Rise up for America

Herbert Hoover:

THE CHALLENGE TO LIBERTY

From AThe Challenge to Liberty@ by Herbert Hoover, copyright 1934 by Charles Schribner=s Sons. 

  THE origins, character, and affinities of the Regimentation theory of economics and government, its impacts upon true American Liberalism, and its departures from it can best be determined by an examination of the actions taken and measures adopted in the United States during recent months.

It is not from oratory either in advocacy of this philosophy or equally in denial of it that we must search for its significance. That is to be found by an examination of the actual steps taken and proposed.

  From this examination we may dismiss measures of relief of distress from depression, and reform of our laws regulating business when such actions conform to the domain of true Liberty, for these are, as I shall indicate, not Regimentation.

  The first step of economic Regimentation is a vast centralization of power in the Executive. Without tedious recitation of the acts of the Congress delegating powers over the people to the Executive or his assistants, and omitting relief and regulatory acts, the powers which have been assumed include, directly o indirectly, the following:

 To debase the coin and set its value; inflate the currency; to buy and sell gold and silver; to buy government bonds, other securities, and foreign exchange; to seize private stocks of gold at a price fixed by the Government; in effect giving to the Executive the power to "manage" the currency;

  To levy sales taxes on food, clothing, and upon goods competitive to them (the processing tax) at such times and in such amounts as the Executive may determine;

   To expend enormous sums from the appropriations for public works, relief, and agriculture upon projects not announced to the Congress at the time appropriations were made;

  To create corporations for a wide variety of business activities, heretofore the exclusive field of private enterprise;

  To install services and to manufacture commodities in competition with citizens;

  To buy and sell commodities; to fix minimum prices for industries or dealers; to fix handling charges and therefore profits; to eliminate "unfair" trade practices;

  To allot the amount of production to individual farms and factories and the character of goods they shall produce; to destroy commodities; to fix stocks of commodities to be on hand;

  To estop expansion or development of industries or of specific plant and equipment;

  To establish minimum wages; to fix maximum hours and conditions of labor;

  To impose collective bargaining;

  To organize administrative agencies outside the Civil Service requirements;

  To abrogate the effect of the anti‑trust acts;

  To raise and lower the tariffs and to discriminate between nations in their application;

  To abrogate certain governmental contracts without compensation or review by the courts;

  To enforce most of these powers where they affect the individual by fine and imprisonment through prosecution in the courts, with a further reserved authority in many trades through license to deprive men of their business and livelihood without any appeal to the courts.

Most of these powers may be delegated by the Executive to any appointee and the appointees are mostly without the usual confirmation by the Senate. The staffs of most of the new organizations are not selected by the merit requirements of the Civil Service. These direct or indirect powers were practically all of them delegated by the Congress to the Executive upon the representation that they were "emergency" authorities, and most of them are limited to a specific time for the purpose of bringing about national recovery from the depression.

At some time or place all of these authorities already have been used. Powers once delegated are bound to be used, for one step drives to another. Moreover, some group somewhere gains benefits or privilege by the use of every power. Once a power is granted, therefore, groups begin to exert the pressure necessary to force its use.  Once used, a vested interest is created which thereafter opposes any relaxation and thereby makes for permanence. But beyond this, many steps once taken set economic forces in motion which cannot be retrieved. Already we have witnessed all these processes in action.

  The manner of use of these powers and their immediate impacts upon the concepts of true American Liberty may first be examined under the five groups or ideas into which they naturally fall.................Regimented Industry and Commerce, Regimented Agriculture, Government in Competitive Business, Managed Currency and Credit,  and Managed Foreign Trade.

Regimented Industry and Commerce

  The application of Regimentation to business has made great strides. We now have the important branches of industry and commerce organized into trade groups, each presided over by a committee of part trade and part governmental representatives heading up through an AAdministrator@  to the Executive. There are a number of  advisory boards for various purposes whose personnel is  part trade and part bureaucratic. More  than 400 separate trades have been so organized, estimated to cover 1,500,000 establishments or about 90 per cent of the business of the country outside of farming.

