The Country's Plight—What Can Be Done About It? - Wikisource, the free online library (2024)

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Present Day Distribution of WealthFound to Be the Root Cause of Both'Overproduction' and Unemployment

An Exposition of What President Hoover Has Characterizedas "the Greatest Crisis the World HasEver Known"—The Significant Facts Underlyingthe National Predicament Which Will Be Presentedto the Coming Congress.

I.—Hard times have produced hard thinking—The capitalistic system of government is on trial.

To a greater extent than ever before inthis generation, the people of the UnitedStates are thinking in realistic terms. Theold slogans by which the thought—or theemotion—of the country was guided in theCoolidge era have been examined and foundto be but a form of words. The mood inwhich the country accepted as inspired doctrinethe prophecies of "a chicken in everypot" and "a job for every man" has changedinto one of doubt and questioning. Nowthat "this, the greatest crisis the worldhas ever known," as President Hoover calledit in his Indianapolis speech last summer, hasrun into its third year, the volces of even themost confident believers in the early return ofprosperity are pitched in a lower key.

Too much gilt has been rubbed off the forecastsof the past for any political or industrialseer to tell us in the present state ofthings that "prosperity lies just around thecorner." We have begun to see, as the wiseMr. Justice Holmes said in another connection,that "certitude is not the test of certainty."We know now that "we have beenco*cksure of many things that were not so."

Challenge to Be Met.

Events have forced us to consider the facts.Phrases do not feed the hungry, or give jobsto the six or seven million who want workand cannot find it. The jobless man canderive no comfort from the proclamationthat we are merely in one of those "cyclical"depressions which are bound to come everyso often and, having passed, leave us better offthan before. Hard times have produced hardthinking. In one line, at least, under-consumptionis not to be deplored. We are consumingless and less of the buncombe engenderedin the lush days of our prosperity—andin this fact lies some measure of compensationfor the plight into which we havegot ourselves.

One need not go into the field of radicalwriting to find vigorous expression of theview that the capitalistic system is on trial.In growing numbers, highly placed defendersof capitalism, men who have prospered underit and who desire its basic features preserved,are saying that if capitalism is successfullyto meet the challenge of other forms of soctalorganization, it must clean house.

Not Norman Thomas, the Socialist leader,but Daniel Willard, the president of the Baltimore& Ohio Railroad, told the WhartonSchool of Finance and Commerce last springthat a system which permitted five or sixmillion men to be out of work in a countrybursting with wealth "can be said to havefailed in at least one yery important detail."It was Willard, again, and no member of aproscribed order, who said that if he wereone of the jobless in those circ*mstances hewould steal before he would starve.

Warning From Capitalists.

No upholder of the Marxian philosophy, butRobert S. Brookings, wealthy retired manufacturer,president emeritus of WashingtonUniversity, of St. Louis, wrote in the Post-Dispatchthis year, in advocating a modifiedform of capitalism, that "our Western civilizationmust vindicate its worth if it is to endure."And he added that it could vindicateits worth "only by demonstrating its abilityto correct its own defects, and its consequentcapacity for constructive development."

Prof. F. W. Taussig of Harvard sees "controland power concentrated in a few handsto an ominous degree," and Henry W. Anderson,conservative Virginia lawyer and amember of the Wickersham Commission, findsin his recent survey of the causes of crimethat the American people, as an incident tothe exploitation for private gain of one of themost fruitful areas of the world, have "createdthe widest spread between the extremesof wealth and poverty extsting in the Westernworid."

Senator James Couzens of Michigan, whohelped to create the Ford Motor Co. andmade a fortune out of it, sounds the warningthat "people will not suffer indefinitely inthe midst of plenty," and Dr. L. D. Coffman,president of the University of Minnesota, declaresthat "communism im its various formswill not be held at bay by negative actions."

More Than a "Depression."

Dr. Nicholas Murray Butler, president ofColumbia University, asserts that we are passingthrough no ordinary depression butthrough a revolutionary period brought on bylong-accumulating forces. What the countryneeds, he says, is "personalities who are notanxious, like the jockey, to keep their seats inpolitics but who are willing to tell the peoplethe truth and to guide them toward a constructive,a liberal and a progressive solutionof these vast problems."

Dean Wallace B. Donham of the HarvardGraduate School of Business Administration,author of "Business Adrift," sald to the recentmeeting of the International Chamberof Commerce in Washington that if therewere not sufficient brains and good will inthe world to solve the problems of the depression,"then our mass production, our sclentificprogress, our control over nature mayactually destroy civilization."

Quotations of this sort might be multiplied.They are appearing in our newspapersand magazines almost daily. They representthe views not of revolutionists who would destroycapitalism, but of thoughtful men whobelieve in capitalism and would save it fromits own excesses.

II.—We must know the facts if we are to deal intelligently withthe depression.

It is the purpose of this article to set out,as simply as may be, the elements—theA B C—of the plight in which the countryfinds itself. Diagnosis is the chief aim,not prescription. One of the writers alreadyquoted, Prof. Taussig, says that we have madehardly any progress toward obviating or evenminimizing the curse of unemployment; thatwith respect to prevention or remedy we areall very much in the dark. Decrying theassumption that "one simple panacea" willbring back prosperity, he pleads "for moderationand good sense, for cessation of shamtalk about sham remedies, for an earnest facingof the really great, really ominous problems."

That is, if we are to get anywhere at alltoward the solution of our problems, we mustknow the root facts out of which they spring.

Such is the confusion of counsel from varioussources that it is no wonder the people areat times bemused. What are we to believewhen the Chamber of Commerce of the UnitedStates and Gerard Swope, the president of theGeneral Electric Company, present to us hopefullyplans for the "stabilization" of industry,while, on the equally authoritative otherhand, Albert H. Wiggin, the chairman of theboard of the Chase National Bank, informs aSenate committee that "no commission or anybrain in the world" will avail to prevent futuredepressions?

Stating the Real Issues.

What are we to believe when we find businessgroups in solemn conclave adopting resolutionsagainst the interference of governmentin business, and then, the next day, runningto the Government for subsidies and subventions?How shall we choose between themutually destructive theses that we shouldbuild up a large foreign trade as a guarantyagainst unemployment, and that we shouldtake no step to lower our tariff barriers orreduce the war debts?

We must know the facts underlying ourdepression if we are to form enlightened judgmentsupon it. Because of the babel oftongues offering remedies, we mistake, toooften, the symptom for the disease, and in theclamor for Government action we are proneto forget there are limits beyond which theGovernment, under the Constitution, cannotgo. We need to distinguish between the shamremedy, designed to meet the political expediencyof the moment, and the remedy thatstrikes at the root of the disease.

The coming session of Congress will havebefore it economic issues of transcendent importance.It will be, at the least, a highlyinteresting session. It may be historic. Onlyif the citizen has certain essential facts clearlyin mind can he follow the unfolding of thedrama at Washington with intelligence andunderstanding.

III.—The distinction between the Government's depression andthe general depression—Why the Government is in debt.

It is important in our thinking about theAmerican depression to keep clear the distinctionbetween the United States, meaningthe whole people thereof, and the Governmentof the United States. These twoentities are often confused: hence, for onereason, the loose assumption that whateverthe Government may do to get itself out ofits depression will likewise help to get theAmerican people out of their depression.

The problem is not so simple. The Governmentis a part of the whole. It followsthat if the American people, with or withoutGovernment ald, regain a measure of prosperity,this prosperity will be reflected in thefinancial status of the Government; but itdoes not follow that the curing of the Government'sparticular depression—its excess ofoutgo over income—will spell good times forthe country.

Government's Plight Separate.

In other words, the American depressionpresents a duplex problem. The Governmentis head over heels in debt. It ran a deficitduring the last fiscal year of $903,000,000,and the deficit for the current fiscal year,which began last July 1, stood on Nov. 1at $661,000,000. Private industry and businessare likewise in a bad way, and hencethe people of the United States, who are dependentupon private industry and businessfor their wages or dividends, are in a badway. Each person, therefore, has a dual interestin the depression. He wants his Governmentto get out of the hole it is in, sothat it will stop calling on him (or his children)for increased taxes, and he wants industryand business to get out of thelr depression,so that his income may be brought backto a satisfactory level.

The Government's depression flows fromand is a pert of the general depression in theUnited States. It needs, however, becauseof the special set of problems involved, to beconsidered separately.

From a Feast to a Famine.

Only 14 years ago we were marveling thatthe Government had reached a billion dollarlevel of receipts and expenditures. Today, byvirtue of the normal expansion of Governmentactivities in a fast growing country and theabnormal expansion caused by the war, it isspending more than four billion dollars ayear. Nearly a billion of this goes for militarypensions, compensation, etc., and the careof disabled veterans, and more than a billionfor interest on and statutory retirement ofthe war debt. As long as the country remainedfairly prosperous, it was easy enoughto collect the revenues to cover our outlays.It was so easy, in fact, that notwithstandingfour successive tax reductions since the war(five if we count the temporary reduction of1929), the Government had an unbroken seriesof surpluses from 1920 down to and includingthe fiscal year 1930.

