The Economics of the Emergency



Before the Convention of the Illinois State Savings and Loan League at Peoria, Illinois, on October 14, 1941

Vital Speeches of the Day, Vol. VIII, pp. 91-96

WE are in a period of quickened activity. We are in a period of fuller employment. We are in a period of great expansion, and in seeking to characterize in a few figures what was going on in a talk in Detroit yesterday, Leon Henderson, Price Administrator, was technically correct in saying that the Federal Reserve index of production is now around 165, whereas a year ago June it was at 115. He was right in saying that production today is vastly greater than in the 1929 peak. He was correct in saying that the so-called national income is expected to raise above ninety billion dollars this year, compared with seventy-six billions last year, and he was correct in some of the other external figures that he gave to symbolize this growth and expansion of which I have spoken, but the implications of statistics may be somewhat misleading unless we add a few qualifications and a few foot-notes.

On the basis of the production figures, we should be entering the golden age in the living standards of the American people. Based on the physical activities which we see allabout us, we should be going into an era of more and better goods for the people at a higher material well-being than they have ever enjoyed before, but, obviously, we are not in that happy golden age. Why not? Let's look at the economic picture somewhat naively. Let's not blind our eyes by using the customary labels which prevent us from getting beneath the surface.

Obviously, we are not translating into living standards this great pick up in productivity because much of the activity is not business at all; much of the activity is unrelated to the economic process of making and exchanging goods; a a great deal of it, an increasing percentage of it at the present time, a minimum of 15 per cent of the total, is being diverted to the making of lethal weapons for national defense and for lease-lend purposes, but that is not the whole explanation.

In the second place, part of this quickened and stepped-up production is going not into immediate consumption, but into the building up of inventories on the part of manufacturers, wholesalers, retailers and consumers themselves, aspeculative accumulation of inventories based on the fear that new priorities will prevent the purchase of items which are still available.

This great diversion of productive energy into armament building is the price that we pay as a free people, as we meet the threat to the world of what is commonly called Hitlerism.

None of us will argue that the price we are asked to pay is not worthwhile, assuming that the objectives which we have set out for ourselves are attained. From an economic standpoint, all we know at this juncture is that the cost is here and is inexorable; only the benefits and the gains are conjectural. But from an economic standpoint, from the standpoint of the long term future of the United States, from the standpoint of real estate and other products involved in the living standards of the people, the question arises whether we can potentially achieve this full productivity without the artificial stimulus of wartime production. There are many answers to that question.

I believe from an economic standpoint that armament building solves no problems, that it creates more maladjustments and disparities and economic troubles than it corrects. I believe that potentially, assuming the elements of economic balance, balance between the various producing groups in the United States in a post-war period, and assuming secondly, moderation in the spending of government, which is always an expense to the national economy, under such conditions I believe that we can achieve full productivity in peacetime; I believe that we can potentially continue these present high levels of output, and then in such a happier day we could translate such work effort into terms of material well-being of the people.

What is the matter with Mr. Henderson's statistics? He estimates that the national income this year will rise to ninety-four billion dollars. There is a strange delusion and fallacy and misconception in the customary and democratic methods of compiling national income. It involves a fallacy of double counting, whereby if only government will take more from its citizens and spend more, then the national income will rise in some magic manner. Let's see what this double counting means and does; let's reduce it to simple and understandable terms. Suppose your income, or mine, was $100 per week. Suppose we engaged a secretary at $30 a week. Then my income of $100 would be disposed of in various ways, one of which would be for the payment of a secretary, leaving me, obviously, $70 for other expenditures, but in the compilation of national income there is double counting. They count my $100 and my secretary's $30, and call it $130.

We have got to rid our mind of the fallacy that if only the government takes more from its citizens and redistributes it, that we somehow expand the national income, that we somehow inflate the national material well-being, for the truth is much nearer the statement that government in its spending can employ no one without first curtailing the ability of private citizens to give employment, because the funds taken from taxpayers in taxes cripple the spending power of the individual citizen and transfer that spending power to public bureaucrats, and basically the question of socialism or state socialism over state capitalism pivots around the question: Can government bureaucrats spend funds more frugally, more wisely, more intelligently than the thirty million American housewives acting as the purchasing agents for their families?

