===== PAGE 1 =====

So 1 he
lem soung 3H %

not an yp,

very com.

price to a,

slic do mot

; out we

2 wa f|| A Conference Board Publication
y O lense i . .

CONTENTS

Review and Comment... .................................. 59
yusinessmen LL
ealistically § Great Britain Goes to a Planned Economy ................ 61
iy pe “We are turning our back on past doctrines’ | ~_

to law} .

intry to " Lord Keynes’ Preview of Bretton Woods. ................... 69
7s pres What he expected to bring home
oF i The Fiscal Realism of Beardsley Ruml..................... 71
hen leadets§
est attempl The Road to Serfdom.............................. ........... 73
Pi A book review

Mind and Morals of Harold J. Laski........................ 75
te o
the multe B|- Winds of Opinion............................................. 76
ipade to the} 1
h made pos || Philosophy of James F. Lincoln, Industrialist a it
oped ase [I Man is moved by incentive and crisis
d th ER 3 }
it be ro In a Swedish Mirror............................... 0... .... 79
oy Ps A chilling forecast by Professor Myrdal
lar Collective Bargaining as a Social Evil................... 81
1 2 merchant, By John W. Scoville
or streets, i
or The Fourth Power of Government......................... 87
ot of govert A report on federal corporations
of the ot
£ or group Cartel Idea in Oil... 89
ities govern:
orming the By J. Howard Pew
ainery of : .
we yielded i]
State-officiah3
would cease: : :
on NATIONAL INDUSTRIAL CONFERENCE BOARD, Inc I

tj AN

i 247 Park Avenue « New York 17, N. Y. )
se while pur; ’ :

“Man ve | | October, 1944 Vol. VI, No. 3



===== PAGE 2 =====

Octo

R

I% 1
nat
of a pl
~ exchan
full err
people
forgott
first re
above ¢
fare of -
shall he
mechan
Fund, ¢
structio
nearly ¢
- acting 1
accordn
nations
thau, th
the tem
supreme
and cre
The Economic Record ts open fo views and | internat
opinions that are mot necessarily those of THE -§ nations
CONFERENCE BOARD. It does not adopt them by ‘f§  unlimite
printing them; but for their integrity and good faith
wn every case The Board does hold itself morally ¥ March
responsible. Contributions will be welcome. {|
oo oo Banke
pessimis
Federal
Bretton
experts.
hands, h
read thre
genius o
boast is
Superstit
Page of
he made
land for
you read
Plan he i;
delegates
Change it
Jf DM noness
if posed



===== PAGE 3 =====

The Economic Record

GARET GARRETT, Editor

——

pi! .
4 ocroBER, 1944 National Tndueint® Gostetncl Board, Tac. ‘Vor. VI, No. 3
: Rev lew an d C comment happened therefore was that docile paper received
: forty-four signatures; and now the plan goes back to the
& governments for approval. If the war in Europe should
3 N THE summer cool of Bretton Woods, forty-four end suddenly, before the plan becomes operative, or be-
3 nations, believing it or not, subscribed to the fantasy fore the Congress of the United States has acted upon it,
2 of a planned and managed world in which the unselfish then there will be no organization of any kind to cushion
3F exchange of wealth by way of foreign trade will provide or absorb the shocks of monetary chaos, with no such
ZF fll employment and a higher standard of living for all thing as a natural price, a natural value, or a natural rate
L people of good will. If it works, the cost of war may be of exchange existing in the whole world.
3} forgotten. It will absorb itself in a painless manner. The

5 first requisite Is a supreme international intelligence, Saving Reality

5} above all national interests, putting always first the wel- .

1 farof the world. This supreme intemational intelligence 1° 00 Vioods Tonia, however 8 no) anec
= shall have in its hands, as working tools, two wonderful butter-and-egg acquaintance with friend reality. For

mechanisms, one named the International Monetary
Fund, and the other the International Bank for Recon-
; struction and Development, with combined resources of
“&f nearly $18 billion. By means of these two mechanisms,
FE acting in a reciprocal manner, credit may be multiplied

“according to need and at a price that even the poorest
£8 pations can afford to pay, for, according to Mr. Morgen-
“SF thau, the idea is to drive “the usurious money lender from

after all, what if the war should have to be paid for in the
old hard way ? Reckoning for the last war was postponed
for more than ten years, owing largely to the inflationary
use of American credit; and the European mind has never
been free of the notion that it might have been postponed
for a much longer time, possibly forever, if the supply of
dollars had not failed. Suddenly the Americans were in a
silly panic about their unplanned foreign loans and not

i the temple of international finance. Thins equipped, the only stopped putting their dollars forth but actually
7} supreme international intelligence shall reconcile debit ted ¢ their dollars back. and Aline t
“5f and credit, administer international inflation, plan the wanted Some o their dollars back, and were unwring Lo
; ’ ’ receive in place of dollars the equivalent in competitive

mternational economy, and say how the resources of the goods. That shall not happen again. The International
nations shall be employed and shared for purposes of :

oe 1s . . Monetary Fund and the International Bank together

unlimited international well-being. Co .

will be a miraculous source of dollars, and a source free

in itself, not subject this time to the fickleness of dollar

March of the Experts people. Moreover, if the supply should run out the fund

* Bankers had almost nothing to do with the plan. That will not be without means to replenish it, such as, first,

pessimistic fraternity was not admitted. Not even the - to borrow dollars wherever it may find them, and, sec-

b Federal Reserve Bank of New York was present at ondly, to require the American government to sell dollars

§ Bretton Woods. The plan was the work of monetary for gold. If dollars are still scarce, and scarce either for
#f experts. Many hands, principally British and American the reason that the dollar people are selling too much to

i} hands, had writing in it, but the parts that have to be other nations and buying too little from them, or for the

read three or four times, even by bankers, represent the reason that the dollar people do not lend freely to other

gens of Lord Keynes. of the British Treasury, whose nations, then the fund may act upon their foreign trade

boast is that almost single handed he conquered the to limit and hinder it by exchange restrictions, until they

Superstition of sound money in Great Britain. On another come to their senses and promise either to buy more and

Page of The Economic Record will be found the speech lend more, or, as a last resort, to cheapen dollars by de-

¢ made in the House of Lords just before leaving Eng- valuation for the benefit of their foreign customers and

5 and for the Bretton Woods conference. Remember as foreign debtors. This provision of the plan meets the

2} Youread the speech that the plan was then finished. The dictum of Lord Keynes that creditor nations shall be held

E Plan he is talking about is the one that was signed. The morally responsible for the plight of debtor nations and

5 delegates of the forty-four nations were forbidden to that hereafter creditor nations must keep the economic

Change it in principle; they were free to amend it only equilibrium of the world, instead of upsetting it as they

M nonessential particulars. President Roosevelt himself have done in the past, by squeezing gold out of the

Mmposed that limitation upon the conference. All that debtor.

59



===== PAGE 4 =====

60 . THE ECONOMIC RECORD October, 1044

Cheap Dollars never again be as it was before. This is owing to the |
world-wide diffusion of machine technics, to the passion
for industrialism now possessing the people who have .
hitherto served the system as primary producers only
and to the rise of the synthetic chemical industry which
may destroy, for example, the old rubber trade. Great
changes in the character and distribution of foreign trade
seem inevitable and imminent, and this is to have said
nothing of the enormous increase in the American power
of production both actual and relative. We cannot go on
forever lend-leasing the surplus away.

Implicit in this plan for control of the international
economy is the assumption that the United States will
emerge from this war a great creditor nation, as it did
before, only this time in figures of a much higher order
of magnitude. Astonishing as it may seem, in view of
what has been happening under lend-lease, that assump-
tion begins to be doubtful. A proper statement of this
country’s foreign account, showing both actual and con-
tingent dollar liabilities, might well disclose a debtor posi-
tion, that is to say, more dollars payable than dollars
receivable. There are instances of lend-lease operations

having turned into dollar Liabilities. It is certain, however, Master Cartel

that at the end of the war the American power of produc- The leading feature of this number of The Economic C'
tion will be paramount in the world and unimpaired, so Record is an account of Great Britain’s decision to em. - 4
that afterward, for awhile at least, this country’s role brace a planned economy. The reasons that have moved Witch
must continue to be that of the great provider. The prob- her to this decision are clear. It is deemed to be necessary Daily
lem, therefore, from the point of view of debtor and deficit in time of peace, almost as it was in time of war, to invoke gentle
nations, looking this way for credit and goods, is how to the total defensive power of the state, only now the thing stake.
keep dollars not only plentiful but also cheap. Here the to be defended is British economic power. But for a trad. | name
monetary experts did fine work. To begin with, the par ing nation like Great Britain a planned economy is ex- are ta
value of currencies must be fixed. By the par value of tremely hazardous. It can be badly damaged, even . Suc
currencies is meant the exchange value of dollars, pounds, wrecked, by wild fluctuations of price and demand in the § Britis.
roubles, guilders, and so on, in terms of one another; as outside world. That is why the British now are driving : Empl
to say, one pound sterling equals four dollars or it takes with all their skill of diplomacy for international economic toon
four dollars to buy one pound sterling. The plan provides agreements touching money, prices and production. The § memb
that the fixed par value of currencies shall be the value aim is to rationalize competition. From now on this will aol
that was of record sixty days before. the date on which be the controlling idea of British foreign policy and all. flatly
the plan becomes operative. That looks fair enough. But international conferences may be so understood. The and ey
the hare is invisible. The provision is one that will prob- Bretton Woods monetary agreement, as the British see § by the
ably result in making the dollar the cheapest piece of it, is a design for the master cartel. war.”
money in the world. Why ? Because since the beginning : could
of lend-lease no Allied country has had to buy dollars, Who Needs the Money 2 ernme
whereas dollars have been used to buy Allied currencies One of the received ideas, seldom challenged or ana-- thing.
in a prodigal manner, with this effect, that the dollar lyzed, is that after the war a long list of poor and debtor write
came to be undervalued and the Allied currencies over- countries must somehow be provided with buying power, “
valued in the exchange rates of record. These are not else they will be unable to buy, and if they are unable to the
natural rates; they are artificial rates supported by the buy nobody will be able to sell, and it will be very bad for | be
dollar. The pound sterling, for example, is probably much everybody’s foreign trade. In its August circular the the
too high in relation to the dollar. Speculators evidently National City Bank asks: “Who needs the money?” § omy
think so, hence the long rise of common stocks in London Tt finds that outside of Continental Europe there are few its ¢
and the fact that when British securities are sold in New countries in the world that have not been flooded during of a
York for dollars they are priced at a discount of 30%. * the war with American dollars and British pounds. Thus, the
The plan of the monetary experts proposes to freeze this enormous balances have accumulated to their credit in have
wartime distortion of values in peacetime parities, thus London and New York. Then it discovers that the gold pliec
making the dollar a permanent bargain. and foreign exchange reserves of twelve countries on the oy
. ow continent of Europe, excluding Germany, are really large. }
Wishfi ul Assump tion Of gold alone, these twelve countries hve more than $5 In 1
The most wishful assumption of the entire Bretton billion, two-fifths of which belongs to France. It says: i House
Woods plan is the crucial one. This is the assumption “Just as our enormous war expenditures at home are put- | Proval,
that the international division of labor will continue in ting money into the hands of people which they cannot brine. ,
somewhat the old design and that within that design spend because of lack of goods, so the tremendous out: final +
foreign trade, if only it is planned for the sake of man- pouring of American and British money abroad at a time | trail, .
kind, may be so wonderfully and profitably expanded of goods scarcity is building up huge dollar and sterling . upon F
that it will balance every national economy, provide full claims against future production.” Leaving aside cer of the
employment for all nations and enable the whole world tain problem countries, the difficulty will be how 0} directic
to enjoy a higher standard of living. Great Britain is say- produce and deliver the enormous quantities of goods try as |
ing she must increase her exports one-half over anything which the owners of pounds and dollars will be able imme: - lightly.
they were before; she must do this or fail. One of the few diately to command, and do it in time to avoid inflation— And

said: ©

certainties is that the international division of labor will not how to provide more buying power.



===== PAGE 5 =====

L104] ober, 1044 THE ECONOMIC RECORD 61

<ai The Outline of a Planned Economy
a I for Great Britain

a Powe: | Derived from the White Paper on Employment Policy and the debate

E | in the House of Commons
J OMING to the memorable year 1944, represent, as is stated clearly on the face and accompanied by widespread dis-
curious historians, if there are any, of the paper, a fundamental change of out- tress.”
will find the Burning of the Economic look.” Now what are the means and mechan-

Witch gleefully depicted in a London Any vagueness in it, he added, was ow- isms by which a government may hope to
Daily Mail cartoon. Five Pickwickian ing to the fact that Great Britain was put- be able to keep the national economy in a
gentlemen are dancing in a ring around the ting herself forward on an uncharted sea. state of equilibrium at a high predeter-
stake. The hateful figure in the flames is And Lt. Col. Elliott, who made one of the mined level?

named Unemployment. The blazing fagots fine speeches, said: “We are the first na- At the center of everything there will

\ecessary §
0 mnvoke.

. are tagged Outworn Theories. tion that evolved an industrial system and be a body of experts, which may be de-
Such was the popular reception of the we must be the first nation to find the scribed as an Economic General Staff. It
nd in the British Government’s White Paper on road out from the industrial system.” will have itself no power to act. Only the
- + #%f Employment Policy. Along with the car- government can act. But the Economic

e drivingf . . : .
economic] tom there was an article written by a General Staff will be all-seeing and all-
. C8 member of Parliament who referred to the I —The P aper knowing, and will possess, besides, the gift

ion. The} : SUP ies : . P , an

his will White Paper as “a landmark in British so- of foresight. It must be able to see a
' this wil § cial and economic history,” and said: “Et So now one looks at the White Paper. slump, or a boom either, before it happens
y and a flatly contradicts every economic principle What is it? and know beforehand what to do to snuff

od. Thek 4nd every statement of policy adumbrated It is the outline of a scientifically planned it out. Suppose, for example, as the White

ritish et = by the Treasury since the end of the last economy for Great Britain. And this is Paper says:
Ee war.” No offense was meant by this, nor not for the purpose of safe passage from “. . . there is a decline in the de-
4 could offense be imagined, since the gov- war to peace. In the transition period mand for steel for the erection of new
‘if emment itself was saying almost the same many emergency measures may be neces- buildings, unemployment will first ap-

d or ants thing. In its own White Paper it had gary. These will be what they have to be Lo among steel workers. Toe steel
nd debtor} ~~ ten: and what circumstances dictate. The scien- to spend oad and. other consumer
ng POWeI; “Not long ago, the ideas embodied in tifically planned economy will begin after goods, so that the demand for consumer
unable the present proposals were unfamiliar to that, as a permanent national policy. goods will fall. This leads to unemploy-
bad for the general public and the subject of The first premise is that the government ment among the workers in the con-
ry sl controversy among economists. Today, assumes responsibility for the “mainte- sumer goods industries who, in turn, find
cular the the conception of an expansionist econ- nance of a high and stable level of employ- their purchasing power reduced. As a
money omy and the broad principles governing ment after the war.” | result of this general loss of purchasing
led dur in a the arent nivel counts ioe But undertake to keep the national economy for new bullding > still further reduced
ds. Th "the whole of the measures here proposed in a state of equilibrium at a predetermined and the ain J CE
credit have never yet been systematically ap- level. In that economy there shall be - Soh og pro duces on dary reac-
t the g ~ plied as part of the official economic pol- neither booms nor slumps. Prices shall be Hons which themselves aggravate the
ies on icy of any government. In these mat- stable. Wages shall be stable, too, though source of the trouble. This is an over-
ally large; ters we shall be pioneers.” inclining always upward according to an simplified illustration, but it is sufficient
re than $f In presenting the White Paper to the index of production. Nothing shall be left to make it clear that the crucial moment
It says, House of Commons on motion for ap- to the cruelties of natural corrective. The for intervention is at the first onset of

proval, the Minister of Labor said: “We theory of natural correctives is fuel for the the depression. A corrective applied
. then may arrest the whole decline; once

the decline has spread and gathered.
momentum, interventions on a much

1e are put:f ; OLY OL ) k .
oy ot}  e€ turning our back finally on past doc- fire in which unemployment is burning up.
1dous oils lines, and past conceptions. . . . It isnot Lhe White Paper says:

lata time, oy 5 8 pioneering, it is blazing a new “The Government is prepared to ac- greater scale would be required—and at
ad sterling por, . It places a great responsibility cept in the future the responsibility for that stage might not be effective. Co
de ook : arliament and upon the government averting a slump. It was formerly be- Tn that case what would the scientific
- 0 o the day. . . . To have in its hands the lieved that depression would automati- ,rrective be? It would be a sudden re-
se how Xf direction of the economic life of the coun- cally correct itself through a decline in lease of a public works program for which

s of good try as it wills ; : prices and wages. The lower prices would :

lo irate lightly» wills is not something to be taken ‘crease demand and thereby restore the Bhapeiuis are already prepared. I
inflatio And the Chancellor of the Exchequer employment. However, experience has mate wo Lk nd + ages b 1 ing blu

said; «y h . does i 1 shown that this automatic corrective, if create work and wages by having a blue-

say that this plan does in fact effective at all, is likely to be prolonged print ready and then handing it out. In-



===== PAGE 6 =====

62 THE ECONOMIC RECORD October, 1944 |

i

— Oct
dustry, too, must be ready. The Economic taken to insure that the number of trainees sirable, it might well become a matt, :
General Staff must have foreseen the de- does not exceed the number capable of for consideraion whether In prosperoy apr
cline in the demand for steel. It must being absorbed in the particular trade.” times rather more taxation should b, due
have said to industry: “A time is about Thus the Economic General Staff must be raised than tr as ihe ven for the Budgy Jt
to come when your steel output will have able not only to foretell the rise of a new od 8S a credit repayable wr oy poli
to be absorbed by the government in pub- industry but the rate at which it will grow, taxpayers in bad times.” ¢ frus
lic works. The government for its pur- for otherwise the government could not be mig
poses will need not things in the shapes sure it would not find on its hands a lot Which means that in fat years the gop. In
you are making now but other things in of men trained for work that was not eryment would impound the fat by exces to be
other shapes. Therefore, prepare now to there. taxation and then in lean years distribyg labor
make those other things. Have your tools Briefly, in this scientifically planned i 4... : labor
ready so that you may turn immediately economy the Economic General Staff will In view of the fact that the governm The
to the new work. Otherwise there will be represent the principle of pure intelligence, dertakes to abolish sl db en on the
a time lag and your workers will have to without power. By its advice the govern- undertakes to abous ng an oon, still w
wait without wages while you are getting ment will act upon production, prices, why is it discussing ere what to do fy Sto s
ready, wherefore that total of expenditures wages, and profit. It will influence, direct, good and bad times? The answer is that of frus

such measures as these are provisional, the go
to be used only when and if necessary, but Th
They are weapons, and once they ap

which the government is obliged to main- and if necessary control the movements
tain: will begin to fall.” That is the mean- of private capital, the rate of interest, the

ing of the paragraphs of the White Paper situs of industry, the distribution of labor : having
which read: and population, and at last it will control proved it may not be necessary to use hooms
“In order that public investment may the amount of oney the people may them at all rot md lean A fe lem wi
be more quickly mobilized to redress the spend in the satisfaction of their daily ane A. ere 15 whe I SS1otity «)
balance of private investment the Gov- wants. 59 that the Economic General Staff wil
ernment also intend to seek means of If what are called the “consumption ex- make mistakes, maybe some very bad ones be
reducing the time lag which ordinarily penditures of the people” fluctuate, it is at first, and beyond that nt the fact that § iby
intervenes between a decision to under- bad for the equilibrium. When in their the forces of frustration will be active. meet
take public capital expenditure and the every day living they spend too little for The government takes forethought of § seen
actual start of the work. Speed here is goods and services, they are causing unem- these forces. For example, its design would {- *  tinui
be caught quickly enough and corrected ployment amoung those Who produce the be fru strated by a rise In wages © hs me ment
a comparatively modest amount of com. 80ods and services; wherefore these, in not “related to increased productivity due most
pensating expenditure will be sufficient UID, spend less, and the evil is accelerated. to increased efficiency and effort”; and if 0 be
to restore the balance. On the other hand, if they spend too much the general level of wage rates should Tse full )
“Finally, forward planning may have it causes prices to rise, which may be the and there was a corresponding mereasenl oo
to be carried down to the industries beginning of a boom. the price of goods for civilian consump and
. ‘which supply the primary needs of pub- The ideal, therefore, is a total expendi- tion, as of course there would be, then § ing t
lic investment. Much time would be ture predetermined and steadily main- ~©f course the individual wage earner police:

saved if, in .those capital industries tained. How can the total be regulated? Would be no better off and there may be In i
n

‘which are most subject to fluctuations : SPR no increase in the total amount of employ
and are the first to be affected by an ea bn its. a 8 re porfoc, will have ment available.” In fact any uncontrolled fe >
Eo to the mich ism, namely, the proposed new social in- TISe In prices would tend to frustrate the ae ¢
est ways of switching production from Surance system. Both employers and wage government S mtentions. i. ernmen’
the types of article needed for private earners contribute to the social insurance And again, if the government were dis them is
investment to the types required for fund. If the people’s total expenditure bursing great sums of money to mamta a contix
those forms of public investment which for the satisfaction of their daily wants employment and these great sums wer of a pl;
stand highest in priority on the reserve begins to fall, and unemployment for that largely absorbed by employers to increas ment of
list of public works.” reason rears its head, then contributions their profit margins, the government would This, +
The demands upon the foresight of the by both employers and wage earners to the be terribly frustrated, because in that ca% the pe o
General Economic Staff will be extreme. social insurance fund will be temporarily no increase of employment would result done to
For example, it must be able to foretell reduced. The effect of this, says the White In place of it there would be only increas fF - by the «
the decline of old industries and the rise Paper, will be to leave more purchasing of profit. Therefore, wages, prices a In th
of new ones. It must anticipate the de- power in the hands of the employer, so profits must all be controlled, and, quotit§ 7,
mands of new industry for labor so that that he can hire more people, and at the the White Paper, “employers must seek I was clar
when the new industry needs it labor of same time it “will also leave additional larger output rather than higher prices the said: ©]
that kind and precisely the right quantity money in the hands of millions of em- reward of enterprise and good manag® doubt v
will be there, already trained. The gov- ployed workers and will help maintain the ment.” racy cot
ernment will do the training; it will, says demand for consumers’ goods.” Another force of frustration lies in the tected t
the White Paper, “take steps to train the There is another means whereby the vol- inertia of labor. On this subject the Whitt asked w’
necessary men for new and egpanding ume of consumption may be regulated. Paper says: an elect
trades in time to be available when the The White Paper says: Commo

R . . 114 - . hod ten
demand for its services matures.” Trainees It would be a disaster if the m ous polic

may come from the failing trades, and “If experience should show that the tion of the Government to meine YOu are
thev “will mot be considered as unem- variation of social insurance contribu- total expenditure were interprete J Some of
y . tions was of value in keeping employ- exonerating the citizen from the duty "
ployed. Their allowances are to be en- ment steady at a high level, but that fending for himself and resulted in} fo Cy yt
tirely divorced from unemployment bene- another instrument for operating upon weakening of personal enterprise. Fo “espair,”

fits.” Then it adds: “Care will also be the volume of consumption was also de- if an expansion of total expenditure ¥¢ and defe

pt



===== PAGE 7 =====

October, 1944 THE ECONOMIC RECORD 63
Qcroo”> .

