Peace, love, creativity: Hope of mankind; Economic implications of war and peace, part one

From the Great Hall of the Cooper Union in New York City national educational radio presents the Cooper Union forum series on peace love and creativity the hope of mankind. These programs were recorded by station WNYC. Here now is the chairman of the Cooper Union forum Dr. Johnson. The Fairchild Good evening writers Welcome Flora. Our subject for discussion tonight. The economic implications of war and peace. The speaker is Marilyn Stanley Rukeyser. Mr. Root guys are all right he was born in Chicago

became a New Yorker after three months of life. As an economist with a background in Columbia University. You taught in Columbia University for 17 years. He has written at least 10 books. I would just mention his forthcoming one. Collective bargaining power to destroy. You have syndicated column called everybody's money. He's appeared on numerous TV programs lecture platforms all over the United States and has done a great deal of economic advisory work. He

was at one time probably one of the youngest financial editors in the history of the New York Tribune. Sometimes I get these papers. So that has a tremendous background and this problem of the economic implications of war and peace and their own family Rukeyser. Thank you Professor Fairchild and good evening ladies and gentleman. Mindful of what Calvin Coolidge said when he came home from church one Sunday morning to the White House and he was rather taciturn you remember and his wife

said What did the minister deliver a sermon and he said Sin. And Coolidge was asked what do you say. And he said he's again it so and not in that spirit. I want you to know that I'm for peace love and creativity. I assume we all are. It's a great pleasure to come to this forum which has served the public for some one hundred eight years or more and it reflects the vision of a distinguished American who believed in a free market in ideas and free and open discussion. But in setting up the

form. He believed that we should exchange ideas in some sort of orderly fashion rather than by throwing rocks in the streets which is apparently a new and current method of dissent. Now I don't want you to be frightened by the use of the word economic. Economics has been defined as the dismal science. But will try not to make it too dismal tonight. Attended a lecture many years ago on companionate marriage given by the British mathematician Bertram Russell. And he said this subject is so filled with emotion that I hope you'll excuse me tonight if I discuss it in terms of pure

logic. Well I want to reverse the process tonight and perhaps discuss this dismal subject with some lightness of touch so that we can understand one another. This particular economic situation that we find ourselves in that toward the end of 1967 has been described as a psychedelic economy. It's because of chronic economy and some disbelievers have said that the economic forecasters knowing that we're now in our eighty second month of high level activity breaking all records. Nevertheless predict bigger and better things in 1968. So those who

accept this forecast with a grain of salt say that the optimists have taken LSD. But let's look at the record and let's see what the facts are before we come to any dogmatic conclusions. And I am of the opinion that in economic matters and issues bearing on human behavior. That one's dogmatism is in inverse ratio to his knowledge. The only ones who are sure about the stock market will do is I'm a little trained salesman for mutual funds and other widely distributed intangibles. As you get into the complications and complexity of human affairs you realize

that there's a certain unpredictability in life. They're opening a new show on Broadway I mentioned it gratuitously I paid for my admission at the preview last week called How now Dow Jones. And I didn't learn very much at the play about investment and now assists or economic forecasting. But the songs were good and the dancing was entertaining and they also did bring together a number of the misconceptions of the uninitiated public about their street and investment finance. For example they make a great deal of the principle that if stocks are going up no matter how irrationally that is perfectly all right.

But if after they go up indefinitely there should be corrective reactions such as. I bet you will in financial markets since time immemorial. Then that's evidence that certain scoundrels and Wall Street are trying to fleece the innocent. Well every every customer in a broker's office takes pride in his financial act your man when he buys a stock which rises in price and the other hand if the stock should decline in price then he blames the broker. Well let's look at the record of these some 82 months we're now in the eighty second months of this high level of activity. It's the longest period of high level active activity that we've ever had a little longer than the record breaking periods during World War 2 when we

weren't doing much business but were producing munitions of war. But in that war period we did have high level activity on two occasions for 18 months. We're now in the eighty second month. It would be misleading however to stop with that generalization. Because in the interim there have been for several periods of hesitation several periods of change of pace. In 1960 and six one. A large section of the financially literate public got the notion that the road to fortune lie in buying the new scientific research minded companies the new electronic companies.

