It is during times of great national stress that the gradual quantitative changes occurring on all sides during periods of staid evolution reveal themselves as having produced structures and functions qualitatively different than before. In the economic world nothing stands still, all is in constant development. During periods of war or great economic depressions, however, one is able to take stock as to just how much these changes, each one small in itself, have accumulated and how far they have really travelled from their original starting point.
Small competitive business at one time was the normal business in the United States. In the latter part of the 19th century Big Business began to arise and by the time of World War I dominated the scene. During the War itself, however, there was work for all and Little Business could not say it was put out of an independent role in economic affairs. When the last Great Depression broke out in the 1930's Little Business was still able to be quite vociferous and to demand that the government aid it to the maximum.
In this respect Little Business was able to win the support of Little Labor, the unions that were tied to Little Business by contract and by tradition. It seemed Little Business could exist only by raising the purchasing power of the consumer and raising also the purchasing power of Little Labor and the working man.
Under the Roosevelt Administration during the Great Depression, a vast amount of government money was spent to help Little Business both on the farm and in the city and to raise the purchasing power of the consumer, but the net result was far from what was expected. The work relief projects gave the workers merely what they would have received, by and large, on general relief; the sharecroppers and poor farmers were driven off the land by the millions; the "independent" business man and professional were reduced in numbers and in income by 20%. Both small farmer and small businessman were rendered socially impotent. Neither the high tariff nor the debasement of the currency, called "priming the pump" and "controlled inflation" helped him in the long run. From this point of view the measures of the Roosevelt Administration were flat failures.
The new situation pertaining to the fundamental uselessness of Little Business was not discerned very clearly for several reasons. First of all, Labor which should have been the first to notice the relative decline of Little Business which used to furnish so many jobs to its forces, did not feel the decline too much, as it oriented itself for the first time on the drive to organize Big Business. The labor upheavals represented by the rapid growth of the Congress of Industrial Organizations (CIO) resulted in organizations of labor being recognized by Big Business and brought many new jobs under the control of unions that began to emerge from the chrysalis of Little Labor to the full grown organism of Big Labor.
Second, with the advent of World War !! there was work for all and Big Business now completely in control of the situation, could use Little Business as a vast army of servants to its cause. During the Second World War thousands of small firms were clustered around each of the great industrial giants in charge of war production in this or that field. These small firms received their sub-contracts, their allocations and their price lists from the giants and remained prisoners of the special empires of which they had become component parts. They lost completely whatever independent role they could have dreamed of before. Out of the War three great congeries of forces arose: Big Business, Big Government (in charge of Big Military), and Big Labor.
Third, even after the end of World War II the degenerate situation of Little Business and of the "independent" business and professional man was not noticed too clearly since there ensued again a period of speculation that allowed all to live within certain limits. Now, however, with the coming of the present depression the facts have become all too clear. Little Business is sunk. There is no longer much room in the economy for the backward and benighted little fellow. He will go under, unwept, unhonored, and unsung.
This does not mean that there will not be an immense wail of anguish from Little Business during the present depression. Little Business will make every effort to raise again the old demands so popular in the last depression, but it will raise them in vain, and this time it will not receive the same support from the labor movement as before. The old alliance between Little Business and Labor can never be renewed again. For Little Labor has become Big Labor, its members are no longer mainly in the little plants, but in the big plants. Although labor leaders, like Little Business, will also follow the foolish utopian ideas that raising the purchasing power of the consumer (labor) as the way out of the crisis, it cannot support Little Business who can only act in such a way as to try to throw the burden of getting out of bankruptcy on the backs of Labor. Let us take a look at this situation for a moment.
During the present depression many formerly employed persons are thrown on the street with no employment. Many of those thrown out of work will have worked for small firms not covered by unemployment compensation. Such workers will not look with friendliness on the small business that has tried to evade the payment of the unemployment compensation tax by taking advantage of the clauses that the small businessman had urged written into the law so that Little Business would be free from obligations to the workers laid off.
It is true that such workers will try to get unemployment compensation just the same, and in this they may be aided by Little Business which would like to see the unemployed workers paid by the State so that with the increasing purchasing power the worker might spend more on the Little Business which lives off consumer sales. But in this effort the workers previously uncovered by unemployment compensation taxes may encounter much active resistance from Big Business and the passive neutrality from the other workers who had worked for Big Business and who want the limited unemployment compensation payment funds to cover their own needs as far as possible.
