Planks Without Platforms
THE products of the Kansas City and the Houston conventions, apart from their accessories, look as much alike as the output of two Ford assembling plants. Mass production.
The Kansas City resolutions solemnly declare that the Republican Party is unalterably opposed to monopolies, excessive taxes, extravagance, abuse of injunctions, and the buying of votes. On the positive side, the resolutions are equally startling. They have a good word to say for honesty. They even go so far as to favor prosperity. They warmly endorse world peace, high wages, reduced taxes, foreign trade, efficient transportation, an American Merchant Marine, the Federal Reserve System, the protective tariff, flood control, States’ rights, and restricted immigration. Even that is not all. The resolutions go on to pledge the Republican Party to the enforcement of the Eighteenth Amendment, the care of disabled veterans, the protection of American citizens abroad, the creation of a Federal Farm Board, and the conservation of national resources.
Consider, next, the Houston resolutions. They solemnly declare that the Democratic Party is unalterably opposed to monopolies, excessive taxes, extravagance — but there is no need of going the whole length of this platitudinous list again. For the word ‘Republican’ in the preceding paragraph substitute the word ‘Democratic,’ and there you are!
Yet beneath this apparent agreement upon everything under the sun there is a real conflict. Each party insists that under its administration the country is most likely to enjoy the steady maintenance of well-distributed prosperity. Which party is right? That is the main issue of this campaign. It touches the lives of more human beings, more hours of every day, than all other issues combined. The ‘Full Dinner Pail’ is just as alluring a symbol as it ever was. That is why both platforms are made up largely of economic planks.
The voters are well aware that neither party has possession of Aladdin’s lamp: there is no political magic whereby the country can enjoy more wealth than it produces. Most of the voters know, moreover, that the country now falls far short of using its powers to create wealth. At the same time — and here is the most patent truth of all — there are millions of people, now in want and anxiety, who are eager to have a share in this unborn wealth, this wealth which is potentially within their grasp.
Most of the voters, therefore, would like to know precisely what each political party proposes to do to prevent the recurrent tragedy of closed factories, surplus materials, unused inventions, wasted energy, and idle funds. Especially they would like to know why, in the midst of prosperity so rampant and unprecedented as to astound the whole world, there are times — last winter, for example — when several million willing workers can find no work to do. Why, in short, do our productive powers grow so much faster than our ability to use them? Is this the only kind of prosperity that any political party knows how to achieve?
Rephrased in the light of these questions, the main issue becomes a practical, political problem: What measures can be taken to enable us to use, and use continuously, for the benefit of all our people, the nation’s great resources of men, money, machines, and materials? That is the economic problem. If either party offered a definite, comprehensive solution, it would deserve to carry the country. And probably would. But both parties offer little more than suggestions of a solution and vague promises.
When a solution is found, it will be based on definite answers to these two questions: First, what are the causes of our prosperity? Second, which of these causes can be, and should be, subjected to political control?
For it is plain, first of all, that there are many causes of prosperity. It is equally plain that some of these causes — monetary systems, for example — are, and ought to be, under political control; that is, under management by all the people in the interest of all the people. There are other causes, such as the climate, which are not subject to such control.
Still other causes of prosperity, such as investments in new enterprises, can be politically controlled, but cannot be so controlled with any benefit to the people. In this group belong those forces which function, when they function at all, almost exclusively through individual initiative, prompted by self-interest. As a rule, the best we can do with such influences is to leave them alone. Indeed, if nothing more were needed to sustain prosperity and distribute its blessings, — if, in other words, the laissez faire economists had told us the whole truth, — it would be well for all political parties to make rhetoric the be-all and the end-all of their efforts. In that case, politicians could do their full duty by passing resolutions in favor of prosperity, as solemnly and emphatically as usual.
