American Economic Association

Public Works in the Depression

Author(s): Emile Benoit-Smullyan
Source: The American Economic Review, Vol. 38, No. 1 (Mar., 1948), pp. 134-139
Published by: American Economic Association
Stable URL: http://www.jstor.org/stable/1801945
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134

THE AMERICAN

ECONOMIC REVIEW

of a tradition against continuous borrowing from the central bank, reinforcement of this tradition by "direct pressure," and lack of use of other central
bank powers to maintain the volume of bank reserves.
As a final comment in this dissent I would like to refer to the concluding
part of Professor Fellner's review in which he expresses his own belief in the
great value of compensatory fiscal policy as an anti-depression technique
and states that its possibilities are seriously underestimatedif not disregarded.
This remedy for periods of severe unemployment has been popular with
economists in recent years; but has been proposed without a reasonable
scrutiny of the factual evidence respecting the conditions precedent to serious
lapses from full employment in the past. Such examination of the relevant
data as I have been able to make leads to the conclusion, in line with traditional theory, that the most vital condition for maintenance of a high level
of employment and output is a reasonable rate of growth in the nation's
money instead of the erraticism which has plagued us throughout the history
of our nation. A compensatory fiscal policy, carried out in a manner producing appropriate effects on the quantity of money, may be an antidote
to a dose of improper monetary policy; but with proper monetary policy
exercised through ordinary central bank operations, an antidote will not be
required.
CLARK WARBURTON*
* The author is principal economist, Federal Deposit Insurance Corporation. The views
expressed are his personal opinion.

Public Works in the Depression

The government's role as direct provider of jobs, especially during depressions, has often been exaggerated both by those who favor and by those
who oppose any strengthening of this role. Over the two decades of the
'twenties and the 'thirties, on the average less than 15.per cent of all goods
and services produced were bought by government. Nor did government expenditures on goods and services prove as readily expansible in the depression as some theories of economic stabilization would lead us to expect. The
data presented below do not support the view that expansion in public
works and in government employment can be expected of itself to "take
up the slack" in the event of severe declines in normal private employment
and production.
The impression is widespread that there was a considerable expansion of
public works during the last depression. Strangely enough there is no support for this assumption in the facts. Rather, if all public construction programs are included, even those based on work relief, there appears to have
been a sizable decline in public works expenditures. This decline was offset,
but not much more, by the non-construction work relief programs undertaken outside of the regular public works field.
These conclusions are based on the data presented in Table I. It will be
observed thiat from 1931 to 1938 inclusive, regular public works (public

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135

COMMUNICATIONS

TABLEI.-PUBLIC ANDPRIVATE
CONSTRUCTION,
WORKRELIEF,GOVERNMENT
EXPENDITURES
FOR GOODS AND SERVICES, AND PRIVATE INVESTMENT, 1929-1938
(In billions of dollars)
Regular
Public
Construction

Work

Relief
Constu
iConstrucConstructin
to
tiona plUS
Main-an
tenanceb)
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
1931-38 average
level .....

New

Work
Relief
aed
Wgs

Private
Constructoa
to

Expenditures
Gos for
anods

3.227f
3.648f
3.353f
2.418
1.743
2.085
2.089
2.884
2.756
2.812

.114
.578
.431
1.290
.895
1.337

.059
.132
.656
1.387
1.329
2.155
1.639
2.094

2.517

.580

1.181

Increase: 1931-38
level minus 1930
level ......................
Decline: 1930 level
minus 1931-38
level .....

Total

Total
Government

Servicese

Private
Investment
(Gross
Capital
Formatin)
tione)

8.587
5.902
3.944
1.861
1.383
1.775
2.282
3.194
4.135
3.608

11.0
11.2
11.5
10.2
9.1
10.8
11.9
12.6
13.6
14.4

17.6
12.1
6.4
2.2
3.3
5.3
6.7
10.0
11.6
7.7

2.785

11.7

6.25

..............................

.5

1.131

Decline: 1929 level

minus 1931-38
level ............
....................

..........

5.802

..........

11.35

Sources: Bureau of Labor Statistics, U. S. Department of Labor, and Bureau of Foreign

and Domestic Commerce, U. S. Department of Commerce.
a New public construction and new private construction, from
Bureau of Labor Statistics
(LS-45-3878), July 1, 1945.
b Maintenance from Survey of CurrentBusiness, August, 1939, p. 11.
? Work relief construction from Bureau of Foreign and Domestic Commerce, Department
of Commerce, Survey of Current Business, August, 1939, p. 13, Table 7.
d Work relief wages from Survey of Current
Business, April, 1944, p. 15, Table 15, liDe 7.
e Government expenditures, and private investment, from "Basic Facts on Employment and
Production," Senate Committee Print No. 4, Banking and Currency Committee, September 1,
1945, Table E4, p. 12.
f Total public construction for 1929, 1930 and 1931, from ConstructionActivity in the United
States, 1915-37, Department of Commerce, Bureau of Foreign and Domestic Commerce,
p.24.