Whether the previously uncovered worker gets unemployment compensation from general State funds or whether he is put on relief, the money for such payments will no doubt not come from payments made by Big Business but rather from general government funds relying on such means as increased sales taxes to pay for it. But increased sales taxes are precisely what Little Business does not want, since such taxes must reduce even still more the steadily dropping volume of sales on which Little Business must keep going.
Even the workers on covered employment entitled to unemployment compensation will not have adequate aid during the depression. First, the payments are smaller than one can live on as before; second, the payments are limited in number; and, third, the funds themselves must soon become exhausted as they were never meant to be sufficient to cover a serious depression. Here there will be a demand for an extension of unemployment compensation payments for those previously covered so that the payments can be made for a longer period of time. If such payments are to be financed through an increased unemployment security tax, the burden will be felt harder by Little Business than by Big Business. It is Little Business that will go bankrupt first and must fight the project. Labor must then break from Little Business and support Big Business whose whole course in history has been the driving out of backward and inefficient business from the area of production. Should the unemployment payment extensions be financed out of sales taxes the burden will be felt on all small businesses catering to the consumer just the same. Little Business must then raise the cry of "Sock the Rich" and "Tax the Big Corporation". But Big Labor can not go along with this since it depends on the welfare of Big Business. And to Consolidate this alliance Big Business may go along with private supplementary social security payments which Little Business can not afford to give.
It is true that almost all the unemployed will have to draw on their savings in order to exist and in the ordinary situation these savings are not large. They are soon exhausted and the unemployed then must join the needy who have been supported by various poor relief and welfare funds. Eventually these funds also may become exhausted as they were never meant to sustain the enormous masses that a very severe crisis will make dependent on them. This, however, belongs to a later stage of the crisis at which time Little Business will also be on relief.
In such a severe downturn of business, many business men find themselves on the verge of bankruptcy, if not actually bankrupt. In the first place, their inventories have gone down down drastically in price and they have suffered great losses. In the second place, a good part of the remaining goods can not be sold for want of customers and they are stuck with great expenses. In the third place, they have advanced a good many items on credit and on the instalment plan and these items must be recaptured at a great loss or abandoned. For all these reasons, and many more, business men, especially the small business man, including the small and uneconomic farmer, must lose their businesses and find themselves among the needy poor.
In the free competitive field of small and medium business, as the needy poor compete among themselves for the limited jobs and opportunities for making a living during a depression, the wages fall lower and lower. This tendency is intensified by the following facts: first, the number of part-time workers greatly increases and these part-time workers must also throw themselves into the labor market to seek full time work in order to exist; and second, millions of youth, newly come of age, must seek work while the women and dependents who before could be sustained by those employed must throw themselves into the labor market precisely at the time when such market is already glutted, to make the situation even more severe.
This desperate competitive situation among the employed and unemployed tends to worsen general working conditions. The temptation to evade child labor and home work laws, safety and health regulations, working hour and wage payment regulations, etc., becomes too powerful to be resisted in many cases. This, in turn, only makes the situation more desperate. Big Business will be for minimum wage and extra overtime payments.
This condition, of course, finds itself duplicated far more in the domain of Little and Medium business than in Big Business. Big Business has another way to reduce costs, not by wage cuts, longer hours, faster work, and worsened labor conditions but by increased productivity and wider application of the best machines and processes available. There is no limit to scientific progress; there is a limit to human endurance.
In its fight for survival, Little Business must fight for the reduction of the tax burden which might be supportable during periods of prosperity but which now becomes utterly insupportable. The income tax on the employee and small business man, the social security tax, the sales tax, the excise taxes all of these items become excessively harsh when the people are unemployed and needy, and reduce further their shrinking incomes.
In regard to the excise tax, all major groups will be in favor of its elimination or reduction especially the tax on transportation of all kinds and communication. In regard to the security tax, neither Big Business nor Big Labor can join hands with Little Business. Similarly, in regard to the sales tax, especially if without the sales tax there will be no relief funds or funds greatly reduced. As for the income tax reduction for small incomes, even Big Business can be for it because their own workers will be relieved, because the additional money saved by Little Business will not do it much good but will rapidly pass through its fingers to Big Business, and because it is a method of partial appeasement.
