives of the interested
public groups.
This seemingly auspicious start, however, was soon to bog down.
O f crucial importance was the committee to which the bill was as­
signed. After its introduction in February, H.R. 2202 was referred
to the Committee on Expenditures in the executive departments.
Committee Chairman Carter Manasco from Alabama was not favor­
ably disposed to the bill and the committee as a whole was heavily
weighted against the original version.
Hearings on the bill were held from September 25 through Novem­
ber 7, during which time 40 witnesses were heard. In comparison to
testimony before the Senate committee, the House witnesses were con­
siderably more hostile to the bill. As a result, the committee voted
17 to 3 against reporting H.R. 2202 to the floor. A motion carried to
draft an acceptable House substitute and the succeeding month was
spent in drafting a new bill. On December 5, the committee reported
out a considerably amended H.R. 2202.
The new bill was acceptable neither to the steering committee nor to
the opponents in the House, and it became questionable whether a full
employment bill could be passed. The strategy of the steering com­
mittee to force a rollcall vote on either the original H.R. 2202 or the
Senate version, S. 380, failed, as did all efforts to amend the modified
H.R. 2202 reported by the committee. During the House debate on
December 13 and 14, it became clear that either the modified H.R. 2202
would be passed or no bill at all. Consequently, with urging from
the administration, the House passed the committee’s version of H.R.
2202 on December 14 by a vote of 255 to 126.
It then became the task o f the House-Senate conference committee
to work out a compromise bill acceptable to both Houses. The con­
ference committee members were Senators Taylor, Barkley, Murdock,
Tobey, Taft, Radcliffe, and Buck, and Representatives Cochrane,
Bender, Whittington, Manasco, and Hoffman. The wide split re­
flected in the committee and the divergence of the two bills made a
successful outcome of the conference somewhat doubtful. Members
in each House announced that they were insistent upon a version close
to their bill, while the administration was pushing for a version closer
to the Senate bill. The conference discussions began on January 22,
in Senator Barkley’s office, and continued through February 2. It
was largely as a result of the skillful redrafting efforts o f the Senate
sponsors staff, under the direction o f Bertram M. Gross, that a stale­
mate was avoided, and ageement on a revised bill entitled the “ Em­
ployment Act of 1946” was reached. The conference bill was passed
by the House by a vote of 320 to 84 on February 6, and by the Senate



on February 8 without a record vote. President Truman signed theEmployment Act of 1946 into law on February 20.
Although both sides claimed a victory in the drafting of the confer­
ence bill, it was cear that a significant advance had been mad in out­
lining the economic policy ana responsibility of the Federal Govern­
ment. The debate over the Employment Act continues, but there is
little question today that the passage of the act in 1946 marked a mile­
stone in the course of responsible economic policy in the United States.

C o sp o n so b s


James E. Murray, Montana
Robert F. Wagner, New York
Elbert Thomas, Utah
Joseph C. O’Mahoney, Wyoming

T h e 1 1 6 C o sp o n so b s


Luther Patrick
Richard Harless
John R. Murdock
Helen G. Douglas
Clyde Doyle
Frank R. Havenner
Ned R. Healy
Chet Holifield
Ed V. Izac
Claire Engle
Cecil R. King
Gordon McDonough
George P. Miller
George E. Outland
E. E. Patterson
H. R. Sheppard
J. H. Tolan
Jerry Voorhis
Richard J. Welch
James P. Geelan
H. P. Kopplemann
Clare Booth Luce
Joseph F. Ryter
Chase Going Woodhouse
D elaw are:
Philip A. Traynor
Illin o is:
Emily Taft Douglas
William L. Dawson
Thomas S. Gordon
Martin Gorski
Edward A. Kelly
William A. Link
Thomas J. O’Brien
Melvin Price
Alexander J. Resa
William A. Rowan
Adolph J. Sabath

S. 3 8 0 in t h e

U.S. S e n a t e

Wayne Morse, Oregon
Charles Tobey, New Hampshire
George D. Aiken, Vermont
William Langer, North Dakota

H .R . 2 2 0 2 i n

th e

H o u se o f R e p r e s e n ta tiv e s

Ray J. Madden
Joe B. Bates
Earle C. Clements
Thomas J. Lane
John Lesinski
John D. Dingell
Frank E. Hook
George D. O’Brien
Louis C. Rabaut
George G. Sadowski
William J. Gallagher
Frank T. Starkey
S. J. Carnahan
John J. Cochran
John B. Sullivan
Mike Mansfield
Berkeley L. Bunker
New Jersey:
Edward J. Hart
Mary T. Norton
Charles A. Wolverton
New Y ork :
Joseph Clark Baldwin
William B. Barry
Charles A. Buckley
William T. Byrne
Emanuel Celler
James J. Delaney
Samuel Dickstein
Walter A. Lynch
Vito Mareantonio
Joseph L. Pfeffer
Adam C. Powell
Peter A. Quinn




C o spo n sor s


H .R .