  In this organization of commerce and industry the trades were called upon to propose codes of management for their special callings. Parts of each of these codes are, however, imposed by law, whether the trades propose them or not. The determination as to who represents  the trade is reserved to the Executive, and in the absence of a satisfactory proposal he may himself make and promulgate a code. He may force deletion of  any proposed provision and may similarly impose provisions and exceptions.

  Each of the codes is directly or indirectly binding upon every member of  the trade whether he was represented in its making or whether he agreed or not. It has the force of statutory law, enforceable by fine and jail through the courts. Originally the Executive could require  every member of a trade to take out a license to do business. In this license he could impose the conditions under which  persons may continue to do business. The Executive could revoke a license without affording any appeal to or protection of I the courts. This licensing power has expired in general industry but still stands as an authority to the Secretary of Agriculture over all producers, processors and  dealers in agricultural products. That is  a very considerable part of American  business. Except as an example of  the extent of  violation of freedom this licensing provision is not important, as the other provisions and methods are sufficiently coercive without it.

  The codes  impose minimum wages and maximum hours and provide, further, for collective agreement with labor as to wages and conditions of work beyond the minimums. By far the major use of the codes is, however, devoted to the elimination of "unfair competitive practices." This expression or its counterpart, "fair competition," has been interpreted not alone to cover >unethical practices,@   but to include the forced elimination of much normal functioning of competition through reduced production, the prevention of plant expansion, and a score of devices for fixing of minimum prices and trade margins. From so innocent terms as Afair competition@ and its counterpart have been builded this gigantic dictation ........itself a profound example of the growth of power when once granted.

  In this mobilization there has been constant use of the term Aco‑operation.@ However, the law itself makes important parts of the codes compulsory and by their indirect powers can impose any of them. As practical persons observing their working, we may dismiss voluntary impulses as the motivation of this organization. At best it is Acoercive co-operation." Free will and consent, the essential elements in co‑operation, have not often been present. The spirit of the whole process has been coercive, principally through the overshadowing authority to impose the codes and the terror of effective deprival to any man of his business and his livelihood. The mere fact of charges made by bureaucrats can act to deprive him of his reputation. Where such authority arises among free men is difficult to discern.

  Ample evidence of coercion is found in the bludgeoning proceedings of many  important code conferences, in the changes forced in some codes, from which there was no appeal or refuge; in the  incitement to public boycott; and in the contracts required in all dealings with  the government itself. One need but read  the vast flood of propaganda, of threat  and pressure, the daily statements of the  administering officials, and follow the actions of  Acompliance@ boards and other  agencies, in every town or village, to confirm the fact of coercion. Men have been fined or ordered to jail for the crime of  selling goods or services at lower prices  than their competitors. One of the sad results is the arraying of neighbor against  neighbor, group against group, all grasping for desperate advantage from the law.

  There are Aunfair practices@ which need  reform because of the failure of some  States to rise fully to their responsibilities. The codes have served admirably to reduce child labor by about 25 per cent,  and they have eliminated sweating in  certain trades. They have eliminated some unethical business  practices, but they  have stimulated many more new  ones through Achiseling.@ This sort of reform is within the powers of the States, and laws to this purpose have been enacted by most of them. If  we have determined that we must nationally force these  measures on delinquent States and if they be within the constitutional  powers of the Federal Government, then  they can be carried out by specific law  enforced by the judicial arm and do not  require the regimentation of the economic system. But in practical working only a small part of the codes are devoted to these ends.

  The most effective part of code operations are devoted to limitation of real  competition. It is true that the law provided that there should be no monopolies] or monopolistic practices. The major: aspiration of those seeking to avoid the  anti‑trust acts always has been precisely the fixing of minimum prices and restriction of output, and these objectives, so earnestly yearned for in some quarters, now have been imposed by law. The economic results, so far as the trades and consumers are concerned, are about the same as if the anti-trust acts had been abolished. Naturally, if these industrial regiments hold to discipline they are at once constituted as complete guild monopolies as any in the Elizabethan period, from which we derived much of our American antagonism to monopoly.

