Public Works: A New Industry
I
IN the old days before the world turned upside down, prosperity used to come in riding on some great new industry that rose up out of the mist and swept across the country like a tide. At one time it was railroad building, or the settlement of new territory; within our own memory it was the automobile that provided it. The new era that grew out of the automobile was not planned; it just happened. But everything is somewhat different now. The United States, having run out of the natural kind of prosperity, has set out to supply itself with the synthetic kind. Accordingly, as we might expect, this time the new industry will have to be built to order.
Such being the case, we have to understand what we are trying to do; otherwise we may not succeed. What is a new industry, considered as a builder of good times? What makes it go? What might make it blow up? The history of the automobile industry, late pillar of society, is a good example for us to examine, because everyone is familiar with it.
The horseless carriage appeared as a toy, and in a very real sense it is still a toy. People drive automobiles because they like to. That fact is so important that it needs to be stated at the beginning, in the middle, and at the end of any true account of why the automobile made the country prosperous. Before the coming of the horseless carriage, people used to go for a ride on the trolley car or on a bicycle built for two. If they were very proud and great, they had a carriage and pair, with liveried coachman to match. All these playthings cost money. People spent money for good times in accordance with their simple, early-Booth-Tarkington tastes.
The reason the automobile made good times was that it made the American people spend more money than they had ever spent before, and made them like it.
The new industry furnished employment for a large number of people. There were jobs — building cars, setting broken arms, selling oil stocks, and manufacturing veils to hold down the wide hats of the lady passengers. Thousands of men got jobs, directly or indirectly, from the automobile industry. The number of people who got new jobs was very much greater than the number who were frozen out of bicycle manufacturing and harness making. Where did all the money come from to pay the wages in all these new jobs? Out of the pockets of people who were spending more money on the car than they used to spend on the family bicycles. Surplus income, instead of being saved, was being spent on worldly pleasure. Benjamin Franklin’s bones rolled over in his grave, but the national income rose by leaps and bounds. The new toy was making the American people spend more money, so the American people were getting more money to spend — for every time one person spent a dollar someone else got it.
But the prosperity that came with that new industry finally blew up with a very disconcerting bang. Why did it do that? All would have been well if the people had gone on spending their money as fast as they got it. Unfortunately, everybody felt that, after all, there was something a bit immoral about spending. The bankers, who at that period were still being cordially received everywhere, preached the virtue of thrift without fear and without reproach. The bond salesman walked to and fro in the earth; and our money went for the ‘securities’ of unrentable office buildings and for iridescent shares in factories for manufacturing bigger and better bankruptcies. It was not that we held on to our money, though that is what most of us thought we were doing. The money was ‘invested,’ and it went into the hands of steel workers and machinery makers, and became buying power just the same as if we had spent it on baseball tickets or airplane rides. That was why business went right on being prosperous during the new investment era. But the office buildings and Peruvian bonds that we bought with our surplus income turned out to be no fun. We could not eat them, ride in them, give them to our best girls, or do anything with them. Finally the very thought of them made us sick. So in our disappointment we stopped spending money for anything, and naturally everybody stopped working and had a depression.
After the crash we still suffered from the illusion that spending was wicked. Bankers, untaught by either theoretical economics or practical demonstration, proclaimed that the boom years had been years of extravagance and that this was the sad morning after. The cold figures, however, showed that on the contrary the boom years had been years of unprecedented thrift. Never in history did any people ‘save’ such a lot of money or ‘invest’ their savings in such a magnificent array of cats and dogs. The worst of it was, though, that Nature’s attempt to teach us her laws was temporarily unsuccessful. Having wrecked our prosperity by investing too much money, we went on to sink the wreck by economizing, — firing the servants, stopping Susie’s music lessons, — thus destroying what little buying power was still to be found. Shocking though it may be to say it, the facts are there. We invested unheard-of amounts of money. Business thereby acquired an unheard-of mass of liabilities, and, naturally, it collapsed under the load. All those who still had any income immediately proceeded to ‘balance their budgets.’ Business thereupon went into a coma.
