If merchants can only obtain as much oil as they can sell there is no reason for any of them to cut prices. When overproduction is the cause of the trouble there can be no cure until production is regulated. (A letter received from Mr. W. T. Anderson, Macon, Ga., is here printed in full, as follows:) Hon. REED SMOOT, THE MACON TELEGRAPH AND NEWS February 13, 1933. Chairman Committee on Finance, Washington, D. C. DEAR SENATOR SMOOT: I have your letter of February 8 asking for an expression of my views on the causes of the present depression and possible legislative remedies and suggesting personal appearance before your committee. I am sorry that because of an accident a few days ago in which a small bone in my right leg was broken near the ankle, I shall be unable to travel for some time. However, my opinion about the depression is that these things come about every seven years, or multiples thereof, approximately speaking. It seems that seven years is about the period required for the complete impoverishment of the masses by the classes, universal bankruptcy is indulged, a new deal set up, and business resumes by reason of the restoration of buying power of the masses instead of debt paying, and everything is pretty for another seven years. Ever since the seven fat years and seven lean years of ancient Egypt, it seems mankind has been afflicted with these cycles of depression. The most serious one of recent history was in 1873. Another one that we had which I think bore down with a great deal of weight was in 1893-94, which you will observe came on a multiple of seven. There were others in between these two dates, but they apparently did not make a very lasting impression. The next one I know anything about was in 1907, when all our money went into hiding as it has done at the present time. We issued clearing house certificates, which were a form of inflation, and got along pretty well with it. We were right on the threshold of another depression in 1914 when the World War postponed it. Another arrived in 1921, and this last one came in the latter part of 1928-29, and it seems that this one is going to last the seven years, harking back to the days of ancient Egypt. Mass insolvency replaces individual insolvency every seven years, and this apparently brings about the crisis. As soon as we have canceled or paid our debts down to where our creditors feel satisfied the remainder is safe and we debtors feel we can pay the interest on what remains and make nominal reduction in the principal, we again have some credit or margin with which to buy. Industry is thereby enabled to resume and we proceed on the lines of former prosperity and conditions. Even in the present crisis and distress, we find ourselves confronted with more debt than any people have ever known in the history of the world. It is stated on good authority, I believe, that the people of America and the governments of this country at the present time owe $206,000,000,000. Thirty-six billion dollars of this is said to be owned by our governments, and $170,000,000,000 by the people. This is as much money as the entire United States was estimated to be worth in 1914. The interest on it at 6 per cent, which is probably average for individuals, et al., is $13,000,000,000 per annum, or over $1,000,000,000 per month. Our average income, or turnover, in industry is probably $45,000,000,000 to $35,000,000,000, although the peak was estimated at $95,000,000,000. Let us take $13,000,000,000 for interest out of the $45,000,000,000 to $$35,000,000,000, and another $15,000,000,000 to apply on principal, which is estimated to be the fact, and we see very readily that two-thirds to six-sevenths of our national turnover is going for debt. This in itself leaves no spending money for anybody and with the effort to collect and the desire to pay, industry shuts down and unemployment runs rampant, every increasing the vicious circle. We were able to get past the depression of 1914 and 1921 in very rapid fashion, primarily because of the War beginning in 1914, which put us on a credit basis throughout the world, and then in 1921 all the forms of government in this country were issuing bonds for every conceivable purpose, one of the major items being roads. When the universal insolvency due to losses of the war was brought up for adjustment in the cycle of 1928-29 and all of our government bonds besides private debts came around for handling, we shut down everything and we are still suffering with it. I do not know any remedy except to grin and bear it. Let nature take its course. Of course we ought to be smart enough to devise some remedy that will help us solve the problem at an earlier date than that which naturally control under the recipe I have just set forth, but the fact that our master minds have not been able to do anything about it makes me feel that there is not but one thing, and that is as I have stated. We may be able to help nature, but be sure we don't try to supplant nature. I think we are making a great mistake to be spending money as is being done to try to pump oxygen into the patient, especially when every tank of oxygen is going to cost more money, more investment and interest, and in all probablilty not speed the recovery of the patient by a single