6. The Reckoning

but Bentham's dictum rules out the true concern of the state, which is the sum of all. The good ofa greater number sometimes may best be pre served by protecting the good of a smaller number. The phi losophy of the early New Deal constantly stressed the indivis ibility of interests. Roosevelt likened the nation's economic system to a "seamless web," a phrase borrowed from Pollock and Maitland's great History of English Law. The early New Deal, still clinging to the concept of an eco nomic "seamless web," recognized that some individuals and some minorities must be protected from the "vicissitudes" of 157 The Reckoning life. This protection would be a distributed burden and would not impair the operation of a free economy. The later New Deal and the Fair Deal have energetically torn the "seamless web" bysingling out some interests for fa vor and others for disfavor. Occasionally, special favors for special welfares are justified by the claim that these welfares are essential to the whole, the general welfare. Secretary of Agriculture CharlesF. Brannan prefaces his disquisitions on his plan by arguing that the prosperity of agriculture is an essential factor in general prosperity. This postulate is cor rect, but he fails to show how an indeterminate monetary benefit to one group can indefinitely promote the general economic welfare.

The progressive increase of favors became a means of per petuating political power. Agricultural benefits would, under the Brannan Plan, be moved upward beyond the old parity formula and be based upon an entirely new calculation. The ear ly New Deal first encouraged private housing enterprises, by mortgage guarantees. Then government undertook mass housing projects for people with very low incomes. Ulti mately, there emerged the idea of building for "middleincome" people. " Finally the state-of-many-welfares becomes a mechanism for taking from those too weak to resist and givi"ng to those strong enough to control. The masters of such a state speak only in promises and only of material benefits. They neglect national unity, mutual forbearance, and common patriotism. Instead of promoting the general welfare, they promote alli ances of powerful groups, in endless conflict with other groups. The state becomes a vending machine where votes are inserted and money pours out.

The pursuit of welfare finally ends in the progressive in crease of benefits, with no end in sight as long as political of fice can be held. 158 The MaterialCosts HOW MUCH SOCIALISM CAN WE AFFORD? The British economist, Professor A. C. Pigou, in his Eco nomics of Welfare speaks of the "national dividend," which is to be nicely divided among outright provisions for welfare grants, for the sums necessary for the rehabilitation and ex pansion of the productive plant, for national defense, and for the maintenance of the bureaucracy. American politicians and reformers assume that the pro ductive forces of the nation will accommodate themselves to the progressive strain imposed upon them, and therefore lit tle or no' limit is placed on plans for increasing the load. In recent years they have expanded their plans by appropriation of larger and larger parts of the "national dividend" for eco nomic and military aid to foreign nations. These expendi~ tures have already reached an enormous total, and the end is not in sight. ·The purposes vary'from support of foreign cur rencies to undefined indeterminate enterprises in developing the resources of backward are~s--President Truman's Point Four.

The arguments in support of huge governmental expendi tures· for multitudinous purposes assume that the sources, of real wealth can be indeterminately expanded. Figures are used that have only shadowy meaning because of the progres sive deterioration of the value of the dollar. The possibility of the expansion of our real wealth is out side the realm of theory or good intentions. The most reli able measure of our 'national increase of wealth is national productivity. Between 1899 and 1939 our increase in real pro ductivity averaged 2 per cent a year per man..hour. Since 1939, the average rate has been 2~ to 3 per cent. There can be no miracles in this increase in the national product. It must always depend on the slow development of natural re sources, the rate of inventive and scientific progress, the sup159 The Reckoning ply of manpower, the capacity of management, the capital available for plant renewal .and enlargement, and other factors.

Productivity is also affected to an important degree by psy chological elements-optimism, daring, and the hope of profit and prestige. These are sheared away by state paternal ism. The relative values of these psychological elements, how ever, are subject to wide differences of opinion. In the politi cal interpretation of human impulses, speculation and wish ful thinking enjoy their greatest latitude. The statist places a high economic value on the assurances of personal security. In freedom from "want," he says, there is an elevation of spirit that moves mountains. He assumes that material secu rity makes free men, and that men thus "free" will labor dili gently for the sheer love of labor. But, he promises, there will also be freedom from labor and much more leisure for the amenities and for cultural pursuits. The magical machinery provided by state research will minimize the part that human action takes in produc tion. Mrs. Roosevelt once commended the quaint views of a theorist who anticipated a life in which labor occupied only the years between the early twenties and the early thirties.

