Some Essentials of an Efficient Preparedness Programme


By BENJAMIN M. ANDERSON, Ph.D., Professor of Economics, University of California at Los Angeles, and Consulting Economist, Capital Research Company, Los Angeles

Delivered before the California State Chamber of Commerce at a luncheon at the Ambassador Hotel,Los Angeles, California, December 6, 1940

Vital Speeches of the Day, Vol VII, pp. 133-138.

WAR and preparation for war should force us to a careful re-examination of our resources and of our policies. Our resources, moreover, are not merely our economic resources or our existing army, navy, and air force. Our resources consist, also, of those forces, intellectual, moral, and political, which may be employed in theeffort to bring about vitally needed modifications in our policies.

Our economic resources are great; but they are not as great as they ought to be. We have an impairment in our capital equipment—to some extent actual deterioration, to a greater extent obsolescence. The percentage of our capitalequipment over ten years old is far higher today than it was ten years ago. Our labor resources are impaired. We have not had enough apprentices in skilled trades for many years. And we are hampered by legal restrictions on the hours of work.

On the financial side, we are much weaker than we ought to be. Superficially we have an immense strength in our unprecedented holding of gold, in our unprecedented volume of bank deposits, and in our unprecedented volume of excess reserves in the banks which makes it easy for banks to buy Government securities in financing war preparedness. But behind these bank deposits, and matching them on the asset side of the banks' balance sheet, we have an unprecedented volume of Government securities. We have a national debt which, including Government secured obligations, is about twice the national debt at its wartime peak in 1919, and is over fifty times the national debt at the beginning of the last war. We have, moreover, apart from war preparedness expenditures, a great fiscal deficit—our peacetime expenditures far outrunning taxes; and this despite the fact that we have a volume of taxation never before reached in our history.

We have the certainty, too, that if we make use of the prominent elements in our financial strength, namely, our excess reserves and our capacity for bank expansion, as the primary reliance of Government finance, we shall face the great danger of an unmanageable runaway in prices and cost of living with a qualitative deterioration in public credit and currency disorders.

We have labor policies and tax policies which hamper our industrial and financial functioning. We have created a great body of frictions in our economic life which makes it difficult for us to effect the quick transformation of our industries from a peace to a war basis.

Noble Purposes and Financial Realities in War Time

We have had noble purposes in many of the things we have done which have contributed to this unfortunate picture. We have wished to improve the position of labor. We have wished to bolster up the position of agriculture depressed by the loss of its export market. We have wished to guarantee security in unemployment and in old age for the great body of our people.

Now as we have sought to accomplish most of these laudable purposes, we have undertaken to do it at the expense of the Treasury; and as the Treasury despite great and growing taxes has been unable to accomplish this out of current income, we have proceeded to borrow money. The limits both of taxing and of borrowing under normal conditions would have brought us to a pause long since. But the conditions of borrowing have not been normal. Partly through abnormal monetary policies and partly through an unprecedented flow of gold to the United States, we have developed such a huge volume of bank reserves that interest rates have been beaten to the lowest levels in our history or in the history of the world. And our Government has found it easy to borrow, not from investors, but from the banks, generating an expansion of bank deposits as it does so.

Laudable and noble purposes that cost money cease to be laudable and noble when they cost so much money as to endanger the solvency of a great country, facing a grave international peril. When money is as easy to get as it has been in this prolonged period of fiscal deficits, Government loses financial perspective. Money ceases to be real in the minds of men that vote appropriations and in the minds of men that spend appropriated money. But war and the preparation for war force us to face grim realities in this matter.

It is reasonable to suppose that we can superimpose a vast wartime deficit upon a vast peacetime deficit without disaster?

The First Principle of War Preparedness Policy—"No War Million aires" vs. Getting Quick and Big Results

We have spent a good eight years in thinking very much more about the redistribution of wealth, the elimination of large profits, and the preventing of abuses in industry and finance than in thinking about industrial and financial efficiency. And now, faced with an immense war problem, it is very difficult for many in the Government to think in terms of efficiency first. For example, many are disposed to put first in the demands upon our war preparedness policy the proposition that it shall not create any millionaires. We all share the feeling that it is undesirable that the disaster of a war should be the occasion for making great fortunes.

