Evening star. [volume] (Washington, D.C.) 1854-1972, 1932-03-20
Continued From First Page.)


rently to finance installment purchases
of goods and in open book credit ana
similar forms of commercial advances,
we have experienced credit reduction
of immense and unprecedented magnl-
tude. reflected. most unfortunately but
inevitably in an epidemic OF bank
f1ptcies. In the last year about 2,COO,
or more than 10 per cent OF our banks,
have been closed, and more than $4,000,
or about Is per cent, Of our business
concerns have succumbed, entailing
losses and misery to countless persons
innocent of the speculative excuses OF
the boom period.
my this collapse was inevitable, but
I N%S qualify the term so far as 1t
relate to our banking mechanism,
which contained elements OF weakness
rendering it less able than it should be
to stand the strain of drastic Hquida-
ton. Events have proved that in tri-
ping the number of our banks between
1900 and 1920, We weakened rather than
strengthened the system.
But quite apart from the merits or
dement's of our banking structure not
all of the astounding deflation I have
outlined was, in my opinion. either
necessary or wholesome. Prom the
middle of 1929 to September 1881,
wholesale commodity prices fell about
80 per cent; industrial production de-
clined about 40 per cent and all bank
loans and investments by about
81, soc, DOC, 900. After such a sweeping
decline, accompanied by corresponding
readjustments Of all kinds and the
elimination Of weak spots and elements
of instability in the economic structure,
1t Is not unreasonable to believe that
t. 4<x.
contraction and defiation had by that
time fairly well spent themselves, that
sterilization should have taken place
Since then the psychology of fea has
been written in large letters on every
step Of the downward course. I may
be wrong, Of course, as both elements
are always present in situations of this
kind, but I have the very distinct i'm
preston that whereas up to the last
quarter of 1881 economic factors ex-
ercised the preponderating influence,
from october to the present time
psychological influences have played the
leading part.
Gold Balances Withdrawn.
England's departure from the gold
standard had much to do with produc-
ing this state of mind, which was ex-
pressed abroad by the withdrawal of
gold balances held in this country, and
at home by the boarding tendency.
Naturally, the banks, in response to
both these phenomena, have sought to
increase their reserves of cash, though
in selling securities and calling loans
they too frequently have displayed more
panic than judgment. A much calmer
spirit prevails today. thanks TO the
prompt application of such items Of the
are embodied in the Reconstruction
Finance Corporation, the Glass Steagall
measure and the campaign against
boarding, but until recently it was true
that the defiation had reached a point
where 1t fed upon itself, where forces
working for economic recovery were
being nullified by the psychological
momentum Of the downward movement.
SO much for the general situation.
Its effect on the Treasury has been
startling. We closed the last fiscal year
with deficit of 5000 900, 900. We are
confronted this year with a prospective
deficit of some $3.50, 900, 900, and it is
estimated that expenditures will exceed
receipts by about 81 700 900 900 in the
fiscal year 1888 II we contrast these
figures with q surplus of S184 900 900 in
1880, one of $185 DOC. 900 In 1929 and
one of 1899 900, 900 in 1928, we are
shocked at the violence and suddenness
OF the change. For, while I am sorry
TO say that falling off in income is an
all too common experience these days,
yet our Federal Government is so strong
and our national resources are so great
that somehow or other We feel that
our Government should be superior to
the Ills to which individual citizens are
subject Indeed, there is so much truth
in this conception that, as we shall see
the Government has but to make a
further call upon available resources to
put its financial house in order
To grasp not only what has happened
in the immediate past, but what should
be done in the immediate future 1t is
necessary TO understand our revenue
system and TO note the essential fact
that it rests on very narrow base.
Take the fiscal year 1880 as an example:
We flnd that in that year, out of total
receipts from taxation of SO 626 900 600,
no less than $2.4ll 100000, or two
thirds, was contributed by income-tax
payers, corporate and individual: $751;
000,0 900, or Is per cent, from customs
duties, and $62S, 900, 900, or II per cent,
from miscellaneous internal revenue
taxes of which the tax on tobacco con-
tributed $450,0O0 900 and the stamp
taxes, chiefly on the issue and transfer
Of securities, about $69 600, 900.
Comparatively Few Taxes.
These taxes are comparatively few in
humber, and all, with the exception OF
the tobacco taxes. which have steadily
grown in years OF prosperity and re-
manned comparatively stable even under
adverse conditions are susceptible tC
very wide variations. in accordance with
changing business conditions. The di-
rect relationship between business pros
perity and the net income Of corpora
lions, upon which the income tax Il
based. needs no elaboration. But It !.
whsp we come to the income tax or
individuals that the dangers incident