Ours is the responsibility to provide combat crews with aircraft of advanced design. We must take care that no adversary surprises us with some secret weapon. A technological advantage once lost is not likely to be recovered. Aviation is a young industry. Most of its personnel is young. Thus, we are certain that the public interest requires the maintenance of the integrity of management and engineering in the aircraft industry. Removal of young engineers from private industry or interruption of a steady flow of them into it is fraught with grave dangers. A design staff once lost is not likely to be restored.

Turning now to production schedules, it is apparent that the very magnitude of the expansion of the aircraft industry makes it especially vulnerable to changes and cut-backs. Since renegotiation of contracts precludes the accumulation of reserves adequate to any contract termination that is not orderly and swift, the Government must accept its responsibilities in termination for all costs, including separation wages, lest important elements of the industry fail to survive. Until the completion of the cycle "war profits" are wholly illusory.

Our sistuation differs markedly from that of the automobile industry. Every day that passes, more automobiles wear out and the demand for new cars increases. Similarly, every day that passes, automobile companies contribute to the surplus of aircraft and aircraft parts. At termination, automotive companies can reconvert, while aircraft companies must cut back to whatever remains.

While the airplane and automobile both date from the beginning of this century, and while forty-odd years later the automotive and aircraft industries are collaborating in the production of aircraft industry designs for the war effort, the two industries are fundamentally dffierent. The automobile has had wide private use. The airplane on the other hand has been used principally in public service. The industry is almost wholly dependent upon Government policy.

The problem of surplus war products is thus of peculiar concern to aircraft manufacturers. We note with satisfaction the steps being taken to provide necessary legislation to permit terminating contracts speedily and disposing of war surpluses in an orderly manner. We are impressed with the magnitude of this task and the need for courageous administration and control.

The factor of obsolescence is vitally important in aviation. Equipment is frequently made obsolete by technical improvement long before it has worn out in use. This factor should be given full consideration in controlling production. The flow of material must not run too far ahead of requirements, lest the latest service changes and improvements be not incorporated in combat aircraft.

Thus, the conduct of the war and plans for the future combine to dictate the first step in surplus control. To the fullest extent consistent with meeting every need of the armed services, the tightest rein should be held on current production to avoid unnecessary accumulation of inventories in the hands of suppliers and of finished products and spares in reserve.

It is

Surplus aircraft material should not be viewed as excess inventory to be liquidated like commercial products, but rather in the nature of a reserve. public property. It should be administered with broad regard for the public interest. The public interest demands the maintenance of a reasonable level of employment. Dumping surpluses could so unbalance the aircraft industry and the whole national economy that the cost of unemployment compensation, or relief, could quickly exceed any recovery through sale of surplus. War surplus must be considered in the light of other goods expended in the war effort. Good business judgment demands "no dumping."

Surplus aircraft will fall into two categories: those restricted to war purposes and those capable of conversion to commercial uses. The most modern surplus military aircraft should be stored in reserve. This will help employ available excess facilities. Convertible types should be used to promote air transport and private flying.

The rapid rate of obsolescence of aircraft makes timing the key to a sound disposal policy. The sooner surplus planes are made available for commercial purposes the more completely will desirable objectives be achieved. The immediate use commercially of surplus equipment before new improved models are generally available will aid in creating demand for improved equipment.

The vital principle here is that surplus aircraft must not be permitted to destroy the aircraft manufacturing industry. On the contrary, they must be so utilized as to nourish it. The public interest requires that the aircraft manufacturing industry operate at the rate necessary to promote the creation of new designs and to facilitate rapid expansion in emergency. This must be accomplished through a continuing, orderly program of competitive procurement for the

Army and Navy Air Forces as well as expanding private purchases for domestic and foreign transport. The whole should be supported by direct expenditures with the industry for research and experimental development.

In the matter of Government-owned facilities, we are gratified by the steps being taken. Here, too, the controlling principle is the public interest. It must always be kept in mind that until the industry can develop a private market, the Government is directly or indirectly its chief customer. It is axiomatic that no seller can compete successfully with his customer and that the private aircraft industry could not survive Government competition.

