If a free economy is to be truly free we must have a minimum of government. But if we try to get by with too little government we shall surely end up by having too much. We must be realistic in determining what the minimum is for our day and age.
We should not fear our democratic government. We should remember that it belongs to us and represents our will. In considering government’s role in our economy we should ask the question: What can government do better than business or the rest of us as private individuals? There are many things that government alone can do, and it is important that we understand them.
First: Sustaining the Market
First, government, as I have proposed, must underwrite the full-production, full-employment economy by being prepared to vary its own investment spending from year to year. This, as I have already pointed out, is the only way to encourage business in most industries to narrow profit margins on each unit sold, as we have seen they must be narrowed, so that the purchasing power of us consumers can be steadily increased. This is in reality one of the principal keys to our future prosperity.
In the kind of world in which we have lived in the past, the prudent businessman, as we have seen, has had to take into account the fact that after every few years of prosperity, with high volume and large profits, he had to face years of depression, with volume down and his business in the red or very close to it. Businessmen could ignore this cycle at their peril. Those who did usually wound up in the bankruptcy courts.
It was natural, therefore, for the prudent businessman to fix his prices and his costs, so far as possible, with enough spread between them to give him a very generous profit when times were good. Only in this way was he able to weather the storm when depression struck.
At the same time, we must not forget that this perfectly understandable policy of w age and price setting was a primary factor in bringing about the very depression that everybody feared. For, as we have seen, the other side of increasing profit margins in a period of prosperity was the fact that the purchasing power being distributed to our millions of wage earners was insufficient to enable them to buy our steadily increasing output of goods and services, which in turn sooner or later made another depression inevitable.
But if government, by undertaking to sustain markets through balancing any lag in business investment spending, can eliminate not only depression but the very fear of depression, then the prudent businessman will no longer need to set his profit on each item that he sells with an eye on the rainy day to come. In most cases he will be able to reduce his unit profit sharply and year in and year out, and with high sustained demand for his products, he will make higher average overall profits.
Just remember that in spite of the generally wide profit margins of our past, total peacetime profits of business, averaged over the years, were nothing to brag about. In 1929, a banner year, corporation profits, to be sure, were over 9 billion dollars. In 1932, on the other hand, corporations were in the red to the tune of 5 billion dollars. Even in the period 1936-39. they earned only billion dollars on the average.
If we can keep the volume of sales up to full-employment levels with a narrowing in profit margins on each item sold, an increase of the proportion of our gross national income going into wages and a decrease in the proportion going into profits will yield total dollar profits, year after year, vastly greater than anything we knew before the war. And it should. The average profit levels that prevailed before the war were not high enough to get the volume of business investment spending which we will need for our 200-billion-dollar economy in 1947.
Profits should be high enough to provide the business investment spending which we need-but not so high as to cause our savings to stagnate for want of good investments to spend them on, or, almost as bad, to cause us to overbuild our plants and equipment in relation to our consumer demand. Such overbuilding can only lead eventually, as in 1929, to mass unemployment or the accumulation of additional government deficits.
Second: Maximum Free Competition
Second, the government must be responsible for maintaining the maximum amount of free competition throughout industry and trade. But on this subject, it seems to me, there is considerable misunderstanding.
Before the 1929 crash many disciples of Adam Smith, the famed eighteenth-century Scotch economist, felt that our economy would work automatically if only monopolies could be eliminated and absolutely free competition assured for labor and raw materials as well as finished goods. Some businessmen even receive economic advice along these same lines today which helps explain the vigor with which they oppose government “interference” in our economy.
Adam Smith in the 1770’s visualized an industrial state made up largely of s mall manufacturers employing from 5 to 75 people. Free competition between these units would, he believed, assure the lowest prices and the maximum improvement of products. The flow of savings into factory expansion, and even the amount of savings would be determined by the interest rate and the opportunity for profit.
