On Holding the Ground for Constructive Economy

President Coolidge with Postmaster General New standing over his left shoulder.

President Coolidge with Postmaster General New standing over his left shoulder.

When the President, Budget Director, Cabinet heads and various departmental chiefs met on June 10, 1927, the Business Organization of the Government had been gathering bi-annually for six years. In that time the country had been raised from the deep depression of 1921, brought low by the sudden death of President Harding, lifted by the decisive election of Mr. Coolidge and tested anew by the Mississippi Floods that spring. November would bring similar floods to Vermont. Naval disarmament, war debts and reparations as well as the conflicts in Mexico and Nicaragua would present more challenges as the year came to a close. Yet, through it all, these meetings had become a fixed force for good administration, defending the profit of all the people, not simply a favored few, through a wise balance of debt payment and long-term expenditure, simultaneously trimming back wasteful practices that eroded the return of annual surpluses in the form of tax cuts. Applying the principles of a Budget system to government provided an actual measure of the progress of constructive economy as long as the discipline and the courage to hold government to the practice of sound business remained. Election-year smokescreens and campaigner’s numbers could not withstand the unrelenting scrutiny these meetings brought to public light, the reading of the “score,” as Ronald Reagan once put it, accounting for how Americans’ money had been used every six months and where it was estimated to go in the coming year. This kind of forthright disclosure was not proclaimed in some obscure government report to be buried at the first opportunity, it was a bi-annual event championed by the President and his Budget Bureau General through the burgeoning medium of radio. It was carried by newspapers, moving reels and by word of mouth. Coolidge wanted everyone to know what the score was so that future gains could be quantified and the under-girding supports of discipline and courage needed to keep on course would continue to find resolve and renewal for years to come. All the good done would unravel without both the leadership of the executive and the will of Americans to insist on its continuance.

This is why he, in January that year, would disclose the “real encouragement” these meetings gave him for the nation’s future. “We gather here to consider the business operations of the government. It is here we discuss our policies and aims, so that all may contribute understandingly to their fulfillment. We represent the most colossal business organization in the world. Its activities touch almost every known interest. Because of this it is important that we proceed along definite business lines. And this becomes even more important when we pause to consider the one and only object of our operations – the welfare of the American people. The profit of our labors go to the people. This is our constant inspiration for loyal, faithful, and devoted service.

In an environment President Coolidge knew to be delirious about authority without accountability, he declared the concern was not for “the amount of responsibility attaching to an office” instead “are we concerned with the manner in which that responsibility is discharged. It is in the discharge of our duties that we find success or failure.” Each small part was not inconsequential because it contributed to the aggregate result. By the end of the fiscal year that June of 1927, thanks to this fidelity toward results, the overall outcome was a staggering two and one-half billion dollars ahead of scheduled payments and the interest on them. Some five billion dollars would be gone from the debt and a hundred million in annual savings on interest had been obtained by paying so promptly on what the nation owed.

Cited from the Annual Report of the Secretary of the Treasury on the State of the Finances, 1927. Courtesy of Fraser, http://fraser.stlouisfed.org/.

Cited from the Annual Report of the Secretary of the Treasury on the State of the Finances, 1927. Courtesy of Fraser, http://fraser.stlouisfed.org/.

The President was keeping a keen eye on national security as well. Coolidge was not going to undermine American defenses in the name of economy. This would not be true to the principles of constructive economy. After all, as he had said before, economy was not parsimonious or miserly. To Coolidge, financial strength made for military preparedness, one was not mutually exclusive of the other. “The public debt has a direct connection with the question of military preparedness. To the extent that we are able to reduce our public debt and to eliminate the vact charges thereon, to that extent are we adding to our military preparedness; and to the same extent are we lightening the burden of the people of this country…But, aside from the many and other more important reasons, we should, from a financial standpoint alone, refrain from any gesture which could possibly be construed as militaristic.” The issue had two basic camps, Coolidge said. “There are in this Nation people who advocate policies which would place us in a militaristic attitude. There are others who beguile themselves with a feeling of absolute safety and preach a doctrine of extreme pacifism. Both of these are dangerous to our continued peace and prosperity.” The President explained a better way. “What we need, and all that we need, for national protection is adequate preparedness. In that is reflected our traditional attitude toward all nations. It contains no gesture of offense and no gesture of weakness. I am for adequate preparedness. It is a question to which I always give the most serious thought in my recommendations to the Congress in the Budget message. As Commander of the Army and of the Navy, the Chief Executive of this Nation has an emphatic responsibility for this phase of our welfare. As a nation we are advocates of peace. Not only should we refrain from any act which might be construed as calling for competition in armament, but rather should we bend our every effort to eliminate any such competition. We can not and should not divorce our own interests this direction from the interests of other nations. Rather should we view the matter from the standpoint of the best interests of all the nations. Surely the best interests of all are found in directing to the channels of public welfare moneys which would otherwise be spent without productive results.”

