Introducing Foster and Catchings

Image from the inside cover of Money (1923) available below.
This post prepared with the indispensable help of research assistant Jackson Overpeck.

Underconsumption theory – the idea that economic downturns happen because workers can’t buy everything they produce – achieved its biggest policy impact in America in the mid-20th century, as first the New Deal and then the warfare state redistributed income downwards, setting the stage for the postwar consumer society that was to emerge in the second half of the century. 

Part of the reason for this success can be traced back to the fact that, already by the 1920s, underconsumption theory was a remarkably coherent and influential body of thought. In America, the movement centered around the figures of Waddill Catchings and William Trufant Foster, and their thinktank the Pollak Foundation. Their books, republished here for the first time in a century and summarized below, included Money (1923), Profits (1925), Business Without a Buyer (1927), The Road to Plenty (1928), and Progress and Plenty (1930). Together they brought a series of increasingly influential policy makers into their intellectual circle. By 1935 these included a diverse array of powerful men, many of whom deserve a biography of their own. Their followers and associates included some of the New Deal’s most high-profile politicians:

  • Henry A. Wallace, Secretary of Agriculture (1933-40) and later Vice President of the US (1941-45).
  • Robert F. Wagner, Senator from New York (1929-1949), author of the National Labor Relations Act of 1935, the most consequential labor legislation in American history.
  • George H. Dern, Secretary of War (1933-6) and Governor of Utah (1925-33).

Academics, including the early 20th century’s most famous and influential American economist:

  • Irving Fisher, Professor of Economics at Yale and former President of the American Economics Association (1919).
  • Ernst H. Lindley, Chancellor of the University of Kansas.

And some who were both:

  • Paul H. Douglas, Professor of Industrial Relations at the University of Chicago and Reed College, author of the “Chicago Plan” for monetary reform, later President of the American Economics Association, and a Senator from Illinois (1949-1967).

The Pollak Foundation also had a surprisingly large portion of its leadership in business and the press, including:

  • Henry I. Harriman, President of the Chamber of Congress of the US, former member of the War Industries Board during WWI.
  • Virgil Jordan, President of the National Industrial Conference Board, former editor for Business Week.
  • Carl F Danner, President of the American Hide and Leather Company.
  • Richard H. Waldo, President of the McClure Newspaper Syndicate.

All of the above (with the exclusion of Fisher, who merely published a book with the Foundation) sat on Pollak’s “Advisory Council.”

Founded in 1920, the Pollak Foundation was financed entirely out of pocket by Waddill Catchings for the first ten years of its life. Its activities consisted mostly of publishing books by Foster and Catchings (on which more below). But with the onset of the Depression, their ideas gathered influence – and donors. With this expansion of influence and funding, their publishing work went into overdrive. The Pollak foundation sponsored dozens of influential texts and distributed them to members of Congress and thought leaders of the day. By 1935, top donors included: Robert J. Caldwell, Edward A. Filene, Henry L. Shattuck, the Committee on the Costs of Medical Care, the Household Finance Corporation, the Julius Rosenwald Fund, the Twentieth Century Fund, the Milbank Memorial Fund, and the Beneficial Management Corporation.

The biographies of Foster and Catchings had prepared them well to step into the limelight like this.

William Truant Foster’s life arc was explosive. His father was a Civil War vet and a prisoner of war in a Confederate camp who died when William was only two years old, in 1881. William worked to support his family from a young age, but he was recognized by his teachers as sufficiently brilliant that he entered Harvard at the age of 17. His trajectory stalled out for a few years after graduating, as he went on to teach high school and college English and debate in New England. But after publishing a famous textbook on debate and argumentation that secured him financial independence, he made his way to Columbia University, where he earned his MA in education under pragmatist philosopher John Dewey. Upon graduating in 1911, Foster’s dissertation chapter “The Ideal College” became the blueprint for Reed College, when he became the institution’s first President. He spent a decade there, with a mixture of success and controversy. Reed pioneered many aspects of liberal arts college that spread nationwide. But Foster was not a particularly scrupulous budgeter, it turned out, and Reed’s endowment, which mostly took the form of land grants, were not paying the dividends necessary for a new college. He spent his time instead editing a volume on what he called The Social Emergency, i.e. campus sex. Finally, he was an outspoken pacifist, which put him at odds with patriotic Portland residents. After the war he left, eventually finding his way back to Boston. There he became the director of the Pollak Foundation, set up by his Harvard friend and classmate Waddill Catchings.

