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No. 102 "The Townsend Plan: An Analysis of an Attempt to Perpetrate a Cruel Hoax upon a Trusting People," February 24, 1936. American Liberty League. 400dpi TIFF G4 page images Digital Library Services, University of Kentucky Libraries Lexington, Kentucky Am_Lib_Leag_102 These pages may freely searched and displayed. Permission must be received for subsequent distribution in print or electronically. No. 102 "The Townsend Plan: An Analysis of an Attempt to Perpetrate a Cruel Hoax upon a Trusting People," February 24, 1936. American Liberty League. American Liberty League. Washington, D.C. 1936. This electronic text file was created by Optical Character Recognition (OCR). No corrections have been made to the OCR-ed text and no editing has been done to the content of the original document. Encoding has been done through an automated process using the recommendations for Level 1 of the TEI in Libraries Guidelines. Digital page images are linked to the text file. Pamphlets Available * Copies of the following pamphlets and other League literature may be obtained upon application to the League's national headquarters: Statement of Principles and Purposes American Liberty League Its Platform The Bonus Inflation The Thirty Hour Week Bill Price Control The TV A Amendments The Supreme Court and the New Deal Expanding Bureaucracy Lawmaking by Executive Order New Deal Laws in Federal Courts Dangerous Experimentation Economic Planning Mistaken But Not New Work Relief The AAA and Our Form of Government Alternatives to the American Form of Government A Program for Congress The 1937 Budget Professors and the New Deal Wealth and Income The President Wants More Power (leaflet) The Townsend Nightmare (leaflet) The New Deal Works Program (leaflet) The Constitution What It Means to the Man in the Street By John W. Davis How to Meet the Issue Speech by W. E. Borah The Duty of the Lawyer in the Present Crisis Speech by James M. Beck The Constitution and the Supreme Court Speech by Borden Burr Our Growing National Debt and Inflation Speech by Dr. E. W. Kemmerer Inflation Is Bad Business Speech by Dr. Neil Carothers The Fallacies and Dangers of the Townsend Flan Speech by Dr. W. E. Spahr What of 1936? Speech by James P. Warburg Americanism at the Crossroads Speech by R. E. Desvernine The Constitution and the New Deal Speech by James M. Carson The American Constitution Whose Heritage? Speech by Frederick H. Stinchfleld The American Form of Government Let Us Preserve It Speech by Albert C. Ritchie The Redistribution of Power Speech by John W. Davis Time to Stop Speech by Dr. Neil Carothers The President Has Made the Issue Speech by Charles I. Dawson The Facts In the Case Speech by Alfred E. Smith The Townsend Utopia Speech by Dr. Ray Bert Westerfield Shall We Plow Under the Supreme Court? Speech by Jouett Shouse â˜… american liberty league NATIONAL PRESS BUILDING WASHINGTON, D. C. â˜… â˜… THE TOWNSEND PLAN â˜… â˜… â˜… An Analysis of an Attempt to Perpetrate a Cruel Hoax upon a Trusting People american liberty league "National Headquarters NATIONAL PRESS BUILDING WASHINGTON, D. C. â˜… â˜… Document No- 10a February, 1936 The Townsend Plan â˜… The plan of Dr. F. E. Townsend for "Old Age Revolving Pensions" OARP has aroused false hopes for future security among millions of worthy citizens. No more cruel hoax ever was perpetrated upon a trusting people. Elderly men and women, anxious for safety in their declining years, have been deluded into believing that attainment of the millennium is in sight. No one would deny them the privileges proposed if they were possible of achievement. But the unanimous verdict of economists and fiscal experts is that the plan is based upon fallacious theories, that it would not work and that if the attempt were made to put it into operation, it eould prove only the most disastrous failure and would carry to ruin our whole economic structure. The Townsend Plan, as defined by H.R. 7154, is as flagrantly unconstitutional as any measure thus far urged on Congress, and is fundamentally contradictory to all traditional concepts of the American system of constitutional government. It could only be validated by constitutional amendment and such an amendment, to provide an adequate constitutional sanction, would necessarily be in its nature and scope not only an encroachment upon state rights but in fact a complete usurpation of state sovereignty and would thus open the doors to the future possibility of complete monopolization of state autonomy. It would embark the Federal Government upon fields of political activity and social experimentation never thus far contemplated as a legitimate, proper or even safe field of activity for the Federal Government. Furthermore, the taxing power of the Federal Government cannot be validly exercised for any such purpose as to transfer public funds raised through taxes from one class or group of citizens to another, especially when such a transfer is for a purpose not within the constitutional prerogatives of the Federal Government. It is patently taking property for other than a public purpose, as public purposes have heretofore been constitutionally defined and generally understood. Insurmountable objections may be listed as follows: 1. The plan could not possibly produce the fanciful amounts involved. 