America's Ability to Bear War Debt


By EMIL SCHRAM, President of the New York Stock Exchange

Delivered Before the Nashville, Tenn., Chamber of Commerce, April 13, 1942

Vital Speeches of the Day, Vol. VII, pp. 418, 420, 422-424.

WE people of America have always known, either consciously or subconsciously, that our entire democratic system hangs by the thread of public confidence—a thread composed of many strands delicately woven into the composite trust of our citizens in our constitutional expression of the supreme values in human life. In times like the present, when the future destiny of our republic is at stake, that thread of public confidence must be rewoven of stouter fibre so that it may successfully withstand the blows from our enemies, within and without.

The subject of public confidence is of such great importance in this critical hour of our nation's history that the New York Stock Exchange has seen fit to depart from a century-and-a-half-old tradition. That tradition is that the Exchange does not recommend to the public the sale or purchase of securities. But today and every day, the Exchange is now making an investment recommendation to the American people—it is urging them to buy United States War Savings Bonds.

The first and only other exception to this tradition was back in the days of the first World War when the Exchange urged the public to buy Liberty Bonds. Now the second exception is being made for precisely the same reasons as the first—because the Exchange firmly believes that War Bonds represent a worthy investment in national security today—and in personal security tomorrow.

Recalls Origin of the Exchange

It is interesting in this connection to recall the circumstances under which the Exchange had its origin. That was in the early history of the republic when Alexander Hamilton had refunded the cost of the Revolutionary War and it was then found necessary to provide a market for the first securities ever issued by the Government of the United States. That day when a small group assembled to form what is now the nation's foremost securities market was back in 1792, and this year 1942 marks the sesquicentennial anniversary of the Exchange.

Thus, it is by no mere coincidence that the history of the Exchange closely parallels the history, growth and development of the nation. Neither is it by any coincidence that the Exchange is now earnestly advocating the purchase of War Bonds. Because the Exchange is in a very real sense the economic pulse of the nation, and because free markets are an integral part of our system of private enterprise, the Exchange by tradition has always insisted that, generally, the purchase and sale of securities are matters of individual judgment. We recognize it as our duty and privilege, however, to recommend War Bonds as an investment. In so doing the Exchange is, in a sense, speaking in the interest of all sound securities whose values are bound up in the victorious prosecution of the war.

But the point I wish to make is that public confidence underlies all of these basic propositions.

No doubt many of you, in recent months, have heard, as I have heard, certain apprehensions expressed, as they were bound to be with respect to a war of such unparalleled scope and intensity. You doubtless have heard it said, as I have, that the debt which is being created in defense of our homes and our lives is beyond our capacity to pay off or to service. Or you have heard that it will be paid in depreciated dollars, or with funds obtained by some form of capital levy. You perhaps have heard of people who were buying the bonds of our government in the belief not that they were making an investment but an outright gift. There seems to be a quite widespread expectation that, as a distinguished journalist remarked the other day, "we probably are going through the wringer anyway."

Economic Defeatism Deplored

Another manifestation of the prevalent economic defeatism is to be found in the idea being advanced in some quarters that it has become the accepted practice merely to refund national debts; that they are rarely extinguished or reduced. The purpose here seems to be to lull us into a sense of resignation or futility. Another foreboding to which I dare say many of you are susceptible is that, because of mounting taxes and the tendency toward a regimented form of society, the days of opportunity are gone.

We find one or more of these apprehensions shared by aconsiderable section of our population. They are sufficiently symptomatic to give us very real concern. The success of our war financing, and indeed of the whole war effort itself, depends upon the confidence which our people have in their ability not only to service regularly and to retire gradually the obligations which they are freely assuming, but also to keep our economy sound and healthy—productive and profitable to all who have the courage of their economic convictions. And so it is particularly about the ability of our country to fulfill its obligations that I wish to talk. War is a grim business. It has no pleasant side. This particular war is the most expensive enterprise in which we have ever engaged.

No one can guess what our national debt will amount to when this war has been won. It is being increased by more than $21,000,000,000 during the current fiscal year, according to the prediction made in the President's budget message to Congress. That will bring the total to roughly $70,000,000,000. Another increase of approximately $40,000,000,000 is expected for the fiscal year beginning next July 1.

In other words, on the basis of present estimates, the debt will have risen to about $110,000,000,000 by June 30, 1943. It is entirely possible that, should the war last that long, we will have an aggregate debt of approximately $150,000,000,000 by the middle of 1944. It may eventually run to $200,000,000,000, or even higher, depending upon the speed and energy with which we can turn our maximum powers upon the enemy.

Says People Are Ready to Pay

Whatever the cost of victory may be, the American people are prepared to pay it. Of that there can be no doubt. There is only one choice for us as between freedom or slavery. As has been said many times in the last five months, war is never cheap—but it is a million times cheaper to win than to lose.

The spirit of our people today is admirable. Their singleness of purpose, their impatience with complacency wherever it appears, their rising anger against exploiters, their eagerness to make sacrifices, their growing solidarity cannot be doubted by any one who has traveled about the country as I have done.

