5. Statist Policies

The Socialist Party has been tolerated with good-natured indifference, since for many years its voting strength has never been large, and has in recent years declined. Such garden-variety socialists as Norman Thomas, Morris Hill quit, and others have enjoyed a certain popularity, partly because they were regarded as nice fellows and' largely because no one believed they were likely to attain their announced objectives. Some, like Mayors Dan Roan of Mil waukee and Jasper McLevy of Bridgeport, have held public office for years because they have given good government and enjoyed the support of many conservative people. They did not seek to introduce socialism in their cities. Tests of public opinion, notably one made by Dr. Henry C. Link, show that only a tiny minority of. Americans would 100 Socialismby Installments accept socialism as such. However, Dr.• Link's survey showed wide differences of opinion or no opinion at all when people were asked what measures they regarded as "socialistic." A considerable .number of people favored measures that they regarded as "socialistic."

Perhaps most of us would agree with these peoRle, for everyone favors some intervention by government, even when that intervention, if generally applied, would be social ism. The test of public policies which should be exac~ed by those who· fear and oppose socialism should be· twofold. First, every act of intervention to meet a real need should be proved to be the only possible means of meeting that· need. Second, every proposed intervention should be considered· in relation to all other kinds of intervention. When a political regime proposes a· whole series of new interventions to he added to many already initiated,·· we should judge these measures in the aggregate and in their relation to the resources and strength of our free economy. We also have a right to pass judgment upon the motives and intentions of those who propose them. We are solemnly as sured by those who favor every measure and trend to be described in this chapter that they are devoutly attached to a free economy and our traditional liberties. But· when we consider the aggregate of the policies they favor, we can perceive that. such a disclaimer is either insincere or grossly .mistaken.

Those who favor all or a substantial majority of these poli cies ask us to yield so much of our liberty that the· ultimate end would be the reality of socialism. Our danger is that we shall accept, on the installment plan, a substitute for freedom. 101 Statist Policies The Welfare State Absorbs the Welfare Community RETREAT TO THE. PAST Despite the presence of selfishness, greed, cruelty, malice, domestic strife, and war among us, there yet resides in human beings a deep sense of charity. Human beings do care for each other, and from time immemorial mutual aid has char acterized human society. Religions--certainly the religion of the Christian era and its progenitor, the Hebraic faith-have held that concern for others even beyond the confines of blood relationship is a cardinal commandment of the Deity. For centuries charity was a major concern of organized religion. When all other human agencies failed, the churches were the sole custodians of humanitarianism, as they were of culture.

Poor relief ultimately became a function of government, but its administration was crude, unjust, and inadequate. This defect in state aid gave rise to privately supported agencies of welfare. The current concept of the welfare state, which has been·vigorously promoted by Presidents Roosevelt and Truman and countless others, would reverse this trend and return this community responsibility to government, and in large part almost immediately and directly to the Federal government. The growth of state aid is nourished and accelerated by the abuse of old and revered words, torn from their once es tablished meanings. "Social responsibility" is made to mean the Federal government's responsibility. And "social secu rity" as now used means neither "social" nor "security." The dangers of a return to government aid are many; a few deserve special mention: 1. The vesting of responsibility for human welfare in gov ernment brings politics into the 'picture. It means the multi102 The Welfare State Absorbsthe Welfare Community "plication 'of the. political devices of uinfulfillable promises, half-truths,. and' irrational appeals.

2. Political "welfare" means the extension of benefits to greater and greater numbers arid in greater amounts. These go beyond the meeting of gen~ine need and ultimately reach everyone as a matter of "right." A "means test," which is the secure check in privately administered welfare, is abandoned as "degrading" and "antisocial." 3. In the vague rhetoric of politics, promises are made to abolish the oldest of human instincts. "Want" and "fear" are to be exorcised by the magic of government acti9n. Unre~ deemed promises of that sort are not· only immoral per sc, but when unfulfilled they sow the seeds.ofdespair and moral disintegration. 4. To a great extent, political welfare merely takes from people through taxes the means, of self-help and returns a part-not all-o£ those means under the dispensation of a bureaucracy. . 5. The immense cost of distributing benefits according to wants instead of needs can break down any economy. Our economic system can afford to supply what people need. But it can never afford all that people want. In a free economy, the wants of people. are deliberately stimulated by sales effort and advertising, and in. the supplying of wants the economy is strengthened and enlarged. Thatis not true when wants are met through' government grants and taxation.

6. The mounting burden of the welfare state upon the econpmy is accelerated by a 'loss in total productivity. There are sharp induceIJ;lents to older people to abandon produc tive work for which they are 'well suited and. perfectly cap able. There is also the growing number of bureaucrats to administer aid-people who are thus withdrawn from pro ductive work. 7. The moral danger of dependence has been apparent to welfare workers for centuries. The wisest welfare leader I lOS Statist Policies ever knew incessantly warned his staff that "charity is a nar cotic; beneficial in an emergency, deadly as a habit." The delicate application of aid, if guided by this fact, cannot be expected of a great bureaucracy directed from Washington, especially when it is impregnated with the inevitable taint of politics. 8. Bureaucratic and mass administration of aid also tends to stress material values and to neglect all suggestions of self help, self-confidence, and self-esteem.

The growing cost to the economy is shown in the personal income estimates of the Department of Commerce, in which there is an item called Transfer Payments. This means pay ments by the Federal, state, and local governments for direct relief, pensions, insurance, unemployment pay, and all other items for which no work is performed. In 1950 this item was $14,330,000,000. This sum, incidentally, was greater than the average cost of the Federal, state, and local governments in the ten peacetime years before 1941. It should also be noted .that in the very prosperous year of 1950 we were paying $2,400,000,000 for direct relief. This was approximately twenty-four times the amount spent for direct relief in the nonprosperous year of 1930.1 It was one and a third times what our 833,510 public elementary and secondary school teachers received in 1947. It was nearly two thirds the 1948 cost of public education, including teach ers' pay and all other items, including buildings.

THE PENSION MUDDLE After fifteen years of Federal experimentation, more years of state trials, and a multitude of private plans, the present pension situation is a study in confusion. First, we have state systems with great variations in the character of assistance granted, the test of need, and the amounts granted. These systems are paid for by the st~te 1 See T.able C, p. 162. 104 The Welfare State Absorbs the Welfare Oommuni.ty and the Federal government jointly-about one half by each, on. ·the average. The beneficiaries of state systems number about 2,300,000. Second, we have Federal old-age and survivors' insurance, based on payroll taxes, under which another 2,300,000 get benefits. Third, there are miscellaneous groups of systems-Federal veteran· and military systems; Federal, state, and local civil service retirement systems; the Railroad Retirement system; and many private plans rapidly increasing in number. It is probable that 2,300,000 are getting benefits from them.

Thus, millions of people are to a degree living· off the rest of the people through some welfare plan, and the number increases every day.2 It is true that many or most of them have paid into pension funds, but the future solvency of the funds must be assured by those who continue to work. The Federal system is neither fair, financially sound, nor honest. The money collected from taxes on payrolls is in ex cess of the requirements and probably will be for some time in the future. Hence a huge fund piles up, and is "invested" in government bonds. This means that government spends· the surplus for other things and incurs a debt for future ob ligations. The obligations must ultimately be made good by the taxpayer, and in a great many cases that future taxpayer and the beneficiary will be the same person. 3 2 The exact number is difficult to determine, since there are a great ·many who benefit from both government and private plans.

3 The original tax rates were one per cent for employee and employer. These have been increased to one and a half per cent each for 1950 through 1958. Thereafter, the rates will rise until they reach three and one-quarter per cent in 1970. The fund will amount to $50,000,000,000 by that year. After that the payments are .likely to run far beyond receipts under present arrange ments. In the August 1951 issve of the Tax Review, published by the Tax Foundation, W. Reston Williamson, consultant to the U~S. Social. Security Board from 1936 to· 1947, said this of the present system:· "Frankly, we lack clearly-understood objectives in Social Security. It is a field essentially alien to this. country. It has neither been adapted to the United States, nor has a ma ture statement of ~ts functions appeared to date. There remains today a basic ignorance of its purposes, its ideals, its orientation."

105 Statist Policies State systems in many cases are immersed in reckless poli tics. People flock to states with the larger grants, and as their number grows they become a powerful political pressure group for 'bigger and bigger grants at lower and lower ages. Demagogues with bigger and bigger promises play upon the cupidity. of these people. The burden of state taxation be comes unendurable. Other state services, such as school equipment and teachers' salaries, are squeezed by their plans. The young are literally looted by the old. The young are now denied better education; later, they must pay taxes for the deficiencies of the present system. Government-aid systems, combined with the growth of private industrial pension systems, induce productive people to retire before they should, compel industries to hire younger employees and make it harder for older people to get work, pile heavier costs on production and thus inflate prices to create a very special "pension aristocracy," and de stroy the personal moral obligation of the young to care for their parents and elders.

Private industrial systems on an actuarial basis are possible only in large concerns. They partially immobilize money in trust funds, which will reduce the amount of new produc tive-venture capital. The worker, moreover, is deluded by these systems because he pays in money of one value and in all probability will get it back at a greatly decreased value, especially if his leaders insist upon a corollary policy of basing wage increases upon the cost-of-living index, which automati cally promotes inflation. GOVERNMENT MEDICINE While many Federal· bills for some form of government medicine on a national scale have been introduced during the past few years, and while several state and local plans have been proposed, the crystallized proposal is in Security 106 'rhe'Welfare St~te Absorbs the Welfare Community Administrator Oscar R. Ewing's >'1948 report, TheNation's Health~ A Ten-Year Program. I use Senate Bill 1679 to de scribe the general outlines of this, proposal, which President Truman endorsed,in a'lengthy message to Congress in April 1949. Since elections in many states and districts-have shown strong public opposition to this plan, itwiU be amended and sugar-coated in new bills. But as far as the Administration is ,concerned the purposes are likely to remain the same.

