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The New International, December 1945

David Francis

Is Full Employment Possible?

An Analysis of Wallace’s Theory

From The New International, Vol. XI No. 9, December 1945, pp. 262–266.
Transcribed & marked up by Einde O’Callaghan for ETOL.

Excluding all of those workers who are now out on strike, there are at present more than two million unemployed. This is two and one half times the number of unemployed officially recorded in Government statistics just prior to V-J Day. On all sides, from Government, private research organizations and trade unions, we are being warned of the dire prospect that by next spring there will be at least eight million unemployed. It is only natural that the workers of America are concerned. With good reason, they ask: if it was possible for all to have jobs in wartime, why cannot the same be done in peace? Full employment has become our Number One domestic issue.

It is in this setting, the basic transition from a war economy to a peacetime mode of life, that the Administration has come forward with its Full Employment Bill. This Bill is the legislative expression of the slogan, “60 million jobs,” raised by the late President Roosevelt in his last campaign. Chief popularizer of the slogan, which expresses in simple terms the desires of the masses, is Henry A. Wallace, Secretary of Commerce, Wallace, indeed, has written a book entitled 60,000,000 Jobs. It has become a best seller and its contents have been endorsed; by numerous trade unions, particularly within the CIO.

The Truman Administration regards the so-called Full Employment Bill as one of the pillars of its legislative program. The Act was passed on September 28 in somewhat emasculated form by the Senate, but it is still described as satisfactory to the Administration. At present it is reposing in the House Committee on Expenditures, in spite of Truman’s efforts to pry it loose. These “representatives” of the people, although admitting the urgency of the measure, are alleged to feel that they cannot pass judgment while the current strike wave is on.

What the future of this legislation is remains to be seen. Informed Washington correspondents believe that it has a 50-50 chance of passing in at least a modified version. The entire dispute over the Full Employment Bill, the fact that most trade unions are supporting it, and the special role of Wallace, all give rise to questions of prime importance to the workers of America and their organizations. How can we establish full employment? Why have we not had full employment before? What would be the cost of full employment? These and many related questions are really the subject matter of this article.
 

What Is Full Employment?

Full employment does not mean that every American between the ages of 14 and 65 will have a job or even that all those who want to work will have jobs. The term, as used by Wallace and other proponents of the legislation, is based on the accepted definition among professional economists. It is felt that at all times there will be some people who will be moving from one job to another, or will be temporarily out of work but who can reasonably be expected to obtain jobs in a short time. Wallace says in justification of his figure of 60 million jobs as the goal of full employment:

“... 60 million jobs will provide work for all the people in the labor force in the country – except for those who at any one time are in transition from one job to another, or are in the ‘frictional unemployed’ for other reasons. It includes those who had jobs before the war; those who were unemployed then but have since found jobs and want to keep them; those who have been added to the labor force because of normal population growth; and those employed in the armed services.”

Thus, 60 million jobs is estimated as the number needed to provide full employment between 1949 and 1951. This school of thought claims that full employment existed in 1929 when there were almost two million unemployed. In other words, two million unemployed is normal in a “free enterprise” economy functioning at peak levels.

In defining full employment it has been necessary to use the term “labor force.” A few key statistics on the size and composition of the labor force will give us some perspective on the size of our problem. The official tabulation of the labor force, as prepared by the Bureau of the Census, included 66.6 million individuals at its all-time peak in July 1944. At that time there were 11.6 millions in the armed forces. This left 55 million in the civilian labor force. The civilian labor force, in turn, may be divided into employed and unemployed, of which there were in the former category 54 million and in the latter category one million. The employed portion may be divided in terms of occupation. There were 9.7 million in the agricultural labor force and 44.3 million in the non-agricultural labor force. The non-agricultural portion comprises many occupations which can be broken down as finely as one desires and the statistics permit.

We can get some idea of what the full employment problem really means by examining Wallace’s chart, comparing the distribution of the labor force in 1940, by major occupation groups, with his proposals to achieve 60 million jobs in 1950.

