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The Dangerous Drift

( Originally Published 1952 )

The Fear of Depression

'As long as there is danger of war and as long as the nation's budget for defense is maintained at a high peace-time level, there is little chance of a serious recession developing.'

New York Herald Tribune

May 3, 1948.

`THE CONGRESS RECONVENES AT A TIME OF GREAT emergency. . . .', President Harry S. Truman told the special peace session of the people's representatives on September 6, 1945. 'The end of the war came more swiftly than most of us anticipated. Widespread cutbacks in war orders followed promptly. .. . This has led to a natural feeling of uneasiness. .

This uneasiness, this fear of depression which spoiled the hard-won peace, has never vanished from the American scene. It has never ceased to dominate the American mind, to determine American domestic and foreign policies and to shape the course of world events.

It remains one of the most important yet least understood factors in the post-war world.

If depression has been forestalled from year to year and prosperity, though spotty and unstable, continued in post-war America, it has been due not to reform of the nation's economic order but to the steady waning of the peace, the quick return to a partial war economy.

`Pretty much everyone liked the economic consequences of the 10 per cent war.. . . Businessmen found profits bigger than ever; workers found wage increases easily forthcoming; employment was high; farmers prospered. . .', Business Week, on December 9, 1950 summed up the circumstances which staved off depression, even before the great post-Korean armament boom started the new era of the 'twenty per cent war'.

Yet the country's economic life since the second world war has never been on an even keel.

Each year until the Korean outbreak, usually in late winter or early spring, prosperity would get a jolt. Each time the fainting spell would be somewhat deeper, last a while longer and have more victims. The grocer at the corner would worry again about his business, and so would the farmer and the boss in office, store and factory. For, more goods piled up than people could buy. The mines and mills and workshops would lay off workers and cut production, to get ready for the storm. Some prices would come down a little from their dizzy heights, just enough to make people wonder what was to follow. The stock exchanges and luxury trades would get nervous, the banks would become stricter with their loans, the speculators in the big grain, textile and metal markets would switch positions, and business barometers would drop another few points lower than the year before.

Each time the memories of the depressed thirties would come back to the people, more real and stark than those of two world wars, more frightening than the talk of another world war, a war with atom bombs.

Was this it again, 'another 1929', or merely a harmless dip of the business cycle, a corrective recession, a beneficial bit of disinflation? There were always new names for IT, and in 1949, when another two million workers suddenly lost their jobs and the volume of industrial production fell one-sixth in the course of eight months, the disturbance was even called a mere 'economic burp', in the words of a witness before a Senate Committee, 'a burp, but not a real bellyache'.

Americans never quite trust assurances that such economic tremors are harmless or even beneficial. They know that even the shattering crash of 1929 was not recognized at the time as the beginning of a decade of depression. Many still remember the false prophets of the booming twenties: President Herbert Hoover who told the nation in October 1929, while disaster was under way, that 'the fundamental business of the country is on a sound and prosperous basis'; Henry Ford who said a month later, 'the situation promises much better than . . . a year ago'; Stuart Chase, the popular writer on economics who predicted, 'we probably have three more years of prosperity ahead of us'; and Irving Fisher, the venerable dean of academic economists, who was certain that 'the threat to business will be temporary'.

Americans have it on the best and most unsuspect authority that depression is indeed inevitable in their economic system, that the question is not if but when it will strike again.

The President's Council of Economic Advisers warned already in December 1946: 'In our modern economy . . . little recessions often develop into big depressions.' The National Association of Manufacturers admitted that IT would recur. 'What you are interested in is the historical fact that depressions do occur from time to time', it told young Americans for whom it published a booklet, 'Preparing for Industrial Work', with the acknowledged co-operation of the U.S, Office of Education. 'You can look at the problem as something like a beautiful clock getting out of order, or a powerful man being taken sick. Delicate organisms are involved, and so it is with our economic and industrial machine.'

Most business people lived in constant awareness of the likelihood of another depression when the war was over. . . in all groups there is the gnawing fear that after several years of high prosperity, the United States may run into something even graver than the depression of the thirties', wrote the New York Times on March 1o, 1946.

