Dealing with Recessions
As pointed out in Chapter 21, the principles and relations that were developed in the theoretical discussion in the early pages of this work specify distinctly and definitely just how stabilization of the economy can be accomplished, and it would be possible to proceed immediately with the identification of suitable practical measures for achieving the desired results. However, most of the measures that will be recommended are not new; they are included, in one form or another, among the multitude of proposals that have been offered in the past as solutions for the problem, or as contributions toward such a solution. It may not be immediately apparent, therefore, just where the conclusions of this work differ from their predecessors, or why the recommended measures can be expected to accomplish their purpose under the proposed new program when they have not done so in the past. For this reason it seems advisable to discuss the various remedies for our economic ills that have previously been proposed, and to examine them in the light of the economic principles that have been developed in the foregoing pages.
Some of the proposals that will be included in this review of previous ideas are so far out of the mainstream of economic thought that they may seem out of place in a serious discussion. But these proposals have been given serious consideration during past periods of economic stress, and in view of the lack of any accepted criterion of validity, it is quite probable that at least some of them will surface again when the economy once more runs into difficulties.
From the results of this analysis we will be able to appraise the merits of each proposal, and we will then check this theoretical evaluation against the results that have been obtained in actual practice. When we find, as we will, that the plans judged worthless on the basis of this appraisal have fizzled out without doing any appreciable good, that the proposals which have some sound points, according to our analysis, have been partially successful, and that the measures which we have identified as theoretically correct have been effective for their particular purposes to the extent that they have been correctly employed, this should put the findings of this work into the proper perspective.
What we have done is not to devise any new tool for stabilization purposes, but to determine precisely what needs to be stabilized, how this stabilization can be accomplished, what contribution toward the defined objective each of the measures previously proposed can make if properly applied, and how the condition of the economy from the stability standpoint can be measured for control purposes. The essence of the new program is a clear recognition of just what should be controlled, and the formulation of a procedure which will insure that the control measures are applied in exactly the right direction at exactly the right time.
In the discussion of measures previously utilized, or advocated, for this purpose it will be brought out that some have failed, or would fail if they were tried, because they contribute nothing toward the particular kind of action that is necessary, whereas other measures actually do have an effect on the business cycle, and have failed, wholly or partially, in past applications only because they were applied without any clear understanding of what they were capable of doing, and without any adequate criterion by which to judge the magnitude of the action that should be taken.
It was pointed out in Chapter 18 that the principal reason for studying the reaction of the world economies to wartime conditions is that operation under the stresses introduced by the diversion of civilian productive facilities to war production intensifies the problems of the normal economy, and makes it easier to see their true nature. The situation with respect to economic stability is somewhat similar. We can see the reasons for instability and the effects of corrective measures most distinctly by viewing them under extreme conditions-specifically in a major depression, where all of the principal economic problems became serious enough to be clearly defined. The discussion that follows will therefore be addressed to the issue as to how to deal with a severe recession, or depression, and will concentrate largely on experience during the Great Depression of the 1930s.
Usually, one of the first expedients called upon in a time of difficulty is an attempt to change the psychological outlook by reassuring words from men in high places. In the early stages of the depression of the thirties a flood of optimistic statements emanated from administration spokesmen and prominent business figures, but the decline continued on its way in cynical disregard of the eminence of these modern King Canutes.
These reassurances are doomed to failure for two reasons. First, they fool no one. Those who suspect the worst are not going to change their opinions merely because some of those persons vitally interested in maintaining the status quo talk loudly about the fundamentally sound conditions. An even more significant point is that the condition of the money and credit reservoirs at the top of the upswing is abnormal and cannot be maintained except under the influence of a rising trend of prices and general business activity. Much of the borrowing has been for the purpose of taking advantage of rising price levels. Speculators, for instance, have no incentive to continue using borrowed funds if the market remains stationary. A change from a rising trend to a level trend therefore causes a substantial contraction in credit (an input into the credit reservoir) as well as a rise in money storage toward more normal levels.
The diversions from the purchasing power stream to fill the reservoirs reduce the flow of purchasing power to the markets not only to the equivalent of production, which would stabilize prices, but to a still lower level. This causes a drop in market prices, and the whole system starts down. There is no stationary condition, in the absence of an effective control program. We jump directly from the upswing to the downswing. Unless the psychological campaign can convince the public that the rise is still going on (an obviously hopeless assignment) it does no good to convince them that there will be no decline, for the realization that the rise is over is sufficient in itself to start the decline.
