hundred and some thousand that have exhausted their benefits in the first part of this year. They have no more benefits. We thought that they ought to have opportunities for employment.

The CHAIRMAN. During the period that these payments were to be made, was it the intention of your group and would you say that you understood it to be the intention of Congress in initiating the program that the benefits themselves be geared to reflect compensation for the loss of one-half of that wage?

Monsignor O'GRADY. Of his wages. The replacement of half of his wages. Of course, we didn't have a lot of this fine thinking. We did have the stabilizing thought in there that has been presented recently by many of the economists, including Arthur Byrnes and some other members of Harvard faculty whose names were mentioned here today. But they had that thought definitely. And the other one that I mentioned was that this was an insurance.

We had thought, you see-they pointed out the experience of workmen's compensation was very live in our memories at that time. Many of us who had lived for a long period had thought about the experience there. And we didn't want to bring in this concept of negligence, because we said that is going to involve us again in all sorts of legal entanglements. And we want a simple system. We don't want to become involved in all these legalisms, because we will never get through with them. The worker is not going to have the talent; he is not going to be able to hire this talent to defend himself if he is going to go into a court, you see, all the time; if he is going to be in law courts all the time, he is not going to be able to defend himself, you see. We looked at it in a very simple sort of fashion.

The CHAIRMAN. Mr. Mason.

Mr. MASON. In connection with his benefits being half his wages, at that time every penny he earned he took home with him. There was no Federal tax of 20 percent upon his wages then, because we had a thousand dollars for the single man and $2,500. And that was more than most of the fellows in the lower brackets earned. So, he took home all of his wages.

Today with the scale of wages and the tax that we levy, he only takes home, say 80 percent of his wages. Because he has to pay a 20percent tax; unless he has four or five children. So, if we give them today 50 percent of their take-home wages, then wouldn't that be about the same as the objective of it in the first place?

Monsignor O'GRADY. You mean a minimum?

Mr. MASON. Yes, the minimum then was half his wages. The minimum now if it is half of his take-home wages would be on a par, wouldn't it?

Monsignor O'GRADY. Well, I think it would be a little bit less. We have had quite a debate, you know, on OASI, as you know, as to whether or not in the last increases you made there is a question whether or not they are any better, for instance, than what you had first in 1939; when I set it up in 1939 there is a real question whether or not there has been any increase. We have had that long debate about OASI. To me it is a real question to see what the value of the dollar is. You not only have the taxes, Congressman, but you have the depreciation, the depreciation of the value of the dollar. Another way to put it is that you have higher prices-whichever side you want

to go on. I suppose it is in part one and in part the other, part the depreciation of the value of the dollar, and partly the higher prices. I still think that the half-you see, many of the States don't have that, not many, practically. Not many have that. And then if you are going to get the higher wage groups, give them a benefit that will amount to anything, that is the reason we think of this two-thirds, you know, for average, as a maximum.

I don't want to take your time unnecessarily. I think your time is of a great deal of value. I wish you well, and I hope you will have the courage to face the problems in here and give us a beginning at least in this. Maybe another year will tell; we can take a broader look at the disqualifications and the difficulties of administration. Because I feel that we haven't. And I have raised this question with the administration about whether they are up to date, about whether their knowledge is up to date about administration, whether they know what is happening in the States. And I am afraid—and this is no reflection on them-because States aren't too anxious-I know with my meanderings that they are not too much interested in my meanderings around these State offices. They would just as soon I keep out, you see. But just the ordinary reality of what is happening to the worker in the line is very difficult to make, now, because the States don't want people outside getting into their affairs. They say that is getting into their affairs. Maybe it is. I don't see it that way, because I, as a citizen, think I have a right to prowl around and get into the lines.

Of course, they don't leave me in the line very long before they catch up with me. They want to know what I am doing, and why I don't go up to the front office first and talk to them. Well, they tell me what they want me to know, but I want to find out for myself. The CHAIRMAN. We thank you very much for coming to the committee and discussing these matters with us.

That completes the calendar for these hearings. Without objection, the record of the hearings will remain open until the close of business Monday, April 20, for the inclusion of any additional statements or data or material which has been requested to be supplied for the record.

Mr. ALGER. Mr. Chairman, I request that a bulletin issued by the First National Bank in Dallas be included in the record for the information of the members.

[Economic Letter, 1st National Bank in Dallas, vol. 8, Apr. 15, 1959, No. 4]

THE UNEMPLOYMENT SITUATION

Last week (April 7) the Government released its official figures on unemployment for March. The release came earlier than usual at the request of AFLCIO top officials so that the data would be available for use at labor's mass meeting in Washington (held April 8) in protest of the unemployment situation. For several months now, labor leaders have charged that unemployment is critical, especially in view of the fact that the economy has been operating at such a high level.

According to the Government, there were 4,360,000 unemployed in March. This is about 6 percent of the civilian labor force. At the depths of the recent recession unemployment was 5,198,000 (March 1958), or about 7 percent (seasonally adjusted) of the civilian labor force. And before the recession set in, the unemployment figure was 2,508,000 (October 1957), only about 4.7 percent of civilian labor force.

