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Harvard Business School
Alumni Association



JULY, 1939


A L U M N I C O U N C I L M E M B E R S 19 3 9 '4 0

E dm und F. W r i g h t


W . S te w a r t M c D o n a ld

Secretary'Treaswrer: B o y ce F. M a r t i n
Term Expires in 1940:
T h e o d o r e F. D r u r y

D eane W . M a l o t t

D o n a l d B. Sm ith

H a r r y A. W o o d , J r .

D w ig h t B. B illin g s

Term Expires in 1941:
D w ig h t P. R o b in s o n , J r .

W. S t e w a r t M c D o n a l d

S ta c e y K. Beebe

M a r v in B ow er
F r e d e r ic k M . B u n d y

Term Expires in 1942:
J o h n M. Y o u n g , J r .

W i ll i a m O. F o r s s e ll
R u s s e ll M. S a n d ers

R o b e r t E. A n d e r s o n , J r .
Joseph J. S n y d e r

Bulletin Editor: J o h n H u n t e r S e d g w ick
Local Club Representatives: The presidents of the local clubs listed below are also members of the Council.

AKRON: Pau l H. Erler, Jr., A Polsky Co.
A T L A N T A : R o b e r t B. P e g r a m , First National Bank.
BALTIMORE: H e rm a n H . H o e n e , Equitable Trust Co.
BOSTON: Tuesday luncheons, Chamber of Commerce. J o h n J. C a n a v a n , Conrad 6s? Co., 19 Winter Street.
BRIDGEPORT: J o h n M. R a e , General Electric Co.
BUFFALO: D a v id J. L a u b , George Laub’s Sons.
CAROLINAS: W i ll i a m H. W illia m s o n , J r ., Page-Williamson, Inc., 228 West First Street, Charlotte, N. C.
CHICAGO: R u s s e ll W. G r e e n , Welsh 6? Green, Inc., 135 South LaSalle Street.
CINCINN ATI: Thursday luncheons, Hotel Metropole. A l f r e d F. P o r t e r , Travelers’ Ins. Co., 1313 Carew
CLEVELAND: Tuesday luncheons, Mid'Day Club. R obert M . H o r n u n g , National City Bank o f Cleveland.
DES MOINES: C harles J. L uthe, Jr ., 3615 University Avenue.
DETROIT: T h o m a s T. P e t z o ld , J. L. Hudson Co.
HARTFORD: E d g a r T. S lo a n , Phoenix State Bank 6s? Trust Co., 803 Main Street.
HONOLULU: J o h n A. B la c k , Brainard & Black.
INDIANAPOLIS: J o h n J. W e l d o n , Pell Kip 6s? Skinner, Inc., Union Stock Yards.
KANSAS C IT Y : H o w a r d H . F r a n k , Prudential Insurance Co.
LEHIGH VALLEY: L u t h e r R. B a ch m a n , Bee, Inc., Allentown, Pa.
LOS ANGELES: L l e w e l l y n G. L u d w ig , Indemnity Mortgage Guaranty Co.
LOUISVILLE: F r e d e r ic k W. Stam m , University of Louisville.
MILWAUKEE: A. F o s te r S h e lle r , Le Roi Company, 1706 South 68th Street, West Allis.
NEWARK: Semi-monthly luncheons, Kresge’s dining room. W. L a y t o n H a l l , Hahne 6s? Co.
NEW YORK CITY: D o w n t o w n G r o u p : Wednesday luncheons, Planters Restaurant, 124 Greenwich Street.
R e t a i l G r o u p : Third'Thursdayof'month luncheons, National Republican Club,
54 West 40th Street. C a r l R. B o l l , Beebe 6s? Boll.
PHILADELPHIA: W i ll i a m B. W a l k e r , First National Bank.
PROVIDENCE: R o b e r t H. G o f f , Automobile Mutual Insurance Co.
RICHMOND: J. C l i f f o r d M i l l e r , Jr ., Miller Manufacturing Co., Inc.
ROCHESTER: C. E lih u H edges, J r ., Eastman Kodak Co.
ST. LOUIS: Monday luncheons, Busy Bee Candy Co. R o b e r t A. C a m p b e ll, St. Louis Union Trust Co.
SALT LAKE C IT Y : G le e d M i l l e r , Home Investment 6s? Savings Co., 203 Walker Bank Building.
SAN FRANCISCO: L ew is A l l e n , Allen's Press Clipping Bureau, 225 Commercial Street.
SEATTLE: W i ll i a m C . J o in e r , Seattle-First National Bank.
TENNESSEE VALLEY: C. G r e g o r y S m ith, Tennessee Eastman Corp., Kingsport, Tenn.
TWIN CITIES: L. A s h t o n C a r h a r t , First National Bank 6s? Trust C o .
WASHINGTON: P h ilip Y o u n g , Treasury Department.
WORCESTER: C h a r l e s E. B a ld w in , J r ., State Mutual Life Assurance Co., of Worcester, 340 Main Street.
LONDON: D a v id G r a h a m , Colloidal Chemists, Ltd., Regent House, Fitzroy Square, London W.I.
PARIS: M i c h e l J. L. B is c a y a r t , Compagnie des Meules Norton, 91 Ave. de la Republique.
SHANGHAI: Wen S. Chiao, Sun Lee 6s? Co., 40 Ningpo Road.



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J o h n H u n t e r S e d g w ic k ,

Volume X V

JULY, 1939

Number 4

It is one of the tragedies of history that so
sensitive a man as Mr. John L. Lewis of the
C. I. O. must be subjected to the buffetings
of a naughty world. His irenic projects are
by some obstructed, by others condemned,
and worst of all by some other labor leaders.
These, apparently, decline to let Mr. Lewis
have his own way. This will shock our
readers when they realise how gentle and
beneficent that way has been. There appeared
an item in the Boston Herald of June 15,1939,
which quoted Mr. Lewis as saying that the
C. I. O. peace committee believed that the
A . F. of L. leaders ‘‘were following a rule
or ruin policy.” This, too, will shock our
readers, if only by its tone of dignified sorrow
caused by the reactionary attitude of the
A . F. of L. The idea that the wishes of Mr.
Lewis and his associates should be opposed
must be peculiarly repellent to all who, like
them, are sensitive.
Mr. Lewis has been the victim of cruel
misunderstanding by some at least of the
public. There were those, for example, who
thought that the sit-down strikes, especially
in the automobile industry, showed a certain
tendency to ruling or ruining, even though
the then Governor Murphy regarded them
with blandness. These critics indeed went so
far as to believe, nay, in some instances to
say that Mr. Lewis and his C. I. O. were
interfering with the well-being of the country
in general and seeking to impose their will
upon thousands of persons quite innocent of
any fell designs upon organized labor. There
were, too, thousands of Americans who pre­

ferred the rule of the law to that of Mr. Lewis
and who believed that the law and the orders
of courts of justice should be upheld. They
instinctively felt that when the law was
flouted, decent rules of living were flouted,
and the props knocked away from the struc'
ture of democracy. It appears now, however,
that Mr. Lewis does not at all approve of
ruling or ruining, at least when attempted by
those not in sympathy with that body of
philanthropists known as the C. I. O., that
he is gravely moved and troubled in heart.
Before this spectacle the flippant must stand
There is one phase of the question to which
we must make bold to call Mr. Lewis’ attention. First, after the sit-down strike had
shown itself for what it was, the American
public began to understand that it was a
challenge to itself and associated Mr. Lewis
with that challenge. It is well enough for him
now to condemn a policy of ruling or ruining,
but not long ago that was his policy. Second,
policies like that of the C. I. O. have been in
a large part of Europe the plausible excuse
for the existence of totalitarianism with all
its evil consequences and its threat to the
free nations. Third, thé designs upon the
democratic societies which the totalitarian
states have plainly avowed, the more than
grave conditions in the Old World, the
necessity for cohesion in the democracies, all
point to the fact that such systematic trouble
making as that pursued by Mr. Lewis and
his associates may shortly become a menace
to the defense of the United States and that
menace Americans will not permit. Should

B u lle tin o f t h e H a rv a rd B usiness S ch o o l A lu m n i A ss o cia tio n . P u b lish ed f o u r tim es d u rin g th e academ ic y e a r
(N o v e m b e r, F e b ru a ry , M a y and J u ly ) at S old iers F ield S ta tio n , B o sto n , Mass. S u b scrip tion s t o M em b ers o f
th e A ss o cia tio n $1.00 p e r y e a r (in clu d ed in A ss o cia tio n dues o f $2.00). E n te re d as second-class m a tte r,
A p r il 14, 1925, at t h e post office at B o sto n , M ass., u n d e r t h e A c t o f M a rch 3, 1879.


Harvard Business School Alumni Bulletin


Mr. Lewis wake up some fine day to find
himself a member of a corporate state, he
could have the pleasure of knowing that he
and those who think with him had done
much towards its creation.

No doubt many honest and patriotic
Americans have been grieved of late years
that what they think ought to be as plainly
is not. They seem to think that the declara­
tion of a right is tantamount to its effective
defense. So it would be, if all men had as
good morals as themselves. The main, or one
of the main difficulties in the present condi­
tions of international relations is that these
honest people do not seem to understand
that something more than remonstrance is
needed in doing the business of diplomacy in
such fashion that what is right may prevail.
T. J. Lawrence in his work on interna­
tional law under the title “ Non-Intervention”
has this to say:

taught to believe that what is not backed
by force does not exist as anything to be
reckoned with outside the realms of dialectic.
It is not the immediate use of force that must
be considered so much as the ability to use
it in certain circumstances when there is a
question of international justice. To this
conception, men must accustom themselves
as part of the normal instruments of civilized
states, for failing that, force will be elevated
into a principle and not left in its place as a
To make remonstrances, to write solemn
state papers, to tell the wrongdoer what he
already knows, is no more than a literary
exercise and worth about as much if it carry
no implication that something more is meant
by it. When, however, that implication is
understood, results will be obtained.


The contemplative life is a thing of the
past; the reflective life is more than ever a
necessity, but the two are quite different.
To scatter abroad protests and re­
It used to be possible to contemplate what
proaches, and yet to let it be understood
went on and do nothing else. The world
that they will never be backed by force
and the beings that seethed in it were to
of arms, is the surest way to get them
some a raree-show, to others a kind of theat­
treated with angry contempt. Neither
rical performance, to still others material for
selfish isolation nor undignified remon­
essays that at least were neither revolutionary
strances is the proper attitude for honor­
nor improper. Indeed, at one stage of the
able and self-respecting states.
world’s history, no blame attached to a man
This is clear enough and does not exagger­ who preferred to do his living on the side­
ate. A police that left its night sticks in the lines; he was simply regarded as one luckier
station house and depended on remonstrances than other men who had to have rather more
with law breakers would be no better than a battle-axe in their syntheses and counted
menace to those that obeyed the law. A themselves fortunate to have gone a whole
nation, supposing it to be of sufficient power week with a whole skin.
and resources, that allowed a wrong doing
As the centuries rumbled on, things some­
nation to believe that its remonstrances what changed; the amiable practice of pri­
were no more than words, would run the vate warfare fell into desuetude and at least
risk of being held to betray not only its rudimentary rules of slaughter were evolved.
nationals, but other law abiding nations. Then after that civilisation made still greater
The idea of the use of force is not agreeable, advances in washing its face and violence was
the average man shrinks from it and. with regarded as opposed to the interests of the
plausibly intelligible reasons, but unhappily general society. The contemplative had
there are millions of men who have been always existed, but they were few in number

July , 1939
and not very vocal before that time. Things
kept on developing until the modern state
took shape, especially the democratic state in
which, oddly enough, each man was supposed
to play his part. We say “ oddly enough”
because in the United States where the
suffrage is virtually universal and idling is not
encouraged, the contemplative seem to have
increased, not diminished. This can be
explained by the fact that millions of Ameri­
cans merely contemplate their political and
social life — they take no active part in
either. They do their contemplating largely
through the evening paper and read about
crime and graft and disorder as they would
peek at a two-headed calf. They do not seem
to think that it has anything to do with

them; they are spectators; they are not citi2£ns; they contemplate a phenomenon, they
do nothing to extirpate its causes. They have
not been hurt themselves, or think that they
have not, therefore their rule of thumb logic
persuades them that malefactors and victims
are in a well-nigh imaginary world.
This kind of contemplation does not make
moral fibre, but rather it weakens the public
conscience. As a matter of fact, the contem­
plative life is impossible because citizens must
do their part— existence in this world is not
a show, but something more searching, where
everyone must understand that each has a
duty to perform. It is often not pleasant, but
then that is not the criterion.

The Ninth Special Program of the Business School Alumni
Over four hundred Business School Alumni
and their guests attended the Ninth Special
Program of the Harvard Business School
Alumni Association held at the Business
School on June 16 and 17. The general sub­
ject of the meeting was “ Business Looks
Ahead,” and the Alumni heard men of
prominence in both business and government
affairs discuss various aspects of the problem
of forecasting the trend of business during
the coming months. The meetings began
Friday afternoon in the Reading Room of
Baker Library, continued with a dinner meet­
ing in Eliot House, and the final session was
held in Baker Library on Saturday morning.
The committee in charge of the program
was under the leadership of Theodore F.
Drury, ’28. Other members of the Alumni
Committee included: Louis W . Munro ’23,
president of the Alumni Association, Fred­
erick M . Bundy, ’23, Dwight P. Robinson,
Jr., ’25, W. Stewart McDonald ’25, Boyce F.
Martin ’30 and Roland P. Campbell ’35. It
was the intention of this committee that a
well-rounded program of interest to all
Alumni be presented. In carrying out this
purpose, three types of speakers were secured:
Business School Faculty members, govern­
ment officials, and business executives. The
topics discussed included the construction
industry, the aviation industry, the public
utilities industry, the Government’s recovery
program, the financial situation, industry’s
program for recovery, and the major social
problems confronting business executives.
The Alumni registered in Baker Library
early Friday afternoon and then gathered in
the Reading Room to hear the three afternoon
speakers. The first speaker was Mr. Thomas
S. Holden, vice-president in charge of statis­
tics and research of the F. W. Dodge Corpor­
ation. The title of his address was “ New
Frontiers.” Following Mr. Holden was Mr.
Claude Robinson, president of Opinion

Research Corporation, who spoke on “ The
New Science of Public Opinion Measure­
ment and Its Implications for Business.”
The third speaker on the afternoon session
was Judge Robert E. Healy, Commissioner of
the Securities and Exchange Commission,
who spoke on “ Holding Companies and Pri­
vate Capital Financing.” The discussion of
private capital financing was off-the-record,
but the remainder of Judge Healy’s speech is
carried, as are the other speeches, elsewhere
in this issue of the B u l l e t i n .
An innovation instituted by this year’s
program was the cocktail party for all the
Alumni, which was held in the Faculty Club.
This provided the Alumni an opportunity to
meet the speakers at the afternoon and eve­
ning meetings as well as to renew acquaint­
ances with classmates and friends.
The dinner meeting was held this year in
the main dining room of Eliot House. Ap­
proximately 220 Alumni and their guests were
present at this meeting. Louis W. Munro,
president of the Alumni Association for the
year 1938-39, presided and introduced the
speakers as well as the guests at the head
table. The speakers included Mr. Marriner
S. Eccles, chairman of the Board of Governors
of the Federal Reserve System, Professor
O. M . W. Sprague, Professor Malcolm P.
McNair, and Dean Wallace B. Donham.
Other guests at the head table included Mr.
Holden and Judge Healy, who spoke at the
afternoon meeting; Mr. Walter Bucklin,
president of the National Shawmut Bank;
Mr. Roy A. Young, president of the Federal
Reserve Bank of Boston; Mr. John H. Wil­
liams, Dean of the Harvard Graduate School
of Public Administration; Mr. Hugh Ward,
vice-president of the First National Bank of
Boston; Professor Philip Cabot; Theodore F.
Drury, chairman of the Special Program
Committee; and Edmund F. Wright, newly
elected president of the Association. Mr.


July, 1939

Left to right: Eccles, Munro, Sprague and Healy

Munro announced the election of the officers
in addition to Mr. Wright, who will be in
charge of the Association during the coming
year. These included W. Stewart McDon­
ald of New York, vice-president; Boyce F.
Martin, secretary-treasurer; and the follow­
ing members of the Executive Council :
Robert E. Anderson, Jr., Boston; William O.
Forssell, Walpole; Russell M . Sanders and
Joseph J. Snyder of Boston; and John M.
Young, Jr., of New York.
The program was resumed Saturday morn­
ing with a speech by Mr. Howard Coonley,
chairman of the Board of the Walworth
Company and president of the National
Association of Manufacturers. The title of
Mr. Coonley’s address was “ Obstacles in
the Way of Business Recovery.” The second
speaker on the program was Mr. R. S. Damon,
vice-president in charge of operations of

American Airlines, Inc., who spoke on the
future of air transportation. The final speaker
on the program was Professor Philip Cabot.
The topic of Mr. Cabot’s speech was “ Ten
Years of Depression — the Shadow and the
There were representatives at the meeting
from all parts of the country. A total of 32
cities were represented, including San Fran­
cisco, Tampa, Pittsburgh, Cleveland, Balti­
more, Rochester, Washington, Hartford, as
well as New York and Boston. Except for
the local group the largest contingent was
from New York with a total of 23 men repre­
senting this city. There were six Alumni
from Hartford, five from Rochester, four from
Springfield, and three from Bridgeport, New
Haven, Washington, and Holyoke.
The final Alumni Council meeting, which
was held after the afternoon session, was


Harvard Business School Alumni Bulletin

attended by a large number of representatives Hedges ’26 of Rochester, N. Y., Wesson S.
of the local clubs throughout the country. Hertrais ’36 of Nashua, N. H., George W.
Nine Business School clubs sent official Howe ’23 of Springfield, Mass., C. Grandison
representatives to this business meeting of Hoyt '27 of Toronto, Canada, Stuart E. Judd
the Executive Council of the Alumni Asso­ ’27 of Waterbury, Conn., Raymond W.
Keller ’37 of Springfield, Mass., Edmund R.
The following Alumni from New York King ’30 of Rochester, N. Y., Frank W. Lin­
registered at the meeting: Edward T. Batch- coln, Jr., ’31 of Providence, R. I., Norman G.
elder ’32, Frank H. Baumgardner, Jr., ’32, MacLeod ’23 of Springfield, Mass., Edwin T.
Stacey K. Beebe ’22, Marvin Bower ’30, Marble, II, ’20 of Worcester, Mass., Wendell
Edgar R. Broenniman ’24, Benjamin D. Burch O. Metcalf ’31 of Hartford, Conn., F. Darrell
’34, J. Gordon Carr ’34, R. Canon Clements Moore ’23 of Troy, N. Y., Albert M . Nutter
'35, John O. Downey ’24, Carroll Dunham, ’34 of East Bridgewater, Mass., Burnett R.
III, ’11, William J. Edmonds ’34, Dwight F. Olmsted ’33 of Metuchen, N. J., Philip R.
Evans ’34, Milton Goldberg ’31, I. Hayne Palamountain ’24 of Ware, Mass., Kenneth
Houston ’33, Albert G. Joyce, Jr., 25, W. W. Paul ’35 of Rochester, N. Y., Clyde Perry
Stewart McDonald ’25, Alan S. Miller ’34, ’37 of Tampa, Fla., John M . Rae ’28 of
Michael Pescatello ’35, John T. Remey, ’15, Bridgeport, Conn., E. Allen Robinson ’38
Anton H. Rice, Jr., ’33, Robert C. Story ’29, of Washington, D. C., Shipherd Robinson
Philip B. Stovin ’29 and Ralph I. Straus ’27. ’38 of Chicopee Falls, Mass., Harry K.
The following men from other cities also Rutherford ’26 of Washington, D. C., Lars
attended the meeting: Charles E. Baldwin, J. Sandberg ’31 of Wilmington, Del., Erle F.
Jr., ’28 of Worcester, Mass., James S. Barker Saunders ’28 of Montreal, Canada, Lee
’34 of Nashua, N. H., Howard P. Beckett ’23 Schoenfeldt ’27 of Bridgeport, Conn., Theo­
of Philadelphia, Pa., Jonathan A. Brown ’38 dore D. Shapleigh ’25 of New Haven, Conn.,
of New Castle, Pa., Elton J. Burgett ’31 of Edgar T. Sloan ’32 of Hartford, Conn., Wil­
Rochester, N. Y., W. Perry Curtiss, Jr., ’37 liam H. Smith, II, ’33 of Holyoke, Mass.,
of New Haven, Conn., James E. DeLano ’38 Holly W. Stevenson ’23 of Hartford, Conn.,
of Kearny, N. J., Gregory Dexter ’34 of San Richard P. Towne ’23 of Holyoke, Mass.,
Francisco, Calif., Carl J. Dinic ’30 of Pitts­ W. Brewster Towne ’38 of Holyoke, Mass.,
burgh, Pa., Harold J. Field ’29 of Providence, Charles F. Wagner ’29 of Pittsfield, Mass.,
R. I., John S. Fleek ’21 of Cleveland, Ohio, James J. Walker ’21 of Pawtucket, R. I.,
Robert W. Fort ’35 of Baltimore, Md., Ned By. on A. Waterman ’24 of Providence, R. I.,
F. Foulds ’29 of Hartford, Conn., George George K. Whitney ’31 of Hartford, Conn.,
Frederickson ’30 of Bristol, Conn., Mott A. Charles C. Withers ’30 of Newburyport,
Garlock ’27 of Springfield, Mass., E. Blakeney Mass., H. Arthur Wormcke ’25 of Hartford,
Gleason ’27 of Rochester, N. Y., John M. Conn. and Philip Young ’33 of Washington,
Hallahan ’30 of Bridgeport, Conn., C. Elihu D. C.
The following local Alumni were also present at the meeting;
Jean R. Adrian ’36
O. Kelley Anderson '29
Robert W. Anderson ’32
F. Gregg Bemis '25
Joseph G. Bent, Jr. '31
Dwight B. Billings '22
Richard D. Bolster '30
Robert H. Booth '31

Leroy E. Briggs '34
Carl E. Bryant ’28
Frederick M. Bundy ’23
Roland P. Campbell '35
John J. Canavan '28
F. Robert Cole '27
George E. Cole '13
Charles F. Collins '14

John E. Dorsey '28
Jesse A . Drew '21
Theodore F. Drury '28
Henry T. Dunker '27
Robert A. Dunn '34
Marshal Fabyan, Jr. '38
Blake H. Field '29
E. Paul Floyd '28


July, 1939
A. Alfred Franks ’26
Cecil E. Fraser ’21
Maurice T. Freeman ’27
Courtenay H. Gendron ’18
Archibald C. Gove ’13
Robert R. Haskell '21
Carrol J. Hoffman '28
Gilbert H. Hood, Jr. '22
George D. Horr '28
Kenneth T. Howe ’32
Alexander W. Hutchinson *26
Clarence G. Ivey '30
Anthony Jaureguy ’21
K. Renner Johnson '34
Richard N. Johnson ’23
Roger Johnson '29
Paul E. Landry '24
Paul F. Lawler '37

Donald H. Linton '36
William F. McGonagle ’37
Richard McKay '30
William T. Minor, Jr. ’37
Chester T. Morrison ’29
William F. Morton '27
Louis W. Munro '23
Philip H. Ordway '38
Nathaniel A. Orr '29
C. Wesley Purdy '24
William F. Ray '37
Adam Rhodes '32
Dwight P. Robinson, Jr. '25
Henry A. Sasserno '23
Philip Saunders '26
E. Linwood Savage, Jr. '32
John M. Sherman '25
Eldon C. Shoup '22


Donald B. Smith '22
Joseph J. Snyder '34
George G. Sommaripa '24
Walter M. Stone '15
Horace G. Torbert, Jr. '34
Everett R. Thompson '30
Frank L. Tucker '30
King Upton '35
Mark C. Walker '26
Stephen Weld '25
Alfred R. Westfall, Jr. '38
Arthur H. Whitman '13
Merton E. Williams '27
Francis S. Wilson '36
Henry C. Wood '30
Alfred S. Woodworth '31
Edmond F. Wright '26
Charles E. Young '16


A long-range view can give us a perspective
and a sense of proportion. I would, therefore,
like to survey briefly the past hundred years
of economic growth in the United States,
citing original documents. First, a letter to
the editor of the 'Hew Tor\ Evening Post,
dated May 1,1937: “ The present commercial
revulsion is without a parallel in our history.
The distress pervades all classes — the pru­
dent and the foolhardy — the regular mer­
chant and the speculator, the manufacturer,
tradesman, laborer, banker — all are involved
in one general calamity.” Next item in our
outline would be this from Harper's Wee\ly,
dated October 10, 1857: “ It is a gloomy
moment in history. Not for many years has
there been so much grave and deep appre­
hension; never has the future seemed so incal­
culable as at this time. . . . O f our own
troubles no man can see the end.” The
theme recurs in 1876, when on August 3, the
New Yor\ World said: “ The industrious
millions o f our people are suffering now as
they have never suffered before. Honest labor
starves, and capital hides out of sight.” The
consistency of the picture was again con­
firmed on April 28, 1894, when the J^ew
Tor\ Commercial said: “ The world has com­
pleted, perhaps, the most disastrous liquida­
tion in its history.” A glutton for punishment
the United States survived till March 1,1908,
when the Wall Street Journal expressed the
emotions of the moment in mixed metaphors,
as follows: “ There never was a time in the
country’s history when our industrial affairs
were in such a tangle, and were going down­
hill as rapidly as they are today.” And, to
climax the record of despair, let me quote the
New Yor\Herald'Tribune of January 1,1938:
“ The year 1937 will be remembered as the
one in which the world, steadily and insist­
ently, appeared to be going to hell in a
hanging basket. It was a twelvemonth of
gloom, uncertainty and apprehension. Many

things happened to disturb the even surface
flow of events — strikes, wars, and so on.
But what actually did happen? Was there
any substantial and measurable gain in the
upward struggle of the human race? In all the
pulling and hauling, the conflicts and the
bickerings, was there any tangible victory,
over any broad front, for the nobler aspira­
tions of mankind? We presume to doubt it.
The assaults upon the ideals of democracy
surely became stronger. The increase in
bitterness, between peoples and factions and
individuals, appears too obvious for comment.
Are there still men of good will? Perhaps,
but they are hard to find.”
I think you can draw two possible con­
clusions from all this. You might decide that
the people of the United States are a weary
plodding race, inured to misfortune and
resigned to a barren and desolate existence.
On the other hand, you might conclude that
the recuperative energy of our economic
system resides less in charts of statisticians,
predictions of economists and remarks of
newspaper commentators than in the indi­
vidual and collective will and intelligence of
If our economic system were a machine, as
many people appear to assume, it would long
ago have broken down beyond repair. If it is
a living, growing organism, then it must
progress by the experimental method. Experi­
ments by government and criticism of govern­
mental experiments are part of the process. I
will draw one more quotation from the source
of the others I have given you, When the
Merry'Go'Round Breads Down, by Wilfred J.
Funk. Said the Washington (D.C.) Daily
National Intelligencer, on June 12, 1838:
“ Everything is uncertain on account of the
Government. The members of that Govern­
ment write to some of our business men,
encouraging the hope of a change in policy;
but no change takes place of any consequence,

July , 1939
and further experiments continue to be made.”
One hundred and one years after that complaint was uttered, we still have enough
vitality left in us to experiment and to grumble
about it. Perhaps what we need most is
appreciation of the evolutionary processes in
economic phenomena in order that we may
appraise experiments correctly and have a
real understanding of economic growth.
The construction industry, which has
prospered in every phase of economic growth
this country has enjoyed and has fabricated
the physical embodiments of our economic
progress, has been called a backward indus­
try. Some people even seem to regard it as
being made up entirely of antiquarians, dumb­
bells, and racketeers. Professional housing
experts, many of whom have never built a
house, take the industry to task for not
turning out a product for people who have
no money. Wall Street statisticians are per­
sonally very much hurt that the industry
does not jump immediately into assembly-line
production of houses, when there is such an
obvious statistical need for a boom.
The term “ construction industry” is a
convenient generalization which does not
have the same kind of factual connotation
that is implied when we speak of the “auto­
motive industry,” “ the petroleum industry,”
“ the electric-power industry.” The term is
sometimes used as though it included the
processes of producing and transporting
materials, as well as the process of assembling
Even in the field of structural assembly,
there are two fairly well-defined sets of indus­
trial processes, one having many of the char­
acteristics of modern large-scale industrial
enterprise, the other being characterised
principally by survivals of individualistic,
handicraft procedures and so overlaid with
tradition and resistance to change, that it has
shown very little progress. I will refer to
these divisions of the industry hereafter as
large-scale construction and small-scale con­

Large-scale construction gained its original
impetus back in the 1890’s from such inven­
tions as steel-frame and reinforced concrete
construction and the power-driven safety
elevator. It met a large and rapidly growing
demand for large industrial plants and for
large urban buildings where maximum use of
ground space seemed economically desirable.
It is unnecessary to review the triumphs of
engineering science that have expressed them­
selves in the design and fabrication of such
projects as the Panama Canal, the West­
chester County Parkway System, the Golden
Gate and George Washington Bridges,
Boulder Dam, the Empire State Building,
Rockefeller Center, or practically any large
modern industrial plant you can name. These
structures are the admiration and wonder of
the entire modem world. One of them,
Rockefeller Center, was recently character­
ized by Mr. Henry Vandervelde, the famous
Belgian architect, as one of the great architec­
tural achievements of all time. Similarly,
M . Jacques Greber, noted French city-plan
expert, has pronounced the Westchester
County park and parkway system as the
finest regional planning job in the world.
The men who brought such great struc­
tures into being have all been technicians of
the highest competence: architects, engineers,
general contractors. All are essentially pro­
fessional men; even the general contractors,
although they combine with engineering
skill and organization technique the functions
of business management. While professional
status is officially and generally accorded to
architects and engineers, it is not so generally
recognized as belonging to those general con­
tractors who erect large modem industrial
and urban type buildings and the more com­
plicated engineering structures. Yet those
men (so long as they function as contractors)
rarely initiate or finance projects, or produce
buildings to sell or to operate for income.
The volume of operations of particular archi­
tects, engineers, and contractors is subject
very little to their own control; they do as


Harvard Business School Alumni Bulletin

well as they can in the matter of maintaining
permanent skeleton staffs, hoping for reasonable continuity of work. Many contractors
also have considerable capital invested in
construction equipment, much of which may
lay idle a considerable part of the time.
Generally speaking, each project is a customtailored job. It is the magnitude of the spe­
cific job that calls forth the economies and
efficiencies of modem large-scale production.
Generally speaking, the economies effected on
such projects have been economies of organi­
sation, of operation, and of the time required
for completing a project. The Empire State
Building was constructed in eighteen months.
During the World War, when army canton­
ments, industrial housing and other construc­
tion requiring maximum speed were required,
the Government called upon the services of
the executive heads of the big private con­
tractor organisations to do these jobs. Low
unit costs have always been a factor in largescale buildings, but have probably counted
most in factory and warehouse projects; most
other classes of large-scale building projects
have been quality jobs, involving a number
of skilled handicraft trades, and planned for
fairly high-cost uses. Mechanisation of
processes has gone fairly far with respect to
excavation and material handling, and there
has been a gradual advance in shop préfabri­
This modem professionalised large-scale
construction industry has not, until recently,
functioned to any considerable extent in the
production of housing facilities. According
to the Census of 1930, 76 per cent of the
family dwelling units occupied by American
families were in single-family houses, 12 per
cent in two-family houses, and 12 per cent in
multiple dwellings. Only a small fraction of
the multiple dwellings were very large build­
ings, the average number of family units per
building in 1930 being slightly under six.
While many operative builders have produced
quantities of small houses for sale, with few
exceptions their building operations have not

involved any really large number of new
buildings in any particular year, nor any great
degree of continuity of operations. Consider­
able numbers of the single-family houses that
are produced for sale or rent are erected on
the basis of one house per operation.
Consequently, most housing facilities have
been produced by the small-scale construction
industry. The small-scale industry dates
back to the beginnings of man-made shelter,
and in respect to construction methods has
made little progress in modern times, although
great progress has been made in such acces­
sories as plumbing and heating and lighting
equipment and similar conveniences and com­
forts. Consisting to such a large extent of
small individualised operations, material and
equipment purchases are generally on a retail
basis. Even where stock plans are used,
variety is frequently sought in external
appearance, aiming at the effect of a custom
job. The small-house builder is frequently a
boss-carpenter or graduate from one of the
other handicraft trades, or a former small-lot
subdivider; he may be highly competent
within the range of handicraft production of
small houses, but only rarely has he had any­
thing approximating the professional tech­
nique of the architect, the engineer, or the
large-project contractor.
The operative builder who produces small
house developments for sale has been, for the
most part, a land speculator. As, during the
evolution of urban communities, it became
increasingly difficult to sell building lots, the
addition of houses was made in order to sell
the lots at a profit. This speculative tech­
nique was carried into the apartment field.
Few builders of apar ment houses produced
them with the intention of operating them for
an income over an extended period of time,
although they have frequently held them until
they were fully occupied with paying tenants
before selling the properties to investors.
The need for planned community develop­
ments, providing housing accommodations
with a preconceived relationship to school,

