Japanese forces in the Philippines have been cut in two. There is still hard fighting ahead—costly fighting. But the liberation of the Philippines will mean that Japan has been largely cut off from her conquests in the East Indies.

The landing of our troops on Leyte was the largest amphibious operation thus far conducted in the Pacific.

Moreover, these landings drew the Japanese Fleet into the first great sea battle which Japan has risked in almost two years. Not since the night engagements around Guadalcanal in November-December, 1942, had our Navy been able to come to grips with major units of the Japanese Fleet. We had brushed against their fleet in the first battle of the Philippine Sea in June, 1944, but not until last October were we able really to engage a major portion of the Japanese Navy in actual combat. The naval engagement which raged for three days was the heaviest blow ever struck against Japanese sea power.

As a result of that battle, much of what is left of the Japanese Fleet has been driven behind the screen of islands that separates the Yellow Sea, the China Sea, and the Sea of Japan from the Pacific.

Our Navy looks forward to any opportunity which the lords of the Japanese Navy will give us to fight them again.

The people of this Nation have a right to be proud of the courage and fighting ability of the men in the armed forces—on all fronts. They also have a right to be proud of American leadership which has guided their sons into battle.

The history of the generalship of this war has been a history of teamwork and cooperation, of skill and daring. Let me give you one example out of last year's operations in the Pacific.

Last September Admiral Halsey led American naval task forces into Philippine waters and north to the East China Sea, and struck heavy blows at Japanese air and sea power.

At that time it was our plan to approach the Philippines by further stages, taking islands which we may call A, C, and E. However, Admiral Halsey reported that a direct attack on Leyte appeared feasible. When General MacArthur received the reports from Admiral Halsey's task forces, he also concluded that it might be possible to attack the Japanese in the Philippines directly—bypassing islands A, C, and E.

Admiral Nimitz thereupon offered to make available to General MacArthur several divisions which had been scheduled to take the intermediate objectives. These discussions, conducted at great distances, all took place in one day.

General MacArthur immediately informed the Joint Chiefs of Staff here in Washington that he was prepared to initiate plans for an attack on Leyte in October. Approval of the change in plan was given on the same day.

Thus, within the space of 24 hours, a major change of plans was accomplished which involved Army and Navy forces from two different theaters of operations—a change which hastened the liberation of the Philippines and the final day of victory—a change which saved lives which would have been expended in the capture of islands which are now neutralized far behind our lines.

Our over-all strategy has not neglected the important task of rendering all possible aid to China. Despite almost insuperable difficulties, we increased this aid during 1944. At present our aid to China must be accomplished by air transport—there is no other way. By the end of 1944, the Air Transport Command was carrying into China a tonnage of supplies three times as great as that delivered a year ago, and much more, each month, than the Burma Road ever delivered at its peak.

Despite the loss of important bases in China, the tonnage delivered by air transport has enabled General Chennault's Fourteenth Air Force, which includes many Chinese flyers, to wage an effective and aggressive campaign against the Japanese. In 1944 aircraft of the Fourteenth Air Force flew more than 35,000 sorties against the Japanese and sank enormous tonnage of enemy shipping, greatly diminishing the usefulness of the China Sea lanes.

British, Dominion, and Chinese forces together with our own have not only held the line in Burma against determined Japanese attacks but have gained bases of considerable importance to the supply line into China.

The Burma campaigns have involved incredible hardship, and have demanded exceptional fortitude and determination. The officers and men who have served with so much devotion in these far distant jungles and mountains deserve high honor from their countrymen.

In all of the far-flung operations of our own armed forces—on land, and sea and in the air—the final job, the toughest job, has been performed by the average, easy-going, hard-fighting young American, who carries the weight of battle on his own shoulders.

It is to him that we and all future generations of Americans must pay grateful tribute.

But—it is of small satisfaction to him to know that monuments will be raised to him in the future. He wants, he needs, and he is entitled to insist upon, our full and active support—now.

Although unprecedented production figures have made possible our victories, we shall have to increase our goals even more in certain items.

Peak deliveries of supplies were made to the War Department in December, 1943. Due in part to cutbacks, we have not produced as much since then. Deliveries of Army supplies were down by 15 percent by July, 1944, before the upward trend was once more resumed.

Because of increased demands from overseas, the Army Service Forces in the month of October, 1944, had to increase its estimate of required production by 10 percent. But in November, one month later, the requirements for 1945 had to be increased another 10 percent, sending the production goal well above anything we have yet attained. Our armed forces in combat have steadily increased their expenditure of medium and heavy artillery ammunition. As we continue the decisive phases of this war, the munitions that we expend will mount day by day.

