Such a program is but a temporary makeshift and, if improperly handled, may prove a boomerang. Employers will need to take into account the reactions of the employees. They may well expect trouble if they resort to a dilution and training program to avoid hiring craftsmen who are union members or to beat down union wage rates. Fairness requires that, as far as possible, they should give preference to their own former employees who are still unemployed. They will do well to consult their employees, through their representatives and spokesmen, before deciding upon plans which promise a speedy solution of their difficulties through quick methods of training skilled mechanics. But if they deal frankly and aboveboard with labor, a program of adult training may afford immediate relief, although it will not lessen the need for apprenticeship or some comparable method of initiating a sufficient number of new entrants into industry to maintain an adequate supply of skilled craftsmen in the future. If there is fair dealing, it should not prove impossible to convince labor that the shortage of skilled men limits the opportunities for the reemployment of the great numbers of unskilled or semiskilled workers still out of work. Organized labor must realize that if it takes an unreasonable attitude in this matter, there is real danger of letting down the bars against the immigration of skilled mechanics and of resort to wholesale quick training methods such as were employed, to labor's lasting detriment, during the World War.

There is more, however, to the problem of getting the unemployed back to work than merely increasing the supply of skilled labor. Millions of employables are still unemployed; but employability is a matter of degree. It is becoming increasingly apparent that large numbers of the employables on relief are at present of low employability, and they are not likely to be reabsorbed into private industry unless their efficiency is greatly improved.

Heretofore, we have assumed that the Government's role in relation to the unemployed should mainly be one of providing relief until they are reabsorbed into private industry. In the work relief program we have had some idea that work is necessary to preserve the morale and skills of the unemployed, but it has been assumed that almost any kind of work will do. There has also been an assumption that the reabsorption into industry will be automatic as conditions improve. WPA regulations, indeed, have been such that work relief clients cannot afford to accept any private job unless it is almost certain to last at least several months. All WPA workers are registered as applicants for private employment at the public employment offices, but in many offices their names are kept in a separate file, which is consulted only when orders cannot be filled from the nonrelief applicants. Only 200,000 persons on relief were placed in private employment last year through the public employment offices, and not much larger numbers were recalled by their former employers or found work through their own efforts. Employers tend to shun the workers on relief, and there is an understandable, but unfortunate, reluctance on the part of these men to seek or take private employment.

Now, we are confronted with the alternative that we must either be prepared to keep several million workers on direct or work relief permanently, or make much more of an effort than we have hereto.

fore to get these workers reabsorbed into private industry. The latter is the announced policy of the administration, although it recognizes that work relief will have to be continued on a considerable scale for some time to come.

More will have to be done to make this policy really effective than the President's appeal to industry to do its part in reabsorbing the unemployed and particularly the older workers. The WPA must be changed in such a way that the work relief clients will be much more eager and willing to go into private employment. The best way of doing so is not to reduce the WPA wage rates, but to limit the length of time that any one may be employed on WPA projects.

The time also has come for regarding the entire problem as one more of rehabilitation than of relief. This has long been recognized in Europe. For over a decade, the British Ministry of Labor has been carrying out training and transfer programs in conjunction with the employment exchanges, to rescue some of the most promising of the people in danger of becoming chronically unemployed. Last year it had 12 training centers, in which 12,000 carefully selected adults were given 6 months' training for skilled occupations in which there are shortages, and 98 percent of them were placed in these industries at "improvers'" (helpers') wages and accepted by the unions, not as all-around mechanics, but as having the equivalent of about 3 years of a 4-year apprenticeship term. For unemployed juveniles in England, there are locally conducted prevocational training courses, financially aided by the National Government; and there are transfer allowances for selected workers in depressed areas who have been trained for available work in more prosperous regions. In Germany, many more of the unemployed have been trained and retrained in programs conducted by the employment offices; but-in contrast with the practice in England-without regard to the interests or wishes of the employed workers. In correlating vocational guidance for young people with available employment opportunities, however, the German employment offices have done such apparently good work that we may well find in their methods much that should be applied in this country.

There has been some thought and a little experimentation in the United States with similar devices to adapt our available labor supply better to the needs of industry-which is the same thing as increasing the opportunities for employment of many who now seem doomed to the uncertainties of work relief. The U.S. Employment Service has undertaken an elaborate occupational research survey, its objective being to facilitate the transfer of people skilled in one line of work to another in which there are better prospects. To date, this survey has produced only elaborate, detailed descriptions of occupations, but these are to be followed by practical guides grouping occupations by related skills. In a number of localities, training for occupations (generally of a semiskilled nature) has been instituted in the schools or by the WPA. The best planning for rehabilitation services has been done within this organization, but it has not yet got beyond the stage of small-scale experimentation.

