XI.Postwar Boom or Depression?

XL POSTWAR BOOM OR DEPRESSION? From January 1, 1942, to December 31, 1943, the total amount of money, bank deposits and government bonds in the hands of individuals and unincorporated business increased by $62 billion. This compares with "savings" of less than $10 billions for the best year prior to 1941. In other words, these two years have been six boom years in two. And the end is not yet! War Boom Psychology This rising tide of money and the increased rate of spending again is making the business future seem bright and fair. A Fortune Management Poll, published in October 1943, showed 70 per cent of America's business executives expecting a "general boom" after the postwar reconversion period. Nearly 75 per cent believed that private business will then be able to provide "reasonably full employment," although a year earlier nearly 60 per cent were expecting fairly large unemployment.

"Wartime shortages and wartime savings," it is argued, "will give us after the war the best business in our history. All we need do is plan for big markets and we shall have them." Many people, in fact, say that our first postwar problem will be the prevention of a runaway inflation and boom. Hence they advocate retaining price controls and rationing until production has caught up with demand. Some persons say that the war spending by government has shown us how to prevent depressions and unemployment. "In two brief years enlarged government spending (spending had been very timid under the New Deal) was able to translate a situation of unemployment into one of full employment . . . and [we] have doubled the national income. It has been done entirely . . . because the government decided to buy some eighty billion dollars' worth of the goods . . . and to distribute them, free of charge . . . /'* Others only slightly less inflation-minded say, "If private enterprise does not provide full employment after the war, government must, can and will."

*J. Donald Kingsley, The University of Chicago Round Table discussion, August 22,1943. Italics ours.

POSTWAR BOOM OR DEPRESSION? 97 So have inflationary booms in other years and in other generations brought hope that the secret of perpetual prosperity had been discovered at last. Such waves of mass optimism are what make booms—and also depressions. "If Wishes Were Horses " But, if money, credit and reckless spending could perpetuate prosperity, depressions would have vanished from the scene long ago. One nation after another, throughout recorded history, has tried the inflation cure. As far as we know the attempt has always ended in disaster. If the destruction and privations of war made for good business, we could create history's greatest boom by continuing the war until all wealth is destroyed and nothing is left but piles of paper money, government bonds, and bank books. If shortages of goods create markets and jobs, China and India should have been the best places to do business and look for work over the past century.

If unsatisfied desires for goods make markets United States business should have been booming in 1932 after consumers had experienced two or three years of lean living. Would the half-naked Bushmen of Australia make themselves more prosperous by exchanging I.O.U.s? Would they build markets by printing bales of money and bonds? After the war our people will own two or three hundred billion dollars' worth of government bonds. But bonds mean debts and debts don't ordinarily create prosperity. At best, the payment of interest and repayment of principal will merely transfer money from one class (the taxpayers) to another (the bondholders). At worst, producers will be taxed for the benefit of many nonproducers. Taxes are burdensome to the individual even when he knows that the proceeds are going to a fellow citizen. Or is there some magic in United States Government debts that other government debts do not possess?

Of course, those who regard government bonds as a future guarantee of good business expect that the bonds will be converted into money after the war, not through taxation, but through expansion of the currency, including deposit currency.

98 DO WE WANT FREE ENTERPRISE? In other words, the magic, if any, which some people see in our government debt really comes, not from the debt, but from the inconvertible paper money which they expect to be issued with the debt as backing. They are subject to the delusion that such backing somehow removes the curse usually attached to inconvertible paper money. But does an abundance of money assure prosperity and jobs? No Lack of Money in 1939 In 1939 the people of the United States had more money than ever before in our history. They had $625 of money and bank deposits per capita as compared with only $525 per capita in 1929. Yet in 1939 the net income per capita was only $523 as contrasted with a per capita income of $654 in 1929. In 1939 our total supply of money and deposit currency was about $81 billions as compared with about $46 billions in 1920. Yet the total net income of the nation was $68 billions in both years.

