Hindsight

"It was apparent at the end of 1936 . . . that forces were at work which threatened the equilibrium between wages and prices. Then, in the first quarter of 1937, came the development primarily responsible for destroying the existing balance and altering the whole course of events. I refer to the aggressive labor movement. . . ."

Thus last week spoke Dr. Harold Glenn Moulton, president of the Brookings Institution, before the annual meeting of the American Institute of Electrical Engineers in Manhattan. No mere plaint against labor was Dr. Moulton's argument. It was in fact but the converse of a familiar thesis, that higher wages and shorter hours are necessary to compensate for technological progress. The cause of 1937's slump, said Dr. Moulton, was that there had been not enough increase in productive efficiency to compensate for the raising of wages and the simultaneous lowering of working hours.

Other economists last week hastened to point out that while higher costs brought on by labor, technological inefficiency, taxes, monopoly-or other price-raising factors might be the primary reason of depression, a series of deflationary events

preceded it. Among them:

P: Slashing of Federal "pump-priming"

from $4,000,000,000 in 1936 to below $1,000,000,000 in 1937.

P: Collection of some $300,000,000 of

Social Security taxes.

P: Increases in bank reserves ordered by

the Federal Reserve Board in March and

May.

P:Sterilization beginning in December

1936 of $1,300,000,000 of inflowing foreign

gold.

P: Increases in stock margins in February 1936.

But whatever the causes of the present depression it was last week rounding out six months of acknowledged existence. Looking back, businessmen began at last to recognize milestones of progressive recession that they originally passed unheeded.

A year and a half before the 1929 stock crash, bonds broke. Last March, Business failed tc take the hint, however, when bonds that three months before had been at their highest level in history, broke violently. In one day $23,450,000 of Government bonds alone were traded on the New York Stock Exchange, a 16-year record.

Last April the commodity markets of the world were at seven-year highs when President Roosevelt's announcement that he considered the prices of durable goods excessive, sent copper, lead, wheat tobogganing.

Last June, after a relatively thriving first six months, railroads began to feel the serious pinch of mounting costs, accompanied by revenues that failed to rise, or tapered off. Long before U. S. business was even worried, railroads knew they were facing a great crisis.

Last August the stock market climbed to a peak of 190% the Dow-Jones industrial averages, but trading was extremely thin. While Wall Street was complaining of a shortage of business due to overregulation, prices turned downward.

By September inventories were 35% over September 1936 and stock prices had drifted back almost to the year's lows. Then the fun began. After Labor Day, date of the traditional fall upswing, came three swift crashes. U. S. Steel broke $11 in one day, falling to $93 (year's high: $126). Something was wrong, businessmen knew: War in China? War in Spain? Collapse of the French franc? New Deal interference? One thing it could not be--depression--not with steel operations at 80% of capacity, earnings at new peaks, brokers' loans a mere $1,000,000,000 (against $6,000,000,000 in October 1929), farmers' income a whopping $9,000,000,000 (close to 1929's $10,427, 000,000).

By October, businessmen were not left in doubt. Steel production dropped to 65%, 55%, 48%. Stride for stride with it went the stock market in a series _ of lurches more spectacular than anything since 1930. The Dow-Jones industrial averages dropped to 135, to 125, finally on "Black Tuesday" October 19, to 115. New financing (already a $900.000.000 trickle against 1929s $8,600,000,000) came to a complete halt when the public refused to buy $44,000,000 in Pure Oil stock. The Federal Reserve slashed margins, but Wall Street did not respond.

In mid-November, Franklin Roosevelt officially admitted the presence of "recession," began like Herbert Hoover before him to encourage big business, particularly the utilities. Steel operations slumped to 35%, industrial stocks to 113. Nightclubs failed in Manhattan. Cinema box-office receipts slumped all over the U. S. The automobile industry, which began the month hopefully with its annual show, was shocked to find new cars piling up. The tide of gold movement turned and for the first time in nearly two years gold flowed away from the U. S. in significant quantities. Scrap iron dropped to $13 a ton (against $20.50 in August). U. S. Steel Corp. stock broke through $50 a share. Newspaper advertising lineage fell 16% below November 1936.

By December Congress began to investigate unemployment. President Knudsen of General Motors laid off 30,000 men one Tuesday afternoon, put 205,000 more on a three-day week. The number of unemployed jumped 1,500,000. Steel production dropped to 19%. Furniture sales were off 30%. Moody's spot commodity price index stood at 148, off 80 points since April. John L. Lewis laid off 200 C. I. O. organizers. The railroads petitioned for an immediate emergency rate rise of 15%. The I. C. C. refused, but RFC began again to lend to railroads. In Wall Street the famed investment house of Edward B. Smith & Co. merged with Chas. D. Barney & Co.

In January, Franklin Roosevelt announced a seemingly smaller deficit for next year than this--leaving observers to infer that it would be larger after extra armament and relief appropriations were added. Steel production revived to 32% of capacity. A steady procession of tycoons marched through the White House doors carrying to the President messages of "lack of business confidence." The New Deal launched a trust-busting campaign. The Erie Railroad went into a Section 77 reorganization.

Last week, utility and railroad stocks descended to new lows. Moody's commodity index was at 149, the New York Times' business index at 82.3 (down 21 points from a year ago). Car loadings stood at 570,000 cars, down 95,000 cars under last year's level. In Pittsburgh was held a meeting of the men whom depression hit first and hardest, the presidents of railroads. Although they offered no supporting facts, they strongly sustained each other's sentiments:

* Pennsylvania's Martin W. Clement: "Business has already dragged bottom. It is starting on the upgrade."

Missouri Pacific's Lewis Warrington Baldwin: "We have not only hit the bottom in this depression but we are on the way up."

Southern's Ernest Eden Norris: "Very soon things will be humming so that the American People will hardly know they have had a depression or a recession. . . ."

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