  But an equally regrettable social effect has been the imposition of  larger costs, and  the fixing of minimum prices and trade differentials crashes down at once on smaller units of business. If persisted in there can be no destiny of these processes in the long run but a gradual absorption of business by the larger units. All this is in fact the greatest legal mechanism ever devised for squeezing the smaller competitor out of action, easily and by the majesty of the law. Yet the small business is the very fibre of our community life.

  Over it all is now the daily dictation by Government in every town and village every day in the week, of how men are to conduct their daily livesCunder constant threat of jail, for crimes which have no moral turpitude. All this is the most stupendous invasion of the whole spirit of Liberty that the nation has witnessed since the days of Colonial America.

Regimented Agriculture

  The farmer is the most tragic figure in our present situation. From the collapse of war inflation, from boom, from displacement of work‑animals by mechanization, from the breakdown of foreign markets, from the financial debacle of Europe, and from drought, he has suffered almost beyond human endurance.

  Instead of temporarily reducing the production of marginal lands by measures of relief pending world recovery, the great majority of farmers were regimente,d to reduce production from the fertile lands. The idea of a subsidy to a farmer to reduce his production in a particular Astaple commodity@ was expanded by requiring a contract that he would follow orders from the Secretary of Agriculture in the production  of other  A staple commodities.@  Voluntary action was further submerged by threats that if he did not sign up he would have difflculty in obtaining credit.

  The whole process has been a profound example both of how bureaucracy, once given powers to invade Liberty, proceeds to fatten and enlarge its activities, and of how departures from practical human nature and economic experience soon find themselves so entangled as to force more and more violent steps.

   To escape the embarrassment of the failure to reduce production by these methods, still further steps were taken into coercion and regimentation. Yet more staples,  not authorized by the Congress to be controlled when the contracts were signed, were added to the  list. A further step was to use the taxing  power on excess production of cotton and to set quotas on sugar. Directly or indirectly, on many farms these devices  create a privilege and destroy a  right. Since only those who have had the habit of producing cotton and some other commodities may now do so, they are given a monopoly and any other farmer is precluded from turning his land to that purpose.

   And recently still further powers were demanded from the Congress by which the last details of complete coercion and dictation might be exerted not alone to farmers but to everyone who manufactures and distributes farm products. That all this is marching to full regimentation of thirty millions of our agricultural population is obvious enough.

  But we are told that the farmer must, in the future, sacrifiice Liberty to economic comfort. The economic comfort up to date may be questioned, as likewise the 1ongevity of any comfort, for the basic premise is not tenable. (l)

  The stark fact is that if part of Liberty to a particular farmer is removed, the program must move quickly into complete dictation, for there are here no intermediate stages. The nature of agriculture makes it impossible to have regimentation up to a point and freedom of action beyond that point. Either the farmer must use his own judgment, must be free to plant and sell as he wills, or he must take orders from the corporal put above him.

  The whole thesis behind this program is the very theory that man is but the pawn of the state. It is a usurpation of the primary liberties of men by government.

Government in Competive Business

  The deliberate entry of the government into business in competition with the citizen, or in replacement of private enterprise ( other than as a minor incident  to some major public purpose), is regit- mentation of the people directly into a bureaucracy. That of course,  is Socialism  in the connotation of any sociologist or economist and is confirmed as such today  by the acclaim of the Socialists.

  As an instance we may cite the Tennessee Valley Authority, where the major purpose of the government is the purchase, construction, operation, transmission, and sale of electricity in the Tennessee Valley and neighborhood, together with the manufacture and merchandising of appliances, fertiliizers, chemicals, and other commodities. Other instances occur where Public Works money has been allotted to the erection of dams and reservoirs, and to the construction of power plants, the major purpose of  which is to undertake the production and sale of electricity in competition with the citizen.

