Fireworks at the Mayflower

Up to last May, enough U. S. citizens to impress any politician were actively worried about two related problems: 1) the increase in their taxes, 2) the steady increase in the national debt after all the U. S. Government's tax collections. But when Hitler pushed back the U. S. frontier from the Rhine to the English Channel, these problems were swept aside by a single burning demand--Total Defense. To emergency-conscious U. S. citizens, the job presented itself as one of planes, tanks, guns, not their cost. But to businessmen and economists, one question remained: how to finance Total Defense?

Last week at Washington's Mayflower Hotel, two interested and opposed parties tackled this question. Some 50 men, bankers and New Dealers (about half & half), with a sprinkling of college professors, were guests at a forum of the austere Savings Bank Journal (which will publish the complete record next month). Host was its editor-publisher, natty, mustached Milton Whately Harrison who named Tax Lawyer Randolph Evernghim Paul of Wall Street's Lord, Day & Lord as moderator. Moderator Paul chose his sides skillfully. On business' teams, he lined up such stalwarts as Old Colony Trust Co.'s T. Jefferson Coolidge, Dime Savings Bank's Philip Adolphus Benson, Guaranty Trust Co.'s Robert L. Garner, Bowery Savings Bank's Earl Bryan Schwulst, Kuhn Loeb's Benjamin J. Buttenwieser. On Government's team, he picked such men as Jerome Frank, Leon Henderson, Ben Cohen, Lauchlin Currie, Emanuel Alexander Goldenweiser, Commerce's Richard V. Gilbert.

The question before the meeting was partly technical--partly philosophical. To start with, conferees had some figures. Over the $8,800,000,000 already appropriated for the 1941 fiscal year, defense will cost $19,200,000,000 of new money, to which must be added anything from $5,500,000,000 to $8,000,000,000 a year maintenance. Added to this was another figure : an estimate that $5,000,000,000 of the current defense appropriation will actually be spent by the end of this fiscal year. This will raise the Federal Reserve Board Production Index from August's 123 to 140 by next June. This estimate rested on three assumptions: 1) England stays in the war as a U. S. customer, 2) no inventory boom temporarily inflates production, 3) no price inflation handicaps consumption.

As an opening ceremony, up rose Boston's aristocratic Thomas Jefferson Coolidge. He was once F. D. R.'s Under Secretary of the Treasury, but his words came like a breath of fresh air from the contented '205: "You may say it is oldfashioned, but my belief is that the Federal Government should tend to national security with the utmost economy. I feel that expenditures by the Federal Government for personal security are apt to be unproductive in relation to the money spent."

Then the technicians went to work. For seven and a half hours they compared decimal points : provisos for excess-profits-tax bills, Canadian taxes, similar economic brain-crackers. They also discussed English Economist John Maynard Keynes's plan for curtailing workers' current wages by giving them a prior mortgage on postwar consumption. This evoked as clear a statement of the anti-New Deal position as the meeting produced. The evoker: Guaranty Trust Co.'s Garner, who said: "You are going to have to pay back the fellows from whose wages you get the money. Who is going to pay them back? The Government? Well, who is the Government? Where is the Government going to get the money? ... I believe we ought to figure on paying for the maximum amount that we can as we go along."

Against this, the New Dealers argued that defense is causing industrial expansion by private capital as well as by the Government, is piling up more & more national income and, therefore, a bigger & bigger reservoir of savings to finance the expansion. Furthermore, said the New Dealers, taxes always cut consumption. Why tax, then, until consumption has increased to the point of full production, full employment (which they estimated at around 170-180 on the FRB index)? They rejected the "fetish" of a balanced budget, preferring a balanced economy instead. But when full employment is reached, and a choice between guns and butter must be made, the New Dealers would plump for guns--i.e., consumption taxes. By 10 p.m. they had talked Leon Henderson to sleep under a picture of Thomas Jefferson. Then came the fireworks.

No. 1 ideologue to U. S. fifth columnists is wooly-haired, swarthy Lawrence Dennis, author of The Coming American Fascism; dabbler in "native fascist" politics. Said he to the New Dealers: "What is the policy? Is it for defense or for war?" And he answered his question with an accusation: "You are using defense as a WPA project of which the Republicans have to approve." The talk drifted back to price controls. But underneath a storm was brewing. About 15 minutes later it broke. Up rose Jerome Frank, let loose a torrent of evangelical capitalism. Eyes popping, head shaking like a metronome, he accused: "It is ridiculous to say that it is desirable to be just as grim and nasty and sadistic as we can in working out defense and make every man feel as though an iron collar were around his neck. ... Of course we ought to try to run our defense program in such a way that it will slide off into a non-defense economy. ... I know Mr. Dennis is a well-informed and a subtle-minded man. . . . He knows perfectly well that if we were to do it his way [minimum spending] ... we would actually hurt our productive capacity, we wouldn't have private industries ready as we come to need them, we wouldn't have healthy morale on the part of our citizens." Soon Frank and Dennis were trading blows across the room. The last smack hit Dennis on the chin. "You don't like capitalism," said Frank, "therefore you think it must make people miserable. You think it is bound to fail and you want to see it fail, and you hate to see a program that will work and preserve capitalism. I think this program is going to conserve capitalism. I think Mr. Connely's fellows [the investment bankers] are going to get business out of it."

By this time a come-to-meeting atmosphere was in the room. Up jumped Kuhn Loeb's Ben Buttenwieser to top it off: "We may quarrel with some of the methods and some of the views of the present administration, but the charge was made that the New Dealers are against capitalism, and that is completely unwarranted. If that is so I don't know the definition of capitalism . . . you can't test capitalism by a temporary narrow interest return."

The meeting broke up in the nearest thing to personal friendliness between Wall Street and New Dealers since the "breathing spell" days of 1936. Next day most of the bankers were back working for (or at least wanting) Willkie. But it was clear to most forumists that the New Deal v. Business feud need not hamper the fiscal end of defense. As Alf Landon said, "Politics end at the water's edge."

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