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. Fr/m |L R. 131 BOARD OF or V GOVERNORS THE FEDERAL RESERVE O f f i c e Xo ym C o r r e s p o n d e n c e SYSTEM Date October 7,1939 Chairman Eccles Subject; T e n t a t i v e A p p r a i s a l o f t h e E f f e c t Emile Despres o f European War Upon t h e U n i t e d States T h i s has undergone o n l y s l i g h t r e v i s i o n , but suggest t h a t you s u b s t i t u t e i t f o r the t y p e w r i t t e n copy p r e v i o u s l y sent t o you. (Three copies) I / September 30, 1939 MEMORANDUM TO: Chairman Eccles FROM: Etaile Despres RE: Economic E f f e c t s o f European War Upon t h e U n i t e d S t a t e s I n accordance w i t h your r e q u e s t , a study o f t h e economic e f f e c t s o f European war upon t h e U n i t e d S t a t e s has been undertaken, and t h e f i r s t i n s t a l m e n t o f a memorandum on t h i s s u b j e c t i s a t t a c h e d . The memorandum w i l l c o n t a i n t h r e e main s e c t i o n s and two appendices, as f o l l o w s : 1. The Present S i t u a t i o n 2. Short Term and Longer Term Prospects (a) (b) (c) (d) (o) 3. Inventories F o r e i g n Trade Federal Government Receipts and Expenditures Domestic and C a p i t a l Outlays Conclusion Implications for Policy Appendices: 1. 2. F i n a n c i a l Capacity o f F o r e i g n Countries t o Purchase American Goods Shipping Capacity The f i r s t i n s t a l m e n t covers s e c t i o n 1 , 2(a) and 2 ( b ) ; subsequent p o r t i o n s o f t h e memorandum v i l l i bo sent t o you upon completion. The study as a whole i s designed t o f i r s t , t e n t a t i v e survey of the v a r • o economic f o r economic p o l i c y i n t h e U n i t o d S t a t e s . I t framework from which more d e t a i l e d s t u d i e s o f be r e a d i l y undertaken i n t h e f u t u r e . p r o v i d e merely a e f f e c t s and i m p l i c a t i o n s should f u r n i s h a p a r t i c u l a r t o p i c s can Simultaneously w i t h your request t o me t o prepare a g e n e r a l survey o f t h i s s o r t , Governor Ransom asked t h a t a study along s i m i l a r l i n e s be undertaken by t h e D i v i s i o n as a whole. The memorandum o f which t h e f i r s t i n s t a l m e n t i s a t t a c h e d i s being prepared w h o l l y i n t h i s s e c t i o n , but m a t e r i a l f u r n i s h e d by t h e business and f o r e i g n s e c t i o n s i s b e i n g draxm upon i n i t s p r e p a r a t i o n . TENTATIVE APPRAISAL OF THE ECONOMIC EFFECTS OF EUROPEAN WAR UPON THE UNITED STATES The Present S i t u a t i o n The buying rush which immediately f o l l o w e d the outbreak o f war d e f i n i t e l y assures a considerable s p u r t i n a c t i v i t y and incomes i n t h e next few months. This buying movement may be broken down i n t o s e v e r a l components: 1. The l a r g e s t element consisted o f orders from domestic manufacturers and dealers f o r the purpose o f expanding i n v e n t o r i e s . 2. Advance consumer buying o f sugar and o t h e r s t a p l e foods was evident f o r a b r i e f p e r i o d . 3. Domestic orders f o r i n d u s t r i a l , r a i l , and u t i l i t y equipment are being placed i n l a r g e volume. The b u y i n g wave i n i n d u s t r i a l l i n e s has been centered most s p e c t a c u l a r l y i n the machine t o o l i n d u s t r y . I t i s understood t h a t machinery orders c h i e f l y r e f l e c t delayed replacement and modernization o f e x i s t i n g i n d u s t r i a l c a p a c i t y , r a t h e r than c r e a t i o n o f a d d i t i o n a l c a p a c i t y , and t h a t t h e buying i s based upon t h e e x p e c t a t i o n o f l a r g e r business volumes. Orders f o r r a i l r o a d and e l e c t r i c power equipment, on the o t h e r hand, are l a r g e l y f o r t h e purpose o f expanding c a p a c i t y . 4. A considerable volume o f f o r e i g n i n q u i r i e s f o r American goods, p a r t i c u l a r l y from Canada and L a t i n America, has been r e p o r t e d , b u t few o f these i n q u i r i e s , a p a r t from Canadian i n q u i r i e s f o r machinery, are b e l i e v e d t o have r e s u l t e d as yet i n t h e p l a c i n g of orders. 4 The f e v e r i s h pace o f the buying movement r e f l e c t e d speculative and p r e c a u t i o n a r y o r d e r i n g f o r i n v e n t o r y , b u t t h e movement a l s o has i n c l u d e d p l a c i n g o f s i z a b l e o r d e r s f o r c e r t a i n types o f capital goods. T h i s b u y i n g r u s h emphasized s t r i k i n g l y t h e c o n t r a s t between business and f i n a n c i a l e x p e c t a t i o n s a t t h e outbreak o f war i n 1939 and such e x p e c t a t i o n s i n 1914. A t t h e b e g i n n i n g o f t h e l a s t war> market e x p e c t a t i o n s were guided by a r e c o l l e c t i o n o f t h e e f f e c t s upon business o f t h e numerous l o c a l wars, u s u a l l y o f b r i e f which had o c c u r r e d d u r i n g t h e hundred years a f t e r 1815. duration, These wars had i n t e r f e r e d i n g r e a t e r o r l e s s degree w i t h o r d i n a r y business, and i t was b e l i e v e d t h a t a g e n e r a l European war would depart from precedent o n l y i n t h a t i t would i n t e r f e r e f a r more s e r i o u s l y w i t h business. The l o n g d u r a t i o n and t h e i n f l a t i o n a r y consequences o f t h e war were e n t i r e l y unforeseen. As a r e s u l t o f gloomy business e x p e c t a t i o n s and o f t h e w o r l d - w i d e banking and f i n a n c i a l crisis which accompanied d e c l a r a t i o n o f war i n 1914, b u s i n e s s , which was a l r e a d y i n a semi-depi*essed s t a t e i n most c o u n t r i e s , t u r n e d s h a r p l y downward i n t h e l a t t e r p a r t o f 1914. Business e x p e c t a t i o n s a t t h e outbreak o f xvar i n 1939 were based d i r e c t l y upon memories o f t h e p o w e r f u l i