How can the U.S. achieve full employment?

How Can the U.S. Achieve Full Employment?

Introduction

No problem confronting America is so pressing as that of unemployment. Thousands of our young people are graduating into enforced idleness each June, while millions of older Americans seek jobs in vain. The economic and cultural welfare of every American—and indeed the future of American democracy—depends upon a solution of the unemployment problem.

The number of non-farm workers in private employment increased from a low of 27.7 million in 1932 to a maximum of 34.6 million in 1937. But it fell off in 1938 by more than two million; and today America is the only great nation, with the exception of France, in which fewer men are at work than in 1929, despite an increase in the public debt of 20 billion dollars since 1932.

A totalitarian dictatorship can wipe out unemployment by conscripting manpower at the expense of living standards and, more particularly, at the expense of liberty. But this is not the American way. The task confronting this country is to find productive employment by means that increase human welfare and maintain our democratic system. It is obvious that under an economy based on private enterprise, government activity, even of the proportion of the past seven years, is not sufficient by itself to solve the unemployment problem. Full employment under our system can be achieved only if private enterprise becomes more active.

Our Round Table, which has met to discuss the unemployment problem, contains men drawn from many walks of life. Several of our members head large corporations that employ thousands of workers. One is a “small” businessman. Two others represent two great labor organizations. Two of us head the leading national farm groups. Still others come from the investment and banking world eager to see private savings and credit put to work. Three are professional economists. One of us is in public life and Chairman of probably the most important official investigation of the American economic system so far made. We have spent a weekend together in this Round Table and we have subsequently exchanged ideas by correspondence, not to revive old recriminations or indulge ancient grudges but to see how far we do have common interests and to what extent we can advance these interests by common policies. In our opinion the failure to establish a common denominator among the various economic and regional groups in this country explains in part why so many serious problems remain unsolved. We have based our discussions on the assumption that there is no conflict between employer and employee, capital and labor, farm and city that cannot be peacefully settled.

We feel that our democracy must afford an opportunity for every American to develop his latent gifts. Today, however, the most elementary form of opportunity, namely, the ability freely to find a job, does not exist for a large minority of the working population.

Extent of the unemployment problem

The U.S. has no official unemployment record, and no one knows exactly how many men and women are out of work today. Most unofficial estimates place the number at about ten million or about one-fourth of the non-farm working population. Whatever the precise figure may be, unemployment is clearly far more extensive and protracted than in any previous period in American history. Although in Britain about half the unemployed are out of work on the average for less than three months each, here more than half are unemployed on the average for over a year.

There are three types of unemployment. The first is cyclical, resulting from downward swings of business. Activity does not expand again until the progress of obsolescence, the continued development of new techniques, the depletion of inventories, and the readjustment between costs and prices revive the prospect of profit. This process has taken far longer during the present depression than previously.

The second kind of unemployment is structural, arising out of technological or other changes affecting particular industries. The more rapid the technological change, the more violent is the displacement of workers in obsolescent factories. Eventually these men should be absorbed in more productive enterprise elsewhere; but during a transitional period this type of unemployment may create very serious problems. By far the larger amount of unemployment today is due to cyclical and structural causes.

Finally, there is frictional or seasonal unemployment caused by the inevitable liquidation of individual plants, the wishes of individual workers, or the change in seasons. However great progress this country makes in eliminating cyclical and structural unemployment, a certain amount of frictional unemployment must always remain. In England most authorities fix the minimum number of the working population always out of employment at 6 or 7 per cent. In America the proportion should probably be higher because of a more rapid technological pace and a higher living standard, producing greater economic fluctuation. According to optimistic estimates America probably cannot expect to achieve more than 92 to 95 per cent of full employment, which would mean a minimum number of less than three million unemployed at any given time. The composition of this group should be constantly shifting; and government, through unemployment insurance or otherwise, should make provision for those in need.

To reduce unemployment to this minimum it is necessary to restore private enterprise to full activity. Before plunging into the major problem, the Round Table wishes to call attention to the need for a more adequate nationwide employment service that will facilitate the mobility of labor from one part of the country to another and from one occupation to another, subject to proper safeguards. Such a national employment service would also be helpful in providing a more adequate over-all picture of the unemployment problem and furnishing the data on the basis of which relief and vocational-training programs could be more wisely directed.

Preamble of agreement

We are gratified to report as a result of our discussions that despite the supposedly divergent interests of our group the area of agreement achieved as to the underlying causes of the existing situation and the principles that should govern their removal is far wider than we had supposed possible. We are convinced that the unemployment problem can be solved by democratic means. We have come away with a new hope and confidence in America.

As a preamble we may state our general conclusions as follows:

The Round Table is convinced that a new and determined effort must be made to solve unemployment. It believes this effort should aim at the revival of private enterprise by means that will maintain our democratic institutions and realize the principle of freedom of opportunity.

We are in agreement as to three dominant features of American economic life today.

First, despite the progress of the past century, the needs of the American people are far from gratified. With a per capita annual income of $470 (1936), the task of improving the standard of living of the American people is still formidable. The services and goods that the country should consume before a civilized living standard is obtained for everyone are virtually unlimited. The problem is to increase national productivity by increasing employment and investment.

Second, American industry has great inventive and productive genius that already has made America preëminent among the nations in the field of mass production and that holds great promise for the future. Despite the depression, technology and invention have continued to advance. It is estimated that the number of commercial research laboratories increased from less than 300 in 1920 to over 1,000 in 1931 and 2,200 in 1938.

Finally, ample private funds are available to finance the new enterprise and technological development essential to full employment and a rising living standard, while abundant raw materials also exist.

In view of these undisputed facts—the ungratified wants of the American people, the genius of American technology and inventive capacity, and the presence of abundant funds and raw materials—the Round Table has faced the problem of why these tangible and intangible resources are not being fully utilized.

IT IS our belief that business recovery today is held back by numerous barriers or deterrents—real or imagined—that exist in the American economy and indeed in the outside world. Other deterrents have unconsciously been formed by the efforts of various economic groups to improve their position by policies the general effect of which is to hold back production in the economy as a whole.

The Round Table differs on two main points. The first is the actual extent of given deterrents and the importance of one set in relation to another. The second disagreement is as to whether, if deterrents are removed, private investment and enterprise will eventually be able to provide full employment. Most of us believe so; but several are convinced that in the future the opportunities for private investment will be far less than in the past, and that the gap must be permanently filled by public investment.

But these differences are in fact secondary to the major area of agreement, which is first that a determined attack upon deterrents holding back employment should be made immediately, and second that government expenditure should make provision for the unemployed who cannot be absorbed by private enterprise, even though it involves deficit financing. We recognize that private enterprise alone and unassisted cannot immediately cure the unemployment problem. Although concerned over government expenditure when wasteful or injurious to private enterprise, and although apprehensive over the long-continued deficit, we do not demand that the government immediately balance the budget. But we further believe that government expenditure should take the form of assisting rather than deterring private enterprise and that the major objective of government policy should be to encourage private investment.

Although it has made certain criticisms of existing conditions, the Round Table does not wish to overturn the social achievements of the past few years. On the contrary, it believes that these achievements can be continued only if the unemployment problem is solved and national production increased. The object of our Round Table is to advance the essentials of liberal government and social betterment; but we insist that every proposed reform should be carefully studied to determine whether it will really achieve its aim, and that the greatest reform of all is to abolish unemployment.

Having accepted this preamble of agreement, the Round Table examined in a frank and friendly manner the question of deterrents to full employment that may be erected by the policies of (1) business, (2) labor, (3) agriculture, and (4) government.

Business deterrents

Employment depends largely on whether business and finance fully utilize their great resources. The extent to which they do so depends in part on causes beyond their control, in part upon internal practices.

