There was once a President of the United States who was a liberal spender of the public funds. He had two Secretaries of the Treasury who were liberal spenders of the public funds. This President and his two Secretaries of the Treasury spent more money—by far— than all of their predecessors combined. For two successive years they broke all records for Federal spending. Their expenditures for one year were more than twice those for any one year under any other President in our history. With the aid of Congress (which was also a partner in the record-breaking spending) they also imposed the heaviest Federal taxes in our history. Nevertheless, the budget did not balance. The Treasury deficits were measured by billions—not by millions, as in earlier Administrations. They added more to the Federal debt than has been added under any other President.
No, the name of this President is not Franklin D. Roosevelt, and the names of the Secretaries of the Treasury are not William H. Woodin and Henry Morgenthau, Jr. The President was Woodrow Wilson, and the two Secretaries of the Treasury were William G. McAdoo and Carter Glass.
Carter Glass has been acclaimed for many achievements. Honorary degrees and other tokens of respect have been showered upon him. But never, so far as I know, has he been accorded a degree, a medal, or even an encomium for the two peerless distinctions which the record proves to be indisputably his.
The first is that he was Secretary of the Treasury during most of the fiscal year in which the expenditures of the Federal government were the greatest in our history. In fact, they were more than twice as large as the expenditures in the biggest spending year of the Roosevelt Administration. The actual figures, indelibly recorded in the books of the Treasury, are $18,522,984,705 for the fiscal year 1919, compared with the Roosevelt-Morgenthau highwater-mark of $9,068,885,572 in the fiscal year 1936. This year, the fiscal year 1940, Roosevelt may beat 1936 by $150,000,000 or so, but he will still be less than half way to the record rung up in 1919.
Glass’s second indisputable distinction is that he was Secretary of the Treasury during most of the fiscal year in which the Federal government ran up its greatest deficit. That was also 1919, and the deficit was $13,370,637,569. Roosevelt’s biggest deficit was $4,947,766,888, in 1936, and more than half of that resulted from the passage of the veterans’ bonus over his veto, the annulment of the A.A.A. processing taxes by the Supreme Court, and the inclusion of more than $400,000,000 for debt retirement, a bookkeeping item. Excepting that year, when the other branches of the government interfered abnormally, Roosevelt’s greatest deficit probably will come this fiscal year. It may reach $3,900,000,000. This is less than one-third of the Wilson-Glass record.
There is a third great achievement in the history of Federal finance for which Carter Glass has not received adequate recognition. He was Secretary of the Treasury when the annual interest charges on the Federal debt exceeded one billion dollars. This honor, however, he must share with another Secretary of the Treasury. No, not Morgenthau— as yet—but Andrew W. Mellon.
It looks as if Henry Morgenthau, Jr. will qualify for that honor this year. For the first time under Roosevelt the debt-carrying charges may exceed one billion dollars. Now, of course, we have more people than we had during the Wilson-Glass period or during the Coolidge-Mellon period. Our national income is also a little larger than it was on the two previous occasions on which the interest charges on the Federal debt exceeded one billion dollars. So the actual weight of the Federal debt—the carrying charges in relation to national income—is less now, under Roosevelt, than it was at the previous peak-loads reached under Wilson and Glass, and Coolidge and Mellon.
None of these eminent public financiers, however, was in power when the Federal debt was the heaviest—when the interest on the debt took the largest percentage of the national income. This honor—which we devoutly hope will never be challenged—belongs to the year 1932, and to President Hoover and Secretary of the Treasury Ogden L. Mills.
If anyone doubts that the Wilson-McAdoo-Glass combination outclassed the Roosevelt-Woodin-Morgenthau combination in piling up the national debt, here are the figures from official documents of the Treasury:
Gross Federal debt on March 31, 1917 $ 1,282,044,346 Peak under Wilson, August 31, 1919 26,596,701,648
Total increase under Wilson-McAdoo-Glass $25,314,657,302
Gross Federal debt on March 3, 1933 $20,937,350,964 Gross Federal debt on June 30, 1939 40,439,532,411
Increase under Roosevelt-Woodin-Morgenthau $19,502,181,447
Estimated further increase before expiration of Roosevelt’s second term, January 20,1941 4,000,000,000
Total increase under Roosevelt-Woodin-Morgenthau $23,502,181,447
Thus, in two years and five months, Wilson, McAdoo, and Glass increased the gross Federal debt more (by almost two billion dollars) than the Roosevelt-Woodin-Morgenthau combination will have increased it in almost eight years.