n f l a t i o n a r y e x e r t e d by t h e war o f 1914-18. stimulus I n f o r m i n g business judgments, l i t t l e weight was g i v e n t o the p o s s i b l e e f f e c t s upon our economy -3o f the d i s r u p t i o n o f peacetime t r a d e i n European c o u n t r i e s , and t h e r e t r o s p e c t i v e view of t h e war o f 1914-18 seemed to be one i n which t h e developments o f those years were telescoped i n t o a s i n g l e episode. I t was a p p a r e n t l y f o r g o t t e n t h a t the increase i n our exports which got under way l a t e i n 1914 was a t f i r s t based i n considerable p a r t on t h e combination o f h i g h crop y i e l d s t h i s country and r a t h e r poor y i e l d s elsewhere, t h a t in industrial a c t i v i t y i n t h e U n i t e d States d i d not t u r n up u n t i l w e l l i n t o 1915, and t h a t t h e upward sweep o f commodity p r i c e s d i d not begin u n t i l l a t e i n that year. Moreover, l i t t l e thought was given t o the d i f f e r e n c e between c o n d i t i o n s now and c o n d i t i o n s d u r i n g the l a s t war. This was most s p e c t a c u l a r l y i l l u s t r a t e d i n the sugar market, where memories o f wartime shortages and h i g h p r i c e s l e d , d e s p i t e e x i s t i n g l a r g e s u p p l i e s , t o a b r i e f rush o f buying by both p r o f e s s i o n a l t r a d e r s and consumers. The business and f i n a n c i a l community, b y b a s i n g i t s expectations i n 1914 on t h e assumption t h a t the experience o f e a r l i e r wars was d i r e c t l y a p p l i c a b l e , completely misjudged t h e economic impacts o f t h e Great War. I t i s u n l i k e l y t h a t i t s l o n g d u r a t i o n and i n f l a - t i o n a r y e f f e c t s could i n any event have been foreseen, but i t seems a p p r o p r i a t e t o suggest t h a t business and f i n a n c i a l expectations a t t h e outbreak o f war i n 1939, founded upon a simple p r o j e c t i o n o f our l a s t previous wartime experience, may t u r n out to have been as misguided i n many respects as t h e e x p e c t a t i o n s which p r e v a i l e d i n 1914. I t would s u r e l y be dangerous t o assume t h a t the behavior o f our commodity and s e c u r i t y markets f o l l o w i n g t h e outbreak o f war r e f l e c t e d a c a r e f u l a p p r a i s a l o f t h e probable impacts o f war upon our economy. Short Term and Longer Term Prospects A p p r a i s a l o f t h e s h o r t t e i m and longer term e f f e c t s o f t h e European war upon t h e American economy w i l l be based upon the assumptions t h a t t h e wtkr w i l l continue f o r s e v e r a l years and t h a t t h e scale of a c t u a l h o s t i l i t i e s w i l l grow; t h a t the U n i t e d States w i l l not enter the war; and t h a t our embargo on arms exports to b e l l i g e r e n t s w i l l be repealed. None o f these assumptions can be regarded as c e r t a i n . (1) The f a i l u r e o f Great B r i t a i n end France t o f u r n i s h d i r e c t m i l i t a r y a i d t o Poland and the i n s i g n i f i c a n t scale o f t h e f i g h t i n g i n t h e neighborhood o f the French-German border g i v e some substance t o t h e view t h a t t h e war may perhaps be brought t o a quick close a f t e r German m i l i t a r y o p e r a t i o n s i n Poland have been completed. I n t h a t event, most o f the economic tendencies considered below w i l l f a i l to materialise. (2) The assumption t h a t t h e U n i t e d States w i l l not e n t e r t h e war provides a f a i r l y s a f e b a s i s f o r a n a l y z i n g the s h o r t term e f f e c t s o f European war upon our economy, but t h i s assumption becomes l e s s c e r t a i n i n a p p r a i s i n g the l o n g e r term impacts of war. I f the U n i t e d States e v e n t u a l l y p a r t i c i p a t e s as a b e l l i g e r e n t , much of the a n a l y s i s here presented o f the l o n g e r term economic e f f e c t s o f the European war upon t h e U n i t e d States w i l l require modification. -5- (3) Wfcether t h e arms embargo w i l l be promptly l i f e d depends upon t h e d e c i s i o n t ^ k e n by Coii^r*©© a t i t b p r e s e n t session* I I ' t n e enDursro i s n o t r e p e a l e a , inoreusea e x p o r t s o f i n u u s t r i ^ l ju eninery e^na o f bej .i-x'inifchea ^oous o n l y one s t e p renoveu froiri f i n i s h e d dn.icaj iBiita w i l l serve t o replace is\ p u r t p i ^ o h i o i t e d e x p o r t s t o b e l l i t j e r e i - t f c , but thife o f f s e t w i i l n o t be complete. These assumptions, d e s p i t e the u n c e r t a i n t i e s which surround t h a n , r,re in accord w i t h t h e o f f i c i a l d e c l a r a t i o n s o f t h e ent governments and o f t h e P r e s i d e n t o f the U n i t e d S t a t e s . belligerThey p r o v i d e , t h e r e f o r e , t h e most s u i t a b l e p r e s e n t b a s i s f o r a n a l y s i n g t h e impacts o f war upon our economy. I n a n a l y s i n g s h o r t t e r m p r o s p e c t s , a t t e n t i o n w i l l be d i r e c t e d t o an a p p r a i s a l o f the p r o b a b l e coxirse o f business d u r i n g t h e next n i n e months. Whether the immediate expansion i n business volumes induced by i n v e n t o r y b u y i n g w i l l be f o l l o w e d by a p e r i o d o f s u s t a i n e d a c t i v i t y a t the h i g h e r l e v e l o r by a r e a c t i o n toward e a r l i e r r a t e s o f a c t i v i t y depends upon ( l ) the s i z e o f t h e present i n v e n t o r y s p u r t , and (2) t h e speed e t which l e s s t r a n s i t o r y factors o f demand become o p e r a t i v e . I n a p p r a i s i n g l o n g e r t e r m p r o s p e c t s , a t t e n t i o n w i l l be focused upon (1) t h e probable c h a r a c t e r o f d i r e c t wartime demands, in r e l a t i o n t o our p r e s e n t s t r u c t u r e i f p r o d u c t i o n ; and (2) the probable magnitude o f t h e d i r e c t end i n d i r e c t e f f e c t s o f wartime demands upon t o t a l economic a c t i v i t y , i n r e l a t i o n t o our p r e s e n t volumes o f unused p r o d u c t i v e power. The p o l i c i e s adopted by t h e F e d e r a l Government and i t s agencies w i l l c o n s i d e r a b l y i n f l u e n c e t h e l o n g e r terra e f f e c t s o f war demands upon our economy. I f one set o f p o l i c i e s i s adopted, wartime demands w i l l r e s u l t i n an e x o r b i t a n t distor- t i o n o f our s t r u c t u r e o f p r o d u c t i o n combined w i t h an inadequate l e v e l o f u t i l i z a t i o n o f our t o t a l p r o d u c t i v e power; under d i f f e r e n t p o l i c i e s , the d i s t o r t i o n o f our s t r u c t u r e o f p r o d u c t i o n could be somewhat moderated, and the r a t e o f t o t a l economic a c t i v i t y considerably raised. Inventories P r i o r t o t h e outbreak o f war, i n v e n t o r i e s o f h i g h l y f a b r i c a t e d goods appeared, on t h e basis o f t r a d e r e p o r t s , t o be somewhat low i n r e l a t i o n t o p r e v a i l i n g and p r o s p e c t i v e r a t e s o f a c t i v i t y , while s u p p l i e s o f f o o d s t u f f s and i n d u s t r i a l raw m a t e r i a l s were abundant. S t o c k i n g o f f i n i s h e d goods by r e t a i l e r s and j o b b e r s , and o f semif a b r i c a t e d goods by manufacturers o f f i n a l p r o d u c t s , vma expected t o c o n t r i b u t e t o a continued, gradual expansion o f business volumes d u r i n g t h e autumn. The f e v e r i s h buying which immediately f o l l o w e d t h e outbreak o f wax g r e a t l y exceeded, however, a n y t h i n g which might have been expected on these grounds. T h i s buying movement, based upon memories o f t h e p o w e r f u l i n f l a t i o n a r y s t i m u l u s exerted by t h e l a s t war, r e f l e c t e d an a n t i c i p a t i o n b o t h o f p r i c o increases and o f #0£fdiblc r u t u r e d i f f i c u l t i e s i n o b t a i n i n g d e l i v e r i e s . -7- Tlie more roc en t b e h a v i o r o f commodity and s e c u r i t y markets suggest r. t h a t the s t r o n g l y o p t i m i s t i c i n i t i a l e x p e c t a t i o n s conc o r n i n g *mr demands may bo undergoing some m o d i f i c a t i o n , and t h a t t h e f i r s t wavo o f f e v e r i s h i n v e n t o r y buying has subsided. Despite t h i s t e n t a t i v e i n d i c a t i o n t h a t t h e i n i t i a l mood o f buoyant o p t i m i s m i s g i v i n g way t o a soberer a t t i t u d e , t h e p o s s i b i l i t y o f further e x t e n s i v e b u y i n g f o r i n v e n t o r y purposes s h o u l d not bo r u l e d o u t . I n t h i s c o n n e c t i o n much depends upon t h o i n d u s t r i a l p o l i c i e s Y & i c h are adoptod. price I f i t becomes e v i d e n t t o purchasers t h a t p r i c e i n c r e a s e s a r c b e i n g put i n t o o f f o o t i n a number o f linos, a n t i c i p a t o r y b u y i n g ; v i l l bo f u r t h e r accentuated u n t i l t h e p o i n t is reached a t which i n d u s t r i e s have become loaded up - 1 t h goods and increases i n a d m i n i s t e r e d p r i c e s have becazno g e n e r a l . Prico in- creases i n such commodities a s , f o r example, s t e e l , copper, g l a s s , and lumber, r;ould b o t h encourage a resumption o f buying f o r inven- t o r y and weaken t h o impetus t o needed c a p i t a l oxpondxturu i n housing and o t h e r f i e l d s '-vhich r i s i n g a c t i v i t y and incomes m i g h t othor?«iso be expected t o p r o v i d e . I n t h e ovont o f such p r i c e i n c r e a s e s , a sharp r e a c t i o n i n business volumes i n l a t e 1939 o r o a r l y 1940, a f t e r t h s i n v e n t o r y s p u r t has r u n i t s course, scoius s t r o n g l y p r o b a b l e • I f , ho.vovor, f u r t h e r p r i c e increases o f t h i s c h a r a c t e r can be avoided, t h o q u e s t i o n a r i s o s as t o t h o p r o b a b l e course o f business a f t e r t h o s t i m u l u s o f i n v e n t o r y a c c u m u l a t i o n has ceasod. Tho main- tenance o r f u r t h e r expansion o f business volumes w i l l then depend -s- upon t h e emergence o f l o s s t r a n s i t o r y f a c t o r s o f demand. Possible sources o f increased demand may be considered under t h r o e main classes: e x p o r t s , expenditures o f the Federal Govornmont, and private capital outlay. A p p r a i s a l o f these t h r o e items suggests t h a t over the next n i n e months t h e c o n t r i b u t i o n t o income made by export sales - . / i l l increase o n l y moderately, and t h a t t h i s increase may bo n e a r l y o f f s e t by a s m a l l d o c l i n o i n t h o Federal Governments c o n t r i b u t i o n t o incono * Consoq.uantly, ovon though p r i v a t e c a p i t a l o u t l a y s are l i k e l y t o increase c o n s i d e r a b l y , business a c t i v i t y may bo expected t o drop br.ek towards e a r l i e r l e v e l s i n tho e a r l y months o f 1940, a f t o r i n v e n t o r y accumulation her. r u n i t s course» Unless tho Government, through i t s monetary and p r i c o p o l i c i e s and through d i r e c t encouragement t o c a p i t a l ou.tlc.yn i n c e r t a i n l i n o s , makes a v i g o r o u s e f f o r t t o cushion t h e d e c l i n e i n i n d u s t r i a l volumes, the r a t o o f i n d u s t r i a l a c t i v i t y , f o l l o w i n g i t s present s p u r t , v d l l p r o bably d e c l i n e , d u r i n g tho f i r s t q u a r t e r o f 1940, t o a l e v e l o n l y moderately above t h a t o f August, 1939* F o r e i g n Trade Tho b a s i s f o r Sic c o n c l u s i o n t h a t f o r e i g n t r a d e i s l i k e l y t o e x e r t only a moderate expensive e f f e c t upon our economy i n t h e next e i g h t o r nine months may best be i n d i c a t e d by c o n c i d o