AMERICAN PROSPERITY ANDAMERICAN POLICY

THE books are closed, " as of December 31, 1925."It has been a year of great prosperity for the United

States. It has been a year of such prosperity that eventhe most optimistic prophets of three months ago wereamazed to see the final figures. To some extent, strangeas it may appear, the results came unperceived. In earlysummer the steel trade was grumpy ; in late November themercantile reviews were pitched in a minor key. Never-theless, the statistical summary of the Federal Trade Board,published soon after the first of January, shows that duringthe year 1925 all previous records were broken for volumeof manufacture, building activity, output of steel ingots,of automobiles and of petroleum. Railway traffic wasunprecedented, while the total value of the combinedimports and exports was greater than that of any yearsince 1920. In 1913 the foreign trade of the United Statesamounted to slightly more than four billion dollars ; in1925 it amounted to just over nine billion.

With the old year ended, financial authorities began tolook ahead. They found at least six factors which fore-shadowed the continuation of a considerable measure ofprosperity during 1926.

1. The credit of the Federal Reserve Banks is not overtaxed.2. Inventories and credits are in a healthy state.3. The excess of exports over imports is less in dollars than the

1913 difference, and far less still in the percentage of business done.274

American Prosperity and American Policy4. Exports of gold, for the first time since the war, exceeded

imports—and that by $134,000,000.5. The Locarno Treaty opens the way for further important steps

in European reconstruction.6. The Coolidge Administration commands the confidence of

business and industry.

Thus, in the January 1 issue of Commerce Reports, theSecretary, Mr. Hoover, touched on " some phases of thesituation which require caution " : real estate and stockspeculation, the over-extension of instalment buying, andthe instability of the coal industry. But—

the dominant factor in our outlook (he said) is our increased pro-ductivity, due to fundamental and continuing forces—such as thecumulation of education, the advancement of science, skill and theelimination of waste. Other favorable indications on the immediatehorizon are that the stocks of commodities are moderate; there isemployment for practically everyone; real wages are at a highlevel; savings are the largest in history and capital is thereforeabundant; and the whole machinery of production and distributionis operating at a higher degree of efficiency than ever before.

These predictions are rather more than New Year's talk.In November, Colonel Ayres of the Cleveland TrustCompany, one of the ablest American economists, felt surethat the tide of business would slacken early in 1926. Amonth later he had revised his opinion. Writing in theNew York Evening Post, he said : " The outlook for 1926is a favorable one in that it promises to be a time of generalprosperity. . . . This outlook is modified by the prospectthat during the latter part of the year the business tide islikely to be running out instead of continuing to flow in."So much for the prophets. We shall see what we shallsee. But in an article of comment on American affairs asof January 1926 one must give chief place to the greatprosperity of the past year, and to the expectation that itwill be repeated during the next twelve months.

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II.

IT was unfortunate that Mr. Hoover chose just thismoment to launch an attack upon the alleged British

monopoly of rubber. Under the Stevenson plan the costof raw rubber had risen out of all expectation, until ascheme which had been put into effect by the BritishGovernment for the purpose of setting the East Indianplantations on their feet, had become an engine for grindingout huge profits. These profits came out of the consumer'spockets,—and while the law, in terms, was of generalapplication, it worked in fact a special hardship upon theUnited States because of its large rubber consumption.It is understood that the American Government, as early aslast July, began to lodge protests in London. CertainlyMr. Hoover himself in his Erie speech of October 31expressed vigorous objection to foreign monopolisticmeasures which imposed, or might impose, unfair priceburdens on the United States. But this direct attack onthe Stevenson plan, his bill of particulars against the Britishrubber regulations, came at a poor time. His statement wasmade on December 29. Almost before the words were outof his mouth, and certainly before his arguments could beanswered, the amazing story of the prosperity of theUnited States during 1925 began to reveal itself in theyear-end figures. Sir Robert Home saw an excellentopening, and his full reply, cabled to the New York Timesof January 3, makes interesting reading. He concluded :

I confess that my compassion is not moved at all when I contem-plate the position of those in America who seem to be so seriouslyinjured by the present price of rubber. I have seen some of Mr.Firestone's jeremiads, but when I look at the report of his company,I find that its net profits, after writing off depreciation, and necessarypayments for Federal taxes, have risen from $7,000,000 in 1922 to$12,000,000 in 1925. . . . I shall wait for some more authenticfigures than these before my withers shall be wrung with pity.

