The Employment Act of 1946: Some History Notes

FEOERAL RESERVE BANK OF St LOUtS NOVEMBER ~9SE-

C. J. Santoni

Thus, because ofthe planlessnes.s of the twenties — because of the lack of

courageous action immediately following the collapse — the nation lost 105,000,000 man-years ofproduction in the thirties.

— Full Employment Act of 1945, Hear ngs, p. 1104

t SBOU’I’ 40 years ago, in response to the Depression and hei’ institutions.”~Over the intervening years, dis- of the 1930s, Congress passed the Employment Act of cussions of the Employment Act have become less 1946. Its sponsors believed that earlier failures to deal shrill, but we continue to regard unemployment as an with massive worldwide unemployment had contrib- important problem. The purpose of this paper is to uted significantly to the rise of National Socialism, place this policy concern in its historical context as it which eventually culminated in World War II. This initially surfaced in congressional debates of the Full belief urged the act’s sponsors to find a solution to the Employment Bill of 1945 and as it re-emerged in de- problem that had caused “such a great melting away bates of the Full Employment and Balanced Growth of prosperity in such a short period of time.”’ Bill of 1976. The legislation followed on the heels of a revolution in macroeconomic theory. ‘This new theory suggested Iit-w.icIlis 1~o1~r .im.i that periodic booms and busts could be avoided if government pursued a policy of “compensatory Chart I plots the unemployment rate from 1900—40.~ finance.” The new theory promised the success of Before 1930, the unemployment rate moved around an centrally directed economic stabilization policy and average of about 4.5 percent. Beginning that year’, provided the nucleus around which the proposed however, it rose substantially, reaching 25 percent of legislation was built,

The bill that was initially proposed stir ed up con- siderable controversy. Some considered it “a great 3 Full Employment Act of 1945 (1945), p. 1138. Magna Carta of government planning for full employ- 4 3 The data are from Historical Statistics of the United States Colonial men!.’’ Others viewed it as ‘‘utterly alien to America Times to 1970 (1975), pp. 122—23 and p. 126. Measurement, of course, is never perfect. These unemployment data are based on G. J Santoni is a senior economist at the Federal Reserve Bank of St. estimates of Lebergott (1957): and Romer (1986) suggests they are relatively noisy. Furthermore, Darby (1976) argues that these data Louis. Thomas A. Pollmann provided research assistance. tend to overstate unemployment after 1933 because Federal Emer- gency Workers (employees of the Civilian Conservation Corps, ‘Full Employment Act of 1945(1945), p. 1110. 2 National Youth Administration, Civil Works Administration and the Hansen (1956), p. 97. Works Progress Administration) were counted as unemployed. FEDERAL RESERVE DANK OF SI. LOUIS NOVEMBER ieee ~

Chort i Unemployment Rate Percent

Percent — 21 21 4 24 :\ 24

21 21 Average 1930.1940 1 18 18 ~—------~

15 15 ~ ~---~v~ I 12 12

9 9 4 Average 1900-1929 I \ I I 6 I 6 ~ c7\Tt~t~7 3 \ F V 3 F I ‘%/ StJ .. ~ F o __L_ ———i-— —u—— —i—— — — ~~ —i-— — —‘— ~ 0 1900 02 04 06 08 1910 12 14 16 18 1920 22 24 26 28 1930 32 34 36 38 1940

the labor force by 1933, then declined fairly slowly to a ‘Fhe data pr’esented in char’ts 1—3 did riot exist when level of about 15 percent in 1940. During the 11-year the bill was debated iii 1945.~As a result, the authors of period fr’om 1930—40, it averaged about 18 percent. the bill used unofficial estimates of unemployment for Charts 2 and 3 show real gross national pr’oduct and years pr’ior to 1942 to bolster their arguments iii favor the price level (as measured by the implicit GNP defla- of the bill’s passagc.”’l’hese estimates were inserted tor) over the same period. Like chku’t 1, these charts into the hearings fr’om a book by Henry Wallace that show a sharp economic contraction beginning in was widely referred to ill the popular press at that 1930. By 1933, real ON!’ had declined to about $140 time.’ billion from its level of about $200 billion in 1929, while the price level fell by about 40 percent. 5 The sharpest recorded c,ontraction in economic ac— 1t was not until August of 1942, when the task of estimating unem- tivitv that occurred before this episode followed World ployment was transferred from the Works Progress Administration to the Census Bureau, that official definitions of “employed” and War I from 1918—21), and the sponsors of the Full “unemployed” were developed and consistently applied in periodic Employment Bill were motivated by the fear’ that the surveys of the labor force. See Bancroft (1957), p. 66 and U.S. end of World War II and the re—entry of discharged war Department of Labor (1982), p. 3. veterans into the civilian labor for’ce would augur a ‘Full Employment Act of 1945(1 g45), p. 1103, return of the problems of the 1930s. ‘See Wallace (1945). FEDERAL RESERVE BANK OF NOVEMBE:R 1955