2. Instead of creating new wealth and income, OARP would divert 40 per cent of the national 2 income to 6 per cent of the population if upwards of 8,000,000 elderly persons benefited from it as estimated. 3. Wage-earning classes would be the chief sufferers under the arbitrary redistribution of income. 4. Pyramiding of taxes would generate an inflation which would destroy our monetary system. 5. The plan would bankrupt thousands of corporations and individual business men and would be wholly inequitable in its application. 6. Stock and commodity exchanges would be driven out of the country. 7. An enormous new bureaucracy with power over business would be created. 8. Even the army of supervisors and snoopers thus built up could not cope with the tremendous administrative problems. 9. The plan would restrict rather than increase production and would penalize thrift. 10. Recovery not only would be retarded but the economic system would be so shattered as to return the nation to the depths of depression. It seems incredible that any scheme so impractical, so wholly beyond the power of sane realization, could be seriously considered by even a small segment of the American people. From time immemorial in many lands Utopian dreams have been cherished. But when they have faced the cold logic of practicality, they have been quickly dispelled. The Townsend Plan is a fantasy of the same stripe as those of earlier years. The strength of this Republic lies in the concept that the citizen owes a duty to the Government which is superior to any obligation by the Government to the citizen. As President Grover Cleveland said in a veto message, "though the people support the Government, the Government should not support the people." The very acute emergency of the present depression has made necessary adequate provision for relief of the needy. Public sentiment has been favorable to sound measures which under proper safeguards and within constitutional principles will provide for the less fortunate in their old age. Proper social measures can be adopted without acceptance of the theory, actually given encouragement by those in high authority, that the Government owes sustenance to its citizens. The type of thinking represented in this theory, which is wholly in conflict with the basic ideas of our Government, has created an atmosphere conducive to the spread of enthusiasm for the Townsend Plan. 3 Details of Plan The Townsend Plan gives an impression of simplicity. In brief it contemplates a pension of $200 a month for men and women above 60 years of age. Payment of the pension is conditional upon an agreement that the recipients withdraw from all gainful occupation and that they spend the entire amount of their pension within approximately a month after receiving it. The income of persons eligible for pensions shall not exceed $2,400 per year, the pension being reduced by the amount of any income from other sources. The revenue for the payment of pensions is to be obtained by a 2 per cent tax on all business transactions. The Townsend Plan has undergone a process of revision since it was first introduced in the House of Representatives on January 16, 1935. The bill then presented, H.R. 3977, provided for pensions of $200 per month for all American citizens 60 years of age and over withdrawing from active employment. It made no difference under this bill whether a person had other income. The 2 per cent transaction tax, which under this bill might be increased to 3 per cent or lowered to 1 per cent, did not apply to wage and salary payments. A revised bill, H.R. 7154, was introduced on April 1, 1935. It limits to $2,400 a year the total incomes, including the pension, of those qualifying. Instead of fixing the pension definitely at $200 a month as in the earlier draft, this bill provides that it shall be not in excess of $200 per month. An equal division would be made of funds available. This change is in recognition of the probability that the proposed tax might not produce a sum large enough to pay the full amount. Also under the revised bill an inflexible tax of 2 per cent on transactions is reinforced by a 2 per cent tax on inheritances and gifts in excess of $500 and by a 10 per cent increase in income taxes. These two supplemental levies are intended to raise enough money for administrative expenses. Wages and salaries are not exempt from the transaction tax. A further revision, this time of H.R. 7154, appears in the Congressional Record of April 17, 1935. The changes chiefly have to do with the application of the tax on transactions. In this version the $200 per month maximum figure for pensions is eliminated, making the amount entirely dependent upon the funds available. 