These Emergency Hours
THE WORRIES OF THE BANKER AND BUSINESSMAN
By W. RANDOLPH BURGESS, Vice-Chairman of the Board, The National City Bank of New York
Delivered before the American Bankers Association, Eastern Regional Conference on Savings and Commercial Banking,Waldorf-Astoria, New York City, March 1, 1941
Vital Speeches of the Day, Vol. VII, pp. 348-351.
THE topic assigned to me has something of a John the Baptist flavor. With such a topic my message might well be, "Repent ye; for the Kingdom of Heaven is at hand," or "The axe is laid unto the root of the trees." It might indeed be useful at this time if a modern John the
Baptist or one of the more disagreeable of the prophets would go striding up and down this country warning us of the dangers we face, and spurring us on to new activity.
But for those of us who are in the banking business and who have been exposed both to the news of battle which comes pouring in from overseas and the stresses and strains of our financial and economic life which are daily forced on our attention, there is no need for the voice of a prophet to arouse us. We are already living in an atmosphere of tenseness and foreboding.
Our problem is that, while we know trouble is brewing, while we can see various forms of national calamity on the horizon, we do not know which is the one most to be feared, nor when it will strike; and worst of all, while we see our country in danger, there seems to be painfully little we ourselves can do about it. We know that the United States is facing problems which require action, and yet 90 per cent of our work continues to follow the old routine, and has little relation to the nation's peril or the nation's immediate need. We are working longer hours, bearing down harder, reading or thinking more; but about all we seem to be able to do for our country is to pay taxes and acquire a case of acid indigestion.
Living Under Strain
Moreover, we have been living in this state of psychological frustration through ten long years. Each morning for the past decade we have opened the newspaper with dread, and usually we have found our foreboding justified. In the earlier days we battled desperately against economic depression. Many bankers sacrificed their personal means in the effort to protect their institutions and their customers. They have given freely of their effort and health and vitality, not only for their own direct responsibilities, but for the larger community. Yet time after repeated time we have found our work fruitless. Our gravest danger today is that we shall become habituated to frustration, and acquire a belief that disaster is inevitable.
The psychologists have a formula for dealing with human situations of this sort. They would say that we have a neurosis, which seems to be the scientific term for an ingrowing anxiety. The first recognized step in the cure of this mental disease is to analyze the causes of our worries, to bring them out into the light of day and look at them clearly and frankly. The second part of the prescription is to find something that we ourselves can do, to substitute constructive action for destructive worry.
This procedure may be illustrated in commonplace terms. Often, at the end of a working day, facing our overloaded desks littered with papers, we feel helpless and confused by the innumerable jobs which are still to be done. Then, ifwe simply separate the papers out into three piles and tuck each pile neatly in a filing folder what an immediate relief we feel! It is as though by that act we had shed the load. It helps also to take a nice clean pad and jot down the three or four jobs that can be done first thing in the morning. After that we go home with a relatively clear conscience.
Suppose we undertake for a few minutes to apply this simple technique to our present worries. Granted that these worries are not of the ordinary sort but are big booming anxieties, almost cosmic in their nature, nevertheless it will do no harm to make the effort to sort them out, examine them, and try to tuck them away in their filing folders; so that we may deal with them in sensible fashion.
The War Threat
Our first worry is that Hitler may win this war. We feel the threat of being ringed about with a hostile world, organized on alien principles, a world in which each of us might lose the freedom of life which we hold most precious, a world in which cruelty and force are dominant. This is a worry from which we cannot escape until the issue of battle is decided. Our unpreparedness has given us the feeling of incapacity to play the part in this struggle which is the duty and the right of this great country.
But even into this dark hour there are coming rays of light and hope. Across the water the stubbornness, heroism, and competence of the forces battling for the free way of life have met with greater successes than we had reason to hope. Here at home America is beginning to wake up. Every month that goes by brings us nearer to a state of preparedness in which our voice will again count in the world's struggles. For America's unequaled factories are beginning to roll out the essential war materials. New plants are rising and machines are being installed from which will pour forth munitions of war in ever mounting volume. Most of all, the people are slowly but steadily becoming aroused.
