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Committee on Economic Security


Unpublished CES Studies

Volume VI. Social Insurance

J. Economic Reform and Security Proposals


Wilbur J. Cohen

October 10, 1934

The Deane plan {1} is based on the fundamental proposition that there must be a "sound and scientific approach to the problem of distributing purchasing power." While the author of the plan makes no critique of the general distribution of purchasing power in our economic system, as have other recent writers, nor does he attribute the cause of the depression to inadequate purchasing power, he does believe that lack of purchasing power intensifies depression and that consequently the injection of purchasing power during depression will bolster up demand and production.

The p1an is based on "engineering technique" which is automatic and self-regulating and would permanently eliminate involuntary unemployment and sustain purchasing power.

The plan is based on taxing overtime. An employer would pay double for all overtime worked by his employees; one-and-one-half of this would go to the employee as compensation, the other half to a fund for supplemental compensation to employed and unemployed during the depression.

The two objectives of the plan are (1) the double overtime payment would act as a powerful incentive to put more men to work during the upswing of the cycle and keep men at work, and (2) the funds accumulated during prosperity when distributed during the downswing of the cycle would bolster up purchasing power and mitigate the intensity of the depression.

The most vulnerable aspect of The Deane Plan is in its contention that its immediate enactment would "induce new production and increase hours of employment immediately." The author of the plan states:

"Based on these assumptions careful calculations indicate that not over Two Billion Dollars would be required to bring us back to the TEN YEAR AVERAGE of unemployment, at which time Premium Revenue. would begin to refund the borrowings of the Insurance Fund."

These assumptions are very questionable. There is no calculation to show that enough purchasing power would be distributed to either bring employment back to the ten year average or absorb the total number of unemployed.

The crucial problem of today is that of technological unemployment and there is every evidence to believe that a return to the ten year average of weekly employment would still leave millions unemployed.

Independent estimates made by Stuart Chase and the American Federation of Labor indicates that hours of work would have to be curtailed below 30 hours a week to furnish employment to those now unemployed. Production per man-hour has so increased that previous average hours of work will not take care of those total unemployed.

The plan, at first, seems to be based on accumulation of funds during prospertiy for distribution during depression. However, it is claimed that by borrowing money now from the federal, government to pay supplemental compensation employment could be brought back to the ten year average.

Assuming this, there are still obstacles to the plan. It is no advance over present day methods of government borrowing for relief and recovery. The vast funds expended have not brought employment back to the ten year average. This indicates one limitation of the purchasing power principle as a recovery factor. Furthermore, under the borrowing feature employees would have no sense of security that they would receive funds or employers would have no guarantee that would be distributed to bolster up demand and production. The prospective borrowing during the depression would be done too late and at an inopportune time.

There is a great difference in taking funds accumulated during a prosperity period and injecting them into a succeeding depression and that of accumulating funds during prosperity to pay for a preceding depression. In the first instance a credit is being accumulated; In ,the second, a debt is being paid. The diversion of funds to those holdingthe securities for the depression expenditures only accentuates the maladjustment between investment and consumers' funds.

If the plan is successful in getting employers to reduce their hours of work instead of bearing the double rate for overtime, it is difficult to see how adequate reserves can be built up to either pay past debts or future costs during the succeeding depression.

All cyclical fluctuations of business are not only a national occurence but international, and are caused, in great part, by factors of international trade and monetary policies, which are independent of any one country's recovery program. This point should be stressed in studying The Deane Plan. The effectiveness of the plan's mitigation of the intensity of depression would be limited by certain factors which are not directly related to national purchasing power.
{1} See The Deane Plan by Albert L. Deane., 1775 Broadway, New York City; "Double Time--The Deane Plan," in 41 American Federationist 941 (September 1934)
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