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PUBLIC SPENDING TO PROMOTE RECOVERY There i s no possible econoBjr i n a middle course, as regards recovery spending. The economical procedure, paradox that i t may seem, i s to make such expenditures as rapidly as possible. Any e f f o r t to economize, i n an e f f o r t to minimize i n i t i a l d e f i c i t s and conserve available funds, i s necess a r i l y j u s t the reverse of economical* This i s something that should be thoroughly understood by a l l o f f i c i a l s whose releases are interpreted by the public as o f f i c i a l or s e m i - o f f i c i a l . The psychological factors i n recoveiy e f f o r t s are veiy r e a l ones. The appear- ance of i n s t a b i l i t y i n administration p o l i c i e s does much to neutralize the e f f e c t s of i t s constructive e f f o r t s . IKhile no national p o l i c y can be actually permanent, even though written i n t o our c o n s t i t u t i o n i t s e l f , the more nearly our present spending p o l i c i e s are made to appear p o s i t i v e , i n f l e x i b l e , absol u t e , and permanent, the more e f f e c t i v e they are going to prove. Depressions are djynamlc - not s t a t i c . The deflationary influences s t i l l p e r s i s t that were v i r t u a l l y unresisted by the preceding administration, and which a l l but overwhelmed the nation. Speed of recoveiy depends e n t i r e l y upon how v i o l e n t l y they are reversed by re-establishing the volume and rate of c i r c u l a t i o n of money, and attendant productive a c t i v i t y , upon which s o l vency and prosperity depend. No r h e t o r i c i s required to emphasize t h i s point - only complete understanding. Yet i t might be pointed out i n passing that f i g h t i n g a depression i s l i k e fighting a tiger. possible. He k i l l s you or you k i l l him. Or i t i s l i k e jumping over an abyss. No compromise i s I f the c l e f t i s 10 f e e t wide, even a 9-foot jump i s worse than no e f f o r t a t a l l . This memorandum i s being prepared to explain why speed i s the primarily - important factor i n public spending to promote recovery. I t might w e l l be followed up by a meeting of the executive heads of the various governmental spending agencies to e s t a b l i s h such f a c t to the complete s a t i s f a c t i o n of each of them. And, i n view of detrimental e f f e c t s upon public confidence of mis- leading and c o n f l i c t i n g releases, i t might be w e l l to consider the suggestion that hereafter a l l such releases clear through a c e n t r a l source* The b a t t l e would be h a l f won, were the public convinced that the admini s t r a t i o n knew exactly what i t was doing; and had absolute confidence i n the effectiveness of i t s i n f l e x i b l e p o l i c i e s to promote p o s i t i v e , immediate and complete recovery. be altered. A l l that i s behind us i s water over the dam, and cannot Naturally i t has taken time f o r the administration to clear aside the wreckage i t encountered i n the spring of be countered with the means at hand. f 5S. Acute emergencies had to From here on the keynote must be r e f u s a l to temporize longer with wholesale unemployment, voiced by the President i n a recent address. The depression problem i s only the unemployment problem, c a l l e d by another name; and productive re-employment, not non-productive r e l i e f , i s the only possible s o l u t i o n . SPEEDING CREATES INCOME While there i s a c e r t a i n appeal to the unthinking i n the suggestion that public spending should be c u r t a i l e d to agree with a depleted n a t i o n a l income, the f a c t remains that, so long as our present economic system endures, the rate at which monqy c i r c u l a t e s to e f f e c t exchanges determines the rate a t which the production and d i s t r i b u t i o n of new wealth can proceed. A nation's income, expressed as money, i s the p r i c e at which i t s current output of goods and services and newly-created investments i s marketed. For income to be maximum, production must be maximum, both i n t o t a l quantity, and i n u n i t value. And while u n i t value can, i n c e r t a i n instances, be raised by -5djbliberate curtailment of production, i t should be obvious that the gain i n one respect i s o f f s e t by a loss i n the other. The greater the t o t a l of useful production, the richer the people who distribute the f r u i t s of their t o i l among themselves. As regards the scarcity f a l l a c y , huge and long continuing unwanted s p e c i f i c surpluses can be created only f o r so long as there exists a surplus of abstract a b i l i t y to produce, v/ith which to create them. DUAL NATURE OF INCREMENTS AND DEFICIENCIES A point often overlooked i s that the useful production which we acquire c o l l e c t i v e l y , as a r e s u l t of public expenditures, i s just as much a part of the nation 1 s current output and income, as the production acquired voluntarily and i n d i v i d u a l l y . Consequently, i f we refuse to acquire additional c o l l e c t i v e wealth, while unassigned productive a b i l i t y i s being wasted i n involuntaiy idleness, we are not saving i t s cost. As a nation we are losing both the public wealth the unused labor might be creating, and the private production for which