Franklin D. Roosevelt

Press Conference

February 18, 1938

Q. Good morning, Mr. President.

THE PRESIDENT: How's the class? [referring to charts on the desk in front of him, which are to be explained to the correspondents and some of which are printed at the end of this press conference].

Q. Back to school-going to school again.

THE PRESIDENT: Yes, we are all accustomed to it.

Q. Mac is going to explain it to us.

THE PRESIDENT: Yes. (Laughter) The dotted line [referring to charts in front of him] represents the high cost of liquor.

Q. Well, we are going up to where we can get it a little cheaper. The Nelson House bar is always—

THE PRESIDENT: [interposing] Yes, they do not have the same overhead.

Q. I don't think they will be able to get in today, it is a big crowd.


Q. Charge a buck a head and we would make some dough out of it.

Q. Yes.

THE PRESIDENT: I am requested by Mr. Wile [Frederic William Wile] to file a plea in avoidance. He sent me the following this morning and it calls for an answer on the part of Mr. Sullivan. Wile says:

I would make an observation

For your private information

Re a subject on which

You're somewhat in the dark.

I am filled with high elation.

When you tune in the wrong station

And mistake me

for a man who's made his Mark.

Though he's no New Deal supporter,

On behalf of a reporter

I venture upon a prayer to embark.

Sullivan's got the reputation

Which deserves perpetuation,

So I humbly rise to plead,

God save the Mark!" (Laughter)

Q. [Mr. Sullivan] That is about all I have to rely on. (Laughter)

THE PRESIDENT: Well, as you know, I talked with various agencies of the Government the past week in an effort to clarify for you certain economic problems and they worked up for me yesterday a statement on which they are all agreed. That is pretty good, to get six or eight different agencies of the Government to agree. It might be called noteworthy. So, I think the best thing I can do is to read what they have all agreed on. It is not very long and Mac [Mr. McIntyre]—it is only three and a half pages—has mimeographed copies of this so you won't have to take it down.

(The President then read to the correspondents the statement printed at the end of this press conference.)

Well, that is what they all agreed on. Then they had some charts, and I threw out all the charts I could not understand and I kept the ones I could understand and they are here behind me.

This chart [indicating chart "Wholesale Prices and Employment"] shows that wide disparities between rigid and sensitive prices, between finished goods and raw materials, are closely related to low levels of employment shown on the lower curve, and that high levels of employment accompany balanced prices. The last two years are shown in more detail at the right of the chart. These [indicating] on the left are from 1929 through 1937. These will be taken out to the Press Room and you can look at them and memorize them.

This chart [indicating chart headed "Per Capita Farm and Nonagricultural Income Available for Living and Living Costs, 1924-38"] shows incomes of farm and city workers compared with the living costs from 1924 through 1937. It shows first that living costs are relatively stable as compared with farm and city workers' incomes. The top dotted line is living costs. The dash line is per capita non-farm income, and the black line at the bottom is the per capita farm income. It shows also that a rise in prices and incomes can be achieved without a corresponding increase in the cost of living. You see, things were going along pretty well at that stage of employment through 1929, but here [indicating a point midway through 1929] this discrepancy between the dotted line and the black line is beginning to widen.

This chart [indicating chart entitled "Wholesale Prices of Selected Agricultural Products, 1929-38"] shows index numbers of selected farm products from 1929 through 1937. Taking the 1929 prices as 100, this chart shows the movement of the four major farm commodities since that time. The first is cotton, 10 spot markets. The next one is wheat. The dotted line on the chart on the bottom shows hogs and the other, the black line, shows corn. As you know, corn and hogs go together.

The 1929 prices, which are taken as a base, were themselves not very high in several cases, due to falling off in export demands, which had already begun to occur. Those averages were wheat 117, corn 93, hogs and cotton 18.25.

The chart also shows that, even with Triple A operations, the prices of farm commodities continuously varied up and down and have not shown the rigidity shown by administratively determined prices. Here [indicating] there is a sharp fall.

This chart [indicating chart entitled "Wholesale Prices of Selected Building Materials"] is, I think, one of the most significant ones. It shows the price trends of certain building materials. The top dotted line is cement. It shows that it started at about 105 in 1929, went down to nearly 80, came back in 1934 to just where it was before and has continued on the same level of around 105. On the other hand, structural steel, starting at 100, went down to 80, and in 1934 came back to 98, and since then has gone to nearly 120.

Then you come to two other building materials, wall board and house paint, that today are both below the 1929 level. They took a big drop, of course, in 1932, but they have come back and have leveled out pretty well and are running along lower than what they were in 1929.