The plan proposes two major extensions of 'Federal au thority in the field of medical£are.The first six sections of the bill would provide Federal aid for medical education, research,and hospital and clinical care. It would provide Federal aid to help locatedoctoTs" dentists, hospitals, and clinics in places where there isa shortage o( facilities. It would provide aid for state arid other health services and also provide some special benefits. The heart of the plan is the levy of a payroll tax of 3 per cent, split between employers and employees, fOT general medical, dental, and other care. This money would gt? into a "Personal Health Services Account.'" The plan would be operated by a Federal board under the Federal Security Agency. Then states would submit plans for operation on state levels. But, if a state failed to do 'So" the program would be imposed by the Federal board. Then .the public would be allowed to participate in free services. It is estimated that 85 per cent would do so. Then doctors, dentists, nurses, hospitals, and others would b~ al lowed to sign up. Those who would want to stay out could do so and seek patients among the "noninsured" 15 per cent.

Beneficiaries theoretically could select their physicians and dentists. The number of patients per I practitioner would be regulated. Fees would.·be fixed and paid by the state agency, with some advisory assistance by practitioners' committees. Nothing in the bill provides that all the needed money would come from payroll taxes. The name "insurance" is 107 Statist PoUcks clearly a misnomer, for the additional costs would be paid by general taxation. In this brief summary, we are concerned with only the socialistic features and implications.of this plan. Its cost would be very high-perhaps from five to ten billions dollars in the first years. Using Veterans Administra tion figures as a basis, a former Deputy Surgeon General of the Army suggests a figure as high as eighteen billion dollars a year. Presumably, payrOll taxes would rise with the need for more money and larger appropriations would be made from general taxes.

No means test would be imposed. All could share. A vast number of administrators would be required. Op ponents of the bill say at least 1,5°0,000 government em ployees would be needed. All sorts of private, religious, and philanthropic activities would be taken over or eliminated. Practitioners would be burdened with paperwork. As in Britain, practitioners would be directly encouraged to see more patients. than they could adequately treat. Since grants for education, research, and specialized work would be increasingly dependent on government, drastic and inflexible Federal regulations would prevail. The sacred privacy of the relation of patient and practi tioner would be impaired by access to records by the adminis trators. Care for chronic cases, malingerers, and hypochondriacs would stand in the way of acute and emergency cases. Doctors, dentists, and others would, as in Britain, lose the initiative now prevailing to improve technical skill and responsibility. ( Trials of government medicine, notably in the State of Washington and elsewhere, show that costs rise to unforeseen and unbearable heights.

Since the real, determining administration at the top 108 The Federal Invasion of the States would be, political, such a plan would be subject to irresisti ble pressures to increase benefits progressively. In its essentials, the Truman-Ewing plan follows the Brit ish system adopted in 1948. In Britain the cost of the health program rose more than 100 per cent above the original government estimate; hospitals were crowded with chronic cases; professional advancement was retarded; and, no ap preciable effect on general health was notable. The socialists discovered that there were more hypochondriacs than any.. one· had anticipated. Ultimately, in the United States, to keep costs within the scope 'of general tax receipts, .iron regulations would be im posed. The modicum of liberty for practitioners and patients would be eliminated and regimentation by government would prevail. In short, this plan involves an immense and vital extension of government intervention· and a consequent invasion,' of liberty.

Finally, it should be noted that our Federal government is already the largest employer of doctors and the largest op erator of hospitals in the country. It spends two billion dol.. lars annually for free care for twenty-four million people. The Federal Invasion of the States ROBBING PETER The American Constitution was designed to preserve per sonal liberty by several means. Very important among these was the assurance of state sovereignty and, with it, local gov ernment. The ascendancy of the Federal government is the deadly enemy not only of the states but of the citizens of the' states. For socialism must seek its final objective on a national level. 109 Statist Policies To attain domination, the Federal leviathan must first seize the sources of state and local revenue-revenue that is the life blood of government. The extent of this seizure has already been most alarming. The Hoover Commission's task force on Federal-state re lations points out that in 1890 the Federal government spent 36.2 per cent of all governmental outlays in the nation. In 1946, it spent 85.2 per cent. In 1890 local units spent 55.6 per cent of all government outlays, and in 1946 only 7.2 per cent. The state governments in 1946 spent.,.6 per cent.

The adoption of the Federal income tax marked the be ginning of a rapid rise of Federal authority and the decline of state and local importance. Before the Federal income tax was adopted, the Federal government derived nearly all its revenue from customs, liquor, and tobacco taxes. The in come tax immediately assumed major importance, but dur ing the First World War the 'Federal government seized several other sources of revenue, including various admis sions taxes, stamp taxes, and manufacturers' excise taxes. Later it added motor fuel, gifts,and estates to its taxable sonrces. Other sources have been seized as they have been found, always with small regard for the prior possession, of states and localities. This money is not made in Washington. It comes from the states. The sources from which states have drawn their own revenue have been taken by the Federal suction pump. Al most every productive source of taxation, except the prop erty tax, has been lost to most of the states.

The result is utter confusion and overlapping of taxes. The same sources/may be taxed several times, and taxpayers them selves have only the faintest notion of what they pay, what they pay for, and whom they are paying. A large part of the collections of the Federal government comes from such overlapping taxes. And the proportion of the Federal "bite" from, these sources is steadily getting 110 The Federal Invasion of the States larger. In 1934 its share of the taxes from these sources was 63 per cent. In 1946, it was 91 per cent. Since all governments-Federal,' state, and local-follow the Donnybrook slogan, "Hit the heads you see!" obvious sources are hit hard, and more difficult but fair sources are neglected. Since the greatest growth of Federal power has taken place in the two wars and in the depression, it is easy to predict that in the great crisis created by the threat of Communism this absorption of local sources of revenue will continue-at an increasing rate. States are at a great disadvantage in this competition. The Federal income tax is all-powerful. More over., an individual state has the handicap of trying to avoid driving individuals and businesses to other states that have IIlore favorable taxes.

Th~ grave danger of all this is that the state and local gov ,ernments, which are close to the vital n'eeds of the people and are under close observation by them, will. become less competent to perform their proper functions. These 'protec tive divisions of our nation will wither for lack of nourish ment. TO PAY PAUL· Along with this progressive seizure of state and local sources of revenue, and on the overworked theory that under modern economic conditions the problems. of government override state boundaries, the. Federal government has stolen from the states many of their traditional powers and func tions. .Assistance .to the aged and unfortunate, highway building, the regulation of business and labor, the control of elections and primaries, the enforcement of criminal law, and many other activities of the states have been partially taken over by Federal authority. Under a constant enlargement of Federal jurisdiction 111 Statist Policies made possible by a more and more "liberal" interpretation of the Constitution by the Supreme Court, almost very aspect of competition and private business and labor is now subject to Federal law. Consequently, state legislation in many of those fields has become meaningless. Regulation has loosed upon the states a horde of Federal bureaucrats who have lit tle sympathy for local customs, preferences, and protections, and who are responsible only to Washington. This condition has grown much worse during the war and in the subsequent cold war.

Great Federal enterprises for defense and related purposes have grown up, with payrolls so large that local communities have become increasingly dependent upon them. This has seriously impaired local independence. Federal power has grown immensely through grants-in-aid to the states. Through such grants, the Federal government now influences or controls 75 per cent of state activities. Under the pretext of successive crises-the depression, the war, and the cold war-the size and variety of these grants have grown at a tremendous rate. Fifty years ago, only $3,000,000 was paid out of Federal funds to the states. By 1912, grants had risen to $5,255,000. From then on, the march began in earnest, in part because the Federal income tax with its unlimited power over incomes became operative, and in part because of the great requirements of the First World War. By 1920, the figure was $33,188,000. With the coming of the New Deal, the pace increased until, in 1941, grants had reached $836,682,000. Under President Truman's Administration, these grants· have risen until in 1950 the sum was nearly $2,234,700,000. This is the most graphic way of describing the ·deterioration of a great constitutional system.4 4 The alarm of states because of the threat to them of the unlimited Federal income tax is well shown by the adoption by many state legislatures of a proposal for a Federal -constitutional convention whose mandate would be to place a limit on the Federal income tax rates.

112 The Federal Invasion of the States There has also been a parallel and consistent decline of local self-government through the' increase "of state grants to cities, counties, and other small units of government. In five years, state grants to localities have incre~sed by a third. A special evil in the development of Federal power under .President Roosevelt was the habit of by-passing' the states in extending aid to cities and other local units of government. In the administration of relief under Harry Hopkins, this was a calculated political objective. 5 The Federal machine thus made a close ,alliance with city machines through' the granting of relief money, to the political advantage of both. Where money goes the bureaucrat follows. ,Money means power. And power begets control. This trend, if continued, will ultimately erase local self government and reduce the states to the status of mere agents or provinces of the Federal government. The balanced sys tem created by the Constitution will be gone, and national socialism will have eliminated its most formidable barrier. ' VALLEYS OF AUTOCRACY It is not without meaning that our planners and statists so deeply revere the memory of the late Senator George Norris.

For it was Norris who offered,to the eagerly receptive Frank lin Roosevelt the basic idea that became the Tennessee Val ley Authority. That immense project, which was in reality a comprehensive adventure in state planning, was only par tially completed when Roosevelt and Norris proposed 'an application of the s~me idea to practically every major river valley in the ,nation. This extension of the TVA idea has been an Administration policy ever since. Bills to set up regional authorities for the United States as a whole have been introduced regularly since 1937, when President Roosevelt sent to Congress a message recommend l5 Hopkins admitted this to me in 1935. 113 Statist Policies ing a series of authorities for seven watershed regions. Most comprehensive was H.R. 894, sponsored by Representative Rankin in the Eighty-first Congress. It is hard to determine who is behind the Rankin bill,. for seemingly those in power in our government would prefer to introduce bills for re gional authorities one at a time, rather than impose a plan for the entire United States.

In the forefront are the plans of the Administration for a Columbia Valley Administration and a Missouri Valley Au thority. Bills for their creation have been perennials in Con gress for several years. Extensive hearings have been held, and vigorous government propaganda has been carried on, mainly by the Interior Department. The plan of a valley authority involves the creation of a government-owned corporation, with a small board of gov ernors appointed by the President for long terms. To this corporate body are transferred properties of the government, including dams, plants, irrigation projects, and many other public works. The authority is then vested with very broad powers to administer these and to build more. Congressional appropriations are made, but through extensive business op erations the authority also accumulates large sUlps of its own. The statutory powers of the governing board of the TVA and of the proposed CVA and MVA are so great that state and local governments lose or would lose many of their tradi tional functions. Governor Arthur Langlie of Washington was guilty of no great exaggeration when he said that" a CVA would reduce his state to a "territorial" status.

