and reorganization of the Government departments. As everybody knows, the present set-up is illogical in many respects and is filled with duplication and overlapping of functions.
The root difficulty here is in unregenerate human nature. Every department wants reorganization and economy—but it wants them only for the other departments. Every Congressman wants the Government to save money—but not by separating any of his own constituents from the payroll. Every community is willing that the Government shall spend less money, on the whole, for public buildings, army posts, navy yards and the like—but it flies to arms if the curtailment reaches into its own midst.
What has lately been happening in connection with the President's effort to pare down the budget for the next fiscal year is illustrative of the difficulties in the way of effective economy in Government.
That Navy Tempest.
The President asks the Navy Department to cut a certain sum from its estimates. Immediately the advocates of a "big" navy (or, depending on the point of view, an adequate navy) spring furiously into action. The chairman of the Navy League, a civilian organization, lets out a blast accusing the President of "abysmal ignorance" of the needs of the navy. A flood of propaganda is loosed with the purpose of showing that if the President has his way, the United States will sink to the level of a third-rate naval Power.
There is still another reason why the taxpayer can expect only the most modest results from the President's call for reduced outlays. As has been shown he has a limited field in which to operate. Half of every dollar collected by the Government goes to pay the cost of past wars, in the form either of veterans' relief or of interest and amortization charges on the public debt. He must do his shaving on the other half — the half which pays for national defense (future wars); the general administration of the Government; sites for public buildings and their construction; general law enforcement; the promotion and regulation of commerce, industry, and agriculture; the postal deficiency; the building of roads; flood control and the improvement of rivers and harbors, and the promotion of public health, public education and scientific research.
Big Slice Out of Every Dollar.
National defense, which means the upkeep of the army and navy and the building of armaments, has been taking close to 20 cents of the dollar, making the total chargeable to war, past and future, about 70 cents. Manifestly, if the essential Federal services are not to be crippled, there can be only cheese paring economies in the field of activities covered by the remaining 30 cents, and no saving of this kind, however desirable it may be, can have any appreciable effect on the present financial position of the Government. It is possible, therefore, to applaud the President's economy drive without becoming optimistic as to its outcome. Real economy, translatable into terms of the taxpayer's dollar, can only be achieved by laying the ax vigorously to our expenditures for future war. Whether this should be done is a question for the people, through the Government, to decide.
An Official Estimate Of State of Industry And Employment Now
From the "National Summary of Business Conditions," by the Federal Reserve Board, Compiled October 23:
"Industrial production and factory employment, which usually increases at this season, showed little change from August to September, and, consequently, the board's seasonally adjusted indexes declined. The general level of wholesale prices also declined.
"Industrial production, as measured by the board's seasonally adjusted index, declined from 79 per cent of the 1923-1925 average in August to 76 per cent in September. Activity at steel mills decreased from 31 per cent of capacity to 28 per cent; output of automobiles was reduced substantially and lumber production continued to decline. At cotton mills production increased seasonally, while activity at woolen mills and shoe factories declined, contrary to the usual seasonal tendency.
"The number employed at factories showed little change from the middle of August to the middle of September, a period when employment usually increases. In iron and steel mills, automobile factories and lumber mills, employment decreased further, contrary to the seasonal tendency; in the clothing and silk industries there were substantial increases in employment, partly of a seasonal character; in mills producing cotton goods, employment increased less than usual, and in woolen mills it declined from recent relatively high levels.
"Data on value of building contracts awarded for the period between the first of August and the middle of October, as reported by the F. W. Dodge Corporation, show a continuation of the downward movement of recent month for residential as well as for other types of construction."
V.—Should the Government in this emergency depend on borrowing or on new taxation—How should the burden of new taxation be distributed?
Since it is not possible for the Government, by any conceivable present measures of economy, to make a saving even remotely commensurate with the size of the deficit, it is clear that more money must be found than is now being taken tn.
