The Great Depression, Part Eight

As the federal budget deficit ballooned, Hoover made a decision to try to get the budget back into balance; and his whole attempt to do so has been controversial ever since. Many leaders in both political parties felt the budget had to be balanced and that taxes would have to be raised to do so. The idea of some type of sales tax was floated, but public outrage squelched the idea, and rightly so, as much of such a tax would have been paid by poor and middle income Americans, many already struggling to provide food for their families. The tax package that passed Congress and was signed by the president into law was a pretty comprehensive piece of legislation, with support from both parties. The largest tax increase was on “true” millionaires (very few in number in those times, as people with incomes of like one hundred grand were certainly more than the equivalent of someone making more than a million dollars by the value of today’s money), who saw an increase in surtaxes on their hefty incomes. I’m sure the increase in the surtax contributed to a large part of the wailing that the Depression was made worse by the tax increase. Although he was no longer in the Hoover administration, Andrew Mellon had served throughout the 1920s as Secretary of the Treasury, until Hoover replaced him with Ogden Mills well into the Depression. One of the wealthiest Americans of his time and so conservative to be called "reactionary" by many, Mellon had a deep abiding sympathy for the plight of  millionaires, and it was with his urging, that Coolidge and congressional leaders cut taxes on millionaires by a large amount in 1926.

The wealthy and their surrogates have always argued that in order for “capitalists” to let loose and invest, they need the money to do so, and that the tax took too much of their income. Now, there is some truth to that, but the idea that millionaires of those times (equivalent to today’s multi-millionaires and billionaires) were so strapped for cash that they couldn’t invest in plant and equipment is nonsense. The problem remained high inventories and under consumption. Business people were not going to rev up factories to produce goods that were still in abundant supply. Let’s say you own a pencil factory and I work for you. (And no smart remarks like “Get the lead out!”) For whatever reason, pencil sales slow down dramatically. You have a million pencils in supply and you decide to lay me off until your inventory declines enough for it to make sense to manufacture pencils again. After a fair amount of time, you still have 900,000 pencils in stock. If Uncle Sam says, “Hey Mr. or Mrs. Pencil, we’re going to lower your taxes, so how ‘bout producing more pencils?” Are you going to call me back to work to produce more pencils just because of taxes? You can’t sell what you already have. So if Uncle Sam said, “Hey, we’re raising your taxes by such and such an amount,” is that discouraging you from calling me back to work to help produce pencils? Hell no! You weren’t going to produce them even if they LOWERED your taxes. Trust me, if there’s money to be made on something, capitalists will be there; high taxes, low taxes, in between taxes, and that is a part of our system, and I’m not knocking it. So, in the above example, you’re not going to produce pencils until your existing inventory is reduced enough for you to see that there is sufficient market for you to produce pencils again. (Get the “point?” Hey, after all of those “get the lead out” thoughts, you deserved that!) During the Depression, a substantial segment of American society lacked sufficient income, so the problem of under consumption remained. Throughout the 1930s this problem persisted, and it wasn’t until the outbreak of World War Two in Europe, and America’s supply of equipment to the Allies, and the build up of our own armaments, that unemployment fell substantially, incomes began to rise, and consumption picked up. The tax policy passed in 1932 remained essentially the same, and that didn’t stop capitalists from expanding then. There was a market!!!

Hoover, the progressive; that is, his progressive political side, felt that super large estates should not be allowed to be passed on, and part of the tax bill he signed in 1932 had an estate tax of nearly 50%, if I recall, on estates valued at more than ten million dollars. (I know I keep repeating, but 10 million was an absolutely HUGE sum in those times, much more akin to like 200 million dollars today.) Many, but not all Americans have developed a sense of “fairness” during our nation’s existence. If large fortunes are permitted to be passed on, essentially intact, the people in control will pretty much always be the same. Let’s be honest, if I make a fortune on some invention, let’s say; once I’ve got the bucks, that means a certain amount of power, and once I’ve got the drop on you… So, stop and think, I doubt that any of you reading my stuff are millionaires, but if roles were reversed, and I were the millionaire and you the “peasant,” how would you feel? And also how would you feel about immense fortunes being passed on? Many things in life are done in self-interest, and that’s human nature to a large degree. In fact, that’s the argument made by capitalists, but the argument works both ways, not just in their favor, and we are far more numerous Mr. or Mrs. Pencil, so be careful, or we might get to the “breaking point.” Ah, okay, that was a bad one!

WORD HISTORY:
Largess/largesse-Both spellings are used for this word closely related to, and derived from, "large." The ultimate origins of this word are unknown, but Latin had "largus," which meant "plentiful, abundant." This gave Old French, a Latin-based language, "large," with the same basic meaning, but with the secondary meanings "wide" (presumably from the notion of "abundant area") and "generous" (presumably from the notion of so much abundance, a person could afford to be generous). French then developed "largesse," with the meaning "having the desire and ability to spend or give freely." This was then borrowed into English during the early 1200s.