You gentlemen in the sixty-two years of operation of your Association have a good deal of first-hand data concerning this broad economic question. You have seen in your individual societies and in the associations of the state a recordof the honesty, the dependability, the judgment of the ordinary citizens with whom you deal. You have seen them show discrimination in the selection of homes, and you have seen them show, on the average, rugged determination through the years to meet their commitments and to free themselves from debt.

That is part of the folklore of the American people. That is part of the record of accomplishment of the American people, and in the sixty-two years in which your Association has operated, most of the striking economic progress of the United States has been made. If you cast your eyes back to 1880, you will find that we were then in the tallow-candle period, before the widespread use of electric lights, telephones, and the magic household slaves of electricity. Transportation was primitive; highways in the modern sense were largely unbuilt; the wants, the needs, the living standards of our people were on a far lower and humbler basis than today.

The great stepping up in material well-being in these sixty-two years came not from the academic generalizations of the theorists, not from the emotional slogans and epithets of the politicians; this great change in living standards in this sixty-two year period in which your Association has operated reflected the development of science and invention and engineering, motivated and guided and financed by private enterprise, and when we face the conflicts that are here and that are coming in the future between an enterprise system on the one hand and government planning on the other, we should look at the record and derive confidence and strength from the accomplishments of the enterprise system which show very clearly that the sociological progress in the United States, which has exceeded that of any other nation in the world, has come out of the enterprise system itself, that industry, privately managed industry, working in cooperation with the creative mind of science and engineering, has created the better technology which provided more and better things for the people and which gave them this social progress of which the academic folk and of which the politicians speak so glibly and to which they make so slim a contribution.

Unless we understand and unless we believe in the social aspects of business, in the sociological by-product of business progress, then we will lack the spiritual confidence which is necessary to preserve the American way and make it function and progress in this changing world of new ideologies and new and strange doctrines.

It is not a question of today's business and tomorrow's opportunity; it is a question of the longer future. It is not a question of whether they are going to clamp down on the building trade and restrict non-defense building in its entirety or only in part. You and I know that in an emergency period the trend is to reduce economic activity of a postponable character, production of comfort goods, whether of automobiles or electrical appliances or individual homes, but we must at least keep the vision, we must keep the faith, if we are to find an exit from this emergency which will lead us upward and onward rather than backward.

If the time should come when they restrict new residential buildings still more than is indicated, it seems to me that you in the savings and loan movement can do an especially important job in keeping the light burning and at the same time serving your clients well, if you will induce workers and others who are favored with employment opportunities at the present time during this armament boom, to allocate some of their present income for purposes which will create values for them in the future after this situation has been reversed.

We have made great progress in the United States underthe slogan "Buy now and pay later." We will in this emergency make progress by reversing that formula, and by telling those who are now facing flush days from the standpoint of current income, to save now and buy later. That is a double-barrelled service, a service to government by patriotically stepping aside and not bidding against the government for scarce material and for limited manpower and for limited transportation facilities, and thereby build up a deferred buying power which can provide jobs later after the armament building has been tapered off, so that with your facilities for saving, you ought to go to your people now and say, "Begin now to build up the equities through regular monthly savings for the new homes of 1943, 1944 and 1945."

Unless you go to the average man with a formula and systematically plan for saving, he will be diverted into other alleys of expenditure and fritter away the so-called benefits of this boom period and find himself, when it is over, with his costs of living raised and his habits changed and with no benefits of continuing the level of income to which he has become accustomed. You can help him to buck the trend; you can help him to save for the future some of the benefits of his current lush employment by inducing him now to save for the new home of three and four years hence.

As we look at the national industrial activity, we see many cross-currents. We see hectic activity in some places; we see inactivity in others, but we know with the experience of the last war before us that from the standpoint of a national economy as a whole, we are inevitably in this period creating new maladjustments, new disparities, new dislocations for which we shall have to pay later.