The major business of such authorities would be the pro- . duction, distribution, and sale of electric power. With gov ,ernment money behind them and no taxes to pay, they could by competition practically destroy private power-companies. Under their wide powers, they could buy private companies and either run them or resell them to cooperatives or other public agencies. Through their arbitrary power to allocate 114 The·PederalInvasionof·the States costs, they could; and in the TVA they do, saddle the Federal government. with disproportionate costs for the so-called non reimbursable purposes of dams, such as navigation and flood control. Local governments, shorn of tax resources, would have to come, .hat. in hand, to t~e authority for doles in lieu of taxes. The authority ·0£.states over their water and .land would be invaded, and long-standing systems of water law would be set ilside.

In effect, a valley authority is a supergovernment with sharply limited responsibility to Congress and practically none to the states involved. By the sale of electricity, of water for irrigation, and other benefits and services-practically all below cost and at the expense of general taxation-a vast paternalism would emerge in the Columbia and Missouri valleys·as it has in that of the Tennessee. A valley authority is a· great adventure in paternalism. Under it, local control of government dies, the public is sub sidized, private property· is absorbed, and the· springs of free expression and education are polluted by government propa ganda. Private wealth and property end in public monopoly. CIVIL RIGHTS BY FEDERAL ACTION It would be a.deniai of.the principles under which we live to say that all Americans, regardless of race, color, religion, or national origin, should not share established political and economic rights and privileges. Among these are equal pro tection of the law~notably in the criminal law-participa tion in the political process by voting and holding office, and freedom to secure employment and participate in economic life. The manner in which these rights and privileges should be secured, however, is a highly debatable subject in Con gress and elsewhere.

This question is raised by the proposals made in the Tru.. 115 Statist Policies man Administration's civil rights program. That program was made specific by the President's Committee on Civil Rights, which made its report in 1947. It was submitted with full approval and recommendations by the President early in 1948. Since this subject goes back into nearly a century of our history and since a great mass of legislation has been intro duced, with interminable debate, in Congress and the states, it is best to limit our discussion to the specific proposals of the President's Committee, which were: 1. The establishment under the Federal government of new facilities to enforce Federal laws and to supplement state criminal-law administration. 2. The extension of Federal criminal jurisdiction to what would amount to the power to police the prosecuting and police officers of the state. The most notable feature of this would be an anti-lynching law.

3. Federal laws designed to remove restrictions upon vot.. ing in primaries and elections. 4. Federal laws designed to prohibit discrimination in private employment and in government services. A feature of this recommendation is that the Federal government would enforce nondiscrimination not only by direct action but by withholding Federal funds. For the purpose of this book, it is unnecessary to review the constitutional questions involved or to consider the prac tical political-party problems raised. We are concerned with the need and effect of Federal intervention when either state and local powers· are involved, or with questions that prop erly lie outside all government concern. As in most subjects in which government intervention is sought, several vital questions are raised by these propos als: Are all the alleged "rights" stated by the President and his 116 The Federal Invasion of the States commission in truth "rights". that a government such as ours has an obligation to enforce?

A great deal of looseness attends the discussion of "rights." Equality before the law and protection.from crime is a right. Voting and office-holding are not rights per see They are privileges or "offices" extended to qualified people.· And. the authority to establish such qualifications is for the most part a state matter. Noone has a "right" to public or private employment. If we grant that the "rights" involved are genuine, do the facts regarding the denial of those "rights" justify Federal compulsion? The facts with respect to the failure of criminal-law en forcement in the Southern states-even the facts assembled in the report of the President's Committee-show a situa tion no more serious than that which exists generally in the nation.· On the subject of the failJ,lre of law enforcement, I speak from an experience of a dozen· years in the study of law enforcement. 6 There exists and has existed. for years· in competence in law enforcement in many parts of·the nation, notably in some Northern cities, just as serious as that which prevails in Southern states. The very figures of the Presi dent's Committee show that lynchings, once a serious prob lem, have declined to two or three a year. In 1945 and .in 1947 there was only one. There have been many more mur ders, for which no one was punished, in many a small Northern city every year than there have been lynchings in the United States. Police brutality, of which the Committee complains, exists wherever police are incompetent, corrupt, or .politically controlled. The Committee complains of the·.

injustices in evacuating Japanese residents on the West 6 See my Politics and Criminal Prosecution (New York: Minton, Balch & Company; 1928); Our Criminal Courts (New York: Minton, Balch & Company; 1930); and Tribunes of the People (New Haven: Yale University Press; 1932)-! 117 Statist Policies Coast during the war. But that was done not by the states but by Federal authority, and it was upheld by the Supreme Court. 1 In the exercise of voting and other political activities, there has been a rapid trend toward admitting Negroes to equality. As for employment, specific figures cannot be depended upon, for the matter usually lies in the mental attitude of employers. Government Intervention in the Free Market THE FARMER ON THE DOLE If the proposal of the Truman Administration known as the Brannan Plan has served no other useful purpose, it has brought thinking people to a realization that, unless some method is found to restore agriculture to a permanently self sustaining basis, there is nothing ahead for the American farmer but well-kept serfdom under an all-powerful govern ment. The Brannan Plan, with all its socialistic implications, has become the warning and the threat of the future.

In the beginning of the New Deal, there was the so-called domestic allotment plan, with restriction of production, and subsidies of some hundreds of millions a year raised in large part by a processing tax. After the Supreme Court invali dated that plan, the same end was sought bysoil-improve ment payments. The war brought a demand for expansi~n rather than re striction. Parity had not been reached in the preceding plans, but in 1942 a guarantee of 90 per cent parity was given for a period that would have ended in December 1948. With elec1 The opinions in this case, Korematsu v. U.S. in 1944, were by Justice~l Black and Frankfurter. 118 Government Intervention in the Free Market tion just ahead, however, Congress voted a new plan embody .. ing flexible supports. President Truman, despite his signa ture on this new, makeshift law, vigorously attacked the Congress that passed it for its ruthlessness in reducing the farmer's income.

And then, not long after the Trum(in election in 1948, came the Brannan Plan. Since the Brannan Plan has been changed from time to time to meet or seem to meet valid criticism, it is not possible to state exactly what it is at any given moment. Moreover, the nation has moved toward a war footing since the plan was created, and many of the basic assumptions of the plan have changed. Also,' it has received many direct repudiations at the pol~s, and a great majority of Congress is now opposed to it. Its chance of passage seems remote. ' However, its main outlines' undoubtedly indicate the trend of statist thought in the agricultural field, and it win no·doubt be proposed again in an amended form. The essentials of the Brannan Plan are: The guarantee of an agricultural income at a level fixed at the average' of the first ten of the past twelve' years. This would perpetuate the ~highprices of the war. years 1942 to 1945· Perishables and nonperishables would be treated on dif..

ferent bases. Nonperishables would be supported at the fixed level by a series of marketing quotas and acreag~ allotments. Large farms would be discriminated against. Perishables would be allowed to find their levels in the market. But the government would determine a fair value for these and make up the difference in money to the pr~ ducer. This would, in substance, he a consumers' subsidy. The Brannan Plan represents an extreme effort to extend artificial supports for farm products at an enormous but in determinate cost to the Treasury. It also would i~pose upor' 119 Statist Policies the farmer a heavy yoke of regulation, backed up by provi· sions for jail sentences. There are sixteen pages of penalties in the bill embodying the plan. Ultimately, under such well· paid regimentation, the agricultural interests of the nation would occupy a privileged place in the economy. The effect upon the ingenuity and enterprise of the farmer would be enervating. And resentment would rise among other ele· ments of the population, who would be paying for the benefits.

Meanwhile, in order to administer this regime of subsidies and benefits, the. bureaucracy would be greatly enlarged. THE FEDERAL GOVERNMENT IN BUSINESS In the many economic enterprises other than agriculture, the Federal government has moved well past mere regulation and into competition-direct or indirect-at a rapidly in creasing rate in the past two decades. This, of course, is not merely a threat or a promise of socialism. It is socialism grow· ing by progressive steps, under the pressure of persons and organizations whose purposes and point of view are for the most part antagonistic to the ideal of the free market or who frankly do not believe that any important part of a free eccr nomic system can survive. The best recent survey of Federal business enterprise is that of the Hoover Commission. In summary, it says: There are about 100 important business enterprises which the Federal government owns or in which it is financially interested.

These concerns engage directly or indirectly in lending money; guaranteeing loans and deposits; writing life insurance; the pro.. ducing, distributing, and selling of electric power and fertilizers; the operation of railways and ships; the purchasing and selling of farm products; and the smelting and sale of metals. The government's direct investment in these enterprises is in excess of $20 billion, and there are further authorized commit· 120 Gooerntnent Intervention lnthe Free Market ments to supply about $14 billion of them. In addition,. thegov ernment guarantees qirectly and indirectly about $90 billion of deposits. or mortgages: and the life insurance. written by govern ment agencies approaches $40 billion. The Hoover Commission, with no authorization to con.. sider the wisdom of these government activities, merely stated the facts and suggested means of administering exist ing activities. However, even in their limited field the mem bers of the Commission differed very sharply, and a third of the text of the report is devoted to dissenting opinions. The more conservative·members followed Hoover. Members and former members of· the Administration, Senator Aiken, and Democratic members of Congress dissented.

These Federal business enterprises, set up at various times and for varied purposes, present a picture of utter confusion. Their onIX common characteristics are that they narrow the ~ field of a free economy, they are expensive to the taxpayer, and they offer a wide opportunity for the intrusion of poli tics into business life. The activities' of these business enterprises present a be wilderingvariety. They not only compete with private enter prises but they compete and conflict with each other. Some of them are means of subsidizing their clients. Most of·them are subsidized by the government. There is little means of determining their efficiency, because of the lack of clear ac counting and reporting. For a long time some of them by passed Congressional appropriations by direct borrowing from the Treasury.8 Most receive unfair tax-exemptions~ Some invest their surplus in government securities, thus compelling the government to pay interest on its own invest ments.