Now no one group today has a monopoly on the privilege of self-denial. Sacrifices are being made cheerfully by all of our people. From the vantage point of the New York Stock Exchange, where the securities of some 1,150 of our most important business enterprises are listed, I see the effect of war's impact upon millions of investors—and let me point out that most of these millions are people of modest means, all or part of their livelihood depending upon the returns from these investments. I see them giving up dividends upon which they have long relied, or readjusting their lives to reduce income resulting from increased taxation and from the various dislocations arising out of our transition to a wartime economy. Their attitude, I am proud to say, is typical of that of other Americans.

It is well to keep this in mind when we are tempted to blame all business for the acts of a few irresponsible recalcitrants. And the same may be said in fairness to other groups, labor and agriculture, for example, whose patriotism may unjustly be brought into question because of the behavior or attitude of a handful of misguided men who have presumed to speak for them.

Impartiality Found Inspiring

One inspiring result of our total preoccupation with the war is that we are applying a magnificent impartiality of judgment as we appraise the contributions which the various elements of our society are making.

Any tendency toward betrayal of the great cause, whether it appears in the ranks of government, of labor, of business or of agriculture, is certain not only to meet swift and stem rebuke, but to be overtaken by a merciless retribution. The American people are determined that no group shall gain special advantage from this war, or strengthen its position either economically or politically. And they are equally determined, I believe, to prevent subtle infiltration on the part of those attached to ideologies alien to American principles.

There is encouragement, moreover, in the fact that the animosities, the intolerances and the prejudices, which formerly divided us and poisoned us, are fast evaporating as we focus our attention upon the menaces and threats of our enemies.

The whole attitude of the country today is heroic—indomitable. We see the war taking on the characteristics of a crusade, in which our people as never before are putting a common cause above selfish interest.

This has vast meaning for those who have the responsibility of leadership—in government, in business, in labor, and in agriculture. The people must not be let down. The consequences of their disillusionment would be awful to contemplate should leadership fail them, either in the competent conduct of the war, in a statesmanlike negotiation of the peace, in that thoughtful and far-sighted preparation which is necessary if we are to cushion the shocks of the post-war readjustment.

Our private enterprise system is demonstrating its unlimited capacity and utility in this period of the nation's greatest need. It is our willing and eager servant, applying its energies and resources swiftly and sweepingly to the winning of the war. In the fullest sense, it is at the disposal of the country in this emergency. This is as it should be. This is what is expected of it.

Says Freedom Will Be Restored

When the emergency is over the American people will, I am convinced, restore that measure of freedom and independence which this system requires. This will mean release from unnecessary restraints and obstructions. It will mean a renaissance of freedom. I say to you in all earnestness that this is the only method by which we can meet the cost of this war, solve our post-war economic problems, resume our progress as a nation and thus reopen to our people the opportunities which are their birthright.

In an address in New York, some weeks ago, I predicted that American industry and business would, in this war, play their part so brilliantly in productive efficiency that the American people would see to it that our system of private initiative and enterprise is preserved, no matter how cunning the forces and influences that may seek to undermine it.

This conviction is strengthened as I see our industrial organization performing prodigious feats of production with a minimum of confusion and of waste. As a result, there is developing in America a new respect for the businessman and the industrialist—for all those who know how to produce the things which we so urgently need to win the war. There is a growing awareness of the indispensable usefulness of an efficient industrial machine.

It is by making full and intelligent use of the equipment which has been created under our form of productive democracy that we shall carry the war to a triumphant conclusion. But I am equally confident that this system, permitted to function freely, will be found entirely adequate in the postwar crisis. The essential fact to be kept in mind is that the productive and organizing capacity which are being demonstrated in this great war effort can be our only reliance after the fight has been won.

Landmarks along the road to victory are obscure as yet, but we fortunately possess historic guide posts which direct our vision forward toward vistas of hope after peace has been achieved. A glance over the history of this nation shows that every war in which the United States has fought has been followed by significant advancement.

Advancement After Each War

The War of 1812 was instrumental in freeing the seas for a vast growth of American commerce.

The war between the States was followed by rapid industrial development of the West.

The effort put forth in the First World War helped to stimulate in America the expanded production and commonplace use of such contributions to the American way of life as the transport airplane and the radio. The simple truth is that our industrial and agricultural capacity has never been put to any real test, such as now appears inevitable. Neither has this country ever made anything like full use of its creative resources, of man power and of brain power. Hence, before we can understand our capacity to produce, we must undergo a fundamental change in our habits of thought. What I mean is that this war effort requires more than a mere conversion of industrial plants to war production—it requires also a conversion of concepts.

I suppose few businessmen in this country have ever learned to think in terms of a limitless demand for their industrial goods or in terms of a limitless demand for workers to make them. But the fact is that today the market for war goods is precisely so—it is unlimited. Therefore, it would seem that the first important thing to be done, in bringing about the needed metamorphosis in economic thought, is for the Government to take off the "check rein" and to give business its head; the necessary thing in the war effort is for business itself to complete the transition from profit incentive to victory incentive.

