America's Great Depression (56 page)

workers suffered from unemployment. Eighty-eight percent of the larger firms had engaged in work-sharing, while only 53 percent of the smaller firms did so. In a business and industrial conference of August 26, 1932, Hoover reported that work-sharing had been used for hundreds of thousands of workers.

The Conference appointed a subcommittee headed by Walter Teagle, President of Standard Oil of New Jersey, to urge more work-spreading, in hopes of putting two million people back to work. Standard Oil set an example by hiring 3000 more workers in addition to its total of 23,000. The slogan adopted was: “job security by job sharing.” In September, William J. Barrett, of the President’s Organization on Unemployment Relief, delivered a comprehensive report on work-spreading. Barrett admitted that “management has by urging them, during 1930 and 1931, to meet at a formal conference with leaders of organized labor. See James O. Morris, “The A.F. of L. in the 1920s: A Strategy of Defense,”
Industrial and Labor Relations Review
(July, 1958): 577–78.

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America’s Great Depression

undergone increased costs in providing employment for additional workers.” He further revealed that the largest proportion of work-sharing occurred in the most distressed industries: i.e., the capital goods industries. This illustrates the role that work-sharing played in aggravating and perpetuating unemployment. Thus, in a sample of industries, the largest proportion of part-time workers occurred in such fields as machinery (84.9 percent), rubber, iron, and steel (79.3 percent), metals, stone, clay, and glass, while the smallest proportion occurred in railroads (22.3 percent), foods (26.6 percent), retail and wholesale, and commercial establishments (20.4

percent). The average part-time proportion for the entire sample was 56.1 percent.19

CONCLUSION: THE LESSONS

OF MR. HOOVER’S RECORD

Mr. Hoover met the challenge of the Great Depression by acting quickly and decisively, indeed almost continuously throughout his term of office, putting into effect “the greatest program of offense and defense” against depression ever attempted in America.

Bravely he used every modern economic “tool,” every device of progressive and “enlightened” economics, every facet of government planning, to combat the depression. For the first time, laissez-faire was boldly thrown overboard and every governmental weapon thrown into the breach. America had awakened, and was now ready to use the State to the hilt, unhampered by the supposed shibboleths of laissez-faire. President Hoover was a bold and auda-cious leader in this awakening. By every “progressive” tenet of our day, he should have ended his term a conquering hero; instead he left America in utter and complete ruin—a ruin unprecedented in length and intensity.

What was the trouble? Economic theory demonstrates that only governmental inflation can generate a boom-and-bust cycle, and that the depression will be prolonged and aggravated by inflationist and other interventionary measures. In contrast to the myth 19
Monthly Labor Review
35 (1932): 489ff. and 790ff.

The Close of the Hoover Term

337

of laissez-faire, we have shown in this book how government intervention generated the unsound boom of the 1920s, and how Hoover’s new departure aggravated the Great Depression by massive measures of interference. The guilt for the Great Depression must, at long last, be lifted from the shoulders of the free-market economy, and placed where it properly belongs: at the doors of politicians, bureaucrats, and the mass of “enlightened” economists.

And in any other depression, past or future, the story will be the same.

Appendix: Government and the

National Product, 1929–1932

In footnote 21 of Chapter 9, we explain how we arrive at our estimate of the degree of government depredation on the private national product. The critical assumption is the challenge to the orthodox postulate that government spending,
ipso facto
, represents a net addition to the national product. This is a clearly distorted view. Spending only measures value of output in the private economy because that spending is voluntary for services rendered. In government, the situation is entirely different: government acquires its money by coercion, and its spending has no necessary relation to the services that it might be providing to the private sector. There is no way, in fact, to gauge these services. Furthermore, every government-conscripted dollar deprives the citizen of expenditures he would rather have made. It is therefore far more realistic to make the
opposite
assumption, as we do here, that all government spending is a clear depredation upon, rather than an addition to, private product and private output. Any person who believes that there
is more than 50 percent
waste in government will have to grant that our assumption is more realistic than the standard one.

To estimate the extent of government depredation on private product, we first find private product by deducting “product” or

“income” originating in government and “government enterprise”—i.e., the payment of government salaries—from Gross National Product. We now have the Gross Private Product. Government depredations upon this GPP consist of the resources that
339

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America’s Great Depression

government drains from the private sector, i.e., total government expenditures or receipts, whichever is the higher. This total subtracted from the GPP yields the private product remaining in private hands, which we may call PPR. The percentage of government depredation to gross private product yields an estimate of the burden of government’s fiscal operations on the private economy.1

If government expenditure is larger than receipts, then the deficit is a drain on private resources—whether financed by issuing new money or by borrowing private savings—and therefore the expenditure figure is chosen as a measure of government depredation of the private sector. If receipts are larger, then the surplus drains the private sector through taxes, and receipts may be considered the burden on the private sector.2

One significant problem created by the vagaries of the official statistics—fortunately, again, a problem not significant for our period—is that the official statistics lump together the bulk of the spending of government
enterprises
(roughly, the government agencies that charge fees) in the private, rather than the governmental, sector. There are, therefore, no figures available for the 1It is conventionally argued, e.g., by Professor Due, that we should not include government
transfer payments,
e.g., relief payments, in any such expenditures deducted because transfer payments are not included in the original GNP

figure. But the important consideration is that
taxes
(or deficits) to finance transfer payments
do act
as a drain on the national product, and therefore must be subtracted from GPP to yield PPR. Due claims that, in gauging the relative size of governmental and private activity, transfer payments should not be included because they “merely shift purchasing power” from one set of private hands to another, without the government’s using up resources. But this “mere shift” is just as much a burden upon the private producers, just as much a shift from voluntary production to state-created privilege, as any other governmental expenditure. It is a government-induced using of resources. John F. Due,
Government Finance
(Homewood, Ill.: Richard D. Irwin, 1954), pp. 64, 76–77.

