(4) Production and consumption should be coordinated on a broader and more intelligent basis thus tending to regularize employment and thereby removing fear from the minds of the workers as to continuity of employment; as to their surviving dependents in case of death; and as to old age. (5) If organized industry is to undertake this work, every effort should be made to preserve the benefits of individual originality, initiative, and enterprise, and to see that the public is assured that its interests will be protected, and this can be done most effectively by working through the agency of the Federal Government. Methods advocated: (1) All industrial and commercial companies (including subsidiaries) with 50 or more employees, and doing an interstate business, may form a trade association which shall be under the supervision of a Federal body referred to later. (2) These trade associations may outline trade practices, business ethics, methods of standard accounting and cost practice, standard forms of balance sheet and earnings statement, etc., and may collect and distribute information on volume of business transacted, inventories of merchandise on hand, simplification and standardization of products, stabilization of prices, and all matters which may arise from time to time relating to the growth and development of industry and commerce in order to promote stabilization of employment and give the best service to the public. Much of this sort of exchange of information and data is already being carried on by trade associations now in existence. A great deal more valuable work of this character is possible. (3) The public interest shall be protected by the supervision of companies and trade associations by the Federal Trade Commissioner or by a bureau of the Department of Commerce or by some federal supervisory body specially constituted. (4) All companies within the scope of this plan shall be required to adopt standard accounting and cost systems and standardized forms of balance sheet and earnings statement. These systems and forms may differ for the different industries, but will follow a uniform plan for each industry as adopted by the trade association and approved by the Federal supervisory body. (5) All companies with participants or stockholders numbering 25 or more, and living in more than one State, shall send to its participants or stockholders and to the supervisory body at least once each quarter a statement of their business and earnings in the prescribed form. At least once each year they shall send to the participants or stockholders and to the supervisory body a complete balance sheet and earnings statement in the prescribed form. (6) The Federal supervisory body shall cooperate with the Internal Revenue Department and the trade associations in developing for each industry standardized forms of balance sheet and income statement, depending upon the character of the business, for the purpose of reconciling methods of reporting assets and income with the basis of values and income calculated for Federal tax purpose. (7) All of the companies of the character described herein may immediately adopt the provisions of this plan but shall be required to do so within three years unless the time is extended by the Federal supervisory body. Similar companies formed after the plan becomes effective may come in at once but shall be required to come in before the expiration of three years from the date of their organization unless the time is extended by the Federal supervisory body. (8) For the protection of employees, the following plans shall be adopted by all of these companies: A workman's compensation act; life and disability insurance; pension; unemployment insurance. Author's evaluation: "By this method American industry can discharge its obligation to its employees and, by holding its position in the markets of the world, bring additional work to America." Status of the plan: Presented to the National Electrical Manufacturers Association, September 16, 1931. The board of governors of the association passed resolutions commending Mr. Swope for preparing a completely formulated plan; expressing the belief that a plan of stabilization of industry would be of aid to all concerned; recommending that the policies division of the National Electrical Manufacturers Association through a special committee make a careful study and develop, in cooperation with trade associations, a constructive program contemplating stabilization of industry with adequate protection for all elements involved. PLAN OF UNITED STATES CHAMBER OF COMMERCE Classification: Suggestions for stabilizing industry through voluntary action of business men. Author and origin: A report of the committee on continuity of business and employment of United States Chamber of Commerce, Henry I. Harriman, of Boston, chairman. Printed copies distributed to constituent members and made publicly available October 30, 1931. Objective: To secure better balance between production and distribution. Theory or principle: Advocates limited amendment of antitrust laws, the setting up of a national economic council; the voluntary adoption by employers of unemployment reserve plans, the voluntary development of uniform plans for protection against unemployment, old age, sickness, and accidents by trade associations. These and other topics are presented under three headings: (1) Causes of Depression and Unemployment; (2) Long-time