Chart 2 Real Gross National Product

Billions of dollars Billions of dollars 240 240

200 200

160

120

40 1900 02 04 06 08 1910 12 14 16 18 1920 22 24 26 28 1930 32 34 36 38 1940

Wallace’s data, which span the per’iod 1900—44, are influenced by the view of John Maynard Keynes.” He reproduced in char-t 4. The chart pn’esents estimates of suggested that unemployment was the result of insuf- the labor’ for’ce, the level of employment consisLent ficient aggregate demand n’elative to the full employ- with ‘‘full’’ employment, and the actual level of em- ment supply of output.’’ Keynes argued that swings in ployment.’ The story told by Wallace’s gr’aph, which aggr’egate demand genen’ate business cycles with cor- shows a large gap between full and actual employ- responding fluctuations in employment and uneni— ment during the 1930s, is consistent with the more ployment.” refined data shown in chart 1 While Keynes suggested a number of factors that could induce changes in aggr’egate demand, the otto Tt1F;O.E~Vot~‘i:iii~.1SF ;4,Hy.uE4F~CYCLE: F F’ ~ ~5 “S” “In the minds of both the sponsors and opponents, the legislation was L4iflt,r~ t~F~~F considered an application of the theory “advanced by Lord Keynes, Stuart Chase, Sir William Beveridge, and Mr. Henry Wallace.” The sponsors of the Full Emplovnnent Bill were Stuart Chase was a social scientist and the author of numerous popular books and articles concerning the Depression. Sir William Beveridge was best known as the chief architect of Britain’s welfare state legislation that was enacted in the 1940s. ‘Wallace estimates lull employment by subtracting an estimate of ‘See Keynes (1964), pp. 247—49 and 260—91. “We have shown that frictional unemployment from the labor force. See Wallace (1945), when effective demand is deficient there is under-employment of pp. 19—20. labour in the sense that there are men unemployed who would be willing to work at less than the existing real wage.” p. 289. ‘Wallace (1945), pp. 20—22. Wallace attributed the abnormally high level of unemployment to “the planlessness of the twenties” and “It is upon the fact that fluctuations tend to wear themselves out suggested that the system of free enterprise in the United States before proceeding to extremes and eventually to reverse themsel- survived only because of the “bold, courageous action of the ves, that the theory of business cycles having a regular phase has Roosevelt New Deal” and then only by the narrowest of margins. been founded,” Ibid., p. 250.