July , 1939
transportation, and social facilities and em­
ployment opportunities has only received
general recognition in recent years.
Thus, the small-scale building industry has
never commanded any considerable amount of
working capital, has had no opportunity to
develop modern research, no real bargaining
power in the material or labor market. It has
not yet become in any important sense a
modem business; it is in many respects an
archaic survival of ancient and medieval con­
struction techniques and nineteenth century
management concepts.
While real estate speculation has been con­
spicuously present as a motivating force in
the large-scale construction industry, it has
not so dominated it as to exclude business
considerations. Factories, office buildings,
department store buildings, hotels, large
apartment projects, and the like, have had to
proceed from careful analyses of their poten­
tial earning power as business enterprises.
There have been noteworthy examples of
large-scale enterprise in the housing field.
The Fred F. French group of companies has
produced more than $100,000,000 worth of
rental housing accommodations in the City of
New York. The affiliated companies of this
organisation have included a holding com­
pany, a financing company, an architectural
planning organisation, a construction organi­
sation, and a management company to operate
the properties. The Queensboro Corpora­
tion, also of New York, has produced more
than $50,000,000 worth of rental housing
accommodations, although it has let out its
construction on contract. The J. C. Nichols
Development Company of Kansas City, the
River Oaks Company of Houston, and the
Roland Park Company of Baltimore are
examples of well-capitalised companies which
have produced planned communities of high
quality as a matter of continuous operation
over a considerable period of years; their
projects have consisted principally of single­
family residence properties. These outstand­
ing exemplars of housing conducted as a

regularised business have until quite recently
operated in the luxury housing field, where
they found their greatest potential market.
They have all recently engaged in lowerpriced operations, consisting both of rental
projects with FHA-insured mortgages and
individual houses for sale.
In addition, there are such familiar examples
of rental housing for middle-income families
undertaken on a strictly investment basis, as
the projects of the City and Suburban Homes
Company projects of New York, the Wash­
ington Sanitary Improvement Company, the
Washington Sanitary Housing Company,
Chatham Village in Pittsburgh, and some of
the limited-dividend projects under the pro­
gram of the New York State Board of Hous­
ing. These projects have to a considerable
extent provided the pattern for the largescale rental projects that have been under­
taken with FHA-insured mortgages.
The essence of investment housing is that
it is undertaken for the sake of operating
profits and equity appreciation over the years,
rather than with the aim of a speculative
profit from a quick sale. Initiation of such a
project, therefore, is the nature of launching
a business enterprise rather than a real estate
speculation. Operation of a large urban or
garden apartment project is just as much a
business as operating a hotel. The buildings
with the land and appurtenances constitute
the plant; the merchandise sold is shelter, plus
varying degrees of comfort and kinds of
service; in the one case for transient tenants,
in the other for occupants of longer tenure,
usually on the basis of a lease. The concepts
of housing as a business and as a field for
investment (as contrasted with speculation)
are daily gaining a wider and wider accept­
ance, although there is a great need for more
education of the public as to the nature of
these concepts, and as to the investment
opportunities in this field.
The earlier investment housing projects
were mostly financed with the conventional
sixty per cent mortgages, though two impor­


Harvard Business School Alumni Bulletin

tant ones, ChathamVillage in Pittsburgh and
the earlier Metropolitan Life Insurance Com­
pany project, were wholly owned by one
hundred per cent investment of institutional
funds. The new Metropolitan project, also
wholly owned, will be the largest single
rental housing project in the country. It is
perhaps significant that this project has
engaged the services of the architects, engi­
neers, and builders of the Empire State
The inception of the FHA plan for insur­
ing mortgages on large-scale private enter­
prise rental projects thus found already in
existence a pattern of investment housing, a
construction industry entirely competent to
build on as large a scale as needed, and a
ready supply of mortgage money. Although
the life insurance companies were a little
slow in taking up these loans at first, they are
now ready to make almost any rental-housing
loan that meets the requirements for FHA
approval. As of April 30, 1939, sixty-six of
these projects were completed and in opera­
tion, eighty-seven were under construction
and ninety-nine more had commitments for
mortgage insurance.
One of the earliest of these projects,
Colonial Village in Arlington, Virginia, has
proved so sound and profitable that it has
recently been refinanced without mortgage
insurance, the new mortgage being taken by
the New York Life Insurance Company,
which was the original mortgagee. The prin­
cipal obstacle, therefore, to more rapid prog­
ress in large-scale rental housing, has not
been absence of construction technique, or
mortgage money, but the absence of equity
financing; there is as yet a dearth of men and
money willing to go into the business of
selling shelter service on a long-term basis.
But their number is constantly growing.
Large-scale public housing projects, built
with government subsidies, have also made
considerable progress in reducing unit costs,
partly by setting up reasonably modest plans
and specifications and partly by engaging the

services of architects and contractors who
have by careful study found more economical
ways of building than were employed in the
earlier subsidized projects.
Thus far, large-scale production of single
houses for sale has not developed on any
grand scale. Perhaps we ought to give it
time. We have expected it to develop through
some spectacular invention of a patentable
house to be rolled off an assembly line. When
this happens, if it ever does, it will be in
response to a market demand and to the pos­
sibility of quantity orders from the field.
While large-scale production of small houses
has not been the rule, it has been done. Mr.
John H. McClatchy of Philadelphia was an
apprentice in a company that was building
six hundred houses a year as early as 1894,
and has been continuously in the housebuild­
ing business for himself since 1900, since
which time he has built and sold approxi­
mately ten thousand houses. Technical im­
provements in building, whether evolution­
ary or revolutionary in character, are more
apt to come in a period of large activity than
at a time when little building is going on.
The market makes the opportunity. Evidence
could be cited that small-house production as
a regularized business is gradually coming into
Now, the people who at various times in
the past hundred years thought the world had
come to an end did not bring back prosperity
with any synthetic miracles. They did not
even know what was going to be the next big
stimulus to economic expansion. The wailers
of 1837 did not foresee the annexation of
Texas, or the gold rush to California, and
they probably looked upon steam railroads as
interesting mechanical toys. The pessimists
of 1857 did not foresee a settlement of the
slavery problem, the establishment of a
national banking system, or the building of
western railroads. It was impossible in 1873
to forecast the rise of oil and steel and cement.
Visitors to the Columbian Exposition in Chi­
cago in 1893 were awed by the twenty-two-

July , 1939
story Masonic Temple building, but they
were not even shown the laboratory expert
ments that later produced the automobile.
This great invention was still a rich man’s
luxury in 1908. In 1908, no American knew
that a World War would, in a short space of
time, make us a creditor nation. Why should
we today expect explicit road maps and charts
guaranteeing a completely safe way to prosperity? There never were any new frontiers
for those who did not have the frontier spirit.
I recommend to students of business administration fewer charts, fewer explanations of
the business cycle and more visits to the
movies; if they must write dissertations, let
them trace the spirit of American enterprise
as shown in “ Covered Wagon,” “Man of
Conquest,” “Dodge City,” “ Union Pacific”
and “ Alexander Graham Bell.” For post"
graduate work, I suggest the New York and
San Francisco World’s Fairs.
During the past five years, slightly more
than $12,000,000,000 worth of construction
contracts were reported by F. W. Dodge
Corporation for the territory covered by its
field staff, the thirty-seven States east of the
Rocky Mountains. This large total was practically evenly divided between public and pri­
vate work. During those five years, private
work accounted for ninety-one per cent of
the residential contract total, fifty-six per cent
of the non-residential total, and ten per cent
of the heavy engineering construction total.
The six billion dollars worth of private
contracts were let by more than five hundred
thousand private individuals, firms, and corporations, whose names and addresses have
been recorded daily by the Dodge organize
tion. Since these private projects had an
average value of only $12,000, the vast majority of venturesome people who made these
commitments must have been people of
moderate resources. A t any rate, here were
half a million Americans who had sufficient
faith in the future to assume large risks at a
time when many business and financial leaders
and economists and statisticians were telling

them the world had practically come to an end.
The continuous increase that has taken
place in private residential building since
1934 has been largely aided by FHA-insured
mortgages, although not entirely financed in
that way. This has caused some people to
say that the residential building revival was
artificially stimulated, a judgment I believe to
be incorrect. Neither long-term amortized
mortgages, moderate interest rates, nor invest­
ment housing is a new creation. It was just
as necessary to change our lending from a
pawnbroking system to a long-term credit
system, as it was to change our basis of real
estate appraisals from the speculative basis to
the income basis. The mortgage-insurance
feature, only novel device in the system, was
necessary in order to override the limitations
of restrictive state laws, so that uniform lend­
ing practices and uniform moderate interest
rates might prevail throughout the country.
This needed financial reform has broadened
the area of business opportunity just as in
earlier times the National Banking System
and the Federal Reserve System did. In an
important sector of finance, it has caused
merchants of debt to become managers of
credit. Since the FHA is neither a spending
nor a lending agency, but draws out private
funds for mortgage investment in small houses
and large-scale rental projects, it seems to me
that the progress this agency has made in
stimulating residential building is a recovery
factor of real and substantial proportions
whose value cannot be discounted merely
because it is an instrument of the Federal
Government. Its current record of applica­
tions and commitments for mortgage-insur­
ance constitute one of the most important
indicators of continued residential building
The public building and engineering half
of the construction program of the past five
years has represented an unusual proportion
of the total and has been financed on an
emergency basis; it did not exceed in actual
volume the expenditures for public improve*


Harvard Business School Alumni Bulletin

ments that were made in the preceding five
years. The difference was in the extent of
financial participation, and incidental central­
ised control, by the Federal Government. The
states and local governments, with depleted
credit resources dependent upon taxing
depreciated real estate, could not have carried
out unaided their improvement programs on
their customary scale. While we cannot be
sure that all public improvement projects
that have been carried out with the stimulus
of loans, grants, and work-relief programs are
equally meritorious, the needs for community
improvements to supplement and, in many
cases, to stimulate, private construction
throughout the country have been very great
indeed, and have not been fully taken care
of yet.
The two reorganisation plans adopted by
the Administration, one for consolidating
the lending agencies, and the other for con­
solidating the construction agencies, are in
principle, steps toward unifying these govern­
mental activities, toward abandoning emerg­
ency programs and adoption of long-term
policies. I do not profess to know just how
these mergers of functions should be effected,
nor what the long-range policies should be.
The problem is in both cases largely one of
long-term finance, involving both private
and public credit.
On the side of public works financing, Mr.
A. A. Berle has recently proposed the estab­
lishment of a Federal bank. Congressional
proposals have included the possibility of the
Federal Government’scontributing two-thirds
of the cost to non-Federal projects, an amount
that seems to me beyond all reason. Neither
of these proposals has, so far as I know, been
accompanied by any authoritative statement
as to the potential capacity of states and
municipalities to do their own financing.
There is also a need to spread the new mort­
gage system beyond the housing field into
other branches of real estate, and proposals for
a National Mortgage Discount Bank have
been urged. And, outside the field of con­

struction finance, we have heard proposals for
facilitating capital loans to small business.
While I am inclined to think that further
adjustments are called for in the field of long­
term finance, it does seem to me that the time
is past for piece-meal emergency jobs, or for
major legislative enactments in the field of
banking and finance on the basis of proposals
by public administrative offices or govern­
mental advisers, without full consideration
of the points of view of private finance and
private business. It seems to me that the
time has come for a broad objective survey of
the country’s needs in the field of long-term
finance, including analysis of the present
functioning of private and public agencies; it
should include a critique of the workings of
regulatory agencies, as well as of lending
and investment banking agencies, and of the
municipal bond market. It should give equal
consideration to the testimony of bankers,
industrialists, big business and little business,
economists and public officials. This could be
done in a way to inspire confidence instead of
promoting distrust, if a joint committee were
set up by Congress following the pattern of
the National Monetary Commission of 1908
(generally known as the Aldrich Committee)
whose studies resulted in creation of the
Federal Reserve System. Such a National
Long-Term Credit Commission, paralleling
the deliberations of a similar commission to
study Federal, State, and local taxes, could
accomplish tremendous results in completing
necessary adjustments, supplying any new
instrumentalities of finance whose need may
be fully demonstrated, and removing such
obstacles to recovery as may exist either by
reason of governmental restrictions or inertia
of banking institutions.
I realise fully that the people of this
country have tremendous problems to solve,
and I would not wish to give the impression
that I think all is right in the best of all possi­
ble worlds. It never was. But I do believe
that the spirit of defeatism is dying out and
that the recuperative forces of recovery are


July , 1939
strongly in evidence, very particularly in the
field of private construction, a -very good
Total contracts let for private construction
during the first five months of this year in the
thirty-seven eastern states amounted to
$729,968,000, compared with $537,095,000 in
the corresponding period of 1938, an increase
of thirty-six per cent. During the same pe­
riod, public construction contracts amounted
to $681,080,000, a thirty-four per cent
increase over the first five months of last
year. Residential contracts have run seventythree per cent ahead of last year; non-residential building and heavy engineering, each
twenty per cent ahead. There can be little
doubt that the year will close with a sub­
stantial increase in total construction over
1938. This is nearly certain to be the sixth
consecutive year of increased total construc­
tion and the fifth of increased residential
volume; the odds seem highly favorable for
continued recovery progress.
It would be foolish to minimize the gravity
of our international, political, economic and
social problems; or the fact that the construc­
tion industry itself still has important
obstacles to overcome. We reached the
boundaries of our geographical frontiers a
couple of generations ago; and we arrived at
maturity as an industrial nation between
1914 and 1929. But the job of making our
country into a completely civilized nation,
with better living conditions, and better com­
munities for our people and greater efficiency

and economy in our productive and construc­
tive enterprises, has scarcely begun. Modern
Lewises and Clarks have explored some of the
frontiers of modern civilization, but no man
has yet discovered the boundary lines. Per­
haps the frontiers do not disappear unt.l the
frontier spirit is dead.
I have tried to sketch for you the evolu­
tionary process by which basic real estate
concepts and practices are changing, by which
mortgage banking is being transformed into a
modern long-term credit system, by which
speculative housing is being turned into a
business, by which the builders of Rocke­
feller Center, the Westchester County Park­
way System, the George Washington Bridge,
Boulder Dam, and the Metropolitan Life
Insurance Company Housing Project have
begun to create the World of Tomorrow. I
believe these phenomena to have greater
significance than any mere listing or statistical
compilation can indicate. I have not even
had time to touch upon the new inventions,
new materials, new machines, which will add
their contributions to the American economy
as recovery broadens and opportunities
increase — that story is being much better
told to millions of Americans at the two great
expositions now in progress in New York and
San Francisco. I have merely tried to present
some evidence that the individual and collec­
tive will and energy and ingenuity of our
people are not dead, that we have begun to
demonstrate some of that initiative which in
recent years we merely talked about.



We are accustomed to think of public
opinion as a social force with which politi­
cians alone deal. As a matter of fact, business
men have more public opinion problems than
politicians for they deal with four publics to
the politicians’ one, and account to these
publics, not once at election time, but every
day of the year. When a man is in business
he answers to a customer public, a labor
public, an owner public, and a general public.
These publics are socially powerful. With
the customer public, this power is mani­
fested on every hand. Each day in the market
place an election is held. The buyers look at
the competing candidates for the sale and
express their choice by their purchase. The
business man who gets very far out of step
with the opinion of the consumer public
suffers the terrible penalty of being voted out
of business. Some have tried to defy the
customer either by innovating too rapidly or
by overstaying a once successful market, but
the answer is always the same: the customer
simply withdraws his vote of confidence and
gives it to the competition. When the public
wants a gear shift car, not even a Henry
Ford can hold out against the demand.
The labor and owner publics are, likewise,
powerful. If they do not like the way a busi­
ness is being run, they strike. They withdraw
their labor or capital from the enterprise and
the business suffers. Business has had much
experience with these publics, and it under­
stands the principles by which they operate.
But the power of the general public —
that is a relatively new experience for busi­
ness men. By the general public, I mean
society as a whole — the public that gives
the right to do business in the first place and
lays down the fundamental rules by which
the game is played.
The power of this form of public opinion
is dramatically illustrated by the sit-down


strike. In this country, in contrast to some
totalitarian societies, we have the institution
of private property. We believe that a man’s
home is his castle, and we entrust ownership
of property to individuals for exploitation
under a set of rules governing the use of
property. In 1937 these established rules of
property were challenged in a revolutionary
way. Workers seized plants and held them
against owners and agents, until their
demands might be met. For a time govern­
ment officials were undecided whether or not
the sit-down was to be recognized as a valid
labor technique. But the general public was
not long in making up its mind. It said a
stem “no” to this attempted change in the
customs regulating the use of property, and
the sit-down epidemic was shortly at an end.
Suppose the general public had said “ yes” ;
suppose this public had agreed that employes
had the right to take over a plant or an office
during a strike and keep the employer away
until the workers’ demands were met. Then,
gentlemen, however fantastic it may seem to
you now, sit-down strikes would have become
an old union custom, and business men would
have been forced to accommodate themselves
to this new way of doing things, or go out of
business. The general public is the Supreme
Court of society, as it were, from which there
is no further appeal.
In recent years the business man has felt
the impact of opinion of the general public
largely through government. In the economic
demoralization that followed 1929, the public
lost confidence in business leadership and
turned to the politician and the instrumen­
tality of the State to reorganize social effort.
The changes that have taken place as a result
of the intervention of the State have been, in
an historical sense, revolutionary. Govern­
ment has stepped in to regulate enterprises
such as security exchanges; it has set minimum

July, 1939
wages and maximum hours for workingmen;
it has gone into active competition with
utility companies in supplying electric light
and power; it has reached into the pay
envelope and the corporate treasury to
establish a vast system of old age and unem­
ployment insurance; it has become banker to
private and public enterprise; it has made it
compulsory for the employer to deal with his
employes collectively; it has given housing
and food and grants of one kind and another
to large segments of the population, creating
a dependency relationship between the indi­
vidual and the State which heretofore had
not existed in this country. Business men
have been at their wits’ end in coping with
this expression of the general public’s will.
Some business institutions resisted change
too long, and suffered the humiliation of
being regulated from without rather than
being allowed to clean house from within.
It has been a difficult problem for business to
know when to yield and when to fight; and it
has been the more difficult because, by and
large, business men have been too little
schooled in the tactics or the language of the
struggle for public favor.
In this discussion of the relation of the
business man to his several publics, I am not
for a moment implying that he should be a
yes man to any public. As a matter of fact,
the public does not want yes men. What the
public does want, and what the business man
must be if he is to get on with his several
publics, is a leader, an innovator, but a leader
with a keen appreciation of what his fol­
lowers are thinking. Nowadays, as I shall
indicate later, it has become possible to meas­
ure and chart the public mood objectively. If
business is to supply social leadership it must
work in some fair relation to that mood,
neither too far ahead nor too far behind. The
business leader must have firm convictions on
fundamentals, but he must also be able to
understand his public and speak to it in a
language it can comprehend.
In the absence of better techniques, busi­

ness men have heretofore depended a good
deal on hunch and impression or scattered
reports, for their knowledge of what the
public is thinking. This is particularly true
with the labor, owner and general publics.
With the consumer public, of course, the
sales curve has provided a basic index of
public opinion. This index, however, is not
without shortcomings, for the sales curve does
not tell why people are voting favorably or
unfavorably on a product, nor whether they
are in favor of or opposed to government
regulation of the distribution of the product.
In the case of the chain stores, for example,
the sales curve gave no evidence whatsoever
that a large segment of the population
thought they were an alien influence in the
community and monopolistic, and that they
should be subjected to special taxes not levied
on other stores.
Another shortcoming of the sales curve as
an index of consumer opinion is that where
offers are controlled, sales may reflect the
opinion more of the sellers than of the buyers.
There are two things wrong with judging
public opinion by impressionistic observation
and hunch. In the first place, impressions
may be wrong. An observer may judge the
public’s mood brilliantly for a time, and then
without warning run completely off the track.
The process is a very subtle one. A little
wishful thinking and a self-assured pronounce^
ment by a trusted friend are all it takes to do
the trick. There is no alarm bell to sound
when observations of public opinion are about
to betray the facts. Having been right before,
the observer is sure he is right this time. The
annals of business are filled with instances of
guessing the public wrong, and of failure to
discover a shift in public taste before the
competition has won patronage away.
Some very interesting studies on this point
were made by Arthur C. Nielsen. He asked
executives of client companies to guess the
public’s attitude toward their product before
the sales figures were available. These
guesses, according to Nielsen, were fifty-eight


Harvard Business School Alumni Bulletin

per cent right. I have no doubt that, by and
large, business men’s impressions about their
own business are much more reliable than the
same type of observations by outsiders, but
the fact is that impressionistic observation as
a technique for acquiring knowledge of what
a public is thinking, has a very large margin
of error.
The second thing that is wrong with
appraising public opinion by impressionistic
observations is that equally competent
observers may disagree on what are the facts.
In situations of this kind, disagreements over
policy are commonplace, because each school
of thought starts with a different premise.
The only sure way to reconcile these differ­
ences, is to appeal to an objective method for
developing the facts. When this is done,
differences over policy frequently disappear.
Business men, by the nature of their calling,
are schooled to face facts, and it is historically
true that they have uniformly turned from
hunch thinking to systematic analysis of
facts whenever fact-finding techniques have
been made available to them. Such a process
of transition is now going on in the field of
public opinion. Thanks to the development
of modem methods of opinion sampling,
business executives today are relying less on
their bone marrow to tell them what the
public is thinking and more on systematic
sampling studies.
There is much misinformation abroad
about the methods of public opinion sampling
and I should like, therefore, to discuss briefly
some basic aspects of the technique.
The central idea of opinion sampling is
that the opinions, desires, customer prefer­
ences, and so on of any public can be deter­
mined by interviewing a few representative
individuals of that public. The validity of
the conclusions drawn from the sample
depends upon three factors: the representa­
tiveness of the persons interviewed, the size
of the sample and the system of interrogation
used in the interview.
If the social composition of the sample

public is like that of the larger public, then it
is valid to reason from the sample to the
larger public. In sampling a population, for
example, the sample is normally balanced for
such factors as geographical area, sex, age,
farm versus urban dwellers and income
status. If a limited public such as buyers of a
luxury product were being studied, then the
sample would conform to the geographical
peculiarities of the market, and particularly
the income status of those included in the
Most mistakes in the interpretations of
samples are directly traceable to the question
of representativeness. The most famous
example, of course, was the Literary Digest.
In 1936, this magazine sampled the voting
preferences of upper income owners of tele­
phones and automobiles and assumed that
these preferences were representative of the
whole electorate. They were not, of course,
for the haves in the country are predomi­
nantly Republican while the have-nots are
strong for Roosevelt and the New Deal.
Today people vote in direct relation to their
pocketbooks, not only in the market place but
also at the polls, and the income factor there­
fore is of primary importance in determining
the validity of a sample.
So the first question that must be raised
whenever a sample is being interpreted is:
what does the sample represent?
The second question, although a less
important one, is: How many people were
interviewed? The Literary Digest popularized
the idea that millions of ballots were necessary
to get an accurate sample. As a matter of
fact, nations, states and trading areas are
nowadays regularly and accurately sampled
with from two to five thousand interviews.
And it is a striking fact that some industrial
concerns with hundreds of thousands of dol­
lars at stake have found reliable policy
guidance in samples numbering only a few
hundred cases. One does not sample opinion
long before he notices great likenesses in the
ideas of people interviewed. When added

July, 1939
interviews fail to produce different opinion
patterns, the opinion sampler knows that his
sample is large enough. Beyond this point of
stability it is a waste of time and effort to go.
It is not enough, however, to reach repre­
sentative individuals in sufficient numbers to
get a reliable opinion sample, for once the
contact with the public is made the interviewer must interrogate the respondents in
such manner as to elicit opinion that parallels
behavior. This is a matter for great art and
experience. The American people are very
communicative, but to get desired informa­
tion from them, they must be handled
It is necessary, in the first place, to inter­
view them about things in which they are
interested or in which they are experienced.
It is a mistake to assume that the public has
an opinion on everything. Opinions elicited
in a sampling study can be considered valid
only if the topic touches the people’s interest.
In further describing what makes for a
good interview, the interrogation must never
put the respondent in an unfavorable light,
nor put a premium of self-esteem on the
answer given to the question. In studies of
magazine readership, for example, researchers
run into this difficulty consistently. People
will tell you they read the Reader's Digest
and the Saturday Evening Post, but overlook
mention of magazines about love or astrology.
Interviewing problems of this type provide a
real challenge to research ingenuity.
Some time ago the American Institute of
Public Opinion made a count of those who
had read the best seller, “ Gone With the
Wind.” Aware of the prestige nature of the
book, the Institute phrased the question in
such manner as to take account of this factor.
It did not ask respondents, “ Have you read
‘Gone With the Wind’?” Instead, it asked,
“ Do you intend to read kGone With the
Wind’?” Everybody was flattered. The
people who had read the book said they had
read it, and those who never read books
under any circumstances, but who like to be

in the swim, were given a pleasant oppor­
tunity to express their literary aspirations.
One more observation on the technique of
interviewing: Questions must be phrased
clearly and concisely in words that are
meaningful to respondents. Language is at
best an imperfect instrument for communica­
tion of thought, for not only the meaning but
also the emotional connotation of words
varies with each individual. I once asked a
simple question: “ Is the electric utility
in your community privately or publicly
owned?” Many people who were served
by private power companies answered, “pub­
licly owned.” Upon investigation, we found
people saying “ publicly owned” because the
public owns the shares. The question was
thereupon changed to read: “ Is the electric
power system in your community owned and
operated by the government?”
Some words and phrases carry distinct
emotional overtones either on the positive or
negative side. People are generally for mother­
hood and against sin, in favor of helping the
poor and opposed to going to war. Cliches
of this type, therefore, must be avoided in
asking questions of the public.
To get a valid sample of public opinion,
therefore, it is necessary not only to use skill
in selecting people to be interviewed, but also
to use skill in their interrogation. When these
technical hurdles have been cleared, the infor­
mation from opinion samples can become
invaluable as a practical guide to the trend
of the public’s thinking.
The growing recognition of opinion samp­
ling as an instrument of business is attested
to in many ways. A number of large manu­
facturing and distributing organizations now
have departments of consumer research with
substantial budgets to discover and analyse
consumer opinion. General Motors, for
example, has its Henry Weaver who sends
you those entertaining little picture ques­
tionnaires which enable you to vote on body
design, location of gear shift, types of ventila^
tion and so on.


Harvard Business School Alumni Bulletin

Procter 6? Gamble, to cite another exam­
ple, directs its whole merchandising program
from the conclusions of its research. If a new
toothpaste is to be put on the market, it finds
out if the customers like it red or blue, or
yellow or green, whether they like it flavored
or unflavored — in short, what they want in
the way of a dentifrice. If a skillet or a hair
brush is to be used as a premium to stimulate
the sale of soap flakes, the housewife is first
contacted to find out what she thinks about it.
Procter 6? Gamble pre-tests radio commercials
and magazine advertising. Being the biggest
users of radio time in the country, they care­
fully analyse listener habits and listener reac­
tions to the programs they offer. It is a
tribute to the genius of Paul Smelser, who
heads Procter 6s? Gamble’s research, that his
company has regarded it as good business to
increase its research budget year by year.
Advertising agencies have increasingly
turned to opinion research for guidance on
advertising programs. What people read in
newspapers and magazines, what they listen
to on the air, what types of copy most arrest
their attention, what selling themes stimulate
them most to buy, are among the problems
dealt with in this kind of research.
In the publishing field, editors have more
and more turned to readers for advice on
what to print and how to print it. Following
the reader interest technique developed by
Dr. George Gallup, they lay their publica­
tion down in front of a subscriber and check,
page by page* what he has read. Every arti­
cle, picture, advertisement, cartoon, editorial,
etc. is given an interest rating. Through
analysis of these reader interest ratings, the
editor can confidently add a feature here and
cut one there, thus bringing his publication
closer in line with the readers’ demands.
In the field of public relations, opinion
research is making very rapid strides. In the
absence of more objective techniques, public
relations men have been compelled to rely on
impression to determine how people feel about
any particular issue, and again rely on impres­

sion to determine if their tactical maneuvers
have actually changed the public’s thought.
Nowadays an intelligently conceived public
relations campaign is first preceded by a care­
ful opinion study — where are the centers of
disaffection, is one group more pro or anti
than another, what is the principal cause for
complaint, what does the public think should
be done about the situation? With these
facts in hand, the public relations counsel
maps a program. If disaffection can be elimin­
ated by change in trade or labor policy he
recommends such change. If unfavorable
opinion is based on misconception of facts,
he uses the channels of publicity to correct
these misconceptions. From time to time as
his program is carried out, he tests sentiment
to see what progress he is making in changing
opinion. Opinion research thus objectifies
much of the public relations counsel’s think­
ing; he is enabled to know his problem in
detail at the start and follow it week by week
as his program matures.
There is an interesting corollary to this
point. It is that through opinion sampling a
client or sponsor can measure what he gets
for his public relations dollar. A tremendous
sum of money is spent in the United States
each year on campaigns to change public
opinion. Heretofore the success of these cam­
paigns has been judged by evidences of indi­
rect character. With modem statistical
methods, public relations campaigns can be
audited with a high degree of accuracy, and
sponsors can see what they get for their
expenditures. High grade public relations
advisers, of course, welcome this develop­
ment, for it strengthens their position.
Finally, regular opinion studies such as
those of Dr. Gallup have contributed much
to the business man’s understanding of social
trends. Heretofore business leaders have
been largely occupied with such problems as
raw material prices, labor costs, inventories,
depreciation, machine obsolescence and so on.
Their aim has been to earn a dollar by pro­
ducing and distributing goods more cheaply.

July , 1939
They thought that as long as they were suecessful in this, they could get along with their
several publics. But the social ferment of the
past few years has changed this. Nowadays
business men not only produce goods and
services of better quality at cheaper prices,
but they must also justify themselves to the
general public on social grounds. If they sell
groceries at cheaper prices by quantity meth­
ods of purchase and distribution, they must
convince the general public that they are not
monopolistic, that they pay their labor fairly,
and that they contribute something to the
community as well as take something out of
it. If business makes much profit, it must not
only account to the tax collector but also
explain to the public why it should appro­
priate that part of the social surplus. In a
hundred and one different ways, the business
man is faced with social pressures which
before now never even entered his conscious­
ness. Opinion studies are helping him to
understand these pressures and deal with
In this discussion I have said that business
men deal with several publics, that what these
publics think makes or unmakes a business,
that hunch and impressionistic methods of
learning what the public thinks are giving
way to systematic opinion sampling studies,
and that research of this type is being used
increasingly in merchandising, in advertising,
in publishing, in public relations and, gen­
erally, in gaining understanding of social
trends. Is this development of opinion
research a fad that will pass when the mood
changes, or is it a permanent implement of

business that will grow with the using? The
logic of the situation, it seems to me, argues
greatly in favor of the latter alternative.
Opinion research deals with the most ele­
mentary force in society — the force that
makes right and wrong, that sets codes and
standards, that gives or withholds favors,
that dictates the success or failure of any
social enterprise, particularly a business. In
dealing with this force, opinion research sub­
stitutes factual thinking for impressions and
guesswork. It enables executives to end dis­
agreement as to what are the facts and devote
their time to doing something about the facts.
It makes possible the discovery of opinion
trends at their inception, so that something
may be done about them before the tidal
wave of opinion engulfs an enterprise. It
enables detailed analysis of opinion by geo­
graphical areas, by sex, nativity, age, by
types of buyers, by membership in associa­
tions or ownership of product. It produces
economies in that it eliminates fumbling in
matters of policy. It makes possible the
establishment of opinion time series whereby
the direction and speed of opinion change
can be measured in relation to events.
The more business knows about its four
publics, the more efficient it will be in serving
these publics. The better its understanding
of what the people think, the better its
ability to fight off demagoguery and to supply
social leadership that looks forward to higher
and more equitable living standards for all.
In promoting this understanding between
business and the public, research is ready to
make its contribution.


