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No. 56 "Recovery by Statute" Speech of Dr. Neil Carothers, Professor of Economics and Director of the College of Business Administration, Lehigh University, July 9, 1935. American Liberty League. 400dpi TIFF G4 page images Digital Library Services, University of Kentucky Libraries Lexington, Kentucky Am_Lib_Leag_56 These pages may freely searched and displayed. Permission must be received for subsequent distribution in print or electronically. No. 56 "Recovery by Statute" Speech of Dr. Neil Carothers, Professor of Economics and Director of the College of Business Administration, Lehigh University, July 9, 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. Pamphlets Available â˜… 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 An Analysis of the President's Budget Message Economic Security The Bonus Inflation The Thirty Hour Week The Pending Banking Bill The Holding Company Bill "What is the Constitution Between Friends?" Speech by James M. Beck Where Are We Going? Speech by James W. Wadsworth Price Control Yesterday, Today and Tomorrow The Labor Relations Bill Government by Experiment Speech by Dr. Neil Carothers How Inflation Affects the Average Family Speech by Dr. Ray Bert Westerfield The AAA Amendments Political Banking Speech by Dr. Walter E. Spahr The Bituminous Coal Bill Regimenting the Farmers Speech by Dr. G. W. Dyer Extension of the NRA Human Rights and the Constitution Speech by R. E. Desvernine The Farmers' Home Bill The TVA Amendments The New Deal, Its Unsound Theories and Irreconcilable Policies Speech by Ralph M. Shaw Is the Constitution for Sale? Speech by Capt. William H. Stayton How to Meet the Issue Speech by William E. Borah The Supreme Court and the New Deal The Duty of the Church to the Social Order Speech by S. Wells Utley An Open Letter to the President By Dr. Neil Carothers The Revised AAA Amendments The Return to Democracy Speech by Jouett Shouse The President's Tax Program The American Bar The Trustee of American Institutions Speech by Albert C. Ritchie Two Amazing Years Speech by Nicholas Roose- Fabian Socialism i Demarest Lloyd the New Deal Speech by AMERICAN LIBERTY LEAGUE NATIONAL PRESS BUILDING WASHINGTON, D. C. Recovery Statute 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 at the Institute of Public Affairs University of Virginia July 9, 1935 AMERICAN LIBERTY LEAGUE National Headquarters NATIONAL PRESS BUILDING WASHINGTON, D. C. Document No. 56 Recovery by Statute â˜… Many able and informed men see in recent developments the collapse of our civilization, the destruction of all those institutions upon which men have built for 5,000 years. Many other able and informed men see in the present situation the elevation to power of some incredible demagogue, who will destroy everything we know under the term liberty. Still others see in the present situation the revolutionary establishment of some communistic order, bringing with it the destruction of the political, economic, moral, and religious institutions we live by. Still others see in the present situation a fascist regimentation of the lives and freedom of all the people. Still others see in the present situation a chaos of blundering legislation ending in universal bankruptcy and social disintegration. Still others see in the present situation an era of mob rule, with militant minorities obtaining special privilege from a cowardly and servile government. On the other hand, there are those who see in recent developments the dawn of a new era of economic security and justice, the righting of old wrongs and the elimination of age-old problems of poverty and injustice. We are undertaking tonight to find some explanation of the kaleidoscopic developments of recent years. Is there ground for the gloomy fears that now distress thoughtful people? It is a sad fact that there is an element of truth in all these forebodings. There is some basis in existing conditions for all these fears. If we look in one direction we see where our existing competitive economic system has been seriously undermined. If we look in another we see where guaranteed rights of property and contract have been deliberately destroyed. If we look in another we see where government has exercised a ruthless dictatorship over persons and property. If we look in another we see where government has surrendered to wolfish minorities. If we look in another we see where government has yielded to the visionary reformer urging fantastic and impractical experiment. And over all the land the raucous voice of the demagogue resounds, preaching revolutionary destruction of existing institutions. VeRILY no man knows what a day may bring forth. But the sober and thoughtful student of social evolution can take a long time view of these developments. Strange as they are, they have an explanation. They fall into a pattern of historical evolution. Recently I attended a great meeting in the Middle West, at which a distinguished Canadian spoke for his country. He was steeped in gloom. He thought that conditions in his own country were even more depressing and menacing than in this country. And he said that he hoped the speaker who was to follow him would not be like the Englishman who was sitting beside the Thames River at Waterloo Bridge when he saw a man preparing to jump over. He dashed over to him and asked him to wait a moment and talk it over with him, that perhaps conditions were not so hopeless as he thought. And the man began with the World War and came on down through the depression and the dole and the general strike and when he was done they both jumped off together. But when I followed the speaker I told him that I not only was not ready to jump over with him but that I was going to pull him out. There is no occasion for pessimism. The explanation of our present economic and political situation is found in the laws of economic evolution. Everything that has happened to us was suggested by Lord Bryce nearly 50 years ago and was definitely predicted by Lord Macaulay in a private letter 75 years ago. The present situation has its roots in the Industrial