THlE MICHITGAN DAILY
TUESDAY, JANUTARYV29. 1941
. ..t --.i .~i 1 I .---/ 1 ll i11-. 1- Iu~
s ... a ii tr . 4'd1lY 1. .V C1. 1:f' l
Deficit Spending And Inflation
Are Analyzed By Prof. Smithies
The Road Back
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NIGHT EDITOR: CHESTER BRADLEY
The editorials published in The Michi-
gan Daily are written by members of The
Daily staff and represent the views of the
Needs Amendments .
BILL 1776 is more than a coincidence with the
birth-year of the Declaration of Indepen-
dence, for under the nick-name "lease-lend"
bill it confers broader powers on the President
than any ever vested in the Chief Executive
of the United States.
Immediate shouts of "dictatorship", "end of
democracy", "abolition of Congress", and
"stream-lined war declaration" assailed the figr
posal-and drew equally vehement replies of "ab-
solutely necessary", "war crisis", and "British
is 'our Maginot Line" from administration sup-
Controversy centered around the main pro-
visions of the terse 800-word measure which,
As used in this act, the term "defense
article" includes any weapon, munition, air-
craft or boat-or any machinery, tool or
material necessary for the production or
maintenance of such articles. "Defense in-
formation" means any plan or design per-
taining to a defense article.
Notwithstanding the provisions of any
other law, the resident may authorize the
Secretary of War or Navy or other depart-
ment heads to manufacture or procure any
defense article for any country whose de-
fense.- the President thinks vital to United
The President may authorize department
heads to sell, transfer, exchange, lease, lend
or otherwise dispose of any defense article
to any such foreign nation.
The President may authorize department
hea'ds to test, repair or otherwise to place
in good ,working order any defense article
for any such government.
The President may authorize department
heads to communicate to any such country
any defense information pertaining to any
defense article furnished to such govern-
The President may release for export any
defense article to any such nation. r
The terms and conditions shall be those
which the President deems satisfactory, and
the benefit to the United States may be
payment or repayment in kind or property,
or any-other. direct or indirect benefit.
All contracts or agreements for the dis-
position of defense articles or information
shall containa clause by which the foreign
government undertakes that it will not,
without consent of the President, transfer
such article or information, or permit its
use by:anyone not an agent of such govern-
There is hereby authorized to be appro-
priated from time to time, out of the Trea-
sury, such amounts as may be necessary to
carry out the provisions and accomplish
the purposes of this act.
CERTAINLY Administration leaders do not
expect such a measure to pass Congress
without extensive revision. Secretaries Hull,
Stimson and Morgenthau, former Ambassador
to France William C. Bullitt, and even Wendell
Willkie gave their own reasons why the. bill
should be passed. But Willkie added "with mod-
m o d - , , ia nan n- - a l n A . A m i n i i r .+ n -
Editor's Note: Because of the seriousness of the
pcssibility of an inflation as the country moves
into a war-time economy, The Daily has asked Prof.
Arthur Smithies of the economics department to
discuss the problem.
THE BUDGET MESSAGE envisages a deficit
of nine billion dollars during the financial
year 1941-42. The question that is giving food
for thought is whether this amount of deficit
spending will actually occur and if so whether
it will produce an inflationary rise of prices.
From this point of view, such a deficit would
give no reason for concern if the economy were
in a state of general underproduction and under-
employment. In 1941-42, however, this will
not be the case; the American economy will be
working very near the limits of its present ca-
pacity. It is the policy of Government spending
of borrowed funds that will have brought it up
to capacity, but once full production is reached,
the deficit can be sufficiently large to carry the
economy into a general price inflation.
If inflation is to be avoided, the deficit, to-
gether with private expenditure on equipment,
has to be offset by willingness of corporations
and individuals to save an equal amount, with
prices at about their present level. If this does
not occur prices will rise until incomes are re-
distributed (in the direction of increased profits)
sufficiently to yield the required amount of sav-
ing. In non-technical language that means
that an inflationary rise of prices will occur.