It should be noted that all statistics relating to manpower are, at best, estimates. And even among Government agencies that specialize in getting up such data, there is a considerable margin of difference. For example, the Bureau of Labor Statistics reports one million less employed in Construction in 1940 than the figure that Wallace uses. Yet Wallace’s data, presumably based on the Bureau of the Census, give a total non-agricultural labor force in 1940, of comparable classification, that is 3 million less than that reported by BLS. There are many reasons for the differences between these two most important official sources of employment data, the basic reason being the different methods of estimating. The BLS bases its estimates on current pay roll reports, while Census adjusts its 1940 Census of Population through a representative sample. Even where there is agreement on the area of coverage, other Government sources as well as private agencies will come up with still different figures.

We are thus dealing with an aspect of the economy in which the statistics are admittedly uncertain. As is to be expected, the differences on past and present facts extend to the estimate of the number of jobs required to achieve full employment. The Brookings Institute, for example, a reputable private agency, estimates that no more than 54 million jobs would be sufficient to provide full employment. The more conservative figure may be accepted, since Wallace appears to underestimate the number who will voluntarily withdraw from the labor force, either because they are too young or too old, or they wish to complete their education, or the main breadwinner in the family earns enough to make their contribution unnecessary.

Wallace’s figures, however, permit us to get some measure of the difficult task that lies ahead. If we exclude those listed as employed in the armed forces, domestic service, agriculture, and the self employed, we are then talking about the heart of our problem, the non-agricultural labor force. We leave to the psychiatrists to explain why soldiers and munitions workers should be classified as “employed” when, not so long ago, WPA workers were classified as “unemployed.” According to Wallace, full employment will require an increase over 1940 of 44 per cent in the size of the non-agricultural labor force.
 

Necessity for Full Employment

Unless we wish to close our eyes to the elementary facts of economic life, we are confronted with a situation where there shortly will be four workers available for every three jobs that existed in 1940. And even it we allow for a substantial increase in production over prewar levels, there will be in the neighborhood of 10 million unemployed unless wartime levels of output are maintained. The growth of America’s productive resources during the war has been so phenomenal that we can exceed prewar production by sizable amounts and still have a large a volume of unemployment as existed during the depth of the depression. This would mean constant pressure on wage rates, so that even those with jobs would begin to experience sharply declining standards of living, For the workers, therefore, full employment is not a pious hope, but an imperative necessity.

The more enlightened capitalists, of whom Wallace is the outstanding public figure, are also desirous of seeing full employment established. They know that this country cannot stand another depression comparable in severity to the 1930’s. Such a development would strengthen the appeal of totalitarianism, of both the Stalinist and fascist varieties. Mass unemployment was the direct economic cause of World War II. It brought Hitler to power and stimulated nationalistic and imperialistic rivalries to the point where the war was inevitable. Mass unemployment in the 1950’s would be a direct invitation to World War III. The “liberal” capitalists could easily be crushed by such developments. Consequently, more as a matter of self-interest than out of humane considerations, they support the Full Employment Bill.

Even the big monopoly capitalists, who really wish to see five or more millions unemployed in order to keep wages down and weaken the unions, profess to be in favor of “full employment.” Of course, it wouldn’t be politic for General Motors or General Electric or any of the other big corporations to say that they don’t want full employment. To be sure, some of their spokesmen claim that “we can’t guarantee jobs any more than we can guarantee dividends to our stockholders.” And they are unanimous in their opposition to the Full Employment Bill. But before we jump to the conclusion that the Full Employment Bill is the answer to our problems, let us see what it calls for and how it would work.
 

The National Budget

The basic objective of the Full Employment Bill is, in the words of the Act as originally introduced in the Senate: “All Americans able to work and seeking work have the right to useful, remunerative, regular and full-time employment and it is the policy of the United States to assure the existence at all times of sufficient employment opportunities to enable all Americans who have finished their schooling and who do not have full-time housekeeping responsibilities freely to exercise this right.” There has been sharp dispute over this preamble, concerning especially the “right” to a job that it would allegedly guarantee. The statement has already been watered down in the Senate and will undoubtedly be further weakened by the House, assuming that it ultimately becomes law. While this controversy over fundamental objectives is not without significance, the important aspect of the Bill is the method by which it is proposed to achieve full employment.

