Address Before the American Retail Federation, Washington, D.C.

Mr. Kirstein, Dr. Craig, my fellow retailers:

I am happy to speak at this first Forum of the American Retail Federation. I feel a kinship between your business and mine. (Laughter) The backbone of the customers we are both trying to satisfy is the same—(laughter) in your case the many small customers whose steady demand for the necessities and a few luxuries of life make up your volume—in my case millions of average American families whose standard of living is the practical measure of the success of our democracy. You have one advantage over me, however; unlike Louis Kirstein, for instance, I have no bargain basement. (Laughter)

For you who are in the honorable business of store keeping, the flow of consumer purchasing power determines the difference between red and black on your account books; and for the Nation the difference between unemployment and prosperity. That is why I want to devote this opportunity to a difficult and probably exceedingly dangerous discussion of Government fiscal policy in relation to consumer purchasing power.

There are some highbrow columnists and some high-geared economists, who say to you that we think, you and I, too much about consumers' purchasing power and that we look at our economic problems from the wrong end. They say that we should glue all of our attention on the heavy industries, and should do everything and anything just to get those industries to work and to get private investors to put up the money to build new buildings and new machines without regard to the average consumer's need or his ability to use the buildings and the machines.

By and large, you will find that these experts are the same as 'those who just ten years ago were telling us that conditions were sound and that we had found the way to end poverty. In those days we were building luxurious office buildings, hotels and apartment houses and four-tracking the railroads—doing all this work for consumers who did not need it as much as those experts thought and who did not have the purchasing power to pay for it.

Today in 1939 they tell you that conditions are not sound because we are trying to build the sort of houses and other things which our people really need, and because we are trying to make sure that our people have the purchasing power to pay for these things when they are built. They were unrealistic and theoretical when they were prophesying their new era in 1929. They are just as unrealistic and theoretical and wrong when they prophesy national bankruptcy in 1939.

To translate that into terms of the retail trade, the shelves of heavy industries and the shelves of retailers in 1929 were seriously over stacked. We did not think so then, perhaps, but we know it now. You know what happens to merchants of all kinds if they buy twice as much as the public can buy from them.

In the last analysis, therefore, consumer buying power is the milk in the coconut of all business.

Whether you are a big department store, or do business in a small way on the Main Street of a small town, your sales are dependent on how much money the average family in the community is earning. That is a homely way of putting it, but it is an eternal truth.

That is one reason why I have talked so much about the onethird of our population that is ill-clad and ill-housed and ill-fed. That third—forty million Americans- can buy very little at the stores and, therefore, I do not have to tell you that, their local stores can order very little at the factories. Some of my friends laugh at me when I stress that, laugh at efforts to establish minimum wages and to get more purchasing power for the lowest income groups. But the little and the big storekeepers understand, and know that they will sell more goods if their customers have more money. I want, and I think I have your help, to build up the purchasing power of the average of your customers and mine.

How shall we produce more customers with more money in their pockets?

One school of thought that we hear about is what I call the school of the gamblers. You find some of them in every community—as well as in Wall Street, and some of them, of the political variety, even in the halls of the Congress and State Legislatures.

That school is eager to gamble the safety of the Nation and of our system of private enterprise on nothing more than their personal hunch that if Government will just keep its hands off the economic system customers will just happen. I use the word "gamble" because there is no modern experience to support their theory.

In fact, modern experience denies their theory. Between 1925 and 1933—that is, March 4, 1933—the Government in this country of ours abandoned practically all concern for business and put into effect a tax system such as "Old Dealers" dream about. Customers and the buying power of customers were just left to happen. You and I know how many and how much happened.

These people who are playing the "it may happen" hunch today are actually the wildest-eyed radicals in our midst, because despite proved failures they want to gamble on their own hunch once more.

In the other school of thought are the conservative New Dealers. And here is the proof: We are the conservatives, because we simply cannot bring ourselves to take radical chances with other people's property and other people's lives.

Now the owner of a private business may have the legal right to take a long chance that may make or break his personal fortune. If he alone goes out of business, the economic system is not endangered.