In 1939 average unemployment was 8,795,000 compared with average unemployment of 429,000 in 1929, 558,000 in 1920, and 4,754,000 in 1921, the highest figure prior to 1931. (National Industrial Conference Board figures.) The money was there but something was keeping it from circulating as fast as in the boom years of the '20s. Some people believed that government spending was making private investors hold back from fear of inflation. For a few months in the fiscal year 1938, however, with the help of social security taxes and a reduction in rate of spending, the Federal Government more or less accidentally balanced its cash income and outgo. Instead of this bringing about further recovery, it was accompanied by a sharp business recession. This seemed to confirm the widely held theory that private enterprise could no longer get along without the aid of inflationary spending by government. Outcries arose for fresh doses of this artificial stimulus and the Federal Administration obliged by increasing the rate of spending for relief works.

Not, however, until the war inflation of 1941-1942 was unemployment reduced to the level of the '20s. And even in these years of war and inflation the working force was still not as fully employed as in 1929 since average working hours per week were 10 to 20 per cent less than the average for the earlier decade.

POSTWAR BOOM OR DEPRESSION? 99 Causes of Business Stagnation in 1939 What was keeping money from circulating to maintain full employment and production in 1939? Have these causes of business stagnation been removed? If not, why should we expect private enterprise to thrive better after the war than before? The same 1943 poll which showed 70 to 75 per cent of American business executives expecting a postwar boom showed 63 per cent expecting less freedom for enterprise after the war than before. Is freedom no longer necessary for business prosperity as long as the people have plenty of money, fat bank accounts and fistfuls of government bonds? The factors which brought on the depression, intensified it and prolonged it have been discussed. (See above, pp. 39-52.) These factors should be reviewed in relation to 1939 conditions. 1. Discriminatory taxes on job making .•.**t Heaviest tax rates rested on job-makers and on the chief sources of funds for industrial expansion. In 1939 a corporation with headquarters in the Midwest, for example, was liable for the following taxes :* County and Municipal real property personal property privilege license railroad siding inspection fees Federal normal income capital stock old age benefits unemployment insurance manufacturer's excise unjust enrichment federal gasoline State income franchise out-of-state corporation sales vehicle licenses unemployment insurance gross income gross receipts use chain store gasoline In 1939 net earnings of all corporations before taxes were only 20 per cent less than in 1929. But total taxes on these corporations were 53 per cent greater. Consequently total net corporation earnings after taxes in 1939 were only 50 per cent of the 1929 total and were 30 per cent less than in 1927, a year of business recession.

The nation's railroads paid $361 millions of taxes in 1939 and had left $141 millions of earnings. In 1938 their total deficits were $87 millions after paying taxes of $346 millions. •Adapted from "The Problem of Business Incentives,Chamber of Commerce, p. 24. P. Schmidt, United States 100 DO WE WANT FREE ENTERPRISE? The aim of tax policies and government benefit payments in many cases seemed to be to penalize job-makers (employers) in order to make job-seeking (unemployment) more attractive. 2. Uneconomic wage policies The theory of trade union and government policy in 1939 was that higher prices for labor's services cause an increase in number of wage earners hired. This theory has not worked in practice and it has not been supported by the weight of opinion among professional economists. Nevertheless, it has been treated as a sacred cow by most politicians and is still "the party line" for all good trade unionists.

Under the influence of this fallacious theory hourly wage rates in leading industries were forced upwards or maintained with little regard for demand and supply relations in the labor market. In 1938, for example, a year of sharp business recession, hourly wage rates in manufacturing remained almost entirely unaffected by the great increase in number of workers looking for jobs. At the same time, the Federal Wage and Hour Law was adopted to raise wage rates for low-wage groups. An increase in wage rates and wage income resulting from an increase in demand for labor is all to the good. Such an increase raises scales of living without increasing unemployment. But increases in rates which are brought about merely by fiat of government or by restrictive policies of labor organizations cause unemployment and reduce total wage income. The second type of increase in wage rates, an increase effected by coercion and restrictionism, played a major role in putting an end to business recovery in the summer of 1933 and again in the spring of 1937.

