The Public Face of the NRPB

If the NRPB had merely produced confidential reports for use within govern­ment, it would have been less likely to provoke strong political opposition. However, the reports that entered the public domain when transmitted to Congress, and the pamphlets it published, gave it a high and controversial public profile.

This report is concerned particularly with making adequate provi­sion for those who have no means of livelihood or only inadequate means. Some of the causes of suffering are personal in character.... But the suffering which comes from economic maladjustment is just as real as that which comes from personal.. It is sometimes alleged that a complete system of social security would ultimately have the effect of discouraging self-reliance and even fostering unemployment by destroying the incentives to industry, by remov­ing the rough but salutary influence of discipline. There are doubt­less some marginal persons who would deliberately choose to avoid work even if guaranteed a minimum subsistence. But these must be balanced against the millions of cases where deep anxiety, haunting fear of want, acute suffering and distress blight and sear the lives of men and women, and children too.

The report argued forcefully for measures to ensure a minimum level of income.

Discipline that is enforced by deprivation of the elementary necessaries of life, the discipline of cold, hunger, illness, should not be permitted to operate below the level of a minimum standard of security, certainly not in a land of plenty where there is enough to go around. Above that level, it is not fear but hope that moves men to greater expenditures of effort, to ingenuity and emulation, to sharp struggle for the values they seek in life—hope set in a framework of justice, liberty, fair play, and a fair share of the gains of civilization.⁷⁵

To achieve this, it recommended both measures to ensure full employment, public assistance for those whose incomes are interrupted, and public pro­vision of health, education, and welfare for those who need it. This would require coordinated activity, involving fiscal and monetary policy, by the fed­eral government. The two volumes of the Report for 1943 tied this vision into the practicalities of postwar planning, a task which, they argued, could not wait. The political nature of this program was made explicit when the report explained about how planning had to be undertaken in a democracy: “There is at the heart of tyranny and autocracy in our day.. an internal conflict which cannot be resolved and which leads inevitably to weakness and disin­tegration.... Trying to use reason as a tool for injustice, violence, inequality, slavery, leads in the end to revolution.”⁷⁶

There seems little question that Security, Work and Relief Policies was tied up with the fate of the NRPB. It is possible that Roosevelt thought the report would be politically useful in reassuring the American people that the United States was releasing a report comparable with William Beverage’s Social Insurance and Allied Services¹¹—the report that laid the foundations for the British postwar welfare state.

In order to reach an audience that would not read reports transmitted to Congress, the NRPB published pamphlets. In January 1942, they had pub­lished a pamphlet by Alvin Hansen, After the War—Full Employment (1942a),

in which he argued the case for using the federal budget to stabilize the level of demand; public debt, he contended, was not something to fear, but an instrument of government policy. In the words of one historian,

This pamphlet, almost as much as any other NRPB publication, aroused fierce and emotional criticism, in the Congress, in the business world, and in at least part of the press. Senator Robert Taft, then the leading Republican intellectual and a powerful figure in the Senate, was particularly incensed by it.⁷⁹

In September of the same year, they published another pamphlet, Post-War Planning—Full Employment, Security, Building America, which, following up on Roosevelt’s call for “four freedoms” on January 6, 1941, argued for a new Bill of Rights, which would be the basis for the postwar planning strategy.⁸⁰ As one historian has put it, “just as the Four Freedoms speech represented FDR’s response to fascist ideology and aggression overseas, so the planners’ document represented their view of domestic American liberal democracy at home.”⁸¹ Those rights included economic rights: to work; to fair pay; to adequate food; to clothing, housing and medical care; to freedom from fear of old age, want, dependency, sickness, unemployment and accident; and to education.

On August 21, 1942, after their report had been drafted, three members of Samuelson’s unit (Bergson, Goodman, and Hagen) proposed to Blaisdell that they capitalize on the studies their unit had done by writing a series of pamphlets that would follow on from Hansen’s by covering postwar economic problems.⁸⁴ They justified this by arguing that their results could be made generally accessible, and that in addition to providing much-needed teach­ing materials on a topical issue, would help inform the public—an important task in a democracy. They proposed ten titles, ranging from “The National Income at Full Employment” to “A Conversion Crisis after the War?”⁸⁵ At this time, the funding of the NRPB was in question, but Blaisdell took the line that they should proceed on the assumption that funds would be forthcoming.⁸⁶ Bergson soon moved to the Office of Strategic Services (OSS), working on Russia, but in his final fortnight at the NRPB he tried hard to get the first pamphlet under way.⁸⁷ Bergson may have achieved this, for on September 15, the date when Bergson moved to the OSS, Hagen circu­lated an outline pamphlet on national income in 1950 to his colleagues for criticism.⁸⁸

Samuelson was not named in any of these publications, but he was known to be a consultant for the NRPB, and materials expressing radical ideas were coming out of the unit with which he was associated.

