Barriers to Prosperity
Byron W. Holt
[An address delivered at the Association of Women
Bankers meeting, Atlantic City, New Jersey, 6 October, 1931. Reprinted
from Land and Freedom, March-April, 1932]
I DO not need to tell you that we are in a business depression. It is
profound. It is worldwide. How did we get there? What caused it? Let
us look back seventeen years!
GENESIS OF DEPRESSION
The World War withdrew 15,000,000 or 20,000,000 workers, mostly young
men, from the production of wealth and set them to destroying wealth.
As a result there was a scarcity of ordinary peace-time goods and
their prices advanced rapidly. …All of these products are now
selling for one-fourth to one-sixth of their war prices. What
happened? Farmers, mine owners and ammunition producers made big
profits. The prices of farm lands, mining and equipment stocks rose to
high prices. Mortgages were placed, millions of dollars of them, at
these high war prices. The prices of many of the ammunition and war
equipment stocks, "war babies," advanced to ten times their
former prices. Their capitalization was greatly increased and there
was wild speculation in their shares.
Soon after the war ended there was a collapse in the prices of farm
and many other products and our troubles then began. The farmers were
among the first to suffer, many of them had bought and mortgaged their
lands at very high prices. With low prices and profits many were
unable to meet their interest payments. Farm loan companies and land
banks, and lately the Farm Board, were organized to help the farmers.
They are still "helping" them. However, bank failures, in
rural communities, have been numerous for ten years.
But there was a great shortage of houses, ships, sugar and many other
kinds of goods and capital after the war ended. There was a vacuum
which was not entirely filled until 1928 or 1929. The great
development of the automobile, radio and airplane industries
undoubtedly held back and staved off the collapse for several years.
Intallment purchases, by means of "consumers' credit," as
Prof. Seligman calls it, increased enormously, made us more
extravagant, gave us a false idea of an American standard of living"
and rapidly increased our debts and axes.
DAY OF RECKONING
A day of reckoning had to come. It came. It has lasted two years and
may last several years longer. We are now reaping our harvest of
dragons' teeth. Prices of commodities have collapsed. The prices of
sugar, copper and rubber are at record low prices. The prices of wheat
and cotton are at or near their lowest prices in modern times. Because
of these low prices and high taxes, our buying power has shrunken and
profits have reached the vanishing point in many industries and
corporations. Millions of men are unemployed and some are starving,
even in this land of plenty. Conditions are much worse in many other
countries. An inferiority complex comparable to our superiority
complex of a few years ago has taken possession of us. Anxiety and
fear have gripped us. The future looks dark and uncertain. We are
losing faith in ourselves and in our institutions. We are drawing
money out of our banks and hoarding it. Bank vaults are scarce in many
cities. Crime is increasing. I will quote from Walter Lippmann's
article in last Friday's Herald Tribune:
"Now the problem facing us is this: If wholesale
prices are to remain what they are, other incomes cannot remain what
they are. They will have to adjust themselves to the lower level.
The word 'adjustment ' is an easy word to use, but it really
represents an agonizing process. It means a drastic reduction of
wages and salaries; it means also an interminable series of
foreclosures, bankruptcies and defaults. Let us not deceive
ourselves. The effort to bring the whole economic system into
balance at the present price level cannot be carried through
automatically. It involves struggle step by step on the way down to
it, and a multitude of personal tragedies, not to speak of social
disorders, accompanying every phase of the long-drawn-out process.
For our whole capital structure, our whole wage level, our whole
standard of life, is posited upon a much higher priced level.
Theoretically, we should all be just as well off if everything were
reduced to the lower level now prevailing. But practically we cannot
get everything down to this lower level without infuriating labor
and defaulting upon a considerable portion of private and public
debt.
