THE CONSEQUENCES OF WORLD WAR 2

A LITTLE more can now (July, 1946) be added to what was said in the last section about the effects of the war on the social structure of our epoch and on the position and prospects of orthodox (i.e. non-Communist) socialist groups. It was obvious in July, 1942, that, whatever the fate of particular socialist groups, there would be another great stride toward the socialist order, and that this time the stride would be taken also in the United States. It was also clear that the fortunes of existing socialist groups would depend on the duration and outcome of the war. It was finally suggested that, in the event of a complete victory (implying unconditional surrender for the enemy) of the Anglo-American-Russian alliance, the results for orthodox socialism would differ according to whether Stalin emerged as the true victor or whether all the honors were held by England and the United States. In the latter eventuality orthodox socialism of the German Social Democratic type or laborism of the English type would stand a good chance to improve their position on the continent of Europe.

Stalin has emerged master of eastern Europe. England and the United States are struggling to maintain some influence in central and western Europe. The fortunes of socialist and communist parties reflect these conditions. But there is another element that may substantially affect the social situation all over the world, namely, economic developments in the United States which may possibly tell in favor of the capitalist order. This chapter will therefore deal, first, with the position of orthodox socialism and laborism and in particular with the English situation; second, with the possible effects of conspicuous industrial success in the United States; third, with the possible effects of Russia’s political success. Our argument thus divides up naturally into three parts, namely

I England and Orthodox Socialism II Economic Possibilities in the United States III Russian Imperialism and Communism The Consequences of the Second World War 377

I ENGLAND AND O RTHODOX S OCIALISM

Many facts go to show that, irrespective of the Russian element in the case, the effects of the Second World War on the social situation in Europe would have been similar to those of the First World War, only stronger. That is to say, we should have witnessed acceleration of the existing trend toward a socialist organization of production in the sense defined in this book. The most important of those facts is the success of the English Labour party. As has been pointed out in the last chapter, this success was to be expected and should not have surprised anybody. Nor was it more complete than we should have expected.

Owing to the English electoral system, the actual redistribution of seats is apt to give an exaggerated picture. There were about twelve million labor votes against about ten million conservative votes. The days of liberalism are over, of course, but even the surviving dozen of liberal members represent more votes than do seventy- two Labour members taken at random. In other words, under a system of proportional representation, the Labour party would not have gained a parliamentary majority over Conservatives and Liberals combined though a Labour-Liberal coalition would have enjoyed a comfortable margin. The very rationale of the English electoral system is to produce strong governments and to avoid deadlocks. This is what it has done in this case. But the national situation as distinguished from the parliamentary one is, nevertheless, not a matter of indifference for an estimate of what is and what is not, politically possible. The obvious inference is strengthened by the fact that the groups to the left of the official Labour party failed conspicuously to improve their parliamentary position: the Independent Labour party just retained its three seats and the Commonwealth plus the Communist parties lost one of the four they previously held. In view of the many reasons there were to expect “radicalization,” this is truly remarkable and a striking proof of England’s political maturity. This situation is bound to assert itself. In fact it has done so already, both in the complexion of the Cabinet and in the measures taken or foreshadowed. The reader is asked to read again what has been written in this book under the heading of Socialist Policy before the Act (Chapter XIX, section IV). He will observe, first, that all the Labor government does, or is proposing to do, is in the spirit and on the principles of the program there outlined; and, second, that actual practice does not go nearly as far. The nationalization of the Bank of England, in particular, is a highly significant symbol and may therefore stand out as a historical landmark. But its practical importance may well be equated to zero: the bank has been practically a department of the Treasury ever since 1914 and under modern conditions no central bank can be anything else. And such things as the coal measure or full-employment legislation are hardly controversial any more—in England. The way in which the Labor government deals or is likely to deal with them will presumably command all but universal consent. Tournaments on questions of fundamental principle will no doubt enliven the serious work; but not because these questions or the differences about them are so very important but because governments and parliaments cannot live without them. All this is as it should be. No doubt it is once more a case of administering capitalism but, both because of the war and the lapse of time, this will be done with clearer purpose and a firmer hand than before and with ultimate liquidation of private enterprise more clearly in view. Three points deserve, however, particular attention. First, it is precisely this almost ideal conformity of political action to the data of the social and economic situation which is so important and, from the standpoint of private-property society, so dangerous. Whatever intellectual extremists might say—and, of course, the attitude of the Labour government makes business for them—the stride toward a socialist England will be the more substantial because there is so little nonsense about it. Steps so responsibly taken will not have to be retraced. Barring upsets from outside, social, political and economic disaster may be successfully avoided. If the government succeeds in keeping to its line, it will fulfill exactly the task that lies between the tasks of laborite governments without power (such as McDonald’s were, see above Chapter XXVII, section IV) and the tasks of laborite governments of the future whose parliamentary majority will be paralleled by a majority of the electorate. This is the only hope for democratic socialism. Such hope as there is for it on the continent of Europe is, of course, somewhat strengthened by the English paradigma.

Second, we have noticed in the preceding chapter that the earlier socialist thinkers never foresaw, and could not have been expected to foresee, a situation in which political power would be thrust upon labor and in which the bourgeois victim would turn to it for protection. We have also noticed another thing they did not and could not foresee, namely, the extent to which it would prove possible to expropriate the bourgeois structure, without formally destroying the legal framework of the capitalist order and by such unrevolutionary methods as taxation and wage policies. War taxation and war controls certainly cannot be fully maintained. But retreat from them may be brought to a halt at a line at which some of the most popular items of the socialist program are automatically fulfilled. Equalization of incomes after taxes is already carried so far as to impair the efficiency, to use the Russian phrase, of “specialists” such as physicians or engineers. This is indeed done by means of a clumsy and costly apparatus and The Consequences of the Second World War 379 it may before long occur to people that it might be better to limit incomes paid out to what direct taxes leave of them instead of paying out what has to be recovered again. In any case, however, the orange to be squeezed, and with it much radical rhetoric, is apt to run dry.