New York—Continued
Leo F. Rayfiel
George F. Rogers
John J. Rooney
James H. Torrens
George H. Bender
Walter E. Brehm
Edward J. Gardner
Walter B. Huber
Michael Kirwan
Homer A. Ramey
William R. Thom
Michael A. Feighan
William G. Stigler
Victor Wickersham
Homer D. Angell
William A. Barrett
Michael J. Bradley
Herman P. Eberharter
Daniel J. Flood
William T. Granahan
William J. Green, Jr.
Daniel K. Hoch
Augustine B. Kelley
Herbert J. McGlinchey
Thomas E. Morgan
John W. Murphy
Samuel A. Weiss


2202 i n



o u se of

R e p r e s e n t a t iv e s —


Rhode Island:
John E. Fogarty
Aime J. Forand
Albert Gore
Estes Kefauver
J. Percy Priest
J. M. Combs
Wright Patman
Walter K. Granger
J. W. Robinson
John W. Flannagan
John M. Coffee
Hugh De Lacy
Henry M. Jackson
Charles R. Savage
West Virginia:
Cleveland M. Bailey
E. H. Hedrick
John West Key
Matthew M. Neely
Jennings Randolph
Andrew J. Biemiller
Alvin E. O’Konski

A p p e a r in g B efo re a S u b c o m m it t e e of t h e C o m m it t e e o n B a n k in g
C u r r e n c y , U .S . S e n a t e , 7 9 t h C o n g r e s s , 1 s t S e s s i o n , o n S . 3 8 0 , J u l y 3 0 ,
2 1, 2 4, 2 8 - 3 1 , an d Septem ber 1 , 1 9 4 5

it n e s s e s



31, A


Anderson, Hon* Clinton P., Secretary of Agriculture.
Avildsen, chairman of the board, Republic Drill & Tool Co., Chicago^ 111.
Bell, Ulric, executive vice president, Americans United for World Organization.
Bolte, Charles G., chairman, American Veterans Committee.
Bradley, Gen. Omar N., Administrator of Veterans’ Affairs.
Brown, Francis J., consultant, American Council on Education.
Burgess, Ernest W., professor of sociology, University of Chicago.
Caulkins, Mrs. J. B., president, Young Women’s Christian Association.
Clark, Hon. Tom C., Attorney General of the United States.
Donnelly, James L., executive vice president, Illinois Manufacturers’ Association.
Downey, Hon. Sheridan, Senator from the State of California.
Dunn, Miss Loula, president, American Public Welfare Association; commis­
sioner, Department of Public Welfare, State of Alabama.
Du Shane, Dr. Donald, secretary, Defense Commission of National Education
Finletter, Thomas K., former Special Assistant to the Secretary of State.
Flanders, Ralph E., president, Jones & Lamson Machine Co. and Bryant Chuck­
ing Grinder C o.; Chairman, Boston Federal Reserve Bank; and Chairman, Re*
search Committee, Committee for Economic Development.
Fleming, Maj. Gen. Philip B., Administrator, Federal Works Agency.
Golden, Harry, president, Magna Products Corp. of New York, N.Y.
Goss, Albert S., master of the National Grange.
Green, W. Cooper, mayor of Birmingham, Ala.
Green, William, president, American Federation of Labor.
Hall, Miss Helen, director, Henry Street Settlement, New York City.
Harrison, George, chairman, Postwar Subcommittee of the Railway Labor Execu­
tives Association; president, Brotherhood of Railway Clerks.



Hoffman, Paul G., president, Studebaker Corp.; Chairman, Board of Trustees,
Committee for Economic Development.
Isserman, Abraham J., counsel, National Federation for Constitutional Liberties.
Keller, L. E., research director, Brotherhood of Maintenance of Way Employees.
Kelly, Edward J., mayor of Chicago.
Ketchum, Omar B.f national legislative representative, Veterans of Foreign Wars
of the United States.
King, Willford I., chairman, Committee for Constitutional Government, Inc.
Kleitz, William L., vice president, Guaranty Trust Co. of New York*
LaGuardia, Fiorello H ., mayor of New York City.
Lewis, John L., president, United Mine Workers of America.
Malisoff, Dr. Harry, a member of the Disabled American Veterans.
Menninger, Col. William C., U.S. Army, Chief, Psychiatric Division, War Depart­
ment; psychiatrist, Menninger Clinic.
Miller, Martin H., national legislative representative, Brotherhood of Railroad
Morse, Hon. Wayne, Senator from the State of Oregon.
Mosher, Ira, president, National Association of Manufacturers.
Murray, Hon. James E., Senator from the State of Montana.
Murray, Philip, president, Congress o f Industrial Organizations.
O’Grady, Rt. Rev. Msgr. John, secretary, National Conference of Catholic
O’Mahoney, Hon. Joseph C., Senator from the State of Wyoming.
Opher, Rabbi Ahron, assistant to the president, Synagogue Council of America.
Outland, Hon. George E., Representative from the State of California.
Oxnam, Bishop G. Bromley, president, Federal Council of Churches of Christ in
America; bishop of the Methodist Church, New York, N.Y.
Palmer, Charles F., president, Palmer, Inc., Atlanta, Ga.
Patman, Hon. Wright, Representative from the State of Texas.
Patterson, Ernest Minor, professor of economics, Wharton School of Finance
and Commerce, University of Pennsylvania.
Patton, James G., president, National Farmers Union.
Pogoloff, David, national service officer trainee, Disabled American Veterans.
Rice, Millard W., national service director, Disabled American Veterans.
Ruml, Beardsley, treasurer, R. H. Macy & C o.; chairman, Federal Reserve Bank
of New York; member, Research Committee, Committee for Economic
Sanders, Col. Lewis, industrial engineer.
Schacter, Harry W., president, Kentucky Merchants Association; president,
Kaufman-Straus, Inc., Louisville, Ky.
Schwellenbach, Hon. Lewis, Secretary of Labor.
Shapley, Dr. Harlow, vice president, Independent Citizens Committee of the Arts,
Sciences, and Professions; director, Harvard Observatory, Harvard University.
Shell, the Most Reverend Bernard, auxiliary bishop of Chicago ; director, Catholic
Youth Organization, Archdiocese of Chicago.
Sifton, Paul, director, Washington Bureau of the Union for Democratic Action.
Smith, Hon. Harold D., Director of the Budget.
Snyder, John W., Director of War Mobilization and Reconversion.
Swiggett, Mrs. Glen L., representing the National Congress of Parents and
Thomas, Hon. Elbert, Senator from the State of Utah.
Thorp, Dr. Willard, Deputy to the Assistant Secretary o f State for Economic
Vinson, Hon. Fred M., Secretary of the Treasury.
von Windegger, F. R., president, the Plaza Bank of S t Louis.
Wagaer, Hon. Robert F., Senator from the State of New York.
Wallace, Hon. Henry A., Secretary o f Commerce.
Warburg, James P., writer, Greenwich, Conn.
Waxter, T. J. S., director, Department of Public Welfare, Baltimore, M d.; chairman, National Committee on Public Social Policies.
Wheeler, Walter H., president, Pitney-Bowes, Inc., Stamford, Conn.
White, Walter, secretary, National Association for the Advancement of Colored
Wolf, Benedict, chairman, Postwar Planning Committee, National Lawyers Guild.