Catchings was a highflier all his life and introduced his friend Foster to many liberal elites and businessmen. The two met at Harvard as undergraduates, but when Foster went off to teach English, Catchings stayed on campus to work on a law degree. But while Foster found a home for most of the 1910’s, Catchings was more of a rolling stone. After law school he moved directly into the white shoe law firm of Sullivan and Cromwell in New York, quickly rising to become a partner. During the war, he moved on to J.P. Morgan’s export department, purchasing war supplies for the Allies. Eventually he wound up at a fledgling brokerage company in 1918, Goldman Sachs. By the end of the year he replaced Henry Goldman as senior partner, the first outside either the Goldman or Sachs families. Finally, he’d found a place that suited him. From the commanding heights of the American economy, he experimented in new forms of finance, transforming Goldman Sachs into a juggernaut with half a billion in assets, and him as the company’s largest stakeholder. It was during this time that he founded – and personally funded – the Pollak Foundation with his friend Foster, pushing the underconsumptionist line that the workers were insufficiently well paid to keep profits high and output expanding forever. Nevertheless, in 1928 he took a series of very aggressive investment positions over the objections of other partners, and established the Goldman Sachs Trading Corporation. It was, essentially, a hedge fund, one of the first of its kind. It was totally wiped out by 1930, and with its demise Catchings was liquidated as well. He was now free to pursue public advocacy of his ideas fulltime. After a decade and a half of crusading amid catastrophe – coasting on the $250 million he had made while at Goldman – he went into the music business, becoming president of the Muzak Holding Corporation in 1945.

The Pollak Foundation was, according to some of their literature, “concerned largely with various aspects of the problem of sustaining the purchasing power of consumers.” The Foundation made appropriations to finance specific research at Harvard, Yale, and the University of Chicago. With the beginning of the National Recovery Administration, the Foundation endeavored to further the objectives of the Consumers Advisory Board, which included Foster as a member.

Perhaps their most important convert was Marriner Eccles, the Utah banker whose speech to Congress in 1933 eventually led to his appointment to the Chairmanship of the Federal Reserve. We will cover him in a future post. In 1935, Foster was nominated to join him at the Fed with Mariner’s enthusiastic approval, but for reasons hidden in the (currently inaccessible) archives, the nomination was blocked. But equally important was Senator Wagner, who gave copies of The Road To Plenty to everyone on his staff and dozens of his colleagues in the Senate. It became the blueprint for many New Dealer’s thinking about the Depression.

What is so striking about all of this in retrospect is that this theory should have been expounded by these men. In Europe, the birthplace of underconsumption theory, the idea was largely associated with the names of communists – Rosa Luxemburg and Lenin – and radical social democrats like J.A. Hobson. In America, however, the pioneers of underconsumption theory were the haute bourgeoisie themselves. Its first major appearance came around the turn of the century from the mouthpiece of Wall Street and another Boston Brahmin, Charles A Conant. However, he viewed the imbalances within capitalism due to excess savings and inequality as natural, in the double sense of normatively desirable and inevitable. His view was that imperialism was the natural solution – the Anglo race had a certain “genius” for saving and ruling that made it their duty to spread capitalist civilization across the globe. In particular, Conant thought, it was the justification for American annexation of parts of the Spanish empire in 1898 in the war of that year. Luxemburg and Lenin told similar stories about capitalism, inequality, and empire, with the difference that the moral evaluation had all the signs reversed. Hobson came closest to Foster and Catchings by arguing that underconsumption was not inevitable, so long as the working classes could win back a larger share of production and income in the form of higher wages. But for saying so he was condemned to the life of a radical journalist, an outsider looking in on the halls of power. In America, it was Goldman Sachs itself that was sponsoring these ideas; and it was the head of the central bank that argued for them in the halls of power most forcefully.