same might, i n -ultimate e f f e c t , be exchanged. The t o t a l output of a l l current human a c t i v i t i e s , whether publicly or privately financed, i s not only what i s sold, when the national economy i s viewed as a whole, but same i s also the price received. or others. Ultimately, each portion i s exchanged for another, Every purchase i s also a sale. Ifhatever i s expense to one i n d i - vidual or group i s income to another or others. And, i n f i n a l analysis the nation 1 s dollar income i s just as much the t o t a l spent, as i t i s the t o t a l received. IDLENESS IS THE GREATEST EXTRAVAGANCE These generalities are thus b r i e f l y set forth, for the reason that a sound national econon$r necessarily must be based upon their acceptance as fundamental truth. Otherwise i t i s based upon error, and cannot for long function to promote the general welfare. -4Our collective spending as a nation, as increasing efficiency releases man-power i n private production, i s an increasingly important part of the t o t a l of a l l spending. As has been suggested, not only i s the t o t a l spent the t o t a l that can be earned, but the rate at which monqjr i s spent measures the rate at which wealth i s being created, and the amount of employment available. Public spending i s a part o f each t o t a l - of income as w e l l as of OUtgOv In his radio address of September 30th l a s t , President Roosevelt placed emphasis upon the f a c t that no nation, however r i c h , can afford to waste i t s human resources. Yet that i s exactly what this nation i s doing nowj and what i t has been doing for a number of years, with results that require no des c r i p t i o n here. Above i t has been pointed out that when c o l l e c t i v e l y we refuse to employ surplus labor, not currently i n effective demand i n the realm of private a c t i v i t i e s , the loss i s twofold. The money we refuse to expend i s also money that cannot be received back as income, by those i n private i n d u s t r i a l and commercial a c t i v i t i e s . On the other hand were the producers i n private a c t i v i t i e s to supply the wages of otherwise i d l e workers, i n order to finance the production of additional public wealth, the subsequent expenditure of such wages by their recipients permits additional production i n private a c t i v i t i e s to be marketed, which otherwise could not w e l l take place at a l l . COMPOUNDING THE RESULTING DEFICIENCY But go a step further - i n f a c t , several steps• in total quantity I f that twofold l o s s , of marketable products, was the entire loss of income to the whole nation, i t might be an endurable one. loss cannot possibly stop ihere. The main trouble i s that such The needed flow of money, to f a c i l i t a t e exchanges of services for services and products for products, i s interrupted. -5Tlp e f f e c t i s bound to be cumulative, on the well-known vicious cycle basis. Put i t t h i s way. I f group A, available for some useful public work, remains unemployed, group B, which might be producing the things group A was buying, must likewise remain devoid of jobs and incomes. Then a t h i r d group C must be i d l e , because group B i s not earning and spending. And a fourth group D must seek r e l i e f because group C i s unemployed; etc. I t i s that vicious cycle of progressive unemployment that has given us the present huge amy of unemployed to support through r e l i e f . And r e l i e f expenditures, taken from an inadequate current income, or borrowed against anticipated future income, give the nation nothing of value, other than the doubtful satisfaction of a duty discharged. I t i s important to recognize that such cycle might be made to work i n reverse gear, as f a s t or even faster, than i t worked the other way. Re- employment, understanding^ engineered, would necessarily be progressive, the same as unemployment, Put group A to work i n any useful public a c t i v i t y ; give i t s members both incomes and assurance of their permanence; and group B i s needed elsewhere to supply the things group A begins to b i y . And a group C i s then needed to supply group B f s purchases; and a group D to supply group C f s ; etc, etc. The same process J I t f s only a matter of ?/hich way the cycle works - whether i t i s allowed to work downhill, or forced to work up. Note that only group A lands on the public payroll; whereas B,C,D, etc. are drafted automatically into private industry. DEFLATIONARY EFFECT OF INVOLUNTARY IDLENESS And that i s n f t the whole story by any means; nor even the most important part, from a s t r i c t l y dollars and cents standpoint. Income, as pointed out, i s a product of quantity times u n i t market value. Widespread unemployment i s supply i n excess of demand, on a general basis. I Personal earning power i s reduced both by reduced volume of business, and by the destructive competition of too many applicants for too few available jobs. Wages f a l l . Costs f a l l . Prices f a l l . Investment values, dependent both current earning power and reproduction cost, f a l l a l s o . upon While the organized industries are f a i r l y successful i n c u r t a i l i n g output to equal declining effective demand, the unorganized ones such as agriculture, t r y to meet fixed charges with increased production salable