But the suffering of the unemployed last winter — to go no farther back — is enough to prove that private enterprise, unless supplemented by the right public policy, will neither use our productive powers at any approach to capacity, nor give sufficiently wide distribution to the wealth which it succeeds in producing. Evidently we must make more effective use of those forces which are subject to political control.
This is the point of view from which we shall now consider, necessarily in a cursory way, the major causes of our prosperity.
We may as well begin with the most widely touted of these causes — namely, mass production, lower unit costs, and high wages, the policy which is known all over Europe as the ‘Fordizing of Industry.’ No wonder it is widely known, for it has been broadcast dramatically by one of the most skillful advertisers of this advertising age; by a man who — most potent of all arguments — has made more money through adherence to that policy than any other man has ever made out of any one industry. That policy, we are told again and again, is the secret of American prosperity. Indeed, two investigators from England who joined the procession from abroad in search of our secret reported their findings in a book on mass production and high wages which ‘has created more excitement in England than any other economic treatise.’
On one point, at least, all these investigators are right: Mass production, with resultant lower unit costs, has done much to increase the real wages of American workers; and real wages (that is to say, the goods which wages will buy) speak so loud that wage earners cannot hear what politicians say. It is doubtless true that real wages are higher in the United States than in any other country, partly because the United States has made the widest use of the principles of mass production. Which is merely a dull way of saying what various writers — notably Edward A. Filene in The Way Out — have said in a fascinating way.
There are, however, two things about mass production, both essential from the political point of view, which are often overlooked. The first is that, without any aid from the Government, private enterprise, under the powerful spur of the profit motive, to say nothing of the somewhat potent spur of self-preservation, will push mass production as far as it can be pushed. Just how far it can be pushed depends largely upon the growth of the consumer market, and that in turn depends largely upon the growth of incomes of the people who are not wealthy.
The second essential point is this: There is nothing in mass production, per se, which increases the income of these people as rapidly as it increases the output of goods. For, contrary to traditional economic theory, production does not automatically finance consumption. On that point the most influential of the classical economists were wrong. Now we know that the financial process — payment of wages, interest, rent, and the rest — whereby, in any given year, a given volume of goods is made ready for consumers to buy does not yield consumers enough money to buy those goods. Consequently, contrary to the enthusiastic reports of some of the secret-searchers from abroad, mass methods of turning out goods cannot sustain prosperity, cannot prevent overproduction and unemployment. Witness the experience of last winter.
The forbearance of some of our readers, no doubt, is about at an end. ‘Of course,’ they are impatient to point out, ‘we all know that mass production in itself is not enough. It is mass production combined with low prices and high wages that does the trick. The proof is rolling along on every highway: mile after mile of Ford cars which have been sold — yes, and paid for. And millions more could be sold if the Ford factories were more thoroughly Fordized. Evidently, all we need to do in order to sell the ever-increasing output of mass methods is to keep wages high enough and prices low enough.’ And do not all political parties wax eloquent in praise of high wages and low prices?
Here we digress long enough to commend all those who have insisted on keeping wages as high as possible, thus helping to prevent general under-consumption and consequent unemployment. Mr. Ford himself has helped at times both by startling example and by sound precept. In fact, no remedy for business depression is so worthy of a quack doctor as the general deflation of wages. On this point the American Federation of Labor has always been right, and various associations of employers have sometimes been wrong. In the year 1921, for example.
But high wages and low prices cannot solve the economic problem; for no producer can make his wages high enough to cover the prices of his product, unless he operates at a loss. And he cannot long operate at a loss. In other words, no producer can long provide a full dinner pail for his workers, or even a half-full pail, unless there is a margin between the wages he pays, directly and indirectly, in the process of creating a given volume of goods, and the prices he receives for those goods. Wages and prices are like the floor and the ceiling of an elevator — when one goes up, the other goes up, too.
Even the best-known champion of high wages has not paid enough wages, directly or indirectly, to enable consumers to buy his cars. Somebody had to keep on making up the deficit in consumer purchasing power caused by the growth of Mr. Ford’s uninvested and undistributed profits, or he could not have kept on selling his cars. That is why the Ford policy is not the secret of American prosperity.
