Now that the war has again proved the vitality and strength of our economy, now that we have learned that a mature economy does not have to stagnate, how shall we make sure that it stays vigorous and that it continues to grow?

Let me put the question another way. On the heels of a great conflict, we are faced with the difficult task of reconverting our industrial machine from war to peace. Necessarily, production and the national income dropped during the months in which our plants were being retooled. But what happens over the next few years?

Does our output of goods and services surge back to the levels we know we can attain, and stay there? Or do we settle back to where we were before the war broke out? Do we go forward to a 200-billion-dollar economy or do we go back to a 100-billion-dollar economy such as we had in 1940? That is the question— the 200-billion-dollar question.

Before we go any further let us be sure we understand what we mean by a “200 billion economy.” Economists refer to this as our “gross national product,” and it represents the value of all the goods and services which we produce in a given year.

As we have seen, for each dollar of production— whether it be canned soup, underwear, new factory machinery, or the services of a hairdresser—some farm, or business, or individual receives a dollar of income.

So, mathematically, the total value of all the goods and services we produce must exactly equal the total income which we all receive in wages and salaries plus the income of all our farms and our businesses before corporation taxes. In other words, our “gross national product” is exactly equal to our “gross national income.”

In books and articles on economic questions you will sometimes see a much lower figure used in describing the annual output of our economy. Usually this figure represents our “net national income” which is our “gross national income” minus business reserves and corporation taxes. A “gross national income,” for instance, of 200 billion, minus business reserves and corporation taxes, would result in a “net national income” of about 160 billion.

If in 1947 and 1948 our “gross national income” and our “net national income” drop below these two respective figures, we are likely to find ourselves faced with growing unemployment, with dwindling farm incomes, and an increasing percentage of bankruptcies.

There has been a lot of talk about what a full employment economy means to all of us in peacetime —what it means in output and what it means in good paying jobs for our workers, steady incomes for our farmers, and good profits for our businessmen. Careful studies have been made of the size of our labor force, the expected output per worker for each hour of effort, the redistribution of war workers among peacetime industries, the number of farmers needed to produce our food and fiber, and so on through other phases of our economy.

To judge by the sharpness of the debate in some quarters, one would suppose the experts to be poles apart on these issues. Nevertheless, when you get down to cases, it is really amazing to see how minor their differences actually are. I am no statistician and there is no point to my trying to go into all the details of their economic analyses, especially as the basic facts are perfectly plain.

In 1944 and 1945 our national output ran to 200 billion dollars a year, and we produced that with only 52 million of us at work, while 12£ million of our youngest, strongest, and most vigorous men and women were in the armed forces. We did it by working long hours, far above normal peacetime levels. We did it by working under forced draft, expense no object.

The goods had to be produced and produced on schedule, no matter how tired our workers might become, and no matter how costly or inefficient the method of production. Surely, when some 10 million of our young veterans are back at work and we are all operating on a normal basis, with normal hours and normal methods, we won’t produce less than we produced in wartime without them.

Furthermore, let us not forget that for each of d ie three years following the First World War the average factory worker turned out 10 per cent more goods per hour than he produced the year before. This time, with the enormous investment in new plants and machines and with the giant strides our technology has made, we ought to do even better than that in many industries—once we really get settled down and squared away.

I am not saying that our annual production of all goods and services—the new homes, highways, dams, and factories, the washing machines, automobiles, overcoats, screw drivers, vacation trips, and permanent waves—will add up to 200 billion dollars right on the nose. It may be 5 billion dollars or 10 billion dollars more or less than that. And I’m not saying that “full employment” will mean exactly 60 million men and women at work. It may be 61 or 62 million—it may be 59 or 58 million. But in view of our wartime record, full production can’t be too far off from 200 billion dollars, and full employment can’t be too far off from 60 million jobs.

This, then, is how high we must set our sights if we are to reconvert our economy to full peacetime employment. Rather than quibble about just exactly what the benchmark is for full employment, we should keep in mind what the alternative would mean, what we face if we allow ourselves to drift back to the production level of 1940.

