ECONOMIC OUTLOOK: 1949
WOYTINSKY, W. S.
Economic Outlook: 1949 Part 3 — Conclusion By W. S. Woytinsky SINCE PRICES ROSE not because of the current inflow of money in Circulation, as in the typical case fit an inflation, but because...
...they are alarmed when prices go down...
...In fact, industrial demobilization started before the end of the war, in the fall of 1943, and was in a fairly advanced State when Germany surrendered...
...Recent developments do not mark the end of postwar expansion because such an expansion—analogous to that in the 1920's—has not yet begun...
...Professor Woytinsky worked on long-range estimates of the costs of social security for the Social Security Administration...
...About one point there should be no illusion: whether falling prices lead to depression or pave the way for economi expansion, in the short run they usually mean layoffs of workers...
...After this spell of hesitation we shall ^enter an era of postwar expansion analogous to the 1920's...
...This concluding article deals with the fall in prices and rise in unemployment—symptoms which 10m* observers interpret at evidence of the beginning of a deflationary spiral...
...Because of this superstition they are eager to check economic developments with their own blueprints in order to correct the deviations which they describe as "maladjustments in, the economic system" (never as "errors in blueprints").'They do not realize that deviations from their blueprints are often better than these blueprints, and are vital for the healthy growth of the economy...
...His bastknown published works are: "The World in Figures," a seven-volume encyclopedia of world statistics (In German...
...question...
...Our economic system is based on division of responsibility and a subtle balance of power...
...lar fairy tale about exhaustion of wartime savings...
...There was no dramatic downturn in prices, but in the list of prices losses became more frequent and gains less numerous as time went on...
...Indeed, when high govern, ment officials indulge in declarations which sound to the man in the...
...g This time the adjustment is likely to . be comparatively easy since the deflationary spiral—which results from simultaneous cuts in production and earn. inps in many fields—is unlikely vg, oe, velop...
...In this event falling prices will force production costs down and stimulate economic progress...
...With allowance for the effect of bad weather and bad speeches, the rise of unemployment caused by economic forces was not very large—hardly more than 250,000 or 300,000...
...1948 one-industry after another has shifted from the column of rising prices into" that of falling prices and most of them, after a brief period of confusion, have resumed production on an enlarged scale...
...What the falling prices and rising layoffs mark is the beginning of the final phase of postwar readjustment...
...if rising prices immediately after the war served to stimulate expansion of industrial plant and accelerate readjustment of our economy to peacetime needs and patterns, what will' be the effect of falling prices on production, employment and welfare of the nation...
...The armament program and aid to foreign countries are also among factors supporting a high level of employment...
...The cooperation of these three fijrees which control our economic life ii vim tor economic progress...
...I think that many wellintended economists who were false prophets during the war are, again on the wrong path, victims of 'the same aberration...
...Were it not for accelerated absorption of laidoff Workers, the number of continued claims would have increased by 1 to 1.5 million...
...primary responsibility of labor unions is to their members, that of business executives • tostockholders...
...In addition, as mentioned, many industries have already passed through their readjustment period, and the margin of profits is now so wide that its reduction will not knock out the private enterprise economy...
...WHAT THE UNITED STATES is going through does not mark the end of inflation, since this country has not experienced a real postwar inflation...
...shoes in February...
...The first reaction of employers to falling prices is to get rid of superfluous hands...
...THE IMPACT of falling prices on the econjMijy is determined by the pressure thj$ narrowing profit margin exercises on producers...
...This movement will level off — possibly by the summer...
...This impact, is best described as the challenge of adversity^* It does not necessarily lead to a depression...
...some prices continued to advance, others fluctuated within a narrow margin...
...The torrent which swept us off our feet after World War I now appears as a harmless creek which we can easily wade...
...government , can ypeatjit...
...street like predictions of a new depression which will cost the nation $800 billion, such prophecy is likely to exercise some adverse effect on employment...
...When layoffs are on the agenda, the trend in unemployment depends on the speed of reabsorption of laid-off workers by other industries...
...From the point of view of consumers this was a salutary change, but what does it mean from the broader point of view of economic outlook...
...They do not like it when prices go up...
...It was S3 points below this mark in November 1948, and fell to 271.3 by the middle of February 1949...
...J - ¦-' • FALLING PRICES AND LAYOFFS are bad when they occur in all Industries simultaneously, and are telescoped into a short lapse of time (as was the case, after i World .War I...
...In September, semi-manufactured materials and meat Joined the retreat...
...It seems that the nation is now completing this process...
...The Throe Sources of Unemployment" and "Social Consequences of Economic Depression" (International Labor Office...
...More specifically...
...Since last December, week after week, the number of initial claims was 100,000 to 150,000 above the same week in the preceding year...
...His pupils have learned this lesson but still believe that the capitalist system contains a diabolic device, some kind of a time bomb which must automatically produce depressions...
...The system cannot work smoothly if business tries to break unions, if unions attempt to break business, or government overplays its hand dictating to labor and business what they should or should not do...