Under conditions of perfect competition the market determines the proper relationship between prices, profit, and volume. But in no country today does perfect competition exist. It is hindered by numerous “rigidities,” which tend to fix costs and impair the mobility of both capital and labor. The technological basis of modern business organization makes industrial prices far less sensitive than the prices of agricultural commodities—in many cases they are “administered.” The size and concentration of industrial and financial power sometimes increase the tendency toward inflexibility. Almost half of U.S. economic activity is carried on by unincorporated enterprises, most of which are small; but according to evidence presented to the Temporary National Economic Committee, less than one-half of 1 per cent of the corporations in this country hold 62 per cent of the total corporate assets. Mere size does not indicate the existence of monopoly. Nevertheless a recent report of the Federal Trade Commission to the TNEC catalogues forty-five different monopolistic practices brought before the Commission during the last seven years, such as agreements to pool earnings and divide territory so as to control prices. After reviewing these instances the TNEC reports: “Clearly, practices which destroy the natural effects of competition are widely current in the American economy … while the antitrust statutes have been circumvented.”

We differ among ourselves as to the accuracy of this judgment, and as to the extent to which monopolistic practices exist. If we venture any suggestions as to business policy generally, we do so well recognizing the problems with which business has been confronted and the progress achieved in the past. Within recent years industry has increased wage rates while improving quality and keeping prices down. Nevertheless we believe that where monopolistic practices exist they should be eliminated. Because it believes in a competitive economy, the Round Table supports the enforcement of the antitrust laws.

WE DO not believe, however, that the mere existence of “administered” prices should be penalized. For in many cases they have worked to the consumer’s advantage. If the prices of automobiles, for instance, were left to the haggling of the market they might be higher than at present. Experience has shown that uneconomically high prices sooner or later meet buyer resistance.

Having said this, we reiterate that American industry should constantly recognize the relationship of price and wage policies to the question of purchasing power and the opportunities for new investment. If given industries utilize their power so as unduly to increase prices and fix large profit margins, particularly while operating plant at only part capacity, then the unemployed cannot possibly be absorbed by private enterprise. When profits and prices remain out of line with consumer income, inventories pile up and the incentive to new investment declines. Full employment can be achieved only if American industry displays initiative in starting new enterprises and in passing on a proper part of the benefits of technological progress to the consumer in the form of lower prices and to the wage earner in the form of higher earnings. The extent to which this is possible is conditioned by cost and the nature of the commodity. It is doubtful, for example, whether people would use many more matches if the price were reduced. Nevertheless we believe that American industry, as a whole, must constantly explore the possibilities of price reductions that some enterprises have found both possible and advantageous. If private enterprise does not distribute purchasing power by its price and wage policies, then government will find it necessary to distribute purchasing power either through borrowing, taxation, or direct economic activity.

In general, the Round Table accepts the following principles so far as business deterrents are concerned:

1. American business should as a whole adopt price and wage policies that increase the purchasing power of the consuming public, consistent with costs and a profit.

2. Whenever it is established that monopoly or harmful semimonopolistic practices exist, some form of government intervention to prevent abuse is indicated. But Congress, after careful and objective inquiry, needs to define far more precisely than it has, those restrictive practices that should be placed in the same category as monopoly proper. Once this definition is made, Congress should determine what form the regulation of restrictive and other semimonopolistic practices should take. We are convinced that if a business cannot operate upon a competitive basis or without employing restrictive practices that deliberately hold back production and employment, then government must step in to safeguard the public interest.

3. Although we believe in the competitive system as the most efficient means of utilizing our resources, we do not believe that competition should mean the exploiting of labor. For this reason we can justify carefully drawn legislation placing a floor under the competitive process as far as labor is concerned.

4. American business should take the initiative in watching and correcting economic trends that threaten to thwart the realization of full employment. Business groups might go further in informing their members as to what business policies would be best suited to meet new conditions. For example, there is reason to believe that the country is heading into trouble when inventories increase by more than $2,000,000,000 a year, when consumers’ credit is extended beyond a certain point, or when prices rise too quickly. If the leading business organizations could report and assess the significance of such trends, business concerns might avoid committing errors of optimism that produce runaway booms, and otherwise readapt business policies so as best to maintain full employment. The more of this type of planning American industry successfully undertakes, the less necessity will there be for government interference.

Labor deterrents

Having reviewed business deterrents, we pass with equal frankness to the question of whether labor deterrents to full employment also exist. The Round Table believes in as high wages as the productivity of the country can support. Nevertheless labor unions, equally with industry, should be on their guard against restrictive practices. It is just as important for organized labor to have well-planned policies for the marketing of the services of their members as it is for industry to have sound price policies. When unions fail to make an accurate and realistic analysis of the demand for labor, looking upon themselves as engaged in merely fixing prices, they may do a poor job of marketing, not only from the standpoint of their own members but also from that of the mass of unorganized unemployed. The assumption that the price of labor can be raised with little effect upon the volume of employment may be true if a very short period of time is involved; but over moderately long periods the demand for labor is quite sensitive to changes in price, and when wage rates are pushed up too rapidly and too far, unemployment may result.

Criticism is also directed against practices under which the type of work that a particular craftsman can do is so narrowly defined that an employer often finds it necessary to pay two or three workers for doing what should be one man’s work, and against other practices unduly restricting output. Various branches of the construction industry are charged with making collusive agreements with building unions that further increase building costs.

The danger of a shortage of skilled labor arising when recovery gets under way may be involved when certain unions insist upon the six-hour day and five-day week, and when the training of apprentices is unduly restricted. Finally the continuing breach between the C.I.O. and the A. F. of L. (involving acute interjurisdictional rivalry), the alleged coercion of nonunion workers, the inconvenience to the public caused by frequent strikes, and the excessive use of picketing, all are cited as deterrents to recovery and full employment.

If certain American industrialists seem opposed to collective bargaining, it is partly because of the belief that the workers are under pressure from the leading labor organizations and the government to join national unions, instead of being free to join groups of their own choice or none at all. There is a widespread belief among businessmen that the National Labor Relations Board, instead of being an evenhanded mediator between capital and labor, has used its power to advance the cause of certain national unions rather than to guarantee liberty of choice to the individual worker.

We differ among ourselves as to the importance or extent of labor deterrents. It may be true that certain wage rates increased too rapidly during the past few years, but this was the fault in part of some employers who hoped that a wage increase would avert labor trouble and hinder the growth of unions. Whatever the extent of restrictive labor practices may be, the Round Table realizes that responsible labor leaders are well aware that if wage rates are increased so as to wipe out profits, the employer must reduce the number employed. Moreover, numerous instances can be cited where collective bargaining has been practiced so as to advance the interests not only of the employer and employee but also of the public. In the building, printing, metal, garment, and other industries, labor contracts have governed industrial relations for many years; disputes arising out of the contracts are arbitrated and strikes virtually eliminated. During the life of such agreements wages have been increased and hours shortened without injury to profits. In some instances labor unions have consented to wage reductions, realizing the necessity of making cost-price adjustments during a depression or of meeting competition from nonunion plants. In other cases unions such as the International Printing Pressmen & Assistants’ Union of North America have gone out of their way to facilitate technological progress. Only recently a committee of the New York State Federation of Labor has shown its interest in the question of tax deterrents by reporting that “if the present tax structure continues, private and individual initiative will remain dormant, and no incentive to invest … will manifest itself.”

Many difficulties caused by organized labor are due to the rapid expansion of the labor movement within recent years and to the division between the A. F. of L. and the C.I.O. We hope and believe that these difficulties will prove only temporary. Aggressive practices employed when unions are embattled should give way to coöperative practices when unions are cordially accepted. It is estimated that almost half the workers now entering the labor market are high-school graduates, who will probably insist on having something to say about the conditions under which they work. If industry meets them halfway, explaining its problems and particularly the importance of costs and prices, these workers will coöperate in striving to achieve greater production and volume of employment. Today, however, many unionists are haunted by the fear that industrialists are merely biding their time until 1940 in the hope that a change of administration may make it possible to destroy the recent gains of organized labor. We have not endeavored to decide whether this fear is justified, but we do believe that until industrial and labor leaders can agree upon the methods and major objectives of collective bargaining, deterrents to full employment will persist.