Men who rejected all fatalism and fought hard for new economic policies designed to prevent or soften depression remained pessimistic. 'At the rate we are moving, it is wholly possible that within the next ten years Karl Marx' judgment will have proved correct', Chester Bowles, the wartime 'Economic Stabilizer' stated in the New York Times Magazine Section of October 5, 1947, recalling that 'Karl Marx was convinced that capitalism was doomed to smash itself to bits in a period of recurring inflations and depressions'.

'Our entire history as a republic has been one long series of booms and busts', wrote one of the most respected U.S. Senators, James E. Murray, in the American Magazine; 'and in recent decades, as our industrial system has become more complex, the downswings have been more frequent, more violent and more prolonged. In fact, the last depression, starting in 1929, was eradicated only by World War II.

A good many of our industrial executives now accept the fact that another depression is inevitable. In public, they talk about the great, limitless era of prosperity that is now beginning. In private, many are going back to their old hedging, restrictive practices designed to make their corporations shipshape during the blow they feel is ahead. They are planning to restrict their output, restrict competition through monopolistic practices, maintain prices artificially.'

This was not the whole measure of the danger. 'Some of these industrialists have even grown to be fond of depressions', the Senator continued. 'They like the idea of a "floating pool of unemployed" to keep labour in hand, and have become quite agile at "riding the cycle" profitably and taking advantage of bad times to press ambitious new competitors to the wall. One business spokesman, the president of a Midwestern company, has made the statement, "It is hoped that depressions are never abolished (since) those who learn to ride the business cycle can find as many advantages in depressions as in booms."'

The Senate Committee on Banking and Currency, in the summer of 1948, asked the question about depression prospects of an outstanding expert, Marriner Eccles, the former chairman of the Federal Reserve Board, whose efforts at fighting economic crisis by long-term financial control policies caused the ire of Big Business and his demotion. 'We certainly are going to have a bust', Mr Eccles answered, 'but as to just when it will be I can't predict.'

Roger Babson, famous as the only analyst who correctly predicted the crash of 1929, answered the United Press in February 1949: `Another depression, probably about 1953, is unavoidable. Primarily because the last one was never cured.'

A Gallup poll in the prosperity summer of 1948 showed that 75 per cent of those giving an opinion expected 'a serious depression', on an average within five years. The same belief was held by 8o per cent of the 'prominent' Americans who made definite predictions. The answer is always the same', Fortune magazine wrote in May 1949; 'a majority thinks depression is on the way'.

The Cleveland Trust Company clinched these views with a three-foot graphic chart of the boom mountains and depression valleys of America's modem economic history. It showed twenty-four depressions in fourteen decades.

Between the Revolution and the Civil War there were eleven minor depressions and two major 'panics'. From the Civil War in the 1860's to the end of the century there were six depressions. The greatest, the Panic of 1893, was followed by the relief of the Spanish-American War, the timely conquest of Puerto Rico and the Philippines. Those crises were the first to hurt a large part of the people; for many of the self-sufficient farmers of the pioneer days had meanwhile become dependent upon the speculative produce exchanges and many artisans had turned wage labourers, exposed to the drastic ups and downs of the business cycle. The Rich Man's Panic of 1903-4 struck the lower and middle classes much harder than the speculators. Then came the Panic of 1907, a symptom of the worldwide business malaise which aggravated the political rivalries preceding the first world war. And years of economic stagnation were followed by the War Depression of 1914-15.

After the great war boom came the First Post-War Depression of 1920-22, and then the Great Depression of the thirties with its first disastrous round from 193o to 1936 and its second round of widespread misery and helplessness from 1937 until America's involvement in the second world war.

But what will IT be like next time? On this question, too, America has authoritative answers.

'If we suffer another critical economic depression . . . the resulting unemployment, poverty and despair will drive more Americans into the ranks of Communism than Stalin, Marx and the Comintern ever won through argument and persuasion', Secretary of the Interior J. A. Krug wrote in the American Magazine of June 1947.

'The next crash will make 1929 look like a piker', the historian James Truslow Adams, formerly of the New York Stock Exchange, told the American Academy of Arts and Letters in 1946.