2A surplus slightly overestimates the extent of depredation if it is used to deflate the money supply, and government expenditures slightly overstate the extent of depredation by counting in the amount of government taxes levied on government bureaucrats themselves. The amount of distortion is slight, however, particularly for the 1929–1932 period, and is less than the distortion of using GNP instead of GPP, and thus counting governmental payment of salaries as equivalent to the “product” of government.

Appendix

341

total spending or total receipts of government enterprises—although there
are
separate figures for the salaries paid by, the “income originating in,” government enterprises. Below, we will present very rough estimates for government enterprises for these years.

Furthermore, we do not, as do the Department of Commerce accounts of government expenditures, deduct government interest
received
from interest paid by government, to arrive at a “net interest paid” figure. On the contrary, the full amount paid by government is deducted from private resources and must therefore be included; while “interest received” is a receipt from the private sector, and should be included in the estimation of government receipts.

We are presenting here the figures not only for gross product, but also for net product, which are also of interest. Net National Product is Gross National Product minus depreciation and other capital consumption allowances, and if we consider private product as net income without drain on the value of capital, then we should estimate the percentage of government depredation on net private product.3

Table I presents Gross National Product and Net National Product in current prices. (Figures in this and following tables are from TABLE I

NATIONAL PRODUCT

($ billions)

Gross National

Net National

Product

Product

1929

104.4

95.8

1930

91.1

82.6

1931

76.3

68.1

1932

58.5

50.9

3Of course, official figures are not always accurate estimates of true depreciation. For a cogent discussion of the advantages and disadvantages of using
net
or
gross
measures of the governmental burden on the economy, see
The Tax Burden
In Relation To National Income and Product
(New York: Tax Foundation, 1957).

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America’s Great Depression

U.S. Income and Output
, Department of Commerce, November 1958; and
National Income, 1954 Edition
, Department of Commerce.) Our next step is to find the gross product of government and government enterprises, or “income originating in government and government enterprises.” Table II presents these figures for Federal, and for state and local, government and government enterprises.

TABLE II

INCOME ORIGINATING IN GOVERNMENT

($ billions)

Fed.

State &

State &

Total

Fed.

Govt.

Local

Local

Govt. and

Govt.

Ent.

Govt.

Govt. Ent.

Govt. Ent.

1929

0.9

0.6

3.4

0.2

5.1

1930

0.9

0.6

3.6

0.2

5.3

1931

0.9

0.6

3.7

0.2

5.4

1932

0.9

0.5

3.6

0.2

5.2

Deducting the total figure for income originating in government and government enterprises, from GNP, we arrive at Gross Private Product (and from NNP, we arrive at Net Private Product). This is shown in Table III.

TABLE III

PRIVATE PRODUCT

($ billions)

Total Inc.

Orig. in

Gross

Net

Govt. &

Private

Private

GNP

NNP

Govt. Ent.

Prod.

Prod.

1929

104.4

95.8

5.1

99.3

90.7

1930

91.1

82.6

5.3

85.8

77.3

1931

76.3

68.1

5.4

70.9

62.7

1932

58.5

50.9

5.2

53.3

45.7

Appendix

343

Table IV presents our estimates for government expenditures, not including government enterprises. As we have indicated above,

“interest received,” which had been deducted from “interest paid” by government to arrive at the Department of Commerce figure for government expenditures, was re-included; also, for similar reasons, “surplus of state and local government enterprises,” which the Department deducted from its aggregate of state and local government spending, was re-included in our estimates.

TABLE IV

GOVERNMENT EXPENDITURES

($ billions)

Fed.

State & Local

Total Govt.

Expends.

Expends.

Expends.

1929

2.9

8.2

11.1

1930

3.1

8.9

12.0

1931

4.4

8.9

13.3

1932

3.4

8.0

11.4

Estimates of the expenditure of government enterprises are divisible into two parts: income originating (i.e., employee salaries), which are available from the Department of Commerce, and purchases from business, which are not available at all. Neither the Department of Commerce nor the Treasury has any figures available for purchases from business. The only estimates we may obtain, therefore, must be highly sketchy and arbitrary. Professor Fabricant has prepared figures for the
fiscal
year 1932 (we have so far been dealing in calendar years) of the total purchases from business by federal and state and local governments,
including
government enterprise.4 Fabricant estimates total Federal purchases from 4Solomon Fabricant and Robert E. Lipsey,
The Trend of Government Activity
in the United States Since 1900
(New York: National Bureau of Economic Research, 1952), pp. 222–34.