The Blessings of Depression
McCabe, George K.
THE BLESSINGS OF DEPRESSION By GEORGE K. McCABE A LTHOUGH we unemployed have been consoled r\ for a month or more with the statement that prices have fallen to the levels of 1916, an inspection...
...Similarly, in the last year wheat has declined 34 percent, flour barely 10 percent and bread not at all...
...Insurance costs are set by boards of underwriters and experts on the basis of an average of losses for many years...
...The fifty-cent lunch may be expected to become meatier, the fifteencent soda creamier and the two-dollar stockings silkier...
...The price of shoes fell off 30 percent a year after hides had lost 60 percent of their value...
...Deficient purchasing power is the inevitable result...
...There is talk of postponing the reduction in the net income tax on corporations, not because many of them are not in serious need of this measure of relief but because the revenue sources of the Federal Government are to some extent endangered by the business depression...
...and wool, Ohio delaines greasy basis, has been put within the reach of all by a reduction of ten cents a pound...
...Another disastrous effect of this discrepancy between the prices received for raw materials and those charged for finished goods is the considerable decline in our export sales (20 percent so far this year...
...THE BLESSINGS OF DEPRESSION By GEORGE K. McCABE A LTHOUGH we unemployed have been consoled r\ for a month or more with the statement that prices have fallen to the levels of 1916, an inspection of our routine purchases fails to verify this news...
...Not only is the restaurant owner hindered from passing reductions in raw material prices on to his patrons by the rigidity of these expenses but all the middlemen who handle the coffee and sugar, right from the broker at Santos through the steamship company, the jobber, wholesaler, railway company and truckman, down to our proprietor, are in the same position...
...Undoubtedly, one of the benefits of national advertising is the ability of the manufacturer to take advantage of his public at a time like this by refraining from increasing the weight or quality of his...
...A case in point is found in the records of the depression of 1921...
...What he has to sell has not been within 15 percent of the higher costs of what he has bought since 1920...
...wages can be cut only at the risk of a strike, loss of morale on the part of the staff, or expensive and disturbing changes in the personnel...
...Although this reasoning applies to the departmentstore field as well as to the grocery and meat market there are many essential services that will not respond to the downward pressure for a long time...
...College instructors' minimum has been advanced from $1,500 to $2,100 at last...
...The dominant items in the cost of the beverage at a restaurant table are the overhead expenses...
...This is especially applicable to countries like Brazil, Cuba, Australia and Boliva, because they depend almost entirely on the sale of raw products to obtain the funds here to pay us for our manufactures...
...However, there is ground for the expectation that the blessings of depression in the form of lower prices will be passed on to the consumer more promptly this time than last because of the dominance of large scale business in the retail field...
...The chain store and mail order houses will be forced by their own competition to cut quotations and they are better able to do it than were their small scale predecessors because (on account of their more rapid turnover of inventory) they have not been caught with shelves crammed with goods bought at the relatively high wholesale prices of last year...
...For example, the rates charged for public utility services have frequently moved in the opposite direction from most other prices...
...Receipts from the income tax and from the tariff are expected to show a decline for 1930, whereas the expenditure side of the budget seems likely to rise because of the pressure for social betterment projects like the Pensions Bill, federal aid roads and the construction of government buildings to relieve unemployment...
...The New York Telephone Company has effected a similar change in rates because the cost per call has risen on account of the growing size of their plant...
...Probably the most obvious case is the plight of the farmer...
...Aside from these household necessities we can think of only a very few articles that have been affected by the drastic slashing in the wholesale field: cigarettes, cigars, cotton shirts, coffee, sugar and mutton...
...not to mention copper which may be had for the cartage...
...However remote falling taxes may be, some benefit will be obtained from the improved content of those articles that are sold at an unvarying or customary price...
...Medical practitioners were slow in raising their office fee from two to three dollars...
...Besides the federal salary rolls and staff are not readily reduced...
...These are commonly looked upon as alibis for the profiteer but it must be admitted that these costs (rent,- wages, interest, insurance, depreciation and advertising) are quite inflexible...
...Though the cost of the five-cent cigar remains the same, we can hope that the manufacturer will substitute tobacco for wrapping paper...
...On inquiry, however, we find that steers, choice carcass, are off $4.50 per hundredweight, while tin has been debased to thirty and a quarter cents per pound...
...article...
...Taxes are even less affected by price level changes than are professional fees and salaries...
...H. H. Harlan estimates a monthly deficit in purchasing power of $160,000,000...
...Until this situation is remedied all the President's public works and all Mr...
...The last three items may save the householder a few cents a day but the restaurateurs have so far refused to change their menus on this account...
...Now the banks are closing (twenty-six in Illinois in May) and the merchant is helping the receiver close out his business...
...The United Railways of Baltimore have just been awarded an increase in fares because rising taxes coupled with dwindling receipts have left the stockholders with a return so low as to be considered confiscatory by the Supreme Court...
...Of course, we cannot expect the cost of a served cup of coffee to drop from ten cents to five just because Rio number seven has fallen from eighteen cents to nine in Santos...
...At the same time other utilities, like the electric light companies, did not raise their charges during the war because more effective use of coal and the rapid expansion of their volume of business enabled the managers to hand dividends to the owners far above the return enforced by the courts...
...The rent is fixed by a three or five year lease and insurance by an annual contract...
...If general retail prices continue to fall so as to bring the cost of living to within 20 percent of the prewar level these 50 percent increases in professional remuneration might be considered unwarranted except for the fact that these classes were afflicted with unduly low incomes during the period of mounting prices...
...Lamont's mirages will not pull us out of the slough of despond...
...Besides there are the fees fixed by tradition like the offering for seats at divine service...
...depreciation does not slow down because of a depression in business...
...For example, raw material producers are always, as in the present instance, hit first...
...The promptness with which these improvements will be made depends, of course, not on the substitution of the service ideal for the profit motive but on the ability of the purchaser to compare the offerings of competing merchants...
...Their overhead costs neutralize the declines in the price of the product which they handle...
...This has not been felt until lately because the farmer by borrowing from all the banks in his county and imposing on the local merchants for supplies for several years has been buying more dollars' worth than he sold...
...The prices of the chief exports of these four countries have declined from 25 percent to 60 percent of their 1929 levels...
...Then again, the Interstate Commerce Commission raised railway and Pullman rates by 20 percent in September, 1920, just as the peak of prosperity was passed, and other prices were tumbling...
...The cynical have attributed much of the exceptional profits on packaged foods to this cause...
...More serious than this transitory advantage is the intensification of the present difficulties in business which results from the unequal and delayed changes in different classes of prices...
...Briefly, public utility rates are not affected by shifts in the general level of prices as much as by such factors as the attitude of the Supreme Court and the regulatory commissions, changes in the volume of patronage, efforts to gain public favor by rate concessions, and internal economies...
...Unfortunately there are many other prices that cannot be expected to respond to pressure...
...Moreover their purchasing agents are taking full advantage of a time like this to beat down the prices of the commodities they buy...
Vol. 12 • July 1930 • No. 12