The cost of that 'piker', the Great Depression of the thirties which nearly wrecked America, 'exceeded $300 billion, about the dollar cost to us of the recent war', Leon H. Keyserling, then Vice-chairman of the President's Council of Economic Advisers, wrote in the New York Times on June 8, 1947; 'this takes no account of the lingering effects of human deprivation and social discontent'.

The next depression will be still costlier. For each year of its duration, Dr Keyserling foresaw 'a drop of nearly $100 billion in our national income' (a fall to one-half of its boom level at the time) and `unemployment which could easily exceed twenty million' (out of a labour force of sixty million people).

Its total cost, he told Congress on February 11, 1949, might be `about $800 billion'.

Eight-hundred thousand million dollars of predictable depression waste—$800,000,000,000 worth of urgently needed goods that could be produced but would not, of badly needed incomes that would fail to be paid if a large part of the nation's men and machines were again to be condemned to a decade's idleness—that would be, for the United States alone, nearly as much as ell the belligerents, the allies and their enemies, spent on the second world war.

This is a measure of the cost in material values, human agonies and social and political upheavals the world over, which the next American depression must provoke. It shows clearly that 'the weakest link in the armour of free men is not in China, Russia's satellites, Asia or Germany but here in the United States', as Dr Theodore 0. Yntema of the University of Chicago and a close co-worker of Paul G. Hoffman in the Committee for Economic Development, stated on October 26, 1946. 'If we can't maintain reasonable opportunity for our people, this society doesn't stand much chance of survival. If 10,000,000 people have the door of opportunity slammed in their faces, as in the last depression, they will be fertile for other ideologies. . .. What happens to the American economic system . . . may determine the history of the American people and the peace of the world for many years to come.'

Considered Congressional opinion of the danger of depression was no less outspoken. 'No problem before the American people is more vital to our welfare, to the very existence of our way of life, and to the peace of the world', wrote the Joint Committee on the Economic Report of February 3, 1947 about this 'most complex and difficult of all the long-range domestic problems we have to face'. And Paul G. Hoffman said on October 16, 1947, before he became administrator of the Marshall Plan: 'A major setback not only would create terrific internal hazards . . . but would also play directly into the hands of the Kremlin. . . . At no time in the history of our Republic has it been so important that prosperity in America be maintained.'

Such warnings had two purposes. They were to popularize the boom-supporting, depression-preventing merits of Marshall Plan exports and armaments. For, by comparison with a depression at the price of eight-hundred thousand million dollars, fifteen, twenty, and later even fifty or sixty thousand million dollars of annual Cold War expenditures naturally seemed a low price to pay for continued prosperity. But these warnings were also directed at those in Big Business who hope to profit again from depression and whose restrictive, monopolistic practices aggravate the elementary forces in the economy which some day may destroy private enterprise.

The businessmen whose 'blindness or wilfulness is setting the stage for the arrival of an American Hitler', were denounced by Henry Morgenthau, Jr., former Secretary of the Treasury. 'These obstinately selfish groups', he said in a broadcast reported by the New York Post in May 1946, 'have been working like beavers to recapture the control they lost to the people in 1933', when the New Deal was launched to protect business against its own excesses. The kind of depression the selfish interests in this country are cooking up will make anything we've had in. the past look like a picnic. And when the inevitable happens, the hour will have struck for these interests to take over. . . .'

Another depression is not 'desirable, as some believe', John H. Van Deventer, President of the influential trade magazine Iron Age, told the Committee for Economic Development in October 1946; for 'the previous depression nearly ruined us. . . . If we have ten to fifteen million unemployed again, it may drive us on the road to statism .. . from which there is no turning back.'

The President's Council of Economic Advisers, in December 1946, criticized business leaders who boasted that they `find as many advantages in depressions as in booms', the 'smart folks' who 'take advantage of the boom and are then ready for depression time bargains', hoping 'that depressions are never abolished, for they have many desirable features'.