On top of these inevitable economic dislocations of which I speak, there is a rather mental or psychological holding back on the part of industry and finance in some quarters because of lack of complete understanding or trust of some of the public officials with whom they are called upon to cooperate.

There was less of this in the last war because in World War No. 1, every one in the federal government from Woodrow Wilson down believed wholeheartedly in the private enterprise system, and there was no question in the minds of business men and financiers that when they were asked temporarily to submit to abridgement of their customary freedom for war purposes, that such interferences were temporary in character and that the emergency apparatus would be promptly demobilized after the emergency was over.

I think this time there has been too little effort on the part of government to stress the ephemeral and emergency character of the defense setup. I think it is regrettable in the circumstances when national unity is so much to be desired that some public officials have berated the Wilson Administration for the haste with which it demobilized the emergency apparatus. One cabinet member remarked to me that it would have been better to have kept it going during the post-armistice period until all the maladjustments had been ironed out, but he apparently was not aware of the history that followed the last war. When Woodrow Wilson was still in Paris at the Peace Conference he was besieged with cables and letters from special interests who were benefitting from the crutch provided by the government during the emergency and asked him please not to take it away too suddenly, and there was a strong temptation, knowing that we would have to pay for the demobilization to keep these instruments of regimentation a little longer, at least until normalcy had been restored. But Mr. Wilson talked it over with his closest advisers and they said to him, "Mr. President, unless we keep faith and demobilize these emergency apparatuses immediately after the armistice, then we may never be able to doit, because we will build up vested interests which will benefit from this type of thing and it will be impossible for us ever to get back to our private enterprise system."

1 think it is desirable for Congress in all of its emergency legislation to put an end date on all of these special powers and make it clear that after the war is over that these bodies shall be discontinued and that these new powers shall in each case be withdrawn. As compared with the economic mobilization in the last war, we have been frightfully slow this time to set up committees, industry by industry, to cooperate with the government at Washington. We are just now beginning to do that, and in the last war, a very strong effort was made to permit industry to select committees of its own volition without dictation by government. This time, lists are submitted to the federal officials and objectionable names are crossed out.

Last time there was greater speed in setting up requirements boards which knew precisely what the needs of the Army and the Navy and the Air Force would be, and the timing of such requirements. This time we have been slow to build up an overall blue-print of the military needs. In fact, we have been working toward a moving and changing goal so that it is very difficult at any one time to measure performance against promise, because the goal set a year ago, fourteen months ago, is much smaller and much less than the subsequent goals.

There has been emotional hysteria rather than clear-cut planning of the requirements of the various forces, and only in this last board, the SPAB, has there been an effort to have an overall coordinating agency which would say to the military, "Your needs have to be related to the lend-lease needs on the one hand and to the civilian requirements on the other."

Then, too, in the last war instead of the contract system which is used so widely today, greater use was made of the allocation principle whereby the purchasing agents of the federal government would study the total productive capacity, industry by industry, and then would tell each factory in the industry, large or small, "You are expected to contribute so much to the production of your industry," and the effect of these allocations was to give the small producer an opportunity to stay in business, to stay alive, and at the same time to give the large producer an opportunity to keep some of his civilian business so that he would have somewhere to turn for post-war employment of his personnel and his capital and tools.

The effect of the contract system this time has been enormously to exaggerate apparent shortages of raw materials. Let me illustrate how that works. I heard of one instance where an independent steel company received a very substantial order for shells. It didn't make in its own plant the basic shell, but had to place orders with another steel company for this basic raw material. Its production schedule was laid out for about a two-year period, but it placed its order for the steel at one single time and was told by the supplying steel company, "We can't undertake to give you the steel as you need it over a two-year period at this price. If you want it at this price, you will have to take delivery now. We don't know what our costs will be a year or two hence. Wage rates may be away up; taxes may be up. If you want the steel at this price, you must take it now."

Well, the prime contractor had little choice. He took the steel and piled it up. Meanwhile, we were hearing of the tremendous shortage in the steel industry, the under capacity of the steel industry, the record of inability to keep up with reorders was irreconcilable with the statement a few months ago of the heads of the steel industry that there would besufficient capacity. I think part of this failure of the experience to reconcile with the promise came from the fact that the system of contracts caused the prime contractors, in order to protect themselves against changes in cost, to pile up materials much more than would have been necessary from the standpoint of sheer production.