There is one form of taxation that Little Business will want greatly increased and that is the custom duties, not in order to obtain needed revenue for the people, but in order to keep out foreign competition. Big Business, however, does not fear competition. Its task is to get foreign markets and spheres of influence. It can not do so without reciprocal agreements in which foreign countries may export their goods mainly not in competition with Big Business entrenched in heavy basic industries into the United States. Big Business is for free trade or reduced tariffs. And in this Big Labor will go along, even though it means a drastic wrench from its traditional position on this question.
in its anguished efforts to reduce the tax burden which in a depression will threaten to crush it to death, Little Business will try to reduce governmental costs in all ways that is not at its expense. It will call for reduced government spending, a reduced military budget, reduced foreign aid, reduced subsidies, etc. And yet, at the same time, it will have to call for increased expense for itself, for a mortgage moratorium, for increased purchasing power, for extensive government credit, for cheap money, for a great increase in the national debt, etc. in the course of its basic dilemma, Little Business in industry will have to fight Little Business on the farm and will find itself powerless to solve any of its problems. In the long run it will go under and sink into insignificance.
In regard to generally reduced government costs, if this means reduced functions of government, it is certainly not to be entertained at a time when government functions will be greatly increased, almost as in time of war, although in different ways. If this means reduction of wages and salaries of government employees it is doubtful whether Big Government whose employees are on fixed salaries to a considerable extent, and who have suffered when prices were high, are going to see their salaries go down except as a very last resort. Besides, Little Business is not going to give orders to Big Government but take them.
The last Great Depression shows that even when all business suffered drastic cuts in employment, Big Government did not, but actually increased its numbers of employees. It will be no different now, especially when it is envisaged that the government will build large numbers of institutions for education, health, and welfare purposes that will need governmental staffing. The former "independent" professional man who will be employed in these new institutions, certainly will not go along with Little Business in this respect.
The demand for a reduced military budget will be forcefully rejected both by Big Business and by Big Labor, not to speak of Big Government (and Big Military). Big Business is for a big military budget, since it furnishes all the chief goods and supplies for the military. Big Labor is for it because it believes that this is the one way in which heavy basic industry can be permanently employed. Big Government needs it for its international adventures of which there will be many serious ones during the depression. Big Military needs it for survival.
As for "foreign aid", any demand for its reduction by Little Business would only arise from a complete ignorance of what "foreign aid" is designed to do. It is not foreign at all, but a mere extension of U.S. power; it is not aid, but pressure. It does not build up another country for its independence, but for the dependence on the country given aid. It is the only way to meet the master threat of the Soviet forces throughout the world. If the U.S. gives that up the U.S. might as well give up entirely.
Without foreign aid the U.S. would have no pressure to compel other countries to purchase military and other heavy equipment and materials from the United States. U.S. exports would shrink drastically and Big Business would receive a severe blow. The U.S. would not be able to get favored treatment in investments and in markets as the country can do now. This would react on the economy of the entire country. The U.S. would have no foreign military bases and would have to remove its armed forces from foreign soil. Such results would mean calamitous failure for the country. From the point of view of business interests as a whole it is unthinkable. And Big Labor will go along.
Only in the matter of reduction of subsidies will Little Business have a chance to win its point because at least in the matter of agricultural subsidies payments for non-production, parity supports, and that kind of nonsense both Big Business and Big Labor will go along, although this means that little industry will be fighting the little farmer.
It must be remembered that the enormous sums spent for the alleged benefits of the farmers during the last Great Depression had purposes to fulfill which no longer need attention, at least certainly not to the same degree. It would be wise to spend a little time on this point.
In 1933 the production control program envisaged the plowing up of crops, the killing of animals and the removal of the land from production. In that year, under the Agricultural Adjustment Administration, 30% of all cotton acreage was plowed up. More than 6 million sows and pigs were killed and bought by the government at 100% increase in price. In 1934-35, the government bought for slaughter 8.3 million cattle. In 1933-34, half of all the farmers in the U.S. signed contracts for controls reducing acreage or marketings and received benefit payments accordingly.
What was the result of removing the land from production? For one thing, the large plantation owner in the South could order all the Negro sharecroppers off the land and receive money for so doing. These Negro sharecroppers had to move North into industry, jointly with the white sharecropper, or with the electrification of rural areas and the decentralization of industry become laborers in industries developed where they used to be farmers. For the rest of the plantation land, soon cotton picking machines were introduced, machines manufactured by Big Business and in heavy industry.
With the extra money obtained by curtailment of production, guaranteed markets, etc., the farmer who could do so, either spent that money in machinery and improvement of the land - since the government paid him better prices for his surplus products than he could get on the market - or paid off his debts and mortgages. It so happens that the machinery was made by Big Business and the mortgages were paid off to big insurance companies and banks. The general public footed the bill through taxes.