However, one fact emerges from the. history of this growth 8 Congress, by the 1945 Government Corporation Control Act, attempted to get this situation under control by requiring certain government corporations to submit budgets for its consideration. . 121 Statist Policies of government business enterprises. Sponsors seldom say frankly that government can do the job better. Always, there is some idealistic or· humanitarian objective, such as public health, the amelioration of the condition of the "under privileged," public welfare, national defense, full employ ment, or succor for ·the· unsuccessful. These multitudinous and immense business enterprises not only directly pre-empt the field of private opportunity, but, individually and collectively, they present a threat to all the rest of the economy by competition, tax advantages, or some other form of influence. There is no indication that the invasion will ever he halted by its instigators. The various proposals of P~esidents Roosevelt and Truman, of the supporters of these Presidents in Congress, of statist-minded organizations that have con sistently supported the Federal Administration in elections over the past few years, all show an intent to move govern ment, especially the Federal government, further .and fur ther into business.

. For example, there was the famous Full Employment bill, sponsored by President Truman in 1945 but greatly watered down by Congress. More recently, there was the Economic Stabilization bill, introduced by Representative Brent Spence in February 1949. The Spence bill would have authorized the President to build new plant facilities "to help achieve the quantity goals for designated essential materials." It was in line with the authority asked for in this bill that a few weeks after its introduction President Truman arbitrarily decided and made public his decision that the steel industry was behind the quantity goals that he had fixed, apparently in his own mind. Hence, he threatened to put the government into the steel business. Senator Murray of Montana and seventeen of his col leagues sponsored a bill in 1949 that was a fairly good speci122 Government Intervention in the Free Market men of what statism would do if it could summon· the votes in Congress. It.was called the Economic Expansion bill and was an amazing miscellany of economic planning, govern ment-in-business, and pompous rhetoric. It proposed that the President should determine the amount of investment to attain "one half to three-quarters of a million" new jobs a year and a three,to four per cent increase in national produc tion. Then the .President should ascertain whether private business would provide these and, if not, bring government spending. programs to Congress to supply the deficiency. The bill would start all this with an authorization of $1:1,000,000, 000 in loans, $3,3°0,000,000 in additions to various revolving and emergency funds,. and several hundred millions in .new expenditures. Such determinations and planning are not pos sible .under any economic calculation. But under a spurious assumption, the government would undertake a vast expan sion of government business activity and spending. That, of course, was what the sponsors wanted. The proposal shows the strength of statism in the Sen~te alone, for nearly twenty per tent of its members lent their name· to this monstrosity, and there is little doubt that the President knew of the' pro posaland tacitly approved it. It is an indication of what may be proposed after the cur!ent rearmament program is over.

The detailed proposals of this and the· original 1945 Full Employment bill are too long to' be set forth here. The gen eral purpose, however, was to level off the economic cycle by Federal action, to "guarantee" full employment, to set· up. new government business in competition with private busi ness, and to subject the nation's economy to government planning and direction. There would be government price and-wage fixing, production quotas, and government inquisi tion into the private books, records, and trade secrets of pri vate business. Except in name, .these proposals all follow the lines of the orthodox socialist plans of the British Labour Party. 123 Statist Policies It will suffice here, for the purpose of illustration, to select two fields of government-in-business-the Federal govern ment as a banker, and the government in the utility business. THE GOVERNMENT AS A BANKER The extent of the Federal government's activity in lending money and guaranteeing other loans is described in detail in the Hoover Commission's report on Federal Business Enter prises and in the Hoover task force report on Lending Agencies. 9 The following is a comprehensive summary of the size and ramifications of the banking business of the Federal govern ment according to the Hoover Report: There are 40 agencies in the Federal Government engaged in lending, guaranteeing, and insuring (other than social security and pension ageJ.lcies).Nine of these agencies, with loans out standing, have either ceased lending or are in liquidation.

As of June 30, 1948, the Federal Government had an, invest ment of over $12.5 billion in these agencies and had further com mitments to supply them over $9 billion. Loans guaranteed by Federal agencies amount to about $8,5 billion; and the value of deposits insured by Federal agencies amounts to something over $80 billion. Life insurance written by Government agencies totals approximately $40 billion. Some of these agencies have obtained more than $2 billion of capital from private investors. At least 35,000 employees in 300 offices and branches of these agencies are paid by the Federal Government. Some of these activities are legacies of depression and war; some are permanent fixtures in our economicsystem for expanding and securing the channels of credit; and some, were created to effect social rather than economic objectives. 9 The latter was largely the work of Price, Waterhouse and Company, certi tifted public accountants.

124 Government Intervention in the Free Market The danger abundantly revealed in Federal lending is in loans or guarantees made directly to· individuals or private companies, except in such emergencies as a deep. depression or war. It requires little proof to realize that lending to pri vatepersons or· companies in nonemergency times is a direct invitation to political chicanery, corruption, and gross favoritism. Jesse Jones who, despite· pl}-lls and pressure from the White House down, steered the.RFC for years, believes "that neither the White House nor Congress is competent to lend money." He said further ina memorandum to me in 1950: Banking by Government should only be done on a strictly non partisan. basis and. it is difficult with salaries paid by the Govern ment, and meddling by Congress and the White House, to get competent men to do the lending. It is impossible to keep politics out of Government lending. All members of both houses are avail able to their constituents to make appeals for them. They cannot very well decline, and most of all, the party in power apparently cannot keep its hands off. The directors of the RFC or any Gov ernment lending agency cannot ignore the authority that ap points them. It resolved itself, largely, to a case of out-managing a situation. Some years ago a friend asked me to go deer hunting with him in the Rio Grande Valley. It was a little early in the season and there had been no cold weather and I asked him if he were not afraid of rattlesnakes-To which he replied: "You can always out-manage a rattlesnake!"

In 1950 and 1951 the Fulbright Senate subcommittee cre ated 'a national sensation by its revelations of favoritism, gross incompetence, and some acts at least closely bordering upon criminal activity in the granting of loans by the Recon struction Finance Corporation. This agency, created in 1932 under President Hoover, fulfilled an excellent function in a , depressed time. It was also used during the war to make loans for worthy defense purposes~ But it also extended its opera125 Statist Policies tions to direct lending of all sorts. Many, if not most, of these loans were clearly not in the public interest. Some of thein were made under direct political pressure, and some revealed shockingly bad business judgment. Greater than the danger of favoritism,· corruption, and in competence is that of distorting the economic system through vast government holdings in many lines of business. Social istic policies are extended through the use of government credit. Government money is used to foster unfair compet~ tion with private companies that the Administration may decide to punish. Companies can be told to accept the money and expand certain lines or else their competitors will re ceive it. Vast business properties could be owned by the banker-government.

A prominent New Dealer has admitted that government lending at low rates of interest will end in the government owning "most of the productive resources of the country." This assertion by a well-known and high official of the United States government merely underlines the· intent of statism to control first the credit and then the productive en terprises of the nation. As we have seen, such "centralization of credit in the hands of the state" is the fifth point of the Marx-Engels program in the Communist Manifesto. FEDERAL GOVERNMENT IN THE ELECTRIC UTILITY BUSINESS In thirty years the proportion of the electric power supply of the United States generated by Federal plants has grown from a negligible amount to more than ten per cent. Since the ownership and operation of this vital business is the prime objective of statist policy, let us see when this growth has been most rapid. The following percentages indicate the shares, in various years, of the total installed capacity in kilowatts which were supplied by Federal plants: 1 1 These figures are from the statistical bulletin of the Edison Electric Insti tu te for 1950.

126 Govern'l7le"ntIntervention in the Free Market Federal Per .Cent 'rear of Total I 920 Negligible 1930 0·7 1940 4·9 1945 10.1 1950 10.0 There was a slight decline in the percentages during the four years after 1945 because of the postwar expansion of private plants, but the upward movement is again under way. Of all additions to capacity ip 1951 and 1952, the Fed eral share will be 14.7 per cent .. At the end of 1952, the proportion of total capacity will reach 11 per cent. This increase is due not only to the capacity of the Federal government to spend'vast sums on this development, but to the fact that partially hidden subsidies are used in the com petitive field and private companies have been absorbed by government. Since .falling water seems to be' a free source of electric power, the public, stimulated by government· propaganda, is led to believe that hydroelectric power is cheaper. This prop osition needs to be qualified in a number of important re spects. It is' true that in locations like Niagara Falls, British Columbia, ~nd in parts of the Pacific Northwest, where there is an assured water supply and favorable topography, hydro electric power is more economical, even where it .• must be transmitted over long distances. In places like California, New England, and the Southeastern states, where there is favorable topography· but a limited and sometimes irregular water supply, a combination of steam and water production is most economical. In other locations, where low-cost fuel is available, steam is usually cheaper than waterpower. And where there are concentrations of population and industrial plants, steam is ge.nerally the only source available· to meet the demands of the market.

127 Statist Policies The joker in the claims for government power· is the ele ment of subsidy which is invariably involved. When the Federal government builds great multiple-purpose installa tions, there is an arbitrary allocation of cost to flood control, navigation, and irrigation. The first two of these are paid for by the Federal government and are within its constitutional authority. In earlier days irrigation was supposed to be paid for by· water users. But for reasons that could only be ex plained by a long discourse on the mysteries of government bookkeeping, there has been an increasing trend toward sub sidizing agricultural water-users. 2 Thus, if the allocation to flood control, navigation, and irrigation is higher, the alleged cost of power will be low. And it is not difficult to show that the allocation to these nonreimbursable purposes has gen erally been excessively high.

In many instances also there is no charge for interest on money spent, although the taxpayers of the nation must pay interest on the money borrowed by government. There is also the loss of tax revenues to local governments when gov ernment plants grow and private, taxpaying plants are elimi nated or prevented from growing. A good exam pIe of how subsidies distort the picture is pro vided in a publication of the Department of Conservation and Development and the Public Service Commission of the state of Washington. It makes this comment concerning fur ther hydroelectric development on the Columbia River: If the total cost of the balance of this program, excluding costs chargeable directly to flood control and navigation, is charged to power together with the cost of transmission, the cost of electric energy delivered to the principal load-centers in the Puget Sound area and on the lower Columbia River will be about 6 mills per kilowatt hour. The cost of producing an equivalent amount of electric power by the operation of modern steam electric genera2 See pp. 13 1-6.

