AMERICAN INSTITUTE
f«r ECONOMIC RESEARCH
54 Dunster Street, Harvard Square
WEEKLY
BULLETIN
Cambridge, Mass.
RESEARCH
COMING EFFECTS OF CURRENT EVENTS
Governor Dewey's Acceptance Speech
Virtually all of Governor Dewey's brief convention
speech possesses economic significance. The address,
straightforward, and packed with statements of fundamentals, will no doubt be developed fully during
the course of the campaign. It would be wrong to
ignore Governor Dewey's position concerning the war,
because its outcome will have a profound influence on
this Nation's economic future. It stands as an answer
to the doctrine of the essential man that Mr. Roosevelt's followers set forth as the major argument for a
Fourth Term. The answer is a pledge that the war will
be prosecuted unceasingly to its complete conclusion i
the electorate decides on a change of Administration.
The Republican Presidential candidate has committed
his Party to the utter defeat of our two major enemies
by the hands of the commanders who are now bringing
them to their knees.
Governor Dewey's major appeal is expected to be
made on the basis of domestic issues, and its outline is
foreshadowed in his speech of acceptance. It will, of
course, be critical of the numerous administrative weaknesses revealed in the present leadership and will capitalize on the dissatisfactions that have accumulated
over a long period, characterized by ever-increasing
encroachments on individual freedom. Governor
Dewey no doubt realizes that the success of his campaign will require more than a destructive, critical
attack on Mr. Roosevelt's Administration. A major
point in his speech was that, on the evidence of the New
Deal's records, the unemployment problem would not
be solved by the Party now in power.
The maintenance of substantially full employment
will be one of the crucial issues after the war, and this
fact*can readily be made plain to the electorate. It will
be more difficult to persuade the people that the Republicans have the solution to the unemployment problem
that was mastered only temporarily by the Democratic
Party because of the extraordinary demands of war.
The people of this country do not desire to work at
the existing tempo during the postwar period; they do
not need to produce goods on as large a scale as that of
the past two years. I t is therefore not necessary to
attempt to find a way to insure the maintenance of
employment opportunities at the feverish rate now
existing. However, Mr. Dewey's prospects for election
will be greatly improved if he can provide a convincing
105
July 3
1944
REPORTS
argument pointing to the probability of improved
employment opportunities under a Republican than
under a New Deal Administration.
Mr. Dewey's Administration as Governor of New
York State affords the basis for believing that he has a
better grasp of public finance than has Mr. Roosevelt.
If he is elected President, the chances for the national
Government to turn to a more rational fiscal policy would
apparently be enhanced. Disregard of sound monetary
principles has been an outstanding characteristic of the
present Administration, but the dangers inherent in the
Government's monetary policies are only vaguely
understood by the people. If Governor Dewey can
accomplish the task of bringing the public to a realization of the relationship between the production of
goods and services and the money-credit transactions
intended to facilitate essential economic processes, he
will greatly strengthen his position for success next
November.
In discussing the establishment of a foreign policy
looking toward a more lasting peace than that which
followed the First World War, Governor Dewey emphasized the importance of defining a "broad area of agreement" among the people of this country. He stated:
"There are only a few, a very few, who really believe
that America should try to remain aloof from the
world. There are only a relatively few who believe it
would be practical for America or her Allies to renounce
all sovereignty and join a superstate. I certainly would
not deny those two extremes the right to their opinion;
but I stand firmly with the overwhelming majority of
my fellow-citizens in that great wide area of agreement."
A sincere effort by the Chief Executive to find "a
broad area of agreement" among the people rather than
to introduce rifts along class lines is conducive to a
prosperous economy. It also would seem to become a
President who represents all of the people in the
Republic to admit the right of minorities to their
opinions even during times when their views may be
especially unpopular.
There are many people who are dissatisfied with
Mr. Roosevelt's Administration and are apprehensive
of their future under a regime sympathetic to leftist
policies and prone toward regimentation of the public
"for its own good." However, the same people will not
vote for any nominee for the sake of retiring the present
incumbent. Governor Dewey's foremost concern will
be to persuade such voters that he will make a good
President.
