The country has enjoyed a large degree of prosperity and sound progress
during the past year with a steady improvement in methods of production and
distribution and consequent advancement in standards of living. Progress
has, of course, been unequal among industries, and some, such as coal,
lumber, leather, and textiles, still lag behind. The long upward trend of
fundamental progress, however, gave rise to over-optimism as to profits,
which translated itself into a wave of uncontrolled speculation in
securities, resulting in the diversion of capital from business to the
stock market and the inevitable crash. The natural consequences have been a
reduction in the consumption of luxuries and semi-necessities by those who
have met with losses, and a number of persons thrown temporarily out of
employment. Prices of agricultural products dealt in upon the great markets
have been affected in sympathy with the stock crash.
Fortunately, the Federal reserve system had taken measures to strengthen
the position against the day when speculation would break, which together
with the strong position of the banks has carried the whole credit system
through the crisis without impairment. The capital which has been hitherto
absorbed in stock-market loans for speculative purposes is now returning to
the normal channels of business. There has been no inflation in the prices
of commodities; there has been no undue accumulation of goods, and foreign
trade has expanded to a magnitude which exerts a steadying influence upon
activity in industry and employment.
The sudden threat of unemployment and especially the recollection of the
economic consequences of previous crashes under a much less secured
financial system created unwarranted pessimism and fear. It was recalled
that past storms of similar character had resulted in retrenchment of
construction, reduction of wages, and laying off of workers. The natural
result was the tendency of business agencies throughout the country to
pause in their plans and proposals for continuation and extension of their
businesses, and this hesitation unchecked could in itself intensify into a
depression with widespread unemployment and suffering.
I have, therefore, instituted systematic, voluntary measures of cooperation
with the business institutions and with State and municipal authorities to
make certain that fundamental businesses of the country shall continue as
usual, that wages and therefore consuming power shall not be reduced, and
that a special effort shall be made to expand construction work in order to
assist in equalizing other deficits in employment. Due to the enlarged
sense of cooperation and responsibility which has grown in the business
world during the past few years the response has been remarkable and
satisfactory. We have canvassed the Federal Government and instituted
measures of prudent expansion in such work that should be helpful, and upon
which the different departments will make some early recommendations to
Congress.
I am convinced that through these measures we have reestablished
confidence. Wages should remain stable. A very large degree of industrial
unemployment and suffering which would otherwise have occurred has been
prevented. Agricultural prices have reflected the returning confidence. The
measures taken must be vigorously pursued until normal conditions are
restored.