day. I think 32 The orgy of spending in Florida alone, for instance, is disturbing. post offices are being built in Florida. One town, Clearwater, with 9,000 or 10,000 people I am told, is having erected a million dollar post office. I think the post office formerly used there cost the Government about $30 per month and the million dollar post office will increase the cost of government to at least $70,000 a year for interest and operation. At Palm Beach and West Palm Beach there are two magnificent buildings being erected by the Government and figuratively speaking you can stand in the door of one post office and throw a rock into the door of the other. These are being erected at an enormous cost to the Government and a drain on the people. Pumping more oxygen. All the efforts to help the farmer through Government loans are an absurdity, and intelligent, successful framers are earnestly protesting against it. One farmer writes in from Bushnell, Fla., that he and his neighbors had good prospect for Irish potatoes this year and expected or hoped to make money out of them if the acreage were held down. He pointed out that on account of the Government seed loans that numbers of his neighbors have planned to increase their potato acreage and this will so increase the supply of potatoes that none of them will be able to make any money, all through "Government aid." The Government on one hand is arguing to keep down acreage, and on the other hand has 7 to 10 agencies lending money to increase acreage and production. The Government has an Agricultural Department in Washington with about $300,000,000 annually to spend. Approximately $100,000,000 of this is used for roads and other purposes, leaving $200,000,000 for county agents, agricultural colleges, and every scheme imaginable to teach and induce the farmer to increase his production. The State governments also have their agricultural departments and experiment stations and the amount of money spent on farm aid runs into hundreds of millions of dollars. In 1910 the average production of corn per acre in Georgia was 7 bushels. Now it is about 18 bushels. The county agents have shown how to select soil and seed and the Government has supplied the money for buying seed, and all sorts of stimulants to try to help the farmer. The 11 bushels extra corn raised in Georgia in 1930 as compared with the 7 bushels produced in 1910 are in competition with the original 7 bushels, and this is the condition throughout the country. The Government on one hand is urging the farmer to reduce his acreage; on another hand the Government has 7 to 10 different agencies and loan schemes to lend the farmer money to increase his production; and on another hand we see the Government sitting down at the end of the sluice way trying to stop up and dam up the supply and hold it back off the market so as to raise the price. Briefly stated, I think the United States Government should shut down rigidly on its orgy of reckless spending. There is no dollar lost by the Government but becomes a particular charge on humanity, and unless we have something substantial that will earn interest and repay the principal, Government money should be left in the pockets of the people where it will more readily reestablish normal conditions than any way I know of. Everything I have seen tried or proposed is the same old story of the man lifting himself by his bootstraps. To add to the Government's troubles, the farmer has done the most toward destroying his own market. In the past 10 years he has done away with six and a quarter million mules and horses from the farm, besides the farm hands that he formerly used. These he was able to sustain and pay out of the produce of his farm without converting it into money. It requires four acres of land to sustain a work animal, to say nothing of labor, and this in itself means 25,000,000 acres of land taken off production of animal food and put on human food. And then we worry about the surplus. By the use of tractors, trucks, and other so-called laborsaving machinery, none of which can eat a bundle of fodder or an ear of corn, we have piled chaos on top of foolishness. I am sure we are all desirous of seeing something done about the present situation, but I do not believe anything that has been tried will stand the test of a business analysis. I believe the greatest aid that could be rendered industry would be to insure, or guarantee bank deposits. According to the National Industrial Conference Board 14 per cent of industry in this country is without any bank credit or connection of any kind, and this 14 per cent employs 47 per cent of the labor. Hence by reason of having to keep their paper liquid with the Federal reserve in the event of demands of depositors, banks have cut out the great bulk of perfectly good collateral because of its nonliquidity and nonrediscountability. Witness Dawes borrowing ninety million from Reconstruction Finance Corporation on good paper his banking brothers wouldn't touch. The banks are afraid of the depositors and the depositors are afraid of the banks and the greatest single factor that could be set up to overcome this would be to guarantee bank deposits. This would free more money and drive it into industrial and other legitimate channels