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Full text of "Post-war economic policy and planning. Joint hearings before the special committees on post-war economic policy and planning, Congress of the United States, Seventy-eighth Congress, second session, pursuant to S. Res. 102 and H. Res. 408, resolutions creating special committees on post-war economic policy and planning"

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Given By 









H. Res. 408 



MAY 18, 19, 23, 24, 25, 31; JUNE 1 AND 6, 1944 


Printed for the u«e of the Special Committee on Post- War 
Economic Policy and Planning 

PUBLIC] ^ ^ 


^J9579 WASHINGTON : 1944 \ 


AUG 25 1^ 



WILLIAM M. COLMER, Mississippi, Chairman 

JERE COOPER. Tennessee 
FRANCIS WALTER, Pennsylvania 
THOMAS J. O'BRIEN, Illinois 
JOHN E. FOGARTY, Rliode Island 

Mariox B. Folsom. Director of Staff 
Guy C. Gamble, Economic Adviser to Commnttee 
A. D. H. Kaplan, Consultant 

CHARLES L. (ilFFORD. Massachusetts 
B. CARROLL REECE, Tennessee 
RICHARD J. WELCH, California 


statement of— Page 

Hines, Brig. Gen. Frank T., Administrator of Veterans' Affairs 289 

Fleming, AJaj. Gen., Philip B., Administrator, Federal Works Agency.. 317 

Bigge, George E., member, Social Security Board 335 

Rausenbush, Paul A., director, Unemployment Compensation, 

Wisconsin 373 

Loysen, Milton O., New York State Department of Labor, Division of 

Placement and Unemployment Insurance 385 

Holdeu, Thomas S., president, F. W. Dodge Corporation 393 

Smith, Harold D., Director, Bureau of the Budget 407 

Taylor, Dr. Amos, Director, Bureau of Foreign and Domestic Com- 
merce, Department of Commerce 413 

Livingston, Morris, Chief, National Economics Unit, Bureau of 

Foreign and Domestic Commerce 423 

Williams, Claude A., executive director, Texas Unemployment Com- 
pensation Commission 430 

Pope, Col. Allen M., president. First Boston Corporation, New York_ 443 

Schedule op Exhibits 






at p. — 

Retraining and reemploj'ment administration, statement of 

functions and problems 

Statement of objectives by Brig. Gen. Frank T. Hines, 

Veterans' Administration 

Letters from State governors 

A basic minimum program of social security 

Wartime savings — their magnitude and implications. Dr. 
Amos Taylor 




o ! p. — 






THURSDAY, MAY 18, 1944 

House of Representatives, 
Special Committee on Post-war Economic 

Policy and Planning, 

Washington^ D. G. 

The special committee met at 10 : 30 a. m., pursuant to adjournment, 
in room 1304, New House Office Building, Hon. William M. Colmer 
(chairman) presiding. 

Present: Representatives Colmer (chairman), Cooper, Fish, Zim- 
merman, Reece, Voorhis, Murdock, O'Brien, Wolverton, and Lynch. 

The Chairman. The committee will come to order. 

As has already been stated informally, due to the fact that the House 
will convene at 11 o'clock instead of 12 today, we shall have to hurry 
through this session. 

General Hines, we are very grateful to have you here with the com- 
mittee this morning. 

I am sure that the Congress as a whole appreciates the splendid 
service tliat you have rendered and are rendering as Administrator 
of the veterans' affairs of this country. We appreciate, as you must, 
the tremendous responsibilities facing you as Administrator and the 
many problems confronting our returning veterans. We have great 
confidence in you and assure you that you have our sympathetic 

(jeneral, we would be pleased to have any statement that you care 
to make this morning; you will make yourself perfectly at home by 
being seated or standing, as you prefer. 


General Hines. Thank you, Mr. Chairman. I appreciate greatly 
your very complimentarj^ remarks. I might say, briefly, in responding 
to them, that whatever I have been able to do has been primarily due to 
the splendid support and understanding that I have been able to have 
with the Congress of the United States. Without that, I doubt if 
anyone would have been able to handle the affairs of the veterans. 

In this new assignment, Mr. Chairman, and in order to conserve your 
time, I have placed before each member of the committee, three state- 
ments. The first one is the statement that I submitted first to the sub- 
committee of the Military Affairs Committee of the Senate and the 
other day to the committee of the Senate headed by Senator George 
on post-war adjustment. It outlines, in my estimation, the problems — 



and there is more tlian one — connected with the whole readjustment 
period. I am going to ask your permission to introduce it into the 
record and to comment on that and to follow it by two other statements, 
which I am sure the committee will find interesting. One, an outline 
of the problems as I have been able to see them in the study of retrain- 
ijin: and reemployment, as far as I have been able to go ; and the other 
is a summary of the responses that I have received to a letter that I 
sent very shortly after being appointed Administrator to all of the 
Governors asking them wliat they were planning to do and indicating 
my great desire to cooperate with them, particularly, so that there 
should be no overlapping and no duplication of effort, feeling that it 
is necessary in the solution of this problem that we have splendid team- 
work and do not expend energy by duplicating effort in any direction. 

The Chairman. Pardon me. General. As I understand, then, you 
desire to make these three statements a part of your statement? 

General Hines. Yes; I would like to have them introduced into the 
record, if I may. 

The Chairman. Without objection, it will be so ordered. 

(The three statements were marked respectively "Exhibits 9, 10, and 
11," and are found in the appendix on pp. 467 to 480, inclusive.) 

General Hines (continuing). Now, Mr. Chairman, this agency, the 
Eetraining and Heeraployment Administration, set up by Executive 
order of the President, contemplates the coordination of existing Gov- 
ernment agencies and planning for the future. It is not a new ad- 
ministrative agent. The Administrator of the Retraining and Reem- 
ployment has to assist him and advise him, a policy board, made up of 
the agencies that have something to do with retraining or reemploy- 
ment either directly or indirectly. For instance, we start off with the 
representative of the Policy Board from the War Department, the 
Navy Department, the Federal Security Agency, the War Production 
Board, the Veterans' Administration, Civil Service Commission, 
United States Employment Service, and the Selective Service. All of 
those are operating Government agencies. They all touch upon the 
problem of unemployment, and two of those agencies are now engaged 
in the problem of retrtdning at the ]:>resent time. 

The Chairman. Now, General, if I may at that point interrupt you 
since our time is limited, and since you have so kindly made these 
statements a part of your statement, I am wondering if it would not be 
advisable for you to devote these few minutes to telling us what you are 
now doing; and I imagine some of tlie members would want to ask 
you questions along that line, toward the rehabilitation of these re- 
turning veterans. I believe there are a million of them alreadj^ 

General Hines (interposing). About a million, 200,000 have so far 
been separated from the service. 

The Chairman. Yes. 

General Hines. In some form or other, either on certificates of dis- 
ability, or for age, or for other reasons. But that number lias come 
out of the combined services up to date. 

I will be glad, Mr. Chaii-man, to tell you the steps so far taken by 
this new administration. I have referred to the letter to the governors 
and the response to that has lieen remarkable. It indicates that they 
are all giving considerable thought; some of them in some States, as 
you will see, by studying the summary, are further advanced than the 
Federal Government with the problem at the present time. But one 


•of the first weakness pointed out by the Barnch-Hancock report was 
that the veteran, upon arriving in his home community, was shifted 
around from one point to the other, and there was no definite place 
he coukl go and receive accurate information. Well, the committee 
will undoubtedh^ understand that the law contemplates that the vet- 
eran Avhen leaving the service will return to his draft board. That 
was done for the puri)ose of enabling the veteran to get his old job 
back, if it was still available. A member of the draft board is an em- 
ployment member and it is his duty to see that the veteran obtains his 
old job, if he desires it, or if it is not available to endeavor to get him 
one equally as good. 

Many States and many conmuinities had already undertaken to set 
up various forms of information centers. All of the Government 
agencies interested, including the Veterans' Administration and the 
United States Employment Service, had information desks in their 
various offices, but there v\'as no definite form of a pattern. What 
should the information center be ^ So one of the first problems that 
I presented to the Policy Board was the proper establishing as far 
out as we could go in the communities of an information center — not 
a combination of Govei-nment activities, but one place where the vet- 
eran could go and at that point receive accurate information. The 
Board acted on that, appro^■ed the policy; in order to carry it to the 
maximmn number of communities, the agencies selected to do that 
were the Selective Service, the Veterans' Administration, and the 
United States Employment Service. A combination of those had the 
greatest number of established offices with paid employees. 

The next step was to adopt a polic}^ on what should be an infor- 
mation center, a pattern, and they have acted on that, and instruc- 
tions are being sent out, not only to all of the agencies charged with 
the responsibility of setting up these centers, but in order to cooper- 
ate with the governors and not upset some excellent centers that they 
have established. We are sending copies of that pattern to the gov- 
ernors as well, in order that their committees and those that are woik- 
ing on them will follow the same plan. 

Now. we know that at the present time we are getting the problem 
that will face us later in magnitude by cut-backs. It gives an oppor- 
tunity to test out efficiently by these cut-backs how men can again be 
placed in employment. The veteran is not at this time going to be 
the serious problem. The serious problem will, in my judgment, 
hinge around those localities where munition plants have been estab- 
lished and where considerable numbers have gone for employment, 
and when they close down there is no other employment in that given 
community. You then will be faced with two problems. One, 
which we have under study at this time, which the committee will 
undoubtedly give consideration to, and that is. What form of unem- 
ployment insurance should be used? What is or what should be the 
period, the adjustment periods' Will the States be able to handle 
that under the present system, or will it be necessary for the Federal 
Government to assist the States'? 

We are all familiar with the fact that not all groups that take a 
part in the war efl'ort are covered by unemployment insurance. Out- 
standing groups like agriculture, Government employees working in 
munition plants, and others, are not covered. 


While it is true tliat we are still having the reverse of what will 
happen when we commence to demobilize, and we are having it in a 
small measure and there is now a competition for manpower rather 
than jobs, nevertheless, there will be communities where people will 
be unemployed, even at the present time. I have felt that one solu- 
tion — it may not be the best — would be to first establish a definite 
period that we Avould call the readjustment period. It may be a year, 
it may be 18 months, or it may be 2 years ; but adopt that period and 
say that unemploj^men.t in.surance would be paid to both the covered 
and the uncovered group during that period for a definite number of 
weeks and at a definite rate. 

There are two waj^s you can set down the rate : One, to take the rate 
of the States which they have established. By doing that, you get a 
lack of uniformity — some States pay more and some less, and some 
pay what I think labor rather feels is inadequate. You might fix 
the minimum or you might fix a flat rate. You have the proposition 
covered in the bill which is now pending before the House, so far as 
veterans go, where, within a year or 2-3'ear period, you fix a flat rate- 
per week for a definite number of weeks — 26 weeks. When the States 
take care of the covered groups — and mind you, the State funds are 
probably higher than they have ever been before — we have good eco- 
nomic employment conditions. 

It is true that some unemployment compensation has been paid. 
That, to some of us, raises the question as to how it is possible for un- 
employment insurance to be paid when manpower is so short. But 
those problems can all be explained undoubtedly by those who are 
handling them. I would not attempt to go into details on that. But 
there will be uncovered groui)s among the veterans when they come 
back and among the war workers, so it would be my suggestion that 
the States pay, out of the State machinery, unemployment compensa- 
tion for a fixed period during the readjustment period, and that the 
Federal Government reimburse the States for those that are not 
covered by the State insurance plan at this time. You will find a dif- 
ference of opinion on that. It occurred in the Policy Board, and we 
haven't settled it, but I hope at the next meeting we can. Some mem- 
bers of the Board feel that no reimbursement or subsidy to the State 
should be made as long as they have money in the fund; that the funds 
should be exhausted first. Well, that fund is like all funds built up; 
it belongs to cei-tain people who have contributed through the taxes 
raised in that State. But it does seem to me that some simple process 
of using the machinery that is set up rather than to endeavor to estab- 
lish a new way of doing it and a new operating agency to do it, would 
be desirable. There will be some fears expressed that if the Federal 
Government undertakes to do that, isn't there a danger that the whole 
system will become federalized? Well, perhaps, you can make an 
argument on that. But, mind you, we are facing an emergent condi- 
tion and a real practical situation. 

We all know that our national income has been doubled from 1939 
and 1940, and that half of that is due to war production. When war 
production ceases, if we are to successfully solve the unemployment 
that will result from cut-backs and shut-downs and final demobiliza- 
tion, we will have to adopt measures that seem practical and different, 
regardless of whether they set an example of what can be done for the 
future or not. 


We all know that when a man is employed, he is apt to spend more 
liberally than one who is nnemployecl. The force that creates em- 
ployment is the great need for manpower. If we could keep all of our 
people gainfully employed at what is considered a suitable living wage 
in the various communities, we would be a very happy nation. I really 
believe that we can solve the problem provided we can do some sound 
thinking and careful planning at this time. It will be too late, gentle- 
men, to attempt to plan when demobilization starts. We tried that 
before, you all recall. I happened to have something to do with the 
last demobilization. I felt very proud of getting the men back from 
France faster than we sent them over. That produced an unhappy 
situation in some connnunities, because we threw the men from the 
service, demobilized the armed forces in a community at a period when 
they were facing readjustment — when they had too much unemploy- 
ment at that time. For that reason, I feel that we should give some 
consideration to our speed of demobilization. It should be an orderly 
demobilization with some thought as to how fast these men can be 
absorbed into reemployment. The conditions under which we are 
operating this time will control it somewhat. 

I have a feeling that the rate at which these men can be brought back 
on demobilization will be much less than it was before because of their 
locations and because of certain conditions that will arise following 
an armistice, whether it be in the west or in the east. It probably will 
not occur at the same time. 

Shipping will be a very important and controlling factor. In the 
last war, Great Britain transported more than a million of our 2,080,- 
000 men we sent overseas, and our immediate problem following the 
armistice was to find ships to bring our men l)ack l)ecause the British 
ships were not available as they were pulled out of transport service 
ra]3idly and put into commercial pursuits. 

This time, we are in better shape; we have more ships, and we will 
be belter able to demobilize and regulate matters ourselves. But those 
are the problems that are now before this Policy Board : First, we are 
trying to coordinate the agencies that are now doing the job. It will 
be my business, and it is my business as Administrator as long as I am 
there, to see that those agencies are doing the job. I hope that it can 
be done without the necessity of any administrative force except the 
planning force liere in AVashinglon. But we are leaning now, of 
course, upon the United States Employment Service to do two things : 
(1) To obtain manpower (this service operates with the Manpower 
Commission) ; (2) when cut-backs occur, to reemploy those people that 
are thrown out of employment. I feel that it is essential at this time 
that some consideration be given to the timing of cut-bncks wlierever it 
is possible, and by that I do not mean that we should go ahead and 
manufacture something that we will not need; that would not make 
sense, and neither the Congress nor the people would support that. 
But if we have two plants making the same article, in the way of 
munitions, and one is in a community where those thrown out of em- 
]iloyment can be promptly reabsorbed, why, then, that is the place to 
make the cut-back, not at the plant where tliey cannot be absorbed. 

We can't handle this thing as you would play checkers because people 
will not move that way. I know in one or two communities now that 
certain cut-backs have been made; there is employment for the people 
unemployed by reason of those cut-backs in certain other types of very 


essential war production, but the employees hesitate about taking those 
jobs, and you can't under our existing policy, force them to take those 

Now, whether that will produce a situation where unemployment 
comi^)ensati()n will have to be paid even now where we have employ- 
ment is a matter that is going to merit very careful consideration. 
Rut, Mr. Chairman, these problems and the magitude of them — the- 
further you go, the greater they look. But there is one thing that 
])rompts"us to push ahead. If we can be as successful as we have been 
in the last 2 years in building up the greatest production machine that 
has ever been built — we have the ingenuity to do that — we must have 
the ingenuity to do the reverse of that : Put that machine in reverse and 
find a way to keep our people employed. That is going to require 
teamwork ; it is going to require a better understanding between man- 
agement and labor; I have one fear — I don't know tiuit it is real and 
I hope it isn't — that probably some of these misunderstandings have 
been covered up because of our desire not to interfere with the war 
effort and not to give those men abroad any cause to feel they have not 
been fully supported at home. But if there are some misunderstand- 
ings between management and labor that are being concealed at this 
time because of the war effort they should be revealed and settled 
because they will interfere with us greatly in this readjustment period. 
I hope this can be accomplished. 

1 have bee)i in contact vrith tiie two leaders of the great labor organi- 
zatio)is that have offered cooperation. They have appointed liaison 
men to work witli me. and, so far, their cooperation has been excellent. 
If it can continue on the same lines, we will solve the problem. 

There are many problems that will confront the veterans — some 
hurdles that will have to be removed before they return. The labor 
organizations have submitted them to their unions. The veteran will 
want to know when he comes back he has to join the union 
at a certain plant, wliether he has to pay high initiation fees, and all 
those problems that go with it. Labor, on the other side, has a very 
difficult problem; many plants are covered by contracts between the 
unions and the employer. Those contracts can't be pushed aside read- 
ily, so those problenxs — and there are many of them — have been sub- 
mitted to the unions. I know wdiat their desire is. They have stated 
it. Their desire is to do everything they can to assist these men in 
getting gainful employment. What they will have to do to accomplish 
that and what niacliinery will have to be set up is something that 
requires very careful planning at the present time. 

Then, aside from unemployment compensation, jVIr. Chairman, we 
are going to be faced with the problem of what will be the Govern- 
ment's part in having people, located in one section of the country, for 
instance — let me give you an example : The State of Washington in 
1940 had approximately enough people to keep it gainfully employed. 
During the past 2 years and because of the industries set up in that 
State the population has greatly increased. One, of the things that 
the (Tovernor of that State pointed out promptly in his reply to me 
was that he had 45 percent more people in his State now^ than he had 
in 1940, and where Vxould they be reemployed ? 

That bi-ings up the question, then, if we have jobs in the East, and 
people to fill the jobs in the West, will we ask them to go East at their 
own expense, as they did in many cases, although some corporations 


took part in recniitiiig and transporting people to some of these points ? 
And we will have other problems. 

Mind you that these men who went into the service skilled in a cer- 
tain way are not going to come out the same. We have had examples 
ah-eady. They don't in all instances want their old jobs back; they 
want a better job. They have been ti'ained. Some of them have be- 
come expert mechanics, and they Avant a better job, and we should do 
everything we can to find them a better job. But you are going to 
have, in many instances, from tlie men who come back — and something 
like 3,000,000 of them belong to unions and belong to either one of 
the large organizations or the other — the question of where they fit 
into an organization. What has happened to their seniority rights? 
Do they advance or do they start where they left off? So those are 
some of the problems. 

But the problem of fitting employees into jobs and finding jobs and 
employees at the same place is not going to be easy. We will probably 
find that we have a surplus of jobs and a surplus of employees that can- 
not fill those jobs. That is where the retraining vs ill have to come in. 

We are doing some training now of veterans. The Federal Security 
Agency, through its Rehabilitation Unit, is training people disabled 
m industry and others to fit into industry in important wartime jobs. 
We will haA^e the reverse of that when we are demobilized. And, too, 
we will have to consider the extent of training to fit a man for a job. I 
am strongly in favor of that by the sliortest possible I'oute, because 
without gainful employment it will cost the Government much more 
than by training him for a new job. 

You have before the Congress at this time a rather broad bill on 
education. That may be the basis of a demand for some education on 
tlie part of tlie war worker; I am not sure. But I am sure of one 
thing: That, no matter which way 3'ou tackle this problem, from one 
angle or the other, you will always come back to the same thing — that 
the key to the whole situation is prompt reemployment, and the sooner 
we get our people reemployed and readjusted, I am confident that will 
be the time that we will then have solved the problem of readjustment 
and demobilization. 

Now. Mr. Chairman, probably some members of the committee 
would like to ask me some questions. I will not proceed iwy further 
at this time as I know the Hou.-e is meeting earlier today tlian you 
had anticipated. 

The Chairman. Yes, General. I would like to start off by saying 
that I think we are all in accord with your statement that employment 
is the key to the whole situation, I might state, in my opinion, it is 
the prime consideration of this committee ; it is one of the reasons this 
connnttee was set up. That leads me to the comment that you made 
about the returning veterans and tlie uriions. 

I had Mr. William Green, of the American Federation of Labor, 
before us. and we had some discussion in regard to that problem. 
Fiankly, I did not get the answer from Mr. Gieen; at least, it wasn't 
entirely satisfactory to me. The thing that concerns me is. when, these 
veterans return, after having gone out and fought tlie country's battles 
and offered their lives as a sacrifice upon the country's altar, whether 
they are going to be discriminated against by unions. 

XoAv, I believe, bjisically, in the right of unions: I think they are 
necessary, but is the veteran going to be denied the right to gainful 


employment after his sacrifices by some practice of the unions that is 
condoned, at least, under our system? 

General Hines. Weil, I can answer as far as I have gone with them, 
Mr. Chaii'man, and say that it is their intention, and they have so 
declared, that they will do everything within their power to make 
sure that he is not discriminated against. 

There are questions that they have submitted to the local unions, 
and, mind you, the power does not rest here in Washington at the 
headquarters of these great organizations ; the power and rules really 
are with the local unions, but all of the questions presented by both 
the C. I. O. and by the A. F. of L. are designed to be fair and to find 
a way to solve whatever difficulties we can see at this time, so that the 
veteran will not be discriminated against. I have those questions, and 
I have their letters, and if you desire them, 1 will have them introduced 
into the record. 

The Chairman. Yes, sir. Well, now, that is all right as far as it 
goes. But regardless of who is responsible, if the veteran is discrimi- 
nated against, it is the very core of the situation. 

You made some comment upon whether a veteran should be re- 
quired to belong to a union. Of course, we know that if the unions 
succeed in getting closed shops everywhere, that the result is going 
to be a discriminating influence. For you and I know that some of 
these crafts have very high initiation rates. Not onlj^ that, but the 
employment, in many instances, is limited. Now, consider a veteran. 
Many of these boys are youngsters who have never been in the field 
of industrial employment. Therefore, they have never had occasion 
to belong to a union. They come back. Suppose one of them wants 
to go into some field of activity, plumbing, for instance, and the 
union, the local, or whichever organization it is, takes the position: 
"Now, we don't have enough employment here for the men who are 
already in the union. Our first duty is to them ; therefore, we can't 
enlarge our numerical strength." 

General Hines. I will be able to answer that question, Mr. Chair- 
man, much better when they have answered and Ave have consolidated 
the letters to answers which both have sent out, because that A^ery 
question is one that they have presented. 

The Chairman. Fundamentally, General, should it be necessary 
for one of these boj^s to join a union in order to obtain employment? 

General Hines. Personally, I feel that it should not. But there 
may be conditions existing locally that may make it desirable for 
the man to join the union. But I do feel that, he should have the 
right to make that decision himself. 

The Chairman. Eight. 

General Hines. And he should not be forced to make a decision 
that he doesn't Avish to make. 

The Chairman. General, there are a number of other things which 
I should like to ask you, but since our time is limited, I am going 
to refer to other members of the committee. 

Mr. Cooper? 

Mr. Cooper. Mr. Chairman, I should like to refer very briefly to 
several points. First, do you think the provisions of the bill now 
pending in the House, knoAvn as the GI bill, are sufficient to take care 
of returning veterans so far as the unemployment problem maA'^ be 
concerned ? 


General Hines. I do ; yes, sir ; and I have so testified. 

Mr. Cooper. You do. 

General Hixes. Yes, sir. The bill, of course, was changed in the 
House, but it is more in accord with existing rates than it was when 
it left the Senate; that is, on unemployment compensation. 

There is one thing that I thinlc we will be required to keep in mind. 
"We have two groups of veterans : One, the disabled veteran, and the 
other, the able-bodied veteran. The disabled veteran, the Congress has 
passed laws already taking care of the veteran in hospitalization, voca- 
tional training, and j^ensions. The able-bodied veteran will come back 
and he will go into his own community among his neighbors. If I 
sense their feeling — aside from probably taking advantage of some of 
the splendid provisions of that bill, such as the educational features; 
if he is a young man, the veteran may want to make a loan for down 
payment on a home or farm or equipment — the able-bodied veteran 
will only want one thing when he gets back in that community. He 
wants to live happily among his neighbors. He will want the oppor- 
tunity of gainful employment. I do not believe you should attempt 
to set the able-bodied veteran up in any community as a special class, 
except for those provisions such as you are debating in the House now, 
which the public will recognize. If I am any judge of the able-bodied 
veteran, he will want to stand on his own feet and go along with what- 
ever happens in his home community. If unemployment occurs, he 
will M'ant to take his part and be treated as the rest in that community. 

Now, this bill provides unemployment compensation for the veteran 
during a definite period. They are attem])ting to do there what I have 
suggested for the war worker as well — establish a readjustment period. 
Afterward, he then takes the same chances as the rest of the workers 
in his community, and he will want to do that. 

We frequently hear now the statement made that we should do this 
or that for these boys. My answer is when these men come out of me 
service — they may have gone in as boys, but those boys have earned, 
when they are mustered out of service, the proud title of "veteran," 
and they Avill want to be treated as men. They will want opportunities 
to do things, but they will not want to be told what they have to do and 
be led around by the hand. They will want to stand on their own feet, 
I am satisfied. They would not be the good soldiers that many of them 
are proving themselves to be unless they felt that way, so that I feel 
that the legislation on the books, so far as the disabled veteran goes, 
has met the situation as far as our ability lies to fix rates. They may 
need some adjustments, but we should keep in mind always the clanger 
and the damage that comes from any inequality of treatment on any 
given thing. 

Now, that is, I believe, the reason the House committee cut the rate 
on unemployment compensation — to bring it a little nearer to the rate 
paid in a given State on an average to others that are unemployed. 

Mr. Cooper. And it is your thought, General, that the laws already 
on the statute books with respect to disabled veterans to get hospitali- 
zation do meet hospitalization, and all rights that are now provided 
by existing law and the passage of the bill now under consideration 
should be adequate to take care of the veterans of this war? 

General Hines. I do, Congressman. There may be some inequalities 
that, by study, we will have to make suggestions to the Congress on, but 


as an over-all pattern it is much more than we have ever done before, 
and it is a very generous treatment of the problem. 

Mr. Cooper. You stated we already have 1,200,000 men, who have 
been separated from the service during this war. I think I read, in 
the press, probably, where you were reported as having made the state- 
ment tliat we already have something like 100,000 disabled men from 
this Avar already on the disability compensation roll. 

General Hines. That Avas up to the end of March 1944, 118,839 
World War II veterans. 

Mr. Cooper. One hundi-ed thousand. One other question, and that 
is with respect to these offices that you propose establishing through- 
out the country for service to returning veterans. 

General Hines. Information centers. 

Mr. Cooper. Information centers. It has been very interesting to go 
through this statement prepared by you, giving the responses made by 
various governors of tlie States. Naturally, my attention has been 
attracted by the statement here from the Governor of m}' State of 
Tennessee, which states, ''A post-war planning committee has been 
set-up, and funds have been appropriated to expand the ex-service- 
men's bureau." That Avas an organization originally set up to take 
care of the veterans of Woi'lcl War I. I take some degree of pride in 
the fact that it was during my administration as State commander of 
the American Legion of Tennessee 23 years ago that tliis ex-service- 
men's bureau Avas established. 

General Hinj:s. As I recall it, it has rendered splendid service. 

Mr. Cooper. It has rendered splendid service. 

General Hines. Kight. 

Mr. Cooper. Under the direction of your friend and mine, Guy H. 

Now, it is your thought that the same degree of cooperation should 

General Hines. That is right. 

Mr. CooPKR. That has been during the past? 

General Hines. That's correct. Congressman. The instructions 
going out tell those responsible, the managers of the three agencies, 
that they are to confer Avith Avhatever machinery the governors have 
set up, and wherever they have established information centers that 
are satisfactoril}^ working they must not be disturbed. We must work 
with the governors. 

Mr. Cooper. Now, then, to get a little more definite information, 
General, Avhat is your plan with respect to any other service centers, 
other than those that are provided b}^ the States? 

General Hines. Naturally, every office of the Veterans' Administra- 
tion, the United States Employment Service, and the Selective Service 
cover the greatest number of communities. They go down into the 
counties. They must have in those offices a set-up that will ffive the 
same information so that if a man comes into one of those offices, he 
will be able to firtd out Avhatever information he is asking for and not 
be told he has to go somcAvhere else to get the answer to his question. 
NoAv, he may have to be referred to some other point. For instance, if 
he cauje in the Veterans' Administration, Ave haven't the machinery for 
his reemployment, but Ave should assist him in contacting the right 
person in the United States Employment SerA'ice avIio can get him 


If he goes into the United States Eni})loynient Service for hos- 
pitalization, and he needs aid, they must be prepared to get in touch 
with the Veterans' Administration and see that the man is taken care 
of in a hospital. 

Mr. CooPEK. No^Y, you mentioned the Selective Service. 

General Hines. Selective Service has, of course, a limited personnel, 
except in the large centers. But it has 1 clerk in each of its offices, 
some 6,500 of them. They have a given set-up. Those offices, probably, 
will be ones that later on, if the governors of the States have not cov- 
ered the situation in some communities, will have to be covered by 
some other of the three agencies. But in most States you will find that 
the governors have covered all communities of 10.000 population or 
more, so that the numbers coming back into the smaller communities 
probably can be well handled b}' the Selective Service officers. 

Mr. Cooper. Well, now, the Selective Service officers, that is com- 
monly thought of as the local draft board '. 

General Hines. That is right. 

Mr. Cooper. I assume there is, at least, 1 of those in each 1 of the 
3.000 counties in the United States ? 

General Hines. That is right. 

Mr. Cooper. Of course, in the cities and larger centers of population 
there are a number of them? 

Geneial Hixes. Yes ; there are several of them. 

Mr. Cooper. Xow, these selective service boards may well perform 
the duty that you have suggested here, as long as the war lasts? 

General Hines. That is right. 

Mr. Cooper. But it is not contemplated that local draft boards wall 
continue in existence after the war, is it? 

General Hines. Not at all. And the bill that is now before you 
provides that those units and that section of the law, it is in section 8 
of the draft law, that the duties required there will be transferred to 
the Veterans' Administration following the war, or even before the 
war is over, if, in the judgment of the President, it is desirable to 
do so. 

Mr. Cooper. All right. That brings me to the point, and then I 
will not detain you further other than to ask this question. We now 
have the local draft boards. They can, as you express it, perform 
the functions that you outline here as long as they are in existence? 

General Hines. That is right. 

Mr. Cooper. After the war the local draft boards will cease to exist. 
Then those functions will be taken over by the Veterans' Adminis- 

General Hines* That is right. 

Mr. Cooper. Now, is it contemplated that you will continue a Vet- 
erans' Administration agency every place where local draft boai'ds 
existed \ 

(General Hines, AVe will undoubtedly have to have our contact men 
cover those points as long as there is "a necessity of finding employ- 
ment in a given community. 

ls\\\ Cooper. All right. Thank you. 

The Chairman. Mr. Fish ? 

Mr. Fish. General, are you now training the veterans for occupa- 
tional work? 


The Chairmax. Yes; under the hiw, Public, 16, we are charged 
with the responsibility of retraining the men who return; the men 
who have a service-connected disability of 10 percent or more, that 
interferes with their gainful emplo^-ment, prevents them from carry- 
ing on in gainful employment. 

Mr. Fisii. Where is that retraining work done? 

General Hines. We are doing it in schools and training on the job. 
First, of course, the man is examined to see what he can do and what 
he was doing before ; but we have some 1,200 in colleges and schools 
undertaking to learn different subjects. We have others training on 
the job into employment in various plants throughout the United 

Mr. Fisii. You have no schools of your own ? 

General Hikes. No ; and I do not contemplate establishing schools 
if suitable facilities are available of those that are in that business 
and can do the job. 

Mr. Fish. I am glad of it. And you don't contemplate setting up 
any of your own schools to rehabilitate these veterans ? 

General Hikes. I can't believe it is necessary. I think there are 
enough set up. 

Mr. Fish. I asked about that because we did that in the last war, 
and we set up some of the most miserable schools that existed. 

General Hines. Well, we made two mistakes in the last war, Con- 
gressman. One, we were not good at advising men what objective 
to train for; and, the second was, we went into the school business, 
and we did not know as much about it as others already in the business. 

Mr. Fish. I am very happy, General, that a person of your ex- 
perience, in both the last war and this war, is at the head of the 
Veterans' Administration and doing a very fine job. I think we can 
avoid making some of the mistakes which were made previously after 
the last war. 

General Hines. We should. 

Mr. Fish. What this committee wants to know from j'ou is very 
simple and won't take any time at all, because we are nothing but a 
committee to formulate post-war problems. You are the head of the 
Veterans' Administration, and we want to know from you whether, 
in addition to the bill now pending, which is, in my opinion, the 
first post-war bill to reach the veteran, comprehensive enough, there 
are any other recommendations that you want to make to solve the 
post-war problems of the veterans ? 

General Hines. Undoubtedly some will arise, and I will submit 
them to the Congress as fast as they do. 

Mr. Fish. But you have nothing else today ? 

General Hines. I have nothing at the present time. I feel that 
what the Congress has done is so far ahead in this war as compared 
with the hist one that there is no comparison whatever. 

In the first ])lrtce, you have 94 operating hospitals for veterans 
thr(jughout the land. They have now some 87,000 hospital beds. W^e 
will add to them; more beds are coming in every month throughout 
the end of the year until, going into the next year, we will have 100,000 
beds of all types in veterans' facilities alone. We contemplate, and the 
plans have been made, for the building of certain Army and Navy 
hospitals, which hospitals will be turned over to the Veterans' Admin- 


istration after demobilization. So, in hospitalization, yon have that 
inmiense set-np against practically nothing following the last war. 

Yon have already enacted snitable pension legislation; you have 
enacted separation pay, or nmster-ont pay; you have enacted a law 
enabling these men to go into training, and with all those things on 
the book Avith the passage of this bill, it is pretty hard to contemplate 
any additional items at this time. 

We will have, in the operation of the bill and in the legislation, from 
time to time, inequalities arising, which we wll try to straighten out. 

JNIr. Fish. That is a very fine statement. I don't have the privilege 
of meeting you face to face very often, but we have talked over the 
telephone a little bit; but, if you will excuse my raising this point now, 
and if the connnittee will, there was a bill that included — which you 
are familiar with — and it just passed the Congress a few days ago — 
a provision to provide a million dollars to be spent to provide the 
seeing-eye or guide dogs for the blinded veterans? 

General Hines. Yes. 

Mr. Fish. An amendment was added on in the Senate, I don't know 
who introduced it, but it passed, authorizing your Administration to 
acquire electrical devices, Braille reading, and other apparatus for 
the blind. 

General Hines. Yes. 

Mr. Fish. I don't know the merits. I did not have time to study the 
merits of it, but we accepted the amendments in the House. I just 
want to call your attention to it and wanted to be sure of one thing, 
that it wasn't put in by any special interests. I don't know the pur- 
pose of it, but rumors have come to me that a special interest having 
control of the apparatus put through the amendment. 

General Hines. I know nothing about it. 

Mr. Fish. I wanted to ask you to look into it because I don't want 
to be a part of it. 

General Hines. I don't know just what they contemplate. Of 
course, our policy in dealing with the blind is to do anything we can 
to rehabilitate the blind to carry on in gainful employment. We pay 
them a very substantial pension, as you know, $175 a month ; but we 
do not pay that sum with the hope that they will not endeavor to do 
something, so that in the rehabilitation of the blind as it is going on, 
we have a very definite policy outlined between the War and i>[avy 
Departments and tlie Veterans' Administration ; we start rehabilitat- 
ing these men as soon as they get into the hospital, first building up 
their morale, teaching them how to take care of themselves, teaching 
them simple Braille. One of the few things they get is a watch with 
Braille on it so that they can tell time. That boosts the morale of the 
blind man immensely. 

We find also that you can teach the Braille best by having an in- 
structor who is a successful blind man himself. 

We are doing things like that ; we are doing all that. 

Now, there are some veterans who will undoubtedly want seeing-eye 
dogs. Some probably will not; but I can assure the committee that 
whatever is necessary to get the blind to carry on in some com- 
munit}' — and I do not believe in colonizing them at all — I believe let-, 
ting them go on in their own community, in their own environment; 
they are happier there, and they will carry on. 

99570 — 44— pt. 2 2 


Mr. Fish. I want to point out to you there is nothing new about 
the seeing-eye dog — guide dog is the proper name. It has been tried 
out for 25 years, very successfully by some 4,000 or 5.000 blind men, and 
I am told it has done more to raise the morale than any (me thing, be- 
cause they can get around and are independent. So I hope you will 
do everything you can to promote that; at least to try it out. 

You said something here today that if these things worked out 
with veterans, it might be well to extend them to civilians. I think 
that is a very sound statement. 

I think further, if you are successful with the seeing-eye dog with 
the blind, and if it is as valuable as has been stated, in promoting their 
morale and inde})endence, I think the time may come Avhen we will 
have to provide guide dogs for all blind people. 

General Hines. Well, most certainly, we all agree in principle it 
is bettor for a person to do somethiiig, whether he is blind, deaf, or 
whatever his condition is. than to make no ell'ort to carry on. He is 
happier, and it is better for the community. 

I have had a good deal to do with these guide dogs. The owner of 
the originator of the farm in New Jersey brought the real, original 
seeing-eye dog to call on m.e one day, and he told me. "When this dog 
sees you again he will recognize you no matter if it is 1 year from 
now or 10 years.'' I think it was about 7 years later, the same man 
came into my oilice. and he had the same dog, and the dog had not 
any more tlian reached the door than he shot ahead and rubbed his 
head alongside my leg. showing that he did recognize me. They are 
very smart, and they are well trained. In addition to building the 
veterans' morale, I am sure it becomes his best friend. 

Mr. Fish. A companion, sir? 

General Hines. That is right. 

Mr. Fish. I am glad you feel the same way I do, so that you will 

General Hines (interposing). We will develop it. 

The Chairman. General, 1 have just one question to ask you. 

I was glad to hear you say that the country is so far ahead today in 
its planning than what it was during the last war. 

I wonder whether you are in position to give us an estimate of Avhat 
this veterans' program is going to cost a year. 

General Hines. Well, let me cite parts of it. The Appropriations 
Committee asked me the same question, whether I could estimate, not 
many years ahead, but the next year. 

The Chairman. That is right. 

General Hines. As to expenditures, our accounts for monetary 
benefits of veterans are over one million in number every month. That 
amounts to 

The Chairman (interposing). What was that? 

General Hines. Over one million accounts of monetary benefits; 
that amounts to $43,000,000 a month. That means for p'ensions and 
compensation alone. 

The Chairman. Does that include World War I? 

General Hines. World War I and World War II together, all of 
our wars, and peacetime, that is the total expenditure sent out in the 
wa}' of checks everv month. Our hospitalization is costing us approxi- 
mately $70,000,000 a year right now. 

POST-WAR eco:n'0]\iic policy and planning 303 

I said we wciild have beds in the Veterans' Administration for 
100,00). We have need for an additional 100,000, which we will obtain 
from the Army and Navy that will either come to us as units or there 
will be beds allotted that we can use of an additional 100,000. That 
makes 200,0;^0, which we will add before Ave reach the peak of World 
War II, if it were to stop tomorrow, another 100,000 beds, makino- a 
total of 300,000 beds. If the costs remain about the same, then it would 
be safe to multiplv your $70.0(;0,000 a year on hospitalizati(m by 3, 
which would make* $210,000,000 a year. 

The factor that is uncertain where the costs may be great is in 
insurance. The Government carries insurance funds on World War I 
and World War II. The total amount of insurance covering World 
War II veterans is the national service life insurance, which has on 
the books at this time $112,C0J,00;),000. That covers more than 15,003 
applications. It averages better than $9,000 per life. Some miits are 
completely covered by the highest coverage on insurance that we have 
ever experienced, so you can readih^ understand why I say that that 
factor is uncertain. 

No one can tell what our costs might be if we had terrific losses on 
invasion, or if the war was prolonged very long. 

]Mr. VooRHis. General, don't you mean 15,000,000 applications? 

General Hines. Fifteen million; yes. 

Mr. VooRHis. You said 15,000. 

General Hines. Fifteen million. 

The Chairman. Just one further question along that line. When 
do you expect to reach the peak of Government payments to veterans ? 

General Htnes. Of which war ? 

The Chairman. Of this war. 

General Hines. I can't estimate that because I have no way of know- 
ing the duration of the war, so the expenditures for insurance and 
expenditures for disability compensation would be factors that could 
not be calculated until the war is over. 

I do feel, if it will be helpful to you, leaving out the bill that is now 
l:>efore the Congi-ess, I feel that the expenditures for the Veterans' 
Administration within a year and a half will reach $2,000,000,000 a 

The Chairman. In II/2 years ? 

Mr. Fish. I was going to ask you, if those are the figures I used the 
other day. the expenditures would be around $2,000,000,000 a year. 

General Hines. Yes. 

]Mr. Fish. But it would run over that, when you take into considera- 
tion the mustering-out pay of all veterans, it would make it around 
five billions? 

General Hines. Those include expenditures of the War Department 
for veterans not calculated in the mustering-out pay. The allotments 
and allowances are all paid by the War Department and are not in- 
cluded in the expenditures of the Veterans' Administration. 

Mr. CoorER. Mr. Chairman, let me ask one question there, if I may: 
I understood you made a statement to the Military Affairs Committee, 
General, that it w^as your estimate that, with the laws now on the 
statute books relating to veterans and the pending bill becoming law^, 
the cost Avould probablv exceed $13,000,000,000 ? 

General Hines. Well, the present bill, of course, many of its provi- 
sions will not take material effect until after demobilization, that is, 


the edncational feature, which is quite an expensive one ; tlie mustering- 
out pay 

Mr. Cooper (interposing). According to the letter put in the record, 
it would be in tlie House record, I think you estimated the costs of this 
bill at about six and one-half billion. 

General Hines. That is right. 

Mr. Cooper. Now, then, I understood from a member of the Mili- 
tary Affairs Committee, that they had received information from you 
to the effect that ail laws now on the statute books relating to veterans 
and the enactment of the pending bill would result in something like 

General Hines. No; somebody misunderstood me if I said that. I 
haven't made such an estimate, but we were debating a bill before the 
Military Affairs Committee, which, if it had passed, would readily have 
brought it up to between $13,000,000,000 and $20,000,000,000. But the 
expenditures that are now on the books and are being paid Vv^ith the 
variables on insurance, which the Government carries on the extra 
hazards of war, and administrative expense on insurance, that may 
run easily any year five or six hundred million dollars, or more, for 
that extrahazard protection. So far, the results have been favorable. 
The fund has been in excellent shape, but nobody can predict the total 
costs until you can see the end of the war; then you can make some 

Mr. Fish. Your statement is, it is $2,000,000,000, but with this bill 
going into effect, it may run up to five or six billion ? 

General Hines. Of course, if that bill goes into effect, it will imme- 
diately bring additional costs. I should say it would present at least 
$200,000,000, even if the war demobilization doesn't start, because of 
various features there that the men are eligible for. There will be an 
increased hospitalization load. Few people realize that 58,000 vet- 
erans of World War II have gone into our hospitals up to date. Some 
11,000 of them are in our hospitals now. That load is increasing right 

The Chairman. Mr. Voorhis. 

Mr. VoORHis. General, first of all, along the line of the first ques- 
tion, I would just like to make this connnent : I understood Mr. Green 
to say that the unions proposed to waive initiation fees with regard 
to returned veterans ; I believe he said that. 

General Hines. Yes. 

Mr. VocEHis. I don't mean that solves the problem the chairman 
raised, but I think that the record should be clear. 

General, I would like to ask you this to be sure I understood your 
testimony. I understood that you suggested that there should, with 
regard to the transition period of readjustment and employment, be 
established a basic readjustment period by agreement? 

General Hines. That is right. 

Mr. VcoRiiis. And then, as to that period, that the Fcleral Govern- 
ment should do one of two things : Either it should pay the States the 
difference between whatever the State unemployment compensation 
law would provide, and a Hat rate that might be established, plus, of 
course, the total amount paid for people in uncovered employment? 

General Hines. That is riirht. 


Mr. VooRiiis. Or else that it should simply pay whatever the State 
rate was to the people who were not in covered employment, leaving 
the States to cover the entire load for those that are covered. 

General Hines. You have the correct understanding of the two 
propositions that are now being studied by this Policy Board. 

Mr. VooEHis. How long do you think the readjustment period 
ought to be? 

(xeneral Hines. I have suggested 18 months. 

Mr. VooRiiis. Eighteen months. Well, then, isn't it inequitable 
not to make the length of time that the veteran is entitled to receive 
unemplovment compensation at least as long as that? 

General Hines. Well, that is a matter of opinion. I think I was 
asked the same question on the veterans' bill, and I think I suggested 
18 months, but 2 years was taken for some reason. 

Mr. YooRHis. \Vell, the period provided now is 26 weeks? 

General Hines. No ; it provides 26 weeks within a period of 2 years. 

Mr. VooRHis. I see. 

General Hines. That is another factor that you face in dealing ^yith 
the war worker. Most States have agreed on 26 weeks, generally, in a 
given period. I would not disturb that as long as the States are operat- 
ing apparently successfull}^ under that. 

Then you have only two factors — the length of the adjustment 
period, and the rate.' Some will argue for a maximum rate and 
others for a minimum rate. The average rate of all States, as I recall 
looking at the last tables I saw, was about $13 per week. 

Mr. VooRHis. Do you think that is going to be adequate? 

General Hines. Well, no. 1 think $20 is a better rate, myself. 

Mr. VooRHis. Would you make it the same across the board for 
veterans and war workere alike ? 

General Hines. Yes; I think if you fail to do that you will create 
certain resentments in a community which will not be helpful to 

Mr. YoORHis. ISIa}' I ask you one further question? You spoke 
about the veteran's coming back to his community ; that is, the able- 
bodied veteran, and I agree with what you saj^ about that, so far as 
what his attitude would be. But how is he going to gear himself into 
the regular employment compensation system ? Isn't there a problem 
involved in that ? 

General Hines. There is a problem, but shouldn't it be approached 
the same way as, for example, if machinery is set up to do one thing, 
we shoukl not undertake to duplicate that machinery if we can have it 
done that way. 

Mr. VooRiiis. I think that is probably right. 

General Hines. Now, I haven't attempted to anticipate the passage 
of the G. I. bill. Tliat is. I haven't attempted to try to work out regu- 
lations or liow to do it because I wanted Congress to decide who was 
going to do it first, and then would be the time, enough time to work 
it out ; but tliere has been some debate as to whether the Veterans' Ad- 
ministration should do certain tilings, or some other agency. What- 
ever agency does it, it should be done by the shortest possible business- 
like route and promptl}', because relief in any form is not worth much 
unless it is promptly given. 

The CiiAiEMAx. Mr. Reece. 


Mr, Reece. jNIr. Chairman. Have you been able to estimate, Gen- 
eral, the number of men now in the service who, upon discharge, may 
reenter high school and college with a view to completing their educa- 
tion and the number tluit might be placed in vocational training by 
the Veterans' Administration? That is, whether you have been able 
to estimate the munber of those men that would be taken out of the, 
so to speak, employment group? 

(xeneral Hikes. My estimate of the number that will enter would be 
100,(300 per unit of 1,000.000 who serve. I have arrived at that figure, 
generally, based upon the ages of the men in service. However, certain 
questi(;nnaires sent out, I believe by the War Department, would indi- 
cate that a higher percentage would undertake to go into schools, if 
these allowances, such as are in the Legion bill, ai-e provided at the 
time. That is. the rates provided in that bill. If the men were simply 
provided their tuition and cost of schooling, I think the percentage 
would be very nuich less, probably 500,000 at most. 

Now, vocational rehabilitation, as it is now set up, will depend, 
under existing law, on the number of men who come out of the service 
with disabilities and a handicap which would prevent them from carry- 
ing on in gainful employment. 

Mr. Reece. But the two may not run the figure as high as one million 
and a half, do you think? 

General Hines. Yes; that would be a very excellent cushion for 
reemployment if it does. 

Mr. Reece. You made the statement, General, that many of the vet- 
erans would not be satisfied to return to their own jobs, which reminds 
me sometime ago of a cartoon showing a man with a major's insignia 
who, upon returning to his employer, identified himself as his mes- 
senger, which was a very striking wa}^ of conveying the thought 
which 3^ou had in mind, so that the legislation which we have j^assed 
guaranteeing the old jobs to these men is not going to be very satis- 
factory to them in the main. 

General Hines. Well, we have already had experience with some : 
and one of the miemployment services told me that in one or two 
cases tliey have had to refer men to as many as five employers before 
they finally took the position, 

Mr. Reece. What is the attitude, as you are able to estimate it. 
of the Government agencies themselves, with reference to that very 
problem? Take the case, for example, of, say, a young lawyer who 
probably had the grade of a junior adjudicator in the Veterans- 
Administration at a salary of $2,600. He goes into the service and 
remains 3 or 4 years. He is hardly going to be satisfied to come back 
and go into your service as a junior adjudicator, when those whom 
he left in the same grade have much higher ratings. 

General Hikes, We will have to meet that problem. Congressman, 
as labor will have to meet it in labor organizations. In addition, you 
are now speaking of seniority rights of the man, and I think we will 
be able to adjust it. The law only requires that he go back to his 
old job or a com])arable job with ])rot(ction to seniority rights and 
some other benefits. Fortunately, the Veterans' Administration will 
not be bothered as much with that problem as some other employers, 
because we will be expanding naturally in this post-war period, but 
the employer that will have difficulty will be one who is contracting, 


who has developed liis program, as well as some of his men who have 
gone abroad and have developed a skill for something higher. 

Mr. Reece. I would like very much to see you, in your position, 
make some canvass of the Government agencies to emphasize that 
jK)int. Recently I had one demonstration. A boy who had long 
3'ears of service in the General Accounting Office, on a salary of some- 
thing like $2,100, had gone into the service; he did well, and was dis- 
charged and returned. The General Accounting Office would not 
release him to any other agency to go in at a higher salary which he 
was well qualified to do, and was offered numerous positions, but 
forced him to go back in at his old salary, whereas those men whom 
he left in the service at that grade were on salaries of $3,200, $3,600, 
and $3,800. 

General Hikes. I think that is a little unfair, and I think if a man 
is able, if he can do the job, he should be put as near as possible in the 
position he would have been in if he had stayed on the job. That is 
the fair way to go at it. 

Laboi- has already had one or two examples of that, and it has 
adjusted it that way, but it has found this: That the progress has- 
been so great and the expansion so great that the man himself has 
really had to settle it by saying that "I am unable to perform the 
duties of that higher job that my seniority would entitled me to," 
and has taken a lower job for which he could qualify, 

Mr. Reece. And it is not unreasonable, probably, that private in- 
dustry may rearrange the title of the position and bring a man in 
rejilacing the man who went into the service who had the title of 
superintendent, to bring a man in and give him the position of general 
superintendent, so that when the other man returns, would he be, 
under the law, entitled to his old position back with comparable 
duties or would he be required to accept a subordinate position? 

General Hines. Well, the first requirement is to give him his old 
job back, or one equivalent. Now, fairness would dictate that you 
.<^1ioul(l give some consideration to the fact that this man had no 
choice, probably, about going into the sei'vice and if he had stayed he 
would have been in a certain position. Now, without any detriment 
to the people who have stayed home, I am sure that those adjust- 
ments can be worked out, but fairness has got to be the basis of the 
adjustment in applying any law. • 

^Ir. Reece. Yes, sir. 

The Chairman. Mr. IMurdock. 

Mr. MuEDOCK. General Hines, I pester 3'ou a good deal by phone 
calls and personal appearances in regard to hospitalization, I was 
glad to hear what you said a moment ago in regard to the program 
ahead. I hope it is ample, but I have a fear that it is probably too 

(jeneral Hines. I hope not. If it is, I Avill probably have to run 
pretty fast. 

Mr. Murdoch. I was especially pleased. General, with your answer 
a moment ago with regaixl to the educational program and that is 
that you have found existing institutions of training ample, effective^^ 
and that you propose to use them to the limit 

Genei-al Hines (interposing). Certainly. 

Mr. MuRDOCK (continuing). Without setting up any special facili- 
ties for training. 


In regard to the reemployment, whicli is tlie big task, your big 
task, and our big thought, I would like to ask you this. Practically 
all the thoughts expressed by witnesses before this committee have 
been that the big job of reemployment shall be in private employment. 
Very little has been said here about public employment. Have you 
given thought to that, how much of this vast employment which is 
ahead of us will probably be done by private employers, and what 
portion by public employment? 

General Hines. Of course, I am hopeful that wherever it is possible, 
private industry will absorb a great deal, because that means keeping 
up production, and more production means more employment. 

The governors' letters, after you read them over there, will indicate 
to you that they are giving some thought to doing things in the post- 
war period that have been neglected during the war period. 

Mr. MuRDOCK. Yes; I just read what the Governor of Arizona said, 
and I was pleased. 

General Hines. That will undoubtedly take in a number of people 
into public employment that are not there now. However, the over- 
all picture of the Federal Government, as such, would indicate that 
probably 2,009,000 employees would go off the rolls when we are com- 
pletely demobilized. Now, how many of those will be absorbed in 
activities that are necessary to bring about this reemploj^ment. And 
the Veterans' Administration is bound to grow as we realize, but it 
will be small compared to the total number. 

There is one other point in the picture to which I have given some 
thought, that you reminded me of, that I haven't mentioned. Many 
women have gone into employment, both aged and young, and. many 
women have added, I should say, four or five million people to the pay 
roll. How many women will stay in employment following the de- 
mobilization is one of the doubtful factors at the present time. Some 
employers have found that women doing men's jobs are more efficient 
than the man ; that they do certain things better. Some of the women 
have discovered themselves that they can carry on well in employ- 
ment, and will desire to do that. Of course, we are hopeful that many 
of them will return to their homes, and I think they will, but those factors that we will have to study and probably will have to do 
some guessing on before we reach a fair answer. 

Mr. Mttrdock. I think the thought of this committee is that the 
major part of the great problem of employment should be by private 

General Hines. That is right. 

Mr. MuRDOCK. But public employment should come along to supple- 
ment it to the extent necessary. 

General Hines. That is right. 

Mr. MuRDOCK. I have one more question. 

General Hines. I was just going to say that nearly every Governor, 
where they have a complete plan, could perhaps provide some form of 
public works to absorb ; but one of our troubles is going to be that we 
are going to have more skilled mechanics than laborers, probably, when 
you get through with this job. 

Mr. INfuEDOCK. I might say that in the Western States, the letters 
developed that there is more planning for this development, and that 
is loffical. 


General, had you o-iveii study to the matter of providing homes or 
possibilities for" homes for veterans on Government lands? 

General Hikes. We have only touched upon tliat. It hasn't come 
up for any definite study, but I know certain studies are being made. 
I am not Very favorable for any private project that would contem- 
plate colonizing veterans; I doubt if they would want that. They 
are better off in their own environment, in their own communities. 
We tried something like that after the last war, and 

^Ir. MuRDOCK (interposing). You have had some unfortunate ex- 
periences with that ? 

General Hines. We had very unfortunate experiences with it in 
the last war. We set up veterans on farms all over the land — in Minne- 
sota, Wisconsin, and other places. 

Mr. Fisii. How about the Alaska project? Was that for veterans? 

The Chairman. I don't think so. 

General Hines. No. But I do feel that there would be a marked 
increase in building construction — houses; most of the housing that 
we have done has been more or less of a temporary character to meet 
certain emergency conditions. Some of it is good and some of it will 
not be useful after the war. 

Mr. IMuEDOCK. General, I should like to know about these studies 
that are being made as soon as possible becaiLse I feel that Uncle Sam 
has a vast quantity of land. Much of it is mighty poor land, though, 
but there is an opportunity of getting some of the men on to farms in 
the West where there are abundant o])portunities for new farm homes 
for veterans in private ownership where each would be his own master 
in making his living on the soil. 

The Chair^ian. One of the troubles of Uncle Sam is that the land is 
poor, and it would make a very poor project for the soldier. 

General Hixes. That is right. One of the troubles we will have in 
administering the large G. I. bill on the purchase of farms will be to be 
sure tliat the veteran will be buying a farm that will produce some- 
thing ratlier tlian a worked-out farm. 

Mr. WoL^■ERTOX. Mr. Chairman, I am sorry I was late. I would 
like to refer. General Hines, from the beginning. Mr. Reece has 
already asked questions which j'^ou have answered which I was inter- 
ested in. May I ask just one furtlier question : What is your experience 
so far with respect to the attitude of industry to take discharged 
soldiers back into their employ ? 

General Hixes. Excellent. Practically all of the large corporations 
have either contacted me or have issued statements to the effect that 
they want all of their veterans to come back. Many of them have come 
to my office and asked how they could contact the men that were in 
their employ as soon as the war is over. They want to get them back 
and put them into training courses of their own. 

One of the outstanding actions was taken by Mr. Ford. He wrote 
me a letter and said he wanted all of the men that left the Ford Corpo- 
ration to go into the service to return, that he had jobs for all of them, 
and he published that letter at the time. That has brought the same 
sort of reaction from many other corporations. 

]\Ir. Woiat:rton. Do you have in mind any procedure that should be 
adopted as a result of your experience with reference to forcing indus- 
try to take men, or has it been such that you don't see any need? 


General Hikes. Personally, I do not feel it will be necessary, I think 
indnstry will be only too glad to take the veterans of this war back, 
provided the}^ have something to give to them. They will take them 
back and comply with the law if the job is there, I am snre. But they 
are doing this at the present time: They are increasing their sales 
force with the idea of building up a backlog of orders, in order that 
production may be speeded as rapidly as they are permitted to go 
ahead, with peacetime production. 

Mr. WoL^^3ETOIsr. Of course, we can readily see that the difficulty has 
not yet presented itself: it probably will at a later date The number 
that is noM' discharged is small in proportion to tiie nimiber which will 
be, and the available jobs are great in proportion to what might be the 
case after tlie war. After that, the shipbuilding ends, for instance. 
The shipbuilding plants in Camden, N. J., have, I think, contributed 
between eight and nine thousand employees to the armed services. 
They are now at a very high point of employment, I think, twenty-five 
to thirty thousand. Immediately before the war, they were at the 
point of only employing a very few of these men that have come in and 
gone out. Now, that number is large as compared with the number 
which tliat industry employed prior to the war. I assume when the 
war is over there will not be the same need to contimie with the build- 
ing of ships, either war or commercial. 

Xow, I can readily understand that this presents a very difficult 
situation, because a company like that may not be in position to com- 
ply with the demand 

General Hines (interposing) . That is right. 

Mr. WoLVERTON. For the old jobs to be given back. 

General Hines. That is quite so, and then it will be a problem if the 
job is not there. Then comes the problem of finding another job for 
that individual, and that problem is not the problem of the employer; 
he is not charged with that responsibility, but that is the problem on 
the part of the United States Employment Service. 

Mr. WoLVERTON. Does our legislation now place upon any individual 
or department the responsibility of placing returned veterans in posi- 
tions where their former employment may not be open to them? 

General Hines. Yes, first, the Selective Service, under the law, is 
required to get the man his old job back, if it is available. If not, then 
they refer him to the United States Employment Service, and it is their 
business then to find employment for him. 

Mr. WoL\TERTON. It would be their business to find employment for 
him. Is there a duty or is the veteran entitled to any preference ? 

General Hines. Yes; generally, in Government, he is entitled to a 
definite preference. 

IMr. Woevekton. I realize that that is the case in the Government, 
because of the preference that we have given by legislation. But when 
it comes to ))rivate industry, would the same principle ap])ly ? 

General Hines. The law does not require ]n'ivate industry to give 
them a preference ; but I have this feeling. Congressman, that industry 
will naturally give a veteran a preference, and I doubt if it will be 
necessary to legislate to get them to do it. 

Mr. WoLVERTON. Well, so far as the Government agencies are con- 
cerned that are responsible for the obtaining of employment, such as 
the Em})]()yment Service, or whatever it is called, there is no specific 


legislative responsibility placed on them for giving preference to a 
veteran ap]vlying for a job; is there? 

General Hikes. You mean the employer now on the outside? 

Mr. WoLVEKTON. I mean the United States Emploj'ment Service. 

General Hines. Yes: thei-e is a definite placement service for vet- 
erans included in the United States Employment Service, and it is 
their particular job to see that the veteran does get a preference in 
employment. That is what is known as the Veterans' Placement 

But there is no law that I know of, unless it may be a State or local 
law, that would require an employer to take a veteran ahead of some- 
one else, although I do feel that their disposition, with respect to World 
War I veterans, and I feel confident it will be with World War II 
A'eterans. to give the man a preference if he is efficient and if he can 

Of course, there is one thing we will always have to keep in mind, 
and it is one thing that the United States Employment Service must 
keep in mind, that when business and industry are in competition, they 
can't just simply add people to their pay roll. They have got to pro- 
duce, and they must be efficient; and the United States Employment 
Service should not send inefficient, unreliable employees to a company. 
If they do, the employers will not come back very many times for 
employees from that Employment Service, so that it is important that 
when we refer veterans to an employer that we try to pick a man who 
can fill the specifications for the job and who is at least sober and 
reliable. Otherwise, we will have great difficulty in getting the 
cooperation of industry in that program. 

The Chairman. ]Mr. Lynch. 

Mr. Lynch. General, it is my recollection that under the Selective 
Service Act, all we did was to declare, as a matter of policy, that the 
employer should take back the veteran. There has been no provision 
for compidsory reemployment in that act; is that correct? 

General Hines. Well, they have authority, as I understand it, to 
demand that if the job is there and the employer refuses arbitrarily to 
take the man back without good reasons for refusing, he can be taken 
into court and the court decides whether he should or should not. 

Mr. Lynch. Now. General, there is just one thing which disturbed 
me a little, and that was a remark I learned you had made at a luncheon 
yesterday, and which had been repeated here this morning, and that is 
your theoiy that apparently demobilization should be based to a 
certain extent upon the employability of the veteran at the time of his 

General Hines. Not so much the employability of the veteran. 
What I did say and what I repeated this morning was that relation- 
ship between demobilization and available jobs merits very careful 
consideration on our part. In a given community, for example, let us 
take a communit^^ like Detroit, when demobilization starts that city 
will have at least a million people out of employment. Jobs will not 
be there. Now, to throw back into that city at that particular time 
men who are in the service while others could be demobilized who had 
jobs awaiting in their community, unless there is a real necessity for 
it, will neither be helpful for them nor for their community, and we 
ought to try to time the release of the men in certain communities to 
such situations. 


Now, I might say that with that theory, the War Department 
does not agree. It feels that the demand for the men's return to their 
homes will be as it was in the last war — that they will want them 
back as soon as you can get them out. However, the War Department 
is considering some method of selection in demobilization so that those, 
say, who have had the longest combat service and the character of 
service and necessity for their getting out should be the rule in 

Mr. Lynch. Well, now, assuming that your theory were carried out 
and you had a situation with a million unemployed in Detroit, that 
would virtually preclude the discharge from the Army of those people 
who had been inducted into the service from that city; would it not? 

General Hines. Not all of them. It would probably hold back tem- 
porarily; and, mind you, these men are still in the service; they are 
still getting some allowances and pay; they are well housed and well 
cared for, though there may be some that would be employers from 
that area that you would want to get out. But what I am talking about 
is that we should gear our demobilization in some relationship to tlie 
problems existing in a given community, if it is possible to do that. 

Mr. Lynch. Of course, but it seems doubtful to me as to whether 
or not, in the jfirst place, it is possible ; and from my experience with 
the Army, in connection with the discharge of men over 38 and under 
45, it would seem to me that would not work out very well, because I 
have had any number of cases of veterans of World War No. 1 who 
have volunteered for service in this war, and then when thej wanted 
to get out every obstacle that was possible was put in their way. 

General Hines. That should not be clone except as found necessary. 

Mr. Lynch. Even the men 44 years of age in the Infantry, when they 
tried to get out, they had to furnish affidavits that they had a job ; and 
they could not furnish the affidavits very well because they could not 
get home to look for the job and to get the job; and many of the 
men were kept in service for months and months as a result of Army 

Now, it seems to me, if the Army is to regidate discharges in ac- 
cordance with employment areas, that there would be a great deal of 
dissatisfaction among the veterans. 

General Hines. You will find they won't agree. But we went 
through the other experience. We had men thrown in communities 
and they were very unhappy; it started a lot of things we had to do 
as a result. 

Now where a man can be discharged, say he is an employer in De- 
troit, or he has a job, it should not be very difficult. It is more difficult 
now because the men are out of the country, but when they come 
back to these discharge centers, of course, you and I know that they are 
going to demand their discharge immediately. It may not always be 
the best thing for them to do. It is better to give them a furlough, 
although the Army is not keen to give them furloughs of any great 
lengths to go home, because it loses the control and the discipline of 
the men, so those two elements are undoubtedly those to be used by 
the services to discharge the men as fast as we can. 

Mr. Lynch. Well, General, don't you think that the veteran who has 
been in the Army for Sf^veral years and feels that if he only gets a 
chance to get out of the Army he will get a job — and he may not have 
any immediate prospect — ^but he feels that he will be able to get a 


job, and if you keep him in the Army because he happens to come from 
a community where there is a great deal of unemployment at the time, 
wouldn't you have a very dissatisfied veteran and wouldn't all his 
family be dissatisfied ? 

General Hines. I hope not, and I hope the period will not be so long 
that he will become dissatisfied ; but I have no doubt that your thought 
will prevail, because we have always apparently followed the practice 
of getting him out as fast as we could. 

Mr. Lynch. There is another thing I would like to ask you, and 
that is this : "With respect to your experience with the disabled veter- 
ans in this war trying to get employment in private industry, do you 
find that there is any resistance on the part of private industry to take 
a disabled veteran back bj^ reason of the increased cost of compensa- 
tion insurance? 

General Hines. We have had up the question of whether there is 
really an increased cost of compensation. We have had all those com- 
panies in, and we are working with them right now on that problem. 
At the present time many disabled are employed. Comparison be- 
tween the able-bodied and the disabled show slight differences. 
Among the disabled, the percentage of absenteeism is less and the at- 
tention on the job is better. I have some data on that that I will be 
glad to put on record, 

Mr. Lynch. If you would. 

General Hines. It is a study of a certain number of cases and is as 
follows : 

'One recent survey made in a large manufacturing plant studied 085 handi- 
capped employees in comparison with the same number of normal individuals. 
The records indicate 7.9 percent more normal workers resigned than handi- 
capped workers, 7 percent more absences among normal workers, .5.6 percent fewer 
accidents among the handicapped workers, 7.4 percent more discharges for cause 
among normal workers, 4.6 percent increased earnings for the handicapped as 
compared with 4 percent for the normal workers." (Letter April 3, 1944, Ameri- 
can Mutual Alliance.) 

" 'Caterpillar' has approximately SOO handicapped persons in gainful and most 
useful work. This number is remarkable when one considers that this company 
builds heavy machinery, calling for heavy and light machine work, similar types 
of assembling, and grey iron and aluminum foundry work. Those called 'handi- 
capped' by 'Caterpillar'' are only those with major defects — loss of one or both 
extremities; marked deformities, congenital or otherwise; loss of one or both 
eyes ; loss of hearing or speech ; and those recovered from tuberculosis, heart 
disease, etc. 

"Yes, the program works in the hardest, most callous test tube tube of them 
all — actual experience. The vast majority of these people have a production, 
safety, and absentee record far above normal. They are paid at the same rate 
as normal individuals, are shown no special favors and are in no way considered 
as accepting charity. They will be given the same consideration as any other 
employee in being retained on the job in the days following the war. 

"The best answer to 'will it work?' is from the lips of 'Caterpillar' supervision 
reflecting positive company policy : 

'"Give us as many of this type of workmen as you can get." (Pamphlet the 
Caterpillar Tractor Co.) 

