New Offensive?

Like most of his countrymen, Franklin Delano Roosevelt is a stockmarket watcher rather than an economist. To him, as to most of the U. S., a rising market means that business is all right and a declining market is a sign of woe, fortelling that unemployment will again exceed its "normal" quota of 10,000,000. When the market is down the New Deal begins to look for new brands of unemployment reducers and market restorers. Last week, it was obviously twirling the dial in search of the right wavelength on which to broadcast a new offensive against renewed depression.

The Administration's main preparations for a drive against Depression were made at hearings of the Temporary National Economic (monopoly) Committee. The cue for them was given by Franklin Roosevelt himself. To Wyoming's Senator Joseph O'Mahoney, the Committee's chairman, he wrote:

"Dear Joe. . . . Idle dollars profit no man. . . . We have mastered the technique of creating necessary credit; we have now to deal with the problem of assuring its full use. . . ." The substance of the letter was: Tell us the answers to depression.

For a President who for six years confidently has led the U. S. into one economic program after another, this was on its face an extraordinary admission. In this case, the admission was made to set the stage for another economic program. The monopoly hearing was about to enter a new chapter of its quizzing; with the aid of SEC it was about to make a diagnosis of depression calling for new remedies.

SEC under its new chairman, Jerome Frank (elected last week by a three-to-two vote of the Commission) promptly began building up its case:

Witness Hansen. Harvard Professor Alvin H. Hansen, fully equipped with charts, tables, a schoolroom pointer and a green eyeshade, delivered the first lecture: From 1923 to 1929, the average yearly national income was $77 billions, was maintained by the average annual investment of $18.3 billions in new plant and equipment. In 1930-36 annual income averaged only $53 billions (it is now around $65 billions) and only $8.6 billions were invested in new capital goods. Professor Hansen wasted no time over economists' chicken & egg dilemma whether a big national income begets big investments in new capital or vice versa. He blamed the slump in national income squarely on the slump in capital investment.

Thus he laid the groundwork for a new recovery program. A year ago, after the stockmarket cracked, the New Deal launched a $4,000,000,000 spending program calculated to raise consumers' buying power. It did, but a year later recession again rears its ugly head, and this time the Administration, in spite of what the President said May 22 about the milk and the coconut (see p. 15), is tempted to try something else, is toying with the idea of spending for capital goods.

Economist Hansen went on to point out that from 1922 to 1928 the U. S. population increased 9.1%; from 1930 to 1936 only 4.3%. Contracting with it, all private construction has fallen from a $9 billion annual business to $4 billions. If the New Deal chooses to take Mr. Hansen's tip, a drive for capital spending may take the form of housing.

Witness Currie. Pale and shy Economist Lauchlin Currie, once of Harvard, now of the Federal Reserve Board, was gloomier still about the U. S. trend away from borrowing public savings for investment in capital goods. Between 1935 and 1937 capital investment by U. S. business totaled $21.8 billions but only $4.7 billions of the total was new money. The main part was reinvestment by corporations out of depreciation reserves, replacements, not additions to the nation's capital goods. He and Witness Hansen agreed U. S. corporations are becoming independent of new capital, able to finance themselves out of their own savings; therefore new outlets have to be found for the public's savings.

This argument prepared the way for another currently favored New Deal program. One industry which has not been able to finance the replacement of capital goods out of savings is the railroads. Most freight cars are becoming obsolete and there are 600,000 fewer cars in service than there were in the 205. Possibly $1,000,000,000 could be pumped into re-equipping the railroads with rolling stock.

Clinic. After hearing the diagnoses, SEC called patients for examination by the clinic. Those examined were U. S. Steel's young white-haired" Board Chairman Edward Stettinius Jr., General Electric's pa-triachal Owen D. Young, General Motors retiring Alfred P. Sloan Jr., United Aircraft's Frederick B. Rentschler. These tycoons readily agreed that their corporations need no outside capital to finance expansion.

Mr. Sloan and Mr. Young, both with heavy earnings, Mr. Stettinius with heavy deficits, agreed that enough millions were in their private kitties to buy all the new machinery needed. An $80,000,000,000 year for the country, said Mr. Sloan, would not strain General Motors plant capacity or its treasury, Mr. Stettinius declared that another 5,000,000 auto-year would not strain U. S. steel's existing capacity or make him a borrower of the public's savings. United Aircraft's Rentschler, representative of an infant industry, expected "as a matter of policy" to continue financing all new investments from earnings. The clinic's conclusion: if full recovery occurs steady work is assured for a good part of corporation investment funds, steady machinery buying and factory building assured to U. S. capital goods industries, but there is little chance that top-flight U. S. corporations will give work to accumulated U. S. savings sufficient to win full recovery.

This conclusion checked with the ideas of SEC's New Chairman, Jerome Frank, the most eloquent and determined advocate of "investment spending" to draw idle savings into idle capital goods industries. Chairman Frank's SEC program is to push utility integration and stockmarket cooperation, but principally to safeguard "the lifeline of American democracy" along which flow "funds from investors to business and back to investors and to labor and to farmers, in the form of profits and wages." Big businessmen would gladly cooperate on such a device as railroad equipment pump priming which would be good for heavy industry. The investment spending which he, and many businessmen, advocate would encourage private industry to make new investments and supplement its shortcomings by Government investment.

Not yet, however, is the new policy an accomplished fact. Last June, a similar program was under consideration, but there came a sudden business flurry and Franklin Roosevelt sent the idea back to the dead file. Provided the stockmarket does not turn up sharply and reassure the Administration, investment spending may become the New Deal's 1939 economic program, a program in which the U. S. Government may become investment banker to the U. S. economy.

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