The observation post

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Part of The American Chamber of Commerce Journal

Title: The observation post
Creator: Straight, Eric
Language: English
Source: The American Chamber of Commerce Journal Volume XVIII (Issue No.3) March 1938
Year: 1938
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Fulltext: March, 1938 THE AMERICAN CHAMBER OF COMMERCE JOURNAL 21 The Observation Post By Eric Staight (Editor’s note: The following article is the first of a regular series by Mr. Eric Staight. The articles will cover the foreign field for our readers—with special emphasis on financial mat ters—in the same manner that the articles and graphs furnished the JOURNAL by Mr. Clifford A. Greenman will keep our readers posted on the local financial picture. Mr. Staight writes from a broad background as a practical eco nomist, financial writer, and student, gained in some 16 years’ experience in Wall Street. He was, a general partner in the firm of Boettener Newton & Co., which merged with Harris, Up ham & Co., one of the largest wire houses in the U. S. For seven years he wrote the daily market letters sent out by those .firms, and supervised issuance of market information and advice sent out to its clients. Besides this work, Mr. Staight found time to write financial articles for the New York papers, and to review books on economics and finance. In Mr. Staight, therefore, the JOURNAL has an economist and financial writer of considerable experience. He will write articles lor us interpreting the financial and economic significance of world events as he sees them. He receives no remuneration. Mr. Staight is a Director. Vice President and Treasurer of Syn dicate Investments, Inc., a Director and Treasurer of Mine Opera tions, Inc., and Director of the Southwestern Engineering Com pany of the Philippines, Inc. He is no stranger to the Philip pines, having lived here from 1917 to 1921. Mr. Staight’s articles will appear in the Journal under the head ing, “THE OBSERVATION POST.’’) FOREWORD: These articles are presented with one object in view; an impartial, discussion of world affairs. They are written from the standpoint of an economist, wjth no political leanings, and the writer’s one endeavor will be to present existing conditions, the causes thereof, and the probable course of future events. Such a series must have a beginning, and the beginning must, of necessity, contain much of past history. In this first article, there fore, and at the risk of being tedious, the writer has done his best to lay the proper foundation for more to pical efforts in months to come. In October of 1929 occurred a general price collapse in the United States. This collapse was the aftermath of an orgy of credit inflation begun in 1923. It was the forerunner of a bitter deflationary period, searing the souls of the hardiest and culminating three years later in a price level that left business gasping for breath and the average man wondering when, and not if, his job would disappear into thin air. Into this atmosphere was injected a national election. Drowning men grasped eagerly at the straws of com mon sense proffered by the opposition party and decided that a new Moses had arisen. Existing conditions were insupportable and the new broom promised a “New Deal” based on the conservative and intelligent principles of democracy. Early in 1933 the New Deal was translated from words into deeds. At first’these deeds were “emergency measures”. As such they were sensible and. received the united backing of business executives and the gen eral public. There was a banking panic in progress— answer: close the banks and let the country realize it was in the grip of blind, unreasoning fear. This was done. People were starving by the thousands: grant them immediate Government aid. Corporations were falling like leaves: create a virtual debt moratorium and let pressure subside. These things also were done, as well as others of a similar emergency character. The country breathed again and sober-minded men, realizing the mistakes of the past, prepared to build for the future, feeling that through strong but temporary legislation they had been given the opportunity. But the New Deal chose that time to really make itself felt. “Emergency measures” became permanent laws; gentlemen appeared at the seat of Government who had lor years been nursing pet theories on the monetary system and its relation to the price level, and before the country realized what had happened, the gold standard was in the discard, the dollar unanchored, and the first steps taken along a path which was to lead directly and irrevocably to tfie situation existing today. The gold standard was not abandoned for the reasons behind tne French action, nor, for that matter, for the reasons ex isting in Great Britain in 1931, but the action was taken deliberately and in accordance with an untested theory of managed money. Naturally the general price level rose, and rose almost perpendicularly in those hectic spring and summer months of 1933. Dollars were out of style and the things to have were goods and commodities. Prices were to be raised by monetary manipulation to a point where unemployment was virtually eliminated and the wheels of industry were turning at a rate guaranteeing all a satisfactory living. Not surprisingly, the rise was accelerated by violent speculation, and equally naturally, this brought in its wake a severe market break. But the New Deal had just begun, and