Third, suppose that in the next election labor improves upon its present position and gains the support of a substantial majority of the electorate, what is the government to do? They may go a little further in the direction of equalizing incomes; they may improve social services, on Beveridge-Plan and other lines, a little beyond what any government would do; they may go considerably further in socializing industries. But none of this will be easy going. We have seen that, in the conditions of modern England, there is little purely economic objection to a large measure of socialization. Nor is bourgeois resistance likely to prove a serious obstacle; England depends on her industrialists’ work much more than did Russia in 1917, but unless they are unnecessarily antagonized their co-operation may be secured. Nor, finally, need we attach much importance to the argument that appeals so much to more ardent votaries of socialization, viz., that the cabinet system is not adequate to the task of carrying socialization: intellectuals who delight in the vision of dictatorial methods may indeed doubt its efficiency; but it is the only system that is available for carrying socialization democratically—the actual administration of the socialized industries will of course require semi-autonomous organs with which cabinets would have to co-operate as they do, say, with the general staff, of their armies. But the real problem is labor. Unless socialization is to spell economic breakdown, a socializing government cannot possibly tolerate present trade-union practice. The most irresponsible of politicians would, in the case envisaged, have to face the basic problem of modern society that only Russia has solved, the problem of industrial discipline. A government that means to socialize to any great extent, will have to socialize trade unions. And, as things actually are, labor is of all things the most difficult to socialize. Not that the problem is insoluble. In England, the chances for successful solution by the political method of democracy are greater than they are anywhere else. But the road to solution may be tortuous and long.

Except for the Russian element, the political situation on the continent of Europe is essentially similar. Where there is a free choice, we observe a strong tendency for the masses to keep or revert to their allegiance to either social- democratic or else to Catholic parties. The most obvious instances are the Scandinavian countries. But a similar trend may be discerned even in Germany, and it is safe to assert that if she were free and uninfluenced, something very like the Weimar Republic would emerge from all the present misery.

Though the evidence to this effect is in part invalidated by the favor shown to the Social Democrats by the English and American authorities, it is strengthened by the fact that the Russian authority also permitted reconstruction of a Social Democratic organization in its zone. Impossible political and economic conditions, irrationally imposed upon the German people, will of course discredit the laborite governments and annihilate their chances, such as they are, of establishing themselves. But still, if for the sake of a mental experiment we choose to neglect the Russian element of the case and if we further choose to postulate that the United States and England act toward Germany in the manner dictated alike by common decency and common sense, this would be the general diagnosis and prognosis to adopt. A similar prognosis suggests itself for other countries though with various qualifications: laborite régimes—in Catholic countries more often than not in coalition with Catholic parties—with home- grown and not too important communist groups to the left of them and a policy more advanced than was that of the twenty’s but still on the same lines, with all this implies, economically, politically and culturally.

The little example of Austria is instructive. The Christian Socialists (Catholic party, comprising the conservative elements) came off well, the Communists did badly, the Social Democrats just about regained their old position, with most of their surviving old leaders well entrenched in the party’s high command. Even programs have not greatly changed so far as general principles are concerned. The recent move toward socialization has not been made from choice. The cases of the other small countries so far as independent of Russia come within the same type and so does that of Italy. The French case differs from this type owing to the strength of the Communists (see below, section III). And only our inability to understand any pattern except our own prevents us from realizing that the Spanish case is really the most unproblematical of all.1 II

ECONOMIC P OSSIBILITIES IN THE U NITED S TATES

1. Redistribution of Income through Taxation
2. The Great Possibility
3. Conditions for Its Realization
4. Transitional Problems
5. The Stagnationist Thesis
6. Conclusion

1 The Franco régime simply reproduces an institutional pattern that, from necessities that should be easy to understand, became well established in nineteenth-century Spain. Franco did and does what had been done before him by Narvaez, O’Donnell, Espartero, Serrano. The fact that unfortunate Spain has become at present the football in the game of international power politics in which she has no stake herself, is responsible for a propaganda that obscures a very simple state of things

1. When discussing the English case, we have noticed that under modern conditions—to an extent undreamed of by nineteenth-century socialists—it is possible to extract from the bourgeois stratum, by taxation and wage policies, the bulk of what in Marxist terminology is called Surplus Value. 2 The same observation applies to the United States. To an extent which is not generally appreciated, the New Deal was able to expropriate the upper income brackets even before the war. One indication will have to suffice, one that shows no more than the effects of the increase in the (personal) Income and Surtax and these only up to 1936: in 1929, when Total Income Paid Out was estimated at 80.6 billion dollars, the brackets above $50,000 (taxable income) retained 5.2 billions after income and surtax; in 1936, when the total of income paid out was estimated at 64.2 billion dollars, not quite 1.2 billions. 3 Taxable income above $100,000 was even then wholly absorbed if account be taken of estate taxes. From the standpoint of naïve radicalism, the only trouble with these and subsequent measures of confiscation is that they did not go far enough. But this does not alter the fact with which we are concerned for the moment, viz., that irrespective of the war, a tremendous transfer of wealth has actually been effected, a transfer that quantitatively is comparable with that effected by Lenin. The present distribution of disposable incomes compares well with the one actually prevailing in Russia, particularly in view of the further fact that owing to the greater importance in the upper-bracket budgets of personal services and of commodities that contain relatively much labor, the purchasing power of the upperbracket dollar has in the United States fallen much more than has that of the lower- bracket dollar. 4 Moreover, we may also repeat another observation made

Moreover, these sums are, of course, not strictly comparable with the figures of total income paid out (Commerce estimates), which may, however, be considered as indices of the comparable figures. The reason why I have not simply taken the latter (from Statistics of Income) is obvious, but the choice of the years of comparison needs explanation: 1929 was the year for which incomes above $50,000 after income and surtax were at an absolute maximum; 1936 has been chosen because it was the last year that was, first, unaffected by the recession of 1937–1938 and, second, completely free from war influences that asserted themselves from 1939 on. 4 Comparison between different countries is of course difficult and perhaps never quite convincing. But the Russian act of April 4, 1940, concerning the income tax, reveals that incomes as low as 1.812 rubles per year were subject to it. It also reveals the existence of incomes of over 300,000 rubles which were then taxed at the rate of 50 per cent.

Now, let us earlier concerning England. The pressure on the upper brackets is, of course, not confined to “$50,000 and above.” To a diminishing degree it extends down to the incomes of $5,000. And there cannot, be any doubt, especially in the case of doctors in the middle ranges of professional success, that this sometimes results in loss of much-needed efficiency. So far, then, the effect upon the social structure of the war plus the labor troubles that were its natural consequence would seem to be much the same as in England. The fact that in the United States there is no well-organized national labor party might set us speculating about the possibility of a development on the lines of guild socialism instead of one toward centralist socialism. Otherwise this fact only strengthens the case for the prognosis that has been elaborated in this book, for pressure groups are just as powerful as parties and much less responsible, hence more effective battering rams.

2. But there is another fact about the social situation in the United States that has no analogue anywhere else in the world and may conceivably affect our diagnosis concerning the chances of the privateenterprise system, at least for a short run of fifty years or so, namely, the colossal industrial success we are witnessing. Some observers seem to think that this success which has won the war and, in addition, has protected American labor from privation, will dominate the postwar situation also, to an extent that may annihilate the whole case for socialism so far as it is of a purely economic nature. Let us put this argument into its most optimistic form.

