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the value of one currency relative to another, there is
almost certain to be a persistent flight of capital into
dollars in recognition of the infinitely stronger position
of the American economy. It is difficult to see how this
can be overcome unless there is real progress in solving
the problems mentioned in previous paragraphs supplemented
by some guarantee of limited convertibility. We doubt
whether these goals will be reached in the near future. It
appears, therefore, increasingly probable that the United
States Government will try to find some way to continue
foreign financial aid when the Marshall Plan declines.
 
         We conclude that stimulation to our domestic
business from
increased export volume or increased private investment
aborad is likely to be delayed for some time until
important conditions have been fulfilled, such as more
balanced trade, partial convertibility of currencies,
reduced costs abroad, investment guarantees, and possibly
preferential tax treatment for exported capital. For the
next year or so it seems reasonable to assume that
devaluation will exert moderate downward pressure on the
price level in the United States, that export balances will
do well to equal 1949 level, and that investment abroad
will not increase.
 
Commodity Prices
 
          The dominating tendency in prices, in our opinion,
is for
further decline. This is desirable if kept orderly. By now
the worst of sellers' market abuses in the form of
excessive prices has been eliminated. Raw material prices
as a group are down 30% from their top, general commodity
prices, including fabricated goods, are down 10%, and the
cost of living, about 3%. The moderate decline of the
latter is due partly to the fact that it did not rise
nearly as far as more volatile prices and to the fact that
certain important consumer expenses, such as rent and
utility charges, are rising belatedly.
 
            As to the future, it is becoming increasingly
apparent that, in spite of large Government subsidies,
agricultural
products are selling at artificially high levels which
cannot be sustained indefinitely. This does not preclude 
temporary increases in some food prices as the new
Agricultural Act provisions go into effect. Increased
production of fabricated goods from new low-cost factories,
combined with more discriminating purchasers, is tightening
competition both for manufacturers and distributors and is
forcing price reductions over the whole range of fabricated
goods. Devaluation of foreign currencies, as discussed in
previous paragraphs, also will increase competition for
American manufacturers both here and abroad.
 
            Higher wages and agricultural price supports may
limit the decline of the general price level in the near
future but we doubt that they will be sufficient to raise
prices more than temporarily if at all.
 
Labor
 
             Prolongation of the coal and steel strikes
would be harmful to business but we do not expect them to
last sufficiently
long to have that effect in important degree. The terms of
settlement of these strikes, however, can be of far-reaching
importance to business. Strong public statements by both
union and company leaders have created an embarassing
situation so that it would not be surprising for
negotiations to take an entirely new approach, leading
perhaps to a cash raise now, together with an agreement to
study the pension problem.