Mises Daily Articles
The Good Deficits
[As We Go Marching (1944)]
The presence of the problem of an economic system definitely out of repair did not impress itself on the consciousness of the American public until well after Mr. Roosevelt's administration had had its try at the situation for one term. After that the solemn truth settled only slowly upon our minds. By 1940 there were few who did not feel that there was something definitely out of joint.
However, as in Italy and Germany, our first attack upon our economic disorder, as it appeared in 1930, took the form of government spending and welfare. This was something quite new with us. Before 1914 public spending of borrowed money was a negligible feature of our economy. The expansion that astonished the world in America up to that time had been the product of private enterprise financed by private credit. In 1912, on the eve of World War I, after a century and a half of growth, the debts of our public bodies were as follows:
Most of the national debt was a remnant of the Civil War. The bulk of these debts was municipal, incurred for building city utilities such as streets, water works, schools, hospitals, and such.
The war of 1917 marked the beginning of a new era of public spending and borrowing. With the coming of war we had three years of enormous deficits as follows:
The history of the war measured in national debt may be stated as follows:
State and local debts had risen from $3,821,896,000 in 1912 to $8,689,740,000 in 1922.
This was due almost wholly to war. After that, however, in the period from 1922 to the depression of 1929, the federal government, instead of borrowing, annually reduced its debt. But the state and local authorities became heavy borrowers. However, no small part of the local debts was contracted for revenue-producing improvement and practically all of this debt was created with provisions for amortization. None of it was arranged as part of any scheme to produce national income, though it had that effect. It arose chiefly out of the demand of local communities for public utilities such as schools, education, health facilities, streets, and from the great demand for roads to make way for the stream of motorcars that poured from our factories. Whatever the purpose, however, the policy did accustom the public mind to public borrowing as a fixed policy of government.
The theory of public spending as an instrument of government to regulate the economic system first appeared in the early part of 1922. The theory was advanced by the Unemployment Conference of that year. Briefly stated, it held that during periods of prosperity, when private industry is supplying all the requirements of national income, the federal and local governments should go slowly on public-works expenditures. They should accumulate a reserve of necessary public-works plans to be put into execution when business activity shows signs of tapering off. However, it was not contemplated that the governments should go into debt for these purposes but should carry them out in accordance with the principles of traditional sound finance. This theory amounted merely to a plan to carry on public building and spending operations in periods of diminished private business activity rather than in time of prosperity.
When the depression appeared in 1929, therefore, Mr. Hoover, on December 4, 1929, sent a message to Congress proposing additional appropriations for public works. He asked an increase of $500,000,000 for public buildings, $75,000,000 for public roads, $150,000,000 for rivers and harbors, and $60,000,000 to dam the Colorado River. He believed this could be done within the budget. Actually the Hoover administration provided $256,000,000 in 1929 and $569,970,000 in 1930 for agriculture, public works, and farm loans while at the same time reducing the public debt by $746,000,000. The central theme of these proposals was to use public spending merely as a stabilizer. There was a pretty general agreement with the theory. But as the depression advanced there was a persisting failure of tax funds so that by 1931 there was a deficit of $901,959,000 which increased the next year to nearly three billion dollars. A part of this deficit resulted from the public-works expenditures but most of it was caused by a failure of tax revenues. Hoover, of course, never planned an unbalanced budget. However, so imbedded in the public consciousness was the aversion to national public debt that the Democrats in 1932 roundly denounced the Hoover administration for its extravagances and its failure to balance the budget. The platform of June 1932 contained the following as its very first plank:
An immediate and drastic reduction of governmental expenditures by abolishing useless commissions and offices, consolidating departments and bureaus and eliminating extravagance, to accomplish a saving of not less than 25 percent in the cost of the Federal Government; and we call upon the Democratic Party in the States to make a zealous effort to achieve a proportionate result.
Maintenance of national credit by a federal budget annually balanced on the basis of accurate executive estimates within revenues, raised by a system of taxation levied on the principle of ability to pay.