W i t n e s s e s A p p e a rin g B e f o r e t h e C o m m itte e o n E x p e n d itu r e s in t h e E x e c ­
u tiv e D e p a r tm e n ts , H o u s e o f R e p r e s e n ta tiv e s , 7 9 t h C o n g re s s , 1 s t S e s s io n ,
o n H.R. 2 2 0 2 , S e p t e m b e r 2 5 - 2 3 , O c t o b e r 2 , 9 , 1 0 , 1 6 - 1 9 , 2 3 - 2 6 , 2 9 - 3 1 ,
N o v e m b e r 1, 5 , an d 7, 1 9 4 5

Anderson, Hon. Clinton P., Secretary of Agriculture.
Anderson, Joseph P., executive secretary, American Association of Social Workers.
Ball, Dr. Carleton R., member, Legislative Committee, Council for Social Action,
Congregational Christian Churches.
Benson, Dr. George S., president, Harding College; chairman, Executive Commit­
tee, Arkansas Public Expenditure Council.
Bradley, Gen. Omar N., Administrator of Veterans’ Affairs.
Brown, Millard D„ chairman, Legislative Committee, Philadelphia Textile Manu­
facturers’ Association.
Carpenter, Herbert L., vice president, Commerce & Industry Association of
New York, Inc.
Cowan, Nathan E., legislative director, Congress of Industrial Organizations.
Crawford, Frederick C., president, Thompson Products Co., Cleveland, Ohio.
Donnelly, James L. executive vice president, Illinois Manufacturers’ Association.
Eaton, Charles A., Jr., president, National Association of State Chambers of
Flanders, Ralph E., President, Federal Reserve Bank of Boston; Chairman, Re­
search Committee, Committee for Economic Development.
Goss, A. S., Master of the National Grange.
Hastings, Hudson G., professor of economics, Yale University.
Hewes, Thomas, former Under Secretary of the Treasury ; former treasurer of the
State of Connecticut.
Hines, Lewis G., national legislative representative, American Federation of
Kane, Joseph W., Detroit Chamber of Commerce.
LaFollette, Hon. Charles M., Representative from the State of Wisconsin.
Levy, Austin T., president, Harrisville Combing Mills, Inc., Ilarrisville, R.I.
McHale, E. J., executive secretary, American Veterans* Committee.
Marston, R. B., director, Legislative-Federal Relations Division, National Educa­
tion Association.
Milliman, Elmer E., president, Railway Brotherhood of Maintenance of Way
Mosher, Ira, president, National Association of Manufacturers.
Ogg, W. R., director, Washington office, Farm Bureau Federation.
Outland, Hon. George E., Representative from the State of California.
Patman, Hon. Wright, Representative from the State of Texas.
Rice, Millard W., national service director, Disabled American Veterans.
Schramm, James S., co-owner and manager, J. S. Schramm Co., Burlington, Iowa.
Schwellenbach, Hon. Lewis B.t Secretary of Labor.
Schultz, Dr. Arch D., Ohio Chamber of Commerce.
Scott. Thomas J., veteran, World War II.
Smith, Hon. Frederick C., Representative from the State of Ohio.
Smith, Hon. Harold D., Director of the Budget.
Smith, Russel, legislative secretary, National Farmers Union.
Snyder, Hon. John W., Director of W Mobilization and Reconversion.
Spahr, Walter E., professor of economics, New York University, on behalf of
National Association of State Chambers of Commerce.
Terborgh, George, research director, Machinery & Allied Products Institute.
Vinson, Hon. Fred, Secretary of the Treasury.
Voorhis, Hon. Jerry, Representative from the State of California.
Wallace, Hon. Henry A., Secretary of Commerce.

