the moratorium should be extended until June 1934. If this is not done, at least Great Britain should be given the option of paying in goods or pounds instead of in dollars.

REDUCING THE DEFICIT

The Government's budget problem arises from the disappointing yield of the new taxes. Apparently the deficit for the current year will be well in excess of a billion dollars. Let me say emphatically that I am not in favor of attempting to balance the budget in the midst of depression. An enormous amount of nonsense has been talked on this subject during the last year. The Government deficit in a period of depression is valuable because Government borrowing is likely to produce inflation-or at least to offset in some measure the deflationary effect of the liquidation of private indebtedness. But if the deficit is too large and excites too much alarm, its net effect may be deflationary rather than inflationary, because apprehension over the fiscal policy of the Government may cause many business enterprises to postpone buying and, insofar as possible, to avoid commitments.5 The unexpectedly large deficit which is developing this year seems to be having this effect. In order to gain the maximum inflationary benefit from the deficit, it is necessary, therefore, to reduce the deficit.

6

It makes a great deal of difference, however, how the deficit is reduced. Burdening the country with new taxes, at a time when taxation is already taking one-fifth or more of the national income, is not likely to help business. This is particularly true of taxes which are likely to fall temporarily or permanently on the working capital of business enterprises. Consequently, the deficit should be reduced in the main by cutting expenditures rather than by imposing new taxes. The obvious exception is, of course, a tax on beer. If the industry is legalized, it can bear a fairly heavy tax and should bear it. But most estimates of the probable immediate yield from a tax on beer are much too high.

SUGGESTED GOVERNMENT SAVINGS

Time does not permit an analysis of the intricate problem of how expenditures might most advantageously be reduced. Approximately $150 million might be saved by transferring the Post Office to a public corporation, operated by a general manager subject to a board of directors who possessed authority to set whatever rates were necessary to cover costs. But undoubtedly the country is not yet prepared to insist upon this step. Some savings could be achieved by bureau reorganizations and by conducting the operations of the Government

This is likely to be particularly true of enterprises which have loans that are about to mature and which fear that large flotations by the Government may prevent private enterprises from floating loans on favorable terms.

Here is the principal objection to a sales tax: Under present market conditions most sales and excise taxes cannot be promptly shifted by producers to consumers, and consequently they fall upon working capital. Most enterprises are already operating at a loss or making only small profits. As everyone knows, nothing is more effective in inducing managers to postpone every possible repair and replacement, to let inventories fall to the very minimum, and to lay off every man who can possibly be spared than to see their working capital steadily being consumed by sales below cost.

This would mean abolishing the position of Postmaster General. It would also mean that postmasters would no longer be political appointees. They would be selected and promoted from small offices to large ones on the basis of efficiency and performance, just as the managers of chainstores are appointed and promoted.

more efficiently, but the amount which could be saved without sacrificing valuable work is small in relation to the deficit.

Undoubtedly the greatest opportunity to reduce expenditures would be to cut the payments to veterans for disabilities not incurred in service. These payments should never have been made in the first place. They now approximate $450 million a year, or nearly onefourth of the expenditures of the Federal Government. Nothing would do more to eliminate the fear caused by the deficit and to improve public sentiment toward national finances that for Congress to reduce by $250 or $300 million the payments to veterans not disabled in service. Indeed, I venture the assertion that $250 million taken from the veterans would do more to inspire confidence in the national finances than $750 million of savings achieved in other ways, because it would demonstrate that Congress had the courage and the vision to rise above petty politics in dealing with budget problems. This statement illustrates how largely the problem presented by the deficit is a psychological one. The problem is not to eliminate the deficit, but to reduce it sufficiently and to administer national finances in such a manner as to eliminate the fear caused by it-and thus to derive the maximum inflationary benefit from the deficit.

THE DOLE SYSTEM

Thus far I have arbitrarily defined the immediate unemployment problem as that which must be met between now and next summer. But unemployment will probably be severe during the winter of 193334 and possibly much longer. I make this statement in full realization of the fact that a rapid and spectacular business revival would not be at all surprising. So great is the amount of postponed buying by both consumers and business enterprises that a change in the trend of prices (brought about by the revision of debts, the application of the domestic allotment plan, or the world's steadily growing gold stocks) might soon initiate a spectacular upward spiral of buying and investing. It is merely conservative, however, to assume that the revival will be slow and to plan unemployment relief accordingly. Let us face these facts squarely and ask frankly what they mean.

To begin with, they probably mean that we must have the dole on a large scale for at least 2 more years. It has been said that our present dole system is the worst in the world. Since, whether we like it or not, we must have a dole, is it not sensible to make our dole system the best in the world?

What kind of an organization is required? A substantial proportion of the relief funds for at least the next year must come from the Federal Government. The task of administering Federal aid and of furnishing leadership to the States and the local communities in organizing relief is too big to be handled permanently by a division of the Reconstruction Finance Corporation. An Emergency Board of Unemployment Relief is needed in Washington. In addition, State boards are needed, such as those in New York and Illinois; and in many communities subsidiary local boards should be established. The Federal Board should cooperate with the State boards in organizing and perfecting local relief agencies, and should grant financial aid to the States where, in the judgment of the Federal Board, local conditions

warrant it. But the Federal Board should be definitely instructed by Congress to refuse Federal aid to any State or locality which, in the judgment of the Board, fails to make a reasonable effort to help itself.