Labor deterrents may also arise out of certain types of wage and hour legislation. The experience of France with the Blum forty-hour week shows the danger of enacting legislation of this type before making careful inquiry into its effect upon costs in particular industries and the welfare of the workers. In October our own Fair Labor Standards Act will impose a forty-two-hour week on a national scale, to be reduced to forty hours in 1940. We hope that the productivity of American industry as a whole justifies the payment of high wages for a forty-hour week. But if the application of existing legislation in fact throws many low-paid workers out of employment and leads to increased prices on account of increased costs, it may defeat its own purpose. We do not make any recommendation with respect to the Fair Labor Standards Act, but we believe that the continued application of this act must be constantly evaluated in the light of its effect upon the individual directly involved and the problem of promoting employment generally.

Again, while not attempting to pass any detailed judgment, the Round Table as a whole finds itself in agreement on the following principles regarding labor deterrents:

1. Workers have the same right to form unions as businessmen have to form corporations and national associations, or to refrain from doing so. Each should engage in collective bargaining with the other where desired by either party, and organized labor and organized capital should have due regard for the public in their conduct. Both should consider the effect of their pricing policies upon the volume of production and annual income.

2. Although social legislation may do something to improve the condition of certain groups of workers, in the long run general wage increases, the absorption of unemployment, and improvement of labor conditions depend upon increased production.

3. The American labor movement should join with other groups in supporting a policy of stimulating private investment, which is essential to increased employment under free enterprise, and in reviewing any labor practices that may hold back production and investment.

4. Labor should coöperate with capital in bringing about technological improvement, on the understanding that the benefits should be liberally shared with consumers and wage earners, and that any workers immediately displaced by such improvements should be protected by some form of dismissal wage, as well as by effective methods of retraining and replacement already mentioned.

5. Capital, labor, and government should together work out a system of training apprentices, so as to remove any danger of the shortage of skilled labor when recovery develops.

Agricultural deterrents

ALL of us recognize that the farm population has long been up against certain disadvantages in comparison with industry and organized labor. American agriculture (as well as certain industries) has been obliged to sell many of its products at world prices, which have been lower than the price of many things the farmer has to buy. In recent years agriculture has seen a drastic decline in exports. Although this may be due in part to internal price-raising controls, which encourage foreign production, it is also due to the stoppage of American lending abroad and the inability of foreign nations to obtain exchange to pay for our farm products. Unlike industry, which, confronted by losses, reduced production and employment during the depression, American farms for the most part have taken care of their people and they have continued to produce crops so that the price of food has not increased. The farmer has been burdened with relatively high freight rates and with oppressive real-estate taxes, and he feels that his difficulties have been increased by the successes of organized labor, although many such burdens fall on industry as well. If the farmer is to live under a “controlled” economy, in so far as industry and organized labor are concerned, he demands some equally effective device for maintaining his prices. Since farmers are divided into millions of small units unable to organize as effectively as industrial capital or labor, they have turned to government for aid.

American agriculture seems confronted, however, with the problem of overcapacity, which will not be solved by a substantial increase in national income. During the World War the farmer was induced to expand the production of wheat and to buy land, in many cases at speculative prices. Following the War, with the end of the abnormal demand, regular foreign markets began to disappear at the very time that improvements in agricultural machinery made possible great increases in production. As a result, fewer farmers are needed to produce marketable crops, and the agricultural plant is larger than the country needs.

Had the law of supply and demand been allowed to operate, the farming area of the country eventually would have contracted and thousands of farm families would have been forced into the cities. But the social distress caused by such a policy would have been intolerable and the wholesale uprooting of American farms would have had serious repercussions on our democracy. In an effort to stop such wholesale deflation and to restore the relationship existing between agriculture and industry before the World War, legislation in recent years has endeavored to increase farm prices by controlling production and making crop loans.

In so far as this agricultural policy has aimed at cushioning the shock of necessary adjustment, the Round Table believes that it is justified. Government payments to withdraw marginal land from production, stop soil erosion, rehabilitate tenant farmers and migratory workers, and develop subsistence farming as a part-time occupation for workers in decentralized industry represent sound policy within the limits that the economy can afford. Any wisely conceived plan for developing new industrial uses for farm products should also be supported.

On the other hand, there is a danger that agricultural payments and loans will serve as a deterrent to the full utilization of our resources, if, instead of bringing about orderly readjustments in agricultural life, so as best to meet future needs, such payments tend to freeze the existing situation. The degree to which readjustments must take place in agriculture depends partly on the extent to which national income as a whole can be raised and foreign markets recovered. Until these major questions are answered the future of agriculture must be uncertain. In the meantime agricultural benefit payments should encourage constructive agricultural readjustments, such as soil conservation, rather than endeavor to restore the pre-War situation.

Admittedly many farm prices are out of line with industrial prices largely because of supply and demand factors. But the Round Table believes that in the case of commodities for which the demand is elastic agriculture should pay the same attention to pricing as should industry and labor. For example, it is entirely possible that the country would increase its consumption of milk and butter, which are badly needed from the standpoint of nutrition, if the prices of these commodities were lower, and that as a result of increased consumption farm profits might actually be greater than before. The present high level of such prices may be due partly to faults in the system of distribution. If so the problem should be attacked.

Government deterrents

Finally we turn to the criticisms directed against government deterrents to full employment. The most important general deterrent advanced is a complex of fears as to the motives of the present Administration Many businessmen and investors have doubts whether the government believes in the principle of free economic enterprise. They also feel that there is a lack of stability in government policies. Apprehension over the continuing deficit and mounting debt, uncertainties as to future monetary policies, admitted political abuses in the administration of relief funds, the frequent changes in administrative officials (there have been four chairmen of the SEC since it was established in 1934), and the unwillingness of the Administration to correct mistakes until virtually forced to do so, all have created a neurosis in the business and investment world that is uncongenial to the resumption of activity and the taking of long-term risks.

Certain methods of business regulation are advanced as a second government deterrent. Today business is vitally affected by the decisions of a large number of administrative commissions in Washington. The abolition of these commissions is not proposed; but business activity is adversely affected when confidence is lacking in their procedure. Many agencies act as prosecutor and judge in the same dispute; many have vast discretionary powers, the precise scope of which has not yet been defined.

Particular criticism is directed against the present method of regulating the issuance of securities. No one doubts the wisdom of protecting the investor against fraud; but the question is whether the SEC, which exercises its police functions with exceptional zeal, is showing sufficient concern over the problem of encouraging private investment as a means of increasing employment. In particular, small investors find that the cost of preparing and filing a registration statement is high, and legal formalities are complex. As a result of this and other causes the issuance of securities is now concentrated in a few centers, while the process of accumulating capital in many small localities for the purpose of starting new enterprises or helping small businesses has been drastically curtailed.

For many reasons the profit in underwriting securities has been greatly reduced; and the responsibility imposed on directors for false statements or omission of material facts in the voluminous registration statement is so severe that some businessmen are said to be refusing to go on new boards of directors, or even resigning present directorates. Although the purpose of this machinery is to protect the investor against fraud, the question is raised whether the information demanded is not so voluminous and technical that the system injures its own ends.

Turning to more specific deterrents, many businessmen emphasize the effect of recent tax policies. The tax rate on corporate incomes, which roughly doubled between 1929 and 1936, is a burden on enterprise discouraging new employment. If the corporate income tax were reduced and the burden shifted on to the middle brackets of the personal income tax, it would still fall upon essentially the same people, but in a way that would not affect managerial decisions as at present. Likewise new investment is held back by frequent revisions in the tax laws and by a system of taxation that imposes very heavy surtaxes on large incomes, although making it possible for such incomes to seek refuge in tax-exempt securities.

