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No. 28 "Government by Experiment" Speech by Dr. Neil Carothers, Professor of Economics and Director of the College of Business Administration, Lehigh University, April 17, 1935. American Liberty League. 400dpi TIFF G4 page images Digital Library Services, University of Kentucky Libraries Lexington, Kentucky Am_Lib_Leag_28 These pages may freely searched and displayed. Permission must be received for subsequent distribution in print or electronically. No. 28 "Government by Experiment" Speech by Dr. Neil Carothers, Professor of Economics and Director of the College of Business Administration, Lehigh University, April 17, 1935. American Liberty League. American Liberty League. Washington, D.C. 1935. 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. diet is in. There are vital responsibilities to be met by our government without trying further experiments. There is much to do in undoing what has already been done. Our money should be stabilized before it is too late. Plans should be made for the abandonment of the A.A.A. as soon as it is practicable. The N.R.A. should be abandoned, unless it be possible to devise some provisions to prevent exploitation of labor and of the consumer. As for legislation now pending, some of it is distinctly evil, and none of it in its present form is wholly satisfactory. None of it is likely to contribute to recovery. All banking legislation should be postponed until conditions are more stable. There should be devised a way to control the utilities without destroying them. The economic security measures in their present form will not serve any immediate good. At this time the government should concentrate on two objectives. One is the balancing of the budget. It should reduce expenditures to the lowest possible level. The other is the economical and non-political administration of relief. There is now at the disposition of the administration an almost inconceivable sum of four billion, eight hundred million dollars for relief. This sum represents $8,000 for every minute of every hour of every day for an entire year. With the grant of this appropriation the last shadow of an excuse for further experiments is gone. All that the people of this country need now is the assurance that they will be permitted to do the job of bringing recovery from depression. They have not had this assurance for two years. That assurance is all they need. Government Experiment â˜… â˜… â˜… Speech of DR. NEIL CAROTHERS, Professor of Economics and Director of the College of Business Administration, Lehigh University, and Member of the National Advisory Council of the American Liberty League, over the Red Network of the National Broadcasting Company, April 17, 1935 AMERICAN LIBERTY LEAGUE National Headquarters NATIONAL PRESS BUILDING WASHINGTON, D. C. 12 Document No. 28 GOVERNMENT BY EXPERIMENT â˜… I HAVE been invited to talk to you a little while this evening about some very serious matters. They concern the welfare of every one of you and the welfare of the nation as a whole. The issues we discuss are complex, they are controversial, and they are personal. For they affect the wages and the jobs and the businesses and the savings upon which you and your families depend. And since these matters are so deeply personal and so highly controversial you are entitled to know who it is that undertakes to talk to you about them. In these days of partisan discussion and political propaganda, it is well for you to find out who it is that speaks to you about your economic problems, what he represents, whether he has a personal purpose in his discussion. Your speaker here, who is unknown to you, is a college professor, an economist, who has devoted his life to the study of economic forces. He is a salaried man, with no interest of any kind in stocks or bonds or corporations. All his life he has had a deep sympathy for those who suffer economic hardship, for the victims of economic distress, for the under-privileged and the under-dog. He has no political ambitions, no partisan motives. He is a Democrat, and if he has occasion to criticize the Administration he does so regretfully, as a citizen who is interested in his country first and his political party second. And finally, his views are his own, uninfluenced by those of any interest or organization. I speak to you tonight at League Stands the invitation of the For Sanity American Liberty League. In Government I have accepted their invitation because I believe their organization is serving a patriotic purpose. Founded as a non-political organization by leaders of both political parties, the Liberty League, more than any other organization that I know, stands for sanity and cool judgment in a time of popular confusion and muddled governmental policy. I want to say a word to you about the subject of economics. You have been told that there is no science of economics. The statement is false. It is true that no man has ever lived who was able to understand completely the operation of economic forces. Our economic system is too complex for complete understanding, and there are many unsolved problems. When any man, whoever he may be, tells you that he has a plan that will solve all our economic problems you can be sure that he knows very little about our economic system and you can reasonably suspect that he wants something from you, your vote or your influence or your dollar. But there is a science of economics, and there are known and proved principles that govern the operation of our industrial system, that fix the wages you receive, the profits in your business, the value of your savings. For example, you have been told that shortening hours by law