128 Government Intervention in the Free Market tion stations located in the load centers would he identical within the limits of accuracy of the calculation. If this· be tIiue in two states like Washington and· Oregon, which have little or no natural supplies of coal and oil but fine waterpower resources, what must be the situation in places where coal and oil supplies are near and abundant? The drive for public power-projects is con~inuous and powerfuL There has been developed in the Interior Depart ment a vast .propaganda machine for the preaching of the doctrine of public power and vast new developments in har nessing the waters of every river valley. The cupidity of states and local communities is aroused by glowing pictures painted of great Federal projects. There is log-rolling in Con gress by representatives of these states and communities, and project after project gets underway.3 The Federal government has not only been intent upon a policy of gaining ascendancy in the field of producing elec tric power, but it has given great stimulus to public owner ship in· the retail sale of power. It has constantly sought new business by underselling to cities and other communities private producers of power at costs that ~mount to a subsidy, but its policies of preference have offered other advantages that aid the growth of municipal ownership. In 1951, accord ing to the Edison Electric Institute, twenty-one per cent of electric customers in the United States were receiving service from public bodies, cooperatives, and other agencies having such preference under Federal law. In some states (Nebraska, Tennessee, Mississippi, Washington) more than half of all customers were thus served.

3 The great Central Valley of California has been. the scene of·a constant ef fort of the Federal government to gain ascendancy for public power. In that area the state of California, the Federal government, and the Pacific Gas and Electric Company achieved for a time what seemed to be a workable balance between public and private power. That balance has been constantly threatened in recent years. . 129 Statist Policies The manner by which such preferences have been given is a most interesting example of the twisting of legislative lan guage to attain an end not contemplated when the law was passed. In 1906, a reclamation law was passed which said that the Secretary of the Interior might lease surplus electric power from irrigation projects "giving preference to munici pal purposes." The records show no indication that this was intended to give preference to munic,ipally owned utilities.

But the precedent that was inferred by public-power advo cates has been woven into a large number of Federal laws relating to the sale of electric power from projects built during the past two decades. 4 The intent of these laws was further extended on the au thority of Secretary Ickes of the Interior Department in 1946 by a directive to his subordinates. It said that they should not merely wait for a preferred customer to come forward and offer to purchase the power, but "Active assistance~ from the very beginning of the planning and authorization of,a proj ect, shall be given to the organization of public agencies and cooperatives in each project area." Thus the old intent of the law of 1906 was first extended to the giving of preference under the NewDeal; and then under the Fair Deal the De partment of the Interior was to go into the business of or ganizing public agencies and cooperatives to receive th,e preference. That is one example of the progress of statism in forty years.

While the great hydroelectric installations of the Federal government represent most of its investment in the utility 4 An example of the effect of this was pointed out by Representative George A. Dondero in the House on May 14, 1951. He said: "It has been estimated that 11 per cent of all the power customers in Michigan could be classified as preference customers. If the Bureau of Reclamation built a huge multiple purpose project in Michigan, only 11 per cent of Michigan's customers would be entitled to this power. Although 89 per cent of the customers had, through their taxes, contributed to the building of the project, they would be denied any benefit from the project because they happened to patronize the wrong power distributing concern." 130 Government Intervention in the Free Market business, the Rural· Electrification Administration is its. ma jor activity in reaching customers, directly. This enterprise when it was established was regarded as a sound and benefi cial forIUofgovernment aid. Private companies were unable, for economic reasons, to reach into sparsely settled rural re gions,and government provision of transmission lines for retail,sale was regardedas a legitimate subsidythat might so increase the prosperity of agriculture as to increase subst.an tially·the economy of the nation. When Federally produced power was not available, reasonable arrangements were made to buy' power from private companies. At this time, about.

half of the power used by the REA comes from ,private companies. The REA and the cooperatives with which it is associated have not been content with such arrangements, however, and the inevitable burgeoning.ofgovernment business has. been rapidly proceeding .. Cooperatives have been building their own generating plants, not because private power· has been unavailahle, but'because they claim it is cheaper to build for themselves. The: apparent economy thus claimed' is~ of course, not because of the preferences above' noted but be cause of the tax exemption of cooperatives .. The latest devel opment consists of plans by the. REA to tie· many smaller cooperatives together' in super-regional cooperatives under the direction of the REA administrator. The REA would then encoura.ge the building of competitive plants by gov ernment loans for .generation and transmission. Ultimately, the REA would be a gigantic monopoly serving two. to three million customers.

EXERCISES IN BOOKKEEPING The reclamation policies and activities of the Federal gov ernment that have now assumed such great importance in the national economy and such a heavy charge on public 131 Statist Policies funds originated in the basic Reclamation Act of 1902. That Act was designed .to make more land usable to farmers and thus to open horizons of opportunity which had been fore closed by the exhaustion of the supply of arable public land. It provided that the Federal government would build dams, canals, laterals, and other works to provide irrigation for the prospective users of nonarable land. Users were to repay the costs of the Federal works over a per~od of ten years and, after that repayment had been made, these works should be long to the users. As time went on, it was found that the costs' of the projects were increasing and that land needed more help. Consequently, in 1914 another act was passed that extended the time of repayment to fifteen years on newly irrigated land and also permitted existing contracts more time for full repayment of balances due. In 1922 another Act was passed that provided for cooperative arrangements among farmers to deal with the government in the making of 'contracts. Irrigation districts were to be set up in which there should be water-users' associations. The period of re payment was extended in 1926 to forty years. In 1949 a de velopment period of ten years was added, which further lightened the burden of repayment.

However, in the course of these years, notably at the time of the building of the Hoover and Grand Coulee dams, the generation of electric power became a very important ele ment in reclamation projects. This offered a new and· very productive means of contributing to the payment of large projects. Moreover, those who wanted· to lighten the costs to irrigationists found other means to share costs. This was recognized in a notable Act in 1939, which provided for the allocation of costs among various purposes for which projects might be used. Included among reimbursable purposes were not only irrigation, but power, municipal water supplies, and a number of other items. There were also included non reimbursable purposes such as navigation and flood control. 132 Government Intervention in the Free Market This, of course, greatly increased the so-called "feasibility" of projects whose cost was mounting very rapidly.

Moreover, in· a number of specific projects Congress, with the eager collaboration of the Bureau of Reclamation, had inserted in the law further extension of time for repayment, from fifty to sixty-eight years. In the Central Arizona Project now before ·Congress, the time for repayment has been lengthened to seventy-five years. The general policy of repay ment, however, remains the financial framework of Federal reclamation work. Throughout, the principle has been followed that repay ment for irrigation shall be for cost without interest. At the time of the 1902 Act, it was planned that a consider able part of the money for projects should be· derived from the sale of public lands. These revenues went into a Treas ury account known as the Reclamation Fund. Later, this fund was augmented by a part of the proceeds of oil and other mineral royalties. There has also been a generous series of loans to this fund from the General Fund of the Treasury.

In recent years, notably in the past decade, projects both for irrigation and for power have offered smaller and smaller prospects for repayment. Costs have risen to an immense degree, sites with firm supplies of power-producing water are less and less promising, and land for irrigation offers less and less prospect for profitable production. Hence, the Bureau of Reclamation, anxious to enlarge its activities and its au thority, and communities eager for Federal expenditures have sought more and more ingenious means to justify new projects. Elaborate calculations of project values and justifi cations have been portrayed, such as benefits to wild life, revenues from people seeking recreation, benefits to naviga tion and flood control, and the opening of new sources of taxation. Most· of these when carefully examined .reveal a plentiful amount of wishful thinking as well as some dubious bookkeeping craft. Slowly the policy of reclamation has 133 Statist Policies shifted into wholesale subsidies at the expense of the general ity of taxpayers.

The most notable of these exercises in bookkeeping, as well as the one that, if not checked, will ultimately be a grave national problem, is an effort of the Department of the In terior to use in new multipurpose reclamation proj ects an item known as the "interest component" as part of the sub sidy provided out of power revenues. As the Federal law now stands, the selling price of electricity from government proj ects must be enough to cover several "components." These are charges for amortization of the principal invested, for interest on this investment, for operation and maintenance, and for replacement. On Bureau of Reclamation projects the rate charged for power must include these "components" plus such an amount as is necessary to help put water on the land for irrigation. This is a subsidy paid out of power reve nues. The "interest component" is fixed at three per cent on the power investment. The intent of Congress was that this three per cent should be returned to the Treasury to pay interest on the money borrowed for the project.

By 1944 it was found that all the devices mentioned above to make projects feasible in the face of mounting costs were inadequate. Hence, in that year the Solicitor of the Interior Department rendered a strange opinion, which is now re.. garded as law by the Bureau of Reclamation although it has had so such recognition by Congress. This was permission to put this "interest component" into the Reclamation Fund as part of the subsidy to irrigation. Legislation has not been passed to authorize this interpretation by the Solicitor of the Interior Department. Efforts of members of Congress to re state the original intent of Congress have been introduced, but because of the violent opposition of the Interior Depart ment these have failed of enactment. That is where the subject now stands. The trick in this is that the Treasury and the taxpayers of 134 Government Intervention in the Free Market the nation will, during the. period of repayment, be com pelled to meet the interest charge .on the investment in proj ects from' sources other than the power income from projects.

And this charge will be compounded. Unless this practice is prevented by legislation or by some opinion overruling that of the Solicitor of. the Interior Department, billions of dol lars will go into the Reclamation Fund, and interest charges will fall on the taxpayers. Meanwhile, vast sums will be spent in subsidies for projects that have no chance of paying for themselves.' Another bookkeeping device, closely related to this use of the "interest component," that the Bureau of Reclamation has been zealously advocating is what is known as basin ac counts. A basin account would involve the pooling of reve nues from all projects in a great river basin, such as the valleys of the. Columbia and· its tributaries. This pool or ac count would be a source from which money could be appro priated for all sorts of projects; including irrigation works. Such accounts would have two functions. The first would be to enable the government to sell power at a standard rate all over· the area, regardless of. the varying co~ts of power from the several projects involved. Power produced at high cost from plant A would be pooled with power'produced from low-cost B, and an average price established. The second function of such an account would be to provide subsidies for irrigation projects that develop no power or are wholly unfeasible from an economic point of view.