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American Prosperity and American PolicyA few days later the Nash Motor Company declared a

900 per cent, stock dividend. Certainly the Stevensonplan had not done much harm to Mr. Firestone's tirecompany, or to Mr. Nash's Motor Company.

Not only did Mr. Hoover choose a bad psychologicalmoment. He made a somewhat weak case. Democraticpapers like the New York World, the New York Times, andthe Baltimore Sun, turned their guns on him. The liberalweeklies, joining in with a smart display of temper, foundthemselves in the unusual position of appearing to defenda foreign monopoly. Against attacks from these twoquarters, the Secretary of Commerce was prepared byexperience: but the unkindest cut of all came from theUnited States Rubber Company, whose President testifiedbefore the Congressional committee of investigation thatthe inquiry was hurting his business. With 130,000 acresnow under cultivation in the East Indies, 46,000 of whichwere already bearing, the United States Rubber Companyfound no fault with the Stevenson restriction. And thenthere was the statement of Leland Summers, formerlytechnical adviser to J. P. Morgan and Company, laterChairman of the Foreign Division of the War IndustriesBoard. Mr. Summers rolled up his sleeves and steppedforward :

There is no nation at any time in the world's history (said he)that has made a more sincere effort than the American Governmentto erect barriers to prevent the free flow of materials and com-modities. The Secretary of Commerce might learn of some of thesebarriers that have been erected, and it might astonish him toparaphrase his own article by saying that one Government has sought" by legislation and benevolent Government support" to dam thefree flow of essential commodities against some fifty nations of theworld.

In the hearings of the Congressional committee whichhis outburst called into being, Mr. Hoover was askedwhether a ten per cent, tariff did not exist on rubber,under American law, and whether the American consumer

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American Prosperity and American Policywas not thereby forced to pay additional millions for tires.Mr. Hoover avoided debate, saying that he could not agreeeither " with the premise or the figures." The embarrass-ing question was not pressed. But outside critics havepointed out that the entire American tariff is cast in thesame mould as the Stevenson plan—the one restrictingimports, the other restricting exports. They have calledattention to a virtual monopoly of hemp recently establishedin the Philippines, by legislation which prohibits even theexport of seed for planting elsewhere. They have dis-covered that while the Secretary of Commerce is inveighingagainst the practice of one Government in raising rubberprices by restriction of output, his colleague, the Secretaryof Agriculture, is talking with heads of farm organizationsabout raising the price of corn by like restrictions onoutput. If the life of the United States depends upon afree flow of the now controlled products—rubber, coffee,nitrates, sisal, potash, iodine, tin, quebracho, mercury, andquinine—does not the life of other countries depend tothe same degree upon the free flow of their manufacturedproducts to the American consuming public ? . . . It wasto this kind of argument that Mr. Hoover exposed himselfby the case as he made it in his two public utterances,and in his testimony before the Congressional committee.But something more might well be said for the Americanpoint of view, and it will be said later in this article in anappropriate place.

So far as rubber is concerned, the immediate crisis seemsto be past. On February I the East Indian plantationswill be permitted, under the Stevenson plan, to return to" standard output" of 1919. This by no means ensuresunrestricted production and unrestricted export: but iteases the situation materially. Moreover, under theimpetus of Hoover's attack, crude rubber prices havedropped twenty-five per cent, from their high point.Two major schemes are under way for plantations underAmerican control, both of which are supplementary to

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American Prosperity and American PolicyHenry Firestone's 2,000 acre lease in Liberia, and to hishope " eventually to develop a million acres of rubber "in West Africa. The tire manufacturers, with not un-natural reluctance, agreed to promote economy amongtheir customers. At last, on January 18, Mr. Hoover toldthe Congressional committee that he was satisfied withthe results achieved. But it remains to be seen whetherhe has broken a monopoly, or broken a market.

III.