r i n g aeparateiy 1„ t h o e f f e c t s o f the n a v a l ulockado imposed by Great B r i t a i n and France upon our t r a d e w i t h o t h e r European c o u n t r i e s ; 2. t h e o f f e c t s o f the European war upon our t r a d e w i t h Great B r i t a i n and France; 3. the e f f e c t s o f the war upon our trade r a t h non-European countries. -9- 1. The B r i t i s h - F r e n c h naval blockade w i l l probably be enforced w i t h f a l l v i g o r from the b e g i n n i n g , and the t r a d e o f European c o u n t r i e s o t h e r than Great B r i t a i n and France w i t h non-European c o u n t r i e s w i l l be promptly and sharply c u r t a i l e d . During the f i r s t two years o f t h e l a s t war, a considerable volume o f American goods consigned t o n e u t r a l c o u n t r i e s was allowed t o pass the blockade, owing t o our repeated and f o r c e f u l p r o t e s t s a g a i n s t B r i t i s h interference w i t h neutral shipping. On r e a d i n g between the l i n e s o f the statement on n e u t r a l i t y p o l i c y issued on September 15 by the Secretary o f S t a t e , the i n f e r e n c e seems f a i r l y clear t h a t wo s h a l l n o t again p r o t e s t s t r o n g l y a g a i n s t B r i t i s h i n t e r ference w i t h n e u t r a l t r a d e i n non-contraband goods, and t h i s in- ference i s confirmed by the P r e s i d e n t s n e u t r a l i t y message o f September 21, i n which the recommendation was put forward t h a t American ships be prevented from e n t e r i n g war zones as a means o f avoiding incidents. Although s e v e r a l o f the European n e u t r a l s have s i z a b l e g o l d reserves which, i n view o f the wartime d i s r u p t i o n o f t h o i r customary t r a d e channels, they would be w i l l i n g t o u t i l i z e i n purchasing needed imports from the U n i t e d States and o t h e r nonEuropean sources, the s t r i c t r a t i o n i n g o f shipments t o these c o u n t r i e s by the B r i t i s h and French f l e e t s w i l l prevent a n y t h i n g more than an extremely g r a d u a l expenditure o f a v a i l a b l e i n t e r n a t i o n a l reserves i n payment f o r imported goods. As i s shown i n the t a b l e on the next page, our exports t o countri.es whose t r a d e i s l i k e l y t o be a f f e c t e d -10- FOREIGN TRADE OF THE UNITED STATES I N 1938 (In millions of dollars) Countries A f f e c t e d by Naval Blockade Germany Poland U.S.S.R. ItalyNetherlands Belgium Switzerland Scandinavian c o u n t r i e s Other B a l t i c c o u n t r i e s Balkan c o u n t r i e s U n a l l o c a t e d g r a i n shipments t o Canada Exports Imports $133.7 24.7 70.1 58;4 98;4 76.7 10.6 111.6 15.7 20.0 $ 92.0 13.4 24il 41.3 31; 4 41 ;6 23.0 64.1 20.8 26.9 63.8 — Net Exports Or Imports { t 41.7 11; 3 46.0 17.1 67.0 35;1 -12.4 47.5 - 5;1 - 6.9 63.8 683.7 378.6 305.1 533.1 133.8 113.2 54.1 403.9 79.7 655.9 172.3 483.6 411.8 264.5 299.7 256.7 55.9 92.2 86.4 35.8 8.9 244.1 267.0 223.0 262.5 128.4 50.5 15.3 94.3 58.5 112.3 197.8 144.8 41.5 37.2 128.3 5.4 76.9 - 7.9 -22.7 -103.4 46.3 TOTAL 1,756.0 1,409.6 346.4 GRAND TOTAL 3,095.6 1,960.5 1,135.1 TOTAL U n i t e d Kingdom and France U n i t e d Kingdom France TOTAL Non-European Countries Canada C e n t r a l America South America Japan China A u s t r a l i a & New Zealand Philippines India B r i t i s h Malaya Other -11- by the blockade amounted i n 1938 t o #684 m i l l i o n s , or 22 percent o f our t o t a l e x p o r t s ; our export s u r p l u s i n t r a d e w i t h these c o u n t r i e s was #305 m i l l i o n s , or 27 percent o f our t o t a l export surplus. The d i r e c t l o s s i n our exports t o c o u n t r i e s a f f e c t e d by the B r i t i s h - F r e n c h n a v a l blockade w i l l be p a r t l y compensated, however, by c e r t a i n i n d i r e c t o f f s e t s . Thus, the u n a v a i l a b i l i t y o f German and Swedish machinery t o non-European buyers should cause a s h i f t i n demand t o American p r o d u c t s , and increased B r i t i s h purchases o f Canadian bacon and b u t t e r t o r e p l a c e former shipments from Denmark should tend i n d i r e c t l y t o increase Canadian buying o f U n i t e d States goods. 2. The speed a t which B r i t i s h and French purchases o f goods from the U n i t e d States and o t h e r non-European sources w i l l be expanded i s c h i e f l y a f u n c t i o n o f t h e n a t u r e o f the war and o f t h e i r general wartime economic p o l i c i e s . During the l a s t war, increased Govern- ment expenditure l a r g e l y f i n a n c e d by borrowing served t o enlarge the incomes o f t h e c i v i l i a n p o p u l a t i o n , w i t h the r e s u l t t h a t the b e l l i g e r e n t governments were f o r c e d t o b i d h i g h e r and h i g h e r p r i c e s i n the markets f o r m a t e r i a l s and l a b o r i n order t o compete e f f e c t i v e l y w i t h r i s i n g c i v i l i a n expenditures. I n the e a r l y years o f t h e war B r i t i s h and French imports f e l t t h e f u l l impact o f r i s i n g o u t l a y s as w e l l as o f governmental requirements. civilian As the war -12- i n f l a t i o n gained momentum, the growth i n t h e i r imports was l i m i t e d o n l y by the p r o d u c t i v e power o f non-European sources o f supply and by a v a i l a b l e s h i p p i n g c a p a c i t y . Measures o f d i r e c t economic c o n t r o l , such as Government p r i o r i t i e s , r a t i o n i n g o f c i v i l i a n requirements, and p r i c e and wage f i x i n g , were not e x t e n s i v e l y used d u r i n g the l a s t war u n t i l sheer j>hysical l i m i t a t i o n s upon the volume o f incoming s u p p l i e s , combined w i t h l o s s o f l i f e and o f p r o d u c t i v e power i n the b e l l i g e r e n t c o u n t r i e s , made i t impossible t o s a t i s f y b o t h c i v i l i a n demands and war needs. The