When funds were needed for expansion the interest rate would go up and the money would flow to the point where it was needed. When new factories and facilities were sufficiently expanded, the interest rate would go down and investors would spend their money for goods. As long as monopolies could be kept from “cornering” a market, restricting production, and raising prices, he reasoned, all would go smoothly.
Adam Smith did not visualize the complexities of our modern economy. He did not, of course, foresee General Motors, U. S. Steel, du Pont and Standard Oil, the development of our Pittsburghs, Los Angeles and Detroits with tens of millions of city workers cut off completely from the soil, the amount of idle savings that would result under certain conditions from high individual incomes, the unwillingness of a modern nation to accept the increasingly violent swings of our business cycle.
Gradually most economists have been forced to desert his comfortable laissez-faire theories in the face of the hard facts of our modern economic development. But quite properly his belief in the basic importance of monopoly control has persisted, and there are even some who still believe that the government should restrict its economic efforts to this single area.
No reasonable man could quarrel with the statement that monopolies restrict production, decrease employment, and deprive the public of high quality products at reasonable prices. But when we speak of “price restricting monopolies” we should be clear what we mean, and when we call for completely free competition we should measure the consequences.
While it’s true that almost every businessman will tell you with sincerity that he believes in free competition, it is equally true that a high percentage of them in greater or lesser degree fail to practice it. In one way or another, most of them legally legitimate, businessmen seek to avoid the rigors of the free market. In 1940 it was estimated that prices were truly competitive in less than 50 per cent of all American business. By one means or another, in industry after industry and trade after trade, prices were held artificially high and improvements in quality postponed or even suppressed altogether.
In 1929, when our economy collapsed, we have proof positive that in one way or another many important sections of industry had turned their back on the theory of free price competition.
Between 1929 and 1932 farm prices, which were subject to intense competition, fell 76 per cent while farm production decreased less than 10 per cent. Contrast that with the price and production records on various industrial products. Steel rails fell 1 per cent in price while production dropped 85 per cent. Farm machinery prices fell 9 per cent while production fell 89 per cent. The prices of sulphur, iron ore, plate glass, and aluminum scarcely budged while production fell off from 60 per cent to 90 per cent. The automobile industry dropped production 70 per cent while decreasing prices by only 11 per cent.
Informal price fixing occurs in many industries which are accepted by the public as among the most competitive. The members of such industries may circumvent each other’s patents, hire away each other’s top executives, insult each other on the golf course, and sue each other in the courts, but on the subject of prices they are one happy family.
Prices in an even greater percentage of business are held higher than normal by trade association pressure. In many areas of our economy a businessman who cuts prices and raises values, in other words a businessman who believes in and practices the theory of free competition, has a rather miserable time of it. At the very least he will find himself labeled a “chiseler” by his competitors and ostracized at association gatherings.
Through our government we should strive in every way to crack monopolistic practices wherever they are detected. We should take all possible steps to encourage true competition in price and quality.
But we shouldn’t fool ourselves about the size of the problem. Many authorities believe that a determined effort on the part of the government really to enforce free competition would require more government interference” with business than any other economic program which has thus far been proposed.
Third: Raise Minimum Wages
A third thing that all of us can do through our government is steadily to increase minimum wage levels in order to prevent the backward businessmen from undermining the wage structure and from living off the purchasing power provided by the payrolls of businessmen who pay decent wages.
There is a delusion in some quarters that the sweatshop operator makes high profits. Nothing could be further from the truth. The businessman who pays low wages doesn’t help himself at the expense of his competitors. He simply drags everybody down to his own level.
If there is one thing that is perfectly clear from our history, it is that wherever you find low wages, there you find low incomes, low living standards, and low profits. The place where high profits are to be found is in precisely those industries and those sections of the country where wages are high and living standards are high. That is why, it seems to me, the government should help the progressive businessman put his wages up by steadily raising the wage floor in order to prevent the low-wage competitor from being too great a drag upon him.
