Change Is the Essence of Progress


By LEWIS H. BROWN, President, Johns-Manville Corporation

Delivered before the Washington members of the American Economic Association, Washington, D. C., January 5, 1943

Vital Speeches of the Day, Vol. IX, pp. 269-274

IT is with some temerity that I appear before the American Economic Association. Your members whose deliberations are grounded in the quantitative data of economics, have presented papers giving with some detail economic blueprints for certain parts of the post-war economy. Your President asked for a layman's point of view on the utilization of private business agencies to achieve public goals in the post-war world.

In undertaking this assignment I want it distinctly understood I am appearing before this highly professional gathering as a layman, talking in a businessman's simple language. The economist must appraise long-term trends. The businessman's approach is usually limited to the short-term future. He must think in terms of budgets, operating schedules, of plans which usually cover only a year or two ahead; or, if a program covers several future years, it is usually a problem limited in scope, definite in objective and based on past experience from which can be derived concrete facts and trends that aid in forecasting futures. Thus, you see that, in discussing anything as indefinite in time as the

post-war period, and as intangible as an assumption of what that far-off era is to be like, I must deal with wholly unfamiliar premises. Concerning the future, there are as yet almost no known facts, and but little theory upon which to go.

At the outset, let me strongly emphasize one point: Presently one supreme task confronts us—there is one job to do. That job is to win the war! We must win—no matter what the cost or how great the necessary sacrifice. Every businessman will echo that sentiment. Fortunately since the first World War, we have learned a lot. As we approach the problem of consolidating an inevitable victory, we must strive to build a peace as nearly indestructible as may be devised by the genius of man.

To try to look ahead to the post-war future is, of course, desirable; but while we are in a deadly global war, fighting for our very survival as a nation, I have little patience, I confess, with those whose eyes are fixed solely on the postwar future; who are intent only on drawing a pretty picture of what the world ought to be, while we do not yet know exactly how the existing world is to be saved.

I feel that I should at this point attempt to dispel two common misconceptions about businessmen. Many persons labor under the illusion that businessmen desire to "go back to the good old days of the nineteen twenties," and that they always want to maintain the status quo. Both assumptions are fallacies. Permit me to say, as one who became the head of a large corporation six months before the crash of 1929, that I have no desire to go back to the good old days of the twenties. Nor do I want to live over again the depression and experimentation era of the thirties. I will rejoice when we have behind us the first half of the forties—these days of a bureaucratically controlled economy made necessary by war. I look forward to the post-war future in the hope that we can profit by the mistakes of the twenties, and the errors of the thirties, and the lessons of war in organizing a better way of life for all of us here in America.

The businessman of today is not afraid of "change." Change is the essence of progress. It is the motive of modern research. We can be sure tomorrow will be different from yesterday. We must strive to make it better.

Industrial research is the actual process of improving on the present; always the goal is new and better things. Any business that, in times like these, attempts to stand still or look backward is a business doomed to extinction.

With these few preliminary statements, permit me to sketch with broad strokes the background for an answer to your question concerning the post-war future.

What is Post-War World?

What do we mean by a Post-War World? Everyone is entitled to his own definition based on his guess as to the duration of the war and the nature and circumstances of the reconversion process from war to peace. For my purposes here I shall assume the Axis nations will not all be defeated before 1945, and that in the United States the major reconversion from a war to a peace basis will take three years, up to the end of 1948. I will define the Post-War Period as the time after 1948.

Now what do we mean by Public Goals? The goal for which we are supposed to be fighting this war has been defined by the leaders of two of the United Nations in the Atlantic Charter as the Four Freedoms. Freedom of speech and freedom of religion are accepted almost like the air we breathe by the English speaking nations. Probably to the rest of the world these are rights greatly desired but enjoyed only in part. Freedom from fear of aggression and violence by neighbors against personal property has been sought by men ever since civilization began. Progress hasbeen tremendous, but painfully slow. We must, if possible, go forward, but we will again be disappointed if we permit wishful thinking to obscure sound judgment. If freedom from fear also means alleviation of fear of ill health and, in old age, fear of destitution, we doubtless can, by individual and collective action, move far toward this goal. Freedom from want, especially in countries blessed with productive land and an abundance of raw materials, is certainly attainable if we define our "wants" as necessities.