3. Making work illegal One of the most curious superstitions of modern times is expressed in the trade union slogan, "The shorter the hours, the higher the pay." The popularity of this superstition is shown by the way in which the restrictive provisions of the Federal VVage and Hour Law have come to be accepted as "social gains."* •Proponents of the measure say, "The Federal Wage and Hour Law does not restrictworking hours per week. It merely requires time-and-a-half pay for extra hours." Butif the time-and-a-half provision does not reduce average working hours then neither dofines for speeding slow down traffic.The over-time provisions of the law were intended to reduce working hours. Thatthey had that effect is well demonstrated by the difficulty this nation has experiencedin raising average hours during the war. Only by means of wasteful cost-plus-fixed-feecontracts, by reckless expenditure of government funds, and by radical extension of POSTWAR BOOM OR DEPRESSION? 101 Reduction in length of the working day or week may be a social gain when it results from increased productivity and increasing competition for labor among employers. In this way average daily and weekly hours were reduced at least one third during the century from 1830 to 1930. (See below, p. 149.) Very different is the reduction of hours effected by coercion.

At best this coercive restriction of hours is a job-sharing device. Workers with jobs are forced to give up part of their employment to the unemployed. But when weekly output per worker is reduced while government or a union insists that weekly wages remain the same, restriction of hours increases unemployment. This is because it raises labor costs per unit of output, puts more employers "in the red" and thus reduces the demand for labor. Coercive restriction of hours also adds to unemployment by creating industrial bottlenecks. For example, when bricklayers lay fewer bricks the demand for brickmakers and hodcarriers declines. 4. Restriction of investment In 1939 only about 12 per cent as much new capital was going into business through investment in stocks and bonds as in the years 1923-1926. This decline in rate of investment was partly due to the increase in taxes and decline in net income experienced by the investor classes,—individuals with net incomes over $5,000. (See above, pp. 47-49.) In part, however, it was also due to restrictions on investment arising out of the securities and exchange legislation of 19331934. Costs and difficulties of selling new securities have been enormously increased by new requirements set up by law and by the Securities and Exchange Commission.* 5. Restriction of output Organized restriction of output through crop control and featherbedding in 1939 was restricting purchasing power for all classes. For example, tons per man-hour handled by San Francisco longshoremen declined 40 per cent from 1933 to 1938 because of organized labor slow-downs and make-work regulations. Over the same period the efficiency of Los Anbureaucratic control over the labor market has the average working week been raisedabove 40 per week.The Federal Wage and Hour L,aw held back war production 10 to 15 per cent in1940 and 1941. That lost production cost many precious lives and did much to prolongthe war.And since then it has been a leading factor in promoting costly and dangerousinflation.

*Cf. Benjamin M. Anderson, "What Can the Government Do to Promote Postwarjmployment?" Commercial and Financial Chronicle, October 21, 1943, p. 1600.

102 DO WE WANT FREE ENTERPRISE? geles and Long Beach workers declined 31 per cent and that of longshoremen in Seattle and Portland 20 per cent. In the same class of restrictions on output should be placed our Federal Government's annual license fee of $600 per annum on each manufacturer of oleomargarine. To this Wisconsin adds another $1000 per annum. 6. Restriction of trade Besides its prohibitive tax on the manufacturers of oleomargarine, Wisconsin has a tax of $500 per annum on wholesalers who handle it, $25 on retailers, and taxes of $5 to $25 on boarding houses and hotels which serve it, besides a special sales tax of 15 cents per pound. California forbids its public schools to use textbooks printed outside the state. Maine levies a license fee of $3,000 on distillers, brewers or wineries using out-of-state agricultural products as compared with a fee of $100 for users of Maine products.

The California Prorate Commission and Director of Agriculture, on vote of 65 per cent of the growers (representing 51 per cent of the production), may restrict the marketing of any farm crop (except figs and certain grapes) for the state as a whole or for local zones. These restrictions have been applied from year to year to a number of California products. In 27 states there are laws and taxes discriminating against margarine; 32 states restrict sales of out-of-state eggs; 20 prohibit importation of filled milk (a low-cost pasteurized and vitamized food made by extracting animal fat from milk and substituting an equal amount of vegetable fat) ; 27 states discriminate against out-of-state wine or against wine made from out-of-state grapes; and 24 states have similar discriminatory measures relating to beer. Restrictions on out-of-state trucks and political pressure to maintain or raise freight rates on purchases outside the local community are other common methods of restricting trade.