Measures for Lessening Effect of Depression; (3) Means for Meeting Immediate Unemployment Conditions. Cites as causes of the depression, wars, undue expansion, and speculation. Does not believe that technological advance is the main cause of the depression but admits there is a problem to be solved. Expresses belief that gradual shortening of hours of labor should continue in the future. Methods advocated: Advocates modification of antitrust laws to legalize voluntary agreements designed to keep production related to consumption, such agreements to be under supervision of a governmental agency. Advocates industrial planning by representative trade associations and national planning through a national economic council. Proposes a national economic council of three to five members of highest standing and representative of the country as a whole, privately organized and sufficiently financed so that it could employ highest gradeof economists, etc. Status of plan: Acceptance by general referendum of chamber. PLAN OF ERNEST J. WOLFE Classification: Unemployment relief. Author and origin: Ernest J. Wolfe, instructor in economics, Columbia University. Plan "has been developed through an exchange of communications with students, professors of economics, and State and Federal Government officials." Objective: To alleviate unemployment. Financing of Theory or principle: "A conservative principle underlying this plan is that we should prepare in periods of prosperity for periods of depression." plan is to be jointly by workers and the Government. Methods advocated: "It is proposed that units be established for the production and distribution of commodities, and provision made for the rendering of services adequate to maintain a comfortable level of living." Among the commodities that are to be produced are: The various economical cuts of beef, veal, mutton, lamb, and pork, fresh fish, salt fish, chickens, eggs, lard, butter, milk, wheat flour, cornmeal, potatoes, cheese, vinegar, molasses, dry beans, prunes, evaporated apples, and rice, the commonly used items of men's, women's, and children's clothing, various forms of fuel, furniture, tobacco, and the commonly used building materials. "Each unit, or the several units in a community, shall be organized as a corporation. A holding corporation is also to be organized, which is to hold the stock of all the productive and distributive units. "The United States Government is to own all the stock of the holding corporation, and is to hold this stock in trust for the workers of the United States." There are to be two types of workers, "Those who constitute the permanent staff, and those who are employed only until there are positions available to them in private industry." * * output shall be restricted to amounts required by the personnel both during normal and emergency times.' Workers not needed for this production shall be employed in public projects." "In the first year of the operation of this plan, and until such time as an adequate reserve has been accumulated, a graduated tax of 1 to 5 per cent shall be levied on all incomes in excess of $1,200 derived from wages and salaries of all workers in the United States." Author's evaluation: "* * * the plan is thoroughgoing." "It is clearly realized that this proposal is not an attempt to solve all our economic problems.' Status of plan: Proposal only. CLOSURE The preceding list of causes or possible causes of economic dislocations and business instability, and the assay of plans, programs, and remedies, are representative of the thinking of the past year. To the extent that the causes are recognized as valid and the remedies as feasible, the presentation is, on the one hand, impressive, and, on the other, discouraging. These points of view are distinctly those emphasized by the material as a whole which has reached your committee in the study which has yielded this report. The single finding which the committee is willing to support at this time, drawn from the presentation of causes and remedies, is that no one all-inclusive cause can be designated as the forerunner of business recession, nor can any one all-inclusive remedy be found as a preventative or cure. The situation that this finding presents should occasion neither surprise nor discouragement. Emphasis is merely given to the accepted fact of the complexity of our business and industrial structure, and to the interaction of economic forces. The problem of social and economic control is of such magnitude that its solution will be a major event in the history of civilization. The project can not, and must not, be approached from any inferior estimate of difficulty or extent. This second progress report should be considered as superseding its predecessor of a year ago for the reason that it indicates the direction and quality of thinking of a year of intense business stress. The next effort of the committee may well be to select and present those elements of remedial programs which seem feasible and practicable and which promise to integrate into a program of social and economic control. This integration will only be attained through a slow evolutionary process. (A letter received from Mr. H. A. Willis and an article submitted therewith are here printed in full as follows:) Hon. REED SMOOT, THE UNIVERSITY OF CHICAGO, Chairman Senate Committee on Finance, Washington, D. C. DEAR SIR: My work incidental to the unemployment situation in Illinois is