AS TO WHETHER price inflation is likely to
occur in 1941-42, one can only guess-and
I use that word advisedly. On the basis of gen-
eral information, and no inside knowledge, my
guess is as follows. There will be an inflation-
ary movement if the deficit actually does amount
to nine billion -dollars and if saving and private
investment continues at the rates that would
have been expected on the basis of pre-war ex-
perience and, lastly, if the Government takes
no further measures to avoid it. Our chances
of avoiding inflation depend on the extent to
which these conditions are not fulfilled. Let me
consider them in order.
On the revenue side, the estimates of the yield
of taxation may be conservative. The only hope
I can hold out in this direction is that the pres.-
ent estimates are much more conservative than
previous estimates in respect of the conditions
envisaged in 1941-42. On the expenditure side,
it may be impossible, with the best will in the
world, actually to spend the projected eleven
billion dollars on armaments. This amount can
only be spent if adequate supplies of materials
and skilled labor are available. All I can say on
this point is that I believe that to spend this
sum-almost one billion dollars a month-the
Government will have to exercise its priority
rights much more drastically than hitherto.
I have taken no account of aid to Britain,
which is not included in the Budget, on the
grounds that I think such aid will consist pre-
dominantly of supplying Britain with equipment
which already exists or would have been pro-
duced in any case, and so is irrelevant to the
question of inflation.
Turning next to private investment, I do be-
lieve we can expect a substantial reduction as
compared with peace-time conditions. This
will be due chiefly to increased taxation, aware-
ness of the uncertainties of wartime prosperity
and scarcity of durable materials arising from
the Government's demands.
As to saving, high rates of taxation will tend
to reduce the rate of saving, while appeals to
the public to reduce consumption in order to
lend money to the Government may increase it.
On balance, I feel it would be unduly optimistic
to expect any substantial increase of saving.
THESE CONSIDERATIONS lead me to fear
that we are sailing close to the inflationary
wind, and it may be necessary for the Govern-
ment to take further action if inflation is to be
may continue to exercise the law's authority.
No provision is made for change of policy or
conditions within the Presidency. A time limit
to the operation of the lease-lend powers should
be one of the first amendments; and if necessity
extends beyond this time, Congress can renew
Limitation of expenditures is another vital
question. War cost figures rise to such astro-
nomical heights that many people, including
the President, seem to think they can extend to
infinity. Some day when somebody gets around
to paying the bills they will appreciate a limit
somewhere below the sky. A definite ceiling
for amounts to be spent for lease-lend purposes
must be set.
THE BILL is rather ambiguous about countries
whose defense is vital to the United States.
Any nation, including Russia and Spain, can
fall into this vague category. There should be
a definite naming of Britain, China, Peru, or
whatever countries are intended to profit by
the lease-lend measure.
"The President may release for export any
defense article to any such .nation"-even if
Washington has only a trench mortar left for
its own defense! Of course the President would
not go to absurd lengths, but how far would he
go? There must be a provision stating how far
he can go. Certain amounts of equipment are
absolutely necessary for basic defense of the
Western Hemisphere, and other amounts would
increase security. The strong tendency to export
more defense materials than the United States
can spare must be curbed by definite provisions
in the lease-lend bill.
Admitting that the present situation is an
avoided. Such action would probably consist
of a further widespread increase of tax rates,
and, if necessary, the imposition of extensive
direct controls over commodity prices. How-
ever, I think the latter type of control would be
imposed on a large scale only as a last resort.
Finally, I feel confident that no uncontrolled
inflationary movement will occur, for the Gov-
ernment has both the power and the will to
avoid it. My doubts are confined to the methods
of control that it may be forced to adopt.