"The demoralization which now prevails is due to the growing
realization among people that we are for the present committed to
this long, dangerous and painful process of deflation. They do not
acquiesce in it. On the contrary, they resist it, and in their
resistance they are encouraged by the teachings of the
Administration. . . . These teachings are meaningless, in fact they
are the cruelest kind of deception, unless it is the purpose of
government and finance deliberately to raise prices again. . . .
"Thus the American people are utterly confused. They are
taught to believe in a future which involves inflation, and they are
actually living through one of the great deflations of modern times.
Is it any wonder they have lost confidence? Is it any wonder their
hopes have been dashed so often that they are losing hope?"
PESSIMISM VERSUS OPTIMISM
Most political and financial authorities have for two years been
denouncing the pessimists and holding them responsible for the
business depression. In my opinion the optimists are far more to blame
than are the pessimists for our present troubles. Some of the greatest
tragedies in business and in families are due to an excess of
optimism. I personally know of many such sad stories.
I am not ashamed to be a pessimist when I think conditions warrant
pessimism. I believe in looking facts, even bad facts, squarely in the
face, so that we can fearlessly plan to minimize their bad effects. I
think it is a mistake to shut our eyes to unpleasant facts and to hide
our heads in the sand. That is not the way to win battles in either
the military or industrial world. We should stop kidding ourselves.
Certainly the optimists those who have all along insisted that this is
only an ordinary depression and that fundamentals are sound have not
had the best of it since 1929. One definition of a pessimist is "one
who has had business relations with an optimist." There are times
when we should shun optimists, especially political optimists. They
are as dangerous as is infantile paralysis. The optimists of 1929 and
of previous years were largely responsible for our present troubles.
They told us fairy tales and predicted permanent prosperity. All we
had to do was to pick up the buckets of gold at the end of the
rainbow. We have had an oversupply of optimism and of optimists'
foolish remedies. It may be time to try pessimism and its remedies.
As a further prelude to my brief remarks on the causes of and the way
out of business depression, I will state, in a general way, my
political and economic views and principles:
In politics, I think, with Thomas Jefferson, 'that that government is
best which governs least. In economics, I believe in capitalism as
against socialism or communism, and I am old-fashioned enough to
believe that free and unrestricted competition and the law of supply
and demand are better regulators of production and prices than are
bureaus, boards or commissions. There is today too much monkeying with
the law of supply and demand. I do not believe in special privileges.
Furthermore, I hold that production exists for the benefit of the
consumer, and not the consumer for the benefit of the producers, as so
many seem to think. The consumers' desires and purchasing power should
and largely do ultimately direct and control production and prices.
CHARTS
I heard one of our best-known statisticians say last month that he
had lost faith in chart and statistical methods of forecasting and
that they have failed dismally in the present depression. If cycle
theories are now working, they are working in a way to dumfound many
of our financiers and industrialists. Apparently, the present
depression is far greater than was any other in modern times. It is
perhaps a profound and world-wide political and economic revolution,
such as occurs only once in hundreds or thousands of years.
Future historians will probably say that the World War was the
beginning of a world cataclysm that overturned thrones and shook the
economic foundations of the world. When we look at the great political
and economic upheavals in all of the continents; at the great
communistic experiment in Russia; at fascism in Italy, and at the
industrial and financial collapses in Germany, England, the United
States and in most other countries, with their millions of unemployed,
we cannot but shudder at the outlook and wonder if all of our great
modern institutions are built but to crumble as did those of ancient
Rome, Greece and Egypt. Was Herbert Spencer a true prophet when he
wrote, in 1894:
" In the United States, as here and elsewhere, the
movement toward dissolution of existing social forms and
reorganization on a socialistic basis I believe to be irresistible.
We have bad times before us and you have still more dreadful times
before you civil war, immense bloodshed, and eventually military
despotism of the severest type."
Spencer's prediction of bad times for Great Britain has been
fulfilled. If it is to be fulfilled as to the United States, we can "cheer
up," for "the worst is yet to come." Personally, I
think that not only can we, with intelligent action, escape another
civil war and a military despotism, but we can, within a few years,
attain greater and more universal prosperity than we have yet seen.