There are two ways in which additional money can be had: by borrowing and by taxation. During the year ended Oct. 31, the public debt was increased, through Treasury short and long term borrowing, by more than a billion dollars, or to a total of $17,291,000,000. The question that faces Congress is whether the Government should continue to meet its needs by borrowing or should resort, for all or part of the required new revenue, to increased taxes. The question is whether we should shift the burden of the deficit to the future, or, so far as practicable, pay as we go.
There is a growing belief among Congressmen that taxes should be increased. Some, like Senator Borah andd Senator Norris, have held from the time the deficit first appeared that the Government should reach with a longer arm into the big incomes in the upper brackets. Others, representing the administration point of view, took the position originally that a tax increase at all costs must be avoided.
Against Bigger Taxes.
Higher taxes, they said, would hurt business and thereby retard economic recovery. All the familiar arguments against cutting into the incomes of the very rich—that the whole people ultimately would pay the bill, that higher levies in the upper brackets would drive an increasing amount of wealth into tax-exempt securities, that the Government should not take money needed in industry—were heard.
It was said, moreover, that with the revival of business, which lay just around the corner, Government revenues would speedily go back to normal; the Government meantime should tide itself over the emergency with new loans, which could easily be paid off in the rosy future.
So ran the case against a tax increase, and it looked until recently as if this counsel would prevail. For one thing, it squared with the philosophy of conservative Republicanism and, for another, it appealed to that section of the Democratic party which is eager, on the eve of a presidential election, to prove that big business has nothing to fear from the Democrats. The present staggering size of the deficit—it is four times as great for the first four months of the current fiscal year as it was for the corresponding period of the previous year—has materially changed the outlook. Even some of those who previously stood against any revision of the present tax schedules have come to the reluctant conclusion that an increase, to supplement the money raised by loans, will be necessary.
Who Is Going to Pay?
If new taxes are levied, what shall be their incidence? On this question there are, roughly speaking, two schools of thought, and the difference between them goes down to the fundamental issue that divides men in Congress (and in the nation and the world) on every vital politico-economic question. Labels in politics are delusive, but in general it may be said that the fight is between Conservatives and Liberals—between those who believe that the first function of government is to establish prosperity among a privileged class at the top, whence it may diffuse itself at the direction of this class over less fortunate groups, and those who believe that government should concern itself primarily with the welfare of the mass.
A Marxian would say that the battle is merely a part of the age-long struggle between the House of Have and the House of Have Not.
This definition may over-simplify the matter, but no such objection can lie against the statement, quoted approvingly by Prof. John Dewey in his book on "Individualism, Old and New," that all the great political questions in Washington come back ultimately to problems connected with the distribution of income. The question of how the burden of new taxes shall be apportioned falls precisely within this category.
Wealth's Distribution.
We come now to a point in this article where two topics—that of the Government's depression and that of the whole people's depression—begin to converge. We reach the proposition that the Government, through its taxing power, not only can cure its depression (that is to say, close the gap between receipts and expenses) but by the radical use of that tremendous power, can profoundly affect the whole economic and social structure of the country. It can help to bring about a redistribution of wealth.
Let us see, briefly, what the available evidence tells us about the present distribution of wealth. Our best source of information is the annual Statistics of Income, published by the Treasury Department.
In the calendar year 1929, the last year for which figures have been published, about 1 per cent of those making income tax returns to the Federal Government had about 25 per cent of the aggregate income reported. Persons with incomes of more than $100,000 each, forming a little more than one-third of 1 per cent of all those reporting, had more than 17 per cent of the income. The number of taxpayers with incomes of more than $100,000 shows a steady increase from 1921 to 1929, broken only by the stock market crash of the latter year. In 1921 the total was 2352; in 1928 it reached the top figure of 15,977, and in 1929, according to the Treasury's preliminury report for that year, it stood at 14,701.
Growing Great Fortunes.
