To the Congress of the United States:

A quarter century ago the Congress decided that it could no longer consider
the financial programs of the various departments on a piecemeal basis.
Instead it has called on the President to present a comprehensive Executive
Budget. The Congress has shown its satisfaction with that method by
extending the budget system and tightening its controls. The bigger and
more complex the Federal Program, the more necessary it is for the Chief
Executive to submit a single budget for action by the Congress.

At the same time, it is clear that the budgetary program and the general
program of the Government are actually inseparable. The president bears the
responsibility for recommending to the Congress a comprehensive set of
proposals on all Government activities and their financing. In formulating
policies, as in preparing budgetary estimates, the Nation and the Congress
have the right to expect the President to adjust and coordinate the views
of the various departments and agencies to form a unified program. And that
program requires consideration in connection with the Budget, which is the
annual work program of the Government.

Since our programs for this period which combines war liquidation with
reconversion to a peacetime economy are inevitably large and numerous it is
imperative that they be planned and executed with the utmost efficiency and
the utmost economy. We have cut the war program to the maximum extent
consistent with national security. We have held our peacetime programs to
the level necessary to our national well-being and the attainment of our
postwar objectives. Where increased programs have been recommended, the
increases have been held as low as is consistent with these goals. I can
assure the Congress of the necessity of these programs. I can further
assure the Congress that the program as a whole is well within our capacity
to finance it. All the programs I have recommended for action are included
in the Budget figures.

For these reasons I have chosen to combine the customary Message on the
State of the Union with the annual Budget Message, and to include in the
Budget not only estimates for functions authorized by the Congress, but
also for those which I recommend for its action.

I am also transmitting herewith the Fifth Quarterly Report of the Director
of War Mobilization and Reconversion.[1] It is a comprehensive discussion of
the present state of the reconversion program and of the immediate and
long-range needs and recommendations.

[Footnote 1: The report dated January 1, 1946, and entitled "Battle for
Production" is printed in House Document 398 (79th Cong., 2d sess.).]

This constitutes, then, as complete a report as I find it possible to
prepare now. It constitutes a program of government in relation to the
Nation's needs.

With the growing responsibility of modern government to foster economic
expansion and to promote conditions that assure full and steady employment
opportunities, it has become necessary to formulate and determine the
Government program in the light of national economic conditions as a whole.
In both the executive and the legislative branches we must make
arrangements which will permit us to formulate the Government program in
that light. Such an approach has become imperative if the American
political and economic system is to succeed under the conditions of
economic instability and uncertainty which we have to face. The Government
needs to assure business, labor, and agriculture that Government policies
will take due account of the requirements of a full employment economy. The
lack of that assurance would, I believe, aggravate the economic
instability.

With the passage of a full employment bill which I confidently anticipate
for the very near future, the executive and legislative branches of
government will be empowered to devote their best talents and resources in
subsequent years to preparing and acting on such a program.

I. FROM WAR TO PEACE--THE YEAR

OF DECISION

In his last Message on the State of the Union, delivered one year ago,
President Roosevelt said:

"This new year of 1945 can be the greatest year of achievement in human
history.

"1945 can see the final ending of the Nazi-Fascist reign of terror in
Europe.

"1945 can see the closing in of the forces of retribution about the center
of the malignant power of imperialistic Japan.

"Most important of all--1945 can and must see the substantial beginning of
the organization of world peace."

All those hopes, and more, were fulfilled in the year 1945. It was the
greatest year of achievement in human history. It saw the end of the
Nazi-Fascist terror in Europe, and also the end of the malignant power of
Japan. And it saw the substantial beginning of world organization for
peace. These momentous events became realities because of the steadfast
purpose of the United Nations and of the forces that fought for freedom
under their flags. The plain fact is that civilization was saved in 1945 by
the United Nations.

Our own part in this accomplishment was not the product of any single
service. Those who fought on land, those who fought on the sea, and those
who fought in the air deserve equal credit. They were supported by other
millions in the armed forces who through no fault of their own could not go
overseas and who rendered indispensable service in this country. They were
supported by millions in all levels of government, including many
volunteers, whose devoted public service furnished basic organization and
leadership. They were also supported by the millions of Americans in
private life--men and women in industry, in commerce, on the farms, and in
all manner of activity on the home front--who contributed their brains and
their brawn in arming, equipping, and feeding them. The country was brought
through four years of peril by an effort that was truly national in
character.

Everlasting tribute and gratitude will be paid by all Americans to those
brave men who did not come back, who will never come back--the 330,000 who
died that the Nation might live and progress. All Americans will also
remain deeply conscious of the obligation owed to that larger number of
soldiers, sailors, and marines who suffered wounds and sickness in their
service. They may be certain that their sacrifice will never be forgotten
or their needs neglected.

The beginning of the year 1946 finds the United States strong and
deservedly confident. We have a record of enormous achievements as a
democratic society in solving problems and meeting opportunities as they
developed. We find ourselves possessed of immeasurable advantages--vast and
varied natural resources; great plants, institutions, and other facilities;
unsurpassed technological and managerial skills; an alert, resourceful, and
able citizenry. We have in the United States Government rich resources in
information, perspective, and facilities for doing whatever may be found
necessary to do in giving support and form to the widespread and
diversified efforts of all our people.

And for the immediate future the business prospects are generally so
favorable that there is danger of such feverish and opportunistic activity
that our grave postwar problems may be neglected. We need to act now with
full regard for pitfalls; we need to act with foresight and balance. We
should not be lulled by the immediate alluring prospects into forgetting
the fundamental complexity of modern affairs, the catastrophe that can come
in this complexity, or the values that can be wrested from it.

But the long-range difficulties we face should no more lead to despair than
our immediate business prospects should lead to the optimism which comes
from the present short-range prospect. On the foundation of our victory we
can build a lasting peace, with greater freedom and security for mankind in
our country and throughout the world. We will more certainly do this if we
are constantly aware of the fact that we face crucial issues and prepare
now to meet them.

To achieve success will require both boldness in setting our sights and
caution in steering our way on an uncharted course. But we have no luxury
of choice. We must move ahead. No return to the past is possible.

Our Nation has always been a land of great opportunities for those people
of the world who sought to become part of us. Now we have become a land of
great responsibilities to all the people of all the world. We must squarely
recognize and face the fact of those responsibilities. Advances in science,
in communication, in transportation, have compressed the world into a
community. The economic and political health of each member of the world
community bears directly on the economic and political health of each other
member.

The evolution of centuries has brought us to a new era in world history in
which manifold relationships between nations must be formalized and
developed in new and intricate ways.

The United Nations Organization now being established represents a minimum
essential beginning. It must be developed rapidly and steadily. Its work
must be amplified to fill in the whole pattern that has been outlined.
Economic collaboration, for example, already charted, now must be carried
on as carefully and as comprehensively as the political and security
measures.

It is important that the nations come together as States in the Assembly
and in the Security Council and in the other specialized assemblies and
councils that have been and will be arranged. But this is not enough. Our
ultimate security requires more than a process of consultation and
compromise.

It requires that we begin now to develop the United Nations Organization as
the representative of the world as one society. The United Nations
Organization, if we have the will adequately to staff it and to make it
work as it should, will provide a great voice to speak constantly and
responsibly in terms of world collaboration and world well-being.

There are many new responsibilities for us as we enter into this new
international era. The whole power and will and wisdom of our Government
and of our people should be focused to contribute to and to influence
international action. It is intricate, continuing business. Many
concessions and adjustments will be required.

The spectacular progress of science in recent years makes these necessities
more vivid and urgent. That progress has speeded internal development and
has changed world relationships so fast that we must realize the fact of a
new era. It is an era in which affairs have become complex and rich in
promise. Delicate and intricate relationships, involving us all in
countless ways, must be carefully considered.

On the domestic scene, as well as on the international scene, we must lay a
new and better foundation for cooperation. We face a great peacetime
venture; the challenging venture of a free enterprise economy making full
and effective use of its rich resources and technical advances. This is a
venture in which business, agriculture, and labor have vastly greater
opportunities than heretofore. But they all also have vastly greater
responsibilities. We will not measure up to those responsibilities by the
simple return to "normalcy" that was tried after the last war.

The general objective, on the contrary, is to move forward to find the way
in time of peace to the full utilization and development of our physical
and human resources that were demonstrated so effectively in the war.

To accomplish this, it is not intended that the Federal Government should
do things that can be done as well for the Nation by private enterprise, or
by State and local governments. On the contrary, the war has demonstrated
how effectively we can organize our productive system and develop the
potential abilities of our people by aiding the efforts of private
enterprise.

As we move toward one common objective there will be many and urgent
problems to meet.

Industrial peace between management and labor will have to be
achieved--through the process of collective bargaining--with Government
assistance but not Government compulsion. This is a problem which is the
concern not only of management, labor, and the Government, but also the
concern of every one of us.

Private capital and private management are entitled to adequate reward for
efficiency, but business must recognize that its reward results from the
employment of the resources of the Nation. Business is a public trust and
must adhere to national standards in the conduct of its affairs. These
standards include as a minimum the establishment of fair wages and fair
employment practices.

Labor also has its own new peacetime responsibilities. Under our collective
bargaining system, which must become progressively more secure, labor
attains increasing political as well as economic power, and this, as with
all power, means increased responsibility.

The lives of millions of veterans and war workers will be greatly affected
by the success or failure of our program of war liquidation and
reconversion. Their transition to peacetime pursuits will be determined by
our efforts to break the bottlenecks in key items of production, to make
surplus property immediately available where it is needed, to maintain an
effective national employment service, and many other reconversion
policies. Our obligations to the people who won the war will not be paid if
we fail to prevent inflation and to maintain employment opportunities.

While our peacetime prosperity will be based on the private enterprise the
government can and must assist in many ways. It is the Government's
responsibility to see that our economic system remains competitive, that
new businesses have adequate opportunities, and that our national resources
are restored and improved. Government must realize the effect of its
operations on the whole economy. It is the responsibility of Government to
gear its total program to the achievement of full production and full
employment.

Our basic objective--toward which all others lead--is to improve the
welfare of the American people. In addition to economic prosperity, this
means that we use social security in the fullest sense of the word. And
people must be protected from excessive want during old age, sickness, and
unemployment. Opportunities for a good economy and adequate medical care
must be readily available. Every family should build a decent home. The new
economic rights to which I have referred on previous occasions is a charter
of economic freedom which seeks to assure that all who will may work toward
their own security and the general advancement; that we become a
well-housed people, a well-nourished people, an educated people, a people
socially and economically secure, an alert and responsible people.

These and other problems which may face us can be met by the cooperation of
all of us in furthering a positive and well-balanced Government program--a
program which will further national and international well-being.

II. THE FEDERAL PROGRAM

INTERNATIONAL AFFAIRS

I. FOREIGN POLICY

The year 1945 brought with it the final defeat of our enemies. There lies
before us now the work of building a just and enduring peace.

Our most immediate task toward that end is to deprive our enemies
completely and forever of their power to start another war. Of even greater
importance to the preservation of international peace is the need to
preserve the wartime agreement of the United Nations and to direct it into
the ways of peace.

Long before our enemies surrendered, the foundations had been laid on which
to continue this unity in the peace to come. The Atlantic meeting in 1941
and the conferences at Casablanca, Quebec, Moscow, Cairo, Tehran, and
Dumbarton Oaks each added a stone to the structure.

Early in 1945, at Yalta, the three major powers broadened and solidified
this base of understanding. There fundamental decisions were reached
concerning the occupation and control of Germany. There also a formula was
arrived at for the interim government of the areas in Europe which were
rapidly being wrested from Nazi control. This formula was based on the
policy of the United States that people be permitted to choose their own
form of government by their own freely expressed choice without
interference from any foreign source.

At Potsdam, in July 1945, Marshal Stalin, Prime Ministers Churchill and
Attlee, and I met to exchange views primarily with respect to Germany. As a
result, agreements were reached which outlined broadly the policy to be
executed by the Allied Control Council. At Potsdam there was also
established a Council of Foreign Ministers which convened for the first
time in London in September. The Council is about to resume its primary
assignment of drawing up treaties of peace with Italy, Rumania, Bulgaria,
Hungary, and Finland.

In addition to these meetings, and, in accordance with the agreement at
Yalta, the Foreign Ministers of Great Britain, the Soviet Union, and the
United States conferred together in San Francisco last spring, in Potsdam
in July, in London in September, and in Moscow in December. These meetings
have been useful in promoting understanding and agreement among the three
governments.

Simply to name all the international meetings and conferences is to suggest
the size and complexity of the undertaking to prevent international war in
which the United States has now enlisted for the duration of history.

It is encouraging to know that the common effort of the United Nations to
learn to live together did not cease with the surrender of our enemies.

When difficulties arise among us, the United States does not propose to
remove them by sacrificing its ideals or its vital interests. Neither do we
propose, however, to ignore the ideals and vital interests of our friends.

Last February and March an Inter-American Conference on Problems of War and
Peace was held in Mexico City. Among the many significant accomplishments
of that Conference was an understanding that an attack by any country
against any one of the sovereign American republics would be considered an
act of aggression against all of them; and that if such an attack were made
or threatened, the American republics would decide jointly, through
consultations in which each republic has equal representation, what
measures they would take for their mutual protection. This agreement
stipulates that its execution shall be in full accord with the Charter of
the United Nations Organization.

The first meeting of the General Assembly of the United Nations now in
progress in London marks the real beginning of our bold adventure toward
the preservation of world peace, to which is bound the dearest hope of
men.

We have solemnly dedicated ourselves and all our will to the success of the
United Nations Organization. For this reason we have sought to insure that
in the peacemaking the smaller nations shall have a voice as well as the
larger states. The agreement reached at Moscow last month preserves this
opportunity in the making of peace with Italy, Rumania, Bulgaria, Hungary,
and Finland. The United States intends to preserve it when the treaties
with Germany and Japan are drawn.

It will be the continuing policy of the United States to use all its
influence to foster, support, and develop the United Nations Organization
in its purpose of preventing international war. If peace is to endure it
must rest upon justice no less than upon power. The question is how justice
among nations is best achieved. We know from day-to-day experience that the
chance for a just solution is immeasurably increased when everyone directly
interested is given a voice. That does not mean that each must enjoy an
equal voice, but it does mean that each must be heard.

Last November, Prime Minister Attlee, Prime Minister MacKenzie King, and I
announced our proposal that a commission be established within the
framework of the United Nations to explore the problems of effective
international control of atomic energy.

The Soviet Union, France, and China have joined us in the purpose of
introducing in the General Assembly a resolution for the establishment of
such a commission. Our earnest wish is that the work of this commission go
forward carefully and thoroughly, but with the greatest dispatch. I have
great hope for the development of mutually effective safeguards which will
permit the fullest international control of this new atomic force.

I believe it possible that effective means can be developed through the
United Nations Organization to prohibit, outlaw, and prevent the use of
atomic energy for destructive purposes.

The power which the United States demonstrated during the war is the fact
that underlies every phase of our relations with other countries. We cannot
escape the responsibility which it thrusts upon us. What we think, plan,
say, and do is of profound significance to the future of every corner of
the world.

The great and dominant objective of United States foreign policy is to
build and preserve a just peace. The peace we seek is not peace for twenty
years. It is permanent peace. At a time when massive changes are occurring
with lightning speed throughout the world, it is often difficult to
perceive how this central objective is best served in one isolated complex
situation or another. Despite this very real difficulty, there are certain
basic propositions to which the United States adheres and to which we shall
continue to adhere.

One proposition is that lasting peace requires genuine understanding and
active cooperation among the most powerful nations. Another is that even
the support of the strongest nations cannot guarantee a peace unless it is
infused with the quality of justice for all nations.

On October 27, 1945, I made, in New York City, the following public
statement of my understanding of the fundamental foreign policy of the
United States. I believe that policy to be in accord with the opinion of
the Congress and of the people of the United States. I believe that that
policy carries out our fundamental objectives.

1. We seek no territorial expansion or selfish advantage. We have no plans
for aggression against any other state, large or small. We have no
objective which need clash with the peaceful aims of any other nation.

2. We believe in the eventual return of sovereign rights and
self-government to all peoples who have been deprived of them by force.

3. We shall approve no territorial changes in any friendly part of the
world unless they accord with the freely expressed wishes of the people
concerned.