Before stating my views as to how to obtain this universal
prosperity, I will mention, briefly, what I think are barriers to
prosperity. Curiously, the most of these barriers are recommended as
remedies for the depression:
- Overoptimism has already been mentioned as one of the barriers
to prosperity. It is a dangerous American disease almost in
curable.
- War debts have resulted in taxes that are smothering industry
and are unbearable for many countries. Instead of economizing, we
are going deeper into debt and further increasing our tax burden
by constructing unnecessary or only half necessary public
buildings and works to provide work for a fraction of the
unemployed. We are spending a million dollars a day for new hard
road construction. This is not the way out. It tends to prolong
the depression.
- High authorities, largely political, insist that the "America
standard of living" must be maintained and that the high
wages of 1929 should not be lowered. This is regardless of the
fact that farm prices and farm wages have declined about 50 per
cent in the last twelve years, and that, as these cannot be
increased, because they are dependent upon world conditions, there
is no way of making adjustments to farm conditions except to lower
industrial wages and price. Regardless of theories, wages are
being reduced in nearly all directions, except on railroads.*
While employment has declined by 12.4 per cent in the last year,
payrolls (wages) have declined 20.8 per cent. Unfortunately, the
railroads are not free to do as they should. Even a 10 per cent
reduction would save them $230,000,000 a year. This would keep
many of their bonds legal and would be a Godsend to thousands of
our savings institutions. Ideal money wages should go up and down
with the cost of living. Construction work will probably lag until
wages are radically reduced. With 6-cent cotton and 40-cent wheat,
it is ridiculous to suppose that farmers can pay $10 or $12 a day
for carpenter work. The way to increase purchasing power is to
have labor employed at wages that will permit prices of industrial
products to come within reach of our farmers and of other
purchasers. Only politicians and labor union leaders can't see why
wages should sometimes decline. Artificially high wages make up
employment and are a barrier to prosperity.
- President Gifford urges all who can do so to buy now. Suppose
those who have buying power should heed this injunction, what
would happen? If they should buy unneeded suits or other things
now, they would buy less next month or next year. Haven't we had
too much of this kind of buying? Think of the balmy installment
days of 1929! Isn't the more natural and certain road to solvency
and prosperity through economy, sacrifice and hard work? We should
not forget Ben Franklin's maxims.
- Mr. Green, President of the American Federation of Labor favors
a distribution of employment during periods of extreme stress. But
two shifts a day or a week will not decrease production costs and
put prices within the reach of the incomes of most consumers. If
the object is to give employment to all, this can be attained by
having each worker shirk and do only half as much as formerly.
These are artificial devices to maintain nominal wages and to
hamper production by keeping up prices.
- Mr. Gerard Swope of the General Electric Company thinks that
industrial planning can stabilize production, regulate employment
and provide insurance for all employees. This plan involves
federal regulation and would result in putting the government into
private business, price-fixing and would end in state socialism.
- Perhaps the biggest fool remedy seriously proposed to a
starving and half-clothed world is the one to destroy crops, to
plow up every third row of cotton, etc. Actually 6,000 acres of
peach trees have been destroyed in California. Brazil is burning
coffee. A story is told of a railroad president who had two sons.
When the younger one reached seventeen he got "queer."
He finally confessed to his father that he was planning to build a
railroad to the moon. The doctors said the boy was insane. His
brother drove him to the asylum. Soon the father answered a
long-distance call. Here is the conversation: "This is the
superintendent of the State insane asylum. You have sent up two
youths." "Yes, what about them?" "Well, which
one is insane?" "Why do you ask that?" "Well,
one of them insists on building a railroad to the moon, while the
other one is trying to convince me that the Hoover policies of
destroying crops and shutting goods out of the country is the sure
road to plenty and prosperity."
