Evening star., 1939-08-13
Future to Test Busic
New Deal Theory =
By ODen L. Scott.

Barring war, the period ahead prom
ises to provide new test of the under
lying theory of the New Deal.
New Deal theory is that Government
must use its own credit as a means Of
directing the Nations savings into use
If private industry does not borrow and
use those savings. Further: The theory
is that Government, by borrowing AMI
spending, can induce recovery that will
lead industry itself to borrow and there
by to carry recovery forward, while the
Government withdraws its support.
Congress definitely has rejected accept
ance Of this basic New Deal theory.
That rejection came through re-
fusal by the House of Representatives
e>~. to consider a plan of President
Roosevelt to place the Federal Govern
ment in the investment banking business
on broad scale. The President had
sought at this time to refine and to
make permanent as function of Gov
ernment the machinery of directed in
vestment.
In rejecting Mr.. Roosevelt's plan, Con-
gress offered no substitute. Instead
majority decided to trust to luck and
to the promises of businessmen to guard
the country against a new defation and
new setback to recovery. Businessmen
had promised that if only the President
could be stopped they would regain con-
fidence and would give the Nation the
recovery it has sought for SO long. Con-
gress, having stopped the President,
now is waiting for recovery.
Will the recovery that business prom
ised really develop?
An answer to that question cannot be
given definitely before many months
have passed. The reason why this is so
is found in the fact that Congress went
along with the President in developing
his theory over the period from October,
1888, until August, 1899. Plans laid dur
ing that time still are operating on
broad scale and will not face serious cur
tailment before the spring of next year.
However, analysts already are giving
consideration to facts and figures that
may cause members of Congress to pom
der before another year is out.
The facts of the matter, based upon
dlsinterested analysis by the Govern
ment's principal economists, are these:
Business just now is fairly good and
promises to get better before the year
end. Trade is running at a high level
owing to large total of consumer in
comes, bolstered rather heavily with
Government money. Industry is operat-
ing at about the 1926 level, and, with
inventories low, should improve during
September, October and November as
automobile production steps up. De-
mand for American goods from abroad
is rather brisk, but concentrated in
war orders.
Bulwarking this situation is the prom
Use of continued heavy outpouring of
borrowed dollars from Government
sources. This flow will total about $780,
100000 in August and will reach a peak
of about $3200O000 900 in November hold
ing near that level until February.
1t is after January, 1910, that the test
Of the New Deal recovery theory will
come
February will see drop in the Gov
ernment's contribution to purchasing
power from s310,000,00o in January to
s24o.0000o in February. A gradual de-
cline, based upon present appropriations.
will continue until June, when the level
will be down to s1SO,0o0,ooO.
This means that by June more than
1O0000000 fewer borrowed dollars each
month will be flowing out than now are
flowing out in the form of Government
checks to relief workers and farmers and
c. c. c. workers; to steel mills and con-
tractors and shipbuilders. These dollars
are what the theorists of the New Deal
call income producing dollars"-dollars
that have a special effect on economic
activity through their rapid turnover.
They have the same effect as dollars bor-
rowed by private industry and spent for
investment purposes.
The record of experience since late
1888 shows that the trend of industrial
and business activity has followed rather
closely-after a lag of three .or four
months-the ups and downs of the Fed
eral Governments contribution to the
stream OF purchasing power.
II that record now is to be repeated,
the rise in business that appears to be
ahead would end and would be followed
by decline starting next spring
Official Government forecasters are
predicting that very trend. President
Roosevelt, in fact, says that he is told
that the decline will start in go to 80
days. In this forecast he is not borne
out by his own advisers. If war is
avoided, these advisers expect that the
late months of this year and probably
the first months of next year will be
active.
But why is so little official confidence
placed in the promise of businessmen
to produce recovery unaided now that
they are assured against more Govern
ment interference?
The answer given by the Government
planners is that recovery is pretty much
matter of mathema tics.
Recovery depends upon an increase in
the flow of borrowed dollars. That