Now, the next line is plaster. In 1929 it was 90. It has gone up by a series of leaps and bounds until it is now nearly 180.

Prepared strip shingles did somewhat the same thing. They started below 90, went down to 80, and went clear up to 150, and are now back to 120, which is still 30 points above what it was in 1929.

Q. You said that was a significant chart. What is the particular significance?

THE PRESIDENT: It is the breaking down of raw materials in one industry, building, and it shows that you cannot make one general rule. You see, plaster is way up, prepared shingles are way up, and wall board and paint are still a little down.

Q. The point is in the divergence?

THE PRESIDENT: Yes, and also the fact that, taking it by and large, there are some pretty important materials there that are way up above the 1929 level. Now, this is going to save time and then if you have any more questions it is all to the good. I worked out some questions i thought you might ask. This is not to preclude you from asking others. Somebody will say, with a mind full of generalities, "What is to be done?" The problem is being talked on a good many fronts. There are many elements in the recovery program that have already been directed toward a better balance of prices. For example, the new farm bill will help, and we hope also that the new housing program, when it gets under way, will help.

Q. Will you give us a copy of that?

THE PRESIDENT: On the question of what is to be done: The problem is being talked on a good many fronts. There are many elements in the recovery program which have already been directed toward a better balance of prices. That phrase, "better balance of prices," is the key to the whole thing. For example, the new farm bill will help, we hope the new housing program will help, and the expanding relief program will help.

Somebody else with a mind full of generalities will ask the second question: "Does this mean inflation?" No, the policy is to help restore balance in the price structure.

Somebody will say, "Are we going to have a further deflation of the dollar?" The answer is, "No."

Then, along the same line, is the action that was taken on Monday in regard to the sterilization of gold. Is it a part of the plan to increase prices? Yes, that was one of the considerations for doing it, but not the only one; there were a lot of others.

Then somebody will say, "How do you reconcile this with what you said last April, nearly a year ago?" I jotted down this note, "A question like that is a good deal like saying that a man who warns you to go slow on the curve is responsible if you run off the road."

Q. Will you read that over again, Mr. President?

THE PRESIDENT: It is like saying that a man who warns you to go slow on the curve is responsible if you run off the road.

We all agree that price dislocations were one of the major causes of the recession. They included price maladjustments and speculative buying, which had been developing through the end of 1936 and the first four months in 1937, before I issued the warning that some prices were going too high. And the only question in my mind, from the point of view of hind sight, is, "Ought I not to have issued that warning before I did?"

Q. The warning in this case, Mr. President, was your observation in April?


Then, more on finance is the credit policy of the Government: We expect to continue to maintain easy credit conditions. The Treasury and the Federal Reserve Board are both cooperating toward that end.

We talked in the past a good deal about the 1926 price level. Are we aiming at the 1926 price level? Yes and no. In other words, it is not a question of restoring the level definitely to a given year. We are seeking to balance the relationship among different groups of prices that will pro. mote full employment.

Q. Will you repeat that?

THE PRESIDENT: We are seeking to balance the relationship among different groups of prices that will promote full employment. In other words, suppose I put it this way: Away back in 1933, as you remember, we did a lot of talking in 1933 and 1934 about bringing the price level up from around 68 or 69 to somewhere around 90 or 100. We took 1926 as a criterion. Why? Because that year represented what might be called the average of the loaned dollar; it was the average of the dollar which was owed by people. Now, since 1933 or 1934, there has been a great deal of new loaning and new borrowing in terms of the dollar of 1935, 1936 and 1937. That has to be taken into consideration as a modifying factor on the 1926 dollar. Do you understand that?

Q. Which way does the modification go, up or down?

THE PRESIDENT: Down, in that case. In other words, I cannot say that we are going to try to get the price level back to 90 or 95, as compared with 1926. It is a varying thing by which you take, originally, a norm, a figure. Now, subsequent happenings have some relationship on that original figure you take and the effect in the last few years has been downward from that figure of 100.

Q. What is the difference between the 1926 price and the 1935 price level? That is, how much spread is there between the two?

THE PRESIDENT: Well, if 1926 was 100—I do not know, I would have to ask Henry Morgenthau.

MR. EARLY: We can give them that afterwards.

THE PRESIDENT: Don't use this: We got it up somewhere between 90 and 92 in the beginning of 1936 and 1937.

Q. Then the price to be aimed at would be somewhere between 92 and 100?

THE PRESIDENT: But what you write today would not be followed six months from now.

