Evening star., 1940-11-10
Attention Shifts
To Vast Defense
Program
Businessmen Turn
Backs on Election;
Markets Jump
By FRANK MacMILLEN.
Associated Press Business Writer.

Jty > UuSlIleSSIIleIl tillS WEEK iuIutu
backs On the national elections and
eyes forward to the huge arms
program, while Wall Street staged
buying drive in securities and KEY
commodities that added billions Of
dollars to quoted values.
With the bitter political contest
out of the way. and the country in
a mood in which induStrialists and
bankers joined politicians in call
to national unity, the business CON-
munity appeared to visualize clearly
for the first time the implications of
the tremendous sums of levied or
borrowed money which will go into
the defense effort in coming months.
The great farm crops. wheat.
cotton, livestock the industrial
staples, rubber, lead and the like,
joined with stocks and bonds in an
upsurge late in the week. after a
day of hesitation following the
election.
Swapping attention sharply back
to the war goods program and the
unprecedented financial steps which
will be necessary to accomplish it,
was the revelation in Washington
| Thursday by Secretary of the
Treasury Morgenthau of the first
phases of the fiscal program of
President Roosevelt's third term.
Higher Debt Favored.
Most potent of these steps. IN
their effects on markets. were the
secretary's announcement that he
would recommend TO Congress an
increase in the Federal debt limit
by 5000 100000 or more: that he
would ask for higher taxes, and
that he would again seek to have
eliminated the tax exemption
feature Of future Federal, State and
municipal bonds. Both Republican
and Democratic administrations
have made the latter proposal from
time TO time
With the possibility that the
present supply of tax-exempt Gov
eminent loans might possibly be the
last with that advantage to the
investor, there was a scurry by
banks and individual investors to
add them to portfolios.
4 The result was a spectacular rise
/ in prices by United States loans to
/ the highest levels in the Nation s
history, and municipal bonds went
up with them.
At the same time. preliminary
steps looking TO future heavy bor-
rowing by the central Government,
many Wall Street observers said,
/ had turned the minds of investors
/ in the stock market TO the "inf1a-
[ ton aspect of continued Govern
ment deficits.
Stock Boom Follows.
The result was a rush to buy
common shares, especially those
calculated to feel the full force
of the new purchasing power in
herent in a big borrowing program
for arms. On Thursday, and again
on Saturday, the shares of many
of the country's leading industrial
concerns leaped ahead under some
of the greatest buying since the
European war began.
But, since Secretary Morgenthau's
plans for borrowing were linked
with others for increased taxation,
the whole future of defense finance
came up for review by economists
and business planners seeking to
chart the course of the rising in
duStrial curve in coming months.
To many observers the most i'm
portant clue to this curve appeared
to be the proportions in which the
x-and-borrow brew were to be
mixed
In the last war, it was recalled,
about one-third of expenditures was
met by taxation, two-thirds by bor-
rowing Great Britain at present
is splitting the two about fifty
fifty.
The British price level, it is
pointed out. has not risen as much
as might have been expected from
the SwiftneSs of her war expendi-
lures. The United States price level
in the last war rose steadily until
it collapsed in the postwar de-
preston of 1921.
Reasons Outlined.
Trying to fit these and similar
facts to the jig-saw of coming eco
nomic events, some of the back
ground reasoning. both in Wall
Street and Washington, ran roughly
this way:
If the Government borrows large
amounts of money for arms from
the banks (the banks are the main
lenders( this is added" purchasing
power, because the banks merely
give the Government credit on their
books-no money changes hands.
The Government then spends the
money, for materials, wages and the
like, so that the general public also
has more money to spend. 1t thus
begins to compete with the Gov
ernment for what goods industry
can turn out. If this supply of
money exceeds the supply of goods.
'inhation"-an upward spiral of
prices-is under way. 1t often
carries on for long time as the
spiral gets wider and wider.
Taxation. however, has different
effect on the economy. If the Gov
ernment takes a great sum for arms
by taxation, there is decrease in
purchasing power, because there are
less profits, dividends and wages to
be spent by the general public, by
whatever amount they have to kick
in for taxes.
Faster Pace Certain.
With these variants of borrowing
and taxation to the fore as oppos-
ing factors, especially in the field of
corporate profits and general
prices, there was nevertheless no
question in business quarters that
the rate of industrial activity would
continue to rise as more and more
of the armament program was
transferred from the blueprint stage
to the phases of factory construc-
ton and production.
Symptomatic of this movement
were figures released during the
81 a1..-+~.,aktA,~