CABINET MEETING, APRIL 18, 1947 (7)
Nourse
Keyserling
Clark
Webb
Scales
Royall - for Patterson
Hannegan absent
THE PRESIDENT
Asked Nourse to discuss economic situation. Suggested that Nourse should read memo submitted to Pres. on day before.
NOURSE
Read memo dated Apr 3.
THE PRESIDENT
Asked Nourse to proceed with discussion.
NOURSE
Basic problem is our continuing to travel on wartime impetus. We are maintaining full employment on the basis of future income (installment buying). Readjustments have to be made in price structure which cannot be done in less than a year following a war. If we can get it done it would be tribute to free enterprise system.
Some people who have had ambitious ideas of function of Economic Council - and its ability to control economic fluctuations and bring about readjustments. The Council has responsibility of giving sound advice and making good recommendations for measures to be taken after sound and thorough analysis of conditions.
We are not now facing a crisis situation but the adjustment has not proceeded in 1st quarter as smoothly as anticipated. However danger can occur - and quickly. The Council at any time may have to admit its projections have not materialized - and reappraisals may have to be made. Studies of remedial measures are being constantly made to keep step with changes and avoid necessity for hurried improvisations.
We now have a different level of business thinking than has ever existed before. It is thinking on broader terms.
We have to watch over expansion of plant facilities - if it is tough to determine what plant expansion is necessary or advisable - when full employment factor is considered -
We are facing slump in construction industry.
LABOR
We can't continue to operate on war economy working 2 or 3 shifts.
NOURSE
We have to study the relation of plant expansion to the problem of employment - they are closely interlocked.
The danger of some business interests building up plant expansion to meet catching up on demands period has to be watched.
SNYDER
Steel expansion in plant is going to be negligible. We will have changes in plants due to modernization.
HARRIMAN
Steel is running about 90 million tons. We now have a shortage of 6 million in current production even though we are restricting exports seriously.
Demand from abroad will increase. World steel picture indicates serious problems in meeting our objective of world reconstruction. We have to step up German production.
KRUG
No one in govt is tying together the entire picture of our natural resources and our future demands. Business is looking back not forward. Our economy is changing and our potential needs are greater than ever before.
HARRIMAN
Agrees with Krug that such a program is seriously needed. One basic point is that emphasis should be on productivity. Failing in this we cannot meet the commitments we have in our established foreign policy of reconstruction and rehabilitation.
THE PRESIDENT
Gen McNarney says that Germans have no incentive to produce coal or anything else. Given incentive of manufacturing at home coal production would increase in Germany by 75%.
SNYDER
Aluminum - magnesium and manganese increases in production should be studied in connection with any study of steel expansion.
FORRESTAL
Copper, manganese and some other metals are being exhausted at a rate far greater than business realizes. We are no longer a "have" nation.
ECCLES
We can't do much to curb credit expansion. The usual way to curb bank credit was to raise discount rate. It is impossible for the Central Bank to exercise curbs because of the effect on the Govt. bond market.
2 selective credit controls
1) Statutory control over securities. In 1942 margins were put up - 1 year ago margins were put on cash basis. There was slight margin reduction this year. In 1929 credit in stock market - 10 billion dollars. Now only 1 billion. If comparable to 1929 conditions, it would now be 25 billion, not 1 billion. It is unfortunate that credit in commodity markets is not controlled, but agricultural group is opposed to it.
2) Consumer credit is second selective control which was enforced during the war. It would not have been successful if it were not for willingness of public to accept it because of war conditions. In spite of this restriction consumer credit has been going up at rate of 500 million a month. Unless Congress gives us legislation to continue this restriction, the executive order (2 years old) should be repealed.
Is going to ask that a bill should be introduced and asked the President to get behind it. We are going to have a recession. We have a great maladjustment between buying groups. Organized workers have 1.25 per hour.* On the other hand the unorganized have base of 70¢ per hour. The current consumption is being sustained by credit given to lower income groups. (57 million workers 40 million not organized)
Business has added to the problem. Earnings are now fantastically high. Now 4 billion per quarter after taxes. At rate they are going they will run about 15 billion dollars this year. Largest in history - 1940 - was 9 billion.
ANDERSON
Questioned figures on low income group. Cited tractor driver on farm now getting 1.20 per hour.
ECCLES
Still out of balance with organized groups, business and farmers.
LABOR
Unorganized average 55¢ per hour.
ECCLES
Last year personal consumer debt increased 6 billion dollars. Stock prices do not reflect actual earnings.
NOURSE
In past few days business men have agreed that they can't cut prices when rest of trade is not lowering prices. Raised question of calling conference to get this action without risk of anti-trust action for price fixing.
SNYDER
The war loan account 2 billion dollars now (war bond deposits). By June 30 this will be reduced to 1 billion dollars which will reduce some inflationary pressure.
HARRIMAN
11:40
End