60-074— 66-------10

[Press release, dated August 6, 1965]
J o in t E

c o n o m ic

C o m m it t e e , C o n g ress

of t h e

U n it e d S t a t e s

On behalf of the entire membership of the Joint Economic Committee, the
four ranking members today announced the formation of a committee of five
distinguished economists from outside the Government to formulate specific
l)lans for a bipartisan observance, next year, of the 20th anniversary of the
enactment of the Employment Act of 194G.
Chairman Wright Patman, Democrat of Texas, of the Joint Economic Com­
mittee, and one of the original members of the committee when it was estab­
lished 20 years ago, was joined in the announcement by Senator Jacob K.
Javits, Republican of New York, ranking minority member; Senator Paul H.
Douglas, Democrat of Illinois, vice chairman; and Representative Thomas B.
Curtis, Republican of Missouri, senior minority member in the House of Repre­
“The Employment Act of 1946.” the group noted, “ was signed by President
Truman on February 20, 1946. It passed the Congress after extensive debate
and thoughtful compromise, by voice vote in the Senate and by nearly a 4-to-l
margin in the House o f Representatives. The act, passed in the shadow of
military demobilization, as 12 million men and women returned to the civilian
work force in an atmosphere still haunted by the specter of large prewar unem­
ployment, has been flexible and useful in minimizing economic instability, and
has provided a foundation for growth. The act’s success over two decades
deserves recognition and a rededication to the policy of cooperation, responsi­
bility, and freedom which it represents.”
The five economists w ho have agreed to serve on the panel to plan and carry
out an observance of this anniversary are all distinguished Americans who, by
intimate experience, have knowledge of the trials and successes of the Employ­
ment Act and of the U.S. economy, dating hack to a point well before its
enactment. This committee consists o f :
Dr. Grover W. Ensley, who will act as chairman of the panel, is now
executive vice president of the National Association of Mutual Savings
Banks. He was executive director of the Joint Economic Committee from
1951 to 1957 and associate director from 1949 to 1951. He served, therefore,
under both Democratic and Republican leadership of the committee.
Dr. Walter W. Heller, professor of economics, University of Minnesota;
formerly Chairman of the Council of Economic Advisers, 1961-64.
Dr, Raymond J. Saulnier, professor of economics, Barnard College; for­
merly, Chairman of the Council of Economic Advisers, 1956^-61, and a member
of the Council, 1955-56.
Dr. Gerhard Colm, chief economist. National Planning Association; and
a senior staff member of the Council o f Economic Advisers, 1946-52.
Dr. Henry C. Wallich, professor of economics, Yale University, and a
member of the Council of Economic Advisers, 1959-61.
This group has been assured o f support from Members of Congress, the Council
of Economic Advisers, academicians, and representatives of business and labor.
It will formulate plans as to the type of anniversary observance most appropriate
under the circumstances. In part this may take the form of a dinner symposium,
or some other program as the plans develop. It has been suggested also that the
group arrange for a commemorative volume of essays appraising past experience
and future problems and opportunities under the Employment Act.
The bipartisan support of the membership of the Joint Economic Committee
and the balanced composition of this arrangements committee reflect the general
agreement among the American people which brought the act into existence and
has characterized its administration and growth during the 20-year period.



[Press release, dated October 22,1965]
J o in t E c o n o m ic C o m m it t e e , C o n g r e s s

of t h e

U n it e d S t a t e s

T w en tieth anniversary of the Em ploym en t A ct of 1946 to be marked by all-day
economic sym posium

The foufc senior leaders of the Joint Economic Committee, in a bipartisan
action, today announced plans for an economic symposium to be held February 23,
1966, to commemorate the 20th anniversary of the Employment Act of 1946.
The plans for this occasion have been developed by a special five-man committee
of distinguished economists whose appointment to plan and carry out an ob­
servance of this anniversary was announced recently by the committee. Today's
announcement, like the preceding one, was made by Representative Wright Pat­
man, Democrat, of Texas, chairman of the Joint Economic Committee; Senator
Jacob K. Javits, Republican, of New York, ranking minority member; Senator
Paul H. Douglas, Democrat, of Illinois, vice chairman; and Representative
Thomas B. Curtis, Republican, of Missouri, senior minority member from the
House of Representatives.
The special committee, after extensive consultations with the Joint Economic
Committee, the Council of Economic Advisers, and former members of both
groups, and other interested parties, has arranged a program which includes
morning, luncheon, and afternoon sessions of the symposium in the New Senate
Office Building, and a reception and dinner at the Washington Hilton in the
evening. The subjects to be discussed include (1) the Employment Act objec­
tives—after 20 years; (2) aggregative or structural approaches to achieving
Employment Act objectives; (3) using fiscal and monetary policies to further
Employment Act objectives; (4) sharing the increasing productivity of our
economy in a manner consistent with Employment Act objectives; (5) adminis­
tration of the Employment Act.
Each subject will be discussed by at least two persons who have had intimate
experience and responsibility under the act during the past 20 years. Time has
been allowed for audience participation.
Following the reception and dinner a summary of the day’s symposium will be
presented by the executive director of the Joint Economic Committee and dis­
cussed by two ranking members of the committee and the Chairman of the
Council of Economic Advisers. President Lyndon B. Johnson and former Presi­
dents Dwight D. Eisenhower and Harry S Truman have been invited to attend
and participate. Details of the all-day program are attached.
The Joint Economic Committee plans to publish the proceedings. Copies will
be sent to research groups and scholars with a request for their comments. The
responses, along with other statements prepared by various groups on the occa­
sion of the 20th anniversary, will be published as a followup volume to the
The sessions will be open to the public. There will be no registration or ad­
mission charges, except for meals. Luncheon will be at the New Senate Office
Building. The capacity of the room for the luncheon is limited to a maximum of
200. and tickets will be on a first-come, first-served basis. As soon as the capacity
of the room has been sold out, the admission to the luncheon will be closed.
Tickets will be $4. Tickets for the reception and dinner at the Washington Hilton
will be $15. Requests for tickets for the luncheon as well as the reception and
dinner should be sent t o : Special Committee, room 908, Colorado Building, 14tli
and G Streets NW., Washington, D.C. Checks should be made payable to :
Special Committee on 20th Anniversary of the Employment Act.
The special committee chosen to plan and carry out the observance consists
of Dr. Grover W. Ensley, chairman, now executive vice president of the National
Association of Mutual Savings Banks and formerly executive director of the
Joint Economic Committee from 1951 to 1957 and associate director from 1949
to 1951—serving under both Democratic and Republican leadership of the com­
mittee and the Congress; Dr. Walter W. Heller, professor of economics, Uni­
versity of Minnesota, and Chairman of the Council of Economic Advisers, 196164; Dr. Raymond J. Saulnier, professor of economics, Barnard College, and
Chairman of the Council of Economic Advisers, 1956-61, and a member of the
Council, 1955-56; Dr. Gerhard Colm, chief economist, National Planning Associa­
tion, and a senior staff member of the Council o f Economic Advisers, 1946-52;
and Dr. Henry C. Wallich, professor of economics, Yale University, and a mem­
ber of the Council of Economic Advisers, 1959-61.



