How the Dollar, Acts… Pt.1

previous post introduces the why and how this exploration began and a general outline of where it looks to be going. 1. The 1946 Employment Act To start with, the Census Bureau falls under the U.S. Department of Commerce (DoC) and among it’s many statistical categories, it contains measurements of national wealth and income; population characteristics and migration; vital statistics, health and migration; labor, wages and working conditions; agriculture; land, forestry and fisheries; minerals and power; construction and housing; manufacturers; transportation; price indexes; balance of payments and foreign trade; banking and finance; government elections; and government finances including copyrights, patents and trademarks. Every year the Department of Commerce publishes its Statistical Abstract of the United States and in 1949, they compiled and published their Historical Statistics of the United States 1789 -1945. Why this should be of interest is that these statistics offer us the variables for determining the criteria for all kinds of national averages, and most relevant to this article, the data used to account for our GNP. In 1942, unemployment figures were transferred from the Works Progress Administration (WPA 1932-43) which fell under the Department of the Interior to the DoC’s Bureau of the Census. So beginning in 1942, it was the first time you were able to see employment figures and unemployment figures consistently applied in labor force surveys. Why this is significant is that in 1945, Henry A. Wallace, a progressive Democrat from Iowa and a supporter of the New Deal, assigned unemployment statistics to real GNP and Price Level, and argued that the controversial Keynesian equation for determining the health of a national economy was accurately diagnosed. In part, this accounting for unemployment in GNP was as controversial then as it is today, considering how current unemployment figures are dubiously measured. Just after the war, criteria for measuring the economic health of a nation became a national security issue and factored into the conflict of the early Cold War years when economic “co-operation” became a code word for anti-communism (ECCW p.3). The “Full Employment” Bill as it was originally introduced in 1945 was greatly influenced by Keynesian analysis which asserted that if people stopped consuming and stopped investing, “national income (the formula being the sum of consumption and investment) would fall; and that the only way to increase national income is by increasing either consumption expenditures or investment expenditures or both, and finally, that there are governmental means of doing this in case private enterprise by itself cannot or will not do it.” (CML p.17). Full Employment then would assure that the government would be responsible for employing all who are willing to or capable of working. After bitter debate (much like our current health care debate) full-employment was whittled down to the vague concept of maximum-employment. The difference being the volume of federal investment and expenditure. (Santoni p.12) The differences between the 1945 Bill and the 1946 Act were not only in the degree to which employment would be government sponsored, it also inserted two other decrees: production and purchasing power. The reason why this is important is that this contributes to what was then, a new economic policy paradigm. Before the Depression, our economic policy was the laissez-faire, free-market paradigm that would allow the markets to be free from government interference, and generally, did not consider labor to be a top priority in the profit margin. Also of significance, corporations and individuals were investing heavily in the securities and properties of foreign countries just as foreign investors were purchasing U.S. stocks and bonds. However, before the Depression the outflow was far greater and the estimated creditor position of the U.S. was increased from 3.6B just after WWI to nearly 9B by the end of 1930 (CAOAFC p.14) During the Depression, unemployment grew as did inflation, which resulted in less consumer spending, particularly as the hoarding of gold and currency plagued the monetary system. (EACEA p.49) In an attempt to remedy this national disaster and infuse more currency in the market, the dollar was removed from the international Gold Standard in 1933. Whether this action allowed for the success of the WPA, is debatable, but by 1934, government work programs slowly began to put people back to work. Foreign funds may also have contributed to help remedy the crash and help pay for the WPA. From the time of the crash when there was an outflow of credit until 1939– the start of the war– there was a massive inflow of foreign credit, of nearly 17.5B in U.S. debt. Peculiarly, this resulted in a sizable increase of pre-WWII foreign gold stock in the United States. (CAOAFC p.14) In 1935, as tensions began to rise in Europe, the U.S. Congress signed its first Neutrality Act, which embraced a Cash and Carry provision allowing for U.S. arms manufacturers to sell indiscriminately, to both sides of the war. By 1939, when Germany invaded Czechoslovakia and Poland, this created an employment boon for labor and large profits for U.S. arms manufacturers. With much of Europe building their armed forces, the United States was in a good position to provide arms to Europe and the creditor-debtor cycle that began after WWI had more or less resolved and balanced. (CAOAFC p.15) In 1941, the Lend-Lease Act ended the Neutrality Acts and prohibited U.S. companies from doing business with the Axis powers. Although some U.S owned businesses were quietly upset by the limitations placed upon their markets and secretly continued trade though latin american routes, most dealings with the Axis stopped. Besides currencies, the Lend-Lease Act allowed for the United States to acquire assets and resources like military bases in colonies belonging to foreign countries. Territories were essentially non-currency assets with commodities and resources to