National Affairs: Message

In 1932 the U. S. people made a decision of far greater historical import than the choice of a new Chief Executive. For better or for worse, the U. S. people decided that it would not put up with deflation—the price that capitalism has always had to pay for its periodic excesses. What the U. S. wanted was a President who would "do something." And doing something meant preventing the country from going through the wringer.

Herbert Hoover tried to ease the pain of liquidation but the voters wanted complete relief. So they elected the other candidate. Franklin Roosevelt ditched his economy platform and did what any other man would have had to do in the same position: he gave the U. S. what U. S. wanted—a heroic economic shot in the arm.

Last week President Roosevelt finally and officially admitted that the U. S. was in another Depression. Recognition of its existence took the form of a special message to Congress in which he proposed to end the Depression. His proposition: another shot in the arm.

Most of the reasons and rationalizations given to Congress in the message were repeated in the President's subsequent fireside chat (see p. 10). But the nub of the message was simply: "Viewed from every angle today's purchasing power—the citizen's income of today—is not sufficient to drive the economic system at higher speed." Thus the program itself was founded on the old pump-priming theory with five billions in cash and credit to do the trick. By various bits of legal and financial legerdemain the net cost to the taxpayer was described hopefully as a mere billion and a half. According to the President this would provide him with the "three rounds" of ammunition needed to down Depression.

Round No. 1 was straight Relief. The President asked for an additional appropriation of $1,250,000,000 for WPA for the first seven months of the next fiscal year starting next July. He also asked for an extra $300,000,000 for CCC, National Youth Administration and the Farm Security Administration. The total of $1,550,000,000 would enable the Government to maintain relief expenditures after July 1 at approximately the current rate—$200,000,000 per month.

Round No. 2 amounted to an about face in the Treasury's recent credit policies, which helped bring on the Depression. A year ago when Government's prime concern was not Depression but a runaway boom, the Federal Reserve Board boosted bank reserve requirements. This cut down the total of potential credit in the form of excess bank reserves and made money a little more expensive to borrow. Last week the President told Congress it was now time to lower reserve requirements—which the Reserve Board did forthwith. Net effect of lowering reserve requirements was to increase excess reserves from $1,700,000,000 to $2,400,000,000. That is enough to support a credit expansion of perhaps $15,000,000,000—if businessmen would borrow.