During twenty-nine months under Wilson, the Federal debt swelled at an average rate of $862,000,000 per month. During a little less than ninety-five months under Roosevelt it will have been increased by about $250,000,000 per month. When account is taken of the time element, Wilson was three and a half times a greater deficit-spender than Roosevelt.
Those are the gross figures. A debt is not necessarily a bad thing: it may represent a wise investment; it may yield a substantial profit.
What did we get for these two expansions of the Federal debt: the larger one under Wilson, McAdoo, and Glass, the somewhat smaller one under Roosevelt, Woodin, and Morgenthau?
First, let us examine the asset side of the Wilson debt, Every dollar of it went into shot and shell and other war expenditures. Billions of dollars were used to dig out of our earth irreplaceable wealth, to manufacture it into materials of war, and to send it across the ocean to be blown away. Directly or indirectly, as a result of this vast outlay we also got some munitions plants which soon afterwards became useless, some ships which soon afterward had to be junked or tied up (and some of which were hardly seaworthy), cantonments which had to be torn down because they were no longer needed, and a miscellaneous lot of other additions to our national plant which contributed nothing to the peacetime welfare of the American people.
Altogether we spent on the war more than forty billion dollars, exclusive of the regular running expenses of the Federal government. At the conclusion, the Treasury held about four billion dollars worth of realizable assets in the form of surplus supplies and property, and between seven and eight billion dollars worth of foreign obligations on which small amounts eventually were paid but which are now almost totally in default.
As a by-product of the Wilson debt we got an increase in the ensuing regular peacetime Federal budgets of about $1,000,000,000 a year for interest payments, and of between $500,000,000 and $1,000,000,000 a year for the care of veterans of the World War. The interest payments declined gradually during the next decade, as the debt was scaled down and, to some extent, refunded at lower rates of interest. Veterans’ pensions and benefits still cost more than $500,000,000 a year.
Whether our participation in the World War was or was not a mistake is immaterial for the purposes of this article. The point is that we spent forty billion dollars—about twenty-five of which came from borrowing by the Federal Treasury—and spent it willingly. From the peacetime economic viewpoint, most of that expenditure was sheer waste. It represented in large part a depletion of our natural resources, which are the foundation of our wealth and security. When we had finished, almost nobody worried about the “staggering” weight of the national debt—although it was heavier, in relation to our national income, than the entire Federal debt is today.
During the ensuing years about ten billion dollars of this war debt were paid off. The debt could have been paid off in its entirety with the greatest of ease simply by scaling down less drastically the wartime tax rates. We would have been much better off, in every way, if taxation had been kept a trifle higher and the Federal debt had been extinguished. But Andrew W. Mellon thought otherwise. Instead of extinguishing the debt, he preferred to reduce taxes on people with large incomes. In fact, almost all taxpayers were for lower taxes, although many of them were unable to swallow Mellon’s thesis that the way to make the country better was to lighten the tax load of those best able to bear it. Not enough people thought about the Federal debt to care whether it was paid off or not.
Now, let us turn to the Roosevelt-Woodin-Morgenthau debt. It is now about $21,500,000,000. Offsetting this, the Treasury holds:
Cash $1,650,000,000 Gold in Stabilization Fund 2,000,000,000 Proprietary interest in government corporations, etc. 3,600,000,000
The proprietary interest in government corporations may not be entirely recoverable. For safety, lop off $750,000,000. There remain $6,500,000,000 in cash and realizable assets to offset the Roosevelt gross debt. Deduct these assets and this debt drops to $15,000,000,000 net. That is what it amounts to after seven years.
Turn away from the Treasury and look over the country. What have we got in return for that $15,000,000,000 of net debt? In the first place, billions of dollars worth of roads, schoolhouses, hospitals, parks, playgrounds, swimming pools, jails, and other tangible improvements to the national plant—real increases in the national wealth.
There is no accurate inventory of the improvements in the national plant made with Federal money since Roosevelt entered office. The best analysis available is an estimate covering the seven years beginning July 1, 1931, during the Hoover Administration. This estimate was prepared by the National Resources Committee of the Federal government and put into the records of the Temporary National Economic Committee.
During those seven fiscal years, 1931-38, the Federal government spent $50,700,000,000. It took in $29,700,000,000 in taxes. What it received in taxes was enough to pay all the running expenses of the government, interest on the public debt, all expenditures for national defense and on veterans, and the entire cost of the huge subsidies to agriculture.