4. We believe that all peoples who are prepared for self-government should
be permitted to choose their own form of government by their own freely
expressed choice, without interference from any foreign source. That is
true in Europe, in Asia, in Africa, as well as in the Western Hemisphere.

5. By the combined and cooperative action of our war allies, we shall help
the defeated enemy states establish peaceful democratic governments of
their own free choice. And we shall try to attain a world in which nazism,
fascism, and military aggression cannot exist.

6. We shall refuse to recognize any government imposed upon any nation by
the force of any foreign power. In some cases it may be impossible to
prevent forceful imposition of such a government. But the United States
will not recognize any such government.

7. We believe that all nations should have the freedom of the seas and
equal rights to the navigation of boundary rivers and waterways and of
rivers and waterways which pass through more than one country.

8. We believe that all states which are accepted in the society of nations
should have access on equal terms to the trade and the raw materials of the
world.

9. We believe that the sovereign states of the Western Hemisphere, without
interference from outside the Western Hemisphere, must work together as
good neighbors in the solution of their common problems.

10. We believe that full economic collaboration between all nations, great
and small, is essential to the improvement of living conditions all over
the world, and to the establishment of freedom from fear and freedom from
want.

11. We shall continue to strive to promote freedom of expression and
freedom of religion throughout the peace-loving areas of the world.

12. We are convinced that the preservation of peace between nations
requires a United Nations Organization composed of all the peace-loving
nations of the world who are willing jointly to use force, if necessary, to
insure peace.

That is our foreign policy.

We may not always fully succeed in our objectives. There may be instances
where the attainment of those objectives is delayed. But we will not give
our full sanction and approval to actions which fly in the face of these
ideals.

The world has a great stake in the political and economic future of
Germany. The Allied Control Council has now been in operation there for a
substantial period of time. It has not met with unqualified success. The
accommodation of varying views of four governments in the day-to-day civil
administration of occupied territory is a challenging task. In my judgment,
however, the Council has made encouraging progress in the face of most
serious difficulties. It is my purpose at the earliest practicable date to
transfer from military to civilian personnel the execution of United States
participation in the government of occupied territory in Europe. We are
determined that effective control shall be maintained in Germany until we
are satisfied that the German people have regained the right to a place of
honor and respect.

On the other side of the world, a method of international cooperation has
recently been agreed upon for the treatment of Japan. In this pattern of
control, the United States, with the full approval of its partners, has
retained primary authority and primary responsibility. It will continue to
do so until the Japanese people, by their own freely expressed choice,
choose their own form of government.

Our basic policy in the Far East is to encourage the development of a
strong, independent, united, and democratic China. That has been the
traditional policy of the United States.

At Moscow the United States, the Union of Soviet Socialist Republics, and
Great Britain agreed to further this development by supporting the efforts
of the national government and nongovernmental Chinese political elements
in bringing about cessation of civil strife and in broadening the basis of
representation in the Government. That is the policy which General Marshall
is so ably executing today.

It is the purpose of the Government of the United States to proceed as
rapidly as is practicable toward the restoration of the sovereignty of
Korea and the establishment of a democratic government by the free choice
of the people of Korea.

At the threshold of every problem which confronts us today in international
affairs is the appalling devastation, hunger, sickness, and pervasive human
misery that mark so many areas of the world.

By joining and participating in the work of the United Nations Relief and
Rehabilitation Administration the United States has directly recognized and
assumed an obligation to give such relief assistance as is practicable to
millions of innocent and helpless victims of the war. The Congress has
earned the gratitude of the world by generous financial contributions to
the United Nations Relief and Rehabilitation Administration.

We have taken the lead, modest though it is, in facilitating under our
existing immigration quotas the admission to the United States of refugees
and displaced persons from Europe.

We have joined with Great Britain in the organization of a commission to
study the problem of Palestine. The Commission is already at work and its
recommendations will be made at an early date.

The members of the United Nations have paid us the high compliment of
choosing the United States as the site of the United Nations headquarters.
We shall be host in spirit as well as in fact, for nowhere does there abide
a fiercer determination that this peace shall live than in the hearts of
the American people.

It is the hope of all Americans that in time future historians will speak
not of World War I and World War II, but of the first and last world wars.

2. FOREIGN ECONOMIC POLICY

The foreign economic policy of the United States is designed to promote our
own prosperity, and at the same time to aid in the restoration and
expansion of world markets and to contribute thereby to world peace and
world security. We shall continue our efforts to provide relief from the
devastation of war, to alleviate the sufferings of displaced persons, to
assist in reconstruction and development, and to promote the expansion of
world trade.

We have already joined the International Monetary Fund and the
International Bank for Reconstruction and Development. We have expanded the
Export-Import Bank and provided it with additional capital. The Congress
has renewed the Trade Agreements Act which provides the necessary framework
within which to negotiate a reduction of trade barriers on a reciprocal
basis. It has given our support to the United Nations Relief and
Rehabilitation Administration.

In accordance with the intentions of the Congress, lend-lease, except as to
continuing military lend-lease in China, was terminated upon the surrender
of Japan. The first of the lend-lease settlement agreements has been
completed with the United Kingdom. Negotiations with other lend-lease
countries are in progress. In negotiating these agreements, we intend to
seek settlements which will not encumber world trade through war debts of a
character that proved to be so detrimental to the stability of the world
economy after the last war.

We have taken steps to dispose of the goods which on VJ-day were in the
lend-lease pipe line to the various lend-lease countries and to allow them
long-term credit for the purpose where necessary. We are also making
arrangements under which those countries may use the lend-lease inventories
in their possession and acquire surplus property abroad to assist in their
economic rehabilitation and reconstruction. These goods will be accounted
for at fair values.

The proposed loan to the United Kingdom, which I shall recommend to the
Congress in a separate message, will contribute to easing the transition
problem of one of our major partners in the war. It will enable the whole
sterling area and other countries affiliated with it to resume trade on a
multilateral basis. Extension of this credit will enable the United Kingdom
to avoid discriminatory trade arrangements of the type which destroyed
freedom of trade during the 1930's. I consider the progress toward
multilateral trade which will be achieved by this agreement to be in itself
sufficient warrant for the credit.

The view of this Government is that, in the longer run, our economic
prosperity and the prosperity of the whole world are best served by the
elimination of artificial barriers to international trade, whether in the
form of unreasonable tariffs or tariff preferences or commercial quotas or
embargoes or the restrictive practices of cartels.

The United States Government has issued proposals for the expansion of
world trade and employment to which the Government of the United Kingdom
has given its support on every important issue. These proposals are
intended to form the basis for a trade and employment conference to be held
in the middle of this year. If that conference is a success, I feel
confident that the way will have been adequately prepared for an expanded
and prosperous world trade.

We shall also continue negotiations looking to the full and equitable
development of facilities for transportation and communications among
nations.

The vast majority of the nations of the world have chosen to work together
to achieve, on a cooperative basis, world security and world prosperity.
The effort cannot succeed without full cooperation of the United States. To
play our part, we must not only resolutely carry out the foreign policies
we have adopted but also follow a domestic policy which will maintain full
production and employment in the United States. A serious depression here
can disrupt the whole fabric of the world economy.

3. OCCUPIED COUNTRIES

The major tasks of our Military Establishment in Europe following VE-day,
and in the Pacific since the surrender of Japan, have been those of
occupation and military government. In addition we have given much needed
aid to the peoples of the liberated countries.

The end of the war in Europe found Germany in a chaotic condition.
Organized government had ceased to exist, transportation systems had been
wrecked, cities and industrial facilities had been bombed into ruins. In
addition to the tasks of occupation we had to assume all of the functions
of government. Great progress has been made in the repatriation of
displaced persons and of prisoners of war. Of the total of 3,500,000
displaced persons found in the United States zone only 460,000 now remain.

The extensive complications involved by the requirement of dealing with
three other governments engaged in occupation and with the governments of
liberated countries require intensive work and energetic cooperation. The
influx of some 2 million German refugees into our zone of occupation is a
pressing problem, making exacting demands upon an already overstrained
internal economy.

Improvements in the European economy during 1945 have made it possible for
our military authorities to relinquish to the governments of all liberated
areas, or to the United Nations Relief and Rehabilitation Administration,
the responsibility for the provision of food and other civilian relief
supplies. The Army's responsibilities in Europe extend now only to our
zones of occupation in Germany and Austria and to two small areas in
northern Italy.

By contrast with Germany, in Japan we have occupied a country still
possessing an organized and operating governmental system. Although
severely damaged, the Japanese industrial and transportation systems have
been able to insure at least a survival existence for the population. The
repatriation of Japanese military and civilian personnel from overseas is
proceeding as rapidly as shipping and other means permit.

In order to insure that neither Germany nor Japan will again be in a
position to wage aggressive warfare, the armament making potential of these
countries is being dismantled and fundamental changes in their social and
political structures are being effected. Democratic systems are being
fostered to the end that the voice of the common man may be heard in the
councils of his government.

For the first time in history the legal culpability of war makers is being
determined. The trials now in progress in Nurnberg-and those soon to begin
in Tokyo--bring before the bar of international justice those individuals
who are charged with the responsibility for the sufferings of the past six
years. We have high hope that this public portrayal of the guilt of these
evildoers will bring wholesale and permanent revulsion on the part of the
masses of our former enemies against war, militarism, aggression, and
notions of race superiority.

4. DEMOBILIZATION OF OUR ARMED FORCES

The cessation of active campaigning does not mean that we can completely
disband our fighting forces. For their sake and for the sake of their loved
ones at home, I wish that we could. But we still have the task of clinching
the victories we have won--of making certain that Germany and Japan can
never again wage aggressive warfare, that they will not again have the
means to bring on another world war. The performance of that task requires
that, together with our allies, we occupy the hostile areas, complete the
disarmament of our enemies, and take the necessary measures to see to it
that they do not rearm.

As quickly as possible, we are bringing about the reduction of our armed
services to the size required for these tasks of occupation and
disarmament. The Army and the Navy are following both length-of-service and
point systems as far as possible in releasing men and women from the
service. The points are based chiefly on length and character of service,
and on the existence of dependents.

Over 5 million from the Army have already passed through the separation
centers.

The Navy, including the Marine Corps and the Coast Guard, has discharged
over one and a half million.

Of the 12 million men and women serving in the Army and Navy at the time of
the surrender of Germany, one-half have already been released. The greater
part of these had to be brought back to this country from distant parts of
the world.

Of course there are cases of individual hardship in retention of personnel
in the service. There will be in the future. No system of such size can
operate to perfection. But the systems are rounded on fairness and justice,
and they are working at full speed. We shall try to avoid mistakes,
injustices, and hardship--as far as humanly possible.

We have already reached the point where shipping is no longer the
bottleneck in the return of troops from the European theater. The governing
factor now has become the requirement for troops in sufficient strength to
carry out their missions.

In a few months the same situation will exist in the Pacific. By the end of
June, 9 out of 10 who were serving in the armed forces on VE-day will have
been released. Demobilization will continue thereafter, but at a slower
rate, determined by our military responsibilities.

Our national safety and the security of the world will require substantial
armed forces, particularly in overseas service. At the same time it is
imperative that we relieve those who have already done their duty, and that
we relieve them as fast as we can. To do that, the Army and the Navy are
conducting recruiting drives with considerable success.

The Army has obtained nearly 400,000 volunteers in the past four months,
and the Navy has obtained 80,000. Eighty percent of these volunteers for
the regular service have come from those already with the colors. The
Congress has made it possible to offer valuable inducements to those who
are eligible for enlistment. Every effort will be made to enlist the
required number of young men.

The War and Navy Departments now estimate that by a year from now we still
will need a strength of about 2 million including officers, for the armed
forces--Army, Navy, and Air. I have reviewed their estimates and believe
that the safety of the Nation will require the maintenance of an armed
strength of this size for the calendar year that is before us.

In case the campaign for volunteers does not produce that number, it will
be necessary by additional legislation to extend the Selective Service Act
beyond May 16, the date of expiration under existing law. That is the only
way we can get the men and bring back our veterans. There is no other way.
Action along this line should not be postponed beyond March, in order to
avoid uncertainty and disruption.

DOMESTIC AFFAIRS

I. THE ECONOMIC OUTLOOK

Prophets of doom predicted that the United States could not escape a
runaway inflation during the war and an economic collapse after the war.
These predictions have not been borne out. On the contrary, the record of
economic stabilization during the war and during the period of reconversion
has been an outstanding accomplishment.

We know, however, that nothing is as dangerous as overconfidence, in war or
in peace. We have had to fight hard to hold the line. We have made
strenuous efforts to speed reconversion. But neither the danger of a
postwar inflation nor of a subsequent collapse in production and employment
is yet overcome. We must base our policies not on unreasoning optimism or
pessimism but upon a candid recognition of our objectives and upon a
careful analysis of foreseeable trends.

Any precise appraisal of the economic outlook at this time is particularly
difficult. The period of demobilization and reconversion is fraught with
uncertainties. There are also serious gaps in our statistical information.
Certain tendencies are, however, fairly clear and recognition of them
should serve as background for the consideration of next year's Federal
Program. In general, the outlook for business is good, and it is likely to
continue to be good--provided we control inflation and achieve peace in
management labor relations.

Civilian production and employment can be expected to increase throughout
the next year. This does not mean, however, that continuing full employment
is assured. It is probable that demobilization of the armed forces will
proceed faster than the increase in civilian employment opportunities. Even
if substantial further withdrawals from the labor market occur,
unemployment will increase temporarily. The extent to which this
unemployment will persist depends largely on the speed of industrial
expansion and the effectiveness of the policies of the Federal Government.

Along with extraordinary demand there are still at this time many critical
shortages resulting from the war. These extraordinary demands and shortages
may lead to a speculative boom, especially in the price of securities, real
estate, and inventories.

Therefore, our chief worry still is inflation. While we control this
inflationary pressure we must look forward to the time when this
extraordinary demand will subside. It will be years before we catch up with
the demand for housing. The extraordinary demand for other durable goods,
for the replenishment of inventories, and for exports may be satisfied
earlier. No backlog of demand can exist very long in the face of our
tremendous productive capacity. We must expect again to face the problem of
shrinking demand and consequent slackening in sales, production, and
employment. This possibility of a deflationary spiral in the future will
exist unless we now plan and adopt an effective full employment program.

2. GENERAL POLICIES--IMMEDIATE AND LONG-RANGE

During the war, production for civilian use was limited by war needs and
available manpower. Economic stabilization required measures, to spread
limited supplies equitably by rationing, price controls, increased taxes,
savings bond campaigns, and credit controls. Now, with the surrender of our
enemies, economic stabilization requires that policies be directed toward
promoting an increase in supplies at low unit prices.

We must encourage the development of resources and enterprises in all parts
of the country, particularly in underdeveloped areas. For example, the
establishment of new peacetime industries in the Western States and in the
South would, in my judgment, add to existing production and markets rather
than merely bring about a shifting of production. I am asking the
Secretaries of Agriculture, Commerce, and Labor to explore jointly methods
for stimulating new industries, particularly in areas with surplus
agricultural labor.

We must also aid small businessmen and particularly veterans who are
competent to start their own businesses. The establishment and development
of efficient small business ventures, I believe, will not take away from,
but rather will add to, the total business of all enterprises.

Even with maximum encouragement of Production, we cannot hope to remove
scarcities within a short time. The most serious deficiencies will persist
in the fields of residential housing, building materials, and consumers'
durable goods. The critical situation makes continued rent control, price
control, and priorities, allocations, and inventory controls absolutely
essential. Continued control of consumer credit will help to reduce the
pressure on prices of durable goods and will also prolong the period during
which the backlog demand will be effective.

While we are meeting these immediate needs we must look forward to a
long-range program of security and increased standard of living.

The best protection of purchasing power is a policy of full production and
full employment opportunities. Obviously, an employed worker is a better
customer than an unemployed worker. There always will be, however, some
frictional unemployment. In the present period of transition we must deal
with such temporary unemployment as results from the fact that
demobilization will proceed faster than reconversion or industrial
expansion. Such temporary unemployment is probably unavoidable in a period
of rapid change. The unemployed worker is a victim of conditions beyond his
control. He should be enabled to maintain a reasonable standard of living
for himself and his family.

