The Economic Aftermath

...We shall have to...

...This led to further progressive declines in purchasing power and to fresh unemployment...

...Everybody who pays rent or interest will feel the pinch and that old scarecrow, Uncle Shylock, will make the grand tour again, while Moscow will chuckle at capitalistic unpopularity...

...Superficially, we ought to be intensely worried...

...However, until this task is accomplished, our unique concentration of fuel and minerals, power and equipment, agricultural and raw materials, brains and enterprise, diplomatic detachment and political stability, combined with our central insular position with respect to Europe, Asia, Africa, Australasia and South America, should give us an excellent chance of coming out on top...

...Now that Wall Street has steadied down and the ment and in the mythology of party politics we are not price level no longer heaves beneath us, we are in a 598 THE COMMONWEAL October 15, 1930 position to see what has happened...

...The era of low prices which has begun may be hard on the debtor but it enhances the power of the creditor...

...Europe has largely reconstructed her industries with American capital since the war...

...The veterans have just made a successful pension grab...

...On the other hand, the world no longer regards us as a menace...

...Moreover, the recent outburst of political revolution in South America, culminating in the overthrow of the Irigoyen regime in the Argentine, has served to advertise one of our greatest economic assets: political stability...

...It means that the debtor will have to work longer and produce more to meet interest charges and to repay principal than he did before...

...The first is the problem of competition, the second the problem of debt...

...If we can solve these, our third and greatest problem— unemployment—will solve itself...

...High money rates here and the decline of foreign lending in 1929 put a good deal of strain on foreign exchange and tended to weaken foreign gold reserves, but had only a slight effect on the world's economy...

...There may be bankruptcies, default and repudiation...

...France utilized German reparations for her industrial rejuvenation and has become, among other things, the largest steel exporter in the world...

...Soviet Russia is coming back into the European economic picture, with plenty of grain, lumber, coal and oil for export purposes...

...Of course, there is plenty of trouble ahead, but it is helping us to think purposefully about our economic system for the first time in a generation...

...Given a fillip to our self-confidence, we shall snap out of it, a wiser if not a sadder nation...

...Our economic discontent is helpng bolster up the morale of the Communists and may play into the hands of social agitators and political opportunists in both camps...

...The continued disorganization and civil war in eastern Asia, coupled with a resultant decline in Chinese productivity and buying power, caused Chinese currency to decline in value...

...Of the other raw material countries, Australia, South Africa, the Argentine and Canada, all bu: the latter are either so remote from Europe or lack so considerable a volume of direct trade as to make them unsatisfactory long-term sources of supply...

...In 1914 Russia was knocked out of the world's economic picture...

...Actually, of course, we will have plenty to worry about...

...There is danger of trouble in Manchuria with China and Japan, in central Asia with China and British India, in Turkey and Persia with Great Britain, in Rumania and Poland with France, and in the Baltic States with Great Britain...

...In time, we may even learn to carry our economic power like a gentleman...

...British, French and German copper interests are withdrawing from our copper export association and plan to get their copper from the newly developed African mines...

...There is now a well-defined trend in Europe to obtain raw materials outside of the United States...

...For all practical purposes, Europe's principal alternative source of raw materials—grain, petroleum and lumber—ceased to exist...

...Our tariff is the best advertised in the world and a convenient excuse for any economic bad manners which may be shown us...

...Just the same, financially we will have a great part of the world on its good behavior and, granted a little selfcontrol in Wall Street and a little intelligence in Washington (qualities more common in those places than is generally supposed), we will be able to muddle through...

...It happens that China has had a silver currency, as has India...

...Naturally, creditors will suffer also...

...Observe what happened...

...However, the cost of transportation, the difficulty of obtaining adequate and reliable native labor and the absence of an appropriate volume of exports to Africa, suggest that American copper can hold its own, in a volume and at a price which will meet competition in this field...

...The real task of the future is to prevent competition from producing the scandal of an overproduction coupled with unemployment...

...Swedish, Finnish and Canadian lumber interests are already disturbed by Soviet competition and Russian matches have even made a dent in the Swedish match trust...

...More disturbing to trade is the fact that Russia is surrounded by a ring of unfriendly or disturbed nations...

...For the rest of the world, however, silver is not so much money as it is a commodity...

...We are confronted by a paradoxical spectacle...

...wages were reduced...

