HOW TO MAKE A DEPRESSION
Wohl, R. Richard
Economic Scene How to Alake A Depression The Real Issues in the Fight for Full Employment By R. Richard Wohl R. Richard Wohl, staff member. of*Tfte Sew Leader, is an economic analyst who is...
...Tke industry rushed to save him, lest 1b his collapse they all be snowed under...
...You may expect it sometime next year...
...American agriculture had been sick for the last 30 years, great portions of American agricultural production wore marginal ande**Hved on high prices whether in the form of subsidies or influted prices because of shortage...
...The worker soon discovered that he consumed goods and services, not dollars...
...Why are the country's business men so thoroughly frightened...
...The higher the business indices go, £t greater the upswing of the price level, the more certain does everyone become that, issnsr or later, there will be a collapse...
...If farm prices slumped 25 percent the American agricultural depression would take Up where it had left off before the war...
...In their hands lay the ultimate determination of the American economy...
...So far no one in government, labor or...
...When the war factories stopped, or slowed down their production, changing over from war to peace, labor saw its wartime wages slashed...
...Wage increases were uneven in the economy, and the strongest unions got the most...
...Labor did not take the strategic Initiative and demand, in a united front, that the government maintain its apparatus of price controls and material allocations, in return for a temporary moratorium on wage increases, or under the continuation of a system of wage controls such as had operated in wartime...
...Already throughout tho world vast political changes were in the making becsuse economic problems had to be aelved...
...From labor's ranks came the now famous Nathan Report to the CIO on wage policy...
...But Jsrw were these recommendations to be adopted and translated into policy...
...But the damage was done...
...However, businessmen shew no signs of exercising selfrestraint in their natural search for profits as would bring about a decline in prices except in the face of a sharp tsduttion in demand...
...Labor and management must come to realise that working means a pattern of social relationships snd adjustments aa well aa technical production...
...As the sgitation to destroy the OPA was being pushed by business lobbies in* Washington, labor struck for higher wages to meet increasing prices...
...The moment there was a slip in prices, everyone tried to unload and get out before the collapse...
...When tho record crop of 1% billion bushels of wheat was announced wheat futures dived in the wheat pit...
...Only a very few commodities were in short supply, most of them "luxuries" (shredded cocoanut, chocolate, choice cuts of beef...
...Xbey did not say...
...to stimulate impJoyment and support purchasing ¦jaeer, when and where It becomes nnjgjr depressed...
...No one could expect the American people after a vast straggle In war to accept with equanimity the throat of another depression aa great aa 19...
...It was at this point in the "reconversion" that a step fatal to the economic well-being of the country was taken...
...At this time, only the rules for warfare between both are clear...
...in which there are war savings and high Wages...
...Even the housewives threatened the farmers, nearly all had laid up little hoards of food during the war when shortsges threatened in everything...
...Fiscal asnipolation, taxation, and Government lonst ruction wars recommended...
...Both aides could use a little more insight and good will...
...Said Mr...
...It is going on right now, sod has been since soon after the war...
...Such a plan, aa y«t, did not exist...
...IASES FOR A POLICY A M ERICA NS and their leaders must realize that: 9 Our economy has not reconverted, as yet, to peace...
...In an alarmingly large area he refused to buy at going prices...
...It seemed that Freud, more than the economists, could fathom this type of anxiety, tor/ iiHtheir fears business men seem to be driving themselves to do what they most dread...
...How they were to disfgftr "whan and where" employment %tA purchasing power became "unduly" pressed, they did not aay...
...Individual income payments came to $170,000,000,000 more than even the war years could show...
...j /-y N * day that Macy'a sold a million dollars worth of goods, the President's Council I 1 of Economic Advisors published a report in which they said that in all likelihood \r we would have a recession next year...
...Under the pressure and stress of war, these nstlons chose "guns," and forewent "butter...
...The change had been the war...
...Many a citizen sizsled on that day when he saw that the gift he had given for Christmas was reduced 20 to 30 percent the dsy after he had made his purchase...
...But vital as these lessons are, they still had to be learned...
...The truth of the matter was that no one knew what to do with America's astonishing abundance...
...Othei inventories accumulated as a result ol the very economic inefficiency that th( scramble for goods and high prices had created...
...Even before the OPA had been removed, tho black market and price-ceiling adjustments had pushed up prices, slowly but inexorably...
...The lesson was short, its import crucial...
...management had spelled them out clearly...
