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wealth-producing machinery is set in motion. This machinery can be set in motion, however, only by such measures as will establish security and promote mass buying. Such measures, if undertaken, will in themselves provide adequate security for the money or credit necessary for the undertaking.

Many proposals have been made to broaden the base of the income tax, not merely for purposes of revenue, but so that the masses generally will feel more responsibility toward Government. Many of these proposals, while decrying the principle of “ soak the rich ", definitely propose to soak the poor." Any practical lowering at present of the standards of incomes to be taxed would not make the base broad enough to serve the ends desired. The effective way to bring everybody into the income-tax-paying class, is to take steps which will result in the masses generally having ample work, which means ample earning power-ample income.

The most dangerous, the worst of the proposals for additional taxation is the sales tax. No other tax so directly diminishes the buying power of the masses of our people, on which buying power depends our ability to use the best methods of production for our home markets and for export. It is claimed that it is proposed to levy only a very light sales tax. But can anyone doubt that once this tax is established nationally there will be a constant enormous pressure to substitute higher and higher sales taxes in place of high income taxes. Nor can it be doubted that if the National Government adopts the sales tax, State and municipal governments will also impose sales taxes. They have already begun.

There are no physical barriers to our increasing incomes to a point whert they may properly be taxable. Every survey of our industrial capacity indicates that, if we were working at full capacity, we might be distributing wealth enough to everybody in America to qualify everybody as an income-tax payer on the basis of the existing laws. We are not so producing and distributing wealth, but are suffering widespread privation, in spite of our increased ability to produce, because it has not occurred to us as yet how to use our money and credit to achieve what all of us want to have achieved. I urge economy in Government expenditures as strongly as anyone. But there is little economs in simply paring down expenses; and budgets can not be balanced simply by increasing taxation. Real economy demands that we use our resources more effectively for the production and distribution of wealth. If we do that, we will have plenty of money and credit. We can balance our budgets while re ducing taxation, if we can only make certain that the masses everywhere have ample incomes to be taxed.

Let me repeat. There is only one way by which the buying power of the masses can be safely and constantly increased; and that is by enlisting the masses in the most effective production of wealth-in other words, in making and distributing, by the best possible methods, the things which the masses most desire. Any public-works program which does not take this into consideration must measurably fail. Simply to find work for the masses is not enough; for, unless the workers receive high enough wages to enable them to buy extensively, business generally can not be profitable, and taxable income and taxable wealth can not be measurely increased. If they are given high wages, however, for work which is not intrinsically of great value, or their labor is not organized to do the work as efficiently as it can be done, the result will be an economic loan which must be made up by increased taxation.

Workmen want leisure as well as work; and they must have leisure if we are to use our machines to capacity. They must not only have the price to buy things, but the time to consume them. Not merely as an emergency measure, then, but as a perfectly reasonable business program, I have been urging upon American industry the 6 hour day and the 5-day week, with no reduction of wages unless the unit cost of production should rise. If this program were adopted, I am convinced that unit costs would fall, because of the irre sistible pressure it would bring to bear toward reducing the great wastes which still exist in most of our production, and the almost incredible waste in distribution, and because of the enormously greater market which such a move would create. But if at the end of a trial period of, say, 6 to 9 months. the unit cost of production should be higher than before, wages must be correspondingly reduced until such time as the unit cost may be brought down. These unit costs surely can be reduced by conquering the great wastes that still exist in most of our production, and the incredibly greater wastes that exist in distribution.

To prevent a similar new debt burden being created, with the inevitable consequence of another violent depression, we must primarily employ our manpower, our machinery, our capital and credit, and our legislation for the production and distribution of buying power to the masses. Unless this is done, any attempt to remedy our distress can not meet with lasting success.


I will be brief and refer, for a full expression of my views to Booms and Depressions (Adelphi Co.).


According to my studies, this and other major depressions have been due in the first place to overindebtedness, however caused. In the present depression the overindebtedness came about chiefly because of the World War, both directly and indirectly. Directly our national debt rose because of the war from 1 billion to 25 billion. In 1929 it was 17 billion. The total Federal, State, and local debts increased from 6 billions to 30 billions in 1929. The public debts of other countries increased even faster, including the German reparation debt and the interallied debts, all contributing to the world overindebtedness. Indirectly, due to the war, were the farm mortgages of the win-the-war-withwheat days and the investing abroad after the war for reconstruction. Another cause of debt was for investment in new inventions which were, in some degree also stimulated by the war.

