America's Great Depression (45 page)

THE FISCAL BURDEN OF GOVERNMENT

How did the fiscal burden of government press upon the public during 1931? The gross national product fell from $91.1 billion in 1930, to $76.3 billion in 1931. Gross private product fell from $85.8 billion to $70.9 billion; total government depredations, on the other hand,
rose
from $14.1 to $15.2 billion. Total government receipts fell from $13.5 billion to $12.4 billion (Federal receipts fell from $4.4 to $3.4 billion), but total government expenditures rose sharply, from $13.9 billion to $15.2 billion. This time, the entire rise in expenditures came in federal, rather than state and local, spending. Federal expenditures rose from $4.2 billion in 1930 to $5.5 billion in 1931—excluding government enterprises, it rose from $3.1 billion to $4.4 billion, an enormous 42 percent increase. In short, in the midst of a great depression when people needed desperately to be relieved of governmental burdens, the dead weight of government rose from 16.4 percent to 21.5 percent of the gross private product (from 18.2 percent to 24.3 percent of the net private product). From a modest surplus in 1930, the Federal government thus ran up a huge $2.2 billion deficit in 1931.

And so President Hoover, often considered to be a staunch expo-nent of laissez-faire, had amassed by far the largest peacetime 5Joseph Dorfman,
The Economic Mind in American Civilization
(New York: Viking Press, 1959), vol. 5, p. 675.

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deficit yet known to American history. In one year, the fiscal burden of the Federal government had increased from 5.1 percent to 7.8 percent, or from 5.7 percent to 8.8 percent of the net private product.

Of the $1.3 billion increase in Federal expenditures in 1931, by far the largest sum, $1 billion, was an increase in transfer payments. New public construction also increased at the same pace as the previous year, by over $60 million; grants-in-aid to state and local governments rose by almost $200 million. Of the $1 billion rise in transfer payments, $900 million was an increase in “adjusted compensation benefits,” largely loans to veterans.

PUBLIC WORKS AND WAGE RATES

What of Hoover’s cherished programs of public works planning and maintenance of wage rates? We have noted that Hoover established an Emergency Committee for Employment in October, 1930, headed by Colonel Arthur Woods. Woods was a trustee of the Rockefeller Foundation and of Rockefeller’s General Education Board. Also on the committee were industrialists Sewell Avery, William J. Bault of Metropolitan Life, the ever ubiquitous Beardsley Ruml, and economists such as Professor Joseph H.

Willits, Leo Wolman, J. Douglas Brown, W. Jett Lauck, Lewis E.

Meriam, and Fred C. Croxton. The Committee strongly recommended increased expenditures for public works at all levels of government. The President’s Committee was one of the major forces supporting the Wagner Employment Stabilization Act of February, 1931—its Public Works Section being especially active.

And, in signing the bill, Hoover gave a large amount of the credit for the measure to none other than Otto Tod Mallery.6 The President’s Committee was the main government organ dealing with 6See Irving Bernstein,
The Lean Years: A History of the American Worker,
1920–1933
(Boston: Houghton Mifflin, 1960) and Dorfman,
The Economic Mind in
American Civilization
, vol. 5, p. 7n. However, Hoover did veto a Woods-supported bill, passed in March, to strengthen the U.S. Employment Service. See Harris Gaylord Warren,
Herbert Hoover and the Great Depression
(New York: Oxford University Press, 1959), pp. 24ff.

1931—“The Tragic Year”

265

employers and urging them to maintain wage rates. Writing proudly of the Committee’s work, one of its members later praised its success in inducing employers to refrain from those reductions in wage rates “which had marked similar periods” of depression.7