/ FEDERAL RESERVE BANK OF ST. LOUIS NOVEMBER ieee ~

Chart 3 Price Level 1958100 195810 0 .10 — — .10

‘9 /1 .60 .60 I~I’ I~ FF

.50 .50 II ‘V .40 F .40 I , .30 .30 r

.20 .20 1900 02 04 06 08 1910 12 14 16 18 1920 22 24 26 28 1930 32 34 36 38 1940

he believed contributed most strongly to gener-ating tal investment to its most profitable use ‘‘into a by— business cycles was fluctuation in business invest- pn’oduct of Ihe activities of a casino....’’ While lhe ment.” In large part, this fluctuation reflects changes sponsor-s of the Full Employment Bill may not have in “the state of confidence concerning the prospective accepted eveny “jot and little” of Keynes’ analysis, they yield” of available investment alternatives, which can clean-ly believed thaI labor market conditions were too change radically over time due to ‘‘the extreme precar- important to be left to the vagaries of a r-oulette wheel. iousness of the basis of knovvledge on which our estimates of prospective yield have to he made.” ?1r1 UF•flFifl}.~4)•~~)Fn9:1r9.;.:;~r).’y. Furthermon-e, activity on the London and Wall Street (OIFIpF:i\ ~44’J’1flf9% P1I.NIMYG stock exchanges amplified the effect of the changes in the state of confidence on n-cal investment. Keynes ‘I’he initial draft of the pi-oposed legislation went suggested that these stock exchanges transformed the under’ the title of the Full Employment Bill of 1945. extremely important social pr-ocess of din’ecting capi— This bill proposed to attack the problem of unemplov— ment in two ways. Section 2)1)) stated that ‘‘all Ameri- cans able to work and desiring to work are entitled to “Some of the other factors Keynes mentions are “the physical an opportunity for’ useful, remuner-ative, n-egulai-, arid conditions of supply in the capital goods industries the psycho- full—time employment.’’” In the view of the sponsors, logical attitude to liquidity and the quantity of money Ibid., p. 248. 4 ‘ lbid., pp. 149, 153,248,313,316 and 322. According to Keynes, this “Ibid., p. 159. tendency for radical change in the state of business confidence is ‘Assuring Full Employment in a Free Competitive Economy (1945), p. accentuated by such things as the “day-to-day fluctuations in profits 81. The proposed legislation used the words “are entitled to” rather (that) tend to have an altogether excessive influence on the than the word “right” but it is clear in the following subsection and in market”; “waves of optimistic and pessimistic sentiment”; the “anti- the debates and hearings that the sponsors intended to establish social ... fetish of liquidity”: and “the dark forces of time and the opportunity to full-time employment as a basic right of all ignorance which envelop our future.” Ibid., pp. 153—55. Americans. See, for example, pp. 7—B and 71—80. FEDERAL RESERVE BANK OF ST. LOUIS NOVEMBER ieee

Chart 4 Wallace’s Estimates

1900 05 10 15 20 25 30 35 40 45 1950

the conditions necessar for- continuous full employ- level necessary for full employment, the President was ment could not be expected from the system of private required to recommend legislation that would pro- enterprise. Consequently, the bill placed the responsi- duce a big enough deficit in the federal government’s bility for the maintenance of ftrll employment on the budget to raise output to the full employment level. If federal government. Section 2(c) requir-es the feden-al the relationship between the two output fom-ecasts government to “provide such volume of Federal in- were reversed, the President was required to i-ecorn-

