Public works as a recovery measure
Corey, Milton Osborne
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The theory of public works as a recovery measure has been an important factor in the economic life of the United States since the advent of the Oreat Depression in the fall of 1929. Known in popular phraseology as "pump-priming" it has created wide discussion and divided economic thought mainly into two schools - those who find merit in the theory and those who do not. A knowledge of the American background of the theory; the details of the theory; its application to the New Deal's public works programs 1933-1937; and its relation to the recovery and the recession of business 1933-37 are essential to an understanding of "pump-priming". If such an understanding can be obtained, one is in a good position to appraise one of the major proposed remedies for the business cycle. The development of the theory of public works as a recovery measure in the United States has been promoted by the city, state, and Federal Governments, and by certain theorists and writers on the subject. It is in the cities that the origins of the theory are found. In their efforts to provide relief for the unemployed in periods of economic depression, cities as far back as the year 1855 provided public work for the jobless. The idea motivating the early municipal authorities was relief of distress, not the stimulation of business so that recovery from depression would come. As a result, the public work that was provided was primarily of the "relief" type - the projects were of questionable value, earnings were inadequate, and workers were inefficient as they were demoralized by the stigma attached to the receiving of relief. Such public work did not absorb very many of the unemployed and business did not feel any stimulus from the inadequate amount of purchasing power put into the hands of the unemployed. Not all of the cities executed such work, however, and as depression followed depression, greater experience in meeting the problem of unemployment was secured by public authorities so that by the depression of 1920-1922 the type of work provided for the jobless was in general better than in preceding depressions and the motive of stimulating business recovery was a factor underlying the work. The public works programs executed, though, really never attained the standards recommended by advocates of the theory of public works as a recovery, and when the Great Depression came with its great unemployment, municipal authorities found themselves ill-prepared to provide for the relief of unemployment or the stimulus of business recovery. The states entered into the development of the theory by becoming conscious of the inadequacy of municipal public works in meeting the problems created by depressions. At first unwilling to supplement the work of the cities, they later realized the necessity of doing so and also improving the nature of public work for the jobless. Although the early state legislation that was enacted did not embody all the high standards set by enlightened advocates of the theory, it marked an improvement over the municipal work programs. The Idaho law of 1917 with its recognition of the right to work was a step in the right direction. The Pennsylvania Legislation of 1917 with its reserve fund, its emphasis on the coordination of all public work in the state, and the requirement that the work be "useful, permanent, and economic" was even better than the Idaho Law. In the following decade the progress of the theory in the legislative halls of the state capitols was rapid. The proponents of the theory were not always successful in enacting legislation but beneficial publicity was given to the theory by the struggle to pass such legislation. Strangely enough the legislation that most fully embodied the theory, such as the Massachusetts legislative proposal of 1924-1925 and the Pennsylvania Proposal of 1931 was not passed. Legislation that was successful in being enacted, such as the California and Louisiana laws of 1921, however, were commendable. Whether legislative proposals were adopted or not, the fact remained that public work of the "relief" type as emphasized by most of the cities became primarily regular public work under state sponsorship. Whereas the theory of public works as a recovery measure made slow and halting progress in the city public work programs, many of its requirements such as tne reserve fund, long-range planning, coordination of public works agencies, useful projects, the efficiency of labor, adaptation of work to the training of those employed, the curtailment of public construction in times of increasing prosperity, and the authorization of bond issues in advance, were embodied in state legislation or proposals for legislation. If the theory had gained greater headway among the state governments, the difficulties encountered by states in meeting the problem of unemployment created by the Great Depression might have been avoided. It was with the advent of the Federal Government into the public works arena that the theory of public works as a recovery measure made its greatest progress and finally became almost fully embodied in the public works programs executed under New Deal guardianship 1933-1937. Like the state governments, the Federal Government was at first hesitant to execute public work for the unemployed, but gradually changed its attitude as cities and states became unable to cope with the problem of unemployment created by severe modern economic depressions. The change in attitude was slow in developing, however, and it was really not until the Great Depression that important legislation embodying parts of the theory was enacted. Before the Great Depression, commendable efforts were made to enact legislation. Senator Kenyon's bills of January 21, 1919 and November 21, 1921, and Senator Jones' bill of February, 1928 represented needed reform in Federal public works programs but were not passed. President Harding Conference on Unemployment of 1921 stimulated wide interest