Oakland Tribune/March 22, 1936
Some time ago I decided that it was the duty of any student of public affairs to learn something about the money economy under which we live, and in pursuit of knowledge I waded with damp and corrugated brow through volumes by experts, Austrian, German, Swedish, English, American. I found that a great many serious and gifted men have devoted their entire lives to the subject, and come to definite conclusions, but I also learned that these conclusions by no means agree. I found that the profound Austrian Herr Hayek, now of the London School of Economics (who is being considerably read at this moment in Washington), was in gross contradiction to that great creative genius, John Maynard Keynes. After that, I am not in the least astonished to hear that James Warburg is in heated disagreement with Marrriner Eccles.
Obviously, it is not for a layman like myself to decide between distinguished gentlemen. I know now that there is a field of human knowledge forever closed to me. I, like 120,000,000 other Americans, will probably never grasp the truth about the money system. Professor Einstein also admits that he doesn’t understand it, so I am not as humiliated as I otherwise might be.
Views At Variance
This is a modest preface to saying a few diffident words about the President’s proposed tax on surplus earnings of corporations, now under consideration by Congress. About this tax there are the most heated differences of opinion. There is, for instance, W. J. Cameron’s view, who on Sunday evenings is Henry Ford’s radio voice. Cameron, it can be presumed, speaks for most of our corporation directors, and for once, and just to show how complicated this money business is, Raymond Moley agrees with him.
Cameron apparently believes that the money economy in which we live is essentially the same as was Pharaoh’s economy in the days of that most famous of all brain trusters: Joseph. Joseph, you remember, was the bright boy who, being the victim of a pogrom—inflicted on him, however, by his own brothers, because he was such a know-it-all, and terribly good looking besides—got into Egypt without a passport, and worked himself up to be financial adviser to His Majesty. Joseph invented a way of gyping the business cycle. He didn’t get his idea by honest hard work, either, but by inspiration, revealed to him in a dream. Joseph’s idea was the cushion-against-depression plan. Egypt had seven years of fine harvest, and Joseph didn’t let the people eat it all up, but he put it into surplus-earnings-reserves, and kept it in storage.
Then came seven years of famine, and he handed it out, and saved the people, and even turned the other cheek handsomely toward the brothers who had done him wrong. The only difference between this plan and Cameron’s was that Joseph (being a brain truster) didn’t leave the grain in the hands of the owners, but nationalized it.
Eccles On Money
Now this isn’t Marriner Eccles’ idea at all. Eccles thinks that this way of beating the business cycle is very fine in a primitive economy like Pharaoh’s, but that it works havoc in an extremely complicated and even visionary one like ours. Money, according to Eccles, isn’t goods, but creates goods in collaboration with labor and services, and thereby creates purchasing power at the same time, and as long as it goes on creating and doesn’t get frozen somewhere, or doesn’t get into too few hands and escape into the speculative market or into too much production of capital goods—there isn’t any depression.
The only sound money is used money, according to Eccles. In a depression, when no one else would spend, it was the business of the government to do so, to create new deposits and new credit in the banks by offering them government securities and to create new purchasing power by relief and public works, which purchasing power in turn would flow back to the corporations and could be passed on in higher wages, or dividends, or by building up depreciated plants, etc,, and so keep circulating. But if any considerable part of this is kept as undivided earnings, then the more purchasing power that the government creates the more a log jam of unspent money accumulates to impede the stream.
So although on the surface the object of the new corporation tax is to raise money to pay the soldiers’ bonus and take the place of processing taxes invalidated by the Supreme Court, actually this bill is being proposed because it harmonizes with the monetary ideas held by the President’s advisers.
Now, I don’t pretend to know how valid this theory is, although I do know that a lot of intelligent people believe it, just as a lot of other intelligent people disagree with it vehemently.
But that the new tax bill represents a radical departure from what has been our taxation custom is unquestionable, and here, I think, there is really something which even a layman can say. There is no indication whatsoever that this taxation proposal has been carefully considered in all its possible details by the Treasury. On the contrary. The government needs money to meet an emergency due to the passage of the bonus bill over the President’s veto, and to meet the demands of the new agricultural act. And also, it may be added, to meet the Republican campaign cries about the unbalanced budget. That’s a very important factor. So the President flings Congress this taxation measure “merely as a suggestion.” Before Congress has even begun to consider it, lobbyists pro and con are rushing to Washington and into the public prints to influence the decision of the committee. A radical proposal cannot even be considered in a dispassionate atmosphere.
People continually ask: Why is the British government so much more efficiently conducted than ours? Here’s an answer. If the British Treasury had been proposing any such thing—and they have launched equally drastic taxation bills—months would have been spent by Treasury experts, going carefully into every imaginable phase of the measure, reviewing it in many aspects, and quietly consulting the best opinion they could reach. They would have analyzed the various types of corporations which would be affected by it—banks, insurance companies, industrial corporations, newspapers, etc. They would have found out what the habits of these companies were in the matter of reserves, and in regard to the disposition of surplus earnings; how these earnings were held, whether in cash or investments; and what the predictable results of the bill would be from this or that point of view; what the possible results might be on the methods of financing the corporations.
If all their investigations had seemed to justify the measure being tried, then they would have framed a bill which they were prepared to support in detail and answer questions about it at every point, and they would advise that it first be tried tentatively, and on a small scale, taking a couple of years to test the results. They certainly would not count on it to carry immediately a large proportion of the budget.
Throughout our history we have paid over and over again for our unconsidered impulses, for our unwillingness to apply the inductive method to legislation. This is not merely a fault of this administration. We are, as a people, timid in thinking, but reckless in action.