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Volume 182, January – February 1939
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Volume 182, January – February 1939
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Henry Morgenthau, Jr. Papers
Diaries of Henry Morgenthau, Jr.
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DIARY
Book 182
$80 Billion National Income
Part I
Book Page
$80 Billion National Income
President's Annual Budget Message to Congress -
1/4/39
182
1
Naess (Ragnar D.) memorandum to Earle Bailie on
proposed general business check - 1/13/39
22
Bailie transmits two memoranda: (1) role deficit
spending in the form of "net contributions" plays
in the American economy; (2) expressions of businessmen
regarding causes of 1937 business decline - 1/16/39
32
FDR's memorandum to various Cabinet members suggesting
statement or speech in favor of budget message position -
"compensatory fiscal policy" - 1/21/39
43
Conference held at HMJr's home; present: HMJr, Hanes,
Bell, Gaston, Duffield, White, Haas - 1/24/39
44
Haas memorandum: "Development of the current business
recession" - 1/26/39
65
Duffield's report on conference with Goldenweiser -
1/26/39
97
FDR's second memorandum asking HMJr to help
103
American Federation of Labor statement: "What's ahead for
1939 and 1940?" Monthly Survey of Business - January,
1939
105
White memorandum to be taken to White House - 1/31/39
106
Second conference held at HMJr's home; present: HMJr,
Hopkins, Eccles, Henderson, Currie, Nathan, Delano,
Hanes, Gaston, White, Haas, and Thorp - 2/6/39
118
Conference; present: HMJr, Gaston, White, Haas, Duffield,
Lubin - 1/30/39
159
Lubin memorandum entitled, "Outline for analysis of
factors determining the level of national income"
178
Delano letter to editor of Fortune concerning Round Table
on Government spending - 2/9/39
182
Commerce release; "Income in United States, 1929-1937"
186
Memorandum submitted by Technical Committee of Fiscal and
Monetary Advisory Committee as outline for study of
recovery program transmitted to Eccles, Delano, Henderson,
Lubin, Hopkins - 2/18/39
205
Conference of Fiscal and Monetary Advisory Committee -
2/13/39
229
Regraded Unclassified
ANNUAL MESSAGE
OF THE
1
PRESIDENT OF THE UNITED STATES
DELIVERED BEFORE A
JOINT SESSION OF THE SENATE AND
HOUSE OF REPRESENTATIVES OF THE
UNITED STATES
76th CONGRESS
let SESSION
JANUARY 4, 1939
TO THE CONGRESS OF THE UNITED STATES:
In reporting on the state of the nation, I have
felt it necessary on previous occasions to advise the
Congress of disturbance abroad and of the need of putting
our own house in order in the face of storm signals from
across the seas. As this Seventy-Sixth Congress opens
there is need for further warning.
A war which threatened to envelop the world in
flames has been averted: but it has become increasingly
clear that peace is not assured,
All about us rage undeclared wars -- military and
economic. All about us grow more deadly armaments --
military and economic. All about us are threats of new
aggression -- military and economic,
Storms from abroad directly challenge three institutions
indispensable to Americans, now as always. The first is religion.
It is the source of the other two -- democracy and international
good faith.
Religion, by teaching man his relationship to God,
gives the individual a sense of his own dignity and teaches
him to respoct himself by respecting his neighbors.
Democracy, the practice of self-government, is a
covenant among froe men to respect the rights and liberties
of thoir follows.
International good faith, E. sister of democracy,
springs from the will of civilized nations of mon to respect
the rights and liberties of other nations of men.
In a modern civilization, all three -- religion,
democracy and international good faith -- complement each
other.
Where freedom of religion has boon attacked, the
attack has came from sources opposed to democracy. Where
democracy has beon overthrown, the spirit of froe worship
has disappoared. And where roligion and democracy have
vanished, good faith and reason in international affairs
have given way to strident ambition and brute force.
An ordering of society which relegates religion,
democracy and good faith among nations to the background
oan find no place within it for the ideals of the Prince
of Pence. The Unitod States rejects such an ordering, egraded
Unclassified
and rotains its anoient feith,
There oomes e. time in the affairs of men when they
must prepare to defend not their homes alone but the tenets
2
of faith and humanity on which their churches, their
governments and their very civilization are founded. The
defense of religion, of demecracy and of good faith among
nations is all the same fight. To save one We must now
make up our minds to save all.
We know what might happen to us of the United States
if the new philosophies of force were to encompass the
other continents and invade our own. We, no more than other
nations, can afford to be surrounded by the enemies of our
faith and our humanity. Fortunate to 18, therefore, that in
this Western Hemisphere we have, under a common ideal of
democratic government, e rich diversity of resources and of
peoples functioning together in mutual respect and peace.
That Hemisphere, that peace, and that ideal we
propose to do our share in protesting against storms from
any quarter. Our people and our resources are pledged to
secure that protection. From that determination no American
flinches.
This by no means implies that the American Republics
disassociate themselves from the nations of other continents --
it does not mean the Americas against the rest of the world. We
as one of the Republics reiterate our willingness to help the
cause of world peace. We stand on our historic offer to take
counsel with all other nations of the world to the end that
aggression among them be terminated, that the race of armaments
cease and that commerce be renewed.
But the world has grown so small and weapons of attack
80 swift that no nation can be safe in its will to peace so
long as any other single powerful nation refuses to settle
its grievances at the council table.
For if any government bristling with implements of
war insists on policies of force, weapons of defense give
the only safety.
In our foreign relations we have learned from the
past what not to do. From new wars we have learned what we
must do.
Wo have learned that effective timing of defense, and
the distant points from which attacks may be launched are
completely different from what they were twenty years age.
We have learned that survival cannot be guaranteed
by arming after the attack begins -- for there is new range
and speed to offense.
We have learned that long before any evert military
act, aggression begins with proliminaries ef propaganda,
subsidized penetration, the loosening of ties of good will,
the stirring of prejudice and the incitement to disunion.
We have learned that God-feering democracies of the
world which observe the sanctity of treaties and good faith
in their dealings with other nations cannot safely be
indifferent to international lawlessness anywhere. They
cannot forever let pass, without effective pretost, acts Regraded of
Unclassified
aggression against sister nations - Acts which automatically
undermine all of UB.
- 3 -
Obviously they mist proceed along practical, peaceful
lines. But the mere fact that we rightly decline to intervens
with arms to prevent acte of aggression does not mean that we
must act as if there wer no aggression at all. Words may be
futile, but war is not the only means of commanding a decent
respect for the opinions of mankind. There are many methods
short of war, but stronger and more effective than mere words,
of bringing home to aggressor governments the aggregate senti-
ments of our own people.
At the very least, we can and should avoid any action,
or any lack of action, which will encourage. assist oT build
up an aggressor. We have learned that when we deliberately
try to legislate neutrality, our neutrality laws may operate
unevenly and unfairly - - may actually give aid an aggressor
and deny it to the victim. The instinct of self-preservation
should warn un that we ought not to let that happen any more.
And we have learned something else the old, old
lesson that probability of attack is mightily decreased by
the assurance of an ever ready defense. Since 1931 world events
of thunderous import have moved with lightning speed. During
these eight years many of our people clung to the hope that the
innate decency of mankind would protect the unprepared who showed
their innate trust in mankind. Today we are all wiser - and
sadder.
Under modern conditions what we mean by "adequate
defense" - a policy subscribed to by all -- must be divided
into three elements. First we must have armed forces and de-
fenses strong enough to ward off sudden attack against strategic
positions and key facilities essential to ensure sustained re-
sistance and ultimate victory. Secondly we must have the organi-
zation and location of those key facilities so that they may be
immediately utilized and rapidly expanded to meet all needs with-
out danger of serious interruption by enemy attack.
In the course of a few days I shall send you a special
message making recommendations for those two essentials of de-
fense against danger which we cannot safely assume will not
come.
If these first two essentials are reasonably provided
for, we must be able confidently to invoke the third element,
the underlying strength of citizenship the self-confidence,
the ability. the imagination and the devotion that give the
staying power to see things through.
A strong and united nation may be destroyed if it is
unprepared against sudden attack. But even a nation well armed
and well organized from B. strictly military standpoint, my,
after a period of time, meet defeat if it is unnerved by self-
distrust. endangered by class prejudice. by dissension between
capital and labor. by false oconomy and by other unsolved social
problems at home,
In meeting the troubles of the world we must meet
them as one people -- with a unity born of the fact that for
generations those who have come to our shores. representing
many kindrode and tonguos, have bean welded by common oppor-
tunity into a united patriotiom. If another form of govern-
ment can present a united front in its attack on a democracy,
the attack must be met by a united democracy. uchRegraded-Unclassified
can And must exist in the United States.
A dictatorship may command the full strength of 8
regimented nation. But the united strength of a democratic
nation can be mustered only when its people, educated by
modern standards to know want is going on and where they are
going, have conviction that they are receiving as large a
share of opportunity for development, as large a share of
material success and of human dignity, as they have e right
to receive.
Our nation's program of social and economic reform
is therefore a part of defense as basic as armaments
themselves.
Against the background of events in Europe, in Africa
and in Asia during these recent years, the pattern of what
we have accomplished since 1933 appears in even clearer focus.
For the first time we have moved upon deep-seated
problems affecting our national strength and have forged
national instruments adequate to meet them.
Consider what the seemingly piecemeal struggles of
these six years add up to in terms of realistic national
preparedness.
We are conserving and developing natural resources --
land, water, power, forests.
We are trying to provide necessary food, shelter and
medical care for the health of our population.
We are putting agriculture -- our system of food and
fibre supply -- on a sounder basis.
We are strengthening the weakest spot in our system
of industrial supply -- its long smouldering labor difficulties.
We have cleaned up our credit system so that depositor
and investor alike may more readily and willingly make their
capital available for peace or war.
We are giving to our youth new opportunities for work
and education.
We have sustained the morale of all the population by
the dignified recognition of our obligations to the aged,
the helpless and the needy,
Above all, we have made the American people conscious
of their interrelationship and their interdependence. They
sense 8 dommon destiny - and a common need of each other.
Differences of occupation, geography, race and religion no
longer obscure the nation's fundamental unity in thought and
in action.
We have our difficulties, true -- but we are et wiser
and a tougher nation than we were in 1929, or 1932.
Never have there been six years of such far-flung
internal preparedness in our history. And all this has been
done without any dictator's power to command, without
conscription of labor or confiscation of capital, without
concentration camps, and without a scratch on freedom of
speech, freedom of the press or the rest of the Bill of
Rights.
We see things now that we could not see along the way.
The tools of government which WU bad in 1933 are Regaded Unclassified
had to forge new tools for a new role of government
for
new
needa
5
- 5 -
Some of these tools had to be roughly shaped and
still need some machining down. Many of those who fought
bitterly against the forging of these new tools welcome their
use today, The American people, AB a whole, have accepted
them. The Nation looks to the Congress to improve the now
machinery which we have permanently installed, provided that
in the process the social usefulness of the machinery is not
destroyed or impaired.
All of us agree that we should simplify and improve
laws if experience und operation clearly demonstrate the need.
For instance, all of us want better provision for our older
people under our social security legislation. For the
medically needy we must provide better care,
Most of us agree that for the sake of employer and
employee alike we must find ways to end factional labor
strife and employer-employee disputes.
Most of us recognize that none of these tools can
be put to maximum effectiveness unless the executive processes
of government are revemped -- reorganized, if you will --
into more effective combination. And even after such
reorganization it will take time to develop administrative
personnel and experience in order to use our new tools with
a minimum of mistakes. The Congress, of course, needs no
further information on this.
With this exception of legislation to provide greater
government efficiency, and with the exception of legislation
to ameliorate our reilroad and other transportation problems,
the past three Congresses have met in part or in whole the
pressing needs of the-new order of things.
We have now passed the period of internal conflict in
the launching of our program of social reform. Our full
energies may now be released to invigorate the processes of
recovery in order to preserve our reforms, and to give every
man and woman who wants to work a real job at a living wage.
But time is of paramount importance. The deadline
of danger from within and from without is not within our
control. The hour-glass may be in the hands of other nations.
Our own hour-glass tells us that We are off on 6 race to
make democracy work, so that we may be efficient in peace
and therefore secure in self defense.
This time element forces us to still greater efforts
to attain the full employment of our labor and our capital.
The first duty of our statesmanship today is to
bring capital and man-power together.
Dictatorships do this by main force. By using main
force they apparently succeed at it -- for the moment.
However we abhor their methods, we are compelled to admit
that they have obtained substantial utilization of all their
material and human resources. Like it or not they have
solved, for & time st least, the problem of i&lo men and
idle capital. Can we compete with them by boldly seeking
methods of putting idle men and idle capital togother and,
at the same time, remain within our American way of life,
within the Bill of Rights, and within the bounds Regraded Unclassified
from our point of view, civilization itself?
6
- 6
We suffer from a great unemployment of capital. Many
people have the idea that as B nation we are overburdened
with debt and are spending more than we can afford. That is
not BO. Despite our Federal Government expenditures the
entire debt of our national economic system, public and
private together, is no larger today than it was in 1929,
and the interest thereon is far leas than it was in 1929.
The object is to put capital -- private as well as
public -- to work.
We want to get enough capital and labor at work to
give us a total turnover of business, B. total national income,
of at least eighty billion dollars a year. At that figure
we shall have a substantial reduction of unemployment; and
the Federal revenues will be sufficient to balance the current
level of cash expenditures on the basis of the existing tax
structure, That figure can be attained, working within the
framework of our traditional profit system.
The factors in attaining and maintaining that amount
of national income are many and complicated.
They include more widespread understanding among
business men of many changes which world conditions and
technological improvements have brought to our economy over
the last twenty years -- changes in the interrelationship
of price and volume and employment, for instance -- changes
of the kind in which business men are now educating themselves
through opportunities like the so-called "monopoly investigation".
They include a perfecting of our farm program to protect
farmers' income and consumers' purchasing power from altornate
risks of crop gluts and crop shortages.
They include wholehearted acceptance of new standards
of honesty in our financial markets.
They include reconcilement of enormous, antagonistic
interests -- some of them long in litigation -- in the railroad
and general transportation field.
They include the working out of new techniques --
private, state and federal -- to protect the public interest
in and to develop wider markets for electric power.
They include a revemping of the tax relationships
between. federal, state and local units of government, and
consideration of relatively small tax increases to adjust
inequalities without interforing with the aggregate income
of the American people.
They include the perfecting of labor organization and
a universal ungrudging attitude by employers toward the labor
movement, until there 1s B minimum of interruption of production
and employment because of disputes, and acceptance by labor of
the truth that the welfare of labor itself depends on increased
balanced out-put of goods.
To be immediately practical, while proceeding with a
steady evolution in the solving of these and like problems,
we must wisely use instrumentalities, like Federal investment,
which are immediately available to us.
Here, as elsowhere, time in the
decidingRegraded Unclassified
our choice of remeding,
- ?
Therefore, it does not BROW logical to me, at the
moment we seek to increase production and consumption, for
the Federal Government to consider a drastic curtailment of
its own investments.
The whole subject of government investing and government
income 16 one which may be approached in two different ways.
The first calls for the elimination of enough activities
of government to bring the expenses of government immediately
into balance with income of government. This school of thought
maintains that because our national income this year is only
sixty billion dollars, ours is only a sixty billion dollar
country: that government must treat it as such; and that without
the help of government, it may some day, somehow, happen to
become an eighty billion dollar country.
If the Gongress decides to accept this point of view,
it will logically have to reduce the present functions or
activities of government by one-third. The Congress will
have to accept the responsibility for such reduction: and the
Congress will have to determine which activities are to be
reduced.
Certain expenditures we cannot possibly reduce, such
as the interest on the public debt. A few million dollars
saved here or there in the normal or in curtailed work of
the old departments and commissions will make no great saving
in the Federal budget. Thorefore, the Congress would have to
reduce drastically some of certain large items, such as aids
to agriculture and soil conservation, veterans' pensions,
flood control, highways, waterways and other public works,
grants for social and health security, Civilian Conservation
Corps activities, relief for the unemployed, or national
defense.
The Congress alone has the power to do all this, as
it is the appropriating branch of the government.
The other approach to the question of government
spending takes the position that this Nation ought not to be
and need not be only a. sixty billion dollar nation; that at
this moment it has the men and the resources sufficient to
make it at least an eighty billion dollar nation. This school
of thought does not believe that it can become an sighty billien
dollar nation in the near future if government outs its
operations by one-third. It 1a convinced that if we were to
try it, we would invite disaster - that we would not long
remain even a sixty billion dollar nation. There are many
complicated factors with which we have to deal, but we have
learned that it is unsafe to maise abrupt reductions at any
time in our net expenditure program.
By our common sense action of resuming government
activities last Spring, we have reversed a recession and
started the new rising tide of prosperity and national income
which we are now just beginning to enjoy.
If government activities are fully maintained, there
is a good prospect of our becoming an eighty billion dollar
country in a very short time, With such a national income,
present tax laws will yield enough each year to balance each
year's expenses.
It is my conviction that down in their hearts the
American public - industry, agriculture, finance - wants
this Congress to do whatever needs to be done to Regraded
Unclassi
national income to eighty billion dollars 8. year.
- e -
Investing soundly must preclude spending wastefully.
To guard against opportunist appropriations, I have on several'
occasions addressed the Congress on the importance of permanent
lang-range planning. I hope, therefore, that following my
recommendation of last year, a permanent agency will be set
up and authorized to report on the urgency and desirebility
of the various types of government investment.
Investment for prosperity can be made in a democracy.
I hear some people say "This is all so complicated.
There are certain advantages in a dictatorship. It gets rid
of labor trouble, of unemployment, of wasted motion and of
having to do your own thinking".
My answer is "yes, but it also gets rid of some
other things which we Americans intend very definitely to
keep -- and we still intend to do our own thinking".
It will cost us taxes and the voluntary risk of
capital to attain some of the practical advantages which
other forms of government have acquired.
Dictatorship, however, involves costs which the American
people will never pay: The cost of our spiritual values. The
cost of the blessed right of being able to say what we please.
The cost of freedom of religion. The cost of seeing our capital
confiscated. The cost of being cast into a concentration camp.
The cost of being afraid to walk down the street with the
wrong neighbor. The cost of having our children brought up
not as free and dignified human beings, but as pawns molded
and enslaved by a machine.
If the avoidance of these costs means taxes on my
income; if avoiding these costs means taxes en my estate at
death, I would bear those taxes willingly as the price of my
breathing and my children breathing the free air of a free
country, as the price of a living and not a dead world.
Events abroad have made it increasingly clear to the
American people that dangers within are less to be feared
than dangers from without. If therefore a solution of this
problem of idle men and idle capital is the price of preserving
our liberty, no formless selfish fears can stand in our way.
Once I prophesied that this generation of Americans
had a rendezvous with destiny. That prophesy comes true.
To us much is given; more 13 expected.
This generation will "nobly save or meanly lose the
last best hope of earth ..... The way is plain, peaceful,
generous, just -- a way which if followed the world will
forever applaud and God must forever bless".
FRANKLIN D. ROOSEVELT
THE THITE HOUSE,
Regraded Unclassified
January 4, 1939.
9
BUDGET MESSAGE OF THE PRESIDENT
o the Congress of the United States:
Pursuant to provisions of law, I transmit herewith the Budget of
be United States Government for the fiscal year ending June 30,
940, together with this message, which is an integral part thereof.
he estimates in this Budget are based upon a continuation of all
xes now in force and upon a careful analysis of the existing obliga-
ons and future needs of the Government. I, therefore, recommend
propriations for the purposes specifically detailed in the tables
hich follow.
THE BUDGET AND THE NATIONAL INCOME
Taxation yields almost all of the income of the Government, leaving
is than 5 percent to come from miscellaneous sources. Revenue
bm taxes depends mainly on two factors: The rate of taxation and
e total of the national income. This holds true not only of direct
xes on personal and corporate income but also of what are known
ad valorem taxes or other forms of indirect taxes, for the very good
ason that the volume and value of goods produced or articles
ported vary with the rise or fall of the Nation's total income.
We can and do fix the rate of taxation definitely by law. We can-
it by a simple legislative act raise the level of national income, but
ir experience in the last few years has amply demonstrated that
rough wise fiscal policies and other acts of government we can do
uch to stimulate it.
Today the Nation's income is in the neighborhood of 60 billion
llars a year. A few years ago it was much lower. It is our belief
at it ought to be much higher.
In order that you may know the amount of revenue which the
overnment may expect under the existing tax structure as the
tional income rises, the following table is submitted. It shows the
timated revenues which may be derived when national income
aches certain levels between 70 billion and 90 billion dollars.
Regraded Unclassified
VI
THE BUDGET, 1940
10
Estimated Federal receipts 1 by principal sources, at certain assumed levels of
national income based on December 1938 tax rates
[In billions of dollars]
National income
70
8
8
Income taxes.
25
3.9
5.7
Miscellaneous Internal revenue
22
2.6
11
Customs
.4
-8
.7
Miscellaneous receipts
.2
.2
.2
Pay-roll taxes
.7
.8
.9
Total
6.0
8.0
10.6
1 Tax liabilities excluding trust sccounts. Pay-roll taxes at calendar year 1938 rates.
The table is not intended to indicate the national income for any
particular year and, of necessity, the estimates are rough and may
vary somewhat either way. Since taxes are paid from one month to
fifteen months after income is realized, the achievement of a 90 billion
dollar national income in one year will not, for instance, mean tax
collections of 10 billion dollars in that same year. This table is an
indicator and not a gauge.
During the past nine fiscal years-a period which has seen the
national income drop from a high of 81 billion dollars in the calendar
year 1929 to around 40 billion dollars in 1932 and rise again to about
70 billion dollars in 1937-Federal revenues, even though on a higher
tax base, ha ve never completely covered expenditures.
We require continual study of the revenues necessary to carry on
the normal functions of the Federal Government and of the role which
Federal policy should play in the stabilization of the national economy.
This study includes a consideration of: (a) The practicability of
reclassifying expenditures on a functional basis and the most appro-
priate methods of financing the different classifications; (b) the problem
of human security including relief and its costs; and (c) the correlation
between national income on the one hand and Government receipts
and expenditures on the other.
An analysis of receipts and expenditures by major classes over a
ten-year period, as set forth in the following table, indicates the nature
of the problems to be studied.
Regraded Unclassified
MESSAGE TRANSMITTING THE BUDGET
VII
11
and estimated receipts and expenditures of the Government for the fiecal years 1981-40
(Classifications include expenditures from both general and emergency funda)
(In millions of dollars)
Estimated
Actual
Total,
1901-
40
1940
1030
1035
1937
3936
3088
3034
1032
1032
TOTAL
STRIPTS
16,780
1,908
2,080
2,635
2,158
1,427
1,090
818
740
1,057
1,860
26
6
6
6
6
lenue
16,035
2,333
2,173
2,280
2,181
2,009
1,657
1,470
858
504
870
Act
2,153
680
on
604
202
heir employees
383
124
109
150
dueta
951
77
521
353
grance Act
5
5
3,583
404
335
359
486
387
342
312
351
228
377
2,110
208
200
208
211
216
180
162
225
117
883
41,033
A,000
A,200
0,243
A,294
4,116
3,200
3,110
2,080
2,000
3,100
TOITURES
establishmenta:
197
22
2)
11
21
22
18
10
10
19
as
ture
1,050
136
162
134
149
119
71
63
os
IN
00
ron
358
$
31
30
33
37
33
25
33
39
48
rior
604
B
95
92
78
62
65
45
54
61
an
405
50
42
41
37
38
38
81
D
48
42
197
22
20
26
as
#
18
12
14
15
12
(deficioney)
876
53
57
47
20
an
64
04
117
NO
146
159
17
17
17
17
17
16
11
15
17
15
1,452
170
165
USE
LSS
145
123
in
132
159
130
bilitary)
490
51
54
82
54
47
50
44
D
47
45
Inited States share)
64
à
&
A
A
6
5
6
8
10
0
commissions
735
148
120
91
75
60
00
30
44
44
48
at
50
20
licial, and elvil
6,747
885
799
712
ou
675
502
458
584
700
047
8,019
1,125
1,017
280
895
880
663
494
633
654
607
befits
9,050
532
MO
572
1,128
2,248
604
AM
849
973
943
8,045
1,050
976
926
800
749
821
757
-
DOG
612
750
71
66
100
56
54
77
54
70
101
91
Program
3,820
694
703
362
527
533
712
280
2,015
925
533
678
445
28
390
137
112
145
6
arement funds
428
57
75
78
47
41
21
21
21
21
21
Bt losses, settlement of war
171
OR
I
I
=1
14
5
40
6
150
50
130
33,768
4,672
4,422
2.0M
3,974
4,034
2,805
2,100
2,267
2,407
2,340
Tures
40,515
5,587
8,261
4,645
4,663
5,309
3,457
2,651
2,851
3,153
2,987
program
210
210
2,426
213
232
257
all
244
317
255
178
210
174
hority
263
40
42
42
42
40
36
11
459
48
=
65
52
50
41
25
25
26
14
aprovement
905
8
83
95
145
150
ISS
76
51
55
51
510
101
95
61
45
36
at
41
34
28
35
740
02
8
77
76
68
&
79
106
66
65
including administration
1,523
360
392
190
273
234
e
19
1,128
134
IN
110
118
X
101
106
75
94
79
7,952
1,044
1,229
880
1,102
914
786
625
472
400
421
av
4,008
a
97
154
184
588
1,916
716
351
74
(etz.)
7,198
7
1,604
1,516
3,957
1,298
Il
805
Corps
2,550
285
290,
325
886
486
626
332
9
2,435
1,685
70%
16,231
2,019
2,741
1,996
2,127
2,372
1,361
1,850
360
book, etc. (net)
8,339
120
271
104
150
71
(3)
552
181
573
301
65
=
Renditures
27,797
3,458
5,20
1,980
3,779
3,347
3,553
3,36)
1,013
1,372
554
Musive of debs retirement
66,312
8,995
9,492
7,636
5,442
8,650
7,010
6,011
3,804
4,035
3,671
27,279
3,326
1,072
LSM
9,148
4,550
3,210
2,895
1,784
2,139
481
25,273
5,320
3,967
740
2,647
A,077
1,048
4,014
9,052
2,68%
ste
each fiscal year
44,458
41,332
37,165
36,425
33,778
26,701
27,055
22,670
10,497
16,801
on the basis of the daily Treasury statement as revised on July 1, 1938.
Regraded Unclassified
VIII
THE BUDGET, 1940
12
ORDINARY EXPENDITURES
The expenditure side of a budget may be divided into two major
classes, namely-ordinary, which includes the operating expenditures
for the normal and continuing functions of government, and extraor-
dinary, which includes those expenditures required to meet the non-
operating or the unusual costs of government.
General public works of an annual recurring nature may fall in
either class, but in view of their flexibility they have been classed as
extraordinary for the purpose of this statement.
The foregoing table shows that the excess of expenditures over
revenues in the ordinary classification is attributable to various
causes: New functions undertaken; more carrying charges on the
national debt, though at lower interest rates; and the inauguration
of the social security and agricultural programs. Under all of these
classifications, new expenditures have been added without corre-
sponding increases in taxes.
Fixed costs have also increased because of numerous new appro-
priations for grants and subsidies.
Another type of expenditure has been forced upon us in increasing
volume by the real necessity for expanding our national defense. We
are all aware of the grave and unsettling developments in the field of
international relations during the past few years. Because of the
conditions of modern warfare, we must now perform in advance tasks
that formerly could be postponed until war had become imminent.
A large part of additional national defense expenditures should, I
think, be put in a special category on a temporary basis.
The operating expenses of the Government have also increased be-
cause of reductions in the hours of work of certain classes of Federal
employees, and because of expansion of the normal functions of the
Government with the growth of the country.
Among the new governmental functions which have added to the
costs of the ordinary budget, the farm program is outstanding. Soil
conservation expenditures and other outlays for the crop adjustment
program which are of a continuing nature and produce no direct
return to the Federal Government have been only partially covered
by new revenues.
A new, and partly self-financing, addition was made to the ordinary
expenditures when the Social Security Act was passed to safeguard
the economic security of a large portion of our population. However,
no provision was made for revenues which would pay for grants to
States for old-age assistance, for maternal and child welfare, for
public health work, and for aid to dependent children and the blind,
which expenditures in 1940 will approximate $286,000,000. Further-
more, consideration is now being given to plans for spreading the
Regraded Unclassified
MESSAGE TRANSMITTING THE BUDGET
IX
13
Cerage of, and for revising the benefits under, the Social Security
and for improving public health facilities. These plans present
or questions of future national policy and directly affect the
get.
EXTRAORDINARY EXPENDITURES
Reyond these questions of ordinary expenditures are those which
Me to the nonoperating or unusual costa of Government and involve
mordinary expenditures that deal more particularly with the rela-
ship between fiscal policy and the economic welfare of the country.
se questions concern Government loans, capital outlays, and relief
med, Expenditures made under these heads are of such a flexible
incter as to provide, through their contraction or expansion, B.
offset for the rise or fall in the national income.
be public has been showing an increased interest in the adoption
the Government of a form of budget which would conform more
to the practice followed in commercial business. There has
some criticism of the Government's practice of including in its
getary expenditures, amounts disbursed for loans, or for self-
dating projects, or for other extraordinary capital outlays which
- ase the wealth of the Nation.
recognized the merit of constructive suggestions of this nature by
emmending in my last Budget Message a change in the method of
encing the requirements of the Commodity Credit Corporation.
recommendation provided for an annual appraisal of the assets
liabilities of the Corporation, and contemplated that any surplus
operations or any impairment of capital resulting from losses be
sted ns receipts or expenditures in the annual Budget. Under
Amethod the Budget would be affected, not when the investment
is made, but in the fiscal year when the surplus or loss occurs.
gress approved this recommendation in the net of March 8, 1938,
it might well give consideration to an extension of this principle
ther governmental corporations and credit agencies, such as:
Agencies under the Farm Credit Administration
Electric Home and Farm Authority
Export-Import Bank of Washington
Farm Security Administration
Federal Crop Insurance Corporation
Federal Savings and Loan Insurance Corporation
Home Owners' Loan Corporation
Inland Waterways Corporation
Panama Railroad
Reconstruction Finance Corporation
Rural Electrification Administration
U. S. Maritime Commission
Regraded Unclassified
THE BUDGET, 1940
14
Public projects of a self-liquidating character represent another
class of expenditures appearing in the annual Budget as current
outlays, to which this principle might also be applied. For example,
outlays for the Boulder Canyon project amounting to more than 120
million dollars have been included in annual budgetary expenditures
of the Government, notwithstanding that the total cost of the project,
including capitalized interest during the period of construction, will
be returned to the Government within 50 years, with interest.
While 1 do not advocate that the Government capitalize all of its
expenditures for physical improvements, it seems to me that such
portions of the cost of public projects as are clearly self-liquidating
should occupy a separate category in budgetary reporting. Our
financial statements, of course, should clearly reflect, in appro-
priate classifications, the amount of Government outlays for physical
improvements that are not self-liquidating in character. We must
take into account the necessity for making such of these and other
changes as will permit the presentation to the Congress and to the
public of more accurate and intelligible statements of the financial
operations of the Government.
I should like to call your attention to the following table comparing
for the 10-year period the amount of the Federal deficit and the
increase in the public debt, with the amount included therein for
capital outlays. It should be understood that this table is not
intended to represent values on an earning basis. Nevertheless,
under our policy of expanding capital outlays to compensate for
variation in private capital expenditures and of making loans to meet
emergency needs of our people, the table clearly shows that the
greater part of the deficits and the larger part of the increase in the
public debt have gone for permanent additions to our national
wealth.
Let us all fix that fact in our minds so that there shall be no doubt
about it and so that we may have a clear and intelligent idea of what
we have been doing. We have not been throwing the taxpayers'
money out of the window or into the ses. We have been buying real
values with it. Let me repeat: The greater part of the budgetary
deficits that have been incurred have gone for permanent, tangible
additions to our national wealth. The balance has been an invest-
ment in the conservation of our human resources, and I do not regard
a penny of it as wasted.
Regraded Unclassified
MESSAGE TRANSMITTING THE BUDGET
XI
15
of Federal outlays for durable improvements and recoverable loans and investments with
Reficit and increase in gross public debt for the period July 1, 1930, to June 30, 1940
[In millions of dollars)
Actual
Estimated
Total
1931
1932
1933
IVM
1935
1936
1937
1938
1039
1940
debt retirement
481
2,529
1,784
2,895
3,210
4,550
3,148
1,384
3,972
1,321
27,279
public debt
616
2,686
3,052
4,514
1,048
5,077
2,647
740
2,067
2,320
25,272
for durable improve-
recoverable loans and
public works
247
299
294
338
400
436
478
453
605
465
4,013
loans and investments 1,
263
873
181
881
423
60
115
72
234
123
13,234
174
210
178
268
317
244
351
237
232
213
2,424
Won work through Civilian
step Corps
9
332
436
486
385
326
290
285
2,500
Traction projects of Works
Administration
406
595
464
734
488
2,687
public bodies for public
reluding administration)
19
49
234
273
190
202
300
1,523
poutlays
684
1,372
662
1,838
1,625
1,875
2,198
1,742
2,487
1,040
16,431
and
#
2,000
18,431
ement is on the basis of the daily Treasury statement as revised en July 1, 1938.
amount excludes $170,000,000 of repayments covered into miscellaneous receipts of the Treasury.
Progress Administration has estimated that between 30 peromt and 40 percent of the expenditures of that
an represent outlays for new construction. This does not represent the entire amount of durable improvements
Morks Progress Administration funds, since additions to eristing structures are not classed as new construction.
the purposes of this statement a figure has been used representing only now construction, namely, 34 percent
Progress Administration expenditures, after excluding administrative expenses, expenses of the National Youth
and expenditures for rural rebabilitation.
and was established from the Increment resulting from reduction in weight of the gold dollar. This Increment
Coded in the general receipts of the Government, nor was the expenditure for the establishment of the stabilization
general. Thus the transactions which resulted in this fund did not, in any way, affect the deficit. Neverthe-
- remaining In this fund could, when no longer needed for the purpose of stabilization, be utilized as an offset
increase in the debt.
year ago I recommended an increase in work relief, public works,
other related expenditures to check the downward spiral of
siness. The program undertaken at that time has contributed
Materially, I believe, to the existing upward movement of business
employment; and I feel that the business men and farmers and
Morkers of the country, no less than the unemployed, are entitled to an
surance that this program will not be curtailed arbitrarily or
polently.
Regraded Unclassified
THE BUDGET, 1940
16
The actual cost of work relief and similar expenditures goes down
after jobs are found by the workers on these rolls. A violent contrac-
tion, before the natural expansion of private industry is ready to take
up the slack, would mean, not only human misery, but a disruptive
withdrawal from American industry of a volume of purchasing power
which business needs at this time. The necessity of increasing
Federal expenditures a year ago to check a recession is 0 well-known
fact. Any decision to decrease those expenditures now that recovery
has just started would constitute a new policy which ought not to
be adopted without full understanding of what may be the result.
May I say emphatically that I am not suggesting an ordinary
budget which is always balanced and an extraordinary budget which
is always unbalanced. The ordinary expenses of government should
continue to be met out of current revenues. But I also hope that
those revenues in times of prosperity will provide H surplus which
can be applied against the public debt that the Government must
incur in lean years because of extraordinary demands upon it.
I believe I am expressing the thought of the most far-sighted
students of our economic system in saying that it would be unwise
either to curtail expenditures sharply or to impose drastic new taxes
at this stage of recovery. But in view of the addition to our publiè,
expenditures involved in the proposed enlarged national defense pro-
gram and the program for agricultural parity payments, for which
no revenue provision has yet been made, I think we might safely
consider moderate tax increases which would approximately meet the
increased expenditures on these accounts. It should be added, how-
ever, that it is my firm conviction that such new taxes as may be
imposed should be most carefully selected from the standpoint of
avoiding repressive effects upon purchasing power.
Sound progress toward a budget that is formally balanced is not to
be made by heavily slashing expenditures or drastically increasing
taxes. On the contrary, it is to be sought by employing every effec-
tive device we may have at our command for promoting a steady
recovery, which means steady progress toward the goal of full utiliza-
tion of our resources. We can contribute very materially toward that
end by a. wise tax program.
I am recommending the reenactment of the excise taxes which will
expire in June and July of this year, not because I regard them as
ideal components of our tax structure, but because their collection
has been perfected, our economy is adjusted to them, and we cannot
afford at this time to sacrifice the revenue they represent. If the
Congress should at this session adopt new taxes more scientifically
planned to care for the defense and agricultural programs, it is quite pos-
Regraded Unclassified
MESSAGE TRANSMITTING THE BUDGET
XIII
17
le that the existence of these new taxes will enable us in a later year
give consideration to abolishing some of the present excise levies.
The revised estimate of receipts for the fiscal year 1939 as contained
this Budget is $5,520,070,000, and of expenditures, $9,492,329,000,
ving B. deficit of $3,972,259,000.
The estimated receipts for the fiscal year 1940 amount to
669,320,000, and the expenditures for that year are estimated at
995,663,000, resulting in a deficit of $3,326,343,000.
RECOMMENDATIONS
Temporary miscellaneous internal-revenue tazes.-1 recommend that
Congress take steps by suitable legislation to extend the miscel-
eous internal-revenue taxes which under existing law will expire
t June and July, and also to maintain the current rates of those
es which would otherwise be reduced next June. I consider that
revenue from such taxes or its equivalent is necessary for the
ancing of the Budget for 1940.
Postal receipts.-The estimates of appropriations for the Postal
vice included in the 1940 Budget are predicated upon the enactment
legislation to provide for the continuance during that fiscal year
the 3-cent postage rate for first-class mail other than for local
livery. While the Government collects more than it spends on
it-class mail, the Postal Service is not self-supporting because it
ries other classes of mail at less than cost, as shown in the tabular
tnote on page XXV.
Civilian Conservation Corps.-The Civilian Conservation Corps has
monstrated its usefulness and has met with general public approval.
should be continued beyond June 30, 1940, and I recommend that
ongress enact during its present session the necessary legislation to
tablish the Corps as a permanent agency of the Government.
EVIEW OF THE FISCAL YEARS 1938 AND 1939, AND THE FISCAL
PROGRAM FOR 1940
This review concerns the cash actually received and paid out by
e Treasury in the fiscal year 1938, the estimates of receipts and
penditures for the fiscal year 1939, and the fiscal program for 1940.
FISCAL YEAR 1938
Receipts.-Total general fund receipts for the fiscal year 1938
mounted to $6,241,661,227 which was a gain over 1937 of $947,-
21,000. The receipts from income taxes were $477,091,000 in
Regraded Unclassified
XIV
THE BUDGET, 1940
18
excess of the amount collected from that source in 1937 while
miscellaneous internal-revenue taxes were $98,235,000 more. The
amounts collected from pay-roll taxes under the Social Security and
Carriers' Taxing Acts were $502,075,000 in excess of the amounts
collected from the same sources during 1937. Approximately the
same amounts were received in each of the two years from the tax
on unjust enrichment and from miscellaneous receipts. On the other
hand, the revenue from customs during 1938 declined $127,169,000
from the 1937 collections.
Expenditures.-The total expenditures for the fiscal year ended
June 30, 1938 (exclusive of expenditures for debt retirement and those
payable from postal revenue) amounted to $7,625,822,158, as com-
pared with expenditures on the same basis in 1937 of $8,442,408,756.
Of the reduction of $816,586,000 in the 1938 expenditures below those
of 1937, the bonus payment, which was B. nonrecurring item in 1937,
accounts for $556,665,000. Recovery and relief was $772,539,000
less in 1938 than in 1937, and transactions in revolving funds were
$82,583,000 less. Transfers to trust accounts increased $290,937,000,
while expenditures for other purposes were $304,264,000 greater.
Deficit and public debt.-The gross deficit for the fiscal year 1938
amounted to $1,449,625,881. Excluding $65,464,950 for statutory
debt retirement, the net deficit was $1,384,160,931. The estimated
net deficit submitted a year ago, as revised and adjusted, was
$1,204,330,000. The increase in the gross public debt during the
year amounted to $740,126,583, bringing the gross debt on June 30,
1938, to $37,164,740,315.
FISCAL YEAR 1939
Receipts.-The total anticipated general fund receipts for the fiscal
year 1939 will be $5,520,070,000, or $399,367,000 less than was
anticipated in the Budget estimates of last January and $721,591,000
less than for 1938.
This latter decrease reflects the adverse business conditions of the
late months of the 1937 and the early months of the 1938 calendar
years, and is particularly true of income taxes which it is estimated
will decline $548,618,000 below the actual collections in 1938. Miscel-
laneous internal revenue is expected to be $106,483,000 less, and pay-
roll taxes will be $34,781,000 less than in 1938. Customs revenues are
expected to show a decrease of $24,187,000 and miscellaneous receipts
a decrease of $8,356,000.
Expenditures.-The total expenditures (exclusive of expenditures
for debt retirement and those payable from postal revenue) for the
fiscal year 1939 are now estimated at $9,492,329,000.
Regraded Unclassified
MESSAGE TRANSMITTING THE BUDGET
19
Expenditures for recovery, and relief, including expenditures under
anticipated supplemental appropriation for the last five months
the present fiscal year, will amount in 1939 to $3,187,695,000, an
Trease of $951,528,000 over expenditures for this purpose in 1938.
ere are also increases of $170,937,000 for the regular departments
I agencies; $115,106,000 for the General Public Works Program;
3,079,000 for national defense; $346,318,000 for the agricultural
justment program, largely for cotton price adjustments and parity
ivments; $38,785,000 for grants and administrative expenses under
Social Security Act; $49,719,000 for interest on the public debt;
1,992,000 under revolving funds; $78,449,000 for transfers to trust
Counts; and $150,000,000 for supplemental items other than for
There are decreases of $2,945,000 for the Legislative Estab-
Ament, the Judiciary, and the Executive Office; $32,343,000 for vet-
pensions and benefits; $36,383,000 for the Civilian Conservation
and $33,734,000 for refunds of taxes.
Deficit and public debt.-Excluding public debt retirements, the net
Scit for 1939 is now estimated at $3,972,259,000, as compared with
inctual net deficit in 1938 of $1,384,160,931. The gross public
on June 30, 1939, is estimated at $41,131,502,010.
FISCAL YEAR 1940
Receipts.-Revenue estimates for the fiscal year 1940 are based on
assumption that certain taxes which would otherwise expire in
The and July 1939, will be continued. The total anticipated receipts
the fiscal year 1940 on this basis are $5,669,320,000, an increase
$149,250,000 over the estimated revenues for the fiscal year 1939.
be effect of the business recession which began late in 1937 will con-
aue to be felt in income-tax collections during the fiscal year 1940
such collections are expected to be $183,000,000 below those for
39. Miscellaneous internal revenue on the other hand will increase
$60,400,000 over 1939, and pay-roll taxes are expected to be
0,250,000 higher. The tax on unjust enrichment is expected to
main at the same figure as in 1939. The amount of contributions
ader the Railroad Unemployment Insurance Act, which appears as a
item in 1940, will be $4,950,000. Customs receipts are expected to
ow an increase of $68,900,000 over collections from this source during
no present fiscal year, and miscellaneous receipts are expected to be
Treater than in 1939 by $7,750,000.
Expenditures.-The expenditures contemplated for the fiscal year
940 (exclusive of expenditures for debt retirement and those payable
om postal revenues) total $8,995,663,200 which is $496,666,000 less
the amount estimated for 1939. There are increases of
Regraded Unclassified
XVI
THE BUDGET, 1940
20
$1,046,000 under the legislative and judicial establishments;
$83,735,000 for the civil departments and agencies; $8,665,000 under
the General Public Works Program; $28,121,000 under the Social
Security Act; $74,000,000 for interest on the public debt; $4,510,000
for refunds of taxes; and $87,097,000 under transfers to trust accounts.
For recovery and relief it is estimated that $2,266,165,000 will be
needed, or $921,530,000 less than the amount required for this purpose
in 1939. Supplemental estimates of appropriations will be submitted
to meet the requirements of the Works Progress Administration, the
National Youth Administration, and the Farm Security Administra-
tion for the fiscal year 1940. Of the estimated expenditure of
$2,266,165,000 for recovery and relief purposes, $1,750,000,000
is the amount estimated for expenditure by these three agencies;
$469,165,000 by the Public Works Administration and various depart-
ments from old balances of emergency funds, $10,000,000 by the
Federal Housing Administration, and $37,000,000 for reduction in
interest rates on farm mortgages.
National defense expenditures for 1940 will amount to $1,319,558,000.
This is an increase of $309,351,000 over the contemplated expenditures
for national defense purposes in 1939 and represents an increase of
$99,351,000 for continuing the current program and $210,000,000 on
account of the new $500,000,000 program to be submitted at a later
date.
There are decreases in estimated expenditures under the agricul-
tural adjustment program of $13,667,000; under the Civilian
Conservation Corps of $5,000,000; under revolving funds of $101,-
940,000; under veterans' pensions and benefits of $1,044,000; and
under regular supplemental items of $50,000,000.
Deficit and public debt.-The estimated net deficit for the fiscal year
1940 is $3,326,343,200, or $645,916,000 less than the net deficit for
the current fiscal year. The gross public debt on June 30, 1940, is
estimated at $44,457,845,210.
It should be pointed out, however, that the increase in the debt
by reason of the deficit does not mean that the Treasury will borrow
that additional sum on the market. There will be available during
the fiscal year for investment in special issues of Government obli-
gations the net sum of approximately $950,000,000, which represents
investments of $579,000,000 from the old-age reserve account,
$271,000,000 from the unemployment trust fund, and $100,000,000
from the railroad and Government employees' retirement funds and
from veterans' funds.
Regraded Unclassified
MESSAGE TRANSMITTING THE BUDGET
XVII
21
The following table shows the gross public debt at the end of the
al years 1936, 1937, and 1938, and the estimated gross debt at
end of the fiscal years 1939 and 1940.
(In millions of dollars)
June 30,
June 30,
1940
1939
June 30,
June 30,
June 30,
(esti-
(esti-
1938
1937
1936
mated)
mated)
operations:
dd by-
Public (banks, insurance companies, trust
companies, corporations, individuals, etc.).
35,449
33,073
30,144
30,677
29,405
Federal Reserve System
2,564
12,564
2,564 2,
2, 526
2,430
Governmental agencies
601
601
565
451
381
Government trust funds
1,260
i 1,260
1, 217
1,212
933
39,874
37,498
34,490
34,866
33,152
Issues:
Id by-
Old-age reserve account
1,751
1, 172
662
267
Unemployment trust fund
1,480
1,209
872
312
19
Railroad retirement account
81
76
00
Employees' retirement funds
551
463
396
316
280
Veterans' funds
564
557
549
538
127
Other
157
I 157
130
125
200
4, 584
3, 634
2 675
1,558
625
Gross debt
44,458
41,132
37,165
35,424
33,778
of Dec. 1, 1938, and It is assumed for the purpose of this statement only that they will remain at these
its throughout the fiscal years 1939 and 1940.
ppropriations.-The appropriations recommended in this Budget,
uding those for the Postal Service, District of Columbia, and
able supplemental items, total $10,190,311,483. The appropria-
already made and prospective supplemental items for the fiscal
1939 for the same purpose total $10,928,609,972. This is a
ease of $738,298,489.
FRANKLIN D. ROOSEVELT.
NUARY 3, 1939.
Regraded Unclassified
B
January 13, 1939
Memorandum to Mr. Bailie
22
GENERAL BUSINESS CHECK
We are scheduling a general business check which will start
next week and run through the first week of February. You will find
attached a list of the type of questions that we suggest be asked,
although of course the specific questions depend a great deal on the
individual company interviewed. There is also attached & list showing
the principal companies that will be interviewed and the scheduled
itinerary.
The main value of a general business check at this time
should be in helping us to determine whether or not the anticipated
moderate slowing down in industry is a. temporary situation, as we
think, or is an interruption of a more serious character. The ques-
tions that we have suggested have been framed with this problem in
mind.
We wish to gather an impression as to the sentiment of
business men at the moment regarding the political situation, their
point of view towards making new capital investments, their inventory
policies, their attitude towards European developments as they may
affect decisions in respect to future commitments and similar questions
having to do with the broader aspects of the business recovery.
We would welcome any suggestions that you may have regarding
this general business check.
Ragnar D. Naess
P. S. I plan to go to Washington and to make a short trip to the
Middle West spending part of the time with Mr. Heyman and part with
Mr. McMartin.
P.S.
The causes of the 1937 decline will be added
if that will be of value at the time of the H.B. check
Regraded Unclassified
SUGGESTED TYPE OF QUESTIONS
23
The following questions may be helpful to the interviewer
as indicating the type of information that will help us in analyzing
the prospects for business:
I. Orders and Production
1. Incoming orders -- As compared with fourth qúarter rate.
As compared with early 1936 rate.
What about cancellations.
2. Inquiries - Any recent important change.
3. Unfilled orders - As compared with 1938 low.
As compared with early 1936 level.
4. Production rate -- Recent trend (seasonally adjusted).
Does it reflect current level of orders?
What per cent gain from present level
before need additional capacity?
II. Capital Goods Prospects
1. Capital expenditure budget for 1939 vs. expenditures in
preceding four years.*
2. Any recent change in 1939 plans.
3. Bricks and mortar VS. machinery and equipment.
4. Factors favorable to increasing capital expenditures -
Development of new products?
Already operating at or near capacity?
Improving profits?
Virtual elimination of surtax since 1937?
Need improved machinery to offset higher labor costs?
More confidence because of November elections?
5. Factors unfavorable to increasing capital expenditures -
Capacity already adequate?
Costs already sufficiently low to meet competition?
Inability to finance?
Fear of not securing adequate profits on new investment
because of -
Labor situation?
Taxes?
New Deal in general?
European situation?
Regraded Unclassified
- 2 -
24
III. Inventories
1. Current level, and breakdown between raw materials and
finished goods (including semi-finished) -
As compared with June 1938
As compared with December 1937*
As compared with December 1936*
2. Status of customers' inventories?
3. Present inventory and buying policy?
4. Forward commitments?
IV. Price Trend
1. Finished goods.
2. Raw materials.
V. Labor Situation
1. Unionization status present and prospective.
2. Wage rate prospects.
3. Efficiency level and trend.
VI. Profit Margin
1. Trend.
2. 1939 vs. 1938; 1937; 1936.*
3. What has been relative importance of the following factors
causing change in margin between 1936 and 1939 -
Prices?
Raw material costs?
Higher wage rates?
Change in labor efficiency?
Increase in taxes?
VII. Sentiment
1. Attitude toward outlook for -
Business?
Political situation?
Monopoly investigation?
2. Effect on present plans in event of
Outbreak of European war?
Serious threat of war?
Regraded Unclassified
- 3 -
25
VIII. Financing Needs
IX. Questions for Banks
The chief aspects that can be covered by interviewing bankers
(other than getting information from them regarding specific
companies or industries) are such reflections as their loan
figures and other information might give regarding capital
expenditures, inventories, building and real estate.
X. Questions for Retail Trade
The usual questions on sales, prices, wholesale markets, inven-
tories, purchasing policy, labor situation, type of buying
(trading up or trading down? trend of installment sales?
better gains in hard lines or in soft lines?) and capital
expenditure plans.
* It is suggested that data for prior years requested on capital
expenditures (II, 1), inventories (III, 1), and profit margin
(VI, 2) be compiled before leaving the office and included in
write-ups for comparative purposes.
Regraded Unclassified
26
GENERAL BUSINESS CHECK
January-February, 1939
Mr. McMartin (January 23 - 27)
Pittsburgh
Aluminum Co. of America
Blaw-Knox
Gulf Oil
Pittsburgh Steel
Jones & Laughlin
National Steel
National Supply
Spear & Co.
Pressed Steel Car'
Carnegie Illinois
Union Trust
Youngstown
Youngstown Sheet & Tube
Youngstown Steel Door
General Fireproofing Co.
Akron
Goodrich
Firestone
Goodyear
General Tire
Canton
Hercules Motor
Timken
(February 6 - 10)
Chicago
American Steel Foundries
Pullman
Poor & Co.
Franklin Railway Supply
General American Transportation
Interlake Iron
Inland Steel
Ryerson
Pure Oil
Standard Oil of Indiana
Borg Warner
Regraded Unclassified
- 2 -
27
Mr. McMartin (Cont'd.)
Detroit
Chrysler
General Motors
Ford of Canada
National Steel
Kelsey Hayes
Cleveland
Republic Steel
American Steel Warehouse Assn.
Cleveland Cliffs Iron
Interlake Iron
Phillip W. Frieder Co. (Scrap Steel)
M. A. Hanna
Iron Fireman
Arthur G. McKee
Standard Oil of Ohio
Mr. Rawles (January 30 - - February 3)
Connecticut Valley
American Hardware
Scoville Manufacturing
Chase Copper and Brass
Stanley Works
Farrel Birmingham
New York
Kennecott Copper
International Nickel
American Metal
American Smelting
St. Joseph Lead
General Cable
Revere Copper & Brass
Anaconda
Phelps Dodge
Mr. Ashley (January 30 - - February 3)
Chicago
Fairbanks Morse
Crane
U.S. Gypsum
Lehon Co.
Regraded Unclassified
- 3 -
Mr. Ashley (Cont'd.)
28
Chicago (Cont'd.)
Union Stockyards
Stein Brennan (Grain House)
Cleveland
Sherwin Williams
Cleveland Tractor
Union Trust
Behr Manning (abrasives)
Buffalo
National Gypsum
New York
Otis Elevator
American Radiator
International Business Machines
F. W. Dodge
International Stat. Bureau
Starrett Corp.
Lone Star Cement
U. S. Pipe and Foundry
Mr. Ashley (February 7 - 9)
Washington
FHA
FDIC
USHA
HOLC
Federal Reserve Board
Mr. Soule (January 23 - 27)
Philadelphia
General Refractories
Baldwin
Budd Mfg.
Wilmington
du Pont
Hercules
Atlas
Regraded Unclassified
- 4 -
29
Mr. Soule (Cont'd.)
New York
Union Carbide
Air Reduction
U. S. Industrial Alcohol
Texas Gulf Sulphur
Mr. Heyman (January 23 - 27)
Toledo
Owens-Illinois
Libbey Owens Ford
Electric Auto. Lite
Chicago
International Harvester
Deere & Co.
Oliver Farm Equipment
Farm Equipment Institute
New York
Westinghouse Electric
General Electric
American Can
Continental Can
Graybar Electric
Loew's
Mr. Bickford (January 16 - 20)
Hartford
Niles-Bement-Pond
Worcester
Norton Company
Melville Shoe
Boston
Kay & Barnes - Leather Brokers
Nat'l. Assn. of Wool Mfgrs.
United Fruit
Sacs-Lowell - Textile Machinery
Fiduciary Trust Co.
First National Bank
Associated Industries of Mass.
Filene's
Regraded Unclassified
- 5 -
30
Mr. Bickford (Cont'd.)
Providence
General Fire Extinguisher Co.
Brown & Sharpe
Providence Braid Company
(January 30 - - February 3)
Cincinatti
General Machinery
Cincinatti Milling Machinery Co.
American Tool Works
(Proctor & Gamble)
Chicago
Montgomery Ward
Sears Roebuck
Link Belt
National Acme
Chicago Flexible Shaft
Milwaukee
Allis-Chalmers
Cutler-Hammer
Bucyrus-Erie
Cleveland
National Machine Tool Assn.
Ogelby, Norton & Co. (iron ore)
Messrs, Bickford and Brown
New York
American Bureau of Shipping
Cotton Textile Institute
Pacific Mills
Interchemical Corp.
J. C. Penney
H. L. Green
Rayon Organon
Cluett, Peabody & Co.
Mohawk Carpet
Bigelow Sanford Carpet
American Enka Corp. (rayon)
Regraded Unclassified
- 6 -
Messrs. Ives and Page
31
Utilities
Construction Budgets
American Gas & Electric
Business prospects of large industrial customers
Messrs. Ives and Fowler
Railroads
Interview individual railroads about prospects for
equipment expenditures, maintenance expenditures,
volume of traffic, possible railroad legislation, etc.
Regraded Unclassified
FOUR WALL STRÉET
32
January 16, 1939
Honorable Henry Morgenthau, Jr.,
2211 - 30th Street, N. W.,
Washington, D. C.
Dear Henry:
I hesitate to flood you with material, but in
our conversation the other day you asked for it - and I am
nclosing two memoranda, one being our own best view as
to the part that deficit spending in the form of 'net
contributions' plays in the American economy; the other,
Expressions of Business Men Regarding Causes of the 1937
Business Decline", which were given to us at the time the
lecline was going on. I think them particularly interesting
In view of what has happened since. We are now going out
to this same group and to many others, and are asking them
what they think about it as they look back over the last
two years; and when this material is at hand I will send
It on to you. In the meantime, the conclusion that I draw
from the two memoranda is that no one actually in business
felt that the decline in Government spending was one of
the major causes of the business decline; that, on the
contrary, our friends felt that there was ample cause without
this decline in Government spending. Naess' views - which
are mine -- are expressed in the theoretical memorandum,
and we feel that the cut down in Government expenditures,
having come at 8. time when a decline was already due,
undoubtedly accelerated that decline somewhat but was not
one of the main factors contributing to it.
With best regards,
Faithfully yours,
Earle
Enclosures.
Regraded Unclas
33
EFFECTS OF GOVERNMENT SPENDING ON THE ECONOMY
I. DEFICIT SPENDING IS ONLY ONE OF MANY FACTORS AFFECTING THE ECONOMY.
IT IS NOT A CAUSE OF BUSINESS DECLINES OR RECOVERIES.
A. In terms of the cash deficit the deficit has ranged
between 3.5 per cent and 8.7 per cent of the national
income paid out. From the point of view of the net
contribution to community spending power, as defined by
the Federal Reserve board, the ratio to national income
paid out has ranged between 1.4 per cent and 1.6 per cent.*
The fluctuations in total production of the country or in
national income paid out over a period of many years have been sub-
stantially greater than the proportion of either actual deficits or
the net contribution to community spending power to national income
produced or national income paid out. These fluctuations result from
the normal underlying economic forces. It is common place knowledge
that at certain times overexpansion takes place in industry attended
by speculation and that such periods are followed by contraction and
liquidation. The changes in the level of output of the economy, re-
sulting from these forces far exceed the changes that may result from
deficit spending of the magnitude of the last few years. Therefore,
deficit spending must necessarily be considered as one element only
and its effect at any given time will entirely depend upon conditions
*Net contribution to community spending power is arrived at by making
adjustments in the Treasury figures, eliminating certain items of ex-
penditures which supposedly do not directly add to spending power and
eliminating certain items of receipts which supposedly do not detract
from community spending power.
Regraded Unclassified
- 2 -
34
of the economy at the time. Such spending can, at most, have &
modifying effect upon these fluctuations in business.
II. GENERAL LONGER-RANGE EFFECTS OF SPENDING
A. It seems beyond question that deficit spending has
an unfavorable effect upon the willingness of the
business community to make long-range commitments.
The uncertainty created by a monetary policy involv-
ing as an important factor deficits over a period of
years does unquestionably affect the character and
amounts of long-term contracts and thereby influences
adversely new capital investments.
B. Deficit spending carried on in large volume over a
period of years must necessarily have an undermining
effect upon the nation's credit and would tend to create
an untenable inflationary spiral if past history is any
guide. Inflation inevitably leads to financial, political
and social chaos.
The United States is in an exceptionally strong position
from the point of view of productive resources as well as from gold
reserves to stand deficit spending. This does not mean, however, that
continued deficit spending will not ultimately bring about its normal
and time honored consequences and neither does it mean that it can be
carried on without adversely affecting the investment of private capital.
Deficit spending, as a policy, is only one of several features of the
Administration's program, having an adverse effect upon the confidence
Regraded Unclassified
- 3 -
35
of the business community. Other policies, 8.8 expressed in
the various reforms cerried through in the last few years, for example,
either in respect to lubor or in respect to the devaluation
of the dollar, would also tend to have an unfavorable effect
upon business confidence.
III. THE EFFECT OF SPENDING VARIES WITH THE TYPE OF SPENDING
A. It is impossible to determine exactly the effects of
deficit spending upon the economy. The economic con-
sequences of various types of deficit spending may be
illustrated by the following examples:
1. Spending for direct relief will tend to
increase the purchases of goods and services
by the unemployed and thereby tend to increase
total consumption.
2. Support of corporations such as railroads,
banks and insurance companies during periods
of emergency tends to soften the blow of the
crisis. The exact measure of relief from the
seriousness of the crisis by such spending is
indeterminable.
3. The agricultural benefit payments or loans
represent 8. subsidy at the expense of the
industrial population. The loan policy
artificially maintains prices of agricultural
products at non-competitive levels in the world
markets. The price of cotton today in the free
market might well be five cents instead of 8½
cents. There is no doubt that the higher price
is one important cause of the record low level
of American cotton exports.
4. Spending for public works and utilities has &
beneficial effect upon certain sections of the
economy by reason of the stimulation from govern-
ment orders. To what extent this stimulation is
offset by the retrenchment in expenditures by
private utilities is debatable. But there is no
doubt that the TVA has had an unfavorable effect
upon private utility spending.
Regraded Unclassified
4
36
5. Spending for armaments also has a con-
centrated effect in certain branches of
the economy but can be of no major signi-
ficance in the economy as a whole, unless
carried to the extremes found in such a
country as Germany.
The effects of deficit spending on the economy depends
to a great extent upon the type of expenditure. Some types of
expenditures are not only unproductive but wasteful and have a
net detrimental effect upon the economy. Spending to keep the
unemployed from suffering is socially and economically justified
but spending that maintains agricultural prices at non-competitive
levels is detrimental to the community.
IV. DEFICIT SPENDING AS A FACTOR IN THE LAST BUSINESS DECLINE
A. The 1937-1938 business decline was the result of basic
economic forces such as excessive inventory accumulation,
large forward commitments in raw materials, speculation
in sensitive commodities, too rapid a rise in certain
sections of the capital goods industries such as machinery
and equipment and too rapid a rise in labor costs.
B. These developments began to have a cumulative effect during
the last half of 1936 and by early 1937 had become sufficiently
important to make a decline inevitable. The retrenchment in
spending happened to occur at a time when contraction in busi-
ness was unavoidable. Its effect upon the economy, therefore,
might have been one of tending to accentuate the decline but
could not be considered as a basic cause of the decline any
more than the increase of reserve requirements, the President's
Regraded Unclassified
- 5 -
37
statement regarding too high prices during the spring
of the year or the lifting of margin requirements.
CONCLUSION:
The 1937 decline was accentuated somewhat by retrenchment
of deficit spending but a severe business decline was unavoidable quite
regardless of the change in spending policy at the time. Deficit spend-
ing affects unfavorably the long-range confidence of the business community
as well as the long-range financial soundness of the country. In its
effect upon the shorter-range fluctuations of the economy it is only one
of many factors and among the less important. Retrenchment of spending
might tend to accentuate a decline in business (the decline being the
result of basic economic forces). An increase in spending might tend
to accentuate a rise in production (the rise resulting from basic
economic forces). The consequences of deficit spending also depend
upon the direction and type of expenditures. Some types of spending
have an ultimate effect of contracting instead of expanding production.
Regraded Unclassified
- 6 -
38
FEDERAL GOVERNMENT DEFICITS, NATIONAL INCOME, ETC.
ACTUAL AMOUNTS
(000,000)
National
National
Wages
Net Con-
Actual
Income
Income
and
tribution
Deficit
Paid Out
Produced
Salaries
1940
1939
1938
2,000 E
2,499
64,400 E
58,500 E
43,000 E
1937
985
2,411
69,330
69,817
46,728
1936
4,145
5,468
62,586
63,466
41,906
1935
3,360
3,963
55,137
55,186
36,679
1934
3,230
3,802
51,510
50,052
34,051
1933
1,880
2,239
45,317
42,256
29,596
1932
1,830
2,716
49,024
40,014
31,563
CHANGES OVER PREVIOUS YEAR
(000,000)
L940
1939
1938
+1,015
+
88
-4,930 E
-11,317 E
-3,728 E
1937
-3,160
-3,057
+6,744
+ 6,351
+4,822
1936
+ 785
+1,505
+7,449
+ 8,280
+5,227
1935
+ 130
+ 161
+3,627
+ 5,134
+2,628
1934
+ 350
+ 563
+6,193
+ 7,796
+4,455
1933
+
50
- 477
-3,707
+ 2,242
-1,967
1932
-
-
-
-
-
FEDERAL GOVERNMENT DEFICITS AS % OF NATIONAL INCOME, ETC.
NET CONTRIBUTION OF THE FEDERAL GOVERNMENT A % OF NATIONAL INCOME, ETC.
Deficit as % of
Net Contribution as % of
National
Wages
National
Wages
Income
and
Income
and
Paid Out Salaries
Paid Out
Salaries
1940
1939
1938
5.90
5.80
3.12
4.65
1937
3.45
5.15
1.42
2.11
1936
8.72
13.05
6.62
9.90
1935
7.18
10.80
6.10
9.15
1934
7.58
11.18
6.27
9.50
1933
4.93
7.57
4.15
6.35
1932
5.54
8.60
3.73
5.80
Regraded Unclassified
39
January 16, 1939
EXPRESSIONS OF BUSINESS MEN
REGARDING CAUSES OF THE 1937 BUSINESS DECLINE
R. Pritchard, Vice President, The Stanley Works, December 7, 1937
"Because of the alarming and uncertain Washington policies,
industry has believed for four years that it was 'better to have goods
than cash'. This conviction was the excuse for excessive stocking
although throughout this four-year period none of us would admit that
we were speculating. We got so used to believing that 'it is cheaper
to manufacture now than it would be three months later' that we gradually
lost sight of the speculation that was under way.".
Chairman Weir of National Steel, March 22, 1938
"The business decline is the result of New Deal policies."
Treasurer Hesse, National Steel, November 11, 1937
"We are now paying the price for the artificiality of the
recent recovery."
Blakeslee, President of Kalamazoo Stove. July 1, 1937
"There has been a letdown in business, and from what I can
learn from the men in the field, it is not only the effect of strikes,
but the attempted unionization of workmen in many plants. They have a
feeling of uncertainty which naturally would make them hesitate to oblige
themselves for 8. major purchase such as one of our products."
Cheff. Vice President, The Holland Furnace, June 29, 1937
"Sales have been somewhat erratic and have had a tendency to
dry up every time there has been some bad labor news."
September 14, 1937 - "more than any other thing causing working
men to delay signing contracts for furnaces was their uncertainty over the
labor situation." Time and again Cheff was confronted with the statement
that if there wasn't a strike the man would buy.
Regraded Unclassified
- 2 -
40
Shaver. Treasurer. U. S. Gypsum, July 1, 1937
"Clean up the labor situation and the Washington muddle, and
business will take care of itself."
Leonard. President, Union Stockyards & Transit, September 18, 1937
"It isn't so much how radical or far-reaching legislation
may be, it's the inability of business men to gauge what is coming
that is causing the damage. If the Administration would only come out
directly with its whole program, drastic as it may be, businessmen could
trim their sails accordingly."
President Weyerhaeuser of Weyerhaeuser Timber Co., September 17, 1937
"Having over-estimated the demand for this year, many of them
over-stocked. Currently, therefore, the inclination is to work off stocks
and wait until the picture is more clearly defined before reentering the
market."
Vice President Oliver Powell of the Federal Reserve Bank of Minneapolis
Attributed the decline in business in the Northwest to the
continued effect of curtailed relief expenditures, and a failure of farmers
to spend.
Crane Company, September, 1937, President Nolte
Three factors:
1. Excess stocking in the early months of the year.
2. Unsatisfactory labor situation.
3. Uncertainties in Europe.
President Sutherland of Sutherland Paper, September 13. 1937
He regarded concern over the foreign situation as the major
cause of the downturn.
Salesman for Poor & Co., September 18, 1937
Stated that railroads had stopped all buying until the wage
problem was settled. "If wages are increased and tariffs
5 -
41
& large number of roads plan to make out the best they can with present
equipment because they have no money to spend."
Cluett. Peabody, June 1937
Purchased a year's upply of cotton goods. Earlier in that year
the company's profits would have been severely squeezed by the high prices
then prevailing. As the outlook in June appeared to be one of continuing
business improvement, the company welcomed the opportunity to cover its
requirements on a "break" in the cotton goods market. (Subsequent declines
in prices caused a large inventory loss and the inventory surplus was not
cleaned up until December, 1938.)
Providence Braid Company
Overbought its rayon requirements because it had been advised
by its supplier that there would be a shortage. (Several plants in the
Providence area actually had to reduce operations in the spring because
of a lack of rayon yarn.)
International Shoe Company
One of the large retail chains was warned of a price advance in
shoes by International Shoe Company. A large order was placed at the old
price for fall requirements and production and shipment of this order were
completed by June 30, 1937. Ordinarily the production and shipment of such
an order would not be completed before September 7.
M. T. Baker, President, National Gypsum Company, September, 1937
"Why isn't there more building? You have the potential demand,
and you have the financial ability to buy. In my opinion, the element that
is missing is the feeling of security on the part of the workman which he
needs before he makes such a major investment as buying a house. He isn't
sure, first, whether the sharp wage advance forced by his union is going to
stick, or secondly, whether he has a steady job or is going to be called out
on strike or laid off by his employer. So long 88 the air is full of labor
agitation, there isn't going to be as much house buying or construction as
there ought to be. The reason I am now pessimistic over the outlook for sales
this fall and perhaps next spring is that I see more strikes ahead - Ford,
National Steel and all the rest. I told my associates during the steel strike
last June that we would have to take one year out of the building industry's
cycle. In other words, what we first planned for 1937 we probably now won't
get before 1938."
