TEXAS BUSINESS REVIEW Bureau of Business Research The University of Texas Vol. XII, No. 4 May 28, 1938 A Monthly Summary of Business and Economic Conditions in Texas and the Southwest Bureau of Business Research, The University of Texas, Austin, Texas Entered H 1ecood clue matter on May 7, 1928, at the poat ofS.ce at Austin, Texu, under Act o( Aucu11t 24. 1912 TEN CENTS PER COPY ONE DOLLAR PER YEAR TEXAS BUSINESS REVIEW INDEXES. OF BUSINESS ACTIVITY IN TEXAS AVERAGE MONTH Of 1930= 100 % WCIGHT COMf'OSIT[ [ Ml"LOY Mt.NT ----1S"'• r l'ltlGHT CAlllOAOINGS---ZO% f'AY l'IO LLS 2S" Cl'IUO[ OIL ll U NS '"• OC,,•l'ITM[NT STOii[ SAL[S-! O Y• CLCCTRIC POW(R CONSUMnlON-IS"• 1 urt1 1 ol eusiness •1st1rch l h. u II' •• r J II)' of T• ,, s Business Review and Prospect Consensus of opinion among business analysts now is that busine"s volumes in the country at large will contract somewhat further during the next three or four months and that a sustained upturn in industrial activity is not likely to occur until next fall. Should this ex­pected business pattern materialize we shall by Sep­tember have experienced a decline in business activity extending about eighteen months, and aggregate pro­duction during the first nine months of 1933 will have fallen more than 30 per cent under that of a year ago. Not only was the initial downswing from March, 1937, through December, 1937, virtually the sharpest on rec­ord except for 1907, but the nine months' trough would be one of the longest periofls of approximate stability at depressed levels which the country has ever experi­enced. From present levels manufacturing pay rolls in the Nation at large will have to increase nearly fifty per cent before attaining the peak reached in 1937. Whether business is to receive reassurance from the political angle at this time depends upon whether Con­gress adiourns at an early date. Of the four major pieces of legislation passed during the present session of Congress, three-the amendments to the Federal Housing Act, the Revenue Act of 1938, and the Naval Expansion Act-were designed to be business stimu­lants. Should such measures as the Wage Hours and the Government Reorganization bills be revived, how­ever, as now seems possible, the political factor again would serve to depress business sentiment as it did dur­ing the winter months. The forthcoming Congressional primaries and fall elertions will inject another element into the confused political picture. The influence of reduced national inrome has not yet made itself seriously felt in the demand for non-durable consumer goods, but it would be surprising if this line of business activity, too, were not to become more seri­ ously affected with the prolongation of the depression. Farm income is substantially below a year ago al­though the volume of marketings has materially in­creased, thus reflecting the sharp the snmands a good supply of nitrogen. Summing the whole matter up it seems to require a soil with abundant moi>'ture and otherwise si milar characteristics to the stronge~t of the wheat belt soils. It demands a humid climate and a semi-arid soil, or what is next to this. a w~t-land shtlv different from them and near enough the natural habitat of the plant to enable it to develop far more naturally than on any other group of soils in the known world. Corn Belt soils are soils with highly specialized characteristics and like all soils of that kind they are not easily adaptable to a wide range of prod­ucts. They furnish conditions for the development of the corn plant that are highly favorable but they do not furnish conditions farnrable to the growth of wheat, fruit, and many of the wgetables. Since they lie inter­mediate in their characteristics between the sub-sumid soils on the one hand-highly specialized soils-and the humid soils-almost wholly unspecialized soils--0n the other, their specialization is not so extreme as the former. "It is easier to produce on them a relatively wider range of crops than on the wheat belt soils but they are wholly unlike, in this respect, the humid forest soils of the Eastern l'nited States and Western Europe. "While diversification is possible within the Prairies yet they do not supply those conditions which make it easy to develop a peasant-like type of agriculture and we must remember that reduction of the surplus tends inevitably in that direction. If it be true, as it seems to be, that in order that a money crop or commercial crop be profitable it must be grown on land that is approximately adapted to it; naturally it follows that the Corn Belt must continue to grow corn. Since the total acreage of the Corn Belt is large it seems in­evitable that prosperity, other than a mere peasant self· sufficing life, is dependent on the production of a large corn crop. It seems that prosperity for the region is dependent on the maintenance of a permanent market for a good large surplus." T~ Cotton Belt. Available space does not allow a full analysis of the Cotton Belt-of its distinctive place in the Westward MoYement and the consequent rise of internal commerce, of the characteristics of the Old Cot· ton Belt as a producer of raw materials particularly at a period when national prosperity was dependent very large! y upon the large export of raw materials, or of the various economic and social problems characteris· tic of this important