Mr. Roosevelt, the Democratic candidate, stood strongly behind these declarations. He not only opposed heavy public spending but public borrowing as well. He advised that a "government, like any family, can for a year spend a little more than it earns, but you and I know that a continuation of that means the poorhouse." He warned that "high-sounding phrases cannot sugar-coat the pill" and begged the nation "to have the courage to stop borrowing and meet the continuing deficits." Public works "do not relieve the distress" and are only "a stopgap." And having asked "very simply that the task of reducing annual operating expenses" be assigned to him, he said he regarded it as a positive duty "to raise by taxes whatever sum is necessary to keep them (the unemployed) from starvation."
The party itself plastered the nation with huge posters warning that the Republican Party had brought it to the verge of bankruptcy and calling on the voters to "throw the spendthrifts out and put responsible government in." The candidate and the party were quite sincere in these declarations and promises. They were in accordance with the most orthodox American convictions. But practical political leaders, in search of power, besieged by resolute minorities with uncompromising demands for results and bombarded by cocksure merchants of easy salvation, find themselves forced along courses of action that do not square with their public proclamations of principle. Just as Mussolini and Hitler denounced their predecessors for borrowing and spending and then yielded to the imperious political necessity of doing the thing they denounced, so the New Deal, once in power, confronted with a disintegrating economic system and with no understanding of the phenomenon that was in eruption before its eyes, turned to the very thing it denounced in Hoover. But there was a difference. Hoover's deficits were the result of failure of revenue and were unplanned. Mr. Roosevelt's first deficit was a deliberately planned deficit. Within a few months of his inauguration he approved a proposal for a $3,300,000,000 public-works expenditure with borrowed funds in the NRA Act of May 1933. He then turned in the following deficits: $3,255,000,000 in 1933–34; $3,782,000,000 in 1934–35; $4,782,000,000 in 1935–36; and $4,952,000,000 in 1936–37.
Nevertheless, despite this record, the administration persisted in its theory that budgets should be balanced. Its platform in 1936 said:
We are determined to reduce the expenses of the government.… Our retrenchment, tax, and recovery program thus reflect our firm determination to achieve a balanced budget and the reduction of the national debt at the earliest possible moment.
In January 1937 the president triumphantly presented what looked like a balanced budget. He said:
We shall soon be reaping the full benefits of those programs and shall have at the same time a balanced budget that will also include provisions for the reduction of the public debt.… Although we must continue to spend substantial sums to provide work for those whom industry has not yet absorbed, the 1938 budget is in balance.
The whole tone of this message was pitched on the growing importance of a balanced budget. Nevertheless, notwithstanding this amazing statement, the budget of that year was not in balance. It showed a deficit of $I,449,626,000. Immediately there was a tremendous drop in the rate of business activity. We began to have what was called a recession, while the president continued to talk about "the extreme importance of achieving a balance of actual income and outgo." I recall all this now in order to make clear that up to this time no party in this country seriously approved the practice of borrowing as a definite policy. I think it illustrates also with complete finality that the men who were guiding national policy knew nothing about the workings of our economic system. The president made it clear that he was spending and borrowing purely as an emergency device. As late as April 1937 he said:
While I recognize many opportunities to improve social and economic conditions through federal action, I am convinced that the success of our whole program and the permanent security of our people demand that we adjust all expenditures within the limits of my budget estimate.
He then delivered himself of the following extraordinary opinion:
It is a matter of common knowledge that the principal danger to modern civilization lies in those nations which largely because of an armament race are headed directly toward bankruptcy. In proportion to national budgets the United States is spending a far smaller proportion of government income for armaments than the nations to which I refer. It behooves us, therefore, to continue our efforts to make both ends of our economy meet.