Below, in their own words, are the American underconsumptionists. The original texts themselves can be downloaded at the bottom of this post.


We begin with Business Without a Buyer (1927), the purpose of which was to give in popular form the substance of Money (1923) and Profits (1925), two more technical texts. The authors offer their theories on the relationships between production, the flow of money in the economy, the consumptive capacity of workers, and the business cycle. Written for a broad audience, Business Without a Buyer offers easy to interpret insights from underconsumptionist precursors to Keynesian economics.

To start, Foster and Catchings observe that, despite the ample resources and steadily advancing technologies of the time, economies have failed to prevent ruinous depressions – and revolutionary demands:

Everybody wants security of the job and more pay; that is to say, an opportunity to work and assurance that the opportunity will not be suddenly taken away, and the further assurance that work faithfully and intelligently performed will lead to shorter hours and larger material rewards. ‘More pay and less work’ is the goal. As long as that end is achieved — and a lower aim is indefensible — there is no danger of revolutionary upheavals, no chance for fomenters of class hatred to get much of a hearing. Prosperous people do not revolt. If virtually all the men and women in England who wanted to work had been able to find jobs, and if their labors had yielded them more and more of the good things of life, the call for a general strike would have fallen on deaf ears. The chief economic problem, therefore, is to discover why business periodically suffers a depression and throws millions of men out of work, and why the net result of all our efforts in this country for half a century is so little progress toward steady employment and higher standards of living for the people generally, in spite of the unquestioned fact that our available natural resources, capital equipment, labor-saving inventions, and technical efficiency are far, far beyond anything the world has ever known before.

The two rapidly proceed to diagnose the cause:

The first reason is that the processes whereby goods are produced for sale at a money profit do not yield to consumers enough money to buy the goods. As industry increases its output, it does not, for any length of time, proportionately increase its payments to the people. Consequently, whenever the country begins to prosper, the total flow of money to consumers does not keep pace with the flow of consumers goods. The second reason for a deficiency in consumer buying is that the people, under the impelling necessity of saving, cannot spend even as much money as they receive.

With reference to this disequilibrium in consumer income and their consumptive capacity caused by savings, the two address what they call “the dilemma of thrift,” a phenomenon they discuss in their 1926 pamphlet by that title.

This, then, is the difficulty: this is the Dilemma of Thrift. Individuals as well as corporations must save; yet saving tend to thwart the social object of thrift. For the individual as well as for the corporation, a penny saved is a penny earned; but for society, a penny saved is a penny lost if it results in curtailed production. And often it does. For every dollar which is saved and invested, instead of spent, causes one dollar of deficiency in consumer buying unless that deficiency is made up in some way.

In search of a counter-balance to the drag of savings, Foster and Catchings turn to a discussion of credit, ultimately concluding that, despite the profound need to finance widespread consumption, such practices are not sustainable in the long-run. They then assess why the country has prospered in spite of the dilemma of thrift, concluding that the answer is investment, public as well as private:

The country has prospered as it has, in the last fifteen years, because the volume of money has expanded sufficiently, largely in connection with new capital facilities and public works, to make up the deficit in consumer buying due to savings, corporate and individual. But merely making up that deficit was not enough to account for the growth of business. Such an expansion of money would have enabled business merely to hold its own.

More than that — and this is the main point — the additions to wages, interest, and dividends, caused by capital investments and public expenditures, have been almost enough to enable consumers to buy the greatly increased output of our greatly increased productive facilities.

In the eyes of Foster and Catchings, the automotive industry kept pre-war and wartime growth high, yet growth failed to accelerate after the war had ceased. To understand why, they turned towards Mussolini’s Italy for comparison.

Suppose [Mussolini] maintained such a flow of income that his people always received, over and above their savings, just about enough money to buy the output of their growing industries. Then there could be no general overproduction; no general collapse of prices; no throngs of workers out of work; no reason, therefore, why wage-earners as a body, or employers as a body, should ever want to curtail output. Then it really would be, and clearly would be, for the common good for everybody to keep on doing his best to make Italy more and more productive.