WORK RELIEF

Because relief must continue for a long time, as much it as possible should be work relief. Unfortunately the tendency in most communities has been to reduce the amount of work relief. In some places, particularly in large cities, difficulty has been experienced in finding enough suitable work-relief projects. Often the administration of work relief has been unsatisfactory, and this has had unfortunate effects upon the morale of the holders of work-relief jobs. Most important of all, the expense has been too large in comparison with home relief.

None of these disadvantages is insurmountable. Imagination and careful search will reveal a surprising number of opportunities for work relief even in the large cities. The projects, of course, need not be manual labor, and the need for work relief for the whitecollar unemployed is great. Many useful surveys and investigations might be made by white-collar unemployed. Furthermore, with a State or National relief organization, it would be possible to transfer some city unemployed to projects outside of the cities. Proper administration is largely a matter of proper planning. The hours of employment can be so adjusted that this form of relief does not cost subtantially more than home relief. In order to stimulate the development of work relief, a Bureau of Work Relief should be established under the direction of the Federal Unemployment Relief Board. This Bureau should have a substantial appropriation to be used in financing approved projects in cooperation with the States, the cities or the counties.

LIMITING WORKING HOURS

Finally, and most important of all, the prospect of 2 or more years of unemployment on a large scale means that much more drive should be put behind the movement to spread work. It should be a drive, however, not to spread work thinner than it is now being spread, but to prevent hours from being increased too much when business picks up. The subcommittees which have been established by the Teagle committee can scarcely be expected to do this. They are not likely to remain in existence long enough and they lack authority to prevent recalcitrant employers from increasing hours rather than hiring more men. The responsibility for preventing a too-rapid increase in working hours might well be combined with the administration of unemployment relief. The title of the semipermanent board established in Washington should be the Emergency Board of Employment and of Unemployment Relief, and the Board should be authorized to establish in the various industries committees with the function of determining at frequent intervals what working hours, in view of the unemployment situation in the industry, are reasonable. Note that the restriction on hours would relate to the working hours of the men-not the operating hours of the plants. The plants might work 24 hours a day, 7 days a week, provided they worked no man

more hours than permitted. Violation of these orders should be punished by suitable penalties.

Probably the Government could not constitutionally exercise this authority except for the period of the emergency. During the emergency, however, there can be no question that Congress possesses the authority to limit working hours by reasonable methods for the purpose of giving more men an opportunity to earn a living.

It is a most grave situation-this one of prolonged unemployment which seems to confront us-and one which we cannot meet unless we are willing to do some things which we have never done before. Perhaps we shall be saved from it by the spectacular revival which the large volume of postponed buying makes possible. Obviously, however, it would be rash to gamble on such a revival. We must prepare to deal with the absorption problem by creating efficient machinery for controlling the increase in working hours and for compelling universal division of work as business picks up.

[From "The Crisis of the Old Order," Houghton Mifflin Co., Publishers]

THE AGENDA OF REFORM

(By ARTHUR M. SCHLESINGER, JR.)

In their way, the critics of American business were caught almost as short by the depression as was American business itself. The traditional concern of the liberal reformers had been with welfare and with freedom, of the labor leaders with wages and working conditions. Depression confronted both groups with a radically new challenge. Assuming the inevitability of economic growth, they failed to anticipate economic collapse. Few among them were ready with either diagnosis or cure.

The labor movement was particularly slow in response. William Green's editorials in the American Federationist hardly acknowledged the existence of mass unemployment until the middle of 1930. The A.F. of L. convention that year was notable chiefly for the violence with which the leadership repulsed the idea of unemployment insurance, Green warning, with all the zeal of a Henry Ford, that the dole would turn the worker into "a ward of the state." As the depression deepened, however, even the A.F. of L. had to recognize its existence. By March 1931, Green was calling for "sustained, coordinated planning" within industries and "integrated cooperation" among them; and in July he declared to President Hoover that unless American employers made a "collective guarantee of work security" they faced "the inevitable enactment of unemployment insurance legislation which, in effect, will fasten a dole upon American industry."

When the federation held its 1931 convention at Vancouver, Green was in a mood of unwonted ferocity. "I warn the people who are exploiting the workers," he said, "that they can drive them only so far before they will turn on them and destroy them. They are taking no account of the history of nations in which governments have been overturned. Revolutions grow out of the depths of hunger." The militance was largely verbal, but it enabled the leadership to avert the endorsement of compulsory unemployment insurance which Dan Tobin of the Teamsters and other bolder leaders were demanding from the floor.

The leading railroad unions echoed this new bellicosity. In the spring of 1932, their leaders, including A. F. Whitney and D. B. Robertson, called on President Hoover. "Mr. President," they said, "we have come here to tell you that unless something is done to provide employment and relieve distress among the families of the unemployed *** we will refuse to take the responsibility for the disorder which is sure to arise. It is our duty," they continued, "to give the constitutional Government of the United States full warning