than anything else that could be accomplished. It is nonsense to talk of the impracticability of guaranteeing bank deposits. Through a period of 66 years the United States comptroller gives the losses to depositors through all national bank failures as one-sixtieth of 1 per cent. To summarize, I should say that anything which will reduce debt, be it Government or individual, will hasten the end of the depression. And anything which increases debt will lengthen the depression. The reason this depression is hanging on longer than any we have ever experienced is because the world owes more money and we have got to reduce that debt, either by sacrifice and stinting through scaling down, or through outright bankruptcy, or some miracle. It would be better to abandon every unnecessary expenditure and go definitely on the dole system for the emergency period, until this liquidation has been accomplished. Liquidation has proved the only remedy for other depressions. It is the only remedy for this one. Yours very truly, W. J. ANDERSON. (A letter and brief received from Mr. Victor S. Clark, Washington, D. C., are here printed in full as follows:) Hon. REED SMOOT, Senate Office Building, Washington, D. C. LIBRARY OF CONGRESS, Washington, February 11, 1933. MY DEAR SENATOR SMOOT: Possibly the inclosed extract from a letter which I wrote to Prof. Irving Fisher Thursday will be sufficient answer to your inquiry of February 8. I do not object to its being called a brief. At least it possesses the merit of relative brevity. Respectifully, VICTOR S. CLARK, Consultant in Economics. FEBRUARY 11, 1933. Our recent swing from excessive optimism to excessive pessimism seems to me to have about reached its limit. From now on we may gradually recover psychological equilibrium. Coincident with this will presumably come easier credit conditions, fuller utilization of our existing stock of money, freer buying, and steadying of prices. Our price problem presents itself to me under two aspects: That of reestablishing a more or less fixed price ratio between different classes of commodities, and that of stabilizing the general price level. I am not convinced that these two aspects are necessarily interdependent. Unless that interdependence exists, stabilizing the general price level would remove only one difficulty, and the relation of farm incomes to other incomes, for example, would continue unsatisfactory. My guess is that we shall worry slowly out of the present impassé by a process of trial and error involving many minor and local adjustments rather than by any single reform. In order of immediate urgency, measures to hasten recovery from the depression would seem to range themselves somewhat as follows: 1. Encouraging public confidence by a courageous policy of curtailing Government expenditures, cessation of borrowing beyond imperative emergency needs reducing taxation, and a minimum disturbance of the currency. 2. Readjusting private debt burdens to the present price level where this is necessary to keep business going, by judicial or arbitration procedures taking account of individual circumstances. 3. Stabilizing prices of export commodities by international agreement. 4. A more salutary distribution of the world's stock of monetary gold. 5. A settlement of the international debt problem. Personally I should favor accepting goods in payment for these debts, the character and ultimate distribution of these goods to be determined by the Government. 6. An investigation of the currency problem by an expert commission with a view to providing against future excessive price fluctuations. VICTOR S. CLARK, Consultant in Economics. (A letter and brief submitted by Mr. Thomas H. Beck (brief prepared by Mr. Joseph P. Knapp) are here printed in full as follows:) Hon. REED SMOOT, COLLIER'S, THE NATIONAL WEEKLY, Chairman Senate Finance Committee, United States Senate, Washington, D. C. MY DEAR SENATOR SMOOT: I have been very much interested in reading of the hearings your committee is holding concerning recovery plans. Under the circumstances, it seems to me proper to send you herewith a rather carefully worked out plan written by Mr. Joseph P. Knapp, who is the principal owner of the Crowell Publishing Co., which publishes Collier's, the Woman's Home Companion, the American Magazine and the Country Home, and whose father was the founder of the Metropolitan Life Insurance Co., of which Mr. Knapp is a director. Sincerely yours, THOS. H. BECK. The attached was written early in the spring of 1932 when there was much discussion concerning the "Swope Plan", which I felt sure would not appeal to businessmen because of their distrust of Federal interference. In his plan there were excellent labor insurance suggestions, but or life insurance statisticians tell us that unemployment is not and probably can never become a measurable and consequently insurable risk. So finally I wrote the attached to "get it off my chest." It is probably unnecessary to state that it deals with a possible future and is no attempt to suggest a panacea for our present troubles. It seems to differ from all other plans that I have read in resting upon— 1. Compulsory trade membership. 2. Minimum price. 