t SBOU’I’ 40 years ago, in response to the Depressionof the 1930s, Congress passed the Employment Act of1946. Its sponsors believed that earlier failures to dealwith massive worldwide unemployment had contrib-uted significantly to the rise of National Socialism,which eventually culminated in World War II. Thisbelief urged the act’s sponsors to find a solution to theproblem that had caused “such a great melting awayof prosperity in such a short period of time.”’

The legislation followed on the heels of a revolutionin macroeconomic theory. ‘This new theory suggestedthat periodic booms and busts could be avoided ifgovernment pursued a policy of “compensatoryfinance.” The new theory promised the success ofcentrally directed economic stabilization policy andprovided the nucleus around which the proposedlegislation was built,

The bill that was initially proposed stir ed up con-siderable controversy. Some considered it “a greatMagna Carta of government planning for full employ-men!.’’3 Others viewed it as ‘‘utterly alien to America

G. J Santoni is a senior economist at the Federal Reserve Bank of St.

Louis. Thomas A. Pollmann provided research assistance.

‘Full Employment Act of 1945(1945), p. 1110.2Hansen (1956), p. 97.

and hei’ institutions.”~Over the intervening years, dis-cussions of the Employment Act have become lessshrill, but we continue to regard unemployment as animportant problem. The purpose of this paper is toplace this policy concern in its historical context as itinitially surfaced in congressional debates of the FullEmployment Bill of 1945 and as it re-emerged in de-bates of the Full Employment and Balanced GrowthBill of 1976.

Iit-w.icIlis 1~o1~r .im.iChart I plots the unemployment rate from 1900—40.~

Before 1930, the unemployment rate moved around anaverage of about 4.5 percent. Beginning that year’,however, it rose substantially, reaching 25 percent of

3Full Employment Act of 1945 (1945), p. 1138.4The data are from Historical Statistics of the United States ColonialTimes to 1970 (1975), pp. 122—23 and p. 126. Measurement, ofcourse, is never perfect. These unemployment data are based onestimates of Lebergott (1957): and Romer (1986) suggests they arerelatively noisy. Furthermore, Darby (1976) argues that these datatend to overstate unemployment after 1933 because Federal Emer-gency Workers (employees of the Civilian Conservation Corps,National Youth Administration, Civil Works Administration and theWorks Progress Administration) were counted as unemployed.

NOVEMBER ~9SE-FEOERAL RESERVE BANK OF St LOUtS

The Employment Act of 1946:Some History NotesC. J. Santoni

Thus, because of the planlessnes.s of the twenties — because of the lack ofcourageous action immediately following the collapse — the nation lost 105,000,000man-years ofproduction in the thirties.

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

FEDERAL RESERVE DANK OFSI. LOUIS NOVEMBER ieee ~

the labor force by 1933, then declined fairly slowly to alevel of about 15 percent in 1940. During the 11-yearperiod fr’om 1930—40, it averaged about 18 percent.Charts 2 and 3 show real gross national pr’oduct andthe price level (as measured by the implicit GNP defla-tor) over the same period. Like chku’t 1, these chartsshow a sharp economic contraction beginning in1930. By 1933, real ON!’ had declined to about $140billion from its level of about $200 billion in 1929, whilethe price level fell by about 40 percent.

The sharpest recorded c,ontraction in economic ac—tivitv that occurred before this episode followed WorldWar I from 1918—21), and the sponsors of the FullEmployment Bill were motivated by the fear’ that theend of World War II and the re—entry of discharged warveterans into the civilian labor for’ce would augur areturn of the problems of the 1930s.

Percent

— 21

24

21

18

15

12

9

6

3

‘Fhe data pr’esented in char’ts 1—3 did riot exist whenthe bill was debated iii 1945.~As a result, the authors ofthe bill used unofficial estimates of unemployment foryears pr’ior to 1942 to bolster their arguments iii favorof the bill’s passagc.”’l’hese estimates were insertedinto the hearings fr’om a book by Henry Wallace thatwas widely referred to ill the popular press at thattime.’