so pressing that I can not appear before the Committee on Finance to present such views as I have concerning the " 'causes of the present depression and possible legislative remedies." I do, however, accept your invitation to submit some of these views in writing. I submit herewith a printed copy of a memorandum on Balancing the Budget: Federal Fiscal Policy During Depression. As indicated by the title page, the memorandum was the product of a series of round-table discussions, these meetings being called by me. It expresses the views of the 11 economists, political scientists, and leaders in public administration who formulated and signed it. A few observations may be made on this memorandum. (1) The chief objective we had was to define what is meant by balancing the budget, in an effort to correct erroneous views as to the problem. Capital expenditures and certain other charges have no rightful place in the ordinary budget which is to be balanced. (2) The opportunities for reducing Federal expenditures was discussed. I wish to add to the statement occurring near the bottom of page 13, reading, "Expenditures for veterans include allowances for disabilities and hospitalization arising from injuries not connected with military service. Until the Federal Government undertakes the relief of destitution for all persons, these allowances appear to constitute merely a bid for political support to a privileged group." Here is an opportunity that should be embraced to save $400,000,000 or $500,000,000 per year in 1933-34 and a much larger amount later on by amending existing legislation and returning to sound principles. (3) The Wagner bill (S. 5336) should be passed at the earliest possible moment in order to make possible the prosecution of urgent and desirable public works the States and local government have planned to prosecute but can not finance at this time. Developing this last point, I may say that here in Illinois, and the situation is not untypical of the situation in the industrial States generally, a very large percentage of the working people are unemployed; an increasing and very large num ber of them have become public charges; the cost of public aid in the State is several million dollars per month; an increase in the volume of employment is imperative; there is a considerable volume of public work that might be done, some of it urgent, some of it highly useful in the years to come. Of course, public work involving bond issues calls for taxation to pay interest and sinking fund charges, and hence raises the question of whether or not it is wise to prosecute public works at this time. In my opinion, it is wiser to borrow money for needed public works than to borrow money for mere relief of the destitute, and the condition of the finances of the county of Cook and of the State is such that borrowing will inevitably be resorted to for work or for relief. While perhaps a given sum of money will go somewhat further in financing relief than in placing men at work and thus minimizing relief, I am convinced of the value of employing men on needed public works at this time. Relief involves great risk of developing the spirit of dependency; work makes for independence and self-reliance. Relief is accompanied by deteriorated efficiency; work under conditions as nearly normal as they can be made, maintains efficiency. Mere relief leaves nothing behind except a record of money spent; employment on needed public works results in tangible things which will serve the needs of the community for years to come. And more than that. Good drainage, good water supply, good highways, decent schools facilities are helpful in restoring values and in affording a good place in which to live and to do business. Finally, constructing public works ought to have cumulative effects in the employment situation, increase consuming power, and improve the opportunity to do business. Being of these opinions and of the further opinion that the existing situation calls for vigorous action, even action involving some risk, I have been interested in finding an answer to the question how needed local public works can be financed at this time. Few of them can be financed out of current local or State revenues. In Cook County, at least, they can not be financed by local bond issues, for the bonds can not be sold except at ruinously low prices. They can not be financed by State bond issues, because of the procedure required by the Constitution. The one answer I have found, in so far as most of the approved public works are concerned, is in loans that might be granted by the Reconstruction Finance Corporation, were the act of 1932 amended and liberalized. Perhaps the credit of the Federal Government remains strong enough to lend some support. Public works would minimize relief and, if carefully proceeded with, should be helpful in toning up the business situation. But in so far as business is concerned they would serve only as a tonic. The big problem is to bring about the necessary balance in our economic system so that business may go ahead. That will involve time and many things. A few of these things may be noted. I am convinced that direct inflation would be inadvisable. A forced increase in prices, assuming that it could be effected, would now involve more harm than good. Now that deflation has proceeded so far, it should be permitted to proceed farther at needed points. The Reconstruction Finance Corporation should