IT sounds extravagant to say that the Government of the United States at the moment is giving concentrated attention to ways and means of spending money as well as lending money to people who can spend it properly.
But that's the crux of the present effort to increase purchasing power and stimulate economic recovery. Congress thought that by spending three billion dollars on public works, the employment problem would be solved but the Government cannot throw its money away on projects that are uneconomic or futile. Try as they do every day to find good ways of spending money, the Government officials have not yet authorized the expenditure of more than half of the public works program. And simply authorizing the spending does not mean that it will get money into circulation right away. For blue prints have to be made and plans and specifications take time.
What, then, can be done to spend money quickly? The latest thought being given by President Roosevelt is in the direction of capital or durable goods. He has been holding conferences with executives of various steel companies with the idea of getting steel rails for the railroads. But this is only one of a number of things the railroads could buy if they had the credit. They have neglected maintenance of way and the purchase of new equipment to replace that which has depreciated and is now costing inordinate sums for repairs.
Broadly speaking, there are two classes of products in manufacturing--those that are consumed immediately and destroyed and those of a durable character which are relatively permanent and are destroyed only by wear or accident. In normal times the output of each is about equal but during depressions the decline in necessities of the moment is much less than in durable goods. Thus consumable products, according to the Federal Reserve Board, showed a 32 per cent decline in the low month of 1932 as compared with 1929, while the durable goods declined 80 per cent.
Normally half the people industrially employed are engaged in building and rebuilding the country while the other half are producing supplies required by the entire population for consumption. Thus when the durable goods industries fall down, unemployment is colossal. We are producing enough consumption goods for our present needs, in fact a surplus. But there's an actual scarcity of durable products.
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It has been estimated that it would take $6,000,000,000 just to make up deficiencies in purchases from 1930 to 1932 as compared with the annual average over a ten year period from 1919 to 1929. It is estimated that there is about $240,000,000 worth of equipment that ought to be replaced with new and more up to date models. All this would of course take many years to make up, but a large part of it would provide instant employment if the capital funds were available for the manufacturing industries to start work. Also if more people are employed, they in turn need consumable goods and that sends the prices up so as to cover the labor costs and the usual additions to the price level when business is booming.
But where shall the capital credit come from? That is engaging the attention of the government, Leans of this kind can be made through the Reconstruction Finance Corporation and the credit mechanisms about to be set up under plans for local mortgage companies.
Usually the capital for such purchases comes from the savings of the people the bonds invested in by savings banks or the purchases of equipment bounds made by banks with depositors' money. This is long-term credit and is obtainable at relatively low rates of interest as a rule.
Today long-term credit is scarce. The bond market is at a standstill. Capital funds are being husbanded in banks and financial institutions earning a neglible rate of interest on short term securities, but this is considered better than risking money in long-term bonds when the policies of the government about repayment in cheaper dollars later on have not been clarified and when inflation talk still disturbs public confidence.
To start the ball rolling, it will be necessary for the government to arrange to make some big loans for the so called heavier industries and gradually to produce conditions favorable to the investment of long-term capital