51t was not until August of 1942, when the task of estimating unem-ployment was transferred from the Works Progress Administrationto the Census Bureau, that official definitions of “employed” and“unemployed” were developed and consistently applied in periodicsurveys of the labor force. See Bancroft (1957), p. 66 and U.S.Department of Labor (1982), p. 3.

‘Full Employment Act of 1945(1 g45), p. 1103,

‘See Wallace (1945).

Chort i

Unemployment Rate

Percent

21

244

21

18

15

12

9

6

3

:\

~—--------~

~

Average 1930.1940 1

~---~v~I

Average 1900-1929~

I4

\ I I

c7\Tt~t~7

I

\F

~

FIStJ

F

V‘%/

..

o __L_ — — —i-— —u—— —i—— — — ~ ~ —i-— — —‘— ~ 01900 02 04 06 08 1910 12 14 16 18 1920 22 24 26 28 1930 32 34 36 38 1940

FEDERAL RESERVE BANK OF

Chart 2

Real Gross National Product

Billions of dollars240

Wallace’s data, which span the per’iod 1900—44, arereproduced in char-t 4. The chart pn’esents estimates ofthe labor’ for’ce, the level of employment consisLentwith ‘‘full’’ employment, and the actual level of em-ployment.’ The story told by Wallace’s gr’aph, whichshows a large gap between full and actual employ-ment during the 1930s, is consistent with the morerefined data shown in chart 1

Tt1F;O.E~Vot~‘i:iii~.1SF ;4,Hy.uE4F~CYCLE:F F’ ~ ~5 “S”

L4iflt,r~ t~F~~F

‘Wallace estimates lull employment by subtracting an estimate offrictional unemployment from the labor force. See Wallace (1945),pp. 19—20.‘Wallace (1945), pp. 20—22. Wallace attributed the abnormally highlevel of unemployment to “the planlessness of the twenties” andsuggested that the system of free enterprise in the United Statessurvived only because of the “bold, courageous action of theRoosevelt New Deal” and then only by the narrowest of margins.

The sponsors of the Full Emplovnnent Bill were

120

80

40

influenced by the view of John Maynard Keynes.” Hesuggested that unemployment was the result of insuf-ficient aggregate demand n’elative to the full employ-ment supply of output.’’ Keynes argued that swings inaggr’egate demand genen’ate business cycles with cor-responding fluctuations in employment and uneni—ployment.”

While Keynes suggested a number of factors thatcould induce changes in aggr’egate demand, the otto

“In the minds of both the sponsors and opponents, the legislation wasconsidered an application of the theory “advanced by Lord Keynes,Stuart Chase, Sir William Beveridge, and Mr. Henry Wallace.”Stuart Chase was a social scientist and the author of numerouspopular books and articles concerning the Depression. Sir WilliamBeveridge was best known as the chief architect of Britain’s welfarestate legislation that was enacted in the 1940s.

‘See Keynes (1964), pp. 247—49 and 260—91. “We have shown thatwhen effective demand is deficient there is under-employment oflabour in the sense that there are men unemployed who would bewilling to work at less than the existing real wage.” p. 289.

“It is upon the fact that fluctuations tend to wear themselves outbefore proceeding to extremes and eventually to reverse themsel-ves, that the theory of business cycles having a regular phase hasbeen founded,” Ibid., p. 250.

/

NOVEMBE:R 1955

200

Billions of dollars240

200

160

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

FEDERAL RESERVE BANK OF ST. LOUIS NOVEMBER ieee ~

Chart 3

Price Level

1958100.10 —

195810 0— .10

.60

.50

.40

.30

.20 .201900 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-atingbusiness cycles was fluctuation in business invest-ment.” In large part, this fluctuation reflects changesin “the state of confidence concerning the prospectiveyield” of available investment alternatives, which canchange radically over time due to ‘‘the extreme precar-iousness of the basis of knovvledge on which ourestimates of prospective yield have to he made.”