4 According to the sponsors of the plan it has three chief objectives: (1) to effect and maintain recovery by an increase in purchasing power of the portion of the population above 60; (2) to assure employment for younger workers by retiring those above 60 and to create employment through new industrial activity occasioned by expenditure of the pension money; and (3) to maintain an adequate retirement fund for all persons above 60. Enormous Sums Involved The amounts involved under the Townsend Plan are so huge as to be staggering. If the American public had not recently become accustomed to thinking in terms of billions in connection with emergency Government expenditures, the Townsend Plan undoubtedly would have been speedily dismissed from public consideration as absurd. Unfortunately, in the existing state of the public mind, a few billions more or less seem to appear of little significance. So great is the uncertainty as to the number of pensioners and the amount available for each under the Townsend Plan that there is a wide variance in statistics which are currently used in discussions of its possible effects. Most of the discrepancies in figures are due to the use of different premises. Thus Dr. Ray Bert Wester-field, Professor of Political Economy, Yale University, in a radio speech under the auspices of the American Liberty League, asserted that if all eligible persons took advantage of the pensions, 9 per cent of the population would receive 55 per cent of the national income. In the present document the estimate that 6 per cent of the population would receive 40 per cent of the national income is based on a premise that only about two thirds of those eligible would qualify. The estimate of cost commonly used by advocates of the plan is $1,600,000,000 monthly, or about $20,000,000,000 annually. This is a colossal sum under any possible basis of comparison. It is nearly _ two thirds of the present public debt, which is so large that few persons have any hope of its retirement in less than two or three generations. It is 40 per cent of the estimated national income for 1934. It is a sum about four times as great as the amount currently raised annually by the Federal Government from taxes of all kinds. It is 50 per cent greater than the combined expenditures of Fed-5 eral, state and local governments in 1932 and about 25 per cent greater than the combined expenditures of Federal, state and local governments during the past year or two. It is nearly 10 per cent greater than the unprecedented total of expenditures by the Federal Government in the war year of 1918, including loans to the Allies. It is equal to almost half of the total deposits of the more than 14,000 banks insured by the Federal Deposit Insurance Corporation at the end of 1935. It is very nearly as large as the deposits of all insured state banks, including both members and non-members of the Federal Reserve system. It is about twice the sum of the total monetary gold held by the United States and almost four times the total currency in circulation. No government ever has devised a revenue scheme capable of producing $20,000,000,000 even in one year, let alone year after year successively. Nevertheless, the misguided proponents of the Townsend Plan seriously assert that it can be accomplished under a law assessing a 2 per cent tax on all transactions. Basis of Computation The only statistical basis for the estimates of revenue from a 2 per cent tax on transactions is found in figures on bank debits. The total volume of all money transactions in the United States in the year 1929, including all checks that passed through banks as well as all cash items, has been estimated at about $1,200,000,000,000. In 1926, a more nearly normal year, the estimated total was about $780,000,000,000. During the depression the total was about $850,-000,000,000 in 1930, $618,000,000,000 in 1931, $414,000,000,000 in 1932 and a little less than $380,000,000,000 in 1933. It rose to $426,000,-000,000 in 1934 and is estimated at about $482,000,000,000 for 1935. If it were possible to collect a tax of 2 per cent on the innumerable transactions represented in the total of $1,200,000,000,000 in 1929, many thousands of which covered the same goods or services, the revenue from a 2 per cent tax would be $24,000,000,000. On the basis of the 1935 transactions, a 2 per cent tax would yield $9,600,000,000. The theory of the Town-sendites is that the expenditure of the pension money will so speed up business as to restore a volume equal to that of 1929. Unfortunately their argument does not bear analysis. 