Here was a clear recognition of the fact that in Europe for many decades governments had been doing what our government was then doing, spending great sums of money and going into debt for it, but doing it on armaments instead of on peacetime activities as Mr. Roosevelt was doing. But nations which borrow money and pile on vast national debts can go into bankruptcy whether the debts be for armaments or roads, parks and public buildings. European nations were far more deeply stricken in crisis and had been for years. The armaments had become an economic necessity to them. They were not to us. Our government was delivering lectures on sound fiscal policy, deploring the deficits, yet planning new and more extravagant means of spending money, soothing the Haves with promises of balanced budgets and lower taxes, and stimulating the Have-nots with promises of security and abundance. The government was doing, in fact, what Depretis was doing in Italy between 1876 and 1887. Let the reader turn back to the first part of this volume for a description of that record:
He promised every sort of reform without regard to the contradictions among his promises. He promised to reduce taxation and increase public works. He promised greater social security and greater prosperity. When he came to power he had no program and no settled notion how he would redeem these pledges. His party was joined by recruits from every school of political thought. He found at his side the representatives of every kind of discontent and every organ of national salvation. The oppressed tenants along with the overworked and underpaid craftsmen of the towns crowded around him beside the most reactionary landowners and employers to demand the honoring of the many contradictory promissory notes he had issued on his way to office.
Depretis then, for lack of any other weapon, proceeded to do what he had denounced his conservative predecessors for doing — to spend borrowed money on an ever-larger scale. When he did "every district wanted something in the way of money grants for schools and post offices or roads or agricultural benefits. These districts soon learned that the way to get a share of the public funds was to elect men who voted for Depretis, Men who aspired to office had to assure their constituencies that they could get grants for these constituencies from the Premier," I quote again what the Encylopaedia Britannica said of this episode:
In their anxiety to remain in office, Depretis and the Finance Minister, Magliani, never hesitated to mortgage the financial future of the country. No concession could be denied to deputies, whose support was indispensable to the life of the cabinet, nor under such conditions was it possible to place any effective check upon administrative abuses in which politicians or their electors were interested.
Miss Margot Hentz, writing of the same episode, said:
Pressure was brought to bear through the organs of local administration who were given to understand that "favorable" districts might expect new schools, public works, roads, canals, post and telegraph offices, etc.; while the "unfavorable" might find even existing institutions suppressed.
Depretis' policy was pursued on a larger scale by his successors, including Giolitti whose administration brought Italy to the eve of World War I and the threshold of bankruptcy. Those who have read the chapter in this volume on Germany will not fail to see the resemblance first on a small scale to the performances of the old imperial government and then on a larger scale to the policies of the republican government that preceded Hitler.
All this, however old, was a new chapter in American policy. When, therefore, these vast expenditures were made, the noblest and most heroic explanations were offered. Having denounced timid deficits, the administration embarked upon a program of huge deficits, but it did it in characteristic American fashion, with proclamations of righteousness as if America had suddenly discovered something new. In fact, it was called a New Deal, Actually, it was America dropping back into the old European procession.
The recession of 1937–38 marked a turning point of the greatest importance in American public policy. Up to this point spending had been done on the pump-priming theory. That is, public funds, flowing out into business, were expected to produce a resumption of business activity. But business utterly failed to respond to this treatment. Apparently the pump itself was seriously out of order. From this point on we hear no more about balanced budgets. We find the administration committed to the same policy that marked the fiscal programs of republican Germany. It turned to the device of public spending and borrowing as a continuing and permanent means of creating national income.
There was a renewal of depression, and the president himself had to admit in his 1939 message that his expectations of recovery when he reduced expenditures were overoptimistic. It had become plain to the political elements in the government that there was something wrong, that the idea of public works during an emergency, used even on an enormous scale, had not produced recovery and was merely a stopgap. The situation of the administration was critical in the highest degree. Almost all its plans had been discarded. The AAA was declared unconstitutional; the NRA was scrapped by the Supreme Court just as it was falling into utter chaos; the devaluation of the dollar and the idea of a managed currency, as well as the gold-buying plan, had proved ineffective; social security was an aid to the unfortunate but did nothing to make the economic system work. Apparently nothing was holding back a tidal wave of deeper depression save the spending and borrowing program which everyone had either denounced or apologized for. The public debt had risen as total depression deficits amounted to 19 billion. What possible avenue of escape opened for the government in the presence of rising unemployment, rising taxes at last, farmers, workers, the aged, investors all clamoring for swift and effective aid and the land filling up again with messiahs and their easy evangels?