In 1940 our total output was only 100 billion dollars, and we produced that much while 8 million people, willing and able to work, were walking the streets in search of jobs. It would be bad enough to go back to 7.5 million unemployed when we know that there need be no more than a minimum of 1 to 2 million temporarily out of work in this whole country at any given time. But going back to 1940 production levels would mean far worse than that.

On the one hand, the steady and rapid march of industrial technology has made it possible to produce at the 1940 level with many fewer workers than in that year. On the other hand, as our population has grown, so too has the number of available workers— by about 600,000 a year.

For these reasons, if we were to drift back to the production level of 1940 (valued in today’s terms at about 130 billion dollars), we would find ourselves, not with 7& million unemployed but with 20 million! One third of our labor force would be out of jobs! That is the shocking alternative we face. It is not simply a matter of our having 200 billion dollars’ worth of national production each year, rather than only 130 billion dollars (or only 100 billion if prices slump that much in the deflationary process). It is a question of whether we shall have jobs for all or whether one potential worker in every three shall be hopelessly walking the streets,

In the Past: A Bad Year for Each Good One

We can start with one sure thing. Year after year a sustained 200-billion-dollar output of foods and services, with good jobs for all our workers, high incomes for our farmers, and fair profits for our businessmen, won’t just happen.

It is true that we have had full employment in the past without anybody particularly planning it that way. We’ve had it during every war and we’ve had it even for a while during peacetime—in 1929, for example. But, as we have seen, it never lasted. The boom, whether in wartime or in peacetime, was always succeeded by depression. And the bigger the boom, the sharper the collapse and usually the longer the depression that followed.

While it is true that our progress decade by decade has been steadily upward, it is also true that for every year of boom, we have had a year of depression, for every year of full prosperity a year of black despair. There is no reason whatsoever to suppose that our experience in the future will be any different unless we undertake to prevent these swings, to rule out the slump and depression, and to maintain the activity which spells full production and full employment.

We can start with another sure thing. Only all of us together, acting through the Federal government, can guarantee that the high level of production and the resulting high level of income which we achieved in wartime will continue in peacetime. Only the people, through the men and women selected to run the Federal government, can insure that the programs we adopt and the policies we all decide to follow— business, farmers, labor, consumers, and government together—will in fact add up to full employment for all who want jobs and to sustained prosperity for all of o ur citizens.

Neither business as a whole nor any part of it, with the best of intentions, can make this guarantee. Neither we consumers as a whole nor any group among us can make it. Nor, indeed, can the forty eight states, together with their subordinate governments, undertake to guarantee that, come what may, the total spending of all of us in all the markets of our economy will add up to the level necessary to buy everything we produce when all of us are working.

Before considering the government’s role in sustaining our purchasing power at levels that call forth the full production of all the goods and services we need, let us examine the kinds of markets in which our total national income can be spent.

Our markets divide into three principal types. First, there is our spending for daily living, for the food we eat, the clothing we wear, the homes we rent, for our automobiles and radios and vacation trips. It is the total spending by all of us on all of these things that makes the “consumer” market.

Second, there is the investment spending of all our business firms, from the corner grocer to the great corporation. In this spending are included the building of new plants and the purchase of new machines, as well as store fixtures, new delivery trucks, and maintenance. In this group, too, falls the spending for the construction of new houses even though they are built and paid for by individuals, plus private spending to finance loans to other countries. It is the total of all this business spending that makes the private investment market.

The third kind of spending is by government, Federal, state, and local. These are the expenditures required in the business of government. Some of it is for current services, such as the teaching of our children and the protection of our property from fire and theft. Some of it is in the form of new highways, new dams, new public buildings, irrigation projects, and the maintenance of our Army and Navy.

These expenditures of government are pulled together into a separate group, not because they are any different in result from money spent in the stores for consumer goods or money spent by business for improved factories and equipment, but because their amount and nature are determined by a separate set of decisions.