Likewise the American tax system bears heavily upon real estate and consumption. Probably the worst tax deterrent to housing recovery is the local real-estate tax, which, figured as a percentage of rent, is roughly the equivalent of a sales tax of 25 per cent.

The Round Table cannot go into the details of our tax system, but it does believe that while retaining the principle of capacity to pay, the country should reëxamine its tax system to determine whether it is serving as a deterrent either to the establishment of new enterprises or to purchasing power.

Another deterrent, arising partly out of state legislation as well as federal credit, is the slowness in liquidating many defaulted debts largely of a corporative nature. Government credit to cushion the shock of too sudden liquidation may be justified, but when it goes further and freezes an overextended debt structure, maladjustments are perpetuated. About a third of our railroads have been in bankruptcy for years and more than four billion dollars is still tied up in insolvent real estate.

We realize that many government measures are a reaction to business excesses in the past and that in a period of rapid change certain mistakes in governmental policy have been inevitable. Most of us feel that this Administration is not hostile to private enterprise. Nevertheless the Round Table realizes that lack of confidence does exist in a large area of the business and investment community with respect to many governmental procedures and policies. We believe these criticisms should be examined objectively and that government should make every effort to remove them. A periodic and searching appraisal of all government policies, particularly in a transitional period such as this, is essential to our economic and political well-being.

Recognizing the necessity of regulation to prevent certain abuses, the Round Table believes the time has come when regulation and government policy generally should be given a new orientation. During recent years an increasing burden has been placed upon business, arising out of recognized social needs. The further the country goes in imposing such burdens, the more carefully should government foster and encourage business so that it will not break down under the load. Government should not only prevent business abuse but it should also encourage private investment and business practices that are socially beneficial. We suggest the following courses of action with respect to alleged government deterrents:

1. Constant recognition in every statement of government policy and in administrative and legislative acts of the need of reviving private investment and employment, while maintaining social gains. Moreover, wherever possible the intent and scope of government policy in the economic field should be clearly defined, and rules laid down assuring fair treatment to private capital.

2. A review of the administrative agencies of the federal government so as to determine how these commissions might encourage investment and employment without abandoning regulation, and so as to secure the adoption of administrative procedures that will ensure to business and other interests the reality as well as the form of “due process of law.”

3. An investigation of all specific government deterrents alleged to be holding back private investment.

We reiterate that in advancing these suggestions we do not deny the responsibility of government for taking care of the needy and for preventing abuse. But we are agreed that government is equally responsible for removing any obstacles that it may have erected against the resumption of economic activity.

The depressed industries

We believe that if the deterrents obstructing private investment are attacked along the general lines here advanced, investment and employment will greatly increase. In particular, such an approach should revive several of our great industries using large quantities of capital goods. The railroads and the electric-power utilities each expended about three-quarters of a billion dollars annually on plant and equipment before the depression, a sum that by 1938 had fallen in the case of railroads to 238 million dollars, and in the case of the utilities to 403 million. Admittedly the railroads today have a large proportion of obsolete equipment, which under more favorable circumstances should be replaced. Yet the railroads are not making adequate expenditures for such purposes today because earning prospects are so poor. FORTUNE’s transportation Round Table reached the conclusion that the railroads could be put upon a profitable basis only if a far-reaching program of consolidation and other measures were carried out. Such proposals, however, are being resisted by special groups.

The situation in the public-utility field is somewhat similar. The utilities should expend this year about a billion dollars on plant and equipment to take care of known markets; this sum would give new employment to about 250,000 men whose families are now probably on relief. Yet investors will not be attracted to the utility industry so long as government power policy threatens to undermine existing private values. It is not necessary for the government to “get out” of the utility business; it need not surrender the TVA experiment or the Bonneville project. All that is needed for private utility expansion is, first, that the government define the area of its utility operations over a period of years and then buy up the private utilities in that area at a value fixed by appraisers chosen by agreement; second, should the government decide to expand this area even within the stipulated period, it should agree in advance to buy up the private utilities thus affected by the same procedure.

In private housing a vast field exists, greatly exceeding that offered by the utilities or railroads. In 1938 housing expenditures were far less than before 1929. About 16 per cent of our city dwellings, or about 4,000,000, are today unfit for human occupancy. If the number without any bathrooms is included, the total rises to 5,500,000. The annual number of new families is greater than that of new houses. Merely to hold our own, it will be necessary to construct at least 525,000 housing units a year, in contrast to 347,000 units reached in 1938 and 700,000 averaged through the twenties.

Whether America will experience a housing recovery depends upon whether we can reduce the cost of housing. Building materials in 1937 were nearly 70 per cent above pre-War levels, and building costs generally are excessive. Although building wages may not be high on small work where the union scale is not paid, the situation is different on large-scale work where mass-production methods might be possible. It is difficult to envisage a housing revival with wages at $1.50 to $2 an hour. Many believe that a shortage of skilled labor would develop should the country attempt to build more than 500,000 housing units a year. Local real-estate taxes and high mortgage-financing costs constitute further obstacles to a housing recovery.

In our opinion, government, labor, and industry should study the possibility of reducing costs in housing and of stimulating a housing recovery. We believe that while slum clearance must be subsidized, there is a vast market in the middle income groups that private industry should tap. If proper conditions are created, this country can look forward to a housing recovery lasting many years. As the development of automobile manufacture shows, the growth of a great mass-production industry takes time; as far as housing is concerned, the important thing is to get it under way.

The Round Table does not know how many billions of savings housing or the public utilities and railroads could consume, nor can it predict how many of the unemployed these industries might provide with work. We believe, however, that the number would be substantial and that an effort to place these industries on a sound basis should be made.

In addition, we believe that once deterrents are generally attacked, industry as a whole will go ahead. In order to meet the demands that recovery will produce, many industries must spend large sums in replenishing and extending plant. The very fact of recovery itself will call new industries into existence and encourage the development of invention. We believe that the removal of deterrents will renew the flow of capital, create many new jobs, and bring a great expansion in national income and purchasing power.

The role of public expenditure

Although we have emphasized the necessity of reviving private investment, we understand the importance of a wise policy of public expenditure. During the past hundred years governmental expenditure in every country has expanded to meet changing social and economic needs. In our opinion government expenditure in a free economy should meet generally recognized social needs that cannot clearly be met by private enterprise, but within the limits that the economy can afford. One of the most elementary needs is government expenditure upon relief, although it involves deficit financing.

There is, however, some difference among us as to the necessary extent of public expenditure in the future. Several of our members believe that even though deterrents are removed investment outlets are more limited than formerly in terms of the size of our economy, on account of the slowing up of population, the decline of foreign lending, and the increasing exhaustion of new frontiers to be settled, and they consequently contend that in the future large government expenditures will be essential as a supplement to future private investment, or as a substitute for private in-investment in the past.

The great majority of the members do not regard this thesis as proved. Its validity depends upon a number of unanswered questions, such as whether the proportion of national income saved will continue to decrease as it did during the twenties. Most of us believe that if recent trends in saving and technology continue, there will be no problem of chronic oversaving provided public policy is reasonably favorable to private investment; on the contrary, a shortage of investment funds may even arise.

In his report on the industrial depression in 1886, the U.S. Commissioner of Labor, after reviewing the construction of railroads, canals, and tunnels in Europe and America, concluded: “It is true that the discovery of new processes of manufacture will undoubtedly continue … but it will not leave room for a marked extension, such as has been witnessed during the last fifty years, or afford a remunerative employment of the vast amount of capital which has been created during that period … The day of large profits is probably past.” In almost every period of depression there have been similar pessimistic utterances—which makes most of us critical of similar predictions today.

