"Poverty in the Midst of Plenty"

I wonder, if I was a PM faced with the circumstances confronting R. B. Bennett in the 1930’s, how I would steer the nation. Keeping in mind that I believe in the utility of a free market, and that my political leanings, to the extent I have any, are almost certainly libertarian (see http://gordonfeil.blogspot.ca/2016/11/questions-about-practical-libertarianism.html and

http://gordonfeil.blogspot.ca/2016/11/normal-0-false-false-false-en-ca-x-none.html).

The big problem in the 30s was the shrinking money supply. I am lumping credit into the money supply. At a time when banks were cancelling credit, the Bennett government was focused on balancing the budget. While a balanced budget makes sense, over what time frame? If you spend more than you earn this weekend, should you be bothered by it? If you are going to earn it Monday through Friday, then what does it matter? You may not have a balanced budget for the weekend, but for the week you do. But does it even have to be for the week? So long as your earnings this month exceed your outgo, does it matter on what days each occurs? For that matter, does it matter if some months you run a deficit, so long as for the year as a whole, you have a surplus? Yet, what is so magical about a year as a timeframe? Why not a decade or a quarter century?

Canada may be the country that was hardest hit by the “Hungry Thirties”. Laboring wages were incredibly low. Even as low as 2 cents per hour in some cases. The “relief” camps, set up by the government in remote areas to remove young men from cities where they might voice their dissatisfaction, were essentially slave camps. There were plenty of goods around, but most people did not have the money to buy them. Inventory surpluses were so extensive that in some cases, inventory was destroyed. Food was not scarce; it was simply unaffordable by the masses. Eventually the government solved that by sending some of the masses to the destruction of war. I am being partly facetious here, but not totally.

So how should Bennett have responded? He should have extended credit to the needy. He campaigned against hand-outs on the basis that it would train people to not be industrious. Of course, it is likely he just didn’t want to raise taxes on the rich to fund the dole. Credit would have been more effective methinks. The most engaging politician ever produced in this country, and maybe in the whole Western World, was probably William Aberhart. Too bad he was such a bungler as Alberta Premier. But his idea of extending credit to the poor was a good one. He didn’t know how to execute it. What should have happened in Canada probably includes the following:

1. Stockholders rights should have been protected from rapacious managers who had incredibly high wages during the Great Depression. Perhaps a limit on total remuneration (salary, stock options, etc.) to a reasonable multiple of the wage of the average assembly line worker within the business.

2. Government credit granted should have been extended to the needy on the basis of zero interest and payback as conditions improved. This would have meant a budget that was unbalanced over a short timeframe, but over the long haul it could have been balanced with funds inflows during times of prosperity, or simply by the printing of new money.

3. The borders should have been opened to free trade. All customs duties eliminated. This would have reduced prices on consumer goods. It probably would have allowed American freight companies to compete on Canadian freight. A significant food distribution problem was that producers found it more profitable to let the food spoil than to pay the freight getting it to market. Open borders probably would also have allowed international markets to bid up the price on foodstuffs. Meat packers were selling beef at 19 cents a pound while farmers were being paid 1 cent a pound. This was only feasible because of government intervention in the market allowing for price and profit dislocations.

4. Fully applying the biblical rules regarding the release of debt after 6 years would have restored dignity and economic security to many oppressed families. Of course, such measures should only take place when the creditors have known in the first place that they were lending on that basis.

5. Sales tax should have been eliminated. Government could have been funded by the issuing of new money. This means that Provincial and municipal governments should have been allowed to issue money also. A free market would have destroyed the worthless money and kept the issuance honest over the long run.

I could go on, but I need to haul a bunch of stuff to the thrift shop. In short, the problem was not capitalism. It was the abandonment of practical concern for the poor combined with government bullying in the economy.