It is the decisions of us all, as consumers, that determine how much shall be spent in the stores, service establishments, and recreation centers on all the goods and services that go to make up our daily living. Our personal expenditures move up and down as our incomes move up and down. We consumers cannot undertake to expand our spending—no matter how greatly the economy may require our increased spending, or how badly we may want to buy—unless our incomes will permit it.

It is the decisions of tens of thousands of businessmen, large and small, of factory owners, merchants, housing developers and exporters, that determine how much shall be spent on plants and equipment, on fixtures and increased inventories, on new homes, and on foreign loans. This spending is far less uniform and far less predictable than the spending of us consumers. It varies each year as our businessmen evaluate the prospects just ahead.

And here is another difference. Business spending is not limited by the income of each individual business as consumer spending is limited by personal income. Whereas we consumers may occasionally make very modest use of loans to supplement our incomes, businessmen go into debt as a matter of course to finance the expansion of their plants and facilities.

Quite naturally, they borrow only when they see a profit to be gained by increased investment. That is the way our system works and the way it should work. We cannot properly expect an individual businessman to undertake to expand or even to maintain his investment spending, no matter how much the rest of us may need that spending, if he cannot see the likelihood of a profit from such spending—either immediately or over a period of years.

Finally, it is the decisions of all of us, as voters, acting through our elected representatives and officials, that determine how much our governments may spend as well as how they may spend it. In the past, as we have seen, there has been an unfortunate tendency for our governments to behave as though they were private consumers or businessmen. As a result, when the spending of the rest of us fell off and tax revenues declined, governments usually reduced their own spending and thus made depressions worse instead of better.

Of course, our state and particularly our local governments are not free to undertake expansion of their spending on schools, roads, and hospitals except within limits. The Federal government alone can put the resources of the entire country behind its programs and thus increase its spending to any necessary level. Furthermore, when nation-wide problems are being faced, it is not our state or local government, but all of us, acting through our national government, that must carry the primary responsibility.

We have seen that our total income, both individual and business, divided among wages, farm income, salaries, and corporation profits before taxes, will equal the amount of goods and services we produce and sell. And we have seen that in order to keep our economy running at top speed all that income must be spent by someone. If it isn’t, production soon drops off and a depression is in the making.

Naturally, we 140 million consumers buy the major share of our annual production output. But come what may, business and government between them must buy the rest. If not, then every one of us—no matter what his occupation—is headed for trouble.

Business expenditures for increased facilities, as we have seen, are likely to vary up and down from one year to the next, according to the judgment of individual businessmen and corporation executives—judgments very properly based on whether or not further expansion at that particular time is likely to lead to larger profits or is necessary to sustain current profits. 

The Guarantee Government Must Make

This brings us to an issue which must be squarely faced. If in the future we are to avoid depression, the Federal government must pledge itself to expand or contract its spending to whatever extent is necessary to balance any temporary slowing down or speeding up of business spending. If the government fails to maintain sufficient total spending by business and government together, there can be only one result, and that is a reduction of all our incomes, which means less money for all of us to spend in the stores, which in turn means a rapidly deepening depression. That guarantee on the part of government must be the cornerstone of our national policy of full production and full employment.

Many sincere people grow pale at the thought of the government’s making a commitment to make good any drop in business spending to the extent necessary to keep our total national spending up to, let us say, a 200-billion-dollar level during the next few years. Well, how large is the commitment I am suggesting?

There is one thing that has to be made perfectly clear. The firmer the commitment is, the less the Federal government will actually be called upon to do in order to make good on it. For just consider what the guarantee of sustained markets would do for all of us.

Consider the businessman. In the past, if he was at all prudent, he had to take into account the fact that for every two or three years of relative prosperity there were going to be two or three years of relative depression. He had to weigh, against the profits he knew that he could make in the boom, the losses he was likely to incur when times were hard. More important than that, the prudent businessman had to take account of the fact that once a depression struck, thousands of businessmen like himself, no matter how efficient they might be, no matter how sound the investments which they had undertaken, would go under in the wave of bankruptcies.

