I recently re-read several books (well books), the first of which was published in 1932, and, the others published in the early 1940s, which were written by a relatively unknown American economist Stuart Chase. He not only wrote about economics but also ventured in the area of semantics (which is one reason I wanted to re-read the collection). As a economist and a social theorist, he was way ahead of his times. Much of his insights and ideas still have currency today, especially as it appears that an oppositional Left is finally starting to emerge from the wreckage of the conventional social democratic political parties and is in no small way due to the engagement of young voters in the political process who know that neo-liberalism is not the way of the future. Stuart Chase understood that the limits of the government’s spending capacity was defined by the available real productive resources and he also understood that the natural environment had to be accessed in a sustainable way. Very modern insights – 75 odd years ago.
In 1932, Stuart Chase published his book A New Deal (Macmillan), which became the totem for Franklin Roosevelt’s response to the Great Depression.
Later in the Second World War, he was commissioned by the The Twentieth Century Fund, which is “a progressive think tank headquartered in New York City”, to produce a series of six short books designed to provide a manifesto for the future peace time, once the War ended.
In 1942, The Twentieth Century Fund was much more progressive than its modern counterpart, The Century Foundation. The modern incarnation has fallen into the neo-liberal Democrat-type economic narrative (see book by Blinder and Yellen in 2001 extolling the virtues of Bill Clinton’s period as President).
His 55-page book – The Road We Are Traveling 1914-1942 – published in 1942, which carried the sub-title “Guide lines to America’s Future”, was the first in this series of six booklets written by Chase.
The 1942 book by Stuart Chase provided a blueprint on how government’s should behave with respect to economic policy after the Second World War was over.
Towards the end of ‘Chapter 3 Goals for America’, Chase outlines what he considers to be the “Postwar Platform”, which he summarised as follows:
Full Employment. All men and women seeking work which cannot be found in private industry should be employed by the state. If citizens are going to be guaranteed minimum standards on the one hand, they must help provide those standards by their labor on the other. Congental loafers may be cared for in sanatoriums.
Full and prudent use of material resources. Idle plant and idle machines must become as great a scandal as idle me. Natural resources, however, especially soils, waters, forests, must be utilized without progressive deterioration of these assets. The resource budget must be balanced, and our national heritage maintained. Minerals are by their nature wasting assets, but they must be exploited thriftily, with constant research devoted to substitutes.
Guarantee of the five essentials to every citizen – food, housing, clothing, health services, and education …
Social Insurance at all major exposed points in the social structure. This would include old-age allowances, benefits for sickness, accident, temporary unemployment, childbearing. It is interesting to note that the Australian government, despite its heavy war commitments, has just voted an allowance for every child in the country where the family has more than one.
Labor standards. These would include minimum wages, maximum hours, standards for working conditions …
He then anticipated a later booklet by posing the question:
Where’s the money coming from? Out of that one hundred million man-years of work wasted; out of that two hundred billion dollars of production which never was produced. It will come from the same place that the bombers, tanks and battleships are now coming from – out of the full employment of people.
By which he was referring to that the only constraints on progress were the available real resources and utilising those resources fully (but noting his concern – in 1942 – for environmental sustainability).
A wonderful vision that still resonates today – as evidenced by the rising importance of the ‘oppositional Left’ that is now gaining political support from people as they abandon the traditional social democratic parties or politicians who have in the words of British comedian Jonathan Pie just become “Tory Tribute Bands”.
In the next chapter, ‘Chapter 4 Back to Business as Usual?’, Chase noted that the platform he outlined above “is incompatible with a program of business as usual”.
By “business as usual” he meant “where prices are set in the open market, where hope of profit is the mainspring of new investment, and where government acts only as umpire for a system of free enterprise”.
Earlier, Chase’s book A New Deal (Macmillan) talks about “What is an economic system for?” (p.3).
He questions the soundness of the belief that “laissez faire” is the best way to organise society (p.5) and why “certain rules and procedures have grown up” and “taken for granted” whereby “the business man and the banker, attempt to satisfy their egos and appetites, and to play their games”.
He argued that in laissez-faire, there is no “divine providence looking after the system”.
Rather (talking about the free enterprise system):
Out of the human need for nourishment, a mechanism has been established … In broad outline it may be compared to the himan body, where the cooperation of millions of cells is essential to the efficient functioning which means health and life. When a group of cells refuses to cooperate, becomes unduly imbued with what might be called the anatomical rugged individualism, we have a cancer and, in the end, death … Fortunately the body has an automatic nervous system which normally keeps the cells in order … The economic system has no such biological protection; it lies defenseless against abuse.
