December, 1932 



THE I. A. A. RECORD 



Page Nine 



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V 



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Why the Depression Continues 



A Critical Analysis of Present Econonnic Ills With Suggestions For Their Cure 



By GEORGE ROBERTS. National City Bank 



THIS depression 

 began three years 

 ago, and by now there 

 should be general rec- 

 ognition of the fact 

 that serious derange- 

 ments exist in the eco- 

 nomic system. 



By this time the 

 natural economic 

 forces would have ac- 

 complished a substan- 

 tial recovery, if their 

 Influence had had free 

 play. Something in 

 the nature of a log 

 jam exists in the busi- 

 ness stream, and it is 

 of great importance 

 to locate the key logs 

 in the jam. There is reason for 

 believing that the railroad situa- 

 tion is one of them. 



Furthermore, the high cost of liv- 

 ing, notwithstanding the low prices 

 upon food and raw materials, to- 

 gether with the state of unemploy- 

 ment and low aggregate earnings 

 of the whole body of wage workers, 

 notwithstanding high nominal 

 wages, afford a key explanation to 

 the blockade of trade. 



Must Come Down 



It is a fair question, whether in 

 this crisis, the railroad orders have 

 done all that they can afford to do 

 to sustain the industry which gives 

 them employment, or all that is fair 

 and right for them to do to sustain 

 the entire industrial organization. 



Are they convinced that a reduc- 

 tion of 10 per cent, limited in time 

 to a period that will expire in now 

 three months, is the utmost con- 

 cession they can make from a wage 

 increase of approximately 157 per 

 cent (accomplished in a few years 

 under the influence of war and in- 

 flation) , as their share in a general 

 readjustment of wages and prices 

 which had yielded to them more 

 than a 10 per cent increase in the 

 purchasing power of their wages be- 

 fore their concession was granted? 



Are they certain that even from 

 the standpoint of their own inter- 

 ests alone they could afford to see 

 the railroads ruined, with resulting 

 effects upon the country's financial 

 structure and all business, rather 

 than make any further concession? 

 Or do they count upon action by 

 the United States Government, in 

 their behalf, to assume railroad 

 losses and liabilities, along with all 

 its other undertakings for the sup- 

 port of business and employment 

 and the relief of distressed people? 



Here is an analysis of the present economic situation by 

 an orttiodox economist, offered without comment to our read- 

 ers because it represents the views of one large school of 

 thought on the depression and its cure. 



Inequalities in prices of services and commodities are 

 responsible for our hard times and until these are adjusted 

 so as to give everyone a fair trade, unemployment will con- 

 tinue indefinitely says Mr. Roberts. "The drop in prices of 

 what farmers and raw material producers sell warns of the 

 necessity of reducing the prices of what they buy if recent 

 improvement is to be turned into lasting recovery." 



High wages, high taxes, high transportation costs, high 

 costs of finished commodities, the continued high cost of liv- 

 ing are all key logs in the jam blocking recovery. Resistance 

 to deflation by the better organized groups in our society to- 

 gether with the disturbing influences of foreign money values 

 and international trade are having their influence in slowing 

 up the return of a normal prosperity. — Editor. 



If this expectation is the basis 

 of their policy, it is not unreason- 

 able to ask if they have considered 

 how long the public credit would 

 stand up under such demands, in 

 view of the present state of the 

 revenues and present ability of the 

 country to pay taxes or subscribe 

 for bonds? With 40 per cent of their 

 members unemployed the railroad 

 brotherhoods certainly have an in- 

 terest of their own in the restora- 

 tion of general prosperity. . . . 



When the economic system is 

 seen to be what it is, a mutually 

 supporting organization for ex- 

 changing services and supplying 

 each other's wants, it should be ap- 

 parent that the relations within the 

 system are of great importance. 

 Upon the stability of these relations 

 depends the stability of trade, pro- 

 duction, employment and consump- 

 tion. The highest state of prosper- 

 ity and well being is attained when 

 all parts of this voluntary organiza- 

 tion are in such balanced relations 

 that there is full employment for 

 all workers and the varied products 

 and services readily pay for each 

 other. 



In a sound economy the system 

 is regulated automatically by price 

 movements, which tend to distrib- 

 ute the working population into the 

 occupations as needed to maintain 

 the desired equilibrium in produc- 

 tion and prices. If anything occurs 

 to seriously disturb the balanced 

 relations trade necessarily slows 

 down and unemployment results. 

 This is the situation in which this 

 country has been struggling for now 

 nearly three years. Undoubtedly 

 the wants of the people for goods 

 of all kinds are as great as they 

 ever have been and productive ca- 

 pacity is greater than ever before, 

 but price relations have been in 



such a state of con- 

 fusion that the vol- 

 ume of trade has 

 fallen off between 

 one -third and one- 

 half. 



The excess of sup- 

 plies over market de- 

 mands has seemed to 

 imply a general state 

 of overproduction, but 

 the true explanation 

 is a loss of purchasing 

 power to millions of 

 vx)uld-be consumers. 

 This loss is not by 

 reason of a shortage 

 of the money supply 

 or any loss of physi- 

 cal wealth, but is due 

 to the fact that the different com- 

 modities and services are not being 

 valued to each other on the same 

 terms as they were a few years 

 ago. If the former price relations 

 were restored the exchanges would 

 soon be flowing as they were 

 then. . . . 



Many Costs Rigid 



Certain factors in the economic 

 system are more rigid than others. 

 Prices of commodities of current 

 production coming in volume to the 

 markets are constantly changing 

 under the influence of supply and 

 demand. Compensation for personal 

 services is controlled to a consider- 

 able degree by custom and bargain- 

 ing power and changes less readily 

 Contracts of all kinds extending 

 over years usually are rigid. 



The costs of government have a 

 high degree of rigidity, except that 

 they tend to increase, particularly 

 in good times, when people are free 

 with expenditures and not paying 

 much attention to taxes. Moreover 

 the expenditures of governments 

 are chiefly for personal services and 

 interest on borrowed money, costs 

 which are relatively unyielding. 



The people have just now waked 

 up to the fact that taxes have be- 

 come increasingly burdensome. . . . 



Transportation costs are another 

 important claim upon all business 

 and all incomes, like the costs of 

 government having a high degree 

 of rigidity because the expenditures 

 are chiefly in the form of compen- 

 sation for personal services. Trans- 

 portation costs stick out like a sore 

 thumb in comparison with the re- 

 duced prices of products trans- 

 ported. 



Rents have a high degree of rigid- 

 ity, but dependent in part upon the 

 (Continued on page 12) 