I think we recognize today that there is very little foundation for the myth so ardently embraced by many people not many years ago that munitions makers were the cause of war and that the profits in munitions were the incentive for stirring up the kind of animosity that led to war. The widespread vogue of this myth has in fact led to a situation in which the munitions industry in this country has languished, and in which munitions makers have primarily developed other sides of their businesses. I think most of us would like it better if we had a much bigger munitions industry. I think that the way to have a bigger munitions industry would be to have a general policy that permits unusual profits in wartime, in view of the fact that profits in munitions in peacetime are not great enough to justify adequate capital outlay.

I am wondering whether the first principle of policy in war preparedness ought to be that nobody shall become a millionaire as a result of it. I am wondering whether the first principle ought not rather to be that we will do those things which will get the quickest and biggest results. And if, as I believe to be the case, real profits are a necessary part of this, then we will permit the industries producing the things most urgently needed to make the profits needed to justify outlay for expansion, and to make investors ready to purchase the new securities needed to provide the new capital.

I may add that a man can make a good many millions of dollars without becoming a millionaire under existing tax laws in the United States. A man living in New York who makes a million dollars in a year pays $807,000 to the Federal and State governments in income taxes under existing tax schedules. In order to have a million dollars of net income after income taxes in a year a man must make $7,141,075.

War Taxation for Revenue vs. Punitive and Reform Taxation

We do not need to do anything further at the present time to prevent men from becoming millionaires as a result of the war. We have already during the past eight years built up a tax structure so thoroughly and rigorously designed to prevent a man from becoming a millionaire from any kind of activities that the need today is to lower the taxes in the upper brackets to such an extent as to give men some incentive for risking capital in industrial activity.

Further, I think that the profit outlook ought not to be made to look so dark for business corporations as to remove adequate incentive for expansion and to remove the possibility of getting adequate capital for expansion.

I would emphasize that there is need for a great increase in taxation, but I think that this taxation ought to be solely concerned with the raising of revenue to protect the solvency of the Government, and not concerned with punitive purposes or with purposes of social reform. In the interests of war efficiency we must in fact reverse a great deal that we have done in the name of social reform. We have gone too far, and we have impaired efficiency.

We Can Carry a Heavy Load of Taxation if the Burden Is Properly Adjusted

The United States can carry a much bigger load of taxes if the tax problem is approached primarily from the standpoint of maximizing revenue. But I think we can not get much more revenue from the sources we have been primarily taxing. The great increase in the tax rates in the upper brackets in 1935, for example, were estimated at the time to produce only two hundred and twenty million dollars more revenue per year. Incomes in the upper brackets were already so heavily taxed that there was very little more to be got out of them. The load must be properly adjusted, and the center of gravity of the load must be adjusted to the strength of the taxpaying organism.

I watched a sheep herder last summer loading some three hundred pounds on a small pack animal—a burro—that he was going to take with him with his needed supplies for a two-weeks' period with a flock of sheep high into the mountains. He adjusted that load with great care. Incidentally the burro was a very well-nourished animal and very evidently trusted the herder. Relations between them were good. On the other hand, a powerful horse with a badly fitting saddle or a saddle with corncobs under it can't carry a lightweight man for very many hours, even assuming that the horse doesn't throw the man off. The tax load must be a load that fits well. That means that it must be placed where the income of the people is. Now, where is that income?

Tax Where the Income Is—Proportions of Wages, Interest, Profits, Etc.

I have made an estimate, based on statistics issued by the United States Department of Commerce, that of that total income paid out in the United States well over seventy per cent goes to labor; as against this, we would have in the form of income due to property ownership and business enterprise the following items: net rents and royalties— 3.4 per cent, interest—7.1 per cent, dividends—7.4 per cent, totaling 17.9 per cent. If to this we add that part of the profits of unincorporated business which is not properly counted as labor income, withdrawn by the owners of the businesses to be used as income, we would have a maximum of 25.8 per cent of income of all kinds that can be attributed to property ownership and to business enterprise.

Now it would be a great mistake to assert that we have no taxes on labor. There are taxes on labor in indirect forms, and direct taxes on labor in the social security legislation which is supposed, however, to represent a kind of savings. But the great effort in our income tax system has been to reach other forms of income than labor income; and an increasingly heavy percentage of it has been put on the profits of active businesses. We have already so thoroughly taxed the income from business profits and other forms of property income that our main reliance for increased revenue must be in going where the income is, namely: to that large amount, exceeding seventy per cent of the national income, received by labor itself.

