What Next?

After a sensational three-month spurt President Roosevelt's recovery program was slowing down last week. Farm prices had sagged from July highs, leveled out flat. September business was lagging behind August. NRA had yet to produce its miracle of re-employment. Public works made more headlines than new jobs. Banks were still tight-fisted on credit. Labor troubles pocked the land. Price rises due to NRA tended to cancel out A. A. A. gains in farm purchasing power. President Roosevelt was being bombarded with redoubled demands to turn to direct currency inflation as the one quick, sure means of keeping the country on a rising economic curve.

Into the President's office last week strode Mississippi's tall, bald Pat Harrison, chairman of the Senate Finance Committee, just back from a scouting tour of the South and West. For years Senator Harrison has been a conservative "hard money" Democrat. Yet now he boldly told the President that only by currency inflation could his recovery program be made a success. President Roosevelt listened, smiled, promised nothing. Declared Senator Harrison as he emerged from the White House:

"Commodity prices have got to go up. I favor some form of rational inflation. We've got to do more than we are doing. Personally I would try out the issue of Treasury notes. If commodity prices don't rise, I don't know when we are going to get out of this depression and the next Congress will repeal the President's discretionary-powers and make monetary inflation compulsory. If something isn't done quickly, you can kiss the baby good-by--I mean, the baby of agricultural prosperity. The success of the President's program may be in doubt."

Living proof of Senator Harrison's contention was soon furnished in Washington by the assembling of a cabal of cotton farmers' spokesmen represented, with Oklahoma's arch-inflationist Senator Thomas sitting coonily on the sidelines, by South Carolina's Senator Ellison D. Smith and Senator John H. ("Tallulah") Bankhead. More than 100 interested parties attended these caucuses, whose animated membership demanded two things:

1) 20-c- cotton futures (double that moment's market price).

2) $30 cotton seed (per ton) for the hand-to-mouth citizenry whose domestic economy has brought them scarcely enough to run their 1927 automobiles since 1929.

Eugene Talmadge, Governor of the President's "adopted" State of Georgia, was meanwhile recommending that the Government "print a lot of $10 and $20 bills and scatter them over the country by throwing the money out of airplanes."

The new outcry for cheap money failed to stampede President Roosevelt. Nobody was more ready than he to admit that his whole recovery program was experimental, that some parts of it worked better than others, that knots and kinks were inevitable. He was not discouraged by last week's slack-off. If one method of relief failed, he was willing to shift nimbly to something else, improvising as he went along. Currency inflation he still regarded as a last resort, to be used only in the event of a major business relapse. He did not propose to waste his best ammunition now simply because his front lines were slowing down in their advance.

President Roosevelt was well aware that unless he was able to make a substantial showing toward recovery by Jan. 3 when Congress next sits. Senator Harrison's prophecy would doubtless be fulfilled and currency inflation would be foisted on the country by an hysterical legislature. To head off such a development the President last week went off on a sharp credit inflation tack.

Cheap Billion. Because commercial banks see no good business reason to lend to industry to meet the additional wage burdens of the NRA codes; because the Federal Reserve's open-market operations had piled up an all-time record of $2,202,660,000 in U. S. securities without materially loosening credit; because Federal Reserve member banks had reserve surplus of $600,000,000 available for commercial loans. Reconstruction Finance Corp. was marched into the breach with $1,000,000,000 worth of cheap short-term loans for NRA members.

R. F. C. will let banks have six-month money at 3%, provided they pass it on at 5% to NRA-ers. The 2% bank profit was expected to supply the necessary incentive. For collateral, R. F. C. will accept merchants' and manufacturers' notes on products, raw materials, plant equipment, any odds & ends not already mortgaged. The loans are to be used chiefly to finance higher payrolls until buying orders catch up with NRA wages. Such lendings will put R. F. C. into direct competition with the Federal Reserve system as a discount agency. Declared R. F. C. Chairman Jesse Jones": "This is inflation--the best kind of inflation--credit expansion."

R. F. C. also announced that on Oct. i it would reduce its longterm' interest rate from 4 1/2% to 4%.

Last week President Roosevelt paused long enough to take stock of his recovery program, to weigh its achievements against its failures. He agreed with General Johnson that the nation was about 25% out of the Depression. In August 750,000 persons found new jobs, bringing the total of re-employment since March up to about 2,200,000. But the nation's jobless still exceeded 7,000,000, most of whom would have to go through another bleak winter before getting work. From Feb. 15 to Aug. 15 the index of all farm prices rose from 49 to 72, with 100 (the 1914 level) as the ultimate goal. In 1932 gross farm income was $5,143,000,000. This year it will be about $6,360,000,000. The 1914 level was over $9,000,000,000. Since the President took office, mass purchasing power has increased 16%.

The Farm Front on which he had already fired his heaviest guns was giving President Roosevelt his chief concern. Prices, he declared, must go up another 50%. How this was to be accomplished he did not say.

