Our Scale of Living

A YEAR or so ago it was commonly said that ‘we must maintain our scale of living.’ Later it was asked, ‘Can we maintain our scale of living?' At present a great many people feel that our recent level of expenditure was fantastic, and that we shall have to return to pre-war conditions. What are the probabilities?

Of course we can never prognosticate with certainty. We can never be sure that there are not going to be droughts, floods, earthquakes, or wars. Let us assume that nothing devastating is going to happen politically or in the natural world. Let us look at the matter purely from the point of view of economics. What then?

We must first go back to our school days and learn the difference between wealth and capital. To avoid being technical, let us define wealth as ‘our possessions.’ A railroad, an automobile plant, a diamond, a radio, a motor car - all these are wealth. They are not necessarily capital. Capital is only that part of wealth which is used for the production of other wealth. An automobile used merely for pleasure is wealth; it it is used as a time-saving device by a workingman, it is capital.

This is all very elementary. My point is that our ‘practical’ industrial leaders have forgotten a great deal that they learned in school. During the boom period they became theorists on the subject of wages, spending, and buying on credit. They even employed college professors and converted them to their theories. Discarding our timehonored belief that we could increase our wealth only by saving a part of our earnings to be used as capital, they advised us to spend it all. They even urged us to contract to spend a part oi next year s income. Concretely stated, their theory was that if Jones spent all his income it would make more work for Smith, who in turn would have more money to spend for the things which Jones made. In consequence, Jones and Smith exhausted their income and had nothing left to be used as capital —for the production of additional wealth.

We were also told that the way to get rich was to increase our wants, and that we needed a new industry to take the place of the motor car and the radio so that we should be tempted to spend more. No line was drawn between an industry that would produce an article to be used as capital and an industry that would produce a luxury to be consumed.

The public acted upon these new theories of spending and installment buying, and the result was ‘over-consumption.’ Factories did not increase their inventories to an unreasonable extent, but they passed their goods on to the consumer on credit. The ultimate effect was the same. In consequence the consumer has been out of the market for two years, and he has been feeling grouchy. And who can blame him? Nothing is so disagreeable as to have to pay for a dead horse, especially when you can buy a live one at a lower price.

The cause of all major depressions has been the loss or waste of wealth, or its absorption in enterprises that will not return income immediately. The present depression is no exception to the rule. Billions of dollars worth of wealth was burned or wasted during the World War, and we did not use the ten years that followed in saving to pay for it. Instead, we wasted more wealth. We are paying for both now.

Mr. Paul Warburg said some time ago: ‘The way to avoid a depression (or to lessen its severity and duration) is to sit on the bulge, during an excessive upward swing.’ In other words, if our great manufacturing companies do not like depressions and socialism, let them stop persuading people to buy when they cannot afford it. It is not good leadership, M. Laval very pointedly remarked in his first speech in this country that the French have achieved their present position ‘through hard work and ability to save.’ We shall do well to imitate them.

If this diagnosis of our troubles is correct, we have nothing to fear as we face the future. I am not hoping for a Utopia where a motor-car or radio salesman will say, ’ If you are really sure you can afford to buy, I will see it I can get a car or a radio for you.’ But if we are capable of learning the lesson that this depression teaches, there is reason to hope that we may ‘sit on the bulge’ next time, and not again use credit as unwisely as we did in the boom days of the last decade.

Economic cycles, after all, are not founded upon unalterable economic laws. They are founded upon human nature — upon our tendency to overexuberance, with its corresponding reaction. This ‘cussedness’ of the human race, as Mark Twain called it, has also kept us from learning our lesson as rapidly as we should. We have been very greedy and very conceited, both as individuals and as a nation, and we hate to admit it. During the last two years we have been putting the blame for our troubles upon everything and everyone except ourselves. We have laid the fault to the machine, political unrest, ‘invisible currents,’Wall Street, the Stock Exchange, capitalism, labor, silver, and finally gold. It has been human for us to do so, but not very helpful.

These things that we have been blaming for our ills will continue to serve our purpose in the future just as they have in the past. In the machine lies man’s hope for less physical labor and more culture. The stock and commodity exchanges are necessary and useful institutions. Capitalism has succeeded better than any other economic system. Labor is very properly coming to share in larger measure the savings of the machine. Everyone has known fora century that the gold standard is not ideal, and there is no reason for blaming it particularly now. As for political unrest, is it not a result of the depression rather than a cause?

These things are not at the bottom of our troubles. The depression is entirely our own fault. It follows from this that there are no ghosts for us to be afraid of — nothing to jump out at us from the dark. We have made many other mistakes which have contributed to its severity, such as artificial support of prices, reparations, international debts, tariff walls, but the basic cause, as in the past, was the misuse of our capital and our wealth.

We may seem to have gone far afield, but in doing so have we not answered the question as to what is to become of our scale of living? With our natural resources, our inventions, and our machinery, is it not hound to advance? If we will be honest, blame ourselves, and take our medicine, we shall soon be on the upgrade again, But as this comes about, will it not be saner for us to save a little and increase our scale of living by steady degrees, instead of attempting to force it ahead more rapidly than our wealth permits? Will it not be better to find ourselves in slightly more comfortable circumstances each year, rather than in luxurious surroundings one year and ‘out in the cold ’ the next?