Whatever differences exist among us as to the permanent necessity of large government expenditures, the Round Table as a whole believes that first, government policy should emphasize the resumption of private investment and enterprise, government expenditure playing a subordinate or supplementary role; second, the desirable public expenditure must not be of a kind to injure the formation of private capital or to serve as a deterrent to private initiative.

THE policy of timing the construction of needed public works so as to coincide with the increase of unemployment may be sound. But recent examples may be given where public investments make it more—rather than less—difficult for private enterprise to function. Public expenditures on certain inland waterways undoubtedly have contributed to the present distress of our railroads without producing cheaper transportation, all costs being considered. Instances may also be cited in which public construction has served to increase skilled wages, thus increasing private costs. Moreover certain government expenditures such as various pension proposals and public-works projects fall into the nature of luxuries that can be afforded only after necessities have been provided for. If rigid standards are not applied there is a danger that public expenditure will create an undue diversion of aggregate savings from durable facilities for satisfying personal wants to nonproductive public projects. Many of us believe that there are obvious dangers in proposals for government-sponsored capital banks or government guarantees of business loans apart from private housing, on the ground that their adoption might lead to a socialization of credit and therefore eventually of enterprise.

There are other forms of government expenditure that do not injure private enterprise, if properly controlled, and may even stimulate it. Given efficient administration, government should provide unemployment insurance and old-age pensions much more cheaply than private enterprise, because it can disperse the risks and overhead so widely. The clearance of slums, the reduction of farm tenancy, and the combatting of soil erosion, stream pollution, and deforestation do not offer enough profits to attract private enterprise, and typify needs that can best be met by public action.

In many cases expenditures in the relatively noncompetitive category should actually stimulate private investment. About a third of the large sums invested in transportation has taken the form of public expenditure on highways. Except for this investment the automobile and petroleum industries would not have flourished as they have. Similarly British experience indicates that slum clearance by government subsidy can serve to stimulate and expand the private-housing industry, encouraging it to build cheap houses for income groups above the slum level.

To make sure that public investment meets social needs while stimulating private enterprise and the economy as a whole, we advance the following suggestions:

1. Wherever practicable the construction of public projects should be awarded to private contractors upon a basis of competitive bids, and these contractors should be free to employ workers, whether from the relief rolls or elsewhere. By this means any danger of unfair competition with the construction industry would be removed and the distasteful category of “relief” worker reduced if not eliminated.

2. Forms of government expenditure should be adopted that have the most far-reaching effect. For example, government funds go much further in stimulating enterprise when they take the form of underwriting mortgages through the Federal Housing Administration than if they are employed in direct loans to housebuilders.

3. All plans for public expenditure should be carefully financed and rigorously controlled, so as to prevent waste and favoritism. We recognize that during a depression of this magnitude deficit financing has been necessary. Nevertheless we believe that greater progress should have been made in putting our finances in order, and we cannot but look with concern at a series of deficits going back nine years. To prevent the raiding of the Treasury by special-interest groups and to promote more careful financing generally, we believe that direct taxes should be increased and income-tax exemptions lowered, so as to make the electorate conscious that government services have to be paid for.

Apart from relief, we believe that governmental borrowing should be avoided for consumption needs. Relief borrowing may be essential for humanitarian reasons and it stimulates business so long as it lasts. Nevertheless when such spending is terminated the only lasting effect is a dead-weight debt. In contrast, public expenditure upon productive assets, such as slum clearance or reforestation, may enrich the country and increase the national income even though debt and taxes are also raised.

4. To ensure the application of these principles of expenditure and the careful preparation of investment projects and methods of execution, we believe that Congress should study the development of better methods of controlling public expenditure. Careful reporting, by all administrative agencies entrusted with such funds, as to costs and results is needed so that the public can determine whether it is getting its money’s worth.

We may summarize our conclusions by saying that a policy of public expenditure of the type outlined is justified if accompanied by an economic policy that aims at removing the deterrents to private investment and by a fiscal policy that aims at a balanced budget over a cyclical period, including the accumulation of a surplus in good times for debt-retirement purposes. If government will make a determined effort to remove the deterrents holding back private investment, we believe that the great majority of American businessmen will support a reasonable and thoughtfully considered program of public expenditures.

From the political standpoint, it is comparatively easy to increase government expenditure but extremely difficult to remove deterrents. Consequently the tendency of some men in public life is to dodge the issue of deterrents, hoping to keep the country afloat by indiscriminate spending. We fear that the eventual result of such a policy will be to provoke sooner or later a crisis in our national life even more serious than that following 1929.

Conceivably this country can continue indefinitely in its present state of stagnation—a condition under which 10,000,000 remain unemployed, the budget continues to be out of balance, and the national income stays below the predepression figures. But every patriotic American must look with concern upon such a gloomy possibility. For this means that a large proportion of American youth will be doomed to a life robbed of opportunity and that a large minority of our people must subsist on an emergency standard of living. If such conditions long continue, some demagogue not yet on the horizon may organize a movement of the underprivileged to overturn our present system on the ground that it has betrayed the chief justification for democracy, namely equality of opportunity.

It is our firm belief that science and technology have placed within the reach of the American people wealth and culture such as no country in history has yet experienced, if only the country adopts wise policies that will unleash the initiative necessary for economic progress. The adoption of such policies depends largely upon the willingness of individuals and groups to subordinate special interests to the general interest and accept the principle of mutual interdependence and coöperation.

We do not ask for a return to the old economic system; but we reiterate that the growing burden society now imposes on private enterprise can be met only if business becomes prosperous. Unless we wish to abandon our present system, unemployment can be wiped out only by encouraging employers.

On the other hand, American business has the responsibility of maintaining and developing a spirit of adventure and enterprise. Despite the existence of deterrents, of great hazards and dangers, our forefathers settled this continent with an initiative and fortitude seldom shown in history. The same spirit on the part of American business leaders is needed in meeting new social problems today.

In conclusion we wish to emphasize that, particularly in times such as these, it is not enough for businessmen to know their own business, or even their own industry: they must understand the points of view of other economic groups and the needs and problems of the country as a whole. A similar obligation rests upon farm and labor leaders. Upon the basis of our discussion we are convinced that much good will and understanding will arise if groups representing varied interests frequently meet together, under whatever auspices, to exchange views and explore the widest possible area of agreement.

Appendix: Individual Views

The extent of Monopoly by Mr. Slichter

Without dissenting from the view that competition should be encouraged in most branches of industry, I believe the extent of monopoly has been much exaggerated. That industrial concentration is not so great as some figures might imply is indicated by the degree to which employment is scattered. Returns to the Social Security Board show that 57 per cent of the employees covered by the old-age-pension law (which covers nearly all American business outside of railroads and agriculture) work in establishments employing less than forty persons. Moreover, nearly all branches of the consumers’-goods industries—apparel, food, furniture, automobiles—are characterized by fierce competition rather than monopoly. There are several bad monopolistic situations in the building industry, including some trade-union practices, and some in the capital-goods industries, and there are scattered local monopolistic situations. On the whole, however, monopoly is not pervasive in American industry. There is moreover a good deal of evidence to show that small concerns are holding their own against the larger ones; and that in meat packing, steel, oil, and radio new and independent companies have been making rapid progress. I wish that we had more rather than less “monopolistic competition” because it is superior to “pure” competition. When a producer has millions at stake in a product bearing his name, he has a strong incentive to spend millions improving it and cutting the cost of production. Monopolistic competition offers the best promise for giving the consumer a better product at a lower price. Congress, through the Robinson-Patman Act, has itself made one of the greatest contributions to price rigidities. Price cuts usually start by concessions which are made secretly to one or a few buyers who are thereby induced to give their orders to A rather than someone else. But if A must extend the cut immediately to all his other customers, his incentive to make the cut is destroyed. In other words, a certain amount of discrimination, which is the natural product of individual bargaining, is necessary to produce price flexibility. But Congress has preferred to sacrifice flexibility and keen competition in order to do away with a certain amount of discrimination.

