CHAMPION OF DEBT

Waikato Times, Volume 124, Issue 20734, 18 February 1939, Page 15 (Supplement)

CHAMPION OF DEBT

Financier’s Arguments :: A Sound Policy

(Americar MR. MARRIXER S. ECCLES, chairman of the Federal Reserve Board, declared that sudden drastic curtailment of Federal spending would reverse the recovery trend and “jeopardise the salvation of our democracy. In a public letter to Senator Harry F. Byrd, he strongly opposed the retrenchment programme which the Viriginia Democrat outlined recently in an address at Boston. Denying that the New Deal’s expenditures represented waste and urging instead that they had increased the nation’s income and its assets, Mr Eccles took Senator Byrd to task for “name-calling” and “Intemperate Denunciation.*** The Federal Resolve chairman vigorously opposed the substitution of a system of relief doles for the more costly work relief which the Government now provides for the unemployed. He wrote Senator Byrd: “You assert that ‘millions of ablebodied citizens rely upon the Government for support and have ceased to exert their efforts for self-help to obtain private employment.’ So far as I know, there is not the slightest evidence to support such a sweeping assertion. Any honest American citizen must resent the insult this implies to millions of self-respecting men and women. “You stated that you are concerned about *the character of the individual citizen* and ‘the dignity and the rights of the individual.* So am I. I believe, however, that the most basic right of all is the right to live and next to that, the right to work. I do not think empty stomachs build character, nor do I think the substitution of idleness and a dole for useful work relief will improve either the dignity or the character of the people affected. “We cannot expect to preserve our free institutions in this country if we condemn a substantial proportion of our people to prolonged idleness on a bare subsistence level of existence. “Further than the right to eat and the right to a position, I think the individual, whether rich or poor, has a right to a decent place to live. I think he has a right to security in old age and to protection against temporary unemployment. I think he has a right to adequate medical attention and to equal educational opportunities with the rest of his countrymen. “The Government expenditures which you condemn have in large part been the means at translating these Basic Rights Into Realities. Anyone who is genuinely sincere in his concern about the rights, the dignity, and the character of the individual citizen, far from seeking to tear down what has already been done, will want to have a hand in expanding and improving this work for the future.” In his recent address before the Massachusetts Federation of Taxpayers’ Associations, Senator Byrd demanded an end to “nine years of fiscal insanity.” He advocated: Reorganisation of the Government to effect economies; reduction to a minimum of activities new to the Government; transfer of part of the relief burden to local communities; a purge of'the “undeserving” from relief rolls, and reduction of relief

Paper.) costs by stopping all expenditures “in excess of providing for those in need”; “reasonable taxation” as “one of the best assurances of business prosperity.” The Senator contended the nation faced disaster unless it soon approached a balanced budget. Mr Eccles replied: “I, for one, am not prepared to believe that this nation is doomed to stagnation, to a low level of national income, to a wholly unsatisfactory standard of living instead of the high standards, the achievement of which depends only upon our correct understanding of the operations of our economic system. “I am convinced that your programme is not only a defeatist .one, a programme of retrogression and not of progress, but that it would jeopardise the salvation of our democracy which I know you are as sincerely desirous of preserving as I am.” Mr Eccles asked the Senator if he was aware “of studies made by a distinguished group of scholars, under the auspices of Twentieth Century Fund, indicating that the total of all domestic debts, both public and private, is no greater to-day than it was in 1929.” Private enterprise has been in no position in the years since the depression, the Federal Chairman said, to employ profitably anywhere near the total of the country’s savings, because there was Not Sufficient Buying Power in the hands of the public to purchase the output of existing facilities of production. Mr Eccles continued: “In connection with the question of debt, you also make the curious statement that some day the whole amount must be repaid. Such a statement reflects a misunderstanding of the fundamental nature of our capitalist economy. “Debts and obligations of various kinds are but the other side of investment, and if we ever tried to liquidate the. whole amount of them, or even any substantial fraction, we would precipitate a crisis so severe that general economic paralysis would result. When there is contraction of total debt, private and public, we have deflation. We have never had prosperous conditions without an accompanying expansion of debt, either private or public, or both. “Do you think, as your speech seemed to indicate, that in a democracy the government had no responsibility for creating debt in order to give employment at times when private indebtedness is contracting and private enterprise is unable to do so? Do you consider, as your speeefi implies, that government debt is evil, whereas private debt is not? One would gather from your attitude that if a private contractor, for example, borrows money to build houses you would commend him for ‘raising capital for private enterprise,’ whereas, if a government housing authority borrows money for the same purpose, you would denounce it for ‘incurring debt’ . . . “Is it not true that the creation of too much debt relative to the creation of real wealth is inflationary and, therefore, bad, whether that debt be created by public or private activity, or both? Can it be said that the creation of debt, either public or private, that utilises productively otherwise unused human or material resources, that creates real wealth, that adds both to existing real wealth, and to national income, is an evil?”