Professional Documents
Culture Documents
.
JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of
content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms
of scholarship. For more information about JSTOR, please contact support@jstor.org.
Sage Publications, Inc. and American Academy of Political and Social Science are collaborating with JSTOR
to digitize, preserve and extend access to Annals of the American Academy of Political and Social Science.
http://www.jstor.org
175
176
CONDITIONS
PLANNINGAGAINST
POSTWARDEPRESSION
177
178
DEPRESSION
PLANNINGAGAINST
POSTWAR
increase its clothing inventory as a utility company does when it sells bonds
to buy a new turbine. A turbine is
undoubtedly more impressive than an
inventory of suits and dresses. But
that has nothing to do with income and
employment. Labor is just as necessary
in making clothes as in making turbines,
and clothing workersas well as electrical
workers have to buy things with their
incomes. The same applies to different
types of government spending. A billion dollars spent on WPA has in general just as much effect on the national
income-perhaps more since WPA workers have no margin for saving and there
are no contractors' profits-as a billion
dollars spent on a regular public works
program.
The effectiveness of deficit spending
in turning the tide from depression to
recovery was demonstratedseveral times
during the thirties. Each time, however, the program was curtailed almost
as soon as it began to show results.
Business and political leaders viewed it
as at best a temporary expedient to be
abandoned the moment recovery got
well under way. They still expected
private investment to do the long-run
job of supporting prosperity without
help from the Government.
EXPENDITURES ON RELIEF
179
180
The spending program could theoretically take the form of direct grants to
consumers. We have seen that the basic
problem in the modernworld arises from
the community's tendency to save more,
at a high level of income, than can be
offset for any length of time by private
investment expenditure. In principle,
this calls for a transfer of income from
savers to consumersso that a larger proportion of income will be spent on consumption goods and a smaller gap left
to be filled by investment. One way to
increase consumption would, of course,
be through direct grants to everyone
who would agree to spend the money.
In practice, however, there must be
some method of selection. Money must
be given to people who have a need for
it which appeals to the common sense
of the community. The programs mentioned above provide a basis of selection-money is given to, or spent on
behalf of, old people, people who need
more adequate medical care, etc.-and
they also insure that certain important
community needs will be more adequately met than if the money were
simply distributed to consumers in general.
If the spending program is to be permanent and to be directed primarily to
increasing consumption, the question
arises as to whether borrowing is the
proper method of finance. Would it
not be better to raise the money by
taxation and thus avoid the difficulties
which are likely to arise in connection
with a growing national debt?
BORROWING AS METHOD OF FINANCING
the people who presumably do the saving. But these people may react to the
higher taxes by reducing their consumption as well as their saving. This is
particularly likely to happen in the
case of the middle-incomegroups.
The superiority of borrowing in this
respect is accentuated by the fact that
a great deal of saving in the modern
world is done through such institutions
as insurance companies and savings
banks. Taxation can only be partially
effective in stopping this saving at the
source and is, of course, totally ineffective in reaching it thereafter. Borrowing, on the other hand, absorbs the
funds after they have come into the
hands of the savings institutions and is
thus completely effective in channeling
any potential excess back into the spending stream.
Borrowing also has the advantage of
greater flexibility. Private investment
is not likely to be any more stable in
the future than in the past. Fluctuations may, on the contrary, be more
severe around a generally low level than
around a high level. Deficit spending,
thanks to the relative ease with which
it can be increased or decreased, is a
convenient instrument for offsetting
such short-run variations in private investment.
But there are also disadvantages.
Continuous borrowing means a steady
increase in the public debt and in the
total of interest that has to be paid on
the debt. The community as a whole
does, to be sure, pay this interest to
itself and thus theoretically could discharge a debt burden, no matter how
large. But there is a transfer problem
which is likely to cause difficulty if the
debt grows very rapidly. Taxes might
be levied in such a way that the holders
of the bonds would themselves pay the
interest on them. But this would mean
that the bonds would yield them no
income and would hence be strongly op-
PLANNING AGAINSTPOSTWARDEPRESSION
181
182