The November Election and Business

The FINANCIAL COUNSELOR

The Financial Counselor is designed to help readers to a better understanding of the general business conditions which affect their investments. It is obviously impossible to give personal advice, either in these columns or by letter

by GEORGE E. PUTNAM

IN 1930 the head of a large banking house advised a number of his corporate clients who had bonds maturing in 1932 to call them in and put out a new issue maturing at a later date. The reason he gave for this advice was that 1932 would be a Presidential year, and therefore an unpropitions time to carry through a refunding operation.

In the light of all that has happened during the past year, the banker’s advice was thoroughly sound — but not for the reason given. No one could seriously contend that the panic of 1932, which made it exceedingly difficult to raise new capital or to refund maturing obligations, was brought on by the uncertainties attending the outcome of the November election.

The tradition that Presidential years are years of uncertainty and sluggish trade is deeply embedded in the minds of most business men, and yet, since the campaign of 1896, there has been scarcely any factual basis to support it. The record of business activity during the present century shows that Presidential years have been no worse or better than other years. Moreover, the record of stock prices fails to show that the quadrennial elections have had any measurable effect upon the securities market. In practically every instance stock prices have pursued the same course, either upward or downward, after the election of a President that they pursued before.

If it is the order of the day that business should be so little affected by the outcome of Presidential elections in general, it should be even less affected by the results of this year’s contest. In the course of the recent campaign it seemed that the two major parties were closer together on doctrinal matters than ever before. Both parties stood for a sound monetary standard, economy in government expenditures, and reduced taxes. On the question of war debts they were in virtual agreement, both being opposed to cancellation but ready to consider other modes of settlement. A few differences were still discernible on tariff policy, but these were less important

than in former years in view of the pronounced protectionist doctrine of both parties. Seldom, if ever, has the outcome of an election been of such small moment to business.

Now that the country has registered its political preference for the next four years, we can forget about the dire forecasts recently made by party leaders and the fulsome compliments that were exchanged — all a regular part of normal campaign strategy — and settle down to a consideration of the problems that must be faced.

The most pressing problem that confronts the victorious party is to find a safe and certain way of hastening the recovery of business so that the wage earner will have a job, the farmer a profitable market, and the security holder a dependable source of income. Unfortunately, it is not within the power of government to restore business to a prosperous basis through hortatory measures or legislative panaceas. About the most that government can do is to remove the obstacles which impede economic recovery.

There are several major obstacles to be dealt with. First of all, it is essential that national, state, and local budgets be balanced and that taxes be reduced. Unbalanced budgets tend to undermine confidence in the stability of government, while burdensome taxes not only dampen the spirit of enterprise but work a hardship on every taxpayer. It comes as something of a shock to realize that during the current year approximately 30 per cent of our entire national income will be required to meet the cost of government, whereas in prewar days the figure was less than 10 per cent.

One of the subtle features of the present tax situation is that the tax burden does not fall solely upon those who contribute to the support of government. The burden of high taxes is felt even more acutely by those who want work and cannot find it. When face to face with the prospect of high tax rates, business men are afraid to go ahead with their plans lest taxes prove so burdensome that their ventures will be unprofitable. The result is that new capital investments are not made, and the labor that would have been required in various construction projects is not employed. Experience everywhere demonstrates that high taxes aggravate the evils of unemployment.

Another obstacle to be overcome is the difficulty now attending the sale of our products— particularly farm products — in foreign markets. During the past three years nearly every foreign country has set up new tariffs or quotas for the purpose of restricting imports. The effect of these restrictions, and of the depreciation of foreign currencies, has been to exclude more and more of our products from foreign markets and to accentuate the fall in agricultural prices. Normally we sell abroad 12 to 16 per cent of our total agricultural production, but we are now able to export only half that amount.

Under our present form of agricultural organization. the farmer needs healthy foreign outlets to absorb his surplus production. The more of his products foreigners can be induced to buy, the higher the price he will obtain and the greater his purchasing power will be. A service of inestimable value would he rendered to the whole nation, and to the cause of farm relief in particular, if our statesmen would find some way, through tariff bargaining or otherwise, of razing or lessening the restrictions on the sale of our farm products in foreign markets.

A third major obstacle is the question of war debts. This problem has contributed its full quota to the demoralization of the world’s business. Realizing that our war debtors could pay the interest and principal of their loans only by sending us goods, and not wanting their goods to compete in our markets, we set up high tariff barriers which made it impossible for the debts to be paid in the ordinary commercial way. More recently, the war debtors themselves have followed our example, raising tariff barriers against one another’s products, partly because they did not wish to receive in goods the interallied payments provided for in the various war-debt settlements. Little wonder that world trade is stagnant, that industry everywhere is depressed, and that millions of workers are unemployed. It is as if the nations of the world had decided to draw into their respective shells in search of self-sufficiency, notwithstanding the fact that the prosperity of every section of every continent is dependent on commercial intercourse with the outside.

It is imperative that the war-debt question be reconsidered and settled on some basis that will completely remove it from the realm of disturbing factors. The safest settlement would, in my judgment, be cancellation. In addition to removing one of the fundamental causes of prohibitive tariffs and stagnant trade, outright cancellation would so improve the credit of our war debtors that they could once more borrow money in our markets and buy our products. Yet it is probably too much to expect that the debts will be canceled. Considerations of political expediency seem to require that some other course be followed. It is earnestly to be hoped that statesmanship will find a practical way of giving business the advantages of cancellation in fact, irrespective of what is accomplished in name.

A reasoned settlement of the war debts, the scaling down of foreign tariff barriers through reciprocal trade agreements, and drastic reduction of the tax burden would go far toward restoring some semblance of balance in the nation’s business. The farm population, which normally controls about one third of our total purchasing power, and which has been unable to exchange the low-priced products of agriculture for the high-cost products of industry, would find its position substantially improved. Having more money to spend, the farmer would buy more factory products. At the same time the reopening of factories to supply the farmer’s needs and the reëmployment of factory labor now idle would obviously provide direct relief for labor — and, in turn, a better domestic market for the farmer. In this way the balance between farm and factory would be restored.

Industry has already set the pace in the battle with economic forces by getting its costs reduced. The election, moreover, is behind us. One party has been given a mandate for the next four years and the country is ready to go ahead. These are constructive factors which cannot fail to have a tonic effect. What is now needed is the removal by governmental action of the major obstacles which impede recovery. Once this larger task is properly under way, business can look forward to a new era of prosperity. The natural resources, man power, and brains of the nation are ready to respond. They wait only until the decks have been cleared for action.