The same progression held good in the class with more than $1,000,000 income each. Its numbers grew from 21 in 1921 to 511 in 1928, dropping in the following year (preliminary figures again) to 504. Not even the stock market crash halted the steady upward trend of the curve representing the supremely fortunate few with incomes of more than $5,000,000 each. There were only four persons in this class in 1921; in 1928 there were 26, and the next year there were 36.
Figures could be piled up to show how wealth, in increasing degree, has become concentrated in the hands of a small fraction of the people, but a few more must suffice. The Federal Trade Commission, in a comprehensive study of the national wealth and income of the United States, surveyed the estates of 43,512 decedents in 24 selected counties in 13 states for the period from 1912 to 1923. It found that 1 per cent of the decedents owned 59 per cent of the estimated wealth and that 13 per cent owned 90 per cent of the wealth. The average value of all the estates was $3800, but over 91 per cent of the decedents had estates of less than this average. The commission's tables indicate, as it conservatively says, "a rather high degree of concentration."
What the Poor Own.
It is impossible, of course, to arrive at the exact proportions in which the national wealth is distributed, but certain figures are suggestive. The Industrial Relations Commission has estimated that the rich (2 per cent) own 60 per cent of the accumulated wealth of the nation, the middle class (33 per cent) own 35 per cent of the wealth, and the poor (65 per cent) own 5 per cent of the wealth.
Reverting to income, as distinguished from accumulated wealth, it is illuminating to note that only one person out of every 50 in the United States has a net income of sufficient size to require him to pay a tax upon it to the Federal Government. About 2,500,000 persons, or 2 per cent of the population, pay all that is collected under the Federal income tax; 98 per cent pay none of it. Secretary Mellon uses these figures to support his contention that the income tax base should be "broadened." They are equally pertinent in showing the maldistribution of wealth in the United States.
Incomes of Super-Rich.
The 504 super-millionaires at the top of the heap in 1929 had an aggregate net income, for taxation purposes, of $1,185,000,000. These 504 persons could have purchased with this income virtually the entire wheat and cotton crops of 1930—the two chief cash crops of the nation, representing the labor of 1,300,000 wheat farmers and 1,032,000 cotton farmers. When these figures were first put together by Dr. George L. Knapp of the railwaymen's newspaper, Labor, the result was called by Senator Norris of Nebraska "one of the most astounding statements that has ever appeared in print."
Knapp further showed, from official statistics, that in comparison with the $538,664,187 net income of the 85 wealthiest taxpayers in 1929, the 421,000 workers in the clothing industry received in wages $475,318,677. In other words, "these 85 men could have paid the entire wage bill of the clothing industry and still had left for themselves about three-quarters of a million apiece."
The point need not be labored. There is growing concentration of American wealth in the hands of a few; there is steady accentuation of "the widest spread between the extremes of wealth and poverty existing in the Western world." More and more, thoughtful observers who by no stretch of the imagination can be described as revolutionary or radical are calling our attention to this condition and its dangers.
Sources to Be Taxed.
Figures such as the foregoing led the Federal Council of Churches, in a Labor day message, to point to the "grave imperfections in an economic order which makes possible the stark contrast of vast fortunes and breadlines," and they have prompted such a good conservative as Congressman Bacharach of New Jersey, a Republican member of the House Ways and Means Committee, to take a leaf from the Progressive book and propose higher surtaxes, higher estate taxes and the reimposition of the gift tax. It would be better, says Bacharach, for Congress to adopt a "timely program with reasonable rates than to delay until the situation becomes more desperate and the door is open to more radical legislation with unreasonable rates."
