16th April 1949 ECONOMIC WEEKLY
American Newsletter Packers and by the Western Electric Co., etc. and others, like the chief economist of the Recession or Disinflation? National Association of Manu facturers and the Director of the MONG the recent events of to-day is not a stabilization pro U.S. Chamber of Commerce Re A importance the two most gramme to halt the upward price search Department, met in a con significant are: spiral but devices to ease the ference in Washington. "We (i) The Federal Reserve Board credit situation, in time, to pre want to let down our hair,'' they relaxed control over instal vent the likely emergency of a said, and "talk over our aches ment buying credit early in depression. and pains,—economic-—that is." March, In fact Mr. Emil Schram, The conference did not come to (ii) With effect from March 30, President of the New York Stock any decision, nor was it conven 1949 the Federal Reserve Exchange, had repeatedly asked ed for that purpose. Board cut the margin re lor lowering the stock margin I believe that the general sense quired for stock purchases requirements, a demand which of the conference was best con from 75 per cent to 50 per has now been met. It has not. veyed by the spokesman who cent. This followed the re- however, satisfied business inte said that "most of us now expect - duction from 100 to 75 per rests. more of a slump than when we cent effected from February Last week end the leading came to this meeting." Just be 1, 1947. business economists,—they are fore the meeting, the Federal Both these steps taken by the quite a prosperous community in Reserve Board's index of indus Board, "in the light of the credit the States, vocal and by no means trial production had dipped in situation", are considered by outcasts,—including the economic February to 189 per cent of the American businessmen to be an advisers to the U.S. Steel Corpo 1935-1939 average. This was a admission that ''inflation is a ration, Standard Oil Co., General decline for the third consecutive dead duck'' and that the tide has Motors, Mutual Life Insurance month, from 195 in October— turned or was about to turn. Co. of New York, economists November. Department store The businessmen are perhaps employed by the Chicago Meat dollar sales had also registered a right in drawing this conclusion from the Board's action because, as they state, while the Govern ment is talking of anti-inflation drive or what they call "stabiliza tion" programme, the most com petent monetary authority in the country has deemed it fit to relax controls on credit expansion. Considering the high inflationary potential of instalment selling on the American economy, which led to severe restrictions being imposed upon it during the war and in the post-war years by the Federal Reserve System, the relaxation of these restrictions has naturally been interpreted in business circles to mean that the monetary authorities, unlike the Administration, have realized the uangers of continuing restrictive measures. The reduction of margin on stock purchases is considered to be an even clearer admission that what is required
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drop of 4 per cent for the week the Republican Steel Corpo critical of Dr. E. G; Nourse— ending March 19 compared with ration, Carnegie—Illinois Chairman of the President's Eco the corresponding week in 1948. Steel Corporation, The Na nomic Advisory Council who, as I To these indicators, the confer tional Tube Co. and E.I. wrote last time, says that what is ence added the following: Dupont de Nemours & Co. happening at present is desirable have announced price re as it is just a process of "disinfla (1) Prices were falling and more ductions on their products. tion". Dr. Nourse still maintains price cuts were on the way. that the "country is now in a mild "Fresh strawberry prices These instances can be multi adjustment period. Our under dip as 1949's first big auction plied. It should, however, be pinning is sound". He even hints gets underway". clearly understood that there at "possibilities" of further infla has been no precipitate fall in "Ford Motor Co. may reduce tion; another round of wage in liny line as yet, which should prices in 1949", Henry Ford creases, short crops or increase in cause real anxiety. II, President, stated. Subse Congressional appropriations be quently Fords did announce (2) Costs are yet comparatively yond the amount the President a cut in prices. rigid. "How to pare costs to has asked for could give a "re meet increasing price com newed push", in that direction. "Price cuts have been an petition is a problem upper What the Administration is nounced in serval other lines, most in many minds." worried about is that the present e.g. Westinghouse Electric uncertainty should not give rise to Co., American Smelters, two (3) "Curtailment in investment panic. "We are still trying to storage battery companies, plans is increasing'' .... stabilize our economy," the Sec Philadelphia Dairy Com (4) "Expectation of lower busi retary of the U. S. Treasury, Mr. panies (on their ice cream ness profits was widespread." Snyder told U. S. newsmen, "we products,) all these have are reaching the outer fringes of reduced their prices." In view of these various indi our goal." There is going to be cations, the captains of industry, The well known firm of "continued prosperity" and recent financiers, the stock exchange, Kaisar and Fraset has re developments were a "healthy" wholesalers and various other duced the price of cars. adjustment. Several other Gov business leaders are insistent that ernment economists also take the There is a rate war bet the Administration should realise Nourse-Snyder line. ween two leading gramo the utter futility of going ahead Arguments advanced in favour phone record producers, viz. with its stabilization programme of the theory that U. S. economy Columbia and RCA Victor. and, instead, take proper mea is well insulated against the sort Pennsylvania producers have sures, in time, to check a possible of recession that followed World cut down coal prices. Four repetition of the great depression. War I is, by now, familiar and well known steel firms, viz. All these interests are sharply need no repetition. Nevertheless, it is very diffi cult to predict the course of events in the coming months. The un employment figures in the next few months will give some defi nite indication. In conclusion I" may add that if the Federal Re serve Board takes one more step to ease the credit situation, a step which is demanded of it by busi ness, viz., lowering of reserve re quirements—the proportion of deposits which member banks must keep with the Reserve Banks—then, in all probability, the present gloom may be dis pelled.
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