Regraded Unclassified
- 4 -
42
B. B. Williams, President, Cooper-Bessemer Corporation. January. 1939
"Our new orders began to fall off just as soon as the CIO
unionization movement approached its peak. It affected us both directly
and indirectly. We had to raise wage rates and increase prices. As a
result, we lost most of our marine business. The price of fish hadn't
gone up, and the fishing fleets simply couldn't afford to pay more for
diesels. Even more important, however, was the effect upon our indus-
trial customers. Things were happening to them so fast that they simply
became scared over the future outlook, and when they are scared they
don't make long-range capital investments of a hundred thousand dollars
or more for new engines and compressors."
Y
Regraded Unclassified
Recid 3.15P.M Jan 23,1938
THE WHITE HOUSE
43
WASHINGTON
PERSONAL AND CONFIDENTIAL
January 21, 1939
MEMORANDUM FOR
The Secretary of the Treasury
The Postmaster General
The Secretary of the Interior
The Secretary of Agriculture
The Secretary of Commerce
The Secretary of Labor
I think it would be a good idea if you would take
a public position either by statement or speech in favor
of the position taken in my annual message to the Congress
as well as in the Budget message - - a policy generally
known as the "compensatory fiscal policy". We must present
our case to the country - - the objective of an eighty
billion dollar national income and the avoidance of any
action on the part of the federal government by way of
stopping operations or by way of curtailment of credit.
For instance the Secretary of the Treasury could
explain the soundness of the case. The Secretary of Commerce
could do it with the aid of the more liberal members of the
Business Advisory Council. The Secretary of Agriculture could
do it with the objective of education of agricultural
interests. The Secretary of the Interior could speak on the
same subject from the angle of conserving material and human
resources.
None of us can afford to be apologetic. Economic
soundness of the policy is already recognized by many
economists and business men in this country, and even more
so in Sweden and other places.
I suggest you talk with Lowell Mellett about arranging
radio presentation or newspaper coverage.
F. D. R.
AND
Regraded Unclassified
44
RE COMPENSATORY BUDGET AND RECOVERY
January 25, 1939.
(Held at 2211 30th)
4:15 p.m.
Present:
Mr. Hanes
Mr. Bell
Mr. Gaston
Mr. Duffield
Mr. White
Mr. Haas
Haas:
I don't know how you want me to start?
H.M.Jr:
There are two things I asked for. I asked for the
important statements which were made during the
last five or six years that affect our national
economy. But inasmuch as Bell wants to get back,
why don't we do the one that has to do with deficits
going back the last ten years? Let's do that one
first.
Haas:
Here it is.
H.M.Jr:
Let's see.
Haas:
Now, this, Mr. Secretary, is the deficit figure
that's been supplied by Bell's shop - it runs back
to the beginning of 1930 - total net cash outgo.
And here's a curve representing general business -
the Times curve - only it's a monthly index of it -
that figure going here.
And over here are some selected important state-
ments made, and the time they were made is indi-
cated right where these lines go.
H.M.Jr:
I see.
Haas:
See - here.
H.M.Jr:
Do you think there is any correlation?
Haas:
Well, here - Eccles and his speech explained this
away by saying that at this period this deficit here
didn't count because it was due to a decline in
Regraded Unclassified
45
-2-
receipts. But over here in the same speech he
points out the decline in this deficit here was
responsible - was an important factor in bringing
about this business decline, whereas this deficit
was due largely to an increase in receipts. In
other words, he switches his logic. In explaining
this, he uses a different set of logic than he does
when he explains this situation over here. In
other words, he doesn't take the net deficit concept
and keep it uniformly through
H.M.Jr:
I've got to lie on my stomach and read this thing -
the only way I can do this. Don't you think so?
Haas:
Do you want me to read those?
H.M.Jr:
I'd make the deficit line red.
Haas:
Red? All right.
White:
Appropriate.
H.M.Jr:
What?
White:
It's appropriate.
Bell:
I was going to say that.
H.M.Jr:
The dotted one is the
....
Gaston:
That's the net cash, not budgetary deficit; the net
cash outgo of the Federal Government.
H.M.Jr:
I've got to lie on my stomach and read this thing.
Haas:
Everybody through here - there was nobody - we looked
over, as you asked to look over, all these statements.
I've got a summary of that with me too. You notice
all these statements here - we were worrying about a
boom, if you'll read those; nobody was talking about
this thing going on. I mean the President was talking
that the - everybody was concerned that we were going -
concerned with spending rather than the lack of." it.
And you notice there the statements of Eccles; at
different times he wanted to increase taxes and
balance the budget - he said were essential.
H.M.Jr:
Why some here and some here?
Regraded Unclassified
46
-3-
Haas:
We couldn't get all of them.
H.M.Jr:
Well now, let's just see.
"March 17. Wallace says Administration fears busi-
ness boom and collapse; is working on preventive
measures.
Haas:
That's right up here.
H.M.Jr:
"March 15. Eccles urges higher taxes to avoid
inflation; afraid of continued easy money
balanced budget."
This is all '37. Too bad - haven't you got any-
thing running chronologically?
Haas:
No, we couldn't. Here they are on this chart. This
is one we made a year ago for you. (Presents second
chart)
H.M.Jri
Is this thing - is everything here there?
Haas:
There's more on this.
H.M.Jr:
But everything that's here is there?
Gaston:
Is the net cash outgo on that one, George?
Haas:
Yes, I put it on.
Gaston:
That's probably the more interesting chart.
H.M.Jr:
And all these statements here
....
Haas:
Those statements there, Mr. Secretary, are the ones
I marked in blue.
H.M.Jr:
Why blue?
Haas:
Just to flag the more important ones.
Gaston:
All the rest of those flags are also important ones.
H.M.Jr:
I can't remember seeing that.
Haas:
There's a big memorandum - you asked us to go back
to July 136, and this is one of the charts.
Regraded Unclassified
47
-4-
White:
No, I prepared that for you, George, two years ago,
but you never showed it to the Secretary.
Haas:
This is the one we used in working up that memoran-
dum.
White:
We had another larger one.
H.M.Jr:
Have you got that one?
White:
Seven feet long. We can get it right down. Take a
few minutes to get it here.
H.M.Jr:
Well ...
White:
Have it here in ten minutes.
H.M.Jr:
Why don't you go to the phone? Because I can't read
this thing.
Hanes:
This is hard to read.
H.M.Jr:
Yes.
Haas:
If you had it on a desk, it would be all right.
H.M.Jr:
Are these things in the seven-foot chart?
Haas:
This is just a photograph of the seven-foot chart,
except the seven-foot chart doesn't have the red
line on it. I had that on ....
H.M.Jr:
What's the red line?
Haas:
Net cash deficit. You see, at that time, Mr.
Secretary, nobody was talking about that. It
wasn't, you know - that was very minor.
H.M.Jr:
I never saw this.
Haas:
That one?
H.M.Jr:
No, this one.
Haas:
Maybe you didn't, but you saw the memorandum. You
never saw the chart.
H.M.Jr:
There's a seven-foot chart.
Regraded Unclassified
48
-5-
Haas:
Uh-huh. You see, here - we put some of it up
here and some up here, and what we didn't have
room for we put down here. For this month, you
see, there were these other items.
H.M.Jr:
I see. That's exactly what I want.
Haas:
Is it?
H.M.Jr:
Yes.
Bell:
That's a nice chart.
Haas:
I blued the ones which were most important.
H.M.Jr:
But the red line is the ...
Haas:
The cash deficit, see? And here when the President
was worried, you know, about expenditures and so
on, on the net cash deficit we're almost in a
balanced budget. And there's when he made the
price statement, you see. Cash is almost balanced;
had a deficit running monthly of 15 million dollars.
Bell:
I just thought if one of the boys were going back,
I'd send this.
H.M.Jr:
I won't keep you long.
Haas:
This is - here's the bond market break, following
the reserve - change in reserves.
Hanes:
Change in reserve rates came here.
Haas:
Right here.
Hanes:
Yes.
Haas:
Then here's the prices and here's the Times index.
One thing - we had to make this rather flat in order
to get all this stuff on.
H.M.Jr:
But, Harry, you say you made this two years ago.
White:
A year'and a half ago.
Regraded Unclassified
49
-6-
H.M.Jr:
And I never did see it.
White:
No.
H.M.Jr:
I don't remember it.
Haas:
Saw a memorandum which was based on this.
H.M.Jr:
But on the big seven-foot chart, the only one you'd
have to add is the red line.
Haas:
That's all. It's not up-to-date, but this period
you're discussing is on it.
White:
We can bring it up-to-date very quickly. Not
up-to-date, but it runs up to 138 - the end of '38.
Haas:
The end of '37.
H.M.Jr:
Did we have a balanced budget there?
Haas:
Here you had a surplus and here - right over there.
Gaston:
On a net cash outgo basis.
Haas:
This is the zero line.
H.M.Jr:
Where is the Times index?
Haas:
The Times index is here. Kept going, reached a
high there.
Hanes:
Reached the high when you had the balanced cash
outgo.
Gaston:
We had it for several months; crossed the line ....
Hanes:
That doesn't prove histheory, does it?
Gaston:
It's a month and a half later that we reached the
high point. Month and a half after we had crossed
the line.
Haas:
Of course, you quite a little out of that one
over there too.
Gaston:
In fact, this bulge over here almost exactly coin-
cides with the period when we were on a surplus
Regraded Unclassified
-7-
50
basis. The top of the bulge in business almost
corresponds to this period here when we were on a
surplus basis, getting in more than we were paying
out.
Bell:
Eccles would contend that was the lag and it hadn't
affected that yet.
White:
I should be very hesitant to use those figures that
way, because everyone, I think, would agree that
there is a very definite lag in the effects on
business from budget running anywhere from a month
to seven or eight months, depending on the period.
H.M.Jr:
Well, taking this period here - if you started here
from there
....
Haas:
Here you had a boom.
H.M.Jr:
From there to there is how long?
Haas:
That's about - it's one, two, three, four, five -
not five months.
Hanes:
Seven months down to April.
H.M.Jr:
That was when you hed the biggest boom with the
stocks.
White:
At that same period it's interesting to bear in
mind that inventories were rising and
....
Haas:
So was business.
White:
Yes. I say inventories were rising, and the very
momentum which was caused by that gave us sharply
rising business, which I think can be seen more
clearly here. That period of rising business here
is very sharp and could be expected to carry forward
for several months.
Gaston:
Here you get the peak of the pre-Roosevelt spending
through the R.F.C. and there you get a hump two or
three months later which might have some relation
to this hump here. But your big shoot-up here was
obviously due to the fact that a new administration
came in and there was some hope of confidence. There
Regraded Unclassified
51
-8-
wasn't then any very great increase in spending;
there was some, but you g et this - you get that
huge
Bell:
Went down in the economy period.
Gaston:
It went down there, yes.
Hanes:
While that was going up.
Gaston:
That's true. Then it comes down here, then it comes
way up here, end then you get a response, possibly,
in that hump there, which followed by about three
or four months, and then again the same thing here.
H.M.Jr:
I wouldn't say that that would prove either way.
White:
That's right.
H.M.Jr:
I don't think it proves anything.
White:
I think that it merely points out that there are
a lot of other important factors.
H.M.Jr:
But also that this doesn't prove anything.
White:
Well, I tell you, some would say there is some
similarity - some similarity if you look at this
in the large. Here you have your period of
business activity sharply declining and this in-
crease beginning there; could not put a brake on
that yet, but it takes a little while for it to
get going, and it did begin to get going, and
after a few months' lag you had a higher level,
and here you maintained a pretty high level of
expenditure. That represents over - about 150
million dollars a month
Gaston:
Yes.
white:
... additional expenditure right through here,
and you began to have a very sharp increase in
business activity and you began to carry through.
Even though the fact you curtailed your contribu-
tion - not the expendit ure but the contribution was
curtailed - there was enough momentum in this thing
Regraded Unclassified
52
-9-
to carry through on the basis of rising prices,
strikes, all the other factors you enumerated.
Gaston:
The hangover of that bonus thing had some effect.
That was gradually fed out.
Haas:
The bonus affected it, though, even before.
White:
Most of it was, it is true, after - at least,
that would be my thought.
Gaston:
You could lay a great deal
White:
I'm giving the interpretation others might give.
Then a portion of the support was pulled out of
it; there were also other supports pulled out on
the part of private industry in consumption. But
this main support - let that drop; you're way down
to below anything but '32. Then you had here - with
the supports removed, you had all these various
statements being made which hit the thing and,
coupled with the reduction in supports of con-
sumption - a combination of those factors.
H.M.Jr:
I think the statement I made, that you can't prove
a balanced budget helps business, you can't prove
spending helps business
Hanes:
I think the most outstanding thing that impresses
me is that the greatest impetus to business improve-
ment is confidence, and tne lack of confidence here,
improved confidence here, and I think the increasing
confidence there, had as much to do with the rise
as anything else.
H.M.Jr:
I'd go along with that. I'm going to look into
Eccles' tatements; I just want to take his state-
ments alone; in other words, is he a good witch
doctor or isn't he?
White:
Probably be better to get the exact quotations,
which we have.
H.M.Jr:
I'd just take his statements alone - his and
the President's statements.
But what I claim is - I don't say that my speech
of November 1937 could make the country prosperous,
Regraded Unclassified
53
-10-
but I still maintain it was right - on the right
angle; and immediately following that came Ickes'
speech and Bob Jackson's speech, just raising
hell, and we never had a chance to see what would
happen.
Haas:
Well, and they had the private spending strangled
after the increase in excess reserves. What it
did to the bond market - cut off all - remember,
John, right there, all the new issue market was
just ruined; all the underwriting companies - the
hundred million dollars capital they had was all
tied up following that.
H.M.Jr:
I think we're going to get something very interesting
out of this.
Haas:
Here's a comparison - thought you might be interested -
comparison of the net deficit and national income.
H.M.Jr:
Excuse me - did you (Hanes) read the thing Gaston
gave us?
Hanes:
Yes.
H.M.Jr:
That's all right; I think he handled it very well.
What's this?
Haas:
That's national income and the net cash deficit.
H.M.Jr:
Which is which?
Haas:
Here's the net cash deficit, going up, and here's
national income. Thought you might want to see that.
Looks something like the business curve.
Here's one that Jake asked me to make up. He said
this curve he uses to represent industrial buying.
Gaston:
Here's a copy of the Eccles speech, if you want to
read it, in manuscript form.
H.M.Jr:
This is what Jake wanted.
Haas:
This new orders index he takes as representing
industrial buying, and then this index which we
Regraded Unclassified
54
-11-
worked up, which is a fairly high index - consumer
buying in terms of physical volume, price factor
taken out - that's this line here, you see. Here's
your industrial buying, here's your cash deficit,
this red. You notice this went dówn here. You had
this big boom in industrial buying. Consumer buying
continued right on too, didn't break until way over
in here, in terms of physical quantity. In other
words, in terms of shoes and so on, this is what
happened. This break in new orders came right at
the time of the change in reserve requirements,
and this black line is the F.R.B. index of indus-
trial production. And one reason that this kept
up like that after new orders fell down is that
they had unfilled orders to carry them, and they
had increased even - there was even a rising in
orders after Labor Day, you recall.
White:
There's one point to this, too; not only do you
have to explain this, but you also have to explain
that. I mean I think it's a little bit dangerous
to
H.M.Jr:
Oh, Harry, the interesting thing is in explaining
this. +his rise in spending came, I think, three
or four months before the bill passed the legisla-
ture.
White:
Well, I mean - I presume this is the curve - I
imagine that's what he had, here - this is the
curve of expenditure.
H.M.Jr:
But, you see, the curve - this thing started - the
bill didn't pass until June 24, I think, or June
22 - the so-called spending bill..
Bell:
June 21.
H.M.Jr:
June 21. At least, it wasn't signed until then.
Bell:
Wasn't signed, yes.
H.M.Jr'
And we turned the corner on the net deficit long
before that. AS a matter of fact, the effect of
that spending bill - I suppose if we begin to
look at the things that went out, I don't suppose
that there was any effect of that much before the
first of October.
Regraded Unclassified
55
-12-
Gaston:
He's speaking of the net cash outgo; not of that
particular bill, but of the net cash outgo. Here's
the turn in your net cash outgo.
H.M.Jr:
But just the same, what I'm trying to get at is
that the net recovery - I mean the recovery bill
had very little to do with the increase in the
deficit or net spending, whatever you want to call
it. That's all I'm trying to say.
Heas:
I think that curve coincides more closely with the
desterilization of gold, taking the credit brakes
off, right along that period - psychological
effects.
Bell:
Of course, when you started up here in your
net cash outgo, there was a falling off in your
receipts.
Gaston:
I think that creates the impression that this net
cash outgo does have an important effect on business
activity, but that there are a great many other fac-
tors.
be
White:
I would say it would/kind of unfortunate and dan-
gerous if the position were taken that that does
not have such implications.
H.M.Jr:
Harry, no position is going to be taken by me until
we have an exhaustive study. This is the first time;
I want everybody in the room to put his brain on this
thing, that's all. And as I told you the other day,
my mind is completely open. I want to find out, if
I can
White:
I wasn't thinking of the ...
H.M.Jr:
No - may I finish? What happened the last two years
is - anything we can get on that would be helpful
the next two years. That's all I want. Maybe there
isn't snything here we can learn.
White:
What I had also in mind, Mr. Secretary - I think
there is a lesson here that spending is one of
the factors affecting the business situation. I
think the most important lesson here is that it
was the mismanagement of the spending, because
when you cut off your capital markets then you cut off
56
-13-
private spending, which you had to use to go ahead.
H.M.Jr:
Well, there is one thing in it; somebody is going to
have an awful hard time to convince me of: that you
can talk up recovery.
White:
Talk?
H.M.Jr:
Talk it.
White:
You mean that you can't make it by bullish state-
ments?
Gaston:
You can talk it down, I know that.
Hanes:
You can kill it pretty easy.
H.M.Jr:
I mean I've been lying in bed nere for two days, and
the subject - as I say, instead of a lot of pounding,
the great thing of an 80 billion dollar national
income is to let people go to work without trying
to pound them, and say nothing.
Gaston:
I think these statements possibly are pure self-
defense and they'll be injurious.
White:
No question statements won't help.
H.M.Jr:
Harry, that's what I'm trying to get at. Now, the
President is trying to get me to make a statement.
Before I make a statement, I want to be a thousand
and one percent sure that I'm going to help recovery.
Bell:
He's asked you to make one?
H.M.Jr:
Sure. That's the purpose of this whole thing.
White:
I'm very skeptical that statements would help
recovery. The only thing a statement might do is
to make possible ....
H.M.Jr:
He's asked me to make a statement to convince the
public as to the soundness of an 80 billion dollar
national income.
Bell:
I didn't think you'd have to make 8 statement to
convince the public; if you had it
....
Regraded Unclassified
-14-
57
H.M.Jr:
That's the whole purpose of this meeting.
Gaston:
Statement on the usefulness of deficit spending.
I don't think more statements of that sort are
good.
H.M.Jr:
I'll let you (Hanes) and Dan go back, and I'm
going to chew this over with the other boys some
more.
Hanes:
Will you give me a copy? I'll take that thing home
and go over it with a magnifying glass.
Heas:
Here's the memo that goes with it.
H.M.Jr:
Leave the memo here, but get one for Hanes. And
you fellows go on back, and if you others will
stay, please.
Bell:
If this thing, Herbert - if this line here had an
influence on that, then it seems to me the thing
to do is reduce taxes, not increase them.
Gaston:
I wouldn't say that, because there are some other
reasons that come in here.
White:
We must be careful, in objecting to one extreme,
not to go to the other.
Haas:
I agree with you a hundred percent.
White:
You wouldn't say to curtail expenditures all down
the line and you'll get better business.
Bell:
I think we've all taken that position that a drastic
cut is going to be disastrous. But get some sense
in the thing.
Gaston:
There's got to be some sense in any program they
adopt.
White:
That's right.
Gaston:
I think we're all pretty damn close together on the
thing.
Haas:
Well, I know
Regraded Unclassified
58
-15-
White:
What I'm afraid of is that in the eagerness to
demonstrate that you can't accomplish wonders by
this, you're liable
...
Gaston:
... to make statements that we all know aren't
true.
White:
... and make ourselves vulnerable. There is a
relationship. If you were to step up expenditures
today by a couple
....
Gaston:
I think Eccles and his crowd overestimate the impor-
tance of that factor and tend to underestimate some
other factors.
White:
That's possible, although his last speech was pretty
moderate.
Gaston:
I thought SO. His last speech was quite moderate.
(H.M.Jr leaves room for about
twenty minutes)
(White sets up the seven-foot chart
previously referred to, entitled,
"Some Economic Indices and Some
Important News Items - Daily")
(H.M.Jr returns)
H.M.Jr:
You've got the big one.
Gaston:
There's a couple memoranda on the Eccles speech.
Mr. Seltzer's analysis and appraisal; I extracted
the highlights - highlighted his speech. And here
are George Haas's shop's answers to those economic
propositions that he made.
(H.M.Jr inspects big chart)
H.M.Jr:
Well, there's a lot of stuff here that ....
White:
Well, the selection of data - we wanted to show
that some statements that were sometimes held to be
important and sometimes events that were held to
have had effects, did and at other times did not
have such effects. So there are quite a few on
59
-16-
there which really had no pertinence to it.
H.M.Jr:
You haven't got the one, George, yet, that you
took out to show Jake Viner? That isn't finished,
that statement?
Haas:
Oh yes, this is - this is the one. Rather than
copying it, I got that out of your files. I think
you read that one time.
H.M.Jr:
Yes.
Haas:
Because I remember, after thinking it over
....
H.M.Jr:
Did you show this to Jake Viner?
Haas:
Yes, he went over that, took about four hours.
H.M.Jr:
Any corrections?
Haas:
He made some comments, but on the whole he thought
it was very good; and he had us put together some
more material which he was going to look over Friday,
but he didn't have time.
H.M.Jr:
Well, I think I've got enough to read here, don't
you?
Gaston:
If you haven't enough, I've got two very interesting
editorials on this general question by David Lawrence
and almost a more extreme position in the Waley-
Eaton publication "Sphere," on this whole question
of spending and its importance in the economic pic-
ture. Dave Lawrence is surprisingly broad-minded
and moderate in his discussion.
H.M.Jr:
What I'm trying to do, Gene, is this. The President
wrote this letter that he wants five or six members
of his Cabinet to get on board and back up compensa-
tory ...
Gaston:
Do you want it?
H.M.Jr:
Read it out loud. Then we can all have it.
Gaston:
"Memorandum for the Secretary of the Treasury,
Postmaster General, Secretary of the Interior,
Regraded Unclassified
E0
-17-
Secretary of Agriculture, Secretary of Commerce,
Secretary of Labor.
"I think it would be a good idea if you would take
a public position, either by statement or speech,
in favor of the position taken in my annual message
to the Congress, as well as in the budget message,
a policy generally known as the compensatory fiscal
policy. We must present our case to the country:
the objective of an 80 billion dollar national
income and the avoidance of any action on the part
of the Federal Government by way of stopping opera-
tions or by way of curtailment of credit.
"For instance, the Secretary of the Treasury could
explain the soundness of the case; the Secretary of
Commerce could do it with the aid of the more liberal
members of the Business Advisory Council; Secretary
of Agriculture could do it with the object of educa-
tion of agricultural interests; Secretary of Interior
could speak on the same subject from the angle of
conserving human materials and resources.
"None of us can afford to be apologetic. The economic
soundness of the policy is already recognized in
England, and even more so in Sweden and other places.
"I suggest you talk with Lowell Mellett about
arranging for radio presentation or newspaper
coverage."
H.M.Jr:
May I have that? So you fellows can put your minds
on it, see? See what you think of it, huh?
Duffield:
Basically that's - I mean this chart is the one that's
got to show whether it works or not, doesn't it? This
is your deficit spending and your national income.
Now, to achieve 80 billion dollars by deficit spend-
ing, these things have got to go together.
Hass:
Of course, the President doesn't say that. He
includes a lot more than that - that letter. He
doesn't put it all on that.
Duffield:
Compensatory budget.
H.M.Jr:
He puts it - for instance, the question of credit,
opening up of channels, and so on.
Regraded Unclassifie
E1
-18-
There's no sign of their going together here,
is there?
Duffield:
I was trying to find it.
H.M.Jr:
AS a matter of fact, I think it's perfectly remark-
able the way the national income has been moving
upward. What's the low here? You've got a note.
Haas:
The low in national income? On a yearly basis?
Duffield:
This is monthly.
Haas:
That's monthly over there. The low is in - I presume
in 132, then. No, I guess not; it was in March '33,
wasn't it? The value figure.
Duffield:
It's just over one of the big division lines; it
must be March.
Gaston:
Dave Lawrence takes a very interesting tack, very
interesting tack.
Duffield:
I understand Ben Cohen's been paying visits down
there.
Gaston:
He says there is something wrong with free enterprise.
Duffield:
Great concession from him.
white:
Dave Lawrence says that?
Gaston:
Yes, and we can't sharply cut off expenditures; and
business is not going to organize itself to take
care of the credit problem and the thing to do is
further government organization in the credit field
along the lines of what we have done in Farm Credit
and Home Owners Loan; we need to take care of the
little man, small business man, and we need a better
type of credit organizations under government auspices
to give the banks paper that they can handle.
Haas:
I thought you'd be interested in seeing that figure.
H.M.Jr:
Did you do this new?
Haas:
I just did that a little while ago.
Regraded Unclassified
62
-19-
H.M.Jr:
I think it's - this is one of the most interesting
charts I've seen.
Duffield:
I like that one.
White:
Is that the relationship of national income to
deficit spending?
H.M.Jr:
Uh-huh.
White:
There was a chart put out by the Federal Reserve
Board two or three weeks ago - I don't know whether
you've got it, George - on which they showed that
on a six-months basis, with & six-months lag, and
it seems to show - they show the opposite; they
show we had a lag.
Duffield:
How can they justify a lag that's & good assumption?
White:
If you put it on a six-months basis, you've got a
very definite
...
Haas:
It would help out over in here.
White:
I don't know - have you seen that chart?
Haas:
I'd like to.
H.M.Jr:
What I draw from this, going back, Harry - the
point I get here - this is on a three-months
moving average - I consider this a most encouraging
chart, because the national income - I mean if you
draw a line right through the middle there, then the
thing is definitely going up.
White:
The trend is upward.
H.M.Jr:
The trend is upward.
Gaston:
Put it on 8 three-months moving average basis
...
H.M.Jr:
This is three-months.
Haas:
No. The deficit is on a three-months, but these are
actual monthly figures.
Gaston:
Those are actual monthly figures. ...you'd smooth
that out.
Regraded Unclassified
63
-20-
H.M.Jr:
Well, the trend is definitely - looks as though
the trend was definitely up. The national deficit
is just all over the lot. Put in the dates for me;
give me that Monday. Take a look at it.
Haas:
Would you like to see how the Treasury figures agree
with Currie's? Just at a glance, pretty close, you
see. I mean any conclusion
H.M.Jr:
Close enough
...
Haas:
: . so the conclusions would be the same.
H.M.Jr:
Yes. Wouldn't you (White)?
white:
Yes. Wouldn't get any different conclusion.
H.M.Jr:
No. What were you saying, Gene?
Duffield:
I've never been convinced that it is a valid assump-
tion to assume that the effect of these disbursements
lags after the disbursements. I've sometimes thought
that the - I mean he's saying that if you put this
on & six-months lag you'll see the things will
follow right along. I mean I just have to be con-
vinced of that assumption.
H.M.Jr:
Well, the only thing I get encouraging as to what
our objective is, is seeing that the national
income steadily goes up. It looks as though there's
one thing, a definite trend.
White:
Some thirty billion.
H.M.Jr:
Definite trend.
Duffield:
Yes.
H.M.Jr:
But now - and the thing - what brought it about?
well, I think that's about all we can do just now.
Regraded Unclassified
Return to Room 285
PREPARED BY
80B72le
Mr. Daggit, Miss Michener,
Mr. Murphy. Mr. O'Donnell,
DEPARTMENT
65
Mr. Seltzer, Mr. White, and
Mr. Haas.
COMMUNICATION
64
DATE January 26, 1936
TO
Secretary Morgenthau
a
FROM
Mr. Haas M
Subject: Development of the current business recession. - PART I
Summary and Conclusions
Events leading up to the recession
During the latter part of 1936 and early 1937, it became
apparent that several forces were leading toward a highly
speculative situation in commodity prices, and that business
activity was taking on a speculative character.
1. Prices of sensitive commodities began to
rise sharply during the early fall in response to
several factors:
(a) Reduced stocks of various commod-
ities, following several years of burden-
some supplies, made prices very sensitive
to increased industrial demand.
(b) The drought in 1936 sharply cur-
tailed the production of various farm pro-
ducts, while the supplies of certain raw
materials were held down by artificial pro-
duction restrictions.
(c) The war in Spain had the effect of
stimulating the world demand for war materials.
2. This upturn in prices was widely heralded as
evidence that price inflation was getting under way,
as a result of:
(a) The continued deficit-financing
policy of the Government.
Regraded Unclassified
66
Secretary Morgenthau - 2
(b) A large volume of gold inflows,
resulting in greatly increased excess
reserves.
(o) Announcement of huge rearmament
programs abroad.
(a) Belief in a continued upswing in
business following the re-election of the
Democratic Party and the successful stabi-
lization of world exchanges.
3. Because of the general belief in rising prices,
merchants and manufacturers entered orders for manufac-
tured goods in heavy volume. Reduced inventories, re-
sulting in part from the spending of the soldiers' bonus,
further stimulated the demand for goods. Duplicate orders
in many cases were placed with different manufacturers to
insure delivery.
4. The prospect that labor difficulties might shut
off supplies of needed materials became an important factor
in increasing the volume of unfilled orders during the
spring of 1937 to a level that taxed the capacity of several
major industries.
The situation in early 1937
This combination of factors had the inevitable result of
over-discounting a favorable business outlook. In itself, with-
out the application of restrictive measures by the Administration,
this would have resulted in a corrective business reaction in the
absence of some new supporting factor, such as a more rapid ex-
pansion in the construction industry.
Mild restrictive measures were put into effect in the latter
half of 1936, with an increase in reserve requirements effective
on August 15, and a gold sterilization policy announced on
December 22. The application of the first measure signalled the
beginning of a movement to liquidate Government bonds by member
banks in New York City, but had at the time no other apparent
effect on prices or business. The gold sterilization policy
prevented a further expansion of the credit base by gold inflows.
Regraded Unclassified
67
Secretary Morgenthau - 3
In the early spring of 1937, business activity had reached
a state of disequilibrium, where it was particularly sensitive
to any depressive influence. Three chief influences which came
into play at that time caused & decided falling off in new in-
dustrial buying, which was a forerunner of the business recession:
1. The beginning of a decline in prices of important
raw materials, resulting from:
(a) The prospect of increasing supplies.
(b) Administration statements that prices
were too high, interpreted as confirming a
deflationary program.
(o) Rumors of an impending reduction in
gold prices.
2. The tightening of financial markets, induced by
increases in reserve requirements which went into effect
on March 1 and May 1, and the continuation of the gold
sterilization policy.
3. The sharp reduction in net Government contri-
butions to business activity, resulting from reduced ex-
penditures and increased tax collections.
The last two influences served not only as definite brakes
on business through the mechanics of their operation, but, in
combination with the price decline, they brought about a re-
versal in public sentiment and led to an expection of deflation.
This resulted in a widespread movement to liquidate inventories.
Later depressive factors
The filling of large backloge of orders on manufacturers'
books helped support business activity throughout the summer,
but various depressive factors in operation at that time undermined
the business structure and brought on the eventual collapse:
1. Prices declined to still lower levels, partly
because of increasing supplies coincident with reduced
demand, but partly also because of the deflationary
effect of Administration policies.
68
Secretary Morgenthau - 4
2. The reduction in Government spending became
more pronounced during the summer, at a time when the
favorable implications of B. movement toward a balanced
budget were not sufficient to bring forth an offsetting
expansion in industry. The result was & net decrease
in the current volume of total spending.
3. The final increase in reserve requirements, on
May 1, caused B. further tightening of the money market,
and contributed to the growing deflationary psychology.
4. The failure of construction to increase as had
been expected, B. virtual cessation of railroad buying,
and a reduction in public utility construction, contri-
buted to a weakening of the business situation.
Effect of Government program on business.
In retrospect, it appears that the Government program in
1937, which was designed to put brakes on a too rapid business
expansion, actually was so deflationary as to bring about a
greater decline than the corrective reaction which could nor-
mally have been expected.
There seems little doubt that the Government made two
mistakes:
1. The additional increase in reserve requirements
imposed on May 1 looked bad at the time -- it looks worse
in retrospect. Prices had already turned down substantially
by then, Treasury bonds had suffered a sharp decline in
prices, stock prices had turned down, and talk was beginning
of the likelihood of a summer recession. Under those cir-
cumstances, any additional depressive measure on top of
those already in effect appears completely unwarranted.
2. While reduction in the net deficit expenditure of
the Government was unquestionably called for, the sharpness
of the reduction at a time when business W&S particularly
vulnerable to unfavorable developments W88 definitely not
warranted. A sharp deflationary measure when recovery has
not been achieved is never warranted; consequently, any
deflationary force employed should have been employed with
caution. If an error was to have been made it should have
been made on the side of too gradual rather than too sharp
B. reduction.
Secretary Morgenthau - 5
69
What can we learn from this recession that may enable us
to postpone or minimize the next recession?
1. Since deficit spending 18 such a potent and
such an expensive method of bringing about an 1m-
provement in business, we should have followed the
policy of:
(a) Reducing the amount of deficit
spending as the first method of business
restriction;
(b) Using no other weapon until the
effectiveness of a reduction in deficit
spending had been determined.
2. Since deficit spending has been an essential
factor in business recovery, it should not be sharply
curtailed unless and until there is assurance of an
equivalent substitution of purchasing power from private
industry.
3. Attempts at business control, which is still
distinctly in an experimental stage, should be governed
by the following considerations:
(a) The methods adopted should be handled
in a flexible manner, and not kept rigid as
were the methods used in controlling the 1937
boom, which are still in effect.
(b) The reaction of business to the control
measures used should be continually under obser-
vation.
(c) The Administration should be ever ready
to reverse its operations when needed. This is
what flexibility means.
Regraded Unclassified
70
Secretary Morgenthau - 6
4. The Administration should have clearly before
it an outline of all its powers which influence business
activity, and should be constantly aware of which policies
are operating in a depressive and which in an inflationary
manner.
5. It is essential to develop quick and dependable
indicators of maladjustments in business which presage a
serious downturn, and to have in reserve a worked-out pro-
gram for stimulating business activity when these indica-
tions suggest that such stimulation 1s necessary.
Regraded Unclassified
71
TREASURY DEPARTMENT
Return 10 Room 285 2015
INTER OFFICE COMMUNICATION
DATE January 26, 1938.
TO
Secretary Morgenthau
FROM
Mr. Haas YOA
Subject: Development of the Present Business Recession - PART II
I. General Situation at Midyear, 1936
At the middle of the calendar year 1936, there appeared
to be abundant evidence that the country faced the promise
of 8. robust and continuing business recovery.
The FRB index of industrial production, after
declining from 97 to 93 during the first quarter of
1936, had abruptly renewed its rise and, seasonally
adjusted, was at a new recovery peak of 104 in June.
The BLS general index of wholesale prices in
June 1936, 79.2, showed little change from that of
the previous December, 80.9.
The BLS index of sensitive commodity prices,
which had shown a declining tendency during the
first five months of the calendar year, definitely
reversed this trend during June.
The soldiers' bonus became payable in June 1936;
and between June 15 and July 27 more than a billion
dollars of bonue bonds were converted into cash. The
receipt of these funds had been anticipated by many
veterans and in part spent in advance; in further part,
these funds promised strong support for some months to
come for the consumption goods industries.
Employment, payrolls, and farm income were
definitely on the upgrade in the aggregate, despite
sectional losses due to drought.
Regraded Unclassified
72
Secretary Morgenthau - 2
Corporate profits were rising substantially.
During the first half of 1936, the net profits of 285
industrial corporations, 8.8 reported by the National
City Bank Letter, aggregated some 63 percent more
than in the first half of 1935.
Banking and money market conditions were ex-
tremely favorable to the continuance of recovery.
The market for highest-grade bonds W&B notably strong,
the average yield on all long-term Treasury issues
approximating 2.50 percent and that on the highest-
grade corporate issues 3.19 percent. Interest rates
on short-term obligations were near the lowest on
record; rediscounts by member banks were of negligi-
ble proportions; and the commercial loans of banks
were gradually rising. Largely responsible for the
favorable conditions of the money markets was the
fact that the banks possessed great amounts of ex-
cess reserves -- about $2.7 billions on July 1 -
and that gold imports were continuing to add to such
reserves.
The stock market was in an upward trend. The
Dow-Jones average of industrial stock prices, which
had stood at 146 at the beginning of the year, stood
at 158 on June 30. This rise was accompanied by a
very small increase in brokers' loans.
The favorable condition of the investment mar-
kets was fostering a large and growing volume of
refunding, at lower rates of interest, of public
utility, railroad, and high-grade industrial bonds;
and promised to permit a further huge amount of such
refunding; and, in due course, a healthy volume of
new capital financing for productive purposes. Dur-
ing the first six months of 1936, corporate refunding
bond issues totaled $1,965 millions as compared with
$450 millions in the first six months of 1935.
Regraded Unclassified
73
Secretary Morgenthau - 3
The capital goods industries, including housing construc-
tion, railroad equipment, and public utility expansion, had
begun to participate in the recovery. The fect that the con-
tribution to recovery from these industries had thus far been
small, made it all the more likely that the relatively high
level of business activity would be sustained and increased
as these sections of our economy expanded their operations.
Such expansion could be expected to offset the effects of &
diminished volume of deficit spending that appeared in prospect
for the ensuing twelve months. In other words, it looked as
though the priming of the pump was substantially completed.
In the international field, conditions augured well for
future business conditions. Except in France business activity
WEB rising in all countries, particularly England, China, and
Germany.
Foreign trade of almost all countries W&B increasing
rapidly, chiefly because of improved business conditions but
also due to progress being made in the lowering of tariff bar-
riers through reciprocal trade agreements. Our imports jumped
17 percent over the previous year, and exports 13 percent. The
high demand for raw materials was bringing prosperity to the
countries of South America, Asia and Africa.
The increased activity in Europe was, unfortunately,
based in no small part upon the race for armaments. The poli-
tical situation looked ominous. Italy had completed its con-
quest of Ethiopia, and the prestige of the League of Nations AB
a force for peace was at very low ebb. Germany had thrown off
the Versailles restrictions on the arming of Germany, and suc-
cessfully militarized the Rhineland.
Only in France was the economic situation unpromising.
The Popular Front in France won the parliamentary elections
and a Left government came to power. Sit-down strikes occurred
in large number, accentuating the uncertainty as to the poli-
tical stability of France. Gold in large amounts began to
flow out of France in June, and it was apparent that France
was approaching B. major financial crisis. Notwithstanding
her troubles, France, during the first half of 1936 helped
rather than hindered world recovery. Her imports increased
and her internal political disturbances served to accentuate
European uneasiness and hastened rearmament programs.
Regraded Unclassified
Secretary Morgenthau - 4
74
II. The Third Quarter of 1936
Business conditions remained highly favorable during
the third quarter of 1936. The FRB adjusted index of indus-
trial production, which had been 104 in June, averaged
better than 108 in the following three months.
There was an active demand for consumers' goods, stimu-
lated in part by the cashing and spending of the soldiers'
bonus and by other deficit spending. Despite slowly rising
costs, producers enjoyed good profit margins; and despite a
third quarter increase of 131 percent in the production of
consumers' goods as compared with the third quarter of 1935,
according to Standard Statistics Company, there was little
indication that inventories were accumulating in distribu-
tors' hands.
Partly because of the announcement of price advances
on orders received after October 1, and partly because of
increasing demands by the automobile and other industries,
steel mill operations rose to about 75 percent of rated
capacity, the highest since May 1930.
Stimulated no doubt by the undistributed profits tax
enacted in June, dividend declarations during the third
quarter totaled $861 millions 8.8 compared with $649 millions
a year earlier, according to the National City Bank Letter.
On July 14, the Board of Governors of the Federal Reserve
System announced an increase of 50 percent in member bank
reserve requirements to take effect on August 15. There was
a slight temporary firming of both short- and long-term
interest yields on Treasury and other high-grade open market
debt instruments immediately following the announcement, but
this movement was reversed before the new requirements went
into effect; and the prices of highest-grade long-term bonds
reached new high levels early in September. The Reserve
Board's action had the immediate effect of reducing excess
reserves from $3,167 millions to $1,816 millions.
From the date of the announcement, however, there began
a slow but almost uninterrupted decline in the holdings of
United States Government securities by the weekly reporting
Regraded Unclassified
75
Secretary Morgenthau - 5
member banks of the Federal Reserve System, & decline that was off-
set until the end of the year by increases in the holdings of banks
in smaller cities. Presumably because of the demand by the latter
and by insurance companies and other investors, the liquidation of
Government securities by the larger banks was accompanied by rising
prices for Government securities.
Business conditions in foreign countries - except France - con-
tinued to improve. Our foreign trade continued to show marked gains.
Much uneasiness appeared with respect to possibility of interna-
tional currency chaos, but 80 far as the United States was concerned
that uneasiness resulted merely in larger gold flows here, and
greater attractiveness of American securities and strength of the
dollar.
The conclusion of the Tripartite arrangement and the deprecia-
tion of the gold-bloc currencies cleared the air, and did much to
restore confidence in continued international currency stability and
monetary cooperation. It was the first successful and major step
toward the kind of international economic cooperation which it was
widely felt the world badly needed. The result was definitely bull-
1sh the world over and especially in Europe.
The international political situation, however, became much
more tense. The Spanish Civil War broke out in July, and before
the end of the quarter it WAS becoming apparent that Europe was d1-
vided into two camps in supporting the respective antagonists in
the Civil War. In the Far East, Ohina was making rapid strides for-
ward both in the economic field, and in political strength. But the
Soviet-Japanese situation remained ominous.
76
Becretary Morgenthau - 6
III. The Fourth Quarter of 1936
Shortly after the middle of October, business activity
and sensitive commodity prices began a very pronounced up-
ward sweep that continued to the end of the year.
The FRB adjusted index of industrial production rose
from 110 in October to 121 for December. The BLS index of
sensitive commodity prices rose from 72 at the beginning
of October to 83 at the end of December. The rise in the
general wholesale price index of the BLS was naturally much
smaller: From 81.5 for October to 84.2 for December. The
Dow-Jones index of industrial stock prices reached & high
for the year of 185 on November 17, and closed the year at
180, as compared with 168 at the beginning of October.
In some respects, the business developments of Novem-
ber and December resembled those characteristio of & boom.
The rise in commodity prices stimulated forward buying not
only in raw materials but in manufactured goods. Wage in-
creases in the steel, automobile, and other industries be-
came front-page news and spread widely to other industries.
Price advances of two to four dollars a ton for steel
products ordered for first-quarter delivery stimulated for-
ward buying in this field. Large programs for plant
expansion were announced by a number of the leading steel
companies. Railroad buying took on sizable proportions.
An order for 100 locomotives by the New York Central repre-
sented the largest locomotive order since 1929. The St.
Paul also ordered 30 locomotives. In 1935 only 83 loco-
motives of all kinds were purchased.
The textile industry turned in the most sensational
performance among the major industries. Demand for cotton
goods, even after many months of high production and sales,
seemed insatiable. Although cotton mills were working at
an all-time record rate, spot goods and early deliveries
commanded premiums. In the December letter of the National
City Bank, it was reported that the "mille are probably
sold farther ahead than ever before and at profitable mar-
gine over cotton prices even allowing for the wage increase."
The rayon mills were equally active. In all merchandise
lines, willingness to buy ahead was more general than at
77
Secretary Morgenthau - 7
any time since the boom of 1933. Activity in the heavy
industries, though gaining, was still subnormal as compared
with past standards, and promised further significant ex-
pansion.
The rise in commodity prices, the increases in wage
rates, and the payroll taxes imposed under the Social Becur-
ity Act, were increasing costs of production; but most manu-
facturers and distributors displayed little apprehension
with respect thereto.
Although the swift rise in staple commodity prices was
tinged with a distinct inflationary sentiment, which oper-
ated as both cause and effect, the unhealthy aspects of the
rise can easily be exaggerated. The rise was international
in scope, with few exceptions; and although it owed much to
forward buying, there was a real strengthening of demand
and of current consumption; and production likewise was
rapidly increasing.
In many respects the rise in staple commodity prices
could be regarded as a natural and thoroughly wholesome dew
velopment, serving to produce a better balance in the price
structure, and to diminish the internal difficulties and
international trade barriers of those regions and countries
that were engaged mainly in the production of raw materials.
The great disparities between the declines in raw materials
prices as compared with those of manufactured goods and ser-
vices between 1929 and 1933 had constituted one of the prin-
cipal causes of the collapse in trade and of the prolonga-
tion of the depression. The rise in staple commodity prices
in the last quarter of 1936, though perhaps proceeding too
rapidly, did much to restore equitable price relationships;
and therefore strengthened the underlying factors making
for further recovery.
Even much of the forward buying was of B. character
normal to, and required by, periods of rising trade volume.
Inventories adequate for any given level of business activity
become inadequate at a higher level, thereby necessitating
a quasi-permanent increase of investment in inventories.
Nevertheless, the banking authorities again became con-
cerned over the possibilities of an uncontrolled inflation.
The continued inflows of foreign gold were steadily offset-
ting the effects upon excess reserves of the 50 percent
Regraded Unclassified
Secretary Morgenthau - 8
78
increase in requirements that had been made effective on
August 15. This fact contributed to a sharp rise in the
prices of long-term Government bonds during the month of
November and the first week of December. The average yield
on all Treasury bonds maturing in eight years or more fell
from 2.42 at the beginning of November to 2.22 by December 8.
On November 21, there appeared widely publicized, and
apparently officially inspired, forecasts of & further in-
crease in reserve requirements. Three weeks later, the
Goldsmith Washington Service definitely predicted an early
increase to the full legal limit -- an increase of one-third
over the then-existing requirements. Some two weeks later
(December 21), the Secretary of the Treasury announced, in
effect, that further acquisitions of gold by the Treasury
would be kept out of the banking system by being placed in
an inactive account, and that such acquisitions would be
financed by the sale of Treasury obligations.
The Goldsmith forecast coincided with the beginning of
A protracted decline in the prices of Government securities
and other high-grade bonds; but this decline did not become
pronounced until the following March.
In the meantime, a noteworthy expansion of business
loans by banks continued. During the four weeks ended
December 23, 1936, customers' loans other than those against
securities and real estate increased by $238 millions, and
on that date stood at $4,279 millions, or 26 percent higher
than on the comparable date of the previous year.
In the Treasury financing of December 15, subscriptions
totaling $4,952 millions were received for the cash offering
of $751 millions of 21 percent Treasury bonds of 1949-53;
and 70 percent of the $787 millions of notes maturing in
December 1936 and February 1937 were turned in in exchange for
the same bonds as against 26 percent in exchange for 1t percent
5-year Treasury notes. The continued strong preference mani-
fested for bonds as against notes WRB less marked, however,
than in the case of similar exchange offers earlier in the year.
There W&B no indication of a break in the rising level of
business activity in foreign countries.
The Spanish Civil War became B. major international prob-
lem. The spread of war became increasingly threatening and
speculative purchases of rew materials were stimulated. Prices
of raw materials, particularly metals, rose sharply in the
United States as well as in world markets.
The situation in France was unchanged. New social legisla-
tion was the most important factor in the continuation of the
uncertainty which impeded recovery. Devaluation was not success-
ful in repatriating French capital. There was, consequently,
no flow of gold exports from the United States, but rather, a
continuation of imports.
79
Secretary Morgenthau - 9
IV. The First Quarter of 1937
Shortly after the turn of the year widespread strikes
in the automobile and shipping industries and severe floods
in the Ohio Valley temporarily reversed the course of re-
covery and adversely affected business sentiment.
The setback was relatively brief, however, and the
strong rebound following the settlement of the West Coast
shipping strike and the General Motors sit-down strike on
February 4 and 11, respectively, was accompanied by 8. fur-
ther sharp upturn in sensitive commodity prices.
Under the added spur of armament expenditures, together
with the accompanying speculation, the metal markets in Lon-
don rose sensationally, followed by quick responses in our
domestic markets. Copper at 16.8 cents, lead at 7 cents,
end zino at 8 cents at the end of March, compared with prices
of 10 cents, 4.8 cents, and 5.2 cents, respectively, at the
beginning of the previous November.
A sellers' market developed in steel and many other in-
dustries, and this was accompanied by rising wage rates and
rising prices. In January and in March, new orders in steel
end other industries reached levels far in excess of current
production; levels attributable to surges of forward buying
brought about by 8. distinct and widespread expectation of
inflationary price rises, and, in some cases, by fears that
labor troubles would later obstruct deliveries.
Despite a high degree of concern in responsible circles
that the upward movement of sensitive commodity prices
threatened to get out of hand unless restrictive measures
were undertaken, it appeared entirely probable that natural
corrective influences would soon be exerted. Copper produc-
tion and consumption were both increasing substantially,
and the increased prices provided incentives to expand mine
operations all over the world. The same was true of lead
and zinc. Further, the rising prices of raw materials and
foodstuffs were strikingly benefiting the countries and
sections that produced them, thereby encouraging B great
expansion in trade. Marked improvement on this account was
taking place in Canada, Australia, South Africa, Argentina,
British India, Brazil, etc. Speculative excesses there
Secretary Morgenthau - 10
80
undoubtedly were, but these were far more pronounced abroad
than in the United States; and normal corrective reactions
could be anticipated in these cases as increasing supplies
became available.
In the United States, however, governmental action of
at least a precautionary character was deemed advisable.
We have already cited the semi-official intimations late in
1936 of a second increase in required banking reserves.
These intimations were followed by a distinct firming of
short-term interest rates and some firming in long-term
interest rates. On January 31, official announcement was
made of a further 33-1/3 percent increase in reserve require-
ments, to take effect in two equal instalments on March 1
and May 1. High-grade corporate and municipal bonds, which
had been softening noticeably during the previous two weeks,
declined sharply and almost uninterruptedly during the en-
suing two months. Government issues held fairly steady
until about March 1, when the first instalment of the new
increases in reserve requirements became effective. Right
from the beginning of the month, however, before it became
apparent that income-tax revenues would fall substantially
below the previous estimates, Government securities joined
the decline under a wave of selling that caused losses of
three to four points.
The yield on 9-months Treasury bills rose from under
.10 percent toward the end of November, to .71 percent late
in March. The rates on bankers' acceptances and open market
commercial paper likewise rose.
The theory held by some that short-term interest rates
could rise appreciably without affecting long-term rates
was not confirmed in this instance. The average yields on
outstanding Government and high-grade corporate bonds in-
creased by about one-quarter of one percent. New financing
had to meet a hardened money market, The Philadelphia Elec-
tric Company 1ssue of $130 millions of 30-year bonds was
originally scheduled to be offered with a coupon rate of 3%
percent. The rate had to be changed to 30 percent, with an
offering price of 102}, and the issue sold close to 99 upon
dissolution of the underwriting syndicate.
Secretary Morgenthau - 11
31
The pressure upon the Government bond market was ex-
ceedingly severe, and it accentuated a congestion in the
new issue market as a whole. In the short period between
January 6 and the end of March, the weekly reporting member
banks reduced their holdings of direct Government obligations
by $907 millions. A slight resistance to the price decline
in long-term Governments was occasioned by the shifting dur-
1ng the weeks of March 17 and 24 of $98 millions of Federal
Reserve Bank holdings of Treasury notes and certificates
into B like amount of Treasury bonds; and by concentrated
Treasury purchases of bonds for its trust accounts. The
collapse in the bond market, coupled with & sharp decline
in stock prices which began early in March, greatly darkened
the outlook for refunding and new capital financing.
While it appears to be almost certain that the pro-
nounced weakness in the bond market was primarily attribut-
able to the increases in reserve requirements and to the
gold sterilization policy, there were other contributing
factors. Widespread labor difficulties, which at times
threatened severe physical violence, constituted one of
these. Another WBS the gathering fear of imminent inflation,
and its normal accompaniment of higher long- and short-term
Interest rates. The failure of income-tax receipts during
March to come up to previous expectations views another factor.
Official concern over the possibilities of an infla-
tionary boom was reflected on March 15 when Chairman Eccles
of the Reserve Board issued a formal statement on this sub-
ject. On April 2, the President, in his weekly press con-
ference, specifically alluded to the level of production in
heavy industry as dangerous, and the prevailing prices of
metals, particularly steel and copper, as too high.
Foreign trade of all countries continued to rise, and
countries which exported raw materials had extraordinarily
high favorable balances of trade. Continuation of British
economic recovery was assured by the adoption of a big arma-
ment program. Business activity in some European countries
fell E. little during this quarter from the high levels of the
last quarter of 1936, but there WAS an upward tendency in March.
The danger of the spread of war was considerably lessened
by the agreement between the major countries of Europe on the
introduction of the non-intervention patrol program. Prices
of raw materials reached the peak in March, to begin the
prolonged decline at the beginning of the next quarter.
There WAB nothing in the foreign picture to promote a
recession in the United States. On the contrary, foreign
conditions were favorable to continued upturn in the United
States.
Regraded Unclassified
82
Secretary Morgenthau - 12
V. The Second Quarter of 1937
The month of April opened with numerous uncertainties
in the air. The previous month had been one of falling
bond prices, falling stock prices, and declining bank
deposits. It had likewise been one, however, of enormous
forward ordering in numerous industries; a development at-
tributable in part to inflation sentiment, and in further
part to actual and anticipated labor difficulties.
On the other hand, the statements (previously cited)
of the President and of the Chairman of the Board of Gov-
ernors of the Federal Reserve Bystem, as well as the gold
and credit policies previously adopted, were counter-infla-
tionary in character. Doubt began to be entertained more
strongly whether, under these conditions, the increased
coats arising out of higher wage rates, shorter working
hours, and higher raw materials prices could be transferred
to consumers.
The new quarter opened with Government bond prices
continuing their sharp decline of the preceding month.
By April 2, no fewer than five long-term Treasury bonds
and six Treasury note issues were selling below par, a
development that came as a shook to many bankers. The
Treasury 21 percent bonds of 1949-53, which had been 18-
sued at par the previous December, and which had sold at
101-22/32 on February 8, sold at 96-6/32 on April 2.
This sharp break in Government bond prices produced
considerable alarm in banking quarters. On April 5, the
Open Market Committee of the Federal Reserve System an-
nounced that it was prepared to make open-market purchases
of United States Government securities in such amounts and
at such times as might be desirable in order to exert its
influence toward orderly conditions in the money market,
and to facilitate the adjustment of the member banks to
the increased reserve requirements which would become ef-
fective on May 1. Upon this announcement, the Government
bond market rallied moderately, though it lost most of
the rally by the end of the month.
Regraded Unclassified
83
Secretary Morgenthau - 13
Stock prices also continued to decline during April;
but what was even more unsettling to business sentiment
was the sharp decline in sensitive commodity prices which
started at the very beginning of the new quarter and con-
tinued with only slight interruption for two and & half
months. On April 1, the BLS index of sensitive commodity
prices stood at 86.82. By June 17, it had dropped to
77.84. Contributing to this price decline and shaking
markets throughout the world were rumors beginning early
in April that the United States Government proposed to
reduce its buying price of gold below $35 per ounce.
Despite these uncertainties, business activity was,
maintained at a relatively high level throughout the quar-
ter. The FRB adjusted index of industrial production
averaged 118 for April, 118 for May, and 114 for June,
exceeding the average of the first quarter. The decline
in June was due to strikes in the plants of a number of
"independent" steel producers.
Unfortunately, however, the sustained high level of
production in many industries was mainly due, not to the
current rate of incoming orders, but to backlogs of un-
filled orders built up in the previous December, January,
and March. The very sharp decline in new orders was prob-
ably more important than the factors more commonly cited
in the press -- taxes, labor troubles, over-expansion of
consumer credit, and the Administration's attitude toward
the utilities -- in explaining the declining trend of
stock prices virtually throughout the quarter. Not for
many years were current earnings being capitalized BO
cheaply by the stock market, whereas the great reduction
in long-term interest rates, other things equal, should
have raised the capitalization ratio.
Beneath the surface of the sustained volume of busi-
ness activity, & weakening of the underlying forces was
taking place. An important part of the pronounced spurt
in business activity was due to the stimulating effects
of increased investments in inventories of all kinds.
Such an increase is natural after a business revival has
passed its earliest stages because the new level of demand
requires greater inventories. So soon as the latter have
been built up adequately, however, further significant
stimulus to the revival must be supplied from other sources.
Regraded Unclassified
84
Secretary Morgenthau - 14
Expansion of activity in the capital goods industries,
including residential and other construction, is normally
relied upon to supply such stimulus. For many years, these
industries have constituted a large fraction of our entire
economy; and the capital end labor employed therein cannot
readily be shifted into consumption lines. Moreover, a
significant fraction of the national income is "saved"
each year by individual and institutional investors; and
unless these savings flow freely into capital goode expan-
sion, they tend to remain unspent for anything whatever.
For these reasons, a high level of activity in the capital
goods industries 1s normally necessary for the achievement
and maintenance of business prosperity.
Great hope had been placed upon new residential con-
struction for 1937; and during the first six months of the
year, residential construction contracts awarded in the 37
Dodge States did exceed those of the first half of 1936 by
54 percent. But this percentage gain still left the volume
of residential construction contracts at a figure only one-
third that of the first six months of 1928. The prices of
building materials on June 30, 1937 were about 13 percent
above those of June 30, 1936, and were even higher than
those of 1929.
The F. W. Dodge figures for public works and utility
construction contracts in the first half of 1937 were only
2 percent greater than in the same period of 1936; and
other non-residential contracts were only 15 percent greater.
Total construction contracts in the 37 Dodge States in the
first half of 1937 amounted to only 43.4 percent of the
volume of such contracts in the first six months of 1928.
On the other hand, throughout the early months of 1937
railroad equipment buying was very substantially heavier
than in many years. Indeed, freight car orders were running
at levels approximating those of the best months of 1929,
and, on May 1, the total care on order were reported to be
larger than on any corresponding date since 1926. During
the month of April alone, some 64 locomotives and 13,000
freight cars were placed on order.
But, as the second quarter of the year progressed, it
became apparent that this source of industrial demand was
rapidly weakening. The loss to railroads by the expiration
Regraded Unclassifie
Secretary Morgenthau - 15
85
on December 31, 1936 of the emergency surcharges on certain
classes of freight had been surmounted by the increasing
volume of freight traffic as a whole. Now, however, there
was growing talk of substantial wage increases for railroad
labor, and other costs had risen. Further, earlier expects-
tions of a great rise in freight-car loadings in the fall
were being revised downward as a result of various signe
suggesting the possibility of & business recession. New
orders for railroad equipment dropped sharply in May and
June.
The failure of the public utility industry to embark
on expansion programs that appeared warranted by the physi-
cal volume of their business 1s partly reflected in the
figures previously oited for construction contracts. The
common explanation for this failure runs in terms of the
Administration's alleged hostile attitude to the industry,
and in terms of the rate reductions effected in various
States. Without attempting to assay the merits of these
explanations, it is well to point out that deterioration in
the investment markets, attributable in part, at least, to
Reserve Boardcredit policy, exercised a distinctly restrain-
ing influence.
New plant equipment constitutes another important type
of capital goods. In this field, the demand during the
first six months of 1937, as measured by Moody's index, ap-
proximated the level of 1929. To 8 large extent, however,
this expansion in plant equipment WBS being financed by the
liquid resources of corporations accumulated through depre-
ciation charges and previous earnings, rather than through
new capital flotations and reinvested current earnings. In
view of the undistributed profits tax, a continuance of this
high level of demand would have to rely heavily upon favor-
able conditions in the investment markets; and in this
respect the situation appeared to be vulnerable.
We have already called attention to the deterioration
in the bond and stock markets that had occurred since the
beginning of March. The underlying banking and credit
position, despite surface appearances, was not immediately
favorable to active capital markets. The final increase in
reserve requirements, which went into effect on May 1,
reduced the aggregate excess reserves of the System to
Regraded Unclassifie
86
Secretary Morgenthau - 16
approximately $800 millions the following week; and the
credit-expanding power of this $800 millions was now only
as great 8.6 that of $400 millions of excess reserves
before the first increases in reserve requirements were
made on August 15, 1936.
Accentuating the effects of the drastic contraction
in excess reserves were other factors that had seriously
reduced the credit-supporting power of a given volume of
excess reserves below that which had existed in pre-depres-
sion years:
(1) Banking funds were no longer 8.8 mobile
8.8 they had been in pre-depression years because,
among other reasons, the law now prohibited the pay-
ment of interest on demand deposits. Hence, excess
reserves could not be depended upon to flow quickly
to the centers most needing them. With $800 mil-
lions of excess reserves for the System as a whole,
there might actually exist deficiencies in required
reserves in important banking centers, while the
surplus funds of country banks remained sterile.
With the reduced volume of aggregate excess reserves,
their regional distribution became a matter of pri-
mary importance, with no mechanism functioning to
insure a suitable distribution.
(2) The ratio of the capital funds of Ameri-
can banks to their deposit liabilities (13.8 per-
cent) was within one-half of one percent of the
lowest level since 1873 (as far back as the avail-
able figures go). Banks with exceptionally low
ratios of capital resources to deposit liabilities
tend to conserve rather than to use their excess
reserves, in order to supplement their poor capital
position.
(3) The psychological hangover from the bank-
ing collapse caused bankers to prize the possession
of excess reserves as a safety factor, and therefore
sterilized the credit-supporting power of a consid-
erable fraction of such reserves.
Regraded Unclassified
Secretary Morgenthau - 17
87
Early in 1937, intelligent bankers throughout the country
became keenly aware that, under the programs being followed by the
Treasury and the Reserve authorities, the credit situation could
nove and WAB moving in only one direction: tightness. They were
told in effect:
"We will soon have mopped up more than two-thirds of your pre-
vious excess reserves by administrative increases in reserve require-
mente. Our gold sterilization program tells you that you will get
no new reserves as the result of gold imports or newly mined gold.
As a matter of fact, this program tells you that the volume of
excess reserves will be reduced every time a dollar of new gold 18
acquired, In a word, a moderate credit expansion, in view of the
raste of some excess reserves by poor distribution, will quickly
exhaust the power of the member banks to expand credit without
borrowing from the Reserve banks; and most of them are not likely to
do this unless money rates rise substantially."
The answer of the banking system was a step to credit expansion.
The total loans of all insured commercial banks increased by $1,075
millions in the first six months of 1937; but for every dollar of
new loans made, more than a dollar of Government and other securities
TAS liquidated.
We have already noted that bank liquidation of Government securi-
ties had been initiated by banks in the larger cities during the last
e1x months of 1936, but that such liquidation had been offset during
that period by purchases on the part of banks in smaller places.
During the first six months of 1937, bank liquidation of securities
became general. During the latter period, the holdings of direct
and guaranteed Government obligations by all insured commercial
banks declined by $785 millions, and their holdings of other securi-
ties by 8344 millions, or EL total of $1,129 millions. This liquida-
tion of investments slightly more than offset the increase in loans.
The securities sold by the banks put pressure upon the market,
and, by absorbing individual and institutional investment funds, re-
duced the volume of funds available for the capital markets. In
consequence, the bond market softened, and it is not surprising
therefore that although stock issues more than doubled, the total
volume of corporate capital issues floated during the first six
months of 1937 WB6 about 32 percent smaller than in the first six
months of 1936.
The substitution of business and other loans for Government
and other securities in the portfolios of the banks constituted in
itself a restrictive influence. Most of such loans are for short
terms, and bank deposits arising out of short-term business loans
re different in character and in their effects upon business from
bank deposits arising out of bank investments in long-term securities.
Regraded Unclassified
Secretary Morgenthau - 18
B8
In the latter case, the cash balances of business enterprises
are increased without creating constraint in the use of such cash.
They are "free" balances. In the former case, the serviceability
of the new cash is more limited because it cannot prudently be
employed in ways that will not readily permit liquidation of the
short-term loans. Hence, when banks substitute short-term busi-
1688 loans for long-term investments, the aggregate net "free" cash
of individuals and business men 18 reduced.
During the six months ended June 30, 1937, there took place
reduction of $1,753 millions in customers' net balances of demand
1. deposits in all operating insured commercial banks. That is, total
demand deposits, exclusive of interbank and United States Government
deposits, declined by $678 millions, and the short-term deot of in-
cividuals and business enterprises to the banks increased by $1,075
millions.
The figures and considerations Just cited are subject to minor
qualifications: (a) Among the so-called business and agricultural
loans of banks are some loans of medium-term or even longer charac-
ter and some nominally short-term loans which are indefinitely re-
newable; and (b) some $470 millions of the decline in demand de-
posits may be attributed to a shifting of such deposits to time
deposits, which increased by this amount. But these qualifications
do not destroy the general implications discussed above.
Foreign
Despite the gold scare, dropping stock market prices and raw
material prices, and continued trouble in France, the international
economic situation was good. The level of industrial activity in
most countries continued to rise. The "gold soare" disappeared from
VIAW before the end of the quarter, but stock prices and raw material
prices continued to fall.
The export surplus of raw material exporting countries in South
America and Africa fell from the record high levels reached in the
first quarter, but these countries were still experiencing prosper-
Dug conditions. Our own exports leaped. During the second quarter
total trade was 42 percent higher than in comparable period of 1936,
1though a declining tendency in our imports in comparison with pre-
10us months first appeared.
The long-term capital market in England began to tighten, with
continuous drop in the price of Consols, but not enough to impede
the expansion of the capital goods industry.
Towards the end of June another crisis developed in France, and
lun resigned on June 20. A more conservative government, with
onnet as Finance Minister, took control. The franc depreciated
urther, but the crisis seemed to have receded for the time being.
There still appeared no development abroad to act as a depressing
nfluence on business conditions in the United States.
Regraded Unclassified
89
Scoretary Morgenthau - 19
VI. The Third Quarter of 1937
The increasing congestion in the capital markets be-
came strikingly evident from the very beginning of the
third quarter. The Securities and Exchange Commission ob-
tains confidential reports from 23 large distributing
houses on new bond issues. In May, this selected group
reported an average unsold balance of 9.3 percent of the
amount of their participations B.B of the end of the first
day of offerings. This figure rose to 11.4 percent in June;
32.0 percent in July; and 67.4 percent in August. In Sep-
tember, the offerings of $48 millions of Bethlehem Steel
Corporation 30 percent convertible bonds and $44 millions of
Pure 011 Company 5 percent convertible preferred stock were
decided and very conspiouous failures, and resulted in very
hesvy losses to the underwriters.
The total volume of security offerings in the third
quarter WB.S the smallest since the revival in the capital
markets early in 1935: Total corporate offerings amounted
to about $400 millions, as compared with $755 millions in
the second quarter and $970 millions in the first quarter,
according to the Commercial and Financial Chronicle.
General business activity, on the other hand, was main-
tained at a relatively high level during the first two
months of the quarter. Contributing to this result were
(1) e good rate of automobile production and sales, stimu-
lated in part by announcements that prices would be raised
on the 1938 models to be introduced in November; (2) steel
production was maintained at a higher level than incoming
orders, both to work off previous backloge and to build up
inventories for the anticipated fall business; and (3) 8.
sustained high level of retail sales.
The important cotton textile industry, however, which
had been prominent in the wave of industrial expansion in
the fall of 1936, sharply curtailed its operations in July.
By late August, the steel industry had virtually
eliminated its backlogs of orders. The volume of incoming
orders for some time had been substantially below current
production, and sizable inventories had accumulated. There
use general expectation that B. renewal of demand would be
forthcoming after the Labor Day holiday. It soon became
evident that this expectation Wa.s not to be realized. A
drastic and prolonged decline in steel production set in.
Regraded Unclassified
Secretary Morgenthau - 20
20
In the last week of August, steel operations were at 84
percent of rated capacity; by the end of September, the
rate had declined to 74 percent.
Coincidentally with the decline in steel operations,
the stock market, which, during the summer, had nearly
regained the peak levels of the previous March, commenced
B. sharp and protracted decline. On August 14, the Dow-Jones
average of 30 industrial stock prices stood at 190, By the
end of September, the average was under 155. This sharp
decline, which continued nearly unabated during much of the
fourth quarter, shook the confidence of business men in the
near-term business outlook, and made any substantial vol-
ume of new common stock financing virtually impossible,
Some persons, notably Mr. Kahlman Linker of the Monthly
Stock Digest Service, have attributed much of this and suc-
ceeding declines in stock prices to the Revenue Act of 1937,
approved by the President on August 26, which, by closing
the tax loopholes offered by foreign and domestic holding
companies, is alleged to have drastically reduced the
attractiveness of common stocks to very wealthy investors.
Sensitive commodity prices, which had enjoyed a mod-
erate summer recovery from their sharp spring decline,
weakened perceptibly in late July and August; and after
the middle of September nose-dived uninterruptedly to the
beginning of December.
Coincidentally with this widespread deterioration in
the business situation, the deficit spending of the Federal
Government, which had previously been providing 8. strong
stimulus to the economy, now became transformed into a net
excess of cash receipts over cash expenditures -- 8. defla-
tionary influence, In the calendar year 1935, the net
excess of cash expenditures over cash receipts amounted to
$2, 814 millions; in the calendar year 1936, when the pre-
payment of the goldiers' bonus was made, $3,718 millions;
and in the first six months of the calendar year 1937,
$449 millions. In the third quarter of 1937, there was a
net cash surplus of $162 millions.