Q. It is somewhere below 1926, but somewhat above what it is today?


Q. It is easy to see how the new farm bill would bring about the balance in agricultural prices, but not so easy to see how the relief program and housing program would bring about a balance in the industrial prices. Can you explain that further?

THE PRESIDENT: Well, of course on both housing and relief it tends to increase production and it is very largely in industries that there is need to increase production.

Q. Mr. President, do you contemplate using relief for any new activity other than it has been used for?


Q. In the case of the housing program, do you not think, sir, that the wage levels are also a factor?

THE PRESIDENT: That is the very next question. You are a mind reader. Are labor costs too high? The real answer to lower costs of production is to be found in increased volume rather than lower wages. That is in spite of the fact that earnings per hour in manufacturing were 24 per cent higher in 1936 than in 1932.

Q. The only one who can get it is Kannee [Henry Kannee, stenographer at press conferences]. (Laughter)

Q. Would you mind repeating it?

THE PRESIDENT: The real answer to lower costs of production is to be found in increased volume rather than in lower wages.

Now, here is the illustration: Despite the fact that earnings per hour in the manufacturing groups were 24 per cent higher in 1936 than in 1932, the labor costs per unit of output were only 6 per cent higher. This was due in part to the fact that the productivity of labor increased. To put that in plain English, the efficiency of labor increased, but it was primarily due to the fact that labor can be used more efficiently in mass production industries when those mass production industries operate at the high level of output. It is further demonstrated by what happened in the last five months. Despite the fact that wages have not increased in the last five months, the shrinking volume of output has forced up labor costs per unit of production as much as they had risen in the previous four years.

Q. The shrinking output at what time?

THE PRESIDENT: In 1932 to 1937. The shrinking output forced up the labor costs per unit of output as much as they had risen in the last four years. . . .

Then, further on wages because I have not completely covered that yet, did the wages rise too fast last spring, that is, in the spring of 1937? There were very few wage increases between 1934 and October, 1936, very few; but in the following nine months—that is to say, from October, 1936, through to July, 1937-hourly earnings in manufacturing plants rose from 57 cents to 65 cents. In other words, it was a sudden rise. There had been very little rise in the past few years.

We know that many firms were in a position to increase wage rates in the two previous years, 1935 and 1936, and therefore it was probably not healthy for business to have postponed for so long their wage increases with the result of having to absorb wage increases in a large lump in those nine months from October, 1936, to the summer of 1937.

Then, just by way of commenting further on that, I notice that during the downswings, recessions, people speak of the need of flexible wages and feel that wages should fall. Then, during recovery, as the figures prove, they seem to forget that wages should also be flexible and should rise. They delay wage increases until the last possible moment and then, at the peak of a boom, grant wage increases that are small when measured against current profits of industry.

Q. Take that last sentence slower.

THE PRESIDENT: They delay wage increases until the last possible moment and then, at the peak of a boom, grant wage increases that are small in comparison with their profits, but which, at the same time, are difficult to maintain when their volume falls off. The automobile industry is the prize example of that.

Q. Mr. President, then, in the case of the automobile industry, do you say that if they increase production to full capacity and prices were reduced, there would be a material increase in sales?

THE PRESIDENT: No, no. There is such a thing as increasing production to the point where the country cannot swallow it-gets indigestion. If the wage increases were not so long delayed but were made as business improved, managers of business would have a longer period of activity in which to adjust themselves to changes. It means, if the AP would give you a few small raises, twice a year, it would be better for the AP than if they gave you a 50 per cent raise all in one lump sum.

Q. [Mr. Storm] I will take mine either way, Mr. President. (Laughter)

Q. On that subject, have you any thought of the sliding wage scale in connection with variations in prices?

THE PRESIDENT: No. The next question I asked myself—

Q. [interposing] On that question, Mr. President, what do you think of a system of profit sharing in that connection?

THE PRESIDENT: Well, of course that is being introduced in a good many industries, I think very successfully, taking it by and large.

The next question is, "How about coal price fixing?" Well, there you get your specific industry question. The prices of bituminous coal are not high; that is, the price at the mine. I am talking about the price at the mine, not the prices you have to pay in your own houses. Cutthroat competition at the mines has always dominated this particular industry and has made it impossible for the industry to pay decent wages and give a profit. Of course we all know that. The purpose of the Guffey Act is to help establish the bituminous coal industry on a sound basis. That means that prices must not be set so high as to transfer business from efficient coal mines to other types of fuel—competitive types of fuel- or to give monopoly profits to coal producers.