The Bill calls for the establishment of a National Production and Employment Budget (hereafter referred to as National Budget) which would attempt periodically to forecast the outlook for the economy. On the basis of these estimates of future income and expenditures for major segments of the economy, it would be possible to foretell the employment and unemployment situation and to recommend, if necessary, policies designed to achieve the desired aim of full employment. In acknowledging Roosevelt as the political father of the full employment legislation, Wallace says:

He realized that the total number of job opportunities in any one year must depend upon the total amount spent for goods and services by all of the consumers, by industry and business, and by government (Federal, state, and local). And he believed that only by giving periodic comprehensive estimates of the overall purchasing power of the entire nation could we know exactly where we stood, all of us, at any one time – just exactly what was ahead of us, and what measures by private enterprise and government might be required to maintain full employment.

While predictions of national income and employment, have never been distinguished by their accuracy, let us ignore this difficulty and grasp dearly the philosophy behind the proposal and what it signifies. As long as everything was in accordance with the desires of the officials in charge, the Government would merely publish its estimates and continue existing policies in regard to taxation, wages, prices, and other matters affecting the number of job opportunities.

But what if private investment were not sufficient to sustain “full employment?” Then, the Government would propose measures designed to stimulate private investment and increase employment opportunities. And if, in spite of Government support, private investment still fell short of providing full employment, then Government spending would have to make up the difference.

Wallace is convinced that to achieve 60 million jobs requires a National Budget of $200 billion. He apparently draws this conclusion on the basis of our 1944 experience when, with the gross national product or total production at $198 billion, there was an average during the year of slightly more than 63 million people receiving incomes. There are many ways in which a total production of 1200 billion could be spent, but the one which Wallace favors as most likely to provide full employment and preserve the freedom of private enterprise is the following, compared in the tabulation with his summary for 1944:

The data for 1950 are, of course, expressed in 1944 prices. If the price level were different, allowances would have to be made. As can be seen, the average consumer would be about 40 per cent better off under the Wallace proposal than he was in 1944. This desirable result would be achieved by a tenfold increase in private capital formation and a decline of almost two-thirds in Government expenditures.

Any budget, including a National Budget, is merely a set of figures on a piece of paper. It is drawn up presumably to guide actions or to achieve certain goals. A National Budget might lead to the adoption of policies more readily conducive to full employment. We achieved full employment during wartime -without benefit of a National Budget. Why, then, is it necessary to have a National Budget to achieve full employment in peacetime? While this question is propounded chiefly by the reactionary opponents of the Full Employment Bill, it is a logical question and one that calls for an answer.

Let us listen to Wallace, the most ardent pleader for the Full Employment Bill:

We must find the proper balance between liberty and control, between stimulating full employment and keeping free enterprise free. I believe the national budget – representative of all segments of our national life – provides the answer.

I believe the people should direct the government to prepare a national budget – a budget covering not merely the expenditures and receipts of the Federal government, but also covering everything that would be bought and consumed each year by all segments of the nation ... To provide for prompt action for situations where this national budget showed that the national market was not going to be big enough to keep people fully employed, the government would be directed to prepare a program that would promote the maximum of private expenditure and the minimum of government expenditure to produce the necessary total national production. (My italics – F.D.)

In other words, there is an understandable fear that private enterprise, left to its own resources, will not, in fact, cannot, provide full employment. The National Budget, say Wallace, the CIO, Patton of the National Farmers Union (supposedly responsible for the initial proposal), Beardsley Ruml, President of Macy’s, and other liberal capitalists, not only can provide full employment but is the only way to avoid the twin evils of “the so-called planned economy of the regimented state” and inflation.