vestment and expenditure as may be needed -- . to mend legislation that would result in a budget surplus assure continuing full employment.” big enough to reduce output to the full employment level.”At the time, this method ofstabilizing economic Section 3 laid out a formula for the fedelal gover-n- activit was called “compensatory finance.”” ment to follow in pursuing this goal. The formula required the President of the United States to submit a national budget to Congress at the heginning of each 1: regular session. The budget was to contain a fom-ecast of both the level of output necessary to gener-ate full One of the important features of the (in-aft legislation employment over the next year and the level of output was that it put in place the machinery to apply the that was likely to m-esult if gover-nment did not inter-— vene. If the projected level of output was less than the “Ibid., p. 82. “Assuring Full Employment in a Free Competitive Economy, Minority 81 4 313 32 “Ibid., p. . Views (1945), p. . See Keynes (1935), pp. — and 372—84. FEDERAL REBER,VE BANK OF ST. LOOtS NOVEMB.ER 19116 principle of compensatory finance on a continuous War I.” These gaps, however-, quickly vanished so that basis, year in and year- out. The sponsors believed that actual employment was never- much different than full a continuous application was necessary because they employment for any appreciable length of time. interpreted Wallace’s data as indicating that high lev- Opponents of the bill disputed claims that the con- els of unemployment were a natunal consequence of ditions experienced in the 1930s were a natural conse- free enterprise. quence of fm-ee enter-pnise.” While agreeing that busi- ~•F5~~ A-1ptFnA1OrA-~.IFF#V.F’IFFF-F;IOhIOFF (11 ness cycles are inevitable, they ar-gued that economic forces operate to move the economy in the direction of 111111 j<.c,f9F’ full employment. The opponents suggested that com- As mentioned, a striking feature of Wallace’s data is pensatory spending should be applied only in the the lan-ge and persistent gap between full employment event of an extn’eme contr-action to limit its depth and and actual employment that occurred during the duration 1930s (see chart 41. The gap averages about 18 percent In addition to this dispute, the debate focused on of the labor force, indicating that a very serious eco- three specific points: U whether the r-equirement to nomic problem existed during this period. Wallace, in maintain continuous full employment and price level his book, and the sponsor-s of the Full Employment stability was feasible; 2) whethen- the governnmnent Bill, during the hearings and debates, focused entirely could generate the necessary forecasts; and 3) on this gap. whether the r-ight to employment should be written From the viewpoint ofthe bill’s sponsors, these data into law. indicate that the system of private enterprise was t 1111,11.10; ~ F’,,-’,nin. ~•7~’”t 1111191 prone to sizeable periodic disn-uptions. The congressional debates and hearings ar-c filled with assertions that “the history of employment and production in The opponents thought business cycles were inevi- the United States is a record of boom and bust. It is a table, and their’ consequences, in the form of tempo- record of brief periods of gr-owth and development rarily meduced employment, could not be legislated culminating in peaks of prosperity that gave way to away. They ar-gued that business cycles were symp- disastrous collapse;” or that “private enterprise, left to torus of the adjustment process to, say, a nmjor change its own devices, cannot provide full employment and in consumer demand in favor of some goods but cannot eliminate pemiodic mass unemployment and against others, a change that causes pr-oduction costs economic depressions.” to m-ise for some goods but fall for’ others, or’ a change in aggr-egate supply like an unusually good or’ bad bar-— vest. Any of these changes results in a movement of resources (including labor) fr-or’n one job to another. To opponents of the bill, the data suggest that em- ‘l’he adjustment takes time to complete and, in the ployment behavior during the 1930s was pervem’se by interim, unemployment incr-eases. past standards. Indeed, the ‘30s are noteworthy be- The proposed bill r-equim-ed the federal government cause the behavior- of unemployment during these to i-etan-d these necessar adjustments. While the op— years was so unusual.” pomients conceded that ‘‘Govem-nmnent spending can Chart 4 shows that the level of actual employment for awhile create full employment as it did during the remained very close to the estimate of full employ— war’’”, they objected to the policy because it m’educes merit over the first 30 years of the sample. ‘t’here were sharp increases in 1908, 1914, and 1921; and the gal) “Wallace attributes this anomaly (a negative gap) to the war years. was negative during America’s involvement in World See Wallace (1945), p. 10, Technically, the negative gap occurs because Wallace does not define the labor force as the sum of employed and unemployed workers. “Some suggested that the New Deal legislation ot this period had discouraged private investment and contributed to the severity and “Full Employment Act of 1945 (1945), p. 1181. In addition, see length of the Depression. Full Employment Act of 1945 (1945), p. Assuring Full Employment in a Free Competitive Economy (1945), pp. 1137. 2, 3, 9, 12, 20, 21. 45 and 47. “Assuring Full Employment in a Free Competitive Economy (1945), p. “Why the ‘30s were unusual is still debated and beyond the scope of 21. this paper. The interested reader is referred to Alchian and Allen (1977) pp. 467—80, especially page 477, and Friedman and Sch- “Assuring Full Employment in a Free Competitive Economy, Minority wartz (1963). Views (1945), p.S. FFDFR90 RESER,VE BA,.NK OF’ ST. LOU-i’S NOVEMBER 19811.