About this time a group of young men published a little book — An Economic Program for American Democracy (Vanguard, 1938). It got little enough attention at the time. Its authors styled themselves Seven Harvard and Tufts Economists. It proclaimed boldly that the capitalist system as we have known it was done and that, instead of balancing budgets, the government should adopt the unbalanced budget as a permanent institution; that the only salvation of the nation was in a greater and ever-expanding program of national expenditures met with revenues raised by borrowing.
Completely unknown at the time, these men were actually announcing in this small book the theories that had been worked over by John Maynard Keynes in England and Dr. Alvin H. Hansen in this country. But they were by no means the inventors of them. They had already had a vogue in Germany under the republic, which indeed had been influenced by them in its fiscal policies.
Their theory, very briefly stated, is as follows:
The present capitalist system is no longer capable of functioning effectively. The reasons for this are as follows:
The dynamic element in the capitalist system is investment. Since millions of people save billions of dollars annually, these billions must be brought back into the stream of spending. This can be done only through investment. When private investment is either curtailed or halted, these savings remain sterilized or inert and the capitalist system goes into a depression. Nothing can produce a normal revival of the capitalist system save a revival of investment.
Private investment cannot be any longer revived on a scale sufficient to absorb the savings of the people. Hence recovery through private investment is hopeless.
Private investment cannot be revived because there are no longer open to savers adequate opportunities for investment.
Opportunities for investment are not open any longer for three chief reasons: (1) because the frontier is gone, with its opportunities for territorial expansion and the discovery of new resources; (2) because population increase has slowed down to a snail's pace; (3) because technological development has matured. That is to say, there is no longer in sight any such great inventions as the railroads, the automobile, etc., which will change all the arrangements of our social life and call for huge money expenditures.
The present capitalist system is therefore incapable of recovering its energy. This is not a mere emergency condition but is a characteristic of the system which will continue indefinitely.
For this reason we must adopt a new type of economic organization. This new type is called the Dual System or the Dual Consumptive System. Under this system the government will become the borrower of those savings funds which private business will not take. It must then spend these funds putting them again into circulation. What we must look forward to, therefore, is a "long-range program of government projects financed by borrowed funds."
Of course such a program means borrowing perpetually by the government. It means that each year the government debt will increase. When the war ends we will owe not less than $300,000,000,000. Thoughtful men are gravely disturbed as to what course we shall pursue to mitigate the immense burden of this debt. These gentlemen say our course is clear — borrow more. Borrow endlessly. Never stop borrowing.
Of course one asks: What will be the end? How will we ever pay the debt? They reply: It is not necessary to pay public debts. As long as the bondholder gets his interest he is satisfied, and when he wants the principal he can sell his bond, which is all he asks. But how long will this ability to sell his bond last with a government that never stops borrowing and whose credit can become exhausted? This they say, despite all the lessons of history, cannot happen because the more we borrow the higher we build our national income and hence the greater is our ability to borrow. But what about the interest? we ask. Will that not rise to appalling proportions? If our debt is $300,000,000,000 when the war ends, the interest, when we refund the debt, will be at least $9,000,000,000 a year. Before the depression this government never collected more than $3,500,000,000 in taxes. The greatest amount of taxes ever collected by the federal government in peacetime, even after we began to spend on war preparations, was $7,500,000,000 in 1941. But we will have to collect that much in taxes — and an additional $1,500,000,000 — just to pay the interest on the national debt. Yet the advocates of this system say that when the war ends we must go on borrowing at the rate of 5 or 10 or even 20 billion a year. Mr. Tugwell estimated it must be around $12,000,000,000 a year in peacetime.