- Arthur Smithies
TO THE EDITOR
To the Editor:
THE LETTER entitled "Benevolent Britain?"
by Harley Moore in your issue of January
24th, expresses a point of view held seriously
(though in this case presented flippantly) by
many bewildered idealists. Without arguing
the case I would like to present a few proposi-
tions for thoughful consideration. I do this
anonymously that they may be pondered on
1. No one with a realistic view of world
events holds that the policies of Britain or any
other country-our own included-are beyond
reproach. National policies are, of course, de-
tertnined on the basis of what the groups or
parties in power gnsider in their best interest.
To discover injustices in group policy is not so
much a comment on the group as it is a sign
that one is growing up intellectually.
2. One doesn't know the truth about a coun-
try because one has talked with a person who
came from there, or because he has visited it.
He can only interpret-or misinterpret-what
those people say to whom he has happened to
3. India doesn't want her freedom "just as
we once desired ours." Historical parallels exist
but not identities. There are important internal
and external variants.
4. It is not "funny we never mentioned" the
part of the British navy in protecting us. In-
stead, it is natural, when there was no crisis,
that the writer (and many others) did not know
5. A slogan omits details. In the case of re-
ligion, the contrast is between great freedom
and practically complete domination by the
state. In the case of democracy, it is between
considerable freedom for individuals and groups
as against a professed philosophy of control from
6. An institution at any one time is in a
period of change. One looks at present condi-
tions to discern, if possible, the direction in
which the changes are pointing. There is Ire-
land and India, but there is also Canada, Aus-
tralia and New Zealand. The British parlia-
mentary system and Commonwealth policy have
the possibility of developing in the direction in
which Americans believe.
7. Freedom can exist and a culture may de-
velop only within protected borders. People re
siding in this country have not realized this
and so have become complacent since, with .the
exception of a period during the last World War,
this country has not been seriously threatened
for four generations.
8. It is easy to be deceived by different mean-
ings for the same words. "Cooperation" may
mean compulsion, "negotiation" may mean de-
feat, and a "new order" may mean an old
Let me say again that these statements are
not offered as "arguments", but that their im-
plications may be considered and discussed.
WASHINGTON - If Roosevelt decides to ap-
point a Republican to Justice McReynolds' Su-
preme Court seat (he has appointed five Demo-
crats in a row) foremost on his list will be John
J. Parker of North Carolina, senior judge of the
Fourth Circuit Court of Apiaeals.
Judge Parker has the unique distinction of
being the only living man appointed to the U.S.
Supreme Court who failed of Senate ratifica-
tion, and- many of those who worked against'
him in 1930 now would like to right what they
consider an injustice.
. Judge Parker was appointed by Herbert Hoo-
ver to replace the late Justice Sanford. Imme-
diately there arose a hue and cry from Negro
organizations and the A. F. of L. on the ground
that Parker had been guilty of race prejudice
and was unfair to organized labor. Rallying
Senate liberals, these groups caused Parker's
defeat by one vote.
DAILY OFFICIAL BULLETIN
TUESDAY, JANUARY 28, 1941
VOL. LI. No. 89
to students who have a legitimate
reason for absence.
Publication in the. Daily 'Official
Bulletin is constructive notice to all
members of the University.1
First Mortgage Loans: The Univer-9
sity has a limited amount of funds to
loan on modern, well-located, Ann
Arbor residential property. Inter-
est at current rates. F.H.A. terms
available. Apply Investment Office,
Room 100, South Wing, University
Automobile Regulation: Permission
to drive for social and personal pur-
poses during registration period and
the weekend of the J-Hop from
Wednesday noon, Feb. 12, until Mon-
day morning, Feb. 17, at 8:00 a.m.,
may be obtained at Room 2, Univer-
sity Hall, through the following pro-
1. Parent signature cards should
be secured at thisuoffice and sent
home for the written approval of the
2. Upon presentation of the signed
card together with accurate infor-
rnation with regard to the make, type
and license number of the car to
be used, a temporary permit will be
granted. It is especially important
to designate the year of the license
plates which will be on the car dur-
ing this period.