"lied to cure unemployment of a type governed by continuous purpose, irrespec- ate, whatever the ownership of industry
ap not to absence of jobs, but to fail- tive of the government of the day, and may be.
ure of workexs to move to’ p laces and went on: “I suggest that what the White On the same point the Chancellor of
occupations where they were nase tae Paper is asking us to do is to add a third the Exchequer said:

© policy of the Government, would D€ seat subject . . . that is, the promotion 5 .
frustrated and a dangerous rise In prices = oo 5 employment. I see nothing un- The White Paper does not seek to

take sides in the controversy between
private enterprise and public ownership
or public management. It seeks to cater
for both. In my opinion, for what it is

In that case would government submit
to be frustrated by the vegetable habits of

democratic in that. I do say that as the
world goes on, as circumstances change,
we must adapt, enlarge, and make mobile

labor or would it find a way to oe T¢® the means by which the policy is carried worth, sensible people must. recognize, as
Jabor In behalf of the general welfare? . out, but unless we are all determined that previous speakers on the opposite side
sovernm Then at last you come to people Who, this js the policy of the nation, and not of the House have recognized, the exist-
nd b Eo on their way to the Promised Land, may yp, policy of this party or that, we shall ence of a very wide field in which free
oom gill weep for the flesh pots of Egypt. That certainly fail.” enterprise will undoubtedly continue to
4 to dong human nature is in itself a force operate. Surely it is therefore common
. zg sto say, RN . " .
wer 1s thi of frustration. People have always wished sense fo provide conditions under which
provision} ir overnment to save them from slumps, _ ree enterprise can operate and have a
 necessailf the Oe s no historic instance of their 11. The Debate healthy development for the general
5 they ME PU . . h : benefit of the community; and on the
” °y E § . having wished . it to save i em rom The government presented its White other hand we must reckon with the
ay SF booms. The White Paper states this prob- Paper to the House of Commons as an growing opinion against allowing certain
es ei lem with 1IsgIvVIngs and hope, saying: architectural drawing, without blueprints services, certain activities, which are
: possibilijf . Lo ’ . : h :
¥ 5 © «Measures to increase total expendi- The motion of approval was opaquely vital to the life of the community, to be
al Staff wif . carried on for private gain
ry bad ona ture at the onset of a depression may phrased, thus: p gain.
zy | 2s ul well be welcome; but the restraining « i I 0 But the Chancellor of the Exchequer
© fer! | measures appropriate to a boom may That this a oy takes note of could not leave the subject there. Mem-
> aclve. HR meet with opposition unless they are mand Paper No. 6527 on Employment y= the left had raised the point that
sthousht AF : d £ _ Policy and welcomes the declaration of Ty. ea. .
thought jg seen and understood as part of a con ) na U A with industry cont te hand
: 1 JE : tain His Majesty’s Government accepting as maustry Hmuing 1m private hands
lesign woul] -  tinuing policy for maintaining employ- ajesty Ss +, 4 : .
ig . one of their primary aims and responsi- the freedom of government would be lim-
‘es that wak - ment, and accepted as the price that ie | primary esp . . .
Raa 1 id for th £ th bilities the maintenance of a high and ited. To this he said:
uctivity (af ~~ must be paid for the success of that ’
ort”: and]¥ ~ policy over the long period. If action is stable level of employment after the “That point does trouble me. I do
; should i . to be taken quickly enough to have its ~~ ar not want to be in the least controversial,
3: se} full effect, the Government of the day The government, represented by the but when I have given, as I have, study
3 INA gf must be able to rely on the support Minister of Labor, the Minister of Produc- to the technical problem of management
A consumpg and cooperation of the public in apply- 4:0. 4 the Chancellor of the Exchequer, under conditions of public ownership, I
dd be, the § ing the principles of an agreed national took two parliamentary positions. The first have always pictured this sort of setup:
vage early policy.” was that if the House of Commons ac- that RE VATE pould be app ointed Fe
ere may pf. . . A A act on behalf of the community under
t of emplog} In the paragraph Just quoted. there is cepted the drawing by voting aye on the the general directions of the Govern-
uncontroldl the significant phrase, government of the motion, then the government would pro- ment; they would have a duty that
Prustrate th ‘day.” What it signifies is a distinction be- ceed with the blueprints and bring in the would be laid down in some document
df tween the government and the state. Gov- necessary laws. The second position was or direction, to conduct their enterprise
-emments may come and go, but above that it declined to touch the dispute as with regard to certain principles. If it
nt were =p them is the state which is permanent with to whether industry should be privately or were transport, for example, it would be
to main a continuous policy, in this case the policy publicly owned, the dispute, namely, be- to provide an efficient service for the
; Sums "3 of a planned economy which the govern- tween capitalism and socialism; and that public a a reasonable cost. There w ould
s to INC ment of the day will be obliged to pursue. this attitude of neutrality would be main- © an eement of Lrusieesp 1m the dud
nment wolf <p . ties and obligations of the manager of
. E hus, whatever may have to be done to tained upon the ground that so far as the h blicl d ise. 1
: in that cf 4 : A LC . : such a publicly owned enterprise. I ven-
1d resith e people in a planned economy will be government’s intentions were concerned it ture to doubt whether the Government
erik done to them not by the government but would not matter one way or the other. would really have quite as much free-
only In¢ i "by the state. : The Minister of Labor said: dom as unkind people would say, ‘to
, prices iol In the debate on the White Paper in « } play about,’ with the affairs of such
must 0} was clarified. The Minister of Production he Waite Paper is the final solution of ownership as might be supposed. Ihave
ter prices ok said: “In an earlier part of the debate this problem. The proposals do not raise sometimes, in regard to the public serv-
ood mana doubt P heth, d the question, for instance, of whether jee, thought there were people who
E as cast upon whether a democ- industry will, for ever, be privately or took the view that the public service
lies in i acy could pursue a continuous policy di- publicly owned. Some say that all bene- was a sort of philanthropic institution,
m [es Whit rected toward full employment. It was fits of enterprise arise from private in- which should be run with a view to pro-
ect the E asked whether the White Paper was in fact dustry, and some say they arise from - viding opportunities of employment for
- 3 election manifesto; was the House of public ownership. Well, I have seen a people who were in need. All experience
£ the inf Commons going to be bound to a continu- bit of both. I have seen enterprise ab- shows that unless the public service 3g
t tid} 0% policy? . . . . I would say that unless sent from public ownership and I have conducted with a view to efficiency, and
to ma You are able j to devi seen enterprise completely absent from other considerations are discarded, you
1terprete 5 © In a democracy to devise on private ownership. Therefore, the ques ickly get int erious trou
Ome ) : : ) - Lhe , S- very quickly get into very s -
n the duty ¢ of these major things a continuous tion of how you can give effect to deci- ble.”

resulted Er policy you are subscribing to a doctrine of sions as to who will own industry is not
ise. il He referred to foreign policy prejudiced by this White Paper. The During the debate the idea of hiring the
"d defense as two great subjects already proposals of the White Paper will oper- brains of private enterprise was further



===== PAGE 8 =====

64 Co THE ECONOMIC RECORD : October, oe |

Octol
developed by a sympathet- : . : -
ic member who said: Burning of the Witch fo go into this matter of ; mon

stability of private 3
“I want private enter- investment. I follome: 1 the 1
‘prise to have its chance, with great attention the * patic
but, if it fails, the Gov- arguments of my hop us
ernment should have no friend, who said—and jt | after
qualms at all but should 1s a very simple argy. :
step In and say that the ment—that private capi. k “N
time has come when hey fal expenditure is diff. : “y
cause private enterprise member asked: Why not of tt
as failed. It is often cure the whole thing by stride
argued that private en- a wave of the wand and ; tion
terprise has all the make all capital expendi. The -
brains. Why cannot these ture public? The reason } really
men of high capacity be for that is that all capi. trodu
taken into the service of tal expenditure cannot be
the state and use their public if you are, in my : It we:
brains in that direction submission, to get ful] . moved
rather than be allowed, productivity out of your cerity.
as this White Paper sug- national resources, for - to embs
gests, to make whatever the reasons which I have i , for a d
they can out of private just been explaining.” § was not
be far better for them to the government took a. hind.
be servants of the state third position on tactical i to mak
Then that position arises. ground. ‘That is, it would a
at, to my mind, is not involve itself in any: opetttl,
one of the implications “ast: discussion of the laws that their as
of the White Paper — .-Rijoh of would be necessary. Fist | LOW U
which is Jetrimental, gs STE the drawing, then the blue- | way wi
p y to our sige, be- ee a prints, and from .the blue." Hely-Hn
cause we have always rints the 1 dy =
asserted that unemploy- London Daily Mail P I ° aws would nat- I
ment is bound to follow ar y follow. Some mem. propo:
our present system. Nothing can stop was designed to cure this probl ers were anxious to know convit
it, and unless the (xovernment are pre- a system which permitted Doth. hws whether the laws would have teeth and of the
pared to step in and take over heavy ownership and private enterprise, be- cutting edges. One member feared that b :
industries, such as coal, I do not see cause I think that is exactly and pre- too much would be left to voluntary ac-- to be
how unemployment can be prevented. cisely how we should approach the sub- tion. To this the Minister of Labor re-. my ov
- Here is. a grand opportunity for the ject. I do not mind in the least if I plied: .“We did not put down compulsion only a
state to step in and do it now. We have disagree on a particular industry with of this and that in the White Paper, but can de
laid down the fundamental principles my hon. friends—we will look after our- We have projected it for debate.” I: If we
that employment must be for every one. selves, and they will look after them- Th i. . unem
When we feel that private enterprise is selves—but I do want to get some gj ® Sovernment Yad no inclination to ory ih
tottering, then the Government should measure of agreement for this idea, that gloss the fact that its purpose was to dirett the pr
have no hesitation in taking over all this is the correct synthesis, if we are an d control the economic life of the na-- a gove
kinds of private industry for the benefit to get full productivity out of our re- tion by expansions of power beyond any with i
of our people. sources. he field of private enterprise British experience in time of peace, 2 is to
: . the field of a risk, in pr ting f power hitherto kn SI | terpri
The last word was said by the Mini = : 1S€, I PIOSPECLng IDF 2 Town only in time of war. LCTDTIS
of Production: y the ster mises, o experimentation and in oth- Indeed, the disciplines would be those that in the
hae | sor s of risks. had been learned with war. The Minister . Prachi
“I would like to touch for a moment Mg. Berreneer: Profitable risks. of Labor, peaking of course for the gov-. made
on private or free enterprise and the “Mz. LyrTeLTON: Th ernment, said: oe
: . : ] . : They must be prof- pl
public ownership aspect of this subject, itable; otherwise you cannot get oops “The coming of th ; :: emplo
and I would say what my own opinion to take them. If I may speak of an arena, full blo ed ¢ stole fwip 2 : terfere
= and to repeal it quite categorically. industry about which I know something must mean the writing of am proposee, choice
is tha e solution of this problem the mining indust ou h 1 . ; of a new code of m :
lies in finding the correct mean between a : ry, you have to lose conduct for industry, a new set of rules nent
: os great deal of money before you make i ic kk : “be § right t
the organizing power of the state and any, and iti 3 in our economic life, which must be "thi
» the X t
the free play of enterprise. The. Minister is Veplaining Phat he Ie vested he Bed "opoud NH the will be Gover
of Labour and I would probably draw taxpayers’ money in a f ‘ e problem is to °° of thi
the line between public ownership and oy ney process Tor turn- solved. Let me say, in passing, that 10. 18
€ . | g sea-water into gold, and has lost it one can look h :shine i our fre
private ownership at a different part of must always b ’ n look at the astonishing variety, t
ad ys be very uncomfortable. of products whi : ernal
the scale, but that is not a matter of Idon ink it i products which we have produc. i
© Sua, ) “oo ot think ; : . LE : nin
principle, nox of doctrine, but a matter disputed that Pa eae bo ng war thot realizing hot with pA
of practice. This is why I thought it was does lead to safe, sound and benefici ion i varied than our p~ they tr
: , eneficial duction in d ca] de ey t1
a pity that some hon. members laughed forms of enterpri i : peace, and our technical b
5 of enterprise, but I do not think velopment has f i ing -§ ut so
yesterday when the Chancellor of the that it is suitable for the kind of enter- we had done ripped ny FEL fr

Exchequer said that the White Paper prise which I have mentioned. I want it? The pressure of all towards a coo”;



===== PAGE 9 =====

Detober, 1944 THE ECONOMIC RECORD os

"mon objective—to win victory. I ask the government got the powers to in- wise friend of mine on this very subject,
the House whether a common objective terfere, that unemployment was effect- - and this was his comment. He said: ‘I
nationally cannot be adopted to carry ively dealt with. So I think I am say- wonder why 1t is that at this particular
us, not only through the transition pe- ing, in a slightly different way, exactly moment in history the idea should have
riod, but into a better economic state what my hon. friend the Member for become so prevalent that everything was
after the war. West Fife said, that we cannot have pri- done in the wrong way in the past, and

«Mz. Berzeneer: Code of what? vate enterprise, and deal effectively with that therefore it is to be done differently

: unemployment at the same time. I from now on.” He said: ‘Is there not

“Mg. Bevin: A code of conduct and think that is true. It is going to be a something crazy about that idea, is
relationships In carrying on the business question of choosing between the two. there not something almost conceited

of this country. We have made great Which is, in the long run, the greater about the idea that only now, in this
strides in this war in the way of produc- end in itself? Freedom of individual epoch of history, we find that every-
tion committees and all sorts of things. choice or dealing effectively with unem- thing done in the past was wrong and
The whole thing is growing up, but it is ployment?” that we ought now to do it in a differ-.
really only beginning. It has been in- ent way?’

troduced under the pressure of war. Several members interrupted to ask him = “I conclude by saying that I regard

It was a strange debate. Generally it to define freedom of choice. Did he mean ‘the White Paper, as a whole, as a most

ved on a plane of high and anxious sin. the freedom of choice on the part of the genume attempt to solve a problem
mo 3 - . 3 :

, employer to hire or discharge labor? He which appears to me to be practically
cerity. The mood was that of men about repliod: Tg | insoluble.”

ark on a voyage of great necessity,
io eb ; That was the extreme statement of

for a destination unknown. The dispute « . |
was pot about going, but about gear and 1 mean much m oq he freccom of doubt. And it was denounced as belong-
y: ing to the Nineteenth Century by one

cargo, what to take and what to leave be- —go to Brighton’; ‘I will—or will not— >
hind. They kept exhorting one another buy this particular hat’; ‘I will—or will speaking for the young section of the Con-
to make up their minds without looking not—start, or go into this particular servative Party who said:

"pack. No one was elated. Some were business.” All those things, in respect of “To us this White Paper means the
hopeful, some were depressed, several gave which we are today limited in every end of one chapter and the opening of
their assent as an act of faith. One, en- way, are different aspects of what I a new one. It means the end of laissez

_tirely unbelieving, who nevertheless gave peant by freedom of individual choice, faire and of the Free Trade century
way with a fatalistic gesture, was Mr. mean DE tints his o hg " Tan which has now come to an end, and it
" Hely-Hutchinson, who said: a an, ogo ating S OW. represents the definite adoption by the
Co tage. at is private enterprise. . . . Government of a planned economy.”
“I would like to propose a general “Turning to the methods of the Gov- Th fortv-thr hes. Ol
proposition. I myself am intellectually ernment’s proposals, there are a good ere were forty-three speeches. Lnly
"convinced of its truth, and still more so many aspects which one would like to two were valiant and uncompromising In

after listening to speakers on both sides discuss but there is one in particular defense of private enterprise as against a
of the House; but, oddly enough, I may which should be mentioned. The key- planned economy. The White Paper was
be wrong; so I would like the problem note of the policy in practice, as I see it, supported by Conservatives, Liberals, Tory

to be examined by better minds than is to be found in the central phrase on Reformers, Moderate Socialists, the Labor
my own. My proposition is that it is page 26, section 80: “Today, the concep- Party as a whole, and by British industry
only an authoritarian government which tion of an expansionist economy and the i, seneral. Sir Arm old Gridley. himself an
can deal effectively with unemployment. broad principles governing its growth + tri alist : th ¥:

If we examine the nature and causes of are widely accepted by men of affairs as industrialist lor more than LOILy: years,
unemployment it can be shown in the- well as by technical experts in all the said: “I have taken the trouble to fortify

my own views by contacting leaders of in-

ory that the only effective technique in great industrial countries.” That con- 1
dustry in many parts of the country and

the prevention of unemployment which fident phrase might have come straight

na-zf a government can employ is interference out of a leading article in The Times. I find that the views I have expressed are

yond any} with individual freedom of choice—that I am not absolutely certain what it very widely shared. I think it can be said

peace, 8 is to say interference with private en- means, but I know what it connotes t0 without contradiction that although of

ne of warj§ terprise—and not only can we show it my mind, and I have had that Impres- course questions may be asked on this or

those that} ~~ 1» theory but also we Bave seen it I sion confirmed by what every hon. mem- 4p. 1014 of the White Paper proposals,

» Minister} =~ Practice in the last ten or twenty years. ber has said in speaking of it. It con- . ™ = 4". 4 trv is prepared to give
© sf - In those countries which have for a time notes to my mind the pressure of equal general, ry 1s prepared to gi

made a success of dealing with unem- suffrage on taxation, a continually ex- them wide support.

r the gov- j
. ployment the technique which they have panding national debt, and a steadily

Ca pd employed for that purpose has been in- if slowly depreciating currency. What R

to A t terference with freedom of individual it really means is that, under the pres- III.—The N Ew Finance
sw code of: choice. In Germany, the Nazi Govern- sure of suffrage on taxation, the horses Te

ot of ruletf ment took away from the people the of national debt have already begun to ap anned economy, finance becomes
oust bel right to make their own decisions. In run away, and instead of pulling a long 2 social science, public debt is made sub-
ge i 3 “this country we voluntarily gave our face about it, we have decided to look ject to the laws of relativity, and money
is to be: Government, for the purpose and period pleasant and say that that was what we is administered by a slide rule. Instead
g, that 10 of this war, the power to interfere with had really meant them to do all the of money creating necessity it is necessity
ng variety our freedom of choice. In Russia, a pa- time. . . . I think we are entering on {hat creates money, and its power to limit
produced; temal government took over the run a period when it will be politically Im- pan happiness is therefore abolished.
lizing t ie ning of the whole nation, and interfered . possible to oppose the idea of an expan- my == ta ho ic that this ch t
5% With freedom of choice. In America, sionist policy. It must run its course, Ly 18 tha § change mus
"8 they tried to deal with unemployment, it must work itself out, and it is only take place in a world that clings desper-
but so long as they refused to interfere when it has worked itself out that we ately to its superstitions. Until the new

with freedom of choice, they failed; and shall realize to the full what are its de- way is proved, that is to say, until 1t
t was only when war came along and fects. Today I was talking with a very works, people will continue to think in the



===== PAGE 10 =====

66
N
> 1944

old wa
y of
the theory rt debt and hold fast to
: . ney. 5
cor discussion of yoy, $6 when it comes gard these realiti
economy there mu ance a planned untry’s credit es to the ruin of
euphemizms. For must be a resort to Mgr, PoraiceL, public confidenc the The Cha —_—
10 ation; you s Ap le, you never ways, taken th ~LAWRENCE! Ih e. a stran ncellor of the E :
balanced bodaet infin nnot project on principles of finan dissegarded, but mie the revol beautiful ? was not fost, and he
stead of th tely - y inter e have been e utiona . He 8 det
a distinctio an budget. Y A Sm Grorg: Tg" co nted by the Whine of outlook ? he:
which n between a ou make to clea E SCHUSTER: me to be . te Pa as ent
o one without de reduced when it may were to mizd, Fevanse 2 right hon of the PI ny must be t es framing the ere
the other han onary effect, an SUDpOLter os pause 1 think if he but of cial position of the. not mere sili
es ch may grow re productive bay ance it would debartel oy as a the Solel ceonemmie. governine | :
y cannot RANE planned ’ he wh e a ve msound fin- 7. It foll conditio the
feated by permit its desi econ- ole question i Ty serious ust no lon owed that R of
y the old 1 esigns to be d terpret the ion is how matter. Standpor ger be viewed at “taxati gre
construed; b aws of solvency, rigi e- vious] rules of sound we are to in- th point of its eff ed merely fro om | the
Jaws Cann ut at the same ti y, rigidly ~~ Dar ¥; they have b finance. Ob e necessar effectiveness i m the | fine
ot be fla e time the rowly inte een too rigidl - the y revenue.” s in raising y
if ay are credit aly repudiated the 01 have 1 cognins that in the cy and had ps aph s of the Whe po then t : fin
Pa vas a para, . uture, eral int 1 have to ntradicto as obsc hat of
sals “volves EP the White be a orn of to His font ot in the fession: ry, he made this charms d self out
. : e main a at dis it woul ing con- ° tan
deficit . ves deliberate propo- y to ad astrous d . ou d Oon-
In . lannin voca us doct «
erate is the Srational dot ng or a for so lance porking doliboratcly orig ack, these paragraph > and
. . : e . £2)
was attacked b e equivocal word elib- ~~ White tse. _I thin k the m something think entirely to the Treasure their eve:
who said: y Mr. Pethick-La and 1t ly, had id er, if I et hes of the ficult becau some respects h y, but I yea
“Mod awrence, ~~ S10W how at in mind and them right. comical ause they deal s they are dit. | ove
comes to thi economic th proposed do e main meas proceeded to authors of Jpct-matter and b a highly to |
and deli S: that unl ought reall unbalancin not involve th S which it those parti ul €se€ paragra, bs ose the : . poli
aod defer unbalance th definitely right ho ng of the Budget deliberate” and. ah agility wiih T RE ove Fo
. . . times vi y which a freed rap
towards not do an hin e Budget right hon. fri in disagreeme do not es view ch I conf edom
creatin ything materi , glad . friend on thi nt with I move i rather wi ess I some. § sage
ernment a « g employme erial to hear th ’ S, and I my ve In the th alarm _Some-
the ction, an d | J nt by Gov- today th e Minister was very and with m somewh. EH because § The
too I admit that the what I call sound ae did stand 2f Labour say like to ia steps. 2%, aaberiously 1 When
Budget proposition. So hat is a very that in ind. We have : Teasonbly the general to cxplain in a i would } Social
st be long as y at . , althou 0 be of th words § vot
you could you had pp iy” planed The . eo interpretation isn Moaell choos what the Cha paragraphs.’ : White
. C . 1 . IY 341 -
disobeyed obey or disob ey; nd ‘which Wil eile irreconcilabl ecessary. mean hl understo od ancellor of the Ex ° on the
who broke Ag were held u if you balancin ’ who said: “The e was Sir H. as this: se paragraphs to : enterp:
of finance Th of the ostablish as one tion g udgets is th policy of un “The would
on like a person overboard threw is the worst inflation poli - The White central finan of 1h . The. oreble isto fhe Gr
a moral who had ’ u fi st form of y and inflati gestions . ‘of the pr ems of yi tain d
danger code — ad brok- ate you oi protecti ation th which oposals ed.
- 5" t
pices. I a go ontird a 8 that you jy means that hil purpose of £ ape. That Elsewhere I later t
ci he a te pis son on recat that effect is Rr, to be cheap ! en the frst Pog The 3 ol f there
r ey 1a ransi - € ; a, : T B .
are ark, but it is no go ee] they would preciating currency {ransitory. It is >" that erate planning for aph. talks refore, | prinlp
there is a a TP to pred we 1s och produces Ew Sepraatated gestions ans Is that ion 9, Gekko that 4 Lc
ater the R at if the fd ut timat and pass : ect, which the Whi ave bee e sug- emit
fore. th y will get drown 7 go into the nately adapt th es away. Pri "tha te Paper h n made > sug- tel
; . : t r has th earlier in els an
land.’ must stay all eda, and, there- exchange.” H emselves to 1ces ul- deli an unbala. ere been . ; . .
nd. - he G the time Pa . e affirmed’ tl the rate of . eliberatel nced bud any hint ish ind
EER Bo on dry per policy was of that the Wit Thon t y used as an inst might be | 0°
to im rules, if an . must deter- rency expansi one of chea te Th ing the em 0 instrument . na
realize that i this omy, they are going that it Lf and deficit . money, cur- contract e passage ployment om. : |
an expandin it is is necessa ey must United Stat fail. It had ) nding and ductive between produ oo to make 2 AY
economy m 8 economy. peg have “In es. He said: alled in the weight ebt—unpro detio, and unpro- Now
s . Xpan : , as it i e or :
means expanding a it enced the the United Stat plates that is bls called Tt sonten: had 1
an 1g credit, an I : here i polic Led. crates writte -weight em: ad b
the publi possible it mean: think need. the policy of the Whi om orien off at a ght debt migh e
sary evil > at is g years th " vel about 1 PET. indic is still 1 €n the pro- . s
, provided it i not a n pump.’ ey delib it. F ates that II Imcreas To ideologt
carefull ed it eces- p.’ Th erately ‘pri or ad 1at ther ing, and 1t og!
y guarded t is watched Whi at was y ‘primed th vantage e would b nog mad
The followi against ab and te Paper i the phr e « in that e a definite - ade a
followin use.” der r is onl ase. Thi It go process. If
my right h GB SCHUSTER: I | ’ even S of dollars were of thousands of same time productive debt © policy of - n nom
hind on. friend will } am sure E paid peo 1 e spent, and o does : increasin 3 while at the EW pre
what . agr ve ple for 2 the not g prod
sound can fairl ee that be- ry. kind of not raisi y would mean th uctive debt of all n;
finance Y. be describ form of thi economi ng hogs - be co - at the G : ’ v ni
cannot be dis there lie realiti ibed as ted b s White P ic folly in the balancing b mmitted to a ri overnment : great Ii)
sregarded, and it ies which of the the United States a commit. the next udgets year b rigid plan of trade,
would be “wo ee period they h ates. At the end ment examin agraph you rl th and in it is not
rk—a stab ad 17,500,0 en ing i ed that i d the argu free:
le . ,000 g in t int gu ee
and hish out of. the nat erest ch . yan
gh level do . ure of a arges, be- fie
of un- not invol transfe S the
on the ¢ olve any additi T payment, got
ommunity. Th onal burden -. def. od
e paragraph efend i
SC

disastro 1
us if I
this country were to disre
y g ~ employmen ’
t.”
points out at, w
th 1
t, hile that 1s, in some °
: of wa,
Tr,



===== PAGE 11 =====

 10UB° ober, 1944 ~~ THE ECONOMIC RECORD 67

’T Ny ng degrees perfectly true, nevertheless, ual must be sacrificed, that cannot be “The subject of debtor and creditor
> he} heavy taxation has a cramping effect on helped. nations lies at the root of all these
spoke of enterprise, and that, moreover, the A member said: “Free citizens grant problems. By a creditor nation I mean
Hook af growth of debt ust alway: : be consid- such power to the government only when - either a nation which has collected a
it had J ered in TO ional Income and Ie they believe the existence of the nation is large [adebtedness for past, services, or
To theif ase points are all brought out in at stake” rent favorable balane Pot pa ments We
¥ £ . .
merely those paragraphs, perhaps with some de- That was, therefore, the first question: in the whole of our industria] Tife have
fition ee of condensation, which has made Was the existence of the nation at stake? always been a creditor nation, but we
“% es | the argument difficult to follow. But, Another member commented upon the shall end this war as the largest debtor
oo xation : finally, in paragraph 79, the point is fact that the White Paper employed mili- nation in the world. It is impossible to
om t : | made that, while problems of central tary terms, such as strategy and tactics. carry the debtor position with the men-
1 raising§ finance must be dealt with on a balance That, he thought, was quite right, because tality of a creditor. . . . We have to
then to] of OE ant. I: the methods of military thinking were have a new mentality and put our nas
Per that ~ out of aCCOWAL & "helpful in a desperate situation. What he 10nal resources 10 work and make ou
and self. 2f tance of maintaining confidence at home feared was that the planners would be of the skill of our own workers those
ung c and, perhaps ev 2 ‘ k in losisti things which we cannot pay for by ex-
that reason, it is essential that, what- Weak In logistics. Would they know how ports.
~ ever may happen to the budgets from oy get heir forces PL (he right place at But how may Great Britain’s exports be
we theirs year to year, they must be balanced e right tme—an, orces adequate tO jnoreased one-half over what they were
y, but I over a period; and that. must be seen deal with the crisis’. He added: before the war?
y are dif.2 to be * I hope hot 1 may Eos ade Through all that I have to say there In facing this problem, one member
a highly: oo Foarer than it was in the text of the runs this very urgent plea—that it is said: “We have to recognize the fact that
catise the 2 Paper what the purpose of these pas- time that we got away from general many of our old markets are probably per-
reodont ‘sages was.” the Brit: thesis to a realistic study of manently lost; those for instance in the
3 . e British economic structure and o a. . ste he
i I some. The debate continued for three days. what is going to be the British prob- dominions and India - - Austra ia Is be
; because When at last it came fo the question, a lem. What will that be? An immense- Ee nant acting copnty- hi >
boriously3 Socialist member said that as only three ly formidable one, as was well appre- Same © servation apples to 1a, whic
I would? ~~ votes were going to be cast against the ciated in what the Minister told us this Is becoming more and more industrialized.
Ww words, White Paper, his own and two others, all. morning. It is the problem of satisfying . . . To offset losses of this kind we must
agraphs. on the ground that the funeral of private the demands which our people will make make the most strenuous endeavors to in-
the . enterprise had been postponed, a division at home, and of keeping our place Im ex- crease our exports to other countries.
raphs togf . would be a waste of time. So the ques- port markets. That means higher stand- Above all, we must hang on like grim
‘BF tion was agreed to without a division, and rari of production, ond death to the markets ‘which are within
; . j ion of manpower than 1 . -. j
hs is t the Government's White Paper was sus ever before to nonproductive purposes, our control, by which I mean British en
\phs 1s “tained. : terprises established abroad.
>blems which we all accept, such as defense and Then he added sadlv: “The British
and sug In the House of Lords several weeks education, as well as more generous al- en he added sadly: lhe Drusn en-
where is later there was a like result. The debate lowances to the old and infirm. And all terprises abroad are suffering increasing
he whole] there occupied less than two days. The this greater productive effort will have difficulties. They have to meet a rise in
Therefore if principal speech for the White Paper was to be achieved in circumstances of diffi- cost due to legislation in the countries
cs of ‘alk by Lord McGowan, head of Imperial culty never paralleled in our history. It where they operate, social legislation to
all that if Chemical Industries, who believes in car- is common knowledge now that im- 3 large extent. . . . In many parts of the
. the sug . tels and represents all the longing of Brit- Dt the viel to Yh wud tha, Lo Sup world these British enterprises also have
lier iF ih: 5 ort the volume of imports we had be- . . Treg .
any hit} ish industry for a world of amiable and fore the war, we need to increase our to face an Spree nationalistic feeling,
. be'tf rationalized competition. exports in volume by 50%—even if we 20 lCreasmng leefing on the part of the
might : countries which in the past have accepted

tl § . can retain the same favorable ‘terms of - : !
iment ford R IV.—The Dilemma trade’ as before the war.” British capital and British enterprise that

situation gf th better abl hings

, make 83f Now what had k Ff The drawl Running throuch the debate like a re- ey are better able to carry out t Ings 10r
od unpro-3f alt had happene ne drawing i. g. g e ec lke °= themselves. Therefore, I hold strongly
or dead: 34 , a planned economy for Great Britain frain was the statement of one economic that the Government should do all in its
t conten} ad been accepted. In this country, no imperative. Great Britain must increase power to help these enterprises.”