Almost every chamber of commerce in the United States has helped build or maintain such trade barriers. Such discriminatory measures multiplied rapidly during the depressed '30's. In restricting trade, slowing down the circulation of money and reducing purchasing power, they were precisely similar to a partial destruction of our transportation systems. The scarcity theories used to support such restrictive policies, if carried to their logical conclusion, would have us tear up our railways and destroy our roads in order to protect local industries against outside competition.

POSTWAR BOOM OR DEPRESSION? 103 Have 1939 Obstacles Been Removed? Only the artificial stimulus of inflation enabled private enterprise to carry on under the antienterprise conditions of 1939. Will the burdens and restrictions on enterprise be less numerous and repressive after the war? The way in which various vested interests continue their restrictionism in wartime bodes ill for the postwar period.* Or can government's inflationary spending—buying goods to give them away, as Kingsley puts it—continue indefinitely to maintain employment and production? Why cannot government finance peacetime construction as it finances wartime destruction, that is, by creating new money and buying goods to give away ? To answer the inflationists we must show a. why inflation must stop; b. how purchasing power and employment may expand without inflation. (See below, pp. 112-129.) Let us first consider why inflation eventually must end.

"Easy Come, Easy Go" Money is useful only when it is scarce and hard to get. Then people will work to get it. If stealing and other predatory methods of getting it are blocked and if they cannot print it or find it easily, then they will produce goods to exchange for money. Thus we get the production and trade necessary for prosperity. But when large numbers of people can get money without earning it they stop working so hard in production for the market. They also tend to spend lavishly and consume extravagantly. Thus they waste their own time and that of others whose products they consume. This waste is more than failure to do better. It soon becomes actually injurious to the welfare of all concerned. This is true for government as for individuals. When government can get money without earning it by services to its citizens the results are waste and tyranny. (See above, _p. 58.) #Cf. "Featherbedding Hampers the War Effort," by John Patric with Frank J. Taylor,Barron's, Feb. 8, 1943; "Remove Union Restrictions and Increase Shipyard Productionby One Third," by John Patric, Reader's Digest, June, 1943; "Here's Why There'sNothing to Spread on Your Bread," by Harland Manchester, Reader's Digest, December,1943.

104 DO WE WANT FREE ENTERPRISE? Wartime inflation is somewhat less dangerous than peacetime inflation because: 1. War needs are simpler, fewer and more readily determined than peacetime needs. 2. Fear of the enemy and desire for victory restrain extravagance. 3. The end of the war leads to a reconsideration and revision of policies. But even wartime inflation does not create prosperity. Aside from its use as an artificial stimulant to overcome the effects of antienterprise restrictions, the chief effect of inflation is (1) to conceal the impoverishing effects of war and (2) to shift the costs of war from certain classes to others. War guts the national economy. The new facilities built for war production are worth only a fraction of their cost when reconverted to peacetime uses. Furthermore, the facilities needed for peacetime production deteriorate because of increased rate of wear and decreased rate of repair and replacement.

As war drags on producers, therefore, find themselves holding increasing quantities of paper (currency and bonds) while their productive facilities deteriorate. War inflation also weakens the economy by placing a disproportionate share of the war costs on the fixed-income groups. As the national economy deteriorates efficiency declines and costs of production rise despite all price controls. Therefore, everincreasing doses of inflation are necessary to maintain employment. That is why inflation, once started, is hard to stop. Like a habit-forming drug, it sets up within the national economy destructive forces which increase the craving and apparent need for more and more liberal doses. A wealthy nation, like the United States, can endure more of the inflation poison than a poorer nation like Germany, just as a strong and healthy person can usually stand up longer under repeated doses of a harmful drug. This has made some people believe that this nation is immune from the evils of inflation.

But inflation never fails to exact its toll of waste and disorder. Numberless depressions, as well as demoralizing booms, are evidence of this fact. Like the marijuana habit, an inflationary policy must end sooner or later—and better soon than late—if the nation is to avoid a disastrous financial, economic, moral and political breakdown.