The result· of the establishment of basin accounts would be to blur the situation over a great area, to make it difficult for the public, and indeed for Congress, to determine the economic value of projects, and to permit a wholesale· sub sidization of agriculture in all the irrigation activities in volved. It would also add great power and authority to the Bureau of Reclamation. With more and more users of water and of electric power living in whole orin part on subsidies, 135 Statist Policies it is easy to see what would happen to personal liberty and to local self-government in such an area . .If a specific need for the production of a certain type of food or fiber can be demonstrated, and a specific area pre sents the best possible place to produce that necessity, the issue of a subsidy. for· a specific irrigation project should be squarely faced by Congress. The proliferation of miscellane ous and hidden subsidies is a certain means of establishing many privileged groups who would be living off the earnings of many others. Moreover, the political dangers of such gov ernment subsidies are quite obvious.

GOVERNMENT AID TO COOPERATIVES The beginnings of the cooperative movement in this country can be traced back to European origins. It has been said that the shape and methods of the movement came from the so-called Rochdale enterprise in England, more than a century ago. The Scandinavian countries offer many proto types. The idea is so simple that it would certainly have devel oped among any people seeking cheaper and more effective methods, first of marketing products and next of purchasing their requirements as consumers. A sizable part of our economy is now occupied by co operatives of various kinds and the trend is growing. The more important cooperatives in this country fall into seven categories: farmers' marketing cooperatives; farmer's purchasing cooperatives; city consumer cooperatives; city producer cooperatives; service cooperatives; dealer-owned cooperatives; and super-eo-operatives at the wholesale and manufacturing levels.5 There are, in fact, cooperatives the . members of which are not individuals at all, but privately owned corporations.

5 I am not concerned here with mutual insurance companies. 136 Government Intervention in the Free Market The fields in which cooperatives have reached their great est importance are agriculture, dairying, fruit growing, and oil produ~ing and refining. The great growth of cooperatives in the consumer field in various European countries has not been paralleled here, largely because under private· business we have developed economies in distribution and sales through mail-order houses, chain stores, and manufacturers selling toa national market. Government reports in 1947 said that there were in this country 32,246 cooperative organizations, with 20,971,934 members. Business volume in 1945 was $7,182,185,001. Co operative associations handle very big businesses in many diversified lines. The greatest sugar refinery in the world is cooperatively owned. Dairying cooperatives handle 75 per cent of the milk sold in the United States. Other coopera ..

tives market 55 per cent of the citrus fruits, 40 per cent of the· butter; 20 percent of the livestock, and 10 per cent of canned fruits and vegetables. Cooperatives manufacture and sell an almost limitless range of articles. There are also the credit cooperatives, including the many varieties of farm cooperatives planned with government aid, and the rural electric cooperatives. The inlmense growth of cooperatives in the past three decades has unquestionably been principally due to the exemptions and privileges accorded them by the govern ment. They have been specifically exempted from the anti trust laws and the regulations under the Securities Exchange Commission, and have preferential treatment under such government enterprises as the Tennessee Valley Authority. New bills providing for other· valley authorities specifically name cooperatives for preference in purchasing power properties.

But the most important privilege that cooperatives enjoy is in taxation. These exemptions have caused violent con137 Statist Policies troversy, stimulated by private businesses that have been placed at a serious competitive disadvantage. The enthusiastic support of these present and prospective privileges by the more socialistic elements in our government points to a problem that goes to the fo:undations of· a free economy. More ardent proponents are frank to say that the cooperative movement is destined to supplant the whole capitalistic system of profit and loss. It has been hailed by the American Socialist Party as a genuine means of achieving its objective of an economy based upon common ownership of the means of production and distribution. This extreme view, however, is not accepted by the more moderate leaders in the cooperative movement itself. There is nowhere any disposition to destroy cooperatives as such. They have performed a valuable service in the lives of many millions of people, and, with a fair balance of advan tages with private business, they can be a part of a free econ omy.

The essential danger is that co-operatiyes will depend upon an ever growing government for. competitive privi lege, and for what really amounts to a subsidy from the tax payer. The unfairness toward and the danger to private enter prise is especially notable when cooperatives move into fields only remotely related to the original purpose for which they were created. No reasonable person can quarrel with th~ pro priety or fairness of a group of dairymen pooling their indi vidual businesses in the marketing of their product, even to. the extent of owning and operating a large fleet of trucks for that purpose. If, however, such a cooperative establishes a manufacturing enterprise for the purpose of selling trucks to all sorts of businesses, and thus moves into competition with manufacturers in that same business who enjoy none of the exemptions of the cooperative, a wholly new problem of competition is involved. Such a business should then be 138 Inte1'vention .by Regulation placed on the· same l~gal footing as its competitors. And in 'every case the public should be protected. against monopoly.

Intervention by Regulation ADMINISTRATIVE ABSOLUTISM In the past sixty-odd years there has grown up,especiallyin the Federal government, what President FranklinD. Roose velt once called a " 'fourth branch' of government for which there is no sanctIon in the Constitution." He was referring to the mass of administrative commissions and boards created to regulate this or that and to deal with private interests with· out consideration for those judicial forms and protections which are the essence of liberty. As long ago as 1937, President Roosevelt's Committee on Administrative .Management had this to say of this conglom erate mass of regulatory agencies: Commissions ... are in reality miniature independent gov~ emments set up to deal with the railroad problem, the banking problem, or the radio problem. They constitute a headless "fourth branch" of the Government~ a haphazard deposit of irresponsible agencies and uneoordinate powers .. ' ...There is a conflict of principle involved in their make-up and functions'. . • . They are vested with duties of administration .. '. and at the same time they are given import~nt judicial work.... The evils resulting from this confusion of! principles are insidious and far-reaching .

. . . pressures and influences properly enough directed toward of ficers responsible for formulating and administering policy consti tutean unwholesome atmosphere in which to adjudicate private rights. But the mixed duties of the commissions render escape from these· subversive influences impossible. Furthermore, the same men are obliged to serve both as prosecutors and as judges. This not only. undermines judicial fairness; it weakens public confidence in that fairness. Commission decisions affecting private rights and conduct lie under the suspicion of being rationaliza139 StatistPolicies tions of the preliminary findings which the Commission, in the role of prosecutor, presenteq. to itself. The major dangers in these commissions were that they not only gathered evidence but presented it and then judged it; that there was little opportunity for judicial review of their decisions; and that there was, until 1946, no real Con gressional determination of what constitutes fair standards of procedure.

The defense of administrative absolutism is based, accord ing to Roscoe Pound, the great ·former dean of the Harvard Law School, upon "ideas of public law imported from Con tinental Europe," which, of course, are the expression of vast state power. The danger in this irresponsibility of bureaucrats was thus described by Woodrow Wilson forty-two years ago: I can see· no radical difference in principle between govern ment ownership and government regulation of this discretionary kind. Regulation by commission is not regulation by law, but control according .to the discretion of government officials. Regulation by law is judicial, by fixed and definite rules, whereas regulation by commission is an affair of business sense of the comprehension and thorough understanding of complex and various bodies of business. There is no logical stopping place between that and the actual conduct of business enterprise by the Government.

After years of effort, the American Bar Association secured the passage of the so-called Logan-Walter bill, which was de signed to correct the evils of these commissions. It was ve toed by President Roosevelt. Finally, in 1946, an act was passed defining and limiting the powers of administrative tri bunals. It remains to be seen how fully the Federal courts will give this act the interpretation it should have. A sinister tendency that has been gaining ground in gov140 Intervention by Regulation ernment agencies has been to step beyond the' limits of regu lation and to usurp the power to dictate business polici~s and judgments. A good example of this trend is found in the his tory of the Interstate Commerce Commission, a senior and highly regarded member of our group of Federal regulators. The fundamental role of the ICC was originally judicial and legislative-judicial in its authority to determine the re spective rights of carriers and of shippers; legislative in its delegated power to protect the public in interstate commerce.

But for a long time the ICC has tended to enforce its own judgment upon railroads,. in what essentially are matters for the railroads themselves to decide. The lawful province of the ICC is to see that rates are "just and reasonable." But the commission hastened to interpret this authority as extending to guessing-and that is the proper word-"the probable effect of increases'. . . upon the future movement of traffic." Note the distinction here. The determination of "just and reasonable" rates should rest upon current rates, earnings, and valuations. The exercise of business judgment about the future belongs, in 'a free econ omy, to management. The judge thu:s doffs his robe and dons the prophet's mys tic garb. Crystal balls are added to the statistical parapher nalia of the commission. It deserves to·be noted further that many faults of the rail roads which have hampered their competitive development have been indirectly the result of too much and too detailed supervision by the ICC. The deadening effect of 'such, con trol, however sympathetic it may be, is like that which ap pears when a child has been too closely cared for and regu lated by an oversolicitous parent. The effect upon the rail roads has been a plentiful measure of bureaucracy and red tape in the railroads themselves. Stagnation is the inevitable product of too much guidance.

141 Statist Policies FEDERAL CONTROL OVER INDUSTRIAL RELATIONS Labor unions are a proper and inevitable part of a free economy. Union organization enables the individual to bar gain for his services on equal terms with aggregations of stockholders and management. In the past few years unions have gone far beyond this. With the hearty encouragement of Presidents Roosevelt and Truman, they have entered into close alliances with one party. Thus they limit their freedom and that of their mem bers. Their funds have been lavishly used for and by that party. Such identification with a party will either result in the creation of a labor party-which would mean a party dedicated to the interests of a single group-or the subordi nation of labor to the party machine. In either case, labor's liberty is curtailed and in the long run destroyed. Still more dangerous to the liberty of labor is the extent to which., under the Wagner Act of 1935, the traditional func tions of free labor to organize and to bargain were taken over by government. This was a dangerous extension of Federal power over not only labor but all industry.