Furthermon-e, activity on the London and Wall Streetstock exchanges amplified the effect of the changes inthe state of confidence on n-cal investment. Keynessuggested that these stock exchanges transformed theextremely important social pr-ocess of din’ecting capi—

“Some of the other factors Keynes mentions are “the physicalconditions of supply in the capital goods industries the psycho-logical attitude to liquidity and the quantity of money Ibid., p.248.

‘4lbid., pp. 149, 153,248,313,316 and 322. According to Keynes, thistendency for radical change in the state of business confidence isaccentuated by such things as the “day-to-day fluctuations in profits

(that) tend to have an altogether excessive influence on themarket”; “waves of optimistic and pessimistic sentiment”; the “anti-social . . . fetish of liquidity”: and “the dark forces of time andignorance which envelop our future.” Ibid., pp. 153—55.

tal investment to its most profitable use ‘‘into a by—pn’oduct of Ihe activities of a casino....’’ While lhesponsor-s of the Full Employment Bill may not haveaccepted eveny “jot and little” of Keynes’ analysis, theyclean-ly believed thaI labor market conditions were tooimportant to be left to the vagaries of a r-oulette wheel.

?1r1 UF•flFifl}.~4)•~~)Fn9:1r9.;.:;~r).’y.

(OIFIpF:i\ ~44’J’1flf9% P1I.NIMYG

‘I’he initial draft of the pi-oposed legislation wentunder’ the title of the Full Employment Bill of 1945.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 toan opportunity for’ useful, remuner-ative, n-egulai-, aridfull—time employment.’’” In the view of the sponsors,

“Ibid., p. 159.‘Assuring Full Employment in a Free Competitive Economy (1945), p.81. The proposed legislation used the words “are entitled to” ratherthan the word “right” but it is clear in the following subsection and inthe debates and hearings that the sponsors intended to establishthe opportunity to full-time employment as a basic right of allAmericans. See, for example, pp. 7—B and 71—80.

‘9/1

.60

.50

.40

.30

I’I~~ FI F

IIF

‘V

I,

r

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-ment could not be expected from the system of privateenterprise. Consequently, the bill placed the responsi-bility for the maintenance of ftrll employment on thefederal government. Section 2(c) requir-es the feden-algovernment to “provide such volume of Federal in-vestment and expenditure as may be needed - - . toassure continuing full employment.”

Section 3 laid out a formula for the fedelal gover-n-ment to follow in pursuing this goal. The formularequired the President of the United States to submit anational budget to Congress at the heginning of eachregular session. The budget was to contain a fom-ecastof both the level of output necessary to gener-ate fullemployment over the next year and the level of outputthat was likely to m-esult if gover-nment did not inter-—vene. If the projected level of output was less than the

“Ibid., p.81.

level necessary for full employment, the President wasrequired to recommend legislation that would pro-duce a big enough deficit in the federal government’sbudget to raise output to the full employment level. Ifthe relationship between the two output fom-ecastswere reversed, the President was required to i-ecorn-mend legislation that would result in a budget surplusbig enough to reduce output to the full employmentlevel.”At the time, this method ofstabilizing economicactivit was called “compensatory finance.””

1:

One of the important features of the (in-aft legislationwas that it put in place the machinery to apply the

“Ibid., p. 82.“Assuring Full Employment in a Free Competitive Economy, MinorityViews (1945), p.4. See Keynes (1935), pp.313—32 and 372—84.

60

55

50

45

40

35

30

FEDERAL REBER,VE BANK OF ST. LOOtS NOVEMB.ER 19116

principle of compensatory finance on a continuousbasis, year in and year- out. The sponsors believed thata continuous application was necessary because theyinterpreted Wallace’s data as indicating that high lev-els of unemployment were a natunal consequence offree enterprise.