Such statistics as appear to be available seem to substantiate the belief that 
physically handicapped persons generally prove to be sound investments when 
placed in suitable jobs. One study states : 

"1. They are virtually draft-proof. 

"2. They are often better for particular jobs than a normal person, e. g., 
workers deaf or hard-of-hearing are ideal for work requiring concentration in 
noisy surroundings. 

"3. They don't shop around for better jobs. This reduces turn-over and 
makes for the better morale of a contented work force. 


"4. They take better care of their work and pay more attention to it, thus 
increasing productivity. 

"5. They are more appreciative of their opportunities, and lience more loyal. 

"6. They are likely to have fewer accidents because they are accustomed to 
acting more cautiously. The statistical evidence available confirms this belief. 
Western Electric studied 685 handicapped workers in a 2-year period, finding 
that 23.5 percent of them were injured at work, as contrasted to 39.1 percent 
of the control group of nonhandicapped persons. The Pennsylvania State 
Bureau of Rehabilitation analyzed extensive ai;tomobile accident data and found 
that 0.6 percent of 29,000 physically handicapped auto di-ivers were involved in 
accidents against 4.5 percent of 2,000,000 drivers of normal physical titness. 

"7. Their attendance is as good as that of normal persons" (Letter January 
17, 1944, Association of Casualty and Surety Executives). 

"Of the 97 employers who reported on absenteeism 53 found it to be less for 
the handicapped ; 39 found it to be the same in both groups ; only 5 found it to 
be higher among the handicapped. 

Of the 76 employers who repoi-ted on labor turn-over 63 found the turn-over 
rate to be lower among the handicapped ; 12 found it to be the same in both 
groups ; only 1 found it to be higher among the handicapped. 

"Of the 87 employers who reported on accident rate 49 found it to be lower 
among the handicapped ; 36 found it to be the same in both groups ; only 2 found 
it to be higher among the handicapped. 

"Of the 105 employers who reported on productivity 25 found output to be 
higher among the handicapped ; 69 found it to be the same in both groups ; 
only 11 found it to be lower among the handicapped." (Pamphlet study made 
by the Federal Security Agency.) 

Mr. Lynch. Do you find at all that the insurance compensation 
rates have increased by reason of the employment of these disabled 
veterans ? 

General Hines. No; it has not; and the companies base their rates 
upon the expeiiences they have at certain plants. There is no fixed 
rate because you take on a disabled person. But the experience that 
Ihey have in covering a certain o;roup of employees in a plant deter- 
mines the rate they char<2;e that company. 

Mr. Lynch. I know that. General. But I have been a member of the 
Council for Physically Handicapped Children, in New York, since 
1925, and we have found that industry does not like to take physically 
handicap]~)ed people for the reason that their rates go up, and even 
without any experience of actual loss; and that on various occasions 
they have been notified by the insurance companies that unless some 
person was put into a particular office on the first floor where exit in 
case of fire would be easy, that they would, of necessity, have to in- 
crease the rates on those persons. 

General Hines. There may be some particular firms that do that, 
but we have been dealing with the Casualty and Security executives. 
Here are some data that will undoubtedly be interesting to you. 

One recent survey made in a large manxifacturing plant covered 6S5 handi- 
capped employees, in comparison with the same number of normal individuals 
(that study was made on two groups) ; 7.9 percent more normal workers resigned 
than handicapped workers; 7 percent more absenteeism among normal workers 
and 5.6 percent fewer accidents among the handicapped workers. There were 
7.4 percent more discharges for cause among noi-mal workers ; and 4.6 percent in- 
creased eai-nings for the handicapped as compared with 4 percent for the normal 

Now, we have some further examples. For instance, the Caterpillar 
Tractor Co. .sent this message: ''Give us as many of this type work- 
men as you can.-' Those were all disabled. Of 97 employees who re- 
ported on absenteeism, 53 found it to be less for the handicapped, 39 
found it to be the same in both groups, and only 5 found it to be higher 
among the handicapped, out of 97. 


Of TO emploj^ers who reported on labor turn-over, C3 found the turn- 
over rate to be lower among the haiidicapi)ed ; 12 f oinid it to be the 
same in both groups; and only 1 found it to be higher among the 

Of 87 employers who reported on accident rate. 49 found it to be 
lower among the handicapped ; 36 found it to be the same in both 
groups; and only 2 found it higher among the handiciipped. 

Of 10.-) employers who reported on productivity, 25 found output to 
be higher among the handica])ped; 69 found it to be the same in both 
groups; and only 11 found it to be lower among the handicapped. 

Mr. Lynch. That is very interesting. General. If you have any 
further records on it 

General Hines (interposing). I would be very glad to furnish you 
with them, because it is a suggestion that Ave haven't exhausted by any 
means and we will have to go into it. 

The Chairman. General, if you have any further data on that, we 
would appreciate it. 

General Hines, I don't care to prolong the argument, but I was 
very hapj)y Mr. Lynch raised the questions he did about the demobili- 
zation, because I realize that from the standpoint of economics, it 
might be very desirable to keep these men in the service when the war 
is over; but you and I know", from observation and from exi)eriencej 
that men in the service, men in the Army, when the war is over, are 
pretty much like a man in jail — there is one thing he wants, and that 
is out. 

General Hines. I agree with you. 

The Chairman. You are going to run into a lot of trouble if you 
try to keep these men in the service when the war is over, I think. 

I wonder if either Mr. Folsom or Dr. Ka])lan, of the staff, would 
care to piopound a question to you. General Hines, I am sure they 
will be answered. 

Dr. Kaplan. I believe that our questions can probably be sent in 
writing to the General; but bearing on this question of communities 
that have had a heavy influx of workers, like Detroit, I wonder if the 
General Avould tell us what is being done at this time to gauge the size 
of that inflow of excess labor, to get some idea of the plants, on capaci- 
ties of these workers, and wdiat is to be done to clear out some of the 
civilians before the veterans come into the picture. 

General Hines. To be frank with you, what we are doing at the 
present time is to get a real inventory of what the situation is there. 
Until we find out exactly what that is, it is going to be very difficult 
to plan. 

The War Production Board is making a study of the matter at 
some of the plants. Of course, this organization that I have has not 
been in existence very long. "We started on the 2-4tli of February, and 
most of the work up to this time has been trying to get an inventory 
of where we are and what Ave have and wherever Ave should go from 

^Ir. Fisir. You haA-e no poAA^er to clear our labor? 

General Hines. I haven't ; no. But the Avhole problem that I have 
is to try to coordinate our efforts to see if Ave can improve c(mdi- 
tions. The War ManpoAA-er Commission has that job at the existing 


Mr. Fish. Do you assume you are going to get this power? 

General Hines. No. 

Mr. Fish. The Congress has not given you any power over labor. 

General Hines. I do not expect it, and I doubt if it will be neces- 
sary. I think the more work we can do on the plane of cooperating 
with industry and labor, the better results we are going to get. 

Dr. Kaplan. Is the War INIanpower Commission the other agency 
that is carrying on this inventory ? 

General Hines. No; there are labor statistics, and I have two people 
of my own starting on that very job. 

The Chairman. Is there anything further? If not, General Hines, 
we again express our appreciation of tlie committee for your appear- 
ance here, and for your splendid statement. 

General Hines, I will be very glad to keep the committee apprised 
of the policies adopted b}' this board and any developments that arise 
in this program. 

Mr. Fish. And any recommendations. 

General Hines. I will be glad to follow along where I can make 
something worthwhile. 

The Chairman. We will appreciate it. The committee will stand 
adjourned until tomorrow morning at 10 : 30. 

(Whereupon, at 12:35 p. m., the committee adjourned until 10:30 
a. m., May 19, 1944.) 


FBIDAY, MAY 19, 1944 

House of Representatives, 
Special Committee on Post-war 
Economic Policy and Planning, 

Washington, D. C. 
The special committee met at 10:30 a. m., pursuant to adjourn- 
ment, in room 1304 New House Office Building, Hon. William M. 
Colmer (chairman) presiding. 

Present: Eepresentatives Colmer (chairman). Cooper, Voorhis, 
Lynch, Fogarty, Fish, E,eece, Welch, and Wolverton. 
The Chairman. The committee will come to order. 
"We are pleased to have Major General Fleming, of the Federal 
Works Agency, with us this morning. 

General, we would be very pleased to hear your statement. 


General Fleming. I appreciate, Mr. Chairman, very much, the op- 
portunitj' to come before your committee. 

I want to talk about construction in the transition period after 
tlie war. I think it is most important that we give some considera- 
tion to this problem, because we know there are going to be millions 
of returning men and women from the armed forces and millions of 
men and women coming out of industry who are working exclusively 
for the war, and they will have to be absorbed some way or other into 

The construction industry is on^ of the largest industries we have. 
It represents, usually, from 10 to 12 percent of our national income. 
That means that if we are going to have a high level of eanplo}^- 
ment in the transition period a large part of it has to be absorbed 
by tlie construction industry. 

I hear all kinds of figures on what the national income should be 
to support our economy, ranging from 125 billions to 160 or 170 
billion dollars a year. 

Well, if we take an average, that one figure is as good as another, 
and it would be around $140,000,000,000 as the amount we need as a 
national income to support our economy; those figures, of course, 
are fantastic to someone who just deducted the last check he paid 
this mornins on a checkbook stub. But if we have to have an in- 
come of $140,000,000,000, then from 14 to 18 billion dollars should be 
represented by the construction industry. 

The construction industry, however, can't just start working to- 
moiTOw on a project. AVe know that. Construction has to be 
]i]anned well in advance before any work can be done. 

!t0.-.79— 44— pt. 2 3 317 


I lived through December of 1933 as Executive Officer and Deputy 
Administrator of the Public Works Administration, which, under 
the N. I. R. A., had appropriated to it $3,300,000,000 for a compre- 
hensive program of public works, with the injunction that we were 
to put people to work as rapidly as possible to take up the big unem- 
ployment. Well, nothing had been planned. We had the money, 
but we had to wait for plans, for legislation for raising funds, for 
acquiring sites, and, actually, it was 18 months after the bill was 
passed and funds were available before we had as many as 100,000 
men at work at non-Federal sites, simply because nothing was ready. 
Construction has to be prepared for well in advance, and nothing had 
been done. 

The Chairman. Pardon me. General, when was that? 

General Fleming. December in 1933, under the N. I. R. A., title 2 
of that, you recall, was the public-works program. 

Well, because we could not put people to work under this program, 
since we did not have the plans, something had to be done to absorb the 
millions of people who were unemploved. and the first thing was the 
C. W. A., which was later followed by W. P. A., which provided "made'^ 
programs of work, and, as you recall, in the early stages, they were 
nothing more than raking leaves from one side of the park and back 
again to the other side. 

In the later days of W. P. A., when there was opportunity to plan 
ahead, useful, enduring structures were built as real monuments and 
useful things for this country. But if we don't get planning done 
ahead, we may be led back into another thing like the W. P. A., and, 
certainly, none of us wants to see that. Therefore, I think any plan- 
ning for public works should be done now while there is opportunity 
and while there are engineers and architects available to do it. 

Of course, in the construction industry, about two-thirds is done by 
private capital, and about one-third by public capital. But, so far as 
private industry is concerned, I can't find out, and nobody has made 
any real study of the situation, what it has available and ready to go. 

I have had an opportunity to look a little into what public agencies 
are doing in preparing plans. But that information is pretty scanty. 
I hear of cities and States that have well perfected plans for public 
works which can be thrown into action immediately as the need arises. 
Whenever I heard of that, I have sent somebody out and gone to the 
city or State engineer and said, "Let's look at the blueprints of this 
schoolhouse or this hospital ; that bridge that you are going to build." 
Well, they haven't any blueprints; they haven't any specifications. 
They have got a program of construction, but they haven't things down 
in the blueprint specification stage where they can go to work. They 
haven't, in many cases, selected the site. They have an idea that they 
would like to have the school in this general locality, but just where 
it is going to be they are not quite sure. 

The first thing to do is to make a survey, select and acquire a site. 
Only then can the engineers and architects sit down and begin a design. 
They have to know the foundation ; they have to know what the topog- 
raphy is ; and very little of that kind of work has been done. 

I think the way to act is to provide some stimulus to the communities 
to get their plans ready now, and the best stimulus I know is cash. 
Somebody, I wish it had been I, made the statement that if you want 
the dougii to rise you have to put some yeast in it, and we know that 


some of these cities have the dough maybe in a certain amount, but 
they aren't going ahead; tiiey aren't phmning; they don't know what 
the*^ Federal Government is going to do. They would like to know 
whether they will get a loan from the Federal Government, and I think 
Congress should state whether it is going to stimulate this planning or 

not. - . . 

If Congress does authorize some sort of loan or grant to these cities, 
just for ^rianned preparation, I think you would see a lot of things get 
into the blueprint and specification stage right now before the war is 

Planning is normally about 4 percent of the final cost of your project 
in construction, so the amount of money going into planning is not 
great. I think something probably should be done to stimulate private 
capital to get its plans ready also. How that can be done, I don't know ; 
I am not familiar Avith it at all. Maybe some guaranty or some insur- 
ance of risk capital — something like the F. H. A.— might be helpful 
in stimulating private hidustry to go ahead with its planning. 

I think also this might be a good time to review building codes in 
various States and cities which, in some cases, have been forced on the 
public by pressure groups and contain items which make actual build- 
ing very costly. 

I ha])pen to know of one place where, in school erection, building 
codes require so many toilets. Well, they have about four times as 
many as they ever need. But tlie people who handle those supplies 
probably some time or other were able to get that into the building 
code. We can save a lot of money if building codes are reviewed and 
made a little more realistic than they are at the present time. 

In the Federal Works Agency we are doing something. We have an 
appropriation of $500,000 to the Public Buildings Administration for 
studies on future building, and some of the studies we are making, I 
think, will result in great benefit to the whole construction industry. 

Just a little thing like designing, so as to make cleaning easier, for 
one thing. If we could save in Washington 1 cent a year per square 
foot on the cleaning of the office space the Government occupies, we 
would save the Federal Government half a million dollars a year. 

For roads Congress has made available in two appropriations — one 
of $10,000,000, the other an authorization of existing funds of $50,000,- 
000 — for advances to States, counties, and cities on a matching basis 
for planning. That makes a total of $60,000,000 of Federal funds 
which, if matched with local funds, gives you a capital of $120,000,000 
for planning, which should produce a program of about $3,000,000,000 
in road construction in the post-war period. That is the only hopeful 
thing I see on the horizon at the present time. 

The Public Buildings and Grounds Committtee has been holding 
hearings for a long time on a public works pnogram, or the stimulation 
of a public-works program, sometime in the post-war period. It has 
not yet reported out any bill, but I really believe some kind of a bill 
should be reported out at this time to stimulate planning. And by 
planning, I don't mean dreams, idle fancies, and pretty pictures, but 
all the blueprints, all the specifications, all the contract documents, 
all the legal preliminaries, so that these people will have these things 
ready, ready on the shelf to be taken off any day, let a contract and say, 
"You start digging here tomorrow." That is the kind of planning I 
would like to see done. 


I think that is all I have in the way of a general statement. If 
anybody wants to ask questions, I would be glad to answer. 

The Chairman. Yes, General, I am sure we will all want to submit 
some questions to you. 

Of course, we get into the question of post-war planning. My 
observation has been that the average community, the average state of 
things of post-war planning has a gigantic public-works program. 
AVhen we realize that at the height of the W. P. A. we had only about 
3^000,COO people on the Public Works pay roll, and we need to have 
jobs for some 53,000,000 when this war is over, we realize that that is 
not the answer to the post-war program. I think you will agree 
with that. 

General Fleming. I do. 

The Chairman. Now, what this committee is trying to do is to find 
that answer. I think this committtee realizes that there must, of 
necessity, be some public-works program. My own personal point 
of view is that there should be plans for that, as you indicated, only 
to take up the slack, and it is not the main objective but rather a 
cushioning program. 

General 1" lemikg. I agree with you absolutely. But we don't know 
what the slack is going to be, and I think the public-works program 
should be as big as we can possibly make it ; not that we will necessarily 
use it, but it is the idea of having that on a shelf as insurance to indus- 
try that there are going to be people employed to buy their products ; 
and I think it is paradoxical that the larger your shelf of public-works 
programs is, the less you will have to use, because if industry knows 
it is there, that people can be put to work, it is going to go ahead and 
retool, start manufacturing its products, because it knows there are 
going to be buyers. It is really insurance, too; the bigger you have 
it, the better off you are in the way of insurance. 

You and I pay insurance on our houses and automobiles, but we don't 
feel badly if the house doesn't burn down or the automobile isn't 
Avrecked. I think people will never feel badly if they have a big shelf, 
because some day they are going to use it anyway. 

The Chairman. G-eneral, I have no argument with you about the 
shelf; but I am sure we all appreciate the fact that at that period to 
which I referred a moment ago, the national debt was a very small 
amount as compared with what it will be after this war. Now, there 
is bound to be some limitation in the ability of the Federal Govern- 
ment to pay out money. In other words, there is bound to be a bottom 
in the barrel of the Government, as well as the individual. Now, we 
can't just start out on a gigantic public works program. 

General Fleming. No, sir ; nor have I ever advocated it at any time. 
All I am advocating is that we prepare the plans for a public works 
program — a national public works program — which will be financed 
by the States and municipalities. There are many things in the way 
of self -liquidating public works they can build and get their money 

The Chairman. General, as I said, I am not arguing about that. 
What I am trying to do is to make and regulate my own views on this 
matter, which, I take it, are not far from yours, as to our ability to do 
these things. 

Now, to be specific, I was interrupted a couple of times when you 
were testifying, and I am not sure whether or not you stated just what 


your specific recommendation was as to the Federal Government's con- 
tribution in the plan. 

General Fleming. I think, as I said, that you need some yeast to 
raise the dough, and that yeast is a Federal loan or grant to cities to 
help prepare plans and, as I said, the plans represent about 4 percent 
of the cost of the final project. If the Federal Government went in, 
say, on a matching basis, it would be only 2 percent; I mean, even 
if it was made as a loan. 

New York State is doing that with a State program ; they have a 
State appropriation. Congressman Lynch could probably tell me 
how much money is involved. I am not sure how much it is, but they 
are making allocations to public bodies in the State — 2 percent of the 
final cost. The local public body puts up the other 2 percent, and they 
are preparing plans, so New York State is doing well. New York 
City is doing exceptionally well; it is putting its own money in and 
drawing up complete plans and s]:>ecifications for a threat, big public 
works program, but Mr. LaGuardia says that when it comes time to 
build he doesn't know where he is going to get the money. 

The Chairman. That was going to be my next question. I was 
going to ask whether it was going to be totally State financed or if 
they were expecting a Federal contribution. I imagine Mr. Lynch can 
tell us about that, also. 

General Fle^iing. I think Mr. LaGuardia has made a statement 
that he cannot go ahead with a building program unless he gets some 
Federal help. 

Mr. Lynch. I think that is true also of the State programs, too. 

The Chairman. I am quite sure it is. Do you have any recom- 
mendation, General, on what the Federal contribution should be? 

General Fleming. Oh, as I say. I think it should be about 

The Chairman (interposing), t mean on the construction, and not 
on the planning. 

General Fleming. No, sir; I don't think we have come to that stage 
yet. Maybe a Federal contribution will have to be made at a later 
time, such as was done in 1933. 

The Chairman. Don't you think before the States and the other 
subdivisions of Government can very well plan, that they should have 
some idea of about what the Federal contribution is going to be? 

General Fleming. No, sir; they can plan without knowing that, 
because that 

The Chairman (interposing). Well, I don't know. It seems to me 
that if I were going to build a house, as an individual, I would want to 
know something about my budget. I would want to know where 
I was going to get the money. 

General Fleming. Not if you knew that you had to have a house — 
and they know in their States and cities that there are many things 
they have to have which they have postponed by reason of the war 
when tliey can't get the materials. They know they have got to have 
a hospital ; they know they have got to have a new school built ; they 
know a street has to be improved ; a new water works built in some 
subdivision ; or a new sewer line or sewage-disposal plant. They know 
that some day they have to have such things, and if they know that, 
they can certainly get their plans drawn now and look forward to some 
future time for the money to build them. 


Mr. Cooper. The point is, then, General, that wise and sound plan- 
ning of local and governmental units, in your opinion, should be based 
on what they need and have to buy ? 

General Fleming. Certainly ; yes, sir. 

Mr. Welch. The Federal Government should also be prepared and 
have on hand a large public-building program in case you have to resort 
to it in order to take up the slack of unemployment? 

General Fleming. That's correct, sir. We have perfected a pro- 
gram of Federal public buildings, but our funds were tied up by reason 
of the war, and we were not actually able to put them down in the form 
of blueprints and specifications. We are endeavoring now to get 
cleai-ance on some of those funds, so that we can be actually draw- 
ing the plans. 

The Chairman. Well, General, I think it is very well, and I am 
fairly in accord with your views about the necessity for the shelf of 
planning, but it seems to me that it would also be essential for the 
proper planning for the various subdivisions of Government to know 
where they were going to get the money, what they could expect in 
the way of Federal contributions, but I shall not argue that. 

General Fleming. Well, as I said, I don't see how you can figure it 
out now. We don't know how long the war is going to last ; we don't 
know how much we are going to spend ; we don't know at the present 
time what the finances of the States and municipalities are going to be 
when this war is over. We know that the Federal debt is going up 
and up all the time; we know that most of the municipalities' debts 
are not going up, but there are still many municipalities which are 
in very bad shape. The only thing they have to depend upon is the 
ad valorem tax; the Federal Government is taking away the rest of 
their money iii Federal taxes so they are not building up any great 
reserves; but their credit is different than it was in 1933. Then the 
cities had no credit and the Federal Government had a lot of credit. 
When this war is over, maybe the cities will have better credit than 
the Federal Government. 

The Chairman. You don't agree with the idea that the subdivisions 
of government — States, counties, municipalities, and so forth, are 
better off, comparatively, than the Federal Government? 

General Fleming. Their credit is better, I think, or probably will 
be when the war is over. 

The Chairman. My understanding is that is true. 

All right, Mr. Voorhis. 

Mr. VooRiiis. I just wanted to interpose and say that is inconceiv- 
able. How could the credit of the States and cities be better, basically, 
than the Federal Government? 

General Fi>eming. It will certainly be a lot better than in 1933. 

Mr. VooRHis. No doubt. But do you quite mean that you think the 
credit of any city or State within the United States could possibly 
arise above its source which, after all, is the Federal Government? 

General Fleming. I think, relatively, you are right. 

The Chairman. I thought that was the word that I used. It may 
be. of course, anyway, we are getting at the question of States' rights. 

Mr. Voorhis. No : I don't think you do. 

The Chairman. But at any rate tlie point I was trying to emphasize 
was that I think the Federal Government has some limitations also 
as to how far it can go in this program. Of course, as I said, our 


■whole idea here has been to proceed on the theory, if we could stimu- 
late private industry to the point that this public-works program be 
more or less negligible, the country would be much better off. 

General Fleming. That is right; I agree. 

The Chairman. General, right along that line, I am going to ask, 
have you given any thought to the possibility of stimulating private 
planning along the same line? 

General Fleming. Well, I haven't given much thought to it, Mr. 
Chairman, because I have been thinking more along the line of stimu- 
lating the public planning. 

The Chairman. That is correct. 

General Fleming. I have thought, and, as I said in my opening 
statement, that maybe some kind of insurance of risk capital, some- 
thing like the F. H. A. for private building of houses, might be used 
to stimulate industry in its construction program. 

The Chairman. It seems to me that field will well bear some study 
witli the idea that the more we can stimulate private industry, the less 
we will have to depend upon the Federal Government. 

Mr. Cooper? 

Mr. Cooper. No. 

The Chairman. Mr. Fish? 

Mr. Fish. No. 

The Chairman. Mr. Voorhis? 

Mr. Voorhis. Yes, sir; I have a few questions. General, when you 
spoke about the national income of 140 billions, did you mean the 
national income or the national gross production? What I mean is, 
did you have in mind a figure representing the amount of income 
actually paid out to the people in the country as wages, profits, salaries, 
rent, and so on, or did you have in mind total pricing of all that is 
produced ? 

General Fleming. What I had in mind was the total pricing. 

Mr. Voorhis. That would correspond to the present figure of one- 
hundred and eighty or one hundred and ninety billion dollars, 
wouldn't it? 

General Fleming. I think so ; yes. 

Mr. Voorhis. When you said that the construction industry ought 
to account for somewhere between fourteen and eighteen billions of 
this, did you mean that that would be the construction industry, both 
public and private? 

General Fleming. Both public and private. 

Mr. Voorhis. I see. 

General Fleming. Because normally construction industry has rep- 
resented about 10 to 12 percent of the national income. 

Mr. VocRHis. Yes. And reverting back to the chairman's point, I 
just wondered whether part of the misunderstanding that has arisen 
on the question of public works hasn't stemmed from a misconception 
into which, I think, many of us fell in the past where we conceived 
that the construction industry alone could balance the economy if it 
were kept at a high level, and obviously that is not true, is it? 

General Fleming. No, sir. 

]Mr. Voorhis. In other words, our objective might be your own 
attempt to make certain that the construction industry itself is stabil- 
ized and used to the wisest possible extent, to be accelerated in times 
when other types of work are slack, and reduced in times when other 


work is in full, going ahead very rapidly. Would you think that was 
sound ? 

General Fleming. I think it is sound. You can do it in the pub- 
lic construction part, certainly. 

Mr. VcoRHis. Then I wanted to ask you this. General. Wlien and 
under what circumstances do you believe that public construction 
should be started ? 

General Fleming. I think it should be started in any particular 
locality when the needs, employment needs, dictate it. There is a 
certain amount of public construction which has to be done regardless 
of this postponed work I talked about. It includes deferred mainte- 
nance, which is costing more and more money all the time. That 
should be taken care of, but there are certain types of desirable pub- 
lic works which we should have on the shelf in a reserve so that we 
can simply take off what is needed at the time in that particular 
locality to provide employment. 

Mr. VooRHis. Well, would you say that just as soon as the employ- 
ment index starts to decline that we should immediately begin on 
such a program? 

General Fleming. I think so. We ought to make a start on it. 

Mr. VooRHis. Do you believe that under those circumstances it 
will be, in the long run, very much chea]:)er than if you wait until 
you have a considerable volume of unemployment already started in 
a downward spiral? 

General Fleming. Certainly; there is no doubt about it. 

Mr. VooRHis. But you do agree with the general point of view that 
public works alone are not by any means an adequate answer to the 
unemployment problem ? 

General Fleming. I do; and also that it should not compete with 
private industry where private industry needs the people and 

Mr. VooRHis. I agree with that, too. I don't suppose that you 
wanted to get into the discussion of housing, or are you willing to 
do that? 

General Fleming. Well, housing is a little outside my field. We 
had at one time in the Federal Works Agency the United States 
Housing Authority, but it was absorbed in February 1942 by the 
National Housing Agency, and so I haven't really given a great deal 
of thought to it. 

Mr. VooRHis. I just wondered whether that might be one field in 
which we might hope, at least, for a considerable expansion of a 
private nature shortly after the war. 

General Fleming. Well, I think undoubtedly there will be an ex- 
pansion of it; and there are all sorts of indications. 

I had lunch with Mr. Kaiser the other day. He has made a poll 
out on the west coast to see what people wanted most after the war, 
and about 35 percent of them indicated that the thing they wanted 
most of all when this war was over, and what they would spend first 
on. was a home of their own, a house. 

Mr. VooRHis. Is Mr. Kaiser going to start building some homes? 

General Fleming. I would not be surprised if he did. 

Mr. VocEHis. I think that is all, Mr. Chairman. 

The Chairman. Mr. Welch, did you have anything? 


Mr. Welch. General, have you followed the type of public works 
program to be prepared by the States and cities ? 

General Fleming. Well, I follow it as closely as I can, Mr. Welch, 
and I have been rather disappointed because most of the programs 
have been just dreams, fancies, pictures of what they want. They 
haven't thinos down in the stage where they can start building. 

Mr. Welch. They haven't reduced it to blueprints? 

General Fleming. No, sir. 

Mr. Welch. Do you think they should ? 

General Flfming. I certainly do. 

The Chairman. Mr. Lynch. 

Mr. Lynch. General, isn't the present difficulty just this : That many 
of these municipalities and a good many States have yet to set up 
planning boards? 

General Fleming. I think that is one drawback; yes. 

jNfr. Lynch. One of the reasons is that either they haven't got the 
foresight to do it themselves, or they haven't got the money, or some 
such reason, don't you think that is true? 

General Fleming. I think it is probably lack of foresight more than 
anything else. 

Mr. Lynch. And unless they use foresight in the planning boards, 
they are never going to get anywhere insofar as post-war construction 
is concerned until the disaster is on them, if there is any great unem- 
ployment at that time? 

General Fleming. That is true, but there is still a great deal of 
deferring of the work by many of them by reason of the war, and a 
great deal of this planning could be gotten into the blueprint stage 
now without a planning board to set down any master over-all pattern. 
Of course, if you have the master plan, that is fine. 

Mr. Lynch. Don't you think it is better to have the master plan? 

General Fleming. Certainly, I do. 

Mr. Lynch. Now, you mentioned something before that which to 
me was very significant. That was this : That when C. W. A. first 
started in on the antecedent organization to W. P. A., that in the 
beginning there was no plan of work, but as W. P. A. continued their 
plans had been developed, and toward the end they were putting up 
worth-while construction ? 

General Fleming. That is right. 

Mr. Lynch. And that is going to be the same situation unless the 
States, municipalities, and the Federal Government plan now for post- 
war, don't you think? 

General Fleming. That is what I am afraid of, if we don't get 
plans ready now. 

Mr. Lynch. There is something that disturbs me, and that is this : 
We have Federal planning insofar as roads and Federal public build- 
ings are concerned, but that will take but a comparativelj^ small num- 
ber of men and a comparatively small number of dollars. 

General Fleming. Well, you have some also in the rivers and har- 
bors, and flood controls where some advanced planning is being done ; 
something in reclamation is also being done. 

Mr. Lynch. But this post-war construction job is something more 
than for the Federal Government ? 

General Fleming. Oh, absolutely; the Federal Government's part 
is very small indeed. 


Mr, Lynch. Now, if you take the States and municipalities, and if 
you liave Federal aid to any extent, there must be some kind of a Fed- 
eral bureau set up to handle that feature of the construction, don't 
you believe so ? 

General Fleming. You already have one, I think. 

Mr. Lynch. Well, I mean whether or not it is a present organiza- 
tion or a future one, and whatever Federal organization takes that 
over, it has to be an organization that is going to be broadminded all 
the way through, insofar as construction is concerned, isn't that 
correct ? 

General Fleming. That is right. 

Mr. Lynch. I mean, for instance, if you had just a Federal agency 
that was devoted to roads, or rather had a high inclination toward 
roads, and not so much toward housing, that probably would not work 
out well, would it ? Any more than if you had a housing organization 
that was inclined more to housing than to roads? What I mean is, 
what we need above all things is a broadminded Federal organization 
that will take advantage of all the various forms of construction that 
will give employment to the people ? 

General Fleming. I think we have that practically in the Federal 
Works Agency, with our past experience, because we have roads, we 
have public buildings, we have the old P. W. A., we had W. P. A., and 
the Housing Authority, so we have a pretty fine organization with 
many sides, and we have had the experience of dealing with the cities 
and local bodies. 

Mr, Lynch. Are you familiar, sir, with H. R. 2783 that I introduced? 

General Fleming. Yes, sir. 

Mr. Lynch. I know you are familiar with it because we discussed it 
on the radio together. You will recall, then, part one of that has to do 
with the setting up of planning boards. I think in our discussion you 
were somewhat in accord with it although not in accord with the dis- 
tribution of the funds, as I remember. 

General Fleming. I am. I was generally in accord with the idea 
of setting up the planning boards, but I think the time now is so urgent 
we cannot wait for that. To interpose that first is going to make a 
delay. We are faced with an emergency, as I see it. We don't know 
when this war is going to end, but it looks to me as though it will pos- 
sibly end in two phases — the European and then the Pacific phase. 
The end always comes quickly, and it might come any time, and we will 
be faced Avith a real emergency when the war ends. We can't wait to 
call up a beautiful situation before we go ahead and start doing work. 

INIr. Lynch. Wouldn't it be possible to have the State go hand in 
hand with the planning boards, and also on the specific constructions 
that will be necessary at this time? 

General Fleming. They are advisory only at this stage and do not 
have any mandatory powers. 

Mr. Lynch. That is what I have in mind, that they be advisory. 

General Fleming. It would be helpful if they had real power to act, 

Mr. Lynch. Under H. R, 2783 it provides for advances to the 
municipalities and States for specific construction and repayment from 
the first funds appropriated by the political union. Your thought is a 
little different on that, I take it ? 

General Fleming. No; I said an advance; but whether it should be 
a grant or loan, I don't know. 


Mr. Lynch. What I mean, General, is this: Do you think that the 
outright grant would be, oh, say, 2 percent of the cost of planning, 
would be very much of an incentive to the municipalities or States for 
any specific construction ? 

General Fleming. I really think the outright grant would be more 
of a stimulant to planning right now than a loan. That is my personal 

Mr. Lynch. What number of people do you figure could be employed 
on the construction work? 

General Fleming. In order to have reasonably full employment 
after the war, the total annual national income would have to approxi- 
mate $110,000,000,000— at 1940 prices— or $140,000,000,000 at present 
price levels. Construction would represent about 10 percent of the 
total or between eleven and fourteen billion dollars. This would fur- 
nish about 3.000,000 on-site jobs and about 4,500,000 off-site jobs. 
Public construction would be about one-third of ail construction, or 
between $3,500,000,000 and $4,500,000,000, and would furnish about a 
million on-site jobs and 2,000,000 off-site jobs. 

INIr. Lynch. Now, with respect to the State planning, you men- 
tioned before that you were rather disappointed not only with State 
planning but municipal planning. It is a fact, is it not — and I just 
wanted to bring this out more clearly — that when you or anybody 
connected with the Federal Government, interested, in future con- 
struction, asks these various cities and States what projects they 
have ready for post-war, all they have is the idea ? 

General Fleming. That is right. 

Mr. Lynch. And that in most cases there isn't a blessed thing down 
on a blue print with respect to actual construction. 

General Fleming. In most cases there is nothing there. There are 
a few notable exceptions, like New York City. 

Detroit is making progress, but as a whole, it is very disappointing 
to find most of the cities haven't any more than the idea that, for 
example, they want a sewage-disposal plant some time, but where it is 
going to be and what it is to cost, what the design is to be, they haven't 
the faintest idea. 

Mr. Lynch. It is your firm conviction that if some aid were granted 
to these political units. States, and municipalities within a compara- 
tively short time, some blueprinting would be done in anticipation of 
post-war improvement? 

General Fleming. I do think so. I know of a city where the mayor 
boasted he had plans all ready for a great bridge across a stream, 
that they could start to work on it tomorrow, so we went over and 
looked at it. He had a line drawn on a map. That was the extent of 
the planning for that bridge. 

Mr. Lynch. That is all. 

The Chairman. Mr. Wolverton. 

Mr. Wol\'erton. I suppose that might be explained as campaign 

General, is there any prepared program under the Federal Works 
Post-War Act if the necessity arises? I spoke of necessity; I mean 
from the standpoint of providing employment. This committee is 
seeking very diligently to find a way of enabling private industry to 
take up the employment immediately upon the conclusion of war so 


that there will not be any o;reat lapse in employment as between a 
war activity and the peace activity. 

A few days ago we reported out of this committee a bill that we 
think will go a long way to help. I refer to the war-termination con- 
tract bill. But being as optimistic as I try to be, I am fearful that 
there will be a period between the cancelation of war contracts and the 
time when peacetime activities will be taken up in which there will 
be unemployment. I am fearful of it. 

General Fleming. So am I. 

Mr. WoLVERTON. No matter with what care we endeavor to project 
ourselves into the future and deal with the problems that we conceive 
as likely to arise, and for that reason I am asking if there is any 
prepared Federal public works program that could be immediately, 
upon the conclusion of war, thrown into the breach, so to speak, to 
take up some of that possible unemployment? 

General Fleming. Well, I think you would be disappointed in the 
small amount that is prepared. The one hopeful thing is in roads, 
where we have this $60,000,000 of Federal funds which can be matched 
with the States to prepare plans for roads. Even there the States 
have not taken full advantage of these funds. The allocations are 
in our hands, ready to be made to them any time they want to 
match, and they have not come in; some haven't taken any at all. 

Mr. WcLvrRTON. Well, my question is not directed just at this mo- 
ment to public works that were to be carried on by a State or local 
municipality; I am speaking now, first, of Federal works that would 
be distinctly within the province or jurisdiction of the Federal Gov- 

General Fleming. I don't think there is a great deal of that. I 
know that the Army engineers have had funds available to them for 
preparation of plans for rivers and harbors improvement and flood 

The Bureau of Reclamation not long ago issued a statement as to 
what it was working on. We have in Public Buildings some funds 
which we would like to use in preparing for a public-building pro- 
gram ; but altogether it doesn't make a very big program. You can't 
depend so much on the Federal Government. You have got to have 
your denendence on a public-works program out in the field. 

Mr. WoLVERTON. I realize that there is a limit to what might be 
expected of the Federal Government ; that a necessity rests to supple- 
ment it with the State and the local work; but I am first directing 
attention to that which comes directly within the province of the Fed- 
eral Government. 

As a simple illustration, you say post-office buildings. That is just 
by way of illustration. It would come entirely under the jurisdiction 
of the Federal Government, so that I am asking if there is any 
Federal works program for use in the post-war period to take up 
the slack that there might be in employment immediately upon con- 
clusion of the war. 

General Fleming. No; there isn't. We have in Public Buildings 
a program of around about $200,000,000 of post offices and works 
of that kind — purely Federal. But we have not had funds available 
to us to draw the plans for those. We are making an effort right 
now to get the funds released so that we can do that. We have the 
appropriation; it has been made to us for these, but the funds are 


in such shape that we cannot utilize them at the present time to employ 
architects and engineers to draw the plans. 

jNlr. AVoLVERTON. What I have in mind is this: Suppose the war 
would end toda}^; we realize that there would be immediate cancela- 
tion of contracts to such an extent that great unemployment would 
probably result. Wouldn't it be helpful under those circumstances 
if the Federal Government immediately had ready to let contracts 
for the building of public buildings or other public work« 'i 

General Fleming. Absolutely. 

Mr. WoLMOiTON. Then, you would recommend that Congress give 
consideration to the giving of funds that would enable those plans to 
be perfected to the point where they could immediately be put into 

General Fleming. Certainly, I do. 

Mi: WoLVERTON. Do I understand that you have made an effort of 
that kind, to get funds for the purpose 

General Fle]ming (interposing). We are, as I said, making the ef- 
fort in the public-buildings field at the present time, which is one of 
our activities. 

Mr, AVglverton. How long does it take to prepare plans when you 
have the necessary help and the necessary funds? What portion of 
time would that take up — 1 month, 2 months? 

General Fleming. It depends on your structure; it might take a 

Mr, WoLVEKTcN. Well, all of that illustrates to me the necessity that 
the sooner we would start in preparation of those plans, the better it 
would be, because when the time comes to provide employment, if you 
then have to start to draw your plans and your specifications or the 
giving of contracts and that sort of thing, that would take considerable 
time, and that project, for instance, would not be immediately usable? 

General Fleming. That's correct. 

Mr. WoLvERTON. Whereas, if that program was already in the blue- 
print stage, prepared, specifications drawn, and all you had to do was 
immediately ask for bids, why then the time would be much less and 
it would be more helpful ? 

General Fleming, Certainly ; the Federal Government ought to lead 
tlie way. 

Mr. WoLVERTON, That is just exactly what was in my mind. General, 
You have laid some emphasis upon the States and upon local munici- 
palities, but it seems to me that the Federal Government, at least, 
could do its part. 

Then, the next question that I was going to ask was this: What can 
we do in the matter of Federal legislation that would provide an in- 
centive to the State or local municipality to make that preparation 
which I have indicated should be done by the Federal Government 
witli respect to its public works? 

General Fleming. Well, as I said in my statement, I think you have 
got to stimulate them with money, give them a financial stimulus, either 
by a loan or grant for the preparation of plans. 

Mr, Wolverton, You have spoken of New York City and the State 
of New York; there are many otlier instances that you might have 
used just as well as an illustration where they have grandiose plans 
of the future. But my experience has been the same as yours, that it 
doesn't go very much beyond the picture stage. 


General Fleming. Well, fortunately, in New York, it is going to be 
more than the picture stage; they are actually acquiring the sites, mak- 
ing plans, drawing blueprints, specifications, and getting contract 
documents ready. They are the very outstanding exception, 

Mr. WoiAERTON. You are speaking of the State of New York and not 
the city of New York ? 

General Fleming. Both city and State. 

Mr. WoLVERTON. I gathered from what you said that Mr. LaGuardia 
said he didn't know where the money would come from. I assumed 
that was for construction. 

General Fleming. That was for construction ; yes. But their plans 
aren't grandiose; they are down-to-earth plans for city improvement. 
They have an exhibition upon Park Avenue and Fifty-ninth Street of 
what tliey propose; i. e., schools, hospitals, playgrounds, roads, and 
water — things that are really needed in that city. 

Mr. Wolveeton. There are many communities that have committees 
appointed that are making studies of those matters, and they can more 
or less readily agree among themselves as to what would make it an 
ideal community b}^ the additional construction that they have in mind. 
But my experience with them, while limited, is enough to indicate that 
they don't get down to the point of preparing for it. 

Now, their hchitancy to do so may be due to the fact that they don't 
know where the money is going to come from to construct, even if they 
did have plans. However, it would seem to me that there could be 
Federal participation in the preparation of plans, and legislation to 
deal with the other question as the time develops and the conditions 
require. We ought at least to encourage them to draw the plans and 
specifications and broadly to start. 

Now, what kind of a Government incentive would you suggest? 
You have said it must be a money incentive. I am trying to think you 
are right because that incentive has been used to such an extent in the 
past that it would be very hard to change the thought of individuals 
along that line suddenly, so that I am inclined to share with you it 
should take that form. 

Have you any idea as to what proportion of the cost of a building, 
we will say, for instance, is represented by the preparation of plans 
and specifications? 

General Fleming. About 4 percent, 

Mr. WoLVERTON. Four percent. I think, if the Federal Government 
participated to the extent of half of that, it would stimulate these 
cities to go ahead and get their plans now. 

It seems to me that presents a view worth following through to see 
what could be done because unless we do something along that line we 
will be cut at a time when people naturally look toward the govern- 
ment, either State or local, to provide the work, and, as has been indi- 
cated by Mr. Voorhis and Mr. Lynch, you don't want to get into 
another leaf-raking program that was necessary because there were no 

General Fleming (interposing). That is right. 

Mr. WoLVERTON. As time went on, the work that was done by 
W. P. A. did become more worth while. That is the thought that I 
have in mind. 


There are some projects that are both Federal and State in char- 
acter. Take, for instance, the phms that are being considered by the 
Interstate Commission for the Delaware River Basin, New York, 
Pennsylvania, New Jersey, and Delaware, with respect to sewage sys- 
tems in that great area, it would look to me as if that might be a com- 
bination of States and localities as well as the Federal Government. 
I just feel that with all of our planning with respect to industry we 
are possibly overlooking a situation that might become necessary 
where we will have to fall back on Federal, State, and local work to 
supply employment. 

General Fleming. Well, I think you are right, sir, as to many of 
these projects, certainly in the public health field. A sewage disposal 
plant, or a lack of one in one town, may affect other towns down the 

]Mr. WoLVERTON. That is right. 

General Fleming. And so on. It isn't just a local thing — it may be 
State- wide — it may be Nation-w^ide, as it affects various States on 
that particular stream. 

JNIr. WoLVERTON. That is right. 

General Fleming. There is Wisconsin, it has a very fine stream 
pollution program which they have put through in the whole State. 
The water coming out of Wisconsin into the Mississippi River has all 
been treated and is pure, and since some of the cities in Minnesota, 
Iowa, and Illinois are pouring pollution into that river, the whole 
thing ought to be cleaned up as one big project. 

Mr. WoLVERTON. That is the type of work that I had reference to in 
the Delaware River Basin that they are figuring on. 

Mr. Welch. General, a road-building program is anticipated after 
the war for which plans and specifications are being prepared by the 
commissioners in the several States, that is a fact, is it not? 

General Fleming. That is a fact. As I said, we have this fund of 
$CO,000,OCO which they can draw on to prepare those plans. But since 
very few of the States have come in to g;et their share of this alloca- 
tion, it is not going as well as I had hoped for. 

Mr. Welch. Are j'ou in a position to tell us the proportionate em- 
ployment between road construction and public building and bridge 

General Fleming. Highways, roads, and streets represent about 40 
percent of public construction, and public buildings about 25 percent. 

Mr. WoLVERTON. Mr. Chairman, may I say right here : I don't know 
that I want to call upon the witness for his opinion, although I think 
he is well qualified to give an opinion if he cares to do so. We are all 
aware of the splendid work that was done by General Fleming in 
bringing order out of chaos with respect to the other loan and there- 
fore he has some large fund of information. It is just my own per- 
sonal thought whether you wish to make any comment, I will not press 
for it, when it comes to the question of Federal works, I hope we can 
get it on a basis where wages will be paid that will not be mere sub- 
sistence wages such as we had in W. P. A. It is my definite opinion 
that if we want to keep up national income and do something that will 
provide work, we have got to pay wages that will enable individuals 
to get or have the opportunity to buy so-called luxuries and not be 
limited to just clothing, something to eat, and a roof over their heads. 
That would be done by the governments themselves in the wages they 


would pay, or Avhether it would be by the letting of contracts for the 
doing of this work where the standard of wages would be raised, I 
don't know just what would be the system, but it seems to me that is 
something that would have to be considered in connection with the 
whole progiam. 

General Fleming. Well, I will go along with you absolutely, I 
don't think a man should haA'e to pass a "means test" in order to be 
hired ; and I don't think he should be paid a mere subsistence wage. 
I think he should be paid in accordance Avith his skill and ability to do 
the particular job. 

The Chairman. Mr. Fogarty. 

Mr. Fogarty. General, have you taken into consideration on the 
planning of these Federal public buildings the employment of local 
engineers and architects? 

General Fleming. Yes. We generally try to use local engineers and 
architects, and we will use them more and more as time goes on. The 
Public Buildings Administration, for the time being, was pretty 
highly centralized here in Washington, and a good deal of the work 
was done by its own architects and engineers. Our plan will be to de- 
centralize that organization, to use the Washington organization as 
a consultant in construction, and employ architects and engineers in the 
localities to do the designing. 

We are getting up general type instructions for them so that they 
can go ahead and do the designing in accordance with the general 
ideas we have in mind. 

Mr. Fogarty. On this, you say it takes about 4 percent of the actual 
cost for plans and specifications? Is that what you pay architects 
for plans and specifications ? 

General Fleming. Well, the scale for the architect is not a right 
line — it is a curve so that the percentage which he is paid depends upon 
the entire over-all cost. He may get 6 percent for a small structure 
and only 2 percent for some great large structure. 

Mr. Fogarty. But the average is about 4 percent? 

General Fleming. Some place around there ; yes. 

Mr. Fogarty. I agree with Mr. Wolverton and others of the commit- 
tee that if the Federal Government did take some steps where it could 
reimburse the local communities for half of that cost, that would give 
them some incentive to go along on many of these plans and specifica- 

General Fleming. That is the yeast to make the dough rise. 

Mr. Fogarty. On this wage question, I don't think you ever had any 
trouble witli the P. W. A. wage program? 

General Fleming. Well, we did not have any great trouble, but the 
P. W. A. standard was not the ideal wage scale. 

There were three belts drawn across the United States, and in each 
one of the three there were tln-ee scales : One for skilled, one for semi- 
skilled, and one for common labor. That was a line right straight 
across the whole country. You cannot be as universal as that in such 
work. In P. W. A. vou could work a man only 30 hours a week. 

]\Ir. Fogarty. In P. W. A. ? 

General Fleming. On P. W. A. ; yes. 

Mr. Fogarty. Well, they worked 40 hours in my section. 

General Fleming. Well, I am going back to 1933; I was with P. W. 
A. from 1933 to 1935. 


iSIr. FoGARTY. You doivt mean C. W. A. ? 

General Fleming. No ; Public Works Administration. I was Dep- 
uty Administrator of it. The original law in 1933 permitted them 
to 'work only 30 hours a week. I think perhaps in some of the later 
laws that was chanoed. But under the 1933 act, I know they could 
pay a man only for 30 hours a week from the funds appropriated. 

^Ir. FoGARiY. I have talked with some of them on those projects, and 
1 think they were satisfied with the program and wages paid. They 
were the prevailing scale of wages in that particular section. 

General P'leming. I am most familiar with the first 2 years of P. 
W. A., when they paid the same scale in New England as out in Oregon. 
There was a north belt, a middle belt, and a southern belt; a,nd, in some 
cases wages paid in each belt were the same as the prevailing rates of 
pay. I think we should pay prevailing rates of pay, just as we do 
under the Bacon-Davis Act on any Federal structures. 

Mr. Lynch. I would like to ask one question. Did I understand you 
to say that you had appropriations for blueprints now, but that they 
were frozen in some way or other? 

General Fleming. We have appropriations for public buildings 
amounting to about $200,000,000, but they are frozen, and due to the 
present lack of materials we can't even go ahead with the blueprints 
and specifications. We are asking now for authority to do just that. 

The Chairman, General, I don't want to appear too persistent, but 
I want to come back to one question before we conclude this hearing.. 
That is a question of the communities. States, and so forth, being 
advised of just what they could expect in the way of Federal con- 

It seems to me that that would be an incentive in order for them, 
to make practical plans. I am going to go back just a little bit to 
em])hasize that with an illustration. 

When the Lehman Act was set up originally to assist or rather to 
help the communities meet the war increases in population I recall — 
I don't know whether it was your agency or whose it was — that it 
sent out Federal representatives to these communities. I know in my 
own congressional district of south Mississippi, where we had some 
war industries, Arni}^ camps, and so forth, these Federal representa- 
tives came into the communities, not only in the communities where 
the industries and plants were located, but in the outlying com- 
munities as far as 50 miles away, and told them that they were down 
there to assist them in getting up plans to increase the hospitals, 
schools, streets, sewage, and other facilities. Those people were en- 
coui-aged to ask for just as nmch as they could conceive that they 
could use. 

I recall the mayor of one little town, not a town where they had 
one of these war babies, but down away from it. After he had, as 
he told me, given them everything he could conceive of that they could 
build along that line, he said, "Now, are you sure that is all that you 
need?'' Well, the result was those comimmities were encouraged to 
ask for a lot of stuff they never got; there was never any chance of 
their getting it. Their idea was that here was an opportunity to get 
something out of the Federal Government. 

Now, if we follow the plan that you have suggested which I, inci- 
dentally, have discussed with Mr. Johnston on a previous occasion, 

99.579 — 14 — pt. 2 4 


it is good as far as it goes. But unless those communities know 
what they can expect in the way of Federal contributions I think you 
are going to have a condition somewhat similar to the unfortunate 
illustration that I used. I just wanted to make that observation. 

General Fleming. Well, if that took place, certainly the F. W. A. 
was at fault. It hasn't taken place in the last 2i/2 years, because I have 
instructed our field people that we are not a selling organization ; we 
are not trying to sell anything to them, to promote improvements; 
that if they want to make improvements they can come to us. 

We would like to educate them to the point where they know there 
are certain funds in case they have a war impact they cannot meet, 
but we don't go out and procure applications where assistance is not 

The Chairman. General, we are very grateful to you for your ap- 
pearance here this morning. 

I might add, we are going to set up a subcommittee to study this 
particular problem and to make recommendations to the full com- 
mittee. We are intensely interested in this subject. We want to work 
out a practical program that will meet the objective. 

Mr. Folsom, I wonder if you have any questions ? 

Mr. FoLsoM. Just one question, Mr. Chairman. 

The plan that General Fleming is recommending is similar to a plan 
we have in New York State under which the State pays half the cost 
of plans and the city the balance. Have you made any estimate as to 
the size fund which will be needed if the Federal Government is going 
to advance h.alf of the costs of planning and specifications? 

General Fleming. Something in the neighborhood of $200,000,000. 

Mr. FoLsoM. Two hundred million dollars ? 

General Fleming. Two hundred millions. 

Mr. FoLsoM. I have heard figures of one hundred million. 

The Chairman. Anything further, Mr. Folsom ? 

Mr. Folsom. No, sir. 

The Chairman. Mr. Johnston, we are glad to have you here this 

Mr. Johnston. Thank you, sir. 

The Chairman. I wish we had time to hear you. 

Mr. Johnston. I have no particular contribution. I think you have 
discussed what was in my mind. 

The Chairman. Thank you very much. 

The committee will go into executive session. 

(Whereupon, at 12 noon, the committee adjourned, and went into 
executive session.) 


TUESDAY, MAY 23, 1944 

House of Representatives, 
Special Committee on Post- War 

Economic Policy and Planning, 

Washington, D. C. 

The special committee met at 10 : 30 a. m., in room 1304, New House 
Office Building, Hon. William M. Colmer (chairman) presiding. 

Present : Representatives Colmer (chairman) , Cooper, Walter, Voor- 
his, Murdock, Lynch. O'Brien, Fish, Reece, Welch, and Wolverton. 

The Chairman. The committee will please come to order. We have 
with us this morning Dr. Bigge of the Social Security Board. 

Doctor Bigge, some complications have arisen : The House is meet- 
ing at 11 o'clock and most of us wilU have to be over there. So I am 
going to suggest, if it meets with your approval and the approval 
of the committee, that you turn your prepared statement over to the 
reporter to become a part of the record, and that we spend the few 
minutes left by permitting any of the members to ask you any ques- 
tions they would like to ask. 

Mr. Bigge. All right, sir. 


Mr. Bigge. I understand the committee is interested in getting the 
Social Security Board's views as to the part which the social-security 
program, and particularly unemployment insurance, can, and probably 
should play, in meeting the conditions which we are likely to face after 
the war. 

The members of the committee are doubtless aware that in its Eighth 
Annual Report the Board has summarized its recommendations with 
reference to the various changes both in the social insurance and the 
public assistance provisions of the Social Security Act which we believe 
are necessary if this system is to make its full contribution in the period 
of readjustment after the war. 

For the information of the committee I am attaching a copy of this 
summary of the Board's recommendations. 

(The summary referred to was marked "Exhibit No. 12" and is 
included in the appendix on p. 480). 

I might say here that the Board believes this is an oppoi'tune time 
to expand and make more adequate the whole social-security program 
and to collect substantial contributions to provide funds with which 
to meet future contingencies. We believe that if this is done the 
social-security program as a whole will provide a systematic method 



for dealing- with many of the human aspects of the demobilization 

Even the existing old-age and survivors' insurance provisions, 
without any change, will enable several hundred thousand workers 
to retire when the war work ends. If coverage were extended so that 
practically all gainfully employed persons were protected under old- 
age and survivors' insurance, a large portion of those who would not 
be able to hold jobs in peacetime industry could get insurance bene- 
fits which w^ould help them get along without other financial 

Unemployment compensation, even without any change, will pro- 
vide substantial income for millions of unemployed workers over 
longer or shorter periods of time. But experience has shown that 
in any period of serious unemployment, the benefits provided by 
existing laws are quite inadequate to meet the need. 

Besides^ in order to get these benefits in any week a person must 
be able to work. If for any reason he is unable to work, he gets no 
benefits. This is inevitable under an unemployment-compensation 

But on any day in the year there are 700,000 to 800,000 persons 
who would otherwise be in the labor force, who have not worked for 
a year or more because they are unable to work. 

A social-security program should provide benefits for a man who 
can't work, as well as for one who can't find work. 

If our social-security system covered practically all the working 
papulation and provided reasonably adequate benefits in case of dis- 
ability, as well as in case of old age or death or unemployment of 
the wage earner, the need for emergency measures would be substan- 
tially reduced, and any additional long-time measures could be better 
adapted to deal with the special problems which would remain. 

While the Board believes, as I indicated before, that an expansion 
of the social-security program generally would be helpful in dealing 
with the post-war situation, it is clear that the chief danger is unem- 
ployment. Consequently, the unemployment-compensation program 
is of special significance, and I should like to discuss this in much 
more detail. 

While this form of aid to the unemployed has certain limitations, 
it also has distinct advantages, especially in such a situation as jve 
shall face when the war ends. 

It is designed particularly to deal with limited periods of unem- 
ployment while workers are shifting from one job to another or 
while the employers are adjusting their operations so they can use 
the workers again. 

Unemployment compensation would be of only limited help in 
dealing with such a widespread and extended depression as we had 
in the 1930's. Additional measures would be necessary to cope with 
such a situation. 

But even here, if we have unemployment compensation which covers 
most of the gainfully employed, and if benefits are reasonably ade- 
quate to provide subsistence during substantial periods of unemploy- 
ment, some of the cunudative effects of depressicm will be avoided. 

So we may expect that there will be less of the long-time unem- 
ployment — which will not be provided for by unemployment 


In the area for which unemployment compensation is intended; 
that is, short-time unemployment, it does have distinct advantages. 
Under such a program the worker knows what he can expect if he is 
out of work for a while. 

He doesn't have to wait for extended investigation ; he doesn't have 
to prove his need as in relief plans; he doesn't have to worry about 
not getting help. 

If he worked a certain amount last year and is able and willing to 
work now, in general he will receive benefits. And the amount he 
gets is generally related to his past wages, so he knows that in advance 

Besides, as soon as a worker loses his job and applies for benefits he 
is required to register at the employment office and the employment 
service will help find him a job if there are any available. 

We have never used the employment service as fully as we might, 
but once the employers of the Nation become familiar with its possi- 
bilities it seems to me the employment service can be of the greatest 
help, not only to the worker but to the employer, and to the community 
as a whole. 

Before the unemployment-compensation system began to operate it 
was mostly the casual worker and the less efficient worker generally 
who used the public-employment office. Consequently industrial em- 
ployers looking for regular help rarely called on the employment office. 

But since unemployment compensation has come into operation 
every worker who wants to draw benefits must register for work, and 
as a result tlie employment office will have api)lications from practi- 
cally all the capable unemployed workers in the community. And the 
offices are doing an increasingly effective job in selecting qualified men 
for any opening an employer may have. 

In the early days of the conversion period the employment offices 
demonstrated their ability to select persons according to almost any 
reasonable job specifications. 

So the unemployment-compensation system, by clearing all unem- 
ployed workers through the employment cffi?e, serves not only the 
worker but also the employer by finding capable help for him if it is 

And it serves the community, too, by bringing men and jobs together 
more promptly and so reducing the total of unemployment at any time. 

I'm not suggesting that unemployment compensation would remove 
or greatly reduce the basic readjustments recpired in the post-war 
period. It has frequently been pointed out that to have reasonably 
full employment in the post-war period we shall need to produce and 
sell 30 to 40 percent more goods than in the best pre-war years. 

To realize the problems involved we need only ask ourselves why we 
did not produce those goods in 1940. It was not because of lack of 
capital; we complained of excess capacity in most fields, and there was 
ample free capital to build new facilities if opportunity presented 
itself. It was not because of scarcity of labor ; there were eight to ten 
million unemployed men eager for jobs. 

The only reason we didn't emplov them was because we did not know 
what to produce ; business was unable to see a market which would take 
the output at a price equal to the cost of producing it. 

That problem will still exist when the war is over. We are using our 
resources now to produce war goods, to be sold to the Government. 


This has obscured the basic difficulty, but has not removed it by any 

The only real solution for that problem is to make such adjustments 
in our basic economic structure that incomes earned in productive 
employment will provide a market for the goods which are produced. 

Higher wage levels in certain areas will make a better market while 
the workers are emjDloyed, but will likewise create new problems of cost 
and price adjustment, especially in lines where standard prices have 
been traditional. 

There will be difficult problems of readjustment to peacetime wages 
and prices even within the normal volume of production, and to absorb 
an additional nine or ten million people will require really super- 
human efforts and will not be achieved in a day, or a month, or a year. 

In fact, as long as we have reasonable freedom of action for the 
employer and freedom of movement for the worker, I dare say we 
shall need all the help we can get from such a device as unemployment 
compensation to take care of people who are unemployed for longer 
or shorter periods while business adjustments are made. 

As you know, under the Social Security Act, the payment of un- 
employment compensation benefits is a State responsibility. The 
Social Security Act makes no provision for such payments. 

If the States should not choose to pass the necessary legislation, the 
people of the State would get no benefit out of the Federal law. 

Before the Social Security Act was passed, many States had studied 
unemployment compensation, but in the main they feared that the 
contributions required under such a system would put their employei"s 
at a competitive disadvantage with employers in other States. So 
only one State, Wisconsin, had actually undertaken an unemployment 
compensation program. 

To eliminate this danger of interstate competition the Social Se- 
curity Act laid a pay-roll tax of 3 percent on all employers of eight 
or more persons in certain fields, throughout the Nation. 

The act then provides further that if a State taxes any of these 
employers for the purpose of providing unemployment compensation 
benefits to workers, the tax which an employer pays to the State may 
be offset against the Federal tax up to 90 percent of the Federal tax. 

So any State can tax these employers as much as 2.7 percent with- 
out putting any additional burden on them. If employers pay this 
tax to the State, they need not pay it to the Federal Government; if 
they do not pay it to the State, they will have to pay it to the Federal 
Government anyway. 

As a result of this stimulus every State promptly passed an un- 
employment compensation law and financed it by taxing these em- 
ployers 2.7 percent of pay rolls. This uniform rate has now been 
varied greatly through special experience rating provisions in many 
State laws. I shall touch upon this point again later. 

The contributions collected are placed in an unemployment trust 
fund to the credit of the particular State and can be drawn out only 
to pay benefits to unemployed workers in that State. 

The States have collected over $7,000,000,000 under their unemploy- 
ment-compensation laws, and in the last 6 years they have paid out 
over $2,000,000,000 to as many as 5,000 000 workers in a single year. 

This has meant a great deal, not only to the workers and their fam- 
ilies, but also in keeping up the business of many communities during 


short sharp periods of unemployment. And the States have on hand 
now in their trust-fund accounts over $5,000,000,000 with which to 
pay benefits to workers who may become unemployed. 

This is more than double the amount spent during the whole period 
since the program first went into effect. At first glance, therefore, it 
would seem that the unemployment compensation system is in excel- 
lent position to carry its share of the burden in the post-war readjust- 

But experience indicates that if we are to depend upon unemploy- 
ment compensation to play a major part in meeting the problems 
of the ])ost-war period it must be made a more effective device than 
it is at present. Much of the financial strength of some of the State 
trust funds at present is due, in large part, of course, to wartime 
employment, but, also, in part to the inadequate benefits paid to 
workers during extended periods of unemployment. 

As early as January 1943 Business Week reported that the Com- 
mittee for Economic Development was of the opinion that if, as 
seems probable, a major interruption of employment is unavoidable 
in certain fields after the war, an advance liberalization of unem- 
ployment compensation laws to provide larger benefits — over, say 
26 weeks instead of 12 weeks — might hasten a self-supporting read- 
justment and avoid a demand for continuing to make useless arma- 
ments as a means of providino; jobs. 

This emphasized two of the major weaknesses of our unemploy- 
ment-compensation program — relatively small benefits and limited 
duration. I should like to add another — limited coverage. The pro- 
gram should reach more people. 

If a large proportion of those who are subjected to the risk of 
unemployment can be assured that in case they lose their jobs they 
will get something like half their ordinary wages, with a reasonable 
minimum and maximum, for, say, 26 weeks, we would have a fairly 
suitable foundation on which to build other policies if these became 

In the matter of coverage, most of the State laws are now more • 
adequate than the Federal act. The Federal Unemployment Tax 
Act covers only employers of eight or more people in 20 weeks in any 

The old-age and survivors-insurance provisions appl}'^ to employers 
of one or more. 

If coverage for unemployment compensation is made the same 
as for old-age and survivors insurance, as has already been done in 
a number of State laws, about 3,000,000 persons would be added under 
the unemployment-compensation program. This need be no great 
administrative burden on small employers, since they are already 
reporting under the old-age program. 

Also, unemployment-compensation protection might well be ex- 
tended to at least certain other groups now altogether excluded, such 
as maritime workers and Federal civilian emploj^ees. 

These two groups total another 3.000,000 persons. While it will 
not be feasible to extend unemployment-compensation protection as 
broadly as the Board has recommended extending old-age and sur- 
vivors insurance, some further extension is certainly desirable. 

With reference to the size of the Aveekly benefit, the Federal act 
sets no standard whatever. That is left entirely to the States. 


The general average benefit was $13.84 a week during 1943. But 
if we go back to 194(), Vv4ien benefits more nearly reflected peacetime 
wages, the average for the country was $10.50, and in 16 States over 
half the payments were under $10 a week. 

That was for total unemployment. If a person has some earnings, 
his benefit is decreased. 

It should be remembered that while we speak of benefits as being, 
roughly, equal to 50 percent of wages, the average benefit of $13.84 for 
1943 is only about one-third the average weekly wage at that time. 
The maximum of $15 to $20 in practically all States automatically 
limits better-paid workers to less than 50 percent of their wages. 

With benefits fixed as a percentage of past wages, the maximum 
might well be raised to $20 or $25 per week. In all, there are 32 States 
which have maximum benefits for workmen's accident compensation 
which are higher than the maximum benefits for unemployment com- 
pensation in these States. 

The maximum is not necessarily related to the general wage level 
of the State, nor to the anticipated load of unemployment, or the 
reserves in the State fund. In many cases the States with high wage 
levels have low maximum benefits, and frequently the States with the 
highest reserves pay the lowest benefits. High reserves are of little 
value if they are built up by keeping benefit payments at an inadequate 

It seems, therefore, that in most States some increase in the maxi- 
mum benefit is desirable to maintain a reasonable relation to previous 
earnings and to provide substantial help to unemployed workers in 
higher wage brackets. 

In considering the adequacy of benefit payments we immediately run 
into a second question — whether the general level of benefits should be 
raised or whether additional benefits should be paid for dependents. 

Initially dependents' allowances were not included under either 
unemployment compensation or old-age benefits. However, in 1939, 
Congress amended the act to take account of dependents and survivors 
■ in old-age and survivors insurance. 

If a retired individual has an aged wife or a child under 18 dependent 
upon him, each dependent gets one-half as much as the worker himself, 
with a maximum which is double the benefit which could be drawn by 
the individual alone. In unemployment compensation the only law 
which recognizes dependents is that of the District of Columbia, where 
$1 a week, with a maximum of $3 additional, may be allowed for 

The maximum payment in any case is still the same, $20, either with 
or without dependents. The Board feels that any additional money 
spent for unemployment benefits would do more good and would meet 
existing need to a greater extent if the increased benefits were related 
to dependents than if distributed as an increase in the general level of 

An even more serious limitation of unemployment compensation 
has been the limited period during which benefits can be drawn. In 
most States the duration is related to the amount of employment or 
of earnings which the worker may have had in the preceding year, or 
in the base year, with a specified maximum duration. 

Discussion of duration is usuall}^ in terms of this maximum rather 
than in terms of what is actually available to the individual who be- 


comes unemployed. In some States some individuals may be entitled 
to benefits for as little as 2 weeks. The maximum period during 
which benefits may be drawn is 16 weeks or less in 29 States. 

In 14 States payments may be made for as long as 20 weeks if the 
worker had sufficient previous employment. But the average period 
for which workers who became unemployed in 1942 were actually 
eligible on the basis of their wage records varied from 10 weeks in 
the State with the shortest period, to 20 weeks in some other States. 

