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safeguard the employment (current labor) of its workers. The iminediate need is to rehire the men who were fired, even if they have to engage in nonproductive labor for the time being. Where improved efficiency or improved machines within a plant displace labor it should be the responsibility of industry either to see that such labor is satisfactorily placed elsewhere, or that such increased efficiency is utilized in giving labor greater leisure, by retaining the same labor for less hours per day. We need not be concerned with how this would affect costs of production. The fetish of low costs has too often been the cause of disaster. Higher costs may mean higher returns to labor and consequently increased purchasing power. It makes no difference to a community, broadly speaking, whether a manufacturer sells an article for $1 or $2, so long as the amount of money the community spends on such articles is returned to the community by the manufacturer in the form of wages, dividends, and purchase of raw materials.


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Any suggestion made without consulting competent legal, tax, and accountina experts must necessarily be tentative in form. But if the principles are right and just, a method of applying them surely can be found; if not in one was, then in another.

To recapitulate, the object of the plan is (a) to utilize corporate reserves which represent purchasing power withheld from distribution and now frozen: (b) to increase consuming power directly and immediately; and (c) to make corporations responsible for the welfare of present and past employees, allocating the responsibility evenly over all industry.

It is suggested that a special tax equivalent to say 4 percent of 1932 grau income be levied on corporations, the proceeds of which to be utilized by the corporations themselves to reemploy labor formerly on pay roll.

Such reemployed labor to be used on nonproductive work, or to share the work available with part time and full pay, until demand is restored and normal working conditions in the factories are justified.

The effect of this would be a compulsory industrial unemployment insurance fund to meet a national emergency. Its administration would involve only such problems as must be met in any form of unerıployment insurance.

Where corporations do not possess the necessary cash or liquid resources or do not wish to use their resources or weaken their financial position, the Reconstruction Finance Corporation could be empowered to give credit or advance funds at nominal interest up to the amount of the tax imposed, this indebtedness to be repaid out of future earnings.

To prevent corporations from collecting the amount of the tax imposed from the community by means of increased selling prices, provision couid be maile that no additions to corporate surplus or reserves would be sanctioned by the Treasury Department until the debt to the Reconstruction Finance Corporatio was liquidated.

Corporations might be permitted to pay out earnings in wages and dividends up to some maximum. In other words, the Reconstruction Finance Corporation would not necessarily require corporations to repay the indebtedness immediately, provided the corporations were not withholding earnings and stor ing them up in reserves. The theory is that so long as earnings are being distributed, and not withheld, business must improve.

While the proceeds of such a tax should not be distributed in a lump sum it might prove advisable to niake a part thereof available to meet back bils for groceries, rent, etc., adjusted to the length of time a man has been unemployed.

The purpose of the tax is primarily to reemploy the unemployed; the proces should not be diverted in any way to wages for those now employed; abi some check should be provided to prevent employers reducing wages payable out of earnings, at the expense of wages payable out of this special tar One suggestion would be to forbid for a limited time and as an emergency measure the dismissal of labor or reduction in wages.

The charge for funds advanced to corporations by the Reconstruction Finant Corporation should be as small as possible so that no heavy interest obligatios would accumulate.

The plan should be carried out with as little interference with private hast: ness as possible. For example, if corporations wished to expand plant facilities from new stock issues, before repaying the Reconstruction Finance Corra

tion loans, they might be permitted to do so, even though such a proposal seemed generally unwise. Possibly they could be penalized by being charged a high rate of interest for their unpaid indebtedness.

In the case of a corporation which is now financially weak, and which could plead danger of being forced into receivership, provision might be made whereby the Reconstruction Finance Corporation eventually assumes this burden itself, relieving the corporation of the necessity for repaying the funds. Ths would be done only where it was a clear case of the operation of the law being responsible. The theory is that we will have done our best to bring a recovery in business, and prosperity for all industry. Failing some such recovery, the country must face taxation for unemployment relief, and it would be wiser to place this burden directly upon those industries in which unemployment exists; and if industry cannot bear it all, it can be met later out of the country's finances, when it will be less burdensome.