In October, 1944, while some were saying the war in Europe was over, the Army was shipping more men to Europe than in any previous month of the war.

One of the most urgent immediate requirements of the armed forces is more nurses. Last April the Army requirement for nurses was set at 50,000. Actual strength in nurses was then 40,000. Since that time the Army has tried to raise the additional 10,000. Active recruiting has been carried on, but the net gain in eight months has been only 2,000. There are now 42,000 nurses in the Army.

Recent estimates have increased the total number needed to 60,000. That means that 18,000 more nurses must be obtained for the Army alone and the Navy now requires 2,000 additional nurses.

The present shortage of Army nurses is reflected in undue strain on the existing force. More than a thousand nurses are now hospitalized, and part of this is due to overwork. The shortage is also indicated by the fact that 11 Army hospital units have been sent overseas without their complement of nurses. At Army hospitals in the United States there is only 1 nurse to 26 beds, instead of the recommended 1 to 15 beds.

It is tragic that the gallant women who have volunteered for service as nurses should be so overworked. It is tragic that our wounded men should ever want for the best possible nursing care.

The inability to get the needed nurses for the Army is not due to any shortage of nurses; 280,000 registered nurses are now practicing in this country. It has been estimated by the War Manpower Commission that 27,000 additional nurses could be made available to the armed forces without interfering too seriously with the needs of the civilian population for nurses.

Since volunteering has not produced the number of nurses required, I urge that the Selective Service Act be amended to provide for the induction of nurses into the armed forces. The need is too pressing to await the outcome of further efforts at recruiting.

The care and treatment given to our wounded and sick soldiers have been the best known to medical science. Those standards must be maintained at all costs. We cannot tolerate a lowering of them by failure to provide adequate nursing for the brave men who stand desperately in need of it.

In the continuing progress of this war we have constant need for new types of weapons, for we cannot afford to fight the war of today or tomorrow with the weapons of yesterday. For example, the American Army now has developed a new tank with a gun more powerful than any yet mounted on a fast-moving vehicle. The Army will need many thousands of these new tanks in 1945.

Almost every month finds some new development in electronics which must be put into production in order to maintain our technical superiority—and in order to save lives. We have to work every day to keep ahead of the enemy in radar. On D-Day, in France, with our superior new equipment, we located and then put out of operation every warning set which the Germans had along the French coast.

If we do not keep constantly ahead of our enemies in the development of new weapons, we pay for our backwardness with the life's blood of our sons.

The only way to meet these increased needs for new weapons and more of them is for every American engaged in war work to stay on his war job—for additional American civilians, men and women, not engaged in essential work, to go out and get a war job. Workers who are released because their production is cut back should get another job where production is being increased. This is no time to quit or change to less essential jobs.

There is an old and true saying that the Lord hates a quitter. And this Nation must pay for all those who leave their essential jobs—or all those who lay down on their essential jobs for nonessential reasons. And—again—that payment must be made with the life's blood of our sons.

Many critical production programs with sharply rising needs are now seriously hampered by manpower shortages. The most important Army needs are artillery ammunition, cotton duck, bombs, tires, tanks, heavy trucks, and even B-29's. In each of these vital programs, present production is behind requirements.

Navy production of bombardment ammunition is hampered by manpower shortages; so is production for its huge rocket program. Labor shortages have also delayed its cruiser and carrier programs, and production of certain types of aircraft.

There is critical need for more repair workers and repair parts; this Jack delays the return of damaged fighting ships to their places in the fleet, and prevents ships now in the fighting line from getting needed overhauling.

The pool of young men under 26 classified as I-A is almost depleted. Increased replacements for the armed forces will take men now deferred who are at work in war industry. The armed forces must have an assurance of a steady flow of young men for replacements. Meeting this paramount need will be difficult, and will also make it progressively more difficult to attain the 1945 production goals.

Last year, after much consideration, I recommended that the Congress adopt a national service act as the most efficient and democratic way of insuring full production for our war requirements. This recommendation was not adopted.

I now again call upon the Congress to enact this measure for the total mobilization of all our human resources for the prosecution of the war. I urge that this be done at the earliest possible moment.

It is not too late in the war. In fact, bitter experience has shown that in this kind of mechanized warfare where new weapons are constantly being created by our enemies and by ourselves, the closer we come to the end of the war, the more pressing becomes the need for sustained war production with which to deliver the final blow to the enemy.

