AA1945_VII_1

AmencanThe Economic Record

JANUARY, 1945 Winter Number Vol. VII, No. 1

ContentsReview and Comment 1Winds of Opinion 3Flight from the Free Market Virgil Jordan 5

France Takes the New Road De Gaulle at Lille 10Policy of Wealth in Twenty Points The Economist 11Modern Governments Must Marriner S. Eccks 13Chester Bowles By Himself 18Mythologies of Reconversion Garet Garrett 19Who Will Guarantee Work? Leo Wolman 25Extreme Case against Unionism Henry C. Simons 27Unionism .as a Moral Imperative.. . .Most Rev. Bernard J. Shiel 33The Closed Shop in Three States 35Congress Resolves to Overtake Government 36The Bitter Fruits of Teheran Isaac Don Levine 37Critical Report on Brett on Woods 41Notes on the Foreign Trade Complex A.M.P. 44Farmers and Bankers in One Boat W. Randolph Burgess 46Books: G.G. 47

The World That Might Have BeenApothegms from "The Road to Serfdom"Emotional Experiences of James P. Warburg

Enterprise in Soviet Russia An Interview 53The Unresisted Shackle William E. Russell 54

Index to Volume VI 56

This is the third issue of The Economic Record as a quar-terly magazine of thought and opinion, and its first appearanceunder the superimposed title of American Affairs. It is a pub-lication that is not for sale. Subscriptions are not solicited.Its circulation is limited to Members and Associates of theNATIONAL INDUSTRIAL CONFERENCE BOARD. American Affairswill be open to views that are not necessarily those of THECONFERENCE BOARD itself. It does not adopt them by printingthem; but for their integrity and good faith in every caseTHE CONFERENCE BOARD does hold itself morally responsible.

National Industrial Conference Board, Inc.247 Park Avenue, New York 17, N. Y.

American airsThe Economic Record

GARET GARRETT, Editor

JANUARY, 1945Copyright, 1945, by

National Industrial Conference Board, Inc. VOL. VII, No. 1

Review and CommentBy the Editor

Marching towarda Labor Crisis

ONLY a few years ago two such opposite repre-sentations of the labor problem as "The Ex-

treme Case Against Unionism" and "Unionism as aMoral Imperative," appearing in this issue, wouldhave been utterly strange to American thought andfeeling, one as much as the other. The philosophicalcase against unionism is from the essay of a socialscientist; the emotional case for unionism is from aLabor Sunday sermon preached by a Roman Catho-lic bishop in Chicago. These are much more thantwo points of view separated by polar distance. Theyare conclusions, and seem irreconcilable. If they areirreconcilable really, then the difficulties of finding away to go on are enormous and the fact is one thatmust be faced. Stranger still was a piece of currentnews that passed almost without comment. In ashipyard where the CIO had a "maintenance ofmembership" clause in its contract, thirty-four work-ers repudiated the union and circulated handbillsdenouncing what they called its communist leader-ship. The union expelled them in a formal mannerand demanded that they be discharged. The com-pany appealed to arbitrators, who upheld the union,and then to the War Labor Board, which also upheldthe union. The company suggested that as a com-promise the men be required only to continue payingdues to the union. The War Labor Board said thatwould not be enough. It said it was necessary forthe union to have disciplinary power over its mem-bers, and that in any case, "whether they knew it ornot," the men had quit their jobs by the act of re-signing from the union. And so they were dis-charged. Thus it can happen that a man will becut off from his means of livelihood because of hispolitical opinions. It is only the incurable optimistwho can pretend not to see that the American labormovement is headed for crisis. The three thingsthat have happened to it were sudden and unpre-dictable. Firstly, it was swept by the terrible Euro-pean doctrine of class warfare. Secondly, it has cap-tured what it believes to be, and what may be infact, the balance of political power. Thirdly, it has

arrived at the political determination of economicdisputes, and seems to have no other idea of whatto do with its power. On this plane political mandisappears. He becomes fused with economic manand they are one. So altered, the labor movementbears almost no likeness to what it was in the timeof Samuel Gompers. There are still labor leaderswho hold with the Gompers tradition and see clearlywhat the political determination of economic dis-putes will lead to, and yet hardly dare to say so outlcud for fear of losing both their influence and theirleadership. They have to hold their own against theradicals, the hotheads, and the communists, andfind themselves thereby stultified. These old leadersare themselves in trouble. Many who know thiskeep saying: "Here then is solid ground in themiddle. Let management meet labor there and letthem together find the way out." Unhappily, whenthis has been tried, each side has brought along theother's bad history, and nothing has come of it. Theground is still there but the time is late.

Outline for aManaged Economy

IN THIS issue will be found the speech deliveredby Marriner S. Eccles at the 264th meeting of

the National Industrial Conference Board on No-vember 16th, last. Mr. Eccles is Chairman of theBoard of Governors of the Federal Reserve Systemand the Federal Reserve System is the institutionthat now controls American banking in the publicinterest. The speech bears evidence of having been sprepared with unusual care. If it is not the blueprintit is at least an authentic outline of what you mayexpect, and its words for that reason deserve to bethoughtfully weighed, beginning with these:

"The government should underwrite andguarantee a national minimum of income, edu-cation, health and old age security for all citi-zens. By so doing, the government can place afloor of purchasing power under the economy.This in turn will place a floor under the marketfor the goods and services of business, industryand agriculture.

It would be difficult in fewer words to state theformula for a planned economy controlled by thestate. The image they create is one of comfort andsecurity, provided by the government. The floor

American Affairs January, 1945

image. A floor for income, a floor for business, afloor for industry and one for the farmer. A govern-ment plank under everything. But a governmentthat undertakes to guarantee a minimum of incomefor all citizens must be prepared either to fail in afeeble manner or to go the whole way—when and ifnecessary. To go the whole way means to controlwages, prices, profits, production, distribution, con-sumption, and at last what a citizen may do withhis own money. The speech continues:

"Such a guarantee is not the impracticaldream of the social reformer. Modern govern-ments, including our own, have long since as-sumed a primary responsibility for the economicguidance and progress of their peoples"

Modern government and their peoples. In the mod-ern case, who or which belongs to whom? Is it theAmerican government and its people or the Ameri-can people and their government? What a slightchange of grammar it takes to invert the idea ofgovernment!

To Those Who Will SpendThe social philosophy represented by the Eccles

speech is contained in these words:"There is no lack of need for everything that

we can produce. There are still a great manypeople in the country whose standard of livingis shamefully inadequate. The basic problem isto see that the necessary purchasing power flowsinto the hands of those who will use it to in-crease their standard of living.9'

What happens here is that with astonishing gym-nastic ease the basic problem stands on its head.Before the advent of "modern governments," it wassupposed that those whose standard of living wasshamefully inadequate were generally underpro-ductive" Irrtttat l5ase, how to increase their powerorpFoduction was the problem. The Arkansas hill-billy may want an automobile, a big electric iceboxand a kitchen to put it in. Why doesn't he havethem? Because he does not by his own labor pro-duce the equivalent. Now if the modern govern-ment will cause purchasing power—that is to say,money—to flow into his hands, he may buy them.But whose money will it be that he buys them with?Whose labor will it be that he consumes?

The Three ToolsIn order to be able to guarantee a minimum flow

of purchasing power into the hands of all its citizensthe government naturally must possess certain pow-ers or tools. The Eccles speech names three, whichare, the power to borrow and spend, the power totax and spend, and the power to extend social se-curity, all three regarded as instruments of socialpolicy. The government would borrow from thosewho do not immediately spend their wealth and

spend it in their stead. How you could single outthose who save too much or spend too slowly is notmade clear, nor what would happen to them if theyrefused to lend. Secondly, the government couldpenalize slothful and timid wealth by taxation andat the same time confer "substantial tax benefits"upon smaller business people who keep their wealthnimble. Thus, discriminatory taxation, designed tocompel a more active social use of private wealth.Thirdly, quoting the speech:f "Much can be done to increase consumptionS through a much broader social security system."Here the argument is that if people have a feelingof total security they will save less and spend more.The less they save and the more they spend thebetter it will be for prosperity. Will not the costof more social security take some of their incomeaway? No. That would be true only provided peo-ple were going to pay for their own social security.But they arejiot join£jto_gay for it. At this pointthe speecTTTs explicit: ""*

"Postwar social security benefits should notbe based upon further additions to the payrolltax but should be paid for out of the generalbudget"—that is to say, by the Federal Gov-ernment out of the public treasury—"because atax on payrolls is a tax on consumption andtherefore undesirable when more consumption isneeded"

Thisin£y_takealittle reading. How can the greatercosP~o? a much bfoaHeT social security system bepaid out of the public treasury without increasinggeneral taxation? And is not an increase in generaltaxation a tax upon consumption, even though in-direct? It must be supposed that behind these wordsthere is an idea that makes sense; and the only ideathat could make sense would be that the increasedcost of social security is tojbe metjbv selective taxa-tion, or by government borrowing, so devisecTas toprocjuce an inflatjonaryjeffect. Well, of course. Aplanned economy, directed and controlled by thestate, is bpund^tq. be inflationary. It must employinflation as an instrument of social policy; and whenit comes at last to the end of inflation there is crisis,all the worse for having been postponed.

The Unavowed PremiseMr. Eccles speech embraces the purchasing power

theory entire and the usual troubles develop. Thespeech says:

"Upon the termination of the war the totalvalue of currency, bank deposits, and govern-ment securities, which are the equivalent ofcash, will be far more than adequate as a basisfor the purchasing power needed to provide fullemployment."

It follows that there is already too much purchasingpower in existence, and danger therefore of inflation.

January, 1945 The Economic Record 3

On the other hand lies the danger that the peoplewho possess this excess purchasing power will notspend their money fast enough, and if they do notspend it fast enough there will be deflation, "unlessthe government steps in and provides a sufficientvolume of total expenditures" A worse contingencyis that payrolls may begin to shrink, which would bedeflationary, and if that happens, wages must beincreased to provide more employment, because theway to increase the demand for labor is to raise theprice of it. This is asserted in the speech, not pre-cisely in those words but in these:

"When after the war, hours return to normaland overtime pay is discontinued, total wageand salary income will decline sharply. If we areto avoid sharply declining prices and loss ofmarkets which discourage production and busi-ness expansion, a gradual upward adjustmentwill be necessary in the wages and salaries of thegreat mass of comparatively lower-paid work-ers."

The difficulties with which the speech contends be-long not to logic but to exposition. What makesthem appear to be difficulties of logic is that the firstpremise of the purchasing power theory cannot beavowed. Why not? Because the people are yet notready for it. They wish still to believe the govern-ment can distribute purchasing power in a free econ-omy. The unavowed first premise is the idea of thedistributive state, called also the welfare state. Onlythose who believe in the distributive state may ra-tionally defend the purchasing power theory, becauseonce the government begins to direct the flow ofincome there is no place to stop, upon grounds eithermoral or political, short of the obligation to rationthe satisfactions of daily life among its people, ac-cording to a chart of social justice.

The Tragic Path

THE path of freedom is difficult and tragic, morebeset then any other with heroic responsibility

and martyrdom. The paths of necessity and com-pulsion are easier, less tragic and less heroic. Thatis why the historical process shows so many deroga-tions from the path of freedom to that of compul-sion. This is true of the religious as well as of thesecular experience. The temptation is superbly ex-pounded by Dostoievsky in his "Legend of theGrand Inquisitor." The Grand Inquisitor wishes torelieve men of the burden of freedom, so that theymay all be happy. Mankind yielded to this tempta-tion in the Inquisition and does so again in our owntime in the religion of Communism, which is simplythe doctrine of the Grand Inquisitor based on thefall from the path of freedom to that of compulsion,so that mankind may be delivered from the burdenof its tragic destiny.—"The Meaning of History," byNicolas Berdyaev.

Winds of OpinionNever, prior to 1933, did the class-war phenome-

non show itself in our political battles. The Demo-cratic party's 1944 campaign was made—underneaththe surface of the "arguments"—at bottom on classlines, and the returns suggest that it was class linesbn'which the battle was fought and actually won,for the first time in our country's history.—ThomasF. Woodlock in The Wall Street Journal.

The familiar regret that America was not amember of the League normally carries with it theimplication that America, as a member, would havepursued a policy of commitment and collaboration.But it is just as easy—or very nearly—for a nationto be isolationist and uncooperative within as out-side a league. It would be well to be very cautiousin drawing any inferences about American policyfrom American willingness to sit on the new body.—The Economist, London.

It is our judgment that cotton can be producedmechanically in a great area of the South, an areathat will produce ten or more million bales eachyear, and the production and harvesting can besecured on a cost basis of 6 to 7 cents a pound,including all costs of every nature connected withthe large plantation operation. This, as I see it, isthe answer to the cotton problem. It is the bestanswer to be had for cotton as a competitor withsynthetic fibers, and it is also the best answer tocompetition from foreign growths.—W. M. Garrardin Staple Cotton Review.

Private employment, profits, private ownershipof productive assets and varying rewards for vary-ing performances are all desirable characteristics ofour way of life which should be continued.—HarryL. Hopkins in The American Magazine.

This will be the best mission that ever came toChina.—Donald M. Nelson, arriving at Chungkingwith his experts.

I ask from what source is the money coming? Theusual source is the taxpayer but, my Lords, the tax-paying geese are dying. At the moment they appearto be fairly well but that is because large numbersof them are living on their fat. There is only oneend to that. If heavy taxation continues they willdie and be of no further service to the community.—The Earl of Glasgow in the House of Lords.

The widespread impression that by some magicof its own the war placed the American people per-manently on a much higher plane of national in-come is due to a failure to realize that the last fewyears have been abnormal. It has been abnormalfor 11 million men to be taken out of the labor mar-ket and placed on a higher standard of food con-sumption than they generally enjoyed before they

4 American Affairs January, 1945

went to war. It has been abnormal for men over65 to stay in that labor market and for women toswell a family's income by leaving the kitchen forthe war plant, just as it has been abnormal for mil-lions of workers to put in 48, 54 and 60 hours a weekand receive time-and-a-half wage rates.—ChicagoJournal of Commerce.

Faced by a crossfire of argument by representa-tives of the executive department on the one hand,and special interest groups on the other, the indi-vidual legislator has nowhere to turn for unbiasedassistance in obtaining an objective analysis of theproposed measures.—From the report of a specialHouse Committee on executive agencies of govern-ment.

If there is no international agreement, which coun-try will be our greatest competitor? The UnitedStates of America. This is because, as my noblefriend Lord Southwood pointed out, of the enor-mous increase in their productive capacity and alsoof their technical ability.—Lord Strabolgi.

Since 1938 the number of people with incomesbetween £250 and £500 a year has risen from 1,745,-000 to 5,500,000; the number of incomes between£500 and £1,000 a year has risen from 500,000 to1,110,000; those with incomes from £1,000 to £2,000have risen from 195,000 to 295,000; whilst the num-ber of people with over £10,000 a year has remainedunchanged at 8,000. Moreover, the rates of taxa-tion on all incomes has considerably increased. Imention these figures because we no longer dependon geese that lay golden eggs.—Lord Woolton, Min-ister of Reconstruction, speaking in the House ofLords on the cost of social reform.

If we wait for declarations of government policywithout guiding that policy along sound lines, orwait for government action before planning our ownactions and making our plans known to the govern-ment, if we trust in public confidence in our pastachievements—a confidence the public does notappear to have—then our freedom in industry willdisappear and we will, in fact, be faced with a so-cialized state.—John Storey, to the Institute of In-dustrial Management, Australia.

Should it not be possible this time to marry yourmoney and experience with ours, and, by so doing,limit our joint risk, save our joint capital, and insurethat the money we both lend is spent constructively?—Lord Halifax.

We know, as Members of Congress, that we haveaccumulated here in Washington a total of govern-mental power beyond all known capacity to compre-hend. As a matter of fact, in so far as the detailsof government policy are concerned, we hardlyknow what it is about. In all deference, I want totell you Members of Congress we confront somethingmore important in this bill than crop insurance.

Ours is the responsibility of insuring if we can thepossibility of democratic government operating inAmerica.—Hatton W. Sumners, Chairman of theJudiciary Committee of the House of Representa-tives.

The problems before the American people in thenext few years will be the most momentous in ourhistory and can be reduced to this simple question:Will the United States be able to maintain its pres-ent private and individualistic form of national econ-omy in the face of a totalitarian Europe and anuncertain Asia?—Constantine Brown in The Wash-ington Star.

? Mr. Speaker, the time may come when the onlypublic figure in America still carrying a torch forliberty will be the graven image in New York Har-bor.—Miss Sumner, of Illinois, in the House of Rep-resentatives.

Currency manipulation will not solve the basiceconomic problems of a war-ridden world.—Win-ihrop W. Aldrich.

Mr. Jones has taken a bad action. He excuses iton the ground, however, that it is in accordance withthe recent act passed by Congress directing the gov-ernment to do everything possible to bring aboutparity prices. And this also illustrates once morethat the steady attrition of the private enterprisesystem is not the work of appointed "bureaucrats"alone but of Congrjjssiona^^to appease pressure groups.—The New York Times.

Russia's progress has been due to substituting a"good" dictator for a "bad" one and to the fact thatthe "good" one has had the good sense to imitatethe United States. For the essence of Russian "plan-ning" has been to follow, or try to follow, Americanmodels—the assembly-line production of HenryFord, for instance. If we should institute govern-ment "planning" it would lack what the RussianGovernment planning had—namely, a model ofother countries which would be better than ourown. Without such models the Russian planningwould have amounted to little, just as our AmericanGovernment "planning" and management, when-ever tried, have only resulted in inefficiency.—Pro-fessor Irving Fisher, in a letter to The New YorkTimes.

It is obvious that the efforts to reach agreementsregarding international trade have made no advancewhatever during the past year, a fact which mustbe deeply regretted. The way in which the greatpowers plan for postwar trade and shipping doesnot indicate that they are aware of the danger of ageneral development towards self-sufficiency . . .which would mean economic chaos.—Gunnar Myr-dal, Chairman of the Swedish Postwar PlanningCommission.

January, 1945 The Economic Record

Flight From the Free MarketBy Virgil Jordan

From an Address Delivered before the Ameri-can Academy of Political and Social Science at

Philadelphia, November 25, 1944

FIRST let us ask ourselves why this sudden burstof interest in the international marketing ar-

rangements we call cartels in the middle of thiswar, which—whatever it may turn out to be—we still assume is certainly not a trade war, likethe last one and all the earlier struggles for com-mercial empire? Why, then, is this question of car-tels dragged like a dead cat into the discussion ofevery imaginable domestic and international prob-lem today?

Is it because very many of the common menhere in America think that cartels are the key tothe question of future prosperity and peace? Is itbecause any great number of the governmentalguides and mentors of the common man imagine ifwe should decide either to climb aboard the cartelband wagon which winds its spectacular way throughthe planetary political scene or to abolish cartelsglobally by executive decree it will have very mucheffect one way or another on their success in furnish-ing complete employment, universal security, oreven four freedoms for the underlying populationat home or abroad?

For an Oblique KillingOne has the impression that in all that kind

of discussion of international trade arrangements ofwhich the recently issued report of the Kilgore com-mittee is a good example, the cartel question isset up as a sort of decoy to attract other game forwmcTTthe Nimrods of modern government are reallygunning, or to make a killing in some other quarterAt best it serves as a sitting duck in this indoorpolitical sport of planetary planning, as you will real-ize if you read the long footnote attached to theopening sentence of the sophomore term paper, pre-pared by Mr. Rosenberg for the Kilgore commit-tee as its report, which carefully explains that whatthe hunters are shooting at is only private market-ing arrangements because government marketingarrangements never are and never will be cartels.

Apart from the probability that there was nevera cartel, from the time of the British trading com-panies down to the Soviet export trust of the pres-ent, which some government of some country con-cerned did not sanction, subsidize, or participate in,when we encounter a discussion like the Kilgore re-port we should ask ourselves whether it is reason-

able to suppose that international marketing ar-rangements, made either by pure governments orby such pernicious private business enterprise assurvives them, will offer or substantially contributeto a solution of the problems of expanding employ-ment and developing foreign trade for us or forany other country after the war. . . .

Busted BonanzaHardly anyone is willing as yet to face the fact

that, on the basis on which it has been done in thepast two decades, and certainly as it is being donetoday, international trade is virtually insolvent asa business upon which any large amount of self-supporting employment or sound national prosper-ity can be built. It could be maintained on anyconsiderable scale after this war, cartels or no car-tels, only at the expense of taxpayers as a kind ofglobal boondoggle or planetary WPA program onbehalf of countries that have gone broke in the war.

In the interval between World War One and thecurrent One World War international trade prac-tically ceased to be a business at all, but becamerather a curious combination of charity and rob-bery, maintained on a fairly large scale mainly byone or another form of governmental intervention,subsidy or sanction, and finally in the form of warand lend-lease.

After the last war the volume of foreign trade,such as it was, was sustained mainly by an interna-tional mechanism of credit inflation which centeredin the American private security market, and sincethat broke down it has been sustained by a publiccredit mechanism centered in the United StatesTreasury. This went on till it wound up with thiscountry, practically the only one able to produce anylarge real surplus to export, giving it away tojnostof the rest of the world as lend-Iease^br relief, underthe military necessities of global war, and planningto continue doing so indefinitely under the politicalnecessities of peace.

The Dehydrated CreditorHardly anyone, I suppose, would call this process

trade, or imagine it as any sort of lasting answer tothe domestic problems of employment. The onlysystem into which it fits is the current economicmythology of the consumer purchasing powerschool of prosperity or the social security school ofpeace.I But even from those points of view the processis indubitably busted, because few seem to realize


that so far as that kind of "business" is concerned,the vast creditor nation which carried it on has infact gone broke, too—it has ceased to be a creditornation and has become a debtor nation in its ex-ternal accounts. The magnitude of this cosmic andincomprehensible reversal of Uncle Sam's balancesheet vis a vis the world cannot as yet be fully meas-ured, but it must emerge on a very considerablescale when we finally are able to take into accountthe known and unknown amounts of lend-lease andrelief—some of which have been transformed intodirect liabilities—the mounting amounts of foreignbalances here, the liabilities for invasion currencies,the losses of direct and indirect investments abroad,and other items, over which the veil of governmentalsecrecy is drawn till V-day.

The large and continuous withdrawal by thepeoples of other lands of the gold which is now de-nied to our citizens is a symptom of an importantturning point in the career of the creditor nationwhich helped so much to support the insolvent struc-ture of world trade during the decades between theWorld Wars. After this one subsides we shall haveto do some substantial exporting to pay our debts,and how much more we can continue to do by wayof charity remains to be seen. . . .

True Crime of the CartelCartel arrangements, numerous, widespread and

active as they were in the period between the wars,had really very little to do with sustaining or break-ing down this bankrupt structure of world trade.They were a part, but merely a minor part, of thevast misdirection of capital, credit and labor, and themistaken attempts of government to save unpro-ductive investments and support prices and wages—all of which underlay the great depression andthis war.

The cartel system was at worst only a minor andmostly unconscious accessory to the progressive in-solvency of international trade under Americansponsorship during this period since the last war.Its main crime was that it helped to postpone andso to intensify the receivership which ensued in pro-portion to its apparent success in protecting un-sound investment, maintaining prices, supportingwages and promoting unproductive employmentanywhere in the world. Most of the internationalagreements being debated today as part of theglobal New Deal, from Hot Springs to BrettonWoods and Chicago, are really large-scale cartelplans of this character, and whether or not they helpto maintain the appearance of world peace for aperiod, they should not be mistaken for good busi-ness propositions from America's point of view be-cause their purpose is philanthropic, pacific, or pure-ly political.

It has been the silent, unseen march of the ma-chine tool and chemical laboratory round the world

Into all corners of tl̂ e earth in these two decadesor more that has steadily narrowed the economicdifferentials between the raw-material and the ma-chine-producing nations, whittled down the neces-sary international division of labor and so shrunkthe relative dimensions of the structure of interna-tional trade based and built upon it. . . .

So What Do We Mean?But what do we mean when we talk about abol-

ishing cartels? When you set out to abolish some-thing globally you have to have some notion as towhat, how many, who, where and how; but as tointernational market arrangements, though a libraryof books has been written about them in the aca-demic and bureaucratic cloisters during the pastgeneration, no fairly comprehensive census of thenumber, type, sponsors and location has ever beenmade, even by all the king's horses and men in theomniscient Department of Justice. We are not deal-ing here with an occasional physical phenomenonwith a local habitation and name, like bedbugsor cockroaches, but with a ubiquitous form andmethod of economic organization in world markets,whose roots and tendrils reach into governments, aswell as banking systems, shipping on the seven seas,and even into the air and the ether. In some coun-tries like Soviet Russia it is in fact the only formof economic organization that exists; and in manyothers the main form. In this respect, the UnitedStates seems to be an arid desert, an undevelopedprimitive frontier amid the lush jungle of cartel floraand fauna which fills most of the rest of the world.

The most recent estimate, of Professors Hausmannand Ahearn of Fordham University, which they of-fer diffidently as a minimum, is that there wereabout 5,500 to 6,000 cartels in Europe before thiswar, not including patent agreements, and probably1,200 of those were international in their influenceon European trade.

By an ingenious method these authors venture aguess that between 1929 and 1937 about half orperhaps a little more than half the world trade wascontrolled or influenced by cartels (complete orpartial), conferences and other forms of marketingarrangements covering agricultural products, met-als and minerals, manufactured goods and patents.Shipping, air lines and international communica-tions, insurance and banking, and other serviceswere not included in this minimum estimate; butpractically all commodities moving in internationaltrade are included except petroleum, cocoa, and fatsand oils, which, to the date of this recent study, theauthors say had not been cartelized, though effortswere under way to do so, some of them by gov-ernments, like the lately proposed petroleum agree-ment. Many of the important ones, like the inter-national wheat and tin cartels, are government ar-


rangements and some, like the German potash andcoal cartels, are compulsory.

One curious conclusion of the authors, which maycause considerable obsolescence in one of the juiciestpieces of academic and political chewing gum, isthat the number of agricultural cartels and cartel-like understandings exceeds that of industrial car-tels. "This is a fact," they say, "which contradictsthe popular opinion that minerals and manufacturedgoods are cartelized whereas agricultural productsare almost entirely subject to the mercies of theinternational market." . . .

The Old World UndertowWe shall not reach the core of any candid discus-

sion of the cartel question and its current signifi-cance until we understand that in the period sincethe last war, and with increasing speed during thepast decade, after little more than a century of in-dependent development under the idea of economicfreedom, the spirit of all these groups and many oth-ers in American life has at last been caught in thepowerful undertow of Old World standards, ideasand aspirations of individual and social conduct andaccomplishment, created by the backwash of thelast war.

Business, labor and government, no less than edu-cators, scientists, economists and artists, in one jdegree or another have felt the drag of this spirit-ual undertow pulling them back toward the culturallevel of the Old World way of life, with its fatalisticphilosophies, its class conflicts and social rigidities,its frantic emphasis on security, its fear of individ-ual responsibility and risk, its distrust of personalliberty and individual initiative, its faith in the om-nipotence, omniscience and beneficence of the unlim-ited State and its passive dependence upon govern-ment—from all of which our ancestors escaped for abrief century to develop the strongest and most pros-perous nation on earth. In innumerable ways this jerosive power of the ancient current of Old Worldideas has reclaimed America for itself, and duringthe decade past she has become once more a culturalcolony and spiritual dependency of Europe.

This War the ClimaxThis spiritual reconquest of America is clearly re-

flected in the profound changes that have occurredin our political institutions and economic organiza-tions during this decade, and in the deepest sensethis One World War is its climax. Anyone who un-derstands the direction of the ideas embodied in thepostwar plans which are being debated today inBritain, and in the reconstruction schemes pro-posed for France and other countries on the Conti-nent, and who realizes the influence these have onour ideas about the future in America, must feel theterrific force of this undertow.

It is not necessary to read very deeply between

the lines of the daily news to recognize clearly that,whatever the military or diplomatic outcome of thewar in the West, the essential economic and politi-cal ideas of national socialism have conqueredEurope; but what is more important is that all ofithese accepted ideas for the postwar world, especial-ly in England, assume it as an imperative conditionfor their success that this country be brought with-in the same system permanently after the war, andevery modern device for shaping American thoughtand feeling to this end is being used today, as theyhave been used during the past decade.

The European statesmen who are planning andbuilding their postwar world on the ideologicalfoundations of national socialism, whose militarypower has been destroyed, know better or soonerthan the Nazis did that that world cannot live forlong half under socialist serfdom and half undereconomic freedom, and I may add that this recog-nition is no less urgent in the long run for Uncle Joe'stotalitarian autarchy than it is for a nation underparliamentary government like England, who mustlive by trade or starve, and knows that her post-war planned economy, however complete, could notcompete with the productive power of a free *America. The character and course of developmentof the American political institutions and economicsystem after this war have in fact become as mucha crucial concern of the rest of the world as thoseof Germany were at its beginning, or as those ofRussia were after the last war, but this time in re-verse fashion.