A professor friend of mine working down here in Washington read something put out recently by NRPB, dealing with the post-war economic organization of the U.S. Your hand was in it. He said the authors had gone “hog-wild” for government spending after the war. I haven’t read the report, but I thought you’d be interested in his reactions.⁸⁹

Any doubts about Samuelson’s association with these ideas would have been dispelled the following June, when the NRPB published a pamphlet based on the first section of the interim report—After the War: 1918—1920, writ­ten by Samuelson and Hagen.⁹⁰ Perhaps they chose this section to publish because it was the part of the report that had the best reception from the critics to whom it had been sent. Though clearly drawing on the first section of their report and containing the same message—namely, that the experi­ence of 1918—20 demonstrated the need for planning the transition, not the success of unplanned markets—it was very different in character, suggesting they had learned from their critics.

After explaining the importance of learning from past experience, the pamphlet began with a history of America’s involvement in the First World War, in which it is possible to discern traces of both Economic Consequences of the Peace, the book in which Keynes made his reputation by attacking the Treaty of Versailles after the First World War, and the ideas about secular stagnation that Hansen was proposing.⁹¹

The days before 1914 were far enough away to seem Utopian in retro­spect, so that one could speak glibly of a return to “normalcy.” Those with more accurate memories might have known that in 1914 there were signs that the world was about to enter upon a depression period and that, but for the World War, the Wilson administration might have had to face the same type of problems which were to become acute only two decades later.⁹²

The war had saved the United States from depression.

They could then turn to the heart of the report: the analysis of causes. There had been depression after the war, but though it was bad (it would have seemed worse had there been statistics to measure the rise in unemploy­ment), it had been short-lived. The depression of 1920—21 had also been very short-lived, apparently vindicating those who thought government need do nothing to ease readjustment. Responding to critics of their interim report, they paid much attention to factors other than the government deficit. They sought to undermine the argument that after the war there was “deferred demand” that could sustain expansion by pointing out that, in 1919, house­holds saved more despite a fall in income. The brief prosperity of 1919—20 was not driven by consumer expenditure.

Government spending was part of the answer. A chart vividly illus­trated the government deficit, which remained until well into 1919. Even when the deficit had been eliminated, government spending remained high. Samuelson and Hagen concluded that though this was not intentional, gov­ernment spending and the deficit had “prevented demobilization from caus­ing national income to spiral viciously downward and had caused the upturn in early 1919,” when other factors came into play.⁹³ Exports rose more than imports, and there was a burst of speculative activity, including a massive rise in inventories. There were bottlenecks in production and transportation, and shortages as well as financial and real estate speculation. Much of this was linked to rising prices and easy credit conditions (in which the Federal Reserve resorted to ineffective warnings to member banks not to fund specu­lative activity). It was thus not surprising when the recovery in 1919—20 col­lapsed. A graph was used to show the dramatic decline in world trade, worst in Europe, which contributed to depression in the United States.

The pamphlet closed with a comparison of the First World War and what was currently happening, arguing that the problems of readjustment were going to be worse. The scale of the war effort was much larger; the govern­ment deficit was much higher; many industries were more fully mobilized for wartime production, and some civilian industries had been shut down completely. If government action had been essential in avoiding catastrophe after the First World War, it was even more important at this time. Perhaps recognizing the political sensitivity of the issue, they focused very much on the immediate problem of reconversion.

Whatever one’s belief as to long-run issues, it will be agreed that at the end of this war there is a great danger of a critical short-run period in which employment and incomes must fall. Clearly industry and Government should do everything possible to maintain minimum income standards by means of dismissal wages, unemployment com­pensation, demobilization bonuses payable in installments, and direct and work relief. Even though the desirability of long-run public works may be debatable, none can deny the pressing urgency of providing a shelf of short-run useful public and private projects of the “filler” variety, devised to provide employment in the demobilization and reconver­sion crises.⁹⁴

Their prognosis was for simultaneous inflation and unemployment.

