Big Shots at Depression

To the public generally, a Senate investigation means a scandal hunt. Last week, however, in the Senate Office Building in Washington began an investigation which seemed to have no particular scandal in mind: The subject was unemployment and the master of ceremonies was South Carolina's amiable Senator James F. Byrnes. Said he: "It is not the purpose of this committee to endeavor to show that either labor or capital deliberately brought about the present recession in business." As evidence of good intentions, Jimmy Byrnes pointed out that his committee had been appointed six months ago, before eco-nomic astrologers foresaw a major eclipse of prosperity.

Though there thus was no chance of vituperative cross-questioning, the unemployment investigation promised to remain on the front page. For Jimmy Byrnes & Co. last week sat back under the cut-glass chandeliers of the Senate caucus room to listen not to fusty professors or census takers but to the opinions of some of the biggest shots in U. S. industry on a subject which every small businessman loves to discuss.

Eccles. After Commissioner of Labor Statistics Isador Lubin had described the 1,550,000 drop in employment in November and December as "sharper than any which had occurred in this country in recent years,"* Marriner S. Eccles, thin-lipped chairman of the Federal Reserve System, took the stand. Marriner Eccles was one of the first New Deal officials to come out for balancing the budget. Last week he announced that he still favored a balanced budget but that it could be obtained now only by increased taxes, which would be deflationary; so would any cut in Government expenditures; so, too, would be repeal of the undistributed profits tax which now obliges corporations to declare most of their profits in dividends.

The slump he charged primarily to the payment of the soldiers' bonus in 1936, which accentuated inflationary sentiment that got out of bounds in the spring of 1937, drove prices and inventories too> high. As contributory factors he mentioned strikes, increased operating costs of railroads, lack of expansion by utilities and, finally, the attempt of the Govern-ment to reduce its contribution to consumer spending power. Said he: "Monopolistically controlled prices and wages which are now too high must be lowered and prices and wages which are too low, in relation to consumer purchasing power, must be raised."

Knudsen, A production man who worked up from a bench to the presidency of General Motors is big-boned, slow-spoken William S. Kaudsen. Last week his summons to the Senate quiz was particularly pointed because he had just laid off 30,000 men.

President Knudsen began by reading a statement which revealed that GM's 1937 inventory of $290,000,000 was a new high, that costs rose 13 1/2% per car in 1937, that GM waited until October before raising prices only 87%. He gave a brief history of this year's business:

"Sales in 1937 were excellent, both on new and used cars, and despite the handicap of the strikes were at a point where it looked as if 1936 figures would be reached or bettered. . . . During the last ten-day period in November, however, a severe drop in sales of both new and used cars took place. In fact, the total dropped to 70% of 1936. . . . When the second period in December showed a drop to 45% of 1936 it became necessary to adjust the working force, which was done by retaining all the men we could take care of on a 24-hour [a week] basis and laying off the balance. . . . The drop in sales in so short a period is the most severe experienced in the history of General Motors. It was wholly unexpected and entirely beyond our control."

Knudsen replies to committee questions :

Had he consulted any Government officials on the sales problems? "Senator, I don't think anybody in God's world could have told me that the outlook was going to drop 50% in two or three weeks."

Had it occurred to him that increased prices might have accounted for the fall? "No sir, it did not. It didn't for this reason: that if the used car sales back up, the reduction in new car prices isn't going to make them start up, and you have to get rid of the one before you start the other."

Why did not GM use the $50,000,000 it added last year to surplus to put men back to work? "If you have a pay roll of $400,000,000 a year, $50,000,000 a year is small change."

Had the Government's attitude had anything to do with the "fear psychology" mentioned by Witness Knudsen? "Yes."

"What would you have the Government do about it?" quickly interposed Senator Byrnes. Mr. Knudsen hesitated, while the room was suddenly silent, then took a slow drink of water before drawling: "I'm not in a position to know about that."

Wood. Mail-order houses have more direct contact with general public buying power than most big businesses. Last week General Robert E. Wood, president of Sears, Roebuck & Co., laid the depression to 1) overproduction last spring, 2) sterilization of a large gold supply, 3) increases in Federal Reserve requirements, 4) failure of private spending to pick up where the Government left off, 5) the fact that "business lacks confidence and is scared."

Senator Byrnes: "Why is private capital scared?"

General Wood: "I am supposed to be an economic royalist, but I supported most of the Administration's program. However, take the three speeches of two members of the Administration in the last ten days. They were calculated to scare businessmen. The President's speech was moderate, but which is the businessman to take--he has been clubbed over the head so many times."

His recommendations for improving business: i) modification (not repeal) of the undistributed profits and capital gains taxes, 2) stimulation of housing, 3) general reduction of prices. As evidence of Sears, Roebuck's faith in the last recommendation, he mentioned that his company had elected to "take a licking" by reducing an average of 12% the prices of goods produced at higher cost last year.

When he was asked to predict the future, General Wood wryly recalled that last summer he felt that conditions were good and went away for a six-weeks hunting trip. "When I came back I found I was 100% wrong." This time, however, General Wood was ready to guess that good times were not far away, for Sears, Roebuck inventories, having been cut some 40%, in common with most inventories are "pretty well worked off."

Inventories. Since most economists have stoutly maintained ever since the present depression began that with a few exceptions 1937 inventories were low, it was striking that Messrs. Eccles, Knudsen and Wood were agreed that inventories had lately been at abnormal peaks. Other Senate Committee witnesses last week included Lammot du Pont and William Green and the latter also commented on high inventories.

Of retail inventories, Editor Stanley Shaw of Standard Trade & Securities last week declared: "The majority of large retail distributors appear confident that by the end of their fiscal years on Jan. 31, total inventories, which in many cases showed increases as high as 10% to 20% above year earlier levels last fall, will be down to within 3% to 5% of those carried at the fiscal year-end in 1937." Automobile factories work on an order basis and so have rather small current inventories of cars. But GM dealers alone, according to President Knudsen, now have some 200,000 cars, 60,000 more than normal. This led Pundit Hugh Johnson to comment last week: "The essential cause of this slump was too much inventory in the whole automobile industry."

*Between October and December, 1929, said Mr. Lubin, 1,400,000 lost their jobs.

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