And again let us remember that higher minimum wages directly increase the total purchasing power available to pay for goods in the stores. A 65-cent Federal minimum-wage law would increase the purchasing power of the workers in interstate commerce by roughly 1% billion dollars. In addition, it would encourage many state governments to raise the minimum wages of workers in industries which do not sell across state lines—laundry workers and retail clerks, for instance.
Additional wages paid to workers in the lower-paid industries go almost entirely into the markets because these workers have a crying and immediate need for the goods the extra money will buy. Of the 3 billion dollars which would be added to our consumer purchasing power if a 65-cent minimum-wage became general, it is estimated that 1.2 billion dollars would be spent on food. About 660 million dollars of that sum would go directly to our farmers. The rest would go to manufacturers and merchants who make and sell the essentials of life.
And yet there are people who have worked themselves into a lather over this proposal. They fear that business could not afford the increase. But what does our history actually show? Well, eight years ago, when the present law was first enacted, it called for an immediate minimum of 25 cents an hour, to be raised to 40 cents over a period pf years. The objections to this were violent. It was argued that, with wages as low as 8 cents an hour being paid in some industries, the introduction of this minimum would bankrupt thousands of firms.
Did it pan out that way? Hardly. These ten years have seen the swiftest climb of production and income in our history, with profits reaching an all-time high and business failures at record-breaking lows. It would help us all, I think, in facing today’s minimum-wage problem and in finding the right answer to it, if we would look back and see just how our handling of the problem eight years ago has worked out and how unfounded the fears of that day have proved to be.
Fourth: Extend Social Security
The fourth thing the government can do to help increase our consumer purchasing power is to expand its social-security programs to provide really adequate insurance against all contingencies for all of our people, including our farmers. This would not only keep up the incomes of the sick, the injured, the widowed, and the aged, but, by freeing men from insecurity and fear, would enable them to live up to their current incomes, with less need to scrimp and struggle. This, therefore, would mean not simply the lifting of the burden of fear and insecurity from millions of families, but the ringing up of hundreds of millions of dollars in cash registers throughout the country.
Again there will be some who view this proposal with alarm. But once again let us look at our history. It was about ten years ago that the first Federal insurance measures against old age and unemployment went into effect. The debate on these social-security measures had been long and bitter. It was said that these programs would destroy thrift, put a premium on shifdessness, and just ruin the private insurance business. Has it worked out that way? Hardly. You know from your own experience that the first two fears have proved utterly groundless. But what is most interesting is that these programs have made the people of this country more insurance-minded than ever before and the private insurance companies have done a land-office business.
The same thing will happen under a national health insurance system. Millions of American families will learn for the first time what medical care can mean for them. As a result, the opportunities and income of the medical profession are certain to be substantially increased.
A national health-insurance program we are going to have. Nothing can stop it. But it would be a lot easier on all of us—those who are against health insurance as well as those who are for it—if we would hold our fears and objections up for examination in the cold light of experience.
Fifth: Bringing Taxes Up to Date
Fifth, the government can help business do a better job of distributing our national income by modernizing its tax structure. Our present tax structure has grown up over the years with a wing built on here and a vestibule there, until by now it’s a little difficult to find any design whatever in its architecture. We must modernize that structure to make it contribute to the full purchasing power on which full production and full employment depend.
What specifically should be done about taxes? There is no room here to go into detail concerning the changes in the tax system that are needed, but the general nature of those changes should by now be apparent. In the first place, as soon as the present inflationary dangers subside, taxes need to be cut sharply from the extremely high levels established during the war. Some have already been cut; others will need to be cut in the future. Twenty-five billion dollars of revenue at the 200-billion-dollar level of output is, in my judgment, about what we should be shooting for during the next few years, because that is what it should take to balance the Federal budget at full employment.
Now, there are some people who think that we ought to keep taxes higher than that in order to establish a budgetary surplus, which would be used to pay off the national debt. There is something to be said for this, but I lean in the other direction, at least until we are much farther along our economic road to sustained prosperity than we are right now. What we need in the next few years is to do everything we can to stimulate spending by both business and all us consumers in order to make markets and jobs.
