Knowledge that Transforms

SINCE the spring of I933 we have had occasion to call attention to the successive stages through which the Administration's program of inflation has progressed. It began, of course, with theextraordinary legislation concerning money, reserve credit, free coinage of silver, and the issue of Treasury notes, which gave definite notice of the policy and started anticipatory inflation of stocks and many commodity prices. But no Treasury notes were printed, no new currency was forced into circulation, and all that happened for some months was an inflation of reserve credit through purchases of government securities, made in the hope of stimulating the expansion of bank credit. But the business world was in no mood to borrow; and the many new, and frequently inconsistent, policies adopted by the Administration confused the business prospect and tended to impair confidence, so that anticipatory inflation was presently followed by a decided reaction in the summer of I933. In the fall, when this reaction had gone to a considerable length, the government began its extraordinary gold purchases at rising prices, which finally resulted in a price of $35 per ounce and the devaluation act of last January. But these measures, like the earlier ones, forced no new money into circulation; and, since they tended to impair confidence, made intelligent business men less inclined than ever to increase their borrowings at the banks: so that the inflation stimulant had not yet begun to work as the inflationists expected. Meanwhile other measures, not of a monetary character and in the mind of the ordinary observer not connected with the inflation policy, had resulted in an enormous increase in federal expenditures for public works, private relief, and other projects believed to be of unquestioned efficacy in stimulating recovery. Generically, these were described as priming the a term which continues to be used in spite of the fact that rivers of public money have been pumped through the Treasury into every state of the Union without starting a natural flow of water through the pump. In this process, little attention was given to the destructive effects of public money upon the valves of the pump, the condition of which depends upon public confidence and the spirit of enterprise. These would be immensely strengthened by the appearance of signs of natural recovery from terrible depression, but very certainly injured when such things as improvement in retail trade or increase in industrial activity are either suspected, or definitely known, to be due, at least in considerable part, to the outpouring of funds from the Federal Treasury. Under these circumstances favorable developments may be of an artificial character, and may be due to an unhealthy process which all intelligent persons know cannot go on forever. Whether any real recovery has occurred, and if so how-much, cannot be determined with any certainty until the outflow of public funds gradually approaches its end and it can be seen that industry is able to take up its normal load and carry on strongly and profitably. Since the government's expenses have been so large, and its revenues have not increased as much as anticipated by reason of the general recovery the Administration expected to bring about, economic conditions this fall, however much they may be above those of a year ago or those existing in the spring of I933, have proved a disappointment; and the entire recovery program is now being questioned as never before, and in part reorganized, although, of course, in such a way as to put the best face upon things and avoid admission of failure. It was under such conditions as these that the Treasury undertook its recent refunding operations. By way of preparation, various subordinates made addresses or issued statements intended to reassure the business world and reestablish confidence. But these inevitably had only a momentary effect, and could reassure only the unthinking or those able to think but unable or disinclined to use their memories. Meanwhile the condition of the bond market had become unsatisfactory, and dollar exchange had weakened; so that government funds were being employed in the purchase of government securities. On one day when the market was particularly weak, an obvious effort was made to 'rig)' the bond market by last-minute purchases con-

THE object of this article is to present the results of a study of certain statistics bearing upon wage conditions for railroad labor in the spring of I934. It is hoped that some light may be thrown on the situation which nearly resulted in a national strike of all railroad unions. It is also hoped to make rough comparisons of hours and wage rates paid the employees in this service and those in industries which have signed codes under the National Recovery Administration. For the most part the article will be confined to the presentation of the analysis and interpretation of statistical data, and will not attempt to build up a case for either side in the recent wage dispute.'

T HE major purpose of this article is to trace the recovery in profits, and figures at least as frequent as quarterly are needed. It is desirable also to exclude certain types of corporate enterprise: railroads and other utilities, banks and other financial concerns. Unfortunately there are no quarterly figures which give an adequate coverage, or even an approximation thereto, of all industrial corporation profits in the aggregate. We base our discussion of the quarterly record on aggregate data for a small list of leading industrial corporations (Chart i), which publish quarterly reports in a form available for this purpose.' The list is not a highly satisfactory sample of all industrial corporations, and it seems likely that the resulting figures give an over-favorable indication of the degree of revival in profits.