~•F5~~ A-1ptFnA1OrA-~.IFF#V.F’IFFF-F;IOhIOFF (11

111111 j<.c,f9F’

As mentioned, a striking feature of Wallace’s data isthe lan-ge and persistent gap between full employmentand actual employment that occurred during the1930s (see chart 41. The gap averages about 18 percentof the labor force, indicating that a very serious eco-nomic problem existed during this period. Wallace, inhis book, and the sponsor-s of the Full EmploymentBill, during the hearings and debates, focused entirelyon this gap.

From the viewpoint ofthe bill’s sponsors, these dataindicate that the system of private enterprise wasprone to sizeable periodic disn-uptions. The congres-sional debates and hearings ar-c filled with assertionsthat “the history of employment and production inthe United States is a record of boom and bust. It is arecord of brief periods of gr-owth and developmentculminating in peaks of prosperity that gave way todisastrous collapse;” or that “private enterprise, left toits own devices, cannot provide full employment andcannot eliminate pemiodic mass unemployment andeconomic depressions.”

To opponents of the bill, the data suggest that em-ployment behavior during the 1930s was pervem’se bypast standards. Indeed, the ‘30s are noteworthy be-cause the behavior- of unemployment during theseyears was so unusual.”

Chart 4 shows that the level of actual employmentremained very close to the estimate of full employ—merit over the first 30 years of the sample. ‘t’here weresharp increases in 1908, 1914, and 1921; and the gal)was negative during America’s involvement in World

“Full Employment Act of 1945 (1945), p. 1181. In addition, seeAssuring Full Employment in a Free Competitive Economy (1945), pp.2, 3, 9, 12, 20, 21. 45 and 47.

“Why the ‘30s were unusual is still debated and beyond the scope ofthis paper. The interested reader is referred to Alchian and Allen(1977) pp. 467—80, especially page 477, and Friedman and Sch-wartz (1963).

War I.” These gaps, however-, quickly vanished so that

actual employment was never- much different than full

employment for any appreciable length of time.

Opponents of the bill disputed claims that the con-ditions experienced in the 1930s were a natural conse-

quence of fm-ee enter-pnise.” While agreeing that busi-

ness cycles are inevitable, they ar-gued that economicforces operate to move the economy in the direction offull employment. The opponents suggested that com-pensatory spending should be applied only in the

event ofan extn’eme contr-action to limit its depth and

duration

In addition to this dispute, the debate focused onthree specific points: U whether the r-equirement tomaintain continuous full employment and price levelstability was feasible; 2) whethen- the governnmnentcould generate the necessary forecasts; and 3)whether the r-ight to employment should be written

into law.

t 1111,11.10; ~ F’,,-’,nin. ~•7~’”t 1111191

The opponents thought business cycles were inevi-table, and their’ consequences, in the form of tempo-rarily meduced employment, could not be legislatedaway. They ar-gued that business cycles were symp-

torus of the adjustment process to, say, a nmjor changein consumer demand in favor of some goods but

against others, a change that causes pr-oduction coststo m-ise for some goods but fall for’ others, or’ a change inaggr-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.

‘l’he adjustment takes time to complete and, in theinterim, unemployment incr-eases.

The proposed bill r-equim-ed the federal governmentto i-etan-d these necessar adjustments. While the op—pomients conceded that ‘‘Govem-nmnent spending can

for awhile create full employment as it did during the

war’’”, they objected to the policy because it m’educes

“Wallace attributes this anomaly (a negative gap) to the war years.See Wallace (1945), p. 10, Technically, the negative gap occursbecause Wallace does not define the labor force as the sum ofemployed and unemployed workers.

“Some suggested that the New Deal legislation ot this period haddiscouraged private investment and contributed to the severity andlength of the Depression. Full Employment Act of 1945 (1945), p.1137.