In six States this average period for which workers were eligible 
was less than 11 weeks. 

A further indication of inadequate duration is found in the fact 
that ordinarily a large proportion of claimants are still unemployed 
when their benefit rights are exhausted. In the rather good year 
1941. for the country as a whole, one-half of all claimants were still 
unemployed when they had exhausted their benefit rights. In three 
States the proportion Avas more than 60 percent. 

Obviously these claimants would be more in need of help at the 
end of 8, or 10, or 12 weeks of unemployment than when they first 
lost their jobs. Probably no change in the program would do more 
good than an extension of duration. 

The Committee for Economic Development has mentioned 26 weeks, 
and this period would doubtless meet the need in the large majority 
of cases. 

Another change which would seem to be desirable would be to 
pay benefits for the same length of time to all eligible workers, re- 
gardless of differences in previous employment or earnings. 

At present, in some States, after a worker has filed a claim and 
served his waiting period of 1 or 2 weeks he may be entitled to bene- 
fits for only 2 or 3 weeks. It seems hardl}^ worth while to go through 
the work involved to provide protection for so short a time. Fifteen 
States already pay benefits for the same length of time to all who 
continue eligible, without reference to past employment. This uni- 
form duration varies from 14 weeks in some States to as much as 
20 weeks in others — about the same as the maximum in other States. 

To indicate the significance of this uniform duration provision it 
is worth noting that in States with uniform duration claimants drew 
benefits for an average of 12.2 weeks, whereas, in other States, during 
the same years, duration averaged only 8.0 weeks. 

In other words, providing the sam.e maximum for all eligible claim- 
ants increased the average period of benefit payments by 60 percent. 
Of course, such a program will cost somewhat more than one provid- 
ing more limited benefits, but the increase in cost will be relatively 
small compared with the increased protection afforded. 

If all who are eligible could draw benefits for as much as 26 weeks, 
if they are unemployed that long, unemployment compensation would 
be a much more effective device for dealing with unemployment. 

As a general indication of the limitations on benefit payments under 
existing laws I might point out that one eminent economist has called 
attention to the fact that in 1940 when $518,000,000 was paid out in 
unemployment benefits the wage loss through unemployment was about 

Unemployment benefits, therefore, made up about 7 percent of the 
wages lost through unemployment. An economist employed by the 
Committee for Economic Development has estimated that, if there is 


no chano-e in present provisions of unemployment-compensation laws, 
benefits would not average as much as 15 percent of the wages which 
workers now in covered employment would lose during the transition 
period. He goes on to say that if we consider the whole working popu- 
lation, unemployment benefits will not make up 10 percent of the wages 
lost through unemployment during that period. 

The Bureau of Business Research of Ohio State University, apply- 
ing the Ohio law of 1941 to a sample of Ohio forms, concluded that if 
the law liad been in effect over the period from 1928 to 1932, benefits 
would have replaced only 10.4 percent of the vrages lost tlirough un- 
employment by workers who might have met the eligibility conditions. 

While such relations exist between wages lost and benefits paid, it 
seems to me we need not fear that unemployment compensation will 
induce loafing. 

If a reasonable relationship is maintained between the wages which 
an individual worker may expect and the benefits to which he is 
entitled under the law, we can safely relax other conditions, such as 
maximum benefits and maximum duration so that unemployment 
compensation can play a larger part in making up for lost wages. 

The payment of adequate benefits is important to employers and to 
the community generally as well as to workers. One of the benefits 
to be derived from keeping up the income of unemployed workers is 
that the}' can continue to buy at least a minimum of the ordinary ne- 
cessities of life. 

This will serve to support the market for such goods and enable 
employers to continue production, thus avoiding the cumulative effect 
of sudden mass unemployment which completely cuts off buying power. 

The stabilizing influence of such assured income is one of its im- 
portant contributions to better economic conditions generally. 

In the matter of benefits, as to minimum and maximum, and also 
as to duration, the State laws have been slightly liberalized in the past 
few years. Some States have made very substantial improvements, 
others little or none, but in general there has been some liberalization. 
But many workers, otherwise eligible in all other respects, are being 
denied benefits under the disqualification provisions of the laws. 

The application of these provisions is becoming more and more 
illiberal and restrictive. Here, as in the case of benefits, the States are 
free to introduce any provisions they choose — as long as they avoid 
certain disqualifications which are prohibited by the Federal act. 

Under the Federal act a worker may not be disqualified for refusing 
to accept a job on which there is a strike, or if wages, hours, and other 
working conditions are less satisfactory than for other similar work 
in the same community, or if he would be required to join a company 
union or resign from a bona fide labor organization. 

But all unemployment compensation laws disqualify for various 
other acts, such as voluntary leaving without good cause, refusal of 
suitable work, misconduct, going on strike, and so on. Such dis- 
qualifications are essential if payments are to be made only for in- 
vohmtar}^ unemployment. 

But it is clear, too. that, if otherwise eligible workers are disquali- 
fied for extended periods, or worse still, if benefit rights are canceled 
entirely so that a worker who leaves a job voluntarily, even with per- 
fectly good reasons, or refuses another job, regardless of his reasons 
for doing so, can never get benefits on the basis of past employment, 


then workers are being deprived of protection just as effectively as if 
benefits were slashed, or duration reduced, or conditions of eligibility 
made more stringent. 

It is true that State laws commonly provide that the disqualification 
may be avoided if the worker shows good cause for leaving or for 
refusing a job. But, more and more, State laws are requiring that the 
good cause must be "attributable to the employer" or related to the 

Yet there are often circumstances not related to the employvr in 
which a worker Avould be justified in leaving or refusing a job. 

While the Social Security Board has no authority to prescribe 
standards in this field, it has consistently suggested to the State 
agencies that "good cause" should include personal situations as well 
as conditions related to the employment, and that in any case discuab 
ification should take the form of postponing benefits for a specified 
time, rather than canceling benefit rights entirely. 

A few illustrations will show what is happening. In one case a 
woman worker left her job to look after a child who was seriously ill. 
Certainly that was justified. She was not available for work, so of 
course she would not draw benefits. When the child was well enough 
she wanted to return to work, but her job had been filled. 

She went to the employment office and registered for work and filed 
a claim for benefits. It was some time before she got another job. 
Obviously slie was available for work, but because she had left her 
pervious job voluntarily without any fault of the employer, regardless 
of how good her reasons may have been, she was denied benefits. 

And not only that; her benefit rights were canceled, so that if for 
any reason she was laid off at any time within the next year she could 
get no benefits on the basis of her previous employment. It seems to 
us there is no justification for such provisions in a system of social 

Under an experience-rating program it may be that such benefits 
should not be charged to the employer's account, but this is an entirely 
different matter. It should not mean that the worker is denied benefits. 

In another case a man and his wife were both working in noncle- 
fense jobs. His shop closed because of lack of materials, and he was 
offered another job in a defense industry some distance away. He had 
to move to the new location and his wife went with him. 

She quit her job, registered for work in the new community, and 
filed a claim for benefits while waiting for another job. She was dis- 
qualified for a specified period because she left voluntarily, and bene- 
fit rights were canceled for this period. 

In addition, she was offered her old job back, and although taking 
it would have meant breaking up the home, the work was held suit- 
able and her remaining benefit rights were canceled so she had to begin 
all over a.qfain, as if she had never been employed before. Such a pro- 
vision defeats the purpose of unemployment compensation. 

It is true, the employer was not at fault, but neither was she. This 
is the kind of situation which certainly should be covered by any un- 
employment compensation program. 

Wlien a worker leaves a job voluntarily, for personal reasons, it has 
become common practice in some States to disqualify him for bene- 
fits for a limited period, and if he remains unemployed and later 
claims benefits, to offer him the same job he quit earlier and disqualify 


him again and cancel his benefit rights entirely if he refuses to go back 
to that job. This is clearly penalizing a man twice for being unwilling 
to work on a given job. 

These illustrations could be multiplied many times in State after 
State, and this practice of depriving workers of benefits by means 
of disqualifications is spreading rapidly. 

Initially only 2 States qualified the "good cause" proviso by re- 
quiring the cause to be attributable to the employer ; by 1940 there were 
4; and now tliere are 19 State laws which have such provisions. 

The cancelation of benefit rights was initially provided for in rela- 
tively few laws. Now 20 States cancel benefit in whole or in part for 
voluntary leaving and 21 for refusing suitable work. 

It appears that this trend toward more numerous and more severe 
disqualifications, and the tendency to require cause for leaving to be 
attributable to the employer, are associated with increasing interest 
in what is known as experience rating. 

Experience rating is a method of adjusting an employer's contribu- 
tion rate according to benefits paid to unemployed workers who were 
employed by him during a specified period. Some 43 States now have 
such provisions in their laws. 

The theory of experience rating is that it will encourage employers 
to stabilize their employment and thus prevent unemployment. 

But there is a basic inconsistency between the assumptions under- 
lying experience rating as it is working out, and the principles of 
social insurance. A social-insurance program is a joint cooperative 
undertaking under which workers and employers, generally, cooper- 
ate to protect the individual against certain risks which are inherent 
in the industrial process. No one, I think, can deny that unemploy- 
ment is caused primarily by general industrial conditions than by 
any particular employer's action. 

Yet experience rating rests, in the main, on the assumption that 
individual employers can control the risk of unemployment. This as- 
sumption finds expression to some extent, too, in the tax provisions of 
the Social Security Act, which put the whole contribution for unem- 
ployment on the employer, instead of sharing it between tlie employer 
and the employee as in the case of old-age and survivors insurance. 

If the costs were shared, the social-insurance aspects of the program 
would be clearer and there would be less danger of losing sight of the 
workers' needs. 

One of the worst features of experience rating is that in practice it 
reintroduces the element of interstate competition which the Federal 
Jaw was intended to eliminate. If one State law^ has provisions under 
which many employers get substantially reduced rates, or perhaps pay 
no tax at all, regardless of how this may be achieved, the legislatures 
of neighboring States will be under almost irresistible pressure to 
introduce similar provisions in their laws so that their employers may 
get equally low rates. 

If this competition were actually to result in more regular employ- 
ment so that unemployment would be prevented certainly no harm 
would be done. The provision of work is better than the payment of 

But it is obvious that in many cases it is easier to avoid paying bene- 
fits to unemployed workers — through more numerous and more severe 


disqualifications, tliroiigh cancelation of benefit rights, and so on — 
than it is to prevent unemployment. 

Experience suggests that in part at least the unduly harsh disquali- 
fication provisions mentioned earlier grow out of a desire to secure 
reduced contribution rates by limiting payments which may be charged 
to an employer's account to those for which the employer may be con- 
sidered responsible, regardless of whether or not the worker might 
reasonably be entitled to benefits. 

It is very significant that of the States which do not have experience 
rating, only one has this kind of disqualifications, especially the man- 
datory cancelation of benefit rights and the double penalties, whereas 
in States which have reduced rates through experience rating there 
has been a rapid spread of such disqualifications. 

One State agency recently reported to the governor that more than 
half the workers separated in the State had been given notices of 
separation which contained language that seemed to be intended to 
disqualify the workers if they later ajiply for benefits. 

In another State it is reported that an employer recently refused 
to give his workers a certificate of availability unless they promised 
they would not claim benefits during the next 15 months — during 
which such benefits might be charged to the employer's account. 

If one accepts the underlying philosophy that benefits should be 
paid only when the individual employer is at fault, some of these dis- 
qualifications of course would be justified, but even then the cancela- 
tion-of-benefit rights would ordinarily be inexcusable. 

And under any unemployment compensation system worthy of the 
name workers should be protected against involuntary unemploy- 
ment regardless of who else may be at fault. 

Ordinarily it is not the fault of any individual or of any group. 
If experience rating is to be defensible, the method of computing rates 
should be such that the employer's interest in reduced contributions 
does not serve to defeat the major purpose of the program. 

The experience-rating provisions are inconsistent, also, in tliat 
they tend to reduce contribution rates in good times when it is easier 
to ])ay, and increase than when business goes bad. 

This anomaly may be minimized by relating rates to average charges 
over a number of years, but the tendency is there nevertheless. It 
comes out very clearly at the present time. 

During the year 1943 there were 25 States which collected average 
eontributions of 2 percent or less, instead of the standard 2.7 percent, 
and in a number of States many employers in war industries were 
paying less than 1.5 percent and in 5 States some employers pay 
nothing at all. 

]Many Stale agencies have seen the incongruity of charging such 
low rates on wartime employment, when it is obvious that the ab- 
sence of unemployment is in no sense due to the employers' efforts 
to stabilize, and equally obvious that workers are building up credits 
which may result in huge benefit payments in the years ahead. 

A numJber of States have adopted special provisions to maintain 
higher rates on wartime employment. But the same anomaly is 
present in every period of business activity; and just as the individual 
employer is not responsible for full employment now, so he will not be 
responsible for unemployment later. 


If rates are to be varied nt all^ and the business community is to 
get maximum benefit from the program, then rates generally should 
go up when business is good and down when it is bad. 

Another weakness of the Federal-State program, which has become 
apparent, is the iailure to develop any procedures for distributing over 
the country as a whole a part of the excessive burden which would fall 
on certain States in any period of mass unemployment. 

Wiiile this is not serious at the moment, tor the long run it is the 
greatest weakness of o.ur present unemployment-compensation sys- 
tem. We should not let the abnormal conditions of today blot out 
the experience of 1938 and 1939. 

It was quite evident then that the burden of unemployment would 
ordinarily be many times as heavy in some States as in others, and 
that the full, normal contribution rate of 2.7 percent would not be 
sufficient to maintain solvency in some States even with meager bene- 
fits, whereas other States could support liberal benefits with much 
lower contributions. 

Even though conditions were continuously improving after benefit 
payments began, some States found it necessary to draw heavily 
upon their reserves. 

Even last year several States reported that 2 years, or even a single 
year, of serious unemployment might require more funds than they 
had on hand. 

In part, of course, this is a problem of financing which must be 
faced by any such program ; but it is made more difficult under our 
system, in w^hich reserves are segregated in separate State funds. 
While some States face this possibility of shortage of funds, others 
have accumulated in their reserves an amount equal to 10 or 15 and 
even 20 times the highest amount paid out as benefits in any 1 year. 
Unemplo^^ment is not evenly distributed, and unemployment in any 
State is not caused by conditions within the control of that State, to 
say nothing of control by individual employers. 

Benefits in Michigan in the last half of 1938 were three times the 
contributions collected, while in the District of Columbia they were 
only a fraction of contributions. This was not because employers in 
Michigan were less concerned about unemployment or did less to 
achieve regular employment than did the employers in the District; 
it was simply because people all over the Nation — or all over the 
world — bought automobiles spasmodically, or stopped buying for a 
while, whereas a steady stream of purchasing power poured into the 
District to keep workers regularlj^ employed. 

It seems to us that if we are to have a sound and effective unem- 
ployment-compensation program we must devise some means of 
spreading the funds more evenly over the Nation in case of need, so 
that workers will have reasonably comparable protection regardless 
of State boundaries, and so that there will be no imminent danger 
of insolvency of certain State funds while other State funds are 
overflowing — or while employers in other States pay very small con- 
tributions, or none at all. 

At the present time there is a grand total of over $5,000,000,000 in 
the reserve funds of the various States. These reserves will prob- 
ably be considerably greater before the end of the war. Even the 
$5,000,000,000 would be sufficient to pay benefifs of $20 a week for 
20 weeks to 12,500,000 unemployed. 


However, it must be emphasized again that this $5,000,000,000 cannot 
be considered as a pool from which benefits could be paid to the work- 
ers actually unemployed if we had as many as 12,500,COO men out of 

Such unemployment would fall largely in a limited number of States. 
The probable drain on the State funds would vary widely between the 
several States. Calculations which have been made, based on various 
economic assumptions, indicate that in a period of mass unemploy- 
ment some State funds might become insolvent while as much as one- 
half or two-thirds of the total reserves were still unused. 

The largest reserves are frequently in the States paying the least 
adequate benefits, so the reserves are of no significance in providing 
security against unemployment even to the workers within that State. 
Thus, With the existing provisions, a large part of the present total 
reserves in effect will be sterilized and w^ill not be actually available to 
meet the unemployment problem when it occurs. 

I said earlier that the failure to provide some sharing of the burden 
of unemployment on a Nation-wide basis, some pooling of the funds 
collected for unemployment compensation, is the most serious weak- 
ness of our existing Federal-State system. 

As you know, the Social Security Board has recommended to the 
Congress that administration of unemployment insurance be made a 
Federal responsibility in order to gear unemployment compensation 
effectively into a comprehensive national system of social security. 
In its recent eighth annual report to the Congress the Board stated 
as follows : 

Only Natlou-wide measures to counter unemployment can be effective when 
the need arises for swift and concerted action to harmonize insurance activities, 
with national policy during the change-over of our economic system to peace. 
At that time, any need for quick and unforeseen changes obviously can be met 
far more effectively by Nation-wide policy and by a single act of Congress than 
through the action of 51 administrative agencies and the necessarily cumber- 
some process of amending as many separate laws. 

Even if the special stresses of post-war years were not impending, the Fed« 
eral-State basis of the unemployment compensation program would have merited 
reconsideration and revision at this time. The actual course of its operation 
during a relatively favorable period of years has given no indication, in the 
opinion of the Board, that it possesses the advantages which it was hoped thus 
to achieve ; on the contrary, experience has marshaled impressive evidence of its 
flaws and shortcomings. Incorporation of unemployment insurance in a unified 
national system of social insurance would result, the Board believes, in a pro- 
gram far safer, stronger, and more nearly adequate from the standpoint of un- 
employed workers and the Nation, and would permit more economical and 
effective metiiods of administration. 

That is the Board's basic recommendation. 

However, we realize there is much opposition to establishing un- 
employment compensation as a Federal program. In the absence of 
such action much of the objective could be achieved by appropriate 
modifications of the existing system without changing its basic Fed- 
eral-State character. 

In general, three changes are necessary to make the program more 
effective — extension of coverage, more adequate benefits and longer 
duration, and some device for g^iving Federal assistance to those 
States which have exceptionally heavy unemployment. 

These matters can be approached either through the present tax 
offset provisions or by putting the unemployment compensation pro- 


gram on a grant-in-aid basis something like the public-assistance sys- i 
tem is at present. j 

If we use the tax offset approach the first step would be to extend J 
the provisions of the Federal Unemployment Tax Act to all employ- j 
ment which the Congress wished to see covered by the State laws. 
If this were done it is safe to say that practically all States would ; 
extend coverage as soon as practicable. i 

Then in order to assure adequate benefits it could be provided that j 
employers would get their offset against the Federal tax only if State ! 
laws provided benefits substantially equal to certain minimum stand- j 
ards prescribed in the Federal legislation. 

These standards need not be in any great detail. If it were pro- 
vided that maximum benefits should not be less than $25 per week, 
and duration not less than 26 weeks, and that disqualification should 
not extend to the cancelation of previously accunuilated benefit rights, 
the workers' protection would be increased tremendously. I 

Since the payment of such benefits might cost more than the stand- ' 
ard 2.7 percent of pay rolls in a number of States provision would I 
need to be made for the Federal Government to help these States j 
meet the additional costs. ! 

If the tax offset provisions were changed so that the States would '\ 
collect a somevv'hat smaller portion of the over-all o-percent tax than 
they do at present, and the Federal Government a somewhat larger 
portion, the Federal Government would accumulate a substantial j 
fund with which to assist those States whose costs run above, say, 2 , 
percent of pay rolls. ] 

The exact division of contributions between the Federal Govern- | 
ment and the States woidd depend upon the extent to which it was j 
deemed desirable to spread the costs of unemployment compensation. 

If the Federal Government undertook to meet the full cost above 
a specified level in any year the States could adjust their employers' i 
rates to meet the costs under ordinary conditions, leaving to the Fed- ' 
eral Government the problem of dealing with extended periods of 
mass unemployment. i 

If such arrangements were made the States could be left free to ' 
operate their program within the limits set. They could tax in any ■; 
year as much or as little as they liked. They could vary contribution j 
rates in any way they saw fit. 

As long as the benefits paid were at least up to the prescribed i 
minimum the employers of the State could be certified for their tax j 
offset. j 

Under the grant-in-aid approach the Federal unemplojanent tax j 
should probably be levied on the same employers but it would be ( 
limited to the amount necessary to meet the Federal portion of the 
burden. ( 

There woidd be no need for any offset provision. The Federal 
Government would levy and collect whatever contributions were 
considered necessary for its purpose, and the States would collect 
whatever they found necessary to support their portion of the bene- 
fits provided in the State law. 

Since there would be no tax-offset provision the State would be 
free to secure its funds from any source. The Social Security Board 
would be relieved of all responsibility in connection with experience 
rating; the States could operate this in any way the}^ chose. 


In order to assure workers reasonable protection it would still be 
desirable to require minimum benefit provisions as a condition of 
Federal participation. The portion of the costs paid from Federal 
funds would again depend upon the extent to which it was desired 
to spread the costs oA'er the Nation as a whole. 

Just by way of illustration, if costs were shared equally up to 2 
percent of pay rolls as reported under the Unemployment Tax Act, 
and the Federal Government met three-fourths of the cost above this 
level, every Stale could assure its workers adequate unemployment 
benefits without being called upon to collect unduly heavy contribu- 
tions or taxes for this purpose. 

The changes which I have outlined relate to permanent improve- 
ments in our unemployment-compensation program rather than to 
temporary expedients for dealing with emergencj'^ conditions. 

It may be necessary to adopt measures in addition to the provi- 
sion of cash benefits under unemployment-compensation programs in 
order to deal with the post-war period, and if this becomes neces- 
sary certainly it is desirable to plan such measures in advance. How- 
ever, the Board believes the first step in dealing with unemployment 
might well be a strengthening of the unemployment-compensation 
program so that this system could play its proper role in the recon- 
version period. 

If there is a fairly adequate and unifonn system in effect through- 
out the Xation it will be much easier to fit into this such additional 
provisions as training and work programs and the like if they become 

There has been considerable discussion recently of the desirability 
of having the Federal Government supplement benefits paid under 
the State laws during the emergency pei'iod of readjustment. 

In many respects this would be entirely appropriate, since the unem- 
ployment at that time will be related to demobilization of the armed 
forces and of war industry. 

On the other hand, if this is to be done, it would be highly desirable 
that States adjust their programs to take on a more or less uniform 
portion of the load. 

Otherwise the States which are regularly doing a good job, providing 
fairly adequate protection, would get relatively little help from the 
Federal Government, and the States which have the most inadequate 
programs would ^et much Federal money. It seems to us that States 
might well be expected, a.s a condition of getting Federal supplemen- 
tation, to bring their benefit provision up to some reasonable minimum 

Much of our thinking concerning unemployment compensation will 
undoubtedly be affected by tlie role we expect it to play in the post-war 
years and in the longer future. 

If we think of it only as a sort of incentive taxation designed to 
stimulate the individual employer to do what he can to regularize his 
own operations, then the Aveaknesses of the present system will not 
appear serious. The basic problems of social insurance will not loom 
lai-ge because such a program is not fundamentally social insurance. 

On the other hand, if we are interested in making the program a 
really effective first line of defense against unem})loynient — providing 
workers with a minimum income during substantial periods of involun 

00579— 44— pt. 2 5 


tary unemployment and thus, in the words of the Committee for Eco- 
nomic Development, facilitating "a self -supporting readjustment" of 
private enterprise without the necessity for more direct interference 
on the part of government — then it seems that we should give our 
best thought to removing some of the weaknesses of our present pro- 
gram which have been mentioned. 

Tlie Board has made extensive studies in various parts of this field 
and will be glad to provide the committee with any additional material 
or any technical information which the conmiittee believes would be 
helpful in giving further consideration to this matter. 

The Chairman. Mr. Cooper, you are somewhat of an authority on 
this subject. Suppose you start the questioning. 

Mr. Cooper. Mr. Chairman. 

Will you just give us a brief outline, Mr. Bigge, as to what the 
particular points are that you stress in your statement? Would it be 
convenient to do that ? 

Mr. Bigge. Yes; I think that could be done. I make a very brief 
statement about the part that social security could play generally in 
meeting the post-war problems if it were extended to cover the groups 
not now covered, and then, too, I call attention to the fact that as it 
stands now if a man is unemployed and able to work he gets the benefits, 
but if he is unable to VNork he cannot get any benefits, and we think 
the social-security program might logically provide benefits for a man 
who is unable to work, as \tell as a man who is unable to find work. 

We think that would be an important addition. But most of the 
statement that I have prepared deals with unemployment insurance 
because we are thinking of the problem from the view of mass unem- 

Ihere we suggest that if any Federal action is necessary it seems 
reasonable to condition that upon the provision, by the States, under 
their unemployment-insurance laws, of reasonably adequate benefits, 
and then, if additional unemployment remains uncompensated, then 
the Federal Government might logically assist in taking care of that 

Mr. Cooper. Well, does your statement deal principally with title III 
of the Social Security Act ? 

Mr. BiGGE. Yes, sir. 

Mr. Cooper. Unemployment insurance? 

Mr. Bigge. UnempJoynient insurance. 

Mr. Cooper. And to wliat extent do you find the present provisions 
of State laws might in some way have a bearing on the question of the 
Federal Government dealing with unemployment insurance? 

Mr. I^igge. The chief difficulty as we see it with the present benefit 
payment provisions is that the benefit itself is rather inadequate in 
many cases, and the duration is much too short. 

Usually, when we talk about duration we say in a given State bene- 
fits are provided up to 16 weeks. 

But that is a maximum. 

Actually, people who become eligible may draw for only 2 or 3 weeks, 
and on the average it is only about 11 weeks. 

Mr. Cooper. Is that because of provisions in the State laws? 

]SIr. Bigge. In the State laws. 


Mr. Cooper, As I see it then, from your statement only one or two 
things could be done to meet that situation. We would have to try to 
secure a change in State laws. 

Mr. BiGGE. Yes, sir. 

Mr. Cooper. And tlie other would be to completely federalize un- 
employment insurance. 

Mr. BiGGE. I have not dealt with the second except to include a para- 
graph or two from the Board's eighth annual report, and the remain- 
der of the discussion is devoted to how the Federal-State system might 
be modified to deal witli the problem without federalizing the system. 

Mr. Cooper. That would require some changes in existing State laws. 

Mr. BiGGE. Yes, sir. 

Mr. Cooper. I see. Now, has the Social Security Board given con- 
sideration to any changes in the social security program that may be 
necessary with respect to title II, the so-called old-age unit — old age 
and survivors benefits ? 

Mr. BiGGE. We tliink one important change would be to take care 
of the returning servicemen or the men who are in the service so they 
will get credit for the time they are in the service rather than have 
that time lapse. 

Many of the men who have gone in the service who were insured 
when they left have lost that insurance because they haven't been in 
covered employment since the}^ went in. 

Mr. Cooper. Have you given consideration to the extent that the 
so-called G. I. bill recently passed b}^ the House might help along that 
line ? 

Mr. BiGGE. If I remember correctly, the G. I. bill does not deal with 
that particular phase of the problem. I think that is omitted, if I re- 
member correctly. We think it might very well be put in there or 
somewhere else. 

It is a really pressing problem because some of the boys have come 
back and some of them have died since they came back, from natural 
causes, and their families are not able to collect benefits because they 
lost the insurance benefits while they were away, 

Mr. Cooper. With respect to title II some of the changes will have 
to be made to take care of servicemen for the time they have spent in 
the service. 

Mr. BiGGE. Correct. 

Mr. Cooper. To what extent do you think some changes may have 
to be made with respect to workers in war plants ? 

Mr. BiGGE. We think that is important, too, in the arsenals and so 
on particularly. If they are in privately owned plants they are cov- 
ered, but insofar as they work for the Government — I believe some- 
thing like half a million people are now working in Government plants 
of one kind or another — they are not getting protection. They come 
from a privately owned plant to the Government plant, doing the 
same kind of work, but they lose the protection, too. 

Mr. Cooper. Then I would like to know what j^ou think about an- 
other phase of the matter. There are no doubt a great many people, 
probably thousands of people, who have come from uncovered employ- 
ment into covered employment. 

Mr. Bigoe. Yes. 


Mr. Cooper. They weren't building up any benefits while they were 
in uncovered employment but for such time as they may be in covered 
employment they will be building up some benefits. 

Mr. BiGGE. That's right. 

Mr. Cooper. That might mean then that, for a year or 2 years or 
such time as they are in covered employment, they will build up bene- 
fits ; but for that previous employment which was not covered they have 
not built up any benefits; then, if they should go out of covered em- 
ployment at the end of the war, they would have only that small seg- 
ment of the time that they have spent in employment that is covered 
by title II of the Social Security Act. 

Mr. BiGOE. That's right. 

Mr. Cooper. Have you given some consideration to that matter ? 

Mr. BiGGE. It is included in the general problem of the shifting of 
labor forces from the covered to the noncovered employments. It 
stands out more now than ordinarily, but it has always been true, and 
we think the real solution is to extend coverage to these other fields. 

Mr. Cooper. I know, but assuming that might not be done: The 
Social Security Board has been recommending for years the extension 
of coverage protecting the new groups that are not now covered, agri- 
cultural labor and domestic labor and casual employees. 

Mr. BiGGE. Yes. 

Mr. Cooper. But so far they have not been covered under the Social 
Security program. Now, then, in securing information, if it should 
develop that they are still not covered, is there any way to deal with 
this problem in your opinion with respect to the large number of people 
who have been brought under covered employment who have not pre- 
viously been under it and who probably will go out of covered employ- 
ment after the war is over? 

Mr. BiGGE. I think not. 

Mr. Cooper. You haven't any suggestions or recommendations along 
that line? 

Mr. BiGGE. No, sir. Many of them wouldn't have acquired insur- 
ance, they wouldn't have been in long enough — certainly not fully in- 
sured and not currently insured. They wouldn't be in for six quar- 
ters. I wouldn't see any way that could be done. If the boy goes back 
to the farm and farm work isn't covered there isn't much more occa- 
sion for keeping him on the rolls in the old-age and survivors insurance 
than there is in putting another farm boy on the roll. 

This boy went into employment to get good wages; he got those 
good wages and he made his pay-roll contributions, and that stays on 
the records. If he goes back into a factory it counts; if he doesn't go 
back it doesn't count. 

We don't think there is any way of handling that particular prob- 

Mr. Cooper. Well, doesn't it mean then if a man has spent his life 
up to the war in uncovered employment and then puts in 2 or 3 or 4 
years, whatever the time may be, in covered employment, then goes 
out to uncovered employment and never returns to it- 

Mr. BiGGE. Yes. 

Mr. Cooper. He would have had that part of his pay deducted ? 

Mr. BiGGE. That's right. 

Mr. Cooper. During the time he is in covered employment. And 
he never received any benefit from it. 


Mr. BiGGE. That's right. But there are millions of people who do 
that same thing. This is just a little aggravation of a continuing 

Mr. Cooper. In other words, the situation would continue as it has 
existed in the past, except that it is accentuated some by the war. 

Mr. BiGGE. That's right. By the labor turn-over, the shifting. 

Mr. Cooper. That is all. 

The Chairman. Doctor, I don't want to take up a great deal of time 
but, as Mr. Cooper has suggested, your Board has been recommending 
for some time that these additional fields be covered. 

I am just wondering about the practicality of that. You evidently 
have given a lot of thought to it. Do you think it is practical to go 
into the field of domestic workers and farm labor and similar places? 

Mr. BiGGE. Yes ; we tliink it is. And we feel the farmer, as well as 
the farm laborer, should be brought in, particularly in the field of farm 
work. A man is part of the time a farm operator and part of the time 
a farm worker for his neighbor, and we think both types of work 
should be covered, the farmer and the farm worker. 

The Chairman. Time won't permit a discussion of that. I am sure 
that has bothered some of us. 

Mr. AVelch. Doctor, have you a list of the States that provide un- 
employment insurance and the number of weeks provided by each 
Stnte; also the amount paid weekly as allowance? 

Mr. Bigge. Yes. That would be in terms of minimum and maxi- 
mum and average, because it varies according to the amount of earn- 
ings in the preceding years ; but we can furnish such a list. 

Mr. AVelch. Will you provide it for the record? 

Mr. Bigge. Yes, indeed. 

Mr. Welch. That is all. 

The Chairman. Mr. Voorhis. 

Mr. VooRHis. Not at the moment. 

The Chairman. Mr. Murdock? 

^Ir. Murdock. We have had testimony to the effect that there is 
bound to be a period of hesitancy the moment the armistice is signed 
or tlie guns cease firing; but we are not quite sure how long that 
period of hesitancy will be. Then, of course, we expect a rise in pro- 
duction again to a fairly high level. 

Mr. Bigge. Yes. 

Mr. MuRDCCK. Now, the question is. How long will that period of 
hesitancy be, and what about those who are thrown out of employ- 
ment? Will social security last long enough for a short period of 
hesitancy and furnish relief at that time? 

Mr. Bigge. We have unemployment insurance, but in many cases it 
won't. That is why we think the duration of benefits, the possible 
duration, should be extended. 

The average duration for 1942, I think it was, was only 11 weeks. 
The maximum was anywhere from 15 to 20 weeks, but the average 
was only 11. 

That would be higher now, because earnings have been higher, and 
it is usually related to past earnings, so that more would get the maxi- 
mum ; but even so, we think that might well be extended to 26 weeks, 
and then it would cover such a period as you suggest. 

ISIr. Murdock. But according to your answer to Congressman 
Cooper, that would depend upon changes in State law. 


Mr. BiGGE. That's right. 

Mr. MuRDOCK. How do you feel about federalizing the entire 
system ? 

Mr. BiGGE. Well, we have given a great deal of thought to that, and 
as I say, I have attached here a summary of the Board's recommenda- 
tions. We think that is the simplest approach; recognizing the fact 
that administrative problems would be the same, but at least you 
would get a fairly uniform base on which to build ; people throughout 
the country would be treated the same; and more than that — the 
money collected for this purpose in the form of pay-roll contributions 
could be used wherever the unemployment happens to be. 

As it is now, one economist has pointed out that from one-half to 
two-thirds of the funds which have been collected cannot be used be- 
cause the unemployment in the States, where that particular money is 
will not be great enough to use it. On the other hand, other States 
may go bankrupt at the same time because they haven't been able to 
collect enough. 

If it were a single national pool, those two aspects of the problem 
would be much simpler. 

Mr. MuRDOCK. Yes, sir. 

Mr. BiGGE. But in my testimony I have dealt almost exclusively with 
changes in the States, because of the opposition that would be en- 
countered by any proposal to federalize. 

Mr. MuHDOCK. I believe that Mr. Wilson, of General Motors, testi- 
fied that in his judgment that period of hesitancy would be pretty 

Mr. BiGGE. Yes. 

Mr. MuRDocK. A matter of weeks rather than months. 

Mr. BiGGE. Yes. 

Mr. MuRDOCK. I asked him that question and I think that was his 

Mr. BiGGE. Yes. 

Mr. MuRDOCK. And, as I remember it, he thought that laborers tem- 
porarily throw]! out of employment, if they knew they were going to 
have a job waiting them when retooling and adjustments had been 
made, would not suffer on that account. And besides they would have 
their social security to fall back on. 

Mr. BiGGE. Yes. 

Mr. MuRDGCK. I also had the thought in mind that the chairman 
evidently has when he speaks about the feasibility of applying the 
benefits of social security to farm, domestic, and casual employees. 

But we must not go into that. 

There is one thing I would like to be clear on and I haven't given 
enough study to the whole problem of social security: What is the 
present law regarding the small employer? 

I have had many small businessmen say "I am contributing now to 
social security for my small labor force but there is none for myself." 

Has that been remedied ? 

Mr. BiGGE. No; we have recommended that all self-employed people 
be brought in on the same basis as employees, but no self-employed 
person can come under now. 

Mr. MuRDOCK. Well, that doesn't have an exact bearing on our post- 
war problem but I think it is a matter that ought to be corrected. 


because I have seen evidence of considerable injustice there to the 
small employer. 

JNJr. BiGGE. Yes; may I add, that applies to old-age and survivor 
benefits, of course, and not in unemployment benefits. 

We see no way that unemployment benefits can be paid to the self- 
employed person. 

JMr. JMuRDOCK. In other words, it applies to title II. 

Mr. BiGGE. Title II, right. 

Mr. jNIurdock. I believe that is all, Mr. Chairman. 

The Chairman. Mr. Welch. 

Mr. Welch. Doctor, it seems to me the questions j'ou were presenting 
to the committee were largely questions that related to social security 
in its broader phase. What you are recommending to the committee, 
does it liave any particular bearing upon the post-war problem? 

Mr. BiGGE. In two ways 

Mr. Welch. I do not Avish to infer that I am not sympathetic to the 
broadening of it ; but I am just trying to discover how far the sugges- 
tions which you are making come under the supervision of this par- 
ticular committee with its particular problem. 

Mr. BiGGE. Yes. I think in two ways it applies to that period. 

I think if old age and survivors insurance were extended to a larger 
portion, to all the employee population, it would to some extent take 
out of the labor force, and remove as a problem, many of the people 
that will be too old and not able to hold jobs in peacetime conditions. 

In the second place, any unemployment insurance applies to the post- 
war period because if unemployment benefits are made more adequate 
for a longer period, then we can take the point of view that Mr. Wilson 
I think it was you said expressed, that these benefits will take care of 
the person who is out of a job during that period; we don't need to do 
anything special about him. 

I think as the system stands now that couldn't be assumed because 
in many states the benefits are so inadequate and for so short a period 
that there would be a great deal of unemployment that wouldn't be 
compensated ; but if this system were more substantial, more adequate, 
it would remove the need for special emergency provisions to that 

Mr. Welch. Does your statement cover that? 

Mr. Bigge. Yes, sir. 

Mr. Welch. I will read your statement. 

Mr. Bigge. Yes. It covers that. 

The Chairman. Mr. Voorhis? 

Mr. Voorhis. I would like to ask just two questions. In the first 
place, Mr. Bigge, do you believe, as a matter of principle and policy, 
that it is better to try to amend the basic unemployment insurance 
benefit in such a way as to make it adequate to meet the human prob- 
lem resulting after the war; or, if it should be regarded as a special 
part of the cost of the war, should be treated in a way comparable 
to the contract termination provision or similar matters, where we 
are expecting to write off the cost of a lot of that stuff that has been 
produced — thus handled in some special way by the Federal Gov- 
ernment directly in the reconversion period? 

Now, which of those two things do you think ought to de done? 

Mr. Bigge. We think the two might "well be put together. 


The States have something like $5,000,000,000 for the purpose of 
paying unemployment compensation to the unemployed. 

Mr. VooKHis. Yes. 

Mr. BiGGE. The Federal Government now is in debt to the extent 
of several hundred billion dollars. 

Mr. VooRHis. Eight. 

Mr. BiGGE. And we think it would be a little anomalous if the 
Federal Government were to take on substantialh^ more debt to take 
care of those needy or unemployed. 

Mr. VooKHis. Yes. 

Mr. BiGGE. Until the States had used to a substantial extent the 
funds that have been accumulated for that purpose. 

So we think the Federal action, whatever it might be, could well 
be something like this : 

That if the States will pay benefits to a maximum, say, of $25 a 
week for as much as 26 weeks, then the Federal Government will 
pay all of the additional cost in that State during a specified period. 

Do you see what I mean ? 

Mr. VocRHis. Yes ; I see. 

Mr. BiGGE. Because we think the Federal Government would then 
take on a good portion of the strictly war-caused unemployment. 

Mr. VocRHis. But you would do it through the system as it is now 
established, basically? 

Mr. BiGGE. That's right. 

Mr. VooRHis. I would just like to emphasize this, unless we are 
prepared to prevent any considerable period of unemployment with- 
out income on the part of workers, we are going to get a cumulative 
effect and be in serious trouble. 

Mr. BiGGE. Yes. 

INIr. VooEHis. In other words, the most important thing, it seems 
to me, is to be ready right at the outset to see that no people should 
become disemployed as a result of the end of the war in order that 
industry has no long period of lack of buying power, not only for 
their sakes but for the sake of the Nation. 

Mr. BiGGE. You are thinking of the cumulative economic effect on 
the whole community. 

Mr. VooRHis. Yes. 

Mr. BiGGE. And if you look at it from that point of view, this 
observation is interesting: 

One economist pointed out that in 1940 or 1941 only about V per- 
cent of the wages lost by unemployment were made up by unemploy- 
ment-compensation payments. 

Mr. VooRHis. 1941 ? 

Mr. BiGGE. I think that was 1941. I can check on that. An econ- 
omist employed by the Committee for Economic Development has 
estimated that, unless the State laws are substantially changed, not 
more than lOYo percent of the wages that will be lost through unem- 
ployment in this post-war period will be made up by compensation 

Mr. VcoRHis. Does that mean, if your proposal were adopted, that 
the Federal minimum would be 90 percent ? 

Mr. BiGGE. Not at all. Because it never does compensate that 
much when wajres are at a high level. 


But if the State laws were amended, as I suggest, and the Federal 
Government paid benefits at the same level beyond that, it might 
well rise to 20 to 25 percent of the wages lost. 

I don't believe it would get above that. 

Mr. VooRHis. I don't believe I understood your first observation 
then. Your proposal was that the State laws should be amended? 

Mr. BiGGE. Yes. 

Mr. VooRHis. To pay higher benefits? 

Mr. BiGGE. Yes. 

Mr. A^ooRHis. Then what would the Federal Government pay? 

]Mr. BiGGE. The Federal Government would pay those same benefits 
if it continued beyond 26 weeks. 

Mr. VooRHis. Oh. But the State would carry it up to that point? 

Mr. BiGGE, Yes. And use their reserves that have been accumu- 
lated for that purpose. 

Mr. Lynch. When you say reserves have been accumulated for 
that purpose, have you got in mind that we haven't followed your 
original scheme of social security in establishing reserves ? 

Mr. BiGGE. No ; I wouldn't say that we haven't followed the original 
scheme. I would say that in the way the matter has actually developed, 
some difficulties have arisen that we hadn't quite foreseen. 

When the Federal Government laid the 3-percent tax in the Un- 
employment Tax Act and permitted employers who pay taxes under 
the State program to offset such State payments against the Federal 
tax — I think we assumed that the States would do as much as they 
could out of the 2.7 percent that they would collect. But actually the 
collection of those conributions has brought about reserves so that now 
some States have 10, 15, and even 20 times as much in their reserve fund 
as they ever paid in the highest-year benefit payments. And at the 
same time there are some States — two I remember in the year 1943 — ■ 
reported to their Governors and legislatures that 2 years, or in one 
case 1 year, of serious unemployment would require more funds than 
they had been able to accumulate. 

That is, the difference between the various States is much greater 
than we had anticipated when the law was set up in that fashion. 

And, primarily, our proposal would be to make a portion of the 
3 percent available to the Federal Government for the purpose of 
helping to pay benefits in those States that have excessively high 
unemployment; particularly so after the war, but also in the longer 

Mr. Lynch. Wlien you said we didn't follow the original scheme, the 
present-day Congress didn't follow the original scheme of the Congress 
that first passed this law, in raising the social-security tax. 

Mr. BiGGE. I think you are referring to old-age and survivors in- 

Mr. Lynch. Yes. 

Mr. BiGGE. That is separate. I think it is a good point. 

We think it would be desirable to accumulate that fund now while 
earnings are high. 

Mr. Lynch. I quite agree with you. 

]Mr. BiGGE. And carry it over into the future. 

The Chairman. Doctor, I wonder if you don't agree with the propo- 
sition that all States are not on a par when it comes to being able 
to provide for the aged ? 


Mr. BiGGE. Yes. 

The Chairman. And iliat there ought to be some coverage on that 

Mr. BiGGE. I tliink you are referring probably to the public- 
assistance titles. 

The Chairman. Right. 

Mr. BiGGE. To those provisions. 

The Chairman. Yes. 

Mr. BiG(iE. We have recommended there as you probably Imow, and 
it is included in this summary that I have attached, that the Federal 
Government give special financial assistance to the States whose per 
capita income is belovi- the national average, so that they can take care 
of the needy a little more adequately. 

The Chairman. I would just like to observe that, when this social- 
security bill was first before the Ways and Means Committee, I ap- 
peared before the committee and urged that. On several occasions 
I offered amendments along that line on the floor of the House. Un- 
fortunately we never got very far with it. 

NoAv, Mr. Folsom, I think you had a feAv questions. 

Mr. Folsom. 1 imagine you covered most of this in your statement, 
but what is the amount of the funds in all these State balances today? 

Mr. BiGGE. It is about $5,200,000,000. 

]Mr. FoLsoM. Have you any estimate of what it might be a year from 
now. assuming the war would last another year? 

Mr. EiGGE. 'Well, pay rolls are about $60,000,000,000, and the average 
collection is a little under 2 percent, so, something like a billion 

Mr. Folsom. Would it be about six and one-half billion? 

Mr. BiGGE. Approximately six and one-half billion. 

Mr. FoLsoM. About a year from now? 

Mr. BiGGE. That's right. 

Mr. FoLsoM. Do you think the States can increase the duration so 
that they get paid benefits for 2-6 weeks from those funds? 

Mr. BiGGE. I think for the initial period, probably. There mav be 
a fcAV States — I remember Michigan — the latest figures we have there 
show^ that if 35 percent of the covered population were unemployed 
for a maximum period of 26 weeks it w'ould use up the funds they have 

I think that is approximately 35 percent. 

In some other States — one State particularly — they could pay the 
maximum duration to every covered person in the State and still have 
money left. 

Michigan is about the lowest, I think. 

So there might be a few States that would need help in the initial 

Mr. FoLSOM. But you think generally that the States could take 
care of 26 weeks from the present funds without any assistance from 
the Federal Government? 

Mr. BiGGE. Tliat's right. 

Mr. FcL^OM. If there is any assistance from the Federal Govern- 
ment it would be beyond the 26 weeks, in general ? 

Mr. BiGGE. In general, yes. It depends on how long a period you 
are contemplatinjj. If it were 3 or 4 years 

Mr. FoLSOM. We are talking about the first period. 


Mr. BiGGE. Just the first 26 weeks. Again I say that there might 
be three or four or a half dozen States in the position of Michigan 
in the first period. 

I doubt it. 

Mr. FoLsoM. Don't you think the first move would be to have the 
States increase the benefits? 

Mr. BiGGE. Yes. 

Mr. FoLsoM. The maximum is what? 

Mr. BiGGE. I think one State has 22. There are a large number 
with 16 weeks maximum. 

Mr. FoLSOM. You think they could easily go up to 26 weeks? 

Mr. BiGGE. Yes. 

Mr. FoLSoM. So you think that you would rather increase the dura- 
tion than increase the amount of weekly benefits if you had the choice 
between the two? 

Mr. BiGGE. Yes; in general. Although there are some States that 
pay a horribly inadequate benefit. 

I think there was one State that had average benefits under $6 a 

Mr. FoLsoM. Well, don't most of them base it on about 50 percent of 
their normal weekly wages ? 

Mr. BiGGE. Yes. That is affected in two ways, of course. The min- 
imum is very low, and if a person can qualify by earning $100 a year 
and get benefits for 10 weeks, that means very low weekly benefits. 

At the top, the same way, a person earning $50 a week would get 
$15 or $16. 

The average benefit for last year, 1943, was $13.84 I think; that is 
about a third of the average factory wage. 

Mr. FcLsoM. But these low benefits are due to a large extent to the 
fact that people are employed for a very short time and therefore are 
not entitled to the benefit? 

Mr. BiGGE, That is right. 

Mr. FoLSOM. Most of the people who will be unemployed in this 
transition period will probably be employed for 2 years or more. 

Mr. BiGGE. That's right. 

Mr. FoLsoM. So they would probably get the maximum benefit of 
the State law. 

Mr. BiGGE. Yes. 

Mr. FoLsoM. Anywhere from $15 to $20 a week? 

Mr. BiGGE. Yes. 

There is another aspect of that same question of duration. 

We think probably of uniform duration, anyone who qualifies may 
be carried for a specified period, and yet you get the duration de- 
pendent upon the length of time he was employed. 

Mr- FoLsoM. That is like the New York State law. 

Mr. BiGGE. Yes. And it is rather significant in that connection that 
States that had uniform duration paid benefits on an average of 12.2 

In States that didn't have uniform duration, the average was just 
8 weeks. 

So uniform duration increases the duration by 50 percent. 

Mr. Foi.soM. One other question, the number working in Govern- 
ment plants and arsenals now are not covered at all ? 


If you bring those people under the State law they have to have 
the same benefits, and you would have the Federal Government reim- 
burse the State as the benefit has been paid ? 

Mr. BiGGE. I think that is the way that works out. 

Mr. FoLsoM, You simply would have the Federal Government cover 
all those people and have it administered through State law ? 

Mr. BiGGE. Yes. We thought it would be a little anomalous to have 
Federal employees in adjoining States come under State provisions, 
one having to earn $100, and one having to earn $300 to become eligible. 

Mr, FoLsoM You have also the duration. 

Mr. BiGGE. I am thinking of this. Two neighboring States ; one was 
(he State that said its fund might be exhausted with one very bad 
year in the post-war period. 

A bordering State has enough money in its fund to pay maximum 
benefits to every covered worker in that State. 

Now, two Federal employees, one working in one of those States 
and one in the other, would be treated very differently. We thought 
that would be anomalous, that probably a uniform minimum should 
be established for such Federal Government employees. 

Mr. FoLSOM. Well, on the whole, if you treat tiie employee in a Fed- 
eral plant the same as an employee in another Federal plant in that 
State, the worker is going to compare with the worker in some other 
plant, but not in some other State. 

Mr. BiGGE. No; I was thinking of the fact that the Federal Gov- 
ernment was thinking of these people because they are Federal em- 
ployees; then why should they be subject to such varying conditions? 

Mr. FoLsoM. But if you administered through the State, they 
wouldn't know it. 

Mr. BiGGE, They probably wouldn't realize it. 

The big reserves have been built up in those States where the benefit 
is very inadequate. The big reserve is not always in the State that will 
need the money. It is where they haven't used the money. Dura- 
tion is short, and they disqualify a lot of people, so it is cumulative 
because they haven't used what they have. 

Mr. FoLsOM. Well, the so-called G. I. bill has just passed the House, 
and you think the States could do the same as the Federal Government? 

Mr. BiGGE. Yes. 

Mr. FoLsoM. You think they have the funds to do it ? 

Mr. BiGGE. Yes. And the special point I wanted to make in the 
present connection is that if the Federal Government attempts to do 
anything in this field of unemployment compensation, cash benefit 
for unemployment, then as a condition of the people in the State get- 
ting that special benefit they should be required to get up to a certain 
level. Otherwise the Federal Government pays a lot to the State that 
has had very indaquate benefits, and pays very little in the State that 
has had pretty adequate benefits. 

We think that is not a very good basis on which to distribute Federal 
funds. We think they all ought to come up to a reasonably adequate 
level before Federal funds are used. 

Mr. FoLSOM. But there is not benefit in the service. 

Mr. BiGGE. That's right. 

Mr. FoLsoM. How would you handle that; simply assume a certain 
amount of wages and have the Federal Government put that in the 


Mr. BiGGE. Yes. And we think, since pay is rather low in the serv- 
ices, the Federal Government should pay the employee's share as well 
as the employer's share. 

Mr. FoLsoM. You think the serviceman making $160 a month should 
have his account credited with that amount? 

Mr. VooRHis. In other words, you would provide him with unem- 
ployment insurance ? 

Mr. BiGGE. No; this is old-age and survivors' benefits. The unem- 
ployment provision is taken care of without any reference to earn- 
ings, but in connection with this old-age and survivors' insurance, you 
can freeze his status as of the time he went in, but the difficulty there 
is you liavc taken in a lot of young men who were almost insured, but 
not quite. If they had stayed home they would have been insured. 
Because they went into the service they don't get the insurance. 

So we think it is desirable to cover the period a man is in the service 
as if tliey had been in covered employment. 

Mr. VooRHis. I would put in a bill to do that. 

Mr. FoLsoM. Have you made an estimate of the amount of unem- 
ployment we might run into by States ? 

Mr. BiGGE. By States ? 

Mr. FoLSOM. I know the States have made estimates. Have you 
checked up on those? 

Mr. BiGGE. What we have done is to suggest to the States methods 
by which they can estimate themselves, because they know their in- 
ternal conditions better than we do, and we can get a national figure 
by putting them together. 

We have made some estimates based on certain assumptions, if the 
war program goes in a certain way, and if we demobilize 25 percent, 
and so on, then you would have about this; but the trouble about re- 
leasing anything of that sort is that the minute it is released you 
forget the assumptions and attach too much significance to such esti- 

Mr. FoLSGM. Would you let us look over some of your estimates 
sometime? We won't quote you. 

]Mr. BiGGE. Yes, there are some that will be available. 

The Chairman. Doctor, we are very grateful to you. We are sorry 
we had to hasten this session on account of the House being in session. 

The committee will go into executive session for a moment. 

(Whereupon, at 11 : 25 a. m., the committee went into executive ses- 


WEDNESDAY, MAY 24, 1944 

House of Representatives, 
Special Committee on Post- War Economic 

Policy and Planning, 

Washington^ D. G. 
The special committee met at 10 : 30 a. m. in room 1304, New House 
Office Building, Hon. William M. Colmer (chairman) presiding. 

Present: Representatives Co'mer (chairman). Cooper, Voorhis, 
Murdock, Lynch, Fish, Reece, Welch, and Wolverton. 

The Chairman. The committee will please come to order. 
Mr, Folsom, whom will you have first? 

Mr. Folsom. Mr. Raushenbush, Mr. Loysen has not appeared yet. 
Mr. Raushenbush is director of unemployment compensation. State 
of Wisconsin. 

The Chairman. We are glad to have you with us this morning. 
Mr. Raushenbush. Thank you. 

The Cha:rman. You may proceed if you will, sir, and give us the 
benefit of your information on this subject. 


Mr. Raushenbush. I trust the committee members will feel free to 
ask questions at any time. Perhaps in that way I can give you more 
of the sort of information you are interested in. 

The Chairman. For the benefit of the committee I would like to 
state that Mr. Raushenbush is director of unemployment compensa- 
tion of the State of Wisconsin. 

Mr. Raushenbush. I have been at it now for over 10 years. You 
might not think it, but we have been operating our law for some time. 

The Chairman. Your appearance belies your statement. 

At any rate we are glad to have the benefit of the wealth of your 

]Mr. Raushenbush. The committee is probabl}' interested primarily 
in just how effectively unemployment compensation under existing 
State laws is going to function in the transition period. 

I miglit say, before getting into any figures relative to the present 
adequacy of the State funds, that at least as some of us see it, the prob- 
lem is going to fall into two parts. 

First, there will be the contract cut-backs, curtailments, cancela- 
tions, that will occur near the close of the European war, while the 
Pacific war is still in progress. We are almost all under the impres- 
sion, though some of you have different military information, that the 



Pacific war is going to take perhaps a year to wind up after the Euro- 
pean war is over. Well, if it works out that way, you are going to 
have war-production cut-backs and lay-offs, with at least some frac- 
tion of our total war production closing, near the end of the European 

For your present purposes it may not be material exactly when 
most of those cut-backs and cancelations occur — whether they occur 
a few weeks before the European war is finally over, in the anticipa- 
tion that it is going to wind up very soon, or whether they occur when 
full victory has been won in Europe. 

In an}'^ event, it is pretty clear that there will be substantial can- 
celations at that point, and substantial lay-offs. But percentage esti- 
mates as to how much those cancelations are going to amount to, as 
compared to total war production, apparently vary widely. Some 
folks say 25 percent of the total ; but others go as high as 50 or 75 per- 
cent; and I don't know whether there is any authoritative informa- 
tion available at this time on how extensive the lay-offs at the close of 
the European war will be. 

Without trying to settle that, because no one may be in position to 
settle it at this time, I do point out that, if it works out that way, with 
a substantial volume of war-production laj'^-offs near the close of the 
European wai", then you will of course have a good deal of reconver- 
sion to peacetime production, while the war is still in progress in the 

It seems pretty clear, then, that the length of unemployment for 
most of tlie workers involved will be set by the time needed for recon- 
version; because it is rather unthinkable that we should have pro- 
longed and continuing unemployment on a wholesale scale wdiile there 
is a war still going on in the Pacific. The tendency will be for recon- 
version to proceed as rapidly as it can during that period, after the 
close of the European war and before the close of the Pacific war. 

So at least a large portion of our readjustment to peacetime pro- 
duction may have occurred before the close of the war in the Pacific 
and final victory over Japan. That may help the problem of transi- 
tion very materially. 

Now, let's assume further that the major impact of unemployment 
and readjustment will come after the close of the war in the Pacific. 
Still, we can all see that that larger impact is, shall we say, a year and 
a half off — it looks as if it would be about that long. If that is true, 
then that second impact- — which may be the major impact of unem- 
plovment — is not an immediate one. 

The unemployment that occurs at the close of the European war 
will hardly be of such great volume that there is going to be any 
substantial difficulty in handling it. State unemployment compensa- 
tion agencies must of course make some advance preparations; but 
they already haA'e enough funds on hand to handle that ver}^ easily. 

Mr. Reece. I hope you don't expect to handle that altogether with 

Mr. Raushenbush. Well, I would certainly hope that too. I would 
certainly agree with you, that the only answer is jobs, and steady jobs. 

Unemployment compensation is certainly no substitute for a job. 
That is one fact tJiat I have been preaching ever since I have been in 
this program. 


Mr. Reece. Probably I should not have interjected at that point. 

Mr. Raushenrush. That is quite all right, 

Mr. Eeece. Tliat is the thought I have myself, in anticipation of the 
close of the European phase of the war, that we must make adequate 
advance preparations to convert all industry in order to be in a posi- 
tion to change gears as rapidly as we may. 

Mr. Raushenbush, Yes. 

Mr. Reece. And I keep interjecting that thought because I feel it 
ver}^ deeply. There isn't any reason for us to find ourselves stuck in 
neutral if we just prepare for it. 

Mr. Raushenbush. Yes. Certainly the emphasis should be on the 
speediest possible reconversion, and there are a lot of things that will 
help that reconversion to happen as rapidly as possible; and to the 
extent that we get considerable reconversion uncler our belt, to that 
extent we have not only learned how to do it, but we also have a con- 
siderable exent of the total already taken care of. 

Mr. MuRDOCK. When do you think the greatest impact of unemploy- 
ment is going to be; at the end of the European phase or the end of 
the Japanese phase ? 

Mr. Raushenbush. I frankly don't know. I think that depends on 
how much of the material that is produced for the European war is 
usable in the Pacific. The estimates I have heard run all the way 
from 25 percent of cancelation up to 50 percent, and even as high as 
75 percent; but I have no basis for knowing what it is going to be. 

Mr, MuRDocK. Well, the unemployment would largely depend, 
would it not, on the rapidity with which demobilization occurs? 

Mr. Raushenbush. That is part of the total problem; but I was 
leaving that out for the moment, and thinking in terms of workers 
engaged in war production, as distinguished from the men in the 
armed services. 

I assume the bulk of the readjustments will probably occur after 
the Pacific war. Some demobilization may occur before that; but I 
wouldn't know where the main bulk is going to fall, whether at the 
close of the European war or at the close of the Pacific war. 

Well, unemployment compensation, though second choice as com- 
pared to jobs, will have an important part to play in this transition 
period. I would say that our present system of State laws, even with- 
out the improvements which I expect — because most of the States 
will be considering strengthening their laws in the 1945 sessions 

The Chairman. If you will pardon an interruption, we heard yes- 
terday a member of the Social Security Board who presented the 
Federal point of view. 

I think what we are interested in today is getting the State point of 
view on that proposal. 

I wonder if you will bear that in mind. 

Mr. Raitshenbush, Yes. I am sorry I missed Mr. Bigge's remarks 
yesterday, and don't know what he said, but I expect he felt in general 
that the States were doing something less than he would like to see 
them do. 

I tliink that the States on the whole feel that they have done a 
pretty good job ; but not that they are perfect. They expect to im- 
prove; and they expect to strengthen their laws. The State laws 
have been strengthened very greatly in the last few years, and I think 

90579— 44— pt. 2 6 


that that process will clearly continue. But I think the program, 
even as it stands now, is a stronger program than some of our Federal 
critics will make out. I think they tend to look for the flaws rather 
than the strength of the program. 

After all, in the last big depression we had in the early thirties 
there was no such program as this. Nothing of the kind was in 

We now have State unemployment compensation laws functioning, 
with funds amounting to over $5,000,COO,000; in fact, though I haven't 
got complete up-to-date figures yet, it must be very close to five and 
one-quarter billion dollars at this time. For every S'ate. that means 
the biggest reserve fund the State has ever accumulated for any pur- 
pose. For instance, in the State of Wisconsin these reserves far ex- 
ceed the 2-year budget of the State for all purposes. Probably similar 
comparisons would be applicable in many of the other States. 

These are very large funds the States have accumulated for unem- 
ployment compensation purposes ; and I might say that these are gen- 
uine "reserves," from the point of view of the Spates, because they are 
invested in Federal Government obligations, not m the obligations of 
the State. They are real reserves. Of course when the time comes 
the Federal Treasury will have to make good on these deposits which 
the States have made in the unemployment trust fund, because, as you 
realize, all the investing is done here in Washington, even though 
each State has a seperate account in the unemployment trust fund. 

Mr. MuEDCCK. Tlie witness yesterday implied that the States were 
better equipped right now with these reserves of which you syoeak. 
He felt that the Federal Government by supplementing it ought to 
come in after the States have done their share. 

He felt that there was a wide variation among the States as to the 
coverage ; with an average of 11 weeks, the variation was from 3 weeks 
up to 22 weeks. He thought that, if this period of hesitancy was very 
long, some of the States wouldn't be able to take care of their unem- 
ployment for a separate long enough period. 

Mr. K.AUSHENBUSH. Well, now, may I hold that question for a mo- 
ment, and come back to it, if you will remind me. 

Mr. MuRDOCK. That was about the viewpoint expressed yesterday, 
was it not? 

The Chairman. I think so. 

Mr. Raushenbush. I will try to get into that question very shortly ; 
but I would first like to give you some figures which have been collected 
within the last 10 days. They relate to the size of these various funds, 
and give at least some rough indications as to their strength. 

I am sorry that these figures are not quite complete yet, because I 
only asked for them about 2 weeks ago and that has not left time for 
every State to make reply. If there is anybody who could distribute 
these to members of the committee, I have enough copies for every- 
body ; and you might care to glance at some of these figures. 

They refer to the adequacy of the State funds. 

Mr. Reece. You will put a copy in the record. 

Mr. Raushenbush. I think you might care to put a copy of each 
table in the record at the proper place, and let me correct and complete 
it before printing. 

The Chairman. Yes. 


Mr. Raushenbush. Let me first read the explanation on the first 
page, if you have that available at this moment : 

Solvency of State Unemplotment Compensation Funds as of May 15, 1944 

The table below, which is based on State figures and estimates, throws some 
light on the ability of the several State Unemployment Compensation funds 
to pay the benefiits promised by the respective State Laws. 

(These figures are similar to older (June 30) data released by the Bureau of 
Employment Security of the Social Security Board, on November 27, 1943.) 

The'tigures shown below are the latest available State estimates of this kind. 
They are based on — 

( a ) The number of covered workers currently employed as of late December 

(6) The State unemplojTnent funds available as of May 14, 1944; 

(c) The benefit provisions of State laws, as of May 15, 1944; and 

(d) Each State's estimate as to its probable average benefit check (per week 
of total unemployment, for late 1944, assuming that many war-production workers 
might then be drawing benefits). 

As a very rough indicator of how heavy a percentage of unemployment each 
State could have, and still pay its promised benefits — 

(1) The State's estimated average weekly check was first multiplied by its 
maximum duration, to arrive at a rough (possible) total amount of benefits 
per worker, which might have to be paid to an individual claimant. 

(2) Assuming that such a total amount were in fact paid out to each unem- 
ployed claimant, then: 

To what percent of all covered workers could that much be paid, before ex- 
hausting the State's fund? 

(3) To answer that question, the fund's May 14, 1944 balance was divided 
by the above total amount 'per worker" — thereby showing to how many workers 
the fund (as of that date) could pay that amount. 

(4) The resulting number of workers was stated as a precentage of all covered 
workers (currently employed as of late December 1943). 

So the last column of figures, below, roughly suggests how heavy a percentage 
of unemployment each State could have, and still pay in full the benefits 
promised bv its present law — from the funds it already has on hand (as of 
May 14, 1944).* 

^ (1) T-vo main factors tend to make these percentages (in column H, below) rather 
conservative : 

(o) Each State fund will have a considerably higher balance — than it now has — before 
much readjustment unemployment occurs ; and 

((>) Not all benefit claimants will receive the law's "maximum" duration. 

(2) On the other hand, the number of covered workers "currently employed as of late 
December in4:V' is lower than the cumulative number employed within a year, and does 
not include all potential claimants havincc some benefit rights. 

(3) Please note, finally, that these figures are not "predictions," in any way. as to bow 
much unemployment will in fact occur. 



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In table No. 1, you will note in the A cohimn the "Estimated num- 
ber of covered workers currently employed, December 1943." That 
is a "spot" figure, except as otherwise noted. In other words, how 
many people were actually on pay rolls in late December, a question 
which gives you an idea of how many covered workers there were in 
each State. It is true that there were some people who worked for 
short periods earlier in the year who might have some benefit rights 
but were not on a pay roll in December. Still, this is the most ac- 
curate current figure available. 

Then column B shows "State's unemployment comjjensation fund 
balance as of May 14, 1944." That is stated in thousands of dollars. 
Not counting Hawaii, which hasn't had time to reply to a May 12 
inquiry — although Alaska managed to — you have a total running 
over $5,000,000,000. 

Next, column C shows "Law's maximum weekly benefit amount"; 
namely, the highest amount per week that any worker could draw 
under the law as it currently stands. 

Now, it is my expectation that a number of those figures will be 
adjusted upward by amendment of the State laws in the 1945 sessions. 
Most all of the States started out with a $15 maximum, and in the 
last few years quite a number have amended their laws to provide for 
$18, and some even for a $20 maximum. I believe there is one State 
that provides for a $22 maximum. It is true that the cost of living 
has gone up, as well as wage levels; so a $15 maximum is no longer 
as adequate as it was a few years ago. 

The Chairman. You mean weeks? 

Mr. Raushenbush. $15 maximum, per week. 

The Chairman. I see. 

Mr. Raushenbush. It is no longer quite as much in purchasing 
power as a few years ago. But you will notice that a good many 
States, starting from a general $15 maximum-rate level, have amended 
their laws upward. This table shows the currently prevailing weekly 
maximum in each State. 

Now, column D shows the estimated average weekly check. This 
is a State administrative agency estimate, as to what benefits might 
average late in 1944, assuming that a considerable number in war-pro- 
duction work might be laid off at that time. Of course, that is purely 
an assumption, since we don't know when curtailment is going to come. 

You will note here, in comparing columns C and D, and this in part 
gets into your question of the benefits which the States are generally 
expecting to pay, that the average weekly check will work up pretty 
close in some cases toward the maximum provided by State law. 

Mr. MuRDOCK. Yes. 

Mr. Raushenbush. Of course, the States are taking their wage levels 
and current earnings into account, in order to make at least some rough 
estimates as to what the average weekly check will amount to. 

You will notice California's estimate runs as high as $18.50. Many 
of them still run, on the average, below. Probably there are more 
of them at $16 and $17; and there are quite a few of them below that, 
depending partly on the wage levels prevailing in their respective 
States and the current maximum benefit that their law provides for. 

Next, column E shows the law's maximum duration, in terms of the 
highest number of weeks that any eligible worker could draw under 
the law. 


That does not mean that eveiybody will draw that maximum. In 
some States it does; but in most it does not, because the amount of 
benefit and the duration of benefits in the majority of State laws 
depend upon the earnings and wage record of the individual worker. 