" T T is the intrusion of Governments into trading opera-Xtions on a vast scale that raises a host of new dangers—

the inevitable aftermath of any such effort by politicalagencies to interfere with the normal processes of supplyand demand. Our experience of the last twelve monthswith these controls has developed a series of fundamentalquestions which we can no longer ignore and upon whichwe must determine a national policy." Here, beyond thequestion of price of spot rubber, beyond the question of alikely rise in the cost of potash f.o.b. Bremen, is thematter that is on Mr. Hoover's mind.

There are those who attempt to explain his flurry interms of political ambition. Here was an opportunity, theysay, for a man who keeps the White House for ever in thecorner of his eye to remove the two disabilities underwhich he has suffered as a prospective candidate for thePresidency. He is thought to be pro-British : so he makesit clear that he, too, isn't afraid to lay hold of the Lion'stail and twist it. He is unpopular with the farmers : sohe'll make a dramatic (and successful) effort to save theirupkeep cost on their Fords ! Or the shrewder ones say :Not a bit of it. There's a policy at stake, and the issuelies between the Secretary of Commerce and the Secretaryof Agriculture. Jardine is flirting with the farmers whowant the Government to provide a price-fixing arrange-

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American Prosperity and American Policyment which will stabilize the sales price of farm products.This Jardine was virtually picked by Hoover, so Hoovercan hardly attack him : but he can, by attacking a rubbermonopoly, give the public in advance a picture of thedangers which attend artificial governmental aid to theproducer of staple commodities.

The writer offers an explanation which is certainly fairerto Mr. Hoover, and probably a good bit nearer the truththan the petty explanations which have gone the usualrounds. The moment of his outburst may have beenbadly chosen, his arguments may have been open to refu-tation, but his attitude and his vehemence ought not tosurprise anyone who knows his experience as Food Adminis-trator, his philosophy as author of American Individualism,and his program as Secretary of Commerce. As FoodAdministrator his task was complicated by the Britishand French Governments, who played havoc with theAmerican wneat and meat markets, by timely and concertedaction both in purchasing and in " pausing." When, afterthe war, he labored out his economic philosophy andwrote his one book—a principle emerged : " It is wheredominant private property is assembled in the hands of thegroups who control the State that the individual begins tofeel capital as an oppressor." The position of capital mustnot be weakened. It must not appear oppressive. And toassure this, dominant private property must be kept outof the hands of " the groups who control the State." Theevil genie is now identified as those who with governmentalauthority regulate the output and price of rubber, coffee,nitrates, sisal, potash, iodine, tin, quebracho, and mercury.Hence the alarm ; Capitalism, at its best, is in danger.

And, lastly, as Secretary of Commerce, he believes in thepolicy of maximum production for this country. You'llfind it all in the book, written long before the Stevensonplan was heard of, but soon after he entered the Cabinet." It is a certainty," he said, " that we are confronted witha population in such numbers as can only exist by produc-

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American Prosperity and American Policytion attuned to a pitch in which the slightest reduction ofthe impulse to produce will at once create misery andwant." Under the capitalist system as it exists in theUnited States, high real wages obtain. They can be kepthigh if production continues at full blast. They can gostill higher as waste is eliminated, mass production ispromoted, and labour-saving devices are increased. Butin this scheme of things, rubber must remain at an attractiveprice to the consumer, potash must be landed from Germanyat an economical price to the producing farmer, and coffeemust not be exploited by the Brazilian Government soas to impair the scale of living in the United States.

But there is reason to believe that Mr. Hoover is lookingbeyond the special interest of the American consumer.Nine " monopolies " already exist, each one of them sup-ported in some fashion or other by Government. One ofthese, for example, js in tin, and though tin has not yetbecome a special subject of controversy — the Britishreader might look at the Daily Express of December 31,1925, where he will find an article under the followingcaptions : " America Pays for Tin ; Parallel to RubberRise." And if he reads the article through, he will find (a)that America paid £253 per ton in 1925 against ^159 perton in 1922; and that Mr. Broadbridge, " chairman of acompany which controls one of only five tin mines in theworld capable of producing about 1,200 tons per annum,"makes a statement. Mr. Broadbridge says of the UnitedStates : " Because she was caught out in rubber she iscomplaining. But what can she do ? The price is controlledhere, and America simply has to pay the price." One canwell imagine Mr. Hoover asking himself how far this sortof thing is going to go, and whether it ought not to bechecked where it is, before its effects are seriously felt bythe American public. For obviously there are seeds ofinternational ill-will in the situation, and nothing couldbe more dangerous to the spirit of international amitythan for two such Governments as the United States and

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American Prosperity and American PolicyGreat Britain to encourage their own citizens to mulctthe citizens of the other. Obviously, too, if a regime ofreprisals and retaliatory measures were really inaugurated,the United States with its great resources of raw materialswould not be at a disadvantage.