The record to date clearly shows the wisdom of having depended entirely upon private industry for aircraft production. Industry has met every requirement as to quantity and quality. The stimulus of private competition has produced great benefits. Technology has advanced. Costs have been dramatically reduced. The whole management of aircraft production this war under the principles enunciated in the Morrow report has been so successful as to indicate clearly the wisdom of continuing these policies. In fact, the whole relationship of Government and industry in the aircraft program sets a sound pattern for other lines for the future.

When the time comes for major cut-backs, the aircraft industry will face problems at least as difficult, if not more difficult, than those incident to expansion. There has been no opportunity to develop other new products. It would seem that the "minute men" of this war, who have served the Nation best technically and productionwise, should survive. Today, aircraft production represents a substantial proportion of the national economy, and every opportunity should be afforded the industry to maintain itself at a reasonable level.

Continued manufacture of unneeded war goods would serve no useful purpose. We would simply be borrowing from future demand. This emphasizes the point made in the reports of the Vinson and Truman committees, that Government departments should begin planning now for long-term needs. Military and naval plans could approximate furure requirements for several reasonable assumptions, and knowledge of these would assist private companies in their planning. We also believe that the key lies in the field of air transport. Our domestic air lines are carrying a heavy war load with greatly reduced equipment. It seems unrealistic that at a time when other war activities have greatly expanded their plants, the air lines have been contracted. It would seem in the public interest to step up their operations to a maximum, thus relieving the overburdened surface transport and speeding the conduct of war business.

The vital importance of international commercial air transport emphasizes the need for its expansion. This should be taken in hand now as an immediate contribution to the war effort and a wise provision for future needs. Expansion of air mail offers a profitable method.

The successful creation of the air forces under the War and Navy Departments suggests the need for lodging responsibility for commercial air transport in an executive department. This department, in collaboration with the State, War, and Navy Departments, should operate under the American air power policy and in support of it. The office of Assistant Secretary for Air in the Department of Commerce should be reestablished.

As in the case of the air forces, the key to progress in commercial air transport is technological development. Competition is essential in order that economic factors may direct technical progress along sound lines. A prerequisite to the progress of the war effort and to the future of American air transport is the continued development of transport aircraft.

Today, American transport planes embody technical developments which grew out of air-line competition and competitive purchases by the Army and Navy from private manufacturers. These manufacturers reinvested their earnings in improved technology and low-cost manufacturing, so that prior to the war, both American commercial and military aircraft dominated foreign markets because of low cost and superior performances.

It is a noteworthy fact that at a time when certain established American industries needed a protective tariff, the self-reliant young American aircraft industry, maintaining a high level of wages and salaries, was able to undersell all foreign competition even though some of this was subsidized.

Our experience leads us to certain conclusions as to the elementary economics of air power. Our people have long been persuaded that expenditures in preparation for war are an out-of-pocket expense, and a burden tending to depress the standards of living. A free people seldom understands that an investment in protection against war may prove far more economical in the long run. Beyond

this, money intelligently invested in an air power, adequate to keep the land, air, and sea lanes open to commerce, will pay dividends through increased trade and the creation of new wealth. This is the history of each new form of transport. One example is our own domestic air transport. It has been able to establish itself in direct competition with highly developed forms of surface transport by selling faster travel at competitive rates. It has furnished fast mail at premium rates high enough to return to the Post Office Department substantially more than the amount paid for transporting the mail. Thus, the post office has fostered a valuable public service with a profit to itself.

From the economic point of view, we could credit the air mail profit back against the cost of military and naval aircraft. We might also credit income from export sales. But a strict accounting isn't necessary to prove that providing for the common security is not necessarily a burden upon the people. Done through private industry, it can be an investment. The benefits of judicious purchases to further new technology are obvious. They create new opportunities for private investment, new enterprises, and new employment. Expanded air transport offers jobs for trained aviation technicians discharged from the Air Forces.

Another example of the profound influence of new forms of transport is the rapid expansion of transcontinental railways after the Civil War. This expansion took place under strong support from the Government, and while some evils attended it, the over-all result was the opening up of vast new resources. evils have attended the development of American air transport to date. The possibilities of the future development can scarcely be estimated.

No

The public character of aviation imposes upon it a dual role. Commercial companies, to advance their private interests and stimulate technical progress, must compete in the realm of operations. At the same time, they must collaborate in the realm of policy to promote the public interest. If any law or interpretation precludes such collaboration, it should be revoked.