The antitrust laws by Mr. O’Mahoney

I agree that wherever the antitrust laws are uncertain, they should be clarified; but I think it ought to be understood that the uncertainties are not nearly so many or difficult as some commentators seem to believe. Much of the uncertainty in this field arises from legalistic arguments made for the purpose of evading the prohibitions of the antitrust laws. Our difficulties also proceed rather from the improper adjustment of national business to national government than from any doubt of the propriety and clarity of our traditional disapproval of those unwholesome commercial practices which, under both the common law and statutory law, have been condemned for centuries as against the public interest.

I am also in complete agreement with the statement that if business cannot operate upon a competitive basis or without employing restrictive practices, the government must step in to safeguard the public interest. But one of the chief obstacles to a solution of this problem has been the unreadiness of business to make constructive proposals. Senator Borah and I several years ago introduced the so-called federal-licensing bill. Senator Borah and I have repeatedly stated publicly our willingness to entertain any suggestion with respect to this formula of federal licensing, but extremely few have been forthcoming.

I realize that this is largely due to a misunderstanding of the purpose of the measure. It was not intended, as many businessmen apparently suppose, to clothe federal officials with increased discretionary control over commerce, but rather to make the expansion of bureaucratic authority unnecessary by clearly defining the powers, responsibilities, and duties of the corporations which operate in the field of interstate commerce. In my opinion, federal charters or licenses could do much to set business free from too much government control while at the same time providing a simple and practical method for the necessary regulation.

Likewise I believe that the definition of “administered prices” should be made clear. When any form of coercion appears in the fixing of prices it is, of course, against the public interest. In what particular fields and to what degree prices should be “administered” by either private or public authority remains an open question. That it may be necessary in far-flung industries even for competitors to confer so that the element of cost and price may be generally understood in order to prevent the collapse of huge units, may perhaps be admitted; but it is clear that no form of force should ever be permitted to the injury of prospective competitors and no form of conspiracy to the injury of consumers.

Agricultural situation by Mr. O’Neal

It is in the national interest that we perfect and perpetuate the national agricultural policy applied since 1933. It should be noted that the Agricultural Adjustment Act provides that in case market prices of basic farm commodities reach parity (buying power equivalent to 1909-14), no parity payments will be made. Therefore we have every reason to hope that, once industrial recovery has become a reality on a broad scale and once excessive farm surpluses have been used up, farm-commodity prices may approach parity levels and remove the need of any large parity payments. The tobacco farmers have already demonstrated that this end can be attained. However, with American agriculture’s tremendous capacity to produce far in excess of domestic and foreign demand, I am convinced that the present voluntary program of adjustment must be maintained indefinitely.

Although the farm stands to benefit by increased consumption of certain food products, notably dairy products, the bottleneck in the process of increased consumption is a costly system of distribution, which the farmer is helpless to change. Milk is being distributed through stores on the cash-and-carry plan much more cheaply than it can be distributed by doorstep delivery. If the high retail price of milk distributed to the consumer’s door is considered a deterrent to increased consumption, obviously the blame should not be placed on the farmer. I believe that if distribution agencies would make an effort to reduce distribution costs comparable with the efforts made by the automobile industry to reduce production costs, considerable progress could be made. We need cheaper systems of distribution for the great masses of the people.

Housing expansion by Mr. Shishkin

Housing expansion presents a problem far more complicated than some members of the Round Table believe. High hourly rates in the building industry account for only a small portion of the total cost of housing. On the basis of over-all cost of housing to the ultimate consumer, the cost of building labor at the site is between 20 and 25 per cent of the total capital cost—a ratio which compares favorably with the ratio of labor costs in a number of mass-production industries. When we come to the annual cost to the consumer either as the cost of ownership or as rent, we find that by halving the cost of interest and amortization, we should cut about 33 per cent off the annual housing cost; by halving the cost of materials we should reduce the total by 13 to 15 per cent; but by halving the labor cost, we should cut off 8 to 10 per cent of the annual cost. Moreover, I do not believe that any shortage in skilled labor is likely to be serious or lasting. Collusive agreements in the building industry are fought by national and international building unions themselves. Price-maintenance practices such as “bid depositories” in this industry are an outgrowth of the price-maintenance policy promoted by the contractors under the NRA code. No careful student of these practices would pin the primary responsibility for them on building unions. The existence of such practices today is limited to a few particular cities and is not general in character.

Before reaching any conclusions as to the possibilities of housing expansion, a distinction must be made between the need for housing and the effective economic demand. The foremost problem in this latter respect is how to achieve adequate incomes and hence purchasing power. Today 93 per cent of our non-relief families receive incomes of less than $3,000 a year, and 82 per cent live on less than $2,000 a year. Mass production will not result in housing expansion so long as this maldistribution of income exists. More than one-third of our people are insufficiently supplied not only with shelter but also with food, clothing, and other essentials, most of which are mass-produced. Next in importance is how to bring good housing within reach of these incomes. Today, depending on the length of amortization period, a home buyer acquiring a $5,000 house must actually pay between $8,000 and $10,000 for his house over a period of years. Having paid nearly as much for financing as for the house itself, he finally gets a clear title to a dwelling which has outlived its usefulness. Obviously, the paramount objective must be to reduce financing costs. Moreover, experience to date with prefabricated housing shows that mass production in itself does not yield substantial reductions in housing costs, the main obstacle being the failure to secure mass distribution on a decentralized basis. There is evidence that economies achieved through mass production are largely absorbed by the excessive transportation costs necessary to bring prefabricated units to the site of construction.

Finally, sound housing expansion is achieved not by merely building more houses, but through bettering of standards of design and construction, and above all, through long-range community planning, which assures stable neighborhoods, protects the property from early obsolescence and blight, and provides community essentials necessary for decent living and comfortable growth.

Reply by Mr. Slichter

The crucial question, however, is not whether labor is a large or small part of the cost of housing but whether the demand for housing is sensitive to price. There is a hard core of demand that is not, but at the margin the demand for houses is elastic. This means that a 5 per cent cut in the price of houses would increase the number sold by more than 5 per cent. Under these circumstances it is simply smart marketing for all groups in the building industry, including labor, to combine for the purpose of reducing the price of houses. Even if labor’s contribution to the reduction were only a 10 per cent cut in wages, labor’s income would still be raised. The suggestion is not that labor make a sacrifice but rather that it promote its own interests by doing a better job of marketing.

Deterrents and investments by Mr. Hansen

While I agree that a determined attack should be made on deterrents to private investment, this report does not, in my opinion, come to grips with the difficult situation that now confronts us, and engages in a good deal of wishful thinking. Admittedly a properly functioning price structure (including not only commodity prices but also the interest-rate structure and wage rates) would help achieve greater employment. But it is well known that the difficulties of restoring a price system that will function freely are growing greater rather than less.

Moreover, some of the alleged deterrents are in my opinion imaginary. It is well known for example that each one of the major reforms of the past six years has been attacked by businessmen as a serious encroachment on free enterprise. If a government is developing a positive governmental role in industry in a rapidly changing world, nobody can set down precisely what is meant by “free enterprise.” And if industry is waiting for some clear-cut definition of such enterprise, upon which government must not encroach, then it is asking the impossible. One serious deterrent to recovery in America at present is an unenlightened resistance to a positive governmental program.

There are certainly serious deterrents to recovery in the form of maladjustments in part of our cost-price structure. (Vide the building and railroad fields.) They will not be easy to remedy. Yet they must be remedied. But if anyone thinks that these conditions can really be cured in any fundamental sense by some act of government I think he will be mistaken. We are confronted with a serious maladjustment in our labor relations. A mere modification in the National Labor Relations Act will not go to the heart of our difficulty. It will take a long time for us to become a socially and intellectually mature nation, with sufficient self-discipline and self-restraint to make the economy as a whole work in a satisfactory manner. These are ultimately problems of character and education; and until they are satisfactorily solved we shall continue to have serious deterrents to a properly functioning economy.