It was largely these inventions which led to the speculative boom on the stock exchange, though there were other reasons also (see my Stock Market Crash and After, MacMillan). The total debts owing in the United States in 1929, I have estimated at 234 billions, including brokers' loans (10 billions), commercial bank loans (39), corporation debts (76) farm mortgages (10), nonfarm mortgages (37), private foreign loans (14) and several other categories. The total wealth of the United States in 1929 was estimated at 362 billions as compared with the 234 billions of debt. The ratio of debt to wealth was probably about 25 per cent greater than 10 years before.


But that is only the beginning. The next and much more important step is the fall of prices, or as I much prefer to call it, the rise in the dollar. It was the overindebtedness which swelled the dollar. As soon as some overextended debtors begin liquidation, and throw their stocks and other securities and property on the market, prices are depressed, others overextended are forced to distress selling and soon there is a mad scramble to sell constituting a crash. Even worse is the deflationary effect of liquidating bank loans; for this means wiping out the deposits which rest on those loans, constituting a contraction of the circulating medium and tending powerfully to shrink prices.


When prices crash or, in other words, when the value of the dollar swells, every dollar of debt still unpaid is that much harder to pay. That is, while the liquidation reduces the number of dollars owed it increases the size of each dollar still owed. Not only that, but when we try to liquidate so vast a debt as in 1929, the dollar swells faster than the number of dollars owed shrinks. That may seem amazing; but it is exactly what has happened and what must happen if the debt burden is big enough and if nothing is intentionally done to prevent the dollar from so swelling. In short, in such a situation, honeycombed with debt, the very effort to decrease debts increases them in terms of real things. The farmer who has paid off half his mortgage but whose prices for wheat have been reduced to one fourth of what they were, while he really owes only half his original debt in terms of dollars really owes his original debt in terms of wheat. Such liquidation is a mockery. It does not really liquidate but aggravates the debts. Overindebtedness is made worse. THE OVERINDEBTEDNESS OF 1929 AND TODAY Up to the time my Booms and Depressions was written a year ago, the 234 billions of debt of 1929 had been, in terms of current dollars, reduced to 197 billions, a reduction of 16 percent; but each dollar was 53 percent bigger in value or purchasing power than in 1929, so that in terms of the 1929 dollar the debt was not 197 billions, but 302 billions. This is 29 percent more than the original 234.

If these figures could be brought down to date we should find that the situation was worse. The dollar has now swelled 80 percent over the 1929 dollar and the debts (in current dollars) have fallen but little. It seems likely, though I have only rough statistics, that the present debt burden, measured in commodities, is greater than in 1929 by at least 40 percent. That may seem incredible; but I think it is more likely to be an understatement than an overstatement. Moreover, our national wealth and income are less than half of what they were in 1929.


People who thinks things cannot be worse because they are so bad and that we must be scraping bottom are grossly misled. They count the dollars owed but do not measure them. They have the “money illusion” that a dollar is always the same. The Germans had the “money illusion" that the mark was always the same. It took the most terrible inflation in history to wake them up and it is taking the most terrible deflation in history to wake us up.


If his diagnosis is correct, we could have been spared this depression, for the most part, if the deflation had been prevented, and we can only spare ourselves further depression by stopping and reversing deflation.

This can be done and by many methods, as I have shown in Booms and Depressions and in Stamp Scrip. Among these methods is devaluing the gold dollar, buying bonds with United States notes or with Federal reserve credit, guaranteeing bank deposits for a time, accelerating money velocity by the Riefler plan or by stamp money or both, and subsidizing the reemployment of labor. As I write, I feel sure there is no time to lose.


The alternative is liquidation. This, as I have shown, has not yet begun. It would take years to do it and would require bankrupting banks, savings banks, like insurance companies, and railroads, with far more unemployment than now, with bloodshed and perhaps political revolution.

I do not expect this alternative to happen, for even if the Government should refuse voluntarily to reflate, it would, I believe, soon be forced to do so against its will, because it could not balance its budget. Deflation which has already“ got” so many banks will soon * get" municipalities, and if Uncle Sam continues to try to save everyone else from bankruptcy it cannot be long before he will be faced with bankruptcy himself. Then the only way out will be reflation,

Between 1929 and 1933 wealth decreased greatly and debt decreased little; this is shown by the shaded columns. Real wealth decreased and real debt increased; this is shown by including the unshaded parts. The attempt to liquidate debts really increased them by increasing the dollar. The dollar could have been stabilized. It should now be stabilized after being restored.