89U t S e ifo n SS }



is privileged to announce
a unique experiment in congressional hearings
in the format of
on the occasion of
T h e T w e n t ie t h A n n iv e r s a r y
of the
E m p lo y m e n t A c t o f


to be held in
W a s h in g t o n ,


F ebruary

2.3, 1366

Printed for the use of the Joint Economic Committee
55-342 0




on the occasion of
ACT OF 1946
Washington, D.C.

February 23, 1966

W. E n s le y , Executive Vice President, National Association
of Mutual Savings Banks; Executive Director of the Joint Economic
Committee, 1951- 57; Associate Director, 1949-51

Presiding: G r o v e r


Auditorium, New Senate Office

Chairman, Joint Economic Committee,
and member of the Joint Economic Committee since 1946

Introduction: H o n . W r i g h t P a t m a n ,

The Employment Act Objectives—After Twenty Years
Professor of International Business, Graduate School of Busi­
ness, Columbia University; Member of the Council of Economic Advisers,

R oy B lo u c h ,

C. W a l l i c h , Professor of Economics, Yale University; Member of the
Council of Economic Advisers, 1959-61

H enry

Aggregate or Structural Approaches to Achieving Employment Act
President, Conference on Economic Progress; Chairman
of the Council of Economic Advisers, 1950- 53; Vice Chairman, 1946-50

L e o n H . K e y s e r lin g ,

President, National Bureau of Economic Research, Inc.;
Chairman of the Council of Economic Advisers, 1953-56

A r t h u r F. B u rn s,


12:00 noon

Room 1202, New Senate Office

Using Fiscal and Monetary Policies To Further Employment Act
Professor of Economics, University of Minnesota; Chairman
of the Council of Economic Advisers, 1961-64

W a lte r W . H e lle r ,

J. S a u l n i e r , Professor of Economics, Barnard College; Chairman of
the Council of Economic Advisers, 1956- 61; Member, 1955

R aym ond

[* ]



AFTERNOON SESSION 2:30 p.m. Auditorium, New Senate Office
Price-Cost Behavior and Employment Act Objectives
Vice President, The Brookings Institution; Member of the
Council of Economic Advisers, 1961-62

K e r m it G o r d o n ,

W. M c C r a c k e n , Professor of Business Conditions, School of Business
Administration, University of Michigan; Member of the Council of Eco­
nomic Advisers, 1956-59


Administration of the Employment Act
Professor of Political Science, and Director, National Plan­
ning Studies, The Maxwell Graduate School of Citizenship and Public
Affairs, Syracuse University; Executive Secretary of the Council of Economic
Advisers, 1946-52

B e r t r a m M . G r o ss ,

Chief Economist, National Planning Association; Senior Staff
Member of the Council of Economic Advisers, 1946-52

G e r h a r d C o lm ,

H. J a c o b y , Dean of the Graduate School of Business Administration,
University of California; Member of the Council of Economic Advisers,

N e il

W. L e h m a n , Regional Director, U.S. Bureau of Labor Statistics, Cleveland,
Ohio; Member of the Staff of the Joint Economic Committee, 1947-62


Questions and Observations From the Audience
Recess 5:30 p.m.

RECEPTION AND DINNER 7:00 p.m. International Ballroom, The
Washington Hilton

Greetings from

Hon. W r i c h t P a t m a n
Hon. Jacob K. J a v its
Messages from

President L y n d o n B. J o h n so n '
Former President D w i g h t D . E is e n h o w e r
Former President H a r r y S T r u m a n
Summary of Symposium

Mr. J a m es W. K n o w l e s
Responses to Summary

Hon. P a u l H. D o u c l a s
Hon. T h o m a s B. C u r t i s
Hon. G a r d n e r A c k l e y


W R IG H T PATM AN, Texas, Chairm an
PALL H. DOUGLAS, Illinois. Vice C hairm an
House of Representatives




H ALE BOGGS, Louisiana

J. W . FULBRIGHT, Arkansas

HHNRY S. REUSS, Wisconsin


M A R T H A W . GRIFFITHS, Michigan

H ERM AN E. T A LM A D G E, Georgia

TH O M AS B. CURTIS, Missouri .