“bt might doubt, the event will be treated as one of her exports one-half. Why? Because she Another member said: oo

| the pros§ ideological meaning, as if the British had has no longer an invisible balance of trade “I should like to know what steps the
g, and Made a free choice between two systems. in the form of income from investments Government are taking now to insure that
a defi! If that were true the doctrine of planned overseas. Those investments are largely we do get a proper proportion of the ex-

¢conomy might be said to have acquired lost. Therefore, in order to buy from the port trade of the world. . . . Unless some-
policy old ~ DeW prestige in the world—Great Britain world only as much as before of the things thing is done now our American allies will
hile at t0¢:§ * of all nations to embrace it in place of the vitally needed to sustain her economy, |e in a position to capture a large propor-

tive ov feat liberal doctrine of free markets, free such as food and raw materials, she must tion of the export trade of the world.”

Ha ode, free prices, and free enterprise. But export much more as the visible equiva- The dilemma now evolves. Faced with
ar: an 's not true. The choice was not entirely lent, currently. If at the same time she the necessity greatly to increase her ex-
the argu Pw and wherein it was not free it signi- is going to raise the standard of living. ports and do it at once against enormous
\arges, es the length to which Great Britain will In Great Britain she must export still odds, the conclusion is that with one
paymen Sif defend her place in the world. To more in order to buy still more from mighty exertion British industries must be
al burd i It she is willing to impose upon her- abroad, for her people will be consuming recreated to equal the most modern in the
paragra disciplines not unlike the disciplines more than ever before. world, British resources must be intensely

5, I SO of War, and if the freedom of the individ- The Minister of Production said: developed, and British labor at the same



===== PAGE 12 =====

68 THE ECONOMIC RECORD October, 1944

time must be trained in ‘skills and habits States was starting its industrial career “A country will not suffer from mags
for the greater efficiency that is going to could have swamped out its growing in- unemployment so long as the total de.
be required by the new industry that is go- dustries. They insulated themselves, how- mand for its goods and services is main.

tained at a high level. But in this coup.
try we are obliged to consider extern,
no less than internal demand. The Goy.
ernment are therefore seeking to create,

ing to be created. The feeling is that this ever, and produced this enormous indus-
heroic task cannot be left to private enter- trial system which now is the wonder of
prise. It is an emergency, somewhat the the world.”

same as the emergency of war. Therefore, Nevertheless, the Minister of Labor, through. collaboration between the ng. Lore
people must be willing to accept a planned speaking for the government, thought it tions, conditions of international tra de before
‘economy and to submit themselves to a could be done by national agreement. “We which will make it possible for all couy. - nation
kind of discipline hitherto unknown to must have foreign trade,” he said, “be- tries to pursue policies of full employ. Woods
them in time of peace, all because the cause the raw materials are outside our - ment to their mutual advantage.” the or
fate of the nation is at hazard. country. We must buy them and other change

You may see that for a country like } 5
Great Britain the dilemma of a planned M
economy is extremely difficult. He :

But now the question: Can a planned countries must buy goods from us, if we
economy be made to work, even theoreti- are to have the raw materials, and we

cally, except in a state of isolation? Can must do so under conditions which will . t ing Un
it work In a country that is unable to in- insure that our internal economy is not planned economy will not work unless it ships’ ]
sulate itself against the free markets, free brought near disaster by every storm that can be insulated, and it ‘cannot be insu. : Lordshi

prices, and free enterprise of the out- blows. Unless there is a method of in- lated because it is under a vital necessity spent.
side world? Obviously, a country to whose sulation there is always the danger of the to go on trading with the outside world, tures of
economy exports and imports are vital whole economic structure being upset. Her solution is for “all countries to pur: Clearin;
cannot insulate itself. Therefore, in an association with other sue policies of full employment,” like the - peared.
One member said: “Other great com- countries we must try to agree on meas- British policy—that is to say, a world-wide much re
munities which have developed themselves ures which will prevent the appalling fluc- planned economy, the White Paper un.” 1 believe
economically and have sought for a policy tuations in the national price level which versal. : Your L«
"of full employment have taken the line of characterized the years between the wars. But would it be a solution really, ora | .* into too
insulation, and in some cases complete in- . . . I am hopeful that the negotiations solution for long, with the trade of the’ : occupy
sulation, from the outside world. Russia now being carried out throughout the world divided by rigid agreements, with. the maj:
perhaps is the most extreme example. . . . United Nations will lead to that end. We governments themselves acting as the to gain
The United States group also held them- have wholeheartedly committed ourselves principal trading bodies, and with pros} = are ade
selves together by strong insistence upon to this in the Atlantic Charter.” perity apportioned among the nations by disadvar
a barrier to insulate them from the full The same hopeful thought is more care- writing on paper? Would Great Britain We st
impact of the developed industrial system fully stated in the White Paper itself in a herself consent to be so bound forever, won am
of Europe, which at the time the United paragraph reading: if her star should be rising again? . a more e
: u and a d
large, th

i history.

™y [) . £1

Australia Rejects a Planned Economy | 4 toe pe
: Re generally
HE GOVERNMENT of the Com- overseas, air transport, social security, and version of industry the use of raw ma is. I
monwealth of Australia, supported by the compensation of veterans and their terials, prices and profiteering, raising of counting

the premiers of all six of the Australian dependents. money and employment, the Common alone of
states, went to the people with a referen- The Australian law requires that when wealth will not be able to provide ful dened ou
dum on this question: a referendum is held the principal argu- employment nor to discharge its duty indebted:
Shall the Constitution be amended to ments for and against the question shall to returned servicemen and service: which we
give the government fourteen additional be set forth in one official statement, in a women. i ven to
peacetime powers for a test period of five fair and balanced manner. In this case the AGAINST that all,
years after the war? official statement, summarized, was as fol- 3 iA ; al we 1
The electorate voted no. But it was lows: The Commonwealth Government ° make
close. The negative was carried by only ready has sufficient powers to cart} our burde

a little more than seven votes in a hun- FOR postwar plans into effect; I di i .

dred. “Industry and manpower, swung over A referendum should not be he : Five Ag
For purposes of war, extraordinary pow- to war production under wider wartime wartime when the people’s mind is What. t
ers were conferred upon the government powers, cannot be restored to a peace- engaged with matters of war; J that I ho
by the National Security Act. But these time footing without similar and equally Extra constitutional powers over 8 tage of t}
wartime powers were designed to shrink wide powers In peacetime; ployment would enable the Conus; recognized
or altogether lapse with the return of “Peacetime powers are insufficient to wealth Government to introduce mn f postwar t
peace; and what the government wanted consolidate social security advances (like trial conscription; ed i duration. -
was additional constitutional power to be child endowment and widows’ pensions) The people should Bok be as os al those wari
exercised during a period of reconversion, introduced under wartime powers; accept or. Teject the fourteen powe dt rangement
estimated at five years. The fourteen ad- “Benefits enjoyed by primary produc- a block. They should be free to V } others wh
ditional constitutional powers proposed to ers from organized marketing during for the powers individually.” # eing oper
be conferred upon the government would wartime can be safeguarded and in- Briefly therefore, though by a very od trary to |
have enabled it to control wages, prices, creased only by national control of pro- row margin, the people of Australia : Which we ]
production, distribution, employment, for- duction and distribution of goods; jected the idea ofa peacetime advent: Second, -

eign exchange, money, the flow of capital “Without powers to control the recon- with planned economy.



===== PAGE 13 =====

 getober, 1944 | THE ECONOMIC RECORD 69

Lord Keynes’ Preview of Bretton Woods
A Speech in the House of Lords

Lord Keynes delivered this speech just are again strong enough to live year by tion. A proper share of responsibility for
before leaving London to attend the Inter- year on our own resources, we can: look maintaining equilibrium in the balance of
national Monetary Conference at Bretton forward to trading in a world of national international payments is squarely placed
Woods. T he plan he is talking about is currencies which are interconvertible. For on the creditor countries. This is one of
the ome that was adopted with some a great commercial nation like ourselves the major improvements in the new plan.
changes in detail but mone in principle. this is indispensable for full prosperity. The Americans, who are the most likely to
Sterling itself, in due course, must obvi- = be affected by this, have, of their own free
ously become, once again, generally con- will and honest purpose, offered us a far-
vertible. For, without this, London must reaching formula of protection against a
necessarily lose its international position, recurrence of the main cause of deflation
and the arrangements in particular of the during the interwar years, namely, the
sterling area would fall to pieces. . . . So draining of reserves out of the rest of the
far from an international plan endanger- world to pay a country which was obsti-

year since the proposals for a Clear-

ing Union were discussed in your Lord-
ships’ House. I hope to persuade your
Lordships that the year has not been ill-
spent. There were, it is true, certain fea-

M’ LORDS, it is almost exactly a

I necessity'§
[5

side world § tures of elegance, clarity, and logic mn the ¢ the long tradition, by which most Em- nately borrowing and exporting on a scale
es to pur f Clearing Union plan which have disap- pire countries, and many other countries, immensely greater than it was lending and
; like the peared. And this, by me 3 least, is to be too, have centered their financial systems importing. Under clause VI of the plan a
world-wide much regretted. 1 like this new plan and’; London, the plan is, in my judgment, country engages itself, in effect, to prevent
Paper ug ~ Ibelieve that.t will work to our advantage. an indispensable means of maintaining this such a situation from arising again, by

E : Your Lordships will not wish me to enter gion. With our own resources so promising, should it fail, to release other
eally, or a} into too much technical detail. 1 can best greatly impaired and encumbered, it is countries from any obligation to take its
ade of thf occupy the time available by examining ojo if sterling is firmly placed in an in- exports, or, if taken, to pay for them. I
1ents, with § the major benefits this country may hope  to,4i0n,] setting that the necessary con- cannot imagine that this sanction would
1g as the to gain from the plan; and whether there fidence in it can be sustained. Indeed, ever be allowed to come into effect. If by
with Prog, are adequate safeguards against possible  ., during the transitional period, it will no other means than by lending; the cred-

nations byf

ew disadvantages. be our policy, I hope, steadily to develop itor country will always have to find a way
ea Tl ail:

We shall emerge from this war, having yo geld within which sterling is freely to’ square the account on imperative
won a more solid victory over our enemies, ,u.ijahle a5 rapidly as we can manage. grounds of its own self-interest. For it
‘amore enduring friendship from our allies, Now, if our own goal is, as it surely must will no longer be entitled to square the
and a deeper respect from the world at be, the general interconvertibility of sterl- account by squeezing gold out of the rest
g large, than perhaps at any time I Our ing with other currencies, it must obvi- of us.

history. B ut the full price of this has still ously be to our trading advantage that the Fifth, the plan sets up an international
| to be paid. I wish that this was more gre obtains elsewhere, so that we can institution with substantial rights and du-
: generally appreciated in the country than oof our exports in one country and freely ties to preserve orderly arrangements in
it is. In thus waging the war without o,.nq ihe proceeds in any other, . . . matters such as exchange rates which are

- counting the ultimate cost, we—and we Third, the wheels of trade are to be oiled . two-ended and affect both parties alike,
gslone of the United Nations—have bur-

of raw mi:
. oF
g, raising 0,

e Common§ dened I : bt of d by what is, in effect, a great addition to which can also serve as a place of regular
provide full dened ourselves with a weight of deferred the world’s stock of monetary reserves, dis- discussion between responsible authorities

¥ - indebtedness to other countries beneath

ge its duty, hich hall tributed, moreover, in a reasonable way. to find ways to escape those many unfore-
nd servic which we shall stagger. We have already = "who is 50 confident of the future seeable dangers which the future holds.
oR given to the common cause all, and more that he will wish to throw away SO com- This is an organization between govern-

2 than all, that ford. Tt foll in whi
» that we can aliord. OUOWS  fortable a supplementary aid in time of ments, in which central banks only appear

Joe our burd p d i] y if the winds of the trade cycle blow, to ernment.
® toc EL 8 Tdens and Bok ak) fo therm. diminish our demand for imports by in-
be held 8] po. creasing unemployment at home, rather For What Considerations
e het 2 we Advanlages than meet the emergency out of this fund SN

mind 1s } hich will b 1 ded f h Here are five advantages of major im-
T; A g What, then, are these major advantages © oo VW: Pe expres y provided or Such ,ortance. The proposals go far beyond
ers over en} that T hope from the plan to the advan- temporary purposes: what, even a short time ago, anyone could
e Commoi} tage of this country? First, it is clearly I emphasize that such is the purpose of have conceived of as a possible basis of
~duce indis| 'cognized and agreed that, during the the quotas. They are not intended as daily general international agreement.

el | Postwar transitional period of uncertain food for us or any other country to live Nevertheless, before you will give them
be asked [] tom, we are entitled to retain any of upon during ‘the reconstruction or after- = your confidence, you will wish to consider
sn powers I Ose wartime restrictions and special ar- Wards. Provision for that belongs to an- whether, in return, we are surrendering
free to voit} Tgements with the sterling area and other chapter of international ¢ooperation anything which is vital for the ordering of
ERE Others which are helpful to us, without -upon which we shall embark shortly un- our domestic affairs in the manner we
+ a very B Ing open to the charge of acting con- less you discourage us unduly about this jntend for the future.
Australia T§ - hy to any general engagements ito One. My Lords, the experience of the years
1e advent ch we have entered. There is another advantage to which I before the war has led most of us, though

Second, when this period is over and we would draw your Lordships’ special atten- some of us late in the day, to certain firm



===== PAGE 14 =====

70 THE ECONOMIC RECORD October, 194 |

conclusions. Three, in particular, are high- serve it is most advisable that the current The Flight from Competiti on 5
ly relevant to this discussion. We are de- rates of exchange and the relative values

termined that in future the external value of gold in different currencies should cor- Lord McGowan has used the occasion of
of sterling shall conform to its internal respond. The only alternative to this the annual report of Imperial Chemicy) -
value as set by our own domestic policies would be the complete demonetization of Industries to make a remarkable confes. T
and not the other way round. Secondly, gold. I am not aware that anyone has Sion of faith. He believes in large-scale
we intend to retain control of our domestic proposed that. For it is only common Organization and he believes in interns. 01
rate of interest, so that we can keep it as sense as things are today to continue to tional agreements with private groups
low. as suits our own purposes, without in- make use of gold and its prestige as a abroad “as Instruments of world rationali. - ]
terference from the ebb and flow of inter- means of settling international accounts. zation of industry.” He is frightened that T:
national capital movements or flights of To demonetize gold would obviously be Without such coordination his industry ject a
hot money. Thirdly, whilst we intend to highly objectionable to the British Com- would “suffer the economic anarchy of cut. head
prevent inflation at home, we will not ac- monwealth and to Russia as the main pro- throat competition.” Candor commands holdir
cept deflation at the dictate of influences ducers, and to the United States and the respect, but it is not in itself an answer dence
from outside. In other words, we abjure western Allies as the main holders of it. to the case against these private empires, entitle
the instruments of bank rate and credit Surely no one disputes that. On the other Lord: McGowan knows that our future Beard
contraction operating through the increase hand, in this country we have already de- standard of living will be largely depen. a fore
of unemployment as a means of forcing throned gold as the fixed standard of dent, as he puts it, on the energy of ow § ing:
our domestic economy into line with ex- value. The plan not merely confirms the People, our technical development, and our  fited
ternal factors. dethronement but approves it by expressly success in foreign trade. He knows that § NPA .
~ Have those responsible for the mone- providing that it is the duty of the fund We have far to go to catch up with the | side @
tary proposals been sufficiently careful to to alter the gold value of any currency if Productivity of labor in America and that § sibility
preserve these principles from the possi- it is shown that this will be serviceable to We shall not have a dog’s chance unless § not ne
bility of interference? I hope Your Lord- equilibrium. the skill and ingenuity of the people is § NPA]
ships will trust me not to have turned my matched “by ability and skill in manage- " The
back on all I have fought for. To establish FE 'poch ment.” That is where the doubt comes § the me

in. Has Lord McGowan realized how far | it in «¢

those three principles which I have just 2
the ability and skill of management has § princip

: In fact, the plan introduces in this re-
stated has been my main task for the last P

spect an epoch-making innovation in an

20 years. Was it not I, when many of international instrument, the object of follen, Dehind the times? Have a thos J) teesay
today’s iconoclasts were still worshippers which is to lay down sound and orthodox wndusizial captains who B ave i" EY oe 3 id fi
of the calf, who wrote that “Gold is a bar-  [rinciples, for instead of maintaining the COXpetition to monopoly realzed thal inf  velopln
barous relic”? Am I so faithless, so for- principle that the internal value of a na- stilling th eir fear of what they TNISNAI0eE |, Labor
getful, so senile that at the very moment tional currency should conform to a pre- _CoonoTC anarchy” they have killed the |
of the triumph of these ideas when, with scribed de jure external value, it provides POVer that kept them on the over J may be
gathering momentum, governments, Par- that its external value should be altered —f70m The Manchester Guardian Weekly. recom
Baments, banks, the 3 the public, and if necessary so as to conform to whatever a) ay ;
even economists have at last accepted Whe dy fqcto internal value results from do- :
ew doctrines, I go off to help forge new oe policies, which themselves shall be The Gold Trouble ai Policy
chains to hold us fast in the old dungeon? mune from criticism by the fund. In- Most of the criticism of the interna. able me
I trust, My Lords, that you will not be- deed, it is made the duty of the fund to tional monetary plan in last week’s Com- Wn
lieve it. “approve changes which will have this ef- mons debate sprang from fear of a return . pe Ce
gresy Becomes Orthodox posals are the exact opposite of the gold tage that might be given to the United Tn u
~ Not merely as a feature of the transi- . standard. They lay down by international States by a system in which gold took an i" 18
tion, but as a permanent arrangement, the agreement the essence of the new doctrine, important part. This line was taken of atic N
plan accords to every member government far removed from the old orthodoxy. If both Conservative and Labour speakers. oll”
the explicit right to control all capital they do so in terms as inoffensive as pos- The two most outspoken Labour critics . > -
movements. What used to be a heresy is sible to the former faith, need we. com- were Mr. Shinwell and Mr. Stokes. Mr. x nated °p
now endorsed as orthodox. In my own plain? Shinwell saw American gold and the bar | tod so h
judgment, countries which avail them- No, my Lords, in recommending these ‘gaining capacity of the British market s. "tern ny
selves of this right may find it necessary proposals I do not blot a page already balancing factors, and thought the scheme} the ot
to scrutinize all transactions, so as to pre- written. I am trying to help write a new outlined in the White Paper threw awdy } The pA
vent evasion of capital regulations. page. Public opinion is now converted to the British advantage. . . . On the Cor icy, and
~The question, however, which has re- a new model, and I believe a much im- servative side, Mr. Boothby said it wa to the fu
cently been given chief prominence is proved model, of domestic policy. That madness to tie ourselves to the United
whether we are in any sense returning to battle is all but won. Yet a not-less-diffi- States until we knew whether they were “Th,
the disabilities of the former gold standard, cult task still remains, namely, to organize going. to pursue an expansionist policy: - (a) tt
relief from which we have rightly learned an international setting within which the . . . Sir John Anderson, replying, deniet § Uonal :
to prize so highly. If I have any author- new domestic policies can occupy a com- any return to gold. It was Mr. Pethick § their p
ity to pronounce on which is and what is fortable place. Therefore, it is above all Lawrence, for all his doubts, who put his or shot
not the essence and meaning of a gold as providing an international framework finger on the two great advantages—th¢ the na;
standard, I should say that this plan is for the new ideas and the new techniques pressure on creditors who will not buy Plemen
the exact opposite of it. . . . associated with the policy of full employ- and the making of the misfortunes of af" : nse v
There must be some price for gold; and ment that these proposals are not least individual country into a world conce™ Setive |
so long as gold is used as a monetary re- to be welcomed. —from The Manchester Guardian Weekly: : evels «

vailing



===== PAGE 15 =====

A

AN

N
THE ECONOMIC RECORD 71
Moneta Imaginaria
)CCasIon of § : :
Jo eel] a “The Fiscal R ealism . way, should (a) private business and the potential supply of goods, in order to
large-scal;} T € 1 employment be permitted without fed- prevent too drastic fluctuation in prices.”

2 interned] o f Bear d sl ey Ruml eral budgetary intervention to find its That is only to say that people would

te group i oo own price and cost level under competi- be happier with prices standing still and
L rationa] HE National Planning Association tion, with the hope that there should be wages and income rising, not because they
tened thy} § had the hardihood to attack the sub- provided continuing high employment at would be any better off than if wages and
; indusiy’ ~ ject of postwar fiscal and monetary policy such level; or should (b) the Federal income stood still and prices were falling,
chy of cut head on and emerged from the encounter Government intervene in the operation but because they love the feeling of more
command} "holding the animal by the tail. In evi- of the price system by supplementing money in their pockets. That may be
an answer  jence there is Planning Pamphlet, No. 35, private demand and investment and true. And yet it is perhaps the last argu-
e empires entitled, “Fiscal and Monetary Policy,” by thereby high employment through its ment that could be imagined for a planned
our fut] Beardsley Ruml and H. Chr. Sonne, with aggregate financial transactions?” economy. Bn
ely depen} g , foreword by the executive director say- “Such a policy,” the authors say, “does
rgy of our | ft ng “While this memorandum has bene- The authors of the memorandum make not contemplate permanent budget deficits
at, and oytif. - fited from many discussions within the their choice with ease, saying: “We reject ag a necessary element of the economy.”

NOWS that? _. NPA committee framework and with out- as unrealistic the possibility of a neutral Tt contemplates deficit spending by the
o with thi} side groups, it is presented as the respon- federal budget policy and accept the alter- government only when necessary to keep
a and the] L gibility of the authors; and, therefore, does native, federal cooperation, presumably enough money in the people’s pockets.

mee unlesy not necessarily express the opinion of the through budgetary operations when requi- Furthermore, they say that “the stimulus
+ people is it NPA Board of Trustees.” site to maintain adequate, effective de- to purchasing power when needed may
n manage: JJ The NPA Business Committee says of mand, and thereby to contribute to the come in part through reduction in taxes.
ubt comes. - the memorandum that without approving attaining of high employment.” Such reduction in taxes should be‘ made

ed how far’ ’ it in detail it can agree with the broad And they add: “We would arrive at this when it will do the most good in creating

sement hai'} principles; the NPA Agriculture Commit- same conclusion if we were dealing with an demand and in encouraging private enter-
e all thoi: tee says it wants to go much further, and imaginary, vigorous country with a free prise and investment.”
caped fron’f may find the memorandum helpful in de- economy, effective anti-trust laws, and Coming to the subject of taxation, the

red that in} veloping its own views; and the NPA presence of truly free enterprise. Assum- authors are on brilliant ground. They lay
y misname, | Labor Committee perceives significant ing in such country, over a five-year period, down two general propositions. The first
» killed Ls "areas of agreement and hopes that they stability of employment, working hours, one is:
5f may be broadened and altered into joint taxes, and circulating media and velocity,
" recommendation on postwar fiscal policy. there would be more and better goods for tures at some agreed level of high employ-
~~ The authors, speaking for themselves, distribution as a result of improved tech- ment and high production, and should
say: “After all, the fiscal and monetary nology and skill. Inasmuch as the circu- provide for the amortization of the na-
policy which we hope may prove accept- lating media and velocity are assumed to  #onal debt when employment and produc-
able merely recommends that we act delib- pe unchanging, the same dollar amount tion exceed these levels; but not before.”
‘rately, wisely, and with foresight In would at the end of the five-year period What does that mean? Suppose the
achieving what nations in the past have buy, let us say, 10% more of necessities.” government requires for all purposes $18
‘been forced to do, but generally too late What would be the matter with a coun- billion revenue for the year. In the old-
and clumsily.” try like that? Apparently private enter- fashioned way the government would sit up
This statement seems to mean that ge entirely free, would be doing there nights thinking of ways and means. The
there is a kind of inevitable pattern that jig rye job, which is progressively to only question would be how to abstract
lations in the past have been forced to cheapen the satisfactions of daily life; and $18 billion from the national income. The
follow, and it behooves us, therefore, only although wages and incomes were station- method here proposed is quite the reverse.
to adopt and perfect it in time. Unfortu- ,1y oil] everyone would be steadily better The first question would be: “What must
ately, the historical particulars are omit- off a5 the buying power of money in- the national income be to provide high
1 market 5} ted such as a true description of the Pat- creased. employment? If the answer is $140 billion,
oe schemt’ tern and where and how it has worked in Nevertheless, the authors say, two things the government says: “Then let’s assume

“Tax revenue should balance expendi-

threw away the past. o would be wrong with that country; namely, an income of $140 billion. That must come
Jn the Cor: 1 The first subject is federal budget pol- first, the fall in prices might not always first. Now let the experts find what rates
said it wa , and it is introduced with a challenge be slow and regular, but sometimes steep, of taxation are necessary to produce for.
"the United, 0 the fundamentalists, as follows: which of course would be bad; and, in the the government a revenue of $18 billion
r they were. “The basic economic issue is, should second place, “the overwhelming majority out of an assumed national income of $140
nist policy: (¢) the financial operations of the na- of the people would prefer to see this im- billion. Such will be the tax rates for
ying, deni! tional state be aimed at being neutral in proved condition expressed in an increased the coming year.”