It would probably prove true that some corporation would obstruct the operation of the law as much as possible, and refuse to abide by its spirit. In such cases it might be feasible to amend the income tax law in such a way that corporations which could not provide satisfactory evidence of having restored a given wage level, would automatically come under certain higher and penalizing supertaxes on earnings when and as made.

It may be objected that an indebtedness of this kind would depress Wall Street stock values. This might or might not be so; for the creation of the indebtedness, repayable only at the corporation's convenience, would tend to restore normal business conditions and corporation earning power.

The working of the plan would tend to preserve a corporation's capital structure and restore the value of its assets. It is designed to build up demand to productive capacity rather than tear down previous values by reconstruction, thus creating unfair competition with those industries which have been soundly managed.

It is in effect the buying of factories on the installment plan. You have the plant capacity now, but pay for it in the future; your small competitor may not be burdened with extra plant capacity now, but he will have to set aside earnings to pay for extra capacity, if he wants it later on. There is one important difference, however, between this proposed installment plan for manufacturers and the installment plan for consumers. Private installment debts can only be settled in capital goods, a situation which contains elements of danger, as pointed out before. Corporate debts incurred under the plan suggested, by involving a direct contribution to purchasing power would reduce private indebtedness; and the repayment of the corporate debts would be in the nature of paying off mortgages, and would not add to capital equipment.

To supplement the duties of the income-tax officials, “business examiners with responsibilities similar to those of “bank examiners” might be appointed with power to examine the financial position of a corporation at any time. The theory is that a company, like a bank, is in more serious need of investigation when it begins to make losses than when it makes so-called “excessive" profits. Also that it is far more important, as society is to-day organized, to safeguard employment (the day-to-day living expense of our people) than to safeguard bank deposits (the past savings of our people deposited in banks because they were not needed for immediate use).

It is suggested that the Reconstruction Finance Corporation might be empowered to issue notes, similar to Federal reserve notes, against the security of the industrial property involved. While this might be termed “inflation,' it is basing currency on the country's finest assets and regulating the quantity to the business requirements of the country, a theory which would seem to be fundamentally sound; for as these notes were issued, they would immediately go into circulation in exchange for consumers' goods.

The plan is simply a means of converting the accumulated savings of the community, now arbitrarily held by industry in the form of “reserves," into consumable goods, and restoring to those who helped to produce the goods the unquestionable right to consume them.

While the looks of a balance sheet should have short shrift if it stood in the way of alleviating wide-spread misery, the effect of such a plan would not, in fact, alter corporate balance sheets to any startling degree.

The gross income of corporations engaged in manufacturing only, as reported by the Treasury Department for 1929, was $72,000,000,000, and the “Surplus and undivided profits” amounted to $19,500,000,000, over 27 per cent. While gross income declined nearly $30,000,000,000 by 1931 there must have remained a very substantial amount under “ Surplus and undivided profits." The longer business remains depressed the faster this item will shrink. It would be far better to risk a portion of it in constructive and logical measures to restore business.

The work of the Reconstruction Finance Corporation, laudable as it has been, is so far largely defensive. The plan proposed is constructive; it would mean launching an offensive against the depression.


The other problem that is suggested by the foregoing analysis is how to prevent recurring periods of business stagnation. The most successful plan would seem to be the one that interfered least with our present methods of doing business. A central planning board, acting in a purely advisory capacity, might render invaluable service; but it is difficult to conceive an effective centralized control over industry, either from the standpoint of the ability of the men exercising such control or the willingness of American business men to be so dominated. Perhaps nothing so drastic is necessary.

The objects we want to achieve are to insure adequate purchasing power to enable our people to consume what they produce; to prevent excessive compe tition with all its waste; to discourage speculation; to protect our savings.

The main source of all these evils seems to be in certain business practices. Our corporations withhold from distribution an average of 40 per cent of earuings annually. The bulk of these find their way into plant expansion, oftentimes unnecessary. Such hidden assets are the foundation upon which Wall Street speculation is laid. With industry operating on the “profit system and the mass-production theory, the diversion of this potential purchasing power from workers and stockholders into excess plant is necessarily followed by destructive competition, unemployment, suffering in the midst of plenty.