Socialism is the deadly enemy of free labo! and free union ism. That has been shown in every European country which has embraced national socialism or Communism. The British Labour Party, originally conceived to be the means for la bor's emancipation, has now become a means for the gradual absorption of labor's liberty into a supergovernment. The legal provisions by which this subjugation has been made pos sible should carry a sound lesson for American labor. The identification of unions with one party and with the political administration in control of government is not only a threat to labor's liberty but it perverts the nature and func tions of government itself, ina manner inimical to the inter ests of the nation as a whole. In this situation government is no longer regarded as the agency of all interests, above and 142 Intervention by Regulation detached from specific groups, The impartiality of a common government is the essence of a free state.

ANTITRUST CONFUSION Nobody favors monopoly in anything, even in goodness or in good intentions. Private as well as governmental monop oly is the deadly enemy of a free economy. The.common law has. from time immemorial prohibited monopoly and any customiprocedure,. or practice fostering monopoly. The states have by statute outlawed .monopoly, and in 1890 the Sherman Act applied the old common law against monopoly or "restraint of trade" in the Federal jurisdiction. The Clay ton Act of. 1914 broadened and clarified the Sherman Act and exempted labor unions from its application. But despite the clear intention of the law, its application has been the subject of utter confusion. For sixty years there has been no clear definition of the nature of those trade prac .. tices or. that. degree .of the possession of the market which roightconstitute monopoly. The Sherman law and its amend ments are so vague and confusing that compliance and prose cution have been. hit or miss. The real purpose of the law, the maintenance of free com petition, is not mentioned in the act.

Under court definition, it is even unlawful for competitors to agree among themselves upon a code of fair practices in tended to protect and preserve. competition. To clear up the confusion and to provide an administra tive means of policing and warning business, the Federal Trade Commission was established in 1914. The purpose of this agency was excellent, but its labors have resulted in even greater confusion. Over the years it has issued orders declar ing more than 2,200 business practices to be illegal. The re sult is that almost every business is at all times violating one or more of these, w~ether it knows it or not, and stands in danger of prosecution. 143 Statist Policies Other acts have been passed that further complicate the problems of a business that tries to comply with the law. A business that, following the intent of the Sherman Act, cuts prices to undersell a competitor may be subject to prosecu tion under the Robinson-Patman Act. But if, in compliance with the Robinson-Patman Act, {t keeps its price level with its competitor, it may fall afoul of the Sherman Act.

A group of companies might be told by, say, the Secretary of the Interior to co-operate in some activity for purposes of meeting an emergency, and later find the Attorney General prosecuting them for "conspiracy." This actually happened in a very important case involving a number of oil companies. Attempting to stumble out of the confusion, the Depart ment of Justice has devised the strange plan of the "consent decree." This plan is really an effort to fix with certainty what a company can or cannot do and to have a court ap prove the result. Under it, a suit is brought against a com pany or a group of companies in an industry, thus presenting the issue to a court. Then with the consent of the defendants the court approves a set of specifications with respect to what defendants will or will not do in the business issue involved. This in substance requires a defendant to plead guilty when he thinks he is innocent. It is an illogical, ineff~ctive method of law enforcement.

The dangers of the reigning confusion in the administra tion of the antitrust laws are threefold: First, legitimate business can have no clear idea of the prac tices it may use in legitimate competition. Second, the power of government to prosecute can be used for what really amounts to official blackmail. Government powers of prosecution are so broad and vaguely defined that zealous "reformers" can use them to compel private business to conform to arbitrary and even fantastic ideas of business conduct. Third, the vagueness that shrouds a definition of "good" 144 Intervention by Regulation or "bad" business provides a perfect weapon for demagogic attacks on all private business. THE ATTACK ON BIGNESS For three· quarters of a century the more extreme. attacks on private business have concentrated on big business units. Over all those years they have provided excellent political ammunition. The antagonism of the consuming public can be aroused because of the seemingly great profits made by large companies. The sympathy of small competitors is en listed. And the relatively few votes involved in overhead man agement are politically expendable .

. To be sure, during a large part of this period bigness could properly be associated with notoriously unfair competitive practices. There was, in fact, a "trust" problem, for which the remedy was and is the enforcement of fair practices and the prosecution of monopoly. The late Louis D. Brandeis has.been cited by some current reformers as authority for the proposition that all business bigness is bad, and there is some proof of this belief in· the title of a collection of his papers, The Curse of Bigness.6 There is, however, no justification of the title in the text of the. book .• His complaint was against monopoly and unfair practices, not against bigness as such. He asserted that a busi ness may be too small or too large to be efficient. He was too much a statesman and too much a believer in fr.ee enterprise to assert that it was a proper function of government to at tempt to enforce efficiency. In at least one of his dissenting opinions he recognized that the public, through its legisla ture, might place a handicap upon a big business in behalf of small units. But in .general his views have been· distorted by those who would lay the heavy hand of government upon big ness itself.

6 (New York: The Viking Press; 1934). 145 Statist Policies An effort by government to apply a Procrustean measure to business size would introduce drastic regimentation. Gov ernment would have to cut down big companies in line with some arbitrary scale and build up small ones with various sorts of aid. Government would thus forcibly redesign in dustry. To this end, we already have Federal policies directed to ward subsidizing small businesses with loans below the inter est rate of the free market. Government's judgment of the business prospects of small enterprises is substituted for the judgment of private moneylenders. "Competition" is subsi dized by help of various sorts to favored businesses and com panies. Most important, since 1936 there has been .in cor poration taxes a progressive principle that penalizes large businesses. Thus, efficient businesses-little and big-are taxed to sup port government-favored businesses. This is .an authentic process of leveling. And meanwhile, prejudice against big companies is constantly built up by the demagogic utterances of sponsors of supergovernment.

An excellent weapon in the hands of such sponsors has been a recent dissenting opinion of a minority .of the Su premeCourt,which proclaimed this strange doctrine: "Size in steel is the· measure of the power of a handful of men over the economy. That power can be benign or it can be danger ous. The philosophy of the Sherman Act is that it should not exist." It should be noted that if two more judges had agreed with this interpretation it would be the law of the land. This doctrine comes down to saying that whatever the· be havior of large companies may be,· their possession of thepos sibility of monopolistic power should be considered a sub stantialviolation of the Sherman Act. They would thus be liable for the potential power to do wrong, despite the lack of evidence of any act of wrongdoing. 146 Expropriation .It would belike arresting a man at a red light because, though he stopped, he could have driven his car through.

Expropriation TAXATION AS AN AGENT OF POWER The second. of the· means specified by Marx and Engels in the Communist Manifesto to bring about a socialist society was the· use of taxation on incom;es and· inheritances. In the 1880'S Professor Adolf Wagner, noted socialist writer on tax ation, outlined in d.etailhow. the state could be transformed by taxation. His· form ulawas to disregard the principle of taxation for revenue and to fix rates 'for the purpose of effect ing· a redistribution of income and. wealth .. European social ists have generally advocated heavy taxation rather than di rect expropriation. The result,. of course, is the same. The British socialis,ts were unable to raise tax rates much higher after they came into power after the war because the burden of taxation, at a rate of approximately 40 per -cent of the national incomie, was at the point of diminshing returns.

But they substantially kept taxes at the wartime levels, and then used the money for benefits, subsidies, Jandsocialist re form. This has had the effect of strifling private investment and plant renewal, paving the way to nationalization. Andit has compelled persons and businesses whose incomes were practically eliminated. to use their capital. for subsistence. Nothing in our .Constitution prevents such expropriation under the power to tax incomes and'inheritances. Thus, the jealous regard for the rights of property· in some of the provi sions of the Constitution is nullified by the simple terms of the. Sixteenth Amendment. And 'it is ironic that this Amend ment was initiated and finally enacted. through the efforts of old-fashioned liberals. 141 Statist Policies Of course, it was assumed that this great power could safely be vested in Congress. That, however, was not the assump tion of the framers of the Constitution, who wisely sought to check all government, including Congress. Nor was it the as sumption of John Marshall, who wrote the classic warning that Hthe power to tax involves the power to destroy."

We have learned the folly of our trust. Inch by inch, Fed eral taxation has invaded not only private property, but those tax sources which are the life blood of state and local govern ment. It was a notorious fact that an objective of the prewar New Deal was the limitation of all incomes to $25,000 a year. Harry Hopkins was in the habit of frightening his opulent friends by telling them that the intention of the New Deal was to limit them to $17,5°0. How he arrived at this figure is not clear. It is clear, however, that the limit of $25,000 was earlier specified in the platform of the Communist Party. In 1942 a $25,000 limitation was actually established by Execu tive Order. Later it was repealed. 1 For a long time, the Federal income tax was essentially a 7 The Communist Party platform for 1928, as published in the Daily Worker for May 26th of that year, contained, under Tariff and Taxation, the following plank: "Graduated income tax, starting with incomes above $5,000 a year, and increasing gradually, so that all incomes over $25,000 per year are confisca ted."

Following the adoption of the Price Control Act of 1942, President Roosevelt said in a message to Congress in April: "I therefore believe that in time of this grave national danger, when all excess income should go to win the war, no American citizen ought to have a net income, after he has paid his taxes, of more than $25,000 a year." The next day this statement was substantially re peated in an address to the nation. On that day the New York Times attrib uted the inspiration of this statement to the U.A.W.-C.I.O. After the passage of the amendments to the Price Control Act in October, 1942, the President issued an Executive Order containing the following provision: "7. In order to correct gross inequities and to provide for greater equality in contributing to the war effort, the Director [Economic Stabilization Director] is authorized to take the necessary action and to issue the appropriate regula tions, so that insofar as practicable, no salary shall be authorized under title III, section 4, to the extent that it exceeds $25,000 after the payment of taxes allocable to the sum in excess of $25,000.... "

In April 1943, Congress in Public Law 34 invalidated this provision in the President's Executive Order. 148 Expropriation class tax. Large.segments of the population were exempt, no tably those farmers who themselves produced much of their own subsistence, and millions of small-income earners. And the tax' has always been stiffly graduated so that the rich would bear the costs of the government. The great danger to free institutions comes from the use of the taxing power to achieve purposes other than the collec tion of revenue; to curb, regulate, or destroy. More recently, this has been called the use of the taxing power for "social obj ectives." There is now no restraint upon this power, nor is there any effective constitutional safeguard against its misuse. Legisla tive 'use of this power usually produces the hypocritical asser tion that the purpose is "revenue," and the Supreme Court, tongue in cheek, blandly accepts this excuse.8 Pr'ofessor HarleyL.Lutz, in his book Public Finance,' of fers the following objections to this use of the taxing power: 1. It violates the true conception and purpose of taxation, which is to gather revenue, and in,using this indirect means of regulation and reconstructing social and economic life, proceeds largely by guesswork.