Take tlie worker who has only worked in covered employment for 
a month or two during the year involved, who has only been in the 
labor market and in covered employment for a month or two ; in his 
case, the chances are that his weekly benefit and the number of weeks 
which he can draw will, under the majority of laws, be very limited 
indeed. But, should it not be ? 

Do you want to pay the same weekly rate and the same number of 
weeks to an individual who has worked for only a few weeks in the 
year, as you pay to the individual who has been employed throughout 
the bulk of the year i So there is that differentiation. 

Tliis is one of the peculiar cases where ''the better we do. the worse 
we look"' is applicable. 

For instance, suppose a State law entirely disqualified from benefits 
this worker who has only been in the picture a short w^hile, by saying, 
"We won't bother with you at all." Then you would have no figures 
in the statute as to these small amounts. 

But, where a State decides, "We will do a little for the worker who 
has been in the picture only a short while, we won't disqualify him 
entirely," then that shows up to our disadvantage. "The better we do, 
the worse we look." In fact, that tends to pull down the average check, 
and the average duration too. If you pay low-paid and temporary 
workers a little something, that pulls down the general average of 
benefit payments. 

So you have to analyze the figures to see what is really happening. 

I don't know whether that answers your question. Perhaps it does, 
at least in part. 

Mr. MuRDOCK. What I had in mind, remembering what was said 
yesterday, the States' maximum duration of benefits varies quite a 

Mr. R vusHENBusH. Yes. 

Mr. jMurdock. And that was the testimony we had yesterday, that 
it varies from 3 to 22 weeks. 

Is that what the table shows? 

Mr. Eaushenbush. Well, no; that was giving you an actual figure 
that miirht be ])aid to somebody who had only worked for a very short 
time. No State has a 3-week maximum. When you are talking maxi- 
mums, that is not a maximum, as you will notice in column E. The 
lowest max mum you will hit anywhere in there is 14 weeks, and the 
highest is 24. So Mr. Bigge must have been talking about how much 
some individual workers, with very limited earning records, might 
perhaps draw. 

Mr. MuRDOCK. I get the point. This was brought out in answer to 
my question yesterday. Suppose the period of hesitation following 
the war is a matter of 30 or 40 weeks, how could the States take care of 
thnt? They probably couldn't for so long a period. 

Mr. Raushenbush. Well, I think that raises two questions. 

First, I believe many States are going to lengthen their present 
durations, probably in their next legislatures. 

Now, put yourself in the position for a moment — many of 3'ou have 
been, perhaps, at one time or another — of a State legislator, respon- 


sible for the unemployment compensation law of your State and re- 
sponsible for its solvency as well as its liberality. 

Today I think you might feel, with somewhat uncertain conditions, 
that you wanted to be sure that the State fund was going to be assured 
of solvency before you did a great deal more of liberalizing or extend- 
ing unemployment-benefit protection. Perhaps some States have hesi- 
tated for that reason, though there were a good many who did liberalize 
their laws in 1943, even in the midst of the war. 

But I think you will find that the State legislatures are going to say, 
"Well, have we got enough funds ? Can we step up both our weekly 
amount and our durations?" And I think in most of the cases they 
will find that they have a considerable margin, within which they can 
safely liberalize their laws and extend durations ; which in my opinion 
is important in a number of these cases. 

But that does of course raise a long range question. 

Certainly there is room for longer duration than some of the laws 
provide. I think it is going to happen by State action. After all, 
again putting yourself in the position of these State legislators, if they 
have got the money and the need is there to provide longer unemploy- 
ment benefit protection, I think they are going to be rather willing to 
meet that need by State amendments, without any pressure from Wash- 
ington. I think they are going to feel the pressure from their own 
citizens, and I think they are going to act on it. 

But of course when you get beyond some point, a question does arise, 
"How long should we continue to pay unemployment compensation 
benefits, as a matter of right? For how long a period is that a sound 
social device?" 

Now, let me say that I am in favor of unemployment compensation. 
I had something to do with getting the first law in this country passed — 
and then got the job of administering it wished off on me. I think 
unemployment compensation has an important role to play. 

But there is a basic question, I think, of social policy, when you ex- 
tend unemployment compensation beyond 20 or 26 weeks or something 
of that sort. You are beginning to raise the question, "Is this a sound 
way to handle very prolonged unemployment, or not?" 

Remember, you are paying out these benefits as a matter of right, 
without any needs or means test at all ; you are paying out for idleness, 
rather than for useful public work or anything of that sort. 

I think there is real need for this kind of a program during the early 
months of unemployment. There is plenty of justification for it. At 
some point, however, there is the question of how long should such 
benefits continue ? But I would say that many of the State laws have 
not yet reached the point where that question need be raised. There 
is still need for lengthening these durations ; and I expect it is going 
to be done, by State legislative action. 

Mr. MuPDocK. I look upon this as a bridge and I am anxious to 
know whether this bridge is going to be long enough to cross the 


Mr. MuRDOCK. Second, what my friend fi'om Tennessee said over 
there a minute ago, unemployment compensation, essential as it is, 


is jiot the main thing. It is the job, and that is a more substantial 

Mr. Eaushenbush. Yes. Of course, it is hard to say at this stage 
how long reconversion will take in the various States and the various 
types of industry. Perhaps the bulk of the resulting unemploy- 
ment can be handled even by present durations in many instances. 
Where reconversion is not a very prolonged process, it might take 
3 or 4 montlis; in other cases it may take longer, and the question 
would run to the period reconversion takes. 

I might mention one more thing on maximum-benefit durations, 
which the committee might be interested in. Although I have listed 
here the statutory maximum duration, that is only the outside maxi- 
mum payable to any individual in any 1 benefit year. There is a 
peculiar fact, under about a third of the State laws. If you just 
time the exact end of the European war and the corresponding lay- 
offs correctly within the calendar year there are quite a number of 
States where the maximum duration they might actually pay would 
be double the maximum shown in column E. 

That peculiar fact arises out of an administrative device; and I 
think the folks down here in Washington who developed it or favored 
it didn't realize what it might do to the States. They are just be- 
ginning to realize it. 

Let me give you an illustration. Many of these State laws have 
a definite fixed base period, such as a calendar year. Let us take 
that because it is the most common among this group of 17 States. 
They use a fixed period of 1 calendar year ; and what an individual 
has earned in covered employment within that base period will deter- 
mine his benefit rights during a 1-year period starting, let us say, 
in April or in May or even June or July. In other words, between 
the base period and the start of the application of those benefit rights 
there is a lag of 3, 4, or 5 months. That is in order to get in the neces- 
sary wage records and set up the thing properly. All right. 

This means that the calendar year 1943 is the one on the basis of 
which benefits are now being paid. So you are now using the cal- 
endar year of 1943 as the basis for current-benefit payments, not only 
during 1944 but even on into the first 3 months, let us say, of 1945. 
Do you follow me on that? In other words, the benefits you draw 
from April 1914 on through ISIarch of 1945 depend on covered work 
and earnings in the calendar year 1943. 

Suppose now that these reconversion lay-offs occur at the close of 
November 1944. At that point, let us say, the individual would be 
entitled under a given State law to draw 16 weeks of benefits. Some 
of them run higher, but let us take that as an illustration. He draws 
those 16 weeks in December, January, February, March. He just 
finishes the 16 weeks on the 1st of April. It could happen, couldn't 
it, if the lay-off happened to come at the close of November? He 
would get in the 16 weeks. All right. 

Now, having reached April, that is the start of a new "benefit year" 
in which benefits are based on the earnings of 1944. So the worker 
picks right up and starts another 16 weeks right in a row, making a 
total of 32. That is perfectly possible under some 17 laws, depend- 


ing upon the exact time of lay-off. So there is an interesting pecu- 

But what I wanted to say is that many of these maximum dura- 
tions will, I believe, be lengthened by State legislation. 
Sorry if I have gotten into too many complications here. 

Mr. VooRHis. How many times could that happen? How many 
years would that go back ? 

Mr. Raushenbush. Well, you would go back now to the calendar 
year of 1943. That is the limit of how far you would go back. 

Mr. VooRHis. Now, after this fellow got up to April 1, then he 
starts drawing the benefits on the basis of his employment in 1944? 

Mr. Raushenbush. That is right. 

Mr. VooRHis. Which employment ended on December 31. 

Mr. Raushenbush. Yes. But he might have picked up all the 
earnings credits he could use before his lay-off. 

Mr. VooRHis. I see that. But he was building up an entitlement 
of 16 weeks in 1943 and 16 weeks in 1944. Wlien does it wash out? 

Mr. Raushenbush. Well, under laws of this type each year's rights 
wash out in the March which is the fifteenth month after the close 
of the calendar year. 

Mr. VooRHis. Well, would this be correct, that the entitlement re- 
mains valid until the day on which the new base period becomes ef- 
fective ? 

Mr. Raushenbush. That's it in a nutshell. If you catch it just 
in between, you may have a second swing of duration. 

Mr. VooRHis. Suppose he became unemployed on January 1 ? 

Mr. Raushenbush. Well, then, instead of drawing his 16 weeks 
based on 1943 he would draw only 12 weeks ; and then 16 weeks more 
for the following period, or a total of 28. 

I do want to emphasize that these durations, in my opinion, are still 
going to be lengthened by State action, and should be 

Mr. VooRHis (interposing). Do most of those durations apply to 
the number of weeks of a calendar year ? 

Mr. Raushenbush. Yes. Within the benefit year, which is a 1-year 
period, you can draw not more than a given number of weeks. 

Suppose you have a maximum of 20 weeks, as you have in my State; 
you can draw 10 of those, and then get a job for awhile, and you may 
still have 10 on which you can draw. 

Mr. VooRHis. Suppose you don't draw those 10, how would you be 
fixed for next year ? 

Mr. Raushenbush. They are not carried over. Your description of 
it before was exactly right, that when you get into the new benefit 
year then the old one washes out. 

One other basic point about these maximum State durations. You 
have had here, perhaps j'esterday, the suggestion that these maximum 
durations were not representative of the actual durations. Well, that 
is true. Some people draw less than the maximum. But here is a 
point worth noting, that the maximum benefits and durations will tend 
to apply where there has been high pay and continuous employment 
throughout the year. 

If the number of weeks of work and the amount of earnings have 
been high, and work has continued for the individual throughout the 


year, then he is more apt to draw at a high weekly rate for the maxi- 
mum duration provided by the law. I call your attention to the fact 
that war-production employment has been unusually steady. It has 
gone on right through the year. 

Consequently your typical picture now, when you have these read- 
justment problems arising, will be that very many workers laid off 
from war-production industry will draw at the top weekly rate, and 
that the top maximum duration provided by the given State law will 

So figures for 1941 and 1942 don't tell the story. You have got to 

recognize that war production has operated steadily; and there has 
even been overtime pay in there to bring earnings up. The result is you 
are jroin^ to come close to the maximum figures. 

Turning to cohmm F of the same table, that is simply "Product 
of average check and maximum duration." That figure might apply 
to an individual worker, if he stayed unemployed long enough to 
draw it. 

Having reached that column F figure for each State, you then 
divide the fund balance by it — to arrive at column G. Mind yoa, 
this is the current fund balance as of May 14, or in a few cases as 
of April 30. 

And you get as a result, in column G, the number of workers who 
could be paid that amount from that fund, if necessary. 

You will note to what large numbers you could pay these benefits. 
If you throw the States together — not that you should — but to cite 
a single figure, you could have 18,000,000 covered workers drawing 
the amounts specified in column F for their respective States, from 
your present funds. And I think nobody expects 18,000,000 workers 
to stay unemployed long enough to draw that amount. 

For instance, to take an individual State, we don't in Wisconsin 
expect to have 371,000 workers laid off, who are going to stay un- 
employed long enough to draw 20 weeks of benefits averaging $17.50 
a week. 

Now, the final column, H, states the percent, of the total number 
of covered workers, who could be paid those average weekly bene- 
fits for the maximum duration from the State's current fund. 

That's based on a direct comparison of column G, as to how 
many workers could draw these amounts, with column A, the total 
number of covered workers employed late in December 1943. 

Please note that where footnote 1 appears, the percentage in col- 
umn H is really too low, on a comparative basis; because some States 
gave a cumulative figure instead of a "spot" employment figure. 

Now. without my reading all those figures, please note that pretty 
large figures of unemployment can be handled in each State. To 
cite the average figure — 60 percent unemployed could be met. Are 
you going to have anything approximating that? 

The next table. No. 2, shows the percentage in covered manu- 
facturing employment, as compared to total covered employment 
under the various State laws. 



Table No. 2. — Employment in manufacturing, covered "by unemployment com^ 
pensation laws, June 1943 

[Based on estimates by the Bureau of Employment Security] 


Total, 51 
States.. - 









District of Co- 






Indiana. -. 











number of 



on pay 

rolls (June 


30, 868. 2 



2, 268. 4 









2, 254. 8 








1,.354. 1 



in covered 
turing em- 



17, 333. 9 




71 3 










1, 260. 1 











turing as 
percent of 










New Hampshire 

New Jersey 

New Mexico 

New York 

North Carolina. 
North Dakota -- 

Ohio . 



Rhode Island... 
South Carolina. 
South Dakota.. 







West Virginia. 





number of 

in covered 




turing em- 

on pay 


rolls (June 














146. 1 






1, 296. 4 




3, 944. 1 

2, 082. 2 





2, 105. 7 






2, 827. 1 


265. 4 






455. 4 


















turing as 
percent of 


The first column gives the estimated total number of covered work- 
ers on pay rolls late in June 1943. These are Bureau of Employment 
Security estimates. 

Mr. VooRiiis. Now, before you go any further, tell us what you 
mean by manufacturing, and what you don't mean by manufacturing. 

Mr, Raushenbush. Well, manufacturing industry is a rather loose 
classification. It is not limited to durable goods, it includes all kinds 
of manufacture. It does not include construction nor retail trade. 

Mr. VooRHis. You don't include mining? 

Mr. Rausiienbusii. No. It does not include mining. 

Mr. MuRDCCK. How about the processing of food ? 

Mr. Raushenbush. Yes, it includes that. 

Mr. VooRHis. Shipbuilding? 

Mr. Raushenbush. Yes. 

Mr. VocRHis. But not construction ? 

Mr. Raushenbush. But not construction. 

This table adopts the standard classifications used by a number 
of Federal agencies; namely, the Social Security Board industry codes 
and classifications. As a matter of fact, these are Federally prepared 
estimates. The figures are for last June, but substantially indicate the 
split between total covered workers and workers employed in manu- 

I think we all realize that the biggest lay-off problems are going to 
occur in the manufacturing end of it. You are not going to have as 
heavy unemployment in retail trade as in manufacturing, for instance. 



True, you are going to have heavier unemployment lay-off problems 
in some of the durable-goods manufacturing than in some of the con- 
sumer-goods lines. But this table does not attempt that khid of a 
detailed break-down. Perhaps I am giving you far more detail than 
you are interested in, already. 

You will note that manufacturing shows a rather more limited 
figure than the total coverage. If you recognize that manufacturing is 
going to be most affected by lay-offs, then you can see that the relative 
adequacy of some of these State funds is pretty high. Many of the 
States therefore have quite a little room for improving and strengthen- 
ing their laws, by action of their State legislatures, when they realize 
that they have quite a little money and that their citizens are going to 
face unemployment and that they have the funds with which they 
could meet it by legislative action. 

The final table (No. 3) simply shows what percentage of each 
State's covered 1943 pay roll is already available in terms of its cur- 
rent unemployment fund. 

Table No. 3. — Ratio of State unemployment compensation funds, as of May I4, 
19M, to estimated ID 1/3 taxable wages 

[Based on data received from State Qnemployment Compensation agencies through May 24, 1944] 


Funds avail- 

ble as of May 

14, 1944 


taxable wages, 

year 1943 

Ratio of funds available to 
estimated 1913 taxable wages 

Under 8 

8 to 8.99 

9 or more 

49 States 

$5, 254, 739 

$59, 215, 866 






» 51, 596 
6, 950 
14, 440 
22. 103 

531, 706 
27, 610 

138, 328 
40, 326 
39, 592 
60, 353 


69. 593 


253. 244 

5, 100, 000 
290, 000 

1, 516, 574 
163, 081 
266, 208 
575, 000 
676, 575 






California .. - . 

10 43 

9 52 


Delaware --. 


T>i<!trift of rnliimhia 

15 15 



Georgia . 


Hawaii 2 

Idaho . - - 

10, 883 

1 404, 423 

142, 865 

45, 725 

39, 865 

70, 256 

55, 306 

27, 200 


183, 338 

233, 185 

62, 900 

17, 624 

124, 529 

13, 3.58 

20, 302 


17, 608 

I 328, 076 


723, 762 

80, 100 


' 364, 152 

38, 134 

52, 270 


.55. 513 

11,5. 000 

4, 277, 863 

1, 848, 084 
480, 463 
535, 700 
655, 000 
372, 060 

1, 126, 132 

2, 500, 000 

3, 948, 307 
810. 100 
206. 000 

1, 262 018 
129. 500 
253, 800 
103, 250 
170, 154 

2, 800, 000 
82. 900 

8, 300, 000 
700, 000 
40, 459 

4, 280. 000 
.505, 647 
723, 051 

5, 300, 000 
500. 919 

9 46 



Indiana -- 




Kansas . - 


13 40 









Michigan .._ 

Minnesota.- .. . 





Montana . 


Nebraska ... -.. . 




New Hampshire . - 


New Jersey ... 


New Mexico . . 


New York . 


North Carolina ... 


North Dakota 






Oregon _.. 

Pennsy! vania 


Rhode Island 


South Carolina' 

See footnotes at end of table. 



Table No. 3. — Ratio of State unemployment compensation funds, as of May 14, 
liUh'h to estimated 19^3 taxable wages — Continued 


Funds avail- 

bie as of May 

14, 1944 


taxable wages, 

year 1943 

Ratio of funds available to 
estimated 1943 taxable wages 

Under 8 

8 to 8.99 

9 or more 

South Dakota 


$5. 520 


123, 696 

19, 244 


52, 302 

> 104, 452 

64, 037 

130, 112 



$52. 500 

749, 346 

1, 800, COO 

237, 000 


750, 000 

1, 229, 800 

658, 675 

1, 287, 423 




10 51 







9 86 

Virginia.- . 




West Virginia 


10. 11 


9 58 

1 As of Apr. 30, 1944. 

» Data not available by May 24, 1944. 

Here again, you have shovrn the funds available as of the middle 
of May 1944, and the estimated taxable pay roll for 1943. Taking that 
annual pay roll and comparing it with the current funds, the table 
shows what percent of pay roll the given State has as its unemploy- 
ment reserve, as of this time. 

Of course, there is quite a little variation between the States; but 
that comparison does not tell you whether one State is going to have 
a lot of unemployment and another State is not. For instance, the 
State of North Dakota might have very little unemployment resulting 
from war-production cancelations, whereas some other State might 
have very heavy unemployment. 


All the States have had an opportunity, during the last year or two, 
to adjust tlieir contribution rates and income to the fact that they have 
had an expansion of war industry. 

In fact, even if they have enacted no special provisions, as some 10 
States have, even without special provisions the expanded pay rolls 
connected w-ith war production have been part of the base on which 
all States have been collecting contributions, and they have had several 
years of such collections. To the extent the war is still continuing, 
they still have money coming in, based on that expansion, to help meet 
the lay-offs that will come when the war ends in Europe and the 

So that may give you some picture of the very sizable accumulation 
of money for this pur})ose in each and every State. 

I might say that the respective States have during the past year 
worked on the question of the adequacy of their funds; and I don't 
know of any State that has said that its f-und will be inadequate. 

Some of us were a little concerned about Michigan, and you will 
note that Michigan is not the strongest fimd in the country. But the 
Michigan agency seems to feel, and the Michigan Legislature seems 
to feel, that they will have plenty of money to meet their obligations. 
They had a legislative session only a few months ago, and some of us 
raised the question. Shouldn't you do something about this? Their 


answer seems to lisive been no ; that they had a very substantial pile of 
money, with more still coming in. 

Michigan has in its current fund nearly one-quarter of a billion dol- 
lars, namely, $233,000,000. And they seem to feel that they are in very 
good shape, or at least in good enough shape so that they didn't feel 
that it was necessary to amend their law to collect additional contribu- 
tions at higher rates. 

Some of the other States thought it was the part of prudence to do 
something extra; and there are 10 States which have levied special 
contribution rate, my State among them. We realized that we have a 
heavy load coming up, and we wanted to be sure we would be able 
to meet it, and have a little margin left to improve and strengthen our 
benefit provisions if the need requires it. 

Perhaps I should stop at this point, unless there are some questions 
on the solvency and strength of these funds. I say again, these are 
the biggest reserves that any of these States have ever built up. They 
amount to over live and one-fourth billion dollars now, and are grow- 
ing at the rate of about a billion dollars a year. 

By the time the first unemployment impact comes, there are cer- 
tainly going to be very adequate funds to handle any unemployment 
benefits payable between the end of the European war and the close 
of the Pacific war. It is true, if the reconversion lasts a long time 
the durations may not be quite long enough in some cases; but at least 
the States, as I see it, are in ^ position to strengthen their own laws; 
and there is the possibility, after all, that the length of reconversion 
ma}^ be the primary test. 

With all this dammed-up consumer buying power, and not enough 
civilian goods, it may be you are not even going to have a post-war 
depression to worry about at the close of the Pacific war. In fact, some 
people are worrying about the dangers of inflation at this stage; that 
you are not going to have enough civilian goods to sell people, so that 
prices may skyrocket unless you maintain controls. 

Of course, we all know from past experience that there is a danger 
in the long pull. Some time after war is over, especially a big one, 
you may get a bad depression; but it may be long delayed, it may 
be a matter of 10 years later, for all we know. 

Mr. VooRHis. ilr. Chairman, I wonder if we couldn't ask some ques- 
tions. I want to be sure we have some time. 

The Chairman. Well, Mr. Voorhis, at this point we will let you ask 
the first question. 

Mr. Voorhis. The first thing that I wanted to say was that I think 
you have done a splendid job in getting us figures so much up to date. 

Mr. Raushenbush. We w^orked hard hard to do that. 

Mr. Voorhis. I think credit is due the people who are administering 
these laws in all the States so that you were able to do that. 

Now, do I correctly interpret the general impact of your statement 
to mean that you believe that the State funds are in such shape that 
any over-all provision for important post-war unemployment on the 
part of the Federal Government is unnecessary? 

Mr. Raushenbcsh. Well, that is a question as to how long you ex- 
pect it to last ; but I do say, especially as to the unemployment that 
is going to occur between the close of the European war and the close 
of the Pacific war, I cannot see at this time that it's going to be so 
prolonged that the State laws — as they stand, and as they will un- 


cloubtedly be amended by State action — could not meet that part of 
the problem very satisfactorily. 

Mr. VooRHis, Well, let me ask you this — assume that the griefs that 
are involved in Government contracts are all going to be dealt with 
by the Federal Government on a uniform basis. 

Now, is there going to be some feeling on the part of the men who 
have done the work in those plants that it is not quite equitable in 
some of those States where they may have gone, to be in receipt of a 
considerably lower amount of unemploj^ment compensation than some 
fellow may be in another State? 

In other words, is there anything to the idea that there ought to 
be a uniformity about this- matter, since the situation that will result 
will be the result of national war? 

Mr. Raushenbush. Well, I think that "uniformity" question runs 
rather deeply into the whole structure of our Government and our 
economy, doesn't it? 

Mr. VoORHis. No, not if you understand it. because the question I 
am asking is whether the reconversion period after the war is to be 
regarded as a period of strictly unemployment such as the unemploy- 
ment system was supposed to be set up to take care of, or whether it 
is something different again that should be regarded as comparable 
to provisions for veternns of the war, or something of that kind? 

Mr. Raushenbush, Well, it seems to me there is a distinction be- 
tween the man who has been overseas a. couple of years and has been 
away from his job, on the one hand, and the worker in a war production 

After all, many of these are the same workers who worked in that 
same plant before the war and will work in that same plant again ; 
and the provisions of their respective State unemployment compen- 
sation laws covered them before, and now cover them along with other 

I would say that you should not try to introduce an element of uni- 
formity in there, unless you are interested in long-range uniformity 
throughout the country. 

Mr. VooRHis. That answers my question. 

Mr. Raushenbush. Yes. 

Mr. VooRHis. In California we have a lot of folks who didn't live 
very long in California before. We think our fund is going to be 
in pretty good shape. 

Mr. Raushenbush. Your legislature had a committee which con- 
sidered whether they should levy special war-risk contribution rates, 
or not. Employment and pay rolls had expanded ver}^ rapidl}^ but 
they canvassed the situation, and decided that they did not need to 
take special action, as their fund was in a very strong state. 

The workers who work in California will draw on the California 
fund, where the conti'ibutions have been paid on that work, both by 
the employer and the employee in your State. 

Mr. Voorhis. I know. 

I have two more questions. 

What about the people who are not covered by unemployment com- 
pensation ; what do you think ought to be done about them ? 

Mr. Raushenbush. Yes; there are several different classes. 


First, I would say, and I would call the attention of this committee 
to it — though you are probably well aware of it — one group that en- 
tirely lacks benefit credits at the present time is the Government 
arsenal and navj^-yard workers. You realize that the reason they 
are not covered is because we couldn't take jurisdiction over them in 
the States. 

For most practical purposes these Federal employees are just like 
workers in a privately owned and operated war factory. They are 
working in the same city, doing the same type of work, let us say ; and 
yet in case of those arsenals and navy yards there is no unemploy- 
ment compensation coverage. That is Federal jurisdiction. 

It would be appropriate and desirable to afford coverage to them; 
and that coverage, I hasten to say, should be exactly the same as if 
they had been covered under the law of the State where they work, 
even though there has been no contribution paid on their wages in the 

It would take legislation, but Congress need not establish a special 
compensation system for these workers in Government arsenals and 
navy yards. 

Maybe some of your clerical war-duration employees should be cov- 
ered, too. At any rate you have j^our whole field of Federal workers. 

Mr. VooRHis That is all I have. 

Mr. Raushenbush. May I just finish the specification as to what 
that program might be like ? 

They should be treated as if they had been covered under the law 
of the State where tliey worked. That means all the State provisions — 
as to weekly benefits, disqualifi rations, duration, and everything else — 
are to apply- The system should be administered through the same 
agency that administers the State law now. The emplo3'er. the navy 
yard, would make any necessary reports, to help establish the rights 
of these workers. And the Federal Government should pay the cost, 
on a 100 percent reimbursement basis. 

There, I think, is a desirable piece of Federal legislation, to provide 
coverage for workers who would normally be covered, under the State 
laws. Provide them benefit protection on the same terms with the 
other workers in that State, with full Federal reimbursement of actual 
payments. But all the conditions of the State law should apply, and 
administration should be the same. It would be no problem admin- 
istratively to give them parity of treatment with what they would have 
if they had been working in a private plant. 

I could go on as to maritime workers. There should be State cover- 
age there. You see, it was only recently that a Supreme Court deci- 
sion allowed maritime workers to be covered by State law. But that 
is another story, which I believe another committee of this House has 
been giving consideration to. 

In still a different class are those people employed by very small 
employers. There you ought to be dealing on a long-range basis, too. 
If you are willing to change the Federal Unemployment Tax Act to 
cover employers of one, instead of only employers of eight, we would 
then get the State laws changed accordingly. But I think that ought 
to be a permanent long-range program. You cannot throw funds in, 
on a temporary stopgap basis, and do a good job. 

09569— 44— pt. 2 T 


The Chairman. I believe Mr. Welch has a question. 

Mr. R\u;HENBUSH. Yes. 

Mr. Welch. Mr. Raushenbush, from your long experience, can you 
give the committee an idea as to how post-war jobs in gainful work 
can be provided for the men and women now in the armed services of 
the Government, as well as the vast army of men and women now 
engaged in war-production industries? 

Mr. Raushenbush. That is one of the biggest orders I think I ever 
heard in a short space of time. Of course, my feeling is that you 
have got to have cooperation between all levels of government and 
private industry. You have got to encourage initiative; and put the 
emphasis on full employment and steady employment, and on low- 
cost production, which you can only get with steady operation. But 
that is so big a question that I hesitate to tackle it at all, right now. 

Mr. Welch. There is another aspect that you have been discussing 
and you have given us a very intelligent explanation — one that is ap- 
preciated by all of us, I am sure — the preparations being made by the 
States to meet unemployment; but as you know, there is a bottom to 
the well. 

Mr. Raushenbush. Yes. 

Mr. Welch. We cannot keep on appropriating billions for unem- 
ployment; we must finally afford an oiDportunity for those men and 
women now in the armed forces and in wartime industries to work in 
gainful occupations. 

Mr. Raushenbush. I thoroughly agree. 

The Chaifman. Mr. Folsom, I wonder if you don't have something. 

Mr. Folsom. Yesterday Mr. Bigge, of the Social S?curity Board, 
thought funds should be available to pay benefits for 26 weeks. 

Do you agree with that ? 

Mr. Raushenbush. Well, I wouldn't be sure that that was true in 
every State ; and I would like to see the figures on which he based that 

Let me say that we have been working with, and working on, the 
Social Security Board for a period of better than a year, trying to 
get very specific estimates from them as to the State-by-State solvency 
picture, to persuade them to make their own estimates, and to make 
them available to the States. We thought that would be helpful to 
the States. We've had rather limited success, so far; but we think 
they are now planning to get out State-by-State estimates, perhaps 
within in a few weeks, to give each State a check on its judgment as to 
what it can afford to do or should afford to do. 

Mr. FoLf-oM. You think the States could probably increase the dura- 
tion, but you would hardly expect them to go beyond 20 weeks? 

Mr. Raushenbush. Well, I think some of them might, probably j; 
but I would like to see some of them get up to 20 weeks first. 

Mr. Folsom. They have a long way to go. 

Mr. Raushenbush. Some of them need to get up to 20 weeks. But 
they have all come up quite a considerable distance. 

Mr. FoLSOM. Dr. Bigge in his prepared statement mentioned that, 
while this fund of 5 or 514 billion dollars which might be 61/2 billion 
a year from now, might be adequate to take care of the situation as a 
whole, in a number of States where reserves are going to be needed 
they haven't got the reserves. Therefore he felt the answer was com- 


plete federalization, but in the absence of complete federalization he 
thought there ought to be some standards set up. 

Will 3'ou comment on that? 

Mr. Kaushenbush. Well, that is federalization under another name. 

Just visualize the kind of "standards" the Social Security Board 
has talked about from time to time, and how they would work out. 
They would make it a requirement that a State shall have such and 
such a benefit range; certain disqualifying conditions; such and such 
eligibility provisions; such and such contribution rates. Let the Fed- 
eral Government specify all these inter-related provisions, and you 
would have a national federalized system in actual fact, even though 
you didn't call it that. 

So this idea of "Federal standards" is just another form of federali- 
zation. I think anybody who has really analyzed it would reach that 

At the point where you have federally imposed specifications for a 
State law to meet, at that point State discretion as to legislation and 
administration would wash out of the picture at the State level. I 
would sa}' if you were doing that, you may as well have the real thing, 
namel}'^ complete federalization. If you adopted Federal "stand- 
ards" and "reinsurance," you would wipe out the advantages the 
State systems now have, based on the determination of the people of 
each State, on their knowledge of their own conditions, their ideas of 
what is an adequate weekly benefit amount, what are the proper dis- 
qualifying conditions, their ideas of what contribution rates you should 
have, and all the rest of the various decisions that now go into the 
State systems. 

The Chairman. You don't advocate that ? 

Mr. Raushenbush. Federal system; no. If I thought it was in 
the long range interest of the people of this country, I think then I 

The Chairman, It would involve a lot of other questions, wheth'er 
the long run benefit to the people in that field would outweigh the 
benefits to the people in other fields. 

Mr. Reece. I was going to ask Mr. Folsom: Was your question 
whether this fund would take care of benefits for returning veterans ? 

Mr. FoLsoM. No. This relates to people who are now working in 
civilian industiy. 

Mr. REEtrE. It has nothing to do with the veterans. 

Mr. FoLsoM. No. The G. I. bill takes care of that. 

Mr. Reece. And would this take care of those who would be de- 
mobilized from the war factories? 

Mr. FoLsoM. Yes. 

^Ir. Reece. And you stated 26 weeks. 

Mr. FoLsoM. Dr. Bigge in his statement yesterday said he thought 
the funds were adequate to pay 26 weeks. 

Mr, Reece. At how much ? 

Mr. FoLSOM. It depends on the State laws. 

Mr. Reece. It is based on the State laws. 

Mr. FoLsoM. Yes. 

Just one other question : In Dr. Bigge's statement he brings out the 
point that there are so many disqualifications in the State laws that 
they won't take care of the'situation as well as they could, due to the 
experience rating provisions. 


I would like to have your point of view. 

Mr. Eaushenbush. Well, I think it would be very hard to demon- 
strate that all of those disqualifications are due to experience rating. 
Mr. FoLsoM. He didn't say all of them. 

Mr. Raushenbush. I know in Wisconsin we have had our legis- 
lature knock out disqualifications which we did not think were justi- 
fied, with employer support. 

That you wouldn't hear from the Social Security Board, I am 

But there has been a lot of sentiment during this wartime period 
that you shouldn't be paying benefits at all, for sitting around instead 
of taking war jobs; and you have had some of the laws amended to 
tighten the qualifications. You have also had somewhat tighter ad- 
ministration, I think quite properly so; and that is in large part a 
reflection of the manpower shortage. When people are needed to turn 
out war goods you don't want to many of them drawing benefits at 
this stage, under present conditions. 

But let me make one other statement on this whole disqualification 
matter which we have heard a lot about. In every speech the repre- 
sentatives of the Social Security Board make nowadays they stress 
the disqualification issue. I agree with some of their remarks; but, so 
far as I know, the Social Security Board is basing their stuff primarily 
on individual cases. When it comes to saying how important those 
particular cases are, they haven't given you that kind of figure. 

So far as I know, the only figures they have available relate to com- 
plete disallowances; and the latest tabulation is in the Social Se- 
curity Year Book, page 178, table 139, for the year 1942. For 1942, 
with "the figures for all State laws combined, taking all new claims dis- 
posed of on first determination as 100 percent — less than 16 percent 
were disallowed for all reasons. Of those, 14.5 percent were disallowed 
because of no wage record or insufficient wage credits; leaving only 
1.4 percent disallowed for other reasons. 

Now, that is not to write off completely the importance of the dis- 
qualification provision, but I know generally it is overplayed. They 
talk about Iowa. I have talked with Iowa men who say that it doesn't 
make very much practical difference in very many cases. And that is 
the kind of thing you have got to realize. 

The Chairman. We are very grateful to you, Mr. Raushenbush, for 
your contribution here this morning on this subject. We appreciate 
your having made the trip down here; we appreciate the information 
you have given us. 

Mr. FoLsoM. Mr. Chairman, Mr. Loysen is here and I think he has 
a prepared statement. If he could present his statement I don't think 
it would take him very long. 

The Chairman. Well, we would be very glad to hear him but we 
must go 

Mr. Loysen, if we had known you were here we could possibly have 
made arrangements to divide the time but it is necessary that we get 
over to the floor now and if you have a statement I think it would be 
well for you to leave it with the reporter. 

Mv. Loysen. I have a prepared statement and will be glad to leave 
it with you. 



I am opposed to the plan of supplementation of State unemploy- 
ment compensation systems through subsidy by the Federal Govern- 
ment. I do not see any demonstrated need for it at this time or in 
the foreseeable future. Most of the workers in the country are as- 
sured of substantial benefits during enforced unemployment under 
the present State-Federal system. The allowance provided in the 
G. I. bill of rights (S. 1767) should go a loug way in bridging any 
gaps for returning soldiers who are unemployed. 

New York State has been looking ahead in its financial planning 
for the unemployment trust fund. Since the beginning its employers 
have paid a flat rate, the normal 2.7 joercent of pay rolls, in order 
to build up substantial reserves for a recession period. We had 
decided from the beginning that our plan of financing should be on 
the reserve principle rather than pay-as-you-go. In spite of the 
strong arguments for reduction of rates our administration has each 
year taken the position that we could not afford lesser revenues until 
the maximum potential liabilities of the fund were covered. Mean- 
while our legislature has annually improved the system on the side 
of adequacy of benefits. I do not say it is perfect yet, but I am 
confident that as the situation warrants it the State will make pro- 
vision for the needs of its workers — and if it so happens that the 
trust fund falls short of meeting this obligation other sources of 
revenues within the State will be sought before it becomes necessary 
to ask for a deficiency subsidy. 

This is not the time for making guaranties of doles to workers 
nor to set up the machinery for economic collapse. To put such 
contracts on the books now — and to make it last for 2 years, or 
any otlier substantial period — would be an invitation to masses of 
people on the fringe of the labor market and to all the lazybones 
in the country to relax and draw their "rocking-chair" mone}^ The 
cost of such a plan long before the chaos actually arrived would be 
staggering and in my opinion would hasten the very thing we are 
planning against. It is my further opinion that because of the 
substantial amounts suggested, up to 80 percent of normal earnings, 
this legislation would set up a resistance prior to complete reconver- 
sion in the recruitment of replacement war workers and would tend 
to increase turnover. 

It is now common for several members of each family unit to be 
working. If interim placement pay was given during the recon- 
version period there are many families where it would pay for some 
of the members to withdraw from the jobs. The total family in- 
come would be made up from work and idleness combined. There is 
a difference between the entitlement of each individual in a family 
unit to unemployment benefits as a right and the payment of such 
rates as the Kilnore bill provides. 

Using New York State as an example of a typical industrial State 
I should like to analyze the character of the labor market and illus- 
trate what is involved in terms of potential unemployment. 

In peacetime New York is a State of varied industries with trade, 
business, and services playing a prominent role. During the war 


manufacturing^ industries have come to provide the major part of em- 
ploj^ment. Our service, trade, and transportation activities are now 
heavily dependent upon war manufacturing. 

Since 1940 we have had a one-third increase in the annual number 
of covered workers in our system, from 4,500.000 to 6.000,000. Since 
November 1943 the upward trend of employment has leveled off and we 
expect little or no further expansion of employment. 

If the war continues on all fronts for several years our fund, now 
approaching $800,000,000, will be in a strong position to meet its lia- 
bilities since our exposure. to payment through additions to employ- 
ment will not increase. 

In estimating what our resources should be we have not adopted this 
optimistic view, however, but have believed it advisable to provide for 
a serious, though not catastrophic, situation. If the war with Ger- 
many should end around December 1944 and the Pacific war a year 
later, we can meet a load of about 2,000.000 unemployed drawing bene- 
fits without insolvency. We estimate that we may have about 950,000 
more claimants than in 1940, our heaviest year of benefit payments. 
These will be displaced because they entered our various covered em- 
ployments in response to war demands or replaced workers who en- 
tered the armed services. The immediate effect of prime contract 
terminations will be the fanning out of business set-backs to hundreds 
of subcontractors and throughout our service industries and retail 
trade and transportation, all of which have been heavily dependent 
upon war-production activity. 

We estimate that the average duration of payments may be 18 weeks 
if post-war reconversion takes from 6 to 9 months. The average bene- 
fits rate will, of course, be high — at least $16; it is now $15.83. 

On these cautious assumptions as to our liabilities, we could pay 
about $5T5.r00.000 in the first post-war year. This is more than five 
times the $97,500,000 paid out in 1940, a good year for employment 
opportunities and one in which we had a much less liberal benefit 
formula. If the present formula had been in effect in 1940, however, 
payments tlien would have totaled $157,000,000. In 1946 we estimate 
we mav still be obligated for $400,000,000 in payments and in 1947 
for $200,000,000. This will leave us with something over $50,000,000 
to enter the year 1948. By then our current liabilities should be 
greatly reduced, provided the readjustment period has not turned 
into a deep-seated depression. 

We feel there are economic indicators as well as a strong feeling 
of business and Government responsibility that make this upturn in 
business a reasonable assumption, and we have so made our financial 
plans. We do not believe that insurance plans can or should be made 
on the basis of a long-term depression outlook. Cash benefits are 
not the right remedy for such a situation. 

S. 1893 is based on a defeatist philosophy. It is planning for un- 
employment, not for the maintenance of the American worker's 
standard of living and the assurance of employment in a free labor 

To me, the most important part of this whole proposition is just 
what we can expect as to the amount and duration of unemployment 
and just how we should cope with unemployment problems of differ- 
ent magnitudes. 


At best, unemployment benefits, whether Federal or State, are but 
a temporary exj^edient if we are going to have prolonged unemploy- 
ment. There is a lot of economic and moral danger in carrying a 
heavy load of unemployed on cash benefits for a long time such as 2 
years. Sir AVilliam Beveridge remarked to us in New York that it 
was reasonable for him to plan an unemployment on the assumption 
of limited need for unemployment benefits in the post-war period 
because he was sure the workers of England would not put up with 
a government that gave them nothing but unemployment benefits in 
a serious situation. I hope we will face the same issue here. 

There are many means at the disposal of the Federal Government 
for stinudating private employment in the post-war period. Plan- 
ning for unemployment is not enough. As I see it, we will either 
have a somewhat brief period of readjustment, in which case it has 
yet to be proved that the State reserves will be inadequate, or we 
will face a nuich more serious situation, in which case the responsi- 
bility of business and Government is to see to it that our workers 
get employment, not benefits. 

There are five points in connection with the immediate proposals 
before us that throw considerable doubt on the validity of the whole 
approach in the Kilgore bill. 

First, State unemplo3'ment insurance reserves represent a source of 
protection and buying power that we did not have at the beginning of 
the thirties. 

Concern is beginning to be expressed in Washington that war-caused 
unemployment "would have to be borne by the State unemployment 
reserve funds." That is precisely what those reserves are for. We 
went into the depression of the thirties with no funds whatever ear- 
marked for unemployment by either States or the Federal Government. 
We now have $5,000 000,000 in State unemployment reserves, and they 
will undoubtedly exceed $6,000,000 000 by the end of this year, without 
further significant increases in employment coverage. 

It is true that both the national income and the labor force are much 
larger now than in 1929 or the early thirties. It is also true that our 
standards of unemployment aid have been raised — by State unemploy- 
ment insurance. But prompt expenditure of a substantial part of 
these huge reserves is bound to be felt, not only through the psychologi- 
cal and financial protection afforded to the individual worker but 
through the effect on buying power in each community. The impact 
of expenditure of even half this amount in the year following the war 
is dramatized by the fact that not until 1935 — 5 years after the depres- 
sion started — did Federal, State, and local expenditures for public aid 
of all kinds reach a fit-ure of $8,000,000,000 ann.ually, and not until 1937 
did they exceed $3,000,000,000 annually. Thanks to unemployment 
insurance, there is a fence against repetition of that chaotic period with 
its moral and physical deterioration of millions of destitute people. 
Before concluding that Federal commitment must be made immedi- 
ately to increase the Federal debt or taxes for this kind of unemploy- 
ment aid, we nnist take account of these enormous State reserves. 

Second, the States will be in a better position than the Federal Gov- 
ermnent at the end of the war to assume added responsibility for un- 


First, the State governments have steadily developed a more liquid 
position in recent years. Their outstanding debt has been declining 
since 1939. Their tax revenues have been sustained, and in many cases 
increased, despite temporary retrenchment in their normal tax pro- 
grams in order to leave the way free for Federal war taxes. From 
many points of view. State financing if preferable to an increase in the 
Federal debt or Federal taxes in the post-war period. Second, the 
present provisions in the Social Security Act and the Unemployment 
insurance Tax Act have encouraged pay-as-you-go financing and thus 
limited reserves in the unemployment insurance trust fund. The 
policy of pay as you go was left as a choice to the States, but it is still 
not too late to induce higher contribution rates for employers during 
the period of high production. These higher taxes would in most 
cases be assumed by the Federal Government in any event as part of the 
cost of war production. A number of States have already enacted 
provisions to obtain increased revenues based upon percentage of ex- 
pansion in pay rolls. 

Rate variation based on sound actuarial av.d rating principles can 
be employed as part of a sound long-range financial program. The 
important thing is to measure the amount of revenue needed and to 
establish rates which will insure the desired yield. Under such a plan 
tlie cost of depression unemployment can be paid for at a time when 
business can well afford the slight additional outlay. 

The fact that some States have under experience rating plans per- 
mitted large reductions in rates during the recent period of peak pro- 
duction may have rendered some of the State funds less able to expand 
benefits in time of need than others. This was a matter of local choice, 
but in no case were those responsible unmindful of the fact that 
future potential liabilities were piling up. 

No State is at present in danger. The reserves are sufficient to 
carry present obligations well into the reconversion period, and prob- 
ably to a point well beyond the end of the war. 

There is a general feeling that the present reserves taken State by 
State are adequate to meet anything but a collapse in the whole eco- 
nomic front. There is considerable feeling also that should such a 
collapse occur unemployment benefits for any amount or duration 
woidd be totally inadequate. 

Third, insofar as State reserves have been brought to the clanger 
point by merit rating, the Social Security Act is responsible. It 
permits changes in contribution rates only on narrowly specified 
grounds — grounds which represent fundamentally unsound financing 
of the unemployment risk. A major constructive step to be taken 
immediately is the amendment of this section of the Social Security 

One fault in financing is inherent in the Federal Unemployment 
Tax Act. Section 1602 (a) allows employers to offset the Federal tax 
of 3 percent with State unemployment taxes only on the basis of their 
experience over the preceding 3 years. The result is that with 3 years' 
experience an employer can obtain a tax reduction. This is funda- 
mentally unsound financing against an economic risk such as this. 
The experience of individual employers during the last 3 years is no 
criterion for the future. 

Some of the States have become alert to this danger. They have 
imposed additional war-risk taxes on employers with expanding pay 


rolls. This was intelligent planning for those States which were 
fortunate enough to adopt the conventional experience rating plans 
permitted by the Social Security Act. 

Since this committee is concerned with the solvency of the Nation's 
unem])l()vment reserves, section 1602 of the Social Security Act is of 
direct pertinence. Amendments can be made which will permit us 
to strengthen our methods of financing. When the Social Security 
Act was written, we had no experience and little statistical knowledge 
of unem])loyment. No attention had been given to a sound basis for 
rate variation. From my experience in the insurance field, as well 
as observation of the causes and incidence of unemployment in New 
York State, it seems to me that to reduce or increase an individual 
employer's tax rate on the basis of his individual experience in the 
3 immediately preceding years is anything but prudent fiscal manage- 

The Social Security Board states that it believes in differentials 
in benefits based on wage differentials, but that "present differ- 
ences among the States in coverage, benefit provisions, and assets 
available for benefits bear little consistent relation to underlying 
economic differences." This is a sweeping statement. On the con- 
trary, the States have made many adjustments in the original draft 
bills provided to them by the Social Security Board in order to 
make their laws conform to the economic and social patterns of their 
States. The one point at which the States have been unable to make 
these adjustments is in the tax provisions since in that area they 
are held to the rigid requirements of the Social Security Act. If 
the same flexibility were permitted on the financial side as on the 
coverage and benefits side, the last modicum of truth would be 
eliminated from such charges. 

Fourth, a second point for immediate action at this time is the 
closing of certain gaps in coverage. Here, too, the Federal Govern- 
ment can and should act to enable or induce the States to take the 
necessary action. 

It is now possible for the States to extend coverage to merchant 
seamen. "We are proceeding to make this coverage extension com- 
plete through reciprocal agreements among the States, which will 
permit interstate shipping employers to elect one State for cover- 
age of all their emploj^ees. Marine workers are not covered in the 
unemployment provisions of the Social Security Act. If the act 
were amended to impose the Federal unemployment tax on all em- 
ployers in this industry, it would facilitate the adoption of these 
reciprocal agreements by States, some of which might otherwise 
delay signing them. ' 

There is a further gap in coverage created by constitutional pro- 
hibitions on taxation of the Federal Government by the States. 
Almost lialf a million war workers in Government-owned and oper- 
ated plants are- thereby deprived of State unemployment insurance 
protection. "Workers in navy yards, arsenals, depots, and torpedo 
stations, are, if anything, more exposed to the risk of sudden termi- 
nation of their emploj-ment than workers in privately operated war 

It may also be observed that the total number of workers in Fed- 
eral war agencies now exceeds 2.000,000 workers throughout the coun- 
try. There is much to be said for giving all of them access to State 
unemployment facilities. 


Provision for payment of benefits to Federal employees could be 
made if Federal funds were assigned to the State unemployment re- 
serve funds either in advance or on a reimbursement basis. 

Coverage of small firms is now administratively feasible. There 
has been reluctance on the part of some of the States in the last few 
years to levy a pay-roll tax on small businesses. This reluctance 
grew out of the business uncertainties these firms were facing in the 
period of preparation for war and even during the war. The unem- 
ployment experience of small firms is extremely variegated. 'In New 
York in the years 1941-42 approximately 40 percent of the small 
employers with pay rolls less than $12,500 a year had no compensable 
unemployment. Forty percent had sufficient unemployment to cost 
the fund from a fraction of 1 percent up to 3 percent. The balance 
of approximately 20 percent of these emploj^ers experienced unem- 
ployment costing the fund in individual cases from 3 percent to 50 
percent of pay roll. With the cancelation of prime contracts many 
of the small emploA^ers now acting as subcontractors and those operat- 
ing service establislnnents dependent upon war industries will un- 
doubtedly have severe lay-offs. Since the war small businesses have 
been greatly aided by State and Federal legislative action, and much 
of the uncertainty has disappeared. The need for unemployment 
coverage is demonstrated. It is believed many of the States will cover 
smaller firms by voluntary action, but Congress could effectuate this 
promptly by amending the Unemployment Insurance Tax Act. 

The matter of covering State and local governmental empio^'ees 
could well be left for local governments to determine whenever it 
appears that there will be a need for such coverage. State and local 
governmental agencies are at present time largely at minimum levels 
of staffing. To a large extent replacements of employees leaving for 
military service have not been made. The positions held by these 
servicemen will be held open for them. There is no demonstrated 
need now for coverage, and it appears that there will be none arising 
from cancelation of war contracts or the end of the war. 

Protection of agricultural workers will not be solved by the type 
of proposal suggested in S. 1893. The seasonal workers engaged in 
harvesting M'ill largely not be employed for the 180 days specified 
in section 410. The self-employed agricultural worker presents a 
problem in administration of the work test which is well nigh im- 
possible to solve. The problem of marginal farmers earning insuffi- 
cient income for proper support is one which could probably be 
solved better through programs carried out by the agricultural au- 
thorities, since the problem is essentially one of land economics and 
not luiemployment relief. 

There is a critical shortage of domestic workers at the present time 
and there has been for the last 8 years at least an undersupply of do- 
mestics in the large cities. This is an occupation in which shortage 
rather than surplus is characteristic and I see no reason to suppose 
that the reconversion period will produce a surplus. Neither will 
anything but a major depression curtail the demand for domestic 

With the rapid progress of the G. I. bill of rights through Congress, 
one other gap in coverage — protection of ex-servicemen aganst unem- 
ployment — is being closed. In most States provisions have been in 
effect for several years which protected covered workers who went 


Into the armed forces. In New York we recently extended this pro- 
tection to all veterans. Now with the G. I. bill of ri<^hts, benetit pro- 
tection to ex-servicemen would seem to be assured. 

Fifth, the most important inadequacy in the State systems is on the 
side of duration of payments. It must be remembered that weekly 
benefit rates reflect wage levels in many thousands of communities 
throughout the country. The provisions in the Kilgore bill, S. 1893, 
with regard to weekh^ rates of cash payment cannot be taken seriously 
by anyone who believes that employment rather than unemployment 
will be the solution of our post-war problem of economic stability. 

I am in no position to pass judgment on the adequacy of weekly 
benefit rates in the many thousands of communities throughout the 
country in which they will be applied after the war. We all agree, 
however, that war workers are scheduled to receive both the maximum 
rate and the maximum duration owing to their relatively high earn- 
ings. The average benefit check in January 1944 was already $15.18, 
a 17 percent increase over the $12. 60 paid in the year 1942. No State 
pays a lower maximum than $15 weekly, and most of those which pay 
$15 are the less industrialized States. Only two States pay benefits 
for as short a period as 14 weeks, and only one pays for 15 weeks. All 
the others pay benefits for 16 weeks or more, many of the larger States 
for 20 weeks, and California, one of the greatest war-industry States, 
pays $20 weekly for 23 weeks to every individual who earned $2,000 
or more. 

In actual fact, there will be more uniformity, and at rather high 
levels, in the standards of benefit payment for war workers than there 
is in the wage rates now paid to them in different parts of the country. 

If I may quote from the Social Security Board : 

Progress under the Social Security Act has been more substantial than its pro- 
ponents would have dared to predict 8 years ago. The provisions of law and the 
process of administration have been tested through an arc of widely differing 
economic conditions in years of depression, recovery, and war. The objectives 
of the program have been found in accord with the traditions and desires of the 
American people. — Source : Social Security Bulletin, January 1944. 

Even on the basis that unemployment-benefit systems should he 
restricted to short-period unemployment, hoAvever, there is room for 
extension of the duration of payments, up to about 26 weeks. When 
the time comes I think the variable duration based on past earnings 
still found in many State laws should give way to a benefit duration 
that represents the need of the times, but I am opposed to anything but 
a limited use of the unemployment-benefit system; that is, I think that 
after 26 weeks some other device should be used to assist the individual 
and the community than the payment of cash benefits to a man in 

If some States are slow in increasing the duration of benefits, even 
after the need to do so has been clearly demonstrated. Federal funds 
might then be emploj^ed in stimulating private employment or by 
creation of work programs. It seems to me that Federal unemploy- 
ment assistance for chaotic unemployment, with or without means test 
or work test, should be ruled out entirely. It has been a failure wher- 
ever it was tried and its revival would demoralize the iDopulation. 

The Chairman. Thank you. We will adjourn until 10:33 in the 
morning in this room. 

(Whereupon, at 12 m. (noon), the committee adjourned to Thurs- 
day, May 25, 1944, at 10 : 30 a. m.) 


THURSDAY, MAY 25, 1944 

House of Representatives, 
Special Committee on Post-war 
Economic Policy and Planning, 

Washington, D.C. 
The special committee met at 10: 45 a. m. in room 1304, New House 
Office Building, Hon. William M. Colmer (chairman) presiding. 

Present: Representatives Colmer (chairman). Cooper, Zimmerman, 
Fogarty, Worley, Lynch, Fish, Reece, Wolverton, and Welch. 
The Chairman. The committee will please come to order. 
We are glad to have Mr. Thomas S. Holden, president of F. W. 
Dodge Corporation, present this morning. 

Mr. Holden, if you will, you may make such statement as you care 
to make, after which I am sure some members would be glad to ask 
some questions. 



Mr. Holden. I might explain that my company is engaged in pub- 
lishing and gathering news on construction activities. It has been 
in this business since 1892. We have 35 offices engaged in news- 
gathering activities. 

I. myself, have been active on the post-war committees of the New 
York IBuilding Congress, and of the Commerce and Industry Asso- 
ciation of New York. I am chairman of the post-war committee which 
we organized in our own company nearly 2 years ago. When I saw 
the announcement of the formation of your committee, I sent to each 
member of your committee a copy of our study of post-war construc- 
tion markets entitled "Construction Potentials"; I hope this report 
has been helpful to your members. 

It was a fairly long statement, and I have condensed it into a state- 
ment which I can present here in somewhat general terms ; and I hope 
that I will be able to answer any specific questions you gentlemen want 
to ask me. 

I am convinced that large-scale revival of construction activity 
would start tomorrow if public policy permitted immediate relaxation 
of the present ban on projects deemed unessential to the war effort, and 
if construction materials and equipment could be supplied fast enough 
to meet the demand. 

Most urgent and immediate demand, and the one most likely to 
get the first green light, is for deferred maintenance, repairs, and 
modernization of existing structures. Such work does not have to 



wait upon the lifting of rent ceilings, removal of uncertainties as to 
future cost trends, or such other factors as must necessarily be carefully 
weighed in the case of contemplated investment in totally new projects. 
Expenditures for deferred maintenance, repairs, and modernization 
represent protection of existing investment. Most maintenance and 
repair projects involve relatively simple bills of materials, as compared 
with the fairly extensive variety required for most new structures; 
they do not require elaborate blueprints. Certain types of essential 
industries, public utilities, and so forth, have been able to obtain these 
materials, whereas the general civilian public has not. 

It is likely that the total volume of such work would grow quickly 
into a vast Nation-wide activity. Estimates of the needs run from 
three to five billions of dollars during the first 12 months after war- 
time restrictions have been lifted. Department of Commerce estimates 
on normal peacetime volume of this class of work show average annual 
expenditures during the 1920-39 period of something over 2i/) billions, 
with a range from $3,562,000,000 in 1929 to $1,773,000,000 in"l933, the 
lowest depression year. Volume estimates have been running over 
$3,000,000,000 during the wartime years. 

It is interesting to note that these estimated annual maintenance 
totals of the Commerce D?]>artment exceed in every single year of 
the 20-yoar peacetime period the estimated total of expenditures for 
new public construction, excluding work-relief projects in the years 
when we had them. Averaging in work-relief construction along with 
reirular public construction over the 20-year period njives the figure 
$2,240,000 000. compared with the maintenance expenditure average of 
a little over $2,500,000,000. In other words this great volume of 
maintenance work that ])ractically always goes on is normally bigger 
than our public-construction program. The record also indicates that 
maintenance expenditures tend to increase in prosperous years. 

More important, however, for continued growth in construction 
volume is the evidence of demand for new construction. It seems 
very likely that shortages of manv types of structures are much greater 
than they were at the end of World War I. It has been estimated 
that 2 734,000 new nonfarm dwelling units were produced in the 
1930-39 decade, compared with an increase of 4,450,009 nonfarm fam- 
ilies. Thus the ratio of new housing accommodations provided to new 
families Avas only 10 to 16. This indicates a considerable housing 
shortage at the time of the 1940 census. The war-housing program 
has provided new accommodations — partly temporary in character — 
for a portion of the families in lower-income brackets. No houses 
costing, with land, over $6,000 have been built at all since the latter 
part of 1941, thus creating an immediate deferred demand for houses 
in this higher-price classification. In 1941, the residential building 
revival which had been in progress since 1935 was expanding into a 
residential building boom under the influence of defense-program pros- 
perity, and had to be curtailed in October of that year by adoption 
of priorities and restrictions. 

Deferred demands exist for other classes of construction curtailed 
in the war period. The vast war program of industrial building pro- 
vided expanded facilities for such manufacturing industries as chem- 
icals, synthetic rubber, iron and steel and other metal-working ma- 
chinery, automobiles, aircraft, and other mechanical industries. It 



did not provide any appreciable expansion for such industries as food 
processing, paper and pulp, printing and publishing, stone, glass, and 
clay products, textiles, lumber and woodworking, leather and leather 
products, and other nonwar industries. 

These nonwar industries, many of which have operated to capacity 
during the war, will provide the greater part of post-war industrial 
building demand, which should be quite large according to peacetime 
standards. We estimate it would be probably one-third larger on the 
average during the first 10 years after the war than during the 1930-39 
period, which was mainly a depression period. 

Since all residential and industrial building projects are definitely 
related to the communities where they are situated, nicreased building 
activity in these classifications must necessarily be accompanied by 
increased volume of commercial building and of public and private 
community facility construction. 

\'arious surveys of construction needs and various estimates of con- 
struction volume have been made. My own company's field staff has 
accumulated since September 1942 a list of 38,806 specific projects con- 
templated for post-war execution, the aggregate estimated cost of 
which amounts to $9,130,521,000. Of these over 40 percent, by number 
and value, have advanced to the designing state. These projects in- 
clude none located in the Rocky Mountain and Pacific Coast States, 
an area our field staff does not cover. In other words, an estimate for 
the whole country would add about 20 percent to the figure I have 
given you. 

In spite of the vast size of this indicated program, it is not, in detail, 
a representative picture of the post-war construction market. Two- 
thirds of the projects, by number, are private projects, but they repre- 
sent only a sixth of the total value. There are several explanations for 
this. Public planning agencies were encouraged at a very early stage 
to make post-war works programs and project plans. More than that, 
they were encouraged to make their programs on as large a scale as 
they could in expectation of possible Federal subsidies. Private cor- 
poration and individuals, on the other hand, have been much slower in 
making actual plans and in making known to outsiders any plans 
they might have in contemplation. 

However, the volume of private project plans has been steadily 
increasing since the first of this year. The professional and trade 
magazines and trade associations have been strongly promoting the 
idea of early preparation of actual blueprints; certain manufac- 
turers have been advertising the blue-print-now idea in general maga- 
zines. Savings institutions are promoting among their depositors the 
idea of earmarking savings for down payments on homes and the idea 
of early consultation with architects ancl builders. My own company, 
through its various publications and services, is taking an active part 
in a number of these promotional programs. 

Partly on the basis of our accumulated data on post-war projects 
and partly on the basis of analysis of over-all economic factors, my 
company's committee on post-war construction markets has prepared 
estimates of post-war construction volume. We estimate that total 
construction volume in the first 10 years following the war will, after 
making due allowance for a chansfed price level, average double the 
average annual volume of the 1930-39 decade. This would be about 
5 percent greater than the average annual volume of the 1920-29 dec- 


ade, a post-war period which had the Largest construction volume of 
any peacetime decade in the country's history. 

Within this estimated total, our guess is that residential building 
volume will average three times the 1930-39 annual average ; that non- 
residential building volume will average 70 percent greater; and that 
heavy engineering construction will average 50 percent greater. 

We estimate that private building and engineering work will run 
two and a half to three times the average of the pre-war decade. This 
would require a proportionately greater increase over the 1930-39 
j)eriod in private v>'ork than in public work. To support this view, I 
can cite in evidence the records of the two peacetime decades betw^een 
the two wars. 

Between 1920 and 1929, the post-w^ar prosperity decade, private- 
construction expenditures were 3.7 times public-construction expendi- 
tures; in the depression decade, 1930-39, private construction expendi- 
tures were a little over 1.1 times public-construction expenditures, in- 
cluding work-relief projects. We lean strongly to the view that the 
post-war pattern will be more like that of the previous post-war pros- 
perity period than that of the great depression era. 

One direct impact of prosperity upon construction demand should 
be mentioned. It is a recorded fact that American consumers in the 
aggregate spend, almost uniformly, year in and year out, 13 percent of 
their total income for housing accommodations; the figure for these 
housing expenditures includes rent for tenant-occupied properties and 
the carrying charges which constitute the equivalent of rent for owner- 
occupied properties. If this customary 13 percent allocation to hous- 
ing expenditures holds in the post-vv^ar period, and if national income 
averages 75 to 100 percent higher than in the pre-war depression 
decade, it naturally follows that the Nation's total house-rent fund 
will increase 75 to 100 percent. That portion of the increased rent- 
fund which is not absorbed by higher prices — and some of it will be — 
will be spent for improved accommodations both in modernized build- 
ings and in new houses. There is already great pressure on rent ceil- 
ings and an active revival in the real-estate market. 

All available evidence indicates that the problem of early construc- 
tion revival is not one of lack of demand. Nor is it one of lack of 
purchasing power. It has been estimated that liquid savings in the 
hands of individuals amounted to $58,000,000,000 at the beginning of 
this year. They have been increasing steadily since that time. 

Congress has provided demobilization pay for men and women in 
the armed services, to an estimated total amount of $3,000,000,000. 
Social Security reserve funds will amount to $11,500,000,000 by the 
end of June. In addition, business and industrial corporations, finan- 
cial institutions and State and local governments have been saving 
money and building up post-war reserves. 

I naturally do not intend to imply all those large amounts of money 
are going to be spent on construction, but to illustrate the existence 
of widespread purchasing powder in the country to cover purchases of 
all kinds. 

The construction industry itself, most versatile and flexible of the 
country's major industries, is ready to go ahead. It will be able to 
swing into the post-war revival program as quickly as it did in the 
war construction program of 1942. In that year it handled what was 
by far the largest volume of construction work in the country's his- 


tory, including hundreds of projects vast in size and novel in char- 
acter. Many projects were completed ahead of schedule, and inci- 
dentally most of them at very small profit. 

Today many architects, engineers, general and special contractors, 
and building craftsmen are operating on a very restricted scale and 
some are idle. The designing and assembling factors of the industry 
can go ahead at a moment's notice. There is no reconversion prob- 
lem in these sectors of the industry ; in fact, they never have conversion 
problems, since part of their customary stock-in-trade is the capacity 
to tackle entirely new jobs at a moment's notice, to swing directly from 
school, hospital, or factory projects into naval bases, airports, can- 
tonments or large-scale housing, and perhaps back again, in accordance 
with the shifts of the country's construction needs. 

Tlie major problem of early construction revival is purely and 
simply that of orderly and speedy relaxation of restrictions on civilian 
construction, speedy release of raw materials for building-product 
manufacture, release of manpower for employment in the logging 
camps, the sawmills, and the factories which produce construction 
materials and equipment, and allocation of transportation facilities 
adequate to move needed materials to construction sites. 

It has been stated by Russell G. Creviston, chairman of the post- 
war committee of the Producers' Council — that is an organization of 
building-product manufacturers — on the basis of a survey among 
building-product manfacturers, that sufficient supplies of most build- 
ing materials and equipment for resumption of civilian construction 
should be available 3 months after the end of the war with Germany. 
His survey showed that only 15 percent of the building-product manu- 
facturers have discontinued their normal lines of production entirely 
in favor of war goods. Twenty-six percent have continued to make 
pre-war products exclusively to meet the demands of war construc- 
tion and of essential maintenance. The remainder have continued to 
})roduce pre-war products while adding some war products to their 
lines. I may say, also, that demand for construction materials to be^ 
shipped overseas have been very large. In the manufacturing sector 
of the industry, there is a reconversion problem, but it is a relatively 
small one. 

Full realization of construction demand will also depend upon 
policies and programs to be adopted with reference to relaxation of 
price, wage, and rent controls, and with reference to disposal of 
surplus Government property. Procedures followed by Government 
in disposing of war plants, war housing, airplane landing fields, stock 
piles of new and second-hand materials and land will all affect the 
construction market. 

Decisions to invest in rental housing projects, income-producing 
commercial buildings, and the like, will depend upon the post-war 
relationships of rents, land and construction costs, the trends of 
which will become clear only after artificial restrictions are lifted. 
Post-war taxes will also affect investment -building demand. A tre- 
mendous over-all problem, avoidance of post-war price inflation, is 
fraught with possibilities of serious import to construction revival. 

The transition problems above outlined, which are in their essense 
over-all management problems, loom so large in the immediate post- 
99579— 44 — pt. 2 8 


war picture, that we think it likely that the first 12 post-war months 
will have a total construction volume approximately half our esti- 
mated fi<?ure for the post-war 10-year avern^ie. It takes time to get 
a revivalmoving and up to a high rate of activity. 

It would be most advantageous to know how long the anticipated 
construction revival can be sustained. In a prosperous economy con- 
struction activity is not a mere matter of repairs and replacements, or 
of catcliing up with postponed demands; it is a matter of providing 
new facilities for a wide variety of new economic, special and cultural 
needs. It is intimately tied in with the expansion of the national 

Our experience after World War I is an indication of what can 
happen in a post-war period. It took 6 years, from the beginning 
of 1919 to the end of 1924, for war-deferred construction demands 
to be satisfied. That G-year period, however, was not one of con- 
tinuous recovery. On the contrary, it was interrupted by a 2 -year 
period of drastic price deflation and depression, following a post-war 
price inflation. So, the net recovery period was 4 years ; it might take 
longer this time. Since every one knows very well today the dangers 
of post-war price inflation, "it is strongly hoped that by judicious 
handling of our controls and wise scheduling of the relaxation of 
restrictions, repetition of the 1920-21 type of price-deflation depres- 
sion can be avoided this time. 