International, domestic, and private air transport offers a source of new wealth and employment. Rapid development is dependent upon improved technology stemming from a strong competitive private manufacturing industry. A dominant military and naval Air Force supported by air bases is a prerequisite of free communication by land, sea, and air. Only an air-minded people can provide that controlling air power which, in the hands of free men, is the hope of lasting peace and prosperity.

Ours is the dominant air power. Ours, too, the responsibility for a sound policy, courageously administered. The American air power policy derives directly from our own experience.

(Following are (A) the text of a letter on the problem of unemployment compensation, which was addressed by the War Contracts Subcommittee to various industry and labor groups; and (B) a list of addressees:)

(A) UNEMPLOYMENT COMPENSATION LETTER

APRIL 1944.

Various industry and labor groups have requested that provision be made for dismissal wages to be paid to workmen rendered unemployed on account of termination of war contracts, and that employers be reimbursed by the Government for any such payments.

In this connection several requests have been received to include a provision to that effect in S. 1718, the contract-termination bill introduced by Senator George and myself. In answer to those requests, my staff prepared and distributed some time ago a preliminary draft of a dismissal wage provision for insertion into S. 1718.

After careful consideration of the comments received on the staff proposal for dismissal wages, I have come to the conclusion that the medium of dismissal wages is inadequate for the purpose of providing financial aid to those who will become unemployed as a result of war-contract termination. I believe that the only satisfactory way of coping with that problem is through unemployment compensation. It is my opinion that it will be necessary for the Federal Government to assist the States in providing more adequate unemployment compensation and to strengthen the financial resources of State unemployment funds. I have come to this conclusion for the following reasons:

(1) The problem of unemployment resulting from war-contract termination is one of the Nation's many war problems. In part at least, therefore, the cost

of coping with that problem ought to be considered a cost of the war, and like other war costs be paid from the United States Treasury. Without Federal aid, however, the increased burden would have to be borne by State unemployment funds, and many employers may have to be taxed more heavily under experience rating provisions in order to meet increased drain on the State funds. (2) To a large extent, unemployment compensation during the period of reconversion should be considered in the nature of a stand-by wage payable while many plants are being reconverted to peacetime production. Under many present State plans, unemployment compensation is inadequate in amount and duration for this purpose. Without adequate stand-by wages many employers would be compelled to continue workmen on their pay rolls at their own expense, although having no work for them, in order to maintain their labor force in readiness when reconversion is completed. Many employers-especially those operating with limited financial resources will be financially unable to bear such an additional reconversion expense, and such employers should not be placed at a competitive disadvantage by comparison with employers who can afford this expense.

(3) Adequate unemployment compensation is essential for the maintenance of the purchasing power of the masses of our people during any period of largescale unemployment. Without maintaining mass purchasing power, civilian production may be discouraged, because sufficient markets may be lacking.

In support of these views I would like to refer you to a recent speech by Mr. James F. Byrnes, Director of War Mobilization, given before the Academy of Political Science, entitled "Preparation for Peace on the Home Front." After discussing the inadequacy of dismissal wages, he stated as follows:

"The existing State unemployment insurance laws were framed to meet local conditions of temporary unemployment and are not adequate to deal with the Nation-wide problem of reemployment. Demobilization must be regarded as a national problem and it costs as part of the costs of the war.

"I think the most constructive approach to this problem is to supplement existing State unemployment benefits to the extent necessary to give workers, during the transition from war to peace, suitable unemployment benefits to be prescribed in a Federal demobilization law."

I am giving consideration to two plans:

(1) The Federal Government would pay one-half of the unemployment compensation paid under State unemployment compensation laws. This proposal would not provide for any Federal standards as to amount or duration of benefits and would leave all action with respect to liberalization of present unemployment benefits to the initiative of the States. For that reason it might not bring about the desired results. However, if the States wished to act, the money would be available.

(2) Under the second plan, Federal financial aid to any State would be conditioned upon the State meeting certain Federal standards as to amount, duration, coverage, etc., of unemployment benefits. Any State which would meet the standards established by Congress could elect to receive Federal financial aid in either of the two following ways: (a) 50 percent Federal reimbursement for all unemployment benefit payments made by the State; or (b) 100 percent Federal reimbursement for unemployment payments in excess of those which would otherwise have been paid under State law.