The most serious difficulty in the path of reconversion and expansion is
the establishment of a fair wage structure.

The ability of labor and management to work together, and the wage and
price policies which they develop, are social and economic issues of first
importance.

Both labor and management have a special interest. Labor's interest is very
direct and personal because working conditions, wages, and prices affect
the very life and happiness of the worker and his family.

Management has a no less direct interest because on management rests the
responsibility for conducting a growing and prosperous business.

But management and labor have identical interests in the long run. Good
wages mean good markets. Good business means more jobs and better wages. In
this age of cooperation and in our highly organized economy the problems of
one very soon become the problems of all.

Better human relationships are an urgent need to which organized labor and
management should address themselves. No government policy can make men
understand each other, agree, and get along unless they conduct themselves
in a way to foster mutual respect and good will.

The Government can, however, help to develop machinery which, with the
backing of public opinion, will assist labor and management to resolve
their disagreements in a peaceful manner and reduce the number and duration
of strikes.

All of us realize that productivity--increased output per man--is in the
long run the basis of our standard of living. Management especially must
realize that if labor is to work wholeheartedly for an increase in
production, workers must be given a just share of increased output in
higher wages.

Most industries and most companies have adequate leeway within which to
grant substantial wage increases. These increases will have a direct effect
in increasing consumer demand to the high levels needed. Substantial wage
increases are good business for business because they assure a large market
for their products; substantial wage increases are good business for labor
because they increase labor's standard of living; substantial wage
increases are good business for the country as a whole because capacity
production means an active, healthy, friendly citizenry enjoying the
benefits of democracy under our free enterprise system.

Labor and management in many industries have been operating successfully
under the Government's wage-price policy. Upward revisions of wage scales
have been made in thousands of establishments throughout the Nation since
VJ-day. It is estimated that about 6 million workers, or more than 20
percent of all employees in nonagricultural and nongovernmental
establishments, have received wage increases since August 18, 1945. The
amounts of increases given by individual employers concentrate between 10
and 15 percent, but range from less than 5 percent to over 30 percent.

The United States Conciliation Service since VJ-day has settled over 3,000
disputes affecting over 1,300,000 workers without a strike threat and has
assisted in settling about 1,300 disputes where strikes were threatened
which involved about 500,000 workers. Only workers directly involved, and
not those in related industries who might have been indirectly affected,
are included in these estimates.

Many of these adjustments have occurred in key industries and would have
seemed to us major crises if they had not been settled peaceably.

Within the framework of the wage-price policy there has been definite
success, and it is to be expected that this success will continue in a vast
majority of the cases arising in the months ahead.

However, everyone who realizes the extreme need for a swift and orderly
reconversion must feel a deep concern about the number of major strikes now
in progress. If long continued, these strikes could put a heavy brake on
our program.

I have already made recommendations to the Congress as to the procedure
best adapted to meeting the threat of work stoppages in Nation-wide
industries without sacrificing the fundamental rights of labor to bargain
collectively and ultimately to strike in support of their position.

If we manage our economy properly, the future will see us on a level of
production half again as high as anything we have ever accomplished in
peacetime. Business can in the future pay higher wages and sell for lower
prices than ever before. This is not true now for all companies, nor will
it ever be true for all, but for business generally it is true.

We are relying on all concerned to develop, through collective bargaining,
wage structures that are fair to labor, allow for necessary business
incentives, and conform with a policy designed to "hold the line" on
prices.

Production and more production was the byword during the war and still is
during the transition from war to peace. However, when deferred demand
slackens, we shall once again face the deflationary dangers which beset
this and other countries during the 1930's. Prosperity can be assured only
by a high level of demand supported by high current income; it cannot be
sustained by deferred needs and use of accumulated savings.

If we take the right steps in time we can certainly avoid the disastrous
excesses of runaway booms and headlong depressions. We must not let a year
or two of prosperity lull us into a false feeling of security and a
repetition of the mistakes of the 1920's that culminated in the crash of
1929.

During the year ahead the Government will be called upon to act in many
important fields of economic policy from taxation and foreign trade to
social security and housing. In every case there will be alternatives. We
must choose the alternatives which will best measure up to our need for
maintaining production and employment in the future. We must never lose
sight of our long-term objectives: the broadening of markets--the
maintenance of steadily rising demand. This demand can come from only three
sources: consumers, businesses, or government.

In this country the job of production and distribution is in the hands of
businessmen, farmers, workers, and professional people-in the hands of our
citizens. We want to keep it that way. However, it is the Government's
responsibility to help business, labor, and farmers do their jobs.

There is no question in my mind that the Government, acting on behalf of
all the people, must assume the ultimate responsibility for the economic
health of the Nation. There is no other agency that can. No other
organization has the scope or the authority, nor is any other agency
accountable, to all the people. This does not mean that the Government has
the sole responsibility, nor that it can do the job alone, nor that it can
do the job directly.

All of the policies of the Federal Government must be geared to the
objective of sustained full production and full employment-to raise
consumer purchasing power and to encourage business investment. The
programs we adopt this year and from now on will determine our ability to
achieve our objectives. We must continue to pay particular attention to our
fiscal, monetary, and tax policy, programs to aid business--especially
small business--and transportation, labor-management relations and
wage-price policy, social security and health, education, the farm program,
public works, housing and resource development, and economic foreign
policy.

For example, the kinds of tax measures we have at different times--whether
we raise our revenue in a way to encourage consumer spending and business
investment or to discourage it--have a vital bearing on this question. It
is affected also by regulations on consumer credit and by the money market,
which is strongly influenced by the rate of interest on Government
securities. It is affected by almost every step we take.

In short, the way we handle the proper functions of government, the way we
time the exercise of our traditional and legitimate governmental functions,
has a vital bearing on the economic health of the Nation.

These policies are discussed in greater detail in the accompanying Fifth
Quarterly Report of the Director of War Mobilization and Reconversion.

3. LEGISLATION HERETOFORE RECOMMENDED

AND STILL PENDING

To attain some of these objectives and to meet the other needs of the
United States in the reconversion and postwar period, I have from time to
time made various recommendations to the Congress.

In making these recommendations I have indicated the reasons why I deemed
them essential for progress at home and abroad. A few--a very few--of these
recommendations have been enacted into law by the Congress. Most of them
have not. I here reiterate some of them, and discuss others later in this
Message. I urge upon the Congress early consideration of them. Some are
more urgent than others, but all are necessary.

(1) Legislation to authorize the President to create fact-finding boards
for the prevention of stoppages of work in Nationwide industries after
collective bargaining and conciliation and voluntary arbitration have
failed--as recommended by me on December 3, 1945.

(2) Enactment of a satisfactory full employment bill such as the Senate
bill now in conference between the Senate and the House--as recommended by
me on September 6, 1945.

(3) Legislation to supplement the unemployment insurance benefits for
unemployed workers now provided by the different States--as recommended by
me on May 1945.

(4) Adoption of a permanent Fair Employment Practice Act--as recommended by
me on September 6, 1945.

(5) Legislation substantially raising the amount of minimum wages now
provided by law--as recommended by me on September 6, 1945.

(6) Legislation providing for a comprehensive program for scientific
research--as recommended by me on September 6, 1945.

(7) Legislation enacting a health and medical care program--as recommended
by me on November 19, 1945.

(8) Legislation adopting the program of universal training--as recommended
by me on October 23, 1945.

(9) Legislation providing an adequate salary scale for all Government
employees in all branches of the Government--as recommended by me on
September 6, 1945.

(10) Legislation making provision for succession to the Presidency in the
event of the death or incapacity or disqualification of the President and
Vice President--as recommended by me on June 19, 1945.

(11) Legislation for the unification of the armed services--as recommended
by me on December 19, 1945.

(12) Legislation for the domestic use and control of atomic energy--as
recommended by me on October 3, 1945.

(13) Retention of the United States Employment Service in the Federal
Government for a period at least up to June 30, 1947--as recommended by me
on September 6, 1945.

(14) Legislation to increase unemployment allowances for veterans in line
with increases for civilians--as recommended by me on September 6, 1945.

(15) Social security coverage for veterans for their period of military
service--as recommended by me on September 6, 1945.

(16) Extension of crop insurance--as recommended by me on September 6,
1945.

(17) Legislation permitting the sale of ships by the Maritime Commission at
home and abroad--as recommended by me on September 6, 1945. I further
recommend that this legislation include adequate authority for chartering
vessels both here and abroad.

(18) Legislation to take care of the stock piling of materials in which the
United States is naturally deficient--as recommended by me on September 6,
1945.

(19) Enactment of Federal airport legislation-as recommended by me on
September 6, 1945.

(20) Legislation repealing the Johnson Act on foreign loans--as recommended
by me on September 6, 1945.

(21) Legislation for the development of the Great Lakes-St. Lawrence River
Basin-as recommended by me on October 3, 1945.

4. POLICIES IN SPECIFIC FIELDS

(a) Extension of Price Control Act.

Today inflation is our greatest immediate domestic problem. So far the
fight against inflation has been waged successfully. Since May 1943,
following President Roosevelt's "hold the line" order and in the face of
the greatest pressures which this country has ever seen, the cost of living
index has risen only three percent. Wholesale prices in this same period
have been held to an increase of two and one-half percent.

This record has been made possible by the vigorous efforts of the agencies
responsible for this program. But their efforts would have been fruitless
if they had not had the solid support of the great masses of our people.
The Congress is to be congratulated for its role in providing the
legislation under which this work has been carried out.

On VJ-day it was clear to all thinking people that the danger of inflation
was by no means over. Many of us can remember vividly our disastrous
experience following World War I. Then the very restricted wartime controls
were lifted too quickly, and as a result prices and rents moved more
rapidly upward. In the year and a half following the armistice, rents,
food, and clothing shot to higher and still higher levels.

When the inevitable crash occurred less than two years after the end of the
war, business bankruptcies were widespread. Profits were wiped out.
Inventory losses amounted to billions of dollars. Farm income dropped by
one-half. Factory pay rolls dropped 40 percent, and nearly one-fifth of all
our industrial workers were walking the streets in search of jobs. This was
a grim greeting, indeed, to offer our veterans who had just returned from
overseas.

When I addressed the Congress in September, I emphasized that we must
continue to hold the price line until the production of goods caught up
with the tremendous demands. Since then we have seen demonstrated the
strength of the inflationary pressures which we have to face.

Retail sales in the closing months of 1945 ran 12 percent above the
previous peak for that season, which came in 1944. Prices throughout the
entire economy have been pressing hard against the price ceilings. The
prices of real estate, which cannot now be controlled under the law, are
rising rapidly. Commercial rents are not included in the present price
control law and, where they are not controlled by State law, have been
increasing, causing difficulties to many businessmen.

It will be impossible to maintain a high purchasing power or an expanding
production unless we can keep prices at levels which can be met by the vast
majority of our people. Full production is the greatest weapon against
inflation, but until we can produce enough goods to meet the threat of
inflation the Government will have to exercise its wartime control over
prices.

I am sure that the people of the United States are disturbed by the demands
made by several business groups with regard to price and rent control.

I am particularly disturbed at the effect such thinking may have on
production and employment. If manufacturers continue to hold back goods and
decline to submit bids when invited--as I am informed some are doing--in
anticipation of higher prices which would follow the end of price controls,
we shall inevitably slow down production and create needless unemployment.
On the other hand, there are the vast majority of American businessmen who
are not holding back goods, but who need certainty about the Government
pricing policy in order to fix their own long-range pricing policies.

Businessmen are entitled therefore to a dear statement of the policy of the
Government on the subject. Tenants and housewives, farmers and
workers--consumers in general--have an equal right.

We are all anxious to eliminate unnecessary controls just as rapidly as we
can do so. The steps that we have already taken in many directions toward
that end are a clear indication of our policy.

The present Price Control Act expires on June 30, 1946. If we expect to
maintain a steady economy we shall have to maintain price and rent control
for many months to come. The inflationary pressures on prices and rents,
with relatively few exceptions, are now at an all-time peak. Unless the
Price Control Act is renewed there will be no limit to which our price
levels would soar. Our country would face a national disaster.

We cannot wait to renew the act until immediately before it expires.
Inflation results from psychological as well as economic conditions. The
country has a clear right to know where the Congress stands on this
all-important problem. Any uncertainty now as to whether the act will be
extended gives rise to price speculation, to withholding of goods from the
market in anticipation of rising prices, and to delays in achieving maximum
production.

I do not doubt that the Congress will be beset by many groups who will urge
that the legislation that I have proposed should either be eliminated or
modified to the point where it is nearly useless. The Congress has a clear
responsibility to meet this challenge with courage and determination. I
have every confidence that it will do so.

I strongly urge that the Congress now resolve all doubts and as soon as
possible adopt legislation continuing rent and price control in effect for
a full year from June 30, 1946.

(b) Food subsidies.

If the price line is to be held, if our people are to be protected against
the inflationary dangers which confront us, we must do more than extend the
Price Control Act. In September we were hopeful that the inflationary
pressures would by this time have begun to diminish. We were particularly
hopeful on food. Indeed, it was estimated that food prices at retail would
drop from 3 to 5 percent in the first six months following the end of the
war.

In anticipation of this decline in food prices, it was our belief that food
subsidies could be removed gradually during the winter and spring months,
and eliminated almost completely by June 30 of this year. It was our
feeling that the food subsidies could be dropped without an increase to the
consumer in the present level of food prices or in the over-all cost of
living.

As matters stand today, however, food prices are pressing hard against the
ceilings. The expected decline in food prices has not occurred, nor is it
likely to occur for many months to come. This brings me to the reluctant
conclusion that food subsidies must be continued beyond June 30, 1946.

If we fail to take this necessary step, meat prices on July 1 will be from
3 to 5 cents higher than their average present levels; butter will be at
least 12 cents a pound higher, in addition to the 5 cents a pound increase
of last fall; milk will increase from 1 to 2 cents a quart; bread will
increase about 1 cent a loaf; sugar will increase over 1 cent a pound;
cheese, in addition to the increase of 4 cents now planned for the latter
part of this month, will go up an additional 8 cents. In terms of
percentages we may find the cost-of-living index for food increased by more
than 8 percent, which in turn would result in more than a 3-percent
increase in the cost of living.

If prices of food were allowed to increase by these amounts, I must make it
clear to the Congress that, in my opinion, it would become extremely
difficult for us to control the forces of inflation.

None of us likes subsidies. Our farmers, in particular, have always been
opposed to them.

But I believe our farmers are as deeply conscious as any group in the land
of the havoc which inflation can create. Certainly in the past eighteen
months there has been no group which has fought any harder in support of
the Government's price control program. I am confident that, if the facts
are placed before them and if they see clearly the evils between which we
are forced to choose, they will understand the reasons why subsidies must
be continued.

The legislation continuing the use of food subsidies into the new fiscal
year should be tied down specifically to certain standards. A very proper
requirement, in my opinion, would be that subsidies be removed as soon as
it is indicated that the cost of living will decline below the present
levels.

(c) Extension of War Powers Act.

The Second War Powers Act has recently been extended by the Congress for
six months instead of for a year. It will now expire, unless further
extended, on June 30, 1946. This act is the basis for priority and
inventory controls governing the use of scarce materials, as well as for
other powers essential to orderly reconversion.

I think that this Administration has given adequate proof of the fact that
it desires to eliminate wartime controls as quickly and as expeditiously as
possible. However, we know that there will continue to be shortages of
certain materials caused by the war even after June 30, 1946. It is
important that businessmen know now that materials in short supply are
going to be controlled and distributed fairly as long as these war-born
shortages continue.

I, therefore, urge the Congress soon to extend the Second War Powers Act.
We cannot afford to wait until just before the act expires next June. To
wait would cause the controls to break down in a short time, and would
hamper our production and employment program.

(d) Small business and competition.

A rising birth rate for small business, and a favorable environment for its
growth, are not only economic necessities but also important practical
demonstrations of opportunity in a democratic free society. A great many
veterans and workers with new skills and experience will want to start in
for themselves. The opportunity must be afforded them to do so. They are
the small businessmen of the future.

Actually when we talk about small business we are talking about almost all
of the Nation's individual businesses. Nine out of every ten concerns fall
into this category, and 45 percent of all workers are employed by them.
Between 30 and 40 percent of the total value of all business transactions
are handled by small business.