The Subversive Idea—FreedomIn the postwar world of socialist states, the pre-

New Deal idea of economic freedom will remain asubversive, disruptive, revolutionary force interna-tionally as well as internally, just as Bolshevismdid after the last war. I suggest that this fact willfurnish the key to most of the postwar problems ofinternational relations as well as of domestic pol-icy for another decade or two.

As I have said with tiresome monotony during thepast ten years, the skeleton structure of nationalsocialism has been deliberately built in America dur-ing this decade, largely under the supervision ofEuropean architects, and the necessities of tKe warhave established it on a firm foundation and prac-tically completed its operating equipment.

Most of the American people seem to be unaware 'that they have moved out of America and are liv-ing in this new social structure, mainly because sofar the fiction of nominal private ownership of prop-erty and a large measure of personal freedom ofmovement, speech and occupation have been pre-served; but after twelve years of exposure, a largepart of organized labor, and the business commun-ity, as well as the press and our educational system,have been assimilated into the atmosphere, manners,


customs and ways of living and thinking of this OldWorld address, and are beginning to feel prettymuch at home.

Whether America can be kept within this inter-national framework of national socialism which hasbeen erected around her political institutions andeconomic organization during this decade, or wheth-er she is to resume life within the traditional frame-work of economic freedom and competitive effortwhere she left off—this is the central issue for thepostwar world.

Government WinsThe labor unions won the last war; but unlimited

government—the idea of the supreme, all-powerfuland all-wise Welfare State—hasjwon thisône. Yetwhere government will go with the*vTctory dependsmainly upon the direction in which businessmen andlabor drive it by their demands upon it, what theyexpect from it, and how well they understand theprice which they and the rest of the American peo-ple will have to pay for what they get from it.

, Organized labor has already begun to get someI understanding of what bargaining with the Abso-| lute State means; but a good many businessmen

still imagine that they can get something from gov-ernment without paying for it, and are willing togamble a bit with everybody's liberty to get a littlesecurity for themselves. But after a war like thisone, no government, here or elsewhere, has anyplace to go except where it has been going.

Every government today is driven by its, momen-tum down the same road it has been following dur-ing the war, and none ever turns off, or back, onits own initiative, so long as it is encouraged tocontinue. Businessmen as well as governments aremaking plans for the demobilization of almost every-

mt jp jt n s e t

of the wartime structure of Statism which it wantsto keep for itself in the postwar world, whateverhappens to the rest. . . .

thing in the postwar world butgovernment itself.Every group has got its teetnset"iDTs6me''"piece

The Turn from FreedomAlthough the antitrust laws, handed down like

the Talmud from the Nineties, remain the officialgovernment gospel on cartels and competition, thefundamental economic fact of the decade which cul-minated in the war is the flight from the free or vol-untary market—the free market for goods, labor,capital, information and ideas, in every country,and its final abolition by government in the globalwar. ^verybodyTiasVeen trying'"harder and harderto find some way to get out of the open marketplace or keep out of it, and to move into some eco-nomic air-raid shelter.

r Governments everywhere have supplied or sanc-X tioned more and more of these shelters and extended\ their activity as air-raid wardens in keeping people

out of the market place whenever possible. Thus,in innumerable ways, the market has been drivenunderground along with the population, and sincethe free market is the birthplace of political free-dom and civil liberty, these are being destroyed withit over a large part of the globe.

The Problem of Many RootsThe fact of this flight from the free market has

been plain enough in practically every policy ofgovernment, business and labor in the past decade;and now, since the war has abolished the voluntarymarket for nearly everything, the hottest problemthat emerges as we approach the postwar promisedland is whether and how much, and for what orwhom, the voluntary market will be restored oreven be permitted to remain where it still survives.Every inch of the rocky road of reconversion, re-employment, and rehabilitation of internationaltrade is crawling with live issues and conflictingpurposes that are rooted in this problem, and thereis little candor and much confusion of mind aboutthem everywhere.

Perhaps the most common feeling is that we canand should have it both ways at once; that for somethings and at certain times the market must and canbe voluntary and free, and for others compulsory andmanaged. In this matter as in most others we havethe mystical feeling that modern technology has re-vealed a method of eating cake and keeping it, too,and that it is dangerous and out of date to commitoneself exclusively to either of these policies on thecake problem.

Most of us are aware in one way or another thatsomething has been happening to the voluntarymarket, but till the war few have been aware of itsultimate implications, or able to imagine what aneconomy without free markets really means. Forten years we have not only been afraid of the freemarket and trying to keep out of it as far as possible,but we have been superimposing upon it—by everysort of device, from plowing under wheat, the mod-ern counterpart of building pyramids, to slum clear-ance by high explosives—a kind of forced consump-tion, and transforming the voluntary market into acompulsory one on the part of buyers or sellers, orboth, for commodities, capital and labor alike.

Magnified EnigmaWe can see this most clearly in the war, which is

the climax of the process. Here we have selectedsome ten million consumers and stepped up theirannual rate of consumption to an average of about$10,000 per year—probably five times what it aver-aged before—without much reducing the averagerate of consumption of the rest of the population.

To put it in national terms, with the help ofMessrs. Hitler and Hirohito we have forced ourrate of consumption up from about $70 billion


worth of goods and services per year to double thatrate. Our civilian consumption is not much lessthan the total was before the war, and we arethrowing the rest away or at the enemy. That is infact the essence of war from an economic point ofview, and as we approach the end of that process,what many people—statesmen and businessmen andworkers alike—are wondering is where and in whatform can we find in peacetime among the voluntaryconsumers in the free markets of the world theeconomic equivalent of war as a consumer.

William James was worried, back in the Nineties,about finding the moral equivalent of war—some-thing that would be as stimulating and inspiring toconstructive or productive peacetime effort as warwas to combat; but we are not really concerned withthat today, because we believe that we have solvedthe problem of production. We are worried aboutfinding a market whose maw is as voracious asMars, a voluntary consumer who can use up asmuch of our product as the cruel compulsion ofwar does.

This is the economic enigma which the machinetool and the chemical laboratory have brought hometo us in this war. So far we have sought an answerin only two directions—one, that of withdrawing orretreating from the market by throttling down ourproduction to its peacetime voluntary capacity; theother, in developing those ideas and devices of com-pulsory consumption which we have been experi-menting with during the Thirties, and have testedin war, of which Lord Keynes can be said to bethe main modern promoter, if not the inventor.

Where the Path EndsThese are the directions in which we are turning

now as we contemplate the postwar period. Theissues of international cartels, reconversion produc-tion quotas, transitional price controls and rationing,the guaranteed wage, public works programs, per-manent lend-lease proposals, government stockpil-ing of raw materials, and dozens of others you readabout in the daily papers, remind us that scarcelyanybody anywhere—workers, savers, investors, pro-ducers or traders—is willing to trust himself in theopen market any more. Faith in the beneficence ofthe free forces of the market place has been sup-planted by hope for the omnipotent protection of

, the State or confidence in the bomb shelters of bu-reaucracy.

Experience tells us plenty about the place wherethe path of production control as a solution of thisdilemma ends, and it is hard to believe that any-one has any illusions left on that score, for govern-ment has always been the natural heir or residuarylegatee of every form of monopoly and a prolificfather of many on its own account. But the moderntechnique, if not the principle, of compulsory con-

sumption is new and unfamiliar—even invisible—tomost of us and we are not yet quite certain where itends, perhaps because we do not know enough aboutthe Secret of the Pyramids, which were the originalsource of forced consumption and full employment.I venture the guess that we shall find out where thatroad ends, too, before long, and when we get therewe shall probably find compulsory saving, compul-sory investment, compulsory management and com-pulsory labor waiting for us.

Freezing EverythingIn face of this glacial movement on the part of

modern government toward freezing everything thatmight disturb, retard or limit the totalizing of Statepower, we are not likely to succeed in reconvertingthe rest of the world to an old-fashioned philosophyof free markets and free competition, even if webelieved in it fanatically and went forth like aneconomic Mahomet to ram the capitalist Korandown the throats of the collectivist infidels who fillthe world today—all of which is hard to imagineeven for an optimist like me. Doubtless when thewar subsides we shall make some romantic andsemantic gestures in this direction in the currenttotalitarian liberal style, probably phrasing our plat-form in some such lofty phrase as the one that hasjust emerged—"free public enterprise in the institu-tional form."

So far as the international marketing arrangementaspect of this is concerned, in most other countriesthe State has taken over, or intends to take over, thecartel system and run it for its own purposes, com-pelling its own people to come aboard, or else, as weare compelling our workers to join labor cartels andemployers to make industry-wide union agreements.It seems probable that in its cartel policy our gov-ernment, as usual, will want to imitate any importederror as impressive as this, and that is the directionin which it is moving rapidly in most of the inter-national arrangements it is making now.

The New FolkloreAll current folklore of collectivism indicates that

in the ideology of foreign trade, as at home, we aremoving toward the concept of compulsory spending,and that the typical postwar cartel will probably bea compulsory-consumption marketing arrangement.After all, is not this war a colossal and successsfulcompulsory consumption device for maintaining fullemployment at home and abroad according to themodern formula, with the United Nations as a super-cartel operating with complete success in dumpingthe maximum amount of high explosives and othernondurable goods on markets in Germany and Japanwhich have a limited "disposition to consume" them,as Lord Keynes would put it, to say nothing of pre-venting oversaving and curtailing excessive capacityto produce in these markets? Almost every day do


we not hear some businessman in the Committeefor Economic Development or the National PlanningAssociation—as well as the Potomaconomists—putto us the trap-question: "If we can provide fullemployment and promote high-level consumption inwartime, why can't we do it in peace?"

It seems reasonable to suppose that governmentswith unlimited and permanent mandates to do sowill see inTBFpfewaF cartel system, and in the super-political cartel which will run the postwar world, aperfect mechanism for carrying on this process ofcompulsory consumption in peacetime via the de-vice of lend lease for reconstruction, establishmentof global, milk routes among the Hottentots andother peace-loving peoples, et cetera. Certainly any-one who examines the economic ideas that underlieour domestic and foreign policies today must bedriven to the confident conclusion that if we can

contrive by any kind of cartels, public or private,to dump enough stuff on foreign markets under somesortôf planetary OP A after. Jhejyar, we are sureto h^?^full^"empoyment and plenty of money athome, even though we may not having anything to

I Conclude with one brief comment, which touchesproblems far deeper than the one we are discussingtonight. I feel that before we go much farther downthis road, American labor as well as business shouldbegin to realize that intergovernmental marketingarrangements in foreign trade, and internal controland regimentation of the life of a people, are theinseparaBlV Smmese twins of the totalitarian serf-dom* which we set out to destroy in this war; andmay the find providence which watches over foolsand children help us to conquer both of them inourselves.

France on the New RoadFrom the De Gaulle Speech at Lille

AFTER the war, reconstruction. Because we beginthis reconstruction under the most difficult ma-

terial conditions we shall put into it only more bold-ness, more work and more energy. We must winthis time, we ourselves, the victory of the recoveryof employment which alone can open the way to thevictory of French reconstruction.

But Frenchmen and Frenchwomen that we are,we understand very well that the effort which wewill make in common must not lead back to thepoint from which we have come. No, no. We do notwish to return to that situation, political, social,moral, which led us to the verge of the abyss; wewant something else.

First, in a world now become so small, we have acommon duty, which is to make the fullest use ofwhat we possess in our soil, our subsoil and our Em-pire. This putting of everything to the commonuse we desire shall be as efficient as possible, becausein the world of today where so many are sufferingone has not the right to leave any resources inef-fectively employed.

We desire, then, to put to use for the commongood all that we have on this earth, to succeed inwhich there_is no other means than what is calledplanned economy. We desire that it may "be thestate^which manages, for the good of all, the eco-nomic effort of the whole nation, and so to manageit that the life of every Frenchman! alifteveryFrenchwoman may become a better one.

At the point where we are it is no longer possibleto allow those concentrations of interests which theworld calls the trusts, which have been able to adapt

themselves to a period given over to putting to usethe resources of the earth, but which today do notmeet the demands of a reformed economic organi-zation, just as in the past the feudal military systemceased to meet the necessity of defending the lawswhich it had to defend on a national, no longer on alocal, plan.

For this directed economy, for this putting to thecommon use of all the resources of the country, thereare conditions to fulfil, of which the first is evidentlythat the collective—that is to say, the state—as-sume the direction of the great sources of the com-mon weaTEE and that it should control certain otheractivities, without, be it understood, excluding thegreat levers which exist in the activity of men ofinitiative, and in just profits.

This is why, although the method and the de-gree of collaboration between those who labor andthose who direct be different, according to the natureand the importance of the enterprises, it is necessarythat this collaboration shall be established in a sys-tematic way, between the one and the other, with-out normally interfering in any way with the actionof teose who have the responsibility of their direc-tion.

From this point of view the government, as youknow, has already made certain decisions in prin-ciple. We shall not carry out this program every-where at the same time, or in a few minutes, as everyone well understands, but we shall carry it out, thenational plan of French economy, organized withinindustrial enterprises.—Translated from the textsupplied by the French Information Service.


A Policy for Wealth inTwenty Points

IN a series of seven articles under the general head• of "A Policy for Wealth," The Economist, Lon-

don, has been facing the economic peril in whichGreat Britain stands, because "in every direction, in

[ world strategy, in international commerce, in theI promises that have been Tnade to the people atI home, the British community has mortgaged its

wealth beyond its present power to produce." There-* fore, means of increasing the production of wealth

"must be sought wherever they are to be found."That was the startling text. The articles were

not in any sense dogmatic. Their purpose was "topoint the necessity for hard thought and effectiveaction, if the foundations of all economic wealth arenot to crumble." In the October 14 number, theseven articles are summarized and the suggestionsat which they arrived are reduced to the followingtwenty points.

ONE"For the British community, and for many years

to come, the size of the cake of the national out-put is certainly as important as, and probablyfar more important than, any questions about thesize of the various slices. Neither full employmentnor social security will be accounted successes un-less they can be combined with a rising standard ofoutput.

TWO"In past decades the average rate of increase

of productivity per head has been about 1%% perannum compound. The objective should be to raise

I this rate to 2%% per annum, which is equivalent toj doubling the present average productivity in a gen-\ eration. This would bring productivity in Britain

in 1975 to about the level reached in America today.

THREE"Thobg-h many things contribute to a nation's

productivity, by far the most important factor isthe amount and quality of its productive equipment.Horsepower per head = wealth per head. The mostimportant single constituent of a policy for wealthshould therefore be a speeding up of the rate of in-crease of productive equipment. Before the war,the British community was investing only about 3%of its income in additional productive equipment.This is not enough.

FOUR"In the recent past, there has been no lack of

savings for the volume of investment in productiveequipment that industry was prepared to undertake.But this may have been because that volume wasso small. If a policy for wealth is embarked upon,one constituent of it should be action to ensure a

sufficient supply of savings to finance the increasedvolume of productive investment. This might neces-sitate a continuance of the national savings cam-paign, or even taxation.

FIVE"Unproductive forms of capital, however nec-

essary they may be (e.g., housing), should not be al-lowed to absorb more than their fair share of theavailable supply of savings.

SIX"The machinery of the capital market, by which

savings are made available to industry, does notwork unsatisfactorily. But there is a need for meansby which capital can be supplied on equity terms(i.e., on a risk-sharing and profit-sharing basis),especially to small firms.

SEVEN"The burden of taxation on industry needs to

be radically reconsidered, with a view not so muchto reducing its burden as to redistributing its inci-dence, so as to put a premium on the use of indus-trial income for the rapid replacement and extensionof productive equipment.

EIGHT"There is no good reason to suppose that the

substitution of public for private ownership would,by itself, lead to any increased investment in pro-ductive equipment. But in a number of industries,of which coal and steel are examples, the presentstructure is an obstruction to rapid technical prog-ress. The prescription is technical rationalizationwith the object of producing the maximum outputat the minimum labor cost; ownership is a secondarymatter.

NINE"Restrictionism in all its forms—particularly price-

fixing and quota-fixing activities—is the majorenemy of efficiency. It penalizes the efficient andprotects the inefficient. If there is to be a rapid in-crease in productivity, it must be brought withinbounds.

TEN"But competition by itself, without a reason-

able rate of profits, will lead to the consumption ofexisting capital rather than to the production of newequipment. The aim of government policy shouldtherefore be 'competition-in-prosperity'—that is, asevere ban on restrictive devices coupled with aneffective full-employment policy. Neither one ofthese two will do much good without the other.

ELEVEN"Both labor and capital should accept the

historically demonstrable fact that good profits andhigh wages go together. Organized labor should


realize that it is in its interest to ensure a reasonablereturn on the productive capital employed in theindustry—an aim which is entirely compatible withhostility to large incomes for individuals. Industryshould realize that its markets depend on the in-comes of the wage earners. The best way of linkingthe two would be by industry-wide profit-sharingschemes, on the lines of the coal-mining 'ascertain-ment.'

TWELVE"In return for an official 'high wages' policy,

relating wages to the national output, the tradeunion movement should formally abjure all rules,practices, demarcations and other devices whichhave the effect of reducing output per man hour.Any doubtful cases should be adjudicated by a tri-bunal.

THIRTEEN"Demands for shorter hours (other than those

where it can be demonstrated that a higher outputper week would result) should be deferred until thenational output reaches a figure specified in advance.

FOURTEEN"Double-shift working should be regarded as the

rule, rather than the exception, wherever substantialmechanical equipment is involved.

FIFTEEN"An effort should be made throughout the edu-

cational system to multiply the scientific commu-nity by four or five within a generation.

SIXTEEN"The existing gap between the universities and

industry should be closed by the foundation of in-stitutes of technology.

SEVENTEEN"The expenditure of industry on scientific research

and development should be very greatly increased.The status of the scientist in industry should beimproved and he should be given a much largervoice in the formation of industrial policy. Particu-lar attention should be paid to the development, orpilot-plant, stage.

EIGHTEENj "The quality of British industrial managementI should be improved. Managers need to have much[ more technical competence. The amateur element onI boards of directors should be reduced and the expert\ element increased. The need for the educated mindI in industry should be recognized.

NINETEEN"Distributive methods should be included in the

agenda for technical rationalization. In many cases,uneconomically small-scale production is dictated bythe merchanting system.

TWENTY"The wastes directly and indirectly involved in

some forms of advertising should be rigorously ex-amined."

CONCLUSIONA policy so contrived would call for "a major

effort on the part of the governmental machine,"or something like an economic general staff to makeinnumerable administrative decisions touching theeconomic life. This The Economist easily concedes.The great difficulty, it thinks, will be to arouse pub-lic opinion. The political parties have nothing tooffer. The Tory party, dominated by business,either believes in the deliberate protection of ineffi-ciency or takes refuge in expedients with no senseof policy whatever. The conclusion is:

"Only a radical improvement in the efficiency andproductivity of the country can enable us to meetthe commitments into which we have already en-tered. . . . The greatest dangers are not deliberateobstruction and stupidity, but apathy, fatalism andan acceptance of inferiority. . . . It is taken toomuch for granted that the days of expansion andadventure are over. There is too much readiness toaccept the superior efficiency of other countries assomething that does not concern us—to deny thefacts for as long as possible and to offer complacentexcuses for them when they cannot be dodged anylonger. . . . In economics, as a nation, we are think-ing in terms of Maginot lines. But in economics,more even than in strategy, a defense that does notpermit any forward movement is doomed to failure.All the great economic problems are one. . . . Socialsecurity and full employment will be sterile unlessthey are built on a basis of rapidly expanding wealth.Nothing could be more foolish than to dispute theorder of precedence. All three legs of the tripod arerequired for security, and the great need is for lead-ership strong enough to build all three at once. Therehas never been a greater opportunity for economicstatesmanship."

A British PeculiarityIn 1939, it was an extreme rarity to find a manu-

facturing industry where anything approaching gen-uine competition prevailed, where no control wasexercised over either prices or the scale of productionor the conditions of sale—and such exceptions asexisted before the war will be found to have disap-peared at its end. Even in the various forms of trad-ing enterprise, where a few pockets of competitioncan still be found, the principle of restriction hasmade great headway in recent years. Moreover, thistrend, so much in evidence in Britain, has beenlargely confined to this country, at least among theEnglish-speaking nations. If there is some pecularityof British industry to explain, then this is morelikely, prima facie, to be the explanation than any-thing else.—The Economist, London.


Modern Governments MustBy Marriner S. Eccles

This is the Speech Delivered by the Chairmanof the Board of Governors of the Federal Re-serve System before the National Industrial

Conference Board on November 16, last

IF WE are to win the peace as well as the warwe must know where we are going when war no

longer is the driving force of the economy.In less than four years this nation has accom-

plished a miracle of production. At the same timewe have had a remarkable degree of economic sta-bility. All of us have seen the miracle happen—many of you helped greatly to bring it about—although at times some have lost sight of it in criti-cism of details. The problems have been and stillare staggering. Nevertheless, under government di-rection, program after program has been put throughsuccessfully.

The vast cooperative achievement of our people—industry, labor, agriculture, and all other groups—was only possible because of government organiza-tion of united effort, government planning, govern-ment financing, and government settlement of count-less conflicts of interest on the economic front.Within this framework, the accomplishments of in-dustry have been tremendous. The over-all resultshave been magnificent.

There have been withdrawn for armed service wellover 11 million men and women in the most produc-tive age groups. At the same time we have increasedthe total output of our country to 75% above 1939levels. We are supplying goods and services in sup-port of the war effort at a rate of about $85 billiona year. At the same time, output for civilian use isvalued at about $110 billion. Nearly one-fourth ofour food production is going to our Armed Forcesand our Allies. Per capita civilian consumption offood is well above the prewar level.

Peak Living in WartimeWhile fighting the greatest war in history, the

country has succeeded in raising the standard of liv-ing for the population as a whole above the level ofany peacetime year. Moreover, we have createdmany new industries or greatly expanded existingones—for example, magnesium, synthetic rubber,shipbuilding and aircraft. We are producing planesat the astounding rate of 100,000 a year. Before thewar we imported nearly all our rubber. Our annualproduction of rubber now exceeds our imports ofrubber before the war. This production record hasbeen achieved by a net increase of about 6 million,or less than 15%, in civilian employment, combined

with a substantial increase in hours of work andmore intensive effort.

I mention these facts because they so vividly re-veal the magnitude of our postwar job if we are tocontinue to keep our productive resources fullyemployed.

Having experienced an output of goods and serv-ices of nearly $200 billion during the war, the peopleof this country will not be satisfied with a peace-time output of $125 to $150 billion.

Having experienced several years of full employ-ment, they will not tolerate mass unemployment.

They will not accept the explanations, so oftenheard in the past, that "we cannot afford it," orthat it is economically unsound for the governmentto intervene, or that we must wait for "naturalforces" to come to the rescue.

The question before this conference is: "PostwarPrice Problem—Inflation or Deflation?" The ques-tion so stated implies that we have a choice betweenone or the other. But if we have inflation, we shallcertainly have deflation following it. Thus we maybe faced with having both. However, if we avoidinflation, we shall still face the danger of deflation.

The Perilous IfsIf, in the period of transition from war to peace,

we fail to maintain wartime price controls and ra-tioning until civilian goods become available inadequate quantities, an inflationary situation maywell develop.

If, later on, we fail to raise the flow of consumers'expenditures greatly above prewar levels, defla-tion will be inevitable. The danger of inflationin the transition period can surely be met. The dan-ger of deflation presents a vastly more difficult prob-lem. To solve it will be the main challenge to ourpostwar economy.

Nobody can foretell how strong inflationary pres-sures will be during the transition from war to peace.Inflation pressures include the pent-up demand forconsumers' durable goods and housing; continuedshortages of certain food and clothing items; thehuge volume of liquid assets in the hands of thepublic; a potentially large foreign demand; and,finally, the people's desire to return to normal andto get rid of wartime controls once victory is won.The longer the war lasts, the greater the danger ofinflation will be because of the cumulative increasein pent-up demand for civilian goods and in liquidassets in the hands of the public.

However, at the same time there will be defla-


tionary pressures working in the opposite direction.There will be large reductions in war expenditurescreating unemployment in war industries. Demobil-ized war veterans will be added to the civilian laborforce. There will be large stock piles of many rawmaterials. Uncertainty about future employmentwill deter many people from drawing on their savingsor spending as much as they otherwise would out oftheir current income. Similar uncertainty will delaybusiness expenditures. Many other factors in thesituation, as the war ends, will add to the mixture ofinflationary and deflationary forces.

Controls Must Continue Until—Because of the uncertainties of the transition pe-

riod, price, rationing and fiscal controls should bekept intact until industry has resumed civilian pro-duction on a scale adequate to meet demand. Onlythereby can the consumer be assured that he will notlose by postponing purchases and that the purchasing value of his savings will be protected. This isvital because of the huge volume of liquid savingsaccumulated in the hands of the public as a resultof war financing. If these savings were used prema-turely through fear of impending price increases,they would be a destructive inflationary force.

Unless the program for the transition period iscarefully planned and carried out, the long-run eco-nomic problems of the country will be vastly moredifficult to meet. Just as the difficulties of the 1930'swere due to the failure of the policies of the 1920's,so will our postwar situation be determined largelyby the job we do in the transition period.

For example, we may expand our industrial planttoo greatly and in the wrong directions in an effortto satisfy too quickly the huge backlog of demands.They will include not only the large pent-up de-mands for consumers' durable goods, capital goodsand public works, but also large foreign demands.Instead of meeting these demands at once, prudentpolicy calls for satisfying them in a more gradualand orderly manner so that when these accumulatedforces are expended, there will not be a sharp andsudden drop with serious deflationary consequences.It is better to ration, control prices, restrain creditexpansion, and delay deferable public works or for-eign loans in this period than to have an unsustain-able overextension.

Preparing the Higher StandardsIt is most important during this transition period,

while we have the sustaining power of backlog de-mands, to adopt policies designed to lay the ground-work for the higher standards of living we must havelater on. These policies should include, among otherthings, a Social Security program covering all of ourpeople and providing adequate benefits; a modifiedtax structure; maintenance of low rates of interest

to encourage new investment, including housing;and the planning of federal, state and local publicworks to be undertaken when the need to provideadditional employment develops.

It is at this time, when the backlog of deferredneed has been largely met and we must rely uponcurrent demand, that we shall face the most difficulttest of our ability to prevent deflation and massunemployment.

On the average this year, about 52 million civiliansare employed. In addition, more than 11 millionare in the Armed Forces, making a total of morethan 63 million, or nearly one-half of our total popu-lation. After the war, a substantial number of peopleattracted to the labor force during the war will retireor return to school or housework. A rich countrysuch as ours can afford to give its young people ade-quate education and to provide retirement for itsolder people. But even after making full allowancefor probable withdrawals from the labor force, it isevident that more people will be available for workin peacetime activities than are now employed.

The Minimum IncomeWhat does this mean in terms of production in

the postwar years? It has been conservatively esti-mated that in order to have reasonably full employ-ment in the second year after victory, we will needto produce goods and services amounting to $170billion at 1943 prices. As the labor force and effi-ciency increase, this figure will have to be revisedupward.

Yet, even a $170 billion total reflects a vol-ume of output vastly above that of 1939. In orderto visualize what $170 billion of expenditures means,let's divide them as follows: $110 billion in consum-ers' goods and services; $25 billion in plant, equip-ment, housing and other new investments; and $35billion in goods and services supplied by federal,state and local governments.

Allowing for price advances since 1939, these fig-ures mean, for example, that as compared with 1939we will need to have 40% more in consumers' goodsand services, nearly twice as much in plant, equip-ment, housing and other new investment, and doublethe total of public expenditures.

These are challenging figures. They are significantnot because they are in any sense a forecast butbecause they indicate the general magnitude of thejob that lies ahead of us. It is apparent that wemust aim high; that we can never go back. If wewere to return to 1939 levels of production, from 15to 20 million of our postwar labor force would bewithout jobs, an intolerable situation. Many of thosewithout jobs would be veterans of this war.

The over-all economic problem may be definedin this way: in order for 56 million workers to havejobs, enough money must be spent to buy the out-put of 56 million workers. Production large enough

January y 1945 The Economic Record 15

to employ substantially all workers is possible onlyif the total income from their product is spent eitheron consumers' goods and services or is saved andgoes into new investment directly or indirectly.

Savings which are invested are returned to thestream of expenditures and thus continue to giveemployment. Savings that are held idle or used tobid up prices of existing assets do not.

If the flow of income back into the expenditurestream is interrupted, demand becomes insufficientto take off the market what is produced at fullemployment. As a result, production, income andemployment inevitably decline. To assure a suffi-cient flow of expenditures is, first of all, the respon-sibility of the people and businesses who receiveincome and who decide how to use it. But thereare millions of income recipients and tens of thou-sands of businesses in our country, and there is noassurance that a sufficient amount of expenditureswill come forth in a steady stream.