No one can say how many billions of dollars of business investment spending were held back in the past by the fear of depression. No one can say how many new businesses would spring up in the future, how many old ones would expand, how many additional billions of investment spending we would have, if the government’s guarantee of sustained markets for all that we could produce were firmly made and widely relied upon.

And what is true of the businessman is true of the rest of us. In the past, the fear of depression and unemployment has hung over every head. The prudent wage earner set aside part of his weekly wages, if he could possibly do it, against the rainy day he knew was coming. If his fear of depression were once removed, if the wage earner could count on holding his job or getting a new one, if he could count on a full pay envelope every Saturday night, a substantial part of the savings which he carefully hoarded in fear that they might not be enough could be freely spent for decent living.

That would mean more milk for his youngsters, more meat on his table, more and better clothes for all his family. It might mean a better home, a new radio, refrigerator, and washing machine. It would mean—when you multiply the result by millions of workers—billions of extra dollars flowing through tens of thousands of cash registers.

That is why I say that the firmer the commitment of the government, the less the government will be called upon actually to do. For the more certain we are of the government’s pledge, the more we all will be spending—the workers and farmers and businessmen of America—and the less will be the spending that government will be called upon to make.

This broad proposition is basic. Now let’s go one step further with the particulars.

I can’t read the future any more than you can. I can’t, any more than anybody else, blueprint exactly the years that lie ahead of us and the programs and the policies that future events will call for. But during the next few years—unless we fumble the job of controlling a postwar inflation—everybody is agreed that economic conditions will be very favorable. During the war, huge backlogs of demand were built up and scores of billions of dollars of ca sh and liquid balances accumulated.

Business investment spending was held back firmly during the war to free manpower and facilities and materials for war production. We consumers were unable, for the same reason, to buy the cars, the refrigerators, the vacuum cleaners, and the new homes we wanted so badly and for which many of us had the money to pay. And government—Federal, state, and local—was forced to postpone the expansion of our schools and hospitals, our roads and recreation centers. Our government even did without ordinary essential upkeep.

All this adds up to a total of demand far beyond anything we have known in peacetime: an almost unlimited demand for goods and services of every variety.

Let’s try to cast up the accounts and see what the national budget—that is, what all of us will produce and all of us will buy—is likely to be during the next few years. In making these estimates, I am assuming that we operate in a full-employment economy built on the firm Federal guarantee of adequate national purchasing power which I have discussed. If we don’t have that guarantee, then the picture will be very different.

A lot of people are saying right now that it’s only a question of time before we have a postwar depression just as we did after the last war. And if all of us, working together through our government, don’t undertake to do something about it, I am positive that they are right. If that is the prospect, there will be billions of dollars of business reserves that wont be put to work building plants and buying equipment; and billions more of our personal savings that won’t go to buy new automobiles or new homes, after all.

But let us assume that we decide that the full employment guarantee should be made by the Federal government. Let us see what is likely to develop with that as the cornerstone of our economic policies, private as well as public. As things stand now, if we are going to have work for everybody, we will have to produce some 200 billion dollars’ worth of goods and services for the next few years, and even more as our productive power increases. Who is going to buy all that?

Ill take a stab at our first item and make a guess that for the next few years business will spend on the average 30 billion dollars a year for investment purposes— maybe 35 billion dollars or more some years, maybe only 25 billion dollars or less in others, but something averaging out around 30 billion dollars.

That’s a lot of money, fully one half again as much as business has ever before invested in a single year. But don’t forget the proposed governmental assurance that markets will be sustained, and don’t overlook the backlog of necessary new construction, the replacement of obsolete equipment, and repairs, together with the terrific shortage of housing and the needs of other countries for American capital goods. No, I don’t think 30 billion dollars of business investment spending in an average year is one bit too high.