It is obvious national policy to foster the sound development of small
business. It helps to maintain high levels of employment and national
income and consumption of the goods and services that the Nation can
produce. It encourages the competition that keeps our free enterprise
economy vigorous and expanding. Small business, because of its flexibility,
assists in the rapid exploitation of scientific and technological
discoveries. Investment in small business can absorb a large volume of
savings that might otherwise not be tapped.

The Government should encourage and is encouraging small-business
initiative and originality to stimulate progress through competition.

During the war, the Smaller War Plants Corporation assisted small concerns
to make a maximum contribution to victory. The work of the Smaller War
Plants Corporation is being carried on in peacetime by the Federal Loan
Agency and the Department of Commerce. The fundamental approach to the job
of encouraging small concerns must be based on:

1. Arrangements for making private and public financial resources available
on reasonable terms.

2. Provision of technical advice and assistance to business as a whole on
production, research, and management problems. This will help equalize
competitive relationships between large and small companies, for many of
the small companies cannot afford expensive technical research, accounting,
and tax advice.

3. Elimination of trade practices and agreements which reduce competition
and discriminate against new or small enterprises.

We speak a great deal about the free enterprise economy of our country. It
is competition that keeps it free. It is competition that keeps it growing
and developing. The truth is that we need far more competition in the
future than we have had in the immediate past.

By strangling competition, monopolistic activity prevents or deters
investment in new or expanded production facilities. This lessens the
opportunity for employment and chokes off new outlets for idle savings.
Monopoly maintains prices at artificially high levels and reduces
consumption which, with lower prices, would rise and support larger
production and higher employment. Monopoly, not being subject to
competitive pressure, is slow to take advantage of technical advances which
would lower prices or improve quality. All three of these monopolistic
activities very directly lower the standard of living--through higher
prices and lower quality of product--which free competition would improve.

The Federal Government must protect legitimate business and consumers from
predatory and monopolistic practices by the vigilant enforcement of
regulatory legislation. The program will be designed to have a maximum
impact upon monopolistic bottlenecks and unfair competitive practices
hindering expansion in employment.

During the war, enforcement of antimonopoly laws was suspended in a number
of fields. The Government must now take major steps not only to maintain
enforcement of antitrust laws but to encourage new and competing
enterprises in every way. The deferred demand of the war years and the
large accumulations of liquid assets provide ample incentive for expansion.
Equalizing of business opportunity, under full and free competition, must
be a prime responsibility in the reconversion period and in the years that
follow. Many leading businessmen have recognized the importance of such
action both to themselves and to the economy as a whole.

But we must do more than break up trusts and monopolies after they have
begun to strangle competition. We must take positive action to foster new,
expanding enterprises. By legislation and by administration we must take
specific steps to discourage the formation or the strengthening of
competition-restricting business. We must have an over-all antimonopoly
policy which can be applied by all agencies of the Government in exercising
the functions assigned to them--a policy designed to encourage the
formation and growth of new and freely competitive enterprises.

Among the many departments and agencies which have parts in the program
affecting business and competition, the Department of Commerce has a
particularly important role. That is why I have recommended a substantial
increase in appropriations for the next fiscal year for this Department.

In its assistance to industry, the Department of Commerce will concentrate
its efforts on these primary objectives: Promotion of a large and
well-balanced foreign trade; provision of improved technical assistance and
management aids, especially for small enterprises; and strengthening of
basic statistics on business operations, both by industries and by regions.
To make new inventions and discoveries available more promptly to all
businesses, small and large, the Department proposes to expand its own
research activities, promote research by universities, improve Patent
Office procedures, and develop a greatly expanded system of field offices
readily accessible to the businesses they serve.

Many gaps exist in the private financial mechanism, especially in the
provision of long-term funds for small- and medium sized enterprises. In
the peacetime economy the Reconstruction Finance Corporation will take the
leadership in assuring adequate financing for small enterprises which
cannot secure funds from other sources. Most of the funds should and will
be provided by private lenders; but the Reconstruction Finance Corporation
will share any unusual risks through guarantees of private loans, with
direct loans only when private capital is unwilling to participate on a
reasonable basis.

(e) Minimum wage.

Full employment and full production may be achieved only by maintaining a
level of consumer income far higher than that of the prewar period. A high
level of consumer income will maintain the market for the output of our
mills, farms, and factories, which we have demonstrated during the war
years that we can produce. One of the basic steps which the Congress can
take to establish a high level of consumer income is to amend the Fair
Labor Standards Act to raise substandard wages to a decent minimum and to
extend similar protection to additional workers who are not covered by the
present act.

Substandard wages are bad for business and for the farmer. Substandard
wages provide only a substandard market for the goods and services produced
by American industry and agriculture.

At the present time the Fair Labor Standards Act prescribes a minimum wage
of 40 cents an hour for those workers who are covered by the act. The
present minimum wage represents an annual income of about $800 to those
continuously employed for 50 weeks--clearly a wholly inadequate budget for
an American family. I am in full accord with the proposal now pending in
the Congress that the statutory minimum be raised immediately to 65 cents
an hour, with further increases to 70 cents after one year and to 75 cents
after two years. I also favor the proposal that the industry committee
procedure be used to set rates higher than 65 cents per hour during the
two-year interval before the 75-cent basic wage would otherwise become
applicable.

The proposed minimum wage of 65 cents an hour would assure the worker an
annual income of about $1,300 a year in steady employment. This amount is
clearly a modest goal. After considering cost-of-living increases in recent
years, it is little more than a 10-cent increase over the present legal
minimum. In fact, if any large number of workers earn less than this
amount, we will find it impossible to maintain the levels of purchasing
power needed to sustain the stable prosperity which we desire. Raising the
minimum to 75 cents an hour will provide the wage earner with an annual
income of $1,500 if he is fully employed.

The proposed higher minimum wage levels are feasible without involving
serious price adjustments or serious geographic dislocations.

Today about 20 percent of our manufacturing wage earners--or about 2
million-earn less than 65 cents an hour. Because wages in most industries
have risen during the war, this is about the same as the proportion-17
percent--who were earning less than 40 cents an hour in 1941.

I also recommend that minimum wage protection be extended to several groups
of workers not now covered. The need for a decent standard of living is by
no means limited to those workers who happen to be covered by the act as it
now stands. It is particularly vital at this period of readjustment in the
national economy and readjustment in employment of labor to extend minimum
wage protection as far as possible.

Lifting the basic minimum wage is necessary, it is justified as a matter of
simple equity to workers, and it will prove not only feasible but also
directly beneficial to the Nation's employers.

(f) Agricultural programs.

The farmers of America generally are entering the crop year of 1946 in
better financial condition than ever before. Farm mortgage debt is the
lowest in 30 years. Farmers' savings are the largest in history. Our
agricultural plant is in much better condition than after World War I. Farm
machinery and supplies are expected to be available in larger volume, and
farm labor problems will be less acute.

The demand for farm products will continue strong during the next year or
two because domestic purchases will be supplemented by a high level of
exports and foreign relief shipments. It is currently estimated that from 7
to 10 percent of the total United States food supply may be exported in the
calendar year 1946.

Farm prices are expected to remain at least at their present levels in the
immediate future, and for at least the next 12 months they are expected to
yield a net farm income double the 1935-39 average and higher than in any
year prior to 1943.

We can look to the future of agriculture with greater confidence than in
many a year in the past. Agriculture itself is moving confidently ahead,
planning for another year of big production, taking definite and positive
steps to lead the way toward an economy of abundance.

Agricultural production goals for 1946 call for somewhat greater acreage
than actually was planted in 1945. Agriculture is prepared to demonstrate
that it can make a peacetime contribution as great as its contribution
toward the winning of the war.

In spite of supplying our armed forces and our allies during the war with a
fifth to a fourth of our total food output, farmers were still able to
provide our civilians with 8 percent more food per capita than the average
for the five years preceding the war. Since the surrender of Japan,
civilian food consumption has risen still further. By the end of 1945 the
amount of the increase in food consumption was estimated to be as high as
15 percent over the prewar average. The record shows that the people of
this country want and need more food and that they will buy more food if
only they have the jobs and the purchasing power. The first essential
therefore in providing fully for the welfare of agriculture is to maintain
full employment and a high level of purchasing power throughout the
Nation.

For the period immediately ahead we shall still have the problem of
supplying enough food. If we are to do our part in aiding the war-stricken
and starving countries some of the food desires of our own people will not
be completely satisfied, at least until these nations have had an
opportunity to harvest another crop. During the next few months the need
for food in the world will be more serious than at any time during the war.
And, despite the large shipments we have already made, and despite what we
shall send, there remain great needs abroad.

Beyond the relief feeding period, there will still be substantial foreign
outlets for our farm commodities. The chief dependence of the farmer,
however, as always, must be upon the buying power of our own people.

The first obligation of the Government to agriculture for the reconversion
period is to make good on its price-support commitments. This we intend to
do, with realistic consideration for the sound patterns of production that
will contribute most to the long-time welfare of agriculture and the whole
Nation. The period during which prices are supported will provide an
opportunity for farmers individually to strengthen their position in
changing over from a wartime to a peacetime basis of production. It will
provide an opportunity for the Congress to review the needs of agriculture
and make changes in national legislation where experience has shown changes
to be needed. In this connection, the Congress will wish to consider
legislation to take the place of the 1937 Sugar Act which expires at the
end of this year. During this period we must do a thorough job of basic
planning to the end that agriculture shall be able to contribute its full
share toward a healthy national economy.

Our long-range agricultural policies should have two main objectives:
First, to assure the people on the farms a fair share of the national
income; and, second, to encourage an agricultural production pattern that
is best fitted to the Nation's needs. To accomplish this second objective
we shall have to take into consideration changes that have taken place and
will continue to take place in the production of farm commodities--changes
that affect costs and efficiency and volume.

What we seek ultimately is a high level of food production and consumption
that will provide good nutrition for everyone. This cannot be accomplished
by agriculture alone. We can be certain of our capacity to produce food,
but we have often failed to distribute it as well as we should and to see
that our people can afford to buy it. The way to get good nutrition for the
whole Nation is to provide employment opportunities and purchasing power
for all groups that will enable them to buy full diets at market prices.

Wherever purchasing power fails to reach this level we should see that they
have some means of getting adequate food at prices in line with their
ability to buy. Therefore, we should have available supplementary programs
that will enable all our people to have enough of the right kind of food.

For example, one of the best possible contributions toward building a
stronger, healthier Nation would be a permanent school-lunch program on a
scale adequate to assure every school child a good lunch at noon. The
Congress, of course, has recognized this need for a continuing school-lunch
program and legislation to that effect has been introduced and hearings
held. The plan contemplates the attainment of this objective with a minimum
of Federal expenditures. I hope that the legislation will be enacted in
time for a permanent program to start with the beginning of the school year
next fall.

We have the technical knowledge and the productive capacity to provide
plenty of good food for every man, woman, and child in the United States.
It is time we made that possibility a reality.

(g) Resource development.

The strength of our Nation and the welfare of the people rest upon the
natural resources of the country. We have learned that proper conservation
of our lands, including our forests and minerals, and wise management of
our waters will add immensely to our national wealth.

The first step in the Government's conservation program must be to find out
just what are our basic resources, and how they should be used. We need to
take, as soon as possible, an inventory of the lands, the minerals, and the
forests of the Nation.

During the war it was necessary to curtail some of our long-range plans for
development of our natural resources, and to emphasize programs vital to
the prosecution of the war. Work was suspended on a number of flood control
and reclamation projects and on the development of our national forests and
parks. This work must now be resumed, and new projects must be undertaken
to provide essential services and to assist in the process of economic
development.

The rivers of America offer a great opportunity to our generation in the
management of the national wealth. By a wise use of Federal funds, most of
which will be repaid into the Treasury, the scourge of floods and drought
can be curbed, water can be brought to arid lands, navigation can be
extended, and cheap power can be brought alike to the farms and to the
industries of our land.

Through the use of the waters of the Columbia River, for example, we are
creating a rich agricultural area as large as the State of Delaware. At the
same time, we are producing power at Grand Coulee and at Bonneville which
played a mighty part in winning the war and which will found a great
peacetime industry in the Northwest. The Tennessee Valley Authority will
resume its peacetime program of promoting full use of the resources of the
Valley. We shall continue our plans for the development of the Missouri
Valley, the Arkansas Valley, and the Central Valley of California.

The Congress has shown itself alive to the practical requirements for a
beneficial use of our water resources by providing that preference in the
sale of power be given to farmers' cooperatives and public agencies. The
public power program thus authorized must continue to be made effective by
building the necessary generating and transmission facilities to furnish
the maximum of firm power needed at the wholesale markets, which are often
distant from the dam sites.

These great developmental projects will open the frontiers of agriculture,
industry, and commerce. The employment opportunities thus offered will also
go far to ease the transition from war to peace.

(h) Public works.

During the war even urgently needed Federal, State, and local construction
projects were deferred in order to release sources for war production. In
resuming public works construction, it is desirable to proceed only at a
moderate rate, since demand for private construction will be abnormally
high for some time. Our public works program should be timed to reach its
peak after demand for private construction has begun to taper off.
Meanwhile, however, plans should be prepared if we are to act promptly when
the present extraordinary private demand begins to run out.

The Congress made money available to Federal agencies for their public
works planning in the fiscal year 1946. I strongly recommend that this
policy be continued and extended in the fiscal year 1947.

State and local governments also have an essential role to play in a
national public works program. In my message of September 6, 1945, I
recommended that the Congress vote such grants to State and local
governments as will insure that each level of government makes its proper
contribution to a balanced public construction program. Specifically, the
Federal Government should aid State and local governments in planning their
own public works programs, in undertaking projects related to Federal
programs of regional development, and in constructing such public works as
are necessary to carry out the various policies of the Federal Government.

Early in 1945 the Congress made available advances to State and local
governments for planning public works projects, and recently made
additional provision to continue these advances through the fiscal year
1946. I believe that further appropriations will be needed for the same
purpose for the fiscal year 1947.

The Congress has already made provision for highway programs. It is now
considering legislation which would expand Federal grants and loans in
several other fields, including construction of airports, hospital and
health centers, housing, water pollution control facilities, and
educational plant facilities. I hope that early action will be taken to
authorize these Federal programs.

With respect to public works of strictly local importance, State and local
governments should proceed without Federal assistance except in planning.
This rule should be subject to review when and if the prospect of highly
adverse general economic developments warrants it.

All loans and grants for public works should be planned and administered in
such a way that they are brought into accord with the other elements of the
Federal Program.

Our long-run objective is to achieve a program of direct Federal and
Federally assisted public works which is planned in advance and
synchronized with business conditions. In this way it can make its greatest
contribution to general economic stability.

(1) National housing program.

Last September I stated in my message to the Congress that housing was high
on the list of matters calling for decisive action.

Since then the housing shortage in countless communities, affecting
millions of families, has magnified this call to action.

Today we face both an immediate emergency and a major postwar problem.

Since VJ-day the wartime housing shortage has been growing steadily worse
and pressure on real estate values has increased. Returning veterans often
cannot find a satisfactory place for their families to live, and many who
buy have to pay exorbitant prices. Rapid demobilization inevitably means
further overcrowding.

A realistic and practical attack on the emergency will require aggressive
action by local governments, with Federal aid, to exploit all opportunities
and to give the veterans as far as possible first chance at vacancies. It
will require continuation of rent control in shortage areas as well as
legislation to permit control of sales prices. It will require maximum
conversion of temporary war units for veterans' housing and their
transportation to communities with the most pressing needs; the Congress
has already appropriated funds for this purpose.

The inflation in the price of housing is growing daily.

As a result of the housing shortage, it is inevitable that the present
dangers of inflation in home values will continue unless the Congress takes
action in the immediate future.

Legislation is now pending in the Congress which would provide for ceiling
prices for old and new houses. The authority to fix such ceilings is
essential. With such authority, our veterans and other prospective home
owners would be protected against a skyrocketing of home prices. The
country would be protected from the extension of the present inflation in
home values which, if allowed to continue, will threaten not only the
stabilization program but our opportunities for attaining a sustained high
level of home construction.