Grave abuses lurk in the means by which men acquire property and make money in Western Civilization …
In Chapter 4 of his 1942 book, Chase recognised that, as a result of the intervention of governments during the Great Depression and the theoretical work that was emerging from the academy around that time (Keynes, Lerner, Kalecki etc) that “something called ‘X’ … is displacing the system of free enterprise all over the world. If we do not know yet what to call it, we can at least describe its major characteristics”.
There followed his famous list, itemising the characteristics of ‘X’:
1. A strong, centralized government.
2. An executive arm growing at the expense of the legislative and judicial arms.
3. The control of banking, credit and security exchanges by the government.
4. The underwriting of employment by the government, either through armaments or public works.
5. The underwriting of social security by the government – old-age pensions, mothers’ pensions, unemployment insurance, and the like.
6. The underwriting of food, housing, and medical care, by the government.
7. The use of deficit spending to finance these underwritings.
8. The abandonment of gold in favor of managed currencies.
9. The control of foreign trade by the government.
10. The control of natural resources.
11. The control of energy sources.
12. The control of transportation.
13. The control of agricultural production.
14. The control of labor organizations.
15. The enlistment of young men and women in youth corps devoted to health, discipline,community service and ideologies consistent with those of the authorities.
16. Heavy taxation, with special emphasis on the estates and incomes of the rich.
17. Control of industry without ownership.
18. State control of communications and propaganda.
If you read the British Labour Party Manifesto: For the Many Not the Few many of the aspirations closely resemble Chase’s description of the main characteristics of “X”.
A similar comparison would apply to the message of Bernie Sanders and Jean-Luc Mélenchon in recent times in the US and France.
The list contrasts with the insipid message that the traditional social democratic parties have been typically putting out in their attempt to attract voters. The lack of hope and differentiation (from the conservatives) in that insipid message explains, in my view, why they are electoral poison now.
Just look at the performance of the French Socialist party (and for that matter the FN) in the first round of the French parliamentary elections on Sunday. The new opppositional left in France is surely La France Insoumise.
Stuart Chase’s list is about hope – about inclusion – about working for all people rather than the government ensuring the ground is tilted in favour of capital.
The following year (1943), Stuart Chase published – Where’s the Money Coming from? Problems of Postwar Finance (Guide lines to America’s Future, No. 3).
It was the third in a series of six short booklets published under the banner of The Twentieth Century Fund. It sold for $US1.00 at the time.
University of Chicago economist Henry Simon Bloch wrote a review of the book for the Amercian Journal of Sociology (Volume 50, No. 1, January 1945) in which he said that:
Stuart Chase … is not what has been called an “economists’ economist”. His brilliant, witty, and smooth style is something which most professional economists lack. If he could combine with these talents a thorough mastery of the tools of economic analysis, Mr. Chase would be God’s gift to economics … It was Chase who was in the forefront of the fight against the myth of the balanced budget; yet his arguments were not always straight. It was Chase who fought many economic superstitions with the zeal of the missionary if not with the methods of professional practitioner …
Chase, of course, knows that many of the statements deserve greater qualification, and much of his oversimplifications purely intentional … he is an artist of the pen, a salesman of ideas, an evangelist and not an economist. All this makes him an idol of the public, an easy target for professional analysts, and a most sympathetic, interesting figure for everybody who likes men with strong convictions.
Chase was vilified by academic economists but his views were very popular.
But what the government spending associated with the Russian decade after the Bolsheviks took power and later with Hitler in Germany demonstrated was that the theories of public finance (sound finance) held by economists in the West were wrong.
Real resources were the constraint not the government’s currency.
Combined with the publication of the General Theory and a host of supportive literature, the idea that the state was like an
“economic engineer” (a point made by James MacDonad in his 2006 book A Free Nation Deep in Debt: The Financial Roots of Democracy) who could extract real resources for its own uses almost at will.
One commentator at the time noted that in times of war:
Modern nations do not turn themselves over to the enemy for financial reasons.
In a similar vein, Stuart Chase wrote at the time:
Money is the slave, not the master now.
In this booklet, he talked about “modern money”.
Chapter 1 of the booklet – Behind the Dollars – goes through a series of developments in the preceding decade or so which pose the question “Where did the money come from?”
So Stuart Chase wrote:
IN 1925, Russia had been through a devastating war and a violent internal revolution. Her currency had been destroyed in a runaway price inflation, she was the world’s worst financial risk abroad and she had very little gold. Yet by the end of the first Five Year Plan in 1933, Russia had invested some 60 billion rubles in factories, new cities, cities, hydroelectric developments, armaments, houses, schools. There stood the new plant, ugly and solid. Without it Russia could never have met the onslaught of Hitler’s armies.