The change began in the fiscal year 1931,when the effects of the general business depressionbegan to make themeelves felt. Theseeffects were double-barreled: they sharply reducedthe proceeds from income and miscellaneoustaxes and from customs tariffs andthey heightened expenditures for relief. Inaddition, there was a further drying upof non-recurrent sources of revenues, such as thesale of surplus property and the returns fromwartime loans to the railroads—items which,by contributing to the impressive Treasurysurpluses of earlier days, had helped to makethe fame of Secretary Mellon as "the greatestSecretary of the Treasury since AlexanderHamilton."

Expenses Keep Right On.

Under our present revenue system, theGovernment depends on corporation and individualincome taxes for more than half itsreceipts. These taxes combined yielded forthe fiscal year 1930 $2,410,986,977 and forthe following year only $1,860,201,640. Theproceeds of miscellaneous internal revenuetaxes (such as the tobacco tax), which formthe second largest source of income, droppedfrom $628,308,035 in 1930 to $567,978,579in 1931. The total decline in internal revenuereceipts from all sources (income taxand miscellaneous) was about 20 per cent, or$611,965,513. Customs receipts fell from$587,721,925 to $300,856,473.

Now, as we have seen, while the Government'srevenues have been thus dwindling asa result of hard times, expenses have piled upon an ascending scale. The interest on thewar debt must be paid, and the Presidenthas said that the statutory provisions for retirementof the debt should not be disturbed.Pensions and annuities must be paid, loansmust be advanced to war veterans on theirbonus certificates, hospitals for disabled veteransmust be maintained. All these itemsgrowing out of wars are first charges againstthe Government, and there is constant pressureupon Congress from the outside, andupon the President from Congress, to have thebenefits to veterans increased.

Even a Dole Looms Up.

There is a postal deficit to be paid; thereis money to be advanced to the States underthe Federal road acts; there are Governmentbuildings to be erected under an expandedprogram; there are rivers and harbors to beimproved. In prosperity or depression, theseexpenses go on, and some of them are increasedby depression.

The Government is in the same position asa manufacturing plant which has suffered asevere loss of business but has been unable tocut its overhead expenses. In the presentfiscal year, moreover, the Government mayhave to spend large sums—whether as "dole"or in some other guise—for the relief of distresscaused by unemployment. Certainlythere will be strong demands in Congress fornew relief measures.

The farm problem, notwithstanding the$500,000,000 appropriated by the last Congressfor the uses of the Federal Farm Board,remains urgent. And it should be noted, tocomplete this rough picture of the Government'sfinancial plight, that in this fiscal year,under the Hoover moratorium, it is foregolngthe collection of about $260,000,000 dueit on the foreign war debt.

IV.—Economy in Government is a good thing, but it can't curethe deficit.

What can the Government do in order tobalance its budget? First, and obviously,it can economize. In times likethese the cry goes up throughout the land,from people and politicians, that the Governmentshould cut expenses. "Economy" is thepromise and watchword of every administration,the slogan of every candidate for office.Chambers of Commerce demand a "business-like"pruning of expenditures, and the averagecitizen is certain that if he were givencontrol there would be wholesale firing of uselessGovernment clerks and a slaughter ofboards, bureaus and commissions. Equallywith the alphabet and the multiplication table,economy commands the support of us all.

Economy in government is the easiest thingin the world to preach, because all agree uponit "in principle," and the hardest thing in theworld to practice. Undoubtedly, a materialsaving would be effected by a thorough overhauling ​and reorganization of theGovernment departments. As everybodyknows, the present set-up isillogical in many respects and isfilled with duplication and overlappingof functions.

The root difficulty here is in unregeneratehuman nature. Everydepartment wants reorganizationand economy—but it wants themonly for the other departments.Every Congressman wants the Governmentto save money—but notby separating any of his own constituentsfrom the payroll. Everycommunity is willing that the Governmentshall spend less money, onthe whole, for public buildings, armyposts, navy yards and the like—butit flies to arms if the curtailmentreaches into its ownmidst.

What has lately been happeningin connection with the President'seffort to pare down the budget forthe next fiscal year is illustrativeof the difficulties in the way ofeffective economy in Government.

That Navy Tempest.

The President asks the Navy Departmentto cut a certain sum fromits estimates. Immediately the advocatesof a "big" navy (or, dependingon the point of view, anadequate navy) spring furiouslyinto action. The chairman of theNavy League, a civilian organization,lets out a blast accusing thePresident of "abysmal ignorance"of the needs of the navy. A floodof propaganda is loosed with thepurpose of showing that if thePresident has his way, the UnitedStates will sink to the level of athird-rate naval Power.

There is still another reason whythe taxpayer can expect only themost modest results from thePresident's call for reduced outlays.As has been shown he has a limitedfield in which to operate. Halfof every dollar collected by theGovernment goes to pay the cost ofpast wars, in the form either ofveterans' relief or of interest andamortization charges on the publicdebt. He must do his shaving onthe other half — the half whichpays for national defense (futurewars); the general administrationof the Government; sites for publicbuildings and their construction;general law enforcement; the promotionand regulation of commerce,industry, and agriculture;the postal deficiency; the buildingof roads; flood control and the improvementof rivers and harbors,and the promotion of public health,public education and scientific research.

Big Slice Out of Every Dollar.

National defense, which meansthe upkeep of the army and navyand the building of armaments, hasbeen taking close to 20 cents of thedollar, making the total chargeableto war, past and future, about 70cents. Manifestly, if the essentialFederal services are not to be crippled,there can be only cheese paringeconomies in the field of activitiescovered by the remaining 30cents, and no saving of this kind,however desirable it may be, canhave any appreciable effect on thepresent financial position of theGovernment. It is possible, therefore,to applaud the President'seconomy drive without becomingoptimistic as to its outcome. Realeconomy, translatable into terms ofthe taxpayer's dollar, can only beachieved by laying the ax vigorouslyto our expenditures for futurewar. Whether this should be doneis a question for the people,through the Government, to decide.

V.—Should the Government in this emergencydepend on borrowing or on new taxation—How shouldthe burden of new taxation be distributed?

Since it is not possible for theGovernment, by any conceivablepresent measures of economy,to make a saving even remotelycommensurate with the sizeof the deficit, it is clear that moremoney must be found than is nowbeing taken tn.

There are two ways in whichadditional money can be had: byborrowing and by taxation. Duringthe year ended Oct. 31, thepublic debt was increased, throughTreasury short and long term borrowing,by more than a billion dollars,or to a total of $17,291,000,000.The question that faces Congressis whether the Governmentshould continue to meet its needsby borrowing or should resort, forall or part of the required newrevenue, to increased taxes. Thequestion is whether we should shiftthe burden of the deficit to thefuture, or, so far as practicable, payas we go.

There is a growing belief amongCongressmen that taxes shouldbe increased. Some, like Senator Borahandd Senator Norris, have heldfrom the time the deficit first appearedthat the Government shouldreach with a longer arm into thebig incomes in the upper brackets.Others, representing the administrationpoint of view, took the positionoriginally that a tax increaseat all costs must be avoided.

Against Bigger Taxes.

Higher taxes, they said, wouldhurt business and thereby retardeconomic recovery. All the familiararguments against cutting into theincomes of the very rich—that thewhole people ultimately would paythe bill, that higher levies in theupper brackets would drive an increasingamount of wealth into tax-exemptsecurities, that the Governmentshould not take money neededin industry—were heard.

It was said, moreover, that withthe revival of business, which layjust around the corner, Governmentrevenues would speedily goback to normal; the Governmentmeantime should tide itself overthe emergency with new loans,which could easily be paid off inthe rosy future.

So ran the case against a taxincrease, and it looked until recentlyas if this counsel would prevail.For one thing, it squared with thephilosophy of conservative Republicanismand, for another, it appealedto that section of the Democraticparty which is eager, onthe eve of a presidential election,to prove that big business has nothingto fear from the Democrats.The present staggering size of thedeficit—it is four times as greatfor the first four months of thecurrent fiscal year as it was forthe corresponding period of theprevious year—has materiallychanged the outlook. Even someof those who previously stoodagainst any revision of the presenttax schedules have come to thereluctant conclusion that an increase,to supplement the moneyraised by loans, will be necessary.

Who Is Going to Pay?

If new taxes are levied, whatshall be their incidence? On thisquestion there are, roughly speaking,two schools of thought, andthe difference between them goesdown to the fundamental issue thatdivides men in Congress (and inthe nation and the world) on everyvital politico-economic question.Labels in politics are delusive, butin general it may be said that thefight is between Conservatives andLiberals—between those who believethat the first function of governmentis to establish prosperityamong a privileged class at the top,whence it may diffuse itself at thedirection of this class over less fortunategroups, and those who believethat government should concernitself primarily with the welfareof the mass.

A Marxian would say that thebattle is merely a part of the age-longstruggle between the Houseof Have and the House of HaveNot.