However, in my limited time I must confine the term "Public Goals" to a much more limited scope than the Four Freedoms. I will confine myself to an intermediate goal which, if attained, will supply the means for at least some of the Four Freedoms or, in any event, go far to supply Health, Home, Happiness and Hope to most of our citizens. I refer, of course, to the problem of providing a reasonable measure of employment for all citizens able and willing to work.

Employment Major Problem

This question of employment has been the major problem of Europe since the dislocations of World War I, and of our country since the crash of 1929.

The gravity of the crash that followed 1929 in this country should not be minimized. The Great Depression at its bottom left 12,000,000 to 16,000,000 entirely unemployed. Many additional millions worked part time for part pay. It wiped out thousands of banks and untold billions of savings. It reduced the majority of commercial farmers to near bankruptcy. In Liverpool, wheat was quoted in 1932 at the lowest recorded price since Queen Elizabeth. Short term unamortized mortgages could not be paid. As a result real estate could not be sold at any price. In Chicago, building permits dropped to the lowest level since the Civil War. Building of home units throughout the nation dropped from 1,000,000 in 1925 to less than 50,000 in 1932. The Great Depression, conservatively figured, cost us, as a nation, $350,000,000,000 in non-production.

You economists have each your own theories as to the cause of the boom of the nineteen twenties and the collapse of the early nineteen thirties. Irrespective of the causes, the fundamental fact is the world had not in one hundred years experienced a decline of the business cycle of such magnitude. There was no precedent in the new industrial world for government to supplement the economic machine or to intervene on any such scale as some now believe was required to restore economic balance.

Depression Mistake Was Two-fold

The great mistake of the first years of that depression was two-fold: (1) Failure to understand that the downward dip in the business cycle was a depression of unprecedented magnitude which could not be cured by "temporary" expedients; (2) Failure to understand how to get the economic machine functioning again after it got out of balance and stopped.

To the everlasting credit of the Administration, vigorous action was applied to the problem. Some of the acts were inconsistent with others and showed little understanding of how the economic machine worked. Early measures were partly temporary expedients applied in the hope "of getting us through the coming winter"; nevertheless they were evidence of an earnest and vigorous endeavor to find and remove the cause.

Some of the steps were: Placing of a moratorium on foreclosures. The rescue work of the Reconstruction Finance Corporation and the Home Owners Loan Corporation. Shortening hours to spread work. Increasing wage rates.

Unemployment insurance and old age pensions. Adoption of a public works and relief program. Insurance of bank deposits. Encouragement of building through insurance of marginal risks under the Federal Housing Administration. These were all encouraging steps in the right direction. In principle they had the support of businessmen even though the methods of applying the principles often partially nullified the good. Even though skeptical of some of the schemes, businessmen "went along" in an earnest effort to help bring about recovery. The cooperation between business and government was excellent and the results were definitely encouraging.

Federal Housing Act Cited

One Act in particular shows the way government can properly utilize private business agencies to achieve public goals. Since I helped draft the original act, and mobilized the construction industry of the country to help get it passed by Congress, I have first hand knowledge of its origin.

When the Federal Housing Act was first under discussion in January, 1934, there were many in government who proposed that the government lend money direct to home builders. They argued that the government could borrow at 2 1/4% and should lend direct at that figure, paying out of taxes the cost of making the loans and for any losses. This was typical of an all too prevalent approach apparently activated by a philosophy that the government should do everything for everybody.

Some of the rest of us, representing the opposite viewpoint that the proper function of government was to help people to help themselves, contended that the banks, the insurance companies, the saving and loan associations, the realtors, the whole system of building contractors and material distributors, could do a better job than any new bureaucracy that could be set up and could do it at less cost. We argued for insurance of the marginal risk from a fund set up by a premium paid by the home builder and with a system of amortized mortgages covering a period of 10 to 15 years, to protect the home owner against mortgages coming due during depression times.

Under this Act there have been loans amounting to $1,650,000,000 made for Mobilization Title I, with a loss to the government of $40,000,000. Under Title II there have been close to a million loans to home builders totalling $4,200,000,000, with a loss to date of less than $143,000.

The organization administering the act has, in my opinion, been larger than necessary, but even so the cost has averaged less than $14,000,000 per year. The Federal Housing Act has been called the most successful of any innovation in the past ten years. In home financing it has revolutionized the mortgage banking system of this country. Here is an example of governmental stimulation of private enterprise as compared to competition with private enterprise.