...Actually, however, we need not be concerned, as Russian trade for several years to come will be conducted at a considerable political risk...

...In fact, the very situation which provoked the present crisis— overproduction—will persist, because the world's capacity for production is constantly increasing, while its organization of distribution is disproportionately neglected...

...it was an investor's, not a banker's, panic...

...they are not particularly cheering to those who failed to pick the pea from under the right stock certificate or to the thousands of men who want work...

...And there the American farmer stood, ready to supply all comers at pretty much his own price...

...However, the judicious establishment of branch factories abroad, especially in the automobile industry, may give us an economic alibi, although it will not lessen the difficulty in explaining things to labor at home...

...Whatever else we have done, we seem to have started a fashion in economics...

...just now we are engaged in wondering whether it is not time to abandon the exhilarating but debilitating pastime of sowing our economic wild oats...

...Finally, the war knocked the bottom out of many European currencies, while defeat simply wiped German, Russian and Austro-Hungarian finance off the map, and lo 1 American bankers sat waiting with a huge reservoir of credit, backed by the greatest gold reserve in history and by a stable currency...

...For years Great Britain has been trying to develop satisfactory sources of cotton inside British Africa, as has France in northern Africa, but in spite of good progress no appreciable difference has appeared in our cotton export...

...likely to be reminded of the truth, so before we try to start something again, we might as well try to remember what really happened after we ordered another round of prosperity unlimited...

...Europe has been getting its petroleum increasingly from Russia, Rumania, the near East and the Dutch East Indies, and the Shell combine appeared to have the jump on Standard in Europe and even in the United States...

...The process has cut away traditional markets and transformed agricultural states...

...The farmers have already saddled the country with a $500,000,000 revolving fund, which is revolving so fast that it is hard to catch hold of any of it...

...For it is probable that in the future we will stick to the beer of genuine prosperity and not mix it with financial creme de menthe or speculative brandy...

...The Wall Street crisis was a barometric symptom of the coming storm...

...other countries are, with variations, in as bad or a worse way, and they have decided that the way to improve conditions is not so much to injure others as to assist themselves...

...We all remember that Kansas raised "less corn and more hell" when the "Crime of '73" meant that mortgages incurred in a period of high war prices had to be paid with corn produced in a period of low prices...

...As capital charges, rent and interest, remained constant, this reduced profits, dividends and wages, and caused business failures, leading to new declines in purchasing power and to more unemployment...

...Under our peculiar economic system, the automatic result of abundance is distress: men lost jobs...

...This led in turn to the appearance of overproduction in other lines...

...Now Canada and Australia pride themselves on their industrial development and do not intend to offer it up like Isaac on the altar of British Preference...

...We will be aided in this by the painful pressure of debt...

...Much as it may flatter our pride to believe that our wicked speculation in the stock market shook the world to its foundations, it had little or nothing to do with the case...

...Our foreign trade has gone down so far that government statisticians wince...

...There is M. Aristide Briand requesting a polite but cautious continent to try to be a United States of Europe...

...Argentina and Brazil are making strides toward industrialization which may one day embarrass our own industries...

...There is the extraordinary spectacle of Soviet Russia's FiveYear Plan for establishing an American materialistic millenium of mass production as a suitable memorial to Father Marx...

...The post hoc, propter hoc argument is politically irresistible and we should have been saddled in all eyes, including our own, with the direct responsibility for having brought untold woes upon mankind...

...In this imbroglio, a few American industries are likely to be seriously compromised...

...Menaces come and go and, while we are not yet able to handle them as well as we thought we could, we shall get used to them after a while...

...The price of every commodity fell—wheat, cotton, coal, petroleum, copper, steel, lumber—everything...

...However, repudiation is the first step toward Bolshevism, of which our chief debtors are more afraid than we are, inasmuch as they themselves are also creditors and are far more dependent on the repayment of debt and the collection of interest than are we...

...In a short time, the world discovered that it had more wheat and meat, more rubber and tin, more oil and copper, more automobiles, shoes, cloth and coal, than it had the collective intelligence to distribute and consume...

...We are over the worst of things ourselves...

...we always have...

...copies of our federal constitution to European monarchies and telling the Russians exactly what we thought of them...

...More serious is the world's industrialization, a process which will in time end international competition and one which we are accelerating...

...More uncomfortable will be the ill-will which creditors will incur...