unemployment in the short run by moving it to the able.” Opponents objected to this provision because: long nm and does so at the cost of higher- inflation.” lIthe bill made no pr-ovision for enfon-cing the might; 21 it would lead people to expect more than the gover-n- The sponsor-s of the bill conceded this point but mont could possibly deliver; and 3) the provision is at-gued that the r-esulting inflation worrld lie insignili- socialistic and alien to the basic principles of the cant in comparison to a n’eturn to high levels of unem- United States.” ploymnent and the social unrest that would inevitably follow in its wake. During the debates, suppon1er-s conceded that, “the statutory enunciation of the night to an oppor-tunity .iIiipOO’SIhW F”i.n’ecasting .:Icnl,,~l1t:o? for ernploymnent does not imply redress thr-ough the courts”’ Rather, people who believed they were pre- The bill required the president to estimate the num- vented from exercising this right could petition the ber’ of jobs necessary for- full employment, the value of government to impr-ove its econoriric polkw or obtain a pr’oduction consistent with full employment, and the change in government through the r-egular- ejection value of pr’oduction that would occur’ in the absence of process Opponents argued that the inclusion of this any new federal compensatory spending program. tn right in the bill, at best, extended an empty promise to the opinion of the opponents, successfully complet- the electorate and led them to expect more than the ing such a task 16 to 18 months in advance of the government was willing or able to deliver. Al worst, events was virtually impossible. ‘they pointed out that any attempt to enforce the right would be incompati- the estimates would depend on the prevailing price ble with the fundamental objective of the bill as well as level, the kinds of goods (and hence, jobsi making up with democratic institutions.” aggregate production, and average wage rates. They asked Congress to consider’ “how wrong any estimate for- 1930 would have been, if made in 1929.” SON IL’ IMP( R’IAN”.i” CHANGES The defense mustered against this criticism was The debates resulted in significant changes be- that the bill required forecasts based on “current tween the bill as it was initially nepor1ed and the trends” in the data. Opponents pointed out that main- legislation that was finally ena~tedby Congress (see tairiing con tinuous ftrll employment r-equired the dis- shaded insert on the next page). For example, amend- covery of deviations from trend as well as breaks in the ments succeeded in eliminating the declaration of the trend before they occurred. Extrapolating current right to an employment opportunity, the feden’al gov- trends would not do the job. ernment’s respomisibiity to assure continuing full employment, and the requirement to submit a budget based on the pr’inciple of compensatory finance. In ‘iJt’ fl~fl~t ( ~j ,io~ 0911’ 0 particular, section 2 of the final version states that it is

No provision of the bill received more attention the intention “of the Federal Government -- - to pro- during the debates than section 2 lb—cl, which ex- mote maximum employment, pr’oduction, and pun’- tended to all able Americans the right to an oppor-tu- chasing power.” Thus, the actual legislation is a state- nity for full-time employment. Extending this right meant that the federal gover-nment wotrld become responsible for- assuring that enough jobs were avail- “Of course, scarcity assures everyone of a job at a sufficiently low wage. The rub came because the wage considered to be “remuner- ative” was $2,000 per year which was the average annual income of private nonagricultural workers at that time. “As the Kipllnger Washington Letter once noted, “Jobs for everyone “Ibid., p.5. “The adoption of such a policy (compensatory spending), able and willing to work leaves out a lot of people.” - ..,would result in continued Federal spending over many years, causing an inflation of prices and an artificial boom, and then the “Assuring Full Employment in a Free Competitive Economy (1945), p. very depression and unemployment we are trying to avoid.” 27. “Ibid., p. 3. One of the most forceful criticisms of the forecasting “Assuring Full Employment in a Free Competitive Economy, Minority requirements was presented during the public hearings by Elisha M. Views (1945), pp. 4—5, 27. This criticism was discounted by Sen. Friedman who suggested that, ‘Forecasting economic conditions Thomas of Utah, a spokesman for the bill. He reminded detractors 16 months ahead is a task for gods, not mortals ... Look over the “that the basic difference between the American constitutional con-

Department of Agriculture forecasts in the spring of the final crop for cept (and totalitarian regimes) -..is that in America we have all the the year. Look at the ... complete failure of the ICC to forecast time the welfare of the individual person in mind.” The senator’s economic conditions or earnings. ... What Government forecasts argument calls to mind Daniel Webster’s observation that “There have ever been. . equal to the average of blind chance? How much are men in all ages who mean to govern well, but they mean to Government foresight is revealed in the Pearl Harbor report or in our govern. They promise to be good masters, but they mean to be prewar policy?” Full Employment Act of 1945 (1945), pp. 1128—29. masters.”

11 FEDERAL RESERVE BANK OF St LOUIS NOVEMBER iSEG ~

important Differences Between the Bill and the Act

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ChartPercent5 Percent Unemployment Rate