Then Mark's [Mr. Sullivan's] little red hen asks about the new farm bill. The farm prices are glaring examples of prices that are now too low. The farm bill is intended to prevent extreme declines in farm prices and to maintain income of farmers in years of excessive yields caused by nature. At the same time, by carrying over excessive supplies from years of large crops to years of lean crops, the bill is intended to prevent such rapid rises in farm prices due to short crops as occurred in the winter of 1936-1937, and which added to speculation at that time. Of course we know that when a commodity starts going up it seems to be human nature that the faster it goes up the faster the speculative element enters the picture and tends to speed up the rise and drive it too high.

The effect of this agricultural, industrial and monetary policy on foreign trade ought to be good in that foreign trade always improves when business activity improves. That is a fact that we seem to have discovered nowadays. Any measure that helps to bring about recovery in the United States also helps in world recovery and serves to increase both purchases from foreign countries—in other words, imports and sales to foreign countries—in other words, exports.

Q. How about sugar prices?

THE PRESIDENT: Somebody wanted to know about sugar prices. That, of course, is a different subject and falls into a different category, because the sugar act of 1937 established the sugar policy definitely and there is no reason to expect any change. Well, I think that is all I have got here.

Q. Mr. President, how about the expanded relief program?

THE PRESIDENT: Yes, that is $250,000,000.

Q. Is that the expansion?


Q. No more than that?

THE PRESIDENT: No, we hope not.

Q. Earlier in your statement you referred to the relation of of the debt burden to the general behaviour of prices. I wondered if you considered the war debt or foreign debt burden?

THE PRESIDENT: No, exclusively the domestic debt.

Q. Has the foreign debt question been considered in any other connection in the past twenty-four hours?

THE PRESIDENT: No, not any more than in the last forty-eight days or the last four hundred and eighty days.

Q. You said that the Treasury Department and the Federal Reserve are going to adopt a policy designed to furnish freer credit. Can you be more specific on that?

THE PRESIDENT: Not policies, measures.

Q. What measures?

THE PRESIDENT: Whatever measures are needed to carry out a policy. I did not say they were going to- wait a minute until I get this: We expect to continue to maintain easy credit conditions, and the policies of the Treasury and the Federal Reserve Board are definitely along that line.

Q. Most of the things you said have related to stiffening up the fluid prices. Have you said anything about methods to give fluidity or flexibility to the rigid prices?

THE PRESIDENT: Now you are asking about the industries that are more monopolistic. We hope so, but are not ready to "shoot on it." It is a big problem.

Q. What about the excessive prices of the shipbuilders? It seems more or less to apply to both Merchant Marine and Naval.

THE PRESIDENT: We are very much concerned. I have been talking to Joe Kennedy for the last two weeks, ever since the bids came in. They are far and away above the cost of building ships during the war period when the materials that entered into ships were a great deal lower-no, they were higher than they are today. Today they are lower, but the price of the ship has gone up and, frankly, the whole problem of shipbuilding in this country is a headache under present conditions.

Q. On that point, again, Mr. Kennedy went before the Committee on the labor provisions of the Merchant Marine Act and, I think—

THE PRESIDENT: [interposing] Not on that. I am going to talk to him about it in ten minutes, when he is sworn in.

Q. He suggested, as an alternative, that they might build a few Merchant Marine ships in the Navy Yards. Is there any civil or legal inhibition against it?

THE PRESIDENT: The chief problem is that the Government Navy Yards are about as full of construction work as they ought to be.

Q. If you are going to have a continuing program, is it possible to have Navy Yards—

THE PRESIDENT: [interposing] If the Government is going to build them, there are three ways: One is to finance a new yard, put in new equipment, new ways, supervise it, and have the work done under what might be called private management. If you remember, during the war we built a good deal and bought a good deal on the fixed fee basis.

Q. "Cost plus"?

THE PRESIDENT: No, not "cost plus" but "fixed fee," which is all the difference in the world.

Another method would be to build our own yards and build them ourselves. The third would be to put new equipment and new ways in Navy yards and have the Navy build them. All of those are very, very slow methods of getting a Merchant Marine.

Q. How about building them abroad?

THE PRESIDENT: That is one of the suggestions made by Mr. Kennedy and the interesting thing is that almost every Congressman and Senator says: "That is the practical way of doing it, but I could not vote for it." (Laughter)

Q. How do you explain why they are able to build them cheaper in foreign ports?

THE PRESIDENT: I don't know. I don't think anybody knows.