o u t l i n e s o f B r i t i s h and French wartime economic p o l i c i e s have a l r e a d y become s u f f i c i e n t l y c r y s t a l l i z e d t o make i t clear t h a t they w i l l d i f f e r s h a r p l y from those which were f o l l o w e d i n the l a s t war. The general c h a r a c t e r o f these p o l i c i e s may be approximately i n d i c a t e d by enumerating some o f the steps so f a r taken by the B r i t i s h Government; the French Government f s measures, d e s p i t e d i f f e r e n c e s i n d e t a i l , have f o l l o w e d a s i m i l a r p a t t e r n . The steps taken by t h e B r i t i s h Government have i n c l u d e d ( l ) imposi- t i o n o f exchange r e s t r i c t i o n s and l i c e n s i n g o f merchandise imports and e x p o r t s ; (2) establishment o f a new Food M i n i s t r y t o c e n t r a l i z e buying o f imported f o o d s t u f f s , l i c e n s e wholesalers and r e t a i l e r s , f i x p r i c e s , and r a t i o n consumption; (3) f i x i n g o f p r i c e s and r a t i o n i n g o f s u p p l i e s o f key commodities, such as s t e e l , copper, and g a s o l i n e ; (4) d i r e c t Government c o n t r o l over the a l l o c a t i o n -13- o f l a b o r and the s h i f t i n g o f workers; (5) c o n t r o l o f p r i v a t e capital flotations; (6) sharp increase b o t h i n e x i s t i n g d i r e c t taxes and i n i n d i r e c t taxes on consumption, and extension o f t h e excess p r o f i t s t a x , p r e v i o u s l y confined t o f i r m s working on Government c o n t r a c t s ; and (7) establishment o f a d o l l a r - s t e r l i n g r a t e o f s l i g h t l y over $4.00, which a i d s i n c u r t a i l i n g civilian consumption, i n c o n c e n t r a t i n g f o o d s t u f f and raw m a t e r i a l purchases f r o m Qnpire sources, and i n m a i n t a i n i n g the c o m p e t i t i v e power i n overseas markets o f the t e x t i l e and o t h e r l i g h t consumer goods i n d u s t r i e s not f u l l y engaged i n meeting war demands. Measures o f d i r e c t c o n t r o l , designed t o c u r t a i l civilian consumption and check n o n - e s s e n t i a l c a p i t a l e x p e n d i t u r e , will p r o v i d e the c h i e f means o f a c h i e v i n g the f u l l e s t ' p o s s i b l e applica- t i o n o f p r o d u c t i v e resources t o the f i l l i n g o f war needs. As has been revealed by the Gorman experience, t h e system o f d i r e c t o c o n t r o l serves the*minimize i n f l a t i o n o f p r i c e s , costs and incomes, and t o prevent an u n c o n t r o l l e d expansion o f i m p o r t s , a matter o f s p e c i a l importance i n vie?/ o f the f a c t t h a t Great B r i t a i n and France base t h e i r prospects o f v i c t o r y upon t h e i r own economic s t a y i n g power and the gradual d e t e r i o r a t i o n o f popular morale i n Germany, r a t h e r than upon quick m i l i t a r y successes. I t was announced on September 9 t h a t the B r i t i s h War Cabinet "decided to base t h e i r p o l i c y on the assumption t h a t the war w i l l l a s t t h r e e years o r more." -14- One o f t h e c h i e f e l e m e n t s i n B r i t i s h and F r e n c h economic i n g power c o n s i s t s o f t h e i r a b i l i t y t o o b t a i n needed s u p p l i e s stayfrom a b r o a d b y d r a w i n g upon t h e i r s u b s t a n t i a l r e s e r v e s o f g o l d and mobilizable foreign assets. C a r e f u l husbanding o f these reserves t o keep them f r o m b e i n g q u i c k l y d i s s i p a t e d i n payment f o r non- essential imports i s a c e n t r a l f i n a n c i a l objective of the control measures w h i c h have been i n t r o d u c e d . I n this respect, the objective t o w h i c h p o l i c i e s w i l l be g e a r e d i s s h a r p l y d i f f e r e n t f r o m t h a t the l a s t war. Owing t o d i r e c t advances f r o m t h e U n i t e d of States Government f o l l o w i n g o u r e n t r y i n t o t h e w a r , t h e c a p a c i t y of G r e a t B r i t a i n and F r a n c e t o f i n a n c e t h e i r p u r c h a s e s f r o m a b r o a d n e v e r became a c r u c i a l p r o b l e m , and g o l d was r e g a r d e d l e s s as a s o u r c e o f e x t e r n a l b u y i n g power t h a n as an i n t e r n a l r e s e r v e c u r r e n c y and c r e d i t . for M o b i l i z a t i o n o f t h e overseas investments B r i t i s h and F r e n c h n a t i o n a l s was g r a d u a l and i n c o m p l e t e . Most of of t h e exchange w i t h w h i c h t o make payment f o r i m p o r t s was o b t a i n e d by b o r r o w i n g a b r o a d , c h i e f l y f r o m t h e U n i t e d S t a t e s b u t t o some e x t e n t also from the B r i t i s h Dominions. The p r i n c i p a l i t e m s i n o u r b a l a n c e o f i n t e r n a t i o n a l payments f o r t h e p e r i o d f r o m t h e m i d d l e o f 1914 t o t h e end o f 1918 wore as f o l l o w s : ( I n b m i o n s o f Excess o f m e r c h a n d i s e e x p o r t s Payment e f f e c t e d t h r o u g h : Gold imports A m e r i c a n s e c u r i t i e s r e t u r n e d f r o m Europe Foreign loans sold to p r i v a t e investors i n the U.S. D i r e c t advances o f U . S . Government a f t e r A p r i l , 1917 TOTAL d o l l a r s ) 11.8 1.0 2.0 1.5 7.3 11.8 -15- B r i t i s h and French g o l d reserves were a c t u a l l y l a r g e r a t the end o f the war than they had been a t the beginning, and the marked increase i n the volume of means o f payment was b e l i e v e d t o necess i t a t e the h o l d i n g o f l a r g e r gold reserves i n order t o p r o t e c t the "soundness" o f the currency. The changed present-day a t t i t u d e i n Great B r i t a i n and France r e g a r d i n g the r o l e o f i n t e r n a t i o n a l reserves i n wartime i s r e f l e c t e d i n the measures already taken. clearly I n both countries m o b i l i - z a t i o n o f f o r e i g n