Unemployment data can be misleading and deceptive, certainly when presented in absolute quantitative totals. Only by careful analysis of those out of work can we determine the severity of unemployment. In the first place, we must understand clearly the official definition of "unemployment." Roughly, any person ready, willing, and able to work, and seeking work but unable to find it, is counted as unemployed. By definition, then, anyone in the civilian labor force who does not have a job is unemployed. If you subtract employment from the total civilian labor force, you get the number of "unemployed." But that figure does not tell you (1) how long the unemployed have been idle; (2) what their skills are; (3) how much their earnings were when employed; (4) whether they are fully dependent upon work; (5) whether they are in the labor market temporarily; (6) how many of them are in families which have one or more other members at work. Answers to these and other questions are very important in determining severity of unemployment.

We know that there is a hard core of unemployment always with us, even in boom times-people who are moving from one job to another or who are casually employed (going in and out of the labor market). Their unemployment is not very serious because the same individuals do not stay out of work long; that is, those who make up this figure are constantly changing. (NOTE-They are not "unemployables," because unemployables by definition are not counted in the labor force.)

Also, we have each year some 900,000 new people entering the labor market because they have reached working age. All do not find jobs immediately upon entering the labor market. Those who do not are counted as unemployed.

Another interesting aspect of unemployment is that the figure tends to become - progressively larger when recession sets in, thus making it seem worse than it is. For example, a recession might cause the number counted as unemployed to reach, say, 7 million, from a prerecession level of about 3,500,000. This does not mean that we must now find jobs for 3,500,000 workers in order to get the economy back to its former employment level. What commonly happens is that the loss of one job may cause an increase of more than one in unemployment. For example, Mr. Doe is the only one in his family in the labor force. He has a good job from whose earnings he supports his family consisting of his wife, age 43, who keeps house; a son, age 17, who is in high school; and a daughter, 19, in a nearby junior college. Doe's earnings are not lush, but the family is thrifty and they manage to make out, but barely do and can save nothing. Doe loses his job. The only income now is from social security. Doe gets counted as unemployed because he registers for work. But Mrs. Doe might also enter the labor market and one or both of the children might quit school and try to find employment. Here, then, is an extreme case of one person (Mr. Doe) becoming unemployed, but his loss of job causing possibly a total of four to get counted as "unemployed."

By the same token when economic activity picks up one good job might reduce unemployment by two or more. In Doe's case, let's say, his old job back might at least send the son and daughter back to school or put Mrs. Doe back in the kitchen at home.

So, without further elaboration, we can say that unemployment figures are tricky and must be analyzed with care before they are meaningful.

Labor union officials currently reason that, although the economy had recovered fully from the recent recession by the end of 1958, and has continued to climb since, employment has not recovered as it should. In other words, recovery did not generate enough jobs. And if the above figures are correct, this is certainly true. But why?

One apparently abiding characteristic of a free enterprise economy is that the economy abhors disequilibrium or an unbalanced condition of any kind-and when not restricted, the economy will generate forces which tend to correct the disequilibrium.

For example, a traditional, fundamental function of the enterpriser in managing or coordinating his business is to husband or allocate his resources in a manner that will produce the greatest output for the least input. And the common standard of guidance is the cost of each agent of production in relation to the value of what the agent will contribute to production. Thus, when labor costs become relatively high in comparison with machine costs, the enterpriser will use more of the cheaper agent, and less of the more expensive one. In so doing he is behaving in a manner similar to that of the housewife who buys less beef and more poultry when the price of beef is out of line with the price of

poultry. The analogy is not perfect because the enterpriser usually cannot act as quickly as the housewife.

A good case in point is what has happened in the automobile industry, according to reliable reports. Just since 1955 there has been a decline of about 276,500, or 30 percent, in the number of workers in the industry. Michigan has caught the major impact of this decline. The chief cause has been automation (the purchase and installation of automatic machinery) which the industry finds cheaper in relation to output than labor.

It is possible that the industry was reaching the point of pricing itself out of the market, and, from increasing competition with foreign cars produced under much lower cost conditions, had to turn to automation. Other industries-steel, electrical rubber, chemical-where unions are strong, have likewise introduced considerable automation, displacing labor.

Now it is likely that automation was bound to come in time, but very probably not so quickly had the cost differential been less marked.

An unfortunate consequence is that another unbalanced condition may derive from the correction of the cost differential; but it will be in the market place, not on the production line: Unemployment reduces income or buying power, thus lowering market demand. Products are sold to people. Unemployed people cannot buy unless they can draw upon savings or be supported by relatives, friends, or the Government. For a while, they might obtain credit, but it is not likely.

In time, displaced workers might find employment elsewhere, but too often the new jobs involve lesser skills at lower pay; or to say the least, they are often not in the same job category or in the same industry as those in which the workers were formerly employed. Also finding employment may mean moving to another geographical location with all the friction that such a move ordinarily entails.