INDEXES OF RETAIL SALES
1 9 3 5 - 3 9 = 100
200
J80
160
140
120
100
942
J935
1944
many consumer durable goods items, such as electrical
appliances, and the imminent exhaustion of the new
automobile pool will result in a continued low volume
of sales of the durable goods group of stores. Stocks of
these stores are continuing to decline and in many lines
are being exhausted with little or no chance of replacement. In some lines, such as furniture, stocks have
tended to decline partly as a result of dealers' fear of
overstocking of victory models."
BUSINESS
Indexes of Retail Sales
The chart of durable goods and nondurable goods
retail sales, shown at the top of this page, was prepared
from data compiled by the United States Bureau of
Foreign and Domestic Commerce. The indexes are
based on dollar volume, adjusted for seasonal variation.
No adjustments for price changes are available for the
separate indexes shown. During the period 1935-1939,
which is used for the base for the indexes, durable goods
sales averaged approximately 25 per cent of all retail
sales. As the chart shows, durable goods sales have
been greatly restricted during the period of our war
participation, whereas the volume of nondurable goods
sales has risen to new high levels. Consequently, sales
of durable goods stores during 1943 were less than 15
per cent of all retail-store sales.
The decline in both indexes of retail-store sales in
April is not necessarily significant. A more extensive
decline in the nondurable goods index occurred early in
1943, followed by an extension of the upward movement of the index to a new high level later in the year.
However, the United States Department of Commerce
has taken the view that the April decline represents the
start of a general downward trend. This is indicated
by the following statement from
the latest issue of the
Survey of Current Business:1 "If retail sales continue
throughout the rest of 1944 at the rate of the first four
months, sales for the entire year will be nearly $68
billion. However, in view of the April decline, which is
perhaps indicative of a gradual leveling off in retail
sales, an estimate of about $2 billion lower appears
more probable.
"This conclusion is reinforced by the recent decision
that no significant portion of our resources now being
devoted for war shall be diverted for civilian use until
after the outcome of the present military action is clear.
The continuation of restrictions on the production of
1
1943
Newspaper Advertising
The newspapers failed to experience the unfavorable
effects on their advertising volume that were expected
at our entrance into the war. In fact, newspaper advertising linage increased for a time, when employers were
using advertising freely to maintain their labor force at
desired levels. However, the newspapers have not
enjoyed increases in volume commensurate with those
won by other advertising media. Magazine advertising
has increased more than has newspaper advertising
during the war period, and the dollar volume of radio
advertising has increased substantially.
The latest reports for newspaper advertising linage
are for April, when linage was seven per cent smaller
than it was in April 1943. This unfavorable showing
was only partly accounted for by the decrease in retailstore advertising after an early Easter. The following
table presents newspaper advertising in the dailies of
fifty-two cities in April 1943 and 1944, with the percentage changes:
Newspaper
Advertising
Linage
Classified
Display
Automotive
Financial
General
Retail
Total
* Increase
Survey of Current Business, June 1944, page 4.
106
April
April
1944
1943
{Millions of Dollars)
29.2
27.2
Per Cent Decrease
April 1944
From April 1943
6.8
2.9
1.8
20.8
70.6
3.0
1.6
21.7
63.0
8.4*
11.1
4.3*
10.8
125.3
116.5
7.0
INDEX
OF LIVING
STANDARDS
C
V
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/\
\
f
V
J
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V
Index of Living Standards
The Institute's index of living standards for June is
88.1 per cent of estimated normal. This is only slightly
higher than the May index of 87.9 per cent. Although
the current index is only about a point higher than the
lowest wartime level recorded in February this year,
a gradual advancing tendency has been in evidence
during the past four months.