The various tax proposals coming before Congress may be grouped under two heads. On the one side are those which would "broaden" the tax base and on the other are those which would use the taxing power for the double purpose of raising revenue and breaking up, to some degree, the vast accumulations of wealth revealed by the income tax statistics. Whether or not there will be a movement to increase income taxes in the lower brackets has not become apparent, but the drive is already under way for a general sales tax or a "selective" sales tax on such commodities as gasoline, radio sets, automobiles, and (in addition to the heavy impost they already bear) cigarettes. A sales tax is the income tax in reverse. It is large or small according to the amount consumed by the taxpayer; the income tax, called by economists one of the fairest taxes ever devised, is large or small according to capacity to pay. A sales tax bears inequitably upon persons of small means; as Prof. E. R. A. Seligman of Columbia University has testified, it "sins against the cardinal principle of equality in taxation." The fight for and against a sales tax brings into head-on collision the opposing theories of government which have been mentioned. The tax is advocated at this time, manifestly, in an effort to avert higher levies on the rich.
There are three main items in the opposing program: An increase in the higher brackets of the income tax, an increase in the estate tax, and the restoration of the gift tax.
Under the wartime rates, applicable through the calendar year 1921, the Government collected surtaxes running up as high as 65 per cent on amounts of income over $1,000,000. Successive general tax reductions have brought the top rate down to 20 per cent and have stopped the graduation of incomes at $100,000. The rate is 20 per cent, that is to say, no matter how small or how large the excess over $100,000.
Income Taxes in Great Britain.
What has happened in respect to the taxes of the very rich can better be shown by a comparison based on the average tax per return and the average rate of tax on incomes in excess of $1,000,000. In 1918, such incomes paid to the Government an average tax of $1,326,645 and the average rate of tax worked out at 64.65 per cent. In 1928, the average tax in the same bracket was only $362,309 and the average rate of tax was 16.70.
It is interesting to observe that the super-millionaires—those with incomes of more than $1,000,000, including the top-notchers with incomes of more than $5,000,000—paid a lower average rate of tax than persons with incomes from $300,000 to $1,000,000. The Progressives in Congress are asking why the upward graduation of rates, which is effective through all the brackets from $10,000 up to $100,000, should cease at that point. It has been suggested that the rates be stepped up until they reach a maximum figure of 35 or 40 per cent on amounts of income over $500,000. Forty per cent was the maximum rate carried in the revenue act of 1924.
In urging that the bulk of any increased tax burden be laid on taxpayers with net incomes in excess of $100,000. Congressman Bacharach pointed out that there had been an increase of more than 5000 in the number in this class since 1925 and drew the conclusion that "the rich are getting richer and the poor poorer."
The American income tax rates invite comparison with the British. Great Britain in 1929-30 had 130 persons with incomes of $500,000 and upward. Their average income was $930,000. We had 1471 in this group in 1929, with an average income of $1,250,000. The total net income of the 1471 was $1,848,585,793, on which they paid a tax of about 16 per cent, or $291,337,965. If they had been assessed at the British rates then effective, they would have paid a tax of about 48 per cent, or approximately $900,000,000.
Over-Expanded Industries.
One of the main arguments by which Congress on three occasions was led to reduce the surtax rates was that urgently needed money would thereby be released for the expansion of industry. From this expansion, it was said, would flow great and widely distributed benefits. If this argument ever had any validity—which is seriously to be doubted—it surely has none now. Industry today is tremendously overexpanded — that is its great trouble and the country's trouble. Proponents of low surtaxes have been forced to fall back on their second line of defense, the contentions that high rates (1) drive wealth into hiding and (2) are ultimately passed on to the whole people. We shall hear all the changes rung on these arguments in the coming debates.
The second item in the Progressive program calls for a sharp increase in the estate tax, and the third, a necessary accompaniment of this increase in order to prevent evasions, calls for restoration of the gift tax, which Secretary Mellon was successful in having repealed in 1926. The present estate tax runs from a minimum of 1 per cent to a maximum of 20, which is effective on amounts over $10,000,000. There is an exemption of $100,000 before the tax begins to apply, and a credit up to 80 per cent of the Federal tax is allowed on account of inheritance levies paid to the states. Prior to the estate tax act of 1926, the maximum rate was 40 per cent and the credit allowed for payments to the states was only 25 per cent.
