history essay 2

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Herbert S. Crocker, President,_ American Society of Civil Engineers, New York, New York. ,

My dear Mr. Crocker:

May 21, 1932.

I am in receipt of your kind letter of l\_f.ay 19th, and I have also the presentation of the sub~con~ittee of the Society suggesting that the depression can be broken by a large issue of federal govern- ment bonds to finance a new program of huge ex~pansionnof "public works" construction, in addition to the already large programs now provided for in the current budgets.. The sarne proposals have been made from other quarters and have been given serious consideration during the past few days.

The back of the depression cannot be broken by any single govern.r:1ent undertak ing . Tha t can only be done vi i th the cooperation of business, ba..YJ.king , industry, and agriculture in conjunct ion with the government. The aj_d the government nay give includes: (a) The quick, honest balancing of the Federal budget through drastfc reduction of less necessary expenses and the minimum increase in taxes; (b) The avoidance of issue of further Treasury se~urities as the very keystone of national and international confidence upon which all em- ployment rests; (c) 'The continuation of the work of the Reconstruc- tion Corporation which has overcome the financial strain on thousands of small banks, releasing credit to their communities, the strengthening of building and loan associations, the furnishing of credit to agricul- ture, the protection of trustee institutions and the support of financial stability of the railv1ays; (d) The expansion of credit by the Federal Reserve !3anks; (e) The organized translation of these credits into actualities for business and public bodies; (f) Unceasing effort at sound strengthening of the foundations of agriculture; (g ) The con- tinuation of such public works in aid to unemployr.1ent a s does not place a strain on the taxpayer and do not necessitate government borrowing; (h) Continuation of national, community and individual efforts in reli ef of distress; (i) The introduction of the five day week in govermJent which would save the discharge of 100,000 employees and ;nould add 30,000 to the present list; ( j) The passage of t he Home Loan discount bank legislation which V'iOUld -protect home owners from foreclosure and would furnish millions of dollars of em~ ployment in home ir,1provement without cost to the Treasury; (k} Financial aid by m~ans of loans from the Reconstruction Corporation to such s t ates as, due to t l1e long strain, are unagle to continue to finance distress relief; (1} The extension of the authority of the Reconstrution Corporation not only in a particular I call ed at- tention l a st Decermer, - that is, loans on sound security to industry where they would sustain and expand emploYlaent, - but also in view of the further contraction of credit to increase its authority to expand the issue of its ov1n securities up to ) 3,000,000,000 for the purpose of organized aid to "income producing" v1orks throughout the nation, both of public and priva te character.

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1. The v ice in that segment ol' the proposals made by your society and othe r s f or furthe r expa nsion of "public works" is that they include public works of remot e usefulne s s; t hey L'Tipose u nbearable burdens upon the taxpayer; they u nbalanee the bu dget aEd r) emorali ze governme nt c::-edi t. A larger and far ~nore effec t ive r e lief to unemployment at thi s stage can be secured by increa sed aid to "income-p :~ .. oducing worlcs". I wish to emphasize this distinc- tion betwee n what for purpoDes of thi s discussion we may term "income pro- ducing works" (also refer:t·ud to as "self-liq.uidating works") on the one hand and non-productive " :?ublic workf3 " on the other. By ''income-producing works" I mea n such projects of states, counti e s and other sub-divisions as waterworlts, toll-bri oe_;e s , toll tunnels, docks and a ny other such activities which charce for t heir ser vice and whose earning capacity provides a re- turn upon the investme nt . Y!i t h the return of normal times, the bonds of such official bodies base d upon such projects ca n be di sposed of to the inve sti !1g _p ublic and thus Fmke the intervention of the Recqnstruction Corporation purely an emer gency activity. I include in this class aid to estab lished indus try where it vwuld sus t ain and ir._erease employment with the safeguard t hat loans for these pur ~ose should be made on sound security and tlle proprietors of such industria s s houl d prov ide a portion of the capital. Non-productive "pvbli c works" in the sense of the term here used include; public buildings, h i ghways, street s , r iver and harbor improvement, milit ary anci ~1avy construction , etc., -N h i ch bring no direct income and comparatively little relief to unemployment.