From the revenue point of view, I believe that we shouldgain rather than lose revenue by lowering the rates in the higher brackets. I believe that we ought to lower the exemptions radically so as to bring in many millions of people not now paying income taxes. I believe further that the rates in the lower brackets ought to be raised very sharply. And I believe that there ought to be a very substantial increase in the consumption taxes, and that such taxes should cover a much wider range of articles than is now covered. If we want more revenue, we must go where the income is; and if we want more production quickly, we ought to lighten up the taxes that fall on the active processes of production. We can raise a good deal more in taxes out of the existing income of the American people; and with the increasing income which expanding industrial activity, full employment, and some rise in prices may be expected to bring, we can raise still more revenue.

No Financial Safety Without Radical Cut in Peacetime Expenditures

But we can not raise enough revenue on anything like the existing volume of national income to make our financial picture a safe one unless we also radically curtail our existing peacetime expenditures. These have been rising startlingly year by year. We have undertaken a multitude of expensive activities, and the mere cost of administration has become ominously great. The number of employees in the Federal Executive Service alone has risen from 578,000 in 1932, to 825,000 in 1936, to 858,000 in 1938, to 926,000 in 1939, and to 1,023,000 in July, 1940.

I may put in here a caution for those who rely upon increasing national income, growing out of rising employment and rising prices, to solve our tax problem. Government expenditures will increase too with rising prices; while rising costs of living and rising wages in industry will bring about an almost irresistible demand for increased pay to Government employees. That part of rising national income which grows out of rising prices would not have a one-sided effect on the Federal budget.

The Proper Timing of Excess Profits Taxes

We imposed heavy excess profits and war profits taxes during the last war upon active businesses. But we did this in 1917 and 1918 after they had already had two years of unusual profits, much of which they had used in expansion for war purposes. We did it, moreover, at a time when we were straining our industrial capacity to the limit, when labor was fully employed, when prices had risen to great heights, and when the possibility of further general industrial expansion was clearly precluded. We had already gone far in shifting from peace to war activities before these heavy excess profits taxes and war taxes became operative. Had such taxes been imposed in early 1915 when there was large industrial slack and before the expansion of wartime industries had begun, we should have been far less well prepared in 1917 than we were for the making of war. Incidentally, England and France would have had far less of the products of our industries during 1915, 1916 and early 1917 than they received.

I believe that we should now pretty sharply reduce rather than increase the existing schedules of excess profits taxes in the interests of getting a quick mobilization of American industry for war purposes. I believe, too, that the Government will get more revenue out of more moderate excess profits taxes than it will get out of the existing schedules.

Finally, I have in mind the desirability of permitting our business corporations to accumulate some surplus in the early stages of this period of expansion for war preparedness, having in mind both the need for profits to help finance theexpansion and the need of having surplus to meet the shock of the losses which will inevitably come when the expansion is over and we turn from war activities to peace activities again. The additions made to corporate surplus in the years 1915-20 were immensely helpful in the crisis of 1920-21. Had they not been there to help meet the shock, the credit problems of 1920-21 would have been far more difficult.

Later, when the transformation of our industries has been more nearly completed, I should raise the excess profits tax again.

The Political Possibilities of Sound Economic Policies Today

I am well aware that there is a great despondency in important and well-informed circles regarding our ability, with the present personnel and tendencies of the Federal Government, to have any application of sound economics to the grave problems that confront us. And I, myself, have little hope that we can sufficiently reverse the existing unsound tendencies and policies to avoid some pretty grave disasters. But I am far from hopeless about the matter, and I am certainly convinced that it is well worth while to fight, and that it is the duty of the professional economist, especially, to fight as hard as he can.

I find some encouragement in a recent suggestion of the President of the United States that certain peacetime expenditures are to be reduced. I believe that in the administrative departments there are men who do not wish our present economic order to function well, who wish rather to hamper it, and then to have the Government take it over. But I am also aware that there are very able and efficient men in the administration who are strongly opposed to policies of this sort. I am encouraged by the strengthening of sound influences in Washington that has taken place in several recent changes in the Cabinet. And I welcome very much the appointment of Professor Harry Millis as the new Chairman of the National Labor Relations Board. It is a good appointment, and it can mean a vast difference in the working out of the very difficult labor problems that lie ahead of us.

Interpretation of the Election

I do not at all interpret the recent Presidential election as meaning that the people of the United States have given a blanket endorsement to the domestic policies of the New Deal. I interpret it rather as meaning that the American people felt it was safer not to change Presidents in the midst of a great international crisis.