So put all those expenditures aside and turn to the $21,000,000,000 which was borrowed. Of that total, about $4,000,000,000 went into loans and investments in government corporations and credit agencies, and about $10,500,-000,000 went into useful public works. In calculating the value of these public works, only two-fifths of the money spent on work relief (C.W.A., F.E.R.A., and W.P.A.) was counted, and only three-quarters of the money spent through the Civilian Conservation Corps. This leaves a non-plant deficit—public debt not represented by recoverable Treasury assets or by tangible public improvements—of about $6,500,-000,000.
If you want to be conservative, add about $3,000,000,000 for depreciation of those public improvements. The total net deficit then becomes $9,500,000,000. That much, and no more, represents spending, as distinct from investment. In that calculation, every dollar put into battleships, guns, and other national defense items is counted as expenditure, not investment. So is every dollar put into soil conservation under the A.A.A., although soil conservation is slowing down and may ultimately stop the depletion and erosion of our most valuable and essential physical asset.
So far this most conservative accounting has ignored the most important assets of all: human beings. Millions of them have been kept from starvation, have been given a chance to preserve their morale and skills. Millions of young people have been given the chance to continue their educations or to do healthful work and acquire practical training. Indigent aged, the blind, dependent children, and crippled children have been given assistance.
There is no way of translating these human savings and gains into an exact money value. But they are obviously many times greater than the $9,500,000,000 addition to the Federal debt that is not offset by tangible physical assets. And that sum is less than the amount we added to the Federal debt in either of the two years we were in the World War.
How much is it worth to avert a revolution or a complete economic collapse? Only one highly industralized nation suffered a depression which compared with ours during the years 1930-33. That nation was Germany. There and here industrial production was cut in half and the national income was reduced by more than half. In contrast, the pit of the depression in Great Britain was only seventeen per cent, in terms of industrial production, below 1929, and in several other nations the drop was less severe. Those nations which suffered less severely had already established the social services which we did not begin to adopt until Roosevelt came into office, and which add substantially to our Federal expenditures.
The Roosevelt debt, small as it is in net figures, would have been smaller if heavier taxation had been applied at the proper points. Personal incomes in the range from five thousand to fifty thousand dollars or higher are still lightly taxed. The undistributed earnings tax was mishandled both by the Administration and by Congress. Properly drafted | it would have been a sound tax and, as an accessory to the income tax, quite remunerative. Taxation under the Roosevelt Administration is a hodge-podge—as, indeed, is most of our state and local taxation. Taxation will have to be systematized if we are going to spend and invest the money that is needed for an adequate program of public works and social welfare. But given the desperation of our plight and the formidable perplexities which it created, who can begrudge a dollar of the Roosevelt debt?
One other important item on the credit side of the debt has been omitted in this resume. The money that was spent and invested increased immensely the national income and the wealth in private hands. The value of this credit cannot be fixed, and whether or not it is substantial is a disputed question. To me the evidence is convincing that a large part of j our recovery has flowed from government investment and j spending of borrowed money?
In the calendar year 193G the outgo from the Federal Treasury exceeded income by more than $4,100,000,000. In the calendar year 1937 outgo exceeded income by less than $350,000,000. The sudden contraction was due chiefly to increased tax income—including the deflationary social security pay roll taxes—but partly to reduced expenditures. With this contraction came a general economic decline. To me it seems inescapable that the drastic contraction in what is appropriately called “the government’s net contribution to recovery” was largely and probably chiefly responsible for the economic recession of late 1937 and early 1938. This recession deepened until spending of borrowed money was resumed.
Other observers are not convinced. A handful still believe that we would have had more recovery if the budget had been balanced by stringent economies. Their belief is not supported by our experience during the latter part of the Hoover Administration, nor, so far as I have been able to discover, by any experience anywhere. It rests on faith.
The most extreme critics of Federal spending and investment cannot deny, however, that the money put into the hands of W.P.A. and C.C.C. workers was spent by them. From their hands it went into the tills of grocery stores and clothing stores, rent collectors and local tax collectors. From there it went on to wholesalers, and from them it went to railroads, trucking companies, and manufacturers. Then it went on to the producers of raw materials. Some of it went directly from the Treasury into the tills of manufacturers and raw material producers. This money was diffused through our economic system. Some of it finally was recovered by the Federal Treasury in the form of taxes.
