Evening star., 1938-02-06
New Deal Seeks to Add
to Purchasing Power
BY OVEN L. SCOTT.

ture with new streamlined plans for Gre
ating activity by adding to purchasing
power.
These facts have in the last few days
upset popular impressions that had been
held by business men generally and even
by the President himself Among these
impressions is the idea that industrial
corporations, in period of depression,
sustain general business activity by using
their reserves to keep workers on the
pay roll and to buy up raw materials
thereby automatically priming the busi-
ness pump.
Another widely held impression is that
industry, If only given a chance, will
borrow vast amounts of money to use in
building factories and In improving
equipment in old factories. One more
is the idea that the electric utility indus
try offers the biggest immediate oppor-
tunity for investment and expansion on
large enough scale to turn the business
tide.
Actually, the facts of the situation, as
revealed by official figures and official
studies. give a quite different picture
from that usually painted.
4 ~
For example: Mr.. Roosevelt, the other
day, suggested that corporations should
use their accumulated reserves to main
tain wages, while cutting the prices Of
their products low enough to attract the
buyers whose demands could keep fac
tory wheels turning.
Also the Senate Special Committee on
Unemployment had tried to discover why
vNTSf1 = hue
lations were cutting workers from the
pay roll even before touching those accu-
mutations
Like many others, the President and
the Senators had noted that, between
1929 and l933-on the basis of official
corporation income tax figures-the sur
plus accumulations OF all corporations
other than banks and insurance COM
panies and other financial institutions.
had gone down about SIS O0O, 900. 900. The
idea seemed to be that these dollars had
actually been paid out by industry to
maintain Jobs and to buy raw materials.
thereby printing the pump of recovery.
Between 1888 and l935-the last year
for which official figures are available
corporations added five billions to their
surplus accounts.
This made it look as though there now
should be a good opportunity for busi-
ness to jump into the picture with these
billions to do a job of private pump
printing The surplus accumulations
supposedly could be used to maintain en-
ployment and to buy raw materials
But IL turns out that actually it does
not work out that way in practice. Sen
ators were surprised when they were told
as much by representatives of big busi-
ness.
The official figures show that what hap
pened after 1929, and what may be hap
pening again now. is this:
When demand for goods slowed down,
industry, lacking orders cut production
and let men 60 from the pay rolls AS
prices declined and defiation continued.
corporations as whole wrote down the
value OF inventories and did not replace
goods used up. Also, corporations as a
whole wrote off billions of dollars for
depreciation and depletion of their plant
and resources, but did not spend all of
these dollars written off their books dur
ing the depression.
The result was that surplus accumula-
tlons declined sharply on paper But
the actual cash dollars in the till and in
Government bonds and in other invest
ments did not flow out. The facts from
corporation balance sheets. show that
as group-American corporations of
the non-f1nancial type came out of the
depression in 1888 with more dollars in
combined cash, Government bonds and
other investments than they had when
they went into the depression.
In other words. for corporations as a
whole. there was little cash pump -prim-
ing. or Job-creating, in the write down
OF the billions of dollars in surplus.
Realization of this fact is influencing
the Presidents calculations at this stage
1t also is penetrating into some quarters
in Congress, where Mr. Roosevelt will
have to look for approval for any plans
he finally works out
Some other facts are influencing the
Governments calculations as well.
There is. first OF all, the popular and
widely held idea that this country's in
dustrial plant has been allowed to deteri-
crate to a dangerous degree because in
dustry finds it difficult to sell securities
to obtain funds with which to buy new
equipment and to build new plants.
The fact Is that an exhaustive official
study has recently been completed that
casts much light on this phase Of the
recovery situation.
Discovery is made that, in 1887, this
country's mining and manufacturing in
dustries spent nearly $4,000, 900 900 on
machinery and on construction of plants.
This is as much as they spent in the
prosperous year of 1923 and within 10
per cent Of as much as they spent in
1879. The financing of this huge pro-
gram OF industrial improvement was
largely taken care of out of current cor
poratlon earnings and out of deprecia-
tlon reserves that were not spent back in
the depression days after 1929. A negli-
elole amount Of money came from the
sale OF stocks and bonds.
AS a matter of fact, according to the
study, not more than IS per cent of the
expenditures for plant and equipment by
mining and manufacturing industries
ever came from the sale of securities,
even In the hey-day OF security selling.
American industry has obtained its
money for plant expansion and improve
ment largely out of its earnings. The
maintenance and improvement of this
plant was neglected during the depres-
sion years, but it speeded up sharply last
year, when earnings were back near nor
NAL for most of the period The fact
that industry is accustomed to rsjno ite