section of the country. The whole of the Cotton Belt has certain common features and problems. Different as its various portions are, cotton can be grown on the arable lands throughout its extent; but cotton is a tropical or sub-tropical plant which requires a long growing season. The American Cotton Belt, though continuously expanding westward for a period of more than a century and a quarter, has had the problem of tropical production and of the ex­tremely low-cost labor of the tropics to contend with constantly. The American Cotton Belt is the one great cotton growing province in the world outside the tropics. Cot­ton growing had been advancing for a century in cotton growing countries outside the tropics but it was not until the Great Depression that the specter of huge cotton growing areas within the tropics really became discern­ible. This article does not attempt to consider the fu­ture of the world's cotton growing enterprises; the sig­nificance not only to the American Cotton Belt but to the whole nation of the competitive power of the tropics and of the low-cost production, cheap labor, etc., how­ever, cannot be too strongly emphasized. The American Cotton Belt comprises four rather dis­tinct sub-divisions: a) The sandy uplands of South­eastern United States, originally covered with forests of the Southern pines; b) The lowlands of the Mississippi and other major streams, together with the Black Land, or Southern, Prairies; c) The Southern Black Earth soil regions of the Permian Plains of north-central Texas and southwestern Oklahoma and of the High Plains of Texas; d) The irrigated alluvial plains such as those of the Rio Grande and of the Salt rivers and irrigated lands in the southern third of California. Of the sandy uplands of Southeastern United States the late Dr. Marbut wrote: "This region and its environment do not seem to be at all identical with that in which the cotton plant de­veloped as a plant. This plant seems to have developed in the Savannas or Savanna edges in the tropics and sub-tropics, mainly in the highlands of the tropics where sub-tropical temperatures prevail with low rainfall dur­ing at least a considerable part of the year and with an annual rainfall of moderate to low amount. Such soils would assume somewhat the characteristics of those of the southern end ·of the Wheat Belt in this country. The soils of the southeastern states are characterized by those features present in soils developed under the influence of high rainfall rather than low, and high temperatures wholly unlike the soils of the true tropical Savannas. On the other hand, these soils are widely different from those of the Wheat Belt, the Corn Belt, or even the humid forest soils of western Europe and northeastern America. They do not seem to supply characteristics favorable to the grain crops or even the moderate non-committal conditions somewhat favorable to the wide range of crops of the latter regions. It is apparent that they do not present features especially favorable to any of the crops with which northern Europeans have dealt from time immemorial. While they do not supply the conditions favorable to the full development of the cotton plant they come nearer meet­ing its requirements than those of the other crops, es­pecially the grains, grasses, various fruits, and many of the vegetables. While it does not grow cotton like the Corn Belt grows corn or the Wheat Belt, wheat, yet it is possible to grow the crop with a smaller effort on man's part than would be required to grow corn, wheat, grasses, fruit, or many vegetables. The main thing that seems to make this possible is the long hot late summers with relatively low rainfall. This latter is much higher than that of the Savannas in which the plant seems to have developed, but the sandy soil, together with the high temperatures and high percentage of sunshine compen­sate to a great extent for the rainfall of summer or for the absence of a real dry season due to low rainfall. The dry season is a soil dry season rather than a climatic dry season. The other soil condition which is demanded by the cotton plant, of rather high or at least a mod­erate amount of soil nutrients must now be supplied by man since the small amount of virgin nutrients have been exhausted from the soil through a few years of cultivation of a given spot. Otherwise the farmer must shift to another until it, in turn, has been impoverished by cropping. These elements, it is true, could be sup­plied for the corn or small grain plants but the dry summer and dry soils are wholly unfavorable to them. With a continuous supply of fertilizers at a low cost this region can grow cotton with moderate success. There is no other crop to the use of which white man has yet fully adjusted himself which can be grown with any­thing like equal success. It is very easy to a_dvise farm­ers in such a region to diversify. Actually to do it to any extent beyond a home supply of some of the things the farmer's family has been taught to regard as necessi­ties is quite a different matter. The prosperity of the southeastern States is dependent to a much greater ex­tent on the continued growth of cotton than is usually granted by many professional advisers to the farmer." The production of cotton in the alluvial soils of the Mississippi lowlands and of the Black Prairies of