Reduction of taxes will leave more money in people’s pockets for them to spend. It will also leave more money in the treasuries of corporations. I hope that they put it to good use—that is, put it into the stream of circulation. Raising wages, as I have pointed out, is one of the best ways of doing that, a way that should never be lost sight of.
The taxes which remain, and which must yield a revenue of 25 billion dollars in order, over the next few years, to balance the Federal budget at full-employment levels, should be streamlined to stimulate consumption on the part of individuals and investment on the part of business as far as this can possibly be done. As soon as inflationary pressures subside, taxes which eat most heavily into our consumer purchasing power should be cut and, as rapidly as possible, removed altogether. This obviously means sharp reduction of excises and sales taxes which take as much out of the poor man’s dollar as out of the rich man’s.
It means, further, reduction of payroll taxes and other income taxes at the bottom of the income scale. It is among our lowest-income groups that actual needs are greatest. It is here, therefore, that the reduction of taxes will result in the largest direct increase of consumer spending—for food, clothing, housing, and essential equipment and recreation.
The stimulation of business investment spending requires that the small and growing business, where the risk of investment is greatest, receive greater tax relief than the large, well-established corporation, which, by very virtue of its strength, is not exposed to the same risks. Furthermore, tax provisions which permit businessmen to average their good and poor years together in determining their tax liability should be extended just as far as practicable.
A further encouragement to expansion should be provided by replacing the present payroll tax paid by business with a special tax on business profits. The present payroll tax is paid by the small and the weak and the unprofitable firm as well as by the large and strong and profitable. It must therefore hinder rather than help us in getting the expansion of business which we need. Moreover, this tax, levied as it is on payrolls, discourages not only employment but wage increases as well, both very good additional reasons for getting away from it.
Finally, every encouragement should be given to the investment of profits in new facilities or their distribution in dividends as against their accumulation in idle business reserves. This means, it seems to me, the revival of a tax on uninvested and undistributed profits. The same result could be achieved if credits were granted against corporation tax liabilities for that portion of earnings which is distributed to the stockholders or actually invested in expansion of new equipment.
One closing thought on taxes. As long as we need revenues, we can’t get along without taxes. However pleasant it might be to live in a world without taxes, I’m afraid there just isn’t any way to do it. We shall need taxes, as we have seen, to yield about 25 billion dollars in revenue in the next few years. If we don’t get them from one tax, we’ll have to get them from another. And so the question is not whether a given tax is better than no tax at all, but only whether it is better than an alternative tax.
In deciding between one tax and another we must keep in mind that our basic and continuing problem is to get the purchasing power of all us consumers high enough to buy all the goods and services we are so capable of producing. Where we are forced to choose between a little more of a tax that may discourage business investment and a little more of a tax that may discourage people from buying in the stores, we’ve got to pick the one that does not check consumer buying.
Fortunately for us all, during the next few years, as inflationary pressures subside, we face a decrease rather than an increase in taxes. As taxes are lowered, we shall therefore be stimulating the purchase of goods by consumers and aiding business investments rather than discouraging them. The question is only how much we shall stimulate the one as against the other.
The adjustments that need to be made in our tax structure can and should take the form of reduction and relief where it will do the most good. Thereafter, if we are wise in our policies, both private and public, the additional revenues which government will need to carry its share of our economic responsibilities should result from the application of the same or even lower tax rates to a rapidly growing national income, not from an increase in tax rates themselves. This isn’t too unpleasant a prospect.
Sixth: A Bold Plan to Build Homes
Sixth, if we are to develop the purchasing power necessary for sustained full production, the government must take vigorous leadership in the entire field of housing. As we saw in Chapter 2, we are sadly lacking in modern homes. In only one year, 1925, did we build as many as 900,000 homes. In the 1930 s we averaged less than 500,000 annually. In the war years the average was considerably lower, while repair work, practically stood still. Today nearly 50 per cent of all , our homes are in need of replacement or major repairs.