Tax on Estates.
Secretary Mellon has been a constant advocate of complete repeal of the estate tax. In this position he had the warm support of President Coolidge, who argued that the field of estate taxation was one that belonged peculiarly to the states. Coolidge also said that the Government should not "seek social legislation in the guise of taxation"; that if we were going to adopt "socialism" we ought to present the issue to the people "as socialism and not under the guise of a law to collect revenue." Apparently, in this philosophy, it is sound enough policy for the states to adopt socialism, but unwise and dangerous for the Federal Government to do it.
Secretary Mellon is strongly against the use of the estate tax as a social weapon. He says that "the social necessity of breaking up large fortunes in this country does not exist"; that "in a few generations any single large fortune is split into many moderate inheritances."
As to that, let us see. Here are some statistics read into the Congressional Record when the estate tax was under debate in 1926. John D. Rockefeller has given to his children $2,000,000,000. He has in his own right (1924) $500,000,000 and John D., Jr., has an income of $40,000,000 a year. Bear in mind that this was several years ago; the fortunes named have materially increased since then. The Pratt fortune, of Standard Oil origin, grew from $10,000,000 to over $300,000,000 in 30 years. The Harkness fortune, also from Standard Oil, was less than $50,000,000 when Stephen V. Harkness died. It has become more than $400,000,000. Meyer Guggenheim died in 1905, leaving $50,000,000. He had nine children. His estate increased in 20 years to a sum sufficient, if divided, to give each of the children more than the original whole. The fortune of Alexius du Pont was $40,000,000. It was estimated in 1926 that the 40 descendants in the fourth and fifth generations were each worth more than that.
Two Interesting Death Taxes.
Again, the argument is made that the estate tax constitutes a levy on capital. The reply to this is that even a fairly heavy tax can be liquidated through annual payments from the income of the estate if sufficient time is allowed. The estate of Harry Payne Whitney furnishes an illuminating case in point. Valued at $186,579,746 at the time of his death in 1927, it paid death taxes to the Federal Government and the States of $22,179,274, or 12 per cent of the value of the estate. Between 1927 and 1929, the estate increased in value by $52,721,270, or nearly two and a half times the amount of the death duties.
Secretary Mellon says that wealth is invested in tax-exempt securities as a means of escaping taxation; he asks for a constitutional amendment to close this loophole. If he is genuinely anxious to get at investments in tax-free securities, he can do so through a weapon immediately available, the estate tax. It is the only such weapon.
It is sald that the estate tax should be left to the states. The reply is that the only authority which can levy the tax without discrimination is the Federal Government.
Views of Rich Men.
Proponents of the estate tax urge it frankly as a social weapon as well as a revenue producer. In a message to Congress in 1906, Roosevelt advocated heavy death duties, with the primary object of putting "a constantiy increasing burden on the inheritance of those swollen fortunes which it is certainly of no benefit to this country to perpetuate." Andrew Carnegie wrote in his "Gospel of Wealth": "Of all forms of taxation, this seems the wisest. It is dificult to set bounds to the share of a rich man's estate which should go at his death to the public through the agency of the State." Prof. Thomas S. Adams of Yale says that "we should raise from this source enough revenue to measurably relieve the farmers and the general taxpayers," and Prof. Seligman of Columbia observes that "wherever we have democracy we have two things—an income tax and an inheritance tax."
The case for the gift tax is adequately summed up by Senator Couzens, when he says: "There is no logic in an estate tax when a man, through gifts in his lifetime, can evade the tax. The gift tax would enable us to collect on transfers of property whether they were made before or after the giver's death."
Loss in American Wages Twice Value Of Foreign Trade
From the November "Survey of Business" by the American Federation of Labor.