So far as reducing farm production was concerned, the Roosevelt program was a failure for the following principal reasons:
1. Only the poorest land was withdrawn;
2. Better use was made of the rest of the land with more productive results;
3. The withdrawn land, if made fallow, became more fertile later; if used for uncontrolled crops (say, hay) resulted in greater production of these crops;
4. Weather changes made the part of he land used more productive in some years than all of the land had been in other years;
5. Technological improvements introduced greatly improved production per acre and per man-hour. These improvements were permanent and when well established, drove large numbers of farmers who could not employ them off the land entirely;
So, unobtrusively and painlessly, one might say, the number of farmers and those on he agricultural labor force, declined from 10.8 million persons in 1929 to 6.6 million in 1957 and the number of farms fell from 6.5 million to less than 5 million, of which last figure only 1.3 million were really operated as commercial farms in any substantial manner. In this country capital can do quietly by economic means what elsewhere only fierce bloody revolutions could have accomplished.
Those farms which are operated commercially in a professional manner are now the backbone of the farming industry and have a capital equipment equal to that of industry of a similar unit size. Increases in productivity on the farm match that of industry as a whole. For example, using the years 1947-1949 as a base year equal to 100, the index provided by the government showed total farm output per manhour in 1930 at 54, and in 1956 at 137, an increase of 154%; while for all crops the per manhour index had changed from 52 to 139, an increase of 169%; for all livestock the per manhour index changed the number 76 to 124, an increase of 63%. In all industry the increase per manhour from 1929 to 1956 was about 100%.
Thus, so far as the substantial commercial farms are concerned, they can now stand on their own feet. The farmer group, as a pressure group, has been greatly reduced in voting power and influence. The desire for parity supports, for payments for non-production, etc., are no longer really to save the farmer (we have seen already how he was "saved" during the last depression), but to give extra profits to the efficient farmer company whose costs are much lower than the prices set by the government for the so-called "average" farmer.
The basic farm question that arises in this depression is whether the big insurance company will again find itself strapped heavily with mortgages that the small farmer can not pay, so that money must be found for the farmer to give to the insurance company; or whether the small petty non-commercial farmer should be maintained by the double payment of his produce at a cost to the unemployment compensation, social security, pension, and relief funds which will run out so much the faster should the farmer be given this money. Such money paid to farmers will not result in more purchases of machinery since already the land is rather fully developed, relatively speaking, in this regard.
We believe that in this depression, considering the fact that the entire "farm" population, including the false and non-commercial farmer, is relatively such a small part of the population at the present time, that no such large scale appeasement need to be made to him and that he will go the way of the small business man generally, especially as the other small businessmen will be clamoring for a reduction in the cost of living by lowering farm price supports and letting farm products battle in the open market like every other product of Little Business.
The farm producer may be aided, however, in two other ways, not so much in order to aid the farmer but in order to aid others. There is no doubt that as the depression grows greater the government will have to buy vast supplies of food for free distribution to institutions and those on relief. They will not have to buy these food products at excessive prices, but at regular free competitive prices, as low as possible, nevertheless this will provide the farmer with a large market so that at least the surplus milk will not be thrown down the sewers, or the fish left to rot on the beaches, etc.
There is also no doubt but that the mortgage problem will again call for some sort of action on the part of government, not so much to save the uneconomical farmer or the small rural bank, but because the problem is widespread throughout the entire land and involves Big Business as well. We must keep in mind that the non-farm residential mortgages covering about 10 million of the 1 - 4 owner occupied dwelling with about $100 billion in mortgages are mainly held by large banks and insurance companies. These large banks and insurance companies will have to be guaranteed their holdings and at the same time the mass of urban inhabitants kept in their homes. It will be hard to act on the non-farm dwelling mortgages without acting similarly on the rural mortgages as well, so that this action will have to be taken as in the last depression.
Furthermore, the action to guarantee mortgage payments may have to be extended to cover chattel and instalment buying as well. Goods have been bought on the instalment plan covering many billions of dollars. It would be disastrous if the automobiles, the major home appliances, and the various pieces of houseware bought by consumers would have to be recaptured because of non-payment of the amounts due. Some sort of moratorium will have to be arranged on this score as well in order to prevent violent social upheavals during the depth of the depression.
As for extended credit, this is a measure that can be applied only very superficially. It is true, interest rates may be reduced and the Federal Reserve Bank may lower rediscount rates and the amounts required for Bank reserves, but even with all the money so released by a relaxation of regulations, this cannot mean much increased credit when business is bad and debts can not be collected. Banks can not lend money which can not be repaid even at low interests. The last Great Depression showed this very clearly.