6 If speculative transactions, including those on stock and commodity exchanges and involving real estate, were eliminated from the 1929 total, the remaining value of goods and services changing hands during the various stages of manufacture and trade would not exceed $350,-000,000,000. For 1934 the total probably would not be more than $225,000,000,000. The speculative transactions would be greatly reduced by reason of the operation of a tax. Furthermore, the volume of ordinary transactions would shrink under the operation of a tax because it would increase prices and thus discourage consumption. Likewise the transaction tax, while very broad in its application, would not cover everything that is included in the total of bank debits. A group of 22 economists of the University of Chicago is authority for a carefully considered estimate that the proposed tax of 2 per cent would not yield more than $6,000,000,000 and that it might not yield as much as $3,000,000,000. According to some estimates a tax of 25 per cent or more on all transactions would be necessary to raise sufficient funds to pay the full pension of $200 per month. The supplemental taxes in the bill on incomes, inheritances and gifts, whether so intended or not, cannot do more than provide for administrative costs. A 10 per cent increase in all income taxes paid by individuals during the year 1935 would have yielded about $58,000,000. The 2 per cent tax on inheritances and gifts probably would not produce more than $25,000,-000. Some idea of the very great administrative cost of the scheme may be gained from the fact that sponsors have indicated that the amount raised from these supplemental taxes might not be sufficient to cover it. The administrative cost alone would be a heavy new burden upon the taxpayers, as anyone may judge by adding 10 per cent to his own income taxes. Number of Pensioners The estimate of an annual cost of $20,000,-000,000 for the pensions is based on a belief by advocates of the Townsend Plan that only from 7,000,000 to 8,000,000 persons above 60 years of age would elect to receive the proposed $200 per month. The cost would be much greater if all who were eligible chose to qualify. The decennial census of 1930 showed a total of 10,385,026 persons 60 years of age and over. 7 The present number is estimated at about 12,400,000. The cost of the Townsend Plan if all eligible persons were paid $200 per month would have been nearly $25,000,000,000 in 1930 and at present would be nearly $30,000,000,000. The number of persons over 60 years of age who were gainfully employed in 1930 was 4,155,-495. The theory of the Townsend Plan is that these persons, or a considerable number of them, would give up their employment in order to take advantage of the pension and that a corresponding number of younger persons would be given their jobs. The belief of most authorities is that $20,000,-000,000 would be the minimum cost if the $200 per month pension were paid and that it might go considerably higher. The number of persons qualifying might be less than the estimated 7,000,000 or 8,000,000 if it proved impossible to raise as much money as would be needed for the full $200 pension and the inducement to give up employment was correspondingly less. A Redistribution of Income The assumption of the proponents of the Townsend Plan appears to be that the pension money would be obtained from some source without cutting into the incomes of persons below 60 years of age. Such a theory has no basis. The tax on transactions would be embodied in the price of commodities and services. It would have to come out of the incomes of the consuming population, including both those below 60 years of age and those above. For the most part it would mean a shifting of income from the class of the population below 60 to that above 60. The sum of $20,000,000,000 is about 40 per cent of the national income as estimated for the year 1934 and about 25 per cent of the national income as estimated for 1929. The estimate of the Department of Commerce for national income in 1934 was about $50,000,000,000 and for 1929 about $79,000,000,000. Eight million pensioners would be a little more than 6 per cent of the population. The effect of the Townsend Plan would be to give this 6 per cent 40 per cent of the national income as estimated for the most recent year. The other 60 per cent of the national income would be distributed among the remaining 94 per cent of the population. The income of $2,400 per year promised to persons above 60 is greatly in excess of the present average income of the American people. A family in which both the husband and wife were above 60 would have an income even farther out of line from the average. The husband and wife would each be entitled to $2,400 annually, or a total of $4,800. Even in 1929, $1,200 was regarded as a representative family income. Out of about 27,000,-000 families in 1929 nearly 20,000,000 had incomes below $2,500. Of these about 16,400,000 were below $2,000 and 11,600,000 below $1,500. Wage Earners Hit Some who advocate the Townsend Plan think that it would be financed chiefly at the expense of the wealthy classes. This is not true. Of the total national income for 1934 about 67 per cent went to the wage and salary classes. An additional 16 per cent represented the income of small business men, farmers, professional practitioners and other self-employed persons, making 83 per cent for compensation of individuals as distinguished from returns on property. A distribution of the national income for 1934 among the estimated present population of about 127,000,000 would give each less than $395. If 40 per cent were deducted from the national income of 1934 for distribution among 7,000,000 or 