This definition may over-simplifythe matter, but no such objectioncan lie against the statement,quoted approvingly by Prof. JohnDewey in his book on "Individualism,Old and New," that all thegreat political questions in Washingtoncome back ultimately toproblems connected with the distributionof income. The questionof how the burden of new taxesshall be apportioned falls preciselywithin this category.

Wealth's Distribution.

We come now to a point in thisarticle where two topics—that ofthe Government's depression andthat of the whole people's depression—beginto converge. We reachthe proposition that the Government,through its taxing power,not only can cure its depression(that is to say, close the gap betweenreceipts and expenses) butby the radical use of that tremendouspower, can profoundly affectthe whole economic and socialstructure of the country. It canhelp to bring about a redistributionof wealth.

Let us see, briefly, what theavailable evidence tells us about thepresent distribution of wealth. Ourbest source of information is theannual Statistics of Income, publishedby the Treasury Department.

In the calendar year 1929, thelast year for which figures havebeen published, about 1 per cent ofthose making income tax returns tothe Federal Government had about25 per cent of the aggregate incomereported. Persons with incomes ofmore than $100,000 each, forminga little more than one-third of 1per cent of all those reporting, hadmore than 17 per cent of the income.The number of taxpayerswith incomes of more than $100,000shows a steady increase from1921 to 1929, broken only by thestock market crash of the latteryear. In 1921 the total was 2352;in 1928 it reached the top figureof 15,977, and in 1929, accordingto the Treasury's preliminury reportfor that year, it stood at 14,701.

Growing Great Fortunes.

The same progression held goodin the class with more than $1,000,000income each. Its numbersgrew from 21 in 1921 to 511 in1928, dropping in the followingyear (preliminary figures again) to504. Not even the stock marketcrash halted the steady upwardtrend of the curve representing thesupremely fortunate few with incomesof more than $5,000,000each. There were only four personsin this class in 1921; in 1928there were 26, and the next yearthere were 36.

Figures could be piled up toshow how wealth, in increasing degree,has become concentrated inthe hands of a small fraction of thepeople, but a few more must suffice.The Federal Trade Commission,in a comprehensive study ofthe national wealth and income ofthe United States, surveyed the estatesof 43,512 decedents in 24 selectedcounties in 13 states for theperiod from 1912 to 1923. It foundthat 1 per cent of the decedentsowned 59 per cent of the estimatedwealth and that 13 per centowned 90 per cent of the wealth.The average value of all the estateswas $3800, but over 91 per cent ofthe decedents had estates of lessthan this average. The commission'stables indicate, as it conservativelysays, "a rather high degreeof concentration."

What the Poor Own.

It is impossible, of course, to arriveat the exact proportions inwhich the national wealth is distributed,but certain figures aresuggestive. The Industrial RelationsCommission has estimatedthat the rich (2 per cent) own 60per cent of the accumulated wealthof the nation, the middle class(33 per cent) own 35 per cent ofthe wealth, and the poor (65 percent) own 5 per cent of the wealth.

Reverting to income, as distinguishedfrom accumulated wealth,it is illuminating to note that onlyone person out of every 50 in theUnited States has a net income ofsufficient size to require him to paya tax upon it to the Federal Government.About 2,500,000 persons,or 2 per cent of the population, payall that is collected under the Federalincome tax; 98 per cent paynone of it. Secretary Mellon usesthese figures to support his contentionthat the income tax baseshould be "broadened." They areequally pertinent in showing themaldistribution of wealth in theUnited States.

Incomes of Super-Rich.

The 504 super-millionaires at thetop of the heap in 1929 had an aggregatenet income, for taxationpurposes, of $1,185,000,000. These504 persons could have purchasedwith this income virtually the entirewheat and cotton crops of1930—the two chief cash crops ofthe nation, representing the laborof 1,300,000 wheat farmers and1,032,000 cotton farmers. Whenthese figures were first put togetherby Dr. George L. Knapp of therailwaymen's newspaper, Labor,the result was called by SenatorNorris of Nebraska "one of themost astounding statements thathas ever appeared in print."

Knapp further showed, fromofficial statistics, that in comparisonwith the $538,664,187 net incomeof the 85 wealthiest taxpayersin 1929, the 421,000 workers inthe clothing industry received inwages $475,318,677. In otherwords, "these 85 men could havepaid the entire wage bill of theclothing industry and still had leftfor themselves about three-quartersof a million apiece."

The point need not be labored.There is growing concentration ofAmerican wealth in the hands of afew; there is steady accentuation of"the widest spread between the extremesof wealth and poverty existingin the Western world."More and more, thoughtful observerswho by no stretch of theimagination can be described asrevolutionary or radical are callingour attention to this condition andits dangers.

Sources to Be Taxed.

Figures such as the foregoingled the Federal Council ofChurches, in a Labor day message,to point to the "grave imperfectionsin an economic order which makespossible the stark contrast of vastfortunes and breadlines," and theyhave prompted such a good conservativeas Congressman Bacharachof New Jersey, a Republicanmember of the House Ways andMeans Committee, to take a leaffrom the Progressive book and proposehigher surtaxes, higher estatetaxes and the reimposition of thegift tax. It would be better, saysBacharach, for Congress to adopta "timely program with reasonablerates than to delay until the situationbecomes more desperate andthe door is open to more radicallegislation with unreasonablerates."

The various tax proposals comingbefore Congress may begrouped under two heads. On theone side are those which would"broaden" the tax base and on theother are those which would usethe taxing power for the doublepurpose of raising revenue andbreaking up, to some degree, thevast accumulations of wealth revealedby the income tax statistics.Whether or not there will be amovement to increase income taxesin the lower brackets has notbecome apparent, but the drive isalready under way for a generalsales tax or a "selective" sales taxon such commodities as gasoline,radio sets, automobiles, and (in additionto the heavy impost they alreadybear) cigarettes. A sales taxis the income tax in reverse. It islarge or small according to theamount consumed by the taxpayer;the income tax, called by economistsone of the fairest taxes ever devised,is large or small according to capacityto pay. A sales tax bears inequitablyupon persons of smallmeans; as Prof. E. R. A. Seligmanof Columbia University has testified,it "sins against the cardinalprinciple of equality in taxation."The fight for and against a salestax brings into head-on collisionthe opposing theories of governmentwhich have been mentioned.The tax is advocated at this time,manifestly, in an effort to averthigher levies on the rich.

There are three main items inthe opposing program: An increasein the higher brackets of the incometax, an increase in the estatetax, and the restoration of the gifttax.

Under the wartime rates, applicablethrough the calendar year1921, the Government collectedsurtaxes running up as high as 65per cent on amounts of incomeover $1,000,000. Successive generaltax reductions have broughtthe top rate down to 20 per centand have stopped the graduation ofincomes at $100,000. The rate is20 per cent, that is to say, no matterhow small or how large the excessover $100,000.

Income Taxes in Great Britain.

What has happened in respect tothe taxes of the very rich can betterbe shown by a comparisonbased on the average tax per returnand the average rate of tax onincomes in excess of $1,000,000. In1918, such incomes paid to theGovernment an average tax of $1,326,645and the average rate of taxworked out at 64.65 per cent. In1928, the average tax in the samebracket was only $362,309 and theaverage rate of tax was 16.70.

It is interesting to observe thatthe super-millionaires—those withincomes of more than $1,000,000,including the top-notchers with incomesof more than $5,000,000—paida lower average rate of taxthan persons with incomes from$300,000 to $1,000,000. The Progressivesin Congress are askingwhy the upward graduation ofrates, which is effective through allthe brackets from $10,000 up to$100,000, should cease at thatpoint. It has been suggested thatthe rates be stepped up until theyreach a maximum figure of 35 or40 per cent on amounts of incomeover $500,000. Forty per cent wasthe maximum rate carried in therevenue act of 1924.

In urging that the bulk of anyincreased tax burden be laid ontaxpayers with net incomes in excessof $100,000. CongressmanBacharach pointed out that therehad been an increase of more than5000 in the number in this classsince 1925 and drew the conclusionthat "the rich are getting richerand the poor poorer."

The American income tax ratesinvite comparison with the British.Great Britain in 1929-30 had 130persons with incomes of $500,000and upward. Their average incomewas $930,000. We had 1471in this group in 1929, with anaverage income of $1,250,000. Thetotal net income of the 1471 was$1,848,585,793, on which they paida tax of about 16 per cent, or $291,337,965.If they had been assessedat the British rates then effective,they would have paid a tax ofabout 48 per cent, or approximately$900,000,000.

Over-Expanded Industries.

One of the main arguments bywhich Congress on three occasionswas led to reduce the surtax rateswas that urgently needed moneywould thereby be released for theexpansion of industry. From thisexpansion, it was said, would flowgreat and widely distributed benefits.If this argument ever hadany validity—which is seriously tobe doubted—it surely has nonenow. Industry today is tremendouslyoverexpanded — that isits great trouble and the country'strouble. Proponents of lowsurtaxes have been forced to fallback on their second line of defense,the contentions that highrates (1) drive wealth into hidingand (2) are ultimately passed onto the whole people. We shallhear all the changes rung on thesearguments in the coming debates.