The Attitude of Congress

Moreover, it has been possible almost from the very beginning of the New Deal, and certainly from 1935 on, to check through opposition in Congress the worst excesses of the New Deal programme. In 1935 when the President's authority over Congress stood very high, Senator Carter Glass was able to turn a very dangerous and bad banking bill, pressed with full Administration support, into a good bill by sheer force of logic and the presentation of evidence, coupled with the great confidence which the Congress had in him. It was possible in 1935 to defeat the Administration's proposal to add a Federal inheritance tax to the already existing Federal estate taxes and State inheritance taxes. In 1936 it proved impossible entirely to defeat the indefensible undistributed profits tax proposal; but it was possible to cut the top rate on undistributed profits from the 73.91 per cent originally proposed to 7 per cent. And in 1938 this ruinous tax was eliminated despite the opposition of the President. In 1937 it was possible to beat the proposal to pack the Supreme Court, and in 1938 to modify thecapital gains tax and to beat the executive reorganizationbill-all this before the Congressional elections of 1938.

After the Congressional elections of 1938, with sweeping opposition gains and with the failure of the "purges," the Congress refused the President many things. It has shown its independence in many ways, and in particular it has been up in arms against the abuses of various of the New Deal boards.

I take it that the result of the election has been interpreted by the members of Congress in much the same Way that I am interpreting it, because since the election the Congress, despite the pressure of Administration leaders, has refused to adjourn; and again, despite the opposition of the Administration leaders, the Senate has passed the Walter-Logan bill providing for court review of the New Deal board's administrative rulings. I may add that court review of the arbitrary rulings and findings of "facts" by these boards is vitally needed to free the business and financial community from fears which inhibit efficient action. The argument that the present emergency means that court review should be dispensed with in the interests of efficiency is no argument. Some of the war boards to be created may need such freedom, and the Congress can easily give it to them, temporarily, if the need arises.

The material for fighting is at hand. The Congress will listen to the presentation of facts and to judicious arguments; and there are many men high in authority in the executive and administrative departments who will listen to facts and who will listen to judicious arguments. The number of such men is, moreover, I am convinced, growing as a result of the gravity of our emergency.

"Inflation" Prospects

But there is one thing which the Congress is going to find, it hard to do without Presidential leadership, and that is to economize. Down to the time of the present Administration, it has always been the President who has held back in expenditures and the Congress which has had the tendency toward extravagance. The pork barrel in its origin was a Congressional and not a Presidential institution. The members of Congress got the political credit in their localities for the funds brought from Washington. It was the President, the Secretary of the Treasury, and certain responsible committeemen in Congress, notably the Chairman of the Appropriations Committees, the House Committee on Ways and Means and the Senate Finance Committee, who were especially charged with holding down expenditures and keeping our finances sound. In recent years we have seen this situation radically reversed. We have seen the President pressing for spending, and we have seen the opposition to spending confined to a pitifully small number of men in Congress of whom the most conspicuous has been the able and gallant Senator Harry Byrd of Virginia. Can there be an adequate move for economy in expenditures other than those for war preparedness without Presidential leadership?

It may sound hopeless to suggest it, but here, too, I believe that the Congress will be responsive to a sufficiently articulate and aroused public opinion and that the President himself would not be unresponsive to it. Continued great extravagance, I fear, is certain. But an utterly ruinous extravagance we may be able to avert.

Is it too much to ask that the California State Chamber of Commerce and the various Chambers of Commerce in California cities should make it emphatically clear to the members of Congress and the Senators of the State of California that the businessmen of California are far more interested in a solvent Federal Government than they are in Federal appropriations for local California purposes? Arewe prepared to ask them to refuse to support specific projects for Federal spending in California, and to ask them instead to fight against Federal expenditures in the District of Columbia, in Louisiana, in New York, and Ohio? I believe that if the business community of the United States will convince the Congress that it really means what it says about Government economy, we can go far in cutting Federal extravagance.

Deliberate Efforts to "Inflate" Ineffective So Far

The word "inflation" has so many meanings that I do not use it without quotation marks. I do not think that it is a good scientific term. Certainly if it were true that the rising volume of money in circulation and the rising volume of bank deposits, unmatched by an increase in the volume of trade, must raise commodity prices, we should have had commodity prices far higher today than they are. If we compare 1935 and 1940 with respect to these points, we find: (1) Money in circulation has risen from about five and one-half billions to a little over eight billions. (2) Deposits have risen from about seventeen billions (June 30, 1935) to about twenty-eight billions June 30, 1940). (3) But commodity prices have fallen by about ten per cent in the same five years.