This theory has, in greater or less degree, been adopted by those most influential in the present government. It is not an idea that has infected a few choice spirits on the perimeter of the New Deal. It has become a part of the New Deal — indeed its most essential part. The evidence of this is that the job of planning for the postwar problems of America was taken over by the president himself, was not committed to any of the departmental bureaus, but was installed in his own executive office under his own eyes. For this purpose he organized as a department of his own office the National Resources Planning Board. The man who is the leading exponent of this theory, Dr. Alvin H. Hansen of Harvard, was brought to Washington as economic adviser of the Federal Reserve Board and installed as the chief adviser of the National Resources Planning Board. Six of the seven Harvard and Tufts economists who prepared the published plan were brought to Washington and made economic counsel of various important agencies. Mr. Richard V. Gilbert, one of them, and one of the most vocal apostles of this theory, is at the moment I write guiding the economic destinies of the OPA, which is supposed to be leading the battle against inflation. Most of the others have been given posts of importance in the government. Dr. Hansen has been described by such journals as the New Republic and Fortune as the man "whose fiscal thinking permeates the New Deal." The board has put out a series of pamphlets designed to outline its guiding ideas. The most important of these was written by Dr. Hansen. Everywhere in Washington, in the most important key positions, are men who have been indoctrinated with this theory.
It is interesting to note that as early as 1936 a little book appeared called Uncommon Sense, by David Cushman Coyle. The book, however, was circulated by the Democratic National Committee and one wonders if the hard-headed men who paid the bills realized what they were doing. It contained this amazing passage:
There are two ways to get out of depression. One is for business to borrow ten or twenty billion dollars from investors and build a lot of new factories, loading itself with debts that the investor will be expected to pay. The other is for the Government to borrow money and build public works, loading itself with debts that the investors will have to pay out of their surplus incomes. Some kind of taxpayer has to carry the debts either way. But business debts have to be paid mostly by the poorest taxpayers, whenever they go to the store to buy a cake of soap. Federal debts have to be paid by the people with better incomes who would not spend all their income anyway. That is why it is better for business and consumers if we get out of the depression by having the Government borrow than by having business do all the borrowing.
It is this incredible yet dangerous piece of nonsense which is at the bottom of the postwar plans that are being made in Washington. Recently Congress, to its amazement, became aware of these plans. It had provided funds for the National Resources Planning Board to work out a program for the postwar period. Of course everyone is in favor of that. It had been hearing about the "projects" which that board was blueprinting. It learned, finally, that the great project upon which the board was working was a project for recasting the whole economic and social system of America along the lines outlined here and based primarily upon a settled conviction that the capitalist system is dead. And it was doing this in the office of the president of the United States. It was the discovery of this fact which led to one of the first congressional revolts in 1943 and compelled the abolition of the National Resources Planning Board by Congress. The liquidation of this Board, however, does not in any particular alter the theories upon which the present government is proceeding. It is merely forced to transfer its revolutionary planning activities to other bureaus and departments.
All this is nothing more than a conscious imitation of the German experiment. Some of the political leaders, including the president, may not realize this, since they are not students. But the men who have been publicizing and promoting the program do. Thus, for instance, we find an article in Harper's describing with a good deal of gusto the financial operations of the Hitler regime. We are told that we must not let the brutality of German political policy "divert our attention from the German financial program. It is revolutionary and it is successful." The author then tells us that if we will look behind the dictatorship we may possibly find "clues to the nature of our own recent financial ills, indicating what has been wrong and what can be done to strengthen economic democracy now and in the future." The men who built this German system are called men of unquestioned genius. It is becoming clear that "Germany's internal financial program is removing the limitations of her financial environment on rates of productive activity. For years prior to the present war German industry operated at capacity. To do these things she is changing capitalism but she is not destroying it."