Neglecting for the moment the complex of transitional problems and neglect the tax on the lowest incomes entirely and put the modal income in the 1,812–2,400 ruble group at 2,000 rubles; further, let us put the modal retained income in the highest group at no higher than 150,000 rubles (though those 300,000 rubles before tax were a lower limit). Then we discover that the higher of these modes was 75 times the lower one. Even if we put, for 1940, the American equivalent (not of course in purchasing power, but in the sense of equivalent position in the income scale) of the lower mode at as low as $1,000, we shall evidently not find much in the United States income distribution of retained incomes (even apart from the reductions specifically motivated by the requirements of war finance) to support, in the light of the Russian paradigma, the current phrases about atrocious inequalities, “concentration of power” as measured by concentration of income, and the like. The evidence presented in the well-known book by Bienstock, Schwarz and Yugov on Industrial Management in Russia tends to support this view. Many other details point in the same direction, for instance, the fact that those ranges of the professions who could formerly but cannot now afford domestic servants in the United States, do enjoy this privilege—worth a ton of electrical household gadgets—in Russia. All this still fails to take account of advantages that do not pass through income accounts. The power and social position—which is one of the main reasons for valuing a high income—of the industrial manager, especially if leader of the local unit of the Bolshevik party, is far and away above that of an American industrialist. Interesting phenomenon—this Lag of Ideas! Many well-meaning people in this country now profess horror or indignation at social inequalities which did exist fifty years ago, but no longer do. Things change, slogans remain.

fixing upon 1950 as the first “normal” year—a practice quite common with forecasters—we will put the Gross National Product—value of all goods and services produced before allowance for depreciation and depletion— evaluated by means of the B.L.S. pricelevel index for 1928, hypothetically at two hundred billions. This is, of course, not a prediction of the actual volume of production to be expected in that year. It is not even an estimate of what potential production at high if not “full” employment will be. It is an estimate of what this potential production might be provided certain conditions are fulfilled which will be stated presently. As such, it is high but neither unusual—higher figures have been mentioned—nor unreasonable. It conforms to past experience of the long-run average performance of the system: if we apply our “normal rate of growth of 3.7 per cent per year” (see above Chapter V) to the 1928 gross national product figure, which was about ninety billions, we get a little under two hundred billions for 1950. No undue importance should be attached to this. But I will nevertheless repeat that an objection to the effect that this extrapolation is meaningless because output failed to increase at that rate in the thirties would miss the point and only prove the objector’s inability to grasp it. However, so far as potential production is concerned, the indications afforded by the system’s actual performance during the war are certainly more convincing: if war statistics are anything to go by, the gross national product, reduced to the 1928 price level, was in 1943 pretty much what it should have been in order to reach the two hundred billion goal by 1950.

Now suppose that this possibility be actually realized.5 And let us, for 5 It is assumed that realization of this possibility involves a forty-hour week plus overtime at bottlenecks. But full employment is not assumed. Definitions of full employment and estimates of the amount of employment that satisfies any given definition vary widely and involve not only statistical but also some rather delicate theoretical issues. I must rest content to state that, in the conditions of the United States labor market and assuming that the total labor force will be something like sixty one millions in 1950 (counting in two or three millions in the armed forces), I do not see that the number of statistically unemployed women and men can possibly be, in that year, below five to six millions, a figure which includes, besides genuinely involuntary unemployment (i.e., involuntary unemployment that would be involuntary unemployment according to any definition), a large allowance for semiinvoluntary unemployment and merely statistical unemployment. The figure does not include “hidden” unemployment. I believe it to be compatible with the two hundred billion goal for that year. It has little to do with vices specific to the capitalist system, but much with the freedom capitalist society grants to labor. Even in Sir William Beveridge’s book on full employment there are chastely veiled hints at direction and compulsion. It should be added, however, that I visualize 1950 as a year of cyclical prosperity. If it is not, then our discussion should be understood to refer to the prosperous year next to it. On an average of good and bad years (statistical) unemployment should be higher than five to six millions—seven to eight perhaps. This is nothing to be horrified about because, as will be explained, adequate provision can be made for the unemployed. But the cyclical fluctuations of capitalist economy are mainly responsible for any excess above “normal” unemployment.

replacement and new “investment” (including houses), make the ample deduction of forty billions (20 per cent, equal to Professor Kuznets’ average by decades, for 1879–1929). 6 The significance of the remaining one hundred and sixty billions for our subject rests upon two facts. First, short of atrocious mismanagement, the huge mass of available commodities and services that this figure (which still does not include new houses) represents, promises a level of satisfaction of economic needs even of the poorest members of society including the aged, unemployed and sick, that would (with a forty hour week) eliminate anything that could possibly be described as suffering or want. It has been emphasized in this book that the case for socialism is by no means wholly economic and also that increasing real income has so far entirely failed to conciliate either the masses or their intellectual allies. But in this instance, the promise is not only spectacular but immediate: not much more is involved in its fulfillment than that the abilities and resources that have proved their power during the war, turn from production for war purposes, including the exports of consumers’ goods to Allied countries, to production for the purposes of domestic consumption; after 1950 the argument would apply a fortiori. Second—again short of atrocious mismanagement—all this can be accomplished without violating the organic conditions of a capitalist economy, including high premia on industrial success and all the other inequalities of income that may be required in order to make the capitalist engine work according to design. In the United States alone there need not lurk, behind modern programs of social betterment, that fundamental dilemma that everywhere else paralyzes the will of every responsible man, the dilemma between economic progress and immediate increase of the real income of the masses.

Moreover, with gross national product at 200 billions, there is no difficulty in collecting public revenue in the amount of 40 billions without injury to the economic engine. A sum of 30 billions is sufficient, at 1928 prices, to finance all the functions actually fulfilled by the federal, state and local governments in 1939 plus a greatly enlarged military establishment plus the service of the debt and other permanent obligations that have been incurred since. 7 This will leave roughly 10 billions—at 1928 prices or a correspondingly higher amount at any higher price level that may prevail 8 — 6 A depreciation allowance of about ten to 12 per cent is not unduly high for a system running at as high a level of production. Eight to ten per cent for “new” investment is certainly ample and, according to most forecasters, too much. See below, sub 5. 7 For the purpose in hand, it is not necessary to distinguish between public expenditure on goods and services and “transfers.” But it is assumed that, roughly, the thirty billions would divide up into twenty-five billions for the former and five billions of the latter. It should be observed that this takes no account (for 1950) of veterans’ pensions and other benefits, a problem that should be treated apart.

in 1950 and much more than this in another decade, for the financing of new social services or of improvements in the existing ones.