This startling and rapid transformation of the results
of the Government's fiscal operations was due primarily not
to a decrease in the level of expenditures (except for the
Regraded Unclassified
Secretary Morgenthau - 21
91
non-recurring item of the soldiers' bonus), but to very
substantial increases in tax receipts and in the funds
collected by or appropriated to Government trust funds --
notably the Social Security trust funds.
Such an abrupt transition from a. large cash deficit
to a net cash surplus could be achieved without shock and
disequilibrium to the economy only if a full and free flow
of investment funds into active employment took up the
slack. This did not take place in adequate degree; and
part of the explanation for the current business recession
must be attributed to this fact.
Early in August, market quotations for Government and
other high-grade securities, which had strengthened during
July, turned abruptly downward. The increasing seriousness
of the conflict in China was no doubt an adverse influence;
but the principal factor appeared to be the growing prospect
of strain in the banking situation, particularly in New York
City. Out-of-town banks had drawn heavily upon their New
York correspondents to meet the final increase in reserve
requirements on May 1. A considerable loan expansion,
principally in New York City, had since occurred. In con-
sequence, the excess reserves of the principal New York
City banks were becoming uncomfortably small. On August 4,
they amounted to only $37 millions. Further, the normal
seasonal expansion in money in circulation during the fall
and winter could be counted on to cause an additional and
perhaps very substantial drain upon excess reserves.
Facing this situation, the Board of Governors of the
Federal Reserve System on August 20 announced reductions
from 2 to 11 percent in the discount rates of the Chicago
and Atlanta Federal Reserve Banks, to take effect the next
day; and in the following two weeks, the rate of the New
York Bank W&B reduced to 1 percent, and that of all the
others to 11 percent, with the exception of the Cleveland
Bank, which had already established 8 11 percent rate on
May 11, 1935.
In connection with the August 20 announcement, the
Board of Governors issued a statement explaining that the
discount rate reductions were designed to make Federal
Reserve Bank credit readily available to member banks with-
out encouraging the latter to borrow outside of their
Regraded Unclassified
Secretary Morgenthau - 22
92
districts or to liquidate their portfolios; and to ameliorate
the effects of the poor distribution of the existing excess
reserves.
On September 13, the Board of Governors announced that
it had requested the Treasury to release $300 millions from
the Inactive Gold Account; and that it was "prepared to pur-
chase additional Government securities if necessary to provide
funds to meet seasonal withdrawals of currency from the banks
and other seasonal requirements." Principally by redeeming
$350 millions of mid-September bill maturities in cash while
accepting War Loan Deposit credits in payment of $100 millions
of bills issued on September 22 and 29, the Treasury WAB able
to add the entire amount of released gold to bank reserves
very rapidly, with a consequent general improvement in the
tone of the high-grade bond market. The Reserve banks did
not make additions to their portfolios of Governments until
the week ended November 10; and the aggregate amount purchased
during that and the succeeding two weeks, when the program was
spparently halted, was limited to $38 millions. On September 26,
the Board of Governors announced that, effective October 1, the
restrictions previously in force with respect to paper eligible
for rediscount end collateral acceptable for advances would be
very greatly liberalized. In its December Bulletin, the Board
further declared that the notes of borrowers who use the pro-
ceeds of a loan for the purchase of goods for use rather than
for resale are eligible for discount.
Abroad, recovery continued uninterrupted. However, there
WAB considerable uncertainty and fear that the United States
recession would spread to other countries. The Jepanese-
Chinese incident had developed into major hostilities between
the two countries but the volume of foreign trade of even
these two countries did not change substantially during the
third quarter. The possibility that the war would spread
to other countries Was not popularly regarded as strong enough
to initiate a repetition of the speculative boom in the price
of raw materials such as occurred in the fall of 1936.
Raw material prices throughout the world continued to
decline, but there WAS no cessation of the rise in industrial
activity in European countries.
The gold inflow into the United States ceased, and there
were rumors that the Stabilization Fund was selling gold.
Regraded Unclassified
93
Secretary Morgenthau - 23
VII. Fourth Quarter of 1937
The fourth quarter of the year opened with the course
of business in a precipitate downewing. The Federal Re-
serve Board adjusted index of industrial production, which
had averaged 117 during August and 111 during September,
fell to 103 in October, and to an estimated 91 in November;
with no evidence that the trend would be reversed during
the remaining month of the calendar year.
The same story 16 told by the course of sensitive com-
modity prices and the movements of speculative securities.
The BLS index of sensitive commodity prices, which had
stood at 78.4 in the middle of September, declined to 64.0
by the end of November.
The Dow-Jones average of 30 industrial stock prices,
which had stood at 190 on August 14, touched a low of 113.6
on November 24, and stood at 123.5 at the end of the month.
The decline in this average from the March high cancelled
about 74 percent of the entire advance in the general aver-
age of share prices since July 26, 1934. The decline from
the March 1937 high to the November low exceeded 41 percent.
In order to reduce the number of "restricted" accounts, and
to increase the potential effective demand for stocks, the
Board of Governors of the Federal Reserve System B.B of
November 1 reduced the minimum margin requirements from
55 percent to 40 percent.
The BLS indexes of factory payrolls and employment de-
clined sharply in November. The payroll index wes 100.1 for
September and October, and 89.3 for November. The employment
index was 102.1 for September, 100.5 for October, and 94.7
for November.
Steel production fell steadily throughout October and
November, dropping to about 30 percent of capacity by the
month-end, and to 8. alightly lower level since. Production
schedules of automobile producers were sharply curtailed,
with the result that automobile assemblies in November
dropped below the corresponding month of 1936 for the first
time this year. Cotton mill activity declined further in
November, and the generation of electric power showed B.
Regraded Unclassified
Secretary Morgenthau - 24
94
considerable decrease. Residential construction contracts
in the 37 Dodge States, on the other hand, were practically
unchanged in October from the September level, and decreased
only slightly, after seasonal adjustment, in November.
A further substantial shrinkage took place in the vol-
ume of bank loans and bank deposits. Recent figures are
available only for weekly reporting member banks, Between
September 29 and December 8, these banks reported a decline
of $281 millions in brokers' loans, and of $495 millions in
their total loans; and reductions of $157 millions in their
adjusted demand deposite, and of $885 millions in their total
deposits. The principal New York banks increased their hold-
ings of direct Treasury obligations by $263 millions, while
the remaining reporting member banks in the aggregate reduced
their holdings of Governments by $153 millions.
The rapid rate at which business activity has been de-
clining has rarely been equaled. The Standard Statistics
Company reports that the decline in its index of industrial
production since March "has proceeded at 8. pace which has
outstripped the downward trend in the initial nine months
of any previous major business recession in the past thirty
years, with the single exception of 1907." (Standard Sta-
tistics Company Outlook for the Security Markets, December 6,
1937.)
The precipitate character of the decline may be at-
tributed in considerable measure to inventory liquidation.
We have already noted that after the first stages of a busi-
ness revival, & powerful stimulus to increased activity 15
normally provided by the building up of inventories of all
sorts to the higher volumes appropriate to the increased ac-
tual and prospective level of demand, In the downward swing,
the reduction of inventories to volumes appropriate to the
lower level of demand is a process of capital disinvestment
that exercises a correspondingly powerful depressing influ-
ence upon the volume of business activity. This process has
doubtless been accentuated in the present instance by the
experience of business men in the deep depression of 1929-
1933, which has made them attach a high premium to liquidity.
Thus far wholesale trade has been affected to a far
greater extent than retail trade. Retail sales results
for October were generally favorable, but available reports
indicate some slackening during November, more noticeably
Regraded Unclassified
Secretary Morgenthau - 25
S5
in industrial centers than in agricultural areas. The avail-
able data on department store trads in the New York Federal
Reserve District indicate that stocks of merchandise in the
reporting department stores, adjusted for seasonal changes,
were reduced substantially during September and October.
There is some reason to believe that supplies of both raw
materials and partially fabricated products in the hands of
industrial consumers are being depleted. The very rapidity
of the retrenchment process in many lines offers ground for
hope that the readjustment process will be completed more
promptly than would otherwise be the case.
Partly because of the business recession, banking and
credit conditions, as reflected in the prices of high-grade
bonds, have improved during the quarter. Total excess re-
serves for all member banks have remained slightly in ex-
cess of one billion dollars; and because B. less-than-normal
increase in currency circulation 18 taking place during the
present Christmas season, the total volume of excess re-
serves 18 not likely to fall below $900 millions.
The prices of the various classes of Government secur-
ities have risen appreciably since the middle of September.
Yields on Treasury bills have declined to the lowest levels
in nearly a year. In the mid-December Treasury financing,
near-record oversubscriptions were received for the 8-year
21 percent bonds and the 5-year 1-3/4 percent notes, both
of which issues immediately commanded substantial premiums
in the market. High-grade corporation bonds have firmed
in price since the end of October.
Since November 9, the gold stock of the United States
has been reduced by about $40 millions, and the Inactive
Gold Account has been correspondingly reduced. On Decem-
ber 13, this Account stood st $1,232.6 millions.
In the London Economist of November 6, 1937, is an
article entitled "Economic Outlook in America, from which
the following excerpts were taken:
"The conclusion from these facts 1s inescapable. On
the score of the income available to consumers for the pur-
chase of goods there is nothing to Justify 8. recession of
production and everything to justify a further sound expan-
sion
Regraded Unclassified
96
Secretary Morgenthau - 26
"The capital goods industries, however, tell a very
different tal
"At midsummer, then, the position was that current
consumption was healthy and flourishing, but that the cap-
ital goods industries were still flagging, hindered by a
dormant new issue market
"Thus the capital goods industries were not only in
the more vulnerable position earlier in the year, but they
have, in fact, started the downward movement. There can
be no one explanation for this change in trend. Part of
the responsibility can be placed upon the depressing ef-
fects in the bond market of the Federal Reserve's policy
of raising the reserve requirements of the banks. This
undoubtedly put a stop to the incipient revival in the
new issues market. Simultaneously, the heavy tax on un-
distributed profits made it more difficult to finance
capital extensions out of profits. In some industries,
notably the railways and building, rising labour costs,
either directly instigated or at least encouraged by Gov-
ernment action, prevented expenditure on capital goods.
And finally, the effort made in Washington to balance the
Budget severely reduced the Government's own expenditure
on capital goods. It might almost have been a concerted
programme to discourage capital investment
if
In 1927 B. recession WAS cured by cheap money.
The same may happen in 1937, if cheap money is allowed to
have its normal effect
Regraded Unclassified
sobl mall
come
January 26, 1939
97
FOR THE SECRETARY:
I talked with Dr. Goldenweiser for about an
hour this afternoon in accordance with the arrangements
which you had made with him this morning. He will give
the problem some further thought and will call me
probably early next week after he has completed work
on the Board's annual report.
His position today is that one of the most
important influences on the trend of national income
and of business generally 18 exerted by price relation-
ships. In this connection, he places great importance
on the attached chart of wholesale prices. He points
out that our greatest difficulty occurred in the period
of increasing price disparities between 1929 and the
first quarter of 1933. Furthermore, our most prosperous
recent period came during 1935 and 1936 when all classes
of prices were on roughly comparable levels. The
emergence of a new price disparity early in 1937, he
feels, contributed to the subsequent decline in busi-
ness activity. He recalls that Dr. Lubin presented to
the group which studied prices for the President
a valuable chart correlating prices and national income.
Regraded Unclassified
/
WHOLESALE PRICES
98
BUREAU OF LABOR STATISTICS INDEXES, 1926 = 100
PERCENT
MONTHLY
PERCENT
160
160
140
140
120
120
100
100
OTHER
FOODS
COMMODITIES
ALL
80
COMMODITIES
80
60
60
FARM
40
PRODUCTS
40
27
1928
1929
1930
1931
1
32
1933
1934
Brand of Governore of the Federal Reserve System
1935
1936
37
1938
39
1940
- 2 -
99
Dr. Goldenweiser feels that chart correlations
such as these are of little value in themselves unless
they have some logical explanation in the work-a-day
world. He feels that the price disparity charts besides
correlating well with the trends of national income
do have a logical explanation because low prices for any
group of producers limits their purchasing power and
dries up their demand for goods from other classes of
producers.
Dr. Goldenweiser also believes that the trend
of national income coincides roughly with the trend in
durable goods industries. The second accompanying chart
showing production in the durable goods industries and
the non-durable goods industries indicates the relatively
stable character of the non-durable goods production
as compared with the wider fluctuations in the durable
goods industries which synchronize roughly with the
fluctuations in national income. The trend in durable
goods industries, he says, depends on a great many things,
principally, the willingness of people to invest, the
adequacy of the underwriting machinery, and the chance
for a profit. He has the feeling that the amount of
underwriting capital is not now sufficient to meet
the needs of the country. He also feels that certain
Regraded Unclassified
2
MANUFACTURING PRODUCTION
37
POINTS IN
100
F.R. INDEX BASED ON PHYSICAL VOLUME, ADJUSTED FOR SEASONAL VARIATION. 1923-25-100
POINTS IN
MONTHLY
TOTAL INDEX
TOTAL INDEX
140
140
120
120
TOTAL MANUFACTURES
100
100
80
80
NONDURABLE
60
60
40
DURABLE
40
20
20
o
0
930
1931
1932
1933
934
1935
1936
1937
1938
39
1940
Beard of Gevernare of the Federal Reserve System
- 3 -
101
deterrents like capital gains taxation and like TVA
have kept private investment from functioning well.
In general, he believes that the railroads, utilities,
the automobile industry, and construction must be helped
in every way possible to increase the volume of durable
goods production, which in turn would exert an upward
pressure on the volume of business and national income.
We did not discuss the spending theory at
great length. He did say, however, that he did not
believe that you could prove or disprove the effective-
ness of spending with any existing figures. The whole
spending approach, he believes, 1s still highly
experimental. He feels that logic shows certain things
about spending; for instance, spending which 1s done
in competition with private enterprise might better
not be done at all, spending which 1s financed by money
collected through sales taxes probably might as well
not be done at all, spending which enables people to
ourchase goods they would not otherwise buy and which
18 financed from funds otherwise idle contributes to
the prosperity of the country. How long such spending
can be continued and when it should be shut off are
things about which he is uncertain, except to say that
he agrees that the unemployed must be taken care of.
Regraded Unclassified
102
- 4 -
The only definitely disrupting factor which
he mentioned was the NRA. He said that he believed it
had raised costs at just the time when the effort
should have been in the direction of increasing
consumption.
He will get in touch with me again Monday
or Tuesday of next week.
ESD
Regraded Unclassified
THE WHITE HOUSE
80 the
103
WASHINGTON
nic
January 26, 1939.
MEMORANDUM FOR
THE SECRETARY OF THE TREASURY
In regard to my memo of January
twenty-first, don't you think you
could do something to back up our
general policy? Talk it over with
Lowell Mellett. The others are
arranging to help.
F. D. R.
FJR
Unel
104
JAN
JAM 25 25 THE
THE SECRETARY OF THE TREASURY
RECEIVED 47 PM 39
WHITE HOUSE /
WASHINGTON
January 25, 1939.
The President,
The White House.
My dear Mr. President:
Your letter of January 21, of which you spoke
to me on Monday, was received Monday afternoon.
At your convenience I should like to have an
opportunity to discuss its contents fully.
Sincerely,
H.Muyuthau J.
Secretary of the Treasury.
Regraded Unclassifie
105
Released for Publication Saturday. January 28. 1959.
Act
juge
LIBRARY
MONTHLY SURVEY OF BUSINESS
JAN 7939
of the
American Federation of Labor
No. 99.
January,
1939
WHAT'S AHEAD FOR 1939 AND 1940?
Business has started the year 1939 at a substantially higher level than that of a year
ago. The three first picturegraphs herewith illustrate this clearly. Steel ingot production
in the week of January 21 was 713,000 tons, which compares with 485,000 tons in the
corresponding week of 1938.¹ (See graph page 1.) This is a sign of new life in many
basic industries: Builders are ordering steel for a volume of heavy building contracts 88
per cent above last year (first three weeks): railroad steel orders are expected to be 50 per
cent above last year because rising freight baulings have made the need for new rails, cars,
locomotives imperative: orders. for machine tools in December were more than double the
May 1938 low figure, orders for electrical equipment, farm tools and other machinery
have increased substantially and are still increasing. Automobile plants turned out 90,000
cars this year compared to 65,000 last year in the week of January 21 (See graph page 2).
This increase means that there is more activity in the industries manufacturing parts,
paint, glass, tires, upholstery materials, batteries and accessories. and there will be more
work for gasoline stations. Automobile manufacturers are keeping their production
closely geared to sales, and sales have been well above last year. Business activity as a
whole is 11 per cent above last year, according to the New York Times index, which
stood at 91, in the week of January 14, compared to 82 in the same week last year. (See
graph page 3.)
The rapid business rise which began last June tapered off in mid-November to a tem-
porary lall which observers believe is normal after so swift an upswing. War scares had a
dampening effect in January, but observers point out the underlying soundness of the
business structure and the stimulating forces now present, believing that the spring will
bring a new upsurge of recovery. Inventories have been sold off, workers' buying power
is rising, there is no inflation of credit, and prices have held almost without change since
mid-November. Government spending has been running at very high rates and will con-
tinue in the first half of 1939. In addition to railroad building, utilities must now plan
new construction to meet record demands for power; residential as well as heavy construc-
tion is increasing, contracts for the four weeks ending January 7 being more than double
last year's." Observers seem unanimous in the belief that, barring war, recovery will soon
STEEL PRODUCTION
WEEK ENDING
JANUARY,22
1938
JANUARY, 21
1939
Each symbol represents 50,000 tons of ingols
FICTORIAM STATISTICS, INC
a Based on Iron Age per cent of capacity Agares taking present capacity at 70,000,000 tons of med ingota yearly.
.
Business work reports daily average residential contracts $3,603,000 in 1939, $1,772,000 in 1938, 4 weeks ending
January 7.
Regraded Unclassified
be resumed. The outlook for 1939 is distinctly encouraging. A more constructive labor
policy is developing, typified by Roger Babson's advice to his clients that "regular con-
ferences with labor's representatives may avoid serious trouble."
Wages: Of the wage increases which, due to union activity, lifted the general hourly
wage from 581/4 cents in 1936 to 651/4 cents at the end of 1937, very little was lost in the
recession of 1938. There were some wage cuts. but no general move of wage cutting. By
October 1938 the wage tide bad turned upward again and the average was 63 cents for
industry as a whole (latest figure"). Thus, of the 7-cent gain only 2 cents were lost, and
losses are already being recovered. In manufacturing, wage gains in 1937 were greater
than in industry generally, rising 9 cents, from 57½ (1936) to 66½ (end 1937) : and
in 1938 losses in the first three quarters were partially restored in October and November
so that the manufacturing wage level is now 64½ cents (November), showing a net loss
of only 2 cents also, By November wage cuts in factories were being replaced by wage
increases and 90 plants reported wage increases to the Labor Department, while only 23
reported wage cuts. This compares strikingly with the worst 1938 month, when 233
wage cuts were reported and only 36 increases (May). In building, union scales averaged
$1.36 per hour in 1938 compared to $1.26 in 1937. Thus it is clear that labor, through
its trade unions, has by able to keep wages well intact through the 1938 recession. Be-
cause of this achievement, buying power will expand rapidly with reemployment and lift
production to higher levels than would otherwise be possible.
Buying Power: Trade unions have done important service to American industry.
Maintenance of buying power was one of the chief reasons why the recovery of 1938 was
the swiftest in our history, At a time when general wage cutting was imminent, trade
union resistance checked this destructive force. This point comes out clearly when we
compare the peak business months of April and May 1937 with the same months a year
later. when the recession had reached its bottom. While buying power of non-farm
labor declined only 6 per cent, production of consumers' goods fell 19 per cent and pro-
duction of producers' goods 33 per cent." Buying kept on while production was cut, and
the large inventories of goods which had choked the market were sold off. In December
1937. inventories in the bands of wholesalers were 6 per cent above 1936, and sales were
down 12.5 per cent; today (December 1938) inventories are 14 per cent below last year
and sales are up 1.5 per cent. This healthy situation is one of the reasons for the brighter
1939 outlook. Orders are coming straight through to manufacturers with every increase
in employment and workers' buying. WPA has also been responsible for maintaining
buying power by giving jobs to those laid off by industry and adding $500,000,000
to workers' income in the last half of 1938.
AUTOMOBILE PRODUCTION
WEEK ENDING
JANUARY, 22
1938
JANUARY, 21
1939
oren
Each symbol represents 10,000 automobiles
PICTORIAL STATISTICS INC
Babwon Report, January 16.
service industries.
The figures are calculated from Labor Department Wige records and cover manufacturing. mining, trade, utilities and
omitted . the decline is 9 per cent. Production figures from Federal Reserve Bank of New York.
Workers' buying power-Department of Agriculture figures. The figures include relief payments When relat is
This $500,000.000 replaced a loss of $1,700,000,000 in workers' income from industry.
Expendirures for WPA in the last half of 1938 with above the same 1937 period by this amount (Tream figares)
Regraded Unclassified
What reductions occurred in buying power in 1938 were due chiefly to unemploy-
ment. By the year end unemployment was still above last December by 2,000,000;
nevertheless, the total buying power of non-farm workers, including WPA and relief
payments. was slightly above December 1937, totaling $3,790,000,000 for the 1938
month compared to $3,736,000,000 last year.
Cost of Living: At the end of 1938 cost of living was somewhat lower than a year
ago. The index of the National Industrial Conference Board for December was 85.8,'
3 per cent below that of December 1937. which was 88.6. But cost of living increased
two-tenths of 1 per cent in December over November, due to higher food costs. While
large increases in living costs are not anticipated in the near future, Labor should watch
this important point. At the present price levels it takes a wage of 75 cents per hour
with employment of 40 hours a week for 50 weeks a year to give a worker's family of five
a bare subsistence level of living: such a living level affords no provision for emergencies
or illness, or higher education for the children. It cannot be considered an American
standard. A wage of $1.00 per hour, with employment as above, will provide a mini-
mum health and efficiency level of living, or a minimum American standard." Budgets
for skilled workers are much above this level.
Productivity and Labor Costs: It is not high wages, but high labor costs that run
up the employer's expenses. Labor costs are often low when wages are bigh: and labor
costs are bound to decline as production rises. The National Industrial Conference Board
gives the following figures. to show changes in wages, productivity and labor costs from
1929 to October 1938: In these 9 years, output per man-hour in American factories in-
creased 22 per cent; hourly wage rates rose 16 per cent, but labor cost today is 5 per cent
below 1929; and the average work-week is 23 per cent shorter than in 1929. We are
entering the year 1939 with higher wages and lower labor costs than in predepression
days. As production increases, labor costs will decline further.
Unemployment: At the end of 1938 (December) there were still 10,380,000 out
of work in the United States. This is nearly 3,000.000 more than in September 1937,
when unemployment reached its recovery low point. Although 1,200,000 have gone
back to work since last May. when the recession was at its worst, there are 500,000 more
work seekers than there were in December 1937, due to our increasing population.
Labor-saving machinery has probably eliminated about 2,000,000 jobs in the last 9
years. in spite of the general reduction of work-bours to 40 or 44 per week. In these
BUSINESS ACTIVITY
WEEK ENDING
JANUARY, 15
1938
JANUARY, 14
1939
Each symbol represents 10 per cent
of normal activity
1923 = 100,
#
December 1938, latest figure,
The bare subsistence badget is that of the WPA brought up to date by the Labor Department. It representa the strengs
Tur 11 cities. The minimum American standard la the budget of the Heller Committee of the University of California adjusted
to represent the average for there same 31 cities. The WPA budget was adjusted in COVE a family of live.
years, 5,000,000 have been added to our working population, so that we must find jobs
for 7,000,000 more persons than in 1929. even after recovery has put the depression-
unemployed back to work. Louis H. Bean 10 of the United States Department of
Agriculture, estimates that by 1940. even if recovery reaches normal proportions and
industrial production is 9 per cent above the 1929 level, there will still be 6,000,000
unemployed. To find work for these unemployed in private industry is America's major
task today. There is nothing as yet in the industrial outlook which would reduce 1939
average unemployment below the 9,000,000 mark.
Profits: With the improvement in business activity in the third quarter of 1938,
profits turned upward. but from à low level. Standard Statistics index for 158 com-
panies, which had been 84.5 11 in December 1937, fell to 36.5 in the first and 35.4 in the
second 1938 quarter. and rose in the third quarter to 40.4. It is too early for fourth
quarter reports. With the improved 1939 outlook and higher business activity, profits
should be considerably above last year's low level.
Outlook for 1940: The picturegraph below shows what always happens in depres-
sion: Men are thrown out of work and denied an opportunity to produce what they need
for a decent living. There is no prospect of a return to 1929 levels of production and
employment in 1939.1ª Unless the American nation can devise some means of National
Planning, labor will be permitted full employment to create full production only for
short periods of prosperity; the years between will be times of widespread unemployment
and low production. with miserable living standards and actual hunger for millions.
A very real danger lies ahead for 1940. The Federal government, with all its spending
for recovery, has not succeeded in getting private industry to put men to work and pro-
duce goods to capacity. By 1940 the present wave of government spending will have
largely exhausted its stimulating effect on business, and unless plans are devised to set pri-
vate industry to work producing goods and raising living standards, we shall either face
another depression or a greater armament program to put men to work. Excessive arma-
ments lower living standards and increase danger of war. Also, government cannot for-
ever go on piling deficit on deficit.
In this critical outlook, which literally may be a matter of life or death to all of us,
the first step is to establish a National Planning Board of representatives from business,
labor, agriculture, consumers, government with provisions for experts to assist them and
a mandate to stimulate the production of goods by private industry.
PROSPERITY AND DEPRESSION
PRODUCTION
UNEMPLOYMENT
1929
PROSPERITY
1933
DEPRESSION
///////////////
1939
(PROSPECT)
|||||||||
RECOVERY
Each box represents 10 per cent of 1923-25 level
Each man represents 1 million
unemployed
FICTORIAL STATIONS HC
.
it
Mr. Bese 10 Chief of Relations,
1928 = 100,
Industrial production ligures are from Federal Reserve Board, Average 1929, index 119: March 1933. inder 59; (1))
sospect, index 104, Cleviland Trun Company, Unemployment emimates are from American Federation of Labor. The
33 figure in also for March.
Regraded Unclassifi
106
Treasury Department
Division of Monetary Research
Date 1/31/39
1938
To:
Miss Chauncey
From: Mr. White
Original of attached given to
the Secretary this morning, and he is
going to take it to the White House.
Regraded Uncla
107
I.
After declining from $79 billions in 1929 to 046 bil-
liems in 1933, national income payments rose steadily until
1938, when they dropped back to 864 billions after having
reached #69 billions in 1937.
Although national income in 1937 was $10 billions less
than in 1929, nevertheless factory employment in 1937 equalled
that in 1929, and total non-agrieultural employment was only
1,000,000 less than the 37,000,000 employed in 1929. The
total volume of industrial production in 1937 was within
s persent of the 1929 level.
If the rise had continued at the came annual rate,
national income would have reached $50 billions in 1939.
II.
The setback in national income in 1938 has been attri-
buted by various people to a number of causes. These need
to be appraised. Among the more immediate of these are:
(1) An over-acsumulation of inventories
(2) Excessive speculation in commodities
(3) Consumer resistance to rising prices
(%) Deflationary effects of increases in reserve
requirements
(5) The ourtailment of government spending
(6) Labor difficulties, including rapidly increased
vage rates and sit-down strikes
(7) Shortages of skilled labor in key positions
(8) A too-rapid increase in production costs
(9) A deeline in new construction
(10) A contraction of the market for new capital issues
(11) Government tax policies
Regraded Unclassified
188
- 2 -
(12) waladjustment of prices, and price rigidities
(13) Fear of gold price reduction
(14) Government competition
(15) Excessive short-term installment buying
III.
It 16 proposed that an investigation be made of
certain fundamental factors which my have been signi-
ficant in bringing about the decline in industrial ne-
tivity in 1937 end 1936, and which my stand in the way
of increesing the national income in the future. Speci-
fie recommendations based on the findings of these inves-
tigations should be made in order that policy might be
formulated which would lead to an increase in the national
income. The following are eome of the basie questions to
which the investigation should be directed.
(1) what important industries have made less than
a proportionate contribution to the increase
in the national income in the past five years?
what important industries have made more than
a proportionate contribution to the increase in
the national income in the past five years?
shat can be done to convert specific industries
which have retarded recovery to stimulators of
recovery?
(2) How far is the claim that new investment 18
being seriously blocked by specific government
measures justified?
(3) To what extent does new capital investment for
plant expension and new industrial development
come from (a) cash assets? (b) borrowing?
(e) sale of equity securities?
(4) To what extent and why are depresiation charges
not being reinvested?
Regraded Unclassified
109
- 3 -
(5) what elements of our tax structure, Federal, State
and local, serve substantially to retard the growth
of the national income through their effects on
consumption, on new investment, or in other ways?
what modifications that would stimulate or enoour-
age the growth of national income could be adopted
with respect to:
(a) Level of upper bracket personal surtax
rates
(b) Carry-forward of lesses and averaging
of income
(o) Consolidated returns and taxation of
intercorporate dividends
(d) Undistributed profits tax
(e) Capital gains taxation
(f) Capital stock tax
(g) Excess profite taxation
(h) Social Security payroll taxes
(1) Sales and other excise taxes
(j) Tax exemptions and other specific in-
centives to encourage employment, in-
vestment, etc.
(k) Depreciation allowances
(1) Other elements of the tax structure
(6) Do industries or specific ventures with reasonably
bright prospects have any difficulty obtaining the
necessary capital?
(7) In what industries should cepital be invested dur-
ing the next two years? How much is likely to be
invested in these industries during the next two
years?
(8) what is the volume of savings likely to be avail-
able for investment during the next two years?
Regraded Unclassified
110
-
(9) How such would substantially lower rates of inter-
eat to borrowers of capital for production of
capital and durable consumer's' goods increase
borrowing? what can the Government do to lower
such rates of interest?
(10) How much would a reduction in the cost of borrowing
to potential purchasers of durable consumers' goods
(e.g., home purchasing) increase the demand for
such goods?
(11) How important would & longer rate of amortization
be as a stimulant to the demand for durable goods?
(12) At what points and what level of increased produe-
tion will the lack of adequate skilled labor retard
expansion?
(13) To what extent would private investment be etimu-
lated were the Federal Government carefully to
delineate the areas of our economy to which it
proposes to confine its inventment program in the
near future, leaving other areas exclusively for
development by private enterprise? Is it possible
for the Government to specify exactly -- by industry,
or location, or function -- the field of investment
activity to which it proposes to confine itself
during the next two years?
(14) What measures could the Government take, either
independently or in cooperation with State and
local governments, to increase government invest-
ments in self-liquidating enterprises without
competing with private industry and without adding
to the budgetary deficit?
(15) It has been claimed that private industry by iteelf
cannot profitably absorb current envings, Vere
this true a continued national income of $80 bil-
lions or more would be impossible unless the
Government provided investment opportunities for
cepital through public works, etc. that evidence
is there that supports this claim?
(16) That types of Federal Goverment expenditure operate
to increase the national income most, and which
least? To what extent is it possible to shift from
those that increased income least to those that
increase income most?
Regraded Unclassified
111
- 5 -
(17) Is there any justification for the claim that
governmental spending on public works or WPA
projects results in a decrease in spending on
the part of private enterprise?
(18) would a substantial increase in the public debt
during the next few years have any important
effect on government credit?
(19) Are there any prospects that (a) inflation or
(b) deflation will energe in the immediate
future?
(20) To what extent are world developments likely
to constitute a drag on recovery in the United
States during the next two years? what steps,
if any, can be taken to protect our economy
from possible adverse economic effects coming
from abroad?
(21) For what specific products can 18 expect 6 sub-
stantial increase in exports during the next
two years? that, if any, removable obstacles
lie in the path of important increase in our
total exports?
(22) To what extent, in what fields, and with what
effects on our national income, has the Gove rnsent
contributed to an uneconomic price structure?
(23) What will be the net contribution that the Federal
Government (and if ascertainable, State and local
governments) will nake in 1939 and 1940 to the
volume of buying power in the hands of the people?
(24) would the maintenance of a substantially higher
national income require B. change in the existing
retio of savings to consumption?
(25) To what extent would a redistribution of our national
income contribute to the attainment and maintenance
of a high national income?
(26) How such unemployed would " have were our national
income moon to reach $50 billions? What age dis-
tribution and what skill classification will make
up the unemployed group at that level of income?
How large a volume of unemployed must we expect
to make provision for during the next five years?
IL:0CH:HDW:lrs
1/31/39
Regraded Unclassified
112
I.
The setback in national income in 1938 has been
attributed by various people to a number of causes.
These need to be appraised. Among the more immediate
of these are:
(1) An over-accumulation of inventories
(2) Excessive speculation in commodities
(3) Consumer resistance to rising prices
(4) Deflationary effects of increases in
reserve requirements
(5) The curtailment of government spending
(6) Labor difficulties, including repidly
increased wage rates and sit-down
strikes
(7) Shortages of skilled labor in key
positions
(8) A too-rapid increase in production costs
(9) A decline in new construction
(10) A contraction of the market for new
capital issues
(11) Government tax policies
(12) Maladjustment of prices, and price
rigidities
(13) Fear of gold price reduction
Regraded Unclassified
113
- 2 -
(14) Government competition
(15) Excessive short-term installment
buying
II.
It 18 proposed that an investigation be made of
certain fundamental factors which may have been signi-
ficant in bringing about the deeline in industrial
activity in 1937 and 1938, and which may stand in the
way of increasing the national income in the future.
Specific recommendations based on the findings of these
investigations should be made in order that policy
might be formulated which would lead to an increase in
the national income. The following are some of the
basic questions to which the investigation should be
directed.
(1) What important industries have made less
than 8 proportionate contribution to the
increase in the national income in the
past five years? What important industries
have made more than A proportionate contri-
bution to the increase in the national
income in the past five years? what can be
done to convert specific industries which
have retarded recovery to stimulators of
recovery?
(2) How far is the claim that new investment
is being seriously blocked by specifie
government measures justified?
(3) To what extent does new capital investment
for plant expansion and new industrial de-
velopment come from (a) eash assets? (b)
borrowing? (o) sale of equity securities?
(4) To what extent and why are depreciation
charges not being reinvested?
Regraded Unclassified
- 3 -
114
(5) what elements of our tax structure, Federal, State
and local, serve substantially to retard the growth
of the national income through their effects on
consumption, on nov investment, or in other ways?
What modifications that would stimulate or ensour-
age the growth of national income could be adopted
with respect to:
(a) Level of upper bracket personal surtex
rates
(b) Carry-forward of losses and averaging
of income
(e) Consolidated returns and taxation of
intercorporate dividends
(d) Undistributed profits tax
(e) Capital gains taxation
(f) Capital stock tax
(g) Excess profite taxation
(h) Social Security payroll taxes
(1) Sales and other excise taxes
(3) Tax exemptions and other specific in-
centives to encourage employment, in-
vestment, etc.
(k) Depreciation allowances
(1) Other elements of the tex structure
(6) Do industries or specific ventures with reasonably
bright prospects have any difficulty obtaining the
necessary capital?
(7) In what industries should capital be invested dar-
ing the next two years? How such 10 likely to be
invested in these industries during the next two
years?
(8) What is the volume of savings likely to be evail-
able for investment during the next two years?
Regraded Unclassified
115
(9) How much would substantially lower rates of inter-
est to borrowers of capital for production of
capital and durable consumers' goods increase
borrowing? what can the Government do to lower
such ratos of interest?
(10) How much would & reduction in the cost of borrowing
to potential purchasers of durable consumers' goods
(e.g., home urchasing) increase the demand for
such goods?
(11) How important would & longer rate of amortization
be as & stimulent to the demand for durable goods?
(12) At what points and wh = level of increased produc-
tion will the lack of adequate skil.ed labor retard
expansion?
(13) To what extent would private investment be stimu-
lated were the Federal Government carefully to
delineate the areas of our economy to which it
proposes to confine its investment program in the
near future, leaving other areas exclusively for
development by private enterprise? Is it possible
for the Government to specify exactly -- by industry,
or location, or function -- the field of investment
sotivity to which it proposes to confine itself
during the next two years?
(14) What seasures could the Government take, either
independently or in cooperation with State and
local governments, to increase government invest-
ments in self-liquidating enterprises without
competing with private industry and without adding
to the budgetary deficit?
(15) It has been claimed that private industry by itself
cannot profitably absorb current savings. Were
this true a continued national income of $80 b11-
lions or more would be impossible unless the
Government provided investment opportunities for
capital through public works, etc. What evidence
10 there that supports this claim?
(16) What types of Federal Gove roment expenditure operate
to increase the national income most, and which
least? TO what extent is it possible to shift from
those that increased income least to those that
increase income most?
Regraded Unclassified
- 5 -
116
(17) Is there any justification for the claim that
governmental spending on public works or WPA
projects results in a decrease in spending on
the part of private enterprise?
(18) Would a substantial increase in the public debt
during the next few years have any important
effect on government credit?
(19) Are there any prospects that (a) inflation or
(b) deflation will emerge in the immediate
future?
(20) To what extent are world developments likely
to constitute a drag on recovery in the United
States during the next two years? What steps,
if any, can be taken to protect our economy
from possible adverse economic effects coming
from abroad?
(21) For what specific products can we expect a sub-
stantial increase in exports during the next
two years? What, if any, removable obstacles
lie in the path of important increase in our
total exports?
(22) To what extent, in what fields, and with what
effects on our national income, has the Government
contributed to an uneconomic price structure?
(23) What will be the net contribution that the Federal
Government (and if ascertainable, State and local
governments) will make in 1939 and 1940 to the
volume of buying power in the hands of the people?
(24) would the mintenance of a substantially higher
national income require a change in the existing
ratio of asvings to consumption?
(25) To what extent would B redistribution of our national
income contribute to the attainment and maintenance
of a high national income?
(26) How much unemployed would we have were our national
income soon to reach $80 billions? What age dis-
tribution and what skill classification will sake
up the unemployed group at that level of income?
How large a volume of unemployed must we expect
to make provision for during the next five years?
IL:0CH:HDW:1Fa
1/31/39
Regraded Unclassified
NATIONAL INCOME PAYMENTS
Monthly Figures on Annual Basis
1932
1933
1934
1935
1936
1937
1938
1939
1940
1929
1930
1931
DOLLARS
Billions
DOLLARS
Billions
85
85
80
80
75
75
70
70
65
65
60
60
55
55
50
50
45
45
40
40
35
35
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
1939
1940
"Seasonally Adjusted Monthly Figures Multiplied by Twelve
Regraded Unclas sifi
18
RE NATIONAL INCOME AND RECOVERY
February 6, 1939.
(Held at 2211 30th St.)
8:30 p.m.
Present:
Mr. Hopkins
Mr. Eccles
Mr. Henderson
Mr. Currie
Mr. Nathan
Mr. Frederic Delano
Mr. Hanes
Mr. Gaston
Mr. White
Mr. Haas
Mr. Thorp
H.M.Jr:
The reason I asked you gentlemen here was this.
This is supposedly the Fiscal and Monetary
Committee, with a couple of guests. We prepared
in the Treasury, with the help of Mr. Lubin, a
series of questions which resolve themselves
down into about fifteen questions - what various
people thought happened In '36 and '37 to cause
the sharp falling off of the national income. And
then we added about twenty-six more statements of
various problems, which, as far as we knew, we had
no answer to.
I showed these to the President and asked him whether
he'd like us to take them up in the Fiscal and Mone-
tary Committee, and he said he would very much, with
this suggestion: that he felt that if we only covered
part of the territory, slthough we had twenty-six
various statements - and that he wanted us to invite
Mr. Hopkins and, to quote him, to show it to him in
confidence and let him show it to Mr. Harriman in
confidence for suggestions. And then he said, "Show
it to Leon Henderson, who you may not know is the
works of the Monopoly Committee." And he said, "Get
his help, because,' he says, "take the question of
over-production." He says, "Frankly, in the N.R.A.
days we always ducked it. There's nothing in this
memorandum about over-production." And he said,
"Get their suggestions and their help."
Now, I want to say this for the benefit of the
people that are here. We've been very successful
so far in that at these various meetings we have
always taken the position that whatever we do is
Regraded
119
-2-
the property of the President and he could do with
it what he wanted to; he could throw it in the
ash can or he could use it; but it's his property.
And I think if it's agreeable to you that somebody
read the statement, why, whoever is near a lamp
there - if somebody would read it out loud. And
give these gentlemen a copy so they could follow
it.
(Duffield passes out copies)
H.M.Jr:
I think after this 1s read to you, you'll get the
idea of what we're groping for, and "groping" is
the word. You've had it in advance, haven't you,
Marriner?
Eccles:
I got it Saturday.
H.M.Jr:
Do you like it?
Eccles:
Very much. I think it's fine. I liked it very
much.
H.M.Jr:
Is there that chart with it that we had prepared?
Duffield:
The chart didn't come.
Haas:
I got one out in the car.
H.M.Jr:
Would you mind getting it? We've got to have a
chart; otherwise, the meeting wouldn't be success-
ful.
Eccles:
What I'm wondering is what the President meant when
he said this was only one side of the story.
White:
Well, Leon is apparently going to give us the other
side that's left out.
Henderson:
You know, over the period of the N.R.A. and in the
times when I've seen him, when something's come up,
he's always adverted to an idea he had in mind of
what N.R.A. properly could accomplish.
He was sure from his experience, and I think it
Regraded Unclassified
120
-3-
was fortified by what Johnson told him, that one
of the main purposes which N.R.A. would serve
would be that of a stabilizer of production, a
regularization of production; that by the very
exchange of information as to stocks on hand and
orders and a general appraisal of the possibill-
ties, you would get & prevention of the excess
accumulation of inventories and a disruption.
I know when we had the study of the regularization
of the automobile industry that matter came up, and
also at other times when the President had occasion
to speak in such terms. When I one time was point-
ing out to him the inventory situation, he said,
"If we had had the N.R.A., this wouldn't have hap-
pened." And I believe that's what he meant by
over-production. He always has felt that something
like a bureau of industrial economics, by means of
putting business men on notice, would prevent an
over-accumulation of stock.
H.M.Jr:
well, Duffield
What?
Will you read it,
Herbert?
Gaston:
Yes,
H.M.Jr:
Please.
Gaston:
Section I.
(Reads in entirety Section I. of attached
memorandum)
H.M.Jr:
May I interrupt, please, a minute. Mr. Lubin was
invited to come tonight but he couldn't come. I
just want to let you know, because he was most
helpful on this.
Gaston:
(Reads in entirety Section II. of attached
memorandum)
Hopkins:
Those are good questions.
H.M.Jr:
What do you think, Mr. Delano? Do you think that
Delano:
I think they're a lot of very good questions. I
wouldn't make any snap judgment on them.
-4-
.21
H.d.Jr:
Do you think your group in the National Resources
could take some of these and
Delano:
Yes, I should think so,
U.V.Jr:
And would it just be B. way to start, before we
think of what additional questions we want to
ask, would we say what questions you have the
staff - just using you - what ones would naturally
fall to the National Resources Board? Would that
be a way to start that thing?
Deland:
Mr. Currie, do you think the Industrial Committee
could handle quite a share of these questions -
don't you think?
Currie:
Yes, I think so, Mr. Delano.
Hopkins:
Would it be fruitful, Henry, to pursue this nega-
tively a little bit? You have some questions here
that might seem in our judgment not to be very
fruitful for investigation and inquiry, and would
bring back something that's pretty vague. I think,
for instance, 26, off-hand - "How much unemployed
would we have were our national income soon to reach
$80 billions?" And how would it be divided, and
so forth. Now, that's at the moment e matter of
opinion. Personally, I don't believe there 1s
anybody you can find that can find that out. I
don't think enybody knows the social effect of
an $80 or $90 billion national income. Wie think
there will be less unemployment, but when you try
to say how much unemployment there would be, the
age distribution, and what skilled classification
will make up the unemployed at that level of income,
I simply - my opinion is that you can't find that
out, that nobody knows what the effect 1s, that you
can't
You know today, you have known for some years, how
many people do not shere in the national income to
an extent that they have lived on public bounty of
one kind or another. How many that would be as
far as unemployment is concerned, I just don't think
you could find out, and I think you'd be left with a
dissertation written by somebody which would wind up
-5-
122
as an expression of somebody's opinion.
Now, +'ve seen - oh, I've seen a half a dozen
pretty competent people estimate this. They all
estimated differently, they all make different kinds
of statements, and I just don't think anybody knows
it, and I don't think if you've got it - I don't
think you could make any kind of a scientific
inquiry that would be worth much.
White:
It has this merit. What you say is true not only
of that question but possibly of some others.
Hopkins:
That's one; I was wondering if we could go through
some of these and get the ones about which there
might be
Delano:
I think there's one thing that many of us seem to
forget could tell us a lot; that 1s, supposing there
are 10 or 12 million unemployed in this country
today, how many of that 10 or 12 million are prac-
tically unemployable? Now, I
Hopkins:
I don't think you know that, Mr. Delano.
Delano:
But I think you'd probably come nearer knowing it
than anybody else.
Hopkins:
What you do know is that in times of a high national
income and high production people who are unemployable
today become altogether employable and corporations
seek their services and are anxious to hire them.
Employability is a matter of the national income
rather than a fact. There is no such thing as a
fact of unemployability, unless you say a person is
feeble-minded or insane; then he's unemployable.
but
Delano:
I agree with you, that's true; I mean every corpora-
tion will tell you that there are a lot of people
that they're the last to fire and the first to hire.
Hopkins:
That's right.
Delano:
That is, they want to get maximum e fficiency. But
now there are a lot of persons that won't hire a man
that's over thirty-five. Of course, if business was
-6-
123
rushing they'd lift that a good deal.
Hopkins:
And they'd lift it at once.
H.M.Jr:
Well, if we're going to make plans for two years or
five years for the country, that sentence - how
large 8 volume of unemployed would we expect to
make provision for during the next five years - I
think it's very importent.
White:
Yes.
H.M.Jr:
And, without being - I don't mean to be personal to
anybody in the room, but this thing of always going
up and never being - always asking for money for
three months or six months or twelve months and
never having the answer to that, even if it's only
an estimate - I think that just that one sentence
I mean maybe there's nothing we can do to plan, but
at least we could make & reasonable guess of how
many unemployed we've got to take care of in the
next five years, especially in connection with Social
Security and all the other things that we're doing.
White:
And I think there's something that's to be said
Delano:
Are you going to take care of all men over sixty-
five, for instance? That's quite an answer.
Hopkins:
That gets into something besides unemployment.
This question is about unemployment.
Gaston:
Do you know whether the Employment Service has ever
made public, if they have, any classification of
these unemployed as to ages and skills and education
and so forth?
Hopkins:
Oh yes, we've got more information on that subject
than any nation in the world ever had. There's no
nation in the world that ever got as much information
about the unemployed as we have.
Gaston:
Can't you see - couldn't you observe some trends now
you've had some growth and some shrinkage in those
rolls? Isn't there something to be deduced from what
classes go out first, what ages, what sort of skills
80 out first, so that you might have some inferences
Regraded Inclassified
-7-
124
as to what the residual might be, given a steady
flow out into industry from these rolls?
Hopkins:
Well, personally, I don't think you've got much.
I think somebody could sit down and write a thesis
on the ject and make a statement, but I think all
you'd have when you got through would be somebody's
thesis.
White:
There is just a possibility that you could divide
these questions into possibly two groups, or even
three. One group would contain question in which
you cen't be too hopeful of results which you may
obtain; nonetheless, since they are not mutually
exclusive, since, for example, a particular depart-
ment or particular groups of persons might undertake
this without in any way interfering with the rest of
the study, they may be worth while, may contribute
something to the general problem.
And then, in so far as it is necessary to cut down,
you would confine yourself to those that you put in
a particular group which you felt were most important
and which you expected to get best results from.
Henderson:
Well, isn't there, Harry, a way of classifying the
questions in - those in which there is reasonably
reliable statistical evidence, and the others in
which the best essays, to use Harry's phrase, can
be written.
Now, Means and Bean, on the basis of their work,
could give some kind of an essay on 26
White:
I think so,
Henderson:
which would be, if you had to have it, the best
thing that you could get, and nobody would want to
pin E guaranty on it.
Hopkins:
I think White's getting at something here. You
might put these questions - might - almost off-hand
I could see them in three groups. For instance, I
would think in one, the first part of one - I would
assume that that could be answered pretty conclu-
sively.
Delano:
You're on page two?
Regraded Unclassified
125
-8-
Hopkins:
No, I'm - yes, number one on page two. "What
important industries have made less than a pro-
portionate contribution to the increase in the
national income?" Now, without going into the
exact wording of that question, I would think
that could be pretty conclusively answered. Now,
I may be wrong, but I would think it could be.
Now then, you move down to - let's say you put
that 26 in class two as something somebody could
write an essay on.
Then you move to a thing I'd put in class three:
"How far is the claim that new investment is being
seriously blocked by specific government measures
justified?"
Now, I simply think that you cannot make an inquiry
or investigation of that, because I don't think
you'll ever get anything other than somebody's
opinion. You go and ask John Brown, who's got a
million dollars, and he'll say to you, "I would have
invested that million dollars except for the undistri-
buted profits tax or the excess profits tax or the
capital gains tax.' Now the fact he says that
doesn't prove anything.
White:
A little more than that can be done with it. What
you say is quite true. Yet I think there is 8
possibility of approaching the thing from a quite
different standpoint, different angle. I know that
some of Currie's staff has fooled around with a
different approach that may yield results. Now,
how convincing they will be remains to be seen,
but I think there's enough possibility there so
that it's worth trying.
Hopkins:
Develop that a little, White, if you think this can
be done. How would you do it?
White:
One of the things I know they've done - they can
speak for themselves - that is, they've taken
industries in which the excess capacity has been
reduced and the evidence seems to be that wherever
you have the appearance of prospective profits,
irrespective of the period of years, irrespective of
Regraded Unclassified
126
-9-
the year that you select - wherever you have the
appearance of prospective profits, either as a
consequence of eliminating excess capacity or
as a consequence of certain other circumstances,
you have very substantial reinvestment, whereas
at the same time in industries which have a great
deal of excess capacity - at the same period, I
mean - you don't have any such investment.
So such an approach might be quite fruitful. I
don't know how far you've pushed that.
Currie:
Not very far, Harry. The one attempt we made,
because it's the one talked about most, is the
electric power industry. There we charted the
relation of generating capacity to output in
terms of 1929. Of course, we found this great
big pocket being formed in the depression, and
then when the relationship of output to g enerating
capacity got back at the end of '36, beginning of
137, to where it was in 129, you had about 300
million dollars less investment than you had in
'29; but whether that was a time lag there, whether
that would have been made up shortly, or whether
with the introduction of new practices they had a
more even distribution of the power load than in
1929 - those things would have to be gone into,
be broken down as to particular regions; take
the Southwest, T.V.A.,
White:
Have you explored the ground and come to a conclu-
sion whether it's worth while going forward with?
Currie:
Pardon?
White:
Have you explored the ground enough to indicate
whether it's worth while going forward in that
direction?
Currie:
More of an intensive study could be done. I found
no evidence in any other industry of this fact.
But in that industry there's a possibility you
might make out a case.
Hopkins:
I still think it would be difficult to prove.
White:
There is this to be said. There will be several
Regraded Unclassified
127
-10-
questions here in which the only things that can
be done are in the nature of essays. However,
one can't disregard the significance of the value
of competent essays.
Hopkins:
Especially if they happen to agree with you.
Currie:
I think you might do
....
White:
I said they were competent.
Currie:
On this particular question you can do a negative
job in a way - I mean if you bring out that in
industry after industry after industry the main
factor in creating investment is the degree of
excess capacity in inverse ratio; negatively,
you're answering this question.
Henderson:
Positively, you show that as you approach the
limit of capacity there is renewed investment.
It can be made a positive showing.
Currie:
That's right.
H.M.Jr:
May I just get this before we get on one out of the
26? I'd like to just approach this for a minute -
let me get Henderson's - he's always very frank.
Do you get, after reading the first part, the
fifteen statements, which have been picked over,
each one, of what different people - some think
it's one, some think it's two or three - that made
this break in the trend which looked as though our
national income, if it hadn't been for the break
in 137-138 - we were headed towards an $80 billion
income. Now, looking at the thing as a whole, with-
out saying that this particular thing we can't answer
or this one, do you think it's worth while proceed-
ing with the idea?
Henderson:
Yes. Very much. I don't think you've got all the
reasons here that have been stated.
H.M.Jr:
No. The President said there were B lot
...
Henderson: I think one very significant one hasn't been S tated,
Regraded Unclassified
-11-
128
and that's the one which - well, that Sachs was
emitting, and also is the subject of that study
by Lehman & Cohen, you remember: that there really
was a - might be a modification of number 10 - that
there was not so much 8 contraction of the market
for new capital issues, but a contraction of capital
assets for working capital for leading companies.
You remember that study.
Haas:
Yes.
Currie:
Which in turn they tied up to the subject of the
new issue market, restrictions on new issues, lack
of underwriting capital.
Henderson:
That's Sachs' thesis and the Mazor thesis, which are
the same, supported by a study in which they find -
which Cohen & Lehman did for the new school - was
that it was a shortage of working capital, really.
B.M.Jr:
I saw that.
Henderson:
That, induced by certain New Deal measures which
they think really throttled the forward progress.
That ought to be in for - certainly I'd want 8. shot
at appraisal of it.
Haas:
That would come in in 10.
Henderson:
But in the main I think it's an excellent thing to
do, particularly those which are measurable. Now,
Henry, number one, over-accumulation of inventories,
is - while that maybe both a cause and a result, I
would say it was a result of particularly number 12.
That would be one thing on that before we got into
the statistics.
But certainly it is possible to make a real apprai-
sal of the inventory thing in terms which would be
useful as we approach another such period. And I
think it ought to be really dinned into our con-
sciousness as to what happened. There's been no
similar period that's shown in Kuznets' works,
certainly, Lauch, of inventory sccumulation such
as took place.
Currie:
Practically the largest on record, I think.
Regraded Unclassified
129
-12-
Henderson: About two and a half times what it was in 1929.
I think that the setting down of these things would
be very much worth while. It is awfully difficult,
however, from the statistical material to follow
this wage versus price thing - the hen and the egg
thing - as to which came first.
H.M.Jr:
Well, I'm not fooling myself at all about the
difficulty, and I'm not fooling myself that
nothing may come out of it. But at least - I
don't care whether out of the 26 there's only
three that are any good - at least if our people
were thinking along those lines, to try to find
out what did happen, and out of that possibly
prepare ourselves so that the thing may not
happen again in the immediate future, some good
might come out of it; some good might come out
of it. But I personally am not satisfied with
the information which is in Washington as to what
did happen, and I'm not satisfied that we're pre-
pared to in any way combat the thing happening
right over again.
Henderson: Well, I'd certainly go along with that second. I'd
be less - I'd be a little indifferent on the first,
but the second is pretty true. The organized informa-
tion or the approach as to handling another prospective
similar period 18 certainly not here.
White:
And I think you're probably unduly modest and pessi-
mistic about the possibilities here, because these
include many of the fundamental questions; and
doubtless there are some that have been left out
and that should be added and will be added. But
when you get through you'll have, I presume, most
of the questions which are constantly in the fore-
front of all discussions, and which go to the -
appear to go to the root of the matter. And an
attempt to answer them, getting such statistical
evidence as is possible, will in the first place
be a great deal and it will indicate what evidence
is not available, which may indicate what we ought
to get,
And thirdly, in the realm of discussion, and many
of these questions would have to resolve themselves
into that, I think there is something to be gained
Regraded Unclassified
-13-
130
by having it discussed from the various points
of view and brought together. And therein, I
think, is the danger of allocating questions tc
particular groups, because there are numerous of
these questions - and possibly we could select them
in a group - in which the person handling them would
determine in part what the conclusions are, and
therefore it would be essential to have those parti-
cular questions handled by several groups indepen-
dently, the results compared. And inasmuch as we
are all reasonable human beings and want to get at
the facts, I presume that the essays have some value
in that direction; those would be of the essay type
almost wholly, if not wholly.
And then I think it is also true to say that on
almost all these questions you can get some evi-
dence.
H.M.Jr:
Marriner, how do you feel about this committee
taking hold of this, or approximately in the form
it's in?
Eccles:
It seems to me all the questions really resolve
themselves into possibly three headings: First,
a consideration of what did happen to bring about
a downturn. That can only be of value as it may
serve as a guide in the future to avoid similar
mistakes.
Secondly, what can be done that we may not be
doing and that will help to bring about the
desired objective of a much higher national
income?
And thirdly, what are the pitfalls, the things
we need to watch, the things we need to be con-
scious of developing, that might be an impediment
or would tend to retard a program of reaching that
income?
Now, that, after all, it seems to me, is the broad
thing that we're interested in - is getting this
higher national income, reviewing the past in order
to serve as a guide in the future, while at the
same time giving a study to those factors, and it
seems to me they're pretty well enumerated here.
131
-14-
There is some overlapping, of course, and some
duplication - at least not duplication but over-
lapping, in connection with the consideration of
getting an increased national income. And we
know also that there are certain pitfalls, there
are certain things that we should have in mind to
watch out for, to attempt to avoid. Now, I think
it's & very necessary and a very worth while study.
I don't know how successful we'll be even if we
should agree on some kind of a program; you've
elways got the political problems of trying to
get through or get the adoption of a program or
portions of E. program that would assist in reaching
your objective.
But certainly, unless we expect our democracy merely
to go along on a hit-and-miss basis, there isn't
anything else we can do but to try to take the
information that we have and the body of knowledge
that we are able to get by further studies and
make a real effort to interpret it. We've got an
awful lot more information than we ever use.
H.M.Jr:
That's right.
Eccles:
It seems to me that we ought to try to bring some
of it together and to interpret it in the light of
what our objectives are. And it seems to me that
this Committee is especially - inasmuch as we have
the support and the backing of the President on
this kind of a program, that we ought to be better
able to do a job in this field, inadequate though it
may be, than any other body in existence in this
country today. And I'm not - I'm not very hopeful,
but all we can do, it seems to me, is make a fight,
make an effort, and keep on trying. And I know 1f
we don't do it that just as surely as you live we're
going to repeat some mistakes and we're not going to
know about it until after it's too late.
H.M.Jr:
Well, I feel that this kind of study - and the
President felt that way; I mean took time enough
to read it very carefully, discuss it - is very
much worth while, and I checked very carefully,
ES carefully as I could, as to whether anything
approaching this was being done by any government
agencies, that we weren't duplicating, and as far
Regraded
-15-
132
as I could find out there wasn't anything like
this going on. I may be wrong, but the people
told me there wasn't, so we're not falling over
anybody.
And I myself - I mean just talking for myself, I
feel the need of this thing very, very badly, and
while I'm not going to be too hopeful, at least
if I could have this going on and have the contact
with the people making the study, at least I'd feel
that I was making the best effort I could not to fall
into the same pitfalls, as Eccles said, which we've
just gone through, lacking that study. That's why
I personally am very enthusisstic and am willing to
devote a lot of time to it myself, because I'm not
particularly happy about the prospects for $40. But
if you say, "What are you going to do about it
tonight?" I just wouldn't know what the answer 1s.
But I don't think the prospects for 140 are any too
bright, end if somebody - something like this was
going on I'd at least feel, for my own self and my
particular responsibility, that I was doing every-
thing that I could, through the intelligence of the
people that were with us and other departments, to
try to meet the thing as intelligently as possible.
That's why I'd like to see this thing done.
Now, as I say, this is - as the President said; he
put it this way - he said, "This only takes care of
two phases of & six-sided cube, and he particularly
stressed a lot of the monopoly things, which are not
included in this thing. Then he said if Hopkins
would study this thing, talk to Mr. Harriman, see
what things they felt were left out, why, we could
But after all, while Mr. Bell isn't here and I haven't
had a chance - I'm doing my home work right out in
public, so to speak - I'd just like to know from Mr.
Eccles and Mr. Delano if they'd feel that I'm over-
enthusiastic or over- - I mean ...
Delano:
I think the work is very well worth doing.
Eccles:
You know, the various departments of government -
unless B person lives over here for a few years,
they don't realize how many there are and how meny
Regraded
-16-
133
things can be done that don't fit into a pattern,
and each one is absorbed in their own immediate
job and they too often lose sight of the relation-
ship to the over-all picture. They pursue a
course that might work directly opposite to what
an over-all picture visualizes.
People outside of the Government are making inde-
pendent studies. The Industrial Conference Board,
the Chamber of Commerce, the Bankers Association,
the Manufacturers Association, and various banks
are putting out their bulletins and making prog-
nostications, and they're taking government figures
and other figures and trying to interpret them and
make forecasts, and the public is being, it seems
to me, terribly confused, and so often some of the
work that is being done by those agencies 1s done
with a bias; there is a certain bias too often and
they oversimplify very difficult problems.
And the Government itself seems to me to add to the
confusion without an effort of this sort to try to
bring together
H.M.Jr:
Well, you don't think this would add to the confu-
sion.
Eccles:
I say that the Government does, the way we have
operated, due to our failure to try to appraise
the various activities and the various programs
and try to fit them into a picture that makes an
objective. I don't say this would - I ay this
should tend to avoid that very thing. This should
tend to stimulate confidence to the extent that
we have not only definite objectives, but that we
have a program that we're trying to fit into the
objectives that we're trying to reach.
I think that there is too much feeling, and I think
justly so, outside that we're all confused, that we
none of us know where we're going or what we're doing,
and I think it's just due to a lack on the part of
the administrative division of the Government of
at least trying to bring everything together into
some kind of a plan. Not that you may - not that
you could always carry it out, because it involves
often a legislative approach; but certainly if we're
-17-
134
going to render any useful service here to the
President as a Committee and advise him with
reference to an economic and fiscal and monetary
program, we either ought to say we can't do it
or we ought to make & supreme effort and try to
develop a program that makes sense, try to develop
one not that we pull out of the air, but try to
develop one that is based upon the best possible
information that's available, after applying the
best minds that are available upon the information
we've got.
Now, after we've done that we can't do anything
else, but certainly we can't do any less 1f we're
going to serve him as we're expected to, except
by doing just that. Now, that's the way I look
at it.
H.M.Jr:
Well, as a by-product, for instance, when I was
asked at my press conference point blank on the
processing tax, having had the whole discussion
of the Fiscal and Monetary Committee and knowing
that we listed that as, I think, public enemy
number one, why, I felt perfectly safe to come
out and say I thought it was B terrible thing
and I was "agin" it. But I had the benefit of the
work of the people, and so forth and so on, and
if I hadn't had the benefit of this Committee, I
wouldn't have taken such a strong position, and
the answer was I got away with it. But the fact
that this group and the economists that are work-
ing for it - they all say, "Listen to this - public
enemy number one,"
Rocles:
They were unanimous.
H.M.Jr:
... - gave me that backing.
Hopkins:
Huh?
Eccles:
I say: and they were unanimous.
White:
For B change.
H.M.Jr:
But I mean I never would have gone out that way if
1 hadn't known this group WBS back of me.
-18-
135
Johnny, do you want to say S omething?
Hanes:
No, Henry, I think Marriner hit the nail on the
head when he said that this Committee is expected
to produce something concrete, and this is the most
productive effort that I've seen, and I believe with
an agenda if this thing were announced tomorrow
morning, that the Federal Government was studying
this sort of an approach to this thing, it would
engender more confidence in the business structure
of this country than any other one thing that I
can think of.
Eccles:
They wouldn't think we were just guessing and
hoping.
White:
"rouse a tremendous amount of interest.
Hanes:
If you could get the President of the United States
to announce it - that this is the thing - that they
had directed & concrete study, and the best minds
in the Government were working on this thing in
order to bring about an $80 billion income, or
whatever the income was we're shooting for, I
think it would engender more confidence in the
business structure than anything we've done here
at all. And I'm crazy about it; I think it's real.
H.M.Jr:
May I interrupt one second. In adding to the dis-
cussion of the President, I think a sentence he
used was most interesting. He said, "Make these
questions as provocative as possible." I mean
that was what he said. Excuse me, Marriner, but
I just wanted to add that.
accles:
Well, I was just going to say that you've got
a legislative body here, in fact you've got two
of them that are constantly considering every ay
in various committees questions that have a
bearing upon the whole economic trend of the
country. They make decisions and legislation
is developed that seems to me might not be devel-
oped, and certainly the decision that may be made
might not be made, if there was a body of thought-
ful, expert, considered opinion, with reference to
some of these matters.
Regraded
-19-
_36
H.M.Jr:
Well, again using processing tax as an example.
Eccles:
That if Congress then saw fit to take action
contrary to all of the arguments that were
possibly made against certain action, they would
be - it seems to me there may be more hesitancy
in doing some of the things they may do.
H.M.Jr:
Leon, would you do what the President would like
you to do, that is, take this personally and study
it, and those things which you don't like, say so,
and those things which you think we've left out,
add them?
Henderson: why, sure. What I was thinking - I don't believe
there's a bit of difficulty on that, inasmuch as
I'd like and have wanted for a good long time to
see some agency make the move of doing just this.
And I've been here five years now and I've been
looking for some agency in the administrative arm
that would move on this particular topic. We should
have had it in a planning board, of course; that
would be the logical place for it. Maybe a Resources
Committee that was adequately staffed could do it.
A fiscal policies board has certainly got to do it
or, as Marriner said, just give up the ghost. Now,
I think it's just merely B question of what kind of
an organizational tructure you're going to insti-
tute and to get it done, get it started pretty
quickly.
Now, I can pick off certain topics in there that
we can do in our Committee (TNEC) and some of them
we expect to do; and if you get the proper heading
up of the thing, why, we can go to work on it and
most of these things could be reasonably well
answered in the next three months.
H.M.Jr:
In three months?
Henderson:
Yes. If I had nothing to do except to organize
what the existing information is, within three
weeks I could have a reasonable answer on all of
them except the tax thing.
H.M.Jr:
And Hanes could give you that tonight.
(Hearty laughter)
Regraded Unclassified
137
-20-
Hanes:
I don't mind saying I could give you B hell of 8
lot on it tonight.
But I was going to say one thing more, Henry.
Henderson:
In fact, if we were back in the W.P.A., Mr. Secretary,
and Hopkins wanted that tomorrow morning, we'd do it
by tomorrow morning. We've done it.
White:
Is that the way you got it? That explains some
things.
H.M.Jr:
I won't say anything. You're my guest.
Gaston:
That leaves Harry wide open.
H.M.Jr:
"e'll skip that one.
Hanes:
Mr. Secretary, may I ask a question Just to throw
it out for discussion? What would the group think
about getting about twenty, thirty, forty, or fifty
private agencies at work on such questions as these
and others that may be added from time to time? We
can get an awful lot of help from the outside. Maybe
it would do us some good to get an outside viewpoint
on a great many of these things. We can take it or
leave it, as we like.
Henderson:
That should be determined according to which ones
you ask, under what terms of reference you do it,
and under what terms of supervision.
Eccles:
Isn't there this danger, though, Johnny, that some
of these outside agencies - that you've got to be
careful that they're not already committed in some
field. There's so many of these agencies that
have got pretty strong - taken some very strong
positions, and they have some pretty definite
commitments.
Hanes:
Well, of course, you'd have the names of all
those people. You could discount the ones you
don't like, just throw them in the wastebasket
if you don't like them. But I was just wondering,
why do we sterilize all the brains in the United
States? Why don't we get all the brains we can
get to work on this thing, rather than sterilize
Regraded Unclassified
138
-21-
them and just say, "We don't want your opinion."
Let's get all the opinions we can get.
Delano:
That Fortune crowd seems to have made quite an
interesting study.
Henderson:
Interesting, Mr. Delano, but keep a question mark
or two up on that particular thing. If you ask me,
I think it's a pretty lousy job. I mean now you can
take that with some of your good comments and dis-
count them and balance them; but I think that Fortune
article is a pretty poor job, considering what could
be done on the subject.
White:
You could certainly tap scientific organizations and
institutions.
Eccles:
That's right.
White:
But I think one of the dangers of getting purely
commercial groups to work on some of these is that
if the government group presents a different report,
presents a different side, which may be quite likely
in many instances, why, it would have possibly
unfortunate public consequences.
If you confine yourself, on the other hand, to those
who qualify more OF less as objective experts, for
want of a better name,
Hanes:
I was thinking of the Minnesota School of Business
Administration, for instance; I mean give some of
those kind of people a real shot at this thing,
where they're groping around, looking for something
to put their people to work on. And these bring up
so many problems which they are studying from day to
day.
Henderson:
What you could do, John, instead of that is to tap
those individuals as individuals rather than tap
them as an organization. In that way you avoid the
thing Marriner has pointed out, of asking somebody
to give you something on which they're already
committed for policy reasons. For example, after
having analyzed two or three things which the United
States Chamber has done, and after collecting &
Regraded Unclassified
139
-22-
dossier on the Conference Board of that thing, I
would never think of asking them as a Board or as
a Chamber to make a reply on one of these things;
but there are people in those groups and people
working for members of the firms that belong to
the Conference Board of the United States Chamber,
and there are people in the universities and there
are also in the research staffs.
Haas:
Well, the National Bureau up in New York would be
all right.