Let me turn next to the amount that we 140 million consumers might be expected to spend in 1947. Here I believe we may expect a total of something like 135 billion dollars a year to be spent on food, clothing, services, automobiles, recreation, education, doctors’ bills, and all the other things that go to make up our standard of living. This, too, is a lot of spending, a full third higher than in our peak year so far—50 per cent higher than before the war.

I am by no means sure that our total consumer spending will amount to this huge total, but in view of our enormous backlog of pent-up demand and again assuming our government guarantee of full employment through maintaining the total of all investment spending, I do not believe 135 billion dollars is an unreasonable figure.

Third, the spending of s tate and local governments can be expected to run, I think, at about 10 billion dollars a year. Before the war these authorities spent in the neighborhood of 8 billion dollars a year. To catch up with the needs of an increased population, to bring our schools, hospitals, courthouses, and roads into decent repair will obviously call for more than 8 billion dollars. Under the circumstances, an increase in spending by local governments of 25 per cent over prewar levels makes good sense.

When we add all these annual expenditures together—30 billion dollars of investment spending by business, 135 billion dollars of consumer spending, and 10 billion dollars of s pending by state and local governments—we arrive at a grand total of 175 billion dollars. This leaves 25 billion dollars for spending by the Federal government on current expenses and national investments. That would bring the total up to the 200 billion dollars necessary to buy all the goods and services including all the factories, machine tools, homes, and schoolhouses we shall be able to produce in 1947 with everyone at work.

Roughly 5 billion of the 25 billion dollars would be needed to pay the interest charges on our national debt. Another 3 billion dollars might be needed for the armed services. Then there are the regular expenses of our governmental departments to be met, plus the cost of many vitally needed educational and health services, river valley authorities and other public works.

The total can be budgeted as we do at present— with everything lumped in together. Or we could adopt the more businesslike approach of dividing current Federal government expenses from long-term public investments. If we did this we would spread the cost of a bridge or a public building over the estimated life of the structure, instead of against a single year.

But however we may set up our budget, the total amount is the same, and 25 billion dollars of Federal spending each year is no small change. It represents about three times the average Federal spending in the later thirties. On the other hand, it is scarcely more than a quarter as much as was spent by the Federal government in 1944. Besides, even with this level of government spending it would be possible for us to cut taxes drastically and still balance the budget of the Federal government.

In 1944 Federal tax revenues amounted to 39 billion dollars. If we are to balance the budget, at 25 billion dollars of annual expenditure, we won’t need 39 billion dollars of revenue. Well need only 25 billion dollars. So we can afford to cut our taxes about 14 billion dollars below what they were in 1944 (provided they are not still needed as an anti-inflation measure), and still balance the budget in an average year. 

An End to Economic Insecurity

This, I must say, is a promising prospect. Sharply reduced taxes, a balanced budget, our standard of living 50 per cent higher than in 1940, business investment half again as large as in our best year, broad expansion of our public facilities, Federal, state, and local.

That means more and better roads, more and better schools, hospitals, and recreation centers, and, above all else, good jobs for all our workers, good incomes for our farmers, and fair profits for our businessmen. A national income of that sort, sustained year after year, would soon make poverty and the gnawing fear that stems from economic insecurity as obsolete throughout America as smallpox or typhus.

What’s wrong with a government commitment that makes this possible? Some of my friends point out that in these figures I am assuming extremely favorable developments. They agree that perhaps for a few years it is not too optimistic to expect a 200-billion dollar economy that would require no more than 25 billion dollars of government spending. They say that for a few years business investment could indeed run very high. But what happens when business investment spending falls off from that high level as in the past it has always fallen off after a few years of high volume?