The opponents of the legislation, chiefly spokesmen for the big corporations and the National Association of Manufacturers, deny that the National Budget can produce full employment and insist that it will surely sound the death knell for private enterprise.

The battlelines appear to be well defined. The issues are apparently simple and fundamental. Yet, at this point, an excursion into our past experience with unemployment is necessary so that we may obtain a clear perspective on all aspects of this important conflict.
 

Unemployment and Capitalism

We can distinguish among three major types of unemployment: seasonal, cyclical and normal. Seasonal unemployment is exemplified by the garment industry. Due to the character of production, employment reaches peak loads only at certain times during the year. While this is a serious problem in a number of industries, it is not a fundamental part of the problem of full employment and can be solved through such a measure as the “guaranteed annual wage,” proposed by many unions and now supposed to be under study by the Government. Cyclical unemployment occurs when business is in a state of depression. Most businesses find it unprofitable to produce to capacity and dose down, either in whole or in part, thus throwing millions out of work. At the low point of the last depression, 1932–1933, unemployment was variously estimated at from 16-23 millions. Normal unemployment exists even in times of so-called prosperity. Business is making large profits, but there are many workers who want to work but cannot find jobs. This includes those displaced by technological innovations in industry. Prior to 1929, the number normally unemployed never exceeded two million. But in 1936, when industry showed profits approximately equal to those of 1929, there were from 9-13 million unemployed (the higher estimate was made by the AFL).

The problem of full employment is thus essentially that of eliminating both cyclical and normal unemployment. Expressed in other terms, it is the basic problem of our times: how to eliminate depressions and make sure that all those who wish to work can find suitable jobs at satisfactory wages. While they do not say so openly, the sponsors of the Full Employment Bill have this in mind and hope that the National Budget can eliminate depressions through providing the necessary amount of public investment to fill in the gap left by the failure of private investment to provide the necessary number of jobs.

The reader may be pardoned if, at this point, he asks: what has investment got to do with employment? Clearly, investment is decisive. The more money that is invested in plant and equipment, the more raw materials are purchased to be processed into finished items, the greater will be production and the more labor will be hired to make that production possible. The American economists, such as Hansen, who have provided the theory justifying Government deficit-spending, which underlies the Full Employment Bill, have based themselves on the British economist, Keynes. Keynes, now a Lord and Director of the Bank of England, became popular during the last great depression when he stated that the trouble was lack of investment. Savings must be spent, instead of being kept for old age as our Calvinistic forebears taught. Unless there are sufficient “offsets to savings,” Keynes said, production will be restricted with unemployment resulting. If private enterprise cannot find the necessary inducements to invest. Government can help through lowering interest rates and taxes on business. And, if such measures fail, then the Government can borrow the people’s savings through selling them bonds and put this idle money to work by investing it in various types of Government enterprises, such as public works.
 

What Is Wrong with This Theory?

There are only two things wrong with this theory: (1) it ignores a number of factors in its oversimplified explanation of the workings of our capitalist system and (2) it will not work without major alterations in the structure of our economic system, and even then it provides no permanent solution so long as the capitalist foundation remains.

The key question in any investment approach to the problem of full employment is obviously: why will not business men invest more money? This is conveniently forgotten by the Keynesians. But the answer is simple. Business men invest money because they expect to make a profit. If they do not see the opportunity for maintaining or expanding their profits, they will not invest. None of these fundamental problems is new. They were analyzed by Marx almost 100 years ago.

In his analysis of capitalism, Marx established three fundamental propositions that relate to our problem: (1) there is an inherent tendency for capital to accumulate, i.e., capitalists must go on making more and more profits and, because of their inability to spend it all on themselves, continually reinvest a portion of their profit in established or new businesses; (2) as capital accumulates, the average rate of profit tends to fall, due to the introduction of more machinery and labor-saving devices and the relative decline in the amount of labor power required; and (3) capitalists attempt to offset the decline in the rate of profits by creating monopolies and introducing still more labor-saving devices, thus resulting in an ever-increasing industrial reserve army, or permanently unemployed, and the seeking of new markets through various types of imperialistic practices. We are only too familiar with the resulting characteristics of capitalism, chronic mass unemployment, fascism, inflation and war.