I cannot take time to consider the other more than fifty-seven
varieties of remedies proposed by well-intentioned but short-sighted
officials and corporation directors. Some of their schemes would, if
adopted, alleviate present conditions, but would prolong the
depression. Washington is saturated with panaceas and Utopian schemes.
Natural law is violated by nearly all of them. The September National
Sphere says:
"Not public but private expenditures make
prosperity. What the patient needs most of all is freedom from
physic, a chance to recuperate. . . . It is still true, as was
discovered ages ago, that hell is paved with good intentions."
WORLD PROBLEMS
Great world changes are under way. Capitalism is on defensive as
never before. Governments are changing over night. Millions of
unemployed are discontented and threatening revolution. Some of them
are kept quiet temporarily by doles. In many countries there is such a
lack of confidence that depositors are taking their money out of banks
and hoarding it. More than 1,300 banks bailed last year in this
country. Forty-two failed last week, twenty yesterday. Bank vaults are
scarce in some of our cities. Debts and taxes are unbearable in many
countries. France and Italy repudiated four-fifths of their debts by
depreciating the franc and lire. England has no other alternative. It
will probably repudiate half or more of its debt by depreciating the
pound sterling. About half of our $10,000,000,000 of real estate
mortgage indebtedness is in default and frozen solid in our banks and
insurance companies and shows losses of from 10 per cent to 100 per
cent.
These are only a few of the distressing facts that are staring us in
the face. When we consider that man's technical equipment for
supplying human wants is greater than ever before, is it not evident
that something is wrong with our distribution system? Socialists and
Communists tell us that our competitive capitalistic system is at
fault and that our old institutions should be overturned and new and
revolutionary systems should be adopted. Socialism is creeping into
all governments, as Spencer predicted. Russia has gone the limit and
is making the world's great socialistic experiment. It has gone so far
that it is breaking down. In my opinion socialism is a dream and is
impracticable. Competition is a necessary ingredient in human
industrial society. Private property and compensation in proportion to
service rendered are the incentives that will advance civilization
farthest.
Now I am going to tell you how I think these barriers to prosperity
can be burned away. I do not expect the most of you to agree with me,
though I hope you will listen with as little bias and prejudice as
possible. It is my opinion that women have less bias on political and
economic questions than have most men. Especially should women bankers
be able to think clearly on economic problems. I am going to repeat to
you what I, last Friday, told the Atlantic States Shippers at their
convention in Philadelphia. I am afraid that the most of them did not
agree with me; I did not expect them to. They were only mere men. In
ordinary times I would not dare to mention free trade and land-value
taxation to 400 or 500 shippers, mostly manufacturers, in the
rock-ribbed protectionist State of Pennsylvania.
THE TARIFF BARRIER
Many millions of human beings live on the crust of this little
sphere, floating through illimitable space. Their problem is how to
make the best use of their opportunities on this planet. All that they
have or can have comes directly or indirectly from the land. Man is a
land animal. His food, clothing and shelter come from the land.
Without land he could not exist. Not all land is alike. Partly because
of climate and partly because of fertility, lands are adapted to
different products and uses. Thus sugar, bananas and citrus fruits are
produced most easily in warm climates, while wheat, corn, potatoes,
apples and most farm animals thrive best in cool climates. Is it not
clear that, following nature's dictates, man should take full
advantage of soil and climate and produce his food and clothing where
they can be produced cheapest? Does not nature suggest freedom of
trade as the easiest way to satisfy human wants? If sugar can be
produced profitably at 2 cents a pound in Cuba while it cannot be
produced for less than 4 cents in the United States, why should we not
make Cuba our sugar bowl and eat freely of her cheap sugar? We can
raise bananas in Maine if we are foolish enough to put tariff walls
high enough to keep out the cheap bananas from Central America.