It is a great pleasure to be here with you
at Harvard. This is one of the few occasions
on which I have had the pleasure of returning
to my native New England. I am here to
discuss some of the problems of the public
utility industry and to describe for you the
effort which the Securities and Exchange
Commission and the responsible leaders of
the industry are making to restore sanity and
soundness to the industry. This effort, as you
know, has been fraught with dispute and
attended on occasion by bitterness, and it is
for that reason that I am particularly glad to
discuss it here in New England where the
conservative tradition is well understood and
where the advocacy of old-fashioned honesty
is not regarded as radicalism. I speak for no
one but myself. I express no views but my
The principle that to gauge the future we
must study the past applies with particular
force to the public utility industry. A t the
Securities and Exchange Commission the prob­
lems of public utility companies come before
us daily and in a great many cases the difficulty
with which we must deal is the tangible
heritage of an abusive practice of ten or fif­
teen years ago.
A major defect of the public utility hold­
ing company systems was their tendency
toward over-expansion and over centraliza­
tion. This tendency became most pronounced
during the period between 1920 and 1930.
These years were characterized by extreme
and often disastrous competition of holding
companies to acquire additional properties.
Holding company representatives and pro­
moters combed the United States in search of
municipal and private utility companies which
•could be purchased outright or tied up with
an option. Ambitious promoters put through
many consolidations of small, locally owned
systems into larger operating companies.
There appeared to be no limit to the prices

which could be paid for new properties or
the extent to which anticipated profits could
be capitalized. This point of view stimulated,
and in turn was stimulated by, the great
speculative frenzy which swept the country
during the late 1920’s. Many of the holding
companies were increasingly impressed with
the ease of floating new securities through
investment bankers, who were eager for com­
missions and profits on securities which could
be sold to a public hungry for investment out­
lets and speculative opportunities. One hold­
ing company was piled upon another. Socalled investment trusts and companies were
erected above the holding companies, equities
were divided and redivided and subdivided
over and over again; and at the bottom of this
vast pyramid, depended upon to support
themselves and everything above them, were
the only companies which owned any physi­
cal properties or had any real earning power,
the local operating electric and gas utility
companies. In certain cases there were as
many as eight subholding companies inter­
posed between the operating companies at
the bottom and the holding company or
investment company at the top.
While these practices were not universal
there were few that did not embrace the
opportunity to extend their spheres of influ­
ence with the money so readily provided by
the public.
One of the major evils of the scramble for
bigger systems and greater “empires” was
the tendency to acquire new companies at
figures far beyond reasonable values. Even
as late as 1931, Samuel Insull caused the Mid­
land United Company to acquire control of
the Gary Heat, Light and Water Company
from the United States Steel Corporation at
a price of approximately $23,000,000. At
the time of purchase, the tangible fixed
capital of the operating company was stated
at about $7,500,000. Is it any wonder that

July, 1939
the Midland United system became bankrupt
and is still in the process of reorganisation in
the Federal courts?
Another instance was the purchase of the
common stock of Eastern New Jersey Power
Company, now Jersey Central Power and
Light Company, by National Public Service
Corporation, an Insull holding company, from
Utilities Power and Light Corporation. The
price paid, $15,620,100, included a profit of
$8,898,848 to Utilities Power and Light Cor­
poration, although the profit was never
realised in full. The buyer, National Public
Service Corporation, subsequently became
bankrupt and the seller, Utilities Power and
Light Corporation, is in the process of reor­
ganisation in the Federal courts.
You are undoubtedly familiar with other
similar instances. There were many of them.
They not only led to overcapitalised systems
but they resulted in the illogical expansion of
many holding companies. To prevent their
recurrence in the utility industry of the
future, the Public Utility Holding Company
Act, established in Section 10 certain stand­
ards covering the acquisition of securities
and assets by registered holding companies.
Among other things, the price paid must be
reasonable. It must bear a fair relation to the
money invested in, or the earning capacity of,
the utility assets to be acquired. To prevent
illogical acquisitions in the future, it must be
shown that the acquisition will serve the
public interest by tending towards the
economical and efficient development of an
integrated public utility system.
In view of the abuses which developed
under the holding company system with its
scattered properties, its absentee-management, and its pyramided control, the integra­
tion requirements of the Holding Company
Act appear reasonable indeed. As you know,
Section 11 (b) (1) of the Holding Company
Act requires each holding company to con­
fine its operations to one integrated public
utility system. The Commission, however, is
required to allow the retention of additional

integrated systems, provided these addi­
tional systems can meet what are known as
the ABC standards of Section 11. These
standards are that —
(a) Each of such additional systems cannot
be operated as an independent system without
the loss of substantial economies which can
be secured by the retention of control by
such holding company of such system;
(ib) All of such additional systems are
located in one state, or in adjoining states, or
in a contiguous foreign country; and
(c) The continued combination of such
systems under the control of such holding
company is not so large (considering the state
of the art and the area or region affected) as
to impair the advantages of localised man­
agement, efficient operation, or the effective­
ness of regulation.
Any company which can satisfy these
conditions has a legal right to retain more than
one integrated public utility system; other­
wise not. If the conpany has more than one
such system, the burden seems to rest upon
the company to demonstrate that it can meet
the ABC standards quoted above.
This determination is not a matter of mere
discretion, nor is it one of Commission policy.
The Supreme Court has said that administra­
tive agencies like the SEC can have no policy
but the policy of the law. The application of
that policy to specific cases, in accordance
with the standards prescribed by the law, is
one of the administrative tasks of the Com­
Determination of the effect of Section 11
(b) (1) upon a specific company is as much a
question of fact as it is a question of law.
Section 11 provides that there must be a
public hearing on the ABC questions. With­
out a hearing and evidence the Commission
has no legal right to determine that a com­
pany has or has not complied with Section 11.
But that question can be brought before the
Commission in either of two ways. The com­
pany may file a voluntary plan under Section
11 (e) of the Act, or the Commission may
institute a proceeding under Section 11 (b)


Harvard Business School Alumni Bulletin

(1). In either event, it becomes the Commis­
sion’s duty to decide first whether the com­
pany has more than one integrated system
and, if so, whether the company has shown
its legal right to retain them by meeting the
ABC standards.
The most notorious of all holding company
abuses was the write-up. In its most direct
form the write-up consisted of marking up
the figures at which assets were carried on
books of account to higher figures, however
arrived at. The same result was achieved in
a less evident manner by causing one com­
pany to convey its assets to an affiliated com­
pany at a price in excess of the figure at which
they were recorded by the selling company.
Again, a merger or a consolidation of two or
more companies under common control was
sometimes utilised to accomplish a similar
increase in the book value of the assets of the
new company. The write-up also took other
forms, but these were the most common.
The methods used to explain the amount of
a write-up varied. Some of them were claimed
to be based on appraisals. The appraisal was
frequently made by a closely affiliated interest
or by an officer of the company. In other
cases the value was fixed arbitrarily by a vote
of the directors. Very few of them were sub­
ject to any check by governmental authority.
The appraisal, when made, was often based
solely on an estimate of what it would cost to
reproduce the property. Many intangibles,
items such as lawyers’ fees, costs of engineer
ing supervision, interest during construction,
goodwill or going-concem value, were fre­
quently included in this estimate. The fact
that these appraisals were often made by
officers of the company or by affiliated com­
panies and that they were seldom subject to
official scrutiny cannot be overemphasised. In
one system, for many years the appraisals
were made by an apparently independent
engineer who, it developed upon production
of bank records under subpoena, deposited all
of his fees in a bank account on which he
could not draw. It was found that these fees

were the property of one of the men who con­
trolled the system. The engineer was on a
salary paid by that man. On the basis of
appraisals made by this “ independent”
engineer the book values of properties on this
system were written up many millions. The
effect of legal concepts in connection with
reproduction cost new for balance-sheet pur­
poses may be seen in this same system, where
the overhead allowances made by this same
engineer in his appraisals were discarded and
the higher ones which had been recommended
by a special master in a gas-rate case were
substituted. The system was not involved in
that case and the allowances had been
approved, not by an appellate court, but by a
United States district court in a decision
which has been infrequently followed. This
change alone added many millions to the
Varying dispositions were made of write­
ups. In some systems they were credited to a
surplus account against which dividends sub­
sequently paid were charged, thus resulting,
in some instances, in the payment of divi­
dends out of unrealised appreciation. In
other systems they were credited to a capital
surplus account against which losses were
charged, thus relieving the income accounts
of the company. Very often unamortised
debt discount was charged against a capital
surplus so created, thus increasing the
reported earnings of the company in future
There were instances where the write-up
was used as a basis for additional security
issues. Securities were thereby issued against
“water.” In a very few instances these secur­
ities were sold directly to the public, but in
most cases they were delivered to a holding
company which issued and sold its securities
against them, so that indirectly many securi­
ties that were based on inflation or write-ups
were sold to the public.
The Federal Trade Commission investiga­
tion found that the ledger values for the
capital assets of the holding and operating

July, 1939
companies examined included a substantial
amount of write-ups. The examination covered 18 top holding companies, 42 subhold"
ing companies, and 91 operating subsidiaries.
The 91 operating companies had capital
assets of $3,306,893,000 which included
write-ups of $599,329,000 or 22.1 per cent.
This percentage, computed on the basis of
the assets as of the dates of examination of
each company, would have been materially
larger if computed on the basis of the assets
at the time such write-ups occurred. The
Federal Trade Commission also found evi­
dence of further write-ups in the amount of
$264,000,000 for other operating subsidiaries,
as disclosed in connection with the examina­
tion of the holding companies concerned.
The introduction of write-ups into balance
sheets through the use of reproduction
appraisals was based upon a misconception
of Smyth v. Ames, decided by the Supreme
Court of the United States in 1898. That was
a rate case in which it was held that a rate
imposed on a railroad which prevented it
from making a fair return on the present
value of its property was confiscatory. The
Court said:
We hold, however, that the basis of all
calculations as to the reasonableness of rates
to be charged by a corporation maintaining a
highway under legislative sanction must be
the fair value of the property being used by
it for the convenience of the public. And in
order to ascertain that value, the original cost
of construction, the amount expended in
permanent improvements, the amount and
market value of its bonds and stock, the pres­
ent as compared with the original cost of construction, the probable earning capacity of the
property under particular rates prescribed
by statute, and the sum required to meet
operating expenses, are all matters for con­
sideration, and are to be given such weight as
may be just and right in each case. We do not
say that there may not be other matters to be
regarded in estimating the value of the prop­
erty. What the company is entitled to ask is
a fair return upon the value of that which it
employs for the public convenience. (Italics

And from one clause in the Court's dictum —
“ the present as compared with the original
cost of construction”— has sprung the
“reproduction cost new minus depreciation”
theory of fair value. That one short phrase
has profoundly influenced the economic life,
perhaps the history, of this nation.
I know of nothing in law or accounting
that justifies the recording of estimates of
reproducing property new on books of
account. Smyth v. Ames does not justify it:
first, because that case dealt only with ratemaking and the confiscation issue, and, second,
because even under that decision an estimate
of reproduction cost was only one of several
elements to be considered. A rate base, under
certain decisions of the Supreme Court, is
required to reflect the present fair value of
public utility properties for rate-making pur­
poses. And since such value has no immut­
able character these decisions also recognize
that altered circumstances, such as a change
in the general price level of commodities, may
necessitate a change in the base. The rate
base, and consequently the rates, can be
adjusted to changing conditions. But once
securities are issued and sold on the basis of
an estimate of the cost of reproduction (espe­
cially if as here the estimate is made in a time
of high prices) the loss must be absorbed by
the investors, and the loss cannot be avoided
merely by restating the value of the proper­
ties. Such a restatement is usually made in
the process of a painful reorganization, and
in the meantime many of the investors have
been compelled to dispose of their securities
and suffer severe losses.
The view that Smyth v. Ames in some way
justifies the recording of reproduction esti­
mates on books of account and the issuance
of securities of an equivalent amount is based
upon a distortion and misapplication of that
famous decision and has done incalculable
injury to the public and to the utility industry.
I am glad to report that some companies
have embarked upon a comprehensive pro­
gram of reorganizing their capital structures.


Harvard Business School Alumni Bulletin

For example, one of the largest holding companies has begun to work out a program for
restating its capital account and that of
various subsidiaries. The program is based
upon studies of the companies in the system
with the following objectives: (1) To obtain
as accurate a figure as possible of original cost
of all property; (2) to identify and to obtain
facts about every transaction which resulted
in a debatable bookkeeping entry; and (3) to
analyse the surplus accounts. Several of the
companies in the system have filed applica­
tions with us to obtain approval, on the basis
of the facts so ascertained, of a restatement of
capital and creation of a special capital sur­
plus. These special capital surpluses, in
addition to surpluses as of December 31,1937,
may be used to absorb all debatable items
which any of the companies find necessary to
remove from their accounts, or to write their
properties down to original cost, should that
become necessary. In this way, it is reason­
able to hope, the capital structure of compan­
ies in the system will be adjusted so that they
can economically finance their requirements
and confidently face the future.
Some of the utility holding companies
indulged in unsound accounting. Such con­
duct may not have been characteristic, but it
was sufficiently widespread to be an impor­
tant problem. In part, many of these practices
resulted from attempts to make up for the
consequences of bad fortune or of reckless or
improvident management.
Where utility holding companies were
heavily overcapitalised, there often resulted
very strong pressure to find the income neces­
sary to pay interest or dividends on an exces­
sive amount of securities. Moreover, such
companies were pressed to maintain their
financial standing and prestige and were eager
to make a good showing as to net income and
to pay dividends in order to sustain or improve
their credit.
One of the principal means of meeting this
situation was to make inadequate provisions
for depreciation. A similar practice, often

employed not only by operating companies,
but also by holding companies, where bond
issues had been made at a discount, was to
neglect the proper annual amortisation charge.
The payment of dividends from capital sur­
plus or from an entirely fictitious surplus was
sometimes resorted to. Another device was
to take up on the books of the holding com­
pany the earned surpluses of subsidiary
companies without any disbursement of them
by those companies and to charge holding
company dividend payments against such a
surplus. Another was to create profits, and
‘ create” is the very word for it, by transfers
from one subsidiary to another.
Another great problem of the past in the
utility industry, and one with which the
Holding Company Act deals vigorously, was
the siphoning off of profits through service,
management and construction contracts. In
general, these contracts provided that the
holding or a wholly owned subsidiary com­
pany would, for a fee, manage or supervise
the management and construction work of the
other companies, usually operating utility
companies in the same system. It became a
feature of the holding company system, even
though not all the holding companies made a
practice of it. In a few instances, however,
there were indications that a holding company
system was promoted principally to create a
source for these fees. There were many
instances where the operating company paid
for services far more than they were worth.
In two systems the operating companies paid
fees to a service company controlled by such
systems and this company hired the service
from an outside concern for a lesser amount
and pocketed the difference.
After the Federal Trade Commission’s
investigation brought some of these facts to
light, certain large holding company systems,
sensing earlier than others the trend of public
opinion, created servicing companies mutually
owned by the operating companies.
Some of these management companies per­
formed useful services for the operating

July, 1939
companies. However, they were managing
their own properties and making a good profit
so doing. The large profits obtained through
service contracts would not have aroused
widespread criticism had such contracts been
made between strangers in interest rather
than between companies under common con­
trol. This common control from which arose
many of the other abuses, already pointed
out, inevitably gave rise to the suspicion that
service contracts, dictated as they were by
the holding companies, were forced upon the
controlled subsidiary companies making it
especially difficult to decide such questions
as the worth of the service to the operating
company, and the real need of the operating
company for outside management. Not all
such fees were exorbitant or unearned. How­
ever, the unearned fee was a fraud on the
senior security holders and a betrayal of the
true principles of rate regulation.
Since the service fee was included by the
operating company in its operating expenses
and was deducted from income before com­
puting the fair rate of return permitted by
law, the management contract became in some
instances a holding company device for taking
from the operating company a special profit.
This was patently unfair to the holders of
senior securities and to the rate payers. In
many systems operating companies were not
at liberty to hire the supervision of their new
construction from companies outside the
holding company system of which they were a
part. The fee charged for the supervision of
construction usually included a profit to the
company receiving it. The importance of this
fee is emphasized by the fact that it was
capitalized on the books of the operating
companies, i.e., added to the fixed property
account where it might figure in the rate base.
Extortionate servicing charges have un­
questionably been a drain on the electric
power industry of the country. The Holding
Company Act undertakes to preserve what is
good and erase what is bad in the servicing
system. Holding companies are prohibited

from selling service to other companies in
the same system. Both subsidiary and mutual
service companies must render service at cost
and must meet the standards set under the
Act. The services they render must benefit
the companies receiving them; the cost of
services must be equitably allocated among
the companies served; direct charges must be
made as far as costs can be identified and
related to specific transactions, and indirect
charges must be apportioned on an equitable
basis; and the services must be economically
and efficiently performed at a saving to the
serviced companies. To meet these require­
ments, certain large systems have employed
independent public accounting firms to devise
satisfactory accounting systems. The Act
and our rules have brought about a substan­
tial overhauling of servicing operations. One
major service company found it desirable to
make plans for curtailing its staff and restrict­
ing the specific services to be rendered,
eliminating deadwood and in two months
cutting the annual cost of the servicing conv
pany over $400,000.
One of the characteristic abuses in the
holding company field was excessive pyramid­
ing of corporate structures. These were cases
wherein six, and even eight, layers of com­
panies were erected between the operating
utility and the top holding company or other
controlling organisation. This meant, in the
first place, that if the operating subsidiaries
were earning a good return on the investment
in their securities, the rate of return on equity
securities in the top company sky-rocketed,
and secondly that a relatively small invest­
ment in the top company could effect control
of a huge utility system.
The other side of this picture frequently
came to light, however, when the operating
companies failed, or could not be forced, to
yield the anticipated return on the invest­
ments in them and in the numerous securities
piled above. Minor fluctuations in the
revenues of the underlying utility companies
brought about cataclysmic gyrations in the


Harvard Business School Alumni Bulletin

income accounts of the holding company capitalization. The third company has a
hierarchies. With the depression many of consolidated capitalization of $615,000,000, of
these highly attenuated structures were which 4 per cent is represented by common
swept away, although even today their stock and surplus. After deducting arrearages
scattered remnants constitute part of several of $33,000,000 on preferred stocks, the com­
mon and surplus represent less than nothing
large and many smaller systems.
Back in 1927 purchasers of holding company — actually a minus figure of 1.4 per cent.
securities could see only one fact, that a small The fourth system shows a consolidated
rise in operating revenues resulted in an capitalization of $461,000,000. In this case
accentuated increase in the profits accruing the common stock and surplus amount to only
to the common stockholders of the holding 9/10 of 1 per cent of the total capitalization.
companies. Your own Professor William Z. When the arrearages of $24,300,000 on pre­
Ripley at Harvard was one of the few who ferred stocks are deducted, nothing but a
appreciated the much overlooked fact that minus quantity (4.4 per cent) is left for
what goes up at an accentuated rate comes the common stock which controls this large
down at an even more accentuated rate. In system.
Should the analysis be pursued further,
his book, “Main Street and Wall Street,”
published in 1927, he explained how a small adjusting the assets of the companies for
drop in the income of an operating company write-ups, squeezing the inflation out of
becomes a major one for the holding company. carrying values for various properties and
But he might just as well have added in the securities, the controlling equity would be
manner of his well-known namesake, “ Believe even thinner if, indeed, an equity would
it or not,” for many investors apparently did remain at all. Another indication of the lack
of equity is the fact that not one of these
not believe it.
What is the status today of those pyra­ common stocks has paid a dividend in the last
mided, or thin-equity, systems which have six years.
weathered the storm? Their present condi­
One point I want to emphasize is that while
tion is sufficiently widespread to constitute the equity represented by these stocks is
one of the major problems under the Holding exceedingly slim, the holders thereof con­
Company Act of 1935.
tinue to manage and control the properties
I have here some figures on several com­ which equitably belong to others.
panies which control an important part of
Despite the “morning after” effects of pre­
the electric utility assets of the country. The ferred arrears, of dehydration and of shrunken
first has a consolidated capitalization, includ­ values, pyramided structures still remain, sus­
ing surplus, of $730,000,000. Its common pended only by the silver cord of voting
stock and surplus together represent 11.7 per power.
It is here that the Holding Company Act
cent of the total capitalization. Yet when the
arrearages of $38,800,000 on the outstanding will have an important influence. Under the
preferred stocks are deducted, the common great-grandfather clause, section 11 (b) (2),
and surplus represent only 6.4 per cent of the the SEC must require that each registered
consolidated capitalization. The second sys­ holding company, and each subsidiary com­
tem has a consolidated capitalization of pany thereof, take such steps as the Commis­
$573,000,000, of which the common stock sion shall find necessary to ensure that the
and surplus represent 16 per cent. When corporate structure or continued existence of
adjusted for arrearages of $58,000,000 on any company in the holding company system
preferred stocks, the common and surplus does not unduly or unnecessarily complicate
represent only 5.9 per cent of the over-all the structure, or unfairly or inequitably dis­

July, 1939
tribute voting power among security holders,
of such holding company system. We are
further obliged to require that holding com­
pany structures shall be no more than three
layers high, and we are told that we are not
to require any change in the corporate struc­
ture or existence of any company which is
not a holding company, or whose principal
business is that of a public utility company,
except for the purpose of fairly and equitably
distributing voting power.
This subsection is designed to cope with
the evils of excessively pyramided and com­
plicated corporate structures and undue con­
centration of voting control in holding com­
pany systems. When the statute was enacted,
the corporate and financial structures of some
holding companies were so complicated that
they were beyond the comprehènsion of the
layman and in certain instances the expert.
Although many systems are voluntarily
undertaking to eliminate unnecessary inter­
mediate and underlying companies, relatively
little progress has been made in clearing up
arrearages of preferred stock dividends or in
rectifying inequalities in the distribution of
voting control.
Drastic financial reorganisation of some
holding companies which are burdened with
huge preferred stock dividend arrearages is
inevitable. The complete figures for January
1, 1939 are being compiled by the Commis­
sion’s staff, but as of January 1, 1938, out of
158 holding companies having outstanding
preferred stocks with a par or liquidating
value of $2,413,255,000, there were 48 com­
panies with outstanding preferred stocks
(in the hands of the public) amounting to
$1,330,616,000 which were in arrears as to
dividends to the extent of $336,657,000. A
year ago, therefore, the arrearages represented
an average accumulation of 25.3 per cent of
thé par or liquidating value of the stocks, or
more than four years’ dividends. Furthermore,
over half of the outstanding preferred stocks
of these holding companies have accumulated

Turning to the operating subsidiaries of
registered holding companies we found that
there were 224 companies with preferred
stocks in the hands of the public amounting
to $1,447,460,000. Of these, 70 companies
had accumulated arrearages of $95,745,000 on
their outstanding preferred stocks in the
amount of $442,976,000. Thus over 30 per
cent of the preferred stocks of the operating
companies was in arrears to the extent of
21.6 per cent, or nearly three years’ dividends.
Among the larger companies which have
arrears on their preferred stocks are the
American Power and Light Company and
Electric Power and Light Corporation in the
Electric Bond and Share System, Associated
Gas and Electric Company, Commonwealth
and Southern Corporation, Cities Service
Power and Light Company, The United
Light and Power Company, New England
Public Service Company, New England Power
Association, and The Standard Gas and Elec­
tric Company. As an example of the magni­
tude of this problem of preferred stock divi­
dend arrears in some systems, I give you the
figures as of January 1, 1939, for the Electric
Bond and Share Company group, excluding
the American and Foreign Power Co. This
group of companies, comprising the American
Power and Light Company, Electric Power
and Light Corporation and National Power
and Light Company and their respective
subsidiaries, constitutes one of our largest
holding company systems. As of December
31, 1938, their preferred dividend accumula­
tions aggregated $95,158,000 or 23,5 per cent
of the par or stated value of the stocks which
were in arrears. Substantially all of the
arrearages are in the American Power and
Light and the Electric Power and Light
systems. Electric Bond and Share Company,
itself, and National Power and Light Corpora­
tion have no arrearages. The Bond and Share
group have preferred stocks outstanding in
the amount of $747,344,000. O f this total,
the vast amount of $403,739,000 (or 54 per
cent of the whole) had accumulated unpaid


Harvard Business School Alumni Bulletin

dividends. Approximately two-thirds of the
aggregate arrearages are applicable to the
preferred stocks of two of the subholding
companies, and one-third is applicable to the
preferred stocks of their subsidiaries.
As long as such accumulations of arrear­
ages remain uncorrected it is idle to talk
about an equity capital market in the public
utility industry. Even the refunding of bonds
by such a company is extremely difficult if
not impossible. When many of the major
holding companies are in drastic need of reor­
ganization, they obviously are in no condition
to raise equity capital for their operating sub­
sidiaries. No sane investor will subscribe for
an issue of common or even preferred stock in
a company whose preferred dividends are
heavily in arrears.
The early recapitalization of these compa­
nies is also imperative from the standpoint of
the security holders who for a long time
either have received no dividend at all or
only an intermittently paid dividend. If such
a recapitalization program will permit the
resumption of the flow of earnings from the
utility industry to investors, it will go far to
revive public confidence in the securities of
utility-holding companies.
Financial reorganization of companies with
unsound structures will require recognition
by all interests of sound asset values and
reasonable earnings. When accomplished, it
will serve the threefold purpose of protecting
present security holders, opening the way for
resumption of dividends, and facilitating new
financing for construction.
If I have dwelt at length upon the excesses
of the past, it has been to describe the task
before us in working toward the financial
rehabilitation of the utility industry. It has
not been due to a desire to minimise the truly
marvelous accomplishments of the industry
along physical and engineering lines. If there
were time I would dwell on them at greater
length. I would especially mention the great
contributions to progress in the industry made
by such firms as General Electric and West-

inghouse, but our particular job is to correct
the financial abuses which have existed —
consequently that is what I have to talk
For the future, the Holding Company Act
means the end of corporate pyramiding in
the electric and gas utility field with its
attendant obfuscation, speculation and un­
healthy methods of control. It means, I
hope, the end of improper accounting meth­
ods. It means no more write-ups and no more
counterfeiting of values and earnings for
stock-jobbing purposes. It means an end of
the exploitation and victimization of operat­
ing companies. There will be no more private
systems of inflation for the benefit of a selfappointed few. There will be no more
upstream loans from operating companies to
support their anaemic parents. There will be
no more extortionate service charges, repre­
senting, in effect, special dividends disguised
as operating expenses. There should be no
more milking of operating subsidiaries through
inadequate provisions for depreciation. There
should be no more tricky securities. Voting
power will be more equitably distributed. In
reorganizations, the Act means that there will
be no more blackmailing of senior security
holders by the junior interests who may own
nothing but a power to vote. It means that
Government will have the right to say some­
thing as to the direction of the growth of
national utility systems made up of corpora­
tions which are said to be devoted to the
public service, which occupy public streets
and highways and dam interstate and inter­
national rivers usually without paying for the
privilege, which through delegation to them
of a portion of the state’s sovereignty are
permitted to condemn private property, and
which owe their very existence to the indulg­
ence of government.
On the other hand, the Holding Company
Act does not mean a death sentence for the
utility industry or for the utility holding
company. Nor does it mean that Insull
Utility Investments, Inc. can be raised from

July, 1939
the dead or that value can be breathed into
securities which it was unfair to issue in the
first place. It does not mean that there is to
be a dictatorship over the utility industry.
It does not mean the nationalization of the
utility industry. Whether you would oppose
nationalization of electric power or whether
you would favor it, you will not find it in the
Holding Company Act, or in its administra­
The Act does mean lawful regulation in
the interest of investors, consumers and the
public, and a return to old-fashioned American conservatism and fair dealing from which
we strayed in the roaring twenties. It recog­
nises and does not impede the earning of
proper profits.
The Securities and Exchange Commission
will do its best to administer the Act reason­
ably and vigorously, fairly and firmly, with­
out prejudice and without favor. Our staff is
composed of men with broad experience in

finance, in the law and in the utility business,
and they are well qualified to do the job.
If I may, I would like to avail myself of
this opportunity to take vigorous exception
to some reports which I have seen and heard
in recent weeks. It has been said that there
is a drastic difference of opinion and attitude
among the members of the Commission on the
Holding Company Act and particularly on
Section 11. There is no such division or
difference of opinion. The members of the
Commission see eye to eye on these questions.
I know of no disposition on the part of any
member of the Commission to ignore his duty
under the Act or to exceed it.
It is our objective to put into practice the
ideals of the Holding Company Act. If these
ideals are attained, this great industry will
place itself on permanently firm economic
foundations and will see its own development
bring increasing benefit both to itself and the
investing and consuming public.

