1929 REVISITED

...Even such less-developed countries as South Korea, Brazil, Taiwan, and Singapore reaped some benefits from the expansion of world capitalism...

...As a result, investment began to lag in Europe, Japan, and the United States...

...The onset of industrial stagnation in 1926-27 ensured that the rising surplus created by monopoly profits would be invested in stocks and stock loans rather than in continued expansion of industry...

...The initial burst of consumer demand in the 1920s seems to have been left over from World War I. It was sustained by the growth of consumer credit...

...To defend themselves against lower-priced imports, the major capitalist countries have been resorting to quotas, triggered prices, and bilateral agreements...

...These include the Securities and Exchange Commission (SEC) and a strengthened Federal Reserve, which have been empowered to curb speculation...

...Westinghouse went from 91 to 313...

...The economists cited the creation in the J 930s and after World War II of Government safeguards against rampant stock speculation, bank panics, and plummeting production and demand...

...And American output doubled between 1945 and 1970...

...But it has been expended instead in a wave of diversification mergers (which are made possible by low stock prices), speculation in gold and real estate, and a rash of reckless loans to less developed countries...

...Together, the disintegrating world capitalist order, the growth of monopoly, and the tendency toward disaccumulation gave the Great Depression its special severity...

...If World economic disorder: Since the 1890s, American corporate leaders and financiers had pondered the problems of how to dispose of America's growing industrial surplus...

...These meetings have not, however, come up with anything resembling a plan of action...

...This shift in income created a growing surplus in the hands of corporations, banks, and the wealthy...

...the Federal Deposit Insurance Corporation (FDIC), which insures bank deposits, and unemployment compensation and other income-maintenance programs, which provide a floor for falling consumer demand...

...But by 1926-27, it had begun to drag...

...Frequent charges of dumping have been heard...

...But if wages are cut all around, the purchasing power of the community as a whole is reduced by the same amount as the reduction of costs...

...Both consciously and inadvertently, they devised a set of responses to the problems that had caused it...

...And its massive loans and imports had buttressed lesser economies and prevented the kind of simultaneous world collapse that was to occur in 1929-30...

...In agriculture and the capital goods sector, this decline was pronounced...

...In 1924, the United States, France, and Britain renegotiated war debts and reparations to encourage American and British loans to Germany, and in 1925 Britain revalued its currency to match its pre-war value in gold...

...As a consequence of production in a rebuilt Europe and Japan and a semi-industrialized Third World, the problem of excess capacity, which had haunted the world after World War I, reemerged in full force...

...Even in 1939, unemployment was still at 17 per cent, and production had failed to reach 1929 levels...

...Because of the New Deal reforms, it has not been expended in stock speculation, and the stock market has steadily declined since 1973...

...It came finally in late October, largely as the result of relatively innocuous events: the collapse of a British speculator's fraud-ridden financial empire, the refusal of Massachusetts to allow Boston Edison to split its stock offering, and a dire warning from a financial consultant...

...Ironically, the stock market was sustained by an influx of corporate and bank funds that might otherwise have gone for industrial investments...

...They absorbed the surplus created by rising monopoly profits, directing it toward industrial expansion rather than speculation...

...By the mid-1970s, the collective capitalist capacity to produce textiles, shoes, steel, petro-chemicals, autos, electrical appliances, ships, synthetic fibers, and other goods had outrun the world level of effective demand...

...There may not be a case for a crash and depression precisely like the 1929-39 version...

...If they reduce the deficit, they open themselves to the ravages of disaccumula-tion, which continues to reduce the manufacturing workforce, and invite a return to levels of unemployment characteristic of the 1930s...

...The 1929 Crash was triggered by the orgy of speculation that began in 1926, spreading quickly from land to stocks...

...It did not stem the flow of gold...

...Private bank lending to LDCs, also sparked by a flow of petrodollars into American banks, has risen from $34 billion in 1974 to $120 billion in 1979...

...Even the much-maligned John Maynard Keynes understood the pitfalls of worker austerity as a program for escaping a depression...