Vir. Pethick | their net influence on effective demand, money income even though they would be What happens if the assumed national
who put Ws} or should (b) the financial operations of equally well off with a stationary money income of $140 billion does not material-

antages—the the national state complement and sup- ‘income and correspondingly lower prices.” ize? In that case the government will not,
ill not buy DPlement the activities of private enter- Therefore, even in a country like that, the from those rates, get the revenue it needs,
tunes of apy Prise when needed to maintain an ef- authors say, “it follows that government and it will have a deficit to take care of;
ld concer? fective demand adequate to sustain high cannot ignore the necessity. of ensuring at but on the other hand, if it had insisted

Lian Weekly: levels of employment at or about pre- all times active purchasing power that on taking $18 billion out of a national
1 = Vailing price levels? Putting it another stands in reasonably stable proportion to income that was falling below $140 bil-



===== PAGE 16 =====

Octo!

—

2 | THE ECONOMIC RECORD October, 1044 §

lion the effect might be to cause the na- the distortion. At the present high cor- to reduce the risk in new investments tq | society
tional income to fall still lower. porate rates, the tax consequences of such an extent that the profit retaineq ~ the bo:
‘The authors’ second proposition is: business transactions have become a after taxes will be in exactly the same : the int
“The operations of the system of pro- dominating factor in corporate manage- proportion to the risk as if there Were 1g - affect
duction and distribution should be, in gen~ ment, often outbalancing economic de- corporate taxes at all.” To prove it he : countr.
eral, federal income tax free.” + sirability. As a conspicuous example, sets up the following exercise: : are SO
’ . . the present tax pattern presents a strong Assume that a proposed investment jj our ta
Five specific recommendations follow: obstacle to desirable equity financing, physical assets of $100,000 is being cop. debt dt
“1. Federal income taxes on corpora- since fized charges on bonds and other templated by an established corporatioy - come T
tions should be abolished. A small fran- obligations are deductible in computing with a reasonably assured annual caring A wi
chise tax of 5% is proposed. taxable corporate income, whereas divi- power in excess of that figure. To such, - tain se
2. The graduated progressive income dend payments are not. corporation the opportunity to charge, i : system
tax should be relied on as the chief “The taxation of corporate profits the form of expense, depreciation, or ob. : fewer
source of revenue. b prior to distribution imposes double tax- solescence, the cost of the new investment : collecte
a general sales tax should be ation on dividend income without regard against earnings that would otherwise I | which
x to progressive rates. A tax on corpora- taged at the high rate would render ney : benefit:
4. Excises should be retained only - 4; cornings is a tax against the Sadi. investment more attractive than would by receive
on tobacco and alcohol, and, perhaps, on vidual owners, and yet the earnings of the case were income taxation moderate . Wha
gasoline. b the small investor with small income are Or nonexistent. that tt
5. Social security financing should be 1, 1" oi the same rate as those of the “In the assumed situation, if corporate be sold
revised to stop building ,,TESeTves at large income. Literally, millions of small income were not taxed, the entire risk of so that
times of underemployment. stockholders are the victims of the in- the proposed investment of $100,000 would | is extre
The first three reasons for recommend- equity of this double taxation. The be borne by the corporation. If income ‘f This
ing that the income tax on corporation earnings are first taxed in the hands of of corporations were subject to a tax of, is desir
profits be abolished are: the corporation at full, identical rates let us say, 60%, however, our hypothetical IDCreas:
(1) That it tends to raise the cost of for all stockholders, and then that por- corporation could embark on the contem- : pends
goods and services to the consumer; ~~ tion of the earnings distributed as divi- plated venture without endangering more that wi
(2) That it tends to keep wages down, dends to stockholders is taxed again, but than $40,000 of its own capital, since the & creasin
and, . only in the latter case at progressive entire $100,000 invested could be charged mcreasy
(8) That it acts to discourage adven- rates. off over a period of time against income : control
ture capital. “The need is for revision that would that would otherwise be taxed away to: ng wil
The national economy, the authors be- eliminate the corporation income tax as the extent of 60%. In other words, $60,  stabilit
lieve, would be stimulated and thrilled if a cost of production and distribution, 000 of the gross cost of the new project . —Abin
the $15 or $20 billion a year now that would tax the shareholder at least would come from tax savings, and the net
taken into the United States Treasury once and yet once only on the earnings amount risked would be only $40,000: Nig;
from the earnings of corporations were left attributable to him, and that would en- Moreover, in proportion to the net amount }
free to produce their natural effects upon courage rather than inhibit the distribu- risked, the profit or loss would be unaf-: Mx.
prices, wages, and dividends. Partly they tion of earnings as dividends.” fected by the corporate tax rates. For ex’ TESS 18
would be absorbed in lower prices to the The authors are much less dogmatic 2mPle, a profit of 8%, or $8,000, would . address
consumer; the rest would be divided be- bout their tax proposals than they are be reduced by the 60% tax to $3,200: Townse
tween the wage earner and stockholder: shout an unneutral budget policy. They which is exactly 8% of the $40,000 risked.” 1 good f
The higher wages and dividends, of course, gay there is no perfect solution of the tax This is a parlor trick. In its simple fom ey y
would be subject to the personal progres- problem. Their wish is to provoke on it can be played with matches. 3 that I
sive income tax, which, the authors hold, these lines discussion and controversy; and Let the tax be 99% instead of 60%. iy be
should be the principal source of federal it is a wish that may well come true. - Then in making an investment of $100; ™ ab
revenue. - 000 the corporation would be risking only - to ey s
The authors are aware that the idea of A . $1,000 of its own money really, because oo mi
abolishing the income tax on corporation d Infinitum otherwise the government would have 7} " ods
profits will take a good deal of selling. ETWEEN those like Ruml and Sonne taken away $99,000. Now if the new in- — by
Reason and forethought will have to argue who for the sake of the national econ- Vestment yields a profit of 8%, which is t a
for it against all that injurious feeling omy want to abolish the income tax on $8,000, and that profit of $8,000 is taxed: aba, wy
about profit that has been cultivated dur- corporation profits and keep a high indi- at 99%, the tax will be $7,920. That leaves : Towne
ing the last few years in the popular mind, vidual income tax, and those, on the oth- $80. On the $1,000 that was risked 80 distans
and probably also against the government, or hand, who think it is the high individ- is a profit of 8%. Eureka! ; I
nee it Is pot. In the nafure of ed Bo don ual income tax that hurts, it will be diffi- : anythir
ment willingly to surrender the golden cult enough for the Ways and Means 1 muc
goose. Committee of the House to find its way. No Dogma about Debt fo
Beside the three ground reasons for Tf puzzles can soothe the harrassed mind T MAY also be asked whether public: bill to .
abolishing the tax, these lines of argument jt might try one by Walter G. O'Neil in financing of a large portion of an If ther
are laid down in the memorandum: the summer number of the Harvard Busi- panded construction area and social ex. Townse
“Business judgment as to what is eco- ness Review entitled “Do High Corpor- penditures might not lead to a dangero’ strippec
nomically sound in terms of expenditure, ate Taxes Deter Investment?” Mr. O'Neil increase in the public debt. Certainly 19: that th
pricing, capital transactions, and the like thinks they do not, at least, not necessar- one can maintain that the public debt has to be a
is distorted by tax considerations, and ily. He says: “As a matter of fact, the: no effect upon the economy, but the fun-§ —~From

the higher the federal tax the greater effect of high corporate tax rates may be damental effect of a public debt upon?



===== PAGE 17 =====

Detober, 1944 THE ECONOMIC RECORD 73

. ... is related to how the holding of 0 Th ou kh i
society and how the taxes from which S h ap es f g
© erest on the public debt is financed

- the distribution of income in the “Th : ;

8 hat the bonds sion for organization, but it was neither

try. It seems to me that the m aa 3. \

con? Y ctributed at the present time and € Road to Ser do Prussianism nor anything specifically Ger-
po tax structure is such that the public RIEDRICH A. HAYEK was an man that produced totalitarianism. What
; cbt does not affect the distribution of in- Austrian who became an eminent produced it was socialism and it proceeded
jt particularly unfavorably. economist in his native country. At the from the masses; and the supreme tragedy,

A wide distribution of bonds is in a cer- end of his career there he was Director of still unseen, is that “in Germany it was
sense a kind of national insurance the Austrian Institute for Economic Re- largely people of good will,” men who were

em to which all of us make more or search and Lecturer in Economics at the greatly admired by the British themselves,

{fewer contributions in the form of taxes University of Vienna. Then he went to who prepared, if they did not create, the .
collected to finance the interest, and from England to teach economics at the Univer- forces that brought Hitlerism to pass.

which more or less all of us get certain sity of London. Later he joined the fac- Therefore, what happens to the socialist

~ penefits in the interest payments that are ulty of the London School of Economics dream? What turns it into a horrible

received by the bondholders. and became a British subject. Now he nightmare inevitably? Why is it that the

What is even more important is the fact puts aside his professional work to write men of good will, these idealists and re-

that these bonds, in time of distress, can what he calls a “political book.” formers, find themselves, or find others in

be sold or used as a means of borrowing, In the preface he says he had “every their stead, imposing their perfect world

so that they give a sense of security which possible reason for not writing or pub- upon people by means which they them-

is extremely important. lishing this book,” knowing beforehand selves would have abhored to begin with?

This does not mean, of course, that it that it would cause scandal in the aca- Why was brutal tyranny, with its muti-
is desirable under all conditions to go on demic world in which he wishes to go on lation of the individual, bound to be the
increasing the public debt. That all de- living and working and create against him end of the Utopian dream of Marx, who,
pends on various factors. I would hold a professional prejudice. Then why did scorning Utopias, was, after all, the great-

sering mond that we should have no dogma about de- he do it? est Utopian of them all? He was the
1 since ih ~~ creasing the debt, and no dogma about He was moved by the sensation of see- greatest of them all because he believed
be chargil, : increasing the debt, but that we should ing in England, as at a movie, the begin- that after a temporary dictatorship of the
inst Le Lo control expenditures, taxes ‘and borrow- - ning of a picture he had seen before—of proletariat the state would wither away
d away iif. ng with a view to promoting economic “twice watching a very similar evolution and vanish, leaving people to be forever
y .+ stability at full employment. of ideas.” The picture he had seen before afterward free and happy, governed only
5. —Alvin H. Hansen. was the German picture, and the truth he by the golden rule.
oo felt obliged to write was this: “It is Ger- The author’s task is to answer these

Niggardly Townsend Plan ay whose fate we are in some danger of questions. In the performance of it he
repeating.” He uses the pronoun we as a brings to bear upon socialism somewhat
Mg. Burpick. Mr: Speaker, our prog-- citizen of Great Britain. the technic of psychoanalysis.
ress is swift. A few years ago, when I "He is not thinking of Hitlerism, nor of To begin with, a socialist economy must
addressed this House the first time on the Hitler’s Germany, but of something very be a planned economy. A planned econ-
"Townsend recovery plan, many of my much deeper; namely, “A similarity be- omy inevitably tends to bring the totali-
- good friends stated to me afterward that tween the trend of thought in Germany tarian state to pass because “economic
they could not understand how it was during and after the last war and the pres- control is not merely control of a sector
that I appeared sound on all other meas- ent current of ideas in this country.” By of human life which can be separated from
ures but would at the same time swallow this country he means Great Britain; and the rest; it is the control of the means for
the absurdities of the Townsend plan. he says: “There exists now in this coun- all our ends.”
They said, “It will not work; it will cost try certainly the same determination that Moreover, in a planned economy there
too much; it is economically unsound.” the organization of the nation we have must be a supreme end; and the crucial
Today we are treated with a sensa- achieved for the purposes of defense shall point is that “individual freedom cannot
tion” of political back handsprings. All be retained for the purposes of creation. be reconciled with the supremacy of one
thoughts expressed in the above charac- There is the same contempt for nineteenth single purpose to which the whole society
terization of the Townsend plan are century liberalism, the same spurious regl- must be entirely and permanently subor-
abandoned and the economically sound sm and even cynicism, the same fatalistic dinated.” In the event of war or a great
Townsend plan has been superseded, out- acceptance of inevitable trends. And at temporary disaster the end may be simply
distanced, and abandoned. There are no least nine out of every ten of the lessons survival, and in that case, of course, 1n-
more warnings sounded in this House that © which our most vociferous reformers are dividual freedom will be a secondary value
.anything is unsound; nothing will cost t00 go anxious we should learn from this war until survival is achieved. But let it be
much any more. This sentiment has come are precisely the lessons which the Ger- any other end, even that of “doing for the
forth in the sudden explosion of the George mans did learn from the last war, and purposes of peace what we have learned

bill to amend the Social Security Act. ... which have done so much to produce the to do for the purposes of war,” or the
f there are visionary provisions in the Nazi system.” : single aim of “full employment at any
Townsend bill, they have been so far out- In Germany, he says, there was a natu- price,” and individual freedom will still

a danger? stripped in imaginary results in this bill, ral kinship between Prussianism and so- be lost. Why is this?
Certainly, that the Townsend bill can truly be said cjalism, derived from their common pas- In order that a planned economy may
blie a fois ole a most conservative bill. | "+The Roa d to Serfdom,” by Friedrich A. achieve its end it is not enough that
; ~ftrom the Congressional Record. Hayek. University of Chicago Press. people shall be made to work for that end.

debt upogl i



===== PAGE 18 =====

74 ~~ THE ECONOMIC RECORD October, 1944

Bly Ot
They must believe in it too. Therefore, jority of people have low moral standards; sources of society should be consciously di.
thought must be controlled and national- it merely means that the largest group of rected,” is a one-way road in which tum. ter
ized. This is done by propaganda, and people whose values are very similar are ing is very difficult. Here the author o
thereby the basis of morals is undermined, the people with low standards. Itis, asit touches what Herbert Spencer called mo. ol
because people are no longer free to make were, the lowest common denominator mentum, meaning the cumulative effect
moral decisions. One of the very fine pas- which unites the largest number of people. of one thing at a time, each thing seem. It
sages of the book occurs here: If a numerous group is needed, strong ing in itself to be so desirable that re. anc
“Only where we ourselves are re- enough to impose their views on the values sistance is disarmed, like the steps toward ves
sponsible for our own interests and are of life on all the rest, it will never be social security, each one producing, never. tot
free to sacrifice them has our decision those with highly differentiated and de- theless, remote consequences which are not anc
moral value. We are neither entitled veloped tastes — it will be those who considered—which are often not foreseen Str
to be unselfish at someone else’s expense, form the ‘mass’ in the derogatory sense of at all—until they begin to run together, une
nor is there any merit in being un- the term, the least original and indepen- making first a stream and then a torrent. 50%
selfish if we have no choice. . . . Free- dent, who will be able to put the weight Thus, “the close interdependence of all °
dom to order our own conduct in the tf their numbers behind their particular economic phenomena makes it difficult to
sphere where material circumstances ideals.” t lanni 1st wh sh a
force a choice upon us, and responsibil- An | : Slop planning just where we wish, and I
ity for the arrangement of our own life other reason why, at last, the worst once the free working of the market is t
according to our own conscience, is the must come to the top is that a time comes impeded beyond a certain degree the plan. e
air in which alone moral sense grows When the idealists who have set the forces ner will be forced to extend his controls a
and in which moral values are daily re- in motion shrink from going on because until they become all-comprehensible.” e
created in the free decision of the in- they see and detest the means that be- Moreover, these progressive economic t
dividual. Responsibility, not to a .su- come logically necessary; at that point necessities, inherent in planning, are ¢
 perior, but to one’s conscience, the leadership passes to those who have no “strongly reinforced by certain social and D
lion. the f a duty not exacted by com- moral scruples. political tendencies,” increasing in strength I
ph the things one values are to be sacri- x, however, that group that thinks and as the planning extends, so that: “Once : a
. ficed to others, and to bear the conse- feels alike and supports the regime is in government has embarked on planning for fi
quences of one’s own decision, are the fact a majority, does that not represent a the sake of justice, it cannot refuse respon- e
’ very essence of any morals which de- kind of democracy? A kind, yes, but not sibility for anybody’ s fate or position.” Ss
serve the name.” the kind that guarantees freedom. In so Thus you arrive at the monster state, with , 9°
Hence what is to us the incomprehen- far as (democracy ceases to be a guarantee everyone depending npon it for status, q
sible moral behavior of people in a to- of dividual freedom 1t may persist even livelihood, and security, or what Belloc o
talitarian regime, especially in Germany, = 2 totalitarian regime. Here the author described in “The Servile State. 4
where the supreme authority becomes 52% On this road, almost unawares, England, it
wicked. Why should the supreme author- “The fashionable concentration on he says, has “progressively abandoned * tl
ity become wicked? Is that inevitable? democracy as the main value threatened that freedom in economic affairs, with- I.
The author thinks it is and gives a chap- is not without danger. It is largely re- out which political and personal free- a
ter to it, entitled, “Why the Worst Get on sponsible for the misleading and un- dom has never existed in the past.” For-
Top.” So why? The author answers: ounded belief that so long as the ulti- getful of the warning that socialism means a
: mate source of power is the will of the slavery England, he says, has been stead- b
“Just as the democratic statesman majority, the power cannot be arbitrary. vl. he dix Go Pp
who sets out to plan economic life will The false assurance which many people ily moving in the direction of socialism, a
- soon be confronted with the alternative derive from this belief is an important thinking or hoping that there may be a n
of either assuming dictatorial powers or cause of the general unawareness of the kind of COMPromise, or a stopping half 1
. abandoning his plans, so the totalitarian dangers which we face. There is no jus- Way—that is, such a thing as a mixed Si
_ dictator would soon have to choose be- tification for the belief that so long as economy, partly controlled and partly free. - ef
. tween disregard for ordinary morals and power is conferred by democratic pro- But, says Professor Hayek, planning is a w
failure. It is for this reason that the cedure it cannot be arbitrary; the con- medicine which in small doses cannot pro- bu
unscrupulous and uninhibited are likely trast suggested by this statement is al-  Jyce the effects intended. “Both competi- =
to be more successful in a society tend- together false: it 1s not the source but tive and central direction become poor and
ing towards totalitarianism. Who does the limitation of power which prevents inefficient tools if th . lete: 8
not see this has not yet grasped the full it from being arbitrary. Democratic h § 1 hey are Imcompleis; p.
width of the gulf which separates totali- control may prevent power from becom- ‘Dey are alternative principles used to A
tarianism from a liberal regime, the ing arbitrary, but it does not do so by solve the same problems, and a mixture is t]
utter difference between the whole moral its mere existence. If democracy re- of the two means that the result will be bol
atmosphere under collectivism and the solves on a task which necessarily in- worse than if either system had been con- . be
essentially. individualist Western civil volves the use of power which cannot sistently relied upon.” to
ization.” be guided by fized rules, it must be- The conclusion is that the principle of pet
Now what does this morally uninhibited come arbitrary power. free competition—the free market, the i) (
leader need? He needs the blind support In any case, he adds, “the clash between free price, the free disposal of property— oi
of the largest possible mass that can be planning and democracy arises simply is the only power of economic regulation 5 °
made to think and feel alike, and—* ... from the fact that the latter is an ob- that can be reconciled with individual .
if we wish to find a high degree of uni- stacle to the suppression of freedom which freedom. Prof
formity and similarity of outlook, we have the direction of economic activity re- In England, where the book first ap- that
to descend to the regions of lower moral quires.” peared, critics have called this a retreat to the
and intellectual standards where the more Planning, having in view “a central di- laissez faire. Many American critics will the
primitive and common instincts and tastes rection of economic activity according to no doubt say the same thing. But what anis,

prevail. This does not mean that the ma- a single plan, laying down how the re- Professor Hayek is saying is that “the al



===== PAGE 19 =====

jotober, 1944 THE ECONOMIC RECORD i”
getobers 1

ive to a planned economy is not likeness here between American and Brit- must expect disappointments of the same
fers faire, but a rational framework ish thinking; and here also the same sooth- kind. For example, the disparity between
re laisse? petition.” Competition is not ing idea as in England that there is a half- the dream Lenin dreamed and the reality
© for cthing that just happens, or something way place to stop. that has so far come of it is like “the gap
son can be trusted to go on happening. There is no comparable book. It is writ- between the faith of the gospels and the
ee to be planned for and protected, ten without passion or invective. Its im- achievement of the church.” All the same,
and protected not least against two great pact upon the American mind ought to the transition from Paganism to Christian-
vested interests tending always toward be terrific. If it is not, then we may be- ty was accomplished and mankind was
totalitarianism, namely, organized labor lieve that we are even further on that saved. Faith did it. And SO again man
and organized capital; and to provide a road than we think. G. G. must save himself by faith—by embracing
strong framework for free competition, the Russian idea as an act of faith. Faith

+ a rule of law, is a proper function of : in the Russian Revolution, be says, “pos-

nde —_— . .
government. He says: : sesses for its devotees the same kind of

: . ic hold as Christianit ised
«Ip no systein that could be ration- magic hold as istianity exercised over

tate tust d . its first followers.” oo

ally defended ey , fn Mind and Mor als of Like Christianity, the Russian idea | has
tem needs an intelligently designed and ~ a mysterious power to make people know
continuously adjusted legal framework Harold J * Laski something they do not know they know,
"as much as any other. Even the most ] A and of this Stalingrad is the eternal sym-
essential prerequisite of its proper func- NYTHING that happens in the mind 1) fo... “Whether it be Mr. Roosevelt or
tioning, the prevention of fraud and de- of Harold J. Laski immediately pf. Churchill, a pilot in his Spitfire, or
ception (including exploitation of ig- causes a *book to appear and is then cele-
“norance) provides a great and by no brated as an intellectual event. This is so
means yet fully accomplished object of because Mr. Laski is the St. Augustine of

legislative activity. . . . The task of cre- the Russian Revolution, the foremost theo-
ating a suitable framework for the bene-

ficial working of competition had, how-

an ordinary private in the infantry of the
North African army, there is a sense in
him that in some way, how, perhaps, he

a ) Lhe - remains uncertain, Stalingrad is the reso-
logian of Marxian doctrine in the English  y,4i5n of a problem for him that he’ must

, Tespor 1 5 _ ever, not yet been carried very far when language, judd dean o the 5 ritish school solve or die.”
osition.” BE} ~ states everywhere turned from it to that oi revolutionary thought. lhe items of his Christianity, alas! went bankrupt. It
Jte on 4 of supplanting competition by a differ- academic prestige take half a column of forgot, or forsook, the sacred principle that
. stat '#l ent and irreconcilable principle. The fine type in the British “Whos Who.” 4, many must keep their hold over the
SAMS) question was no longer one of making He is well known in this country as a foo Wealth ruined it. The Russian idea
t Belloc 3 & competition work and of supplementing lecturer in history, economics and the so- PP

i A . NR ho l€ 4 s € J” restores what Christianity lost or threw

“Zit, but of displacing it altogether. It is . ¢ia] sciences at Harvard and Yale, and in : :

E ] . . . ’ away. But that is not all. The Russian
England, if important to be quite clear about this: (  o rove even better known as suest sq. . TS
andoned the modern movement for planning is a , ¥ 1 the oid a idea is superior to Christianity, for whereas
s. with-F movement against competition as such, De er and mentor of the origmal New  Cpyigtianity kept the masses in subjec-
a] free: 2} a new flag under which all the old ene- eal brain cult, especially during the first by holding out to them a promise of
£2 For- if mies of competition have rallied. And ©R€ hundred days. CL. heaven hereafter, the “Russian principle
: :. although all sorts of interests are now ~~ For all of these reasons it is a kind of geek 5 salvation for the masses by fulfil-
n means 4 ‘trying to reestablish under this flag news that Mr. Laski has arrived safely at ont in this life, and thereby orders anew
In stead- 3 privileges which the liberal era swept the inner temple of religious mysticism. Le actual world we know.”
ocialism, if away, it is socialist propaganda for plan- The Russian idea, he says in this book,

Heaven here, not hereafter, lest it should
turn out that there is no heaven here-
after; but if there is, then, of course, it
will be pure plus.