  There have long been instances of public works for the real major purpose of flood control, irrigation, or navigation, which produce water‑power as a by-product. Here, if  the government leases this power under proper protections to the public, the competition with the citizen is avoided. Here is one of  the definite boundaries between Liberty  and Socialism. Under Liberty, the citizen must have strong regulation of the rates and profits of power companies to protect him from oppression by the operator of a natural monopoly. But where the government deliberately enters into the power business as a major purpose in competition with the cittizenCthat is Socialism.

  Still other instances of government competition with cittizens are five corporations created by the goverrlment under the laws of Delaware, which are engaged in various competitive businesses covering the manufacture and merchandising of commodities.

 These entries into Socialism were not an important emergency call to relieve unemployment. The total expenditures provided will employ but a very small percentage of the unemployed. In fact, the threat to private enterprise will probably stifle employment of more men in the damage to existing enterprises. There is already an ample private capacity to supply any of the commodites they produce, whether electricity, fertilizers, rum or furniture. Whatever their output is, its production will displace that much private employment somewhere. We have only to examine a fragment of the statements of their sponsors to find that their purposes, although sometimes offered as employment, are in fact further blows pounding in the wedge of Socialism as a part of regimenting the people into a bureaucracy.

  There are measures in banking and credit which might be discussed under this heading but they are dealt with elsewhere. And in another chapter of this book I have dealt at length with the effect and destiny of Socialism.

Managed Currency and Credit

  The scope of this survey does not include a full examination of monetary, fiscal, and credit policies. I am here concerned solely with profound departures from Liberty.

Without entering upon the recent technical monetary steps taken, it may be said at once that the intent of the powers, given to alter the unit value of currency is, by "managed currency," to enable the government to change from time to time the purchasing power of the currency for all commodities  One underlying intent of the monetary measures was the transfer of income and property from one individual to another, or from one group to another, upon an enormous scale without judicial processes. Whether the theory under this assumption will produce the effects intended or not, the intent is definitely expressed. The installation of managed currency    required the repudiation of the government contract to meet its obligations in gold. (2)  And the repudiation of the gold clause extended much farther than repudiation of government obligations alone, for it changed the value of all contracts between citizens far beyond the present appreciation of the citizen, of its possible resultsCif it shall prove to have the effect which was intended.

  One of the major objectives stated was to reduce unbearable debt. It was asserted that the value of the dollar as represented in its purchasing power for goods or services had changed from its value when the original bargains of debt were made. Under this operation the citizens were regimented into two groups, debtors and creditors. An empirical and universal amount of 40 to 50 per cent was set as the degree of shift in the value of all property to the debtor regiment from the creditor regiment.

  This act involved the widest responsibility which the government bears to its citizens, and that individuals bear toward each other. For fidility to contractt, unless determined unconscionable by an independent tribunal, is the very integrity of Liberty and of any economic society. Where the debt of certain groups such as part of  the farmers and home‑owners becomes oppressive, and its social results to the entire nation are of vital importance, such a service is justified, but it should not have been undertaken at the particular cost of those honest creditors whose savings have been thus invested but should have been a special burden upon the whole nation. But the injustice is far wider than this.

  These monetary acts extend the assumption of unbearable debt over the whole of the private and public debts of the nation. That this attempt at universal shift of 40 to 50 per cent of the value of all debts was neither necessary nor just can be demonstrated in a few sentences. The theory mistakenly assumed that the distorted prices and values at the depth of a banking panic were permanent. It assumed that the recovery from depression in progress through the world would not extend to the United States. Of  even more importance, this theory also  assumed that every single debt had become oppressive; that every single creditor  had benefited by about one‑half since the initial bargain; that every single debt had lost by this amount; that no debtor could carry out his initial bargain;  and that the respective rights of every  debtor and every creditor in every kind  of property should be shifted from debtor to creditor without any inquiry or process of justice. Debt is an individual thing, not a mass transaction. The circumstances   of every debt vary.

  Certainly the Government cannot contend that its debt was oppressive. No man has yet stated that the Govemment could not have paid its obligaffons in full. It was not insolvent. It was not bankrupt.    In large areas of private debt the borrower was amply able to meet his obligations. In other great areas he had already profited by large dividends or earnings, or otherwise by the use of the savings of  lenders which he had deliberately solicited. A huge part of the bond issues of  railways, of power companies, of industrial companies, of foreign governments, current commercial debt, the bank de‑ posits, urban mortgages and what not belong to these categories.