a t ever lower pricesj which gives us the highly detrimental disparity of farm and urban prices, which the A.A.A. i s seeking separately to correct. The net effect of a l l of this i s that something l i k e 2056 of involuntary idleness i n the ranks of our f i f t y - o d d m i l l i o n potential producers has caused more than 50% of the whole nation's potential d o l l a r income to disappear temporarily} and a loss of not less than 200 b i l l i o n s i n the depreciation of c a p i t a l asset valuations, which would be even greater i f based upon current earning power, and were i t not for hope of better days ahead. ENGINEERED VERSUS INDUCED RECOVERY For years this p o t e n t i a l l y wealthy nation has sought i n one way and another to induce recovery - to create, by indirection, a set of general conditions under which re-employment of the i d l e millions by private industry might be expected. Much of t h i s e f f o r t has consisted of the substitution of the nation's credit f o r private c r e d i t . While such thawing out of frozen private c a p i t a l has tended to arrest d e f l a t i o n i t has done l i t t l e i n the way of promoting an increase i n productive a c t i v i t y . A certain amount of d i r e c t action has been taken to restore some of the unemployed to an earning and spending position. Such measures have been of i n s u f f i c i e n t magnitude, or have been carried into operation too slowly, to do I other than just about o f f s e t or neutralize what otherwise would have been a continued downward trend. More than a year of extraordinary public spending to provide employment, a t an inadequate rate, has l e f t us w i t h just about the same ten m i l l i o n involuntary i d l e r s we had on hand a year ago. The question confronting America today i s mainly whether to keep on hoping f o r some accidental factor to correct the present situation, while i n adequate re-employment measures and r e l i e f disbursements preserve the status quo; or whether the time has arrived to reverse the cycle boldly and understanding^, to restore completely the nation f s income, and promptly end the need both f o r the non-productive r e l i e f disbursements and mosst i f not a l l of the extraordinary expenditures to provide work and earned incomes. Adequately engineered recovery would be just the reverse of costly, even though i t meant a drastic increase i n the rate of recovery-spending f o r the b r i e f period required to get the cycle operating i n reverse. Even i f the fact that such spending creates the same percentage of the national income that i s u t i l i z e d i s disregarded, and the entire outlay i s viewed as expense, an increased rate of spending f o r a short time would mean a lesser t o t a l than were the rate somewhat less and the period much longer. Such rate factor Is r e l a t i v e l y so important, that even the important consideration of getting the best possible value i n return f o r each disbursement made, sinks into i n s i g n i ficance i n comparison. I f , as i s l i k e l y , the d i r e c t and i n d i r e c t effects of widespread unemployment are costing the nation - and that means the taxpayers of the nation - a continuing loss of potential income of three to four b i l l i o n dollars a month, whatever we got as a d i r e c t return for adequate jobcreating disbursements, i n addition to recovery, would be a sort of costless by-product. ~ 8 - / The question presents i t s e l f , therefore, whether or not i n providing for an ultimate return of 10% of the P.V*A. allotments by l o c a l communities, at the cost of speed i n getting the program under way, we have s a c r i f i c e d the important factor to preserve an •economy® feature which i s proving to be anything but that. There should be no insurmountable d i f f i c u l t i e s i n the way of getting a s u f f i c i e n t number of our unemployed promptly to work i n the public employ, to insure the absorption of the remainder i n private a c t i v i t i e s , were i t grasped that the whole procedure would be highly profitable, rather than costly. S e l f - l i q u i d a t i n g as a whole, i f not i n d e t a i l ! I recommend that the heads of our various spending agencies discuss t h i s whole subject; w i t h particular stress upon the r e a l economy that would be incidental to spending at the required and adequate rate for a b r i e f period, as contrasted w i t h a continuance of the present inadequate rate i n fofWeJLy, SOLICITING PUBLIC CONFIDENCE C r i t i c i s m of the Administration's p o l i c i e s have centered to a considerable extent around alleged lack of co-ordination of the various recovery measures, and the i n a b i l i t y of the general public to understand what they are attempting to accomplish. Such c r i t i c i s m , p a r t i c u l a r l y of the l a t t e r class, may have considerable j u s t i f i c a t i o n . I t i s my b e l i e f that the general p r i n - c i p l e of public expenditures to promote recovery i s s u f f i c i e n t l y simple f o r the average intelligence to grasp; and that much good might come i f a special e f f o r t to take the public into more complete confidence i n such respect. For such spending to produce maximum results, the providing of jobs and incomes f o r those now devoid of both i s only a l i t t l e more important