Is full employment, then, impossible under capitalism? Must we conclude that the Full Employment Bill is unworthy of labor support? Before we answer these questions we must see how the proposed national budget would work and what the cost of such a bill would be.
 

What Price Cooperation?

Let us suppose the national budget is in operation and that Wallace is correct in stating that a $200 billion gross national product is required to achieve full employment; and let us assume, further, as is most probable on the basis of past experience, that consumer outlay and private gross capital formation fall short of Wallace’s model. If the consumers have and spend $125 billion any time during the next several years, assuming prices remain at about current levels, this would be an excellent performance; one almost thirty per cent above the 1944 peak and more than seventy-five per cent above the pre-war peak in 1929. This would leave a “deficit” of $10 billion. If business spends $25 billion for plant and equipment, construction, the excess of exports over imports, building up inventories, etc., this would be almost thirty per cent above the previous peak in 1941 and more than forty per cent in excess of the boom year of 1929 – a most optimistic forecast. Another “deficit” of $5 billion develops. Thus, instead of government spending $35 billion, which is all that Wallace considers to be safe and practical, government expenditures for goods and services would have to reach the impressive peacetime total of $50 billion, almost twice the 1941 level (which included almost $14 billion for direct war purposes), and more than three times the pre-war peak in 1939.

The absolute maximum that we could expect state and local governments to spend is $15 billion, about twice the prewar level; realistically, it is more apt to be in the neighborhood of $10 billion. This leaves at least $35 billion to be spent by the federal government. If the national budget were operating, machinery would immediately be put into effect to accomplish this. Normal peacetime expenditures, including sizable outlays for public works, might conceivably reach the sum of $15 billion. On what is the remaining $20 billion to be spent? On a Missouri Valley Authority or other river valley developments comparable to TVA? Perhaps, but not more than ten per cent of the necessary amount could be spent on projects of this sort, and these would receive the determined opposition of the big private utilities. On a vast public housing slum clearance program? We could certainly use a couple of billions spent on such a worthy objective, but the real estate and construction interests would yell bloody murder. On government operation of aluminum, synthetic rubber or other manufacturing plants built at a cost of $16 billion during the war? Just imagine the hue and cry, the full-page ads, from Alcoa, US Rubber and the other big corporations that would be affected. They would deafen us with their shouts that government is undermining “free private enterprise” and destroying the “American way of life.”

The conclusion is inescapable. If the Federal Government undertakes large-scale expenditures that interfere with opportunities for private profit, such government investment would meet the determined opposition of the capitalist class. The budget planners would be told to revise their figures or think of some more acceptable type of government expenditure that would not interfere with profits. (And even if, by some miracle, the government was permitted to spend the necessary amounts on useful projects and not on leaf-raking, taxes on business and corporations would have to be so high as to guarantee resistance from the capitalists and their representatives in Congress; otherwise, inflation would result.)

Making the most favorable allowance possible for the Wallace thesis, we still calculate that the Federal Government would have to find acceptable outlets for at least another $15 billion. There is only one source for expenditures of this magnitude. They would have to be in the form of war outlays, direct or indirect. If only three or four billions can be spent on maintaining the permanent peacetime armed forces, including the occupation forces, then a couple of billions could be spent on further research in perfecting the atomic bomb and other new weapons, a few more on building useless battle-wagons and super-bombers, and perhaps the balance on stockpiling strategic war materials. If these do not add to the necessary amount, billions of dollars could easily be spent on going underground in preparation against the atomic bomb attacks anticipated in the next war. We are confident that the generals and admirals can devise ways and means of spending the necessary sums for war measures and presenting an “irresistible” case for their inclusion in the national budget. But sooner or later, and more likely sooner, this son of policy would lead us smack into World War III and an even worse bloodletting than we have just experienced.

