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November 1986, 
Vol. 68, No. 9
Posted 1986-11-01

The Employment Act of 1946: Some History Notes

by G.J. Santoni

G. J. Santoni shows that the legislation, as initially proposed, stirred up considerable controversy. Its sponsors believed that earlier failures to deal with unemployment in the United States and other nations had contributed significantly to the rise of National Socialism in Germany, which eventually culminated in World War II. Its detractors argued that business cycles arose, in part, from major shifts in the relative demand or supply of various goods and services; government attempts to maintain employment in the face of such shifts, therefore, would be inefficient and socially counterproductive. Critics felt, moreover, that the application of the new theory of compensatory finance to avoid periodic booms and busts required forecasting accuracy that was unachievable. Santoni shows that the legislation that was initially proposed did not fare well in the debates. The Employment Act of 1946 approved by Congress differed markedly from the proposed Full Employment Bill of 1945. As approved, the act recognized both high employment and price level stability as important economic policy objectives. Furthermore, the requirement to apply the principle of compensatory finance, the centerpiece of the 1945 proposal, was stripped away.





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