Fiscal Policy and Business Cycles

By Alvin H. Hansen | Go to book overview

Chapter XXII
DEFENSE FINANCING

WHEN the vastly expanded defense program was undertaken in 1940, we were still a long way from full employment. It was, accordingly, possible to expand output and employment to take care of the needs of defense and even to increase civilian production. The national income for 1940 was about $74 billions, some $4 billions above the 1937 level. The Federal Reserve index of production averaged around 122, compared with 113 in 1937 and 100 in 1929. Employment averaged about 47 millions, slightly above the 1937 level, and about one million below that of 1929. The labor force for 1940 was estimated at about 56 millions. Thus, there were about nine million unemployed --about eight millions by the end of the year. While some part of this number is more or less unemployable, on the other side it should be remembered that there are probably two to three million surplus workers, counted as employed in agriculture, who are ready to seek jobs in urban industries whenever opportunity affords. Moreover, the first World War experience indicated that there is always a vast potential labor supply which can readily be drawn into the labor market--when labor scarcity becomes intense. Thus, in 1918, 44 millions were employed, including those drawn into the armed forces, while the normal labor force was only 41 millions. Three million potential workers, not normally in the labor market, had been drawn into employment. This indicates that the potential increase in labor resources is greater

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