2. The questions of benefits and ability, so essential to real taxation, are impossible to answer when the purpose is regu lation and discrimination. 3. The administration of such taxes creates very complex problems requiring 'the building up of enormous bureau cratic machinery,-. 4. When this form of taxation is used to regulate the char acter of industry, there appears the same incompetence of government that characterizes all socialistic planning. An excellent example of this misuse of taxing power is the 8 A very interesting example of the application of this dangerous principle was inserted in the Guffey-Vinson Coal Act, which was enacted after the in validation of the Guffey Act by the old Supreme Court. The new Act was up held in 1940. 9 (New York: D. Appleton-Century; 1936). 149 Statist Policies tax on undistributed profits, once formally adopted at the in sistence of President F. D. Roosevelt and later repealed. It still exists, however, for· use by the Treasury in the famous Section 102 of the Revenue Code. This tax forces upon cor porations the business judgment of the Treasury in the main tenance of reserves against emergencies. Another example, al ready noted, is the tax exemption of many cooperatives.

Another would be the application of the progressive principle to corporation taxes, with the intent to penalize bigness. Taxation for purposes other than raising revenue weakens the real capacity of government to collect necessary revenue. It destroys the essential sources of government income, re... presses initiative, prevents the creation and growth of new businesses, and weakens the whole economy. It creates for a time the intoxicating atmosphere of' getting something for nothing,. but ends in a lower standard of living··for alL And it fosters the growth of a collectivist society.~_ DEFICIT FINANCING Deficit financing has been endured, then pitied, then em~ braced. Until the end of the First World War, the Western nations generally regarded a budget deficit as a disease to be avoided, and if caught to be cured as soon as possible. In the early days of the German inflation, however, it was accepted as an evil. less serious thanunemploym/ent. Even Lloyd, George in 1922 suggested that, despite the traditional sound-· ness of England's fiscal policies and.despite the clear evidence that inflation impoverished the great middle classes, the avoidance of unemployment was paramount.; But now we know that the German inflation was no cure for unemploy ment, that it ultimately whetted the appetite of people for easy salvation through the state, and that ultimately the Ger...· mans sold their liberty for national, socialism and jobs.

150 Expropriatwn Two distinguished VIsItors who saw Germany in 1920 when it was under the spell of this delusion came away in fected and built elaborate rationalizations for deficit spend ing in other countries. These were Professor Irving Fisher of Yale and John Maynard Keynes. Fisher later came to be well known iIi America as the advocate of a flexible dollar and in early New Deal days was busy in Washington peddling his wares to members of the Ad~inistration-notably to Presi dent Roosevelt. It was Keynes, however, who became the prophet of the new economics. His theory of compensatory spending won great authority. He also sold his ideas to President Roosevelt. Since then others, like Alvin Hansen of Harvard, have devel oped extensions of Keynesianism with new and seductive elaborations and terminology. Deficits in the Federal government are, of course, met by borrowing. Some money is borrowed directly from the "pub lic," that is, from individuals who buy bonds and put them away. This method merely takes money from the savings of individuals, who then cannot· use it for spending. The gov..; ernment spends it, however,. and the effect of inRation upon the whole process depends largely upon what .this money is spent for. If it goes into things that are not in short supply, it has little inflationary effect.. If not, it becomes just as great an inflationary force as if the individu:als themselves had spent it. _ But the government borrows most of its money from the hanks. It brings to the bank, not assets, such as an individual does when he borrows, but its bonds. or lOU's. The bank puts these away and books them as assets. The bank then puts the amount of the "loan" down as a governmenr deposit and the government draws checks .against it and spends the money. This new money is added to -the nation's existing supply, and from present indications it wilt not be withdrawn 151 Statist Policies from circulation for many years-perhaps never. The effect is inflationary, for it means more outstanding money against the same supply of goods.

Deficit spending is not only a direct creator of inflationary evils, but it has a profound bearing upon the vital safety of popular government. The Federal Administration of the 1930'S, inspired by the sophistries of the "new" economists, used the resources of public credit with little restraint by Congress. The Federal debt almost trebled in those peace time years. It is reasonable to believe that many of the ex periments in which government indulged in those years would not have been attempted or endured if they had had to be financed by taxation. That was, to a degree, a surrender of self-government. More than sixty years ago, a great Ameri can econonlist, Henry Carter Adams, in his Public Debts of fered the following warning on this point: As self-government was secured through a struggle for mastery over the public purse, so must it be maintained through the exer cise by the people of complete control over public expenditure .

• . . Any method of procedure, therefore, by which a public serv ant can veil the true meaning of his acts, or which allows the gov ernment to enter upon any great enterprise without bringing the fact fairly to the knowledge of the public, must work against the realization of the constitutional idea. This is exactly the state of affairs introduced by a free use of public credit. Even more serious than the impairment of responsible gov ernment is the plain question of integrity-perhaps we might say collective integrity. There is a great difference between a government bond and an obligation issued by a private corporation. The latter has a definable and measurable material value behind it. The buyer pays his money and accepts the certificate. He acquires a legal right to take property if repayment is not made ac cording to the terms of the obligation. 152 Statist Policies, depositors' money. In this process' another fraud is perpe trated, in the form of manufactured money, which, as I have pointed out, induces the further expropriation of values by inflation.

THE BLIGHT OF INFLATION It is hardly necessary to discuss here the causes, nature, and effects of inflation. The people of this country have had a postgraduate course in that branch of economics for two decades. There still prevails, however" a tendency' to mistake symp-' toms for causes. The most common symptom of inflation is the rapid and erratic rise of.prices. In its first phase, the sup ply of money is. increasing and passing from hand, to hand faster than the supply of goods.and services available for pur chase. In many political movements in the past,. s,llenas "free ,silver"'"and Hgreenbackism/' the remedy' for all economic ills was said to be an increase in the supply of mon,ey. But inflation is largely due to psychological ratheF than ecoDQmic causes'. Fear of the scarcity of certain goods and services appears, and there is a scramble for those goods and services. That is the second phase of inflation.

The third phase~and the deadly one-appears when there is a widespread fear of the purchasing power of money. Peo ple then indulge in a generalized rush to spend money for goods. This is called the flight from money~, The second phase is marked by a fear of scarcity of goods; the third, by fear over the value of money~ There are of course very great: perils in the first and second phases, which the United States has endured for many years, notably since the end of the Second World War. The policies of our Federal government since the early 1930'S have gener ally been directed toward the stimulation of inflation. Deficit financing, low managed-interest rates, the stimulation of 154 Expropriation drives for higher wages·in certain favored lines dominated by powerful unions, and higher and higher food prices have all contributed. Since from 80 toS5 per cent of the cost of living ultimately depends on labor costs, a policy that favors an au tomatic increase in wages based upon an increase in living costs assures ever increasing prices. At times, government has caused a rush by irresponsible predictions of scarcities. Many . restrictive controls. and tax measures adopted in the Roose veltAdministration were inherently inflationary. For exam ple, the check upon short selling greatly. reduces the correc tive influence of a downward pressure in the stock market during an inflation. Higher capital-gains taxes are inflation ary. People are more reluctant to sell during an inflation, and thus there is removed a downward pressure on prices.

The plain fact is that generally in the Roosevelt and throughout the Truman Administration there has been de liberately planned and stimulated inflation. War actualities and fears have provided ample means .for this purpose. The objective of this drive has been inherent in political strategy. It is to provide greater and greater scope for the ex pansion of ·spending .and bureaucracy, while promoting the enrichment of some at the expense of others-always because there are more voters among the "some" than among the "others.' , It is already apparent that even if the great spending for war materials and mobilization had not reached its present stage, the present Federal Administration was determined upon inflation as a means of paying for its program ofstatism~ President Truman, speaking in Pittsburgh in September 1949, made this announcement: The selfish interests [a phrase repeated 22 times in the speech] say we can't afford these programs during a boom because that would be inflationary. They say we can't afford them duringa re cession because that would be deflationary. They say we can'taf ford them during a war because we are too busy with defense, and 155 Statist Policies we can't afford them in time of peace because that would discour age business. So according to the selfish interests, we never can afford them. But the truth is~we can't afford not to put these programs into effect. We can afford them, we ought to have them, and we will have them.

Dr. Edwin G. Nourse, the President's top economic ad viser, after a long struggle for his principles, accepted this speech as his repudiation and shortly after resigned his office. The President's budget proposals in 1951 lend additional evidence that inflation is a settled policy. Expenditures for the full welfare program and other nonmilitary purposes were recommended. The proposal for new taxes. to avoid a deficit was a political maneuver, because the President must have had small reason to expect Congress to raise taxes as much as he requested. The Administration screens the dire reality of inflation with what Jules Abels calls "Coueism" or "the virus of eu phoria," in which a number of techniques are used: 1 "The hortatory technique," which gives glowing pictures .of ever widening, dynamic progress; "the prod or gadfly tech nique," which consists of telling people that they had better go along or be ruined; "the underwriting technique," by which government offers guarantees to business against loss; "the social welfare technique," in which people are recon ciled to loss of savings by promises of pensions and other forms of assistance; "the mass purchasing power technique,"

by which it is said that, with more and more spending, every body will have more to spend. It may be added that in thus inducing people to believe that the mad progress of inflation may be good for them; the forces of statism postpone for a long time public realization of the ultimate reckoning. 1 These are listed by Abels in The Welfare State (New York: Duell, Sloan and Pearce; 1951), pp. 70-2. 156 CHAPTER VI The Reckoning The Material Costs WELFARE, UNLIMITED The famous dictum of Jeremy Bentham that the objective of human effort should be "the greatest good of the greatest number" has been used as a screen for the most egregious er rors and deceptions. In generations of politics it has been used to suggest that the greatest number can profit only by expropriation, at the expense of a smaller number. It is not only difficult, if not impossible, to determine what "good" is and to identify those who make up the "greatest number,"