One-quarter of the cotton crop had been plowed under. For this Agriculture Adjustment Administration was slowly paying out $100,000,000 bonus. Good weather made the yield of the other three-quarters far above normal. Last week spot cotton was selling for a shade over 9-c- per lb. (last year's price: 7-c-). Southern planters were demanding currency inflation and 15-c- cotton. A loose law made possible the pyramiding of the 4.2-c- per Ib. cotton processing tax from manufacturer to retail consumer, with the result that the A. A. A. last week had to warn the country against profiteering and price-gouging in the textile trade.

September wheat last week was selling around 88-c- per bu. (last year's price : 54-c-) after touching $1.17 in July. Farmers were receiving about a $100.000,000 A. A. A. bonus on their 1933 crop in return for a promise to reduce their 1934 crop by 15%. Last week A. A. A. planned to export to Japan and China 35,000,000 bu. of wheat from the Pacific Northwest, take a $7,000,000 loss by selling it below the domestic price.

Farmers were not wholly satisfied with the progress of Roosevelt relief to date. Their spokesmen said they had been led to expect much more from the Administration. Milo Reno was again threatening a farm strike. Even Secretary Wallace admitted that, with NRA raising farm costs faster than A. A. A. could raise farm income, they were "on the spot unless they got higher prices." Crop subsidies had not worked; currency inflation must therefore come next, and soon.

Mortgage Front. Another farm grievance against Washington was on mortgage relief. Since March i the Farm Credit Administration had advanced $342,000,000 to Federal land banks, regional credit corporations, farm cooperatives. Yet last week Speaker Rainey roundly flayed F. C. A. for its slow progress on refinancing farm mortgages, charged it with still following "Republican policies."

Home mortgage relief was no better off. The day after President Roosevelt signed the Home Owners' Loan Corp. Act last June, Louis McHenry Howe, his secretary, in a $900-for-15-minutes radio broadcast declared that the new agency would be in operation "in a week or ten days." Last week, three months later, the corporation issued its first circular on the $2,000,000,000 in bonds it will issue "shortly" to start refinancing mortgages on small homes.

Industrial Front. The ambitions of labor to organize all industry and the resistance of employers to such a program continued to produce clashes which overshadowed most other NRA doings. So sure did William Green, A. F. of L. president, feel of his grip on NRA that last week he boldly demanded that his organization be made an official co-administrator of all codes. NRA was almost as busy settling strikes and getting union men back to work as it was in creating new jobs for the unemployed. The coal strike hinged directly on the coal code which required the President's direct intervention (see p. 11). In the East 50,000 silk workers went on strike in protest against lumping their trade with cotton and rayon for code purposes.

General Johnson had waded into deeper & deeper water on the collective bargaining clause of the law. NRA committee efforts to get President Roosevelt to issue a public interpretation of famed Section 7 (a) failed when the President declared that the collective bargaining clause was written in plain English and required no interpretation.

General Johnson figured that the Blue Eagle blanketed 85% of the land. But temporary re-employment agreements which had hatched the Blue Eagle automatically lapse Dec. 31. After that the popular ballyhoo will die away and NRA emphasis will shift to administering permanent codes, limited to a few major industries.

NRA still lacked effective machinery to cope with the price rises it was stimulating. Retail prices went up 8% during August, 18% since May.

Capital Expenditures. Last week President Roosevelt's attention was fixed on the necessity for stimulating capital expenditures. The briskest kind of retail business, by itself, would not be enough to get the heavy industries rolling.*Billions of public and private dollars would be necessary to do the job.

The Government had put up $3,300,000,000 for capital construction to be spent on steel, lumber, cement, bricks, machinery. With great fanfare Secretary Ickes had allotted almost half of this fund for public works. Yet his zealous caution and the routine delays of all government undertakings had kept cash outlays down to such trifling sums that heavy industries were still without real benefit from the program. Actual expenditures this year are not expected to exceed $500,000,000 with a scant 100,000 men reemployed. Last week four public works deputies set out from Washington on a 6,000-mi. airplane trip about the U. S. to try to hustle projects along.

Private capital was still afraid to come forward and help finance the New Deal. Investors were not yet ready to risk the uncertain monetary policy of the Administration. Because of its anti-public utility attitude, some of the best borrowers and builders had to go without capital for expansion. As predicted, the new Securities Act with its broad liabilities had virtually dried up the flow of private investment capital. By last week the Federal Trade Commission had registered only some $200,000,000 in new issues of which nine-tenths were for investment trusts which create no new business.

A distinguished outsider who last week expressed his opinion of the President's domestic recovery program was John Maynard Keynes, British economist. As an 'inflationist, his major emphasis was on capital construction with borrowed money. Said he:

"There is no conceivable way of putting more purchasing power into use except by increasing loan expenditure. . . . President Roosevelt put it in the forefront of his program. Nevertheless I fear that the hesitation in American progress today is almost entirely due to delays in putting loan expenditure into actual effect. . . . Little has been spent though much has been planned. ... It seems to have been an error in choice of urgencies to put all the national energies into the National Recovery Act. The most urgent problem was to expedite capital expenditure."

*Steel production dropped from 45% to 41% of capacity after adopting an NRA code.

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