Our Man-Made Depression

THE late President Eliot of Harvard said that the great danger of America was that it would act as a herd. I suppose this is the danger of most countries—certainly of most democracies.

We are a very emotional people; consequently our judgment is frequently bad. We have not achieved equilibrium, poise. Good judgment can be defined as a balance between courage and prudence. Success tends to make us overconfident, and we became very overconfident in 1928 and 1929. The lesson of 1921 remained with us for six years, but success finally made us forget, and prudence was thrown to the winds. The inevitable reaction from this is the lack of courage

&emdahs; the fear that is with us now.

In high and low places there was the obsession of our American greatness. We had ‘changed the tides,’ and ‘only a war with England or a total crop failure could ever cause a depression again.’ We had discovered a new political economy. [ All we had to do was to consume goods, which would in turn increase production, which would make work and create additional power of consumption.

It was thought to be a happy circle. ‘ Everyman in America had ten slaves working for him in the form of machinery.’ and it was even suggested that he should not work as many days, so that he should have more time to spend. Our emotions, our enthusiasm, ran away with our intelligence. Our courage ran into conceit. Our judgment became bad, nationally and internationally.

The cause of the depression, then, is wholly psychological, in the sense that our previous debauch was psychological. The list of the mistakes we made while we were ’too enthusiastic is a long one. As individuals we bought beyond that which we could reasonably expect to receive in income over a long period. We had a right to expect that we could gradually improve our scale of living, but we had no right to regard it as reasonable that we should jump from mere shelter and food to all the real luxuries of life in a few years. Instead of being advised to lay up something for a rainy day, we were taught that it was sound economy to buy things this year and hope to pay for them next year.

As corporations we were overbuilt, overborrowed, and overloaned. Our Federal Government, and particularly our state and municipal governments, were reckless in their expenditures. In short, our industries, mines, and farms became keyed to a consuming power, a scale of living, that could not last. Other countries tried to follow us. As a consequence commodity prices, including silver, representing the purchasing power in money of a large part of the world’s population, fell drastically, making profits difficult or impossible because of continuous inventory losses.

We are not the victims of invisible undercurrents and unseen economic forces. We are not suffering from the results of a natural law which we cannot understand. Prices tell simply because we produced more than we were in a position to consume. Our consumption was curtailed because our income became smaller; and our income was decreased because we lost and wasted our capital, and absorbed it in enterprises that were not profitable, largely because of reduplication. This has been the primary cause of all of our major depressions.

In our recent boom years, capital was scarce, yet reckless expenditure continued. Now capital is plentiful, but it is being hoarded because we are afraid.

Largely as a result of this economic lack of equilibrium everywhere throughout the world, there have been many political revolutions, which have increased the reaction from our overconfidence, until now fear has taken the place of audacity. Largely through this fear, gold has become concentrated in the strongest countries, and this has increased the world’s difficulties.

MAN has so far not made an intelligent use of the machine. It has been used to produce more than we could consume — both in agriculture and in industry. Germany followed our example, and we lent her money and encouraged her to do so. In addition to the above, and aside from if, our railroads were faced with a revolution in transportation. Twenty-four million motor cars and other facilities are making previous heavy investments of less value. Prohibition has brought riches to an undesirable element in the community, and has hurt our moral fibre.

If we can see clearly where our thinking went astray when if was controlled by our emotions, we may be able to avoid mistakes that will make our recovery more difficult. In the first place, let us put the blame where it belongs — on ourselves. The depression was not caused by an ‘act of God.’ It was not caused by droughts, floods, or earthquakes.

Let us get back to first principles and admit that the way to increase wealth is by saving. By saving I do not mean hoarding. I mean that we must balance our budget, and have something left over to be used as capital — for the production of additional wealth. We must do this as individuals and we must do it as corporations.

We have largely failed to do it. Much of our wealth was wasted — it was used in unproductive ways, and a great part of it was put in enterprises that could not have been expected to be remunerative for a long time, if at all, il we had used our intelligence, instead of being carried away by our feelings and desires. We have not been alert as to changes in our needs and wants.

In short, we have gotten ourselves into a mess. We have, however, achieved humility, although it had to come through humiliation. Perhaps that is the only way to get it. Just as our confidence was overdone, so our humility is being overdone — it is running into fear.

OUR immediate tasks are to work and save and to get buck our courage. In this, all classes can be mutually helpful. They should be, as all classes are more or less to blame. The laborer overspent, and the heads of financial and industrial corporations encouraged him to do so. Our leaders, with very few exceptions, led in the wrong direction. Our legislators shared in the general extravagance. They have no right to blame anyone. Of all classes, the wage earner deserves the most sympathy, since he had perhaps the right to expect more able ad vice than that which he received.

The most discouraging part of our situation is that, until very recently, many of the attempts to help ourselves out of the mess we have gotten ourselves into have been as emotional and unintelligent as our previous conduct which brought about the condition. With human nature as it is known to be, it was unreasonable to suppose that the acreage of wheat and cotton would be cut down with the government standing by ready to purchase at a fair price. The advice that food and material for clothes should be destroyed in order to raise prices, at a time when there are millions of people needing both, is probably the most serious indictment against the ability of capitalism that has been made.

Is there not an opportunity for a greater programme of road building — a use of capital which is always productive, when intelligently directed? Is it not better for men to be building roads than for them to stand around idle, humiliated by receiving bread and soup? The advisability of the five-hour day and shorter working hours depends upon how the idle time will be employed. If the advice of the ‘new school of political economy is followed, and the idle time is employed in useless spending, it would be a bad thing in the long run. If the time is used in a way that is conducive to health, or in education, or in constructive work, it would be a good thing.

Under critical conditions, Germany and England have developed leadership — seemingly a leadership that points to being successful, if it is not too late, because it is working for the good of the country as a whole. We do not want anything approaching dictatorship in any form in this country. It is therefore up to our legislators and our Barons of Industry to be humble and to recognize their mistakes, to help those who are less fortunate than themselves, and to do this in a constructive way. We must realize that one of our mistakes was in believing that our American scale of living, of which we are so proud, could ascend as rapidly as it had and hold on that level. We must straighten out our ideas of political economy or we shall take the wrong direction.

THERE are great opportunities for all of us to be leaders in our own sphere, and no one in a position to help us out of our man-made depression should be merely a looker-on. It is not becoming for those who cheered the loudest in 1929 to hide in a storm cellar.

If we will forget the other fellow’s mistakes, and unite in a spirit of service and coöperation, we shall pull out of this slough of despond, poorer, but wiser and happier men. We shall have laid the foundation of a period of prosperity more sound and more widespread than any our present civilization has known — a prosperity that will be shared by all nations, small as well as large corporations, and all people, rich and poor.