Marking Time

At the end of August, U. S. recovery seemed in full marching order. The stockmarket, after a healthy reaction from the whopping June and July rise, appeared on the verge of breaking into new high ground. Factory employment gained 4.9% (1.5% is the normal August increase). And commercial loans, having sagged all through Depression II, completed in New York City three weeks of solid rise. Since then, however, European militarism has gradually got into full marching order. By last week, instead of marching, U. S. business was generally marking time, with only a few industries pushing ahead like scouts reconnoitring in enemy territory.

The timidity of business as a whole appeared best in two broad indices, the stockmarket and the volume of commercial loans. Last week the market rebounded vigorously on the news that Czechoslovakia would give in to Hitler. In two days the Dow-Jones industrial averages jumped from 134.1 to 139.2. Then came the breakdown in negotiations, and traders pulled in their necks. The news came after Eastern exchanges were closed and dumping hit the San Francisco Exchange with a rush.

Federal Reserve member banks outside of New York City reported the trend of commercial loans was still up. But in New York, where Big Business does most of its borrowing, they dropped for the fourth week in succession, a $33,000,000 decline erasing all but $4,000,000 of the August rise.

But in some directions business continued its recovery march. Best example was the greatly depressed automotive industry. With the Automobile Show only a month away, automobile production for the first time this year passed the 1937 level--25,554 units last week, compared to 23,222 year ago. Power output stood at a new high since November, only 2.9% under a year ago. Lumber output rose contra-seasonally and commodity prices, whose break in March 1937 first heralded Depression II, continued a rise that has been steady since early August.

Meanwhile there was but little slackening in the flight of gold to the U. S., leading the New York Times to express a prime worry of monetary experts, what to do with it: "It is possible, of course, to sterilize the presence of gold, to keep it from forcing prices upward. . . . But nobody ever has found a way to sterilize the absence of gold. When a country [i. e., in Europe] has too little of the metal, its prices fall, bringing depression.

To relieve the depression it lowers the gold value of its currency. In its own currency, its prices may seem higher, but in gold, the international currency, they drop, exerting pressure on the international price structure. . . . The world has seen it happen again and again."

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