Now, why have we done this? Why haven't we followed the allocation method of the last war which worked reasonably successfully? It is difficult to answer that question. Some people think that the reason we are pursuing this different method now is the desire to build up a statistical record of rate accomplishment. Maybe so, but you can't lick panzer divisions, mechanized troops, and bombers, with statistics. You have to meet them with production in kind, and our problem is how to utilize most effectively the whole productive power of the nation, large and small.

It is astonishing to me that so little use is made of the experience that we had in economic mobilization in the last war. We fumbled then; we used trial and error, but by the time the war had reached its peak, that is, the American contribution to the war, we had worked out technics, methods and patterns which were very effective and which the Nazis have honored by copying. It wasn't sheer American genius that worked out these methods; it was partly that, but it was partly that we entered the first World War several years after it had gotten started, almost three years after the war had started, and it was possible for the American government then to send its observers and its experts over to the continent and find out the mistakes that had been made by other nations and to set up productive technics for cooperation between government and industry which would obviate making the mistakes that Europe had made.

A few months before the war started, when it was apparent that the United States was going to get in in 1917, Wood-row Wilson asked Herbert Hoover to go over to Europe again. He had been there during most of the war. He asked him to go back and make a special study of these methods of industrial mobilization, and the fact-finding that he brought back and that his associates in college brought back gave the basis for working out a system for making industry hum here in wartime. But the basic difference was the background in the last war that there had been no previous domestic struggle over here between individualism as we have known it on the one hand and various forms of collectivism on the other; such as we experienced in the last eight years. And the memory of that pre-war conflict of ideologies and economic philosophies over here has unquestionably created regrettable barriers to full cooperation now, and at the moment, for instance, in the current letter from Washington, the statement is made that some of the regular politicians in the employ of the federal government regret the attitude of the business men, the dollar-a-year men down there, and that they believe, for example, that these industrialists make the error of giving too much thought to the post-war problems and the post-war economy and that they would be more serviceable if they gave no thought at all to what they are doing to the national economy, but merely made an all-out war effort now and let the future take care of itself.

That is one viewpoint, but in connection with it, you can't get away from the fact that we are creating the setting now for our post-war economic problems. The decisions we make now, the methods we pursue now, the amount of federal spending now, will condition the nature of our post-war economy, and though there may be some conflict between the all-out effort to win the war and due consideration to the post-war problems, there ought to be within the realm ofstatesmanship the capacity to reconcile the two and to proceed as prudently as we can.

There is another school of thought among the politicians that the business man is a reactionary fellow who slows up the process because he is unduly concerned with cost. One of these Washington letter services, Whaley Eaton, a few weeks ago in commenting on this said that the professional politician said that cost isn't important, that production is the thing, and that, after all, cost is merely writing numbers in a book. I was rather shocked by that, and I didn't believe it was to be taken too literally that our economic progress in this two-year period which we have been talking about has been made by the genius of industry walking with science and invention in always fighting costs, in reducing costs in terms of manpower, war materials, and the other elements that enter into cost, and that this effort has meant elimination of waste motion, elimination of friction, and it has been the main contribution of industry, this effort always to give the customer more for less while paying labor more, while paying government more taxes, so that it seemed incredible that anyone would be so frivolous as to belittle the importance of this constant struggle to reduce cost. But then we all read in the newspapers a few days ago that at least some branches of the government apparently do embrace this question that production is the thing and that cost isn't important.

On this defense housing project in Michigan it is reported that Mr. Sidney Hillman ordered the Works Progress Administration not to accept the low bid which involved principally prefabricated housing, because that would give employment to certain C. I. O. industrial workers and apparently the SPAB had made some sort of commitment to the rival union, the A. F. of L. craft unions, that defense housing wouldn't be prefabricated and would be of a nature that the A. F. of L. unions could perform. Well, now, that is an incredible development. It is a manifestation of the hysteria of the period. We have been living for the last eight or nine years in sort of an upper-bluff world at home and abroad. Any fiction writer who would have tried to foretell this period would have been considered mad.

