From "Insatiable Government," June 25, 1932 Observe a strange bedfellowship. When the railroads throw themselves on the hands of the government and demand public credit to save them from bankruptcy, the radical forces do not protest, or, if they do, it is in an academic sense only; and the reason for this is that they believe in the public ownership of railroads, and see, perhaps more clearly than others, that such use of public credit tends to bring the experiment of state ownership to pass. For the same reason they protest lightly or not at all against the use of public credit to save the private banking structure, for that will tend to bring about state control of credit. They are for anything that tends to get the government into business.
From "Concerning Inflation," November 4, 1933 Capital is in flight from the country. Every man with money, be it much or little, is thinking less about how he shall adventure it in a spirit of enterprise than how he shall make it safe thinking less of interest and profit from his capital than how to defend his principal. This is true because the integrity of money is in doubt.
From "Washington Miscellany," December 9, 1933 Frequencies are to broadcasting what tracks are to a railway and what wires are to telephone and telegraph. But broadcasting companies have no property right in frequencies. How can a wave length be owned? The Government allots to each broadcasting company a range of frequencies. This, of course, is necessary. That is, some authority would have to control and allot them or else there would be anarchy on the air. But the allotments are not permanent; they have to be renewed periodically, as if a railway had to go to the Government twice a year and get renewed permission to continue running trains on its tracks, or the telephone companies for permission to continue sending messages over their wires, with no possibility of there being other tracks or other wires.
It follows that broadcasting companies incline to keep the good will of the Government. On the other side, the Government takes leave to go on the air when and if it likes. It notifies the broadcasting companies that it wants certain time. The Government may say, "We want the hour from seven to eight," and the companies move their things around accordingly. Thus the radio becomes, in some degree, an instrument of Government, and the Government makes effective use of it, more and more.
From "The Balance Sheet of Capitalism," May 19, 1934 The whole of the emotional case against capitalism turns on the unequal distribution of wealth. But is it peculiar to the nature of capitalism to concentrate wealth in a few hands? Here the first aspect truth is a little hard. It begins with the human disparities; and for these, God is responsible, not capitalism. Much more, perhaps, than we wish to believe, economic inequalities answer to human inequalities.
Again and again, wealth has been socially divided and then, in a little while, it has been again as it was before, that a few were rich and many were not. Lycurgus, who did it for the Spartans, heaping all their wealth in one pile and then, dividing it equally, thought of measures to make this pleasing equality permanent. He banished gold and silver money and put in place of it iron money so heavy and so nearly worthless that to hoard or save it would be absurd. All the same, it was not long until again there were debtors and creditors and a concentration of wealth in the hands of a few.
Such a very old fact has a kind of simplicity. Somewhat more than nine-tenths of us consume all that we receive, and would consume it all, no matter how much it would be. The wish to accumulate wealth is universal; the will to do it belongs only to a few, and the proportion of those few in any kind of society has probably been constant for thousands of years.
From "The Forgotten Road," September 29, 1934 Suppose every railroad that was unable to pay its debts had been permitted to go into receivership and thence to the auction block. What of it? The loss in that case would fall where it belonged upon the stockholder. The stockholder is one who wants more than interest on his capital; he wants the profit. To be entitled to the profit, he must assume also the risk of loss. He knows that in the first place; he prefers the position of proprietorship and takes it voluntarily. He is the owner; the bondholders are his creditors. If the railroad is unable to pay its creditors and goes to the auction block, either the bondholders buy it in and wipe out the stock, or the stockholders, if they are unwilling to lose the property, may save themselves by putting in new capital. By that healthy process we had again and again, after every crisis, junked what was dead in our capital structure, and it was one secret of our economic strength that we did it in a ruthless manner, no matter how much it hurt. Between 1892 and 1896, 200 railroad companies, representing one-quarter of the country's total railway capital, went into receivership and were reorganized. In the next ten years the entire railroad system was rebuilt with new capital.
