This issue contains proceedings from the Graduate Faculty of Political and Social Science symposium on "The Struggle for Economic Security in Democracy," March 24-25, 1939.
PART I: CAUSES OF ECONOMIC INSTABILITY
As widely as contemporary governments differ in general principles, they are in fundamental agreement on the one issue of social security, on the wide attack on the mischances of sickness and disability. They are also all subject to the limitation fixed by their own relative stability or instability. All economic security, particularly social security, is dependent on political security. And it is a disturbing fact that never since the time of the French Revolution has there been less political security than today. Look around the world. Is there any guarantee of an orderly succession to Stalin, Hitler, Mussolini? If a great war comes on, is there any guarantee of the continued functioning of the British and French systems?
Even in Russia, with her rapidly increasing population, technical progress has not yet greatly increased the standard of living, because Russia is in the stage of building up her mechanical equipment through compulsory saving--which means limiting the standard of living. And further outside the inner circle of capitalism the vast overcrowded areas are still unrelieved by technical progress. It may be that recent political events will hasten the dynamic development in these areas. Whether the Japanese invasion of China, the German thrust to the east, the Italian intervention among the Arabs and Spaniards, will really lead to an accelerated development, we do not know. But there is no doubt that ultimately industrialization will spread to these areas too. And where are we, the members of the old industrial center, on this road toward increasing world population and world industrialization? Our highly intensified economic system faces now an opposite trend in population.
According to certain contemporary schools of thought, the reason for the length and severity of the Great Depression lies with a weakening in the forces of expansion which prior to 1929 and especially during the nineteenth century helped to cut short depressions and to initiate a recovery and a new prosperity. If this opinion is found largely justified and gains popular traction, it is the mission of the state to direct, to organize and to stimulate economic activities, and private business misunderstands its own interests if it insists on a policy which, by curtailing the national income, would make for deflation and a further decline of production and employment. It is my belief that this view is tenable, that something is indeed wrong with the forces making for the growth of the economic system. My concern now is to consider how far the data at our disposal indicate the validity of this hypothesis, and to consider especially what these forces of expansion are, and why their weakening makes depressions longer and more severe.
There are, obviously, a great many reasons why businessmen do not go forward these days with the optimism and confidence characteristic of earlier years. We have been considering this afternoon what might be called "shrinking frontiers," or, to put it in another way, the contracting horizons with which businessmen seem to be confronted. It would doubtless be helpful if we could develop the meaning of the term 'frontier' more generally. There are really three different conceptions involved in the term 'frontier' as we look beneath the surface of the current discussion. There are first, I submit, the physical frontiers which we in the United States instinctively think of when the word is bandied about in popular discussion. Secondly, we may consider what might be called economic frontiers. Finally, there are psychological frontiers, as everyone who closely studies the businessman’s habits of thinking must recognize as having a very real existence.
A hundred and fifty years ago well-meaning persons were alarmed at the knowledge that some wage-earners were spending part of their wages on tea and sugar. Such luxuries, they thought, would destroy the character of the working classes. Twenty years ago the spiritual descendants of these well-meaning persons were alarmed at the increasing use of automobiles by wage-earners, and their attendance at the movies. And the wage earners were using more tea and sugar than before. Now perhaps the chief cause of alarm is the shortness of the working day; but leisure is also a luxury, and like other luxuries is a product of capital and enterprise. Idleness by itself is not leisure, unless it is accompanied by the money and other apparatus necessary to make it attractive, and these have to be produced and earned.
Mr. Keynes, like Professor Staudinger today, has referred to some of the more promising results from these [declining] populating trends contributing to an improved standard of life, at any rate during the period of stationary population. But on the whole he agrees that the sequel of a declining population would, through the altered age composition, present refractory problems, since the population in the prime of life would have to sustain enhanced burdens of dependence as compared with what is borne by the present generation. But this secular problem should not be confused with the present cyclical problems and recovery urgencies of our economy, which call for remedies very different from those pursued currently and advocated by the apologists of deficiteering.
Let us step from the past to the present, and turn to the question of how far intervention, particularly currency debasements, have had an adverse effect. I do not want to take up the question of the effect of such debasements upon other countries and the world economy as a whole. I want simply to raise the question of how currency debasements have affected the economies of the countries which were debasing their currencies. Going over the record of various countries there exists a very striking relationship between the level of employment and production and the time and degree of currency deprecation.