Little Business, however greatly in need of money, will continue to holler that money is tight and that what is needed is cheap money. With cheaper money the debtor can cheat the creditor by paying in cheaper money in return for the dearer money which he has borrowed; the buyer can also cheat the seller for the moment by buying with cheaper money, provided the seller does not in turn become a buyer at the same time. The only situation where this prevails on a large scale is in the case of the laborer who must sell his labor power. Wages do not go up at the same rate as prices and with the advent of cheaper money and the rise of prices the laborer who will be paid about the same as before, at the start will find that his real purchasing power has been drastically cut. From this advantageous base the exporter can reduce his export price and increase exports while at the same time cheapening of the dollar must raise import prices and make imports harder.
Now cheaper money and higher prices during a depression can come about only from two sources: first, through an increase in national debt; and, second, through monetary inflation, the further debasement of the currency or the printing of masses of paper money by fiat without any other justification.
A great rise in the national debt may have to be one of the principal results of a depression, not in order to provide cheaper money, which may result as one of the by-products of such an increased public debt, but for other and oven more necessary reasons. Let us pause to analyze this question.
So great were the new expenses of government during the last Great Depression, and so little could be covered by taxes, that the national debt rose from about $16 billion at the start of the depression to about $50 billion at the end. And this was at a time when the budget expenditures for national security practically changed not at all and averaged less than $1 billion a year!
At that time the new expenses of government were mainly for relief, for aid to the unemployed, and for aid to Little Business. Then there were 12 million persons considered unemployed. Now the relief and aid to the unemployed will have to cost many times more than then, not only because those on relief may number many more than those not on relief, but because the standards of relief have grown as well. Then, those on regular government employ numbered about 3 million; now, they number 7 million, not counting the armed forces. Then, the military budget amounted to less than $1 billion; now, it has amounted to over $100 billion since the end of World War II. Then, the payment of interest on the national debt was $1 billion a year; now it is over $7 billion.
These great expenses cannot be reduced. They cannot be met by taxes. Income taxes will be drastically reduced as both corporation and personal income falls with mass unemployment and foreclosures and bankruptcies. Sales taxes, excise taxes, custom dues will fall not only as sale volumes fall but as prices drop as well. Social Security and unemployment taxes will not be sufficient to meet even desperately pressing needs.
For all these reasons, the drastic rise in the national debt seems absolutely inevitable and, in one sense, it will be welcomed by all parties. By Big Government because it allows government functions to be supported, including government payrolls and Big Military; by Big Business, since it furnished a profitable outlet for investment at good rates of interest, furnishes funds for existing interest payments, makes the government more dependent on big banks and fastens control of Big Business more firmly on Big Government and Military; by Little Business, since it helps relieve the tax burden for the moment and helps create "cheap money"; and by Big Labor which wants to get payments from the government continued as much as possible.
Under the expanded credit system now in vogue, the public debt has a great inflationary role to play. The public debt is launched in the form of government bonds. These bonds are, at best, nothing but liens on the government for repayment with interest from taxes yet to be collected. They are supported by no collateral. They rest on "faith".
These certificates of indebtedness, however, by a strange twist of language, have become known as "securities" and as such may be the basis for loans granted by banks. The paper bonds, then, are deposited as "collateral" and on the basis of such "securities" money loans are made. Thus the paper bonds are translated into paper money and as the amount of public debt rises, the flood of paper money increases. Here, then, is the source of "cheap money".
But how far can such inflationary mores go? The public debt is already at about $350 billion, can it go to $700 billion, to $1,000 billion, - the debt rose 300% during the last depression as we saw above - or by how much?
Now how can the government possibly pay off the national debt? There is one source of taxation it has not yet drained to the utmost - very heavy progressive taxation on the wealthy and on Big Business. But the government cannot put such burdens on Big Business forcing it to close down, even if Big Business were to allow this, because this would mean the end of the power and progress of the national economy and would throw the country into chaos. Imagine, for example, what the cancellation of the national debt would do, or the adoption of 100% income tax on all personal income over $5,000, or 100% profit tax on all profits of large corporations!
Let us remember that the government indebtedness arises because of the insufficiency of taxes to pay the current bills and the bonds can be paid only if the new taxes not only meet the old bills but the new interest payments as well! It is clear that soon there comes a point where "faith" in bond payments, and thus "faith" in paper money tends to disappear in a wild inflationary orgy that adds the terror of the panic to the already deep fears of the depression.
The only way out for Government would be to print money by fiat, regardless of the economic needs. What this would amount to would be the expropriation of the commodity owners, since the paper money would become worthless and it could be exchanged for real goods by physical force. Here cheap money merges into expensive revolution.
But what will Little Business care? Its sole ambition is to survive for the moment. If it must go under, what difference if it pulls all with it?