10.0 10.0

8.0 80

6.0 6.0

4.0 4.0

2.0 2.0 1950 55 60 65 70 75 80 1985

5 ~‘ I”I’I”~: J:~’i’1’t ~,E%’1f’ 1L(ji”E%”I]-’1 \i”I’’ ~ I’,) contained provisions n-egar-ding the coor’dination of t’.:’1Li~sJN(‘,,‘.I~I)(‘.~.1It1%”J”f”i monetary and fiscal policies, economy in goven’nmnent, anti-inflation polic, regional employment policy, BILL OF’ “2,B7B youth employment policy ~tnd income maintenance; it Thirty year’s after passage of the Employnuent Act of also established an Advisor-v Committee on Full Em- 1946, Sen. t’tubemt U. Humphrey and Rep. Augustus F. ployment and Economic GrowtL.” ttawkins introduced the Full Employment and Bal- The legislative process was less kind to the 1976 hill anced Growth Bill of 1976. i’he core of this bill was a than it was to its 1945 forerunner, One critic of the hill carbon copy of the initially proposed Full Employ— remar-ked that the seedling of the unemployment goal mnent Bill of 1945. had grown ml to an ‘unmanageable Christmas tn-ce,’’ ani ‘the 1976 hilt resurrected ‘‘the right of all adult ‘‘unwor’kahle monster’ that deserved to he chopped Amner’icans able, willing, and seeking won-k to oppor-tu— down. ‘t’he hill was debated for- more than two year-s muties for- useftrl paid employment at fair rates of com- and, like its for-el-unmet’, was stripped of its substantive provisions when President Carter signed it on October’ pensation.’’ It requim’ed the president to establish ‘‘annual numerical goals for- employment pr-oduction, 27, 1978 lsee the shaded inset’t on the next page for’ the arid purchasing power and to submit a budget con- main provisions of the. Full Employment and Balatmced taining a ‘‘level and composition of Federal expendi- Gn)wth Act of 1978). tun’es, measured against estimated capabilities at full employment and production, necessany to support the annual economic goals proposed in section 3 and to support the Full Emnplovmuent and Balanced comment of Raymond Moley’s regarding the proliferation of conflicting goals in some New Deal legislation seems perlinent at Growth Plan ...‘‘~‘ In addition to this con-c, the bill this point. Moley wrote that “to look upon these policies as the result of a unified plan was to believe that the accumulation of stuffed snakes, baseball pictures, school flags, old tennis shoes, geometry °FuIlEmployment and Balanced Growth Act of 1976, pp. 7—10, and books, and chemistry sets in a boy’s bedroom could have been put 15. there by an interior decorator.” Moley (1939). ruhe t’ii!l Employment and Balanced Growth Act of 1978

‘thin’ toliott imug is a n’orinlunised list of thin’ mnraimm ‘tile ii — Sin’ucittral tnpnnimiuic Policies provisinuris nil thin iinnmmml)inm’n’t ltaakimms \ct 1 1 n’n munmlleni hr Un’n’snclt’mut Iii m’sIniilmsii reser—— nuim’.~nil’ api niIc cmi dot uncut ‘ if he liii nd that Title t — \ a~mnimua h 6cia is ann ci J’,’moru I mes ,. n,thnr policies were lmmimnmg nm achieve full em— I )i’cknm’e.s an mm,ntinuni,nh point’ ol in’omimoting full ilrrt merit goals. i’mmiplot uncut. iocnvamseni ni—al inmn’unmmmn’ iralanced 2 ilf’(~nflqlthat any resnrtnunrjobs be useful and en’ott tim. a Imaianmn’rd Iedem’al hnnndRel. gm’ott th nn ri I hr io’t er nan mges oh skill md pay, be targeted pmoclnnctnt itt. .ini mnmmpm’ni\ i’d imamlanc’n ol trade, nmmi mnudmt mclnmais mud alias fl tim liii’ ttonsl unem— LU nnl purr slalumimlt’. piot’mimn’mut prnrhlenmus mmmd he sit imp so as not to 2. L)er’lan’ns a pullet’ oh un’imnam nihi,nmrc’r nh time nlnatv tvoukvms lmnnmuu the pm’itmtn’ sector. 1 put ale sector Ion’ .nr:n’onmnplislmuig the ahovn’ nc—

~um‘‘mu ic gr nil is. ‘I’ll Ic iii — Conugressnomian I Hevien

.5. iaieotnm’agns tinn’ ado tioni nil huscani pullet that Ii Lslabhishi’s pm’nncedinn L’s nit’ Coiigm’nssinnmual 1 ttcumnici m’rrlinr’n’ ic’rlnm’Lmt s~nn~mmchinm,gasancn’r’c’ il ‘, in’tt’ (ii I rrtn’m’ant itrsn’rtn IS), ni uoais mmmd age of G\ I’. policins. I. Requires thin’ Pm’estdemit tni set InLrdgetar\ goals 2. (.it n’s Congm’ess the nuplionm ol cin’tn’m’muminimm,g so as IC) ~whmntvan unenmiplot nmui’imt mate cml miol ahm’mm liii ILrli n’mmuplovnun’nt goal n’nntmhd hn niomu Warm 3 it’r’i’i’ mit armmring ~un’sommsag,’cI 21) n’ean’hn’cl stumnmid tim’ Um’nsident dcriLnm’e that 1 arid ot en’, and I linen’ mit trim pi~’~’~n~16 ammni goal r’onnld mmml hr mint lit ttlS3 oten’ lit w83.

