resulting from the irregularities in other industries. Experience in England is particularly germane in this connection for there the electrical manufacturing, amusement, and distribution industries have had to pay a large part of the cost of the benefits paid to the irregularly employed workers in textiles, shipbuilding, and coal.

The proponents of the American plans undertake to eliminate these alleged inequalities by provideing for (1) insurance by industry, or (2) company funds.

INSURANCE BY INDUSTRIES AND COMPANIES

The American Association for Labor Legislation has developed a plan for compulsory pooling of the unemployment risks of each major industry. All employers in the clothing industry, for example, would contribute to the same fund, thereby relieving both employers and employees of other more regularly operated industries from supporting idle clothing workers. The size of the necessary reserve fund and consequently the amount of the premiums would be directly determined by the degree of unemployment in the particular industry. Anything done to curtail unemployment in an industry would benefit employers in that line.

The advocates of the company-fund idea contend that insurance by industry has some of the same weaknesses as the all-inclusive insurance system and that the individual employer who succeeds in regularizing would be compelled to bear part of the burdens of his less progressive competitors. They contend, too, that any stimulus to regularization can be effective only if applied to the management of a given company. Under the company-fund plan each employer bears his own and only his own risks. The plan in itself is exceeding simple. It calls for the establishment of an unemployment-insurance fund for each employer and for the creation of a State agency for the necessary administration and supervision. Each fund is to be separately managed and administered. Contributions are to be made only by the employer.

Provision is made, however, for arrangements whereby employees, individually or collectively, may agree to make contributions for the purpose of securing additional unemployment benefits. The amount of contribution varies. The Wisconsin act provides for a premium equal to 2 percent of wages paid. To stimulate the employer to regularize, he is relieved from making any payments once the fund has reached a predetermined size sufficient to cover reasonable needs in a given year. Thus the Wisconsin law provides that whenever the fund of a given establishment is equal to $75 for each employee on the payroll, further contributions cease. When the fund falls below this amount but is more than $55, contributions are to be 1 percent of the payroll. Underlying this provision is the theory that it affords added incentive to the employer to regularize. If he has little unemployment in his plant the fund will reach the required size in a relatively short period. Thereafter he is relieved of making payments until the fund is impaired by unemployment benefits paid to his employees.

It will be noted that the company-reserve fund operates in just the reverse fashion from the all-inclusive insurance scheme. Whereas under the latter the employer who gives the most employment pays the most premiums, under the former the employer who gives sufficient

employment so as not to impair his benefit fund pays no premiums at all. There can be little doubt that the company-fund idea bears more directly upon those sources from which the will and desire to stabilize must emanate than any other plan proposed for unemployment insurance.

SHALL INSURANCE BE COMPULSORY?

The question whether unemployment insurance shall be voluntary or compulsory was the principal issue developed in the course of our hearings. Yet it is a question which does not present a real alternative. The experience here and abroad has already been cited. No extensive insurance has ever been established by the voluntary acquiescence of employers. To advocate insurance with sincerity is to advocate compulsory insurance.

Compulsory insurance does not mean that the States must operate the insurance system, or that the State must contribute to the insurance fund or reserve. All that a compulsory system necessarily involves is that the employer is under statutory obligation to provide insurance or reserves to protect his employees against a stated period of unemployment.

As long as the community bears the cost we virtually subsidize unemployment.

The fear has been expressed that such compulsory insurance would be injurious to the labor movement. The very contrary, it seems to me, is the truth. It will minimize the destructive competition, during periods of depression, of millions of unorganized workers. An established system of compulsory employment insurance would give the labor unions a real stake in the management of business.

Employers are naturally apprehensive of the effect upon their competitive position. Yet those who have voluntarily assumed the obligation report that the increased good will and contentment of the employees, the elimination of soldiering, and the stimulus to management have resulted in efficiencies which more than balance the cost.

The principal responsibility for unemployment insurance rests with the States. The reasons for Federal encouragement are inherent in our economic organization. State boundaries are not economic barriers. They do not check the spread of depression. A similar economic interdependence is apparent between agriculture and industry. The stabilization of industry, the maintenance of purchasing power, the mitigation of want must be national and not merely local achieve

ments.

[From "The Survey" March 1, 1932]

THE NEW LEAD FROM CAPITOL HILL

(BY ISADOR LUBIN)

S. 2390 is an outcrop of the hard times and the imaginative leadership of the Senator whose name it bears, Robert M. LaFollette, Jr., of Wisconsin. It crystallizes the idea of an economic council in terms of legislative provision. It is the result of hearings which brought together bankers, industrialists, economists, labor leaders and engineers who were less called in as a coroner's jury on the remains of our recent prosperity than as a fruitful source of experience and ideas bearing on a new and affirmative lead. The procedure by which it was framed is a fascinating exhibit of a new type of group thinking and statesmanship. And this, so far as we know, is the first time the story has been told as a wholeby an economist who was in it at every stage.

When the subcommittee of the Senate Committee on Manufacturers recently voted favorably on S. 2390, the question of national economic planning in the United States left the realm of theoretical discussion and became an issue of practical politics. The bill would establish a National Economic Council with specific powers for factfinding and recommendation. Not only is it thus an important first-step but in its approach to the means for controlling industrial fluctuations, it breaks away from the sterotyped idea of restricted production in the direction of enhanced consumption. The measure has therefore within it the seeds of a radical change in our economic attitudes and procedures.