fresh measures were promptly intro duced. If the creation of new money was not sufficient in itself, then let production controls be set up. Let minimum price and wage agreements be arrived at and at the same time let speculation be curbed. These things also were done and after nearly a year’s backing and filling, prices rose again. Fundamentally, the answer was still money—money created by virtue of the devalued dollar and the constant inflow of gold from every produc ing country in the world. As the reach of prices toward the skies continued, costs also rose, but this was of no immediate concern. The price level was the thing, and what if the United States was attracting all the gold in the world in exchange for natural resources? Mean while, regulation and reform, some of which was unques tionably needed, became more and more in evidence, but still pump priming kept the wheels turning. Govern ment largesse kept many millions at work and by the spring of 1937 prices approximated the level desired by the men at the helm. So far, so good, and the builders of this structure began to sit back. They were satisfied with results accomplished. Prices had been raised to 22 THE AMERICAN CHAMBER OF COMMERCE JOURNAL March, 1938 the desired shelf and they were now pre pared to remove the props and turn their attention to purging the nation of “unsound business practices” and the introduction of further social reform. Unfortunately, natural law's were waiting just that opportunity to assert themselves, and the tumble from that artificial shelf will have repercussions for many years to come. For unadulterated violence, the re cent decline in business and the general price level has put 1929 entirely in the shade. So much for past history. There is no disgrace in honest effort, however mis guided. No man can find too great fault in the attempts of his chosen leaders to better his lot, but he does demand a change of plan when those efforts fail. That is the vital question in the United States today. Is the failure recognized, and is the course being recharted accordingly? It is not yet possible to answer that question. There are straws in the wind, but they are still blowing helter-skelter. Business is in vited to confer at one moment, and dic tated to as to wages, hours of labor, and prices, at the next. Modification of da maging tax laws is proposed in one week, only to be succeeded by bitter attacks on capital in the week following, and infla tionary gestures follow hard on the heels of budget balancing talk. So it goes, and as it goes, it is impossible to escape the conclusion that the New Deal, like Danny Deever, “is fighting hard for life”. Through it all, there is one thing to re member, and it is a comforting ray of light for those who feel that the American way of living is in permanent danger. The United States is one of the three great democracies left. She still boasts of a de mocratic constitutional government and in this writer’s opinion, the basis for this is far stronger and far more permanent than any particular administration. In the American scene, there is no essential dif ference between Government and business. Despite Washington remarks to the con trary, the people of the United States, and not a select “60 families”, own the busi ness of the United States. The people of the United States also elect the Govern ment, which is a trustee having no powers not granted through the will of that people, and should have no interest save in giving a satisfactory account of stewardship. To lead, not to dictate, is the function of the American Government, just as it is in the other two democracies of the world. As long as the country’s ownership rests where it does (and of 101 of the nation’s largest corporation 86% of the total out standing shares are owned by holders of 100 shares or less), there is no vital danger of permanent dictatorship or, for that mat ter, communism, collectivism, or a corpo rate state. The foregoing deals with the indeter minate future. It may well be that before adjustment occurs, the present circum stances will give rise to still further dis ruptions in the national economy. The labor angle alone is one which can not lightly be dismissed, and it is not possible to predict how much more sand labor upheavels will throw into the business ma chine before national commonsense comes o the rescue. Making all allowances for the world-wide changes in labor-capital relationships which have undoubtedly been taking place, there is little question that the present administration has erred as much in its encouragement of labor as some previous governments failed in the opposite direction. This is merely one of the uncertainties of the more immediate picture. There an many others, but once again, it is neces sary to point to the monetary background as the most vital. The greater part of the developments of the last four years could not have taken place had it not been for dollar devaluation and the inflation of Government credit. Many billions of dol lars have been created by these means and pumped into circulation. Furthermore, it seems safe to say that the fij'st signs of a slackening of this flow were the signal for the present depression. It is, there fore, a paramount question whether the Government intends to resume this artifi cial stimulant, or to rely on other means for a revival of business activity. As pointed out earlier in this article, there are no clear indications of a considered (Please turn to page