W ILL IA M B. W ID N A L L, New Jersey





W . Kni ^'les, E x ecu tiv e D irector


GROVER W . ENSLEY, Chairm an




[4 ]




[Press release, dated January 20,1966]
J o in t E c o n o m ic C o m m i t t e e , C o n g r e s s o f t h e U n i t e d S t a t e s
Econom ic S ym posium o f F ebrua ry 28 M oved to D ow n tow n M otel
B ecause o f Space L im itations at the Capitol

The Joint Economic Committee today announced that because of the over­
whelming public interest in the economic symposium on February 23, 1966,
commemorating the 20th anniversary of the Employment Act of 1946, and upon
the strong recommendation of the special committee appointed to plan and
carry out this celebration, the symposium will be held at The Washington
The committee acceded to the request of the special committee with some
reluctance, and only after being assured that there would be no additional
expense in connection with these hearings as a result of the shift of location.
The committee released plans for the economic symposium several weeks ago.
Additional copies of the program are available at the committee office.






Following is a schedule of the sessions:
Morning session, 9 :30 a.m______ International Ballroom East.
Luncheon session, 12 m_________International Ballroom Center.
Afternoon session, 2 :30 p.m____ International Ballroom East.
Reception, 6 :30 p.m____________ Terrace.
Dinner, 7 :30 p.m---------------------- International Ballroom Center.



io g r a p h ie s

M em bers of
P a r t ic ip a n t s


J o in t E c o n o m ic C o m m it t e e
E c o n o m ic S y m p o s iu m




Wright Patman (Democrat, Texarkana, Tex.), U.S. Representative, 1928—
LL.B., Cumberland University, 1916; U.S. Army, 1917-19; member, Texas
Legislature, 4 years; district attorney, Fifth Judicial District of Texas,
5 years.
C om m ittee assignm ents: Banking and Currency, chairman; Joint Economic
Committee, chairman; Joint Committee on Defense Production; Select
Committee To Conduct a Study and Investigation of the Problems of
Small Business.
PaulH. Douglas (Democrat, Chicago, 111.), U.S. Senator, 1948—
A.B., Bowdoin College; Ph. D., Columbia University, 1921; member, Eco­
nomics Department, University of Chicago, 1920-48; alderman, Chicago
City Council, 1939-42; U.S. Marine Corps, 1942-46; president, American
Economic Association, 1947.
C om m ittee assign m en ts: Banking and Currency, Finance, Joint Committee
on Defense Production, Joint Economic Committee, vice chairman.

Richard Bolling (Democrat, Kansas City, Mo.), U.S. Representative, 1948—
B.A. and M.A., University of the South; graduate work, Vanderbilt Univer­
sity ; teacher and coach, Sewanee Military Academy; veterans’ adviser and
director of student activities, University of Kansas C ity; U.S. Army,
C om m ittee a ssign m ents: Rules, Joint Economic Committee.
Hale Boggs (Democrat, New Orleans, La.), U.S. Representative, 1946—
B.A., Tulane University, 1935; LL.B, 1937; U.S. Representative from the
State of Louisiana, 1941-42; U.S. Naval Reserve and U.S. Maritime Serv­
ice, 1942-46; vice chairman, Democratic National Committee, 1954; Demo­
cratic whip since 2d session of the 87th Congress.
C om m ittee a ssignm ents: Ways and Means, Joint Economic Committee, Joint
Committee on Internal Revenue Taxation.
Henry S. Reuss (Democrat, Milwaukee, W is.), U.S. Representative, 1954—
A.B., Cornell University; LL.B. Harvard University; assistant corporation
counsel, Milwaukee County, 1939-40; assistant general counsel, Office of
Price Administration, 1941-42; U.S. Army, 1942-45; Chief, Price Control
Branch, Office of Military Government for Germany, 1945; deputy general
counsel, Marshall plan, 1949; former director, Marshall and Ilsley Bank,
Milwaukee, and Niagara Share Corp.
C om m ittee a ssignm ents: Banking and Currency, Government Operations,
Joint Economic Committee.
Martha W. Griffiths (Democrat, Detroit, Mich.), U.S. Representative, 1954—
A.B., University of Missouri; LL.B., University of Michigan; member,
Michigan Legislature, 1949-52; recorder and judge, recorder’s court, 1953.
C om m ittee assignm ents: Ways and Means, Joint Economic Committee.
Thomas B. Curtis (Republican, St. Louis, Mo.), U.S. Representative, 1950—
A.B., Dartmouth, 1932; LL.B., Washington University, 1935; U.S. Navy,
1942-45; member, State board of law examiners, 1948-50; life trustee,
Dartmouth College.
C om m ittee a ssign m en ts: Ways and Means, Joint Economic Committee, Joint
Committee on Internal Revenue Taxation, Joint Committee on the Organ­
ization of Congress.
William B. Widnall (Republican, Saddle River, N.J.), U.S. Representative, 1950—
Ph. B., Brown University, 1 9 2 6 ; LL.B., New Jersey Law School ( now part of
Rutgers University), 1 9 (3 1 ; member, New Jersey House of Assembly,