The second item in the Progressiveprogram calls for a sharp increasein the estate tax, and thethird, a necessary accompanimentof this increase in order to preventevasions, calls for restoration of thegift tax, which Secretary Mellonwas successful in having repealedin 1926. The present estate taxruns from a minimum of 1 per centto a maximum of 20, which is effectiveon amounts over $10,000,000.There is an exemption of $100,000before the tax begins to apply,and a credit up to 80 per cent ofthe Federal tax is allowed on accountof inheritance levies paid tothe states. Prior to the estate taxact of 1926, the maximum rate was40 per cent and the credit allowedfor payments to the states was only25 per cent.

Tax on Estates.

Secretary Mellon has been a constantadvocate of complete repealof the estate tax. In this positionhe had the warm support of PresidentCoolidge, who argued thatthe field of estate taxation was onethat belonged peculiarly to thestates. Coolidge also said that theGovernment should not "seek sociallegislation in the guise of taxation";that if we were going toadopt "socialism" we ought to presentthe issue to the people "associalism and not under the guiseof a law to collect revenue." Apparently,in this philosophy, it issound enough policy for the statesto adopt socialism, but unwise anddangerous for the Federal Governmentto do it.

Secretary Mellon is stronglyagainst the use of the estate taxas a social weapon. He says that"the social necessity of breakingup large fortunes in this countrydoes not exist"; that "in a fewgenerations any single large fortuneis split into many moderateinheritances."

As to that, let us see. Here aresome statistics read into the CongressionalRecord when the estatetax was under debate in 1926. JohnD. Rockefeller has given to hischildren $2,000,000,000. He has inhis own right (1924) $500,000,000and John D., Jr., has an incomeof $40,000,000 a year. Bear inmind that this was several yearsago; the fortunes named have materiallyincreased since then. ThePratt fortune, of Standard Oilorigin, grew from $10,000,000 toover $300,000,000 in 30 years. TheHarkness fortune, also from StandardOil, was less than $50,000,000when Stephen V. Harkness died. Ithas become more than $400,000,000.Meyer Guggenheim died in1905, leaving $50,000,000. He hadnine children. His estate increasedin 20 years to a sum sufficient, ifdivided, to give each of the childrenmore than the original whole.The fortune of Alexius du Pontwas $40,000,000. It was estimatedin 1926 that the 40 descendants inthe fourth and fifth generationswere each worth more than that.

Two Interesting Death Taxes.

Again, the argument is made thatthe estate tax constitutes a levy oncapital. The reply to this is thateven a fairly heavy tax can be liquidatedthrough annual paymentsfrom the income of the estate ifsufficient time is allowed. The estateof Harry Payne Whitney furnishesan illuminating case in point.Valued at $186,579,746 at the timeof his death in 1927, it paid deathtaxes to the Federal Governmentand the States of $22,179,274, or 12per cent of the value of the estate.Between 1927 and 1929, theestate increased in value by $52,721,270,or nearly two and a halftimes the amount of the death duties.

Secretary Mellon says thatwealth is invested in tax-exempt securitiesas a means of escaping taxation;he asks for a constitutionalamendment to close this loophole.If he is genuinely anxious to get atinvestments in tax-free securities,he can do so through a weapon immediatelyavailable, the estate tax.It is the only such weapon.

It is sald that the estate taxshould be left to the states. Thereply is that the only authoritywhich can levy the tax without discriminationis the Federal Government.

Views of Rich Men.

Proponents of the estate taxurge it frankly as a social weaponas well as a revenue producer. Ina message to Congress in 1906,Roosevelt advocated heavy deathduties, with the primary objectof putting "a constantiy increasingburden on the inheritance of thoseswollen fortunes which it is certainlyof no benefit to this countryto perpetuate." Andrew Carnegiewrote in his "Gospel of Wealth":"Of all forms of taxation, this seemsthe wisest. It is dificult to setbounds to the share of a rich man'sestate which should go at his deathto the public through the agency ofthe State." Prof. Thomas S. Adamsof Yale says that "we should raisefrom this source enough revenue tomeasurably relieve the farmers andthe general taxpayers," and Prof.Seligman of Columbia observes that"wherever we have democracy wehave two things—an income taxand an inheritance tax."

The case for the gift tax is adequatelysummed up by SenatorCouzens, when he says: "There isno logic in an estate tax when aman, through gifts in his lifetime,can evade the tax. The gift taxwould enable us to collect on transfersof property whether they weremade before or after the giver'sdeath."

VI.—Our general depression is homemade, and it is duefundamentally to the maldistribution of wealth.

There is now to be consideredthe general depression in theUnited States, to which theplight of the Government is due.

Let us note some of the stagesin our slow and painful progress,as a people, toward a realistic appraisalof the facts. As long agoas 1928, in the very midst of theboom times, when Coolidge wasstill President and John J. Raskobwas telling us that all we neededto do in order to get rich was toput our money in investment trusts,a few men raised their voices inwarning.

There was, for conspicuous example,the Very Rev. William R.Inge, the "gloomy dean" of St.Paul's, London, who wrote in hisnotable contribution to the fiftiethanniversary edition of the Post-Dispatch,in December, 1928: "Already,I believe, there are signsthat the law of diminishing returnsis beginning to operate, andproduction is only maintained atfull speed by frantic advertising.The advantages already won by theAmerican worker, such as hischeap car, his radio, and his bathroom,are solid and permanent;but the limits of 'consumptionism'—anugly word for which I amnot responsible—are probably notfar off."

Chorus of Reassurances.

The small minority who daredpreach this heresy were prophetswithout honor in the United States.Were not President Coolidge andSecretary Mellon assuring usthat we had come permanently intoa new and shining era? Was itnot proclaimed by the Schwabs, theInsulls and others that anybodywho "sold America short" wouldbe punished for his sins? Thetwin bubbles of industrial over-expansionand of stock marketspeculation continued to grow.When the market bubble burst inthe fall of 1929, the prophets ofcontinuing prosperity said thecollapse was merely a chasteningepisode in an orgy of gambling.There was no connection, they said,between the break and the conditionof the nation's business. Fromthe mimeograph machines of theadministration came a flood ofstatements, for months on end,that American industry was fundamentallysound.

When it became evident to theleast observant that something,after all, was wrong with industry—whenthe buying not only of jewelryand furs by the speculatorsbut of shoes and groceries by therest of the people began to fall off,and men were seen walking thestreets in search of work—whenthese things happened, the tunewas changed. It was admitted thatdepression had come to America,but this unhappy condition, it wassaid, was due to world-wide forcesover which we had no control.That the industrial captains of theUnited States could be at fault wasunthinkable. That we as a peoplecould be at fault was even moreunthinkable. We are caught, saidthe publicists, official and otherwise,in a net not of our own making.Along with this easy diagnosisran another—that the depressionwas largely psychological.Advertisem*nts were inserted in thenewspapers by various business organizationsexhorting the people toresume buying and promising thatif they did this prosperity wouldsoon come back.

Finding out the True Reasons.

Above a din compounded offacile explanations, of depressionblues and of happiness chorusesled by the Raskobs and the Dr.Julius Kleins, certain clear voicesof economists and of some of themore thoughtful industrial and politicalleaders began, in the springof 1931, to make themselves heard.Dissenting from the carefully propagandizedtheory of world-wide responsibilityfor the American depression,these men brought a newnote of realism and sincerity intothe discussion.

Dean Donham of Harvard, forone, sald in an interview publishedin the Post-Dispatch in May thatour economic troubles had been intensified,but not caused, by theworld depression. He said that ourrecovery was not necessarily dependentupon world recovery.Taking issue with the theory thatwe should seek a vast expansionof our export trade, Dean Donhamsaid the better course was to buildup purchasing power at home. Hepointed out that our export tradewas less than 10 per cent of ourtotal production; this indicated tohim that the domestic market alwayshad been our principal consumerand that we should look toit rather than to foreign marketsfor future expansion.

The views of the Harvard deanwere echoed presently, in anotherPost-Dispatch interview, by SenatorCouzens of Michigan, "Our depression,"he said, "would havecome whether there was a worlddepression or not. Why? Becausefor a long period before the crashour production had been outrunningour consumption. The workerswere producing more than theycould buy with the wages they received.Our predicament is primarilydue to the inequitable distributionof the earnings of industryas between capital and labor.I have not seen a single denial ofthat statement—even by the bankerswho are urging wage reductions."

Home Market Excels Foreign.

"Dean Donham," added the millionaireSenator, "is everlastinglyright. We've gone crazy on thesubject of exports. . . . Our manufacturershave the best market inthe world right at their doors, providingthey pay their workers sufficientwages to buy what theworkers produce."