3. Out-of-town cars used for this
period must not be brought into Ann
Arbor before 12 o'clock noon kon
Wednesday, Feb. 12, and must be
taken out before 8:00 a.m. on Mon-
day, Feb. 17.
The foregoing will not apply to
those students who possess regular
driving permits. The above permis-
sion will automatically be granted to
Office of the Dean of Students
Faculty, College of Literature, Sci-
ence, and the Arts; It is requested
by the Administrative Board that all
instructors who make reports of In-
complete or Absent from Examina-
tion on grade-report-sheets give al-
so information showing the charac-
ter of the part of the work which
has been completed. This may be
done by the use of the symbols, I(A),
Students and Faculty, College of
Literature, Science, and the Arts:
The attention of students and fac-
ulty is called to the following regu-
lations of the College:
Students are. not examined at any
other time than that set for the
examination of the class in which
the work has been done. When an en-
tire class is affected by a conflict
in tht- Pxminatir schedle. a stnecial
The Detroit Armenian Women's
Club Scholarship: Young men or wo-
men undergraduate students who are1
enrolled this year, who are of Armen-
ian parentage, and whose residence
is in Detroit may apply for the schol-
arship of $100 which the Detroit
Armenian Women's Club intends to
provide for the year 1941-42. Candi-
dates must be recommended by the
institutions in which they are en-
rolled. Selection, which is made by
the donors, is on the basis of high
scholastic ability in the field of con-
centration, together with character.
Recommendations must be made be-
fore May 1, 1941. Students who be-
lieve themselves qualified and seek
recommendation by this University
should apply to Dr. Frank E. Robbins,
Assistant to the President, 1021 An-
Choral Union Members: Members
of the University Choral Union in
good standing will be issued court-
esy tickets for the Minneapolis Or-
chestra convert tonight between the
hours of 9 and 12, and 1 and 4. After
4 o'clock no tickets will be given out.
Those who have not yet returned
their "Messiah" books are required
to do ,o, and to lift their copies of
"Eui r, Onegin" before receiving
Graduate Students' registration
material for second semester will be
available in the Rackham building
beginning Monday, Feb. 10. Grad-
uate students are requested to ob-
serve alphabetical registration in the
Gymnasium. Every student must ob-
tain the signature of his advisor on-
his election card.j
C. S. Yoakum, Dean
Mr. C. E. DuBois from the Scovill
Manufacturing Company, Waterbury,
Conn., will be at the Bureau of Ap-
pointments and Occupational Infor-
mation orn Wednesday, Jan. 29, at
9:00 o'clock to interview metallurgists
and mechanical engineers. All men
interested please phone Ext. 571 or
come in to make an appointment.
Room 201 Mason Hall. Office hours:
9-12 and 2-4.
Bacteriology Seminar, Wednesday,
January 29, at 8;00 p.m., Room 1564
E~ast Medical Building. Subject:
"Lysozyme and Other Bacteriocidal
Substances." All interested are in-
Math. 370, Seminar will meet to-
day at 3:00 p.m. in 3201 AM Dr.
W. Kaiplan will speak on "Analytic
Functions in Linear Algebras."
Combined Curriculum in Lit-Law:
Students concentrating in history on
this combined program may have
their programs signed by Professor
Vandervelde today, 11-12 a.m., and,
4-5 p.m.; on Wednesday, 9-10
a.m.; on Thursday, 11-12 a.m. and
3-4 p.m., in 118 Haven Hall.
Room Assignments, German 1, 2,
31, 32: Saturday, February 8, 9-12
West Lecture, Physics: Philippson.
Diamond, Gaiss, Graf.
1035 A.H.: St iedieck, Van Duren.
231 A.H.: Sinnema, Willey, Ed-
35 A.H.: Pott, Ebelke, Winkelman.
101 Ec: A4 sections.
B H.H. Pott, Edwards, Diamond.
(Continued on Page 6)
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