cease giving support to railway and other corporations in order to keep alive obligations no longer representing active capital. Excessive valuations and excessive overhead must come down, along with wages, which, with exceptions, have been heavily deflated. Many publicutility rates and other service charges are excessive, in the new, changed situation. The position of the United States in the world situation is substantially different from what it was in pre-war times. Some of our policies must be changed and adapted to the new situation. A more liberal policy with reference to foreign trade must be adopted. The question of debt settlement must be disposed of definitely. To mention only one more point, something must be done about agriculture. Agriculture is so important in our economy that the country can not expect a good degree of prosperity while the plight of the farmer remains unsolved. And, unfortunately, it is extremely difficult to do much about that problem because it is largely a part of a world problem. The allotment plan is based upon a bad principle, and as it would be worked out in practice, any scheme would likely be worse than the principle. But one thing sorely needed is to alleviate the farm mortgage situation. Otherwise the farm situation will be revolutionized-for the worse. What specific measures might best be used to this end, I am not prepared to say. Sincerely yours, H. A. WILLIS, Professor of Economics. [Public Policy Pamphlets No. 1] BALANCING THE BUDGET FEDERAL FISCAL POLICY During DEPRESSION: A STATEMENT BY A UNIVERSITY OF CHICAGO ROUND TABLE INTRODUCTION BY THE EDITOR For many months there has been much discussion of balancing the Federal Budget. Unfortunately, most of those who have participated in the discussion have not been careful to define what they mean by balancing the Budget or to analyze fully the problems involved. Evidently not a few have assumed that all outlays, whether for ordinary operating expenses, capital investments, loans, or emergency relief, should be covered by tax and miscellaneous revenues for the year. Informal discussion of the subject by some of the signers of this memorandum led to the formation of a round table which, beginning early in November last, held a series of meetings. A committee of three drafted a memorandum; this was considered by five economists who have specialized in Government finance, a number of political scientists, and an equally large number of experts officially connected with associations in the field of public administration. A somewhat revised memorandum was then prepared and another meeting held. Working in this way, the statement herewith printed was evolved by the 11 persons who have signed it. This is the first of a series of public policy pamphlets which the University of Chicago Press is planning to publish. Frequently the scholarly journals give no attention at all to problems that have an acute but temporary interest, while the ordinary magazines can print little but superficial comment. The university might well perform a valuable public service by making available to the public whatever special training and information it may have at its disposal. The continuation of such a series will, of course, depend upon its reception by the public. Perhaps it goes without saying that the authors of these pamphlets are individually responsible for their views and that they in no way involve the responsibility of the University of Chicago. JANUARY 16, 1933. HARRY D. GIDEONSE. FEDERAL BUDGETARY POLICY DURING A DEPRESSION Few problems confronting the American public transcend in importance that of Federal financial policy. There appears to be grave danger that in balancing its Budget the Federal Government may adopt policies, the inevitable consequence of which will be the retardation of business recovery and the impairment of the social usefulness of government. These evil consequences can be avoided. In determining its fiscal policy for the coming year the Federal Government is faced with these major questions: 1. How should the Budget be balanced? 2. Should expenditures be reduced? 3. What taxation policies and devices should be adopted? 4. What should be the debt policy of the National Government in the near future? The purpose of this memorandum is to shed light on these questions and to make such constructive suggestions as appear to be in point. The determination of policies to be followed in dealing with governmental budgets concerns State and local units as well as the Federal Government. Though the principles to be observed are almost identical, they are capable of wider application to Federal finances than to the finances of the State and local governments. In one important respect there is a vital difference between the fiscal operations of the national and those of other political units. For the Federal Government has control over the monetary system of the country, and its fiscal policies can and should be controlled with reference to the monetary and credit situation of the Nation. The activities of the National Government are of greater importance in reference to the swings of the business cycle than are those of State and local governments. Although this memorandum is primarily concerned with the issues of policy confronting the Federal Government, some of the fundsmental principles herein discussed may find proper application in the financial programs of other governmental bodies. |