If the purchases and investments of the peopleare not sufficient to buy the goods and services pro-vided by full employment, then cumulative deflationand unemployment will develop unless the govern-ment steps in and provides a sufficient volume oftotal expenditures.

The larger the unused savings the larger mustgovernment expenditures be to overcome the defi-ciency in private spending and investment. Thegovernment has two ways of channeling idle savingsback into the income stream; that is, either throughtaxation or through borrowing. As between the two,I believe that taxation must carry the main burden.I would be most hesitant to see further additions tothe public debt after the war.

This Time and BeforeIn this respect, the postwar picture will differ

greatly from that in the early 1930's when the econ-omy had undergone a drastic deflation and largegovernment deficits were not only unavoidable, butit was desirable to replenish a contracted moneysupply. An entirely different situation will existafter this war.

Upon the termination of the war, the total volumeof currency, bank deposits and government securi-ties, which are the equivalent of cash, will be farmore than adequate as a basis for the purchasingpower needed to provide full employment.

A more direct approach than deficit financingshould be found in order to maintain necessary ex-penditures. Since we cannot afford, in the postwareconomy, to have widespread unemployment, it willbe essential, if all other methods of providing em-ployment fail, to have the government underwriteemployment through borrowing the unspent savingsol the people and returning them to the incomestream. However, this should be a last recourse.

A much more satisfactory approach would be tobring about the necessary increase in the flow ofexpenditures by other means; for example, by anextension of the Social Security program and byappropriate tax policies that would induce morespending and reduce idle savings.

Consumers Must ConsumeA high level of consumers' expenditures is the

Basic requirement for postwar prosperity. The con-sumer is the real employer. If he receives adequateincome, business has a buyer for its products; andhaving a buyer for its products, it has jobs for theworkers. If the consumer does not buy, the marketsfor the output of business shrink and total incomeand employment fall off.

Much can be done to increase consumptionthrough a much broader Social Security system. Thegovernment should underwrite and guarantee a na-tional minimum of income, education, health andold-age security for all citizens. By so doing, thegovernment can place a floor of purchasing powerunder the economy. This in turn will place a floorunder the market for the goods and services of busi-ness, industry, and agriculture.

Decent minimum levels of income will them-selves help to achieve and maintain full employment.Our productive capacity is so great that such mini-mum standards will not be a strain nor will theyimpose a dead level of uniformity. Ample room willbe left for most people to raise their incomes farabove these minimum levels.

Postwar Social Security benefits should not bebased upon further additions to the payroll tax, butshould be paid for out of the general budget, be-cause a tax on payrolls is a tax on consumption and,therefore, undesirable when more consumption isneeded.

The federal budget is not likely to be less than$25 billion a year after the war, or about three timesthe prewar level of 1939. If we succeed in maintain-ing full employment, however, a budget of this size,in order to be balanced, will not require tax rates tobe three times as high as before the war becausethe income base will be far larger.

Cost of GovernmentThe higher the national income, the easier it will

be to pay for the costs of government. It is doublyimportant, therefore, to recognize the close relation-ship between the way in which our taxes are col-lected and the flow of income from which they aredrawn. Our postwar tax system should be designedto induce a high level of consumers' expenditures.Accordingly, the first requirement should be a dras-tic reduction in excise taxes because they tax con-sumption and thus undermine the markets for busi-


ness. Secondly, personal income taxes upon thelower income group should be reduced.

There is no lack of need for everything that wecan produce. There are still a great many peoplein this country whose standard of living is shame-fully inadequate. The basic problem is to see thatthe necessary purchasing power flows into the handsof those who will use it to increase their standard ofliving. An adequate Social Security program as wellas assured employment will do much to induce thespending of current income and thus increase thestandard of living.

A high level of consumers' expenditures is not pos-sible without a large volume of wage and salaryincome. If our economy is to operate at full ca-pacity, average wage and salary incomes must behigh enough at normal hours of work to give thepeople sufficient purchasing power to take the prod-uct off the market. When, after the war, hours re-turn to normal and overtime pay is discontinued,total wage and salary income will decline sharply.If we are to avoid sharply declining prices and lossof markets which discourage production and busi-ness expansion, a gradual upward adjustment willbe necessary in the wages and salaries of the greatmass of comparatively lower-paid workers.

Necessity for Higher WagesIncreases in productivity should be passed on to

the public largely in the form of higher wages andsalaries. In those industries in which productivityis increasing much faster than average, prices shouldbe reduced in order to reach larger mass markets.Throughout, prices should be set on the basis ofnarrow margins per unit of output.

Once a high level of consumer expenditure is as-sured, the foundation for investment expendituresof business will be laid. Investment expendituresare made in anticipation of consumer demands andare not likely to be made unless business is assuredin advance of an adequate market. We hear muchabout the reluctance of businessmen to take risksand engage in new ventures because of lack of con-fidence. However, business confidence is an effectand not a cause. It will exist if there are marketsto look forward to; it will not exist if markets arelacking.

To assure adequate total purchasing power, it isnecessary for business to disburse the funds whichit receives from the buyers of its product. Corporateprofits that are not used for capital expansion shouldbe passed on to the workers or the owners, and thusreturned to the expenditure stream. Depreciationand depletion reserves which accumulate as idle bal-ances similarly constitute a drain on the expenditurestream. Currency, deposits and government securi-ties held by businesses other than banks and insur-ance companies have increased from about $24 bil-lion in 1941 to the unprecedented total of $66 bil-

lion. They should not continue to increase after thewar because, as I have emphasized, business receiptsmust be respent currently to help sustain full pro-duction and employment.

The Tax InstrumentThere is much discussion today in favor of reduc-

ing corporate taxation after the war. I believe thatmuch of the current discussion is in the realm ofwishful thinking because the revenue objective is setentirely too low. Also, I believe that removal ofvarious excise taxes and a reduction of income taxeson the lower-income groups should come first. Oncethis has been done and revenue needs permit, Iwould favor a reduction in the corporation incometax. The rate might be lowered to 25% or 30% andthe corporation permitted to take out of its taxableincome that part of its profits which it distributesas dividends. This would remove double taxationof dividends under the corporation income tax. Itwould be an inducement for corporations to dis-tribute their earnings.

The excess-profits tax with its carry-over andcarry-back provisions should be retained for sometime after the war at a reduced rate of around 65%.High profits that will be earned in that period aretraceable to backlog demands and are thus in thenature of war profits.

As an encouragement to small business enterprise,provision should also be made for substantial taxbenefits. This would stimulate investment in smalland independent concerns. It would be the mosteffective way to make equity capital available tothem and be of far greater help than to provide toomuch easy credit. Encouragement of small enter-prise is essential not only for economic reasons, butto vitalize our democratic institutions and help keepalive the spirit of American enterprise.

This $200-billion CountryOur economic problems must be worked out at

home. There has been, in recent discussion, toomuch reliance on the stimulus to our domestic pros-perity which may result from world trade. Inter-national cooperation is essential and internationalagreements, such as those planned at BrettonWoods, are desirable. Yet we must not forget thatthe level of postwar employment in the UnitedStates will depend primarily upon the existence ofdomestic markets for our products. Our first respon-sibility is full employment at home and achieving itis the most powerful contribution we can make to aprosperous world economy.

In the period ahead, we should keep constantly inmind that this is a $200-billion-a-year country. Weall know by now that we cannot gain by fightingover shares of a small total output. In 1932 when


many millions were unemployed, corporations as awhole lost nearly $3% billion and net current in-come of farm operators amounted to less than $2billion. In 1943 with full employment, corporations,after tax liabilities of about $15 billion, had net in-comes of nearly $9 billion, an all-time high. Simi-larly, net current income of farm operators amountedto more than $12 billion, likewise an all-time high.There is no profit in goods that are not produced.On the other hand, we all gain from a larger totaloutput.

The ProgramI have sought to outline the principal economic

factors in prospect and the approach to the solu-tion of our postwar problems which I believe prom-ises the best hope of success. Such suggestions asI have made are, of course, only a part of a compre-hensive long-run program for full employment. Theobjectives of such a program may be summed upas follows:

To maintain full and stable national production,income and employment to the maximum pos-sible extent through encouraging the expansion ofprivate enterprise.

To guarantee minimum standards of health,education, and personal security for all members ofthe community.

To provide for a steadily rising standard of liv-ing for the nation as a whole by development ofour economic resources and by improving the effi-ciency with which they are used.

To promote a high level of world prosperityand world trade in cooperation with other nations.

Modern Government Is ObligedThere will not be much disagreement today among

thoughtful people, regardless of political faith oreconomic background, on these goals of nationaleconomic policy.

Modern governments, including our own, havelong since assumed a primary responsibility for theeconomic guidance and progress of their peoples.A highly developed nation like our own, with dem-onstrated capacity for providing a standard of liv-ing for all of the people far higher than anythingwe have ever known, can well afford to provide anational minimum of income, education, health andold-age security for all of the population. It can-not afford to do less.

Such a guarantee is not the impractical dreamof the social reformer. It is essential for our nationaleconomic security and for protection of what we callour free enterprise system. Only defeatists today inthe face of the war record will say that the goals offull employment are impossible of attainment underour economic system and form of government.

Eleven million of the youth of this nation nowserving in the Armed Forces are not likely to believe

that we cannot afford in peace as in war to providejobs for able and willing workers. They are wellaware of the widespread discussion of postwar plans,and if they are impatient with it now because theythink it shows an unawareness of all of the bitterfighting that remains to be done, they will be farless tolerant if, when they come home, they find thatthe planning and the promises about free enterpriseand full employment are only a mirage.

Profit in War StillHow many will never come home, how many will

return maimed for life—we do not yet know. Wedo know that it is these 11 million who are riskingand losing everything to save this system of ours.We do know that the good intentions of a few yearsago about taking the profit out of war seem ratherlike a mockery today. We do know that these 11million have not shared in the veritable war boomwhich has enriched the home front. They have givenup homes, jobs, businesses, and life itself. Those whohave stayed at home, safe and protected, have beenprovided with a higher over-all standard of livingthan the nation has ever before enjoyed. They haveaccumulated the greatest volume of savings in ourhistory. Farmers, workers, corporations, business-men have on the whole higher salaries and wages,more profits, more savings and fewer debts thanever before. Most of this has come out of an ex-panding, already mountainous, national debt.

The stay-at-homes—you and I—own the sharesin that debt. We will get the interest and be paidthe principal on that debt when we want it. The11 million—those who survive—will have to helpshoulder that mountain of debt of which we stay-at-homes are the principal owners. They may be quitewilling to do so if they have adequate jobs and eco-nomic security.

What Might HappenYou and I should have imagination enough to

realize what would happen if we on the home front,who have profited so much and risked so little—while they have risked so much and profited so little—if we who have the economic power or thepolitical power in this country accept the defeatismstill expressed by some to the effect that the coun-try cannot afford the goal of full employment be-cause the dictates of so-called "sound finance" standin the way. I cannot imagine more unsound financeor a plainer proof that we do not at heart believe inour system or in our democracy.

Those who have overcome the most terrible ofobstacles to win this war are not defeatists. If weat home fail them, they will rightly take commandand throw the defeatists out of public and privateplaces of power and responsibility—and I, for one,would be all for helping them to do it. It need nothappen that way.


( Chester Bowles—N -̂-~--"'"" By Himself

Excerpts from the Speeches, Letters, Articles andStatements of the Price Control Administrator

IT HAS taken a second World War to press homeupon us what our responsibility in international

affairs must be. I hope it will not take a secondgreat depression to teach us what is the appropri-ate role of government in the economic sphere.

* **

If we are not prepared to accept enough govern-ment we may end up with too much. It may beparadoxical, but it is true.

If we want to avoid too much government afterthe war, we must recognize in advance the properfunctions of government and we must agree on thepolicies and on the appropriate organization to dis-charge those functions efficiently and democratically.

j If we don't act wisely it may spell our finish as ademocratic nation.

We must determine now that needed public works—federal, state and local—will be thrown into thebreach at precisely the time and in whatever quan-tity is needed to keep the wheels of industry run-ning and to keep men at their jobs.

* * * *

We must determine now that any broad deflationof our present price and wage structure will not bepermitted. We have placed ceilings over prices andwages to prevent wartime inflation. In the recon-

""versioh period we must protect prices and wages toprevent equally disastrous deflation.

* * * **As I see it, the essential role of government in

this team is to ûnderwrite the level ofthe nationalincome and of business activity. It must thereforebe prepared at all times—through public works,through adjustment of taxes and public expenditure,through stimulation of exports—to step in at thefirst sign of recession.

down. If that happens, employment, payrolls andprices will begin to fall and the vast potential de-mand of 132 million consumers and of 3 millionbusinesses will dry up and disappear.

When the war in Germany is over, some business-men will urge that prices be allowed to seek theirown levels. Then they will ask, why put brakes onbusiness? Why not close up OPA and let manufac-turers charge whatever prices they think necessaryand let it go at that? . . . But the bitter lesson of1918-1921, when prices, left to their own devices,first skyrocketed and then collapsed, has made mefeel that my job here is far from finished—muchas I might personally will it otherwise.

I believe this lesson should be clear to all of us.Much as we may wish to do so, we must not tear upthe price regulations to provide confetti for theEuropean victory celebration.

As the country reconverts to peace, it is our jobon the price sector to set price limits on the return-ing civilian products until the nation struggles backto solid economic ground. The job will not simplybe one of controlling prices. No longer is inflationour only concern. At stake today are prosperity, fullproduction, full employment.

We are determined to let the manufacturer coverhis costs and make a profit. But we are equally de-termined to weigh the higher costs of labor and ma-terials against the lower costs stemming from im-proved efficiency and mass production.

| It was the war and only the war that brought the\ farmer real prosperity, the first real prosperity since\the last war.

* *

* *

The war has shown that our farmers need morethan a mere opportunity to share equitably in thenational income, however low that income may be.They need an opportunity to get their fair share ofthe high national income which we can so easilyproduce when we are all working.

Never before in our history has the democraticprocess worked with greater vigor and vitality thanit does today.

* * * #* *

If when the war is over we fail to take full andimmediate advantage of our export opportunities,if we are not prepared to throw in public workswhen they are needed, business activity will slow

* **

* **

In the absence of wartime laws definitely assigningeach individual to some wartime task, it becamenecessary to place price controls more widelythroughout our economy than would otherwise havebeen necessary. This is a point of view which I per-sonally accepted with reluctance, and only in thepresence of facts which were irrefutable.


Mythologies of ReconversionBy Garet Garrett

THE physical problems of reconversion are meas-urable, and what can be measured is manage-

able. But the climatic conditions, political and so-cial, under which reconversion will take place areneither measurable nor predictable, because, first,they arise from a series of strange mythologies, andbecause, in the second place, the mythologies fromwhich the conditions arise are evolving and have noworking history. Hence the confusion of postwarthinking; which in the individual case is often re-solved by an escape into fatalism, as if, since nobodycan think it through, one must believe that some-how it is bound to come out all right because thisis a rich, resourceful and sane nation.

In all the literature of the subject so simply calledreconversion, the idea that the task of restoring theeconomy to the peacetime rhythm should be left tothe ways and means of free enterprise, with no inter-vention of government, is nonexistent. Indeed, ifthat idea should present itself in the naked form itwould be alarming even to private enterprise.

Charles P. Taft, Director of the Office of WartimeEconomic Affairs in the State Department, says:

"It seems to me high time that private business gotaway from its liking, perhaps unadmitted, for the secu-rity of government distribution of business under aquota system and began to justify the descriptive term'enterprise/ The only reason I mention that is that,within the past few months, we in the State Departmentwho have been pushing with all our ability for the re-duction of trade controls, have been startled on at leasttwo occasions to have delegations from the trade com-ing in to insist with us on the continuance of publicpurchase or other government intervention, because theywere not prepared to take the kind of chances which Ihad always assumed were part of normal business risk.American foreign trade reached its peak in the days ofthe clipper ships, so far as its relation to our total tradewas concerned. And those were the days when the for-eign t^der was a real 'enterpriser.' We shall regainsuch a position for foreign trade only when that spiritreturns to foreign traders." ™

He is speaking of international trade. Neverthe-less, the same words would make the same senseif they were addressed, as they might be, to theinwardness of the national economy.

The Lost PatternOur original experience with wartime control of

the national economy—control of prices, production,distribution and money—was in the first worldstruggle, 1917-1918. Then coming to the problemof reconversion the question appeared: shall privateenterprise immediately take over and do it alone,

or shall the wartime controls be continued for awhile and relaxed in a gradual manner?

There was a decision. How it was arrived at youcould hardly say. Business did not make it; nor didthe government make it in any way to leave aformal record, as, for example, a debate in Congress.What happened was that the dollar-a-year men whohad controlled the economy during the war, withalmost no law at all, put on their hats and wenthome.

But who now will seriously propose the question:shall our peacetime economy be restored by privateenterprise alone, with no overhand of governmentin it?

It is taken for granted as if it were a naturalpolitical fact that the government is obliged to par-ticipate and that it will in any crisis exercise theultimate economic power. Laws to govern economicdemobilization have already been enacted. Demobi-lization policies have been announced by executiveagencies of government.

When the fighting stops the federal debt, it issupposed, will be of the order of $300 billion, andthe mopping-up may well require an addition of$100 billion more. On the other hand, the liquidassets of business are of the prodigious order ofmore than $75 billion, money in circulation is nearly$25 billion, and the credit reserves of the bankingsystem are nearly fivefold what they ever were be-fore; and yet the Federal Government is expected toassume toward business an unlimited liability to pro-vide loans and capital for purposes of reconversion,even, if necessary, venture capital.

How Attitudes Have ChangedSo far as one can see, the road is paved, the direc-

tional signs are clear, and the sensation is that ofcoasting uphill. Whatever else happens, reconver-sion will be an experience with mixed economy;which is to say, an economy partly controlled andpartly free, with consequences that no one may nowforetell. The common consent with which this factis accepted, notwithstanding the axiom now commonin economic theory that government interventionfeeds upon itself, marks a significant change in ourways of thinking and feeling. As the attitude ofgovernment toward business has changed, so has theattitude of business toward government changed;and, thirdly, there is a change in the attitude ofbusiness toward itself.

Many leaders in business are heard to say thatprivate enterprise no longer has anything to do withthe climate in which it must function; the govern-


ment controls the climate and it behooves businessonly to accept it and make the best of it.

Many things have run together to bring thischange to pass. Habits of dependence are easy toform and very hard to break. Business has neverrecovered the hardihood of spirit it lost in the troughof the great depression, when to surrender control ofbanking to the government seemed the lesser evil,and the guardian wings of the Blue Eagle were arefuge from the severities of free competition.

Things That Are Caesar'sThere is the fact also that for purposes of this war

the things that are Caesar's and the things that arefree have become extensively commingled. Duringthe war before, the government acquired of its ownno means of production except to make explosives.At the end of this war it will own 10% of the steelindustry, more than 30% of the machine tool indus-try, more than one-half of the aluminum industry,nine-tenths of the aircraft industry, more than nine-tenths of the manganese industry, and practicallythe whole of the synthetic rubber industry—or, alltogether, more than one-tenth of the country's totalmeans of industrial production.

In the individual case commingling is very bewild-ering, as when you walk through what was formerlya motor-car plant and note that Caesar's machinesand free machines stand side by side, linked in onechain of production. Those that belong to the gov-ernment may be identified by their brass legendplates—"Property of the Defense Plant Corporation,an instrumentality of the United States Govern-ment"; or "Property of the Bureau of Ordnance,U. S. A."; or "Property of the United States Navy."

Government as EnterpriserThe government was under no actual necessity to

acquire ownership in the means of production. Itmight have confined itself to the part of banker orunderwriter, instead of becoming itself the enter-priser. There could not have been one miracle moreor less either way, because there was only one greatpool of know-how and it belonged to private enter-prise; and as for anything that was created out of itfor purposes of war, such for instance as the rubberindustry or the addition of 10% to the steel indus-try, it made no difference in time, quantity, or qual-ity, whether the government hired it, borrowed it, orbought it. The difference comes afterward when thegovernment, having bought it, must decide eitherto keep it and work it as a public enterprise or sell it.

But the change that has taken place is not yetaccounted for. The commingling of things that arefree and things that are owned by the government,even competitive things, is an effect, not a cause.Why was there that preference for government own-ership? Although this may have been in the firstplace a preference on the part of government, it was

not entirely so. In many cases, in fact generally,private enterprise was readier to build new facilitiesfor the government as owner, and then operate themfor the government on a fee basis, than it was toassume the responsibility and risks of ownership.That also must be explained.

Consider, therefore, the mythologies aforesaid outof which will arise the new climatic conditions, politi-cal and social, under which private enterprise mustflourish again. Let a mythology be understood tomean a set of popular ideas concerning, not naturalphenomena as of old, but now economic phenomena.Some of these popular ideas have received scholasticstatement in scientific terms that are beyond theordinary capacities of comprehension, becomingthereby formidable to meet and hard to dispute, butno more or less valid on that account.

The MythologiesThere is first the purchasing power mythology,

wherein it is believed that production is the resultof income instead of income being the result of pro-duction. If that is true, everything else is simple.You don't worry about how to increase the produc-tion of divisible wealth, nor about the cost of in-creasing it; you think only of how to create and dis-tribute in the form of spendable money an amountof buying power equal to a predetermined outputof consumable wealth. If people have the money tospend, production will follow. Formerly it was sup-posed that in order to consume people had first toproduce; now it is that in order to produce they mustfirst be able to consume.

There is the mythology of an expansionist econ-omy. This does not mean an economy that expands.Every economy does either expand naturally or be-come static and die. An expansionist economy is onethat must be directed by a grand national policy;the ultimate responsibility to see that it works be-longs to government, and the aim is a steady jobat high wages for everybody who wants to work forwages, a profitable business for everyone who prefersthat, which together with social insurance for all therest will produce a standard of living very muchhigher than was ever known before the ^ r . Theterm "expansionist policy" seems to have been in-vented in England, and in order to pursue it GreatBritain has already adopted the principle of aplanned economy after the war. And all of thiscomes from saying: "The performances of wartime,with everybody employed at high wages, must becontinued in time of peace; it needs only to be in-tended and planned that way." It may be thatonly three things are left out, namely: (1) the pro-gressive exhaustions, (2) the heedless waste, and(3) the fact of unlimited compulsory consumption,in time of war.

There is the mythology of the compensatorybudget. Entwined with this one are certain others,


such as the mythology of fourth dimensional debt,which has no weight because people owe it to them-selves; the mythology of a currency also withoutweight, redeemable only in itself, upheld in space byan internal planetary law; the mythology of thrift asan anti-social habit, which obliges the governmentto take from those who save too much and spend itfor the sake of those who do not save at all; and themythology of virtual solvency, which takes thepremise that although a government pursuing an ex-pansionist policy must not forget the realities ofsound finance, still its ideas of solvency must bereasonable and relative, not rigid. As between imme-diate welfare and solvency, or as between immediatewelfare and inflation, there can be no choice.

Crudity of Pump PrimingIn this country the mythology of the compensa-

tory budget grew out of the crude idea of pumppriming, which never quite worked, for the reasonthe zealots said, that there never was enough of it.In order to produce its effects it must be done on avery large scale, uninhibited by the fetish of sol-vency. In other countries, as in Italy and Germany,there was neither a scientific theory nor a propername for it. Simply, it was a cynical way of bribingpeople with their own money, leading to inflationand then either to bankruptcy or totalitarianism.The theory of the compensatory budget is that inbad times the government will borrow and spend inorder to keep the national income at a predeter-mined level, on the ground, as before, that produc-tion is a result of income. As the government doesthis it may hope to be able, when the tide turns, tobalance its budget out of taxation and pay off someof the debt. The theory runs to many refinementsand complications, including the theory of taxationas an instrument of social policy to govern the dis-tribution of wealth. Taxation for revenue only is athought now relegated to the age of laissez faire.

Then there is what might be called a lend-leasemythology. This one evolves obscurely, owing tothe fact that knowledge of its workings is wartimeknowledge, and for that reason imperfect. It mayeven change its name. However, what is buildingseems fairly clear. The idea is, first, that it is nolonger possible for America to prosper in the selfishand incomparable manner of old, because the have-not people will be too sensitive and too envious; sec-ondly, in order to raise our own standard of livingwe shall have to provide all the have-not people ofthe world with more purchasing power; and thirdly,in order to have full employment at home we mustenormously increase our exports, and this necessityto increase exports is so great that if we cannot sellour surplus abroad to people who can afford to buyit, then it will be better to lend-lease it to them thannot to get rid of it at all. How we shall be able toincrease the purchasing power of other people by

giving our goods to them is a matter that has notbeen fully worked out. The theorists have not yethad their fair chance at this mythology. They wouldprobably admit that the beneficiaries should havethe right to select the goods they receive for nothing,because there is nearly always something they couldnot afford to take. This was illustrated in the caseof the British, greatly worried about the future oftheir merchant marine, who suddenly discoveredthat they could not afford to receive from the UnitedStates one thousand ships as a gift, even if this coun-try were willing to equalize matters in that way, be-cause if they did take the ships, and got them fornothing, what would their own shipyards do forwork while the ships were wearing out?

One of the ideas now developing is that betweenthe United States and Great Britain, who will be thetwo principal competitors for international trade,reconversion shall be cartelized. This means that inboth countries wartime controls shall be lifted in asynchronous manner so that the start may be even.

Finally there is the popular mythology of socialsecurity. The powerful emotional drive behind thisidea causes it to be almost immune from criticism.Therefore it is likely to go far, even further herethan anywhere in Europe, but on a much narrowerbase of experience, and perhaps to the logical ex-treme. At that extreme, with everyone fully insuredby the government against unemployment, sickness,accident, old age, crop failure, business failure, andlow prices, the government would be in the positionof the individual who insures himself. Who will in-sure the government? Who will guarantee the secu-rity of the public fund?

The Weather AheadSuch are the ideas that will make the weather

ahead. It is going to be strange weather; on thehorizon are some very ugly cloud formations. Never-theless, private enterprise is expected to set all sailand go straight into it. To do so is not an act ofjudgment; it is a gamble with faith.

And how does the mind of private enterprise reactto this adventure? What does it say of itself? Itsays: "There is nothing to be done about the weath-er. We shall have to take it as it comes." Then theprivate enterpriser turns to problems that are nearand measurable, and these fall under three heads,namely: production, cost and price.

Take prices first. Prices are a function of money.It is impossible to make a rational calculation forthe future without assuming something aboutmoney.

So a man goes to his banker and asks, "What isgoing to happen to money?"

The banker replies that nobody can say what isgoing to happen to money.

The man says: "But look at this. If we say thatduring the war production has doubled, the amount


of money in circulation during the same time hasincreased fourfold. The only reason why we havenot already had terrific price inflation is that priceshave been controlled by the government."

The banker says that is so.The man continues: "Well then, even if we can

maintain production in peacetime at the level ofwartime, still there will be too much money in cir-culation, and the amount will increase as the gov-ernment brings out its postwar loans. How will thatexcess of money be retired, and if it is not retired,how can you keep it from dividing itself into prices,with very serious inflationary effects?"

The banker does not know the answer. Nobodycan form an intelligent answer until there is a post-war fiscal policy, and any postwar fiscal policy isbound to be influenced, perhaps governed, by themythologies.

The Cost Minus TheoryWondering in a vague way which would be the

lesser evil, inflation or continued price control, thistypical enterpriser turns his mind to the problem ofcosts. Cost is a function of price. I t is true that thecost of production and the selling price of the prod-uct may rise together, leaving a margin for profit,but at this point he may read a statement by Ches-ter Bowles, head of the OPA, on postwar price pol-icy. Mr. Bowles says:

"When V-E day comes, there will be hundreds ofmanufacturers wanting to know what prices they cancharge on items which have long been off the market.We are setting up machinery to give them these prices,and give them without delay. We don't want manufac-turers hopping trains to Washington and spending anx-ious days waiting to find out what their prices aregoing to be."

Therefore, price ceilings, to begin with, fixed atWashington. Specifically as to motor cars, Mr.Bowles says:

"There has been loose talk that automobile priceswould be up 25% to 35%. What are facts in the automo-bile industry which will determine the price of the post-war car? Remember, I have said that we shall permitthe manufacturer to increase his price if necessary tocover any real increases in his direct labor and materialcosts. But straight-time wage rates in the automobileindustry have advanced only 41/2% since early 1942.Major materials that go into automobile construction,such as iron and steel, have not advanced at all. Whiletextiles and lumber have advanced somewhat, othermaterials, such as aluminum and magnesium, have actu-ally declined. I am no production expert, and theremay be cost increases which I do not know about. ButI do know that the automobile industry has taken noback seat in war production. The industry has new andeven greater know-how than it had before Pearl Harbor.On the face of it, reports that your new car will cost25% to 35% more than it did before the war are emphati-cally not true. I am not sure there need be any in-

creases at all. The OPA intends to review all newprices on reconverted products after a few months ofoperation. When the new machines and techniques arecarried over from wartime production to civilian fac-tories, they should more than offset higher wages andmaterials. In time, I am confident, you will get betterproducts at lower prices than ever before."