...Afterwards, it found its way into the stock market...

...We're much more enlightened today than in 1929," economist Charles P. Kindleberger concluded...

...Vast war orders reinvigorated American industry...

...With the gold standard in doubt and with countries forced to devalue their currencies, a new wave of tariffs further restricted world trade...

...They have made some efforts in this direction...

...The "energy crisis" further aggravated American inflation and balance-of-payments difficulties...

...Home construction declined after 1926...

...In fact, by reducing consumer demand, they make sure it won't be...

...The New York Times average of twenty-five leading stocks, which at the time was seen as more representative than the Dow-Jones average, went from 106 in May 1924 to 245 at the end of 1927 to a high of 452 on September 3, 1929...

...These state subsidies and investments helped sustain the capital goods sector and prevent unemployment from dipping to 1930s levels...

...Britain's currency, pegged to gold, had served as an acceptable international means of exchange...

...currency blocs and trade wars evoke the 1920s' ¶State and private credit to consumers, intended to maintain demand in the face of excess capacity, has created a backlog of heavy debts...

...These funds were either invested directly in stocks or loaned to brokers so that they could make loans to smaller stock purchasers...

...On the basis of American superiority, they erected a new capitalist world order...

...The clear consensus is that a repeat of anything remotely resembling the Great Depression, with its spiraling joblessness and its shriveling levels of production, is most unlikely anytime in the near future," The Journal reported...

...And the annual increase in auto production declined from more than 20 per cent in the early 1920s to 5 per cent toward the end of the decade...

...Granted that stock speculation has not been a serious problem in the 1970s and that inflation rather than a 1930s-style deflation plagues the Western capitalist economies...

...Such key industries as auto, steel, and home construction began to slow or decline in 1927...

...While manufacturing output rose 65 per cent between 1919 and 1929, there was a slight net decline in the industrial workforce...

...Both Government budget deficits, which were the result of rising military expenditures and Government commitments to maintain workers' income, and the social contract between labor and capital were potentially inflationary, but rapid growth in production and productivity during the 1950s, along with the use of planned recessions, prevented inflation from getting out of hand until the late 1960s...

...During 1929, corporate and bank loans increased by $400 million a month and totaled $7 billion by the October crash...

...tin 1973, Third World oil-producing countries, emboldened by the Vietnamese resistance and bolstered by the silent cooperation of the "Seven Sisters" of big oil, used their newly created cartel, OPEC, to boost world oil prices...

...This meant '. . . excess capacity...

...From 1929 to 1933, world trade shrank from $348 billion to $132 billion, and the world's capitalist countries plunged into mutual depression...

...But these economists tend to overlook disturbing similarities between the present and the late 1920s...

...In his essay on the Great Depression, he wrote, "If a particular producer or particular country cuts wages, then, so long as others do not follow suit, that producer or that country is able to get more of what trade is going...

...Since 1973, corporate officials, politicians, bankers, and trusted academics from Western Europe, the United States, Canada, and Japan have been meeting regularly under the auspices of the Trilateral Commission to review various alternatives...

...These programs, whether proposed by Thatcher in Britain, Barre in France, or Carter in the United States, have called for increasing the corporate incentive to invest by redistributing income away from workers toward corporations, banks, and the wealthy...

...After World War I, the consumer goods industries — particularly auto — began to dominate economic growth...

...Excess capacity has also hamstrung Government policy-makers, who must now face unemployment and inflation at the same time...

...In 1971, the United States had its first balance-of-trade deficit in the Twentieth Century...

...The tendency toward disaccumula-tion: From the Civil War to World War I, the producer goods, raw material, and transportation industries — railroads, lumber, mining, iron and steel — absorbed both the greatest share of investment and the greatest number of new workers...

...In 1971, the United States abandoned the gold standard, and world capitalism was once again threatened by monetary anarchy...

...The Radio Corporation of America climbed from 85 in 1928 to 549 in September 1929...