It is, of course, not surprising that there were very few strikes in this period. In March, Colonel Woods proudly hailed the “new view” of industry—in accepting its “responsibility toward labor.” Industry, instead of cutting wage rates, was now maintaining the purchasing-power of the workers as a measure of “enlightened self-interest.” The Committee persuaded ten outstanding industrial and labor leaders to give public radio talks, explaining the brave new philosophy. The Committee was also gratified to see advances in public works construction during the year. The Employment Stabilization Act of February merely served to whet, rather than allay, the appetites of the public works agitators.8 During the year, Senator Wagner suggested a $2 billion public works program, and Senator LaFollette urged a gigantic $5.5 billion outlay. At the end of the year 1931, 31 leading economists convened in New York City at a conference sponsored by William Randolph Hearst, and recommended a $5 billion public works program. It was to be financed by a bond issue. The economists emphasized that a rise in Federal public works outlay during 1931 had been offset by a decline in state and local construction, so that overall public construction was less than in the previous year. They urged a bold program, accompanied by credit expansion, and conducted in the good old spirit of a wartime emergency. Among the signers of this document were Professors James C. Bonbright, Phillips Bradley, Paul F. Brissenden, Thomas Nixon Carver, Paul H. Douglas, Seba Eldridge, William Trufant Foster, Arthur D. Gayer, 7E.P. Hayes,
Activities of the President’s Emergency Committee for Employment
,
October 17, 1930–August 19, 1931
(printed by the author, 1936).

8The director of the new Federal Employment Stabilization Board, D.H.

Sawyer, was critical of the time lag inherent in public works programs, and preferred to leave public works to the localities. In addition, J.S. Taylor, head of the Division of Public Construction, opposed public works in principle. Bernstein,
The Lean Years: A History of The American Worker, 1920–1933,
pp. 273–74.

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America’s Great Depression

John Ise, J.E. LeRossignol, W.N. Loucks, Robert M. Maclver, George R. Taylor, Williard L. Thorp, and Norman J. Ware.9

We might mention here that at the very time President Hoover was sponsoring make-work schemes, he stepped in to hamper private production in another field. In May, he ordered the cessation of the leasing of Federal forests for new lumbering, thus withdrawing forest land from production and aggravating the severe depression in the lumber trade.

On the state level, Governor Franklin D. Roosevelt of New York pioneered in public works planning, setting up a Committee on the Stabilization of Industry for the Prevention of Unemployment, with Henry Bruere chairman and Paul H. Douglas, technical adviser. The Committee recommended a state planning board for public works, and work-sharing among workers. Roosevelt also called a seven-state conference at the end of January, 1931, to urge Federal and state public works: the chief adviser was Professor Leo Wolman, and others were Professors William Leiserson and Paul H.

Douglas. The next few days saw a Conference on the Permanent Prevention of Unemployment, convened by the social action departments of the Catholic, Protestant, and Jewish churches. At this conference, Edward Eyre Hunt, of the President’s Emergency Committee for Employment, called for public works; William T.

Foster urged an increase in the money supply, John P. Frey of the A.F. of L. called for yet higher wages as a remedy for the depression, George Soule urged socialist planning, Professor John R.

Commons and John Edgerton of the NAM quarreled over compulsory unemployment insurance, and Senator Wagner boosted his bill for public works and stabilization.

During early 1931, California set up a State Unemployment Committee to aid localities and stimulate public works, and Pennsylvania presented a planned program of public works. Maryland speeded its public works program, Massachusetts floated a bond issue for public works, and Michigan continued highway construction during the winter—normally a slack season. Michigan insisted 9
Congressional Record
75 (January 11, 1932), pp. 1655–57.

1931—“The Tragic Year”

267

that contractors not cut the wage rates paid to their workers. Minnesota went so far in a make-work policy on its public work programs as to stipulate that “wherever practical, and whenever the cost is substantially the same, work should be performed by hand rather than by machines in order to provide for the employment of a greater number of persons.”10

MAINTAINING WAGE RATES

The maintenance of wage rates in the face of steadily declining prices (wholesale prices fell by 10 percent in 1930, by 15 percent in 1931), meant that the
real
wage rates of the employed were sharply increasing, thereby greatly aggravating the unemployment problem as time went on. Summing up the wage question at the end of 1931, Professor Leo Wolman pointed out that business leaders, as well as government, were still under the influence of the prevailing doctrine of the 1920s: that “high and rising wages were necessary to a full flow of purchasing power and, therefore, to good business.” During the depression, business leaders typically continued to say: “reducing the income of labor is not a remedy for business depression, it is a direct and contributory cause”; or in this enlightened age when it is recognized that production is dependent upon consuming power,11 it is my judgment that large manufacturers and producers will maintain wages and salaries as being the farsighted and in the end the most constructive thing to do.12

Until the end of 1931, most businesses, and particularly the large firms, staunchly resisted wage cuts. Some small firms in textiles and coal reduced their wage rates, but the large firms in the basic steel, public utility, and construction industries “publicly announced their adherence to a policy of high wages and their 10
Monthly Labor Review
32 (1931): 834ff.