The decline must continue, in an uncontrolled economy, until the abnormal conditions in the reservoirs are corrected. If the situation at the peak is not much overbuilt, the drop is moderate and the repercussions are limited, though not without importance. If the peak is capped by speculative excesses, the fall is precipitous, and by the time the abnormal reservoir conditions are corrected a further crisis is created by the increase in unemployment. We cannot talk ourselves out of this kind of a problem.
Closely related to the “proclaim optimism” approach is the idea that the decline can be stopped by persuading the public to do more buying. But it is unrealistic to expect any substantial increase in consumer buying during a period of falling prices, and there is no incentive for an increase in business investment. To the extent that these two propaganda programs are convincing, they may have some effect in slowing the rate of decline, but the value of this achievement is questionable, to say the least. If we must have a depression, the sooner we get it over with the better.
In the 1930s depression the government embarked on a program of making loans to distressed industries on a hitherto unprecedented scale. Similar help was extended to homeowners who were unable to meet their commitments. These loans, with relatively few exceptions, were not new credit, but merely devices to prevent the forced liquidation of existing credit. All they accomplished, from the standpoint of the system as a whole, was to slow up the process of refilling the credit reservoirs and thereby retard the speed of deflation. The loans were unquestionably helpful in minimizing individual distress, but they cannot be considered as contributing toward the restoration of normal business conditions.
If we take a cold-blooded factual view of the situation, and ignore the inequality of personal hardships, it is clear that, as long as the means that are available for controlling money inflation remain unrecognized by the monetary authorities, measures such as these loans actually stand in the way of the readjustments that are necessary before the trend of business can be reversed. Before a rise can begin, as matters now stand, liquidation of credit must proceed until the credit reservoirs are full enough to cause an outward pressure. Bankruptcies would hasten this process. Propping up tottering industries delays the readjustment and prolongs the depression. This does not mean that such a cold-blooded policy ought to be followed under such circumstances. From a humanitarian standpoint we are no doubt justified in relieving individual distress at the expense of the interests of the community as a whole, but we should adopt remedial measures with our eyes open, and not delude ourselves into thinking that they contribute toward the restoration of prosperity. The dilemma that we face here is one of the strong arguments in favor of setting up the kind of controls that will eliminate the cyclical swings.
Work spreading measures-reduced hours per week, rotating employment, etc.-are somewhat similar in that their primary effect is to reduce individual hardship. Analysis shows, however, that they do not retard recovery in the same manner as the loan programs just discussed; they simply do not affect the depressed business situation either one way or the other. The acceptance of the “relief” or “welfare” principle in recent years means that the effect of work sharing under present conditions is merely to reduce the amount of welfare expenditure, a result which has little bearing on the general economic situation.
The basic question here is whether the burden of supporting the unemployed should be met by the taxpayers in general through welfare payments, or by the employed workers through sharing their employment and earnings. In either case, the action is one which takes from one group of individuals and gives to another group; that is, it is a transaction between individuals at the same economic location. Hence it has no significant bearing on the problem of economic stability, nor does either alternative make any contribution toward recovery from a depression. The effect of work spreading policies on overall employment and economic growth was discussed in The Road to Full Employment.
The severity of the unemployment during the 1930s depression,
together with a developing sense of community responsibility for the economic
status of individual citizens, resulted in general acceptance, for the
first time, of the principle that those who are unable to find employment,
through no fault of their own, are entitled to support by the community
during their period of enforced idleness. The obvious equity of this policy
will no doubt make it permanent until the need is eliminated by some such
program as the one that will be developed in this work. The welfare payments
have no direct effect on the general operation of the economic mechanism
(although the method of obtaining the necessary funds to finance the payments
may have, an issue that will be discussed later.) They merely transfer
purchasing power from one group of consumers
Furthermore, there are some indirect results that should be noted. The alleviation of distress, commendable as it may be from some standpoints, does have the effect of removing much of the pressure for positive action toward remedying the basic trouble, In short, it acts as a sedative to keep the patient quiet, but does nothing toward a cure. The influence of huge welfare rolls on the state of public confidence must also be given some consideration. In the previous discussion of business cycles it was pointed out that recovery from a depression finally gets under way when the liquidation of debts and the accumulation of money reserves proceeds far enough that further inflow into the reservoirs encounters resistance, at which point even a small degree of optimism as to future prospects starts an outflow that reverses the cycle. There is no question but that large welfare expenditures have a dampening effect on business confidence, and hence tend to prolong depressions.