Henderson: You always come back to the National Bureau. But
the National Bureau will not take on an additional
thing. They'll say, "Here's the best we've got."
I've got their figures on capital formation for
1937. Have you (Currie) seen those?
wurrie:
Yes.
Henderson: I sent them over. They show as far as consumer goods
goes we were above 1929 in 1937, a very astounding
thing; on consumer goods we beat the 1929 physical
production in 1937. They'll give you those things.
You can rely on those. We're constantly working
on that. That's a body of knowledge which the
Government people already have, George.
The point I'd say on this, John, on the matter of
anything which has reliable content - that's part
of the working knowledge of the governmental groups
now. As far as - when there is an opinion question,
that's something else.
Hanes:
Yes, and so much of this is opinion, as Harry
Hopkins said a moment ago, and after all what I
assume you're trying to get at here is what 1s
affecting adversely the business psychology in
this country.
Henderson:
I incline more to the things you can measure.
Hanes:
It seems to ще the more opinions we could get on it -
at least we'd have 8 lot of opinions. I don't think
it ever hurt anybody to listen to anybody's opinions.
Currie:
Don't you think, John, we get that opinion every day?
-23-
140
Hanes:
Maybe you do. I don't think I get it every day, no.
Get it out of the newspapers, if that's what you
mean, but I don't think that's what I'm looking for.
I'm looking for real intelligent honest-to-God -
looking for appraisals by people that you have faith
in, confidence in, and people who are doing things
every day, know something about what they're doing.
H.M.Jr:
Mr. Hopkins.
Hopkins:
I've got one suggestion to make which is positive,
one that's a little tentative.
The positive one is this: That I think these ques-
tions are provocative; they may not be inclusive
enough; I think some of them aren't worded quite
right. And I'd like to see a committee of three
made up of people like White and Currie and Henderson
get these questions down the way we want them, in the
exact language we want them in, very carefully chosen
language, add such questions as they think best so
that we get a complete meeting of minds. And I
would think those fellows could readily put these
questions down. I think that they ought to be put
down in better order than this; for instance, I
think Marriner outlined a type of approach to this
thing that is not bad. And I would think that could
be done in the next day or two. I don't think that
would be much of a trick, to get these. Somebody
must have done a lot of thinking about this in this
crowd in this room; I don't know who did it, but
somebody.
H.M.Jr:
Well, there were three people did it: White, Haas
and Lubin.
Hopkins:
Yes. Well, I'd like to see this gone over once
more, and get these questions
Now, that's
a positive suggestion.
H.M.Jr:
I gave a couple of those thoughts.
Hopkins:
Now, the tentative suggestion is this. Let me inter-
polate a minute about Johnny's question. The stuff
that's in here, and all the implications of it, are
the basis of the 1940 campaign.
-24-
141
B.M.Jr:
Is that going to raise its ugly head?
Ropkins:
I'm telling you how the question is going to raise
its nead. This is very important political stuff.
The reason I don't like to submit this to people in
any outfit that's opposed to Roosevelt that wants to
answer this - they're going to take this occasion
to publicly hit him right over the head with à club.
These fellows you ask about this thing outside the
Government don't hesitate to publicize it at great
length.
Another thing I'd say: Whether anybody likes it
or not, Roosevelt is the President of the United
States, and this is tne executive crowd that are
supposed to be working on this thing; we've got the
executive responsibility for the administration of
the Government. Now - I mean if we can't answer
these questions, and any like them, and all the
implications, if we haven't got an answer to these -
and I don't think this Administration, incidentally,
has had answers to a lot of these questions in the
six years we've been here -
Docles:
We should have started this six years ago.
Hopkins:
I don't know; we wouldn't ever have gotten the
answers, possibly. Many of these are policy ques-
tions; lot of these things involve Administration
policy. when you get in this tax question, you
really get the question, what's the policy of this
Administration regarding taxation? - that's what
you're asking here - and why? And I think it would
be 8 grend thing to see if this thing could be
written down in close-fitting language.
Now, the tentative suggestion that I've got is this.
Once these questions get agreed upon, I certainly
would like to take 8 flyer in my department at
answering these. I would think that White and Haes
and the crowd they're working with would like to
submit the answers to this thing for the Secretary.
The National Resources Board might. Lubin might
want to do it on his own account. Then we'll bring
these together and see how far apart we are and see
if we could bring those then together in a memoran-
dum, which would either be B memorandum of this
Regraded Unclassified
142
-25-
fiscal policies committee - that could be worked out
later, as to now you'd get this - a meeting of minds,
and put it in the hands of the President.
The first suggestion is a positive one, the second
one is quite tentative.
Gaston:
I'd like to say something on that second suggestion,
Harry. It seems to me in dealing with a great many
of those questions you'll have an important problem
of research, & statistical problem there, getting
out a lot of material, and it does seem to be a
great waste of effort if that's duplicated.
(Mr. Thorp comes in)
Hopkins:
I'm inclined - I don't know, but I'm inclined to
doubt that if this is a matter of wide - I'm
inclined to think this is not a matter of long
studies; I'm inclined to think this is a matter of
some very close-knit thinking. And I grant you
we've got to get some statistical data in our
efforts here.
White:
I think both. I think there is a good deal of merit
in having the various agencies, four or five of the
agencies, tackle the same questions from their parti-
cular point of view. I think there is a great deal
of merit in that and I almost think it's necessary
where so much of it will be & question of philosophy,
question of point of view, and so forth; then see if
you can iron out the differences and how much simi-
larity of view there 1s, and thrash out the differ-
ences. On the other hand, there is a good deal of
material here that involves some rather comprehensive
and extensive research. So it might be possible to
combine both those 1deas.
Hopkins:
Why couldn't you, then, White, add to the duties of
the committee that's going to prepare these ques-
tions the further duty of indicating which of these
things require some pretty careful statistical
analyses and studies; let this committee indicate
what agencies could best collect any one of these
items. In the meantime certain of these things
which do not require - where the statistical
material 1s fairly readily available, you could go
to work on. For instance, I'd very much be interested
143
-26-
in this first question, as to how some of you
fellows over in the Treasury would answer that
question. Now, suppose four or five of us did
work on an answer to that question; then we'd
get together and see how close we are.
white:
It would mean that most staffs, I think, would have
to - would need more people and drop everything else
for a while.
Currie:
That one - the first two parts of that question could
be answered very quickly. It's the third part that
would
Hopkins:
Well, that becomes a matter of
Henderson:
We're going to have that number one in our Committee
before we get through - the first two parts of
number one. What can be done about it, I don't
know whether we'll have or not.
Hopkins:
I don't think you can set up something here with this
kind of stuff and wait until seven or eight months
to put this on the President's desk. This is going
to be - if you've got to wait that long, this thing -
that's too late.
Eccles:
I was going to suggest this. That number one section -
we can do that afterwards. I mean that's water over
the dam and it's B study that can go along. What I
would move into for the moment is the thing of ques-
tions of importance from the standpoint of timing:
what can be done that will stimulate or assist in
increasing the national income by getting private
activity to expand? In other words, what is there
that might be done to give that stimulation? That
can't be all-inclusive, but it seems to me that we
may well do this, that we can give E report to the
President on this thing piecemeal; tell him that
to complete it all would possibly take until next
summer or next fall, and by the time we come to
certain answers he'd say, "Why didn't you tell me
that B. few months ago?"
H.M.Jr:
Well
Eccles:
There are certain matters now that Congress is in
Regraded Unclassified
144
-27-
session that have to do with possibly certain
legislative matters, amendments to legislation,
that might be a real help and stimulation to
private activity. Well, the sooner we can
develop what some of those factors are - I mean
like in tex matters - Johnny talks about taxation,
a case in point - certain aspects of the labor
problem, certain aspects of the question of the
capital market; and we've got this problem of
Government spending, the question of appropriations.
You've got four things there in a broad way that we
ought to have a program on pretty soon.
With reference to labor maybe nothing could be
done; but at least there may be certain things
that would be really helpful and that would
involve some of the amendments. There's indica-
tion there's going to be some amendments possibly
in the Wages and Hours, possibly in the Labor
Relations.
Now, there are many factors in this picture. There's
going to be tax legislation, possibly, of some kind
or other.
H.M.Jr:
Don't forget Social Security.
Eccles:
That's another one you've got, Social Security;
that's right in the mill, it's got to be considered.
You've got the question of spending, what's the W.P.A.
appropriation going to be, what other appropriations -
whether you're going to have public works, roads,
CCC camps, and other items.
You've then also got the question of the railroads,
which is one of the most important matters. You've
got a question of housing amendments that are coming
up right now that are being proposed, and what can
be done with reference to reducing the financing cost,
possibly, or lengthening the time of amortization.
I'm thinking of a half dozen of these things that I
know are coming up that all have a bearing on this.
And it won't do a damn bit of good to complete studies
with reference to those after the laws are passed for
this session of Congress.
Delano:
I'd like to say a few words.
-28-
_45
H.M.Jr:
Please.
Delano:
Doesn't mean at all that I'm not in accord with
these questions, but my mind has been running along
this way 8 little bit. It seems to me in the last
six years we've been trying quite a good many experi-
ments, and at the early part of that time I remember
meeting two Englishmen who were over here, one of
them a prominent member of the (words not understood)
named Clayton and another important economist named
Beveridge. I remember one thing they said which
impressed me very much, about the way they were
doing this job in Great Britain. They thought it
was very important not to tax their Federal treasury
very heavily, but to do things which would get the
maximum amount of aid from industry, in some cases
going to the extent of guaranteeing bonds for pri-
vate industry, and all that.
Now, we didn't start on that method, and I think
we had an impression in this country that it was
only necessary to prime the pump. That was the
expression that was used. Well, I don't believe
anybody in this room believes that priming the pump
then or now would solve the problem. It needs some-
thing much more fundamental.
Now, some of the experiments we have tried I think
have had some pretty good results. You take the
F.H.A.; it seems to be having very good results, and
it isn't a very big obligation on the Government.
Some of the things that we've done are just the
reverse.
I have in my other coat pocket - I carry around a
little chart showing the construction work in this
country in the booming years of '27, 128, 129.
Total annual cost for construction work by private
industry and by cities, states, and Federal Govern-
ment, something like 14 billions B. year, and of
that amount the Government only contributed between
a quarter and half a billion. Well, during these
recent years we've dug into our pants to the extent
of two and a half billions a year, but we haven't
been able to get the cities, the states, the
private industry, to anywhere near fill in the gap.
In other words, we've gone on the theory that if we
set B. good example the others would come along. But
Regraded
146
-29-
they need more than a good example; they need some
real inducement. And I think you did that in the
case of the F.H.A.
Now in the railroads about the only spending they
have done in a capital way has been where they've
been helped and encouraged by the R.F.C., and while
they haven't had enormous amounts to spend on that
sort of thing, they have accomplished quite a good
deal, without a big drag on the Federal Treasury.
So it seems to me that we ought to give some thought
to the kinds of things, the kinds of remedies that
we should adopt which will get private industry doing
their share.
Now take the power thing. I've been sitting in on
that Army committee about power. Supposing the
Federal Government would say to an industry, say, in
Pittsburgh or Cincinnati or Chicago, "We'll build
some transmission lines to transport your power at a
certain price per kilowatt hour, if you'll build the
plants to generate electricity at a certain price."
I mean that would be B sort of bargain where the
Government did part, but we'd expect the industry
to do a great deal more. And things of that kind,
I think, are more needed now than the Government
doing it all as a good example.
H.M.Jr:
Well, Mr. Delano, would this be a way of getting this
thing started - I'm thinking of what Hopkins said -
if each of us would designate one or two people -
technical people to represent us and have them get
together and work over this first draft?
Delano:
Yes.
H.M.Jr:
And after they've agreed amongst themselves - and
as they're doing it they might be thinking, "Is
my department equipped to do this, or would I like
to work with somebody else?" They could be thinking
of that as they go along, and they could check off -
"Well, the Treasury could handle this all right, but
on this one we'd like to work jointly with Commerce"
or "we'd like to work jointly with Federal Reserve"
and SQ forth and so on, and "this naturally would
fall to Labor." But they could do that as they went
-30-
147
on, and when they came in they could say, "These
are the ones we're equipped for and these are the
ones we're not equipped for, and these are the
ones we'd like to work on all together." And I
think each of the people here could say now, if
they could, who would represent them.
Delano:
Well, so far as Resources Committee is concerned,
most of the work of this kind has been done by a
committee on which Mr. White, Mr. Currie, and Mr.
Henderson have worked; it's an Industrial Committee
with about twelve members representing all the
departments of government.
H.M.Jr:
I don't think Commerce is represented.
denderson:
Commerce had a representative on there.
Delano:
They had for quite a while.
Henderson:
It was too socialistic for them, so they gradually
withdrew; they got scared of some of the things we
were doing. They needn't have been scared. Never
did any revolutionary things I know of. Sat sround
end hoped for an occasion like this, in the main.
Have done some thinking in the meantime; but I mean
they've wished for an occasion like this. If Com-
merce could come back on this committee one of these
days
White:
That would still leave room for each department to
decide if they would like to take some of these
things independently.
H.M.Jr:
I still go back to what Hopkins suggested: in order
to keep this going, if we say tonight who is -
those of us here - I think that Hopkins is suffi-
ciently liberal that we could admit him to this
Committee, and now that he's
Henderson:
Well, I
H.M.Jr:
What?
Henderson:
I don't know.
Delano:
Stiffening up.
Regraded
148
-31-
White:
He's changed.
H.M.Jr:
I'll vouch for him. I'll vouch for him. The
fact that he's in my home
bccles:
We better get him in now while he's eligible.
H.M.Jr:
If you don't mind, this other committee brings in
other departments, and maybe I'm being over-cautious,
but as I said at the beginning, I've always felt
that this work - all the work I was doing is the
property of the President, and until he's said to
bring in Agriculture or bring in - who else is on
your committee?
Delano:
Labor. Lubin's on it.
H.M.Jr:
Well, he knows that Lubin is on it. But I'd like
to just think about it again, because he has been
so - I mean we've been SO - this is one of the
few groups I've ever worked with that I didn't
pick up tomorrow morning's paper and read in some
column what I did the day before; and this has been
fairly successful and I'd like to keep it that way.
Delano:
"ell, Mr. Currie, what would you say about a man
like Gardiner Means?
Currie:
I was just going to suggest, Mr. Delano, that the
staff of the National Resources Committee will be
in a position very shortly to do much more of this
than they have been. They've been in this great
rush of getting out these publications. You've
been in the process of winding up this blue book.
So I understand some more of their permanent staff
will be available than have been up to date.
Henderson:
If Mr. Delano wanted to leave it to, suppose, White,
you (Currie) and I, and somebody from Commerce were
where a lot of that material is to be found. The
appointed, why, we could lay out as we run along
thing can be organized. We could do that if you
wanted to leave it that way, Mr. Secretary.
B.M.Jr:
Mr. Well, Thorp will represent him. Now, Eccles, who will
it isn't quite clear. Mr. Hopkins said that
Regraded
149
-32-
represent you?
Eccles:
Currie.
H.M.Jr:
Currie.
White:
I think you better have a couple of ... - excuse
me.
H.M.Jr:
I know. Well, I'm going to have Haas and White
represent us, because we divide it up in the
Treasury.
Delano:
I'd like to have Ruml put as much time as he will
upon this thing.
H.M.Jr:
And if it's - now who have I overlooked? And will
you (Henderson) represent yourself?
Henderson:
Uh-huh. Glad to.
Hopkins:
Very articulately, too.
H.M.Jr:
And if it's satisfactory to have somebody kind of
ride herd on you fellows, see that you meet and just
you in a room and leave you, why, Duffield's avail-
able to do that for me personally - provide a place,
so forth, if that's necessary. Just the way you
have - oh, what's his name?
Delano:
Bliot.
Henderson:
why couldn't we agree on Currie as chairman - I'd
suggest a little group - and then have him work
with Duffield about getting rooms and so on.
H.W.Jr:
I - excuse me - I think we ought to have Lubin on
that; Lubin definitely, because he did this. Excuse
me.
Hopkins:
What about a time schedule?
H.M.Jr:
Excuse me - what were you (Henderson) going to say?
Henderson:
I was going to suggest that Currie act as chairman
because of the fact that he's done so many things
Regraded Unclassified
150
-33-
for the Resources Committee and also for the
Federal Reserve Board and he's familiar with
most of these items. We have a habit of turning
to him on a number of things that are contained in
these questions. Be could work with Duffield to
arrange for the time and place of the meeting and
things like that.
Currie:
I don't know whether for this little group we need
so formal a thing as a chairman.
Henderson:
I think you do.
Gaston:
Just call him the Goat.
Duffield:
Just Goat.
H.M.Jr:
The Goat?
Gaston:
Yes, just call him the Goat.
Hopkins:
What about a time schedule?
White:
You set the schedule. We'll adhere to it.
Hopkins:
How about Monday?
H.M.Jr:
Well, that's today a week.
Hopkins:
What day is today?
H.M.Jr:
Monday.
Hopkins:
About a week from today?
H.M.Jr:
We'll meet ten o'clock Monday morning?
Delano:
It's all right.
H.M.Jr:
What?
Hopkins:
Suits me.
H.M.Jr:
Is that all right?
Delano:
I think if you will make it Tuesday - my friend
Ruml can come down if it's Tuesday.
Regraded Unclassified
-34-
151
H.M.Jr:
Tuesday at ten o'clock?
Delano:
Then you could get Ruml down, I think.
H.M.Jr:
Marriner, have you an engagement for next Tuesday?
Eccles:
No, I haven't got one. I was just thinking - have
you, Harry?
Hopkins:
No, I'll make myself free.
Eccles:
I'll be here next week.
H.M.Jr:
How about Mr. Delano, Tuesday, ten o'clock?
Delano:
I can't; I've got to be in New York Tuesday. But
I could get Ruml to come down; I'd rather have him.
H.M.Jr:
Well, I'd rather have you.
Delano:
I could come Monday, then.
H.M.Jr:
Oh, if it's interesting Ruml will come; 1f it's
provocative enough, he'll come.
Henderson:
Monday is a bad day for Ruml, isn't it? It has
been on several occasions.
Delano:
He says that's the one day in the week he can't
come. He was here Sunday, all day Sunday, and Saturday
Henderson:
I saw him Saturday.
H.M.Jr:
Where would you like to have it, Mr. Delano? I
can - I mean I'm not dated up or anything.
Delano:
Are you willing to make it Wednesday?
H.M.Jr:
Yes, except that - does that put it off too much,
Harry?
Hopkins:
I think the sooner the better. On a Job like this,
you can do - if you're going to do it, you can get
it done in a week as easily as you can in ten days.
Currie:
Your thought, Mr. Hopkins, was to work over these
Regraded Unclassified
152
-35-
questions, perhaps rearrange them, put them under
main headings, rewrite them and point them out;
perhaps make any additions that we think necessary.
H.V.Jrt
That's right.
White:
And, I take it, at the same time say which would be
handled by which group.
Henderson:
Note the agencies that might handle them.
H.M.Jr:
I think - can you be here Monday, Mr. Delano? Can
you be here?
Delano:
Yes.
H.M.Jr:
Let's just say - I think - let's say ten o'clock
next Monday. I think a week - putting it off ten
days is too long. And if it's agreeable, Duffield
will ride herd, just to see they meet, so forth
and so on.
Henderson:
Very good.
Eccles:
I think that's sbsolutely necessary.
H.M.Jr:
I think if we have a meeting Monday morning - if my
luck holds out, the President will have me for lunch
Monday and I'll have something to show him; and I'm
following very, very meticulously just what he laid
down, and I think before we add anybody - we'd like
to stay that way, because he was quite specific on
who he wanted to see it and who he didn't want to see
it. I think we'll leave it that way. If he feels
there is a blind spot - he felt there was as far as
we've gone and he asked Mr. Hopkins and Mr. Lubin to
join - I mean Mr. Henderson. Now, after he sees it
again a week from today, if he still feels we should
solve the cotton problem, why, we ...
Eccles:
I've never - when you get E. committee that's too big
you usuall bog down. Isn't that right?
Hopkins:
Sure.
H.M.Jr:
I think we're all thinking the same thing.
Regraded Unclassified
153
-36-
Eccles:
And it seems to me that if we're going to get
together on this program and do an effective job,
the Committee's got to be kept down in number. And
where specific questions might come in, you might
advise with certain agencies like Social Security
with r eference to that problem, with other agencies,
rather than bring more in on the whole problem. I'm
thinking merely from the standpoint of workability
of the thing.
H.M.Jr:
Getting something done.
Eccles:
Yes.
H.M.Jr:
Now we've got - I think it's certainly enough for
a week, and if he wants to add somebody, that's
his privilege.
Eccles:
Yes. In bringing this thing in, don't you think
that part one for the time being can be left to
further studies?
Henderson:
At least separated. Yes, I would suggest that.
Eccles:
I mean from the standpoint of time, if we're going
to do any good, we've got to point this thing up into
the specific things that need immediate attention.
Henderson: We got that already written anyway, Marriner.
white:
We've got everything done but the
....
Henderson:
Currie did that a long time ago; we've got the
answers on all that written.
Regraded
154
I.
The setback in national income in 1938 has been
attributed by various people to a number of causes.
These need to be appraised. Among the more immedie te
of these are:
(1) An over-accumulation of inventories
(2) Excessive speculation in commodities
(3) Consumer resistance to rising prices
(4) Deflationary effects of increases in
reserve requirements
(5) The curtailment of government spending
(6) Labor difficulties, including rapidly
increased wage rates and sit-down
strikes
(7) Shortages of skilled labor in key
positions
(8) A too-rapid increase in production costs
(9) A decline in new construction
(10) A contraction of the market for new
capital issues
(11) Government tax policies
(12) Maladjustment of prices, and price
rigidities
(13) Fear of gold price reduction
Regraded Unclassified
.55
2
(14) Government competition
(15) Excessive short-term installment
buying
II.
It is proposed that an investigation be made of
certain fundamental factors which may have been signi-
ficant in bringing about the deoline in industrial
activity in 1937 and 1938, and which may stand in the
way of increasing the national income in the future.
Specific recommendations based on the findings of these
investigations should be made in order that oolicy
might be formulated which would lead to an increase in
the national income. The following are some of the
besic questions to which the investigation should be
directed.
(1) What important industries have made less
than a proportionate contribution to the
increase in the national income in the
past five yeare? What important industries
have made more than B. proportionate contri-
bution to the increase in the national
income in the past five years? What can be
done to convert specific industries which
have retarded recovery to stimulators of
recovery?
(2) How far 18 the claim that new investment
18 being seriously blocked by specific
government measures justified?
(3) To what extent does new capital investment
for plant expansion and new industrial de-
velopment come from (a) cash assets? (b)
borrowing? (c) sale of equity securities?
(4) To what extent and why are depreciation
charges not being reinvested?
Regraded
156
- 3 -
(5) What elements of our tax structure, Federal, State
and local, serve substantially to retard the growth
nf the national income through their effects on
CD sumption, on new investment, or in other ways?
that modifications that would stimulate or encour-
age the growth of national income could be adopted
with respect to:
(a) Level of upper bracket personal surtax
rates
(b) Carry-forward of losses and averaging
of income
(c) Consolidated returns and taxation of
intercorporate dividends
(d) Undistributed profits tax
(e) Capital gains taxation
(f) Canital stock tax
(g) Excess profits taxation
(h) Social Security payroll taxes
(1) Sales and other excise taxes
(j) Tax exemptions and other specific in-
centives to encourage employment, in-
vertment, etc.
(k) Depreciation allowances
(1) Other elemente of the tax structure
(6) Do industrice or specific ventures with reasonably
bright prospects have any difficulty obtaining the
necessary capital?
(7) In what industries should cepital be invested dur-
ing the next two years? How much 18 likely to be
invested in these industries during the next two
veare?
(*) That 1£ the volume of savings likely to be avail-
able for investment during the next two years?
157
- 4
(9) How much would substantially lower rates of inter-
est to borrowers of capital for production of
canital and durable consumers' goods increase
borrowing? What can the Government do to lower
such rates of interest?
(10) How much would a reduction in the cost of borrowing
to potential purchasers of durable consumers' goods
(e.g., home purchasing) increase the demand for
such goods?
(11) How important would & longer rate of amortization
be as a stimulant to 'the demand for durable goods?
(12) At what pointe and what level of increased produo-
tion will the lack of adequate skilled labor retard
expansion?
(13) To what extent would private investment be stimu-
lated were the Federal Government carefully to
delineate the areas of our economy to which it
proposes to confine its investment program in the
near future, leaving other areas exclusively for
development by private enterprise? Is it possible
for the Government to specify exactly -- by industry,
or location, or function -- the field of investment
activity to which it proposes to confine itself
during the next two years?
(14) What measures could the Government take, either
independently or in cooperation with State and
local governments, to increase government invest-
ments in self-liquidating enterprises without
competing with private industry and without adding
to the budgetary deficit?
(15) It has been claimed that private industry by itself
cannot profitably absorb current savings, Were
thie true 8. continued national income of $80 b11-
lions or more would be impossible unless the
Government provided investment opportunities for
capital through public works, etc. What evidence
18 there that supporte this claim?
(16) What types of Federal Goverment expenditure operate
to increase the national income most, and which
least? To what extent is it possible to shift from
those that increased income least to those that
increase income most?
Regraded Unclassified
5 -
158
(17) Is there any justification for the claim that
governmental spending on public works or WPA
projects results in a decrease in spending on
the part of private entergrise?
(18) Would P substantial increase in the public debt
during the next few years have any important
effect on government credit?
(19) Are there any prospects that (a) inflation or
(b) deflation will emerge in the immediate
future?
(20) To what extent are world developments likely
to constitute 8 drag on recovery in the United
States during the next two years? What steps,
if any, can be taken to protect our economy
from possible adverse economic effects coming
from abroad?
(21) For what specific products can "e expect sub-
stantial increase in exports during the next
two yeare? What, if any, removable obstacles
lie in the path of important increase in our
total exports?
(22) To what extent, in what fields, and with what
effects on our national income, has the Gove rnment
contributed to an uneconomio price Enucture?
(23) What will be the net contribution that the Federal
Government (and if ascertainable, State and local
governments) will make in 1939 and 1940 to the
volume of buying power in the hands of the people?
(24) Would the maintenance of 8. substantially higher
national income require B change in the existing
ratio of savings to consumption?
(25) To what extent would a redistribution of our national
income contribute to the attainment and maintenance
of 8. high national income?
(26) How much unemployed would we have were our national
income soon to reach $80 billions? What are die-
tribution and what skill classification will make
up the unemployed group at that level of income?
How large a volume of unemployed must we expect
to make provision for during the next five years?
Regraded Unclassified
159
RE NATIONAL INCOME AND RECOVERY
January 30, 1939.
10:30 a.m.
Present:
Mr. Gaston
Mr. White
Mr. Heas
Mr. Duffield
Mr. Lubin
H.M.Jr:
All right, gentlemen.
(Lubin hands H.M.Jr memo entitled
"Outline for analysis of factors
determining the level of national
income")
H.M.Jr:
I'm not going to read out loud, to save my voice.
(Reads silently)
There's no argument about this chart, is there?
Haas:
They haven't seen that. I got that out afterwards.
I don't think SO.
H.M.Jr:
See if anybody argues about that.
Subin:
That's the one I saw. No.
(Haas hands to White chart entitled
"National Income Payments - Monthly
Figures on Annual Basis" - from
1929 on)
White:
George, after you got through adjusting seasonal,
multiplying by twelve, you had the same as the
total.
dees:
Took their seasonal.
White:
Had the same as the total.
Heast
That's right.
White:
So you rechecked that way.
Haas:
I think SO. Anyway, Nathan's - the figures are his
original figures and his own correction. Just a way
of putting the monthly figure.
Regraded Unclassified
160
-2-
White:
Yes. I don't know - adjusted monthly, multiplied by
twelve. These are monthly basis.
Hass:
Monthly basis - multiply their sessonal by twelve,
gives you the annual rate at each month.
White:
Is that the dotted line?
datis:
No, that's the
....
Lubin:
That's the solid
....
Haes:
That's the solid line.
White:
I don't see that, unless it isn't stated right. If
you multiply the figures by 12, youg et an snnual
Heas:
That's what it shows: the annual rate at that parti-
cular month.
White:
Oh, annual rate. That should be said there. I
think that better be said.
Heas:
It's in that, isn't It?
White:
It's a rate of income.
Eats:
Doesn't it say there
.....
White:
It says "monthly figures on en annual basis."
Haes:
All depends what you mean by an annual basis.
H.A.Jr:
I think it's very, very good. I got a few sugges-
tions to make. What?
Lubin:
There are some other suggestions that
I didn't look at page four.
Lubin:
Page four?
H.M.Jr:
Idian't know there was a page four.
White:
There are some additions and changes.
H.M.Jr:
Do you want to give me yours or
....
Regraded Inclassified
161
-3-
Lubin:
well, one of them which would come in under -
between 10 and 11 - rather, between 9 and 10 -
9-8 - which bears on very much the same thing
that 3 does - "How far will substantially lower
rates of interest to purchasers of industrial
goods stimulate industrial activity?" the differ-
ence being that in housing if you lower the
interest rate you stimulate a lot of new housing,
whereas if you lower the interest rate for auto-
mobile paper, you won't lower the cost for automo-
biles.
white:
That could be combined with the other.
Lubin:
Number 10. There ought to be a 10-a there to point
out in what injustries we may expect a shortage of
labor to occur, when that would occur, what the rate
of activity would have to be before you face that
bottleneck.
H.1.Jr:
I see.
Lubin:
Then number 12 too, in regard to tax structure.
The suministrative problem of depreciation rates -
we discussed that yesterday, Harry; you weren't
there. How far - if it's started down - 1f you
gave these people permission to write up their
depreciation, to reinvest, would that stimulate
their
White:
That would be one of the mocifications. That's why
you added that phrase.
Lubin:
Yes.
Hoas:
And - that and other modifications, too, Harry.
Lubin:
Then, too, I think that we could make the thing a
little bit more reslistic if we gave 2. few examples
you've got steel and rayon, which are two very fine
examples - of investments in the last two or three
years in very large amounts.
White:
There are 8 few more additions. Have you any more
additions?
Lubin:
Yes. In number 2, not "specific expensions," but
"specific examples of new investment" - in paren-
theses there.
Regraded Unclassified
162
-4-
H.E.Jr:
Now, in 13 - I'm not trying to - I'll give you the
idea, I'm not trying to put it in the final form.
The thought I had was this: I wonder if we couldn't
differentiate between - that we'll say to private
industry, "We've explored private industry. Now,
that's your field, if you'll go shead and develop
it; and the Government will keep out of it as long
as you 60 shead.' And then we'll find certain zones
where private industry does not go shead and the
Government will concentrate on that.
White:
Yes, the delineation or delimitation of specific
zones in which opportunities for private investment,
or in which private investment, private enterprise,
should expand, and the specific limits to which
Government activity should take shape if it is to
expand.
H.V.Jr:
I think that's very important, because that takes
in this whole question of government competition
with business. Now, if there is anything to this
if business doesn't 60 anead because it is afraid
of government, well, let's say, "All right, the
government is going to confine itself
If
-
&fter
all, they keep throwing Sweden in my teeth all the
time. Well, in Sweden the government field is
limited to certain definite fields, and in that
field - that's the government field, and business
doesn't compete with government and government
doesn't compete with business.
How, if business knew that the Government wasn't
going to go into certain fields, they might go shead,
and I think that drawing of B circle around - at
least, to explore that might be very helpful.
White:
That could be combined with 17.
Lubin:
And also bears on 5 - the ability to get new capital.
white:
Yes. The grouping of these could be improved.
H.M.Jr:
I mean, for instance, if Mr. Roosevelt would say
that the Government's policy - "We're going to con-
centrate our efforts on these fields, and we want
business to go ahead and for the next two years
we're not going to enter this field. Now, it's up
Regraded
163
-5-
to business to go ahead.
White:
That should be very valuable.
H.M.Jr:
What?
White:
I think It would be very valuable.
H.V.Jr:
Huh?
White:
Very valuable.
H.S.Jr:
"hat do you (Lubin) think?
Lubin:
Yes.
white:
Even if it spells out what people usually think.
put If it sets a certain definite prescribed limit
of government activity
H.M.Jr:
If somebody asked me, "What does the Government
consider its field for investment?" I'd be very
hard-pressed to - for instance, I'd like somebody
to tell me where the Government begins and stops
in the public utility field. I mean, what does it
consider its field? Now, we said something by word
of mouth the last time - Senator Barkley there - but
I don't know whether we lived up to it or not. You
know? Huh?
Lubin:
(Nods yes) Of course, if we could get Mr. Ickes to
live up to it
H.W.Jr:
Well, I'm being - if there's a billion dollars worth
of private capital that could be released in the
private utility field, if they knew what the Govern-
ment considered its field, I think it's perfectly
fair for business to say to government, "What do
you consider your field, what do you leave for us?"
I think if that could be explored - if you could
get the President to define it, I think it would be
very helpful. And then that field which is ours -
let's push ahead in that as hard as we know how,
see? Huh?
Could you (Lubin) define what the Government's field
is in the public utility field?
164
-6-
Lubin:
(Noûs no)
H.M.Jr:
I couldn't; I don't know where it begins.
Lubin:
The thing is toovague.
White:
Haven't any specific limits; can't find it because
it doesn't exist.
H...Jr:
But if it was defined, you might - even if you define
it geographically - "Beyond these areas we're not
going to do a thing" - that in itself - if nothing
else came out of it but that, you might release a
billion dollars worth of investment. Do you agree
with me?
White:
That's a thought - geographical on utilities.
Duffield:
Geographical on utilities - very good.
H.V.Jr:
Is that a contribution that I've made? What?
Lubin:
Yes.
H.M.Jr:
Now, something else.
Lubin:
See if we can't tie that up with number 5, Harry.
H.M.Jr:
Well, of course, number 14 ties in with my suggestion.
"nite:
Yes, 5, 17, 14, and
...
H.M.Jr:
What? 14?
white:
There's a group there which belong together.
H.M.Jr:
And then that would be - if the Government defined
its field, then we'd come out with an elastic policy
that that field would be expanded in times of depressio
and contracted in times of plenty.
White:
An interesting thing - if you could force thinking,
working on that specific delimitation, you've gone a
long way both to settle
H.d.Jr:
Well, the accordion plan would be used, but it would
only be used in that field. I mean when you talk
with a Swedish economist - they take it right off -
Regraded Unclassified
165
-7-
"This is what the Government considers its field."
White:
Trouble is they have 30 much more they can legiti-
mately consider its field.
H.M.Jr:
Let's explore what we can consider - I mean, are
the railroads - is that the government field or
isn't it? Do you see?
White:
Yes. Force the ...
Haas:
Highways are all government.
White:
To force the answers to those questions is the
important thing.
H.M.Jr:
That would be something, huh?
White:
Absolutely.
H.M.Jr:
Now, on 16: "Are there any prospects that inflation
will become a problem in the immediate future?"
And: "Are there any prospects that deflation
"
lieas:
That's good.
H.M.Jr:
What?
doas:
That's right.
H.A.Jr:
Deflation.
White:
(a) inflation and (b) deflation.
Hoas:
That comes up in that question I asked you about,
Harry.
H.M.Jr:
17 is part of what I'm talking about.
white:
Yes, but it's not wholly - I mean should be combined.
H.M.Jr:
But they could be grouped. Now, the other thing -
I don't think you could do enough on the tax
business.
White:
Well, there's one or two - the tax thing is so
Unclassified
166
-8-
shaped that everything would come under it; it's
set in pretty general terms. Could be spelled out
a little bit more.
H.S.VP:
1 think it should be spelled out more. I don't
think it's enough.
Lubin:
One important Question is how much capital would
flow into industry if you eliminated all tax-
exemption.
White:
Well, I thought there are É lot of questions that
could be asked under that.
H.V.Jr:
What's that?
Lubin:
They all come under this general question. Might
make it up in seven or eight different examples.
White:
Specific juestions.
I think the tax thing is the important thing.
Now let me ask you this. Is this too broad a thing
for the Fiscal and Monetary Committee?
White:
No, I think that it's
H.W.Jr:
It's way beyond fiscal and monetary.
mite:
This Is what I had in mind: that the study would be
conducted under their suspices and that they would
have the privilege of calling on anybody within the
Government, any technical men or studies within the
Government or without the Government. But El good
many of these problems are overlapping and interde-
pendent; we merely put them down because of the
special emphasis which they may have, and they may
be boiled down and grouped a little. But I think
they all touch very important problems that should
be studied and reports should be made, should
finally come out with something in black and white.
For example, Roy Blough tells me the other day that
iin Riefler told him that the cause of the downturn
in the spring of 137 was the scarcity of skilled labor
in key places. He sald if it hadn't been for that, we
could have continued. I got this through Roy Blough,
167
-9-
so it may not reflect Win Riefler's position at
all. However, if he does hold that and if others
do, I think it ought to be spelled out and answered.
I asked Lube about that; he said he didn't think so
at all, out it's as important to get rid of those
things which are not so as to stablish those things
that are SO.
H.A.Jap
1 think that 20 is a terrifically important thing.
I think it ought to be 8 little bit - I think it
deserves more than two sentences.
mite:
Yes, that can be developed.
Lubin:
If the Pudget Committee of the Appropriations Com-
mittee of the House suproves our budget for this
year, we'll have some real stuff on that. We've
ssked for some Initial funds to start a division
on occupational outlooks, industry by industry.
H.N.Jr:
That's swell. But I think it deserves more than
this thing. I read this bulletin that the A.F.L.
gets out, the monthly bulletin. George sent it to
me. They come out for 8 national planning board.
That's really what we're talking about here.
White:
You have this report and that's what you'll have.
d.1.Jr:
I read it last night, and what we're talking about
is 8 national planning board.
Gaston:
That's wnst your Fiscal and Monetary Committee
ought to be.
White:
Jr at least they ought to raise the issues and
point to the specific recommendations and let some
other
d.d.Jr:
I don't know how you people feel, but I think that's
6 distinct contribution; I'm very much pleased. On
account of the President's birthday - I talked to
nim this morning - I'm not seeing him except on 8
birthday party tonight; so If I could have this
tomorrow
white:
*omorrow.
H...Jr:
Tomorrow morning. I'm asking nim to see me tomorrow,
and ne's devoting his day
I think this is swell.
Unclassified
168
-10-
I appreciate perfectly the tremenous size of this
thing. But the thing that I've said ever since
I've been here - the thing that's always bothered
me is, they always put a pistol to my head and say,
"Give us 200, 400, 500 million dollars more for
relief for five months. 11 Now, this testimony - I
think I'm correct - that was given up there - ES
far as I know, there wasn't a single economist
called on to lay down the principles and say, "This
is the outlook for five years and this is how we're
going to take care of this thing," and so forth. Not
E thing
Lubin:
Do you think there is an economist who could have
done that?
d.m.Jr:
That's the tragedy, Lubin.
Dubin:
I think the difficulty, frankly, is that the people
in Washington who might be doing work along that
field are too busy doing other things, and you're
not
White:
Less important, much less important.
Lubin:
and you're not going to get anywhere unless half B
dozen people are given 8 job doing nothing but
thinking about this.
I've made up my mind - excuse me - if the President
will say the word, I'm willing to ive half my time
to this, because I don't know anything - I'm willing
to devote half my time to this, if he'll let me. -1ve
never been called to a meeting at the White House to
sit down and discuss anything like this. Never. I
don't know if Miss Perkins has, but I never have.
Gübün:
The closest approach is those little monthly meetings
we used to have a year ago last spring.
H.M.Jr:
"ith the President?
Lubin:
Just segments - primarily the report on housing.
Oh yes, you came to Cabinet. Yes, but that was sort
of an outlook forecast, wasn't it?
Regraded
169
-11-
Lubin:
Well, yes.
H.M.Jr:
But if you people will do this, then let me have it,
I think I'll see him tomorrow and I'll put this
Do you think, Lubin, the Fiscal and Monetary Commit- ....
tee would be
....
Lubin:
Well, it's the only organization we have other than
Resources Committee.
White:
They're part of it.
Lubin:
They're part of it.
B.M.Jr:
If we get into this, "ubin, do you think somebody -
should we broaden the membership?
Lubin:
I'll say this, that the Committee itself will have
to take on a staff which will do nothing else but
work on this problem.
H.M.Jr:
Well, we have no money.
White:
I think probably other than that it would be quite
possible - you've got four agencies there, and if
they can call on other agencies, you can have each
agency proceed on as many of the studies and then
it will be up to each agency to allocate as many
of the funds or men as they have available to it.
Lubin:
Have to do more than that, Harry; have to get some-
body in.
Haas:
I think Lubin's right.
White:
Do it under the particular departments and not under
the
Gaston:
Let the departments bring them in.
White:
Let the departments bring them in.
H.M.Jr:
Have you (Lubin) had any contacts with Professor
Douglas Brown?
Lubin:
Yes, I know him very well.
170
-12-
H.M.dr:
What do you think of him?
Lubin:
I feel that maybe ne's very, very good.
H...Jr:
What I'm doing is this. What I got in mind 1s,
I'm going to ask Douglas Brown whether he'll come
down and see the Treasury through these hearings
before the House and the Senate and head this thing
up for me, and see us through the House and Senate
hearings on Social Security. That's what I had in
mind.
Lubin:
He can do that well. He's got a nice personality,
easy, Quiet; he knows what he's talking about.
H...Jr:
Do you know anybody better?
Lubin:
I don't know anybody who could ao it better than he.
H.W.Jr:
He knows what labor's interests are and he seems to
be very fair.
Cabin:
de is that, definitely.
ll...Jr:
What?
Lubin:
He is that, definitely.
H.M.Jr:
80 I thought, George, you could see him before he
comes up here, and let him review what we've got on
nand, you see?
Ross:
All right.
d.s.Jr:
what? Give him a Treasury car. My thought was to
get him and let him - ask nim if he'd see the
Treasury through these nearings, which can go on
for 8 couple months.
Lubin:
Be prepared to have to argue with nim, because ne
feels very much indebted to the University and he'd
sort of feel that it's unfair to them to take so
much time away. So you'll have to do some convincing
of him.
H.W.Jr:
All right. But do you know anybody better?
Regraded
Unclassified
171
-13-
Subin:
Nobody can do it 8S well as he, and ne's been at it
from the very first day we've had Social Security.
H.W.Jr:
And do you know anybody outside of the Government
that I could invite in as consultant economist to sort
of head up this thing - I mean this thing?
Lubin:
I don't know.
White:
I think Hansen, if you could get him, would be very
good.
H.m.Jr:
I'll tell you my objection to Hansen. I find Hansen
E little bit rigio in nis thinking. He's got his
ideas; he's pretty rigid.
white:
He's
....
Gaston:
He's not very quick on his feet either.
B.A.Jr:
I like Hansen, I think he's a distinct contribution,
but it seems to me he's got his definite channels;
that's the
...
White:
Wesley Mitchell - are you impressed with him?
Lubin:
You know who could do this job well? I don't know
whether he's too old to do it. Alvin Johnson.
white:
Alvin Johnson?
Dubin:
Very flexible mina, lovely personality. I don't
know whether ne'd be interested.
White:
You (H.M.Jr) know him.
H.1.Jr:
Isn't he awfully lazy down there?
Lubin:
Well, he always has been lazy. Yet I think he isn't
lazy when ne has something to do. Take this "Univer-
sity in Exile" - he's done an B wfully good job.
H.A.Jr:
Oh yes, wonderful.
Walte:
The man you put in charge won't be able to do any
work; merely B question of seeing that somebody else
aid it.
172
-14-
Lubin:
Re did an awfully good job on the Encyclopedia of
vocial Science.
white:
das the advantage of being familiar with academic
H.M.Jr:
would he be looked up to by
white:
by some and by others not.
H.S.Jr:
well, think about him.
Duffield:
Riefler?
White:
Hell' no!
Duffield:
why not?
White:
I could give you seven reasons. But just my
opinion.
Duffield:
I want to ask E question about this if I can.
H.M.Jr:
Please.
Duffield:
Is there any point among these twenty which is
intended to cover the possible Government effects
on number 12 on page two: "malad justment of prices,
and price rigidities"? Shouldn't there be a question
as to what extent the Government policies or prac-
tices contribute to price disparities or malad just-
ments, and to what extent can you stay out of that?
H.N.Jr:
Such as the Army buying woolen blankets when they're
st the peak.
Duffield:
Puch as a 12-cent - cotton loan?
Dubin:
(Nods approval)
Hass:
You wanted to put the thought in 12 that's down
in number 3.
Duffield:
I don't know whether you intend in some of these
twenty questions to raise the question of whether
the Government contributed to any of these price
disperities, or could help to iron them out.
H.M.Jr:
Very good question, Gene.
Regraded
173
-15-
Duffield:
I don't know whether you intend to cover it in the
twenty questions, but it ought to be covered.
H.M.Jr:
I think it's a good point. What else, Gene?
Duffield:
That's all.
white:
Couldn't get Viner to head up these studies? He'd
be the ideal man if you could get him.
H'M.Jr:
Of course, Viner did a beautiful job in the summer
of '34 for me when he brought down these seventeen
economists. Sixteen of them were good, Lubin.
Lubin:
All but Harry.
H.W.Jr:
That's the idea.
White:
well, sixteen out of seventeen is a good average.
He would have close contact with the men in the
academic field. The men in the Government he
knows, and the men outside of the Government; he
knows some men in various funds.
Lubin:
He'd have one other advantage; he wouldn't come in
fresh, that is, he wouldn't come in untutored, he'd
know now people in the Government feel, work and
act.
H.M.Jr:
Well, half of the men down here have studied under
nim.
White:
That's right.
subin:
Have a more practical approach than somebody coming
in from the outside.
White:
"ouldn't be engaged in any long Ph.D. thesis that
would be resdy two years from now.
H.U.Jr:
A couple days would be enough a week. Wouldn't
have to be here continuously.
White:
He himself wouldn't.
Lubin:
He could do some of it out in Chicago.
174
-16-
White:
Some of his own men could do some of it there.
H.M.Jr:
And he'd have the respect of anybody here, wouldn't
he? What?
Lubin:
I don't think anybody questions his ability.
White:
No, and he's sufficiently scientific and objective
so somebody could present a different thesis and
expect it to get an examination; and there will be
differences, unquestionably.
H.M.Jr:
Oh yes, but I mean they've got to respect his
ability and his intellectual honesty.
White:
I think they would. I'm sure there would be some
who have
Lubin:
or course, you know, you have from the point of
view of public acceptance the fact that he is now
President of the American Economic Association.
H.M.Jr:
Jake?
Haas:
Oh yes, tais year.
H.M.Jr:
I
Lubin:
Just elected this December.
H.M.Jr:
I didn't know that.
Lubin:
That would mean
....
H.M.Jr:
I didn't know that. Son-of-a-gun, he never told me.
(To reporter) See that I write him & letter.
Haas:
Told me that was another one of his burdens.
H.M.Jr:
See, that would be - that title - did he succeed
to - whom?
Lubin:
Hansen.
H.M.Jr:
was Hansen the one? Now, what's the thing that
Randolph Burgess was the President of?
175
-17-
Heas:
Statistical Association.
H.M.Jr:
Oh, ne's on the statistical.
Unless somebody's got - anybody think
White:
There are some more questions that you're going
H...Jr:
Are you (Lubin) still discouraged? Don't you think
that
Lubin:
I think that - I tell you, I'm going to be discour-
aged until I see something substantial.
H...Jr;
That's all right. Listen, if we can get old man
Roosevelt to agree to define just one thing, if
WE Juat did one thing, if we could get him to define
the Government's field for investment, that might do
more to reassure business than enything that I know
of. Hun?
White:
There is this to be said, however, about a man in
charge of these studies. I'm throwing out a thought.
It might be better to get somebody other than those
who have been mentioned, who is not generally known
or regarded to be partisan to a particular point
of view. Viner is. Maybe we can find someone who
is not SO well known.
H.R.Jr:
I won't decide it today.
muite:
There are some more questions, If the next copy is
to be the final copy, I'd like
H...Jr:
Please.
white:
To what extent are the European developments likely
to constitute 2 drag on recovery in the United States
during the next two years, and what steps, if any, can
be prepared to defend our economy from acverse effects
coming from abroad? In other words, introducing the
foreign situation.
H.
Good.
white:
Then there is: what will be the net contribution
that the Federal Government and, if ascertainable,
176
-18-
the state and local governments, will make to the
volume of buying power in the hands of people in
1939-1940? That ties up with one of the other
H.2.Jr:
out when you say "abroad" I'd use the word "world,"
because, for instance, our loss of markets in the
For East
....
White:
Yes; well, that would be included.
H.M.Jr:
I mean I'd make it
....
White:
Oh, I said "European," didn't I? I didn't mean that.
H...Jr:
I'd say "world."
White:
And Latin America, too.
H.M.Jr:
Yes.
white:
and then too - I mention this last because, if I
remember correctly, you mentioned it, and of course
it's very importent, but I don't know whether you'd
want it: To what extent is the redistribution of
national income necessary for the maintenance of a
rising national income? Pretty general over-all
question.
Lubin:
I'd like to go further, not only - first I'd like
to explore the maintenance of national income once
you get it, and secondly, the maintenance of a
rising ...
Thite:
Maintenance of rising national income.
H.M.Jr:
Anything like that you want to put in is all right.
White:
ThenI'm wondering if in the first part of the report
it might not be stated - that is, if you're going to
present this to the President; if you want to do it
orally, perhaps - that it is proposed that the
Fiscal and Monetary Advisory Board present a report
embodying the findings on these various subjects,
and break it down into these immediate causes and
more basic causes; that they be given permission
to call upon
et cetera
Unless you want to
...
do that orally.
Unclassified
177
-19-
A.M.Jr:
That part I can give orally.
Haas:
We thought that chart might be attached.
H.M.Jr:
Yes, I can give that orally. Is that all right?
1 can give that orally.
White:
The thought in my mind, Mr. Secretary - if the
Fiscal and Monetary Advisory Board is going to be
responsible for these studies, you might wish to
have a few names to present tc them, rather than
selected ahead of time.
H.M.Jr:
You mean as to what
....
White:
AS to who's going to be in charge.
H.M.Jr:
Well, you politician. All right.
Anybody else got anything? All right.
Unclassified
78
Subject: Outline for analysis of factors determining the
level of national income
I.
After declining from $79 billions in 1929 to $46 billions
in 1933, national income payments rose steadily until 1938,
when they dropped back to $64 billions after reaching a figure
of $69 billions the previous year.
Although national income in 1937 was $10 billions less than
in 1929, yet factory employment in 1937 equalled that in 1929,
and total non-agricultural employment was only 1,000,000 less
than the 37,000,000 employed in 1929. The total volume of
industrial production in 1937 was within 8 percent of the 1929
level.
If the rise had continued at the same rate without inter-
ruption, national income would have reached 880 billions in
1939. A critical analysis should be made to determine the
causes of the setback from the favorable 1937 level.
II.
The setback in national income in 1938 has been attributed
by various people to a number of causes, which need to be
analyzed and appraised as a guidance to future policy. Among
them are:
(1) An over-accumulation of inventories.
(2) Excessive speculation in commodities.
(3) Consumer resistance to rising prices.
(4) Deflationary effects of increases in reserve
requirements.
(5) The curtailment of Government spending.
(6) Labor difficulties, including rapidly increased
wage rates and sit-down strikes.
(7) Shortages of skilled labor in key positions.
(8) A too-rabid increase in production costs.
(9) A decline in new construction.
(10) A contraction of the market for new capital issues.
- 2 -
179
(11) Government tax policies.
(12) Maladjustment of prices, and price rigidities.
(13) Fear of gold price reduction.
(14) Government competition.
(15) Excessive short-term installment buying.
III.
It is proposed that an investigation be made of certain
fundamental factors which may have been significant in bringing
about the decline in industrial activity in 1937 and 1938, and
which may stand in the way of increasing the national income
in the future, Specific recommendations based on the findings
of these investigations should be made in order that policy
might be formulated which would lead to an increase in the
national income. The following are merely suggestive questions
that point to the lines that the investigation might follow:
(1) What important industries have made less than a
proportionate contribution to the increase in the
national income in the past five years? What im-
portant industries have made more than a proportionate
contribution to the increase in the national income
in the past five years? What can be done to convert
specific industries to a stimulant to recovery?
(2) How far 18 the claim that new investment is being
seriously blocked by specific Government measures
justified? (Specific expansion of new investment
in plant expansion and renovation during the past
two years.)
(3) What are the sources of new capital investment for
plant expansion and new industrial development?
Cash assets? Borrowing? Sale of equity securities?
(4) To what extent are depreciation charges not being
reinvested in replacement of existing plant?
(5) Do industries or specific ventures with reasonably
bright prospects have any difficulty obtaining the
desired capital?
(6) In what industries should capital be invested during
the next two years?
180
(7) What is the volume of savings available for invest-
ment during the next two years?
(D) How much would substantially lower rates of interest
to borrowers of capital for production of capital
and durable consumers goods increase borrowing?
What can the Government do to lower such rates of
interest?
(9) How important would a longer rate of amortization be
as a stimulant to production of durable goods?
(10) Does the lack of adequately trained skilled labor
constitute a barrier to the expansion in any important
enterprise or industry?
(11) For what specific products can we expect a sub-
stantial increase in exports during the next two
years?
(1%) What portion of our tax structure serves substantially
to discourage new investment or plant expansion? Are
there any modifications in the tax structure which
could be adopted which would stimulate recovery?
(13) What types of Federal Government expenditure operate
to increase the national income most, and which
least? To what extent is it possible to shift from
those that increased income legst to those that
increase income most?
(14) Is there any justification for the claim that
governmental spending on public works or WPA projects
results in a decrease in spending on the part of
private enterprise?
(15) Would a substantial increase in the public debt during
the next few years have any important effect on
Government credit and industrial activity?
(16) Are there any prospects that inflation will become
a problem in the immediate future?
(17) What measures could the Government take, either
governments, to increase Government investments in
independently or in cooperation with State and local
self-liquidating enterprises without competing with
private industry and without adding to the budgetary
deficit?
Regraded Unclassified
181
(18) Would the maintenance of a substantially higher
national income (at present price levels) require
a change in the existing ratio of savings to con-
sumption?
(19) It has been claimed that private industry by itself
cannot profitably absorb current savings. Were this
true a continued national income of $80 billions or
more would be impossible unless the Government pro-
vided investment opportunities for capital through
public works, etc. What evidence is there that
supports this claim?
(20) How large a volume of unemployed must we expect to
make provision for during the next five years?
Regraded Unclassified
has been
NATIONAL RESOURCES COMMITTEE
ock'd
NORTH INTERIOR BUILDING
182
WASHINGTON
&
M
February 9, 1939.
The Honorable,
The Secretary of the Treasury.
My dear Mr. Secretary:
I will be pleased to have you note the enclosed
copy of a letter I have this date written to Mr.
Raymond L. Buell, Editor of FORTUNE Round Table, on
the subject of government spending.
Sincerely yours,
Frederic a. Deland
Frederic A. Delano
Chairman, Advisory Committee.
Encl.
Signed in the
absence of Mr. Delano.
Regraded 1
NATIONAL RESOURCES COMMITTEE
183
NORTH INTERIOR BUILDING
WASHINGTON
February 9. 1939.
Mr. Baymond L. Buell,
Round Table Editor, FORTUNE,
Time and Life Building,
Hockefeller Center,
New York, N. Y.
My dear Mr. Buell:
I have read and on rereading the result of the FORTUNE Round Table
discussion. I have been e student of this problem for five or six years,
and I congratulate you upon the work you are doing. I do not believe that
there is any simple answer, and I 12 impressed with the fact that 4 great
many people, who are expressing opinions, either have not studied the question
or are relying on good, old fashioned prejudices. It is no reflection on
the molders of thought of a hundred years ago more or less that their con-
clusions then arrived at do not apply to the problems of today. It was in
5 new country end at the time that Benjemin Franklin lived and the simple
formula he preached in "Poor Richard's Alaanac" was obviously the right
one, but very few people would agree with it today.
When the World War began in 1914, I thought that the financial sen
were right when they believed it could not last meny months because at
the rete of spending that was then going on, all finencial resources would
be exhausted. How wrong that opinion 110.6 has been emply demonstrated. I
think that we could safely say that no war has ever been stopped by reason
of finencial exhaustion.
I wonder If there are ten thousand people in this country who under-
stand the problem, let alone can solve 1t? And yet, ten thousand people is
8 very small number in a population of 135 million. On the other hand, I
believe in what I learned in algebra class a good many years ago, - if you
oen state a problem correctly and formulate the equation, the solution is
comparatively simple. It is with this thought that I heartily congratulate
the FORTUNE Bound Table on the work it has undertaken. Do not get dis-
couraged by the diversity of opinion, but try to agree on a statement of
the problem. The aft used figures of ten million unemployed may not non
very much. It may 1042 that half of these tea million are, practically
speaking, unemployable or employable for only part-time, and even so, to
million is only about 78% of the population, which is not a surprisingly
big figure. Perhaps the answer is that the 92% who are employed or who
have mouns beyond their own absolute necessities must earry the burden of
the 76% less fortunate.
There is one general observation which I think esy SEE of mature years
would make, and that is that there is no objection to the fullest discussion
even If it leads in some enses to extreme points of view. Mest of us know
Regraded Unclassified
184
Mr. Reymond L. Buell
+
February 9, 1939.
that in the long run the correct answer will be some point inter-
mediate between the extrames. As I have said to myself a great many
times, I would a great deal rether have our Government spend a
billion dollars end by doing ao encourage private investment to spend
two billions than I would to have the Government spend two to three
billion dollars on its own without encouraging private investment to
do anything; but this does not meen that I would like to see the
Government withdraw entirely from its spending activity and threw
the entire burden on private capital or to throw the door open to such
forms of private investment as would result in ultimate harm and the
spoliation of our natural resources.
Sincerely yours,
Frederic 4, Delano
Chairman, Advisory Committee.
1020 EEB 10 VW 13
BECHEIVBA OF
OLLICE
Regraded
NATIONAL RESOURCES COMMITTEE
PENALTY FOR PRIVATE USE TO AVOID
NORTH INTERIOR BUILDING
185
PAYMENT OF POSTAGE, $300
WASHINGTON. D. C.
OFFICIAL BUSINESS
The Honorable,
The Secretary of the Treasury.
By Messenger
106
DEPARTMENT OF COMMERCE
OFFICE OF THE SECRETARY
WASHINGTON
February 10, 1939.
The Honorable
The Secretary of the Treasury
Washington, D. C.
y dear r. Secretary:
Statistics on the national income are being used more widely than ever
before and we in the Department of Commerce are somewhet concerned over the
lack of uniformity in the estimates end definitions adopted by speakers,
writers, end the press. I am addressing this letter to a number of men
in the Administration in the hope that we may all use the same figures and
definitions.
The following estimates of income are prepered currently by the
Department of Commerce, the first two ennually and the third monthly:
1. The national income is defined ES the net value of all goods end ser-
vices produced and represents the yield of our entire economic activity.
This appears to be the most important messure evailable on the performance
of our economy. The 1937 total was 69.8 billion dollars.
B. Estimates of income paid out messure what business enterprises pay for
the different factors of production, namely, labor, capital, management, and
land. National income and income paid out differ by the amount of sevingo
of business enterprises. In 1937 income paid out totaled 69.3 billion dollars.
3. Monthly estimates of income payments measure income received by indi-
viduals. These figures differ from income paid out in that certain items
secruing to individuals such as Social Security deductions are replaced by
totuel receipts of individuals such es Social Security benefits. Also,
direct relief 1s included in this measure. In 1937 income payments totaled
59.0 billion dollars,
If you have the time and would be interested in discussing the national
income, I would appreciete the opportunity of having Robert R. Nathan of my
Department talk the metter over with you. A copy of a bulletin entitled,
"Income in the United States 1929-37," which was released some weeks ago is
inclosed. The figures on income payments for the full year 1938 have just
been relessed and I sm inclosing a copy of the release for your convenience.
I do hope that we can, by confining our figures to the official estimates of
the Department of Commerce, help to bring about some degree of uniformity
=ná = better understunding of the national income.
Yours sincerely,
Ny mill
Secretary of Comerce.
Regraded Unclassified
For Immediate Use
DEPARTMENT OF COMMERCE
187
Washington
January 25, 1939.
INCOME PAYMENTS
Secretary of Commerce Harry L. Hopkins today announced that income
received by individuals in the United States in the form of wages, salaries,
dividends, interest, entrepreneurial income, rents, relief, and Social
Security benefits totalled more than 64 billion dollars in 1938. The 1938
aggregate of 64.2 billion dollars was 7 percent below the 69 billion dollars
recorded for 1937. The drop in the purchasing power of consumers arising
from current income was somewhat smaller than the decline in the total
dollar income, since living costs were slightly lower in 1938.
While income payments in 1938 were 40 percent higher than in 1933,
they continued 18 percent below the record level of 78.6 billion dollars
for 1929. The cost of living of urban wage earners averaged 14 percent
lower in 1938 than in 1929, indicating a moderately lower real income in
1938.
It was pointed out by Secretary Hopkins that the sum of income pay-
ments to individuals is not identical with the total national income, which
represents the net value of all goods and services produced within a given
year. The difference between these two aggregates is accounted for
primarily by savings of business enterprises. Generally in the nore pros-
perous years business units retain part of their net product, and income
disbursed to individuals is thereby less than the national income. The
amount retained by business enterprises is called positive business save
ings. In other years disbursements exceed the value of what is produced,
and this difference is called negative business savings. Sufficient data
are not yet available for accurately determining business savings for 1938
but it appears likely that they will be negative,and that the national income
1105
Regraded Unclassified
-2m
188
will be somewhat below the 64.2 billion dollars of total income payments.
The compensation of employees during 1938 totalled 42.1 billion
dollars as against 45.4 billion dollars received by employees in 1937,
representing a decline of 7 percent. The income of employees attached to
the commodity-producing industries dropped 18 percent from 1937 as a re-
sult of the sharply reduced level of industrial production. Salaries and
wages in the transportation and public utilities group of industries were
8 percent lower than in 1937, accounted for largely by the sharp drop
in the compensation of stean-railroad employees. Payrolls in trade and
finance were off only 3 percent and in the service industries (including
government) were only fractionally below the 1937 level.
The 25 percent decline in dividend disbursements in 1938 was the
sharpest drop for any type of income payment. The extent of this decline
may be accounted for in part by the change in the undistributed profits
tax. In contrast, interest payments were only fractionally lower than in
1937. Relief and benefit paymente of all types, including work relief,
direct relief, and unemployment-insurance benefits totalled 3.8 billion
dollars, a gain of nearly a billion dollars over 1937. Social Security
benefits alone were 374 million dollars higher in 1938 than in 1937. Pay-
ments of these types constituted about 6 percent of total income receipts
of individuals during 1938 as compared with 4 percent a year earlier.
The Bureau's seasonally adjusted index of income payments advanced
from 83.6 (1929 = 100) for November to 84.5 for December, as compared with
the year's low of 80.4 for May. The index in December was less than a per-
cent below a year ago, and with the cost of living about 4 percent lower
than in December of 1937, an increased flow of real income was indicated
over the corresponding month of 1937. The seasonally adjusted index for
December 1938 was nearly 60 percent above the depression low recorded in
1105
Regraded Unclassified
3
189
March 1933.
After adjustment for the usual seasonal movement, the index of employees'
compensation rose to 86.3 in December from 84.6 in November, this increase
being the most pronounced of the current recovery movement. As a result of
the sustained improvenent in recent months, the index for December was slight-
1y higher than in the final month of 1937, and within 5 percent of the re-
covery high of 90.8 recorded in August 1937.
INCOME PAYMENTS
Months
Years
Dec.
Nov.
Dec.
1938
1938
1937
1938
1937
1933
1929
Total (millions of
dollars)
5,945
5,296
6,454
64,184
68,973
45,921
78,574
Adjusted Index - Total
(1929 = 100)
84.5
83.6
85.8
81.7
87.8
58.4
100.0
Employees' Compenso-
tion (millions of
dollars)
3,708
3,669
3,659
42,080
45,364
29,591
51,478
Adjusted Index -
Employees' Compen-
sation (1929 = 100)
86.3
84.6
85.1
81.7
00.1
57.5
100.0
Dividends and Interest
(millions of dollars)
1,079
450
1,595
8,186
9,563
7,088
11,331
Entrepreneurial with-
drawale and net rents
and royalties (mil-
lions of dollars)
1,030
1,055
1,103
12,348
13,040
8,634
15,717
Social Security Bene-
fits & direct relief
(millions of dollars)
128
122
97
1,570
1,006
608
48
1105
Regraded Unclassified
190
UNITED STATES DEPARTMENT OF COMMERCE
BUREAU OF FOREIGN AND DOMESTIC COMMERCE
INCOME
IN THE
UNITED STATES
1929 all 37
- OF 1
STATE of
November 1938
10 Cents
Research Activities of the
BUREAU OF FOREIGN AND DOMESTIC
COMMERCE
One of the chief functions of the Bureau is research and analysis of the various aspects of American industry, commerce, and
trade. The activities of the following divisions of the Bureau are essentially concerned with the collection, analysis, and
dissemination of a broad range of statistical and economic material of interest to businessmen, editors, government officials,
economists, and statisticians.
THE DIVISION OF BUSINESS REVIE prepares and issues regularly analyses of general business readitions. The
compilation and publication of current business data include the preparation of the weekly and monthly
issues and the biconial supplement of the "Survey of Current Business". Current analyses of the brund
trends and changes in the foreign trade of the United States are issued regularly. Through the periodical
"Domestic Commerce" and the "Business Information Service," the Division provides a current low of
basic business deta. (The Division of Business Review was established in August 1938 through the consoli.
dation of certain sections of the Divisions of Economic Research, Marketing Research, and Foreign Trade
Statistics.)
THE DIVISION OF ECONOMIC RESEARCH includes in its activities both the compilation of statistical data and the
analysis of economic relationships, particularly in connection with domestic commercial and industrial prob-
lema of . broad economic character. AI present its activities include investigations in the following general
fields: National income, long-term debt, urban real property and construction, and analytical studies of pro-
ductive capacity, character of integration, and similar espects of nelected industries.
THE MARKETING RESEARCH DIVISION is engaged in activity of three types: Marketing research, collection
of current trade statistics, and the dissemination of marketing information. Research activities include
marketing studies in the fields of consumption, retailing, and manufacturing. Attention is given to markets
for industrial and consumers' goods. Studies are also made in the field of distribution costs and operating
methods and problems. Monthly sales and credit statistics are collected and published, general market
data are compiled, and statistics on installment and open credit, accounts receivable and outstanding are
collected and disseminated.
THE FINANCE DIVISION, which in 1922 began the preparation of the annual report on the balance of inter-
national payments of the United States, has within the past 3 years undertaken a series of special research
studies relating to the international balance and the creditor-debtor position of the United States. The
publication in 1937 of . report, "Foreign Investments in the United States," was followed in 1938 by a study,
"American Direct Investments in Foreign Countries," and the Division is currently engaged in the prepara-
tion of 8 statistical analysis of foreign dollar bond repatriations. Also in process are several special
studies relating to various forms of invisible trade, such as tourist expenditures and remittances.
THE DIVISION OF FOREIGN TRADE STATISTICS compiles the data on the movement of exports and imports
of the United States. Statistics are compiled and published on a monthly and annuel basis for appron-
mately 1,700 export commodities by customs district of shipment and country of destination and for
approximately 3,500 import commodities by country of production and customs district of importation.
About 200 mimeographed reports on general imports and exports of leading commodities and 330 special
typewritten statements on trade in commodities of restricted interest are issued each month. Statistics
report. showing the entrance and clearance of vensels and drawback paid on imports are published in an annual
THE DIVISION OF REGIONAL INFORMATION is occupied mainly with research into basic economic conditions
and policies in foreign countries. Its statistical work is best illustrated by the Foreign Commerce Yearbook.
an annual compilation of all the principal statiatica of population, agricultural, mineral. and industrial
production, transportation and communication, trade, and finance for foreign countries and their important
colonies. Analyses and interpretations of économic developments of a ponstatistical nature are made
periodically and published in the annual World Economic Review, the weekly Commerce Reports, and
occasional processed circulars, The Division also maintains voluminous files for reference in furnishing
information to inquirers on specific topics,
U. S. DEPARTMENT OF COMMERCE
Daniel C. Roper, Secretary
BUREAU OF FOREIGN AND DOMESTIC COMMERCE
Alexander V. Dye, Director
INCOME IN THE UNITED STATES, 1929-37
By
ROBERT R. NATHAN
Chief, National Income Section
Division of Economic Research
OF COMMERCE
*
*
UNITED STATES OF AMERICA
November 1938
Price 10 cents
FOREWORD
This bulletin is one of a series of publications prepared by the Department of
Commerce on the subject of income in the United States. The original study in this
series was undertaken in the Division of Economic Research of the Bureau of Foreign
and Domestic Commerce in response to a Senate resolution. The results appeared in
National Income, 1929-32 (S. Doc. 124, 73d Cong., 2d sess.). In addition to brief
summaries of the annual estimates which have appeared in the Survey of Current Business
the Department has also published a large volume entitled "National Income in the
United States, 1929 35," and a bulletin entitled "National Income, 1929-36." The
present publication presents summary estimates of income by industrial source and by
type of payment, along with a brief discussion of the concepts and the general methods
involved in the preparation of the estimates.