8,000,000 Townsend Plan pensioners, the remaining amount would be sufficient to give an average of not more than $250 to each of the other 120,000,000. This would mean an average of not more than $1,125 per family. Meanwhile, single persons above 60 would draw $2,400, while married couples above 60 would have $4,800. The single pensioner would have an income nearly ten times as great as the average individual below 60 and more than twice that of the average family. The great mass of the population would be hard hit by the operation of the proposed tax. The tendency would be toward a reduction of wages. Real incomes of the wage-earning classes would be lowered. Inflation The effect of the tax would be to inflate prices to unbearable levels. The Townsendites appear to think that a substantial increase in prices would do no harm on the theory that the forced circulation of the pension money would greatly increase the volume of transactions. Even if this were true, the inflationary movement of prices involving a constantly decreased purchasing power would not mean prosperity but rather the reverse of it. The evil effects would be comparable to those of the disastrous inflation in Germany and other European countries. Purchasing power would be reduced, including that of the pensioners as well as of the rest of the population. Savings deposits and insurance policies would suffer a depreciation in value. Excessive prices would cause dislocations in the economic structure and lower the standard of living of the wage earner and small salaried classes. Pyramiding of prices under the operation of the tax would be inevitable. The levying of a 2 per cent tax on each transaction would mean not merely a tax of that amount on the final cost of a commodity to the consumer but a tax on each stage in its production and distribution. In the case of most commodities this would mean a levying of the 2 per cent tax a dozen or more times. The final total tax would be much greater than the sum of the actual taxes by reason of the unavoidable pyramiding of costs. Each manufacturer, wholesaler or retailer would be entitled to a return on investment sufficient to cover his entire costs, including the amount of the tax. Prices would be fixed at an amount sufficient to cover a profit on the capital needed to pay the tax. Each tax would be levied on all of the preceding taxes as well as on the amount of other costs. It would be impossible to judge in advance just how much prices would be inflated by such a procedure. In the case of a loaf of bread the final price would include taxes on wages paid to farm laborers, on seed and equipment bought by the farmer, on the various stages in the growing and harvesting of the wheat, on the cost of shipping the wheat to market, on the handling of the wheat at an elevator, on the wages paid in the milling of the wheat into flour, on the sale of the flour to the wholesaler and retailer, on each stage of transportation, on wages paid by the baking company, on costs of the retail grocer, and on the final sale to the consumer. With respect to an automobile, taxes would commence on the wages of workmen digging iron ore and would be repeated at the various stages of the transformation of the ore into steel products, on the freight charges in the shipment of the ore and steel, on the cost of fashioning the steel into automobile bodies and motors, on the sale of separate parts to the automobile manufacturer and at each step as the cars were passed on to the final purchaser. Even with such a product as glassware there 10 are at least 11 transactions between the producer of raw materials and the consumer. It would be surprising if prices of many commodities were not doubled or tripled by reason of the imposition of a tax on all transactions. Higher prices would tend to discourage consumption, with a resultant increase in unit costs of manufacture. Instead of the increased production expected by the Townsendites, a curtailment of industrial activity would be probable. This would mean more unemployment. In various indirect ways the effect would be injurious to industry and trade. Under such an inflationary process as would accompany the imposition of the tax the entire monetary structure would break down. Confidence in the value of currency would be weakened as prices spiraled upward and purchasing power declined. The successive developments would be comparable to those accompanying the rise of prices under inflation in Germany, France and Russia. At the ultimate stage of collapse a reorganization of the monetary system would be necessary. An occurrence of this character would threaten the foundations of the American Government. Bankruptcy of Business Firms The Townsend Plan inevitably would mean bankruptcy for thousands of corporations and individual business men. It would be impossible for the average business concern to absorb the tax on transactions. It would have to be passed on to the consumer. In many cases, however, it would be difficult to pass it on because of the competitive situation or consumer resistance. In such cases the tax