Regional President Speech

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

Karl R. Bopp (1950, November 30). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_19501201_karl_r_bopp

@misc{wtfs_regional_speeche_19501201_karl_r_bopp,
  author = {Karl R. Bopp},
  title = {Regional President Speech},
  year = {1950},
  month = {Nov},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_19501201_karl_r_bopp},
  note = {Retrieved via When the Fed Speaks corpus}
}