There are three basic arguments for a national service law:

First, it would assure that we have the right numbers of workers in the right places at the right times.

Second, it would provide supreme proof to all our fighting men that we are giving them what they are entitled to, which is nothing less than our total effort.

And, third, it would be the final, unequivocal answer to the hopes of the Nazis and the Japanese that we may become halfhearted about this war and that they can get from us a negotiated peace.

National service legislation would make it possible to put ourselves in a position to assure certain and speedy action in meeting our manpower needs.

It would be used only to the extent absolutely required by military necessities. In fact, experience in Great Britain and in other Nations at war indicates that use of the compulsory powers of national service is necessary only in rare instances.

This proposed legislation would provide against loss of retirement and seniority rights and benefits. It would not mean reduction in wages.

In adopting such legislation, it is not necessary to discard the voluntary and cooperative processes which have prevailed up to this time. This cooperation has already produced great results. The contribution of our workers to the war effort has been beyond measure. We must build on the foundations that have already been laid and supplement the measures now in operation, in order to guarantee the production that may be necessary in the critical period that lies ahead.

At the present time we are using the inadequate tools at hand to do the best we can by such expedients as manpower ceilings, and the use of priority and other powers, to induce men and women to shift from non-essential to essential war jobs.

I am in receipt of a joint letter from the Secretary of War and the Secretary of the Navy, dated January 3, 1945, which says:

"With the experience of three years of war and after the most thorough consideration, we are convinced that it is now necessary to carry out the statement made by the Congress in the joint resolutions declaring that a state of war existed with Japan and Germany: That 'to bring the conflict to a successful conclusion, all of the resources of the country are hereby pledged by the Congress of the United States.'

"In our considered judgment, which is supported by General Marshall and Admiral King, this requires total mobilization of our manpower by the passage of a national war service law. The armed forces need this legislation to hasten the day of final victory, and to keep to a minimum the cost in lives.

"National war service, the recognition by law of the duty of every citizen to do his or her part in winning the war, will give complete assurance that the need for war equipment will be filled. In the coming year we must increase the output of many weapons and supplies on short notice. Otherwise we shall not keep our production abreast of the swiftly changing needs of war. At the same time it will be necessary to draw progressively many men now engaged in war production to serve with the armed forces, and their places in war production must be filled promptly. These developments will require the addition of hundreds of thousands to those already working in war industry. We do not believe that these needs can be met effectively under present methods.

"The record made by management and labor in war industry has been a notable testimony to the resourcefulness and power of America. The needs are so great, nevertheless, that in many instances we have been forced to recall soldiers and sailors from military duty to do work of a civilian character in war production, because of the urgency of the need for equipment and because of inability to recruit civilian labor."

Pending action by the Congress on the broader aspects of national service, I recommend that the Congress immediately enact legislation which will be effective in using the services of the 4,000,000 men now classified as IV-F in whatever capacity is best for the war effort.

In the field of foreign policy, we propose to stand together with the United Nations not for the war alone but for the victory for which the war is fought.

It is not only a common danger which unites us but a common hope. Ours is an association not of Governments but of peoples—and the peoples' hope is peace. Here, as in England; in England, as in Russia; in Russia, as in China; in France, and through the continent of Europe, and throughout the world; wherever men love freedom, the hope and purpose of the people are for peace—a peace that is durable and secure.

It will not be easy to create this peoples' peace. We delude ourselves if we believe that the surrender of the armies of our enemies will make the peace we long for. The unconditional surrender of the armies of our enemies is the first and necessary step—but the first step only.

We have seen already, in areas liberated from the Nazi and the Fascist tyranny, what problems peace will bring. And we delude ourselves if we attempt to believe wishfully that all these problems can be solved overnight.

The firm foundation can be built—and it will be built. But the continuance and assurance of a living peace must, in the long run, be the work of the people themselves.

We ourselves, like all peoples who have gone through the difficult processes of liberation and adjustment, know of our own experience how great the difficulties can be. We know that they are not difficulties peculiar to any continent or any Nation. Our own Revolutionary War left behind it, in the words of one American historian, "an eddy of lawlessness and disregard of human life." There were separatist movements of one kind or another in Vermont, Pennsylvania, Virginia, Tennessee, Kentucky, and Maine. There were insurrections, open or threatened, in Massachusetts and New Hampshire. These difficulties we worked out for ourselves as the peoples of the liberated areas of Europe, faced with complex problems of adjustment, will work out their difficulties for themselves.