From "When Wishes Think," February 23, 1935 When the New Deal arrived, prices had greatly fallen, and a great mass of repetitious, inflated and imaginary capital, founded on the rainbow, had been or was about to be wiped out, as it should have been. No tangible thing had been destroyed; it was only that everything had been revalued. That was deflation.
The idea first to be embraced by the New Deal was one for which a word had been invented. The word was "reflation." Not reinflation, which would mean to inflate again, but reflation, which means not the bite of the same dog but the dog of the same bite. The undertaking, very explicitly set forth, was to slay the dragon by raising prices to the predepression level the average price of goods and commodities and labor to that level, and the price of agricultural commodities to a still higher level, on grounds of social justice; and whereas it had been the thought of business to defeat the dragon by defending prices on the pre-depression level, in which it failed, it was then for the New Deal to slay him by putting prices back to that level. Restoring prices would mean also to restore capital values of all kinds, even a great mass of that fictitious, inflated and imaginary capital, founded on the rainbow, that was about to be wiped out. That fact was let pass as a minor inconsistency. The New Dealers themselves never stressed it, and, besides, this was the sweetness that reconciled business and finance to much else that was sour to their taste.
From "When Wishes Think," February 23, 1935 The old sequence in every depression was first a fall of prices, then a collapse of profits, then a reduction of money wages, and presently a terrific increase in production. A reduction in money wages is not the same thing as a fall in the buying power of wages. The buying power of wages is relative, determined by the cost of things.
The standard of living has had some minor setbacks, but never in this country was it ever sacrificed, never did anyone propose that it should be. On the contrary, during seventy-five years, from 1840 to 1914 notwithstanding three great depressions, the buying power of American wages increased threefold. There is no reason to suppose it would not be repeated in a free competitive system. Indeed, it cannot help repeating itself under that system, so long as production increases. If production is increased simply that and nothing else the buying power of wages is bound to rise. Either prices will be reduced or money wages will rise. This must happen by a law of necessity. There is no other way to dispose of the product.
The opposite is that you cannot buy any means increase the buying power of people without first increasing the quantity of things to be bought.
From "When Wishes Think," February 23, 1935 War debts and depression debts possess the same character. All the things needful to conduct a war exist at the time. So why the fiction of borrowing them from the future? Why create a debt to represent them? In the same way, all the things needful to feed and clothe and house the unemployed exist in the present. Why a fiction of borrowing them from the future? Why create a debt to represent them? The reason in both cases is the wish to postpone and avoid payment. Let others pay. Let tomorrow pay. Let the next generation pay.
A war that was charged wholly to its own time, one paid for in full by taxation, would be a very unpopular war. But it would be a solvent war. So also with depression. Every depression hitherto has been paid for at the time. Such a thing as issuing bonds for relief was almost unknown. And that is why the recovery, when it came, was always so amazing. It had no load of debt to drag along; instead of it a new, unmortgaged future. Now for the first time we are trying to charge a depression to the future, though never before had we been so rich in all the means to pay for it ourselves.
From "Economic Fascinations," March 9, 1935 A ship is one of the many implemental forms of wealth, and what is true of one form is true of every other form in the sense that follows… Under the free economic system, any private person possessing the capital is free to command the materials and labor to produce a ship… In the exercise of this right the private person must assume some risk. Suppose the ship does not pay, owing to the competition of many private persons doing the same thing. The owner, therefore, is unable to make a profit on his capital. What then? Well, in that case he may break the ship up or tie it up at his own risk; he may write away as much of its value as represents the disappointed expectation of profit and go on with it; he may turn it over to his creditors who, if they cannot make it pay, may put it on the auction block and sell it to someone who, if he buys it cheaply enough, is certain to make it pay. But in no case, under the free system, is it permitted that one who has created an unprofitable ship shall both deprive economic society of the benefit of cheaper transportation and save himself from loss by making the shipper pay him not to operate the ship. But that is the new way of thinking.