From a purely economic standpoint unemployment insurance and welfare payments are equivalent. The foregoing discussion of welfare payments therefore applies, in general, to unemployment insurance as well. But the insurance programs are much more satisfactory to the workers because they eliminate (for the term of the insurance coverage) the uncertainties as to eligibility and as to the amount of payment. The scope of the insurance coverage is therefore being gradually extended.
Much the same considerations apply to the various alternatives to welfare, mainly schemes for taking care of the unemployed by assigning them to special types of work by means of which they could earn a bare subsistence. “Back to the farm” movements (in the face of declining prices for farm products), self-help programs, and various more or less elaborate communal projects make up this class. An example of the last mentioned variety is a plan proposed during the 1930s depression by Professor Frank Graham, who would have the government lease idle factories and other properties and put the unemployed to work producing goods that could be exchanged among themselves to take care of their essential needs. As pointed out by W. I. King, who was one of the supporters of Graham’s plan, these enterprises would be very inefficient in comparison with ordinary producers, and the workers would have to put in long hours to obtain even a fraction of the rewards of normal employment.178
This fact was listed by King as one of the merits of the plan, inasmuch as it would insure continued efforts by the participants to secure normal employment. But the general public attitude toward the victims of economic difficulties has undergone drastic changes since 1930. The same electorate which has finally arrived at the point of recognizing the community responsibility for furnishing a living to those who have been deprived of the opportunity to earn it for themselves because of the defective operation of the economic system will certainly realize that it is no different, except in degree, to impose the penalty of long hours and meager returns on those unfortunate victims of community incompetence. The fundamental weakness of all of these subsistence schemes, however, is that they are merely a cheap form of welfare assistance. They treat the symptoms of our economic illness after a fashion, but they do not touch the purchasing power unbalance that must be corrected before the business cycle can be reversed.
The schemes involving the use of substitute money, or scrip, that crop up in every depression or serious recession illustrate the need for careful analysis of economic proposals. To those who see only their superficial aspects and do not inquire too closely into the validity of the claims made by their sponsors, these hybrid concoctions may seem somewhat attractive. Even prominent economists (Keynes and Irving Fisher, for example) have failed to see through the camouflage and have endorsed some such schemes. But when these ingenious products are broken down into their component parts, and each part is analyzed separately, all semblance of merit disappears.
On dissecting any one of the scrip plans, we find that it has three distinct characteristics: (1) it provides a limited substitute for legal currency, (2) it is a means of borrowing money for the purposes contemplated in the plan, and (3) it is a method of taxation to repay the borrowed funds. There are numerous versions of the general scheme, but they are all basically alike, and for the present analysis we can take the most popular version, the so-called self-liquidating scrip.
Looking first at item (1), it is evident that the scrip is a very inferior currency. If it is not made legal tender it will not be generally accepted. If it is made legal tender it will drive good money into hiding, in accordance with the principle that the economists call Gresham’s Law. Turning to item (2), the first scrip issued represents the equivalent of borrowing by the issuing agency (some governmental body, presumably). As soon as the redemption feature comes into play, however, the borrowings are offset by the redemption payments, and soon a balance is reached, whereupon the credit expansion effect terminates. So far as the inflation of the price level by government borrowing may have merit, a matter that will be discussed later, this scrip scheme is an inefficient way of handling the transaction.
As to item (3), the plan constitutes a tax on those who accept the scrip in business dealings. The theory behind the program is that such transactions constitute additional business for those affected, and in view of the lower cost of handling incremental business they can well afford to pay the costs of the plan in order to get the additional volume. But when we examine the situation mathematically we find that there cannot be any additional volume of business originating from the use of the scrip. While those who are using scrip are adding to the amount of money purchasing power flowing to the markets, the purchasing power of those who pay the transaction taxes is being curtailed by exactly the same amount, and except for a small inflationary effect when the plan first goes into operation, the net result is zero. If any one firm gains business, some other firm must suffer an equivalent loss. The ingenious inventors of the scrip plan have overlooked the fact that even if the owners of the various enterprises that handle the scrip stand the loss themselves and do not pass it on to their customers (which is unlikely), payments for the services of capital (profits, interest, etc.) constitute purchasing power in exactly the same manner that wages do, and we cannot add to the total purchasing power by building up one component at the expense of the other.
Furthermore, the incidence of the tax resulting from the use of this scrip is extremely inequitable. If there is any increase in demand for some specific product, either by operation of the inflationary aspect of the plan, which is effective in the early stages before redemption begins, or by a shift of demand from one type of goods to another, the resultant benefit from higher prices or greater volume accrues only to those who participate in the production of the favored goods, whereas the cost is borne only by those who handle the scrip.
