Full employment is becoming an issue as crucial as that of preserving the Union was in 1860. The American people followed Abraham Lincoln in judging the claims of the slaveholders incompatible with the preservation of the Union. The question today is whether they will follow Franklin D. Roosevelt and the New Deal in judging the achievement of full employment compatible with the functioning of the profit motive.
The New Deal has promised to achieve full employment. But it has promised more than just jobs. It has promised that individual purchasing power will rise with employment. And it has assured us that it will fulfill these promises by restoring full employment for the profit motive too.
Now in 1932 Germany had no work for millions of her people to do. Nor did she have work for the profit motive. Hitler has put Germany back to work. But he has not raised the purchasing power of those Germans who were working before he took over. And he has suppressed the profit motive (though not profits). Hitler’s achievement is the challenge which the New Deal must meet. It is all very well to dismiss Hitler and Fascism because both are morally repugnant. Certainly the overwhelming majority of the American people recoil in horror from the methods by which Hitler has put Germany back to work, and from the type of work Germany is doing. But work it is, and no moral misgivings will persuade workless masses indefinitely to reject any method, however repugnant, which demonstrably brings employment to all. If Fascism is repugnant to the American people, so is a state of affairs in which normalcy is semantics for unemployment at 10,000,000, and in which the American standard of living (this in 1937!) boils itself down to 130,000,000 Americans each having $307.15 a year.
Bearing in mind that the question must be considered in terms of this larger background of social crisis, we can ask: What policy should the New Deal adopt towards monopolies? Two points of view may be found in the positions taken by Mr. I. F. Stone and Mr. Willis K. Ballinger. Mr. Stone doubtless attributes much of the failure of the New Deal 1;o achieve full employment to the fact that too much freedom is allowed to the profit motive; while Mr. Ballinger, I believe, places the blame on too little freedom allowed it. Mr. Stone, as I understand his recent writings in The Nation (“Liberals Never Learn” and “A New N. R. A.”), advocates the public ownership of our great mass production industries (or oligopolies, dominated as each is by a handful of mutually competitive trustlets, like Ford and General Motors). Mr. Ballinger, on the other hand, as I understand his part in the T. N. E. C. proceedings, feels that anything short of the corporate equivalent of Hobbes’s famous description of the state of nature—”where man is to man a wolf”—is a restraint on competition and a potential threat to revive N. R. A. My own position lands me in the nutcracker between these conflicting views. It may be that events will justify Mr. Stone. Perhaps public ownership is the only answer to our present crisis. But this view in the present political situation is completely nebulous. For “public ownership” is sugar coating for Socialism as surely as the N. R. A. was sugar coating for the trusts, as Mr. Stone says it was. You cannot have public ownership of the monopolies (utilities and railroads) and of the mass production oligopolies (steel, automobiles, et cetera) without in fact having a socialized system of production, merely tolerating private enterprise for shopkeepers and other economically subsidiary groups having the status of kulaks. No such proposal is likely to become a live political issue in this country for a number of years. Long before it does, any justification for such criticism of the New Deal effort to attain full employment through the profit motive is likely to be exploited by Fascism, which opposes the New Deal on much less lofty social grounds and with more political acumen than the advocates of either public ownership or Socialism as such have ever shown.
Mr. Stone’s philosophy is like Christianity: it has never been tried. But Mr. Ballinger’s is on trial now, and it is working as badly as our business indices have performed since the 1937 fiasco. Nothing of course could be more unjust than to blame Mr. Ballinger for the present state of affairs, and he would be the first to protest against the Avay in which our mass production industries now function.
But—and here is the crux of the matter—his objection would be, as I understand his view, that what is wrong with the way in which the government permits business to operate is that industry plans within itself too much, not too little. By plans Mr. Ballinger means colludes, and by colludes he means price-fixing and other combinations against the unorganized public. Undoubtedly such malpractices exist and are unwholesome, although price-fixing has been more conspicuously absent than present for some time in even such a formerly notorious case as sheet steel prices. Nevertheless, in spite of the prevalence of such malpractices, the fact is that on the whole, business operates in so overwhelmingly planless a fashion that Mr. Ballinger’s views may be tested in terms of the forces which now contribute to the violent and unsettling fluctuations in business activity.
Let us look back to the fateful spring of 1937. Before discussing the contribution made by our planlessness to the collapse that set in later in 1937 (the sharpest in business history), I must mention the dislocation caused by the European war-scare and of the new labor situation created by the success of the C. I. O. in organizing the mass production industries. But statistical data which I have developed in collaboration with my brother, R. N. Janeway, summarize the roots of the 1937 fiasco as lying unmistakably in the chaotic operation of business.
In the first quarter of 1937, the volume of goods produced for sale and/or inventory (as distinguished from capital goods) exceeded the volume attained in the corresponding weeks of 1929. But the physical volume of consumption, which for 1936 as a whole averaged 87% of 1929 production, was not able to hold above 90% of 1929 in the first part of 1937. Consequently, production was pegged unjustifiably high above a level of consumption which, to begin with, was not at all unsatisfactory: the 87% level of 1936 reflected the stimulus to consumption from the Bonus.