...Countries have tried to protect their currency against the rapid fluctuations in exchange rates by organizing currency blocs...

...has laid the basis lor a new trade war' that the rising national income was distributed toward banks, corporations, and the wealthy...

...Such programs, whether in the form of oil price decontrol, wage-price guidelines, accelerated depreciation, or balanced budgets, only augment the surplus without any guarantee that it will be used for productive investment...

...By 1933, 9,000 banks had failed, unemployment had soared from 3.2 per cent to 25 per cent, and The New York Times index had fallen to 58...

...Whether it will happen will partly depend on whether Western capitalist leaders — who know they would not survive such a depression — can devise and win public acceptance for a plan that could head off any of these eventualities...

...Both currency blocs and trade wars evoke the experience of the late 1920s...

...Unlike previous panics in 1907 or 1921, which had led to brief cyclical downturns, the Crash of 1929 inaugurated a ten-year depression that was unprecedented in scope and severity...

...In the threat of currency blocs, trade wars, industrial stagnation, spiral-ing consumer debt, and reckless speculation, there is a striking resemblance between the present and the late 1920s...

...lOut of its role as defender of world capitalism, the United States went to war in Vietnam...

...Only World War II rescued the United States from the Great Depression...

...With wages and prices remaining constant but goods production rapidly expanding, this decline in employment posed a problem of demand for American industry...

...Productivity increased more than twice as fast in Western Europe and Japan during the 1950s and 1960s as it did in the United States...

...This increase in stock prices was not sustained by a comparable increase in industrial production...

...In his Decline of American Capitalism, Lewis Corey estimated that the capital goods workforce declined by 10 per cent, or 300,000 workers, between 1919 and 1929...

...And with debt repayments flowing from the countries most in need of foreign exchange and capital to rebuild their economies, there was no way to restore pre-World War patterns of trade...

...But the speculation that has been suppressed in the stock market has reemerged in the gold and real estate markets and in the competition to lend billions to potentially insolvent developing countries...

...The dollar, which was pegged to gold, became the international currency...

...The economists, from Milton Friedman to John Kenneth Galbraith, were surprisingly in accord...

...While productivity rose 43 per cent and manufacturing output increased 64 per cent from 1919 to 1929, wages and prices remained constant...

...In this way, monopoly control and disaccumulation conspired to create the Crash and the Depression...

...But by the late 1960s, they were threatening American economic superiority...

...And to the extent that even short-term remedies were adopted in the yearly summits, they have been quickly abandoned once the leaders returned home...

...Because of their prominence, these firms were able to shape the distribution of wealth during the 1920s...

...While output increased 30 per cent from 1923 to 1929, profits increased 38 per cent...

...Through state intervention, the U.S...

...Nationally, the capitalist leaders have also undertaken special programs intended to revive their economies...

...The growth of income in this capital-goods sector ensured a rising demand for consumer goods...

...The Crash helped precipitate the Depression — industrial production dropped 10 per cent between October 1929 and January 1930 — but it did not cause it...

...1929 revisited World capitalism is preparing for a new crash and depression John Judis To herald the fiftieth anniversary of the 1929 Stock Market Crash and the Great Depression, The Wall Street Journal held a symposium among prominent economists about whether a crash and depression could recur...

...Prior to World War I, the growth of world markets had largely depended on Great Britain's special role as the preeminent world economic power...

...The United States, which had been able to rely on cheap domestic sources, found itself increasingly at the mercy of oil imports...

...But the post-World War II solutions eventually created problems: If A rebuilt Western Europe and Japan initially provided welcome demand for American goods and capital exports...

...American Telephone & Telegraph from 179 to 335...

...And the two problems that underlay the Crash and Depression — a disintegrating world economic order and a decline in domestic investment — are threatening the United States today...

...This was during a supposed economic "recovery" from the 1974-75 recession...

...They also cited the knowledge of Government officials and economists, who, they claim, are now able to foresee calamities before they occur and move to prevent them...

...in 1929, they received 33.3 per cent...