Banking and Currency, Joint Economic Committee,
Joint Committee on Defense Production.
Robert F. Ellsworth (Republican, Lawrence, Kans.), U.S. Representative, 1960—
B.S. (in mechanical engineering), University of Kansas; LL.B., University
of Michigan; active duty, U.S. Naval Reserve, World War II and the
Korean conflict; legal assistant to the Vice Chairman, Federal Maritime
Board, 1953-54; since 1954 private practice of law at Lawrence, Kans.;
faculty, University of Kansas School of Business, 1956-57.
C om m ittee a ssignm ents: Post Office and Civil Service; Veterans Affairs,
Joint Economic Committee.
Com m ittee assignm ents:


John Sparkman (Democrat, Huntsville, Ala.), U.S. Senator, 1946 —
A.B., University of Alabama, 1921; LL.B., 1923; A.M., 1924; U.S. Repre­
sentative from the State of Alabama, 1936-46; Democratic candidate for
Vice President, 1952.
Committee assignments: Banking and Currency, Foreign Relations, Joint
Committee on Defense Production, Joint Economic Committee, Joint Com­
mittee on the Organization of Congress, Senate Select Committee on Small
Business, chairman.
J. W. Fulbright (Democrat, Fayetteville, Ark.), U.S. Senator, 1944—
B.A., University of Arkansas; B.A. and M.A., Oxford University, Rhodes
scholar; LL.B., George Washington University; attorney, U.S. Department
of Justice; instructor in law, George Washington University; president,
University of Arkansas, 1939-41.
Committee assignments: Foreign Relations, chairman; Finance, Joint
Economic Committee.
William Proxmire (Democrat, Wisconsin), U.S. Senator, 1957—
B.A., Yale University, 1938; M.B.A., Harvard University, 1940; M.P.A., 1949;
Wisconsin State Legislature, 1951.
Committee assignments: Appropriations, Banking and Currency, Joint
Economic Committee.
Herman E. Talmadge (Democrat, Love joy, Ga.), U.S. Senator, 1957—
LL.B., University o f Georgia, 1936; practiced law in Atlanta; U.S. Navy,
World War I I ; Governor of Georgia, 1948-55.
Committee assignments: Agriculture and Forestry, Finance, Joint Economic
Jacob K. Javits (Republican, New York, N.Y.), U.S. Senator, 1956—
LL.B., Columbia University, 1946; Chemical Warfare Service, U.S. Army,
1941-45; U.S. Representative from the State of New York, 80th, 81st, 82d,
83d Congresses; attorney general, State of New York, 1954-56.
Committee assignments: Government Operations, Judiciary, Labor and Pub­
lic Welfare, Joint Economic Committee, Senate Select Committee on Small
Jack Miller (Republican, Sioux City, Iowa), U.S. Senator, I960—
A.B., Creighton University, 1938; M.A., Catholic University, 1939; LL.B.,
Columbia University School of Law, 1946; U.S. Air Force, 1942-46; Office
of Chief Counsel, Internal Revenue Service, 1947-48; assistant professor,
University of Notre Dame College of Law, 1948-49; member, Iowa State
House of Representatives, 1955-56; Iowa State Senate, 1957-60.
Committee assignments: Agriculture and Forestry, Armed Services, Joint
Economic Committee, Special Committee on Aging.
Len B. Jordan (Republican, Boise, Idaho), U.S. Senator, 1962—
U.S. Army. World War I ; A.B., University of Oregon, 1923; owner-manager,
Jordan Motor Co., Inc.; member, Idaho Legislature, 1947; Governor of
Idaho, 1951-55; member, International .Toint Commission, 1955-57; mem­
ber, International Development Advisory Board, 1958-59.
Committee assignments: Aeronautical and Space Sciences, Interior and Insu­
lar Affairs, Joint Economic Committee.