Such measures are necessary stopgaps-but only stopgaps. This emergency
action, taken alone, is good--but not enough. The housing shortage did not
start with the war or with demobilization; it began years before that and
has steadily accumulated. The speed with which the Congress establishes the
foundation for a permanent, long-range housing program will determine how
effectively we grasp the immense opportunity to achieve our goal of decent
housing and to make housing a major instrument of continuing prosperity and
full employment in the years ahead. It will determine whether we move
forward to a stable and healthy housing enterprise and toward providing a
decent home for every American family.

Production is the only fully effective answer. To get the wheels turning, I
have appointed an emergency housing expediter. I have approved
establishment of priorities designed to assure an ample share of scarce
materials to builders of houses for which veterans will have preference.
Additional price and wage adjustments will be made where necessary, and
other steps will be taken to stimulate greater production of bottleneck
items. I recommend consideration of every sound method for expansion in
facilities for insurance of privately financed housing by the Federal
Housing Administration and resumption of previously authorized low-rent
public housing projects suspended during the war.

In order to meet as many demands of the emergency situation as possible, a
program of emergency measures is now being formulated for action. These
will include steps in addition to those already taken. As quickly as this
program can be formulated, announcement will be made.

Last September I also outlined to the Congress the basic principles for the
kind of decisive, permanent legislation necessary for a long-range housing
program.

These principles place paramount the fact that housing construction and
financing for the overwhelming majority of our citizens should be done by
private enterprise. They contemplate also that we afford governmental
encouragement to privately financed house construction for families of
moderate income, through extension of the successful system of insurance of
housing investment; that research be undertaken to develop better and
cheaper methods of building homes; that communities be assisted in
appraising their housing needs; that we commence a program of Federal aid,
with fair local participation, to stimulate and promote the rebuilding and
redevelopment of slums and blighted areas--with maximum use of private
capital. It is equally essential that we use public funds to assist
families of low income who could not otherwise enjoy adequate housing, and
that we quicken our rate of progress in rural housing.

Legislation now under consideration by the Congress provides for a
comprehensive attack jointly by private enterprise, State and local
authorities, and the Federal Government. This legislation would make
permanent the National Housing Agency and give it authority and funds for
much needed technical and economic research. It would provide additional
stimulus for privately financed housing construction. This stimulus
consists of establishing a new system of yield insurance to encourage
large-scale investment in rental housing and broadening the insuring powers
of the Federal Housing Administration and the lending powers of the Federal
savings and loan associations.

Where private industry cannot build, the Government must step in to do the
job. The bill would encourage expansion in housing available for the lowest
income groups by continuing to provide direct subsidies for low-rent
housing and rural housing. It would facilitate land assembly for urban
redevelopment by loans and contributions to local public agencies where the
localities do their share.

Prompt enactment of permanent housing legislation along these lines will
not interfere with the emergency action already under way. On the contrary,
it would lift us out of a potentially perpetual state of housing emergency.
It would offer the best hope and prospect to millions of veterans and other
American families that the American system can offer more to them than
temporary makeshifts.

I have said before that the people of the United States can be the best
housed people in the world. I repeat that assertion, and I welcome the
cooperation of the Congress in achieving that goal.

(j) Social security and health.

Our Social Security System has just celebrated its tenth anniversary.
During the past decade this program has supported the welfare and morale of
a large part of our people by removing some of the hazards and hardships of
the aged, the unemployed, and widows and dependent children.

But, looking back over 10 years' experience and ahead to the future, we
cannot fail to see defects and serious inadequacies in our system as it now
exists. Benefits are in many cases inadequate; a great many persons are
excluded from coverage; and provision has not been made for social
insurance to cover the cost of medical care and the earnings lost by the
sick and the disabled.

In the field of old-age security, there seems to be no adequate reason for
excluding such groups as the self-employed, agricultural and domestic
workers, and employees of nonprofit organizations. Since many of these
groups earn wages too low to permit significant savings for old age, they
are in special need of the assured income that can be provided by old-age
insurance.

We must take urgent measures for the readjustment period ahead. The
Congress for some time has been considering legislation designed to
supplement at Federal expense, during the immediate reconversion period,
compensation payments to the unemployed. Again I urge the Congress to enact
legislation liberalizing unemployment compensation benefits and extending
the coverage. Providing for the sustained consumption by the unemployed
persons and their families is more than a welfare policy; it is sound
economic policy. A sustained high level of consumer purchases is a basic
ingredient of a prosperous economy.

During the war, nearly 5 million men were rejected for military service
because of physical or mental defects which in many cases might have been
prevented or corrected. This is shocking evidence that large sections of
the population are at substandard levels of health. The need for a program
that will give everyone opportunity for medical care is obvious. Nor can
there be any serious doubt of the Government's responsibility for helping
in this human and social problem.

The comprehensive health program which I recommended on November 19, 1945,
will require substantial additions to the Social Security System and, in
conjunction with other changes that need to be made, will require further
consideration of the financial basis for social security. The system of
prepaid medical care which I have recommended is expected eventually to
require amounts equivalent to 4 percent of earnings up to $3,600 a year,
which is about the average of present expenditures by individuals for
medical care. The pooling of medical costs, under a plan which permits each
individual to make a free choice of doctor and hospital, would assure that
individuals receive adequate treatment and hospitalization when they are
faced with emergencies for which they cannot budget individually. In
addition, I recommended insurance benefits to replace part of the earnings
lost through temporary sickness and permanent disability.

Even without these proposed major additions, it would now be time to
undertake a thorough reconsideration of our social security laws. The
structure should be expanded and liberalized. Provision should be made for
extending coverage credit to veterans for the period of their service in
the armed forces. In the financial provisions we must reconcile the
actuarial needs of social security, including health insurance, with the
requirements of a revenue system that is designed to promote a high level
of consumption and full employment.

(k) Education.

Although the major responsibility for financing education rests with the
States, some assistance has long been given by the Federal Government.
Further assistance is desirable and essential. There are many areas and
some whole States where good schools cannot be provided without imposing an
undue local tax burden on the citizens. It is essential to provide adequate
elementary and secondary schools everywhere, and additional educational
opportunities for large numbers of people beyond the secondary level.
Accordingly, I repeat the proposal of last year's Budget Message that the
Federal Government provide financial aid to assist the States in assuring
more nearly equal opportunities for a good education. The proposed Federal
grants for current educational expenditures should be made for the purpose
of improving the educational system where improvement is most needed. They
should not be used to replace existing non-Federal expenditures, or even to
restore merely the situation which existed before the war.

In the future we expect incomes considerably higher than before the war.
Higher incomes should make it possible for State and local governments and
for individuals to support higher and more nearly adequate expenditures for
education. But inequality among the States will still remain, and Federal
help will still be needed.

As a part of our total public works program, consideration should be given
to the need for providing adequate buildings for schools and other
educational institutions. In view of current arrears in the construction of
educational facilities, I believe that legislation to authorize grants for
educational facilities, to be matched by similar expenditures by State and
local authorities, should receive the favorable consideration of the
Congress.

The Federal Government has not sought, and will not seek, to dominate
education in the States. It should continue its historic role of leadership
and advice and, for the purpose of equalizing educational opportunity, it
should extend further financial support to the cause of education in areas
where this is desirable.

(l) Federal Government personnel.

The rapid reconversion of the Federal Government from war to peace is
reflected in the demobilization of its civilian personnel. The number of
these employees in continental United States has been reduced by more than
500,000 from the total of approximately 2,900,000 employed in the final
months of the war. I expect that by next June we shall have made a further
reduction of equal magnitude and that there will be continuing reductions
during the next fiscal year. Of the special wartime agencies now remaining,
only a few are expected to continue actively into the next fiscal year.

At the same time that we have curtailed the number of employees, we have
shortened the workweek by one-sixth or more throughout the Government and
have restored holidays. The process of readjustment has been complicated
and costs have been increased by a heavy turn-over in the remaining
personnel--particularly by the loss of some of our best administrators.
Thousands of war veterans have been reinstated or newly employed in the
civil service. Many civilians have been transferred from war agencies to
their former peacetime agencies. Recruitment standards, which had to be
relaxed during the war, are now being tightened.

The elimination last autumn of overtime work for nearly all Federal
employees meant a sharp cut in their incomes. For salaried workers, the
blow was softened but by no means offset by the increased rates of pay
which had become effective July 1. Further adjustments to compensate for
increased living costs are required. Moreover, we have long needed a
general upward revision of Federal Government salary scales at all levels
in all branches--legislative, judicial, and executive. Too many in
Government have had to sacrifice too much in economic advantage to serve
the Nation.

Adequate salaries will result in economies and improved efficiency in the
conduct of Government business--gains that will far outweigh the immediate
costs. I hope the Congress will expedite action on salary legislation for
all Federal employees in all branches of the Government. The only exception
I would make is in the case of workers whose pay rates are established by
wage boards; a blanket adjustment would destroy the system by which their
wages are kept aligned with prevailing rates in particular localities. The
wage boards should be sensitive now, as they were during the war, to
changes in local prevailing wage rates and should make adjustments
accordingly.

I hope also that the Congress may see fit to enact legislation for the
adequate protection of the health and safety of Federal employees, for
their coverage under a system of unemployment compensation, and for their
return at Government expense to their homes after separation from wartime
service.

(m) Territories, insular possessions, and the District of Columbia.

The major governments of the world face few problems as important and as
perplexing as those relating to dependent peoples. This Government is
committed to the democratic principle that it is for the dependent peoples
themselves to decide what their status shall be. To this end I asked the
Congress last October to provide a means by which the people of Puerto Rico
might choose their form of government and ultimate status with respect to
the United States. I urge, too, that the Congress promptly accede to the
wishes of the people of Hawaii that the Territory be admitted to statehood
in our Union, and that similar action be taken with respect to Alaska as
soon as it is certain that this is the desire of the people of that great
Territory. The people of the Virgin Islands should be given an increasing
measure of self-government.

We have already determined that the Philippine Islands are to be
independent on July 4, 1946. The ravages of war and enemy occupation,
however, have placed a heavy responsibility upon the United States. I urge
that the Congress complete, as promptly and as generously as may be
possible, legislation which will aid economic rehabilitation for the
Philippines. This will be not only a just acknowledgment of the loyalty of
the people of the Philippines, but it will help to avoid the economic chaos
which otherwise will be their heritage from our common war. Perhaps no
event in the long centuries of colonialism gives more hope for the pattern
of the future than the independence of the Philippines.

The District of Columbia, because of its special relation to the Federal
Government, has been treated since 1800 as a dependent area. We should move
toward a greater measure of local self-government consistent with the
constitutional status of the District. We should take adequate steps to
assure that citizens of the United States are not denied their franchise
merely because they reside at the Nation's Capital.

III. THE BUDGET FOR THE FEDERAL PROGRAM

FOR THE FISCAL YEAR 1947

SUMMARY OF THE BUDGET

For the first time since the fiscal year 1930 the Budget for the next
fiscal year will require no increase in the national debt.

Expenditures of all kinds, authorized and recommended, in the next year are
estimated at just above 35.8 billion dollars. Net receipts are estimated at
31.5 billion dollars. The estimated difference of 4.3 billion dollars will
be met by a reduction in the very substantial balance which will be in the
Treasury during the next fiscal year.

A large part of the activities outside defense and war liquidation,
aftermath of war, and international finance, classified as "other
activities" in a following table, is still due to repercussions of the war.
These "other activities" include more than 2 billion dollars for aids to
agriculture and net outlays for the Commodity Credit Corporation-almost
double the expenditures for the same purposes in prewar years. This
increase is due mainly to expenditures for purposes of price stabilization
and price support resulting from the war food production program. Other
increases in this category are due to the fact that certain wartime
agencies now in the process of liquidation are included in this group of
activities. If all expenditures for those activities which are directly or
indirectly related to the war are excluded, the residual expenditures are
below those for corresponding activities in prewar years. In making this
comparison account should be taken of the fact that, while prewar
expenditures were affected by direct relief and work relief for the
unemployed, the postwar budgets are affected by the considerable increase
in pay rates and other increases in costs and prices.

To elaborate, the Budget, as I have remarked above, reflects on both sides
of the ledger the Government's program as recommended by the Executive. It
includes estimates not only of expenditures and receipts for which
legislative authority already exists, but also of expenditures and receipts
for which authorization is recommended.

The Budget total for the next fiscal year, the year that ends on June 30,
1947, is estimated at just above 35.8 billion dollars-about a third of the
budgets for global war, although nearly four times the prewar budgets. This
estimate is based on the assumption that a rapid liquidation of the war
program will be associated with rapid reconversion and expansion of
peacetime production. The total includes net outlays of Government
corporations.

The estimated expenditures in the next and current fiscal year compare as
follows with those of a year of global war and a prewar year:

Total Budget expenditures

Fiscal year: (in millions)

1947 $35, 860

1946 67,229

1945 100, 031

1940 9,252

Although allowances for occupation, demobilization, and defense are
drastically reduced in the fiscal year 1947, they will still amount to 42
percent of the total Budget. The so-called "aftermath of war" expenditures
account for a further 30 percent of the total. The total of all other
programs, which was drastically cut during the war, is increasing again as
liquidation of the war program proceeds and renewed emphasis is placed on
the peacetime objectives of the Government.

On the other side of the ledger, net receipts are estimated at 31.5 billion
dollars. This estimate assumes that all existing taxes will continue all
through the fiscal year 1947. Included are the extraordinary receipts from
the disposal of surplus property.

As a result, estimated expenditures will exceed estimated receipts by 4.3
billion dollars. This amount can be provided by a reduction in the cash
balance in the Treasury. Thus, after a long period of increasing public
debt resulting from depression budgets and war budgets, it is anticipated
that no increase in the Federal debt will be required next year.

FEDERAL BUDGET EXPENDITURES AND BUDGET RECEIPTS

Including net outlays of Government corporations and credit agencies (based
on existing and proposed legislation)

Fiscal year

Expenditures: 1946 1947

Defense, war, and war liquidation $49,000 $15,000

Aftermath of war: Veterans, interest, refunds 10,813 10,793

International finance (including proposed legislation) 2,614 2,754

Other activities 4,552 5,813

Activities based on proposed legislation

(excluding international finance) 2501,500

Total expenditures 67, 229 35, 860

Receipts (net) 38, 60931,513

Excess of expenditures 28,620 4,347

The current fiscal year, 1946, is a year of transition. When the year
opened, in July 1945, we were still fighting a major war, and Federal
expenditures were running at an annual rate of about 100 billion dollars.
By June 1946 that rate will be more than cut in half. The Budget total for
the current fiscal year is now estimated at 67.2 billion dollars, of which
more than two-thirds provides for war and war liquidation. Since net
receipts are estimated at 38.6 billion dollars, there will be an excess of
expenditures of 28.6 billion dollars for the current fiscal year.

For all programs discussed in this Message I estimate the total of Budget
appropriations and authorizations (including reappropriations and permanent
appropriations) at 30,982 million dollars for the fiscal year 1947. Of this
amount, present permanent appropriations are expected to provide 5,755
million dollars, principally for interest. This leaves 24,224 million
dollars to be made available through new appropriations, exclusive of
appropriations to liquidate contract authorizations; 900 million dollars in
new contract authorizations; and 103 million dollars through the
reappropriation of unliquidated balances of previous appropriations. The
appropriations needed to liquidate contract authorizations are estimated at
1,113 million dollars.

In the Budget for the year ahead only over-all estimates are included at
this time for the major war agencies and for net outlays of Government
corporations. Detailed recommendations will be transmitted in the spring
for the war agencies; and the business-type budgets of Government
corporations will likewise be transmitted in accordance with the recently
adopted Government Corporation Control Act.

Similarly, only over-all estimates are provided for new programs
recommended in this Message; detailed recommendations will be transmitted
after authorizing legislation has been enacted. It should be recognized
that many of the estimates for new programs recommended in this Message are
initial year figures. These figures will be affected by the date the
legislation is enacted and by the time needed for getting a program under
way. New programs, such as that for a national research agency, will
require larger amounts in later years. The estimates exclude major elements
of the proposed national health program since the greater part of these
will be covered by expenditures from trust funds.

The Budget total includes expenditures for capital outlay as well as for
current operations. An estimated 1,740 million dollars will be expended in
the fiscal year 1947 for direct Federal public works and for loans and
grants for public works.