We waste our time studying the ideologies of the Nazi party in Germany without realizing that the ideology is only the blue-sky prospectus intended to lure suckers and that it hides the real purpose of the politicians behind that movement.

Coming over on the train from New York I was re-reading last night and this morning the book by Thyssen called "I Paid Hitler," and his revelations about what the gang does and how the insiders get their graft is most extraordinary. He says that their economic scheme is bound to collapse of its own weight and that the people will rise in terrific wrath when they find out how the leaders of the party have enriched themselves.

Well, now, what is the answer to judgments such as Mr. Hillman made over here where he refused to look at cost and desires to protect his friends and to hurt his adversaries? We will see another manifestation of it over here in the Price Control Bill. Although we started out in this administration in 1933 to raise prices to the 1926 level, although we seem about to do that now, the main practitioners of this administration have in the last few months joined in a chorus of warnings to the American people against the dangers of inflation. It reminds me of the anecdote about the man who murdered his father and his mother and then pleaded to the court for mercy on the ground that he was an orphan. In other words, we generated these inflationary forces deliberately over an eight or nine-year period and now we come out and warn the public against them. It is a smart political

trick because the man on the street may forget all the subtleties of the buildup of the last eight or nine years, but he will remember the headlines of the recent warnings by spokesmen for the present administration, and when and if we go into an inflationary period, he will say, "Well, they called the turn."

But what I wanted to say in connection with this counter inflationary movement was that there is an indisposition to look at the subject objectively and scientifically. For instance, in the pending Price Control Bill where they want to put a ceiling on prices, it may be necessary as an emergency measure because what we are having now isn't business. Real business is a process of exchanges among producers. The stuff that is going to the government involves no exchange; it is a one-way transaction. So that in such a market we may need something like price ceilings, but those who are advocating the price ceilings are not thinking the problem through; they are willing to limit the receipts of businessmen who represent an unpopular political group and a minority group. Yes, that is all right, but for heaven's sake, if we are going to put a ceiling on prices, let's not put ceilings on the components of prices, the various elements of cost which make prices, including wages and taxes and farm prices and the rest, because if you touch farm prices, you alienate a big political group. If you touch wages, you alienate another numerically large and vocal political group. So let's control the inflation, let's set a ceiling on prices, but let's not affect the costs which determine the prices, because that would be unpopular.

We have four schools of thought in regard to this matter of price fixing. The first school is led by Bernard Baruch, who was chairman of the industries group in the last war, and is at least logical. They say we are in this emergency period and government is the chief buyer, and such a competition can't go on in such an abnormal situation, therefore, let's put price ceilings on everything, including rents, wages and farm products. That is drastic medicine, but at least it is logically consistent with itself.

Then there is a second school of thought, led by Commissioner Henderson, Secretary Morgenthau, and Henry Steagall of the House Banking and Currency Committee. They advocate selective price fixing. We will put ceilings on the prices at which things sell, but we won't affect certain causes which will create those prices; we will specifically not touch wages, although according to the studies of the Brookings Institution, 85 per cent of the national income eventually goes to wages, salaries, and other compensations for personnel service.

Now, Morgenthau went a step further. He said leave wages alone, but we had better include farm products. Well, now, yesterday the farm bloc went out to crucify Morgenthau for making that partial admission.

We have got a third school of thought. Lewis Haney, Professor of Economics of New York University spoke for this school and he said, "Well, let's leave it alone; we have created this vast amount of circulating medium; let's not interfere with it; let nature take its course." That is more or less the Mid-Victorian laissez faire school. Heaven knows where it will take us, but at least it is theoretically proper.

There is a fourth school of thought led by Senator Byrd of Virginia, which has a lot of common-sense drive behind it, and that is that if we want to control an overall inflation and delimit it, the way to do so is to deal with causes rather than with symptoms, and Senator Byrd succeeded in getting incorporated into this last tax law a provision for a committee of two houses of Congress and the Comptroller General and the Secretary of the Treasury, and the job of this joint committeeis to study ways and means quickly to reduce non-defense expenditures of the federal government.