There is still much to be done. The country's plant is not working at capacity. Recent Department of Labor reports show that while overtime is increasing, few defense plants are on double shift for full working force. In fact, only one-fourth of the workers are employed on second or third shift, although these figures include many plants such as smelters in which operations must be continuous. The week-end blackout which Mr. Knudsen deplored prevails in plants employing about half of all the workers on defence. Even in Washington, the War and Navy and other departments, which must give guidance, direction, and impetus to the war program are still generally working a short day and a short week, and are practicing the weed-end blackout. With some notable exceptions the Washington machine is moving at a leisurely pace. The planning of the new armament program is confused and incomplete. We are still many months away from being an effective military force; but, nevertheless, we are gaining momentum in the right direction.
How We Can Help
That seems to be the general picture. What can we do about it? As bankers we have two specific jobs and one more general one. First, we can finance many of our customers in their defence operations, and we are doing it. The figures just released by the American Bankers Association show that 195 banks have made $572,000,000 of defence loans. It has been technical and difficult, but the bankers have gone at it with energy and have found a way to make many loans that did not at first seem feasible.
The second specific job is buying government securities ourselves and selling them to our customers. This program has just begun. We do not yet know the kinds of securities which will be offered, or what the program will be for sales to individual investors. We do know that we shall have an important part in this program, and we are ready to do whatever is required.
Our third task, and one I shall emphasize later, is to throw our influence, each in his own community, toward the maximum defence effort. If England can hold out through August, Hitler can be defeated. England needs our help now, this spring, this summer. But since the United States is technically at peace, it is easy to settle back into the daily routine and lose sight of the need for speed and more speed now. It is hard to break down the delays that come from red tape, differences of opinion, and the interference of other interests. Speed depends on the pressure of public opinion; and, whether we still believe it or not, we are an important part of the public—and a more influential part than we usually realize.
After putting this problem in its proper folder we would better write it down on the list of things which have to be attended to without delay. In particular our representatives in Congress ought to be hearing from us to speed passage of the Lend-Lease Bill.
Our second worry is financial. Some New England Yankees with whom I was talking a few days ago put the matter very simply. They said, if we keep on expanding the national debt at this rate we shall go broke; we just won't be able to pay our debts.
Almost every banker or business man with whom I talk is earnestly and deeply concerned about this problem. After ten years of unbalanced budgets we launch a tremendous spending program. A $65,000,000,000 debt with more to come is enough to shock almost anyone. Can we carry the load and what will it do to us? This is not the time and place for an extended discussion of defence financing, and all I want to do here, in the hope of making this worry seem a little less dreadful and giving it a respectable place in its filing folder, is to suggest two or three considerations which are sometimes over-looked.
The first point to mention is that if we study the experience of the past we find that governments do not default on their debts to their own people. They always manage to pay them, but they usually do so in a money which has changed its value. To put it another way, huge debts are usually paid by inflation, that is by expansion of the volume of money to a point where the whole price level rises, and debts thus become a smaller proportion of the national wealth and income. The danger that we face is much more likely to be inflation than going broke.
In place of launching on a dissertation on inflation let me short circuit the matter by making the dogmatic, rash, but possibly comforting statement that while some inflation is to be expected it need not be uncontrolled. This is anenormously rich and powerful country. Our industrial capacity is unequaled. If, as a nation, we will exercise restraint, wisdom, and resolution, we can produce the implements needed for defence and finance their production and use without disastrous inflation. We entered the 1917 war with the country's productive capacity already fully utilized. Today there is still a substantial margin to spare. Our wealth and savings available to finance armament are vastly increased. Even the huge program we face involves a much smaller percentage of our total national income than those which Great Britain, Germany, Canada, and other countries are managing without as yet serious inflation.
Safeguards Against Inflation
In any such program there is, of course, truly serious danger of inflation. The danger must not be ignored or underestimated; but if methods can be devised for intelligent, genuinely cooperative action by government, business, labor, and finance there is real possibility of effective control. Certain encouraging steps have already been taken:
1. Business and government have shown awareness of the danger of commodity price increases, and so far serious advances have been avoided.
2. Taxes have been raised vigorously, and even now part of the defence cost is being met in that way rather than by borrowing. It hurts, but it is sound.
3. The Treasury proposes to finance out of savings more largely than by bank credit, though the program has not yet been fully formulated.
4. The Reserve System has proposed a comprehensive plan to avoid credit inflation, not yet, however, supported by the necessary legislation.
All these are encouraging signs, though it is only fair to suggest some negative symptoms. The principal ones the people I talk with are concerned about are first, the apparent lack of any program for avoiding an upward spiral of labor costs which might in its turn set off the whole inflationary spiral; and, second, the lack of any effective economy in Federal or State non-defence spending. Government special privilege groups and bureaucracies show no sign of sacrificing for defence.