...All in all, at the time of seasonal lull, in the midst of depression propaganda, unemployment is still below 3,000,000—-which is regarded by many labor economists as the irreducible minimum under conditions of full employment...
...W. 8. Woytinsky is visiting professor at Johns Hopkins University...
...In some industries partial readjustments to peacetime conditions—with a drop of prices and layoffs—took place ¦as early as the winter 1945-0...
...This common interest compels them to compromise with each other...
...During the war...
...The index of 28 commodities particularly sensitive to business conditions has been declining since November 1947, when it had reached the peak of 359 (August 1939 = 100...
...tive and expansive forces but unwise . acts of business, labor or...
...Jkt...
...oils and fats in January 1948...
...What undermines, this cooperation endangers also pres*erf«r.:-i;'-:V- *'*"••.<• ' I.^JiU This does not mean that labor and business must agree on all questions,be that the government must support labor each time it clashes with business...
...and they will be particularly unhappy if all indexes — prices, wages, employment, production —do not move at all...
...If the preceding analysis is correct, many statements daily repeated by the press, especially the labor press, are based on misinterpretation of recent developments...
...Wolf...
...Economic Outlook: 1949 Part 3 — Conclusion By W. S. Woytinsky SINCE PRICES ROSE not because of the current inflow of money in Circulation, as in the typical case fit an inflation, but because of backlog demand and a surplus of purchasing power accumulated in the preceding phase of economy, the movement was bound to level off...
...In terms of the chronology of economic development after World War I, we are not' approaching the 1921 phase, but are in the midst of it—traversing this critical stage on an exceptionally high level of employment .and production, with a good Change of reaching the next phase without substantial losses...
...For all these reasons, a recession comparable in severity to that in 1921 is out of the...
...during all phases of the business cycle and predict rain and hail in all seasons, do not »i<sj»ai jthat W"wfll.M ¦.MmWlnT«-Me*Kt do not belleveM eutomstic prosperity any more than 2 automatic depression...
...It is unlikely to come due to the considerable backlog demand in key industries such as building con* structibn, automobiles, iron-and steel, and in view of considerable reserves of purchasing power in the nation (tjie surveys of the Federal" Reserve Bank have proved this, contrary to the popu...
...It continued during the final battles in the Pacific...
...this time it began before the cease fire order and has been stretched over several years...
...v " Since the fall of...
...WHEN I WARN the reader against economists who shout 'Wolf...
...The rise of layoffs is reflected by the flow of initial claims in unemployment insurance...
...Keynes has shown that this system contains no device which automatically ensures prosperity...
...If prices begin to drop when the margin of profit is wide, it is likely to stimulate competition and to force producers to make full use of theft" brains and skills in order to meet the challenge...
...Some reduction in employment opportunity resulting from higher employment standards will be" offset by a slight deflation of the labor force that has not yet returned to its "normal" peacetime state...
...Our economic system possesses tremendous recupera...
...Since July 1948, in the whole group of industrial raw materials prices, have been declining...
...Losses in employment will be cushioned to some extent by the existing unemployment insurance system and the veterans program...
...When the sellers' market disappears for consumer goods, it disappears also for the labor force...
...They are like the young lady in Ch'ekov's story whd was buying a polka-dot dress and could not make up her mind What pattern to take: some dots looked too large to her, others too small, and still others were decidedly too middle-sized...
...Three Aspects of Labor Dynamics" and "Earnings and Social Security in the United States" (Social Science Research Council...
...Silk, hides and skins, drugs and pharmaceutical materials passed the crest in December 1847...
...After World War I, a similar readjustment was delayed by the boom of 1919 and effected thereafter in a very short period...
...Their mistake is the same superstition that Lord Keynes fought during the larger part of his life—the superstition of automatism of the capitalist system...
...Extensive layoffs do not necessarily mean continued mass unemployment...
...Some cuts in prices were substantial, others trivial...
...THE PROBABLE DEVELOPMENT in the next several months are as follows: prices retreating here and there, layoffs in various industries and various parts of the country, a slight rise in unemployment, practically no loss in wage rates...
...The tint two articles' In this series covered economic development during and immediately after the war, up lo the recant downturn in prices...
...U...
...Geneva)} "Labor in the United States...
...while the government speaks for the nation as a whole...
...Most people, however, were inclined to minimize this development, since they felt that prices were "high...
...but the general trend was perfectly clear...
...With divided responsibility the three parties have a common interest in maintaining prosperity and increasing production...
...Actually it is now only 600,000 higher than a year ago, and it is fairly possible that this rise was due partly to the exceptionally unfavorable weather conditions in many parts of the country...
...In fact, some prices began to decline in the fall of 1946...
...cotton goods in April...
...The agricultural segment of the economy that will absorb a large part of the reduction of prices is now in an excellent financial position...
...But even when they are very bad and inflict serious losses on many workers, in the long run they serve a useful purpose...
...Only at the end of 1948 did the change in prices begin to be felt in the consumer's market...
...Another possible cause of . the rise in unemployment is the depression jitters...
...Our foresight and discipline will determine how long this era will last and how it will end...
Vol. 32 • April 1949 • No. 18