Senator Byrd has the old-fashioned view that if you release certain causes, then you must expect the consequences, and if you want to avoid the consequences, then you must deal with the causes. That is a rather old-fashioned view. There is a lot of wisdom in that view. There is a lot of wisdom in the accomplishment of the Governor of the State of Maryland who has succeeded in reducing state expenditures and reducing the state tax rate on the theory that in so doing it helps the citizen taxpayer to meet his burdens of increased taxes for national defense, and I say if a counter-inflationary movement is to be successful rather than to be a mere lip service enterprise, then it seems to me it must deal with the causes at work and not merely with the symptoms. The Byrd committee is in effect a symbolic step in the right direction, and to be of any importance, it must be followed by action in the Congress in reducing federal non-defense expenditures by at least two billion dollars and must be paralleled by an insistent demand of the citizenry all over the country for similar curtailment of the non-defense expenditures of the state, local and of the subdivisions, and that if that is done, then we have some real hope of controlling the inflationary forces which we have been deliberately setting at work in the last eight or nine years.

Incidentally, if we make some strides in this direction, come into your own field of activity, we will be giving an enormous lift to real estate values all over the United States, because the great depressing force playing on real estate and on homes especially in these last few years has been the rising tax burden, that the equity which the home owner bought and paid for is a junior lien compared with the lien of the tax collector, and as the tax burden becomes more burdensome and more difficult to bear, then the value of the equity is correspondingly lowered. We see a good illustration of it in the New York area. Up in Westchester on one side of the road is New Rochelle, a city with a high tax rate and with the whole pattern of professional politics, which is expensive. On the other side of the road is Scarsdale, a village whose government is run by men who are employed in other occupations and who serve the village without pay, as a patriotic gesture, and the tax rate in Scarsdale is very much lower than in New Rochelle, and as a result, all comparable equities in Scarsdale are priced very much higher than in New Rochelle, right across the road.

The explanation lies in the fact that in Scarsdale you may expect reasonable taxes, whereas across the road you expect taxes at least twice as severe.

So that in talking of this dealing with the causes of inflation, dealing with the extravagances of government, I am speaking of something that lies very close to your own activities, very close to the realities with which you deal in your work each day, and it touches very close on the equities of your clients whom you have encouraged to become home owners.

Where does all this lead us? We have sown the seeds for an inflation; we are in the midst of a commodity price rise. What are our chances of dealing with it constructively and limiting its adverse consequences? That is a pretty serious question. It goes to the heart of the value of the policies of sixty-five million life insurance policyholders; it goes to the heart of the value of the old age benefits enjoyed by forty-five million persons under the Social Security Act. It relates, also, to the value of the savings and all the savings and loan associations of the country and of all the savings banks of the country.

I think it is a mildly hopeful sign that at least there is ageneral awareness of the fact that we must begin to put the brakes on. I think it is a hopeful sign that even in the administration which started as a spending administration that some of the members of the administration, including Morgenthau, recognize the needs of counter steps at the present time. Of course, in fairness, the President did veto in this spirit the Roads' Bill for lavishly wasting federal funds on unneeded roads. He did veto the bill to prevent them from distributing the government's inventory of cotton, wheat and other farm products which have been accumulated through loans, and, of course, the Secretary of the Treasury and the Federal Reserve Board within this month did raise up to the legal limits by another seven per cent the reserve requirements of banks. So that there may be some hope in the fact that at last there is an awareness that we face such a problem, and although we seem bound from the forces already at work to have some further inflation, some further rise in the price level, I think that if we have aroused public opinion we can avert the catastrophic proportions of a general pathological inflation of the type in Germany following the last war. I think we can avert that. I don't think that that type of pathological inflation is inevitable, and yet, in the formulation of investment portfolios in the abnormal period in a changing world, if one looks at it objectively, if one looks at the problem scientifically and without bias or emotion, it seems to me that he is driven to the conclusion that as long as we are creating these large federal deficits, the solution for the saver is not exclusively in high grade bonds or their equivalent, which are claims on dollars, but the answer is in such a period in a balanced investment diet consisting partly of high grade bonds, or their equivalent, and partly of equities, common stocks, real estate, and commodities or their equivalent, and unless someone is hedged with both types of investment, it seems to me one is not prepared to ride through the shoals of this abnormal period ahead.