Peace can be made and kept only by the united determination of free and peace-loving peoples who are willing to work together—willing to help one another—willing to respect and tolerate and try to understand one another's opinions and feelings.

The nearer we come to vanquishing our enemies the more we inevitably become conscious of differences among the victors.

We must not let those differences divide us and blind us to our more important common and continuing interests in winning the war and building the peace.

International cooperation on which enduring peace must be based is not a one-way street.

Nations like individuals do not always see alike or think alike, and international cooperation and progress are not helped by any Nation assuming that it has a monopoly of wisdom or of virtue.

In the future world the misuse of power, as implied in the term "power politics," must not be a controlling factor in international relations. That is the heart of the principles to which we have subscribed. We cannot deny that power is a factor in world politics any more than we can deny its existence as a factor in national politics. But in a democratic world, as in a democratic Nation, power must be linked with responsibility, and obliged to defend and justify itself within the framework of the general good.

Perfectionism, no less than isolationism or imperialism or power politics, may obstruct the paths to international peace. Let us not forget that the retreat to isolationism a quarter of a century ago was started not by a direct attack against international cooperation but against the alleged imperfections of the peace.

In our disillusionment after the last war we preferred international anarchy to international cooperation with Nations which did not see and think exactly as we did. We gave up the hope of gradually achieving a better peace because we had not the courage to fulfill our responsibilities in an admittedly imperfect world.

We must not let that happen again, or we shall follow the same tragic road again—the road to a third world war.

We can fulfill our responsibilities for maintaining the security of our own country only by exercising our power and our influence to achieve the principles in which we believe and for which we have fought.

In August, 1941, Prime Minister Churchill and I agreed to the principles of the Atlantic Charter, these being later incorporated into the Declaration by United Nations of January 1, 1942. At that time certain isolationists protested vigorously against our right to proclaim the principles—and against the very principles themselves. Today, many of the same people are protesting against the possibility of violation of the same principles.

It is true that the statement of principles in the Atlantic Charter does not provide rules of easy application to each and every one of this war-torn world's tangled situations. But it is a good and a useful thing— it is an essential thing—to have principles toward which we can aim.

And we shall not hesitate to use our influence—and to use it now—to secure so far as is humanly possible the fulfillment of the principles of the Atlantic Charter. We have not shrunk from the military responsibilities brought on by this war. We cannot and will not shrink from the political responsibilities which follow in the wake of battle.

I do not wish to give the impression that all mistakes can be avoided and that many disappointments are not inevitable in the making of peace. But we must not this time lose the hope of establishing an international order which will be capable of maintaining peace and realizing through the years more perfect justice between Nations.

To do this we must be on our guard not to exploit and exaggerate the differences between us and our allies, particularly with reference to the peoples who have been liberated from Fascist tyranny. That is not the way to secure a better settlement of those differences or to secure international machinery which can rectify mistakes which may be made.

I should not be frank if I did not admit concern about many situations—the Greek and Polish for example. But those situations are not as easy or as simple to deal with as some spokesmen, whose sincerity I do not question, would have us believe. We have obligations, not necessarily legal, to the exiled Governments, to the underground leaders, and to our major allies who came much nearer the shadows than we did.

We and our allies have declared that it is our purpose to respect the right of all peoples to choose the form of government under which they will live and to see sovereign rights and self-government restored to those who have been forcibly deprived of them. But with internal dissension, with many citizens of liberated countries still prisoners of war or forced to labor in Germany, it is difficult to guess the kind of self-government the people really want.

During the interim period, until conditions permit a genuine expression of the people's will, we and our allies have a duty, which we cannot ignore, to use our influence to the end that no temporary or provisional authorities in the liberated countries block the eventual exercise of the peoples' right freely to choose the government and institutions under which, as freemen, they are to live.

It is only too easy for all of us to rationalize what we want to believe, and to consider those leaders we like responsible and those we dislike irresponsible. And our task is not helped by stubborn partisanship, however understandable on the part of opposed internal factions.

It is our purpose to help the peace-loving peoples of Europe to live together as good neighbors, to recognize their common interests and not to nurse their traditional grievances against one another.

But we must not permit the many specific and immediate problems of adjustment connected with the liberation of Europe to delay the establishment of permanent machinery for the maintenance of peace. Under the threat of a common danger, the United Nations joined together in war to preserve their independence and their freedom. They must now join together to make secure the independence and freedom of all peace-loving states, so that never again shall tyranny be able to divide and conquer.

International peace and well-being, like national peace and well-being, require constant alertness, continuing cooperation, and organized effort.

