Speech Transcript:

 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. note It is a
comprehensive discussion of the present state of the reconversion
program and of the immediate and long-range needs and
recommendations.

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. (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 orde