Since there is to be a transvaluation of
~all values, it follows that the Russian idea

“makes its own moral code and can make
it anything it likes; and since it is an idea
that is above reason and belongs to the

ay be 33k ning which has restored to respectabil-
ing half Jf ity among liberal-minded people oppo- 3 }.¢ the same mission to perform;
a mixed Ff sition to competition, and which has ol ¢ 1 val p ke
SF effectively lulled the healthy suspicion Dame y, to transtorm all values, to make
2 which any attempt to smother compe- civilization over, and to deliver mankind
2 tition used to arouse. What in effect from despair. Like early Christianity, he
28 unites the socialists of the left and the says, the Russian idea is often encountered
a right is this common hostility to com- in ugly forms; like early Christians, Com-
‘5 ~ Petition and their common desire to re munists are often brutal and cruel. “They
onplete; < Place it by a directed economy. make their rivals angry because they so

is the successor of Christianity on earth,

used to if oo » ot t te at t 1 lovels realm of faith, it follows further that it
mixture 2§ A common indictment of competition © iy ey 0 Ey © ky we Tae, ors > cannot be bound by logic. Contradictions

t will be if 8 that it is blind. But so has the Sym- one v N Be " S y po . iy en O either do not matter, or they do not exist,
yeen con- & bol of justice been blind from ancient © BO feel able to snare ; er vy or they may be dissolved away by dia-
2 times down to this day. “Although com- treat disagreement as a form of sin, wit lectic. And so Mr. Laski is conscious of

something of the passion which early
Christian literature displays . . . They
are even objects of the same ugly persecu-

nciple of 3 Petition and justice may have little else

: no difficulty when he says in one place
Ket, the 2} I common,” says Professor Hayek, “it

that the many must keep their hold over

-operty— 2} Bas much a commendation of competition i" that which ited the the few and in another place that the
egulation 5 2 of justice that it is no respecter of per- oy a T hy = ip TL ea yr Communist Party of the Soviet Union
adividual 5} 1stians oy oR e mal EP O0"  could not leave “the central principle of

3 For American readers the significance of ~Stantie.” In the Russian idea at this time, joo 03th to the chance decision of an

first ap- Professor Hayek’s book lies in the fact 2S ID Christianity nearly 2/500 oe oy electorate.” Why not? Because by chance,
2} that for every likeness he finds between Les the one and only hope of mankind. 4. cjeciorate might have voted no. There-

retreat 10 € : . es . ;
. the thought now current in England and Owing to his own frailties and follies man e, in order to be sure, the few had to

ties

Sut what the thought that raised hideous totalitari- ~ *Faith, Reason and Civilization,” by Harold impose that faith upon the many. Whether
t “the al- 3} Asm in Europe there is a corresponding J. Laski. The Viking Press. the few had any moral right to impose it



===== PAGE 20 =====

76 oo THE ECONOMIC RECORD October, 1944 i

upon the many seems to be no question at clasp it eagerly. But there is no mention taged by it remained uncertain of, ng -
all. The few had the power. Human be- of the fact that when the war began Soviet seldom unhappy about, its eventual out. *
havior, he explains, adapts itself slowly Russia was on Hitler's side. “To take come.”

to a new faith, and “this is why the Soviet one example only,” says Mr. Laski, “it is If you took this to be history you woulq
citizen is constrained to the acceptance of impossible, I suggest, to doubt that the not know that Soviet Russia had lifted it

the fundamentals of his faith.” ~ spectacle of Russian heroism in the two hand against the world with Hitler. Yo -

One does not argue with a mystic. Re- years of the struggle against Hitlerism has would suppose instead that it withheld it;
ligious rapture is privileged. So long as convinced the common man, all over the hand until the world that had so revileq - 1
Mr. Laski stays in the temple, uttering world, that there was a magic in the revo- and persecuted it cried out for its strength EF
revelation, he is inaccessible. Neither fact lution of 1917 somehow adapted to his whereupon it did put it forth on the side Both
nor reason can touch him there. But he own concerns.” of right, heroically, with incomparable were
is new in the temple and somewhat uneasy. Deleted, missing, nonexistent, is the pre- generosity. You would never guess that prese:
He goes walking about in the open grounds ceding spectacle of Soviet Russia in mili- - what happened was that Hitler in a reach. - in his
declaiming history. Indeed, he describes tary partnership with Hitlerism, taking erous manner broke a partnership in ag. empl
this book as “An essay in historical analy- half of Poland as its share in the loot. gression with Soviet Russia, and attacked to m:
sis.” And when it comes to history, he For the common man all over the world her, whereupon Soviet Russia in self- trial .
may be judged by fact. Certainly one what was there in that spectacle, some- defense was obliged to take the right side unem
holding himself out to be a teacher of his- how adaptable to his own concerns? As because there was no other side, and then solve.
tory who in a deliberate manner deletes, he turns back to the temple Mr. Laski cried out to the Christian, capitalistic dave:
distorts or falsifies fact is thereby stulti- signs off with history in these words: “And world for help. coate
fied by any moral code whatever, old or just as the Epicurean philosophy created a From that transvaluation of all values that
mew. In all this book, which purports to sense of dismay in the traditional rulers of which Mr. Laski finds to be taking place give
be an analytical account of Soviet Rus- Rome because its appeal awakened in the in the Russian idea strange new values of I
sia’s impact upon a capitalistic world, masses a sense of excitement instead of are forthcoming, but clearly the value of limite
there is not one word about the Soviet their wonted torpor, created a prospect of integrity is not one of them. Either Mr.

Russia that joined Hitler when the odds hope, . . . so the pioneers of the Soviet Laski is insolently dishonest or he repre- | We
were in favor of German aggression. There Union have created almost everywhere sents the psychopathic content of the Com- - swer
‘is a passage of irony on Mr. Churchill, the same sense of dismay, until the hour munist doctrine, which, after all, may be : much
who, when England was in mortal danger, when their strength was sorely needed, more important and more deserving of ‘f price
could pretend to forget what he had said and even when that strength was given in scientific study than its political and eco- J ans
about the bloody hand of Bolshevism and generous measure those who were advan- nomic content. G. G. - deter
Winds of Opinion |

inas o P inion prope

to ou

Do pot believe that we can neutralize against arbitrariness and exploitation than benefactor adopt a superior and compla- - serva
the inflationary power of these excess bil- a member of any other calling. An or- cent attitude, as we have seen other domi- :. serva
lions by going into a gigantic program of ganization of intellectual workers can have nating conquerors assume. Let no one | thing
postwar production. Postwar production the greatest significance for society as forget that in Europe the strong, clean kind
will create its own purchasing power. Let a whole by influencing public opinion hand of the American soldier will shake to ha
the national product be anything you like through publicity and education. hands which are still torn and painful from your
—$200 billion, $250 billion. Purchasing —Dr. Albert Einstein. Nazi wounds. } is to
power in like amount will result from that . Many sincere people who con- —Pierre Olivier, member of the Commit- : Amer
production. Trying to out-produce inflation : . « » tee of Colonies in the Provisional French going
a . stantly pay lip service to “democracy &
is like trying to outrun your own shadow. and “freedom” seem afraid of the effects Government. relati
—from a private letter. of democracy and freedom and the exer- In 1919 there was a widespread feeling whol

It would be relatively easy to outline cise of free economic choice by individuals in many western countries that force was ~
an ideal world of peace and prosperity. after the war. The prospect that men and in itself an immoral thing: now there 1s a
—J. B. Condliffe. women after the war will once more go much more widespread conviction that i ng t

into the lines that promise them the big- is only by the victors remaining both with

A huge debt may so draw out the hidden gest profits or the highest wages, and pro- strong and united that peace can be pre: How:
powers of a people that it makes the nation vide the goods and services for which served. We have, I believe, learned many ° their
wealthier rather than poorer, stronger there is the greatest public demand and salutary lessons during the last few years. own.
rather than weaker—James H. McGraw, at the prices that supply and demand —Sir Alexander Cadogan. not
Jr., President, McGraw-Hill Publishing dictate, fills these. people with alarm. LC. , . gover
Company. —from The New York Times. Therefore I say collectivism and pr here.

: vate enterprise must lie down together -

It is inevitable, considering the progres- France and the occupied countries must But to say that they must work together 1$
sive centralization of production, that the get rid of a feeling of economic and politi- does not prove that they can work to we 1]
economic and political struggle should be- cal inferiority with regard to the United gether. Perhaps they will dissipate thelr woul
come more and more closely interwoven, States. . . . In other words, we Euro- energies in obstructing each other as, bY . and |
the political factor continually growing in peans are not adopting the disas- and large, they have been doing both in
significance in the process. In the mean- trous attitude of a person who has re- America and in Britain these last ‘thirty It
time the intellectual worker, due to his ceived help and who feels humiliated and years.—Geoffrey Crowther, Editor of The oper:

lack of organization, is less well protected defiant toward his benefactor; but let no Economist, London. - even



===== PAGE 21 =====

1 ober, 1944 | THE ECONOMIC RECORD om

of, noi : :
“wf Philosophy of F. Lincoln, Industriali
y J 1losophy of James I. Lincoln, In ustrialist
| ifteq 1. | From writings, letlers, speeches and testimony before Committees of the
er. You Congress, the one theme being that man is moved by incentive and crisis
eld it 2F :
) reve, FEUDALISM and slavery never lacked tion of all industry. Private industry: what kind of an America we and our chil-
strength the ability to give full employment. would have to make up the losses of gov- dren will have.
the sige] Both slavery and the feudal system an- ernmental operations, besides paying all oF
npars, swered the problem of social security. The taxes for all activity of government. The Let’s approach the employment problem
ess t present industrial system, for the first time industries owned by government would fg. the industrial standpoint. How is
a treach in history, introduced the difficulty of un- have no taxes nor any possible losses that employment made in industry? In the
pin agi} employment. We now have this decision i “would have to stand. Private enter- American system it’s made in one way and
attacked sto make. Do we want the present indus- prise, obviously, cannot exist under such way only. Each unit of industry con-
In se trial system with its occasional problem of - conditions: sists always of a man with an idea. - All in-
ight side ~memployment, which we can and will * "x dustry is the result of just exactly that—
and th solve, or do We want to go to a form of Great as American industry is, it leaves a man with an idea. He always starts from
pitalisticj}  glavery or feudalism as now offered, sugar- |,0e]y untapped its greatest resource, the scratch and builds what he is able. That
coated, by government? There is no doubt productive power, initiative and intelli- is the process which has made America
II val _ that government, as a feudal lord, can gence latent in every person. The prophet great. This industrial system is possible
ng place of give continuous employment, at the price gates it—“Thou madest him to have do- only in the United States. Only here has
v valuesaf. of liberty to all people—at least for a inion over the works of thy hand.” That there ever been that freedom of the indi-
value 'o limited time. | conception is a far cry from the normal vidual which allows the occasional in-
ther Mr a evaluation of man by his contemporaries. dustrial genius to rise to any point that
1e rep "We again have the same question to an- Truly, man is so made, but our industrial his ability makes possible. Only here is a
he Co ~ swer that our Pilgrim Fathers had. How system does not now fully develop these Ford, an Edison, or a Kettering possible.
may much do we want freedom? How large a abilities. There have been many who have = Only here is the individual free to develop
ving price are we willing to pay for it? The guessed what the result would be if a his latent abilities to the limit.
and e answers to these questions are going to large, intelligently led, enthusiastic organi- %
© determine the future of the United States. zation should use the powers latent in all FF .
LE 2% the individuals to a common end. What I want to tell you now about the experi-
We must, as Americans, determine the would happen if all were equally anxious ©DC€ which our company has had with m-
~ proper position of government in relation to produce a product at the lowest possible cent ves 1m the development of the indivi d-
“to our people. What is government? The cost? What would happen if all wanted ual’s ability. This same plan, if applied
comp servant of the people, or are the people the to make the wages of all workers, from by all industrialists, would make postwar
ier domi-3] = servants of government? That is the sweeper to manager, a maximum? . employment of all a reality. We have

thing which is going to determine what * had an incentive system for the past ten
kind of an industrial system we are going *E years with which we have been able to

to have, what kind of a standard of living Management must be able to lead the give the necessary spur for individual de-
you're going to have, who the employer organization in the direction of more ef- velopment. This incentive has changed
is to be, and what kind of an opportunity ficient methods as fast as the method can our workers from people who are working
Americans are going to have. What is be absorbed by the organization. The at a job at so much an hour mto people
going to be the position of government goal of the organization must be this—to Who feel their success 18 tied definitely,
| relative to the individual? On that our make a better and better product to be completely, and proportionately into the

C538 whole future rests. sold at a lower and lower price. Profit success of the company itself. This

d feelog gf. * : cannot be the goal. Profit must be a by- change of attitude from working so many
The question now is: What are you go- product. That is a state of mind and 2 hours a day for so much money into the
‘ing to do about it? All people start out philosophy. Actually 20 orgeneslien do- desire of working to produce a certain re-
with the idea that they want to be free. ing this job as it can be done will make sult produces unbe lievable results in. ef-
I However, few people have ever retained large profits which must be properly di- ficiency of production. Ten years ago our
: ’ vided between user, worker and stockhold- production per man per year—that is the

2 th . . . 0. . - . .
¢ on ir freedom in competition with their er. That takes ability and character. total sales divided by the total number of
n government. They lost their freedom I ted t . i
not to oth ti but to thei * employees — amounted to approximately

: other nations but to their own *¥ x .

: government. That is what's h . $5,500 per man per year. If the price had
and pr here Tre : i” at 1s . at's happening The job of industry is not to give em- remained constant, which is the only fair
together + The pattern sno new: : ployment. The job of industry—and re- measure of production, we would have
togethers I i * % member this is fundamental—is to reduce turned out last year $68,000 worth of ma-
work 0°35 f we win the war and lose our freedom the number of man hours that go into the terial per man. In other words, more than
ate the + We have made no advance over what making of any product. That is the only twelve times as many pieces per man.
or as. vould have occurred had we lost the war reason that our industrial system is great. During the same period the average wages
r both and lost our freedom. Now, the question comes: Can industry of the worker increased from $1,300 per
ust “thirt *¥ x under the free enterprise system also elim- year to last year slightly over $5,400.
or of The § If 20%, or 10%, or 5% of industry is inate unemployment and still continue its The dividends of the company, which have

3 operated by government, then the only great advantages? The answer we Ameri- been continuous over the same period, in-

eventual “out” that is possible is socializa- cans give to that question will determine creased from $2.50 a share to $6 a share



===== PAGE 22 =====

78 THE ECONOMIC RECORD October, 1944 |

3
i
BS

Lion dollars. Now, the point, and the thing +

Octo

per year. With that tremendous increase that he is paid for this increase in pro-

EN and this is the fundamental to duction in a proportionate manner. Then which you are entirely overlooking, ;;
employe : Pe oe the number of people > steps the formulae. I was talking to this: that the efficiency of manufacty,
; eased from 0 sughtly the ranking officer of the Treasury D b %
a : ry De- because of that threat has enormously ;, °
over 1 200. Tha ries of grogoduct went partment he Cleveland, which is the head- creased the cost of many products Don, :
g . UYU. uring quarters for that particular district, and forget this: of eve :
. . . " , : ry dollar of profi :

this period the selling price compared to he made this statement to me: “No man the top, 90 cents goes to the Treasur. [By

the cost of our product has remained con- : ; ; : :
a pats olan a pec won X who ros with his hands in a factory 1s But for every dollar of increased cost. this m
the whole industr “ » ‘worth $5,000 a year.” I asked him this 100 cents comes out of the Treasury. T addres
e whole industrial problem; t. e., lower - question. I said, “Mr. Gregory, if, instead : :
prices for the consumer, higher wages for of a thousand employees, suppose we had "x 7 Econo
the worker, higher dividends for the own- 8,500 employees and we had paid these You perhaps can measure profit, by ofa ire
er and, most important of all, continuously 3,500 employees the same amount of YOU C3L't measure loss. It is not uncon. - arm
increased employment. : money that we paid the thousand em- scioniable profits that you should be wor. T H
EAE ployees. Would you then have questioned ried about; it is unconscionable losses. | . ie
Let us consider the effects of price re- our statement?” He said “No.” I said, *™ talking about the loss of efficiency; 1 I have
duction on employment. Obviously, price “Then the only crime for which we are 2% DO talking about the loss of industry, carried
determines how much of any product is being fined a million 600 thousand dollars Yel You renegotiate a profit out of some. thing |
sold. Perhaps we don’t recognize that com- for the years 1940 and 1941 i body you are getting 10 cents out of it, * in tim
} ; ® y is the fact EA A. . y
pletely. Let s consider it. The last year that we have released 2,500 men for the but if by doing that you increase his cost vestme
that automobiles were made without re- war effort.” one dollar by lowering his efficiency, every princip
striction 15 million of them were sold; oF single cent of that comes out of the Treas. the bc
4 million were new cars, 11 million of them . ury and comes out of the t : ressul
, I . e taxpayers. : p
were second hand. Why did people buy negro we hich pon the Re- «¥ i eral de
second-hand cars? Certainl ART st of our . . ; in the
they'd rather have t oT a ns not because men: “We the members of the Advisory It is of small importance what happens trol
m than new omes. Board of The Lincoln Elects to The Li i A Ee
They bought them because the price was _ ‘he Lincoln Electric Company, to lhe Lincoln Electric Company. It is ductior
lower and for no other reason FE rly representing 1,400 employees, have been of national importance what happens to directe:
fectlv obvi hat h “. p advised that your Board is renegotiating the incentive system. Incentive is the - Th
y lous that had the price of new The Lincoln Electric C nl . ar ©
cars been as low as second-hand cars there Inco. ectric Company for 1942. only known method that makes it possible ica is
would have been 15 million new cars sold Since many of the workers are stockhold- for the American manufacturer to com- :} busines
during that year. That means much more ers and all share in the profits, this matter pete In world markets. It is our only hope 'f = mand ;
employment. The same is true in all oth. is of vital importance to all of us. Hence, Of postwar prosperity with full employ- * of war
or industries we want your answer to the following ment at present wages. 4 disappe
TIES. Tnamion: “We are producing at more than : sumed
* % our times the rate per man hour of an —_ :
The whole problem, therefore, comes of our competitors, as you know from your } 8 by, free
down to this. If industry can develop investigation. How much must we reduce The 1 3 i hn
those abilities, if we can but make it pos- our efficiency and raise cost to keep from ¢ interminable Debate onde X
. ep ] ) : to “wo. : undern
sible for enough men with ideas to develop being penalized in renegotiation? Please But it is now said by some that this the ba
od ries, we have solved postwar em- be specific. Should it be reduced one- Policy must be changed. Europe is no pulled :
bloyment, . | quarter, one-half, three-quarters, or more?” longer separated from us by a voyage of
* * ay months, but steam navigation has brought Growl
The American manufacturer and the Let’s take it. If we should red her within a few days’ sail of our shores. - A
American worker, under the conditions efficiency to that of competiti reoniee a We see more of her movements and take py
such as I have cited here, can meet world  ya1ce no money Boown pg wo ; 2 deeper interest in her controversies. Al po :
competition because they already have . fiiency. and have b ht aise our eI though no one proposes that we should ° eX
done it in som d by th lency, ve been able to, to unusual join the fraterni f - erally v
OL some cases and can by the same heights we make a large profit. No : raternity of potentates who have ar
plan do it in all cases. Remember this— then, which would you oe baw ly for ages lavished the blood and treasure : I. co
we can sell not only to a market of 180 yapyfacture at the speed and at the g of their subjects in maintaining “the bal- - one ; t
million American people, we can sell to a ¢ competition and make no or Aig ance of power,” yet it is said that we prised
world market of 2.250,000000. That is would you rather have as mantic or ought to interfere between contending sov- with re:
part of America’s postwar plan. the high speed and at the high cfeioncy ereigns and their subjects for the purpose war, A
*%x which we do have and make a profit? 0 overthrowing ihe monarchies of EL lieve th
It happens that we are the most efficient  Vviich do you think would be preferable li pe and establishing mm their place repub- War pro
; ! ; . 5 can institutions. It is alleged that we -
manutacturers in our particular line. We 11 Wal! have heretofore pursued a different course 2nd the
are making large profits on a product * Fx from a sense of our woakn ge» N “that someho
which is not particularly profitable to oth- The claim has been made that $4 billion now our conscious strength dictates a lay of
5 people. Obviously, in order to do that has been saved by renegotiation. It is change of policy, and that it is conser nderst.
i _ . . ’ : i
duct ag b t ou, Sicievcy of pro- perfectly obvious that the amount which quently our duty to mingle in these con to ioe
uct on sho e very high. We are pro- has actually been saved is $4 billion less tests and aid those who are struggling for i Sa
ucing more per man hour, four times taxes. Certainly more than $3 billi liberty. This i : : 0 part,
over. ih > on erty. s 1s a most seductive but dan- on the s
jg \ an ou competitors. In order to of that would have been recaptured by gerous appeal to the generous sympathies Succes, .
g at we have an mcentive arrange- taxes. Therefore, the maximum saving of freemen.—From the third annual mes- > Amerie

ment whereby the man is paid and he sees which has been made is less than a bil- sage of President Fillmore, year 1852.



===== PAGE 23 =====

(etober, 1944 THE ECONOMIC RECORD 79

duction in income inasmuch as overtime is
° ° paid at 150% to 200% of going wage rates.
In a Swedish Mirror It is true that people have saved a lot.
during the war and that part of these sav-
ings have stayed with the workers. But
the immediate effect of a reduction in
wages will not represent a net addition in
purchasing power, however much one may
try to juggle with the deferred demand
and the individual savings that will be
brought into play after the war.
It is also somewhat alarming that the
{5 SITUATION which is expected In America it is generally expected that discussion on this entire problem of be
The prevail in America through 1944 the war in the Pacific will continue at least EN cycle among economists generally
' ! ts itself to the total picture. In Amer-
have characterized as a violent boom one and probably two years after an ar- . :
I a by the war production. The strange mistice in Europe. Extraordinarily enough, ica, one tries to overlook that one will be
carrie i) Tat or prod Pont suspended this is often brought out as a favorable faced after the war with depressed areas
he in spite of the fact that the in- factor. The reasons herefore are two. First, siailax ko the ones England got after the
tment peak has long since passed. The quite a number of price and production wy hi ’ rd Wr) . y d E i
ves al requirements for the stability of controls would then be retained for the 'oen the production of planes and Sips
BN be om are (1) a strong inflationary time being. Second, the deficit balancing is reduced toa fraction of its present vol-
a Te from underneath initiated by fed- and the credit expansion in connection JE certan regions in Califormia, Oregon
a ol demand for all kinds of goods needed with the financing of the war expenditures Washington must be ut very hare. :
a the war effort, and (2) a severe war will then not suddenly disappear but only °° o inconceivable that a Se nd
control from above whereby the whole pro- decrease from $100 billion to perhaps $60 Te fern ry I ne
duction and price formation are centrally billion. It is rather interesting to hear about com arabl t Sweden both ; to
directed. these arguments advanced by people who < d > Ne , oo But the ee
The economic postwar problem in Amer- are preeminently in favor of relaxing gov- right ta Short r : ito it the war against
ica is what is going to happen to this ernment contro Is as soon as possib le, Ta y ® Bould contin "after the war in
business boom when (1) the federal de- people who claim that sound finance is a Be si over. and “ would give a
mand in connection with the prosecution necessary requisite m order that the heal- es = r a d i Ct e that
"of war diminishes and afterwards entirely ing forces of free enterprise may be allowed Na ve Ny ontr ors ne iodine]
disappears, and when, as is generally as- to express themselves. The idea, however, iy Southern Sores wil be hit b a
© sumed (2) the central control is replaced is that a slower demobilization would give — lovment. Man Rodan fac-
g by free enterprise. the necessary [breathing spell for the con- hy Po th : wer hments have been
~ How will it be possible to prevent chaos oro It is very generally admitted Jocated there and it will be hard wo find
once the violent inflationary pressure from that if the Japanese would be smart anv peacetime use for them On the coast
underneath gives out and at the same time enough to give up when Hitler is defeated d yr Lexi
own toward the Gulf of Mexico there are

o . —and that is, of course, always a risk— . :
.the balancing controls from above are they could then cause an economic catas- also large shipyards. The overpopulation

A Chilling Forecast by Professor Gunnar Myrdal

(By Professor Myrdal’s permission technique, organization and ability to ex-
© his material 18 reproduced from a speech  pand when unlimited purchasing power is.
§ dressed to the Society of Political put behind an insatiable demand. But
Economy in Stockholm. He is an emi- this is not the problem of the postwar
nent European authority on American years, especially not if one wants to get
offairs.— THE EbiToR] : back to sound finances. . . .

losses.
ficiency;
{ indust

voyage pulled away trophe in the United States. and | the poverty. mn surrounding fp aul
: Co ee : ur stricts will (3 e SI )
s brough ) Growth of 0 plimism It is very seldom stressed that the post- worse. There are also other industrial dis-

war period must be expected to start with .

A couple of years ago when the controls an important loss in purchasing power. tricts spread out over New England and
were being worked out, the opinion among Therefore, under all circumstances one will the Middle West which will be hard hit at
the experts and also among people gen- have to expect very large reconversion un-
erally was that one had to expect and pre- employment even though it may later on Inerti L be
© Pare oneself for an economic crisis and be possible to link the trend on to an neru of aor
large unemployment after the war. When economy of full employment. It is true A tremendous problem will present itself
one returns to America today, one is sur- that the soldiers will get their bonuses and to American economic and social policies
pised to find a much greater optimism that unemployment benefits will generally In getting labor transferred quickly between
with regard to the business trend after the be high. But in spite of all this, the un- industries and geographic regions in order
war. Americans simply and generally be- employment in connection with recon- 0 obtain a new equilibrium. In the old,
lieve that they will manage to stabilize the version will mean a cut in income at least I almost said good, times when the Ameri-

the liquidation of the war industries. . . .