The old classical answer was that "in the long run" more employment than unemployment is created by technological advance, but an equally old reply is that "People do not live in the long run; they live in the short run." And that is true. It is no consolation to workers displaced by automation in a given industry to know that the making of the automated machinery creates new jobs if the displaced workers themselves are not able to take those jobs, or that "eventually" there will be more jobs, when the displaced have to live from day to day and cannot wait.

Efforts by unions to reduce unemployment by forcing a shorter workweek or by some kind of "work spreading" are generally slow to get results. Bargaining successfully for higher wages for those workers who remain employed is not the answer either, because it does not relieve unemployment in the short

run.

Again the old classical economists would have a theoretical answer running something like this: Automation will reduce costs, thus bring lower prices of goods on the market and in turn result in buyers having more left to spend on other things whose increased sales will require more production and, hence, open up more jobs. If this process worked it would be "in the long run"-not immediate. And there is some doubt about whether it would work at all or not, what with inflation and strong union demand that industry share with workers the benefits of more efficient output. Furthermore, the theory assumes conditions of free competition which do not exist.

So anyway you look at technological unemployment there is no simple solution to the problems it creates. Since the big two-labor and management-seemingly cannot work hand and hand to find a solution themselves which will be in the public interest, obviously Government will be drawn into the situation, either (a) to spend sufficiently to create jobs or (b) to dole out more benefits to the unemployed. What is ironical about this is that industry in the final analysis will pay most of the bill anyway. But in the process just a little more freedom

is lost to public authority.

BUYING GOLD

For some time now there has been a growing fear that more inflation is inevitable in the United States. Loss of more than $2 billion in our gold supply in recent months is being interpreted as proof that foreign financiers have lost confidence in the future of the dollar; that they expect Uncle Sam to devaluate by raising the price of gold to $50, or possibly $70 per ounce (now $35); and, therefore, they are drawing gold out now so as to be ready when the price is raised.

This all sounds fantastic but, fantastic or not, it is being talked about, and some people believe it firmly enough to act accordingly. Gold is being bought abroad by American citizens who are convinced that by so doing they have a certain hedge against inflation.

Although we have no idea of the total volume of gold speculation, we have reason to believe that it is becoming quite large.

Advertisements are appearing in the Wall Street Journal and other financial media offering to assist speculators in buying Canadian gold bars on as low as 3 percent margin. We have investigated and found that, for example, $1 million worth of gold can be bought for $30,000 in cash and a promissory note (secured by the gold) for the $970,000 balance. Interest on the note is 54 percent, and you pay one-fourth of 1 percent to cover storage or safekeeping charges. Annual cost, therefore, on the above speculation would be $58,200, assuming no change in interest rate or in storage fee. If you are in the 50 percent income tax bracket, the net cost would be $29,100 a year. (NOTE.-No recommendation intended. This is only a report of facts.)

Suppose that the price of gold was raised to $70 per ounce 5 years from now. If you bought at $35, you would make $1 million less $145,500 carrying costs, or $854,500, which supposedly would be subject to 25 percent capital gains tax, and possibly a Canadian tax.

It looks good on the surface, but here are only some of many risks: (1) The price of gold might not be raised at all; (2) if it is, the raise might not come for many years; (3) when it does, it might be only a small raise, say to $40; (4) you might have to pay taxes on your gain that do not now exist (a windfall tax, for example), or the capital gains advantage you are now expecting may be removed later; (5) or your own income circumstances might change and put you in a lower than 50 percent bracket.

In other words, it is no foregone cinch, but some folks are doing it, nevertheless. ARTHUR A. SMITH.

(The following resolution of the General Assembly of North Carolina was transmitted to the committee for inclusion in the record by letters from the Honorable A. Paul Kitchin, Member of Congress; the Honorable Thad Eure, secretary of state of North Carolina; and the Honorable Henry E. Kendall, chairman, Employment Security Commission of North Carolina :)

[S.R. No. 200]

JOINT RESOLUTION of the General Assembly of North Carolina concerning certain legislation now pending in the Congress of the United States relating to the establishment of certain minimum Federal benefit standards

Whereas there is now pending in the Congress of the United States, unemployment insurance legislation which legislation is for the purpose of establishing certain minimum Federal benefit standards and would in so doing remove from the States many of the powers now vested therein, which legislation is coercive upon the legislatures of the various States in that if they fail to comply with the proposed standards, drastic penalties would be imposed upon the taxpayers in such States; and

Whereas the Legislature of the State of North Carolina in past sessions has exercised its responsibility in this field, having adopted in 1951, uniform duration of benefits for 26 weeks and has further improved the program at each session and is now, in the current session, giving favorable consideration to a provision for extension of benefits by eight additional weeks under certain conditions and other improvements; and

Whereas the people of North Carolina are firmly dedicated to the proposition that matters relating to the amount and duration of unemployment insurance payments should be left to the discretion of the various State governments due to the widely varying economic and other conditions that exist among the States: Now, therefore, be it

Resolved by the senate, the house of representatives concurring:

SECTION 1. That the General Assembly of North Carolina hereby opposes legislation which would establish Federal minimum benefit standards and which would compel the States to take similar action, thus depriving the Legislature of North Carolina of its rightful authority in such matters.