be bargained with. I might also mention here, one of the key figures responsible for overseeing the Lend-Lease program was Edward Stettinius, a steel executive, appointed by President Roosevelt as Under-Secretary of State. He also chaired some of the later post-war peace conferences that led to the ratification of the United Nations in San Francisco in 1946, and chaired these conferences before Trygvie Lie’s election as United Nations first Secretary-General. During the war years, both the U.S. economy and labor boomed and government and private organizations began to plan for the U.S. post war economy. (BCA p.15) Central to these meetings was an acute awareness of the role war-manufacturing played to the current economic success of the United States. The dominant question was how will the U.S. prevent another Depression when the war ends? For Henry Wallace, the continuation of the WPA and full-employment was the answer. Congress shouted, “No!” In San Francisco, during the writing of the U.N. Charter (PFPP p.626), proposals for the consideration by an International Conference on Trade and Employments contained the objectives for “… full employment… by the major industrial and trading nations…” Senators Vandenberg and Connally who were the Congressional liaisons and reported back to Congress the results of these proceedings from Dumbarton Oaks to San Francisco took “violent exception to the use of the term ‘full employment’,” and both said that the Senate would reject ratification of the Charter if full-employment’ were inserted”(CML p.102). For the success of the U.N., this was not an option because many considered that the failure of the League of Nations was a result of the Senate not having ratified President Wilson’s push for U.S. participation and inclusion. Senator Vandenberg plays a special role in this reading in that, not only was he instrumental in performing the difficult job of defending Hawaii’s and Alaska’s listing by the United States to the UN list as a Non-Self-Governing Territory to Congress, but in response to the passage of the 1951 Mutual Securities Act, he declared it, “a turning point in history for 100 years to come.” (BCA. 117, LMP 10), a prediction one might see as being 25 years off the mark. Full-Employment was off the table, and in 1946 when the Employment Act was signed, we entered into our new economic paradigm of Employment, Production, and Purchasing Power to “foster and promote free competitive enterprise.” In addition, the Employment Act called for the President to transmit to Congress an annual Economic Report, establish a Council of Economic Advisors and a Joint Economic Committee to help produce the Economic Report. In each report, the president highlights the years policies as well as plans for the upcoming year. It also contains relevant statistics from the Department of Labor, the Department of Commerce, the Treasury Department, the Federal Trade Commission, the Securities and Exchange Commission, and of course, the Board of Governors of the Federal Reserve System. Just the other day on NPR, Meg Whitman (R), running for Governor of California said that she would put the economy in front of the environment hoping to tackle the unemployment woes first by allowing industries to postpone curtailing emissions. She discussed the creation of new jobs in traditional economic sectors and at one point, I began to wonder whether any candidate would present economic language that might inspire us to embrace the possibilities of a new economic paradigm. When and if greenhouse gas emission reductions are also accounted for in GDP and GNP figures, that would be the pivotal moment when candidates would truly begin to account for the environment as they do with employment figures or data on manufacturing and purchasing power. We should consider that the Copenhagen Accord will soon signal new international objectives and be incorporated into the language and system similar to the way unemployment was figured into GNP in 1945. What this will do, will create a shift in currency valuation that will have further influence to trade and commerce, particularly in currency trading. If there is a shift, we can only guess what the overall results will be. As we shall see when we explore the following three pillars, I would advocate that it may be worth re-examining the opportunism that occurred immediately after the post-war years and that we might, for example, begin to explore reasserting national sovereign currencies and re-align this by incorporating organic systems of collective local or micro local assets, rather than only on centralized reserves. Although I will touch upon this in a later posting, I think it is worth examining the possibilities of a currency that may be more in line with the immediate and necessary environmental objectives outlined in the Copenhagen Accord.

  • ECCW The Economic Crisis and the Cold War, A conference held at the Jefferson School of Social Science; New Century Publishers, New York, 1949.
  • CML Congress Makes a Law: the Story Behind the Employment Act of 1946, Bailey, Stephen Kemp; Columbia University Press, New York, 1950.
  • “The Employment Act of 1946: Some History Notes” G.J. Santoni. Federal Reserve Bank of St. Louis, Nov. 1986.
  • EACEA The Employment Act and the Council of Economic Advisors 1946-1976, Norton, Hugh S; University of South Carolina Press, South Carolina, 1977.
  • CAOAFC The Census of American Owned Assets in Foreign Countries, United States Treasury Department, Washington D.C, 1947.
  • BCA Business Comes of Age: The Story of the Committee for Economic Development and Its Impact upon the Economic Policies of the United States 1942-1960, Karl Schriftgiesser, Harper & Brothers, New York, 1960.
  • PFPP Postwar Foreign Policy Preparation, United States Department of State, Washington D.C, 1949.
  • LMP Labour under the Marshall Plan: The Politics of Productivity and the Marketing of Management Science, Anthony Carew, Wayne State University Press, Detroit, Michigan, 1987.

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