America's Great Depression (43 page)

The California Joint Immigration Committee presented as an

“alternative” to the Wagner Bill a proposal of its own to restrict immigration, thus preventing aliens from competing with high-wage American workers, and preventing them from breaking down an artificial wage scale. This bill was supported by the American Legion of California, the California Federation of Labor, and the Native Sons of the Golden West. Hoover granted their request in September. For the Wagner Bill, the main witnesses in the Senate were the inevitable John B. Andrews of the American Association for Labor Legislation, William Green, Frances Perkins, Norman Thomas of the Socialist Party, and James A. Emery of the National Association of Manufacturers. There was, indeed, very little opposition in the 14See U.S. Senate, Committee on Banking and Currency,
History of the
Employment Stabilization Act of 1931
(Washington, D.C.: U.S. Government Printing Office, 1945); Joseph E. Reeve,
Monetary Reform Movements
(Washington, D.C.: American Council on Public Affairs, 1943), pp. 1ff.; U.S. Senate, Committee on Judiciary, 71st Congress, 2nd Session,
Hearings on S. 3059

(Washington, D.C., 1930).

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251

Senate: Senator Hiram Johnson (R., Calif.), head of the subcommittee considering the measure, approved, as did Senator Vandenberg (R., Mich.) and President Hoover. An outpouring of the nation’s economists endorsed the Wagner Bill, in petitions presented to Congress by Professors Samuel Joseph of the City College of New York, and Joseph P. Chamberlain of Columbia University. Joseph’s petition asserted that the bill laid the foundation for a national program to relieve unemployment, and that the principle of public works was “widely accepted” by economists as a means of stimulating construction and putting men to work.15

15The economists and others who signed these petitions included the following:

Edith Abbott

Edward A. Filene

Harry A. Millis

Asher Achinstein

Irving Fisher

Broadus Mitchell

Emily Green Balch

Elisha M. Friedman

Harold G. Moulton

Bruce Bliven

A. Anton Friedrich

Paul M. O’Leary

Sophinisba P. Breckenridge

S. Colum Gilfillan

Thomas I. Parkinson

Paul F. Brissenden

Meredith B. Givens

S. Howard Patterson

William Adams Brown, Jr.

Carter Goodrich

Harold L. Reed

Edward C. Carter

Henry F. Grady

Father John A. Ryan

Ralph Cassady, Jr.

Robert L. Hale

Francis B. Sayre

Waddill Catchings

Walton Hamilton

G.T. Schwenning

Zechariah Chafee, Jr.

Mason B. Hammond

Henry R. Seager

Joseph P. Chamberlain

Charles O. Hardy

Thorsten Sellin

John Bates Clark

Sidney Hillman

Mary K. Simkhovitch

John Maurice Clark

Arthur N. Holcombe

Victor S. Clark

Paul T. Homan

Nahum I. Stone

Joanna C. Colcord

B.W. Huebsch

Frank Tannenbaum

John R. Commons

Alvin S. Johnson

Frank W. Taussig

Morris L. Cooke

H.V. Kaltenborn

Ordway Tead

Morris A. Copeland

Edwin W. Kemmerer

Willard Thorp

Malcolm Cowley

Willford I. King

Mary Van Kleeck

Donald Cowling

Alfred Knopf

Oswald G. Villard

Jerome Davis

Hazel Kyrk

Lillian Wald

Davis F. Dewey

Harry W. Laidler

J.P. Warbasse

Paul H. Douglas

Corliss Lamont

Colston E. Warne

Stephen P. Duggan

Kenneth S. Latourette

Gordon S. Watkins

Seba Eldridge

William Leiserson

William O. Weyforth

Henry Pratt Fairchild

J.E. LeRossignol

Joseph H. Willits

John M. Ferguson

Roswell C. McCrea

Chase Going Woodhouse

Frank A. Fetter

Otto Tod Mallery

Matthew Woll

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America’s Great Depression

The Senate passed the Wagner Bill by an unrecorded vote. The bill ran into delays in the House despite the almost complete lack of opposition in the hearings and the pressure for the bill exerted by Andrews, Green, Perkins, Emery, Douglas, Foster and Catchings. Representative George S. Graham (R., Penn.), Chairman of the Judiciary Committee, managed to amend the substance out of the bill, and thus to deadlock the Senate–House Conference and block the bill.16 In the meanwhile, Congress approved the various Hoover requests for additional public works appropriations, although one $150 million request was cut to $116 million.