Including Professor George E. Bates, Mr. Louis W. Munro, President of the Association
Judge Robert E. Healy, Mr. Paul Floyd, Vice-President of the Association, and Mr. Thomas S. Holden


In any organisation of people who work
closely together, sooner or later death makes
inroads. In this respect, the Business School
has been fortunate. The group which, under
the leadership of Mr. Donham, has been
mainly responsible for the School’s develop­
ment since the War has been a definitely
youthful company. For that younger group
which Mr. Donham welded together after
he came to the School in 1919, Chick Biddle’s
death is the first break in the ranks — a
break at the last point anyone could possibly
have expected — and that is why it is so
hard to get used to his absence.
Chick and I both began working for the
School in 1920. We were over in Lawrence
Hall, in the Bureau of Business Research,
under Doc Copeland’s charge. Chick was
heading up the retail grocery study, and I
was working on the retail jewelry business.
In those days I soon discovered that Chick,
for all his youth — he was only twenty-three
then — was a good man to talk things over
with. I don’t know how he did it, but I
always felt bucked up after talking to him.
Chick stood foursquare to all comers. That
early impression grew on me, as it did on all
of us; and through the years the habit of
talking things over with Chick became so
strong that even today I keep finding that my
instinctive reaction to a new idea is, “ There
is something I had better get Chick’s slant
on.” He was so vital a part of the School that
still, when I am going through the first floor
of Morgan Hall* unconsciously I half expect
to see him coming out the door of his old
office, in his brown suit, going to the water­
cooler for a drink, stopping to talk to Mrs.
Heard or Miss Cotter, with a student or two
in the offing waiting for an appointment.
Chick’s great strength lay in his skill as an
1 Text of Mr. McNair’s remarks at the annual
dinner meeting of the Alumni Association held at
Eliot House on June 16.

administrator. A t an extraordinarily early
age, he acquired wisdom about people. His
judgment of people was uncannily good, and
it was always essentially fair. He unerringly
punctured sham and pretense, but he almost
never hurt feelings. Responsibility just natu­
rally gravitated to Chick. He was the balance
wheel of this Faculty.
Chick had an unobtrusive but unfailing
sense of humor. One of the forms which it
took was a sly misuse of words. On one
occasion at a Faculty meeting when Mr. Don­
ham was away and President Lowell was
presiding, with Chick at his right hand, dis­
cussion turned on some problems of instruc­
tion, and certain types of courses were
referred to by several members of the Faculty
as being “ peripheral” in character. After
Chick had listened to the discussion for some
time he finally cleared his throat and said,
“Does anyone wish to make a motion regard­
ing these ephemeral courses?” As I recall the
incident, that ended the discussion.
On another occasion Chick stopped me one
morning as I was going by the door of his
office, drew me inside, sat down at his desk,
and with a very grave face said, “ Mac, I’ve
got an awful tough job this morning.”
I duly offered the necessary interrogation,
and he said, “ Yes. It certainly looks like a
bloody business.”
Again I sought enlightenment.
“ Well,” he said, “ you know that course of
Professor Blank’s” (referring to an elective
course offered by a man who is not now on
the Faculty).
“ Yes,” I said.
“ Well, you know he is offering it in two
sections this term.”
Once more I pressed the inquiry; and then
Chick sprang it on me, never relaxing his
perfect poker face.
“ Why, there’s only one man registered in
the course; and the only way I can conform

July, 1939
to Miss Hoyle’s schedule for two sections is
to cut the man in two, and I don’t know
whether to do it lengthwise or crossways.”
Another incident comes to mind. Once
when I was staying with Chick down at
Stonington we went out for a day’s fishing.
I was a complete novice at deep-sea fishing.
In fact, the only sea fishing I knew anything
about was the kind where you bait a hook,
drop a line overboard, and pull up cod and
haddock with no great effort. When Chick
said we were going after bluefish, I asked
him what they were like.
“ Oh,” he said, never cracking a smile,
“ you can pull them right in hand over hand
and never know you have anything on.”
I had a suspicion that there was a piece of
information which needed to be taken with a
grain of salt, but after trolling uneventfully
for a matter of three or four hours I certainly
was anything but prepared for the ton of
dynamite which seemingly exploded at the
other end of the line. Chick stood and grinned
at me while my mouth fell open and I
barked my knuckles on the whissing handle
of the reel, got my line all snarled up, and
lost the fish. But a few minutes later, when
I got another strike, it was Chick who
helped me land the fish — in fact, cut his
hands on the wire leader while bringing the
fish in.
Chick was always so busy with his admin­
istrative job that I think few of us realised
what important contributions he made to the
teaching of the School during recent years
when he and Doc Copeland were running the
Business Policy course. This is not the place
to comment on these in detail, but there are
a few things which come to mind particularly:
He brought to the Business Policy course a
well-rounded comprehension of the business
executive’s functions and responsibilities. He
was particularly aware of the extent to which
the widespread social changes of the past few
years have affected the business executive’s
job. Also he introduced into his teaching an
appreciation of the great importance of per­

sonal relations in business. The executives in
the cases he taught were not impersonal;
they were live flesh-and-blood people, and he
made the students think of them as such.
And he had a valuable faculty for making the
men keep their feet on the ground in dis­
cussing business cases. He clothed a case
with reality. During the past year or two I
tried every now and then to drop into some
of his sections in Policy because I enjoyed
seeing him in action in the classroom. To a
man who began presenting some theoretical
and rather abstract piece of reasoning, Chick
would frequently say, “ Now, wait a minute.
This isn’t an academic report you’re sub­
mitting. You are the sales manager. This
salesman is a real person. He’s got a wife and
two kids, and he’s worried about paying
doctors’ bills. He’s coming into your office in
the next ten minutes. You’ve got his record
in front of you. What are you going to say
to him?”
Or sometimes Chick would walk into a
classroom and begin the discussion of a case
by saying, “ This meeting of the Board of
Directors of the Thus-and-So Company will
come to order. We will dispense with the
reading of the minutes. A special report of
our operations for the last five years is in
front of you. You have all had an opportunity
to study it. The meeting is open for dis­
Notwithstanding days and evenings filled
with Business School work and responsibility,
Chick found time to be a useful citizen of the
community. As a director of the Cambridge
Trust Company and of the Harvard Coopera­
tive Society he exercised a maturity of judg­
ment which was increasingly valued by his
associates. In charitable work he quietly did
a very real and effective job as president of
the Avon Home. When Chick first took
over that office, he adopted a money-raising
plan which had the incidental effect of greatly
speeding up the marriage and birth rate among
the younger professors and instructors on the
Business School staff. Considering that a


Harvard Business School Alumni Bulletin

children’s home ought to be a particularly
charitable object in the eyes of those who
had no children, Chick went vigorously after
all his bachelor friends with the slogan,
“Marry and produce, or pay up.” In the
subsequent rush to the altar, Homer Vanderblue was the only hold-out.
I think that, outwardly at least, Chick
was the most imperturbable and unruffled
person I have ever known. Whatever the
situation, Chick always stood staunch and
unshaken. Last September at the time of the
hurricane all his family were on an island off
the shore near Stonington, Connecticut,
directly in the path of the storm’s greatest
intensity. Chick was in Cambridge. All the
wires were down, and after early Wednes­
day afternoon there was no word, and all
through Wednesday night, Thursday, and
Thursday night there was no word. The
roads on Thursday, of course, were com­
pletely impassable. Friday morning Chick
and I loaded a car with saws, axes, flashlights,
thermos bottles, and sandwiches, and started
for Stonington. Every few miles we had to
stop and help clear the road. And it wasn’t
until we were more than three-quarters of the
way to Stonington that we got word, on the
radio, that all his family were safe. But
throughout that whole ordeal Chick was
perfectly calm and self-possessed, showing no
sign of the terrific strain that he was under.
That stoic quality in Chick was especially
evident in the way he bore the sad loss of his
oldest son, Tommy, in the early spring of
1936. Whatever came his way, he took it in
But Chick’s life was predominantly a
happy life — full of good fellowship and a
keen sest for living. He was a convivial spirit
in every best sense of the words. There are
quite a few of you here tonight whose recol­
lections go back, along with mine, to some of
the gay times in the early days of the Staplers,

when that organisation was quartered up­
stairs in the Union. Chick enjoyed those
parties hugely, but it was generally Chick
who saw to it that some of the rest of us got
safely home. All that was quite a long time
ago. But in these later years on many days
along toward the office closing hour of five
o’clock the telephone would ring and there
would come Chick’s voice on the wire, “ Stop
in at the house for a cocktail on your way
home.” And one of the pictures that memory
will always summon up most readily is that
of Chick with a cocktail shaker, filling the
glasses again before they were half empty,
waving aside the not-too-vigorous objections
with his customary argument, “ It’s mostly
ice water now, anyway.” That was Chick’s
little joke; for we all knew that beginning
with a 3/^-to-l ratio for mixing Martinis he
had constantly experimented with various
brands of gin and vermouth until he was
closely approaching a 5-to-l basis.
Chick was always doing things for his
friends. There were a legion of us who relied
on him for help and advice; but even before
we came to him, he seemed to know instinct­
ively where there was trouble, when some­
body was carrying too heavy a load and get­
ting overtired, who was worried about
finances or about family illness; and he was
always going out of his way to help in those
Chick Biddle’s relation with the School
was a peculiarly vital one, and what he did
for the School is not a chapter that is closed,
it is a chapter which continues; for many of
the best qualities of the School today are the
qualities that he stood for. His was a great
career and a happy life, and he lives in the
spirit of the School no less than in the memo­
ries of all of us, his friends.
Gentlemen, may I suggest that at this
time we all stand in silent tribute to Clinton
P. Biddle.


There is one thing on which I am sure we
can all agree, namely, that our economic con"
dition, with the existing large volume of idle
men, idle money, and idle plant equipment, is
unsatisfactory and that a material improvement must be brought about to vindicate and
preserve our economic system.
Secondly, I think that we will also all agree
that we have abundant material resources
and money, so that they are not a limiting
factor on further recovery. In fact, the supply of funds is not only more than adequate
under present conditions for an expansion of
output, but our monetary and credit system
has sufficient elasticity so that we can always
create the funds necessary to expand production within the limits of our man power.
We may say then, I think, that our greatest
domestic problem — the major task before
the nation — is to find productive employment for all of our people capable of working
who are now unable to find employment.
The magnitude of the problem is measured
by the number of these people. Allowing for
a certain unavoidable minimum of unemploy­
ment due to seasonal and other special rea­
sons, there are more than eight million men
and women for whom work should be found.
That it is not a scarcity of money that
prevents a more satisfactory economic condi­
tion from developing is clear from the fact
that our supply of money represented by
demand deposits and currency today is larger
by several billions of dollars and interest
rates are lower than ever before in our his­
tory. In addition, the excess reserves of
member banks at the present time exceed
four billion dollars, a heretofore undreamed
of surplus. These reserves could become the
basis for a further expansion of our money
supply to the extent of more than $25
While some of the smaller business con­

cerns may be having difficulty in obtaining
funds that they would like to use, this is not
true in general either for the great majority
of the smaller companies or for the larger
corporations of the country whose balance
sheets show that they are the owners of bil­
lions of dollars of bank deposits. The great
corporations of the country could, generally
speaking, considerably expand employment
and production without going to the capital
markets to raise a dollar of new funds and
without borrowing from the banks. Our
problem is not to create more funds, but to
find productive use for those already in
The extent to which this is a problem is
indicated by a comparison with the period of
the twenties. From 1923 to 1929, outlays of
the type that absorb capital funds averaged
more than $15 billions a year. Allowing for
the increase in population as well as for
technological advances that have taken place
in the last decade, it would appear that
comparable outlays today to insure reason­
ably full employment would have to be more
than $18 billions a year, provided there is no
material change in the present division of the
national income between consumption and
new investment. According to our past
experience, we must have a continuous annual
flow of all of our savings accumulations into
all kinds of capital outlays. This has required
a continuous growth of new investment in
new undertakings, both public and private.
For the year 1938, according to our esti­
mates, the total of private capital outlays
was about $8 billions. It reached a low point
of $2| billions in 1932, but by 1935 it had
recovered to approximately $10 billions, and
by 1937 to about $11 billions. In addition,
in 1937 there was an increase in business
inventories of some $4 billions. While the
increased inventory accumulation had the


Harvard Business School Alumni Bulletin

same effect on employment as a similar amount
of capital outlays would have had, the effect
was only temporary because, as we saw, new
demand in the next year was met out of
inventories, production was retarded, and
employment declined.
The question today is whether we can
restore the volume of private capital outlays
to a point sufficient to absorb unemployment
as has been the case in the past, and if not,
what alternatives confront us. In other
words, in order to maintain a flow of funds
into new capital outlays in sufficient volume
to provide full employment, we must either
have new private capital outlays of approxi­
mately $18 billions, or we must have a com­
bination of private and public outlays of this
amount, or we must increase the proportion
of our national income that goes into con­
sumption by an amount equal to the reduc­
tion in private and public investment. Unless
we follow one of these courses, we face a
decline in production and employment and
hence in national income and our standard of
Our business leaders, if we are to judge
by typical speeches, publications and resolu­
tions, believe that the problem can be met by
increasing investment in private channels and
that failure to achieve an adequate rateof new
private investment is due entirely to a
variety of so-called deterrents, chiefly in the
field of taxation and Government regulation.
They seem to think that if these deterrents
were removed, there would be a flow of
capital into new enterprise that would largely
absorb unemployed men and idle funds. I
wish that I, as a business man and banker,
could persuade myself that this is a correct
analysis. I do not want to be understood as
saying, however, that there are no deterrents
of this character.
The question I want to raise is whether,
even though we should eliminate all of the
deterrents that business men usually talk
about, we would have made substantial
progress towards the goal of full employment.

It is my belief that these factors, important
though they are to individual business men,
are relatively unimportant, viewing the
economy as a whole, and that our fundamental
problems lie much deeper. I cannot believe
that our problems can be adequately met
simply by the removal of these supposed
The chief complaints most frequently cited
in typical speeches and resolutions of business
men and business organizations may be fairly
summarised, I think, as calling for:
Removal of tax deterrents which discour­
age investment;
Abandonment of unwise public spending
Modification of laws relating to the issuing
and marketing of private securities;
Discontinuance of Government competi­
tion with private enterprise.
As to the question of taxes, I believe that
our tax system, local and national, is as much
of a crasy quilt as our banking system. Both
reflect a planless, piecemeal growth by various
authorities over a long period of years, with
little or no regard for the economic and social
effects. Both urgently need a complete over­
hauling directed toward simplification, coor­
dination and avoidance of duplication. Both
require that we agree upon objectives to be
pursued by public authorities in the light of
changing economic conditions.
As to tax deterrents, I, too, should like to
remove those taxes that are discouraging new
investment. On several occasions I have
expressed my view that corporation taxes
should be simplified; that greater latitude
should be allowed businesses in carrying
forward losses and that capital losses should
be deductible from business operating earn­
ings; that we should permit consolidated
returns for corporations; that we should
abolish tax-exempt securities; that our estate
tax system should be improved by reducing
exemptions and opportunities for avoidance;
that the rates in the middle income brackets
should be increased — that is, on incomes of

July , 1939
from three to fifty thousand dollars a year;
and that the base of the income tax should
also be broadened by reducing exemptions.
However, in my judgment, the most
important tax deterrents on business activity
are those taxes which bear directly on con­
sumption. And, therefore, the most impor­
tant tax reform would be to reduce consump­
tion taxes, which are, including Federal and
State, about $3 billions more now than in
1929. This would increase the purchasing
power of consumers and stimulate the markets
for business and industry. Such a reduction
in taxes should be made up — since I think
no one will argue that we should reduce
revenue — by taxes that will fall in large
part on those individuals and corporations
whose incomes tend to increase the already
large volume of idle funds.
It is beyond dispute, I think, that con­
sumption taxes fall too heavily on the great
masses of our people. A recent round table
group, gathered together by Fortune maga­
zine, all agreed that the present tax system
bears too heavily on the lower income groups
because of excise and sales taxes. Various
studies that have been made by the Brookings
Institution, the National Resources Commit­
tee, and other groups, all indicate that the
great majority of our people at the bottom of
the income scale would consume far more if
they had the purchasing power. It is not
among these people that idle funds accumu­
late, but in the numerically smaller groups,
less than ten per cent of the population,
whose income taxes are low relative to the
British scale and that prevailing in most
other countries.
The tax revisions I have outlined would
tend to stimulate consumer buying power,
and thus require production of more goods
which, in turn, would mean greater employ­
ment, and as the capacity of existing plant
was reached, would open the way for using
otherwise idle funds for investment in new
productive facilities. To my mind, this is the
sort of tax program we need at this time. It

would be both economically sound and
socially equitable.
There has recently been brought to my
attention a compilation of the balance sheets
of 133 companies. The cash holdings of this
group increased from the middle of 1937 to the
end of 1938 by $174 millions, or by 56 per
cent. This was money withdrawn from the
income stream — money paid in by consum­
ers but not passed back to them in wages,
dividends or lower prices. I am not for a
moment questioning the right of corporate
executives to increase or decrease their cash
holdings at will, but we must recognise that
when great sums are withdrawn in this or
other ways from the income stream, it inevit­
ably means a slowing down unless it is offset
through outlays by other businesses or by
having the Government take up the slack.
A reasoned appraisal of our economic
situation compels me to warn against the
illusion that the reduction of taxes that fall
on us as business men would solve our funda­
mental problem of idle men, and idle money.
On the contrary, the requirements of a
sounder and more stable economy will, in my
opinion, call on us in our own interest to
provide relatively more rather than less of
the total tax revenue as a means of maintain­
ing and increasing consumption and thus of
preserving existing investment and paving
the way for new investment by providing a
profitable outlet.
What we, as business men, should be
interested in is what we have left over after
our taxes are paid. We are far better off with
high taxes and high incomes than with low
taxes and low incomes. For example, national
income increased from less than $40 billions
in 1932 to approximately $70 billions in 1937.
Tax receipts of the Federal Government
increased from about $2 billions for the fiscal
year ending June 30, 1933, to about $6 bil­
lions for the fiscal year ending June 30,1938.
The country paid about $4 billions more in
taxes but it had $30 billions more of income
a year out of which to make these payments.


Harvard Business School Alumni Bulletin

I leave it to you to decide which level of
income and taxes you would prefer.
We are all familiar with frequent speeches
and resolutions against unwise public spend­
ing policies. We all agree, I am sure, that in
the expenditure of public funds there should
be neither favoritism nor politics, and that
the Government should carry out efficiently
such socially and economically desirable
enterprises as would not be undertaken by
private business.
Where all of us encounter sharp differences
is when we get down to deciding what are
wise and what are unwise spending policies.
What the Government expends for roads is
not considered unwise spending by automo­
bile manufacturers, for instance. Bankers who
came to the RFC for help in the worst of the
depression did not think it was unwise to
have the Government borrow and lend them
many hundreds of millions. Agricultural
benefits are not regarded as unwise by the
farm groups who receive the benefits. The
veterans do not think payments to them —
and this is one of the major items in the
budget — are unwise. You do not hear the
munitions makers calling expenditures for
armaments unwise.
Recent Gallup polls reflect a large majority
opinion against spending in general by the
Government, but when it comes to deter­
mining just where the public would reduce
spending, there are actually majorities of 81
per cent against reducing expenditures for
armament, 86 per cent are in favor of an
adequate old-age pension, and 62 per cent
favor a continuation of the present farm bene­
fits. Some 69 per cent favor reducing the
ordinary operating expenses of the Govern­
ment, but this is a relatively small item and it
has not materially increased in the last ten
years. Small majorities favored a ten per
cent cut in relief and public works, but there
was a majority for work relief in preference
to the dole, notwithstanding the fact that
work relief is far more expensive. You are
aware of the many pressure groups which,

while assailing the unbalance of the budget,
nevertheless seek special bounties for them­
selves, and you have seen the contrast pre­
sented in the political arena between oratory
and actual votes. Unwise spending seems to
be spending for the other fellow.
To my mind, a policy of Government
expenditure and investment does not become
dangerous in an economic sense until the
point is reached at which Government is
competing with private industry for men
and materials, and demand has reached a point
where prices are being forced up and a general
inflationary condition is threatened. We are
far removed from that danger at present, and
whatever other deterrents to recovery may
exist, all the evidence shows that public
spending and investment in general have
supplemented and stimulated private activity.
By all means, let us modify laws that inter­
fere with the marketing of private securities,
if there is unwise interference. But this
again is a generality. That there should be
much complaint from the brokerage commun­
ity and investment bankers is to be expected,
viewed in the light of the great reduction in
security trading and capital issues. But I see
no prospect or public demand for a return to
the unsound security operations of the late
twenties, and certainly no reasonable man
supposes that the public would tolerate a
return of the security affiliates of banks and
removal of the safeguards created by the
setting up of the Securities and Exchange
Commission. Regulation of the exchanges
and of the issuance of securities as a necessary
protection of investors is here to stay.
Constructive changes have, of course, been
made and will undoubtedly continue to be
made in legislation as well as in regulatory
rules and operations. I took some part in
the amendment of banking regulations to
permit the banks to purchase securities of
small corporations and to do away with the
requirement that only registered securities
listed on the stock exchanges and having
ready marketability were eligible for the

July , 1939
investment portfolios of banks. Likewise, I
had something to do with the Banking Act of
1935, which, in effect, makes any sound asset,
regardless of maturity, eligible for borrowing
at the Federal Reserve banks, so that banks
would not be hampered by rules of technical
eligibility and short maturity in their lending
functions. I have also given considerable
time and thought to possible measures to
improve the mechanisms to facilitate the flow
o f private funds into small and medium-sised
business concerns which need loan or equity
As a matter of fact, a substantial volume
of new and refunding issues, amounting to
more than $6 billions, were sold in the capital
market in 1936 — and this notwithstand­
ing the supposed deterrents created by the
regulatory laws, or, for that matter, by the
undistributed profits tax. All of the so-called
deterrents were present during that year,
which was also the year of the greatest
Government deficit. Yet business was better
and profits were larger than at any time
since 1929.
With reference to Government’s competing
with private business, I have repeatedly con­
tended that for the Government to do so is a
deterrent. Yet, let us look at this complaint
realistically. When it is brought out of the
realm of generality and reduced to specific
terms, the complaint is confined almost
•entirely to the power industry.
I agree that it is unwise public policy for
the Government to go into the utility field
in competition with private capital. I recog­
nise, however, that some of the worst finan­
cial abuses occurred in this field in the
twenties and that public revulsion demanded
a house cleaning and a reduction of excessive
rates that were imposed by many companies
to support inflated financial structures. The
threat of an extension of competition by the
Government and by various municipalities
served to bring about a justifiable reduction
in rates which was a big help to millions of

With this accomplished and real progress
being made in reducing the inflated capital
structures to a sounder basis, there is no
further justification for or, so far as I know,
intention of further Government competition
in this field. What was done to correct
abuses in this area was also the result of an
insistent public demand that was successful,
notwithstanding the most insidious organised
propaganda we have ever witnessed.
So far as the electric power industry is
concerned, there was a generous margin of
excess capacity up until the latter part of
1936. In that year capital expenditures of
the power companies, which had dwindled
to almost nothing in the depth of the depres­
sion, amounted to some $250 millions, and
in 1937, as the need for additional capacity
began to make itself felt, these outlays
increased to $425 millions. If we can succeed
in increasing national income and industrial
activity, a further expansion of capital out­
lays for plant and equipment may reasonably
be anticipated. Under the most favorable
circumstances, however, such investment is
not likely to exceed the $800 to $900 millions
a year reached in the late twenties when the
industry was experiencing the period of its
most rapid growth. That is, we cannot, at
the outside, look for an annual expenditure of
more than $400 millions above the 1937 level.
Now, this additional outlay, desirable as it
would be, would not make much of a dent on
the billions of capital which need to be
invested in new enterprise in order to reduce
unemployment substantially.
I am convinced that in this industry, as in
many others, including the railroads, we are
dealing with what essentially are depression
problems and that the difficulty is not so
much that deterrents exist, at least to the
extent so often alleged, but rather that we do
not have adequate demand, at the present
levels of national income, that would make
profitable large new investments for addi­
tional output or services.
I have mentioned the major complaints as


Harvard Business School Alumni Bulletin

to supposed deterrents and expressed my
personal views with reference to them, seek­
ing to put them in correct perspective as I
see them. It leads me to the conclusion that
we must look much deeper into our economic
structure today for the underlying forces that
are holding back further recovery.
We can all agree, I think, upon the simple
economic truth that to maintain and increase
our standard of living and our national income,
and hence to reduce unemployment, we must
have a continuous, increasing flow of money
throughout our economy from consumers to
producers and back again from producers to
consumers. This means that we cannot with­
draw and hold idle large sums of our annual
income because to do so obviously diminishes
the flow. Thus, the amounts that we put
aside in our savings accounts, insurance
policies, in retained profits, in depreciation,
obsolescence and depletion reserves, and in
all other forms of storing up for the future,
must be put back into the income stream, if
not by the savers themselves through invest­
ments, then by borrowers who will put the
money to use. When this process does not
take place, deflation is inevitable and the
Government as a coordinator, through its
fiscal, monetary and other policies, must take
measures to restore and maintain the income
We hear it said continually that there is an
absence of risk or venture capital willing to
go into new enterprise. I do not think there
is an absence of the capital, but there undoubt­
edly is an unwillingness to assume the risk.
I think that this may be due in part, but only
in relatively small part, to the fact that the
entrepreneur who is in the upper income
brackets feels that he is as well off buying
tax-exempt bonds as he would be in venturing
his money in some new business. I am con­
vinced, however, that if markets existed for
additional products of existing enterprise, or
if new markets were in sight calling for addi­
tions to existing enterprise, or if new inven­
tions were at hand for which a demand

would probably develop, there would be no
lack of risk capital willing to undertake the
necessary investment.
In this connection, I should like to remind
you of the experience of the distilling, brew­
ing and airplane industries, which have had
little difficulty in recent years in raising capi­
tal for expansion in spite of all the supposed
deterrents to the flow of capital into enter­
prise. For example, in 1938-39, airplane
companies have sold common stock at rela­
tively high price earnings ratios. One air­
plane company recently sold $3,500,000 of
common stock at forty-six times its per share
earnings in the record airplane year of 1938.
There are other industries, notably the auto­
mobile companies, whose earnings have been
large and which have added substantially to
their cash holdings during the past year, in
spite of a large increase in their volume of
business. Hence, in the case of these indus­
tries it cannot be said that lack of ability to
get capital or lack of profits are deterrents.
What has held them back from capital
expansion is the adequacy of existing facilities
to meet all present and anticipated consumer
I have no basis for hoping that the special
incentives or the removal of the deterrents
indicated by business interests would be
sufficient to put our economic machine in
high gear. Historically, new investment has
always led the way in our economic progress.
The forward thrusts of new capital adventur­
ing have not been steady but sporadic, and
in the interludes, periods of relative stagna­
tion, men have become discouraged and con­
cluded that the era of expansion was over.
The turn of the century marked a change
in the character of our economic development.
The western frontier had largely disappeared,
and there were no more free lands to be had
for the asking. America was beginning to
come of age. I am sure that a gradual read­
justment to the new conditions would have
been necessary and would have occurred
beginning at that time had our normal

July, 1939
development not been abruptly interrupted
by the World War which resulted in an
unlimited demand for certain kinds of goods
and which left us with an aftermath of dislocations.
Incidentally, the war resulted in a suspension of private building which led to an
enormous volume of housing activity in the
twenties. This volume of building, together
with the phenomenal expansion of the auto­
mobile industry, constituted the principal
basis of our prosperity in that decade. Addi­
tional factors were a large volume of foreign
loans, which in many cases subsequently
defaulted, but in the meantime created
foreign purchasing power for our products.
There was also a large expansion in the
utility industry, and in many collateral
activities producing the material for build­
ing, for automobiles and for electric equip­
ment. There was also a large growth of con­
sumer credit and a siphoning of funds into
luxury consumption through profits made in
security speculation. Also, States and munici­
palities, which provided an outlet for invest­
ment funds of nearly a billion dollars a year
in the twenties have been reducing their debt
since 1932 and thus increasing the supply of
funds that need to be invested.
The problem today is to survey the possi­
bilities of new fields of investment that may
be open for capital at the present time. I
hardly need say to this audience that we have
excess capacity in almost every existing indus­
try of which I can think. I know of no
quicker way to become unpopular with my
business friends than to suggest, for example,
that we ought to build more textile mills,
more sugar factories, more lumber plants;
that we should drill more oil wells, add to
our canning plants, our automobile factories,
our steel mills, and office buildings. You can
go on down through the list and every time
you mention a business in which someone
present has his money invested or in which
he is employed, he holds up his hands in
horror and says, “ No, we do not need more

plant capacity. We have too much now.” I
would rather state it in different terms and
say we do not have too much plant capacity,
but we do have inadequate markets for the
products of our present plant.
We hear it said that there is a great backlog
of deferred investment in industry, but as a
matter of fact, there has been a considerable
volume of investment in recent years, and
industry has been putting on the market
many new products. The actual volume of
private investment for plant and equipment
reached a level in 1937 as high as in 1923 and
1924, and within a billion dollars a year of
the 1925-28 average. In 1937, according to
the estimates of our research division, plant
and equipment expenditures on new durable
producers’ goods aggregated $7.4 billions.
O f this, $3 billions was in manufacturing and
mining — an amount greater than like expend'
itures in 1927 or 1928. Where there was the
greatest difference — the largest decline of
investment in 1937 as compared with the
1926-28 average — was, first, in commercial
buildings, and, second, in the utility field
and, to a lesser degree, in railroads. Expendi­
tures on commercial buildings averaged
$1,188,000,000 for the years 1926 to 1928,
both inclusive. The figure was only $367/
000,000 in 1937. We have only to recall the
speculation in this field in the late twenties
to answer the question of whether there is an
outlet here today for funds comparable to
the twenties.
As we look about us today, the most
promising fields in which to put idle men,
money and materials to work are housing,
railroads, and to a lesser degree, the utilities.
These are the fields in which the depression
struck deepest and the unemployment was
greatest. I believe we could do much in all
three fields.
Some plan for rehabilitating the railroad
industry and for making it feasible and profit­
able for the railroads to purchase equipment
which they are sure to need in the future
should be developed.


Harvard Business School Alumni Bulletin

As to housing, a great deal has been done
in the past few years to get private capital
moving more actively into this field, partic­
ularly through FHA insured mortgages.
Housing is the one factor that registered an
upward turn on the business chart when all
other indices were diving downward in 1938.
I think it would be possible to lower interest
rates from the present level another one-half
or possibly one per cent, and thus tap another
strata of potential home owners.
Residential building was at an unprecedentedly low level through the early and
middle thirties. This was primarily a result
of depression, but the lower rate of popula­
tion growth also reduced the accumulating
pressure on housing accommodation as com­
pared with earlier periods. I think we have
by now built up a backlog of housing demand
which, if we can keep national income at a
fairly high level, should give us an increasing
volume of building activity for several years
to come. As we look ahead, however, we can
no longer count on the pressure of rapidly
increasing population to surmount all obsta­
cles in the building field. Increasingly the
problem will become one of tapping lower
strata of demand through the provision of
lower cost housing.
As for the utilities, I think they ought by
now to feel fairly well assured that they have
a future under private ownership and need
not be deterred from needed expansion of
their plant.
But when we add up all the amounts we
could possibly hope to expend under the
most favorable conditions in these three fields
of private housing, railroads and electric
power, we come out with a figure of between
$5 and $6 billions, which is small in relation
to the magnitude of funds that have to find
outlets for investment under the present dis­
tribution of the national income if we are to
achieve full employment.
With the slower tempo of our national
growth, and being now a creditor and not a
debtor nation in need of capital, we must

devise means to enlarge the domestic market
for our products. To do this we need a better
balanced distribution of our national income,
which in turn involves the steady channeling
of additional funds into the hands of those
at the lower end of our income scale.
I have already indicated in an earlier part
of my talk the kind of revision in our tax
system that would seem to me to be necessary
in order to increase the funds in the hands
of consumers and to diminish the problem of
finding investment outlets for accumulating
funds. In some countries, as in England, this
has been done, and the flow of income there
is maintained with a smaller volume of
investment, because a larger proportion of
the income has been diverted to consumers
through much higher income taxes on the
groups with incomes from $2,000 to $50,000,
and through adequate old-age pensions,
unemployment insurance and other social
Perhaps the most important single step
that can be taken now to increase the pur­
chasing power of consumers and thus to
diminish the need for investment outlets is to
revamp our present old-age insurance pro­
gram. Under this plan by the end of th.'s year
it is estimated that there will have been
collected from payroll taxes $1.7 billions, this
burden falling almost entirely on consumers,
whereas practically nothing has been paid
out in benefits. It is so constructed as to
collect taxes from young men now with a
view to taking care of them when they
become old. This system needs to be so
revised as to provide a reasonable pension
to old people immediately, regardless of
whether or not they have contributed to the
fund. This would not only meet a great
social need and popular demand, but would
also be a sound economic measure at this
stage in our economic life.
The present plan is operating as a gigantic
saving device at a time when there is a sur­
feit of saving; it is decreasing consumption
when we have inadequate consumer buying

July , 1939
power. It would be appropriate to a capitalpoor country where a curtailment of con­
sumption was necessary in order to divert
more resources into the making of plant and
equipment. It has no possible economic
justification, however, in our capital-rich,
consumption-poor economy.
Payroll taxes in England amount only to
60 per cent of old-age pensions, the remainder
being financed out of general revenues.
Through the stimulation of consumption,
England has been able to sustain a high level
of activity with less capital expenditures than
In order to provide for the maximum possi­
ble elasticity in our economy so that there
will be no obstructions to the income flow,
we must find means of controlling monopolis­
tic and other uneconomic practices both by
industry and by labor.
The policies of many of our large industries
to meet a decline in demand by radical cur­
tailment of output, while leaving prices at
high levels, result in accentuating depres­
sions. On the other hand, rapid price
advances at the first indications of the return
of a lively demand tend to bring an upswing
in business to an end. These policies tend to
create maladjustment between industrial and
agricultural prices, which in turn have a
seriously disturbing effect on the whole
economy. Better planning of production and
price policies by business concerns with ref­
erence to more than the short-time garner­
ing of profits would do much to reduce
violent fluctuations in business.
I want to take this occasion to explain
more fully my position on labor. M y sym­
pathies are all with the real interests of labor.
I fully realise the importance both from the
social and the economic point of view of hav­
ing continuous employment of labor at as
high a real wage as the national income will
permit. In fact, full employment and ade­
quate consumer buying power (and surely
that includes labor) is the central objective
toward which our national economic policy

should be directed. But the first requirement
for a satisfactory labor policy is responsible
and not conflicting leadership of labor itself.
Furthermore, wage advances must n general
correspond to and be paid out of increased
productivity of labor. It is obvious from an
economic point of view that there is no other
continuous source out of which increased
labor costs can be met. Monopolistic advan­
tages and practices of certain minority labor
groups, such as the organised building trades,
are at times an important disrupting influence
in our economy. In the spring of 1937, for
example, an important factor in arresting the
economic recovery which was under way was
the shortage of certain kinds of skilled labor
and excessive labor and material costs in the
construction industry.
Premature advances in hourly or daily
wage rates and excessive reductions in hours
of labor of minority labor groups, having
strategic trading advantages derived largely
from restrictive practices in regard to union
membership and the training of apprentices,
are not in the lasting interests of labor. They
result in a decrease in employment and a loss
of annual income which is far more important
than hourly wage rates. Furthermore, they
fall heavily in increased costs on the great
mass of industrial labor that is not so favor­
ably situated and on agricultural workers.
Most important of all, however, is that these
labor-cost maladjustments tend to arrest eco­
nomic recovery with grave consequences to
all the elements of the population. Rational,
far-sighted labor policies and responsible labor
leadership are necessary in the interests of
labor itself and of continuous economic ad­
vance for the nation as a whole.
I have given much thought and study to
the analysis which I have presented to you. I
come out with the firm conviction that, in
order to keep up the flow of income and pre­
vent the progress of our economy from being
arrested, we must adopt — in addition to the
various measures and proposals that I have
outlined — a program, on the one hand, of


Harvard Business School Alumni Bulletin

increasing consumptionrelative to thenational
income through the development of old age
pensions, health and other social services and,
on the other hand, of undertaking increased
public investment in useful enterprises of a
kind that private capital will not undertake,
but which, nevertheless, can be in large
part self-liquidating. Such public investment
could take the form of toll roads, tunnels and
bridges; rural rehabilitation and farm tenancy
loans, especially in the South, to make our
farmers independent and self-supporting; an
extension of the rural electrification program;
hospitals and sanitation facilities to reduce
the appalling economic waste of sickness and
to make our people healthier and more effi­
cient; and expansion of public housing for the
lowest income groups. Such a program need
not involve budgetary deficits; it is entirely
consistent with a balanced budget. In fact,
I can see no prospect for balancing the budget
in the near future except by following this
general course of action which would increase
national income and consequently increase
tax revenues.
The two groups in the community which
have the greatest stake in raising the national
income above the present level are at the
opposite ends of the income scale — stock­
holders and the unemployed. In 1935 the net
profits of all corporations amounted to only
$1,700,000,000. In 1936, however, they
jumped to $3,900,000,000. Hence, business
and the unemployed have a greater stake in

the last ten or fifteen-billion increase in the
national income than any other group.
I recognise that you may not accept as con­
clusive either my statistics or my analysis.
It may be, of course, that an epoch-making
discovery is just around the corner that will
result in a greatly increased flow of invest­
ment. It may even be that private capital will
suddenly and spontaneously begin to flow in
greater volume than it ever has before. I
feel strongly, however, that even if that
should happen, the only safe course for the
nation to pursue is, while hoping for the best,
to plan for the worst. There is nothing to be
lost by this course of action. If it should
develop that our labor is practically all
employed, our income restored, and Govern­
ment is competing with private business for
labor, then the Government could and should
promptly curtail its investment operations.
There will be nothing lost. Whereas, if we
drift and hope for miracles to pull us out of
the present condition, then it will become
increasingly difficult to handle the problem.
What is at stake is nothing less than our
economic, and political system. We must not
take chances on delaying action too long.
We need a concrete and flexible program that
can be put into effect promptly. Let us hope
for the best, but for the sake of preserving
our liberty and our freedom of economic
enterprise, let us be prepared to grapple
with the worst.