After 1924, when deferred demands had been taken care of, con- 
struction activity did not decline; it increased very considerably and 
produced during each of the ensuing 5 years larger volumes than in 
any other peacetime years of the country's history. While that boom 
was marred by serious speculative excesses, it was based upon a very 
sound economic expansion, the most conspicuous feature of which 
was the rapid development of the automotive industry and the many 
industries allied to it. The preceding post-war recovery had set the 
stage for economic expansion and had encouraged investment of 
risk capital in many varieties of new enterprises. 

The post-war economy we look forvv^ard to will have all the in- 
gredients of a great and sustained prosperity, and will realize that 
prosperity of the forces of economic expansion can be released and 
permitted to function without being unduly restricted by repressive 
Government action. The capital and the consumer purchasing power 
are today in the hands of the people, not in the hands of the Federal 
Government. As I see it, the most important actions Congress can 
take to stimulate construction activity at high levels likely to be sus- 
tained over a period of years are actions in the field of liberating the 
economy, and stimulating investment confidence so that there can be 
a practically uninterrupted flow of investment funds into the facilities, 
private and public, required for an expanding economy. 

Post-war tax policies will have primary significance. Taxes affect 
construction demand in a number of ways. Federal and State taxes 
on incomes, gifts, and inheritances affect investment confidence and 
the volume of investment in new enterprises, including such real-estate 
ventures as commercial buildings, housing projects and industrial 
developments. Real-estate taxes, which are the main support of local 
governments, profoundly affect private investment in every class of 
property and also the capacity of local government to supply public 


•works and community facilities essential to supplement any new 
private development that is going on. 

Consequently, the country's pjst-war tax problem involves the fol- 
lowing : 

One. Reduction of heavy Federal war taxes as speedily as possible. 
Two. Provision in Federal tax programs for removal of deterrents 
to private initiative and private investment of risk capital. 

Three. Provision of adequate tax sources for State and local gov- 
ernments, so that they can render their necessary services and con- 
struct their necessar}'^ facilities on their own initiative and respon- 

I consider this third point of vital importance, particularly with 
respect to the post-war financial needs of local governments. It is no 
exaggeration to say that preservation of local fiscal autonomy and 
local- initiative in those public affairs properly within the jurisdiction 
of local governments is just as important as preservation of private 
enterprise in industry and business, if the American way of life is to 
be maintained. 

This problem will not be properly solved by putting local govern- 
ments on a Federal dole, a method fraught with many political as well 
as fiscal dangers. The methods arrived at for solving the fiscal prob- 
lems of local governments will affect in large degree the kind of 
economy and the kind of society we shall have ; they will also affect 
the kinds of community improvement programs that will be worked 
out and the types of public construction projects needed in the future. 
There is another field closely related to taxation that is tremen- 
dously important to construction; very particularly to future public- 
works programs of States and local governments. That field is post- 
war Federal fiscal policy. 

In determining what post-war fiscal policy is going to be. Congress 
will almost certainly be obliged to make a study of the existing lend- 
ing, mortgage insuring, and other fiscal agencies of the Federal Gov- 
ernment, reviewing their purposes, functions, administration, and 
relation to the long-term credit needs of our post-w^ar economy. Such 
a study might reveal the need for setting up some kind of capital- 
credit or banking facilities for State and local governments, either 
with private or with public funds. 

Rudimentary banking functions were performed by P. W. A. and 
R. F. C. in connection with the P. W. A. programs of the 1930's; bonds 
accepted by the Public Works Administrator to cover loans to munici- 
palities for public-works projects were sold to R. F. C., which, in turn, 
sold them at favorable times to private investors. The R. F. C. per- 
formed other banking functions for State and local governments. The 
two urban redevelopment bills introduced in the Senate last year — 
tlie Thomas bill, S. 953, and the Wagner bill, S. 1163— both proposed 
the authorization of Federal loans to municipalities for purposes of 
rehabilitating blighted areas. Since these proposals did not provide 
a sound basis for making such loans, they do not seem likely to receive 
favorable action. However, they may have pointed out a need, even 
though they did not indicate a sound procedure for meeting it. 

The long-term credit study, by whatever commission or committee 
it may be made, should not only cover the credit needs of govern- 
ment at all levels, but also the needs of small business and of private 


investment generally. It should also review the Securities and Ex- 
change Act, to determine whether its operations have been unduly- 
restrictive of private investment. 

I believe that if Congress will do a first-class job on the long-range 
problems of taxation and fiscal policy, it will go a long way toward 
making the United States again the land of opportunity that it has 
always been, with the exception of a few periods when our economic 
growth lias l3een temjDorarily interrupted. I believe that after sound 
policies liave been f uj mulated in these two important fields, it will 
be a fairly simple matter to judge future proposals for Federal con- 
struction programs, Federal-aid highway programs, public housing, 
and the like, strictly on their merits without bringing in extraneous 
considerations of unemployment relief. 

There are some new conditions in construction financing; for in- 
stance, the almost universal requirements for amortizing mortgages 
seems to c;ill for a different type of equity financing as compared with 
the speculative financing which was prevalent in the twenties. 

There are many other problems facing the construction industry. 
Such problems as liberalizing building codes are in the province of 
State and local legislation. Others are in the realm of private-in- 
dustry action. Among the latter, I would include that of devising 
adequate and satisfactory equity financing for housing and commer- 
cial building projects. After wartime controls are lifted, both rents 
and construction costs are likely to rise above present levels. It will be 
up to the producers and suppliers of materials and equipment, and 
up to the building labor to keep price and wage increases within 
reasonable bounds, so that construction costs will not get out of line 
with general commodity prices and with rents. This will, I believe, be 
a continuing responsibility. 

I think the post-war construction market may be more sensitive 
to rapid price clianges than was the case in the 1920's. It will be neces- 
sary not only to exercise restraint on price and wage increases, but 
also give all possible scope to cost-reducing improvements in construc- 
tion materials and methods. 

After we get past the threat of post-war inflation we are likely to 
swing into a construction boom, yvith. a real danger of speculative 
excesses of the type and character which developed in the 1920's and 
brought on the depression of the 1930's. We have never yet in this 
country controlled post-war inflation or a post-war boom. Those 
will be major problems, and if we are to have a free economy, they 
will have to be solved largely by the self-control of investors and of 

I am hopeful that we can manage our post-war problems more 
wisely than we did in the 1920's. We can profit by understanding 
the mistakes that we made in that previous post-war era. We can 
profit by ])lanning in advance to avoid such mistakes and thus to 
realize in full the great potentialities for sustained prosperity that lie 
ahead. Never before in our time have so many competent, well-in- 
formed people, in and out of government, been giving so much con- 
structive thought to the problems of the country's long-range future. 

I think I have indicated a quite optimistic view of the future of 
the construction industry, and I have done so in full realization of 
the big problems ahead, in the field of government, and of legislation,. 


and in the field of industry itself ; but I think we need an atmosphere 
in which people can solve those problems in a spirit of hopefulness 
rather than in a spirit of defeatism. 

The Charman. I think j^our statement has been a splendid one in 
the field of post-war construction. It certainly is indicative of a 
very great deal of thought in its preparation. 

To summarize the amount of post-war construction that we might 
expect in private enterprise in the years following the eventual vic- 
tory, you estimate that there would be some $9,000,000,000; is that 
all— I want to get the addition of the $9,000,000,000. I understood 
you to say that 20 percent additional to that. 

Mr. HoLDEX. Well, the nine billion^I did not mean to give as a 
measure of post-war construction volume. That figure is merely the 
sum total of a list of contemplated projects that we have accumulated 
up to the present moment. There is no indication there that all of 
those would be built in 1 year or 2. Forty percent are in the actual 
designing stage. Estimates of actual value are made only partly on 
the basis of this accumulated list of projects and partly on an analysis 
of economic factors in the previous post-war era of the 1920's. 

]\Iy estimate for the 10 years following the war was double the 
average annual volume of the 1930-39 period. 

The Chaikmax. How much was that ? 

Mr. HoLDEN". Taking the over-all estimates of the Department of 
Commerce figures, I think that runs to something like nine billion, six 
hundred million a vear, of new construction 

Mr. FoLSOM. Out of 1930-39? 

]Mr. HoLDEN. No ; that is double the average annual figure on 1930- 

Mr, FcLsoM. That is what you estimated ? 

Mr. HoLDEN. That does not include maintenance and repairs. Most 
other people who have made estimates have estimated higher figures. 
We believe it is sounder to estimate on a conservative basis. 

Mr. FcLsoM. What estimate of repairs and maintenance? 

INIr. HoLDEN. If it ran three billion, that would be, say, 121/^ billion 
dollars over-all for the entire continental United States, including 
maintenance and repairs and new public and private construction. 

The Chairman. What I am trying to arrive at, is your estimate of 
private construction in, say, the 10-year period following the con- 
clusion of the war. 

^Ir. HoLDEN. I would say private — my figure was over-all, includ- 
ing private and public. Private would run within that figure ; would 
run 91/0 to 10 billion dollars. I would say, including maintenance 
and repair. 

The Chairman. Of course, I gather also from your statement that 
you rather emphasize the private construction as opposed to Federal 
Government construction ? 

Mr. HoLDEx. Yes; except there are certain normal types of con- 
struction regularly undertaken by the Federal Government which 
were customarily done before we had emergency programs. Natu- 
rally, I mean things like custom houses, post offices, rivers and har- 

The Chairman. Naturally, that would go on. 

Mr. HoLDEN. Normal feature of our governmental program. 


The Chairman. So far as the question of employment is concerned, 
you emphasize private construction rather than Federal? 

I^Ir. HoLDEN. I think the construction records of the '20 and '30 
decades show it. In the '30 decade we tried to stimulate private 
employment through public works relief, but conditions were not 
favorable for large volumes of private investment until the war came 
along ; whereas in the twenties when private construction was between 
three and one-half to four times the volume of public construction 
we had no serious unemployment problem. So that, so far as con- 
struction taking care of an employment quota is concexned, I think 
every one agrees we must have a very large volume of private con- 
struction and that volume should be several times the volume of public 

The Chairman. You w^ould not be prepared to break that down, 
this construction period, into a period of years; in other words, what 
we might expect a year, in construction a year, after the war? 

Mr. HoLDEN. My guess is that during the first 12 months after the 
war you Avill reach possibly half or a little better than that of this 
annual average. 

The Chairman. Annual average around a billion dollars? 

Mr. HoLDEN. Annual average, including everything. The over- 
all would be about 121/2 — I would say not much more than that. Well, 
it might run maybe 7 or 71/2 the first year. The whole question is 
getting materials fast enough. There is a lag there. 

After the last war, there was a hesitation on the part of the people 
who feared drastic drops in prices. 

I happened to take a job wnth the Department of Labor directly 
after I got out of the Army the last time, and I had to make a study of 
the price situation at that time, and became very familiar with it. 
There w^as a lag for several months in construction revival due to the 
fear of a fall in prices. What actually happened was that prices went 
up instead of falling. When people saw that trend, they began to let 

Then, of course, as I pointed out, people will not go in for invest- 
ment projects until rent ceilings are lifted. We do not know at what 
stage they are going to be lifted. At the present time, under controlled 
rents the return on investments w^ould be quite inadequate to cover 
costs. It is our experience in price controls that rent controls are 
much more effective and hold much more stable than prices of com- 
modities; rents on the average have gone up just about 3i/2 percent 
since 1939. Construction costs have gone up between 20 and 25 per- 
cent, so there is no inducement to an investor now% with rent ceilings 
on; and until he knows what capital costs are going to be, and until 
he sees whether the rents will pay him a return, say on an apartment 
house project or a commercial building project, he cannot afford to 
start an operation. 

So those things, plus the scramble for materials in the first few 
months after the war, or after the controls are relaxed, tend to delay 
somewhat tliis revival. 

Tlie Citaipman. What I was ultimately trying to get at was this: 
What could we expect in the way of annual employment from the con- 
struction industry? 


Mr. HoLDEX. I think when it gets up to the time, when the estimated 
average post-war vohnne is realized you would have between three and 
four million people employed directly in construction. 

The Chairman. Again, is that from private 

Mr. HoLDEN (interposing). From everything. 

The Chairiman. That is. Federal — taking into consideration the 
normal Federal activities. 

Mr. HoLDEX. And State and local activities. 

The Chairman, Yes; that is just 

(Discussion off the record.) 

Mr. Cooper. Let us get back on the record. 

I would like to inquire, briefly. I notice on page 2, you make the 
statement that there has been estimated that 2J34,000 new nonfarm 
dAvelling units were produced in the 1930-39 decade, compared with 
an increase of 4,450,000 nonfarm families ; was that number of increase 
in families during that decade? 

jSIr. HcLDEN. Yes ; families living everywhere except on farms. The 
figure on the dwelling units is the estimated Bureau of Labor statistics 
and the other figures are from the Department of Commerce, 

Mr. CoorER. And during that 10-year period we had an increase of 
about 41^ million families in the coimtry? 

Mr. HoLDEN. Yes, Not counting the farm families, 

Mr, Cooper. I mean nonfarm families. 

JSIr. LIoLDEN. Yes, 

INIr. Cooper. On page 3, you state — about two-thirds the way 
down — 

Various surveys of construction needs and various estimates of construction 
volume have been made. 

Then you refer to your own company staff making an investigation 
as to specific projects, and so forth, and state — 

the aggregate estimated cost of which amounts to $9,130,521,000, plus — 

Mr. Holden. Yes. 

Mr. Cooper (continuing). 

Of these over 40 percent, by number and value, have advanced to the design- 
ing stape. These projects include none located in the 11 Rocky Mountain and 
Pacific Coast States — 

and so on. 

In spite of the vast size of this indicated program, it is not, in detail, a repre- 
sentative picture of the post-war construction market. Two-thirds of the 
projects, by number, are private projects. 

Mr. HoLDEN. That is right, 

Mr. C( OPER. Does that include all kinds of private projects? 

Mr. HoLDEN, Yes, 

Afr. CooFFJ?. Family dwellings, residences? 

Mr, HoLDEN, Yes, 

Mr. Cooper. Any buildings that might be built by private interests? 

;Mr. Holden. Right. Well, there are about 50 classifications, I have 
the list here [indicating] of different classifications — banks, stores, 
commercial warehouses, hotels, dormitories, and the like, with detailed 
figures on each one. 

Mr. Cooper. And that means that about $10,000,000,000 worth of 
private construction has advanced to the blueprint stage? 


]Mr. HoLDEN. No. That fionre covers projects in the preliminary 
or contemplated stage. We know it is not complete, because we are 
adding more projects to our listing every day. For projects in the 
blueprint stage, the total for this 37 States territory is nearly $4,000,- 
000,000, of which about three-fourths is public construction, or nearly 
three billions, and a little over $1,000,000,000 is private. 

I would like to explain further. We normally report day by day, 
current construction projects, whether in the contemplated stage, the 
designing stage, ready to let contracts, ready to take bids — that has 
been our activity since 1892. We get that information largely from 
the planning factor. We get it from architects, engineers, builders, 
real estate developers, and others. We check with municipal building 
departments, and so on. To get this information on these post-war 
projects, we have had to tap entirely new sources, mostly owner 
sources, because a vast volume of these projects has not yet gotten 
into the planning stage. So we have had to develop experimentally 
some new procedures to get the information on these projects. For 
instance, we have worked w^ith savings and loan institutions and sav- 
ings banks to get information on single-family houses. We are con- 
tacting people in the hotel field, if you please, to get the information 
on hotel projects and similarly in other fields. 

That is going on currently and building up a listing of those private 
projects at a much faster rate at the present time than in the earlier 
months when we started reporting post-war projects. That is one 
reason why our showing on this is weak, on the side of actual listing 
of private projects, as compared with public projects. 

Another reason is, I think, the fact that public planning is actually 
ahead of planning of private projects. Many public agencies. State 
highway departments and others, have got staffs of people they are 
maintaining through the war period, who are barred from doing 
their current work, and are kept busy on j^lans on future projects. 
Also, they have been encouraged to proceed with their planning. Some 
of the States have advanced money to the local governments to pay 
for the preparation of blue prints. 

New York City, AThich has quite a large post-war program, all 
blue-printed; I think it was 2 years ago that the city made an ap- 
propriation of about $22,000,000, to pay for these plans. That was 
partly used to employ outside consultants, partly used to staff up their 
own planning departments, such as those in the board of education, 
park department and other departments of the city that regularly pre- 
pare plans. Public agencies generally started on this at a much 
earlier stage. Their programs have been widely discussed ; usually 
when they start planning, they like very much to get publicity on 
their programs and give out information very freely. Private in- 
formation is slower in coming to us. 

Mr. Cooper. Let me ask you this specific question, Mr. Holden: 
What would be your estimate as to the dollar value of the backlog 
of private construction that would be ready to begin activity as soon 
as restrictions as to materials, and so forth are removed ? 

Mr. HoLDEN. That is a pretty hard one, because "ready" depends 
on an awful lot of conditions. I would say private activity ready 
to go ahead might possibly amount to 8 or 10 billions. 

I don't think you could construct that in the first year. I don't 
think materials will be available for it. 


Mr. Cooper. That would have been my off hand guess. 

Mv. HoLDEN. That is a guess, not something I could prove. 

Mr. Cooper. I wouldn't expect you to prove it or I couldn't if you 
asked it. That would have been my oil hand guess in the light of 
the very helpful information you have given us here. There would 
probably be an estimated backlog of about $10,000,000 worth of private 
construction that could go ahead within a reasonably short time after 
present restrictions are removed as to materials and so forth. 

Now, then, what would be your estimate as to the number of people 
to be employed, if such a thing happened ? 

Mr. HoLDEN. "Well, let's see. Well, I would say up to a couple of 
million directly in construction. 

Mr. Cooper. 'If there is about $10,000,000,000 worth there, it would 
require something like 2,000,000 people to do that work? 

Mr. HoLDEN. Yes. It is my belief, as I remarked there, the first 
thing you have got to get is manpower. 

]Mr. Cooper. I understand. 

ISIr. Holden. You have got to employ people in the logging camps 
to get the lumber before j^ou start building houses, and so on through 
the building-material industries. So far as construction labor is con- 
cerned, while there are some idle people today, there are also a great 
many of them in the armed forces, either working at construction in 
the Seabees and in various construction units on all other 

Mr. Cooper. And those actually carrying guns, too. 

Mr. Hclden. So we couldn't reemploy all of the people wdio have 
previously been employed in the industry. They won't be there. It 
will take time for them to get back. 

That view was concurred in by one of the building labor leaders of 
New York City in a recent conversation. He is very much disturbed at 
]:)resent over unemployment among the building trades in New York 
City. He says about 50,000 building trades union members are with- 
out jobs today. I made the statement I have just made to you in the 
industry committee meeting. He said, 'T believe you are right. AVhen 
the materials begin to flow I think we will have practically no unem- 
plojanent." I made the further statement that possibly within 2 
years after we get going we may have a shortage of skilled mechanics, 
and he said "that is probably true." 

There has been formed in New York City a joint apprenticeship 
committee to study the supply and train apprentices so they will 
have trained men when the revival really gets going. 

Mr. Cooper. AMiat would be your estimate with respect to the 
availability of raw materials? Is it not true that there should be a 
large volume of raw mateiial immediately available when the war 
ends ? 

]\Ir. Holden. Raw materials; yes, sir. But take lumber. The raw 
material is in the form of stancling timber and we don't know how 
long it will take to get enough men into the logging camps. 

As far as metallic materials are concerned, the raw-material sup- 
ply is absolutely adequate. 

I think lumber is the only raw material at all critical. 

When it comes to highly fabricated equipment, such as boilers 
and heating equipment and plumbing equipment and the other in- 
stalled equipment that goes into a building, that will take some 


time. That is where .you have something of a reconversion problem, 
and it will take some time to get adequate supplies ready. 

Take structural steel and reinforced steel, and so on. 1 think there 
is practically no trouble there. 

As to quantities of material, we haven't got the information on 
that because it is not given out. There is a general belief that the 
armed services have enormous stock piles of lumber and pipe, and so 
on. It is only a rumor. We have no data. It is not made public. 
They may or may not. But undoubtedly there are large stock piles. 
They need it. And there will probably be some second-hand mate- 
rials from demolished houses and the like, which will come into the 

But as far as quantities are concerned, I don't doubt that people 
in the War Production Board have the information, but it is not given 
to the public. 

Mr. Cooper. Would it be reasonable to assume that the proper 
military plan would naturally result in considerable stock piles being 
on hand? 

Mr. HoLDEN". Certainly, There should be, and yet when V Day 
comes, it becomes surplus. 

Mr. Cooper. Certainly. 

Mr. HoLDEN. And available for the general market. 

Mr. Cooper. I thank you. 

Mr. HoLDEN. So I say, one problem is to obtain basic materials, 
such as lumber which is highly critical in many respects; and the 
other is the highly fabricated equipment installed in buildings. I 
think it will take a little time to build up adequate inventories. 

Mr. ZIMMERMAN. The question of lumber is a fairly important part 
of this building program. We must figure the supply of lumber. 
There has been a tremendous drain on our forest reserves to get this 
lumber ; in other words, during this war, there has been great demand 
for boxes, crates, and so forth. You have got to have lumber and you 
have got to build. I have wondered if we are not in a very serious 
bottleneck, and if the timber reserves are exhausted where are we 
going to get this lumber. 

It seems we may not expect any speedy movement of the building 
industry, because we can't grow trees in a year. I wonder if that 
situation has been taken into account. 

Mr. HoLDEN". I haven't made any careful study of this matter of 
reserve supplies of standing timber. I have seen some various state- 
ments about that. Of course, some of the lumber people, the big ones, 
can afford to maintain technical research work in finding ways of 
using lumber much more efficiently than before. 

I saw a moving picture that was prepared by the Weyerhauser Co. 
showing how you can build up timber with small bits and pieces, with 
the modern methods of gluing that are so effective. I saw bits of 
lumber which had previously been wasted or burnt up made into 
structural timbers. 

You have got new developments in plywood which are coming 
along. Of course for a number of years we have been developing 
wallboards and roofing materials that have replaced wood, and I 
think we are likely to see continued progress in that direction. 

The lumber production in the last year or so has been down some- 
what. The big factor in shortage is the thing you mentioned ; that is. 


the vast amounts which have been used for boxinjy and crating. I 
believe, if I remember correctly, the figure for boxing and crating 
this year is larger than the consumption for construction in the United 
States this year. That, of course, is going to continue — they will 
continue to use a great deal until we end the war, both with Germany 
and Japan. Boxing and crating is going to be a very important factor 
determining the availability of lumber for building purposes. 

Mr. Cooper. I like your statement that industry is planning new 
ways of utilizing products heretofore classed as scrap timber for the 
purposes of building. Now, that might be a solution, and no doubt it 
will play a very important part in meeting this new emergency. 

Air. HoLDEN. Yes. 

Mr. Cooper. But I feel we are going to have a longer period of get- 
ting into the building construction program due to the shortage of 
lumber than any other factor. 

Mr. HoLDEN. There is no question about that, sir. That is the most 
critical factor in the range of building material, and that is one reason 
why we are not going to jump immediately into the full post-Avar rate 
of construction activity within the first G months after the war. 

The Chairman. Any further questions? If not, we thank you for 
the very helpful information you have given the committee. 

The committee stands adjourned until the call of the Chair. 

(Whereupon, at 11: 45 a. m., the committee adjourned until further 

(The following statement was submitted for the record :) 

Government Panning for a High Level of Employment in the Post- War 


(Statement by Harold D. Smith, Director, United States Bureau of the Budget, 
before the Committee on Post-war Economic Policy and Planning, House of 
Representatives, in executive session, May 31, 1944.) 

If we are to have a high level of employment in the post-war years, we must 
attain a wholly new level of production of consumer goods and services, and we 
must have peacetime development and enterprise on a wholly new scale. Thus, 
the problem facing your committee is not merely demobilizing and reconverting 
industry to peacetime production. 

In looking ahead to the job to be done, it seems to me that we must visualize 
the adjustments in our economy that are necessary to assure continuously high 
employment and a high standard of living, and we must then determine the Gov- 
ernment policies that are necessary to facilitate such adjustments. This is no 
mean task. 

The achievement of high-level employment will depend in the long run on the 
ability of consumers to purchase and upon the willingness of business to invest. 
During the demobilization period, while we are laying the foundation for a high 
scale of private investment, measures must be developed to cope with whatever 
degree of intlationary pressure arises. Tax programs, credit programs, price and 
wage stabilization programs all have a bearing on incentives to invest, on the 
allocation of resources, and on inflationary pressures. They therefore require 
unified planning and continuous coordination. Moreover, they must inevitably 
form a framework within which termination of contracts, disposal of surplus 
]ironerty. and other demobilization activities must be carried out. 

My commeTit a moment ago on the necessity for a new level of consumers' 
goods and services springs from a doubt that we in this country can utilize in 
the period ahead anywhere near the amount of dura1)le products which we are 
now manufacturing for war purposes. In fact, an enriched standard of livins and 
full peacetime employment cannot be achieved wholly by the production of tilings. 
Our ('octors, our dentists, our hospitals, our schools, our chui'ches, our Boy Scouts, 
our social centers, and our recreation proL'rams illustrate an aspect of our stand- 
ard of living which has great frontiers. In Great Britain the whole increase in 


popukition between World Wars I and II was offset by a corresponding increase 
in persons engaged in services. Tliat development must go on both here and in 
the world at large. 

It is not my purpose to outline a program of specific economic measures de- 
signed to bring about adequate employment in the post-war period. Rather, I 
should like to emphasize the need of establishing the necessary machinery for the 
continuous development and adjustment of measures to achieve that end. I 
do so in the belief that well-planned and well-managed governmental activities can 
do much to help the Nation to move both i-apidly and soundly toward a high and 
stable level of production, employment, and living. I do so in the further belief 
that failure to develop and move forward with a coordinated and consistent pro- 
gi'ani directed toward such broad national objectives may well result in economic 
and social chaos. I think it particularly fortunate that this committee has under- 
taken to cope with these problems and has rejected the belief that planning for 
the post-war period will promote public complacency and interfere with winning 
the war. I feel that the committee, using the necessary assistance of the execu- 
tive agencies, can render a great service to the country. 

It is my thought that a high level of employment and living standards can only 
be realized and sustained through careful and continuous planning toward that 
end. While the vast amount of demobilization, transition, and post-war jDlan- 
ning which is being done by private and semiprivate instrumentalities is valuable, 
the realization of sustained high employment will rise or fall on the actions 
which the Government takes or fails to take from time to time. Accordingly, I 
want to comment briefly upon the present status of governmental planning. 

Government agencies within their individual spheres are doing a great deal 
of effective and valuable work in projecting their post-war activities. For ex- 
ample, the Department of Agriculture is studying (a) post-war credit arrange- 
ments necessary for the restoration of family-type farms on land released fi'om 
military use and for the establishment of returning soldiers and war workers on 
farms, (ft) domestic and world-wide food requirements and production adjust- 
ments necessary for their fulfillment, (c) the possibility of developing industries 
in rural areas, (d) the opportunities for settlers on land developed through drain- 
age, clearing, and irrigation, and (e) the improvement of rural living conditions, 
the last named being studies in collaboration with several other agencies. 

In like manner, almost every agency of the Government is studying the 
adjustments whici) must be made in its program in the course of demobiliza- 
tion and to cope with anticipated post-war conditions. The War and Navy De- 
I)artments have special units working on plans for the armed forces after the 
war. The Public Roads Administration is spending $60,000,000 for the prepa- 
ration of highway plans for the post-war period. Many other agencies are simi- 
larly projecting public works and resources development activities. 

As a further example, the State Department, acting with the aid of interde- 
partmental committees and basic work done in other agencies, is conducting in- 
tensive explorations of an international character in post-war transportation, 
communications, trade, and many other fields. 

While nmch of the contemporary planning is isolated and compartmentalized, 
mechanisms exist which fill the coordination need in part. As you know, agencies 
have been set up to facilitate cooi'dination with respect to such special demobiliza- 
tion problems as contract termination, the di.sposal of Government-owned sur- 
pluses, and the retraining and reemployment of personnel releai^ed from war work 
and the armed services. Within these spheres the establishment of the Contract 
Termination Board, the Surplus War Property Administrator, and the Director of 
Retraining and Reemployment should result in considerable coordination of 
planning for the transition from war to peace. Location of these agencies within 
the Office of War Mobilization will enhance their effectiveness in coordinating 
these broad programs. 

There is one sort of coordination of planning which has gone on quietly for 
some vears and which T have had particular opportunity to observe. This is the 
coordination of planninsr that is normally involved in budgeting. The annual 
review of estimates for Federal activities, and of the justifications for such esti- 
mates, constitutes a measure of coordination of the program planning of agencies. 
An attempt is made to relate each program to the total governmental program; 
this amounts to advance planninc which permeates the whole Federal structure 
and which is coordinated in considerable measure by the Bureau of the Budget. 
Similarly, a great deal of day-to-day coordination of agency programs is achieved 
throuL'h the continuing relationships of Bureau of the Budget staff with agency 


Despite the activities I have referred to, attention has not as yet been sharply 
fociissed upon the main problem of creating circumstances conducive to continuous 
high-level employment. Aside from the worJv of this committee and of a similar 
committee in the Senate, that problem has been too long neglected. I agree that 
first things should come first, aud to that extent it has been proper to emphasize, 
as has been done, the transitional problems encountered at the cessation of hostil- 
ties, such as contract termination, reconversion, proi)erty disposal, and measures 
for the benefit of returning soldiers. But the time is here when the contiiuiing 
challenge of so ordering the economic activities of tiie Government as to facilitate 
continuously high employment should be accepted. It should be accepted not only 
by the Congress, as has now been done, but also by the executive branch as a 
whole, as contrasted with the executive branch functioning fragmeutarily thx'ough 
its various components. 

The meeting of that challenge — the challenge of a continuously high level of 
job opportunities and living standards — will be realized only by systematic and 
intensive planning to that end. Such planning should have tor one of its m;ij >r 
purposes the coordinating and the welding of the valuable and worth-while post- 
war planning activities of the various Federal agencies into a consistent wiiole. 
But, more important, it should include a frontal attack upon the problem of achiev- 
ing full employment. Such planning, undertaken in the executive branch, would 
in no wise be incompatible with the efforts of this committee or similar committees 
of Congress. Indeed, I think the effectiveness of this committee and of the Con- 
gress in this field will depend in great measure upon intensive preliminary plan- 
ning carried on in the executive branch. 

I shall not attempt to catalog fully the planning that needs to be done, btit 
rather to cite a few illustrations : 

1. All governmental programs, existing or i^roposed, must be appraised in terms 
of their impact upon the ftmdamental national goals of continuous high levels of 
employment and living standards ; and each individual program must be designed 
and appraised in terms of its consistency with a general governmental program 
which moves simultaneously with private enterprise toward these goals. 

2. Policies for the termination of war contracts, the reconversion of industry, 
the demobilization of military and war industry personnel, and the disposal of 
Government-owned surpluses must be so conceived as to contribtite to a high scale 
of employment and living; this requires not only proper planning with res^pect to 
each of the activities but also with respect to their mutual relationships and re- 
lationships with other Government pn grams and private enterprise. 

3. Domestic prcgi'ams and international activities must be coordinated, one 
with the other. Programs for stimulating investment at home and l"or developing 
countries abrood must be properly related. Programs for stabilizing raw material 
production and prices at home, and similar programs in the international field 
must be tied together. The effect of international monetary and trade agreements 
upon monetary trends and incentives to invest at home must be weighed. In 
general, what we do nationally and internationally must be so coordinated as to 
assure a stiitable contribution to the national welfare. 

4. The disposal of merchant ships and aircraft will need to be so arranged that 
we obtain the kind of a transportation system which conforms to our needs and 

5. Programs for social security, education, and public works must be closely 
correlated with manpower demobilization. As war expenditures fall off, it will 
become as imirortant to bolster consumer purchasing power as to stimulate 

6. Not only must a public works program be geared to unemployment and to 
measures for stimulating private investment, but thousands of proposed projects 
submitted by governmental agencies must be examined and shaken down into a 
well-rounded program. In some cases this involves weighing and reconciling 
alternative uses of natural resources and conflicting or inconsistent proposals. 
For example, the rival claims of irrigation, navigation, and power development 
upon water resources must be considered and harmonized with one another and 
with flood control requirements. The detailed plans of pi'ojects will, of course, 
be prepared in the individual agencies, but the central task of planning remains, 
as does the .iob of relating local government programs to Nation-wide capital 
and employment needs. 

7. The interest and loan policies of various Federal agencies should not only be 
consistent, but should be so ordered as to stimulate private investment, especially 
in small business. 


8. Prosr-nins will need to be so conceived as to encourage small business and 
control monopoly. The relative position of big and little business will be greatly 
affected by policies of contract cancelation, reconversion, and surplus plant and 
property disposition. 

1^ * if * * * m 

I shall not olabor.ite further what needs to be done. That the type of planning 
I have indicated must be done now means that it must be done under the handicap 
of concurrently planning for and carrying on the war, and the lack of available 
civilian persoiniel. This, added to the sheer magnitude of the factors involved, 
presents no small dilHculty. But such planning cannot be deferred in view of the 
rapidity with which men. materials, and facilities released from war activities 
must be- channch>(l into cix ilian produclion and peacetime life. 

I have pi-eviously indicated that I ho subsidiary, intra-agency kind of planning is 
going forward; and that the main deticiencies are in coordinating that type of 
planning and in dov<>loi)ing gener;il programs conducive to full employment, which 
pro.nrams cannot be developed by any one agency. 

These delx'iencies add up to an inadequacy of planning facilities in the Execu- 
tive Office of the President. In my judgment, here is where the greatest gap 
in our phuuiing structure is to be found. From my experience in dealing with problems I nmst frankly state that the existing planning facilities 
of the Executive Oflice are by no means commensurate with its needs. The magni- 
tude and complexity of tlip task of interagency coordination is evident, I believe, 
from the illustrations which I have already cited. 

Yet the stalf available in the Executive Office for over-all planning is in reality 
very limited. For example, the Director of War Mobilization has but a handful 
of assistants to aid him in resolving intricate problems of coordination. I pointed 
out previously that the Bureau of the Budget does a great amount of work in the 
coordination of Government programs and in unifying departmental operations. 
However, the Bureau is not presently equipped to engage in the basic planning 
required to integrate the plans and programs of the executive agencies and to 
relate them to the broad national objectives which I have indicated. 

As an example of present limitations of the Bureau of the Budget let me 
refer again to the review and coordination of public works. Federal agencies in 
response to a Presidential letter of May 22, 1943, have submitted suggestions to 
the Bureau of the Budget for tens of billions of dollars of public works and 
publicly aided private undertakings in anticipation of the need for a large public 
works program. These suggestions should be thoroughly appraised as to relative 
merit, as to needs for the various types of activities and structures, and as to 
their relation to a general program for capital and resource development. At 
present, staff, funds, and machinery to process these suggestions adequately do 
not exist. 

I think the gap which I have pointed out should be filled by providing planning 
facilities in the Executive Office, the functions of which would be: 

{a} To assist the Chief Executive and Congress in developing over-all pro- 
grams to deal with pi'oblems which cut across agency lines ; 

(b) To aid the Chief Executive in coordinating interrelated programs and 
seeing that they focus upon the broad objectives which have been established ; and 

{(■) To ap])raise continuously the effects of programs and advise on neeeded 
adiustments to achieve these objectives. 

Planning such as I have described is inherently part of the responsibility of 
the President and cannot effectively be performed out >ide of the Executive 
Office. It demands perspective and a detachment from individual and often 
competing programs which are not to be expected of persons piimarily concerned 
witli a particular activity or agency. Moreover, the effectuation of such plans 
usually requires action by the President. 

I am not prepared to su^g >st the precise organizational arrangement for such 
planning work in the Executive Office of the President, nor whether a new 
agency in contrast to a rearrangement of existing structures may be necessary. 
There are matters of detail which can most appropriately be determined by the 
I'resident, as the head of the Executive Office. 

I wish to comment on the fear, sometimes expressed, that the development of 
plannng machinery in the Executive Office may encroach on the field of Congress 
in the determination of basic govermnental policy. Such fears are not well 
founded. They indicate a failure to distinguish between planning and legisla- 
tive decision. In making law, Congress always has drawn heavily upon thn^ 
executive branch for data, analyses, and plans, but such material has been 


weighted alongside the infornuition and proposals derived from other sources 
and from original investigations by legislative conmiittees. That Is as it should 
be. Executive planning is properly supplementary to, but is not a substitute for, 
the type of work which your committee, tor example, is doing. It facilitates 
th(> work of Congress in formulating iegislation. 

One of tlie obvious difficulties of the Congress is the maze of fragmentary, 
partially considered, and often inconsistent and conflicting opinion and analysis 
with which it is confronted on major issues and the limited time at its disposal 
for resolving the many issues before it. The more thoroughly problems can be 
explored by the planning machinery of the executive branch, tie more quickly 
and accurately corgressional committees can appraise tliem, discover and weigh 
the alternatives, and reach conclusi(ms. This, I think, is particulai-ly true in 
connection with the titanic task of achieving the goal of high employment in 
time of peace. 

Finally, I should like to point out the choice that we face. We are now in the 
midst of a pei'iod characterized by a manpower shortage ; in other words, sub- 
stantially full employment prevails. The people wall not forget it. They will 
not tolerate protracted heavy unemployment again. If they cannot get reason- 
ably full employment in one way, they will try to get it in another. Thus, the 
choice is whether we shall achieve our goal by general planning and general 
management of our economy, creating general conditions in which the pefple 
will make their own jobs through private enterprise, or whether failure to do it in 
that way will lead us into detailed control and management of all our economic 
activities. If we are to do it by the general conditions we create, we must do 
adequate planning to that end. We nmst plan the gsneral management of our 
economy, or perforce we shall be jilanning the management of business. Sus- 
tained full employment will not just happen. 



House of Representatives, 
Special Committee on Post- War 
Economic Policy and Planning, 

W ashing 1 071, D. G. 

The special committee met at 10 : 30 a. m. in room 1304, New He 
Office Building, Hon. William M. Colmer (chairman) presiding. 

Present: Representatives Colmer (chairman). Cooper, Walter, 
Voorhis, Lynch, Worley, Reece, Welch, and Wolverton. 

The Chairman. The committee will come to order. 

We are a little handicapped this morning in that the official re- 
porter has not appeared. Miss Sims of onr staff is going to substitute. 

Mr. Cooper. Do you have a prepared statement to present to the 
committee ? 

Dr. Taylor. I have a prepared statement, but I thought I would 
outline it, in more or less my own way, in presenting the statement 
before the committee. I thought it would save some time, and the 
statement will be available for the record. 

There is a certain amount of discussion on savings on which I 
thought it might not be necessary to take time. 

The Chairman. You may handle it in your own way, please. 


Dr. Taylor. I believe it was the purpose of the committee to have 
me outline the question of post-war savings, their accumulation, their 
volume, and their importance as a factor in the level of business ac- 
tivity after the war. 

I do not believe it is necessary to suggest definite definitions of sav- 
ings. I simply want to call your attention to what we mean by sav- 
ings as applying to the figures and estimates which I shall present 

Simply stated, we mean by net additions to the savings of indi- 
viduals, a figure that is equal to the amount by which individuals' 
money incomes, after allowing for taxes, exceed their purchases of 
consumers' goods and services. 

In the case of corporations we mean the amount by which the gross 
receipts from sales exceed purchases of goods and services, including 
purchases of capital goods, so that the total additions to nongovern- 
mental savings are equal in any year to the difference between total 
private income and total private purchases of goods and services; or 
in other words, the amount of unspent income which individuals and 
nonfinancial corporations carry forward from the year's operations. 

99579 — 44 — pt. 2 9 ' ' 413 


Now on that basis we have for the 3 years since our entry into the 
war, 1942, 1943, and 1944, as estimated, more than $120,000,000,000 in 
accumulated savings. These fall into three categories : ( 1) the savings 
of individuals; (2) the savings of nonfinancial corporations, and (3) 
the net amount growing out of sales, in the United States, by nonresi- 
dents of goods and services leading to balances and other assets in this 
country which represent claims of foreigners. This last is relatively 
a small amount, but nevertheless is one of the three items under which 
the general categories of accumulated savings are considered. 

Now in this first group, I might say that this figure of $120,000,000,- 
000 or $128,000,000,000 to be more exact, as estimated— will grow dur- 
ing the course of the war ; assuming, of course, that there are no im- 
portant changes in tax policy. 

The savings of individuals during this 3-vear period are approxi- 
mately $95,000,000,000, of which about $82,000,000,000 exists in very 
liquid form such as currency, bank deposits, and Government bonds. 
The savings of nonfinancial corporations is 29.1 billion dollars, and 
the amount representing dollar claims held by foreigners — the net 
amount added since the beginning of 1942 — is a little more than 

Mr. Reece. If you don't mind, I would like to interrupt to clear in 
my own mind with reference to corporate savings. Do the savings of 
corporations, as listed by you, include corporate reserves ? 

Dr. Taylor. You have in mind there whether the corporate reserves 
are held but the savings added? I would like to suggest to the Con- 
gressman that in compiling these figures, for statistical reasons several 
shifts had to be taken into account as to what is included in corporate 
savings. I would like to ask Mr. Livingston to explain that. 

(Since Congressman Eeece was absent when Mr. Livingston took the 
stand it is suggested that the record be amended to include the follow- 
ing answer to his question.) 

Mr. Livingston. The $29,000,000,000 of corporate accumulations in- 
cludes the depreciation and other business reserves and undistributed 
profits over the 8-year period minus the expenditures for capital goods. 

Dr. Taylor. I would like to say a few words about the form in which 
these individual savings are held. As I mentioned a few minutes ago, 
out of $95,000,000,000 of savings of individuals, $82,000,000,000 are held 
in highly liquid assets; currency and deposits, 42.3 billion dollars; 
United States Government bonds, 39.7 billion dollars; and then the 
remaining $13,000,000,000 are held in less liquid assets — the exact 
categories of which I don't think I need recite. I might simply say 
that they include such items as liquidation of consumer debts, increased 
equity in private insurance, increased equity in nonfarm dwellings, 
and so on. 

The form in which the nonfinancial corporation savings are held is 
currency and bank deposits of 38.1 billion dollars, of which, however, 
we should rightly deduct the figure of 9.4 billion dollars, representing 
net business tax accruals so that the actual amount of savings under 
currency and bank deposits of nonfinancial corporations would be 
approximately $28,000,000,000; and then a relatively small item of 
1.4 billion dollars should be added to that, representing additions in 
the form of net claims of corporations ; or, in other words, an upward 
shift in the debtor-creditor position of nonfinancial corporations. I 


might say that the figures are shown in detailed form in the statement 
whtch I have had prepared for the record. 

Now when we consider the importance of these savings as factors m 
post-war recovery and business, we have to deal with quite a number 
of uncertain factors. By way of showing how significant these figures 
are in point of size, it may be worth while to make several comparisons. 
Prior to 1941 these savings as defined here never exceeded $10,000,- 

000 000 a year. In fact, the annual average for the previous decade 
was less than $5,000,000,000. Again, if we take this $9.5,000,000,000 
increase for the years 1942-44 representing savings of individuals, we 
have a total larger than the total incomes of individuals in the best 
pre-war years, or if we take the $82,000,000,000 representing individual 
savings in highly liquid form, we have a 3-year figure which is approxi- 
mately three times as large as the corresponding addition to liquid 
asset holdings of both individuals and corporations during the period 
of our participation in the First World War; in fact, a slightly longer 
period, from April 1917 to June 1919. 

Now the question as to whether these $82,000,000,000 representing- 
highly liquid assets held by individuals will be spent after the war or 
how they will be spent, raises a problem to which no categorical answer 
can be given. That is, of course, by far our most important item. 
We might note that it includes about $15,000,000,000 in holdings of 
unincorporated business. Unincorporated businesses are included in 
the category of individuals for our estimates of national income and 
savings. Since we might look upon those as really an addition to busi- 
ness savings, we are concerned with the remaining $67,000,000,000. 

The Chairman. Mr. Reece. 

Mr. Reece. If you don't mind another interruption — the benefits 
or at least the benefits which we have provided for veterans by the 
way of laws, and others of that kind which in all probability will 
amount to several billion dollars, will come into the same category 
so far as the effect of the economy is concerned ? 

Dr. Taylor. I was going to come to your question in a point which 

1 was going to make in a minute. On this point of $67,000,000,000, 
I just wanted to say that it is quite certain, on the basis of the actual 
statistics of income and its distribution, that a relatively large part 
would fall within the category of individual incomes of $15,000 a 
year or less. As a matter of fact, although we don't know much 
about the fact of actual distribution, it is quite certain that very 
large part relates to incomes of more than $2,000 and less than $15,000 
per year. I do not have the statistics that would make possible a 
definite break-down by income category. Yet, I think it is well to 
call your attention to the fact that a very large part of the $67,000,000,- 
000 I have just been referring to would represent the accumulated 
savings of people in what you might call the the middle-income 

In outlining this problem, I anticipate one question that quite 
naturally suggests itself here, and that is how the volume of sav- 
ings, especially in these income categories, can be so high in light 
of the fact that after all the expenditures for consumer goods have 
kept up a very high level. The answer to that is not determinable 
in any definite way, but we have the national income and related 
figures as a basis, and I think it is perhaps correct to suggest that 
where you have individual cases of heavy expenditures through an 


increase in income we are always more likely to have these called 
to our attention. We are more familiar with them and they are 
perhaps more dramatic. 

I might call your attention to one or two other points here by 
way of presenting this general outline. As you know, I have not 
attempted to show how these accumulated savings will be spent for 
the very simple reason that there is no way in which one can do that. 
It depends upon a number of conditions. There is, however, one 
factor which I think it important to call to your attention. The 
existence of these savings does not necessarily mean they need to 
be spent in order to make their influence felt, for the reason that 
with individuals having a backlog of spending power accumulated 
during the war, it is reasonable to think that there would be less hesi- 
tancy to spend current income with the result that net accumulated 
savings would not necessarily undergo any diminution after the war. 

Mr. Walter. Of course, that presupposes a steady income ? 

Dr. Taylor. I was just going to add that people would be more 
inclined to spend freely out of their income, and that would, of course, 
be a factor in sustaining business activity because of the support that 
less hesitant expenditure out of current income would provide as a 
means of keeping up the demand for consumers' goods and other 
goods. I merely call attention to it because I think we cannot safely 
think in terms of just drawing upon these savings and looking upon 
them as a substitute for current income, which they are not as a matter 
of fact. If they were to be viewed as a subsitute for current income 
to fill the gap, despite their size they would not be sufficient to sustain 
the national economy over any prolonged period. But the mere fact 
that they do provide a reserve of spending power may prove very im- 
portant in the transitional period. 

As to just what extent individuals will draw on their savings and 
for what purpose, I think it is quite safe to suggest that among the 
factors that would determine that would be such things as the length 
of the war and the general public reaction as to the immediate future 
of business. We would expect people to react differently in case they 
should anticipate the possibility of losing their jobs as against having 
a greater sense of security, and no doubt it will depend upon various 
other factors having to do with the sustaining of our post-war econ- 
omy, generally. 

Mr. Chairman, in the statement which I brought with me, and on 
which I drew in presenting this brief outline, there are several 
tables showing in considerable detail the estimated source and detail 
of this estimate, additions to accumulated savings, the estimated dis- 
position of savings, and finally the estimated division of nonfinancial 
corporate savings after deducting capital outlays. 

The more important items in those tables I have referred to; and 
unless there should be questions calling the others into discussion at 
this point, I shall just dispense with that, with your permission, and 
have them included in the record. 

The Chairman. It is so ordered. 

(The statement referred to was marked "Exhibit No. 13" and is in- 
cluded in the appendix on p. 489.) 

Dr. Taylor. Now, as I suggested a little while ago, some of the 
technical points bearing, for instance, upon Congressman Reese's 
question and perhaps on some of the others, you may wish to have 



Mr. Livingston explain a little, more clearly and show how these 
items are brought together. 

The Chairman. That is fine. Before we do that, I might suggest 
that it might be in the interest of orderly procedure if there are any 
other questions that might be asked bearing on your statement. Mr. 

Mr. Walter. Mr. Taylor, have you any idea how much accumulated 
savings can be expended on consumer goods ? 

Dr. Taylor. I do not believe that I am in a position to suggest any 
figure on that. I might call attention in this connection to an effort 
we made in the Bureau of Foreign and Domestic Commerce sometime 
ago — not so much in estimating expenditures in particular categories, 
but for the guidance of business, as well as for our own — to project into 
the post-war years the expenditures in particular categories during 
past years, on the assumption, of course, that the relative importance 
would not change. This may, of course, in cases involve totally errone- 
ous assumptions but it did give us a working basis. 

Those figures were brought together in a detailed table, and at 
the moment I do not recall just what they do show by the main cate- 
gories. I think Mr. Livingston and Mr. Weiler may be able to amplify 
that somewhat. They prepared the report I have just been refer- 
ring to. 

The Chairman. Anything further? Mr. Reese, do you have some- 
thing further? 

Mr. Reese. Has an estimate been made by your Bureau as to the 
amount of what might be called deferred purchases, such as automo- 
biles, refrigerators, and so forth? I was just estimating in my own 
mind on the basis of the distribution of 3,000,000 automobiles a year 
that it would probably run something over $3,000,000,000 for each year 
for automobiles. 

Dr. Taylor. Mr. Congressman, we have prepared no public esti- 
mates on those items. In the automobile industry, in particular, we 
have prepared figures which I suppose might be called estimates based 
on different assumptions, one of the important assumptions bearing on 
the length of the war ; because in the case of automobiles you have an 
accumulative factor operating which will naturally lift up the demand 
at a more or less progressive rate as the war proceeds from one year 
to the next. 

Those estimates are more or less of a byproduct of the general study 
on the projection of expenditures in particular fields I referred to. I 
find myself referring for most of these to Mr. Livingston. But they 
are a part of a general survey, and I would like to have him elaborate 
on that. 

The Chairman. Anything further ? Mr. Voorhis ? 

Mr. VooRHis. What did you include in your figures for total ac- 
cumulated savings? 

Dr. Taylor. You mean by categories? 

Mr. VooRHis. Well, you gave a figure of one hundred and twenty- 
eight billions. 

Dr. Taylor. One hundred and twenty-eight billions net addition to 
accumulated savings over the 3-year period. 

Mr. Voorhis. For net addition to accumulated savings? 

Dr. Taylor. That is right. 

Mr. Voorhis. Now that means increased national debt i 


Dr. Taylor. That is right. 

Mr. VooRHis. And what else does it mean, if anything? 

Dr. Taylor. Well, it represents virtually the net result of purchases 
by Government over and above the Government income and it reflects 
the limited expenditures by individuals as compared with their higher 

Mr. VooRHis. I know, but I am not asking you that. I want to know 
in what form is this net addition evidenced ? 

Dr. Taylor. It is evidenced in increases in currency in circulation, 
bank deposits. Government bonds, and then a number of minor items. 

Mr. Voorhis. I wondered why it was not more than $128,000,000,000. 
I should tliink it would be even more than tliat. Just let me ask you 
this: What did you do — take demand deposits and savings deposits 
3 years ago and subtract them from present demand deposits and 
savings deposits ? 

Dr. Taylor. That is right. 

Mr. Voorhis. You did the same thing with the national debt, 

Dr. Taylor. Well, with the Government bonds as held by individuals 
and nonfinancial corporations. 

Mr. Voorhis. And nonfinancial corporations, but you do not include 
bonds bought with new money in the form of newly created commer- 
cial bank deposits ? What did you do about that ? 

Dr. Taylor. Well, I think, Mr. Congressman, in connection with 
Government bonds sold to commercial banks, your net increase to the 
savings of individuals would simply grow out of the expenditure of 
those funds and not be duplicated by the amount of those funds held 
by the banks. 

Mr. Voorhis. But you have got to pay them back with interest. As 
far as the bank is concerned, it has got a Government bond. 

Dr. Taylor. I do not believe you could speak of those as savings. 

Mr. Voorhis. Well, I certainly do not think they are legitimate 
savings. I think they are very illegitimate savings. 

Dr. Taylor. They are not savings as we define the term. 

Mr. Voorhis. From the bank's point of view, they do have an in- 
terest-bearing bond, which they presume, and I presume, is good, and 
from their point of view it is a safe investment. 

Dr. Taylor. In my opinion, as I pointed out, there may be differ* 
ences in definition of savings, and I confine myself 

Mr. Voorhis. In any case, you did not include bond purchases by 
commercial banks ? 

Dr. Taylor. That is right. 

Mr. Voorhis. Well, that is the answer to my question. If I will 
not be taking up too much time, I would like to ask a couple more 

The Chairman. Go ahead, Mr. Voorhis. 

Mr. Voorhis. You spoke about savings as the possible source of 
consumer demand immediately after the war, and I understood you 
to indicate you felt that reliance could be placed upon them to pro- 
vide a very substantial demand for consumer goods at that time, and 
thus perhaps aid in speeding reconversion ; is that right ? 

Dr. Taylor. I think I pointed out that these accumulated savings 
can hardly be looked upon as a source of funds isolated totally from 
current income as a means certainly of bringing about and maintain- 


ing recovery, entirely apart from the fact of tlie importance they may 
have during- the reconversion period. 

I think in connection with reconversion — which is rather a com- 
plicated problem and which I would not attempt to discuss — they might 
be fairly important. 

]\Ir. VooRHis. My question involves not the reconversion period — 
I mean the one I am about to ask — because what I want to ask you is : 
Is it not true that over a considerable period of time, at least since 
the First World War, that by and large the accumulation of invest- 
ment funds by individuals and by corporate investors, both, has tended 
to outrun the opportunity for profitable investment? Has not that 
been one of our major economic problems? 

Dr. Taylor. I do not know whether I can answer that question very 
satisfactorily. Frankly, I have not had occasion to 

Mr. VooRHis. Well, that is the general position financial institu- 
tions take, is it not? 

Dr. Taylor. That is right. I think on that particular problem I 
would like to defer to the two gentlemen whom I have here from the 
Department, who have done considerable work in that field. I could 
not follow you through on that for the reason that I have not been 
directly identified with any of the studies in that field. 

jMr. VooRHis. Let me try this one, then, and I will stop : Would you 
agree, or would you not agree, that the opportunity for profitable in- 
vestment of savings funds is directly dependent upon the volume of 
consumer demand for consumer goods, and that that is the ultimate 
factor in making possible profitable, full investment of savings funds? 

Dr. Taylor. I would certainly agree with you. It is an exceedingly 
important factor, as I pointed out a while ago, because of the mere 
fact that you could, as the result of these accumulated savings, en- 
courage people to use their current income more freely, which would 
obviously flow in large part into consumer goods. 

]Mr. VooRHis. I think it is more fundamental than that. I mean 
that, with the volume of consumer goods which is only adequate to 
take care of the consimjer demands for goods which can be produced 
under existing conditions, there certainly cannot be much opportunity 
for truly profitable investment under those circumstances, can there? 

Dr. Taylor. I think on the basis of your assumptions, that is quite 
correct. I agree with you. 

Mr. VooRHis. In other words, unless consumer demand constantly 
increases, there cannot be an opportunity for an increasing flow of 
investment ? 

Dr. Taylor. That is right. 

Tlie Chairman. Mr, Taylor, if I understand you correctly, we have 
a proportionately larger backlog of savings in this country than we 
have ever had in the history of the country; is that correct? 

D<r. Taylor. That is correct. 

The Chairman. Now I assume from your statement, further, that 
there would likely be a tendency by these persons who have saved 
this money to invest it in goods that they have been denied, such 
as automobiles and refrigerators, and so forth, that they have not 
been able to buy on the market. 

Dr. Taylor. That is a rather general proposition, but that is correct. 

The Chairman. A\Tiat proportion of these savings would likely be 
spent by these people who have these savings, say in the year im- 


mediately following the war? ^Vhat I am trying to get at is, saving 
is more or less of a habit, is it not, of individuals — a pretty good 
habit, too? He gets in file habit of saving just like he gets in the 
habit of spending. What is running through my mind is that, hav- 
ing acquired that habit through more or less necessity, he might be 
inclined to go along and continue to follow the habit once established. 
What is your reaction on that? 

Dr. Taylor. I think first of all there are different incentives toward 
saving, normally. We have perhaps two or three that might par- 
ticularly be emphasized — the idea of saving for the purpose of in- 
vesting in something would yield a return; or it might be for 
the purpose of acquiring some form of durable goods, consumer goods, 
or something of that kind, which it might not be possible to take care 
of out of current income ; or it might be primarily for the purpose of 
protection against an uncertain future. 

The Chairman. Of course I had reference to the individual. 

Dr. Tayi.or. That is right. Now during the war there has been, 
of coui-se, the additional incentive that might be referred to as patriot- 
ism. In considering disposition or any change in these savings after 
the national emergency we can no doubt assume that in many indi- 
vidual cases some of these incenntives that were strong during the 
war will not remain that strong, so that there would be a greater 
inclination to draw on these savings, regardless of current income. 

The purposes for which this might be done goes somewhat along 
the lines of those you mentioned, the purchase not only of automo- 
biles, but perhaps of better houses, or the purpose of private mainte- 
nance of dwellings, and catching up on other kinds of things, repairs, 
and so forth, that could not be taken care of during the war. 

Now I think that is a very important factor, and this is one reason, 
I would say, why it is exceedingly difficult to advance an actual 

The reaction of individuals after the war will depend not simply 
upon the size of their individual savings, it will depend upon their 
view as to security in the immediate future. Their views with regard 
to various possibilities will have some influence, and anticipation of 
higher prices might quite conceivably add to the propensity for using 
savings as a means for compensating for loss when purchasing goods 
at those higher prices. There are, on the other hand, other factors 
to be considered, especially as the result of probably wider supply of 
goods of different kinds after the war. 

Mr. Walter. How soon after the war? You cannot stop making 
machine guns on Saturday and start making automobiles Monday 

Dr. Taylor. No. It would be related in part to the speed with 
which the reconversion will be carried through. 

Mr. Walter. That is exactly what I have in mind. I am wondering 
whether or not, because there is a dearth of durable consumer goods, 
it is not absolutely essential that there be some sort of elemental con- 
trols, so we will not have inflation, because these people who have been 
deprived of the opportunity to spend their savings will be willing to 
pay almost anything for whatever it is they happen for the moment 
to want. 

Dr. Tatlor. I think in any event it is quite safe to say that if the 
return flow of accumulated purchasing power — the return flow to 



consumer markets, for whatever the reasons may be — comes at a rate 
entirely out of line with the rate at which and the degree to which 
we can reconvert to peacetime production, then the danger of infla- 
tion would be real and would add to whatever other reasons there 
may be for maintaining or instituting certain types of controls during 
the transitional period. Personally, Mr. Congressman, I think your 
point is well taken on that, but it is impossible to state it in statistical 

Mr. Walter. Well, nobody has a greater abhorrence for govern- 
mental control than I have. I am wondering what will happen imme- 
diately after the war, when these accumulated savings will be literally 
burning holes in the pockets of our people, if there are not some sort of 
governmental controls as to prices. 

Dr. Taylor. Of course your question rests on the assumption that 
people in general will be very eager to spend their accumulated sav- 
mgs. And as I pointed out, I do not know that we can necessarily 
take that for granted. Depending upon a number of conditions, it 
may be true. It is not only the question of reconversion, but the 
whole problem of maintaining a stable position after the war that will 
have a very important bearing upon the average individual's reactions 
as to the disposition or utilization of his savings. 

Mr. Welch. Dr. Taylor, can you tell us something with reference to 
finding foreign markets for our surplus commodities after the war 
when we swing into full peacetime production? 

Dr. Taylor. That is a rather large question. I do not know just 
where to begin. I think this much certainly can be said. Mr. Con- 
gressman, that the foreign need for materials in connection with 
rehabilitation and reconversion will be very great, but that fact, or the 
recognition of that fact in itself, of course, does not provide us with the 
answer, because we have to consider the problems of financing the 
movement of those goods. And that immediately opens up a whole 
series of questions which I would neither consider myself qualified to 
go into, nor would I venture to make any guesses. 

Mr. Welch. Well, it will be only a matter of time until we will catch 
up with the shortage of goods and commodities in this country due to 
the war. And as you know, we were producing 10 percent more than 
we consumed for years before the war, and it is expected we will pro- 
duce still more. What recommendation have you to make to the com- 
mittee as to the means of finding foreign markets for our surplus 
commodities, both from the factories and farms ? 

Dr. Taylor. I think the answer to your question, Mr. Congressman, 
depends almost entirely upon the level of employment and business 
activity we can maintain in the United States. To that extent it is 
really first of all a domestic question, because our ability to purchase 
from the outside world the raw materials for our industrial machinery 
is directly dependent upon the level of activity we can maintain here. 

And a relatively large part of the buying power that we provide 
normally to foreigners for their purchases of goods would have to 
come from our purchases of raw materials, semifinished products, 
and finished products, at a time when our business activity is relatively 
high and our national income is high. I think for that reason any 
recommendations would first of all have to rest definitely on the 
assumption that whatever plans are carried out relative to the mainte- 
nance of full employment and business activity in the United States 


and can be molded into a policy — whatever that policy may be, it 
must be carried out with a view to keeping up our national income 
and business activity at home. 

The only other alternative, I think, would be some device whereby 
we would keep our exports moving through foreign loans, and I am not 
suggesting that those should not play an important part. The only 
point, however, is that imless our supply of dollars to foreigners 
through lending is to be identified with commercial operations on a 
large scale so as to overcome the difficulties of foreigners in meeting 
their obligations here, then we would have to depend primarily upon 
our own need for foreign materials — foreign-produced materials — to 
keep our own industrial machine going — as the means of making those 
dollars available. 

Mr. Welch. What percentage of foreign materials is used in Amer- 
ican industry; relatively small? 

Dr. Taylor. Well, our total imports, are normally a relatively small 
part. I do not recall the exact percentage. 

Mr. Welch. Eaw materials ? 

Dr. Taylor. I might put it this way, that our total imports are 
about 11 or 12 percent of the total world imports, that is, all goods 
cataloged in the reported import figures of the different countries as 

Now, a relatively large part, and I do not Lave the figure before me, 
of those imports are raw materials. In fact, a very large part are 
duty-free because of the fact that they are essential to our industries. 

Of course before the war, one fairly important item was rubber; 
for a long time, silk was very important. Those may be less important 
in the future as actual sources of foreign buying power here. 

But it is correct to say that the extent to which we were able to 
provide the foreign-owned buying power exports were stimulated. 
Exports did go up and down very appreciably in line with our level 
of business prosperity, and they did provide a very substantial part 
ol the dollars needed to keep the exported goods moving out of the 
United States. 

Mr. Welch. You feel that we will return to the conditions that 
prevailed before the war, and purchase such commodities as rubber, 
or manufacture them within this country, or have we proven they 
can be manufactured? 

Dr. Taylor. I do not know, Mr. Congressman, that I can express 
a view on that, because of the fact that, especially with rubber, it is 
so closely related to technological problems growing out of our own 
synthetic production, that I would not want to venture an opinion 
without careful study. I know that there are different opinions on 
that subject. I would not attempt offhand to appraise the relative 
strength of either. 

Mr. Welch. We are not only making synthetic rubber, but we are 
making good natural rubber in this country. 

Dr. Taylor. There has been a definite upward change in that. 
Also, we have encouraged production of natural rubber in the other 
Americas, that we have drawn upon, at least in the war, which will 
provide a larger source of our own needs than before the war. 

The Chairman. Anything further, Mr. Welch ? 

Mr. Welch. No. 

The Chairman. Mr. Folsom, do you have any questions ? 


Mr. FoLsoM, I wonder if you have any more specific information 
on deferred demand, that you might present to us ? 

Dr. Taylor. I might say on the question of deferred demand, I had 
especially spoken to Mr. Livingston in case the question should come 
up, and he will be better prepared to deal with it. 

The Chairman. Well, then, we might hear from Mr. Livingston. 
Mr. Livingston, we will be very pleased to hear from you. 


The Chairman. Would you give your name? 

Mr. Livingston. Morris Livingston; Chief of the National Eco- 
nomics Unit, Bureau of Foreign and Domestic Commerce. 

Mr. WoL^^ERTON. What is your position ? 

Mr. LiA^NGSTON. Chief of the National Economics Unit. 

The Chairman. Do you have some particular questions, Mr. Fol- 
som ? 

Mr. FoLSOM. I would like to have Mr. Livingston's statement on the 
question of deferred demand. 

Mr. Livingston. Going back to Congressman Eeese's question, we 
have done what we could to measure deferred demand. Let me use the 
automobile industry by way of illustration. There were about 27,- 
000,000 cars on the road at the time of the attack on Pearl Harbor. 
Due to normal wear and tear, that has now been reduced to about 23,- 
000,000 cars. By the end of this year it will be nearer 22,000,000. If 
there had been the normal mortality, it would be under 20,000,000 cars 
by the end of this year. In other words, there are cars on the road that 
normally would have been scrapped and replaced by new cars, if it 
had been possible to buy them. 

Now, just how large that deferred demand becomes, of course, de- 
pends upon how long the war lasts and how long it will take to get back 
into automobile production again. It is obvious that it will take sev- 
eral years of very high production to take care of the normal replace- 
ment in the first post-war years and build up the inventory of cars on 
the road back to where it was in 1941. 

If we succeed in maintaining a high income commensurate with full 
employment after the war, the demand for cars on the road would be 
considerably above 27,000,000, in which case you would have that ac- 
cumulation to make up, as well. 

In other fields, the actual measurement of deferred demand becomes 
much more difficult, and the figures much more questionable. In any 
event, deferred demand, in the sense of replacement of goods which" 
have worn out during the war, will fill only a small part of the gap 
between our pre-war rate of production, our pre-war markets, and 
our post-war productive capacity. 

If we are to use the capacity of our post-war labor force, it will have 
to be in terms of a very substantial increase in the American standard 
of living, in terms of the whole gamut of things that people wanted 
but could not afford before the war and the necessary expansion and 
modernization of production facilities in order to produce those goods 
and services. 


May I ^o back to a question that Congressman Voorhis and Con- 
gressman Walter raised here Avith regard to the relationship between 
savings and the Government deficit ? 

As Dr. Taylor indicated, the bulk of the savings of individuals or 
corporations, or the savings of the residents of foreign countries in 
this country are highly liquid assets — currency, bank deposits, Gov- 
ernment bonds. Where those savings are not directly held as liquid 
assets, they represent claims on financial institutions, increased equi- 
ties in insurance, for example, and those financial inst-itutions have in 
turn put that money into currency, bank deposits, or Government 

Those increases in non-Government holdings of currency, bank de- 
posits, and Government bonds are directly the result, as Congressman 
Voorhis indicated, of Government deficit financing. In fact, as was 
indicated in one of the tables that have been presented for the record 
here, we start off with a budget deficit and, with certain adjustments? 
to allow for tax accruals and for purchases of existing assets which do 
not add to the income of individuals. We can derive the accumulated 
savings over this 3-year period. 

We can also derive those savings by relating the estimates of na- 
tional income to the estimates of expenditures, and the difference is 
the savings. Or you can do as the Securities and Exchange Commis- 
sion has done, add up the accumulations in various savings institu- 
tions, in Government bonds, and so on, and arrive by the three means 
at approximately the same figure. 

Now, by the same token it is obvious that taking all non-Govern- 
ment units together, corporations and individuals in the aggregate 
they can only reduce their savings after the war to the extent that the 
Government deficit is retired. 

