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Show r THE HANDWRITING ON THE CUFF f By John T. Flynn I Reprinted from The Reader's Digest for January, 1946 And although they will have to pav taxes ultimately to service the nation's debt, they will not own any Government bonds through which they can recapture recap-ture in interest what they pay in taxes. Railroads cannot afford to own Government bonds. Their funds are needed for running the railroad The productive enterprises of the country the private business busi-ness concerns must make ; enough money to pay the taxes to manage this vast debt. But they will get no benefit from the debt. Business corporations except ex-cept banks, insurance companies, and so on buy public bonds during a war, but will not do so in peace time save in very small amounts. A public bond with its low interest rate appeals only to ! that limited number of investors who are interested primarily in security. The business concern needs its funds to operate its business. It is more likely to be a borrower than a lender. The taxes to pay the Government in-! in-! terest come out of the pockets of these enterprises, but very little of the interest payments will go back into them. The public debt when it was half its present size was a terrific ter-rific load on our economic system- It is now a mountainous load. Of course if theGovernment contrives by freak devices to borrow more, it can hire people. But it will not permanently increase in-crease the number of employed because, unless we find some means of dealing with the debt I as it is, the greatest of job-mak-i ing institutions will go into progressive pro-gressive decline that is, the institution of private enterprise! which in reality creates all the j jobs and pays the wages of all j the jobs, including jobs in Government Gov-ernment which must be paid for I with the taxes from private industry. in-dustry. Of course everyone is for a country where every man will- j ing to work can find employment. employ-ment. But we are also for a country where every man who i is willing and able to create work by creating a job-giving enterprise enter-prise can find the opportunity to i do it. While we cry out for full employment and jobs for all, we carry on an incessant warfare upon the job-makers, the enter-prise enter-prise builders, the employing in- j dustries of the nation. The plan ; to create full employment by a Government guarantee backed by Government borrowing is not sound means of borrowing. I say sound means, because it might conceivably manage for a time by forcing the banks to take its notes as it has already done upon a serious scale. But "this, as Secretary of the Treasury Vinson has said, is a sure road to inflation. infla-tion. Or it might turn to the printing press, which is even a quicker road. But there is another reason j why the Government cannot continue con-tinue to travel this road. Those who have been telling the oeoplft that a Government debt is not a burden like a private dent are about to have a laboratory demonstration de-monstration of the fajla'cy of that pleasant theory. I predict that the annual interest on the existing debt will be at least six billion dollars a year. This alone is more than the Government spent in any peace year prior to 1934, more than the Treasury ever received in any peace year prior to 1941. Where will the Government collect this interest? If I, a private pri-vate citizen, borrow a million dollars to build a factory, I spend it on buildings, machinery and materials. This gives work to many people. Each month I pay out wages, cost of materials, and so on. That makes money income in the hands of those who receive it. But also I create wealth I manufacture goods. The cash I get for them gives me money with which to hire my workers for another month, buy more materials to make more goods, pay the interest on the million I borrowed and put aside something some-thing to repay it. Thus this single sin-gle loan of a million may well enable me to create an institution that, without borrowing more, will go on for years creating wealth and income and providing provid-ing wealth and income and providing pro-viding the means of paying both the interest and the loan itself. But suppose the Government borrows a million. It may spend the money on very useful and desirable things. But with rare exceptions it creates no enter- j prise which brings in revenue. The park or school or highway or battleship it may build brings1 in no cash to pay the workers or ; to pay the interest on the debt. The countless billions borrowed during the last five years to fight the war have created very little, i What we have is victory, which, of course, is priceless. But there is nothing as a result which will provide work and brim: in mon- I II ponder if the American peo-Brc peo-Brc vet ready for a dose of ,i truth. If has to do with two rtihiects verv swfet. one " v sour, but together as important im-portant as any issue we face. One of these is called "Jobs for 4ir or "Full Employment." We f, loVe that. The other is the national debt and no one wants to a k about that. t0First about "Jobs for All". Of course everybody is fur full em-Dloyment. em-Dloyment. But there is a group In Washington which seeks to mon-oDolize mon-oDolize the idea. This group has olan and holds that if you oppose op-pose its plan you are against full employment. It proposes to have the Government guarantee lull employment for everybody. It is based 'on the proposition that orivate business cannot provide f0DS lor all, and therefore the Government must provide millions mil-lions of jobs to create full employment, em-ployment, and to do this the Government Gov-ernment must borrow the necessary nec-essary billions. Suppose, however, the Government Govern-ment cannot borrow any more billions. In that case the plan ' must collapse. This brings us to the second problem which no. me is supposed to talk about the national debt. At this moment our Government Govern-ment owes 262 billion dollars. I; ponder if you have any idea how nuch that is. Back in 1929, the i Tiost prosperous year in the na-ion's na-ion's history, the total long-term icbt of this country I mean he mortgagee on all the farms, j lomes, buildings and stores, the jonded debt of all railroads, util-ty util-ty companies, industrial and lommercial companies, industrial md commercial corporations, : llus the debt of the federal gov-(rnment, gov-(rnment, the 48 states, the 36(H)! ounties and the 16,000 incorpor-ited incorpor-ited cities and towns and villagewas villag-ewas 116 billion dollars. The iresent debt of the federal gov-! rnment alone is more than twice Even though you do not like o talk about it, you had better ace this debt. It is here. We uust find a way to deal with it. Ind the man who tells you there an easy way to do that is the : ;orst enemy you have. What did this debt do for us? ' )ur greatest peacetime national income was in 1929- 83 billion dollars. That shrank in tin de-, de-, pression, then climbed back to 77 billion