The Causes of Business Uncertainty

This department is designed to help readers to a better understanding of the general business conditions which affect their investments. It is obviously impossible to give advice as to specific investments.

by EDSON B. SMITH

EVEN the most loyal partisan of the present national administration will concede that the progress toward business recovery has been disappointing in the last year and a half. From late March until July of 1933, trade improvement was rapid. At no time during 1934 has general business been as good as it was in the early summer of last year.

It is difficult to express business performance with mathematical precision, but as the year 1934 draws to a close an estimate that trade and industry are 75 per cent of theoretical normal is roughly correct. Present business performance is, moreover, very uneven, with retail trade and some of the consumers’ goods industries at satisfactory levels not much below the average of the decade which ended with 1929, while on the other hand the durable-goods industries, of which steel is taken as a cross section, are very much depressed, about as bad as they have been at any time since the depression set in five years ago. it is estimated that currently between seventeen and twenty million persons are dependent wholly or in part for their sustenance on federal relief expenditures.

The comment is heard frequently in business and financial circles that governmental policiesor perhaps, more accurately, uncertainties in respect to governmental policies — have impeded recovery. The charge has been made that the present administration has sacrificed recovery upon the altar of reform. There can be little doubt that in important business and banking circles, particularly in the North and the East, the New Deal is not popular. Persons who have talked with representative business men and financiers in industrial sections of the country cannot help obtaining the impression that these gentlemen feel that business would be substantially better than it is to-day had the government conducted its course differently.

Some of the principal objections to the administration’s policies, some of the things which business men feel have impeded recovery, may be summarized as follows: —

1. There is grave doubt as to whether the administration really has a well-thought-out and coördinated plan of action. On the contrary, the opinion is commonly expressed that Mr. Roosevelt and his advisors (and this means the government, for it is felt that Congress has degenerated into little more than a rubber stamp) have shifted from one experiment to another, and will continue to shift. In short, it is felt that too much reliance has been placed upon doing something just for the sake of doing something, without giving enough thought to the wisdom and probable ultimate results of some of the policies espoused.

2. The feeling is fairly general that long-range business planning is impossible until this continuous action of shifting to new plans and policies is stopped. In other words, the point is made that business men must know definitely the rules of the game before they can undertake to play.

3. The government’s monetary policies are viewed with suspicion. Specifically, business men want to know how far the administration is disposed to go with what may be described as voluntary inflation — that is, further monetization of silver, issuing greenbacks, further reduction in the gold content of the dollar, the creation of a central bank the principal purpose of which might well be to facilitate the marketing of government securities.

4. Business men are fearful lest a continued unbalanced federal budget may lead to inflation despite efforts to check it. In other words, there is apprehension lest, even though the administration does not seek to depreciate the purchasing power of the dollar, such depreciation may be the inevitable result of a failure to limit government expenses to revenues.

Leading bankers are thoroughly informed as to the mechanism of inflation which developed in post-war Germany and France, and profess to see the possibility of similar developments in the United States unless the federal budget is speedily balanced.

5. Business men would like to know to what extent it is planned to make the NRA, AAA, and other similar agencies a permanent part of American economy. In short, how far does the government contemplate going along the lines of regimentation and regulation of production, prices, and profits?

Parenthetically it may be observed that the attitude of the average business man toward the NRA is not entirely unfriendly, by any means. He recognizes that it has accomplished real good, particularly in eliminating child labor, largely reducing sweatshop methods of production. The average business man does feel, however, that, the essential details of management must be left to him, and that anything savoring of limiting output and holding prices at artificial levels is most antagonistic to industrial improvement.

6. In a message to Congress just before the expiration of the last session, President Roosevelt indicated that at the next session he would make certain recommendations along the lines of social legislation. The inference from this is that the President proposes to present to Congress recommendations embodying unemployment insurance, old-age pensions, and similar devices. In a general way American business is not opposed to giving consideration to such matters. It is commonly recognized, however, that expenses of this sort will presumably tend to reduce corporate profits. The fact that this legislation is hanging over the business community of necessity produces a feeling of uncertainty.

7. There is always the question of taxes. American business is taxed heavily to-day. A good many business men feel that they are struggling along currently under all the burden of taxation they can stand. They would like clarification as to the administration’s position in respect to the imposition of further taxes.

8. Practically all business men and bankers agree that the current depression is centred in the so-called heavy industries, and among those providers of services whose prosperity is dependent upon activity in the heavy industries. It is felt that the Securities Act of 1933 was a grievous mistake in that, even though there were admitted abuses to be corrected, the legislation was far too stringent. While it is admitted that the amendments to the Securities Act of 1933 contained in the Stock Exchange Regulation Bill passed last spring have removed most of the worst features of the Securities Act, the impression is general that better conditions in the heavy industries are not likely until the capital markets function with greater freedom.

The opinion is strongly expressed that the administration ought forthwith to take whatever steps are necessary to stimulate investment for the sake of facilitating improvement in the durablegoods industries.

9.A major uncertainty which is holding back business is the tendency of government to compete with private business. The incursions of the Tennessee Valley Authority into the utility business have been viewed with alarm by executives of big utility companies all over the country and have unquestionably been responsible for the postponement of considerable work which otherwise would have been undertaken.

The above presents a fairly comprehensive picture of the prevailing attitude of those who maintain that governmental policies have been detrimental to industrial upturn.

An article of this length does not permit of extensive discussion and possible refutation of some of the points made. It is only proper to state, however, that there is common understanding that in some measure, at least, some of the policies of the government objectionable to business have been forced upon Mr. Roosevelt by situations beyond his control.

It is furthermore commonly conceded that, while the President has been virtually a dictator so far as forcing legislation is concerned, he has been successful in imposing his will upon Congress to so large an extent only because his suggestions have been more or less closely in line with Congressional wishes, or perhaps, more accurately, with the conception of the average Congressman of his constituents’ wishes.

Moreover, there has been an international slant to many of this country’s problems which has not permitted of their solution on a purely domestic basis. Particularly has this been true of the larger monetary problem. Blaming the President for insisting on a certain latitude in handling the American currency, with England and two-score other countries off gold, with no assurance when and at what level these foreign-trade rivals may seek ultimate stabilization, is not altogether fair.

Finally, it may be observed that it is easier to criticize than to offer constructive suggestions. The American people are restive under misfortune. Perhaps not the least reason for the present administration’s strong hold upon popular sentiment is its willingness to try anything once, no matter how unorthodox. The President evidently realizes that he will be more readily forgiven for doing something wrong than for doing nothing.