While every ounce of concentration of resources and of energy is demanded for the successful prosecution of the war, it is important that we look beyond these stressful times to the era that will follow: an era of secured and revitalized democracy; new frontiers of business development; new markets for the American products of peace and good-will.

But it is also necessary that we keep the fact uppermost in mind that it is only by a victorious defense of our democratic processes can we accomplish these objectives. We will not have won the war if, in defeating the forces of aggression, we permit our free institutions to be wrecked or undermined. Speaking as a farmer, we must preserve the "seed corn" of our peace-time economy so that the post-war planting will be made more fruitful.

Peace Means Call for Capital

In considering the structure of the economy which must follow after the war, it is absurd to talk about our national economy becoming less capitalistic, if by that it is meant more abundant supplies can be obtained with relatively smaller capital resources.

When one considers the immense amount of capital which will be required to meet our post-war demands to reckon with the satisfaction of human needs, it becomes apparent that all thinking which does not take these factors into account is entirely without meaning. Our post-war economy will require, as its basic prerequisite, enormous amounts of the savings of the people to capitalize future economic progress. I have never looked upon government spending, whether for war or for peace-time needs, in any sense other than as "economic blood-letting." With this in mind, I believe it essential that private capital resources be carefullystrengthened for use as economic "blood transfusions" when the war has been won.

It has been said that this is a war between standards of living. This is so, but the conflict between standards of living means one thing to us, quite another thing to our enemies. We are willing to lower our standards of living, to militarize ourselves completely for the duration of the war, because we realize that this course is necessary now if we are to resume, afterward, the process of elevation. We have abiding faith in our capacity under the form of productive democracy to improve our way of life without limit. This is what we are fighting for.

We, in this country, have been accustomed to think of our national income in terms of anywhere from $60,000,000,000 to $90,000,000,000 a year. We are seeing this income rise rapidly under the stimulus of the war effort. According to current estimates, it will run well above $100,000,000,000 in 1942. Who would be so bold as to put a definable limit to which our wealth-creating capacity can be stretched?

Huge Demands Are Piling Up

We look forward, after victory, to the release of a gigantic pent-up demand for the products which we are, on an ever-increasing scale, denying ourselves during the war. The possibilities which the end of the war will open up to us stagger the imagination.

I do not suggest that the transition from war to peace, and from wartime production to peacetime development of commerce and industry, can be accomplished without great difficulty. But I am saying that the surest preparation which we can make is to fix resolutely upon the only policy to which our great productive and organizing capacities will respond.

The American system, in which we are justifiably taking great pride just now, is quite equal to any burden which it may have to carry, provided we understand just what our system is and just what it feeds upon; provided the whole country is rallied behind an unequivocal national policy that recognizes the fundamentals which give that system its rugged strength and its vitality.

To put it more clearly, we need today an unambiguous reaffirmation of our faith in the American principles. I cannot think of anything that would give a greater lift to our national spirit than an authoritative expression of adherence to the American system of private initiative and enterprise.

Says Free System Is Capable

We cannot complacently rest on the assumption that such a definition of policy is unnecessary. As we all know, ambitions and objectives entirely out of harmony with American principles are entertained in some quarters.

There are some among us who make no secret of their conviction that we must plunge into some form of planned collectivism. There are still others who, while they may not like the idea of a planned collectivism, feel that it is inevitable, and there are still others who wonder just what our national policy is, or whether such policy as we may have is based upon confidence in our American system. The theory is being plausibly put forth by a very articulate and influential minority group that our free system is unequal to the task ahead.

Let me say again that the economic potentialities of this country have never been fully appreciated or realized. Already our war production is surpassing what were regarded as extravagant estimates only a short time ago. This enormous expansion is no accidental development. It is a characteristic of our enterprise system.

Our people have learned by bitter disillusionment and costly mistakes that there are no substitutes for the productive processes. Nostrums, no matter how fancy the packages

they come in, do not work. It augurs well for the future that we have gained this experience the hard way. It ought to put us on our guard when the planners seek again to tempt us into easy paths.

To those of you who are wondering what you can do to protect our system of initiative from the dangers to which I have alluded, let me say this: we have witnessed in the last few months a remarkable demonstration of the power of public opinion in this country. The people are in revolt against inertia, against incompetence, against defeatism and against those forces and influences that jeopardize their cherished institutions.

Time and again, a command or an admonition has come from the people and has been instantly obeyed. Wherever there is an expression of the national will, we may be sure that it will prevail. Next to winning the war and winning the peace, the greatest responsibility which we have is to preserve our American way of life, which revolves around the system of initiative and enterprise.

The test of that system is the creation of more and more wealth, and not the dissipation or confiscation of existing wealth. This is the philosophy which we must defend. This is the fundamental premise of the democracy we are struggling to uphold.