— . ‘tilie It’ — uc,nc,r’anI Iimnnisinimis tnflhLtlnVs the Pr’esndnmmt to wt a hmmdgelar goni ot reducing Lime ruLe oh inmlialin,nm to 3 pn’m’r’t’mit it i ‘ Pn’oiuihits disn’m’imimirmatiumi nini zmn’n’oumit nil sn’s 1983. lrnn’lher’mumom’e. 011cc thu goal sd 1mm ahrive lance a, e religion nil nialiommal origin imm ant 4 isar’.hmnt nd. thu I’m’c’sinln’nit is m’r’nLnim’nd ci sit a pm’nlgr’alrmm unden’ tIm’ bill. goal mhim’n’c’Ir’nb al enduring immllLitiomm Inn Ci pi’mii’nul 2 i’n’na in Ins I imat workers in resem-voir nibs be liv i9h8. gnt no er lual may for equal work, but not less Ii .\linjtt’s Ilun i’r’n’sicln’nt to morlilt thin timnurtables Ilmanm liii Inrleral minimmnm i.vage for achieving the goals set forth in 4 and S above. 7) Requires the Federal Reserve Board to report to the Congress twice a year on its monetary policies and their- relationship to the goals of the act.

pn’oposed, the legislation required the loden-al government to intervene to smooth out the busimness cycle. ‘the legislation was based on the principle of comnipen— I lie legnstattve pn’oposal advanmced nn tIme Full Em— satorv lnnmande which itguecl tom exanmple that a pno ployment Bnll of 1945 was motivated by the severe., ‘ jected slump in d conomnc ictnvntv could he offsm t by Depn-essnon of the 1930s and the fear- that this concir— , .. n’unnnnmg a sufficiently large deficnt tn time feden-al tnon would n-etun-n with the denmohnhzatnon Iollowntmg hud,tet won-Id War II. Many advocates of the legislation were convinced that the system of prlvate emmter-pn’ise was ‘rime initial proposal did not fare well in time dehates. pr-one to sizeable per’iodic disruptionms caused by the Var-ious people argued that business cycles reflected erratic behavior of business inmvestmenmt As initially the process of redirecting n’esources tinmchuding labor-I br-ought about by nmmajor shifts in the relative denmand ions worthy of considerationm as timer-c are conmipetent on’ supply of various goods and services. In their opin- economists.”” ion, the goven-nnmment’s t’esponsihihity should be hinmited to the nehief of destitution which fr-eqtrently could be accomplished mnore adequately and chmeapI~in ways other than maintaining enmployment in jobs of lesser value.’-~Others am-gued that tIme application of compen— Alchian, Armen, and William R. Allen. Exchange and Production: Competition, Coordination, and Control, 2nd ed. (Wadsworth, satoty finance requin-ed forecasting acctlracy that 1977) pp. 467—80. could not possibly be achieved. They pointed out that Assuring Full Employment in a Free Competitive Economy. Report the business slump that beganm in 1930 was not fore- from the Committee on Banking and Currency, 79 Cong., I Sess. cast in 1929 and that existing goven-nment agencies (Government Printing Office, September 1945). responsible for- fon-ecasting economic conditions pro- Assuring Full Employment in a Free Competitive Economy, Minority duced results that were indistinguishable from man- Views, Report from the Committee on Banking and Currency, donm chance. 79 Cong., 1 Sess. (Government Printing Office, September 1945). ‘the Employnment Act of 1946 that was approved by Bancroft, Gertrude. “Current Unemployment Statistics of the Cen- Congress differ-ed man-kedly li-om the Full Employ- sus Bureau and Some Alternatives,” in The Measurement and Behavior of Unemployment (Princeton University Press, 1957), ment Bill of 1945. As approved, the act recognized both pp. 63—119. high employment and price level stability as important Darby, Michael R. “Three-and-a-Half Million U.S. Employees econonmic objectives~.Further-n~or-e,the tequiremnenmt to Have Been Mislaid: Or, an Explanation of Unemployment, 1934.