Chart 1.-Calendar of events and movement of weekly business indicators. NOTE. The indexes of weekly business are from the following sources: Business activity from the New York Times; freight-car loadings and money in circulation computed by the United States Department of Commerce from data supplied by the American Railway Association and the Federal Reserve Board, respectively; stock prices from Standard Statistics; and wholesale prices from the United States Department of Labor.

WORLD ECONOMIC REVIEW, 1933

Part I-UNITED STATES

INTRODUCTORY REVIEW: BASIC FACTORS AND DEVELOPMENTS

Economic changes more momentous than those recorded in any previous 12 months in the history of the United States occurred during 1933. Before reviewing the outstanding events and accomplishments of the year and the effect of new developments on the trend of business, it appears worth while to reexamine briefly the history of 1929 to 1932.

Rapid advances in the perfection of labor-saving devices, and improvement in management technique in the years immediately preceding 1929, made it possible to meet the expanding demands of our growing population for both capital and consumption goods without increasing the number of workers in manufacturing industries. The new additions to the labor supply in general sought and to a considerable measure found employment in economic pursuits other than in basic production and in manufacturing industries. But despite these new opportunities for employment there were a large number of people, willing and able to work, who were unable to find jobs at the height of business activity in the middle of 1929. From then until the middle of 1932 this number grew enormously. The forces which operated during this period were such as to lead to the persistent deepening of the depression.

DOWNWARD COURSE OF THE DEPRESSION

Declining prices and decreasing employment in the early stages of the downward movement of business brought about a curtailment of purchases and an increased amount of "hand-to-mouth" buying. More workers were laid off, working time was reduced, and wage cuts and salary reductions were put into effect. Purchasing power was thus further reduced, while the urge to dispose of existing merchandise stocks became greater.

As the decline continued, larger and larger price concessions were made in an effort to move stocks of goods. This necessitated devoting increased attention to "shaving" costs. In the drive to lower

costs many producers sacrificed quality standards, used less durable materials, and employed less efficient and more poorly paid workmen. As a result, much capital was dissipated and labor was "sweated" under the stimulus of cut-throat competition. Many producers were forced out of business, thus adding to the ranks of the unemployed and decreasing purchasing power and the demand for goods.

With demand declining, production was further reduced and overhead costs became increasingly burdensome.

National income continued to shrink, and debts, contracted at high price levels, became more difficult to pay. A larger and larger proportion of current income went to pay principal and interest on debts and a smaller proportion to the immediate purchase of goods and services which provide employment. As the national income fell, income-tax receipts became lighter, necessitating new sources of revenues and higher tax rates, thus further reducing the purchasing power of the masses and bringing additional discouragement to business. Values declined, assets became frozen, credit became tighter, and business was further restricted. Meanwhile, with demand for goods falling off, supplies continued large.

The almost continuous decline in the price level reduced the earnings of trade and industry, changed profits into losses, and gave momentum to the downward spiral of business. Bonds declined in price, and other forms of assets, such as real estate, continued to depreciate in value, bringing about a rapid increase in the number of foreclosures. As a result, the strength of financial institutions became impaired, and many became insolvent. Fear for the safety of funds in banks was intensified, and hoarding of currency became more prevalent. The search for liquidity was widespread. With credit curtailed and difficult to obtain, distress sales became more general, and additional pressure was placed on the price level.

The declines in prices, since 1929, which were more severe in the case of agricultural than nonagricultural commodities, aggravated the already difficult position of the farmer. Export markets for farm products had been greatly curtailed in recent years as a result of the growth in large-scale farming abroad, the bringing of new lands in foreign countries under cultivation, and increasing trade barriers abroad. This declining volume of exports, together with the fall in farm prices, brought about substantial reductions in the farmer's income and made his relatively large indebtedness increasingly burdensome. The rapid downswing in agricultural prices increased the spread between the prices paid for the goods that farmers buy and prices of goods that they sell.

Foreign-trade declines were not confined to agricultural products alone. The quantity and value of all classes of export and import commodities contracted sharply. Contributing to the shrinkage in United States foreign trade and trade of the world was the increased use of tariffs, exchange controls, and import quotas. Ordinarily the United States exports about 10 percent of the total production of movable goods. The sharp shrinkage in the values of exports from $5,241,000,000 in 1929 to $1,576,000,000 in 1932 had a decidedly adverse effect on domestic business activity.

The picture drawn above persisted, with few intervals of encouragement, until the middle of 1932. Then, business in the more important commercial nations of the world was showing a moderate tendency toward recovery. The decline generally had been long and steep, and forces of recovery were at work. In the United States business improved substantially from July to September and held firm without much definite tendency either way in October and November.

The halt in the downward spiral is indicated in chart 2, which shows the trend of industrial production over the period from 1924 to 1933, inclusive. It may be noted that from an average of 125 in 1929, on a basis of 100 for 1923-25, the adjusted index dropped to a low of 58 in July 1932.

The relatively long interval between the election and the inauguration of the new President proved unsettling to business and was a factor militating against further immediate improvement. The administration in office took no positive action on important problems during this period, and the new administration could not declare its program and policies prior to its actual entry into office. By March 1933 the adjusted industrial production had receded to 60 from 66 in the preceding October.

MAJOR PROBLEMS FACED AT BEGINNING OF YEAR

At the beginning of the year 1933, the country was faced with a number of major problems. Among the more important was the existence of an unemployed population estimated at over 12 millions; a serious agricultural situation resulting from excessive production, ruinous prices, and large debts; a financial and credit system in grave danger of collapse; a tremendous and strangling mass of internal debt; almost insurmountable barriers to foreign trade, coupled with a perplexing foreign debt situation; an unbalanced Federal budget and disorganized State and municipal finance; increasing disorder and an almost complete lack of confidence on the part of the people.

Business activity, although still at an extremely low level, was, nevertheless, slightly above the low point reached a few months earlier. However, another decline set in at the beginning of 1933 and continued throughout the first quarter of the year, with a sharp downward movement in late February and early March. This rapid contraction at a period when some seasonal expansion is ordinarily expected, resulted primarily from the rapid spread of local banking difficulties. Hoarding of currency assumed panic proportions, and by March 4 the financial mechanism of the country was completely paralyzed. Finally, all banks were ordered closed by Presidential proclamation on March 6.

REMEDIAL MEASURES AND RECUPERATIVE FORCES

Recognition was immediately given to the need for Government responsibility and leadership. The outstanding maladjustments were immediately attacked by the incoming administration. On March 9, the Seventy-third Congress was convened hastily in extraordinary session to legislate on the banking crisis, and to enact other legislation of an emergency nature. Sixteen important pieces of economic legislation, among which were a number conferring broad and unprecedented peace-time powers upon the President, were formulated by this session of Congress and enacted into law. A list of these will be found in appendix B of this volume.

This legislation formulated and passed by the first session of the Seventy-third Congress has had a tremendous influence on economic