To summarize this situation we may perhaps write on the outside of this financial folder that we do not need to go broke in this defence effort, that in certain directions we have made an excellent start in the necessary action to avoid shipwreck, but in other directions there are breakers ahead.
Pattern for Defence Financing
What can we bankers do about it? Our specific work is financing the defence program, largely through Government bonds. Let me say that there seems to be unnecessary apprehension about this undertaking. There is money available to finance the whole program even if it runs considerably larger than is now foreseen. The insurance companies, savings banks, commercial banks, business corporations, and private investors now hold huge amounts of uninvested funds, and these amounts can be increased by a further expansion in bank credit. The people who have the money are desirous of doing their full share in financing this national effort. What is necessary is general agreement upon a sound and workable program.
For one thing, agreement should be reached on a general pattern of financing. There should be no necessity on this occasion for financing at steadily rising rates of interest, as was done in the previous world war. A wiser plan would be a commencement of the program at rates fair to the in-
vestor and a continuation of those rates throughout the effort; so that buyers of securities will not always be waiting for better rates. Both Great Britain and Canada have so far been financing the war at steady rates not far from three per cent. We should be able to do as well if not better. Planning and carrying through this program is the biggest banking job in the defence effort. It will be a big enough job to take our minds off our worries and replace them with the satisfaction of an essential work well done.
The Trend of Government
Turning now to a third major cause of worry for the banker and businessman, you would, I believe, all agree in naming fear about our form of government. Having seen the people lose their liberties in country after country abroad, many of our own people are today genuinely and deeply anxious about the trend of government in this country toward collectivism, toward state socialism, toward concentration of powers in government and a restriction of the freedom of the individual citizen.
For many years the functions of government have been gradually expanding to take in areas formerly left to private enterprise. The number of employees of government has been increasing with startling rapidity. So also has the proportion of the national income absorbed by government. We recognize justification for some of this trend. As our economy has become more complex, the functions of State and Federal government as referee, as guardian of the weak, as educator, as builder of roads and public works, have naturally grown. Part of this is right and proper and represents an increase in the people's standard of living.
But we recognize also the lesson of history that government feeds on power and becomes hungry for more, so that unless restrained it may easily step over the line and take away from the people their rightful freedom. John Stuart Mill recognized this when he said that the security which is necessary for productiveness "consists of protection by government and protection against the government."
Abraham Lincoln saw the dangers especially at time of war when he asked whether we must necessarily make the choice between a government "too strong for the liberties of its own people—or too weak to maintain its own existence."
Today we have before our eyes examples of both kinds of government, those too strong for the liberties of their people, and those like France, too weak to maintain their existence. Where does our own government stand in this matter and whither is it drifting?
Economic Basis for Democracy
In recent months I have read many discussions of the nature of democracy, its principles and aims, and the dangers to democracy rapidly becoming more acute here and abroad; but none of these discussions penetrates to the core of the problem which is worrying businessmen and bankers today. They want to know specifically whether the essentials of what we call the enterprise system will be preserved or whether the government is in the process of taking over, owning and operating, or so controlling business that it can no longer operate vigorously and effectively. To put the question in other language they wonder whether our government is quietly but inevitably being transformed from democracy into national socialism.
The businessman knows that democracy is rooted in private enterprise; and that if government takes over the control of business, democracy inevitably withers. If the government is in effect the nation's sole employer, freedom to vote againstthe party in power is not preserved. Trade unions and strikes are ruled out, and the throttling hand of bureaucracy crushes out enterprise, initiative, and progress.
This is not an idle nightmare. Many teachers in our schools and colleges are advocating national socialism. Many persuasive writers are preaching it. Government itself has many officers who directly or indirectly are working in that direction. They have been conducting experiments in government business operations in the T. V. A., in housing, and are pressing for more such experiments in public utilities and in war industry. Meanwhile the handicaps to successful operation of the enterprise system are steadily and rapidly increasing. With these trends so firmly established before the emergency, the defence program with its needs for centralized authority may carry us over the brink. In fighting totalitarianism abroad it is possible that we may go totalitarian ourselves.
That is our third worry, and a good stout worry it is. What can we do about it? The first thing is for business and banking to do their own job supremely well, and that means not just running our individual banks efficiently, but making our profession as a whole of the maximum service in this emergency.
Understanding Our Own Virtues
The second task is one of analysis and education. I say analysis because I don't think most of us understand very well the political and social system under which this country operates. We believe in it, but many of us can neither describe it nor explain it. There are few readable descriptions of the enterprise system. We need to become articulate in support of what we believe in. The enterprise system has many positive virtues. Let me suggest a few in outline.