It is a distinct pleasure to be back once
again in the friendly surroundings of the
Business School with which I have such
delightful associations.
Yet my memory takes me back to some
particularly embarrassing questions over a
series of years when I was presenting a prob­
lem in plant location to some of your classes.
Today I have the same feeling of inadequacy
in making out a case for the manufacturer
before men who have enjoyed greater privi­
leges than I in delving into the science of
management. But at least the spirit is willing,
and under these circumstances I am impelled
by the spirit of free enterprise to express my
individuality on my own initiative.
Today this nation finds itself still in the
throes of depression. Industry looks at the
business index and wonders when the curve
will rise. Industry looks abroad and wonders
how other nations manage to achieve a
measure of recovery.
The most recent figures from the League of
Nations show just how far this progress
abroad has gone, how far our own recession
has lagged.
In February, 1939, for example, the League
reported that the United States industrial
production index for goods for current Con­
sumption is the lowest of the ten reporting
countries. Latvia stands first, then Finland,
Denmark, Sweden, Esthonia, the Nether­
lands, Norway, Germany and Poland. Last of
all comes the United States. Here is the
picture, and it is not a cheerful one. It shows
this nation — with the richest and most
abundant natural resources in the entire
world — completely helpless in the face of
Recovery, today, is the big question.
Wars and war scares may threaten our future
and thereby jeopardize our present. 1940
with its bugaboo of election year may loom
large on the horison, and wave the red flag

of delayed recovery. But America is more
concerned about recovery than about wars
or elections. People are talking more about
economics than any other subject. They are
concerned about this ten-year depression
which has been the longest and most severe in
all our history. They are dissatisfied because
recovery has not
come. They are mys­
tified that it has not.
We have listened
to many expressions
on economics. We
have heard a lot of
complicated theo­
ries explaining the
simple fact that the
nation is in the
midst of a depresh o w a r d c o o n le y
sion. But let us face
the facts as we find them.
We have the money — billions are idle in
our banks. We have the man-power — ten
million men are unemployed. We have the
same boundless natural resources we had back
in 1929. We have pent-up consumer demands
and obsolescence in plants to satisfy. We have
scientific knowledge to serve us as never
Business men today are working to be
constructive on a nation-wide basis. Per­
haps we are brash to express ourselves.
Probably there is no place for business men
to raise their voices with suggestions to the
Government. But we are vocal; anyway, and
we will continue to be so.
We have a realisation of the problems that
face us. We are less inclined to criticise
present conditions, and more inclined to plan
for recovery.
Now, in discussing recovery through the
processes of capital formation and a revival in
the production of capital goods, emphasis is
too frequently laid on the deficiencies of


Harvard Business School Alumni Bulletin

banking, both commercial and investment,
and not on the real problem. The real prob­
lem is not a lack of capital or credit but a
lack of demand on the part of the enterpriser
for the capital and credit to use in forwardlooking enterprise. This lack of demand
arises from the lack of opportunity to use
capital and credit constructively and at a
profit. This lack of opportunity is caused:
First, by artificially high costs, raised
more rapidly than the country can assimilate
the changes. These increases in costs arise
primarily from rapid increase in taxation,
from arbitrarily shortened hours with corre­
sponding increases in hourly wage rates, and
therefore all labor costs, from rapid increase
in collateral production costs such as the
Social Security tax and some of the interfer­
ences with the normal operation of business,
such as those occurring through the Wage
and Hour Act, in the Walsh-Healey Govern­
ment Contracts Act, the National Labor
Relations Act and a number of others which
are just so many snags over which the feet
of the enterpriser must find his way.
Second, this lack of opportunity is caused
by the economic urge to reduce prices in the
face of rising costs so as to prevent a reaction
on the part of the general public against the
increasing cost of living which is generated
by some of the impractical and imprudent
public policies to which we have referred.
Third, it is caused by the penetration of
Government agencies into fields heretofore
occupied by private enterprise, thereby
destroying the confidence not only of those
who are directly affected but also of those
engaged in business generally. For the com­
petition of government inevitably creates
doubt as to the possibilities of the future o f
any industry.
Federal spend ng in the last decade was
sufficient to buy the assets of all manufactur­
ing corporations and all mines and quarries
in the United States and still have six
billions — not millions — left over as operat­
ing capital.

New courthouses, parks, swimming pools
and monuments — in some cases desirable,
but only in a very few imperative — are cer­
tainly not income-producing. They really
produce further expense, further taxpayers’
liabilities to keep them up. Such expendi­
tures create no real expansion of enterprise
and permanent employment today when
these things are so badly needed.
Let us look at the facts on pump-priming.
Out of every borrowed dollar spent on
pump priming, only 64 cents is reflected in
real income received by the people of the
United States in the form of goods and serv­
ices, according to the National Industrial
Conference Board. Such spending, we have
seen, is not the spending that creates produc­
tive work. Actually, while pump priming in
theory increases national income and, as a
result, tax revenues, during the last five years
of the Government’s efforts we have increased
our national debt by $14,000,000,000 and our
national income has increased only $9,000,000,000.
Compared with the results of investments
in public works, the following figures,1 show­
ing the actual results of a plant investment
of $100,000, are significant and illustrative of
a most important point:
With a plant investment of $100,000, an
average company would employ 150 men and
provide them with an annual pay roll of
$200,000. This would give, directly and
indirectly, support for 1,000 people who
would maintain a dosen stores with an annual
expenditure in trade of $1,000,000. The com­
pany would also mean the sales and service on
200 automobiles, the use of a ten room schoolhouse and 200 homes. Opportunity for one
dozen professional men would be provided.
The company would pay $60,000 annually to
the railroads, provide an outlet for the prod­
ucts of 8,000 acres of land, and the total
investment would represent a taxable valua­
tion of $1,000,000.
1 Source: “The Retention and Development of Indus­
try in Minnesota," 1938.

July , 1939
This is the significance of American
industry — its value to the community in
which it operates.
Taking up for a moment the question of
idle capital, if the TNEC really wants to
find out what is causing the stagnation of
industrial capital, they will have to restore
to their program of hearings, witnesses on
the operation of the Securities Act of 1933
and the Securities and Exchange Act of 1934.
The fullest testimony of outstanding experts
in this field, regardless of their viewpoint, is
important and proper. In the too stringent
provisions of these two acts will be found
much of the log jam of capital formation.
Senator O’Mahoney, Chairman of the
TNEC, has made an admirable statement of
the purposes of the Committee when he said
they would “collect and analyse, through the
medium of reports and public hearings,
available facts . . . in an objective, unbiased,
and dispassionate manner. . . . It is the pur'
pose of the Committee to pursue its work
solely from this point of view.”
Let us trust that there will not be omitted
in the hearings any phase that will develop
facts to support this objective of finding out
why capital is not invested. Because, summed
up and minus the frills, our entire problem is
that we pay lip service to the profit system
while we seek to make it profitless; even more
succinctly, we are trying to run a capitalistic
system without capital.
Now Secretary Hopkins in his famous Des
Moines address said: “Lack of business confix
dence is and has been a hard, stubborn fact,
and may be as real a deterrent to restored
business health as any we have to deal
with. . . .”
Later in the same address he stated: “ It is
not surprising that business confidence has
been affected by the events of the past
decade. . . . The legislative reforms and new
government activities . . . are famongj the
many reasons why many people have lost
their confidence.”
No modification or repeal of a single legis'

lative enactment will restore confidence and
bring recovery. What is needed above all
else is a clear, definite and unequivocal recog'
nition by both administrative and legislative
branches of the national government that:
The private enterprise system is the funda'
mental basis of our future prosperity and
progress, and that it must, therefore, be pre^
served, protected and encouraged.
While government regulation under present'day conditions is undoubtedly necessary,
government control will eventually destroy
private enterprise.
Investors, large and small, must be encour'
aged to put their savings into private enter'
prise by giving them an opportunity for a
return commensurate with the risk involved.
Under our Constitution, government is,
after all, the servant of the people. As ser'
vant, its attitude should be helpful and
cooperative. Its efforts should be to bring
unity of action and purpose to preserve indi'
vidual initiative, freedom of speech and
freedom of action.
Now along with this need for clarification
of Government attitude, we need clarification
of labor relations.
Labor relations today are disturbed because
of a National Labor Relations Act which
started on three false assumptions:
First, that conflicts between employers
and employees are inevitable.
Second, that employers are almost always
unfair to employees.
Third, that it is the duty of the Govern'
ment to take sides in disputes between em'
ployers and employees.
The National Labor Relations Act needs
revision in a number of major respects. While
it should protect the principle and practice
of collective bargaining whenever employees
determine freely that they wish it, it should
at the same time recognise the absolutely
voluntary and free right of employees to bar'
gain as they choose through their own volun'
tarily selected representatives.
It should recognise frankly that labor dis'


Harvard Business School Alumni Bulletin

putes are caused by unfair and improper
practices on the part of labor organizations
as well as employers. It should, therefore,
undertake to protect commerce against dis­
ruptions due to improper practices of em­
ployees and labor organizations as well as of
Definite safeguards also should be written
into the Act, to insure, insofar as Congress
can do so, impartial administration, equal
standing of all interested parties before the
Board, fair and deliberate proceedings, equal
right to production of witnesses and presen­
tation of evidence, prompt decisions, and
more adequate court review.
The closed shop and the check-off should
be prohibited. They are not in accord with
American principles of equal opportunity,
and permit a form of coercion against employees which is peculiarly objectionable because
it is done by arrangements in which the
employee is not even consulted.
The majority rule principle of the statute,
while superficially in accord with democratic
procedure, in fact deprives minorities of their
rights, and, because dependent upon Board
determination of the “ appropriate unit,” has
contributed greatly to industrial strife and
breaches in the ranks of organized labor.
The definition of employees, together with
the power of the Board to order reinstatement,
has resulted, as the Supreme Court described
it in the Fansteel Case, in a premium on
violence and disorder; the employer has been
compelled improperly to return to his plant,
and pay roll men who, through their own
unlawful conduct, have placed themselves
beyond and above the law. The definition
should be revised carefully. Neither employees nor labor organizations using unlawful
tactics should receive the benefits of the
National Labor Relations Act any more than
employers who use unlawful tactics.
There is no question that interpretations
of the Act by the Board have curtailed free­
dom of speech on the part of the employer in
his relations with his employees. While

theoretically an employer may have recourse
to the courts to protect this right, the prin­
ciple is so vital that an express statutory state­
ment is desirable.
Clarification of government’s attitude
toward business and revision of the National
Labor Relations Act are two vital steps
toward recovery.
Third is the complicated tax situation.
Regarding the reduction of government
spending, we believe that the ordinary
expenditures of government could be reduced
by at least 20 per cent.
While making no specific recommendations
for government economy at this time, we note
that Secretary Morgenthau‘is on record as
believing feasible economies which would
total $700,000,000.
In tax revision, we have specific sugges­
1. A five-year net loss carry-over should
be allowed to corporations in the determina­
tion of their taxable net income.
2. The combined capital stock and excess
profits taxes should be repealed.
3. The privilège of filing consolidated
returns should be allowed corporations in the
same manner as under the Federal law and its
administration from 1917 to 1934.
4. Intercorporate dividends should be
relieved from taxation.
5. Reduction of Federal surtax rates which
discourage investment of savings in private
6. All capital gains and losses of corpora­
tions should be treated as ordinary income
for the purpose of taxation.
7. Exemption of corporate dividends paid
to individuals from normal income tax since
this involves double taxation.
8. Abolition of undistributed earnings tax.
The revenue collected by all governmental
units— Federal, State and local — in 1938 is
estimated at 13 billion 700 million dollars.
The taxes paid last year were 40 per cent
more than in 1929 — our national income
22 per cent less.
Taxes in 1938 were 23 per cent of the
national income, as compared with 12 per

July, 1939
cent ten years ago. Had we met our full
spending bill in 1938, taxes would have
amounted to 28 per cent of the national
Interest charges today on the national
debt are 40 per cent larger than the total
Federal expenditures of 25 years ago.
The answer, to all this, gentlemen, is less
spending. Senator Byrd says:
The sooner the public generally and the
lawmakers in particular take a realistic view
of our problems, face with courage and forti­
tude the conditions which confront us, and
eliminate the waste and extravagance in
governmental expenditures, the sooner we
shall enjoy the kind of genuine prosperity
upon which the future depends, and to which
the people of this nation are entitled.
I agree with Senator Byrd’s statement.
Economy moves in government — State
and local — are possible. Tax-minded busi­
ness men in many sections of the country are
doing more than complaining about high
taxes and high government costs. They are
getting out in droves and actually reducing
them. How? By organizing taxpayers groups
and presenting their ideas to the local office
holders. Instead ofpraying for economy, they
are commanding it!
They know that tax cutting, like charity,
begins at home. They realize that State and
local governments take 57 per cent of the
taxpayer’s tax dollar. That is why they are
beginning in their own towns, in their cities,
in their counties, and in their States.
This movement will spread to the National
Government. And then we will see results!
Clarification, then, of the Government’s
attitude, of labor laws and revision of taxes
are the first three requisites.
Then how about clarification in defining
economic terms?
Stuart Chase, the noted economist, has
supplied Washington with a glossary of
“ selling terms”— words to avoid in selling
certain new and strange conceptions of gov­
ernment to the people. Should we be harsh
and call it the language of concealment?

The public, at least that part of it which
uses language to conceal, rather than to reveal,
is quick to pick up such practices. You know
we have been admonished to treat some part
of our government deficit as investment.
Certainly the Harvard Business School will
have to revise its methods of teaching assets
and liabilities if such practices are to be followed — if we are to credit our liabilities as
assets and vice versa. I saw an apt example
of this kind of thing several weeks ago in
New Orleans. A bookmaker had a sign over
his booth reading “ Turf Investments.” A
remarkable example of a wrong thought
carried to its logical and absurd conclusion!
Sometimes I feel we have tried to doll up
everything in newness to the extent that we
have lost sight of the old meanings of words
critically important to our economy. Often
different groups use the same words to mean
different things, and the confusion confounds.
Some, for example, think surplus is always
cash, also that depreciation is always a cash
fund available for reinvestment. But surplus,
in reality, is of two kinds — capital surplus
and earned surplus.
Capital surplus may be defined as the
excess of the net worth of a corporation over
and above the stated value of its capital stock
at the time of its organizations, or subsequent
restatement of the value of its capital stock.
Profits arising from transactions in capital
assets are frequently added to the net worth
through the capital surplus account.
Earned surplus may be defined as the resi­
due of profits arising from operations not dis­
tributed as dividends. The true assets of a
corporation are, in general, cash, receivables,
investments, inventories and property, plant
and equipment. They are offset generally by
current liabilities, funded debt, reserves, and
the stated value of capital stock and surplus.
The net worth may be defined as the sum
of the assets, less the current liabilities, funded
debt and reserves. In other words, net worth
is the sum of the capital stock and surplus.
The man on the street generally conceives


Harvard Business School Alumni Bulletin

of surplus as being in the form of cash. If
one is to classify assets against liabilities,
however, surplus must be classified with
capital stock as representing the net worth,
and may be said to be made up of the assets
which are the least liquid. This will be seen
readily if liquidation is undertaken when the
most liquid assets would be applied to the
payment of debts, namely current liabilities
and funded debt, and the residue left for the
capital and surplus.
Inasmuch as the capital is what the stock'
holders have contributed, it should be
deducted from the net worth in liquidation
before the remaining surplus is realized.
Therefore, in the final analysis, surplus may
be said to represent the least liquid and the
least available assets that a corporation owns.
A moment ago I mentioned that some
people think depreciation is always a cash
fund available for investment. Now prop'
erty, plant and equipment may be said to be
the physical facilities with which business is
carried on. The investment in these facilities
may properly be looked upon as a deferred
expense to be absorbed into cost over the
useful life of the facilities. In manufacturing,
this charge is generally called “ depreciation
accrual.” Depreciation accrual may therefore
be defined as the restoration to cash of the
investment made in facilities, but only to the
extent that the company operates without
loss after the accrual of these reserves.
It is obvious that if the sales value of the
products are not sufficient to absorb the cost
of production, including the depreciation
accrual, such accrual constitutes merely a
mark-down of the book value at which the
plant facilities are carried and not the restore
ation of such investment to cash. To the
extent that such accruals are earned, they
are, of course, available for reinvestment.
An eminent Harvard Business School
authority has made the statement that annual
depreciation accrual in American business
is sufficient to finance current replacements.
This same authority quotes the estimate of

the National Bureau of Economic Research
to the effect that the annual depreciation
accrual of American business is in the neigh'
borhood of five billion dollars a year. His
famous colleague at Harvard estimates capital
equipment of American business at about
two hundred billion dollars in value. It will
be seen that a five billion dollar depreciation
per annum would mean 2\ per cent of that
value. If this entire annual accrual were
available for reinvestment, and was thus rein'
vested, it would mean that the capital facili'
ties of the country as a whole would be
renewed once in forty years. Is this frequent
enough to keep capital equipment of the
country up'tO'date with technological prog'
From such limited experiences as I have
had, I could not conceive that this would
keep capital up-to-date, to say nothing of
keeping pace with technological progress.
Another recently coined definition of a
perfectly good word has popped up to plague
us — our thoughtless critics have even made
an unsavory adjective of the noun corpora'
tion. By the artifices of innuendo the term
corporation is given a sinister meaning. Such
is not the case. Corporate existence is an
underlying necessity of our industrial type of
civilisation. The corporate form of organize
tion is not only honorable but of far'reaching
value in distributing the ownership of wealth
among the population. It has been carried
on for hundreds of years as an essential and
highly desirable facility for business. Here,
as is often the case, glib tongues have endeav'
ored to interpret as normal to the whole of
business the evil practices of a few. The
resulting public misconception is one of the
major liabilities of the present economic situa'
tion. For high public regard of business is
indispensable to this much-talked-of thing
called confidence.
Another word that detractors have dis'
credited is the word “ capitalism.” That is an
old habit that started with Karl Marx, ninety
years ago. Because he did not like capitalism,

July , 1939


he wanted it supplanted by socialism. So, all by resources raised by the State through taxa­
that think as he does, many without declaring tion, or both. The theoretical assumption
their intention so bravely as he did, have was frequently advanced that Socialism
adopted his tactics of sneering at capitalism. requires no margin over production costs,
Even business men hesitate to use the which margin corresponds to the profit of
term capitalism nowadays. This is regret- capitalism. This theory has never been sus­
table, as it reflects the extent to which we can tained in any practical operation of the
be misguided into discrediting that which is Socialistic system. That is certainly some­
closest to our welfare — the successful oper- thing which should concern America today.
ation of capitalism.
So far in this discussion I have been pre­
What is capitalism?
senting a pretty dark picture. But it is not
Something thought up by rich men to quite as dark as I may have made it out to be.
harass the poor? The demagogue says as There are numerous hopeful signs on the dis­
tant horizon.
Capitalism is merely a natural growth arisOne of these is evidence of reviving belief
ing from human experiences.
in the American system of free enterprise —
No one said, “ Let us have capitalism.” In the flame of faith may be feeble, but it is
their everyday lives, people found the neces­ burning!
sity for the practices of capitalism, which are,
And there are other hopeful signs, some,
in fact, nothing more or less than the produc­ for example, that point to an eventual decrease
tion and distribution of the things required in government spending:
by the people through the use of property
1. All national polls of opinion reflect an
overwhelming dissatisfaction with continued
owned and controlled by individuals.
The property required for the production spending. A recent nationwide poll, made for
the National Association of Manufacturers
and distribution of the necessities of the
by Elmo Roper, shows 58 per cent of those
people can be acquired by individuals only questioned opposed to increased spending.
through the processes of saving and invest­ Only six per cent favored increased spending.
2. Congress begins to reflect this public
ment. These are of two kinds: the savings of
existing business whi;h are reinvested in sentiment, and seems definitely less inclined
to satisfy the appetites of pressure groups.
additional facilities, and the savings of indi­
This will lead eventually to economy.
viduals from their own incomes invested, in
3. Government departments plan some tax
turn, in business.
revisions, which, while not broad, indicate
In order to obtain these savings, profits an attitude of business encouragement.
4. Not a tax-cut but a lightening of impend­
are essential first to make possible the savings
of business and, second, to make possible a ing burdens is reflected in the movement to
keep the Social Security payroll tax at one
return on the investments of individuals in per cent, saving industry and labor 150
business which will encourage and stimulate million dollars a year.
their creation.
5. Economy will come slower than spend­
It will be seen, therefore, that capitalism ing came, and while retrenchment may not
is inseparable from profit. The only alterna­ be marked or immediate there is a cessation
of new debt-creating ideas that indicate the
tive, after all, is some form of collectivism, flood tide has been reached.
such as socialism, in which the facilities of
6. The attitude of business is to keep
production and distribution are owned and government to this adjustment. N A M has,
for instance, been conferring widely with
controlled by the State.
Under such a system the facilities of busi­ many departments to this end.
ness must be acquired in turn either by profits
It is important that we do so. We must
received from the operation of business, or reduce government spending.


Harvard Business School Alumni Bulletin

Reducing spending and unshackling busi­
ness, then, are two jobs that must be done —
but there is still another job which must be
tackled, and this is one which I am especially
anxious to stress here at the Business School.
The issues that must be met must be met
not only by today’s generation but by the
training of today for tomorrow’s leadership.
Tomorrow’s leaders must have a larger,
broader conception of their social responsibili­
ties — they must be trained to provide tech­
nical as well as inspirational leadership.
Yesterday we were a segregated lot, we
manufacturers. We produced goods and we
sold them. We were active in merchandising
and financing. But that was about all.
Tomorrow manufacturing executives will
have to combine the vision of the engineer
with the exactness of the accountant. They
will have to have the technical knowledge of
the research student. They should know
finance as the barker knows it. They should
have as keen an insight into human nature as
the psychiatrist. They must have the instinct

of the teacher, the legal mind of the lawyer
and the impartial attitude of the judge. Per­
haps we should even say that they will be
All this will require training — broad,
enlightened training of today’s youth so that
they will be fitted to meet tomorrow’s
problems. We need the brain trusts. But we
need the type of brain trusts we can trust.
The opportunities are unlimited for men who
have character, courage, training and ability.
They are welcome, more than welcome, in
industry today. And they are welcome in
politics, too.
America must call these brains to the
colors. You men who have had the training
of the Business School should heed the call of
today. Those that follow you must be ready
to respond to the call of tomorrow for leader­
ship in industry and in government. There
can be no other hope for the continuance of
the form of democracy planned by our fore­


Before we can intelligently forecast the
future it is desirable to review the past and
analyze the present in order to provide a firm
foundation for indications of the future.
Air transportation on schedule was inau­
gurated in 1913 between Tampa and St.
Petersburg, Florida, but during the next few
years was completely eliminated because of
the World War. It began again in 1918, with
the carriage of mail by the United States
Post Office Department, and in 1919 in
Europe, with the carriage of passengers, mail
and express on the English Channel routes.
Generally speaking, all operations were
either conducted by the governments directly,
as in the case of the United States Post Office

Department, or were very heavily subsidized
by governments, as in the case of the Euro­
pean Channel services. Subsidies in many
cases ran as high as 90 per cent of the gross
Following the American tradition of opera­
tion by private industry as far as possible, the
Post Office Department in the United States
very wisely eliminated its own air line opera­
tion in 1927 in favor of private contracts for
carrying the mail promptly thereafter. A l­
though the private air mail contractors in this
country confined themselves almost exclu­
sively to mail, occasionally a peculiar pas­
senger would attempt to tag himself with
air mail stamps or buy a ticket on a private

Courtesy of The Boston "Hcrald'Trave\er”

MR. THEODORE F. DRURY, Chairman, Special Program Committee,



Harvard Business School Alumni Bulletin

basis and ride in the mail compartment with economic necessity of forcing the air lines to
the mail bags, incurring untold bodily punish' find adequate sources of revenue other than
ment in return for the opportunity to talk that derived solely or regularly from the car'
about the incident for the rest of his life.
riage of air mail, with the net result that
While passenger service in Europe on the today the average domestic air line derives
heavily subsidized basis mentioned above was over 50 per cent of its revenue from pas'
going forward slowly and steadily in the sengers, most of the remainder from the mail
first decade after the War, there was until and a small percentage, in general three per
1927 practically no passenger transportation cent, from air express.
in the United States. In the period immedi'
On foreign air lines the ratio of passenger
ately following the Lindbergh Flight, air lines business income to the total income is not as
carrying passengers on schedule, hoping for large as on the American domestic lines, in
and in some few cases receiving air mail general t falls short of 50 per cent, and in
contracts, sprang up like mushrooms, largely many cases far short of 50 per cent.
using small single'engined cabin type equip'
From this point on I intend to confine
ment, and within the next three years prac' myself to the present and future of air trans'
tically standardized on the Ford or Fokker portation within the United States except
tri'motored airplanes, carrying generally 14 insofar as it may be affected by transoceanic
passengers with a pilot and co'pilot, and and South American air travel to and from
later occasionally with a third member of the the United States.
crew as a cabin attendant, either a steward
At the present time, the 20 air lines in
the United States, all of which are barely
or a stewardess.
The air lines carrying air mail, which were more than ten years old and many of which
practically the only ones to survive the are substantially younger than that, fly
1931-32 depression, in general, received from 250.000 plane'miles in a day of 24 hours. In
50 to 90 per cent of their gross income from order to obtain an adequate picture of this
the Post Office Department for carrying the amount of mileage it can be described as the
mail. It was a common occurrence in time of equivalent of ten trips around the world at
bad weather to land the airplane, discharge the equator every day, or one trip from the
the passengers and take off again in order to earth to the moon every day, or perhaps
fly the mail through. In 1934 the mail con' better, as 80 airplanes flying from the Atlantic
tracts of all the domestic air lines in the United Coast of the United States to the Pacific
States were cancelled and, although in many Coast of the United States every day.
cases later reinstated at far lower terms, a
These 20 air lines use about 250 airplanes
large number of companies and routes failed to do this job, so that the average airplane in
to survive the cancellation, and the lines order to do its stint for the day has to fly
which did emerge constitute 15 of the 20 1.000 miles. These airplanes fly on routes
domestic air transportation companies in the which total roughly 30,000 miles, so that each
United States today. Since that time there route is flown in one direction or the other
have been a few additions, a few mergers, a about eight times each day. On these routes
few separations and a few cases of discontin' the airplanes stop at slightly over 200 differ'
ued service, but for the last five years the ent cities, including practically all the major
industry has acquired a relative stabilization cities of the country which provide suitable
with which it had not been favored before airport facilities.
In the average day over 4,000 people take
and on the whole has prospered accordingly.
The immediate effect of the air mail contract passage over one or more of these planes, and
cancellation was to kill or cure by the in addition to these 4,000 passengers, these

July, 1939
planes carry over 20,000 ton-miles of air mail
and carry one-half as much air express. A
ton-mile is a little hard to visualize, but the
20,000 ton-miles carried daily are equivalent
to 640,000 letters going from Boston to Los
Angeles each day.
The average passenger who flies today
travels 400 miles by plane. He does this in
a little over two and one-half hours, and he
pays a fare just over $20. One-third of the
passengers buy one-way tickets; one-sixth
of them buy round-trip tickets, and onehalf of them buy the modern air line scrip
which is equivalent to the old railroad inter'
changeable mileage books, which offer a re'
duction in rate on either one-way or round'
trip tickets.
The heaviest traveled routes are between
New York and Chicago, where three com'
panies compete and offer a total of 29 planes
each way daly. The second heaviest trav'
eled route is between New York and Wash'
ington, where two companies offer services
with a total of 24 planes each way daily, and
the third most heavily traveled route in the
United States is between New York and
Boston, where 14 flights are offered by one
company every day each way.
Most of the planes on the major routes are
of the 21-passenger type for day service and
of the 14'passenger sleeper'plane type for
night service, chiefly on the various routes
across the continent.
As an example of the service offered at the
present time, you can leave Boston at 3.20
any afternoon and arrive in Los Angeles the
following morning on a sleeper'plane at
7.43 a.m. Your fare plus the sleeper charge
of $8 includes two free meals (dinner and
breakfast) on the plane and, if you desire, an
evening snack before retiring.
Probably the most serious hazard to the
proper growth of passenger transportation by
air in the past has been the fear of accidents
which arises in all forms of transportation
and of which in its early stages air transporta'
tion has had its full share. The trend in acci'

dents can best be described by the fact that
in 1928, the first real year of air transporta'
tion carrying passengers in this country,
there was an accident involving a fatality for
every 889,000 plane-miles flown. In 1938 the
accident ratio had, however, been improved
to the point where the same definition of
accident occurred only once in every
13,934,000 plane-miles flown — an improve'
ment in the period of 11 years of over 1,500
per cent. Thus, if in flying 13,934,000 plane'
miles in 1938 there was one accident involv'
ing a fatality, and if in flying the same miles
in 1928 there were 15 accidents involving a
fatality, it may be justly said that in 1938,
14 of the 15 accidents which would have hap'
pened in the same mileage in 1928 had been
saved. Any industry which can eliminate
14/15 or 93 per cent of its accidents in the
first 11 years of its regular existence can
probably expect to save 14/15 of the remain'
ing 1/15 in the next 11 years, and we in the
air transport industry are straining every
effort to do so.
The methods leading to this end are con'
centrated upon two things — better material
and better trained personnel. Under material
we should pay great tribute to the better
technical knowledge secured and the improve'
ments m de by the Army and Navy and
other governmental agencies such as the Civil
Aeronautics Authority, the National Advis'
ory Committee for Aeronautics, and the
Bureau of Standards, and also to the techni'
cal improvements made by the manufacturers
of material and equipment such as planes,
motors, propellers, instruments, radio and
accessories, and to the purveyors of materials
such as steels and the lighter alloys of
aluminum, fuels, lubricants and finishes, and
finally to the private research laboratories
and others engaged in the technical and
material developments of the art.
In the training of personnel also, we should
pay tribute to all of the agencies mentioned
above, to schools both public and private, and
to the elaborate training schedules and famil'