The result of this period of overproduction was 1937’s record accumulation of inventories—from about the same level as that prevailing at the end of 1929 (when, however, consumption had been 10% higher), to no less than 134% of the 1929 year-end in November, 1937, an all time high. The inventory accumulated in these eleven months of unjustified and unsustainable boom brought on the famous “inventory recession” of 1938. By July, 1939, inventories had not yet been liquidated below 110% of 1929 year-end. To a considerable extent they still overhang many markets, acting as a chronic deterrent to production, although, characteristically, very few business men know exactly how great they are.
In an article in The Nation, I have described how the greatest dislocation occurred in the steel and auto industries, how Pittsburgh forced Detroit to take more and more steel by means of the threat of higher prices, how Detroit led Pittsburgh to believe it would take still more steel after Labor Day, 1937, so that finally both overproduced. The dislocation which resulted in key industries like these threw millions of people out of jobs and deflated values all over the country—at a time when widespread confidence was leading consumers to go into debt to buy more goods. To climax all this drama of ignorance and deception, the government itself mistook the appearance of prosperity generated by this wave of overproduction and price inflation for the reality of balanced production and consumption on a rising cycle.
Accordingly, the government thought the time ripe to slash its 1936 rate of contribution to purchasing power. This it did to the extent of $3,200,000,000. Although private capital investment continued to rise in 1937, what happened, according to a bulletin by Economics Consultants, was that “the withdrawal of government contribution more than offset the gains made by private capital at a time when the full impact of both private and government contribution was most needed. . . . 1937 simply failed to generate the purchasing power needed to absorb the enormous volume of consumer goods produced.” Recovery collapsed, and with its collapse the New Deal began to lose the promising momentum it had gained with the 1936 recovery.
It is perfectly clear that no amount of competition as such is going to inform business men—big or little—of the precise and complex statistical facts on which their production schedules must be based if they are not to take us into crisis after crisis and end by disgusting millions of people with the insecurity and impermanence of any incipient recovery. Before any thought can be given to the longer-range problems involved in attaining and holding full employment, some measure of recovery must be started. But, following the 1937 debacle, the autumn of 1938 and the spring of 1939 witnessed disappointments on a smaller scale, caused primarily by the same lack of elementary information. Moreover, so long as such information remains unavailable, the government cannot be expected to perform its essential function of compensating for inadequate purchasing power. At best it can only guess when purchasing power is inadequate to balance any given volume of production.
Mr, Ballinger’s position in all this is that while he wants democratic capitalism to continue, and while he hopes that it will solve our problems to the satisfaction of our people, he suspects as subversive and as an attempt to revive N. R. A. any effort to have our major industries (and government) informed of what they are actually doing.
In my article in The Nation on the 1937 collapse, I concluded by pleading with the government to establish a kind of information clearing house, possessing no executive authority, but simply functioning as a statistical broker between the major units of each important industry. Writing somewhat earlier and from an entirely different frame of reference, Chairman Jerome Frank of the Securities and Exchange Commission came to substantially the same conclusion in his classic statement of the case for making democracy work by economic planning. Finally, in March, 1939, at the initial hearings of the Temporary National Economic Committee, Chairman Frank—in debate with Mr. Ballinger—proposed the organization of “a council in which there would be intensive bargaining between the industries which have reached the integration stage (automobiles, chemicals, electrical equipment, et cetera). We need to have more hard bargaining between such industries. Perhaps such inter-industry bargaining would produce the desirable consequences which competition is supposed to produce.” With characteristic legal insight, Mr. Frank suggested reviving the common law principle that “the government owes an obligation to protect the consumer as competition did or was supposed to have protected him.” The crux of Mr. Frank’s argument, which expresses the central problem of the New Deal as well as it has yet been expressed, is that it is terribly dangerous for this democracy to rely on catchwords like “competition” to see us through the stormy years ahead. As President Roosevelt so often has said, political democracy must win its fight as economic democracy.
The advantage which Fascism holds over democracy in the war now being fought between the two systems is that Fascism knows it is at war. Democracy has not yet awakened to the fact. Fascism has attained full employment—in its way. Democracy must now do as much—in a better way. The first step in accomplishing this, either by democratic or Fascist means, is to find out what every part of the economy does and can do. Fascism found this out—by force. We must find it out too—by cooperation. If industry refuses to cooperate, public opinion may conceivably demand legislation providing that detailed production, pricing, and inventory data be made available in standard form as part of the regular corporate statement.
In any case, let us not fear to tread on new ground. We cannot retreat into the pre-industrial period. We must push ahead. We must learn to master the machinery of industry, lest its unregulated and uncoordinated working bring it down in ruins on our heads. The New Deal offers us our only practical way of beginning this job. If less has been accomplished in these seven years of the New Deal than was hoped, it is because familiar catchwords and customs have been relied upon to perform today’s essential functions. The New Deal barely has time in which to tackle the grave economic problems which have confronted it these seven years. It can do no better than begin by moving to integrate the operations of our great mass production industries, as a first step in sustaining employment and business activity at a level high enough to permit full employment to become more than a catchword.