...WHY EMPLOYERS All FRIGHTENED AlL this was taking place in an economy in which there is "full" employment...
...Full Employment," whatever it may mean in terms of economic quantities, was a hot political fact as well...
...Business aea and their advisers were still thinking In terms of 1935-1939 index numbers, Mr these were ancient history, no longer indicative of what has been happening to tha American economy and American easiness...
...The coming recession is better advertised than any that has ever come about, for months the newspapers and the radio have been saying that it is on the way, Xawricans seem startled by their very prosperity...
...Maybe the expected 1947 recession would be only a mild blow, but as sure as fate, it would be followed by a major economic catastrophe unless the American people learped their lesson quickly...
...X klUTEVESS OF THf CONSUMER FrOM the public came no economic analyses...
...RINGING ROTH GUNS AND RUTTIR Complicating the problem further is the fact that the American economy is, like the magie mill in the fairy tale, an engine of tremendous powers which can hardly be estimated by the very people who are operating It...
...Even when it became, in the most literal sense of the word, the "arsenal of democracy," American production sustained a civilian consumption nearly the same what it has been in peacetime...
...Everywhere, everyens had the jitters...
...The farmers too were 'jittery...
...If it hap* pened our way of life would be doomed...
...t • • • THI NATHAN REPORT The nation's top economists, led by E. O. Nourse, mouthed platitudes: "The agents of government," they told Presijajt Truman, "mirt diligently study ¦gj vigorously dm * democratic and Saamanllke control...
...So today, as 1946 passea into history, Americans are making a depression...
...In New York, milk •reducers whose price formula is geared ts the price of butter in the New York Wholesale market, bought up great quantities to support the price of raw Bilk, When they stopped buying, butter fill up to 101 a pound, retail stores began selling at 801 a pound...
...Labor had opened another front in Its battle for higher wages with skis report: it waged a battle of statistics: But Us Nathan Report contained wHkm itself tha contradiction that teas facing the economy at a whole...
...In return, business men Implicitly demanded the removal of OPA...
...The test of American strength came with peace...
...in which there is a banked-up etmsnd from the four war years...
...Business men who had been disciplined by four years of priorities, price control and rationing, lunged forward to skim off the rich cream of profits of the postwar sellers' market...
...The next Jay, after a flurry of fear, butter recovered 41 of this loss...
...The business men of the nation gave forth no satisfactory general policy, reserving their strength for attacks on the Nsthan Report...
...Neither law, conscience or public opinion provides a guide for their mutual cooperation...
...an economy in which prices and profits are at record levels...
...In general, the "smart money" in the commodity markets of the country was letting on a price decline...
...Almost immediately overtime, incentive premiums and other wage bonuses were trimmed down radically...
...The pattern for conflict had been set...
...Contracts for future delivery were selling at approximately a 30 percent discount from current prices...
...of*Tfte Sew Leader, is an economic analyst who is specialising in the fields of money, banking and Industry-labor relatione...
...In this article, he draws attention to those central factors thst spell the way to full employment or to recurrent depression depending on the rsndom character of "irrational" business expectations...
...As labor struck, the flow ol industrial materials and components w«« jammed...
...By shrewi and hasty additions to their inventories they priced up their old stocks with eacr additional increment of fresh inventorj at the higher and rising price...
...The top economic advisers to the President told him: "If the various predicters, and those who look to them for guidance . . . come to substantial agreement m picking the third quarter (of 1947) as the time, 20 percent as the magnitude, and one year as the probable duration, and if the majority of business men accept this council as their guide to action . . ." there would be a depression...
...because the 1935-39 "peace" period was the tail end of the worst depression thia country has ever seen...
...The regulatory mechanism through which reductions in ftt'ess might have been achieved, through government action, have been shattered irretrievably...
...The wry prosperity that was flooding the tapntry had caught it off base...
...It will," they solemnly wsrned, "become the engine of its own verification...
...Last August, the famous war slogan was at last fulfilled: nearly 60,000,000 were employed...
...This depression had never been solved, now it could not be forgotten...
...For the whole world the war presented a concrate choice between "guns" and "butter...
...At the same time, our Army and Navy were the best-fed and the best-equipped in the whole world, and the Lend Lease pipeline sustained our Allies in their war effort...
...Murray: "I am looking forward with hope and belief that industry will rise to its responsibilities...
...Everywhere the story was tin same...