Nor have all the extraordinary things done under the Thomas Amendment of 1933, the Gold Reserve Act of 1934, and the Silver Purchase Act of 1934 led to anything like the rise in prices that was expected or feared as these acts came. The gold content of the dollar has been cut forty-one per cent, and we have seen member bank excess reserves rise to around seven billion dollars, with surprisingly little result.

The rise in prices 1933-37 was primarily, in my opinion, due to non-monetary causes, the chief of which was recovery from an unprecedented panic.

But Explosive Material Spread Out

Of course, measures of this violence would have led to a big price rise in a small country which had a large proportion of its dealings in the world market and which was operating in a stable world. But when a country as big as the United States undertook things of this sort, it destroyed so much credit in the world that it prevented the thing it was aiming at. International credit largely ceased and the world came pretty much to a cash basis in international transactions. And we got nothing like the reaction that advocates of these measures expected. Moreover, the effect of this was largely over by 1935 so far as commodity prices were concerned; and it was all over and more than over following the break in 1937. But the debasement of the dollar remains, and the vast expansion of member bank reserves remains, and the big increase in deposits remains. Dynamite is spread out. We have not yet had the explosion. But the amount of explosive material is very, very great, and the possibility of inflationary explosion is always to be entertained.

In this explosive material spread out there is one element which I have been watching for several years with keen interest and not a little apprehension. It is not necessary that there should be any further expansion of bank credit for this factor to become operative. I refer to the existing volume of idle bank deposits—capital funds in the hands of scared investors. I have in mind one country bank with deposits of about one million dollars in which there are twenty-three accounts like the following: a country doctor, living ten miles from town, has eighteen thousand dollars on deposit in this bank and has had it there for three or four years. He gets no interest on it. He doesn't know what to do withit. He had never had more than two or three hundred dollars on deposit before he placed this deposit there except perhaps for two or three days when he was shifting mortgages. He distrusts mortgages now. Perhaps once a month he drops in at the bank and says something to the banker about the stock market. He never does anything. And there are twenty-three accounts like that in this one bank. I have questioned many bankers in many parts of the country—in the Pacific Northwest, in the Chicago region, in New York, and even in the Atlanta Federal Reserve District—everywhere the story is the same. All over the country there are large sums of idle capital on deposit, belonging to scared investors who, not knowing what to do, have for a long time done nothing.

What Could Start an "Inflation"?

What can happen to ignite this great mass of explosive material? One thing that could start it would be such a great irresponsibility in the handling of the financial problems of the Government—continued vast borrowings from the banks, continued vast peacetime expenditures, rapidly growing preparedness expenditures, and rapidly growing public debt—as to develop widespread fears regarding the Government's credit, fears which culminate in concern for the quality of the currency. From these fears there could come the feeling that it is unsafe to hold dollars, unsafe to hold Government bonds, unsafe to hold any bonds, unsafe to hold any investments tied up with dollars. If such fears suddenly become widespread, there could come a rush from dollars into equities, especially real estate and common stocks. With the rapidly rising prices of equities, there would come profits which, spent for commodities, could generate a rapid rise in commodity prices; and there could come also commodity speculation of a sort that would generate a big rise in commodity prices. It ought to be possible for us to avert this kind of thing. But it will take a much greater manifestation of financial responsibility than has been apparent in Washington in recent years to do it.

A second thing that could start a very radical rise in commodity prices, and cost of living, as well as in equities, would be a great quickening of industry leading to full employment so that further bidding for commodities cannot lead to further production but merely to pull and haul among competing bidders. We reached this situation in the last war at the end of 1915 and a terrific rise in wholesale prices began, amounting to 50 per cent in the single year, 1916.

Will "Bottlenecks" Precipitate "Inflation" or Business Reaction?

Third, less certainly, short of this, a radical price rise might start through the appearance of bottlenecks before full employment is reached, with competition for the products of bottleneck industries forcing a violent rise in their prices as labor costs, including overtime, mounted in these lines. In a natural economy such a sudden spurt of bottleneck prices would be most likely to lead to a general business reaction; but in a situation in which the Government is spending vast sums in a war preparedness program, it could easily precipitate a startling runup in the prices of bottleneck commodities, second in related commodities, and finally over a wide area.

