Evening star., 1936-12-31
CRITICS CENTER
ON RESERVE PLAN
Effect on Present Wage
Levels and Employment
Hard to Guage.
BY MALCOLM b. FLANDERS,
Cambridge Associates stan.

Hard to Guage.
BY MALCOLM B. FLANDERS,
Cambridge Associates stan.
''There Is now a law in this country
which will give aout 100000 work
ing people something to live on when
they are old and have stopped work.
ing"
With this statement, biblical in its
simplicity. the leaf1et issued by the
Social Security Board opens a descrip-
ton of the hopes and plans Of those
who framed this generations most
ambitious piece of legislation.
With the hopes, there is no general
disagreement. With the plans, even
many of the most ardent devotees to
the principle of social security point
out dangers and fallacies. AS to the
effects of social security legislation.
under this or any similar law, the
potentiaities are so far-reaching as to
defy estimate.
What effect will such an act have
on employment practices, wage levels,
real income? Who, in the last analy-
sis, pays its cost? To these and other
questions only time can provide def
mite answer: in the meantime some
very general predictions can be made.
Fewer Elderly Workers.
In the first place, it Is evident that
old-age pensions will reduce to some
extent the number of actively en-
ployed of 65 and more. These num-
bered 2,204,967, according to the 1880
figures. Many Of these were engaged,
of course, in domestic service. in agri-
culture, and in small establishments
not covered by the present act.
Roughly, therefore, perhaps We may
guess that under present population
figures not more than million elderly
workers will be removed from the en-
ployment rolls. Naturally. however,
pensions will remove some of the pres
sure from the labor market, since OBJ
viously many seek employment who
are now idle.
The effect Of social security legisla-
ton on wage levels can be theo-
setically demonstrated, but it is prob
able that in actual practice its effect
will be virtually obscured by changing
business trends. A statement that
wages will be decreased, or that, in
stead, the cost will come out OF busi-
ness profits, is impossible, since OBJ
viously practice will be governed by
the times, the place and the industry
Reserve Idea Attacked.
The most generally voiced and point
ed criticism is directed at the plan to
implement the act by piling up huge
reserve. The act contemplates invest
ment Of the proceeds of levies in obli-
cations of the United States Govern
ment. When full operation has be-
come a fact, several decades hence,
approximately go per cent of disburse-
ments in any year will be provided for
by current income and 40 per cent
by receipts Of interest from the re-
serve fund.
This interest, however, will be paid
from Treasury funds raised from tax
alton in one form or another. Thus
In the last analysis the total burden
Of any years payments comes from
direct taxation in the year Of payment.
Wherefore, then, the reserve fund,
with its cost Of administration, and
why should We not recognize immedi-
ately that the whole burden Is borne
In the year that produces the income
unless the Federal budget is out Of
balance? This would enable us to get
the whole mechanism into operation
In short order. rather than postponing
It for the purpose of establishing
fictitious reserve.
Reserves Bigger Than National Debt.
Carrying this line Of reasoning still
further, we find that the reserve fund
Is expected to reach proportions much
larger than the total Of outstanding
Government debt at the present time.
Supposing hat it would be possible,
without upsetting the apple cart, to
drain banks, insurance companies and
individual investors of all their Gov
ernment bonds, 1t would still be nec-
essary to issue at least an equal addi-
tlonal amount OF debt.
Proceeds from the sale Of these
bonds naturally cannot be retained in
the Treasury, since that would re-
strict the supply of money in circula-
ton and make the conduct of business
impossible. The remaining alterna-
tive, then. is to spend the money and
keep the Federal budget consistently
out Of balance until the volume of
Federal debt has doubled. Few would
knowingly advocate such a procedure.
Finally we can assume that We shall
have. in the year 1880, a reserve of
$50. 1000. 100000 invested in Govern
ment bonds. A depression comes, and
with 1t large demands on the unem-
ployment reserve. Government bonds
are sold from the reserve fund to meet
these payments. but to whom? The
market for Government bonds very
soon becomes glutted, and the only
recourse is for the Government to pre-
tend that money can be printed with
the bonds as security, which process
would dwarf all previous infiations to
insigniflcance.
All these evils are the result Of the
fallAcy OF setting up a reserve sc- the
administration Of cf1r social security
act. The obvious conclusion Is that
reform Of the legislation will be pro-
posed before these trends reach dan