SO) IN RESPONDING TO ADVERTISEMENTS PLEASE MENTION THE AMERICAN CHAMBER OF COMMERCE JOURNAL 30 THE AMERICAN CHAMBER OF COMMERCE JOURNAL March, 1938 The Observation ... (Continued from page 22) plan, and it is a fair guess that at the moment there is no such plan, but there does seem one definite premise, and that is that the New Deal is still determined to use all means at its disposal to avoid a collapse which will throw its most cher ished experiments permanently in the dis card. For this reason, economists the world over are closely scanning the slightest ges ture in connection with the nation’s mo netary and banking system for signs of a revival of inflationary measures. A few weeks ago one such motion was made. It consisted of the release of a small portion of the inactive gold fund and the stipulation that from now on, all Model PD-40 50 H.P. Model 1*0-80 100 H.P. 1. Simplified, De pendable Start ing 2. Long Life—Rug ged Construction 3. Durable Fuel in jection Pump 4. Complete Stock of Spare Parts Always Available In comparison with conventional type engines. International Diesels have cut fuel costs as much as 75 per cent, in some cases even more, on practically every stationary and mobile power unit application within their capacity. This is because they are full Diesel engines in every respect, operating on low-price fuel. In addition, International Diesels have numerous outstanding features that put them in a class by themselves for Diesel efficiency, convenience, dependability, and low-cost maintenance. International Harvester Company OF PHILIPPINES Iloilo . Bacolod . Cebu . Davao . MANILA . Legaspi . Baguio . Cagayan, Misi gold acquired up to one hundred million dollars per quarter would be used directly in the Federal Reserve system, rather than added to the inactive fund. While this did not constitute inflation of the greenback printing, or the WPA pump priming variety, it nevertheless resolved itself, first, into an i dmission that inflation psychology might rgain be necessary to keep the tottering structure from complete collapse, and second, a hint that if necessary the entire one billion two hundred million inactive gold fund would be used for the purpose. It is not a far cry from this action to a drastic reduction in reserve requirements and an aggressive open-market purchasing policy for Government securities. There is an active section of Congress only too 4 Reasons for the Popularity of INTERNATIONAL Diesels eager for such measures and, more, for further dollar devaluation and currency in flation of the most direct type. This sec tion is held in check for the moment, but it would be folly to imagine that another six months such as those just past, would not see them in full and powerful cry. Mention has already been made of the aggravation world affairs have been to the United States’ political and economic structure. There can be no gainsaying that conditions across both the Atlantic and Pacific Oceans have had no little to do with the rapidity of the American price decline. Still another French effort at internal stabilization has fallen by the wayside and the Tripartite Agreement, while remain ing in force, is proving no more than a temporary alleviation of France’s external difficulties. Her internal affairs are in sad shape. There was a desperate effort by the Chautemps Government at price ad justment both by means of economies and of wage and hour agreements, but this came too late and the fall of that regime resulted in a chaotic condition. France’s public debt is staggering and the future of the franc is doubtful in the extreme. The balance of Europe has been milling around in the grip of dictators who, realiz ing the shaky condition of their own house holds, have been using every effort to dis tract attention therefrom and utilize as bargaining or bluffing assets the war ma chines they have built up. Fortunately, these efforts have so far, and perhaps of necessity, been confined to bargaining and bluffing, but they have had their unnleasant repercussions throughout the world. This much is now recognized by thinking people: Dictatorships breed war. Fortunately for the world, the balance of power still lies in sober hands, but those hands are far too occupied with the delicate business of keeping the peace, making concessions here, taking a firm stand there to pay proper attention to reconstruction of the disrupted world economic situation. Not only in Europe is the international scene a difficult problem, but in the Far East the Sino-Japancse “incident” is prov ing a source of world-wide anxiety. Japan has embarked on a campaign which is straining her uttermost financial resources, and if one may judge from past history, that campaign has no assurance of suc cess. Meantime, however, it is definitely a breeder -of trouble, for practically every large nation has some stake in the Orient and some so important an interest that its protection must be insured at all costs. Inasmuch as these interests are not all the same, there is occurring an increasingly marked division on much the same lines is that in Europe. All details are not known of the Italo-German-Japanese agreement, but it is reasonable to suppose that these details are sufficiently inimical to Great Britain, let alone Soviet Russia and France, to make anything like a rapprochement )n the Far East an impossibility. From IN RESPONDING TO ADVERTISEMENTS PLEASE MENTION THE AMERICAN CHAMBER OF COMMERCE JOURNAL March, 1938 THE AMERICAN CHAMBER OF