This problem, which has been in the making for two decades, has suddenly become extremely critical. Veterans are returning to their families, or on their return are getting married, and they all need homes and need them now. Yet at the close of 1945, there were l.25 million families doubled up with relatives or friends —that means at least 2.5 million families living in cramped quarters. During 1946, it is estimated that 2.5 million more families will require homes—a trebling of the problem.
Anyone can see that it would be years before veterans got the houses they need if we relied on the methods of the past. That is why the Veterans’ Emergency Housing Program—incorporating the techniques and the know-how that we developed in achieving our wartime goals—has been launched, with its immediate goal of 1,200,000 dwelling units in 1946 and another 1,500,000 in 1947.
The veterans’ housing needs are of course at the top of our list, but in planning the emergency program the longer-range requirements of us all have been kept in mind. These are only relatively less desperate, and in the critical state of our housing lie opportunities for sustained jobs and sustained increases of purchasing power that are almost unlimited.
In the next ten years we shall need a minimum of 12 million new dwelling units just to replace present substandard units and those which will wear out meanwhile. That is an average of about 1% million units annually—nearly two and one half times the amount of home building we had during the thirties. A homebuilding program on that scale would employ directly and indirectly some 4/2 million workers at excellent wages, and it offers huge opportunities for the profitable investment of our savings.
In housing, as in other fields, the responsibility must rest largely with free enterprise. But we had better face the fact that our housing industry is shockingly backward, and unless government does its part those 12 million homes are unlikely to be built. Let’s list briefly a few of the problems in the field of home building and its closely related field, slum clearance:
1. Our cities have grown haphazardly over a period of generations. They have grown largely without plan or program and with little thought for the strategic location of parks, recreation centers, and city buildings.
2. Land values in city slum areas are frequently so high businessmen cannot profitably buy the land, tear down the dilapidated structures, and build modern homes at prices our people can afford to pay. Similarly, our city governments for the most part lack the funds to finance the purchase of land on a large scale for the civic developments which make for attractive and healthful living.
3. With a few notable exceptions, the building material industries are relatively inefficient. They have operated for the most part on the basis of low volume and high prices. There has been a minimum of vigorous enterprise and business imagination. Partly because most of the firms are small and unprofitable, there has been but little research to develop improved methods. The industry has been shot full of monopoly or near monopoly, economic defeatism, and “scarcity thinking.”
With a few exceptions and for very human reasons, the labor groups operating in the building field have been equally backward in their approach to an all-out housing program. Long ago, with only a limited number of people able to afford new homes, they began to realize that improved methods usually resulted in fewer jobs and longer periods of unemployment. A carpenter, bricklayer, plasterer, or plumber could see only too readily that by speeding up his efforts he would only speed the day when he would be out of work again.
As a result, we had the development of “featherbedding” and various make-work practices which served to drag out the job, raise the costs, and limit still further the number of families which could afford new homes.
4. Out-of-date municipal legislation in hundreds of communities has served further to increase the high cost of home building.
Only through a vigorous and united attack on this complex housing problem, directed by the Federal government, can we develop the solution which must be forthcoming if we are to have an adequate number of modern homes for all of us and if our purchasing power is to be brought to the levels necessary to maintain full production.
Adequate Federal loans or grants should be provided to enable cities and towns to eliminate slum areas completely. This financial assistance should be granted only to those cities and towns which have developed complete long-range development plans covering highways, recreation centers, schools, and hospitals, as well as housing itself.
In the absence of a bold attack on the problem by business itself, Federal research should be undertaken to develop more efficient building materials and building methods.
Monopolistic practices should be vigorously weeded out, and if our present legislation is inadequate to the task, it should be broadened and strengthened. Outworn local building-code legislation should be eliminated. A broad educational program on the effect of “feather-bedding” in reducing our workers’ incomes rather than increasing them should be undertaken by the government housing agencies and by the unions themselves.