in public works reform in accordance with the theory. Valuable reports were compiled by committees of the Conference. As a result of the publicity given by this Conference public works became a factor in the recovery of business in the depression of 1920-1922. The Federal Highway Act of 1921 was a clear affirmation of the conclusions of the Conference. The letter sent to President Harding by Secretary of Commerce Herbert Hoover on March 3, 1923 was important in the development of the theory under Federal auspices. Embodying as it did many of the ideas of public works theorists it had an influence on private industry after March and helped avert a dangerous boom of business. President Coolidge's speech before the Associated General Contractors of America on January 12, 1925 showed an enlightened attitude toward the theory. No important legislation was passed by the Federal Government before the Great Depression, however, and as a result the economic distress after 1929 could not be met as effectively as it might have been if the teachings of the public works theorists had been heeded. The Hoover Administration plays a more important role in the development of the theory than is commonly believed. Although it proved a hindrance to the full adoption of the theory by the Federal Government, it did aid in furthering the development. It did so indirectly through the publicity given to the theory by the Woods Committee and to a lesser extent by the Gifford Committee, and directly by enactment of the Federal Employment Stabilization Board Act and the Emergency Relief and Construction Act, The foundation was thus laid for the New Deal's public works policy. Although the city, state, and Federal Governments were important in the development of the theory of public works as a recovery measure, there are certain economists and writers on the subject who have been the greatest contributors to the development. They studied the theory generally with an unprejudiced mind, incorporated their conclusions in writing and influenced the city, state, and Federal Governments to plan their public works programs in accordance with their recommendations, John R, Shillady, Secretary of the Mayor's Committee on Unemployment of New York City, was an early theorist who in 1916 called for the expansion of public works to revive business in accordance with the teachings of later theorists, William Hard created nation-wide attention by his advocacy of "pump-priming" in his article "Big Jobs For Bad Times" published in 1916 in Everybody's. Otto B. Mallery has exerted great influence through his "The Long-Range Planning of Public Works," Chapter IV of Business Cycles and Unemployment, published in 1923 and also through his testimonies before Congressional committees studying public works bills. Foster and Catchings, by emphasizing the circuit flow of money have enhanced the importance of the role of public works. Frank G. Dickinson with his mathematical computation of how public works would stabilize employment and Vernon Arthur Mund with his scholarly study entitled "prosperity Reserves of Public Works" published in the Annals of the American Academy of Political and Social Science in May 1930 have placed the theory in a clear and beneficent light. Last among important writers on the theory is William Randolph Hearst whose popular version embodied in his editorials influenced the thought of many people concerning the role of public works. The essence of the theory of public works as a recovery measure is that government spending on public works, as well as other public spending can stimulate the economic system of a country so that private business will recover from the depths of economic depression and continue on its own momentum after which public spending of great magnitude can cease. This recovery of business is brought in four ways. The first is the stimulation of the capital goods industries by orders for construction materials leading to business spending and increased employment. By employing people directly, public works put purchasing power into the hands of those who will spend money and stimulate business. A third way is by reducing the cost of living and making money buy more, a fourth way is by offsetting the lack of purchasing power caused by over-saving. The fifth way lies in the curtailment of public construction in time of boom so that the height of the boom will be lowered and the amount of adjustment needed in the ensuing depression lessened. Before public works can effectively bring recovery certain conditions are necessary: Projects must consist of regular public work and not "made" or "relief" work. Heavy construction is generally recommended although some lighter construction work and non- construction work is permitted. Financing of the public works programs must be of borrowing or a reserve fund, and Federal aid to cities and states is necessary; self-liquidating projects are to be avoided. Conditions of employment must be favorable. Wages must be standard; hours sufficient to enable workers to earn almost as much as in normal private employment, workers should be hired through public employment exchanges, work should be adapted to the aptitudes of previous training of tax seekers of employment. Efficiency of the workers is necessary. The proper timing of the expansion or curtailment of public works is essential. The proper time to begin construction seems to be just after a certain amount of liquidation has occurred and before the cumulative forces of depression have grown to such an extent that there is widespread unemployment. Contraction of public construction should come when prices have risen too high in comparison with other years, credit conditions are stringent, overtime prevails in industry, and costs are high. To be able to effect proper timing there must be advance planning of public works programs, the coordination of public construction agencies, a single public works agency, and international cooperation. The main criticisms of the theory relate to the diversion of money from