On the contrary, if everyone had tried to follow that policy, there would have been no prosperity. Fortunately, many other men, aided by the private bankers whom Mr. Ford has denounced, have followed radically different policies.
No, the combination of mass production, low prices, and high wages is not enough to keep a country prosperous; not enough, therefore, to form the foundation of a party platform.
In any event, it is useless to look to public policy for help in this direction, for wages and prices cannot be subjected to political control, except through government control of industry. By means of such control, it is true, dollar wages could be increased indefinitely. But no matter how large the wages became on paper, they would buy less in the markets, because government control would remove what are now the chief incentives to individual initiative and productive effort. Thus the process of raising the wages would defeat the purpose of raising them. If, therefore, the mass-production, low-price, high-wage policy were the only secret of prosperity, nothing could be gained by political control. Party platforms would properly say nothing on the subject, because there would be nothing to say. Laissez faire would be the right policy. But in that case, evidently, there would be no escape from the curse of unemployment.
There are, however, other secrets of prosperity. If Mr. Ford’s policies, or any other policies, bring forth goods faster than home markets can get rid of them, the obvious thing to do, we are told, is to ship the surplus to foreign markets.
But at once we strike a snag. Virtually every other country is also producing more than its own people are able to buy; is looking around the world, therefore, in search of unsuspecting countries upon which to dump its surplus. Every country wants a favorable balance of trade: every country — true to Christian precept, if not to Christian spirit — is eager to give more than it receives. The game might be called ‘ puss in the corner.’ It is no game at all unless somebody is left out.
That is not the only snag. And here we come to a difficulty which all the tariff planks of all parties, the world over, blithely ignore.
This is the dilemma: Any country which seeks to make up a shortage of buyers at home by finding buyers abroad must either import the full equivalent of what it exports, in which case the net surplus in home markets is just as large as ever, or else it must refuse to accept an equivalent return for its goods, in which case the people abroad may have a very nice time consuming the goods, but the people at home get nothing in return for their work but the joy of working.
There are, to be sure, the so-called ‘invisible items’ in the foreign-trade balance, — though it is not clear to anyone who travels why American tourists should be called ‘invisible,’ — and all these items must be taken into account. In the main, however, the only way we can get much material benefit from sending goods abroad is by accepting goods in return.
Well, why not accept them? Wealth is wealth: gloves from France, watches from Switzerland, cutlery from England. Could we not enjoy all the goods that debtor nations are willing to send?
Enjoy them we certainly could, if we were able to buy them. But on the part of home producers there is the ever-present fear that the people will not have enough money to buy even the home products, to say nothing of foreign products. Overproduction — under-consumption— business without a buyer! That is the fear which drives every nation to try to get rid of its own real wealth while erecting tariff barriers against the real wealth of other countries.
How, then, can we make full use of foreign trade in sustaining prosperity? Only by seeing to it that the people at home receive enough money, week in and week out, to buy all they produce. Then they are able to buy all that is retained for home consumption, as well as the full equivalent in imported goods of the goods which are shipped abroad.
So here again we come to consumer purchasing power as the limiting factor in economic progress. Consequently, no political party can lay down a sound foreign-trade plank, or a sound tariff plank, except on a structure which provides for adequate consumer income. But neither the Democratic nor the Republican Party has any such foundation. Indeed, with an exception to be mentioned presently, the pronouncements of neither party reveal even a hint of the fact that any such foundation is needed.
Both parties, on the contrary, appear to regard the Federal Reserve System as the complete solution of our monetary problems. Yet that system, avowedly, is a system for financing producers; it is not directly concerned with the problem of financing consumers. Like most monetary systems, it assumes that there is no such problem; for it is based on the traditional economic theory that production automatically finances consumption, from which it follows that the people are sure to obtain enough money to buy goods as long as business obtains enough money to make goods.