To answer your question, Mr. Chairman, as to how much of these 
savings will be spent, I think it is fairly safe to say that, on balance, 
individuals will not spend their wartime accumulations. Certain in- 
dividuals will spend their savings, while others are accumulating addi- 
tional savings. Certain individuals will spend out of wartime accumu- 
lations for goods and services at the same time that they are adding 
to their savings in the forms of insurance premiums, and so on, but on 
balance all individuals as a group will probably continue to add to their 
savings during that period. 

The significance of wartime savings is that these individuals may 
add less to their accumulations during this post-war period, and 
therefore make the problem of investing those accumulations less diffi- 
cult than it would otherwise be. 

Mr. Voorhis. You mean by that that it will make it less difficult 
than it would be if the war should continue indefinitely ? 

Mr. LmNGSTON. I mean it makes it less difficult than it would be 
under exactly the same circumstances if those savings had not been 

Mr. Voorhis. I do not follow you at all. Do you think it would 
be more difiicult to invest new savings to the extent that you have a 
tremendous backlog of savings ? 

Mr. LiWNGSTON. The backlog, you see, has not been invested in 
private enterprise. The blacklog has been blown up. 

Mr. Voorhis. You mean investing in new savings will be easier 
because of the fact that existing savings have not been invested ? 



Mr. Livingston. What I am saying is that the vokime of savings 
which will have to be invested will be less than it w^ould otherwise 
be under those same circumstances, because the individuals have al- 
ready accumulated this backlog against some future rainy day. 

Mr. VooRHis. But is not this true, that it will be less difficult because 
so much of it has gone into Government securities? 

Mr. Livingston. I am sorry, I do not follow you. 

Mr. VooRHis. I do not follow you. 

Mr. Livingston. The only point I am making is, I recognize the 
problem that you raised, that if you are going to have high-level 
production after the war, then at that level the expenditures must 
balance with whatever consumers decide not to spend, in other w^ords, 
to save. Producers must invest or Government must spend the 

Mr. VooRHis. I do not believe it does any good if producers invest, 
because I do not believe you can pile up producer investments and 
have them pay even a half a percent per year unless there is a cor- 
responding increase of consumer demand. 

Mr. LrvTNGSTON. That goes along with it, if you have your high- 
level production you have an enormous increase in consumer demand, 
which would require producer investments. 

Mr. VooRHis. All right. 

Mr. Livingston. And I say that that problem becomes less, since 
consumers under those circumstances would want to save less than 
they would want to save if they did not have this backlog of war- 
time accumulations as a protection against some future rainy day. 

Mr. VooRHis. You mean they will be more likely to spend? 

Mr. Livingston. They will be more likely to spend on current con- 
sumption because they have this accumulation of savings. 

Mr. VooRHis. And that was the point you were making before ? 

Mr. Livingston. Yes. 

Mr. VooRHis. I see. 

JNIr. Lr'Ixgston. Now, that is only one factor affecting consumer 

Mr. Walter. Is it not possible that before there is opportunity to 
accumulate more savings, the existing savings will have been spent 
lor tlie bare necessities of life ? 

INIr. Livingston. That is the point I was trying to get across here, 
that if producers and consumers as a group try to spend any sub- 
stantial part of their wartime savings during these post-war years, 
and if there is not at the same time an equivalent Government surplus, 
then consumers, producers, and Government would be trying at that 
moment to buy more goods than are being produced. 

Taking the total dollar value of all goods and services produced in 
this country in any period, every dollar of that output is paid out to one 
of three groups. It is paid out in wages, dividends, and other income 
payments to individuals, or to Government in taxes, or it is retained 
by business as depreciation, other reserves, and undistributed profits. 
No dollars get lost or are added in that process. They go to one of 
those three groups. 

Mr. VooRHis. Some of them get put in cold storage. 

Mr. Livingston. The basic idea in maintaining high production is 
to insTire that those dollars do not go into cold storage, that they are 


spent. Any one of those three groups can have very substantial sav- 
ings, provided one of the others spends more than its income. 

Answering your question, Mr. Waker, the consumer could con- 
ceivably spend more than his income during that period, but he could 
only do so to the extent that either the producers or Government spend 
less than their income. 

Since the producer also has an enormous accumulation of liquid 
assets, ostensibly for expenditure during this post-war period, and 
since to reach a high level of production after the war will require 
very substantial investments in capital goods, admittedly, perhaps, 
not for 10 or 20 years, but for 2, 3, or 4 years, unless you can see a very 
substantial Government surplus during those same years, it will not be 
possible for the consumer to spend much more than his current income. 
The chances are pretty good he will spend less than his current in- 
come, but that this unspent income will be smaller than it would 
otherwise be at a high level of production. Have I made myself 
clear ? 

Mr. Lynch. Not to me. Let me ask you this question : You have 
accumulated savings on the part of the individuals. Now, going back 
to Mr. Walter's question, in the days immediately following the cessa- 
tion of hostilities, and before reconversion and before the manufactur- 
ing plants can get into the high production of which you speak, what 
will be the situation with respect to those people who have to use their 
accumulated savings for the bare necessities of life, as put forth before 
by Mr. Walter? 

Mr. Livingston. I think the confusion arises here because during the 
transition period you are going to have very strong deflationary fac- 
tors working at the same time you have very strong inflationary 

As one of you indicated a moment ago, the consumer cannot buy 
automobiles that have not yet been produced, and to the extent he tries 
to buy automobiles that have not yet been produced, there can be a 
very strong inflationary influence going on in that segment of the 

At the same time the automobile worker who has not been put back 
to work will be in the position of having to use his past savings just 
to o-et along. But if you take the economy as a whole, producers and 
consumers cannot siDend more than their current income, except as 
there is a Government surplus. 

The total dollar value of all the goods produced is paid out to one 
of these three groups : producers, consumers, and Government. The 
funds placed at their disposal out of current income are equal to the 
value of all the goods produced. Now, obviously, if the three groups 
taken together try to utilize past savings in the sense we have defined 
them here, to augment current income, the three groups are trying to 
buy more goods than are being produced at that time. 

Mr. WoRLEY. Have we not done that on the installment buying? 
Would you say that people buy more than their income ? 

Mr. Livingston. Installment buying simply reduces the net current 
savin o-s of consumers. The installment buying is an offset to their 
accuniulations in the form of paying off mortgages, adding to life 
insurance, bank deposits, and other savings. 

Mr. WoRLEY. Which one of the three segments would that fall in ? 


Mr. Livingston. The consumer — the consumer in that case. The 
installment bujang is a negative savings item, but consumers, on 
balance, were saving money. 

Mr. VooRHis. When was that ? 

Mr. Livingston. Right straight through. I do not believe you have 
had a year in which the consumer was not saving some money. It got 
to be awfully small at the bottom of the depression, but it never was 
a negative item. 

Mr. VooRHis. And in 1920 it was very, very substantial. 

Mr. Livingston. You can get at the same conclusion in another way. 
In the various consumer surveys that have been m.ade in an attempt to 
estimate deferred demand, where the question has been asked : "Do you 
expect to buy these things out of wartime savings, or out of current 
income, or do you expect to buy them on the installment plan," the 
fraction who expect to use their wartime savings to buy these things 
is typically quite small. 

The consumer by his own reasoning has arrived at the same con- 
clusion that I arrived at by a theoretical process. War-time savings 
are simply a catalyst influencing how the consumer will spend his 
current income after the war. To that extent he will be freer than he 
would otherwise be in his expenditures. 

Mr. VooRHis. Is it not true that the only way in which the wartime 
savings can ever be of real worth to the people who made those sav- 
ings, is by substantially increasing production over a long period of 
time? Let me amplify it by saying this, that otherwise they are 
going to be attempting to make good those savings out of the purchase 
of currently produced goods and services against which there will be 
currently distributed income? 

Mr. Livingston. I think that is a fair statement. 

The Chairman. Anything further, Mr. Folsom ? 

]\Ir. FoLSOM. I would like to have Mr. Livingston indicate to the 
committee briefly what he estimates the increased employment over 
1940 would have to be if we are going to reach this high level of 
production employment, and also w^hat he estimates the increase in 
the output of goods and services would have to be in the post-war 
years. Just summarize your study of Markets After the War very 

Mr. Lh'ingston. In any appraisal of post-war problems and possi- 
bilities, one fact that cannot be overlooked is that our country is still 
growing. For example, about 6,000,000 more people were either em- 
ployed or actively seeking employment in 1940 than in 1929. 

]\[r. VoOKHis. How many people were unemployed in 1940? 

Mr. Livingston. About eight millions. 

;Mr. Walters. Were they all unemployables ? 

Mr. Lintngston. By definition those are persons able, willing to 
work, and actually seeking employment. 

Mr. VooKHis. In other words, while 6 millions more were em- 
ployed in 1940 than in 1929, there were still 9 millions unemployed? 

Mr. Livingston. No; I said the 6 millions was the increase in all 
those either working or seeking employment, but almost nine millions 
were unemployed. 

There is also an increase in j)roductivity, whereby, even with the 
shorter hours, the net output per person in 1940 was about 25 percent 
greater than in 1929. 


Mr. VooKHis. How are you goin^ to have full employment unless 
you get consumer purchasing power that is substantially greater than 
anything we ever thought of in peacetime? 

Mr. Livingston. That is what I am coming to. Carrying that into 
the post-war period, take, for example, the year 1947. A capacity 
output with unemployment reduced to a j^ractical minimum would 
be some 40 or 50 percent above our actual output in 1940, or some TO 
to 80 percent above the 1935-39 average. And obviously, as I indi- 
cated earlier, you will only get that sort of an increase with a cor- 
responding increase in the American standard of living, and a cor- 
responding increase in consumer income. Does that answer your 
question ? 

The Chairman. Does that answer your question, Mr. Voorhis? 

Mr. VooRHis. Well, more or less. I would question whether 40 per- 
cent was enough increase over 1940 — 40-percent increase in output, I 

Mr. Livingston. Let me qualify that. That assumes a return to 
40 hours of work- 
Mr. VooRHis. Yes. 

Mr. Livingston. And it does not allow for elimination of a certain 
amount of what might be called hidden unemployment. In other 
words, it does not allow for the possible elimination of subsistence 
farming, and so on. If you want to build up a Utopia of that sort, 
you could get a substantially higher figure. 

Mr. Voorhis. In other words, working not on the plane we are now^ 
but working on the peacetime plane of hours and industry ? 

Mr. Livingston Yes. 

Mr. VooRHis. Then you think a 40-percent increase in gross na- 
tional production over what we had in 1940 would make possible full 
employment ? 

Mr. Livingston. That is in 1940 hours. That does not allow for 
price increases. 

Mr. VooRHis Yes. We have 26 percent difference there. 

Mr. Livingston. You have to add that on top. 

The Chairman. Mr. Welch. 

Mr. Welch. How many employable men were unemployed in this 
country before the war? 

Mr. Livingston In 1940 it was about 8,000,000. 

Mr. Welch. How many? 
• Mr. Livingston. About 8,000,000 in 1940. 

The Chairman. Anything further of the witness? Mr. Folsom, 
do you have anything further? 

Mr. FoLsoM No ; 1 think that is all. 

The Chairman. The House is in session. We are going to have to 

Mr. FoLSOM. Mr. Williams is supposed to be here. He is on his 
way over from the Senate committee. I told him we probably would 
not have any time for him. He might just file a statement when he 
comes over. 

The Chairman. Without objection, Mr. Williams, who was denied 
the opportunity to appear before the committee, will be permitted 
to file his statement. 

(The statement referred to follows the testimony of this session, 
and starts on p. 430.) 



Mv. Worley. of the committee, has a resolution pertaining to the 
subject under discussion, I believe. 

Mr. WoRLEY. That is right. 

The Chairman. That he desires to incorporate in the record. 
Without objection, that will be ordered done. 

Mr. WoRLEY. I should like to tell the members of the committee 
what the resolution is. 

The Chairmax. Very well, Mr. Worley. 

Mr. AVoRLEY. This resolution was adojated by the Texas Democratic 
State convention. 

The Chairman. Which convention? 

Mr. Worley. The regular convention. I think it has a refreshing 
thought. I should like to read the resolution and then put the rest 
of it in the record [reading] : 

Whereas no greater evil has grown during the past few years than the tend- 
ency of the States to surrender rights in return for financial aid and assistance 
and the tendency on the part of the Federal Government during this period of 
emergency, under the guise of aiding the war effort to usurp many functions 
which unquestionably belong to the States ; and 

Whereas it is the general consensus in this State that all of the functions of 
the sovereign State of Texas tliat liave been tal^en over by the Federal Govern- 
ment should be returned to this State as soon as possible in order that the 
necessary process of decentralization of Federal powers may begin ; and 

Whereas there is now pending before the Senate Post-war Economic Policy 
and Planning Committee, of which Senator Walter F. George is chairman, a 
plan to subsidize State unemployment-compensation agencies which, if enacted 
into the law, would deprive the State of Texas, under the guise of a Federal 
subsidy or grant-in-aid, of its right to legislate as to the amount and duration 
of unemployment-compensation benefits and the conditions under which a person 
in the State of Texas would be entitled to receive them ; and 

Whereas the State of Texas has not asked assistance from the Federal Gov- 
ernment in this matter because it is able to make payments to its own justifi- 
ably unemployed througli its present system of unemployment insurance, and 
the Texas unemployment-compensation trust fund now has sufficient reserves to 
more than pay the prescribed maximum weekly benefit amount for the maximum 
duration to 500,000 unemployed persons and still have money left in the trust 
fund ; and 

Whereas by reason of the fact that national legislation must of necessity be 
of uniform application and cannot make allowance for varying local conditions, 
we believe that the Legislature of the State of Texas is in a better position to 
provide an adequate system of unemployment insurance for this particular State 
than is the Federal Congress: Now, therefore, be it 

Resolved by the Texas State Democratic cofivention in session duly assembled, 
at Austin on May 23, W-'f't, That we oppose any and all Federal legislation seek- 
ing to take over any functions of the States, and particularly that we oppose 
any attempt at federalization of our State unemployment-compensation system 
either directly or indirectly, through subsidy or otherwise, and we direct the 
secretary of this convention to send copies of this resolution to each Member 
of Congress from Texas. 


I, Charles E. Simons, i)ermanent secretary of the State democratic conven- 
tion held in the city of Austin, on May 23, A. D. 1944, do hereby certify that 
the foregoing is a true copy of a resolution adopted by said convention. 

[Signed] Charles E. Simons. 

Mr. Worley. I think that is important in view of the number of 
questions that have arisen as to whether the States will want to as- 
sume their part in post-war operations, including financing. 

The Chairman. I think I have already suggested that without 
objection the resolution will be incorporated in the record, along 
with Mr. Worley's remarks. 

99579 — 44— pt. 2 10 


I might add that so far as the chairman, speaking for himself, 
is concerned, he is in thorough accord with the resolution adopted 
by the regular Democratic Convention of the State of Texas. 

Mr. Walter. And we can all hope the time will never arrive when 
all the States and the political subdivisions thereof will have to come 
to Washington and on their knees beg the Government to save their 

The Chairman, And, if we are going to continue this, I might 
further add that just so long as the States come to the Federal Gov- 
ernment on their knees, or otherwise, seeking further aid, they can 
expect further regulation. 

Mr. VooRHis. I would like to add that I recognize the possibili- 
ties of setting up compensation programs on a State basis. I think 
it is probably better, so far as it can be done. 

The problem of unemployment is no respecter of State lines, and 
we ought not be deceived into thinking the problem of unemployment 
will be solved on a State basis, because it cannot be. 

The Chairman. Is there anything further? If not, the commit- 
tee will stand adjourned, subject to call. 

(Thereupon, at 12: 15 p. m., the committee adjourned.) 


Mr. Williams. My name is Claude A. Williams. I am chairman 
and executive director of the Texas Unemployment Compensation 
Commission. I am also president of the Interstate Conference of 
Employment Security Agencies, an organization composed of State 
employment security administrators of the 48 States and 3 Territories. 

The statements which I make are not to be construed as representa- 
tive of the Interstate Conference of Employment Security Agencies, 
although I am sure my views are shared by a large majority of the 
States. I have not had an opportunity to clear my remarks with the 
other State administrators. 

I am deeply appreciative of the opportunity to come before you 
and present a few facts, which I hope will completely eradicate 
any impressions which you may have concerning the inadequacy 
of the State unemployment compensation systems to meet the chal- 
lenge of the post-war period. 

Before discussing the allegations of inadequacy, I think it would 
be well to review the place unemployment compensation was to have 
in our economy, as conceived by the President's Committee on Eco- 
nomic Security in its report to the President, transmitted to Congress 
on January 17, 1935. This Committee recommended enactment of 
legislation to establish our present system of unemployment com- 

1 quote from the report of the Committee on Economic Security : 

Unemployment compensation, as we conceive it is a front line of defense for 
those who are ordinarily steadily employed * * * ^ny program for economic 
security that is devised must be more comprehensive than unemployment com- 
pensation, whicli of necessity can be given only for a limited period * * * 
This should be a contractual right, not dependent on any means test * * ♦ 


While unemployment insurance has not proven a panacea for unemployment, it 
has in all countries provided a self-respecting method for support far superior 
to relief for a large percentage of the unemployed. 

This same Committee recommended that the maximum benefit 
amount should not exceed $15 per week. Today there are 26 States 
and Territories which have hiws providing for a maximum in excess 
of $15 per week. The President's Committee recommended that the 
duration of benefits not exceed 16 weeks. There are 19 States whose 
laws provide in excess of 16 weeks. The President's Committee 
recommended that the waiting period be 4 weeks. All of the States 
and Territories provide for a waiting period of less than 4 weeks, 18 
States only 1 week. The Committee recommended that coverage be 
extended to employers who had in their employ 8 or more individuals, 
and this was incorporated in the Federal act. There are 26 States 
and Territories whos laws provide for coverage of an employer who 
has less than 8 individuals in his employ. 

There are many other respects in which the State unemployment 
compensation laws have been improved over the original model 
drafted by the President's Committee. These changes in the State 
law have been brought about by the States on their own initiative 
when the necessity for them became apparent. Those States which 
have not liberalized their law over the original suggestions of the 
President's Committee, will no doubt do so whenever the necessity 
arises. There is room for some improvement, of course, and the States 
are not unmindful of that fact. 

In the testimony given before this Committee, it has been charged 
that the State unemployment compensation systems were inadequate 
because (1) the funds are inadequate; (2) the benefit amount is too 
low; (3) the duration of benefits is too short; (4) many claimants 
exhaust their benefit rights before being reemployed; (5) thousands 
of workers will lose their benefits because they have migrated from 
one State to another; (6) penalties are too severe. 

Let me discuss the first accusation, that our funds will not stand 
the post-war drain. Let me assure j^ou that the State unemployment 
compensation systems are in sound financial condition. 

Repeatedly, members of the Social Security Board, and other per- 
sons who are desirous of abolishing State unemployment compensa- 
tion systems and establishing a Federal system, have shouted from 
the housetops that the 51 different systems would not be able to stand 
the financial strain incident to reconversion from war to peacetime 
economy, and that many of the States would go broke. 

Repeatedly we State administrators have asked those people to 
name one single State that would go broke, and repeatedly they have 
refused to name one. Only a few weeks ago, on behalf of the 
executive committee of the Interstate Conference of Employment 
Security Agencies, I asked IVIr. Arthur Altmeyer, Chairman of the 
Social Security Board, to name specifically one State that would go 
broke. Mr. Altmeyer replied that he could not name a State that 
would go broke, but that he knew that a number of States would go 
broke just as he knew that a number of people would be killed while 
crossing the streets of America. He stated that he could no more 
name the States that would go broke than he could the individuals 
who would be run over by automobiles. 


I say to you that if he has no firmer foundations than that, then 
he should button up his lip and say nothing more about the solvency 
of the State unemployment compensation system. 

The State agencies are not unmindful of their responsibility to 
keep their houses in order, and we have made individual studies of 
the possible drains on our State funds. We have asked the Bureau 
to work out ways and means of trying to test in advance whether or 
not we would be able to stand the drain anticipated as a result of 
widespread unemployment due to the reconversion from war to 
peacetime industr3^ The assistance we have gotten from them has 
been of little value. 

On the other hand, the Interstate Conference of Employment Se- 
curity Agencies established a committee on post-war solvency and 
has caused to be conducted a survey by every State in the Union 
to see whether or not they could stand the strain. 

I am happy to report to you that, as a result of these studies, not 
one single State is fearful of its ability to stand the drain we antici- 
pate, and I might add that we anticipate an unprecedented drain. 

For instance, in the State of Texas, we have sufficient money in 
our trust fund to pay 500,000 unemployed persons — one-third of the 
number of workers covered under our law — the maximum amount 
for the maximum duration under our law, and still have money 

Almost every other State in the Union is in equally good or better 
condition than Texas. If the unemployed in the Nation reaches 
the rate of one-third of the gainfully employed, or 20,000,000 per- 
sons, then I say to you that unemployment compensation, no matter 
how liberal, will not keep this country from going to hell. If unem- 
ployment reaches such proportions as that, our money, our bonds, 
our Government v;ill go to the four winds. 

I have said that we have sufficient funds to meet our obligations 
under our present State law. I now say to you that the amount and 
duration of benefits that we have obligated ourselves to pay are 

I shall not bother you with a detailed analysis of the statistics, 
which were presented to you by others, but I shall content myself 
with the statement that the formulas from which the benefit amount 
and duration are derived are fair and just, and if the result is low 
benefit payments for a short duration of time, it is not the fault of 
the State unemployment compensation systems but it is a direct result 
of the economy of the State and Nation. Not one single formula 
under State law pays less than 50 percent of the wages earned by a 
person making $30 a week or less. In the case of unemployment com- 
pensation claimants whose checks amount to $5 or $6 a week for unem- 
ployment benefits, the weekly amount exceeds 50 percent of his 
average weekly earnings. In most instances it runs from 60 to 
65 percent of his average weekly earnings. 

For example : A worked during the past year and earned the fol- 
lowing wages : 

First quarter $97. 76 

Second quarter 104. OO 

Third quarter 102. 01 

Fourth quarter 83. 06 

Total 386.83 


.$38G.83h-52 $J- 45 

Average weekly wage '^- 45 

A became unemployed. Under our law lie was entitled to draw $5 
a week unemployment compensation for 16 weeks; $5 a week is 63 
percent of his weekly wage while gainfully employed. He draws the 
$5 a week for 16 weeks. 

B worked steadily during the past year for the following wages : 

Pirst quarter $119. 85 

Second quarter 120. 06 

Third quarter ... 179. 67 

Pourth quarter 158. 82 

Total 578.40 

$578.40-52 11.10 

Average weekly wage H- 10 

B was entitled to draw $7 a week for 16 weeks ; $7 is again 63 percent 
of B's average weekly wage earned while employed. 

C worked steadily for the past year for the following wages : 

First quarter $400. 00 

Second quarter 40O. 00 

Third quarter 400. 00 

Fourth quarter 400. 00 

Total 1, 600. 00 

$1,600-^^52 30.75 

By working C would make $15.75 more a week than he could make 
by remaining idle, so C does not draw any unemployment compensa- 
tion benefits, because he has the incentive to get out and find his own 
job without waiting for the employment service to find one for him. 
The higher a worker's earnings go, the smaller the percentage of the 
weekly benefit amount to his average weekly earnings while employed. 

Xo one questions the wisdom of such a formula. Unemployment 
compensation was not designed to write a floor for wages. It was con- 
ceived and built around the principle tliat it should give subsistence 
to the person who had lost his job through no fault of his own during 
short periods of unemployment. 

I personally believe that $15 a week even under the inflationary con- 
dition we are facing today is sufficient to furnish minimum subsist- 
ence for any man in Texas. Other States have a larger maximum 
benefit amount. There are 4 States that have a $16 maximum, 15 
States that have an $18 maximum, 9 States that have a $20 maximum, 
and 1 State has a $22 maximum weekly benefit amount. 

Generally speaking, the higher the maximum, the more industrial 
the State and the higher the cost of living and wages. Conversely, the 
lower the maximum, the lower the living cost and wages in the State. 

This is the admirable thing about State unemployment compensa- 
tion systems. We are able to gear our benefit amounts and our dura- 
tion to the economic conditions existing in the different sections of the 
country and at different times. 

For instance, the weekly amount since 1938 to the present time shows 
a steady increase, which is due to higher wages as a result of the war 
effort. Most of the workers engaged in war production because of 
the high wages they are receiving will be entitled to draw the maxi- 
mum amount for the maximum duration under our State unemploy- 


ment compensation laws. This will reflect a much higher national 
average of weekly benefits when we are called upon to pay those work- 
ers what they have coming to them. A national uniform system would 
result in either underpaying the high-wage States or in overpaying 
the low-wage States. If unemployment compensation is to perform 
the function for which it was created, benefits must be paid in an 
amount that will not encourage idleness, but will encourage men to 
get out and seek employment on their own initiative. 

It sounds terrible to say that 24 pfercent of all checks for unemploy- 
ment compensation were less than $10, and in seven States from ID 
to 50 percent were for $5, yet when you study the method of computa- 
tion in arriving at these amounts, you will find that in not one single 
instance did any one of those checks amount to less than 50 percent of 
the unemployment compensation claimant's wages while he was gain- 
fully employed. In most instances the State formula is weighted so 
that those receiving $5, $6, and $7 checks will draw from 60 to 65 
percent of their wages while gainfully employed. 

I think it unfair to make a flat statement and leave the impression 
that $7 a week is an inadequate sum of money to pay in unemployment 
compensation benefits, particularly so when there are thousands of 
gainfully employed people throughout the South who do not earn 
more than $7.50 or $10 a week when they are working. 

I do not believe that you men on this committee believe that unem- 
ployment compensation benefits should equal or exceed the wages that 
an unemployment compensation claimant can make while employed. 
Whenever the wages equal or closely approximate the amount of their 
earnings while employed the individual remains idle and draws un- 
employment compensation. That is true not only in the State of Texas, 
but also in the entire 48 States of this country. We can furnish sub- 
sistence up to a certain point on a contractual basis, but beyond that 
point it ceases to be unemployment compensation and must be regarded 
as relief or a dole. Please do not consider doing anything that will 
abolish our State unemployment compensation system and substitute 
in its place a relief or dole system. 

All these statistics on the amount of benefits that have been poured 
into this record are of little value in determining the adequacy of State 
unemployment compensation systems. They do not show how the 
statistics relate to the economic conditions of the individual, the com- 
munity in which he lives, and the Nation as a whole. 

Much has been said in this record as to the duration of benefits. 
Many unemployment compensation claimants exhaust their benefit 
rights before finding reemployment. You will find that in the case 
of those exhausting their benefit rights the weekly benefit amount 
usually runs between 60 and 65 percent of the wages that would have 
been earned based upon the wage credits he has. In other words, the 
closer the benefit amount equals the wage that would have been earned 
while employed the more likely is the claimant to exhaust his benefits 
before finding employment. 

Unfortunately, during the period (1942) for which statistics were 
furnished this committee, the United States Employment Service was 
charged with the responsibility of finding jobs for unemployment com- 
pensation claimants. Unfortunately again, the top administration 
issued instructions to find jobs and place people only in jobs essential 
to the war effort, and not to find jobs for unemployment compensation 


claimants who were not qualified to work in essential war industries. 
As a result of this, many millions of dollars were paid out in unemploy- 
ment compensation that should not have been paid out. Many hun- 
drers of thousands of unemployment compensation claimants ex- 
hausted benefit rights because the United States Emplo3anent Service 
did not expose them to jobs available in industry. 

For i^roof of the statement I have just made I refer you to a study 
made by the State unemployment compensation agencies in 1942, which 
showed that in no State during the operation of the Employment Serv- 
ice b}" the Federal Government were more than 10 percent of the unem- 
plo^nnent compensation claimants exposed to job opportunities. 

A later survey resulted from the poor showing of the Employment 
Service in the one conducted by the States. This survey was made 
on a cooperative basis with the States, the Social Security Board, and 
the War Manpower Commission. The federally operated Employ- 
ment Service, realizing it was on the spot, made every effort to make 
as good a showing as possible, and even then, only one-third of all 
claimants were referred to job openings. The portion of claimants 
referred ranged from about IG percent in Idaho, Louisiana, and Geor- 
gia to 60 percent in Oklahoma, and 66 percent in Montana. 

The study further showed that 10 percent of all claimants who had 
been unemployed for a period of 4 weeks prior to the time the study 
began had been contacted by the Employment Service. Being un- 
able to offer them a job and penalizing them on their refusal to accept 
suitable work, these claimants whose benefit amounts ran from 60 to 
65 percent of their earning capacity, did not exercise the required 
initiative to find employment for themselves until they had ex- 
hausted their benefit rights. 

The higher the benefit amount per week, the less the number who 
exhaust their benefit right ; 60 percent of those with low weekly bene- 
fit amounts exhaust their benefits before finding employment, whereas 
only 30 percent of those with maximum benefit amounts exhaust their 
benefit rights.^ In other words, a man earning $30 a week in gainful 
employment could draw $15 a week in unemployment compensation. 
This kind of man would not wait for the United States Employment 
Service to find him a job. The $15 a week he could earn offered suffi- 
cient incentive for him to get out and find a job himself. There is 
nothing strange about this situation. It is just plain old everyday 
human nature. The incentive to work must be strong enough for a 
man to try to find employment. Conversely, if the incentive is strong 
enough or induced by high benefits, then the person remains idle. 

In the case of A heretofore referred to — by working he would only 
have earned $2.45 more per week than he received for being idle. In 
the case of B — he would have earned only $4.10 a week more by work- 
ing than he could get out of the State by being idle. In the case of 
C— he could earn $15.75 more by working than he could by being idle, 
so he immediately got out and found himself a job. He did not draw 
any unemployment-comi:>ensation benefits. 

The proper system of unemployment compensation is one which fur- 
nishes a minimum amount of subsistence and at the same time leaves 
room for initiative and incentive to work. Such a system is now in 

> Rpsearch and Statistios Lettpr No. ?>2 of Spptpmlipr l.S. 104.*^. and Research and Statistics 
Letter No. 28 of July 2, 1943, publications of tlie Bureau of Employment Security. 


existence in the 48 States in the Union and three Territories. I quote 
from the President's Committee on Economic Security : 

While the maximum benefits recommended are mere iipproximations, they 
very clearly indicate that on a contractual basis, benefits can be paid only in 
l^eriods, which to many people will seem short. * * * Benefits are small, al- 
Ihougli considei'ably higher than relief grants. * * * While unemployment 
is far from being a complete protection, it is a valuable first line of defense for 
the largest group in our population, the industrial worker steadily em- 
ployed. * * * If he does not find work, we recommend that his further 
period of unemployment should be met by a work benefit, as described in the 
section of this report dealing with employment assurance. * * * While the 
maximum benefit periods indicated by the actuarial calculations are short in rela- 
tion to the unemployment suffered by the people now on relief, it must be re- 
membered that in ordinary industrial periods, the great majority of workers who 
become unemployed find other work in a much shorter time. 

It is obvious that we cannot, upon a contractual basis, provide un- 
limited duration of benefits. To attempt a program such as this bill 
calls for would be to depart from the fundamental conceptions of 
unemployment compensation as known in this country. It would be 
a payment of a dole or relief money through our existing unemploy- 
ment-compensation agencies. 

There is a very distinct relation between the duration of benefits 
and the exhaustion of those benefits to the amount of benefit payment. 

There is also another factor which enters into it, and that is 
whether or not there is existing and operating in the country an 
efficient labor exchange. To illustrate : A person has been steadily 
employed for a period of a year and has earned during that year 
$578.40, which entitled him to a weekly benefit amount of $7 for 16 
weeks, and these figures are the case of B, heretofore referred to. 
B's average weekly earnings while gainfully employed were $11.10 
per week. His benefit amount was 63 percent of his wages. He ex- 
hausted all of his benefit rights. Probably the reasons he exhausted 
his benefit rights are (1) the weekly benefit amount was so near his 
earning capacity that he preferred to remain idle and draw unemploy- 
ment compensation to working; (2) the State unemployment com- 
pensation agency did not have a labor exchange, it having been sur- 
rendered by us to the Federal Government upon the request of the 
President for the purpose of aiding the war effort. 

The United States Employment Service has never served unemploy- 
ment-compensation claimants since it became operated by the Federal 
Government, therefore, no work test was ever applied to this claimant. 
He was never offered a job opportunity, and because the $7 a week, 
low and inadequate though it is in the eyes of some people, was close 
enough to this individual's wage earning capacit}^ to cause him to 
remain idle for 16 weeks and not even try to get a job. 

This proves to my mind, that if you increase the weekly benefit 
amounts of the low wage earner, you will encourage idleness, and 
for that matter, if you increase the weekly benefit amount of those 
entitled to the maximum under our law to a point too near the wage 
they can earn in gainful employment, and I say 80 percent as provided 
for in this bill is much too near, you will encourage idleness in that 

Our records show that most of the claimants entitled to the maxi- 
mum benefits under our law, earn considerably more than that, and 
to my mind this proves conclusively that the reason thev do no+, ex- 



haust their benefit rights is because the incentive to work is great 
enough to cause them to get out and find a job for themselves even 
though there is no efficiently operated labor exchange. 

On many occasions the Social Security Board and others have seen 
fit to criticize the State unemployment-compensation agencies for the 
penalties which they have meted out to unemplo3^ment-compensation 
claimants who liaA^e refused suitable employment when offered to 
them or who have been discharged for misconduct, or who have quit 
their last employment without good cause. Again, I would like to 
quote to you from the President's Committee on Economic Security : 

To serve its purpose, unemployment compensation must be paid only to workers 
involuntarily unemployed. The employees compensated must be both able and 
willing to work and must be denied benefits if they refuse to accept other suitable 

Now, because we take away the benefit rights of unemployment- 
compensation claimants who are guiltj^ of misconduct, voluntarily 
quitting, or refusing to accept a job, they have sought to picture us as 
Shylocks, demanding a pound of flesh. 

In this bill, when a claimant commits any one of the offenses just 
enumerated, the only penalty that can be assessed is a disqualification 
for a period of not more than 5 weeks. Now, what will that result in ? 
It simply means that a man today who is tired of working, quits his 
job without good cause, files a claim for unemployment compensation 
and has his waiting period extended 5 weeks. At the end of 5 weeks, 
unless he is offered a job and refuses to accept it, he draws unemploy- 
ment comiDensation benefits until such time as he is offered a job. 
Assume that he is offered one and refuses, then his waiting period is 
extended 5 weeks, and he comes back again. Even in the greatest 
period of prosperity, we are probably going to run out of jobs to offer 
that fellow, and he will have a nice vacation of 2 years under this bill 
with a minimiun compensation of $20 a week. 

I don't think this committee wants to recommend the passage of any 
such law as that. Certainly such a provision does not encourage 
people to work. It is like giving a man a tap on the wrist for com- 
mitting a crime. 

The problem of the migrant worker has always been small, and I 
believe has been largely solved by the interstate benefit payment pro- 
cedures, reciprocal coverage, and the combining of wage credits. The 
working out of these three plans demonstrates to my satisfaction that 
the States can be relied upon to solve their own problems. Not one; 
of these proposals was suggested by the Social Security Board. They 
originated with the States and were largely worked out by the States, 
although we did have the cooperation of the Board in approving them. 

Early in the program of unemployment compensation the States 
recognized the necessity of having procedures that would enable a 
claimant who had been employed in one State who through no fault 
of his own had lost his job in that State and moved to another State 
could draw unemployment compensation benefits from the State where 
he had worked and from which he had moved. 

Accordingly, a committee was established by constitutional provi- 
sion of our Interstate Conference of Employment Security Agencies, 
consisting of 1 member from each of the 12 social-security regions of 
the United States. This committee is the interstate benefit payment 
procedures committee. 


This committee met, and worked out the interstate benefit payment 
procedures, which liave been adopted by all the States and which have 
from time to time been improved since they were first inaugurated. 
Briefly, the plan provides that any State may be the agent of another 
State in the taking of a claim against the paying State. Uniform 
procedures have been established, and proper forms worked out. 

The procedures are very detailed and the interest of both the em- 
ployer and the employee are amply protected. The administration or 
interstate claims has been very simple and has not presented any serious 

We States are aware of the possibility of a large interstate claim 
load. Anticipating this, a large number of the States began studies 
several months ago to determine the extent of this possible claim load. 
The studies reveal the number of workers in a given State with social 
-security numbers from other States. For instance, we have just com- 
pleted a current study for Texas, which reveals that we have a total of 
229,913 workers in the State of Texas who have migrated here from 
other States during the national emergency. 

Recognizing the desirability of determining what State should re- 
quire the payment of contributions upon the wages of employees who 
perform services in more than one State, all State unemployment-com- 
pensation agencies enacted legislation authorizing the entering into 
cooperative arrangements to deal with this problem. Through this 
method, we make it possible for the employee to be covered and draw 
benefits should he become unemployed and at the same time require the 
employer to pay contributions upon his wages. In the administration 
of the reciprocal coverage arrangement, no problems have be^n en- 

When the national emergency arrived, and it was apparent that there 
would be widespread migration of labor from State to State on a volun- 
tary basis and also through encouragement if not compulsion on the 
part of the Federal Government, the States realized that it might be 
possible for many employees not to be able to draw unemployment com- 
pensation because of their failure to work long enough in any one 

The Federalists were quick to realize this fact and immediately be- 
gan ballyhooing from the rooftops for a Federal system. The inter- 
state conference established a committee on the combining of wage 
credits, which committee has worked out a plan which this year is being 
put into operation. 

At the present time some 20 States have entered into the plan. Oth- 
ers have it under consideration, and I believe before the war is over all 
States will be participating. The plan provides for the combining 
of these wage credits to the end that an employee will not lose his right 
to unemployment-compensation benefits. At the same time the plan 
will prevent an employee's drawing benefits from more than one State 
at a time or in sequence. 

At this time we cannot say much about administrative difficulties, 
for it has not been in operation long enough to hazard a guess. Antic- 
ipating that there will be some problems in connection with the combin- 
ing of wage credits, such problems will be referred to our constitutional 
interstate benefit payment procedures committee. 

This committee met on the 25th of April in Chicago, and I expect 
its report to recommend some needed improvements in connection with 



the operation of the plan. I am quite certain that we will have no 
tiouble in making it work, as we have the other plans, and am still more 
certain that there is no need for the establishment of a Federal system 
because of the possibility of a few workers losing their right to unem- 
ployment compensation because they have worked in more than one 

I hope this information will enable you to see that the States are 
aware of all interstate problems and will meet those that arise in the 
future as we have met those that have arisen in the past. I am sure 
you have under consideration a provision similar to one in S. 1823. 

Section 506 (a) of Senator Kilgore's bill reads: 

That such benefits shall be subject to reduction, in accordance with regula- 
tions of the Work Administrator, on account of any unemployment or disability 
compensation paid him by any public agency for the same period of unem- 

"Well, it so happens that every State law has this same provision 
with respect to our claimants under any Federal compe-nsation act, so 
it simply means that the claimant could not draw benefits from both 
tsystems without an amendment to the law of every State in this Union. 

Wliat that provision seeks to do is to have the States pay a certain 
amount and then have that amount supplemented from the Federal 
Treasury to bring it up to the uniform amount to be payable through- 
out the Nation and then when we have paid out all under our law 
that we are obligated to pay, the Federal Government would pay the 
full amount for an indefinite period of time. 

This provision is just bait for us State administrators to bite on so 
that our successful organizations can be federalized. The federalists 
see our nice fund in the Treasury, and they just cannot keep their hands 
off. It almost hurts the federalizers to see us prosperous, with money 
in the bank and running an efficient organization the way it was meant 
to be. 

The States can get along without any help from the Federal Gov- 
ernment. We have enough money to stand the post-war drain and 
then some. Our benefits are adequate in duration and amount, in 
accordance with the economy of our respective States. 

I know that some one of you will ask me the question, assuming 
that your State systems are adequate for those people that are cov- 
ered, what about some form of unemployment compensation for 
those that you do not cover? My answer to that question is, first, 
one of the fields in which there are a large number of industrial 
workers who have been excluded from unemployment compensation 
is Government workers — in offices, arsenals, and navy yards. If this 
Congress believes that a system of unemployment compensation should 
be established for the Federal employees, then they can amend the 
Social Security Act and permit Federal workers to be covered under 
State laws. In other words, if you would permit the States to tax 
the Federal Government a reasonable sum to pay benefits to those 
Federal employees whenever, through no fault of their own, they be- 
come unemployed, then you would have to amend the Social Security 

The Social Security Act provides for an offset credit against the 
Federal tax for taxes paid the State under an unemployment com- 
pensation law to those employers of 8 or more employees. The pro- 
vision is drafted in such a manner that it does not preclude the 


States' extending coverage under their State laws to any other group 
they desire. For this reason employees in other industrial establish- 
ments can now be covered by the States without Federal legislation; 
13 States have a coverage of 1 or more ; 8 States have a coverage of 4 
or more; 2 States have a coverage of 6 or more; 26 States have a 
coverage of 8 or more. 

Perhaps you will ask the question, why don't we compel all States 
to have a coverage of one or more? My answer to that is that the 
legislature of the respective States are in a better position to know 
the needs of their States than is this Congress. I have great faith 
in our State legislatures, because they are responsible to the people 
in those States, and I for one, although I recommended it to my legis- 
lature in Texas and the measure was defeated, am for lower coverage, 
I will never say to the Congress of the United States, because my legis- 
lature did not agree with me, that the Congress ought to chastise the 
legislatures and make them agree with me. I believe that when my 
legislature sees the need of reducing coverage to those not now covered 
by our law, that they will lower the coverage, and until that is done^ 
I think the people of Texas will resent Congress' meddling in our 
State affairs. 

The proposal to subsidize State U. C. agencies is the same principle 
that was in the old war displacements bill. Extensive hearings were 
held on that bill 2 years ago by the House Ways and Means Committee, 
and it was defeated by a vote of 18 to 7. I shall not burden you with 
all the arguments before that committee ; 22 State unemployment com- 
pensation administrators appeared in person. In addition, 12 State 
governors made personal appearances, and many others sent letters 
and telegrams stating their positions. 

It has been my pleasure to keep in contact with those State admin- 
istrators and governors, and I know they have not changed their 
opinion about such a provision. I am quite certain that should this 
committee recommend the passage of a bill with these provisions in it 
that the administrators of unemployment compensation and all the 
governors of the States will be down here before the House Ways and 
Means Committee to oppose it. 

We stated then that such a provision would result in the federaliza- 
tion of our State unemployment compensation agencies. The authors 
of that bill were willing to write into the law that it was not a bill 
to federalize the State unemployment compensation systems, as I 
am sure the authors of this new bill would be willing to do. Even 
with such assurance from the authors, of the war displacement benefits 
bill, the Ways and Means Committee said, in effect, that a rose under 
any other name would smell as sweet. At that time, the same old 
story was presented that has been presented before this committee. 
To me, it sounds like the broken record. 

Catastrophic unemployment was predicted during the period of 
conversion from peace to war time industry. Those for the bill said 
hundreds of thousands of workers would be thrown out of employment, 
that the States did not have enough money to pay the benefits, that 
the benefits were too little, that the duration was too short, that those 
who migrated from one State to another would lose their benefit rights, 
and strange as it may seem, not one prediction ever came true. 

Michigan, which was pictured to be in dire circumstances, was 
able to pay all the unemployment compensation benefits it was called 


upon to pay and still increase its trust fund by several millions of 
dollars during that period. 

The same old prediction has been made before this committee — that 
we will have catastrophic unemployment in the reconversion from 
war to peacetime industry in such proportions as to wreck the unem- 
ployment compensation systems. 

The State systems will have in their trust funds around $6,000,000,- 
000 by the end of this year. It would take 25,000,000 unemployed per- 
sons drawing the maximum of $15 a week for 16 weeks, or a total of 
$240 each to use up the reserve that the States have. I say to you that 
if we have 25,000,000 unemployed persons for 4 months in this Nation 
that unemployment compensation, the Treasury of the United States, 
nor any other thing that can be conceived of would do any good. Our 
Government would pass out of existence, our bonds would not be worth 
anything, our money would not be worth anything, and we would 
probably embark on a period of revolution and bloodshed such as the 
Avorld has never seen before. 

So far as I am able to find out, if this committee recommends the 
l^assage of a law as advocated by proponents of emergency legislation 
to aid State U. C. agencies, and it becomes the law of the land, it will 
be the first time in the history of the world that a government has un- 
dertaken to guarantee every citizen a job or its equivalent in money. 
Tlie proposal to be incorporated in this bill would put a premium on 
idleness. It is proposed to pay $20 a week to agricultural workers 
])lus $5 a week for each dependent with a maximiun of $35 per week. 
In the United States, the average cash income of the farm worker for 
the year 1941 was $37.45 per month,^ probably 20 percent higher for 
1044 — yet to pay him almost that much a week, and in the case of one 
A\ ith dependents will pay him almost $15 a week more than he earns 
])\ working. I ask you, under such a proposal, who is going to work? 
There seems to be a large group of people in the United States that 
are hell-bent on destroying our successful unemployment compensa- 
tion systems. They lie awake at night trying to figure out some crack- 
pot scheme to tack on to our successful organization and drag it down 
to the level of many other schemes that have been so thoroughy dis- 
ci-edited in the eyes of the American people. Confound it — it makes 
me mad. 

I have repeatedly made the statement that the bill of which Senator 
'Murray is coauthor, usually referred to as the Wagner-Murray-Din- 
i gell bill, would not get very far in Congress for the reason that along 
i with these liberal proposals made by his bill, it also levies a tax. When 
; you levy a tax upon the people who are going to be the possible recip- 
j ients of the Government's generosity, they decide they don't want the 

Perhaps one reason why more opposition has not been voiced to 
' the proposals made before this committee is that it seeks to give away 
billions of dollars from the Federal Treasury, but it does not levy a 
tax at the same time to provide tlie money to give away. You levy a 
tax of 6 percent on the employers and 6 percent on the employees of 
this Nation to support a grandiose program such as has been advo- 
cated and you would think the wrath of the gods had descended upon 
you when you begin to get the protests that would be forthcoming. 

I ^ Agricultural Statistics of 1944, United States Department of Agriculture. 


No greater evil has grown during the past few years than the tendency 
to ''look to Washington'' for guidance, inspiration, help, and money.. 
The Federal Government is not a producer of wealth even if it does 
have charge of printing the money. It consumes wealth. Rsal 
wealth is produced only when something is created that is useful. 
We must make certain that our programs of social security do not 
result in coddling and the loss of personal initiative. It is only 
through personal initiative that old businesses are expanded and new 
ones created. I believe our system of free enterprise demands that 
we continue our modest system of unemployment compensation and 
that it be left in the hands of the States. 

We must not embark upon any system of social security that will 
destroy the capitalistic system, the profit motive, the right of a man 
or woman to be rewarded for energy, initiative, daring, the willing- 
ness to work, the character to save, and the courage to invest. 



TUESDAY, JUNE 6, 1944 

House of Representatives, 
Special Committee on Post-war 

Economic Policy and Planning, 

Washington^ D. C. 

The special committee met at 10 : 30 a. m., in room 1304, New House 
Office Building, Hon. William M. Colmer (chairman) presiding. 

Present: Representatives Colmer (chairman), Cooper, Lynch, 
O'Brien, Reece, AVelch, and Wolverton. 

The Chairman. The committee will come to order. 

Due to circumstances over which we have no control, the committee 
is rather limited this morning in its attendance. There are committee 
meetings and a lot of us, I might say, are interested also in what is 
happening in the war, rather than the post-war period, this morning. 
But be that as it may, we are glad to have with us Col. Allan M. Pope, 
president of the First Boston Corporation, of New York City. 

Colonel Pope, we regret that these complications have developed; 
in addition the House meets at 11 o'clock, of which fact we had no 
knowledge. We should be glad to hear your statement and will stay 
with you as long as we can. You may proceed. 

Colonel Pope. Thank you. 


Colonel Pope. Mr. Chairman, I understand, of course, what the 
situation is. I am not going to attempt to go over all of the matter 
which I would have otherwise presented to you, but will submit it. 

I do want to bring up one thing. I want to go into a little 
detail. It will take 5 or 10 minutes to do so. This is something that 
ought to be considered very promptly. I must say it is an extremely 
serious situation. I will be brief, but I will be a little detailed just 
to give you the understanding of it. 

Lender the Maloney Act, the National Association of Securities 
Dealers, which is, generally speaking, operated and financed by the 
investment banking industry, was vestetl with power to discipline 
its members which include, nece^ssarily, practically all engaged in the 
securities business. That is a broad general statement of the facts. 
In 1940 the N. X. S. D. disciplined some of its members by levying 
fines for infraction of one of its rules of fair practice. 

This wasn't post-war planning, but I am getting to it. Irrespective 
of the details, which are complicated, suffice it to say that it was in- 
terpreted by the Attorney General that the fines, through the 



N. A. S. D., were levied because the accused dealers failed to live up 
to a contract made between them and an underwriting syndicate to 
temporarily maintain a price of a new issue of securities. 

I mention this background so you can understand what I am saying 

The question of whether the levying of such fines should or should 
not be sustained was raised by the S. E. C, and a hearing was held 
on April 12, 1944, at which hearing the Attorney General, with the 
approval of the S. E. C, submitted a brief and made an oral state- 
ment contending that a contract to accomplish the temporary main- 
tenance of an agreed public offering price was in violation of provisions 
of the Sherman Antitrust Act. 

I now come to the question of major importance. I am sure that 
if the Attorney General acts to enforce his expressed opinion, or if 
the S. E. C. finds that the fines should not have been levied and by 
doing so casts doubt upon the legality of a contract which provides 
for a temporary maintenance of an agreed price of a publicly offered 
*'?,rue of securities, then the investment banking industry will not be 
nble to function effectively, will not be able to provide needed funds 
for industry except in very rare cases, and the entire post-w^ar 
expansion of industry tlirough long-term loans or equity money 
or the conversion of industry to peacetime operation through such 
funds will largely cease unless the Government undertakes to do the 
financing, and I should say 90 percent cease. That, gentlemen, is a 
very serious situation. It looks as though I was talking primarily 
for the benefit of the investment-banking industry. 

To let you know it doesn't take much to stop it; in 1934, the act 
stopped all financing, the Securities Act which was passed at that 
time, in spite if the fact the investment bankers said it would stop 
all financing. There was no financing done for a year. Congress 
modified the act. Then industry went on, financed by private means. 
So it doesn't take much to stop it; and I prophesied then it would 
stop it ; and I prophesy now, again, that it will — not on just pure guess- 
work — but on facts. 

The statements I make are not exaggerated, in my opinion, nor are 
they made to sound dramatic. The facts on which my opinion is 
based are complicated. I will simplify them as best I can. 

I am not proceeding to argue for any s])ecific exemptions from the 
Sherman Antitrust Act. I am legally advised that many decisions 
have been rendered holding temporary price restrictions legal when 
temporary in nature and incidental and when the persons selling are 
not in control of the market. 

When a new issue of securities is to be offered to the public and to 
other dealers by a group of underwriters, unless it is an exeinpted 
issue, exempt from registration, it must be registered with the S. E. C. 
Under schedule A of the Securities Act the registration statement 
of the issue must have entered upon it the agreed public offering 

In the act, it requires the agreed public offering price of the issue 
be entered into the registration statement. 

Parenthetically, I might ask if Congress thought when it wrote the 
act that a price could ever be called an agreed price, which it possibly 
asked for, if the agreement did not last for any period of time what- 
ever. The Attorney General says it cannot be agreed to maintain a 


piice for any period of time. An n<xreement ^yhich can be voided 
in tlie next breath is no agreement. That is common sense. 

Therefore, the ruling of the Attorney General, if it goes through, 
crrtainly his oral statemeu-t. means that the Securities Act is illegal 
ami the requirements of the Securities Act are illegal. 

Xow, why is this price agreement so important? Briefly, this is 
the procedure that makes it an essential element in investment bank- 
ing, and is the reason that for 50 years or more it has been necessary 
lo practice that principle, to maintain which principle the S. E. C. has 
i --iicd numerous regulations governing the procedure of bankers when 
Liaintaining an agreed offering price. So all of that, if the Attorney 
j GeneraTs decision is correct, is out. 

I When a new issue of securities is offered to the public, generally 
I speaking, a group of bankers foi-m an underwriting syndicate to buy 
the securities from the issuer and they agree with the issuer to offer 
the security to the public at an agreed price and this price is included 
in the registration statement filed with the S. E. C. Thev have got 
to know that price. The man who issues the securities, sells it to the 
underwriter, has got to know what the underwriter is going to mak<. 
on it. The only way to tell what j^ou are going to make is to know 
the price you are going to pay for the securities and know the price 
they are going to offer. The issuer must know that price at which 
securities are to be offered or he cannot determine the reasonableness 
of the underwriters' gross profit or "spread." Usually several hundred 
other dealers located throughout the country — called a selling group, 
of which the underwriters very generally are members — buy for resale 
from the underwriters at a concession below the initial public offering, 
price and this group likewise agrees to the temporary maintenance of 
the public offering price. They buy at resale, buy at a concession below 
the initial public offering, which the public will be allowed to pay. 
That is their profit. 

The present practice, in general, is for the members of this syndicate 
or selling group to agree to maintain the initial offering price for a 
short period of time, often not longer than 10 or 20 days — almost 
never longer than a maximum of 30 days. 

"Why do they say 10, or 20, or 30 days ? Because an issue of securities 
is sold, almost completely, and it is almost a rule that they are not 
delivered for 10, sometimes 20, sometimes 30 days — sometimes as long 
as 60 days. 

You can have a contract with people that they will buy the securities 
when issued — when delivered. And it is an amazing thing that a great 
many people, where they will say, "We will buy that security on the 
date of delivery," if on that date the security is selling for lower than 
the price which they agreed to pay, which is the offered price, you will 
be surprised to know how many won't take them up. You have got 
to have protection. 

Xow, supposing on Monday morning you start in on a new issue of 
securities. On Tuesday, we will say, part of the country would get 
the data. Data means prospectus, which they have to liave before 
they can offer. Some parts of the country, if you offer on Monday 
morning, won't get the prospectus until Wednesday. And during 
wartime that would be Thursda}^ or Friday before they can even offer 

00.-79— 44— i;t. 2 — —11 


If you do not have a fixed price, that is to say, an agreed offering 
price'for a short period of time, they find on waking up that the agreed 
offering price no longer exists, because there is no provision for main- 
taining a price for any length of time. If they already own the 
securities, these fellows in California, on Tuesday or Wednesday morn- 
ing, if they got the securities, they wake up and find the security is 
worthless, and they have paid for it, possibly. 

All of this time, during all these price fluctuations, the security 
may well be intrinsically worth the originally agreed initial offering 
price or more, and hundreds may have been ready to pay that price 
or more, but because of the mechanics of selling which has permitted 
and encouraged a drop in the market, they hold off and wait to see 
how low the price will go. It would seem that some would step in 
and buy if they think the price is cheap. Eventually they will, but 
the public rarely buys in a falling market. A dealer's business is to 
buy and sell — not hold. Many dealers, believing they may have to 
hold for too long a time before they can sell at a profit, sell at a loss. 

Now, gentlemen, when the Attorney General publicized a brief 
which he wished to submit later at the Securities and Exchange hear- 
ing, we had an issue of securities, $±0,000,000 of securities — the Phil- 
lips Petroleum issue. That is an issue double A, meaning a high, very 
high rating. Triple A is the highest. The bank can buy at the BAA 
rating. When the Attorney General's opinion was publicized we 
called in the lawyers right away. We were going to issue within 12 
hours or 24 hours. We said, What are we going to do? Here is the 
Attorney General threatening that this is illegal. We hadn't much 
time to discuss the m^atter. We had an issue wliich was very high 
grade. It was May, a market very receptive. That issue was very 
popular. We decided because we didn't have time to think it over, 
what the consequence might be, we decided to issue without a price- 
maintenance clause. We dicl; and the issue went within a few hours, 
out, because everybody wanted that particular issue. It was a high- 
grade issue and a negotiated deal. 

^Vithin 24 hours after that, another issue came out. This will show 
what will happen. It sliows why you can't do it without a price- 
maintenance clause. The Northern States Power issue was offered. 
And they tried the same thing. These are the onlv two issues to my 
knowledge that have been tried without a price-maintenance clause in 
50 years. This next issue was not a high-grade issue compared to 
Phillips Petroleum. It was AA. The market had turned not too 
recpptive. The issue was offered at 101, That was the public offered 
price. Because there was no price maintenance, within 5 minutes 
after the public offering price of 101 was announced, and the morning 
opened, and the deal was offered, there were within 20 minutes, three 
separate prices. 

Now, when an issue is offered at 101, what happens? Somebody 
who thinks he knows that price maintenance is not going to be main- 
tained, says to someone, "T will buy that issue at par and a half" — ■ 
a half point below. There is no necessity for maintaining a price by 
any agreement. So some dealer said, "'All right. I will sell you 
that." Because he may be able to make a quarter of 1 percent, or 
somethin<x and get out whole. 


The minute that price, that deal is made, I don't care how bip; it is, 
for par and a half, that is tlie price of the issue throughout the United. 
States,, on that minute. No one, no reputable dealer, will ever offer 
above that pi-ice to anybody, imless they know that there are no more 
bonds offered at that price, no more securities. 

That Northern States Power deal started in with three prices. It 
dropped from 101 down to par and a quarter. Some of the scalpers 
came in, took most of it at par and a quarter and cleaned it up. Three 
prices within the 24 hours, or 48 hours, I guess, total. 

Now, when you are in the business of investment banking, say what 
you want, you are not in it to lose. Yon are in it for profit and for 
gain. There is no way under heaven for an investment banker to 
know whether he is going to make or lose. He knows the chances 
for are far in excess of the chances against it that he lose, without 
price maintenance. 

There is, in the opinion of those in the investment-banking field, 
I know, because I have talked to a great many of them, not because 
1 was coming here, but there isn't an investment banker that would 
take the risk of buying five, ten, up to one hundred million dollars' 
worth of securities and have no knowledge whatsoever as to whether 
he was going to have the price Avhich the public will pay, or whether 
he is going to have a price which is mechanically operated as result 
of no opportunity to maintain for a temporary period of time, this 
fixed price. 

I ck>n't know why the Attorney General suddenly comes in after 
60 years and determines that this is wrong. The Attorney General's 
brief is. in the opinion of the lawyers, unsound. In some places it 
is absoluteh^ absurd. He says what we should do would be to follow 
the British system, among other things, where they have no main'* 
tenance of price. 

Now, I can tell you that this is what would happen, in order for us 
to adopt the British system, whez'e they have no maintenance of price. 
To duplicate it, we would have, among other things, to set up prac- 
tically all buying in one place — say New York City. We would have 
to change the law affecting insurance companies in practically every 
State in the Union, that were brought about by the Hughes investiga- 
tion; to repeal the security company bank-affiliation provisions of 
the Glass-Steagall Act; to repeal the dealer-license provisions of the 
1934 act ; and to make prevalent in this country the very thing crit- 
icized in the English distributing machinery as set forth in the Mac- 
Millan report, that is, it favors established enterprises in large cities. 
We would have to change the Securities Act. We would have to change 
competition for customers. In England, if you have a customer, no 
one ever takes him from you. He can't. Those changes would have 
to be made in order to adopt the British system. I say you can't do it. 
That is in line with the Attorney General's, I think, rather loosely 
worded brief. That statement, in itself, was absurd. 

Mr. WoL^'ERTON. May I ask whether the English system, the Brit- 
ish system you speak of, is statutory or is it agreed custom? 

Colonel Pope. Yes; it is statutory to the extent it has to do or it 
comes under the British Companies Act. That is something like our 
Securities Act, in that sense it is statutory. When it comes to saying 
that no customer can be taken from another, that is pure custom. 


But if you don't have that, the British system of opening up to every- > 
body without a price restriction, wouldn't work. \ 

The reason why it works in England, is this: You are offered an ' 
issue of securities. I ain in the securities business in London, among ' 
other places. You offer a security to the public there. There is no i 
price restriction. You can offer at any price you want. The buyers ' 
are all in London. The buyers are oftentimes and mostly big estates, • 
large investors, and so forth. Their brokers have worked for them '. 
for centuries, in some cases, and who never have any competition to [ 
maintain tlieir accounts. In almost all cases they have discretion. ] 

So, in the morning, if this comes out, all of these people in the city j 
of London, the agent merely says, "I will take so many for John | 
Smith, so many for Henry Knight, so many for the insurance com- | 
pany," and that ends it. We have nothing comparable to that in j 
this countrv at all. Occasionally it does not ^vork. Occasionally those ' 
people don't want the issue. It is a flop. When it is a flop, that is I 
M^hat they have done in underwriting it, which we can't do under I 
the law. The insurance companies, the big investment trusts, who, i 
if the issue isn't sold to others, are perfectly willing to hold it at their , 
price. i 

In that case, they back the underwriters, so if the issue isn't sold at ' 
all, it goes into the hands of people who are willing to hold it. In this ; 
country, it goes into the hands of dealers. A dealer's business is to buy \ 
and sell, not hold. They are not investment trusts. They do not under- ■ 
write. Insurance companies under the law cannot underwrite in this \ 
country. i 

Mr. WoLVERTON. I regret I didn't hear the beginning of your state- j 
ment. ]\Iay I ask how far our present securities laws interfere with ] 
the situation as you have expressed it? j 

Colonel Pope. Our present securities laws are all right, sir. It is j 
because they are all going into the discard, if the Attorney General's ' 
opinion is valid. That is what the trouble is. The Securities and i 
Exchange Commission have issued innumerable — that is really tlie \ 
right word — rules for maintenance of price. That would all have to 
go out. because you cannot maintain a price under the Attorney ^ 
General's decision. , 

The Securities Act requires you to report the public offering price, i 
That is all right. That is as it should be. The only way I can find | 
out, and I am not a lawyer, that you can prevent a complete stoppage 1 
of private industry, financing the corporations of this country in j 
post-war planning, if the Attorney General's report even indicates, : 
or the further report, or the S. E. C. report, after hearing the At- I 
torney General, and their report hasn't been made yet, but if that j 
casts doubt, grave doubt on the legality of maintenance of price for • 
any period of time at all, there wouldn't be any investment banking \ 
industry underwriting, financing the industry of this country. It 1 
will be just the same as it was in 1934. ' 

In 1934, the whole year, there was nothing like that, because of the ' 
Securities Act, which was amended later. 

Mr. WoLVERTON. Are you advocating any change at all? 

Colonel Pope. I am advocating one thing. AH I think is neces- 
sary — I am advised, that is — in schedule A of the Securities Act — 
that there be written into it, the statement that the filing of an agreed 
offering price wih a limitation, which you can set, 10 or 20 days, what- 


POST-WAR ECONOMIC POLICY AND PLANNING 449 it may be, is not in contravention of any existing law. You know 
the phraseology which is in the Maloney Act: 

If any provision of this section is in conflict with any provision of any law in 
the United States, the provisions of this section shall prevail. 

jMr. WoLVERTON. What is the attitude, if you know, of the Securities 
and Exchange Commission, with reference to the suggestion you have 
just made? 

Colonel Pope. I don't know the attitude of the Securities Exchange 
Commission. The Securities Exchange Commission, to fortify them- 
selves, did employ a man who made a study of this. And he made a 
report at this hearing. I do not know whether the Securities Ex- 
change Commission had anything to do with the Attorney General's 
attitude on the matter. 

We have no knowledge of what the Securities Exchange Commis- 
sion will find, as their report is not j^et issued. All I am saying to you 
gentlemen is tliat that is the most serious thing in the investment bank- 
ing industry, that it has been confronted with since 1P34:, when it was 
out of business. And I will assure you I am not just trying to earn 
a dollar for myself or for anybody else. 

M}' business is too diversified to have us go out of business, if we 
never did any underwriting. You cannot finance industry by private 
means, if the Attorney General's decision that you cannot maintain a 
price goes into efi'ect. 

Mr. WoLVERTOx. What does he base that decision on ? Do you have 
any reference? 

Colonel PcPE. He bases it on the fact that a security is a commodity. 
A commodity cannot be restricted as to price. 

jMr. "WoLVERTON. Is it based on the antitrust law ? 

Colonel PnpE. Sherman antitrust law ; yes. I have had read to me 
innumerable decisions under the Antitrust Act, which cover this sec- 
tion, whicli are to the effect that, if the restrictions — price limita- 
tions — are purely incidental, if they are temporary in nature, and not 
for the benefit of someone who controls the market, then a temporary 
price maintenance has been authorized in innumerable decisions. 

INIr. Wglverton. Is there any litigation pending that would result 
in a decision by the Supreme Court on the question? 

Colonel Pope. No, sir ; nothing. 

Mr. WoLVERTON. On the Attorney General's brief? 

Colonel Pope. No. sir; nothing before the Supreme Court. This 
hearing only took place the middle of April, submission of the brief 
by the Attorney General last April. 

Mr. Woi.vERTON. I was at a loss to tell what that was. 

Colonel Pope. The Securities and Exchange Commission held a 
hearing on the question of whether or not some fines should be imposed. 
This is incidental to that. The question cf whether the fines phoulcl be 
imposed, is an erroneous conception, in my opinion. I won't go into 
tiie details of that. What the Attorney General said was that the 
lii'cs were to be imposed because the individuals who were accused did 
;i()t live up to a contract with an underwriting group to maintain a 
Drice of nn issue of securities for a period of time. They failed to 
do it. They went out and broke the price, contrary to agreement. 
.Vnd thp-t brought up the question as to whether the fines should be 
imposed, because they had broken it, or whether it should not be. 



Then the Attorney General came in and said the fines should not be j 
imposed because the agreement, itself, was illeo;al. ,i 

Mr. WoLVERTON. Is this change you suggest, by an addition to the j 
Securities Act, due to failure to meet that situation in the present i 
legislation, or is it due to an unexpected interpretation of the act as , 
it is now ? j 

Colonel Pope. Due to an unexpected interpretation of the act. The '. 
act has been in existence since 1934, and it has never been challenged. ; 
The practice before the act has been in existence for 50 years and not 
been challenged. Suddenly it is challenged. ' 

The act is all right. And in many cases I am going to say all i 
through here, the Securities Act is a good act. There are many ' 
things in this Public Utility Holding Company Act and Securities ' 
Exchange Act — they are good acts. The trouble with the situation is j 
not all the trouble with the S. E. C, as many think. The trouble is ] 
that Congress in two of the acts gave a mandate to the Administrator j 
to carry on. Because at that time Congress didn't know how to pro- i 
vide the means of carrying through the provisions that they wished ; 
carried through in their act. Now Congress knows how to do that. > 
They didn't know. Nobody knew, perhaps, 10 years ago. And the t 
S. E. C. has been obliged to interpolate, through regidations, wliich i 
have the effect of law, if they don't have the status of law, in innumer- ] 
able cases, so numerous that no one can hope to be able to follow them. ^ 
And that has been the difficulty with those two acts. j 

But, gentlemen, the question I was specifically asked was this: If '* 
the Securities Exchange Act was all right, as far as this point I am ; 
bringinfr up here was concerned ? It is the fact that the act doesn't say 'i 
that it IS not in violation of the Sherman Antitrust Act or any law 1 
makes it such that you can question it. And it has been questioned. 1 
And the mere fact that it is questioned, and that the Attorney Gen- 
eral puts the investment banking industry on record that it is probably ' 
illegal, you can't make anybody take the risk. You will just be facing 
an indictment. In fact, I don't know how true it is, but the rumors 
are very definite that the minute the hearing report is out it is the 
intention to indict some investment banker for a test case. You can't 
indict an investment banker any more than you can indict a commer- 
cial banker, without injuring credit permanently, guilty or not guilty. 
Whether it is a test case or not. No one is going to run the risk of 
indictment, if they can avoid it. 

The Chairman. Do you have anything further? 

Mr. Lynch. Is that the only case. Colonel Pope, where there has 
been action taken by the Securities and Exchange Commission to levy 
a fine? 