But the people who run the three branches of our Government do not have the moral right to gamble with the well-being of one hundred and twenty million Americans. If millions of citizens starve, it is no answer to the starving to say that in the sweet by-and-by business, left to itself, will give them a job. Partisans are going around the country scaring parents, who are not starving, by telling them of an increased national debt which their grandchildren will have to pay. Certainly that is not as alarming as telling parents who are already starving that an untrammeled business setup will provide their grandchildren with food in 1989. Yet that is what the radical gamblers of business and politics might have to say if they were to put their theories into practice in 1941.

Not one of you who are good Americans and practical Americans believes that we could repeat the catastrophe of those years immediately preceding and following 1919, and emerge from it with our economic and social system unchanged. No business man, big or little, can fairly or patriotically ask his Government to take a course of action that runs that risk.

That is why our school of thought—the conservative school -holds the view that an intelligent nation should rest its faith in arithmetic rather than in a hunch.

Today, in order to provide customers for business, your government uses Government capital to provide jobs, to prevent farm prices from collapsing and to build up purchasing power when private capital fails to do it. For example, out of every dollar spent by the Federal Government to provide jobs, more than fifty cents passes over the counters of the retail merchants of America.

We also use what we call social legislation- such as legislation to encourage better pay for low-paid labor and thereby provide more and better customers for you; such as legislation to protect investors so that they may continue to be your customers without losing their savings in worthless stocks and bonds.

I wonder if you have any conception of the number of businessmen and bankers and economists whom I talk with briefly or at length in any given month of the year. I wonder if you have any conception of the variety of suggestions and panaceas that they offer me. I wonder if you know the very large percentage of them who honestly, and in good faith, and very naturally, think of national problems solely in terms of their own business. I wonder if you will be surprised if I tell you that most of them leave my office saying to me—"Why, Mr. President, I did not know about that. You have given me a new perspective. You have told me new things that are happening, new causes, new effects. I never thought of the problem in that way before."

I sit in my office with a businessman who thinks the surest way to produce customers is to balance the Federal budget at once. I say to him, "How?"

Sometimes he says, "How should I know? That is your job." Sometimes he says, "Cut the budget, cut it straight through 10 per cent or, 20 per cent."

Then I take from my desk drawer a fat book and it is apparent at once from his expression that he has never seen or read the budget of the Government of the United States.

He tries to change the subject but I hold him to it. I say, "This budget is not all of one piece; it is an aggregate of thousands of items. I will, therefore, have to cut every item the 10 per cent or 20 per cent you ask or, if I do not do that I will have to cut Some items very much more than 10 per cent or 20 per cent."

I point out the one and a half billion dollars for the Army and Navy. He pounds the desk and says in patriotic fervor, "Don't cut that item—not in these days."

I show him the item of a billion dollars for interest on the public debt. He owns some Government bonds, and he rejects any cut in his interest.

I show him the billion dollar item for war and civil service pensions. He says, "No, we couldn't get enough popular support to cut this."

I mention the billion dollars for running the permanent functions of the regular Government departments, and I tell him that. they cost less today than under my predecessor. He readily agrees that the postmen and the G-men and the Forest Service and the customs people cannot be curtailed. The only people he would sever from the payrolls are the tax collectors. (Laughter)

That gets us down to a few other big items— totaling over four billion dollars to take care of four major things—payments ;for the benefit of agriculture, Federal public works (including P.W.A., reclamation and flood control), work relief for the unemployed (including C.C.C.), and assistance for our old people.

My visitor agrees with me that we are going through a transitional period seeking the best way to maintain decent prices for the farm population of America, trying to make them better customers of businessmen, and that even if we have not yet found the permanent solution we have got away permanently from 5 cent cotton and 10-cent corn and 30-cent wheat.

I come to the public works item. He suggests that that can be cut 50 per cent. I happen to know that his community is working tooth and nail to get a grant for a much needed new high school, and that his county suffered severe property losses from recent floods. I suggest that we start public works economy right there and not give the grants and that we defer building the schoolhouses or the levee or the flood control dam for twenty or thirty years.

In every case I find what I suspected. His local Chamber of Commerce, his local newspapers are "yelling their heads off" to have those projects built with Federal assistance. And I say to him: "Consistency, thy name is geography. You believe with the United States Chamber of Commerce that Federal spending on public works should cease- except in your own home town." (Laughter)

And then we come to the item of funds for work relief: there my visitor-customer makes a last stand. He wants that cut, and cut hard.

We agree that there are between three and four million American workers, who, with their families, need work to keep alive. I drive him to the inevitable admission that the only alternative to work is to put them on a dole.