POSTWAR BOOM OR DEPRESSION? 105 When Inflation Ends The rate of inflationary spending by the United States Government may not decline until after the war. The inflation of World War I in the United States lasted for a year and a half after the war because government expenditures and deficits continued to increase. The "postwar boom" of 1919-1920 was, therefore, part of the war inflation. The slump occurred shortly after government spending and deficits began to decline. The date at which United States Government spending and deficits will reach their peak in the present war depends on political decisions as well as on military events. For example, a decision to finance an increasing proportion of the war budget by taxes and by non-inflationary borrowings would hasten the time when the inflation would reach its peak. The extent to which the United States decides to police or aid other parts of the world would be another factor in determining the date at which government's inflationary spending might cease.

When that date arrives, however, a deflationary spiral and postwar depression will not be prevented merely by the huge existing volume of money and bank deposits. Money must be spent if it is to stimulate business, and the rate at which individuals spend their money depends on the outlook for future income as well as on the volume of their savings. If they fear a decline in their incomes most people will reduce the rate of their spending even when they have considerable money in reserve. Therefore, a deflationary spiral may be expected to follow closely on the heels of any sizable reduction in government spending if total income of individuals declines. Total individual income will decline unless spending by private enterprise expands as fast as spending by government declines. Such expansion of private spending cannot be brought about by any program of heavy government spending because private enterprise cannot hire the workers supported by government spending. Somehow, sometime, 20 to 25 million workers and soldiers whose jobs now depend on government spending must transfer to jobs dependent on private spending. Any unnecessary spending by government slows down the transfer, retards the expansion of peacetime production, and makes more difficult the task of restoring private enterprise.

106 DO WE WANT FREE ENTERPRISE? Holding a Bear by the Tail When government embarks on an inflationary course it takes a bear by the tail. To hang on becomes more and more difficult. To let go becomes more and more dangerous. To maintain the soundness of the currency, to protect its credit, and to permit conversion to peacetime employment under private enterprise, our Federal Government must reduce its rate of spending. On the other hand, any reduction of government's deficits and spending threatens to set in motion a downward spiral of employment, individual incomes and spending. The huge accumulation of money and bank deposits during the war will not in itself prevent this downward spiral after the war. Deflation and depression did not occur after other inflation periods because the total amount of money and deposit currency was suddenly reduced. They came about because the rate of inflation and the rate of spending declined.

These wartime "savings" do threaten to prolong the conversion period by making individuals more reluctant to accept new jobs. They also add to the danger of runaway inflation in case government borrowing and spending after the war should destroy confidence in the currency or public credit.* In that event people would rush to buy commodities and real properties at any cost. This, together with government's spending, might cause a runaway inflation. It is vitally important that government spending and the inflationary gap be greatly reduced after the war if we are to restore private enterprise in peacetime pursuits and prevent a runaway inflation. But will private enterprise be able to take up the slack and maintain total purchasing power and employment ? How readily private enterprise can expand production, employment and purchasing power will depend on a host of factors, including: freedom to produce, freedom to bargain and trade, •Those who expect price controls to hold down prices "until postwar production catches up with consumer demand" forget that this increased production will itself put enough new money into circulation to buy the increased output. The war-boom "savings" will remain intact, constantly adding to the inflationary pressure, as long as government pursues its inflationary course. This will provide a good excuse for continuing price controls and incidental bureaucratic regulation of business indefinitely.

POSTWAR BOOM OR DEPRESSION? 107 tax burdens and their distribution, adaptability, honesty and dependability of producers, administration of justice, class consciousness and class antipathies, understanding leadership, popular confidence in authority. Are these conditions likely after the war to be more favorable to enterprise than in 1939? Postwar Tax Burdens Despite all foreseeable economies the present war, like other wars, is likely to keep the cost of our Federal Government far above prewar levels for many years. Costs of the greatly increased war debt, a two-ocean or fiveocean navy, a far larger army, a vastly greater air force, aid to millions more war veterans, increased "social security" payments, and aid to foreign nations must all be added to the prewar budget. These high costs of government seem to make necessary the maintenance of present tax revenues for several years after the war if the inflationary gap in the Federal budget is to be closed.