Let us, then, consider just this possibility. Suppose that after two or three years of high investment by business in new housing, new plants, equipment, repairs, and maintenance—perhaps as much as 35 billion dollars a year—our business spending drops off to , say, 25 billion dollars a year. If this decline does occur, no one should be surprised. After all, 25 billion dollars would be more than the peak annual figure that in two years—1941 and 1942—tooled up American industry for the flood of planes and ships and tanks and guns that led to our recent victories. And we do know that, with the irregularity with which great new industries are born and grow to maturity, the profitable opportunities for new business investment are likely to vary from year to year.

Should such a drop in business investment spending take place there is one thing of which I am sure. Government simply must step in promptly and decisively to make up the difference by increasing its own investment spending, or by direct action to increase consumer spending. If it failed to do that, the alternative would be a cumulative deflation—a deepening depression. For the decrease in spending by business, it should by now be clear, would, unless offset by an increase of government spending, quickly pull down the incomes and therefore the purchasing power of every group in the nation—farmers, workers, merchants, and businessmen.

In Chapter 3, I pointed out how a decrease of business investment spending meant unemployment in the construction and equipment industries, unemployment in the steel mills and the iron and coal mines, and ultimately unemployment in the factories producing food and clothing, and in the comer grocery, the department store, and the filling station as well, with constantly declining incomes for our f armers. The lesson we must never forget is that any decrease of spending by any of our economic groups means, unless promptly balanced by increased spending from some other source, a decrease of incomes for all of us and thus a decrease of spending by all of us, until we all are dragged down and down into a depression and widespread economic suffering.

There is no doubt in my mind that if, after a few years, our total of all business spending should drop, let us say, from 35 or 30 to 25 or 20 billion dollars annually, it would be sheer blind stupidity for this nation to sit back and allow a depression to develop. It would be folly not to step in boldly and halt a cycle that otherwise would rapidly pull all our production and incomes on down and down to a fraction of our productive capacity, as was true from 1929 to 1933. Moreover, it is my conviction that Mr. and Mrs. John Q. Citizen would not tolerate such stupidity.

As a people, we could get good value from a temporary increase of 10 billion dollars a year in government investment spending. We badly need the additional public construction that such extra spending would provide.

We have seen that 1200 counties in this country have not even a single hospital. And we know there are hundreds of other counties in which additional hospitals are needed and old hospitals need replacement. In our great metropolitan centers, the hospital facilities are nothing to brag about. In Washington, the nations capital city, we rejoice that at last we have one truly modern hospital, with a second slowly going up. No one familiar with this situation can avoid feeling shame for our backwardness. What would be wrong about cleaning up this account with ourselves?

The educational experts tell us we have an immediate need for at least 2000 more schools. And if we need 2000 additional ones there’s an even .chance that another 2000 could stand replacement. For a long time now we’ve been cheating our youngsters and cheating ourselves. What’s so wrong about setting this account straight, too?

We have the world’s finest highway system. But the roads that were suited to the automobiles of the twenties won’t be nearly good enough for the fifties. There’s plenty more we have to do here, too. And there’s plenty more we need to do with our waterways and airways, in the clearance of slums and the modernization of our cities. In other words, there is plenty of public investment that we need and need badly, anyway. Why shouldn’t we buy ourselves all these good things and at the same time keep our total national income up, keep our factories and our mills and our mines humming, and keep all our people at their jobs?

Now let’s look at the question of our Federal budget. This temporary increase of government investment spending to make up for a temporary drop in business investment spending would of course mean a budgetary deficit. For taxes, let us re member, have been set to yield 25 billion dollars of revenue. However, during the years that business investment ran at 35 billion dollars, government would have actually needed to spend only 20 billion dollars to make good its guarantee. This would mean a budgetary surplus of 5 billion dollars a year in the bank. And we should not lose sight of this surplus when we are considering the problems of the deficit. Over a given period, including years with high and low levels of business investment spending, averaging them both together, the Federal budget would be balanced. Surpluses in the high business-investment years would offset deficits in the low business-investment years.

This is what economists have in mind when they talk about “compensatory” government investment spending. They suggest that we do not try to balance the budget every year, but that we balance it over a period of years. Given the natural ebb and flow of business investment spending, that kind of government spending program makes good sense.