3. But it is here, namely, in the sphere of public finance and administration, that the meaning of our proviso—“short of atrocious mismanagement”—is most vividly brought home to us. For in this sphere we actually have mismanagement of national resources that is truly atrocious. With present principles and present practice, it is not true that 40 billions can be collected, at a 200-billion level of gross national product, without injury to the economic engine. And it is not true that the 30 billions—or whatever may correspond to them at price levels other than that of 1928—meet the requirements mentioned. This is only true if the whole of the public administration be rationalized with a view to eliminating double and triple-track activities—such as we have in the case of the income taxes, to mention but one example—overlapping both of federal agencies and of federal and state and local agencies—lack of effective co-ordination and well-defined individual responsibility—which, in the federal case, is mainly due to the nonexistence of well-knit “ministries” and to the existence of a large number of semi-independent “authorities” or “boards”—and many other things that are sources of waste and obstacles to efficiency, but above all, that spirit of waste that delights in spending a billion where 100 million would do. The present state of things portends nothing but evil for public management of finance and industry and, in fact, is in itself good and sufficient reason to oppose it for many who are anything but “economic royalists.”

Nor is this all. Economy—how unpopular this word has become!—

may in a sense be less necessary in a wealthy country than it is in a poor one, namely in the sense that waste threatens want in the latter and not in the former. But in another sense, economy—that is, real economy and not the sham economy of the bureaucracy and of Congress who are ready enough to save pennies while squandering billions—is just as necessary in a rich country in order to make efficient use of its wealth as it is in a poor country in order to secure bare subsistence. 9 And this applies not only to the cost of public administration but also to the use of funds that are to be paid out in various benefits. The classic example is, of course, provision for unemployment so far as it consists in payments to individuals. Unless the behavior of workmen, in employment and out of it, be as strictly under public control as it is in Russia, economical use 8 Revenue cannot, in general, he assumed to change in proportion to price level. For our purpose, however, which is merely to gain a rough idea, we may adopt this simplifying hypothesis. 9 The theory that holds the exact opposite of this will be discussed below, sub 5. A Historical Sketch of Socialist Parties386 of the funds available for the support of the unemployed inevitably means that the benefit must be substantially below the wages the unemployed can hope to earn. As United States statistics of labor turnover suggest, there is normally in the country a large fringe of half voluntary and half involuntary unemployment, the burden of which is bound to be increased, by loose administration of unemployment benefits or by rates that are high relatively to wages, so as to destroy the possibility of attaining the two hundred billion goal.

There is still another condition that would have to be fulfilled in order to justify this possibility: “Politics” and bureaucracy must not prevent our reaching it. Nothing should be more obvious than that the business organism cannot function according to design when its most important “parameters of action”—wages, prices, interest—are transferred to the political sphere and there dealt with according to the requirements of the political game or, which sometimes is more serious still, according to the ideas of some planners. Three examples must suffice to illustrate this. First, the actual labor situation, if it persist, is in itself sufficient to obstruct progress toward that goal of a two hundred billion gross national product and, still more, progress beyond it. The resulting wage rates are only one reason for this; dislocation of entrepreneurial planning and disorganization of workers even when employed are equally important. Besides preventing an otherwise possible expansion of output, these conditions also reduce employment below its otherwise possible level by putting an abnormal premium on everybody’s employing as little labor as possible—they induce a sort of “flight from labor. 10

10 It will be observed that increase in output and increase in employment are not treated as synonymous. It is, in fact, possible, within certain limits, to decrease employment without decreasing output or to increase the latter without increasing the former. The reason why in current literature output and employment are often made to vary proportionately is to be found in one of the fundamental features of the Keynesian system. This system is restricted to dealing with quite short-run chains of causation by the assumption that quantity and quality of industrial equipment remain constant so that the combination of factors of production cannot change significantly. If this were so (and in the shortest run it is approximately so), then of course they vary together though, in general, not proportionately.

It will also be observed that our argument implies that changes in money wage rates may cause changes in employment of opposite sign. I believe, in fact, that the high level of American money wage rates has always, but especially in the thirties, been a major cause of American unemployment, and that similar consequences are to be expected in the future if high-wage policies be continued. This proposition contradicts the teaching of Keynesian orthodoxy as well as that of some other economists and cannot be established here. It is therefore fortunate that, for our present purpose, and so far as 1950 is concerned and not any later development, a weaker proposition will do which would have commanded the assent of the late Lord Keynes: under the conditions that are likely to prevail in this country during the next four years, and unless compensated by additional increases in prices, higher wage rates will adversely affect both output and employment and the latter more than the former.

Second, whatever the reader may believe to be its virtues, price control as practiced hitherto is another obstacle to the expansion of output. I have heard that the Stalinist regime encourages criticism of its bureaucracy. Evidently, this is not so with us. I will defer to prevailing etiquette by granting outright that many able men have done excellent service in the O.P.A.; that many others, not so able, have still done their best; and I will suppress any doubts that may exist in my mind concerning its achievements up to the present moment, especially because its most conspicuous failures link up with circumstances over which it had no control. But it should really be admitted, at least for the present and future, that the policy of encouraging increases in wage rates combined with price control, unless intended to enforce surrender of private enterprise, is irrational and inimical to prompt expansion of output; that the disturbance of the system of relative prices resulting from the fact that the regulating agency can “keep the lid on” some prices—the prices of producers with little political pull—very much more effectively than on others—the prices of producers with plenty of political pull—reduces the degree of economic efficiency of the system; that price fixing per se does not define the whole extent of the damage done: equally important is the premium that the practice of “subsidizing” high-cost and “squeezing” low-cost producers puts upon inefficiency. 11

The bureaucracy’s persistent hostility, strongly supported as it is by public opinion, to industrial self-government—self-organization, self- regulation, co-operation—is a third obstacle to orderly progress and, incidentally, to a development that might solve many problems of business-cycle policy and eventually also the problem of transition to a socialist régime. Spokesmen of the bureaucracy invariably deny that there is any foundation for this view because joint action of businessmen becomes illegal and open to prosecution only if it implies “collusive restraint.” But, even if this legalistic interpretation of prevailing practice could be accepted—and if the official theories of what constitutes collusive restraint or, in general, anti-social practice could also be 11 I do not pretend to know what will eventually come of the muddle occasioned by the presidential veto of the first Price Control Act and the passage of one a month later providing for rapid decontrol. Since, however, I am prepared to argue that the O.P.A., as it actually functioned, was bound to bar the way toward an efficient peace economy and since the possible consequences of that muddle are sure to be represented as proof positive of the necessity of retaining price control, I must ask the reader to consider two things. First, an argument for the repeal of price control is not an argument for letting it lapse, without preparation or transitional substitute, when nobody expected it or seems to have been prepared for it. Second, if in response to its defeat, the Administration hits out vindictively at targets chosen for their unpopularity rather than for any defensible reason, consequences may ensue that are entirely unconnected with the lapse of price control per se. As to the problem of inflation, see below sub 4.