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136

THE AMERICAN

ECONOMIC REVIEW

expenditures on new construction and maintenance, but not work relief)

averaged $1.130 billion a year less than the $3.648 billion level of public
works expenditure reached in 1930. (The level achieved in 1930 was based
in considerable part on 1929 appropriations.) Work relief construction
amounted to only $580 million a year when averaged over this eight-year
period and was, therefore, only half the size of the decline in regular public
TABLE II.-FEDERAL

AND STATE AND LOCAL EXPENDITURES

1930-38
ONCONSTRUCTION
(millions of dollars)
State and Local Construction

Federal Construction
Year
Year

1930
1931
1932
1933
1934
1935
1936
1937
1938
Total
Average 193138

IN'ew

Mi-Total Work
MainRelief
tenance

460
509
665
812
1,273
1,169
1,068

0
0
114
578
431
1,290
895
1,337
4,645

360
469
503
665
1,289
1,294
2,619
2,123
2,467
11,429

580

1,428

43
42
46
51
56
59
62

Federal
Construction

Total public construction in 1930

Total public construction in 1931-38
Ratio of federal to total public construction in 1930
Ratio of federal to total public construction 1931-38
Increase of federal construction, 1930 to 1931-38 average
Decrease of State and local public construction, 1930 to
1931-38 average

Maintenance

1,334
707
794
616
881
845
1,089

581
485
553
589
654
659
674

Total
State
and
Local
3,288
2,884
1,915
1,192
1,347
1,205
1,535
1,504
1,763
13,345
1,676

3,648
24,774
10 per cent
58 per cent
398 per cent
50 per cent

Source: Bureau of Foreign and Domestic Commerce, Survey of Current Business, August,
1939, P. 11.

construction. Total wages paid on all types of work relief, including nonconstruction projects such as the Works Project Administration art and
research projects, averaged only $1.181 billion a year during these years.
Even if we raise this by a substantial fraction to allow for work relief expenditures other than wages and salaries,' the total will not be so very much
larger than the decline of $1.131 billion in the average expenditures on
regular public construction.
1 For example, it is estimated that wages and salaries amounted to only 79.3 per cent of all
Civilian Works Administration expenditures. See Corrington Gill, "The Civil Works Administration," in Municipal Year Book, 1937, p. 419.

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COMMUNICATIONS

137

Work relief certainly made a negligible contribution toward offsetting

the enormous decline in private construction. New private construction
sank in the period 1931-38 to an average level $5.802 billion below the
$8.587 billion level achieved in 1929. A further indication of the relatively
small contribution of the work relief program may be provided by the fact
that, despite all the talk of tremendously expanded government expenditures, the 1931-38 level of government expenditures for goods and services
of all types (which includes work relief but not direct relief) rose only about
a half a billion dollars, or 5 per cent, above the 1930 level. This additional
half-billion dollars of government expenditure was dwarfed by the aforementioned $5.802 billion decline in the level of new private construction,
not to mention the $11.35 billion decline in the level of total private investment, comparing the 1931-38 average with 1929.
If these are the facts, how did the misconception as to the great expansion
of public works in the depression ever get started? Perhaps the most important factor here is the very great expansion in the share of public works
financed by the federal government.This is shown in Table II. The average
public works expenditures of state and local governments during the 193138 period fell off 50 per cent from the 1930 level. In order to fill even a part
of this gap it was necessary for federal construction (including work relief
construction) to expand nearly 400 per cent. Whereas federal construction
had accounted for only 10 per cent of all public construction in 1930, it constituted about 58 per cent of all public construction in the period 193138.
This dramatic expansion of federal construction gave rise to many new
problems. Much of the construction was necessarily of a new type. A good
deal of it was in the form of work relief and raised difficult problems concerning relief standards and standards of efficient performance. Since no
provision had been made for advance planning of worthy federal projects
on so large a scale, hasty improvisation was often necessary. The distribution of the projects among the states and localities raised political questions,
especially since it was desired to get as much decentralization and local
cooperation as possible. Some of the individual projects like those connected with the Tennessee Valley Authority were of such vast size and
unusual kind as to create an exaggerated popular idea of the ambitious
character of the total public works program being undertaken. But the
most important factor was probably that the program was being financed
by federal funds, and hence was kept in the public eye. No such national
attention was focussed on the considerably larger public works program in
earlier years because its costs were scattered among 48 states and innumerable local government units.
One final factor that helps to account for the exaggerated idea of the size
of the public works program undertaken during the depression is that
during those years substantial deficits were incurred in the federal budget.
It was hastily assumed by many persons that such deficits must have been
incurred solely as a result of a very great expansion in the volume of public
works. Actually, however, these deficits cannot be wholly explained without

