Business confidence, defined

Robert Higgs includes a lengthy excerpt from a 1939 book by Raymond Moley called After Seven Years. Moley was a close adviser to President Roosevelt, but became disillusioned during the early part of Roosevelt's first term. This excerpt is an excellent summary of how destructive to normal business uncertainty can be, specifically the kind of uncertainty inflicted by politicians.

Confidence consists, on the one side, of belief in the prospect of profits and, on the other, in the willingness to take risks, to venture money. In Harry Scherman’s brilliant essay on economic life, The Promises Men Live By, the term is, by implication, defined much as Gladstone defined credit. "Credit," Gladstone said, "is suspicion asleep." In that sense, confidence is the existence of that mutual faith and good will which encourage enterprises to expand and take risks, which encourage individual savings to flow into investments. And in an age of increasing governmental interposition in industrial operations and in the processes of capital accumulation and investment, the maintenance of confidence presupposes both a general understanding of the direction in which legislative and administrative changes tend and a general belief in government’s sympathetic desire to encourage the development of those investment opportunities whose successful exploitation is a sine qua non for a rising standard of living.

This, Roosevelt refused to recognize. In fact, the term "confidence" became, as time went on, the most irritating of all symbols to him. He had the habit of repelling the suggestion that he was impairing confidence by answering that he was restoring the confidence the public had lost in business leadership. No one could deny that, to a degree, this was true, The shortsightedness, selfishness, and downright dishonesty of some business leaders had seriously damaged confidence. Roosevelt's assurances that he intended to cleanse and rehabilitate our economic system did act as a restorative.

But beyond that, what had been done? For one thing, the confusion of the administration's utility, shipping, railroad, and housing policies had discouraged the small individual investor. For another, the administration's taxes on corporate surpluses and capital gains, suggesting, as they did, the belief that a recovery based upon capital investment is unsound, discouraged the expansion of producers' capital equipment. For another, the administration's occasional suggestions that perhaps there was no hope for the reemployment of people except by a share-the-work program struck at a basic assumption in the enterpriser’s philosophy. For another, the administration's failure to see the narrow margin of profit on which business success rests — a failure expressed in an emphasis upon prices while the effects of increases in operating costs were overlooked — laid a heavy hand upon business prospects. For another, the calling of names in political speeches and the vague, veiled threats of punitive action all tore the fragile texture of credit and confidence upon which the very existence of business depends.

The eternal problem of language obtruded itself at this point. To the businessman words have fairly exact descriptive meanings. The blithe announcement by a New Deal subordinate that perhaps we have a productive capacity in excess of our capacity to consume and that perhaps new fields for the employment of capital and labor no longer exist will terrify the businessman. To the politician, such an extravagant use of language is important only in terms of its appeal to the prejudices and preconceptions of a swirling, changeable, indeterminate audience. To the businessman two and two make four; to the politician two and two make four only if the public can be made to believe it. If the public decides to add it up to three, the politician adjusts his adding machine. In the businessman's literal cosmos, green results from mixing yellow and blue. The politician is concerned with the light in which the mixture is to be seen, the condition of the eyes of those who look.

Mutual misunderstanding and mutual ill will were, of course, unavoidable in the circumstances, and the ultimate result was a wholly needless contraction of business [in 1937-38] — a contraction whose essential nature was so little understood that it was denounced in high governmental quarters as a "strike of capital" and explained as a deliberate attempt by business to "sabotage" recovery.

I've argued in the recent past that the worst thing governments can do at this point in a period of economic upheaval is to introduce additional political uncertainty.