Remarks on Price Stability at a White House Dinner for Business Leaders.

TONIGHT we're going to talk business. For as long as I am President, the leaders of industry and finance are going to be welcome in this House. To sit down and exchange views with you from time to time is vital to the health of our free enterprise economy.

For one thing, it keeps the light bill up--and the electric companies like that!

And for another thing, it keeps me off the streets--and Time magazine likes that!

But more importantly, it gives me a chance to ask your help in the fight to keep the economy strong and the dollar sound.

Times are very good. Our economy is in a record expansion. Most of you are doing a record business--and earning record profits. You only have to look at the record to know the facts:

--For 1961, corporate profits after taxes were $21.8 billion;

--For 1962, they were up to $24.6 billion;

--For 1963, they rose again to $27.1 billion;

--And for 1964, we expect profits to reach $31.0 billion.

Nor have you earned these profits at the expense of labor or of the consumer:

--Over the past 3 years, labor income has risen by nearly $60 billion at an annual rate.

--Average weekly earnings in manufacturing are up from $89 to over $101.

--Wholesale prices have held steady.

--Consumer prices have edged up only about 1.2 percent per year--not much more than the added quality you are putting into your products.

Our $12 billion tax cut is now at work, bringing new vitality to our lean, hard expansion. I know some of you would agree with the little boy--the son of a big businessman --who said that capital punishment is "when the Government sets up business in competition with you, and then takes all your profits with taxes in order to make up its loss." I hope you are changing your mind about it, however.

So much of the credit for that goes to the Business Committee for Tax Reduction-and especially to Henry Ford and Stu Saunders. We couldn't have won without you.

The new law cuts corporate taxes nearly $2½ billion a year. And that's on top of another $2 1/2 billion or so of tax cutback in 1962 through the investment credit and more liberal depreciation.

We have cut the corporate tax by one-fifth. Now I agree with the fellow who said that after the Government takes enough to balance the budget, the citizen has the job of budgeting the balance--we've just been trying to give the people more balance to budget!

And we have done this in an administration some people have called "antibusiness."

I just don't believe we're anti-anything. We are pro-business--and pro-labor--and pro-the national interest.

For example, the average corporation profits during the 8 years, 1953-1960, were $21 billion. The average corporation profits for the years 1961-1964 were $26 billion, or a rise of 24 percent. Is that the result of antibusiness attitudes?

I suspect the animosity that allegedly exists between business and the Government can be traced to either side. I suspect, ladies and gentlemen, that we haven't given you any more trouble than you've given us--and vice versa.

And one reason I wanted you here tonight is to ask you to cooperate in creating a new climate between us--because this is one country, one society, and one people. Divisions only destroy the unity upon which a great future should be built.

And that future can be great. I feel confident that this 1964 tax cut is going to do what we thought it would do. Elliott Bell's more recent survey shows that it is working already--to boost jobcreating private investment 12 percent over a year ago, 18 percent in manufacturing.

It is too early to make firm promises on further tax cuts. But if this one is a success-as I have every reason to believe it will be--in building production, creating jobs, raising profits, and generating revenues to balance the budget, then I see another tax cut a few years down the road.

But we can move to this second round of tax reduction only if we behave ourselves this year. We can't let our costs creep up--and we can't let our prices creep up. This is where the decisions of leaders in business and leaders in labor are crucial.

In the case of wages, we need to match the good record of the past 3 years and keep the increases in line with the average productivity gain for the economy as a whole. And average prices have to be kept stable. This will mean a good increase in real earnings for labor. And as your sales continue to rise, it will mean a good increase in profits for you.

Under this approach labor does not get all of the productivity increase. It gets only that proportion equal to its current share of the total sales dollar.

Your profits will also share in the larger pie. And I look to you to use the increase not only to raise dividends, but to

--build job-creating investment

--benefit consumers through price reductions.

What will happen if we are unable to keep wage increase in line with average productivity and hold the cost and price line?

A lot of people will get hurt.

People on fixed incomes--old people-retired people--will get hurt.

Many workers whose wages don't keep up will get hurt--even in the short run.

Many of you--whose costs for materials, components, machinery, and labor outrun your prices--will get hurt, even in the short run.

And before long we all will get hurt as inflation eats away at the foundations of our economy. Did you know that a house that could be built in 1946 for $10,000 costs about double that today? In 1946, with a reasonable mortgage and down-payment, that house could be bought for less than $60 a month under FHA. Today? Over $100 a month.