Other distinguished experts couldbe called to the stand in supportof this diagnosis, but only onemore need be heard. This is PresidentHoover. We turn to hisspeech to the editors at Indianapolislast June. He was arguing, itis true, that world influences accountedin large degree for our depression,but on the subject of thepart played by the decline of ourexports this is what he said:

"Our average annual productionof movable goods before the depressionwas about $50,000,000,000.We exported yearly about five billions,or 10 per cent. The worlddisruption has temporarily reducedour exports to about three and one-halfbillions. In other words, theshrinkage of foreign trade by oneand one-half billions amounts toonly 2 or 3 per cent of our totalproductivity. Yet as a result ofall the adverse forces our productionhas been reduced by, roughly,ten or twelve billions. This sharpcontrast between a national shrinkageof, say, twelve billions, and aloss of one and one-half billionsfrom export trade is an indicationof the disarrangement of our owninternal production and consumptionentirely apart from that resultingfrom decreased salesabroad."

And in the same speech thePresident sald, in opposing a largebond issue for new public works,that "the remedy for economic depressionis not waste, but the creationand distribution of wealth."

(Black letters are the writer's.)

"Half Starved, Half Gorged."

It is not intended here to minimizethe importance of foreigntrade in our national economy. Ahealthy volume of exports is greatlyto be desired; to some businesses,it represents the margin betweenprofit and loss. The point is simplythat the shrinkage we have experiencedin a trade which consumes,at best, less than 10 percent of our total annual productionis only one factor, and a verysmall factor, in our depression.

We have reached, at last, a stagein our national thinking in whichit is being more and more widelyunderstood, and more and moregenerally proclaimed by thoughtfulleaders of opinion, that ourpresent depression is primarily ofour own making, and that the underlyingcause is the maldistributionof wealth. In terms less pungentbut meaning the same thing,an ever increasing number of upholdersof the capitalistic order,men of the type of Senator Couzensand Daniel Willard and the othersquoted in the introduction to thisarticle, are saying, with the picturesqueGov. Murray of Oklahoma,that "just as a nation could notlive half free and half slave, sothis republic cannot continue halfstarved and half gorged."

Middle Ground Beckons.

Looking abroad, these inquiringminds see two significant natonalexperiments. They see Soviet Russiaslowly retreating from its originallydeclared policy of pure communism;they see England (notwithstandingthe apparent checkgiven the movement by the lastelections) going steadily and withseemingly fixed intention awayfrom unrestricted capitalism. Theysee both these nations seeking atenable middle ground, and theyare asking whether the UnitedStates, in order to prevent a swingto the left, should not consciouslyturn its face toward the middle.

Men who are not afraid to questionthe wisdom of unrestrictedcapitalism—which is practicallywhat we have today—are the realconservators of our institutions.The real threat to them comes notfrom the handful of Communistsin our midst but from the conservativeextremists who are notwilling to yield an inch. There isvastly more danger to the establishedorder from the economicreactionaries in Congress thanthere is from the so-called radicals.

Why Millions Cannot Buy.

After the admission that our depressionwas home-made, it becamefashionable to attribute it to"over-production," and that word,together with "under-consumption,"still runs through public discussionof the problem. Both thesewords express only part of thetruth: they do not go to the rootcause of our troubles. That causecan only be found in the distributionof the national wealth, in asystem, or lack of system, whichpermits—to cite but one glaringresult—36 persons in the UnitedStates to receive an annual incomeaveraging nearly $10,000,000 each,or, in the aggregate, a greater incomeafter all the deductions allowedby law, than the sum of thewages paid to the 428,000 personsemployed in the manufacture ofcotton goods.

Under this system, only 2 percent of the people have incomeslarge enough to interest the Federaltax collector. The other 98per cent, obviously, have little orno share in the country's prosperity.Gov. Harry Woodring ofKansas in a Fourth of July speechcalled the depression a "panic ofplenty," and that is precisely whatit is. There is plenty of everythingin the country. The troubleis that the millions ofunemployed and under employedlack the means to buy whatthey could use—lack, in manythousands of cases, the means ofdecent subsistence. This is thereason for "under-consumption."

VII.—How the machine has accelerated the growth ofthis economic disease.

Some of the writers in the FiftiethAnniversary edition of thePost-Dispatch said the machineage, with its wholesale displacementof workers, did not really begin until1920. Why, then, did hot large-scaleunemployment begin at thesame time? The answer is, first,that large numbers of workers wereabsorbed by new industries, suchas those connected with radio transmissionand receiving sets; and, second,that the sales and advertisingdivisions of industry were enormouslyexpanded. Coincident withthe latter development was the introductionon a huge scale of personal-creditand time-payment salesplans. Dean Inge's reference to our"frantic advertising" has beennoted. This frantic campaign, plustime payments, enabled the producersto dispose of the output oftheir machines far longer thanwould otherwise have been possible.

What Stopped Sales Spree.

Sales would be booming todayif the credit manager, an obscurefellow usually stuck off in a darkcorner of the great offices, had notmade himself heard. One day,when the sales manager came inwith John Doe's paper for a newautomobile, a new electric icebox, anew radio or a new heaven-knows-what,the credit manager rebelled."I can't take any more of JohnDoe's paper," he sald. "I have abale of it now, and he is behind oninterest and principal." This wenton all over the country. It helpedto bring about the collapse of theinstallment business, which, ofcourse, was soon followed by thebreakdown of jobbing and manufacturing.

Whether, in the cosmic view ofthings, the machine is a blessingto mankind or a curse, is a questionfor the philosopher. It neednot detain us here. For the machine,whatever we may think ofit, is with us to stay, and our problemis so to readjust its effects asto minimize its evils and equitablydistribute its benefits.

The maldistribution of wealth isthe fundamental cause of our economicsickness. If we liken societyto a tree, we may say thatdisease has attacked the roots,causing the tree to give off, insteadof the luxuriant foliage of whichit is capable, the withered leavesof unemployment. The progress ofthis disease, this concentration ofvast wealth in a few hands, hasbeen greatly accelerated in the last10 years by the machine.

Real Beneficiaries of Machines.

The true function of the machineis to spread leisure, which is thehighest expression of wealth,through the whole mass of society.From this use it has been increasinglyperverted. Wealth has grownamazingly, and with it has grownthe possibility of the "good life"—leisurewith the means to enjoy it—foran ever widening circle ofworkers. The measure by whichwe have fallen short of this idealis the measure of the failure ofcapitalism as now organized. Howfar short we have fallen, the starkfigures testify. The wealth createdby the machine has gone, in appallingdisproportion, to the ownersof the machine. To the millionsof manual workers displacedby the machine, it has given notleisure with the means to enjoy it,but the evil twin of leisure, whichis idleness. The perversion of themachine from its proper use hasbrought about our present conditionof unemployment.

Capital as Grave Digger.

Realization of the close relationbetween unemployment and "purchasingpower" has been forcedupon the owners of the machine.They see a vicious circle nearingcompletion. They see the productsof the machine, which heretoforehave spelled ever increasingwealth, beginning to appear in partas dross. For no product of the ​machine has any real value untilit is put to use. It cannot be putto use until somebody buys it, andthe number of buyers has beenprogressively decreased by thegrowth of unemployment. Just asprofits increased during an earlierstage of the circle, so now theydecrease.

What is the remedy? How arewe to prevent the fulfillment ofMarx's prophecy, in the Communistmanifesto of 1848, that capitalismin the end will provide "its owngrave diggers?" In the opinion ofmany thoughtful observers, thereis only one possible answer: humangreed must curb itself or be curbed.There must be shorter work hours,so that all who need work mayfind it, and this change must beeffected not at the expense ofwages but, as Senator Couzens andothers have bluntly said, at tho expenseof profits. It is not merelythe wage scale that must be keptup but the amount of wages thata worker receives over the courseof a year. This is only anotherway of saying that what we need,fundamentally, is a broader distributionof the profits of industry.

Let us take for ilustration thecase of a pioneer farmer with foursons. They worked every availableminute to make a living for thefamily and a modest surplusagainst misfortune. When the firstmachine came in, enabling the fatherto carry on with two sons, hedid not turn the other two adrift.Father and sons all worked shorterhours and all enjoyed the virtuesof the machine and escaped itsevils. This is precisely what is beingproposed to industry today bythe advocates of shorter workhours. The owners of the machineare being asked to share more ofits benefits with the workers. Theoretically,if the present ratio ofdistribution of benefits is continued,the owners will find themselves, inthe final stage of the machine'sevolution, with great plants ontheir hands and nobody to buytheir products. The masses of thepeople, through the operation ofunemployment, will have starved todeath. With no "purchasing power"to give value to the machines, theywill be no better than junk, andthe owners will have to start grubbinga living out of the land. Capitalismwill then have provided itsown grave diggers.

When Wages Lagged.

It is sometimes argued that laborhas nothing to complain of, sincelabor in the flush days before thedepression was highly rewarded.However large was the proportionof profits taken by capital, runsthis contention, labor also got afull share of benefits. Therefore,it is said, Iabor can have no justgrievance now if its wages are cut.This is the typical banking argumentfor the reduction of wages.