private business, increased taxes, waste in public work, and the question of occupational shifts. Such criticisms have been answered by public works theorists. Public works expansion in time of depression is desirable for reasons not related to the recovery of business. Idle men, machinery, plants, and money mean waste if not utilized. Savings in construction costs arise from lower prices of materials, lower borrowing charges, lower contractors' bids, and tne greater efficiency of workers. Moreover, public work is preferable to the dole. The New Deal of Franklin D. Roosevelt gave the theory of public works as a recovery measure a real chance to operate. In the Public Works Administration program the theory was almost embodied in its entirety. In the Federal Emergency Relief Administration, the Civil Works Administration, the Emergency Work Relief program and the Works Progress Administration programs some of the conditions considered essential to the successful working of the theory were present but several were absent. The FERA improved the public works programs of the cities and states and rendered financial assistance. The program as a whole, however, aimed too much at "relief". Projects were sometimes of questionable value. Earnings of workers were inadequate. The decentralized administrative organization was weak in many respects. The EWR improved the nature of the early FERA. The CWA was a better program than the FERA and EWR. Projects were of a more permanent and useful nature and were more diversified. Earnings at first were higher. The centralized administrative organization worked well, A great number of the unemployed were absorbed and business was stimulated to a noticeable degree. The program was less of the "relief" type as employees did not need to have relief status, and it aimed decidedly at stimulating business as well as relieving distress from unemployment. The WPA was in general a better program than the CWA. It profited from the mistakes of the latter, the FERA, and the EWR, The projects were planned better and more permanent as well as greatly diversified. Earnings, however, were inadequate, and this fact, along with the requirement of relief status for employees, placed the program in the glorified "relief" class. The PWA stood in marked contrast to the other New Deal public works programs. In it was embodied the closest approximation to the ideal public works program advocated by public works theorists that this country ever witnessed. The goal of the program was the recovery of business through the stimulation of the capital goods industries. The projects were of the heavy construction type which involved a lot of indirect employment - for every two men employed at the construction site five were employed providing materials and transporting them. Moreover, these projects were permanent and useful. The loans and grants met a great need of cities and states. The conditions of employment were excellent. Public employment exchanges were utilized, wages were standard. Hours were almost those prevailing in private industry. Workers were efficient and there was no relief status requirement. The administrative organization, at first too centralized, later represented a good balance between extreme centralization and extreme decentralization. If the PWA had only been put into operation on a larger scale, the recovery of business might have come sooner than it did. It is difficult to state with any great accuracy the relation of government spending to the recovery and recession of business 1933-1937. Studies by the economist Arthur D. Gayer have led to the conclusion that the rise in national income 1934-1937 could be imputed almost entirely to government spending. This conclusion has been reached by the economist Joseph Schumpeter and also by the seven Harvard and Tufts economists. It does not seem illogical to connect the increase in national income with the recovery of business. The increase in business deposits has been taken by Dr. Lauchlin Currie as indication of the importance of government spending in the recovery of business. Dr. Currie saw that the income of business from the sale of its products exceeded the outgo in the form of wages, dividends, and other payments to factors of production, and concluded that the source must have been the net-income-increasing expenditures of the government. The seven Harvard and Tufts economists stressed a valuable contribution of government spending to recovery. They said that such spending stimulated expenditures by manufacturing and mining concerns. The recession of the fall of 1937 was caused immediately by the curtailment of government spending early in 1937, The basic cause, however, was the failure of business spending to occur in a sufficient enough degree to offset the drop in government spending. The causes for the failure of business to spend have been attributed by eminent economists to the undermining of business confidence oy the Federal Government, and the lack of outlet for investment funds. Facts have pointed to an excess of savings so that the income of business does not equal the outgo. This recession brought a change in the theory of public works as a recovery measure. If it is a fact that private business spending is necessary for the maintenance of the economic good health of the United States and forces prevail which deter such spending, the Federal Government with the aid of the city and state governments must spend. The role of public works changes from an intermittent one to a permanent one. If, however, private business spending again occurs so as to make unnecessary permanent government spending, the role of public works can again be as it was when Shillady, Hard, Mallery and other public works theorists of the 20's wrote - an instrument in stimulating recovery from depressions. Our present economic system seems to be inherently unstable and private business is subject to periodic depressions from the morass of waich government spending must rescue it.
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