Revolution of more than a century ago. That marvelous transformation of the whole Occi- dental social order created the capitalistic industrial economy we have today. It revolutionized the methods of industrial production and transportation. It completely reorganized the political, social, intellectual, and educational institutions of humanity. It created the public school, mass education, universal suffrage, the capitalist class, and a wage-earning urban population. It gave the common man a political power unknown before in history. In THIS fact we have the explanation of all that has happened. There was a World War, which disorganized currencies, ruined trade, and destroyed capital all over the world. For a time there was a false stability and a fictitious prosperity. And then the bubble burst, and the inevitable depression came upon the world, the most severe, most prolonged, and most tragic in history. Everywhere in the civilized world the masses, driven by their misery, rose in rebellion. In Italy this mass movement resulted in Mussolini. In Germany it culminated in Hitler. In England it engendered a labor government, a national dole, and a narrow escape from a universal strike. In our country it resulted in a nation-wide political upheaval, in which the people evicted the government in office and installed a new government, both executive and legislative, which promised to relieve distress and satisfy the demands of the masses. Everything that has happened in this country in the past two years has grown out of this simple fact. Many men see in the present situation a direct intention to destroy the competitive system, to nullify the Constitution, to scuttle the existing social order. They are mistaken. An impartial and cool-headed analysis of governmental policy in the past two years will disclose no plot, no economic planning of a new order, no program of radical reconstruction of our economic system. What it does disclose is a blind, unplanned, hysterical, and self-contradictory series of economic experi- ments and interferences. The entire program represented a desperate effort by government to please the masses, to satisfy popular prejudices, and to placate importunate and self-seeking minorities. When all the extraordinary measures are analyzed, we see that they resolve themselves into three groups, measures aimed at relief, measures aimed at reform, measures aimed at recovery. Although certain of the measures over-lap and have a double purpose, every measure has been aimed fundamentally at relief or reform or recovery, with the exception of a few measures that were merely a surrender to some special interest, such as the silver subsidies. We are not concerned here with the relief or reform measures. But it may be said in passing that the relief measures have been necessary and unavoidable. They have been in some degree unscientific, wasteful, extravagant, and tainted with political motive. But they have been inevitable. The reform measures have been hastily drawn and arbitrarily passed, and not one has been free from serious error. They have discouraged enterprise and retarded recovery. But it must be admitted that they were aimed at definite evils. It would have been wiser to postpone them. But here again it might be conceded that some reform measures were inevitable. OlJR concern here is with the recovery measures. And about them I speak frankly, first as an economist who sees the matter scientifically and secondly as a citizen who urgently prays for an end of the distress and privation of the people. And as an economist I reject and condemn the entire recovery program. For many months I made an effort to justify it in part, to condone its mistakes and to find in it some merit. I had to abandon the effort. The whole recovery program has been unsound in principle, impractical in operation, and harmful in result. It has consisted of a bewildering mass of experimental measures forced upon the coun-6 try by arbitrary political action in defiance of economic science and the advice of competent authority. It has been forced upon the country in violation of individual rights of free contract, free enterprise, private property, and constitutional protection. I do not undertake here the impossible task of analysis of the more than fifty separate measures included in this recovery program. They fall roughly into four categories. In the first group we find those measures that were aimed at an arbitrary increase of wages and reduction of hours. In this group there was the N.R.A. In the second group we find the measures aimed at an artificial and arbitrary increase of commodity prices. Chief among these measures is the A.A.A. In the third group we find those measures which were aimed at an arbitrary rise of general prices. In this group we find all the monetary and banking measures, including abrogation of gold obligations, debasement of the currency, and adulteration of credit. And in the fourth group we find those measures which were aimed at artificial stimulation of business, or pump-priming. In this group there is the P.W.A. and associated projects for stimulation of enterprise and extension of credit to business. This entire program is founded on economic error. It rested first on the profound error that artificial raising of wages in depression promotes prosperity. The truth of the matter is that a major factor in prolonging depression is the continuance of high wages and high salaries in certain industrial lines. A horizontal reduction of the higher wage and higher salary levels of prosperous times is the first essential of recovery. The program rested on a second fundamental error that restriction of production increases prices and promotes recovery. Recovery comes from increased consumption due to reduced costs, this increase in consumption encouraging production and employment. 