Where did the money come from?
In 1933 it was freely prophesied that Italy could not invade Ethiopia. She had no credit abroad and almost no gold. The effort would bankrupt her. Italy went ahead, conquered Ethiopia, and emerged without financial collapse.
Where did the money come from?
Hitler took over a Germany which was technically bankrupt. It had defaulted on its foreign obligations. When he proposed to build a powerful army, together with all kinds of grandiose public works, he was laughed at in London and New York. Germany was insolvent, and the whole idea was preposterous. The nations of Europe which have trembled under the thunder of panzer divisions know that Hitler built even more terribly than he promised.
Where did the money come from?
When Japan began to rattle her sword in the direction of Indo-China and challenge the United States and the British Empire, wiseacres said it was a bluff. The long years of the war in China had reduced the Japanese economy to a bag of bones. She was bankrupt and could not sustain a real fight. Yet she opened a new attack with devastating fury, and with military equipment in planes, tanks, artillery, ships, that was as excellent as it was unexpected.
Where did the money come from?
In 1939, the United States Congress declined to appropriate $4 billions for highways, conservation, hospitals, freight cars, in the bitterly contested “lend-spend” bill. It was widely held that the bill would lead to ruin and national bankruptcy. Yet since the fall of France in 1940, Congress has appropriated almost $300 billions for armaments – seventy-five times as much as the lend-spend bill – and a large fraction of it has already gone into tanks and guns. Far from being ruined, our national vitality has never been more vigorous, and great financial moguls assure us that we shall be able to swing the national debt.
Where did the money come from?
After the war America will need to maintain full employment, operate its industries at substantial capacity, provide the essentials of life for all its own citizens, and help foreign peoples who are starving and unable to pay for the supplies. There will be a towering political demand for a world delivered from chronic depression.
Where will the money come from?
It is clear from these examples that what a great nation can “afford” in periods of crisis depends not on its money but on its man power and its goods. Russia, Italy, Germany, Japan, the United States, all used money in the situations mentioned, but money was obviously not the dominant factor. Man power and materials were the dominant factor. Yet at other times, when crisis was not so acute, the money for necessary tasks could not be found. Unemployment, insecurity, want, dragged on. This is a puzzling paradox. At certain times a nation can afford what at other times, with no less money, it cannot afford. At certain times we are afraid of national bankruptcy, and at other times we give it hardly a thought.
The rest of the booklet outlines the flawed reasoning among economists and the policy makers they influence who look the other way when governments are spending billions prosecuting war efforts and bringing all idle resources into productive use (recognising that productive results in this context is, in Chase’s own words, “pretty rough ones”) but in peacetime, continually claim that governments cannot afford anything much.
He noted the hypocrisy in opposing broad-based “welfare projects” in times of high unemployment, because they do not deliver a “pay out” but supporting military expenditure, although “nobody expects tanks to pay out”.
… the opposition to armament building in Europe was relatively mild. The tanks were built with the labor of the unemployed. The vast rearmament program in the late 1930s did in fact end the depression, but it fill Europe with guns pointing over every frontier.
Chase quoted from Winston Churchill’s 1929 book – The World Crisis: The Aftermath where the conservative Churchill clearly understood the absurdity of the argument that a currency-issuing government could be short of money to advance public welfare.
On Page 33, Churchill wrote:
A requisition, for instance, for a half-million houses would not have seemed more difficult to comply with than those we were already in process of executing for 100,000 airplanes, or 20,000 guns, or 2,000,000 tons of projectiles. But a new set of conditions began to rule from 11 o’clock onwards. The money cost, which had never been considered by us to be a factor capable of limiting the supply of the armies, asserted a claim to priority from the moment the fighting stopped.
11 o’clock was on November 11, 1918, when the peace was declared after WWI.
Chase noted that in the Depression there was idle labour and other productive resources – the “money cost became a brake on the whole economic machine” – despite the availability of these resources and unsold goods:
I have in my files pictures of veritable mountains of oranges, potatoes, coffee, marked for destruction.
So many of the essential insights that Modern Monetary Theory (MMT) are based on were known 100 years ago and remain as true today as they were then (and every period in between).
The rest of the book explains why this puzzle was easy to solve but came up against an ideological resistance (to government spending in peacetime that advanced well-being).
It is very insightful.
Humans have made massive technological progresses since that time. But the degree of intellectual regress in terms of the way we construct macroeconomics or even simple understandings of money and government is staggering.
That is enough for today!
(c) Copyright 2017 William Mitchell. All Rights Reserved.