International peace and well-being, like national peace and well-being, can be secured only through institutions capable of life and growth.

Many of the problems of the peace are upon us even now while the conclusion of the war is still before us. The atmosphere of friendship and mutual understanding and determination to find a common ground of common understanding, which surrounded the conversations at Dumbarton Oaks, gives us reason to hope that future discussions will succeed in developing the democratic and fully integrated world security system toward which these preparatory conversations were directed.

We and the other United Nations are going forward, with vigor and resolution, in our efforts to create such a system by providing for it strong and flexible institutions of joint and cooperative action.

The aroused conscience of humanity will not permit failure in this supreme endeavor.

We believe that the extraordinary advances in the means of intercommunication between peoples over the past generation offer a practical method of advancing the mutual understanding upon which peace and the institutions of peace must rest, and it is our policy and purpose to use these great technological achievements for the common advantage of the world.

We support the greatest possible freedom of trade and commerce.

We Americans have always believed in freedom of opportunity, and equality of opportunity remains one of the principal objectives of our national life. What we believe in for individuals, we believe in also for Nations. We are opposed to restrictions, whether by public act or private arrangement, which distort and impair commerce, transit, and trade.

We have house-cleaning of our own to do in this regard. But it is our hope, not only in the interest of our own prosperity but in the interest of the prosperity of the world, that trade and commerce and access to materials and markets may be freer after this war than ever before in the history of the world.

One of the most heartening events of the year in the international field has been the renaissance of the French people and the return of the French Nation to the ranks of the United Nations. Far from having been crushed by the terror of Nazi domination, the French people have emerged with stronger faith than ever in the destiny of their country and in the soundness of the democratic ideals to which the French Nation has traditionally contributed so greatly.

During her liberation, France has given proof of her unceasing determination to fight the Germans, continuing the heroic efforts of the resistance groups under the occupation and of all those Frenchmen throughout the world who refused to surrender after the disaster of 1940.

Today, French armies are again on the German frontier, and are again fighting shoulder to shoulder with our sons.

Since our landings in Africa, we have placed in French hands all the arms and material of war which our resources and the military situation permitted. And I am glad to say that we are now about to equip large new French forces with the most modern weapons for combat duty.

In addition to the contribution which France can make to our common victory, her liberation likewise means that her great influence will again be available in meeting the problems of peace.

We fully recognize France's vital interest in a lasting solution of the German problem and the contribution which she can make in achieving international security. Her formal adherence to the declaration by United Nations a few days ago and the proposal at the Dumbarton Oaks discussions, whereby France would receive one of the five permanent seats in the proposed Security Council, demonstrate the extent to which France has resumed her proper position of strength and leadership.

I am clear in my own mind that, as an essential factor in the maintenance of peace in the future, we must have universal military training after this war, and I shall send a special message to the Congress on this subject.

An enduring peace cannot be achieved without a strong America—strong in the social and economic sense as well as in the military sense.

In the State of the Union message last year I set forth what I considered to be an American economic bill of rights.

I said then, and I say now, that these economic truths represent a second bill of rights under which a new basis of security and prosperity can be established for all—regardless of station, race, or creed.

Of these rights the most fundamental, and one on which the fulfillment of the others in large degree depends, is the "right to a useful and remunerative job in the industries or shops or farms or mines of the Nation." In turn, others of the economic rights of American citizenship, such as the right to a decent home, to a good education, to good medical care, to social security, to reasonable farm income, will, if fulfilled, make major contributions to achieving adequate levels of employment.

The Federal Government must see to it that these rights become realities—with the help of States, municipalities, business, labor, and agriculture.

We have had full employment during the war. We have had it because the Government has been ready to buy all the materials of war which the country could produce—and this has amounted to approximately half our present productive capacity.

After the war we must maintain full employment with Government performing its peacetime functions. This means that we must achieve a level of demand and purchasing power by private consumers—farmers, businessmen, workers, professional men, housewives—which is sufficiently high to replace wartime Government demands; and it means also that we must greatly increase our export trade above the prewar level.

Our policy is, of course, to rely as much as possible on private enterprise to provide jobs. But the American people will not accept mass unemployment or mere makeshift work. There will be need for the work of everyone willing and able to work—and that means close to 60,000,000 jobs.

Full employment means not only jobs—but productive jobs. Americans do not regard jobs that pay substandard wages as productive jobs.

We must make sure that private enterprise works as it is supposed to work— on the basis of initiative and vigorous competition, without the stifling presence of monopolies and cartels.