“Assuring Full Employment in a Free Competitive Economy (1945), p.21.

“Assuring Full Employment in a Free Competitive Economy, MinorityViews (1945), p.S.

FFDFR90 RESER,VE BA,.NK OF’ ST. LOU-i’S

unemployment in the short run by moving it to the

long nm and does so at the cost of higher- inflation.”

The sponsor-s of the bill conceded this point but

at-gued that the r-esulting inflation worrld lie insignili-

cant in comparison to a n’eturn to high levels ofunem-

ploymnent and the social unrest that would inevitablyfollow in its wake.

.iIiipOO’SIhW F”i.n’ecasting .:Icnl,,~l1t:o?

The bill required the president toestimate the num-

ber’ of jobs necessary for- full employment, the value of

pr’oduction consistent with full employment, and thevalue of pr’oduction that would occur’ in the absence ofany new federal compensatory spending program. tn

the opinion of the opponents, successfully complet-ing such a task 16 to 18 months in advance of theevents was virtually impossible. ‘they pointed out thatthe estimates would depend on the prevailing pricelevel, the kinds of goods (and hence, jobsi making upaggregate production, and average wage rates. Theyasked Congress to consider’ “how wrong any estimatefor- 1930 would have been, if made in 1929.”

The defense mustered against this criticism wasthat the bill required forecasts based on “currenttrends” in the data. Opponents pointed out that main-tairiing con tinuous ftrll employment r-equired the dis-covery of deviations from trend as well as breaks in thetrend before they occurred. Extrapolating currenttrends would not do the job.

‘iJt’ fl~fl~t0

( ~j ,io~ 0911’

No provision of the bill received more attentionduring the debates than section 2 lb—cl, which ex-tended to all able Americans the right to an oppor-tu-nity for full-time employment. Extending this rightmeant that the federal gover-nment wotrld becomeresponsible for- assuring that enough jobs were avail-

NOVEMBER 19811.

able.” Opponents objected to this provision because:lIthe bill made no pr-ovision for enfon-cing the might; 21it would lead people to expect more than the gover-n-mont could possibly deliver; and 3) the provision issocialistic and alien to the basic principles of the

United States.”

During the debates, suppon1er-s conceded that, “the

statutory enunciation of the night to an oppor-tunityfor ernploymnent does not imply redress thr-ough thecourts”’ Rather, people who believed they were pre-vented from exercising this right could petition thegovernment to impr-ove its econoriric polkw or obtain achange in government through the r-egular- ejectionprocess Opponents argued that the inclusion of thisright in the bill, at best, extended an empty promiseto

the electorate and led them to expect more than thegovernment was willing or able to deliver. Al worst,any attempt to enforce the right would be incompati-ble with the fundamental objective of the bill as well aswith democratic institutions.”

SON IL’ IMP( R’IAN”.i” CHANGES

The debates resulted in significant changes be-tween the bill as it was initially nepor1ed and thelegislation that was finally ena~tedby Congress (seeshaded insert on the next page). For example, amend-ments succeeded in eliminating the declaration of theright to an employment opportunity, the feden’al gov-ernment’s respomisibiity to assure continuing full em-ployment, and the requirement to submit a budgetbased on the pr’inciple of compensatory finance. Inparticular, section 2 of the final version states that it isthe intention “of the Federal Government - - - to pro-

mote maximum employment, pr’oduction, and pun’-chasing power.” Thus, the actual legislation is a state-

“Of course, scarcity assures everyone of a job at a sufficiently lowwage. The rub came because the wage considered to be “remuner-ative” was $2,000 per year which was the average annual income ofprivate nonagricultural workers at that time.

“As the Kipllnger Washington Letter once noted, “Jobs for everyoneable and willing to work leaves out a lot of people.”

“Assuring Full Employment in a Free Competitive Economy (1945), p.27.

