The Townsend Crusade

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    THETOWNSEND

    CRUSADE

    AN IMPARTIAL REVIEW

    of

    THE TOWNSEND MOVEMENT

    and

    THE PROBABLE EFFECTS OF THE

    TOWNSEND PLAN

    THE COMMITTEE ON OLD AGE SECURITY

    of theTWENTIETH CENTURY FUND, INC.

    NEW YORK

    1936

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    C opyright, 1936, by

    T w entieth C entury Fund, I nc.

    PRINTED IN THE UNITED STATES OF AMERICA

    All rights reserved. No part of this work

    may be reproduced without permission by

    the Twentieth Century Fund, Inc., except

    by a reviewer who quotes brief passages

    in a review of the book.

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    CONTENTSPage

    Chapt er I. The Townsend Movement 5

    TheOrigin of the Idea 5

    Congressional Hearings 7Popular Strength of the Movement 9

    Centralized Control 12

    Poll of American Institute of Public Opinion 14

    Chapt er II. Whatthe Townsend Pl an Proposes 16

    Claims of the Advocates of the Plan 17

    Acceleration of Business Through Forced Spending 19

    Ch apt er III. W h at W o u l d Pens ions Co st ? 21

    1. Pensions Under The Townsend Plan 21

    The Cost of Pensions 22

    The Cost of Administration 23

    2. Pensions of Smaller Amounts 26

    Cost of Pensions Under Various Conditions 26

    Ch apt er IV. T h e T o w n s e n d T axes 28

    1. Minor Taxes 29

    2. The Transactions Tax 29

    The Volume of Transactions 30

    Shrinkage of Transactions 31

    The Yield of Taxes 333. Effects of a Transactions Tax 35

    Who Pays the Tax? 36

    European Experience with Turn-over Taxes 37Effect on Prices 38

    Conclusions About the Transactions Tax 40

    Ch apt er V. E f f e c t sof Pens ionso n Busin ess 43

    1. The Myth of Velocity 43

    The Crux of the Townsend Argument 44

    Saving vs. Spending 45

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    4 CONTENTSPage

    Only Fiat Money Would Increase Velocity 48The Limitations of Plant Capacity 49

    2. What Happens to Employment 50

    Ch apt e r VI. T h e Co mmi t t e es Repor t 53

    1. Effects on National Prosperity 54

    2. The Transactions Tax 55

    3. Effects on Employment 584. Effects on Relief 59

    APPENDICES

    A. T h e O r ig in a l T o w n s e n d Pe t i t i o n 63

    B. T h e Revised M cG r o a r t y Bi l l 64

    C. Pr o babl e N umber of Pe n sio n e r san d Cost o f Pe n s i o n s 71D. E st imat ed Pr esent an d Fu t u r e T o t a l Po pu l at io n ,

    Pe r c e n t age o v e r 60 y ear so fage an d Pe r c e n t age o v e r

    65 y ear so fag e 73

    E. E st imat ed Yie l d o ft h e Su ppl e me n t ar y T axes Pr o po sed

    in t h e M cG r o a r t y Bi l l 74

    F. E st imat ed G r oss V al u eo f T r an sac t io n san d E st imat ed M a x i mu m T h e o r e t i c a l Yie l d o fa 2 per c e n t T r an sa c-

    t i o n s T a x , 1929 an d 1934 76

    G. Pr o babl e E f f e c t o fa 2 per c e n t T r an sac t io n s T ax o n

    t h e Re t ai l Pr ice sof Sel ec t ed Pr o d u c t s 88

    H . E x t r a c t sf r o mThe Townsend Plan 90

    I. Pr o babl e D i r e c t E f f e c t o n Un e mpl o y me n t o f Re t i r e -men t o n $200 M o n t h l y Pens ions o f C it i z en s o v e r 60

    y ear so fag e 92

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    Chapter I

    THE TOWNSEND MOVEMENT

    O proposal put before the American people in recentyears has had so wide an emotional appeal nor has so

    quickly enlisted vast multitudes of devoted followers as hasthe Townsend Plan. Although originally advanced as aneconomic measure the fervor of the Plans adherents hasendowed it with many of the attributes of a religious cause.