accepted 12 —it would still remain true (a) that the concept of “restraint” includes the bulk of attempts at industrial co-operation with regard to price and output policy even where such co-operation does fill a much- needed function; (b) that borderline cases and cases in which the element of restraint enters without constituting the main point of an agreement are not sure to be considered with impartiality by a personnel that contains many men inadequately familiar with the nature of business problems and some who are violently opposed to the system they are to regulate or at least to the “big-business” sector of it; and (c) that the ever- present threat of prosecution for offenses which it is not always easy to distinguish from unoffending business practice may have effects on the conduct of business nobody intends it to have.

The last point illustrates an aspect of labor troubles, O.P.A. troubles, and “antitrust” troubles that never receives the attention it merits, namely, the consequent drain on entrepreneurial and managerial energy. The businessman who is incessantly thrown out of his stride not only by having to face ever new institutional data but also by having to be “up before” this or that board, has no steam left for dealing with his technological and commercial problems. It is highly revelatory of the mechanistic attitude of economists and of their remoteness from “real life” that not one in ten will recognize this particular “human element” of what is after all a human organism—though no sensible man can possibly fail, for example, to link up the relatively poor showing made by the physical-volume index of industrial production in 1945 with this element as one of its many causes. Nor is this all. Success in conducting a business enterprise depends under present conditions much more on the ability to deal with labor leaders, politicians and public officials than it does on business ability in the proper sense of the term. Hence, except in the biggest concerns that can afford to employ specialists of all kinds, leading positions tend to be filled by “fixers” and “trouble shooters” rather than by “production men.”

12 As a matter of fact, however, these theories cannot be accepted. They cover indeed a range of practices which everyone will agree must be outlawed by any legal system. But beyond these there is another range of practices with regard to which the legal mind simply adopts the attitude dictated by popular prejudices. An important source of examples is discrimination. Even the most competent economist will experience considerable difficulties in analyzing all the long- run effects of a given case. If justice is administered on nothing but general legal or popular slogans and by demonstration “drives,” the element of sound sense contained in the anti- discrimination attitude may completely disappear. And the well-meant method of selective prosecution which is intended to allow for cases where formally illegal discrimination benefits all parties concerned—everyone who ever had an elementary course in economics knows, or should know, such cases—may then only avail to add a most irritating arbitrariness. It is only in a passing remark that we can indicate methods of remedying this state of things.

It may seem to the reader that policy on the lines indicated by all this is out of the question—that it is bound to break down in a storm of righteous indignation or founder on the rocks of sabotage and other forms of resistance and that, therefore, the two hundred billion goal itself is little better than a daydream. But this does not quite follow. On the one hand, the economic engine of this country is strong enough to stand some waste and irrationality—including, as we know, some avoidable unemployment, the price of individual freedom. On the other hand, politicians and the public have of late displayed some signs of “coming round.” And we must not forget that malleability of human nature which has been so much emphasized in this book (see especially Chapter XVIII, section II). The experiment of the New Deal and war periods may be inconclusive because the industrial bourgeoisie never expected those conditions to last. But some “education” has probably been effected. Thus relatively small adjustments of existing taxation may be all that is required, if not for maximum efficiency, yet for an adequate degree of

13 For instance—this is not intended to be more than an example from a set of possible methods—the following measures might be substantially sufficient, (a) Elimination of the double taxation of that part of the returns to corporate industry which is paid out in dividends; in view of the British practice, this would hardly justify a “storm of righteous indignation”: our practice is the German one and the purely formal argument for it is due to the German economist, Adolf Wagner (1835–1917). (b) Permission to deduct from taxable income that part of individual income which is invested. Personally, I agree with Professor Irving Fisher’s opinion that the part saved should be deducted (particularly in view of the danger of inflation). But in order to spare Keynesian susceptibilities I limit myself to the part invested. Technical difficulties are not serious, at least not insuperable, (c) Adoption of one of several methods that are available in order to allow full deduction of losses over time, (d) Nationalization, systematization, and development of sales or turnover taxes. This should appeal to admirers of Russia instead of sending them into paroxysms of rage. As a matter of fact, at rates like the Russian ones (e.g., thirty-one cents per pound on the best quality of wheat flour [in Moscow and for 1940] or, since translation of ruble amounts into dollar amounts is a doubtful matter, sixtytwo per cent of the retail price of potatoes, seventy-three per cent of that of sugar, eighty per cent of that of salt; see P.Haensel, “Soviet Finances” in Openbare Financiën, No. 1, 1946) and in a population so desperately poor as the Russian one, the sales tax may indeed be a terrible scourge; but at moderate rates and in a country as rich as the United States it is an excellent and perfectly harmless tool of public finance, especially useful in financing purposes that benefit exclusively the low-income groups. Five or six billions could be raised by it without anyone’s feeling the burden. But since state and local governments would have to be compensated for the loss of revenue incident to the nationalization of the tax—it is not strictly correct, of course, to speak of “introduction”—and since, moreover, certain adjustments of existing excises would be necessary, the net gain to the Federal Treasury cannot be estimated at more than about two to three billion dollars, so that sales tax plus specific excises might yield something like nine to ten billions in all. (e) Nationalization and drastic downward revision, in favor of wives and children, of the estate taxes, the reason for this being that existing legislation eliminates, by confiscation above very moderate figures, one of the essential elements of the capitalist scheme of things. Whoever approves of this confiscation for extra-economic reasons is, from his standpoint, quite right

it. 13 In another direction, a relatively small increment of legal protection—to be granted, perhaps, by means of a proper codification of industrial law—might take the sting or threat of arbitrary vexation out of the businessman’s working day and increasing experience of the regulating bodies and better training of their staffs might do the rest. 14 Moreover, the country has given proof, not long ago, of its willingness to accept legislation like the N.R.A. And as regards the labor situation, some comfort may perhaps be derived from the fact that policy on the lines contemplated not only need not renounce a single item of what most people will consider the main achievements in social reform of the New Deal but also would provide the economic basis for further advance. It should be noticed in particular that the Annual Wage is a threat to the chance of attaining our goal only if it be introduced, administered, and financed in such ways as to do the maximum of harm. In itself, it is a perfectly possible proposition.