This bulletin was prepared in the Income Section of the Division of Economic
Research. This work is under the supervision of N. H. Engle, Assistant Director of
the Bureau of Foreign and Domestic Commerce. The estimates presented herein were
prepared under the general direction of Lowell J. Chawner, Chief of the Division of
Economic Research, and under the immediate supervision of Robert R. Nathan, Chief of
the Income Section, with the assistance of Richard H. Crawford. Estimates in the
various fields were compiled by the following members of the staff of the Income Sec-
tion: Oswald Nielson, Frederick M. Cone, Herman Lasken, John W. Barrett, Jean L.
Pennett, Anna C. Downey, Gladys Greer, and Helen E. Reed.
Grateful acknowledgement is made to numerous public and private organizations,
as well as individuals, for their splendid cooperation. Special assistance was ren-
dered by the Income Tax Unit of the Bureau of Internal Revenue: the Bureau of the
Censue; the Bureau of Labor Statistics; the United States Employment Service: the
Interstate Commerce Commission; the Federal Communications Commission; the Maritime
Commission; and the Division of Statistical and Historical Research of the Bureau of
Agricultural Economics.
Mexander V-Dye
Alexander V. Dye, Director,
Bureau of Foreign and Domestic Commerce.
November 1938.
1
Regraded Unclassified
TABLE OF CONTENTS
Page
Foreword
1
Summary
1
Chapter I - Measurements of income in the United States
3
Income concepts and terminology
3
Items included and excluded
6
Sources and methods of estimation
7
Limitations of the estimates
10
Interpretation of "he estimates
12
Chapter II - Income trends, 1929-37
15
National income
15
Business savings
18
Income paid out
21
Relative importance of types of payments
23
Income payments
28
Number engaged and per capita income
32
LIST OF TABLES
Table
1. National income, by industrial divisions
17
2. Percentage distribution of national income, by industrial divisions
17
3. Business savings, by industrial divisions
19
4. Income paid out, by industrial divisions
19
5. Income paid out, by type of payment
22
6. Percentage distribution of income paid out, by type of payment
22
7. Percentages which compensation of employees represents of income paid
out, by industrial divisions
24
8. Percentages which dividends and interest represent of income paid out,
by industrial divisions
24
9, Monthly income payments
29,30
10. Number of persons engaged
33
11. Per capita income of employees and the cost of living
33
12. Number of persons engaged, by industrial divisions
34
13. Percentage distribution of persons engaged, by industrial divisions
34
14. Number of employees (full-time equivalent). by industrial divisions
36
15. Total compensation of employees, by industrial divisions
37
16. Per capita income of employees (full-time equivalent), by industrial
divisions
38
17. Number of salaried employees and wages earners, selected industrial
39
divisions
18. Salaries and wages paid, selected industrial divisions
39
19. Per capita salaries and wages (full-time equivalent), selected
40
industrial divisions
20. Compensation of corporate officers. by industrial divisions
40
41
21. Number of entrepreneurs, by industrial divisions
22. Per capita withdrawals of entrepre:eurs, by industrial divisions
41
23. Dividend and interest payments originated, by industrial divisions
41
24. Dividend payments originated, by industrial divisions
42
25. Total interest payments on long-term debt, by industrial divisions
42
11
LIST OF CHARTS
Figure
Page
1. Income produced by major industrial groups, 1929-37
16
2. Percentage changes in income produced by industries from 1929 to
depression low and from 1929 to 1937
20
3. Percentage distribution of income paid out, by type of payment, 192P-37 25
4. Monthly income payments, by type of payment, 1929- 38
27
5. Trend of employees' compensation, by major industrial groups, 1923-38 31
111
SUMMARY
It is suggested that the reader refer to Chapter I of this bulletic,
where the terms are defined end the concepts explained. Chapter II con-
tains a detailed analysis of the statistics.
The national income, which represents the net value of all goods and services
produced in the United States, increased from 63.5 billion dollars in 1936 to 69.8
billion dollars in 1937, A gain of 10 percent, The 1937 level of national income was
nearly 30 billion dollars above the 1932 total. but was approximately 11 billion
dollars below the record total of 81.1 billion dollars estimated for 1929. All major
industrial categories. except that of government service, contributed to the increase
in 1937. The moderate decline in government service was a result of a 25-percent our-
tailment in work-relief wages,
The national income on a per capita basis was $540 in 1937, as compared with
$494 in 1936 and the low of $320 in 1932. The record level of 1929 was $668. These
averages are obtained by dividing the annual estimates of the national income by the
official midyear population estimates of the Bureau of the Cenzus.
Fluctuations in the quantity of goods and services produced, although not subject
to precise aeseurement. were obviously of much less mrgnitude than the variations in
dollar income. The decline of 50 percent in the national income from 1929 to 1932 was
accompanied by a 32-percent drop in the Bureau of Labor Statistics wholesale-price
index and a 20-percent drop in the Bureau of Labor Statistics cost-of-living index.
Also, subsequent to 1932, wholesale prices and living costs increased along with the
goin in income. In 1937 the national income was 14 percent below that of 1929, as
compared with declines of 9 percent in wholessle prices and 15 percent in the cost of
living. These indicate real income in 1937 closely approximating that of 1929. It
should be noted, however, that the population of the UnitedStates increased by nearly
B million, or 6 percent, from 1929 to 1937.
Commodity-producing industries, which include manufacturing. agriculture, mining,
contract construction, and electric light and power and manufactured goo, accounted
for less than 40 percent of the total national income in 1937. The commodity-bendling
industries, which include transportation and trade, contributed nearly 20 percent to
the national total. The service-creating industries, including communication, finence.
government service, and miscellaneous, accounted for the balance.
The incidence of the depression from 1929 to 1932, as well as the recovery sub-
sequent to 1932, was most pronounced in the commodity-producing industries. The manu-
facturing industry accounted for 24 percent of the national income in both 1929 and
1937, or compared with only 14.1 poicent in 1932. Government service, excluding work-
relief activities, contributed 8.1 percent in 1929, 16.8 percent in 1932, and 10.9
percent in 1937.
The national income, or income produced, was slightly greater than income paid out
in 1937, thus revealing positive business sevings. The fluctuations in the national
income PTO generally wider than those in income paid out. From 1929 to 1932 income
paid out fell elightly less than 30 tillion dollars; whereas income produced declined
41 billion dollars. In 1929 positive business ravings of 21 tillion dollars were 1932. re-
corded, as compared with negative business usvings of 9 billion dollars in
Regraded® sified
- 2 -
An apalysis of the fluctuation of income paid out, by type ef payment, indicates
the greatest variations in dividends and the smallest variations in interest payments.
Compensation of employees varied somewhat less than did dividend payments. In 1937
total income paid out was 12 percent below that of 1929, as compared with declines of
9 percent in the compensation of employees, 16 percent in dividends, and 10 percent in
interest.
Total compensation of employees accounted for 67.4 percent of income paid out in
1937. This compares with 65.6 parcent in 1929 and 64.4 percent in 1932. The propor-
tion which interest represents of the national income increased substantially from
1929 to 1932, and then decreased to approximately the same proportion in 1937 as in
1929. Dividends, on the other hand, declined substantially in relative importance
from 1929 to 1933 and increased thereafter.
The relative importance of compensation of employees in total income paid out
varies considerably from industry to industry. In 1937 labor income accounted formore
than 75 percent of total income paid out in government, transportation, contract con-
struction, and manufacturing. On the other hand, the compensation of employees rep-
resented 33. percent of income paid out In electric light and power and manufactured
ERS. 33 percent in finance, and 17 percent in agriculture. The low percentage in fi-
nance is accounted for in part by inclusion of all net rents and royalties in that
field. In agriculture, entrepreneurial income is the largest contributing element.
Because of huge plant and equipment investment in the electric light and power and
aanufactured-gas industry, dividends and interest are of relatively great importance
in this field.
The per capita income of employees, converted to a full-time basis, varied close-
1y with the cost of living throughout the period from 1929 through 1937. While this
indicates that the average annual real income did not vary considerably for full-time
employees, it should be noted that there was considerable unemployment and part-time
employment throughout the period and that only a portion of total employables contin-
ued in full-time employment.
Monthly estimates of income payments, which vary somewhat from the estimates of
income paid out, indicate a peak in the flow of income to individuals in October 1929.
The low point of the depression was recorded in March 1933, when the adjusted index
declined to 56,1 percent on a 1929 base. This indez increased to 90.2 in August of
1937 and declined thereafter to 80.4 in May 1938. By October the index had risen
to 83.7, and there is evidence that a further increase occurred in November 1938.
Regraded Unclassified
INCOME IN THE UNITED STATES, 1929-37
CHAPTER I
MEASUREMENTS OF INCOME IN THE UNITED STATES
There are few statistical measures of economic activities which are of greater
significance, and which are at the same time subject to greater misunderstanding, than
estimates of income. The widespread lack of understanding of these measures may be
traced in part to the variety of concepts and the varying terminology adopted by dif-
ferent research workers in the field. Furthermore, the ever-increasing abundance of
primary data results in constant improvement in existing estimates through revisions
and extension of coverage, and in new income estimates based on different concepts.
These frequent changes contribute to the confusion, but are nevertheless desirable
as new source materials become available and as the theory of income develops. The
discussion in this brief chapter can hardly deal with all of the problems in the field
of income. It is included primarily to define the terms and to discuss the meaning,
usefulness, and limitations of the estimates.
Income Concepts and Terminology
Income estimates may be prepared for a variety of purposes and, in accordance with
the particular objectives, will differ in the items included and in the meanings which
can be attached thereto. Thus, a measure of the total output of the entire economy
will differ from a measure of the total national consumption or from an estimate of
total current payments to individuals, or of the aggregate receipts of individuals.
It is necessary to assign definitive terms to each measurement and further to describe
the nature and scope of the resulting figures.
In this study, as in previous publications of the Department of Commerce on this
subject, annual estimates are presented for both income produced and income paid out.
In addition, annual estimates of income payments to individuals are shown for the first
time.1/ Thus, the Department of Commerce now presents three estimates of income,
each of which is distinctive in definition and all of which have important use.
Estimates of the "national income produced" - or what might better be termed
merely the "national income" because it is the most inclusive concept - measure the
net value of all commodities produced and all services rendered in the country in each
year. This total can be described as representing the gross value of all goods and
services produced, minus the value of all raw materials and capital equipment consumed
in the processes of production. It may also be designated as the value of goods and
services consumed plus the value of additions to the national wealth during the year.
1/ Estimates of income payments oo a monthly basis appear currently in the Survey
of Current Business.
Regraded Uncla sified
In the production of commodities and services by business enterprises, 2/ per-
sonal services and capital are furnished by individuals 3/ or aggregates of indivi-
duels In return for these services, the business enterprises pay out income to
the individuals or aggregates of individuals in the form of wages, salarias, dividends,
interest, entrepreneurial withdrawals, and net rents and royalties. The total of these
items has been termed "inoome paid out" and may be described as the compensation paid
to individuals for personal and capital services rendered. The term "income paid out"
should be considered as an abbreviation of the more descriptive title, "incoze paid
out by business enterprises or other economic enterprises to individuals or aggregates
of individuals for services rendered."
In any one year, the national income, or the net value of the product of all busi-
ness enterprises, may be larger or sualler than the total income paid out by all busi-
ness enterprises. In years when the national income exceeds income paid out, the dif-
ference is called "positive business savings" and represents the proportion of the
year's net product retained by business enterprises. In years when income paid out
exceeds the national income, the difference is termed "negative business savings" and
represents a decrease in the net worth of business enterprises as a result of the
current year's operations. Later in this chapter there is further discussion of these
measurements and their limitations.
While incose paid out, as defined above, represents a rough approximation of the
total flow of income to ultimate consumers, it has numerous defects for this purpose.
In an attempt to overcome these shortoomings, estimates of "income payments to indivi-
duals" have been developed. and they have been prepared on a monthly as well as an
annual basis. The "income paid out" concept is designed to measure income paid out by
business onterprises to individuals for personal OF capital services currently ren-
dered. while the concept of "income payments to individuals is designed to measure
the current flow of income to ultimate consumers, regardless of whether such income
represents a return for services rendered. While it would be desirable in this new
series to include all payments currently flowing to individuals and exclude all aooru-
als which do not flow into the hands of individuals at once, available data donot per-
eit such adjustments in every instance. The estimates of income payments, however,
involve numerous departures from the estimates of income paid out.
2/ The term "business enterprises", as used in this study, includes business or other
economic enterprises, such an corporations, partnerships, independent entrepreneurs,
cooperatives, self-employed persons, government agencies, and all other producing units.
3/ The term "individuals" includes all persons who contributed their personal efforts
(calaried workers, wage earners, professional practitionsrs, tradessen, etc.) or who
furnish capital (stockholders, boadholders. mortgagees, landlords, etc.) to business
enterprises and to whom enterprises pay out incose. It is synonymous with the term
"oltimate consumers."
4/ The term "aggrogates of individuals" includes organizations, such as savings tanks.
life insurance companies, building and loan associations, and charitable and educa-
tional foundations, which are ocnsidered as associations of individuals organized to
manage their collective savings. Estimates of income paid out include incose paid in-
oot by business enterprises to aggregates of individuals, as well as directly to
dividuals.
Regraded Unclassified
- -
Included in the estimates of income payments are direct-relier and poblic-assis-
tance disbursements, for which no services are rendered and which, therefore, are not
included in income paid out by producing units. Payments to World War veterans under
the provisions of the adjusted service certificates (coldier's bonus). are also in-
cluded in income payments. Presumably, when legislation was enacted providing for
these certificates. they represented belated compensation for & service readored at
the time of the war, and the actual payment represented the liquidation or disposi-
tion of an asset. Both the loans on certificates made in 1931 and thereafter and the
final payment of balances made in 1936 and subsequent years represented original re-
ceipts of the veterans and are included in income payments. Direct relief and pay-
ments on adjusted service certificates have been substantial factors in the flow of
purchasing power to individuals in recent years.
Another major difference between the estimates of income paid out and income pay-
ments relates to the treatment, of Social Security contributions or assessments and
Social Security benefits. Both employee and employer contributions under the Social
Security Act are included in income paid out, Employee contributions are included
with regular salaries and wages. Employer contributions, shown as a separate item of
labor income, are also treated as payments for services rendered, accruing to the
benefit of employees through the Social Security programs and therefore included in
income paid out. These payments, however, are not actually received currently by
employees and are not available for expenditures. Therefore, in order to measure
actual payments to the employees, both employee and employer contributions are deduct-
ed from income paid out, and benefit payments currently made under the Social Seour-
ity programs are added to income paid out, Similar adjustments have been made for
the Railroad Retirement program and for the Federal Government employee retirement
plan. This procedure has not been followed for private pension plans in various In-
dustries because of the lack of necessary source material, and therefore both Income
paid out and income payments include pension payments to former employees. The re-
sulting error in the estimates of income paid out, which should include contributions
to pension plan reserve funds rather than payments from the reserve funds, is probably
small. Similarly, compensations for injuries are represented In both income paid out
and income payments by actual payments to injured workers; whereas income paid out
should include only contributions to reserve funds for this purpose, and income pay-
ments should include only benefits paid to injured workers.
Even with the above changes, estimates of income payments are deficient in a aue
ber of respects as 3 measure of the current flow of purchasing power to cltimate con-
sumers. Several of the items listed in the following section as having been excluded
from the income estimates, particularly realized capital gains, are for many persons,
substantial factors in income available for expenditure. On the other hand, the 05-
timates of income payments still include large disbursements of dividends, interest,
and net rente and royalties to aggregates of individuals. Thus, the estimates include
dividend and interest flowing into life-insurance companies. rather than that propor-
tion of benefits flowing out of life-insurance companies which represents income
rather than return of funds invested. More data than are now available will be re-
quired to trace this indirect flow of income through associations of individuals and
to determine notual payments to individuals, Ba distinct from accruals.
At this point it might be well to cummarize each of the three concepts of income
developed in this study in a simple formula. Only those differences between income
paid out and income payments of which account has been taken in the estimates are listed:
- 6
NATIONAL INCOME or INCOME PRODUCED equals:
Cross income of all producing units
Minus raw materials consumed by all producing units
Minus depreciation and obsolescence (capital equipment consumed by all
roducing units).
INCOME PAID OUT equals:
National income
Minus business savings.
INCOME PAYMENTS TO INDIVIDUALS equals:
Income paid out
Minus employer and employee contributions to Social Security programs
Minus employer and employee contributions to the Federal Government
employees retirement plan
Minus contributions under the Railroad Retirement Act
Plus direct-relief and public-assistance disbursements
Plus Social Security benefits
Plus Federal Government retirement plan payments
Plus Railroad Retirement Act payments
Plus payments to veterans on adjusted service certificatos.
Items Include and Excluded
In accordance with this formula the national income is equal to the aggregate
income paid out plus positive or negative business savings. Income paid out consists
of wages, salaries, and other labor income, dividends, interest, entrepreneurial with-
drawals, and net rents and royalties. Other labor income consists primarily of pen-
sions paid to individuals. compensation payments for injuries, and employers' con-
tributions under the Socia Security programs. Entreproneurial withdrawals represent
the amounts which employers and self-employed individuals withdraw from their busi-
ness enterprises as compensation for their own efforts, Net rents and regalties rep-
resent gross rente less costs incidental to the ownership of property.
There are additional income items which might well be included but for the lack
of primary data Decessary for making reasonably accurate estimates. One of the ex-
clusions which obviously represents a part of income is the aggregate of earnings from
odd jobs. This would include remuneration for such activities as the sale of news-
papers, canvassing by independent sales persons, receipts from mowing of lowns, shov-
eling of soow, or similar odd jobs performed by individuals and for which no records
are available. In addition there are various minor groups of individuals or activi-
ties, primarily independent hand trades, for which data are not available from census-
95 and other sources used in the preparation of income estimates. Most earnings from
illogal pursuits are also excluded. In the aggregate these omissions are probably of
relatively moderate importance particularly in influencing the accuracy of the trend
of the estimates from year to year.
Also excluded from the income estimates is imputed income derived from the use of
owned durable consumers' goods, such as homes, automobiles, and furniture. With the
Regraded Unclassified
development of gore satisfactory data on the value or owned home and upon gross an
Let rants, it may be possible in the future to prepare satisfactory estimates for the
imputed income from this item. No attempt has been made to estimate the value of
housewives' services, although the aggregata utility yielded by bousewives in the home
DO aoubt represents a substantial contribution to the total production of economic
goods. Other types of domestic activities, suoh as the repairing of property, shaving
oneself. washing and repairing one's own car, and similar functions performed within
and about the home, are not represented in the figures. These same services, however,
when produred in the market are gooorally covered in the estimates. These exclusions
should be taken into account when comparing income ostimates at different stages of
the business cycle and over long periods of time. Many services rendered in the home
during periods of depression are purchased in the market place during periods of proo-
perity, Also, as evidenced by the expansion of the service industries over the past
several decades, there has been a substantial transfer of activities from the home to
the market place.
Realized gains or losses from the sale of assets by individuals or by business
enterprises are not included in the income estimates. While such gains or losses are
important factors in the income of individual recipients or of business enterprises.
and exert a significant influence on the distribution of income by size and upon net
profits or losses, presumably they result from the capitalization of present or future
changes in not income which are already (or will appear) in the estimates, and their
inclusion would represent duplication. However, profite or losses derived from the
sale of assets by professional security dealers are included, since they presumably
represent the value of the marketing services rendered by these individuals.
There are numerous transfer items which are not included in the national income
estimates, but which represent income to the individual recipients. Thus, gifts pro-
vide the same command over goods to those who receive the gifts as do other receipts.
On the other hand, they are deductions from income or are transfers of wealth. from
the point of view of the giver. Similarly, inheritances say be considered as income
from the point of view of the reciplent, but are in effect meroly a transfer from the
estate of the deceased person to the beneficiaries. Also, bad debts are final trans-
fore from the creditor to the debtor, These transfer items must be given considera-
tion in any studies of the distribution of income among various classes or groups of
individuals; but they should not be included in the category of incose paid for not-
vices rendered, or income payments, since duplication would result.
As previously pointed out, income payments to individuals are estimated for the
primary purpose of determining the purchasing power currently flowing to individuals.
The deduction of certain items fro: income paid out and the substitution of others,
AS well as the inclusion of new items in the measurement of income payments. have
been explained in the preceding section.
sources and Methods of Estimation
If complete accounting records were available for all producing units, it would the
be possible to sake direct estimates of the national income by deducting from
gross income of each producing unit the value of all tangible raw anterials (caterial
for fabrication resale) and intangible re? materials (services of transportation, the
advertising, communication, or banking. government. and other producing units) and
value of capital equipment consumed in the process of production. Independently
- e
determined estimates of income paid out would then be dedected from the national income
to arrive at estimates of business savings. Available source materials perait this
direct approach only In agriculture. For other areau of the economy. sizilar infor-
mation is not available, and it is necessary to resort to an indirect method of estim-
ating income produced. This indirect method involves the Independent determination of
income paid out and of business savings. The national Income is derived by adding
positive business savings to or deducting negative business savings from income paid
out. This mothod should yield the same results as would the direct approach. Estim-
atos of business savings are derived primarily from income tax returns submitted to
and compiled by the Bureau of Internal Revenue.
Since estimates of the national income cover practically every phase of our econ-
omio activity. 11 is necessary to resort to a wide variety of source materials for
deriving the data necessary for the development of the most accurate figures. For
wages and salaries, the various industrial consuses of the Bureau of the Census provide
excellent basic data. The reports of other Federal agencies, such as the Federal Com-
munications Commission, the Interstate Commerce Commission, the Bureau of Mines, the
Office of Education, the Bureau of Agricultural Economics, and the Works Progress
Administration, are also of great value. Monthly employment and pay-roll indexes of
the Bureau of Labor Statistics permit the preparation of estimates for intercensal
years and also the extrapolation of basic data for recent periods.
Figures of dividend and interest payments are based on data reported in corpora-
tion income tax returns and published annually in Statistics of Income. by the Bureau
of Internal Revenue. The figures of dividend and interest payments include only
payments to individuals or aggregates of individuals." A breakdown of dividend and
interest payments between those which flow to individuals or aggregates of individuals
and those which flow to other business enterprises cannot be obtained from available
source material. It is necessary, therefore, to resort to indirect methods, and the
estimates are arrived at by deducting dividend and interest receipts of corporations
from dividend and interest payments by corporations. The result for each industry
represents dividends and interest originating le the particular industry. and the
aggregate represents all dividends and interest payments to individuals or to aggre-
gates of individuals.
For nearly all industries except professional service, entrepreneurial withdrawals
are estimated by assuming that annual withdrawals per entrepreneur are the same as
average annual salaries or wages in the same industry. In the independent profession-
al groups, questionnaire surveys have been conducted by the Department of Commerce in
order to arrive at net incomes. It is assumed that the antire net income is withdrawn
by the independent professional practitioner. and business savings are nil. There-
fore, the entrepreneurial withdrawals in this group are assumed to be the same as net
income. For other industries, business savings of entreprenours are determined pri-
marily on the basis of the estimatos of business savings of corporations.
Since the reports of the Bureau of Internal Revenue are usually not available
until two or three years following the year covered, current rigures are based on 005-
pilations by the Department of Commerce of date from approximately 3,000 published
corporation reports. Therefore, the estimates of dividends. interest, and business
savings for 1936 and 1957 are preliminary and subject to revision.
Estimates of work-relief wages are obtained from the Works Progress Administra-
tion and those of other relief and public-assistance disbursements from the Bureau
of Research and Statistics of the Social Security Board. Estimates of net rents and
royalties have been prepared from the rental data presented in the 1930 Census of
Population and in the Statistics of Income.
Estimates presented in this bulletin vary only elightly from those shown in the
publication entitled "National Income, 1929-36", released late in 1937 and now out of
print. Most of the revisions are confined to the service industries and result from &
thorough review of the source material and methods or estimation. Because of the lack
of primary data, the figures for service industries require intensive investigation,
and frequent revisions are made as new data become available. The availability of
income tax data for 1935 permitted the correction of property income and business say-
ingo estimates for 1935 and 1936. The estimates included herein provide a detailed
break-down of the figures that appeared in a special article in the June 1938 issue
of the Survey of Current Business.
Changes in Federal Revenue Acts have resulted in the elimination of consolidated
income tax returns for 1934 and subsequent years for all except railroad corporations.
Prior to 1934, corporations had been permitted to submit either consolidated or un-
consolidated returns. For 1934 a total of 27,376 returns was filed by individual cor-
porations for which 7,101 consolidated returns had been filed for 1933. In number,
these corporations accounted for only 5.2 percent of all returns in 1934, but in terms
of total taxes paid by corporations they accounted for 37.8 percent.
This change had two marked effects OR the comparability of the statistics for
1934 and subsequent years with those for 1933 and earlier years. In the first place.
many items increased in size because of the fact that "Intercompany eliminations" 00-
our in the consolidation of returns. Rowever, for the Items essential to the propare-
tion of Income estimates, receipts by corporations increased correspondingly with pay-
sents by corporations. Thus, dividends received by all corporations rose correspond-
ingly with dividends paid by all corporations. 90 that the estimates of dividends paid
to individuals were not affected by the change. The same in substantially true of
interest payments to individuals; but, under the method of estimating this item,
intercorporate interest receipts from long-term obligations do not exactly offset
intercorporate payments or interest. and some minor changes in the total interest itom
occurred on this account.
A more important effect of the change in the Revenue Act was the shift in the
industrial classification of corporations. In classifying consolidated returns in-
dustrially, the corporation was assigned to an industry on the basis of the predomin-
ant industrial activity of the consolidated group. When separate returns were filed
in 1934 for each subsidiary or affiliate. each was classified according to its OWD,
predominant industrial activity, which in many instances differed from the predominant
industrial activity of the affiliated group of corporations of which it was a member.
Special tabulations of the 1934 returns were prepared by the Bureau of Internal Rev-
enue for the Department of Commerce showing the 1934 returns classified industrially
as they had been in 1933 on the consolidated basis. This permitted showing the 1934
unconsolidated returns classified industrially as they were in 1933 when consolidated.
Regraded Uncla sified
10 -
In the estimates of dividends. interest. and corporate savings, considered sep-
arately. there were marked differences in the two sets of 1934 estimates in soveral
industrial groups. For sore detailed industrial subgroups than those shown in this
publication, there core differences of greater relative importance. Adjustments neces-
sary to make the series comparable for each item in each industry require arbitrary
procedure. Therefore, separate estimates for 1934 are shown in this bulletin for both
dividends and interest. For total business savings, total national income, and total
income paid out, the two seta of 1934 estimates were averaged, and only the resulting
average is shown. The influence of this procedure ou the trend in the major industrial
categories La very slight. Further analysis may permit the development of a procedure
whereby adjustments can be made for specific itoms within each minor industrial group
on a reasonable basis.
Generally, the sources and derivations or the estimates do not differ greatly
from those described in considerable detail in the publication, National Income in
the United States, 1929-35. For descriptions of cotimates for specific types of pay-
sents and for specific industries, the reader is referred to Appendix o in the above-
mentioned publication of the Bureau of Foreign and Domestlo Commerce.
Limitations of the Entimates
Income statistics such as those presented in this publication are useful in many
ways. Estimates of the national income tend to reflect the magnitude and trend of
output of the economy and of its component elements. Figures of income paid out ro-
real the distribution of income by producing units to the various factors of produo-
tion for all industrial categories, separately and in the aggregate. Income payments
measure the current flow of income to individuals, which is the primary source of their
purchasing power. These data permit analyses of secular and cyclical changes in the
output of the economy, as well as the source and distribution of this output and the
varying incidence of economic forces upon the different segments 01 our economic sys-
tem: also relative movements of the different estimates may be particularly important
in analyzing short-term fluctuations in economic activity. The value of the estimates
for analytical purposes, however, depends upon a full realization of their nature, as
well as their statistical defects, and limitations of the basic data.
Despite the marked growth In the collection and tabulation of statistical infor-
sation in recent years, there are numerous gaps in the source materials essential to
the development of accurate income estimates. Many areas of economic activity, such
as water transportation, motor trucking, domestic service, professional service.
brokerage. real estate, and government, have not been adequately covered by industrial
consuses, and it has been necessary to resort to sample questionnaire surveys and to
indirect and sometimes arbitrary methods of estimation in these fields. In most of
the branches of finance the only source of primary data is the 1935 Census of Business,
the results of which are subject to the limitations incident to all first attempts in
such large undertakings. Estimates for large parts of the service industry are based
on data compiled in the 1933 and 1935 censuses of business establishments. and defio-
iencies in coverage are apparent in 8009 areas. Inadequacy of data nometimes makes
necessary certain procedures involving assumptions not wholly defensible. Notwith-
standing these shortcomings, 11 is probable that the margia of error is slight for
the estimates of labor Income.
11 -
Dividends for the years 1929 to 1935, inclusive, are based on data from the an-
nuál Statistics of Income and are substantially accurate. However, it should be kept
in gind that the figures, as explained in the proceding section on sources and methods,
show not dividends originating in each industry, rather than payments by each industry
to individuals or to aggregates of individuals. For the years 1936 and 1937, the es-
timpted of dividends and of interest are preliminary. having been based on trends
indicated in a sample of approximately 3,000 published corporation statements.
Estimates of interest included in the income figures are confined to interest on
long-term obligations. Interest on short-term obligations is regarded as payment to
other business enterprises, primarily banks, for an intangible raw material - namely,
the use of credit. It is an inter-industrial payment, and as such is eliminated
in arriving at & net unduplicated national income figure. The corporate sample is
used to derive average interest rates, which are applied to corporate funded debt and
mortgage figures taken from Statistics of Income. It is assumed that there are no
funded-debt of mortgage obligations of unincorporated business enterprises. This
assumption is not entirely substantisted in fact, but the resulting orror in undoubt-
edly small. Interest received by corporations, which is deducted from interest paid
by corporations to arrive at net interest originating in corporations, is taken from
Statistics of Income and is confined to tax-exempt interest received by corporations.
Interest received on tax-exempt obligations is the only itom shown separately in the
Statistics of Income for long-term interest received, and is used A3 total long-term
interest received on the assumption that long-term debt holdings of corporations are
confined to government obligations. It is apparent that this in a questionable assump-
tion, and studies to determine necessary corrections are contemplated.
or the various types of income payments, the estimates of entreproneurial income
are subject to the widest margin of error. Available data on this type of income are
meager, making necessary many broad assumptions. For professional practitioners.
questionnaire surveys yield satisfactory data. Material from the Bureau of Agricul-
tural Economics provides fairly accurate figures for farm operations. Farm operators
and professional practitioners are the most important entrepreneurial groups, account-
ARE for more than half of all entroproneurial income. The trade and miscellaneous
service groups account for most of the remainder. Except for agriculture and profes-
sional service, entropreneurial net income Is generally estimated by assuming the same
ratios of net to gross income for unincorporated enterprises as for corporations.
Equally doubtful are the estimates of ontropronsurial withdrawals, which suppos-
edly represent what the entrepreneur takes in cash and in kind from his enterprise as
componsation for his own services. These estimates of entrepreneurial withdrawals and
of business savings of unincorporated enterprises are subject to both statistical and
theoretical difficulties. There are practically no data available on these items. and
it has been necessary to assumo 10 most instances that per capita withdrawals are equal
to the per capita salaries or wages in the came industries. In the groups for which
entrepreneurial bet income is estimated independently. the estimates of business
savings are arrived at by deducting withdrawals from net income. For other groups,
business savings of entrepreneurs are assumed to vary closely with corporate savings.
Largoly as a result of these assumptions, wide (luctuations in positive and negative
business savings appear. In agriculture. not income of farm operators shows wide var-
intions, whereas withdrawals, being based on the assumption of average wages equaling
average withdrawals. fluctuate much less widely. As a result of this prodedure,
greatly exaggerated fluctuations appear in the estimates of business savings in 16-
riculture.
Regraded
- 12 -
From 5, theoretical point of view, there are arguments favoring the break-down
of entropreneurial not income Into withdrawals and business savings. 0.0 in this study,
AS well AD arguments favoring the use of not Income as withdrawals and regarding bust-
gesn savings of entrepreneures AS nil. It is true that the treatment accorded these
items in this study superimposes AD artificial and unrealistic, but seeaingly logical.
accounting procedure on entrepreseurial operations; but the fact is established that,
during periods of prosperity. assets are built up by leaving savings in the business,
while during periods of depression assets are reduced by withdrawals in excess of not
income. On the other hand, it 1a argued that the entroprenour and his enterprise are
inseparable, that he withdraws all of his net income, that during prosperity the on-
trepreneur, in the role of an individual. 1a relavesting in his business, and that dur-
ing depressions he is compensating himself only to the extent of his net Income, and
that additional amounts withdrawn represent disposition of assets by his as an indi-
vidual, similar to the sale of securities by a stockholder. According to these ar-
guments, savings of entroprensurs are more closely related to savings of individuals
than to corporate savinge. The theoretical and practical difficulties involved in this
problem are not easily overcome and they are the subject of continuing thought and
analysis.
Another series for which relatively little source material is available is that
of net rents and royalties For any industries data are not readily available on
rental payments, and efforts are now being made to prepare estimates for these fields.
A most difficult problem involves the determination of satisfactory estimates of costo
incidental to the ownership of rental property, which are essential for arriving at
estimates of net rents as distinguished from gross rents. Relatively little quantita-
tive work has been done in the field of determining the magnitude and fluctuations in
net rent as compared with gross rent.
In addition to the limitations attaching to estimates of the various types of
income and business savings of unincorporated enterprises, the rigures OB corporate
business savings are also subject to some degree of arror. This results not 80 such
from the laok of statistics on corporate activities as from the inability to make
satisfactory adjustments for accounting techniques which do not coincide with the ob-
jectives of those engaged in estimating the national Income. Particularly significant
are the effects of the revaluing of inventories and the determining of depreciation
deductions designed to reflect actual consumption of capital equipment. The revalua-
tion of inventories arises from price fluctuations and is not directly related to the
production of goods and services. In periods of depression, business enterprises which
follow the conservative accounting practice of valuing inventories at cost or market,
whichever is lower, will show substantial inventory losses, purely as a result of price
declines. The opposite will be true during periods of prosperity, when some companies
revalue inventories upeard 0.5 a result of rising pricen. Also depreciation and ob-
solence charges do not generally vary from year to year in accordance with actual con-
sumption of capital equipment, and this introduces further inaccuracion in the estim-
ates of corporate savings and of national income.
Interprelation of the Entimates
In the use of the Income estimates thus far presented by the United States
Department of Commerce, there have been numerous evidences of A. lack of understanding
of their meaning, with the result that unwarrented interpretations and constructions
- 13
are pleced on the figures. A few of the more glaring abuses will be discussed briefly
at this point. In interpreting the esimates of national income as measures of changes
to the national welfare. the reader should note that the estimatos do not include
1.8g product of mont activities outside the market place. which, however, are utilities
10 the social sense. Also, the estimates are in terms of current dollars and, there-
fore, do not peasure changes in the quantitative output of goods and services. Thus,
the national income produced in terms of current dollars declined by one-half from
1929 La 1932. During this same period there was a marked decline in the general price
level: therefore, it is apparent that the quantity of goods and services produced in
1932 was much more than one-half of the 1929 output. Unfortunately, satisfactory
price indexos for the deflation of the dollar figures are not available; but in the
discussion of the estimatos in the next chapter, an attempt is sade to indicate the
extent of the influence of price trends on the national income.
Changes in the national income totals have relatively limited meaning without as
understanding of changes which occur in their distribution and composition. Estimates
in this publication provide break-downs of the national income by various industrial
categories and of income paid out both by type of payment and by industrial origin.
or equal importance are studies of the number of family or individual incomes by
various size groups, a field not covered in this report. Such additional Inquiries
should provide information on the character of the distribution, changes in the degree
of inequality in the distribution, and information on the composition of incomes at
different levels. The national income may be substantially influenced by the size
distribution of income, since the character of the distribution definitely affects the
market valuation of different goods and services. especially luxuries. The first
official estimates of the size distribution of family incomes for the entire popula-
tion appeared recently in & publication of the National Resources Committee entitled
"Consumer Incomes in the United States." It is hoped that some provision will be sade
for the preparation of current estimates of income distribution, by size, by a Govern-
ment agency as a part of its regular research activities.
Scee of the problems involved in the use of income estimatos as measures of pur-
chaoing power were disoussed in the first section of this chapter. While the estim-
atea of income payments shown herein and prepared on a monthly basis by this Depart-
gent are perhaps the closest approximation to purchasing power of ultimate consumers
now available, numerous items are inappropriately excluded. Also, the theoretical dif-
ficulty of defining purchasing power should make the reader cantious In his use of
these estimates. There are many items which provide individuals with purchasing power.
which are not part of the national income, but which might. by another definition, be
part of the aggregate Income receipts of individuals. Some are mere transfer of in-
como from one recipient to another; others result from an expansion of credit through
the banking system; still others represent receipts from the transfer of assets from
one individual to another or from individuals to business enterprises. The net effect
Jpon the total purchasing power of all individuals or upon the purchasing power of
certain classes of individuals by such changes may be very significant.
Perhaps more than any other single item shown in the income ostimates, that of
Luminess savings has caused the most controversy and has been subject to the most mis-
understanding, This itom is admittedly subject to some degree of error as a result
Regraded Unclassified
of the practice of revaluing inventories and of defects in the determination of deprecia-
(1on and obsolescence allowances, as well as the unsatisfactory optimates for unincorpo-
rated enterprises. Cranting these statistical limitations, the estimates are still useful
as indicating the extent to which part of the net product is retained by business on-
terprises during periods of promperity and the extent to which reductions of not worth
result from current operations during periods of depression.
On the other hand, the figures do not show that business enterprises pay out more
agnex than they receive during periods of depression. nor do they show that business
enterprises receive more money than they pay out during business expansion. The re-
coipt and disbursement of cash funds is obviously important in business-cycle analysis;
but the fact that a business enterprise has more cash on hand at the end than at the
beginning of a period does not preclude negative business savings by that company.
The disposition of assets, the borrowing of money, the failure to maintain plant and
equipment commensurate with depreciation, and various other factors might well bring
about an increase in liquid assets at the same time that negative business savings are
occurring. Similarly, positive business savings may be accompanied by reductions in
cash and other liquid assets. Further, positive savings during periods of prosperity
do not necessarily sake corporations less subject to failure nor more able to maintain
income payments during periods of depression.
Liquidity of assets is important in determining the ability of corporations towith-
stand economic strain, and the existence of positive or negative business savings is
not necessarily related to the liquidity of assets. It is often stated that dividends
paid out during depressions come from surpluses built up during prosperity. In the
first place, it say be noted that a very substantial portion of dividends paid out
during periods of depression is paid out by corporations with not incomes available
for disbursement, as compared with corporations sustaining losses. Also, It is is-
portant to consider the ability of corporations to pay dividends while showing losses
in relation to the character of their assets, as well as to the existence of a sur-
plus account.
While business savings seasure the accumulation and reduction of anoots by busi-
ness enterprises as a regult of current operations, they do not indicate changes in
the total assets of business enterprises nor in the total wealth of the country.
Assets of business enterprises can be increased by new borrowing or by security flo-
tations as well as by business savings, and can be decreased by the repayment of loans
and retirement of securities, as well as by negative business savings. Changes in the
national wealth are very substantially influenced by savings of individuals, as well
as by savings of business enterprises.
For more detailed discussions of concepts. scope, sources, methods, and limita-
tions of the estimates, the reader is again referred to the first two chapters and the
appendix of National Income in the United States. 1929-35.
15 -
CHAPTER II
INCOME TRENDS, 1929-37
Although the reader may desire to pass over all of the discussion of concepts.
scope, and limitations and go direct to the figures, it is suggested that be read at
least the first part of chapter I, in which the terms are defined. He should note,
in particular, the difference between the national incose (or Income produced), in-
come paid out, and income payments to Individuals. The latter concept is now to the
readers of these annual bulletins,
NATIONAL INCOME
In 1937 the national income of the United States was 69.8 billion dollars, repre-
senting a 10-percent increase over the 1936 total of 63.5 billion dollars, Despite
the marked decline in primary production in the final quarter of the year, the nation-
al income in 1937 was higher than in any year since 1929. From 1932 to 1937 the na-
tional income increased nearly 30 billion dollars, or 75 percent. The gain for the
year 1937 alone was in excess of 6 billion dollars. The national income, or net value
of goods and services produced in 1937, however, was 11.3 billion dollars below the
record total of 81.1 billion dollars in 1929.
The per capita income of every san, woman, and child in the United States was
$540 in 1937. as compared with $494 in 1936 and the low of only $320 in 1932. The
record level of 1929 was $668. These figures are obtained by dividing the annual
estimates of the national income by the official midyear population estimates of the
Bureau of the Census.
It in important to note that the income estimates are presented in terms'of our-
rent dollarsand that some of the fluctuations are the result of changes in the value
of this unit of measurement. Thus, the 10-percent increase in the dollar value of
national income in 1937 did not reflect a proportionate increase in the quantity of
goods and services produced, since prices also increased. The Bureau of Labor Statis-
tics indexes showed a rise of 7 percent in wholesale prices and of 3 percent in the
cost or living in 1937. Unfortunately, neither of these price Indexes is sufficiently
comprehensive to permit a correction for the influence of changes in the value of the
dollar on the size of the national income. The wholesale price index is a measure of
changes in the wholesale price of commodities only and does not reflect changes in the
price of services. The Bureau of Labor Statistics cost-of-living index, as now DOB-
puted, indicates changes only in the living costs of urban wage-oarner families. The
movements of these price series may be studied, however, in order to appraise the gen-
eral effect which changes in prices may have exerted upon the trend of the national
income.
Total national income in 1937 in terms of current dollars was 13.9 percent below
that of 1929. For the saao period, wholesale prices were 9.4 percent lower, and the
living costs of orban wage-earner families had declined 15.3 percent. These series
suggest that the quantity of goods and pervices produced in 1937 was nearly the EASO
as in the peak year. 1929. This is substantiated by the fact that the Federal Reserve
Index of industrial production and the Bureau of Labor Statistics estimates of total
nonagrioultural employment were only slightly lower in 1937 than in 1929. In easy
non commodity producing segments of our economy, especially in government, the one-
vices created in 1937 were at record levels. In view of the 6-percent increase in
Regraded Unclassified
BILLIONS OF DOLLARS
90
Commodity Industries Producing
80
Distributive and
Service Industries
Transportation and
Public Utilities
70
All Other
60
50
40
30
20
10
O
1929 1930 1991 1932 1933 1934 1935 1936 1937
00 9661
Figure 1. INCOME PRODUCED BY MAJOR INDUSTRIAL GROUPS, 1929-37
18856
valid L - NATIONAL ESCONS, IT INDUSTRIAL DIVISIONS
(In Ellier of dallars)
1929
1930
1931
1932
1533
1534
1935
1936
1937
Total national Junte
81,12%
68,32
53,422
40,014
42,256
50,052
55.186
0.46
9,07
7,263
5,681
5,706
2,442
3,316
Mining
1,709
1,237
4,300
607
5,109
N/A
5,183
6,723
flactric light and power, at and par
1,268
534
1,195
500
39%
1,139
1,212
1,011
1,456
19,310
935
14,205
1,015
medical
1,020
9,600
1,080
5,621
1,130
Contract
3,272
1.135
2,050
10,014
11,802
3,799
14,261
976
16,744
666
Transportation
7,040
6,102
730
4,942
052
1,221
3,649
1,475
5,611
1,045
1,011
1,8%
4,137
907
4,780
701
&
5,057
Trade
10,955
675
9,108
TAS
7,330
#25
ni
5,183
5,05
6,641
Pinance
0,035
7.701
7,362
6,304
7.962
4,693
5,123
Gevernment, including enges
5,575
6,540
4,970
5,410
6,720
5,9%
6,647
6,514
6,727
6,907
Government, excluding surb-rallef mgst
7.99
6,5%
8,247
6,720
6,647
9,705
9,4%5
6,727
6,238
6,460
Term-rellef eages
6,817
7.323
7,585
669
1,489
9,722
1,430
Service
4,869
7,49
2,462
1,060
5,692
5,378
4,089
6,183
6,766
3,92
7,58%
1,322
2,992
2,390
2,145
Social Security constributions of employers
2,526
2,724
2,6%
2,956
3
7
292
923
Paramlages of 1929
Stal national tarms
100,0
0,2
a)
2
50.1
61.7
64.0
78.2
$6.1
Agriculture
100,0
18,2
51.0
33.6
55-7
60.4
71.4
a.o
#5.1
sining
100,0
69.1
E
85.7
29.4
52.4
53.3
67.7
a
Electric light and power, est assofacioned par
100.0
942
A.I
79.7
73-7
80,4
80.4
05.2
89.1
Mamfacturing
100.0
73.6
49,8
29,1
60,1
51.9
61,1
T3-9
06.7
Contract mastraction
100.0
67.1
55.0
29.9
20.4
86,0
37.3
15.1
Transportation
100,0
But
70.2
51.8
51-3
54.4
50.0
67.9
The
Communication
100,0
95.7
06.8
69.0
R.1
0.6
54,0
76.5
$4,0
fraile
100.0
RJ.1
66.9
47.3
53.1
52.1
67.2
T2.7
75.4
Finance
100,0
0,1
72.0
56.0
51.1
56.3
51,f
67.3
T3-T
Government, including verb-ralisf enges
100,0
102,8
104.7
102.9
105.6
121.5
185.1
149.6
186,4
Government, excluding work-rellef mgss
100.0
102.5
100.7
102.9
95.4
94.4
104.7
112.0
116.0
wages
Service
100,0
91,2
17,0
50.5
95.3
63.6
59.6
BL6
100,0
#6.6
Bd
54,4
52.5
a.r
ELS
65.9
743
Social Security contribuilone of employers
-
-
-
of Labor Statistics abclesale-price
inter
100.0
90.7
16.6
68,0
6).2
TH.6
0.9
A.I
90.8
1/ The grand totals is this and the fellowing tables are obtained by - addition of the totals for ad Internal field. the Isoma
métotale by industrial fields en primarily is thousands of dollars, The mbtotals enteral in taklen Instated (a) this belietis
are in millions of dallars. These edicials do not, therefore, simps all - earthy is the great totals given.
If Retimates of dividents and Interest and everyorate serings for 1934 and for résegned years are based a a different industrial
classification than are the astimates of Chase Items for earlier because of . days in the Invoice Act of 1934. Special
tabulations of the hress of Internal Imms paraltted the making of settation for 1934 = the surlier baris, Tables 7. 4, 20,
23, 24, and 25 also the to sats of estimates for 1934, for specific 11dms is cartain Intertries the variations are
bus for total income, the danges were small and the two estimates - empt.
total 2 - PRESENTAIN of NATIONAL INCOME, INSURTRIAL DIVISIONS
1,009
1930
1931
1932
1933
1934
1935
1936
1937
Total producal
100.0
100,0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Apricalture
as
0.3
6.9
61
7.4
LI
9.4
9.3
49
Mining
2,2
1,0
1,5
LI
1.3
let
1.7
1.9
2.1
Electric light and posse, and -
1.6
LI
2,1
2-5
2,2
2,0
1,5
1.7
1.6
2020
Manafacturing
23.8
10.0
17.9
14.1
18.3
20,0
n.A
22.5
Contract construction
4.0
4.0
3-3
2.4
1.6
1.5
1.6
1,9
2.1
Transportation
5.7
8.9
9.2
9.1
8.6
7-7
7.5
T-5
7.3
Communication
1.3
1.5
1.7
L.E
1.5
43
1,3
1.)
1.)
Trade
13.5
13.3
13.6
13.0
13.8
13.7
13.3
12.5
12.)
Finance
10.9
11.4
11.8
12.4
10.6
9.9
5.8
9.4
9.3
15.0
15.4
13.5
Invertment, including work-relief wages
8.3
9.8
12,7
16.6
16.3
15-9
Devertment, existing wages
4.1
9.8
12.7
16.4
12.7
12.9
12.3
11.5
10.9
.
1,5
3.0
4.6
3.9
2.5
wages
Service
12,0
13.0
13.9
14,2
12.7
12.4
12.3
11.9
11.9
Wiscellansous
5.0
5.2
3.6
6.0
5.1
5.0
4,9
4.2
M
*
-
-5
L3
Social lumrity contributions # exployers
-
-
-
-
-
19956
- 18 -
population from 1929 to 1937, the per capita quantity output of goods and services In
the latter year continued substantially below that of 1929.
Table I indicates that income originating in each of the sajor industrial cate-
gories, except government. recorded significant gains In 1937. The decline in incose
originating in government service was occasioned by a 25-percent decrease from the
1936 total in work-relief wage payments. Moot pronounced gains occurred in the con-
tract construction, the mining, and the manufacturing industries. Despite the large
percentage increase in the contract construction industry, the 1937 net value of out-
put in this industry remained at less than half the 1929 level. The transportation
group also lagged in the recovery govement, as a result of the continued unfavorable
situation of the railroads.
Table 2 shows the relative importance of the various major industrial groups in
the Nation as indicated by the net value of product of each industry. In 1929, ap-
proximately 40 percent of the national income originated in the commodity-producing
industries, manufacturing alone contributing nearly one-fourth of the total. The
comsudity-handling and the service-oreating industries contributed the remainder, of
which the trade, service. and finance groups each accounted for more than 10 percent
of the national total. The relative proportions contributed by the different industries
changed substantially from 1929 to 1932. By 1932 the contribution of the commodity-
producing industries fell to only slightly more than one-fourth. with manufacturing
accounting for 14 percent. During this same period. government more than doubled in
relative* importance.
As & result of the greater increases after 1932 in those industries which had out-
fored the most pronounced declines, there was a tendency by 1937 for most industries
to show approximately the same proportions to the total as existed in 1929. Continued
depressed conditions in the contract construction industry and the steam-railroad
branch of the transportation industry resulted in smaller percentage shares for
these groups in 1937 than in 1929. The 1937 percentages presented in table 2 are
understatements for the industries covered by the Social Security programs. since 10-
ployers' contributions under these programs are shown in the aggregate and are not dio-
tributed by industrial source.
BUSINESS SAVINGS
As pointed out in chapter I, the difference between the national income, or in-
come produced, and income paid out are designated 0.0 "business savings". which are
positive when national income exceeds income paid out and are negative when income
paid out is greater than the national income. Aa revealed by the estimates presented
in table 3, business savings fluctuate violently from year to year. In 1929 the na-
tional income exceeded income paid out by approximately 21 billion dollars. The eark-
ed decline in national income in 1930 was such larger than the decline in income paid
out, resulting in negative business savings of nearly 5 billion dollars in that year.
This sum increased to 9 billion dollars in the year 1932, when negative business sav-
Lago accounted for nearly one-fifth of income paid out, The recovery period beginning
in 1933 brought about a marked reversal in the trend of business savings. and from
1933 to 1936 the national income increased substantially more than did income paid out.
In 1935 the national income and income paid out were nearly equal. Positive business
savings appeared La both 1936 and 1937. the level in the latter year being somewhat
lower than in 1936.
Regraded Unclassified
TAMES 3 - 21 INDUPTRIAL DIVISIONS
(Is williams of dollars)
152)
1930
1931
1932
V
1933
1938
1935
1936
1937
Total business serings
2,578
-4,989
-8,210
-9,010
-3,061
-1,458
in
BRI
Carporate serings
1,411
-3,922
MY
1,00
Business settings of interpresents
-6,373
1,161
-1,077
-2,801
-2,326
-2,170
-2,637
-1,26)
-360
-765
712
-1,0%
1,312
1,95
Agricolture
1,102
1,V$1
167
Birth
5
Blaing
-180
-418
an
-503
976
Electric light and prese, and mundactored -
-343
1,487
-28
1,8%
-191
2,703
-9
-276
is
AND
-239
-195
Mandacturing
-187
-17%
-150
1,295
-1,855
-2,82
-4,950
-157
-157
-TV
-10
Contract construction
&
-174
to
-475
-%
-335
&
à
-20%
Transportation
379
-99
-153
->21
-184
-114
-47)
Communication
as
-132
-180
-212
9
-31
-294
4
1
-134
trade
103
-97
-1,201
If
-1,724
R
-1,920
-5
-16
Plagues
-116
-364
-357
-145
-726
-177
-169
4
-171
Service
-19
-597
for
-364
->ot
-551
-739
-351
-397
-355
&
-418
$
-227
-391
-207
-142
-300
del
-131
257
286
22
1/ detimates of dividents and interest, and corporate sevings for 1934 and for years are beaut - . different Industrial
classification this are the entimates of these Isems for marlier years Income of a change In the Imme des of 1934. Special
23, 24, and 05 in the the sets of ovtimates for 1934, Fur specific times is eariala Intertries the variations are
of the Person of Internal Invoice permitted the making of sellected for 1934 - the marlier basis. Tables 7, E, 20,
bet for total corporate seriage, the shanges ware mail end the Les estimates for 1994 ware everagal,
TABLE - INVOICE PAID our, IT INDUSTRIAL DIVISIDES
(In williams of dollars)
1929
1/
1950
1932
1932
1933
1934
1935
1936
1937
Total issue paid eas
78,556
73,250
62,052
49,02%
15,317
51,510
55,137
62,586
59,330
Agriculture
6,161
5,524
4,331
3,267
3,095
j,k12
3,69%
Kising
4,029
4,40
1,999
1,633
1,190
421
at
1,110
1,193
1,407
1,60
Dectric light and power, and assufactured pur
1,270
1,473
1,422
1,300
1,182
1,154
1,177
1,237
1,512
Manifacturing
18,016
16,051
12,422
4,553
1,450
10,489
11,899
14,285
15,948
Contract omstrution
3,274
3,003
2,0%)
1,313
674
12
977
1,33%
1,634
Transportation
5,661
6,201
5,263
4,121
3.74
4,0kg
4,401
Communication
4,778
5,191
956
1,002
939
605
735
152
778
RXI
7
Trade
10,852
10,308
9,057
7,102
6,184
6,985
7,489
8,170
1,18
Plasses
4,951
8,1,35
7,090
5,093
5,172
5,574
5,812
6,295
6,453
Symmet, teclaring wages
6,5%
6,721
6,897
6,747
6,907
7.999
4,247
5,745
9,445
Deverment extrating mages
6,5%
6,720
6,097
6,727
6,234
6,460
6,817
1.50
7,585
vagor
6
1,49
1,430
1,42
I,AD
Service
9,741
9,234
E,0%
6,451
5,775
6,447
6,993
7.752
6,40
4,159
3,960
3,30
2,690
2,438
2,657
2,467
2,450
1,84
Social Namerity retributions of employers
3
1
age
923
of 1929
Total toom paid at
100,0
93.3
79.0
2.)
57-7
65.6
70,2
19-7
H.)
Agrinulture
100,0
16.5
70.3
53.0
50,2
15.1
60,0
65,4
TO.7
Mining
100,0
a
41.7
41,5
60.6
This
EL.#
Dectric lights and power, end understand a
100,0
115.)
111.3
100.9
IT,I
93.4
98,1
96.1
102.7
110,0
05.2
69.0
47.5
46.9
54.2
56.1
79.3
94.1
Destract omstruction
100,0
52,4
62.5
and
26.7
26.9
29.0
40.7
49.9
Transportation
100.0
93.1
19.0
61.9
%2
S0.T
$5.1
That
T7-9
Communication
100.0
100.0
98.2
2
16.9
39-1
as
85.6
93-5
Trade
100.0
95.0
05-5
65.4
57.0
as
69.0
(5)
n.?
Plaance
100,0
90,9
79-2
65.4
57.0
62.3
Gug
10.3
76.7
Deversement, including verb-rallef was
100.0
102.6
104.7
102.9
105.6
101.5
126.1
149.6
194,4
Government, excluding surb-rallef w/w
100.0
102.8
104.7
102.9
95.4
94.1
104.7
112.0
116.0
Referellef mgys
100,0
Service
100.0
50.6
0.5
66.0
9.3
E
n.s.
79,4
2
100.0
95.2
a.y
PAT
56.6
B.I
99.5
57-9
a,r
Social Security contributions of employers
100,0
have et laber Statistics ecet-ef-living Index 100.0
57.5
M.I.
NO.2
16.2
79.1
E
a
A.T
1/ Intimative of dividents and Interest, and corporate savings for 1934 and for adjust pare ATT based - a different infestrial
classification Use are the estimates of theee Items for wither years of a change in the set of 1934. Special
25, 24, et 25 above the too sets of extimated for 1934. For specific Items is oursels inbetries the variations are misterial,
tabulations of the has of Internal Invoice pursived the essing of activates for 1934 - the variter leals. Milm 7, 8, 20,
but for Total income paid out, the changes ears small and the to were event.
11116
PERCENT
1937
+40
+ 30
+ 20
+ 10
ALL INDUSTRIES
CONSTRUCTION
MINING
MANUFACTURING
AGRICULTURE
TRADE
TRANSPORTATION
FINANCE
MISCELLANEOUS
SERVICE
COMMUNICATION
ELECTRIC LIGHT E
POWER & MANU-
FACTURED GAS
0
-10
-20
59
GOVERNMENT
59
1933
-30
68
72
61
46
42
42
933
-40
76
81
75
1933
1933
-50
1933
1933
1933
1332
-60
31
1932
- 70
1932
1932
1933
00-9841
Figure 2. PERCENTAGE CHANGES IN INCOME PRODUCED BY INDUSTRIES FROM 1929 TO
DEPRESSION LOW AND FROM 1929 TO 1937
(Black area represents proportion of decline recovered since low year)
10852
Regraded Unclassified
- 21
It is well to point out here again that the estimates of business savings or un-
Incorporated enterprises are subject to considerable error because of the lack or source
matorial necessary for their proper estimation. This is particularly true in the field
of agriculture. where the net income of fare operatore shows wide fluctuations: but
ihe estimates of entrepreneurial withdrawals. based on the assumption that the ever-
nga withdrawal of fare operators equals the average wage of hired workers, do not show
great variations. For the early part of the period covered, business savings of en-
trepreneurs showed the saae tendency as did corporate savings. In 1933, however, the
estimates indicate a greater proportional decline in negative savings of entrepreneurs
than in negative corporate savings. Positive savings of entrapreneurs appeared in 1934
and increased substantially through 1936, but corporate savings remained negative dur-
ing these years.
A comparison of tables 1 and 3 reveals the extent to which part of the net value
of product in the various industries was retained by business enterprises (positive
business savings) in DOBO years and the extent to which income paid out exceeded In-
come produced (negative business savings) in other years. In manufacturing. negative
business savings in 1932 were more than half as large as income produced and accounted
for more than one-third of total income paid out in that industry.
In view of the limitations involved in the estimates of business savings of un-
incorporated enterprises, the preliminary nature of the cotimates of corporate savings
for 1936 and 1937, and the qualifications attaching to the ostimates because of the
influence of accounting procedures which are not always in accord with the oconomic
concepts. the roader must use these estimates with caution. They do indicate, how-
ever, that there is a tendency during periods of prosperity for business enterprises
to retain part of the net product and during periods of depression to disburse more
than is produced, thereby reducing their net worth as a result of current operations.
The large dividend disbursements and the absence of positive business savings of oor-
porations in 1936 and 1937 say have been partly influenced by the undistributed pro-
fito tax.
INCOME PAID OUT
Tables 4 and 5 present estimates of income paid out, classified by industrial
source and by type of payment. The movements in income paid out ty the various in-
dustrial divisions show the sabe general tendencies 89 vore revealed in table 1.
By and large, the most substantial reductions in income paid out from 1929 to the low
points of the depression occurred in the commodity-producing industries. Also, der-
:ng the recovery period subsequent to 1933, the largest gains were recorded by these
came industries. Government agencies and the electric light and power and manufac-
factured-gas industry were the only two major categories in which income paid out in
1937 was greater than in 1929. The contract construction industry paid out only half
as such in 1937 as 10 1929.
or the various types of income payments shown in table 5, interest fluctuated
within the harrowest range, while dividends varied to a greater extent than did any
other single type of payment. Dividends declined in 1933 to 37 percent of the 1929 1929
level, and then increased steadily until 1937, when they were 84 percent of the 11
total. Interest payments tended downward after 1930, and in 1936 and 1937 were
percent lower than in 1929. Total compensation of employees fell from 51.5 billion
Regraded Unclassified
- 100mg PAID our, IT TIFE OF Name
(to aillions of dollars)
1929
1930
1931
1932
1933
1934
1935
1936
1837
Total iscome paid out
78,556
73,290
2,05
49,00%
45,317
51,510
55,237
62,566
Total compensation of employees
52,509
69,330
47,251
40,168
Salaries (solacted industries) 1/
31,963
5,606
5.00
29,596
4,69%
34,052
1,403
56,679
41,906
2,9%7
46,728
Tages (solected industries) y
17,093
14,214
10,589
3,379
7,00
3,574
3,936
Salaries end wage (all other infortries)
27,573
26,706
7,271
4.593
13.07
9,019
10,218
19,798
11,909
Berb-reller wages 2/
17,746
14,037
19,250
80,433
22,226
24,157
Secial Security contributions of employers
669
1,489
1,430
2,462
1,850
Other labor income
357
96
3
1,081
T
1,09)
292
96%
925
903
1,017
1,00
Total interest 1/
1,117
11,331
11,396
9.913
8,017
5,974
7,048
Dividents
5,801
7,7%
7,02
4.339
1,745
r.an
9,563
2,209
Interest
5,202
2,793
5,393
3,038
5,295
4,284
5,010
5,019
4,710
4,852
4,725
Intrepreseurial theremals
18,096
4,652
11,581
4,0%
5,04
7,857
201 renta and reyalities
7,00%
3,419
4,021
2,76)
6,789
2,083
9,565
10,441
1,558
1,418
1,590
1,917
2,234
1,599
Persentages of 1929
Total Locome paid out
100,0
93-3
79.0
St.4
57.7
65.6
70.3
79.7
a.)
Total compensation of employees
100,0
92.3
78.0
61.3
57+5
66.1
The
as
Salaries (solected industries) 2/
90.7
100,0
100.7
43.7
61.1
52.6
60.3
Pages (solected industries) V
B.I
70,2
100.0
as
43,2
61.9
42.4
42.5
52,8
59.4
Salaries and mgst (all other industries)
100,0
09.7.
R.1
95.8
05.5
TL.0
63.7
69.1
Work-rellef vages 2/
73.3
19.7
86.4
-
-
-
-
-
-
-
,
Social Security contributione of employers
-
.
#
-
-
-
-
-
-
Other labor Increase
100.0
105,2
115.4
117.3
102.9
96.4
108.5
115.4
119.2
Total dividente and interest y
100.0
100.6
07.5
70.8
62.6
60.4
64.9
78.6
A.A
Dividents
100,0
97.0
72.5
45-9
37.0
46.7
50,8
not
B.I
Interest
100,0
103.7
101,8
96.5
90.5
93.5
90,#
09.4
8.5
Intrepremeurial withdrewals
100,0
94,2
80,1
as
58.7
65.2
The
T7.0
@.9
Set reste and reyalties
100,0
80,8
60.9
45.6
41.5
49.4
56.1
65.3
76.0
have of Labor Statistics ext-ef-living Index 100.0
97.5
89.1
80,2
16.2
79.1
0.1
ST.1
#.7
Includes sining, construction, steam railroads, Pullam, railway express, - ester transportation,
Includes pay rells and of Civilian Omservation Gerge exployees set pay rolls of Civil Marks Administration, Foleral
Inergency Ballef Administration, and the Federal Borks Progres projects, plus administrative par rells entaide of Busingies, A.C.,
for all escept the Federal Works Program, Area office employees and their pay rolle misr the Federal Forks Program are included
with the regular Federal Government exployment and per rell figures,
If Includes also ast balance of International flee of property Incomes.
TAXE 6 of 1800MB PAID are, IT TIPS of PAYMENT
1929
1930
1931
1932
1933
1934
3935
1936
1937
Total income paid our
100.0
100,0
100.0
100,0
100.0
100.0
100.0
100,0
100,0
Total compensation of employees
65,5
as
OUT
as
653
66,1
56.5
66:9
67.4
Total salaries end WAIVE
as
00
63.0
R.I
61.7
61,5
62,1
60.8
a.r
Birb-rellef vagas y
1,5
2.9
2,6
3.9
2.7
Secial Security unstributions of employers
0,5
1.3
Other labor facts
I.I
LA
1.7
2.8
2.1
1.7
1.5
1.7
1.6
Total dividends and Internet If
18,4
15.5
16.0
15.3
15.7
15.0
14.2
14.8
13.8
Dividends
7.6
7.9
7.0
5.6
4.9
5.4
5-5
5.8
1.2
Interest
6.6
7.ª
1.5
10,2
10.4
9.4
4.6
7.4
6.7
thirevels
13.6
15,8
15-9
16.1
15.9
15.6
15.0
15.3
15,1
Set renta and reyalities
a
3.8
3.4
3.2
3.1
3.3
3.5
3.6
3-7
I/ Includes pay rell and maintenance of Civilian Deservation Corps employees at R rolls of Civil Works Administration, Federal
for all except the Federal Rerks Progres. the office exployees and thair w rolls miss the Federal Works Progress are Instated
Inergency Helief Administration, and the Feteral form mps projects, plus elministrative pay rolls outside of Tashington, n.c.,
with the regular Government exployment and pap-mil figures.
il Includes also net balance of International flow of property
11156
23
dollars in 1929 to 29.6 billion dollars in 1933, a decline of 42.5 percent, and then
rose to 46.7 billion dollars in 1937, or within 10 percent of the 1929 peak. In
those industries in which sularies and wages could be segregated, the drop In wages
from 1929 to 1932 was greater than the drop in salaries. The relatively larger la-
prease in wages after 1932 resulted in approximately the same relationship between the
items in 1937 as in 1929.
Entrepreneurial withdrawals varied closely with total compensation of employees
(rom 1929 through 1935, but increased more moderately in 1936 and 1937. Net rents and
royalties fell nearly 60 percent from 1929 to 1933 and then increased in 1937 to ap-
proximately three-fourths of the 1929 level.
Work-relief wages appear in the estimates for the first time in 1933. Prior to
that year some wages were paid on work-relief projects by local agencies, but satis-
factory data are not available for determining their magnitude. From a total of 700
willion dollars in 1933, this type of payment increased to nearly 21 billion dollars
in 1936, Increased business activity and expanding employment in private industries
during most of 1937 led to a decline in work-rollof wages of nearly one-fourth from
the 1936 level.
Social Security contributions of employees are included in salaries and wages.
Contributions of employers, which totaled nearly 300 million dollars in 1936 and near-
ly a billion dollars in 1937, are shown separately. These contributions wore made
under the unemployment compensation and old-age insurance provisions of the Federal
Social Security Act and the State Unemployment Compensation Laws.
RELATIVE IMPORTANCE OF TYPES OF PAYMENTS
The estimates in table 6, showing the percentage distribution of income paid out
by type of payment. are widely used. They indicate the proportion of total income paid
out to each of the various factors of production and as such are of considerable value.
It is important. however to note that the figures do not represent the actual
receipts of specific groups within the total population. eince many of the items rep-
resent acoruals rather than actual payments and many income recipients receive more
than ope type of income. Salaries and wages include employees' contributions to So-
cial Security, but employees have no control over this portion of their Income. On
the other hand, benefits paid under Social Security programs. soldiers' bonuses, and
direct-relief disbursements are not included in income paid out, although they are
actual receipts of specific groups within the population. Furthermore. the accunt of
dividends and interest paid by business enterprises to aggregates of individuals (such
as life-insurance companies, savings banks, and building and loan associations) and
the income disbursed by these agencies undoubtedly differ considerably from year to
year. A discussion of the flow of income to aggregates of individuals is contained in
chapter I in the section beaded "Souroes and Methods of Estimation."
of the total income paid out, the compensation of employees represented 66.9
percent in 1936 and 67.4 percent in 1557 In this study all persons who worked for
others on a salary, wage, et commission basis are classified as employees and, there- is
fore, the compensation of corporate officers as well as that of manual laborers
Regraded Unclassified
TABLE - NAMEM sus COMPENSATION OF EMPLOYEERS IMPRESENTS or Iscan
PAID our, at INSURANCE DIVISIONS
1929
1930
1931
1/
1932
1953
V
1934
1934
1935
1936
1957
All Industries
65.6
A.)
A.1
as
65.3
66.1
66.1
665
q.o
ST.)
agriculture
a.j
20,2
18.7
16.1
16.0
15.2
77.8
80.9
15.2
Malag
12.5
52.5
15,0
45.7
16.3
43-7
16.6
Escirie 11ght and and
77.8
79.0
76.2
75.0
mandactured plant
59.7
35-9
34.5
31.2
32.7
32.1
as
80,3
a.o
9%5
Manufacturing
NO.?