"Wage earners' yearly income is now $11,000,000,000 below the 1929 level. This does not include losses of salaried workers. The total income of factory workers is now 37 per cent below 1929, of railroad workers 25 per cent below, and the income of all wage earners, we estimate, has declined 32 per cent below 1929. Cost of living has declined only 12 per cent; workers' actual purchasing power therefore is 23 per cent below 1929. Allowing for the change in prices, the wage earners' loss is $9,700,000,000 in 1929 dollars.
"No other single item in the record of business losses has had anything like the economic effect of this $11,000,000,000 decline in wage payments. If the United States were to lose its entire foreign trade, the loss would be less than half as great as the wage decline. Most significant of all is the loss in retail trade due to diminished incomes of workers. Allowing for rent and for price changes, the loss to retail trade from wage declines this year has been at least $8,000,000,000 in 1929 dollars. Since the nation's total retail sales in 1929 were $50,000,000,000, the wage loss has reduced retail trade by 16 per cent. Since production of practically every kind depends ultimately on retail sales, this loss has had its blighting effect on factories, mines, railroads, farms, reducing business activity throughout our entire business mechanism. A loss one-quarter as large would be enough to work serious havoc. Those who advocate reducing workers' buying power still further by wage cuts have failed to consider these facts."
VI.—Our general depression is homemade, and it is due fundamentally to the maldistribution of wealth.
There is now to be considered the general depression in the United States, to which the plight of the Government is due.
Let us note some of the stages in our slow and painful progress, as a people, toward a realistic appraisal of the facts. As long ago as 1928, in the very midst of the boom times, when Coolidge was still President and John J. Raskob was telling us that all we needed to do in order to get rich was to put our money in investment trusts, a few men raised their voices in warning.
There was, for conspicuous example, the Very Rev. William R. Inge, the "gloomy dean" of St. Paul's, London, who wrote in his notable contribution to the fiftieth anniversary edition of the Post-Dispatch, in December, 1928: "Already, I believe, there are signs that the law of diminishing returns is beginning to operate, and production is only maintained at full speed by frantic advertising. The advantages already won by the American worker, such as his cheap car, his radio, and his bathroom, are solid and permanent; but the limits of 'consumptionism'—an ugly word for which I am not responsible—are probably not far off."
Chorus of Reassurances.
The small minority who dared preach this heresy were prophets without honor in the United States. Were not President Coolidge and Secretary Mellon assuring us that we had come permanently into a new and shining era? Was it not proclaimed by the Schwabs, the Insulls and others that anybody who "sold America short" would be punished for his sins? The twin bubbles of industrial over-expansion and of stock market speculation continued to grow. When the market bubble burst in the fall of 1929, the prophets of continuing prosperity said the collapse was merely a chastening episode in an orgy of gambling. There was no connection, they said, between the break and the condition of the nation's business. From the mimeograph machines of the administration came a flood of statements, for months on end, that American industry was fundamentally sound.
When it became evident to the least observant that something, after all, was wrong with industry—when the buying not only of jewelry and furs by the speculators but of shoes and groceries by the rest of the people began to fall off, and men were seen walking the streets in search of work—when these things happened, the tune was changed. It was admitted that depression had come to America, but this unhappy condition, it was said, was due to world-wide forces over which we had no control. That the industrial captains of the United States could be at fault was unthinkable. That we as a people could be at fault was even more unthinkable. We are caught, said the publicists, official and otherwise, in a net not of our own making. Along with this easy diagnosis ran another—that the depression was largely psychological. Advertisements were inserted in the newspapers by various business organizations exhorting the people to resume buying and promising that if they did this prosperity would soon come back.
Finding out the True Reasons.
Above a din compounded of facile explanations, of depression blues and of happiness choruses led by the Raskobs and the Dr. Julius Kleins, certain clear voices of economists and of some of the more thoughtful industrial and political leaders began, in the spring of 1931, to make themselves heard. Dissenting from the carefully propagandized theory of world-wide responsibility for the American depression, these men brought a new note of realism and sincerity into the discussion.
