Emil Lederer, Review of Economic Reconstruction, by the Columbia University Commission (1934)

Emil Lederer’s book review evaluates the Columbia University Commission’s Economic Reconstruction as a major argument for deliberate economic coordination. He endorses its rejection of automatic recovery while questioning whether its recommendations adequately address the investment difficulties exposed by technological change. The review moves from purchasing power and productive capacity through monetary policy, public works, wages, and international stabilization to a criticism of the report’s institutional proposals. Its central concern is whether an economy organized around existing corporations and financial institutions can translate increased technical efficiency into sustained production, employment, and consumption.

Lederer begins by reconsidering economists’ dismissal of purchasing-power arguments and technological unemployment. Persistent unemployment among skilled workers displaced by rationalization has forced a theoretical problem into view. Popular explanations may initially have been confused, but their formal refutation did not settle the structural difficulty they registered. A short-period approach reveals why productive capacity and effective demand need not adjust promptly to one another; invoking Say’s law cannot dispose of the problem. The commission’s description of a transition from scarcity to plenty therefore identifies an institutional failure to realize available productive possibilities, rather than a simple shortage of resources.

Lederer connects this diagnosis to business-cycle theory. Technical changes introduced during prosperity can disturb market equilibrium, produce falling prices and bankruptcies, and prevent technically available efficiency from being used. The crisis raises a question about the system’s capacity to withstand cumulative disruption:

This is the question of whether the existing economic system can survive such great shocks, and it is the merit of this report that it does not take this question as positively decided at the outset, as is so frequently done.

The mechanisms include monetary disturbances, inadequate entrepreneurial responses to interest rates, uncertain investment calculations, and competing corporate expansion plans. Competition among a few large producers also makes prices rigid at levels compatible with underused resources. Lederer consequently supports the report’s opposition to production-limiting provisions of the NRA: restricting abundance evades the problem of making abundance economically accessible.

The constructive alternative is a “moving equilibrium.” In a developing economy, stability requires income to expand with productivity while prices, costs, profits, debts, investment, and expenditure remain mutually compatible. These relationships cannot be secured simply by allowing prices to fall as efficiency rises. Nor does Lederer endorse mechanically restoring an earlier price level: rising prices indicate recovery only when increased demand produces them. The report’s preference for higher consumption incomes, especially wages, turns productivity growth into purchasing power. Its proposed monitoring of employment, profits, credit, securities, and trade reveals the breadth of the institutional commitment:

One could hardly speak out more decisively for management of the entire economy, and in fact the Report is one of the most radical pleas for a system of far reaching interventionism.

Lederer distinguishes this position from theories that locate the chief danger in excessive wages, capital consumption, or unemployment insurance. The report instead emphasizes overinvestment and profits that cannot readily find investment outlets. Public works and unemployment reserves should maintain the income stream during depression. Reserves must be prepared beforehand rather than extracted from already diminished incomes; idle capital or bank credit can support expenditure. The objection that public works exhaust a fixed capital fund is rejected, while their productive and stimulative effects distinguish them from relief payments alone.

Monetary reform remains subordinate to this wider reconstruction. The old gold standard constrains domestic stabilization and exposes countries to external deflationary pressures, but devaluation alone cannot restore activity when entrepreneurs scarcely demand additional money. Lederer qualifies the report’s comparison of Britain and the United States: American deflation might have been moderated by releasing gold, whereas Britain could have defended its former parity only through severe additional pressure. International monetary cooperation also requires settlement or cancellation of war obligations, easier trade, controls on capital movements, and domestic recovery. National stabilization is thus a prerequisite of international cooperation, not an endorsement of economic nationalism. The real choice is between national and international managed systems, rather than between management and automatic adjustment.

The review becomes more critical when it turns from objectives to instruments:

The problem of the establishment of a moving equilibrium is posed in the Report clearly; the detailed measures developed are correspondingly vague.

Corporations are themselves carriers of disturbance, so recovery cannot mean merely freeing existing economic forces. Yet proposals for corporate and banking control remain general. Lederer also challenges the assumption that restricting banks to short-term commercial lending prevents investment finance: such credit can become frozen when borrowers cannot replace it with savings.

His deepest objection concerns the availability of investment outlets. The report acknowledges a gap between savings and investment without fully confronting what that gap implies:

What is this gap, however, but a lack in investment possibilities?

If insufficient savings are excluded as the principal problem, technical advance may instead encounter too few new fields of production or temporarily closed foreign opportunities. A continuous demand for capital cannot simply be assumed. Lederer treats this as an unresolved implication of the report’s own emphasis on expanding consumption, even during prosperity. His final endorsement is therefore substantial but qualified: the report makes a powerful case for coordinated control of production and sales, while leaving uncertain whether its machinery can overcome the investment barriers underlying persistent unemployment.