Colonel Pope. Oh, no ; it has been done frequently. 

Mr. Lynch. But the question has never been raised? 

Colonel Pope. The fine is not levied by the Securities Exchange. It 
is levied by their stepchild, the N. A. S. D., which is a quasi-govern- 
mental body formed under the Maloney Act, passed by Congress a few 
years ago. But the S. E, C. has jurisdiction over the decisions of this 
N. A. S. D. It has jurisdiction over those decisions which is bringing 
those decisions about, the question of the right of the National Asso- 
ciation of Securities Dealers to have levied the fine, then the Attorney 
General steps in and adds a brief saying the fines could not be levied 
because the contract they were accused of breaking was illegal. 



]\Ir. Lynch. Who questioned the N. A. S. D., the Securities Ex- 
change ? 

Colonel PorE. The Securities and Exchange Commission. 

I am reminded that some of the dealers questioned it and com- 
plained that they should not be accused and fined. And their appeal 
has brought about the hearing by the S. E. C. 

Mr. Lynch. Let me see if I get it right : First, the N. A. S. D. was 
the one before whom the complaint was lodged? 

Colonel Pope. Yes. 

Mr. Lynch. They, as in previous cases, held or were about to 
hold that certain people had violated their maintenance agreement 
and should be subject to fine. Is that correct? 

Colonel Pope. Yes. That began 4 years ago. It has been pending 
until this time. 

oNIr. Ly^ch. Then I presume some dealers objected to the action 
of theN. A. S. D.? 

Colonel Pope. Yes. 

JMr. Lynch. And brought it to the attention of the S. E. C. ? 

Colonel Pope. Yes. 

Mr. Lynch. "^^Hiereupon, hearings were held before the S. E. C? 

Colonel Pope. And they permitted the Attorney General to inter' 
vene, also. 

Mr. Lynch. Intervene and render his opinion, is that correct? 

Colonel Pope. Yes. 

Mr. Lynch. Now, you stated before that it was your understanding 
that where there was no benefit to parties who made the maintenance 
agreement, that it did not come within the purview of the Sherman 
antitrust law. Isn't there some benefit to the parties to the maint- 
enance agreement in the very fact that one party is guaranteeing that 
the price should remain definite for a period of time ? 

Colonel Pope. The reason it does not come in under the Antitrust 
Act, in the opinion of the four leading corporate lawyers in New 
York, law firms, is because it has no bearing on the eventual price. 
It is no restriction of trade. It does not provide a monopoly in any 
sense at all. It is purely a temporary operation to permit the me- 
chanical distribution of the securities, and with a country as large 
as the United States, with the mails as they are, plus the fact it is 
a mechanical device to hold the price until the security, itself, can 
be delivered, which is not possible at the time of sale — it has to be 
some days later, after printing, engraving, and so forth, has taken 
place — therefore, it is purely an incident to correct a mechanical 
diiRculty. It does not provide anybody with a corner on the market, 
or a monopoly, or restricting anybody from trading. It does not 
prevent the price from going anywhere it wants to in 10 or 20 days, 
when they close this issue. 

As a matter of fact, it is only the dealers that agree to be restricted 
in price. If I sell to you, I agree to maintain a price. You can sell 
at any price you want, right like that. And it assures that every- 
body has an equal opportunity to purchase. It is for the benefit of 
the purchasers. 

Mr. Lynch. In other words, what you mean is this : That if there 
is an issue, say of $100,000,000, by this maintenance-of-price agree- 
ment, that gives everybody who desires to purchase, an opportunity 
to come in and get their pro rata share of that issue. 


Colonel Pope. That is right. At thut price. 

JNlr. Lynch. At that price ? 

Colonel Pope. At thut price. 

Mr. Lynch. So that you get a wider distribution and eventually, 
probably, ])revent, well, a corner on that. 

Colonel Pope There couldn't be a corner, sir. 

Mr. Lynch. Probably not in that amount, but a smaller issue. 

Colonel Pope. Even 'if it was 5,000,000 or 2,000,000 there could 
not be a corner for the reason this is only temporary, lasts for 10 
days. Everybody has to agree to extend it for 10 more. It never 
gets suspended, under present practice, not rules, for more than 30 
days. This is the practice. If the issue is 5,000,000. or a hundred 
million, and it goes on for 4 or 5 days, and about half or a quarter 
of the issue is sold, and no more sales. There is no sense in keeping 
the syndicate, or that agreement together. The syndicate is closed. 
A free market. 

Now, it is because in the first few days, and sometimes it takes m-ore 
than 10 days, in order to get this distributed, you see people have got 
to go in the highways and byways and talk to people out in various 
parts of this country, and they don't get there. Today it is even 
Avorse, because the telephone is restricted. You can't telegraph as 
much as you could before. You have got to give time to get it to 
people before the price is jumping all over the map, which is hard 
on the people who bought at the original oifered price. You buy 
something at par. The next minute you find somebody bought it at 
par and a half. You know you don't like it. The fellow that bought 
it at par and a half advei-tises the fact he bought it at par and a half, 
and the next bid is par and a quarter. Down it will go purel}^ for 
mechanical reasons. That is the way it works. 

The ChaipvMAn. Pardon me. Had you finished ? 

Mr. Lynch. I had finished. 

The Chairman. As I understand, you have no fault with the S. E. 
C., we will say, as such, as to the law. What you are objecting to is 
an interpretation of the law by the Attorney General, which you con- 
tend is unwarranted. Is that correct ? 

Colonel Pope. That is correct. On this particular point 

The Chairman. Now, that being true, isn't the question one for I 
the courts to determine? I mean, after all, if your counsel contends j 
that this is an erroneous construction, isn't it j^roper for him, for \ 
that to be settled in the courts? 

Mr. Lynch. Well, sir, normally I wouki say so. You gentlemen ' 
here are talking of post-war planning. A lot of these corporations 
have got to get ready now. The minute the Attorney General indicts 
somebody, which I think he probably will, or the minute he carries , 
on his contention and works to get a case before the Supreme Court, i 
or the minute the Securities Exchange Commission backs up the At- j 
torney General in its repf)rt and casts doubt on the legalitv. there isn't I 
a corporation that is going to get a nickel. And I don't think you , 
can wait until the Supreme Court gets to it. i 

The Chairman. I will follow that in just a moment; yes. Of 
course, I can well understand there are a number of people in this 
country who have no confidence in the Attorney General. That is 
a ouestion about whether his action was correct in a certain mail- 
order-house seizure. 


There are some people who don't have confidence in the Supreme 
Court as jDresently constituted. I, myself, and tJiis is either on or 
off the record, I think that maybe they lean a little too far to the left. 
I have certainly found some disagreement with some of their decisions. 

But if the interpretation is wrong, by the Attorney General, of this 
act, and even if the Court should follow him and wrongly determine 
the interpretation of the act, what assurance would you have, if Con- 
gress were to attempt to correct it now, that tJie same thing wouldn't 
happen ? What I am trying to say is, after all, haven't you got to give 
the Court opportunity to pass upon it^ 

Colonel Pope. "Well, sir, I follow you. And I am inclined to say that 
as a normal procedure, you would be correct. I am trying to find some 
way so that private capital can find its vray into industry now. And 
in the next year and in the post-war period. I am very skeptical as 
to whether the Supreme Court is going through the normal channels 
of legal procedure, that you would be able to get a decision such as to 
warrant investment bankers continuing to underwrite securities. 
Certainly I think for the duration of the war they won't be able to. 

1 think it will extend pretty well into post-war. And I think that 
would be fatal. 

The Ciiair:m AN. I can understand somewhat of the difficult approach 
to the question. 

Colonel Pope. Is it possible, sir, to have, if the Congress adds to the 
fact that they have stated already, just a mere phraseology, "this is 
not in contravention of other acts." what happens then? This is not 
in violation of other existing acts, not to be construed as being, this 
price maintenance, inasmuch as it is in the Securities Act. 

The CuAip.MAX. I am not sure I follow you. 

Colonel Pope. The Securities Act states you have got to file as a 
matter of record, the public offered price to the public, which you have 
agreed to. Xo one, I don't believe, in Congress ever thought that 
agreed offering price, set down here as the agreed offering price, that 

2 minutes later someone says that that is not tlie agreed offering price, 
I will get an}' price. That means no price at all. If there is no period 
of time vrhich you agree to a price, then there is no agreed price. That 
is what the Congress wrote. It was wise in doing so, that it would 
imply a time element. All I saj'^ is, and this is what the attorneys tell 
me, if the Congress added to the statement that they require the agreed 
offering price to be registered, the fact that this is not in contravention 
of any existing law, that you would not have the difficulty of a stop- 
page of underwriting, and you would not have the contention it was 
in violation of a law which specifically said it was not. 

The Chairman. I think I understand. I think I follow you a little 
better, possibly. 

AVhat you would have the Congress to do is to clarify ? 

Colonel Pope. Clarify, sir. 

The Chairman. We are very fortunate here in having a member of 
this committee, a member, also of the Interstate and Foreign Com- 
merce Committee, Mr. Wolverton, who has been very intelligently 
submitting questions to you here this morning. Do you have anything 
to say about that, Mr. Wolverton ? 

]Mr. WoLVERTo;[sr. It seems to me that the intention of Congress was 
certainly different from what the Attorney General has ruled. 

Colonel Pope. I think so. 


Mr. WoLVERTON. The best evidence of that is the fact the Sscurities 
Exchange Commission has made rules with reference to this very 

Colonel 1*0PE. Innumerable rules. 

Mr. WoLVERTON. So it would seem as if the Securities Exchange 
Commission had also agreed in the interpretation which I think 
Congress intended sh^nild be given to the act? 

Colonel Pope. Yes. Tluit I think is certain. 

Mr, WoLVEiiTON. In other words, they have fixed the rules and regu- 
lations on the basis that this was a proper thing to do as provided 
for in the statute ? 

Colonel I^OPE. Yes, sir. 

Mr. WoLVERTON. Now, the Attorney General comes along and files 
an opinion that is contrary to what we will say was the intent of 
Congress, certainly contrary to what was the intent of Congress, as 
interpreted by the Securities Exchange Commission ? 

Colonel Pope. That is right, sir. 

Mr. WoLVEBTON. That has thrown a degree of uncertainty into the 
situation that would preclude the proper operation of business in this 
respect ? 

Colonel Pope. Yes, sir. 

If the following changes in paragraph 16 of schedule A of the 
Securities Act of 1933 is amended, there will be no question but that 
the original intent of Congress will be continued under the Securities 
Act. It is important that a possible finding by the Securities and 
Exchange Commission relative to this matter or that possible further 
action by the Attorney General does not so confuse the situation that 
no underwriting of any importance will be done. It is suggested 
that the Congress take steps at the earliest possible moment to pass 
an amendment to this one paragraph in order to insure that the inten- 
tion of Congress be continued without interruption. Section IG is 
rejDeated herewith as it stands with additions which are italicized : 

(16) The price at which it is proposed that the securities shall be offered to 
the public or the method by which such price is computed and any variation 
therefrom at which any portion of such security is proposed to be offered to any 
persons or classes of persons, other than the underwriters, naming them or 
specifying the class, and any agreement hetwecn undem-riters or any agreement 
between the iindcnvritinff syndieate and members of the selling group or beticeen • 
the underwriting syndieate and any other persons purehasing from the tinder- 
writing syndicate for resale, to maintain the public offering price for any period 
of time ivhirh shall not exceed, thirty days from the date of the initial public 
offering tvithotit approval of the Commission. 

A variation in price may be proposed prior to the date of the public offering 
of the security but the Commission shall immediately be notified of such 

If any provision of this section is in conflict loith any provision of any law of the 
United States in force on the date this section takes effect, the provision of 
this section shall prevail. 

I am advised that if section 16 is amended with reasonable prompt- 
ness as indicated, the danger of a stoppage of underwriting just before 
we enter the post-war period can be avoided. 

The Chairman. Are there any further questions? 

(No response.) 

The Chairman. Do you have anything further? 

Colonel Pope. I am submitting this, because I know your time sched- 
ule. I am not in agreement with all of the things the Securities and 


Exchcinge Commission have done, but they are embodied in this 
report, which every member of the committee will be furnished. 

Mr. Lynch. One question. 

The Chairman. May I pursue this further for the record here? 

Mr. Lynch. Yes. 

The Chairman. Do I understand. Colonel, that you desire this com- 
plete statement to be incorporated in the record as is? 

Colonel Pope. Yes. 

The Chairman. Without objection, it will be so ordered. 

(The full, prepared statement of Colonel Pope is inserted in the 
record on p. 458.) 

Mv. Lynch. Colonel, as I understand your testimony, you are 
fearful as a result of this opinion of the Attorney General, which is 
contrary to the long practice of investment, that 

Colonel Pope. Certainly 50 years. 

Mr, Lynch. And is contrary to the apparent rulings of the Secur- 
ities and Exchange Commission in that heretofore the Securities and 
Exchange Commission has recognized the necessity of such practice. 
You are fearful that this ruling will frighten away buyers or pur- 
chasers of bond issues, not only purchasers, but those who float the 
bond issue, unless some legal action be taken which will either validate 
the issue itself, or else tend toward legal difficulties on the part of those 
who are floating the issue ? 

Colonel Pope. I don't think it could invalidate the issue itself, if 
you carried on the practice in defiance of the brief of the Attorney 
General, or his general opinion. 

And it would not prevent buyers from buying. They wouldn't buy 
at the offered price. They will try to press it down and buy it low, 
because the mechanics make it possible for some of them to do it. 
What it will do is this: This is my opinion. With the exception of 
the very highest grade securities, triple A securities, which means 
large corporations with long-established credit, with the exception of 
those, and with the exception of the possibility it might get down a 
little bit lower grade, possibly double A, in a very receptive market, 
no underwriter will have the courage or the nerve to go ahead and un- 
derwrite, in other words, float an issue of securities for any industrial 

Mr. Lynch. If the underwriter didn't float those issues 

Colonel Pope (interposing). The Government will. 

Mr. Lynch. The buyers probably wouldn't be able to buy them. 

Colonel Pope. No ; the Government will step in. I think that had 
a good deal to do with the question. 

]\[r. Lynch. How will the Government step in? 

Colonel Pope. There has to be some way by which the industry is 
going to get its money. 

Mr. Lynch. Let's see how the Government is going to go into the 
business of floating loans for private ventures after this war is over? 

Colonel Pope. Well, I can't tell you. All I am afraid of is they 
will do it. I can't see ariy way by which — I will begin again. I don't 
believe that the bulk of the industry, bulk of the commerce of this 
country can get through this without financing of some kind. If 
you get private banking in it, the only way you can do that is by 
investment banking. If they are not short-term loans, the banks have 
no business making them, and they have no business making capital 


loans, even though short. I don't know where else there is any money, 
unless the Government, imless the people don't want money. And I 
say they have got to huxe it— small industry, large industry, expanding 
industry, converting industrj^ — or else you will stop the wheels. 

I am reminded if the Attorney General does indict, I am only get- 
ting this from hearsay, I may be entirely wrong 

Mr. Lynch. I hope you are. 

Colonel Pope. I do say we will probably be the one indicted, as 
we are the largest distributor in the country, largest dealer. 

Mr. Lynch. I hope that you might be mistaken, that there will be 
no indictment, not that I hoped you would be indicted. 

Colonel Pope. I took your tone to be friendly. 

The Chairman. We all concur in that. 

Colonel Pope. Really, gentlemen, I am more concerned over this 
than I have been anything that has happened in the investment bank- 
ing industry, since I have been in it. I think it means almost com- 
plete stoppage of the flow of private funds into industry, and to 

I was concerned at the time the first draft of the Securities Act 
was passed, and stopped it then. Fortunately, that was a time in 
1934 that people didn't want money. They were not expanding. 
They went through the year without a nickel being provided from 
private funds into industry and commerce. I was not so alarmed 
then. I knew Congress would eventually wake up to the fact that 
some changes were necessary. They did in a year. They amended 
the act. This is worse, because I see no stoppage of this unless Con- 
gress acts now. 

I am reminded of the fact, also, if this indictment takes place, the 
issuing corporation, that is to say the man that issues the securities, 
borrows the money, would be indicted as well as the investment 

Mr. Wolverton. He would be, if they started a conspiracy indict- 

Colonel Pope. Well, I can tell you that we have learned that you 
cannot talk to too many people at a time on lots of things, because of 
a charge of conspiracy, whether there is one or not. I am talking 
only for myself, gentlemen. 

Mr. Wolverton. I thought for a long time there should be some 
means provided by which businessmen would know before they took 
a certain step whether it was contrary to the Attorney General's 
interpretation of the Sherman Antitrust Act? 

Colonel Pope. Yes, sir. 

Mr. Wolverton. In other words, I don't take it that a businessman 
wants to do a thing that is known to be wrong. But frequently they 
can do things which, as you say, by the change of a principle of 50 
years standing, they may be unexpectedly faced with an indictment. 

Now, in cases where there is such uncertainty as that, it seems to 
me that there ought to be some provision by which an individual might 
know before he enters into a transaction of that kind, whether it 
would or would not have the approval of the Attorney General? 

Mr. Lynch. Do you yield a moment, Mr. Wolverton? 

Mr. Wolverton. Yes. 



Mr. Lynch, I would lil^e to say I think the policy of getting indict 
ments, of such policy as is going to be, where a course of business has 
been going on for 50 years or more, and bringing people before the bat 
and criminal court, is wrong. That the procedure, if there is any 
question as to the law, that the procedure should be civil, in the first 
instance, so that an injunction of some kind might be had to restrain 
them from proceeding. But not to bring either a corporation or an 
individual with an indictment which, as Colonel Pope says, whether 
the indictment ever goes to trial, and the defendant found guilty, 
nevertheless his reputation and his credit is pretty badly damaged by 
the mere filing of the indictment, which would not be so if the action 
was brought in civil court, in the first instance. 

The Chairman. Colonel Pope, to what extent are your views shared 
by others engaged in investment banking ? 

Colonel Pope. Well, sir, I can only say that as an individual no 
conspiracy entered into, I would like to make that a matter of record. 
I am not really facetious, but I have learned 

The Chairman. As I understand, you are not organized. You 
don't have a union of your own? 

Colonel Pope. No. sir. I have talked to a number of individuals 
who are the heads of the largest underwritinfj concerns in the United 
States. And I have talked to the four leading investment banking 
counsellors in the country, four leading corporate-lawyer firms. And 
in answer to your question, I would sav that I do not believe there 
is any law firm who would permit his client to put any price mainte- 
nance for any period of time at all, if anybody was indicted, if the 
Securities and Exchange Commission implies that it is an illegal act, 
or if the Attorney General pursues his course in some other manner 
which gives the same impression. 

I do not believe any investment banker will fly in the face of his 
attorneys. I don't say that those four leading corporate lrvW3^ers are 
correct. But I have an idea they are. 

The Chmrman. There is an association of investment bankers? 

Colonel Pope. Yes, sir. 

The Chairman. Have they come to any conclusion on it? 

Colonel Pope. The Investment Bankers Association have not entered 
this picture, because of the fact that the Natioiial Association of Se- 
curities Dealers, which is quasi governmental, has entered it, and 
they have submitted their brief. They have argued it before the 
Securities and Exchange Commission hearing. It is with that group 
which practically every dealer is perforce a member in the United 
States, that group is defending the situation, as far as investment 
bankers are concerned, not the Investment Bankers Association. 

The Chairman. Are there any further questions? 

Mr. Reece. Xo. 

The Chairman. "We are grateful to you. I am sorry to have kept 
you so long. 

Colonel Pope. I am sorry to have taken so long. 

The Chaibman. We are very thankful we could stay with you. 

The committee stands adjourned until 10:30 tomorrow morning, 
when ^Ir. Donald Nelson will appear. 

(Whereupon, at 11:45 a. m., an adjournment was taken until June 
7, 1944, at 10:30 a. m.) 



("'olonel Pope, Tlie purpose of my beiiifr asked to present my views 
at this hearing is solely to throw what light I can on the subject of 
post-war phmning. I liave directed my attention in this statement 
solely to that end and have avoided any effort to discuss matters 
merely concerned with my industry — investment banking. 

Some of the subjects I am to present are proposed for consider- 
ation and are not presented in detail nor are they argued. If I am 
asked for details or arguments I will gladly provide them on the 
stand, if my memory for figures and details suffices, or will furnish 
such details at a later date. 

The im})ortance of the investment-banking industry in the post- 
war era will rest solely on the ability of that industry to furnish 
needed capital or loans for commerce and industry and for States and 
municipalities, and to provide a ready market for such securities as 
may have been issued to the public, I will endeavor to state what is 
needed by that industry to function efficiently, and what it is able to 

First, let it be recognized that to handle the estimated demand for 
long-term and equity money for post-war needs, the investment-bank- 
ing industry is now organized to take care of all the business which 
it properly can })e called upon to handle. There is sufficient capital 
and a sufficient coverage of the entire country. 

Second, the general statement is often heard that the investment- 
bankinof industry is hampered and its efficiency is curtailed by the 
S. E. C. It is my belief that to be accurate it is necessary to say 
which administration of the S. E. C. is referred to, for administra- 
tions have differed greatly. Also, the S. E. C. administration is too 
often blamed instead of the lack of explicit provisions in the acts 
which the S. E. C. administers. 

Matters concerning the S. E. C. will be taken np in the order of 
their importance to the subject at hand. 

Under the Maloney Act the National Association of Securities 
Dealers, which is, geiierally speaking, operated and financed by the 
investment-banking industry, was vested with poAver to discipline 
its members which include, necessarily, practically all engaged in the 
securities business. That is a broad general statement of the facts. 
In 1940 the K. A. S. D. disciplined some of its members by levying 
fines for infraction of one of its rules of fair practice. Irrespective 
of the details, which are complicated, suffice it to say that it was in- 
terpreted by the Attorney General that the fines were levied because 
the accused dealers failed to live up to a contract made between them 
and an underwriting syndicate to temporarily maintain a price of a 
new issue of securities. I mention this background necessarily to 
bring me to the important point. 

The question of whether the levying of such fines should or should 
not be sustained was raised by the'S. E. C. and a hearing was held on 
April 12, 1944, at which hearing the Attorney General, with the ap- 
proval of the S. E. C, submitted a brief and made Jtn oral statement 
contending that a contract to accomplish the temporary maintenance 
of an agreed public offering price was in violation of provisions of the 
Sherman Antitrust Act. 


I now come to the question of major importance. I am sure that if 
the Attorney General acts to enforce his expressed opinion or if the 
S. E. C. finds that Ihe fines should not have been levied any by doing 
so casts doubt upon the leirality of a contract which provides for a 
temporar}' maintenance of an agreed price of a publicly offered issue 
of securities, then the investment-banking industry will not be able to 
function effectively, will not be able to provide needed funds for 
industry except in very rare cases, and the entire post-war expansion 
of industry through long-term loans or equity money or the conversion 
of industry to peacetime operation through such funds will largely 
cease unless the Government undertakes to do the financing. 

The statements I make are not exaggerated, in my opinion, nor are 
they made to sound dramatic. The facts on which my opinion is 
based are complicated. I will simplify them as best I can. 

I am ]iot proceeding to argue for any specific exemptions from the 
Sherman Antitrust Act. I am legally advised tliat many decisions 
have been rendered holding temporary price restrictions legal when 
temporary in nature and incidental and when the persons selling are 
not in control of the market. 

"When a ncAv issue of securities is to be offered to the public and to 
other dealers by a group of underwriters, unless it is an exempted 
issue it must be registered with the S. E. C. Under schedule A of the 
Securities Act the registration statement of the issue must have 
entered upon it the agreed public offering price. Parenthetically I 
might ask if Congress thought when it wrote the act that a price 
could ever be called an agreecl price, if the agreement did not last for 
any period of time whatever. The Attorne^^ General says it cannot 
be agreed to mainttiin a i^rice for any period of time. An agree- 
ment which can be voided in the next breath is no agreement. That 
is common sense. 

AVhy is this price agreement so im]X)3'taiit? Is it important in 
order tliat bankers can be more certain of making money? 

Briefly, this is the procedure that makes it an essential element in 
investment banking, an.d is the reason that for 50 years or more it has 
been necessary to practice that principle, to maintain which principle 
the S. E. C. has issued numerous regulations governing the procedure 
of bankers when maintaining an agreed offering price. 

When a new issue of securities is offered to the public, generally 
sjDeaking. a group of bankers form an underwriting syndicate to buy 
the securities from the issuer and they agree with the issued to offer 
the security to the public at an agreed price and this price is included 
in the registration statement filed with the S. E. C. The issuer must 
know the price at which securities are to be offered or he cannot de- 
termine the reasonableness of the underwriters- gross profit or 
"spread."' Usually several hundred other dealers located throughout 
the country — called a selling group, of which the underwriters very 
generally are members — buy for resale from the underwriters at a 
concession below the initial public offering price and this group like- 
wise agrees to the temporary maintenance of the public offering price. 
The ]:)resent practice, in general, is for the members of this syndicate 
or selling group to agree to maintain the initial offering price for a 
short period of time, often not longer than 10 or 20 da3'S, almost never 
longer than a maximum of 30 days. This is the normal period for 
securities to flow from the issuer to the ultimate investor and the 



normal period in which to make delivery and to receive payment. ; 
Often in practice the agreement is terminated prior to the 10- to 20- 
day period. 

Supposing there is no possible way by which a price can be tern- i 
porarily maintained for any period of time. What happens? 

The public offering price of all new issues is based on judgment. 
AVliat the public will pay for a new issue cannot be determined posi- . 
tively in advance of the offering thereof. A new issue without agree- 
ment to maintain the offering price is offered, let us say, on Monday. ; 
Some ])arts of the country may not receive sufficient information by | 
mail to permit sales to be made until Tuesday or Wednesday. On j 
Monday, let us say, an institution, knowing tlie offered price can be \ 
broken, offers to buy $100,000 of the security at the offered price less ^ 
one-half of 1 percent from a selling group member. The price con- I 
cession, let us say, to the selling group member is less three-fourths ] 
of 1 percent from the public offering price. The dealer, probably not ' 
too familiar with the general picture and becoming concerned, seeing ^ 
an opportunity to make one-fourth of 1 percent in a quick sale, puts i 
the transaction through at the offering price less one-half of 1 per- ; 
cent. The market for that new issue is at the moment the offered ^ 
price less one-half of 1 percent — not the offered price. j 

It is the business of every dealer to know his markets. A constant : 
flow of market quotations passes continuously every day from dealer j 
to dealer. This sale I referred to on Monday morning at the agreed j 
offering price less one-half of 1 percent will shortly be known every- J 
Vv'here. It means, as I have said, that the offering price from then on '] 
is the original offering price less one-half of 1 percent and no reputable : 
dealer is then going to offer his customer the security above that price ! 
unless he knows that no more of the security is available at that ])rice. 
What usually happens when an ofi'ering ]H'ice breaks is that some, i 
usually small dealers, are forced to sell and are more apt to offer their ; 
securities at that lower price or below than to withdraw tlieir offerings ■ 
and wait and hope foi- the market to straighten out. 

This all takes place on Monday morning. On Tuesday, let us say, 
parts of the country get the data they need to make their offering 
of the security to the public. They find the agreed offering price 
no longer exists. If they already own the security they are in a tough 
spot. If they are what is called a selling-group member and have 
not yet bought the security for resale tJiey would be fools to buy 
because the price at which they can purchase from the owners is 
still fixed by agreement and the price at which they can sell is dropping , 
and may well go below their purchase price. 

All this time during all these price fluctuations the security may 
well be intrinsically worth the originally agreed initial offering price 
or more, and hundreds may have been ready to pay that price or more, 
but because of the mechanics of selling which has permitted and en- 
couraged a drop in the mai'ket, they hold off and wait to see how low 
the price will go. It would seem that some Avould step in and buy if 
they think the pi-ice is cheap. Eventually they will, but the public 
rarely buys in a falling market. A dealer's business is to buy and 
sell — not hold. Many dealers, believing they may have to hold for 
too long a time before they can sell at a profit, sell at a loss. The 
result is that this issue of securities is not sold at its fair value; 
dealers are helplessly at the mercy of a mechanically doctored market; 


they find they cannot use jud.cnient as to the price tliey will pay an 
issuer for a security because that nuiy have no relation to the price 
they can obtain. Dealers do not continue to do business that results 
in losses. 

I have not oiven you an imaginary picture. I have been talking 
facts. I have been explaining to you why for 50 years an agreement 
to temporarily maintain a price for securities is necessary for purely 
mechanical reasons. Within 2 months it has been proven by actual 
practice that without the temporary maintenance of an agreed offering 
price no issue can be successfully and fairly distributed unless it is of 
the very highe^it grade and ottered in a very receptive market. By 
successfully distributed, I mean really ])roperly placed with ultimate 
investors, not merely with large financial groups. By highest grade, 
I mean classed as AAA or AA. Bonds eligible for banks to buy are 
classed as BAA, which is a rating much lower. 

They should start to correct serious mistakes in the acts because the 
best procedure to guarantee industry its needed capital funds is none 
too good for a post-war world with its stresses and strains. 

I shall now speak in general terms for the sake of brevit3^ I can 
be more specific if desired now or later. 

First, the Securities Act of 1933, as amended, generally speaking, 
has been found to be a workable act. Some details need correction 
before a post-war strain is put upon the investment machinery. 

(a) A clause should be inserted which states that the offering price 
to the public, as now required to be filed, should c(mtinue to be required, 
adding that a reasonable period of temporary maintenance of such price 
is not to be construed as in violation of existing law. 

(b) The prospectus now required to be used with every registered 
issue should be materially simplified. The presently required pros- 
pectus is so long and complicated that it defeats its purpose. It 
was intended to be read by, and hence safeguard, the general buying 
public. It just is not read and if it is, it is not understood except 
by the sophisticated who need far less protection. The "short form" 
of prospectus, authorized by the S. E. C. for newspaper advertising, 
more nearly fills the need for real protection to the nonprofessional 

(c) The registration statements can be simplified but not as much 
as tlie prospectus. That is not a big job. Some present requirements 
are unnecessarily detailed and accomplish nothing but irritation. 

(d) If Congress wants to help small industry it should not require 
a registration statement for securities less than $1,000,000 of par value. 
Registration is now required if over $100,000. Let the States police 
such issues. They have the machinery to do so and I believe will 
do so. Small industry pays costs all out of proportion to big in- 
dustry to re<zister issues of such small size. The costs are often pro- 
hibitive. Neither the N. A. S. D. nor the S. E. C. are built to police 
and supervise innumerable small issues of securities even under a 
million dollars. 

(e) Congress should add to the act a clause which defines when a 
sale can be made without registering it, usually referred to as a 
private sale, defining the limit in the number and interest of the 
purchasers and prohibiting the resale without registration unless 

99579— 44— pt. 2 12 


within the same limitations as the original purchase without regis- 

I recall, I hope correctly, that when the Securities Act of 1933 was 
first drafted no provision was made for a private sale and at a meet- 
ing at which I was present it was, as I recall it, first discussed and 
some provision was recommended to permit an obviously private 
transaction to be accomplished between a very few individuals with- 
out registration. The regulations issued by the S. E. C. interpreting 
a private sale now open up the loophole to avoid re<:;istrati()n con- 
tinually larger and larger and now permit a sale, affecting directly 
or indirectly literally millions of persons, without registration. I 
seriously doubt that Congress ever intended such an avoidance of 

Under present interpretations a professional buyer, whose pur- 
chases may well be for the benefit, directly or indirectly, of hundreds 
or thousands of beneficiaries, can buy securities from an issuer with- 
out registering or without agreeing to register the issue and has, with 
as many as fifty other such professional buyers, purchased an issue 
of securities without registering. Such buyers, while they cannot 
purchase for the purpose of resale, can and are permitted to and have 
later changed their minds and have resold to dealers for redistribu- 
tion to the public, and although in many instances these securities 
have eventually been registered they are not required to be. 

"What I am about to say sounds as though I was arguing to benefit 
investment bankers wdio are purchasing securities for resale from an 
issuer. In such cases registration is always required. Speaking for 
myself alone, I invite your attention to the fact that my own corpora- 
tion frequently arranges such private sales and is paid for doing it. 
Practically every large institution that has purchased unregistered 
securities through private sale is a customer of my corporation. Every 
word I utter here may be displeasing to my corporation's customers 
who have purchased securities privately. Nevertheless, if a thing is 
wrong in principle I believe it should be corrected. 

I believe there should bs and I recommed in your post-war planning 
that consideration of this principle be undertaken, to wit: If a sale 
is made of a registerable issue to any purchaser of securities or any 
group thereof in which the purchaser's stockholders, policyholders, or 
any other group of persons have a direct or indirect interest in such 
purchases, then the security must be registered and be purchasable 
only after the waiting period or else it must be publicly declared 
exempt from registration for all purchasers. 

What has this principle to do with post-war planning? 

History shows that with increased incentive to do so, the number 
of persons who can participate in a private sale has been expanded 
by the S. E. C. In the post-war era the incentive to do this may well 
increase. Private sales foster a monopoly. It is my belief that a 
monopoly in the hands of a few over the right to purchase the most 
attractive of new issues of securities is bad for those within as well as 
for those without the monopolizing group. I believe that this I'ight 
to monopolize is not sought now and never has been by the large 
institutional investors, but when made possible by the S. E. C. can- 
not be ignored — not for the purpose of monopoly but, curiously enougli, 
for competitive reasons. Coniiress left tlie door open, the S. E. C. 
have, for various reasons, walked into the barn, and I believe they 


are now playing; with matches and in the post-war era may start a 
conflagration. The fire can conceivably burn those outside of the en- 
forced monopoly, namely, individual investors, small insurance com- 
panies, and other small institutional investors together with the 
machinery of investment banking. If Congress does not like the 
locks of this picture the correction is easy. 

The Securities Exchange Act of 1934 and the Public Utility Holding 
Company Act of Id'Ao, both administered by S. E. C, are not good 
acts in the light of experience as compared with the Securities Act of 
1933. The reason for this is that when these two acts became law, the 
Congress knew what it wanted to accomplish but did not know how 
to do so; so it inserted within these acts mandates upon the adminis- 
trator of the acts to issue regulations to accomplish what the Congress 
wanted accomplished but did not know how to do so. If I may be par- 
doned a rather bold statement, it is my belief that the often-repeated 
statement in recent years that the S. E. C. has gone beyond the intent 
of Congress in its administration of these acts is due largely to the 
failure of Congress to express its intent — a failure understandable at 
the time but not understandable now. If the Congress now wishes to 
see its original concept of the act carried out within its original or 
present intent, it can do so but it cannot do so without writing into 
the act what it omitted originally and left to the S. E. C. to supply 
through regulations. It is my belief that Congress now has a basis 
of experience sufficient to write an act without asking a conmiission 
to act for them. 

Regulations by the S. E. C. have followed a pattern over the last 10 
years that Congress, more or less suddenly, does not now so readily 
agree with. Many of these regulations were precipitated because the 
S. E. C. did not know what the Congress intended. 

Many regulations issued by the S. E. C. have been, in my humble 
opinion, unnecessarily restrictive, annoying, and harassing upon com- 
merce and industr}'^ and upon investment banking alike. I seem to 
recall that Congress once upon a time did not object too strenuously 
to this. It is my belief that it is too much to ask a commission to 
reverse itself. These two acts are, in my opinion, the basis of nine- 
tenths of the trouble with security regulations. I believe the S. E. C. 
through congressional mandates, has at times been forced into regu- 
latory pioneering that was difficult, possibly distasteful to some of the 
Commission, and this sometimes resulted in tough going which in 
some cases is getting tougher all the time. 'I have personally sympa- 
thized with the S. E. C. attitude on man}^ problems, particularly re- 
cently, and whereas I have disagreed and do disagree with some of 
their acts I also recognize that Congress has often placed them on a 
hot spot and the Commission has endeavored to get off it, landing, 
sometimes, on a hotter one. 

With gi'eat respect for the ability of Members of Congress, I never- 
theless say that I doubt if many Congressmen have any idea what 
caused the S. E. C. to require competitive bidding, for example. As 
practiced under the Public Utilit}' Holding Company Act of 1935, I 
doubt whether many know that com[)etitive bidding has been fairly 
proven to be practicable only in a firm or rising market for high-grade 
securities and relatively small issues. Therefore I wonder if in post- 
war planning the Congress expects to guarantee a rising market and 
expects to give <inv advantage to large corporations with very high 


credit over smaller corporations wliose credit is good but not quite j 
good enough. I wonder if Congress wants to minimize in post-war ■ 
planning the chance of selling equities of public utility operating j 
companies now owned by registered holding companies by requiring : 
competitive bidding which Congress never authorized directly. Also j 
does Congress wdsh to minimize the chance of such other utility com- i 
panics, not having an established credit, of raising new money for j 
the post-war era on senior securities. I frankly believe the S. E. C. ^ 
are in a quandary themselves on some of these points. To alleviate | 
the situation as I see it, the S. E. C. has either to abandon competitive j 
bidding in some instances — it is a hard thing to decide who will be I 
favored in such cases — or fall back on the old catch-all, the private I 
sale, which I have referred to before as fastening a monopoly on those I 
who do not want a monopoly. I 

As to the Securities Exchange Act of 1934 and the Public Utilit;v I 
Holding Company Act of 1935, Congress I believe knows now — and if I 
it does not it can readily find out — that the acts have many good j 
provisions. The acts, however, plus the almost innumerable regula- , 
tions issued by the administrator under congressional mandate that \ 
have the effect if not actually the status of law, are not all sound and | 
do not always represent the present intent of Congress. They pres- 
ently represent an unwoi-thy effort to properly regulate the banking 
industry and through them commerce and industry in a post-war era ,i 
and do not present a comfortable picture to dangle before our eyes t 
as our best effort to insure that commerce and industry and the mil- j 
lions whom they will employ are going to be adequately helped to do \ 
their ]:>art tlierein. We know, or should know, and at least we can , 
know right now before this war ends, that there is something wrong — | 
seriously wiong — which will be as wrong or more wrong whatever new j 
l)roblems the post-war world may present. This is a situation which 
i believe a few weeks' of committee work in Congress can correct and '^ 
correct before the war ends. Congress should, in my opinion, not add 
a few phrases to the Securities Exchange Act and the Public Utility 
Holding Company Act, minor changes as suggested for the Securities 
Act of 1933, but should fill in, in words of one syllable, what Congress 
omitted when it wrote the acts, namely, how Congress wants its own 
desired corrective measures enforced. 

While I am on this subject, I should like to submit these thoughts. 
They did not originate with me but with a number of thoughtful, 
experienced men. 

First, consideration should be given to the fact that the Securities 
Act of 1933 and the Securities Exchange Act of 1934 have for their 
main purpose the protection of the investor. The Public Utility 
Holding Company Act of 1935, as it has operated, has as one of its 
particular purposes the protection of the investor. The Public Utility 
Holding Company Act of 1935, as it has operated, has as one of its 
particular purposes the protection of the issuer, not the buying 
public. No commission can properly straddle that question. The 
S. E. C. was ordered to straddle it by Congress. To put the point 
bluntly, in the opinion of many, including myself, that is wrong as a 
matter of pure principle of organization. 

Second, giving full credit to the S. E. C. for administering some 
of the most far-reaching acts that Congress has ever passed, covering 
commerce, industry, and banking as they do, it is doubtful if any 


commission can be so constituted as to fairly and properly administer 
the acts free from the bias that always is inherent m any commission; 
namely, the desire to grow in size and power. 

A commission such as the Interstate Conniierce Commission may 
of necessity be essential because of the technical nature of its business. 
Some others might well be included in this number. In the case of 
the S. E. C. it becomes the most powerful police force over commerce, 
industry, and investment banking. It can grow to stifle all three. 
It exercises police powers that have obliged it to take the attitude in 
Its regulations that you cannot regulate for the good man, you must 
regulate for the bad one and if this hurts, stultifies, and hamj^ers the 
good man it is too bad, but necessarily so. The S. E. C. should not be 
a commission, if you will pardon an Irish form of statement, for two 
reasons. First, it does not have to be because of the nature of its 
work; and, second, its work can be better performed under two de- 
partments headed in each case by a Cabinet officer — one, the Depart- 
ment of Commerce, the other the Department of Justice. 

Under the Department of Commerce the administrative work re- 
quired under the acts affecting the trade and commerce of the country 
can be fitted into the work for which that department was created. 
Then it is less likely that human nature will force an expansion of 
powers although it is barely possible. These policies can then better 
be correlated to the whole than in an ambitious commission standing 
alone. There the Chief Executive takes, perforce, greater responsi- 
bilities for cooperative administration. 

Under the Department of Justice should fall the police powers re- 
quired to be exercised under the acts that fail of adeciuate enforce- 
ment under the S. E. C. or its stepchild, the N. A. S. D. In the De- 
partment of Justice they can be handled naturally. The sheriff is 
the power that is needed to handle the crook — not the law nor the 
regulations of a commission for which the crook has contempt and 
under which the fair-minded businessman now squirms to find room 
to breathe. 

In closing I should like to say a word about small business — cor- 
porations and firms employing under 500 people. 

Ever since I can remember, investment bankers have been berated 
for not adequately providing such industrial concerns with needed 
long-term capital funds or equity money. I think, as everyone else 
does who understands the picture, so far as I know, that it is a very 
difficult problem. Today I think it is well-nigh hopeless. Congress, 
I believe, can and should act before the war ends to relieve the hope- 
lessness of it and then try to alleviate the situation beyond which 
investment banking can be counted on to do for purely economic 

Small enterprises need relatively small amounts in each case. Large 
investment-banking houses are now geared to handle larger loans to be 
sold nationally and over large areas. It is not economically sound, 
and therefore should not be tried, to distribute small loans over wide 
areas. Small enterprises cannot afford to advertise their credit over 
wide areas any more than they can afford to advertise their products 
over wide areas. 

The long-tf»rm loans of small enterprises and the raising of new 
equity money are. generally speaking, hazardous as compared with 


larger enterprises that issue similar securities. The more hazardous 
an undertaking, the more important it is to know the management, to 
rate the moral risk, to know the business intimately. Investment 
bankers located in the city or town where a small enterprise is located 
desiring capital or long-term funds can, and frequently do, under- 
take the financing, counting on the local market for distribution. This 
was a means of helping small industries until the capital-gains tax 
well-nigh stopped that help. 

It is today almost impossible, in general, to interest even local in- 
vestors in small enterprises when hope of substantial gain is cut 
off and the possibility of total or partial loss is always present. They 
lose if they are wrong and gain next to nothing if they are right. I 
believe if anyone retains the remotest hope that any help can be de- 
rived from investment bankers for small business or new ventures 
while the capital-gains tax remains in existence, it is time all such 
hope be abandoned. 

It is the cost of marketing small issues of securities that always 
presents one of the economic stumbling blocks to raising capital funds. 
Registering an issue of $100,000 or even $1,000^000 adds so to the cost 
that the stumbling block becomes a barricade. I have previously sug- 
gested the removal of the present limitation, setting it rather at 
$1,000,000 instead of $100,000. I think it will add to the burden of 
the States if they want to assure themselves of proper protection for 
their people against fraud, but I believe the burden will not be 
intolerable and will, in the end, be profitable. 

I believe that investment bankers never can solve the problem com- 
pletely for small business. They can help if the laws are changed. 
I have known of several plans to improve the aid that investment 
bankers can give. One method was to pool the investment in such 
small enterprises to spread the risk. The risk was spread but the 
profits were not sufficient to spread — the losses were. The enterprise 
closed in spite of management led by experienced business executives 
and bankers. I do not recommend such plans in general. 

I believe, in addition to what aid commercial banks can properly 
give in the way of short-term loans to small business and in addi- 
tion to what investment bankers can give insofar as it is economically 
practicable in furnishing long-term loans or equity money, that some 
assistance may well be considered by our Government. I am not pre- 
pared to suggest what that may be. 

The supplying of capital funds to commerce and industry is so 
fundamental and so nearly the foundation of growth and expansion 
in so many situations, that unless the way is properly prepared for 
raising such capital, other post-war plans affecting commerce and 
industry must be generally hampered of fulfillment until this problem 
is solved. 

I appreciate being invited to appear at this hearing and being ac- 
corded the opportunity to be heard. 


Exhibit No. 9 

Retraining and Reemployment Administkation 

Office of Wak Mobilization 

stateme:nt of functions and problems 

J'nrsuant to the recommendations of the Baruch-Hancock report the Retrain- 
ing ami Reemployment Administration was set up in the Office of War Mobili- 
zation coordinately with the Surplus Property Adiuinisration, to guide the 
processes of demobilization, retraining, and reemployment. 

Froblem in brief. 

The magnitude of the task is indicated by the fact that more than 12,000,000 
workers have been added to the pay rolls, that half of the 62,000,000 persons in 
the labor force are directly in war work and that there has been a dislocation of 
workers in industries and occupations as well as a geographical dislocation 
which breaks all migration records. Probably 20,000,000 people will have to 
change their work at the end of hostilities. Millions of these will have to change 
their location. In order to make the shift over from war to peace activities many 
of them will need retraining, interim unemployment compensation, and finally 
location in peacetime jobs. 

History of problem. 

Jn 11)18 there were plans for the transition period and legislation had already 
been introduced into Congress for the institution of a planned scheme to gear 
demobilization to the economic situation, but so engrossed were our public 
officials in the prosecution of the war and the preparation of plans for the 
peace that this legislation died in committee with little or no debate. As a 
result, when the armistice came peace caught the country unawares. There was 
no over-all organization of Government agencies to plan the transition. There 
was no tlexible national program to bridge the gap between war orders and 
peacetime production. There was no efficient employment policy involving the 
cooperation of management, labor, and Government to steer the course of demo- 
bilization, conversion, retraining, and reemployment. Thus the country faced 
the post-war period without the guidance of its leaders. There was no time for 
the selection and training of the administrative force needed for the task. The 
whole process of demobilization and reemployment was thrown into confusion. 
One month after the armistice, while plans for demobilization were still in the 
formative stage, half a million men were released fi'om the armed forces and 
unfortunately about one-third of these were demobilized in areas where thou- 
sands of workers were being released from war plants. There was little coordi- 
nation between the cancelation of war contracts, conversion, and reemployment. 
Demoralization resulted. Soldiers returned from Europe and from camps in the 
United States to cool their heels in employment offices and to walk the streets 
looking for jobs that did not exist. Finally came the depression of 1920 and the 
great depression and breakdown of 1C33. 

Our impending dislocations are far greater than they were in the last war; 
hence the potentialities for economic and social catastrophe are greater. In 
such a situation over-all guidance becomes absolutely necessai'y- This Nation 
cannot fight a war for freedom from fear and freo<^lom from want and run the 
risk of having its population faced with the fear of depression and want when 
the war is over. Bills have been introduced by Senator George and Senator 
Murray, S. 1730, and by Senators O'Mahoney and Kilgore, S. 1823, on this 



Retraining and Reemployment Administration. 

In order that the mistakes of the past might not be repeated and to provide 
adequately for events to come, the Retraining and Keemployment Administra- 
tion was set up by Executive Order 9427, under authority of the First War 
Powers Act of 1941. Its duties are as follows : 


The functions of the Retraining and Reemployment Administration with the 
advice of a policy board of representatives of nine Government agencies under 
the supervision of the Director of War Mobilization and in consultation with 
the Government agencies concerned are: 

1. To have general supervision and direction of the activities of all Govern- 
ment agencies relating to the retraining and reemployment of persons discharged 
from Ihe armed services; persons released from other war work, including all 
work directly affected by the reduction of the war program. 

(a) To issue necessary regulations and directions in connection there- 

(6) To advise with appropriate committees of Congress as to steps taken 
and to be taken. 

2. To develop progi-ams in consultation with the Government agencies con- 
cerned for the orderly absorption into other employment of persons discharged 
or released from the armed services or other war work, including: 

(a) Adequate vocational training. 

(6) Securing of jobs. 

ic) Assistance to discharged persons and families pending reabsorptiou 

(d) Special consideration of the problem of release of workers from non- 
convertible war industries. 

(e) Integration of the above with wartime and manpower controls. 

3. To develop programs for the adequate care of persons discharged or re- 
leased from the armed services, including : 

(a"^ Care of wounded and disabled by physical and occupational therapy 
and vocational rehabilitation. 

(&) Pi-ovision for the resumption of education interrupted by the war. 

Working principles. 

Present viewpoints and assumptions are as follows : 

A. The task constitutes a major national problem. The change-over from 
war to ijeace will affect e^ery part of our economic life. No comparable task 
has ever existed before. More than .$">0.rK)0,0€n,000 worth of annual current 
production of strictly war goods will be stopped when the war ends. This gap 
must be filled in large part b.v civilian production and civilian services. In 
solving the problem it will be necessary, in the language of the Baruch report, 
to cure the things that cause us worrj- ; to strengthen the good; to hold to the 
proven, as well as to test the new. 

B. The task which confronts the Retraining and Reemployment Administra- 
tion involves a partnership of Goverinuent, industry, and labor. While the 
function of the Administration is to secure facts and set up policies and issue 
regulations and procedures for an over-all guidance of the reconversion processes, 
as well as to institute programs, it cannot accomplish the ])urpose without the 
cooperation of industry. Manufacturers and businessmen through their organ- 
izations will need to make plans for peacetime production ; including surveys 
of need, Tqnid purchasing power, deferred demand for consumer goods, sched- 
ule of producing the right amount of goods to meet the demand over a given 
period of time, and the tran.slntion of m.nnufacturing estimates into terms of 
man-hours and job and labor inventories. Labor on the other hand will co- 
operate in vari(ms ways. Thus control will be matched by individual initiative 
and free enterprise. 

C. Reemploym.ant is the key to the post-war problem. The solution is full 
employment in an expanding economy. An economy of scarcity and the cutting 
down of the labor force are not the solution. 

D. The veteran's welfare is closely interwoven with the welfare of all. 

E. Production must be maintained as high as good business judgment will dic- 
tate. There must be work to do. Without it there can be no jobs. Utilization 
of the present labor expansion cannot take place in a vacuum. At the war's end 
there will be a tremendous void to fill which can only be filled by full production 


of civilian goods and full use of services. Everytliing that will stimulate business, 
therefore, is essential to this program. There must be full utilization of new 
products and new inventions; full utilization of scliools with their training fac- 
ulties; dissemination of research tindings on new world needs which can be met 
by American industry ; encouragement of extensive trade with the nations that 
will need to be rehabilitated and rebuilt; encouragement of investment ; adequate 
wage standards so that the population can purchase what it makes. As a means 
to this end industry and business must make plans now. It must estimate con- 
sumer demand, lay plans for reconversion of plants and machinery, estimate 
demand and purchasing power, estimate the product that should be turned out, 
and the labor components necessary to produce it. Various plans, such as the 
Gray plan and Lea plan have been pi-oposed. 

F. The full use of cushioning is necessary. The cushioning factors in the situa- 
tion are as follows : The war will probably end in different places at different 
times, making a gradual demobilization possible, both of soldiers and war work- 
ei'S. Their absorption by peacetime industry will be aided by several factors — the 
retirement of many women from the labor force, especially in agriculture; the 
retui'u of younger workers to school ; the resumption of college and professional 
training wiiich was interrupted by the war, now estimated as a back-log of 
1,500.0(;0 man-years of college education : the retraining of both soldiers and war 
workers to prepare them to take new jobs ; the renewal of services and businesses 
stopped by the war ; the starting of new enterprises based on inventions developed 
during the war ; increased production and commerce to meet the needs of re- 
habilitation and construction in devastated counti'ies ; increased travel ; reduction 
of the workweek ; increased time for recreation : retirement of the older people, 
etc. These factors will cushion the transition from war to peace and should be 
kept in mind as aids in the readjustment program. 


The following problems are receiving the attention of or are closely associated 
with the task of the Retraining and Reemployment Administration : 

Fact finding and information. 

1. Information on manpower needs and available labor supply ; present and 
projected inventories. 

2. Occupational outlook information ; probable war-to-peace shifts in the labor 
force : amount of increase and decrease in labor demand for each industry and 
occupation within the industry — by States and I'egions. 

3. Occupational with emphasis upon common factors in related oc- 
cupations for purpose of transfer of workers from wartime to peacetime jobs 
and from military to civilian pursuits. 

4. Physical demands studies; job studies from the point of view of the require- 
ments of the work for the selective placement of the handicapped. 

5. Information for industries on how to use the handicapped in work they can 
do, maximizing their abilities and making minimal demands on their disabilities. 

6. Handbook giving all the information on his rights and privileges a soldier or 
war worker needs to know. 

7. Information centers for servicemen and war workers giving, in large cities, 
full information through specialized and trained interviewers, and in small places 
standardized information and handbook with referal to agency concerned which 
can give full advice and service. 

8. Pooled information for guidance of production program for various in- 

0. Information on demobilization ratios in different geographical areas. 

10. l<:conomic and job information for soldiers, veterans, and war workers 
to guide them in their plans for retraining and employment now. 

11. Report system for a quarterly survey and assembly of all information 
necessary for the reemployment program. 

DemoliUzation, Reconversion, and Ree>nploynicnt. 

12. Questions of scheduling of reconversion of plants while the war is going 
on and afferward. 

13. Problem of rate of demobilization in relation to ability of industry to 
absorb workers. 

14. Cut-l)acks on contracts in areas of labor shortage first and in areas of 
labor surplus last. 


15. Demobilization of war workers in industries and areas with due regard 
to the effect of such demobilization on the workers, the returning servicemen 
and on industry. 

16. Aid to industries in the development of manning tables and job and labor 
inventories in projecting peacetime plans. 

17. Balancing labor supply and demand by redistributing production where 

18. Redistribution of labor from region to region to take care of the displace- 
ment occasioned by the war and to improve its utilization. 

19. Continual reappraisal of the national production requirements in relation 
to consumer demand and manpower resources. 

20. Provision for maintenance, reeducation, and utilization of men and women 
in factories where retooling is going on. 

21. Limits of demobilization of Army and Navy in the light of national 
defense needs. 

22. Estimated demobilization schedule — after one enemy is defeated; when 
both are defeated ; during period of military government, and after. 

23. Demobilization priorities: Those who have jobs waiting, first; oldest or 
married first ; longest in service first. Which policy will serve reemployment 
and stabilization best? 

24. Demobilization of wives with husbands. 


25. Adequate provision for vocational training throusrh utilization of agencies 
concerned and established institutions to enable soldiers and war workers to 
enter new employment. 

26. Conversion of war-training institutions and programs, civilian and mili- 
tary, to peacetime training; utilization of suitalile plants and facilities. 

27. Institution of new facilities and courses if necessary. 

28. Course construction, based on job analysis; streamlining and accelera- 

29. Preemployment or vestibule courses for men and women, war workers, 
and veterans, in industries. 

30. Continuous training in industry after employment. 

31. Liberalization of apprentice training for war veterans providing suit- 
able credit for training and experience along the lines of the trade, and 
acceleration according to capabilities. 

32. Experimental determination of minimum and maximum time required 
to learn a trade or other occupation. 

33. Establishment of apprenticeship ratios by the labor unions and local 
apprenticeship committees for veterans. 

34. Vocational and educational guidance, including testing for all applicants 
for retraining. 

35. Determination of standard cost ranges for instruction, tools, and mate- 
rials for training. 

30. Securing of lists of accredited schools and training facilities. 

37. Encouragement of the establishment of training departments in industry. 

38. Encouragement of modern methods of instruction ; visual aids, job sheets, 
laboratories, etc. 

39. Encouragement of vocational education on adult level; subengineering 
technical training for foremen. 

40. Continuation of job-instructor training, job-relations training in industry 
and in Government. 

41. Prediction of I'etraining needs so that educational institutions may prepare 
their educational services. 


42. United States Employment Service program : Setting up of experimental 
stations in which best methods for veterans and war workers are worked out ; 
training for counselors, etc. 

43. Definition of pi'ograms of public and private associations for employment of 

44. Definition of work of Selective Service System veterans' representatives. 

45. Occupational analyses from the point of view of showing common or trans- 
ferrable job elements and skills, and coding of occupations and workers on this 
basis to facilitate placement. 

40. Preparation of charts on occupational trends. 


47. Preferential employment for veterans in Government and industry ; employ- 
ment ratios for veterans. 

48. Training on the job for disabled veterans in Government work with pay 
while training. 

49. Occupational guidance. 

50. Controlled referrals based on occupational information in hands of United 
States Emplojment Service. 

51. Provision for securing the veteran his old job. 

52. Estimated need and plans for public works and national service to take up 
slack in employment in interim period and afterward. 

53. National service up to 1 year, or other length of time to be determined, for 
all youth, men, and women, including outdoor work, living, and training. 


54. Physical and mental rehabilitation of veterans while in the Army or Navy 
hospitals, or afterward, with the Veterans' Administration, with full utilization 
of physical and occupational therapy. 

55. Vocational rehabilitation, including advisement and training under the Voca- 
tional Rehabilitation Service of the Veterans' Administration, with placement 
and follow-up. 

5t). Coordination of all rehabilitation programs so that continuous service is 
rendered the individual under military and civilian jurisdiction, in guidance and 
trainii'g; transferrable guidance schedules and records. 

57. Rehabilitation of disabled war workers through the Rehabilitation Service 
of the Federal Security Agency. 

58. Occupational analysis to determine physical requirements of jobs in prepara- 
tion for selective placement of handicapped. 

59. Establishment of eniployiueut ratios for the handicapped in industry — i. e. 
in the same proportion in industry as they are in the population or by some 
other measure. 

61 Coding system for the purpose of relating certain patterns of disabilities 
to occupational demands; comparison of systems used in England and other 

61. Domiciliary care in veterans' hospitals for seriously disabled veterans. 

C2. Adjustment of workmen's compensation laws in the various States .so that 
they do not work a hardship on those they aim to protect; Federal funds for 
extra compensation for second injuries, etc. 

63. Securing of favorable attitudes of employers and workers toward the 
handicapped to aid in their employment. 

64. Provisions for extra amount of permanency in jobs for the handicapped in 
view of the fact that the handicapped have diflBculty in securing new jobs while 
as a matter of fact they hold their jobs very well. 

C5. Social rehabilitation of handicapppd, especially the blind, since the recon- 
struction of their social and personal habits is basic to vocational rehabilitation. 

Resumption of ed'ucation interrupted by the ioar. 

60. Provision for continuation of educational plans of veterans and young war 

67. Determination of conditions under which education will be furnished. 
Including a length of time in relation to the length of service and proved educa- 
tional achievement of the applicant. 

68. Prediction of the amount of higher education needed and in what fields 
BO that the institutions may prepare faculties and materials ; poll of Army and 
Navy to secure intentions in regard to amount of education and subject matter 
desired — under various conditions: Government paying a certain amount; with- 
out Government subsidy, etc. 

69. Determination of rates to be paid by the Government for tuition. 

70. Determination of Government aid for subsistence while receiving education. 

71. Revamping of college courses and methods to make them suitable for 
older and more experienced students ; increase of technical education, and educa- 
tion in economic and political problems capitalizing the new knowledge of the 

72. Advanced standing or credit on length of college courses for war experience, 
training, and travel. 

73. I'rovision whei-eby those who can make the best use of education will get 
the most of it ; emphasis upon special consideration for the bright as well as the 



74. Information bulletin reviserl ammally listing all the courses of all the j 
higher institutions indexed by course, occupation, and locality. | 

75. Information bulletin on all vocational education indexed by occupational I 
objective and locality, including all private as well as public institutions. j 

76. Listing of schools on the recommendation of Governors of States or regional i 
educational agencies as accredited for the education of veterans. I 

Provision for special ffroups. \ 

77. Retraining and reemployment for women. j 

78. Retraining and reemployment plans for professional workers, technical ' 
workers, youth, aged, and the disabled. ; 

79. S.^curing the cooperation of special groups, organizations, manufacturers i 
associations, trade unions, etc., in educational plans. 

Vnemploiimcnt compensation and assistance. \ 

SO. Establishment of a temporary plan for unemployment compensation to carry j 

over the adjustment period between dismissal or discharge and work for vet- j 

erans, war workers, and others not presently covered by unemployment insur- j 
ance — this plan to run so long as the Congress deems advisable. This plan would 

involve the Federal supplementing of existing State unemployment systems to | 

the extent necessary. ; 

81. Exploration of the advantages and disadvantages of dismissal pay. The ; 
practicability of this is open to serious question. ] 

82. Old-age retirement system can be invoked in case of the superannuated, i 

83. Federal compensation to veterans while undergoing training. j 

Stimulation of production for jobs. 

84. Government aid in industrial and business expansion. j 

85. Cooperation of business organizations, chambers of commerce, etc., in mak- 
ing jobs for demobilized soldiers and war worker;?. j 

86. Gearing American production to any plans which may be developed for | 
reconstruction in devastated areas of Europe and Asia. j 

The above list of problems is not exhaustive, but is indicative of the types of j 
problems which will have to be solved if the major task is to be accomplished. ' 

Progress to date. \ 

It should be borne in mind that the Executive order provides that the functions | 
conferred on the Administration shall be performed through existing Government j 
agencies and otiicials in.sofar as is feasible. It is the purpose of the Administra- ! 
tion to fully comply with this provision, and, accordingly, it is anticipated that j 
the organization to be developed will concern itself with basic problems relating 
to the coordination of functions and programs. ] 

The Administrator has met a number of times with the representatives of the j 
nine agencies making up the Policy Board, namely, the Department of Labor, \ 
Federal Security Agency, War Manpower Commission, Selective Service System, 
Veterans' Administration, Civil Service Commission, War Department, Navy 
Department, and the War Production Board, with the view of determining the 
programs of these agencies as they relate to retraining and reemployment in the j 
interest of an integrated program. j 

In addition to the organization of the Policy Board an administrative office has j 
been established. 

Sufficient time has not yet elapsed for the Retraining and Reemployment Ad- i 
ministration to give adequate consideration to the development and formulation | 
of proposals to be presented to Congress for its consideration in connection with 
its functions. Such proposals as may be indicated will require a more compre- 
hensive study and analysis of what is now being done under existing laws and ; 
through existing agencies in the fields of retraining and reemployment and what 
needs to be done. 

It is the purpose of the Administrator to have comprehensive studies made for 
effecting the coordination of related work being done by the several agencies and 
establishing such programs for the post-war period as may be necessary to accom- 
plish the objective or "providing employment to the millions of workers and soldiers I 
who will be faced with the necessity of seeking peacetime employment. It is j; 
belioved that plans for the transition from war to peace constitutes part of the f 
war effort. !; 

Soon after the Executive order was issued establishing the Retraining and < 
Reemployment Administration the heads of the Government agencies represented j; 


on the Policy Board wex-e requested to designate their respective representatives 
for membership on that Board. Tiie Board was promptly organized and held its 
tirst meeting on February 28, 1944. 

The Board has concerned itself with taking inventory of its responsibilities and 
functions in relation to tlie Administration and has given detailed consideration 
to the establishment of local information -centers where returning soldiers and 
war workers might go to ascertain their rights and privileges. The Board has 
also given consideration to the formulation and release of inlormation in written 
form to persons being discharged from the armed forces. An appropriate pam- 
phlet is now being prepared. 

Further, initial meeting was had by the Administrator with labor, represented 
by Mr. William Green and ftlr. Philip Murray. The part labor is to play in the 
woik of the Administration was thoroughly discussed and both representatives 
asked to name a liaison officer to deal directly with the Retraining and Reem- 
ployment Administration oa- problems as they arose. This request was granted, 
and Mr. Matthew Woll and Mr. Robert Lamb were named. 

Conference was had between the Administrator and Mr. Lamb and Mr. Woll 
recently, and they are cooperating by writing local organizations of labor, taking 
up with them a number of problems that will arise in reference to the reinsrate- 
meut of men and women now in the service of llie Army and Navy in employment. 

Conference was had with the Manufacturers' Association to obtain informa- 
tion as to what steps they have talcen and the cooperation that could be cbtained 
through this organization made up of more than 40,000 manufacturers. They 
have agreed to obtain information essential in the planning required by the Re- 
training and Reemployment Administration. 

A letter was addressed to all Governors with a view of determining what 
steps are being taken by the several States dealing with the problems of Re- 
training and Reemployment. Excellent responses have so far come in from 27 
Governors. These reports are being analyzed, and a summary will be prepared 
from which prompt information may be obtained as to just what the plans are 
in each State and how they will fit into the final planning. 

Conference was had with Mr. George Romney, managing director of the 
Automotive Council for Vv'ar Production, relative to the steps being taken in the 
planning of the automotive industry. Valuable information will be obtained 
from this organization relative to reconversion and the problems tliat might 
arise relative to reemployment not only of those now in war work, but men and 
women in the services. 

Exhibit No. 10 

Statkmf;"nt of Ob.tectives of the Reteaining and Reemployment Administea- 
TiON BY Brig. Gen. Fkank T. Hines, Administrator 

In relation to the matters under your present consideration and in keeping 
with the request of your committee, permit me to make a few preliminary obser- 
vations to you similar to the statement I made before the War Contracts Sub- 
committee of the Senate Military Affairs Committee on May 4, 1944, in the field 
of fitting and adju-tfing the manpower of this Nation to the period before us. 
Having accepted appointment by the President as Administrator of the Retrain- 
ing and Reemployment Administration in the Office of AVar Mobilization, a posi- 
tion e>tal)'ished, as you know, following recomn endations of the Baruch-IIancock 
report, I enter into this work conscious above everything else that full under- 
standing and unity in all the forces of our Government and our people are 
indlspen.sable factors to the attainment of that .success that will mean so much 
to us in the years ahead. No intelligent person can follow the woik of this 
present Congress watliout recognition of its awareness and its virility of thought 
and action to problems confronting us. I welcome this opportunity to discuss 
with you the importance and the objectives of our retraining and reemployment 

I could not enter upon my duties with the same sobering feeling of responsi- 
bility tliat po.Jsesses n^e if I were not so fully imbued with a that 
the refraining and reemployment of our manpower is the vital spot of all en- 
deavor looking to the transition from war to peace — the vital spot in 
prote tion airainst the dangers that will beset us — the vital spot in the contin- 
uance of i)Ui- Americiui way of life a.< free men. Herein I feel is the key to the 


accomplishment of a cherished contentment and happiness for our people wheii 
implements of war are put aside. 

If everyone in the United States willing to earn an honest living in the field 
of work lor which he or she is fitted is given the opportunity to do so, the danger 
of difficulties that otherwise inevitably would arise will be dissipated. Domestic 
problems that vi'ill I'emain with us and new issues that arise from time to time 
can and will be controlled with a self-respecting American citizenry gainfully 

I believe I do not lose my perspective in feeling the importance of this matter. 
I know full well what hangs in the balance of our relationships with the nations 
of the world, either in the potentialities of contiict or peaceful pursuit of com- 
merce. But I do maintain that we may win the war and win the peace in inter- 
national adjustment and stability following the peace, and yet lose the peace 
here within our own borders at home if we fail in that coming great test of our 
Government's ability in our adjustment from war to peace. The retraining and 
reemployment of our manpovi'er constitutes the very heart of that tremendous 

It takes very little imagination to conceive the extent of the work before us. 
You will recall the expressed hope of the President that we would serve the 
democracies of the world in necessary war materials to repel oppression. The 
merits of such a status is now aside the point in relation to the work of retrain- 
ing and reemployment. Tlie fact is that we are now the arsenal of democracy. 
This has entailed the building up almost overnight of a colossal industrial ma- 
chine the like of which never before has been witnessed. During the incredibly 
short space of 3 years gross national production increased lOJ percent from 
$100,OOU,OvO,000 in 1940 to $200,000,000,000 in 1943. Our armed forces have been 
increased by more than 10y2 million. JManufaeturing employment has increased 
to 175 percent of the 1939 base ; an unprecedented labor force of approximately 
QIV2 million are at work, moi-e than one-half of them engaged directly in the 
war effort. Great shifts in our population have taken place and will continue 
to take place from one type of industry to another and from one locality to 
another. High wages are paid and there is an abundance of work for all. Our 
gi'eat American industry — a colossus in the world even before the outbreak of 
this war — has been geared to the gigantic struggle in which we are now engaged 
and runs full ahead, gaining momentum in its progress. What were blue prints 
but a year or two ago are now thunderous factories employing millions of men. 