Those are the facts. Effect followed cause, as it is apt to do in this hard world. The inexorable law of the age of plenty is that hoarding theatre tickets butters no parsnips. Someone — who was it? — struck the keynote of that mad time. He said: ‘We cannot squander our way into prosperity.’ That, unluckily, was true, then. We could not yet muster the vision to see that by massive spending, and in no other way, could prosperity be established and maintained.
II
The automobile had made us rich because it had led us to spend our surplus income for things that we could have fun with; afterward we made ourselves poor by spending our surplus for ‘productive’ plant that could not be used for anything, and then getting disgusted and swearing off spending altogether. Now we need a new industry that will make us start spending again, and one that will not lead us into the fatal paths of ‘investment.’ Public works are the first step, and they are a symbol of the later stages of the new boom-proof industry that we need.
The N.R.A. is only a curtain raiser. It is not going to provide employment for all the unemployed, nor purchasing power for all the goods that a revived industry will produce. The reasons are several, but one will suffice as an illustration. The minimum wage established in the N.R.A. codes cannot be high, because high wages would wreck too many companies. The minimum wage is subject to a sort of law of diminishing returns. The higher it is set, the more companies cannot pay it, and the more difficult it is to enforce the code. So the minimum wage will necessarily be rather low, and there will be some very efficient concerns that will make a good profit. High profits may or may not be harmful to business in general; it depends on who gets them. If the stockholders are people of small means, their dividends are part of their buying power. The profits paid to small stockholders are apt to be spent and to go back into circulation. But some of the profits are sure to go to people whose incomes are already too large to be easily spent. That is where the shoe pinches. Whether by profit, by high salaries, or by bonuses, industry is continually furnishing some people with more income than they can or will spend. This unspent surplus income is what does the harm. It is temporarily withdrawn from the buying market, and the result is that there is not enough buying to sustain business.
In the fall of 1933 there is a growing recognition that inadequate buying power is resulting from the fact that prices have risen faster than wages, but the mechanism of the process is not clearly understood. The effect of high prices and low wages is simply that less of the proceeds of business goes into small incomes and more goes into large incomes. If the large incomes were spent immediately, there might be an unfair distribution of the products of industry, but there would not in the long run be any serious deficiency of buying power. The trouble arises from the fact that the larger incomes are the ones that are not wholly spent, and it is in the unspent surplus incomes that the missing buying power is to be found hidden. By some means the surplus individual incomes must be returned to circulation, or else they accumulate in stagnant bank accounts, less and less money is spent, and with the slowing down of business the incomes themselves disappear. This effect appears as a down-turn in the curves of business activity, already beginning to be visible in September of this year.
The limitations of the N.R.A. are bound up in this continual tendency of the receipts of industry to leak out into stagnant surplus income. Not all of the money received and paid out by business comes back to it again in sales. Wages and small dividend checks mostly come back, but money paid to those who have plenty already is apt to withdraw from circulation.
If those who receive large incomes would forget the lessons of the recent past and invest their surplus in building more skyscrapers, the laborers would be hired, the money would go back into circulation, and business would be supplied with customers. The late ‘new era’ would be repeated. That was the old way of recirculating surplus income. The old way used to work because the crash that followed was never severe enough to wreck the nation. The only reason this old way can no longer be allowed is that the scale of operations has now become so immense that the normal smash-up which necessarily follows a period of useless investment is more violent than the country can stand.
The disappearance of purchasing power into immobilized surplus incomes is bound to appear as a slackening in the rate of recovery as the temporary improvement derived from the N.R.A. begins to wear off. The building industry will remain stagnant because the surplus incomes are not going to be readily invested in building new office towers and new apartment houses to join the gaunt ranks of empty structures that now decorate the sky line. But illusion springs almost eternal in the speculative breast. If only the government can be persuaded to be the sucker, then speculative building can get started again. Those who have learned nothing from what happened in 1929 still hanker for the cheerful song of the rivet hammer and the stir and bustle of workmen among the ribs of skyscrapers which, once they are finished, are destined to stand empty and lifeless. Powerful voices will be heard demanding that Uncle Sam furnish the capital to revive the ‘capital goods industries’ — building, machinery, cement, and steel. As Mr. Roosevelt said in his inaugural, they can think of nothing but lending more money.