— apply the principle of compenmsatony finance, the cen- 1941,” Journal of Political Economy (February 1976) pp. 1—16. terpiece of the 1945 proposal, was stripped away. Employment Act of 1946, 79 Cong., 2 Sess. (5.380), Public Law 304. The Ilumphrey/1-lawkins Bill of 1976 attempted to Feilner, William J. “The Balancing of Objectives Under the Em- revive the main provisions of the 1945 bill. Congress, ployment Act of 1946,” in The Employment Act Past and Future however-, had become no more sympathetic in the (National Planning Association, 1956) pp. 87—91. inteivening 30 years. As in 1946, they exti’acted the Friedman, Milton, and Anna Jacobson Schwartz. A MonetaryHis- legislation’s teeth before appr-oving it and created an tory of the United States 1867—1960 (Princeton University Press, 1963) pp. 299—545. “unworkable monster” by loading the bill with an Full Employmentand Balanced Growth Actof 1976, Committee on agglomeration of conflicting policy statements. In the Labor and Public Welfare, 5.50, 94 Cong., 2 Sess. (Government end, the bill was hailed as a legislative monument to Printing Office, 1976). Hubert Humphrey, who had died in Januaty 1978. Full Employment and Balanced Growth Act of 1978, Public Law Apart from this, and the expression of congressional 95—523 (HR. 50), October 27, 1978. senmtiment regarding a vast array of econmomnic prob- Full Employment Act of 1945, Hearings Before a Subcommittee of hems, the legislation was not expected to produce the Committee on Banking and Currency, United States Senate, much of subsiance. 79 Cong., 1 Sess. (Government Printing Office, September 1945). Debates over the economic consequences of the Hansen, Alvin H. “The Reports Prepared Under the Employment 1946 enmployment act continue to this day. Flowever, Act,” in The Employment Act Past and Future (National Planning Association, 1956) pp. 92—97. many would agree with the assessment giverm by Alvin Hansen in a collection of papers celebrating the tenth Harris, Ralph. “Where Does Unemployment Come From?” in Job ‘Creation’—or Destruction? (Institute of Economic Affairs, 1979) anmniversany of the 1946 act. 1mm his opinion, public pp. 5—9. exposure to policy debates stinmmulated by the Eco- Historical Statistics of the United States Colonial Times to 1970, nmomic Report of the President and tIme Hean’ings befon-e U.S. Department of Commerce, Bureau of the Census (U.S. the loint Committee, both of whmich are nequir-ed by the Government Printing Office, 1975), pp. 121—22 and p. 126. legislation, have had time effect of raising time level of Keynes, John Maynard. The General Theory of Employment, Inter- economic liten’acy in the United States. As for’ the n’eal est and Money (Harcourt, Brace and Company, 1935). economic consequences of employment legislation, Lebergoti, Stanley. ‘Annual Estimates of Unemployment in the United States, 1900—1954,” in National Bureau of Economic lie suggests that “there are as many economic opinm- Research The Measurement and Behavior of Unemployment (Princeton University Press, 1957) pp.213—38.

35 Assuring Full Employment in a Free Competitive Economy (1945), p. 36 25. Hansen (1956), p. 97. DERAL RESERVE BANK OF ST. LOUIS NOVEMBER INS ~

Moley, Raymond. After Seven Years (Harper, 1939) pp. 369—70. Tobin, James. ‘The interdependence Between an Effective Stabi- lization Policy and the Attitudes of Labor,” in The EmploymentAct Romer, Christina. “Spurious Volatility in Historical Unemployment Past and Future (Natnonal Planning Assocnation, 1956, pp. 114— Data,” Journal of Political Economy (February 1986), pp. 1—37. U.S. Department of Labor, Bureau of Labor Statistics, BLS Hand- Summary of Federal Agency Reports on Full Employment Bill, book on Methods (December 1982), pp. 3-11. Report to the Committee on Banking and Currency, 79 Cong., 1 Wallace, Henry A. Sixty Million Jobs (Simon and Schuster, 1945) Sess, (Government Printing Office, July 1945). pp. 8—22.