When President Coolidge, addressing the Twelfth Meeting of the Business Organization of the Government in January, considered the countless requests for access to the public Treasury, no one anticipated how expensive 1927 would turn out to be. The unforeseen flooding of the Mississippi River Delta that April followed by the inundation of Vermont in November could have very easily exhausted what constructive economy had accomplished up to that point. Combine this with the market manipulation of McNary-Haugen, successfully vetoed twice that year by Coolidge, and the unprecedented surplus of 1927 could have been a demoralizing deficit not merely that year but for years to come. Coolidge prophetically explained in January what it had taken, and would continue to take, to prevent this reckless reaction from taking hold, undoing all that had been accomplished since 1921. “With a full Treasury and revenues at flood it requires courage to continue along the lines we have been following these last years. I am speaking not alone from an executive standpoint but also from a legislative one. I realize the great pressure for increased appropriations brought upon the Congress and I realize the enviable record which it has made in supporting the principles of the Budget law…It is pleasurable and easy to give. It is difficult to withhold. If the Treasury vaults were thrown open and its accumulated capital drawn upon until not a dollar were left, even then would we not be able to satisfy the demands that probably would be made from various groups and from various localities. And who will say that these demands may not have justifications? Projects that eventually will be resolved into completed works, purposes, and policies that in time to come must be adopted and financed, if accepted in their entirety to-day would throw a tax burden upon the people that would cripple business, check prosperity, and convert our annual surplus into an annual deficit. What needs to be done should be done. Great developments are sure to come. They should come, however, as the result of orderly procedure with an eye always to the best interests of the taxpayers. For extravagance and unnecessary provision – a waste of the people’s money – there is no justification. I intend always to recommend sufficient appropriations to do what is necessary to be done and what should be done. If I err in my judgment I prefer to err on the side of having rather than on the side of spending.” Looking back on the Mississippi disaster at the June meeting, Coolidge would stand by this fiscal commitment to people, noting, “The loss of life and property is appalling. All that possibly can be done to alleviate distress and suffering is being done…Such a disaster must never happen again.” Man could not direct the weather but he could control the degree of preparedness to handle it. This is where constructive economy enters. “From a business standpoint we must anticipate from this disaster a reduction in our prospective revenue and an increase in our prospective expenditures. I am confident this will be an added incentive to effect savings elsewhere.”

Annual Report of the Secretary of the Treasury, 1927. Courtesy of Fraser, http://fraser.stlouisfed.org/.

Annual Report of the Secretary of the Treasury, 1927. Courtesy of Fraser, http://fraser.stlouisfed.org/.

Annual Report of the Secretary of the Treasury, 1927. Courtesy of Fraser, http://fraser.stlouisfed.org/.

Annual Report of the Secretary of the Treasury, 1927. Courtesy of Fraser, http://fraser.stlouisfed.org/.

Coolidge knew that this work was far more than some abstract bureaucratic exercise, it directly impacted and proportionately helped or hindered real-life people. Constructive economy did not exempt anyone in public service from the hardest of decisions, the retention of personnel. Some seventy thousand employees had been taken off the Federal payrolls due to age or inefficiency where they were. Economy did not mean forgetting these people, however, it meant placing them where they were needed and still had a contribution to make. If that was in another area of public service, then Coolidge’s executive order (No. 4577), signed the day before on January 28, would furnish the Civil Service registers with “qualified eligibles” upon which to draw until Federal vacancies were filled, saving further costs to the people. The retirement act amended by Congress working in conjunction with the 1923 classification act governing salaries and the recently passed travel allowance law would together serve the interests of all concerned, not merely one group at the expense of the whole. It reinforced practical nature of Coolidge’s constructive economy. As the President reiterated, “The Federal Government exists only for the good of the people. It we do not make every dollar count in doing the needful things, we unduly enlarge the amount required from the people. The same is true if we unduly enlarge the functions of the Government. In spite of three substantial reductions in tax rates, we have taken from the people something more than actually necessary to carry on the business of the Government. From this has accrued the yearly surpluses which have been invested in the further reduction of the national debt and the profit arising there-from through reduction in interest. These surpluses would not have accrued had the business of government not been well managed.”