[In order of appearance]
Grover W. Ensley, executive vice president, National Association of Mutual
Savings Banks, 1957—
B.A. University of Washington, 1937; M.B.A., 1938; M.S. University of
Denver, 1940; Ph. D. New York University, 1947; economist, Tax Founda­
tion, Inc., 1940-41; fiscal analyst, Bureau of the Budget, 1941-47; technical
adviser to Senator Ralph E. Flanders, 1947-49; associate director, Joint
Economic Committee, 1949-51; executive director, 1951-57.
Roy Blough, professor of international business, Graduate School of Business,
Columbia University, 1955—
A.B. Manchester College, 1921; A.M. University of Wisconsin, 1922, Ph. D.,
1929; director of tax research, Department of the Treasury, 1938-46; pro­
fessor of economics and political science, University of Chicago, 1946-52;
member, President’s Council of Economic Advisers, 1950-52; director,
Department of Economic Affairs, United Nations, 1952-55.
Henry C. Wallicli, professor of economics, Yale University, 1951—
Oxford University, 1932-33; M.A. Harvard University, 1941; Ph. D., 1944;
Foreign Research Division, Federal Reserve Bank of New York, 1941-45;
Chief of Division, 1946-51; assistant to the Secretary of the Treasury,
1958-59; member, President’s Council of Economic Advisers, 1959-61.
Leon H. Keyserling, president-, Conference of Economic Progress, 1954—
A.B. Columbia University, 1928; LL.B., Harvard University, 1931; legislative
assistant to Senator Robert F. Wagner, 1933-37; Deputy Administrator,
General Counsel, and Acting Administrator, U.S. Housing Authority and
Federal Public Housing Authority, 1937-42; General Counsel, National
Housing Agency, 1942-46; Vice Chairman, President’s Council of Economic
Advisers, 1946-50; Chairman, 1950-53.
Arthur F. Burns, president, National Bureau of Economic Research, Inc.,
1957- ; professor of economics, Columbia University, 1941—
A.B. and A.M. Columbia University, 1925; Ph. D., 1934; faculty, Rutgers
University, 1927^1; director o f research, National Bureau of Economic
Research, Inc., 1945-53; Chairman, President's Council of Economic Ad­
visers, 1953-56.
Walter W. Heller, professor of economics, University of Minnesota, 1904—
A.B. Oberlin College, 1935; A.M. University of Wisconsin, 1938; Ph. D., 1941;
fiscal economist, Department of the Treasury, 1942-40; consultant, 194653; faculty, University of Minnesota, 1946-50; professor of economics,
1950- ; chairman of the department, 1957-61; Chairman, President’s
Council of Economic Advisers, 1961-64.
Raymond J. Saulnier, professor of economics, Barnard College, Columbia Uni­
versity, 1949- ; director of financial research, National Bureau of Economic
Research, Inc., 1946—
B.S. Middlebury College, 1929; M.A. Tufts College, 1931; Ph. D. Columbia
University, 1938; faculty, Columbia University and Barnard College,
1934- ; special adviser, Board of Governors of the Federal Reserve
System, 1950-52; consultant, President’s Council of Economic Advisers,
1953-55 ; member, 1955; Chairman, 1956-61.
Kermit Gordon, vice president, The Brookings Institution, 1965—
A.B. Swarthmore College, 1938; Rhodes Scholar, Oxford University, 193839; postgraduate, Harvard University, 1940-41; Office of Price Adminis­
tration, 1941-43; special assistant, Office of Economic Affairs, Department
o f State, 1943-45; faculty, Williams College, 1946-55; professor of eco­
nomics, 1955-62; member, President’s Council of Economic Advisers, 196162; Director, Bureau of the Budget, 1962-65.
Paul W. McCracken, professor of business conditions, School of Business Ad­
ministration, University o f Michigan, 1950—
A.B., William Penn College, 1937; A.M., Harvard University, 1^42; Ph. D.,
1948; financial economist and research director, Federal Reserve Bank of
Minneapolis, 1943-48; faculty, University of Michigan, 1948-50; member,
President’s Council o f Economic Advisers, 1956-59.



Bertram M. Gross, professor of political science and director, national planning
studies, the Maxwell Graduate School of Citizenship and Public Affairs, Syra­
cuse University, 1960—
B.A., Pennsylvania State University, 1933; M.A., 1935; executive secretary,
President’s Council of Economic Advisers, 1946-51; chairman, National
Capital Regional Planning Council, 1952-53; economic adviser, Office of
the Prime Minister of Israel, 1953-55; Ministry of Finance, 1955-56;
visiting professor of public and business administration, Hebrew Univer­
sity, 1956-60.
Gerhard Colm, chief economist, National Planning Association, 1952—
Dr. Rer. Pol. University of Freiburg, 1921; postgraduate. University of Ber­
lin, 1921-23; statistician, German Federal Service, 1922-26; professor of
economics and deputy director, Research Institute of World Economics,
Keil University, 1927-32; professor of economics, New School for Social
Research, 1933-39; fiscal adviser, Department of Commerce, 1939-40;
fiscal analyst and Assistant Chief, Bureau of the Budget, 1940-46; senior
economist, President’s Council of Economic Advisers, 1946-52.
Neil H. Jacoby, dean. Graduate School of Business Administration, University
of California at Los Angeles, 1948—
B.A., University of Saskatchewan, 1930; Ph. D., University of Chicago, 1938 ;
officer, Department of Finance of Illinois, 1933-36; professor of finance
and vice president, University of Chicago, 1938-48; member, President’s
Council of Economic Advisers, 1953-55.
John W. Lehman, regional director (Cleveland), Bureau of Labor Statistics,
U.S. Department of Labor, 1962—
B.A., University of Wisconsin, 1932; M.A., 1933; assistant economist, Ten­
nessee Valley Authority, 1935-40; economist, National Resources Plan­
ning Board, 1940-41: economist and Assistant Chief, Price Division, Bu­
reau of Labor Statistics, 1942-47; Joint Economic Committee, 1947-62,
serving as clerk, acting executive director, and deputy executive director.
James W. Knowles, executive director, Joint Economic Committee, 1963—
B.S.S., College of the City of New York, 1936; M.A., Columbia University,
1939: faculty, College of the City of New York, 1938-44: director of retail
trade and price analysis, Econometric Institute, 1944-50; economist, Joint
Economic Committee, 1950-63.
Gardner Ackley, Chairman, Council of Economic Advisers, 1964—
A.B., Western Michigan University, 1936; M.A., University of Michigan,
1937: Ph. D., 1940; instructor, Ohio State University, 1939-40: instructor,
University of Michigan, 1940-61; professor of economics, 1952; chairman
of the department, 1954; economist, Office of Price Administration, 194146; economic adviser and Assistant Director, Office of Price Stabilization,
3951-52; Fulbright research scholar, 1956-57; Ford Foundation facultv
research fellow, 1961-62; member, President’s Council of Economic Ad­
visers, 1962-64.