I agree entirely with Professor Robinson that there is a potential danger in the fact that the present population composition of the United States shows a disproportionately great number of young people, between sixteen and twenty-one, many of whom are unable to find jobs. This danger existed in Germany too; there the disproportionate numbers of young people were an important factor in the widespread youth movement, and certainly their desperation, when they were unable to find jobs, contributed to the vitality of the Hitler movement. There is no doubt that this excessive unemployment among the young raises formidable problems with regard to our political development.
My impression is that this discussion illustrates very well the transitional situation in which we are living. In such a period of transition men’s thinking is still dominated by frozen patterns of the past, into which people try to mold the facts of the present. This subjection to set patterns is as true of communists as of businessmen; indeed, it would be difficult to decide which is the more conservative, the practical businessman, whose eyes see only what they are accustomed to see, or the utopian, who seeks only a confirmation of his theory, whatever happens in the real world. Both of them are conditioned by their habits of thinking, and I don’t know whether these can be altered by experience or reasoning. But in such a period as ours reality pays very little attention to dogmas; economic reality is to a great extent--I dare say, primarily--determined by the future.
PART II: ACHIEVING ECONOMIC STABILITY IN DICTATORIAL AND DEMOCRATIC COUNTRIES
Although the economist prefers the volume of production and consumption as an index for the success or failure of economic policy, public opinion looks rather at the record of employment. Thus it is more the fact that unemployment has disappeared in totalitarian Germany than any index number of production that impresses the democratic nations and challenges those who are responsible for their economic fate. Reemployment during recovery can be measured by the increase in the number of employed or by the decrease in the number of unemployed. The first figure is more significant from an economic point of view. But a high level of employment may be achieved by shorter working time. Employment figures in terms of working hours diverge greatly from employment figures in terms of working people.
The general theory of public spending has been frequently discussed. I shall therefore concentrate on certain crucial points of the problem. It should be remembered, however, that public spending serves not only one but two important purposes. I think we delude ourselves if we think of public spending as primarily a voluntary experiment to restore recovery and not as a measure forced upon us to meet a pressing human need during a period of economic collapse. There seems to be no other adequate way of dealing with the problem of those who are in distress and have no other means of subsistence. Let us keep this in mind, even though we limit the present discussion to the question whether or not compensatory spending is capable of restoring employment and prosperity.
My task is to consider only one part of business cycle policy, that is, the adjustment of prices and costs as a means of stabilization. Thus I shall not discuss the long-run changes of the social and economic structure that regularly underlie the short-run alternations and make a particular business cycle distinct from the preceding ones. Nor shall I discuss the singular fact that not only politically but also economically we are living in the aftermath of the World War. In fact, the devastating disproportionalities in the world’s production and distribution of agricultural commodities, raw materials and finished manufactured goods that resulted from the war have not only not been reduced to a new kind of approximate equilibrium but are still being increased by economic nationalism, the armament race and the attempts at economic preparedness for another totalitarian war. These two decisive transformations have altered the aspect of our so-called normal business cycle to an extent that has been best expressed by the English economist, R. G. Hawtry, who has declared that "since the outbreak of the war in 1914 there has been no business cycle."
Apparently one result of a rapidly industrialized society is that a large amount of that spending which is required to create a continuous accretion to wealth is of the variety which cannot adequately be handled by private capital. Perhaps the social needs of the community have been neglected as the private commercial needs have gone forward. It is even possible that, as the great urban developments took place the social, or non-commercial, needs increased in arithmetic progression, that is to say, faster than the net commercial needs. It may even be that there is today a necessary field in the national economy for non-commercial spending which did not exist before.
I think I can take it for granted that we do not approve of the aims and purposes to which the present German system puts its productive resources and its energies. But still the question remains, given these purposes, is the system not very efficient? Is it not much more efficient than the economic system in the democratic countries? I am afraid that all those who are so terribly afraid of the German war machine and have, perhaps, an exaggerated opinion of the magnitude of German armaments, are really saying, implicitly, that the system is frightfully efficient, because it could achieve a tremendous rearmament without a catastrophic lowering of the standard of living.
There is that important factor emphasized by the psychological theories of business fluctuation --'business confidence.' Upon occasion, without rhyme or reason, the business community hysterically concludes that the future is rosy, and invites the investment of new capital, at the same time that the possessors of liquid funds eagerly purchase new capital issues. Momentarily, at least, the prosperity that the two groups anticipate is produced by their own actions. Contrariwise, if rightly or wrongly 'confidence' ebbs, the cessation of investment produces the very slump that was feared.
I think we must abandon the notion that compensatory spending or pump priming is adequate to meet the needs of the [present] situation. What is required is an altogether different conception of the problem. The government should announce its intention to spend as long and as fast as necessary to get the national income up to a satisfactory level, let us say 100 billion dollars as an immediate goal. Then it should announce its intention to keep it there. If this were done businessmen could count on the continuation of the increased demand which government spending would bring.