The genesis of the bill goes back to the closing days of the 71st Congress whose demise last spring American business awaited with bated breath so that "industry might be freed of the fears of further legislative action and once more be allowed to solve its own problems." It was then that Senator LeFollette submitted a bill (S. 6215) proposing a national economic council and secured the passage of a Senate resoltuion authorizing the Committee on Manufactures of which he was chairman to hold hearings after adjournment. 1

The council, with powers of subpena and research, was to be composed of 15 members to be appointed by the President and approved by the Senate from lists "submitted by groups of associations and organizations representing the industrial, fianancial, agricultural, trans

1 The other members of the subcommittee charged with this task were Senator H. D. Hatfield, of West Virginia, and Senator Morris Sheppard, of Texas.

portation, and labor interests of the United States." Its functions were to:

(1) keep advised with respect to general economic and business conditions in the United States; (2) consider problems affecting the economic situation of the United States and its citizens; (3) endeavor to formulate proposals looking to the solution of such problems; (4) make reports to the Congress, together with recommendations for necessary legislation and for other action; (5) from time to time as it deems advisable, submit reports dealing with particular economic questions, together with its recommendations, to the President, to the Congress, and to the appropriate economic associations and organizations interested in such questions.

Nine months were available before the new Congress to mobilize witnesses and take testimony. Various economists were consulted as to the type of evidence that should be collected. It was agreed that the primary question to be answered was: How far could an economic council be effective in preventing or ameliorating future industrial depressions? American business, it was evident, had been thinking primarily in terms of restricting output as the means for stabilizing American industry. That is the coming-out place not only of the widely accepted Swope plan but of the report of the Committee on the Continuity of Business and Employment of the Chamber of Commerce of the United States. Senator La Follette and his advisers, however, were interested in knowing whether the emphasis should not be shifted: Could the consumptive power of our citizens be raised to the point where it would equal our productive capacity? And, if so, how could we make a beginning?

The list of witnesses, as finally drawn up, included outstanding bankers, industrialists, engineers, economists, statisticians, trade-association executives, and labor leaders. The hearings were not to be merely opportunities for them to read prepared statements for the edification of the press. What the committee wanted was information. Considerable time, therefore, was devoted to assembling material bearing upon the history and experience of the invited witnesses. By a study of their public utterances and writings light was thrown on their fundamental attitudes toward industrial and social problems. When finally they appeared before the committee, each session began with a carefully worked out program of questions for the day's examination. In determining the need for economic planning, a factual picture was needed of the economic trends before and during the business slump. This task was assigned to E. A. Goldenweiser, director of the most important of the official economic and statistical organizations in Washington-the Division of Research and Statistics of the Federal Research Board-and to Laurence H. Sloan, vice president of the largest and most widely known private institution gathering and publishing business and financial information-the Standard Statistics Co.

Dr. Goldenweiser portrayed in statistical form for the decade 192029 the course of industrial production, building construction, factory employment, factory payrolls, freight car loadings, railroad income, railroad employment, security issues, interest rates, bankers' loans, bank failures, currency circulation, gold reserves, wholesale prices, retail sales, exports, imports, foreign investments, and international gold movements. He showed the ups and downs of these years-first,

the abrupt fall in industrial production in 1920 and 1921 (a decline of 31 percent from the preceding high point); next, a 67-percent increase between April 1921 and April 1923, following upon a $1,400 million expansion of the construction industry, and the rapid growth in the use of automobiles. Then came, in quick succession, a 21-percent slump in early 1924 and the rise of 1925, occasioned by the easy money policy of the Federal Reserve System and the bumper agricultural crop at the time of a foreign wheat shortage. Next, the recession of 1927, followed by the rapid expansion of the next 2 years which culminated in May 1929 in an industrial output surpassing by 15 percent the highest point thus far attained in our history.

During the next 2 years industrial output fell over 40 percent. Accompanying this decline came a 30-percent drop in factory employment and a 45-percent decrease in factory payrolls. As compared with August 1929, he showed that the wage loss to factory workers for the single month of September 1934 amounted to more than $445 million. Commenting on the fact that production started downward several months before the stock market crash in the fall of 1929, Dr. Goldenweiser said:

I think, broadly speaking, that this particular decline was largely a matter of having reached the limit of consumptive power at the existing level of prices. *** It was a very clear case of supply outrunning the demand * * * and the stock market decline was an accelerating factor rather than an initial factor.

One of the most significant and least generally known facts pointed out by Dr. Goldenweiser was the marked decline in residential building which started more than a year before the depression began. This foreshadowing of the future, however, had no effect on our industrial tempo. We continued on our expanding way. In 1928, according to Dr. Goldenweiser's testimony, the American public absorbed new security issues to the amount of $6,080 million. În 1929, we absorbed an additional $8,640 million. Hand in hand went also an increase in bank borrowings, the loans made by member banks of the Federal Reserve System rising by $1,355 million between June 1928 and June 1929.

With the crash came the most spectacular fall of prices ever witnessed in recorded history. Starting from an index level of 98 in June 1929, wholesale prices fell to 69 in the autumn of 1931. The output of the farmer which yielded him an average of $1.40 in March 1929 brought him 72 cents 211⁄2 years later.

The Nation's banking system soon found its portfolios laden with uncollectible commercial paper and depreciated securities. Bank failures became the order of the day. In 1930, there were 1,345 with deposits of $865 million, as contrasted with 501 with deposits of $196 million in the depression year 1921.

Depositors throughout the country took fright and suspensions continued. Funds were removed from banks and put elsewhere for safekeeping with, Dr. Goldenweiser estimated, the consequent hoarding of approximately $1 billion out of a total outstanding circulation of $5 billion.

The havoc wrought by falling prices and by the curtailed incomes of the argicultural and laboring classes was portrayed by Mr. Sloan in his analysis of corporate earnings. The net income of 550 of our largest industrial corporations, which in 1929 amounted to $3,458 mil