Bad ShadowsThis means that the motor-car industry will be

expected itself to absorb increased costs instead ofadding them to the price of the automobile."Straight-time wage rates in the motor industries,"says Mr. Bowles, "have advanced only 4%%," andthat seems to him very little for the industry tocancel out by its know-how. But the wage rate isnot the measure of labor cost. You may have a lowlabor cost with high wages or a high labor cost withlow wages. The controlling factor is productivity perman hour of labor, and the components of that fac-tor are four, namely: (1) tool power, (2) efficiencyof management, (3) efficiency of labor, and (4) thewillingness of labor to let its productivity rise.

Will organized labor be willing to resume the pre-war standard of productivity? The evidence so faris not very encouraging. Recently one of the bigmotor-car companies set up to make a limited num-ber of trucks for civilian use. Labor was unwillingin that case to maintain even the wartime standardof productivity, and as for going back to the prewarstandard, which was higher, it said no, flatly, andthe work for that reason was stopped until a com-promise could be worked out. It was not a questionof wage rates. It was a question of costs. Certainlythe motor industry is one that could be trusted notto overprice its product. It was entirely built onthe opposite principle.

Or ElseThus it appears that private enterprise will be

put on a spot. Reconversion will be a kind of trialby ordeal. The conditions under which it producedthe American phenomenon no longer exist. Never-theless, it must produce another phenomenon. Itmust provide full employment at high wages, and apredetermined national income, which shall be twiceas large as before the war. American enterprise mustdo this on demand and do it at once—or else. Whator else means is that if people are disappointed theconsequences for private enterprise will be dire. Ifprivate enterprise can't, or won't, the governmentwill. This or else thesis was expounded in the May,1944, bulletin of the Federal Reserve System; thepremise is that unless gross national product can beheld at the level of $170 billion, or at about twicewhat it ever was before in time of peace, our institu-tions will be in danger—one of the institutions beingof course, free private enterprise.

And so it is that private enterprise will come to


the enormous physical reality of reconversion in thecharacter of a prepared scapegoat, guilty beforehandof anything that may go wrong, especially for anyseeming loss of time.

The Matter of TimeA common notion is that going from war to peace

ought to take less time than it took to go from peaceto war, because the things that had to be made forwar were all strange, whereas in going back to pro-duction for civilian use industry will know exactlythe things it wants to make and how to make them,having done it all before.

It is impossible, however, that in the transitionfrom war to peace there can be anything like thesense of desperate urgency that controlled the workof converting industry to the uses of war. Moreover,in the reaction from the compulsions and restraintsof wartime, people very naturally will feel headywith release and be inclined to test their freedoms,as, for instance, their freedom to strike. All indica-tions are that industry will be faced with an ex-tremely bad labor situation.

Secondly, it is one thing to make industry overfor one insatiable customer, i.e., war, with no thoughtwhatever of cost or price, and a very different thingto make it back again on a competitive basis, for mil-lions of customers exercising once more the freedomof consumer choice, with all the factors of cost andprice restored. And if a time comes, as it probablywill, when conversion seems to be lagging and therecriminations begin between government and indus-try over who is wasting the precious days, the diffi-culty will be to make people comprehend the com-plexities of mass production.

Invisible Phenomena of Mass ProductionThose who have seen miles of automatic machines

in chain, a moving assembly line, finished motor carscutting off at the end of it at the rate of two or threea minute, may think they have seen mass produc-tion. But they haven't. They have seen only thefinale of it. Back of all that, invisible, is an organizedflow of material and parts resembling somewhat acontinental drainage system, beginning with springs,creeks, and rivulets, all running together to form thetributaries, and then the great river that arrives inDetroit and gives you there the spectacle of motor-car falls. There is one flaw in the analogy. In a nat-ural drainage system many little sources may failwithout drying up the falls, whereas in the flow ofmaterials and parts that is organized for the massproduction of motor cars in Detroit the failure ofeven one little spring or one little stream at thesource may cause the assembly line to stop for wantof a thing you could hold in your hand, a bronzebearing perhaps.

But this is all movement and process. There areantecedent events that have a certain sequence and

take time. What to make is the first question. Whatwill it cost? Can it be sold at a price that will re-cover the cost? Here crucial decisions must be made,based partly on fact and partly on judgment, andany serious error will be fatal. Then the designingand the engineering begin; there must be a blueprintfor each part of the thing that is to be made.

Next come the tool engineers who from these blue-prints determine what machine tools will be needed.Some will be standard machines. Many will be spe-cial-purpose machines, and for each special-purposemachine there must be first a design and then a blue-print for the machine tool builder.

At this point the supply men begin. First arethose who set up a chart of the machine tools thatare wanted, order them from the machine tool build-ers, and pursue each order by telephone with threat-enings, wheedlings and prayer, until the machineappears on the chart as one that is finished andincoming. Secondly come those supply men whowill begin to organize the flow by placing orders formaterials, parts, and accessories with a thousandsuppliers all over the country.

In Either of Two CasesThe law of this sequence has the rigor of a me-

chanical principle. Consider it in relation to theautomobile industry. Suppose that the war has cometo a sudden end and everything is free for a totalreconversion of the industry. Suppose also that thepreliminary engineering has all been done before-hand and that the blueprints are ready. Even so, theproduction of motor vehicles cannot be resumeduntil the industry gets thousands of new machinetools. The automobile industry, therefore, will bewaiting on the machine tool industry and there willbe nothing that anybody can do about it.

People will ask why any new machine tools areneeded. Why can't the automobile people bring backthe machine tools they had when the production ofmotor cars stopped? The answer is that many ofthose machine tools were dispersed for war uses.Many others were rebuilt for war uses. Some aresimply obsolete. In order to absorb even part ofthe increased labor cost instead of adding it to theprice of the automobile the industry must have bet-ter machine tools than it had before. It cannotafford to reinstall those that have become obsolete.

Or suppose that the war has come to an end onlyin Europe, which is more likely to be the case, andthat reconversion, therefore, must take place on alimited basis, the government saying to the big mo-tor-car corporations in Detroit: "One-half of yourcapacity is hereby released for civilian production.To that point the government reduces its demandsupon you, removes its material and machines andgets out of your way. Now begin and begin imme-diately, so that there shall be no unemployment."But can the motor-car industry begin simply by


moving half of the government's things out and put-ting its own things back? Not immediately. Not atall, unless at the same time in a parallel manner anequivalent amount of industrial capacity has beenreleased among thousands of suppliers of raw mate-rial, parts, and accessories, all the way back to thesources of flow.

In either case—total reconversion from the deadend of war or limited conversion from a drastic cut-back in war orders, come V-day in Europe—thetime it will take can be foreshortened only bythought beforehand and getting the preliminarywork done.

To tool up the war job the machine tool industrywas enormously expanded. Then when the war tool-ing came to an end a large part of the machine toolindustry was idle. That idle capacity, or part of it,might have been employed to make the machinetools that are going to be needed to reequip industryfor peacetime production. That was the use of itthat was recommended by industry. But it was notso employed. All that idle capacity of the machinetool industry was converted from tool making towar production. This was in itself a notable featand perhaps necessary. Nevertheless, if it happensthat when reconversion begins everybody has towait for machine tools it should be remembered thatthe time that might have been saved was devouredas an act of military judgment. The loss of it shouldbe charged to the waste of war.

Kinds of WasteThe amount of waste that will overrun the end

of the war is almost unimaginable. Prom an incred-ible production job you are bound to get an incred-ible junk heap. But whereas nobody cared what theproduction job cost there will be anguish and scan-dal over what the junk heap represents in terms ofpast expenditures. Any number of planes and gunsmight be piled there and that could be understood.They were expendible items. But the wonderful ma-chine tools that made the planes and guns are noteasily so regarded, and when the machines begin tobe junked there will be an outcry against it.

You may explain that owing to the advance inthe machine tool art you can no longer say a latheis a lathe, because the skill to do a special thing nowis built into the machine; but when you have soexplained it people will say, looking at that machineon the junk heap, "But it must be good for some-thing." For something, yes. So you might use amonkey wrench as a machine hammer, but that isnot what it is for, and if you did it only because youhad a surplus of monkey wrenches it would becheaper in the end to throw them away and buyhammers.

There are, of course, standard machine tools forgeneral work and lathes that are lathes still. Noneof these will have to be junked; but specialized

machines are jgenerally the more costly to build andthe least available for reconversion. To rebuild themfor other special purposes, even where that is pos-sible, would generally cost more than to throw themaway. The government itself has had this experi-ence. In a very large bomber engine plant the tool-ing was originally designed for two engines. Thenthe government decided to devote the plant—itsown plant—to one type of engine only, and a largenumber of machine tools already installed to makethe other engine had to be moved out. They arenow housed in sheds, on the grass outside, and prob-ably will never be used on airplane engines or any-thing else, which means that they will probably diewithout ever having been used at all.

Notions about SalvagePopular notions of the salvage value of surplus

war property are naive and extravagant. That ap-peared, as you would expect, in the debate on theSurplus Property Act, the theme being that thegovernment must protect itself against those whowould try to make it believe its surplus property wasworthless, then buy it at distressed prices and makea killing either by using it or reselling it. Industry'sexperience with its own salvage, as for example,when there is a change of product and a lot ofequipment has to be scrapped, is that the averagerecovery is approximately 5% of cost, and that isthe result when the quantity is relatively small andthe bargaining is fast. Now let the disposal of vastquantities of surplus government property becomeinvolved in bureaucratic deliberation and it is notat all improbable that the average recovery will sinkto zero. In many cases the cost of selling it may begreater than the recovery, if storage and interestcharges are accounted for.

It is even more painful to think of scrapping themagnificent war plants that have appeared all overthe country. They are suitable only for big indus-try. Only big industry could buy them. But as arule big industry does not want them. Take thebig bomber engine plant in Chicago, built, tooled,and operated by the Chrysler Corporation, but en-tirely owned by the government. It is the largestsingle war plant. All that the Chrysler Corporationcan think of to do with it when the war ends is tolock the door, give the key to the government, andwalk off the job. If you ask, "Why not make motorcars in this plant?" the answer is: "We make motorcars in Detroit. If we make them here what shallwe do with our people in Detroit? They have theirroots there with us."

Nearly every large corporation has plans for plantexpansion after the war. Knowing this, and hearingthat the head of a large corporation says he wouldnot give a nickel for one of those war plants, peoplesay: "Ah! He wants to get it for nothing." But inmany cases he wouldn't take it for nothing. The


explanation is that one may no longer say that aplant is a plant—walls, doors, windows, power fa-cilities, and a side track—any more than one maysay that a lathe is a lathe. The design of a modernindustrial plant is now functional, like the designof a machine tool. To be efficient it must be de-signed for what it is for.

Recently one of the big Detroit motor companieshad its accountants work out the figures to showwhich way in the end would have been cheaper—to have done it as they did do it, converting theirmotor-car plant entirely to war orders, or to havebuilt a war plant for war work only. The figuresproved that if the motor-car plant had simply beenlocked up and left as it was, and a war plant hadbeen built and equipped to make the guns, the planesections and so on, and if at the end of the war thewar plant had to be entirely scrapped, still thatwould have turned out to be the cheaper way bothfor the government and the motor company.

Small business cannot buy these war plants. Theyare too big. Maury Maverick, head of the SmallerWar Plants Corporation, thinks they might be turnedinto industrial tenements. Meanwhile there is risinga demand that the government shall keep and oper-

ate them for public benefit. Where the government'sinterest is relatively small, as it is in steel, represent-ing only one-tenth the country's total capacity, theidea would be that of the yardstick—the governmentto keep a yardstick against which to measureprivate steel prices. But where the government'sinterest is very large, or already dominant, as inaluminum, rubber, and magnesium, the idea nowforming is that of "free public enterprise in the insti-tutional form." It is likely that that ingeniousphrase will become a kind of slogan for socializingindustry.

Reconversion before was a business of getting backto something we knew. The national economy hadbeen to war and it had won the war without losingits law, its principles or its traditions. It had onlyto be restored.

Reconversion this time will not be simply a busi-ness of restoration; this time, according to the myth-ologies, it shall be a flying leap across the chasm ofbitter postwar realities to a very high plateau ofsocial security, economic stability, and a state ofcommon well-being such as was never hitherto imag-ined, and all of that with the greatest of ease, if onlyit is rightly intended.

But Who Will Guarantee Work?By Leo Wolman

WHEN you examine industrial policies in thiscountry, you find that our Federal Govern-

ment is—and, to a lesser extent, our state govern-ments are—full of policies and regulations, and whenyou stop to inquire what those policies and regula-tions do, then you come smack up against a questionof this kind:

How can a government undertake to guaranteeincome—which I don't think it can do—if it is notin a position to guarantee work?

There is no legerdemain by which product is cre-ated without labor, and hard labor. The thing toremember about the United States is that in orderto get a product which gives the people of this coun-try a moderate standard of living, better than any-where else in the world, you need 55 million peopleworking, working pretty hard on machines, withhighly developed divisions of labor.

Suppose a government policy comes along andsays: "You don't have to work so hard. We willguarantee your income."

What do you think people will do? What do youthink they have already done?

Will the government, which guarantees income,undertake to guarantee work? Well, we know theanswer to that. We have policy-making agencies in

Washington that are the sources of immense powerover industry. They are making policies every min-ute of the day, and I spend a great deal of my timereading them and studying them, and I haven'tfound any yet that I would put in the category ofpolicies in which the regulatory agency undertakesto tell people, "Well, you have to work a littleharder than you did in order to justify this privilege,this right, this gain that you ask for."

Let me go to another country which has alreadyguaranteed employment, which we haven't yet done,and take a look at one of their industries, becausewhen you guarantee employment you don't guar-antee it to a system. A system is a statistical in-vention. It is convenient; the Census needs it be-cause the Census gathers a great deal of information,and it has to classify it some way. That isn't whatindustry is made up of. It is made up of firms, fel-lows that are in business, working, making money,borrowing money, losing money, everything thatconstitutes business.

In England you have a lot of industries. Takeone of their most troublesome industries, one of theindustries which produced depressed areas, the coaiindustry, which kept losing employment in Englandfrom 1920, the end of the last war, to 1940, the be-


ginning of this war. Why do you think it lost em-ployment? Not because the coal operators didn'twant to give it. I don't think it was because of anyfiscal policy, or currency policy, or banking policy,but because they lost their markets.

Fate of GuaranteesWell, now, look what has happened during the

war. There has been a drastic need for coal in Eng-land during the war. The man-day output of coalminers in England during the war has declined from1.13 tons to 1.03. That is, instead of their man-dayoutput going up, it has gone down, though there hasbeen a substantial increase in the mechanization ofBritish coal mines. I don't care what the reasonsare, that is the fact.

The wages of British coal miners have doubledin this period.

Well, who is going to guarantee two things tothe British coal miner and get away with it in Eng-land after the war if this trend continues—and Iventure to guess it will—who is going to guarantee(1) employment to a satisfactory quota of coal min-ers? (2) a satisfactory income to them under thoseeconomic conditions?

I say the power that guarantees that is doomedto disappointment.

Social insurance, the greatest of potential benefits,but an instrument like other public instrumentswhich can be perverted to uses for which they arenot suited, raises many of the same questions. Whatare they? When you start a social insurance systemyou have a simple thing in mind, to collect premi-ums, to distribute benefits, in the eventuality ofthe existence of a risk. It is an insurance mechan-ism. What does it become in a very shoft while?It becomes an instrument for fixing standards ofwork through the country.

Unintended ConsequencesNobody intended unemployment insurance to be

an instrument for fixing wages, hours of labor, thecharacter of labor relations, whether you shouldwork through collective or individual bargaining,but that is what it becomes almost instantaneously.So that the good it might do as a well-run, well-considered, well-managed social insurance systemis undone by these other operations that it under-takes to assume.

Take the American railroads. Nobody who knewthem would pick them as the place to look for biggratuities in the future. They are going to have ahard time employing the 900,000 people they em-ployed before this war. They are going to have ahard time maintaining a moderate volume of em-ployment. Well, through some turn of a wheel—characteristic of these developments under a demo-cratic society in which there are pressures and ele-

ments that yield to pressure—somebody set up aspecial social insurance scheme for the railroad work-ers. Why? Not because the railroads are more pros-perous than any other industry. The railroadsweren't picked because they were the most pros-perous industry in the country but because of for-tuitous political considerations.

Then comes a new railroad social insurance billmaking it even more separate, even more indepen-dent and distinct and liberal than any social insur-ance anybody the world over has conceived, in anamended bill which is now in the hands of the Sen-ate committee and stands a good chance of beingadopted. This bill provides social insurance benefitsfor the railroad workers in the United States whichwould cost, if measured that way, a minimum of20% of the payroll.

When you begin to talk about costs of that kind,you are talking about things of importance. Whatcan a monetary policy, banking policy, fiscal policydo about that? All you can do is have the govern-ment spend money to sustain something that oughtnever to have been done. Just as government spend-ing will be used after this war to do what? To do anumber of things, but among many of its importantuses will be this one, that of sustaining wage ratesthat cannot sustain themselves.

Subsidized UnemploymentWhat do I mean when I say that government

spending will be used to sustain wage rates thatcan't sustain themselves? I mean there will existthousands of wage rates in this country at whichpeople cannot find work. That is a demonstrablyplain proposition. Everybody knows it is so. Well,then, these men who are out of work will be sup-ported somehow, some way by the government. Idon't think that is a sound function of public finance,of a banking and currency system, of a government.I think the sound policy of the government is to putthings right so as to facilitate men and women goinginto jobs, and not so as to keep them out of work.And if with one policy you do things to keep themunemployed, you will have to invent another policyon the other side to support them for the longer orshorter period in which substantial numbers ofpeople are not working. That was the history of the1930's.

We can't go on in this country, there is no ques-tion about it, without government controls, withoutgovernment intervention, without regulation andregulatory agencies, but what we have to make upour minds about in this country is a different ques-tion. It is this: what can the government safely andeffectively regulate? There is something to study.There are points at which government regulationcan be most effective—at least cost to its people.They are the points we want to find.


The Extreme Case against UnionismBy Henry C. Simons

This Is an Abridgment by the Editor of theEssay Entitled "Some Reflections on Syndi-calism" that Appeared originally in The Jour-

nal of Political Economy, March, 19H

QUESTIONING the virtues of the organizedlabor movement is like attacking religion,

monogamy, motherhood, or the home. Among themodern intelligentsia any doubts about collectivebargaining admit of explanation only in terms of in-sanity, knavery, or subservience to "the interests."Discussion of skeptical views runs almost entirely interms of how one came by such persuasions, asthough they were symptoms of disease. One simplycannot argue that organization is injurious to labor;one is either for labor or against it, and the test isone's attitude toward unionism.

But let me indicate from the outset that my cen-tral interest, and the criterion in terms of which Iwish to argue, is a maximizing of aggregate laborincome and a minimizing of inequality. If unionismwere good for labor as a whole, that would be theend of the issue for me, since the community whosewelfare concerns us is composed overwhelmingly oflaborers.

Our problem here, at bottom, is one of broad po-litical philosophy. Advocates of trade-unionism are,I think, obligated morally and intellectually to pre-sent a clear picture of the total political-economicsystem toward which they would have us move.For my part, I simply cannot conceive of any toler-able or enduring order in which there exists wide-spread organization of workers along occupational,industrial, functional lines.

The Conflict DefinedSentimentalists view such developments merely

as a contrett between workers who earn too little and

enterprises which earn too much; and, unfortunately,there has been enough monopsony in labor marketsto make this view superficially plausible, though notenough to make it descriptively important.

What we generally fail to see is the identity ofinterest between the whole community and enter-prises seeking to keep down costs. Where enterpriseis competitive—and substantial, enduring restraintof competition in product markets is rare—enter-prisers represent the community interest effectively;indeed, they are merely intermediaries between con-sumers of goods and sellers of services. Thus wecommonly overlook the conflict of interest betweenevery large organized group of laborers and the com-munity as a whole.

What I want to ask is how this conflict can bereconciled, how the power of strongly organizedsellers can be limited out of regard for the generalwelfare.

No insuperable problem arises so long as organiza-tion is partial and precarious, so long as most unionsface substantial nonunion competition, or so longas they must exercise monopoly powers sparinglybecause of organization insecurity. - Weak unionshave no large monopoly powers. But how does ademocratic community limit the demands and ex-actions of strong, secure organizations?

The Position of PowerIn an economy of intricate division of labor, every

large organized group is in a position at any timeto disrupt or to stop the whole flow of social income;and the system must soon break down if groupspersist in exercising that power or if they must con-tinuously be bribed to forego its disastrous exercise.

There is no means, save internal competition, toprotect the whole community against organizedlabor minorities and, indeed, no other means to pro-tect the common interests of organized groups them-selves.

The dilemma here is not peculiar to our presenteconomic order; it must appear in any kind of system.This minority-monopoly problem would be quite asserious for a democratic socialism as it is for themixed individualist-collectivist system of the pres-ent. It is the rock on which our present system ismost likely to crack up; and it is the rock on whichdemocratic socialism would be destroyed if it couldever come into being at all.

All the grosser mistakes in economic policy, if notmost manifestations of democratic corruption, arisefrom focusing upon the interests of people as pro-ducers rather than upon their interests as consumers;i.e., from acting on behalf of producer minoritiesrather than on behalf of the whole community assellers of services and buyers of products.

The Ultimate InterestOne gets the right answers usually by regarding

simply the interests of consumers, since we are allconsumers; and the answers reached by this ap-proach are presumably the correct ones for laborersas a whole. But one doesn't get elected by approach-ing issues in this way! People seldom vote in termsof their common interests, whether as sellers or asbuyers.

There is no means for protecting the common in-terest save in terms of rules of policy; and it is only


in terms of general rules or principles that democ-racy, which is government by free, intelligent discus-sion, can function tolerably or endure. Its nemesisis racketeering—tariffs, other subsidies, and patron-age dispensations generally and, outside of govern-ment, monopoly, which in its basic aspect is impair-ment of the state's monopoly of coercive power.

Trade unionism may be attacked as a threat toorder under any kind of system. The case against itis crystal clear if one thinks in terms of purer typesof systems like democratic collectivism. A socialistgovernment, faced with numerous functional minori-ties each organized to disrupt the whole productionprocess unless its demands are met, would be exactlyin the position of recent Chinese governments facedwith great bandit armies continuously collecting ran-som from the nominal sovereign. It would eitherdeprive such minorities of the power to act as unitsin withholding services or be displaced by a non-democratic authority which could and would restoremonopoly of violence.

There is no place for collective bargaining, or forthe right to strike, or for effective occupational or-ganization in the socialist state, save in the sensethat revolution against established authority is anundeniable privilege and violent chaos always animminent possibility; and every intelligent socialist,whatever his public utterances, knows as much. . .

Power Must Be DispersedI am arguing, however, not as a socialist, but as

an advocate of the elaborate mixed system of tradi-tional economic liberalism. The essence of this prac-tical political philosophy is a distrust of all concen-trations of power. No individual may be trustedwith much power, no organization, and no institu-tion save the state itself.

The state or sovereign must, of course, possessgreat reserves of power, if only to prevent otherorganizations from threatening or usurping its mo-nopoly of violence. But the exercise of power in-herent in government must be rigidly economized.Decentralization of government is essential. Indeed,the proper purpose of all large-scale organization orfederation—as should be obvious to people facingthe problem of world order—is that of dispersingpower. . . .

Governments can be trusted to exercise largepower, broad functions, and extensive control onlyat levels of small units like American states andunder the limitations imposed by freedom of ex-ternal trade. Especially in the higher levels or largerunits of government, action must follow broad gen-eral rules or principles. Only by adherence to "con-stitutional" principles of policy can the commoninterest be protected against minorities, patronage,and logrolling; and only in terms of issues of broadprinciple can government by free, intelligent discus-

sion (democracy) prevail. Most important here arethe presumptions in favor of free trade and againstdispensations to producer minorities. . . .

The government must not tolerate erection ofgreat private corporate empires or cartel organiza-tions which suppress competition and rival in powergreat governmental units themselves. It must guardits powers jealously both against the combinationof numerous pressure groups and against powerfullobbies like the present federal lobby of landowners.It must hold in check organizations designed forraiding the Treasury (witness the history of pen-sion legislation and the political power of veterans'organizations). Finally, and most important forthe future, it must guard its powers against greattrade unions, both as pressure groups in govern-ment and as monopolists outside.

Until There Is No SolutionThe danger here is now most ominous, in the very

nature of such agencies and also because the dangeris least well recognized and commonly denied en-tirely. In other areas we are, if diffident and care-less, at least on our guard; nothing is likely to hap-pen that cannot be undone if we will; but labormonopolies and labor "states" may readily becomea problem which democracy simply cannot solveat all.

There must be effective limitations upon theirpowers; but I do not see how they can be disciplineddemocratically save by internal competition or howthat discipline can be effected without breakingdown organization itself.

Here, possibly, is an awful dilemma: democracycannot live with tight occupational monopolies; andit cannot destroy them, once they attain greatpower, without destroying itself in the process.

If democratic governments cannot suppress or-ganized extortion and preserve their monopoly ofviolence, they will be superseded by other kinds ofgovernment. Organized economic warfare is likeorganized banditry and, if allowed to sjâd, mustlead to total revolution, which will, o r r e r y hardterms, restore some order and enable us to maintainsome real income instead of fighting interminablyover its division among minorities.

A community which fails to preserve the disciplineof competition exposes itself to the discipline of ab-solute authority. Preserving the former discipline,we may govern ourselves and look forward to apeaceful world order; without it, we must submit toarbitrary authority and to hopeless disorder inter-nationally. And, let me suggest again, the problemis quite as critical for democratic socialism as forthe decentralized system of orthodox liberalism. Anobvious danger in collectivism is that the vast pow-ers of government would be abused in favoritismto particular producer groups, organized to demand


favors as the price of maintaining peace, and avail-able to support established authorities against politi-cal opposition. Adherence to competitive, produc-tivity norms is, now or under socialism, a means foravoiding arbitrariness and, to my mind, the onlyfeasible means.

The Free LineObservance of such norms does not preclude

wholesale redistribution of income afterward, if suchredistribution proceeds even-handedly on the basisof definite, broad rules.

There is room for much socialized consumption,made available without price restraints or at priceswell below cost. The policy requires, for good re-sults, both deliberate supplementing of earnings atthe bottom of the scale (relief, family allowances,old-age assistance, etc.) and, especially under freeenterprise, progressive taxation of the most fortunateand their heirs and assigns. But the supplementingof public spending and the scaling-down by taxationmust proceed even-handedly among functionalgroups, in terms of objective economic (income)circumstances and without arbitrary occupationaldifferentiation.

Thus, poor farmers may properly be subsidized,like others of similar income and needs, because theyare poor but not because they are farmers; andwealthy manufacturers may be taxed heavily, notbecause they are manufacturers of this or that, butbecause their incomes are large.

Incidentally, it is one merit of our present (past)system that inequality is measured closely by incomeand can most easily be modified systematicallythrough taxation and spending. Inequalities of po-litical power, which alternative systems are likelyto produce in extreme form, are likely to be moreobscure and certainly are not amenable to quantita-tive measurement or to continuous, systematic cor-rection or mitigation. . . .

Who Will Forbear?Every organized group of sellers is typically in a

position to gain by raising price and restrictingsales; the popular notion that they commonly aremore exploitative than their own interests woulddictate (that we need only more enlightened priceand wage policies by organized groups) is simplymistaken. . . . There is little hope that mass organ-izations with monopoly power will submit to com-petitive prices for their services while they retaintheir organization and power. No one and no groupcan be trusted with much power; and it is merelysilly to complain because groups exercise power self-ishly. The mistake lies simply in permitting themto have it.

Monopoly power must be abused. It has no usesave abuse. Some people evidently have believed

that labor organizations should have monopoly pow-ers and be trusted not to use them. Collective bar-gaining, for the Webbs, was evidently a schemewhereby labor monopolies were to raise wages tocompetitive levels, merely counteracting monopsonyamong buyers, but eschewing further exercise oforganizational powers. A trade unionism, affectingwages and working rules only within such limits,and doing all the many other good things thatunions can do, would be a blessing all around. Noone could seriously question its merits in the ab-stract. But monopsony in the labor market is, Ithink, very unsubstantial or transitory; and it isromantic and unreasonable to expect organizationsto exercise powers only within limits consistent withthe common interest. All bargaining power is mo-nopoly power. Such power, once attained, will beused as fully as its conservation permits and alsoused continuously for its own accretion and con-solidation. The skin disease of monopsony is cer-tainly a poor excuse for stopping the peaceful andproductive game of free enterprise and free exchangein favor of the violent contest of organized producerminorities.

