The Press SATURDAY, JANUARY 11, 1947. American Economy

Press, Volume LXXXIII, Issue 25080, 11 January 1947, Page 6

The Press SATURDAY, JANUARY 11, 1947. American Economy

■ln his Budget message to Congress President Truman, referring to prevalent fears of depression, said that, while there should not (and “ must ** not ”2 be such another collapse as began in 1929, “ minor bumps ” would no doubt occur, at all inconsistent with those bright prospects of a 100 per cent, increase in the real wealth of the people which, given “ security and political and “ economic freedom ”, many now living could see fulfilled. The note Is optimistic; but Mr Truman hardly succeeded in reconciling the measures of “ minor bumps ” and of those dangers of which he went on to speak. First among them, and rightly, he set the decline in real purchasing power. It is not a possible danger to be averted but a present one. to be dealt with; or else. . . . Or else, as Mr Truman precisely explained, consumer demand will falter, production begin to slide, and unemployment to rise. Producing capacity in the United States, and actual production, are half as great again as before the war. Export trade, even an export trade greatly expanded, can only modify the truth of the proposition that the American public is required to buy this vast output of goods and services; and the public is short of the money to do it. The United States Bureau of Labour Statistics, towards the end of last year, showed in a graph of average weekly earnings adjusted to the consumer price index that workers’ incomes in the durable goods industries had fallen from 54 dollars (JanuaryFebruary, 1945) to 42, in nondurable goods industries from 39 dollars to 37, and on an average over all manufacturing industries, from 47.50 dollars to -39. It is true, of course, that prices rose sharply after controls were broken down, last July; but the explanation is not there. The major fall in real earnings occurred during 1945. It is measuring the same facts in another way to say that, in less than two years from January,- 1945, average weekly earnings declined by 4 per cent, and prices rose by 17 per cent. These facts constitute the first-class problem of the American domestic economy.

The primary requirements of the solution are not really in doubt, though advocates of this or that sectional interest and of the theory most convenient to it may contradict each other flatly. The primary requirements were mildly indicated in the December report of the Council of Economic Advisers appointed in accordance with the Employment Act of 1946. The, council of three—Dr. Edwin Nourse, formerly of the Brookings Institution, Mr Leon Keyserling, and Mr John Clark—who assured the President that boom-and-bust cycles could be ' avoided, nevertheless warned him that this year would be “ critical ”. Either industrial strife would produce a major recession—and industrial strife is the certain issue of a fall in real wages —or “ courageous and sensible ‘ action ” by business ’ leaders and labour leaders must hold the recession (make a “ minor bump ” of it) or avert it altogether. They must obey the “doctrine of mutual ad- “ justment ”, The Government’s part must be to see that they “dis- “ play an adequate understanding of fundamental economic forces and “of how to work out such mutual “ wage, price, and profit relationships as will correlate an efficient “ system of production, with a fluid “ and vigorous market ”. These official phrases are worth quoting; but the most significant of them can be simply paraphrased. When the council talks of working out mutual wage, price, and profit relationships, it means that American industry has to learn, better than it has yet learned, how to divide the wealth it creates.

Broadly, the latest statistical evidence indicates that there is a good deal of room for ownership to meet labour. Corporation profits and net farm income, after paying taxes, were much greater last year than at the peak production period of the war. In 1937 J corporation net profits totalled 4,600,000,000 dollars; in 1943, 9,900,000,000 dollars; in 1946, 12,000,000,000 dollars. Most industries are sharing in this prosperity. Steel, motor-cars, and electrical equipment, hit hardest by the wage increases, had successfully absorbed them as they struck their full production gait last year. Such are the evidences on which the C. 1.0., recently, in a report prepared by Robert Nathan, based the conclusion that industry could afford to lift wages 20 per cent, without raising prices—and the announcement that labour would frame its demands accordingly. But profit levels vary from industry to industry, as the report did in fact recognise; but it recognised very little else that recommends a more cautious approach to such calculations and greater prudence in interpreting them. The demands of investment and reinvestment policy, for example: the danger of driving up costs and prices in key industries; the obligation on labour to contribute more positively to productivity; the equivalence of cheaper goods to wage increases—the C. 1.0. pays, and has paid, little attention or none to such factors as these. “ Labour leaders ”, Mr Chester Bowles, former head of the Office of Price Administration, and no enemy of labour and its interests, “ must also ” —as well as ignorant or reactionary bosses—“ be “ held responsible for our economic “ progress or its lack in the years “ ahead. Blind demands for nation- “ wide wage increases in advance “ of increased productivity can only “ result in higher and still higher “ prices ”. The outlook is not encouraging. Unquestionably, labour is on the war-path; just as unquestionably the Republican victory in November

has emboldened the toughest thinkers and battlers on the other side and filled Congress with exponents of punitive labour legislation and of financial ideas hardly less primitive. The “doctrine of mutual ad- “ justment ”, if the Administration is to preach it and try to apply it, will be preached to many unconverted men, plenty of them deaf. It may indeed be a critical year; for failure, as Mr Bowles said, ‘ could start far-reaching changes ” in the entire American economic system: “ Americans will no longer “ accept economic stagnation and “ unemployment in a land of poten- “ tial plenty ”.