In contrast to the FHA we have the experience of the Tugwell Towns; of the TVA; of paying subsidies not to produce what could be consumed; of punitive taxation; publication and limitation of incomes; extermination measures of the SEC; and such projects as the Florida Ship Canal and Passamaquoddy.

It is not by such measures that we bring about cooperation and restoration of confidence, nor the full utilization of private agencies for achieving of public goals.

Favorable reference is made to the Reconstruction Finance Corporation, to the Home Owners Loan Corporation and to the Federal Housing Authority, not so much for the rescue work which they performed as for the principles which governed their operation. These principles differed fundamentally from those which were operative in programs

to redistribute wealth, to give relief through unproductive work or to create needless governmental spending for spending's sake alone.

In the Federal Housing Authority, government and industry came closer, in my judgment, to real cooperation on sound constructive lines than was reached in any other field.

Human Initiative Accelerated

Here was a kind of planning which produced very tangible results; which stimulated the recuperative processes necessary to full recovery without arousing, at the same time, the fears of investors as to whether or not the free enterprise system would survive. Here was government aid functioning as an accelerator to human initiative and resourcefulness. This procedure relaxed restrictive brakes upon the national economy which were being applied through the wrong kind of governmental planning.

It was on this crucial point that, through the past decade, businessmen have differed with government economic theorists. It is here the difference was most manifest between the political approach and the business approach to the problems of recovery.

One philosophy involved the stimulation of confidence and cooperation on the part of all elements in the economy so they could work together toward a definite objective. The other philosophy, by its very nature, stimulated suspicion and distrust and thus created fears which paralyzed confidence.

Government Policies in Conflict

For example, while the government, with its right hand, was endeavoring to help the banks to help themselves through the RFC, at the very same time with its left hand it was competing with the banks through numerous lending agencies which had been established to deal with so-called "emergency" problems. Doubtless the motives of these government planners were sincere. Yet the net result was to create in the public mind distrust of possible unrevealed collectivist objectives for the future. That suspicion served to neutralize much of what the government was trying to do. Thus, the troublesome problem of unemployment, although eased, was never solved. As a result, every businessman, big and little, began to get the idea that government had taken on a job and a responsibility bigger than any government ought to assume or could carry without eventual financial disaster through excessive inflation or repudiation, or through conversion to some form of totalitarian government. This generated the fear that slowly, but inevitably, the private enterprise system was being secretly liquidated.

If we are to build soundly for the post-war future, it seems to me we must proceed according to the principle, learned at such great cost in the past decade, that no government should enter into direct competition with its citizens, and that the government of a representative democracy cannot do everything for everybody.

Bureaucratic planners' theory on this point reminds me of an incident that happened out in Iowa where I grew up. Every farmer had a milch cow. A natural rivalry existed among all the neighbors as to whose cow could produce the most milk. One farmer, thinking to outsmart the others, evolved an entirely new theory as to how his cow could be made to produce more. He figured out that if he could speed up her digestive processes, she would consume more food, and, therefore, give more milk. So he would go out three times a day with his dog and chase the cow around and around the pasture. Needless to say the cow soon went dry. The farmer with the novel idea failedto realize that Nature had designed the cow to function along entirely different lines.

The free enterprise system has its natural way to function. It can produce jobs in abundance so long as it can have plenty of the right food and chew its cud of confidence without being chased all around the economic field by a lot of governmental experimenters with new, untried and unsound theories. You can't use a club to chase the business system around the pasture without drying up the whole productive process. You can't successfully approach the problem of obtaining greater cooperation between business and government, between business and labor, and between labor and agriculture on the basis of mutual hostility and truculence.

Protect the Future from Past Mistakes

Perhaps it is too early for us to look at this chapter in our history from the sound and unemotional pinnacle of historical perspective and logic. Nevertheless we ought, at least, to try to distill out of these experiments with the lives and security of 130,000,000 people whatever we can of the virus or cause of our illness, so we may develop a preventive against the same mistakes in the post-war future.

The American way of life and our private enterprise system are predicated upon incentives which develop enterprise and stimulate people to work. To help others to help themselves has been, for 150 years, the successful basic principle underlying the American way of life. Now a vast abyss is fixed between this sound, simple principle and the benevolent paternalism of a super-government which attempts to work on the reverse philosophy of trying to do everything for everybody.