Adequate governmental subsidies should be made available to finance low-cost housing, and ample credit facilities should be provided to encourage increased home ownership among both rural and city families.
In order to speed up new housing immediately, temporary subsidies should be granted to reduce the present costs of lumber and some other basic materials and to stimulate production of new kinds of building materials. As long as they are in short supply, building materials should be rationed exclusively to. low-cost housing and to those industrial and commercial users who can show actual need.
This program for the pricing and distribution of scarce building materials, while drastic, is the only way we can meet the really critical needs of our veterans and others who are now desperately in need of homes. It should be considered as a temporary expedient and abandoned as soon as the supply and demand of our basic building materials are again balanced.
In the construction industry lies perhaps our greatest single opportunity, not only to correct our shocking lack of decent homes, but to increase the purchasing power of our people. Steady wages to 4.5 million workers will mean vastly increased sales in our grocery stores, our clothing and appliance stores, in all the markets of our nation. There isn’t a group in the land which is not certain to benefit from a vigorous program of home building—benefit in increased farm income, higher pay checks, or better profits. In this field, above all others, the government has a major job to do if the new homes and the added purchasing power are to be forthcoming. But again let us hope that the present inept leadership in the building and real-estate industry will be replaced by men of boldness and imagination—men who in the name of enterprise which is really free will grasp their opportunity and run with it. There are plenty of such men in the building field, men who have already demonstrated the vision and daring to develop new engineering techniques and new building materials. It is time that they went to work.
Seventh: Fostering Foreign Trade
Seventh in the list of things the government can do to help business carry its responsibilities for increased consumer purchasing power in a full-employment economy is the active encouragement of international trade and the free movement of investment capital from country to country.
Great strides have already been taken by our government in concert with the governments of our Allies. Still greater strides must be taken in the years ahead of us. The world needs vast quantities of American goods. The export of these goods can provide billions of dollars of spending in our markets and millions of jobs for our people. And we need vast quantities of the products of other countries, the importation of which will pour billions of dollars into markets abroad which will there help to increase the standard of living. Surely the increased trade of the nations of the world is something worth working for.
At the present time the world needs billions of dollars of American capital. It needs these billions to repair the ravages of the war, to rebuild the bombed-out factories, the shattered railways, the torpedoed ships. Beyond this, there is need for additional billions of American capital to speed the industrialization and to raise the standard of living of China and Russia, of India and Africa, of eastern Europe and Latin America. Surely their destiny, like our own, lies in the peaceful development of their productive strength and the raising of their standard of living. Impoverished nations, like impoverished individuals, are rarely ardent believers in democracy.
We need to invest these billions abroad as much as the rest of the world needs to have them. We need these investment opportunities because without them, as we have seen, it will not be easy to find outlets for the investment of the tens of billions of dollars which our corporations and many of our individual citizens will be saving year after year. We need them because without prosperous customers for our goods abroad it will be harder to find prosperous customers at home. We need them because to an increasing extent world prosperity and world peace are tightly tied together. Surely this, too, is something worth working for.
In all this, government has a vital role to play. Men will not risk their capital in other countries when they fear the depreciation of foreign currencies and the default on obligations. And men will not invest their savings while political turmoil based on economic suffering threatens the security of the property in which they invest.
It is the responsibility of government, therefore, to promote the stability of the money exchanges, the sound development of the economies of the rest of the world, and steadily to strengthen the bonds of peace and friendship and collaboration among all nations. Great as have been the strides already taken by our government toward some of these objectives, the opportunity and the challenge which we face in this key economic sphere must, as I said earlier, spur us on to even greater advances.