From "The Wealth Question," August 31, 1935 Wheat farmers, corn farmers, hog farmers and others, signing up with the AAA and beginning to receive United States Treasury checks for what they did not produce, were generally pleased until they began slowly to reflect on what they had done. They had signed away the right to do as they pleased with their own land…
But if a farmer is not a lord on his own land, what is he? Would he give up being lord of his own land for a difference of forty or fifty cents in the price of wheat? Whether he would or not, he has done it.
From "New Government," February 1, 1936 Before the New Deal, had Washington been feeling the depression?
Extremely. When the Republican Administration departed, in March, 1933, Washington, like nearly every other city, had the appearance of being overbuilt. The principal hotels and most of the new apartment houses were either in bankruptcy or staring at it. Private houses could be had for the taxes and upkeep. Many mansions were boarded up. Shops were closing, leaving whitened plate-glass windows behind them. Your taxi fare was less than the tip in New York and the driver was so grateful that you were ashamed. Elsewhere people might still be hopeful, not knowing the worst; but here, with all the sources drying up, it was not going to rain for four more years. Was not the incoming Administration pledged to lay the ax against government and cut it down one-quarter?
Then it rained. Miraculous rain from an invisible cloud in a new world. First the hotels filled up and overflowed. Next all the apartments and private houses were taken and they were not enough. Rents began to rise. The closed shops reopened. New ones appeared. Walking on errands of government ceased, because everyone was so earnestly making haste in the new world. The leisurely, old-fashioned left turn, wide around on the red light, had to be abandoned and one-way streets had to be ordained, owing to the increase in motor traffic. Taxicabs multiplied prodigiously. Gaiety took back its place in the life eating, drinking, dancing, with all the most expensive places crowded; and touching all of this a kind of guilty embarrassment, as of people taking pleasure in unreconciled circumstances.
From "National Hill Notes," February 29, 1936 Nobody ever exactly understood what the monetary policy was. It involved debasing the currency, repudiating the redemption clause engraved on all Government bonds, and led to the weird spectacle of the United States Treasury trying to raise the price of gold by buying it all over the world with paper dollars not because it wanted the gold, or needed any more of it, but only for the purpose of making the price of gold go up. Foreigners sold us gold for paper dollars, and then used the paper dollars to buy American securities, so that in fact we were swapping titles of ownership in our industries and railroads for gold that we didn't need and didn't know what to do with. We have now more than half of all the monetary gold in the world, and yet we have no gold money. The Treasury is hoarding the gold. It could not spend it if it would, for the curious reason that by the law of this monetary policy it is a crime for an individual to possess a piece of gold.
From "National Hill Notes," February 29, 1936 Acts in themselves do not constitute a course of action. From a progression of acts it may be possible to deduce a fundamental policy, only provided the acts are consistent with one another, or consistent as a whole with a controlling principle. But the acts of the New Deal bewilder that process. In the entire book of the New Deal's self-revelation and self-exegesis there is a certain paragraph that would reconcile all of its acts, not one with another but with one principle of contradiction. It is the passage in the last annual message in which suddenly the President speaks of the new instruments of governmental power that have been created, and then says of this new power that it is such that as in other hands "would provide shackles for the liberties of the people." But it is in his hands. Well, conquest of power for purposes of all-doing that in itself could be a controlling policy, and such a policy, impossible to acknowledge, would involve many inconsistencies of immediate policy, because the peaceable course to the seizure of great political power is a zigzag path.
From "Security," September 19, 1936 And how will [Social Security] funds of such magnitude be invested? They will be invested entirely in Government bonds. What is a Government bond? It is the promise of the Government to pay at some future time; it is, simply, the Government's promissory note. There is here one little difficulty to be cleared up. The inventors have not mentioned it. The difficulty is this: How can the Government earn money by investing money in its own promissory notes?
From American Affairs:
From "Review and Comment," January 1946 By an act of seizure to end a strike the government is now in possession of the soft coal mines. Having nothing to lose but the taxpayers' money, the government is an easy and generous boss. To induce the miners to return to work it made a better bargain with them than the private boss was willing to make. And so, as it always is at first, the miners are better off.
