Evening star., 1938-01-02
NEW TRADE RISE
EXPECTED T0END
PERIOD Of FEAR
Bad-t Good 1888 Trend to
Reverse Business Course
of 1887.
MANY FACTORS BEHIND
SLUMP OF LAST YEAR
Falling Prices Force Purchasers
to Postpone Orders and Cut
Down Large Inventories.
BY FORREST H. GRAVES,
Editorial Director. Cambridge
Associates. Inc.

BY FORREST H. GRAVES,
Editorial Director. Cambridge
Associates, Inc.
The year 1887 opened with hope and
confidence-overconfidence and too
high hopes.
The year 1888 starts with pessimism
and fears-overpessimis and excess
sive fears.
When the total volume of business
of 1887 is compared with that of 1886
the difference will favor the year just
past. When the indices for the last
three months of 1887 and 1886 are
matched. the reversal of trend in the
later period will appear in dismal con-
trast.
Completely contrary is the prospect
for the IL months ahead. It is very
likely that the total business volume
of 1888 will fall short of the 1887 fig
ure But the trend of the last four
months of the year will be vastly more
encouraging. 1t will point upward,
not downward, as now.
What happened to business in 1882
4ICiC lldNC GNCll q pIclllOld VI tllCe
ories to answer this question and the
majority of them, to this writer, en-
bodied measure of truth. But only
a measure. No single theory, however
ingenious. encompasses the diverse in
f1uences which so violently dashed the
rosy hopes of early 1887.
Politics to Blame:
Many observers blame Washington.
The premise, that the administration
in assuming credit for recovery there
by deserves blame for the recession.
is hardly base for dispassionate ap-
pralsal. In the first place. it grants
the administration original conten-
ton as justified, which it is not, at
least not in its entirety.
Nor can business be said to have
been "smothered" greatly more by
political policy in 1887 than it was in
1885 or 1896. It's true that many in
dustrialists and business men were re-
stricted by taxation and the sitter
attitude of labor from making the
profits they would expect in the old
days, but few passed up the oppor-
tunity for profits simply because po-
tential profits were smaller.
Where, it seems likely, the admins
tration's program has been of most
direct and genuine hurt to business is
in the restrictions placed by the Sc
curities and Exchange Act upon the
raising of new money. It's quite true
that in the past investors have been
induced to buy securities on false
promises and information. Restric-
tions upon security sales. for the pro-
lection Of the small investor, were
overdue. But these restrictions, cou-
pied with other factors, have damned
the flow of new long-term capital
severely. And without such flow Of
new capital it is difficult, if not i'm
possible, to finance the expansion of
plants and the sale of heavy equip
ment which are necessary to real re-
covery movement.
Perhaps If the tax on undistributed
corporation profits had not been i'm
posed, more money would have gone
into expenditures for capital goods,
but in any case without the addition
of new funds from investment chan
nels any reasonable level Of activity
in the heavy industries would be i'm.
possible to maintain.
Purchasing Power Theory.
Quite an opposite school of observ-
ers ascribes the business decline to
the failure of purchasing power to
keep peace with production. They
point out that production indices have
stayed consistently higher than the
| indices Of wages and employment since
recovery started. They say produc-
tivity per worker has greatly increased
since 1929, and that workers are un-
| able to buy back the goods they pro-
duce.
Here, too. is a measure of truth.
But there are at least partially off,
setting factors. First, Government ex-
penditures, large proportion going
| directly into wages, work and agricul-
tural relief payments, are larger by
four or five billion than in any pre-
| depression years. Second, the pur-
chasing power of the dollar in mid.
summer, 1887, was still about IL per
cent greater than in 1929.
More Government Spending.
An attendant explanation is the de.
hationary effect of the reduction in
Federal relief payments and the cur
tailment of deficit financing. Indus.
try, they say. is unable to take up the
lead If the Government lays it down.
The only alternative to a complete
breakdown of the national economy is
resumption of large Federal expen-
| ditures for public works and direct
relief. A further concomittant, ac-
| cording to these authorities, Is the
balance of the budget through In
creased taxes on incomes from $4,000
upward.
These measures, should a prolonged
depression ensue, might be forced but
they would hardly furnish any sound
foundation for the rebuilding of re-
covery, since they would to a great
extent offset each other.
Still other observers point to the
contraction in bank credit as major
cause, but this seems to partake of
both cause and effect. For a few
months there was an encouraging rise
in business loans which took up part
of the slack but the cold breath of
the fall slump quickly withered this
long-awaited manifestation of genuine
recovery.
A majority of economists prefer to
regard the present crisis as the result
Of an upsetting rise in prices and labor
(see 1888 REVIVAL. Page A-l0.)