During the war we have guaranteed investment in enterprise essential to the war effort. We should also take appropriate measures in peacetime to secure opportunities for new small enterprises and for productive business expansion for which finance would otherwise be unavailable.

This necessary expansion of our peacetime productive capacity will require new facilities, new plants, and new equipment.

It will require large outlays of money which should be raised through normal investment channels. But while private capital should finance this expansion program, the Government should recognize its responsibility for sharing part of any special or abnormal risk of loss attached to such financing.

Our full-employment program requires the extensive development of our natural resources and other useful public works. The undeveloped resources of this continent are still vast. Our river-watershed projects will add new and fertile territories to the United States. The Tennessee Valley Authority, which was constructed at a cost of $750,000,000—the cost of waging this war for less than 4 days—was a bargain. We have similar opportunities in our other great river basins. By harnessing the resources of these river basins, as we have in the Tennessee Valley, we shall provide the same kind of stimulus to enterprise as was provided by the Louisiana Purchase and the new discoveries in the West during the nineteenth century.

If we are to avail ourselves fully of the benefits of civil aviation, and if we are to use the automobiles we can produce, it will be necessary to construct thousands of airports and to overhaul our entire national highway system.

The provision of a decent home for every family is a national necessity, if this country is to be worthy of its greatness—and that task will itself create great employment opportunities. Most of our cities need extensive rebuilding. Much of our farm plant is in a state of disrepair. To make a frontal attack on the problems of housing and urban reconstruction will require thoroughgoing cooperation between industry and labor, and the Federal, State, and local Governments.

An expanded social security program, and adequate health and education programs, must play essential roles in a program designed to support individual productivity and mass purchasing power. I shall communicate further with the Congress on these subjects at a later date.

The millions of productive jobs that a program of this nature could bring are jobs in private enterprise. They are jobs based on the expanded demand for the output of our economy for consumption and investment. Through a program of this character we can maintain a national income high enough to provide for an orderly retirement of the public debt along with reasonable tax reduction.

Our present tax system geared primarily to war requirements must be revised for peacetime so as to encourage private demand.

While no general revision of the tax structure can be made until the war ends on all fronts, the Congress should be prepared to provide tax modifications at the end of the war in Europe, designed to encourage capital to invest in new enterprises and to provide jobs. As an integral part of this program to maintain high employment, we must, after the war is over, reduce or eliminate taxes which bear too heavily on consumption.

The war will leave deep disturbances in the world economy, in our national economy, in many communities, in many families, and in many individuals. It will require determined effort and responsible action of all of us to find our way back to peacetime, and to help others to find their way back to peacetime—a peacetime that holds the values of the past and the promise of the future.

If we attack our problems with determination we shall succeed. And we must succeed. For freedom and peace cannot exist without security.

During the past year the American people, in a national election, reasserted their democratic faith.

In the course of that campaign various references were made to "strife" between this Administration and the Congress, with the implication, if not the direct assertion, that this Administration and the Congress could never work together harmoniously in the service of the Nation.

It cannot be denied that there have been disagreements between the legislative and executive branches—as there have been disagreements during the past century and a half.

I think we all realize too that there are some people in this Capital City whose task is in large part to stir up dissension, and to magnify normal healthy disagreements so that they appear to be irreconcilable conflicts.

But—I think that the over-all record in this respect is eloquent: The Government of the United States of America—all branches of it—has a good record of achievement in this war.

The Congress, the Executive, and the Judiciary have worked together for the common good.

I myself want to tell you, the Members of the Senate and of the House of Representatives, how happy I am in our relationships and friendships. I have not yet had the pleasure of meeting some of the new Members in each House, but I hope that opportunity will offer itself in the near future.

We have a great many problems ahead of us and we must approach them with realism and courage.

This new year of 1945 can be the greatest year of achievement in human history.

Nineteen forty-five can see the final ending of the Nazi-Fascist reign of terror in Europe.

Nineteen forty-five 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. This organization must be the fulfillment of the promise for which men have fought and died in this war. It must be the justification of all the sacrifices that have been made—of all the dreadful misery that this world has endured.

We Americans of today, together with our allies, are making history—and I hope it will be better history than ever has been made before.

We pray that we may be worthy of the unlimited opportunities that God has given us.

***

State of the Union Address Harry S. Truman January 21, 1946

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

[Footnote 1: The report dated January 1, 1946, and entitled "Battle for Production" is printed in House Document 398 (79th Cong., 2d sess.).]

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.