Car ee Var prosperity over into the postwar years over a short period. can economy was expanding rapidly,
nt course °F and they believe that it is going to happen : America had an unusually large tran-
but that 3 somehow by itself through the free inter- Shrinking Pavrolls sient labor. In conversations and also mn
ctates 8.5 or of economic factors. I have tried to g y or public discussions one finds that many
is conse he erstand and psychologically to analyze Furthermore, it is in the war industries Americans without much thought imagine
hese col ho $ surprising optimism and I have come that the wages have been especially high. that it will be possible to revive this tra-
sling fo y about the following conclusions. It 1s, For this reason the reduction in war pro- dition after the war. Quite a few things,
but dan on part, a very doubtful conclusion based duction will mean a very considerable low- however, have happened since the time of
mpathie o the success of the war production. This ering of the average wage level. The re- expansive free enterprise and mass mi-
ual mes Po is remarkable and it shows what turn to normal work hours will further- gration in America, and not the least in
Merican industrialists can make out of more cause a more than proportional re- the labor market. :



===== PAGE 24 =====

80 THE ECONOMIC RECORD | October, 1944

CT —— oy )

- One of the most disquieting signs is the tion quickly and effectively started, the ones to revolt, but also the agricultura] in. :
refusal to face this labor migration prob- government, to a large extent, advanced terests, including probably the Teactioy. 3
lem clearly and to take such measures as the money for the building of these plants ary southern plantation owners, and smal] E TI
would solve it. Even should America get and the purchase of machinery. The gov- business. If, on the other hand, the go. -
a good general period of prosperity, some- ernment retained property rights to these ernment should stick to its prices, they
thing which I do not personally believe plants. A tremendous amount of money the factories would remain unsold. In this +
will happen, it will be very difficult to is involved. Of all those factories that unavoidable dilemma, there are many why ©
move labor out of unemployment districts. were constructed during the war and have proposed that in order that Pro.
Many who have moved out to the para- which are estimated to have cost $20 bil- - duction should not be stopped these fs.
dise-like West coast will want to stay there lion, the government now owns three- tories should be leased to private cop.

even if employment decreases. fourths, or an investment capital of $15 panies. But this is also, of course, not a Mr
A billion. The problem is how to make a satisfactory solution. i merly
Benefits this Time postwar use of these tremendous industrial This situation is tremendously compli. 5 Amer
The whole nation is, as I have already facilities of which the American govern- cated by the seldom-stressed fact that the - and
pointed out, expecting very high unem- ment has become the owner. In important only real counterpart to government is the at z
ployment benefits this time. High bene- fields, the government-owned industries giant corporation, and there will hardly *] . Dewro
fits may be right and desirable from a actually dominate. The government thus be any competition on the other side of ET
social point of view and they are also a controls 100% of the American production the mediation board. Here it is also a ; I.
big help in supporting purchasing power Of synthetic rubber and of high-octane question of plant facilities of immense freedo
and prosperity, but they certainly do not gasoline, 92% of the magnesium prodac- size. Of the government-financed facili. indivi
tend to increase the flexibility of labor, tion, 90% of the airplane factories, 50% ties, more than $15 billion worth, or : what
and we know from the stagnation of the of the aluminum production, 50% of the 12.59%, represent units of $100 million each produ
Thirties what inertia labor in America can Production of tools and also 10% of the or more; 30% represent units of $50 mil. = whom
possess. steel production. lion and more each. Only 4% of the total © petitic
This problem will be the more serious The War Plant investment is represented by what one in "§ There
-In its implications in view of the certainty e War lan America would call small plants, each with “3g ber of
that relations between the various partiesin ~~ These factories are not of low quality, ~ a value of less than $1 million. One often deter
the labor market will be very difficult after but are instead very solidly built and mod- hears in America that small business ought get lo
the war. The employers are generally in ernly equipped. One-fourth of them will to be favored when the government-owned er pri
favor of wage-rate reductions and they can hardly be used after the war but will have plants are disposed of, which is, of course, Ei his oc
state in their defense that the price level to be preserved in preparation for the pure illusionary thinking. No small busi- as he"
on their products has not risen as much as next war. But the rest of these factories nesses can take over and run these tremen- bs: to ste
wages; the large corporation profits are can be either directly applied to peace dous industrial plants. away.
chiefly a result of a more complete utiliza- production or reconverted. As, however, sociat
tion of capacity. The workers, on the other war needs have been entirely dominant, Forecast bor u
hand, who, with a few single outstanding these factories are not always conveniently CL . = tions
exceptions; have loyally kept to the no- located from the point of view of peace It Seeing likely that America after the = There
strike agreement for the duration and who production. termination of the European war will have b | quota
have largely adjusted themselves to the What is America now going to do with 2 _ Very restless economic develop ment. Es terfer
-wage-freezing policy, will feel that they its socialized section of industry? There There will be scarcifies 'n certain areas : putes
have a right to compensation after the is no political support * whatsoever in and overcapacity within other productions. 4 prese
war. Already the union leaders have had America for a change-over into govern- Prige developments will be uncertain and E preve
great trouble to keep their members back. ment industrial activity or for mixed man- the total price structure will probably Be 3 not
The fact that, after a period of full employ- agement of the type that we have tried so Very heterogeneous. There will undoubt- h in thi
ment during the war prosperity, they now successfully here in Sweden. The obvious edly be mass unemployment within large . vidua
have managed to save some money will not solution in America is that industry should regions. Severe conflicts in the labor mar- 4 social
make them less belligerent. When we take be allowed to take over these plants, but ket do not seem impossible. It is, bow- i enter;
into account the general unrest that will there will then be a question of the pur- Vel: possible that there will be a relatively 4 can v
result during reconversion, the mass em- chase price. In most cases those com- widesp read sellers market preventing an
ployment in the special war production panies which have been managing these Immediate, general depression. It is likely i Get
districts, and most likely a very confused plants have acquired an option to buy that within a period of, let us say, from 5 No
political situation in the country, the re- them at a price computed on investment one-half to three years, the trend wil x not t
sult in many instances may be a more cost less a certain yearly write-down. In- Change into a crisis. In the sphere of agr A ual.
radical labor attitude and real battles on dustry has already let it be known that culture it 1s to be expected that a con- : vidus
the labor front. . . . : it generally does not see itself able to pay tinued scarcity of most agricultural prod- i mass:
These unspoken problems are hovering as much as all that and it stresses that UCtS: with a consequent preservation of : vance
like shadows over the economic future in building costs were abnormally high in the high prices, will prevail for perhaps 3 bers,
America and they add to this queer at- very hectic time when these plants were couple of years after the end of the I Thes:
mosphere of unreality and illusions. There erected, that they are not always ideally European war. But from then on a cr slr Passe
are quite a few other postwar headaches. located, and that they will have to be re- ©f overproduction will threaten. Such an 7 their
The most difficult demobilization prob- built in order to suit peace production of 28ticultural overproduction might become A walm
lem, however, is what is going to be done other products, etc., etc. much severer if developed simultaneously incre
with the government-owned plants. These If the government should follow the ith a tendency toward industrial depres Suga
plant facilities are managed by private practical line and sell these plants cheap- SOR- Price

concerns, but in order to get war produc- ly, the radicals would not be the only Stockholm, Sweden, March 9, 1944 = many



===== PAGE 25 =====

THE ECONOMIC RECORD .- | 81

: poverty, I realize that collective bargain-
! ° ing is only one chick in the foul brood of
The Moral and Economic Evils of vultures that seek to pick the meat from

Ce the bones of honest men.
There are two kinds of collectivism.

Collective Bargaining There is a legitimate collectivism which

benefits the members without injuring
By John W. Scoville others. For example, if the merchants in
a city form a credit association so that

Mr. Scoville is an economist, for- trust, the cordage trust, the steel trust, each merchant can use the files of the
merly vice president and now fellow of the etc. The Canadian farmers organize a association, this group action 1s harmless.
American Statistical Association, teacher wheat pool, the Brazilians organize a This collective action reduces the cost of
and educator. He dropped this bomb coffee monopoly, the English and Dutch getting credit information without mjur-

ing anyone. But there is a malignant kind
of collective action which seeks to benefit

ot a meeting of the Kiwanis Club in rubber interests institute the Stevenson
Detroit. restriction scheme, automobile dealers get n wi
the members by injuring others. The col-
lective bargaining of the labor unions is a

] LL state licensing laws, the Russians have

ET me sketch briefly the principles held  Amtorg to monopolize foreign trade, the ; ! >
scheme for benefiting the members by in-
flicting injury on others. Protective tariffs

by those who believe In economic dairy farmers secure a heavy tax on oleo,
freedom. They believe that individuals and {he .cattlemen get a law to prohibit the
dividual firms should be free to determine  jmportation of Argentine beef, the drug- and farmer schemes for parity prices are
“what they will produce, how much they gists get the Miller-Tydings law so they of this malignant type. If by collective
produce, from whom they will buy and to ca; fix retail prices, independent grocers bargaining the members of the union se-
. whom they will sell. They believe in com- get a law to tax the chain stores, the gov- CWr® higher wages, others must get lower
petition. They are opposed to monopolies. ernment fines a farmer forty-nine cents a Wages or lower income. The increases in
There should be in each industry a Dum- byshel if he raises too much wheat, the Wages come from consumers who pay
ber of independent producers. Prices até NRA was enacted to make the President higher prices, or from stockholders who
determined in free markets. Buyers try t6 5 fascist dictator, the Wagner act is receive lower dividends.
get lower prices and sellers try to get high- passed to help labor unions establish labor Now all predatory combinations seek to
er prices. Each individual is free to choose monopolies, city ordinances are passed to 3Ppease their victims by claiming that
his occupation, to make as much money help the rackets in the construction indus- their members are being treated unfairly
as be can; to own what he produces and try advertising agencies form a conspiracy and that they have combined to secure
to store it, sell it, consume it or give it jth the publishers, regimentation, regula- justice and a redress of grievances and
also by claiming that they are not wholly
selfish and that their program will pro-

‘away. There must be no cartels, trade as- tion, and rackets without end!
sociations, cooperatives, monopolies, la-
Not Labor Only mote the general welfare. Thus manufac-
turers say they want protective tariffs so

~ bor unions, or guilds or other combina-
tions to restrain trade or limit competition. Now the point I wish to make is that
they will be able to pay higher wages—
that they seek to protect our workers from

There must be: no laws to fix prices, set the labor problem is just one part of a
© quotas, ration goods—no government In- much larger problem. If you believe in
~~ terference. The government settles dis- economic freedom and competition, then the pauper labor of Europe. Farmers say
"_.. Dutes, makes people keep their contracts, you will be opposed to collective bargain- that if they can get higher prices they can
preserves order, protects property and ing. If you believe in private and public buy more city-made goods. Labor union
prevents fraud. - But the government does monopolies, if you are opposed to free members claim that if they can get higher
‘Dot interfere with trade. The key words enterprise and’ competition, then you will Wages they can buy more produce of the
in this theory of society are freedom, indi- probably favor collective bargaining. I farms. Labor unions claim that workers
vidualism and competition. This type of do not know where you stand, but I know Jo not get wages enough to buy back the
- social organization is sometimes called free here I stand. I am opposed to all farm- products of industry and they claim that
with higher wages they can buy more and

promote business activity.

enterprise, private enterprise, the Ameri- ors merchants, ‘manufacturers, laborers,

ing can way of life, etc. . . . and others who seek by group action to

: k; ey limit competition and restrain trade. I . .

from Gel a Law am opposed to monopoly and monopolists. Add Nothing and IN othing

d wil Now the other school of thought does 1 am one hundred per cent in favor of But how can five dollars added to a

f agri | not believe in the freedom of the individ- economic freedom. ~ workman’s wages enable him to buy more
5 ual. They believe it is all right for indi- There are many names by which we can if the same five dollars is added to the

“viduals to form groups and to use the identify the people who are opposed to price of the goods he buys? If higher
massed power of the combination to ad- economic freedom. They are called social- wages are at the expense of stockholders,
+ vance the economic interests of the mem- ists, communists, collectivists, fascists, na- then the increased buying of the labor
pers, at the expense of the rest of society. tional planners, New Dealers, progressives, union members is offset by a decrease in
hese groups usually try to get a law liberals, frontier thinkers, interventionists, the buying of the stockholders. If a rise
Passed so that the government will make restrictionists, socially minded—but by in farm prices enables farmers to buy
ol monopoly more effective. And so the whatever name they are called, they have more, the higher food prices compel city
_ ut growers have a combination to one thing in common: they are all enemies people to buy less. All of the arguments
o ease the price -of walnuts; the beet of liberty. So while I condemn collective advanced by predatory combinations that
i" r growers get a tariff to increase the bargaining as an assault on liberty, as an they are working for the general welfare
= e of sugar. Nearly fifty years ago evil thing which is against the public in- are hypocritical and false. Let us recog-
any trusts were organized, the paper terest, as something which will increase nize that the motives of the predatory



===== PAGE 26 =====

82 THE ECONOMIC RECORD. October, 1944 %

combinations are selfishness and avarice. society, competition keeps everyone in 1. Acts of which the law takes no notice; ens to
They are economic aggressors, seeking to line—each one is restrained by his com- 2% Acts commanded or forbidden by law. E: ‘thus I
enrich themselves by plundering others. petitors: If doctors earn more than law- In the first category we are free to act; : labor
Nor is there any logic in the claim that yers, then college students will study med- we have the right to act as we will. hi the fu

the predatory combination is necessary icine rather than law, and this will lower the second category we have no right to due to
to secure fair wages or fair prices. Fair the income of doctors and raise the in- disobey the command and no right to do’ faced ¥
prices are what the public will pay in free come of lawyers. If factory workers earn what is forbidden. : strike,
markets. In a free society, exploitation more than farmers, then farm boys will A man has the right to marry. Thi; © meetin;
is impossible. If too little wheat is raised, leave the farms and come to the cities— 72ght is in the first category; the law neiyy, '}

the price of wheat will rise. Some farmers and this migration will tend to equalize er forbids nor commands. A young may, Distr
will then grow more wheat—then the price the incomes. The free society is self-regu- asks ten maidens to marry him, and eaq The
of wheat will fall again. If some store in lating. But the formation of monopolies maiden says no. So he goes to the legis ower 1
Detroit charges too high prices, customers leaves people without any choices, and de- lature and says that women are denyin, Des 0
will trade elsewhere and the store will be stroys the regulatory mechanism of com- him the right to marry. So the legislatuy, - assistan
compelled to reduce prices or go out of petition. Monopoly results in arbitrary passes a law which prohibits any womay substitu
business. It is only the free market that prices, so that some people receive too from interfering with the right of a may mechani
establishes fair prices. Predatory combi- much and others receive too little. Com- to marry. . product.
nations and arbitrary laws can be de- petition is fair and produces substantial Armed with this law, the man goes to We sl
pended upon to produce unfair prices. Fair justice. Monopolies are unfair and pro- his favorite woman and demands that she . act as a
wages are wages that are just high enough mote injustice. marry him. If she refuses, the man goes the righ
to attract the required number of em- A great many people feel that collective to a National Marriage Relations Boarg a law wl
ployees of the desired quality. No labor bargaining is all right in principle and that Who decides that the woman is engaged ir, * to enter
unions are required to secure fair Wage what is needed is better men as labor an unfair marriage practice and that she thelr em
rates. The main purpose of the labor union  Jeaders and union officials. Many indus- cannot interfere with the man’s right to 11 The se
is to secure a wage above the rate which trialists will say, “Of course we believe in marry. The board draws up a marriage i letter sh
would result from competition; that is, the . ‘collective bargaining,” or “We recognize agreement or contract and compels the § - lows: “I
purpose of the labor union is to secure a that collective bargaining is here to stay,” Woman to sign it. gain free]
wage which is unfair. The purpose of the or “The employers in the past were not er be gra;
labor union is exploitation.

fair to labor,” etc. These views are incor- Analogy The W

. rect. Collective bargaining, like all other In this hypothetical case, we may ob- § bor, exces
Correct in Theory monopolistic practices, is wrong in prin- serve: oo

: : : employer.
I believe the AF. of L. had a correct ciple. About 1800, the English law con- 1. The law took from the woman the right to | is that it
theory of exploitation. If they organized demned combinations, both of employers decide whom she would marry or whether | bargain w
only skilled craftsmen, say four million of and employees. These combinations were she should marry at all. . The d
: » Nay ohil alled . But about 2. Before the law was passed, the right to | -
them, then these our million could get rightly calle , conspiracies. but abou marry meant that the man had a right to should av
high wages and still buy cheap goods pro- 1824, the English law against the combi- marry if he could find a woman to marry him. comed by
duced by the unorganized forty million. nation of laborers was repealed. I believe 3. After the law was passed fhe right to marry 1 designed -
If there are only a few wolves and a large the English lived under the shadow of the compel someth pie marry eid © Tight lo facts. Dx
flock of sheep, then the wolves can be well French Revolution and were afraid of rev- 4. The marriage contract signed by the woman which ena
fed. But if all workers are organized and olution breaking out in England. You will was signed under duress, and was therefore as truth
; 8 :
if they all secure hi gh wages, then the hear people say that the Wagner act gave not a contract at all, but a legal mandate.

labor unions would be useless, for there certain rights to labor. This is incorrect.
would be no one left to exploit. The larger

the number of workers who belong to labor Analys is had the right to engage in collective bar-

unions, the less will be the benefits that An agency for promoting private enter- gaining, if they could find a willing em- erman a

the unions can bring them. . . . prise published a letter recently from ployer; that is, the law did not interfere. or oe
Now you may ask, if it is proper for the which I quote: The Wagner act conferred no rights on ’

individual farmer, merchant, manufac- “The National Labor Relations Act employees. But it took away from the ons ot
turer, or laborer to strive for more income, must be so rewritten that the ri ghts and employer the right not to deal with a bear of 5
higher profits and higher wages, why isn’t duties of employer and wage earner in Particular labor union or with any union. for profit?
it proper for all people in the same occu- relation to each other and to the public Under the Wagner act, most labor agree- ;

The analogy between this case and the Union f

Wagner act is clear. Employees always Our nat

pations to combine to secure more income? are clearly defined. Individuals and mi- ments or contracts are signed by employ- en afraid
Why is it wrong for a group to do what norities among wage earners, whether ers who are under duress—and hence are Our F
is proper for an individual to do? That union or nonunion, must be protected not really contracts. awkward &
is a fair question. In a free society, the agamst majorities. The right of collect- The discussions between the employer mo ward
avarice of one person is restrained by the we bargaining must at all times be and the labor union should not be called A 8
competition of the others. If one store pasnitmed. ou troy worker ust bargaining, for it is of the essence of bar-- stil] ig 8
in Detroit charges too high prices, this any source Eo “roin or refrain trom join- gaining that both parties are acting volun- join mies
store will lose trade, for the customers ing a union.” tarily. Would discussions between a high-

have choices, and they will choose to }
patronize the store with the lowest prices. 7 Let 5 analyze this alleged right of col-
But if all Detroit stores formed a union, ‘éctve bargaining.

wayman and his victim be described as ing he
bargaining? In genuine bargaining each Tn order {
party makes offers. But labor unions, like order

and all charged high prices, the custom- Confining our discussion to civil rights, bank robbers, make demands. Those who Con veil 0
ers would have no choices and would have all rights are creations of the law. All hu- make demands have the power and the \ gress de:
to submit to the exploitation. In a free man acts fall in two categories. will to use force. The labor union threat gner act



===== PAGE 27 =====

October, 1944
Qetoel, —
a

thus inflicting a loss on the employer. The

THE ECONOMIC RECORD

83

s to strike if its demands are not met,
Jabor URIiODS expect the higher wages in
the future will éxceed the present losses
e strike. But the employer 1s
faced with two losses—the loss due to the
strike, or the loss which will come from

meeting the demands.

Distribution by Force

The Wagner act gives employees the
power to inflict certain and indeterminate
Josses on employers, with the consent and
assistance of the Federal Government. It

.. substitutes force for competition as the

mechanism for distributing the social
product. :

We should never refer to the Wagner
act as a law which confers upon workers
the right of collective bargaining, but as

4 law which denies to employers the right

to enter into voluntary agreements with

“their employees.

The sentence which we quoted from the

Jeter should be amended to read as fol-

lows: “The right of an employer to bar-

*. gain freely with his employees should nev-
er be granted.”

The Wagner act gives no rights to la-

bor, except the right to inflict a loss on the
“employer. The essence of the Wagner act

is that it denies to employers the right to

“bargain with employees.
".-The defenders of economic freedom
should avoid using the words and phrases

‘coined by the enemy. These phrases are

‘designed to conceal, not to reveal, the.

facts. Deceptive language is the dress
‘which enables many errors to masquerade

~ as truth.

Union for Profit

Our national policy as expressed .in the

Sherman act and the Clayton act is in fa-
“vor of competition and against monopo-

lies. But the Sherman act and Clayton

~ act do not apply to labor or farmers’ un-

lons not run for profit. Did you ever
ear of a labor union that was not run
Aor profit? The politicians have always
“been afraid of the farm vote and the labor

- Vote,

Our Federal Government is in the

‘awkward and inconsistent position of

rosecuting industrial combinations and

 Shcouraging labor combinations. Worse
still, the government compels workmen to

Jom unions or lose their jobs. Congress
8S no constitutional authority for enact-
ng labor legislation.

In order to clothe the usurpation with a

C 0 veil of apparent constitutionality,

ongress declared that the purpose of the

-:''agner act was to relieve interstate com-

merce of the burdens due to strikes and
industrial strife. This attempt of Congress
to encourage unionization began with the
National Industrial Recovery Act of 1933.
In the first New Deal year the number of
strikes more than doubled and reached
the highest level in twelve years. -In 1937,
the number of strikes reached an all-time
high, and our estimate for 1944, based on
the first five months, is still higher. The
federal labor laws, instead of relieving com-
merce of the burden due to strikes, trebled
this burden. Since we have taken the medi-
cine prescribed by Dr. New Deal for
twelve years, and since the disease which
the medicine was to cure has become pro-
gressively worse, should we not discon-

‘tinue the quack remedy and repeal the

Wagner act? . . .

Bad Thinking

There is a tendency to think that the
evils in labor unions are due to turbulent
and crooked officials. That is unsound
thinking. We must concentrate on prin-
ciples, not on personalities. I believe that
most union members and most of the offi-
cials are decent and honest persons. Many
of the southern slave owners were good
people who believed that slavery was a
good institution, Religious fanatics who
burned heretics at the stake probably
thought they were doing right. Many
ardent unionists have not the educational
opportunities or the capacity to dig down
to the roots of the problem and come to
correct conclusions. It is difficult for any-
one to condemn a system which gives him
a livelihood or apparent economic benefits.
Laborers have the right to organize. Any
group has the right to organize. There are
many useful and legitimate functions for
a labor organization. But no group has
the right to organize to injure other
people.

Some years ago, the American people
voted tc abolish the sale of liquor. But
this curtailment of liberty was wrong and

. as the years went by the abuses and evils

of prohibition were more and more ap-
parent. Public sentiment changed and the
prohibition amendment was repealed. It
is probable that public sentiment will
change in regard to collective bargaining.
As industrial turmoil increases, more and
more people will see the evils generated
by collective bargaining, and we should
look forward to the time when all federal
labor laws will be repealed. Millions of
workers may then be freed from economic

slavery and enjoy the exhilaration that

comes from the knowledge that they are
once more free men, able to advance ac-
cording to their industry, intelligence and

Agriculture

What Is Free

Agriculture?

N THE supplemental Republican party

platform written by the governers in St.
Louis is this paragraph:
~ “Because of the universal extent, the
basic necessity, the hazard and the nature
of agriculture, there is a federal respon-
sibility to assure it economic stability and
equality with labor and business. Federal
responsibility should be directed to such
economic stability through disposition of
surpluses, assurance of fair market prices,
research and broad general services to
agriculture as a whole.”

Then it adds: “Abundant production,
necessary to national prosperity, can only

“be attained under a free agriculture.”

In order to guarantee agriculture (1)
economic stability, (2) economic equality
with business and labor, (8) fair prices,
and (4) freedom from the consequences of
surplus, will it not be necessary for the
government to control and administer agri-
culture? Is an agriculture controlled and
administered by the government a free
agriculture?

The National Farmers’ Union, for one,
has lost interest in that question. Its
program, already presented to the gov-
ernment, contains these proposals:

“l. Authorize the writing of an annual
agreement between the Government and the
individual farmer that will spell out exactly
what crops the farmer is to raise, what volume
will be his objective, what he will spend and
practice on conservation, and in return what
he will receive in farm income, technical as-
sistance, and credit for the year, this minimum
income to be underwritten by the Government.

“2. Force the payment of support prices to
farmers through (a) the withholding of subsidy
payments to processors or middlemen, (b) the
lowering of price ceilings of those processors or
middlemen who decline to cooperate and
(c) provision of heavy fines for those who dis-
regard the support price pledge of the Gov-
ernment.”

News of the AAA

The Hon. Harry P. Jeffery of Ohio pre-
.sented to the House of Representatives
the following statement signed by sixty-
two Ohio farmers.

“We, the undersigned farmers in Clay and
Perry Townships, Montgomery County, Ohio,
hereby state that we have had the following
experience with the AAA in this district:

“1. We have been advised by agents of the
local office that unless we signed up for the



===== PAGE 28 =====

84. THE ECONOMIC RECORD ‘October, 194,

AAA we would not receive a farmer's allot- ministrative expenses totaling 89%. The $15.20 per week; shepherds, $15.20 Der :
ment for gasoline for farm purposes. setup this year is $67,500,000, with $30,- week (their sheep are another thing they 3
2. We have been advised that unless we 786,000, or 45%, for expenses. That is the think a great deal of in this particuly,

signed up for the AAA we would not be granted : . .
 deferments for military service for our sons kind of picture it presents, to loan $67, country).

and employees as farmers. 500,000 with $26,000,000 of expense. The minimum wage scale in Englang is |

“3 We have been advised that unless we Someone asked about the amount of slightly higher than in Scotland. On mos
signed up for the AAA we would not be granted loans that had been repaid. The total farms wages are a little above the min;. H3
priorities for farm machinery needed by us to loans as of December 31 last were $809,- mum which is required to be paid. A greg; con
get the maximum production from our farms. 000,000. The repayments were $443,000,- many men are drawing in the neighhg,. questio
We believe, therefore, that the AAA has ggg. The 86% comes in this way, that hood of $15 per week. The highest Priceq quoted
been a serious detriment to maximum produc- : ; . . .
tion on the farms in this locality and that jt S070 of the amount of the matured prin- man whom I have discovered here was , man SI

s in ocality an at 1t . . oye . . .
has created a feeling of apprehension and dis- CP al has been repaid, but the way: that bailiff, that is, a farm manager Who is re. this w!
loyalty and we are anxious to do all we can for has been brought about, as appears from sponsible for operations on one of a cer. terial t
our country, but are unable to do so because all sorts of investigations, is that they tain farmer’s four farms, and who receiveg Perh:
of this impediment.” have made new loans to the borrowers to $22 per week and a bonus dependent upg tor has
cover these maturities. That is the way farm profits. : can Ind
Pe . they keep the percentages of collections up. n the matter of prices, there is a ver in doll
The Price of Benefit —from the Congressional Record. mixed situation. The greatest portion o duced, :
(From a debate in the House of Repre- agricultural production is bought and dis. the Am
sentatives on continuing appropriations for tributed at fixed prices under strict go. - They a
the Farm Security Administration.) An Iowa Farmer in erment control On the mole, prices are ers
. . . oe suc at farming is profitable. act,

Mz. Murray of Wisconsin. I do think Great Britain no one worries much about prices. that the

it should appear in the Record that though

some of this money has not been too well In the first place, a very rough compari- There 1s one notable excep t ton to this oan
spent, which nearly everyone will agree son of Britain and Iowa. Its agriculture is uniform price thing. The prices of full the vlan
“with me on, yet the rural people did re- somewhere near the size of Iowa’s. We blood livestock 2%e out of sight. I fndin § en
ceive, in many cases, much benefit from have, in fact, a few million more tilled TY notes that sixty head of Ayrshire cows, business
the money that was spent in a correct acres in the state than there are in the the total number sold at a recent sale, men the
manner, and at the same time that these whole of the United Kingdom. They, on averaged $2,220 euch, . : will und
few dollars were being spent for these the other hand, have a more intensive 1 18 also worth no t ing that the price of simple p
rural people, our city cousins were build- agriculture, and especially have more land is nsing dramatically. : ness. TF:
ing homes costing on the average from cattle and more dairying. Tt is quite prob- Allen Kine of Iowa, writing in The Out. bugaboo
$4,900 to $6,900. able that total feed units in Towa are post, published by Americans in Great through :
Mg. Cooter. I think the gentleman is higher. It even seems probable that the Britain. The A;
entirely correct. Although much money total human food produced is higher. The , 4 the sourc
has been wasted by the agency, I think Significance of eleven million acres of corn E 20s from E gos .- of more -
that the farm people have received some and a couple of million acres of soya-beans lies in ir
benefit from it. in this respect is hard to overcome. The Mr. Horrman. Over the past year or labor—m
. Mz. Sore. Can the gentleman inform labor force of Britain in agriculture is more the farmers were asked to, and they work. Tl
the House what percentage of these loans approximately three times thai of lows, did, produce more and more eggs. In one ful manu
have been repaid? put this ee fact, iE easly fead hy ple towm in my district bey were asked bo our ¢
a - to store 8 additional carloads eggs. are
Me. Voor of California. I have By ciency of British agriculture. A consider- They already had 41 carloads in that ool ity. A;
oo Lh o € over-all payments OT able part of it is a result of the intensive town, and they had to use a big canning time, but
duction Toans Cor the * chabilitation loans aspect of different crops such as mangolds plant to store those. our empl
and swede turnips and potatoes and vege- Mz R What d h ema the piece
are 86.7%. tables and sugar beet, things which re- : pr at does the gent y sell that f
- Mr. Coorey. I know that every mem- quire a very great deal of labor. Further, want to do—veep them and reduce the convince
ber of the committee has opposed the it ig the sort of labor which it is difficult price to 5 cents a dozen! : secret of
Federal Government’s going into the land or impossible to replace by machinery. Mr. Horrman. I will tell the gentle from whi
business. This agency, in many instances, A considerable portion of the total farm man what I would do. I would not at: gains that
without any authority of law has acquired work is done by employed labor. This tempt to tell the farmers how to rw orders, mc
and has control of approximately 2,000, makes wages of particular interest, and it their business; I would not interfere with Standard
000 acres of farm land in America. is also of interest that minimum wages in the way the farmers cultivated their Jand Progress.
Mgr. Taper. I do not believe we ought Scotland are not the same as in the rest Or what they should grow. According ¥ My last

to go on with the Farm Security Adminis- of the United Kingdom. On a very good Mz. Jones, who had a seat in the House, Somewhat
tration at all. I believe it ought to be im- farm in Scotland, these wages were actu- 10W Food Administrator, they are taki there was
mediately liquidated. The amendment of- ally being paid at the time I visited the those eggs and they are grinding them that the

fered by the gentleman from Georgia pre- farm: ordinary men, thirteen dollars per make hog and poultry feed. They get the any knowl
sents this picture: $67,500,000 for new week; horsemen, $13.50 per week (the hens to lay the eggs and then grind then of busines

loans, so-called rehabilitation loans, and Scots think a great deal of their horses); Up to feed the hens to get more eggs. Create jobs
$26,000,000 for expenses. This means ad- greves, that is bailiffs or farm managers, —from the Congressional Record. oo Rageme:
0 raise the

litle evides

the relation



===== PAGE 29 =====

—————

“getober, 1944 THE ECONOMIC RECORD 85

. _ idea that to produce less somehow benefit
Talking at the Bench Level him. If we could only get him to see that