Right there is the danger point of the recovery programme, and right there the hardest of hard thinking will be necessary to save us from walking over the same old precipice. It is true that there is a strictly limited real legitimate place for new capital investment in the United States. There is need for a little new machinery and some new housing which someone can actually use and pay for. But let it never be forgotten for a moment that for every million dollars of new capital that goes into new machinery and houses at least a million dollars worth of old machinery and housing will inexorably become valueless. The new house replaces the old house just as the new hat replaces the old hat; but the people whose hats are shabby are too poor to throw away their hats and buy new ones The tenants who live in shabby houses cannot afford to pay for better ones. Lending money will make speculators able to build new houses, but it will not make tenants able to pay the rent. Wiggle and squirm as we may, there is no escape from this fact. In the long run, business depends upon spending. The capital goods industries can be used for building new commercial plant and new housing only if the purchasing power of the consumers is expanded fast enough to pay for the new products. But a great wave of speculative building without any purchasing power to support it would be just the same thing that fell in on our heads in 1929. Trying to help business by building superfluous plant is like helping your neighborhood druggist by buying cocaine and feeding it to the baby. New investment of this sort would be a young one of the same snake that bit us before.
Some way must be found, then, to occupy the major part of the heavy industries in making some product that does not have to be put on the market in competition with existing business. Some method must be found for spending money on building without calling on the hard-pressed consumer to pay the bills. At the moment, the only field where the heavy industries can be employed in making a product that need not be sold is the field of public works.
III
After the N.R.A. has done all that can be done with shorter hours and higher wages, the public works programme must take hold and carry on from that point. Public works can serve as a means of injecting additional buying power, over and above the money paid out to workers and small stockholders by industry itself. This additional buying power is the factor needed to restore the money that is withdrawn into surplus income. That is the reason the public works programme is essential to carry on what the N.R.A. is beginning. Here we have the blueprints of a new industry that will turn surplus income into buying power without forcing it to pass through the classic sequence of hope, investment, bankruptcy, and disgust. In theory all that is simple enough, but in application there are naturally plenty of snags.
First, of course, is the difficulty of getting enough public work into action fast enough to keep the recovery moving on the upgrade. The government cannot proceed faster than public opinion will follow, no matter how desperately the new jobs are needed. For one thing, it is vitally important not to involve the programme in a series of scandals, or the people are likely to become disgusted and refuse to sanction further appropriations. And avoiding scandals is a long, slow job. Moreover, the present act was passed when the public was only half convinced that it wanted any public works at all. Consequently the types of work that are authorized are strictly limited, and many desirable projects have to be rejected. The massive federal engine for distributing buying power is slow to build and slow to start. This, however, is only the beginning. The volume of public spending that is going to be required has not yet dawned on us.
The United States is now supplied with weapons for killing the depression comparable to the British artillery in August of 1914. England was destined to build surprising quantities of artillery before that war was over; and the same may confidently be predicted of the United States in regard to public works. England could not resign from the war just because it turned out to be expensive; and this country cannot resign from the Age of Plenty just because it forces us to do things we never expected. There will be no way out but to see it through.
Sooner or later, of course, we shall come to the question of how we are going to pay the bills, and there again we shall be forced into new ways and strange doctrines. The real function of federal spending is not to furnish extra buying power out of a hat, but to turn surplus income back into buying power while preventing surplus income from getting into excessive investment. Like the automobile, the public works project is a mechanism for causing surplus income to be spent for something that will give pleasure instead of going into guaranteed bonds that are sweet in the bank box but bitter in the waste-basket later on.