Enterprise Monopoly

I do not assert that our only monopoly problemslie in the labor market. Save for the monopolieswhich government is promoting in agriculture, how-ever, no others seem comparably important for thefuture. It is shameful to have permitted the growthof vast corporate empires, the collusive restraint oftrade by trade associations, and the gross abuse ofpatent privilege for extortion, exclusion, and outputrestriction. But enterprise monopoly is also a skindisease, easy to correct when and if we will, andusually moderate in its abuses, since its powers arenecessarily small, and since the danger of politicalreckoning is never very remote.

Enterprise monopoly, enjoying very limited accessto violence and facing heavy penalties for unfairmethods against rivals, is always plagued by com-petition, actual and potential, and must alwaysoperate against a deeply hostile, if lethargic, attitudeof courts, legislatures, and the public. In excep-tional cases it has acquired vast power and sustainedpower over long periods. In many cases it has trans-formed salutary price competition into perverse andwasteful "competition" in merchandising and ad-vertising. But, to repeat, the proper remedies hereare not very difficult technically or politically.

The Other Animal

Labor monopolies are, now or potentially, a dif-ferent kind of animal. If much violence has beenused against them as they struggled into existence,this should not obscure the fact that, once estab-


lished, they enjoy an access to violence which is un-paralleled in other monopolies.

If governments have tolerated flagrant violationsof law by employers, they are nearly impotent toenforce laws against mass minorities even if major-ity opinion permitted it. Thus, unions may dealwith scabs in ways which make even Rockefeller'searly methods seem polite and legitimate. Theyhave little to fear from chiselers in their own midst;and they have now little to fear from Congress orthe courts.

Freedom of EntryPatently restrictive practices are now commonly

deplored and, perhaps because unnecessary, seemsomewhat on the wane. But there have been manycases of severe limitations upon entry—high initia-tion fees, excessive periods of apprenticeship andrestrictions upon numbers of apprentices, barriersto movement between related trades, and, of course,make-work restrictions, cost-increasing workingrules, and prohibition of cost-reducing innovations,notably in the building trades—not to mention racialand sex discriminations against which effective com-petition in labor markets is probably a necessary,if not a sufficient, protection.

It is not commonly recognized, however, thatcontrol of wage rates is control of entry, especiallywhere seniority rules are in force and, even failingsuch rules, where qualitative selection is importantand turnover itself very costly to firms. If able toenforce standard rates, experienced, establishedworkers can insulate themselves from the competi-tion of new workers merely by making their costexcessive; i.e., by establishing labor costs and wageexpectations which preclude expansion of produc-tion or employment in their field.

New and displaced workers typically migrate, notto high-wage occupations but to places where em-ployment opportunities exist; high wages are lessattractive if jobs cannot be had. Wage control, de-termining a major element in operating cost, alsodetermines the rate at which a whole industry willexpand or, more likely, with strong organization, therate of contraction. . . .

The situation is more complicated, of course,where unions do permit and facilitate entry; i.e.,where work is shared equally between newcomersand others. Here the advantages of high wages aredissipated by the sharing of unemployment; andannual wages may even drop below a competitivelevel, if workers value leisure highly or are usuallyable to find other remunerative work during theirperiods of layoff. The outcome resembles that ofthe pure cartel among enterprises, where price isfixed by voluntary agreement, output divided byquotas, and newcomers admitted freely and grantedquotas on the same basis as old firms. No one gains,and everybody as consumer loses. There is great

social wastage of resources, of labor in one case, ofinvestment in the other; and the two wastes arelikely to occur together, as in coal mining.

But free entry and division of work are not likelyto characterize unionism of the future and haverarely prevailed in the past. Employees increasinglyseek seniority rights; employers prefer to exercisequalitative selection; and the demands from bothsides are roughly consistent, especially in large estab-lished firms where workers are carefully selectedin the first place and experience is important. . . .

Sentimentalists will urge that strong unions shouldmoderate wage demands, recognizing an obligationto permit entry of young workers and workers dis-placed in decadent industries; but I should not ex-pect them to behave so or blame them for usingpower, if they have it, in their own interest; and Isee no way to avoid severely restrictive policies saveby depriving them of control over wages, i.e., ofbargaining power.

Delusion of the Costless WageIn passing, let me propose, as something better

than half-truth, the generalization that, by andlarge, employers get the kind of labor they pay for.Highest enterprise earnings usually go with highestwage rates; and so-called marginal firms commonlypay both their workers and their owners ratherpoorly. Some people deduce from these facts theconclusion that wage increases, whether enforced bylegislation or by unions, will be relatively costless,forcing economies in management and improvementin methods. . . .

As between firms and even between industries,large differences in wage rates may persist withoutcorresponding differences in costs. A single firm,offering higher wages than its competitors, may getbetter morale and cooperation which are well worththe cost; and surely it will be able to enlist and main-tain a qualitatively superior labor force.

A whole industry may accomplish the same thing,competing for labor with other industries. Depend-ing upon prevailing rates of pay, one industry mayget high-quality labor in all firms; another, verymediocre workers. Thus, wage concessions to organ-ized groups may at the outset cost nothing at all, toa firm as against other firms or to an industry asagainst other industries. All that happens is thatquality standards are raised and inferior workersmore rigidly excluded.

But down-grading cannot go on forever; the trickworks only if it is confined to a few cases; we shouldguard here against fallacies of composition. Theautomobile industry may employ only the besthuman material, leaving other industries to absorblower grades. But beyond narrow limits wage in-creases will not permit corresponding improvementin quality, even for a single firm. When all industryor many industries try the trick, poorer labor is


simply frozen out and driven into unemploymentor into much less remunerative and less sociallyproductive employment where standards are lesssevere.

In the old days the steel industry, the garment in-dustry, and coal mining, with all their abuses, didabsorb and train a great mass of low-grade immi-grant labor. What industries will do this job forus in the future? Where, to repeat, is our surplusagricultural labor going to be absorbed? Surely notin steel, which has now little place for anything butthe best.

Adventure RestrainedConsider also the untoward effects of standard

rates on new and venturesome enterprise. The mostvital competition commonly arises from firms con-tent to experiment with new locations and relativelyuntrained labor. Such enterprises must offer work-ers better terms than they have received in alterna-tive previous employment but cannot offer the wagespaid to highly specialized, selected workers in estab-lished centers. If compelled to offer such terms,they will not arise.

Yet it is obviously one of the finest services ofnew and venturesome enterprise to find better usesfor existing labor and to employ more productivelythan theretofore labor resources which need not beconfined to activities of low value. Indeed, everynew firm must do this in large measure.

Old, established firms have skimmed off the creamof the labor supply and have trained their workersto a substantial superiority over the inexperienced.If potential competitors must pay the same wagesas old firms, the established enterprises will be nearlyimmune to new competition, just as high-gradeworkers are immune to the competition of poorergrades. Here again one sees an alarming identityof interest between organized workers and employersand a rising barrier to entry of new firms, as wellas to entry of new workers. . . .

The Natural WageThe proper wage in any area or occupational

category is the lowest wage which will bring forthan adequate supply of labor in competition withother employment opportunities. . . . In otherwords, it is the wage which will permit the maximumtransfer of workers from less attractive, less remu-nerative, less productive employments.

Broadly, for factory employment in general, it isthe wage or wage level which will condemn the min-imum number of workers to casual labor and tosubsistence agriculture. We imply that any wageis excessive if more qualified workers are obtainableat that wage than are employed—provided only thatthe industry is reasonably competitive as among

firms. Reduction of rates would permit workers toenter who otherwise would be compelled to acceptemployment less attractive to them and less pro-ductive for the community or to accept involuntaryunemployment. This amounts to saying that anyrelative wage may be presumed to be too high ifit requires the support of force (organization) orlaw.

The basic principle here is freedom of entry—freedom of migration, between localities, between in-dustries, between occupational categories. If suchfreedom is to exist—and it is limited inevitably bycosts and by defects of training and experience—wages must fall to accommodate new workers in anyarea to which many qualified persons wish to move.Freedom of migration implies freedom of qualifiedworkers, not merely to seek jobs but to get them;free entry implies full employment for all qualifiedpersons who wish to enter. Whether the wage per-mits an adequate family scale of living, according tosocial service workers, is simply irrelevant—as, in-deed, are the net earnings of employers. . . .

Monopoly CompoundedNow freedom of entry is peculiarly essential in

the case of unusually remunerative employments, ifone believes in greater equality of opportunity.Only by permitting the freest movement upwardthrough wage categories can we minimize economicinequality and maximize incomes at the bottom ofthe scale.

But it is exactly the high-wage industries whichinvite and facilitate organization; and it is the fa-vorably situated who have most to gain by exclu-sion, restriction, and monopolistic practices. At best,no labor organization is likely to be more unselfishor to make less use of its powers than the AmericanMedical Association; and, considering its loose or-ganization and small power, the comparison is surelyalarming.

Organization is a device by which privilege maybe entrenched and consolidated. It is a device bywhich the strong may raise themselves higher bypressing down the weak. Unionism, barring entryinto the most attractive employments, makes highwages higher and low wages lower. Universally ap-plied, it gets nowhere save to create disorder.

Surely we cannot all get rich by restricting pro-duction. Monopoly works when everyone does nottry it or when few have effective power. Universallyapplied, it is like universal, uniform subsidy paidout of universal, uniform taxation, save that thelatter is merely ridiculous while the former is alsoincompatible with economy of resources and evenwith order.

But the dictator will be installed long beforemonopoly or functional organization becomes uni-versal. Must we leave it to the man on horseback,


or to popes of the future, to restore freedom of op-portunity and freedom of occupational move-ment? . . .

Deeper than CorruptionI am not concerned here with corruption and dis-

honesty among labor leaders, or with their salaries,although much can and should be said on thatscore. The whole scheme of monopolizing labormarkets obviously invites abuses of bribery and ex-tortion, and use of power by leaders for both politi-cal and pecuniary advantage to themselves. But,for purposes of argument here, I am willing to ig-nore personal corruption and private extortion; i. e.,I am willing to suppose that unions are always man-aged scrupulously and faithfully in the interest ofthe overwhelming majority of their established mem-bers.

When I say that investors and enterprisers facean alarming prospect of extortion at the hands oforganized sellers of labor, I refer merely to the pros-pect that bargaining or monopoly powers inherentin organization will be exercised fully, in a mannernow recognized and sanctioned as proper and legiti-mate.

There is every prospect that opportunities forcollective, collusive, monopolistic action in particu-lar labor markets will increase indefinitely wher-ever organization is possible. This prospect alonesuffices to explain the ominous decline of private in-vestment and the virtual disappearance of venture-some new enterprise. . . .

In that Fatal DirectionFew Americans will straightforwardly espouse

syndicalism or look with approval on II Duce's cor-porative state. Few likewise will face the patentfact that we are rushing pell-mell toward and intothat political order in the United States. Our formalpolitical structure, of course, retains its traditionalcharacter. Our legislators, state and federal, stillrepresent geographic sections of the nation. Butalongside this formal political structure arises nowa structure of powerful organizations of labor, im-mune to prosecution as monopolies and largely im-mune to the proscriptions or penalties of otherlaws. . . .

We have never faced the kind of minority prob-lem which widespread, aggressive, national and re-gional unions and their federations present. Theyare essentially occupational armies, born and rearedamidst violence, led by fighters, and capable of be-coming peaceful only as their power becomes irre-sistible. Other groups practice violence, of course;but few others practice it with general, public appro-bation or employ it at all without grave risks ofpunishment or loss of power. Peaceful strikes, evenin the absence of overt violence or intimidation, are

a meaningless conception when they involve disrup-tion of an elaborate production process with intri-cate division of labor. . . .

Our great minority and monopoly problem of thepresent and of the discernible future is the prob-lem of labor organization. One may stress the rightof voluntary association or, rather, the right of freeentry into occupations. One may stress the right tobargain collectively on a national or regional scaleor, rather, the right of free occupational migration.In neither case can one sensibly defend both cate-gorically. If one is accorded and exercised, the otheris curtailed or destroyed. The issue is simplywhether wage rates should be determined competi-tively or monopolistically.

The EmbraceThe obvious struggle within particular industries

over division of earnings tends largely to obscurethe more substantial identity of interest and func-tional complementarity of labor and employer or-ganizations. Popularly regarded and defended ascounterpoises to industrial concentration or enter-prise monopoly, unions in fact serve mainly to but-tress effective monopoly in product markets whereit already obtains, and to call it into existence whenit does not. Labor leaders have, indeed, a quite nor-mal appetite for monopoly prices and for monopolyprofits which bargaining power permits them to ap-propriate and to distribute among their members.

While extremely ill-informed, I know of no in-stance where a powerful union has proposed reduc-tion of a monopolistic product price or given realsupport, singly or in federations, to anti-trust policy.On the other hand, NIRA, like extreme tariffprotection, was strongly supported by organizedlabor. The formal and enforced cartelization of thecoal industry may be credited largely to the UMW.And, if some proposals of CIO leaders for laborparticipation in management are not pure cartelschemes, I cannot identify the beast when I see it.If labor remains and becomes increasingly cartelizedalong industry lines, enterprises must be similarlyorganized for bargaining purposes—not only to pre-sent a united front and to recoup wage increasesfrom consumers, but because labor itself will prefer,demand, and, in any case, compel such employer or-ganization.

The Old World DesignWe have often been told that difficulties in col-

lective bargaining, and mutual intransigence of theparticipants, were only vestiges of the frontier andwould disappear as America caught up with Euro-pean civilization. We have been chided for ourbackwardness and urged to seek that matter-of-factacceptance of collective bargaining and that ma-turity in union-employer relations which have ob-


tained in Germany, France, and England. It mayseem unsporting, in these days, to note that historyhas recently played nasty tricks on condescendingapologists for American adolescence and upon zeal-ous importers of European institutions—but, in fact,these folk seem only more capable of ignoring his-tory when it screams against their position than ofmisinterpreting it when it can be used plausiblyfor their purposes.

I do not maintain that German trade unionscaused I. G. Farben and the Nazi revolution, or thatFrench labor caused the disintegration of the Frencharmy, or that LCI. and the awful state of Englishindustry are attributable to national collective bar-

gaining. I do hold that large and powerful laborunions are integral elements in a total institutionalcomplex whose development is everywhere antithe-tical to economic freedom, to political liberty, andto world peace; that we should here stop the develop-ment short of the German or French denouementand short of the awful mess which is now the Englisheconomy; and that we cannot import and retainthe labor-organization component of this complex ortrend without importing the rest of it too. If west-ern Europe had maturity in collective bargainingand labor relations and if England has it still, thesefacts argue strongly against abandoning our demo-cratic adolescence.

Unionism as a Moral Imperative"To labor, as to an old friend, the Churchaddresses the message: ORGANIZE!"

A Sermon by the Most Reverend Bernard J. Shiel, Senior Auxiliary Bishop of Chicago

THE relationship between capital and labor thatthe Church desires is one of peace. The exem-

plar that she holds out before both parties is herown unity as the Mystical Body of Christ. Shewants the life of all men in its economic and natu-rally social aspects to mirror her own union withher Divine Spouse. She demands in the words ofPope Pius XI, of happy memory, that all "man'svarious economic activities combine and unite intoone single organism and become members of a com-mon body, lending each other mutual help andservice."

But if the Church stands for harmony betweencapital and labor, she means by that a real peace.She means that peace which is the work of justice.Without justice, "peace" is empty and meaningless,and the term can never signify more than a virtualconflict.

The Church is not blind. She is, it is true, readyto condemn trangressions wherever she finds them,whether in the ranks of the workers or in the officeof the entrepreneur. But she sees the situation.

Is Man Replaceable?She sees the worker propertyless and plagued by

insecurity. She sees him "figured in" and "countedout," not as a human person, but as a replaceablepart in the industrial process—much as the coal, thesteel, the railroad train. She sees him subjected tocrushing economic domination, his efforts to com-bine with his fellow workers resisted, and she sees,finally, his piteous individual helplessness. She seeshim sacrificed to profit and cast out as refuse fromthe whole mad show at forty years of age. And, inall this unequal struggle, she sees with sadness what

happens to his soul, how he grows bleared of eyeto eternal salvation and hamstrung in his pilgrim-age to God.

Observing this, she takes her stand, as she must,unequivocally by the side of the worker.

With moral indignation she protests to capital.She tells it that the organic setup of society she in-sists upon is no pious fancy. It is a postulate of thetrue and complete conception of the human person.It is the only manner of common life which does notviolate human nature and under which society canserve its true purpose as a stepping stone to eternallife.

No Market Price for LaborShe charges the employer to recognize that all of

us are bound one to another whether we will it ornot; and that, if there is not an interchange of mu-tual help and cooperation, there will of necessity bean interchange of injuries and hate. She warns capi-tal to take the scales from its eyes, to see that "noone section of human society can be grievously in-jured without that injury reacting harmfully in thefinal analysis on all other sections of society."

The Church flatly tells the employer that theliberalistic ideal of "unrestrained competition, mar-ket prices for labor and unlimited profits" is a hoaxperpetrated by, among others, the eighteenth andnineteenth centuries; and that, as a Christian, hemay not subscribe to it.

Owners and employers may not follow the prin-ciples of Liberalism in the hiring of working people.They cannot hire a man exclusively for their ownbenefit and profit. They are not allowed to forgetthat the man whose labor they engage is a human


person and is endowed with human dignity. Theymay not make of him a mere commodity. They maynot compute his wages according to the vicious, anti-social and anti-Christian principle that labor is tobe compensated only to the extent necessary to keepit physically efficient and capable of reproducing it-self in new generations of workingmen.

What a Living Wage MeansThe Church lays upon industry as its first obliga-

tion the payment of a living wage. This obligation,let me state with emphasis, takes priority over anyclaim of the owners to profits. And by "living wage"the Church means an annual, family, saving wage.A yearly income so small that it must be supple-mented by the wages of the wife and mother, or bythe earnings of the children, does not satisfy this firstobligation of industry. Nor does a wage whichprovides merely for the present necessities of food,clothing, shelter and the spiritual and cultural needsof the family.

It is essential to the notion of a living wage thatit permit the setting aside of a fund to provide forthe contingencies of unemployment, sickness, deathand old age. This an obligation which cannot beavoided. It is a necessary implication of the greatcentral principle of Pius XI's historic and socialdocument, Quadragesimo Anno. The Encyclical sayswithout qualification: "The size of the wage is to bedetermined by the public economic good."

To Capital a Word of IronyThe Church further admonishes the employer that

the worker's right to organize is a natural right, thatto deprive him of it is to render him something lessthan human. She forbids the employer under painof "criminal injustice" to deny or thwart the exer-cise of what the United States Supreme Court hascalled "the fundamental right . . . of employees toself-organization and to select representatives oftheir own choosing for collective bargaining or othermutual protection without restraint or coercion bytheir employer."

The Church's final word to capital is not withoutsome irony. As if by way of anticipation, she warnsemployers not to attempt to justify "industrial gang-sterism" by playing Robin Hood: "Let no one" saysPius XI, "try to exempt himself with piddling chari-table donations from the great duties imposed byjustice"

To labor the Church speaks with much confidence.. . . She knows that in workingmen there is a rug-ged decency upon which she can depend. She andthey are old friends and know each other well. Herdivine founder was a carpenter. Her first Pope andBishops were maritime workers, a civil service em-ployee, and a tent maker from Tarsus.

It is true that through the centuries some indi-vidual Christians and churchmen have forgotten the

lessons implicit in her foundation. Often there werethose who thought to make up the deficiencies ofDivine Omnipotence by attaching her welfare to thisor that worm-eaten throne. But this fact remainsunassailably true: that her divinely guarded andunchangeable doctrine has always proclaimed theworkman's dignity and the sacred character of hiswork as the perfection of his person.

So Therefore OrganizeAnd so to labor, as to an old friend, the Church

addresses her message and that message is: "OR-GANIZE!" She points out to the workingman thatorganization is his only hope of economic salvation—and indeed of eternal salvation in so far as this hasintrinsic dependence upon the former. It is theonly way for him to resist the "immense power anddespotic economic domination which is concentratedin the hands of a few. . . . "

The Church teaches the worker that his taking ajob is no private matter. It is something that affectsthe entire community. For one thing his wage de-termines how much he can buy, and the amountof the wage helps to keep workers in other industrieseither employed or unemployed. The hours of hiswork help to determine whether or not other work-ers shall have a job.

Everyone in society—fellow workers, employers,consumers and taxpayers—is concerned with everyjob. Thus every worker's taking a job is related tothe common good.

"Now," as Pius XI has said, "it is of the very es-sence of social justice to demand from each individ-ual all that is necessary for the common good."

This means that the worker has an obligation toaffiliate with the union of his occupation, whethercraft or industrial. For lack of organization permitslow wages, and low wages result in underbuying.Underbuying in its turn causes unemployment, andunemployment means national prostration. On theother hand, organization brings high wages, and highwages means increased buying. Increased buyingmeans more jobs, and employment "means nationallishments.

The Nonunion ParasiteAnd if a nonunion worker in a partially organized

industry is receiving a good income, it is quite prob-ably because his nonunion employer, in order "tokeep the union out," meets, or nearly meets, thehigher wage and hours standards of union estab-lishments.

Clearly such nonunion employees are eating thefruits of others* sacrifices. The workers in the unionshops perhaps risked their jobs to get their unionrecognized, and they pay monthly dues to keep itgoing. It is a categorical injustice for nonunion em-ployees, enjoying the common benefits, to refuse tocarry their share of the common burden.


The Church calls upon workers to organize inorder to bridge the vast gap that stands between theindividual worker and his employer. She wants thatdistance removed because it nullifies the equality ofbrotherhood in society. She sees that collective bar-gaining, through the freely chosen representatives ofboth sides, is the only manner in which both partiescan come together on a basis approaching equality.

She finds collective bargaining a necessary pre-

liminary to the new social order in which social andeconomic life will be completely organized, and anindispensable element to its proper functioning afterits foundation.

The Church derives these truths, which she pro-nounces to capital and labor, from her concept of thedignity and worth of the human person. . . . Thatis why she must resist any attempt to subordinatethe human person to the political economy.

The Closed Shop Issue in Three States

IN THE November election the question of thenonunion man's right to work, called also the

closed-shop issue, came to a popular vote in threestates—California, Arkansas and Florida. In eachcase the question was presented in the form of aproposed amendment to the state constitution.

CALIFORNIAThe California amendment was entitled, "Right

of Employment," and read as follows:"Every person has the right to work, and to seek,

obtain and hold employment, without interference withor impairment or abridgment of said right because hedoes or does not belong to or pay money to a labororganization.

"Anything done or threatened to be done which inter-feres with, impairs or abridges, or which is intendedto interfere with, impair or abridge said right, is un-lawful. Relief against or on account of anything sodone or threatened to be done shall be granted in acivil action, legal or equitable, initiated in the SuperiorCourt of any County in which anything so done orthreatened to be done shall occur, upon the complaintof any person or upon complaint of the District Attor-ney of such County.

"The term 'labor organization' means any organizationof any kind, or any agency or employee representation,committee or plan, which exists for the purpose, inwhole or in part, of dealing with employers concern-ing grievances, labor disputes, rates of pay, hours ofemployment or conditions of work."The contest was bitter. The statement of elec-

tion expenditures filed with the Secretary of Stateprior to election day showed that various commit-tees had spent $101,300 on propaganda for theamendment and that organized labor had spent$324,543 on propaganda against it. . . . The princi-pal arguments pro and con were printed on the offi-cial ballot. The argument for it took the ground thatthe right to work, with or without a union card, isa vital freedom, and that if the amendment were notadopted "involuntary servitude to the closed shopwill be forced upon us" after the war. Organizedlabor took the line that it was a sneak wartime at-tack upon unionism, that the amendment wouldcreate chaos in labor-management relations andthereby cause widespread postwar unemployment,

and that it was a threat to both freedom of speechand freedom of assembly. Curiously, however, thelegal question of freedom of contract was not raised,that is to say, the freedom of employee and em-ployer to make a closed-shop contract. Organizedlabor won. The vote was as follows: for the amend-ment, 1,155,176; against it, 1,707,462.

ARKANSASThe Arkansas amendment read as follows:

"No person shall be denied employment because ofmembership in or affiliation with or resignation from alabor union, or because of refusal to join or affiliatewith a labor union; nor shall any corporation or individ-ual or association of any kind enter into any contract,written or oral, to exclude from employment membersof a labor union or persons who refuse to join a laborunion, or because of resignation from a labor union;nor shall any person against his will be compelled topay dues to any labor organization as a prerequisite toor condition of employment."And that was adopted by the people of Arkansas.

FLORIDAThe Florida amendment was one sentence bur-

ied in a paragraph dealing with procedures in crim-inal cases and read as follows:

"The right of persons to work shall not be denied orabridged on account of membership or nonmembershipin any labor union, or labor organization; provided,that this clause shall not be construed to deny or abridgethe right of employees by and through a labor organ-ization or labor union to bargain collectively with theiremployer."And that was adopted.Organized labor is expected to contest both the

Arkansas and Florida amendments all the way upto the Supreme Court, and in doing so it will un-doubtedly argue that they impair the freedom ofcontract. It is a very interesting point of law. Asthe practice of collective bargaining has evolvedunder the National Labor Relations Act, the minor-ity's freedom of contract has been denied. Now theshoe will begin to pinch on the other side if a major-ity can be denied the right to make a closed-shopcontract with the employer, stipulating that unionmembership shall be a condition of employment.


Resolve by Congress toOvertake Government

THE Congress of the United States is at lengthresolved to do something about that Model T

feeling. Its equipment is old-fashioned and rattles.The model has not changed since 1893, when totalappropriations for a year of Federal Governmentamounted to $314 million, which anybody could un-derstand, whereas now the Congress finds itself au-thorizing expenditures rising to $100 billion a yearand is never quite sure of what it is doing. I t has,in fact, no way of finding out. I t is overwhelmedand intimidated by the superior manners andknowledge of governmental agencies, who seem al-ways to know what they are about and keep comingto Capitol Hill with their insatiable demands armedwith information, both defensive and offensive,which no simple lawmaker is prepared to challenge.The Congress created these agencies. I t has pro-vided them with miles of experts, economists, an-alysts, social scientists, research workers, synthesists,lawyers, statisticians, publicity engineers, besidesmen both skilled and subtle in the art of draftinglaw—and all this time it has itself lived in the oldhomestead with fringe on the parlor furniture and aBible on the center table, watching governmentgo by.

As Representative Monroney said, it has beentrying to run the biggest business in the world withhopelessly inadequate tools and organization—al-lotting funds for a business one hundred times big-ger than General Motors, Ford and the UnitedStates Steel Corporation all put together; raising $45billion a year in taxes, administrating an insuranceprogram many hundreds of times bigger than thatof any private insurance company and at the sametime a banking business that makes Wall Street looklike a small-town thoroughfare, and all of this "witha quill pen and one old-fashioned bookkeeper'sledger."

He was moving in the House of Representativesa joint resolution of the House and Senate to pro-vide Congress with modern tools and a personnelskilled in the use of them; and he gave it this pictureof its ineffective self:

"Of the 3,000,000 officials and employees of the Fed-eral Government who exercise varying degrees of auth-ity over our life and freedom, there are only two men,other than members of the Senate and House, who areelected by vote of the people. The line of democracywears very thin as it reaches down through the vastfederal departments, and I believe that only throughimproving the strength and ability of Congress to meetthis challenge can we hope to bring more effective publicinterest to bear on the operation and working of thefederal machine. . . . But here we sit, a memory of

the gaslight days, without any way of finding out anddetermining the truth in research data and statisticswhich come from interested departments downtown andthose which come from pressure groups or business or-ganizations that are seeking legislation. . . .

"Take the very important job of writing the laws thatwe pass. Every member sitting before me today knowsthat more than 90% of the laws considered by thisHouse are drafted not here on Capitol Hill, not by ourown drafting legislative service, but are drafted by mendowntown in the departments. The very departmentsto be regulated and governed by the laws we pass pre-pare the language of the laws that are to govern them.

"Consider the legislative drafting service in the House.Perhaps it is as efficient a branch of the Congress aswe have, and yet they employ five members today indrafting the legislation for the House. In the Senateonly three are employed for this important job. Yetdowntown we have in the Solicitor's Office of the De-partment of Agriculture some 600 employees costing thisgovernment $1,600,000 a year.

"Experts, not only in draftsmanship, but also to ad-vise Congress from a pure and undefiled source of in-formation on the manifold world problems Congressmust meet in the next four years, are badly needed onthe Hill. . . .