As, in retrospect, we consider the turbulent 30's with their currents of cynicism on the one hand, and, on the other, a fervent faith in Utopia, we can see the conflict which was under way between these two concepts. A large part of our people, mindful of the old traditions, were fighting desperately to maintain our heritage won through centuries of struggle—political freedom, economic freedom, and religious freedom. The new theorists scoffed at them for their "rugged individualism." For the scoffers had a philosophy—that the State was all important; that the State could bring to pass the Millennium. Expressed in another way, the basic conflict was between men who undertook risks to better the lot of man in return for rewards, under a system called "Private Enterprise," and those who believed government office-holders without adequate experience had suddenly been endowed with a magical ability to operate a great complex economic society. These bureaucrats believed a little untried theory and plenty of compulsion would accomplish more than a lot of experience and plenty of hard work. These two fundamental concepts can be epitomized in two words: "opportunity" expresses the first; "security" the second. The first group strives for multiplication of wealth, and the second group for division of the wealth already created.

Condition Not Limited to America

Now the pathological condition which lay at the root of this kind of thinking is not limited to America—it is worldwide in extent. Abroad it helped develop the Marxian doctrines of class consciousness, class warfare and open advocacy of destruction of individualism and the substitution of State ownership of all means of production. In this country, likewise, the movement took root, but in a somewhat different form.

Marxism sought to tear down; its premise was that a new economic order could be built only after an old one had been destroyed. American liberals in their thinkinghaven't been quite that ruthless. Instead the effort has been to build a new order inside the old order, so that, by throwing a switch, we could start off with a new economy and discard the old one. The label, "reform," was used, while the real purpose, in the opinion of many, was just as far-reaching as Marxism itself. For a decade we have tinkered and experimented; we have tried "deficit financing" and one economic formula after another. But, despite the pulmotors and all the artificial stimulants, the national economy never seemed strong enough to stand on its own feet.

This period of economic experimentalism ended, at least temporarily, with Pearl Harbor. While the problems we face now are bigger and more serious than ever before, yet at least we have won a spirit of national unity and of cooperative effort which we did not have before. The specter of unemployment has been banished through the placing of billions of dollars worth of government orders for war materials into the sales hoppers of a relatively small number of large corporations. Temporarily those deep haunting fears which have had such a baleful influence over American political life have been quieted.

We have won, perhaps, nothing more than a breathing period. Let's hope it will be sufficient for us to re-diagnose these past ills so that, while there is yet time, preventives can be developed against repeating, after this war, the mistakes which were so disastrous after the last one and in the Great Depression.

We have a choice of direction to follow. We have a choice of instruments to use. But, we cannot possibly reconcile the principle of democracy, which means cooperation, with the principle of governmental omniscience under which everyone waits for an order before doing anything. That way lies loss of freedom, and dictatorship.

Which is the Best Engine?

As an industrial engineer, I visualize for comparison the free enterprise system and the totalitarian system, by imagining each to be a machine, and each propelled by a different kind of engine.

There is the totalitarian machine driven by a powerful, heavy steam engine familiar to those of us who are industrial engineers. Its motive power is sweat converted to steam by the heat of compulsion. It is lubricated by fear. Usually its control emanates from the central plant. It is large, cumbersome and complicated and needs an unusually expert man at the controls. It has real power, and after it gets going, can deliver lots of energy. Its operation and efficiency are strictly limited by the training, experience and capacity of its engineer and his assistant.

The free enterprise machine is activated by the compact, easy-to-operate, flexible gasoline engine. Its fuel is human aspiration ignited by self interest and it is lubricated by individual ambition and initiative. It possesses the power to do almost anything and goes wherever the people may guide it. The driver is the ordinary citizen who needs only a few rules to help him guide it so as not to endanger others. It needs no fettering central power plant. It needs no special tracks. It runs on the right-of-way of freedom available to all.

To win the war we have converted our governmental-economic machine over from a gasoline engine to a steam engine. After the war, we want the limitless advantages of the private enterprise gasoline engine.

As an industrial engineer, I believe the private enterprise machine—streamlined—is the best from all standpoints to propel the American nation to new heights of spiritual, cultural and material progress. I would recommend it as the basis of our design for the post-war model of the American

Way. I believe the American people will prefer for peace the private enterprise machine controlled by the people.