...The problem of excess capacity has many unpleasant ramifications: lit has laid the basis for a new trade war...

...Any of a number of possibilities — a loan default by a major Third World country, revolution in Western Europe or the Middle East, or a run on Eurodollars — could create a greater crash than 1929 and precipitate a more protracted depression...

...Even in the construction industry, which began its Depression in 1926, profits rose 56 per cent...

...With American goods also losing their competitive edge, European bankers and governments began to unload dollars...

...In revaluing their currency upward, the British priced their goods out of the world market and encouraged the flow of gold to France and the United States...

...Even trade revived through military alliances...

...World War I destroyed Britain's dominance and embroiled the major capitalist powers in a vicious circle of war debts and reparations...

...Internally, excess capacity has created a rising surplus that is unable to find investment outlets and that must instead be expended in various forms of speculation...

...policy-makers created new outlets for investment and expansion, particularly through arms spending, but also through highway construction and home loans...

...Consumer installment debt and residential mortgage debt have both risen 50 per cent since 1975...

...By 1928, American bankers were so enamored with the stock market that they curtailed their loans to Germany and to less developed countries...

...Economic consultant A. Gary Shilling estimates that total private debt amounted to 14.2 per cent of GNP in 1977-78, compared to 12.7 per cent in 1928-29...

...By November 13, The New York Times index was down to 224...

...Their solution was the export of capital and goods...

...But after World War II, American policymakers feared the return to the Depression...

...Until 1926-27, most of this surplus seems to have been reinvested in expanded goods production...

...and no one is further forward.'' Corporate and governmental policymakers are opting, however, for precisely this solution, and as long as they do, they will march the world capitalist order forward to a new crash and depression...

...War-induced budget deficits created spiraling inflation...

...This inflation reduced the value of billions of Eurodollars being held in European vaults...

...As a result, foreign countries no longer had the currency to pay for the American export surplus or to service their growing national debts...

...Each country responded by erecting tariff barriers to keep the other countries from dumping devalued goods on its doorstep...

...But there are certainly grounds for believing something "remotely resembling" the Crash and Depression will recur...

...But these attempts to repair the world capitalist order failed...

...An American attempt to lower interest rates in order to discourage gold shipments to the United States only fueled stock speculation by making credit cheaper...

...John Judis is the political editor of In These Times...

...If they use budget deficits to soak up unemployment and provide safe investments for the surplus, they risk higher prices...

...While such decline might be acceptable to capitalist leaders, it has not proven acceptable to the electorate...

...Both the Crash and the Depression were the result of broader economic trends: ¶ Monopoly control of industry: By 1929, as a result of internal growth and many corporate mergers, 100 firms controlled 35 per cent of all manufacturing assets...

...In fact, these American policies fueled a new era of world capitalist expansion...

...World War II provided a temporary solution to the Depression...

...Without a dominant power, there was no accepted currency...

...But in the 1920s and 1930s they were deprived of this outlet by the disintegration of the world capitalist economy...

...In 1919, the top 5 per cent of income-earners received 24.3 per cent of total income...

...And Japan's output doubled during the 1950s and then again in the 1960s...

...The elected leaders of the major capitalist powers have also met in yearly summits...

...The problem with such remedies — whether to reduce oil imports or hold down budget deficits — has been that they counter the possibility of a depression with the certainty of a slow decline...

...A McGraw-Hill study found that in 1977-78, domestic capital spending declined by 3 per cent...

...The slightest world downturn threatens the repayment of these loans...

...If firms expanded, they tended to do so by establishing branch plants in low-wage less-developed countries...

...In 1978, the Western European countries established the European Monetary System...

...With the stock values of corporations and investment trusts widely exceeding the value of their assets, some sort of crash was inevitable...

...The capital goods industries were affected both by war-induced overcapacity and by a process that historian Martin J. Sklar has dubbed the "disac-cumulation of capital...

...Massive American loans in the late 1940s and 1950s helped revive foreign industry and provide foreign consumers with the currency to purchase American goods...