"The Banking and Currency Committee of this Houseand of the Senate will have a tremendous job dealingnot with millions but billions of dollars in trying torestore postwar monetary stability; yet the Congresshas one expert employed by the legislative draftingservice, our only source of completely unbiased infor-mation on world monetary problems. This one experton banking and currency is employed at a salary of$2,600 a year.

"Foreign and domestic commerce undoubtedly will beof great importance to all this nation and to the worldin the postwar period. Yet the Library of Congress, inthe legislative service, has one expert in foreign anddomestic commerce on whose judgment and whose ad-vice we can rely for statistics and unbiased information.He drew $3,200 a year. . . .

"Information gathered by the departments downtown,compiled in vast volume by business interests, and byspecial economic studies, flows past Capitol Hill almostlike the Mississippi River. Yet we cannot ladle out ofthis vast stream of information even a teaspoonful to beof assistance to the Congress."

The joint resolution was adopted. It provides fora committee of twelve members, six to be appointedby the Vice President for the Senate and six by theSpeaker of the House, to "make a full and com-plete study of the organization and operation of theCongress of the United States," and to "recommendimprovements . . . with a view toward strengthen-ing the Congress . . . and enabling it better to meetits responsibilities under the Constitution." But theModel T habit after all is very hard to break. Theresolution authorizes the committee to engage ex-perts, consultants, technicians, clerical and steno-graphic assistants, and then says: "The expensesof the committee shall not exceed $10,000."


The United States AbroadThe Bitter Fruits of Teheran

By Isaac Don Levine

Washington, D. C, Dec. 31, 19U

year that began under the promising signA of Teheran left behind it a crop of evil and bit-

ter fruit. What did we think had been planted inthat garden? The three gardeners said: "We leavehere friends in fact, in spirit and in purpose." Andwhat was the harvest like?

Teheran was to establish a second front and tocoordinate military operations in the East and inthe West against the common enemy in such waysas to finish the war in Europe before the end of theyear. But the end of the war has been made to wait.

Teheran was to cement indestructibly the unityof the United Nations. Today that cement is pul-verized and the discord in the Allied camp is thechief source of strength for the enemy.

Teheran was to lay the foundations of a lastingpeace. Today the specter of an approaching civilwar waged by forces trained in the underground andled by men sworn to the cause of Communist revo-lution is haunting Europe from Greece to Hollandand from Finland to Sicily.

Finally, Teheran was to confirm the promise ofSecretary Hull upon his return from Moscow that"there will no longer be need for spheres of influ-ence, for alliances, for balance of power." Todaythe entire eastern half of Western Europe, roughlymarked by a line running from Stettin on the Bal-tic to Trieste on the Adriatic, an area comprising aprewar population of 90,000,000, has been staked outby Moscow for Soviet domination or complete sovi-etization.

Beginning of the Greek TragedyThe whirlwind of recent events has ripped the

veil off Teheran and exposed the fatal character ofthe main decisions taken there. These decisionswere primarily concerned with the question of thesecond front or fronts. It was on the surface a mili-tary question, but we now see that it went to theroots of the fate of Europe.

The British had long favored the opening of afront in the Balkans, not only to safeguard theirMediterranean lifeline from traditional Russian en-croachments but also to keep the southeastern flankof Europe from becoming a base for Soviet domina-tion of Germany. To Stalin, a balkanized area ofEurope, centering around the dismembered AustroHungarian Empire, offered the most fertile field forthe extension of the new Soviet order with the aidof Slavic "national liberation" movements. Since

1939, when Britain and Germany bid for the Soviethand, which then was won by Hitler, the grandioseaims entertained by Stalin in the strategic zonestretching from the Black Sea to the Adriatic hadbeen no secret to Churchill.

The rivalry between Churchill and Stalin had de-veloped long before Teheran. To both leaders it wasobvious that there could be no permanent vacuumin the center of Europe once Germany had beencrushed, and that he who dominated Germanywould eventually dominate the Continent. The ques-tion of the second front thus became identified withthe question: What kind of Europe shall it be?

ChurchillVCouncil of EuropeEight months before Teheran, in his world broad-

cast of March 21, 1943, Churchill projected his an-swer to that cardinal question. He suggested thesetting up of a Council of Europe and a Council ofAsia in harmony with the "high permanent interestsof Britain, the United States and Russia." TheCouncil of Europe was to be a "really effectiveLeague" of Western European unity as distinct fromthe Soviet Union, although the Council "musteventually embrace the whole of Europe."

Elaborating upon his proposed basis for worldorganization, Churchill declared in his address atHarvard University on September 6, 1943, that"nothing will work soundly or for long without theunited effort of the British and American peoples.If we are together nothing is impossible. If we aredivided all will fail."

To Stalin, these were ominous trends. Anglo-Am-erican unity spelled an inferior global position forthe Soviet Union. Western European unity spelleda barrier against Communist infiltration. Britishhegemony over Germany spelled a mighty capital-ist dike against proletarian dictatorships. A healthyand restored continent brought about by a systemunder which, in the words of Churchill, "the gloryof Europe will rise again," spelled the ultimate de-cline of Communist revolutionary doctrine andpower.

The Hand of StalinStalin began early to checkmate Churchill. He

broke diplomatic relations with the Polish govern-ment with which he had recently concluded a sol-emn alliance, and set up an embryonic puppet re-gime for Poland. This was a warning that theKremlin would build its own bridge to Germanyacross a vassal Polish state. He set up a Free Ger-


many Committee as another counter-balance toChurchill's scheme of Western European unity. Hewooed the government of Czechoslovakia headed byBenes away from the arms of London, and after atug of war which lasted many months won overCzechoslovakia to the Soviet side and made Czecho-slovakia the spearhead of a successful drive againstany federation in Eastern or Southeastern Europe.Stalin remembered Bismarck's warning that to con-trol Prague is to dominate the gateway to Europe.

At Teheran, the head-on collision betweenChurchill and Stalin came on the issue of the open-ing of another front in the Balkans. Stalin's stren-uous objections to the proposed Allied invasion ofthe Balkans were altogether political and ideologi-cal in character, since the British had already provedtheir readiness to make territorial concessions toSoviet Russia from the Baltic to the Black Sea.

The President PersuadedBut Stalin was able to convince President Roose-

velt, by citing the formal dissolution of the Com-munist International and the introduction of re-forms permitting religious worship in Russia, thatthe Soviet policy had long since abandoned interna-tional Communism and world revolution. Stalinwent out of the way to "prove" to the President thatthe purge of 1936-37 had been conducted by himagainst the Trotskyite internationalists. Ideologi-cally, Mr. Roosevelt came already conditioned toaccept Stalin's assurances at their face value. TheSoviet experiment in the eyes of the President hadbeen assuming more and more the aspect of a Rus-sian home-made New Deal. Hence, it seemed tohim that Churchill's fears were in reality groundedin British imperialism solely, as they were fears fora lifeline which was in no wise threatened by Stalin,whose concern was national reconstruction above all.

Mr. Roosevelt joined Stalin against the idea of aBalkan front. That moment was Churchill's diplo-matic Waterloo. Right there and then Stalinachieved the isolation of the United States from herBritish ally. Churchill and the permanent policymakers in the Foreign Office realized that the RedArmy would reach the Balkans first, enabling Stalinto build his own dominion between the Mediterra-nean and the southern frontiers of Germany.Churchill had to scrap his ideas of a Council ofEurope and to yield to that British imperial schoolof thought which ever since the rise of Hitler hadplayed with the grand scheme of a division ofEurope into two spheres of influence.

The British Foreign Office had never acceptedChurchill's scheme for European federations, whichwas essentially a democratic solution. The perma-nent policy makers prided themselves upon theirrealism. They who had favored a deal with Hitlerfor the partitioning of Europe before the war nowfavored a similar deal with Stalin for the same rea-

sons. France was knocked out. Germany would beout for a long time. The two remaining great pow-ers on the frontiers of Europe must of necessity gettogther and divide the Old World into their respec-tive spheres.

Oriental TradingTeheran now deteriorated into an Oriental trad-

ing post. Stalin had the advantage of Mr. Roose-velt's break with Churchill. Stalin also had the ad-vantage of geographic proximity which had en-abled him to sink an anchorage in Czechoslovakiafor his great design and to ride roughshod over Po-land to achieve the ultimate encirclement of Ger-many. Churchill tried to save as much as he couldfor the direct protection of the British defenses inthe Mediterranean, and was compelled in his hag-gling with Stalin to make sacrifices at the expenseof Poland and in other zones in return for Britishretention of vital positions along the sea routes ofthe Empire.

Here then were the seeds of Teheran. Mr. Roose-velt appeased Stalin ideologically and Churchill ap-peased him with a division of spoils. Stalin emergedfrom Teheran enormously strengthened both in thefield of Russian expansion and in that of worldCommunism.

The fruits of Teheran began to ripen in the latesummer, after Eisenhower's armies had brokenthrough France and Belgium, and seemed to beracing to Berlin. From the Kremlin's point of viewan early rendezvous of the Soviet forces with Anglo-American forces in Germany was most undesirable.For Stalin to meet Roosevelt and Churchill in Berlin,at a moment when the entire southeastern basin ofEurope still remained outside of Soviet control,would have meant a showdown on the paramountquestion of Germany and would have forced Mos-cow to follow the lead of the United States andGreat Britain on the organization of Europe.

Playing for TimeThe Big Three had an agreement for a tripartite

occupation of Germany and for joint control ofBerlin. But if the Red Army met the Anglo-Americanarmies in the vicinity of the capital of the Reich,Stalin would face a European settlement drafted inthe shadow of triumphant Western arms and beobliged to assist in laying the foundations of a West-ern European peace not at all in harmony with hisdesigns. Stalin plainly needed time to exploit thegains of Teheran.

An early termination of the war in Europe wouldhave redounded to the glory of the Western Alliesand to their diplomatic prestige, checking the Sovietdiplomatic offensive in its initial stages. Stalin'spolitical strategy called, first, for Soviet control ofthe balkanized areas of Europe, and, second, for the


balkanization of Germany as a base for the futuresovietization of Western Europe. Both operationsrequired time. Both were in danger of being de-feated by a lightning-like conquest of Germany.

Just when Anglo-American forces were poundingat the demoralized western defenses of Germanyand it looked as if a race for Berlin was on fromthe West and the East, Stalin withdrew his armiesfrom the Eastern side. The plans of Teheran had pro-vided for just such a nutcracker squeeze of Hitler'sfortress. It was the height of summer when theSoviet forces reached the suburbs of Warsaw; therivers were at their lowest and the dry plains of Po-land marked the shortest route to Berlin on all themilitary maps. Stalin's horde rested on the Vistula,in the center of the eastern front, and then streamedin an unexpected direction, southward, strikingtowards Czechoslovakia, Rumania, Yugoslavia, Bul-garia, Hungary and Austria.

The Ten Fateful EventsThere followed a succession of events which in the

course of a little more than three months at firstbaffled and confused the Allied world and then well-nigh splintered the camp of the United Nations.

FIRSTLate in August came the capitulation of Rumania

in the form of an armistice agreement signed bySoviet Marshal Malinovsky, to which the UnitedStates and Great Britain gave their belated assent,and which embodied a permanent territorial settle-ment. The crucial point in this settlement, whichfigured as a somewhat muddled issue in the Presi-dential campaign, was the Soviet unilateral transferof Transylvania from Hungary to Rumania. Al-though the United States did make that transfersubject to "confirmation" at the general peace con-ference, Great Britain appended no such reserva-tions, for the reason that she had secretly recognizedRumania as within the Soviet sphere of influence.What did Transylvania represent in Stalin's post-war design? London knew it only too well. Tran-sylvania is the strategic northern pillar of that greatSoutheastern European domain which Stalin hadcarved out for himself. The other pillar was Bohe-mia, which Stalin had secured after Teheran througha treaty of alliance with Czechoslovakia. He nowhad in the heart of Europe the two key bastions ofhis projected great dominion.

SECONDThe Bulgarian armistice provided the next

major shock. The United States and Great Britainhad been at war with Bulgaria. Soviet Russiahad all along been at peace with Bulgaria. TheBulgars had sent emissaries to Cairo to negotiatean armistice. The Western Allies were playing here

in reverse the role Russia had performed in thenegotiations with Finland, which had remained atpeace with America. The Western Allies drafted theterms of a Bulgarian armistice to which the SovietGovernment was to become a co-signatory. Thensomething happened. The Soviet Government sud-denly declared war on Bulgaria. The Kremlin hadnotified the British and American ambassadors inMoscow of this move—two hours before it was madepublic. The Cairo negotiations exploded. Stalin tookover the sponsorship of the armistice. He dictatednew terms which made Bulgaria formally an ally,but actually a ward, of the Soviet Union.

THIRDThe Churchill-Roosevelt meeting at Quebec last

September was a hurried attempt on the part ofLondon to check the Soviet flood towards the Med-iterranean. With Bulgaria in Soviet hands, the greatport of Salonika lay within the grasp of the RedArmy. And Salonika dominated the Aegean Sea andthe European defenses of Turkey, an ally and pro-tege of Great Britain. Moreover, Yugoslavia andGreece were exposed to occupation by Stalin's forces.Indeed, the Partisan leader Tito, who had been cod-dled by the British in the naive belief that he couldbe wooed away from Moscow's arms, suddenly be-gan to display an "independence" which was down-right shocking. He treated his chief of state, theLondon-sponsored Premier of Yugoslavia, Ivan Su-basitch, with unconcealed disdain. Tito even hintedat setting up a Balkan federation allied to SovietRussia and extending it to the Dardanelles in theEast and Trieste in the West. Churchill rushed toQuebec to enlist Roosevelt's support and to arrangeanother meeting of the Big Three. He also endeav-ored to bring about, with American aid, an earlysettlement of the Polish crisis so as to be in astronger bargaining position in Balkan affairs whendealing with Stalin. In the end, Churchill proceededto Moscow on his own, bringing the Polish PremierMikolajczyk as the sacrificial goat to the altar ofStalin.

FOURTHAt the Moscow conference held in the middle of

last October Churchill was forced to gamble awaythe sovereignty of Poland in return for what lookedat the moment like a modus vivendi on the Balkanissues. Greece was to remain in the British sphereof influence. Yugoslavia was to be administeredunder a joint policy of the two powers providing fora union of the Tito leadership with that of the RoyalYugoslav Government. Churchill purchased theseconcessions by his unqualified support of Stalin'sdesigns upon Poland. These included not only thecession of the areas lying east of the famous CurzonLine and of the Galician areas, comprising the greatcity of Lwow and the only Polish oil fields, but alsothe annexation by Soviet Russia of the industrial


triangle of East Prussia centering around Koenigs-berg. Poland was to receive as compensation Prus-sian zones stretching almost to Berlin, a gift whichthe Poles did not seek and did not wish to accept.The Poland thus projected by Stalin was to beheaded by Premier Mikolajczyk, who was to in-clude twelve ministers drawn from the Lublin pup-pet regime in a cabinet of sixteen, making it a Sovietvassal. Churchill is known to have stormed andraged at Premier Mikolajczyk in Moscow when thelatter declared himself without authority to signsuch a capitulation. Nevertheless, Churchill leftMoscow in the belief that he and Anthony Edenwould be able to deliver Poland to Stalin fromLondon.

FIFTHWhen the Polish government-in-exile, with the full

backing of its underground leaders in the homeland,decided rather to be slaughtered in the open thanto commit suicide in the dark, and defied Churchill,strange things began to happen in the Balkans.Marshal Tito took a plane to Soviet headquarters toplead for the fraternal aid of the Red Army. True,there had been an agreement between Stalin andChurchill for joint control of Yugoslavia. But howcould the Kremlin turn a deaf ear to the pleas ofthe southern Slavs for help? The Red Armymarched into Yugoslavia. Portraits of Stalin ap-peared everywhere in the liberated countries. Inneighboring Macedonia and Greece and Albania theresistance forces suddenly emerged wearing badgesof the hammer and sickle. In Trieste there werereported "popular" demonstrations for union withYugoslavia. Marshal Tito had now undergone acomplete metamorphosis and was speaking thebrusque language of a Soviet commissar to his formerprotectors. A storm was brewing for Britain in theMediterranean.

SIXTHAt the same time a new area of Soviet pressure

developed in October on the other side of Britain'sally, Turkey. Moscow demanded from the Iran gov-ernment of Saed the immediate granting of oil con-cessions in North Iran which has been under com-plete Soviet occupation since 1942. Although theTeheran declaration officially described Iran as anally, Moscow caused the downfall of Saed's govern-ment when it had refused the demand for oil grants.The attempt of the United States to intervene ina friendly capacity in behalf of Iran led to Moscow'ssharp denunciation of America's presence in Iranwithout consent, although its presence had beendictated by the need to help the Soviet war effortwith millions of tons of vital supplies. Simultane-ously there developed a "spontaneous" movement inadjoining Turkish Armenia for fusion with the SovietUnion, another warning to Turkey as well as toBritain of things to come.

SEVENTHThe Red Army continued to penetrate South-

eastern Europe while the Allied armies in the Westwere preparing for another direct assault upon Ger-many. The Warsaw front remained inactive. Themain Soviet thrusts were directed at Hungary andlater at Austria. Behind Stalin's victorious armiesthere appeared Free Hungary and Free Austria com-mittees, precursors of Soviet puppet regimes. Haltedat the gates of Budapest, the Red forces swung ontowards Vienna, extending the new Soviet dominionin Central Europe.

EIGHTHTo stem the spreading Soviet tide, the British

decided to land troops in Greece, Salonika and onthe Dalmatian coast of Yugoslavia. Did not Lon-don have an accord with Moscow for a joint policyin Yugoslavia and had not the Soviet Governmentbroken its pledge by sending troops there withoutconsulting its partner? The landing of the Britishdetachments on the Dalmatian shores was an-nounced to the world in November as designed tohelp the partisans clear their country of the enemy.But Tito's men gave the advance British landingparty a most unexpected reception. The Britishtroops were disarmed and threatened with intern-ment. Confronted with the problem of fighting hisway into the country, the British commander askedLondon for instructions and received orders to with-draw. The disarmed British units were allowed toreembark and sail away with the rest of the expedi-tion from the shores of the land which they hadhelped to "liberate."

NINTHMarshal Tito now found his Premier Subasitch so

tractable that the latter was soon on the way toMoscow, where he was received openly with greatwarmth. In Moscow, the Yugoslav Premier keptcompletely away from the American and Britishembassies. London recognized that its former pro-tege was now an interloper in Stalin's camp, but itwas anxious for some face-saving formula. Churchillsent a personal message to Stalin requesting thatany agreement reached in the Kremlin between Titoand Subasitch be withheld from publication until thereturn of Subasitch to London where it could bereleased simultaneously with Moscow in accordancewith their understanding on joint policy. Two dayslater Moscow alone announced officially MarshalStalin's approval of an accord between Tito and Su-basitch, making Tito the premier of a "democratic"Yugoslav federation and Subasitch one of its minis-ters. At this time Stalin also took the occasion tomake a startling public declaration to a delegationof pro-Soviet Poles. Beholding the framework ofthe grand edifice he was building with the help ofthe Slavs scattered from the Vistula to the shoresof Trieste, Stalin proclaimed:


"The alliance of the Slav peoples is not the tacticsof a great sovereign Pan-Slavonia. It is the union ojthe various Slav nations. The Soviet Union standsguard over such a union."

TENTHNow that the lines of the new Soviet empire in

middle Europe over which Stalin had declared him-self guardian appeared in clear outline, the strategicrelationship of Greece to it became self-evident froma glance at the map. The "sphere of influence" whichStalin demands is a wide belt running from theBaltic, between Stettin and Riga southward, andtapering down to the Mediterranean in the formof Greece, which strategically dominates the ingressto both the Aegean and the Adriatic. In this situa-tion, with Stalin's known impatience to secure hiswar booty before the general peace settlement, itwas to be expected that Greece would become thefirst theater of open civil war in liberated Europe.Moscow kept officially aloof from the developmentsin Greece. As far as the world was concerned, theGreek resistance movement simply "took mattersinto its own hands." In his speech before Parlia-ment, Churchill suggested "a well-organized plot"on the part of the Communist-led ELAS "to marchdown to Athens and seize it by armed force." Whatwould prevent a Communist-controlled Greece fromrepeating Tito's experiment for joining hands withthe Soviet Union? So far as Churchill could see,

there was no choice for Britain but to use force toprevent the rounding out of Stalin's great dominionthrough an eventual union with Greece in the heartof the Mediterranean.

Churchill's Terrifying VisionThe fruits of Teheran are far from full ripening.

But already the blackout of news has engulfed allcountries "liberated" or occupied by the Sovietforces. From Finland and the Baltic nations to Ru-mania and Hungary, a great part of Europe hasalready been placed outside the pale of Westerncivilization. Already the coming balkanization ofGermany as a base for its future "national libera-tion" by Moscow is indicated for those who can readthe handwriting on the wall. Already the lines areformed across Western Europe for a full-scale civilwar to follow the present conflict. And there is noindication that Stalin has forgotten or renouncedLenin's dictum to turn the imperialist war into acivil war. Of this impending cataclysm Churchillimparted a terrifying vision in these words on De-cember 15:

"Another great war, especially an ideological war,fought as it would be not only on frontiers but inthe heart of every land with weapons far more de-structive than men have yet wielded, will spell doomperhaps for many centuries of such civilization aswe have been able to erect since history began tobe written."

A Critical Report on Bretton WoodsBy the Research Staff of the United States Senate Minority

FROM its own experts, the Conference of theMinority of the United States Senate has re-

ceived a report on the international monetary agree-ments signed at Bretton Woods. Beyond its meritsas a peace of analytical criticism, the report is im-portant in another way—that is, it may be expectedto influence the attitude that will be adopted by astrong minority of the Senate when the agreementsare presented to Congress for approval.

The conclusion is that the proposed InternationalMonetary Fund, commonly referred to as the sta-bilization fund, should be rejected as a whole, onthe ground, mainly, that it aims at "something veryclose to international lending by a monetary infla-tion device," and that it "would put the UnitedStates at a disadvantage on occasion after occasion."

The International Bank for Reconversion andDevelopment, on the other hand, is said to be asound idea and should be approved, provided itsstructure is simplified, and provided further thatits world shall be more definitely defined and lim-

ited, "so as to preserve the field where private inter-national investment can function better than gov-ernment agencies can."

The report concerns itself primarily with the In-ternational Monetary Fund, calling it simply theFund, with a capital F. It says:

"The Fund consists of gold and national currencies,but may also include member securities, nonnegotiable,noninterest-bearing, and payable on demand. Memberscontribute only 25% gold, or 10% of their net goldholdings and United States dollars, whichever is smaller;but even this provision may be waived in favor of cur-rencies or securities. These provisions, combined withthose which allow a member to borrow other currenciesat least as high as 200% of its quota (100% overquotas is1 the effective amount), mean that the amountof gold is likely to be very small compared to thevolume of member paper.

"The size of the quota not only determines what anation puts into the Fund, but, more important, whatit may take out in the form of international purchas-ing power. Members have the right to purchase (bor-


row) other currencies with their own. This makes theFund a lending agency with considerable possibilitiesof expansion."

This explains, of course, why at Bretton Woodsevery nation, the United States alone excepted, wasanxious to get the highest possible quota. The highera nation's quota, the more it could borrow.

And what would be the position of the UnitedStates in these circumstances? The report continues:

"The United States would take very little out ofthe Fund simply because there would be no occasionfor it. The United States has large gold stocks; it wouldhave a large export volume. These, and other items inthe United States balance, would enable the UnitedStates to pay for all its own imports and other needswithout recourse to the Fund.

"The effect is to make the United States an interna-tional lender through the Fund to the extent of itsquota and beyond its quota in some cases. What ismore, by the mechanics of the plan, the United Statesagrees in advance to lend to forty or more countriesa fixed amount of dollars with precarious possibilities ofrepayment. . . .

"Two explanations are most frequently given inanswer to this feature of the plan. One is that the planis intended to add a new means of international pay-ment to the stock of gold and to all normally accept-able means of payment. An important feature of theplan is its expansionist provisions, which are held to benecessary if economic progress (capacity production, fullemployment and increased foreign trade) is to be made.In other words, this is the thesis that if the UnitedStates wishes to have prosperity at home, it must beprepared to lend abroad, or to open its doors to muchlarger imports. The second explanation is that loans todebtor countries are intended to be temporary."

Creating Purchasing PowerThe chief feature of the Fund, says the report,

appears to be its provisions for making interna-tional purchasing power available to the members.For example:

"When countries run low in their balances of pay-ments (owe on balance more than they have avail-able credits to discharge) or find themselves in ex-change difficulties, they may purchase (in effectborrow) the currency of any other nation with theirown currency or securities.

"Does this power to borrow, together with discretionin the Fund under Article V, Section 4, to waive bor-rowing limits, give a debtor country unlimited credit?Can a member, as has been charged, just put in enoughgold to cover service charges, and then extend its debitsindefinitely?"

Certain limitations are imposed; but, says thereport:

"How effective these provisions will be depends toa large extent on the amount of gold and convertibleforeign currencies a heavy debtor to the Fund may ac-quire in transactions outside the Fund. But how, if the

Fund is to correct a debit position of a country arisingfrom that country's transactions outside the Fund, canthat country have any credit resources with which toredeem its excess currencies in the Fund? This is notmade clear.

"It is the intention of the Fund, of course, not topermit debtor countries to borrow indefinitely; andcreditor countries will be persuaded to alter such eco-nomic conditions as may be responsible for the excessivedemand for their currencies."

The Guilty CreditorThe report unfortunately does not explain the

doctrine that underlies the clause last quoted—"creditor countries will be persuaded to alter sucheconomic conditions as may be responsible for theexcessive demand for their currencies." This is fromthe Keynesian thesis that creditor nations even morethan debtor nations are responsible for "interna-tional disequilibrium." If a creditor nation's cur-rency is scarce, that is the creditor nation'sfault as much as it is the fault of the debtor nation,and the creditor nation's responsibility is greaterbecause it can do something about it, whereas thedebtor is helpless.

What can the creditor nation do about it? Well,suppose this scarce currency is dollars—and thescarce currency will be dollars. Why will dollars bescarce? Only because other nations have boughtfrom the United States more than they could affordto buy or have borrowed from the United Statesmore than they can afford to repay. Dollars cannotbe scarce for any other reason.

And so then, what can the United States do aboutit, according to the Bretton-Woods plan? It cando one or all of these three things :

(1) it can increase its loans on more favorableterms to the debtor nations;

(2) it can buy more goods from the debtor na-tions; or

(3) as a last resort it can cheapen the dollar bydevaluation in order to make it easier for the debtorto pay.

And that is what is meant by the words, "to altersuch economic conditions as may be responsible forthe excessive demand for their currencies."

The United States MustThe power of the debtor country to borrow the

currency of a creditor nation to whom it owesmoney is the most controversial feature of the plan.

The report notes the principal objections andmarks the answers:

"Objection is made that this turns the Fund awayfrom its stabilizing function and makes it another lend-ing institution.

"In answer it is declared that the lending is tempor-ary only; that it is controlled; and that it is for stabil-izing purposes. Moreover, it is said that the United


States will give credit to importing countries anyway.If it does not, its export markets will be limited tothe value of its imports. Export industries will be dis-organized, commercial export houses will be affected,and the effort toward full employment at home will beendangered. Importing countries, on the other hand,will seek credits, or else will resort to internal deflation,currency depreciation, and trade controls. Such meas-ures will once more confuse and restrict foreign tradeto the disadvantage of all nations.

"The United States, runs another objection, will sup-ply gold, goods, and dollars, and in return accumulateirredeemable paper. This could happen to the extentof the United States quota obligations. In certain cir-cumstances the United States might provide creditsconsiderably beyond its quota.

"It is pointed out that the Fund increases the prob-ability that repayments of credit will be made be-cause the United States! has resort to a pool created bymany governments. The United States could increaseits imports from any part of the world and would nothave to look to one debtor country alone. To benefitby this, however, it would seem that the United Stateswould have to enter upon a very large import trade(and greatly increase its other debit items in the bal-ance) because its normal transactions furnish a heavycreditor balance wholly aside) from the Fund. In otherwords, the United States would have to increase itsimports sufficiently to offset its regular exports andits quota position in the Fund."

Dollars in the HatThe emphasis on the problem of "scarce cur-

rencies" is by no means an academic feature of theplan. The assumption underlying it throughout isthat dollars are going to be scarce because theUnited States will be the great surplus nation, withnearly every other nation in the world looking toit for goods and loans. The report reviews the pow-ers of the proposed International Monetary Fund todeal with this scarce currency situation, meaningspecifically a situation in which dollars are scarce,and asks:

"What position will the United States be in here?It is quite probable that shortly after the Fund is inoperation, United States currency will become a scarcecurrency. The reason is that the dollar will be oneof the principal means of international payment, owingto American resources and gold holdings. The largedemand for American goods will also work toward thedirect exhaustion of dollars in the Fund.