Texas reflect conditions widely different from those of the sandy uplands of the piney woods country. The soils are rich and the inherent characteristics of these soils are such that the fertility can be maintained. The different prop­erties of the representative soils of these regions are re­flected in the fact that they will produce good yields of corn without the use of commercial fertilizers. Further­more, they are well adapted to the use of large power agricu 1 tur al machinery. The irrigated cotton growing areas of southwestern United States are examples of highly specialized under­takings; the area available for farming is limited by the small proportion of the entire area for which adequate water can be secured; the area available for cotton is still further limited by the competition of highly special­ized crops. But in the sub-humid plains of western Texas and southwestern Oklahoma and also of south Texas, particularly, in the Corpus Christi district, occur wide stretches of rolling, undulating, or fiat plains which until a few decades ago were utilized entirely for graz­ing. Power mechanization of agriculture has been of great importance in bringing the arable lands in these regions into cultivation. The big crop is cotton which because of mechanization and larger scale development is produced widely. The cotton plant is very drouth­resistant, a fact of great importance in the development of these newer cotton growing regions. In these plains the broken lands have to a large extent remained in grazing uses; the climate is not suited to corn prod~c­tion thotwh in certain sandy loam areas of the High Plai,ns fr~n extreme western Texas northward to the Platte ri\'er there ocur corn producing "isl'!nds" which have been desio-nated as the "Little" Corn Belt. Within 0 . these regions, however, gram sorghums are gro_wn ex· tensively and the whole section is sometimes designated as the "grain sorghums belt." The soils of the Prairies and sub-humid plains to­gether with the related Mississippi alluvial lowlands are similar to those of the lands where the cotton plant seems to have originated; the natural adaptability of the collon plant to these fertile lands are factors of tremendo us importance in the regional costs of produc­tion. Furthermore, the adaptability of these lands to large power machine production constitutes an indis­putable fact in the competitive capacity of these regions. In Conclusion American agriculture is distinctive among the natiom of the world due primarily to the potentialities of its Prairie and Western Plains, to which may be added its various extensive alluvial areas. The problems con. fronting American agriculture are basically regional, embracing the Corn Belt, the Cotton Belt, and the Wheat Belt-each of which comprises vast areas fitted by na. ture to produce effectively a limited group of agricul. tural commodities. They are inherently surplus produc­ing regions; upon the profitable disposal of their sur­. pluses depends their agricultural prosperity; and be­ cause of the large proportion of the arable lands of the country which these regions include, their agricultural prosperity is a matter of serious import to the nation. ELMER H. JoHNSON. Financial Except for renewed purchasing of government obliga­tions, commercial banking trends have shown but little charwe in recent weeks. Adjusted demand deposits of the ~eporting member banks, after dropping sharply during the second week of April, remained relatively constant through May 4 when they aggregated $14,450,­000,000. The volume of business loans of the reporting banks continued to shrink, dropping from $4,275,000,000 on April G to $-1,126,000,000 on May 4. Apparently any possible re\'ersal of this trend is yet some months away. Reflecting the mid-April sharp increase in excess reserve balances, the reporting member banks have added ma­terially to their holdings of government obligations, this category of earning assets increasing from $9,065,000,­000 on April G to $9,323,000,000 on May 4. Following the April 15 reduction in legal reserve re­quircmenls, the excess reserve balances of the member banks haYe shown but little week to week change. On May 11 such excess reserves were estimated at the huge total of S2,180,000,000, approximately the same level which obtained on April 20. This immense supply of idle cash, of course, all but guarantees continued money market ease and high prices for government obligations for many months to come. The sharp decline in commodity prices which has occurred since last September has obscured largely the potentialities for commodity price inflation which are inhercnl in the present situation. These possibilities lie chiefly in the existence of the broadest credit base in Lhc hi~lory of the country and to a lesser extent in the lal'k of adequate controls to check an inflationary de­ velopmc11l after it has once been started. Polcnlial bank credit expansion in the United States is of lwo typr·s-primary and secondary. The former is liased on the idle cash held by commercial hanks l<'hicfly in lt11~ form of excess reserve balances) and is ])l'yornl the dircd control of the Federal Reserve System cxcepl i11 so far as excess reserves can be reduced tlirou;.d1 oprn market sellint?; and raised legal reserve ratio<;. \ eillwr primary nor secondary credit expansion, of C'