That is where I make a stand.

I tell my visitor that never so long as I am President of the United States will I condemn millions of men and women to the dry-rot of idleness on the dole; never condemn the business enterprise of the United States to the loss of millions of dollars worth of customer purchasing power; never take the terrific risk of what would happen to the social and economic and political system of American democracy if we foisted on it an occasional market basket of groceries instead of the chance to work.

I well know the difficulties and the costs of a work policy.

I do not have to be told by any Congressional Committee or any United States Chamber of Commerce that 5 per cent of the projects are of questionable value—I know it. Or that 5 per cent of the people on relief projects ought not to be on the rolls—I know that too, and so do you. But when you think of nearly three million men and women scattered over all of the forty-eight states and all of the thirty-one hundred and some odd counties in America, I am proud of the fact that 95 per cent of the projects are good, and that 95 per cent of the people are properly on the rolls. And I know that the American people cannot be fooled into believing that the few exceptions actually constitute the general practice.

My friend across the desk murmurs something about old age pensions. He is a bit half-hearted about this, and he finally admits not only the need for dignified support of old age, given and accepted as a new American right, for all time to come from now on, but he realizes that over a period of years this support will have to be extended rather than reduced. You and I and all Americans agree that we must work out this problem for the old people of our Nation.

And so, at the end, my visitor leaves convinced, in nine cases out of ten,. that I am not a complete and utter fool, and that balancing the budget today, or even next year, is a pretty difficult if not an impossible job.

And now we come to the other side of the budget, the receipts:

A few words about Federal taxes:

Federal taxes, I have discovered after about a quarter of a century in public life of one kind or another interspersed with various forays into business and the law, fall into three principal categories: consumer taxes like the taxes on cigarettes and gasoline and liquor; personal taxes, like the personal income taxes and the inheritance taxes; and, finally, taxes on corporations. Together, they yield nearly six billion dollars.

For good sound business reasons two things seem clear to me.

First, especially in view of the unbalanced budget, and in order to bring it more rapidly into balance, we ought not to raise less money from taxation than we are doing now.

You have with you a very delightful gentleman, a great merchant of London, Mr. Selfridge. I hope very much that you will put him into a corner and ask him about the taxis that he pays without a murmur to keep England afloat.

Secondly, it would be bad for business, to shift any further burden to consumer taxes. The proportion of consumer taxes to the total is high enough now. Remember, as businessmen and as retailers, that any further taxes on consumers, like a sales tax, mean that the consumers can buy fewer goods at your store.

Therefore, I want to leave the proportion between these three groups of taxes just where it is today.

That means that if we reduce so-called deterrent taxes on business corporations, we must find substitute taxes to lay on business corporations. That language is as plain as an old shoe. Let me give you an example of what I call making a mountain out of a mole hill. There is a great hullabaloo for the repeal of the undistributed earnings tax. You would think that this was the principal deterrent to business today. Yet it is a simple fact that out of one billion one hundred million dollars paid to the Federal Government by corporations, less than twenty million dollars comes to the Government from the undistributed earnings tax—less than 2 per cent of the total.

Let me proceed. I am wholly willing to have this twenty-million-dollar tax, which is less than 2 per cent of the total, wholly repealed on two simple conditions, which are based not on whim, not on hunch, but on principle.

The first is that this twenty million dollars shall be raised by some other form of tax against corporations and not against other groups of taxpayers, and that it shall be raised in such a way that it will be paid by the twenty-eight thousand bigger corporations, earning more than $25,000 a year, and not by the one hundred and seventy-five thousand little corporations that earn less than that sum.

The second condition is that in the repeal of this tax we shall not return to the old tax evasion loophole by which a very small group of people with incomes in the very high brackets were able, until two years ago, to leave their profits in closely held corporations, thus avoiding the full rates of the higher brackets on their personal incomes. It seems to me that patriotic people everywhere will not want to go back to that old pernicious habit.

I have talked with you at some length about the radicals who have the hunch that we ought to go back to the conditions of 1929; about performing a major operation by amputating present functions of Government; and about the efforts of some who would reduce corporation taxes and add to consumer taxes.

But I would not have you believe that the conservative attitude of this Administration plans as any permanent part of our American system an indefinite continuation of excess of out-go over cash receipts.