Nearly one-third of that increase is higher interest costs. But the bulk of it is rising prices and rising wage-costs.

If the cost-push spiral starts up again, we would be repeating the mistake we made in 1955. Then, as now, we had:

--a strong advance in output, jobs, and incomes

--and the chance to keep the economy moving up steadily with stable prices.

But we threw that opportunity away. We let a disruptive price-wage spiral get under way. The results were inflation--and then recession.

This year, there's even less excuse for such a mistake:

We have no serious bottlenecks--in fact, surplus labor and industrial capacity is still a major problem.

We've had 9 years in which to learn more--both those of us who make public policy and those of you who make private policy.

And we have a strong incentive for keeping prices stable that wasn't so pressing in 1955.

I'm talking about our need to balance our international payments and protect the health of the dollar. We must strengthen our competitive position in world markets.

Much of our balance-of-payments problem traces back to the years 1955 to 1958. Our wage-price spiral here in the United States

--raised steel product prices 29 percent in 38 months.

--raised prices of industrial valves 44 percent in 4 years.

--raised prices of metal-working machinery 25 percent in 30 months.

Those were the years when we lost our big competitive edge in world markets--the edge that we have been fighting to win back ever since.

We have been winning it back since 1958 by holding our prices and labor costs just about stable here in the United States while most of our competitors have been having their turn with inflation.

From 1959 to 1963 the U.S. wholesale price index actually declined a bit. But wholesale prices increased II percent in France, 10 percent in Italy, 8 percent in the United Kingdom, 4 percent in Germany, and 3 percent in Japan. And in most of those countries, the rise is continuing in 1964.

We have a golden opportunity. Let's not squander it.

Defending the dollar by tight competitive pricing is the job of every businessman. If you weaken the dollar, you weaken the whole free world's monetary system. Defending the dollar through the success of free markets is the way to avoid defending the dollar in harsher ways. For we will defend it.

The job is up to you, it's up to labor, and it's up to us in the Government.

Some people have criticized me in my efforts to keep prices from rising. That's all right. What they say doesn't bother me; what happens to prices does. I'll use any sound technique and any appropriate Government policy to protect the dollar.

I know that some of you are worried that I'll try to substitute friendly persuasion for the hard-nosed monetary and fiscal policy we may need if inflation again threatens. I

Won't.

Of course, I'll do all the persuading I can. I've had to do a little of that recently, as you may have read. And I hope that Doug Dillon and Bill Martin and Bob Roosa will keep those long-term interest rates down so we can keep the economy up. But let me assure you: if the balance of payments turns sour, or if inflation starts rolling, I will look to the independent Federal Reserve as our second line of defense. I would have said "first," but you in this room are the first line.

But right behind you is Bill Martin--a man whom I give full faith and credit as an inflation-fighter beyond compare.

Our wage-price guideposts are an also essential part of our defense against inflation-especially cost-push inflation. The guideposts are sensible and fair. They are in the public interest, and while I cannot-and will not--force anyone to follow them, I can call them to your attention and ask for your cooperation. Only if I do so, can I be faithful to the public interest.

We have all attended meetings where pledges were called for--I have even been known to conduct such meetings. The greatest contribution you can make to your country today is to pledge to hold the price line or actually cut prices and share your gains in productivity with consumers.

I don't think I am suggesting anything contrary to your own interests, or the interests of your stockholders. High profits achieved through a rising price level could disrupt this long, balanced, steady expansion we have had. This would bring all profits tumbling down. And high profits not shared with consumers are an open invitation to the high wage demands which could touch off another wage-price spiral.

By your pricing policies you can pave the way for continued expansion without distortion--for continued improvement in our international competitive position.

I want you to emulate the railroad people who reached a truly historic settlement last week.

Nobody lost. Everybody won--especially the American people.

Next week the key labor leaders of the country will come to see me here. I will tell them that I know they don't want to push so hard for wage increases this year that they would hurt a lot of people and start a spiral going from their side. And I will tell them that I have talked to you this week. And I will lay the cards out just as straight for them as I do for you.

That way everyone will know the score-like the conversation at the card game when one of the boys looked across the table and said, "Now Reuben, play the cards fair. I know what I dealt you."

I know what I dealt you--an honest appeal to help give this country years of unparalleled prosperity.

In the Old Testament there is a verse which says: "Seest thou a man diligent in his business, he shall stand before kings: he shall not stand before mean men." I can promise you that if you are diligent in your business, this President will always be pleased to stand with you--anywhere, anytime!