Wallace is not entirely unaware of the difficulties in the national budget proposal. Throughout his book there is a constant plea for coöperation as the precondition of successful operation.

Memories are short and peace is wonderful, but let’s deal with realities. It was not so long ago that the AAA, under the very same Wallace, plowed under every third row of cotton and wheat and destroyed huge quantities of hogs, while millions starved and went ill-clothed. It is only a few short years ago, at the beginning of the war, that the big three automobile companies, Ford, General Motors and Chrysler, refused to furnish necessary information on their “captive” operations to the War Production Board on the ground that they didn’t trust the government to handle such “confidential” information with the proper discretion. They successfully maintained that intransigent attitude throughout the war and not even the US Government, with all its war powers, was willing to undertake a fight to get the data. And it was only a few months ago that Henry Ford, asked by a government official for information concerning his post-war investment plans, which would have a vital bearing on reconversion, replied that that was why he had built a ten-foot wall around the River Rouge plant. Modernizing the whole construction industry is a good trick if you can do it, but so far neither government, business or labor has had the courage to stand up against the racketeers who prey upon the building trades.

A national budget might work, but it would mean large and dangerous war expenditures and most of the cooperation would clearly have to come from labor’s side. The “common understanding” that Wallace calls for can only be interpreted as a demand that labor give up its right to strike, the one eco-omic weapon it possesses against the attacks of capital. It would mean an era of class collaboration and, eventually, a decline in the workers’ standard of living and an encouragement of already evident trends toward an authoritarian state. This is too big a price to pay for “full employment.”
 

Two Necessary Amendments

The entire debate over the Full Employment Bill is symptomatic of the importance of the issue to our times. Unquestionably the proposal, even if passed in very diluted form, will constitute additional evidence of the inability of capitalism to solve the everyday problems of living and the necessity for the capitalists to use increasing measures of states intervention in an attempt to meet the crisis. Full employment is impossible under capitalism, with the single exception of war or large-scale war expenditures. There must always be a certain amount of “normal” unemployment in order to help keep wages down. Nevertheless, the Full Employment Bill has become too important an issue for genuine socialists to isolate themselves from the struggle by dismissing it as just one more panacea designed to save a dying capitalist order. The measure should receive critical support, provided the following two amendments are incorporation in the bill:

1. Trade Union Control of Employment Spending. While the Senate version of the bill states that the President may establish advisory boards or committees composed of representatives of industry, agriculture, labor, etc., because of the importance that such a budget would have in determining our national life and because of the ease with which current statistics affecting the problem can be manipulated, it is absolutely essential that decisive control rest with labor’s representatives on the government board or committee that draws up the national budget. These must be representatives of labor’s own choosing, selected by the trade unions. They would clearly have to be competent people who, if their performance were unsatisfactory, could be removed by the trade unions. Since the trade unions have the largest stake in full employment and by far the largest organized group in the country, representing with their families about one-half the total population, they should demand a majority of the policy-making body that makes the recommendations emerging from the national budget, and they should be well represented among the statisticians and economists who would produce the figures upon which the recommendations would be based.
    
2. Government expenditures must be for useful projects and without regard to their impact on profits. Without such an amendment, we can be certain that the taxpayers’ money will be wasted in either boondoggling projects or in preparations for war, disguised under the phrase “national defense.” If private investment cannot sustain full employment, then let the government spend money on such socially useful projects as low-cost housing, school buildings, hospitals, public power developments, irrigation and anti-erosion measures, and, in general, on projects designed to make this a better world in which to live. If the sponsors of the bill are not willing to incorporate such an amendment, then they stand convicted of sheer demagogy and do not deserve support.

One of the best ways to educate the union membership would be to discuss the Full Employment Bill and the necessity for these two amendments. The many issues to which such an educational discussion would lead would certainly help to heighten political consciousness on the part of the workers. They might see more clearly the necessity for an independent political party of labor to represent them within the various organs of government. And if a Full Employment Bill were to become law, the workers would begin to learn that achievement of its true objectives requires the replacement of capitalism by socialism.

 
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