Much of this could be prevented, it is felt, if a few comparatively simple but basic changes were made in our corporation laws or in our Federal inconie tax law, such as (a) the requirement of standard accounting practices; (0) the prohibiting of surplus and reserve funds beyond certain percentage of capital; (c) the prohibiting of plant expansion except from capital raised by new issues of stock; and (d) the establishing of unemployment insurance.

(a) The adoption of standard accounting practices, already widely urged. is a logical outgrowth of our present corporation law's.

(b) If corporations were not permitted to plow back earnings into plant expansion, this would, first of all, do away with those hidden assets on whici speculation is based. Earnings would be paid out in the form of dividends and increased wages or wage bonuses. If an unduly large proportion went to sto". holders, an income tax law would penalize the higher brackets; moreover, such a practice would make the corporation a target for competition. The tendency would be to increase the return to labor, which is what we need-for it is there that the vast potential market for goods remains unexploited. Further more, it would give back to the people the right to determine how much and in what manner they will save or spend—a function which industry has hitherto attempted to exercise, with unfortunate results.

(6) Were directors forced to approach the public for capital every tin they desired to expand plant, they would make pretty certain of a sustained demand for their product before doing so, because such a practice would soos establish a tradition among investors of requiring corporations to show a history of earnings and dividend distributions. Attention of investors would be diverted from market appreciation to regularity in dividends. The tendenes would be for stockholders to become more concerned in the management of their company, and reluction of earnings would soon be regarded as a danger signal Obviously, earnings would be more secure, dividends more regular, the par chasing power of the community more stable, and-completing the circle business more profitable.

(a) Experience alreally gained with unemployment insurance indicates that management is much more cautious in hiring and firing of men, and in drastu varying of production schedules. Competition would be less, business op 2 more even keel; and the very inauguration of the plan would tend to presets development of conditions under which the plan would come into operatit This would bring back to business executives a sense of their responsibility

and of the responsibility of their corporations, to workers, and to the community. Should unforeseen conditions arise necessitating the laying off of men, their needs would be taken care of ; starvation and distress would be elimi. uated, their morale unimpaired.

Our people are entitled to security, and a share in our national wealth proportionate to the individual contribution in creating it. For in the aggregate the people own and operate all the means of production.

With every family in economic security, with every child having proper educational facilities and a proper environment, the probability is that many of our most serious social problems would gradually disappear. One wonders if even the farm problem might not be solved. From an industrial standpoint, perhaps the most important byproduct would be a home-building movement such as this country has never seen. We had the cart before the horse when we urged home building at a time when unemployment was spreading rapidly. Job security must precede any such movement.

Life seems to be pretty much of a paradox. The more wealth you take from a rose bush, the more it gives. The most selfish attitude a man can adopt is to be unselfish. The most profitable course business can pursue is to pay out the profits which breed more profits. There is that scattereth, and yet increaseth; and there is that withholdeth more than is meet, but it tendeth to poverty."



It seems to me that there could be no such disagreement as there is to-day, concerning the meaning of this depression and the way out, if it were not for some confusion of terms. We all want to know the facts of the existing situation; but if those facts are reported in misleading terms, or in terms which are capable of misconstruction, the facts become obscured. May I be pardoned, then, for noting in the beginning that one of the commonest assumptions concerning this depression, upon which most of the proposed remedial measures are based, while literally true, is not actually true. I mean the assumption that prices are lower now than they were in 1929.

In terms of money they are. In terms of human life they are not. I take it that this committee, in seeking a way out of this depression, is not so much interested in what becomes of money but in what happens to human beings; but the word "price" is used so loosely that focusing our attention upon the price level, instead of upon the human level, is likely to lead to all sorts of difficulties and disasters.

It is commonly said that prices are high in periods of prosperity and low in periods of depression. So they are, usually, if we refer to money prices. But how about actual prices—real prices? And how can we find out whether prices are really low or high?

