The Indianapolis times. [volume] (Indianapolis [Ind.]) 1922-1965, 1933-12-28

past two years, that is, at the new
capital issues sold in the United
States, and compare the situation
with more or less normal years like
1925 and 1926, we find that in the
good years the federal government
reduced its debt about two billions
and that local governments in
creased theirs about two and one
half billions, whereas in the past
two hard years the federal govern
ment has borrowed about six bill
lions and local governments a little
more than one billion.
Now, part of the federal borrowing
has been used for relief and for pub
lie works and, broadly speaking, it
may be said that this part repre-
sents a transfer from the localities
to Washington of the normal in
crease.
In other words, the federal ex-
penditures do not mean net in
crease of ordinary government
spending in the United States. In
part they represent federal expen-
ditures in place of local expendi
lures. This is very significant and
should be kept in mind.
A good deal of the money being
spent in Washington is a substitute
for money that would normally be
spent by states and cities.
DUT, of course, that does not &C
- count for the whole increase of
federal expenditure. To get per-
Spective On that we have to make
another comparison. In 1925-1926,
for example, the federal government
was not only borrowing, but was re-
ducing its, debt by two billions.
In those same years private in
dustry here and abroad borrowed,
say, ten billion dollars. In the past
two years, while the federal gov
eminent was borrowing its six bill
lions, private industry borrowed only
about two billions. Now good part
of the governments borrowing has
gone directly or indirectly to private
industry, to banks, railroads and
other corporate enterprises.
What is the general picture which
energies? 1t is the federal gov
eminent acting as the banker for
local government and private enter
prise. In the broadest sense we
have the national government per-
forming the function, though on
reduced scale, which in normal times
is performed by the banking system.
In 1926, the banking system pro-
vided local government and private
industry with about six billions of
new capital.
In 1888, the banking system has
provided less than a sixth of that
amount, but the federal govern
ment has provided about three bill
lions of new capital.
This is, I believe, the real mean
ing of the huge increase in the
national debt. 1t is not an ordi-
nary deficit. The federal govern
ment iG not now running an ordi-
nary deficit. 1t is engaged in a
huge banking organization which
has come about because local gov
eminent and private enterprise are
unable to borrow or the banking
system unable to lend.
If this is true, then certain broad
conclusions follow. The first is that
the remedy for the increase of the
federal debt is not to be found by
demanding that the federal gov
eminent cease borrowing. 1t is to
be found by restoring the credit
Worthiness of local government and
of private enterprise on the one
hand and the efficiency of the bank
ing system on the other.
THE second is that the real i'm
l. port of the budget position is
not the supposed danger of fiat
money resulting from the inability
of the government to borrow beyond
a certain point.
The national debt is large, but it
is not unbearably large. What
needs to be pondered is not the size
of the debt, but the reason for it,
and what that reason implies.
We are in position where local
government in the United States is
deeply dependent upon loans and
subsidies from Washington That is
something that it is worth while to
worry about. For-let us have no
illusions about tiff this condition
continued for long time, if it is
not a mere emergency which will
soon be over, then we should pass
from a federal system of states with
home rule in the localities to a CEN
trallzed state, the like of which the
founders of the republic never
dreamed of.
For there is no surer road to the
destruction Of local self government
than permanent financial depen-
dence on the central government.
The other thing to be concerned
about is the dependence of private
industry upon the central govern
ment acting as banker for the ma
ton. That, too, probably is tenn
porary. But if it is not, it is
momentous change in the economic
life Of this country. A central gov
eminent which virtually monopolizes
the distribution of new capital
would be something which the
American constitutional system was
never designed for.
Yet it is clear that the govern
ment has not been carrying on this
huge banking operation because
somebody believes in a ceneralized
and socialized state.
The operation was initiated not
by professors of the new deal, but
by Mr.. Hoover. He initiated it be-
cause the banking system was para
lyzed. 1t was paralyzed because the
fall in prices caused the loans in the