35-2
54,0
36.5
0,2
0,2
34.6
as
65,2
Contrast construction
80.7
43.6
50,5
79.6
79.8
70,6
00,5
75-5
73-1
0,1
Del
80,5
Transportation
70.9
as
72.6
as
12.7
15.1
72,2
72.6
69.7
72.6
Communication
67.8
9.2
The
75.6
65.5
74.5
74,8
66,0
The
66.0
73.6
74.4
9.5
Trade
70.0
28.3
73.3
TR.#
29,1
29.6
TO.0
@.o
Finance
31-7
33.2
70.8
32.6
63.2
12.1
deverment (sasluding
4,0
84,1
32.5
32.6
45.3
80.7
32.6
79.7
deversed (including verb-relief)
43.2
84.0
79.7
as
0.6
M.I
43.3
R.D
5.5
83.5
GIVI
0.5
Service
66.5
as
66.0
06.7
B.9
65.3
053
65.5
65.4
53.0
(5.3
52.6
65.0
Miscellaneous
9.8
GST
52.7
59.4
94.4
she
62.6
70.5
70.6
y Retimates of dividents and Interest, and surporate estings fee 1934 and for subsequest para are Secot sa . different industrial
classification thes are the estimates of these Items for earlier years because of a change is the Invoice Act of 1934. Openial
tabulations of the Dureas of Internal Revenue penditied the saking of estimates for 1534 en the earlier laste M vall - on the
DAY bads, The first column for 1934 presents the outlantes = the basis of the old infastrial classification et the second
column shows the estimates es the new classification,
PARIS a - records VIICE DIVIDENDS AND INTEREST REPRESENT or INCOME
PAID our, If INDUSTRIAL DIVISIONS
1/
1/
1929
1930
1931
1932
1933
1934
1934
1935
1936
1937
All infustries
14,4
15.5
16,0
16.4
15.5
15.0
15.0
14,2
14.2
13.8
Agriculture
5-3
5-3
5-9
6.2
6.6
6.1
5.1
5.5
5.4
50
Mising
20.9
17.5
15,2
14.4
13.6
14,2
20.3
19.1
22.1
25.3
Electric 11ght and power, and
manufactured (M
60.3
0.1
65.5
66.8
67.3
67.9
65.7
a.e
63.5
a
Manufacturing
15-5
17.5
17.1
15.3
14,1
14,1
13.0
14.6
19.4
19.2
Contract construction
2,5
2,9
2,8
2.6
3.4
2.5
2,5
3.0
2.7
3.2
Transportation
21.2
a.)
zi.9
23.9
23.3
n.s
at
22.0
19.6
18.6
Communication
24.9
87.4
30.)
32.2
35.4
34.5
34.0
3302
32.5
29.6
Trade
5.8
5-5
5.0
3.8
3.6
4.6
5-3
as
4.5
T.S
Finance
30.1
33.4
37.3
37.7
35.0
12.8
33.1
30,4
n.
25.4
Government (sacluding work-ralief)
16.8
16.0
15.9
167
19.3
20,3
20.3
18.4
17.8
18.0
Government (including work-relief)
16.8
16.0
15-9
16.7
17.5
16.5
16.5
15.2
13.3
11.5
Service
3.6
3-9
3-5
3.1
2.1
2,0
2,2
2,2
2,2
2,1
Miscellaneous 2/
13.1
13.9
14.0
14.9
12,7
12,0
12,0
+1.3
-14.7
-13.4
y Bellates of dividents and interest, all corporate serings for 1934 and for years are based es a different infastrial
classification than are the estimates of these Items for sariier years because of # change is the Ast of 1954. Special
tabulations of the Duress of Internal Invoice permitted the making of for 1934 an the earlier basis - will - - the
see basis. The first column for 1934 presents the setimates - the basis of the eld Industrial classification and the second
colome for 1934 shoes the estimates as the BEW classification.
if Includes also net balance of international fine of property
1901
Regraded LInclassified
PERCENT
100
90
80
70
60
50
40
30
20
10
0
1929
1930
1931
1932
1933
1934
1935
1936
1937
Total Compensation
Interest
All Other
Dividends
00 WAZ
of Employees
Figure 3. PERCENTAGE DISTRIBUTION OF INCOME PAID OUT,
BY TYPE OF PAYMENT, 1929-57
18856
Regraded Unclassified
26
included in labor income. The 1937 share of labor income was higher than in any pre-
vious year under review, comparing with 65.6 percent in 1929 and 64.4 percent in
1932. If work-relief wages and Social Security contributions of employers, which
together accounted for 4 percent of total income paid out in 1937. are excluded from
both total income paid out and from total compensation of employees, the proportion
which employees' compensation bearn to total income paid out is 65.5 in 1936 and 66.0
in 1937.
The aggregate of dividends and interest did not vary greatly in relative importance
during the period covered, having increased moderately from 1929 to 1932 and having
declined thereafter. However, when these two items are separated, sharply varying
trends are revealed. From 1929 to 1933, dividends declined in proportion to income
paid out from 7.6 percent to 4.9 percent. and increased thereafter to 6.8 percent in
1936 and 7.2 percent in 1937. Interest, on the other hard, increased from 6.6 per-
cent of income paid out in 1929 to 10.4 percent in 1933, and subsequently declined to
6.7 percent in 1937, Entrepreneurial withdrawals changed only moderately in relative
importance throughout the entire period. Net rents and royalties declined proportion-
ately from 4.4 percent in 1929 to 3.1 percest in 1933, and increased only moderately
thereafter.
For the entire period, labor income accounted for approximately two-thirds of
the income paid out. Entrepreneurial withdrawals accounted for slightly less than
obe-sixth, and property income, including rents and royalties, accounted for more
than one-sixth. The relative importance of these three major groups changed only
moderately with changes in total income, indicating that generally the return to each
of the various factors of production, as classified above, increases during periods of
prosperity and decreases during periods of depression in Dearly the 0389 proportion.
Further evidence of the distribution of income paid out appears in tables 7 and
8, where the relative importance of the compensation of employees and of dividends and
interest is shown for each industrial division. In 1937, labor income accounted for
only one-sixth of income paid out in dgriculture, an industry where entrepreneurial
activities are predominant and where entrepreneurial withdrawals represent narly 80
percent of income paid out. Net rents and royalties are included entirely in the 1-
nance industry, and account - at least in part - for the low proportion of labor
income to total income in that field. In the electriclight and power and manufactured-
gas industry, employees' compensation represented less than 40 percent of total income
paid out in 1937, as compared with 75 percent or more in government. contract con-
struction, manufacturing. transportation, and mining. In most industries, labor's
share declined from 1929 to the low years of the depression, and increased thereafter.
The most notable exceptions to this tendency were in mining, manufacturing. and rinance,
where labor income increased in relative importance during the period of declining
total income and decreased in relative importance during the period of increasing
total income.
As shown in table 8, the relative importance of dividends and interest originat-
Ing in each industry varies greatly from one industry to another. Thus, in 1937 these and
two items accounted for 61.4 percent of Income paid out by the electric light
power and manufactured-gas industry and 29.6 percent in the communication industry. In the
both of which huge capital outlays, as compared with 5 percent or less is the
construction, require and agriculture industries, in which personal effort also
predominant the net balance of international flow of property income, in which dividend and
service, factor of production. Estimates for the miscellaneous group include inter-
Regraded Unclassified
INDEX NUMBER 1929-100 (Adjusted for Seasonal Variation)
120
110
100
90
PAYMENTS TO VETERANS
PAYMENTS TO VETERANS
80
DIRECT RELIEF
70
DIVIDENDS & INTEREST
60
ENTREPRENEURIAL INCOME
50
40
COMPENSATION OF EMPLOYEES
30
20
10
o
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
Figure 4. MONTHLY INCOME PAYMENTS, BY TYPE OF PAYMENT, 1929-38
18856
Regraded Unclassif
- 20 -
est receipts exceed dividend and interest payments In 2020 years, so that a negative
item appears for dividend and interest income. The electric light and power and mano-
ractured-gas industry and the communication industry both showed marked increases in
the relative importance of property income from 1929 to the low years of the depression
and substantial declines in the relative importance of dividend and interest payments
during the recovery period.
INCOME PAYMENTS
Table 9 presents the monthly estimates of income payments from January 1929 through
August 1938, classified by types of payment, with a further break-down of coupensa-
tion of employees by major industrial categories. The annual aggregates of these noo-
thly figures differ in many aspects from the annual estimates of income paid out, but
the magnitude of the net differences is not great. In 1936, the difference between
total income paid out for services rendered and total income payments to individuals
was larger than for any other year. the latter exceeding the former by nearly 2 bil-
lion dollars, or approximately 3 percent. In all other years the aggregates were with-
in 2 percent of each other.
As indicated in chapter I of this report, income payments, in contrast to income
paid out, include certain items which do not represent compensation for services one-
rently rendored. Thus, direct relief disbursements and payments to veterans on their
adjusted service certificates are included in income payments to individuals, but not
in income paid out. The sub of those two items accounted for 2.1 billion dollars in
1936 and approximately 1 billion dollars in both 1935 and 1937. Except for the years
1936 and 1937, the items included in income paid out and excluded from income payments
are relatively small. These comprise employee and employer contributions to the Fed-
oral Government employees' retirement fund and to the Railroad Retirement food, as
well as employee and employer contributions under the Social Security programs. In
1937, these deductions totaled approximately 11 billion dollars. Benefits under the
Social Security programs, which are included in income payments. were relatively in-
significant prior to 1938.
The general trend of income payments closely approximates that of income paid out.
However, since the estimates of income payments are available on a monthly basis, a
more precise analysis of the cyclical variations in the flow of income is possible.
Except for the brief spurt in 1931 occasioned by loans on adjusted service certifi-
cates, total income payments declined almost uninterruptedly from the third quarter
of 1929 to March 1933. The index of total payments, adjusted for seasonal variation,
dropped 46 percent during this period. The adjusted index of the compensation of on-
ployees decreased approximately 48 percent over the same period. Total Income pay-
ments rose sharply through the final three quarters of 1933, showing a gain of nearly
one-fifth in this 9-month period. During the next 3 years, income payments increased
steadily. with a particularly marked rise in the middle of 1936 occasioned in part by
final payments CO veterans' adjusted service certificates. The peak reached in the
seasonally adjusted index of total income payments in August 1937 was 90.2 percent of
the 1929 level. From August 1937 to May 1935, the Index dropped 10 points. During
this period all types of income payments fell off substantially. Subsequest to May,
income payments increased in each month.
TABLE 9 - MONTHLY INCOME PAYMENTS
Indit of total
Inrame par-
Comprusation of employees
made
Ratre-
Total
premium
4d-
Bank
à
Divi-
last with
Direct
justed
payments
DERIS
Index
Manu-
denda
drawah,
and
invoice
under
po-
facturing,
Trans-
Govern-
and
and
other
the
Year and
Ad-
Unsd-
ments
Total
mining,
perision
Trade
usersk,
and
Work
Interest
net renta
relief
finetal
Security
justed
justed
and
and public
service,
month
and
rellaf
and reyal-
Ad-
Grance
manta
united
the
Act
justed
Gan
other
MIIL
1900->
1220-100
del.
100
Millims of dollars
-
BF.#
IDLY
LG
07.0
4,000
L474
478
NA
INDUAT
LAB
1,286
1,130
4.
W /
9.1
AND
97.7
6,1%
1,041
443
MY
LNO
TM
1,248
4.
M.I
MI
1,54
is
CIM
LAM
4b
as
Margh
1,334
344
1.252
.
M.E
N.I.
4,452
OR.S
6.20
1,684
-
DI
April
1,350
DEG
1 248
-
May
we
07.6
4,40
99.4
4,5%
LAB
as
L30
616
LOST
LIN
100.2
(MI
Les
lee
en
lust
NA
IMA
LAM
012
L 347
a
luir
101.1
DLL
E.G.
101.5
6,277
1,09
B
1,327
L24
1,0%
103.0
EL
I.SM
1027
in
1,487
supad
DR. #
107.T
7,051
102.0
@@@@@@
LOT
B.
1,967
1
102.1
101.1
6.69)
1024
6,91
1,0%
649
1,2%
are
LET
-
1,0M
607
1,443
Lost
1,487
4.
Devier
190.2
100.0
6,MI
100.4
4,352
LIM
653
1.400
-
LIN
4
100.0
TOO T
4,891
NI
4,304
LM
899
1,07
-
1.211
-
Monthly
100.0
0.549
100.0
4,190
1,000
581
554
944
1.90
4
1994
January
99,6
LOC :
0,5M
57.0
4.0%
1.451
NAJ
534
T.015
1,5%
1,771
1,20
February
82.4
02.0
0,00
06.1
4,048
LMS
819
1,305
K26
March
1
ML 2
6.165
00.4
4,000
LAM
48:
8
1.314
010
1,00
April
M.D
$6.0
5,299
96.8
4,087
1,450
450
519
LEG
1,000
1,190
T
Mar
VO. :
04.7
6,20
9L 8
CD
1,454
9
LM
are
1,211
e
Les
-
is
96.2
4,2%
04 2
4,100
1,440
477
REN
LOM
1.171
,
lab
a:
is
BY
was
3,907
Lan
478
2M
1,20
LRI
1,188
(
August
(2)
57.7
1,744
A.I
as
and
01.3
3,535
LSG
1,80
90.3
RREERA
1,91
724
113
e
3,000
1,387
LNE
158
L2R
.
September
October
SK4
as
1,12
N.I.
3,00
1,00
1,3M
00
1.20
e
November
KT.V
0,3
5,716
M.7
1,70
1,24
1,24
THE
1.186
9
December
:
M H
1,00
E
LEM
1,200
764
2,281
I
LIM
"
Monthir average
014
6.1M
H.S
5,00
1,397
-
-
1,300
R
000
L180
,
1931
January
65.1
B)
AND
5.1
LON
1,13
TM
1,201
1.20
1,100
February
M.4
is
1,30
129
LIM
1,148
March
014
1,457
(1)
EST
1,144
ESERGR
405
1,10
di
19
REFERT
TID
LOST
Tea
LIE
are
:
476
EL@
100
1,135
415
1,225
I
tert
5,5
LOS
and
April
May
BLL
62.0
L300
10.1
1,500
1,124
420
1,2M
739
LG
June
$1.0
en
6,347
70.0
1,40
1.087
E
1,245
!
-
as
July
THE
B.O
MD
a
1,291
1.00
114
eas
1,138
1,04)
-
H
71.0
1,222
1,008
******
434
======
1,107
sin
(HL
======
-
Agus
77.4
4,800
Replember
78.4
76.7
4,801
75.0
3,215
1,008
294
671
1,100
E
-
Other
74.2
The
AIM
73,1
3,242
077
475
1,197
553
-
Koregber
78.6
73.4
4.88
71.1
1,131
was
620
1,167
I
HP
H
71.0
70.0
3,00
-
SQ4
674
1,124
265
-
A
Downler
724
4,777
Muship
NO.1
5,90
The
3,147
1,095
404
TOB
L184
sas
894
If
#
THEY
LON
1,047
19
Interney
70.6
TLI
LSN
99.0
in
89.1
as
LBP
67.7
1,842
March
as
M1
LM
M.O
BESERE
RESPER
12
517
19
ano
BOS
1,004
LMI
B
= ====== ======
10
ADD
854
ALS
4,5%
64.4
27M
772
1.00
as
#
Mar
H.T
44.0
4.1M
61.1
1.724
June
e
44.0
4.191
1,440
-
i
747
788
.
July
61
02 %
4,100
M.A.
1.4/2
By:
am
58
147
=
768
N
NT.)
ESHASE
a
Aunt
a,720
2,415
se
m
11
60.2
47.0
-
September,
BLT
MI
3,4MA
50.0
1,000
1,009
674
THE
.
October
59.4
413
4,87
SE
1.130
TIA
-
-
N.1
38.4
1,825
57.4
1.18
M.O
M.S.
3,001
484
SM
with
-
THE
#
Dermber
M.4
LM
319
-
197
12
B11
LG
N
-
LOW
Monthly Average
#1.1
4,188
IRIS
THE
I
57,9
61.7
LOSS
34
1,MM
February
M.P
53,8
2,625
SLT
1,140
March
M.I
53.3
3,480
58.1
2.267
April
M.1
M.S
8,1%
ML4
com
MAT
M.2
M.S.
1,434
N.O
1,887
57.6
B :
2,814
M.2
5,40
July
R.I.
at
1,000
in
2,384
-
S.1
are
3,650
SA.7
2,478
Severe
513
3,665
i
M
1,604
GRENEN #
****** H
casses
BRESRA
------
Other
N.I
6,201
as
3
Notes,
61.1
50.0
1,041
65,9
2.04
Desister,
520
sie
6,103
41.7
5,748
IN
I
I
E
-
-
Manualy
SL4
1,837
R.I
1,4M
a
WISL aspirtment for viriations
Without - for reserved variations
18886
Regraded Unclassified
TABLE 9 MONTHLY INCOME PAYMENTS (Continued)
Index of total
income par
ments
Competention of employee
Total
Main-
in.
Divi-
1
Drive
Index
Mano-
is visa-
M-
Benda
Dinel
pay-
Tear and
M-
Cost-
neturing
ments
Truse
drown
Total
upining.
periation
Trade
hill
I
and
and
and
I
manth
justed
justed
elber
I
M-
NONE
and public
sol
Week
Interest
(
net rente
it
justed
utilities
former
and
rellef
sodreysi-
In
the
-
-
1020-100
MIII
1100->
of dil.
100
MiDross of follows
1934
Injury
08.5
70.1
4,894
BLE
2,804
Pubrairy
as.)
40,0
ON
66.3
6,791
-
BY
Mant
65.1
41.0
CIM
67.3
LM
-
######
ses
TOL
M.I
68.0
se
mill
IN
April
M.3
41.4
400
(4)
MI
BM
######
THE
LM
in
THE
IN
766
May
on
08,0
am
100
N.O
as
N
05.0
4,113
6LT
2,8%
601
1,000
234
1,00
------
July
65.0
68.1
4,404
66.6
2,150
559
as
218
Angal
CIM
a
M.O
on
04.0
H
Detailer
M.9
at
ATD
BIA
6a.0
2,014
WM
Herember
67,1
611
in
323
a
Loss
Describer
e.i
60,0
CM
47.5
2,90
1,0%
307
PERSEE
Less
I
Birthing
as
LM
M.I
I.MY
574
-
581
⑉
IN
-
-
1982
2
January
N.I
The
4,586
BLA
160
:
an
February
M.Z
BIT
6,2%
GLE
1,002
1,000
April
67%
LOW
May
70.0
LAR
⑉⑉
M
March
70.0
66.7
4,300
as
1.411
un
70.4
THE
20.0
1,0%
62.6
NI
LMI
usa
162
June
00.7
70.3
(if
506
IS
A,GIT
1,064
040
SBESSE
1,077
X
I
July
N.C.
NJ
4,3M
NO.0
1,92
-
August
71.0
NEO
LUB
73.8
-
IM
⑉
STI
Separacher
726
The
4,821
LOM
71.0
1,130
1.004
100
1
Other
72.9
78.0
8,00
72 6
1,000
1,200
in
1,032
-
November
The
71.0
579
4.78
EIN
34
3,198
114
1,018
L,000
Descher.
75.4
DED
77.8
0,109
:
LIM
340
4,201
Lod
All
1,138
154
== ====== a SERVES anazas = ====== a 388538 = SEREEN ======
-
Monthly comp
The
LEN
71.0
A,OM
876
ass
in
1,000
110
E
647
a
IN
Junuary
38.6
NO
AND
The
LSI
L,010
BYS
Fatruary
The
TX1
1,105
4,725
TT.4
1,27
1,010
March
76.7
75.2
I'm
LES
2
LIM
1,080
891
April
The
TI.V
5,100
1,13
THE
LM
1,089
am
May
71.8
LIM
75.1
cm
70.3
LOSS
554
20th
B.Z
1,100
RLL
A,GI
79.8
Les
1,100
366
1,30
July
M.T
IN
LN#
(A)
NO FRAZER 210
1,680 BAREER
F
1,20
1,105
1,130
August
820
78.0
cm
1,020
0.5
3,481
1,148
N.I
RI
6,461
61.9
5,00
November
60.0
KOTT
IIIIII
1,100
3,180
Ortaber
NI
1,190
M.7
6,681
82.0
LA
1.235
il
8.1
MI
UNITED
Lost
1,180
1,999
December
E
LON
100.0
ass
3,749
1,273
1,0%
413 119 1 77 48
Monthly everage
11.9
am
00.0
a,600
1,188
-
008
LIM
THE
⑉
1987
(semery
LMI
1.0%
Fabruary
Mark
1.300
ADYS
LN
178
1,061
1,960
May
I 55.1 BLI I BLO B.S. B.T 90.2 as
M.I ***** S4.4 M-1 06.2 75.2 B.I
PPPPPP
=====
PPPPPP
IIIIII
1,379
ESSESS
IN ESSEED
SEEEEN
assess E
@@@@@@
5.5555
18
Tuly:
LIM
456
13
Argust
Restember
6,611
5.0M
######
00.4
1,170
BREESE
1.277
LIM
N.O
-
LIMIT
1,385
5,400
:
1,980
1,138
------
:
October
November
Describer
LM
N.I
KM
LIM
1,272
1,100
-
Monthly average
66.1
A,TRO
LSM
-
LIMI
iss
1,067
11
1938
Issuary
a
RST
BL4
1,000
LA
138
572
LIM
February
62.8
76.0
BERRER
81.4
Law
140
442
March
1.071
SLT
BL4
LAI
81.0
147 0,40 Les - 1,00 LM LUI AMT
1,005
no
1,331
194
TM
LGI
April
81,4
Mar
01.6
5,342
96 :
1,058
DAL
1,200
190
CORREE
W
788
-
90.4
TM
THIS
1,000
L381
189
445
E
I
NO.7
B.)
i
THE
1,000
L,200
197
E
1 =
July
BL-4
81.0
the
21
1,004
RI
Replamber
The
4.975
0.4
COM
3E
AE
LIM
BE
186
E:
LOS
August
1,180
122
E
LOS
Ba
Orlaber
Namember
Denember
Monthly untage
Will edjustment for - velatives.
Withest albstret the - veristies,
18856
INDEX NUMBERS (1929=100) ADJUSTED FOR SEASONAL VARIATION
110
100
90
GOVERNMENT, SERVICE AND OTHER
80
TRADE AND FINANCE
70
TRANSPORTATION AND
PUBLIC UTILITIES
60
50
MINING, MANUFACTURING
AND CONSTRUCTION
40
30
0
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
DP9838
Figure 5. TREND OF EMPLOYEES' COMPENSATION, BY MAJOR INDUSTRIAL GROUPS, 1929-58
18856
Regraded Unclassif
NUMBER ENGAGED AND PER CAPITA INCOME
Tables 10 and 12 indicate the trends in the number of persons engaged. by type
and by industrial groups. Unpaid family farm labor and employees engaged on work
relief projects have not been included in the estimates. Also, the number of employees
tends to represent full-time-squivalent employment rather than the total number of
persons who worked at any time during the year, Thus, by using annual averages of
monthly figures, two persons, each working 6 months during a year, represent one full-
time-equivalent employee. In scae industries, where separate employment and pay-roll
records are maintained for those employed on a part-time basis, It is possible to make
full-time-equivalent estimates for those working part of the week or month. Conver-
sion to full-time equivalent for this type of employment is confined to very few In-
dustries, because of the lack of necessary data.
From 1929 to 1932 the total number of persons engaged declined nearly 20 percent.
The number of entreproneurs during this period remained approximately unchanged, while
the number of employees declined more than one-fourth. In those industries where vage
earners and salaried employees could be segregated. the drop to the number of wage
earners from 1929 to 1932 was 39 percent, se compared with a 28-percent decline in
salaried employees. The number of persons engaged was only 3 percent less in 1937
than in 1929. The number of entrepreneurs in 1937 was 9,2 percent higher than in 1929,
while the number of employees in 1937 was 6.6 percent less than the 1929 total. The
net decline from 1929 to 1937 of less than It million persons engaged should not be
accepted as a measure of the number of persons unemployed in 1937, since there were
perhaps 2 million persons unemployed in 1929 and there was a substantial increase in
the number of employable persons between 1929 and 1937.
Cyclical variations in the number of persons engaged, by industrial divisions,
varied closely with the fluctuations in income originating in the different industrial
groups. The largest percentage declines from 1929 to the low years of the depression
and the largest percentage increases thereafter occurred in the commodity-producing
industries. with 'the exception of agriculture. in which the number of fara operators
tended to increase during this period. A more detailed picture of the effects of the
depression and recovery can be obtained from table 14, which shows the number of en-
ployees, by major and minor industrial divisions. This table reveale not only marked
differences in employment fluctuations from one major industrial group to another.
but also among subgroups of specific industries. Thus, in the manufacturing group.
declines from 1929 to 1932 varied from 20 percent in the food and tobacco branch to
more than 50 percent in the construction materials and furniture branch. Also, in
the transportation group, a marked decline occurred during the depression in the rail-
road industry, as compared with only a moderate decline in motor transportation.
The recovery period was similarly characterized by substantial variations within the
subgroups in each industry.
The per capita income of full-time employees. shown in table 11, indicates a close
relationship over the period from 1929 to 1935 between average Income of all employees
and the cost-of-living index of urban wage-carmer families. It should be noted that
the estimates of per capita income of employees are derived by dividing salaries and
wages by the full-time-equivalent number of employees and that salaries and wages are
before deductions for employees' contributions under the Social Security programs. The
deoline in the per oapita income of employees from 1929 to 1933 was 25.8 percent. as
Regraded Unclassified
taxa 10 - non OF BIAND if
(In thresands)
1909
1930
1931
1932
1933
1934
1935
1936
1937
Total subst engaged
4,059
W,A
39,439
36,081
36,848
38,579
39,775
41,703
43,467
All employees
34,863
32,657
29,427
26,022
25,973
28,043
Salaried employees (selected industries) w
29,054
8,151
2,143
30,833
32,5%
1,903
tage earsers (salanted Industries) al
1,577
18,800
1,150
10,764
1,601
8,961
1,658
7,465
2,775
1,916
Salaried employees or wage oursive
7,917
9,062
9,560
10,286
11,085
(all other industries)
00,45%
19,090
18,563
16,900
16,604
17,380
intreprement
9,997
9,967
10,012
17,816
18,778
10,058
19,546
10,875
10,537
10,741
10,870
10,921
Percentages if 1929
Total number
100.0
95.5
87.9
80,4
80.8
86.0
88,7
93.0
96.9
all employees
100.0
94,2
as
14.6
This
80,4
83.)
66,4
93.4
Salaried employees (selected industries) il
100,0
99.6
#6.9
72.0
66-3
73-1
Tage earsare (selected industries) Il
75-7
a.o
100.0
57.4
E
73.4
51.1
a.,
The
The3
Salaried employees OF vage narmare
A.)
90.0
(all other industries)
100,0
57.2
90.7
83.0
n.1
as
47.1
91.7
95.5
Interpresents
-100.0
99.9
100.2
100.6
102.8
105.4
107.4
108.7
109.2
1/ In this table and all subsequent tables relating to a maker of persons employed or engaged, the and aptimates are averages for
the calendar year. the represent is - industries & full-iine aquivalent. Unpaid family fam labor - write-rellef
employees have ast been included.
1/ Includes sising, manufacturing, construction, steam railroads, Pilms, railmy express, end wir insportation.
TAXIS 11 - 702 DAPITA INCOME or IMPLOTERS AND TEN cost of LIVING
1529
1930
1931
1938
1933
1954
1935
1936
1937
All employees, exaluding work relief
1,450
4417
1,389
1,171
1,077
1,189
1,179
1,835
1,316
dalaried employees (selected industries) 1/
1,559
2,556
2,467
2,171
2,030
8,111
2,156
1,217
2,354
hape earsers (selected information) 1/
1,800
1,316
1,181
970
9.8
995
1,089
1,156
1,866
salaried employees or - earsers
(all other industries)
1,362
1,343
1,250
1,166
1,069
1,108
1,147
1,16%
1,238
Percentages of 1999
All employees, eminding will valief
100.0
97.7
91.6
NO.7
The
17.0
n.)
85,1
90.7
Salaries employees (salected inhetries) 2/
100.0
101.1
96,4
A.I
79.3
2.m
as
$6.6
93.7
Rage namere (sabscred infustries) V
100.0
94.1
as
69.3
65.6
71.1
76.4
9.7
90.4
Salaried employees or TAGE narsers
(all viher industries)
100.0
94.6
94.3
03.6
76.5
a.
A.I
46.9
90,9
Purent of labor Stabietics cont-of-living
Inder
100.0
97-5
09.1
80,8
76.8
79.1
a.1
R.1
A.7
V Includes mising, construction, steam railroads, Pullows, reillar express, and eater transportation.
11156
TABLE 18 - OF MAS, E DIVISION
(In themsends)
1929
1530
1931
1938
1933
1934
1935
1936
1937
Total maher uppl, excluding with-
relief employees
44,099
M.M
35.439
36,081
16,00
34,579
35,775
20,703
43,467
Agriculture 2/
7,910
7,800
7,775
7,60
1,0%
7,900
900
7,930
Elsing
8
7,990
720
4,060
Escirie 11ght and pmrt, and numfactured -
346
709
8,050
357
E
331
⑉
day
90%
mandacturing
273
250
$
9,932
4,8%
1,50
29%
6,369
313
Custract
1,604
1,695
7,965
331
1,111
4,463
3
716
9,00%
9,751
transportation
3,193
2,905
a
4,631
2,276
T70
2,801
9t3
1,005
Immunication
%
514
2,304
VO
2,352
kot
37%
1,589
2,663
trade
6,654
6,836
372
5.734
362
5,191
37%
5,123
394
Finance
1,451
5,390
1,397
1,304
5,475
1,0%)
5,673
5,093
Government, excluding verb-rellef employees
1,800
3,204
1,129
3,313
1,215
1,331
1,8%
3,009
1,300
1,819
7,053
1,387
Service
6,436
3,400
1,676
5,900
3.70
5,000
Miscellanerus
8,145
6,301
2,081
6,605
1,973
6,570
1,050
7,255
1,05)
1,914
1,943
2,006
2,057
of 1929
Total maler secinding mb-
relief employees
100,0
95.5
67-9
NO.4
80,1
86.0
SI.T
93.0
96.9
Agriculture W
100.0
94,6+
94.3
97.8
99.9
100,0
100.5
101.9
Exing
100,0
108.3
93.9
as
68.0
09.0
a.,
83.0
06.6
Escirie light mé pover, and manufactured pas
100,0
91.0
103.8
95-7
0.1
74.9
B.S
PSO
Manufacturing
100,0
90.5
95-7
8.1
15.0
as
64.9
80.2
PM
Costract emstruction
90.9
2
100,0
93.2
(a)
52-7
2.4
45.1
MLO
fransportation
100,0
57.5
GR.7
93.5
as
The
64.9
The
13.6
79.1
as
Communication
100,0
94.3
as,o
16.9
They
70.9
B.2
Th.5
76.1
Trade
100,0
96.6
U.S
50,4
79.4
83-5
M
87.9
91.3
Plasse
100,0
96.3
49.9
05-7
a.7
a.7
43.7
B.9
90.1
Government, excluding wrb-reller explayee
100.0
103.4
104,0
108.7
100.5
105,8
108.6
114.1
117.5
Service
100,0
96.9
91.0
B.9
a.3
09.3
93.6
94.9
102.9
100.0
97.0
98.0
06.6
06.9
6.1
50.6
93.5
95-9
1/ Does not include uspaid family labor,
TABLE 13 - PRESENTION DISTRIBUTION or FROM SEASED, If INDUSTRIAL DIVISIONS
1929
1930
1931
1932
1933
1934
1935
1936
1937
Total maber expirat, excluding with-
relief employees
100.0
100.0
100.0
100,0
100,0
100.0
100,0
100,0
100.0
Agriculture y
17.6
18.2
19.7
n.)
n.
20,5
20,0
19,3
14,6
Malag
2.3
1.3
1.2
2,0
8,0
1.1
1,2
1.1
1,2
Extrie light and pover, and naminactured ps
,6
:-
,6
.8
,
+1
.7
.
,
Manufacturing
81,1
20,7
19.1
17.7
18.9
20.6
n.)
21.6
22.4
Centract occuraction
3.6
5.3
a,s
2.3
2,0
1.9
1,5
2,2
L3
Transportation
7,1
7.0
67
6,3
6,1
6,0
5-9
6.1
6.1
Communication
1.3
1.1
1.1
1.1
1.0
1.0
-9
4
trais
as
14.5
14.5
12.4
14,1
14.0
13.8
13.6
will
Place
3.2
3.3
3-3
3.4
3-3
3.2
3,1
3.0
3.0
Government, essisting employees
7.2
Tol
4.5
9.1
6.9
4.6
61
LA
4.7
Service
15.7
16.0
16.3
16.4
15,0
16.3
16.6
16.7
16.7
Miscellaneous
:
4.9
5.0
5.8
5.1
5.0
4.9
=
4.7
y Does act include mapuid featly labor.
18856
35 -
compared with & drop of 23.8 persent in the Bureau of Labor Statistics cost-of-living
index. These two series varied closely for the next 2 years, but in 1936 and 1937 por
capita incomes increased much more than the oost of living. Therefore, 11 appears that
on the average, those employees engaged full time were enjoying greater real income in
1936 and 1937 than in 1929.
In selected industries where salaried employees and wage earners could be segre-
gated, the index of average annual salaries declined less during the period of depres-
sion than did the cost-of-living index, whereas average annual wages declined substan-
tially more than the cost of living. During the period of increase, average annual
wages of full-time employed wage earners rose substantially more than per capita sal-
aries in the same industries.
Table 16 shows the per capita incomes of full-time employed workers in approxi-
mately 40 industrial categories. The average earnings of workers varied substantially
from industry to industry in 1937, with variations in the major groups from $580 in
agriculture and $961 in service to $1,792 in finance and $1,532 in the communiontion
industry. Within industrial subgroups marked variations occurred. In manufacturing
industries, average annual full-time earnings in 1937 varied from $988 in the textiles
and leather branch to $1,650 in the paper, printing, and publishing industry. Not
only did the absolute average vary from industry to industry, but also the magnitude
of the year-to-year fluctuations differed considerably from one area of economic act-
ivity to another. In many industries, per capita incomes declined approximately 50
percent from 1929 to the low years of the depression: whereas in others. per capita in-
comes remained practically stable. The significance of the per capita income estimates
is limited by the fact that they are influenced by changes both in wage rates and in
the proportions of workers at different wages scales. Thus, if an industry dismisses
a relatively greater number of unskilled and low-income workers than of skilled work-
ers, average annual earnings may increase. despite wage outs among those who continue
to be employed. On the other hand, average earnings may decrease much more than wage
cuts where the incidence of unesployment falls relatively more heavily upon the high-
income groups.
The tables from 18 to 25, inclusive, present further details of considerable
interest to those who wish to study variations among different industrial categories.
It is particularly Interesting to note that fluctuations in the total compensation of
corporate officers, shown in table 20, varied closely with changes in the total COB-
pensation of all employees, given in table 5. From 1929 to 1933, total labor income
declined 43.3 percent and the compensation of corporate efficers was reduced by 40.2
percent. In 1935, the latest year for which the figures are available, the compansa-
tion of corporate officers was 29.7 percent less than in 1929, whereas the compensa-
tion of all employees showed a 29.8 percent decline.
Regraded Unclassified
TABLE 14 - - # IMPLETERS (Pull-ties Aprivalent), BY INFORMAL DIVISIONS
Absolate Rubers (la ibomants)
of 1989
1929
1930
1931
1932
1933
1954
1935
1936
1937
1929
1930
1931
1932
1933
1934
1935
1936
1931
Trial - of employees
9.83
32,057
29,427
26,022
25,973
28,043
29,03%
30,833
32,5%
100,0
94.2
A.1
74.6
74.5
80,4
0.3
à
93.4
Agriculture 1/ total
1,630
1,510
1,400
1,150
1,200
1,100
1,140
1,150
1,250
100,0
93.2
06.4
73-5
T4.1
71.6
10,4
11.2
19.0
Wining teled
1,030
966
4%
es
725
AZ
-
eye
937
100.0
93.4
A,2
67.5
03.4
81.7
62.9
86.5
91.0
internate
130
345
131
106
93
108
101
98
94
100.0
95.5
A.)
68.4
as
69.7
But
63.7
60.6
mail
-
465
432
m
yes
NM
456
5
and
100.0
96.1
89.0
16.1
80,2
92,6
M
95-9
98,8
datal
130
116
R
56
El
R
-
113
144
100.0
0.2
57-7
7
15.4
56.9
9.7
2
110,#
Invoice
108
20%
93
of
75
E
48
%
98
100,0
96.3
2
B.I
69.4
80.6
n.5
K7,0
90.7
TO 1 I
153
133
93
E'
E
125
121
ni
123
100.0
85.9
50,8
55.5
05.4
61.7
79.1
76.5
$1,4
Mondacturing - total
9,800
1,74
7,440
6,88
6,776
7,885
8,92
4,939
9,660
100,0
$9.2
75-9
a.s
69.1
80,5
#5.5
31.2
94,6
Fest. -
39%
90
666
797
en
1,028
1,00%
1,044
1,062
100,0
97.1
2
75+9
67,9
103.0
103.0
104.6
108,1
hper, printing and pollening
A)
do
75
BY
as
721
This
T72
as
100.0
99.0
8.1
71.6
16.6
05-5
?
32.5
96.4
Textilas - leaster
2,263
2,000
1,099
1,708
1,00
2,074
2,195
2,283
2,247
100.0
19.6
43.7
75-E
BJ
91.6
97.3
99.1
101.1
atterials and
1,295
1,05%
BOG
at
670
793
an
564
1,037
100,0
12,2
as
47.5
52,4
are
(4,0
This
80.7
Destribed primise refising
- 518
$
Line
370
428
475
407
501
%
100.0
95.4
12,4
71.0
10.1
92.7
94.0
96.7
104.2
Metal and products
1.00
2,600
2,239
1,755
1,034
4,339
2,575
2,907
3,358
100.0
15.5
G7.3
93.2
55-6
10.9
76,0
M.I.
101.1
cad
516
517
278
132
151
y
300
R
3%
100.0
2
72.3
61.7
66.8
17.9
75.fl
PSA
94.4
Certral administrative sfficers
are
210
189
154
142
162
171
LA
199
100.0
101.0
M.9
74.0
7
77,9
0.2
a,1
95-7
Destrest construction - total
1,436
1,326
997
Res
%
579
as
777
#)
100.0
90.)
is.)
VI.9
39.6
to,)
k3.5
9,1
59.4
fransportation - total
2,960
2.152
2,412
2,070
1,997
2,00
2,115
2,266
2,391
100.0
50.5
41,3
e.a
67.4
70.2
71.3
16.4
80,6
Boe reflessis, Prilamo -
1,8%
1,00
1,406
1,155
1,085
1,12)
1,113
1,193
1,255
100.0
Ry-9
76.2
Q.6
54-1
50.8
(0.)
68,0
father transportation
158
E
235
206
25
234
25
263
290
100,0
94.8
n.s
TL.5
74.1
as
05,1
90,6
100,7
Motor immegeriation and palic
534
5%
535
NO
474
502
536
58
as
100.0
101,1
96,4
90,4
94.0
100.0
109.1
110,4
How rallage
any
25%
228
as
188
199
191
193
15th
100.0
93.3
9,1
15-5
60.9
72.1
71,0
ThaT
12.9
Mr transportation
3
5
6
5
6
6
A
10
it
100,0
166.7
200,0
166.7
200,0
200,0
266.7
533.3
3667
Pige lines
25
the
=
as
ao
5
a
3
26
100.0
96.0
M.D
12,0
80,0
92,0
52.0
100.0
104,0
Bestria Elght and pmr. -
total
3%
357
331
ass
273
290
294
313
332
100,0
103.2
95-7
M
74-9
O.F
050
90.5
95-7
Resirio 11ght at yours
216
267
20%
26
200
273
E
1
as
100.0
104.0
95-7
as
TSA
a
et
at.)
SALE
-
R
R
et
60
$
or
67
$
N
100,0
100,0
95.7
62.6
92-9
95-7
95-T
96.6
100,0
Communications - total
523
534
MO
ace
374
371
352
ST4
398
100.0
94-3
66.0
76.9
71-5
30.9
B.2
The
The
5
420
369
33ª
300
299
298
300
122
100.0
94.4
THE
77.1
70.0
SILE
743
TSE
Telegraph
%
9/4
a
a
be
12
70
R
77
100,0
97.9
2
10.0
60.0
15.0
72.9
77.1
2
Trade - total
5,209
4,988
VSA
3,947
3,931
4,050
4,124
4,283
4,501
100.0
ys
86.4
76.5
15-5
That
79.2
R.P
16.4
Totall trute
3,728
1,573
3,234
2,453
2,89
2,672
2,475
0,993
3.153
100,0
95.6
66.7
76-5
753
17.0
na
2
a,o
Malesale this
1,00
1,315
1,2%
1,134
1,12
1,217
1,249
1,290
1,366
100,0
95.6
05-7
16.6
2
2.8
as
n.
96%
Plance - total
1,300
4,3%
1,236
1,174
1,136
1,166
1,152
1,18)
LNJ
100,0
2
89.6
2
a
as
0.5
#51
30,3
buring
250
523
VTI
432
434
-
393
NOT
439
101,0
93-7
RS-5
n.A.
74,2
16.0
70,4
12.9
75.7
Insurance
588
538
517
533
you
520
529
525
530
100,0
100,8
97.9
100,9
96,4
96.6
%)
99.4
100.0
fail metale
$
en
Z
209
as
BY
to
as
aye
100,0
52,2
2
The
RA
16.9
0,6
ISI
(2)
formal - total (aminiting
1,204
3,313
3,531
3,289
3,019
3,387
3,140
3,676
3,76
100,0
103.4
104.0
102.7
100,5
103,0
100,6
was
137.5
Pateral
air
#73
so
a
6%
9k5
1,052
1,170
1,200
100,0
101.3
102,1
100,2
99.3
109.4
122,0
135-7
139.4
Rele
20
E
293
300
306
320
340
399
367
100,0
105-7
III.#
113,6
115.9
$21.2
129,0
136.0
139.0
City
TL#
TS#
TO2
-
9a0
as
3
67%
RT
100.0
102.8
97.8
95.3
65,1
69.6
30,4
93-9
97.1
Downg, termsity and starr wills
ase
277
273
m
250
264
270
285
250
100,0
103.0
101.3
100,7
96.7
98.1
300.4
105.9
110,0
Malls
1,031
1,146
1,143
1,170
1,157
1,157
1,169
1,188
1,200
100,0
105.0
108.4
107.2
106.0
106.0
1/7/1
108.5
110,0
Survice total
5,439
5,605
5,178
4,67%
4,515
4,936
5,177
5,156
5,7%
100.0
96.0
4.7
80,0
17.3
as
я.7
9th:
90-5
Professional service y
1,00%
1,041
1,08%
994
982
595
1,031
1,076
1,118
100,0
MIL.7
100,0
97.5
95.9
91.3
100.7
105.1
109.2
Personal service y
1,704
1,699
1,551
1,425
4,376
1,555
1,60
477⑉
1,04
100.0
96.4
91.0
q.i
60,8
91.3
97.5
104,1
147.6
increasive - - %
-
2%)
195
171
166
180
195
230
220
100.0
90,5
?
as
62,9
68,2
73.5
19.5
03.3
service
2,257
2,108
1,588
1,60
1,540
1,740
1,85
1,99
2,075
100.0
95.4
63.7
The
as
n.a
N.I
66.5
91,5
Business service of
24
239
&
197
15%
as
an
am
as
100.0
96.4
08.7
BA
76,2
0.5
as
B.9
067
service Il
jaz
325
296
%
257
as
USA
2T%
20
100,0
95-9
$6.5
76.6
15.3
NJ
77.2
60,1
13.9
total
1,512
4,499
1,30
1,257
1,268
1,306
1,131
1,389
1,432
100,0
96.5
90.2
O.E
033
ICI
88,1
91.6
99.7
V
Dates an toglate repaid family labor,
lave and seriate Financial institutions which lane - included la
of
Instados religions, private stational, ourstive, 1ngal, and maineering (crealting) activities.
Sobels, residents, immiriss, cleaning, sal dystag apartased houses, affice bulldings, are.
Includes with and addition, partis instructing, and all other activities primartly providing elerialment,
Instades agreeme, trade Question of Customer, - other enterprises service business establishments,
Includes markets inhartries restaring services - nailes, signiors, misles - other grandities.
18856
Regraded Unclass
TABLE 35 TOTAL CORPORATION - IMPLITERS, = won, (579-37
- Cla williams of Astiars)
Percentages of 1979
1525
1930
1952
1952
BD
1934
1935
4936
4937
1929
1930
1931
1952
1933
1335
2936
1937
Total compensation of employees 1/
51,508
$7,550
40,200
51,565
0.96
39,052
36,679
41,906
46,728
100,6
92.)
74.0
a.,
57.5
E
71,2
as
947
Total minim - mgss
50,57F
46,565
39,106
30,466
77.963
31,656
AR
38,071
w.sa
100,0
98.1
71-3
60.8
55-3
8.6
75-3
-
Agriculture total
1,313
1,112
802
50
$
500
you
iss
yes
100,0
0.7
as
39.4
36-9
35.5
49.7
%.)
Staling - total
1,500
1,337
-
5
E
R
BAT
3,050
1,297
100.0
47-3
VA,0
E
58,5
as
70.0
Astimate
257
292
200
3/96
120
15%
136
18)
182
400,0
96.1
77.4
56.0
49.4
29.1
52.3
50.2
WT.5
1
as
532
-
276
297
5
way
515
555
100.0
8.6
63.1
13.5
Mill
{
G.F
51.7
serai
232
DE
130
5%
57
76
99
1M
206
100,0
63.0
51,9
27.5
as
35.4
N6.7
05.1
57.2
151
139
3/77
$
=
79
E
104
119
100.0
98.1
10.9
M.D
and
50,3
35.6
3.95
75.8
OLL - -
8
as
145
115
177
143
163
150
195
100,0
68,5
57-3
555
50.0
is.a
SEAL
77-1
total
14.770
12,411
9,591
7,002
7,034
6,01)
5,090
11,232
13,301
100.0
#67
67,6
47.4
NT.6
9.1
67.0
76.0
90.0
Find al Extense
1,50
1,276
1,0%
-
%
1,105
4,139
1,212
1,378
100.0
96.7
R.T
E.T
64.9
0-1
6)
91.8
100%
Puper, printing - passing
1,338
1.99
48
1,083
906
1,00
1,111
1,196
1,342
100.0
100.7
all
E
5%9
67.8
74.3
77.#
67.3
Butties -
2,700
2,054
1,90
1,109
1,50
1,60
2,06
a,un
1,79
100,0
43.6
73.4
53-3
563
M.E
The
16.0
0.7
unterriale - functure
1,906
3,364
135
yy
572
na
-
1,018
1,190
100.0
80,2
SALE
32.7
33-5
41.7
09.4
59.7
10,0
AND patrice reflate
TKL
PAY
E
bity
I
580
621
673
as
100,0
35.5
19.6
a.
as
2
25-5
6.1
105.6
Motal - artal probants
1,550
4,50
we
1,960
1,993
2,8%
3,163
4,15%
5,574
100,0
n.º
56.4
JLA
35-9
50,4
a
M
2
- müher
567
5
32%
254
r/o
yes
STR
5
100,0
IR.7
160
41.3
N3.6
60,0
BA
75-3
NLC
Central abdisistrative affice
(co
510
507
300
50
376
YIT
was
54
100.0
101.7
as
61-5
9-5
52.7
a
72.5
63
Contract - total
3,7%
2,458
1,00
1,00g
5
-
TEN
1,065
1,314
100,0
are
37.0
29,4
%
26.1
39.1
7
total
i
5,152
3,761
$
2,606
Les
3,113
3,493
1.00
100,0
91.1
77.1
if
23-3
56%
65-7
(2-)
The
Box radirants, Allan - -
3,007
1,80
2.333
1,686
450
1,000
1,01
2,057
2,291
UNI.O
in
(L)
2
-
52,4
567
43-7
a
Enter inseguriation
472
On
37%
9
E
328
376
454
526
100.0
93-9
79.2
60.6
967
2
75.7
32.9
109,3
Bother transportation - public
to
67%
5
54
-
509
550
5W
on
100.0
100.5
93-3
77.3
67.0
76.4
OJ
2
ID
Brast
My
5
30
a
22
285
292
yes
32%
100.0
93-5
GLD
564
a
43.6
61,1
70,6
Mr transpertation
E
a
18
18
1A
14
18
as
$
100,0
157.5
175.0
175.0
1750
175.0
ms.o
162.5
300.0
Bige lines
YI
$
39
30
30
35
34
42
4
100,0
68.0
the
60.0
60.0
70,0
760
@,0
94.0
Bactria 11ght at persible -
- - unal
500
50
-
39
360
MY
NO)
I
V9A
100,0
100
96.8
PM
T20
77.4
as
R.I
75.5
Bericis 11484 má paral
394
412
370
X
-
TAG
304
330
365
100,0
105%
96,7
71-5
66.5
73-2
17-1
94.1
-
109
209
soil
%
100
-
any
206
as
100.0
100.0
97.2
M.S.
51.7
9.5
9%5
37.2
LOL#
Commission total
707
717
as
53%
9
400
50%
543
610
100.0
101.00
90.7
75-5
W
89.0
T1-)
The
is
Tringhouse
TO
597
SE
E
353
7
4
F
518
100,0
101.2
90.8
77.6
56.6
70.0
12.4
17.0
67.3
Napes
AT
120
203
N
a
TO
77
4
92
100,0
102.6
#9-7
Do
38.1
a
(1.8
14.6
frade - total
4,079
1.455
6,713
5,06
1,50
5,09)
5,293
5.631
5,711
100,0
95-2
$3.1
as
561
63.0
65-5
eur
The
trate
5,016
1,80
5,89
3,303
2,901
3,156
3,210
3,477
3,118
100.4
95.4
14,0
19
2
3
04
67.5
Bulmais trute
3,003
2,0%
2,449
1,313
1,588
1,537
2,08)
2,204
2,453
100.0
95.1
a.s
8.7
36.2
as
60.4
73.4
a.o
Times total
4,531
2,362
2,1/M
1,554
1,709
1,805
1,880
2,00
2,000
100,0
93.3
#3.3
73-5
67-5
(1.)
(%)
OLF
as
Beiding &
Log
97%
-
The
730
m
721
THE
es
ADOLE
94.7
That
59.6
The
TV.)
74.6
67,5
Inversace
-
305
you
E
756
150
F))
an
529
100,0
Loss
97.4
F).4
O.F
06,1
2
100.5
- whote
57P
I
en
BY
237
zn
399
350
100.00
77-7
61,1
3
VLD
in
2
a
71.9
- - bital
4,75%
4,360
4,970
4,177
VRI
9,501
4,832
5,136
5,810
100,0
103.5
103-7
9.6
30.2
969
100,4
109.1
112.#
Federal y
1,7%
1,405
1,300
1.35
1,70
1,417
1,681
L,W97
1,918
100.0
103.3
97.2
01.3
101,4
1862
435.7
137.8
Plate
yes
JR
309
389
373
jes
455
Mary
100,0
106.4
112.6
112.3
109,3
us.)
un,
131.3
157.1
au
1,157
4184
1,138
1,122
934
5
978
1,0%0
1,100
100,0
1023
97.5
%)
80,8
O.T
6.6
2
-
tomatip - signe with
376
3MF
yes
371
351
337
252
570
3%
100.0
LOZ.T
10.6
100.3
m,0
#1.6
33.4
96.9
10%)
Public
1,511
1,90
1,61
4.5%5
1,40
1,409
1,400
1,470
1,505
100.0
USI
Mi.)
1/24)
36.9
11.1
D-F
97.0
100%
50143
450
6,107
5.774
4,707
3,70
5,150
4,534
4,950
5,391
100.0
93.0
7
at
57.0
6,4
en
The
N
Professional service 5/
1,712
1,041
1,17F
4,075
yes
yes
1,039
1,00
1,161
100,0
102,4
97.8
W.T
2
a.
%
91.1
your
Personal service 5/
AUS
1,980
1,737
Lm
1,200
1,47
1,575
1,750
1,981
100.0
93-7
8.2
as
50
0.5
The?
no.0
Six5
Recreation - - 5/
426
-
3
$
-
26)
334
141
390
100.0
9.f
T1.0
61.1
59,2
52
06.1
The
41.6
service
1,800
1,500
WE
-
T25
AGE
99°
1,118
1,58
100,0
A.1
3
456
lour
M.1
35-9
42.1
73-F
service 1/
5
5
E
ДМ
299
325
324
542
376
100,0
2
-
a.s
67.1
67.0
That
They
EAPYIDE s/
an
456
NOS
311
4)
297
you
522
395
100,0
95-6
a
use
57-2
inc.
(3.3
as
The
- total
2,197
2,0%
LTR
I,WA
1,110
1,430
1,505
1,56
4077
100,0
2
40,7
43.9
98.6
66.4
ass
My
1,48)
1,430
2,460
1,060
-
-
-
-
,
-
-
Replayers' " Social Secrity
,
?
-
any
New Labor Increase
227
yes
1,000
490
$
40)
4ml
1,90
1,117
300,0
105,7
USA
OLD
192.9
2
USA
119-2
>
milarine - - soft-relled - compensation I'm lijeries, grand under formal private plann, - of employers la Searity, the Informal
dissification - au salartes - mgs.
Sexe not lociale certain miscellanams financial institutions - - Unitaled le
Inco - include -
w
Include religions, primate minding Ingal, sumeting - addering (mmiting) activities.
Includes classing - trans apartment houses, and office willing, -
Insure production - whilling rella instructing - ail new activities primarily providing
Insure straptising Inste inashere of COMMITS, esd enterprises service budges
INVOICE wise information redering sole " miles misles - visit
1182
Regraded Unclassif
TABLE 16 na carents taxes - REPLATED (Pail-time 39 SEVESIONS
Absolute Instructions
of 1989
-
1999
1932
1932
1933
1534
1935
1936
1937
1929
1930
1931
1932
1933
1934
1935
1936
1937
this custom of employees
$1,151
01,417
0.39
81,171
81,077
$1,129
0.179
0.235
a.ns
100,0
97.7
91.6
NO.7
762
The
a.)
is
90.7
Agriculture V - total
asso
756
576
439
was
447
was
B.
50
NO.0
90.9
TL1
59,2
VOLF
2
5-9
as
71.6
Ristag -
1,465
43
1,353
953
938
LOAT
1,006
1,188
1,277
100,0
53.0
74.7
3
as
n.s
74.1
a
02
1,661
1,666
LSO
1,379
1,371
1,489
1,346
1,37
1,303
100,0
1003
92.7
a
as
a
as
79.9
That
Brotone onl
1,313
1,1ke
950
70
757
988
ST2
1,107
1,150
100.0
B2.0
70.8
%
56%
The
P.O
as
#3
Estal
1,00
45M
1,2%7
99
965
1,00%
1,115
1,227
1,457
100.0
500
76.2
as
a
6.6
75-0
n.s
Investal
4399
439
4,150
900
677
617
953
1,20%
1,209
100,0
95-9
G-1
BJ
2
3
as
29.2
46.7
al and pm
1,6%
1,68
1,50
1,997
1,267
1,300
1,372
1,457
1,50
100,0
101.#
969
SLA
16.6
78.6
B.O
95-7
Letal
1,907
1,405
1,393
1,112
1,050
1,118
1,180
1,756
1,383
100.0
91.2
09.1
The
MS
2
The
OJ
92-9
Post má
1,523
1,536
1,200
1,120
1,036
1,07%
1,104
1,161
1,275
100,0
99-5
95.2
2
2
as
0.1
%
Dept. pristing - politically
1,60%
1,00
1,100
1,59
1,401
1,446
1,999
1,551
1,650
100.0
100.0
96.6
as
The
NJ
0.00
050
9a5
Tertiles at looller
1,193
2,114
1,047
dies
816
RES
953
939
-
100,0
SLA
q.4
10.9
a
M
75.0
That
2
Destruction miterials - fundings
1,317
1,299
1,160
90%
A)
-
%
1,053
1,151
100,0
97.6
as
E
as
E
72.5
80,0
as
Checkede and primise reflated
1,500
1,514
1,157
1,276
1,18
1,222
1,275
1,340
1,599
100.0
100,4
96.6
AS
71-5
no
As
in
101,4
total and main?
1,68
1,60%
1,409
1,121
1,087
1,198
1,307
1,452
1,811
100.0
952
as
as
The
77.5
as
550
at váler
1,508
1,512
1,375
1,153
1,075
1,165
1,239
1,133
1,42
100,0
113L3
31.2
The
The
77-5
52.2
85,4
9%3
dedini officers
2,882
2,907
2,76
2,2%
2,316
2,526
2,371
2,598
1/0.0
100,9
35.2
(b)
7%0
a
NO.7
is
M
lostract contration total
1,65
1,850
L709
441
1,185
1,200
1,207
1,369
1,5%
100,0
57.0
7900
625
65.3
PLT
The
an.)
Presportation total
1,648
1,617
1,59
43D
1,305
1,371
1,472
1,541
1,603
MILD
561
99,8
The
a
B.3
93-5
97,3
Place millmais, and mores
1,7M
4p
LAB
1,460
1,40
1,9%
1,646
1,22)
LTR
100,0
943
99.5
B-5
as
all
962
94.6
SOLA
Natur
1,92
1,630
1,98
1,369
4,231
1,370
1,936
1,666
1,70
100,0
94.7
96.7
as
750
05.6
93-5
1065
DALE
Motor insugariation - public
1,2%
I,M
1,212
1,073
550
1,045
1,044
1,082
1,137
99.5
96.7
2
16th
mL9
GJ
#L5
90.7
Street release
1,707
1,709
1,680
1,537
1,356
1,473
1,57
1,350
1,94
100.0
100.1
SKA
SOLO
as
as
as
95-3
%5
Air insuppriation
2,676
4.30
2,373
2,58
1,205
7,147
2,190
2,16
2,150
100,0
065
W.T
BJ
a
a.7
as
0.5
AL)
Plge Mame
4,972
1,000
LA
1,730
1,476
1,557
1,01
1,06
1,055
100,0
93-5
93.1
97.7
M
750
0.7
M
961
I 1 1 Legal Devide 1
pas total
1,45
1,80
1,160
1,307
1,519
1,340
1,385
1,447
1,503
100,0
MIL2
MIL,2
KJ
10.00
50-9
%
9LZ
UPLE
Eisettle light - -
1,413
1,436
LNS
1,99
1,254
1,20
1,339
1,30
1,417
100.0
10L5
VIL3
95d
SLT
9L7
2
37.8
10Ag
instrument -
454
499
1,560
1,99
1,525
1,534
1,342
1,5%
1,602
100,0
100.8
1026
S.)
97.9
965
95.0
The
LOLE
- total
1,350
1435
1,423
1,57
1,232
1,317
1,352
1,451
1,5M
100.0
103.2
1053
962
Shall
57.4
143.0
DIS
113.3
Telephone
1,50
1,403
LVD
1,371
1,279
1,341
1,460
1,530
1,616
100,0
103.0
105.2
55.3
9-3
100,0
105.T
130,8
117.0
hisping
1,10
473
1,250
1,110
1,033
1,050
1,00
1,132
1,189
100,0
1003
105,5
90.9
2
as
91.9
9-1
97.3
Trade . total
1,551
1,543
1,491
1,300
1,167
1,243
1,283
1,315
1,380
200,0
99.5
96.1
2
22
a
R.T
2
16.0
train
1,351
1,355
1,514
1,150
1,033
1,099
1,117
1,145
1,26
100.0
98.6
%.0
05.1
75-9
SLT
a
ALL
01,5
trede
2,029
2,017
1,930
1,607
1,504
1,579
1,600
1,709
1,7/8
100,0
99.4
is
a
761
02
the
WT.6
Name - noted
1,05
1,70
1,705
1,588
1,504
1,547
1,692
1,725
1,7%
100,0
97.1
50,9
a
0,0
2
2
90,2
57+7
X how
1,182
1,82
1,79%
1,774
1,730
1,740
403
1,68
1,90%
100.0
mill
97.4
963
939
9%7
99-5
vz.)
105.0
Insurents
1,751
1,765
1,7%
1,557
1,486
1,558
1,620
1,679
1,746
100,0
100,0
99.4
a,)
M
PLO
51.9
95.9
95-7
- astate
1,971
1,658
1,457
1,20
1,110
1,163
1,390
1,577
1,556
100.0
2
73.9
w
563
90
in
80,0
PUO
invoiced - total (sminting with-rattel)
1,496
1,207
1,452
LAST
1,343
1,353
1,380
1,424
1,437
100,0
100.1
99.7
57.1
M
SALE
9,1
95.0
Felami
1,022
1,632
1,60
1,50
1,427
1,503
1,598
1,60
1,335
100.0
110,6
101.1
37.0
as
52-7
965
99-9
Pass
1,296
1,305
1,312
1,201
1,290
1,200
1,200
1,251
1,778
100,0
100,7
96.f
N
50.6
9%1
36.6
N.6
Other
1,6%
1,5M
1,50
1,60%
LVS
Lie
1,504
1,543
1,50
NO.0
99.6
95.4
99-5
M
as
9%6
9500
97.3
immaile - starr mile
2,397
1,393
1,401
1,393
1,275
1,775
1,297
1,302
45%
100.0
99-7
100,3
Y5-7
923
945
52,8
93.0
20
Palle should
1,386
1,3M
1,371
1,320
1,265
1,718
1,255
1,2%
1,00
MILO
1001
7
952
9a)
as
2
M
9hd
Service - total
1,120
1,090
1,018
8
529
-
476
908
96%
300,0
57.0
90.6
6.1
TM
75-5
17.9
2
15.9
Informational cervice 1/
1,143
1,192
1,150
1,078
1,006
356
1,007
1,0%
1,039
un.o
INLE
97.2
961
no
AT
20
15.7
ET.1
Personal service y
1,2%
1,200
1,120
960
#72
sur
-
349
1,0%
100.0
%.7
90,2
17.5
70,5
The
76.6
75-7
as
Inspection - - 5/
1,811
1,80
1,00
1,7M
1,563
1,90
1,649
LAS
1,775
WILD
1011
102.2
945
are
2
91.4
96,0
service
797
12%
6h
5%
3
32
502
638
100.0
50,8
na
63-9
-
as
46.4
The
80,1
Justage service fill
1,980
1,940
1,90)
1,721
2,536
1,609
1,611
1,673
1,747
101,0
99.6
97.6
07.2
TALE
2
as
2
as
carries I/
1,397
1,331
1,354
1,189
1,061
1,19
1,195
1,179
1,237
100,0
95.6
56-9
Fall
750
2
a
a,0
as
total
1,45%
1,422
2,301
1,1/8
1,033
1,095
1,1%
1,214
1,311
100.0
ST.#
09-5
The
2
The
0.5
90.2
have of Labor Statistics
Issue
100.0
97.5
BLS
a
The
TM
a
R.I
AT
Does and instade - funis laber,
ant Instado finantal institutions eta here Sees instated is
Instrudes religious, private additional, currelve, lagal, scompting - englowing (moniting)
Indiades totals, Lendries, cleaning - tystage apartance Appres and affice who
Includes settem and setition, rulle - all order addrities primarily providing
Instades advertising agristion, unde completions, Daten of - and other entergrises serving budgess viablishments,
Instruise varies Industries retering services la stemiers, estdom and alber -
11831
Regraded Unclass
TAXES 17 - SMID OF MATARIED RELOTES AIR - num, - INDUSTRIAL DIVISIONE
(Za thesents)
1989
1930
1931
1932
1933
1934
1935
1936
1937
Selected infustries:
Total salaried employees
2,191
2,143
1,903
1,517
1,452
Total vago earners
12,204
10,784
1,601
4,961
1,65%
7,465
1,775
1,316
7,917
9,052
5,560
10,285
11,08)
Malap
Salaried employees
ST
55
60
R
50
top earners
963
50
#99
T76
55
55
e
3
563
TR)
199
633
3
manufacturings
Salaried employees
1,491
1,501
1,322
1,099
1,019
1,16t
servers
4,309
1,003
7,2%
1,313
6,118
1,key
5,199
5,757
6,723
7,159
Centract construction:
7,626
4,233
Salaried employees
163
164
LES
91
54
a
6?
1,374
6
50
Tage same
1,15
621
97
501
515
557
Transportation 1/1
695
167
Salaried employees
471
446
396
337
333
317
333
323
the eargers
1,663
1,466
336
1,246
1,000
996
1,040
1,045
1,153
1,20s
Percentages of 1529
Total salaried employees
100.0
99.6
#6.9
72,0
66.3
T3.1
15.7
81,0
57.4
Total wage earners
100,0
88.3
73.4
61,1
a.9
The
78.3
a.)
90,8
Salaried employees
100.0
101.5
19.6
14.6
77.6
16.6
a.1
16.6
54.0
Tage earasts
100,0
93.4
80.6
67.0
64,1
a.j
43.0
16.5
90,0
Manufacturing
Salaried employees
100,0
100.7
N.T
Del
64.3
77-9
m.o
88.1
95.6
tage sursers
100,0
87.1
73.6
a.s
69.3
80,9
IS.#
91.0
99.1
Destract constructions
Salaried employees
100.0
103.1
16-1
55.8
41.7
39.3
41,1
30,3
56.4
hape sursors
100.0
91.0
a.
46.9
39.3
40,4
43.7
St.6
60,8
Transportation Vi
salariel employees
100,0
St,7
n.1
The
64.5
91.3
H.I
64.1
IV
hp 0825471
100.0
09.4
M
51.6
20-9
a.)
a.l
THE
72.6
V Includes only state milmide, Pullams, railing express, and valor transportation,
TABLE 14 - SALARIES MD KALES PAID, RELECTED INDUSTRIAL DIRECTORS
(Is sillions of dellars)
1929
1930
1931
1932
1933
1934
1935
1936
1537
Saleried Industries:
Total salaries
5,606
3,615
4,694
3,403
2,947
3,379
3.574
3,936
3,993
Total vages
17,093
14,214
10,583
7,243
7.272
9,019
10,218
11,909
14,037
Minings
Salaries
18.
157
134
100
5%
130
109
120
132
hages
1,347
1,161
430
563
577
m
as
934
1,065
Mandacturing
Salaries
3,980
4,045
3,364
2,44
2,128
2,493
2,636
2,85
3,431
fages
10,790
8,766
6,627
4,558
4,906
6,319
7,056
1,9%
9,990
Centract senstruction:
Salaries
476
50%
370
200
161
1A
176
234
270
Ruges
2,846
1,935
1,2M
709
51%
531
590
631
1,043
Transportation 1/1
909
939
as
639
564
as
653
696
760
LW
1.59
1,799
1,579
Rages
2.720
1.351
1,50
1.111
1.173
Percentages of 1989
Total salaries
100,0
100.7
0.7
a.1
50.6
so.)
of
70,8
81.9
Total vages
100.0
10.1
61.9
48.9
kt.5
50.0
59.0
09.7
N.1
statege
100.0
97.5
B.I
a.1
3
67.7
The
BR.O
Salaries
100,0
06.1
a.e
41.8
E
57.8
60.7
09.6
79.2
Tages
101.6
as
as
53.5
at
66.8
78.5
06.0
Salaries
100.0
Regues
100,0
61.2
61.4
E
15.5
58.6
67.8
The
92.8
Overtreas constructions
100.0
105-9
TT+1
50,4
33.0
30.5
37.0
%
Salaries
Tages
100,0
65.8
33.6
35,1
a.,
83.6
K.J
37.0
E
Transportation 2/1
Salaries
100.0
94.9
0.1
a.s
57.0
62.0
66.0
70.4
16.0
Tages
100.0
$6.4
@.
49.2
47.0
51.6
57-3
66.8
73.0
V Includes only stem relliveds, Pullows, valuey agreese,and ester transportation.
18856
TABLE 19 - ESA CAPITA AND - Chill-fiee Aprivalent), EXLACTED INDUSTRIAL DIVISIONS
198
1930
1931
1932
1533
1934
1935
1936
1937
Relacted inivatries:
Total salaries
R.590
#2,586
62,467
$2,171
82,030
$2,111
1,400
3,314
62,156
00,217
1,181
$1,350
Total april
970
918
995
1,069
2,158
1,056
sixing
Salarias
2,423
2,317
2,154
2,006
1,611
LANE
1,983
1,399
2,060
1,291
1,059
2,050
Rague
R2
E
se
1,00%
1,127
une
Salaries
2,570
2,00
495
2,223
2,067
2,146
1,1%
1,299
2,190
1,211
2,407
1,083
#77
2
540
1,01%
1,094
1,2M
constructions
salaries
2,926
3,003
2,951
2,64
2,367
2,540
1,620
2,016
1,75
4,9%
tagys
1,670
1,519
4,320
1,025
1,032
1,050
1,197
1,360
Transportation W'
2,101
8,105
2,00€
1,496
1,806
1,935
2,086
2,170
2,161
1,630
1,583
1,510
1,301
1,276
1,344
1,465
1,50
1,630
Percentages of 1929
Total salaries
100.0
101,1
1%
a.s
79.5
R.5
A.)
46.6
93-1
Total wages
100,0
94.2
a.i
69.3
65.6
71.1
16,4
e.)
90,4
sining
Salariés
100,0
95.6
92.6
en.y
74.7
77.0
a.s
PM
K.C
lages
100,0
92,3
76.4
62.)
62,2
70,4
Del
NO.6
67.1
Jalaries
100.0
100,9
95.3
43,3
74.2
80,4
00.7
R.)