than - 9 - / the creation of a general feeling of confidence regarding their permanence. A b i l i t y to spend on the part of those now destitute must be accompanied by willingness to spend, based upon the dissipation of fear for the future. I t the s t a r t the hoarding of current earnings, and the payment of old debts and back-taxes w i l l reduce the rapid c i r c u l a t i o n of the new purchasing power to some extent; but aooher or l a t e r each o r i g i n a l outlay multiplies i t s e l f many times as income. Already has i t been pointed out how one individual's spending i s another's income, and his a t h i r d ' s , i n a sort of endless chain. That effect i s magni- f i e d i f the producer f i r s t receiving such income feels free to expend i t , either f o r current needs or to acquire an interest i n some new construction or other investment, about as f a s t as i t i s received. Otherwise there i s a leak i n the c i r c u l a t i n g system represented by the e f f o r t of producers genera l l y to absorb production at a lesser rate than they produce. Let such e f - f o r t become general, and obviously production must be curtailed sooner or l a t e r to correspond w i t h the current consumption and decreased investment demand. That i s why subsidizing producers i s not the equivalent of financing potential consumers. There i s no longer any r e a l need for either destitution or fear of future destitution i n t h i s land and era of potential plenty f o r a l l . The time has arrived when such f a c t might be capitalized most advantageously. Instead, therefore, of detached efforts to provide temporary employment, and temporary r e l i e f for the unemployable, the whole s o c i a l security program might we]l be announced and explained as a permanent and co-ordinated national p o l i c y . The psychological e f f e c t of such an announcement alone might s t a r t the nation rapidly oh the road to complete and permanent recovery, even i n advance of the -10 I actual operation of such plan. SECURITY FOR TEE IM1IPL0I&BLE Add to the p o t e n t i a l i t y of public employment always, a t the required self--determining rate to avoid widespread involuntary idleness, (and i t would mainly be a p o t e n t i a l i t y , once i n e f f e c t ) , the assurance of l i v i n g comfort for those too old, too young, or incapable f o r any other reason of serving other than as consumers, and consumers generally would no longer be a f r a i d to consume i n proportion to their capacity to produce. Such s o c i a l insurance need not be regarded as other than a cold-blooded business proposition on the part of the seeming benefactors. The humanitarian gains might be regarded as merely incidental? for only i f consumption proceeds at a maximum rate can production take place to correspond. Any general e f f o r t to produce much, consume less, and l a y aside the price received for the d i f f e r e n t i a l , necessarily means there can be no price received for a d i f f e r e n t i a l that cannot for long e x i s t . CONSERVING THE RATION'S MAN-POBER The r e a l investment demand i s limited, and i s proportionate to current consumption. Any e f f o r t to save i n excess of that r e a l demand for increased productive f a c i l i t i e s , i s doomed to f a i l u r e i n advance. Always might the surplus capacity to produce ( i f indeed as yet we have such a surplus, not based upon want and underconsumption), go costlessly and p r o f i t a b l y into accumulated public wealth - i n t o current income of such class, i n addition to current income of a l l other classes. Such i s truth - not theory. Current production i s current income; and each portion extra income; not a deduction from, nor charge against the r e s t , so long as the labor u t i l i z e d would otherwise be wasted. -11 - « And while such a proposal may, on i t s face, suggest increased c o l l e c tivism and increased rates of taxation, immediate or deferred, the actual e f f e c t would be just the reverse. We cannot have universal useful employment based upon jobs i n the p u b l i c f s service f o r a l l potential contributions to the general welfare otherwise i d l e or engaged i n the creation of unmarketable s p e c i f i c surpluses, without having a maximum t o t a l and average income* We cannot have an assured maximum income without the rate of voluntary luxury-spending tending always to keep pace. And that would mean maximum employment always, i n private a c t i v i t i e s of every kind; and a minimum of non-essential public work, to absorb a laborsurplus that existed mainly i n theory. We have something of very serious nature to worry about w i t h t o t a l income vastly sub-normal, and much of that being requisitioned to provide r e l i e f for millions of competent but i d l e workmen. garding the so-called *cost of recovery*. But there i s no cause f o r alarm r e Restore the i d l e millions to an earning position, and w i t h a mounting national income w i l l come a mounting governmental income, ample to continue necessary expenditures and r e t i r e the debt which accumulated during the recovery process. The trouble with trying to minimize the *cost of recovery" i s that the present loss of potential income vastly exceeds any possible cost incidental to stopping such huge and continuing deficiency.