The Role of the Forty-Hour Week in "Inflation" or Reaction

A runup of prices following full employment, or through a forced pace of public spending overcoming rising bottleneck costs, becomes a much more imminent danger than itwould otherwise be as a result of the wage and hour legislation of 1938. I regard this legislation as the most dangerous single piece of New Deal legislation, and as the one needing earliest revision if we are to avoid very grave difficulties. With it I associate the law relating to hours and wages on Government contracts, particularly harmful at the present time. Legislation designed to prevent excessive hours of labor, to protect the health and the efficiency of labor, I sympathize with. But this does not mean a forty-hour week. The theory of the forty-hour week rather is that we have too large a labor force, and that we can make employment for the unemployed only by lessening the amount of work which the employed can do. A country really trying to assert its full strength in a great war effort must not strangle itself by following a theory of this kind.

In the wage and hour law, moreover, I regard the statutory requirement of time and a half for overtime after forty hours as the most dangerous single provision. It can in the near future bring us to a sudden jolt which might be met either by business reaction or by a flare-up of commodity prices. If there were flexibility in it—a graduated scale of, say, five per cent for overtime after forty hours, ten per cent after forty-two hours and so on, with 50 per cent after forty-eight hours—we should be very much less in danger of violent shocks; and the danger would be, moreover, deferred.

Naive Plans for Controlling "Inflation"

If the additional war preparedness expenditures finally precipitate a dangerous boom, it will be no simple and easy task to control it. It can be said with absolute certainty that there exists no financial device like the Westinghouse air brake which can bring such a movement gently to a pause. I am aware that there are men in Washington who have apparent confidence in plans for controlling prices by watching them and by talking them down or by various coercive measures. And there are doubtless still some in Washington who have confidence in the mathematical formulas of the currency manipulators which have been proved so utterly ineffective over the past seven years. But I should prefer to do what can be done to permit an immense expansion in the production of goods, so as to delay the time when this problem has to be faced. I should wish to remove needless Governmental restraints on the production of goods, and very especially to relax the wage and hour act which seems to me to be the most dangerous of these restraints.

In this connection, I am glad to take cognizance of certain guarded statements which have come from responsible quarters in the Administration, suggesting that the forty-hour week is not to be allowed to stand in the way of the country's need for war preparedness.

Wartime Controls in a Peacetime Preparedness Movement

In the last war we applied a great many controls. With the published version of this address there will appear an appendix giving an account of the more important of these controls—the economic principles involved in their application, the unusual wartime motives on which their successdepended, and the limitations upon them. These controls included among other things priorities under which authoritative action by the Government, or informal action in the trades, rationed out scant bottleneck supplies and saw to it that they went to the most essential uses. A guarded and careful application of priorities to the products of bottleneck industries at the present time could mitigate the extreme pressure upon these industries. It is to be noted, however, that priorities in the last war came at a time when we had full industrial activity, when there were labor shortages almost everywhere, and when the momentum was so strong that the application of priorities could not precipitate a business reaction. When the system of priorities is applied to steel or to machine tools or to other commodities needed for industrial use, it is obvious that the industries which do not get their full requirements must contract their operations. The sweeping application of a system of priorities today could thus lead to business reaction long before full employment comes. It is far better that relaxing the restrictions of the wage and hour law in the bottleneck industries should permit increased production at these points, rather than that the system of priorities should be prematurely applied in the present situation on a big scale. We may be driven both to priorities and to price fixing; but we should not rush into them before we have freed our industrial system of unnecessary restraints.

Commandeering we made some use of during the last war. This is the first thought of bureaucrats in a war situation. But our Government is not designed to run the industries; and unless the Government commandeers the management along with the industry, the results are going to be pretty sad. There was some commandeering during the last war in 1917; and then as the Government learned its job better, commandeering largely ceased. The better the Government functioned, the less commandeering there was, though the power remained to commandeer; and this power in the background was sometimes useful. Any general policy of commandeering bottleneck industries would certainly mean very much tighter bottlenecks. Wartime control in the last great war was a thing that we came to reluctantly; but once convinced of its necessity, we carried it out pretty thoroughly. We had clear objectives, and we did the things that were clearly needed. We left individual freedom as far as we could. We found that our system of many thousands of independent banks and of forty-eight autonomous States was quite consistent with the necessary unity of action.

There is a great difference between necessary control and control for control's sake. In the last war we had necessary control for definite objectives, and we knew what the objectives were. We start today with a great body of control just for the sake of control. The first essential is relaxing the great body of existing controls which hamper us. For the wartime controls, if we are going to do the thing effectively, we must use, as the Government used last time, able men, trained in the industrial and financial operations affected, in handling these controls. I should be terribly afraid of what our vast new bureaucracy would do to our country's economic life and political liberties if we went into war under their guidance.