If this explanation of Mr. Hoover's views is as correctas it is intended to be, it is no longer true to say, as he says,that " we must determine a national policy." The nationalpolicy is determined, to the extent to which Mr. Hooverrepresents the Administration, and the Administrationrepresents the nation. It is the need for a program, not apolicy, that is giving him concern. Meanwhile, for lackof a better one, there is a program : To protest to the.offending Government through diplomatic channels. Incase the protest comes to nothing, to give a public addresson the general subject, and if that fails to produce thedesired result, then make a vigorous speech on the subjectin detail, naming names and giving chapter and verse.A Congressional investigation will take place, the marketwill break, and the crisis will pass. Meanwhile, . . ." replying to the questions propounded by RepresentativeNewton (Republican, Minnesota), Mr. Hoover said thatone of the most effective weapons used to break theRubber Trust's grip was action by the Administrationin advising American banking houses to withhold loansto those interested in that monopoly." . . . He saidthat " to oppose all loans to countries wherein mono-polies exist which prey upon the American people wouldbe in the nature of a reprisal, and the Administration has nointention to resort to retaliatory measures."

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IV.

SOME people would take issue with Mr. Hoover con-cerning the nature of a retaliatory measure. They would

claim that a restriction against the free export of capital is,in fact, a reprisal against a restriction against the free exportof rubber. But whether you call it a reprisal or a Heaven-sent boon, the Administration is employing an unusual,dangerous and delicate weapon to bring about desired ends.

It is unusual in that a practice arising out of the neces-sities of war has been revived for times of peace. TheState Department, at the outset of the war, scrutinizedprivate loans abroad with great care, so that the diplomaticand political projects of the United States Governmentmight not be jeopardized. This practice, in the circum-stances, was sound. But now the State Department,with the war more than seven years away, has revived itspower for presumably peace-time purposes. The nature ofthe power is likewise unusual. The authorities do notdisapprove of any proposed loan. Their recommendationsdo not derive force from any law. If the case be question-able in their eyes, they withhold approval, merely that.If the case is unobjectionable they " see no reason why theissue should not be undertaken," merely that. But it hasbeen the disposition of most banking houses to observe thenuances of the Department.

In the second place, the practice is dangerous. It isbound to cause ill-will abroad, it is likely to involve theAdministration in responsibilities for such private loansas are " not disapproved," and it is rapidly alienating thesupport of the banking fraternity. From the statementsof the Department, one might think that Wall Street andWashington were in utmost harmony, that decisionswere taken in a spirit of good-will and mutual understanding,and that all discussions between the American coffee bankersor potash bankers, or quebracho bankers and the Secretary

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American Prosperity and American Policyof State (especially if the proposed loan were not approved)ended with a Gaudeamus Igitur. This simply is not so.Feeling runs high. And it is for the Administration toconsider how far it can safely alienate the banking fraternityby continuing its present policy. For though productionmust be maintained at a high pitch in order to consolidatethe economic position of the country, and though a freeflow of raw materials is indispensable for this purpose, thatis not the whole story. In the intricate process ofstabilizing American prices, which has so far been success-fully accomplished by new and devious financial methods,the Government must have the cooperation of the Street.

That is why the exercise of the veto power over loansis a matter of considerable delicacy. At the basis of Ameri-can economic policy lies the protective tariff. On thispoint both Republican and Democratic parties agree.Such differences as they may have are concerned, notwith the principle, but with the amount and incidence oftariff regulation. If the tariff is to be maintained as aneffective wall against foreign competition, it is essentialthat the cost of production in competing countries shouldnot go down, nor the cost of American production go up.A 10 per cent, fall abroad, or a 10 per cent, rise at home,would practically repeal the tariff scale.