For proof of the falsity of that theory we need look no farther back than the last four years. During that period the Federal Reserve System has well served the purpose for which it was founded. It has provided ample funds at low rates for all legitimate business. There is no need for the Democratic Party to urge that the Reserve System ‘be administered for the benefit of farmers, wage earners, merchants, manufacturers, and others engaged in constructive business.’ That is precisely how the System has been administered. In fact, there has been available so much more money than constructive business could be induced to use at home that billions have been lent abroad; more every year; most of all during the past year, when unemployment at home reached a new crisis. What we have done, in effect, is to import a part of Europe’s unemployment in exchange for exports of capital. The chief reason why more of this capital has not been used to create wealth at home, thus raising standards of living and keeping more workers employed, is that at times the buying power of consumers has not grown as rapidly as the productive power of industry. It is not true that business has suffered for need of capital. What it has needed is a means of financing consumers as efficiently as the Federal Reserve System has financed producers.
Partly because we have had no such system, we have resorted to the device of turning over to consumers on installments more than three billion dollars’ worth of goods for which they have not yet paid. In consequence there have been fewer idle plants and fewer idle men than otherwise there would have been. But it is the growth of installment selling which has helped, and the growth cannot long continue at the rate of the past decade. If we are to make that progress which all parties really desire, we must see to it that people who want to buy goods have the means of paying for the full equivalent of what the country produces, rather than conveniences for getting deeper into debt.
In any event, installment selling is not one of those causes of prosperity which need to be subjected to political control. Private enterprise has demonstrated its ability to use that device for all it is worth.
Restricted immigration, still another cause of prosperity which both parties favor, undoubtedly does help to keep up the wage rates of common labor; but it does not help to sustain employment. On the contrary, restricted immigration forces employers to adopt various means of increasing the output per man, so that they can get along with fewer men. Statistics tell the story. Moreover, merely reducing the flow of foreign workers into the labor market does not increase the total flow of money into consumers’ markets. In any event, since the present law permits an annual increase in the population through immigration of less than one quarter of one per cent, the United States has gone about as far as it can go in this direction. Evidently, we cannot create adequate demand in home markets merely by keeping out foreign goods and foreign laborers.
So it is with various other causes of prosperity — industrial research, invention, discovery of new resources, utilization of water power, improved labor relations, scientific management, reduction of wastes. All these factors help to increase our potential productive powers, but they do not in themselves proportionately increase our buying powers. Here again we run counter to the stubborn fact that we can use our knowledge of the means of producing goods only to the extent that we can sell the goods. Consumption regulates production.
In order to visualize what happens, we need only imagine that producers have no way of distributing their products except through a monster penny-in-the-slot machine. Under such conditions, producers cannot long continue to employ workers and turn out goods at any faster rate than consumers receive pennies. And if producers do not return to consumers all the pennies which are collected from the machine, consumers must receive and spend pennies from other sources, or else producers must discharge workers and reduce output. There is no point in cramming the machine with goods for which there is no outlet. That is essentially the case in the actual world of business. And that is why consumption regulates production.
But have the activities of the Federal Government anything to do with the right flow of consumer income? One would think not, to read the party platforms. Yet it is a fact that every economic section of both platforms has a bearing on this problem. Both platforms favor reduction of taxes, reduction of public debts, protective tariffs, reclamation of arid lands, flood control, aids to shipbuilding, and construction of naval armaments, inland waterways, and national highways. Every one of these policies, to go no further, affects the income of consumers; every one helps or hinders the maintenance of stable prices, stable markets, and employment. No one of these policies is necessarily good or bad in itself; everything depends, as a rule, on the state of business. When inflation begins, and business starts riding to a fall, the Government, as far as feasible, should cease competing with private business for men and materials. When, on the other hand, business is headed toward a depression, and more men are being thrown out of employment, the Government should promptly increase its expenditures for public works, in order to prevent waste of man power and at the same time provide private business with the needed stimulus of increased consumer buying. Yet, with a single exception, there is no evidence that either party is aware of this fact; no indication that either party has any idea that the very act which under certain conditions helps to sustain prosperity, under other conditions has the opposite effect.