11The truth is precisely the opposite; consuming power is wholly dependent upon production.

12Leo Wolman,
Wages in Relation to Economic Recovery
(Chicago: University of Chicago Press, 1931).

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unwillingness to reduce prevailing standards.” Wolman concluded that “it is indeed impossible to recall any past depression of similar intensity and duration in which the wages of prosperity were maintained as long as they have been during the depression of 1930–31.”13 He noted, however, that pressures to cut wage rates were building up almost irresistibly, and that some construction labor had been able to maintain their employment by accepting
sub
rosa
wage cuts. Wage cuts responding to severe losses at the end of 1931 took place secretly for fear of the disapproval of the Hoover administration.14

Secretary of the Treasury Mellon summed up the administration’s philosophy on wage rates in May, 1931: In this country, there has been a concerted and determined effort on the part of both government and business not only to prevent any reduction in wages but to keep the maximum number of men employed, and

thereby to increase consumption.

It must be remembered that the all-important factor is purchasing power, and purchasing power . . . is dependent to a great extent on the standard of living . . .

that standard of living must be maintained at all costs.15

The Federal government also did its part by enacting the Bacon–Davis Act, requiring a maximum eight-hour day on construction of public buildings and the payment of at least the “prevailing wage” in the locality.

It is no wonder that British economist John Maynard Keynes, in a memorandum to Prime Minister Ramsay MacDonald, reporting on a visit to America in 1931, hailed the American record of 13Secretary of Commerce Lamont declared in April, 1931, that “I have can-vassed the principal industries, and I find no movement to reduce the rate of wages. On the contrary, there is a desire to support the situation in every way.” Quoted in Edward Angly, comp.,
Oh Yeah?
(New York: Viking Press, 1931), p. 26.

14National Industrial Conference Board,
Salary and Wage Policy in the
Depression
(New York: Conference Board, 1933), p. 6.

15Angly,
Oh Yeah?,
p. 22.

1931—“The Tragic Year”

269

maintaining wage rates.16 Meanwhile, several Governors (of New York, North Carolina, South Carolina, Texas, and Wyoming) went beyond the Hoover voluntary work-sharing program to urge maximum-hour legislation.

Amid the chorus of approval on the Hoover wage program there were only a few cool, dissenting voices. John Oakwood wrote in
Barron’s
that the modern industrialists and labor leaders are saying, in effect, that “they intend to keep up wage levels even if they have to close the mills.” This may be fine for these leaders, but not so welcome to “employees who have been deprived of their jobs by such rigid policies.” Oakwood pointed out that on the free market, selling prices determine costs and not
vice versa
, and that therefore falling prices must be reflected in falling costs, else there will be unemployment and declines in investment and production. Wage rates are a basic part of production cost. Oakwood went on to stress the essential distinction between wage rates and buying power from wages. He pointed out that an individual’s buying power is really “his ability to create goods or render services that have an exchange value for other goods or services,” and that the worker will always tend to receive in wages the worth of his particular productive service. True purchasing power is therefore exchange power based upon production; if a good is in great demand or in short supply, its purchasing power in terms of other goods will be high; and if
vice versa
its purchasing power will be low. During the preceding boom, credit expansion had caused a rise too high to be sustained, and the propaganda about a “new era” and a divinely-ordained American Standard of Living created the idea that this standard was some sort of vested divine right of the American worker. Hugh Bancroft, publisher of
Barron’s
, wrote that it was particularly necessary for wage rates to decline in the producer goods’ industries in view of the great decline in prices there, and noted that real wage rates for the employed had increased, so that the employed workers were profiteering at the 16We might also note that Keynes found the attitude of the Federal Reserve authorities “thoroughly satisfactory,” i.e., satisfactorily inflationist. Roy F. Harrod,
The Life of John Maynard Keynes
(New York: Harcourt, Brace, 1951), pp. 437–48.