- America in Transition
IN recent conversations with leading bankers in the United States, I was led to believe that the position is completely sound for the time being and that a useful first step towards consolidating the Federal Reserve system had been taken in the Banking Act of 1935, for the writing and passing of which full credit must be given to Mr. Eccles, the Federal Reserve Board Chairman. But 'to English eyes the fundamental weakness of the American banking system, which was disclosed in the years between 1929 and 1933, has not yet been removed. The tendency still is for banks operating in different States to have a major part of their assets tied up in one particular industry. For instance, in a cotton-growing area the banks will have their fortunes tied up with the 'price of cotton. In a wheat- gmwing area they will be tied up with the price of wheat, and so on. They are apt, therefore, to have all their eggs in one basket, 'and if the basket breaks, disaster f011oWs.
Mr. Roosevelt's legislation has created some degree of pro- tection against the disasters Of four or five years ago. But, accord= ing to our standards, an unshakeable foundation for American banking will not exist until a nation-wide branch banking system has been built-up with functions 'of big banking units spread throughout the country and with fortunes inyolVed in a wide range of production and industry. Since there are forty-eight States in' the United States, all with different banking -laws and all with different conceptions of what constitutes a bank, it is difficult to see how convincing progress can be made in this matter. Nevertheless; for the moment it may be said that all is well with American banking and concentrated study is being made of the prOblems which would facie the system 'if anything like the latest depreSsion should recur.
Rather than attempting to discuss the present banking position, I would like to give a few impressions gained on a recent visit to the United States, thiring which I had the opportunity of talking with many' of the leaders of that nation's politics banking and business. These impreSsiona; perhaps, may form a background which will help English observers to judge the conditions and the atmosphere in which the American banks are working today.
During three separate visits to New York during April and May this year,' I found the scare about the faint of the price of gold operative, although not so overwhelmingly restrictive as it was in London. Since, for the time being; the gold price scare has passed, allowance in this respect must be made for the following impressions.
AN ECONOMIC RECOVERY.
Of the magnitude of America's economic recovery, I found no doubters and no questioners among the very large number of business men with whom I talked. Indeed the statistics and indices of progress in .every branch of the national life speak for themselves. But' I have never seen people so frightened of prosperity: Each individual busineSs man seemed to have his own peculiar feats about the future. Objects of these fears were as various as inflation or defla- tion, war in Europe, the wrecking of industry by Mr. John L. Lewis and his ;Committee for Industrial. Organisation, a reduction in the gold price, or even that the reform of the Supreme Court was the beginning of the disintegration of the United States. Having interviewed many people at Washington, who guide the policy in all these matters, I reached conclusions on all these points which may be roughly summarised as follows.:. The policy of the Administration is to guard against either inflation or deflation. On: many responsible lips one heard such phrases as " keep- on an even keel " or creating a balanced economy." As regardS the price of gold, I left Washington convinced that no action is in contemplation for a unilateral cut in price by the United States, and - also, incidentally, that discriminatory action against foreign investments in Wall ,Street was decidedly unlikely, Another - definite impression was that although the new emergence of 7.4-our's aspiration to gain rights gained long ago other industrial countries meant that under the vigorous leadership of John L.' Lewis Labour disputes would become freqtent and bitter, nevertheless the momentum behind the Ainerican trade recovery is so strong._ that, unleis something wholly unexpected occurs, the expansion in that country must go On for several years to come. ThiS surely means- that American tankers are batting on a very good wicket and that there will be a con- ,iderably long breathing space during which further con- solidation of the American banking system can be studied and actively undertaken. - WORLD TRADE.
But of all the impressions the clearest was of the complete change in the outlook not only of the Administration but also of leading business people on matters of international trade. The isolationist tendencies still powerful in the political sphere have given way in tbe economic sphere to the keenest enthusiasm for opening ..up the channels of commerce between the nations. This is viewed as being the only method by which the problem of international appeasement and peace and .satisfaction can be pursued. It is realised now how much America's recent policy of very high tariffs has obstructed world recovery and the old policy of self-sufficiency is no longer regarded as helpful even to the most narrow of American selfish interests. In the opening up of world trade American business men and economists perceive the solution of most of the pressing problems of today. They see arising from it a practical solution of currency difficulties and all the many problems involved in international indebtedness whether between governments or between private films and individuals. In this connexion the one vital point is that the beginning of the whole new chapter of freer intercourse between nations is unanimously felt in American circles to lie in the negotiation of a bold and generous trade treaty between the United States and Britaineven more, between the United States and the whole British Commonwealth of Nations. I am firmly convinced that unless the talks now in progress with the object of making such an agreement come to a reasonably speedy and successful conclusion, Mr. Roosevelt's Government will be compelled to modify this new and hopeful policy and retire once more behind impassable trade barriers.
This change of mind and heart in the business world of the United-States seems to me to be the most hopeful of new world factors today. And, furthermore, unless such an agreement is made, bringing with it the hope of a united approach by Britain and America towards the problem of gold, political opinion will compel Mr. Roosevelt to reduce his own gold price, for already he is assailed by critics who accuse him of subsidising the mines of South Africa and Russia at the expense of the American taxpayer.
In some ways the United States is in the same stage of transition as Britain was before the War. She is in the early stage of building up the organisation for social security, a stage comparable to the Lloyd George days before the War. She is facing a sudden revolution in the whole organisation of labour and the rapid march towards completion of New Deal policies aimed at a drastic redistribution of the wealth of the nation. Through all this America will pass, not without troubles but with final triumph, for her resources are un- limited, the power of resistance in her wealth is unshakeable.
THE FEDERAL BUDGET.
I have so far failed to mention one aspect of the present situation of the United States which looms large in the thoughts and fears of American economists and bankers. That is the continuance of a huge excess of expenditure over revenue in the Federal. Budget. In American bank parlours heads are woefully shaken over the approaching disaster which might result from the indefinite pursuit of the policy of " deficit financing." The official view of the Washington Treasury appears to be quite different. I do not think I should misrepresent that official view if I summed it up as follows : " There is no cause to worry about the Budget position. The deficit is of manageable size. A balance can easily be restored in the reasonably early future, for the growth of business prosperity over the next few years will mean a very large natural expansion of Federal revenues." To orthodox financiers in London the view thus stated may seem to be the expression of an unwarranted complacency. But is it ? The United States is so vast that even a small geteral improvement spread over many areas may lift revenues in spectacular fashion. To realise the truth of this one has only to study the stupendous figures of Federal Debt paid off out of revenue between 192o and
1929.
One last point. Why, if America's strength to overcome her troubles is undoubted and the peak of prosperity is still far ahead, do not Wall Street securities rise rapidly to much higher levels ? One partial reason lies in the actual market restrictions imposed by Mr. Roosevelt. Another, and in my view the main reason; is- that the whole country knows that the President is determined to prevent an unruly boom from developing. They are always afraid that, so soon as markets reveal strength, he will do something new to curb the movement. So in American investment circles there is the psychology of uncertainty and fear exaggerated by personal hostility to Mr. Roosevelt's domestic policies. Twice a week at the White House the President talks freely to newspaper men and answers their questions impromptu. Twice a week Wall Street trains an apprehensive eye on Washington, ready to read the worst into any chance remark by the President.
So the American business man sees himself standing in the middle of a sea of worries, which is largely a mirage ; but fears or no fears, strikes or no strikes, the United States marches steadily and effectively up the hill of prosperity.
LEONARD J. REID, City Editor of the Daily Telegraph.
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