would come out of capital, which would mean eventual bankruptcy. Even in 1929 a large proportion of corporations could not have stood a tax of 2 per cent on gross income. Out of 510,000 corporations about half had no net income in 1929, according to their reports to the Internal Revenue Bureau. For these corporations a tax of 2 per cent would have meant an increased deficit. Among the corporations which reported a net income in 1929 the average net income was 10 per cent of the gross income. A 2 per cent tax on their gross income would have taken 20 per cent of their net income. The average net income from all invested capital has been estimated at about 4 per cent. A 2 per cent tax on gross income would absorb half of it. For many corporations on the borderline between a profit and a loss, the tax on trans-11 actions would be a burden sufficient to turn the scales toward bankruptcy. The operation of the tax would be inequitable among different classes of business. An integrated industry, in which several stages of production were combined under one management, would have a tremendous advantage. The imposition of a tax upon each separate transaction would force mergers of enterprises engaged in successive stages of production and distribution. This adjustment process would create confusion and would be an element of disturbance to business. While the revised Townsend Plan draft of April 17, 1935, attempts to deal with this situation, the proposed amendment merely adds to administrative difficulties. Under this amendment the transaction tax would be levied upon an integrated industry in a manner to make its tax burden equal to that which would be applied if the several processes involved took place under separate managements. Such a provision would lead to all sorts of complications and would be impossible to administer. Effect on Exchanges Stock and commodity exchanges could not continue to exist under the operation of the Townsend Plan. The effect would be that they would close their doors or go to Canada and other countries. Such a result would seriously disrupt the machinery through which the farmer is assured of a ready market for his products and would impede the financing of industrial projects which are essential for the nation's prosperity. The reason that a transaction tax of 2 per cent would be a fatal blow to most of the exchanges is that most speculative transactions on these exchanges are handled at a cost in commissions of less than 2 per cent. The profits to the traders who operate on these exchanges on behalf of customers is often no greater than one fourth of one per cent. The members of such exchanges could not afford to operate if a 2 per cent tax were applied. Their business would vanish if charges were increased to such a point as to absorb the tax. The "hedging" which now furnishes a safeguard for millers operating through grain exchanges would become too expensive under the operation of the tax. In other similar ways marketing practices would be disrupted with consequent losses and confusion. A New Bureaucracy The American people have become accustomed during the past three years to the creation of 12 large bureaucratic organizations to enforce regulatory laws. The alphabetical agencies thus far set up would be insignificant in comparison with the bureaucracy required to administer the Townsend Plan. As many as 10,000,000 returns would be received monthly from those required to report the payment of taxes. There are about 6,300,000 farmers, 1,500,000 retail stores, 600,000 employers of domestic servants, 545,000 independent professional men, 175,000 manufacturing establishments, 165,000 wholesalers, 145,000 construction firms, 125,000 firms and service trades, 125,-000 banks, stock brokers, etc., 20,000 transportation companies, 15,000 hotels, and 10,000 mines and quarries. Returns from taxpayers numbering 10,000,000 monthly would mean in a year a total of 120,-000,000 to be reviewed and administered. The handling of checks to pensioners also would represent a huge clerical task. Checks would go out to 8,000,000 or more persons monthly, or nearly 100,000,000 annually.^ Just what such a volume of documents would mean may be realized by a comparison with the present task of the Internal Revenue Bureau in connection with income tax laws. Only about 4,000,000 individuals and about 500,000 corporations file income tax returns. Furthermore, income tax returns are filed annually rather than monthly. Even the handling of 4,500,000 returns involves many difficulties and their auditing often drags on over a period of years. The original draft of the Townsend Plan provided that all sellers of goods, commodities and commercial things of value should be licensed by the Secretary of the Treasury. Such a provision would have given unlimited power to a bureaucracy in the regulation of business. It would have been clearly unconstitutional. The licensing provision was eliminated from the later versions of the bill. Under the drafts of April 1 and April 17, 1935, the Secretary of the Treasury is given authority over the collection of