in time of depression increases employment. Economics proves that it does not do this. It increases unemployment. You have been told that raising wages by law in depression promotes recovery. Economic science will tell you that it merely gives a minority an unfair advantage over the rest and thereby promotes unemployment. You have been told that what the country needs is more currency. But economics can show you that we already have twice as much money and credit available today as we have ever had in the greatest boom periods in our history. You have been told that inflating the currency relieves the debtor classes. Economics tells you that inflation never helps any class, unless it be the class of gamblers, speculators, and monopolizers. You have been repeatedly told that this is an age of limitless plenty and that poverty is due solely to unfair distribution of wealth. But economic science proves that we have not yet solved the problem of ample production for all and that there is not for our time any other system of production and distribution that promises to give the people even as good a living as we have now. Nor is it true that eco-Economists nomists do not agree. Agree On Some wit has said that if Fundamentals all the economists in America should be laid end to end they would not reach a conclusion. You have been given the impression that the economists of the country have been responsible for the policies of our government. All these notions are incorrect. Economists do agree. They do reach conclusions, and correct conclusions. An overwhelming majority of the economists of the country have opposed some of the major policies of the government from the beginning and oppose them now. They predicted the failure of these policies and have seen their predictions come true. Before we consider these various policies it is necessary to say a word about this puzzling economic system of ours. It is a vast, complex machine, a complicated co-operative mechanism of land, labor and capital, of wages and interest and profits, of currency and credit and investment. We cannot stop to analyze its operation, but we can point out certain of its characteristics. In the first place, it grew up spontaneously, of itself, out of man's own nature. It was not discovered or invented. It has changed its equipment through the ages, but has been essentiaUy the same for 8,000 years. Secondly, it runs itself, providing its own motor force. It is automatic. It requires no direction by government. It guides itself. It requires no compulsion. Under it men are not driven to labor by threat of the lash or exile or execution. Thirdly, this economic system is unbelievably productive. It has supported unnumbered millions through history. In America it gives the people a standard of living undreamed of in the past and unknown to other peoples in our time. Fourthly, this system improves all the time. This statement may seem to you an offensive hypocrisy when everywhere in the nation there is unemployment and distress. But it is true. It is not true that the rich are growing richer and the poor poorer. There are irresistible 4 economic forces at work, even in depression, to give the plain man higher wages, shorter hours, and greater social and political opportunity. Fifthly, this system cannot be greatly improved by artificial interference. All that you have heard about the collapse of the system is hysteria or propaganda. It is actually growing better, and the improvement is constant. But it cannot be greatly hurried. Wages and hours, production and consumption, are determined by physical and biological laws beyond the immediate control of men. There is no short cut route to high wages or luxury or ease. Interference with our economic system by law may improve it somewhat. It is very likely to damage it and reduce its productivity. Sixthly and finaUy, there is no other system possible at this time which will work as well. For 3,000 years men have talked about an ideal economic system. For 3,000 years men have at intervals tried to set up better systems, from Sparta 800 years before Christ to Russia in 1917. Not one has succeeded. Every one before Russia was a complete failure, to be replaced by the present system of private property. The Russian system, born in violence, has so far developed nationwide starvation under a bloody tyranny. Our existing system is the Existing most productive and most System Best equitable in the history Yet Devised of man. But it is far from satisfactory. It is gravely defective, and it contains major evils. In the first place, it breaks down at intervals in tragic depressions that cause universal distress and heart-ache. In the second place, it is attended by anxiety and insecurity. All of us live in the shadow of risk and insecurity. Thirdly, some of our people lead lives of poverty, inadequate wages, and over-work. Fourthly, there is still in the system a certain amount of undeserved failure and unmerited success, of unjust enrichment and inequitable distribution, of unequal opportunity and unearned privilege. These are the major charges against our present economic order. It is guilty on every one S of the counts. But these grave evils are being cured, slowly but surely, by time. They cannot be removed, all at once, by government. A wise and courageous government can do much to reduce them now, and in time can remove them. Of these evils only depression will be discussed here. Depressions inflict themselves on us simply because our machine system of production is so new that we do not yet know how to control it. Our present depression grew out of the conditions created by a tragic world war, which ate the heart out of the capital of European