During the rest of life, the packages of maintenance would be delivered to the door. Productivity, which is the source of national wealth, de pends upon human effort. Leisure, a late beginning of life's work, and an early retirement reduce productivity. The pen sioner's quest is toward pushing the age of retirement down to 62, then to 60, and even lower. Quite obviously, more and more would be living off the efforts of fewer and fewer, un less, as Mrs. Roosevelt's theorist contends, a man or woman can create a life's nest egg in a few years after maturity. But in seeking security for some the government impairs the security of many more. Savings, whether privately ac160 The Material Costs quired or gathered and "~ept" by the government, are de clining in ·real value because of the very policies that exalt the theory of personal security. We have seized the capital of the past and have denied future security to those who have put aside funds to assure it.

In determining how much socialism we can afford, we must realize that we are not dealing with fixed and unchanging forms and boundaries. The statist trend gathers momentum from the very forces that it generates. The socialist creed holds that "each should receive accord ing to his need and each should give according to his ability." Neither ability nor need are static factors, to be measured with mathematical finality. "Needs" grow to "wants," and "ability" must be measured against a· progressive disinclina tion to give. Without incentives, "ability" declines and dies. PROBABLE COSTS In the ye3:rs since 1945, the Federal Administration has proclaimed in bold terIllS its plans for the welfare state. This has stirred the minds of millions of serious people with a growing apprehension of implications and costs. Meanwhile, another great shadow has loomed over the nation-the threat of war and the need for war preparation. The vast cost of this preparation, which has risen from a few billions to more than sixty billions annually, and which promises further increases into an indeterminate future, makes it impossible to calcu late other costs of government or the means of meeting those costs or the future capacity of our economic system to sustain them.

The reality of a world war, .however, would shatter all esti~ mates and prognoses. But even with what would now seem a moderate expendi ture for arms, the additional cost of statism endangers the fu ture of a free economy. 161 The Reckoning TABLE C, WELFARE RECEIPTS These items are included in Personal Income by the Department of Comm'erce and called Transjer Payments. No services were per formed jor these payments in theyear paid. (In Millions of Dollars) Payments by Federal, state, and local governmentsjor direct relief, pensions, unemploy ment insurance and other welfare payments. Direct relief and military pensions are shown separately. 193° 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 1947 1948 1949 1950 Direct Relief S 105 176 31 7 558 745 954 635 787 965 1,024 1,01 3 985 956 929 939 986 1,177 1,·47a 1,72 7 2, 169 2,360 Military Pensions $ 468 548 571 456 382 418 433 434 446 462 476 474 476 491 649 1,013 1,693 2,181 2,297 2,389 2',467 Other $ 437 1,300 52 7 44° 425 423 1,858 630 994 1,026 1,199 1,158 1,223 1,046, 1,5°3 3,648 7,993 7,47° 6,522 7,052 9,50 3 Total Paid by Govern-Paid by ment * Business t $ 1,010 $534 2,024 649 1,415 737 1,454 659 1,552 641 1,795 594 2,926 594 1,851 567 2,405 42 9 2,512 451 2,688 431 2,617 5°2 2,.655 495 2.,466 505 3,°9 1 506 5,647 532 10,863 557' 11, 129 674 10,546 739 11,610 742 14,330 t 752 Total Welfare t $ 1,544 2,673 2,152 2,1I 3 2,,1.93: 2,389 3,520 2,418 2,834 2,963 3,119 3,119 3,150 ' 2,,971 3,597 6,179 l1,42Q 11,803 11,285 12,352 15,082 *Federal, state, and local governments. .

t Pensions paid by corporations and other businesses not included. :I: This is more than tlie avera&e annual expenditures of the Federal, state, and local governments for all purposes in the Io-year penod ended December 3I, I94o-much of which was from borrowed money. The rising costs of welfare since 1930 not only show the present burden our economic system bears for nonproductive purposes, but indicate what the future may bring-or rather, take. According to L. Robert Driver, the payments in 1930 by Federal, state, and local governments for direct relief, un employment insurance, pensions and other expenses, includ162 The Material Costs ing military pensions, were $1,010,000,000. In 1950, they were $14,330,000,000. 1 Thesum'in 1950·was nearly double the amount of corpo rate dividends paid in that year. It was more than the farm income of that year. "Welfare," as now interpreted by statist philosophy, in cludes almost every activity of the government except arma ment, foreign gifts and loans, service of the debt, and a few other items. As we have seen, the Supreme Court has'inter preted "the general welfare" as an almost unlimited sanction for Congress to expand these activities. Any effort to figure the ultimate costs must fail, because the ultimate is hidden in the mists of conjecture.