Eighth: A Fair Share to Our Farmers
I have reserved for eighth and last place in this list of methods through which our purchasing power can be increased the responsibility of government toward the farmer. Farmers constitute the largest single business group in the country. There are 6 million independent farm operators. They produce the most essential of our basic goods. Without a strong agriculture we could not have a strong economy or a strong nation. Yet until a dozen years ago, callous disregard of the farmer, his welfare and his problems characterized our national policy.
In spite of the awakening of the nation’s conscience in 1933, and in spite of the very concrete advances made by 1940, we saw in Chapter 2 that the lot of our average farmer in that year was not an enviable one. It took the war to raise the prices our farmers receive for their products into a decent relationship with the prices they pay for what they buy, and to raise farm incomes into a more equitable balance with the incomes of the rest of us.
The proportion of farmers in our total population needed to supply the food and fiber required by the rest of us has dwindled ever since the Revolution. It will continue to dwindle in the future.
With our city people fully employed at good wages, the demand for farm products will greatly increase over prewar levels. But there are limits to what even a prosperous nation can eat, and beyond a certain point our markets for food products overseas can be expanded only slowly. Farm mechanization will increase rapidly in the next few years. Improved techniques and new irrigation projects will add more output.
This means that proportionately fewer workers will be required—even with shorter working hours—to produce the food and fiber needed by the rest of us. Clearly it does not mean that our farmers will not share and share fully in the growing abundance of our expanding economy. On the contrary. It means simply that the sons and daughters of our farmers will, even more than in the past, seek opportunities in the city.
There will be no economic need for more people to seek a living from farming than can make a really good living that way. In too many years tens of thousands of workers were forced to seek refuge on the farm from unemployment in the city. Our goal must be the individual freedom that high and sustained production brings with it, the freedom to work where greatest opportunity beckons, whether that be on the farm or in the city.
Looking toward the future, I must emphasize once again that the prosperity of our farmers, like the prosperity of all other businessmen, depends upon the prosperity of the nation as a whole. It depends, therefore, upon there being enough consumer purchasing power, enough mass spending, to buy all the goods we can produce—on the farm and in the factory—when we are all working. But even when all the measures have been taken which insure the high and steadily increasing volume of wages and salaries which we have seen to be so essential to a prosperous agriculture, there will be many more things that need to be done before our farmers are truly secure.
I do not presume to be a farm expert. During the past few years, however, I have had an unusual opportunity to study farm problems and to talk with thousands of farmers in all parts of the country. I have come to know on intimate terms the leaders of the major farm organizations.
If our farmers are to enjoy their fair share of our nations steadily increasing income, and if they are to make their full contribution toward providing the markets for what is produced in the cities, I believe four main things need doing.
We Owe the Farmer at Least Four Things
I think that farmers’ prices must be supported, farmers’ crops must be insured, the nation’s social security system must be extended to include the farmers, and a far greater share of government building and government services—the schools, the hospitals, the highways, and the electrification—must be provided in the rural areas of the country.
The need for the first two items, farm-price support and crop insurance, is based upon the uncertainties of the weather. No matter how hard or how intelligently the farmer may work, inadequate rainfall or rainfall at the wrong time, or an early freeze, any of these things, may destroy his crops and rob him of the fruits of a season’s work. In addition, when the weather is favorable it may make his labor so productive that even with greatly increased purchasing power in the cities his bountiful crops are a glut on the market, bringing ruinously low prices.
What seems clearly called for is government price support programs to protect the farmer against the latter, and government insurance programs to protect him against the former.
The price-support program, however, should, in my judgment, be carefully reconsidered. At present, it is put in terms of “parity” and provides government purchase or other action to support individual farm prices at 90 per cent (for some crops 95 per cent) of “parity.” This has two disadvantages. In the first place, if we manage our affairs badly and prices in general are slumping, the farmer does not have a firm support for his own price, but a support which itself is sliding down the toboggan. We ought to do better by the farmer than that.