Harvard Business School Alumni Bulletin

iarization programs instituted by the air dispatcher guards the trains between the
transport carriers themselves. As an example various blocks on the track. Or perhaps
o f the thoroughness with which the air lines you may have wondered how thorough is the
are equipping themselves to do this job, I maintenance and inspection of the airplane
would cite the apprentice training program in which you were riding and would have
for mechanics recently inaugurated by one been glad to know that that particular airplane
air line, covering a four^year training course, had had its daily inspection that morning
and I could further mention the fact that before it left Newark on its way to Boston,
when a new co-pilot comes with this same air and had had a “ turn-around” inspection on
line, even though he may have many years arrival at Boston before picking you up to
and many thousand flying hours of past expe' depart for Newark on your way to Jackson'
rience in addition to a college degree back' ville or Los Angeles. In such a case you would
ground, he is assigned to the training school have been glad to know that at predetermined
for a period of six weeks, during which intervals — generally, every 100 hours flying
time, in addition to checking his previous time — each airplane receives a “ major”
training both theoretical and practical, he is inspection, and that the motors in the
given instruction in the detailed flying and planes are completely removed, overhauled,
operating procedures of the particular air line reassembled, and tested, including a flight test,
in question. The same is true of stewardesses every 500 hours regardless of the reported
and to different extents of station agents, condition of the motor when the 500 hours
radio operators, meteorologists, and all other since previous overhaul we e up. In other
classes of personnel which go to make up such words, we provide maintenance on a trouble
an organization. The reservations salesman prevention basis rather than on a trouble
who takes your order over the telephone is a cure basis by regularly scheduling inspections
and overhauls of each wing, motor, propeller,
further and similar case at point.
After a combination of material and per' instrument, or radio, at intervals predeter'
sonnel training come those intangible factors mined from experience to be sufficiently in
known as operating procedures upon which advance of any possibility of difficulty. This
the railroads have so successfully built their type of prophylactic maintenance has gone a
present high standard of safety, and which we great way toward accomplishing the safety
in the air transport industry hope in time to and reliability of the industry today.
In looking to the future of air transporta'
surpass. Perhaps some of you may have
flown from one city to another and have tion, we have many avenues to explore.
wondered why your pilot deviated from Probably our airplanes will be faster — the
what you believed to be a straight path rate at which this will happen and the amount
between the two cities. The answer prob' of the increase in speed which will take place
ably is, that he is following a prescribed are very hard to determine. One thing should
course set up for instrument flight, which he be borne in mind: it now takes vis one hour
is instructed to practice in good weather so and twenty'four minutes to fly from Boston
that he will be thoroughly familiar at all to Newark, and an increase in cruising speed
times with his position on the radio range of 50 miles per hour in addition to the present
beams and will be indoctrinated in becoming 180 mph will not produce much reduction in
thoroughly familiar with the intersections of travel time.
O f the one hour and twenty'four minutes
those beams in space and the reporting of the
intersections or fixes by radio to the ground which is shown in the timetable, seven min'
stations. These radio stations guard his utes is what we call maneuvering time and
flight in exactly the same manner as a railroad covers the taxiing time before the takeoff and

July , 1939
after the landing and the turns after takeoff
and before landing which will probably not
be reduced one bit. The cruising speed of
180 mph or 230 mph, as the case may be,
does not apply to this period at either end.
In addition, it does not apply to the time
necessary to climb to cruising altitude* which
might be, perhaps, 6,000 feet. This climb is
generally accomplishedat an air speed of about
120 mph, and even on a plane whose cruising
speed was faster than that of the present
equipment would probably not be much
increased because the horsepower available is
going into the energy required to lift the plane
rather than to overcome the air resistance at
high speed in carrying the plane forward.
A t ordinary climbing speed of 500 feet per
minute to attain 6,000 feet will require 12
minutes; therefore, we must add 12 plus 7,
or a total of 19 minutes, to the time within
which the greater speed utility of the airplane is either nonexistent or very negligible.
This leaves us with one hour and five min'
utes at 180 mph. This would be reduced to
51 minutes at 230 mph, making a total saving
of 14 minutes, so that an airplane cruising at
a speed of 50 mph faster than present equip'
ment between Newark and Boston would
save 14 minutes in the air and the timetable
would show one hour and ten minutes
instead of one hour and twenty-four minutes.
While it is true that on longer distances the
relative saving in time becomes slightly
higher as a result of the higher percentage of
time spent at cruising speed, it should be
readily apparent that we are entering the
era of rapidly diminishing returns in flight
schedules and that spectacular advances in
reduced times are not likely to occur.
One of the advances that I feel we may
definitely look forward to will be flying in
the substratosphere in airplanes with pres'
sure cabins in which the atmosphere will be
artificially compressed and so regulated that
the passengers and crew will be breathing
air of the same consistency as that at sea
level, or at some reasonably low altitude such

as, perhaps, 5,000 feet. One of the disadvan'
tages of this stratosphere flying is that it can
be utilized only on longer trips -because of the
time element required to reach the high alti­
tudes. It probably will ndsver be used between
New York and Boston. It might conceivably
be used between New York and Chicago or
on transcontinental trips. Flying in the sub'
stratosphere should be very smooth and the
possibility of the high winds at altitudes
which may be gained by flying in one direc'
tion in the substratosphere, with the oppo'
site schedule returning at more moderate
altitudes, may cut down the total flying time
of a round trip and thereby effect material
savings as well as increasing comfort.
Airplanes in the future will probably be
larger, but just how large we do not know.
The air lines today are experiencing many
disadvantages when placing the 21'passenger
planes on routes where the distance between
stops is short. The number of passengers to
be handled at each station and the time lost
in handling baggage, mail, passengers and
express is rapidly becoming a problem. There
are a number of larger airplanes now pro'
jected, some of which are flying, and they
will undoubtedly have passenger acceptance
on the same basis that the Queen Mary and
the Normandie have acceptance in the trans'
atlantic ocean travel. They present very
definite problems both economically and
practically because of the fact that their
maneuvering time, which I mentioned pre'
viously, will be greater, the time for enplan'
ing and deplaning passengers and their
baggage, and the confusion resulting solely
from the increase in units to be handled at
one time where speed is essential, may serve
to offset their other improvements and utility.
For instance, it would be absurd to use the
Queen Mary on an East Boston ferry'boat
run. There is some question as to whether it
would be advisable to use it on the night
boat run between Boston and New York even
though the passengers might like the service
very much.


Harvard Business School Alumni Bulletin

This gets us into the economic future of
air transportation, because one of the reasons
why it would be so useless to operate the
Queen Mary on the East Boston ferry-boat
run or even on the night run between Boston
and New York is t at the depreciation
account of the boat and the many hours that
it would remain idle between trips would
make it economically unsound. The only companies which have been successful in air
transport under the present economic conditions, including present passenger fares,
present airmail payments and present operat­
ing costs, have been those air lines which
have been able to operate each airplane
approximately eight flying hours every day.
For instance, the daily depreciation on a
21-passenger Douglas Flagship costing $110,000 is about $65, or if you can fly it eight
hours a day, about $8 per flying hour.
While it is true that depreciation on this
basis is only ten per cent of the total overall
cost of operating the plane, the economic
experience of the air lines has been such that
they would have been very happy to have
had a ten per cent or even a five per cent
profit on their operating revenues.
Furthermore, it seems logical that since
air transportation has time-saving as its chief
utility and as one of its major reasons for
which it can command a premium price, fre­
quency of service must also be provided to a
reasonable extent. Whether it is cause or
effect is, of course, difficult to state, but it is
an outstanding fact that in many cases when
the number of schedules has been increased,
the load factor (number of persons carried to
seats available) on each schedule has also
increased. Perhaps this has something to do
with the travel habits of the public.
It is difficult to say exactly what percent­
age of the total travel in the United States is
carried by air transport companies today —
and it must, therefore, be even more difficult
to say what percentage of travel will go by
air in the future. More people left New York
last year by air than left New York as first-

class passengers on transatlantic boat services,
and I believe that the same is true of Boston.
The methods of counting passengers, strange
as it may seem, vary with the different trans­
portation industries. For instance, in air
transportation, the Post Office Department
insists that passengers shall be counted by
air mail routes and all figures published
regarding the average passenger are computed
on that basis. The railroads have their own
method of computing passengers, including
particularly passengers on interline tickets
between one railroad and another. There­
fore, it is hard to say what percentage of
passengers today travel by air when com­
pared with passengers traveling by rail,
either in Pullmans only or in Pullmans and
coaches combined.
In 1938, the official Civil Aeronautics
Authority figure for passengers carried by
the domestic air lines was 1,176,858 for the
year and was computed on the Post Office
Department definition basis. Various esti­
mates which have been made and most of
which have been based on passenger miles (a
passenger mile is one passenger traveling one
mile) indicate that last year the air lines of the
United States carr’ed about eight per cent of
the passengers carried by rail in Pullmans.
The point which air travel has reached in
its growth is graphically illustrated by the
fact that in 1937 the passenger revenue of
only 21 railroad systems exceeded the pas­
senger revenue of one air line; in 1938 the
passenger revenue of this same air line was
exceeded by only 16 railroad systems and it
appears quite probable that the air line will
climb a few more notches in 1939.
In view of the fact that the air lines will
probably never serve as many cities as rail­
roads do at present because of the fact that
air travel is basically unsound where other
satisfactory means are available for distances
of less than 100 miles, the air lines cannot
hope to purvey all the utility now purveyed
by the railroads and other means of trans­
portation and should logically confine them

July, 1939
selves to the longer haul, rapid, first'class
travel requirements.
On this basis it seems reasonable to
assume that their saturation point will not
be reached until they have at least equaled
the figure of the present Pullman passenger
mileage. How much of this travel will be
created as new business because of the greater
utility, speed and comfort of air travel is, of
course, an unknown quantity. Perhaps the
best estimate would be that half of the air
line increase will come from present means and
mostly from Pullman passengers and the other
half will be created before the saturation
point is reached.
If this is true the air lines may confidently
move forward to the day when their p. esent
eight per cent of Pullman Travel will increase
to 75 per cent of the present Pullman Company passenger mileage or an increase for the
air lines of about ten times their present
figures. Whether this will be attained in the
next ten years may be questionable, but it
should certainly be attained within the next
twenty years.
One of the biggest factors affecting the
future growth of air lines will be the relia­
bility which may be developed for this means
of travel. In 1938 the air lines flew approxi­
mately 95 per cent of their published sched­
ules — the remaining five per cent being can­
celled mainly due to unfavorable flight con­
ditions, mostly due to low ceilings and low
visibilities. There will probably always be a

small residue of flights which will not be
made due to flight conditions, although even
that is hard to forecast, because with the
advent of sub-stratosphere flying there will
be many choices of levels which will make it
possible to avoid unfavorable flight areas. The
advances to overcome the low ceilings and
visibilities include developments in instru­
ment landings, and although such advances
will naturally come very slowly because of
the extreme and[ increasing reluctance of the
air lines to release flights when flight condi­
tions do not meet specified standards, it is
probable that within the next decade the
95 per cent performance which was attained
in 1938 will be increased to 98 per cent or 99
per cent with further increases in safety.
The future of air transport companies may
be summed up briefly in the following general
phrases: the saturation point of the market
will not be reached until travel has increased
to ten times the present figure which may take
one or two decades. The speed of flight will
be increased but will not show proportionate
reduction in travel time because of the dimin­
ishing returns attained by such increases.
The reliability, comfort and frequency of
schedules will be materially increased pro­
vided the economic conditions and economic
regulation do not change materially. On this
basis the air lines should take their place in a
coordinated transportation picture providing
for the longer haul fast first-class travel.

T he

Sh adow

For hard upon ten years we have lived in
the shadow of industrial depression, varied
from time to time by panics and by short-lived
recovery. The experience of panic, followed
by a period of economic contraction, lasting
from one to five years, is perfectly familiar to
us. Our pet name for these fluctuations is
“ the business cycle,” and we have come to
regard them as a natural phenomenon, like the
seasons of the year. But the experience of the
last ten years is, I believe, new in this coun­
try. This depression has already run to twice
the length of its most severe predecessor, and
still there is no light on the horizon.
Also, we may note that our situation seems
to be worse than that of others. Although
we possess the greatest natural resources of
any nation in the world, protected by two
oceans, the index of production of our grow­
ing population in 1938 as compared with 1929
stands at the bottom of the scale of North
American and European nations. Ours was
72 per cent, while poor France, with a declin­
ing population, threatened with war and rent
with internal dissension, was 77 per cent.
Canada and the Netherlands stood at 90 per
cent; the United Kingdom at 116 per cent;
Poland at 117 per .cent; Norway at 127 per
cent; Denmark at 135 per cent; Sweden at
146 per cent, and little Finland at 153 per
cent.1 (I have omitted Germany and Italy
from the list because the dominant factor of
armament might distort the figures.) Incred­
ible as it may seem, the shadow of depression
which hangs over this unthreatened country
is heavier than that which hangs over Euro­
pean nations, which may be on the verge of
war. The strangeness of this picture makes
me wonder whether it is a picture of economic
1 League of Nations, Monthly Bulletin of Statistics,
Vol. XX, 1939, p. 168.

depression or of something quite different.
The shadow of depression under which we
lie is the major preoccupation of all our people.
This is to be expected. As we grow poorer,
the shoe pinches every foot. The symptoms
which we observe are economic — idle men,
idle money, idle factories, idle land. It is
natural to assume that we are suffering from
some economic malady, and accordingly we
are deluged with proposals for economic re­
forms. The number of these proposals is
enough to make the strongest head spin. In
the confusion, Congress has almost ceased to
function, and even President Roosevelt seems
for the moment to be a little perplexed.
In the June number of the Atlantic
Monthly, Mr. Wendell L. Willkie set forth a
program for economic recovery. In the
March number of Fortune, a group of dis­
tinguished citizens told us what they thought
ought to be done; and Mr. Roosevelt has just
asked his Temporary National Economic
Committee to answer the same question; and,
to make the measure full, you can hardly open
your morning paper without seeing an address
by some wise and experienced person on this
most perplexing question.
I have spoken of “ the shadow” under which
we rest (or rather squirm), using the word
in the sense of the shadow of some thing.
Of course, the “ thing” need not be as tangible
as a rock; it may be the shadow of a state of
mind. In fact, when we speak of an economic
depression we must be thinking of the shadow
of a state of mind, and we commonly make
the explicit assumption that this state of
mind is due to some defect in the methods of
exchange of goods and services within the
society which is depressed. Provided this
assumption is correct, economic adjust­
ments will cure the depression; but
only upon this assumption.

July, 1939
In view of the length of this period of
depression, and the failure of various economic
“ medicines” with which the “ doctors” have
tried to cure it, I suggest that the assumption
is not correct. I think these people are barking
up the wrong tree. There isn’t any coon in it.
He may have started up, but he’s not up
there now. I do not believe that the “ thing”
which casts this shadow is merely an economic
maladjustment. It looks more like a social
breakdown. If this is the case, economic
remedies may alleviate the symptoms, but
they cannot cure the disease. In fact, they
may aggravate it. “ A higher standard of liv­
ing,” for example, is the economic heaven
toward which both economists and politicians
gaze. But, as I look back over the last fifty
years, I often wonder whether the rapidly
rising standard of living, which was its most
marked achievement, was a gain or a loss.
As our standard of living has risen, our
troubles seem to have multiplied. Is it possi­
ble that it has risen too high and become “a
standard of high living” ? Of course, this is a
shocking heresy, for which no one else can
be held responsible.
In suggesting that the problem which faces
us is primarily social, and that economic
remedies will not cure it, I am, of course,
casting doubt upon what might be called the
“ economic interpretation of history.” His­
tory has often been interpreted in this way
in the past. The great Karl Marx built his
whole system on this foundation. He was
perhaps the most thoroughgoing of this school
of thought; in fact, so thorough that for fifty
years no one had the courage to put his
theories to the test. But when this was finally
done by the Russian revolutionists, they
broke down so completely that there are prob­
ably more followers of Karl Marx in the
United States than in Russia today. Practical
experience is the acid test of this theory, as of
all others. The strictly economic interpreta­
tion of history has failed to meet it.
In substituting the assumption that “the
thing” which throws this shadow is a social


breakdown, and not an economic maladjust­
ment, I am merely offering an opinion not sus­
ceptible of proof. But, for that matter, neither
are the economic theories which are so vigor­
ously thrust upon us.
T he Substan ce

Bluntly, what I ask you to believe is that
the serious disorders in our society are the
most important reasons for our inability to
rise out of this depression. I am not suggest­
ing that the social and economic aspects of
human life are independent. On the contrary
they are parts of one whole. What I am sug­
gesting is the unwisdom of the gross over­
emphasis now placed on the economic aspects.
While I cannot prove the truth of my opin­
ions, I can at least suggest some of the grounds
for them.
Assuming that “ the business cycle” will
continue to plague us for a long time to come,
I ask you to notice what occurs to the struc­
ture of our society during a period of severe
and prolonged industrial decline. What we
see is a small fraction of the population
unaffected, either socially or economically.
Another fraction (perhaps somewhat larger)
is subjected to some economic loss, but no loss
of social status. Another fraction (much
larger) is subjected to severe economic strain
and to thé daily fear of economic destitution
and loss of social status. The balance of our
whole society is “on the bread line.” In short,
the economic forces of a major depression now
tear apart our social structure, forcing half the
population — the foundation upon which the
other half rests — to face the possibility of
economic and social disaster. It seems to me
incredible that any society subject to this
sort of periodic disruption should function
satisfactorily. The wonder is that it func­
tions at all. We might as well ask a man with
a broken leg to run.
M y reference to the loss of social status (or
the fear of it), which threatens so large a frac­
tion of our population during a major eco­
nomic depression, may require some explana­


Harvard Business School Alumni Bulletin

tion, because it is a relatively new phenomenon in this country. It did not occur to at all
the same degree after the panic of 1893, which
ushered in our previous major depression,
because two-thirds of the population were
farmers, firmly rooted in the soil. Within the
relatively short period between 1898 and the
present day, the operation of economic forces
resulting from new inventions has changed
our environment so rapidly as to require a
new form of social structure to fit it. We are
now, I think, in process of building one.
Fifty years ago the home, the church, and the
neighborhood were the framework of our
society. Today, new inventions, like tele­
phones, radios, movies, automobiles (to which
we have not yet become adjusted) have
greatly weakened all these social forms, so
that now the most permanent and the most
important social groups known to me are
those in the shop and in the factory, based on
work routines. Here, if anywhere, I suggest,
the great mass of our working population must
satisfy most of its need for normal social
intercourse, or go without, and I like to
believe that the social disorder in which we
live is the result of shifting from one form of
social structure to another. While the house
is being rebuilt we must expect hunger,
exposure and fatigue. If only the new struc­
ture is good, we shall have nothing to com­
plain about. But let us not soothe ourselves
with the illusion that the changes which are
taking place are small. They are radical. We
are asked to move out of our old homes into
our new factories. Let us hope that we shall
find them equipped with ‘ modern social con­
veniences.” A t present, these are notably
absent. What I observe is that within a
short half century the centre of gravity of our
social system has been shifted. The process is
not complete, and it is for this reason that
the breaking of the social fabric by industrial
depression makes recovery so difficult. When
industry breaks down, our society goes with it.
I have been interested to observe that labor
leaders, and labor economists, with whom I

have talked were wholly unimpressed by the
ideas suggested above; namely, that the fac­
tory and the shop are in their essence social
groups, or societies, today. This I confess
disappointed me until I noticed that their own
arguments in favor of collective bargaining
rested upon the premise that this method was
essential to the maintenance of the civic rights
of workers and therefore to the preservation
of democracy. Thus, even for these men,
economic needs give way before our social
needs, and they admit by implication the
proposition for which I contend. Then I see
that we are all “ shooting at the same target”
and merely calling it by different names.
Assuming that the welfare of society is the
purpose and goal of human endeavor, and
industry only a means to that end, the con­
clusion is inevitable that society will find a
way (in its own good time) to correct those
defects in our economic system which experi­
ence shows to be socially harmful. Our major
problem today is to discover the long-time
effects on society of some of our economic
techniques. Merely because I do not know the
answer to these questions is no reason why I
should not be interested in their solution.
I repeat that the shadow of depression
under which we lie is the shadow of our social
failure. O f course, the necessity of providing
for our material wants (which we call “ busi­
ness”) is a major part of “ the business of life”
which is society. Our economic and social
functions are inextricably intertwined, but
every structure depends for its stability on a
due regard for proportion, and I have a feeling
that during my life, and to some extent during
my father’s, this people has exaggerated the
economic aspects of social living. When this
occurs, one may look for signs of social dis­
order. They face us on every hand; and the
senseless hurry of modem life is merely our
flight from these haunting spectres.
A symptom of social disorder which has
received less attention than it deserves is the
general loss of hope and the slackening of
ambition. Our great Secretary of the TreaS'

July, 1939


ury has characterized the feeling of business that the cycle of expansion for this nation is
men as a “ What’s the use?” attitude. In this closed, unless we close it by our own lack of
opinion I concur, but I am moved to wonder imagination. Tradition to the contrary not­
why he stopped there, for the same attitude withstanding, history never repeats itself.
is observable in all classes of our society. It is The great opportunities for increased eco­
less than a generation since “piece rates,” nomic activity of the past are unlikely to
and other forms of money incentives to recur. But there are countless other oppor­
workers to increase production, worked. tunities. A more plausible and a more manly
Now they have largely “ lost their cunning.” explanation of this loss of initiative is that it
Restriction of output can be found on every is due to the failure of our social system to
hand, and the hope or ambition which the function properly, a social breakdown — a
various incentive systems formerly aroused society “ gone sour,” so to speak. Nothing
in the worker at the bench is waning.
will undermine hope and weaken the springs
Among the so-called “white-collar work­ of action more rapidly, and such a breakdown
ers,” there is also evidence of loss of hope, is just what one would expect to follow from
and I am told by competent and interested the periodic disruption of our social groups by
observers that this feeling is very marked the forces of the business cycle. When some
among high school and college men. Nor does of the men and women working together in
it stop even with them. I know an active boy shops and factories are periodically exiled
•of rare ability who at the age of ten has prac­ from their society, and when those who are
tically refused to work, either at school or not live in constant fear of it, only a highly
at home. When asked how he expected to optimistic (not to say silly) person would
earn his living, he replied that he didn’t. expect to find a happy and hopeful society.
WPA “ work,” as he had observed it, “looked The wonder is that things are not far worse.
good to him!”
What greater opportunity could be offered
I have spoken about the loss of hope which to any generation than the opportunity to
is so marked in all classes. Its direct manifes­ restore this waning hope and the initiative to
tation is loss of initiative. For reasons which which it gave rise?
are very complex, and which are not well
The election of President Roosevelt in
understood, the initiative — the intense urge 1932, and his almost immediate demand for
to action — of this people has been cut off. social reforms, were not accidental. They
Where “ the spring of action” is located in were the result of a great popular reaction
the human body we do not know, but we do against social conditions which were fast
know that it is touched off by emotion — the becoming intolerable. Many people feel
emotion of hope and the emotion of fear in that, while the aims of Mr. Roosevelt’s
particular. This nation has for two centuries, social reforms were wise, his methods have
or more, shown amazing initiative, the result been unwise. I am one of that number. In
o f widespread hope. Today that initiative is fact, I go further and suggest that the Fed­
quenched and the question which we must eral Government, acting through Congress,
answer is, can it be restored? One school of cannot achieve by national legislation the
thought answers in the negative, and offers social reforms which are most essential.
us as a reason that, after three centuries of Legislation is merely a form of sweeping gen­
prodigious expansion, that cycle has come to eralization. Such generalizations can only be
an end and we must now settle down to a made with full knowledge of facts which are
static condition, or at best to a very slowly not yet known, and are only useful where the
expanding one. Personally, I reject this facts, after they have been observed, fall into
answer. It seems to me childish to suppose some sort of pattern. Wide variations from


Harvard Business School Alumni Bulletin

the established pattern make such generalize
tions impractical. In the case of much of the
social legislation attempted by Mr. Roose­
velt’s administration, these conditions are not
Take, for example, the operation of the
Works Progress Administration. This shows
quite clearly the effects of federal legislation
which practically concentrates in the hands
of one man the power to spend billions of
dollars of the savings of the nation for the
relief of the unemployed. No one questions
that these people must be fed, but many
question the method used. The first thing to
observe is that the operation of the WPA is
shrouded in a cloud of mystery which even
a committee of Congress has been unable to
penetrate. The tenacity with which the
Federal Government clings to the principle
of centralized administration leads one to sus­
pect that the handling of this money is a
source of political power and profit. Cer­
tainly, such concentration is very wasteful.
These, however, are common symptoms of
the way in which our democracy functions
and may not be in themselves alarming. The
real vices of the W PA method of unemploy­
ment relief lie deeper.
Many, probably most, of these unem­
ployed are people who have been exiled from
the industrial or business groups to which
they belong by the economic contraction of
the last decade, which we may note in passing
President Roosevelt has done much to pro­
mote. They have been banished from the
societies in which they belong, usually with­
out fault of their own, by the operation of
“an economic law” which they cannot com­
prehend, and which many of them do not
believe to be a law at all. No Works Progress
Administration, even if administered by the
Archangel Gabriel, could right these people’s
wrongs. It can protect them against starva­
tion, but it cannot cure the wounds to their
self-respect which their own societies have
inflicted. “ He who has broken the head must
find the plaster.” Only the industrial societies

which have cast these people out, can help
them. If these societies are unable to find a
way to do this, or unless these outcasts are
soon united into new industrial societies, our
whole industrial system will collapse, because
of its instability.
The WPA, however, as now administered,
instead of assisting our industrial societies to
accomplish this task, is making it more diffi­
cult. Although men working for the WPA
must live on small pickings, they are never­
theless reluctant to return to private employ­
ers because their past experience has taught
them to fear the risk. They feel a sense of
economic security in working for the govern­
ment which more than outweighs their loss
of self-respect. O f social security, that is, the
security of belonging to a social group, the
WPA gives them little enough.
Here we may observe a movement of ex­
traordinary interest which has received little
attention; namely, a new society in process of
trying to get itself bom. These people who
are working for the WPA, feeling the lack of
anything that remotely resembles a society in
the group thus employed by the government,
have apparently taken the work of social
integration into their own hands and are
forming a social group of their own — the
Workers’ Alliance. This WPA “pressure
group” is already powerful, and it will grow.
Making faces at it, or calling its members
“ Communists,” is childish. We have made
them what they are, and if private enterprise
in this country cannot give a better account
of itself in the future than in the past, it
deserves to fail. But such a failure would be
a disaster of the first magnitude. It would
mean a return to the barbarism which has
overrun some of the European nations.
This is not inevitable. In fact, I am con­
vinced that such a collapse can be prevented,
but it can only be prevented by the most
strenuous exertion on the part of business
men. There is small hope that we can be
saved by nation-wide activities of the Federal
Government, based on political expediency

July , 1939
and insufficient knowledge. The problem
must be attacked in detail at many different
points and in many different ways. No
government has ever done this, and no govern­
ment can do it. This is a task for free men
working freely, and, although we have lost
much of our freedom, we have enough left
if we have the will to use it.
No man is wise enough to lay down a plan
of procedure which will solve our problems,
because no man has the knowledge. But we
have the strongest evidence that the govern­
ment cannot solve them without destroying
the foundations on which it rests. The num­
ber of our unemployed has remained prac­
tically stationary since 1933, and the pressure
group called the Workers’ Alliance is a
threat growing on government funds.
Our best hope lies in gradual social and
economic reforms based on intimate knowl­
edge of the conditions within our thousands
of industrial societies. Such knowledge is not
now available and it will take time to get it, for
we have reason to believe that the social con­
ditions within these societies vary widely —
from relative health and happiness at one end
of the scale to a condition verging on mutiny
at the other. But we are not sure of our facts.
Careful study, pushed with vigor by busi­
ness men who mean business, might open
many new vistas. Even with my own ex­
tremely limited horizon, I can see industrial
societies which during the last twenty years
have gone through all the economic vicissi­
tudes of that troubled period. Some of them
have maintained their courage, their integrity,
and their social equilibrium under the most
difficult conditions. Others under far less
“ stress of weather” have suffered serious
social disintegration. We can observe these
bald facts, but in the present state of our
knowledge we cannot understand them.
Here, I suggest* is where we must begin.
What are the reasons why some of these
industrial societies are so serene and others so
disturbed? If we could answer this one ques­
tion we should, I believe, have opened the

door to the solution of our problem. The
work must be undertaken by business men,
equipped with the tools of science and
endowed with indomitable patience. There
is no quick solution, and, even if there were,
it might take a generation or two to make it
work. For social changes operate on a time
scale much slower than the technological
changes with which this generation is
familiar. It is for this reason that the results
we seek cannot be achieved by any govern­
ment using the democratic process. The
politician who lays out plans which may take
half a century to complete will lose his head
at the next election, and be replaced by a
man with a panacea which will “ work while
you sleep.”
Please observe that I am not blaming the
politicians, the economists, or anyone else in
what I have been saying. It is not for me to
make value judgments. But we all know that
the trade of the politician in a modern
democracy is to get quick results. The busi­
ness man, however, has been trained in
another school. Much of his planning used
to be for the coming generation, and, while
this is now prevented by the social revolu­
tion through which we are passing, the paths
are well marked and he has not lost his skill
in following them.
While the recognition of their “ social
obligations” is now very general among
business men, they show a marked preference
for keeping these obligations in the realm of
abstractions. To induce a large firm to spend
a million dollars a year on an advertising pro­
gram, in the hope of increasing its sales, is
relatively simple, though the results are
likely to be temporary. But to induce the
Board of Directors of the same firm to spend
$50,000 a year on a program of real social
research, which would be of permanent value,
and might save the business from ruin, is an
almost superhuman task.
Of course, there have been many studies of
wor\ing groups made, usually by industrial
relations or personnel people, as a basis for


Harvard Business School Alumni Bulletin

executive action about wages or working
conditions. They are interesting and valu"
able, but they will not serve our present
purpose. What we need are many studies of
complete industrial organizations, including
every person from the President to the office
boy and the man and woman at the bench.
These organizations are organisms like the
human body which must be studied as a
whole. Studies of their parts are interesting,
but they are useless without knowledge of
the whole. They are like the reports of the
four blind men feeling of the elephant. One
got hold of a leg, and said it was a tree.
Another put his hands on the elephant’s side,
and said it was a rock warmed by the sun.
Another got hold of the trunk, and said it
seemed to be a snake of the boa-constrictor
variety. The fourth took a pull at the tail,
and when he recovered said it was the Ianyard of a cannon, without sound, but with a
heavy recoil. Much of our research seems to
have begun at the wrong end. We must

know more about the whole before we can
understand the parts.
In my title: “ The Shadow and the Sub"
stance” I deliberately used the word “ shadow’*
in a double meaning — the shadow which
clouds our vision and the shadow of some
material or spiritual reality. As I close I
trust that I have made it clear that it is the
shadow of social disorganization which is the
substance and with which we have to deal.
The causes of this social disorganization are
too complex for me to understand, but the
fact seems to me as plain as a pikestaff. The
substance of our social disorganization is
proved, both by its shadow, and by many
other observations of daily life. In God’s
name, let us attack this substance with every
means in our power before it is too late, and,
unless our educational institutions are false to
their calling, you will soon find them fighting
at your side and supplying recruits to your

B O O K



The seventh World Economic Survey by the
Economic Intelligence Service of the League
o f Nations has been prepared by J. E. Meade,
ending the hitherto unbroken authorship of
J. B. Condliffe. Mr. Meade’s economic
history of a year retains the characteris'
tics which have made the Survey an indis'
pensable reference work. He has winnowed
from the several League studies the essential
facts and figures, added such other relevant
information as was available, and woven
these materials together with the provisional
interpretations a keen but prudent observer
may make this early. The disgruntled will
look in vain for invective, and the crusader
will find no encomiums. But although cau'
tious, Mr. Meade is not timid. His descrip'
tions of economic trends and events are clearly
worded, and his interpretations, if often
tentative, are not shadowy.
This number of the Survey quite naturally
takes as its point of departure the decline in
business activity which began in the summer
of 1937, and from which the world, gener'
ally speaking, suffered throughout the period
under consideration. Abandonment of fixed
exchange rates, application of exchange con'
trol, imposition of import quotas and other
similar measures have restricted the influence
o f general business conditions in one coun­
try upon other countries, in recent years.
Mr. Meade holds, nevertheless, that no
country, however “ autarkic,” can isolate
itself from a major depression in a large
country. American readers will be impressed
by the significance he attaches to movements
of purchasing power in the United States of
America. The United States takes so large a
proportion of world exports — 13.3 per
1 League of Nations, Economic Intelligence Service:
World Economic Survey, 1937-38. Columbia Univer*
sity Press, $1.50.