nations, disorganized foreign trade, and demoralized the credit and currency systems of all the world. We do not yet know enough to control the economic consequences of a world This depression is not due to the collapse of the capitalistic system, or to the exploitation of the workers by the capitalists, or to the mistakes of the banks, or even to the orgy of speculation which swept over our country. It is due to the World War. It is not an American depression but a world depression. It did not begin in the United States, but in foreign countries. All depressions are the consequences of years of accumulation of economic poisons in our economic system. Depression is the process of eliminating these poisons. There is no way in which this process of elimination of poisons can be slopped, once the collapse has come upon us. This depression could end only when industry had been purged of uneconomic and extravagant methods, when bloated valuations had been cut down, when reckless consumption of resources had been stopped, when unnatural wages and salaries had been reduced, and when currency demoralization throughout the world had been cured. This does not mean that Government a government should do Can Cushion nothing in time of de-The Shocks pression. It can do a tremendous good in depression. The intelligent procedure of government in depression is to give all its energies to alleviating the hardships that are inevitable, to 6 reducing the burden of taxation, to helping industry that is sick, to protecting the credit of the banks, to caring for the unemployed and destitute. In other words, the proper government policy is to cushion the shocks, to aid the victims, to encourage those who still hang on, and to join in any movement to promote international trade and stability of international currencies. From the beginning, under both the Hoover and the Roosevelt Administrations, our government did these very things, in large measure. The loans to mortgaged farmers, the loans to home-owners, the tremendous efforts to care for the unemployed, the work of the R.F.C. in aiding the railroads and the banks, all these and many other activities of the government were wise and useful. But also from the beginning our government adopted unsound policies which attempted economic impossibilities. The effort to maintain high wages and salaries after prices had collapsed, the passage of a high-tariff act in the midst of depression, and the attempt to maintain inflated prices for agricultural products through the Farm Board were unwise and unsound. These attempts to end depression at its beginning were doomed to failure. Two years ago a rival Administration was overwhelmingly approved by the people because it promised to do by the very same methods the very thing the other had found impossible, that is, to end a world-wide depression by act of Congress. The present Administration came into power because it guaranteed by open promise to do the impossible, to end depression by passing laws. Everything that has happened to our country since is a direct consequence. In its feverish effort to fulfill this promise this government has passed a bewildering succession of temporary, unsystematic, self-contradictory and experimental measures that have disturbed and disorganized the economic life of every business and every individual in this nation. Among many other things, these measures have debased the currency and the obligations of the United States, terrorized the banking system, increased the cost of doing business for every 7 enterprise, plunged industry into labor warfare, taxed one section of the people for the benefit of another, destroyed food and clothing materials in a hungry world, increased the costs of relief, and squandered the money of the people like a drunken sailor. The results of these experiments are now apparent. One of the results is a condition in our currency and banking that may lead to a ruinous inflation. Another is a succession of mounting Treasury deficits that must be met by crushing taxation or by inflation. Another is the addition of some 7 billion dollars to the permanent government debt. Still another is the destruction of our greatest export market, that for cotton, at the very time when we see ahead the necessity for importing foodstuffs. Still another result is a universal fear which prevents the creation of credit by the banks and dries up the springs of investment upon which recovery depends. Still another is a disorganization of the international exchanges which has retarded recovery abroad. And a final result is a much larger volume of unemployment than we had a year ago, with 22 million people, one in every six of our population, dependent for subsistence on public relief. In the first period of Groping frantic efforts to end de- Among Ruins pression by statute our Of Experiments Congress surrendered its function as law-maker and the country was turned over to experiment and experimenters. Our economic system was subjected to a half dozen major surgical operations at the same time, all based on some particular theory of economics. The N.R.A. was to restore prosperity by restoring consumer power, and this was to be accomplished by arbitrary reductions in hours and arbitrary increases of wages. Such arbitrary increases of wages and shortening of hours in depression do not increase consumer power. They reduce it. They do not increase employment. They increase unemployment. If you are one of the 10 million unemployed, you may owe your situa- tion to this N.R.A. experiment. And today the government is groping about in the ruins of N.R.A., trying to find in the wreckage something worth preserving. The A.A.A. was going to end depression