balances, s e c u r i t i e s and p r i v a t e l y h e l d g o l d has been ordered, and i n Great B r i t a i n g o l d reserves held by the Bank o f England as backing f o r the note issue have been t r a n s f e r r e d t o the E q u a l i z a t i o n Account t o make such g o l d a v a i l a b l e as a source of e x t e r n a l purchasing power. Although these i n t e r n a t i o n a l reserves w i l l doubtless be drawn upon from the s t a r t t o pay f o r essential i m p o r t s , t l i e c u r t a i l m e n t o f imports f o r c i v i l i a n consumption w i l l serve f o r a considerable p e r i o d t o o f f s e t t h e growth i n imports r e l a t e d s p e c i f i c a l l y t o war needs. The r a t e a t which i n t e r n a t i o n a l reserves are used up w i l l t h e r e f o r e be q u i t e gradual d u r i n g t h e e a r l y months o f the war, but w i l l bo increased a t an a c c e l e r a t i n g r a t e as a widening o f the scale o f h o s t i l i t i e s , consumption o f war m a t e r i a l , l o s s o f l i f e , and impairment o f p r o d u c t i v e facilities through enemy bombing and o r d i n a r y d e p r e c i a t i o n , make necessary a l a r g e r dependence on overseas sources o f supply. -16- I f t h i s reasoning i s v a l i d , B r i t i s h and French purchases o f goods from the U n i t e d States and o t h e r non-European c o u n t r i e s w i l l increase o n l y moderately over the next n i n e months, but w i l l show a p r o g r e s s i v e l y l a r g e r expansion as the war proceeds. Forced c u r t a i l m e n t o f c i v i l i a n consumption and unneeded c a p i t a l o u t l a y , l e n g t h e n i n g o f working hours, and t r a n s f e r o f workers from d i s t r i b u t i v e and s e r v i c e occupations t o p h y s i c a l p r o d u c t i o n w i l l c o n s i d e r a b l y r e s t r i c t the growth o f imports i n the e a r l y stages o f the war. I n a d d i t i o n , i t i s already apparent t h a t Groat B r i t a i n and France w i l l seek t o l i m i t f u r t h e r the d r a f t s on t h e i r inter- n a t i o n a l reserves by o b t a i n i n g t h e i r s u p p l i e s as l a r g e l y as p o s s i b l e from Empire sources and from c o u n t r i e s w i l l i n g t o take B r i t i s h o r French goods i n r e t u r n . A consoquonco o f t h i s p o l i c y i s t h a t the b u l k o f B r i t i s h and French purchases o f f o o d s t u f f s and raw m a t e r i a l s w i l l be made elsewhere than i n the U n i t e d S t a t e s . Since t h e p r o d u c t i v e c a p a c i t y o f o u t l y i n g c o u n t r i e s i n f o o d s t u f f s and raw m a t e r i a l s has g r e a t l y increased since the l a s t war, B r i t i s h and French xvar demands f o r American goods w i l l be much l e s s d i v e r s i f i e d than i n 1914-18 and w i l l be c h i e f l y concentrated i n heavy i n d u s t r i a l p r o d u c t s , such as m u n i t i o n s , chemicals, petroleum p r o d u c t s , a i r p l a n e s , s h i p s , motor t r u c k s , machinery and s t e e l . -17- I n s t e e l , motor t r u c k s , petroleum products, and machinery o t h e r t h a t machine t o o l s , American i n d u s t r y can now handle en enlarged f o r e i g n demand, b u t the remaining i n d u s t r i e s mentioned above are a l r e a d y working a t c a p a c i t y o r n e a r - c a p a c i t y l e v e l s t o f i l l existing f o r e i g n and domestic o r d e r s , and t h e i r a b i l i t y t o meet enlarged f o r e i g n demands w i l l be governed by the r a t e a t which they can expand o r convert t h e i r p r o d u c t i v e 3. facilities. The o u t l o o k f o r U n i t e d States t r a d e w i t h non-European c o u n t r i e s i s c o n d i t i o n e d by the f a c t t h a t reserves o f g o l d and f r e e f o r e i g n exchange h e l d by these c o u n t r i e s are g e n e r a l l y q u i t e l i m i t e d . Al- though a temporary wave o f i n v e n t o r y buying by i m p o r t e r s i n c o u n t r i e s whose e x t e r n a l t r a d e i s not s u b j e c t t o r i g i d c o n t r o l s i s an immediate possibility, the magnitude o f such a movement i s l i m i t e d by the i n a b i l i t y o r d i s i n c l i n a t i o n o f most c o u n t r i e s i n t h i s group t o a l l o w t h e i r e x t e r n a l reserves t o become depleted i n payment f o r imports. Leaving aside the p o s s i b i l i t y o f a b r i e f spurt i n inven- t o r y buying from abroad, tho growth i n our net exports t o nonEuropean c o u n t r i e s w i l l t h e r e f o r e be governed p r i m a r i l y by tho r a t e a t which Great B r i t a i n and France f i n d i t e s s e n t i a l t o increase t h e i r net imports from these c o u n t r i e s . The f r e e exchange which t h e y r e c e i v e f o r f o o d s t u f f s and raw m a t e r i a l s shipped t o Gr-*at B r i t a i n and France can be used to buy American goods. Thus, i n a d d i t i o n -18- t o t h e d i r e c t e f f e c t upon our t r a d e balance o f increased B r i t i s h and French purchases here, our net sales t o non-European c o u n t r i e s w i l l be s t i m u l a t e d as an i n d i r e c t r e s u l t o f l a r g e r B r i t i s h and French net purchases from them. The growth i n our net exports t o non-European c o u n t r i e s x v i l l not f u l l y keep pace, however, w i t h the expansion i n t h e i r net exports t o Great B r i t a i n and France, and the gap x v i l l be p a r t i c u l a r l y marked d u r i n g the e a r l y stages o f the war. T h i s gap i s due c h i e f l y t o the f o l l o w i n g f a c t o r s : (1) B r i t i s h and French imports o f a number o f c o l o n i a l p r o d u c t s , such as rubber from B r i t i s h - o w n e d p l a n t a t i o n s i n Malaya, copper from B r i t i s h - o x m e d mines i n A f r i c a , and petroleum from B r i t i s h - o w n e d w e l l s i n I r ^ q and I r a n , i n v o l v e a