If we try to make such an estimate with the measuring rod of a good standard of living, we shall fail for several reasons. We cannot describe what will be deemed a good standard of living, because .wants will continue to increase long after present needs are satisfied. And those wants will be satisfied as long as political pressures, political promises, and political expediency decree that they will be satisfied. As.long. as it is politically rewarding to enlarge the range of benefits, politi cians will assume that the benefits are economically feasible. Inflation must be the ultimate answer. Nevertheless, despite the tendency of needs to expand into wants, we can make a rough estimate of what "welfare" will cost by comparing the present living standards of millions of Americans with the "standards" oratorically and officially held as adequate or necessary. For example, if we were to add $1,000 a year to the incomes of the g,6oo,ooo families now re ported to be living on $2,000 a year or less, the cost would be $g,6oo,ooo,ooo a year.

The President's Council of Economic Advisers, before the Korean War, estimated that the cost of the Administration's social insurance program alone, when fully achieved, would 1 Table C, prepared for me by Mr. Driver, shows these payments by years. 163 The Reckoning be $25,000,000,000 annually. But they included only pen sions, survivors' benefits, assistance to disabled and unem ployed, and government medicine. Immense sums must be added for housing, veterans' care and benefits, agricultural help" great reclamation and power projects, and made-work. There must also be added loans for helping business and di rect expenditures for government in business. There will be rising costs for such old, permanent. parts of government as the Congress, the courts, and the diplomatic service, in which the effect of inflation will be felt. Finally, and most impor tant, there will be the costs, direct and indirect, of keeping the boom going.

It has been estimated that special taxes on payrolls alone for old-age, medical care, unemployment, workmen's com pensation, and sickness insurance would reach 23 per cent in a few years. These charges will be largely passed on in the form of inflationary rises in the prices of manufactured prod ucts. Government planning of public works, however necessary some of them may be', always encounters a grave hazard. Plans are made on the basis of current costs. They go· to Congress for consideration, which involves delays of months or a year or two. When authorized, they may not be started for some time and may not be finished for years. Meanwhile, in an in flationary period costs rise. It has become almost the rule that in recent years great reclamation projects have ultimately cost two, three, or more times the estimates. Thus, we can never be sure even within approximate limits what the spend ing obligations of the government really are.

Figures that justify the high cost of the welfare state gener ally assume a high rate of prosperity. Most of those costs will rise sharply in any depression years. And the capacity of the economic system to sustain them by taxation will be sharply lowered in such a period. Any determination of the kinds or rates of taxation neces164 The Material Costs sary to support the statist's dream of a welfare state is impos sible, because, as I have shown,we cannot tell what the costs will be. We are told by President Truman and his economic advisers that their progressive demands for more spending will be met by increases in the national income and. wealth. We are told about a national income of a trillion dollars in the year 2000. This estimate of our future wealth is so stag gering that we are expected to believe that we can "affordthe costs of almost any possible adventures in government. Since such an estimate is made in future dollars whose value is indeterminate, it is not possible to relate it to what we know of productivity. Even if the most favorable view is taken of past progressive increases in productivity, there is no sound or plausible reason to expect that the national product can survive the drain of constantly enlarged government ben efits and other forms of government spending. 2 If inflation should continue at the rate established in the twelve months after the outbreak of war in Korea, the. Tru man trillion of national income 'Y0uld be realized in 1967.

If in our calculation we should use the increase of wholesale instead of retail prices, the trillion would be reached in 1963. This takes into consideration only the level of production and services of ·1950. If that should increase, the trillion would be realized sooner. THE ILLUSION OF REDISTRIBUTION Since government cannot by any magic formula yet de vised create wealth-only money, the pliable token of wealth -the course of the statist is to shift income from one to an other. \. But a redistribution of income can by no means meet the costs· of plans now proposed by the Federal Administration. Treasury figures on incomes show conclusively the inade 2 This point has been developed on p. 159. 165 The Reckoning quacy of individual incomes to meet future costs of the Fed eral government. Let us take those figures for the year 1948, when President Truman 'unfolded for the electorate the spec ifications of his Fair Deal.