cent in 1937 — that all nations are bound to
feel the effects o f any serious shrinkage in
American demand, indirectly if not directly.
Total American imports fell from a high of
838.5 million dollars in the second quarter of
1937 to a low of 492.7 million dollars in the
first quarter of 1938. Similarly, a collapse of
security prices in the United States is immedi'
ately followed by sympathetic bearishness of
European exchanges. The stock market panic
of the fall of 1937 involved the loss of twenty
billion dollars in share values in Wall Street,
and was accompanied by downward move'
ments of share prices abroad, even in the
controlled economies of Germany and Italy.
The amplitude and causes of the American
“recession,” of which these developments
were symptomatic, are discussed in a twelve'
page analysis. The familiar device of statis'
tical comparison with a similar period is
effectively employed. Share prices declined
24.6 per cent, industrial production 14.9 per
cent, in the six months beginning September
1929; the corresponding declines for the first
six months of the 1937-38 recession were 33.4
per cent and 32.5 per cent respectively. Mr.
Meade might have pointed out that in abso'
lute figures the more recent declines compare
more favorably with those of 1929. It is
clear, however, that the United States was
confronted by a major business downswing
late in 1937. Between August and Decem'
ber, production of consumption goods de'
creased 13.3 per cent; but production of
investment goods declined 51.7 per cent,
steel output 69.7 per cent, and automobile
production 50.3 per cent. The movement of
pay rolls lagged, little change taking place
before November, and the drop at the year’s
end amounting to 22 per cent. Department
store sales decreased only 3.3 per cent. The
author argues from these and other figures
that “ the immediate cause of the recession
was an abrupt fall in investment activity and


Harvard Business School Alumni Bulletin

in expenditure on durable consumption
goods.” He points to the failure of consumer
demand to continue expanding after November 1936, relating this phenomenon to several
aspects of Federal fiscal policy. Rising labor
costs are cited as the principal factor influ'
encing expectation of profits and the costs of
construction. Some readers will wonder why
price policies of business firms are not taken
into account in appraising movements of
profits and costs. Mr. Meade regards Federal
Reserve policies concerning reserves and gold
as chiefly responsible for the sudden rise in
long-term interest rates early in June, 1937.
There follows a discussion of the extent to
which other nations shared in the “ recession.”
The author finds in buoyant wage rates and
prices the key to France’s exchange difficult
ties, over'high interest rates, and the lack of
a stimulus to increased production. The evi'
dent decline in British exports during 1937
was to some extent offset by the demands
incident to the expenditure on rearmament,
but private investment tended to decline,
and the peak demand for iron and steel
appeared to have been attained at the end of
1937. Production and employment declined
in Belgium and the Netherlands; prices, in
Switzerland and Sweden. It is more difficult
to follow the course of events in the rigidly
regimented economy of the third Reich. The
very favorable production figures must be
considered in the light of the intensive activ'
ity in public building and war industries, the
operation of the four^year plan, and the much
less favorable situation as to consumption
goods. It is difficult to analyze the situation
in Japan, as well, chiefly because of the over'
whelming significance of the war in China
in determining the movement of nearly all
economic series. The shrinkage in world
trade nevertheless complicated her exchange
World unemployment had fallen to the
1929 level by the summer of 1937, but a
sharp rise in unemployment began in the
autumn and continued into 1938. The Inter'

national Labor Office’s index of the number
employed for the year 1937 as a whole was
exactly at the 1929 level. Hours of work per
worker had fallen, however, and the index
of man'hours — the best single measure of
employment — was still 10 per cent below
the 1929 level. Ten of the twenty'two nations
represented in these indices employed fewer
workers in 1937 than in 1929, among them
France, the United States of America and the
Dominion of Canada. Outstanding industrial
nations employing more workers than in 1929
were the United Kingdom, Germany, Japan,
Italy and Sweden. In Germany, while the
number employed had increased 907,000 the
number unemployed had fallen by 980,000.
In view of the marked increase in the number
of Germans of working age, this phenomenon
can only be explained by noting the absorp"
tion of workers by the Army and the Labor
Even for the year as a whole, several nations
still suffered a high level of unemployment.
The highest levels obtained in the Low
Countries, Norway and Austria. The rate
of unemployment in the United States had
fallen to 10.5 per cent, but all of the ground
won during the early months of 1937 was
surrendered before the year’s end. In November, the Biggers census estimated total full'
time unemployment at 10,870,000, and in
February, 1938, the President released an
estimate that 3,000,000 persons had since
become unemployed. O f the twelve leading
industrial powers, only four escaped an
appreciable increase in unemployment in the
late months of 1937 and the early months of
1938. Notwithstanding the increases in
unemployment, the shortages of skilled labor
noted in the previous Survey continued to
manifest themselves, perhaps to a greater
extent. Increases in armed forces and in the
demand for skilled labor in the production of
armaments are seriously delimiting the already
low supply of skilled labor in many countries.
A French Committee on Production, report'
ing in December, 1937, recommended special

J u ly , 1939

modifications in the forty-hour week in the
case of skilled workers, the introduction of
additional shifts, and the principle of com'
pensating overtime for workers who had
previously been underemployed.
All of the League’s indices of world pro'
duction showed increases during 1937, con'
tinuing the movement beyond 1929 levels
which had been attained during 1936. A l'
though production of foodstuffs continued to
expand, it was less per capita than in 1929.
Mr. Meade points out, however, that the
index numbers do not include some commodi'
ties, consumption of which has recently
increased, such as poultry, eggs or fresh
fruits and vegetables. A sharp gain was
registered in production of raw materials.
Shortages of certain raw materials were
appearing early in 1937, partly because of
rearmament expenditures and partly because
of speculation in these commodities. Specu'
lative demands abruptly ceased about the
end of the first quarter of 1937, and when the
severe contraction of industrial activity set
in in the summer, stocks of raw materials
rose sharply. Manufacture of consumption
goods had been tapering off all year in the
United States, and manufacture of capital
goods suffered a violent decrease in the
autumn. Serious declines took place in Can'
ada, Czechoslovakia and the Low Countries,
as well, and moderate declines in Sweden
and Hungary. Expansion of industrial activ'
ity ceased in the United Kingdom and only
continued in the controlled economies of
Germany, Italy and Japan.
The outstanding feature of price move'
ments during 1937 was the abrupt about'face
in commodity prices in the spring. Late in
1936, under the spur of heightened industrial
activity and competing demands by war
industries, manufacturers began to increase
their stocks of raw materials, apprehensive
of shortages and further advances in price.
A few months later it became apparent that
(1) supplies of raw materials were being pro'
duced more rapidly than had been suspected,

and (2) that consumer resistance to price
increases made it difficult to pass on the high
costs of raw materials. A sharp break in
commodity prices affected seven out of fifteen
leading industrial nations immediately and
four additional countries subsequently. Ger'
many and Italy escaped this phenomenon by
rigid price control. The pressure of the War
caused Japanese prices to rise against the
world trend, while exchange difficulties and
new social legislation had a similar effect in
France. Where price declines occurred, they
differed greatly in timing and amplitude. In
general, food prices experienced less substan'
tial reductions and they followed special de'
velopments affecting the supply. Wheat and
cotton prices broke after large harvests in the
United States, coffee prices after the collapse
of negotiations for international restriction
of production. As regards non'agricultural
raw materials, however, changes in specula^
tive, then industrial demand, appear to have
been decisive. The United States consumed
30.7 per cent less silk, 41.9 per cent less
rubber, and 60 per cent less tin in January,
1938, than in January, 1937. The uneven
movement of prices naturally disturbed price
relations. Retail prices declined much less
than wholesale prices, and prices paid by
farmers much less than prices received by
farmers. Mr. Meade discusses, but all too
briefly, the relation between prices paid by
firms to those received by them — costs vs.
selling prices — and his conclusions are,
therefore, generalizations of limited use.
The production of gold which, in 1936,
had been 73 per cent higher than in 1929,
increased 7 per cent more. The concentra'
tion of gold holdings in a few important
creditor countries, nevertheless, continues to
hamper the monetary systems of some coun'
tries. This maldistribution of gold grew
worse in 1937, the holdings of the United
States increasing from 51 per cent to 55 per
cent of the world’s total. The outstanding
shift in monetary policy in 1937 was the
change from a restrictive to an expansionist


Harvard Business School Alumni Bulletin

policy by the Federal Reserve System. In and 1937 tended to discourage bilateral agree­
August and September, 1937, rediscount ments. Yugoslavia and Turkey began divert'
rates were reduced from 2 per cent to l\ ing much of their trade to the free-exchange
per cent; in September, $300 million was countries. Full clearing agreements were
released from the “ inactive gold fund” ; in giving way to payment agreements, under
October, the rules govern ng rediscountable which the exchange-control state would allot
paper were relaxed; and in November, the a definite portion of the payment for its
reserve banks purchased $38 million of gov­ exports to importers for purchase of goods
ernment securities in the open market. Later from the free-exchange country. Up to the
the policy of “ desterilizing” gold was middle of 1938, the “recession” had not led
repeated and in April, 1938, the “inactive to intensification of bilateral agreements, but
gold fund” was abolished and gold certificates liberalization of world trade is generally more
representing $1,400 million in gold were difficult in periods of economic stress.
Writing at the end of July, 1938, Mr.
added to the nation’s bank reserves.
For 1937 as a whole, the volume of goods Meade observes that “ the prospects of an
exported was only 3 per cent below the 1929 early recovery in the United States of America
level, having increased about 12 per cent over appear to be improving; and the decline has
1936. The increase was, however, unevenly given place to an upward movement.” He
distributed, and the rates of increase were describes in detail the rise in security prices
falling rapidly in the final quarter of 1937. and the several hopeful industrial signs on
Trade in raw materials was above the 1929 which the rise was based. Were he writing
level, trade in foodstuffs 7 per cent less than now, he might point to many additional
in 1929, and trade in manufactured articles improvements in the economic situation of
14 per cent less than in 1929. Curiously the United States. Probably he would,
enough, three significant trends of recent nevertheless, still hold that it is too early to
years were reversed in 1937-38. Total world determine whether the recovery is permanent
trade, after rising less than seasonally in the or merely represents a temporary halt before
last quarter of 1937, declined more than sea­ a further recession. He would certainly not
sonally in the first quarter of 1938. Prices of be favorably impressed by subsequent devel'
exports relative to those of imports began to opments regarding building, railways, and
change to the disadvantage of raw material utilities, the situation of which industries
exporting countries. A three-year trend of he considered discouraging. Nor has the
export balances for these countries was international political situation of which he
reversed. O f greater significance than these complains changed for the better. He shares
data was the continuation of the struggle a common feeling that the relations between
between the American trade agreements pro­ government and business must improve (and
gram and the clearing agreements program of one sometimes suspects that he overstresses
the exchange-control nations. Over a third the responsibility of the Government in this
of the trade of the United States was with regard). Whatever the answer to the funda­
countries which were operating under recip­ mental question regarding the permanence of
rocal trade agreements at the end of 1937, the recovery, this reviewer looks forward to
and negotiations were under way with other his analysis of the events which will provide
nations that would directly affect 30 per cent it.
more. The recovery in world trade in 1936

July, 1939
IN 19371


gated; consequently, the figures obtained
should be as truly comparable as it is possible
to secure by any method of investigation
Dean, College of Commerce,
based upon pre'existing operating statements
University of Maryland
not set up with reference to a particular
A great many attempts have been made investigation. The author recognizes the
by cooperators and by their private compete limitations of the data with which he is
itors to show that cooperative distribution on working, and is careful to qualify conclusions
the one hand or private distribution on the whenever smallness of sample or other factors
other is the more efficient. This pamphlet necessitate this.
While the comparison between private
by Professor Schmalz; is by far the most care'
ful attempt thus far made to compare the and cooperative distributors’ enterprises con'
stitutes one of the most striking elements of
two types of institutions.
Previous comparisons between coopera' this report, only a small portion of the pamph'
tives and private distributors have led to let is given over to discussion of the relative
questionable conclusions because the figures operating advantages of the two types of
obtained have not been properly comparable enterprise.
for one reason or another. Differences
This study divides consumer cooperatives
between available operating statements for into three groups for purposes of study: (1)
cooperatives and private distributors have the food store cooperatives, largely serving
arisen from differences in size of the city in urban communities; (2) the general store
which the two types of enterprises have been cooperatives which deal in miscellaneous or
located, differences in the geographical loca' general merchandise, including foods, which
tion of the two, differences in the types of tend to be located in small towns or in dis'
service provided, and differences in the com' tinctly rural localities, and which serve
modities handled or the proportion of differ' farmers for the most part; and (3) the cooper'
ent commodities handled. Professor Schmalz atives organized among farmers chiefly for the
has recognized the fact that differences in joint purchasing of farm supplies, including
operating results between cooperatives and petroleum products.
private distributors may be due to differences
For each of these classes of cooperatives,
in the operating conditions under which this report provides a detailed analysis of
given firms operate rather than differences operating expenses, margins, income, and
due to ownership by cooperative as compared stock turn. The author draws a number of
with private operators, and has tried, so far conclusions from his tabulations with respect
as possible, to develop comparable data.
to effects upon operating ratios of differences
In this, he is greatly favored by the tre' in sales volume, size of city, types of opera'
mendous quantity of comparative material tion or service, and commodities handled
available on operating results of individual that are quite useful to students of distribu'
firms that has been accumulated by the Har' tion. The “ common” ratios developed will
vard Bureau of Business Research. The study serve as performance standards for the
of cooperative distributors is fitted into the appraisal of operating results of distributive
same standard investigational process as all cooperatives. Operating expenses (before
the private distributors previously investi' interest in each case) were 16.6 per cent of
sales of food stores (14.6 per cent in the most
1 “Operating Results of Consumer Cooperatives in
enterprises), and 11.6 per cent of
the United States in 1937," by Carl N. Schmal*.
Bulletin No. 108, Bureau of Business Research, Har'
sales of the general stores (9.9 per cent in the
vard Business School, 1939. $1.00 (discount of 20 per
most profitable enterprises). In both types
cent allowed to Alumni).


Harvard Business School Alumni Bulletin

of store, expenses increased markedly with
size of city.
Farm supply stores and petroleum bulk
stations were analyzed separately in accord"
ance with the relative proportions of farm
supplies and petroleum products. Coopera'
tive bulk stations had the highest operating
expenses of any group surveyed, 19.1 per
cent to 19.3 per cent for stations without and
with filling stations respectively, and even
the most profitable firms averaging 17.3 per
cent to 18.0 per cent.
Because of the influence of varying gasoline
taxes upon the expense ratios, a useful appen^
dix is included in the report that shows com'
parative figures with allowance for gasoline
With regard to the comparative operating
advantages of cooperatives as compared with
private merchants, Schmalz says with regard
to food stores, “ It appears either that the
cooperative form of organization does not
lead to conspicuous advantage in operating
efficiency, or that the cooperatives by 1937
had not got themselves organized to the
point where such advantages had become
“ Insofar as food retailing is concerned, any
important contribution of cooperatives to the
welfare of consumers which is made through
lower prices or greater values does not arise
from operating efficiency in the retail stores
greater than that for private enterprise.
This does not mean that cooperatives cannot

give better values than privately owned
businesses; but it indicates that such better
values, if given, probably must reflect:
(a) Advantages secured in wholesaling or
in manufacture, possibly through private
branding coupled with scrupulous regard, in
product specifications, in labelling, and in
pricing, for the interest of consumers; and
(b) A distribution of retail profits.”
Schmalz’ conclusions as to the comparative
operating expenses of cooperative general
stores and their private competitors are in
sharp contrast to the conclusions just stated
as to food stores. This study shows total
expense before interest of cooperatives of
11.6 per cent for cooperative general stores
as compared with 15.6 per cent to 18.65 per
cent computed by various other studies as
the expense of privately owned general
stores. The author concludes that “ coópera'
tives may have introduced some economies
in retail distribution” . . . and “ that they did
have conspicuously lower costs for payroll,
advertising, miscellaneous expense, and total
expense.” As the author points out, how'
ever, the several samples are small, they repre'
sent different years, different sizes of firms,
and different geographical areas; and he sug'
gests that conclusions as to greater efficiency
among cooperative general stores must be
considered on a tentative basis until more
adequate and comparable studies can be made
of the two types of enterprises operating
under more nearly comparable conditions.

On Commencement Day, which was held on June 22, a total of 2,315 degrees were awarded.
From the standpoint of the Alumni of the Business School, the degree which attracted the
most interest was the honorary degree of Doctor of Laws conferred on Wallace B. Donham,
Dean of the Business School since 1919. This rounded out a series of Harvard degrees for Mr.
Donham since he received his A.B. in 1899 and was therefore celebrating his fortieth reunion
with the members of his class. Mr. Donham graduated from the Law School in 1902 and
received his LL.B. degree at that time. The citation which accompanied the degree was read
by President Conant as follows: “ A man of business turned educator; his originality and daring
have shown us how a university should educate the business man.”
Also of interest to Business School Alumni was the speech of Darwin C. Brown, a candidate
for the degree of Master in Business Administration. This was the first time in some years
that a Business School man has been one of the Commencement speakers. Mr. Brown spoke
on “ The Responsibility of Business to Government.”
A total of 866 degrees were conferred on undergraduates, 660 receiving the Bachelor of
Arts degree and 206 that of Bachelor of Science. Two men received the degree of Adjunct in
Arts. In the Graduate School of Arts and Sciences 194 men received the degree of Master of
Arts, four men that of Master of Forestry, 11 men that of Master of Arts in Teaching, and 87
that of Doctor of Philosophy. In the School of Education 22 men received the degree of Master
of Education and three that of Doctor of Education. The Faculty of Design graduated eight
Bachelors of Architecture, nine Masters in Architecture, seven Masters in Landscape Architecture and one Master in Regional Planning. The Engineering School graduated one Master
of Science and 92 Masters of Science in Engineering. The Law School graduated 384 Bachelors
of Law, 17 Masters of Law, and two Doctors of Juridical Science. In the Dental School 29
men received the degree of Doctor of Dental Medicine. In the School of Public Health 37
received the degree of Master of Public Health and two that of Doctor of Public Health. The
Medical School graduated 130 Doctors of Medicine. The Divinity School graduated seven
with the degree of Bachelor of Divinity and two with that of Master of Divinity. The
Business School graduated 396 men, 38 of them with Distinction, and awarded two degrees
of Doctor of Commercial Science. The honorary degrees were 12 in number and the
recipients and the citations are as follows:
Master of Arts
W a l t e r B e n ja m in B r ig g s . An officer of the College Library during four decades, to all
who seek knowledge among our books a patient and kindly guide.
B r u c e R o g e r s . A skilled designer of the printed page, adviser to the Press in both this
University and in the ancient Cambridge across the sea.

Doctor of Arts
W i l l i a m E m erso n . An educational statesman in the field of architecture, administrator
and teacher at the Institute of Technology, our distinguished neighbor.

Doctor of Science
P e r c y W i l l i a m s B r id g m a n . An experimentalist who transforms stubborn matter by high
pressures; a logician who alters physical theory by acute analysis.



Harvard Business School Alumni Bulletin

H a n s Z in s s e r . A dynamic teacher whose vision extends beyond his laboratory; a famed
investigator of the secret ways of man’s microscopic enemies.
C h a r l e s F r a n k l i n K e t t e r i n g . An engineer in the great American tradition, an inventor
whose imagination has quickened both industry and science.

Doctor of Laws
E n d i c o t t P e a b o d y . The builder of a famous school, a master honored and revered by
generations of devoted pupils.
W a l l a c e B r e t t D o n h a m . A man of business turned educator; his originality and daring
have shown us how a university should educate the business man.
H o w a r d W a s h i n g t o n O d u m . A pioneer surveyor of the modem South; from an academic
vantage point he directs and inspires a vigorous attack on the social problems of tomorrow.
L e a r n e d H a n d . A judge worthy of his name, judicial in his temper, profound in his
knowledge; a philosopher whose decisions affect a nation.

Doctor of Letters
G e o r g e A n d r e w R e is n e r . Egyptologist without equal; a relentless excavator, he recap"
tures for this age the glories of a distant past.
W a l l a c e N o t e s t e i n . A critical historian of the Stuart parliaments; his accomplishment of
a great task puts before us the significant record of the first triumphs of the House of Commons.

P e a r s o n H u n t , Ph.B. (Yale University) 1930; M.B.A. (Harvard University) 1933. Special
Field, Commercial Banking. Thesis, “ An Examination of the Commercial Bank Portfolio
Policies in the United States — 1920-1938.”
C e d r i c W i l l i a m L u t z , S.B. (University of Arizona) 1932; M.B.A. (Harvard University)
1937. Special Field, Accounting. Thesis, “ Cost Determination for the Control of Load
Bui1ding and Rate Making in Electric Utilities.”

(As of February, 1939)
T homas H e n r y C arroll, S.B. (University of California) 1934; M.B.A. (Harvard Univer"
sity) 1936. Special Field, Accounting. Thesis, “ Some Financial and Regulatory Problems of
Retirement Accounting in Public Utilities.”
A r c h i b a l d W i l l i a m C u r r i e , B.A. (Queen’s University) 1929; B.Com. (ibid) 1930;
M.B.A. (Harvard University) 1934. Special Field, Transportation. Thesis, “ Canadian Rail"
way Problems with Special Reference to Freight Rates on Grain.”
H a r r y L o u is H a n s e n , S.B. (Haverford College) 1933; M.B.A. (Harvard University) 1935.
Special Field, Sales Management. Thesis, “ Premium Merchandising to the Ultimate Con"

July, 1939



Darwin Charles Brown
Alexander Troup Daignault
Philip Otto Geier, Jr.

John Henry Martin
Robert Watson Merry
Percival Frederick Albert Prance

John Franklin Pritchard, Jr.
Joseph Share


William Marcellus Anderson, Jr.
Charles Elwood Bain, Jr.
Kenneth Henry Beer
Ronald Calvin Bradley
Robert Emmett Burns
Horace Childs Buxton, Jr.
Frank George Chambers
Heng Chi
Hugh Frank Colvin
William Winans Converse

Robert Moore Dillard
Walter Godley Donald
John Stevenson Edwards, Jr.
Albert Maurice Freiberg
John Desmond Glover
Howard Franklin Hamacher
Arden Elwood Hardgrove, Jr.
Kenneth Sear Harris
Edward Lincoln Heller
Arthur Richard Hodgson, Jr.

James Arnold Hurst
Alfred Ertel Kuerst
Laurence Henry Larsen
Edwin Charles Luedeking
Alfred Thomas Magnell
Stanley Lewis Mayo
Quin Morton
Horace Alvord Quinn
Edwin William Rawlings
Robert Byers Shaw

Arthur Aaron
Patrick Bernard Victor Montagu
John Willis Adams
Julian Adler, Jr.
Edward Robert Ahearn
L. B. Alexander
William Williams Allen, 3d
Charles Carroll Alsop
Robert Angell Andrews
Norman Sheffield Angell
Arthur Lowrie Applegate
John Moody Arnfield
David Rudd Arnold
Cecil MacDonald Arrowsmith
Phillip Stiling Babb
Albert Gray Bale
Donald Roy Barber
George Franklin Bateson, Jr.
Gene Kerwin Beare
William Simpson Beatty
Walter Bernfeld
John Frederick Bertram
Morris Herbert Betten
Richard Virgil Bibbero
Joseph Allen Bloombergh
David Clark Bole
Arthur Dalton Bond, Jr.
Paul Sachs Bowers
Thomas McLaughlin Breeden, Jr.
Cyril Quentin Breitenbach
Bernard Thomas Brennan
Francis Gorham Brigham, Jr.
Emerson Eliot Brightman
Beryl Leonard Brody
Edmund Perry Bronson
Thomas Wallace Brooks
Hubert Leighton Brown
Mervin Charles Brown
Stanley Edwin Brunstein
Frank Gerhard Buchwald
Daniel Joseph Buckley
Trane Burwell
Richard Ford Cadwallader
Howard Bennion Calder

James Gray Cannon
Montfort Boylan Carr
Walter Paul Cartun
John McMullen Case
Robert James Chapman
Sumner Daniel Charm
James Wiley Christie, Jr.
Grover Vincent Clark
Henry Wyatt Clowe
Raymond Carl Clyne
Ruard William Cochrane
Robert Louis Cohen
Sydney Leon Cohen
Robert Leake Steele Cole
Whitefoord Russell Cole, Jr.
William Joseph Collins
Philip James Conley
Walter Douglas Cook
Avrun Ebb Cooper
Jack Crouch Corbett
William Franklin Corman
Charles Ellison Cosby
Leo James Coveney
Edward Byron Covert
Harmer Lee Cox
Howard Ellis Cox
Robert Walton Crawford
Hershner Cross
William Arthur Cullman
Wilburn Leslie Davidson
Harry Lyman Davis, Jr.
William Woodford Davis
George Lawrence Deal
Robert Francis Delaney
Joseph Richard Dembeck
John Henry Devlin, Jr.
Robert Farmer Devoy
Theodore L. Diamond
William James Dibble
Alfred James Dickinson, Jr.
Frederic Eugene Dion
Ambrose Benedict Doran
Edward James Drummey
William Carter Dulin
William Harrison Dunbar

Frank William Dunn
James Saye Dusenbury, Jr.
Robert Rockwell Dyer
Robert Frank Edwards
William James English, Jr.
John Nichols Estabrook
Richard Fremont Estes
Frank Marion Evans, Jr.
Edwin Ewing, Jr.
Orlo Arden Ewing
Robert Wallace Ficken
Lawrence Miller Finkel
Stanley Morton Finkel
Robert Fleming Finnegan
John Cox Flynn
James BrufF Forbes, Jr.
Robert Fayette Foster
David Livingston Francis
John Warren Franklin
Edward Albert Fritz
John Arthur Fromm
Charles Albert Garcia
Louis Lindeman Gardner
Frederick Garrison
Frank Berry Gatchell, Jr.
Truman Gray Geddes
James Marshall Geer
Richard Henry Gillespie, Jr.
Harry Lionel Goff
Harry Russell Goff
Morton Silverson Goldstein
Albert Goodhue, Jr.
George Hargraves Aubrey Gooding
Warren Kelly Goss
Harry Kasper Gregory
Nathaniel Cooley Groby
Harry Brooks Gutelius, Jr.
Ernest Paul Haas
Walter A. Haas, Jr.
William Haas
Chandler Sprague Hagen-Burger
Albert Halsband
Glenn Ellsworth Hansen
Nathaniel Arnold Hardin
Thomas Walter Hardy, Jr.

William Albert Harmon
Lee Harris
Alfred Townsend Hartwell, Jr.
Lucius Herman Harvin, Jr.
Albert Edwin Haskell
Kenneth MacKenzie Hatcher
Philip Mosher Hawes
Dana Waldron Hayward
George Henry Heddesheimer
Samuel Ray Heffron
Waldemar Robert Helmholz
Joseph Lee Herlihy
Bernard Irving Hermele
aime Hernandez
Harold Lloyd Hess
William Henry Hinson
Henry Williamson Hoagland, Jr.
Lester Nathan Hofheimer
Robert Crossett Holcombe
George Hughes Holder
Marshall Maynard Holleb
Louis HomonofF
Charles Coy Honsaker, Jr.
Alexander Bates Horsfall
George Taylor Howard
William Everett Hoyt, Jr.
Albert Edward Hulbert
Harold Homer Hunt
John Bernard Hunt
William Craig Huntting
David Salmon Schuster Hutton
Myron VanPraagh Jacobs
James Myron Jacobson
Leonard Sigmund JafFe
Harold Earnst Jahn
Albert John Jehle, Jr.
Grinnell Jones, Jr.
Edward Raymond Joshua, Jr.
Frank Foreman Kahn
William Frank Kewer
Edward Norris Kimball, Jr.
Edward Zahm King, Jr.
Richard Jacob Kins
Winston Joseph Klein
Richard Bunting Knight
Julius Louis Korson
Irving Monroe Kram
William Augustus Kuhns
Paul Richard Lally
James Alan Landsman
Sidney Lansburgh, Jr.
Homer Clarke Lathrop
Daniel Webster Latimore
Robert Benson Law
Albert Mona Lester
Arthur Irving Levy
Laurence Hertzel Levy
Sidney Lewis
William Harold Lipsitt
Daniel Sylvan Lisberger
Maurice Liston, Jr.
Marion Richard Llewellyn
Henry Lloyd
John William Losse, 3d
Allen Hudson Lynch
Irving Lyons
Richard Carl Lytle
Kenneth John McCarthy
Sidney Raymond McCleary
William Masten McCullough

Harvard Business School Alumni Bulletin
John Dann MacDonald
John Thornton MacDonald, Jr.
William Thornton McDonnell
Milton Machinist
Edward John Mack
John Martin McKeague
John Trudgeon McKown
Myles Tierney MacMahon
Robert Strange McNamara
Winthrop Gilman McSparran
Robert Leitch McVie
Richard Hartnett Magee
Robert Williamson Maher
Morton Roy Mann
Delmor Benjamin Markoff
Brewer Jay Merriam
John Ferdinand Meyer
Robert Alan Meyers
Robert Holbrook Miller
Paul Tavenner Millikin
Vangel Lazar Misho
Danforth Steere Mitchell
Anson Churchill Moore
Baxter Springs Moore, Jr.
Howard Vincent More
Howard Knight Morgan
John Allen Morgan
Donald Fraser Morris
Clinton Morrison
Albert Reynolds Morse
Byron Wallace Moser, Jr.
Carl Renner Moss
William Newton Nelson, 2d
Frank Newman
Harry Jefferson Newman
Vigo Gilbert Nielsen
Charles Loring Jackson Noble
George Stark Norfleet
Granville Wallace Oakes
Charles Wheeler O’Conor
Ralph Sigurd Odegard
William Farnsworth Orr
Jack Ostrer
Ambrose Kendell Oulie
Samuel Keith Painter
Everett Arthur Palmer, Jr.
Harry Edmunds Parker, Jr.
Richard Ballou Parks
James Schwan Parshall
Joseph James Patton
Warren Frederic Pearce
Charles Adam Penzel, Jr.
John Edwin Peterson
Joseph Carman Petteruti
Jesse Philips
Charles Chipman Pineo, Jr.
Perry Paul Polentz
Raymond Avery Powell
Richard Aloysius Powell
Dana Serr Prescott
Charles Farnsworth Price
Joseph Osborne Procter
Peter Joseph Prozeller
George Laurence Pulis
Nicholas Puzak
Jacob Sherman Ramsey, Jr.
Schuyler Colfax Reber, Jr.
Thomas Carl Reck
George Hannah Reese, Jr.
Franklin Reifsnider

Edmund Addison Rennolds, Jr.
Fred T. Renshaw
Sydney Resnick
Henry Carlos Rexach
Frank Jones Roberts
William Leslie Roberts
John Gustave Robertson, Jr.
Melvin Alan Robin
Albert Ignatius Roche
Thomas Blackwood Rodgers, 3d
Malcolm McNaughten Rorty
Maurice Charles Rosch
Michael Irving Rosenthal
Charles Burdette Ross, Jr.
Earl Wesley Rubens
John Paul Russell
Thomas Anthony Saint
Albin Salamon
William Mair Sanderson
Leroy Edward Savage
Edward Lawrence Saxe
Abe Schlesinger, 2d
Courtney Frederick Schley
Robert Joseph Schmidt
Charles Henry Schnell
Richard Anthony Schroeter
Abram Segal
John Archibald Sessions
Robert Urson Shallenberger
John Sherman Shaw, Jr.
Norman James Shaw
Robert Emmet Shearon
Israel Saul Shulman
Jerome Arthur Siegel
Andrew Lawrence Simpson
Ralph Parkinson Simpson
Edward Martin Skowrup
Howard Carroll Smalley
Dexter Allen Smith
Ernest Walker Smith
Sidney Joseph Smith
Girvan Noble Snider, Jr.
Robert Bresson Solow
Robert Sosnik
Francis Charles Stacey, Jr.
Samuel Saul Stahl
William Otto Starkweather
Elmer Norman Staub
David Duffield Steere
Edmund Francis Stefenson
Eric John Stenholm, Jr.
George Earl Stoddard
Harry Kendall Stremmel, Jr.
John Raymond Stuart
Alfred Wilbur Swinyard
Winthrop Howard Taft
John Austin Tate, Jr.
Joseph Montgomery Taylor
Robert Elliott Thompson
Walter Francis Thompson
Charles Leonidas Tooker
Charles Wilmot Veysey
Richard Holt Wakefield
Homan Leavell Walsh
Hugh Francisco Warner
William Sayles Webster
Frederick Peter Weil
Roger Underwood Wellington
Sigmund Werner
John Edward Whitfield

July , 1939


Myron Arms Wick, Jr.
Charles Marvin Williams
Francis Curteus Wilson
Robert Claude Wing

Cyrus Wintersea
Edward Warren Wohlgemuth
Harold Patterson Wolf
William Gilchrist Wood

Glenn William Anderson, Jr.

Frank Warren Knowlton, Jr.

