People Must Live by Work. Steven Attewell
to date, not giving enough money to working-class consumers to produce a sizable-enough multiplier effect, and they called for a dramatic increase in effort; as Baker put it, “The flow should be free as long as the pressure of government spending is needed.”61
FERA officials focused on more than levels of aggregate spending. They emphasized the form as well as the quantity of spending. As Baker and his colleagues saw it, countercyclical spending would be wasted if it were to be spent solely on direct relief (which they understood would be the most efficient means of income transfer). These relief administrators believed that direct relief “destroys morale, it returns nothing to the community [and] contributes little to recovery except that it keeps people alive.”62 FERA officials did not dislike relief solely because of traditional American beliefs about dependency and charity, or because of liberal objections to the stingy, temporary, and degrading administration of local relief, but also because of its economic effects. With poor relief, “none of the money is paid back and not nearly enough is produced by its use.”63 Pump priming through direct relief produced little in the way of multiplier effects due to the low levels of consumption it generates (especially when it is “in kind” rather than “in cash”). Baker called outright for the abolition of direct relief as an integral part of any program for economic security, a call echoed by his peers in FERA.
In its place, FERA officials argued that direct job creation would be the most effective means of stimulating countercyclical spending, and thus it would simultaneously provide for the poor and generate demand that would lead to greater economic security. By providing work at wages that ranged from 26 to 70 cents an hour, direct job creation would pull millions out of outright destitution, millions who would promptly add their new wages to existing consumer demand. The return on wages from taxes paid by newly employed workers would reduce the final cost of the program; most important, the publicly employed would, with their labor, “create new national wealth … more important than any saving.”64 The goods these workers would produce, from housing and public buildings to highways, streets, and road gradings, and infrastructure for utilities such as electricity, water, and sewage, would themselves stimulate production as well as consumption. FERA enthusiasts of direct job creation could be seen as proto-Keynesians, plain and simple. However, their policy vision went beyond mere countercyclical spending to a broader restructuring of the American economy, in which direct job creation would play a central role.
This vision emanated from work done collaboratively between this brain trust and a private firm of economic analysts from Manhattan’s Financial District.65 Lewis Baxter, the executive secretary of Economic Security Associates, devised a chart (see Figure 1) that displayed the American economy as a Mobius strip, with public and private economies as intertwined halves of a whole, linked by flows of taxation, interest, investment, and, above all, purchasing power.66 By adjusting a slide that denoted the size of the federal budget, the reader saw that increasing federal outlays on direct job creation reduced unemployment, increased production, and expanded purchasing power, thus repaying the cost of the program by increasing personal and corporate incomes and thus taxation, and increasing overall levels of economic production, as long as “universal useful employment based on assured jobs in public service” could be assured.67
Baxter’s model suggested a reconceptualization of the role of government in the American economy that went well beyond emergency measures during a catastrophic downturn: “Government activities constitute, in effect, an auxiliary industry,” he argued, “which might always utilize advantageously the entire labor surplus.”68 This auxiliary industry produced goods and services just as private-sector industries did, and it had its own rates of return on investment and labor. In this model, the old idea of government spending as a drain on private economic activity and hence a loss to the overall economy was turned on its head. Instead, unemployment would be abolished by government fiat. In one hypothetical recession, he speculated, “Decreased private activities have released 1,200,000 workers … but under this plan, expanding public activities would promptly take on 1,200,000 extra men.” Government-created jobs would maintain “the required equation between total workers and total available jobs. There would be no labor surplus to start the ‘vicious cycle’ of a depression.”69 Direct job creation would be the permanent solution to any cyclical economic crisis, periodically stepping in to counteract recessions and keep the economy growing at a stable rate.
Figure 1. Baxter’s vision of the American economy. From Lewis Baxter, “National Balance Sheet,” undated, Staff Subject Files Miscellaneous, Staff Subject Files, Records of the Committee on Economic Security, Group 69, National Archives II Building, College Park, MD.
Baxter argued that direct job creation offered two further advantages over other antirecession strategies. First, it provided for the prospect of recovery through growth by putting potential labor to use. “The point to be emphasized here,” he wrote, “is that allowing an over-supply of human productive energy to go to waste in idleness, which might be utilized to create general benefits, deflates the entire price and investment structure.”70 By putting labor power to work, direct job creation would push the economy to its maximum level of production, reduce the downward push on wages caused by mass unemployment and decreasing demand, and restore an imbalance in the distribution of capital between consumers and investors by shifting tax revenue taken from the rich toward wages for the poor.
In the memo “A National Program for Economic Security,” Baker concurred with Baxter’s emphasis on the effects of inequality on hypercapitalization, speculation, and underconsumption, theorizing that greater redistributive impact could be had by financing direct job creation through a tax on securities. “The more money that is hoarded or thrown into nonproductive uses, the greater become the number of such instruments of debts, and consequently the broader the base for such a tax,” he noted. “The imposition of such a tax … tends to force money into productive use,” complementing the government’s direct efforts.71
Second, direct job creation would decommodify work. By expanding government’s role into that of an employer and producer, direct job creation blurred the distinction between the private and public sectors. Public industry “differs from the others only with reference to the nature of its products and the methods of marketing them,” Baxter argued.72 This emphasis on the similarity of government and business implicitly argued for a gradualist strategy in which the basic economic structures would evolve without seeming to change. “Total income remains constant. The average personal income remains constant. The sole change is that the average producer is buying less individually and more cooperatively.”73
This perspective was not wholly embraced by everyone at FERA. Corrington Gill represented the more orthodox strain of economic theory. He approached direct job creation from much the same angle that John R. Commons would have: empirically, institutionally, and with a slightly conservative tinge to otherwise progressive aims. In his memo entitled “Basic Considerations Affecting a National Public Assistance Program,” Gill laid out his interpretation of the theory underlying direct job creation. In his view, persistent unemployment was driven by a mixture of frictional, structural, and cyclical factors. While frictional unemployment was “inevitable in a dynamic economy,” structural and cyclical factors were not. They reflected instead the force of technology and the shifting availability of natural resources, which could both be shaped by government intervention.74
“Since full employment is not in prospect in the predictable future,” Gill noted, “[people] other [than] marginal workers will be in need of public assistance.”75 The federal government would have to establish a permanent system of marginal direct job creation to ensure full employment, “play an increasing role in the field of public investment,” and avoid European-style dependence on nonwork-related welfare. Direct job creation, therefore, was an important element in the toolbox of New Deal liberalism, functioning in unison with a Keynesian “flexible public spending program [as] … a permanent aspect of public policy.” Along with wage and price controls it could avoid the kind