Of course, the obvious inflation hedges are somewhat misleading in this strange period in which we live. This was brought to my attention by a former student of mine who inherited some money and who told me that he wasn't buying common stocks, which were the obvious inflation hedge, but was placing his capital in government bonds. I asked him why. He said, "Well, I want to play along with the politicians. If I finance them by buying their government bonds, they will take care of me. I will be in the same position as the laborer whom they want to protect against a rise in the cost of living, but on the other hand, if I buy common stocks which would be the classic anti-inflation hedge, then I am in the position politically of the hated and despised corporation, which the politician is trying to hurt and injure and restrict."

Maybe there is something in that viewpoint, but it is a little too smart, and I think that the answer is neither extreme course, but a balanced investment diet.

In the forces that are at work at the present time, especially restrictions on the creation of new real estate, forces are at work to put a bottom under real estate values; forces are at work which may make your worries a little less acute than they have been in recent years, particularly since Sidney Hill-man is out to prevent obsolescence from interfering with the values of existing real estate. There may be some short-term benefits from that, although I think from a long-term standpoint it is an unthinkable policy and I believe that in the post-war period that is ahead, we are going to find jobs for many people who will be released from war work, in findingnew and better ways to meet the needs of the consumer, and I think among these new and better ways will be some further study of prefabricated housing so that you can get the costs down and give more for less. I believe that as large companies with ample capital get into this field, they will pursue more modern merchandising methods, including the trade-in policy on housing.

The greatest secret of the merchandising of the automobile is that you always have an opportunity to sell your old car. A large furniture concern in Los Angeles, the largest furniture concern on the Pacific Coast, has a used furniture basement and they use it as a lever for merchandising their new products. They will give you a trade-in allowance on your old couch, on your old sofa, on your old dining room set, and in doing that they have met one of the chief sales resistance points, because when the ambitious housewife wants a new dining room suite, she always meets this resistance from her husband, who says, "What will we do with the old one?"

In Los Angeles she is able to say, "I have got a buyer for it." Of course the store resells it for rooming houses and for other uses, and I believe that as large-scale companies get into housing in the post-war period, and through prefabricating and through assembly line methods get down the cost and offer a much better house for the money, and there is an opportunity in that field to induce a fellow with an old house to make a trade-in, it will tremendously stimulate interest in new homes.

So that in this period that we find ourselves in, the thoughtful and prudent man is leading somewhat of a double life in this abnormal period. He is holding back on his normal activities insofar as it is necessary and desirable to do so in order to further the defense program of the government. That is his patriotic obligation and his duty, and no businessman worthy of the name will shrink from it, but at the same time, in his private thinking, in his private analysis, he is always giving part of his attention to the post-war problem when these armament factories lock the door, when millions of men who have been employed in producing lethal weapons are set free from these occupations and will again be tramping the streets in great numbers. These thoughtful and creative men in business are already giving a thought to this problem and are seeking ways and means of tapping the reservoir of creative ideas to develop new products, new ideas, new and lower cost of achieving old benefits in order to attract buying power, and you men can mesh yourselves with this prudent planning for the future by inducing those who come under your influence to divert part of their current inflated income to the uses of the future so that those who follow you will at least have some nest egg on which they can rely when the will-o'-the-wisp promises of the politicians come home to roost and are found to have been misleading. And I say that in order to give the leadership of which you are capable, you must have the faith that in free enterprise you raise men's living standards, you give reality to the sociological aspirations of the people for better living, for greater material well-being, and instead of envisioning yourselves as the critical politicians like to describe you, as reactionaries, you men of vision should visualize yourselves in the true light, in the light of your record as the genuinely progressive element in the community and the saving of America, and the future progress of America depends upon an alert, a conscientious, a patriotic and a venturesome business community.