There has been no better answerto this specious line of reasoningthan that given by Senator Couzensin the interview to which we havereferred. "Notwithstanding thegeneral assumption that wageswere high," he said, "all availablestatistics show that during theyears preceding the depression theincrease in productivity per manwas greater than the increase inwages. In other words, althoughthe worker got more money, heproduced still more goods. Somebodygot the difference, and we allknow who it was. The strangething is that the fellows who got itcouldn't see that they were spoilingthelr own game."

Some Comparative Figures.

There are, as Senator Couzenssays, ample figures to prove hispoint. William Green, president ofthe American Federation of labor.gave some of them in a speech beforethe Progressive Conference inWashington last spring. Between1919 and 1929, he showed, the productivityof industry in the UnitedStates increased 50 per cent, whilereal wages paid the workers increasedonly 27.5 per cent. He challengedany economist to tell himhow the country could continue onthat ratio and still consume theproducts of industry.

He gave some other illuminatingstatistics. In 1899, the value ofgoods produced in the United Stateswas $11,406,927,000. The wage billwas $2,808,361,000. Labor, that is,got 17.5 per cent of the value ofthe goods produced. In 1929, thisvalue rose to $69,417,516,000 andthe amount paid in wages rose to$11,421,631,000. The percentage ofwages to the value of goods was16.5, or less than it was in 1899.

VIII.—The wages of capital and the wages of labor—Thebalance between consumption and productioncan only be restored at the expense of dividends.

If the views of all those discussingthe subject are distilledwe find that they are in agreementas to the condition prevailingin the country today—relativeoverproduction and lack of purchasingpower. This situation maybe more accurately stated as themaldistribution of wealth, the primarycause of which is the disproportionbetween the wages of capitaland the wages of labor. Asthis disproportion grows, it tendsto aggravate overproduction, forthe gains of capital are constantlybeing thrown into new industry andbusiness in order to produce morecapital. Thus the bubble of overexpandedindustry is blown up tillit breaks. From whatever anglewe approach the problem, we areled inevitably to the conclusionthat we cannot hope to prevent therecurring crises in the business"cycle" unless we are willing toattack the basic cause of the trouble.Any cure which does notprobe to the bottom can have buttemporary value.

The "Cut" of Capital.

At the risk of repetition, theproblem may be restated in termsof the labor hour. This is thefoundation on which rests the creationof wealth. A man is able ina work day to create wealth eguivalentto his necessaries for subsistenceand something over. Theemployer gets together a numberof laborers and receives all or partof this surplus for himself. Hisincome is in proportion to thenumber of human labor hourswhich he controls and out of whichhe makes his profit. If the employerinstalls a machine which enablesone man to produce in eight hours,let us say, the equivalent of 80human labor hours, then the employeris in the same position withrespect to income as if he had 10men instead of one working forhim.

Now the vital difference betweenthe wages of capital and the waresof labor is this: The labor houronce expended is non-existent, butthe product of the labor hourturned over to the employer andby him exchanged for capital goeson working forever. That is, theworkman's labor hour does itsshare in supporting his life for aday and then expires. The employertakes his profits and investsthem, and thereafter for therest of his life, and the lives ofhis heirs and assigns forever, theseprofits are capable of working andproducing more profits for whoevercontrols them.

Of course it will be objected thatthis is too simple a statement ofthe case, but fundamentally it tellsthe story. It will be objected, forone thing, that the laborer by thriftand industry can save money andgraduate into the capitalist class.This is true, but only to a verysmall degree. And if everybodycould become rich and retire tolive on his profits, the whole capitalisticstructure would collapsewhen the last worker laid downhis tools. Why is this? Because asstated, only labor can createwealth, and enough labor must bein operation all the time to createthe wealth—the goods—needed byall the people.

Production and Consumption.

Dropping fancies and consideringonly prospective realities, wesee that a balance must be maintainedbetween production andconsumption. This, again, is apoint on which all the debaters arein agreement. At this time, productionexceeds consumption. Obviously,balance can be re-establishedor approximated, since thereare only two factors in the problem,by subtracting from one andadding to the other. In practice,consumption, or purchasing power,must be maintained on the level ofproduction, which latter can becontrolled and stabilized by a progressivedecrease in the numberof labor hours as invention and improvementsincrease the output perlabor hour. But this remedy willbe effective to maintain purchasingpower on a level with productiononly if wages are kept on a levelthat will give the worker, per year,a sufficient income for his reasonableneeds. And this, as we haveshown, can only be done at theexpense of dividends.

IX.—The issue is drawn between labor and capital—Solutionof the problem rests primarily with industryand not with the Government.

Within the last few weeks theissue has been clearly drawnbetween labor and capital. Wesee it crystallized in two statements—thatof the American Federationof Labor at its Vancouverconvention, and that of a specialcommittee of the Chamber ofCommerce of the United States.

In demanding the five-day weekin industry, the federation adoptsthe slogan of "work for all."Through its spokesman, PresidentGreen, it says: "Labor will nolonger subscribe to the doctrinethat work and relief must be conferred;it now holds that the rightto work is fundamental and is assacred as the right to enjoy freedom,life, liberty and happiness."(Black letters are the writer's.)

This is radically new doctrine.In our Constitution, grounded as itis in property rights, nothing issaid of the right to work; to thecontrary, there are the fifth andfourteenth amendments, construedby the Supreme Court to cover awide area, with their inhibitionsagainst the taking of private propertysave by "due process of law."The question therefore arises: Canthe Government under the Constitutioncompel private industry,through the five-day week, to reduceits share of the benefits ofthe machine?

Work Days and Constitution.

It has been held in numerouscases that efforts of state regulatorycommissions to fix a lowerreturn for public utilities than a"fair" return as defined by thecourts were attempts at "confiscation."If the five-day week meansanything, it means the five-dayweek without a cutting of theweekly wage. The American Federationdoes not say this, but it isimplicit in the demand for shorterwork hours. Anything else wouldbe a mere palliative; it would notrestore the balance between productionand purchasing power thatwe have seen to be essential. Thisbalance can only be restored andmaintained at the expense of theprofits of capital. Hence the five-dayweek, with its necessary concomitantin lower profits, wouldbe an apparent invasion of propertyrights; in the meaning of thelaw it would be "confiscatory," andthe courts, bound by the rules laiddown by the Constitution, in allprobability, would so hold.

It may be contended that theSupreme Court's favorable decisionon the Adamson Act of 1916, whichgave the eight-hour day to railroadworkers, warrants a different conclusion.But it must be rememberedthat the railroads are not onthe same footing as industry ingeneral. The business of the railroads,as the Court has repeatedlysaid, is charged with a public interest,and the right of Congressto regulate them under the interstatecommerce clause of the Constitutionis beyond dispute. TheAdamson law was rushed throughCongress to meet the threat of ageneral railroad strike, and whileit fixed the eight-hour day standardpermanently, it fixed wagesonly for a limited term of months,to bridge the gap until the contendingparties could arrive at awage standard of their own.

Wages Private Matter.

The Court held that the powerof Congress to establish an eight-hourday on the railroads did notbeget the power to fix wages. "Theright to fix by agreement betweenthe carrier and its employes astandard of wages to control theirrelations," said the Court, "is primarilyprivate." Notwithstandingthe narrow application of the law,four of the nine Justices of theSupreme Court—Day, Pitney, Vandevanterand McReynoids, the lattertwo of whom are still on thebench—dissented from the majorityfinding on the ground that theact was an unconstitutional invasionof property rights.

Whether we like it or not, theconclusion must be that through noorderly political process short ofamendment of the Constitution canwe reasonably expect the Governmentto effect redistribution ofwealth through the device of shorterwork hours at a maintainedwage.

The problem of restoring the balancebetween production and purchasingpower is primarily theproblem of industry itself. OurGovernment, as we shall show,cannot be absolved of responsibility;there is, indeed, a heavy burdenof responsibility upon it; butit rests with industry to do thethings most needful to be done ifthe disease at the root of the treeis to be cured. Will industry actto save itself? Will it curb thethirst for more profits that in thefinal analysis is the cause of ourdepression?

"The business leaders of thecountry," says Senator Couzens,"have the ability to solve the problemsof the depression. The troubleis that they personally havenot been hurt. True, their profitshave fallen off, but they are livingjust as comfortably as they were.Let them face actual deprivationof the sort that the workers areundergoing, and they would puttheir heads together and pull thecountry out of this slump. DanWillard told the truth when hesaid that what they lack is thewill to do."

At least to a very large degree,industry could "adjust productionto consumption" without Governmentintervention or any centralplanning board if it were so disposed.The control of the situationis in a remarkably few hands. Asshown in a recent article in theAmerican Economic Review, 200corporations with fewer then 2000directors control 35 to 45 per centof the business wealth of the UnitedStates (excluding from businesswealth that of the Government, agricultureand the professions), andthese corporations are growingthree times as fast as 300,000 smallercorporations.

What Industry Might Do.