“Assuring Full Employment in a Free Competitive Economy, MinorityViews (1945), pp. 4—5, 27. This criticism was discounted by Sen.Thomas of Utah, a spokesman for the bill. He reminded detractors“that the basic difference between the American constitutional con-cept (and totalitarian regimes) - . . is that in America wehave all thetime the welfare of the individual person in mind.” The senator’sargument calls to mind Daniel Webster’s observation that “Thereare men in all ages who mean to govern well, but they mean togovern. They promise to be good masters, but they mean to bemasters.”

“Ibid., p.5. “The adoption of such a policy (compensatory spending),- . . , would result in continued Federal spending over many years,causing an inflation of prices and an artificial boom, and then thevery depression and unemployment we are trying to avoid.”

“Ibid., p. 3. One of the most forceful criticisms of the forecastingrequirements was presented during the public hearings by Elisha M.Friedman who suggested that, ‘Forecasting economic conditions16 months ahead is a task for gods, not mortals ... Look over theDepartment of Agriculture forecasts in the spring of the final crop forthe year. Look at the ... complete failure of the ICC to forecasteconomic conditions or earnings. ... What Government forecastshave ever been. . equal to the average of blind chance? How muchGovernment foresight is revealed in the Pearl Harbor report or in ourprewar policy?” Full Employment Act of 1945 (1945), pp. 1128—29.

11

FEDERAL RESERVE BANK OF St LOUIS NOVEMBER iSEG ~

important Differences Between the Bill and the ActI hr lolint~ing sununarizes ,r,riii’ ii liii: mmlcri’e irn— iiiiltrr amid the I’.riipiovmninl \ct ol Itt-Hi !h,rt was

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FEDERAL RESERVE BANK OF ST. LOUiS NOVEMBER 1988

Chart 5

Unemployment RatePercent

10.0

8.0

6.0

4.0

2.01950

~‘ I”I’I”~: J:~’i’1’t ~,E%’1f’51L(ji”E%”I]-’1 \i”I’’ ~ I’,)

t’.:’1Li~sJN(‘,,‘.I~I)(‘.~.1It1%”J”f”i

BILL OF’ “2,B7B

Thirty year’s after passage of the Employnuent Act of

1946, Sen. t’tubemt U. Humphrey and Rep. Augustus F.ttawkins introduced the Full Employment and Bal-anced Growth Bill of 1976. i’he core of this bill was acarbon copy of the initially proposed Full Employ—

mnent Bill of 1945.

‘the 1976 hilt resurrected ‘‘the right of all adultAmner’icans able, willing, and seeking won-k to oppor-tu—muties for- useftrl paid employment at fair rates of com-

pensation.’’ It requim’ed the president to establish ‘‘an-nual numerical goals for- employment pr-oduction,arid purchasing power and to submit a budget con-taining a ‘‘level and composition of Federal expendi-tun’es, measured against estimated capabilities at fullemployment and production, necessany to supportthe annual economic goals proposed in section 3 andto support the Full Emnplovmuent and BalancedGrowth Plan ...‘‘~‘ In addition to this con-c, the bill

°FuIlEmployment and Balanced Growth Act of 1976, pp. 7—10, and15.

contained provisions n-egar-ding the coor’dination ofmonetary and fiscal policies, economy in goven’nmnent,

anti-inflation polic, regional employment policy,

youth employment policy ~tnd income maintenance; italso established an Advisor-v Committee on Full Em-ployment and Economic GrowtL.”