But let’s not oversimplify our problem. Government “compensatory” spending varied from year to year to balance the ups and downs of business investment spending is a ponderous instrument. It cannot be turned on or off like water out of the tap. Each project requires careful planning, and this, as we learned through our experience with the well-run Public Works Administration of the 1930’s, causes delay when delay may mean the loss of thousands of jobs. Moreover, as we shall see a little further along in this book, there are definite limits to what the government can spend for improvements without resorting to waste and boondoggling.

But the problem of how best to control and direct our government investment spending from year to year must be solved. We shall need to establish a carefully checked file of all necessary public-works projects for which Federal funds would be required. These projects would be divided into those urgently needed immediately and those which could be postponed for a year or a period of years. They would be distributed geographically as far as such distribution is practical.

Complete plans, with estimates, would be developed for all projects which had been approved. Appropriations would be voted with instructions from Congress that work on each project should be started within specified time limits at the direction of the President. Work on essentially needed projects would move ahead at once, to be paid for out of the current budget. Work on postponable projects would be delayed until the time when an increase in government investment spending would be needed to balance out a drop in business investment spending.

Economic Balance by the Tax Route?

Some people have said that the way to counterbalance the ups and downs of private business investment spending is through moving our taxes up and down from year to year, rather than through varying government investment expenditures. This approach could accomplish our objective, too, because if taxes are reduced when business is falling off, that leaves more money in your pocket and mine to spend for the things we want. And it leaves more money in company treasuries to spend on new plants and equipment or to pay out to stockholders in dividends. The reverse, of course, is true when taxes are increased.

Obviously, therefore, a carefully worked-out system of cutting taxes when business spending falls off and increasing taxes when business spending revives could, in all likelihood, keep the total spending of the nation at the 200-billion-dollar level that is necessary in the late forties to buy all that we can produce.

Another proposal calls for government payments direct to consumers when increased government expenditures are needed to balance a drop in business investment spending.

This would not be a relief payment. It would go to everyone. According to the theory it would stimulate purchasing directly at the source, and it would automatically spread itself into all sections of the country in relationship to our population.

The proponents of this measure also argue that it would be far quicker acting than a program that called for increased public works.

Whichever approach we follow, we shall not need taxes nearly as high as those we had during the war. For myself, however, I prefer to see a program of varied government spending for necessary projects rather than a program of constantly juggling tax rates. For one thing, taxes ought to be a known element on which everyone can count. For another, Congress would probably be most reluctant to vote a tax program which would operate automatically from year to year. Finally, carefully planned, flexible investment spending by the government on necessary public works is far more certain in its effects on our economy than is a system of tax increases or tax relief to meet changing economic conditions.

A dollar spent by the government, like a dollar spent by anyone else, promptly gets into a payroll and into the whole complex stream of spending. A dollar of taxes remitted to a firm or individual or a direct cash payment may or may not go into the spending stream. In any event, I don’t see that it makes much difference to the Federal budget over a period of years whether one method is used or the other. In both cases, deficits in some years have to be set off against surpluses in other years.

We need a sense of proportion about the occasional need for government borrowing just as we do about everything else in our economy. You might think, to hear some people talk, that government borrowing was something that was just invented. As a matter of fact, its history in this country goes back to the Revolution, back to the very beginning of our government. The Federal government has always borrowed. The same thing is true of every other national government. By now one would think that, even if we hadn’t got to like it, we would at least have got used to it.

And decade after decade there have been people who have said that the national debt was going to be the ruination of everything and of all of us. I need hardly say that things haven’t panned out quite that way.

Some people even viewed with equal alarm the growth of our private debt. Within the past generation, for example, there were all kinds of alarms about the growth of installment debt, some times euphemistically referred to as installment credit.