Under such conditions, organized labor would have no reason for curtailing output in order to make jobs last longer. There would always be jobs for every one who wanted to work. Moreover, since increased production in general could not bring about a depression of business in general, it would be plain to everybody that curtailing output meant curtailing the standard of living.

What a blessing that would be to each producer! He could go ahead confidently increasing his output, having only to guard against the overproduction of his own product, knowing that business as a whole could not possibly collapse merely because it had become too prosperous.

The authors go on to discuss foreign trade policy, arguing that issuing loans abroad allowed American industry to continue their favorable trade balance and that a reversing of this balance would be detrimental to American industry. However, they conclude this discussion the same way they concluded previous topics, with an emphasis on domestic consumption:

There is only one permanent solution of the problem, and that is to enable the people of the United States to consume as much as they produce of consumers’ goods, or the full equivalent in the products of other countries. All other means are only temporary expedients. The right flow of money to consumers will remain the chief need whether or not it is modified by changes in tariff schedules.

Turning back to the homefront, Foster and Catchings describe the mechanisms by which domestic prices and production are controlled by the Federal Reserve System, and they doubt the ability of the system to finance consumption. Having dismissed monetary policy, the authors turn to the private sector, speculating about the limitations of Henry Ford’s efficiency wages:

Mr. Ford goes along with us when he declares that no nation can progress ‘until the ability to consume is brought up and kept up to an equality with the ability to produce.’ But he leaves us — and we think takes the wrong road — when he adds that the way to bring about that equality is to replace the profit motive with the wage motive. He is on the wrong road, first, because the profit motive is the only one which has ever driven business forward at a sufficient rate to raise the standards of living of large numbers of people. Every successful business man, including Henry Ford himself, has been spurred to greater efforts by the ambition to make profits; and unless he has realized that ambition, he has gone out of business. True, he has also been inspired by the desire to serve. But, as Mr. Ford’s own experience shows, there is no necessary conflict between the desire to make profits and the desire to serve. The wage motive, moreover, is not enough to enable people to consume as much as they can produce. To repeat, even if all producers adopted Mr. Ford’s policies in their entirety, wages would not be high enough or prices low enough to keep ability to consume on a level with ability to produce. Again, we must conclude: High wages and low prices cannot solve the problem.

Finally, they conclude their argument by addressing Ford’s approach to the dilemma of thrift and by summarizing their own solution to the dilemma.

Fortunately, the natural desire of the people to consume, increased by the urging of the advertisers, and made effective by instalment selling, has largely offset the thrift campaigns. Otherwise, our present prosperity would have been impossible. Mr. Ford sees that clearly enough. He sees that there is a Dilemma of Thrift, as far as individual savings are concerned. He sees the effect on the sale of Ford cars. The point he does not see is that corporate savings are a still larger factor in the Dilemma. 

Our views on that subject, which are an essential part of every chapter, we here summarize: Both individuals and corporations must save and ought to save; otherwise there would be no dilemma. Renouncing the ancient virtue of thrift is not the way out. What we must have is a modification of our present system which will enable every one to save as much as he pleases, in ways which best suit his individual interests, without thereby frustrating the social object of thrift. For that purpose, we need a definite, controlled, dependable method of offsetting the deficiencies in consumer buying which at present are caused by savings.


In The Road to Plenty (1928), Foster and Catchings’ fourth and arguably most influential book, the two authors address many of the same theories proposed in Business Without a Buyer from a different perspective. The book, which reads almost as a novel, details a fictitious conversation between a diverse group of individuals as they commute by train. What starts as a simple conversation about the post-war economic conditions turns into an in-depth discussion of the causes and effects of underconsumption with regards to savings, high prices, inadequate wages, underemployment, and other constraints on purchasing power. The format made the text more approachable than the typical economics manual of the time.

The story is centered around the experiences and observations of a commuter who goes by “the Gray Man.” It is the Gray Man who makes the initial observation that the nation’s suffering is considerably more acute than many, especially in the upper class, care to realize:

The Gray Man wished that, once in a while, he could forget what he knew about suffering. But he never could put out of mind the plight of the unemployed, as he saw it every day. Nor could he ever quite lose his poignant memories of the winter, years before, when he himself had suffered from ‘hard times.’