We have all learned to make a distinction between real wages and money wa ges. Whether real wages are high or not depends not upon how many dollars a worker receives daily but upon how much those dollars will buy. Whether prices are low, likewise at least as far as the masses of people are concerned-depends not upon the figures upon our price tags but upon how much those prices enable the masses to buy. No matter how low the money prices may be, real prices are surely not low if they are beyond the reach of the masses of American people.

Prices of many of the necessities of life, however, are now concededly beyond the reach of twenty-five or thirty million Americans, who have to depend on help of one sort or another. It is not to be supposed that those who are advocating measures to maintain or restore the price level really want to put prices beyond the reach of more Americans. I think we all want the same thing-lower real prices. We all want some arrangement by which more people will be enabled to buy more things.

Only if we understand this double meaning of price, however, and understand every time we used the word just which meaning we intend to convey, can we approach the problem with much hope of finding our way through.

While prices even of the necessities of life are now beyond the reach of a large part of the American people. money prices have fallen in many instances below the actual cost of production and distribution. I think we must all recognize that such a situation is unendurable. For goods are sold at money prices, and unless they can be sold for more than the cost of production and distribution, production and distribution must become demoralized.

Theoretically, there are two ways of correcting such a situation. One is to raise money prices above the cost of production and distribution. The other is to lower the cost of production and distribution below the level of existing prices.

For several years now, we have been trying the first way. My only objection to it is that it can't be done, and that all attempts to do it produce exactly what has been produced-putting real prices beyond the reach of more and more people.

There is no clash of class interests involved in this inquiry. And it is not a question of good or bad motives. I am certain, at least, that those who have proposed measures for the raising of money prices have the interests of the whole country at heart quite as much as anyone.

There was a time in American history when high prices for certain industrial products were temporarily advantageous to business. But that was when there was a ready market for the things which the industries in question were producing and offering for sale. But industrial processes were constantly improved; and when industry became so productive that it needed a mass market, it was necessary to lower the price of its products to get that mas market.

If any industry were sure of selling its whole output, then, raising prices would seem to be good business; although it would doubtless be good publie policy, on the part of the Government, to see that such an industry could not charge prices which would obviously exploit the public. But there is no such problem before us today. Business is in depression today because the masses cannot buy enough, or fear to buy enough, to keep business going. If any step toward dispelling the depression is to be successful, it must be either in the direction of increasing the buying power of the masses, or of dispelling this prevailing fear.

Any effective action toward one of these goals, in fact, would necessarily bring us toward the other. Increase of buying power would automatically restore confidence. Increase of confidence would automatically restore buying, thus reviving industry and increasing mass buying power through increasing employment. Before making any definite recommendation, however, I wish to present one more question.

If production doubles, triples, or quadruples by the introduction of better methods, will it naturally tend to make things scarce? This may seem like a foolish question. In fact, it is a foolish question. But we are in a period of business depression today for the definite reason that business has been foolish.

Everybody will admit, I believe, that the discovery of better ways to do things will naturally make things more plentiful. This is natural law, and no natural law can be violated without incurring a natural penalty. Business depressions are not necessarily natural, but they naturally follow any violation of this natural law.

We business men discovered ways of increasing production, but we did not find ways of increasing distribution and buying at the same ratio. There were reasons why we did not do this, but natural law does not pay much attention to our excuses and explanations. Criminal courts may suspend punishment because of extenuating circumstances; but there is no court in nature which will suspend the consequences of any of our acts, or take note of how sorely we were tempted.

What happened was that we marvelously improved our system of produe tion, and nature wouldn't wait for us to mark our money prices down accord ingly. It wasn't that we weren't interested. We wanted to sell more goods than ever. We wanted to sell enough to keep the whole mechanism working at top speed. But every time we introduced a new method, we abandoned an old method, and if prices were brought down to the point indicated hy the new method, we couldn't see how we could make any further profits out of the old method.

No one can blame us, surely, for failing to find a way of making profits out of a method which we had abandoned. But we had paid money to install the old method, as well as to install the new method, and we wanted returns 20 on all the money that had been invested. We thought we could fool nature but something went wrong with our plans.

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