Spencer Heath Archive

Item 1980

Pencil notes for letter to Moody’s Investment Service, 65 Broadway, New York City.

Spring 1934?

Original is in item 1978.

     Your Survey of April 5th is a careful weighing of the politico-economic confusion of the present situation. It is much to your credit that you see inflation as the Nemesis of expanding debts instead of a policy planned or unplanned, desired or undesired. Soundly do you link rising commodity prices with advancing inflation (and the advancing causes for it). But it may be doubted if with equal justice you can see a corresponding rise in the price level of common stocks under present conditions and prospects. While inflation itself tends to raise stock prices along with commodity prices, the accompanying governmental policy of restrictions on production and taxation of profits will so far curtail production that commodities will rise under the double impetus of inflation and scarcity at the same time.

     But while restrictions and taxation of profits are raising the prices of finished commodities for which there is still a demand, these same forces act in the contrary manner as to common stocks because of the necessary reduction of turnover in their operations and curtailment of profits on such reduced operation as may be carried on. Besides the intended and unintended governmental restrictions of production, the confiscation of profits will be a further deterrent of productive operations; so the same forces that make finished goods scarce and dear will be reducing the profits on operations and hence the earning value and dividends on common stocks at the same time.

     For these reasons it may be doubted if common stocks as an investment can participate with finished necessary commodities during an inflationary price rise, unless at the same time the production of goods should be liberated and profits encouraged instead of being restricted and denied.

     However, under such liberation goods would become abundant and commodity prices would decline