The legislative process was less kind to the 1976 hillthan it was to its 1945 forerunner, One critic of the hillremar-ked that the seedling of the unemployment goalhad grown ml to an ‘unmanageable Christmas tn-ce,’’ ani‘‘unwor’kahle monster’ that deserved to he choppeddown. ‘t’he hill was debated for- more than two year-sand, like its for-el-unmet’, was stripped of its substantiveprovisions when President Carter signed it on October’27, 1978 lsee the shaded inset’t on the next page for’ themain provisions of the. Full Employment and BalatmcedGn)wth Act of 1978).

comment of Raymond Moley’s regarding the proliferation ofconflicting goals in some New Deal legislation seems perlinent atthis point. Moley wrote that “to look upon these policies as the resultof a unified plan was to believe that the accumulation of stuffedsnakes, baseball pictures, school flags, old tennis shoes, geometrybooks, and chemistry sets in a boy’s bedroom could have been putthere by an interior decorator.” Moley (1939).

Percent

10.0

80

6.0

4.0

2.0198555 60 65 70 75 80

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 Policiesprovisinuris nil thin iinnmmml)inm’n’t ltaakimms \ct

11n’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 anden’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 targetedpmoclnnctnt 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 to2. L)er’lan’ns a pullet’ oh 1un’imnam nihi,nmrc’r nh time nlnatv tvoukvms lmnnmuu the pm’itmtn’ sector.

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’ ado1tioni nil huscani pullet that Ii Lslabhishi’s pm’nncedinn L’s nit’ Coiigm’nssinnmualttcumnici 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 mmmdage 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,gso as IC) ~whmntvan unenmiplot nmui’imt mate cml miol ahm’mm liii ILrli n’mmuplovnun’nt goal n’nntmhd hnniomu Warm 3 1it’r’i’i’ mit armmring ~un’sommsag,’cI 21) n’ean’hn’cl stumnmid tim’ Um’nsident dcriLnm’e thatarid ot en’, and I linen’ mit trim pi~’~’~n~16 ammni goal r’onnld mmml hr mint lit ttlS3oten’ lit w83.

— . ‘ti lie It’ — uc,nc,r’anI IimnnisinimistnflhLtlnVs the Pr’esndnmmt to wt a hmmdgelar goniot 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’s1983. lrnn’lher’mumom’e. 011cc thu goal sd 1mm ahrive lance a,4e religion nil nialiommal origin imm antisar’.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 beliv i9h8.

gnt no er lual may for equal work, but not lessIi .\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 Sabove.

7) Requires the Federal Reserve Board to reportto the Congress twice a year on its monetarypolicies and their- relationship to the goals ofthe act.

pn’oposed, the legislation required the loden-al govern-ment 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 byDepn-essnon of the 1930s and the fear- that this concir— , ..

n’unnnnmg a sufficiently large deficnt tn time feden-altnon would n-etun-n with the denmohnhzatnon Iollowntmg hud,tetwon-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 reflectederratic behavior of business inmvestmenmt As initially the process of redirecting n’esources tinmchuding labor-I

br-ought about by nmmajor shifts in the relative denmandon’ supply of various goods and services. In their opin-ion, the goven-nnmment’s t’esponsihihity should be hinmitedto the nehief of destitution which fr-eqtrently could beaccomplished mnore adequately and chmeapI~in waysother than maintaining enmployment in jobs of lesservalue.’-~Others am-gued that tIme application of compen—satoty finance requin-ed forecasting acctlracy thatcould not possibly be achieved. They pointed out thatthe business slump that beganm in 1930 was not fore-cast in 1929 and that existing goven-nment agenciesresponsible for- fon-ecasting economic conditions pro-duced results that were indistinguishable from man-donm chance.

‘the Employnment Act of 1946 that was approved byCongress differ-ed man-kedly li-om the Full Employ-ment Bill of 1945. As approved, the act recognized bothhigh employment and price level stability as importantecononmic objectives~.Further-n~or-e,the tequiremnenmt toapply the principle of compenmsatony finance, the cen-terpiece of the 1945 proposal, was stripped away.