The recent advance in the index of living standards,
small though it has been, may appear to be inconsistent
with the trend of retail sales shown in the chart on the
preceding page. However, as we have explained in a
previous bulletin, a substantial proportion of current
production of nondurable goods represents Government
orders for the Nation's armed forces, which consume a
larger amount of food and clothing per capita than
does the civilian population. The men and women in
our armed forces, as well as civilians, are included in
the data used in measuring the Nation's living standards. The demand created by the induction of an
increased proportion of the Nation's total population
into the armed services has tended to sustain the index
of living standards during the period of our war participation. It is impossible to obtain the data for showing
a separate index for the civilian population. Such an
index would apparently be appreciably lower at the
present time than is the index shown in the chart.
The electric-power industry generated more kilowatt-hours last week than it did in the preceding week,
and the comparison with output in the corresponding
week of 1943 improved fractionally. Last week's gain
was five per cent, compared with a gain of 4.6 per cent
reported in the preceding week. The relatively slight
increase in electric-power production last week probably
does not indicate that an end has come to the gradual
decline in the index of electric-power production that
was initiated early in March.
1929
Billion Kilowatt-Hours 1.71
1929
New York Times Index 126.8
1938
19^3
1938
1.98
19^3
4.12
19U
4.33
1932
41.9
1937
97.0
1938
61.2
19^3
114.1
19U
110.1
Demand
Supply
1937
1937
2.20
The wherewithal to buy is of course a prerequisite
for making consumer demand effective. The rise in
income payments during the war period has been relatively greater than the increase in consumer expenditures. The following summary of data compiled by the
United States Department of Commerce indicates the
extent of the increase in total income payments during
the war period.
The steel-ingot production rate declined fractionally
last week from 97 to 9 6 ^ per cent of theoretical capacity. The moderately downward trend in operations is
consistent with forecasts made several weeks ago. The
Iron Age summarized the current situation in the steel
industry, as follows: "So far invasion activity has had
little effect on steel requirement for the reason that it
has been at peak levels for months. In the past week
there has been no definite change in the volume of
orders, which with most companies are running ahead
of actual production. Backlogs continue to increase, and
the carryover situation has not been bettered to any
extent. Practically all steel companies have heavy
carryovers on plates and sheets, and within the near
future carryovers are expected to mount on such items
as large-sized bars and semi-finished steels."
1932
1932
1.46
Lumber production decreased slightly last week, and
the seasonally adjusted index declined from 111.0 to
110.1 per cent of the 1935-1939 monthly average. In
spite of the unsatisfactory rate of lumber production,
there should be ample supplies of lumber for war needs.
Civilian building and even repairs must be postponed
until after the war. An effect of the lumber shortage
that is not readily observable by the general public is
the delay in shipping many consumer goods items for
want of suitable containers.
THE FUNDAMENTALS
1929
r
Year
Monthly Average
of Total
Income Payments
1939
1940
1941
1942
1943
$5,902,000,000
6,353,000,000
7,728,000,000
9,720,000,000
11,856,000,000
Income payments increased steadily throughout
1943, and in December, which is seasonally the month
of largest income payments, the total reached the wartime high level of $13,460,000,000. During 1944,
income payments have leveled off at a rate of about
$12,500,000,000 per month. In view of the fact that
the public has failed to spend its income by a fairly
19U
Per Cent of Capacity
94.0
22.0
70.0
24.0
92.0
96.5
(Latest 1944 weekly data; corresponding week earlier years)
107
substantial margin during the years when incomes were
rising to their present level, it is clear that consumers
can continue to buy goods freely if they can be obtained,
even though incomes have stopped increasing. However, the opinion is prevalent that the war in Europe
will be over before many months and that there is a
growing tendency for the public to postpone purchases
of goods that can be obtained at the present time only
in inferior quality.
finance. While the primary object has been to sell as
large a part of the new Government debt as is possible
to nonbanking holders, it is nevertheless necessary for
banks to absorb the residual amount. Credit policy in
wartime is circumscribed by the necessity, on the one
hand, of providing sufficient reserves for banks to
purchase such securities as are not sold to other investors
and, on the other, of restricting bank reserves so as not
to induce banks to be active competitors for the securities that might otherwise be purchased by nonbanking
businesses and individuals. It is necessary that banks
be in a position to purchase out of funds on hand or
easily and assuredly accessible, and to hold, such
United States obligations as are offered to them; at
the same time, it is important to prevent excessive
ease in the market conducive to unnecessary security
purchases by banks."