Even so, it takes a lot of optimism to expect that these necessary adjustments will be effected—or even that the conditions of the country’s politics can produce the will to undertake such serious and self-denying work, unglorified by slogans, bristling with difficulties of detail, and eminently thankless. The mass of the people would like the in advocating a constitutional amendment to that effect; whoever approves of this confiscation on the economic argument to be found on p. 373 of the late Lord Keynes’s General Theory of Employment, Interest and Money—or a derivative of this—is quite wrong.

We are not concerned with the question what would satisfy the interests affected politically. As a matter of fact, however, most proposals of tax reform that have so far come from businessmen’s organizations are distinctly modest which, if not otherwise relevant for our argument, seems to show how effectively the business class has been “educated.”

14 I am adverting here to a point that is important for many more topics than the one in hand. A good bureaucracy is a slow growth and cannot be created at will. The bureaucratic organs of the United States display the ailments of rapid growth to an extent which makes a temporary policy of taking in sails a matter not only of the public interest but of, their own. Among other things, the Washington bureaucracy has not yet discovered its place. It happens again and again that individual members of it pursue programs of their own, feel themselves to be reformers and negotiate with Congressmen, Senators, and members of other agencies over the heads of their chiefs. Some idea may suddenly acquire compelling force of which nobody knows the origin. That way lies chaos and failure.

15 To illustrate this point, let us recall a bit of recent history. New Dealers in the early thirties, adopted the practice of sneering at the slogan Reform vs. Recovery. The sneer proves that they were perfectly aware of the element of truth in it. In fact, as political slogans go, this one was perfectly fair. But it should be understood to refer to the bungling and irresponsible manner in which “reform” was carried out, not to any of its professed aims. We are in a similar position now and the misfortune is that injury to the economic process of capitalism is for some people precisely the feature of reform they like best. Reform without such injury would be all but unattractive to them. And reform paralleled by a policy that insures capitalist success would be the worst that could befall them.

America that might emerge from the job but they would hate the man who takes it in hand.

4. We have not yet mentioned Transitional Problems. They are in fact not relevant to our subject except in this respect: transitional difficulties may produce situations and induce measures that are likely to impede the expansion of output quasi-permanently and to invalidate our “estimate of possibilities” completely. The most obvious as well as most serious instance is the danger of inflation. The wholesale price index for 1920 was about 2.3 times the one of 1914. This happened in consequence of a war effort that was not only much smaller and shorter than the recent one in terms of goods and services but also more responsibly financed per unit of goods and services. There was nothing like the present backlog of demand. And tax privileges had provided an adequate motive for investors to keep large blocks of war bonds for good.

As it is, Total Deposits Adjusted (time and demand, other than interbank and United States Government deposits, less items in process of collection) and Currency Outside of Banks amounted, in April of the current year to 174 billions (55.17 in June 1929, and 60.9 in June 1939), and there is no saying what part of the public’s holdings of government bonds will be turned into cash for purposes other than repayment of debt. Any sensible person should be able to form an opinion about what this means under the given circumstances, especially in view of the government’s encouragement of, or connivance at, the reckless but universal demand for higher money wage rates—for inflation comes through the payroll. 16 The same sensible person should not find it difficult to make up his mind regarding writers who preach that there is “no” danger of inflation 17 as well as regarding writers who see wild inflation round the corner. In order to make the one point that is relevant to our argument and in the face of the impossibility of treating the problem satisfactorily here, let me proffer my personal opinion merely for the sake of definiteness: It seems to me to be possible— possible—to aim, for 1950, at a price level about 50 per cent above the 1928 figure (with bursts beyond that in the interval); it seems to me to be rational to use, to this extent, price-level movements as an instrument of adaptation; and it seems to me that the terrors of such an increase in general prices as well as the terrors of a descent from it in later years are 16 The reader will please observe that this particular statement is good Keynesianism and should therefore command assent from Washington economists. 17 Among these we must include some of those forecasters of postwar demand who predicted that, immediately upon the cessation of a great part of the government’s war demand, a slump and widespread unemployment, calling for further deficit spending was sure to follow. On these (short-run) predictions, see E.Schiff’s article in a forthcoming number of the Review of Economic Statistics. Corresponding long-run predictions will be discussed below, sub 5.

greatly exaggerated. But in order to keep the inevitable increase in prices within that limit, a number of measures are necessary, all of which are highly unpopular, all of which require, in order to produce their result, experience and ability that I do not see, and some of which will, to some extent, reduce the speed of the expansion of output; nobody can counteract threatening inflation without also interfering with production. Now, if, instead, nothing is done except setting up another O.P.A. and taxing heavily precisely those incomes from which—even according to the doctrine held by our radicals—inflation does not threaten and if in addition wage rates are being pushed up regardless of consequences, a situation may well arise in which, in desperation, Washington may resort to clumsy and brutal measures such as devaluation, “freezing” deposits, assuming “direct control,” punishing “profiteers” and “monopolists,” or some other scapegoats, keeping carefully clear of the farmers. And this may upset apple carts to such an extent as to bring us into the immediate vicinity not of the two hundred billion goal but of some half-baked socialism. May. There are, of course, other possibilities.

5. It remains to notice what to many economists is the postwar problem par excellence: how to secure adequate consumption. So far we have indeed seen many reasons for doubting whether the goal envisaged—a gross national product of two hundred billions in 1928 dollars—will actually be reached by 1950. But all of them were founded upon the possibility or likelihood that obstacles external to the business process might bar the way. The power of the business process itself to produce that result has, however, been called in question by many economists most, but not all of whom are identified with certain articles of political as well as scientific faith. We will refer to them by a term that has gained some currency, Stagnationists. 18

The relevant type of stagnationist theory has been developed by the late Lord Keynes. With its application to the case in hand the reader can best familiarize himself by studying one or more of those estimates of postwar demand that have been produced during the last few years.19 Their authors agree with us in estimating potential production for 1950 at figures that are of the same order of magnitude as is our own so that we may, for the sake of simplicity, continue to speak of a gross national product of two hundred billions. They are even more optimistic than we in that they do not insist on the necessity of environmental conditions favorable to capitalist 18 On some general aspects of the stagnationist thesis, see above, Chapter X. 19 The most important of them have been critically analyzed by Mr. A.G.Hart in his article, “Model Building and Fiscal Policy,” American Economic Review, September, 1945. Further references are therefore unnecessary.

achievement, 20 but reason on the tacit assumption that present political, administrative, and labor practices persist. Moreover, I shall waive any objections I may have against their estimates of the inevitable minimum of unemployment, or the validity of their statistical methods, and I shall also accept the various hypotheses by means of which they arrive at the figures of Net National Income and of Disposable Income (the sum total of individual incomes after tax and compulsory nontax payments).