Dean Donham of Harvard, for one, sald in an interview published in the Post-Dispatch in May that our economic troubles had been intensified, but not caused, by the world depression. He said that our recovery was not necessarily dependent upon world recovery. Taking issue with the theory that we should seek a vast expansion of our export trade, Dean Donham said the better course was to build up purchasing power at home. He pointed out that our export trade was less than 10 per cent of our total production; this indicated to him that the domestic market always had been our principal consumer and that we should look to it rather than to foreign markets for future expansion.
The views of the Harvard dean were echoed presently, in another Post-Dispatch interview, by Senator Couzens of Michigan, "Our depression," he said, "would have come whether there was a world depression or not. Why? Because for a long period before the crash our production had been outrunning our consumption. The workers were producing more than they could buy with the wages they received. Our predicament is primarily due to the inequitable distribution of the earnings of industry as between capital and labor. I have not seen a single denial of that statement—even by the bankers who are urging wage reductions."
Home Market Excels Foreign.
"Dean Donham," added the millionaire Senator, "is everlastingly right. We've gone crazy on the subject of exports. . . . Our manufacturers have the best market in the world right at their doors, providing they pay their workers sufficient wages to buy what the workers produce."
Other distinguished experts could be called to the stand in support of this diagnosis, but only one more need be heard. This is President Hoover. We turn to his speech to the editors at Indianapolis last June. He was arguing, it is true, that world influences accounted in large degree for our depression, but on the subject of the part played by the decline of our exports this is what he said:
"Our average annual production of movable goods before the depression was about $50,000,000,000. We exported yearly about five billions, or 10 per cent. The world disruption has temporarily reduced our exports to about three and one-half billions. In other words, the shrinkage of foreign trade by one and one-half billions amounts to only 2 or 3 per cent of our total productivity. Yet as a result of all the adverse forces our production has been reduced by, roughly, ten or twelve billions. This sharp contrast between a national shrinkage of, say, twelve billions, and a loss of one and one-half billions from export trade is an indication of the disarrangement of our own internal production and consumption entirely apart from that resulting from decreased sales abroad."
And in the same speech the President sald, in opposing a large bond issue for new public works, that "the remedy for economic depression is not waste, but the creation and distribution of wealth."
(Black letters are the writer's.)
"Half Starved, Half Gorged."
It is not intended here to minimize the importance of foreign trade in our national economy. A healthy volume of exports is greatly to be desired; to some businesses, it represents the margin between profit and loss. The point is simply that the shrinkage we have experienced in a trade which consumes, at best, less than 10 per cent of our total annual production is only one factor, and a very small factor, in our depression.
We have reached, at last, a stage in our national thinking in which it is being more and more widely understood, and more and more generally proclaimed by thoughtful leaders of opinion, that our present depression is primarily of our own making, and that the underlying cause is the maldistribution of wealth. In terms less pungent but meaning the same thing, an ever increasing number of upholders of the capitalistic order, men of the type of Senator Couzens and Daniel Willard and the others quoted in the introduction to this article, are saying, with the picturesque Gov. Murray of Oklahoma, that "just as a nation could not live half free and half slave, so this republic cannot continue half starved and half gorged."
Middle Ground Beckons.
Looking abroad, these inquiring minds see two significant natonal experiments. They see Soviet Russia slowly retreating from its originally declared policy of pure communism; they see England (notwithstanding the apparent check given the movement by the last elections) going steadily and with seemingly fixed intention away from unrestricted capitalism. They see both these nations seeking a tenable middle ground, and they are asking whether the United States, in order to prevent a swing to the left, should not consciously turn its face toward the middle.
Men who are not afraid to question the wisdom of unrestricted capitalism—which is practically what we have today—are the real conservators of our institutions. The real threat to them comes not from the handful of Communists in our midst but from the conservative extremists who are not willing to yield an inch. There is vastly more danger to the established order from the economic reactionaries in Congress than there is from the so-called radicals.