taxes, while the Administrator of Veterans' Affairs has to do with matters relating to the payment of pensions. In the administration of the Townsend Plan it would be necessary not only to maintain an enormous organization in Washington but also in almost every town of consequence throughout the country. The policing of prohibition was an easy assignment compared with the enforcement of a tax on all business transactions. No privacy would remain for the business man. An army of snoopers would pry into his affairs. Regardless of the accuracy with which 13 his returns were made, he would be subject to every possible annoyance and if in disfavor with the administrative authority, to every unjust accusation. Even with a tremendous enforcement personnel, administrative difficulties would be insuperable. An endless number of rulings would be necessary to attempt to interpret the law and regulations and many of these would be contested in the courts. It would be a miracle if the whole attempted administration of the law did not collapse completely within a short time. Economic Theories Unsound The promoters of the Townsend Plan promise an increase in industrial activity under its operation. The exact contrary would take place. The plan is based on unsound, unworkable and impossible theories. A higher standard of living and a larger income for the masses of the people can come only from an increase in production and wealth. Nevertheless, the Townsend Plan encourages the more than 4,100,000 persons over 60 years of age engaged in gainful occupation to quit work and become dependent upon others. Furthermore, there is nothing whatever in the plan to insure the expenditure of new money with consequent increased business activity. The pension money available to those above 60 is taken by taxation from the incomes of those below 60 who otherwise would spend it for themselves. The higher prices would reduce the purchasing power both of those above 60 and those below 60. The reduced purchasing power would mean a curtailment of production. While the inflation of prices might appear to represent a greater volume of business, the actual number of business transactions inevitably would be less. In numerous ways, direct as well as indirect, the effect would be to prevent the increase in production and in new wealth essential for a better distribution of income. The plan would discourage thrift. No longer would persons in their younger years save toward a competence for their old age. Wasteful expenditure of income would exhaust savings necessary to supply capital for productive industries. The savings banks and the insurance companies would be hard hit in a generation no longer interested in thrift. The payment of pensions to the older genera-14 tion would encourage indolence among younger members of the same family. Younger persons would become parasites upon their elders. Particularly in cases where a husband and wife each received a pension the amount would be sufficient to support several others who otherwise would take care of themselves. A Blow to Recovery The Townsendites contend that the adoption of their plan would bring complete recovery. Economists of all schools of thought are unanimous in believing that it would intensify the depression. The economic system would be thrown out of balance in so many different ways as completely to nullify the progress thus far made toward recovery. The upward movement in business has proceeded without interruption since the Supreme Court held the restrictive devices of the NRA to be unconstitutional. The decision of the Court adverse to the regulatory methods of the AAA has been helpful to recovery. Adoption of the Townsend Plan again would place business and agriculture in shackles hampering normal business relationships and creating confusion and uncertainty. The flimsy character of the foundation of theory upon which OARP is built is revealed in Dr. Townsend's comment before the House Ways and Means Committee February 4,1935, in reply to the objections advanced by economists. Dr. Townsend said: "What are economists? On what do they base their conclusions? On precedent, do they not? Gentlemen, we have arrived at an unprecedented age, something the world has never seen before. This new age is presenting new problems. We have been enabled by the ingenuity of our people, and their inventiveness, to arrive at an age where we can produce indefinitely greater abundance than we can consume under our present system. The economists do not know anything more about that than you or I, not in the least, because this is a new condition. It is going to require a new solution." In the face of this admission that the Town-send Plan was devised in complete disregard of the opinions of those best qualified to pass upon its probable effects, it is strange that so many persons should have given their support. The enthusiasm of the Townsendites for the plan speaks ill for the credulity of American citizens. The Townsend Plan is a token of a state of public mind created by the New Deal's dazzling promises of the more abundant life. 15