7 The program rested on a third hasic error that private enterprise can he forced to an artificial activity by squandering public funds in unnecessary public works. The truth is that such enterprises discourage private enterprise and create fiscal problems that frighten private investment. And the program rested on a final economic error that debasement of the coinage automatically raises prices and stimulates foreign trade. The truth is that debasement of the coinage operates to raise prices only when conditions are favorable and normally only after many months or years have elapsed, while the stimulation of foreign trade is merely temporary and in the long run tends to discourage both imports and exports and to retard recovery. TrlE consequences of these errors are now apparent. Recovery has been definitely retarded. Production has been restricted. Unemployment has grown worse. The population on relief has grown to 22% millions, 1 in every six of the population. The debt of the government has increased by 8 billion dollars, with many more billions already appropriated for the future. The South has lost a large part of the cotton market on which the prosperity of both the South and the nation depends. Nearly a billion dollars has been collected in taxes on the bread and meat and clothes of the people to pay a cash dole to farmers for destroying food and textiles in a hungry world, and at the present time the government is guilty of the vicious and unexcusable blunder of taxing the bread of the people to pay this same cash dole to farmers for raising all the wheat they can. We are already importing food from foreign countries. Our monetary system has become an indescribable and unnameable mixture of debased gold coin, debased silver coin, and paper, and every day a useless and dangerous mass of dead silver is pumped into the vaults, further dilut- ing and adulterating the mixture behind the irredeemable paper that we use. The banks have been forced to absorb nearly 15 billion dollars of government bonds. They are ceasing to be providers of credit for private enterprise and becoming agencies for government spending. The materials for a disastrous inflation of currency and credit have been built up, and no one knows when these inflammable materials will set ablaze. Our currency measures have disorganized foreign trade, cruelly embarrassed the gold standard countries of Europe, deepened the misery of China, and retarded recovery the world over. This orgy of manipulation and experiment and waste has gone under the euphemistic title of economic planning. I have no quarrel with economic planning. What I deplore is that we have had no economic planning. What we have had is guesswork, and blind experiment, and vacillating and mutually destructive economic policies. And the excuse for these disastrous errors has been emergency. It was obvious from the beginning that there never was an emergency which justified abrogation of contract and confiscation of property and violation ' of the Constitution. It is now clear that the one emergency of any material character, the bank moratorium in 1933, was due to the widespread fear of debasement of the currency by the incoming government, and that emergency, which should never have developed, was over in a few weeks and in no way justified any subsequent measures. From the beginning the government admitted that it was experimenting, and it promised that if its experiments should fail it would desist. But in the face of two years of complete failure it has never once admitted error. On the contrary it has through its spokesmen venomously attacked impartial and honest critics of their policies even while the policies themselves were being abandoned in humiliation and rout. And finally, these policies have led to cruel deception of the people. It has encouraged millions to embrace the absurd doctrines that government can create and distribute wealth and comfort without Work, that all economic hardship is due to exploitation and unjust distribution. And we see the consequences here in social bitterness, visionary and ludicrous economic schemes, and the rise of sinister and dangerous demagogues. This disapproval of the recovery program is not presented to you with bitterness of spirit. I make no charges against the various men responsible for these measures. Perhaps we can find in the Bible the best explanation of their record: "they know not what they do." This unfavorable view is presented to you in the interest of recovery. I am not one of those prophets of doom who believe that disaster is inevitable. It is not too late to apply the simple economic principles that should have been applied in the beginning. Recovery from depression comes automatically, of itself. It develops when the inevitable processes of deflation and liquidation are complete. There is some reason to believe that these processes had worked themselves out by the summer of 1932. However that may be, they had certainly been completed by the summer of 1933. Recovery, once in motion, is irresistible. But it can be promoted, and it can be retarded. It is promoted by encouragement to private enterprise, by reduction of tax burdens, by assurance of sound currency, by economy and efficiency in fiscal policy. It is retarded by fear and uncertainty and discouragement of private enterprise. For two years past recovery has been at the door, begging admittance. All it asks now is assurance that there will be no more experiments, no more interference, no more regimentation, no more waste, no more restriction of production, no more debasement, no more recovery by act of Congress. I speak to you tonight in the interest of recovery only. I want to see an end of unemployment and privation and charity doles in this nation. I know that 10 there are things that government can do to improve our economic order. I want to see an end of exploitation and overwork and underpay and manipulation and unjust enrichment quite as sincerely as any parlor pink in the land. These evils can be in part removed by government in due time. But what we need now is recovery from depression. I am a confirmed optimist about our country, but I tell you in all seriousness that a continuation of the present policy of interference, waste, and debasement may bring economic disaster and social revolution to a people that should be the happiest and most prosperous people on earth.