Obviously the principal factor which, in the normalcourse of economic events, would inflate the cost of Ameri-can production, is the swollen supply of gold accumulatedin the hands of the greatest creditor nation. For morethan two years past effective measures have been takenvirtually to " sterilise " so large a portion of this goldsurplus, that until now its existence has not had any seriouseffect upon production costs, through the undue inflationof credit. Thanks to 1925, with its large increase of foreignloans for public and private objects, the tide of gold hasbegun to flow away. It may now be said that a stabilisa-tion of prices in the United States has been brought about,so far as the gold factor is concerned.

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American Prosperity and American PolicyOn the other hand, to effect a comparable stabilisation

abroad was not so easy. The financial power of theUnited States extends outside its borders only in indirectways. But owing to the British example and to theapparent success of the Dawes Plan, European countries,one by one, are returning to " hard money." This, inturn, operates against a decline in production costs, andthereby tends to prevent the second possibility of a breachin the American tariff wall. What is more, a stabilisedfinancial condition in countries on the continent of Europe(including Russia) is the first inducement to Americanbankers to invest there, either directly, or through inter-mediaries in England and Germany. And the very invest-ment itself so tends to consolidate the financial and indus-trial position of the foreign country, as to make the rein-vestment of the same funds attractive at the maturity ofthe obligations.

In all these delicate operations in a highly sensitivesphere of human activity, the cooperation between Govern-ments and bankers, Governments and Governments,bankers and bankers, is indispensable. It is probably notwithout significance that Mr. Norman of the Bank ofEngland and Mr. Gilbert, transfer agent for Germanreparations, found themselves in New York on the daywhen the rediscount rate of the New York Federal ReserveBank was raised from three and a half to four per cent.

V.

AS for " political matters," in the usual sense of theword, it is enough to say that Congress is in session.

Almost a year ago the Senate agreed to take up the questionof American adhesion to the World Court on December 17.True to their word, discussion began on the appointeddate : true to their tradition, discussion dragged on forover a month. At the outset it seemed certain that thePresident would carry his point, and that their consent

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American Prosperity and American Policywould be given quickly. For during the summer andautumn months sentiment for the Court had increasedand made itself heard, while the success of Locarno gaverenewed assurance that Europe intended to go ahead onthe basis of international accommodation and a will topeace. Supporters of the Court throughout the countrywere pluming themselves ; Republican and Democraticsenators of " regular" type would, for once, join hands todefeat a comparatively small group of irreconcilables of bothparties, led by Senator Borah.

But as these gentlemen continued their deliberations,the yearly Tax Reduction Bill made its appearance, firstin committee, and then, with unexpected promptness, intheir very midst. Upon this rock the existing informalcoalition of pro-Court Republicans and Democrats split :or rather, they diverged to such an extent that it was nolonger possible to count upon their full cooperation.Those who expected to stand shoulder to shoulder to pressthe Court to a favorable conclusion, found themselves faceto face over the issue of tax reduction. At this junctureit was suggested that with such a large group still favorableto the Court, the Senate should end its talk and proceedto a vote. The only way in which such a vote can bebrought about is by the application of a rule of Senateprocedure limiting the period of debate on a given issue.It takes a two-thirds majority to pass this cloture rule,but it has been applied in times past, and perhaps, in thisinstance, the Senate would have invoked it at an earlierstage to stop the mouths of a handful of filibusterers.For more than two-thirds of them were in favor of theCourt in principle and therefore, one might think, in favorof voting it through. But there was one disturbing factor.Thanks to Vice-President Dawes' hot tirades this summeragainst the dilatory methods of the Senate, their prerogativeof endless " deliberation " had become a point of specialpride; and it was hardly to be expected that with theirchief critic as presiding officer, they would prove him

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American Prosperity and American Policyright by invoking the cloture rule against members of theirown body.

So it came that three parts of January gone found theWorld Court proposal still under discussion, and the TaxReduction Bill still under discussion, and the proponentsof both Bills still unwilling voluntarily to set a term to thedebate, and the Senators, as a body, still unprepared toapply the cloture rule to either proposal. It was reportedon good authority that the future of the Court was uncer-tain so far as the present session of Congress is concerned,and that the Tax Bill might not be passed until afterMarch 15. On January 27, however, the situation changed.The cloture was applied and the motion for adherence tothe Permanent Court of International Justice carried by76 votes to 17. There were a few reservations, but nothinglikely to prove impossible of acceptance by the Powerswhich belong to the World Court.