How will these revenues be raised? Current tax rates and policies would effectively prevent expansion of private enterprise after the war. In fact, private enterprise could not hold its own under prevailing tax rates on profits and on high incomes, even if all other war restrictions were removed. Only war inflation is maintaining a sufficient level of profits to offset the crushing effect of war taxes on business. The destructive effect of current taxes is evident in the returns to stockholders after payment of Federal taxes. Consider, for example, a corporation earning 8 per cent on the stockholders' capital and paying out in dividends all profits left after paying the minimum 40 per cent corporation income tax. The following table shows the rate of return to stockholders in various income brackets after they pay their Federal income taxes. Stockholders in $ 4,000-$ 6,000 surtax bracket get 3.41% 10,000-12,000 " " " 2.83% 18,000-20,000 " " " 2.16% 50,000-60,000 " " " 1.10% 100,000-150,000 " " " .48% Such returns are not sufficient to attract or hold private capital in business. Yet these slight returns are subject to further de108 DO WE WANT FREE ENTERPRISE?

pletion in states having personal income and property taxes. And nothing is said of excess profits taxes, or of the effects of the graduated features of the "normal" corporation tax, or of the multiplicity of other taxes to which business is subject. Will the American people at the close of the war permit immediate repeal of the excess profits tax, rapid reduction in corporation income tax rates, and rapid reduction in surtaxes on incomes above $10,000? If not, equity capital will be in short supply and private enterprise will decline. Tax increases are not, however, the only wartime addition to burdens and restrictions on enterprise. New Restrictions on Enterprise 1. Since 1939 a host of new bureaucratic restrictions have been placed on business in the name of price control and production control. Many of these may continue after the war. For example, after the war continuation of price controls will be urged (1) to prevent postwar deflation or inflation, whichever seems imminent at the moment; (2) to equalize consumption; (3) to allocate scarce materials to those employers who will expand employment most quickly.* Price controls and other regulations seriously restrict enterprise in wartime. Not only must the enterpriser, as before, get agreement among wage earners, investors and customers as to what shall be produced, how it shall be produced and how the produce shall be distributed. Now he must also get agreement among various government officials, boards and bureaus on the same questions. This slows down business, raises costs, and diverts business energy and initiative from other tasks necessary for the expansion of private employment and prosperity. The restrictive effect of these controls, however, will be more apparent after the stimulus of war inflation ends.

2. Government ownership of industrial facilities and materials will add to the difficulties and risks of private business. By the end of the war, government will own 30 to 40 per cent of the nation's industrial facilities. For government to operate these facilities will prevent expansion of private enterprise. Yet if government disposes of them to private producers at low prices it will create problems for competitors operating facilities paid for at higher prices. On the other hand, if govern*This proposal for postwar allocation of materials has been advanced by businessspokesmen as well as by government officials and has a well-established place in manypostwar plans. Yet it calls for prolonging the war distortions in the labor market.Postwar readjustment should involve transferring millions of workers from manufacturing to trade and service lines. If government aids any industries according to theamount of peacetime employment which they provide, it should aid those industrieswhich call for relatively few workers in manufacturing compared to the number neededto distribute and service the product.

POSTWAR BOOM OR DEPRESSION? 109 ment holds them off the market or holds them at high prices it will deprive the nation of important opportunities for jobs and goods while creating a source of continual business uncertainty concerning what use is to be made of them. Similar problems will arise in connection with some $20 billions of surplus products and materials which government will find on its hands. At the end of the war industrial capital will be frozen in partly finished work for more than $75,000,000,000 worth of unfinished war contracts. Invested in these contracts will be the funds which industry must have to meet reconversion costs, pay rolls, and the bills for new materials and supplies. This contrasts with only $7,500,000,000 frozen in outstanding war contracts on November 11, 1918. The ability of private enterprise to get working capital for reconversion will depend on the promptness and generosity with which government pays on these uncompleted contracts. This problem is all the more serious because war taxes have prevented business from building reserves such as helped to speed the conversion after World War I. For example, United States Steel Corporation did twice as much total business in 1942 as in 1916. But the amount set aside for future needs was only $11,800,000 in 1942 in contrast with $201,800,000 in 1916.* 3. Postwar reconstruction will be made more difficult by many wartime changes in markets and production facilities.