2. I can perhaps ma ke this distinctio n clear by citing the example of the rec ent ac t ion of t he Reconstruction Finance Corporation in the matter of t he :Pe nnsylvania Fia ilroad Company on one hand, and the recent bill passed by the House of I\e iJresentatives for ir._creased road building on the ot her. rlhe railroa d company applied to the Reco n=iitruction Corporation for a loan of ) 55,000,000 to help finance a fund of over $68, COO,OOO needed to electrify certaj_p of it s liEes. By s o doing it would employ directly and i ndirectly for one yea:r more than 28,000 men distributed over twenty different states. An arl~ 8 ngement wa s concluded by which the Reconstruction Corpora t ion undertoo k to sta nd beL.ind t he p lan to t he ext ent of · ;~ 2?,000,000, t l.te :ra i lway company f'indin~~ the balance. This Q2?,000,000 is to be loane d on sound securities and will be retur ned, capital and interest, to the corporation. 1'he He con :?J tru.ction Corpo:rotion is acting as a gent to make available other v1 ise timi cl c J ~it ul for the Pen.t"J.sylvania Railroad in provi din[; emplOJ''me nt. ir here i.s no c l1arg e upon the taxpayer. On the other hand the proposal of the House o:f l"(epre sent atives i s to spend ;Ji l32,000,000 for subsidi e s to t he s tat e s for construction of highways. This would be a direct charge on t he taxpayer. The total number of men to be directly employed is estimated at 35,000 and indirectly 20,000 more. In other words, by this action Wf3 v10uld g ive employment to only 55,000 men at the expem e by the r:;overnrnent ··of· ·,?1:32 ,00~, 000, which will never be recovered. In the one instance we recover t he money adva nced through tbe Reconstruction Corpora- tion, we issuE! no government bonds , we have no charg e on the taxpayer. In the other i ns t a nc e , we hove not only a direct cost to t he taxpayer but also a continuint; nai ntenance charge , a nd furthermore, the hi ghways in many sections have novJ been expanded beyong immedia te pub lic need.

3. These proposals of huge expansion of "public works" have a vit a l r elation t o balancing the federal budget and to the stabilizing of national credit. The financing of "income-producing works" by the Recon- struction CorJ)Orn tion is an inve s t ment opera tion, requires no congressional appropria tion, does not unbalance the budget, is not a drain upon the Treasury, does not involve the direct issue of government bonds, does not inv olve added burdens upon the taxpayer either now or in the future. It is an emergenc y operation whicl"t ·will liquidate itself with the return of the invest or to the mo ney markets.

The proposal ~to build non-productive "public works" of the cate- gory I have described necess itates making increased appropriations by the congress. These appropria tions must be financed by immediate increased t axation or by the issuance of t;overnment bonds. Whatever the method employe d, they are ine sc apably a burden upon the taxpayer. If such a course is adopte d beyond the amounts already provided in the budget now before Concress for the next fL~cal year, it will upset all possibility of balanc- ing t he b udget; it wj_ll destroy conf idence in government securities and ma ke f or the instability of the government which in result will deprive more people of employment than will be gained.

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4. I have f or many years advocated t he speeding up of public works in tiraes of de pression as :1n nid to business arr} unemployment. That ha s been done upo n a huge scale and is proceeding a t as great a pace as fisc al s tability will warrant. All branches of govern..rnent, - Federal, state and municipal, - have greatly expanded their "public works" and have now reached a stage vJhere they have anticipated the need for many such works for a long time to come. The r efore, the nev; proU.ects which might be under- taken are' of even ::nore remote usefulness. From January, 1930, to July 1st, 1932, the Federal Government will have expended ~1,300,000,000 on "public worl~s". Il'.e budget for the next fiscal year carries a further $575,000,000 of suc h e )~penditures (corapared with about $250,000,000 normal) and includes all the items I have .felt are justif ied by sound engineering and sound finance. rr l.LUS by the end of next year the Federal Government will have expended over $2, 000,000,000 on public works, wh ich r epresents an increase over normal of perhaps ~~ 1,200,000,000. Thus we have largely anticipated the future and have rendered further expansion beyond our present program of very remote usefulness and certainly not justified for some time to come, even were there no fiscal difficulties. They represent buildi ng of a co:m.rnunity beyond its necessities. We cannot thus squander ourselves into prosperity.