In the second place, because the base period is now more than 30 years in the past, it has very little relevance for today’s economic conditions. There has been a lot of technical progress these past 30 years on the farm as well as in the factory. This has cut farm production costs but it has not cut them uniformly. We discovered during the war that some of the most profitable crops were among the last to reach “parity” prices. In some cases, therefore, parity prices, as presently calculated, seem too high, in other cases too low, when viewed in the light of current costs.
Two different new approaches to this general problem have been suggested. Senators Aiken and La Follette have proposed a Food Allotment Program, in which they have built on the principle of the old Food Stamp Plan. Under this program the government would at all times be directly aiding low-income families to obtain sufficient food, thereby supporting the fanner’s market. And if unemployment were to appear and incomes to start falling, the government under this program would increase its assistance and thereby increase its support of the farmer’s market. This, if done on an adequate scale, would clearly be a very important instrument to sustain farm prices and incomes at fair levels.
Another proposal would leave farm prices in prosperous years entirely to market forces. Only with the appearance of any unemployment above a minimum level of, say, two or three million, would the government guarantee with respect to the farmer go into operation. Under this guarantee, farmers would be compensated directly for any decline of their prices below the average level of the three years preceding. It is argued that this proposal would provide protection to our farmers without depriving our American consumers or our export trade of lower free market prices.
As a general policy I myself tend to favor the Food Allotment Program approach for the reason that, while it offers very real protection to the farmer, it is geared more broadly to the economic interests of the country as a whole. That program does not, however, directly protect the prices of fibers or the economic position of farmers who are engaged in producing flax, cotton, or wool. Here, support prices or the alternative of compensatory payments plainly have a major role to play. The support or compensation levels, however, should be determined, it seems to me, in terms of current economic facts, unhampered by relationships which prevailed a generation ago.
Hie problem is particularly important in the case of cotton, which for a century has played such a key role in the economic destiny of the South. Today cotton prices are high on any competitive basis, while the wages of the field workers are pitifully low and most of the land owners fail to earn a reasonable living. Sooner or later, if our southern cotton farmers are to maintain their domestic and foreign markets in the face of growing competition, cotton production must be mechanized in order substantially to lower costs and to allow lower prices.
Eventually hundreds of thousands of cotton workers displaced by cotton producing machinery will find their way into far better paying jobs in industry, into fruit and vegetable growing or other more profitable types of farming. The workers who operate the new cotton farming equipment will earn good wages and the plantation owners should show substantial increases in their income.
But this revolution in cotton will not take place overnight, and in the meantime there will be widespread dislocation. To ease the transition some farm economists favor direct payments to our cotton farmer over a period of, say, 10 years at a steadily decreasing rate each year. At the end of this period it is expected that American cotton, picked and harvested by modern machinery, would be selling profitably in competition with rayon fiber at home and with Egyptian, Indian, and Brazilian cotton in the world markets.
The crop-insurance programs are still essentially a thing of the future. I hope that we shall see rapid progress toward a workable and adequate program.
Nothing could more clearly show the disadvantageous position that our farmers occupy than our failure thus far to include them and their families in our national programs of social security. Nothing, that is, except the fact that they have also shared so unequally in almost all of the services the government has provided for the rest of our people. The injustice of these things is so obvious that they need only to be mentioned to suggest that prompt action must be taken to get them straight. I hope it will not be long before important and far-reaching steps in this direction are actually taken.
And let us not forget that the assistance which we give our farmers in raising their living standards puts extra income into the pockets of all the rest of us wherever we may live and whatever we may do. Our farmers represent 23 per cent of all the people in America. Today, as a group they lack good homes, proper equipment, modern furnishings and appliances —in f act, all the goods and services which our businessmen and our workers are so able and anxious to produce.
Given good incomes to spend for decent living, there is scarcely a businessman or a worker in the land who will not receive the benefit of their increased purchases in better profits and higher wages.
Over and over again we see the lesson repeated: The economic destinies of all of us—workers, farmers, merchants, and industrialists—are tied tightly together. None can prosper unless the others prosper, too.