Always there loomed before him the menacing specter of another big slump; for everywhere he went, he found men talking about the next depression as though it were foreordained, like the movements of the moon. Yet, apparently, nothing could induce these men to wrestle with the problem before the worst had happened; and then it was too late. Like the shiftless farmer, thought the Little Gray Man, who never got his leaky roof repaired, because he saw no need of mending it in fair weather, and could not mend it in rainy weather.

For a while the Little Gray Man stood on the car platform. Through the door he saw house after house that told the story of anything but luxury; house after house without even a lawn or a visible coat of paint. Then he thought of the farms he had seen in all parts of the country, most of which had not achieved the luxury of tractors, or telephones, or electric lights, or running water, to say nothing of comfortable heating and plumbing. He thought, too, of the feeble grandparents he had seen, struggling with work beyond their strength; and he recalled the fact that right there in Massachusetts, of the wealthiest communities in the world, more than half the aged are unable to support themselves, out of either wages or savings. Indeed, the Gray Man knew perfectly well, for he was engaged in poor relief, that even in Massachusetts a fourth of the old people are making hopeless efforts to live decently and comfortably on less than four hundred dollars a year and such  meager aid as they get from relatives and charity.

It is these observations that spark the discussion among the commuters. The main character of the book, who goes by “The Business Man,” gives voice to many of Foster and Catchings’ ideas about the business cycle. It is his role in the story to challenge the ideas of neoclassical economic thought, advocated for by the Lawyer and Professor, as he presses for solutions to economic stagnation, unemployment, and underconsumption:

The Business Man felt sure that the Lawyer and the Professor had acquired their ideas, at least in part, from generations which knew nothing of the industrial and financial world of to-day. Those ideas, moreover, had been built into a system of economics by men who did not understand exactly what was going on even at their own time, in the banks and the market places. Thus certain theories, originated long ago in the quiet of professors’ studies, had been accepted by some professors with little attempt to bring them to the test of the highly developed, complicated, work-a-day world.

‘So these men insist,’ mused the Business Man, ‘that there is not much we can do about it. Too bad that at all times millions have to be out of work; that every now and then more millions have to be thrown out; but it can’t be helped. Too bad that we can’t use half our productive powers, but of course we can’t. Human nature blocks the way. No use trying to repeal economic Jaws. Slow and halting progress is all we can expect for the great masses of laborers. The fault is in the stars.’ ‘Bunk!’ He exclaimed aloud 

Again he spoke aloud, this time with even greater impatience, for his own experience in commerce and in finance had convinced him that there is no foundation, in the actual world of business, for the views with which the Lawyer and the Professor had discouraged the Little Gray Man. 

Whereupon, by way of emphasis, the Business Man stood up and paced the floor.

‘All that stuff,’ he continued, ‘is shown up every day by the ordinary course of business. It is nothing more than a left-over from the laissez-faire system of economics. There is no sense in saying that, because the old economists found no answer to the economic riddle, no answer can be found; no sense in saying that, because communism and all the other revolutionary programmes offer no solution, no solution can be found; no sense in saying that what always has happened, always must happen. 

Ever since the Business Man had left college, he had found his experience at variance with economic theories. The reason, he had become convinced, was because there was something wrong with the theories. It was not merely because business men thought of short-term movements, while professors thought of long term movements. At the very core of the old economics, as he saw it, were assumptions which made men hopeless, but assumptions which, happily, were contrary to fact. So he had rejected the Economics of Despair – the dismal science, with its complacent attitude toward the snail-like progress of those who labor and are heavy laden.

The Businessman, who is joined in his argument by a Congressman riding in the car, goes on to define the core issue that must be overcome on the “road to plenty:”

This, then, is a Fifth Plain Fact: The only reason the business world does not produce more is because it cannot sell more. Lack of markets is the trouble. We never produce a plenty for fear of producing too much.’ 

‘But why?’ the Gray Man asked, still pursuing the basic trouble, ‘Why must the whole world fear overproduction, when millions are suffering from underconsumption?’