For that reason the effectiveness of federal spending depends upon taxation of surplus income. There can ultimately be no escape from this necessity, because the spending of surplus income is the essential condition of stable prosperity in an Age of Plenty. Sales taxes, resting on the consumer, will not do the trick. Buying power is not increased by giving the consumer money with one hand and taking it away from him with the other. That is a bootstraps plan. Self-liquidating enterprises will not do the trick. Buying power is not increased by paying workers to build a bridge and then making them pay back the money in tolls. That is just a device for stimulating business to-day and depressing it to-morrow. More bootstraps. Local public works will not do the trick. Local taxes rest, in the main, on the consumer. Buying power is not increased by spending money on a sewer system and then collecting it from the same people and sending it back to the national treasury. All these devices for making the poor man pay the bill are plans for making business with one hand and destroying it with the other. In the long run the event will prove that nothing will serve except federal or state expenditures paid for by taxes on surplus income.
Before there can be an effective public works programme that will actually produce and maintain prosperity, the sales tax will have to be set aside; the principle of self-liquidation will have to be set aside; the principle of ’local self-help’ will have to be set aside; and the high-bracket taxes will have to be set solidly in the foundation of the whole project. Public opinion is not yet ready for these developments, but the tide of events cannot be stopped. Economic laws enforce themselves. If the social order survives, these adjustments or their equivalent will be enforced by necessity, as the British artillery programme was enforced by necessity.
Public works, however, are only one step toward a satisfactory adjustment to the Age of Plenty. Under the whip of necessity we shall, by one means or another, tax our surplus income and spend the proceeds, on a scale that we do not yet contemplate. Up to that point, our new industry bears no strong emotional resemblance to the joyful outburst of spending that floated the automobile era. At best, public works are a bit cold. And the high-bracket taxes, on the well-known principle of ‘sympathetic pain,’hurt the ordinary citizen just as if he had to pay them himself. Moreover, there can never be enough public works to employ ten million men. And any attempt to push million-dollar post offices into country villages will defeat its own ends. Altogether, while the public works programme is an essential step toward stable prosperity, it has its limitations. These limitations at present consist in lack of imagination and desire, more than in the physical uselessness of a hundred billion dollars’ worth of soldiers’ monuments. So far we have not learned to think of a public project except as an isolated plant for some particular activity for which we can feel a definite need. Sometime, however, the people of this country are going to begin to plan their cities and their regions, not as instruments for facilitating traffic, but as environments in which to carry on a good life. When that time comes, then public works will become an effective instrument of planned community development. The germs of this new conception of public expenditure were written into the present act; and the first experiments in the technique of influencing the basic environment are already under way. As this technique develops, the possibility of enlarged public expenditure that will truly satisfy the desires of the people will also develop, far beyond our present expectations.
With all the new conception of how to fit public works to the real needs of the people, there will still be a definite limit to the amount of new physical plant that can be justifiably added to the national equipment each year. And yet, in a country where the national income on any fairly efficient standard of operation should exceed two hundred billion dollars a year, the recirculation of surplus income will require annual expenditures on a very large scale, in order to keep the business system operating. Something more than public works will ultimately be required — something of which public works are the symbol. There will have to be found ways of spending great quantities of surplus income every year, for purposes that will give the people enough pleasure to keep them in a spending mood.
IV
There are at least two lines of further development that can now be traced. One is the transfer of public spending from the construction of public plant to the extension of public services. The new public facilities will supply the means for a continuous increase in public expenditure for operation. The new schools and parks and highways will themselves give an opportunity to hire new personnel for their maintenance and operation. Other forms of public activity, in adult education, public health, scientific progress, recreation, and countless other fields, can be developed and made popular. The mere removal of the self-liquidating feature from existing public services and substitution of income taxes for their maintenance offer a powerful tool for making business prosperous as soon as public opinion is prepared to adopt it. In such measures we find a part of the new industry that can be continued on an expanding scale into the indefinite future. When public opinion becomes adjusted to the fact that these greatly expanded free public services are in reality necessities, we shall have a permanent and highly stable vehicle for the distribution of the buying power on which business depends.