The fundamental reason why we have made so little progress in this respect is that we have regarded the unemployment problem as being but a temporary one, which would eventually solve itself without

more attention to the individual unemployed man than to keep him in health and not too discontented. This attitude must now give way to a policy of genuine rehabilitation, if we are not to have a large body of workers permanently excluded from industry and supported mainly at the expense of the employed. There is no way in which we can avoid all the consequences of our past mistakes and no way of cheaply and quickly meeting the problem. But it is high time that we made a real beginning. This means a complete reorientation in our entire program for reducing the numbers of employable men still out of work, or at work on emergency Government projects, as our industrial recovery proceeds.

[Address before the special session for business executives, Department of Economics and Business Administration, Westminster College, New Wilmington, Pa., November 19, 1937.-From "Potentials of the American Economy,” Harvard University Press.]

SAFEGUARDS AGAINST DEPRESSIONS: AN ANALYSIS OF DEPRESSION CURES

(BY SUMNER H. SLICHTER)

Between the summer of 1936 and the summer of 1937 the cost of living advanced by 4 percent. The income of industrial workers, including factory, railroad, and mining employees, advanced 12 percent, and the cash income of farmers by 12 percent. Industrial production increased 5 percent. Productions of consumers' good did not increase at all. Despite the fact that consumer purchasing power was outrunning production, the country was plunged into a depression. A similar experience preceded the recession in 1923-24.

These experiences remind us that a pronounced recession in business may occur even when consumer purchasing power is growing faster than industrial production. The reason is plain. The immediate determinant of the state of business, as every businessman knows, is the outlook for profits. When the outlook for profits improves, business enterprises expand their expenditures, employment and production increase, and the standard of living of the entire community rises. When the outlook for profits is uncertain or dark, enterprises postpone commitments and reduce expenditures, the volume of employment and production falls, and the standard of living drops. The state of consumer purchasing power is only one of many variables which affect the outlook for profits. That is why profit prospects may grow less favorable even while consumer purchasing power is growing.

Although consumer purchasing power is only one of the many variables affecting the outlook for profits, the prospect for profits is the dominant factor in determining consumer purchasing power. It is easy to see why this is true. The incomes of four out of five families are nothing but the expenditures of business enterprises. Hence, before a drop in consumer incomes can occur, business enterprises must decide to spend less, and before an increase in consumer incomes can occur, business enterprises must decide to spend more. Consequently, when one examines the monthly figures on industrial production and retail sales, one finds retail sales lagging from 3 to 6 months behind industrial production. In periods of depression industrial production always starts upward while retail sales are still going downward, and in periods of boom industrial production starts downward while retail sales are rising.

This brief analysis indicates the nature of the problem of fighting depressions. Reduced to its simplest terms, it is a problem of inducing an increase in business spending. Since the volume of business

spending depends upon the outlook for profits, the essential thing is to improve this outlook. The increase in business spending must not be confined to items on current account. It must include a sufficient volume of new investment to absorb that part of the individual savings of the community which the Government does not absorb, for obviously if individuals and enterprises save more than they invest, the turnover of bank deposits will continue to drop and so will the demand for goods.

II

Before I discuss the role of the Government in dealing with depressions, permit me to comment briefly on the responsibilities of private enterprise. The extraordinary difficulties of the last depression compelled us to look so much to the Government for help that we have tended to overlook the role of private resourcefulness and initiative in producing revival. Recovery from depression, as I have pointed out, can come about only by an expansion of business spending. Every businessman knows, however, that profitable changes in methods, equipment, and product have to be discovered. They are the result of a systematic search for ways of cutting costs and increasing sales. This indicates the all-important contribution that private enterprise must make to fight depressions. Its job is to discover new profitable opportunities for increasing business spending. The Government can help by assisting in various ways the removal of maladjustments which stand in the way of private business. No Government aid, however, can take the place of efficient, resourceful, ingenious, and courageous management struggling to find new ways of making money. Private enterprise needs to keep itself prepared at all times to fight depression (1) by keeping a large backlog of industrial research work in process so that projects can be brought to completion within a relatively short time and (2) by accumulating sufficient reserves in good times to maintain research work in bad times.

Four principal Government policies have been advocated for fighting depressions. They are:

(1) Relief to debtors.

(2) Encouraging reductions in the price level by deflationary policies.

(3) Encouraging increases in the price level by inflationary policies.

(4) Attempting to maintain or increase consumer purchasing power by various methods.

Let me comment briefly upon each of these policies.

(1) In its mildest form, assistance to debtors has involved maintaining easy money conditions which facilitate either the funding or the renewal of short-term debts and the refunding of long-term debts at lower rates of interest. The funding of short-term debts is undoubtedly helpful, because it releases for expenditure on commodities income which might otherwise have to be devoted to the repayment of indebtedness. Likewise, the refunding of long-term indebtedness is helpful because it improves the credit position of enterprises and permits them to pursue more liberal budget policies. Whether the renewal of short-term loans, which is an inevitable accompaniment of easy credit, is helpful or harmful is a disputed question. Enterprises naturally wish to avoid forced sales, but distress selling which reduces

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