5. A still further and overriding reason for not undertaki:r.g such programs of further expansions of Federal npublic works" is evident if we examine the individual projects which might be undertaken from an engineering and economic point of view. The Federal "public works" now authorized by law cover works which it was intended to construct over a long term of years and embrace several projects which were not of immediate public usefulness. In any event, the total of such authorized :9rojects st ill in.complete on the lst of July will amount to perhaps $1,300,000,000. I f ~: · e de duct from this at once the budgeted program for the next fisc a l year - $575 , 000,000 - we l eave roughiliy $725,000,00Q of such authoriz ed v10rks which would be open for ad!tion. If we examine these projects in detail, we find great deduc t ions must be made from this sum. Construction of many projects phys ically require yefirs far comple- tion such as nava l vessels, buildings, canalization of rivers, etc., and therefore as an eng ineering necessity this sum could only be expended over four or f ive years; a portion of the projects not already started will require legal and t echnical preparation and therefore could not be brought to the point of employment of labor durinc the next year; a portion ar these authorized projects are outside conti nental United States and do not contribute to the solution oi' our probl em; a portion are in localities where there is little unemployment; a portion are in the District of Columbia wh~re r1e already have a large increase in program for the next fiscal year an'd where no additional work could be justified. A portion are of remote utility and are not justified , such as extension of agri- cultural ac?eage at the present time. Deducting all these cases from the actual list of authorized Federal public works, it will be found that there is less than ~~ 100,000,000 (and this is doubtful) which could be expenied during the next f iscal year beyond the program in the budget. That means the emplos!nent of say less than 40,000 men. Thus the whole of these grandiose contentions of possible expansion ofFederal "public works" fall absolutely t o the ground for these reasons if there were no other •.

If it is cont emplated that we legislate more authorizations of new and unconsidered projects - by Congress we shall find ourselves confronted by a log-rolling process which will include dredging of mud creeks, building of umvarranted post-offices, unprofitable irrigation projects, duplicate highways and a score of other unjustifiable activities.

6. There is still another phase of this matter to which I would like to call attention. Employment in "public works'' is largely transitory. It does not have a follow-up of continued employment as is t he case with "income-producing vvorks". But of even more importance than t his, t he program I have proposed gives people emp loyment in all parts of the country in their normal jobs under normal conditions at the normal place of abode, tends to reestablish normal processes in business and industry am will do so on a much larger scale than the projects proposed in the so- called "public \:vorks" program.

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7. To sum up. It is generally ~greed that the balancing of the Federe l budget and unir1paire cl national credit is indispensable to the restoration of confidence and to the very start of ec0nomic recovery. The Ac11linistration and Coneress have pledged th~mselves to this end. A "public works" program such as is suggested by your committee and by others, through the issuance of :Federal bonds creates at once an enormous further deficit.

Vihat is needed is the return of confidence and a capital market through which credit will flow in the thousand rills vdth its result of employment and increa sed prices. That confidence will be only destroyed by action in these directions. These channels will continue clogged by fears if v:e continue attempts to issue large amounts of government bonds for pnrpo ses of non-productive works.

Such a program a~ these huge Federal loans for "public works" is a fearful price to pay in putting a few thousand men temporarily at work and dismissing many more thousands of others from their present employment. There is vivid proof of this since these proposals of public works financed by Government bonds were seriously advanced a few days ago. Since then United States Government bonds heve shown marked weakness on the mere threat. And it is follov1ed at once by a curtailment of the ability of states, municipalities and industry to issue bonds and thus a curtail- ~ent of activities which -translate themselves into decreased employment.

It will serve no good purpose and will fool no one to try to cover appearances by resorting to a so-called "extraordinary Bu9get". That device is well known. It brought the governments of certain foreign countries to the brink of financial disaster. It means a breach of faith to holders of all Government securities, an unsound financial program and a severe blovv to r e turning confi dence and :further contraction of economic activities in the country.

What you want and wha t I wnnt is to restore normal employment. I am confijent thut if tl1e program I have proposed to the Congress ls expeditiously completed and we have the cooperation of the whole community, we will attain the objective for which we have been searching so long.

Yours faithfully,

Ff~RBERT HOOVER.