Why Millions Cannot Buy.
After the admission that our depression was home-made, it became fashionable to attribute it to "over-production," and that word, together with "under-consumption," still runs through public discussion of the problem. Both these words express only part of the truth: they do not go to the root cause of our troubles. That cause can only be found in the distribution of the national wealth, in a system, or lack of system, which permits—to cite but one glaring result—36 persons in the United States to receive an annual income averaging nearly $10,000,000 each, or, in the aggregate, a greater income after all the deductions allowed by law, than the sum of the wages paid to the 428,000 persons employed in the manufacture of cotton goods.
Under this system, only 2 per cent of the people have incomes large enough to interest the Federal tax collector. The other 98 per cent, obviously, have little or no share in the country's prosperity. Gov. Harry Woodring of Kansas in a Fourth of July speech called the depression a "panic of plenty," and that is precisely what it is. There is plenty of everything in the country. The trouble is that the millions of unemployed and under employed lack the means to buy what they could use—lack, in many thousands of cases, the means of decent subsistence. This is the reason for "under-consumption."
VII.—How the machine has accelerated the growth of this economic disease.
Some of the writers in the Fiftieth Anniversary edition of the Post-Dispatch said the machine age, with its wholesale displacement of workers, did not really begin until 1920. Why, then, did hot large-scale unemployment begin at the same time? The answer is, first, that large numbers of workers were absorbed by new industries, such as those connected with radio transmission and receiving sets; and, second, that the sales and advertising divisions of industry were enormously expanded. Coincident with the latter development was the introduction on a huge scale of personal-credit and time-payment sales plans. Dean Inge's reference to our "frantic advertising" has been noted. This frantic campaign, plus time payments, enabled the producers to dispose of the output of their machines far longer than would otherwise have been possible.
What Stopped Sales Spree.
Sales would be booming today if the credit manager, an obscure fellow usually stuck off in a dark corner of the great offices, had not made himself heard. One day, when the sales manager came in with John Doe's paper for a new automobile, a new electric icebox, a new radio or a new heaven-knows-what, the credit manager rebelled. "I can't take any more of John Doe's paper," he sald. "I have a bale of it now, and he is behind on interest and principal." This went on all over the country. It helped to bring about the collapse of the installment business, which, of course, was soon followed by the breakdown of jobbing and manufacturing.
Whether, in the cosmic view of things, the machine is a blessing to mankind or a curse, is a question for the philosopher. It need not detain us here. For the machine, whatever we may think of it, is with us to stay, and our problem is so to readjust its effects as to minimize its evils and equitably distribute its benefits.
The maldistribution of wealth is the fundamental cause of our economic sickness. If we liken society to a tree, we may say that disease has attacked the roots, causing the tree to give off, instead of the luxuriant foliage of which it is capable, the withered leaves of unemployment. The progress of this disease, this concentration of vast wealth in a few hands, has been greatly accelerated in the last 10 years by the machine.
Real Beneficiaries of Machines.
The true function of the machine is to spread leisure, which is the highest expression of wealth, through the whole mass of society. From this use it has been increasingly perverted. Wealth has grown amazingly, and with it has grown the possibility of the "good life"—leisure with the means to enjoy it—for an ever widening circle of workers. The measure by which we have fallen short of this ideal is the measure of the failure of capitalism as now organized. How far short we have fallen, the stark figures testify. The wealth created by the machine has gone, in appalling disproportion, to the owners of the machine. To the millions of manual workers displaced by the machine, it has given not leisure with the means to enjoy it, but the evil twin of leisure, which is idleness. The perversion of the machine from its proper use has brought about our present condition of unemployment.
Capital as Grave Digger.
Realization of the close relation between unemployment and "purchasing power" has been forced upon the owners of the machine. They see a vicious circle nearing completion. They see the products of the machine, which heretofore have spelled ever increasing wealth, beginning to appear in part as dross. For no product of the