When the Budget System went into effect six years before, it was no act of gutless concession. Then the debt stood at five and a half billion dollars, exacting fifty-one dollars for every man, woman and child in the country. Taxes consumed just under five billion dollars of that total. The cost of living index soared above 190. “To initiate a policy of constructive economy at that time required a great deal of courage. To all appearances it was almost impossible of accomplishment. The time when it would give any actual relief seemed to be so far in the distance that there was little incentive to make the required sacrifices to secure it.” Yet, secure it the country did. “In this short period of time the progress has been nothing less than astounding.” By June 1927, the annual budget stood around three billion dollars, national debt at nineteen billion, the cost per capita down more than twenty dollars, the cost of living index down to 176 and falling with five million dollars saved every working day. “This readjustment of the finances of the Government has been a large contributing factor in the prosperity which the country has enjoyed. Out of our surplus earnings we have paid off nearly a quarter of our national debt and furnished billions of dollars to stabilize and refinance other parts of the world. Measured by its productive capacity and by its distribution in wages and its results in the general raising of the standards of living, it is far in excess of anything ever enjoyed before by any people anywhere at any time.”

Courtesy of Fraser, http://fraser.stlouisfed.org/.

Courtesy of Fraser, http://fraser.stlouisfed.org/.

Courtesy of Fraser, http://fraser.stlouisfed.org/.

Courtesy of Fraser, http://fraser.stlouisfed.org/.

The departments, bureaus, commissions and agencies could not make their proposed budgets for the future based upon the landmark surplus of 1927. President Coolidge reminded those gathered there how tenuous a surplus truly is and how easily it can unravel should unforeseen disasters occur. The Government could not count on larger revenues or greater expenditures with the expectation that 1928 would pay for them. Responsible administration demands a long-term view, not the immediate gratification that kills the sources of revenue today on the assumption that those same sources will give accordingly tomorrow. “I do not hesitate to say that one of the greatest safeguards of this Nation, financially, socially, and morally, lies in constructive economy in government. It will do much to defeat attempts to undermine our traditions and disrupt our institutions. Economy does not mean the neglect of essentials. Rather does it mean adequate provision for them by the elimination of waste. It gives the added protection which comes from the means to meet a time of emergency. The Federal Government has set an example not alone to the other governments in this country but to other nations in the practice of economy. Extravagance may bring momentary pleasure and apparent benefit, but it creates a condition which is bound to affect the future adversely. In our operations we are building for more than the present. The foundation is being well laid with a support of the people in which we find encouragement to continue our efforts in their behalf.” The present and future, the country and all nations would be bettered by this perseverance of constructive economy.

Courtesy of Fraser, http://fraser.stlouisfed.org/.

Courtesy of Fraser, http://fraser.stlouisfed.org/.

There could be no replacement for continued courage and discipline if the coming year is to build on the good rewards of everyone’s hard work. “To do more work and better work with a smaller outlay of the taxpayers’ money is the supreme test of successful administration,” the President asserted that June. In preparing to turn the January meeting over to his Budget General, Director Lord, Coolidge said, “If we had the courage to adopt this policy when its beneficial results appeared to be far in the future, now that we are in the midst of their enjoyment we ought to have the courage and self-control to continue it. There is not a home anywhere within the broad confines of this Republic which is not better off because of the service which you have rendered and the sacrifices which you have made. These results are unprecedented in the financial history of the world. They have placed America at the pinnacle of success and prosperity. It is our business to do our part to keep it there.”

The Official Family, June 30, 1924

The Official Family enjoying a moment together as the camera snaps, June 30, 1924

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