Another important element in the new industry will be the semipublic services that are carried on by voluntary organizations supported by contributions. The Federal Government, in its capacity of sovereign adjuster and general circulatory organ of society, can pump money into the semipublic activities of the nation in large quantities by suitable exemption features in the income tax. There are very real advantages in this means of steering surplus income into spending. For one thing, it will soften the hard edges of the income-tax laws and make them easier to swallow. After all, there is no necessity for confiscating all the surplus income of the country in order to make the business system operate. All that is really necessary is to keep most of the surplus income out of ‘investment’ and to force it into some kind of spending for things that can be enjoyed. Contributions to churches and to colleges, and even to country clubs, will serve as well as anything else.
Moreover, the semipublic type of activity is the kind that the public will pay for more readily than any other. These organizations are free and spontaneous; they represent the real desires of large groups of people. If their members can escape most of their income taxes by contributing to their pet organizations, then check writing can become a real pleasure. And anything that makes spending more pleasant than saving helps to make prosperity safe for business.
It should be noted that this latter phase of the necessary adjustment to the Age of Plenty brings to light a fundamental change that has occurred in the function of the large income. The capitalist, as accumulator and investor of large capital sums, has evidently become obsolete. What little investment is needed from now on will be more than taken care of by the savings of those who need to save for their own security. There is no further use for the man who saves on a large scale. But the rich man in the rôle of Renaissance prince, spending a large income on extensive cultural projects, is the type best adapted to an Age of Plenty. Of course if the necessary adjustments are blocked and the social order thrown into chaos, the millionaire is likely to be abolished entirely, since it is mechanically quite a bit easier to run an Age of Plenty without him than with him. In the large view, however, such an outcome would be highly unfortunate. The mechanical operation of the Age of Plenty is only a temporary problem. Underlying all that is the great historic process now ponderously getting under way — the passage into a new stage of cultural advance. A high culture is made up of something more than proletarian art. At its best it includes many sorts of cultural enterprise, and the possible rôle of the large income in carrying certain large-scale experiments in the uses of plenty cannot be lightly dismissed just because some of the existing money kings are not of the type. The necessary adjustments of the economic system to the Age of Plenty, if they are successfully carried through, will inevitably set up an evolutionary process among the holders of large incomes. The accumulative type of financier will tend to become extinct, while those who survive will tend to be those whose idea of the proper use of money is to build art museums or kill hookworms.
V
Beyond the public spending of surplus national income for public physical equipment and cultural services, and beyond the corporate spending of surplus income by semipublic associations supported by contributions, there lies the ultimate development of a social order in which a large part of the surplus income will be spent by the people themselves on their own personal activities. Before that development can occur, there must be a universal guarantee of basic economic security for all members of the social body, quite regardless of age, color, or previous condition of economic ineptitude. Basic economic security will be built up of free education, free public health services, accident and unemployment insurance, and, above all, a generous old-age pension system. The public money spent for economic security will be what the government calls a ‘regenerative’ public work. Not only will it directly distribute surplus income into buying power, but it will also release the people from the cramping fear of personal disaster. No longer will the workers have to engage in the pathetic, impossible, and disastrous effort to build up a savings account that not only helps to destroy business but vanishes just when it is needed. The people will dare to spend their incomes, and when the people dare to spend their incomes the Age of Plenty will really be at hand.
These, then, are suggested as the most probable forms in which the great new industry is likely to appear. When we come to look at it, we find that it is just what we should naturally expect. The characteristic feature of the Age of Plenty is that the material necessities of life can be produced and distributed without employing very many men or working very long hours. So all the rest of the energies of society can be employed in cultural or quasicultural activities: in education and health, in science and adventure, in recreation and art — in short, in making ourselves civilized. The arts of civilization are the new industry for an Age of Plenty. What else could it be? Seek first after those things that make a great civilization, and the economic tangle will untangle itself. This is the answer to the riddle of plenty, and the key that will unlock the gate of our new world.