90,1
Tages
100,0
93.0
RM
67.1
0.6
70.4
The
a.2
93.0
Destruct construction:
Balarise
100,0
108.6
100.9
90.3
80,9
5.1
09.5
96, E
100,6
Pages
100.0
3%.7
86,1
74.5
58.1
545
60.0
67.9
77.1
transportation
Salaries
100,0
100,2
99.3
50.3
N.O
32,1
99.3
103.3
107.8
Rague
100,0
97.1
92.5
79-8
N.A
R.5
91.3
57.2
100.9
of Labor Statistics
index
100.0
97.5
B.1
80,2
16.8
79.1
SL.1
$2.1
a.7
V Includes mily stema railroads, Pullam, railway express,and miss imasperiation,
SAMA 20 - COMPENSATION OF COMPURATE OFFICERS, m INSURTRIAL DIVISIONS
(to thousands of dallars)
1929
1930
1931
1938
1933
1932
1932/
1935
Total impensation of corporate officers
3,336,799
3,138,046
2,697,904
2,132,597
1,994.961
2,173,058
2,173,058
2,544,953
Agriculture and related infostries
25,391
26,099
15.942
16,202
15,152
17,047
16,900
18,618
sisteg
56,310
50.056
44,976
38,411
57,608
42,911
42,570
2,09
Electric light and passe, sol manifactured -
17,082
17,232
16,182
14,926
13,611
16,443
13,567
16,009
Mandacturing
1,172,888
1,095,929
935,348
754,148
706,412
771,002
753,805
$12,046
153.953
158,401
129,629
68,061
67,752
68,688
69,738
16,576
Distract construction
Transpirtation
74,963
72,041
66,909
56,180
56,777
61,22%
62,677
64,7%
Communication
5,900
4,372
3,958
2,750
2,429
4,023
3,877
4,991
Trade
957,239
888,319
775,307
616,341
600,299
671,507
664,027
Pissace
497.705
470,000
390,561
303,654
257,451
260,305
261,416
270,295
Service il
213,652
218,694
195,200
157,814
186,626
163,718
165,499
182,309
Kissellanema
146,728
138,724
120,172
102,101
50,86
95,903
99,112
110,304
Persontages of 159
Percentages of 1534
100.0
107.9
Total compensation of corporate officers
100.0
2
80.5
63.9
99.4
65.1
Agriculture and related ininstries
100.0
94.8
78.7
63.8
59.7
67.3
100,0
110,2
Maing
100.0
90,3
79.9
E
56.1
16.8
100.0
102.6
Detrie light et power, 1 sendactured pla
100.0
100.9
94.7
67,6
13.1
26.5
100.0
117.1
100.0
93-5
73.0
6t.6
50.3
DUE
100.0
107.1
Contract construction
100.0
96.6
79.1
53+1
41.)
41.9
100.0
109.1
96.4
a
n.a
75-7
EL.T
100.0
109.7
Transportation
100.0
100.0
74.0
60.2
46.7
41,1
68.1
100.0
B.)
Communication
Trade
100,0
$2.8
0,0
as
62.7
10,2
100.0
108,9
Please
100,0
54.4
78.5
61.0
51.7
52.)
100.0
103.4
Service
99.6
86.9
71.8
56.8
14.5
100,0
110.2
100,0
Miscellansons
100,0
94.9
0.9
69.6
61.9
65.4
100.0
110.4
1/
*Other finance" included La
I/
Industrial classification completation then corporate are the LA the first of 1934 and writer part, the lask of
Includes "Mádio of - officers La - for 1934 and for years are hand comparability - 6 different is .
5/
remit Includes of $2,446,000 . shange is of the compensation Service M of of afficare 1934, paid - establishments - 1933 internal setivity amid set be determined.
owl
TAXIS zi, or MISSES, at
(is thousands)
-
1930
1931
1932
1933
1934
Total
5,997
1939
1936
9,947
10,018
1937
10,058
10,279
Aptecitions
6,00
10.557
6,290
10,7hi
6.312
10,270
MAINE sistract construction
5,500
10,921
DAS
age
6,700
age
6,730
as
6,00
6,810
433
6,810
Preseportation
an
253
ass
258
206
2NO
26
204
Trade
BY
230
1,005
1,00
1,252
1,204
236
1,198
PB
1,20
278
Finance
R
T1
is
42
&
1,351
4390
service
1,214
63
1,392
1,232
1,242
633
1,2%
65
1,287
63
8
622
510
4,365
1,409
591
1,40
595
1,306
608
as
62
as
of 1929
Total
100.0
99.9
100.2
100.5
102,8
105.4
Agriculture
100,0
107,9
100,0
100.7
109.1
101.4
103.3
Mising contract construction
100,0
106.5
92,7
107.3
A.A
use.)
77.1
108,3
74.0
106,3
transportation
100,0
102.2
75.6
96.1
76,2
90,1
77-5
Train
INC.9
89.5
73.4
100.2
97.4
99.0
103.5
113.6
36.7
95.7
119.)
Flowing
100,0
94.6
203-7
94.4
104.5
111.6
95.8
111,1
86.9
Service
100,0
101.5
$7.5
102,3
$7.5
102,6
n.s
106,0
51-7
100,0
112,4
94.3
117.7
96.4
122,1
93.4
128,1
54.0
95.1
96.7
96.3
54.7
TABLE 22 TO CAPITA of amounts, If INDUSTRIAL DIVISIONS
1929
1930
1931
1952
1933
1934
1935
1936
1937
average vithirawal
81,230
$1,160
# 702
# 761
1 63
- - #
1
Agriculture
T18
653
512
390
35
vising, and enstrues overtruction 2,600
394
432
NA
2,752
2,279
5%
1,725
1,431
Prospertation
1,507
1,228
1,561
1,222
1,8%
1,18€
2,05%
1,044
935
Trade
993
1,007
1,7M
1,633
1,035
1,091
1,511
1,338
1,140
Please
1,151
1,255
4,203
4,142
1,319
1,400
3,710
1,526
3,539
Service
3,763
3,828
2,306
4,141
4,40
1,214
1,97%
1,603
1,464
Miscellaneous
1,501
1,589
1,711
2,225
1,00
2,129
1,03
4,473
3,372
1,458
1,50
1,725
1,8%
Percentages of 1929
Average
100,0
94.3
80,0
63.7
57.1
a.)
66.1
72-5
77.7
Agriculture
100,0
30.9
143
54.3
50,0
55,4
60,2
9.6
71.9
Mising, end seatract dosstruction
100,0
102.7
$5.0
St.)
2.4
36.2
56.2
57.4
Transportation
75-9
100,0
99.5
96.7
85.0
76,1
80.9
Q.0
AS
B.S
Trade
100,0
95.1
89.1
17.6
66,4
as
T3-6
75.0
a.s
Pizasor
100,0
96.7
#5.6
(2.1
62,6
0.9
6.4
96.7
103,2
Service
100,0
96,2
45.6
a.s
63.5
179
as
The
11.5
100,0
95-7
C.I.
66,2
E
66.0
70,2
77.1
a
TABLE #3 - DIVIDED AND INTERNAT PATIENTS If INDUSTRIAL DIFINIONS
(is millims of dallars)
1929
1930
1933
1532
1933
1934
1934
1935
1936
1937
Total divident and laterest payments
11,331
11,396
9,913
8,017
7,068
7,744
7.7%
7,812
1,101
9,563
Agriculture
327
299
25%
204
205
207
207
205
16
BY
Mising
as
290
181
119
111
152
234
226
311
376
Destric light and power, and -
m
9W
931
#95
756
836
199
760
TAG
806
2,745
2,057
2,119
1,308
1,190
1,M3
1,360
1,741
2,770
3,240
Contract construation
D
#7
56
35
30
a
22
09
37
53
Presportation
1,412
1,341
1,153
945
my
BED
310
957
937
350
Commission
258
E
285
25)
26)
25%
258
254
270
255
Truis
68
%
4a9
259
205
319
372
NYS
6%
en
8,691
2,714
2,642
2,201
1,02
1,621
1,84
1,766
1,765
4,743
Deverement
1,09)
1,074
1,066
1,173
1,206
1,314
1,314
1,257
1,501
1,369
Service
3k8
36+
283
197
120
129
5k3
156
170
179
Wiscellanamia V
5%
553
473
NOS
297
319
320
-31
-356
-362
Personages of 1925
Percentages if 1939
Total divident and payments
100.0
100,6
67.5
70.8
62.6
60.4
100,0
100.8
110,5
123,4
Agriemiture
100.0
09.2
T1-1
Q.A
52.7
63.3
100.0
98.1
LOA.)
104,7
Miaing
100,0
70.6
44,0
29,0
27.0
37.0
100,0
97.4
134.9
180.1
Electric light and prove, - B4
100.0
122.4
100,8
116,1
30.1
104,7
100,0
100.4
103.6
105.2
understaring
100,0
102.6
76.1
47.0
42,7
53.2
100,0
128,0
203,7
238.9
Contract smallmation
100,0
107.4
61
43.2
37.0
27.2
100,0
131.0
E
240.9
Transportation
100.0
97.8
0.7
69.8
0.1
as
100.0
106.3
103.0
106.4
Communication
100,0
115.1
115.7
108,8
110.5
110.9
100.0
100,0
100%7
100.7
Trade
100.0
90.5
72.0
agai
36.1
51.1
100,0
128.0
187,1
185.0
Finance
96.2
e.,
67.3
67-1
100.3
95.6
94.4
34.3
100.0
100.9
Deversement
100,0
57+7
54.4
10).1
119.6
100.0
95.1
99.0
100.2
Service
100,0
104,6
B.J
56,6
34.5
31.1
100.0
109.1
116,9
1754
V
100,0
101.1
51
73-7
54.6
54.6
100.0
-
V Includes International of Property Issues,
Intinated of dividends - insured is the - orlam for 1934 and for yours are DE . different infortrial
alasstfication that are the actionize is the fini cilms of 1934 and eartier years, This Last of companility is . reali of
a. shange LA the Agt of 1934
18016
TABLE A - PATIENTS RI INVENTIAL Invisions
(Is Millins or dollars)
159
1930
1931
1932
1933
1932
1934
1935
1936
1937
Total cividents originated
5,978
5,001
4335
415
2,209
2,793
2,793
3,038
20
4,291
13
5,010
Agriestiture
11
5
-
365
2
17
17
19
2
Mising Battria 11ght - perso, nat es
138
=
E
15
=
565
115
506
Wg
150
185
ayo
1,573
36
339
2,61)
316
1,8%
347
1,116
yes
MA
1,009
5
Datract construction
&
TO
fie
1,29
1,221
1,50
23
2,60
OF
16
3,101
transportation
TM
730
LE
501
5
351
31
,
287
Communication
18f
-
331
348
217
ASA
192
439
5
trade
566
191
497
167
108
386
398
214
as
232
179
R75
119
WSR
Finance
7%1
R33
577
370
97
na
&
terrice
155
BY
15%
as
473
100
56
319
34
350
s
125
61
9
&
b
2
-113
a
-12)
à
b
-361
-786
-750
of 1529
Proventage of 1939
Total dividents original
100,0
97.0
72.5
45.9
37.0
46.7
100,0
106.8
100,0
153.4
65.0
179.4
agriculture
05.0
30,0
05.0
100,0
ktaing
100.0
111.0
66,2
117.6
37.8
197.1
20,5
31.5
100.0
120,0
97.4
Electric ups and power, and understand a
136.0
198,1
176.4
un.,
104.7
74.5
76.5
100,0
100,0
(%)
101.5
109.6
Manufacturing
118.6
73.6
43.3
39.2
50.3
100,0
129.4
Centract construction
100,0
214.7
109.4
259.5
3.9
35-9
31.3
25.0
100,0
153.3
172.2
tragoriation
100,0
266.7
93-7
66,1
44,5
36.4
42.0
100,0
125.9
126.1
Communication
100,0
120,2
157.9
129.8
113.7
111.3
100.0
102,1
110.6
112.5
truis
100,0
87.8
as
37.4
31.6
100,0
129.2
193.4
Plasses
100,0
05.4
192.9
17-5
43.9
28,6
36.0
100,0
106.1
122,1
139,1
Service
100,0
99.4
P
36.1
21,9
29.0
100,0
100,0
116,5
148,1
170,5
54.5
#
#
-
-
*
-
-
1/ Artimies of divident paymis is the second orders of 1994 - for pare are besed - . different interial classift-
catics that are the extimies in the first column of 1934 at earlier years, This last of companibility is . renit of - disage
is the Error 40% of 1934.
TABLE 25 . INTERNET PATIENTS - LONG-TION INT QUOTRATED, ST
(Is aillions of dellars)
1929
1930
1931
1932
1933
1934
1536
1935
1936
1937
Tvtal interest payments original
5,202
5,393
5,295
5,019
4,710
4,862
4,62
4,725
4,652
4,65
Agriculture
507
an
237
198
A
190
190
LA
196
a
stating
&
4a.
E
37
36
37
43
M
e
37
Electric 11ght and power, and numfactured -
350
379
425
447
432
521
312
30
362
347
Nondacturing
210
I
205
192
181
5
139
181
the
342
Contract construction
17
17
14
12
10
6
5
5
Transportation
5
as
@1
634
587
59
563
St
E
"I
5
wgs
Communication
70
17
67
67
R
77
70
66
6:
5
Trade
R
Gell
e
55
6
N3
33
37
R
37
Finance
1,949
1,001
4,851
1,599
1,555
1,587
1,160
1,425
4,393
Devernment
1,099
1,074
1,086
1,123
1,2%
1,314
1,314
1,257
1,301
1,38
Service
193
no
10
142
AS
By
a
93
90
et
Miscellaneous
270
203
25%
ase
252
295
458
5
§
F
Presentages of 1929
Percentages or 1934
Total Interest payments originated
100.0
103.7
101.8
%3
90.5
93.5
100.0
97.8
95-7
95.8
Apriculture
100,0
91.5
17.ª
as
66.1
61.9
100,0
%
103.2
105.3
Kining
100,0
#9.1
93-5
80.4
78.3
80,4
100,0
9T-T
95.3
05.0
Excirie light end power, 1 en
100,0
105.9
118.7
12kg
120.7
145.5
100,0
102.2
97.3
93.3
100,0
116.8
107.1
91.4
55,2
50,0
100,0
115.0
106.5
102.2
Contract cortrution
100,0
100.0
R.I
70.6
S&A
15.3
100,0
125.0
125.0
125.0
Transportation
100,0
103.0
101.1
101.6
98,1
88.0
100.0
93.0
06.5
15.7
Communication
100,0
100.9
95-7
95.7
104.3
110.0
100.0
9%3
67.1
75-7
Trade
100,0
115.3
106,8
93.2
78.0
T2.9
100.0
112,1
118.2
112.1
100,0
105.8
105,9
95.0
$2,0
19.4
100.0
33.9
09.9
57.8
100,0
95-7
99.0
104.7
Generament
100.0
97.7
90.8
12.1
109.7
119.6
Service
100,0
105.6
yes
73.6
44.6
$4.0
100.0
104.5
101.1
97.8
Miscellanems
100.0
104.0
94.1
97.0
93.0
109.3
100.0
105.0
105.7
109.0
V Astimates of interest is the sessal solum of 1934 and for advancement part an beant - & different Industrial classifie
caties than are the payments is the first selam of 1934 and arlier years. This last of comparability is . realt of a -
is the Act of 1934.
17751
Regraded Unclassified
USE YOUR DISTRICT OFFICE
The Bureau of Foreign and Domestic Commerce maintains 33 District and Cooperative
Offices located in the principal commercial centers of the country. These offices are
miniatures of the Bureau. They were established to bring the Bureau into closer con-
tact with the business public and to enable business to utilize its facilities as fully
as possible.
The District and Cooperative Offices contain information on various phases of
both foreign and domestic trade which may be used to advantage by people in sany lines
of business. Our District and Cooperative Offices Managers welcome personal calls by
business people and will be glad to discuss with you problems relating to your busi-
ness. Informal discussions with the managers in their private offices will give them
a better understanding of your problems and will enable them to give you better ser-
vice. If they do not have in their files the information you are seeking, they will
endeavor to obtain it for you from the Bureau at Washington.
Sales copies of Bureau and some other Government publications are carried in
stock by the District and Cooperative Offices. You may ottain your copies direct from
these offices, or they may be ordered from the Government Printing Office, Washington.
D. C. Addresses of all field offices will be found on the back cover of this publi-
cation.
Regraded Unclass ified
BUREAU OF FOREIGN AND DOMESTIC COMMERCE
ALEXANDER V. DYS, Director
Antited Directors: E. ENGLE and F. 9. RAWLA
Washington Divisions and Childre
Administrative Assistant: Julum
Less: America Wrenst.
c. Boy
8. Cullins.
Corresponderes: R. H. Brand.
Netals Palmer, and Minorols: J. Jos. W.
Pervices Peright Harry
Amounts: EL W. Hasa.
District Office: Robert -
Research: Lewil 2.
Partign Trade Statiation: Regist
Melion Pleters: Nathan n. Golden,
Trade:
Chawser.
H. Day.
Irving H.
Repional Information: Locis Das
Business Review: M. Zumph
Editorial: Griffith
Parent Products: Philips 4. Hap.
entsky.
ward.
Mertins.
John H. Parse
Lastler and Mather: Inventi a
Eperation: Horse B. MrCay,
Chemical: Charles c
Permiss Commerce WE-
Helt.
Chief Browd A.
Testiles: Edward T. Plekart
Hais P. Wright.
Tapper.
Mathinery: L. M. list
Plint: W. F. Betri,
Telenes: B. D. HILL
Commercial Intelligment: Frank
Willord L
1. Eldridge.
Finance: Ororresse Jean
White
Preseportation: The 1 Lynna.
District Offices and Managers
Ga.: W. H. Reforeder, ass New Per fifles
alm: Harry 3. White 542 Reliding
Barten, New.: Harold P. Bmith, 1800 Customboses.
N. T.: Jobs J. Lova, City Reft Paticlug.
Charletes, a. are c. W. Marth, Clamber of Comments Brilding
Chinge, George c. Payes, ASS X. Mirbigas Avenue,
Clerniand, Obler Joanb W. Vander Tass, 400 Usine Comments Priliding.
Dellar, Fear M Turns Chanber of Commares Buflding.
Detroit, Richard 891 New Prderal Building.
Resates, fee.: Cherter Brynn, Federal Office Building,
Pic: c. Parter Persona Pederal Bullding.
Income Clig, Ma.: David I White % Chamber of Cramers
Las Angeles, Dellf.: Walter Monatay, 255 Chamber of Omaine Deliding
Levisville, Re: Blatton M. Restley, 417 Federal Building
Memphis, Tres: Naland Fenraine. 139 Federal Halling,
View, Blier X, Bryes, 201 Pederal Office Defiling
Fee Orlesse, La: Harold C. Jackare, 406 Maritime Beilding.
In Fork, If. Y., Jobs F. Blassis, 602 Peteral Office Bullding, Church
and Verify Streets
Ner/ofh, 7a. W. Devel Brows, 400 Pateral Reilding.
Par William M. Park, 1810 Charret Street
Pittsburgh, Part Charles A. Carpenter, 1013 New Federal Bellding.
Partland, Orag.: Reward 2. Waterbury, 315 Hrs Port Office Building.
BI. Louis, Ma.: Cityle Miller, 680 New Feleral Deliding.
Bes Cellf.: John J. Jedge, 411 Contombours
Wark: Philip M. Crewford, ace Federal Office Bellding.
Comperative Ollow
(Under direct repervision of Washington
Clarimatt, Othis, Regal L Gard, Chemier of Commins
Deaver, Osla, Bloaberb Pettus, 201 New
Inflamapolta, Ind., Prancis Wells, Chanter of Commens
Milwanka Wis., IL W. Gebrie, Milweshee Amoriation of -
Mobile, Ala., Annie Reward, U. a. Courtinum end Beliding
Berenach, Ga., Joneph 0. Storall, Chember of Commerce
N. T., Andrew P. Monty, Classber of Commons.
Wilmington, Dal., Margaret Y. Denatity, 319 New Federal Building.
Regraded Unclassified
191
February 11, 1939
It is proposed that an analysis be made of certain
fundamental factors related to the shorter term objective of
an $80 billion national income and upon the longer term
objective of full employment and B. steadily rising national
income. Specific recommendations based on the findings of
this study will be made. The analysis will be focused on
two broad subjects:
I - The ascertainment of existing deterrents
to private enterprise and the measures that may be
taken to remove them and to stimulate recovery.
II- Anticipatory action that may be taken to
prevent the emergence of factors that would endanger
an orderly and sustained approach to full recovery.
Basic Questions
In order to determine the necessity and magnitude
of additional steps to attain the stated objectives, it 18
first desirable to answer three basic questions:
1. What levels of production, consumption and
capital investment would prevail (a) with an $80 billion
national income, (b) with full employment, taking into account
probable price changes?
2. What level of employment would prevail with an
180 billion national income, taking into account probably price
changes?
3. How far, on the basis of existing programs and
expectations, is the national income likely to increase in the
next two years?
I
A. Existing Deterrents to Private Enterprise and Their Removal.
1. Lagging Industries.
Which industries and branches of agriculture
have lagged in the recovery, and why? What speci-
fic things (other than those indicated below) might
Regraded Unclassified
- 2 -
192
be done to increase the anticipated volume of
capital expenditures in: (a) the railroads,
(b) the utilities, (c) building, (d) other durable
goods fields?
2. Excess Capacity.
To what extent is the existence of idle plant
acting as B. deterrent to new capital expenditures?
How much increase in consumer demand would absorb
idle capacity in various fields? How far can an
increase in consumer demand be brought about by:
a. an excess of government cash expenditures
over receipts,
b. changes in the tax structure,
0, changes in the types of government ex-
penditures?
3. Taxes.
What elements of our Federal, state or local
tax structures, bearing on property, individual or
corporate income, payrolls or sales, have particularly
adverse effects on consumption or new investment?
What modifications in the type and methods of 888888-
ment and collection of various taxes might stimulate
capital investment? Would the abolition or restric-
tion of tax exempt securities encourage new private
capital expenditures?
4, Excess Saving.
Have our savings been geared to a higher rate of
growth in population, technological advance, emergence
of new industries, foreign lending, etc., than we now
possess? If 80, has this acted as a drag on recovery?
What measures are appropriate to meet this situation,
if it exists?
5. Availability of capital.
Insofar as the difficulty in securing loans and
equity money for expansion appears to be a deterrent,
to what extent could this be remedied through:
a. provision of better underwriting facilities,
b. changes in the Securities Exchange Act or
regulations of the S.E.C.,
C. the establishment of a new type of government
capital supplying agency,
d. the R.F.C.,
Regraded Unclassified
- 3 -
193
e. changes in state laws governing investment
of insurance and trustee funds,
f. further reductions in mortgage and other
interest rates on loans to ultimate
borrowers,
E. further modification of laws and regulations
relating to bank loans and investments?
6. Monopolistic Practices.
Is the existence of monopolistic elements, such
as price, production and patent controls, retarding
investment or consumption? If so, how might such
controls be removed, modified or offset?
7. Prices.
Are present price relationships and trends act-
ing as deterrents? What action might be taken with
reference to prices in certain fields that would
stimulate recovery?
8. Profit Margins.
In which industries, if any, are inadequate or
excessive profit margins acting as deterrents?
9, Labor.
Are particular wage rates acting as deterrents?
Are certain labor practices, such B.B trade union
apprenticeship and membership requirements, and out-
put controls, acting as deterrents? Is labor legis-
lation, such &8 the Wages and Hours Act and the
National Labor Relations Act, acting 88 a deterrent?
What action in respect to these factors might be
taken that would be in the interests of both labor
and of recovery?
10. Agriculture.
Insofar as present agricultural price and
production policies and the carryover of agricultural
commodities are acting as deterrents, what changes or
additional measures appear appropriate?
11. Marketing Legislation.
Insofar as existing legislation in the marketing
fields with reference to retail price maintenance,
fair trade laws, etc., acts 8.8 a deterrent, what
changes appear appropriate?
Regraded Unclassified
194
12. Private debt Burden.
Are excessive debt structures as in the rail-
roads and utilities, or defaulted debt 86 in the
mortgage field, retarding new investment? How might
the deterrent effects, if any, arising from these
sources be moderated?
13. Social Insurance.
To what extent, if at all, does the present
social insurance program constitute a drag on
recovery? What changes might be made in the program
which, while retaining the contributory principle,
would aid in the attainment of a higher national
income?
14. Government Competition.
To what extent, if any, are private capital
expenditures being deterred by uncertainty over the
future role which is to be played by Government
activities of 8. nature competitive with private
enterprise? To what extent could this deterrent,
if it exists, be lessened or removed by a further
clarification of the Government's policy on these
matters?
15. Foreign Developments.
What are the existing deterrents to recovery
arising from conditions abroad? How might these
deterrents be alleviated or removed? How can our
foreign trade be increased?
16. Budget.
How far, if at all, is the existence of an
unbalanced budget A psychological deterrent? If the
deterrent exists, is it sufficiently serious to
warrant an increase in taxes or a decrease in ex-
penditures, or both, in order to balance the budget?
To what extent could this deterrent, if it exists,
be modified by the introduction of private business
concepts into Government accounting?
17. Other Governmental policies.
To what extent, if at all, have other govern-
mental policies in the fiscal, monetary, railroad,
utility and other fields not mentioned above, acted
to deter long term investment?
- 5 -
195
B. Other Measures to Stimulate Recovery
1. Fiscal Policy.
(a) What measures could the government take
either independently, or in cooperation with state
and local governments, to increase government in-
vestments in self-liquidating enterprises without
competing with private industry and without adding
to the budgetary deficit?
(b) How might the maximum volume of desirable
investment by local bodies be secured with the
minimum charge on the Federal budget?
2. Monetary Policy.
Can any further steps be taken in the field of
monetary policy to stimulate recovery?
II
THREATS TO ORDERLY AND SUSTAINED RECOVERY
1. Monopolistic Practices.
In which industries and at what level of produc-
tion will monopolistic practices and controls result
in excessive price advances? How may this be pre-
vented or relieved?
2. Bottlenecks in Productive Capacity.
In which industries and at what level of produc-
tion will be the lack of adequate plant capacities
retard expansion? How may this be prevented or
relieved?
3. Labor Shortages and Disputes.
At what points and at what level of increased
production will the lack of adequate skilled labor
retard expansion? How may this be prevented or
relieved? What devices promise more amicable rela-
tions between employers and labor?
4. Over-Production of Inventories.
How far might the collection and publication
of current information on inventories, new and un-
filled orders, etc., lessen the danger of over-
accumulation of inventories?
- 6 -
196
5, Speculation.
Are present controls sufficient to prevent
disastrous stock and commodity speculation?
6. Adverse Developments Abroad.
What steps can be taken to protect our economy
from possible adverse developments associated with:
a. foreign exchange developments,
b. foreign trade and exchange policies of
foreign governments,
C. war,
d. international capital movements,
e. business recession abroad?
7. Deficiency of Consumer Buying Power.
Is there a danger that recovery will be checked
by 8 deficiency of consumer buying power (1.e., by
the tendency of savings to increase faster than the
demand for new capital)? If 80, what action can be
taken to forestall this danger?
8. Excessive Swings in Consumer Credit.
Is there a danger that the orderly character of
the recovery will be threatened by excessive changes
in the outstanding volume of consumer credit?
9. Faulty Timing of Monetary and Fiscal Operations.
(a) Is there a danger that recovery may be
checked through higher interest rates? What bearing
does this have on Treasury and Federal Reserve
monetary policies and Treasury financing policies?
(b) How rapid a reduction in net government
expenditures would be consistent with a continuation
of private recovery?
III
SUPPLEMENTARY QUESTIONS
1. Danger of Inflation or Deflation.
Is there any foresesable danger of (a) inflation,
(b) deflation arising from the fiscal and monetary
policies currently being followed? What changes in
our monetary, banking and fiscal mechanisms and
Regraded Unclassified
- 7 -
197
controls can be made to improve the adequacy and
effectiveness of monetary policy and the timing of
fiscal operations to avoid inflation and deflation?
2. Public Credit.
Would a substantial increase in the public debt
have any important effect on the public credit?
3. Public Debt Burden.
What 1s the burden and incidence of the public
debt?
4. Trend of Interest Rates.
What are the more important considerations bear-
ing on the future course of long term interest rates?
5. Trend of Price Level.
What would be the most desirable trend in the
general price level in the next few years?
6. Changes in Basic Underlying Conditions.
To what extent have the outlets for private
capital expenditures and the possibilities for sus-
tained full employment been affected by the slacken-
ing in the growth of population and by other
modifications in basic underlying factors condition-
ing our economic growth?
198
February 11, 1939
It is proposed that an analysis be made of certain
numbermental factors related to the shorter term objective of
BW billion national income and upon the longer term
exjective of full employment and a steadily rising national
1.00me. Specific recommendations based on the findings of
this study will be made. The analysis will be focused on
two broad subjects:
I - The ascertainment of existing deterrents
to private enterprise and the measures that msy be
taken to remove them and to stimulate recovery.
II- Anticipatory action that may be taken to
prevent the emergence of factors that would endanger
on orderly and sustained approach to full recovery.
Basic Questions
In order to determine the necessity and magnitude
5, triltional steps to attain the stated objectives, it is
first desirable to answer three basic cuestions:
1. What levels of production, consumption and
investment would prevail (a) with an $80 billion
income, (b) with full employment, taking into account
robrole price changes?
2. What level of employment would prevail with an
billion national income, taking into account probably price
3. How far, on the basis of existing programs and
actations, 10 the national income likely to increase in the
two years?
I
1,
Existing Deterrents to Private Enterprise and Their Removal.
1. Legging Industries.
Which industries and branches of agriculture
have lagged in the recovery, and why? What speci-
fic things (other than those indicated below) might
Regraded Unclassified
- 2 -
199
be done to increase the anticipated volume of
capital expenditures in: (a) the railroads,
(b) the utilities, (c) building, (d) other durable
goods fields?
2. Excess Capacity.
To what extent is the existence of idle plant
acting as a deterrent to new capital expenditures?
How much increase in consumer demand would absorb
idle capacity in various fields? How far can an
increase in consumer demand be brought about by:
a. an excess of government cash expenditures
over receipts,
b. changes in the tax structure,
C. changes in the types of government ex-
penditures?
3. Taxes.
What elements of our Federal, state or local
tax structures, bearing on property, individual or
corporate income, payrolls or sales, have particularly
adverse effects on consumption or new investment?
What modifications in the type and methods of assess-
ment and collection of various taxes night stimulate
capital investment? Would the abolition or restric-
tion of tax exempt securities encourage new private
capital expenditures?
4. Excess Saving.
Have our savings been geared to a higher rate of
growth in population, technological advance, emergence
of new industries, foreign lending, etc., than we now
possess? If 60, has this noted as a dreg on recovery?
What measures are appropriate to meet this situation,
if it exists?
5, Availability of capital.
Insofar as the difficulty in securing loans and
equity money for expansion appears to be a deterrent,
to what extent could this be remedied through:
a. provision of better underwriting facilities,
b. changes in the Securities Exchange Act or
C. the establishment of & new type of government
regulations of the S.E.C.,
capital supplying agency,
d. the R.F.C.,
Regraded Unclassified
- 3 -
200
e. changes in state laws governing investment
of insurance and trustee funds,
f. further reductions in mortgage and other
interest rates on loans to ultimate
borrowers',
E. further modification of laws and regulations
relating to bank loans and investments?
6. Monopolistic Practices.
Is the existence of monopolistic elements, such
as price, production and patent controls, retarding
investment or consumption? If so, how might such
controls be removed, modified or offset?
7. Prices.
Are present price relationships and trends acting
as deterrents? What action might be taken with
reference to prices in certain fields that would
stimulate recovery?
8. Profit Margins.
In which industries, if any, are inadequate or
excessive profit margins acting as deterrents?
9. Labor.
Are particular wage rates acting as deterrents?
Are certain labor practices, such as trade union
apprenticeship and membership requirements, and out-
put controls, acting as deterrents? What action in
respect to these factors might be taken that would
be in the interests of both labor and of recovery?
Is labor legislation, such as the Wages and Hours Act
and the National Labor Relations Act, acting M
8. deterrent?
10, Agriculture.
Insofar as present agricultural price and production
policies and the carryover of agricultural commodities
are acting as deterrents, what changes or additional
measures appear appropriate!
11. Marketing Legislation.
Insofar as existing legislation in the marketing
fields with reference to retail price maintenance,
fair trade laws, etc., acts as a deterrent, what
changes appear appropriate?
Regraded Unclassified
201
12. Private debt Burden.
Are excessive debt structures as in the rail-
roads and utilities, or defaulted debt as in the
mortgage field, retarding new investment? How might
the deterrent effects, if any, arising from these
sources be moderated?
13, Social Insurance.
To what extent, if at all, does the present
social insurance program constitute B. drag on
recovery? What changes might be made in the program
which, while retaining the contributory principle,
would aid in the attainment of a higher national
income?
14. Government Competition.
To what extent, if any, are private capital
expenditures being deterred by uncertainty over the
future role which 18 to be played by Government
activities of a nature competitive with private
enterprise? To what extent could this deterrent,
if it exists, be lessened or removed by a further
clarification of the Government's policy on these
matters?
15. Foreign Developments.
What are the existing deterrents to recovery
arising from conditions abroad? How might these
deterrents be alleviated or removed? How can our
foreign trade be increased?
16. Budget.
How far, if at all, 18 the existence of an
unbalanced budget A psychological deterrent? If the
deterrent exists, 18 it sufficiently serious to
warrant an increase in taxes or 8 decrease in ex-
penditures, or both, in order to balance the budget?
To what extent could this deterrent, if it exists,
be modified by the introduction of orivate business
concepts into Government accounting?
17. Other Governmental policies.
To what extent, if at all, have other govern-
mental policies in the fiscal, monetary, railroad,
utility and other fields not mentioned above, acted
to deter long term investment?
Regraded Unclassified
- 5 -
202
5. Other Measures to Stimulate Recovery
1. Fiscal Policy.
(a) What measures could the government take,
either independently, or in ocoperation with state
and local governments, to increase government in-
vestments in self-liquidating enterprises without
competing with private industry and without adding
to the budgetary deficit?
(b) How might the maximum volume of desirable
investment by local bodies be secured with the
minimum charge on the Federal budget?
2. Monetary Policy.
Can any further steps be taken in the field of
monetary policy to stimulate recovery?
II
THREATS TO ORDERLY AND SUSTAINED RECOVERY
1. Monopolistic Practices.
In which industries and at what level of produc-
tion will monopolistic practices and controls result
in excessive price advances? How may this be pre-
vented or relieved?
2. Bottlenecks in Productive Capacity.
In which industries and at what level of produc-
tion will be the lack of adequate plant capacities
retard expansion? How may this be prevented or
relieved?
3. Labor Shortages and Disputes.
At what points and at what level of increased
production will the lack of adequate skilled labor
retard expansion? How may this be prevented or
relieved? What devices promise more amicable rela-
tions between employers and labor?
4. Over-Production of Inventories.
How far might the collection and publication
of current information on inventories, new and un-
filled orders, etc., lessen the danger of over-
accumulation of inventories?
203
- 6 -
5. Speculation.
Are present controls sufficient to prevent
disastrous stock and commodity speculation?
6. Adverse Developments Abroad.
What steps can be taken to protect our economy
from possible adverse developments associated with:
a. foreign exchange developments,
b. foreign trade and exchange policies of
foreign governments,
0. war,
d, international capital movements,
e, business recession abroad?
7. Deficiency of Consumer Buying Power.
Is there a danger that recovery will be checked
by a deficiency of consumer buying power (1.e., by
the tendency of savings to increase faster than the
demand for new capital)? If so, what action can be
taken to forestall this danger?
8. Excessive Swings in Consumer Credit.
Is there a danger that the orderly character of
the recovery will be threatened by excessive changes
in the outstanding volume of consumer credit?
9. Faulty Timing of Monetary and Fiscal Operations.
(a) Is there a danger that recovery may be
checked through higher interest rates? What bearing
does this have on Treasury and Federal Reserve
monetary policies and Treasury financing policies?
(b) How rapid a reduction in net government
expenditures would be consistent with a continuation
of private recovery?
III
SUPPLEMENTARY QUESTIONS
1. Danger of Inflation or Deflation.
Is there any foreseeable denger of (a) inflation,
(b) deflation arising from the fiscal and monetary
policies currently being followed? What changes and in
our monetary, banking and fiscal mechanisms
Regraded Unclassified
- 7 -
204
controls can be made to improve the adequacy and
effectiveness of monetary policy and the timing of
fiscal operations to avoid inflation and deflation?
2. Public Credit.
Would a substantial increase in the public debt
have any important effect on the public credit?
3. Public Debt Burden.
What is the burden and incidence of the public
debt?
4. Trend of Interest Rates.
What are the more important considerations bear-
ing on the future course of long term interest rates?
5. Trend of Price Level.
What would be the most desirable trend in the
general price level in the next few years?
6. Changes in Basic Underlying Conditions.
To what extent have the outlets for private
capital expenditures and the possibilities for sus-
tained full employment been affected by the slacken-
ing in the growth of population and by other
modifications in basic underlying factors condition-
ing our economic growth?
Regraded Unclassified
205
February 18, 1939.
My dear Governor Ecoles:
The enclosed memorandum has been
submitted to the Fiscal and Monetary Advisory
Committee by its technical committee as an
outline for the study of the recovery problem.
Our plan of procedure is to allow
each of the agencies associated in this work
to investigate and to report on any of the
questions contained in this memorandum.
Therefore, I would appreciate receiving from
you by February 23 a list of the questions
which your staff wishes to study. If these
voluntary selections do not provide for at
least one report on each question, the
remaining questions may have to be assigned.
Your staff, however, is free to start work
on any of these questions at once without
waiting for submission of the voluntary list
or for assignment of other questions.
Reports on those questions marked
"urgent" should be submitted to the Committee
as soon as possible, but not later than
March 20, because the questions 80 marked are
either of basic importance or require
legislative action.
Sincerely yours,
Secretary of the Treasury
The Honorable Marriner S. Ecoles,
Chairman, Board of Governors,
Federal Reserve System,
Washington, D. C.
Enclosure
ESD:hp
Regraded Unclassified
206
February 18, 1939.
My. dear Governor Eccles:
The enclosed memorandum has been
submitted to the Fiscal and Monetary Advisory
Committee by its technical committee as an
outline for the study of the recovery problem.
Our plan of procedure is to allow
each of the agencies associated in this work
to investigate and to report on any of the
questions contained in this memorandum.
Therefore, I would appreciate receiving from
you by February 23 a list of the questions
which your staff wishes to study. If these
voluntary selections do not provide for at
least one report on each question, the
remaining questions may have to be assigned.
Your staff, however, is free to start work
on any of these questions at once without
waiting for submission of the voluntary list
or for assignment of other questions.
Reports on those questions marked
"urgent" should be submitted to the Committee
as soon as possible, but not later than
March 20, because the questions 80 marked are
either of basic importance or require
legislative action.
Fincerely yours,
Secretary of the Treasury
The Honorable Marriner B. Eccles,
Chairman, Board of Governors,
Federal Reserve Bystem,
Washington, D. C.
Enclosure
ESD:hp
Regraded Unclassified
207
February 18, 1939.
My dear Governor Eccles:
The enclosed memorandum has been
submitted to the Fiscal and Monetary Advisory
Committee by its technical committee as an
outline for the study of the recovery problem.
Our plan of procedure is to allow
each of the agencies associated in this work
to investigate and to report on any of the
questions contained in this memorandum.
Therefore, I would appreciate receiving from
you by February 23 a list of the questions
which your staff wishes to study. If these
voluntary selections do not provide for at
least one report on each question, the
remaining questions may have to be assigned.
Your staff, however, is free to start work
on any of these questions at once without
waiting for submission of the voluntary list
or for assignment of other questions.
Reports on those questions marked
"urgent" should be submitted to the Committee
as soon as possible, but not later than
March 20, because the questions 80 marked are
either of basic importance or require
legislative action.
Sincerely yours,
Secretary of the Treasury
The Honorable Marriner S. Eccles,
Chairman, Board of Governors,
Federal Reserve System,
Washington, D. C.
Enclosure
E3D:hp
Regraded Unclassified
SOA
February 18, 1939.
My dear Governor Ecoles:
The enclosed memorandum has been
submitted to the Fiscal and Monetary Advisory
Committee by its technical committee as an
outline for the study of the recovery problem.
Our plan of procedure 18 to allow
each of the agencies associated in this vork
to investigate and to report on any of the
questions contained in this memerandum.
Therefore, I would appreciate receiving from
you by February 23 a list of the questions
which your staff wishes to study. If these
voluntary selections do not provide for at
least one report on each question, the
remaining questions may have to be assigned.
Your staff, however, is free to start work
on any of these questions at once without
waiting for submission of the voluntary 1st
or for assignment of other questions.
Reports on these questions marked
"urgent" should be submitted to the Committee
as soon as possible, but not later than
March 20, because the questions 80 marked are
either of basic importance or require
legislative action.
Sincerely yours,
Secretary of the Treasury
The Honorable Marriner S, Ecoles,
Chairman, Board of Governors,
Federal Reserve System,
Washington, D. C.
Enclosure
ESDihp
Regraded Unclassified
209
February 18, 1939.
My dear Mr. Delano:
The enclosed memorandum has been
submitted to the Fiscal and Monetary Advisory
Committee by its technical committee as an
outline for the study of the recovery problem.
Our plan of procedure is to allow
each of the agencies associated in this work
to investigate and to report on any of the
questions contained in this memorandum.
Therefore, I would appreciate receiving from
you by February 23 a list of the questions
which your staff wishes to study. If these
voluntary selections do not provide for at
least one report on each question, the
remaining questions may have to be assigned.
Your staff, however, is free to start work
on any of these questions at once without
waiting for submission of the voluntary list
or for assignment of other questions.
Reports on those questions marked
"urgent" should be submitted to the Committee
as soon as possible, but not later than
March 20, because the questions 80 marked are
either of basic importance or require
legislative action.
Sincerely yours,
Secretary of the Treasury
The Honorable Frederic A. Delano,
Vice Chairman, National Resources
Committee,
Department of Interior,
Washington, D. C.
Enclosure
ESD:hp
Regraded Unclassified
210
February 18, 1939.
My dear Mr. Delano:
The enclosed memorandum has been
submitted to the Fiscal and Monetary Advisory
Committee by its technical committee as an
outline for the study of the recovery problem.
Our plan of procedure is to allow
each of the agencies associated in this work
to investigate and to report on any of the
questions contained in this memorandum.
Therefore, I would appreciate receiving from
you by February 23 a list of the questions
which your staff wishes to study. If these
voluntary selections do not provide for at
least one report on each question, the
remaining questions may have to be assigned.
Your staff, however, is free to start work
on any of these questions at once without
waiting for submission of the voluntary Not
or for assignment of other questions.
Reports on those questions marked
"urgent" should be submitted to the Committee
as soon as possible, but not later than
March 20, because the questions no marked are
either of basic importance or require
legislative action.
Sincerely yours,
Secretary of the Treasury
The Honorable Frederic A. Delano,
Vice Chairman, National Resources
Committee,
Department of Interior,
Washington, D. C.
Enclosure
ESD:hp
Regraded Unclassified
211
February 18, 1939.
My dear Mr. Delano:
The enclosed memorandum has been
submitted to the Fiscal and Monstary Advisory
Committee by its technical committee as an
outline for the study of the recovery problem.
Our plan of procedure is to allow
each of the agencies associated in this work
to investigate and to report on any of the
questions contained in this memorandus,
Therefore, I would appreciate receiving from
you by February 23 a list of the questions
which your staff wishes to study. If these
voluntary selections do not provide for at
least one report on each question, the
remaining questions may have to be assigned.
Your staff, however, is free to start work
on any of these questions at onee without
waiting for submission of the voluntary 1st
or for assignment of other questions.
Reports on these questions marked
"urgent" should be submitted to the Committee
as soon as possible, but not later than
March 20, because the questions 80 marked are
either of basic importance or require
legislative action.
Sincerely yours,
Secretary of the Treasury
The Honorable Frederic A. Delano,
Vice Chairman, National Resources
Committee,
Department of Interior,
Washington, D. C.
Enclosure
ESDihp
Regraded Unclassified
12
February 18, 1939.
My dear Mr. Delano:
The enclosed menerandum has been
submitted to the Fiscal and Honetary Advisory
Committee by its technical committee no an
outline for the study of the recovery problem.
Our plan of procedure is to allow
each of the agencies associated in this work
to investigate and to report on any of the
questions contained in this memorandum.
Therefore, I would appreciate receiving from
you by February 23 a list of the questions
which your staff wishes to study, If these
voluntary selections do not provide for at
least one report on each question, the
remaining questions may have to be assigned.
Your staff, however, is free to start work
on any of these questions at onoo without
waiting for submission of the voluntary Not
or for assignment of other questions.
Reports on those questions marked
"urgent" should be submitted to the Committee
ns soon as Dossible, but not later than
March 20, because the questions 60 marked are
either of basic importance or require
legislative action.
Sincerely yours,
Secretary of the Treasury
The Honorable Frederic A. Delano,
Vice Chairman, National Resources
Committee,
Department of Interior,
Washington, D. C.
Enclosure
ESD:hp
Regraded Unclassified
213
February 18, 1939.
My dear Mr. Henderson:
The enclosed memorandum has been
submitted to the Fiscal and Monetary Advisory
Committee by its technical committee as an
outline for the study of the recovery problem.
Our plan of procedure 18 to allow
each of the agencies associated in this work
to investigate and to report on any of the
questions contained in this memorandum,
Therefore, I would appreciate receiving from
you by February 23 a list of the questions
which your staff wishes to study. If these
voluntary selections do not provide for at
least one report on each question, the
remaining questions may have to be assigned.
Your staff, however, 18 free to start work
on any of these questions at once without
waiting for submission of the voluntary list
or for assignment of other questions.
Reports on those questions marked
"urgent" should be submitted to the Committee
as soon as possible, but not later than
March 20, because the questions 80 marked are
either of basic importance or require
legislative action.
Sincerely yours,
Secretary of the Treasury
Mr. Leon Henderson,
Executive Secretary,
Temporary National Economic Committee,
Washington, D. c.
Enclosure
ESD:hp
Regraded Unclassified
214
February 18, 1939
My dear Mr. Henderson:
The enclosed memorandum has been
submitted to the Fiscal and Monetary Advisory
Committee by its technical committee as an
outline for the study of the recovery problem.
Our plan of procedure is to allow
each of the agencies associated in this work
to investigate and to report on any of the
questions contained in this memorandum.
Therefore, I would appreciate receiving from
you by February 23 a list of the questions
which your staff wishes to study. If these
voluntary selections do not provide for at
least one report on each question, the
ining questions may have to be assigned.
Your staff, however, is free to start work
on any of these questions at once without
waiting for submission of the voluntary list
or for assignment of other questions.
Reports on those questions marked
"urgent" should be submitted to the Committee
as soon as possible, but not later than
March 20, because the questions BO marked are
either of basic importance or require
legislative action.
Sincerely yours,
Secretary of the Treasury
Mr. Leon Henderson,
Executive Secretary,
Temporary National Economic Committee,
Washington, D. C.
Enclosure
ESD:hp
Regraded Unclassified
215
February 18, 1939
My dear Mr. Henderson:
The enclosed memorandum has been
submitted to the Fiscal and Monetary Advisory
Committee by its technical committee as an
outline for the study of the recovery problem.
Our plan of procedure 16 to allow
each of the agencies associated in this work
to investigate and to report on any of the
questions contained in this memorandum.
Therefore, I would appreciate receiving from
you by February 23 & list of the questions
which your staff wishes to study, If these
voluntary selections do not provide for at
least one report on each question, the
remaining questions may have to be assigned.
Your staff, however, is free to start work
on any of these questions at once without
waiting for submission of the voluntary list
or for assignment of other questions.
Reports on those questions marked
"urgent" should be submitted to the Committee
as soon as possible, but not later than
March 20, because the questions BO marked are
either of basic importance or require
legislative action.
Sincerely yours,
Secretary of the Treasury
Mr. Leon Henderson,
Executive Secretary,
Temporary National Economic Committee,
Washington, D. C.
Enclosure
ESD:hp
Regraded Unclassified
16
February 18, 1939
My dear Mr. Henderson:
The enclosed memorandum has been
submitted to the Fiscal and Monetary Advisory
Committee by its technical committee as an
outline for the study of the recovery problem.
Our plan of procedure 18 to allow
each of the agencies associated in this work
to investigate and to report on any of the
questions contained in this memorandum.
Therefore, I would appreciate receiving from
you by February 23 & list of the questions
which your staff wishes to study, If these
voluntary selections do not provide for at
least one report on each question, the
remaining questions may have to be assigned.
Your staff, however, is free to start work
on any of these questions at once without
waiting for submission of the voluntary list
or for assignment of other questions.
Reports on those questions marked
"urgent" should be submitted to the Committee
as soon as possible, but not later than
March 20, because the questions BO marked are
either of basic importance or require
legislative action.
Sincerely yours,
Secretary of the Treasury
Mr. Leon Henderson,
Executive Secretary,
Temporary National Economic Committee,
Washington, D. 0.
Enclosure
ESD:hp
Regraded Unclassified
217
February 18, 1939.
My dear Mr. Lubin:
The enclosed memorandum has been
submitted to the Fiscal and Monetary Advisory
Committee by its technical committee as an
outline for the study of the recovery problem.
Our plan of procedure is to allow
each of the agencies associated in this work
to investigate and to report on any of the
questions contained in this memorandum,
Therefore, I would appreciate receiving from
you by February 23 a list of the questions
which your staff wishes to study. If these
voluntary selections do not provide for at
least one report on each question, the
remaining questions may have to be assigned.
Your staff, however, is free to start work
on any of these questions at once without
waiting for submission of the voluntary list
or for assignment of other questions.
Reports on those questions marked
"urgent" should be submitted to the Committee
as soon as possible, but not later than
March 20, because the questions 80 marked are
either of basic importance or require
legislative action.
Sincerely yours,
Secretary of the Treasury
Mr. Isador Lubin,
Commissioner of Labor Statistics,
Department of Labor,
Washington, D. C.
Enclosure
ESDihp 2.17.39
Regraded Unclassified
C1B
February 18, 1939
My dear Mr. Lubin:
The enclosed memorandum has been
submitted to the Fiscal and Monetary Advisory
Committee by its technical committee as an
outline for the study of the recovery problem.
Our plan of procedure is to allow
each of the agencies associated in this work
to investignte and to report on any of the
questions contained in this memorandum,
Therefore, I would appreciate receiving from
you by February 23 a list of the questions
which your staff wishes to study. If these
voluntary selections do not provide for at
least one report on each question, the
remaining questions may have to be assigned.
Your staff, however, is free to start work
on any of these questions at once without
waiting for submission of the voluntary list
or for assignment of other questions.
Reports on those questions marked
"urgent" should be submitted to the Committee
as soon as possible, but not later than
March 20, because the questions no marked are
either of basic importance or require
legislative action.
Sincerely yours,
Secretary of the Treasury
Mr. Isador Lubin,
Commissioner of Labor Statistics,
Department of Labor,
Washington, D. C.
Enclosure
E8D:hp
Regraded Unclassified
219
February 18, 1939.
My dear Mr. Lubin:
The enclosed memorandum has been
submitted to the Fiscal and Monetary Advisory
Connittee by its technical committee as an
outline for the study of the recovary problem.
Our plan of procedure is to allow
each of the agencies associated in this work
to investigate and to report on any of the
questions contained in this menorandum,
Therefore, I would appreciate receiving from
you by February 23 & list of the questions
which your staff wishes to study, If these
voluntary selections do not provide for at
least one report on each question, the
reasining questions may have to be assigned.
Your staff, however, in free to start work
on any of these questions at ones without
waiting for submission of the voluntary not
or for assignment of other questions.
Reports on there questions nurted
"urgent" should be submitted to the Committee
AS soon as possible, but not later than
March 20, because the questions no marked are
either of basic importance or require
legislative notion.
Sincerely yours,
Secretary of the Trensury
Mr. Isador Lubin,
Commissioner of Labor Statistics,
Department of Labor,
Washington, D. C.
Enolosure
ESD:hp
Regraded Unclassified
220
February 18, 1930.
My dear Mr. Lubin:
The enclosed memorandum has been
submitted to the Fiscal and Monetary Advisory
Committee by its technical committee AS an
outline for the study of the recovery problem.
Our plan of procedure 1s to allow
each of the agencies associated in this work
to investigate and to report on any of the
questions contained in this memorandus.
Therefore, I would appreciate receiving from
you by February 25 a 11st of the questions
which your staff wiches to study, If these
voluntary selections as not provide for at
loast one report on each question, the
remaining questions may have to be assigned.
Your staff, however, is free to start work
on any of these questions at once without
waiting for submission of the voluntary 2nt
or for assignment of other questions.
Reports on those questions assed
"urgent" should be submitted to the Committee
AS soon as possible, but not later than
March 30, because the questions no marked are
either of basic importance or require
legislative notion.
Einocrely yours,
Secretary of the Treasury
Mr. Isador Lubin,
Commissioner of Labor Statistics,
Department of Labor,
Washington, D. C.
Enclosure
ESDihp
Regraded Unclassified
221
February 18, 1939,
My dear Mr. Secretary:
The enclosed memorandum has been
submitted to the Fiscal and Monetary Advicory
Committee by its technical committee as an
outline for the study of the recovery problem.
Our plan of procedure 1a to allow
each of the agencies associated in this work
to investigate and to report on any of the
questions contained in this memorandum,
Therefore, I would appreciate receiving from
you by February 23 a. list of the questions
which your staff wishes to study. If these
voluntary selections do not provide for at
least one report on each question, the
remaining questions may have to be assigned.
Your staff, however, is free to start work
on any of these questions at ones without
waiting for submission of the voluntary list
or for assignment of other questions.
Reports on those questions marked
"urgent" should be submitted to the Committee
as soon as possible, but not later than
March 20, because the questions so marked are
either of basid importance or require
legislative action.
Sincerely yours,
Secretary of the Treasury
The Honorable Harry L. Hopkins,
The Secretary of Commerce.
Enclosure
ESD:hp
Regraded Unclassified
222
February 18, 1939
My dear Mr. Secretary:
The enclosed memorandum has been
submitted to the Fiscal and Monetary Advisory
Committee by its technical committee 0.0 an
outline for the study of the recovery problem.
Our plan of procedure is to allow
each of the agencies associated in this work
to investigate and to report on any of the
questions contained in this memorandum,
Therefore, I would appreciate receiving from
you by February a list of the questions
which your staff wishes to study, If these
voluntary selections do not provide for at
least one report on each question, the
remaining questions may have to be assigned.
Your staff, however, is free to start work
on any of these questions at ones without
waiting for submission of the voluntary list
or for assignment of other questions.
Reports on those questions marked
"urgent" should be submitted to the Committee
as soon as possible, but not later than
March 20, because the questions 80 marked are
either of basic importance or require
legislative action.
Sincerely yours,
Secretary of the Treasury
The Honorable Harry L. Hopkins,
The Secretary of Commerce.
Enclosure
ESD:hp
Regraded Unclassified
223
February 18, 1959
My dear Mr. Secretary:
The enclosed memorandum has been
submitted to the Fiscal and Monetary Advisory
Committee by its technical committee as an
outline for the study of the recovery problem.
Our plan of procedure is to allow
each of the agencies associated in this work
to investigate and to report on any of the
questions contained in this memorandum.
Therefore, I would appreciate receiving from
you by February 23 n. list of the questions
which your staff wishes to study, If these
voluntary selections do not provide for at
least one report on each question, the
remaining questions may have to be assigned.
Your staff, however, is free to start work
on any of these questions at once without
waiting for submission of the voluntary list
or for assignment of other questions.
Reports on those questions marked
"urgent" should be submitted to the Committee
as soon as possible, but not later than
March 20, because the questions so marked are
either of basic importance or require
legislative action.
Sincerely yours,
Secretary of the Treasury
The Honorable Harry L. Hopkins,
The Secretary of Commerce.
Enclosure
ESD:hp
Regraded Unclassified
224
February 18, 1939
My dear Mr. Secretary:
The enclosed memorandum has been
submitted to the Fiscal and Monetary Advisory
Committee by its technical committee as an
outline for the study of the recovery problem.
Our plan of procedure is to allow
each of the agencies associated in this work
to investigate and to report on any of the
questions contained in this memorandum.
Therefore, I would appreciate receiving from
you by February 23 a list of the questions
which your staff wishes to study. If these
voluntary selections do not provide for at
least one report on each question, the
relaining questions may have to be assigned.
Your staff, however, 18 free to start work
on any of these questions at once without
waiting for submission of the voluntary list
or for assignment of other questions.
Reports on those questions marked
"urgent" should be submitted to the Committee
as soon as possible, but not later than
March 20, because the questions so marked are
either of basic importance or require
legislative action.
Sincerely yours,
Secretary of the Treasury
The Honorable Harry L. Hopkins,
The Secretary of Commerce.
Enclosure
EBDihp
Regraded Unclassified
225
February 17, 1939
It 1s proposed that an investigation be made
of fundamental factors which may stand in the way of
attaining full employment and a steadily increasing
national income, Specific recommendations based on the
findings of these investigations should be made so that
policy might be formulated which would lead to an
increase in the national income. The following are some
of the basic questions to which the investigation should
be directed. (Questions marked *** are urgent, requir-
ing immediate study, those marked ** are lege urgent,
and those marked are least urgent.)
1. What are the prospects for continued
recovery in 1939 and 19407 How soon may we expect the
national income to reach 8 level of 20 billion B. year?
What are the threats to continued recovery?
2, Which importent industries Ingred in the
1933-38 period, making less than P. reasonable contribu-
tion to the increase in the national income during that
period? Which industries were foremost in the recovery?
What can be done to stimulate lagging industries, in-
creasing their contribution to the national income?
3. How far is the claim that new investment
1s being seriously blocked by specific Government
measures justified?
4, To what extent does new capital investment
for plant expansion and new industrial development come
from (a) cash assets, (b) borrowing, (c) sale of equity
securities? Is this capital raised through (e) organized
security exchanges, (b) individuals, (c) banks, (d) other
institutional investors? How do these figures compare
with the 1923-29 period and what is their significance?
5. To what extent are depreciation reserves
not being reinvested?
6. Do industries or specific ventures with
reasonably bright prospects have any difficulty obtain-
ing the necessary capital in satisfactory form? If 80,
what can be done about it?
Regraded Unclassified
226
7. To what extent would private investment be
stimulated were the Federal Government carefully to de-
linente the areas of our national economy to which it
proposes to confine its investment program in the near
future, leaving other areas exclusively for development
by private enterprise? Is it possible for the Government
so specify exactly - by industry, or location or function
-- the field of investment activity to which it proposes
to confine itself?
***
8. What elements of our tax structure --
Federal, State, or local -- serve substantially to retard
the growth of the national income through their effect on
consumption or new investment? What modifications which
would stimulate the growth of the national income could
DE made in (a) upper bracket personal surtaxes, (b) lose
carryovers, (c) averaging of income, (d) copital gains
texation, (e) consolidated corporation returns, (f) taxa-
tion of dividends, (E) corporation undistributed profits,
capital stock or excess profits texation, (h) depreciation
allowances, (1) payroll teres, (J) sales and other excise
taxes?
9. Would the attainment and maintenance of
8 substantially higher national income recuire a change
Am the existing ratio of savings to consumption?
10. To what extent would a redictribution of
our national income contribute to the attainment and
Emintenance of 8 higher national income?
11. The claim 18 made that private industry by
itself can not profitably absorb current savings. Were
this true, B. continued high national income would be 1m-
possible unless the Government provided investment oppor-
Junities for cepital through public works, etc. What
evidence 18 there that supports this claim?
12. Is there justification for the claim that
Government spending on public works or WPA projects re-
sults in a decrease in spending in behalf of private
enterprise?
***
13. What measures could the Government take,
either directly or in cooperation with State and local
overnments to increase government investments in self-
louidating enterprises without adding to the budgetary
deficit?
Regraded Unclassified
227
- 3 -
14. Which types of Federal Government expendi-
tures operate to increase the national income most and
which least? To what extent is it possible to shift from
those that increase income least to those that increase
income most?
16. How large a volume of unemployment must we
expect to make provision for during the next five years,
and what means should be used?
16. To what extent, if at all, does the present
social insurance program constitute a drag on recovery?
What changes could be made that would aid in the attain-
ment of A higher national income?
17. Is there a foresecable danger of inflation
or deflation arising from current fiscal or monetary
policies? What changes in our monetary, banking, and
fiscal mechanisms and controls can be made to improve the
adequacy and effectiveness of monetary and fiscal policy
and the timing of operations to avoid inflation or defla-
tion?
18. Is there a danger that recovery may be
checked by higher interest rates? What bearing does this
possibility have on Treasury and Federal Reserve monetary
policies and on Treasury financing policies?
19. How far, if at all, 18 the existence of en
unbalanced budget a psychological deterrent to recovery?
If the deterrent exists, 18 it sufficiently serious to war-
rant an increase in taxes, B decrease in expenditures, or
both in order to balance the budget? To what extent could
this deterrent, if it exists, be modified by the introduc-
tion of private business concepts into Government account-
ing?
20. How rapid a reduction in net Government
expenditures would be consistent with 8. continuation of
private recovery?
21. Would & substantial increase in the public
debt have any important effect on the public credit?
22. What is the burden and incidence of the
public debt?
23. Are monopolistic practices such as price,
production, and patent controls retarding investment or
consumption? If so, how might such controls be removed,
modified, or offset?
Regraded Unclassified
228
4
oe
24, Would the collection and publication of
current information on inventories, new and unfilled orders,
etc., lessen the danger of over-production which results
only in excessive inventory accumulation?
--
25. To what extent, in what fields and with
what effects on our national income has the Government
contributed to an uneconomic price structure, and, if
there are harmful effects, how can they be eliminated?
-
26. Is expansion being retarded by lack of
skilled labor? If so, how can we correct the situation?
27. Are particular wage rates, labor laws, or
labor practices -- such as union apprenticeship, member-
ship requirements, or output controls -- acting as
deterrents on recovery?
***
28. For what specific products can we expect
a substantial increase or decrease in exports during the
next two years? What, if any, removable obstacles lie
in the path of important increases in our total exports?
**
29. What steps can be taken to protect our
economy from possible adverse developments abroad arising
from (a) foreign exchange developments, (b) trade and
exchange policies of other Governments, (c) war,
(d) international capital movements, (e) business reces-
sion abroad?
Regraded Unclassified
229
RE NATIONAL INCOME AND RECOVERY
February 13, 1939.
(Fiscal end Monetary Advisory Board)
10:15 a.m.
Present:
Mr. Eccles
Mr. Delano
Mr. Ruml
Mr. Currie
Mr. Thorp
Mr. Henderson
Mr. Hanes
Mr. White
Mr. Haas
Mr. Duffield
H.M.Jr:
Has everybody read this one that was gotten out
by the N.A.M., which was in yesterday's papers,
along the same lines as this?
Currie:
I got that, yes.
H.M.Jr:
Do you want to read it? I think it's very interesting.
Eccles:
Gotten out by whom?
H.M.Jr:
The National Association of Manufacturers. Doing
exactly the same thing.
Delano:
What?
H.M.Jr:
Exactly the same thing.
Eccles:
Come to a different answer.
H.M.Jr:
Some of them are very interesting, and I think it's
a very broad-minded piece of work.
(Currie reads entire article
attached hereto, entitled "U. S.
Policies Block Upturn, N.A.M.
Finds")
H.M.Jr:
Hanes, do you want to sit up here?
(Hanes moves up)
I thought it was very interesting.
Eccles:
Yes, that's - it certainly is.
230
-2-
H.M.Jr:
I'd like to get the full report.
Eccles:
They certainly have covered the field.
H.M.Jr:
It's a very interesting report.
Ruml:
Should have gone back to '29 to make it complete.
H.M.Jr:
Well
Eccles:
Yes.
H.M.Jr:
I think the more people - the more business men, the
more people in government that can be thinking along
those lines, the better.
White:
The full report would be the interesting and important
one, if we could get it quickly. Is it supposed to
be available for publication?
H.M.Jr:
You can wire for half 8. dozen copies and sign my
name - a dozen copies.
Duffield:
They have an office here.
H.M.Jr:
That's right. Will you get a dozen copies and see
that each one of these gentlemen gets one?
White:
They have enumerated about everything that anybody
has ever said has contributed to it, and doubtless
some of the things should be weighted heavily, some
of the things less so, possibly some of the things
not at all. One couldn't tell without seeing the
amount of evidence and supporting discussion that
they have. But they have managed to include every-
thing they don't like as well as anything they have
said ....
Delano:
They had to do that to get it through their group.
White:
Should make 8 very interesting complete report.
H.M.Jr:
Now, Mr. Delano, how would you suggest that we pro-
ceed this morning?
Delano:
Well, that's a big order. I think the committee
has done a very good job of getting these questions
231
-3-
grouped and all that. But my feeling, and my
colleague Mr. Ruml feels the same way, is that
while this is a very important research problem
that ought to be looked into, it might take thirty
or sixty days to get very far with it, and in the
meantime we need to be considering action, because
it seems to me that the next thirty or sixty days
are going to be very importent in making decisions.
H.M.Jr:
Well, may I
Delano:
In other words, this is an investigation, really,
and seems to be answering 8. lot of questions, and
this taing done by the manufacturers is going to be
helpful in considering those questions
H.M.Jr:
Could I answer that - your thought very frankly, if
I may, and then - I mean not as chairman but as an
individual, I would personally very much like to do
this thing whether it takes thirty days, sixty days.
or ninety days. My grest trouble as Secretary of
the Treasury - it's always today's crisis, today's
situation; and I'd like to approach this particular
problem, unless the rest of you feel otherwise,
whether it's sixty, ninety, or 120 days, and give
it plenty of time and not be under the pressure that
because the New York Times business index has fallen
off a couple weeks that we've got to do something
tomorrow.
But I've been working like that - you don't mind
my being very frank - I've been working like that
ever since I came here, and I'd like to now do &
job, not under pressure but very deliberately and
with the help of the technicians, just 8.8 con-
scientiously and scientifically 6S possible. I
mean that's the way I'd like to approach it. Now,
if you and Mr. Eccles and Henderson and Dr. Thorp
disagree, why, I'm open to argument. But I would
once like to be a part of 8 committee where WE
felt that time wasn't of the essence, but that the
results - there wasn't a pressure of getting it
out tomorrow.
Currie:
One of the points, Mr. Secretary, I think the
committee would like guidance on is, one, whether
the Board would like to have - various possibilities:
One is to get full agreement smong the technicians
Regraded Unclassified
232
-4-
before any material is presented to the Board;
or, two, whether successive materials as completed
should be put up to the Board and presented, rather
than wait for the conclusion of the complete report;
or, three, whether there is any particular thing which,
as Mr. Delano says, action may be taken on in a few
weeks, that attention should be first directed to,
and thus vary the schedule in working these things
up. Those were verious points that arose.
H.M.Jr:
I've stated my philosophic state of mind. I hope
I won't be rushed. I'd like to know how Mr. Eccles
feels about it.
Eccles:
I agree that this whole thing should be studied.
However, I do feel that, for instance, if we should
take ninety days to complete a report and in the
meantime Congress is a long way advanced and maybe
certain legislation has passed, it may have a very
vital effect upon what this report would indicate
should be done.
For instance, the Social Security is pending now.
In the meantime they may have legislation advanced
or developed, or it may even have passed, and it
may be very contrary to what this report would
indicate. The same thing may be true with refer-
ence to certain questions of taxation, railroad
legislation; and it seems to me we've got to do
both: that there are certain things we know of now
that are in the mill, and I think that the immediate
problem should be - we should get a report, possibly,
on that within a period of thirty days.
And then on the longer range or the more complete
problem which you have suggested I agree with you
that we should take such time as is necessary to get
a complete picture of the situation, but not neglect-
ing some of these other matters that we could agree
on.
For instance, we talked about this railroad equipment
matter. Now, if anything is going to be done on that
something ought to be started within, say, thirty
days if it's got to go through Congress at all.
And the samething may be true with - I think of that
one particular thing, but the same thing may be true
233
-5-
with one or two other aspects of the problem
which we would all readily agree on.
H.M.Jr:
Well, do you or Mr. Delano or anybody else want
important? to indicate priority, what you think is more
Eccles:
Well, I
H.M.Jr:
Don't misunderstand. I'll give all the time that
any of you people wish. I mean I've got all - this
is number one as far as I'm concerned, so I'm
available any time. It's not a question of not
enough hours with me; I'll give all the hours that
anybody else will give. But I just don't want to
be rushed.
Eccles:
Don't you think we might ask the committee to make
up a list, or a report of those matters that they
feel should be given priority and that may require -
may be made the first part of the report, for instance,
that they might get out within a period of thirty
days, referring other matters to & later period,
reducing to a minimum those items that they feel
are of such urgency that - because of possible
Congressional action or needed Congressional action.
I don't - I don't know - I don't have in mind Just
what those 1tems may consist of. I happened to think
of the railroads, and I know there are several other
things that we possibly should get started before
ninety days.
H.M.Jr:
Well, the one - as far as we're concerned, the only
one which is immediate is Social Security, where
we're right up against that.
Eccles:
Yes, and that's very important.
H.M.Jr:
We're right bang up against that.
Hanes:
May I make a suggestion there? Right after that
Social Security legislation is finished, we're
almost right bang up against the open tax hearings,
which will probably start within thirty days, say,
or shortly after the March 15 returns are in; and
it seems to me that if there were going to be any
234
-6-
priority, looking at it purely selfishly, from
my standpoint, I'd like to have this committee's
judgment on the tax problems before we up before
that Committee. I'd hate to go up there with a
program which this committee would be out of sym-
pathy with.
H.M.Jr:
Well, then, as far as the Treasury is concerned,
Social Security first End taxes are second. What?
Eccles:
They're both made a - they're rather an important
part of this report, both of them, and they're also
mentioned in this manufacturers' report in several
different places as being vital. So it would seem
that on items of that sort, and there may be others,
we could all agree that we should try to get a
preliminary report out within thirty days.
Henderson:
Mr. Secretary,
H.W.Jr:
Please.