Moreover, the century that lies behind us was unique in that it was characterized by rapid extensive growth and expansion. The highly dynamic economy that sprang from this era of expansion was a high savings, high investment economy. Capital was needed to provide for the growing population and for the improving techniques, which continually raised the standard of living. When the population ceases to grow we shall need capital only for the latter purpose.

In the past the demand for new capital equipment came from two principal sources: (1) the growth of population, and (2) inventions, new products, and new techniques. Rough estimates suggest that possibly one-half the capital investment in the pre-War period was merely to take care of population increases, which demanded new houses, roads, and other capital facilities. But today the decline in population growth tends to reduce the volume of construction, which was so important in the rapidly expanding nineteenth century. During the period before 1929, America invested nearly 15 per cent on the average of its national income in new capital goods including houses and public construction. If we are to invest in the future such a large proportion of our national income in new capital goods, some offset must be found to the reduced demand for capital, incident to the incremental decline in population growth.

Moreover, it should be noted that invention, which has been a major source of demand for capital in the past, may actually have the opposite effect. Research and invention in an advanced industrial society may frequently prove to be capital saving and thereby reduce the demand for capital.

It is true that capital-saving innovations increase our potential productive capacity, but they directly and immediately reduce the outlays on capital expenditures and thereby have a contracting effect on income and employment. The gap is thus widened between full employment and realized employment. This gap may of course be closed by appropriate price and other policies. But there is no assurance that it will automatically be closed.

In certain respects the decade of the forties promises to be better than the thirties in view of the prolonged stagnation in construction and the gradual accumulation of deficiencies. But experience should warn us against the dangers of being overly optimistic. Consequently, I feel this report should emphasize not only the question of deterrents to private investment but equally the organization of a positive program of government action that can be put in effect at once to meet the gaps left by private enterprise.

A first step in this direction must be a sensible appraisal of the federal budget situation. No budget, however wisely ordered, could take care of the unemployment inevitably arising out of the catastrophic fall in national income from 80 to 40 billion dollars from 1929 to 1932 without incurring large operating deficits. The chaotic financial situation was intensified by the absence of established machinery relating to old-age and unemployment insurance, which could take care of a large part of relief and unemployment outside the government budget.

To restore order in our federal finances and to ensure an orderly development in the future, we must not permit a repetition of any such decline in our national income, and we must establish on a firm basis machinery outside of the budget that in large measure can care for relief and unemployment. Moreover, we can bring order out of chaos partly by a change in our tax structure and partly by a soundly developed public-works program, a part of which can be legitimately financed by borrowing, the proportion so financed being determined by various criteria, which must be qualitatively appraised. To refer to the financing of such a public investment as “deficit” financing is misleading. In a society in which the government plays a positive role in the maintenance of income and employment, sound fiscal policy can, I think, be facilitated by a definite separation of the operating expenditures of the government from the capital. Taxation must be adequate, over the cycle, to cover not only the ordinary expenses (including relief) but also interest and depreciation.

Generally speaking, government and business both must recognize the great importance of public investment, not only as a means of supplying the community with facilities that raise its standard of living and improve its efficiency, but also as a means of supplementing and sustaining investment by private enterprise itself. On the other hand, we must always be prepared to contract the public sector as we approach full employment. It must be a flexible program.

Reply by Mr. Slichter

Although population growth has provided many outlets for savings, a more nearly stationary population with smaller families may provide even more outlets. Housing in particular, the largest single outlet for savings, is likely to be stimulated by a decline in population growth because only as families become small can they afford to own and live in new houses. It is significant that countries far more advanced toward a stationary population than the U.S., such as Great Britain and the Netherlands, have built relatively more houses through the depression than we built during the building boom of the twenties. Only a small proportion of the British and Dutch houses were put up with government aid.

The amount of capital available for future investment depends partly upon the effect of the changed age distribution of the population upon the net volume of savings. Savings are accumulated by people during their working years; they are partly consumed during years of retirement. At present there are about ten persons in the savings-making age brackets (nineteen to sixty-five years) for every one in the savings-consumption age brackets (sixty-five and over). In 1960 there will be about one in the savings-consumption age brackets for every five in the savings-making age brackets.

Although there have always been capital-saving inventions, laborsaving inventions have predominated, and the capital that can advantageously be used per worker has greatly increased during the last several generations. The trend may change, but indications of such a change are lacking. During the twenties, for example, the increment of investment per additional worker was, in dollars of constant purchasing power, substantially more than during the first decade of the century. The drop in interest rates creates an incentive to make new laborsaving rather than capital-saving inventions.

The effect of technological discoveries upon investment opportunities, however, is not principally a matter of whether the invention is a laborsaving or a capital-saving one. Technological changes affect investment opportunities mainly (1) by bringing into existence new products that require new plants for their production and (2) by reducing costs and, indirectly, prices and thereby releasing incomes for the purchase of goods that thousands of men previously could not afford—again requiring the construction of new plants or the enlargement of old ones. The investment demand that technological progress would create by increasing the purchasing power of consumer incomes by 10 per cent is enormous.

The danger of chronic unemployment is real and should be frankly faced, but the causes for greatest concern are not the decline in population growth or the passing of the frontier but price and wage controls and public policies that unnecessarily restrict investment opportunities. If chronic unemployment becomes a reality, the possibility of using public investment to combat unemployment should be explored. It is not, however, a panacea that can be relied upon automatically to produce favorable results. Unless properly managed (and the practical difficulties of preventing an irresponsible scramble for political pork are great), it may aggravate the very problem that it is intended to relieve. Nor does experience indicate that public investment is very effective in offsetting the results of deterrents to private investment caused by unfavorable wage-price relationships or ill-conceived public policies. On the contrary, when conditions for private investment are unfavorable, the principal effect of public investment is to enable business enterprises and individuals to hoard more cash rather than to encourage them to give more employment. The advocates of public spending are not doing the country a service by diverting public attention from the underlying deterrents to investment and by sponsoring a policy that depends for its efficacy largely upon progress in removing the very deterrents that they overlook.

But whatever may be the problem that ultimately confronts us, we suffer today not from a lack of investment opportunities in any fundamental sense, but rather from the opposite—from an enormous shortage of capital equipment. Our plant is far too small for our working force, for we still have to provide machines, tools, and working places for most of the 5,000,000 men who have been added to the would-be gainfully employed since 1929—a matter of nearly $20,000,000,000. Furthermore, we need to provide plant and equipment for about 2,000,000 more who should be in the nonagricultural industries rather than agriculture. To do these things we need enterprise. The crux of our economic problem is to create the kind of world in which the spirit of enterprise flourishes.

Reply by Mr. Houston

Professor Hansen’s claim that future outlets for private investment will be limited overlooks a number of important considerations, particularly with respect to the demands for new capital. In my opinion, the demand for capital arising from the growth of a population having a low standard of living, such as that created by foreign immigration to America, is much smaller than that which arises out of a high-standard population in a highly developed technological economy. In the latter type of economy capital is consumed at a more rapid rate of obsolescence than in an economy dominated by population growth but low capital investment.

In addition, there is a constant erosion of capital throughout the country through operating losses that tend to absorb new capital. I believe that these losses will be at a higher rate relative to profits in the future than in the past. Put another way, the internal savings of business do not promise to be so high in the future as in the past and more external savings will be proportionately required. Although invention may diminish the demand for capital with respect to particular items of equipment, generally speaking technological development is toward more extensively equipping the population. The use of facilities increases so rapidly with the decline of price—as for instance in the use of the gasoline pump and underground tank storage—that I question seriously the contention that new inventions are lowering the per capita need of capital formation.