TN this article, I am concerned with the banking and monetary policies of the Treasury, the reserve banks, and the commercial banks of the country in the year that has passed since the Bank Holiday was proclaimed. By way of introduction, a brief discussion of the developments in the preceding year or so follows.2 On February i, I933, the investments of reserve banks in government securities were approximately one billion dollars more than that on February 3, I932. The reserve banks, despite the help which the Reconstruction Finance Corporation provided by advancing 850 million dollars to 5,6oo banks in I932, were not successful in stopping the liquidation, although some improvement was noticeable in the second half of I932. Transfers of cash from the strong to the weak were bound to have a disturbing influence later; but in I932, as the reserve banks and the Reconstruction Finance Corporation created additional cash and redistributed available supplies, the stronger banks, both in the East and the West, tended to gain cash, many of them depositing their excess cash with correspondents. For the year ending January 25, I933, bank balances with correspondents in leading cities increased by I,2I3 millions, of which 772 millions were deposited at reporting banks in New York City. Transit clearings through the gold settlement fund in Washington, which give some indication of the balance of payments between the I2 reserve districts, reveal that in the year ending January I933, the New York, Boston, and Philadelphia reserve districts gained I,I99 millions on clearing account while six western districts lost 1,045 millions. Official interference is evident in the loss by the eastern group of I,OI2 and the gain by the western of 993 millions through government transfers. The statements of reserve banks did not always reflect the effects of these clearings. Thus despite the very favorable balance of transit account for eastern districts in the first half of I932, the condition of eastern reserve banks, as revealed by a study of the distribution of the system's cash, rediscounts, and securities, was not strong. The explanation is probably the large transfers of cash on government account and losses of gold which are first felt by the New York reserve bank. In the second half of the year, the position of the eastern reserve banks improved as large deposits of cash were made by correspondent banks. New outbreaks of banking failures early in I933 led to withdrawals of bankers' balances from New York. Very large withdrawals of notes (I,485 million dollars in five weeks ending March 8) and losses of gold (305 millions) were financed for the most part by borrowing at reserve banks (II,45 millions), and by the purchase of bills (386 millions) and securities (I20 millions) by reserve banks. Withdrawals of bankers' balances from New York and the large losses of gold explain the large proportion of the additional borrowing at the New York reserve bank; and also sales of i8i millions of securities by the New York bank and borrowings of 2I0 millions from other reserve banks. Reserve authorities did heroic work, and in little more than two weeks after the Bank Holiday, two-thirds of the additional funds borrowed from reserve banks the previous five weeks had been repaid and fivesixths of the losses of reserves suffered by reserve banks had been recouped.

W HEN the Securities Act of 1933 went into effect a little over a year ago, borrowing by private corporations through sales of stocks and bonds had very nearly ceased. The banking suspension had occurred some four months earlier, and the deflation of the preceding three years had been felt with particular severity in the market for newly issued securities. The legalization of beer brought a number of brewery offerings into the market after the bank closings, and some others were made just before the law went into effect, but the total volume of such issues amounted to little. The past fiscal year, all but a few days of it under the Securities Act as originally passed, has shown a volume of issues only a trifle higher than in the preceding twelve months, the advance being more than accounted for by the increase in state, local, and farm loan issues, which are exempted from the provisions of the act.' The total volume of issues actually floated, according to the compilations of the Commercial and Financial Chronicle, amounted to just over I 2billion dollars in I933-34, compared to a figure of just over IS3 billions in the preceding fiscal year--the lowest of the depression. About one billion dollars represented new capital and half a billion was for refunding. Issues by public bodies amounted to I,I92 millions, against 607 millions in the preceding year, and those by private corporations to 364 millions, against 6I3 millions in I932-33. The figures of the Federal Trade Commission apply to securities registered, which may not be marketed in their entirety and are offered only after an interval of twenty days. In content, they differ from the Chronicle's compilation largely in that (i) they exclude the public group, which bulks so large in former figures, and railroads, (2) they include investment trusts sold as participating shares (excluded from the Chronicle's figures), and (3) they include deposit certificates under reorganizations. The total was 963 millions for the fiscal year; the bulk was issues of financial companies, which amounted to 609 million dollars. The latter figure is of especial interest because it gives an idea of the amount of financial flotations not included among those publicly issued. The latter amounted to little more than I0o2 million dollars according to the Chronicle's figures. The remaining items were industrial issues225 million dollars and those growing out of reorganizations -I 282 millions.2