COMMERCE JOURNAL 31 the standpoint of the outside world, and disregarding for the moment the question able methods she is using, perhaps the most satisfactory outcome would be for Japan to batter herself into a state of financial insensibility against the yielding but re silient wall of China’s defenses. Certainly, events at the moment are pointing that way. Great Britain’s price structure is not coming unscathed through the general dis turbance. Aside from her active partici pation in European and Far Eastern diplomatic and political scenes, she is far too closely allied commercially and finan cially to the United States not to feel the effects of the depression across the At lantic. British trade has definitely suf fered, and while leading observers there regard the recession as temporary it is improbable that 1938 will be as good a year for Great Britain’s industries as 1937. By and large, the world picture is lib erally be-spattered with gloom, and it is small wonder that the ranks of those fore seeing nothing but a long-lasting and disas trous business decline are expanding by leaps and bounds. Yet the situation is by no means as hopeless as it seems on the surface. Here again, one must turn to the world’s democracies for assurance as to that point. Left to themselves, the odds are that the dictatorships and communistic states would destroy each other and in that destruction carry our present civilization to oblivion. But fortunately, those democra cies, with all their internal difficulties, have nevertheless sufficient farsighted men be hind the scenes to realize this danger and also to realize, \vhat is far more important, that Utopia is not here or even “around the corner.” The path to peace lies in overwhelming strength and the will to use that strength in the upholding, rather than the destruction, of freedom. Culled from the ... (Continued from page 24) GOLD PRODUCTION FIGURES CON TINUE TO SET RECORDS: Every month sets a new all-time high in Philippine gold production. All records were broken in February, and March, Director Abadilla of the Bureau of Mines reports, may reach more than P5,000,000.00. Production th:3 year is almost certain to exceed P60.000,000.00 in gold alone. Meanwhile, the stock market continues to go down. “Oh, Oh!” One convenient thing about some of these stock prices: they fit in so well with Ta galog and with English slang. If a 6tock is quoted at P0.00—something, the prospec tive seller can say, “oh, oh”. The broker can, after taking his order reply with the Tagalog word for ‘yes’, “oh, oh"! At that, it is a little confusing. Your broker tells you that your stock is quoted at P0.00.... You say, “oh, oh! Did you say P0.0O... ?” He replies, “oh, oh”. FEBRUARY 1938 GOLD PRODUCTION ‘ February 1938 February 19.37 Tons Milled Value Tons Milled Value Ambassador .............. Antamok.................... Baguio Gold.............. Balatoc ...................... Benguet Cons............. Benguet Expl............. Big Wedge................ Cal Horr .................. Coco Grove .............. Demonstration.......... East Mindanao ........ Gold Creek................ Ino Gold .................... Ttogon ........................ IXL Mining.......... Mindanao Mother L. Masbate Cons............. North Mindanao .... Royal Paracale ........ San Mauricio............ Suyoc Cons................. Tambis Gold.............. Twin Rivers.............. United Paracale........ Total .......................... 325 P 3,580.00 19,820 367,901.04 7,442 127,481.46 33,891 1,009,794.26 28.267 918.527.32 2.556.89 20,366.00 3.851 133,903.94 5,105 91,651.04 287,500 yds. 174.400.00 7,992 130,683.03 2.294 35.648.09 1,196 20.266.19 5.411 40.289.38 25.184 277,531.38 9.153 221,327.94 4.217 112,320.68 64.692 304,916.84 182 oz. 12.740.00 2,178.5 19,950.18 8,417 195,326.65 5,602 110,062.41 34.085 yds. 9.114.90 24,221 29,370.44 8,330 190,896.90 19,634 P 423,984.81 6,038 83,453.18 34,461 960,653.60 22,896 691,105.00 3,641 24,826.00 4.092 68.951.55 5,149 92,520.52 6,446 122,430.56 2.276 44.600.00 879 13.745.39 4.693 50.582.38 15,453 237.647.62 6,353 152,237.88 46,088 260,917.11 13,650.00 4.265 173,491.06 6.740 87,842.79 19,810.00 9,522 109,891.58 P4,558,042.07 ........ P3,682,356.97* 1 Figures furnished by the Chamber of Mines. * Including IXL Argos, P30,233.06, North cm Mining, P457.14 and Salacot, P19,335.74. LOST PIPE LINES Oil companies occasionally lose their pipe lines. Perhaps the maps were misplaced or the markers removed. It would be a tremendous task to dig for them, so a geophysical survey is made, and the pipes are locted, traced and mapped. Geophysical methods locate and trace mineralized structures in the same way. Of course locating structures is much more complex than finding pipe lines, and highly skilled geophysicists and geologists must interpret the geophysical data in terms of geology. Developments’ staff of experienced and proficient technicians, geophy sicists and geologists have conducted geophysical surveys in the United States, Canada, Alaska, Mexico, and the U. S. S. R. They have made many surveys in the Philippines, including a number on producing properties. Write or phone for an appointment to discuss details and costs. Preliminary discussions will be treated confidentially and with no obligation. DEVELOPMENTS, INC. Filipinas Bldg. P. O. Box 3230 Tel. —2-17-46 Manila. P. I. IN RESPONDING TO ADVERTISEMENTS PLEASE MENTION THE AMERICAN CHAMBER OF COMMERCE JOURNAL
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