much s m a l l e r net o u t l a y by Great B r i t a i n then i s represented by t h e value of the products imported, since t h e earnings o f these e n t e r p r i s e s are r e t u r n e d as income taxes t o t h e B r i t i s h Treasury and as dividends t o B r i t i s h stockholders. (2) A considerable p a r t of the exports o f l i n p i r e c o u n t r i e s t o Great B r i t a i n end France w i l l be made on c r e d i t ; such c o u n t r i e s as Canada, I n d i a , A u s t r a l i a , and New Zealand, w i l l a l l o w a p o r t i o n o f the s t e r l i n g proceeds o f t h e i r export shipments t o remain as unspent balances i n London, i n s t e a d o f demanding f u l l payment by Great B r i t a i n i n g o l d o r d o l l a r exchange which c o u l d be used by them t o buy American goods. A l t e r n a t i v e l y , these accumulating s t e r l i n g balances may e i t h e r be funded i n t o d i r e c t advances by t h e Dominion Governments t o t h e U n i t e d Kingdom, o r used t o repay t h e o u t s t a n d i n g e x t e r n a l debt o f the Dominions. I n any event, the accumulation of unspent s t e r l i n g balances by the Dominions i m p l i e s a l a r g e r increase i n Dominion exp o r t s than i n t h e i r imports from abroad, and a correspondi n g l y s m a l l e r impact upon American e x p o r t s . -19- (3) I n most L a t i n American c o u n t r i e s and o t h e r nonEmpire s u p p l i e r s o f f o o d s t u f f s ana raw m a t e r i a l s t o Great B r i t a i n and France, t h e process by which an expansion o f exports i s communicated t o h i g h e r incomes, nnd an enlarged demand f o r i m p o r t s , always i n v o l v e s some delays, and under present c o n d i t i o n s t h i s l a g i s l i k e l y t o be accentuated by d e l i b e r a t e p o l i c y i n t h e c o u n t r i e s concerned, as a means o f r e p l e n i s h i n g t h e i r depleted g o l d and exchange reserves. Thus, t h e i r purchases from us w i l l a t f i r s t respond o n l y s p a r i n g l y t o the growth i n t h e i r export shipments t o Great B r i t a i n and France, I t may be concluded t h a t t h e growth i n our expox't balance i n t r a d e w i t h non-European c o u n t r i e s i s l i k e l y t o be q u i t e l i m i t e d d u r i n g t h e f i r s t n i n e o r t e n months o f the war, but t h a t i t will increase more r a p i d l y as Groat B r i t a i n and Franca are f o r c e d t o enlarge t h e i r imports o f f o o d s t u f f s and raw m a t e r i a l s , and as L a t i n American end o t h e r non-European c o u n t r i e s , having b u i l t up comfortable reserves o f g o l d and exchange, become more disposed t o spend on U n i t e d States products t h e proceeds o f t h e i r increased sales t o Gre&t B r i t a i n end France. The non-European demand f o r our goods, though l i k e l y t o be somewhat more d i v e r s i f i e d than t h a t o f Great B r i t a i n and France, w i l l be l a r g e l y concentrated i n c a p i t a l goods and d u r a b l e consumer goods. I n the f i r s t p l a c e , Germany, now v i r t u a l l y cut o f f from non-European t r a d e , has beon an important s u p p l i e r o f machinery, chemicals, automobiles, and o t h e r h i g h l y f a b r i c a t e d i n d u s t r i a l goods. I n the second p l a c e , Great B r i t a i n and France w i l l undoubtedly t r y , through c u r t a i l m e n t o f domestic consumption, -20t o m a i n t a i n the e x p o r t i n g c a p a c i t y of the l i g h t consumer goods i n d u s t r i e s , such as t e x t i l e s , but w i l l f i n d i t impossible t o export any s i g n i f i c a n t volume o f heayy i n d u s t r i a l goods, i n view o f t h e i r own war requirements. T h i r d , the war w i l l g r e a t l y a c c e l e r - a t e i n d u s t r i a l i z a t i o n i n t h e B r i t i s h Dominions and i n South America, which w i l l i n v o l v e purchases of i n d u s t r i a l equipment here. Our export s u r p l u s , which r a n close t o $100 m i l l i o n s a month throughout 1938 and d e c l i n e d a b r u p t l y a f t e r t h e t u r n o f the year t o an average l e v e l of $57 m i l l i o n s f o r t h e f i r s t e i g h t months o f 1939, should increese g r a d u a l l y over t h e next e i g h t o r n i n e months, perhaps reaching t h e 1938 l e v e l by about t h e middle o f 1940. I f i t i s assumed t h a t the d r a f t s made upon B r i t i s h and French i n t e r n a t i o n a l reserves up t o the middle o f 1940 w i l l bo roughly o f f s e t by replenishment o f g o l d and exchange reserves h e l d by o u t l y i n g c o u n t r i e s , t h i s would leave a v a i l a b l e f o r f o r e i g n net purchases o f goods and s e r v i c e s from us an amount about e q u i v a l e n t t o the new g o l d produced d u r i n g t h e p e r i o d . Foreign p r o d u c t i o n o f new g o l d , e x c l u d i n g Russian output end a small amount produced i n European c o u n t r i e s which are a f f e c t e d by the n a v a l blockade, i s r u n n i n g a t t h e r a t e o f $75 t o $BQ m i l l i o n s a month, and t h i s f i g u r e should not d i f f e r s u b s t e n t i a l l y from our average monthly n e t exports o f goods end s e r v i c e s i n t h e n i n e months ending June, 1940. Although our export s u r p l u s w i l l increase o n l y s l o w l y a t f i r s t , t h e s h i f t in -21- composltion o f our exports w i l l promptly o x e r t a s t r o n g s t i m u l u s t o c a p i t a l expenditures i n the i n d u s t r i e s s p e c i f i c a l l y a f f e c t e d by f o r e i g n demands• P a r e n t h e t i c a l l y , i t should be added t h a t , although the p r e ceding a n a l y s i s has d e a l t o n l y \ v i t h probable tendencies i n the f o r e i g n demand f o r American p r o d u c t s , our t r a d e balance a c t u a l l y depends upon the magnitude o f t h i s demand i n r e l a t i o n