"In such circumstances, the United States would beunder several disadvantages. It might have to sellmore of its currency to the Fund for gold. This wouldchannel gold into the United States where it is notneeded or wanted while useful resources and producedgoods would continue to flow out of the country. Oth-erwise, the United States would have to accept restric-tions on trading in dollar exchange. This would sacrificeAmerican foreign markets, cut down the volume of for-eign trade, and result in unemployment in the exportindustries.

"In cases of scarce currency, the Fund has the power

to ration the supply. This may easily put it in thepower of an outside agency to decide what particularforeign markets the United States should have.

"To avoid such difficulties the United States mighteither have to sell dollars for gold without benefit asabove described or lend dollars to the Fund in hopesof working off the excess credits over longer periods oftime. If no methods were discovered for doing this,the United States would again be in the position of acreditor who cannot collect. This was the case withreparations, with American loans to Germany, withmany American loans to Latin America, and will be thereal effect with a great part of the lend-lease transac-tions."

Does Not StabilizePerhaps the most devastating criticism of all is

that the proposed $10 billion stabilization schemedoes not in fact guarantee stabilization. It regardswith horror the old evil of devaluing money as away to restore a temporary equilibrium of interna-tional exchange, and yet at the same time it pro-vides for changes to be made in the par value of adebtor nation's currency to correct a "fundamentaldisequilibrium." These provisions are restricted, itis true, and yet as the report says:

"There is enough in these provisions to give a mem-ber considerable leeway in setting its own exchangevalues on an arbitrary basis. When taken against thebackground of the plan as a whole, these provisions pointtoward periodic exchange depreciation. . . . What is. . . likely to happen is that the Fund will increasinglylose dollars and other strong currencies and acquireweak currencies. Its assets may progressively deterior-ate. Drastic controls may have to be set up in orderto appreciate the weak currencies. Failing that, theFund must then either accept the insolvency of itscollection of weak currencies, or permit periodic cur-rency depreciation. This would place the creditor coun-tries in the position of lenders who periodically permitpartial cancellation of the debt."

So What Is Foreign Trade?The answer to this, so far as it may be an answer,

is one that makes of international trade an irrationalnecessity, beyond any law of solvency. The reportquotes it thus:

"The chief counter-argument to this is that by sucha device creditors are able to keep export industriesflourishing as one means of maintaining full employ-ment at home. No export (creditor) country would per-sistently and frankly give away the goods producedby: its people; but it may be persuaded to do the samething if a psychologically acceptable mechanism like theFund is used for that purpose.""The only other solution for the United States,"

says the report, "is to increase greatly the distribu-tion of goods at home, among its own people, andthen work toward methods that will balance itsexportable surplus by imports or other credits bene-ficial to the American people."


Notes on the Foreign Trade ComplexPlanning Pamphlet No. 37, a Nostalgic Voice from the American Tariff League,

an Important Letter and Other Matter

WANTING wings with which to soar in the newatmospheres of expansionist policy, American

protectionism is nevertheless a doughty worm, withstill a lot of wiggle in it, witness the attack upon theNational Planning Association by the AmericanTariff League; witness also the fate of the Anglo-American Oil Treaty which was last seen among thepigeon-holed papers of the Foreign Relations Com-mittee of the Senate.

What brought the wrath of the American TariffLeague down upon the head of the National Plan-ning Association was Planning Pamphlet No. 37,entitled, "America's New Opportunities in WorldTrade." It begins with a restatement of the famousenigma that the American people are unable toconsume what they are able to produce. Therefore,in order to keep themselves fully employed theymust get wages from abroad, that is to say, theymust sell their surplus product to other countries.But since other countries are all relatively poor, thequestion arises: how shall they pay the high Ameri-can wages? With what will they buy the Americansurplus?

In answer to this the National Planning Associa-tion lays down the proposition that there is no limitto the continued expansion of American exportsprovided only that we put buying power in thehands of our foreign customers. It says: "The cruxof the United States foreign policy is this: how canother nations be provided with dollar exchange tobuy American goods and to pay for American capi-tal invested abroad?" It adds: "The problem isone of tremendous scale. It is unprecedented in thehistory of the world."

How to Provide DollarsIn only two ways is it possible to provide our cus-

tomers with buying power. The first is to lend themthe money. Therefore, the National Planning Asso-ciation, to begin with, proposes very large invest-ments abroad—somewhat of the order of $10 billiona year in the first postwar decade. Clearly, however,we cannot go on forever simply lending our cus-tomers the money with which to buy Americangoods. A time comes when they must pay. Whatwill they pay with?

You come then to the second and only other wayin which it will be possible to provide the foreigncustomer with buying power. We must buy theirgoods with dollars, thereby creating "dollar ex-change," and this is necessary because they must have

dollars with which to go on buying American goods.We must enormously increase our imports, eventhough we may not actually need the foreign goods,because unless we increase our imports, (1) ourforeign customers cannot pay us for the goods theyhave already bought; (2) they cannot continue tobuy; and (3) we cannot continue to increase theexport of that surplus which we have to sell.

The National Planning Association says: "Wemust deliberately and systematically increase ourimports of foreign products over and above thosewhich have been customary, and above the mini-mum required for the operation of the nationaleconomy."

Barriers, Lie Down!These imports cannot be lifted over a high tariff

wall because that would make it too difficult for theforeigner to pay. It would make his dollars too dear.Therefore, we must systematically reduce our tariffbarriers. As we do this some of our own industriesmay be destroyed and some of our own labor maybe hurt. That is admitted. Nevertheless, the in-dustries that are destroyed will be the least profit-able industries; the labor that will be hurt will below-wage labor, and it will be forced upward intobetter employment with the more efficient high-wage industries.

The National Planning Association says: "Tariffreductions would expand the nation's over-all em-ployment and business and volume, and would setup pressures to transfer the productive facilities ofsubstandard industries to more profitable uses.Reductions would mean some adjustments in theproductive structure, but would create additionalbusiness and employment opportunities."

So, having as a temporary solution loaned ourforeign customers the money with which to buythe surplus we are able to produce but cannot con-sume, a time comes when: "If we wish to be paidfor our exports and for the capital we have lent andwill lend, we must plan to import in a volume greaterthan our exports, so as to create a margin—animport surplus—out of which interest, dividends andamortization on foreign loans and investments canbe paid to us."

Thus, ultimately, the problem of our export sur-plus is solved by an import surplus.

The old protectionist boggles at this logic. He hasnot that kind of imagination. A long habit of balanc-ing foreign trade with red and black ink in a book


of profit and loss—and a cross mark against baddebtors—disinclines him to think of it as a businessin which the creditor country becomes responsiblefor the debtor country and the debtor country is re-sponsible to nobody. If the debtor country doesn'tpay back the money it has borrowed, or pay for thegoods it has bought, that is the creditor's fault be-cause the creditor hereafter must see to it that thedebtor has means of payment.

The Keynes DoctrineThis is the new doctrine. The National Planning

Association did not invent it. Lord Keynes, theBritish logician of debtor economics, invented it inbehalf of debtor nations; but the National PlanningAssociation states it perfectly as follows:

"In the past it was usually assumed that borrowingcountries should be solely responsible for their externaldebt and service obligations, and that failure to meetsuch obligations meant either bad faith or that theborrowing country had not 'set its house in order.'Policies traditionally prescribed for a debtor country'sforeign exchange troubles stressed deflation, interestrise and wage reduction, and the forcing of exports—regardless of the state of the world markets into whichthey were thrown. Experience has repeatedly demon-strated that the chief result of such measures is furtherslackening of productive activity at home and deepertrade depression abroad. In actual fact, the solutionof repayment problems between nations acting in goodfaith is primarily the responsibility of the industrialand creditor nations, because they alone can controlthe dynamic and income-releasing elements of worldeconomy which will affect the debtor's ability to pay."

By the American Tariff LeagueThe retort general from the American Tariff

League is by Frederick W. Barbour, its presidentwho also has the distinction of being an industrialist.He says:

"Industrialists, confronted with the task of meetinga payroll, will certainly challenge some of the con-clusions reached by the National Planning Association.These industrialists also are indignant that men whohave no right or competence to speak for industry at-tempt to do so nevertheless.

"The association's spokesmen believe, apparently, thatAmerican industry no longer needs the tariff protectionunder which it grew great. . . . It is not true thatunit production costs are generally lower in Americathan abroad. Lines in which they are lower here arethe exception, not the rule. American producers havebeen confronted, and will continue to be confronted,with a marked increase in production costs. This is notapparent now, but will become apparent after the war.

"The statement is made that United States tariffsare among the highest in the world. This is a myththat has been given wide currency as part of the wide-spread campaign for further reduction of tariffs—UnitedStates tariffs.

"As a matter of fact, our tariffs, far from being high,

are among the lowest of those of the great tradingnations. The United States, a recent survey disclosed,ranked seventh from the bottom among the nineteennations in relative tariff height. We were, in fact,surpassed also by Germany, Spain, Argentina, Mexico,Turkey, Great Britain, Switzerland, Italy, Greece, Hun-gary, Egypt and Brazil.

"As long as differences in production costs betweenthe United States and other nations continue to exist,there will be a need for some such equalizing deviceas the tariff. . . .

"The association sees a traditional fear of imports asthe 'stumbling block' to expanding foreign trade. Thisis sheer nonsense. There is no traditional fear of im-ports in this country. With the exception of GreatBritain, which lives by its trade and must import mostof its ordinary wants, the United States has the largestimport trade in the world.

"It is a fact that—yesterday, today, and for manytomorrows—the world is indeed one. I do not thinkanyone will deny that the United States must put itsshoulder to the wheel as a most influential member inthe community of nations. The extent of our cooper-ation in international economic affairs however will de-pend upon the maintenance of a sound and prosperousinternal economy. The keystone of a sound domesticeconomy is jobs. We cannot afford to sacrifice a singleindustry which will help provide jobs.

"If we permit low-wage imports to displace American-made goods here at home, we are in fact sacrificing jobs.We are transferring work to other countries."

The RebusAny exchange of wealth involves both purchase

and sale, and this is true whether it be an exchangeof goods for goods, money for goods or goods formoney. When you buy goods with money you maysay also that you are selling money, and the otherparty to the transaction may say either that he isselling goods for money or buying money with goods.It may seem therefore absurd to argue whether onebuys in order to sell or sells in order to buy. Never-theless that argument does take place, with a curi-ous transposition of emphasis. For example, it iscontinually affirmed as a thing difficult to compre-hend that the United States must buy in order tosell—that is, it must enormously increase its importsin order to increase its exports. But in Great Britainthe statement is reversed. The British must sell inorder to buy—that is to say, they must increasetheir exports in order to increase their imports.

The proper thing to do with this rebus is to lookat it upside down. If you do not find the facein the foliage of the tree, no matter. It isn't there.Whether they know it or not, those who put wordsin that rotary motion are really talking about some-thing else—not about foreign trade as a free ex-change of wealth based upon a voluntary divisionof international labor, but about political alloca-tions of foreign trade and priorities of advantage init according to ideas of national economic necessity.


Recently The New York Times printed an edi-torial on "The Importance of Imports," in which itsaid that "the basic advantage of our foreign tradeconsists in our imports rather than exports." Thiscalled forth a letter to the editor from Michael A.Heilperin, Associate Professor of Economics at Ham-ilton College, which is well worth quoting. ProfessorHeilperin said:

"The phrase that appears several times, parentheti-cally, in your editorial—namely, 'from the standpointof the nation as a whole'—has a very great significancefrom the point of view of your argument. It is quitetrue that, in national terms, imports are the essentialthing and exports are the quid fro quo with which theseimports are paid off.

"This broad generalization might, however, be mis-leading and even dangerous were we to lose sight of twoconsiderations: one, that in our economic and socialsystem imports and exports both are carried out by in-dividual traders, each pursuing the most advantageousline of business; second, that in a system in whichthere is an international division of labor the productivecapacity of a country specializing in certain productsbecomes geared to the world market rather than to thenational market alone.

"It follows that for the individual enterprise the ex-port market represents as much of an outlet as thedomestic market; an expansion of both of them assuresa more profitable business and, incidentally, lower costsand a lower price to the consumer. It further followsthat under a system of expanding international trade andof regional specialization the quest for a world marketis not merely a matter of 'disposing of surpluses' butis as much a problem of market capacity as that whichwe encounter when selling in the domestic marketproducts which do not enter international trade at all.

"Exports are necessary for the national welfare when-ever they allow the reduction of costs incident to large-scale organization of production. The maintenance ofexports is necessary to prevent the collapse of a marketneeded to keep a profitable industry in operation. Asa nation, it may be said that we export in order to payfor our imports; individually, we export as a part of abusiness program aiming at greater efficiency and higherprofits and, at the same time, assuring a gradual re-duction of cost to the consumer.

"It is certainly very useful to look, from time to time,at economic problems from a national rather thanfrom an individual point of view. That approach, how-ever, should always be combined with an individualisticone if we are to avoid undesirable overstatements. Itis only in a totalitarian economy that the whole busi-ness is conducted as if the nation were one big corpo-ration and in which the principal criterion of worth-whileness is the decision that happens to be taken bythose in charge of the affairs of the 'Nation, Inc.*

"In a free-enterprise economy national economic bal-ance remains an important consideration; each indi-vidual enterprise, however, must be conducted with aview to securing a black-ink entry at the end of theprofit-and-loss account. And in many branches of pro-duction it is the availability of export markets whichdecides whether the ink used will be black or red."

—A. M. P.

Farmers and Bankers inthe Same Boat

By W. Randolph Burgess

Vice Chairman of the National City Bank of New York

THE postwar problems will be complex. We arealready committed in advance to many con-

trols. Certain of the inflation price controls, andcertain types of rationing, will continue at least fora time. National and international controls over theprices and production of some basic commodities areplanned. We are pretty well committed to the con-trol of interest rates at low levels. Rises in interestrates used to be one of the natural checks to over-expansion of credit. If rates are fixed by govern-ment, and that seems hard to avoid in view of thesize of the debt, there are likely to be other con-trols such as the continuance of control over con-sumer credit, and over security and other loans.We shall thus have increased regimentation of credit.

Thus the fundamental problem which both farmerand banker face in the postwar period is the kindof government and country we want. The dangeris that both farmers and bankers unconsciously andby the force of circumstances will be influenced toaccept the kind of government we don't really want.

The banker is already to a considerable extent inthe hands of the government. More than half of hisassets are in government securities. Other assets areguaranteed by the government such as are V andVT loans, CCC loans, and FHA mortgages. Ourdeposits are guaranteed by a government insurancecorporation. Still more proposals are before us for aguarantee of commercial loans and for a guaranteeof veterans' loans.

These forms of guaranteed credit are attractivebecause they remove the risk from banking and itwould be easy for each of us to sit back and becomea kind of glorified slot machine. This is well on theroad to socialized credit. It moves in the oppositedirection from democracy and enterprise. It is akind of opiate that dulls initiative.

The farmer is in exactly the same fix. Guaranteedfarm prices inevitably mean government controlover production. If the government is to guaranteethe price, it will tell the farmer what and how muchhe may plant and how much he may harvest. Sincethis price and production will be determined bypolitical rather than economic reasons, the long-termresults are usually unfortunate. I call to witnesssimply the loss of a large part of America's marketsfor export cotton.

So today the farmer is moving rapidly away fromprivate enterprise into a controlled economy. Farmerand banker are in the same boat. What are we go-ing to do about it?


Boohs

The World That MightHave Been

LUDWIG VON MISES writes tragedy in the lan-4 guage of political economy. There is in man

the very principle of frustration. Once, and perhapsfor the first time, he did find the right way. Begin-ning with the optimistic social philosophy ofeighteenth century liberalism he discovered thesolutions of the free market, free competition, freeprivate enterprise—that is to say, capitalism—andhow at the same time to put government in its place.After that he had only to go in a straight line towarda world of peace and unlimited plenty. For a whilehe did go in a straight line and there was the nine-teenth century, in which political freedom and ma-terial well-being advanced together, inseparably andwonderfully. But the government, which he hadput in its place, began to overtake him, offering todo him good and to help him on his way. Littleby little he accepted its friendly offices, thinking ashe did so that government was something he im-posed upon himself and therefore controlled, whereashe was to learn all over again that government is anatural and living thing, like an organism, withpowers of self-extension. Offering only to help himon his way to a new free world of unlimited well-being it was really all the time hostile to anythinghe was doing for himself, because the more success-fully he managed his own affairs, especially his eco-nomic affairs, the worse it was for the prestige ofgovernment. Von Mises says:

"Governments have always looked askance at privateproperty. Governments are never liberal from inclina-tion. It is in the nature of the men handling the ap-paratus of compulsion and coercion to overrate its powerto work, and to strive at subduing all spheres of humanlife to its immediate influence. Etatism is the occupa-tional disease of rulers, warriors, and civil servants.Governments become liberal only when forced to by thecitizens. From time immemorial governments have beeneager to interfere with the working of the market mech-anism. Their endeavors have never attained the endssought."The beginning of modern evil was when govern-

ments began again to intervene in the economicsphere. Every act of intervention turned man fromhis true purpose, and von Mises explains why:

"Prices, wages, and interest rates are the result ofthe interplay of demand and supply. There are forcesoperating in the market which tend to restore this—natural—state if it is disturbed. Government decrees,instead of achieving the particular ends they seek, tendonly to derange the working of the market and imperilthe satisfaction of the needs of the consumers.

"In defiance of economic science the very popular doc-

trine of modern interventionism asserts that there is asystem of economic cooperation, feasible as a permanentform of economic organization, which is neither capital-ism nor socialism. This third system is conceived as anorder based on private ownership of the means of pro-duction in which, however, the government intervenes,by orders and prohibitions, in the exercise of ownershiprights. It is claimed that this system of interventionismis as far from socialism as it is from capitalism; that itoffers a third solution of the problem of social organ-ization; that it stands midway between socialism andcapitalism; and that while retaining the advantages ofboth it escapes the disadvantages inherent in each ofthem. Such are the pretensions of interventionism asadvocated by the older German school of etatism, bythe American Institutionalists, and by many groups inother countries. Interventionism is practiced—exceptfor socialist countries like Russia and Nazi Germany—by every contemporary government. The outstandingexamples of interventionist policies are the Sozialpolitikof imperial Germany and the New Deal policy of pres-ent-day America.

But the tragedy was that when the government'sintervention in the modern case had gone rather farman embraced it, and there arose in the world thegreat cult of what von Mises calls etatism, a wordhe prefers over statism, both meaning simply the all-powerful and worshipful state. He says:

"A new type of superstition has got hold of people'sminds, the worship of the state. People demand theexercise of the methods of coercion and compulsion, ofviolence and threat. Woe to anybody who does notbend his knee to the fashionable idols!

"The case is obvious with present-day Russia andGermany. One cannot dispose of this fact by callingthe Russians and the Germans barbarians and sayingthat such things cannot and will not happen with themore civilized nations of the West. There are only afew friends of tolerance left in the West. The partiesof the Left and of the Right are everywhere highlysuspicious of freedom of thought. It is very character-istic that in these years of the desperate struggleagainst the Nazi aggression a distinguished British pro-Soviet author has the boldness to champion the causeof inquisition. 'Inquisition,' says T. G. Crowther, 'isbeneficial to science when it protects a rising class.' For'the danger or value of an inquisition depends on wheth-er it is used on behalf of a reactionary or a progressivegoverning class.' But who is 'progressive,' and who is'reactionary'? There is a remarkable difference withregard to this issue between Harold Laski and AlfredRosenberg.

"It is true that outside of Russia and Germany dis-senters do not yet risk the firing squad or slow deathin a concentration camp. But few are any longer readyto pay serious attention to dissenting views. If a mantries to question the doctrines of etatism or national-ism, hardly anyone ventures to weigh his arguments.The heretic is ridiculed, called names, ignored. It hascome to be regarded as insolent or outrageous to criti-cize the views of powerful pressure groups or politicalparties, or to doubt the beneficial effects of state om-nipotence. Public opinion has espoused a set of dogmas


which there is less and less freedom to attack. In thename of progress and freedom both progress and free-dom are being outlawed."

He agrees with Hayek when he says: "While fight-ing the German aggressors, Great Britain and theUnited States are, step by step, adopting the Ger-man pattern of socialism."

Such is the theme of ^"Omnipotent Government."Since the eclipse of the classical economists nowriter has more powerfully or with fewer misgivingsdefended free private capitalism, not only as the sys-tem that works and contains within itself themechanisms of self-correction, but as a social philos-ophy. He says:

"The essential teaching of liberalism is that socialcooperation and the division of labor can be achievedonly in a system of private ownership of the means ofproduction, i. e., within a market society, or capitalism.All the other principles of liberalism—democracy, per-sonal freedom of the individual, freedom of speech andof the press, religious tolerance, peace among the na-tions—are consequences of this basic postulate. Theycan be realized only within a society based on privateproperty."

And this involves also the fate of peace, for, as hesays: "The fateful error that frustrated all the en-deavors to safeguard peace was precisely that peopledid not grasp the fact that only within a world ofpure, perfect, and unhampered capitalism are thereno incentives for aggression and conquest."

Some of the notable passages in the book areanalytical, touching the technics and consequencesof the government's intervention in the economicaffair, as, for example, when it fixes a price ceiling formilk with the laudable purpose of making it possiblefor the poor to buy more milk for their children. Whathappens? First, the marginal or high-cost producersof milk stop producing it, so there is less for every-body. To cure this situation the government mustfix the price of all the factors necessary to producemilk. But at those prices other people stop produc-ing the factors that are necessary to the productionof milk. They begin to go out of business becausethere is no profit in it. Whereupon, the government,to cure that further situation, must go on "to fixprices for the factors of production necessary for theproduction of those factors of production which areneeded for the production of milk,"— and so on andon back, from the cost of everything the milk farmeruses to the cost of everything it takes to make whathe uses and the cost of everything it takes to makeeverything it takes to make what the milk farmeruses, even to his suspenders.

In his analysis of unemployment he regards unionsas a vital part of the state apparatus of compulsionand coercion:

""'Omnipotent Government" by Ludwig von Mises. YaleUniversity Press.

"The labor unions succeed in forcing the entrepren-eurs to grant higher wages. But the result of their en-deavors is not what people usually ascribe to them.The artificially elevated wage rates cause permanent un-employment of a considerable part of the potentiallabor force. At these higher rates the marginal em-ployments for labor are no longer profitable. The en-trepreneurs are forced to restrict output, and the de-mand on the labor market drops. The unions seldombother about this inevitable result of their activities;they are not concerned with the fate of those who arenot members of their brotherhood.

"These dismal effects of minimum wages have be-come more and more apparent the more trade union-ism has prevailed. As long as only one part of labor,mostly skilled workers, was unionized, the wage riseachieved by the unions did not lead to unemploymentbut to an increased supply of labor in those branchesof business where there were no efficient unions or nounions at all. The workers who lost their jobs as aconsequence of union policy entered the market of thefree branches and caused wages to drop in thosebranches. The corollary of the rise in wages for organ-ized workers was a drop in wages for unorganizedworkers. But with the spread of unionism conditionshave changed. Workers now losing their jobs in onebranch of industry find it harder to get employment inother lines. They are victimized."

So one may come to the end of the book, or toalmost the end, with a sense of nostalgia for theoptimism of the eighteenth century liberals and acertain hopefulness. If it was once there it mustbe there still—the right way to a free world of rela-tive peace and yet greater well-being. But, alas!his conclusion is that the old liberals were after allwrong. Their economic theories were right, almosttoo right, but they believed in the perfectability ofman; they believed mankind "was on the eve oflasting prosperity and eternal peace" and that rea-son would henceforth be supreme. Therein theywere tragically wrong. They left out of considera-tion the principle of frustration. He says:

"The realization of the liberal plan is impossible be-cause—at least for our time—people lack the mentalability to absorb the principles of sound economics. Mostmen are too dull to follow complicated chains of reason-ing. Liberalism failed because the intellectual capacitiesof the immense majority were insufficient for the task ofcomprehension. It is hopeless to expect a change inthe near future."

The last words are:

"The prosperity of the last centuries was conditionedby the steady and rapid progress of capital accumula-tion. Many countries of Europe are already on theway back to capital consumption and capital erosion.Other countries will follow. Disintegration and pau-perization will result. Since the decline of the RomanEmpire the West has not experienced the consequencesof a regression in the division of labor or of a reduc-tion of capital available. All our imagination is unequalto the task of picturing things to come."


Such a book could not have had a happy ending.After "Omnipotent Government" von Mises

brought out ^""Bureaucracy," a smaller book with akind of missile power. Bureaucracy is not in itselfthe evil. You cannot have government at all with-out it. Only the intent matters. I t is puerile, there-fore, for people as individuals to complain of it be-cause it happens to touch them in a disagreeableway while at the same time, by groups and classes,they support the doctrine of intervention by govern-ment when they happen to be the beneficiaries. Whoafter all is to blame? He answers that questionironically:

"It is a fact that the policy of the New Deal hasbeen supported by the voters. Nor is there any doubtthat this policy will be entirely abandoned if the voterswithdraw their favor from it. The United States is stilla democracy. The Constitution is still intact. Elec-tions are still free. The voters do not cast their bal-lot under duress. It is therefore not correct to say thatthe bureaucratic system carried its victory by uncon-stitutional and undemocratic methods. The lawyers maybe right in questioning legality of some minor points.But as a whole the New Deal was backed by Con-gress. Congress made the laws and appropriated themoney.

Once intervention by government in the economicsphere begins the parliamentary principle must de-cline, for the obvious reason that:

"Parliamentary procedures are an adequate methodfor dealing with the framing of laws needed by a com-munity based on private ownership of the means ofproduction, free enterprise, and consumers' sovereignty.They are essentially inappropriate for the conduct ofaffairs under government omnipotence. The makers ofthe Constitution never dreamed of a system of gov-ernment under which the authorities would have todetermine the prices of pepper and of oranges, of pho-tographic cameras and of razor blades, of neckties andof paper napkins. But if such a contingency had oc-curred to them, they surely would have considered asinsignificant the question whether such regulationsshould be issued by Congress or by a bureaucraticagency. They would have easily understood that gov-ernment control of business is ultimately incompatiblewith any form of constitutional and democratic gov-ernment."

It is true that bureaucrats are free to decide ques-tions of vital importance in the individual's life; itis true that the unelected bureaucrats are no longer"the servants of the citizenry but irresponsible andarbitrary masters"; it is true, furthermore, that"bureaucracy is imbued with an implacable hatredof business and free enterprise." But none of this isthe fault of bureaucracy primarily. It is the outcomeof "that system of government which restricts theindividual's freedom to manage his own affairs andassigns more and more tasks to the government."Bureaucracy, therefore, is not itself the disease. It

*"Bureaucracy" by Ludwig von Mises. Yale UniversityPress.

is a cancerous phenomenon and betokens the factthat one kind of tissue has got out of control and isgrowing wild at the expense of other tissue. VonMises says:

"The main issue in present-day political struggles iswhether society should be organized on the basis ofprivate ownership of the means of production (capi-talism, the market system) or on the basis of publiccontrol of the means of production (socialism, com-munism, planned economy). Capitalism means free en-terprise, sovereignty of the consumers in economic mat-ters, and sovereignty of the voters in political matters.Socialism means full government control of every sphereof the individual's life and the unrestricted supremacyof the government in its capacity as central board ofproduction management. There is no compromise pos-sible between these two systems. Contrary to a popularfallacy there is no middle way, no third system pos-sible as a pattern of a permanent social order. Thecitizens must choose between capitalism and socialismor, as many Americans say, between the American andthe Russian way of life."

When he comes to the remedy his pessimism re-appears. Against those who now call themselvesliberals and are resolved nevertheless to abolish lib-erty, against those who call themselves democratsand yearn for dictatorship, against those who callthemselves revolutionaries and want to make gov-ernment omnipotent—against all of these there isbut one weapon, and the name of it is reason. Buthow can it be supposed that by reason alone mancan cure in himself this political disease when byreason alone he was unable to prevent it?

Apothegms from"The Road to Serfdom"The Book of that Title, by F. A. Hayek, Was

Reviewed in the Autumn Number.

IT IS one of the saddest spectacles of our time tosee a great democratic movement support a pol-

icy which must lead to the destruction of democ-racy and which meanwhile can benefit only a minor-ity of the masses who support it. . . . The laborleaders who now proclaim so loudly that they have"done once and for all with the mad competitivesystem" are proclaiming the doom of the freedomof the individual.

* *The "substitution of political for economic power,"

now so often demanded, means necessarily the sub-stitution of power from which there is no escapefor a power which is always limited. What is calledeconomic power, while it can be an instrument ofcoercion, is in the hands of private individuals neverexclusive or complete power, never power over thewhole life of a person. But centralized as an instru-


ment of political power it creates a degree of depend-ence scarcely distinguishable from slavery.