NEW YORK CITY, March 6, 1933. At a time when the best minds of our country are endeavoring to be help ful in solving our present difficulties and providing ways and means to avoid such serious disturbances in the future, I welcome the opportunity to lay before you suggestions intended to assure “man"-in his relation to what I bare



elected to combine under the heading “ The job" and * The savings to the end that his fear of loss of these fundamentals may be permanently removed, and that he may never again experience such a calamity of unemployment and concern about his savings as has been his lot through this depression, which has threatened the very foundations of ordered and civilized representative government. Unless, from this calamity, we devise means to abate or eliminate

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unemployment in the future and safeguard savings the laborious building of this great Nation and its established order and institutions which have thus far been civilization's greatest heritage are doomed, because fear possessing “man," in desperation he resorts to viole: ce leading finally to chaos and ruin.

In presenting my views, I will be brief as possible, confining myself to fundamentals, just so that I may feel sure that my ideas are clearly understood. I will start with the premise that if a man is assured a job to the extent of

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an equal division of the available work among the workers and is guaranteed protection against the loss of his savings you have eliminated the two most potent elements of fear from human existence. Such distress as we are going through could not exist, and if at all, in a very modified form. The job and the bank account are the rocks of fear upon which our ship of prosperity is stranded.

How shall we proceed to handle the problem? First, the job. Through Federal enactment we have coordinated National, State, and local workers' bureaus for Nation-wide cooperation throughout the Nation and established trade commissions and other agencies dealing with employment and trade. Expand these agencies into a national board of control composed of members, one third to be selected by the business interests of the country, one third by the working interests, and the remaining one third be the President. This agency would maintain up-to-the-minute information from every section of the entire country, covering the problems of demand and the workers available. It is then determined that every worker employed, each having his share of the work, the demand will be met by a work day of 6 hours. Let that be the decree of the board of control. If it should be 3 hours, or 8 or 9 or 10, let that be the decree. This likewise solves the question of overproduction because production is measured by demand. In times of heavy demand let the workers lay up against the day of a light demand. The arbitrary or legal fixing of so many hours of work per day or week is absolutely unscientific and can lead but to overproduction, underproduction, and upsets in our economic structure.

All sorts of machinery and labor-saving devices are certain to contribute to such upsets. It is ridiculous that the use of labor-saving machinery should be opposed as a remedy to prevent such upsets. Automatic labor-saving machinery should be encouraged to take from man's back the burden of labor and give him greater leisure and enable him to enjoy the social and spiritual values of life. The machine is for man—not man for the machine. If with the machine he can produce in 1 hour what it formerly took him 10 hours to produce by hand, let his pay be measured by the hand time and not machine time and our economic structure would remain stable, while giving to man the greater leisure to enjoy life and its values, which were created for him.

Then let there be a protection fund created and administered by this same control board to be contributed by both employer and employee to provide such necessary benefits for the workers in emergencies as would be agreed upon. The worker not to lose this benefit through change of employment or otherwise. Such funds should not remain with or under the supervision of the employer, whereby the same would be subject to the business hazard.

Some will urge this is socialistic, unconstitutional, and revolutionary. We should not be concerned with names or forms but with human values and proceed to properly provide therefor or we may have to reckon with a revolution of blood rather than reason. The “rights of man is the issue, not outworn and obsolete systems.

Recognizing the right of man to an equal division of the available work, he must submit himself to scientific and humantarian mass regulation. If in time like the present our citizens insist that it is the duty of their Government to provide for them in their individual misfortunes then they must submit to mass regulation to the end that such conditions do not occur, since it is not a proper government function of self-governing people, but rather their obligation to so govern themselves as to obviate the necessity of government or private charity. There would be no occasion for either at the present time, as a burning public issue, if such regulation were in effect.

Second, the savings. Now that we have seen how the workers may be guaranteed against fear of unemployment, let us proceed to guarantee him against the fear of losing his savings. It has been urged that the Government could not undertake such a task. After all, our form of Government is of the people, by the people, and for the people.” We submit to taxation fur every form of undertaking we deem of service to the people, including a defiei: running into many millions of dollars annually for the Post Office Departmeut Why shouldn't we assume the responsibility to guarantee against fear of losing savings, even though it might result in some increase in taxation? This is so much more vital than that we should pay a little less for a postage stamp But I contend that banking could be so supervised that there need be no concer of the taxpayers over removing the fear of loss to the depositor.

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