The motion was passed at a delicate moment. For" now is the winter of our discontent." Congressionalelections will take place next November; and already, withthe turn of the year, the Administration has come underfire. A little later and the " open season " might havewrecked the informal understanding that the World Courtquestion should be treated as a non-partisan matter.Certainly the desire of the Democrats to snatch some creditfor themselves, if possible, out of the Republican TaxReduction Bill, has led to amendments, revision of schedulesand a reapportionment of tax incidence—all of which willgive them a flimsy justification for claiming co-partnershipin a popular measure.

The Executive branch of the Government enjoys nospecial immunity, in spite of Mr. Coolidge's great prestige.The New York World has launched a strong assault uponthe Attorney-General, alleging that he has thrown specialprotection around the Aluminium Trust, in which theSecretary of the Treasury has long been a principal stock-holder. Even the President has been attacked by Senator

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American Prosperity and American PolicyNorris, one of the " wild men," who alleges that Mr.Coolidge has exercised undue influence upon the acts ofthe Shipping Board and the Tariff Commission. It ischarged, in the one case, that the President exacted anunderstanding from Mr. Haney before appointing him toan independent administrative body : in the other, thatthe President refused to appoint a member of the TariffCommission because the man under consideration wouldnot sign an undated letter of resignation in advance, andthus place himself at the mercy of Mr. Coolidge's will.These charges, serious in themselves, will not make muchheadway alone against the President's position; but theymay have cumulative importance later on.

It is hard to know how much importance should beattached to the current agitation on behalf of Westernfarmers who claim to be crushed under the burden of bigcorn crops at low prices. The farmers, it will be remem-bered, form the backbone of the Republican party in im-portant States, such as Iowa, Kansas, Nebraska and Minne-sota. They note with jealousy and resentment the unusualprosperity of the industrial East. Moreover, in manysections of the West, real hardships have been caused.Mark Sullivan, a correspondent who knows the situation atfirst hand, writes to the New York Herald Irihune that:

The Western condition includes an average ol more than twbank failures a day; sheriffs' sales in nearly every county seat;cuts in the rents of city houses and apartments of as much as 50 percent.; an estimate of the Nebraska State Bureau of Crop Statisticsthat the purchasing power of the farmers has suffered a reductionof $62,000,000 this year.

Senator Capper of Kansas has made the sensationalsuggestion that a retaliatory campaign be started againstthe manufacturers. The farmers have failed, by mereasking, to secure government support for the segregationof a crop surplus from that part which is sold in the homemarket. By assailing the tariff, those who believe in the

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American Prosperity and American Policyprinciple of price-fixing hope to weaken the Easternopposition to a farm subsidy and force the Administrationto surrender. Either their interests must get protection,or the manufacturers must yield up a part of the protectionthey so conspicuously enjoy.

Whenever the farmers raise their voices in any sort ofunison, Washington is bound to listen. And now that thecherished Republican principle of a high tariff for the Eastis assailed, the Administration will be on the anxious seat.From what one knows of Hoover's attitude, and of thecomplete accord which exists between him and the Presidentin these matters, there is little chance that the Westerngroup will get the kind of help they are demanding. Failingthis, they can be counted upon in the Senate, where theyare proportionately strong, to oppose the President's pro-gram at every turn. For a long season to come, we maylook forward to stalemate between the Executive and theUpper House, whether the Government's proposals liein the domestic or in the foreign field.

Meanwhile the House of Representatives by a vote of359 to I has appropriated $50,000 for the expense of sendingan American delegation to the preliminary Armament Con-ference under the League of Nations. The State Depart-ment's too long incommunicado has decided to forwardcopies of its treaties to the archives at Geneva. Neitherthe one thing nor the other has, as yet, any real significance.But they suggest the continuing interest in foreign affairswhich faintly grows rather than diminishes, in the UnitedStates. More particularly they serve as reminders thatthe Executive branch of the Government is pursuing apolicy—the policy of cooperating with the League of Nationsin every way designed to promote peace and disarmament,provided the Senate be not involved, and provided thatessential interests of the United States are not endangered.

United States of America.January 1926.

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