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0 k)Jtr*lf

October 1), 1937

As you request, I am putting down on paper some of the points
which you and I covered in our telephone conversation this morning*
This country ag&ia faces a very serious business and financial
crlele* to put it bluntly, we face another major depression*
Whether we will evert it or not depends to & i&rg© extent upon the
policies of government officials during the immediate future*
In its current stages, the business situation is very deceptive*
It is especially deceptive in that few people in the country, &nd
apparently even fewer at Washington, realise the retrogression sfoich
has already occurred*

Y.ou can look at any of the well known indexes

of business volumes—our's, the Federal Reserve's, or any other good
ones,—and observe only a moderate dip in the curve during recent
months. On the basis of these indexes today, it is quite possible
to sayi

"Wall Street is crasy; this is only an intermediate reaction,

of snail sise, in a long term cyclical upward movement**1
Anyone who suys that, or anything like that, and who declines
to consider the other side of th@ case, is either entirely i$aorant
of what has been going on in this country during th© last few weeks.
or is trying to deceive hiaself or someone else*
the truth ig that business i® declining r&ry rapidly at this
very moment* Plants are closing d o m every day* Thousands and
thousands of industrial workers are being laid off mw^vj day*
ward orders are being cancelled*


Inventories in several lines are

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mxdh too heavy, and prices ar© falling* Undercover prices ar®
aaaterially lower than formally quoted prices* Many important plans
for capital improvements srs being cancelled* Business men everywhere are thoroughly frightened.
Hever in the history of this country ha* there b@©n a decline
in the stock market of the proportions recently experienced, without a drastic decline in Imeinesa accompanying it or following it.
Indeed, the stock aarket decline juet behind ue-~&nd no one knovs
whether &1I of the decline is behind us—has been one of the most
rapid and most devastating in history. The stock market debacle
will prov© to haves been a aiajor disaster, and therefg no use trying
to talk ourselves out of it*
The second grade bond ssarket has been equally bad. Many bones
in this lotfer grade category are selling today for 50$ or legs of
their best 1937 prices* Flotation of new issues has, therefore,
come to a dead standstill, and it will be many months before Investor confidence is reestablished*
Thus a substantial decline in business and commodity prices,
all along the line, is now under way. Most people do not realise
that this is true* The facts will not show np in-the monthly figures emitted by governmental sources until late in November or early
Such movements gather their own momentum, and feed upon the&r
selves* Unless several kindg of definite action are taken at once,

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by Washington, it will be only a miracle if we escape another major
depression in 1938•
What can be dons at Washington without any basic change in the
broad policies to which this Administration is committed? The following represents not only ay own ideas, but the composite ideas
of scores of soundf intelligent and politiec&ly unbiased people with
whom I and ®p associates have been in contact during the past fortnight*
i« One of the basic causes of the current unsettlesimt in business is that costs—especially labor costs—have risen so mien more
rapidly than gross income during the current year* The margin of
profit has been steadily decreasing as the /ear has advanced. Many
concerns which, even a few weeks ago, thought they could earn a
reasonable profit during the fourth quarter of this year, now realise
that they will do well to break even, or to operate slightly in the
the proposed Wages and Hours bill has business throughly frightened*

1 presume it would be politically impossible, and perhaps both

politically and socially undesirable, to withdraw it or to suspend
it indefinitely. But it would be very helpful if its probable scop©
end terms were defined to the business community immediately, and if
it were made clear that that measure is not going to constitute &
further contribution to operating deficits. £nd don't sake any mistake about its the prospect of iHX such bill is contributory to the

present unscttleaent* ®nd the passage of AHY such bill, no matter
how mild, will, psychologically, push business farther in the direction of a isajor depression. It is bad in every sense* Our Government officials should be racking their brain© to find M M way of
softening its actual and psychological effects*
2* The teras of the Agricultural bill should be publicly defined, at once, and it should be made unmistakably clear that the
Governsent does not intend to step froa an acreags control bill on
to a price control bill,
3* Th© railroads again face a financial crisis* Many of
their bonds are selling for from 35$ to 50# on the dollar*


purchases of new equipment and supplies has practically disappeared
during recent months* They tft laying off hands by the thousands•
Are they going to be allowed to go into bankruptcy?

If not, those

governmental officials charged with responsibility for railroad matters should aake it clear at once that such is not the e#se»
And the increase in passenger and freight rates, upon which the
I, C. C* has been sitting for so long, should be announced immediately*
4* Margin requirements, should be lowered by the Federal Reserve
5, Bank reserve requirements should be lowered by the Federal
Reserve Board*
6* The capital gains tax should be either abolished or set up
separately, outside of the personal income tax*
7« The tax on undistributed corporation profits should be either

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abolished or greatly modified.
8. There is an important shortage of electric power generating capacity. If the government would coapose its difficulties
with the privately owned utilities, and if the investing public
should know, definitely and once and for all that existing operating utility properties are going to be allowed to earn ft fair and
decent return—if this were done, several billion dollars of additional public utility construction would probably foe under way
within 12 months*
9» Over a period of years it will become obvious to all fair
isinded people that the Securities & Exchange Commission has done
basic harm to our isjeriean economic system* Ite worfcf rules and
ceaseless investigations are in large measure responsible for the
thinness of the markets at the present time.
It would be absurd, of course,* for the inventing public to
hope for any actual right-about-faee in these aattera» Bat the
Commission's proclivities for further harm should be at least temporarily held in abeyance,£&d it should go over its major premises*
one by one, with a responsible committee appointed by th© Hew York

As you know, I aa neither an alaraiat nor a pessimist. Op until
the last two monthe, I have viewed the business, financial and

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security market 'itustions with reasonable complacency* feeling that
nothing isore than a temporary recession *ae called for at this tist©,
and that a reasonably high degree of prosperity sight be expected for
eo»e years to coae. My misgivings ag to the longer term prospect had
been pushed into th$ background—-overshadowed hy r#latively good
shorter tern situation*
And as you and others know, I aa not a political partisan*
neither is any other axecutiv© of our organisation* Our only purpose
in to be sore or less correct in our gathering of information, and
in our interpretation and projection of this information* that is
the only «&y we can hope to stay in business.
It is with jaucfc reluctance* therefore, that I say to you again,
without any reservation ahatsoever, that today this country again
faces major economic disturbancej that businsse has already begun
to decline quite rapidly j that the major b€>&r aarkste which have al~
ready occurred in both th$ stock and bond aarketa will inevitably
have sarious future effects upon businessj that investors and business executives are again thoroughly frightened; and that both prompt
and vigorous action on the part of our Governmental officials is &b-»
solutely necessary if we are to eccape, or even greatly alleviate,
the serious $vbure consequences of what is now occurring*
This is the time for business, labor and Govsrnaent to establish
a public understanding, and to «orfc together for a common end* This
is an emergency in the making—rapidly in the aaking*