    The evidence of the volume of debts which require governmental relief as a social necessity does not by any conceivable calculation  indicate more than a very minor percentage of the total public and private debt. Extensive provisions  for the adjustment between individuals  of their debts were made by new facilities  under the bankruptcy acts and the further relief measures provided through  the use of government credit.

    But let us examine the injustice under  this managed currency more particularly. In a great category where debt required adjustment there had already been many  compromises between debtors and investors, as witness the many reorganizations of urban building loans, and corporate  and other obligations, which were the  products of inflation. The people's savings invested in these cases are required, by  depreciation of the dollar, to submit to a still further loss.

  Most lending is ultimately from savings which mean somebody's self‑denial of the joy of spending today in order to provide for the future. But the borrower is often enough a person who secured these joys and is now to be relieved of part payment, although a large part of these borrowers are able to pay. The man who borrowed from an insurance company to build himself a more expensive and enjoyable house has secured tbese joys at the cost of the policyholder, who had hoped by self‑denial to escape dependency. This applies equally to the huge debt of industrial and commercial businesses which profited by their borrowings from the policyholder and the depositor in a savings bank.

  Those self‑denying investorsCthe thrifty of the nationCwho were willing to accept a low rate of interest in order to obtain the maximum security, are under this theory to have the purchasing value of their savings now shrunken in exactly the same ratio as the avaricious who received extortionate rates, or the reckless who took high risks. The holders of hard‑won savingsCthe widow's mite Cinvested in 33 per cent first mortgage industrial bonds are called upon to sacrifice the same proportion as the holders of 7 per cent third mortgages. By the transfer of values from the first mortgage bondholder to the common stockbolder the security of these speculative bonds is even increased. At once we see the evidence of this in the marked advance in the prices of  these speculative debts. This disregard of prudence and this benefit to reclelessness particularly penalizes a very large part of insurance and the great public endowment assets.

   Ten billions of endowments in educational, hospitalization, and welfare  activitiesCcreditors whose debtors are mostly corporations and governmentsC are to be depleted in purchasing power. These endowed institutions give the leadership necessary to all our vast complex of public institutions. Yet if this theory eventuate, their activities must diminish by 40 per cent.

   Furthermore, if this theory shall succeed, in the great bulk of industrial debt, the empirical reduction of purchasing power of the regiments of bondholders  transfers this purchasing power to the regiments of common stockholders. Any inspection of who are the rank and file in these regiments will at once demonstrate the double injustice. The holders of bonds are largely the insurance company, the savings bank depositor, the small investor, and the endowed institution.

   If this intent of devaluation shall eventuate, the transfer of property by government fiat from sixty million insurance policyholders to ten million stockholders is not even diffusion of wealth. It is further concentration of wealth. As a matter of fact, any survey of  the total results would show (if the theory of these acts works out ) that it will benefit the richest members of the community, because their property is, in the main, in equities. The hardship will fall upon the great mass of the people who are indirect holders of obligations through their savings in insurance, in savings bank deposits, as well as those who directly hold bonds and mortgages. That is, in our modern American economy the rich are more largely the holders of equities and those of moderate means more largely the holders of obligations. Thus the rich hereby become richer, the poor poorer.

   Monetary shifts in their very nature are mostly irretrievable. There can be little turning back.

 In Amanaged currency@Ca power of government fiat over the values of wages, income, and propertyCwe find many byproducts from the invasion of Liberty. To some academic theorists the Commodity Dollar may be perfect. But for thousands of years the whole human race has esteemed gold as the final gauge of values. Whether the sign of the index number, which is the kernel of this branch of  planned economics," be theoretically a better gauge or not, the fact remains that gold is a matter of faith. Men will long delay full faith in an abstraction such as the commodity index, with its uncertainties of political manipulation or of Executive determination. This has a pertinent application today. Those people who are employed are heaping up their savings. Yet these potential investors have hitherto hesitated to loan their savings over a long period, not knowing with what they may be paid in years to come nor what their rights may be. The durable goods industries are dependent upon this investment in the form of long‑term credits. At the same time the country has an accumulated need for a vast amount of  homes and equipment. As these credits are much restricted, vast numbers out of work suffer the injustice of cruel delays in otherwise possible employrnent.