The Ilumphrey/1-lawkins Bill of 1976 attempted torevive the main provisions of the 1945 bill. Congress,however-, had become no more sympathetic in theinteivening 30 years. As in 1946, they exti’acted thelegislation’s teeth before appr-oving it and created an“unworkable monster” by loading the bill with anagglomeration of conflicting policy statements. In theend, the bill was hailed as a legislative monument toHubert Humphrey, who had died in Januaty 1978.Apart from this, and the expression of congressionalsenmtiment regarding a vast array of econmomnic prob-hems, the legislation was not expected to producemuch of subsiance.

Debates over the economic consequences of the1946 enmployment act continue to this day. Flowever,many would agree with the assessment giverm by AlvinHansen in a collection of papers celebrating the tenthanmniversany of the 1946 act. 1mm his opinion, publicexposure to policy debates stinmmulated by the Eco-nmomic Report of the President and tIme Hean’ings befon-ethe loint Committee, both of whmich are nequir-ed by thelegislation, have had time effect of raising time level ofeconomic liten’acy in the United States. As for’ the n’ealeconomic consequences of employment legislation,lie suggests that “there are as many economic opinm-

Alchian, Armen, and William R. Allen. Exchange and Production:Competition, Coordination, and Control, 2nd ed. (Wadsworth,1977) pp. 467—80.

Assuring Full Employment in a Free Competitive Economy. Reportfrom the Committee on Banking and Currency, 79 Cong., I Sess.(Government Printing Office, September 1945).

Assuring Full Employment in a Free Competitive Economy, MinorityViews, Report from the Committee on Banking and Currency,79 Cong., 1 Sess. (Government Printing Office, September1945).

Bancroft, Gertrude. “Current Unemployment Statistics of the Cen-sus Bureau and Some Alternatives,” in The Measurement andBehavior of Unemployment (Princeton University Press, 1957),pp. 63—119.

Darby, Michael R. “Three-and-a-Half Million U.S. EmployeesHave Been Mislaid: Or, an Explanation of Unemployment, 1934.—1941,” Journal of Political Economy (February 1976) pp. 1—16.

Employment Act of 1946, 79 Cong., 2 Sess. (5.380), Public Law304.

Feilner, William J. “The Balancing of Objectives Under the Em-ployment Act of 1946,” in The Employment Act Past and Future(National Planning Association, 1956) pp. 87—91.

Friedman, Milton, and Anna Jacobson Schwartz. A MonetaryHis-tory of the United States 1867—1960 (Princeton University Press,1963) pp. 299—545.

Full Employmentand Balanced Growth Actof 1976, Committee onLabor and Public Welfare, 5.50, 94 Cong., 2 Sess. (GovernmentPrinting Office, 1976).

Full Employment and Balanced Growth Act of 1978, Public Law95—523 (HR. 50), October 27, 1978.

Full Employment Actof 1945, Hearings Before a Subcommittee ofthe Committee on Banking and Currency, United States Senate,79 Cong., 1 Sess. (Government Printing Office, September1945).

Hansen, Alvin H. “The Reports Prepared Under the EmploymentAct,” in The Employment Act Past and Future (National PlanningAssociation, 1956) pp. 92—97.

Harris, Ralph. “Where Does Unemployment Come From?” in Job‘Creation’—or Destruction? (Institute of Economic Affairs, 1979)pp. 5—9.

Historical Statistics of the United States Colonial Times to 1970,U.S. Department of Commerce, Bureau of the Census (U.S.Government Printing Office, 1975), pp. 121—22 and p. 126.

Keynes, John Maynard. The General Theory of Employment, Inter-est and Money (Harcourt, Brace and Company, 1935).

Lebergoti, Stanley. ‘Annual Estimates of Unemployment in theUnited States, 1900—1954,” in National Bureau of EconomicResearch The Measurement and Behavior of Unemployment(Princeton University Press, 1957) pp.213—38.

ions worthy of considerationm as timer-c are conmipetenteconomists.””

35Assuring Full Employment in a Free Competitive Economy (1945), p.

25. 36Hansen (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.

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