This week is dedicated by the opponents of the Administration to merchandising horror about the national debt. (Laughter)

We are having a National Debt Week like a National Cleanup and a National Paint-Up Week. (Laughter)

Let us talk about the debt in businessmen's terms.

In the first place, a nation's debt, like the deposit liability of a bank, must be considered in relation to its assets.

A large part of the Government debt is offset by debts owed to the Government—loans of many kinds made on a business basis by the R.F.C. and the Farm Credit Administration, for example, loans that are now being repaid on schedule. Those assets are just as sound as the loans made by the bankers of the country.

Another portion of the national debt is invested in federally owned enterprises, like Boulder Dam, which is finished, and Bonneville Dam, which is finished, and Grand Coulee Dam, a great irrigation project where we hope to put the Dust Bowl farmers, which will be finished in another year or so—projects which are paying out and will pay out, principal and interest, over a period of years.

A third part of the debt has been invested in works like flood control dams and levees, to save us from heavy future losses. They will pay for themselves in a very few years by eliminating annual property damage which each year has run into hundreds of millions of dollars—pay by the saving of taxable values which otherwise would have floated off down stream.

The next thing to remember about the debt is that Government, like businessmen, is investing in order to create a higher volume of business income and, therefore, a bigger net yield for Government and for business. National income will be greater tomorrow than it is today because Government has had the courage to borrow idle capital and put it and idle labor to work.

The year before I took office, 1932, our national income was thirty-nine billions. In 1937 it got up to sixty-nine billions. In 1938 it went back almost to sixty-two billions. Today it is running at the rate of better than sixty-five billions. At eighty billions-and this is an eighty-billion-dollar country—the income from present taxes will be more than sufficient to meet expenditures on the present scale. Actually, when that time comes, the expenditures will be less because our relief bill will be lowered.

Today with no danger of surplus of goods overhanging the market—just because we have tried to keep consumer purchasing power up to production—the Nation is in an excellent position to move forward into a period of greater production and greater employment. That is my sincere belief and I believe that it is your belief too.

When, at the end of this famous week we are getting into, you see all the crocodile tears about the burden on our grandchildren to pay the Government debt, remember this:

Our national debt after all is an internal debt owed not only by the Nation but to the Nation. If our children have to pay interest on it they will pay that interest to themselves. A reasonable internal debt will not impoverish our children or put the Nation into bankruptcy.

But if we do not allow a democratic Government to do the things which need to be done, and if we hand down to our children a deteriorated nation, their legacy will be not a legacy of abundance or even a legacy of poverty amidst plenty, but a legacy of poverty amidst poverty.

Don't you agree that it is better to work unitedly to balance national income and national out-go at a level where Government can do the things that have to be done to preserve our people and our resources, than to play the speculative hunch and withdraw Government from lending the investment, from conserving property and from providing work for our capital and our people, in the hope that in some mysterious way a miracle will occur—a miracle which all our experience under modern conditions has proved impossible?

I keep saying, "Do not lose sight of the forest because of the trees." Let us always distinguish principles and objectives from details and mechanics. You cannot expect this Administration to alter the principles and objectives for which we have struggled for more than six years.

But if you approve of the purposes that lie behind our policies, but believe our operating methods can be improved, then your help and your counsel are welcome—doubly welcome in this Administration. That relates to the details of taxation, the details of relief, the details of every administrative branch of the Government in Washington and in every State.

If I have spoken to you seriously tonight, it is because I believe that you, too, are thinking of the well-being of every man, woman and child in our country and that you go along with me in every effort that I can make for the preservation of world peace and for the preservation of domestic peace- not merely an armed peace which foregoes war for the moment, but a peace that comes from a knowledge, both at home and abroad, that there will be no further acts of aggression on the part of nations, on the part of groups or on the part of individuals. You think, rightly, of profits in your own business. So does every other American. So do I. But we are not ruled by the thought of profits alone. More and more we seek the making of profits by processes that will not destroy our fellow men, who are our neighbors.

That is one of the functions of your Government. It seeks your cooperation in the extension of that ideal. It is open to your advice and your help, because it believes that its fundamental ideals and yours are the same.

That is why I came to you not in the spirit of criticism, not wielding a big stick, but coming with a simple plea for your assistance as American citizens in working out our common problems with good will and with the maintenance of the ideals of peace.