Great industrial organizationscould do what the crossroads merchantdoes—provide seasonally forthe demand which experience hastold him is to be expected. Instead,industry has followed thepolicy of steaming up productionto the highest possible speed andthen telling the sales manager togo out and sell the stuff. As wehave seen, the great business peakof 1929 was made possible, in part,by the new market created by timepayments and "frantic" advertising,and the collapse came wheneven that rich new market becamequickly oversupplied. What haskept industry from putting on thebrakes is, of course, the desire forlarger and larger dividends.

Parenthetically, an interestingcontrast between industrial conditionshere and in France may benoted. The United States lives onthe future and France on the past.That is to say, American industryis so overexpanded that it existslargely upon sales which can onlybe paid for out of the future earningsof the mass of the people.

French industry does businesslargely on a cash basis. TheFrench pay for what they buy todaywith the savings of yesterday,and, as Mark Seguin, French Consulin St. Louis, said recently in aradio speech, French industrynever expands in anticipation ofincreased demand, nor does it domuch to stimulate demand. It followsthe conservative policy ofmeeting current demand and reallyprefers that demand should exceedsupply.

Modified Fascism.

In contrast with labor's manifestoare such proposals as thoseof the Chamber of Commerce andGerard Swope, both of which lookto a kind of fascism. Schemes ofthis sort would set up a businessdictatorship with the Governmentas a benevolent overlord. Theywould require the scrapping of theantitrust laws, which are designedto protect the people against extortion,and the substitution of lawsdesigned primarily to protect businessfrom slumps. The welfare ofthe people, in this new philosophy,would be subordinated to the welfareof business. Mergers and combinations,on a scale ever moregrandiose, would be the fount fromwhich all blessings would flow. Ifthis, as some say, is the destinednext development of the machineage, it is well that we should recognizeit frankly for what it is—thenegation of our boasted individualism—andnot let ourselves be takenin by the delusive terminology ofthe big-business propagandists. Weshould see that what is proposedis the Soviet Russian system, exceptthat the profits which therego to the state would here be in thehands of private business.

In none of the "stabilization"plans put forward by business isit conceded that the "right towork," as asserted by labor, isfundamental and sacred. TheChamber of Commerce, it is true,urges that work be "rotated" duringthe present emergency in orderthat employment may be spreadamong "the largest possible numberof employes in accordance withtheir needs." But this falls a longwhy short of accepting labor'sthesis. It is, in fact, a restatementof the doctrine of "conferred workand relief" to which labor specificallyobjects.

X.—But there are certain important things the Governmentcan do—A possible program, covering taxation,the tariff (with a note on the plight of thefarmer), the public utilities, the five-day weekfor Federal employes, prohibition, our part inworld affairs.

We come now to the importantquestion of what the Government,within the frameworkof the Constitution, can do towardending our "panic of plenty" andpreventing the recurrence of similarconditions in the future. Whatis the answer to the unthinkingwho cry out, at the appearance ofeach new symptom of a basic economicdisorder, "Let the Governmentact?"

The question is not what mightbe done under a dictatorship,either of the proletariat as in Russiaor a fascism as in Italy, butwhat can be done now, or in thenot astronomical future, in theUnited States. Even the experienceof Great Britain, in its gropingfor a tenable middle groundbetween communism and unregulatedcapitalism, provides but apartial analogy. For the Britishgovernmental system, in contrastwith the rigidity imposed by ourConstitution (the "rat trap rigidity,"as Winston Churchill hascalled it), is highly flexible. TheBritish Government can movequickly through orders in council,and new public questions, arisingunexpectedly, can be submitted tothe people and decided by themat the polls within a few weeks.British political leaders, moreover,appear to have moved farther thanours toward acceptance of theview that politics is "concentratedeconomics." They are willing tomake temporary changes, as in thematter of the tariff, to meetemergencies, whereas Americanpoliticians tend to be hideboundin devotion to historic concepts ofnational policy.

Sources of Great Wealth.

It may be laid down as fundamental,before we proceed to anexamination of specific remedies,that in the United States there arefour great sources of wealth andincome whose relation to the generalpublic differs from that of othersources. These are: (1) naturalresources, such as oil, mineralsand water power; (2) transportation—therailroads; (3) other publicutilities; (4) tariff-protectedmanufactures. There is here, ofcourse, a certain degree of overlapping,but roughly the classificationwill stand. The reasonwhy these sources of wealth differfrom the others is that the government,in one way or another, intervenesin their affairs. It is possiblewithin the space limits of thisdiscussion to state only briefly thenature of this intervention. TheGovernment permits (1) the exploitationfor private gain of resourcesthat belong naturally to thewhole people. It undertakes (2 and3) to assure a "fair" rate of returnnot only upon actual money investmentbut also upon values donated(as in the case of land grants tothe railroads) or created by thepeople. And to certain manufacturers(4) it grants a tariff far inexcess of any rates conceivablyneeded for "protection"; this tariffis a subsidy which the public paysfor the benefit of a favored few.

Now if these four sources yielda considerable proportion of theincome of the country—as they do—itfollows that the withdrawal ofGovernment intervention on theirbehalf, or its modification or employmentin a different direction,would affect the distribution ofwealth favorably to the generalpublic.

We are confronted with an enormousparadox: The spectacle of theGovernment intervening with itsanti-trust laws (which it is now beingbesought to modify or repeal)for the protection of the manyagainst a predatory few, and, onthe other hand, intervening withthe high tariff laws for the benefitof a few at the expense of themany.

The Simple Sometimes Complex.

Obviously, then, there are measuresby which the Government,notwithstanding its constitutionallimitations, can materially influencethe flow of wealth. And by thiswe do not mean the picayunishthings that are sometimes urgedupon it as cure-alls by those whomistake the symptom for the disease,or confuse the Government'sdepression with the general depression,or merely feel that the Government"ought to do something."If the administration cuts expenses,there may be a bad effectupon business and individuals. Ifit buys less paper, for example, thepaper industry is hurt; and if itlays off clerks, unemployment isincreased, individuals suffer andbusiness generally is adversely affectedthrough the resultant decreaseof "purchasing power."Things of this sort are merely robbingPeter to pay Paul.

We have recently seen the quandaryin which the Interstate CommerceCommission found itselfwhen the railroads asked for ageneral 15 per cent freight rateincrease. The commission desiredto help the railroads out of theirundoubtedly serious predicament,but it could only do so, as soonbecame evident from its hearings,at the expense of other industries,especially agriculture, which iseven worse off than the railroads.

Again, it has been proposed thatthe Government engage in a greatpublic works building program, ata cost of three to five billion dollars,in order to aid general industryand provide employment.Economists are divided on thisproposal. Some of them, includingmen of distinction in theirfield, believe that such a programwould be appreciably helpful inlifting us out of the depression.But it would be, at best, a palliative,and it would immediately increasethe operating costs of theGovernment, the excess of whichover its income is the cause ofwhat we have called the Government'sdepression.

First, the Tax Law.

What remedial measures of permanentvalue are open to the Government?

First, as already has been pointedout, the Government could helpto check the drift of wealth into afew hands and at the same timeobtain needed revenue for itself, byimposing heavy surtaxes on greatfortunes, increasing death dutiesand reinstalling the gift tax. Itcould tax swollen individual incomesto such a point as almostto remove the incentive for pilingup vast personal fortunes, a conditionwhich has been approximatedin the Scandinavian countries.

Second, it could reduce the tariffto schedules sufficient only to protectAmerican business and Americanjobs from immediate destructivecompetition. The classic argumentof the protectionists is thata high tariff is necessary to themaintenance of high wages. Thisis untrue. Wages are high in theUnited States, as compared withEurope, not because of our tariffwall, but because of the greaterproductivity of American labor, oursuperior manufacturing techniqueand our vastly greater natural resources.Reduction in the tariffwould be reflected in lower pricesto the consumer. It would be ofparticular benefit to the farmer,part of whose plight is due to thefact that he must buy in a protectedand sell, by reason of the nature ofhis product, in an unprotected market.The resultant disparity inprices has long been an importantfactor in his depression. Reductionin the tariff would operate againstthe concentration of wealth, whichhas brought about the present overexpansionof industry and its consequentstagnation.

Help From Lower Tariffs.

Lowering of the tariff would hurtonly a minute fraction of the people,and they would be hurt onlyto the extent of their excess profitsabove a reasonable return on investment.According to the estimateof the late Joseph S. McCoy,actuary of the Treasury, there areonly about 3,300,000 individualstockholders in the United States,and the Post-Dispatch has shown(in an article Oct. 13, 1929) thatnot more than one-tenth of theseare in tariff-protected corporations.They are the only persons whowould suffer any direct loss froma downward revision of the tariffto a reasonable basis. Since theenactment of the Hawley-Smootbill—enacted by Congress andsigned by the President in plainviolation of the President's call fora sharply "limited" revision—thereprisals of foreign nations haveadded new weight to the demandfor lower duties. No one can doubtthat the Hawley-Smoot law (whichSenator Watson of Indiana saldwould bring back prosperity in30 days!) has played a leading partin the strangulation of worldtrade and in driving Great Britainto reconsider its historic free tradepolicy.