We shall have a boom and a slump simultaneously. There is every indica­tion that the end of the war will let us in for a “spotty” period, with all of the superficial aspects of a boom—inflationary pressure on prices, shortages, attempted inventory accumulation—at the same time that we shall have all the disadvantages of a depression involving disloca­tions of manpower and plant, losses, unemployment, and less than potentially obtainable real income.⁹⁵

Given their Hansenian perspective, they clearly believed that government would have to play a role in the longer term, as when they noted that there was “a need for new conceptions and responsibilities on the part of both private and public enterprises,” but they played this down in the interests of focusing on the immediate postwar problem.⁹⁶

In his work for the NRPB, Samuelson had immersed himself in the prob­lems of data analysis and had organized a substantial team to tackle a far more elaborate and complicated problem than he had previously tackled. The extent of the criticisms made of the interim report must have been a setback, indicating the need for further work that, given the uncertainties over the future of the NPRB, might never be undertaken. The pamphlet he wrote with Hagen drew on this work, but avoided the technicalities, and soft-ped­aling the more radical ideas found in the writings of Hansen and the NRPB, it represented a highly polished analysis of First World War experience and its implications for the present. It relied on neither formal statistical analy­sis, such as he had used a few years earlier in his analysis of the consumption function, nor complex forecasting models, such as those used to make projec­tions of consumer demand after the war. It relied on simpler data analysis and a historical narrative.

The following year Samuelson claimed, in correspondence with Walter Salant at the OPA, that the pamphlet's main purpose had been to debunk “the generally held views concerning the postwar boomlet.”⁹⁷ He thought it had achieved this purpose, but he knew it had shortcomings, due as much to lack of data as to interpretation of the facts that they did have. His letter to Salant also explained that he did not think there was a direct relationship between aggregate demand and price changes.

For some time I have been distrustful of analyses which try to relate too closely the rate and direction of price changes to demand factors alone. Too little or too much demand operates as a permissive factor and it creates the environment which shapes price-setting and wage-fixing. But it is often changes in wages and prices (other people's costs) which [are] the direct or proximate cause of price increase. From this point of view it would probably not be difficult to specify a number of physical (shortages, transportation) and psychological (industrial unrest, post­war fatigue, etc.) factors making for price increases at this time.⁹⁸

The result was that price rises would be uneven.

The pamphlet helped to link Samuelson more firmly with Hansen, the NRPB, and the radical policies with which they were associated. He and Hagen may have expressed their views cautiously, but the pamphlet was an NRPB publication advocating planning, which was sufficient to damn it in the eyes of some businessmen and politicians. Moreover, using the same title, “After the War,” served to link it to Hansen's highly controversial pamphlet. This may not have brought him fully into the political arena, but it was a big step nearer. He was becoming more than just a mathematical economist, known only to other economists.

Samuelson reached a different lay audience when he found time to review two books for the trade journal Mechanical Engineering. This project origi­nated at MIT, as one of a series of reviews of economic literature affecting engineering by members of the Department of Economics and Social Science, requested by the American Society of Mechanical Engineers. The two books, on the current economic situation and the outlook for the future, were by Stuart Chase, an MIT-trained engineer turned freelance writer who had admired central planning and had been the only highly enthusiastic reader of the report Samuelson’s unit at the NRPB had produced a year earlier. Chase said much with which Samuelson would have agreed. Chase argued that when resources were needed for military purposes, people did not ask where the money was coming from, but just spent it, as Germany had done. It was shortages of physical resources that would stop Germany, not financial bankruptcy. “Adam Smith may heave in his grave,” Chase claimed, “but no nation in this dangerous world of 1942 is meekly going bankrupt because some textbooks say it ought to.”⁹⁹ Faced with such arguments by someone known to be a supporter of Soviet planning, and addressing an audience of engineers, Samuelson adopted a very cautious tone, ostensibly taking the position of a conservative. “Because Chase represents a growing school of thought, intelligent conservatives with a sense of history will be interested in his viewpoint.”

Like a prize fighter riding with the punch, “the thoughtful moderate can hope to avert cataclysmic, revolutionary change,” embracing gradual reform and conserving what was good. Samuelson illustrated Chase’s argument with lengthy quotations, carefully selecting one in which Chase offered a sum­mary of Hansen’s theory of the Great Depression as caused by a saturation of investment outlets—an assessment with which he agreed. When it came to evaluating Chase’s attempt to outline a “budget” of essential resources—food, clothing, shelter, health, and education—Samuelson concluded that there was need for “a tremendous joint effort on the part of government and busi­ness.” Though conservatives might be suspicious of what it implied, it was noncommittal and it was not even clear whether Samuelson was expressing his own view or merely summarizing the views in the book he was reviewing. His closing sentence claimed that even readers who did not agree with the book would gain insights into what lay ahead.

Samuelson was being positive about the book without laying himself open to the charge of agreeing with someone known as having once been an enthusiast for Stalin's central planning. Samuelson was learning how to write very diplomatically when covering politically sensitive issues, a skill that was to prove invaluable when he wrote his textbook.