I also have difficulty in accepting Professor Hansen’s statement that “possibly one-half the capital investment in the pre-War period was merely to take care of population increases.” Of course the pre-War period is a very indefinite term as it might go back for a long time. Considering the decade of the twenties, however, the facts are rather significant. While population increased about 15 per cent the physical expansion in various stocks and capital goods in use during this period appears to have been approximately three times as great. Two-thirds of expansion arose out of increase in standards of living and one-third from growth of population.

Moreover, business will have difficulty in accepting Professor Hansen’s view with respect to the relation of government to free enterprise when he says that “if government must not encroach, then it is asking the impossible.” Private enterprise is synonymous with voluntary enterprise. Unless the relation of government to private enterprise can be so established as to stimulate the voluntary exercise of initiative and enterprise on the part of the individual entrepreneur and investor, private enterprise must die and be replaced by some form of state enterprise. If voluntary enterprise is to be perpetuated it is essential that government encroachment, whether by public enterprise or by control of private enterprise beyond the point of impartial regulation, shall be clearly delimited at all times.

Rules of spending by Mr. Flanders

I believe that the volume of public spending in the past seven years was great enough to have initiated large-scale reëmployment. That it did not do so was because the spending was mismanaged and because the necessary conditions were neglected and their contraries adopted. In my opinion public expenditure can effectively control unemployment if the following requirements can be met:

(1) A great number of projects must be completely prepared in advance, ready for release, and others must be in process of preparation. (2) A running estimate must be kept of unemployment as to amount, location, and kind. (3) Congress must give authorization for the release of these projects at such times and in such places as will match as nearly as possible the pattern of an increasing volume of unemployment, it being required that authorization of further projects be stopped in the degree that unemployment diminishes. (4) The projects must not be competitive with private business, and should have no ulterior purposes beyond furnishing normal employment on desirable and needed public work. They must be used neither for breaking local wage rates nor for introducing and entrenching new wage rates or conditions of labor. (5) The whole policy must be carried out in a political atmosphere favorable in word and in deed to the maintenance and expansion of employment under private business initiative. (6) With this intelligent policy and attitude on the part of government, business must accustom itself to look on such expenditures as helpful toward recovery and as furnishing a sound basis for the exercise of business initiative.

Purchasing power by Mr. Hillman

There is much in the statement of the results of the Round Table with which I am in agreement. My differences are, I am sure, merely the result of insufficient discussion of specific problems. Nevertheless, I feel impelled to present a separate statement dealing with some of the major problems.

I can wholeheartedly subscribe to much that is contained in the preamble to the statement. I fully share the devotion of the other members of the Round Table to our system of political and economic democracy, as well as their confidence that the problem of unemployment is susceptible of solution within the frame-work of these institutions. With the other members, I concur that the challenge that confronts our generation is to identify and remove those obstacles that today prevent the full utilization of our national resources.

A majority of the members of the Round Table apparently believe that the barriers to full employment lie, first, in a series of practices on the part of industry, labor, agriculture, and government, which they find open to criticism, and, second, in what they characterize as lack of “confidence” by investors in the policies and programs of the government.

I cannot subscribe to this thesis. Even were I to agree that the criticism of all of the practices which they enumerate is warranted and that there does exist in certain quarters what they describe as a “complex of fears as to the motives of the present Administration,” I cannot believe that these factors can be held primarily responsible for an economic condition that had its roots in the years that preceded 1929 and that, in varying degrees, has been a phenomenon of worldwide proportions since that year. I am convinced that so serious a maladjustment can be ascribed only to causes far more fundamental than those identified by the majority of the Round Table members.

I believe that the report of the majority fails fully to explore the basic cause of the stagnation of our economy. The report describes the goods and services required by the American people to achieve a civilized standard of living as “virtually unlimited.” It also notes that the present per capita income of the nation is less than $500 per year. This contrast between the nation’s need for the product of farm and factory and the ability of the majority of our people even to begin to satisfy that need provides at once the challenge of our economy and the clue to the solution of the problem of unemployment.

American industry has been unable to generate within itself the purchasing power necessary to permit this potential domestic market to become articulate. This inability became apparent in the four years from 1929 to 1933.

I am, therefore, convinced that the continuance and, indeed, the expansion of governmental expenditures for useful public works, housing, and farm benefits is essential, not alone to protect the people from want, but as an affirmative means of creating purchasing power in sufficient volume to buy the goods that American industry and agriculture are equipped to produce.

Because of my conviction that the foregoing analysis is sound, I must take issue with the negative approach to the problem of governmental expenditures by the majority of the Round Table members. They see the role of government spending almost entirely as a means for the protection of the people against want. That aspect is essential, of course. But by giving it exclusive emphasis, by failing to see the problem of unemployment largely as a problem of lack of purchasing power, the majority overlook the essential contribution that a program of public works, public housing, and farm relief has made and can make to the revival of private enterprise. Thus, the statement of the majority dwells upon those isolated instances in which government spending may have competed with private enterprise. It neglects the positive stimulus that the public-works and relief programs have given to private enterprise.

Limitations of space forbid any detailed comment on the deterrents to full employment enumerated in the statement of the majority. Some of the criticisms directed against business, labor, agriculture, and government are not, I think, supported by the facts. The validity of others can be established or disproved only by further investigation and study.

The majority, for example, find that some of the policies and administrative practices of the national government have acted as business deterrents. Like all human institutions and achievements, the legislative measures adopted since 1933 to meet the problems of crisis and depression have been perfect neither in conception nor in administration. There is much room for constructive criticism of details. A review of policies and procedures of the national government by representatives of industry, agriculture, labor, and government is fitting. But such a review must be grounded in sympathy with, and understanding of, the objectives of federal policy and must likewise be scientific and objective in its approach.

I cannot subscribe to the enumeration of labor deterrents set forth in the statement of the majority. With them I condemn any abuses of power or collusive practices on the part of any labor group that impose unwarranted restrictions upon production. My own experience has satisfied me that such practices are not sufficiently widespread to constitute any real deterrents to our whole economy. I do not agree that the building trade unions can be charged with any substantial share of the responsibility for the present plight of the construction industry. I do not share the fear of the majority that high wages and shorter hours may result in the curtailment of employment. Nor can I concur in the suggestion that nonunion workers have been coerced by labor organizations or that some employers have rejected collective bargaining because of the belief that their workers would thereby be deprived of the right freely to choose their representatives.

It is my own conviction that the rapid extension of the collective-bargaining process throughout American industry will promote economic recovery by removing the causes of labor disputes. I wholeheartedly agree with the suggestion made by the majority for conferences of management, labor, agriculture, and government to explore, in detail, the problem that was the subject of the Round Table, and coöperate in formulating plans for its solution. Only through such intelligent coöperation can a constructive solution be found.

Enterprise and purchasing power by Mr. Burges

It was heartening to find members of the Round Table so generally agreed on the central thesis that solution for unemployment depends on restored enterprise, and so largely agreed also that enterprise can do the job if released from barriers that hold it back. Naturally each of us would state both the problem and the solution with different shades of emphasis; but with the final statement of our conclusion I can agree 95 per cent. I should have emphasized even more the dangers of huge government spending and its ineffectiveness as a lasting cure.

Some of our reservations, like Sidney Hillman’s, may arise because we did not have time to talk out the question of which comes first, which has the greater dynamic force for recovery, purchasing power or enterprise. In the upward spiral toward prosperity each of course stimulates the other, but where should the emphasis be? Our national policy for some years has concentrated upon the stimulation of purchasing power, with on the whole rather disappointing results. The Townsend plan adopts the same philosophy, and carries it to pathetic absurdity. A longer view of history to me supports the belief that enterprise, not purchasing power, is the dominant force for recovery. When enterprise builds for the future it creates the purchasing power that sustains it. But the problem is a large one—not a bad subject for another Round Table.