Consider, as one example among many, the proposed measures for flood prevention. Now nobody objects to flood prevention. The question is when such projects should be pushed forward, and when they should be held back; how much now, how much at some later time; for they directly affect income and employment.
Even the reduction of the national debt is not a good policy, regardless of time and circumstances. Last winter, for example, when jobs were getting scarcer and scarcer, it would have been sounder public policy to increase expenditures on public works than to use the same funds to decrease public debts. Thus it is clear that all federal fiscal policies may help or hinder economic progress at any given time. Everything depends on the volume of consumer buying and the waste of man power at the time.
This being the indisputable fact, it is almost incredible that neither party, in laying down its numerous economic planks, gives the slightest consideration to business conditions. Both parties favor this, that, and the other thing, as though government activities had nothing to do with the ebb and flow of prosperity; as though the Government could go ahead prescribing tariffs, collecting taxes, paying debts, borrowing money, and spending money, without any effect on the buying power of consumers; as though the questions of how much and under what business conditions were mere details.
That explains why it was possible for the resolutions committees at Kansas City and at Houston to busy themselves, day after day and night after night, laying innumerable planks end on end, without discovering any issues. There are no issues involved in most of the matters with which these committees so solemnly deal, except in connection with the questions of how much and under what conditions. Nobody cares a hoot about most of the party resolutions unless they propose that the Government spend money. Then everybody asks: When? And how much? Those questions were carefully avoided in both platforms.
But evidently ‘platform’ is hardly the word. For, though there are plenty of planks lying around loose, neither party has any framework — any principle — upon which to lay the planks.
Nor has it any means of knowing how the various planks fit into the whole design, for there is no design. In other words, neither party has an economic programme. And without such a programme, built around a unifying principle, there is no way whatever of answering the question, How much? That there is, in this respect, any choice between the resolutions of the two parties, only the blindest partisan would maintain.
Such consistent ignoring of the problem of adequate consumer income is, as we have said, fully supported by the traditional automatic-production-consumption theory. Why should the Government take any account of the financing of consumers, when production automatically does the trick? Why worry about anything which takes care of itself?
Nevertheless, the Democratic Party, after ignoring that problem through nine tenths of its pronouncements, suddenly takes a squint at the matter in the following resolution on unemployment : —
We favor the adoption by the Government, after a study of this subject, of a scientific plan whereby, during periods of unemployment, appropriations shall be made available for the construction of necessary public works, and the lessening, as far as consistent with public interests, of government construction work when labor is generally and satisfactorily employed in private enterprise.
This resolution is the exception to which we referred at the outset. It is the only indication in the resolutions of either party that the right flow of money to consumers, without which sustained prosperity is absolutely impossible, is any concern of the Government.
At this point, the framers of the resolutions were in sight of a principle upon which they might have built a platform.
But in their view, evidently, it was nothing but another loose plank, for they threw it down without regard to any of the other planks.
Further evidence that the framers of this resolution had no conception of its far-reaching possibilities is their refusal to call, at the same time, for a national system of employment exchanges, equipped to furnish complete, analyzed, up-to-date information concerning the unemployed. Yet, without such information, a scientific plan of government appropriations is impossible. As a matter of fact, no scientific plan was contemplated, since the resolution calls only for appropriations ‘during periods of unemployment,’ whereas the primary object of any scientific plan would be to prevent the recurrence of such periods.
This lame and halting resolution is the nearest that either party comes to facing the fact that prosperity depends on the right rate of consumption; the further fact that there is a problem of getting goods consumed, separate and distinct from the problem of getting goods produced; and, finally, the fact that this problem is one with which the Federal Government, in all its fiscal affairs, is properly concerned.
