What Goes On Here?

Indeed indeed.

Can you see.

The stars.

And regularly the precious treasure.

What do we love without measure.

We know. . . .

Hail to the nation.

Do you think we believe it.

It is that or bust.

We cannot bust.

Thank you.

Thank you so much.

--A Patriotic Leading by Gertrude Stein.

The chorus of U.S. business leaders last week sounded rather like these Gertrude Steinfuls. They flitted portentously around a subject of great import--a national bust. But they too never got down to brass tacks.

Said Commerce Secretary W. Averell Harriman: "I feel strongly that fears [of a depression] are based on unreasoning defeatism [although] naturally there must be periods of adjustment."

Said Civilian Production Administrator John D. Small: "We are doing all right today; if we continue doing as well, why should there be a recession? Even if it comes, I don't think it will amount to much."

Said Eric Johnston: "There will probably be [a recession], and no doubt it will come some time next year, but the downward adjustments of prices will be mild, and not sufficient to cause serious disturbances."

From the Frying Pan. If he was confused by such talk, the average businessman could hardly hope to get his bearings from the actual facts. After a drop to new lows for the year, the stock market last week sharply reversed itself. Stocks shot up 2 to 7 points in one of the biggest one-day rallies in years. Cotton too had steadied (see below). And U.S. Steel's third-quarter profits proved to be even greater than the great expectations. Its whopping $33,329,353 topped all other third-quarter earnings since 1941.

Nevertheless, with the biggest Christmas shopping spree in history apparently under way, Macy's President Jack I. Straus soberly told stockholders: "We are conscious of the inherent dangers [in future commitments] and are taking appropriate steps to follow a conservative course." In short, business was so good it might easily become bad.

Just what was the trouble?

The trouble was partly a confusion of words. Everyone talked about "depression," "recession," and the new favorites, "readjustment" and "shake-out," as if they all meant the same thing. They did not.*

Few who used "depression" meant a depression like the one in the '30s. What they all did mean was simply that the U.S. economy, which had been controlled for so long, must undergo certain violent wrenchings as it was freed. Meat was typical. When decontrolled, roasts and steaks doubled and tripled in price to $1.20, and up, a pound. But when consumers refused to buy, prices came down. By last week, prime roast beef was down in the 55-10-65-c- range--and still falling. The demand for meat simply had not been as great, at high prices, as butchers thought.

Into What? And the overall U.S. demand, enormous though it is, is not as great as it has seemed. Reason: some $1 billion of all goods being produced each month were not going to the consumer. They had been used to fill up pipelines, had built up inventories by some $7 billion in the last year (roughly one-twelfth of the best prewar year's U.S. production). By last week, many an inventory was so full that goods were coming out of the retailers' end of the pipeline faster than they were put in the production end. Even if U.S. production did not increase much above its present high levels, consumers would still get more goods.

Would consumers continue to buy up all of the enormous production at present, or even higher prices? Many businessmen thought not, because consumers' inventories had also been filling up. And when buying slackened, prices of many items would drop. Some worried companies would retrench. But few seers expected the retrenchment to 1) be deep or 2) last very long. The U.S. economy, now rolling along at twice the best prewar rate, could stand some slowing down without any permanent harm.

*Actually, "readjustment," "shake-out," "recession," and "depression" euphemistically express comparative degrees, in mild-bad-worse-worst order, of an economic decline.

This file is automatically generated by a robot program, so reader's discretion is required.