Carroll Quigley - Tragedy and Hope - A History of the World in Our Time

In this way, the problem of increasing disparity in the distribution of national income leads to a single result (decline of investment relative to savings), whether the situation is left subject to purely economic factors or the government takes steps to decrease the disparity. The only difference is that, in the one case, the decline in investment may be attributed to a lack of consumer purchasing power, while, in the other case, it may be attributed to a “killing of incentive” by government action. Thus, we see that the controversy which has raged in both Europe and America since 1932 between progressives and conservatives in regard to the causes of the lack of investment is an artificial one. The progressives, who insisted that the lack of investment was caused by lack of consumer purchasing power, were correct. But the conservatives, who insisted that the lack of investment was caused by a lack of confidence, were also correct. Each was looking at the opposite side of what is a single continuous cycle.

This cycle runs roughly as follows: (a) purchasing power creates demand for goods; (b) demand for goods creates confidence in the minds of investors; (c) confidence creates new investment; and (d) new investment creates purchasing power, which then creates demand, and so on. To cut this cycle at any point and to insist that the cycle begins at that point is to falsify the situation. In the 1930’s the progressives concentrated attention on stage (a), while the conservatives concentrated attention on stage (c). The progressives, who sought to increase purchasing power by some redistribution of the national income, undoubtedly did increase purchasing power under stage (#), but they lost purchasing power under stage (c) by reducing confidence of potential investors. This decrease of confidence was especially noticeable in countries (like France and the United States) which were still deeply involved in the stage of financial capitalism.

It would appear that the economic factors alone affected the distribution of incomes in the direction of increasing disparity. In no major country, however, were the economic factors alone allowed to determine the issue. In all countries government action noticeably influenced the distribution. However, this influence was not usually the result of conscious desire to change the distribution of the national income.

In Italy the economic factors had relatively free rein until after the creation of the corporative state in 1934. The effect of government action was to increase the normal economic tendency toward an increasing disparity in distribution of the national income. This tendency had been allowed to work from an early period until the end of the war in 1918. A drastic effort by Leftish influences in the period 1918-1922 resulted in government action which reversed this tendency. As a result, a counterrevolution brought Mussolini to power in October 1922. The new government suppressed those government actions which had hampered the normal economic tendency, and as a result the trend toward greater disparity in distribution of the national income was resumed. This trend became more drastic after the creation of the dictatorship in 1925, after the stabilization of the lira in 1927, and after the creation of the corporative state in 1934.

In Germany the changes in distribution of the national income were similar to those in Italy, although complicated by the efforts to create a social-service state (an effort going back to Bismarck) and by the hyperinflation. In general, the trend toward increasing disparity in distribution of the national income continued, less rapidly than in Italy, until after 1918. The inflation, by wiping out unemployment for the lower class and by wiping out the savings of the middle class, created a complex situation in which the wealth of the richest class was increased while the poverty of the poorest class was reduced, and the general trend toward increased disparity in income was probably reduced. This reduction became greater under the social-service state of 1924-1930, but was drastically reversed because of the great increase in poverty in the lower classes after 1929. After 1934 the adoption of an unorthodox financial policy and a policy of benefits to monopoly capitalism reinforced the normal trend toward increasing disparity in distribution of income. This was in accord with the desires of the Hitler government, but the full impact of this policy was not apparent on the distribution of incomes until the period of full employment after 1937.

Until 1938 Hitler’s policy, although aimed at favoring the high-income classes, raised the standards of living of the lower-income levels even more drastically (by shifting them from unemployment with incomes close to nothing into wage-earning positions in industry) so that the disparity in distribution of income was probably even reduced for a short-run period in 1934-1937. This was not unacceptable to the high-income classes, because it stopped the threat of revolution by the discontented masses and because it was obviously of long-run benefit to them. This long-run benefit began to appear when capacity employment of capital and labor was achieved in 1937. The continuance of the policy of rearmament after 1937 increased the incomes of the high-income groups while decreasing the incomes of the lower-income groups and thus served, from 1937 onward, to reinforce the normal economic tendency toward an increasing disparity in the distribution of incomes. This, of course, is one of the essential features of a Fascist government, and is obvious not only in Germany since 1937, in Italy since 1927, but also in Spain since 1938.

In France and Britain, the trend toward increasing disparity in the distribution of incomes was reversed in recent decades, although in Britain before 1945 and in France before 1936 there was no conscious effort to achieve this result.

In France disparity increased until 1913, then decreased chiefly because of the increasing power of labor unions and actions of the government. The inflation and resulting devaluation badly injured the incomes of the possessing class, so that the disparity became less disperse; but the whole level of living standards was declining, savings were declining, and investment was decreasing more rapidly than either. This process became worse after the depression hit France about 1931 and even worse after the Popular Front adopted its welfare program in 1936. This decline of the general economic level continued quite steadily except for a brief revival after 1938, but the disparity in the distribution of incomes very likely became greater in 1940-1942.

In Britain the disparity became greater, but at a slower rate (because of labor unions), until the First World War, and then almost stabilized, increasing only slightly, because of the severe efforts made in Britain to pay for much of the war’s cost by taxation. The decrease in upper-level incomes by taxation, however, was more than overcome by the decrease in lower-level incomes from unemployment. This static condition of the disparity in distribution of the national income doubtless continued until after 1931. Since this last date the situation is confused. The revival of prosperity and the rapid development of new lines of activity combined with the peculiarities of the incidence of British taxation have likely reduced the disparity, but, until 1943, not by anything approaching the degree which one might expect from a first glance at the problem. Since 1943 and especially since 1946 the tax schedule and the government’s social welfare program have drastically reduced the disparity in distribution of income and have also cut investment and even savings by private sources to a considerable degree.

It would seem that in the twentieth century the disparity in the distribution of national income, which had been increasing for generations, slowed down and reversed as a result of government activities. This turning point appeared in different countries at different dates, probably earliest in Denmark and France, later in Germany and Italy, latest in Britain and Spain. In France and Britain the tendency was reversed by the action of the government, but in a hesitant fashion which was not able, in any decisive way, to overcome the sag in private enterprise by any upswing in government enterprise. In Germany, Italy, and Spain the governments fell into the hands of the possessing classes, and the desires of the peoples of these countries for a more equitable distribution of incomes were frustrated. In all three types of conditions, there was a decline in real economic progress until after 1950.