Of course there is nothing new about Hitler's financial operation, as anyone who has read the German chapter of this volume will remember. It is merely the adoption by Hitler of the spending and borrowing tactics of his predecessors, whom he so roundly denounced. Hitler was doing little more than Mussolini was doing, than the republicans and Social Democrats did before him in Germany, and what the old Italian and German Ministers did before the last war. There has been altogether too much nonsense printed about the great financial wizardry of Schacht. Schacht did no more than any banker with his knowledge of modern banking might have done, caught in the same squeeze. Being an experienced financier and having seen one devastating inflation at work, Schacht introduced some clever devices to mitigate the effect of his fiscal policies. For instance, he arranged that when financial or industrial concerns of any category had accumulated large cash reserves, they were compelled to invest them in government bonds, thus relieving the government of the necessity of making inflationary bank loans. Better still, when the government decided that a new steel or munitions plant should be built, the operation would be carried on by a private corporation. It would issue its securities. In this country the government takes those securities through the Reconstruction Finance Corporation, buying them with funds raised by government borrowing on its own bonds or notes, thus plunging the government into debt. Schacht would force large financial institutions to take the securities of the private corporation directly, keeping the government completely out of the financial transaction. This was possible in Nazi Germany under a dictator. A dictator can order such things. A democratic government cannot. The author of the article from which I have quoted tops it off with the admiring observation that "the Nazis by experimentation were learning what to do while Keynes was discussing these theories in England." This is what is being offered to America. I quote once more:
The irony of this financial revolution that has been unfolded in Germany lies in its implications for the future of economic democracy. What the Nazis have done, in essence, is to begin to chart the unknown realms of the dynamic use of government securities. Tragically for Germany and the whole world the brilliant contribution of her financial genius has been obscured by its diversion to the uses of tyranny and destruction. But can any of these financial methods be utilized so that a wise, self-governing people, determined to preserve individual freedom and anxious to make full use of individual initiative, could make private enterprise and capitalism better serve the purposes of economic democracy? If this is so — and I believe it is — we shall do well to examine the potentialities of this new arithmetic of finance as carefully and dispassionately as we should study, let us say, those of a new German development in aircraft manufacture, and seize upon whatever we can use for our own democratic ends.
This was written in 1941. The author was painfully behind the times. For already in 1938 the administration had practically seized upon this theory of finance.
It is a little astonishing how far the parallel between our fiscal theories and those of Germany go and how, once adopted, quite without design, they led off into the same weird bypaths. For instance, Italy before World War I had already learned how to increase the charges of social security in order to provide the government with money, not for social security but for its regular expenditures, and the same thing appeared in Germany. The present administration did that here until it was stopped by Congress in 1938, and now it is energetically trying to do the same thing again. Recently the New York Sun reported that when auditors got into the books of Mussolini's treasury, after his fall, they discovered that a large part of his deficit was due to the paying out of huge sums in subsidies to conceal the rise in the cost of living — a plan industriously urged here by the Hansen group and adopted by the president but as yet resisted by Congress. It is a singular fact that at this moment the battle against inflation is in the hands of these Perpetual Debt economists who look upon government spending and borrowing — which are the cause of inflation — as things good and necessary, and who look upon the objections to huge government spending and deficits as "old-fashioned superstition."
How the funds will be spent or "invested" by the central government is a point upon which all the advocates of this system are by no means agreed. Generally they fall into three groups:
The first group insists that the government shall not engage in any activities that either compete with private industry or impinge on its province. The government should put out its funds upon projects outside the domain of the profit system — such as public roads, schools, eleemosynary institutions, playgrounds, public parks, health projects, recreational and cultural activities of all sorts. A possible exception might be the development of power across state boundaries. Another exception would be public housing or housing for the underprivileged, which would not actually compete with private industry since private investors never put any money into housing projects of this kind. They would leave the whole subject of producing and distributing goods to private enterprises.
Another group proposes to invest these government funds in the shares and bonds of private enterprises. An eligible list of public investments would be established. The government would thus become the chief investor in private enterprise and in some cases — the railroads, for instance — the government might own all the bonds and perhaps much of the stock. Thus we would have a private corporation operating the utility in which much if not most of the funds would belong to the government. This plan, of course, would enable the general government, as the largest stockholder or holder of the mortgage, to exercise over properties a whole range of authority and power which it could not possibly exercise as a government per se.
A third plan is outlined by Mr. Mordecai Ezekiel, economic adviser of the Agricultural Department. He proposes an Industrial Adjustment Administration patterned on the lines of the Agricultural Adjustment Administration. It would work as follows: Industry, organized into local groups united by national councils, would plan each year not the amount of goods it could sell but the amount needed by the nation. This estimate, approved by the government, would be authorized as the production program of the year. Each region and each unit in the region would receive its allocation of what it might produce. Prices would be fixed and all the producing units would proceed to turn out their respective quotas. The government would guarantee the sale of everything produced, underwriting the whole program and taking off the hands of all producers their undisposable surpluses. The risks of business would be transferred almost entirely to the government.