I should greatly appreciate your comments on the proposed program of emergency Federal financial aid to State unemployment funds and the two preliminary plans suggested for carrying out such a program.

Sincerely,

JAMES E. MURRAY, Chairman, War Contracts Subcommittee.

(B) LIST OF ADDRESSEES

APRIL 1944.

State of North Carolina: Unemployment Compensation Commission.
California Department of Employment.

Department of Employment Security, Salt Lake City, Utah.

State of New York Department of Labor.

State of Iowa Employment Security Commission.

Employment Security Commission of New Mexico.

Commonwealth of Virginia: Unemployment Compensation Commission.
The State of Wisconsin Industrial Commission.

State of Delaware Unemployment Compensation Commission.

State of New Jersey Unemployment Compensation Commission.
State of Nevada Employment Security Department, Carson City, Nev.
Unemployment Compensation Division, Bismarck, N. Dak.
Unemployment Compensation Commission of South Dakota.
Minnesota Division of Employment and Security.

District Unemployment Compensation Board, Washington, D. C.
State of Maryland Unemployment Compensation Board.

The Commonwealth of Massachusetts: Division of Employment Security.
Interstate Conference of Employment Security Agencies, Austin, Tex.
National Small Business Men's Association, Chicago, Ill.

The Baldwin Locomotive Works, Philadelphia, Pa.
American Institute of Accountants, Detroit, Mich.
McQuary-Norris Manufacturing Co., St. Louis, Mo.
National Association of Credit Men, New York City.
Campbell Heating Co., Des Moines, Iowa.

Transport Workers Union of America, New York City.

Industrial Union of Marine and Shipbuilding Workers of America, Camden, N. J. Radio Corporation of America, Camden, N. J.

Fidelity Union Trust Co., Newark, N. J.

Milbank, Tweed & Hope, New York City.

Frank L. Dewey, counsel, Western Electric Co., New York City.

Webb Wilson, treasurer, Fairchild Engine & Airplane Corporation, New York City.

J. C. Willson, director, Curtiss-Wright Corporation, New York City.

John Sanderson, vice president and treasurer, and David Riesman, Jr., contract settlement officer, Sperry Corporation, New York City.

Charles C. Tillinghast, Jr., general counsel, Bendix Aviation Corporation, Detroit, Mich.

Courtney Johnson, assistant to chairman, Studebaker Corporation, South Bend,
Ind.

Francis G. Ross, vice president, The Chase National Bank, New York City.
The Tool Steel Gear & Pinion Co., Cincinnati, Ohio.

Chamber of Commerce of the United States, Washington, D. C.

The Williamson Heater Co., Cincinnati, Ohio.

National Automobile Dealers Association, St. Louis, Mo.

Post-War Planning Committee, National Automobile Dealers Association, Flint, Mich.

Chamber of Commerce, Duluth, Minn.

Committee on Accounting Manpower of the American Institute of Accountants, Detroit, Mich.

Staunton and Augusta County Chamber of Commerce, Staunton, Va.

Electrical Products Co., Cleveland, Ohio.

Reliance Electric & Engineering Co., Cleveland, Ohio.

Hazeltine Electronics Co., New York City.

The Aviation Coroporation, Detroit, Mich.

A. F. Hinrichs, Acting Commissioner Bureau of Labor Statistics, Department of Labor, Washington, D. C.

Melvin T. Copeland, chairman, Massachusetts Committee on Post-War Readjustment, Boston, Mass.

Cutler-Hammer, Inc., Milwaukee, Wis.

Illinois Manufacturers' Association, Chicago, Ill.

Lockheed Aircraft Corporation, Burbank, Calif.

Research Institute of America, Washington, D. C.

Minneapolis-Honeywell Regulator Co., Minneapolis, Minn.

National Association of Manufacturers, Washington, D. C.

National Screw Machine Products Association, Cleveland, Ohio.

Tanners' Council of America, New York City.

John Fennelly, executive director of the Committee for Economic Development, Washington, D. C.

Frank A. Fetter, professor of economics, Princeton University, Princeton, N. J. George M. Glassgold, New York City representative, Allied Automatic Machines, Inc.

Hon. Edward J. Kelly, mayor of the city of Chicago.

Brookings Institution, Washington, D. C.

Los Angeles Chamber of Commerce, Los Angeles, Calif.