Montana labor news., 1939-04-06
Stock Boom illustrates
Need for Govt. Control
By ELIOT JANEWAY

need for more stringent government
control over business, and particu-
larly over the stock market. The
upshot of the brief and spectacular
market boom has been that industry
is again faced with the problem of
overproduction after merely a month
of moderate improvement and before
there has been any improvement
worth talking about in consumption.
The ramp in the stock market has
already been discussed in this col
umn. Attention was called to the
fact that professional operators
formed a pool in order to Catch
the shorts; and that the forced buy
ing of the shorts, in order that they
could obtain stock they had sold
without owning, had bid up the price
of stocks.
Before the boom exhausted itself,
the average price of stocks had risen
from $107 to $144 in little more than
a month-the sharpest advance in
years. Such speculative favorites as
Chrysler rose in this period from $35
to SIS. So thoroughly manipulated
was the boom that the price of rail
road stocks, especially of rail stocks
threatened with bankruptcy, went
up faster than the rest of the market.
All industrial stocks rose by IS per
cent; rail stocks averaged an in
crease Of fully 81 per cent. This in
itself is proof that the market boom
has been divorced from the bitter
realities of the railroad earning out
look, and from any basic considera-
ton of the business picture as a
whole. 1t has been a professional
ramp of the most an~ti-social nature
experienced in years, and its contri-
button to the further dislocation of
our recession-torn economy should
Immediately be Investigated by the
Securities & Exchange Commission.
Until the market boom began, in
dustry had not counted on increasing
production or prices. But when the
professionals began to bid up the
price of stocks, industry Immediately
assumed that the stock market was
anticipating a radical improvement
in business. Accordingly, production
was speeded up and, still more i'm
portant, commodity prices were
lacked up.
The copper trust put the price of
copper up sharply to more than 10
cents a pound although the copper
consumers were still overloaded with
inventories and although copper
|fabricating activity was at a stand
still. The textile industry, suffering
from one of the severest over-pro-
duction crises in its history, followed
the same course. In all commodity
markets, the pattern was identical.
Not legitimate consumers, but out
side spectators started to buy up
lots of copper and cotton goods in
quantities out of all relation to the
current rate of consumption. The
speculative fraternity, expanding its
activities from the stock market to
the commodity markets, was trying
to stimulate a new commodity price
boom. OF course, it neither remem-
bered nor cared that it was precisely
an uncontrolled price boom, losing
all relation to consumption, that
helped kill the 1897 recovery.
The market has started to break
again. The confidence boom has
given way to doubt about how rapid
ly business can improve. Instead of
a slow but sure pickup, we have
suffered a characteristic boom and
reaction. True, millions have been
made by the spectators, but the
price the country has had to pay is
further dislocation and zig-zagging
in the price structure, and the false
stimulation of production in the tex
tile and other volatile industries. The
spectators ramp has been a setback
to the improvement that is trying to
turn conditions around. The country
cannot afford such a~rtificially pro-
voked ups and downs and if the
New Deal wishes really to spend its
way out of the recession, it will have
to take the offensive against the
spectators who are a%ggravating the
dangerous Interpretations in our
economy. No recovery can develop
ahead of consumption and purchas-
ing power. The pre-condition of
recovery must be falling prices. Wit
ness the rise in steel buying as soon
as the monopoly price structure was
reduced and in spite of the chaotic
way in which it was reduced.