In December, 1930, the Emergency Committee for Federal Public Works, headed by Harold S. Butenheim, editor of
American
City
, appealed for large-scale borrowing of one billion dollars for public works, and the plea was endorsed by 93 leading economists.

Among these were Thomas S. Adams, Thomas Nixon Carver, Edgar S. Furniss, Edwin R.A. Seligman, Leo Wolman, and many of the names on the Wagner Bill petitions.17 Finally, in February, 1931, Congress passed the Employment Stabilization Act in original form and Hoover gladly signed the measure. He quickly designated the Secretary of Commerce as chairman of the Federal Also involved in the agitation, by virtue of their being officers and members of the American Association for Labor Legislation during this period, were the following economists and other intellectual leaders: Willard E. Atkins

Harold M. Groves

Donald Richberg

C.C. Burlingham

Luther Gulick

Bernard L. Shientag

Stuart Chase

Mrs. Thomas W. Lamont

Sumner H. Slichter

Dorothy W. Douglas

Eduard C. Lindeman

Edwin S. Smith

Richard T. Ely

William N. Loucks

George Soule

Felix Frankfurter

Wesley C. Mitchell

William F. Willoughby

Arthur D. Gayer

Jessica Peixotto

Edwin E. Witte

16Bernstein,
The Lean Years: A History of The American Worker, 1920–1933,
p. 304.

17See Joseph Dorfman,
The Economic Mind in American Civilization
(New York: Viking Press, 1959), vol. 5, pp. 674–75.

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253

Employment Stabilization Board.18 The Senate also did something in the same month destined to have far-reaching effects in the future: it passed the Wagner resolution to study the establishment of Federal unemployment insurance.

Behind the scenes, Gerard Swope, president of General Electric, urged a much larger public works plan upon Hoover. In September, 1930, Swope proposed to Hoover an immediate one billion dollar bond issue for Federal public works, to be matched by another one billion dollars similarly raised by state and local governments, under Federal guarantee. Swope’s favorite argument was to point to wartime, with its bold national planning, as the ideal to be emu-lated. Fortunately, Hoover’s own leanings in this direction were much too cautious to allow the adoption of Swope’s proposal.19

Also urging Hoover further than he would go was Colonel Arthur Woods, head of the President’s Emergency Committee for Employment, who suggested a $750 million federal–state public-works program, including a Federal Reconstruction Board for loans to states for public works.20

THE FISCAL BURDENS OF GOVERNMENT

In the pleasant but illusory world of “national product statistics,” government expenditures on goods and services constitute
an addition to
the nation’s product. Actually, since government’s revenue, in contrast to all other institutions, is coerced from the taxpayers rather than paid voluntarily, it is far more realistic to regard all government expenditures as a
depredation upon
, rather than an addition to, the national product. In fact, either government expenditures or 18The following month, five Progressive Senators called a conference to agitate for a gigantic $5 billion public works program; the conference was addressed by Detroit’s progressive Mayor, Frank Murphy, Professor Leo Wolman, and Father John A. Ryan. Senator LaFollette and William Randolph Hearst also called for a similar measure.

19See David Loth,
Swope of GE
(New York: Simon and Schuster, 1958), pp. 198–200.

20Bernstein,
The Lean Years: A History of The American Worker, 1920–1933,
p. 304.

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America’s Great Depression

receipts, whichever is the higher, may be regarded as the burden on private national product, and subtraction of the former figure from Gross Private Product (GPP) will yield an estimate of the private product left in private hands. The ratio of government depredation (government expenditures or receipts, whichever is the higher) over Gross Private Product yields the approximate percentage of government depredation of the private product of the economy.21

In a depression, it is particularly important that the government’s fiscal burden on the economy be reduced. In the first place, it is especially important at such a time to free the economy from the heavy load of government’s acquiring resources, and second, a lowering of the burden will tend to shift total spending so as to increase investment and lower consumption, thus providing a double impetus toward curing a depression.