For definiteness, let us suppose that this disposable income figures out at about 150 billions and that corporate undivided profits are about 6 billions. 21 Postwar demand, that is to say, the sum total which it is expected private households will spend on consumers’ goods (except new homes), is then derived by calculating, from the data for the period preceding the war, say, 1923–1940, the average relation between per capita expenditure on these consumers’ goods and per capita disposable income, both deflated by the cost-of-living index, and by applying this relation to a disposable income of 150 billions.22 If this procedure yields, for example, the sum of 130 billions, we are left with a residual in the amount of 20 billions for savings or, if we add the corporate undivided profits, with 26 billions. The argument usually goes on to survey the available outlets for this sum, the investment opportunities (new housing, additions to inventories, plant and equipment, foreign investment) and to conclude or to suggest that these cannot possibly absorb anything like as much as people will want to save at the 1950 full- employment level of national income, at least not without the help of government. Hence, the necessity of government expenditure at home or government action forcing “foreign investment.” Of late, however, another recommendation has come into favor. Since, under present conditions, anyone who advocates government deficit financing is in obvious danger of making himself ridiculous, Washington economists have veered round to 20 I confess that I have wondered occasionally whether they are aware of the tremendous compliment to private enterprise which this implies.

21 These figures approximate those of one of the postwar-demand estimators. They are not mine. Nor are they compatible with the experimental figures on which we reasoned in section II. For the procedure as applied to past periods—where hypotheses are of course replaced by facts—see e.g., Federal Reserve Bulletin, April, 1946, p. 436. It should, however, be observed, first, that these figures are in current dollars and, second, that the huge amount of “net savings of individuals” proves nothing for the saving percentages of “normal” times and that even the figures for 1937, 1938, 1939 and 1940 should not be accepted uncritically and especially not without reference to the definition of saving adopted by the Department of Commerce.

22 Actually, the procedure is somewhat more complicated than that. The regression equations used also contain a trend factor that is to take account of possible changes of the relation over time. Moreover, some account is also taken of the effects of deferred demand and of the accumulation of liquid means. But, in order to concentrate on the salient point, we do not go into all this.

recommend balanced budgets, but budgets balanced at a very high level of taxation, the taxes to be highly progressive so as to eliminate the high incomes, from which the menace of saving primarily proceeds. This accords with the slogan that (owing to the saving done by the receivers of high incomes) “in modern societies, the ultimate cause of unemployment is the inequality of incomes.”

Thus the high level of national income to which we have looked for the solution of a good many economic and social problems is itself made out to be the most serious problem of all. Since high income means high savings and since these savings will not be entirely offset by investment expenditure, it will not be possible for the economy to keep on that high level of income and employment—unless fiscal policy keeps it there—if indeed this high level can be reached at all. It should be observed that, at least in part, this theory commands the support of public opinion and in particular of business opinions. Nothing is more common than the view that everything will be all right if only we can induce people “to use their incomes fully” or if only we can “get enough consumers’ demand.” It is a question of some interest why intelligent men who certainly have no stake in any political program involving government expenditure or equalization of income, should nevertheless feel concern on this score. The salesman mentality of the country coupled with the experience of the twenty years preceding the war is all the explanation I can offer for the astounding fact that the theory in question is not simply laughed out of court.

Those opponents of this theory miss the point who try to argue that gross national product, hence income, will be smaller and that investment opportunities will turn out to be greater than estimators assume who are so optimistic when it comes to estimating the former and so pessimistic when it comes to estimating the latter. There may be much truth in arguments on these and similar lines. In particular, it may be emphasized that in 1830 nobody foresaw or could have foreseen the capital requirements of the railroad age or, fifty years later, the capital requirements of the age of electricity. But the decisive argument is much simpler than all that. The theory rests upon the postulate that individuals save, according to a stable psychological law, 23 irrespective of the presence 1.when Y increases by Y, C increases by C < Y or This is the genuine Keynesian hypothesis about what is known as the Consumption Function. But Keynes himself used occasionally, and his followers use often, the stronger assumption that, as income increases, the saving percentage increases. We are concerned only with the genuine hypothesis. It should, 23 This psychological law says that a community’s expenditure upon consumption, C (hence also the amount it desires to save S) depends upon national income, Y, in such a manner that,

or absence of investment opportunity. Evidently this is not the normal case. Normally people save with a view to some return, in money or in services of some “investment good.” It is not only that the bulk of individual savings—and, of course, practically all business savings which, in turn, constitute the greater part of total saving—is done with a specific investment purpose in view. The decision to invest precedes as a rule, and the act of investing precedes very often, the decision to save. Even in those cases in which a man saves without specific investment purpose, any delay in coming to an investment decision is punished by the loss of return for the interval. It seems to follow, first, that unless people see investment opportunities, they will not normally save and that a situation of vanishing investment opportunity is likely to be also one of vanishing saving; and, second, that whenever we observe that people display “liquidity preference,” that is to say, a desire to save unaccompanied by a desire to invest—a desire to hoard—this must be explained by special reasons and not by appeal to any psychological law postulated ad hoc. Such reasons do exist, however, and there is one among them that is of considerable importance in the depth of cyclical depressions—on a broad average, in one year out of ten. When things look black and people expect nothing but losses from any commitment they might contemplate, then of course they will refuse to invest their current savings (and even to reinvest sums that currently return to them owing to the termination of previous commitments), or they will defer investment in order to profit by further reductions in prices. At the same time, savings will be not only not reduced but increased by all those who expect impending losses of income, in their business or through unemployment. This is an important element in the mechanism of depressions and public deficit spending is indeed one of the most obvious means for breaking such “vicious spirals.” However, no defense of any “oversaving” theory can be based upon it because it occurs only as a consequence of a depression that hence cannot itself be explained by it. But it yields a psychological explanation of the Keynesian psychological law. The great depression of 1929–1932 and the slow recovery from it are still in everybody’s mind. And the psychological law and the theory of hoarding that is based upon it are simply generalizations from that experience. 24

however, be observed that it is a misuse of terms to call it a psychological law. Psychological laws in economics are doubtful customers at best. But the proposition in question has not even so much title to being dignified by this term as has, e.g., the proposition that our wish for one more slice of bread decreases in intensity as we go on eating more and more slices. 24 Adaptation of the above argument together with certain wartime factors will, it is hoped, explain wartime accumulations of liquid means without recourse to the hypothesis of an insatiable hunger for hoards inherent in human nature.