‘It does seem incomprehensible, on first thought,’ commented the Business Man. ‘Yet on second thought it seems plain enough. “Overproduction,” underconsumption,” “lack of markets” – those are only different names for the same condition – the plight of business without a buyer.’

‘You mean,’ said the Congressman, ‘that there is no sense in raising more hogs, when we can’t make any money on the hogs we have already raised; no use putting more furnaces into blast, when stocks of pig-iron are piling up.’

‘In short,’ the Business Man concluded, ‘industry cannot go ahead turning out more goods until it can get rid of the goods which it has already turned out. We have previously agreed that the country is fully equipped to produce more goods; that the people want more, and ought to have more; and that they cannot have more unless they produce more. Now we have agreed to this Fifth Plain Fact: They cannot produce more unless they can sell more. That is the same as saying that in this money-and-profit world in which we have to do business – the only one, by the way, which has ever proved workable on a large scale – sales regulate consumption, and consumption regulates production.’ 

As debate intensifies, the Businessman’s argument becomes increasingly impassioned, culminating in one of the authors’ most critical rebukes of the economic profession across their publications:

For more than a century, orthodox economists, dominant in the universities, prescribers of the only system of economics that most men ever studied, have been absolutely and inexcusably wrong on this crucial issue. First they assumed, merely assumed, mind you’ – warming up to his subject, he began to try to pace the narrow floor – ‘almost incredible, what I am telling you, but the exact truth – these lords of the domain of economic theory merely assumed, without even an attempt at proof, that the financing of production itself provides people with the means of purchase. So well satisfied were they with their theory, that they did not even discuss its application to any given year. They did not perceive that innumerable lags in the flow of money and in the flow of goods make that old theory of no practical use whatever. From their assumed premise they concluded, logically enough, that economics is concerned only with the problem of production: that consumption takes care of itself. Thus the orthodox economists, led by Adam Smith and John Stuart Mill, blinded by  their  own errors,  intolerant of all opposing views, as hide-bound in their own field as their forefathers were in religion, forced upon the world a system of economics which, as far as it could, condemned mankind to intolerably slow progress; a system which is largely responsible for much, though by no means all, of the anxiety and suffering which  our Little Gray Man has so much  at  heart –  which  we should  all  have  painfully at heart, were it not for the fact that this very system of economics makes complacent hopelessness the mark of the educated man.

Eventually, all the characters accept the idea that lies at the core of the Businessman’s argument: prosperity can be maintained as long as consumer’s income can be increased without proportionate increases in the supply of consumer goods. This is what they see as “the road to plenty” and once consensus is reached, they begin to discuss plans for how America could  begin to follow such a path. They propose the government collect and publish additional statistical data from which fiscal policy could be more effectively implemented and they advocate for more public works projects in addition to a more liberal government borrowing policy:

‘It follows,’ said the Lawyer, ‘that the Government should borrow money to enable the Board to carry out its purpose whenever, in the judgment of the Board, the needed flow of money to consumers will not come from other sources. At most times, perhaps at all times, the needed expansion of money actually will come from other sources, because private industry will be stimulated, under our Policy, to make capital expenditures. And that is the chief way, as we agreed this afternoon, that consumers do obtain the needed flow of money when times are good. Still, we can never be sure whether the flow of income from this source will be too large or too small. The whole project is so very important that the Government should stand ready to borrow money if needed for the purpose.’ 

Having reached a satisfactory conclusion, the passengers thank each other and part ways, leaving the Gray Man to ponder what had just been laid before him:

At a turn of the road, just above the railroad station, the Gray Man watched the train as it rushed on through the valley; on and on, the brilliant headlight piercing the gloom, a symbol – so it seemed to him – of the light of learning, revealing the Road to Plenty. Many times before, as he had watched the long and mystic line of lights of a departing train, winding its way into the night, he had felt a thrill.

But never such a thrill as now.


Download the original texts themselves here:


Published by tiltingatM3

Nic Johnson is a PhD Candidate in the History Department at the University of Chicago, researching the intellectual history mid-century Keynesianism and the Federal Reserve. Prior to joining the University of Chicago, Nic was ABD in economics, specializing in monetary theory.

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