Summarizing, scrip is a very poor substitute for money, a decidedly inferior method of government borrowing, an extremely inequitable method of taxation, and it completely fails to accomplish its intended purpose. Putting all of these items together, we have a typical economic patent medicine.
Since it is clear to everyone that prices play an important role in the operation of the economic mechanism, it is only natural that restoration of prosperity by means of price manipulation should be among the measures suggested. However, the uncertain ground on which these proposals rest is well brought out by the fact that the advocates of price changes are divided on the question as to whether the modifications should be upward or downward.
One school of thought suggests price increases when recession is threatened, on the theory that higher prices will stimulate replenishment of inventories in anticipation of still further increases. This program, which was actually tried out without any success in the 1930 downswing, not only depends on creating a false illusion as to the general trend of prices, a futile effort, but also collides with the fact that higher prices for some items necessitate a reduction in the prices of some other items, inasmuch as the general price level cannot be altered by the producers’ price policies. The price increase program therefore accomplishes nothing.
The other, larger, school of thought advocates price reductions as a means of stimulating consumer buying. This is another of the places where the limitations of the “supply and demand” approach to economic problems causes orthodox economic thought to go astray. It is assumed that price reductions will increase demand, whereupon producers will step up production to adjust the supply to the higher demand, thus leading to a general improvement in economic conditions. The validity of this theory is entirely dependent on the availability of sufficient purchasing power to buy a greater volume of goods. In the case of any single item this requirement is met, as purchasing power can be diverted from other uses in sufficient quantities. But extending the theory to the system as a whole, as the economists of the price reduction school do, is altogether unwarranted, for here the available purchasing power is definitely limited. It is a finite quantity to begin with and, as was brought out in the previous discussion of this point, reduction of prices cuts total money purchasing power in a corresponding degree, and the ability of the consuming public to buy goods is not altered by the price change (Principle XII). The only significant effect of the action is to transfer a certain amount of purchasing power from one group to another.
The same divergence of opinion that is so striking in the proposals for action with respect to prices is equally in evidence in ideas as to what should be done about wages when depression threatens. The labor unions and those who share their viewpoint advocate raising wages, on the theory that this increases purchasing power and tends to relieve the inadequacy of consumer demand. Businessmen, on the other hand, generally contend that wage reductions are essential under depressed conditions to enable the productive enterprises to continue operation. Most economists are reluctant to take the unpopular side of this argument and recommend wage decreases, but there is quite general agreement in economic circles that wage increases under depression conditions are not advisable. And it is conceded that the currently prevailing economic theories lead to the conclusion that excessively high wages cause unemployment.179
A particularly interesting point is that many of those who are positive in their assertions as to the futility of general wage increases as an anti-depression measure are at the same time advocating general price reductions as the royal road to prosperity. For example, studies by the economists of the Brookings Institution, summarized in a volume entitled Income and Economic Progress180 lay great stress on the desirability of price reductions, and similar contentions can be found throughout economic literature. But the truth is that these two actions are simply alternative ways of doing the same thing: changing the money labels in the markets. Price juggling makes the initial change in the goods market, but the principles developed in the preceding pages show that the production market price must conform. Wage juggling affects the production market first, but the goods market must necessarily conform, and the ultimate result is therefore exactly the same.
Here, then, we have a substantial segment of the economic profession looking at a proposed action from one side and condemning it; then viewing the same thing from the other side and approving it. The explanation for this inconsistency is that same lack of understanding of the true relation of the production market to the general operation of the economic system which was the subject of comment in Chapter 15, together with a sociological prejudice against price increases, based on erroneous assumptions as to the ability of business firms to control prices and to benefit from that control. When the nature of the interconnection between the various parts of the economic mechanism is clarified, it becomes evident that any change in the price level in either of the markets must inevitably be followed by a corresponding change in the other. The net result of an arbitrary modification (one not required by market forces) of either prices or wages will simply be a new equilibrium at a different price level, leaving the general economic situation just where it was.
Under some conditions wage flexibility has a beneficial effect on employment, but this present discussion is concerned only with the stabilization problem; that is, with the elimination of the cycle of booms and depressions. The impact on employment is discussed at length in The Road to Full Employment. The finding of the investigation being reported in this work is that wage and price manipulation have no effect on the business cycle. This is another of the many places where it is essential to recognize that employment and business stability are two separate and distinct issues that require altogether different treatment. The same point is again encountered when we begin consideration of the next item on our list: the use of public expenditures to “prime the pump” in a depression.