We have no admirals, we have no Army officers, we have no laymen, and we 
have no seers among us who can tell lis when this war will end, or how abruptly. 
But any man of common sense among us will, recognize the absolute necessity 
of preparedness to meet any eventuality in this respect. The peace that is 
rightly longed for in hearts of the mothers and fathers of America when the 
victory is won can only turn into the deserved fruition of security and happiness 
if we can successfully meet the dislocation that the peace will entail as well as 
we have met the onslaught of our enemies. That this Congress is aware of 
that fact is evidenced by the many measures proposed or agreed to by the Con- 
gress looking to post-war social and economic problems. 

The functions of the Retraining and Keempioyment Administration are de- 
fined and described in the Executive order establishing it as follows : 

"With the assistance of the Retraining and Reemployment Policy Board, com' 
posed of a representative from the Department of Labor, Federal Security 
Agency, War Manpower Commission, and the Selective Service System, the Vet- 
erans' Administration, the Civil Service Commission, the War Department, the 
Navy Department, and the War Production Board, it is the function of the 
Administration : 

"(ff) To have general supervision and direction of the activities of all Gov- 
ernment agencies relating to the retraining and reemployment of persons released 
from the armed services or other war work, including all work directly affected 
by the cessation of hostilities and the reduction of the war program * * * 
and to advise with the appropriate committees of Congress as to the steps taken 
or to be taken with respect thereto. 

"(ft) In consultation with the Government agencies concerned to develop pro- 
grams for the orderly absorption into other employment of persons discharged 
or released from the armed forces or other war work, including adequate pro- 
vision for vocational training, the finding of jobs for persons so discharged or 
released, or assisting those persons and their families pending their absorption 
into employment, and for dealing with the problems connected with the release of 
workers from the industries not readily convertible to peacetime use. * * * 


"(c) In consultation with the Government agencies concerned to develop pro- 
grams for the adequate care of persons discharged or returned from the armed 
services, including physical and occupational therapy for the wounded and the 
disabled and the resumption of education interrupted by the war." 

Under the foregoing as Retraining and Keemployment Administrator, I fully 
understand and realize that my duties cover a very wide fic-ld in demobilization, 
rehabilitation, retraining, and relocation. In unity with the Congress, Govern- 
ment agencies, industry, and organizations of labor, I conceive it to be my task 
to chart, in the matter of manpower, the road back when the peace comes. It is 
not an easy task. The problems of demobilization are no less, and in many 
respects far greater than the problems of mobilization. As in peace we must be 
prepared for war, so in war we must be prepared for peace. The war effort and 
measures to insui-e the peace are interlocked; where the military leave off in the 
forward prosecution of the war, civil authority must carry on the great war- 
making machine in reverse. In the security of the Nation the latter is no less 
important than the former. 

AuKiUg the problems confronting the Retraining and Reemployment Adminis- 
tratuin are the following: Jobs for all who can and want to work; vocational 
tniining for all who need it; resumption of high school and college educations 
iiiurrupted by the war; special care and consideration for disabled veterans In- 
eluding physical and social rehabilitation ; special employment problems of the 
gri'at war industries ; timing of release of workers from industry ; rate and 
nu'ihod of demobilizing the armed forces; problems of the geographical disloca- 
tion of labor: adjustnu^nt of labor laws to changing manpower needs; adequacy 
of unemployment insurance; distribution of information on occupational trends; 
advice and guidance in respect to employment ; consultation with Congress on 
the above problems. 

One of the cardinal principles of the Administration will be emphasis on the 
human factors involved. Never shall I lose sight of the fact I am dealing with 
SI ml;- — individual human beings with rightful individual characteristics and de- 
si: is. The American way of govenimi'nt and of life shall be maintained in oiu* 
wdik as against any Fascist rule that glibly obliterates the individual for ad- 
va3iTage to the state. 

At the entrance to the National Archives Biulding, where rest the permanent 
r" ■■ 'fds of this Republic, there are inscribed in the marble at either side the 
two inscriptions : "Study the past" and "History is prologue." I intend, gentle- 
m. n, in the administration of retraining and reemployment to recognize those 
in-crii3tions particularly in the light of the history of our covmtry in the wake 
of the last war. As to the millions of servicemen who will return to civil life, I 
set my goal that not a soul among them will become a mendicant — except at 
his own choosing. To do this the help and full cooperation of the Congress, 
of (Government agencies, of labor, and of business is essential. 

A multitude of facts and figures will enter into the work of the Retraining 
and Reemployment Administration. I shall not burden you with any detailed 
recitation of these. A few passing references may be of interest. 
' According to the estimate of the Bureau of Labor Statistics, immediately after 
the war manufacturing industries will face the largest total decline from a war 
peak of around IT million to pei'haps 12 million, with tremendous cuts in man- 
power in siich industries as aircraft, shipbuilding, and machinery. Total Gov- 
ernment employment will take a cut-back from approximately six to four million. 
The same Bureau of Labor Statistics estimates shifts in industry as follows: 
The mannfactiuMng industries in which there will be a post-war reduction in 
labor force are iron and steel, about one-half a m'llion ; machinery one million; 
aircraft over a million; shipbuilding over a million; chemical and petroleum 
products one-third million ; automobile concerns about a quarter million ; and 
food one-quarter million. 

Those industries in which it is estimated the labor force will remain approxi- 
mately the same are printing, railwYiy eqtiipment, rubber, stone, clay and glass; 
and those whorein there will be in labor are lumber about one-sixth 
million: textiles, apparel, and leather products, about one-half million. In the 
nonmanufacturing iiidustiies there will he a reduction aside from the Govern- 
ment service about one-fourth million in transportation and in the nonmanufae- 
tniincr industries in which there will be an increase we find construction estimated 
at nearlv 2 million increase, trade three-quarter million, finance and services one- 
sixth million. 


The people of this country are vitally interested in retraining and reemploy- 
ment and are fully awake to its importance. Abundant evidence of that fact 
ali'eady has reached me. Business organizations, educational institutions, labor 
councils, alike unmistakably have shown their interest. I have confidence there 
will be cooperation in our efforts commensurate with tiiat interest. A great part 
of my .iob lies in the maintenance of mutuni understanding and unified action on 
the part of industry and labor. I feel hopeful that this working together in this 
vital question of retraining and reemployment will svcxe a'lnu'pose in the fuff 
thorance generally of understanding in all relations between industry and labor, 

I do not conceive this retraining and reemployment work as an overnight .jo , 
There must be a well grounded iind sustained effort to maintain the structure of 
Government assistance. This is not a stroke to put the Government further in 
business. It is the direct opposite. It is an effort, in the words of the Raruch 
rei)ort, to get Government out of business and private enterprise into it. 

I have given you, gentlemen, with intended helpfulness, a brief general view of 
the work in hand for the Retraining and Reemployment Administration. In the 
interest of our boys who now bear the shock of the b.ittle lines on foreign soil, in 
the interest of the American workei- here at home and fm- the common good of -our 
beloved country, I will carrry on in the confidence that tlie work in which we are 
engaged will have your full support. 

Exhibit No. 11 

Office of War Mobilization, 
Retraining and Rkempioyment Administration, 

WdMliiHf/ton, D. C. May 15, 19U- 

Letters from State Go\'Ernoes 

condensation of information submitted 

Informational letters from the governors of 45 States have been analyzed 
herein and a condensation of the contents of each is set forth below. They have 
been arranged alphabetically for convenient reference. 

Alahania. — A permanent committee on veterans' assistance has been established 
which is now engaged in coordinating, at State level, all activities of interested 
agencies. It is expected that this coordination will be expanded to local levels 

Arizona. — In addition to a very comprehensive program of road building, plans 
are also being considered for development of the Colorado River irrigation 
proj?ct, establishment of post-war flying instru'tion schools and utilization of 
the beneficial climate of the State for incapacitated veterans. This last plan 
will necessitate additional hospital facilities and should result in increasing 
need for reclaimed lands available through irrigation. 

A strong plea is made that Congress take action to indicate the amount of 
Federal appropriation in State public-works programs since tlie lack of such 
knowledge hamners the progress of the State and local planning commissions. 

Arkansas.- — The State planning board is organizing and directing the prepa- 
ration of a 6-year plan for-puhlic-works jn'ogram covering State, counties, and 
cities. A vohuiteer organization of industrial and business leaders, the Arkansas 
Economic Council is progressing rapidly along the lines of the Committee for 
Economic Development in developing the plans of private enterprise. 

Cnlif07'nia. — Has established the reconstruction and reemployment committee 
as the State coordinating agency on post-war problems. There is also a citizens 
advisory committee for demobilized service men and women. Reports of surveys 
are in preparation and residts will be submitted as soon as available. 

Colorado. — Plans are indefinite and immature, although an attempt is being 
made to centralize the post-war planning program in the Colorado Council of 
Defense. Consideration is being given to decentralizing activity to local commit- 

Connecticut. — The Connecticut Commission for Reemployment, with representa- 
tives of industry, labor, mercantile business, veterans' or/ianizations, service 
clubs, and govermental and educational agencies, has worked out extensive 
plans for community organizations. A basic plan has been prepared, to be 
activated by the local organizations covering guidance and placement service for 
both veterans and war workers, with special emphasis on returned servicemen. 
Thev have also worked out an information directory for service men and women. 


Their reemployment plan is primarily based upon stimulation of private 

Florida. — The Florida State Planning Board has been designated the respon- 
sible agency for the development of plans. This organization will cooperate in 
providing Relief and Rehabilitation Administration information regarding cover- 
ing the State of Florida. 

Georgia. — No definite action has been taken but is eager to cooperate with 
Relief and Rehabi'ljta'aorf Administration. 

■ Idaho. — Has reorganized the State planning board for the purpose of handling 
jUe over-all study of post-war planning and to work out a 6-year program of 
useful public works. Has also established a rehabilitation and employment 
committee and a labor relations committee. 

Also, considerable emphasis is placed upon reemployment of servicemen but 
program seems to be broad enough to cover war workers as well. 

Idaho has also been active in forming the Northwestern State Development 
Association to handle the joint problems of flood control, irrigation, power, and 
navigation, covering five Northwestern States. 

Illi)wis. — A Governor's committee on veterans' rehabilitation and employment 
has established 107 field offices for the purpose of giving informational aid to 
returned veterans. Such contacts now amount to 1,500. Standardized informa- 
tion is available by means of a manual, prepared by the Governor's committee, 
which has cataloged the sources of all Federal, State, and local aid. The Gover- 
nor's committee has set up committees for employment and for education. It 
further plans to consolidate all local agencies into one central community council. 

Indiana.- — Is organizing a Governor's committee on veterans' rehabilitation and 
employment, with repi'esentation of all Government agencies concerned. It is 
proposed that this committee will transmit its information and service to all 
local communities. 

loica. — Has no definite plan as yet but has offered to cooperate with Relief 
and Rehabilitation Administration. 

Kansas. — The Kansas Industrial Development Commission has been estab- 
lished to prepare i)ost-war employment plans, and conferences have been held 
with representatives of agriculture, labor, industry, and education groups for 
the purpose of making all communities conscious of the need for rehabilitation 
and improvements of a permanent, stable value. 

Kentucky. — Has no defined plan but has olTered to cooperate and asks for sug- 
gestions from Relief and Rehabilitation Administration. 

Louisiana. — Each of the 94 selective-service boards have reemployment com- 
mittees for the purpose of contacting returning servicemen. There is also active 
participation on the part of chambers of commerce, veterans organizations, etc. 

The State has set up a State planning committee. 

The Louisiana Civilian Defense Council, of which the Governor is a director, 
has organized a rehabilitation and reemployment executive committee, made 
up of veterans' organizations, State, labor, health, and educational departments, 
etc. The function of this committee is almost identical with the plan of the 
Policy Board for estaljlisliing local information committees, with membership to 
consist of representatives from all interested governmental State and volunteer 

The available information is to include employment possibilities, medical care, 
benefits, educational and vocational training for both veterans and war workers. 
Local committees are advised of legislation which makes possible financial assist- 
ance until such time as State and veteran responsibility is defined. 

Maine. — The veterans' service committee has been set up to give advice and 
counsel to veterans, particularly those of World War II. This organization 
coordinates the activities of all the State's veterans agencies. 

The Maine Development Commission is also actively engaged in preparation 
of ix)St-war employment studies. 

Maryland. — A post-war reconstruction and development commission has been 
set up to study employment readjustment. There has also been established 
a veterans' advisory committee to coordinate, at State level, the activities of 
various veterans' aid and rehabilitation groups. 

Massachusetts. — The committee on post-war readjustment has been estab- 
lished for the purpose of stimulating pi'ivate enterprise in problems of conver- 
sinn. Several commissions have been set up to prepare plans for public works 
projects, highway construction, improvement of public utilities, coordination 

99579— 44— pt. 2 13 


of veterans' activities throughout the State, as well as preparation of legis- 
lative changes necessary to conduct the program. State funds have been appro- 
priated and emphasis is being placed on projects which can be carried on with 
or without the aid of the Federal Government. 

Michigan. — The office of veterans' alfairs, as a division of the executive 
offices, has organized local councils in all but four communities with population 
of 25,000 or more. They have also organized in many smaller communities. 
These couucils are aided by an advisory committee, consisting of representatives 
from veterans organizations, and four World War II veterans. 

Although the entire State plan seems confined to these veteran information 
centers, they have been extremely well and comprehensively organized with 
arrangements made for the services of paid counselors. Schools have also been 
established for the training of these counselors. 

Mississii}))i. — Has combined the activities of the agriculture and industrial J 

commission and the State planning commission to plan an extensive public ..j 

works program covering road building, factories, agriculture marketing, which «| 

includes development of processing and preserving plants. Has also made pro- j 

vision for a vocational training course in junior colleges. i 

Are thinking far in terms of preparation for jobs for both war workers and I 

veterans but nothing is said of information centers. ." 

Would welcome suggestions. i 

Montana. — A State agency has been set up with branches in each county. 

The personnel of these branches are contacting all returning servicemen to j 

give them free assistance in finding employment and such other aid and informa- l 

tion as will speed social readjustment. 1 

Nebraska. — Believe that an over-all plan must conse from the Federal Govern- \ 

ment and that when such a plan is forthcoming will be ready to cooperate. ■ 

Nevada. — The State planning board, created in 1937, will supervise post-war ] 

development in accordance with a 6-year plan of public works improvement, j 

Apparently funds have been appropriated to cover the needs of this 6-year ^ 

program. ' 

In addition, economic conference committees have been formed for the pur- ] 

pose of organizing private business in the preparation of concrete plans for 

peacetime expansion and employment. 

New Hampshire. — Has planned their entire program around the Selective .] 

Service System with State Selective Service director in charge. Touches only on \ 

reemployment as it affects veterans. ■ 

New J e?-sey.— Flans are being considered by a commission on post-war economic ^ 

welfare, which has been established under the chairmanship of the president of ^ 

the State senate. ^ 

New Mexico. — An employment program is being prepared by the State planning 

New York. — A post-war planning commission has been organized and consider- ' 

able legislation has been passed covering many phases of aid to returning veter- i 
ans. Legislation has also been passed providing for the establishment of 

municipal funds for use in post-war planning. \ 

North Carolina. — Have outlined the work being done for veterans within the * 

various State agencies already set up, together with plans for increasing the ^^ 

staffs thereof. Plans include a general 10 percent veterans' preference in State \ 

employment and reemployment in old jobs if the veteran seeks the old job. \ 

The State labor department has established a veterans' service division for ! 

aid in compensation, hospitalization, and educational matters. The division of J 

vocational rehabilitation, together with the Veterans' Administration, will give ^ 

information and guidance in vocational rehabilitation, medical examinations, ' 
financal rehabilitation, etc. 

No mention is made either of war workers or of additional sources of infor- \ 

mation. ■, 

North Dakota. — Information will be forthcoming shortly. 1 

Ohio. — Ohio has done extensive work in planning for industrial expansion after 

the war. This includes a survey of all natural resources and industrial facilities, 1 

availability of water supply, the development of vocational education program -J 

in trades, and the maintenance of the lowest possible tax burden. i 

The Ohio Post-war Program Commission has designed plans for public works ; 

to be financed by the State and local governments, as well as cooperating with • 

the development of industrial programs. ) 



Arrangements have been made to restore to civil-service positions all physically- 
able veterans and an informational booklet lias been prepared setting forth the 
rights of returning veterans. 

Oklahoma. — Has established a post-war planning commission to prepare pro- 
gram of public works. The commission is making further studies in close coop- 
eration with labor, industry, and agriculture. 

Emphasis is being placed on service men and women, also some consideration 
is being given war workers. 

Oregon. — Has established the post-war readjustment committee ; is planning 
a public-works program of approximately $320,000,000, covering Federal, State, 
and municipal projects. Surveys also indicate that private building will amount 
to approximately $200,000,000. 

Has also established veterans' war-service commission to furnish uniform 
veterans information and two members of each draft board have been designated 
to give personal aid to returning servicemen. Legislation is being considered for 
educational aid to veterans. 

Pennsylvania. — A post-war planning commission has been established, together 

with a veterans' commission. The mission of the last-named organization is the 

preparation of plans for assisting veterans and to direct them to proper channels. 

Rhode Island. — Acknowledgment supplies no information as to plans or 


South Carolina. — The preparedness for peace commission has planned a com- 
prehensive program covering public works, reorganization of State government 
system, study of tax structure to prevent its retarding any of their small busi- 
nesses, and coordination of labor and industry. 

Special emphasis is placed on study of private enterprise. No indication is 
given as to the actual progress of this plan. 

South Dakota. — Plans have been prepared, based on public-works programs such 
as highway construction, game, fish, and other recreational projects, and the 
possible esttiblishmeut of a permanent Army aeronautical reserve training school. 
The major plan is centered on a flood-control plan for the Missouri River, as 
worked out by Army engineers. 

Apparently the entire program is subject to legislative approval, no funds have 
yet been provided, and no committee has been established. 

Tennc!isce. — A post-war planning committee has been set up and funds have 
been appropriated to expand the ex-servicemen's bureau, an organization originally 
set up to take care of the veterans of World War I. 

Texa.s. — Has brought up the reemployment program within the Selective 
Service organization of their State. Every local board is to have at least one 
committeeman to serve as agent and counselor for placement of veterans. 

There has also been organized the pcsst-war economic development committee 
which is to work out plans covering labor, industrial, agriculture groups, al- 
though this has not yet gotten under way. 

The contacting of returning servicemen is being very carefully maintained. 
Utah. — Has set up a citizens' committee to work out plans and to arouse 
public sentiment in order that private enterprise will cooperate with state 
efforts. Plans are not sufficiently definite to report. 

Vetmont. — Has set up the Vermont Post-War Planning Counsel to plan for 
extension of employment opportunities in private industry, revamping of State 
educational system to cover veteran rehabilitation, and to provide long-range 
public-works plans. 

Funds have already been earmarked and plans drawn for road building and 
a State office building. However, the State does not plan to use public works as 
a main solution of employment. 

y(r(7/«(o.^Higliway construction and sizable capital improvements will be 
started at the end of the war and appropriations have been set aside therefor. 
A plan has also been devised for the retui'n to former positions of those service- 
men who left the State government to enter the service. 

Washington. — The State planning council has set up a committee for post- 
victory employment with subcommittees in each town. These subcommittees 
act as clearing houses in all communities for post-war plans covering the stimu- 
lation of private enterprise, education, and rehabilitation of veterans, etc. 
Pamphlets have been prepared and distributed with a view to educating the 
public to the need for active post-war planning. No mention is made of planned 
public-works projects. 


West Virffinia. — A committee has been set up to study post-war planning and 
to work closely with representatives of labor, Government, and industry In 
formulating programs for physical and economic rehabilitation of military per- 
sonnel. In addition, the State department of public assistance and the State 
board of education are being expanded in anticipation of increased activity. 

A 3-year road-building program has been planned, for which money will be 
raised by sale of bonds at the end of the war. A plan for building 88 airports 
is entirely dependent upon Federal appropriations, while further plans for add- 
ing to or improving State institutions depend entirely upon the condition of 
State funds when the war is over. 

Wisconshi. — A veterans' recognition board has been organized with broad 
functions covering not only emergency and distress relief provi.sion but also 
economic, educational, and medical assistance programs. This board is sup- 
ported by a fund raised from a surtax on income and approximates $7,000,000. 
Activities are coordinated with universities, bankers' and manufacturers' or- 
ganizations, labor and agricultural groups, and chambers of commerce. 

Wyomlnff. — A post-war planning committee has been established and plans 
are under way for an extensive public-works program covering highway and 
institution construction, and reclamation and irrigation projects. Provision has 
already been made for an appropriation of State funds for this purpose. 

The three States from which information has not been received are Delaware, 
Minnesota, and Missouri. 

Exhibit No. 12 

Reprint from Eighth Annual Report, 1943, of the Social Security Board, 
Federal Security Agency 

a basic minimum program of social security 

The purpose of a comprehensive program of social security is simple; Basically, 
it is to enable the working population to maintain economic independence 
throughout the cycle of family life by distributing the return from labor over 
the periods in which breadwinners can earn and those in which they cannot ; at 
any one time, contributions made by the many who are subject to the risk are 
available to compensate the relatively few who at that time are suffering its 
impact. In addition, there must be systematic measures to assure the subsistence 
of persons who have not been able to share in social security provisions based 
on work or who have met with extraordinai-y individual catastrophes. 

It is not the aim of social security to provide a lifetime bonus. Social in- 
surance represents, rather, a safeguard against economic hazards besetting the long 
road of self-support and family support, which is arduous and risky for most in 
any working generation. Among workers, as among a party of mountain climbers, 
some at any moment will have a secure foothold, while others, except for the safety 
rope, would slip to disaster. Some persons in each generation are not able to 
share in gainful work while some others at any given time will not have acquired 
an insurance stake commensurate with their individual needs. For these, public 
assistance, representing the effort of the entire population, provides a secondai-y 
safeguard to the maintenance of personal and social integrity. 

The major functions of a program of social security are therefore to cope with 
wage losses arising from the interruption or cessation of earnings and to remedy 
deficiencies in the personal resources of individuals who lack tlie means of sub- 
sistence. Rights to in.surance stem from the individual's previous participation 
in work ; rights to assistance, from his cui-rent need. Since capacity and op- 
portunity to work are the foundation of both individual and national security, 
public measures to prevent and care for sickness and to assure access to jobs are 
essential to organized programs of social security. 

. The existence of opportunities for work is governed, of course, by basic economic 
factors beyond the scope and control of the social-security system. Insurance 
and assistance payments facilitate the smooth and orderly operation of economic 
forces by augmenting purchasing power when and where it is most needed. A 
comprehensive and flexible system of social security thus enables individuals, 
and aids communities and the Nation as a whole, to adjust to the changes and 
dislocations which are iidierent even in progress. When disaster threatens, 
the system is all the more necessary. 



Progress under the Social Security Act lias been more substantial than its 
proponents would have dared to predict 8 years ago. The provisions of law and 
the process of administration have been tested through an arc of widely differing 
economic conditions in years of depression, recovery, and war. The objectives 
of the program have been found in accord with the traditions and desires of the 
American people. Nearly all the principles incorporated in the original law and 
the 1939 amendments have proved sound and workable. On the other hand, 
certain minor provisions have been found cumbersome or defective, and experi- 
ence has demonstrated one major fault in the design of the program. Certain 
gaps in its provisions, recognized and postponed for later action by those who 
were responsible for the formulation of the program, have become increasingly 
evident as it has developed. 

No one can doubt that victory will bring sharp and sudden clianges in all the 
factors in American life with which the social-security program is concerned. 
Whether that time comes sooner or later, it is now none too soon to design and 
implement the social-security provisions which wiU be needed during the de- 
mobilization of war industry and the armed forces, later readjustments to peace- 
time conditions, and the more remote future. If the program is to fulfill the 
anticipations and expressed desires of those who look to it — on battle fronts 
abroad and in homes and factories within our own borders — such consideration 
is needed now. The following pages outline in brief and general terms the 
areas in which, in the opinion of the Board, the program must be extended, 
changed, or implemented if it is to play its part now and in the years just ahead. 

Social insurance. 

A comprehensive system of social insurance w'ould include provisions to com- 
pensate part of the involuntary loss of earnings experienced by the working 
population for any common reason beyond the control of individual workers. 
Such reasons may be grouped into those which cause prolonged or permanent 
loss of earnings — old age, death, and permanent disability of the wage earner, 
and those which cause luore or less temporary interruption of earnings — un- 
employment and sickness. An approach to both types of risks is made under 
the Social Security Act through the provisions for old-age and survivors insur- 
ance and for unemployment compensation. In the opinion of the Board, the 
existing measures need revision and extension. The act contains no provision 
for offsetting wage losses due to sickness and disability except those incurred in 
old age. 

Old-age and survivors insurance. — The fundamental limitation of this Federal 
insurance program is its restriction of coverage, the extent and character of 
which have been outlined in earlier pages. The Board believes that the wartime 
situation gives particular urgency to its recommendation that coverage be ex- 
tended to agricultural workers, domestic workers in private homes, employees of 
nonprofit organizations, and self-employed persons. The high levels of current 
employment and earnings now would make it possible for many workei-s to pay 
contributions and thus gain insurance rights which they may not be able to 
acquire in future years, in particular the older workers who may be in need of 
retirement provision when the war ends and younger men return to civilian life. 
Extension of coverage would not entail serious administrative diflSculties. For 
appropriate groups, it might be effective to use a stamp system, under which 
employers purchase stamps at post offices or from rural mail carriers to place in a 
book which evidences the contributions made by workers and employers. Exten- 
sion of the basic protection of old-age and survivors insurance to public em- 
ployees — Federal, State, and local — would also be feasible and would round out 
insurance protection of survivors, now lacking to nearly all these employees, and 
provisions for old-age retirement, now unavailable to many, and would assure 
continuity of rights. Extension should be made in such a way as not to endanger 
any rights of these workers under existing special systems and to increase, not 
lessen, the total insurance protection available to them. 

An immediate problem related to coverage arises from the situation of the 
millions of persons now in the armed forces. Because of the eligibility provisions 
and the method of computing benefits under the program, the insurance protection 
which service men and women may have acquired before their induction will be 
partly or wholly used up, and the amount of potential benefits payable to them 
or to their survivors will diminish. Service men and women have protection 
against death while in service, or after service from service-connected causes, 
in the form of benefits provided under veterans' legislation ; in some cases, sur- 
vivors of veterans who die while in service will be eligible for both veterans' 


benefits and old-age and survivors insurance benefits. After discharge from 
service, however, many veterans will be without any survivorsliip protection in 
the event of death from non-service-connected causes. The problem with respect 
to veterans who live to retirement age is less acute, since very few who leave 
military service after the war will be ineligible for old-age and survivors insurance 
benefits because of their military service, and, though benefit amounts will be 
somewhat reduced in all cases, tlie amount of the rediiction will be small. More- 
over, the great majority of the present members of the armed forces will not 
reach retirement age for many years. As a solution to the problems with respect 
to the armed forces, the Board recommends the adoption of provisions which will 
equitably protect potential insurance rights developed before entrance into the 
armed forces and which will give equitable wage credits based on periods of 
national service in lieu of private employment. Such provisions should be accom- 
panied by appropriate arrangements to reimburse the insurance system out of 
general funds of the Treasury. 

The Board is also prepared to offer recommendations with respect to changes 
in the present program which would strengthen its protection and remove certain 
anoipalies, inequities, and administrative complexities. Among changes to im- 
prove adequacy are which relate to the age at which benefits become payable 
to women, the amount and conditions for payment of parent's benefits, the condi- 
tions for payment of lump-sum death benefits, the maximum amount of all benefits 
payable with respect to the wages of an insured worker, and the recomputation 
of benefit amounts after an application for primary benefits has been filed. 

Since wives are ordinarily younger than their husbands, the qualifying age of 
65 for receipt of a wife's benefit often works hardship on aged couples when the 
husband must or wishes to give up work on reaching retirement age, while the 
benefit for his wife is not payable until several years later. There is little doubt 
that the proportion of women who are unable to engage in regular employment 
at age 60 is larger than the proportion of men at age 65. A minimum qualifying 
age of 60 years, rather than the present 65, would therefore be desirable for wives 
of primary beneficiaries, for women workers who claim benefits in their own right, 
and for widows of insured workers. 

At present, benefits to children aged 16 and 17 must be suspended if the child 
fails to attend school regularly and attendance is feasible. Since ordinarily it is 
found that school attendance is not feasible for the older children who are not 
in school, the Board recommends deletion of this requirement, which results in a 
large number of fruitless investigations. 

Unemployment insurance. — The course of events since Pearl Harbor has em- 
phasized what had become increasingly evident in prior years — that employment 
and unemployment are no respecters of State lines. When the social-security 
program first came under discussion, it was argued that establishment of State 
systems for unemployment compensation would afford an opportunity for experi- 
menting in different types of unemployment insurance and for adapting State 
systems to the widely varying economic conditions of the different States. It 
was also pointed out that the Federal-State system itself should be regarded as 
an experiment. Both the present world situation and the results of 4 years' 
full operation of all State programs now make it urgent to evaluate experience 

Serious administrative complexities are inherent in the present basis of op- 
eration of the duplication of effort on the part of various Federal and 
State agencies concerned with the collection of contributions and maintenance 
of wage records for social insurance purposes. The multiple system of tax 
collection is unduly costly in terms of public expenditures and expenses of em- 
ployers for tax compliance. Nearly all establishments are subject to Federal 
contribution for old-age and survivors insurance, the Federal unemployment 
tax, and contributions under one or more State unemployment compensation 
laws. On the other hand, some small employers are not subject to the Federal 
unemployment tax, though liable for Federal old-age and survivors insurance 
contributions and unemployment contributions under State law. A few are 
subject only to the last and not to any Federal tax. When an employer is 
taxable by both Federal and State governments, the respective coverage does 
not necessarily relate to the same employees or the same amounts of wages. 
An interstate employer may be required to make reports to several different 
States on different forms, under different instructions, and at different rates. 
He may not be sure in which State a worker is covered. Triplicate tax col- 
lections must be made — by the Federal Government for the two Federal in- 
surance taxes and by the State unemployment compensation agencies. Duplicat- 



ing wage records are necessarily maintaiued by the Federal Government for 
purposes of old-age and survivors insurance and by the State unemployment 
compensation agencies. 

Difficulties and conflicts in administration also result from the present division 
of responsibilities for unemployment insurance 'betv^een the Federal Govern- 
ment and the States. Federal gi-ants to States under the Social Security Act 
supply the total cost of "proper and efficient administration" of State laws. 
The State agency is responsible for administering the State law; it spends Fed- 
eral money without responsibility for providing the funds. The Social Se- 
curity Board must ascertain that the funds have been used in accordance 
with the terms of the Federal law, yet it lacks authority to prescribe methods 
which have proved economical and efficient without infringing on the respon- 
sibility of the State. Appropriate discharge of the responsibility of one agency 
almost inevitably conflicts with the responsibility possessed by the other. 

Of greater importance is the increasing evidence that the Federal-State 
system results in great diversity in the protection afforded against the risk 
of unemployment. Development of unemployment insurance under the 51 separ- 
ate laws of the States and Territories has resulted in serious discrepancies in 
the adequacy of the provisions for unemployed workers in various parts of 
the country. It has also resulted in a segregation of insurance reserves under 
which there is a possibility that some States may become insolvent while 
other States have unnecessarily large reserves. The variations in contribution 
rates now permissible under the Social Security Act through State provisions 
for experience rating place disproportionate burdens on employers in inter- 
state competition and set a penalty on the efforts of any particular State to 
improve its benefit standards and a premium on measures to restrict payments 
to workers. 

In the opinion of the Social Security Board, these and other discrepancies, 
complexities, and lacks in the existing Federal-State program all lead to a single 
conclusion — that the origin and chai'acter of mass unemployment and of meas- 
ures to combat it are such that responsibility for unemployment insurance 
cannot safely be divided among 51 separate systems. Evidence accumulates 
daily on the extent to which the tides of employment and unemployment are 
governed by Nation-w'ide or world-wide conditions. The conditions of employ- 
ment within the United States are and will be governed largely by circum- 
stances which only the Federal Government can influence — for example, policies 
concerning the cancelation of war contracts and demobilization of the armed 
forces. Because of the differences in size and economic structure, the States 
are not equally sound financial units for unemployment insurance purposes. 
To ensure payments of benefits to qualified unemployed workers in any part 
of the country, reserves segregated in 51 funds must be far larger, in the ag- 
gregate, than would be necessary if the total were available to pay benefits 
wherever the claims originated. 

The early discussion of adapting unemployment insurance to the particular 
conditions of a State overlooked the fact that variations in wage scales, types 
of industry, risks of unemployment, and other important factors are at least 
as great within States as among the 51 jurisdictions participating in the present 
program. A national system under which benefits are a proportion of wages, 
as is the case under the Federal old-age and survivors insurance system, effects 
an automatic adjustment of benefit payments to differences in pay scales in 
different areas. Present differences among the States in coverage, benefit 
provisions, and assets available for benefits bear little consistent relation to 
underlying economic differences. 

The Board therefore is of the opinion that administration of unemployment 
insurance should be made a Federal responsibility in order to gear unem- 
ployment compensation effectively into a comprehensive national system of social 
security. Only Nation-wide measures to counter unemployment can be effective 
when the need arises for swift and concerted action to harmonize insurance 
activities with national policy during the change-over of our economic system 
to peace. At that time, any need for quick and unforeseen changes obviously 
can be met far more effectively by Nation-wide policy and by a single act of 
Congress than through the action of 51 administrative agencies and the neces- 
sarily cumbersome process of amending as many separate laws. 

Even if the special stresses of post-war years were not impending, the Federal- 
State basis of the unemployment-compensation program would have merited 
reconsideration and revision at this time. The actual course of its operation 
during a relatively favorable period of years has given no indication, in the 


opinion of the Board, that it possesses the advantages which it was hoped thus i 
to achieve; on the contrary, experience has marslialed impressive evidence of 
its flaws and shortcomings. Incorporation of unemployment insurance in a uni- 
fied national system of social insurance would result, the Board believes, in a - 
program far safer, stronger, and more nearly adequate from the standpoint of <, 
unemployed workers and the Nation, and would permit more economical and 
effective methods of administration. • 

Losses and costs of dhsabiUty. — Loss of earnings from permanent and total ; 
disability has been widely accepted in other countries, and under retirement i 
plans in this country, as a risk paralleling loss of earnings in old age. The 
worker who is permanently disabled in youth or middle age is in very much the 
same situation as the worker incapacitated by age, except that his need for 
insurance may be even greater because he has had less time to accumulate ' 
savings while his responsibilities for family support are likely to be greater. '; 
The Board recommends that insurance against permanent total disability be 
incorporated in the Federal s.vstem of old-age and survivors insurance and ; 
extended to all covered by that system under provisions, including benefits to ' 
dependents, which would follow the general pattern of this Federal program. , 

Cash benefits for temporary sickness and the early period of disabilities which ■; 
may later prove permanent would strike at another serious cause of poverty and ' 
dependency. The Board believes that such provision is a feasible and needed ; 
adjunct to the social-security program. Compensation of disability would be 
most effective and also most readily administered if provisions for both types | 
of benefits were coordinated, so that the worker who had received the maximum i 
number of weeks of benefits for temporary disability and was still incapacitated j 
could continue to receive compensation, with appropriate adjustment of levels \ 
of benefits to the duration of disability. A unified system of disability com- .; 
pensation merits careful consideration. j 

Costs of medical care, as has been pointed out, are a peculiarly appropriate ^ 
field for insurance provisions, since the problem does not lie in the average \ 
annual cost but in the uneven and unpredictable incidence of a risk to which 
nearly all the population is subject. These costs, as well as losses of earnings, j 
constitute an important direct factor in causing dependency. Moreover, there ', 
is impressive evidence that the barrier of currently meeting costs of medical 1 
care keeps many individuals from I'eceiving services which might prevent or cure ] 
sickness and disability and postpone death. From the standpoint of the gen- ';, 
eral welfare and of safeguarding public funds for insurance, assistance, and i 
public services provided' in dependency, the Board believes that comprehensive .| 
measures can and sliould be undertaken to distribute medical costs and assure i 
access to services of hospitals, physicians, laboratories, and the like to all who 
have need of them. For all groups ordinarily self-supporting, such a step j 
would mean primarily a redistribution of existing costs through insurance de- '. 
vices. It should be effected in such a way as to preserve free choice of doctor i 
or hospital and personal relationships between physicians and their patients, to I 
maintain professional leadership, to ensure adequate remuneration — very prob- 
ably, more nearly adequate than that in custoniary circumstances — to all practi- 
tioners and institutions furnishing medical and health services, and to guarantee 
the continued independence of nongovernmental hospitals. 

A comprehensive unified siistcm of social insurance. — The present recommend- 
ations of the Board would result in the establishment of a single comprehensive 
system of social insurance with provisions for compensating a reasonable portion 
of wage losses due to unemployment, sickness and disability, old age, and death, 
and a considerable part of the expense of hospital and medical services. It is 
believed that all these types of insurance should include specific provisions not 
only for the insured worker himself but also, as is now the case in old-age and 
survivors insurance, for his wife or widow and his dependent children. The 
system should cover all persons who work for others, including the large groups 
of agricultural and domestic workers now almost wholly without social insur- 
ance protection and, except probably for unemployment compensation and tem- 
porary-disability insurance, farmers and other self-employed persons. It is diflB- 
cult to extend insurance against unemployment or temporary disability to self- 
employed persons because of the problem of determining whether interruption 
of work has resulted in loss of income. 

A unified system which is comprehensive with respect to both the risks and 
the population included would close the gaps and obviate the overlaps that 
result from vai-iations and restrictions in the multiplicity of existing Federal, ( 


State, and local provisions for social insurance purposes. This result would be 
of special importance not only in ensuring protection for workers who now lack 
any insurance coverage, but also for improving the levels of benefits for those 
whose employment has been partly outside the coverage of a given system and 
those whose covered employment has been interrupted by periods of unemploy- 
ment or disability. It wt)Uld be feasible to remedy the disparities and inequities 
in benefits of different types, gearing all benefits to levels of earnings and pre- 
sumptive requirements, with respect both to the short- or long-term character 
of the risk and the worker's family responsibilities. 

A comprehensive national system, moreover, would make possible much greater 
simplicity and economy in operation. One system for collection of contributions 
would suffice. One employer report and one set of wage i-ecords would supply 
the information needed for computation of benefits. One local administrative 
office could maintain contacts with workers, claimants, and employers with re- 
spect to all the types of insurance. Administration of such a system should, in 
the opinion of the Board, be decentralized, with advisory councils and appeals 
boards in the several States. 

The costs of a comprehensive system are not great in relation to the return 
to be anticipated in national and individual protection and the alternative costs 
now borne directly and indirectly by individuals, employers, and the general 
public. For at least the first decade, the current cost for all types of the benefits 
mentioned above would be more than met by a rate of 12 percent of covered 
earnings for employers and employees combined, as compared with the combined 
standard rate of 7 percent payable by employers and workers for insurance pro- 
grams under the Social Security Act beginning January 1944. If the total is 
divided equally between employers and workers, there would be an increase from 
5 percent to 6 percent in the basic employer rate and from 2 percent to 6 per- 
cent in the rate for employees. The 4-percent increase for employees does not 
exceed the present average annual cost of medical care among wage-earning 
families, without allowance for the uncompensated wage losses they experience 
from such causes and other contingencies for which the system would provide. 
When account is taken of the increases already scheduled in the Federal Insur- 
ance Contributions Act by 1949, the proposed 12 percent would mean no increase 
in employer rates and an addition of 3 percent of wages for employees. If all 
employees were covered and, except for unemployment and temporary disability 
insurance, all self-employed persons, future costs of public assistance would be 
considerably lightened. 

Since a rise in current expenditures for old-age and survivors benefits is to 
be anticipated for some decades to come and a similar cumulating increase 
would occur in long-term benefits for permanent total disability, the rate of 12 
percent may become insufficient after a decade or more to meet total benefit 
expenditures under such a program. The Board recommends that any costs in 
excess of 12 percent should be met by a Federal contribution to the system, and 
that eventually employers, workers, and the Federal Government should each 
bear one-third of the cost. 

The Board believes that social insurance is essentially national in character. 
In the course of a working lifetime many individuals move from State to State. 
Congress determined that the maintenance of lifetime records of earnings, 
among other considerations, pointed to the desirability of a national system of 
old-age and survivors insurance. Similar problems would be involved in the 
long-term risk of permanent total disability. Experience in the operation of the 
Federal-State imemployment-compensation system has made it clear that pro- 
tection of current-risk programs is weakened by segregation of separate State 
funds and that administrative complexities and costs are increased by the exist- 
ence of separate State systems. Since the cost of social insurance is met in 
considerable part from pay rolls, the presence or absence of particular insurance 
programs and differences in the rates of contributions for existing programs 
both serve to create unfair Interstate competition when programs are on a State 

The Board is not unmindful that the program here proposed would entail 
modifications of many existing arrangements for social in.surance and related 
programs as well as the establishment of new mechanisms in areas where none 
now exists. It has given study and thought to many of the particulars which 
would be involved in implementing this plan or some modification of it, and is 
prepared to offer more specific information and recommendations should these 
be desired by the Congress. 


Piiblio assistance. • 

In public assistance, as contrasted with social insurance, ttie Board believes I 
that there is a strong presumption in favor of State programs. The costs of j 
assistance are met from general revenues, rather than on the basis of pay rolls, j 
and payments are made on the basis of current individual need. Since, how- j 
ever, the Federal Government shares assistance costs under the Social Security j 
Act, it must be concerned that the basis and extent of Federal participation are 
such as will effect the purpose of the social-security program. | 

Special types of public assistance. — The most serious lack in operations under j 
present provisions of the Social Security Act is that evidenced by inadequacies ] 
of assistance in many collaborating States. A major factor undei'lying this ; 
situation, as has been pointed out, is the uniform-matching basis of Federal j 
grants for the needy aged, children, and the blind, in combination with the 1 
inequalities in State resources for assistance. The present basis of Federal ' 
financial participation has not served effectively to diminish State difference in 
the avlailability of assistance to needy persons; at its worst, it has heightened ' 
these differences in some respects. The Board therefore recommends consid- ^ 
eratlon of a variable-matching basis, under which the Federal grant-in-aid would < 
cover more than half the total cost in States which themselves have only small ■ 
economic resources. i 

The studies made by the Board during the past 8 years lead to the conclusion ' 
that State per capita income, as indicated in annual estimates now prepared ' 
regularly by the Federal Government for other purposes, affords a reasonable " 
basis for objective measurement of State differences in economic and fiscal ! 
capacitj'. It might be found feasible, for example, to continue the Federal \ 
grant at 50 percent of expenditures under an approved State assistance plan ! 
for States in which per capita income is at or above the national per capita, jj 
When average income in a State is below the national average, the Federal ^ 
grant to the State might be increased accordingly. For example, if per capita \ 
income in a State is only half that in the country as a whole, the Federal share ^ 
In assistance costs might be twice that of the State. ] 

It would be appropriate to require, as a condition of Federal grants, that 
the States themselves make similar adjustments among localities which share i 
assistance costs under Federal-State programs. The Board also believes that ^ 
it would be I'easonable to require, as a condition of approval of the State 
assistance plan, elimination of State residence requirements for recipients of 
assistance. Legal settlement in a locality has long been a characteristic con- 
dition of eligibility for older forms of public aid since, typically, all costs of -. 
relief were met by localities. The Social Security Act specifies maximum State j 
residence requirements which may be imposed in a State plan that is approved ' 
by the Social Security Board, and that some State funds be provided even 
though there is local financial participation. If an increased part of the total 
assistance cost is borne by Federal funds, it would seem reasonable to eliminate \ 
State residence requirements. ' 

Among the three assistance programs now maintained under the Social Se- I 
curity Act, the gravest inadequacies are in aid to dependent children. Studies ! 
of the Board lead to the conclusion that need among children is at least as 
great as that among the aged, while aid actually given for children is only a 
fraction of that for the aged in terms of either the number of recipients or the j 
total amounts. Serious limitations in the availability of Federal funds for } 
needy children arise under two conditions of the Federal act : the restriction 
in the situations in which Federal matching funds may be used and in the 
amounts of individual payments to be matched. The Social Security Board 
recommends that Federal funds under the Social Security Act be available 
for use under approved plans for children who are needy for any reason what- 
ever, not merely, as at present, for those who have been deprived of pai-ental 
care or support by reason of the death, absence, or incapacity of the parent. 
The Board also recommends elimination of the Federal maximums, under 
which matching Federal funds now can be used only within the limits of $18 
a month for the first child and $12 for each additional child aided in the same 
home. States may and do provide larger amounts when they are able; in the 
latter half of 1942, total Federal funds for aid to dependent children represented 
only 67 cents per dollar of total State and local funds, in contrast to 99 cents 
for old-age assistance and 92 cents for aid to the blind. The limitation of 
Federal matching, however, has restricted aid to children in States which have 
been unable or unwilling to assume the whole cost of adequate payments; in 



many instances, these are the States with only small resources and relatively 
large numbers of children in their population. 

At the present time, matching funds may not be used in payments to needy 
children aged 16 and 17 unless the child is attending school regularly. The 
Board believes that the requirement of school attendance should be eliminated. 
Suitable schools for older children are lacking in some areas, and for other 
reasons school attendance may not be feasible or even desirable. 

Under all three assistance programs a serious lack arises from the fact that 
matching Federal funds may not be used to meet costs of medical care given 
to recipients, except as such costs can be included in the monthly payment 
to the recipient without restriction of any part of that payment for this par- 
ticular purpose. The unpredictability and unevenness of medical costs and 
the maximum on the amount of Federal matching, as well as the limitations 
of State resources, necessitate a more flexible method of meeting medical needs 
of persons receiving assistance. In many instances, such care might aid 
recipients in regaining self-support and thus lessen or obviate their need for 
continued assistance ; about one-third of the children accepted for aid ai"e in 
need because of the physical or mental incapacity of the parent, and about 
one-fourth of the persons receiving aid to the blind in the 20 States for which 
this information is available could profit by some type of medical treatment 
to improve or conserve vision. 

The Board recommends that matching Federal funds be made available to 
pay medical agencies and practitioners for the costs of medical services and sup- 
plies provided for recipients of assistance. Federal reimbursement might well 
be based on combined costs incurred within a State for medical services to recipi- 
ents under all assistance programs. If arrangements are adopted for medical 
services to be provided through a comprehensive social insurance system. State 
assistance agencies could collaborate eifectively with the insurance authorities 
by making equitable payments so that these services would be available to as- 
sistance recipients under whatever arrangements had been developed with 
physicians, hospitals, and others to furnish services for the insured population. 

General assistance. — General assistance is now the only financial recourse for 
needy incapacitated adults other than the aged and the blind and for families 
which depend upon marginally employable persons, whose earnings are insuffici- 
ent to meet unusual strains on family income and whose rights, if any, to 
unemployment benefits are usually meager. It is used to meet many types 
of need arising from inadequacy of individual payments for the special types 
of assistance, gaps in the coverage of social insurance programs or inadequacy 
in the amount or duration of individual benefits, and risks for which there 
still is no insurance provision. At present, general assistance is administered 
by some 10,000 local units and, in considerable part, from only local resources. 

Any decline in levels of employment may be expected to squeeze out the 
workers with the least skill and experience and hence the least likelihood of 
having insurance rights or savings. Wartime activities have been developed 
in many areas which are without local resources to meet the needs of families 
and individuals who would be stranded by any curtailment of these activities. 
Other communities which have benefited little from present economic conditions 
will be called upon to meet the needs of families stranded elsewhere without 
jobs or returning without funds to weather the period of readjustment. The 
present financial structure of general assistance in the United States and the 
legal and administrative arrangments which necessarily have been erected on 
this structure have proved unable to cope with demonstrated needs in many 
parts of the country. 

The Board believes that Federal participation in general assistance, through 
matching Federal grants to the States under certain general conditions such 
as those provided for the special types of assistance, would go far toward remedy- 
ing present deficiencies and toward effecting a unity and flexibility in public 
assistance as a whole which will be needed in coming years and the more distant 
future. It therefore is recommended that such grants be authorized under the 
Social Security Act. 


The security of a people rests upon all measures which enable individuals 
to live out their lives with personal satisfaction and independence — both those 
which protect the integrity and progress of the Nation as a whole and those 
which assure individual opportunities for health, education, work, and personal 
freedom. The area of responsibility delegated to the Social Security Board is 



a small, though basic, part of this whole. The proposals here outlined represent, 
in turn, a practicable minimum basis for equipping our social insurance and 
public assistance programs to play their part in the years just ahead. 

It goes without saying that the American people prize most the security 
wrung from work and individual effort. Such effort and public and private ' 
action to assure the utmost expansion of work opportunities have been assumed 
throughout the preceding discussion as the foundation of all systematic measures 
for social security. These measures constitute, on the one hand, a device to 
aid the orderly progress of economic development and, on the other, a means of 
caring for economic casualties. It would be as unrealistic to assume that such 
casualties will be lacking in the better peace we hope to achieve after this war 
as it would have been to send out our armed forces without provision for the 
men who are wounded or become sick or disheartened under the stress of battle. 
As in a campaign of war, so in the campaign against insecurity it is not always 
possible to tell just where or when the greatest stress will come. AVe do know, 
however, the nature of the dangers which confront us and the general character 
of the weapons we can bring to bear against them. To fail to have such weapons 
in readiness is to invite needless suffering and disillusionment among the millions 
in our fighting forces, our factories, farms, mines, shops, and homes. ; 

In the opinion of the Board, the present time is singularly auspicious for i 
strengthening and extending our system of social insurance and assistance. - 
With employment and earnings at record levels, millions of workers can and 
want to contribute toward makings better provision for futui'e contingencies 
in the form of social insurance against sickness, disability, unemployment, and 
old age. For many older workers, such an opportunity may not come again. 
The additional savings which workers could make now in the form of social 
insurance contributions are of particular importance, since for those who suffer 
the risk, the protection of insurance is far greater than that which they can 
make for themselves through individual savings, while all have potential pro- 
tection. By creating a reservoir of future purchasing power, to be drawn 
upon where and when it is needed, the extension of social insurance to addi- 
tional groups of workers and additional risks would add substantially to the 
Nation's resources for weathering the inevitable readjustments of the post-war 
years. At the same time, increases in insurance contributions would lessen 
current inflationary pressures. The adjustment to higher contribution rates 
on the part of employers can be made far more readily now than at any time 
during the past decade and more or, so far as can be foreseen, in the years just 
following the war. A unified social insurance system would provide a com- 
prehensive and flexible means of coordinating policy and action in this field 
with other governmental measures and with national programs of business and 
industry in effecting the transition to peace. It would make it possible for 
vi^orkers and employers to underwrite future contingencies which otherwise will 
have to be met, in roany cases, through emergency aid. 

At the same time, provisions to ensure adequate assistance to persons in need 
are urgently required. It is not now available in all parts of our country in 
even this period of wartime activity, and the end of the war may find many 
States hard-pressed to alleviate distress in communities and among groups 
whose way of life is suddenly changed. The recommendations of the Board 
envisage, primarily, methods of helping to improve levels of assistance in States 
which have small economic resources and to give the assistance program a 
needed flexibility through Federal grants to States for general assistance. 
These measures, the Board believes, are a necessary adjunct to even a com- 
prehensive and well-established social insurance system. They are the more 
necessary in view of the fact that, at best, a considerable part of our population 
has had little or no opportunity to acquire any insurance rights to cover the 
economic risks common among workers' families, while the post-war read- 
justment will bring many additional problems. 

It was not until 4 years after the Social Security Act became law in 1935 
that unemployment insurance was in effect in all States in the Union, and more 
than 4 years before the first old-age benefits were payable. Wage records had 
to be set up, reserves accumulated, and an administrative organization estab- 
lished. After some 8 years, not all States yet have all three assistance programs 
In operation. The process of establishing social provisions which affect the 
lives of millions of people is necessarily slow if progress is to be sound, well- 
considered, and economical. At the present time, the social security program 
is the richer for the past years of effort and has resources in experience, train- 
ing, organization, and methods tested by actual operation. Even so, however, 
it will take time to effect whatever provision the Congress finds desirable to 


ri.rrect past deficiencies and strengthen the program to meet future stresses. 
Whether one believes that the war will end in one year or five, the time in 
which to build a stronger system of social security is short in view of the char- 
acter of the changes and readjustments we confront as individuals and as a 

Exhibit No. 13 
Waktime Savings — Their Magnitude and Implications 

(Dr. Amos Taylor, Director, Bureau of Foreign and Domestic Commerce, 
Department of Commerce) 

In any year the net additions to savings of individuals are equal to the 
amount by which their money incomes after taxes exceed their purchases of con- 
sumers goods and services. Correspondingly, the net additions to the savings 
of corporations are equal to the amount by which their gross sales exceed their 
purchases of goods and services, including purchases of capital goods. The total 
additions to nongovernmental savings are equal in any year to the difference 
between total private income and total private purchases of goods and services — 
or the amount of unspent income which individuals and nonflnancial corporations 
carry forward from the year's operations. 

The total income from the sale of all goods and services accrues to one of three 
groups. It goes to individuals in income payments, to the Government in taxes, 
or it is retained by corporations in depreciation, other reserves, and undistributed 
profits. Since the total purchases of goods and services are necessarily equal to 
total sales, if Government purchases of goods and services exceed Government 
revenue, the incomes of individuals and corporations — taken collectively — must 
necessarily exceed their jjurchases. 

During the war the combined Federal, State, and local Governments are 
spending much more for goods and services than they are obtaining in revenue. 
To put it another way, they are making greater payments into gross incomes 
of individuals and corporations than they are taking out in the form of taxes. 
The net difference between total Government purchases of currently produced 
goods and services and total i-evenues accruing to Government is necessarily 
equal to the amount by which the incomes of other groups in the economy exceed 
their total purchases— or to the net additions made by the other groups to their 
accunmlated savings. 

By way of clarification consider how a Government deficit increases the ac- 
cumulated savings of individuals and corporations. When the Federal Govern- 
ment, for example, sells a bond to individuals and corporations, these economic 
units transfer existing casli balances to the Federal Government. AVheu, in turn, 
the Federal Government spends the procee<ls from these bond sales for goods 
and services, the balances are again transferred to individuals and corporations. 
At the end of the process then, individuals and corporations — as a grouj) — hold 
as much cash as they did before and, in addition, hold the newly created Gov- 
ernment securities. They liave, in other words, added to their accumulated 

Similarly, when the Government sells bonds to commercial banks, additional 
deposits are created. When these deposits are spent by the Federal Govern- 
ment there is a net increase in the amount of "money" — either bank deposits or 
currency — held by individuals and corporations, or in their accumulated savings. 

In contrast, when the Federal Government finances its purchases by taxes, 
there is no increase in private holdings of liquid assets. When taxes are paid, 
individuals and corporations transfer cash balances to the Government. When 
the Government, in turn, spends the proceeds of these taxes on goods and services, 
the cash balances of individuals and corporations — taken together — are simply 
restored to their former level. 

It follows as a corollary, that the total increase in the accumulated savings 
of the various groiips in the economy can be derived from a statement of the 
amount by which governmental purchases exceed governmental revenue. Atten- 
tion is, therefore, directed to tal)k' I. in wliich such a statement is presented. 

Starting with the net budget deficit of the Federal Government it is possible 
by adding the net expenditures of government corporations and by subtracting 
(a) State and local government surplus, (b) net excess of payments into social 
security funds, (c) net increase in business taxes accrued but not paid, and (d) 
Government payments for existing assets — and hence not adding to current 



income — to obtain a statement of the amount by wliich total Government pur- 
chases — for payments into private income — exceed total Government revenues — 
or withdrawals from private income. The differences in any year is equal to the 
unspent income of individuals and corporations including residents of foreign 
countries selling goods and services in the United States. Or to put it another 
way, the difference is equal to the net additions to the accumulated savings of 
these three groups. 

Uoio large are private savings? 

As is evident from an examination of table I, the total additions to the ac- 
cumulated savings of these three groups during the 3 years 1942, 1943, and 1944 
will be over $120,000,000,000. The longer the war continues, given no changes in 
Federal Government tax policy, the larger these accumulations will be. 

The portion of this total assigned to individuals is given by the following state- 
ment of the income of individuals after taxes and consumer expenditures for the 
years 1942, 1943, and 1944 — estimated. As is evident individuals — inclviding un- 
incorporated businesses — are estimated to have spent $95,000,000,000 less during 
these 3 years than they received as income. 


1944, psti- 


Disposable income of individuals 
Consumer expenditures 

Net savings of individuals. 









The portion of the total assigned to residents of foreign countries selling goods 
and services to the United States is equal to the amount by which our purchases 
of goods and services from abroad exceed our sales of goods and services abroad — 
excluding shipments on Government account. In view of the fact that during 
the war our exports have been limited by the unavailability of goods while 
imports have been increased to provide a lai-ger volume of industrial raw 
materials, these nonresidents have added about $4,000,000,000 to their net claims 
against the United States economy. 

The balance of $29,000,000,000 represents the estimated additions to the accu- 
mulated savings of nonfinancial corporations during the 3 years ending Decem- 
ber 31, 1944. Or, to put it another way, the $29,000,000,000 represents the gross 
savings of nonfinancial corporations — undistributed profits plus depreciation, 
depletion, and other business reserves — not used for capital outlays on such 
items as inventories, plant, and equipment. 

In what form are these savings held? 

For the most part the additions to the accumulated savings of the three groups 
have taken the form of increased holdings of currency, bank deposits, and 
United States Government bonds. 

Approximately 82 billions out of the estimated 95 billions of individual 
savings are held in the form of these highly liquid assets. (See table II.) Al- 
though the estimates are only approximate for the year 1944, it would appear 
that about half of this 82-billion-dollar increase in liquid asset holdings 
consists of increases in money holdings and about half consists of increases in 
United States Government bond holdings, largely series E, F, and G. The non- 
liquid balance of 13 billions represents savings which have been used largely to 
improve the net debtor-creditor position of individuals. About 4 billions, for 
example, have been used to pay off consumer debt held largely by financial 
corporations. Likewise another 8 billions have been used to increase claims o£ 
individuals against insurance companies. 

Similarly, the major part of the additions to the accumulated savings of non- 
financial corporations consists of additions to their holdings of money and United 
States Government bonds. After subtracting an increase of approximately 
$9,000,000,000 in the net business tax accruals, the estimated increase in th*^ net 
liquid asset holdings of nonfinancial corporations is approximately $28,000,000,000 
for the 3 years ending December 31, 1944. The balance of approximately 
$1,000,000,000 represents the estimated improvement in the net debtor-creditor 
position of nonfinancial corporations. 

There is also evidence that the bulk of the additions to the accumulated sav- 
ings of nonresidents is held in liquid form. Much of it is held in the form of 


earmarked gold, foreign balances and securities. Altogether, therefore, it may 
be concluded that the major part of the additions to accumulated savings of 
individuals, corporations, and nonresidents is in highly liquid form, consisting 
largely of cash and bond holdings. 

Post-war implications of individual savings. 

Never before 1941 did the annual additions to the savings of individuals exceed 
$10,000,000,000. In fact, the average for tlie previous decade was less than 
$5,000,000,000. In contrast, the $95,000,000,000 addition during the 3 years, 
1042-44, to accumulated savings of individuals is larger than the total incomes 
of individuals in the best pre-war years. Moreover, the $82,000,000,000 addition 
to individual holdings of liquid assets during these 3 years is about three times 
as large as the corresponding addition to the liquid asset holdings of both 
individuals and corporations during the 2-year period, April 1917 to June 1919, 
including all of World War I. 

As was pointed out "above, these additions to accumulated savings represent 
unspent income which individuals are carrying forward into the post-war period. 
It would be a mistake, however, to assume that, on balance, any large part of 
tliose savings will be spent once the war is over. 

Of the estimated $82,000,000,000 increase in individual holdings of currency, 
liaiik deposits and United States Government bonds as much as 15 billions may 
have been added to the holdings of unincorporated business and might better, 
therefore, be classified as an addition to business savings. Little is known about 
the distribution of the remaining 67 billions. Because of wartime income-tax 
rates, the bulk of the 67 billions must have been accumulated by individuals 
having incomes of less than $10,000 a year. Probably the bulk of it has been 
saved by those with incomes over $2,000. There are no satisfactory data on 
the distribution by income classes within this range. 

While a portion of these liquid assets has undoubtedly been earmarked for 
the purchase of specific goods and services when they are again available, there 
is some evidence that the major part has not been so earnsarked. Rather it 
would seem probable that the major part has been accumulated both for pro- 
tection against the proverbial "rainy day" and for patriotic reasons. 

The decisions of consumei's as to the disposition of these liquid assets after 
the war will be inextricably linked with their decisions as to how they will spend 
their post-war incomes. On balance, it is quite unlikely that there will be any 
net reduction in consumer holdings of these assets. Continued accumulations 
out of post-war income will offset the expenditures and of wartime accumula- 
tions. The significance of the wartime accumulations is chiefly as a factor 
affecting the expenditure decisions of consumers rather than as a net source 
of funds to finance a post-war boom. 

Other factors also have an important bearing on these expenditure decisions. 
Much depends, for example, on the ease with which the transition from war 
to peace is made. If, on the one hand, there is considerable unemiployment and 
loss of income, the resulting feeling of insecurity may cause individuals to place 
a high value on unspent income as a protection against future contingencies. 

If. on the other hand, there is less unemployment and loss of income during 
the transition than is generally anticipated, individuals may consider their 
accumulated savings to be a more adequate backlog against the uncertainties of 
the future. In this case, wartime accumulations of liquid assets could, by in- 
ducing individuals to spend a larger portion of their post-war incomes, do much 
to sustain a high level of employment and income in the post-war period. 

Implications of corporate and nonresident accumulations. 

Similarly, the $29,000,000,000 added to the accuuiulated savings of corpora- 
tions during the 3 years, 1942-44, can under favorable conditions do much to 
sustain the post-war economy. In fact, if this amount, in addition to the funds 
available from then current reserves and undistributed profits, should actually be 
spent within a 2-year period it woulrl exert a strong pressure toward a capacity 
national outimt. I; might even lead to inflation. 

Such a rate of expenditure is quite unlikely. Although the availability of 
these corporate funds is undoubtedly a favorable — and may in some cases be the 
deciding— factor in causing producers to make post-war capital outlays, other 
factors are equally imixirtant. The volume of capital outlays will reflect the 
rate of technological change, the development of imiwrtant new industries, and 
opportimities for foreign investment. 

Also, if producers, like consumer.s. are convinced of the insecurity and un- 
certainties of the future, they may place a high value on the liquidity provided 
by these accumulations. Were this to occur, producers would undoubtedly hes- 



itate to use their accumulated savings to finance an expansion of their opera- 
tions. Again it may be noted that these savings although important, do not 
necessarily guarantee a large volume of capital investment in the post-vpar period. 
Whether the additions to the accumulated savings of nonresidents will be used 
in the post-war period to finance a net export of goods and services to foreigners 
depends to a considerable extent upon post-war foreign trade policies of the 
countries involved. In view, however, of the foreign need for goods and services 
in the post-war, the expenditure of a substantial part of the estimated 4 billions 
accumulated during 1942, 1943, and 1944 on goods and services produced in the 
United States would seem quite probable. 


During the 3 years ending December 31, 1944, the additions to the accumulated 
savings of (a) individuals, (ft) corporations, and (c) nonresidents engaging in 
trade with the United States have been very large, totaling 95, 29, and 4 billions 
of dollars, respectively. These accumulated savings, consisting largely of in- 
creased holding of currency, bank deposits, and United States Government 
bonds, will not disappear in the immediate post-war jjeriod, but will continue in 
existence until the Government debt which created these savings is paid off. 

These savings have increased the liquidity of various groups in the economy. 
Yet it is impossible to state unequivocably that these savings will serve to sus- 
tain the level of income and employment in the post-war iieriod. Much de- 
pends upon the factors which affect the community's evaluation of liquidity. 

If both consumers and producers are confident of the future, these large 
holdings of liquid assets may do much to increase the over-all volume of con- 
sumer and producer expenditures. In fact, if all groups in the economy try to 
spend their savings at the same time, it is conceivable that these accumulations 
might lead to serious inflationary pressures in the post-war period. 

If, however, both consumers and producers are impresse<l in the immediate 
post-war period with the insecurity and uncertainties of the future, they may 
place a high value on liquidity afforded by these savings. Were this to occur, 
the large volume of savings accumulated during the war would not assure a sat- 
isfactory level of income and employment in the post-war period. 

Hence, the most that can be said in appraising the effect of these large wartime 
accumulations on the expenditure decisions of consumers and producers is that 
it is one of the favorable factors. The favorable effect of these savings can 
easily be offset by unfavorable factors. They do not guarantee post-war pros- 

Table I. — Estimated source and distrihution of additions to accumulated savings, 
calendar years, 1942 to IDJfJf, inclusive 

[Billions of doUars] 


















Add: Net expenditures of Federal Government corpora- 

-t-8. 4 



Net excess of payments into social security fimds ] 

Net increase in business taxes accrued but not paid •.._ 
Government payments for existing assets and there- 



Amount by which total Government purchases of goods and 
services (paj-ments into private income) exceed total revenue 


Net changes in accumulated savings of — 

Individuals (excluding imexpended reserves of unincor- 
porated business, but including unexpended undis- 
tributed profits of financial corporations) ' - . . 







Nonfinancial corporations (including unexpended reserves 


Residents of foreign countries selling goods and services in 
the United States • 


Total additions to accumulated savings 



48. 6 128. 3 

'Source: Survey of Current Business, April 1944, p. 11. 

^Source: Derived by subtracting savings of individuals and nonresidents from total private savings. 



Table II. — Estimated disposition of individual savings, calendar years 1942 to 

1944, inclusi/ve 

[Billions of dollars] 



1944 (es- 











Liquidation of consumer purchase debt to corporations ' 

Increased equity in private insurance 1 - 
















Increased holdings of State, local government, and corporate 
securities ' - 


Adjustment for discrepancies 2 


Savings committed to nonliquid use=i 





Total increases in the accumulated savings of individuals. 





1 Source: Securities and Exchange Commission. 

2 Adjustment necessary to account for the diflerence between Department of Commerce estimate of in- 
dividual savings and Securities and Exchange Commission estimate of individual savings. 

Table III. — Estimated disposition of nonfinancial corporate savings after deduct- 
ing capital outlays, calendar years 1942 to 1944y inclusive 

[Includes a small amount of unexpended reserves of unincorporated business] 

[Billions of dollars] 





Increased holdings of currency and bank deposits 1. . 


} 13.1 


Increased holdings of U. S. Government bonds 

Savings committed to highly liquid assets . 





Less increase in net business tax accruals 2... ... 






Changes in the net claims of nonfinancial corporations ' 

Total increases in accumulated savings of nonfinancial 
corporations (see table 1).. 





1 Source: Securities and Exchange Commission for 1942 figures; 1943 figures estimated on the basis of the 
first 3 quarters' figures. 

2 Source: Survey of Current Business, April 1944, p. 11. 

3 Represents increases in receivables and security holdings less increases in payables and outstanding 
securities. Obtained by subtracting increases in net liquid assets from changes in accumulated savings o 
nonfinancial corporations. 


99.")79— 44 — pt. 2 14 



3 9999 


046 2