Henderson:
it seemed to me that anything which is done on
Social Security and taxes, and on the other Rd hoc
items that come up for consideration, ought to be
set against some kind of a forecast of economic
activity and some kind of an organized and well-
rounded basis of the existing status of economic
activity. Now, this may be getting into the range
of the crystal-gazing, or things like that, but it
would seem to me highly desirable to do in the next,
say, thirty days the best conspectus that is
possible on these questions. These are not entirely
new questions at all, and throughout the Government
on nearly every one of them somebody has been doing
something; and, given a critical situation, you
always rely on somebody for the best possible
answer you can get on those.
It would seem to me that, even if it is entirely
tentative, a fairly well-rounded statement from
your committee as to what is the best belief right
at the present time on most of these questions would
be the point of departure. Now, in nearly every one
of those cases it would indicate, I believe, B
necessity for going much deeper and much further
in the fact-finding and filling in the gaps. And
nobody would need to be particularly ashamed if the
Regraded Unclassified
235
-7-
fact-finding happened to make whatever the
temporary and current guess was look a little
bit silly, provided you had done the best you
could. I think that if you went into this thing,
you felt that there would be rising activity
throughout this year, that the critical situation
was the early part of 1940, that the situation
might be one of bottlenecks, price, or it might be
of lagging durable goods industries - that if we
saw that or we saw that the Government was with-
drawing too much from the stream of purchasing
power, or withdrawing it too fast, that would
guide in large measure, it seemed to me, your
determinations on Social Security and taxes and
railroads and housing and things like that.
H.M.Jr:
And if I may just add: an annual appropriation
for the unemployed, when Colonel Harrington goes
up for the third time this year. I mean now this
thing that you're talking about interests me
tremendously, and I saw Harrington yesterday and
now when Harrington goes up and asks the third
time for his appropriation, he ought to have
something like you're talking about to base it
on, and say, "This is what the Administration
needs for twelve months"and not another seven
months' appropriation and go back again a couple
times more. But he hasn't got anything and the
Administration hasn't got anything to hand him
and say, "This is what the Administration feels,
this is the outlook, this is what everybody feels,
this 15 what the President thinks, and the rest
of them, and on that basis we need X dollars to
carry us for the fiscal year 139 and '40. Right?
Henderson: You know, given a repetition of the most vigorous
reemployment that we had since 1929, what the out-
side possibilities are of removal of people from
the unemployed lists; you know that between now
and, say, January and February, what the most
optimistic forecast can be. Now, that's one
datum upon which you could get B fairly good
agreement.
And I think that as far as your lagging industries are
concerned, that could be spelled out fairly quickly.
We're fairly well along on some of those in Labor and
236
-8-
Commerce for our own Committee's purposes.
I make that as at suggestion. As I said, it
looks like 8 little bit of reading of the
tea leaves, but I don't see why the Government
shouldn't do the same thing 8.5 an industry does.
White:
I think that that point is very important. It
ties up with what you said about 8 reasoned,
well-rounded picture about which you don't want
to be rushed. It appears to me that before any
attempts at deciding on some of the more important
steps are taken, you have to have a diagnosis of
the patient, a general diagnosis; and otherwise it
is extremely difficult to fit in the pieces, and
otherwise many of the reports will be no different
than many of the past reports; unless there is a
more fundamental and over-all picture taken of
what is before us and what the status 1s, I don't
think we'll emerge with anything that will be very
much different than the past or very much worth
while.
And I think that's the reason why the first three
questions, which sort of call for that - if one
were to expand them and extend them and interpret
them very broadly - were placed there. It is another
way of asking, "Just where are we and justwhere are
we going, and what may we expect in the next couple
of years?" And that should be the initial task,
though it need not be mutually exclusive; that is,
you may proceed on several of these questions that
seem to be more immediate at once, but that should
be the general framework within which the specific
discussions should be set.
And I would be strongly in favor of not rushing this
thing, because if you come down to it, in the last
analysis, the men available are not so very many, and
the differences have to be ironed out, where they can
be ironed out, and it's not a matter of - thirty
days is pretty short.
H.M.Jr:
Well, if I might just say one thing more, so you
people know how I feel. In addition to enalyzing
why we had the troubles in '37 and 138, also taking
care of some of the immediate problems that we have
here: Pocial Security, texation, any other problems
Regraded Unclassified
237
-9-
which may come up; and also in addition to what
Leon Henderson says: let's take a look into the
future, I hope that out of this work will come
some very positive recommendations as to what we
can do to really get this country going on a better
basis. I mean because the way I feel is, 1940
isn't so far off, and Mr. Roosevelt will have then
been President for eight years, and if the eighth
year that he's here - we've just got te solve some
of these things, and the eighth year has got to be
a prosperous year. Otherwise, all the excuses in
the world aren't going to hold up, and if after
eight years under a democratic form of government
we can't make a success, the rest of the world will
say, "Well, why lecture us? You've had eight years
of democracy and what have you got to show for it?"
And if our position in the world is going to be of
any influence, I think we've just to solve some of
these problems.
And I want to say again, ES far as I'm concerned -
I think I'm speaking for the people with me - that
I don't know anything that is more important and I
would just do anything that I can to assist really
to solve some of these things, so that we can at the
end of the eighth year have something to show for
the time, and that we don't end the eighth year
with just 68 many unemployed, and so forth and so
on, and all the things that they can say.
So I do hope that out of this work will come some
positive recommendations, things that the President
could do to really cure some of our ills.
Accles:
I think that we'll find that it involves some
legislation - I don't mean new legislation,
necessarily, in some instances, but I think you'll
find that it will require amendments to existing
legislation and possibly some new legislation.
The difficulty of that is if Congress gets through
here in August, if they go that long - and the longer
we have to wait the more legislation gets under con-
sideration and the more opposition there is to taking
up anything new; and then if Congress gets out, 1940
is the time when they're all going to want to get
through pretty early, want to get through by June
if they can; that's & very difficult year to get
238
-10-
legislation, and it seems to me it might be too
late, even if we got legislation in '40, for it
really to be effective for the year 140. 80 even
though we've got nearly two years of the present
Administration to get something done, as a matter
of fact we've only got 8. comparatively short time,
if it requires legislation, which I feel sure to
accomplish what 15 necessary to accomplish is going
to require legislation.
Henderson:
Just take the one question of the expension of hous-
ing in sufficient quantities to make a real dent
in unemployment or to meintain a. level of activity
next year. That legislation has got to be gotten
within the next forty-five days; that 1s, my assump-
tion is that there is 8 potential market for expan-
sion of housing which we will not touch by the very
satisfactory gains that we've been making under the
existing set of arrangements. Now, if we want that,
we know now long it requires for 4 given new policy
to get into action, particularly if it affects dur-
able goods and construction and things like that;
and if we would look at the prospects of next year
and see that we're only going to be down probably
to, say, eight and a half million, nine million
unemployed by that time, and that one of the areas
in which you've got to really take action is housing,
it would be seen very quickly, I believe, that some-
thing much more fundamental, something much different
than has been done up to now needs to be organized
88 a policy to take that place. And ES Marriner says,
the only time for getting your enabling legislation
is this period.
so 1 feel that if we went through these questions
with the best available talent in this town and on
the outside, and organized something which could be
presented to your Committee, say, in an evening, so
that you would then get the distillate of the best
minds around here, you would have that 85 a basis
for a determination; and that would not interfere
with e long-time program; certainly, on any number
of these Questions, we're going to add to the
body of knowledge, I believe, by intensive studies
in our own Committee.
Currie:
If I get your thought, Leon, then, it is to com-
promise the suggestions so 88 to take in, say, two
239
-11-
and three on page one immediately, and then
immediately after that Social Security, unem-
ployment, and perhaps housing, whatever is coming
up within this next month or two of decisions, and
try to do those things right first.
White:
But the point 1s, it seems to me, important to
stress that your recommendations and your findings
on these particular points will not have much
validity or have muc h carrying power in convincing
Congress or the President of the need of that type
of legislation unless it is set in a framework,
unless it is preceded by an analysis which ind1-
cates clearly, if it can indicate clearly, the
necessity for doing substantially the kind of pro-
gram that you're going to suggest. In other words,
you have to drive home the necessity for drastic
action if you find such action is necessary. You
have to first meet the argument which will prevail
everywhere: "weave things alone; they're getting
better now and they will continue to get better in
1940, and don't monkey with the machinery except
for minor changes."
And that's why I think it is so important to take
one, two, and three and make a very careful, compre-
hensive, end convincing picture of it, expanded;
it doesn't quite cover the territory. Otherwise,
you make a recommendation with regard to nousing -
so what? There have been any number of recommenda-
tions made in regard to housing. Suppose yours is
a better one; they're not going to regard it 83
essential, they're not going to feel that things
of that kind are called for in this administration.
Eccles:
It seems that the study of these three things, 83
Harry indicates, is going to bring out as a back-
ground, without question, the fact that we're still
going to have plenty of unemployed in 1940; it's also
going to bring out the fact that the national income
in '40 isn't likely to be 80 billion, that we've still
got lots of room to move toward the thing that we
want to be sure that we do have in 1940, that we
should take such action now as will assure a vigor-
ous, healthy, strong recovery during that period.
And in order to get anywhere with Congress or with
240
-12-
the public, even though we may know of enough
information to convince us that we can do a lot
of these things, you've got to have a more com-
plete picture to give to the public, you've got
to let them know what the objectives are, and why
they are what they are, and why you think in order
to reach such objectives that certain things are
necessary to be done. Otherwise, they're not going
to be convinced.
Now, this manufacturers' report here is a fine
report for an organization that doesn't have to
take action. They have no specific action that
they have responsibility for, such as the admin-
istrative branch of the Government or the legisla-
tive branch, and therefore they cover a pretty.
general broad field. But after you read it all -
it's enlightening to get their views, but the whole
question is, what specific things can be done to
arrive at some result? Now, the result that we've
got to get here in 140 is beginning, toward the end
of a year, to go toward an 80 billion dollar national
income. Now, we've set that, the President's set it,
and we know that if we even get that, there are still
going to be a very substantial number of unemployed
people. Unless we have substantially less by the
end of 1940, it doesn't seem to me that we've got,
after a period of eight years, & very good record.
Now, therefore, we've got a very definite objective
and we're primarily interested in setting the frame-
work for such action 85 may be necessary and justi-
fied to get that kind of result. I think that's the
primary thing we've got to think about, and time is
rather of importance.
H.M.Jr:
Excuse me 8 minute. (Talks aside with Mrs Klotz)
White:
What that report apparently does is go right down
the line and say, "This is bad and that's bad, and
this should be so." I'm very eager to see their
report. They may have done a lot of anslytical work
which may be very helpful to get their point of
view and also they may have done a lot of statisti-
cal work. They were eighteen months on that job
and had so many people; now, that report may be
extremely helpful.
241
-13-
H.M.Jr:
I'd like - if you're talking about the N.A.M., I'd
like to find out who their technicians are who
worked on it, and rub shoulders with them.
Henderson:
You'll find that one of them was Wilford I. King.
Thorp:
Ray Wester.
Henderson:
And Gus Dyer, of Vanderbilt University. But King
certainly. King told me when he was here in the
summer that he was working on something like this.
H.M.Jr:
Well, it would be interesting to get him down and
rub shoulders with him and
...
Henderson:
Like to rub a few other things, too.
(Hearty laughter)
Delano:
of course, there's one thing, Mr. Henderson, SS I
see it; I've seen N.A.M. in action for a number
of years, and this is the most liberal thing I've
ever seen them get out. But manufacturers don't
pledge themselves to anypolicy in this thing. They
might have a lot of pious suggestions, end it's
going to be very helpful to see how their experts
have worked it out, but whether the rank and file
will toe the mark, they don't pledge at all; they
cen't.
Henderson:
It would be very helpful, though, from their report,
on some of these questions that are raised here, to
say that they had said this. I mean that's all
you've got right at the present time. You can't
tell whether the Government competition has sctually
restrained a tremendous amount of investment, but
you can say that the N.A.M. says that it did, pend-
ing the time you can get to a well-rounded study of
it.
Currie:
We tried to list all of the deterrents that any
of us had heard discussed very much, but we may
find more.
H.M.Jr:
The most encouraging thing is that somebody else
had the 1dea also; so it convinced me we ought to
get busy also.
Regraded Unclassified
242
-14-
Accles:
The encouraging thing about this report 1s the
fact that as a business organization they're
willing to admit that business can be end is at
fault. Now, the most - up until recently it's
usually been that if the Government hadn't done
this, if it hadn't done that, everything would
have been all right; the whole thing has been
blamed onto the Government; and it's very whole-
some if you can get them to enumerate the number
of mistakes that business has made, which they do
enumerate and which people in the Government have
recognized that business was making, and business
has never been willing to recognize it. And I
think it's a wholesome thing toward a possibility
of getting together when both sides will admit
mistakes. It creates an atmosphere that certainly
is favorable for cooperation.
But we have a very different responsibility, of
course, than they do. There are certain things
that we in the administrative brench of govern-
ment, with the sssistance of the legislative, can
do; we can definitely do certain things, whereas
E body of that sort - there's very little that they
can do outside of talk about it and nave their report
exercise such influence as it may upon the public and
upon their members.
H.M.Jr:
Well, see if I can sum up what this thought is here
this morning. You're going to take a look at those
sorts of things and give them the right of way -
Social Security and texation - because we here will
have those things before us to hendle, before we
know it. You're going to do what Mr. Henderson sug-
gested and see whether we can't get out E - would
you call it E business forecast?
Henderson: Well, you can call it that, 02 make it dignified,
call it a conspectus.
4.M.Jr:
We don't use those two-doller words around here;
but we can learn. Anyway, a forecast?
Henderson: Yes.
H.M.Jr:
All right.
Henderson: Well, I'd went first, before the forecast, a well-
organized statement of the present status of
Regraded Unclassified
243
-15-
business activity.
H.M.Jr:
Well, could you state it so that - outline your
thoughts in a page, and then the boys could take
it - I mean what you think they ought to do?
Henderson: Well, I think I can say it right now.
H.M.Jr:
Good.
Henderson:
I would think that, first of all, a brief but
pretty wide coverage statement of where we are
in business activity now is needed, as a point
of departure for our thinking. And then the very,
very best guess as to what is likely to be the
course of business activity over the next, say,
fifteen months, because that's the period compre-
hended in my thinking. Third, an organization of
the best information immediately available, on an
opinion status, of course, 88 to the answers to
these questions that we have here. And then a
beginning of concentration on the things which
are immediately pressing, such as Social Security
and taxation and railroads and the other items
that you can see coming immediately over the
horizon for attention; take those for individual
studies and much more concentration on those in
terms of timing and application of information and
expansion of the staff work that is done on them.
And then finally I would look toward this 120-day
or what I believe would be, more likely, late fall
report, which would have pursued 8 number of these
items to the best factual determination that could
be gotten, as a basis for looking ahead to 1940.
H.M.Jr:
Dr. Thorp, do you want to make a contribution to
what you think the staff should continue to do?
Thorp:
No, except I don't think I disagree at all with
Leon's general approach. I don't see any reason
why this study should be allowed to interfere with
proceeding with action wherever action was called
for. But I think it can be tied in 50 that the
first stage, or rather the - I don't know what the
number of the stage is, but it would seem to me
that you have to divide the answering of these
244
-16-
questions into two stages. One: an attempt to get
about it as to what their opinion is; no new
agreement among the people that have been thinking
research being done, but just to get agreement of
the best judgment that is possible on many of
these questions, particularly doing that where
you're heading into an action situation. And then,
proceeding where necessary with more elaborate study,
thinking about the fact that it is time we had a
clear-cut, integrated statement of national policy,
you might say; I think that in itself is absolutely
essential before 1940: that we be able to tie all
these parts together and know wherein there are
weak spots and where there are strong spots; and
that's another value of the job that I think needs
to be emphasized.
But right now I think you can get answers, tentative
answers, within the Government to most of these
questions, quite sufficient to formulate an immediate
program of action. And I doubt if research work
would make very many changes. Once in a while it
might make considerable difference, but I doubt if
it would make many changes in the present judgment.
The point is, the question hasn't been asked in an
organized way, so that you haven't had everybody
who might be interested in getting together and trying
to thrash it out. That's the most useful thing, it
seems to me, of this job.
H.M.Jr:
Hanes?
Hanes:
I'm sorry in a way that we got away from that first
memorandum so far in this one, because it seems
to me that Leon's approach to this thing here is
much more fundamental than asking yourself the
and capital investment would prevail 1f.
question "What levels of production, consumption, I'd
rather approach it from the other angle: how're
we going to get the income, regardless of what the
results are after you have arrived there. I'd
like to find out an answer to these what seem
to me more basic and fundamental questions that
were asked in the first memorandum, rather than
this long and to my mind much more complicated
questionnaire that we've got here.
Regraded Unclassified
245
-17-
In the first memorandum it seemed to me that
we could divide the questions and probably cut
down B. great many of the questions which called
for what somebody at the last meeting termed
essays. It seems to me that the time for essays
is rather limited. I've gone through that memor-
andum of the first meeting, which I incidentally
hadn't seen up until that meeting; but I've cut
down those uestions to eighteen questions rather
than twenty-seven questions, and I've divided the
Title I questions into the three different cate-
gories where I think they belong, which were funda-
mental causes, psychological causes, and some were
results of those things which were set down as
causes. It seemed to me a much more direct approach
to the problem than this more or less essay approach
that these kinds of questions - the three fundamental,
basic questions - suggest to my mind.
H.M.Jr:
Let's have how you did it. I'd like that.
Hanes:
Instead of your basic questions in your February
11 memorandum, which were all based on what would
happen 1f we arrive somewhere, I'd rather - I
approached the thing from the angle of how could
we arrive at those common objectives which we
all agree are desirable.
Under Title II of the first - I don't know if you
have before you the memorandum which we had at the
last meeting or not, but it seems to me that I
would change under Title II the fifteen so-called
causes, which I think should be divided into three
categories: One, fundamental causes; two, psycho-
logical causes; and three, the things in those
fifteen items which were to my way of thinking
results of those causes.
Under the title of fundamental causes, I would
list the following without regard to their rela-
tive importance - these are taken directly from
the memorandum -: (a) Consumer resistance to
rising prices. (b) The curtailment of Government
spending. (c) Labor difficulties, including
rapidly-increased wage rates and sit-down strikes.
(d) Shortages of skilled labor in key positions.
(e) A too rapid increase in production costs,
(r) A contraction in the market for new capital
246
-18-
issues. (g) Government tax policies. (u) Mulad-
justment of prices and price rigidities.
(1) Government competition. (J) Excessive
short-term installment buying.
Under Title II, more or less psychological causes,
as they seem to me, were: (e) Deflationary ffects
of increases in reserve requirements; and (b) fear
of gold price reduction. They were listed as funda-
mental - as part of causes in 15 in the other memor-
andum.
And then under title of results, it would seem to
me that an over-accumulation of inventory was par-
tially a result, 88 I remember it, of 6 and 7, I
think it was, in the old numbers. (b) Excessive
speculation in commodities; and (c) a decline in
new construction.
It was more of that direct approach that I had in
mind would be valuable at this time rather than
what would happen if we arrive at an 80 billion
dollar income. Well, I'd rather approach it from
the bottom and say, "How can we work toward an
80 billion dollar income?" That seems to be the
common objective. Let's take all the things that
people are saying and everyone is agreed are having
a retarding effect upon an arrival at that spot, and
study those things with an idea of correcting where
correction is needed and adding legislation where
legislation is needed. And I think with Marriner
thoroughly that we naven't got two years, we've got
six months, and the last three months of that six
is going to be a very difficult time, in my opinion,
for getting anything done unless we've got a tremen-
dous study backed up by something concrete to lay
before this Congress in order to sell them the
thoughts which will be the outcome of this group's
thinking.
Henderson: Mr. Secretary, I'm a little bit confused. John,
it seemed to me that this memorandum S tarted right
out with, under I, "ascertainment of existing
deterrents to private enterprise and the measures
that may be taken to remove them and to stimulate
recovery," and II, the "action that may be taken to
prevent the emergence of factors that would endanger
-19-
247
an orderly and sustained approach to full
recovery"; now, those questions that are set
down on the first page, it seemed to me, are
pretty pertinent in terms of what you get to
in terms of bottlenecks and things like that.
There's been a tremendous amount of work done on
these items. In fact, the consumer study which
is being done by the National Resources Committee
now has gotten most of that information. But
you've got to be looking towards it in terms of
which industries are lagging and which industries
are at capacity and would be at capacity, and it
seems to me that before you can start on any pro-
gram, whether it's Social Security or taxes or
housing or railroads or utilities, you've got to
have some analysis of the existing situation and
some idea of what would happen in case the desired
action did take place,
Hanes:
I think we're agreed. I agree with you perfectly
there, Leon. My thought is to get away as far as
we could from the questions which equire essays
and get down to the basic facts; that was all my
suggestion was.
Currie:
There is some uncertainty in the committee, Mr.
Hanes, on that point. We met four times, long
meetings; this is the fourth dreft. I think if
we met eight times, there would have been an
eighth draft. But I think the first or second
meeting we had boiled it down to things which we
thought we could get a fectual enswer for and
fill out quantitatively. Then it was brought out
that the President had wanted the questions provoce-
tive; so with that consideration we went back to
the first idea and put in these provocative dis-
cussions which we couldn't answer quantitatively
but we could discuss and give the relative considera-
tions. So as a course of evolution that's how the
document happened to evolve.
White:
I don't think there's much difference in the point
of view as you expressed it and the approach that
we had; the difference is in the formalistic and
more carefully and to a large degree more academically,
and perhaps unnecessarily academically, phrased ques-
tions. We first want to know where we're going,
because if we're going up and if we're going to
248
-20-
continue to go up, then the only thing we have
to concern ourselves about is to make sure that
nothing is done in the next two years to repeat
any errors that may have been made in 1937 or
1938. If, on the other hand, 6.S may be the case,
the elimination of repetition of those measures
that are regarded now as having stopped recovery -
if those measures did not really stop recovery, or,
rather, did not introduce a recession in general,
merely introduced it in that month rather than a
later month or an earlier month, then we have to
answer the basic questions to see whether there
are more fundamental, deep-seated factors in your
economy which will bring about a recession in
1940 even if you don't repeat what we did in 1938.
It seems to me both are necessary.
Hanes:
I think that's true. I think perhaps I can sum up
my thought by saying that to the lay mind - I'm not
an economist, I don't understand B. lot of terms that
you've used there; I don't think the public generally
would understand them.
It seems to me the first approach to this thing
would be asking a good straightforward, frank
question in language we could understand and B good
frank answer to those, regardless of where the
chips fell. That's what I think we need, and it's
that kind of realistic thinking I think we've got
to do right now. ÁS Marriner says, we haven't got
much time, and if we do get off that basis I think
you get into 6. long discussion of pros and cons
which is going to lead us nowhere.
I mean, for instance, 88 I approach this tax problem,
I've asked time, time and again, and Ican't seem to
get an answer: should there be more taxation; if 30,
what kind, if not why not, and if so why? I mean
take B simple direct approach to that. The President
has recommended 422 million dollars of new taxes.
Now, if we're going to follow that recommendation,
and I assume that's what everybody wishes to do - or
if we're not going to follow it, we should be able
to point out to the President just why we don't want
to follow that suggestion.
That's my whole point here: that this approach in
249
-21-
your second memorandum to the lay mind - well, I'll
call mine a very, very simple one - it just is a
difficult thing for me to absorb all that stuff
that's in that second memorandum, whereas the
second one was asking specific questions.
H.M.Jr:
You mean the first one.
Hanes:
I mean the first one.
White:
I think it's a question much more of rephrasing; I
think the criticism you're making is a just one,
end I think it can be rephrased to meet most, if
not all, of the objection you raise without changing
the content. In other words, I think what's here
contains virtually everything that was in the orig-
inal one.
It is true, however, Mr. Hanes, that as economists
go into each one of these things they tend to be
more nearly accurate, they tend to become more
academic.
Hanes:
I say you obscured it for me.
H.M.Jr:
And if I may interrupt, I feel the way Mr. Hanes
does, only more SO. Now, this second memorandum -
I don't know whether it's me or the memorandum or
what, but the second one has Just got me all up
in the air and I've lost my interest - I mean 1f
it was based only on the second memorandum. The
first one had something about it, a ring of sin-
cerity and a fairness, which I don't feel the
second one has at all.
White:
Well, I think if you give us another chance to
revemp
Hanes:
The Secretary and I have not been in collaboration.
I don't know how be feels on that thing. I said
I to said to Gene after two minutes of it: "This thing
Gene when I first saw it on Saturday afternoon -
confuses me."
H.M.Jr:
Well, at 11 o'clock yesterday Harry found out how
I felt about it at the house.
Regraded Unclassified
250
-22-
White:
I think if we have another day or two we can get
something that will more closely approximate what
you have in mind. But I confess that as we went
over each question in the group and there was final
agreement on each question as phrased, there was
a feeling that all of these questions included the
other; but in reading it over, I quite agree with
you that it has assumed an academic and technical
phraseology which may well serve to obscure the
simplicity of the underlying and basic questions.
And I think we may be able to regain that simpli-
city and directness with a little more attempt.
Don't you think so?
Henderson: I think you could let this serve as the basis for
the economic survey.
Hanes:
wet the economists read that, if it's clear to them;
let them read that, but give us something we can
understand.
Henderson: As Harry says, it is more precise, and every word
was argued on, as far as I can remember,
White:
That's right.
Henderson:
in an open conference, and trying to make it
reslly expressive of what you wanted done. It
needs what Gene would call - it needs a rewrite
man or a reporter to take it and point it up into
specific, sharp questions.
Hanes:
Like we used to say over in the S.E.C. - when the
lawyers came in with these long regulations I'd
never vote on them; I said, "Go back and write it
in English. You get it all so confused with legal
language that the meaning is obscured. If you mean
this, let's say this." That's what we used to say
to the lawyers over there. I feel a good deal the
same way about this.
Henderson:
You can't take that first list of questions and do
an economic survey on it.
White:
I think your solution is a happy one. Have the sort
of thing they justly want, and then for anything the
technicians are working on, they can work up any
sort of complicated hieroglyphics they want.
251
-23-
H.M.Jr:
What Hanes and I want is a crib to this thing, so
we can get 8 a free translation.
Thorp:
Now, the committee didn't know, for instance,
H.M.Jr:
Isn't that right?
Hanes:
That's what I want.
Thorp:
The committee didn't know whether this WGS to be
written in such a way that it was to be made public;
you'd write it differently if it was to be made
public than if it were something for the economists
to take to extremes to work on. That's one of the
difficulties of the whole job. Who 1s it for, to
whom is it going?
H.N.Jr:
I could answer from my original idea as to who it's
for: it's for the President, and I sincerely hope
that when we can agree amongst ourselves that he'll
make the thing public; because I'd like the country
to know that ne's thinking about it, that he's got
his administration working on it, and that he wants
suggestions from everybody and that this is what
he's thinking about. And I think it would be most
encouraging to have the country know that the Presi-
dent is doing it and he's got everybody in the
Administration working on it.
daas:
Could I come back, Mr. Secretary,
H.M.Jr:
I think the statement is the President's, 8.5 I
pointed out before, and I sincerely hope we can do
it in a way that it will be sufficiently attractive
to him that ne will make it public. And I've only
talked to him about it once, and the first time
when I left nim the impression that I got was that
if it could be improved upon and if people like
Mr. Henderson, Mr. Thorp and the others that
weren't in could add to this thing, why, he would
take it. I mean that's my impression. I want - I'm
repeating myself - I don't know anything better than
if the country thought that the President of the
United States and his administration were working
I think it would be wonderful, even if we only solve
just as hard E.S. they could to solve these problems;
one or two.
Regraded Unclassified
252
-24-
Baas:
Could I make a comment, coming back to the approach?
With regard to Leon's suggestion as to an approach,
I think there 1s no question that one of the first
things we have to do is diagnose the present status
of the business situation.
But then it comes to the question of projecting
what business is going to be in 1940, and on that
projection you're going to make recommendations BS
to policy. I don't think this group or any other
group can forecast with any great degree of certainty
what's going to happen in 1940 if just nothing was
done. You have to make certain assumptions. I think
if you're going to have a policy you have to have
some kind of forecast, and the impression I want to
leave here is that any forecast that is made has to
be a very tentative one, and I think it ought to be
made within a certain range, minimum and maximum.
I think it's a forecast that should be just a work-
ing forecast, like General Motors and these other
companies have, subject to revision each day BS
new developments come along; and the Advisory Board
should be advised of those currently. I think it
would be very unfortunate if the Board had the
feeling, or anybody had the feeling, that any group
could sit down and with any high degree of certainty
estimate what was going to happen in 1940, because
I'm sure you're going to be disappointed.
H.M.Jr:
Now, who have I overlooked? Ruml. How could I
overlook Ruml?
Ruml:
Well, I'm all in favor of the philosophic approach.
I think it's a very good thing to have a highly
systematic and organized body of opinion and fact
that tends to make for policy. I think it makes
the things you do mutually consistent and I think
it gives you a feeling of certainty in case heroic
measures are needed that might otherwise be approached
with timidity.
On the other hand, it seems to me equally true that
it is awfully important that the national income in
140 should be higher than it is in 139, or it's going
to be. It seems to me that at our meeting in December
Mr. Currie educed some rather interesting evidence
253
-25-
to lead us to believe that there was B. possibility
that it would not be as high as '39, It seems to
me the situation today is less good than it was in
December. It seems to me that if we take thirty
days to get 8 conspectus and fifteen days to decide
what we're going to do with it and sixty days to
study the textual matters with respect to the
proposals for action, that it will then be the
first of June, it will be time for summer vecations,
and your 1940 situation will be on your hands,
because there is nothing you can do after the first
of October that's going to affect 1940 very much,
except panic moves.
H.M.Jr:
Panic what?
Ruml:
Panic moves. I mean everything will have been done
by the first of October that can be done in an
orderly manner.
It seems to me, therefore, that it might be advisable
concurrently with this investigation, which I heartily
approve, to see that someone else is charged with
organizing the study of various action measures which
might mature simultaneously with the report that
comes here, so that we will not have to wait for this
report of somebody working on measures for action.
It seems to me that has to be done through E process
of delegation and organization. And commenting on
Harry White's statement about the need for accurate
diagnoses, I'd say that post mortems are more accurate
than diagnoses.
H.M.Jr:
Well
Eccles:
It seems to me this report, and even the one we had
the other day - they cover nearly everything to be
considered in the whole field of economics, and you
can get into endless controversy about the relation-
ship of such action to such other action, and so
forth. I agree with John that we've got to be per-
fectly practical about this thing, that time is of
the essence; that we know the politician and the
American public and, after all, anything that we're
able to do - if it's going to be successful, it's
-26-
254
going to have to be something that is sold to the
public, and only in that way do you get it sold on
the Hill and only in that way do you get action.
So it seems to me we've got to think about this
whole thing as primarily somewhat of B selling
job we've got to do. If we want to get action,
we've got to dress this thing up so we can sell
it, so that it makes 8 practical business appeal.
And we're not going to find any disagreement 85 to
objectives, that's one thing. Everybody always
agrees as to objectives, but it's a question of
method. They'll all agree that this 80 billion
dollars is a perfectly proper objective. That's
fine. But how do you get it, see? And right there
is where you begin to divide, and we know what
certain people say and we know what other people
say.
H.M.Jr:
But wishful thinking isn't going to do it.
Eccles:
No, that isn't going to do it. So we can agree on
the objective. What we've got to do, it seems to
me, is to pick out some of the more obvious things,
because you can't cover them all, and you only con-
fuse the public in trying to cover the whole field.
But there are certain very definite and obvious
things.
We know this railroad thing is a perfectly obvious
thing; they're not spending anywhere near the money
they need to spend, and you're going to get a bottle-
neck in equipment, and it's as important in prepara-
tion for war as battleships or enything else. That's
an obvious thing.
You have this Social Security thing, which may also
be, I think, obvious, obvious in that if we tax more
next year and we don't put out what we tax, why, you've
taken more in from consumption than you put out to
consumption.
You've got housing; that's mentioned here. We cer-
this tainly country, a need for housing. We haven't scratched There
haven't any - we've got a tremendous field in
the surface when it comes to what can be done.
Regraded Unclassified
255
-27-
may be a limitation due to labor bottlenecks or
due to some other factors; but at least there is a
big field that is an obvious one.
There are certain aspects of the labor problem that,
if we want business support - there's some very
serious questions that have been raised with refer-
ence to the modification of the Labor Relations Act,
and also some questions with reference to hours. I
mean there are certain factors; maybe we don't want
to touch it, but the point is that there is a field
that's pretty obvious on the part of a lot of people.
Now, I merely mentioned a few of those because I
think
H.M.Jr:
Could I add one? I forget what the number was in
the original memorandum, but the way it was stated -
the one where we attempt to raise the question of
what was the Government's position in activity - I
mean try to define it.
White:
That's in the second one. Do you want me to read 1t?
H.M.Jr:
Read it the way it was originally.
Henderson:
Just along that line, Mr. Secretary, Mr. Thorp and I
have been telking with a number of people that are
well-versed in some of the other economies in connec-
tion with our work, and one of the best authorities
that I know of stressed that last week. He kept - he
had used a phrase that didn't seem clear to me as to
what he meant; but exactly what he meant was some
indication of the spheres in which the Government
would certainly not touch.
H.M.Jr:
Well, now, Hanes, do you want to read it the way it
was written?
Henes:
"To what extent would private investment be stimu-
lated were the Federal Government carefully to
delineate the areas of our economy in which it
other ereas exclusively for development of private
proposes to confine our investment program, leaving
enterprise? Is it possible for the Government to
specify exactly by industry or location the field to
of investment activity to which it proposes con-
fine itself?"
Regraded Unclassified
256
-28-
H.M.Jr:
That's the one I mean. And I don't think that that's
impossible. I don't think that that's impossible.
Well, to bring it right up to date - I mean after the
T.V.A. bought this property of Tennessee Power they
said, "Well, that's all very well, but we still don't
know how far the Government will go."
Now they've got this Swedish economist in town here
again. Now, you ask any Swedish economist and they
can tell you exactly what the Government's field 1s.
And the business man of Sweden knows that they're
interested in this, that and that; the other things
they're not interested in.
Eccles:
they've got a partnership.
H.M.Jr:
I think if we could do that ...
Eccles:
That's right. You've got another thing that seems
quite obvious.
H.M.Jr:
Excuse me, Marriner. I don't think you want to
overlook that. You don't have it, either, do you?
White:
That's in there.
H.M.Jr:
Put I like it Just the way it was.
Hanes:
I should think an economist could understand this.
Haas:
That's the trouble with it.
Duffield:
You'd be surprised the trouble we had with this thing.
White:
An economist wrote it.
Hanes:
I bow to him, wherever he is. I don't know who he
is.
White:
We allaccept your bow.
Hanes:
Who wrote it?
White:
I think I did, from all indications. It's in the
next draft, with some modification. That was the
Secretary's idea. I was just putting down what the
Secretary stated on that thing.
Regraded Unclassified
257
-29-
But it's inevitable in going over these things -
in so-called experts, with quotes, going over it,
that they'll try to remove whatever phrases are sus-
ceptible of dual interpretation; and that means
making it more academic, more legal, end so forth.
I think, Mr. Secretary, if you gave this committee
another few days or a week, we could have this
thing rephrased, we could indicate what we think
you have in mind as to what the specific approach
will be, what are the specific questions that
should be tackled first, and we could come back
to you within three or four or five days as a con-
sequence of this discussion with something that
I think is much closer to your hearts than this
appears to be.
H.M.Jr:
If you can do that in three or four or five days,
I'd like to do it Friday, because Washington's
birthday is next Tuesday and I hope to take a
long English week-end.
Henderson:
Is it Tuesday or Wednesday?
H.M.Jr:
Tuesday.
Henderson:
Wednesday, I think.
H.M.Jr:
Wednesday. I'll have to be back long before that.
But would you people be ready Friday morning?
White:
I think SO.
H.M.Jr:
I don't want to crowd you.
Haas:
Yes.
White:
We think SO.
H.M.Jr:
What?
Haas:
We can be ready. Give you the first one.
H.M.Jr:
Would it be convenient for the Committee to meet
again at 10 o'clock Friday?
Eccles:
I won't be here next week.
H.M.Jr:
Will you be here Friday?
258
-30-
Eccles:
Yes, I'll be here Friday,
H.M.Jr:
Fine. Mr. Delano?
Delano:
I have a monthly meeting of the Park and Planning
Commission Friday and Saturday. I guess I can be
excused from that.
Henderson:
I can't be here Friday, but that doesn't
H.M.Jr:
Well now - Thursday afternoon?
Currie:
Thursday afternoon.
White:
Thursday afternoon would be all right; then we could
have an opportunity a day ahead to circulate some of
the men; maybe they'd have a chance to look at it,
suggest changes, so that when we come here
H.M.Jr:
Hanes? Marriner?
Eccles:
Any day this week will suit me, I'll be available
all week any day and I can arrange to be here.
Delano:
About what time?
H.M.Jr:
I just see another Aranha luncheon. Gosh, those
luncheons - he's giving one Thursday.
Hanes:
I don't know about it.
H.M.Jr:
I wish when these visitors come once in a while
they'd give us some Brazilian food at least; be a
little change. I suppose by three o'clock I'll be
here all loaded.
Thorp:
Now, is this mostly a matter of just phraseology?
H.M.Jr:
No, no, much more than that; I mean take the benefit
of whatever you got out of this discussion.
Henderson:
Seemed to me three things
....
Currie:
Mr. also in Γ eference to what Mr. Ruml and Mr. have Eccles a
Secretary, in connection with Mr. Hanes's remarks,
said, I think the committee would like to
Regraded Unclassified
259
-31-
definite understanding on this question of publica-
tion. It makes an enormous amount of difference in
how you write things and how you fuss over words and
the possible misinterpretations that may arise from
the use of this word and that. If we were to prepare
that feeling that the thing would not be published,
we could make very much
H.M.Jr:
You say if you were not
Currie:
If we were not writing this with the idea that this
was going to the public, we could go along much
faster.
Hanes:
Don't you think you could write the questions in the
most direct, simple kind of way, and then before
they're published you'd be
....
White:
He was thinking of the answers, not the questions.
Currie:
It applies to both. When you come to the questions,
every word has to be examined carefully.
H.M.Jr:
Would this be 8 compromise? Write them so that,
first, I can understand them; second, that they
would go to the President, but he would take them,
if he wanted to use them, and reword it the way
he always does. Does that help you out at all?
Currie:
What do you think?
White:
Well, if it's good enough for the President, it
ought to be good enough for us.
Currie:
It's very understandable for people of good will
who want to understand; it's very easy, though,
for people who want to contort and misinterpret
to do SO. We've been hedging this, guarding it,
with the idea that it might get out.
H.M.Jr:
Nothing we've done here yet has gotten out.
Currie:
I mean that it might be gotten out officially from
the White House.
H.M.Jr:
Anything I send over to the White House I write in
Regraded Unclassified
260
-32-
a way that it can be given out. I always do.
Currie:
It's perfectly all right, as long as we know.
H.M.Jr:
Personally, anything I send, I go on the assump-
tion that it's either going to be given out or
somebody else is going to see 1t. So I always
have that in mind and that's the way. And these
other people can do it - but I always do it on that
basis. I never know when the President is going to
take something and give it out. That's his privilege.
That doesn't help you any, but at least that's the
way I work with the White House.
Eccles:
As I understand it, there isn't anything here that's
going to the White House at this time. This is a
question of merely getting an outline of what we're
going to study. And now, as to what is going to be
given out, that would, it seems to me, depend
entirely on the final report that we might make -
we may a gree upon would go to the White House as
our report and recommendation.
So that at this stage of the game it seems to me
we don't need to think about the question of the
thing being released, because we haven't any program
yet.
White:
Well, that didn't apply to the questions. There was
a possibility that the questions might be released
if they were regarded as sufficiently provocative
in order to indicate to the public that these impor-
tant studies were going forward; the answers may not
be
Eccles:
If you give to the public the idea that we're studying
a field like this, they'd say, "My God, are there all
those troubles?" It would only make the public feel
that the troubles were justa lot more than they are.
H.M.Jr:
Impossible.
Eccles:
What?
H.M.Jp:
Impossible.
Eccles:
Just an impossible situation.
Regraded Unclassified
261
-33-
H.M.Jr:
I mean it's impossible to give the public that
impression.
Henderson: I have an alternative, Marriner, to suggest. The
President could take notice of the N.A.M. 1s statement
in saying, "Within the Government, through the fiscal
group, organized attention is being given to every
one of these items."
Haas:
Then it looks as if that was the stimulus of the
study.
White:
That would please business that much.
H.M.Jr:
Look, not to prolong this thing, because I like to
keep them as short as possible - have you people
got enough, did you g et enough out of this so you
can come back with a - make a little progress
between now and Thursday at three o'clock?
White'
I think SO.
H.M.Jrt
Is that all right with you, Mr. Delano? Eccles?
Accles:
Yes, that's all right with me. I haven't got an
awful lot - I'm still up in the air as to what
we're going to do, but I'm willing to wait until
Thursday or Friday.
Business Policies Clief
In giving out the report. Howard
York Horald
Coonley, president of the N. A. M.
explained that the effort la in line
Tribess
with American industry's ennstant
drive "Mo contribute the maximum
amount to national welfare."
RED
12
Interness policies which con-
felbure to depressions are listed in
S
the report as including:
Il
13
Mistaken Inventory policies on
the part of some industries, Induced
hgt the labor situation and fear of
U.S. Policies
inflation: also lack of appreciation
Gist while an increasing Inventory
may be necessary where sales are
web, is should be in lower rasio
BlockUpturn,
to sales volume
"Unwise consumer credit policies
of many companies resulting to an
increased volume of unsound In-
N.A.M.Finds
Mailment selling.
"Fullure of many companies in
Improve their financial structure by
reducing Ased charges: failure in
many Instances to avoid overcapital-
11 Specific Points Cited
Emation or financing with borrowed
empital beyond ability to pay.
in Report, With Business
Too ready acceptance of appar-
and effects of government spending
and Labor Also Blamed
pelicies and making bustness calou-
Indions thereon: in many Instances,
moreover, business deliberately
Unsound Control,
sought such government financial
als
High Taxes Listed
Vallure in many Instances to de-
- satisfactory labor relationabips
burd on mutual respect and en-
Management Seen Erring
Operation: failure in many Instances
was company policies were sound
to monvince workers that this var
in Judging Effects of
Lne last.
Fature of business to sell Itami
Government Programs
to the public, with explanation of
lis practices, obligations and eartiri-
Eleven specific pointe where got-
butlens to national improvement."
emment policies have prevented a
Depressive Elements Listed
and and healthy business recor-
Turning to government policies
and activities. the report listed the
PTY, Including price and wage ANDIVE
following as "specific factors which
attempts, unsound business and
operated as continuing, cumulative
financing regulation and excessive
and combined depressive elements".
taxation. are cited by the National
Continued rellance upon the
Association of Manufacturers in a
theory that purchasing power can
study of the causes and prolungs-
be created or maintained by arti-
lion of economic depressions, issued
figally fixing prices or by the arti-
yesterday.
Retal support of wage rates. both
The report, however, blames bust-
without reference to the output of
ness and labor almost equally with
goods or services.
government for much slumps as in
Excessive, unsound and frequent-
1937-38, criticising management in
by unfair administered taxes.
particular for scap judgment of the
"Unsound regulation of business.
probable effects of certain govern-
with particular reference to an al-
ment moves. such heavy spend-
titude toward public utilities which
me. devalustion of currency, etc.
Bas encrmously slowed up expension
in a vital part of our national
Unglag that such policies u were
economy: regulation of security
tound contributory to depressions
which has frequently
refust be avoided, the association
operated to make financing difficult
announced that & second section of
and expensive, and efforts to regu-
the report will be Issued soon. thit-
late agricultural production.
mg conditions necessary for I/LA-
"Uncertainties created by frequent
taining prosperity. once regained.
expressions of public officials voicine
The report was prepared by the
hostile attitude toward business AND
association's committee on the study
Investors.
of depressions and represents the
"An unsound relief program which
Andings of en eightese-mento study
removed administration from those
by e group of Bity-two business
whose familiar with the particular
leaders and connomists. W. T. Hol-
problems involved: continued made-
hear, president of Standard oil Cu.
ear efforts in way which under-
at Ohio, la chairman
mined morale of recipients and de-
strayed the respect of the
Regraded Unclassified
Other Depression Canses
"Although A public works program
S.Policies
collapse of 183T-28, the report listed
in time of department train theory &
the following
sound economic concept. and might
"Government sets, each of which
be of substantial benefit, the pro-
Block Upturn,
separately might have bern desir-
gram as carried out has been ID-
able If done at the proper Lime, but
effective and frequently wasteful in
which were done at the wrong time
practice.
N.A.M.Declares
and In the wrong way, particularly
"Labor unress resulting from the
when their combined effect is con-
government's labor policy, including
sidered. Included in this category
the "fulse" assumption that employer-
were: Raising by the Poderal Re-
employee relations must lead to ID-
(Continued from page thirleen)
Serve Board of the reserves required
evitable conflict, and Gargely one-
emmental policies. the committee ob-
of member banks: sterilization of
sided and blased' administration of
serves, "undermined confidence in
gold: drastic instead of gradual re-
the national labor relations net.
the American economy and restricted
duction In Federal cash déficit ex-
"The theory that the government
the 1832-37 receivery, with the result
penditures.
should control through taxes and
that the 1937-38 depression started
"The sudden withdrawal of those
regulation the flow of funds toto part-
from & much lower level than the
artificial stimulants was too severe a
vate Industry-both as to amount.
nation's past economic history could
sheck to an economic organism that
purpose and place of Investment
have led us normally to expect and
had benome to dependent upon
"Government price policies-ef-
extended to greater depths than
them." the report said an this point.
forta to intervene in general prices
would otherwise have been the case."
"Development la the labor field,
by controlling price Invels through
Contributing factors to the depres-
including: "sit-down" strikes with
use of the Federal monetary, credit
simn in the field of labor were ente-
deliberate and illegal setzure of the
and banking systems, and efforts to
merated as Including the increasing
property of others as a means of en-
directly influence commodity prices.
number and severity of strikes; In-
forcing demands: failure of the Fed-
"Continuing and Incressing gov-
statence on wage rates not related
eral government and many state
ernment competition. and themasts of
to productivity of selling prices to
governments to protect property.
consumers, and breaking of agree-
This was accompanied by govern-
competition. with private büttend
"Government policies which name
ments.
mental indication that seizure of
= fear of infistion
General factors outlined by the
property by sit-down strikers might
Inconsistency of many govern-
committee at retarding the 1933-37
be lawful.
recovery and contributing to the
"Expression of belief by govern-
ment methods.
"Uncertainty as to the continue
1037-28 depression were outlined at
ment officials that many industrial
International difficulties, increase at
prices were too high, thus creating
snce at any time of govern-
artificial restrictions on foreign
confusion and doubt smoke business
ment methods, and what misht be
trade, effects of foreign demand for
men ad to policies which
proposed next.
was materials on domestic prices. ID-
could be safely pursued.
The cumulative effect of these NOV*
adequate amount of capital Invest-
"Proposals to reorganise the Ped-
/Continues on cape 15, column 4)
ment in the maintenance and exten-
eral judicial system, including the
sion of production equipment pents-
Supreme Court, than creating the
saty for increased employment. and
belief that we might me moving in
price rigidities resulting from such
the United States toward & unti-
factors as Increased laxes, labor re-
tralized government with essened
strictions and wage rates not related
authority in the states impairment
to productivity,
of constitutional rights and removal
Concentrating on immediate fac-
of adequate constitutions) protes-
tors which precipitated the economic
tion to all minorities."
Regraded Unclassified
February 11, 1939
264
It is proposed that an analysis be made of certain
fundamental factors related to the shorter term objective of
an $80 billion national income and upon the longer term
objective of full employment and a stendily rising national
income. Specific recommendations based on the findings of
this study will be made. The analysis will be focused on
two broad subjects:
I - The ascertainment of existing deterrents
to private enterprise and the measures that may be
taken to remove them and to stimulate recovery.
II- Anticipatory action that may be taken to
prevent the emergence of factors that would endanger
an orderly and sustained approach to full recovery.
Basic Questions
In order to determine the necessity and magnitude
of additional steps to attain the stated objectives, it 18
first desirable to answer three basic cuestions:
1. What levels of production, consumption and
copital investment would prevail (a) with an $80 billion
national income, (b) with full employment, taking into account
probable price changes?
2. What level of employment would prevail with an
20 billion national income, taking into account probably price
changes?
3. How far, on the basis of existing programs and
expectations, 10 the national income likely to increase in the
next two years?
I
A. Existing Deterrents to Private Enterprise and Their Removal.
1. Legging Industries.
Which industries and branches of agriculture
have lagged in the recovery, and why? What speci-
fic things (other than those indicated below) might
Regraded Unclassified
- 2 -
265
be done to increase the anticipated volume of
capital expenditures in: (a) the railroads,
(b) the utilities, (c) building, (d) other durable
goods fields?
2. Excess Capacity.
To what extent is the existence of idle plant
acting as & deterrent to new capital expenditures?
How much increase in consumer demand would absorb
idle capacity in various fields? How far can an
increase in consumer demand be brought about by:
a. an excess of government cash expenditures
over receipts!
b. changes in the tax structure,
c. changes in the types of government ex-
penditures?
3. Taxes.
What elements of our Federal, state or local
tax structures, bearing on property, individual or
corporate income, payrolls or sales, have particularly
adverse effects on consumption or new inventment?
What modifications in the type and methods of Assess-
ment and collection of various taxes night stimulate
capital investment? Would the abolition or restric-
tion of tax exempt securities encourage new private
capital expenditures?
4. Excess Saving.
Have our savings been geared to a higher rate of
growth in population, technological advance, emergence
of new industries, foreign lending, etc., then we now
possess? If so, has this noted P.S n. drog on recovery?
What measures are appropriate to meet this situation,
if it exists?
5. Availability of capital.
Insofar as the difficulty in security loans and
equity money for expansion appears to be n deterrent,
to what extent could this be renedied through:
8. provision of better underwriting facilities,
b. changes in the Securities Exchange Act or
regulations of the S.E.C.,
C. the establishment of A new type of government
capital supplying agency,
d. the R.F.C.,
Regraded
- 3 -
266
e, changes in state laws governing investment
of insurance and trustee funds,
f. further reductions in mortgage and other
borrowers, interest rates on loans to ultimate
E. further modification of laws and regulations
relating to bank loans and investments?
6. Monopolistic Practices.
Is the existence of monopolistic elements, such
B.B price, production and patent controls, retarding
investment or consumption? If so, how might such
controls be removed, modified or offset?
7. Prices.
Are present price relationships and trends act-
ing as deterrents? What action might be taken with
reference to prices in certain fields that would
stimulate recovery?
8. Profit Margins.
In which industries, if any, are inadequate or
excessive profit margine acting as deterrents?
9. Labor.
Are particular wage rates acting 08 deterrents?
Are certain labor practices, such as trade union
apprenticeship and membership requirements, and out-
put controls, acting 8.8 deterrents? Is labor legis-
lation, such as the Wages and Hours Act and the
National Labor Relations Act, acting as a deterrent?
What action in respect to these factors might be
taken that would be in the interests of both labor
and of recovery?
10. Agriculture.
Insofer as present agricultural price and
production policies and the carryover of agricultural
commodities are acting as deterrents, what changes or
additional measures appear appropriate?
11. Marketing Legislation.
Insofar as existing legislation in the morketing
fields with reference to retail price meintenance, what
fair trade laws, etc., nots P.S a deterrent,
changes appear appropriate?
Regraded Unclassified
4 -
267
12. Private debt Burden.
Are excessive debt structures as in the rail-
roads and utilities, or defaulted debt as in the
mortgage field, retarding new investment? How might
the deterrent effects, if any, arising from these
sources be moderated?
13. Social Insurance.
To what extent, if at all, does the present
social insurance program constitute 8 drag on
recovery? What changes might be made in the program
which, while retaining the contributory principle,
would aid in the attainment of a higher national
income?
14. Government Competition.
To what extent, if any, are private capital
expenditures being deterred by uncertainty over the
future role which 16 to be played by Government
activities of a nature competitive with private
enterprise? To what extent could this deterrent,
if it exists, be lessened or removed by a further
clarification of the Government's policy on these
matters?
15. Foreign Developments.
What are the existing deterrents to recovery
arising from conditions abroad? How might these
deterrents be alleviated or removed? How can our
foreign trade be increased?
16. Budget.
unbalanced budget a psychological deterrent? If the
How far, if at all, is the existence of an
deterrent exists, is it sufficiently serious to
warrant an increase in texes or n decrease in ex-
penditures, or both, in order to balance the budget?
To what extent could this deterrent, 1f it existe,
be modified by the introduction of brivate business
concepts into Government accounting?
17. Other Governmental Dolicies,
To in the fiscal, monetary, reilyoad, neted
what extent, If at all, have other govern-
mental utility policies and other fields not centioned above,
to deter long term investment?
Regraded Unclassified
- 5 -
268
B. Other Measures to Stimulate Recovery
1. Fiscal Policy.
(a) What measures could the government take,
either independently, or in cooperation with state
and local governments, to increase government in-
vestments in self-liquidating enterprises without
competing with private industry and without adding
to the budgetary deficit?
(b) How might the maximum volume of desirable
investment by local bodies be secured with the
minimum charge on the Federal budget?
2. Monetary Policy.
Can any further steps be taken in the field of
monetary policy to stimulate recovery?
II
THREATS TO ORDERLY AND SUSTAINED RECOVERY
1. Monopolistic Practices.
In which industries and at what level of produc-
tion will monopolistic practices and controls result
in excessive price advances? How may this be pre-
vented or relieved?
2. Bottlenecks in Productive Capacity.
In which industries and at what level of produc-
tion will be the lack of adequate plant capacities
retard expansion? How may this be prevented or
relieved?
3. Labor Shortages and Disputes.
At what points and at what level of increased
production will the lack of adecuate skilled or labor
retard expansion? How may this be prevented
relieved? What devices promise more amicable rela-
tions between employers and labor?
4. Over-Production of Inventories.
of filled orders, etc., lessen the danger
current How information on inventories, new of over- un-
far might the collection and publication and
accumulation of inventories?
Regraded Unclassified
- 6 -
269
5, Speculation.
Are present controls sufficient to prevent
disastrous stock and commodity speculation?
6. Adverse Developments Abroad.
What steps can be taken to protect our economy
from possible adverse developments associated with:
a. foreign exchange developments,
b. foreign trade and exchange policies of
foreign governments,
C. war,
d. international capital movements,
e. business recession abroad?
7. Deficiency of Consumer Buying Power.
Is there a danger that recovery will be checked
by a deficiency of consumer buying power (i.e., by
the tendency of savings to increase faster than the
demand for new capital)? If so, what action can be
taken to forestall this danger?
8. Excessive Swings in Consumer Credit.
Is there a danger that the orderly character of
the recovery will be threatened by excessive changes
in the outstanding volume of consumer credit?
9. Faulty Timing of Monetary and Fiscal Operations.
(a) Is there a danger that recovery may be
checked through higher interest rates? What bearing
does this have on Treasury and Federal Reserve
monetary policies and Treasury financing policies?
(b) How rapid a reduction in net government
expenditures would be consistent with a continuation
of private recovery?
III
SUPPLEMENTARY QUESTIONS
1. Danger of Inflation or Deflation.
Is there any foreseesble denger of (a) inflation,
policies currently being followed? What changes and in
(b) deflation arising from the fiscal and monetary
our monetary, banking and fiscal mechanisms
Regraded Unclassified
270
- 7 -
controls can be made to improve the adequacy and
effectiveness of monetary policy and the timing of
fiscal operations to avoid inflation and deflation?
2. Public Credit.
Would a substantial increase in the public debt
have any important effect on the public credit?
3. Public Debt Burden.
What is the burden and incidence of the public
debt?
4. Trend of Interest Rates.
What are the more important considerations bear-
ing on the future course of long term interest rates?
5. Trend of Price Level.
What would be the most desirable trend in the
general price level in the next few years?
6. Changes in Basic Underlying Conditions.
To what extent have the outlets for private
capital expenditures and the possibilities for sus-
tained full employment been affected by the slacken-
ing in the growth of population and by other
modifications in basic underlying factors condition-
ing our economic growth?
Regraded Unclassified
271
February 15, 1939
FOR THE SECRETARY:
If you are interested, this is the current revision
of the recovery questions. The memorandum probably will be submitted to
the full Committee in about this form tomorrow.
ESD
272
February 18, 1939
It 1a proposed that an investigation be made of
certain fundamental factore which may have been significant in
of increasing the national income in the future. Specific re-
the continuation of unemployment and which may stand in the way
commendations based on the findings of these investigations
should be made in order that policy might be formulated which
would lead to an increase in the national income. The follow-
ing are some of the basic questions to which the investigation
should be directed.
1, What are the prospects for continued recovery
in 1939 and 1940?
2. Which important industries have made less than
a proportionate contribution to the increase in the national
income during 1935-387 Which have made more than a propor-
tionate contribution? What can be done to convert specific
industries which have retarded recovery into stimulators of
recovery?
3. How far 18 the claim that new investment 10
being seriously blocked by specific Government measures
Justified, or are there other reasons why investments in the
industries shown in #2 above is lagging?
4. To what extent does new capital investment for
plant expansion and new industrial development come from
(a) cash assets, (b) borrowing, (c) sale of equity securities?
Is this capital raised through (a) organized security ex-
changes, (b) individuals, (c) banks, (d) other institutional
investore? How do these figures compare with the 1923-29
period and what 1a their significance?
5. To what extent are depreciation reserves not
being reinvested?
6, Do industries or specific ventures with reason-
ably bright prospects have any difficulty obtaining the
necessary capital in entisfactory form? If so, what can be
done about it?
:
7. To what extent would private investment be
stimulated were the Federal Government carefully to delineate
the areas of our national economy to which it proposes to con-
fine its investment program in the near future, leaving other
areas exclusively for development by private enterprise?
Is it possible for the Government to specify exactly -- by
industry, or location or function - the field of investment
activity to which it proposes to confine itself?
Regraded Unclassified
273
- 2
8. What elements of our tax structure -- Federal,
State, or local -- serve substantially to retard the growth
of the national income through their effect on consumption or
new investment? What modifications which would stimulate the
growth of the national income could be made in (a) upper
bracket personal surtaxes, (b) loss carryovers, (0) averaging
of income, (a) capital gains taxation, (e) consolidated
corporation returns, (f) taxation of dividends, (g) corporation
undistributed profits, capital stock or excess profits taxa-
tion, (h) depreciation allowances, (1) payroll taxes, (J) sales
and other excise taxes?
9. Would the attainment and maintenance of 8. sub-
stantially higher national income require a change in the
existing ratio of savings to consumption?
10. To what extent would & redistribution of our
national income contribute to the attainment and maintenance
of a higher national income?
11. The olaim 18 made that private industry by itself
can not profitably absorb current savings. Were this true,
a continued high national income would be impossible unless the
Government provided investment opportunities for capital through
public works, etc. What evidence is there that supports this
claim?
12. Is there justification for the claim that
Government spending on public works or WPA projects results in
& decrease in spending in behalf of private enterprise?
13. What measures could the Government take, either
directly or in cooperation with State and local governments
to increase government investments in self-liquidating enter-
prises without adding to the budgetary deficit?
14. Which types of Federal Government expenditures
operate to increase the national income most and which least?
To what extent is it possible to shift from those that in-
crease income least to those that increase income most?
15. How large a volume of unemployment must we expect
to make provision for during the next five years, and what means
should be used?
16. Is there a foreseeable danger of inflation or
deflation arising from current fiscal or monetary policies?
What changes in our monetary, banking, and fiscal mechanisms
and controls can be made to improve the adequacy and effective-
ness of monetary policy and the timing of fiscal operations to
avoid inflation or deflation?
Regraded Unclassified
270
- 3
production, and patent controls retarding investment or con-
17. Are monopolistic practices such as price,
or offset?
sumption? If so, how might such controls be removed, modified,
18. Would the collection and publication of current
information on inventories, new and unfilled orders, etc.,
lessen the danger of over-production which results only in BI-
cessive inventory accumulation?
19. To what extent, in what fields and with what
effects on our national income has the Government contributed
to an uneconomic price structure, and, if there are harmful
effects, how can they be eliminated?
20. Is expansion being retarded by lack of skilled
labor? If so, how can we correct the situation?
21. Are particular wage rates or labor practices --
such B.S. union apprenticeship, membership requirements or output
controls -- acting as deterrents on recovery?
z
22. For what specific products can we expect a mub-
stantial increase or decrease in exports during the next two
years? What, if any, removable obstacles lie in the path of
important increases in our total exports?
##
23. What steps can be taken to protect our economy
from possible adverse developments abroad such as (a) foreign
exchange developments, (b) trade and exchange policies of
other Governments, (c) war, (d) international capital movements,
(e) business recession abroad?
SUPPLEMENTARY QUESTIONS
(To be included or excluded at the direction
of the full Committee.)
1. To what extent, if at all, does the present
social insurance program constitute B. drag on recovery? What
changes could be made that would nid in the attainment of
A higher national income?
2. How far, if at all, 1e the existence of an un-
balanced budget 8. psychological deterrent to recovery? If the
deterrent exists, is it sufficiently serious to warrant an in-
crease in taxes, a decrease in expenditures, or both in order
to balance the budget? To what extent could this deterrent,
if it exists, be modified by the introduction of private busi-
ness concepts into Government accounting?
Regraded Unclassified
275
- 4 -
3. How rapid a reduction in net Government expendi-
recovery? tures would be consistent with a continuation of private
4. Would a substantial increase in the public debt
have any important effect on the public credit?
5. What 1s the burden and incidence of the public
debt?
6. Is there a danger that recovery may be checked
by higher interest rates? What bearing does this possibility
have on Treasury and Federal Reserve monetary policies and on
Treasury financing. policies?
7. Is labor legislation such as the Wages and Hours
Act and the National Labor Relations Act acting as a deterrent
to recovery?
*** Urgent, immediate study
##
Less urgent
Not pressing
Regraded Unclassified
DRAFT
276
My dear Mr. President:
I am sending you herewith a list of twenty-nine
questions that your Fiscal and Monetary Committee have
under consideration.
I sincerely hope that on your return to Washington
you will set aside Tuesday afternoon to discuss ways and
means to bring about recovery. As I said at the last
Cabinet Meeting, I am not very cheerful about the outlook
for the next two years but I think there is still time to
really get business going on the upgrade, provided that you
call on people, not only in Washington but wherever they may
be in the United States, to assist you in this most important
objective. As I said at Cabinet, if 1940 1s a bad business
year it seems to me it will be just a tragedy for Democracy
and I do hope that you will give all of us an opportunity to
assist you in solving some of the fundamental economic problems
which are facing this country at this time.
Regraded Unclassified
27
February 17, 1939
It 18 proposed that an investigation be made
attaining full employment and a steadily increasing
of fundamental factors which may stand in the way of
national income. Specific recommendations besed on the
findings of these investigations should be finde 60 that
policy might be formulated which would lead to an
of the basic questions to which the investigation should
increase in the national income. The following are some
be directed. (Questions marked *** are urgent, requir-
and those marked are least urgent.)
ing immediate study, those marked ** are legs urgent,
1. What are the prospects for continued
recovery in 1939 and 1940? How soon may we expect the
national income to reach B. level of 880 billion e year?
What are the threats to continued recovery?
2. Which importent industries legged in the
1933-38 period, making less than a reasonable contribu-
tion to the increase in the national income during that
period? Which industries were foremost in the recovery ?
What can be done to stimulate lagging industries, in-
creasing their contribution to the national income?
3. How far 1s the claim that new investment
18 being seriously blocked by specific Government
measures justified?
4. To what extent does new capital investment
for plant expansion and new industrial development come
from (a) cash assets, (b) borrowing, (c) sale of equity
securities? Is this capital raised through (a) organized
security exchanges, (b) individuals, (c) banks, (d) other
institutional investors? How do these figures compare
with the 1923-29 period and what 1s their significance?
5. To what extent are depreciation reserves
not being reinvested?
6. Do industries or specific ventures with
reasonably bright prospects have any difficulty obtain-
ing the necessary capital in satisfactory form? If 80,
what can be done about it?
_78
lineste the areas of our national economy to which it
stimulated were the Federal Government cerefully to de-
7. To what extent would private investment be
proposes to confine its investment program in the
by private enterprise? Is it possible for the Government
future, leaving other areas exclusively for development near
to specify exactly -- by industry, or location or function
-- the field of investment activity to which it proposes
to confine itself?
8, What elements of our tax structure --
Federal, State, or local -- serve substantially to retard
the growth of the national income through their effect on
consumption or new investment? What modifications which
would stimulate the growth of the national Income could
be made in (R) upper brackèt personal surtaxes, (b) loss
carryovers, (c) averaging of Income, (d) capital Enine
taxation, (e) consolidated corporation returns, (f) taxa-
tion of dividends, (₆) corporation undistributed profits,
capital stock or excess rofite texation, (h) depreciation
allowances, (1) payroll taxes, (j) sales and other excise
taxes?
9. Would the attainment and maintenance of
B substantially higher national income recuire a change
in the existing ratio of savings to consumption?
10. To what extent would a redistribution of
our national income contribute to the attainment and
maintenance of a higher national income?
11. The claim is nade that private industry by
itself can not profitably absorb current savings. Were
this true, a continued high national income would be 1m-
possible unless the Government provided investment oppor-
tunities for capital through public works, etc. What
evidence 1s there that supports this claim?
12. Is there justification for the claim that
Government spending on public works or WPA projects re-
sults in a decrease in spending in behalf of private
enterprise?
13. What messures could the Government texe,
either directly or in cooperation with State end local
governments to increase government investments in self-
liquidating enterprises without edding to the budgetary
deficit?
rded
- 3 -
279
tures operate to increase the national income most
14, Which types of Federal Government expendi-
which least? To what extent is it possible to shift and from
income most?
those that increase income least to those that increase
15. How large a volume of unemployment must we
and what means should be used?
expect to make provision for during the next five years,
***
16. To what extent, if at all, does the present
social insurance program constitute a drag on recovery?
What changes could be made that would a1d in the attain-
ment of a higher national income?
17. Is there a forcescable danger of inflation
or deflation arising from current fiscal or monetary
policies? What changes in our monetary, banking, and
fiscal mechanisms and controls can be made to improve the
adequacy and effectiveness of monetary and fiscal policy
and the timing of operations to avoid inflation or defla-
tion?
18. Is there R. danger that recovery ay be
checked by higher interest rates? What bearing does this
possibility have on Treasury and Federal Reserve conetary
policies and on Treasury financing policies?
19. How far, if at all, is the existence of an
unbalanced budget a psychological deterrent to recovery?
If the deterrent exists, 18 it sufficiently serious to war-
rant an increase in taxes, & decrease in expenditures, or
both in order to balance the budget? To what extent could
this deterrent, if it exists, be modified by the introduc-
tion of private business concepts into Government account-
ing?
20. How rapid a reduction in net Government
expenditures would be consistent with E. continuation of
private recovery?
21. Would a substantial increase in the public
debt have any important effect on the public credit?
22. What is the burden and incidence of the
public debt?
23. Are monopolistic practices such P.B price,
production, and patent controls retarding investment or
consumption? If so, how might such controls be removed,
modified, or offset?
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24. Would the collection and publication of
current information on inventories, new and unfilled orders,
etc., lessen the danger of over-production which results
only in excessive inventory accumulation?
25. To what extent, in what fields and with
what effects on our national income has the Government
contributed to an uneconomic price structure, and, if
there are harmful effects, how can they be eliminated?
26. Is expansion being retarded by lack of
skilled labor? If so, how can we correct the situation?
27. Are particular wage rates, labor laws, or
labor practices -- such as union apprenticeship, member-
ship requirements, or output controls -- acting as
deterrents on recovery?
28. For what specific products can we expect
a substantial increase or decrease in exports during the
next two years? What, if any, removable obstacles lie
in the path of important increases in our total exports?
:
29. What steps can be taken to protect our
economy from possible adverse developments abroad arising
from (a) foreign exchange developments, (b) trade and
exchange policies of other Governments, (c) war,
(d) international capital movements, (e) business reces-
sion abroad?
*
February 23, 1939
FOR THE SECRETARY:
In reply to your letter asking the Federal
Reserve Board to designate which of the recovery
questions it would answer, Mr. Currie called today
and said that the Board will work on all of the
"urgent" questions except the one dealing with the
outlook for exports.
yrs.
ESD
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P
Y
February 17, 1939
My dear Governor Eccles:
The enclosed memorandum has been submitted
to the Fiscal and Monetary Advisory Committee by its
technical committee as an outline for the study of
the recovery problem.
Our plan of procedure is to allow each of
the agencies associated in this work to investigate
and to report on any of the questions contained in
this memorandum. Therefore, I would appreciate re-
ceiving from you by February 23 a list of the questions
which your staff wishes to study. If these voluntary
selections do not provide for at least one report on
each question, the remaining questions may have to be
assigned. Your staff, however, is free to start work
on any of these questions at once without waiting for
submission of the voluntary list or for assignment of
other questions.
Reports on those questions marked "urgent"
should be submitted to the Committee as soon as possible,
but not later than March 20, because the questions so
marked are either of basic importance or require legis-
lative action.
Sincerely yours,
Secretary of the Treasury
The Honorable Marriner S. Eccles,
Chairman, Board of Governors,
Federal Reserve System,
Washington, D. C.
Enclosure
Regraded Unclassified