For example, the United States will have capacity to produce many materials and commodities far in excess of demand even at prices covering merely labor costs. East Indies producers may have to find new crops to replace rubber. Japan will be looking for new commodities to replace silk. Solution of these problems will not be made easier by the fact that the war is intensifying international hatreds, fears and suspicions. Disruption of private markets in foreign exchange, destruction of credit standing for whole nations, and widespread demoralization of peoples will add to the difficulties. In some nations by the end of the war the private enterpriser will have been almost entirely replaced by the totalitarian bureaucrat. 4. In the United States unbalance in wage rates as between occupations, together with increasing power of trade unions and their continued aggressiveness in maintaining and raising hourly rates, constitutes a serious obstacle to postwar reemployment of labor in peacetime pursuits.

•"Postwar Problems," reprinted from Nation's Business, August, 1943.

110 DO WE WANT FREE ENTERPRISE? From August 1939 to August 1943, for example, average hourly wage rates in Los Angeles County rose 53 per cent for bakery workers, 48 per cent for aircraft workers, and 47 per cent in the canning and preserving industries. But they rose only 15 per cent for furniture workers; 12 per cent for workers in the laundry, dry cleaning and dyeing industries; and 3 per cent or less for workers in printing, newspapers and periodicals.* Postwar labor markets are likely to be subject to changes in demand and supply as great and as rapid as those which have produced these wartime changes. Will labor organizations and government bureaus permit the corresponding changes in wage rates necessary to restore peacetime equilibrium? Or must there be long and costly strikes and lockouts before adjustments can be made? Money Must Circulate No matter how much money a nation has, business will stagnate unless the money circulates.

This circulation can be completed only if producers spend in maintaining production while consumers spend in maintaining consumption, and savers spend in building investments. Most of the nation's spending is done by producers. Sales of goods to final consumers make up a relatively small fraction of the nation's gross volume of business transactions, possibly 5 to 10 per cent in the United States in a prosperous year. Business often slows down and workers lose their jobs even while consumer spending is increasing. This happens when the ratio of costs to selling prices becomes unattractive to a sufficient number of enterprisers and investors. Business owners then liquidate their stocks of goods and allow funds to accumulate in idle bank balances. Will postwar conditions encourage spending by producers as well as by consumers? Let us suppose that any decrease in spending by discharged war workers and returned soldiers is offset by an increase in spending of war savings by those who still have jobs.

Will the profit margins (after taxes) be such as to induce producers to maintain the spending cycle? •Freezing these wage discrepancies into place after they have performed their function of drawing workers into more essential industries has helped intensify wartime labordifficulties.

POSTWAR BOOM OR DEPRESSION? Ill Some producers, of course, will make profits. Others will have losses. Those who make profits will keep going. If their profits are high enough they will expand. But will the number of profitable and expanding enterprises be more than sufficient to offset the losing and contracting ventures ? The answer will not depend on the amount of money in consumers' hands to be spent at the end of the war, but on the abundance of opportunities for producing at a profit. A Nation Can Readjust—If Free History shows that a nation can readjust to peacetime conditions in a few months, or at most in two or three years, if producers are free to arrange the terms of trade and to reap the rewards of their own industry and skill. It also shows that, regardless of monetary conditions and policies, unemployment and economic stagnation may persist for many years if freedom of enterprise is restricted by government or by private organizations of vested interests.

Which course will America choose? Government deficit-financing and extravagant spending in the postwar period may postpone the necessity for making the choice. But it will increase the difficulties of readjustment when this policy stops as sometime it must. It will continue at an everincreasing pace the economic degeneration of inflation, the moral degeneration of legalized racketeering, and the political degeneration of totalitarianism. But if government should end its inflationary policy at the close of the war, could free private enterprise generate and circulate enough buying power to restore and maintain employment in peacetime production ?