...they will select instead some innocent ram caught in the economic thicket— or perhaps a bull would be a more appropriate beast...

...There is always the chance—admittedly a dwindling one—of a political upset in Russia and a new era of Russian disorganization...

...However, after fighting Shell with Russian oil, Standard has recently perfected and patented a process for making two barrels of gasoline grow where one grew before...

...In the next few months, we shall pretty generally have forgotten the realities of our present predicaWhile Mr...

...For he believes that we in this country are over the worst of the economic typhoon, and bases his judgment upon facts and not mere optimistic hopes.—The Editors...

...A few sips of this heady mixture of economic and financial power, and we were showing...

...India and China are rapidly becoming industrialized, to the intense discomfort of Great Britain and Japan, respectively, whose capital is largely responsible for the very situation which they deplore...

...When that time comes, we shall have reached economic maturity...

...In the meantime, we are confronted with two great problems which will require clear thinking and steady determination if we are to avoid serious difficulty...

...So far as any one country can be held responsible for starting the slump, that country is China...

...The slump in silver led to financial distress in India, Ceylon and the Malay States...

...Russian sources of raw and semi-manufactured materials can be utilized only under the threat of interruption...

...Carter—whose chief occupation is to observe economic and political realities from the worldwide post of observation afforded by the State Department at Washington—does not, as so many economic medicine men have done, advise the application of mind cure methods as a panacea for our present ills, nevertheless he does bring a decidedly cheerful note to the discussion of a woful theme...

...The value of silver as a commodity fell in sympathy and that, combined with the decline in Chinese and Indian purchasing power, led to depression in those countries with important Asiatic trade relations, namely Great Britain, Japan and the United States...

...and it rates, in comparison with the panic of 1837, as a breeze rates with a cyclone...

...In cooperation with German technical interests, Standard has pulled this winning card out of its sleeve, and, bar miracles, can bring Shell to terms...

...We have invested about twenty-five billions of dollars, including war debts, throughout the world...

...The blind luck which sometimes presides over our national destinies induced the Senate to toy with the tariff until its enactment followed all the calamities which it might have been said to have occasioned...

...Our farmers have seen the price of wheat drop so low that it is not worth growing, and that is another disgrace...

...The effect was deadly...

...We did not stop until the Federal Reserve sent over the patrol wagon in the fall of 1929...

...American capital has been widely invested in industrial development elsewhere...

...Now Soviet Russia plans to develop a huge cotton belt in Turkestan, which may modify the situation, but in the meantime there is a report that a new chemical treatment of flax may undermine the world's entire cotton industry, as rayon has undermined the world's silk industry...

...A world which was almost persuaded to regard us as a menace was cheated of a wonderful opportunity...

...We have millions of unemployed and it is disgraceful not to be able to help them...

...If—and it is only an accident which prevents that "if" from reading "when"—the Senate had done as it was urged and had promptly ratified the Smoot-Hawley tariff during the special session of 1929, almost the first thing that would have followed would have been the Wall Street auto da fe of November last, followed by the big slump in our foreign trade, world-wide economic depression and serious unemployment...

...That is clear gain...

...However, long-range views are comforting only to the economist and the political philosopher...

...Great Britain has just set up a financial dictatorship to "rationalize" her antiquated industries...

...After our own experience with a continental economy, none of these developments should cause us undue alarm...

...Not only is trade with us immune from the menace of disturbed relations with our immediate neighbors, but our domestic system is so firmly established and so free from political disorders that only natural calamities—such as the recent drought—or deliberate administrative policies—such as the Smoot-Hawley tariff—can appreciably affect our economic productivity...

...Now we have little to show for it but unemployment, low commodity prices, frozen collateral and a dawning realization that we barely escaped a serious catastrophe...

...American brains and equipment are helping Russia prepare for mass production...

...This is bound to affect our interests and the Federal Farm Board may yet find its hands full meeting Soviet wheat, to say nothing of Soviet cotton whenever the Turkestan project starts functioning...

...There is that eminently respectable old gentleman known as British Imperial Preference, still talking earnestly to the dominions on the great advantage of letting the United Kingdom supply all their manufactures...

...Then Europe's industrial equipment was turned over to war production or was actually crippled by military action, and the genie of American mass production jumped up and began grinding out the goods for all the markets of the world...

...Germany did it with depreciating marks...