Co he holds the magic wand that floods the
From a speech by Frederick C. Crawford, company with orders because of lower

President of Thompson Products, Inc. prices and makes possible greater profits
and higher wages and that he waves it by

ached two or three general his job and performs his duty, and the suc- ¢ ‘
HAVE “5 ‘from the answers to our cess of his company, and his own earn-. spl producing more Plates per hour! d
con ire. Replies, such as I have just ings. i e ous elp the or er om erstan,
wes onfirm my belief that the bu- Secondly, T did not find a single answer 250 © f Qua 4 oma wd
quote de of labor relations is the key to that disclosed any interest on the part of CO™ pe a t need to own a cow
man hole problem, not cold, hard, ma- the worker in the political setup of the ™ order to art Jill nor to own a rail-
this 1 things. postwar world, or any understanding of 02 d in order o oe i. a han. Dur Plant
te Perhaps our neglect of this human fac- its relation to his personal fortunes. There pal ue a hundre dit on dofars oh
has been the greatest failure of Ameri- seems to be no concern about the govern- igi mn - Cag oy IL was gin wort
Low  qustry for a generation. We think ment regulations that determine how busi- A al amoun oo that time. Hvery year
lars in hours, and In pieces pro- ness and industry can function. Yet taxes hae the aelry pays ee wages
on d and these aren’t the terms in which have more to do with a worker’s job than = d LT usiness § wort ". fairl
t portion df oe "American people are thinking today. the president of the company. Security ustrial mcome m America is lanly

ght and disth They are thinking in terms of human laws have more to do with postwar em- divided. A Luowiedge of this fact b fhe
r strict g os ployment than the engineering department. wai p N A 2 9 0% po! a : or ‘a oy
le, prices aif ¥ answer of the survey indicated Labor policies have far more to do with [S240nS. Nearly o Ol Industry's avay-
le. In fact? Every able dollar goes to those who work and

that the employees are hungry for infor- jobs than the superintendent of the plant.
"mation about the company’s business. Bureaucratic control in government has
. 5% When we asked, “What do you want in more to do with the worker’s wages than
tices of ful the plant paper?” the most frequent an- the management of the company with
ht. 1 find ify gwer was “More facts about the company’s which he is connected.
15: § business.” How can we explain to our A basic understanding of the American
"men the way industry works so that they system seems completely lacking with the
"wil understand? It must be done with workers in industry, and yet they com-
"simple parables, and with sincere earnest- pose one-fourth of our population, and the
ness. First of all, we must remove the public will set the rules for the operation
-bugaboos that are in the workers’ minds, of American business, in the future. These
through misunderstandings. men fail to relate the jobs they want to
The American worker doesn’t know that their responsibility, as citizens, to see that
the source of a wage raise, of lower prices, their government gives industry a clear
of more capital, and of greater prosperity field in which to play the economic game,
“lies in increased production from human and fair rules under which to create a bet-

less than 10% to capital. When they un-
derstand it, most workers say that isn’t
fair—capital should have a better break.

What about executive salaries? The
net income of the highest paid boss, after
tax deductions, is the equivalent of what
ten workers have left after they too have
paid their taxes. It is about equal to that
of ten “no speaka de English” laborers.
When the comparison is made and pre-
sented that way, I never saw a worker
who didn’t think that was one of the
most unfair things in industry. The work-
ers say that the boss is worth: 150 laborers, -
and thus they appraise his salary at about
$400,000 a year.

ices. 5
tion to thy

25

past year oO} + labor—more pieces produced in an hour of ter America.

to, and the’d work. That is the whole secret of success- Thus far management hasn’t done any

eggs. In oo 8 ful manufacturing. Our workers sell hours, too well, in its public and employee rela- Invasion Money

y were asked: but our customers don’t care about hours, tions. Something has been wrong. Why : ] }

ads of egdh | they are concerned about price and qual- don’t the folks in our communities, and The American troops taking part in the

in that smal} ity. A man sells us eight hours of his our own workers, understand more about Invasion have taken with them franc notes
, big cannint. time, but our customers don’t care whether government, and more about free enter- printed in the United States for the mili-
#2] our employee works all night or makes prise? We are not so smart, after all. tary authorities. These notes have the

“gf the piece in five minutes. Whenever we We can sell any worthwhile product to the tricolor flag prominently printed on them.

he gentlemaly sell that fact to the American worker, and American people, but we haven't sold the The responsibility for -their ultimate re-
1 reduce te "convince him that it is the key to the simple truths that are furidamental to.our demption has not yet been defined.
: 3 secret of increasing the general wealth . economic stability. The British troops have been supplied

1 the gentle; ~ from which come wage raises, the bar- Management has all the advantages— With some of the old Bank of France
rould not 8:f gains that bring bigger markets and more our workers are with us eight hours a day notes that were brought to this country at
how to Tul orders, more invested capital and a higher for five or six days a week, while the the time of the Dunkirk evacuation. As
mterfere will: standard of living, we will really make crackpot theorist gets them on the radio the stocks of these notes are inadequate,

ed their land; progress. for ten minutes at night. It’s a sales job, the balance of currency required is being
According % My last two conclusions, however, are and we have the money and the means to made good from the tricolor notes print-
in the Houstcd somewhat disturbing. In the first place, do it. The worker and his family, and the ed in the United States. It has been re-
ey are taking: ere was no indication from the survey other citizens in our local communities, are ported that some 80,000 million francs of

ding them 2} that the average American worker has our customers to whom we must sell these these notes have been printed, a figure
They get 123  2uy knowledge of the underlying principles basic American ideas. The socialist, or the which compares with the current Bank of

mn grind t of business—how capital is formed to dishonest leader who works on them, is France circulation of around 500,000 mil-

nore eggs Create jobs, how incentive of profit drives’ just another salesman competing with us. lion francs. The addition of these tri-

cord. Management on to produce and grow, and Our efforts must be sincere, patient and color notes to the circulation could,
0 raise the standard of living. There was truthful—not biased propaganda. . . . therefore, introduce a new and serious n-
little evidence that the worker understands Sometimes by stories we can illustrate flationary element in the position.

the relationship between the way he does this to the worker and rid his mind of the —The Economist, London.



===== PAGE 30 =====

86 | THE ECONOMIC RECORD © October, 194}

Oct

The S lar E f i i | Br
e Spectacular Entry of Cooperatives into |
° Re
Production | I sen
ord @
. . . : farme
he M onthly Labor Review, published tion to manufacturing, selling, warehousing, etc., agricultural developments in the southery Cong
by the United States Department of it is proposed to set up life insurance, fire insur- states.” privil
Labor, takes a deep interest in the signs ance, and livestock insurance cooperatives. cr . : Jocal :
and fortunes of the cooperative movement. Please carefully note that it is proposed to get The idea is outlined as follows: regul
It speaks of the “spectacular expansion by e money from RFC at 1% per annum over a “In order to prevent the farms from becomiy, Corpt
. . Ca 40-year period. While this prospectus is silent h g .
cooperatives nto production” as the over- as to administrative costs, including taxes, atten- y e ‘dumping grounds’ for unemployed people ing cc
shadowing development of the last Y€4ar, tion is directed to the fact that the Federal Co- during the fol ostwar period andlin order hd: provide . say:
and says: Much greater attention was operative Act eliminates such cooperatives from for the farm peloton It Sources 3 hy ome “Th
paid to publicizing the cooperative move- federal taxation; moreover, these cooperatives operative in PS ps Propose b oo ized br
ment than in any previous year, which are very busily engaged within their respective ov :  ARSTRy tis Il, n:
h b al ks he states in substituting for the normal schedules of surplus labor as well as to bring about a funds. . iy
was shown by sever attac upon t 1e tagation a franchise tax or gro ts tax i mental readjustment of the agricultural econ. FSa ¢
movement which resulted in gaining it a / 8r0SS TECCIPIS aX IN omy of the South. Through the establishment of sideral
. _ ieu of all other taxation, which again means in- ¥ ar
greater public notice. . industries, inefficient use of labor on over-popy. - year p
dustry and the remaining taxpayers must absorb lated and are als
From whence the attacks came or on that shrinkace by hi : f ated and submarginal farms would be prevented
hat ts th based it d at shrinkage by higher taxes levied against the and an employment balance between agriculture local ¢
what arguments they were based 1t d0€S remaining property. One of the most far reach- . EN ¢ Also, 1
not say, only leaving it to be inferred that ing and subtle encroachments on the American *ad indutiny wold b ¢ maintained : ¢ } out. to
whatever they were they did more good Way of life is contained in the paragraph under agricultural econom ro ea - Lind an we un
than harm. the caption of ‘Educational Program.’ Please er. . y TL SgFICUIFal dus. busine
read carefully the suggestion that a ‘course of trial setup will have to be so rapid that a larg: d
~ To those who venture their own capital ad a at 0 ble schools svaterq | 2Hount of the conversion will have to be made loaned
in trade and enterprise, for profit, espe- of xe pub 008 sy by the people themselves through cooperative the ta:
A 5 for the purpose of giving basic training in all A . _ . J type 0
cially the small trader and the little enter- [paces of cooperative economy.” Then as the efforts, since private enterprise is not in a posi. § “Fu
priser, this movement by the cooperatives final shot it is recommended that a National Co- von to effort the rapid change that will be by the
into production begins to be alarming. It operative Service Bureau be set up in Washing- 2h tax bu
ie not he competition that they complain ton at the national level.” Forty kinds of manufacturing and pro- - tremer
. . . . . “oe ] . . . . B t
of. {hey think it is unfair competition. This letter to the membership of the As- CeSSINg are listed as feasible. oo sh
they think it is unfair mainly for two sociated Industries of Oklahoma is ac com- The aid of private enterprise is not ex- - oDOr
reasous: first, that cooperatives as non- panied by two exhibits. cluded, but it should be encouraged only P oy
pro t associations are partly exempt from The first is a letter from the National  WPeR to the best advantage. Southern i that tl
ederal taxation and subject only to nomi- Council of Farmer Cooperatives to all Cooperatives, Inc., the prospectus contin- it is re
nal state taxation; and second, that they council directors as follows: ues, “should be incorporated under the
have privileged access to public money at law that would give it the broadest pow- -
very. low rates of interest. “Attached is copy of plan for a proposed re- ers,” probably the law of Delaware. Then
These are grounds enough for grievance. gional agricultural cooperative holding, financ- it is proposed that it should borrow money
But the attack does not stop there. It ne, 2 and management organization fo serve mane at 1% on a 40-year term from the Recon- - !
goes on to say that the cooperative move- ou  Waekin flv EN oes to Hempis, 80% struction Finance Corporation, and fur O
ment is socialistic in principle and hostile “This plan was formulated by a committee ther: “It is proposed that the government the S
to the tradition of free private enterprise. headed by A. D. Stewart, Regional Director of make loans to individuals where they do has ex
Criticism of that character may be some- Farm Security Administration office, Little not have sufficient capital to purchase ernm
what explained as a reaction to a kind of Rock, Arkansas. You will notice that it proposes stock in the local county associations.” that ¢
zealotry that increasingly appears in the the establishing of an association, known as The educational program contemplates Se t
cooperative evangel. The enthusiast seems Southern Consolidated Cooperatives, Inc., fi- trade and schools and then: oN
sometimes to be talking not of a form of nanced by funds borrowed from the Reconstruc- “Tn order to bring ak ) ; ; i
mutual activity which must find its place tion Finance Corporation at 19, interest, for the order to bring about a better understan - and it
in th Lik h b b purpose of engaging in almost every kind of en- ing of the purposes, objectives and operations of Mr. F
In ihe compelitive scheme ut about a terprise imaginable—ranging from marketing cooperatives and in order to acquaint the people planat
What is probably the most forthright facturing of such items as household furnishings, operative movement, it is recommended that 3 “The
attack that has yet been made upon the clothing, hardware, and tombstones. course of study be initiated in the public schools sumer
y p g aay 0¢ fmt Lhe P : ,
political implications of the movement “We are calling this proposal to your attention system which will give basic training in all $16,50(
comes from the Associated Industries of because we believe it is of real concern to all per- phases of cooperative economy. This course och
Oklahoma, in a letter to the membership, sons interested n farmer Cooperatives. We urge should plana other, courses now being hy 9s
calling attention to the prospectus of a BL you rea ! care ah 8 PHBE SCA00S. : $6,500,
“proposed regional cooperative to serve (Signed) Jobin H. Davis And‘lastly: loss of
nine southern states. Executive Secretary “Since there will be a large number of active ploy
The letter says of this proposal: The second exhibit is the proposal for ber of people belo A be % large Then ; of the
cc : , 1 4 - articipatingin «
It strikes at the very roots of our private en- the formation of the “Southern Consoli associations, it is recommended that a Nation? err t
terprise system and it is certainly another step dated Cooperatives, Inc., and other coop- Cooperative Service Bureau be set up in Wash the inf.

towards state socialism. Please note that in addi- eratives as a means to promote postwar ington for the purpose of aiding in devising lav



===== PAGE 31 =====

er, 1944 THE ECONOMIC RECORD 8

1943: (otod
} ochnical assistance, research work, administra- or a saving to others, the dollar is still there and throughout the years received very substantially
te and operation of cooperative associations somebody is not paying their proper share of tax. less than its fair share of our national income.

hoe United States.” It would, therefore, appear that private enter- The advantage accruing to farm cooperatives
un A Cs prise is being made to pay the cost of subsidiza- from this tax exemption is a very slight one in-
Representative Bradley, of Michigan, i, of these associations.” deed if we are talking about those portions of

recently placed in the Congressional Rec- . Co their receipts which really are income within the
ord 2 petition from fifty merchants and In reply to what it calls an “unprovoked meaning of the Sixteenth Amendment to the

BN farmers of Cheboygan, Michigan, asking attack on the cooperative movement” by Constitution.
south Congress to investigate cooperatives as a Fulton Lewis, Jr., radio commentator, the | oe what the enemies of cooperatives are
ht i. They cited the case of a Cooperative League of the United States I*V 2 ter is to secure the passage of a confisca-
rivileged group. J D gt tory tax on the savings which cooperatives make

Jocal mill which, they said, coulc get Theat of America says: “for their members and which are refunded to

mm r
5 regularly. Post © rivatel or d mill- “Lewis accused cooperative leaders of using those members at the end of each year on the
EF Corporation wien a p y unlimited expense accounts, he contended that basis of their patronage. Such savings never are
:d people ing company couldn’t, and then went onto the co-ops are evading payment -of taxes, de- part of the income of cooperatives, nor would
clared that the cooperatives are subsidized by they be a part of such income even though the

0 pro say: . . .
of; : : LL 2 T hrough 1 f credi tax-exemption provisions now accorded farm
th © “The local cooperative was sot up and organ- fhe gove es Dave hosemte credit an cooperatives by Congress should be repealed.
bsorb . ized by two men who oo ont © government oY big business the Anti-trust Division of the De- For cooperatives only act as servants of their
a fund; 3f roll, namely, the AAA county chairman and the partment of Justice is trying to destroy. All members in purchasing supplies for them.”
ral ec FSA county SUPETVISO These men spent con- these charges are untrue.
shmen : ‘siderable amount of pe on the proposition the “Lewis charges that the consumer cooperatives But he says nothing of what the De-
ver-popiaf Te previous to their commencing b uaness and are exempt from taxes. Consumer cooperatives artment of Labor describes as the spec-
POpLLE ©. also spending a good share of their time at the pt xe Pp a5 p . . ie Sp
rrioddi : " Jocal co-op plant since opening last Septexaber. pay the. same Income taxes, Peper an N a tacular ‘expansion of cooperatives mto the
> real loo, while organizing, they sent their literature oration taxes es taxes on d ae BR The field of production. )
s from a © out to. the farmers in franked envelopes which, Savings which cooperaives return to their mem- It is evident that the cooperative move-
ral-ind i} Fe UB derstand, are to be used for government po Co ori the members democratically vote ment is on its way to a region of new con-
at a] business only; and are operating om MONEY oot in capital is not income and therefore ~~ troversy. Hitherto it could be said that
loaned from the government which is, after all, . . Lo .
» be mad:3F , Frankl believe this Bot subject to income taxes. This is the same the advantages and privileges possessed by
operative . the taxpayers. BONY: 2 > we. eee y right which is available to other business which COO eratives und r the law were offset b
. 1 f organizing should be investigated. . . pel e y
inap ype Of OTE g 8 . may return overcharges to their customers if  t}, 3 fc £ the individual
t wil OF “Further, the federal tax exemptions enjoyed thev wish.” the superior emiciency o the ndzviana
by these associations, particularly now when the ? : : trader. But with the enormous increase of
© tax burden is greatest on private business, adds Representative Jerry Voorhis of Cali- the tax burden upon private enterprise the
and pr tremendous advantage. Undoubtedly the nation frpi5 rising in the House to defend the situation is much altered; and there seems
; cannot exist without a strong and dependable cooperative movement, said: no escape from the conclusions set forth
3 not ex tax structure, but the load must be borne in : by the Associated Industries of Oklahoma
d proportion by all. “Such tax exemption as has been granted to h h . bus; ¢ the
ge ONY3® - “The argument advanced by the Cooperatives farm cooperatives by action of Congress has been that as X e tax-exempt business oO e
Souther} that they have no taxable profits is weak when given them specifically because it was recognized cooperatives expands the levy on taxable
5 contin:gk it is realized that whether it be a profit to some by Congress that agriculture as a whole hag business will tend to rise.
ader th Lo :
est pow; :
e Tad The Fourth P f G
o Tod e rourt ower oO overnment
e Rec 3
and fii N THE day the second session of include in the 52-page report. The committee do business in competition with private enter-
rernmeéntal the 78th Congress was reconvened held numerous hearings in order to determine prise. They encroach upon and compete with
h the Senate received the first report that what programs were being carried out by the business—with business under serious disad-
they has ever been made on the subject of gov- government in utilizing the corporate form, and vantage. They have practically unlimited gov-
purchastg} ernment : . . it also sought the opinions of experts in the field ernment credit at low rates of interest; freedom
ions.” EE | nt corporations. This was a subject of corporati in some instances from federal, stat d local
a that had been explored collaterally by (COTDOTAtIONs. . in some BO Oe ate, and foc
emplateéi:g - S i . Y Some of these corporations, notably the Re- taxation on property and securities, except taxes
a 9 enator Byrd's Committee on Reduction construction Finance Corporation and those on real estate; they also enjoy the privilege of
ag of Nonessential Federal Expenditures— functioning under the Coordinator of Imter- penalty mail and other concessions similar to
1derstan ¥ and it turned out to be an enormous job. American Affairs, are world-wide in scope, and those enjoyed by regular federal agencies. Add
rations fog. Mr. Byrd made a brief statement in ex- for the most part are handling billions of dollars to these the prestige of a government agency and
the peop 1 8 “planation of the report, as follows: without current control by Congress, Treasury, business meets an invincible competitor.
of thecogf ’ Bureau of the Budget, or General Accounting “There is no effective over-all control. Alone
led that 83 Co The committee states that there are 44 gov- Office. - or in certain groups these corporations are
lie school J ment-owned corporations with liabilities of “Government corporations seem to have been autonomous. There has been a growing inde-
ng 1 ¥5:800,000,000, covered by assets the value of created with little thought as to their advantages pendence on the part of the corporations to
his courts hy ch will not be known for years to come. or disadvantages: some have been set up without resist attempts of the General Accounting Office
ow bein : 3 of ese corporations possess borrowing power capital stock, and others have been established to audit their accounts, and, on the other hand,
! a6 000,000,000, plus outstanding loans of with the idea or even the expressed intention to this office has failed to press its rights in this
: oo of 0900. They are operating at a current use up all capital in carrying out their purpose. matter under Executive Order 6549.
: emplo "0.0 y $108,000,000. The corporations The net proprietory interest of the government The summary occupied fifteen pages of
r of act! seatt y 3 000 officials and employees, who are in all its corporations expanded from two billions 4} o (longressional Record, with tables. The
arge nud: of the & all over the world. All figures are as seven hundred millions in 1938 to fourteen bil- 4 he ar fa the b q :
ngin thes “go iscal year ended June 30, 1943. lions eight hundred millions in 1948. Most of orowing paragr apis are irom the body ©
3 Nation spect to onstve was the investigation with re- these corporations are perpetual, to be wound the report:
) in WashzR the inf 0 government-owned corporations that up only when dissolved. “The government corporation represents an
Mtormation gathered was too voluminous to “Government corporations to a great degree attempt, when extended to commercial enter-



===== PAGE 32 =====

88 THE ECONOMIC RECORD October, 194;

prise, to apply a type of organization common to ment corporations were: United States Grain Borrowing power: Ordinary under chart, -
large-scale private commercial management. The Corporation (1917), United States Emergency “Sources of funds: Capital by allocation bh
purpose seems to be to avoid the ordinary re- Fleet Corporation (1917), United States Housing Reconstruction Finance Corporation out of leg,
straints placed upon regular government estab- Corporation (1918), United States Spruce Pro- lease appropriations. Current needs from Capity
lishments and to create a reservoir of capital. duction Corporation (1918), United States Sugar and further lend-lease allocations. .
“The magnitude of government corporations, Equalization Board (1918), War Finance Cor- “Functions: Experimental design, engineer, :
particularly of Reconstruction Finance Corpora- poration (1918), and War Trade Board of the and construction in watercraft and aircraft ,
tion and Commodity Credit Corporation, is now United States Russian Bureau, Inc. (1918). Of war and commerce. } i Dear
80 great as to rival government proper. In this number, United States Spruce Production is “Expiration: When dissolved. Lam
many cases, they exercise power and influence just about to be dissolved and United States The committee’s conclusions are thege. Foreig
even greater than do departments and estab- Housing is in liquidation; all others have been . : ous
lishments. dissolved. “l. A great diversity in creation and orga, Se ent]
“Why a government organization should be “Except for the federal intermediate credit zation of government corporations is noted, : een
chartered under state laws is hard to understand. banks in 1923 and the Inland Waterways Cor- “2. The lack, generally, of over-all Contr] become
The first and most important objection, although poration in 1924, no recourse was had to the cor< current control by Congress, the Budget, Treas, and ra
without practical significance, is that the Federal porate device until the depression came in 1930. ury, and General Accounting Office should have Sern
Government subordinates itself to a state. An In 1932, by act of Congress, the Reconstruction immediate attention. 8 It is
organization establishing itself under a state law Finance Corporation, federal home loan banks “8. To a large extent some corporations cary write t
assumes all the obligations as well as enjoying and regional agricultural credit corporations on extra corporate functions, such as paymey; be mos
all the privileges conferred by a state certificate were established. In 1929, a specific type of pub- of subsidies, price supports, buying and sellin, feel cor
of incorporation. It acknowledges its liability for lic corporation was developed—the stabilization at a loss. } ing the
corporation taxes and similar levies. It is under corporation, promoted, financed, and managed “4, Government corporations were pring. employ
obligation to domesticate in other states in which by the Federal Farm Board—these were the Cot- pally created to meet a crisis or emergency, dreds «
it does business. The government corporation ton Stabilization Corporation and the Grain “6. The corporate form has been too freely have ct
also may expose itself to assessment for taxes, Stabilization Corporation both dissolved, in 1934

resorted to. Corporations were formed in any and as
despite federal exemptions. Frequently, powers and 1935, respectively. These corporations were cases in which an ordinary agency would hay

y . My «
granted under a state charter may exceed the supplemented by privately owned corporations, sufficed. y

{
powers intended by Congress to be enjoyed by a the Farmers National Grain Corporation, Ameri- “6. Using state charters to implement cor he op
corporation so chartered. can Cotton Cooperative Association, National porations is anomalous, and may be objection. complax
“Congress should have cognizance of corpora- Live Stock Association and others, all under the able and dangerous. } : I am cc
tions and this may be accomplished by submit- supervision of the Federal Farm Board for agri- “7. Government corporations have not been said, “t
ting a work program of the ensuing year, with cultural marketing and financed by the agricul- successful on a profit-and-loss basis, but such - to pow
estimates of the year in progress, and of the com- tural marketing revolving fund. These organiza- corporations are not usually established to make } divides
pleted fiscal year, all in the form of a business tions were replaced by the Farm Credit Adminis- money. Panama Railroad Company (operating The 1
budget. . tration and the banks for cooperatives and pro- = a monopoly in the Canal Zone) Is an exception. ous or ¢
“There has been a growing independence on duction credit corporations in 1933. “8. Farm-credit institutions are to some ex make it.
the part of corporations to resist attempts of the “By that time the philosophy of American tent overcapitalized, and a return to the Treas ment cc
General Accounting Office to audit their ac- Government in the economic field had under- ury should be considered. } > that to
counts; on the other hand, this office has ne- gone, and was undergoing, a marked change. “9. The number of corporations and their What
glected to press its rights in this matter. . The “general welfare” had acquired 2 new mean- complicated interrelations defeat a clear under. ioe a
“But something should be done without delay. ing and possibly was overemphasized. The num- standing of the purposes and objectives of each, P this !
No major owner of corporate stock would be sat- ber increased from 10 corporations in 1931 to And it makes the following recommer- tributed
isfied to permit his corporation to be run in the 27 in 1939, and there are now 44 corporations. dations: ol tries”
manner now nearly common to government cor- Besides, there are 15 unincorporated agencies ations: of oil we
porations. While on this subject, it may be re- (sec. VIII of this report) operating loan activities “1. That over-all public control be established in order
marked that many corporations engage outside and enterprises. Originally the corporate device promptly with reference to current control by - world 1c
public accountants to audit their accounts. The was employed as a means of solving the compli- the Congress, the Budget, Treasury, and Genenl able” sh
government, with an accounting setup that cations of the federal system and, although this Accounting Office: | mated w
should be the equal of any accounting firm in the may be expeditious with respect to some activi- “To take form of a business-type budget—8 the expo
country, should be free of this necessity. ties which have been undertaken by the Federal work program for the ensuing year, with com: products
“The corporate form is used to establish a Government, it appeats now that every new busi- parisons for the year in progress, and for the “sound |
revolving fund and maintain a constant source ness venture is thought of in terms of suchavoid- last completed year—presented to the Bureau country
of cash and credit from capital invested and ance. The inevitable result of this growth has of the Budget; } ment me
borrowing power.” been the impairment of control by Congress. - “After review and modification to be included | national
“in the Budget for submission to Congress; there is
Section IT of the report is devoted to Cargoes, Inc., is in the Executive Office “To be acted upon by Congress in a similis producti
the history and growth of government cor- of the President, and has the following manner as to appropriations; } restrictec
CON : . “With provision for control accounts in the .
porations: record: . : Only +
Treasury, and audit by the General Accounting know thy
“In the early history of the Federal Govern- “Creation: Incorporated privately, October Office. mainder
ment the corporate form of government agency 30, 1941, as Ships, Inc., under the laws of the “2. That the Comptroller General of the under th
was simple and rarely employed. First came the State of New York. Acquired by Reconstruction ~ United States be made the auditor and comp these thi
Bank of North America (1781) and the First Finance Corporation for Lend-Lease Adminis- troller, ex officio, of each and every government ernment
and Second Banks of the United States. The tration, June 17, 1942, and name changed to corporation. i upon wh
Panama Railroad Company was chartered pri- Cargoes, Inc. The acquisition was made by “It would be necessary in carrying out this pr Meaning]
vately under the laws of New York in 1849 and Presidential directive under Reconstruction cedure to make provision for some discretion i? I gath
acquired by the Federal Government in 1902. Finance Corporation authority to create corpora- executing the programs as authorized; it inclined 1
The Federal Reserve System was established tions (15 U. 8. C. 606b). “And to arrange for the procedure as to au Yet ready
under the act of 1913, privately owned by mem- “Control: Board of directors, nine members, and settlement by the General Accounting Offict Meaning]
ber banks and publicly controlled. Federal land 1-year term, appointed by Lend-Lease Adminis- and for the manner of Treasury control.

banks were authorized by the Farm Loan Act of trator. No current control by Congress, Treas-
1916.