Richard Harry Woodrow
Ellis Gardiner Yout?
Louis Edward Zell, Jr.
Abraham Moses Zibit


(Out of Course)
As of the Tear 1938
Arthur Little Hamilton, Jr.
Milton Lincoln Levy

William Shepard Lingley
Samuel Daniel Mills

Alvin Kenneth De Siena

William Clarence Wickenden

As of the Tear 1937

Bernard Maurice Turrettini

A L U M N I


A ssets

Cash in banks:
Checking account...................................................................
Savings accounts....................................................................


Office equipment, less reserve for depreciation...............................


Total assets........................ ...........................................


L ia b il it ie s a n d S u r p l u s

Accounts payable......................................................................
Dues prepaid:
1939-4 0
1940-4 1
1941-4 2
Advertising prepaid.......................................................................
Balance, May 1,1938....................................................
Excess of income over expenses for the year ending
April 30,1939............................................................




Total liabilities and surplus.. .


To the Harvard Business School Alumni Association:
We have made an examination of the balance sheet of the Harvard Business School
Alumni Association as at April 30,1939 and of the statement of income and expenses for the
year ending on that date. In connection therewith we examined or tested accounting records
of the Association and other supporting evidence and obtained information and explanations
from officers and employees.
Cash balances were confirmed by direct correspondence with the depositaries. Recorded
eceipts were traced to bank statements and cancelled checks or vouchers supporting all
recorded disbursements were examined, but we did not verify independently the amounts of
dues and admissions received during the year.
In our opinion, based upon such examination, the above balance sheet and attached
statement of income and expenses fairly present the position of the Association at April 30,
1939 and the results of its operations for the year ending on that date.
P r ic e , W a t e r h o u s e

Boston, Massachusetts.
June 12, 1939.


fe? Co.


July , 1939
Dues, 1938-39....................................................
Bulletin advertising.............................................
Bulletin sales.......................................................
Interest on savings bank balances........................
Admissions, less expenses — annual meeting . . . .
Miscellaneous income.........................................
Total income..............................................
Supplies................ .......................
Stenographic and clerical.............................
Less — Contribution of stenographic
and clerical services by Harvard
Graduate School of Business
Addressograph expense...............................
Depreciation of addressograph.....................
Directory expense.......................................
Less — Contribution for directory
printing by Harvard Graduate
School of Business Administra^














Total expenses


Excess of income over expenses for the year



Harvard Business School Alumni Bulletin

To the Editor:
The text of Mr. Sayre’s address, “ Fun in
Business,” published in the February B u l l e t i n , was of great interest, and it has inspired
me to add a few comments on another varia­
tion of this thesis.
If your corporation employer is decentral'
izing, do not wait, volunteer to transfer your
services to the small oppidan division from the
big metropolitan office.
Stepping up to meet this challenge, together with your expression of a willingness
to pioneer thus, may well be the spark of
initiative that your superior has been seeking
among his »staff of understudies — and never
worry, the worthwhile business executive
will not lose sight of his capable men, wherever they may be located. This trend of decentralizing of industries is only in embryo,
and your acting now will provide you with
an eclecticism of opportunities. It is written
by experienced brass hats that one of the
soundest routes to top-flight corporate officialdom is via invitation to such responsibilities
subsequent to success in the secondary cor­
porate units.
While you are in the “ sticks” you will
thrive on the walk to and from your office
three times daily. For the first time since
grade school days you may be on hand for the
“ hashed-up” home noon meal you have so long
missed. Your little, non-carpeted office quar­
ters over one of the national chain grocery
stores on Main Street is diagonally across
from the county courthouse, jail and sheriff’s
home. From the tidily trimmed, green-grassed
yard of the latter you hear the pet rooster
crow while you converse with the central
office via long distance telephone, which
jangles with the din of screaming automobile
brakes and the shrill penetrating whistle of
the “city cop.” Soon you become certain that
the regular toll of the town clock in the court­
house has long since discouraged the salesmen
of office clocks from approaching your “ P. A .”

During your first week of residence in the
new community the fact of your presence is
passed along the “ grapevine” to Farmer Cyrue
Dawson who comes to ask if he may have the
privilege of collecting your garbage. This is
an introduction to an acquaintanceship which
leads you to visit Dawson’s farm, down the
National Pike “apiece” and then to the left
“ on a good cornfed road.” You see the already
corpulent hogs, which are henceforth to be
your garbage disposal plant, casually inspect
the poultry yards and houses, pass through
the stock barns, and eventually come to the
house to meet immaculate Mrs. Dawson as
she interrupts her work in her spotless kitchen
to welcome you at the threshold. In conse­
quence of this visit you are soon regularly
engaging both country-churned butter and
strictly fresh eggs from the Dawson farm,
and pork products at butchering time —
spareribs that are not streamlined spare, and
sausage that is seasoned as you have read
about but never before eaten.
During the same first week the effective­
ness of a beauty parlor announcement is im­
pressed upon your household. The mother of
one of your associates remarks in Mrs.
Hogle’s Beauty Shoppe that the wife of a new
company employee is interested in Girl Scout­
ing. From this casual statement the Girl
Scout district chairman, Mrs. Isabel Carroll,
comes to interview your wife and solicit her
support. In mid-season your wife is assigned
a troop of Scouts. She quickly broadens her
contacts through this activity, and concludes
that girls are about the same wherever you
work with them — excepting that never had
a Girl Scout in the big city brought a twomonths old pet pig to Scout meeting.
Yes, your mailman will read your postals,
know your stock interests and, if you must
have them, your creditors. He will surprise
your visiting mother-in-law when he delivers
to her the first package, saying, “ It is for
Vernon.” Scotty, in the post office, will know
that you are a movie faddist through your
mailings to and from Eastman, but you will

July , 1939
be rewarded for any infringement on your
privacy when he invites himself over for an
evening of comparing movie works and you
enjoy his four reels taken at the Los Angeles
Convention of the American Legion.
Bank statements will not be forthcoming
monthly by mail. But what of it? You soon
are aware that for the individual some of the
so-called “ banking services” are merely show­
manship, the omission of which are more than
compensated for by the lack of “service
When you leave the office to attend the
Rotary luncheon meeting in the assembly
room of the First National Bank you observe
the Methodist women carrying steaming pots
and pans from the church kitchen across Main
Street to the luncheon table. And you leave
your coat and hat on the counters or chairs
of the bank lobby — unwatched.
You will be afforded the opportunity of
enjoying the church bells as they toll the peo­


ple to worship — yes, for three services on
Sunday and for midweek prayer meeting.
Knowing full well that Undertaker Patterson
stands before his door on Main Street being
sociable for future business reasons, you,
nevertheless, cannot but feel his friendliness
and stop occasionally to visit. You may enjoy
Sullivan’s excellent riding horses and private
riding ring — no charge. Certainly you will
appreciate Mrs. Corcoran’s homemade ice
cream, made of cream from their own Jersey
cows, pastured right off Main Street.
If you welcome and accept the challenge
of pioneering in the movement of the decen*
tralisation of industries you will gain either
as a permanent provincial or as an improved
metropolitan. In the interim you will reap
sufficiently satisfying compensations, spiced
to a nicety with unpredictable adventure.
Yours very truly,
V ern on

S. L a t im e r , ’32.


George Herbert Nelson died June 11 at
Rockville Center, Long Island. He received
his B.S. from Worcester Polytechnic Institute
in 1923 and his M.B.A. from the School in
1935. He went with Eastman Kodak Company in Rochester as an industrial engineer
after receiving his M.B.A., and at the time
of his death he was production manager of
the Boston firm of Manning, Maxwell
Moore, Inc.
A son, Richard C. Floyd, Jr., was born to Mr. and
Mrs. Richard C. Floyd of Brookline, Mass., on April 18.

Francis P. Byerly, representing the American Insti'
tute of Accountants, was one of the speakers at Ohio
State University’s institute on accounting held May 19
and 20 at Columbus, Ohio.

William L. Walker is now general manager of the
Universal Button Company, 2250 Fort St., W., Detroit,

Aaron S. Aronson is controller for the National Dairy
Products Corp., now located at 75 East 45th St., New
York City.
Herbert O. Hope, formerly merchandise manager for
the H. 6s? S. Pogue Company in Cincinnati, Ohio, is
now general merchandise manager for the May Com­
pany at Baltimore, Md.
Richard S. Wright is now associated with Bell 6?
Davis, 519 California St., San Francisco, Calif.

Charles C. Lillis, who has been in the operating
department of Wilson & Co. in Chicago, has been trans'
ferred to their plant at Osage and Adams Sts. in Kansas
City, Kan. He is living at 2521 Washington Ave.,
Kansas City.
Glenn N. Merry, formerly associate professor at New
York University School of Commerce, is now professor
of marketing there.

Lt. Comdr. Robert F. Batchelder has been transferred
from the Philadelphia Navy Yard to the U. S. S. Cali­
fornia, San Pedro, Calif.
Henry T. Crosby married Miss Susan MacLaurin,
daughter of Mrs. Daniel MacLaurin Mayers of Bran­
don, Miss., on June 29.
Kenneth D. Hutchinson, who received his Ph.D. at
Harvard last summer, is now assistant professor of
economics at Pennsylvania State College.
Paul Ryan, formerly a partner in the firm of Ryan,
Leach 6? Goode in New York City, is now president
of the National Refining Co., Hanna Building, Cleve'
land, Ohio.

Nevin B. Balliet was married to Mrs. Corrine Eck'
hardt Lund (Marshall College), daughter of Mrs. Pris­
cilla Eckhardt Beauchamp of Prince George, B. C.,
Canada on June 24.
Frank D. Chutter has left Charles W. Scranton &
Co. in New Haven, Conn., to join the reoganization
division of the Securities and Exchange Commission,
Washington, D. C.
Mr. and Mrs. Pierce Onthank of Waban, Mass., are
the parents of twin daughters, Katherine and Dorothy
Onthank, born April 13,1939.
On May 27, Francis G. Ross was married to Miss
Marjorie E. Black (Syracuse University), daughter of
Mrs. Wallace Black of New York City and Lancaster,
C. Bevan Strayer, formerly county supervisor for the
Pennsylvania Department of Public Assistance, is now
group enrollment representative for the Associated
Hospital Service in Philadelphia, Pa.
John C. Williams has been elected a director and
secretary in charge of publicity of L. Bamberger 6? Co.,
in Newark, N. J.

J. Gerard Heathcote, who has been with the Bishop
Insurance Agency, Ltd., in Honolulu, is now non­
resident supervisor with the Canada Life Assurance
Co., 330 University Ave., Toronto, Canada. He is
living at 89 Moran St., Grosse Pointe Farms, Mich.

John W. Cance, formerly with the Allied Purchasing
Corp. in New York City, is now merchandise vice'
president for Waite's, Inc. in Pontiac, Mich. He is
living at 117 East Iroquois Rd. in Pontiac.
Eric Etherington is now associated with Southgate
6? Company, 33 State St., Boston, Mass.

Dr. Aldis B. Johnson has left the Willard Parker
Hospital in New York City and is now connected with
the Children’s Hospital in Denver, Colo.

Samuel E. Berman is now manager of the Berman Cut
Sole Co., 203 Essex St., Boston, Mass.
Announcement has been made of the engagement of
Malcolm L. Donaldson to Miss Eleanor Locke (Syracuse
University), daughter of Mr. and Mrs. Clifford M.
Locke of Needham, Mass.
Clifford L. Haworth is now head of the sales auditing
division of Marshall Field d? Co., 222 North Bank Dr.,
Chicago, 111.
Raymond C. Holgate is merchandise manager and
West Coast buyer of the United Cigar'Whelan Stores
Corp., 701 Bryant St., San Francisco, Calif.
Howard R. Lansinger has just been made District
Operating Manager for B. F. Goodrich Co. at 1427
North Water St., Milwaukee, Wis.
John F. Marshall, who has been a security analyst for
Loomis, Sayles 6? Co., Inc., in Boston, has been trans­

July, 1939


ferred to their office in San Francisco which is in the
Russ Building.
William P. Ryan, formerly associated with the Inter­
national Silver Co. in Meriden, Conn., has become
associated with the Market Research Department of
Pedlar 6? Ryan, 250 Park Ave., New York City.

Parmely C. Daniels, formerly with the Panama Canal
and Railroad Co. in Balboa Heights, Canal Zone, has
recently accepted a position with the Social Security
Board as senior personnel assistant at 1724 F St., N.W.,
Washington, D. C.
Announcement has been made of the engagement of
G. Alden Donham to Miss Mary Virginia Ashby (Rus'
sell Sage College), daughter of Mr. and Mrs. Holden
M. Ashby of Kinderhook, N. Y.
Robert C. Duncan has left Davison'Paxon Co. in
Atlanta, Ga., and is now assistant to the sales manager
of Lehm 6? Fink, 683 Fifth Ave., New York City.
Douglas D. Hall was married to Miss Martha L.
Conley, daughter of Dr. and Mrs. Charles Henry Conley
of Frederick, Md., on May 5.
Col. Rufus F. Maddux will be located at Fort Sher*
man, Canal Zone, as of August 1,1939.
Bertram D. Shepard’s business connection and resi­
dence address were inadvertently confused with those
of Mr. T. Mills Shepard in the new Directory. Mr.
Bertram D. Shepard’s business address is City Bank
Farmers Trust Co., 22 William St., New York City,
and he lives at 325 Riverside Dr., New York.
Milton C. Smith, formerly an instructor at Miami
University School of Business Administration, is now

assistant to the editor of the South-Western Publishing
Co., 201 West Fourth St., Cincinnati, Ohio.

B. Bernard Kreisler has recently been appointed
manager of the Washington office of the Universal
Pictures at 913 New Jersey Ave.
A son, Roderick McRae, Jr., was born July 4 to
Mr. and Mrs. Roderick McRae of New York City.
Comdr. Edward R. McKenzie, who has been sta­
tioned in Washington, D. C., has recently been trans*
ferred to the U. S. S. Yorktown, San Diego, Calif.
Alvin L. Neuman is now office manager for the Chase
Bag Co. at the corner of Brown and Nebraska Aves., in
Toledo, Ohio.
F. Dwight Sage has recently joined the Rochester
Trust and Deposit Co., Rochester, N. Y., as assistant
Melville C. Threlkeld, Jr., general partner of the
Threlkeld Commissary Co., is again located at 405 Wall
St., Los Angeles, Calif. His home address is 322 South
Lorraine Blvd., Los Angeles.
Frost L. Tinklepaugh is now a special trainee in
Montgomery Ward Co. in New Britain, Conn. He is
living at 22 Lincoln St., New Britain.

John Hamilton Briggs is director of the Eaton Manu­
facturing Co., 1149 Terminal Tower, Cleveland, Ohio.
A. Barr Dolan and Miss Ella M. Poland, daughter of
Mr. George M. Poland, were married April 29.
Paul A. Grafton has accepted a position selling for
Bullock’s, Inc. in Los Angeles, Calif. He is living at
2211 Hill Drive, Eagle Rock, Calif.

in handling trust accounts
qualifies us to assist you in handling
your trust problems
As\ one of our officers how we may help you

Harvard Square, Cambridge, Mass.

Harvard Business School Alumni Bulletin


James J. Hanks, who was in the Department of
Commerce in Madison, Wis., is now assistant to the
General Secretary for the American Pulp and Paper
Association in New York City.
James I. Lobred, who has been with the Stewart
Dry Goods Co. in Louisville, Ky., has recently become
associated with the Gertz Department Store in Jamaica,
L. I.
John A. Roberts, formerly a salesman for the Welling­
ton Foundation, Inc., is now selling for Markay Prod'
ucts, Empire State Building, New York City.
The marriage of James H. Walker, Jr., to Miss Louise
Makepeace McKelvy, daughter of Mr. and Mrs.
Francis Graham McKelvy of Waterbury, Conn., took
place on May 26.

Bee, Inc., of which Luther R. Bachman is vice-presi'
dent, will move sometime this summer into larger
quarters on Allen St., Allentown, Pa.
A son, John Connable Bennett, II, was born to Mr.
and Mrs. John C. Bennett of New York City on
April 27.
Robert Bennink has left Standish, Racey & McKay in
Boston and has become associated with Lever Brothers
Co. at 164 Broadway, Cambridge.
Robert J. Brown is credit manager of the B. F. Good­
rich Rubber Co. at 7351 Woodward Ave., Detroit,
S. Charles Hanson has been transferred by Mont­
gomery Ward 6? Co. from Baltimore to their offices in
Chicago, 111. He is living at 7121 North Paulina St.,
Mr. and Mrs. Vernon S. Latimer of St. Clausville,
Ohio, became the parents of a son, Peter Dana Latimer,
on April 29,1939.
The engagement of Russell B. McNeill to Miss
Rebecca Elizabeth Duncan, daughter of Mr. and Mrs.
Malcolm K. Duncan of Dayton, Ohio, has been an»nounced.
Prof. and Mrs. W. Rupert Maclaurin of Cambridge,
Mass., are the parents of a second child, Robert Camp*
bell Maclaurin, born recently.
Leon Z. Mandelson was married to Miss Eleanor
Sachs (Radcliffe), daughter of Mr. Abraham Sachs of
Brookline, Mass., on May 11.
John Henry O'Toole, Jr., has recently become general
merchandise assistant and councillor to Mr. Svigals of
L. Bamberger Co., of Newark, N. J.
Mr. and Mrs. Marshall C. Sewall of New Canaan,
Conn., are the parents of a daughter, born April 20,
Stephen L. Upson, Jr. has left the Securities
Exchange Commission in Washington, D. C., and has
accepted a position as assistant to the general counsel at
the Burlington Mills Corp., North Eugene St., Greens­
boro, N. C. He is living at the Country Club Apts., in
William A. Yantis was married to Miss Marian
Elizabeth Homer, daughter of Mrs. Arthur Homer of
Meredith, N. M., on May 16. Mr. Yantis has recently
been made vice-president of F. S. Yantis 6? Co., Inc.,
120 South LaSalle St., Chicago, 111.

A son, Peter Walker Armstrong, was born April 15
to Mr. and Mrs. Richard H. Armstrong of East Orange,
The engagement of John H. Chamberlin to Miss
Ellen Hatfield Weir (Wilson College), daughter of Mr.

and Mrs. Jean Frederick Weir of New York City, has
been announced.
Announcement of the engagement of Richard B.
Chase to Miss Barbara Morel, daughter of Mrs. Thaddeus A. Morel of Barrington, R. I., has been made.
The engagement of Winthrop N. Davis to Miss
Eleanor Louise Power, daughter of Mr. and Mrs.
Edward Miller Power of Pittsburgh, Pa., was announced
on May 22.
William R. Driver, Jr., is now assistant cashier for the
Bank of Manhattan Co., 40 Wall St., New York City.
Announcement of the engagement of Abbot Frank
to Miss Helen Bernd Klein, daughter of Mrs. Mynette
B. Klein of Macon, Ga., has been made. Mr. Frank is
purchasing director for L. Grossman Sons, Inc., 130
Granite St., Quincy, Mass.
Frank W. Klatt has been transferred from Santa Ana,
Calif., to San Francisco where he is an account repre*
sentative for Eaton 6? Howard, Inc., Investment Mana­
gers. He is living at 1918 Franklin St., San Francisco.
Wendell D. Macdonald has accepted a position in
the refrigerator sales department of the Eastern Co., 620
Memorial Dr., Cambridge, Mass.
James G. Macey, recently partner of Shaw Hooker 6?
Co. in San Francisco, is now partner of Davies & Co.,
225 Bush St., San Francisco, Calif.
Joseph A. Marcus has left R. H. Macy fe? Co. of
New York to become buyer with its affiliate, DavisonPaxon Co., in Atlanta, Ga.

A son, Stephen Manning Beal, was born May 17 to
Mr. and Mrs. Sarell W. Beal, Jr., of Winnetka, 111.
Bay E. Estes, Jr., formerly with Goldman Sachs &
Co., 30 Pine St., New York City, is now associated with
the United States Steel Corp. of Delaware, 436 Seventh
Ave., Pittsburgh, Pa.
R. Barry Greene, formerly secretary'treasurer of the
Orkil Electric Co. in Hartford, Conn., has recently
become associated with the Connecticut General Life
Insurance Co. at 55 Elm St., Hartford.
Dean C. Jenkins has left Westinghouse Mfg. Co., in
Pittsburgh, and is now connected with the American
Appraisal Co., 1 Cedar St., New York City. This com­
pany has loaned him to the FHA as special consultant.
Mr. and Mrs. Lawrence S. Johnston of Stoneham,
Mass., are the parents of a daughter, Susan Barbara,
born April 15,1939.
Simon J. Khattar is now a barrister, solicitor and no­
tary public at 337 Charlotte St., Sydney, N. S., Canada.
Borgau Liang (Sing-Kue Liang) is now secretary in
charge of traffic and operations and a member of the
board of directors of the Hunan'Kwangsi R. R. Corp.,
9 Yun'chen Kai, Kweilin, Kwangsi, China.
John N. Lyle has been awarded the Julian Rosenwald
Fund of Chicago traveling fellowship. Mr. Lyle’s
twelve months’ study will include an investigation of
English and Scottish savings banks, investment com­
panies and trust methods employed there.
Mr. and Mrs. Frank Lyman, Jr., of Cambridge, Mass.
are the parents of a daughter born April 11.
Arthur J. McGinnis and Miss Roselind Perpetua
Diskon (Trinity), daughter of Mr. and Mrs. John J.
Diskon of Paterson, N. J., were married on May 17.
They will live at 440 West 24th St., New York City
Alan S. Miller is associated with the R. W. Cramer
Co., Inc. in Centerbrook, Conn.
Charles S. Richardson has been transferred to the
head office of Sears, Roebuck Co. in Chicago, where he
is assistant in the retail merchandising department. His

July, 1939


address is the Hotel Stevens, Michigan Boulevard,
Chicago, 111.
An invitation to the ordination to the diaconate of
Richard Upsher Smith by the Bishop of Washington in
Washington Cathedral on June 4 was received. Mr.
Smith was curate of St. Paul’s church in Flint, Mich.
The engagement of Robert K. Vincent to Miss
Eleanor B. Sherman, daughter of Mrs. Roger Sherman
of Winnetka, 111., was announced recently.
William D. Wallace, formerly with the Union Bank
and Trust Co. in Los Angeles, is now credit and office
manager for the Albers Milling Co., 6130 Avalon
Boulevard, Los Angeles, Calif.

Richard L. Allen was married on May 20 to Miss
Helen Elizabeth Bliss (Vassar), daughter of Mrs.
Charles A. Bliss of Newburyport, Mass. They are
living at 89 Maynard Road, Framingham Center, Mass.
Malcolm Bancroft was married to Miss Jean Tucker'
man, daughter of Mr. J. Willard Tuckerman, Jr., on
May 27,1939.
Leo M. Favrot, Jr., has accepted a position as auditor
with Parkerson & Dupuis in Lafayette, La.
Monroe W. Gill has been transferred by the Mohawk
Carpet Mills, Inc., from New York City to their office
at Amsterdam, N. Y.
James E. Goddard is now associated with the Zanes'
ville Metropolitan Housing Authority, First Trust
Building, Zanesville, Ohio.
Chester H. Griggs is now in the office of the operating
superintendent at Sears, Roebuck Co. at Homan and
Arthington Sts., Chicago, 111.
Richard Housley was married on June 10 to Miss
Mary Everett (Wellesley), daughter of Dr. and Mrs.
Harold J. Everett of Wellesley, Mass.
James S. Lay has recently become sales manager for
the Hagerstown Light and Heat Co., Public Square,
Hagerstown, Md. His home is at 150 East Irvin Ave.,
A daughter, Marilyn Bennett Moore, was born June
28 to Mr. and Mrs. Robert A. Moore of Arlington,
Leo Shapiro, Jr., is credit manager for Leo Shapiro &
Co., now located at 200 Christie Building, Duluth,
In the March issue of the New York University
Quarterly Review, Joseph C. Simpson has an article
entitled “The Sale Technique in Corporate Reorganiza'
tions,” written in collaboration with Melvin Cohen.
Stanley W. Swipp is now an assistant engineer at the
Rock Island, 111., Arsenal. He is living at 630 Myrtle
St., Davenport, Iowa.
Richard P. Thompson is now in the commercial
research department of the Bethlehem Steel Co., in
Bethlehem, Pa., and is living at 18 East Market St.
William L. West has left the investment house of
Harold E. Wood 6? Co. in St. Paul and become associ'
ated with the Automatic Control Co., 2590 University
Ave., St. Paul, Minn., as treasurer of the firm.

Charles M. Dieffenbach is now purchasing agent for
the H. H. Meyer Packing Company, Linn St. and Cen'
trai Ave., Cincinnati, Ohio. He is living at 372 Probasco
St., Cincinnati, Ohio.
James F. Forster, who has been with Arthur Ander'
sen 6? Co. in New York City since his graduation from
the School, is now associated with the Sperry Corp., 30
Rockefeller Plaza, New York City. His home address
is Thornycroft Apartments, Scarsdale, N. Y.

Andrew J. Goodwin, Jr., has left Dillon Read 6? Co.,
New York City, and is now associated with the First
National Bank of Anniston, Ala.
Carleton E. Hammond was married to Miss Dorothy
Pearson (New Jersey College for Women), daughter of
Mrs. William C. Pearson of East Orange, N. J., on
June 17.
Luther D. Hemphill, who works for Arthur Andersen
6? Co., has recently been transferred to 135 South
LaSalle St., Chicago, 111. His home is at 837 Ainslie
St., Chicago, 111.
Mr. and Mrs. Lenert W. Henry of Newton Center,
Mass., are the parents of a second son, William Abbott
Henry, born March 30,1939.
Mr. William V. Luneberg was married to Miss
Frances Louise Benton (Barnard College), daughter of
Dr. and Mrs. Nelson Kingsbury Benton of New York
City, on May 27.
The engagement of Russell B. Neff to Miss Emily
Harris Jones (Smith College), daughter of Mir. and Mrs.
Frederic M. Jones of Springfield, Mass., has been
William B. Rubey is now president of the Dr. Pepper
Bottling Co., 6101 Blair Rd., N. W., Washington, D. C.
He is living at 6693 Barnaby St., N. W., Washington,
D. C.
The engagement of Ewing P. Shahan to Miss Anne
Vivian Stobie (Wells College), daughter of Mrs. Harold
R. Stobie of Pelham Manor, N. Y., has been announced.
Announcement of the engagement of F. Douglas
Williams to Miss Esther Jane Grant (Kansas Univer'
sity), daughter of Mr. and Mrs. W. T. Grant of Kansas
City, Mo., was announced recently.

Max L. Baughman was married June 24 to Miss
Isabelle Heard Bland, daughter of Mrs. Charles Percival
Bland of St. Louis, Mo.
Gaylen R. Duncan, formerly appraisal engineer for
the Montreal *Engineering Co. in Montreal, is now
associated with the Venezuela Electric Co., Apartado
146, Maracaibo, Venezuela, S. A.
Sidney L. Gross is now secretary for the Atlas Shirt
Co. in Kinston, N. C.
Mr. and Mrs. Sargent Kennedy of Cambridge, Mass.,
are the parents of a daughter, Elisabeth Morgan Ken'
nedy, their third child, born May 23.
The engagement of Edward S. Litchfield to Miss
Carolyn Van Cortlandt, daughter of Mr. and Mrs.
Augustus Van Cortlandt of Mt. Kisco, N. Y., has been
Harry T. Morris, formerly with Loo\, Inc., in De'
troit, is now assistant to the publisher of Science and
Mechanics at 800 North Clark St., Chicago, 111.
The engagement of Sigourney B. Romaine to Miss
Laura Guy French (Vassar), daughter of Mr. and Mrs.
Harry N. French of NewYork City, has been announced.
Chester L. Seeley was married to Miss Evelyn L.
Schumacher (Wellesley), daughter of Mr. and Mrs.
Elmer L. Schumacher of Southbridge, Mass.. on June 18.

William L. Bong, Jr., formerly with Price, Water'
house 6? Co., is now payroll auditor for the Royal
Insurance Co. at 150 William St., New York City.
He is living at 350 West 85th St.
The engagement of Robert H. Cain to Miss Martha
Nuzman (University of Kansas), daughter of Mr. and
Mrs. Frederick R. Nuzman of Ottawa, Kans., has been


Harvard Business School Alumni Bulletin

John C. Cobourn, who has been with the Bausch
& Lomb Optical Co. in Rochester, N. Y., has recently

accepted a position as office manager for the Warren
Refining and Chemical Company at 9420 Meech Ave.,
Cleveland, Ohio.
Peter C. Coggeshall, III, who has been a research
assistant at the School for the last year, has recently
accepted a position with the Sonoco Products Co. in
Hartsville, S. C.
Guild Devere was married on June 3 to Miss Barbara
Marvin Perkins, daughter of Mrs. Frederick H. Per'
kins of Providence, R. I.
Donald G. Dunn is now manager of the Sales Promo'
tion and Advertising Department of the Reynolds
Metal Co. in Richmond, Va.
John P. English has left the United States News in
Washington, D. C., to return to the Boston Herald.
He is living at 1807 Beacon St., Brookline, Mass.
Leonard A. Frank, formerly with the Crown Overall
Mfg. Co. in Cincinnati, Ohio, is now credit manager
for Yaring’s, 506 Congress St., Austin, Texas*
Guy Garland and Miss Ruth Loveland Hale, daugh'
ter of Mr. and Mrs. Clarence E. Hale of New York City
and Wallingford, Conn., were married June 3.
Robert J. Granberg, formerly with the Gleason Works
in Rochester, N. Y., is now consulting engineer for Dyer
Engineers, Inc., 1984 Union Commerce Building in
Cleveland, Ohio.
John E. Gtiffin has recently become a member of the
firm of Martin è? Griffin Super Food Markets, 417419 West Third St., Grand Island, Neb.
John M. Hartwell, formerly with the Union Carbide
and Carbon Co. in New York City, is now an account'
ant with United Services Co., Inc., 131 State St., Bos'
ton, Mass. He is living at 16 Rockmont Rd., Belmont,
Russell W. Johnson is now an engineer for Procter 6?
Gamble Mfg. Co. in Ivorydale, Ohio. His home address
is 4716 Gray Rd., Winton Place, Cincinnati, Ohio.
William S. Lingley, formerly with R. H. Macy 6?
Co. in New York, is now associated with Pennsylvania
Salt Mfg. Co. of Washington, in Tacoma, Wash.
Walter Merrill has been transferred by the Procter
6? Gamble Mfg. Co. from Staten Island to Box 469,
Quincy, Mass.
The engagement of William T. Rhame to Miss
Thelma Scorgie (Simmons), daughter of Mr. and Mrs.

Frederick A. Scorgie of Belmont, Mass., was announced
on May 13.
Frederick S. Rolandi, Jr., is now an engineer asso'
ciated with the Pan*American Airways in Honolulu,
T. H.
James J. Thackara has recently become associated
with the Bankers Trust Co., 16 Wall St., New York
Fred H. Trimmer has left the Automatic Electric
Co. in Chicago and is now associated with the Anchor
Hocking Glass Co. He is living at 430 North Mt.
Pleasant Ave., Lancaster, Ohio.
Bernard Turrettini is now associated with Brown
Bros., Harriman 6? Co., 59 Wall St., New York City,
and is living at 60 Park Ave.
Robert E. Witherspoon, who is with the Hecht Co.,
has been transferred from Washington to Buffalo, N. Y.
The engagement of Worth E. Yankey to Miss Doro'
thy Moreland Bagwell, daughter of Mr. and Mrs. Jesse
Clinton Bagwell of Atlanta, Ga., was announced
Announcement of the engagement of Edmund L. G.
Zalinski to Miss Matilde Mittendorf, daughter of Mr.
and Mrs. George S. Mittendorf of Crugers, N. Y., has
been made.

Announcement has been made of the engagement of
Mervin C. Brown to Miss Margaret Snyder (Conner
ticut College for Women), daughter of Mr. and Mrs.
Frederic S. Snyder, of Winchester, Mass.
The engagement of James S. Dusenbury, Jr., to Miss
Nina Fenno Keppler, daughter of Capt. and Mrs.
Chester H. J. Keppler of Newton, Mass., was
announced on May 24.
Lawrence H. Larsen was married on May 27 to Miss
Margaret Ward, daughter of Mr. and Mrs. John H.
Ward of Ridgewood, N. J.
The engagement of Danforth S. Mitchell to Miss
Marion R. Huffman, daughter of Mr. and Mrs. Horace
M. Huffman of Providence, R. I., was announced
Announcement of the engagement of Logan Munroe
to Miss Jean Stirling Martin, daughter of Mr. and Mrs.
Henry C. Martin of New York City and Glen Cove,
L. I., has been made.