The Republican resolutions do not reveal even an inkling of these ideas; not the slightest suggestion that sustained and well-distributed prosperity requires a new federal policy. They declare, on the contrary, that no better guaranty of prosperity can be given than the pledge to continue the policies of the past five years. They insist that the tariff ‘provides continuity of employment for our workmen’! Nowhere in the resolutions does it appear that anything more is needed. Nowhere does it appear that the fiscal operations of the Government have anything to do with employment. But, for that matter, nowhere does it appear that there is any such thing, or under the wisdom of Republican rule ever can be any such thing, as a problem of unemployment.
The Democratic resolutions declare that ‘no government programme is anticipated to prevent the awful suffering and economic losses of unemployment.’ That is literally true. But it is just as true of the Democratic as it is of the Republican pronouncements. And no collection of planks of which that is true can properly be called a platform.
Neither party has ever presented to Congress any plan for the prevention of unemployment through the proper regulation of government expenditures and other fiscal measures. The nearest approach to such a plan is the Jones Bill, which will come before the next session. This bill authorizes the expenditure of about one hundred and fifty million dollars on certain public works, after there has been a decline of 20 per cent in contracts awarded for three consecutive months. This bill, far from providing for the prevention of unemployment, does not even provide for initiating remedial measures until there has been at least three months of suffering. How much could such a plan have accomplished in the year 1921, when wages declined over seven billion dollars? It might have relieved 1 per cent of the suffering.
Another objection to the bill is that it does not provide adequate means of telling when there is need of action. A single index — the volume of building contracts awarded — is not a sufficient guide. Indexes of retail prices, money rates, projected capital development, and unemployment, to mention only a few, must all be taken into account.
Still another defect in the bill is that it has to do with only one comparatively small appropriation; whereas, if the principle is sound, it should be applied, as far as feasible, to all appropriations. Why should the principle be utterly ignored in the rest of the four billions of government expenditures? Finally, the bill is concerned solely with periods of depression; but if it is sound public policy to alleviate depressions by regulation of government expenditures, it is equally sound policy to seek to prevent depressions by preventing inflation.
This shows how far the Jones Bill comes from laying down an economic programme based on the right flow of money to consumers as the essential condition of sustained production and employment. Yet this bill is the nearest thing to such a programme that Congress has even considered. And it is fully as much as appears to-day in the resolutions of either party.
Nevertheless, the flow of money to consumers is one of the causes of prosperity which is absolutely subject to political control. Indeed, the Government plays a part in this control whether or not it wishes to do so. Inevitably. The only question is whether it plays that part intelligently.
The Government cannot play its part intelligently without uprooting and casting aside the fallacious automatic-production-consumption theory; the theory under which it has always confused the forces which are, and the forces which are not, subject to political control; under which, naturally enough, the Government has done those things which it ought not to have done, and left undone those things which it ought to have done; first helping along the vicious spiral of inflation, and then doing little or nothing to prevent the even more vicious spiral of deflation.
Once the Government had rejected that paralyzing theory, it could proceed to gather information, more promptly, more accurately, more comprehensively, than ever before, — especially indexes of unemployment and retail prices and projected capital expenditures, — upon which to determine whether, at any given time, the influence of the Government should be brought to bear toward increasing or decreasing the flow of money to consumers. For all its economic activities the Government would then have a unifying principle. It is now the largest consumer — the greatest spender — in the world, and doubtless will continue to be, whether or not it spends with a view to keeping the country prosperous. Its expenditures are always in addition to the total of private expenditures. Now there are times when private expenditures are too great, other times when they are too small. The Government might regulate its own spending accordingly, thus making the balance right, without exercising any control over private spending.
Meantime, any political party, using such a principle and all that it involves as the underlying structure of its policy, could make a miscellaneous collection of planks into a platform.