t o our demand f o r f o r e i g n goods. I n c o n s i d e r i n g t h e probable magnitude o f t h e s t i m u l u s which f o r e i g n t r a d e w i l l f u r n i s h to the American economy, i t has seemed a p p r o p r i a t e , however, t o omit c o n s i d e r a t i o n o f t h i s second f a c t o r because the scale upon -afcich we buy imported goods i s i t s e l f governed l a r g e l y by the l e v e l o f a c t i v i t y and incomes i n t h i s c o u n t r y . The p r o b a b i l i t y t h a t our exports w i l l increase o n l y moderately over the next n i n e months w i l l therefore tend, i n the absence o f p o w e r f u l l y s t i m u l a t i n g domestic i n f l u e n c e s , t o l i m i t the expansion o f our purchases o f imported goods. Never- t h e l e s s , t h e heavy forward buying which immediately f o l l o w e d the outbreak o f war w i l l undoubtedly be i n f l e c t e d i n increased raw m a t e r i a l imports over the next few months. During t h i s b r i e f p e r i o d o f i n v e n t o r y accumulation, t h e i n f l o w o f raw products from abroad should increase more r a p i d l y t h a n our shipments t o foreign countries. I n t h a t event, our export surplus may be -22- expected t o d e c l i n e somewhat d u r i n g , say, t h e next t h r e e months and t o begin t o increase a f t e r t h e p e r i o d o f i n v e n t o r y accumulation has come t o an end. The preceding a n a l y s i s of t h e impact o f war upon our f o r e i g n t r a d e may be b r i e f l y summarized. Our t r a d e w i t h European c o u n t r i e s o t h e r t h a n Great B r i t a i n and France, which produced an export s u r p l u s o f #305 m i l l i o n s i n 1938, w i l l probably be s u b s t a n t i a l l y c u r t a i l e d , owing t o the B r i t i s h - F r e n c h n a v a l blockade. This d i r e c t l o s s i n t r a d e w i l l be p a r t l y compensated, however, by c e r t a i n i n d i r e c t o f f s e t s , such as L a t i n American purchases from the U n i t e d S t a t e s o f machinery f o i m e r l y imported from Germany. I n view o f t h e B r i t i s h and French detexmination t o draw s p a r i n g l y upon t h e i r g o l d and exchange reserves, which c o n s t i t u t e an important element i n economic s t a y i n g power, t h e i r net imports from the U n i t e d States w i l l increase o n l y moderately d u r i n g the e a r l y months o f t h e war as increased i m p o r t a t i o n o f goods r e l a t e d d i r e c t l y t o war needs w i l l be o f f s e t by f o r c e d c u r t a i l m e n t o f imports f o r c i v i l i a n consumption. The increase i n net imports from t h e U n i t e d States w i l l l a t e r become i n c r e a s i n g l y s u b s t a n t i a l as a widening o f t h e scale o f h o s t i l i t i e s , consumption o f war m a t e r i a l , l o s s o f l i f e , and impairment o f p r o d u c t i v e facilities through enemy bombing and o r d i n a r y d e p r e c i a t i o n make necessary a l a r g e r dependence on overseas sources of supply. Increased -23- B r i t i s h and French demand f o r our goods w i l l be l a r g e l y concentrated i n heavy i n d u s t r i a l p r o d u c t s , f o o d s t u f f s and raw m a t e r i a l s being obtained c h i e f l y from Enpire sources and from L a t i n A m e r i c a , whose p r o d u c t i v e power i s much g r e a t e r than i n 1914-18. S i m i l a r l y , our net exports t o non-European c o u n t r i e s w i l l increase o n l y s l o w l y d u r i n g t h e e a r l y months o f t h e war, showing an i n c r e a s i n g l y r a p i d expansion, however, as Great B r i t a i n and France f i n d i t necessary t o enlarge t h e i r imports o f f o o d s t u f f s and raw m a t e r i a l s , and as L a t i n American and o t h e r non-European c o u n t r i e s , having r e p l e n i s h e d t h e i r g o l d and exchange reserves, begin t o spend on U n i t e d States products a h i g h e r p r o p o r t i o n o f the proceeds of t h e i r increased sales t o b e l l i g e r e n t s . Non-European demand f o r U n i t e d States p r o d u c t s , though somewhat more d i v e r s i f i e d than t h a t o f Grest B r i t a i n and France, w i l l be l a r g e l y concentrated i n heavy i n d u s t r i a l p r o d u c t s , and these combined demands w i l l induce a p r o g r e s s i v e expansion o f p r o d u c t i v e c a p a c i t y i n the i n d u s t r i e s s p e c i f i c a l l y a f f e c t e d . Combining these judgments concerning our t r a d e w i t h p a r t i c u l a r groups o f c o u n t r i e s , i t would appear t h a t our t o t a l exports w i l l show o n l y a moderate expansion over t h e next n i n e months, t h a t o v e r , say, t h e next t h r e e months the increase i n imports associated w i t h i n v e n t o r y accumulation i n t h i s country may cause a temporary c o n t r a c t i o n i n our export s u r p l u s , and t h a t t h e r e a f t e r our excess o f exports w i l l tend a t f i r s t t o increase o n l y g r a d u a l l y . Over t h e l o n g e r t e r n , however, our net exports w i l l expand a t an acc e l e r a t i n g r a t e as t h e war proceeds. The growth i n e x p o r t s , b o t h a t once and over the l o n g e r term, w i l l occur p r i m a r i l y i n such products as m u n i t i o n s , chemicals, a i r p l a n e s , machinery, steel, petroleum p r o d u c t s , motor t r u c k s , and passenger automobiles, w h i l e American a g r i c u l t u r a l products and l i g h t consumers goods, such as t e x t i l e s , w i l l be comparatively l i t t l e a f f e c t e d by increased f o r e i g n demands. The f i n a n c i a l , c a p a c i t y o f f o r e i g n c o u n t r i e s to purchase American goods, and t h e a v a i l a b i l i t y o f s h i p p i n g c a p a c i t y i n r e l a t i o n t o wartime t r o d e requirements w i l l be considered i n appendices t o t h i s memorandum.