    In December 1933, when the petition to Congress for oldage pensions of $200 a month to be financed by a transactionstax was first circulated, Dr. Francis Everett Townsend was an

    unknown physician. Within a little over 2 years, he hadbecome the leader of an organized movement claiming, ac-cording to the New York Timesof April 5, 1936, more than3,500,000 paid members, who have contributed to the causeapproximately $1 million,a movement powerful enough tobe recognized as a definite political factor, and pledged to

    active participation in the coming congressional campaigns.No economic scheme which awakens such swift response ona scale of such magnitude should be unsympathetically orlightly dismissed. The plan merits analysis, first to appraisethe statistical soundness of the claims made for it and then todetermine the probable effects of its adoption. Even if the

    Townsend Plan does not survive a friendly study, the move-

    ment should be recognized as an expression of faith, widelyshared in this country, in the economic possibility of provid-ing adequate security in old age. The faith does not dependon the plan, however much the plan may have stimulated it.The belief in security in old age can well be called the mostwidely shared social doctrine in America today.

    The Origin of the Idea

    Dr. Townsend, then already retired and living near LosAngeles, lost most of his savings in the crash of 1929. So did

    5

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    6 THE TOWNSEND CRUSADE

    many other elderly persons. Dr. Townsend had to resume

    the practice of medicine and was employed to supervise thecare of indigent elderly persons in Long Beach. He is not aneconomist, but the plight of his patients set him to thinkingof some way which would save elderly persons from penuryafter devoting their lives in the main to rearing families. Healso had thought about taxation, and had come to the con-

    clusion that a tax on property was a social error, and that itwould be better to make taxation invisible and generalthrough an extension of the sales tax. These two lines ofspeculation came to a focus in the idea of a large pension forall persons over 60, to be paid out of the proceeds of a trans-actions tax.

    He relates that he was finally moved to do something

    about it by the sight of three old women sifting through thecontents of a garbage can a picture which provoked him intoindignation to the point of profanity. With a few dollars ofhis own money he ordered printed copies of the original peti-tion for $200 pensions, and advertised for volunteers to circu-late them. This original petition, reproduced in Appendix A,

    is the foundation of the Townsend movement. He beganwriting articles for the local newspapers, and within a fewweeks 90 per cent of the voters of the district had signed thepetition to their congressmen. The work soon overwhelmedhim and he rented deskroom in a real estate office. Heappealed to an old friend, a real estate dealer, Robert E.Clements, to join him. Mr. Clements at first demurred, be-

    lieving the $200 pension too high. But Dr. Townsend con-vinced him and they, with Walter L. Townsend, organizedOld Age Revolving Pensions, Ltd., incorporated in Californiain February 1934, on a nonprofitmaking basis. The peti-tions were already circulating in other parts of the country,and within a few months the campaign to organize Townsend

    Clubs throughout the nation was launched.The growth of the movement was fast. It is beside the

    purposes of this discussion to raise the point that unscrupulouspersons in some districts seized the opportunity thus presented

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    THE TOWNSEND MOVEMENT 7

    to make money for themselves. This does not materially

    reduce the significance of the fact that within 14 months itwas claimed by its supporters that the Plan had the backingof 3,000 Townsend Clubs, an average of nearly 7 to each con-gressional district in the country, the clubs at that time havinga minimum membership of 100, and a maximum up to 1,700.

    Congressional H earings

    Congressmen found themselves inundated with Townsendpetitions, and while they were inclined to be more perplexedthan anxious, in February 1935 they brought Dr. Townsendbefore the House and Senate Committees then studying thesocial security bills. Here Dr. Townsend told about hismembership, estimating an average of 150 in each club, or

    450,000 paid supporters, and predicted that 30,000,000 signa-tures would be obtained to petitions for enactment of theplan.

    Here, too, he unfolded his economic philosophy. He beganwith the contention that it is folly to practice an economy ofscarcity in a world of abundance, and followed this with theargument that his plan would take 4,000,000 old people outof employment and so make jobs for the unemployed. Heclaimed that by concentrating purchasing power in the handsof old persons not only would they be given a life of plenty,but giving it to them would speed up the turnover of money,create new purchasing power, and so build up the nationalincome to undreamedof heights. Before these Committees Dr.

    Townsend underwent exhaustive crossexamination. Mostof the technical questions he passed on to assistants. Thestatistical basis of the plan was analyzed, and while it becameclear that the leaders in the Townsend movement had onlyskimmed the surface, in their studies, it also was clear thatcongressmen, too, did not have available a thorough studyof business transactions, and could no more than guess whatthe yield of a transactions tax would be.

    Dr. Townsend found himself under attack from others thancongressmen, all of whom assured him that a 2 per cent tax

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    8 THE TOWNSEND CRUSADE

    on transactions would not yield enough to pay more than a

    fraction of the $200 pensions. It bespeaks his