What is stewing in Washington is a potpourri of all these ideas. The National Resources Planning Board in its report to Congress did actually propose that the government should become a partner in rail-roads, shipping, busses, airlines, power, telephone, telegraph, radio, aluminum, and other basic industries. It proposed also government participation in the financing of industry without setting very much limitation on it. John Maynard Keynes — now Lord Keynes and a member of the Board of Governors of the Bank of England and the most distinguished English-speaking exponent of these theories — speaks of this as "a somewhat comprehensive socialization of investment." By this he means to distinguish his plan from the socialization of industry. Industry would be operated by private groups but the investment in industry would be socialized. "It is not the ownership of the instruments of production which it is important for the state to assume. If the state is able to determine the aggregate amount of resources devoted to augmenting the instruments and the basic rate of reward to those who can own them it will have accomplished all that is necessary," says Lord Keynes. The government will interpose itself between the corporate enterprise and the investor. The government will sell its securities to the investor, and as these will be guaranteed securities, the government can fix the rate of interest and therefore the rate of reward to the investor. The government will then invest these funds in industry. The industry is "owned" by a private corporation. But the government owns its bonds, perhaps much of its stock. Thus Lord Keynes thinks he avoids statism or government ownership of industry. What is perfectly obvious, however, is that in one form or another these men are attempting to fabricate a system that will not be communistic and will not involve state ownership but will put in the hands of the all-powerful state not only through institutions of public regulation but through financial investment complete control of the economic system, while at the same time running up vast debts against the government and utilizing the public credit to create employment.
Of course this is fascism. For this principle of the Dual Consumptive Economy, as Dr. Hansen calls it, or the principle of planned consumption, as the fascists call it, by whatever name it is called is in fact one of the ingredients of the fascist or national socialist system. And if we will add to it the other ingredients of fascism or national socialism, we will then have that baleful order in America.
Whether this is a sound system or not is a matter for discussion. But sound or not, as Mr. Dal Hitchcock points out, it is the Nazi system. Whether we shall adopt it or not is hardly any longer a question. We have adopted it. The question is, can we get rid of it, and how? And if we are to continue it, the next question is how can we do so while at the same time continuing to operate our society in accordance with the democratic processes? This point we shall consider later.
America has now stumbled through the same marshes as Italy and Germany — and most European countries. Her leaders had proclaimed their undying belief in sound finance and balanced budgets while they teetered timidly on unbalanced ones. The public clamor for benefits, the cries of insistent minorities for relief and work, the imperious demand of all for action, action in some direction against the pressure of the pitiless laws of nature — all this was far more potent in shaping the course of the administration's fiscal policy than any fixed convictions based on principle. An unbalanced budget, after all, is a more or less impersonal evil, not easily grasped by the masses; but an army of unemployed men and the painfully conspicuous spectacle of shrinking purchasing power are things that strike down sharply on their consciousness. It is not easy, perhaps, to eat one's words about balancing the budget. But it is easier than facing all these angry forces with no plan. It is easier to spend than not to spend. It is running with the tide, along the lines of least resistance. And hence Mr. Roosevelt did what the premiers of Europe had been doing for decades. Only he called it a New Deal.
 Statistical Abstract of the U.S., 1929, p. 220.
 Statistical Abstract of the U.S., 1941, p. 178.
 Ibid., pps. 230, 251.
 The Hoover Administration, by Myers and Newton, Chas. Scribner, New York, 1936.
 Ibid. Also Statistical Abstract of the U.S., 1941, p. 230.
 Statistical Abstract of the U.S., 1941, p. 176.
 Public Papers and Addresses of Franklin D. Roosevelt, 1928–56, Random House, New York, 1938.
 "The German Financial Revolution," by Dal Hitchcock, Harper's Magazine, Vol. 182, February 1941.
 Jobs for All, by Mordecai Ezekiel, Knopf, New York, 1939.