21Generally, government expenditures are compared with Gross National Product (GNP) in weighing the fiscal extent of government activity in the economy. But since government expenditure is more depredation than production, it is first necessary to deduct “product originating in government and in government enterprises” from GNP to arrive at Gross Private Product. It might be thought that total government expenditures should not be deducted from GPP, because this involves double counting of government expenditures on bureaucrats’ salaries (“product originating in government”). But this is not double counting, for the great bulk of money spent on bureaucratic salaries is gathered by means of taxation of the
private
sector, and, therefore, it too involves depredation upon the private economy. Our method involves a slight amount of over-counting of depredation, however, insofar as funds for government spending come from taxation of the
bureaucrats
themselves, and are therefore not deducted from private product. This amount, particularly in the 1929–1932 period, may safely be ignored, however, as there is no accurate way of estimating it and no better way of estimating government depredation on the private sector.

If government expenditures and receipts are just balanced, then obviously each is a measure of depredation, as funds are acquired by taxation and channelled into expenditures. If expenditures are larger, then the deficit is either financed by issuing new money or by borrowing private savings. In either case, the deficit constitutes a drain of resources from the private sector. If there is a surplus of receipts over expenditures then the surplus taxes are drains on the private sector.

For a more extended discussion, and a tabulation of estimates of these figures for the 1929–1932 period, see the Appendix.

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255

How did the government react when the 1929 depression hit?

Were fiscal burdens on the economy raised or lowered? Fortunately, detailed statistics are available from 1929 on, permitting us to estimate the answer to that question. In 1929, the Gross National Product (GNP) was $104.4 billion; Gross Private Product was $99.3 billion. (See our calculations in the Appendix.) Total Federal depredations on the private product equaled Federal receipts, which were $5.2 billion. (Federal expenditures were a bit lower at $4 billion.) State and Local depredations were $9 billion, the figure for expenditures, receipts being estimated at $8.8 billion. Total government depredations on the private product in 1929 were, therefore, $14.2 billion, a burden of 14.3 percent of the gross private product (or, if we wish, 15.7 percent of the Net Private Product). In 1930, GNP fell to $91.1 billion and GPP to $85.8 billion. Federal expenditures rose to $4.2 billion, while receipts fell to $4.4 billion; state and local expenditures rose to $9.7 billion, and state and local receipts to $9.1 billion. Total government depredations in 1930, therefore, remained about level at $14.1 billion. But this now constituted 16.4 percent of the Gross Private Product, and 18.2 percent of the net private product. The fiscal burden of government had substantially
increased
when it should have been lowered.

Given any particular tax rates, we would expect revenue to fall in a depression, as national income fell, if government simply remained passive. Government’s particular responsibility, then, is to reduce its expenditures. Instead, expenditures rose by $800 million. Of this, $700 million came from state and local governments (the major categories: $170 million increase in salaries to employees; $300 million increase in construction spending). The Federal government increased its expenditure by $130 million, of which $50 million was new construction. The Hoover policy of stimulating public works was already taking effect.22

22While the data in the Appendix below list the rise in Federal expenditure to be $200 million, this is the effect of rounding. The actual increase was $133 million.

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America’s Great Depression

During 1929, the Federal government had a huge surplus of $1.2 billion ($4.1 billion receipts, $2.9 billion expenditures excluding government enterprises; an estimated $5.2 billion receipts and $4.1 billion expenditures including government enterprises), and it is to the Hoover administration’s credit that as soon as the depression struck, Hoover and Mellon suggested that the top normal personal income tax rate be cut from 5 percent to 4 percent, and the corporate income tax be reduced from 12 percent to 11 percent.23 This suggestion was speedily enacted by Congress at the end of 1929. As a partial consequence, Federal receipts fell to $4.4