When the asbestos curtain rises and reveals the Seventy-third Congress in regular session, the chief theme of the play will be, according to the expectations of most of the spectators, a heroic struggle between the inflationists and the sound-moneyites. We hope the audience will be disappointed, because such a melodrama, however heated and exciting, would be far removed from reality—a romantic revival of the moustached-villain, lily-white heroine, save-the-child school. The truth is that the wildest money-tampering proposed by the inflationists would not succeed in raising prices much, while the sound-money men have no good idea how to protect the national virtue. It does not make any difference what kind of currency is issued so long as the total volume and rapidity of circulation of money (including that nine-tenths of it which is bank deposits) are not increased. And going back to the gold standard, whether at the old or a depreciated valuation, would permit a tremendous inflation if circumstances proper to it should arise.
Much more to the point will be the struggle which impends between those who want large governmental expenditures and those who want to keep government spending down. Large spending is the one way in which additional money or credit can be put into circulation, and the government is the one considerable economic unit which can find ways to spend and can get the money to do so. The last public-works appropriation of $3,300 million is virtually all but allocated—much of it not on public works at all but on expenditures which were cut out of the “ordinary” budget or would normally come under it. Thousands of projects, subject to long delay, are just coming up for consideration. Only a tiny beginning has been made on housing. The Civil Works employees will have to be dumped back on the streets if hundreds of millions more are not forthcoming to pay them. Altogether the situation demands a considerable expansion of that kind of spending which is classified under the extraordinary budget and is paid for out of borrowing.
This is the one way in which Congress may be most cure of exerting an influence in behalf of larger circulation of money and increased business activity. But if we are to have the kind of stimulus which can be controlled when, if ever, it threatens to run away into an inflation spiral, Congress must make certain that the “ordinary budget” is balanced—that is, that current expenditures are covered by receipts of taxation, and that they include interest at least on all the debts incurred. It must also prepare the ground so that when revival comes, if it does, there may arise a substantial surplus in the ordinary budget which may be applied to debt retirement. This means a thorough revamping of our taxation system. Leaks in the income tax must be stopped; more efficient profits taxes must be introduced. That is of the utmost importance. And a way must be opened for a reduction of local taxes on real estate, which now stand in the way of building revival and which, because of the difficulty of collecting them, help to bankrupt many cities.
The biggest gap in the Recovery legislation of last spring was the failure to do anything final about the banks. It is frequently said that the President missed the greatest opportunity of his administration because, last March, he did not take over and reorganize the whole banking system. It still needs to be done. The commercial banks are now gorged with reserves; but they are not and cannot be, as long as they remain a congeries of competitive units under private ownership, an instrument for the extension of credit when and where it ought to be extended. Nor, for that matter, an instrument for withholding credit when it ought to be withheld. The Glass bill, with its deposit-insurance feature and its segregation of investment houses from commercial banks, is a tiny bite at a very small cherry. The Securities Act, to which there is so much objection in Wall Street, is likewise of minor importance—a mere attempt to make houses of issue and corporation directors assume responsibility to the investors, where what we need is social control of the whole process of investment in order to make it serve social ends. If the President does not propose an adequate program for the socialization of banking, both commercial and investment, Congress ought to devise one.
The next most important subject for congressional action is to prepare for a broad scaling down of mortgage debt. Suppose reflation does not come, or does not work. That is not at all an unlikely supposition. Agencies like the Home Loan and Farm Loan banks, or like the new law for financial reorganization of railroads, have brought results visible only under the microscope. A more courageous and a broader attack on this problem is desirable now, and may soon be crucially needed.
These are the most pressing subjects for legislation. But there is also a major need for that other function of Congress—investigation. Congress gave the President wide permissive powers in the National Industrial Recovery Act. How have these powers been administered? Specifically, has the N.R.A., under General Johnson, become a means by which the owners of industry may escape the anti-trust laws and practise the extortions of monopoly, while the consumer is left helpless to control prices or profits, and while labor cannot exercise its right to organize and bargain effectively in order to protect its own status? There are many indications that this is, in large measure, true. Code after code has been approved in which there are clauses or omissions objected to by the Consumers’ Board—and this Board is mild in its purpose. Code after code contains no provision even for the accumulation of the information necessary to test whether it aids profiteering or not. Even now draft codes which the A.A.A. would not accept because it thought them unfair to the consumer are being passed over to General Johnson and rushed through with little or no modification. Code authorities are being set up with no direct consumer or labor participation, the only representative of the government being drawn from the ranks of business.
These are specific indications of a general absence of clear economic philosophy behind the N.R.A. structure. Where is the planning agency to coordinate the efforts and direct them to a social end? What is this end, and what policies are being used to seek it? Where are the figures which will show whether the end is being approached? Is the government endeavoring to enlarge production and is consumption or to restrict them? If the former is the aim, how is production to be enlarged unless the purchasing power of wage earners and farmers rises greatly? How can this be accomplished unless prices of industrial products are held down while wage earners’ and farmers’ incomes rise? Does not such control require that prices be set on the basis of the costs of the more efficient plants rather the less efficient? And does not this outcome depend on the existence, either (a) of active price competition, or (b), if that is absent, of governmental fixing of maximum prices and control of production, based on knowledge of the costs and profits of individual plants? Do not codes leaving any control of prices and production with trade associations obstruct these ends? General Johnson should be cross-examined on these matters, and the consumers’ experts allowed full scope for their testimony.
It is obvious, too, that a law intended to further true collective bargaining which has resulted, with General Johnson’s sanction, in a great expansion of fake collective bargaining as embodied in company unions, has not been properly administered. Congress ought to inquire into the contrast between this situation and that on the railroads under Coördinator Eastman. Is the difference due to faulty wording of the law, or to the personnel of those in control? Prompt action is needed here.
President Roosevelt has said again and again—and his words have been echoed by his subordinates—that the New Deal is a great experiment. But if it is to be an experiment from which we are to learn anything, its objective and methods must be made much more clear than they are now. No scientist in a laboratory ever learns anything by fuddling about with chemicals like a baby playing in a sand pile. We ought to know exactly what is being attempted, and exactly by what methods; where the fault rests if the attempt is unsuccessful. Up to this moment the President, in spite of the admirable and moving generalities contained in his speeches, has refused to define his experiment in sufficiently concrete terms, whether of measures or persons. That is, so far, his greatest defect, and it portends, if continued, a real social catastrophe. Perhaps some members of Congress will have the wit and courage to press this issue. If they do, they will justify the existence of representative democracy.
This article originally ran in the December 27, 1933, issue of the magazine.