THE ECONOMIC IMPACT Of THE LIQUIDATION

OF THE WAR PROGRAM

Government programs are of such importance in the development of production
and employment opportunities--domestic and international--that it has
become essential to formulate and consider the Federal Budget in the light
of the Nation's budget as a whole. The relationship between the receipts,
expenditures, and savings of consumers, business, and government is shown
in the accompanying table.

Considering the whole Nation, total expenditures must equal the total
receipts, because what any individual or group spends becomes receipts of
other individuals or groups. Such equality can be achieved on either a high
level of incomes or on a low or depression level of incomes.

Tremendous orders for munitions during the war shifted production and
employment into high gear. Total goods produced and services rendered for
private as well as for Government purposes--the Nation's budget-reached
about 200 billion dollars in the calendar year 1944. Federal, State, and
local government expenditures represented half of this total.

Corresponding estimates for the past 3 months depict the national economy
in the process of demobilization and reconversion.

The wartime annual rate of Federal expenditures has been reduced by 32
billion dollars, while the Nation's budget total has dropped only half as
much. The drop in total value of production and services has been less
drastic because increasing private activities have absorbed in large
measure the manpower and materials released from war production and war
services.

The largest increase in private activities has occurred in business
investments, which include residential and other construction, producers'
durable equipment, accumulation of inventories, and net exports. Under
conditions of global war, expenditures for private construction and
equipment were held to a minimum and inventories were depleted. With the
beginning of reconversion these developments have been reversed.
Residential construction and outlays for plant and equipment are on the
increase; inventories, too, are being replenished. International
transactions (excluding lend-lease and international relief which are
included under war expenditures) showed an import surplus under conditions
of global war. In the past 3 months private exports have been slightly in
excess of imports, for the first time since 1941.

Consumers' budgets show a significant change. On the income side, their
total has declined but little because the reduction in "take-home" pay of
war workers is, to a large extent, offset for the time being by the
mustering-out payments received by war veterans and by unemployment
compensation received by the unemployed. On the expenditure side, however,
consumers' budgets, restricted during the war, have in creased
substantially as a result of the fact that scarce goods are beginning to
appear on the market and wartime restraints are disappearing. Thus,
consumers' current savings are declining substantially from the
extraordinarily high wartime rate and some wartime savings are beginning to
be used for long-delayed purchases.

THE GOVERNMENT'S BUDGET AND THE NATION'S BUDGET

Calendar year 1944 and October-December 1945

Oct.-Dec. 1945 (start of

reconversion) (in seasonally

Calendar Year 1944 (global war) adjusted annual rates)

______________________ ____________________

Excess Excess

Expendi- (+), def- Expendi- (+),def-

Economic Group Receipts tures icit(-) Receipts tures icit(-) CONSUMERS

Income after taxes $134 ....... ...... $132 ...... .......

Expenditures ......$98............$107 .......

Excess of receipts, savings (+) ...... ...... +$35 ...... ...... +$25
BUSINESS

Undistributed profits and reserves $13 ...... ...... $9 ...... ......

Gross capital formation:

Domestic ...... $4 ...... ...... $15 ......

Net exports1 ......--2............1......

Total, gross capital formation ......2............16......

Excess of receipts (+) or capital

formation (--) ...... ...... +$11 ...... ...... --$7

STATE AND LOCAL GOVERNMENT

Receipts from the public, other

than borrowing $10 ...... ...... $11 ...... ......

Payments to the public ...... $8............$9......

Excess of receipts (+) ............+$2............+$2

FEDERAL GOVERNMENT

Receipts from the public, other

than borrowing $48 ...... ....... $44 ...... ......

Payments to the public ......$96 .............$64......

Excess of payments (--) ............--$48............. --$20

Less: Adjustments2 $7 $7 ....... $14 $14 .......

TOTAL: GROSS NATIONAL PRODUCT

Receipts $198 ....... ...... $182 ...... ......

Expenditures ......$198............ $182......

Balance ...... ...... 0 ...... ...... ......

1 Excludes exports for lend-lease and relief which are included in Federal
Government expenditures.

2 Mainly government expenditures for other than goods and services, such as
mustering-out pay and unemployment compensation.

Unemployment has increased less than was expected during this first period
of demobilization and reconversion. It is true that 6 million men and women
have been discharged from the armed forces since May 1945 and more than 5
million have been laid off from war work. On the other hand, more than a
million civilians have been enlisted in the armed forces, a considerable
number of war veterans have not immediately sought jobs, and many war
workers, especially women, have withdrawn from the labor force. In
addition, many industries, and especially service trades which were
undermanned during the war, are beginning now, for the first time in years,
to recruit an adequate labor force. The reduced workweek has also
contributed to the absorption of those released from war service and war
work.

In general, the drastic cut in war programs has thrown the economy into
lower gear; it has not thrown it out of gear. Our economic machine
demonstrates remarkable resiliency, although there are many difficulties
that must still be overcome. The rapid termination of war contracts, prompt
clearance of unneeded Government-owned equipment from private plants, and
other reconversion policies have greatly speeded up the beginning of
peacetime work in reconverted plants.

Although the first great shock of demobilization and war-work termination
has thus been met better than many observers expected, specific industries
and specific regions show much unevenness in the progress of reconversion.

The Quarterly Report of the Director of War Mobilization and Reconversion
analyzes the difficulties in recruiting personnel and obtaining materials
that hamper reconversion in certain industries and proposes policies to
deal with these situations. The lack of adequate housing is one of the main
factors checking the flow of workers into areas where job opportunities
exist.

FEDERAL REVENUE, BORROWING, AND THE

PUBLIC DEBT

I. FINANCIAL REQUIREMENTS AND TAX POLICY

Recommendations for tax legislation should be considered not only in the
light of the financial requirements of the ensuing year, but also in the
light of future years' financial requirements and a full consideration of
economic conditions.

Expenditures are estimated at nearly 36 billion dollars in the fiscal year
1947; they can hardly be expected to be reduced to less than 25 billion
dollars in subsequent years. Net receipts in the fiscal year 1947 are
estimated at 31.5 billion dollars.

Included in this estimate are 2 billion dollars of receipts from disposal
and rental of surplus property and 190 million dollars of receipts from
renegotiation of wartime contracts. These sources of receipts will
disappear in future years. Tax collections for the fiscal year 1947 also
will not yet fully reflect the reduction in corporate tax liabilities
provided in the Revenue Act of 1945. If the extraordinary receipts from the
disposal of surplus property and renegotiation of contracts be disregarded,
and if the tax reductions adopted in the Revenue Act of 1945 were fully
effective, present tax rates would yield about 27 billion dollars.

These estimates for the fiscal year 1947 are based on the assumption of
generally favorable business conditions but not on an income reflecting
full employment and the high productivity that we hope to achieve. In
future years the present tax system, in conjunction with a full employment
level of national income, could be expected to yield more than 30 billion
dollars, which is substantially above the anticipated peacetime level of
expenditures.

In view of the still extraordinarily large expenditures in the coming year
and continuing inflationary pressures, I am making no recommendation for
tax reduction at this time.

We have already had a substantial reduction in taxes from wartime peaks.
The Revenue Act of 1945 was a major tax-reduction measure. It decreased the
total tax load by more than one-sixth, an amount substantially in excess of
the reductions proposed by the Secretary of the Treasury to congressional
tax committees in October 1945. These proposed reductions were designed to
encourage reconversion and peacetime business expansion.

The possibility of further tax reductions must depend on the budgetary
situation and the economic situation. The level of anticipated expenditures
for the fiscal year 1947 and the volume of outstanding public debt require
the maintenance of large revenues.

Moreover, inflationary pressures still appear dangerously powerful, and
ill-advised tax reduction would operate to strengthen them still further.

My decision not to recommend additional tax reductions at this time is made
in the light of existing economic conditions and prospects.

2. BORROWING AND THE PUBLIC DEBT

The successful conclusion of the Victory loan marked the end of war
borrowing and the beginning of the transition to postwar debt management.

Because of the success of the Victory loan, I am happy to report that the
Treasury will not need to borrow any new money from the public during the
remainder of the present fiscal year except through regular sales of
savings bonds and savings notes. Furthermore, a part of the large cash
balance now in the Treasury will be used for debt redemption so that the
public debt which now amounts to about 278 billion dollars will decrease by
several billion dollars during the next 18 months. The present statutory
debt limit of 300 billion dollars will provide an ample margin for all of
the public-debt transactions through the fiscal year 1947. The net effect
of the excess of expenditures and debt redemption on the Treasury cash
balance, as compared with selected previous years, is shown in the
following table:

EXCESS Of BUDGET EXPENDITURES, THE PUBLIC DEBT, AND THE TREASURY CASH
BALANCE IN SELECTED YEARS

Excess of At end of period

Budget ex- _____________________

penditures Public Cash bal-

Fiscal Year over receipts debt ance

1940 $3. 9 $43. 0 $1. 9

1945 53. 6 258. 7 24. 7 1946:

July-Dec. 1945 18. 1 278. 1 26. 0

Jan.-June 1946 10. 5 275. 0 11. 9

1947 4. 3 271. 0 3. 2

Although the public debt is expected to decline, a substantial volume of
refinancing will be required, because of the large volume of maturing
obligations. Redemptions of savings bonds also have been running high in
recent months and are expected to remain large for some time. The issuance
of savings bonds will be continued. These bonds represent a convenient
method of investment for small savers, and also an anti-inflationary method
of refinancing. Government agencies and trust funds are expected to buy
about 2.5 billion dollars of Government securities during the next 6
months, and 2.8 billion dollars more during the fiscal year 1947. Through
these and other debt operations, the distribution of the Federal debt among
the various types of public and private owners will change, even though the
total is expected to decline.

The interest policies followed in the refinancing operations will have a
major impact not only on the provision for interest payments in future
budgets, but also on the level of interest rates prevailing in private
financing. The average rate of interest on the debt is now a little under 2
percent. Low interest rates will be an important force in promoting the
full production and full employment in the postwar period for which we are
all striving. Close wartime cooperation between the Treasury Department and
the Federal Reserve System has made it possible to finance the most
expensive war in history at low and stable rates of interest. This
cooperation will continue.

No less important than the level of interest rates paid on the debt is the
distribution of its ownership. Of the total debt, more than half represents
direct savings of individuals or investments of funds received from
individual savings by life insurance companies, mutual savings banks,
savings and loan associations, private or Government trust funds, and other
agencies.

Most of the remaining debt--more than 100 billion dollars--is held by the
commercial banks and the Federal Reserve banks. Heavy purchases by the
banks were necessary to provide adequate funds to finance war expenditures.
A considerable portion of these obligations are short-term in character and
hence will require refinancing in the coming months and years. Since they
have been purchased out of newly created bank funds, continuance of the
present low rates of interest is entirely appropriate. To do otherwise
would merely increase bank profits at the expense of the taxpayer.

The 275-billion dollar debt poses a problem that requires careful
consideration in the determination of financial and economic policies. We
have learned that the problem, serious as it is, can be managed. Its
management will require determined action to keep our Federal Budget in
order and to relate our fiscal policies to the requirements of an expanding
economy. The more successful we are in achieving full production and full
employment the easier it will be to manage the debt and pay for the debt
service. Large though the debt is, it is within our economic capacity. The
interest charges on it amount to but a small proportion of our national
income. The Government is determined, by a resolute policy of economic
stabilization, to protect the interests of the millions of American
citizens who have invested in its securities.

During the past 6 months the net revenue receipts of the Federal Government
have been about 20 billion dollars, almost as much as during the closing 6
months of 1944 when the country was still engaged in all-out warfare. The
high level of these receipts reflects the smoothness of the reconversion
and particularly the strength of consumer demand. But the receipts so far
collected, it must be remembered, do not reflect any of the tax reductions
made by the Revenue Act of 1945. These reductions will not have their full
effect on the revenue collected until the fiscal year 1948.

It is good to move toward a balanced budget and a start on the retirement
of the debt at a time when demand for goods is strong and the business
outlook is good. These conditions prevail today. Business is good and there
are still powerful forces working in the direction of inflation. This is
not the time for tax reduction.

RECOMMENDATIONS FOR SPECIFIC FEDERAL ACTIVITIES

1. WAR LIQUIDATION AND NATIONAL DEFENSE

(a) War expenditures.

The fiscal year 1947 will see a continuance of war liquidation and
occupation. During this period we shall also lay the foundation for our
peacetime system of national defense.

In the fiscal year that ended on June 30, 1945, almost wholly a period of
global warfare, war expenditures amounted to 90.5 billion dollars. For the
fiscal year 1946 war expenditures were originally estimated at 70 billion
dollars. That estimate was made a year ago while we were still engaged in
global warfare. After victory over Japan this estimate was revised to 50.5
billion dollars. Further cut-backs and accelerated demobilization have made
possible an additional reduction in the rate of war spending. During the
first 6 months 32.9 billion dollars were spent. It is now estimated that
16.1 billion dollars will be spent during the second 6 months, or a total
of 49 billion dollars during the whole fiscal year.

For the fiscal year 1947 it is estimated, tentatively, that expenditures
for war liquidation, for occupation, and for national defense will be
reduced to 15 billion dollars. The War and Navy Departments are expected to
spend 13 billion dollars; expenditures of other agencies, such as the
United States Maritime Commission, the War Shipping Administration, and the
Office of Price Administration, and payments to the United Nations Relief
and Rehabilitation Administration are estimated at 3 billion dollars.
Allowing for estimated net receipts of 1 billion dollars arising from war
activities of the Reconstruction finance Corporation, the estimated total
of war expenditures is 15 billion dollars. At this time only a tentative
break-down of the total estimate for war and defense activities can be
indicated.

An expenditure of 15 billion dollars for war liquidation, occupation, and
national defense is a large sum for a year which begins 10 months after
fighting has ended. It is 10 times our expenditures for defense before the
war; it amounts to about 10 percent of our expected national income. This
estimate reflects the immense job that is involved in winding up a global
war effort and stresses the great responsibility that victory has placed
upon this country. The large expenditures needed for our national defense
emphasize the great scope for effective organization in furthering economy
and efficiency. To this end I have recently recommended to the Congress
adoption of legislation combining the War and Navy Departments into a
single Department of National Defense.

A large part of these expenditures is still to be attributed to the costs
of the war. Assuming, somewhat arbitrarily, that about one-half of the
15-billion-dollar outlay for the fiscal year 1947 is for war liquidation,
aggregate expenditures by this Government for the second World War are now
estimated at 347 billion dollars through June 30, 1947. Of this, about 9
billion dollars will have been recovered through renegotiation and sale of
surplus property by June 30, 1947; this has been reflected in the estimates
of receipts.

Demobilization and strength of armed forces.--Demobilization of our armed
forces is proceeding rapidly. At the time of victory in Europe, about 12.3
million men and women were in the armed forces; 7.6 million were overseas.
By the end of December 1945 our armed forces had been reduced to below 7
million. By June 30, 1946, they will number about 2.9 million, of whom 1.8
million will be individuals enlisted and inducted after VE-day.
Mustering-out pay is a large item of our war liquidation expense; it will
total 2.5 billion dollars in the fiscal year 1946, and about 500 million
dollars in the fiscal year 1947.

In the fiscal year 1947 the strength of our armed forces will still be
above the ultimate peacetime level. As I have said, War and Navy Department
requirements indicate a strength of about 2 million in the armed forces a
year from now. This is necessary to enable us to do our share in the
occupation of enemy territories and in the preservation of peace in a
troubled world. Expenditures for pay, subsistence, travel, and
miscellaneous expenses of the armed forces, excluding mustering-out pay,
are estimated at 5 billion dollars.

Contract settlement and surplus property disposal.--The winding up of war
procurement is the second most important liquidation job. By the end of
November a total of 301,000 prime contracts involving commitments of 64
billion dollars had been terminated. Of this total, 67,000 contracts with
commitments of 35 billion dollars remained to be settled. Termination
payments on these contracts are estimated at about 3.5 billion dollars. It
is expected that more than half of these terminated contracts will be
settled during the current fiscal year, leaving payments of about 1.5
billion dollars for the fiscal year 1947.