But in spite of many excesses it was this great development of consumer installment credit that made it possible for millions of our people to enjoy durable goods they could not otherwise have purchased. It has helped make possible the growth of the automobile, the radio, the electrical refrigerator, and many other industries. It has also paid dividends to the financial institutions responsible for its development. It has paid off in dollars and cents.

How silly the talk of a generation ago that consumer installment debt was a sin, that it would ruin families and wreck businesses—how silly it seems to us today! A lot of the talk about government debt isn’t very bright, either.

Now, nobody would think of saying that the American Telephone and Telegraph Company was in much worse shape than a corner grocer because its debt runs thousands of times as large as the grocers. It is not the size of the debt that tells us whether trouble lies ahead but its size in relation to income. A small debt may break the back of a company if its income is too small. A huge debt can be carried with ease if income is large enough. That is true of business and it is true of government as well.

Two hundred and sixty-five billion dollars of national debt—which we have today—calling for nearly 6 billion dollars of annual interest—would indeed have broken our backs when our national production was 50 billion dollars per annum, as it was only forty years ago. It’s another story now that our productive capacity is 200 billion dollars and certain to grow constantly decade after decade.

To be sure, there is a vast difference between our ability to produce 200 billion dollars’ worth of goods a year and our actual production. But that only goes to reinforce what I have been trying to say all along. We simply can’t afford to produce at a rate of only 60 or 70 per cent of our productive capacity. That would certainly break our backs. And that’s another reason why we’ve got to get and to keep our people fully employed. By the same token, if our production keeps moving up, everything in our past history goes to show that we can take reasonable increases in our debt without difficulty, when they are really necessary to keep our economy moving.

As I’ve pointed out, it’s the interest on the national debt in comparison to our total national income that’s the important thing. Today the interest carrying charges total 3 per cent of our gross national income.

Even if we were forced to incur deficits of as much as 100 billion dollars in the next twenty years—that’s 5 billion dollars a year—in order to keep the total of business and government spending in balance, we would probably find at that time that the interest payments on our total national debt were actually less than the present 3 per cent of our total gross national income—for the simple reason that our national income would be going up even faster.

The principal problem is to keep our real objectives in mind, and to realize that frequently we will be forced to choose between alternatives neither one of which will be ideal. At any cost we must avoid the catastrophic economic waste of another depression. We must keep our economy going at or close to top speed.

No one wants to see the Federal debt increase one dollar over its present total. If we handle our affairs with reasonable skill there is no reason why we should not keep our budget in balance, averaging the ups and downs over a period of a few years.

But if something goes wrong and we are forced to choose between another depression and further temporary increase in our national debt until we get things straightened out, I think I know what our decision will have to be. And on that point I don’t think it matters whether the government at the moment is Old Deal, New Deal, Republican, or Democratic.

But as we shall clearly see in the following chapter, controlled government investment spending in itself is not a panacea. Although an absolutely essential device, it has definite limits. The basic solution to sustained full production in the next twenty years lies in other directions.

Perhaps at this point, too, I should make it perfectly clear that even the whole approach that I am proposing is no panacea. It isn’t magic, and it will work only as we make it work.

I am convinced that today we have the knowledge, the tools, and the experience we need to banish forever the specter of unemployment. What is more, we are moving in the direction of achieving that goal. But I am equally convinced that in using that knowledge, those tools, and the lessons of our experience w e are bound to make some mistakes, some of them pretty serious ones.

Economic developments have a way of taking unexpected turns, as we have been reminded, sometimes painfully, since V-J Day. Despite our best efforts, unemployment may show up briefly in the future. There will continue to be ripples on the statistical charts of employment, production, and prices to remind us of the violent swings of the old business cycle.

No program is perfect and man’s wisdom is all too limited for us to conclude that, because we now know how to go about preventing the business cycle, there will never be any setbacks or upsets of any sort. Of course there will, but if we are on our toes the way I think we will be, we’ll halt those setbacks so fast and move forward again so promptly that there will be simply no comparison between our old boom-and-bust economy and our new full-production model.