...To Americans, who had hardly believed that 50,000 planes could be produced in one year, as President Roosevelt demanded, war production brought both "guns" and "butter...
...it it obviously futile to anticipate tffe correction ef thete dangerous trends (jo depression) through reductions in fricte and profits...
...ACCUMULATION OF INVENTORIES Business men watching the up ward swing of the price level becamt conscious of their inventories...
...Govern¦sea cannot reduce prices, business will not Yet somehow (and this is the big hole in the reasoning that makes the statistics so much window-dressing) prices must be reduced...
...The gross national product was piling up at the rate of $185,000,000,000 a year, which was $88,000,000,000 more than in 1040...
...Worst of all, too few people, especially those in power, reslixed that we needed it...
...In the heart of the problem, whichever way one turned, was the relation of American labor to the management of the mines and factories in which it worked and produced...
...This much touted recession is not a thing of the future...
...Even mink costs dropped from $500 to $750, and the big department stores began running "clearance" sales before Christmas, and went into a flurry of mark-downs on December 26th...
...At present he is at work on a book dealing with the problem of industrial peace focusing on the iasues of labor-management cooperation...
...The answer that was needed to the big question: "Where do we go from here...
...It was the greatest kind of criminal negligence to allow tho American economy to become so cankerous that the price of bread might one day be liberty...
...In the beginning of tha report wrote Mr...
...They could not compel sad they did not persuade...
...The consumer, as always, was mute, but on occasion he was stubborn, too...
...was not forthcoming...
...Agriculture had kept expanding with the Increasing demand...
...Although there was a tremendous demand for food stuffs, and although attractive prices were being bid for agricultural products, each year brought a bigger crop than the last, stockpiles grew l/reater...
...the rumor ffaw around the brokerage houses, and the next day the cotton exchanges had doted their doors for fear of a complete breakdown in the cotton market...
...In so far as there was no answer to this question, there was fear...
...Before the smoke had cleared, and the frenzied unloading was through, the traders on the exchanges had discounted the worth of listed shares by £0,000,000,000...
...liater on, toward the end of the same .report, Nathan reflected, that the demand for "raising wages without inI currently possible means of bringing creasing prices appears to offer the only about the kind of relationship which will avoid a serious decline 'ia business activity...
...And in the meantime, here and there a the economy, prices began slipping, ten supported for a while, and then began sliding again...
...As 1946 faded out, the country had no comprehensive internal economic policy and a depression was in the making...
...In the absence of concrete policies business men, like savages in the jungle, could only mutter incantations to themselves, and to rid themselves of their most compelling fear, they tried talking about it, hoping that the sound of their dire prophecies would drive it out of their minds...
...Labor leaders bargained, Individually, for money wage increases...
...The biggest operator in the fur business, who tad tied himself up in plant expansion tad inventory, suddenly found himself Insolvent and filed bankruptcy notices...
...Prices, uncontrolled, quickly swallowed the wage increases in money and offered a persistent threat to the real wages of the workers...
...As prices and quality improved, the problem of how these great stocks were to be sold became more and more pressing...
...Finished locomotives stood idle in the Pullman yards because they lscked radiators, Westinghouse piled up huge inventories of electrical goods because they lacked steel to make housings for motors...
...The joyride of four years of wartime profits was over in a few days...
...Nathan...
...Labor, speaking through CTO's Philip Murray, was ready to settle for what it could get...
...A cotton operator was reported to bars over-extended himself...
...Fundamental to the whole process was the fact that the war had Felled the American economy out of s> depression which had begun in 192* and and lasted, with small variations in defree and intensity, up until World War ft It had interrupted, only momentarily, •ai program of economic reconstruction taat had begun back in the 80'*, ami Oa economy had now to go further In Oat economic reconstruction...
...The contradiction,is obvious...
...Nothing short of a comprehensive overhaul of the American economy would provide a point of departure for new prosperity and security...
...What remedies did thay propose...
...Last September, when security prices were rising by the hour, the stock market fttt a pinch of panic...
...by providing the necessary wage adjustments...
...Only Walter Reuther, who had jumped the gun, and had categorically demanded 23'.a cents an hour increase, was left fighting in his original position...
...At such times the economy, as wc said, took terrific losses...
...The people *•» frightened because they knew that me wartime merry-go-round of high IMAta, high wages, and high prices had *H really solved tha crucial problem of Mat was to be done with America's vast and fabulously rich economic apparatus...
...But it stayed...
Vol. 30 • January 1947 • No. 3