Why then does each big and little country of this round earth have
tariff duties? Are tariffs not anti-social and harmful to humanity as
a whole? What fools these mortals be to erect tariff walls to deprive
themselves of the cheap products of other nations? Do cheap products
make cheap men? Or do wise men welcome cheap products? Women are not
afraid of cheapness. Watch our bargain counters! The theory that
tariffs protect labor, all labor, and make wages, real wages, high, is
an economic absurdity. Yet it is accepted by many who do not consider
themselves economic morons.
The United States is the most prosperous nation in the world. Why?
Largely because it is the greatest free trade country. There are no
tariff walls around any of its forty-eight States, and its 120,000,000
people, living in the different climates, exchange their products
freely. Is there more reason for a tariff wall between New York and
Canada than between New York and Massachusetts?
The moral argument for free trade is as sound as is the economic
argument. Protection is unneighborly and produces ill will and
jealousy and leads to war. It is unjust and favors one interest at the
expense of other interests. It can only protect a minority in any
country. In this country the tariff has protected some manufacturers,
but has never protected our farmers. The manufacturers get the kernel
and the farmers the shell. President Hoover made his greatest mistake
when he signed the Hawley-Smoot tariff bill.
LAND MONOPOLY BIGGEST BARRIER OF ALL
But goods cannot be exchanged until they are produced. They cannot be
produced without land. Land, labor and capital are the factors
necessary to production. Land is the most fundamental and important.
The products are divided between these factors rent to land, wages to
labor, and interest to capital. Land is the source of all employment.
The monopoly of land is the great cause of unemployment. Where labor
has access to land, unemployment is almost inconceivable. The most of
us do not realize the extent to which land is monopolized. In England
less than 5 per cent of its people own land; in the United States
about 10 per cent; in France 80 per cent. In France only 20 per cent
are excluded from the land and have to compete with each other for
employers. In the United States nearly 90 per cent and in England
about 95 per cent of the inhabitants are landless and are competing
with each other for jobs. Do these facts not suggest why France
suffers least and England most from business depression? The annual
rent of land in the United States is about $13,600,000,000. This is
about one-sixth of the yearly production of wealth in this country.
This means that the real producers of wealth labor and capital get
only five-sixths of what they produce, and nearly as much more is
taken from them by taxes of all kinds. Not only do our workers have to
pay heavy tribute to land owners for permission to work, but they are
not permitted to keep all that they produce.
Now it so happens that land values are created by civilized
communities and not by landlords. If these publicly created values
were taken by the public there would, in ordinary times, be no need of
taxes of any kind. But this does not tell half of the story. If land
values were taken for public purposes land would be cheap and easily
accessible to all. There would then be no land held idle
speculatively. All valuable land would then be put to proper use,
either for agricultural purposes or for building sites. Farmers would
pay little or no taxes and would be free from land mortgages. More
houses, stores and factories would be built, because they would be
untaxed, and rents of homes, stores and factories would be greatly
reduced. Leaving to labor and capital all that they produce would be
the greatest possible incentive to production and would conserve
property rights to the fullest possible extent. Every one would then
get the full product of his labor, and no one would get more. It is a
crime not to tax land values. It is a crime to tax man-made values
when publicly created values are not taken for public purposes.
This, then, is the road to prosperity free land and free trade. I do
not think there is any other road to permanent and universal
prosperity. Whether or not we will ever have enough economic sense to
take this road, I doubt. Certainly the world is now traveling on roads
going in the opposite direction. In England land values are not taxed
at all unless land produces some kind of an income. Virtually, this
puts a premium on holding land idle. Chancellor Snowden proposes to
end this unholy system. He may be too late. Spain, too, proposes to
let her unemployed take possession of her untilled lands while the
present depression lasts. Pittsburgh has taken a step in the right
direction by taking half of the taxes off of improvements and letting
them fall on land values.
This business depression will probably wear itself out in a few
years, when cost mortgages have been foreclosed and half of our
farmers and other producers lose their present holdings. We will then
have what will be called prosperity. It will last only until land
values again become highly inflated. These cycles of boom and
depression will be reported until the inhabitants of this earth learn
well their economic lessons.
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