Statement on the Economic Recovery Program.

THE PRESIDENT said:

The program for united action discussed by the President with Senators Robinson and Watson is as follows:

1. The policy steadfastly adhered to up to the present time has been that responsibility for relief to distress belongs to private organizations, local communities, and the States. That fundamental policy is not to be changed. But since the fear has arisen that existing relief measures and resources may prove inadequate in certain localities and to insure against any possible breakdown in those localities it is proposed that authority be granted to the Reconstruction Finance Corporation to assist such States as may need it by underwriting only State bonds or by loaning directly to such States as may not be in position temporarily to sell securities in the market. The funds so obtained to be used for relief purposes and the total limited to $250 million or $300 million.

The second part of the program contemplates providing the machinery whereby employment may be increased through restoring normal occupations rather than works of artificial character. Without entering the field of industrial or public expansion, there are a large number of economically sound and self-supporting projects of a constructive replacement character that would unquestionably be carried forward were it not for the present situation existing in the capital markets and the inadequate functioning of the credit machinery of the country. They exist both in the field of public bodies and of industry. There is no dearth of capital, and on the other hand there is a real demand for capital for productive purposes that have been held in abeyance. The problem is to make the existing capital available and to stimulate its use in constructive capital activities. This involves under existing conditions resort to special machinery which is adapted to furnish the necessary element of confidence.

It is proposed to use the instrumentality of the Reconstruction Finance Corporation which has a nationwide organization by authorizing the Corporation either to underwrite or make loans for income-producing and self-sustaining enterprises which will increase employment whether undertaken by public bodies or by private enterprises.

In order to safeguard the program beyond all question, it is proposed that there must be proper security for the loans, that as said projects must be income-producing, that borrowers must have sufficient confidence to furnish part of the capital, and that the project must contribute to early and substantial employment.

It is proposed to provide the necessary funds as they are required by the sale of securities of the Reconstruction Corporation and its total borrowing powers to be increased up to $3 billion. It is not proposed to issue Government bonds. It is hoped that this further process of speeding up the economic machine will not involve any such sum. But in view of the early adjournment of Congress, it is desirable to provide an ample margin.

It is necessary to sharply distinguish between the use of capital for the above purposes and its use for unproductive public works. This proposal represents a flow of funds into productive enterprises which is not taking place today because of abnormal conditions. These being loans on security and being self-liquidating in character do not constitute a charge against the taxpayer or the public credit. The issue of bonds for public works, nonproductive of revenue, is a direct charge either upon the taxpayer or upon the public credit, the interest on which and the ultimate redemption of which must be met from taxation.

An examination shows that to increase Federal Government construction work during the next year beyond the amounts already provided for would be to undertake works of largely artificial character far in advance of public return and would represent a wasteful use of capital and public credit.