1. Historically it has given the United States the highest standard of living in the world and the widest distribution of wealth among the population. The widespread ownership of cars is evidence.
2. It is an extremely ingenious device for bringing to bear on the production of goods the most powerful psychological force we know—man's ambition for self and family. Rewards are tied to individual achievement.
3. Through profit, loss, and competition as practiced here the system junks old machinery, outmoded methods, and incompetent people at an amazing rate. It keeps industry growing and alive.
4. It provides wide open opportunity for youth and others. The heads of most businesses started with little or nothing. There is less special privilege today in business than in government.
5. It is consistent with political democracy as state socialism is not. For under state socialism voting becomes a formality, the trade union dies, and the worker loses his freedom. Under free enterprise, personal liberty is possible.
6. It provides maximum flexibility in planning for the future. State owned enterprise, floating on the uneasy seas of politics, is constantly blown from the straight course by political expediency and the power of selfish pressure groups. Private enterprise is freer to chart its course directly towards meeting the real needs of the ordinary people. It must do this or perish.
Two general comments are necessary. We are not talking about laissez faire. There has been no such thing in this country for generations. We are talking about enterprise under laws, regulations, supervisions, and taxes which have built up over a period of years some good, some bad, andsome indifferent. There is likely to be no lessening of this mass, though it is to be hoped there will be improvement. We can fairly complain about government in the words of the Declaration of Independence: "He has erected a multitude of new offices and sent hither swarms of officers to harass our people and eat their substance."
The other question about the enterprise system relates to its stability. It has been the common practice to assume without proof that the great depression was due to a breakdown of the enterprise system. No one would deny that enterprise, like every other human system, makes mistakes and does carry within itself certain seeds of instability. But in the past two decades I firmly believe that our depressions were due much more to political mistakes than to enterprise. World War I and the chaos and disorder in its train were not caused by the enterprise system. The economic breakdown abroad which accentuated our depression here was not due to the enterprise system but to bad politics. The deflationary credit policies of 1931 were the error of government not of the business system. The publication of R. F. C. loans which started the bank runs was a political blunder.
Our economic instabilities are a major problem to which an answer can be found only by patient careful study in the fields of both business and government. The banker by reason of the nature of his occupation sees a cross section of the country's economic life and has a peculiar opportunity and responsibility in the task of analysis and education.
On this question of the relation of government to enterprise I believe there are some encouraging signs. The tide is turning a little. The communists are not as popular as they were. One of my friends reports quite joyfully that his son who was a communist is now only a socialist, and is still learning. The people of this country are today face to face with reality, and as a result a change of thinking may be on the way. A majority of the people are not in favor of a violent change in our whole economic structure; and if the case is laid before them their decision will be sound. The trouble is that they will never be asked to vote on this major issue, but it will be determined by a hundred minor decisions,not maliciously designed, but dictated by pressure groups or short-sighted self interest, and each carrying us unconsciously into danger.
Let me try to summarize. I have laid out before you the three major worries of the banker and businessman,—the war—finance—and national socialism. I have suggested on each certain things that we may all be doing,—to replace worry with action.
Looking at the whole picture broadly no one can feel elated; and yet I wonder if we have not as a group given ourselves over too far to our fears. This is a very great and powerful country. Its people are better educated than those of any other large nation; they are independent, kindly, and full of common sense. They will respond to wise leadership.
Who Will Lead?
The question I should like to leave with you is whether this country's bankers may not now have a new and vital task to perform in national leadership. The bankers are as fine a group of citizens as any in the country. In character, in understanding, in spirit of public service, they are outstanding. You know that is true in each community. But in recent years they have exercised less than their rightful share of influence. They have been partly driven to cover by the politicians who have curried public favor through the old technique of stirring up hate. In the face of this kind of attack it is natural to say, "Why should I stick out my neck?"
But this is a new situation. The country faces today vast new economic problems in the area where business and finance meet. It is a fluid period where changes in the social and economic structure are occurring with bewildering speed. It is also a time of very great and immediate national danger, where every wise and experienced citizen is needed to help quicken the progress of defence and to strengthen the determination of our people. For us in the banking profession this great war effort, in which we believe, has one peculiar, and comforting aspect. More than at any time in a decade we can be fighting for something instead of against it; and the cause we believe in is, at last, a cause to which our government is committed. On this all Americans can honestly work shoulder to shoulder.