in 1840. Government .spending of borrowed money ! bulU a back. Then came the war Hie Government borrowed 13 i!01' '"J,' calendar year of 1941; 50 billion in 1912; 57 billion bil-lion the next year and 64 billion I h 1944. In 1945, it borrowed 34 ( billion up to Nov. 1. It spent I these billions creating armies and weapons and because of these borrowed billions incomes soar-t0 soar-t0 95 billion in 1941; 119 billion in 1942; 149 billion in 1943; and perhaps 160 billion in 1944. Then the Government tax-ed tax-ed these billions which it had created. Taxes soared seven billion in 1941; 16 billion the next year; 34 billion the next; 44 billion in 1944 and 37 billion in 1945 up to Nov. 1. Thus it recaptured re-captured much of the income it had created and spent it a second sec-ond time. Now that the war is over, people peo-ple ask; If the Government could produce all this employment and income during the war, why not in peace'' If it can borrow billions bil-lions to make war goods, why not peace goods? The answer, of course is, that it can. A government govern-ment can borrow and spend in war or peace just as long as somebody some-body is willing to lend it. When tiiis government began borrowing borrow-ing to make work in 1933 the national debt was only 21 billion. It then began borrowing four or five billion a year. But when the war came the Goveernment in just five years piled its debt up to 262 billion. And now we are at the end of our rope. We can't do that much longer. Here is the j reason. When the Government began all this borrowing it issued bonds and notes promises to pay. Now the time for redeeming them be-gins. be-gins. In the next two years 1946 and 1947 110 billion dollars dol-lars of these promises will be due. That is, the holders will have the right to demand pay-ment- Actually this has already I begun. The largest source of loans from individuals was the savings ! bonds of the "E" type, totaling over 46 billion dollars. They are literally payable on demand. ' Most of them are in the hands of j a plan to make jobs for all, but ! a plan that will create unemploy-1 j ment because it will bankrupt ! private industry and ultimately bankrupt the Government itself. What, then, can we do? 1 We must put a stop to the deficits and at once. 2. The Government must stop, making fantastic promises to the people of this country and of other countries which it cannot fulfill without plunging deeper into debt. 3. We must recognize that we cannot service the present debt unless the dollar income of the nation is increased. This must be accomplished chiefly by expanding expand-ing enormously the productive capacity of the nation, but also partly by recognizing the inevitable inevit-able price rise and controlling it at an economic level. 4. We must recognize that the federal government is soon going I to be broke, but that the states I have been living on fat supplied j by the federal expenditures- I cy to pay the debt or the interest. Yet the interest must be paid. To pay it the Government must impose taxes. Where do taxes i come from? From the revenues i produced by all the big and little ! enterprises of the country. A j corporation of private businessmen business-men must pay taxes out of busi-ness busi-ness revenues. Employes must pay their taxes out of the wages or salaries they receive from j their employer. Thus the burden of paying the taxes to pay the Government debt and interest rests on every business concern. A railroad corporation, a store, an apartment house will have resting upon it the mortgage resulting re-sulting from its own debts and in addition will have the Government Gov-ernment debt weighing down on it like a vast mortgage. But the Government burden will be greater than their own mortgages mortgag-es because the Government debt is three times as great as all the private long-term debts in the land. Take a single instance a railroad rail-road with a heavy outstanding bonded debt. It will have to make enough money to pay the interest on it. Before the war many railroads couldn't pay any dividends. Sixty percent of the roads couldn't pay dividends. But now they will have to earn enough to pay the interest on their own debt and enough more to pay their share of the interest on the Government's debt. The latter payments will mean heavier hea-vier taxes on railroads that had a struggle paying their own interest in-terest charges before the war. people of small means work-, work-, ing people and little business-j business-j men. Many of these savers from i time to time want to turn their bonds into casr. All through the war the Government had to redeem re-deem large sums every month. It didn't matter then because the Government sold so much more than it cashed that there was always al-ways a large surplus. But now people are buying fewer and cashing more. This year they cashed an average of 446 million mil-lion dollars a month. In Septem-I Septem-I ber and October the Government had to pay out more than it took in. It is obvious that as we draw farther from the war this tendency ten-dency will grow. I do not cite these figures to frighten anybody. There is no need to be alarmed as long as we know the facts and are not fool-ed fool-ed by those who wish to sell their pet economic theories. The danger dang-er lies wholly in permitting our- j selves to be fooled. Each year billions of bonds and notes will fall due. The Govern-ment Govern-ment will try to issue new bonds to the holders of the old ones. But many bondholders will want their money. Hence new lenders must be found to take their place. While the Government is trying to find new lenders to pay off old issues, it will have to find still more new lenders to advance more billions for its new enter-prises enter-prises in creating abundance and jobs. If it didn't have to meet the old debts so soon and so often it might squeeze by for awhile. But it cannot service the old debts and contract new ones by any , Most states have large surpluses, and the job of caring for the unemployed un-employed and the poor should be handed back to them. 5. Most important of all, we must set about at once examining examin-ing our whole social structure to determine what Government, labor, la-bor, industry, states and cities are doinp that is crippling the productive energies of the country. coun-try. This means we must decide now what are the forces which have stopped the flow of private investment in this country for 15 years and remove them. We must unchain private industry and take the Government, the labor restrictionist and the business busi-ness monopolist off its back. Tl" principal handicaps are those re straints imposed by Government and by private organizations of labor and capital. We must choose between capitalism cap-italism and socialism.. We cannot can-not have both. And if we want a system of private ownership under which alone it is possible for men to have freedom, we must do the things that will make that system work. Copyright Copy-right 1945 by The Reader's Digest Di-gest Ass'n., Inc. P. Ad. |