  How far the Regimentation of banking and the government dictation of credit through various government agencies may extend is not yet clear. There are national stresses in which the government must support private f inancial institutions, but it is unnecessary for it to enter into competitive business to accomplish this. And lest the government step over the line into Socialism this support must be limited to activities where there is no competition, or so organized as ultimately to be absorbed into the hands of private ownership. The original Reconstruction Finance Corporation is an example of the former and the Federal Reserve Banks, the Home Loan Banks, the Federal Land Banks, of the latter. There are, however, some of  the new financial agencies and some uses being made of the old agencies which forecast occupation beyond these fields, and threaten dictation as to who may and who may not have credit. The threat to farmers of  withholding credit to force them to sign crop contracts with the government is a current example of possibilities.

   The reduction of the independence of the Federal Reserve Board and the Farm Loan System to dependeney upon the political administration, the provisions for appointment of officials in the banks by government agencies, and certain provisions in the new regulatory acts, all at least give enormous powers of managed credit."

   If the purpose of all these activities is to enable the government to dictate which business or individual shall have credit and which shall not, we will witness a tyranny never before contemplated in our history.

   The wounds to LibertyCand to justice upon which Liberty restsCin these monetary actions and policies are thus myriad. It is again a specific demonstration of a social philosophy defensible only on the ground that the citizen is but the pawn of the stateCthe negation of the whole philosophy of Liberty. Executive power over the coin is one of the oldest components of despotism.

Managed Foreign Trade

   There is another segment of National Regimentation into which these other segments immediately force us, and that is foreign trade. The whole theory of controlled domestic production and prices falls to the ground unless imports also are rigidly controlled. As managed industry and agriculture operate, the nation must be surrounded with barriers which insulate it from economic currents beyond its borders. Going off the gold standard theoretically raised most tariffs 40 percent, and theoretically imposed that barrier against goods on the free list as well. The additions to tariffs by the amount of the processing taxes are further indications of the inexorable mounting of trade barriers under such a plan.

   There can be no escape from constant international difficulties. These difficulties were great enough when the government made a fixed tariff upon 34 per cent of the imports based upon a simple proposal of differences in cost of production at home and abroad, and allowed 66 per cent of its imports to enter freely, and when it treated every nation alike. But when, in effect, it places barriers of one sort or another on the whole 100 per cent of imports by currency and exchange manipulation, when these barriers are to shift with every government‑made price in industry, when they are to be made to vary by favor in trading with different nations, through reciprocal tariffs, then there is no doubt we also have joined in the world economic war already disastrously in progress. That economic war is steadily drying up the standards of living of the world, our own included, and it is drying up the outlets for human initiative. The hope of the world in an economy of plenty through the huge increase in productive power which science has given us threatens to be stifled by these processes of nationalisn and regimentation.

   Men can higgle with each other in the markets of the world and there is no ripple in international good‑will, but when governments do the higgling, then the spirit of antagonism between peoples is thrice inflamed.

   This brief survey of examples of experience up to this time is sufflicient to make clear tbe definition and nature of National Regimentation and its progress in tbe United States. There are other channels in which our economic and social life is being regimented which could be developed. These instances are certainly sufficient to show that its very spirit is government direction, management, and dictation of social and economic life. It is a vast shift from the American concept of human rights which even the government may not infringe to those social philosophies where men are wholly subjective to the state. It is a vast casualty to Liberty if it shall be continued.

Footnotes:

(1) Thomas Jefferson once said, AWere we directed from Washington when to sow, and when to reap, we should soon want bread.@ Autobiography, Vol.L, p. 123.