And if anyone wrote the word electronic on a prospect this it was short o come out at a premium the stock was sure to come out at a premium and to be what they called a hot issue. I happened to meet Charles Fulton and Beverly Hills in the summer of 1960 when this movement was gaining momentum as a present time chief executive and chairman of a corporate conglomerate known as Litton Industries which started largely in the electronics field. He'd formally been one of the whiz kids and with Secretary of Defense. Who joined with him as employees of the Ford Motor Company after World War 2. Mr. Staunton left Macken and the other a

whiz kids at the Ford Company and he started the Litton Industries. But the thing I want to bring out was that he told me with foresight that naturally he thinks that electronics is a great industry otherwise you wouldn't be in it but he said you and I know that the automobile industry is also a great industry. But out of more than a hundred starters only three big ones have survived. He said we're going to go through a similar shakeout in the electronic industry. And he showed foresight in making that remark because within a year the shakeout came in in 1961 and 62 some of these glamour issues which were over priced took a nosedive in the market and that was in the year 1962. Several periods of hesitation particularly in the autumn. At the time when the former President Kennedy was looking I know

I bought eyeball to Premier Khrushchev in connection with the Cuban missile and missile crisis. At the time people were frightened and were selling stocks irrationally in my column I raised the point and said if the premise on which the fear wave is based is that the Russians are going to send missiles to our shores and destroy our civilization and our economy. Then why does it make. Why does it help so much to become a liquid that is to turn stocks into cash. What good is liquidity and atomically ruined civilization. Apparently after the little excitement the market took a similar view and recovered but they have been doing this 82 month period in order to allay the facts

in an unbiased manner before you. And we better do it pretty soon because next year they're going to have a presidential campaign and unless you get a psychological gas mask you might be affected by propaganda from one side or the other the INS will take full credit for the good times and they will blame them for the misadventures. But in 1966 last year. There was a severe shock. To the boom. When and it was manifested by a very sharp run up in interest rates and by a scarcity of loanable funds and this adversely affected industries such as homebuilding which to depend on Mark borrowed money so that as we went into 1967 this current year.

The totality figures of economic activity are somewhat misleading because by the first quarter of 1967 there was a sharp dip of prosperity in the civilian segment of our economy. In other words in the things that you and I buy not only ephemeral consumer goods such as clothing and food but also in durable goods such as automobiles and household appliances might not. There was a big gap. In addition to the change in consumer attitudes there was a further dip in the civilian economy resulting from the decision of businessmen to reduce the inventories on hand of raw materials semi-finished goods and so forth. Instead of building up inventories during this early part of 1967

they allowed inventories of goods on hand to run down. That too had a depressing effect on the civilian economy and on top of that. The tendency of business corporations enormously to spend for improvement of facilities that is the new machinery for automation new plants which had been going on at that gigantic pace for a number of years while still fairly active in 1987 decline in pace. So you would have had in in the fore part of 1967 a change of trend at least a recession of the type we've experienced some four times since the end of World War 2. I don't mean a Great Depression of the 1930 type early 930 type but I mean the recessions such as have been repeated after World War 2.

But if you look at the totality figures of the first quarter of 1967 that did not happen. The reason for it was that for civilian buying by business and by consumers there was a tremendous acceleration of what we euphemistically called defense spending in connection with the escalation of the Vietnamese War. So in the first half of 1967 this let down in civilian buying was offset by a great increase in defense spending. By the middle of the year civilian buying began to improve somewhat and did for several months until last September when a series of strikes in the Ford Motor Company in the copper mines and in the trucking industries to reduce the rate of recovery. Now

all this has been taking place while we've had big volume resulting either from the civilian economy or from the war effort or from the combination of the two. We've gotten into a situation in which the rate of profit has been declining emotionally. You might say so right but I'm trying scientifically and objectively to tell you what's happened the reason for the decline in profit margins is that of course labor rates material raw material costs have gone up more rapidly than gross income and there's been a profit squeeze. Now. Run the president. Recommended a 10 percent surtax a tax on taxes.