The general economic invigoration caused by the spending and investment of borrowed money offsets many times over, in my opinion, the size of the debt accumulated. The plain fact is that debt of the Federal government is lighter now than when Mr. Roosevelt entered office. On March 3, 1933, interest charges on the Federal debt amounted to about 1.77 per cent of the national income. In 1939, interest charges on the Federal debt amounted to only 1.45 per cent of the national income.
This final argument can be waived. Believe, if you prefer, that the spending and investment of borrowed money has not stimulated recovery. The fact remains that the greater part of the debt incurred is offset by realizable assets or by concrete additions to the national wealth. The remainder is a small obligation to incur over a period of seven years for the prevention of suffering and starvation among millions of persons.
We have something to show for the Roosevelt debt. In either cold economic terms or warmer human values, we have much more to show for it than we had for the larger Wilson debt. Yet such is the perversity of human nature that we accepted cheerfully the Wilson debt, whereas almost every new dollar of the Roosevelt debt has evoked new lamentations, louder alarms, wilder prophecies of doom.
The mixture of reason and emotion which led us cheerfully to shoulder the Wilson debt has been evident again during the last few years. At session after session Congress has approved steadily rising appropriations for national defense.
When a W.P.A. appropriation bill is up, Congress haggles, frets, and boils over with forebodings about the size of the national debt. When an ordinary departmental appro-])i*iation bill is up, members of the “economy bloc” invite the acclaim of the public when they plane off $100,000 here or $5,000 there. When a national defense item comes up it is put through with a roar of approval. It is easier to get $90,000,000 for a battleship than $10,000,000 to build hospitals and health centers.
In the 1941 budget submitted by the President, the proposed outlay for national defense reaches the grand total of $1,840,000,000. This is $840,000,000 more than he tentatively earmarked for care of the unemployed through W.PA. It is only $29,000,000 less than the combined expenditures proposed for W.P.A., social security (aid to the aged, blind, dependent children, crippled children, public health, education, et cetera), the Civilian Conservation Corps, the National Youth Administration, and the Farm Security Administration.
This is the first time under Roosevelt that appropriations proposed for national defense have about equaled appropriations proposed for all kinds of relief, rehabilitation, and social security. The equality has been reached not only by increasing the former but by cutting the latter. Every item of social expenditure has been cut except grants to the states for aid to the aged, the blind, and dependent children, for which a modest increase was required under the amendments adopted by Congress last year. In addition, the P.W.A. program for subsidizing local public works has been abandoned, and the general Federal public works program is held to $640,000,000, an amount which can be regarded as normal. Much of it is for completing projects already begun. Aid to agriculture has been cut by $400,000,000.
Congress seems intent on outdoing the President in budget-cutting. Even the relatively popular national defense budget is being trimmed. The net effect of Congressional paring seems likely to swing the balance further in favor of national defense and against the care and improvement of the national plant.
On national defense we cannot afford to take chances. In this day navies and armies and air forces cannot be improvised. We are preparing for contingencies which may arise two, three, or five years hence. Only a President and a Congress disregarded of the safety of the nation would fail to make such preparations,
But there are other things on which we cannot afford to take chances. Most of them are not possibilities or probabilities, but actualities. In a truly enlightened sense, they are as much a part of our national defense as are battleships, airplanes, and Garand semi-automatic rifles. Unlike weapons and munitions, most of them would directly increase the national wealth. Many of them would pay for themselves in cold dollars.
The Farm Security Administration could put several hundred million dollars a year for several years into loans to enable tenants to become farm owners, and into smaller loans to enable poverty-stricken farmers to get back on their own feet. Most of this money—probably three-fourths of it —would be repaid to the Federal government. The rest would yield a profit many times over in the development of soil-conserving balanced farming practices. In addition it would permanently reduce the relief outlay.
The national health program and Federal aid to education, both of which would yield a social profit, have been laid on the shelf. The C.C.C. and the N.Y.A. are being cut down. Already W.P.A. has a backlog of more than a million workers who need relief but to whom work cannot be given because no money is available. Unless the President and Congress change their minds, the projected slash in W.P.A. will turn out another million able-bodied workers and their families before they can be absorbed in private industry.
The New Deal is retreating. The President himself and most of his lieutenants have joined the retreat without serious protest. Like their erstwhile enemies they seem to have fallen under the spell of the illusion that guns are more important than butter—more important than profitable investment in hospitals, roads, parks, playgrounds, good health, and a decent education for every American youth.