Evening star., 1940-01-04
Review of FiscoI Policy

The budget of the United States
Government is statement that
reflects in money terms what the
Government does for the people and
what the people contribute to the
Government.
In these figures over course of
years are mirrored the changing
attitudes of the people toward the
growing needs which they expect
their Government to meet. The
relatively low and constant level
of expenditures throughout the
192Os accurately reflected the rela-
lively minor role played by the Gov
ernment in those years. The sub
stantial increase in the past decade
is reflection of the degree to which
the country, in response to changing
economic and international condi-
tions and changing attitudes, has
turned to the Government to meet
social needs recognized by our citi-
zenship. Nowhere are our demo-
cratic processes so faithfully de-
picted
In the early thirties-prior to 1888
fiscal policy was exceedingly SIM
pie in theory and extraordinarily
disastrous in practice. 1t consisted
in trying to keep expenditures as low
as possible in the face of shrinking
national income. Persistence in this
attempt came near to bankrupting
both our people and our Govern
ment.
Following 1888 the fiscal policy of
the Government was more realisti-
cally adapted to the needs of the
people. All about were idle men.
idle factories, and idle funds, and
yet the people were iii desper2to
need of more goods than they had
the purchasing power to acquire.
The Government deliberately set it
self to correct these conditions by
borrowing idle funds to put idle
men and idle factories to work.
The deliberate use of Government
funds and of Government credit
to energize private enterprise-to
put purchasing power in the hands
of those who urgently needed it and
to create a demand for the products
of factory and farm-had a pro-
found effect both on Government
and on private incomes. The ma
tionaI income in four years rose SO
per cent. from AZ billion dollars in
1888 to 72 billion dollars in 1887, the
largest absolute use for any four-year
period in our history, not even
excepting the rise during the World
War. Tax revenues rose from 2
billion dollars in the fiscal year 1888
to over S billion dollars in the fiscal
year 1887, primarily because the peo-
pie had more income out of which
to pay taxes. The people paid 3
billion dollars more in taxes but they
had nearly 10 times more than that,
or 30 billion dollars to spend Oh
other things. This statement de-
serves headline.
Rapid progress was made toward
a balanced budget. BY the calen-
dar year 1887 excess of Government
income had dropped to 331 million
dollars.
Unfortunately. just at the time
when it seemed that the Federal
Government would be able safely to
balance its budget on the basis of
national income of approximately IS
billion dollars, Embellishments in
the economic system began to ap-
pear and caused a recession in eco
nomic activity. The recession was
due to variety of causes stemming
In the main from over-optimism
which led the Government to curtail
Its net expenditures too abruptly,
and business to expand production
and raise prices too sharply for con-
sumerS' purchasing power to keep
pace. A large volume of unsold
goods piled up.
II the recession were not to feed
on itself and become another de-
preston, the buying power of the
people, which constitutes the market
for the products of industry and
agriculture. had to be maintained.
To this end, in the spring of 1888, 1
recommended further use of Gov
ernment credit and the Congress
acted on my recommendation.
The soundness of this realistic
approach to a fiscal policy related
to economic need was again strik-
ingly demonstrated. In place of the
42-billion-dollar decline in national
income that occurred from 1929 to
1882, the decline from 1887 to 1898
scarcely exceeded billion dollars.
In place of a four-year period of
liquidation and def1ation, productive
activity turned up within nine
months. BY 1889, in terms of dol
lars, the national income closely
approached, and, in terms of real
production and consumption, max
ing allowance for the lower level of
prices, was equal to that of 1887
The experience of 1938-1939 should
remove any doubt as to the effec-
tiveness of fiscal policy related to
economic need. The wise exercise
Of such fiscal policy imposes grave
responsibility on the Government.
Government must have the wisdom
to use its credit to sustain economic
activity in periods of economic re-
cession and the courage to withhold
1t and retire debt in periods of eco
nomic prosperity. And let us not
forget that the withholding of Gov-
ernment credits in time of need for
political advantage is no less repre-
hensible than its profligate use at
any time.
In approaching the budget for
the fiscal year 1941 I have sought,
as In the past, to relate fiscal policy
to probable economic necessities.
AS the budget is being prepared we
are achieving the highest levels