He and his economic advisers said that such a tax move was necessary to halt inflation. And they talk very piously about it but apparently not eloquently enough to persuade their Chairman members of the House Ways and Means Committee who sat on the bill and who has recently announced that it would not be put through at least this year. And he said that the best way to stop inflation was to cut extravagant government spending. And the administration had said they would cut it free for a billion dollars. He said You ought to cut it at least twice that much. A lot of this debate that's been going on in and out of Congress as to information it's possible spread and ways of controlling it.

One important ingredient has been overlooked and that is the quality of our economic activity. The role of the not the quantity. This may be slightly technical but my friend brother Lippman once said the tragedy of a democracy is that the people are not interested in their own interests. And this matter is of vital concern to us consumers as taxpayers as savers and investors. I say that there has been a tendency in the debate on inflation to Ormoc the quality factor in the activity that's taken place during this 82 months boom. When I say quality I'm not talking primarily from an aesthetic standpoint. I'm not even talking from a moralistic standpoint but largely from an economic standpoint.

Goods produced for a shooting war is vastly more information i.e. the whole operation is vastly more inflationary than similar a quantity of activity related to consumer goods and for a very important reason. When men are employed producing the components for warplanes or gases or munitions gunpowder. They're receiving each week money payments for their hours of labor. But the goods they produce is not available for that purchase. It's only to a single buyer the United States government. So that all the money paid out directly and indirectly to war industries is money circulating around without offsetting goods and services.

I don't know how many in the room know what inflation is. It's used the term is used in so many ways so loosely by self-serving propagandists that the public gets tremendously confused. From a scientific standpoint inflation is a money disease. It results from producing dollars or other units of currency relatively more rapidly than goods and services are produced. Now there's a great misconception about the impact of war on a national economy. Looking back a starkly at the inflation's that have followed most wars the untrained person assume that the information Springs merely from the fact that the budget has been increased during wartime that more spend more dollars spent than in peacetime. That is only a small part of the

story. The more significant inflationary impact of war expenditures. Is that circulating medium is released to workers and others workers an owners investors for the production of war materials and those materials produced are not available for purchase by the produces. So you get a glob of excess purchasing power which is running around looking for a place to go. So price gone. To a very large extent and bidding up selected stock prices. It's beginning to go to an increasing degree into commodity prices. And the increase in commodity prices this autumn has been much more rapid than in the average over this 82 month period at least more at least twice as rapid.

Now we are in a ironic situation in which the inflates or as those who cause the inflation are quoting the scriptures. The devil a monk would be and are warning us against the dangers of inflation. They remind me of the man who murdered his mother and father and then went into court and pleaded for clemency on the ground he was an orphan. Now why are these inflationary pressures at work. I can only talk in headline terms we'd have to have a seminar running for the rest of the year in order to get more deeply into the subject. But in headline terms we're in an inflationary period for a variety of reasons I state a few of them. Number one was created a new credibility gap. I'm not talking about the one that's

mentioned in the newspapers where they say that a spokesman for the administration is speaking about events don't always tell the truth the whole truth and nothing but the truth. That's a technical a limited amount I'm talking about a more profound credibility gap the credibility gap of the service. To say that we can jump to the lessons of experience and the lessons of discipline in the running of a nation and the running of the national economy. That we have discovered since the days of John Maynard Keynes the great British heterodox economist the soft money practitioner that we've learned from Keynes. A new and better way of life. Instead of discipline and thrift and industry we can progress more rapidly through money manipulation. Now I know Keynes well and I've had many discussions with him.

I was with him up at the Bretton Woods Monetary Conference in 1944. I frequently was a critic of Keynes and his theories. But I want to defend him against the new claims he and against his own disciples. Keynes Keynes dramatically Keynes is teaching applying to the subject we're talking about national budgets governmental budgets was that you don't have to bother about balancing the budget year by year. You can do it over a business cycle maybe seven year period. But he did want to balance it during the business cycle. His theory was that in bad years when there was slack employment and sluggish consumer demand for goods and sluggish corporate demand for tools and machinery that in those periods thing to do was to stimulate the

economy by having federal deficit US government deficits. Then said gangs once the medicine works. And the economy is stimulated then you reverse the process. You ever balance the budget in those good years of high employment you begin to pay off national debt. And you had a restraining influence to the national economy.