Q. Was your remark on war debts meant to imply that the subject was mentioned?

THE PRESIDENT: Oh, no. It was mentioned, but it is mentioned about once a week and we don't seem to be any further than we were two years ago.

Q. There was a story published this morning that one of the Latin American countries has or is about to present a proposal for a military and naval alliance of all the Americas to guard against aggression by Europe or Asia?

THE PRESIDENT: Yes, I read the story and I never heard of it until I read the story. You will have to ask the Secretary of State. Maybe he has heard something about it. I doubt it.

Q. Would such alliance, if it came up, be contrary to our policy?

THE PRESIDENT: That is a very "Jify" question.

Statement and chart read and displayed to correspondents during foregoing Press Conference.

THIS ADMINISTRATION has from the beginning pursued a policy designed to promote full employment of our human and material resources. That continues to be our policy. The productive power of our workers and our resources, if fully utilized, can provide and maintain a national income far above any levels we have yet reached.

An important factor that determines whether we shall succeed or be blocked in our endeavor to attain full employment and a high level of income is the behavior of prices. In this connection careful attention must be given to: (1) the relations of the prices of various groups of commodities to each other; (2) the relations between commodity price levels and the levels of debt burdens and costs; (3) the direction and rate of movement of the general price level. To further its broad objective the Administration has, therefore, in its agricultural, industrial, and monetary programs necessarily been concerned both with the relation of the prices of groups of specific commodities to each other and with the movement of the general price level.

The measures employed at any given time to further this policy must fit the needs of that time. A year ago there was ground for concern that a too rapid rise in the prices of some commodities was encouraging a speculative boom. During the past six months, on the other hand, the general price level and industrial activity have been declining. Government policy must be directed to reversing this deflationary trend.

This does not mean that all prices should advance, nor that the rise should be rapid. Prices of different groups of products must be brought into balanced relation to one another. Some prices and some costs are still too high to promote that balanced relationship between prices that is necessary for sustained recovery. Continued high prices of many of the commodities not subject to highly competitive market forces intensify the downward pressure on all other prices. Those industries that have maintained prices and curtailed output should seek the restoration of profits through increased rather than through restricted output.

The prices of some items are still at the highest levels reached in 1937; some are even higher than in 1929. When high prices sharply curtail sales there is real danger. This is shown by our recent experience with housing. A year ago there was a serious shortage. We had unused productive resources ample to overcome the shortage. Yet all the major elements in housing costs advanced so sharply by the spring of 1937 as to kill a promising expansion of activity in an industry whose restoration is vital to continued recovery.

For industries, such as agriculture, that operate at a high level of capacity even when business activity is at low levels, the restoration of profits must come primarily through higher prices. Higher prices in such industries and increased output in other industries will, by increasing profits, encourage new investment in replacement and expansion of equipment. This is necessary to full recovery.

The average family will benefit from the business recovery which a balanced price structure will foster. Increased employment and more continuous income should much more than offset any increase in the cost of living. Recently wholesale prices have declined markedly, yet that decline has been reflected in the cost of living only to a very slight degree. A moderate rise in wholesale prices at this time should only slightly affect living costs. Incomes of most families will increase while the cost of what the housewife buys should show little change. The average family will enjoy a higher standard of living.

It is clear that in the present situation a moderate rise in the general price level is desirable, and that this rise need not and should not extend to all prices. The rise should take place in and must be mainly confined to classes of commodities whose prices are too low. These include most of those raw materials and finished products which are produced and sold under highly competitive conditions. Such rise must not be so sharp or continue so long as to lead to a repetition of the unhealthy speculative conditions of a year ago. That sharp rise in prices encouraged speculative inventory buying which, combined with the decline in housing construction, laid much of the ground for the present recession. We must do everything we can to prevent this from happening again.

Our program seeks a balanced system of prices such as will promote a balanced expansion in production. Our goal is a constantly increasing national income through increasing production and employment. This is the way to increase the real income of consumers.

This is not a policy of restriction; it is a policy of abundance.

Our agricultural, industrial, housing and monetary programs have been and will be directed toward this end.

(This statement was prepared at the President's request by Henry Morgenthau, Jr., secretary of the Treasury; Henry A. Wallace, Secretary of Agriculture; Frances Perkins, Secretary of Labor; Marriner Eccles, Chairman of the Board of Governors of the Federal Reserve System; and economists of various executive departments.)

Franklin D. Roosevelt, Press Conference Online by Gerhard Peters and John T. Woolley, The American Presidency Project

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