..The average citizen uses the word "expenditure" only in relation to his outlays for current consumption. He would never use it to describe his investments. Hence the employment of the term "expenditures" in relation to the increased public outlays during the depression conveys the fallacious notion that these outlays are made for current consumption and deplete the national wealth. Yet, a large proportion of the federal outlays are loans to private enterprise and to state and municipal governments for capital investments, or are direct investments by the federal government itself in socially useful, lasting works. To call these outlays 'expenditures' without indicating their investment character, is to misrepresent their true nature.
It does not appear fortuitous that the economic and political arena of the last ten or fifteen years has been redundant with such words as "stability" and "security" nor that the signposts of earlier days, such as "advance" and "progress" have been submerged in the echoes of the newer phrases. In a period when the capitalist system was expanding, when it was young, vigorous, self-confident and self-reliant, the ideas of stabilization of prices and of production received an unwilling hearing in the court of public opinion. With the advent of big business and monopolistic competition, stability of prices, security of markets, shelter from competitive chiselers, and cover under the price umbrellas of the great and powerful began to be accepted modes of behavior in the business world…
The normal way of determining wages is actually not the monopolistic dictate by unions, but a bargain between manufacturers and unions, the main purpose of which is to find out how far the unions can go in their demands without jeopardizing the jobs of their members. Although, according to Dr. Feiler’s wage theory, both wage increases in prosperity periods and resistance to wage cuts in depression periods are an evil, I assume that he has qualified his verdict against wage increases in prosperity periods. Wage increases are the normal way by which a rise in national income, caused by increased productivity of labor, is transmitted to a broad sector of the population. Dr, Feiler, however, holds desirable only the automatic participation of labor in increments in the national income by means of a fall in the price level.
On the whole, I have by no means been advocating wage diminutions as an end in themselves. On the contrary, I wish to have the workers--not the workers alone but all the underprivileged groups of society--participate to the largest extent that is economically feasible in the increased productivity of production. That is why I emphasize the importance of price reductions as the best means for increasing the purchasing power of the masses, and why I declare that high prices, which also mean diminution of employment, should not be necessitated by a monopolistic maintenance of wages which unfortunately are not only purchasing power but also costs.
A progressive permanent public investment program might seem safer than reliance on private investment prosperity. But we ought not forget that the whole recovery policy is a highly political issue. If we could mobilize the political energy to realize Dr. Sweezy’s 100 billion dollar program through public investments, we certainly would be able to regulate private investments directly. That, after all, would be the straightest way. But business stabilization policy is a question not of the best scheme, but of political mobility, energy and expediency. At present we could be glad if concentration on compensatory investments produced two, three or four years of prosperity future. Future problems we could then perhaps meet with different measures.
PART III: ACHIEVING ECONOMIC STABILITY WITHIN THE FRAMEWORK OF DEMOCRATIC INSTITUTIONS: CONSTITUTIONAL AND ADMINISTRATIVE READJUSTMENTS
The specific problem that American democracy is facing today is that of how it can meet all the constitutional and administrative requirements of contemporary economic and social policy--such requirements as the stability and efficiency of the government, presidential leadership, cooperation and coordination of the governmental branches and agencies and activities, cooperation of government and industry, and cooperation of the industrial groups among themselves--without giving up the fundamental principles of constitutional democracy. One of these fundamental principles is that there are civil rights to be respected, even by the legislator.
The right to work is but one of a series of new rights which are steadily making their way all over the world: rights to health and old-age protection, to paid vacations and to collective bargaining, to an easy and cheap enjoyment of leisure--and many more. All of them may be summarized under the common heading of economic rights and retraced basically to one: the right to security attained through a steady job, a pension or insurance. This right to security is usually not deduced from any principle of natural law, nor is it advocated sub specie aeternitatis as inalienable, given to men as they are born. It proceeds from two sources: one is the desire to cash political rights into something concrete and of immediate use; the other is a gigantic universalization of an actuarial mirage, the dream that men can reduce to a minimum the hazards of life by sharing them evenly among themselves. It is the socialization not of the means of production but of the uncertain future.
I should like to consider first an observation which forms an important part of the first section of Professor Hula’s paper; it is best summarized in the sentence that 'we can no longer fear that the constitution, in the last resort interpreted by the Supreme Court, will ever prove to be too rigid.' I disagree with this statement quite basically in two important respects. First, in the last resort the constitution is not interpreted by the Supreme Court but is amended by the people of the United States. Secondly, I think that this constitution, when not amended by the people of the United States, not only may prove, but has proved, too rigid in very important respects and has been an important factor in creating the serious maladjustments under which we are laboring.
