Evening star., 1938-04-18

should be able to
get along without the Government S
money.
But the managers of business have
found certain impediments interposed
by Government itself. They have
cried out against these barriers for
long time, but Mr.. Roosevelt stub
bornly refuses to remove the barriers.
He will not even let Congress pass a
tax bill to help business along. Un-
Ger such circumstances the pump
printing program must inevitably fail
to get the wells of private business to
function.
Opinions will differ on this point,
but in order to determine for one
self what the probable trend will be,
1t Is necessary to have a clear under
standing Of just what pump prin-
ing" really is.
Perhaps the best ANALYSIS was given
by DR.. John H, Williams, professor
OF economies at Harvard University.
in speech he made early last Novem-
Der, at time when the business re-
cession had started, but when the
second experiment with pump prim-
ing had not. of course, been decided
upon. So his remarks can be con-
sldered as unprei iudiced by the exist
eEce OF any pending program and as
devoted wholly to an explanat ton of
the theory of pump pruning" Said
DR.. Williams:
Recovery by means Of public spend
Ing is supposed to have three phases
The first is the actual spending by
the Government of such and such an
amount The second is the secondary
spending of that amount. 1t is gen.
orally thought that the multiplier is
something between two and three So
that if the Government spends sl,OOo.-
100000 the total effect of that In
money terms would be between
s2,ooo,ooo,ooo and $4,000 900 of ma
tional income.
Effect on Investment
And then comes. and this Is the
crux of the matter, what is called
tertiary spending, the effect of the
whole process on new investment. It
Is thought that by increasing the con-
sumer incomes, handing out money
and having it spent and revolving
through the system, business is en-
couraged to finance further capital
facilities. in order to be able to pro-
duce enough and to get ready to pro-
duce enough to satisfy this mounting
wave OF demand. That is the tertiary
stage. When people talk about prim-
Ing the pump they are really talking
about that. At that stage YOU reach
the end result, which is private in
vestment.
Then the thought is that as re-
covery comes along you taper off YOUR
public deficits from both ends: the
neeo OF spending is less. because
private business is employing the
factors OF production and providing
income so that the Government need
not do 1t. Relief and all such ex-
penditures should go down. On the
other side, the tax revenue should in
crease with the greater volume and
profltableness of business. In this
way the budget is balanced Tertiary
spending is then we'll under wav,
private investment is going along
under its own steam and there is no
further occasion for the Government
to do anything
Now that is the theory. and it has
. good many advocates. I personally
believe 1t was never adopted in this
country on theoretical grounds. but
that We found ourselves faced with a
condition and rationalized it a good
deal. and evolved out of it this theo-
retical justification. I think it was a
fact rather than theory that we were
acting upon. I myself think the
spending program has been Justified in
some measure. want to qualify that.
think 1t was slow in starting and
think 1t has been slow in ending.
think our timing has been poor,
and owing to that fact the magnitude
Of the operation has been greater than
1t needed to be. A very large question
Is whether you can operate this kind
OF policy successfully in a democratic
state. do not know the answer to
that. We have not had enough ex-
perience"
DR.. Williams then pointed out that
one part of the theory-lendinp
through the r. F. c. for capital ex-
penditures-has worked out better
than spending through the w. P. A.
He declared that by 1885 the r. F. c.
was showing an excess of repayment,
whereas direct expenditure through
such things as work relief did not
get under way really until 1894 and
expanded when recovery momentum
was strongest. Declaring that the
timing has been late, he adds:
I'm my own view we should have
started the transition to balanced
budget at least one year and possibly
even two years ago, when the mo-
n1entum Of the recovery was strong.
Surely last winter and spring. when
we were worried about the excesses of
. boom character. we should have been
reducing our deficit. AS it Is, 1t has
come now, and we are effecting the
transition mainly In this fiscal year,
Il the present budgetary estimates
materiali1e."
But since that speech was made
the administration has reversed its
policy and endeavored to correct its
first blunder by more pump priming."
The main reason the administration
did not stop spending when Prof.
Williams thought it should was that
Mr.. Roosevelt had to win the 1886
elections and he couldn't stop the
W. P. A. or the other grants and sub
sides until he was past that hurdle
He tried 1t afterward in his budget
outline in January, 1887. for the
present fiscal year and then did it too
suddenly. and now as the congressional
elections Of 1888 are at hand he finds