Another important aspect of war supply liquidation is the disposal of
surplus property. Munitions, ships, plants, installations, and supplies,
originally costing 50 billion dollars or more, will ultimately be declared
surplus. The sale value of this property will be far less than original
cost and disposal expenses are estimated at 10 to 15 cents on each dollar
realized. Disposal units within existing agencies have been organized to
liquidate surplus property under the direction of the Surplus Property
Administration. Overseas disposal activities have been centralized in the
State Department to permit this program to be carried on in line with
over-all foreign policy. Thus far only about 13 billion dollars of the
ultimate surplus, including 5 billion dollars of unsalable aircraft, has
been declared. Of this amount, 2.3 billion dollars have been disposed of,
in sales yielding 600 million dollars. The tremendous job of handling
surplus stocks will continue to affect Federal expenditures and receipts
for several years. The speed and effectiveness of surplus disposal
operations will be of great importance for the domestic economy as well as
for foreign economic policies.

War supplies, maintenance, and relief.-Adequate provision for the national
defense requires that we keep abreast of scientific and technical advances.
The tentative estimates for the fiscal year 1947 make allowance for
military research, limited procurement of weapons in the developmental
state, and some regular procurement of munitions which were developed but
not mass-produced when the war ended. Expenditures for procurement and
construction will constitute one-third or less of total defense outlays,
compared to a ratio of two-thirds during the war years.

The estimates also provide for the maintenance of our war-expanded naval
and merchant fleets, military installations, and stocks of military
equipment and supplies. Our naval combatant fleet is three times its
pre-Pearl Harbor tonnage. Our Merchant Marine is five times its prewar
size. The War Department has billions of dollars worth of equipment and
supplies. Considerable maintenance and repair expense is necessary for the
equipment which we desire to retain in active status or in war reserve.
Expenses will be incurred for winnowing the stocks of surpluses, for
preparing lay-up facilities for the reserve fleets, and for storage of
reserve equipment and supplies.

Military expenditures .in the current fiscal year include 650 million
dollars for civilian supplies for the prevention of starvation and disease
in occupied areas. Expenditures on this account will continue in the fiscal
year 1947. The war expenditures also cover the expenses of civilian
administration in occupied areas.

During the war, 15 cents of each dollar of our war expenditures was for
lend-lease aid. With lend-lease terminated, I expect the direct operations
under this program to be substantially completed in the current fiscal
year. The expenditures estimated for the fiscal year 1947 under this
program are mainly interagency reimbursements for past transactions.

Relief and rehabilitation expenditures are increasing. It is imperative
that we give all necessary aid within our means to the people who have
borne the ravages of war. I estimate that in the fiscal year 1946
expenditures for the United Nations Relief and Rehabilitation
Administration will total 1.3 billion dollars and in the following year 1.2
billion dollars. Insofar as possible, procurement for this purpose will be
from war surpluses.

(b) Authorizations for war and national defense.

During the war, authorizations and appropriations had to be enacted well in
advance of obligation and spending to afford ample time for planning of
production by the procurement services and by industry. Thus our cumulative
war program authorized in the period between July 1, 1940, and July 1,
1945, was 431 billion dollars, including net war commitments of Government
corporations. Expenditures against those authorizations totaled 290 billion
dollars. This left 141 billion dollars in unobligated authorizations and
unliquidated obligations.

With the end of fighting, it became necessary to adjust war authorizations
to the requirements of war liquidation and continuing national defense.
Intensive review of the war authorizations by both the executive and the
legislative branches has been continued since VJ-day. As a result, the
authorized war program is being brought more nearly into line with
expenditures.

Recisions and authorizations through the fiscal year 1946.--Readjusting the
war program, as the Congress well knows, is not an easy task.
Authorizations must not be too tight, lest we hamper necessary operations;
they must not be too ample, lest we lose control of spending. Last
September, I transmitted to the Congress recommendations on the basis of
which the Congress voted H.R. 4407 to repeal 50.3 billion dollars of
appropriations and authorizations. I found it necessary to veto this bill
because it was used as a vehicle for legislation that would impair the
reemployment program. However, in order to preserve the fine work of the
Congress on the recisions, I asked the Director of the Bureau of the Budget
to place the exact amounts indicated for repeal in a nonexpendable reserve,
and to advise the departments and agencies accordingly. This has been
done.

In accord with Public Law 132 of the Seventy-ninth Congress, I have
transmitted recommendations for additional rescissions for the current
fiscal year of appropriations amounting to 5.8 billion dollars and of
contract authorizations totaling 420 million dollars. The net reduction in
authority to obligate will be 5.0 billion dollars, because, of the
appropriations, 1.2 billion dollars will have to be restored in subsequent
years to liquidate contract authorizations still on the books.

The appropriations recommended for repeal include 2,827 million dollars for
the Navy Department, 1,421 million dollars for the War Department, 850
million dollars for lend-lease, 384 million dollars for the War Shipping
Administration, and 260 million dollars for the United States Maritime
Commission. The contract authorizations proposed for repeal are for the
Maritime Commission.

In addition, there are unused tonnage authorizations for construction of
naval vessels now valued at 5.4 billion dollars. In September 1945, I
suggested that this authority be reviewed by the appropriate committees of
the Congress, and the Congress has moved to bar construction under these
authorizations during the remainder of the fiscal year 1946. I propose to
continue this prohibition in the Navy budget estimates for the fiscal year
1947 and now renew my recommendation that legislation be enacted at the
earliest time to dear the statute books of these authorizations.

The amounts indicated for repeal in H.R. 4407 and the further rescissions
which I have recommended, excluding duplications and deferred cash payments
on existing authorizations, represent a cut in the authorized war program
of 60.8 billion dollars. The war authorizations will also be reduced 3'7
billion dollars by carrying receipts of revolving accounts to surplus, by
lapses, and by cancellation and repayment of commitments of the Government
war corporations.

On the other hand, supplemental appropriations of 600 million dollars will
be required for the United Nations Relief and Rehabilitation
Administration.

In the net, it is estimated that the cumulative authorized war and national
defense program will amount to 368 billion dollars on June 30, 1946.
Expenditures of 49 billion dollars during the fiscal year 1946 will have
pushed cumulative expenditures to 339 billion dollars. The unexpended
balances will be down to 28 billion dollars on June 30, 1946.

New authorizations for national defense and war liquidation in the fiscal
year 1947.-The expenditures of 15 billion dollars for national defense and
war liquidation in the fiscal year 1947 will be partly for payment of
contractual obligations incurred in the past, and partly for the payment of
new obligations. The unexpended balances on June 30, 1946, will be
scattered among hundreds of separate appropriations. Thus, while some
appropriation accounts will have unused balances, others will require
additional appropriations.

It is estimated that authorizations to incur new obligations of 11,772
million dollars will be needed during the fiscal year 1947, mainly for the
War and Navy Departments. Of the required authorizations, 11,365 million
dollars will be in new appropriations, 400 million dollars in new contract
authority, and 7 million dollars in reappropriations of unobligated
balances. In addition, appropriations of 825 million dollars will be needed
to liquidate obligations under existing contract authorizations.

Taking into account the tentative authorizations and expenditures estimated
for the fiscal year 1947, and offsets of 3 billion dollars in war
commitments of Government corporations, the cumulative authorized war and
national defense program on June 30, 1947, will be 376 billion dollars;
total expenditures, 354 billion dollars; and unexpended balances, 22
billion dollars.

The 22 billion dollars of unexpended balances tentatively indicated as of
June 30, 1947, comprise both unobligated authorizations and unliquidated
obligations. Most of the unliquidated obligations result from transactions
booked during the war years. A large part of the 22 billion dollars would
never be spent even if not repealed, for the appropriations will lapse in
due course. For example, several billion dollars of these unliquidated
obligations represent unsettled inter- and intra-departmental agency
accounts for war procurement. Legislation is being requested to facilitate
the adjustment of some of these inter-agency accounts. Another 6 billion
dollars is set aside for contract termination payments. If contract
settlement costs continue in line with recent experience, it is likely that
part of the 6 billion dollars will remain unspent.

On the other hand, some of the 22 billion dollars would be available for
obligation and expenditure unless impounded. In certain appropriations,
such as those for long-cycle procurement, considerable carry-over of
unliquidated obligations into future years is to be expected and is
necessary. However, substantial further rescissions can and should be made
when the war liquidation program tapers off and budgetary requirements for
national defense are clarified. As I have said, I shall continue to review
the war authorizations and from time to time recommend excess balances for
repeal.

As in recent years, detailed recommendations concerning most appropriations
for the national defense program are postponed until the spring. In
connection with the war activities of the United States Maritime Commission
and certain other agencies, however, I now make specific recommendations
for the fiscal year 1947. No additional authorizations or appropriations
will be necessary for the Maritime Commission since sufficient balances
will be left after the above-mentioned rescissions to carry out the program
now contemplated for the fiscal year 1947.

2. AFTERMATH OF WAR

Nearly one-third--11 billion dollars--of estimated Federal expenditures in
the fiscal year 1947 will be for purposes that are largely inherited from
the war--payments to veterans, interest on the Federal debt, and refunds of
taxes.

(a) For veterans.

"Veterans' pensions and benefits" has become one of the largest single
categories in the Federal Budget. I am recommending for this purpose total
appropriations of 4,787 million dollars for the fiscal year 1947.
Expenditures in the fiscal year are estimated, under present legislation,
at 4,208 million dollars. These expenditures will help our veterans through
their readjustment period and provide lasting care for those who were
disabled.

The Congress has provided unemployment allowances for veterans during their
readjustment period. Expenditure of 850 million dollars for this purpose is
anticipated for the fiscal year 1947. In addition, readjustment allowances
for self-employed veterans are expected to cost 340 million dollars in the
fiscal year 1947.

On May 28, 1945, in asking the Congress to raise the ceiling on benefits
for civilian unemployed to not less than 25 dollars a week during the
immediate reconversion period, I suggested that the Congress also consider
liberalizing veterans' allowances. Elsewhere in this Message I reiterate my
recommendation with respect to emergency unemployment compensation. I also
recommend increasing veterans' unemployment allowances from 20 dollars to
25 dollars a week. This would involve additional expenditures estimated at
approximately 220 million dollars for the fiscal year.

Included in the 1947 Budget is an expenditure of 535 million dollars for
veterans' education under provisions of the Servicemen's Readjustment Act.
This amount includes both tuition expenses and maintenance allowances. It
is expected that half a million veterans will be enrolled in our schools
and colleges during the year.

The ultimate benefit which veterans receive from the loan guarantee
provisions of the Servicemen's Readjustment Act depends largely on the
success of our stabilization program in restraining building costs and real
estate values. Under the revised procedure contained in recent amendments,
the administrative workload will be minimized by the almost complete
transfer of authority for approving the guarantees to private lending
agencies and private appraisers designated by the Veterans Administration.
This authority carries with it the responsibility for restricting the
guarantees to loans on reasonably valued properties. Costs of the program,
other than for administration, are estimated at 21 million dollars in the
fiscal year 1947.

Pensions for veterans will require expenditures estimated at 1,748 million
dollars for the fiscal year 1947. Two-thirds of this amount will be
received by veterans of the war which we have just won. This figure
includes 55 million dollars of increased pensions for student-veterans in
our vocational rehabilitation program. In addition, 170 million dollars
will be expended in transfers to the National Service Life Insurance fund
from general and special accounts.

Expenditures under the appropriation for salaries and expenses of the
Veterans Administration are estimated at 528 million dollars in the fiscal
year 1947. This includes 260 million dollars for medical care and the
operation of some 103,000 hospital and domiciliary beds.

A separate appropriation for hospital and domiciliary facilities,
additional to the total for veterans' pensions and benefits, covers
construction that will provide some 13,000 hospital beds as part of the
500-million dollar hospital construction program already authorized by the
Congress. The estimated expenditures of 130 million dollars for this
purpose are classified in the Budget as part of the general public works
program for the next fiscal year.

(b) For interest.

Interest payments on the public debt are estimated at 5 billion dollars in
the fiscal year 1947, an increase of 250 million dollars from the revised
estimate for the current fiscal year. This increase reflects chiefly
payment of interest on additions to the debt this year. Assuming
continuance of present interest rates, the Government's interest bill is
now reaching the probable postwar level.

(c) For refunds.

An estimated total of 1,585 million dollars of refunds will be paid to
individuals and corporations during the fiscal year 1947. Slightly over
half of this amount, or 800 million dollars, will be accessory to the
simplified pay-as-you-go method of tax collection, and will be the result
of overwithholding and over declaration of expected income. Most of the
remainder will arise from loss and excess-profits credit carrybacks,
recomputed amortization on war plants, and special relief from the excess
profits tax.

This category of expenditures is thus losing gradually its
"aftermath-of-war" character, and by the succeeding year will reflect
almost entirely the normal operation of loss carry-backs and current tax
collection.

3. AGRICULTURAL PROGRAMS

The agricultural programs contemplated for the fiscal year 1947 are those
which are essential for the provision of an adequate supply of food and
other agricultural commodities with a fair return to American farmers. To
support these objectives, expenditures by the Department of Agriculture
estimated at 784 million dollars from general and special accounts will be
required in the fiscal year 1947. This compares with estimated expenditures
of 676 million dollars in 1946. These figures exclude expenditures by the
Department of Agriculture on account of lend-lease, the United Nations
Relief and Rehabilitation Administration, and other war expenditures. The
expenditure for the fiscal year 1947 is composed of 553 million dollars for
"aids to agriculture," 35 million dollars for general public works, and 196
million dollars for other services of the Department.

Net outlays for the price stabilization, price support, and other programs
of the Commodity Credit Corporation are expected to increase from about 750
million dollars in the fiscal year 1946 to about 1,500 million dollars in
1947. Cash advances made on loans by the farm Security Administration and
the Rural Electrification Administration are expected to amount to 266
million dollars in the fiscal year 1946 and 351 million dollars in 1947;
and after receipts from principal and interest are taken into account, net
loan expenditures of these two agencies will amount to 120 and 209 million
dollars in the two fiscal years.

To provide for the expenditures from general and special accounts, I
recommend for the fiscal year 1947 appropriations of million dollars
(including the existing permanent appropriation of an amount equal to 30
percent of estimated annual customs receipts) and a reappropriation of 88
million dollars of prior-year balances from customs receipts. In addition
there is a recommended authorization of 367.5 million dollars for borrowing
from the Reconstruction finance Corporation for the loan programs of the
farm Security Administration and the Rural Electrification Administration.
It is expected that the operations of the Commodity Credit Corporation will
be financed during the coming year through the 500 million dollars of
lend-lease funds which the Congress has earmarked for price support
purposes, a supplemental appropriation to restore impaired capital of the
Corporation, and the borrowing authority of the Corporation.

Some detailed recommendations follow for major agricultural programs.

Conservation and use of land.--I am recommending that 270 million dollars
be appropriated for "conservation and use of agricultural land
resources"--the so-called AAA program--for the fiscal year 1947, compared
with 356 million dollars in the current year. This reduction of 86 million
dollars is in large part accounted for by elimination of the wartime flax
production incentive project and other nonrecurring items; the proposed
reduction in normal activities is less than 33 million dollars.

For the past several years, this program has consisted largely of payments
to farmers for application of fertilizer and other approved soil management
practices. I am convinced that farmers generally are now fully alert to the
benefits, both immediate and long-term, which they derive from the
practices encouraged by this program. I believe, therefore, that this
subsidization should continue to be reduced.

Rural electrification.--It is proposed that the loan authorization for the
Rural Electrification Administration for the fiscal year 1947 be increased
from 200 million dollars to 250 million dollars. During the war period, REA
was limited by the scarcity of materials and manpower. But that situation
is rapidly changing, and the REA program, which was materially stepped up
for the fiscal year 1946, can be increased still more. It is my belief that
a feasible and practical rural electrification program should be carried
forward as rapidly as possible. This will involve total loans of
approximately 1,800 million dollars over the next 10 years, much of which
will be repaid during that period.

Other programs.--It is recommended that the continuing forest
land-acquisition program be resumed at the rate of 3 million dollars
annually, which is about the minimum rate at which this program can be
economically carried on. The lands involved in this program can contribute
fully to the national welfare only when brought into the national forest
system for protection and development.

Such programs as those of the farm Security Administration and the farm
Credit Administration are estimated to be continued during the fiscal year
1947 at about the same level as in the fiscal year 1946. Recent action by
the Congress has Permitted some expansion of the school lunch program. I
hope it will be continued and expanded. The budgets of the Federal Crop
Insurance Corporation and the federal farm Mortgage Corporation will be
transmitted in the spring under the terms of the Government Corporation
Control Act.