The tone of Professor Hula’s discussion, and particularly his confidence in advance by adjustment within the constitutional system, sound a familiar note. Political science in this country became confirmed in the strategy of accommodation, which was often a technique of subterfuge. Perhaps we were on the point of escaping from the limitations of this mood. But the terrific events of recent years in Europe have thrown us back upon our constitutional tradition. Professor Hula is sound, I think, in calling our constitution unwritten rather than written. He alludes to a third house of the legislature -- the Supreme Court. He alludes also to a notable retreat on the part of that third house of our legislature in response to political pressure. If that political pressure can be counted upon to renew itself and to survive, then the constitutional edifice that Professor Hula defends is doubtless capable of the adjustments which he imagines.
I fear that Mr. Ascoli has explained the right to work so subtly and so assiduously that he has managed to explain it away. It starts as something whose claim to validity arises from the failure of our economic institutions to function effectively; but it gets gradually whittled away and becomes ever more exiguous until it ends as something which can only be achieved homeopathically by further doses of the same economic institutions that presumably have failed to function and have thereby created the claim.
An employable may be given the right to a minimum livelihood. What he gets must be produced by others and transferred to him by way of charity or taxation; he lives at the expense of others. This is an extreme case, but it reveals the very nature of the right to economic security on the basis of a pension, a dole or a fortune. True the claim may be perfectly sound and justifiable on the ground that the claimant, in his day, made his contribution to the incomes of others, and that the pension is thus a delayed payment of what is due him. It is true also that a dole and a fortune are different in important respects.
I think nobody can have listened to the speeches that have been made without being impressed by what may be called the conservative character of our discussions. Though many suggestions may have been displeasing to the enemies of government intervention, most certainly nothing revolutionary has been advocated. On the contrary, we have been warned--directly as well as implicitly--against any sweeping solutions, especially against imitating certain methods pursued abroad which, while technically successful, entail grave dangers for the social and political pattern of democracy. This conservatism could be regarded as disappointing, and might increase the widespread pessimism we find in regard to our problem. I should therefore like to add a note of optimism on two aspects which have not yet been mentioned, a domestic and an international one.
The questions we have been discussing would not be so momentous, and the responsibility of answering them would not be so great, if Professor Friedrich were right in assuming that constitutional democracy may work even where there is no agreement on the fundamental questions of politics. But if we can learn one thing from the failure of democracy in the European countries, then it is this very fact that democracy is doomed when there is not, or is no longer, common agreement at least on the point that political decisions have to be based rather on consent than on force. There can be no doubt, however, that such an agreement presupposes in itself common fundamental objectives.
I have tried to find a goal that can be kept in sight through all the changes and readjustments that our society has to be subjected to if democracy is to be preserved. I have suggested the individual as the main goal and principle of direction, so that we may deliberately move toward something that we know and want, and not just drift. I have conceived the individual not as the common or the uncommon man, but simply as man. I would avoid the expression 'common man' which Professor Friedrich has here voiced with great eloquence, as it has either a snobbish or a demagogic connotation.
PART IV: ACHIEVING ECONOMIC STABILITY WITHIN THE FRAMEWORK OF DEMOCRATIC INSTITUTIONS: CONSTITUTIONAL AND ADMINISTRATIVE READJUSTMENTS
The fact that the dictatorial regimes have been able to provide employment opportunities, at least for the time being, is one of the main pillars of their internal strength and to my mind is a challenge to the democracies. But must we admit that a minimum of economic security (if I may now use this ticklish term) can be accomplished only in a totalitarian regime, only in a fascist, a national socialist, a bolshevist way of life? Must we admit that economic security can be achieved only at the cost of progress or liberty or both? Is this new claim compatible with the other rights--liberty and the pursuit of happiness--or can one of them be accomplished only at the price of the others?
We are here in an academic atmosphere--thank heaven, of free discussion--analyzing a topic that has elsewhere helped to put an end to free discussion. We are trying to define what a democracy can do and what it cannot do in an effort to achieve something that is being called "economic security"; and we are attempting to determine whether, if it can be achieved, economic security is worth the cost. As always the case where discussion is not limited by official dogma, there is still wide room for disagreement about definitions. I am not going to try to work out a new definition at this late stage. Let me, instead, sum up one or two that have been made, accept them and see what they mean, and then examine them from the point of view of some of their political implications, including such matters as constitutional law and administration which inherently we must concern ourselves with in the American system.