3. Variable work week. No one of these could be adopted without including all. It proposes stablization but does not stifle American individualism nor introduce Government control. It is the absolute reverse of the Sherman Act but provides a supreme court of industry (I am an ardent admirer of our Supreme Court as the greatest institution of our Government) to prevent exploitation. It bids everyone get together, plan together to be prosperous but be careful not to gouge unless desirous of a jail sentence. It was not written with the idea of publication. If you find it interesting enough to read, an expression of your frank criticisms would be appreciated. Fred Ecker said of it that it would be "Utopia," to which my reply was, "Then it must be a magnificent plan." "Something is going to be done to eliminate depressions and the application of the planning principle is dictated by the experience of solving in private establishments problems identical in essence to those now confronting collective industry."-H. S. Person. 159450-33-PT 7—12 WISE PLANNING (Submitted as a suggestion by Joseph P. Knapp) An astounding number of our ablest men are planning and endeavoring to find the road to a better future. This planning is generally termed stabilization. It is well indeed that our "captains of industry" should thus progress and become scientists of industry. Just as the medical profession has in a brief half century wonderfully conquered pestilence, plagues, and contagion, so should our industrial leaders tackle in force the stabilization question with its innumerable problems. An endeavor to solve as many of these problems as may be possible merits the closest attention and deepest concentration of our ablest industrial, financial, agricultural, banking, and economic leaders, men having both wide experience and vision. Before you give expression to hasty opinions, it might be well to attempt a personal realization of the enormity of the problem; to examine carefully the more than a hundred questions, each of vital importance, now being considered by the United States Chamber of Commerce. These are set forth in The Job Aheadthe program for the forthcoming annual meeting to be held in May, 1932. Get a copy of that program and read thoughtfully those 146 questions. To how many of them can you give the correct answer? Because of the difficult and different problems that present themselves, it is well that groups of our most experienced leaders should be urged to "plan"each group to plan for that industry in which its leaders have experience. No man living has the brains to alone conceive the complete plan in all its details. We are in the midst of a world depression and of an unusually severe United States depression. We have had them before and have recovered. We will recover from this one. With wise planning, however, it may be possible in the future to prevent serious depression to have peaks less high and valleys not so deep. The attempt should surely and promptly be made, but it is well to be patient and not expect an immediate Utopia. Let us remember that during the past decade there existed in this country a better standard of living for the great mass of our people than we ever had before better than was ever known at any time in any country in the whole history of the world. What sound conditions caused it? Let us find out and bring back those conditions. Let us also now plan to keep those conditions ever with us and make our standard of living slowly, steadily, surely, conservatively better. The following suggestions are diffidently offered in the hope that possibly they may be of assistance to leaders in their efforts to plan wisely. Some of the ideas we believe to be quite new and possibly of great stabilization value. They deserve most thoughtful consideration. They are not revolutionary because new. Reason, common sense, practicability, cause and effect seem to indicate these conclusions as sound and frequently we have felt inclined to write Q. E. D. because plus 2 still seems to equal 4. Let us first set forth certain seemingly self-evident truths. In order to have continuous and regular prosperity, with reasonable living conditions, it is essential that there be In industry. A full pay envelope, not alone weekly but yearly. The pay per day or per week is not important, be it high or low. The total wages received during the year is the vital point. In farming. A fair price paid regularly for farm products, enabling the small farmer of average industry and intelligence to get along comfortably. Without these the great masses of our people can have neither proper living conditions, nor spending money, nor savings money. All of these are essential to general prosperity, not only theirs but everyone's prosperity. Without them every industry slackens, unemployment and hardships begin and then spread as we slip into another depression. The problem, therefore, is to find how to hand to the worker, with reasonable regularity, a full pay envelope and how to regularly pay the farmer a reasonably profitably reward for his industry, expressed in a fair price for his products. To obtain these, to have regular instead of intermittent prosperity, it is evident that better stabilization of industry must be planned and obtained. In accomplishing this end 1. The public must not be exploited. |