Not only the congenital advocatesof low schedules but powerfulleaders in big business, includingThomas W. Lamont, a partner inJ. P. Morgan & Co., are demandinga revision. A characteristicview is that of Dr. B. M. Anderson,economist, in a bulletin issuedby the Chase National Bank ofNew York. "American labor," hesays, "has nothing to fear andeverything to gain, by and large,from a lowering of the tariffs inthe United States. I propose sucha reduction as will avoid a furtherdrift of population from countryto city, and further abandonmentof farms. I propose a reductionnot in the interest of readjustmentand change, but in the interest ofstability."

Why Farmers Would Benefit.

Since the tariff bears so intimatelyupon the farm problem,this is as good a place as any tomention the particular depressionof agriculture. There is space foronly a bare outline of that tragicstory. The farmer has had depressionwith him for a decade.In that time his land values haveshrunk from $66,000,000,000 to$48,000,000,000, his income hasdeclined from $12,000,000,000 to$9,500,000,000, and his taxes haveincreased 172 per cent. In thefive years from 1926 to 1930, inclusive,682,850 farms, or morethan one-tenth of the number inthe United States, were lost to theirowners through forced sales. Theeconomic distress of the farmer isclosely bound up with the generalcondition of the country. TheChamber of Commerce is withinconservative bounds when it says:"This country cannot be permanentlyprosperous until it has areasonably prosperous agriculturalpopulation. Ten million workersand 30,000,000 people are dependentupon the farm for their support.A large proportion, perhapsthe majority, are receiving meagerreturn for long and arduous labor."

Public Utilities.

Coming back to the matter ofspecific weapons which the Governmenthas power to invokeagainst the increasing concentrationof wealth, we reach, third, theprivately owned public utilities."Judicial orders and decrees," asSamuel Untermyer has said, havea deadly handicap on theregulation of public utilities byState commissions. If these utilitieswere publicly owned, the advocatesof that policy argue, hugesums in profits would be divertedfrom the few hands into which theyhave been made to flow throughthe device of the holding companies.Profits could be distributedto the public through reductionin rates, or decreased taxes.

Congress has twice proposedGovernment operation of the MuscleShoals power plant, only to haveits action meet two presidentialvetoes.

Dr. Coffman, president of theUniversity of Minnesota, has saidthat "the chief weakness of a democraticpeople is its unwillingnessor its inability to set up remotegoals and to strive to attain them."If it wishes, the Government canset up the goal, remote or otherwise,of complete Government ownershipof the railroads. The Governmentcould take over the railroadswith the proceeds of a long-termbond issue, cut out the wasteand duplication in the presentservice, and charge rates sufficientto pay whatever net revenueon the investment it might decideupon. It is for the people, throughtheir representatives, to say whetherthis shall be done.

Shorter Week Possibilities.

Fourth, the Government couldmake itself a model employer byestablishing the five-day week forFederal employees without changeof pay. Just as the Adamson lawbecame a great weapon of persuasionin the hands of organized labor,so this reduction of workinghours without reduction of pay bythe Federal Government wouldhave a progressive influence in privateindustry. Bills for the five-dayweek in the Federal servicewill be introduced in the comingsession of Congress.

Fifth, the Government could repealprohibition. It is unnecessaryhere to review the arguments forand against prohibition. Repealwould increase the revenue of theGovernment, decrease its expensesand aid general business and employmentto some extent. In abusiness way, the principal if notthe sole sufferer from repeal wouldbe the bootleg traffic.

League of Nations.

Sixth, the Government couldpromote international stability, andthereby contribute to the improvementof general conditions athome, by joining the League of Nations.Former Premier Baldwinof Great Britain, with theguarded speech which marks thepublic utterances of British statesmenon the subject, said at a greatpeace meeting in London last summer:"It is not for us to cajole oradvise the United States to get intothe League of Nations, yet I tellyou that every international problemsince the Versailles Treaty hasbeen made imponderably more difficultbecause of the absence of theUnited States from the League."

We have seen what are the costsof war to the American people.The expenditures of the other greatnations are on a similar or largerscale. As President Hoover recentlytold the International Chamberof Commerce, five and a half millionmen are actively under armsin the world today and 20,000,000more are in reserves. The worldis spending on armaments the colossalsum of $5,000,000,000 annually.Some progress has beenmade toward decrease in naval disarmamentsince the war, but notmuch.

Prospects of Disarmament.

There is to be held at Genevanext February, under the auspicesof the League of Nations, the firstgeneral disarmament conference. Itwill deal with the land, sea and airarmaments of all the nations. Thealternative to the success of thisfateful conference, Viscount Cecilhas said, "is too sinister for anyman or woman of good sense andgood will to contemplate." In theview of official Washington, theoutlook for success is not bright.Can anyone doubt that it would beimmeasurably better if the UnitedStates were in the League and notout of it?

France demands additional treaty"security" before she will consentto any material reduction in herarmament. This we have declinedto grant. We have even refusedto enter into a mild pact callingfor "consultation" if war threatensin the Atlantic. France's demandis the great stumbling block in theway of success at Geneva. Thereis ground for her thesis. We mayfeel that ours is the better one—thatsecurity will follow reductionof armament—but we have got toadmit the logic in the French position.There would be no logic init if we were a member of theleague.

If the United States, richest andstrongest of the nations, were inthe league, Article XVI of the covenant—thesanctions article—wouldmean something. As it is, the articlehas small virtue, perhapsnone. Certainly the members of theleague will hesitate to coerce acovenant-breaking state so long asthe United States remains on theoutside. This was plainly shown ina memorandum of the British Governmentin 1925, in which it wasstated that any effort to enforcesanctions would put upon Britainthe responsibility of cutting maritimecommunications between theoffending nation and the UnitedStates. In view of the historicAmerican doctrine of the freedomof the seas, this course would involvea risk of conflict with theUnited States which the BritishGovernment, said its memorandum,did not care to assume.

Bound to Be Involved.

The international police clubplaced in the covenant by ArticleXVI was in effect taken out of itwhen the United States refused tojoin the league. But the chances ofour being drawn into war have notbeen reduced. We have a finger inevery big financial pie in the world,and because of this fact we standalert at the drum beats of war inany region.

We seek to use the league, as inthe present Manchurian crisis,when it suits our convenience todo so. Should we not, then, accepta share of its responsibilities? Onething is certain: if another worldcataclysm comes, our aloofnessfrom the league will not make usimmune. Everything else aside,our purse strings have tied us, evenmore inescapably than in 1917, tothe rest of the world. The warchanged us from a debtor to acreditor nation. Our stake abroadhas gone up by great leaps; at theend of 1930 it stood at $17,500,000,000,exclusive of the war debts.Enlightened self-interest shouldtake us into the league.

War Debts a Trading Point.

What of the war debts? A growingbody of opinion holds we couldwell afford to trade them off forthe armament reduction that wouldbe made possible by our entranceinto the league. The sum of thembulks large, but the annual paymentsto us are only 6 per centof our normal budget. The savingto us in armament costs would offsetthe loss of these payments.Cancellation of the debts, with areciprocal cut in German reparationsby the former Allies, wouldhasten the economic recovery ofGermany and the world. If, by thesame means, we should effect ameasurable reduction of armamentsthroughout the world, which reductionwould be reflected in lowergovernment costs and lower taxes,the total result would make theprice, by comparison, infinitesimallysmall.

To say with Mr. Coolidge, of ourdebtors, that "they hired the money"and must pay it back is to ignorethe plain facts. We are notgoing to war to collect the debts.Nicholas Murray Butler has said:"You might just as well try tomake somebody pay the cost of thesunset as to pay the cost of thewar. It cannot be done."

Anything we might buy with thedebts in the way of world peaceor prosperity would be clear gain.Unquestionably, the debts have atrading value.

XI.—Conclusion: Conceivably we can usher in a newprosperity through a readjustment of the distributionof the benefits of the machine—Amendmentof men's economic and social ideals is the greatneed.

Restoration of world prosperitywould help us, but therewould remain the great underlyingproblem that this articlehas sought to outline: the problemof how to bring about the readjustmentmade necessary by the concentrationof too great wealth, withthe aid of the machine, in comparativelyfew hands. Is the machineto be the servant or the masterof the people? This is a questionthat each nation must answerfor itself.

Through a shorter work weekwithout reduced pay, conceivablywe in the United Statescould so diffuse the benefits of themachine among the people that"purchasing power" would bebrought back to the productionlevel and the nation set on the wayto a new prosperity—a healthierprosperity than that of the vauntedCoolidge era. This, as we haveshown, can only be done throughthe voluntary or enforced renunciationof excessive profits. The alternativeis public or private relief, orboth, for the workers displaced bythe machine.

Justice Brandeis once said: "Insteadof amending the Constitution,I would amend men's economic andsocial ideals." And that, whateverelse we may do or try to do, clearlymust be accomplished if we are tosolve the problem of the great depression.