* *It may sound noble to say, damn economics, let us

built up a decent world—but it is in fact merelyirresponsible. Our only chance of building a decentworld is that we can continue to improve the generallevel of wealth.

** *

Because in modern society it is through the limita-tions of our money incomes that we are made to feelthe limitations which our relative poverty still im-poses upon us, many have come to hate money asthe symbol of these restrictions. It would be muchtruer to say that money is one of the greatest instru-ments of freedom ever invented by man.

• * *

It is not any contempt for material welfare oreven any diminished desire for it, but on the con-trary, a refusal to recognize any obstacle, any con-flict with other aims which might impede the fulfil-ment of their own desires, which distinguishes ourgeneration.

** *

While to the great individualist social philosophersof the nineteenth century . . . power itself has al-ways appeared the arch-evil, to the strict collectivistit is a goal in itself. It is not only . . . that thedesire to organize social life according to a unitaryplan itself springs largely from a desire for power. Itis even more the outcome of the fact that in orderto achieve their end, collectivists must create power—power over men, wielded by other men—of a mag-nitude never before known, and that their successwill depend on the extent to which they achieve suchpower.

•X-

* *

The myth is deliberately cultivated that we areembarking on the new course not out of free will, butbecause competition is spontaneously eliminated bytechnological changes which we neither can reversenor should wish to prevent.

* *The intellectual history of the last sixty or eighty

years is indeed a perfect illustration of the truth thatin social evolution nothing is inevitable but thinkingmakes it so. * *

*That democratic socialism, the great Utopia of the

last few generations, is not only unachievable, butthat to strive for it produces something so utterlydifferent that few of those who now wish it would beprepared to meet the consequences, many will notbelieve till the connection has been laid bare in allits aspects. * *

We shall not rebuild civilization on the large scale.It is no accident that on the whole there was more

beauty and decency to be found in the life of thesmall peoples, and that among the large ones therewas more happiness and content in proportion asthey had avoided the deadly blight of centralization.

* *If all rewards, instead of being offered in money,

were offered in the form of public distinctions orprivileges, positions of power over other men, orbetter housing or better food, opportunities of travelor education, this would merely mean that the recip-ient would no longer be allowed to choose, and thatwhoever fixed the reward determined not only itssize, but also the particular form in which it shouldbe enjoyed.

The argument for freedom is precisely that weought to leave room for the unforeseeable freegrowth.

* *Socialism began increasingly to make use of the

promise of "a new freedom." . . . The subtle changein meaning to which the word freedom was subjectedin order that this argument should sound plausibleis important. . . . The demand for the new freedomwas only another name for the old demand for anequal distribution of wealth.

* *We have progressively abandoned that freedom

in economic affairs without which personal and po-litical freedom has never existed in the past.

* *Wherever liberty as we understand it has been

destroyed, this has almost always been done in thename of some new freedom promised to the people.

** *

Are not the things which we are more and morefrequently taught to regard as "nineteenth centuryillusions" all moral values—liberty and indepen-dence, truth and intellectual honesty, peace and de-mocracy, and the respect for the individual man,instead of merely as the member of an organizedgroup?

•X-

* *

The welfare of a people, like the happiness of aman, depends on a great many things that can beprovided in an infinite variety of combinations. Itcannot be adequately expressed as a single end, butonly as a hierarchy of ends, a comprehensive scaleof values in which every need of every person isgiven place.

** *

The principle that the end justifies the means isin individual ethics regarded as the denial of allmorals. In collective ethics it becomes necessarilythe supreme rule; there is literally nothing whichthe consistent collectivist must not be prepared todo if it serves "the good of the whole."


The great opportunity we shall have at the endof the war is that the great victorious powers, bythemselves first submitting to a system of ruleswhich they have the power to enforce, may at thesame time acquire the moral right to impose thesame rules upon others.

* *Though we neither can wish, nor possess the

power, to go back to the reality of the nineteenthcentury, we have the opportunity to realize its ideals—and they were not mean.

* *Sometimes, it seems, the very fact that those vio-

lent instincts which the individual knows he mustcurb within the group can be given free range in thecollective action toward an outsider becomes a fur-ther inducement for merging personality in that ofthe group.

*Nothing distinguishes more clearly conditions in a

free country from those in a country under arbitrarygovernment than the observance in the former of thegreat principles known as the Rule of Law.

* *As planning becomes more and more extensive, it

becomes regularly necessary to qualify legal provi-sions increasingly by reference to what is "fair" or"reasonable." This means that it becomes necessaryto leave the decision of the concrete case more andmore to the discretion of the judge or the authorityin question.

* *The passion for the "collective satisfaction of our

needs," with which our socialists have so well pre-pared the way for totalitarianism, and which wantsus to take our pleasures as well as our necessities atthe appointed time and in the prescribed form, is,of course, partly intended as a means of politicaleducation. But it is also the result of the exigenciesof planning, which consists essentially in deprivingus of choice, in order to give us what fits best intothe plan, and that at a time determined by the plan.

* *The close interdependence of all economic phe-

nomena makes it difficult to stop planning just wherewe wish, and once the free working of the mar-ket is impeded beyond a certain degree, the plannerwill be forced to extent his controls till they becomeall-comprehensive.

* *Planning and competition can be combined only

by planning for competition, but not by planningagainst competition.

** *

On the questions which an international planningauthority would have to decide, the interests andopinions of the working classes of the different peo-

ples would inevitably be as much in conflict, andthere will be even less of a commonly accepted basisfor an equitable settlement than there is with re-spect to different classes in any one country.

In any society freedom of thought will probablybe of direct significance only for a small minority.But that does not mean that anyone is competent,or ought to have power, to select those to whomthe freedom is to be reserved.

* *An interventional authority which effectively lim-

its the power of the state over the individual willbe one of the best safeguards of peace.

Emotional Experiences ofJames P. Warburg

JAMES P. WARBURG is the flowering of an in-ternational banker family that came too late

in the world to found a dynasty. His mind turnedhim from finance to politics. By a path roundabout he has just returned to the spot where hecut himself off from the New Deal with two shrieksof pain, one a pamphlet entitled, "Hell Bent forElection," and the other a book entitled, "Still HellBent." That was in 1936, before the second electionof Mr. Roosevelt; and some who witnessed the actdoubted the heroism of it, not because they werecynical but because they knew their "Jimmy" andhow he would probably behave in the agonies of afalse apostasy. Eight years have elapsed. And nowhe writes another book entitled, ^"Foreign PolicyBegins at Home," and those who understood the firsttwo understand also this one, although not per-haps as Mr. Warburg would expect.

In 1936, having severed himself from the originalNew Deal brain trust, he denounced the Presidentwith a sad and personal bitterness, saying he wasshockingly superficial, vain, devious by habit andpreference, and dangerous; and the New Deal hedenounced on the ground not only that it was un-sound in principle, tending to devour our Consti-tution liberties, but on the ground specifically thatit was socialistic. Mr. Roosevelt's dishonesty, hesaid, was proved by the fact that he substituted theSocialist Party platform for that of the DemocraticParty. The New Deal record, he said, was "a recordof fulfilment, not of the promises made by Mr.Roosevelt . . . but a record of fulfilment of thepromises made by the Socialist candidate, NormanThomas." Even the recognition of Russia "was aplank in the Socialist platform," and nobody knewit would be "one of the first acts of the New Dealerswhen they came into power."

Now he writes: "In the whole first three years of*"Foreign Policy Begins at Home," by James P. Warburg. Har-

court, Brace.


the New Deal the United States undertook only oneconstructive act in the field of foreign policy. Thiswas the recognition of the Soviet Union in thesummer of 1933. By breaking with the policy ofhis predecessors early in his first term, the Presidentwon the friendship of the Soviet Government and ofthe Russian people—a friendship which was to beof vital importance in the years to come."

In 1936 he said it was absurd to blame either thecapitalistic system, free private enterprise or theRepublican Party, for the great depression, andequally absurd to believe that the New Deal or anyone man had got the country out of it, or could."The depression," he said, "would have come uponus under any management—Republican, Democraticor New Deal Socialistic. . . . Because under a freeenterprise system we ate green apples, got sick andhad to take castor oil, we associate these unpleasantexperiences with a free enterprise system." And ofunemployment he said: "As to finding a way for re-ducing or eliminating unemployment, I, for one, amconvinced that a free enterprise order in which faircompetition ensures the continuous production ofmore goods at lower prices offers far greater prom-ise of a better distribution of purchasing power—and consequently of opportunity and happiness—than any scheme of government-directed economythat has been or can be devised."

Now when he writes of free enterprise he puts itin quotation marks, as if it were only something socalled. Depression and unemployment, he says, arefrom evils inherent in capitalism, such as "economiccannibalism," its tendency to overconcentratewealth, to become rigid, to deny change, and tofreeze an "inequitable status quo;" and especiallyits failure to "provide consumer purchasing powerequivalent to its productive capacity," wherefore,"in periods of expansion the workers do not fullyshare in the prosperity—except that more of themare employed—whereas in periods of depressionsthey are threatened with complete loss of theirmeans of gaining a livelihood." This leads, he says,to mass discontent tending to become revolutionary."In this country," he continues, "we reached themaximum point of revolutionary danger in thissense in 1932. . . . The danger was averted for thetime being by the swift and courageous action ofthe first administration of Franklin D. Roosevelt."

This is the complete and perfect New Deal thesiswhich in 1936 he rejected with tearful conviction.

Our problem, he now says, will never be solved"unless we regulate free enterprise as a whole in thepublic interest, and then plan our foreign tradepolicies to achieve domestic balance between indus-try and agriculture." We must proceed to organizeour system with ideals of justice, equal opportunityand the interests of society as a whole always be-fore our eyes. Then we may march "in step with allthe peoples of the world." We cannot overnight,

he says, dissolve the class conflict; we cannot all atonce remove the injustices that cause them, emanci-pate ourselves from selfish thinking and prejudice.But we can get started at once in the right direction.Then he says: "We did get started with TheodoreRoosevelt's Square Deal, and again with WoodrowWilson's New Freedom, and again more recentlyunder the New Deal of Franklin D. Roosevelt. Butunhappily the preoccupation of war coincided withthe swing of the pendulum and combined to make uslose our momentum."

In 1936 he wrote: "What is it that you want forthe future? A state in which reliance for the pre-servation of freedom, opportunity, prosperity andhappiness is placed upon such wisdom as may beconcentrated in a small group of men in Washing-ton—a state in which the government is responsiblefor the welfare of the people, and in which, becauseit is responsible, the government must regulate andcontrol the lives of the people? Or a state in whichreliance for the preservation of freedom, opportu-nity, prosperity and happiness is placed by thepeople upon their own ability to utilize with en-ergy and intelligence the resources which Providencehas placed at their disposal, using their governmentas a servant toward the attainment of this end?The one is what Mr. Roosevelt is 'trying' to create.The other is what our forefathers actually created."

Now he writes: "Much confusion is created by thefact that often no distinction is drawn between aso-called 'managed economy' and a 'planned econ-omy.' The assumption is made that planning andmanagement necessarily go together, whereas it isperfectly possible—and in fact necessary—to con-ceive of an economy which is 'planned* by the statein the interests of society as a whole, but not 'man-aged' by the state. As I see it, true democracy re-quires an economy 'planned' by society as a wholefor the equal benefit of all its members, but 'man-aged' by individual initiative."

In 1936 he wrote: "I am against Socialism, andeven more against its two misbegotten offsprings,Communism and Fascism."

Now he writes: "Communism springs from theidea that all men are equal and are entitled to equalopportunity. This also is the basic idea of Demo-cracy. It is as old as Plato's Republic."

Mr. Warburg's book is not in itself important. Asan example of the current literature that is dis-played in bookshop windows and sells and is called"at once liberal and realistic," it deserves notice be-yond its merits. No economic or social principle haschanged in Mr. Warburg's lifetime. Can he imaginethe American motor-car industry to have been"planned by the state in the interest of society as awhole," and only to have been "managed" by theindividuals who did create it out of nothing butimagination and a doggedness of spirit throughfailure? —G. G.


Enterprise in SovietRussia

In the Globe and Mail, of Toronto, WellingtonJeffers, the financial editor, reports an interviewwith Dr. Boris Stanfield, Ph.D., an American citizenwho came to this country from Russia in 1931, notas a refugee but as a professor of political economy.He lectured at Columbia University on the develop-ment of economic theory and practice under Soviet,Nazi and Fascist regimes. Mr. Jeffers says: "Dr.Stanfield impresses me as a man whose mind rangesimpartially above the industrial conflict he studiesand as one who is seeking the best answers to theproblems raised with the detachment of a mathema-tician." The subject under discussion is the Sovieteconomy in contrast with the American and Cana-dian systems, and the picture of Soviet economythat appears is precise and vivid.

The Interview" O R I V A T E enterprise exists in Russia," said Dr. Stan-

JL field in answer to questions. "It is confined to sucha negligible section of the total economy that it may bepractically disregarded for the time being in discussingthe Soviet economy. No individual can hire labor inRussia. You will find in Russia tailors, shoemakers,jewelers, plumbers, carpenters, but only on a microscopicscale because none of these can hire others. Each canonly do what business he can handle personally.

"You asked about the extent to which the profit motiveis allowed to have a sway in Soviet economy. It has a neg-ligible place in the fields I have described but it does havea very definite place when one beigns to study the am-bitions of the numerous state enterprises that dominateSoviet Russia and the motives of the individual workers.

Utopia By-passed

"To understand the Soviet system one must first realizethat he is 20 years behind the times if he tries to appraisethe Soviet economy in terms of the initial Utopian aspira-tions of Lenin and his associates. For instance, I waspresent personally at a financial conference in Moscowin 1918 when Commissar of Finance Sokolonikoff (whowas purged 20 years later) made the following statementcharacteristic of the period of revolutionary romanticism:'Comrades, I have to apologize for my appearance at themeeting in the capacity of Commissar for Finance. We donot need any finance. We are moving toward a money-less economy.'

"They have changed completely from that attitude.Money is just as indispensable in the Soviet economy asit is here. Now propaganda for a moneyless economy inRussia would be considered a dangerous counter-revolu-tionary heritage. If any one were to dare to advocateit he would suffer the penalties prepared for all counter-revolutionary activities.

"Nor have they neglected the profit motive. The mana-ger of a Soviet state enterprise must try his best to show

a profit at the end of his annual operation just as mana-gers do in Canada. He will be judged by his success. Hemust provide for the needed working capital, he mustmake the same reserves as here against depreciation andhe must try to make enough for the future growth of theenterprise just as a manager would do here. The maindifference is that the surplus profits here can go to theshareholders, and in Russia they go to the governmentwhich distributes the money on its own expenses andenterprises.

"As for individual workers I said that the profit motiveis lacking, but the gain motive is not. Every Soviet workerhas a very strong desire to earn more money because, justas here, goods and services are not available to him exceptthrough the medium of money.

"The differences between Canada and Russia are notas great as many assume. They need capital to expandenterprises as you do here. Conditions are not uniformthroughout Russia. It is a mixed economy. For example,you have from 250,000 to 300,000 agricultural cooperativesand these, after paying a certain percentage of gross earn-ings to the government, are allowed to retain the remainder.You have in Canada some government and public enter-prises and cooperatives on the one hand and much privateenterprise. It is a question of degree. In Russia thegovernment enterprise predominates. What is the excep-tion here becomes the rule there."

The Hard Law of Efficiency"Are the rules making for efficient operation and suc-

cess the same in the public enterprises in Russia and theprivate enterprises here?"

"They are the same. The problems of how to getgreater efficiency in order to get higher productivity arejust as vital there as here. Under Stalin's leadership verysubstantial deviations from the original Marxist programhave been made in order to get greater efficiency of theeconomic mechanism."

"Are the principles common to both systems likely tooperate more successfully under present Soviet methodsthan under those developed on the Continent?" I askedhim.

"Let's wait and see. Personally I prefer the democraticideals of freedom of expression and assembly and enter-prise but, in economics, flexibility of the economic mech-anism will be very important as an element in futureefficiency. At one time the Russian bureaucracy was head-ing their economy into the bog and there was lots ofpurging under the suspicion that much of it was due tosabotage and deliberate act. That was not true and underStalin more and more freedom has been given to manage-ments.

Soviet Management"In one respect managements are freer in Russia than

here. They have no interference from trade unions. Thetrade unions in Russia are much like the company unionon this continent if you will think of Russia's industry asunder one great company and Stalin and his commissarsas a great board of directors. For example, there is moredifference between the remuneration of individual workersthere than here. Here organized labor has fought againstpiece rates, time studies; there labor has definitely acceptedthe idea that their share of production is definitely relatedto their work. It is not uncommon to find two workers


side by side, one getting 200 roubles a month and another1,500 roubles, according to the work each does.

"In fact, Soviet Russia may be said to have adoptedthe principle that inequality of payment (considered asbetween individuals) is essential to the incentives neededfor efficiency.

Drag Weights"You see why I will not give a definite answer. On this

continent you have some very decided drags on efficiencyand therefore on production and therefore on employment.Organized labor unfortunately has shown little originalityin its attempts to find solutions for the new problems ofour times. So far they have been mostly copying businesspractices and not the best of these.

"For instance, organized labor has not yet learned thatthe rigidity of our wage structures may be just as much ofa handicap for the successful development of our systemas the rigid price system frequently attempted by largebusiness concerns or business combinations. Labor hasbeen too much concerned with the dollars and cents earn-ings rather than with the total takings of an enterprise. Iforganized labor and managements would try to replacethe perpetual dogfights with attempts to find a scientificand fair system of remuneration for labor, our economywould be in a much better position to face the graveproblems of postwar dislocation.

Two Questions"Will organized labor try to understand the prerequisites

of a successful functioning of private enterprise? My im-pression is that neither labor nor management has graspedthe magnitude of the changes that have taken place inthe last fifteen or twenty years on this continent. Theanswer to getting better conditions under our system thancan be obtained elsewhere lies in the answer to thesequestions:

"Will organized labor help to obtain conditions thatwill not discourage capital from expansion of presentfacilities or from new ventures and investment?

"Will business continue its record of bold investmentswhile it has to share some of its time-honored powerspartly with labor, partly with government?

"The trades unions in Russia are cooperating fully withthe entrepreneur (in their case, the government) in pro-moting the success of enterprises. In 1940 the SovietUnion Trade Congress endorsed lengthening the work dayprogram from seven to eight hours, and they have givenunreserved support to piece work. In other words, theyfavor the speed-up. Will labor give industry the sameadvantages here?"

Aid and ComfortThe FHA serves as a distinct aid to the maintenance of

private enterprise by making it possible for privatelyowned capital to assume risks otherwise hardly justifiable.FHA, in other words, has aided the marshalling of privatecapital for a most worthy social purpose. Payments tothe insurance funds create reserves to meet estimatedlosses, and the government assumes the unpredictable risk.What better formula yet has been devised to aid the con-tinuation of capitalistic and democratic freedom of enter-prise? From a speech by L. Douglas Meredith, Vice Presi-dent of the National Life Insurance Company.

The Unresisted ShackleBy William E. Russell

SOCIAL SECURITY was not discovered by the "NewDealers." It is an instinct planted in man by Deity

and has been practiced by mankind from time immemor-ial. All are in favor of it and none oppose. The problem is:"What is the best method to obtain the greatest measureof social security for the greatest number of our people?"Shall it be a private and individual system or one estab-lished and conducted by government? The discussionshould revolve around the method to be used. Unfortu-nately, we have been led to believe that social security isattainable only through the agency of government. Letus examine this bit of political hokum.

Germany was the first great nation to promise universalold-age security for its people. Under Bismarck, compul-sory deductions were required from the wages of all work-ers for the purpose of providing old-age pensions. Thesewage deductions were accumulated in a central fund, some-what in the same manner as is authorized in our presentfederal social security act. The German worker was assuredthat his old-age needs were guaranteed—he.would not haveto worry about his wants in his declining years.

The German fund continued to grow for several dec-ades. In 1921 the German Government began to experi-ment with currency devaluation. There was no intentionof destroying the monetary unit the reichmark. It wasthought that a little price inflation resulting from de-valuation of the currency would stimulate business andstop the grumbling of the people. The whole world knowswhat a debacle then ensued. Prices rose faster than wagesand this required more devaluation—more paper currency.Finally, in 1923, the reichmark became worthless—it wasnot even good wallpaper. All the savings of the Germanpeople were wiped out and this included the old-age pen-sion fund. The workers discovered that the aggregate de-ductions from his wages for a lifetime would not pay for astreetcar ride, much less provide him food, clothing andshelter in his old age. Thus another "noble experiment"by government came a cropper.

It Could Happen AnywhereTo those who say that it cannot happen here, it is sug-

gested that they study their history books a little moreclosely. When men in charge of the agency of governmentlack the courage to tell the people that "work and morework," "self-denial and more self-denial" are the only suremethods to overcome hard times, the same thing couldhappen in any country.

The sponsors of the present social security law haveestimated that the central fund will amount to forty-seven billions of dollars by 1980. The truth is that themoney collected from the workers and their employers forthe old-age pension fund is being spent as fast as it iscollected. In place of the money, government "I. 0. U.s"(bonds) are being substituted. These bonds must be paidoff in later years by taxes levied in part upon the childrenof the workers who contributed one-half of the moneyrepresented by the government "I.O.U.'s." Such being thecase, it would not seem that a great social advance hasbeen made, as has been claimed by the New Deal.

There might be some excuse for the law if the funds


collected under its provisions were required to be rein-vested in legal corporate bonds. In this way the moneywould remain fertile—it would be invested in productiveenterprise and would create scores of thousands of jobs.As it is, the fund becomes sterile immediate upon its col-lection and "investment" in government bonds.

The existing social security measure is only an incometax in disguise and a vicious one at that for it imposes asimilar tax upon the employers. The workers have beenled to believe that their money is being saved for their old-age pensions—such is not the case.

Deeper ObjectionsThe foregoing discussion of the law has been confined to

defects in the act. There are basic objections to the lawwhich apparently have not been given any consideration.The act is not democratic and has no place in a freecountry. In a democratic country, the government is theservant of the people, the latter are the masters. It is notcustomary for a servant to support his master.

Millions of our people are being taught by the socialsecurity act to look to their government for support inold age. They lean on their servant for food, shelter andclothing in their declining years. They are being taughtthat they have no personal responsibility, that they neednot practice thrift and self-denial and that it is no longerright that children should take care of aged and needyparents—that a benevolent government is going to as-sume all of these God-imposed obligations of the humanrace.

The act is a reflection upon the worker—in effect itaccuses him of a lack of understanding of his own respon-sibilities and an inability to take care of himself andfamily. This is "bureaucracy run riot." The implicationis that we haven't the sense to take care of ourselves, thatour children won't do it if we fail to, and that we needthe vast horde of bureaucrats to take care of the moneywhich we couldn't handle ourselves.

Ruin of ThriftA further basic objection to the law is that, in the

course of time, it will destroy the thrift motive of millionsof our people. We practice thrift because we obey aninstinct planted in us by Deity, not because we enjoy self-denial. Our own sense of responsibility, our fear of oldage, sickness or unemployment cause us to save some partof our earnings, buy life insurance, securities or a home.We may say that the thrift motive is bottomed on fear—fear of the future. We are told that "freedom from fear"is to be a part of the new charter of life. If that couldbe accomplished by human hands, progress would stop.

Our Master probably knew what He was doing whenHe planted fear in the human race. It is "fear of thefuture" that has caused forty millions of rivulets of sav-ings to flow through savings and commercial banks, build-ing loan associations, life-insurance companies and otherinvestment channels into the mighty reservoir of capital,to which business repairs when it wants funds to expandan existing industry or to build a new one.

Once the forty millions of workers who create these rivu-lets of savings are convinced that government will provide

for them in the exigencies of sickness, unemployment andold age, it is inevitable that they will cease to save andthe mighty reservoir of capital will dry up. Business willthen be compelled to go to the government for new capital.When that happens, democracy will have come to an endand a totalitarian state will have emerged. Do we wantthis in America?

If We BelieveIf we believe in liberty we must admit that an individual

lias the right to be a spendthrift if he so desires. We maydeplore his lack of judgment but we should concede hisright. It is not consistent with our professed love of lib-erty to impose compulsory savings upon any man. Wehave just as much right to tell him how he shall spend hiswages as we have to take from him a part thereof as anenforced contribution to his own old-age security.

We have had a private system of "social security" sincethe first settlers landed on our shores. The "fund" hasbeen growing from year to year throughout the life of ourrepublic. It has grown because our ancestors, as well asourselves, practiced thrift and put something by for a rainyday. It is invested in productive enterprise as well as ingovernment bonds. It probably amounts to four hundredand fifty billions of dollars at the present time and isowned by ninety per cent or more of our people. It isrepresented by thirty-two billions of dollars in the savingsbanks, seventy-five billions in commercial banks, one hun-dred billions in stocks and corporate bonds, sixty billionsin homes, thirty-five billions in life-insurance assets, thirtybillions in farms, one hundred billions in government andmunicipal bonds, and other billions in tangible personalproperty such as automobiles, radios, etc. These vastfunds represent the real and true social security of ourpeople. This "private system" dwarfs the federal system.It is now almost ten times as large as the federal fundwill be in 1980. The federal system is not needed. It en-dangers the "private system" for the reasons above given.

The Ninety and the TenThe question will be asked as to the ten per cent of

our people who fail to make provision for old age in oneform of savings or another. Some, by reason of mentalor physical handicaps, are unable to save. Others fail tosave because they are unwilling to restrain their desires tobuy things which prudence dictates they should refrainfrom buying. They represent a part of the problem. Noone will advocate that they be allowed to suffer starvationor to lack shelter.

The ten per cent have always been the wards of theother 90 per cent of our people. We are enjoined by HolyWrit to be our brother's keeper. That these obligationsand duties have been nobly performed is amply attestedto by the establishment of homes for the aged, the indigent,the orphaned, the incompetent and the helpless in everystate and in almost every city and town in the country byprivate charity aided by municipal grants. Do we want todestroy the impulse of private charity by having thegovernment act as the agency for taking care of the help-less? We must think this problem through logically—wemust not let emotionalism becloud our reason.


The Economic RecordCONTENTS OF VOLUME VI

No. 1—MARCH 31, 19U

The 1945 Budget: Preview of Postwar Economy Paul W. Ellis 3Inflationary Tendencies in the British Commonwealth.. . .Winthrop W. Case 9Twenty-five Largest Manufacturing Corporations M. R. Gainsbrugh 12Canada's War Against Inflation B. S. Keirstead 14

No. 2—JULY, 19U

Review and Comment 31Marginal Utterances 32Mind of American Business on Free Competitive Enterprise.... Garet Garrett 33Confusion of Tools 39Looking at England 40A Kansas Manifesto 43Let Us Tell Them the Truth Virgil Jordan 44Books—Two Shapes of Thought G. G. 47Planned vs. Free Markets Mordecai Joseph Brill Ezekiel 50Winds of Opinion 53In Europe's Footsteps Malcolm McDermott 54British Ideas of the Cartel System 55

No. 3—OCTOBER, 19UReview and Comment 59The Outline of a Planned Economy for Great Britain Garet Garrett 61Australia Rejects a Planned Economy 68Lord Keynes' Preview of Bretton Woods 69The Fiscal Realism of Beardsley Ruml 71Books—Shapes of Thought G. G. 73Winds of Opinion 76Philosophy of James F. Lincoln, Industrialist 77In a Swedish Mirror Gunnar Myrdal 79The Moral and Economic Evils of Collective Bargaining John W. Scoville 81What Is Free Agriculture? 83Talking at the Bench Level Frederick C. Crawford 85The Spectacular Entry of Cooperatives into Production 86The Fourth Power of Government 87Cartel Idea in Oil J. Howard Pew 89The Story of Free Oil John A. Brown 91Letters 91

The Conference Board Reference Library

In addition to its weekly Previews, Desk Sheet of Business Indi-cations, and Road Maps of Industry, its quarterly AmericanAffairs—The Economic Record, its monthly ManagementRecord and Business Record, its periodic Industry Record stud-ies, and the longer and more detailed studies published as Con-ference Board Reports, THE CONFERENCE BOARD has publishedmore than 250 bound volumes representing the results of Staffresearch in the fields of management, business policy, businessstatistics, industrial economics and public finance. Most of thesetitles, issued primarily for the Members and Associates of theBoard, are out of print and are now available only in the largerpublic libraries or on loan from THE CONFERENCE BOARD Library.

Published duringThe Management Almanac, 1944The Economic Almanac for 1944-45The World's Biggest Business—American Public Spend-

ing, 1914-1944

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and public information in connection with economic:and management problems. It serves as an instrumentwhich assists modern management, labor and gov-ernment to find the fundamental facts affecting theprosperity, security and progress of the American com-munity. Its purpose is to promote the sound develop-ment of productive enterprise in a Free America.

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