Here is an outstanding example of an economic experiment that ended in failure because it was based on erroneous theoretical premises. The pump priming theory that Keynes and his associates persuaded the Roosevelt administration to adopt as the principal means of getting the United States out of the Great Depression postulates that a relatively small increase in expenditures on public projects will set regenerative forces in motion which will ultimately result in a vastly greater increase in business activity. As ordinarily explained, the original pump priming expenditure increases the money available for consumer spending, this spending causes producers to increase production to replenish their stocks, the stepped-up production increases employment, which gives rise to a further increase in purchasing power, leading to a further widening of production, further gains in employment, and so on ad infinitum.
The pump priming enthusiasts recognize that there must be some kind of “leakages” from the process. Otherwise business once primed would never stop expanding as long as the necessary labor is available. They have therefore made some estimates as to how much the original expenditure would be multiplied before the beneficial effect on business activity would wear itself out. Keynes argued, in the prospectus that convinced the administration in Washington, that the multiplier would not be much less than five in an economy such as that of the United States.181 But to the dismay of the pump primers, the multiplier failed to multiply. The feverish priming from 1932 until the situation was changed by the approach of World War II not only failed to start the pump, but contributed materially toward demoralizing the business already existing.
There could hardly be a more conclusive demonstration of the fact that pump priming is not a cure for depressions. Actually, the pump priming theory, so far as its application to a depression is concerned, is a compound fallacy. Not only is there no such thing as a multiplier-a self-reinforcing increase in business activity and employment in response to the priming-but even if there were, this would not contribute anything toward overcoming the depression, as the essence of the depression is not unemployment, even though this is the most painful symptom. The depression is due to the draining of money purchasing power out of the current stream and into the reservoirs, and it cannot be overcome until this flow is reversed. Any increase in production that may take place adds equally to the volume of goods and the volume of purchasing power (Principle III), and does nothing toward correcting the money purchasing power unbalance which causes the price decrease that is the basic feature of the depression. Unemployment can be alleviated by overcoming the depression, but it can be fully eliminated only by employment measures. A depression can be halted only by anti-inflationary measures. There is no all-purpose remedy that will do both jobs.
Subsidies have been so misused in many cases and so bitterly embroiled in controversy in others, that the word has fallen into disrepute, and we now hear much of “aid,” “benefits” and “adjustments,” and little of subsidies, but all of these are simply subsidies dressed in new clothes to mislead the casual observer. The truth is that subsidies are perfectly legitimate in their proper place and serve a useful and important purpose. But all too often they are advocated, and sometimes put into effect, on the strength of anticipated results that do not, and cannot, materialize. This is especially true of consumer subsidies.
Proposals for consumer subsidies, aside from those that are specifically designed for no other purpose than to provide additional income for special categories of individuals, are usually based on the idea that the purchasing power available to the consumers is not sufficient to buy the full production of the economy, and that the economic well-being of the nation would be improved if additional purchasing power were created and placed in the hands of consumers.
There are many variations of these subsidy schemes, some of which call for operating through the agency of the retailers, others involve preferential treatment for special groups, and still others call for gifts or loans to all consumers. An interesting example of the latter is the “Social Credit” plan which was actually approved by the voters of the Province of Alberta, Canada, at one time, but which, for various reasons, was never put into effect. This plan, in its original form, contemplated a “social dividend” to be paid regularly to all citizens as a means of stimulating production and consumption.
All of these consumption subsidies fail at the same point; they merely transfer purchasing power from one group to another. Contrary to the contentions of their advocates, they do not create any additional real purchasing power; they merely alter the money labels. The “social dividend,” if it ever materializes, will not enable the citizens of Alberta to buy the least bit more than they get without it. Their ability to buy the goods that they want is not limited by the supply of money, or the availability of credit, or the phases of the moon. The limit is set by the aggregate net value of the goods which Alberta produces. In the long run they can buy this much and no more, regardless of how many ingenious financial schemes they may play around with. All that will be accomplished by the “social dividend” is to take some goods away from those who have labored to produce them, and give them to others.