American People Will Choose

As I read the pronouncements of many men in power today throughout the world about what they propose to do in the post-war world, I wonder if they have forgotten that someone else may be occupying the seats of the mighty, trying to direct the destiny of the world in that post-war era? I am convinced the American people, themselves, will decide what kind of a machine and engine they want when they write the closing paragraph on the last page of our history of World War II.

In that very fact lies the need for the American people to be thinking now and making up their minds as to what they want in the post-war world. The foundations of the post-war world are being laid right now—though not necessarily by the war leaders.

The future of America is being hammered out right now in the souls of our fighting men at the front; in the minds of the workers in the factories and on the farms, in the hearts of our American women, to be expressed in the acts of Congress over the next two or three years.

Out of the lesson of unity learned in war we must find some cooperative compromise to make the "general welfare" the joint responsibility of the people, the government, business, labor and agriculture. We shall have demonstrated that our representative Republic is more efficient than any totalitarian state and in addition preserves Freedom. We must find a way to distribute equitably the products of our economic machine without destroying the machine.

We must remove every obstacle that impedes private enterprise in doing its full job. Like Mark Twain's character, Tom Sawyer, who gave inducements to his playmates to whitewash the fence so that the more he got them to do, the less he had left to do himself, government must pursue the incentive plan with the people.

In the thirties, government tried the opposite way. The more government took over, the less of the burden private enterprise could carry. The more of the burden government tried to carry, the more the red tape tangled up, the more inefficiency developed. The more bureaucracy expanded and confusion grew.

Tom Sawyer was an organizer. He offered inducements to get others to do what he knew needed to be done. What they left undone was a burden he could carry.

Cooperation is Key

When you ask how government and business can make the economic machine work better in the post-war world, I answer, by learning to cooperate—to be mutually helpful, to recognize the proper function of each in our social structure. To avoid dictatorship, we must encourage the private enterprise system to carry the load of providing employment to the utmost, so that government's load will be at a minimum.

But then some economists will say, "What about the portion private enterprise cannot do?" If the savings of the system are not reinvested promptly so as to provide work for all, should not government intervene in the economic system to stimulate and assure reasonable employment for all? In reply, I say that if, with every encouragement and inducement, private enterprise were not to provide reasonable employment for all, then the government, by means of guarantees to private enterprise and through its procurement staff, should place orders with private enterprise for sufficient public works and products to supplement and fill the gap left unfilled by private enterprise.

But even when the government intervenes, if it is not to thwart its own purpose, it must do so by means consistent with the basic design of the engine it has chosen to sustain the American standard of living. We should never again, as we did in the nineteen thirties, try to put totalitarian water in the freedom gasoline and expect the enterprise machine to work properly.

There is noting to prevent the attainment of our goal except our own failure to find out and understand how our social-economic-governmental machine works best.

No Need to Change Machine

In my opinion, we can make it work. We do not need to change over to an entirely new machine or resort to a very obsolete type. All we need to do is to streamline and properly gear up the great American Enterprise Machine.

As I said in the beginning, businessmen build futures based on change. We shall not be satisfied in the post-war world of 1950 with the old enterprise gasoline engine model of 1925. We stand committed to a new model. But not merely a new model. We ask for changes in the American Way consistent with the basic design of our engine, based on improvements tested on the proving ground of practical experience.

Moreover, we know there is more to the life of a nation than merely the political and economic machinery to provide reasonably full employment. Health, Home, Happiness and Hope are our end objectives. Employment is only one means to these ends.

And so, we must re-educate every man, woman and child to a deep faith in our destiny. The American Way is an ideal way of life citizens are willing to fight for—to die for if necessary. We must realize that working and sacrificing together in the common cause are just as necessary in peace as in war.

We must rebuild America. We must not destroy the system that has made America great. Instead, we must use incentives to stimulate private enterprise into channels beneficial to the good of all. Prosperity for America lies not in limiting opportunities for some, but in expanding opportunities for all. Honor and pride, properly appealed to, will put service in the common cause first, and the desire for profit second, as has been proven by this war. Cooperation, not conflict, must guide government, business, labor, and agriculture in their service to our people. From this new spirit and cooperation can come a new America that will be the Eldorado of the whole New World.