Prices
Movements of the sensitive wholesale commodity
price indexes were irregular last week. The tone in the
futures dealings was stronger than that in the spot
dealings. Moody's Spot Commodity Price Index was
250.2 on June 22 and was 249.6 on June 29. The DowJones Index of Commodity Futures closed at 95.60 on
June 22 and at 96.41 on June 29.
RECOMMENDED BOOKS
FINANCE
"The Theory of Monopolistic Competition," by Edward
The Reserve Situation of the
Commercial Banks
It is the Treasury's objective to market its quota
of new Government issues allotted for each periodic
War Loan campaign without recourse to selling to the
commercial banks, which would involve the creation
of new purchasing media. To the extent that the
Treasury succeeds in financing its deficit by such sales,
it is unnecessary for the commercial banks to have
cash reserves other than those required by the Federal
Reserve authorities to protect the customers' deposits.
The demand for credit by the banks' customers is
relatively small at the present time. However, even
when sales of Government securities are not made to
the commercial banks as permanent investments, the
reserve position of these banks is important to the
Treasury and to the Federal Reserve system, because
the banks are forced to dispose of Government securities when they find it necessary to realize cash to maintain their required reserve position. This throws a
burden on the Federal Reserve banks, which are forced
to purchase these Government issues from the commercial banks.
Since January 1941, excess reserves of the Nation's
commercial banking system have been reduced from
about $7,000,000,000 to approximately $1,000,000,000.
The reduction has been most drastic in the New York
City banks, where the required reserve rate is high and
where the use of reserves for the purchase of Government securities has been relatively more extensive than
it has been in other sections of the country. Excess
reserves in the other city banks have been reduced to
small proportions, and the greater part of current excess
reserves of $1,000,000,000 is now held by institutions
classed as "country" banks.
The importance of adequate reserves held by the
banks to facilitate the part they are expected to play in
wartime financing was described
in the Federal Reserve
Bulletin issued last week:1 "It appears that in general
bankers are coming to recognize that they can rely on
their portfolios of short-term Government securities
as liquid reserves, and are permitting excess reserves
and balances due from banks to decline. This development is consistent with the over-all objectives of war
1
Federal Reserve Bulletin, June 1944, pages 532-533.
108
Hastings Chamberlin, Harvard University Press,
Cambridge, Massachusetts. (Price: $2.50)
This work of Professor Chamberlin represents an
interesting refinement and elaboration of neoclassical
economic theory. The concepts of competition and of
monopoly do not cover the entire field of economics.
Between these two concepts lies a broad area in which
the working of competition is modified by monopolistic
factors. This work of Professor Chamberlin is an excellent contribution to our understanding of this field.
The presentation is necessarily technical in character
and, therefore, the book can be recommended only to
advanced students of economics.
"Management in Russian Industry and Agriculture," by
Gregory Bienstock, Solomon M. Schwarz, and
Aaron Yugow, edited by Arthur Feiler and Jacob
Marschak, Oxford University Press, New York.
($3.00)
With the military power of Russia destined to dominate Europe as soon as Germany's might is smashed,
it is well-nigh impossible to give proper emphasis to
the need for developing an understanding of that country in the United States. What we need is to learn of
the new Russia that has developed under Stalin's
regime. The present volume is one of the best for this
purpose that has been published up to this time.
The present title is the first to be published under
the auspices of the Institute of World Affairs, which is
a new research organization whose faculty is composed
of foreign scholars and whose endeavor is to inform the
American public concerning world affairs in the economic and sociological fields. The manner in which the
Institute's first project was carried out suggests that it
will become a useful information agency.
It would be impossible in a brief review to summarize the findings of this examination of the modern
Russian economy. Perhaps the most significant development brought out by the authors relates to the manner
in which the Communist Party has gone about the task
of industrializing the Soviets and how this process, as
it has developed, has affected the social thought of the
community.
American Institute for Economic Research is a nonpolitical, non-commercial organization engaged in impartial economic research.