4. TRANSPORTATION

Transportation is one of the major fields for both public and private
investment. Our facilities for transportation and communication must be
constantly improved to serve better the convenience of the public and to
facilitate the sound growth and development of the whole economy.

Federal capital outlays for transportation facilities are expected to
approximate 519 million dollars in the fiscal year 1947. State and local
governments may spend 400 million dollars. Private investment, over half of
it by railways, may approach 1,150 million dollars.

The Congress has already taken steps for the resumption of work on
improvement of rivers and harbors and on the construction of new
Federal-aid highways. Much needed work on airports can begin when the
Congress enacts legislation now in conference between the two Houses.

The Federal expenditure estimates for the fiscal year 1947 include 53
million dollars for new construction in rivers, harbors, and the Panama
Canal and 291 million dollars for highways and grade-crossing elimination,
assuming that the States expend some 275 million dollars on the Federal-aid
system. Additional expenditures for highways totaling 36 million dollars
are anticipated by the forest Service, National Park Service, and the
Territory of Alaska. Civil airways and airports will involve expenditures
of 35 million dollars under existing authority. Additional Federal
expenditures exceeding 20 million dollars (to be matched by States and
municipalities) may be made during the fiscal year 1947 under the airport
legislation now in conference between the two Houses of the Congress.

The United States now controls almost two-thirds of the world's merchant
shipping, most of it Government-owned, compared with little more than
one-seventh of the world's tonnage in 1939. This places a heavy
responsibility upon the Nation to provide for speedy and efficient world
commerce as a contribution to general economic recovery.

The estimates for the United States Maritime Commission and War Shipping
Administration provide for the transition of shipping operation from a war
to a peace basis; the sale, chartering, or lay-up of much of the war-built
fleet; and for a program of ship construction of some 84 million dollars in
the fiscal year 1947 to round out the merchant fleet for peacetime use.

Federal aids, subsidies, and regulatory controls for transportation should
follow the general principle of benefiting the national economy as a whole.
They should seek to improve the transportation system and increase its
efficiency with resulting lower rates and superior service. Differential
treatment which benefits one type of transportation to the detriment of
another should be avoided save when it is demonstrated clearly to be in the
public interest.

5. RESOURCE DEVELOPMENT

Total capital outlays for resource development are estimated at 653 million
dollars in the fiscal year 1947 as compared with 452 million dollars in
1946. These include capital expenditures by the Rural Electrification
Administration and expenditures for resource development by other
organizational units in the Department of Agriculture which are also
mentioned above under "agricultural programs."

The reclamation and flood control projects which I am recommending for the
fiscal year 1947 will involve capital outlays of approximately 319 million
dollars as compared with 245 million dollars in the fiscal year 1946. These
expenditures cover programs of the Corps of Engineers, the Bureau of
Reclamation, the Bureau of Indian Affairs, the Department of Agriculture,
and the International Boundary and Water Commission, United States and
Mexico. A number of these projects are multiple-purpose projects, providing
not only for reclamation and irrigation of barren land and flood control,
but also for the production of power needed for industrial development of
the areas.

Expenditures for power transmission and distribution facilities by the
Bonneville Power Administration are expected to increase from 12 million
dollars in the fiscal year 1946 to 15 million dollars in the next fiscal
year. In addition, the Southwestern Power Administration will undertake a
new program involving expenditures of about 16 million dollars in the
fiscal year 1947. The Rural Electrification Administration will require
expenditures during the current fiscal year estimated at 156 million
dollars; in the fiscal year 1947, at 241 million dollars.

The TVA program includes completion of major multiple-purpose
projects--navigation, flood control, and power facilities--and additions to
chemical plants and related facilities. Expenditures for these capital
improvement programs are estimated at 30 million dollars in the fiscal year
1946 and 39 million dollars in the fiscal year 1947.

Expenditures for construction of roads and other developmental works in the
national forests, parks, and other public lands, and for capital outlays
for fish and wildlife development will increase from below 9 million
dollars in the fiscal year 1946 to 24 million dollars in the fiscal year
1947.

6. SOCIAL SECURITY AND HEALTH

Benefit payments out of the Old-Age and Survivors Insurance Trust fund
during 1947 are estimated at 407 million dollars, while withdrawals by the
States from the Unemployment Trust fund for compensation payments are
expected to total 1 billion dollars. These disbursements are financed out
of social security contributions.

The appropriations from general and special accounts for the social
security program, which cover Federal administrative expenses and grants to
States for assistance programs, are estimated at 593 million dollars for
the fiscal year 1947, an increase of 57 million dollars over the current
year. The increase anticipates greater administrative workload and higher
grants to match increasing State payments. The social security program does
not include all the Federal health services under existing legislation. For
the other health services classified under general government and national
defense, appropriations are estimated at 102 million dollars for the fiscal
year 1947.

Some expansion in peacetime medical research and other programs of the
Public Health Service is provided for in the appropriation estimates for
these purposes totaling approximately 87 million dollars for the fiscal
year 1947 which are submitted under provisions of existing law. Part of
this will be provided through the social security appropriations, the
remainder through other appropriations. About 28 million dollars is
recommended for maternity care and health services for children under
existing law, mainly under the emergency provision for the wives and
infants of servicemen. While we should avoid duplication of maternity and
child health services which will be provided through the proposed general
system of prepaid medical care, legislation is needed to supplement such
services. For medical education, I have recommended legislation authorizing
grants-in-aid to public and nonprofit institutions. The existing sources of
support for medical schools require supplementation to sustain the
expansion that is needed.

Hospitals, sanitation works, and additional facilities at medical schools
will be required for an adequate national health program. Legislation is
now pending in the Congress to authorize grants for the construction of
hospitals and health centers and grants and loans for water-pollution
control. I hope the Congress will act favorably on generous authorizing
legislation.

7. RESEARCH AND EDUCATION

The Budget provides for continuation and desirable expansion of the
research activities that are carried on throughout the Federal
establishment and through previously authorized grants to the States.
Additional appropriations will be required for the proposed central Federal
research agency which I recommended last September 6. That agency will
coordinate existing research activities and administer funds for new
research activities wherever they are needed; it will not itself conduct
research. The plan contemplates expenditures through the new research
agency of approximately 40 million dollars for the first year.

These amounts are small in relation to the important contribution they can
make to the national income, the welfare of our people, and the common
defense. Expenditures must be limited for the time being by the capacity of
research agencies to make wise use of funds. The maintenance of our
position as a nation, however, will require more emphasis on research
expenditures in the future than in the past.

Educational expenditures will require a significant share of the national
income in the fiscal year 1947. State, local, and private expenditures for
the current support of elementary, secondary, and higher education are
expected to be substantially above 3 billion dollars in that year. These
nonfederal expenditures will be supplemented by Federal expenditures
estimated at 625 million dollars in the present Budget. Of this amount, the
estimate for veterans' education, as previously mentioned, is 535 million
dollars. Other amounts include 21 million dollars for the support of
vocational education in public schools, 5 million dollars for the
land-grant colleges, 50 million dollars for the present school-lunch and
milk program, 1 million dollars for the Office of Education, and
approximately 13 million dollars for various other items. In view of the
major policy issues which are still under study by the Congress and the
Administration, no specific amount has been determined for the Federal
grants, previously recommended in this Message, which would assist the
States generally in assuring more nearly equal opportunities for a good
education.

Notwithstanding the urgent need for additional school and college
buildings, careful planning will be required for the expenditures to be
made under the proposed legislation to aid the States in providing
educational facilities. A major share of the grants for the first year
would be for surveys and plans.

I have already outlined the broad objectives of our foreign economic
policy. In the present section I shall indicate the Federal outlays which
the execution of these programs may require in the fiscal years 1946 and
1947.

(a) On the termination of lend-lease, the lend-lease countries were
required to pay for goods in the lend-lease pipe line either in cash or by
borrowing from the United States or by supplying goods and services to the
United States. Credits for this purpose have already been extended to
Soviet Union, France, the Netherlands, and Belgium amounting to 675 million
dollars. The settlement credit of 650 million dollars to the United Kingdom
includes an amount preliminarily fixed at 118 million dollars which
represents the excess of purchases by the United Kingdom from the pipe line
over goods and services supplied by the United Kingdom to the United States
since VJ-day and the balance of various claims by one government against
the other.

Credits are also being negotiated with lend-lease countries to finance the
disposition of lend-lease inventories and installations and property
declared to be surplus. For instance, 532 million dollars of the settlement
credit to the United Kingdom is for this purpose. These credits will
involve no new expenditures by this Government, since they merely provide
for deferred repayment by other governments for good: services which have
been financed from war appropriations.

(b) Expenditures from the appropriations to United Nations Relief and
Rehabilitation Administration, which were discarded under war expenditures
above, are estimated to be 1.3 billion dollars in the fiscal year 1946 and
1.2 billion dollars in the fiscal year 1947.

(c) To assist other countries in the restoration of their economies the
Export-Import Bank has already negotiated loans in the fiscal year 1946
amounting in total to about 1,010 million dollars and an additional 195
million dollars will probably be committed shortly. The Bank is also
granting loans to carry out its original purpose of directly expanding the
foreign trade of the United States. In this connection the Bank has
established a fund of 100 million dollars to finance the export of cotton
from the United States. The Export-Import Bank has thus loaned or committed
approximately 1,300 million dollars during the current fiscal year and it
is expected that demands on its resources will increase in the last 6
months of the fiscal year 1946. Requests for loans are constantly being
received by the Bank from countries desiring to secure goods and services
in this country for the reconstruction or development of their economies.
On July 31, 1945, the lending authority of the Expert-Import Bank was
increased to a total of 3,500 million dollars. I anticipate that during the
period covered by this Budget the Bank will reach this limit. The bulk of
the expenditures from the loans already granted will fall in the fiscal
year 1946 while the bulk of the expenditures from loans yet to be
negotiated will fall in the fiscal year 1947. In view of the urgent need
for the Bank's credit, I may find it necessary to request a further
increase in its lending authority at a later date.

(d) The proposed line of credit of 3,750 million dollars to the United
Kingdom will be available up to the end of 1951 and will be used to assist
the United Kingdom in financing the deficit in its balance of payments
during the transition period. The rate at which the United Kingdom will
draw on the credit will depend on the rapidity with which it can reconvert
its economy and adapt its trade to the postwar world. The anticipated rate
of expenditure is likely to be heaviest during the next 2 years.

(e) Since the Bretton Woods Agreements have now been approved by the
required number of countries, both the International Monetary fund and the
International Bank for Reconstruction and Development will commence
operations during 1946. The organization of these institutions will
undoubtedly take some time, and it is unlikely that their operations will
reach any appreciable scale before the beginning of the fiscal year 1947.

Of the 2,750 million dollars required for the fund, 1,800 million dollars
will be provided in cash or notes from the exchange stabilization fund
established under the Gold Reserve Act of 1934. The remaining 950 million
dollars will be paid initially in the form of non-interest-bearing notes
issued by the Secretary of the Treasury. It is not anticipated that the
fund will require in cash any of the 950 million dollars during the fiscal
years 1946 and 1947. Consequently, no cash withdrawals from the Treasury
will be required in connection with the fund in these years.

The subscription to the Bank amounts to 3,175 million dollars. Of this
total, 2 percent must be paid immediately and the Bank is required to call
a further 8 percent of the subscription during its first year of
operations. The balance of the subscription is payable when required by the
Bank either for direct lending or to make good its guarantees. It is likely
that the United States will be required to pay little if any more than the
initial 10 percent before the end of the fiscal year 1947.

I anticipate that net expenditures of the Export-Import Bank and
expenditures arising from the British credit and the Bretton Woods
Agreements will amount to 2,614 million dollars, including the noncash item
of 950 million dollars for the fund, in the fiscal year 1946, and 2,754
million dollars in the fiscal year 1947.

GENERAL GOVERNMENT

The responsibilities of the Government, in both domestic and international
affairs, have increased greatly in the past decade. Consequently, the
Government is larger than it was before the war, and its general operating
costs are higher. We cannot shrink the Government to prewar dimensions
unless we slough off these new responsibilities--and we cannot do that
without paying an excessive price in terms of our national welfare. We can,
however, enhance its operating efficiency through improved organization. I
expect to make such improvements under the authority of the Reorganization
Act of 1945.

The appropriations which I am recommending for general government for the
fiscal year 1947 are 1,604 million dollars under existing legislation. This
is an increase of 458 million dollars over the total of enacted
appropriations for the current fiscal year, but a substantial part of this
increase is due to the fact that the appropriations for the fiscal year
1946 were made prior to the general increase of employees' salaries last
July 1, for which allowance is made in the anticipated supplemental
appropriations for 1946. The recommended total for 1947 for general
government, like the estimates for national defense and other specific
programs, does not allow for the further salary increases for Government
employees which, I hope, will be authorized by pending legislation, but-the
tentative lump-sum estimates under proposed legislation contemplate that
such salary increases will be effective almost at once.

Expenditures for general government in the fiscal year 1947 are expected to
continue the slowly rising trend which began in 1943. This category
includes a great variety of items--not merely the overhead costs of the
Government. It includes all the expenditures of the Cabinet departments,
other than for national defense, aids to agriculture, general public works,
and the social security program. It includes also expenditures of the
legislative branch, the Judiciary, and many of the independent agencies of
the executive branch. Consequently, the estimated increase in 1947 in the
total of general government expenditures reflects a variety of influences.

Now included in general government are certain activities formerly
classified under national defense. Some of these, such as certain functions
of the former foreign Economic Administration and the War Manpower
Commission, are still needed during the period of reconversion; others are
in the process of liquidation. A few wartime activities, for example, the
international information and foreign intelligence services and some of the
wartime programs for controlling disease and crime, have become part of our
regular government establishment. Expenditures for these former wartime
functions explain about 40 percent of the increase in expenditures for
general government.

Other increases are for civil aeronautics promotion, the business and
manufacturing censuses, and other expanded business services of the
Department of Commerce which have been referred to above; the forest and
Soil Conservation Services and other committees of the Department of
certain conservation activities of the Department of the Interior; and the
collection of internal revenue in the Treasury Department.

The necessity for reestablishing postal services curtailed during the war
and advances in the rates of pay for postal employees have increased
substantially the estimated expenditures for postal service for both the
current and the next fiscal year. It is not expected that this increase
will cause expenditures to exceed postal revenues in either year, although
an excess of expenditures may occur in the fiscal year 1947 if salaries are
increased further.

Expenditures for our share of the administrative budgets of the United
Nations and other permanent international bodies will increase sharply in
the fiscal year 1947, yet will remain a small part of our total Budget. The
budget for the United Nations has not yet been determined; an estimate for
our contribution will be submitted later. Our contributions to the food and
Agriculture Organization, the International Labor Office, the Pan American
Union, and other similar international agencies will aggregate about 3
million dollars for the fiscal year 1947. The administrative expenses of
the International Monetary fund and the International Bank will be met from
their general funds.

We have won a great war--we, the nations of plain people who hate war. In
the test of that war we found a strength of unity that brought us
through--a strength that crushed the power of those who sought by force to
deny our faith in the dignity of man.

During this trial the voices of disunity among us were silent or were
subdued to an occasional whine that warned us that they were still among
us. Those voices are beginning to cry aloud again. We must learn constantly
to turn deaf ears to them. They are voices which foster fear and suspicion
and intolerance and hate. They seek to destroy our harmony, our
understanding of each other, our American tradition of "live and let live."
They have become busy again, trying to set race against race, creed against
creed, farmer against city dweller, worker against employer, people against
their own governments. They seek only to do us mischief. They must not
prevail.

It should be impossible for any man to contemplate without a sense of
personal humility the tremendous events of the 12 months since the last
annual Message, the great tasks that confront us, the new and huge problems
of the coming months and years. Yet these very things justify the deepest
confidence in the future of this Nation of free men and women.

The plain people of this country found the courage and the strength, the
self-discipline, and the mutual respect to fight and to win, with the help
of our allies, under God. I doubt if the tasks of the future are more
difficult. But if they are, then I say that our strength and our knowledge
and our understanding will be equal to those tasks.

As printed above, references to tables appearing in the budget document
have been omitted.