Depression-hoarding is therefore not a genuine exception to our general proposition, viz., that decisions to save depend upon and presuppose decisions to invest, though the converse is not true, because it is obviously possible to finance an investment by a bank loan in which case there is no point whatever in speaking of anyone’s saving. 25 There are genuine exceptions, besides apparent ones. But neither are of any importance. Instances of genuine exceptions are hoarding with the intention of accumulating a treasure which as everybody knows has been done extensively in India, China, and Egypt; and, temporarily, saving from a habit which once formed may outlive its rationale as may any other habit. 26 Instances of apparent exceptions, similar to our case of depression-hoarding, are accumulations for the purpose of financing a very heavy piece of investment, a possible but evidently unimportant case; or “saving” that is undertaken for the purpose of providing for contingencies, old age and so on and would be undertaken even if there were no opportunities for acquiring any “return” other than a feeling of security. 27 25 Our proposition is, however, not so simple as it may seem to readers unfamiliar with the discussion that has been carried on ever since the publication of Lord Keynes’s General Theory (1936). It resembles rather than repeats an old theorem of the “classical theory” (Turgot, A.Smith, J.S.Mill) and cannot be sustained by the reasoning that satisfied the classics. A long and tedious argument would be necessary in order to establish it fully, an argument which it is so discouraging to have to work out because it yields but few new and interesting results and beyond this merely destroys what has been built up with so much trouble during the thirties. Lack of space prevents us, however, from going into it. But one point must be mentioned in order to avoid a misunderstanding that would be as regrettable as it would be natural. Though our proposition shows that the stagnation thesis cannot be based upon the element of saving and though this may be expressed by saying that there is no problem of saving in this sense, it does not amount to saying that there are no problems of saving in other senses. There are. Most of them center around the case in which individual savings, by way of purchase of securities, are applied to the repayment of bank debts incurred by firms in the course of expanding their plant and equipment. But this is another matter.

26 The persistence of saving habits that are deeply rooted in the bourgeois scheme of life, especially in the puritan variant of it, may not seem to be unimportant. But the vanishing of investment opportunities that would render those habits irrational would, in the absence of external factors, be a slow process during which adaptation could and would have time to do its work. Washington economists who wish to assert, nevertheless, that the persistence of saving habits that have become irrational is a factor in the economic situation are therefore faced by an unenviable alternative: they would have to admit either that the situation of the thirties was one of depression hoarding—which spells surrender of the secular-stagnation thesis—or that attractiveness of investment was with comparative suddenness reduced by an external factor which could be no other than the policies they themselves supported. If they adopt the latter view, it is certainly not for me to object.

27 The unimportance of this follows mainly from two facts: first, that these accumulations are currently depleted (though, with changing national income and age

Thus, if the sorrows of stagnationists were the only ones to trouble us, we should entertain no misgivings about reaching the two hundred billion gross national product. And if twenty billions proved more than can be newly invested, at a rate of return satisfactory to the marginal saver, why, people would be only too happy to consume the excess. We should worry neither about measures to make them “fully use their incomes” nor about outlets for corporate and individual savings. In particular, we should not think it necessary to force foreign investment, advocacy of which under present conditions is nothing but an attempt to make palatable to the country what really amounts to imposing a war indemnity upon it. 28

On the other hand, we should agree with the advocates of government deficit spending so far as this: Whenever there is danger, either from causes inherent to the business-cycle mechanism or from any other, of a “downward cumulative process,” that is to say, whenever a situation threatens to emerge in which A’s restriction of production induces B to restrict and so on throughout the economy, in which prices fall because they have fallen, in which unemployment feeds upon itself, government deficit spending will stop this “vicious spiral” and therefore, if we choose to neglect all other considerations, may be justly called an efficient remedy. 29 The true objection is not against income-generating government expenditure in emergencies distribution of the population increments and decrements will not, in general, exactly balance); and, second, that so long as there is any saving at all that is motivated by monetary returns, the presence in the total “supply” of an element that is not so motivated does not prove any tendency toward excess saving. This case needs no strengthening. But actually it may be reinforced by observing that under modern conditions insurance greatly reduces the amounts necessary to attain the objects of contingency saving: of old, provision e.g. for old age and for the needs of wives and children normally meant the accumulation of a “fortune” (though of course this was not left uninvested); now such provision is effected by “withholdings from consumption” to the amount of insurance premia. The increase in insurance during the last twenty-five years, therefore, indicates the exact opposite of what it is made to indicate in stagnationist writings.

28 Far be it for me to say or to imply that, on moral or political grounds, a case cannot be made for large sacrifices on the part of the American people. But the case ought to be put frankly upon the moral and political grounds and not upon a denial of the reality of these sacrifices, based on questionable economics. The suggestion that part of the excessive savings might usefully be directed into channels where evidently there is no hope for repayment, let alone returns, is the more insidious because the class whose task it might be to oppose such a policy will accept it with alacrity: for under a system of government guarantees the individual businessman risks little or nothing. And he attaches little if any weight to the national loss—especially if told that this loss, owing to the employment it secures, is really a national gain.

29 This is why the Murray bill in its original form (not only in the form in which it has been enacted) was unexceptionable so far as purely economic considerations are concerned. The wholesale condemnation of income-generating government expenditure under any circumstances is understandable and may be justifiable in people who think that, once the use of this tool be granted, the door will be wide open for all kinds of legislative and administrative irresponsibilities. But it cannot be upheld on purely economic grounds.

once they have arisen but to policies that create the emergencies in which such expenditure imposes itself.

6. Unfortunately, however, if it were a question of predicting what will actually happen, our result would not differ so much from that of the stagnationists as the reader might expect. Though there is nothing to fear from people’s propensity to save, there is plenty to fear from other factors. Labor unrest, price regulation, vexatious administration and irrational taxation are quite adequate to produce results for income and employment that will look exactly like a verification of the stagnationist theory and may indeed produce situations in which public deficit spending imposes itself. We may even witness what will look like oversaving, namely, conditions in which people will be reluctant to carry out their investment decisions. We have been discussing a possibility. We have found that there are no causes inherent in the business process itself to prevent it from being realized. We have also seen that there are causes external to the business process that may do so. Beyond this I do not pretend to know what the actual outcome will be. Whatever it is, it will be a dominant factor in the social situation not only in the United States but also in the world. But only for the next half century or so. The long-run diagnosis elaborated in this book will not be affected.