Of course, we will meet the familiar contention that the increase in spending due to the subsidy payments will “increase demand” and will cause an increase in production in response to the greater demand. But both actual experience and theoretical analysis show that such subsidy programs do not increase demand in terms of real values. The most that they can do is to cause an increase in terms of money values, which is inevitably offset by an equal rise in prices. If the cost of the program is met by taxes levied on the general public, the purchasing power of the taxpayers is reduced in exactly the same amount as that of the “dividend” recipients is increased, and the total purchasing power of the community remains unchanged. If the cost is met by taxing producers, the production price goes up equally with the purchasing power, the market price necessarily conforms, and again nothing has been accomplished. There is a greater amount of money available for buying purposes, but it will not buy any more goods. No juggling of the money labels attached to goods or to labor can alter their real value.
While most of the proposals for subsidizing all consumers are still in the discussion stage, subsidies for special groups have proliferated rapidly during the last few decades. “Aid” is now being extended to the farmers, to the veterans, to the aged, to the youth, to the indigent, to the migratory workers, to the infirm, to the unemployed-the list is almost endless. It is outside the scope of a scientific work to pass judgment on these measures from the overall standpoint. Some of them have non-economic aspects that far outweigh the purely economic considerations. But all of them should be judged on the basis of these outside merits, as none of the subsidy programs benefits the general economy. None of them contributes toward increasing production volume or toward business stabilization, hence they do not help to maintain or restore prosperity.
If the citizens of the nation clearly understand that the only effect of such a program is to take income away from the general public and give it to the favored group, and they are willing to approve the program on that basis, there can be no economic objection to such action. But the attempts that are being made to promote such programs as measures that will benefit the economy as a whole, that will “provide purchasing power with which to buy the products of American industry” are misrepresentations of the worst kind. Any purchasing power that is provided by these subsidies can come only from one source-the pocketbooks of those who are not subsidized. If it is not taken from them by taxation it will be taken just as surely by inflation.
The underlying reason for all economic activity, without which the branch of knowledge that we call economics would not exist at all, is the “work or starve” order to which the human race has been subjected by a higher authority than Congress or Parliament, and from which there is no appeal. Based as it is on this harsh and inflexible edict, factual economics in its entirety is cold and inhuman-not antagonistic to human wishes and desires but, like factual science, completely indifferent to them. It makes no difference if our motives are highly commendable, or if the objectives that we are attempting to reach are above reproach; we either comply with the natural laws, however distasteful they may be in some instances, or we go down to certain failure.
It would indeed be an easier world to live in if the day dreams conjured up from the fertile imaginations of our wishful thinkers would actually work. How pleasant it would be if we could solve all of our economic problems just by raising wages and lowering prices. And think of the headaches that would be avoided if we could make the nation prosperous by the simple expedient of subsidizing everyone, or if we could spend ourselves into affluence.
But such dreams come true only in fairyland. In the cold practical world where we live and go about our daily tasks in the shadow of the “work or starve” decree, there is no something for nothing. No matter how cleverly the true effects of these subsidy programs may be concealed, the general public has to pay the bills simply because the burden cannot be unloaded onto anyone else. In order to make any actual progress toward solving our economic problems, we must come down out of the clouds, abandon the “something for nothing” illusion, and base our corrective measures on solid economic ground.
Almost all of the expedients discussed in this chapter have been tried out at one time or another, a few of them in a modest way, most of them on a massive scale during the depression years of the thirties under the auspices of the so-called New Deal. It is a tribute to the zeal, if not to the judgment, of the guiding spirits of the New Deal administration that two out of every three of the worthless schemes that have been discussed so far were included in their assortment of depression killers. Not all variations of each plan have been tried, of course, as the number of versions is almost unlimited, and there is always a loophole for diehard enthusiasts to claim that the failure of their pet program was due to the omission of essential details or to faulty administration, rather than to inherent defects. The fact remains, however, that in one way or another all of these schemes have been weighed in the balance and found wanting.
The analysis in the foregoing pages shows that the failures were not due to administrative errors or chance misfortunes; they were due to the basic inability of these plans to exert any forces tending to correct the purchasing power unbalance that was responsible for the depression. All of these plans were evaluated by means of the same yardstick: the principles and relations developed in the earlier chapters. The correlation between the theoretical appraisal and the results actually attained in practice thus serves not only to eliminate the possibility that the failure of some one of more of the plans may have been accidental rather than inevitable, but also accomplishes the purpose which constitutes the principal reason for discussing these worthless plans in this work: a demonstration that evaluations made on the basis of these theoretical principles do coincide with experience, and that economic science can explain why these measures failed. Ability to identify the reasons for the failure of unsuccessful programs is, of course, a strong indication of the existence of a similar ability to identify the necessary features that a program must have in order to be successful.