Have they lost anything? Is this benefit of government without price? Suppose now they should want to strike. If they refused to mine the coal on the government's terms the would be striking against the government.
Note how the language changes. Formerly if the miners refused to mine coal one could say, when it became very serious, that they were striking against society, but that was an abstraction. Most people thought of it simply as an economic struggle in which the consumer was getting hurt, and public opinion turning strongly one way or the other would presently end it, because neither side could afford to go too far. But now when that same kind of struggle reaches a certain point the President announces that it begins to assume the character of a strike against the government, and that is a very different thing. Thus little by little we become accustomed first to the words and semantic tones and then to the experimental acts of authoritarian government, commanding obedience.
From "Status for the Poor," April 1947 [It was a] proud American maxim that every schoolboy wrote in his copybook: To be poor is no disgrace. In the whole civilized world that was only true here, and it was true here because no stigma, no hint of caste, no sense of status attached itself to the condition of being poor…
But as the form of the Welfare State begins to rise…there are high-bracket people and low-bracket people and it is the law that makes a distinction between them. You may say still that the distinction is economic, not social, and this is for a while a supportable fiction. But it holds only until you come to public housing. There the line is struck, and now definitely a social status attaches to the condition of being poor…
The first argument for public housing is that it is the only way to reach that one-fifth of American families whose housing is substandard. The secondary argument is that although private enterprise has been freer here than anywhere else in the world, it has not solved this problem.
That way of speaking of private enterprise as if it were a power in itself, as if it were a total entity with parts and functions and responsibilities, belongs to the nonsense of modern demonology. There is no such demon. Private enterprise is not a thing. It is a body of natural spontaneous economic phenomena rising out of the activities of people who produce and exchange wealth with one another with no interference by government. It is not the function of private enterprise to house the people. It is the business of people to house themselves.
From "Comment," January 1950 In the act of granting the railroads another increase in passenger rates the Interstate Commerce Commission suggested that if the railroads' passenger revenue continued to fall, Congress might have to consider a federal subsidy to make up the loss. At one of the hearings on Bigness before the Celler Committee this question was raised: What if a corporation got so big that the government, having accepted the responsibility of full employment, could not afford to let it fail? Thus one may note the birth of the idea that the Federal Government may be obliged to pay old age pensions for capital.
That idea was bound to follow from the delusion that by the free application of federal subsidies to any seat of pain we may secure the great blessing of a painless economy. This of course is quackery. There is no such thing as a painless economy; and if you overcome the sensation of pain by anesthetics, how shall the economy know when it is sick or why? The use of pain in a healthy body is to give notice of wrong living. The only way to cure it really is by right living. Many people have forgotten, if they ever knew, what happened in a free profit and loss system to capital when it ceased to earn a profit. If it could think of no way to get its profit back by improving its tools and methods, then simply it was lost wiped out. But that is all that did happen. The great economic mechanism was not hurt at all. Indeed it was generally improved and worked much better when relieved of the weight of old and obsolete capital.
Before there was any Interstate Commerce Commission to say that railroad rates should be such as to guarantee a reasonable return on the capital, railroad bankruptcy was very common. Once two thirds of all the railroad mileage in the country was in receivership. The courts operated the railroads as trustees for the creditors. The trains went on running just the same; wages went on being paid to employees as before. Receivership certificates with prior lien on the assets were sold to buy new equipment and new rails. After a while the owners, who were the stockholders, sat down with the creditors, who were the bondholders, and together they worked out a reorganization plan. The capital structure was scaled down. The heavy loss fell on the stockholders, which was only fair, because for the sake of the profit they had voluntarily taken the owner's risk. Then a new company was formed, new stock was sold, the bankrupt railroad went on the block and was sold to the new company, and that was the end of receivership.
So American railroads were rebuilt many times, with new capital taking the place of old, and the cost of transportation fell until it was the lowest in the world. There was pain in it, of course, but it was pain that cured itself; and there came to be a hard saying of great wisdom that the measure of the country's prosperity was the amount of bankruptcy it was willing to stand.
July 11, 2003