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138

THE AMERICAN

ECONOMIC REVIEW

reference on the one hand to the volume of federal non-construction expenditures required to support direct relief and general salvaging operations,
and on the other hand to the decline in federal revenues despite the increases
in tax rates. The need for additional relief, and the shrinkage of the tax
base, would occur in any depression, and would be more rather than less
acute if no federal efforts were made to offset declines in the public works
activity of the State and local governments.
While the average volume of public works declined rather than increased
during the depression years, the number of regular government workers did
increase, but not nearly to the extent that many people suppose. The 193138 average of employment at all levels of government was only 400 thousand
or 13 per cent, above the 1929 level.2 This includes personnel administering
relief and recovery programs as well as other government programs, but
does not, of course, include non-administrative workers on public works and
work relief programs referred to above.
The federal public works program actually undertaken in the depression
was far too small to offset the decline in private expenditures. Parts of this
program were, nevertheless, subjected to severe criticism-whether or not
justified-for being competitive with private enterprises or for being unessential, and hence wasteful of public funds. A public works program substantially larger than the one undertaken in the depression would be even
more exposed to this sort of criticism. Careful advance planning would help,
but if the program were large enough, it could hardly be invulnerable in this
respect. Moreover, the larger the program became the greater would be the
difficulty experienced in starting and stopping it quickly enough to make a
maximum contribution to economic stability.
From the postulate that public works cannot be counted upon to stabilize
the economy some persons have drawn the pessimistic conclusion that
government cannot properly assume any major obligation to aid in maintaining economic stability and high levels of employment. Our government
has refused to accept this conclusion. By the terms of the "Employment
Act of 1946," the federal government accepts the responsibility "to use all
practicable means consistent with its needs and obligations and other essential considerations of national policy, with the assistance and cooperation of industry, agriculture, labor, and State and local governments, to
coordinate and utilize all its plans, functions, and resources, for the purpose
of creating and maintaining, in a manner calculated to foster and promote
free competitive enterprise and the general welfare, conditions under which
there will be afforded useful employment opportunities, including selfemployment for those able, willing, and seeking to work, and to promote
maximum employment, production, and purchasing power."
In discussing the policies needed to implement this obligation, the
President in the first of the annual Economic Reports required by the act,
cautioned against "an overemphasis upon the prospects of stabilizing our
2 See "PublicEmploymentand Pay Rolls in the United States, 1929-39," Mo. Lab. Rev.
(Feb., 1945),TableI, p. 245.

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COMMUNICATIONS

139

whole economy through the bold use of public works."3 Recognizing that
"there are valid reasons why public works cannot accomplish as much
toward stabilization as some have supposed,"3 he did not conclude that
government efforts to stabilize the economy would therefore be fruitless.
Instead, he called for the development of a wide variety of government
policies in the fields of taxation, monopoly, debt management, social
security, etc., designed to promote maximum employment, production
and purchasing power. Such policies would seek to maintain the level of
activity in all sectors of the economy including the consumer goods and
private capital goods industries. Implicit in this approach is the recognition
that by such measures the government may indirectly create many more
jobs than it can directly provide on public works and government payrolls.
By modifying the disposable incomes of individuals and businesses, and
their willingness to spend these incomes, such measures may profoundly
influence the volume of economic activity generated in the private sectorthe major sector-of our economy.
Recognition of the limitations of public works as a general economic
stabilizer need not, therefore, imply an abandonment of government
responsibility for the maintenance of adequate employment opportunity
and the promotion of maximum employment, production and purchasing
power. Rather, such recognition is an indispensable preliminary to the development of a well-rounded and realistic program by which this responsibility may be effectively discharged.
EMILE BENOIT-SMULLYAN*
3

TheEconomicReportof thePresidentto theCongress,January8, 1947 (Washington,1947)'

p. 28.
* The author is professor of economics and head of the department of economics at the
Associated Colleges of Upper New York. The article was written while he was associated with
the Department of Labor, but he bears sole responsibility both for the data presented and for
the conclusions drawn.

Balancing International Trade: A Comment on Professor Frisch's Paper

Professor Frisch's proposals1for a thorough study of balance of payments
broken down by countries and by currencieswill no doubt receive unqualified
support; and his suggestion to do this by means of a "trade matrix," or a
double entry table seems highly practical. It is not to these proposals, but
to the underlying theory and the conclusions on economic policy that are
derived from it, that this comment is directed.
I

"Discrimination" on the part of an importing country means to change the

import by a country, C, of a certain amount of commodities (say, x) from
the country of earlier preference (A) to another country (B). Such a shift
'Ragnar Frisch,"On the Need for Forecastinga MultilateralBalanceof Payments,"this
Review, Vol. XXXVII (Sept., 1947), pp. 535-51.

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