“World War No. 1 brought on a marked de-

the possi}
“(The Secretary of the Treasury and te carefully
ury, Bureau of the Budget, or General Account- Director of the Budget are not in comple

ing the T
ing Office; but arrangements are under way to ee with recommendation No. 2 of th world for
report.” :

velopment in this respect. The wartime govern- submit accounts to the latter for audit.



===== PAGE 33 =====

ot CA

THE ECONOMIC RECORD

Qetober, 1944

Cartel Idea in Oil

A Letter from J. Howard Pew, President of the Sun Oil Company

) . I know I need not labor with you the evil treaty, or call it what you desire, it seems to me
Dear Senator Connally of the Senate nature of the cartel system. Originating in that the United States Senate, and particularly
{am writing to you. as \1 pmeR : Europe as a device to assure the security and its Committee on Foreign Affairs, has a grave
Foreign Relations Committee, Dt that the survival of decadent and inefficient industries responsibility to assure that the country thor-
seriously disturbed over the De P on be- and economies, the cartel system is the antith- oughly understands the course upon which we
recently published Agree hon LB nin ma esis of our American competitive system. Itis are embarking. For as you know, treaties once
geen the United States an Pe De ache a primary reason for the backwardness of Euro- ratified become the supreme law of the land and
become the foundation Stohe i a s of oe pean industry compared with our own. This our actions taken pursuant thereto could well super-
and radical changes in : oy Pp people know, and for more than fifty years it has cede our federal anti-trust laws and state laws
government to the petroleum in — Kt been American public policy to outlaw monop- and policies.
Iti neither an easy nor a pleasant task 10 glies growing out of schemes for price-fixing and So far as this Agreement goes toward eliminat-
"write this letter because what I have to w' may production control. Only during the brief life of ing national frictions through acceptance of the
"pe most unwelcome in certain quarters. But the National Recovery Administration in the principles of the open door and equal opportu-
feel compelled to do so In the interest of protect- Thirties have we markedly departed from this pity i siti :
1 ARE ds of workers . he: nity in the acquisition of exploration and devel-
ing the livelihood of the thousands o e policy . : .

: her hun- . opment rights in areas not now under concession
mployed by my Company and those other hun Sov eT
e ? thousands of petroleum workers who Cartel arrangements, as has been demon- and in giving assurances for mutual respect of
«dreds of U . strated ‘again and again, have as their purpose all existing valid concession contracts and law-

have contributed so much to winning the war, a p ] : i > a

ha 1 as a contribution to the public welfare. the stifling of competition. Their effect has been fully acquired rights, it is a step in the right
and a: . : to destroy initiative; close the door of oppor- direction. My misgivings do not grow out of
. My concern, in large part, grows out of the tunity f dividual d those parts of the A t
vagueness of the language of this Agreement ns por new inc vi ua, entrepreneurs an : 3€ par € Agreement.
“which already seems to have lulled many into Sma. np pnts encourage inefficiency; Articles III and IV raise questions which I
complacency regarding its possible implications. raise prices and thus lower the standard of liv- think should merit the careful attention of your
"I am conscious of the fact that, as someone has ng. All these fruits of the cartel system result Committee and the Congress. Article ITI pro-
"aid, “to be grandly vague is the shortest route in the freezing of industrial progress to the  yigeg for the establishment of an International
to power; for a meaningless noise is that which detriment of workers, consumers and those with petroleum Commission, upon which the two
divides us the least.” savings to invest. A cartel under the aegis of  ,oyernments would have equal representation.
~The language of this Agreement is as innocu- governments is no less reprehensible than a The Commission is charged with the duty of pre-
. bgt . . : cartel entered into by individuals. Both are : ; \
ous or as vicious as its administrators desire to dots 1 to th . paring long-term estimates of world demand for
mokeit. Virtually every paragraph in this Agree-  “° imenta to the public welfare. petroleum products; of suggesting the manner in
‘ment contains a phrase which raises questions It is generally recognized that the American which, over the long term, this estimated demand
that to date remain unanswered. petroleum industy has supplied the No. 1 essen- may best be satisfied by “production equitably
What is the meaning of the phrase “fair pe ingra ents or United Nations victory in distributed among the various producing coun
rices” ? What is meant by the use of the phrase r 1s industry in the past been a tries” In accordance with a vague criterion
> this Agreement, “production equitably dis- part of a cartel system it never would have de- enumerated in the Introductory Article; of rec-
tributed among the er I Yo veloped the facilities and organization to make ommending to both governments “broad policies
tries” . p Rg possible its present tremendous output of war for adoption by operating companies with a view
ies” ? Does it contemplate the shutting down fr . . ,
of oil wells in this country by governmental edict products. This is well illustrated by the fact that to effectuating programs” thus suggested; of
in order that oil wells in Some remote part of the over 90%, of all the oil resources in the world making certain other analyses; and “to make,
‘world might continue to produce ho “equit-. have been discovered and developed by Ameri- from time to time, such additional reports and
“able” share of the oil needed to meet the ti. cans. Un der a system which has given free rein recommendations to the two governments as
mated world . to their initiative and resourcefulness, they have may be appropriate to carry out the purposes of

world demand ? Is it contemplated that . ‘ : . »

the exports in this country of finished petroleum outstripped in the development of oil fields the this Agreement.

products may be restricted Anish der that the nationals of countries where the cartel system Although three different provisions of this
appears to be in high favor. Agreement are made contingent upon this term:

“sound economic advancement” of some other . . »
country may be encouraged ? Does the Agree- The petroleum industry in this country depends the purposes of this Agreement,” such purposes
are in no place specifically declared, unless the

ment mean that at some future time the Inter- for its existence on the initiative and ingemuty of  L
national Petroleum Commission may decide its independent producers. The freedom of these five vague and innocuous paragraphs comprising
there is a surplus of oil in the world and that men to venture their savings in an effort to dis- the Introductory Article are to be taken as such
Production in the United States should be cover and develop new reservoirs of oil with the a declaration of purpose.
restricted ? hope of consequent reward is responsible for the If this latter conjecture be correct then there
Only those who negotiated this Agreement tremendous oil resources which we now have is little limitation upon matters concerning the
know the answers to these questions. The re- available. Subject this industry to cartel controls petroleum industry with which this Commission
~ mainder of us are completely in the dark. Yet and its forward march will be halted. I think it is empowered to deal. The same logic applies in
under the vague language of this Agreement all may fairly be added that oil is the lifeblood of the absence of any specific declaration of purpose.
these things are possible should we have a gov- all our economic life, in peace as well as in war, Passing now to Article IV, we find that the
emment of men so inclined. Or, the phrases and any destructive regulation of the oil indus- “two governments hereby grant reciprocal assur-
upon which these questions are based may be try would have repercussions affecting every ances. . . that upon approval of the recommen-
Meaningless. industry and everyone in this nation. dations of the Commission they will endeavor, in
: Xan from the press today that you are Consequently, I believe that any action of our accordance with their respective constitutional
yet a take this latter view. But I am not government which may be open even to the sus- procedures, to give effect to such approved
means y to believe that this Agreement is “a picion of entangling any part of our American = recommendations.”
the ne noise.” On the contrary I see init economy in the coils of this cartel system merits All of this is against the background of a gen-
carefully y el of a first step in what might be a the most searching inquiry and the most. careful eral declaration that the two governments will
Re hd " plea for a superstate cartel cover- scrutiny by the people s representatives in Con- so direct their efforts with respect to petroleum
world PR eum industry in all parts of the gress. When such possible action is buttressed resources that “adequate supplies of petroleum
e postwar years. upon an international agreement, compact, shall be available in international trade to the


===== PAGE 34 =====

90 THE ECONOMIC RECORD October, 19, §
°, Loy

nationals of all peaceable countries af fair prices ends. Does it have to do with the possibility of have that iysterious phrase: “purposes of pt 3
and on a nondiscriminatory basis,” and that postwar surpluses and a procedure for under- Agreement,” which seemingly is related to

n

“the development of petroleum resources and taking to handle them ? ing that goes before or after. ff By John
the benefits received therefrom by the producing The New York Times, in a recent editorial There is, moreover, a vast difference betwe,. - Soe
countries shall be such as to encourage the sound commenting upon the proposed International our Interstate Oil Compact and this Propose, § ty
economic advancement of those countries.” Petroleum Commission and its function of esti- international oil compact. Under the former Be .
In other words, this Agreement lays down the mating long-term world demand, went to the the power of regulating production and othe” peed 4 inex
groundwork for the regulation by the British and heart of this matter when it said: functions of the petroleum industry is log * woul 3

pnerican, Bm ents of the Production, re- _ “Producers themselves have a vital interest within the state governments, where it should },- ped
g and distribution of petroleum and petro- in determining such facts, and among them are 1 such a function is to be exercised at all, By "I to otk
leum products. Obviously some form of price likely to make as good an estimate as any inter- under this international compact the powe; o Joo econc
fixing and production allocation is contemplated. governmental commission. A free world mar- regulating production, as far as the United State bore s the
The public has not yet been informed of the ket, with free prices, moreover, will tell more is concerned, would, of necessity, be centralize ee ca
nature of the discussions which resulted in the about the real situation than any estimate, offi- in the Federal Government, where under ou ya of of
formulation of this Agreement. Nor do we know cial or unofficial. ‘What causes some misgiving Constitution and the American way it hag p, ening ar

the intentions of the negotiators. But it is reason- abou t this aspect of the oil agreement 1s that right to be, under any circumstances. re

: oil is only one of a score of important inter- ? At hom

able to assume that these negotiators, when they national commodities. The prospect of each Thus the entire system of state laws relat, ernment s.
proposed the establishment of an International of these being controlled by a ‘permanent’ in- to oil production, refining and distribution, built our oil fiel

Petroleum Commission with the function of pre- ternational commission would not be reassur- up over the years, and the Interstate Oil Com. that this 8
paring long-term estimates of world demand for ing. True international cooperation consists pact would be destroyed. The Federal Gover emergency
petroleum and suggesting the manner in which not primarily in bureaucratic controls, with ent would have an absolute power to appor. might be
“this estimated demand may best be satisfied every question thrown Fate discussion by reD- ion, ration or restrict production and use f § ment own
by production equitably distributed among the maintaining that foents a de onsists In petroleum products within the scope of the inte, |  measure—
various producing countries,” were not engaged goods go to the points where they are in great- national allocation scheme. Such action woyy | industry s
in the writing of meaningless phrases. est demand from the points where they can require freezing the position of all existing unit ° lands—the
They must have had in mind the thought that be most efficiently produced. This end should of the industry, shutting the door against ney. § be stored }
such estimates and suggestions would result in be subordinated only to military necessity.” comers and creating a government-sponsore] or that th
recommendations to the respective governments } } monopoly. It would not be long under such » huge vo!
which called for action; that such ation would Final acceptance of this Agreement by the monopoly before the American petroleum indus : The Tes
place certain restraints or obligations upon United States undoubtedly would mean the es- try would lose all initiative and commence to dis. :-§ home and
operating companies which they, in the natural tablishment of a postwar federal regulatory integrate. The American consumer would be the * that the
course of their operations, would not otherwise 28°1CY for the petroleum industry in this coun- loser under such an arrangement. “}  pingandt
fulfil (otherwise there would be no need for gov- try. The extent of the powers of 3 uch an agency But, it may be suggested, the negotiators of 1. havea far
ernmental action); and .each government gives would depend upon the force which our govern- this Agreement had no such intentions in mind, * dustry, Li
reciprocal assurances it will act, that is enact ment would give to this Agreement. Such powers © possible they contemplated limiting what. (§- past. Asf:
legislation, to give effect to such recommenda- 2ight be so wide as to supersede in art ually all ever controls are necessary to effectuate the § = States Ge
tions when approved. resp ects the Cu P etroleum policies of the agreement to petroleum products moving inf over the ¢
Such recommendations would deal with the os states This net would Ta. the foreign trade, thus leaving the American indus § tically all
question of “fair prices.” What is a “fair price” “hich na 0 ely on 6 Dil Compact, try free in so far as its domestic business is con- § tested. F
for petroleum products at any given time? Ifit © oct fas Worked quite well. cerned. But there is not one specific provision § Lves after
is to be controlled by the age-old laws of supply It has been suggested that this Agreement on jp, this Agreement to indicate that such is the § thet seem
and demand, there is no need for governmental Petroleum is nothing more than an international  jntended course of action. If that is the plan, - fortunatel
action. Or is supply, which is to say production, application of our Interstate Oil Compact. That then it certainly should be specifically written In 1920
to be allocated in order to maintain some “fair 1s simply not so. In at least two particulars this into the Agreement. 3 to form a
price” determined by a group of government Agreement is the very antithesis of the Interstate Of course it may be said that the effectuation ate in all
officials ? Will the basis for a “fair price” be the Oil Compact. of such possibilities as I have mentioned above - by the oi

operations of high-cost producers and refiners In the first place, our Interstate Oil Compact would require subsequent legislation and appro pointed
who have failed to keep abreast of technological hag as its specifically declared purpose the con- priations by the Congress and that when such oar ga

developments and increased efficiency? Does  gervation of oil or gas by the prevention of proposals are made it will be time enough to con- calamity.
this declaration for a “fair price” contemplate physical waste thereof from any cause. And the sider these broad questions. The point is not rented ?
the governmental imposition of both ceilings Interstate Oil Compact contains the following well taken. For to make agreements with other enetit 0
over and floors under petroleum prices ? very specific and definite declaration: nations which we do not propose to live up to ve pi t
At the outset of this letter I recited several “Tt is not the purpose of this compact to would bring upon our country the just charge of industry’s
questions which occur from the reading of such authorize the States joining herein to limit the Ddational perfidy. Such a course of action, obvi- | - duced
phrases as the satisfaction of estimated demand production of oil or gas for the purpose of ously, would greatly contribute in the postwat present
“by production equitably distributed among the stabilizing or fixing the price thereof, or create years to international frictions and misunder -
various producing countries” and that “the de- or perpetuate monopoly, or to promote regi- standings rather than allay them. The time to
velopment of petroleum resources and the bene- mentation, but is limited to the purpose of deal with these matters is when they are first
fits received therefrom by the producing coun- conserving oil and gas and preventing the brought up.
tries shall be such as fo encourage the sound. eco- avoidable waste thereof within reasonable } -_—
Ties as ourage the e limitations.” For these reasons, as one who has devoted his
nomic advancement of those countries. life to the petroleum industry and has a deep io I
The Agreement in Article II makes the dec- No such specific declaration appears in this terest in keeping it upon a competitive basis, | T z
laration that there are “numerous problems of Agreement on Petroleum. Instead, such vague fervently hope that your Committee will insist 0 the Fc
joint immediate interest to the two govern- phrases appear as that action should be taken that all pertinent and material facts relating to Apropo
ments . . . which must be discussed'and resolved “with a view to the full satisfaction of existing the negotiation of this Agreement on Petroleum Record on
on a cooperative interim basis if the general petro- demand,” and that “the exploration for and pe made public and the necessary steps will be Want, Fr
leum supply situation is not to deteriorate.” Aside development of petroleum resources, the con- taken to reject any effort to cartelize the Amerk Pomted p
from controversies which may arise over conces- struction and operation of refineries and other gon petroleum industry or to subject it to the quiry. .
sions in foreign lands, what are these problems? facilities in the distribution of petroleum shall not possibility of price fixing and production controls: Teaction 1
What is this threatened deterioration of the be hampered by restriction imposed by either vailed ov
general petroleum supply situation? It cannot government or its nationals, inconsistent with the } Sincerely yours, widely di
grow out of insufficient supplies, once the war purposes of this Agreement.” There again we (signed) J. Howarp PevW omy,” an

of our br



===== PAGE 35 =====

deep
basis, I

THE ECONOMIC RECORD

91

conclusion that the tendency toward centralized

By Joh

Socony-Vacuum Ou Company

Recently, you may

= e Oil
- The Story of Fre government power is a progressive and remedial
n A. Brown, late President of the movement.

This attitude of our business leaders may be

.. regarded as a perfectly justifiable delusion, and
have heard much about the 43,0 explanation for the confusion may be put

tor a drastic change in oil policy, which gon to illiteracy in respect to historical phe-

ld increase go i
woul We hear that our oil reserves

i degree.
ordi2 dling at an alarming rate; that we must
ook to other countries for sufficient oil for peace-
time economy and for national defense; that this
means the Federal Government must own and
ate a corporation, engaged abroad in all

r ; .
pn of oil activity—production, transportation,

: o and marketing.

re me, we have heard intimations that gov-
ernment should suppress the production rate of
our oil fields to make room for large imports, so
that this suppressed production will be there for
emergency use—that proven developed oil fields
might be condemned and locked up in govern-
ment ownership reserve as a national defense °
measure—that the government and not private
industry should try to develop oil on the public
Jands—that billions of barrels of crude oil should
be stored by government above or below ground,
or that there should be equally costly storage of
a huge volume of products . . .

The results of all this well-meant planning at
home and abroad would bring the very disaster
that the planners seek to avoid. Both the pla-
ning and the fear of oil shortage which prompt it
have a familiar ring to the older men of the in-

dustry, like some discredited legend from the
past. As far back as 1908, the Chief of the United

States Geological Survey expressed great concern

I over the coming oil shortage, saying that prac-
~~ tically all good: geological prospects had been
tested. Predictions of oil shortage made head-

 Tines after the last World War, and the proposals
that seem to be going the rounds today are, un-
fortunately, similar to those made then.

In 1920 a bill was introduced into the Senate
to form a United States Oil Corporation to oper-
ate in all foreign countries with capital supplied
by the oil industry and a Directorate of nine
appointed by the President of the United States.
Dollar gasoline was predicted as an immediate
calamity. The then Secretary of the Navy
wanted to nationalize the oil industry. With the
benefit of hindsight, we see clearly how fortunate
we were to avoid the dreadful mistake of adopt-
ing these plans, which would have stopped the
industry’s progress, and might easily have re-
duced greatly our chances of winning the
present war.

—

Letters

History Forgotten

To the Editor:

Apropos of your symposium in The Economic
ord on the subject, “Does American Business
Want Free Enterprise,” I am neither disap-
Pomted nor surprised at the responses to your
Inquiry. Tt seems to me to be a perfectly natural
reaction in view of the confusion that has pre-
vailed over the last decade, the propaganda so
Widely disseminated about our “mature econ-
Jak and the disposition on the part of many
OF our businessmen who have been led to the

vernment control to an extra-  p,mens and the science of government. This

attitude is the perfectly natural and inevitable
outcome of the environment surrounding our
business setup.

As a matter of fact, won’t we find that the
attention of our industrial leaders, many of them
members of the National Industrial Conference
Board, has been so deeply concentrated on indi-
vidual problems of individual management, in-
cluding production, distribution and even re-
search, that there has been a tendency to neglect
the study of these deeper fundamentals ?

* Look at-the roster of our leaders of enterprise.
‘We have gloried in the fact that most of them
“came from the bottom”—section hands be-
coming railroad presidents, steel executives who
rose from the lowest ranks, this record expanding
throughout all our national activities. These
men are exemplars of our vaunted freedom of
opportunity. Their success has been due to in-
dustry, thrift and the application of those quali-
ties that make for practical efficiency.

They were so absorbed in their own problems
that they devoted practically no time to the
study of history and the science of government,
and quite naturally they have little or no con-
ception of the meaning of the devices, including
“pew instruments of power,” by which free en-
terprise and the American way of life were being
so insidiously and destructively altered.

Moreover, our citizens have been in the habit
of trusting their government, and although the
ideological fantasies that seeped out of Washing-
ton were disturbing, they were put down as the
work of irresponsible crackpots who had no real
voice in policy making. The optimism of busi-
ness was expressed by that credulous “It can’t
happen here,” although the threads of the pat-

tern were still visible in the texture woven by

Diocletian and worn through later centuries in

Byzantium and by Colbert, and finally donned

by the Nazis. Time and again I bave heard some

of our affluent industrialists turning in boredom
from the warnings of our own Dr. Jordan and
saying, “Oh, he’s too reactionary.” As if “reac-
tionary” were the word. The trouble was that
these industrial leaders knew little of what forces
lay beneath the current goings on, although there
were some things they didn’t quite like.
Another trouble was that they not only did not

Jmow what was beneath the current goings on,
but they knew nothing of the historical basis for
American economic preeminence.

Now let us look back a little, say a century and

a half. Our Constitutional Fathers were not

“business men.” They had devoted much of

their time and efforts to the study of government.

They were familiar with the great philosophers of

antiquity, including Aristotle, Cicero, Polybius
and Plato, although some of them had their fing-
ers crossed on Platonic Utopia. Look through
“The Federalist,” and you will see quotations

from the authors above named, including ex- politician should ever be—'
tracts from Montesquieu and his “L’Esprit des
Lois.” As a matter of fact, some European ob-
servers have pronounced them among the most

cultured men of their time in the knowledge of -
government.

- Also, our business leaders might have taken a
little time off and read John Stuart Mill's “Essay
on Representative Government,” particularly this
paragraph:

“A people may prefer a free government but
if, from indolence, or carelessness, or coward-
ice, or want of public spirit, they are unequal
to the exertions necessary for preserving it; if
they will not fight for it when directly at-
tacked; if they can be deluded by the artifices
used to cheat them out of it; if, by monetary
discouragement, or temporary panic, or a fit of
enthusiasm for an individual, they can be in-
duced to lay their liberties at the feet of even
‘a great man, or trust him with powers which
enable him to subvert their institutions . . . in
all these cases they are more or less unfit for
liberty; and though it may be for their good to
have had it even for a short time, they are un-
likely long to enjoy it.”
Tell me, if you please, how many of our busi-

‘ness leaders have familiarized themselves with the
philosophy of history and the science of govern-
ment expounded by the great thinkers of the

past. C.T.R.

Political Momentum

The practical politician. . . . never asks whether
the political momentum set up by his measure, in
some cases decreasing but in other cases greatly
increasing, will or will not have the same general
direction with other like momenta; and whether
it may not join them in presently producing an
aggregate energy working changes never thought
of. Dwelling only on the effects of his particular
stream of legislation, and not observing how such
other streams already existing, and still other
streams which will follow his initiative, pursue
the same average course, it never occurs to him
that they may presently unite into a voluminous
flood utterly changing the face of things. Or to
leave figures for a more literal statement, he is
unconscious of the truth that he is helping to
form a certain type of social organization, and
that kindred measures, effecting kindred changes
of organization, tend with ever-increasing force
to make that type general; until, passing a cer-
tain point, the proclivity towards it becomes
irresistible. Just as each society aims when pos-
gible to produce in other societies a structure

akin to its own—just as among the Greeks, the
Spartans and the Athenians struggled to spread
their respective political institutions, or as, at
the time of the French Revolution, the European
absolute monarchies aimed to reestablish abso-
Jute monarchy in France while the Republic en-
couraged the formation of other republics; so
within every society, each species of structure
tends to propagate itself. Just as the system of
voluntary cooperation by companies, associa~
tions, unions, to achieve business ends and other
ends, spreads throughout a community; so does
the antagonistic system of compulsory coopera-
tion under State-agencies spread; and the larger
becomes its extension the more power of spread-
ing it gets. The question of questions for the
“What type of social
structure am I tending to produce ?”’ But this is
a question. he never entertains.— “Man versus
the State,” Herbert Spencer.



===== PAGE 36 =====

Publications of the

N ational Industrial Conference Board

The Economic Almanac (published annually)
The Management Almanac (published annually)

The Economic Record (quarterly)

The Conference Board Business Record (monthly)
The Conference Board Management Record (monthly)
The Conference Board Industry Record (four a month)

Conference Board Reports
Studies in Business Policy
Studies in Personnel Policy

Weekly Desk Sheet of Current Business Indications

Conference Board Previews: Weekly Summary and Announce-
ments of Conference Board Studies aad Discussions

Road Maps of Industry: Weekly Chart Service

PRINTED IN U. S. A.