Evening star., 1937-12-05
New Problem of Booms
BY OVEN L. SCOTT.

diagnosis Dy LDc IOVeTIIHeIlI pIlIlClpdl
economists represents agreement on the
broad outline of the reason for the set
back.
When it comes to recommendation for
a cure, agreement Is giving way to argu-
ment. Involved are fundamental prob
lens touching the basic machinery of
the Nations economy. But what Mr..
Roosevelt intends to try to do to get out
of the hole again represents agreement.
Whether he can succeed in this endeavor
revives the argument.
But what of the diagnosis of present
troubles?
There is agreement that this is price
sold on the idea that an unbalanced
hurget inevitably meant imitation When
bonus spending and Government pump
printing stirred trade, they boosted prices,
convinced that everybody would be doing
1t and convinced that an anticipated in
flation would float almost any price
structure. With new pay roll taxes to
consider and with labor demanding more
and more. business men stocked up with
goods, and put in rush orders for more
goods in order to have shelves piled high
before the advanced prices took effect.
And, true to expectations, prices were
kited.
But. starting last spring it became evi-
dent that the masses of the people were
not responding with enthusiasm to these
higher prices. Department store sales
leveled of in March Sharp contraction
in Government spending of borrowed
money left fewer dollars in the hands
of many people. Effect of the soldiers
bonus payment began to wear off And
higher prices meant that each dollar in
the hands of consumer would go less
far. A combination of higher prices and
fewer dollars held by consumers to pay
those prices slowed the movement of
goods.
The Governments economists spotted
trouble as early as last December They
induced Mr.. Roosevelt to recognize it
publicly in April. But the momentum
OF orders placed in anticipation of the
higher prices carried over until August.
After that came the great awakening.
Instead Of expected imitation, the coun-
try was in the midst of def1aton more
severe than it ever had experienced in so
short period. Business men were
caught with inventories. accumulated at
higher prices, which now had to be
worked off in highly painful manner.
They stopped ordering as soon as they
awakened to the situation, and the
wheels of industry slowed.
Now what?
Xhere will be no new rge-scale Gov
ernment spending program to turn the
tide. Rather, the influence of the Gov
ernment is to be on the side of a quick
def1ation. Chief reliance is placed on
rapid reduction in retail prices to move
| goods and to hasten the time when
| step-up will be forced in industrial
| production.
There will be important tax law
| changes to quiet the nerves of industry
| There may even be a one-year suspen-
| sion Of the pay roll taxes that now are
| collected to build an old-age insurance
| reserve. There will be rate increase
| for railroads and promises that will
| please the electric utility industry.
| There will be new antitrust talk
which should be welcomed by business
| men because competition is the life of
trade. There will be great emphasis on
| encouragement of home building There
will be series of moves by the Federal
Reserve Board to make credit even easier
| a~tl to meet the assertion of J. P.
Morgan g. Co. partner that this govern
mental agency really is responsible for
much of the present defiation.
| Agreement exists on all of these points.
But when it comes to the question of
whether the magic of recovery is
wrapped up in any or all of them, argu-
| ment starts.
The argument is over the question of
where recovery comes from Does it
come first from ordinary buying by the
ordinary garden variety of consumer. fill
ing needs on scale that finally leads to
investment in new plant and other capi-
tai equipment? Or does it come first
from investment and industrial plant
and equipment, thereby increasing con-
sumer income and consumer buying?
! The Brookings Institution, in a highly
important study on Capital Formation. I"
by Harold G. Moulton, its president,
throws light on an answer to that and
other questions lying at the heart of
| present difficulties in this country
People already are aware that banks
are overf1owing with money seeking in
vestment. They know of vast needs that
are awaiting fulfllment. They are aware
of unemployment and of vast unused
natural resources. But what they do not
|
and these unused resources cannot be
brought together.
DR.. Moulton concludes that the answer
lies in a fundamental difficulty that acts
as monkey wrench in the economic
machinery.
This difficulty, he finds, grows from the
| fact that not all of the income from
industrial production flows back again
into the stream of purchasing power to
sustain an expanding prosperity. An i'm
portant part is held out in the form of
savings and, contrary to the orthodox
economic theory. savings are not auto
matically expended in ways that sustain
employment. AS the country can see
vast amounts of savings are piled up in
banks and elsewhere and are not put to
productive use. Or, as DR.. Moulton says:
"The dilemma may be sunmarily
stated as follows: In order to accumu-
late money savings, we must decrease our
expenditures for consumption; but in
order to expand capital goods profitably
we must increase our expenditures for
consumption"
In other words, prosperity comes with
its full employment when industry not
only is using its existing equipment to
turn out goods that go directly into con-
sumption-like clothing and automobiles
and food and even houses-but when, in
addition, industry is borrowing money to
invest in hew plants and new equipment
and new facilities for larger production
| Yet the very saving that goes on to