Once the target for federal job creation was met, these workers would be assigned to various useful projects: “light” construction (chiefly of roads and public buildings), social services (especially in the realm of public health and education), arts projects, and social science surveys. FERA jobs were to include administrators for these programs as well.
The notion that the government should provide jobs first and worry about what the jobs produced afterward was a major departure from traditional ideas about public works. A long-standing tradition in American political economy since the eighteenth century, public works were usually created by local governments in times of economic decline in the hopes of absorbing some of the excess unemployed.55
Direct job creation had a different intellectual root. It emerged not among public works experts, but rather from within the brain trust of poor-relief agencies and the social workers who staffed them. From the beginning, FERA administrators had experimented with providing relief in the form of wages for work instead of handing out food baskets or grocery orders (“in-kind relief”) to the destitute unemployed. In October 1933, FERA administrators had pushed their experiment further by establishing the CWA, which offered jobs to 4.26 million unemployed without requiring workers to take the humiliating step of registering as paupers under relief regulations.56 Thus, by the time FERA officials walked into the first meeting of the CES, they already had the kernel of a program as well as a year and a half of experience.
The Economic Theory Behind the Policy
Advocates of direct job creation saw their program as grounded in a particular school of economic thought. In an internal FERA memo titled “A National Program for Economic Security,” Jacob Baker, the FERA assistant administrator for policy and one of the chief intellectual architects of FERA’s direct job creation program, laid out the essentials of their approach. It began by analyzing the causes of the Great Depression. He argued that the economic collapse was ignited by mass unemployment and evaporating demand as opposed to various other theories that ranged from monetary deflation or economic imbalance between agriculture and manufacturing to tariffs restricting trade or a lack of “business confidence.” Baker’s report opened with a comprehensive survey of employment, unemployment, and relief statistics collected by FERA bureaucrats and then focused on the ten million unemployed as the chief economic problem. In Baker’s view, “There can never be recovery as long as there are economic strata without money to buy and security to spend…. [T]hey cannot contribute to recovery, their support constitutes a constant deflationary drain.”57
Baker justified his arguments by appealing to “the purchasing power theory of development and maintenance of prosperity” that was percolating within the New Deal.58 The economy had collapsed due to a lack of purchasing power. There would be no escape from the downdraft of the Depression until the government enabled the public to get back to its normal spending patterns. As he put the matter, “Government money shall be spent when private money stops.”59 This economic theory particularly emphasized that pump priming had to be directed toward specific programs rather than spread across the normal areas of government activity: increased spending would only work by redistributing wealth to “the lowest economic strata because it is there that occurs automatically the greatest number of respendings.”60 Direct job creation advocates argued that the New Deal had been overly cautious to date, not giving enough money to working-class consumers to produce a sizable-enough multiplier effect, and they called for a dramatic increase in effort; as Baker put it, “The flow should be free as long as the pressure of government spending is needed.”61
FERA officials focused on more than levels of aggregate spending. They emphasized the form as well as the quantity of spending. As Baker and his colleagues saw it, countercyclical spending would be wasted if it were to be spent solely on direct relief (which they understood would be the most efficient means of income transfer). These relief administrators believed that direct relief “destroys morale, it returns nothing to the community [and] contributes little to recovery except that it keeps people alive.”62 FERA officials did not dislike relief solely because of traditional American beliefs about dependency and charity, or because of liberal objections to the stingy, temporary, and degrading administration of local relief, but also because of its economic effects. With poor relief, “none of the money is paid back and not nearly enough is produced by its use.”63 Pump priming through direct relief produced little in the way of multiplier effects due to the low levels of consumption it generates (especially when it is “in kind” rather than “in cash”). Baker called outright for the abolition of direct relief as an integral part of any program for economic security, a call echoed by his peers in FERA.
In its place, FERA officials argued that direct job creation would be the most effective means of stimulating countercyclical spending, and thus it would simultaneously provide for the poor and generate demand that would lead to greater economic security. By providing work at wages that ranged from 26 to 70 cents an hour, direct job creation would pull millions out of outright destitution, millions who would promptly add their new wages to existing consumer demand. The return on wages from taxes paid by newly employed workers would reduce the final cost of the program; most important, the publicly employed would, with their labor, “create new national wealth … more important than any saving.”64 The goods these workers would produce, from housing and public buildings to highways, streets, and road gradings, and infrastructure for utilities such as electricity, water, and sewage, would themselves stimulate production as well as consumption. FERA enthusiasts of direct job creation could be seen as proto-Keynesians, plain and simple. However, their policy vision went beyond mere countercyclical spending to a broader restructuring of the American economy, in which direct job creation would play a central role.
This vision emanated from work done collaboratively between this brain trust and a private firm of economic analysts from Manhattan’s Financial District.65 Lewis Baxter, the executive secretary of Economic Security Associates, devised a chart (see Figure 1) that displayed the American economy as a Mobius strip, with public and private economies as intertwined halves of a whole, linked by flows of taxation, interest, investment, and, above all, purchasing power.66 By adjusting a slide that denoted the size of the federal budget, the reader saw that increasing federal outlays on direct job creation reduced unemployment, increased production, and expanded purchasing power, thus repaying the cost of the program by increasing personal and corporate incomes and thus taxation, and increasing overall levels of economic production, as long as “universal useful employment based on assured jobs in public service” could be assured.67
Baxter’s model suggested a reconceptualization of the role of government in the American economy that went well beyond emergency measures during a catastrophic downturn: “Government activities constitute, in effect, an auxiliary industry,” he argued, “which might always utilize advantageously the entire labor surplus.”68 This auxiliary industry produced goods and services just as private-sector industries did, and it had its own rates of return on investment and labor. In this model, the old idea of government spending as a drain on private economic activity and hence a loss to the overall economy was turned on its head. Instead, unemployment would be abolished by government fiat. In one hypothetical recession, he speculated, “Decreased private activities have released 1,200,000 workers … but under this plan, expanding public activities would promptly take on 1,200,000 extra men.” Government-created jobs would maintain “the required equation between total workers and total available jobs. There would be no labor surplus to start the ‘vicious cycle’ of a depression.”69 Direct job creation would be the permanent solution to any cyclical economic crisis, periodically stepping in to counteract recessions and keep the economy growing at a stable rate.
Figure 1. Baxter’s vision of the American economy. From Lewis Baxter, “National Balance Sheet,” undated, Staff Subject Files