by restoring parity of incomes for the farmers. It has not ended depression. But it has increased the cost of living, disorganized the textile industry, injured the recovery of the railways and the banks, thrown thousands of farm workers out of employment, demoralized our foreign trade, and enormously increased the costs of relief. And at the present moment that experiment has reached an incredible stage. The plan of A.A.A. is to tax the food of the people to pay farmers to reduce production. The consequences now being clear, the government has told the spring wheat farmers to grow all the wheat they can but that they will receive a cash dole just the same. The government is going to tax the people to raise cash gifts for farmers for producing what they were originally to be paid for not producing. When an experiment reaches this stage it ought to go into receivership. The monetary program was to restore prosperity by raising prices to the 1926 level. Economic science shows that artificial price-raising i does not cure depression. Rising prices do not â– cause recovery. Recovery causes rising prices. I, Our two years of monetary manipulation have not ended depression, have not restored 1926 prices, and have not revived foreign trade. They have left us without a stable monetary system, have indefinitely delayed the stabilization of international exchanges on which recovery partly depends, and have set the stage for unpredictable money and banking developments in the future. The P.W.A. was to restore prosperity by priming the pump of private business. Public works at the bottom pit of depression do not restore private industry. They are merely an expensive method of relief of the unemployed. They increase the burden of taxation or create government deficits. Another result of gov-Self-Seeking eminent by experiment Minorities is of another kind. In Reap Harvest the confusion of experimentation and hasty legislation it is possible for self-seeking minorities to rush through by lobbying, log-rolling, and propaganda, legislation injurious to the country. Thus the conscienceless silver interests have succeeded in adulterating and weakening what is left of our monetary standard. Some other measures of this kind have narrowly missed passage. Still others are now pending. The Patman bonus bill, a bad measure, has passed the House under the whip of political pressure, despite the disapproval of the President. The 30 hour week bill passed the Senate last year. It is a bad proposal. Its passage would merely for a time give an unfair advantage to a small minority of workers. In the end it would injure all working people. Still another result of government experiment is most unhappy. It has created a nation-wide impression that government will surrender to whatever demands may be made upon it. In consequence candidates for office have played upon this popular error, and in the last election those candidates were in the main elected who promised most. At the present time our Congress is definitely lower in economic understanding and devotion to principle above personal advancement than previous Congresses. And that way lies grave injury to the country. And one final result. The unsound philosophy that all economic problems can be solved by government has led to cruel deception of the people. It has encouraged great numbers of our citizens to accept and embrace visionary and impossible proposals by ranting demagogues and economic simpletons both in and out of government circles. When we consider in all fairness the results of two years of government by experiment we are forced to the conclusion that it is not justified by its works. It has only demonstrated what should have been recognized in the beginning, that reckless interference with industry 10 and trade by inexpert legislators cannot cure depression but may delay recovery. Conservative economists estimate that these two years of experimentation have retarded the progress of recovery in this country from six months to one year. This frank discussion is not an attack on economic planning. We have had economic planning in this country since its foundation. The greatest economic planner the country has had was Alexander Hamilton, a hundred and forty years ago. There is a place in our country for wise economic planning. This nation should and will plan to reduce the tragedies of poverty and unemployment and destitution in old age. It should plan to reduce manipulation and sharp practice in business and predatory acquisition of wealth. These economic evils can be attacked and defeated by intelligent and scientific legislation. We may confidently hope that in time we may by wise planning prevent both wars and depressions. But these ages-old problems cannot be solved by guess-work, by legislation concocted overnight by economic planners. This country is certainly Nation and inevitably coming Needs out of depression. What A Rest it needs now is rest from experiments and economic sleight-of-hand. The great need of the country today is not more tricks, but assurance of freedom from further interference. On every hand the prophets of doom tell us that the government has embarked on a policy of squandering its way out of depression, that a serious inflation is inevitable, that the banks will be taken over, that the public utilities will be destroyed, that the government is creating a permanent and uncontrollable class of unemployed and dependents. There is no solid basis for these gloomy forebodings. Our economic system is too strong to break down under depression, and with recovery unsound policies will be abandoned. But it is high time for experiments to stop. They have been given a full trial, and the ver-11