This 'getting ready for depression time bargains' is one of the ways in which the giants in every industry have grown bigger and bigger and closer to monopolies. It is the reason why, at the very height of the second world war with its manpower shortage and its need for maximum production efforts, some great concerns employed valuable staffs of technicians on finding out which of their remaining competitors it might be worth buying up or forcing into 'merger', once the depression came. 'Curiously, the industrialists who are planning on depression are also planning on the probability, if not the certainty, of the destruction of the system which they have most reason to protect', wrote a columnist in the New York Herald Tribune of September 5, 1947 under the title 'Each Man Kills The Thing He Loves'.

There is something pathetic about business leaders who are warned all the time, and occasionally warn one another, that they are undermining the economic order which gives them so much freedom and power, paving the way for a totalitarian state in which an 'American Hitler' might not let them remain all-powerful—yet who by the very logic of that order seem to have no other choice.

Why has all this to be so? Why doesn't 'free enterprise' provide its own correctives and remedies?

One answer is: 'the majority of businessmen are, in fact, afraid of competition, just as they are afraid of really free enterprise', as Edwin G. Nourse, the head of the Brookings Institution, explained in the American Political Science Review of December 1945. 'There is a constant fear that there won't be enough purchasing power to go around, that if we really "let ourselves go", with all our skill and ingenuity, with all the technical efficiency we have developed, there would be general overproduction, flooding of the markets and general breakdown.' This is why business must sail its fatal course to crisis, always 'setting the profit sights too high, charging what the traffic will bear when the going is easy, refusing to embark on economic ventures unless a return is assured which will yield profits on idle plant as well as utilized plant, in periods of unemployment as well as in more prosperous periods', and why those business policies must be 'self-defeating in the long run'.

He probably was this frank denunciation of the suicidal ways of private enterprise which, for some time, brought Nourse into the chairmanship of the President's new Council of Economic Advisers, founded in 1946 to watch over the execution of a law that was to meet the danger of depression.

This law was to have been the climax of Roosevelt's life work, one of the essential means of a broadened and improved New Deal for the reform of American capitalism. It was to apply the lessons of the Great Depression, tone down the vicious circle of boom and bust, harmonize the largest possible production with the need for greater consumption, use the new, war-created technology to create Plenty, and thereby save the peace for America and the world.

The 'Full Employment Bill' came before Congress as a set of admittedly inadequate yet expandable measures, aimed primarily at the purpose its name implied. But Congress dealt with it in the spirit of Big Business, whose main Republican exponent, Senator Robert A. Taft, described the measure that was to save capitalism as coming 'directly from the Soviet Constitution, the Communist platform and from the C.I.O.' (the Congress of Industrial Organization, at the time the more radical of America's two large trade union groups.) The New York Herald Tribune, normally not quite so blind to the needs of progress as most other newspapers, on June 14, 1946 spoke of it as `perhaps the most serious threat to free enterprise and democracy with which the country has been confronted in the 170 years of its existence'.

Under the pressure of the business lobbies, the bill was mutilated in Congress, and when it eventually went on the statute book as the `Employment Act of 1946', the word 'full' cut from its name, it was little more than a collection of laudable declarations of purpose, an 'enabling act' which would not enable the most progressive and determined President to do anything of importance. In fact, it emerged as a guarantee to Big Business that its own concept of 'free enterprise' was to prevail under the guise of high-sounding phrases about the desirability of perpetual good times.

Yet President Truman signed the emasculated law with these words: `In enacting this legislation, the Congress and the President are responding to an overwhelming demand of the people. . . . The legislation gives expression to a deep-seated desire for a conscious and positive attack upon the ever-recurring problems of mass unemployment and ruinous depression. . . . It is a commitment by the Government to the people—a commitment to take any and all of the measures necessary for a healthy economy, one that provides opportunities for those able, willing and seeking to work. We shall all try to honour that commitment.'

No plain citizen could make sense of the vague and contradictory terms of the Act. To quote from the explanations given in the first report of the Council of Economic Advisers, which the Act set up as a substitute for some kind of planning board: The Act expresses an intention [not an obligation, G.S.] to call upon all competent sources for diagnosis of situations as they arise and for the recommendation [not the enforcement, G.S.] of such treatment as the nature of the case, carefully studied, is deemed to require. . . . The Federal Government should coordinate its programme and activities with those of State and local governments ... and of private business agencies—industry, labor and agriculture. . . . It is to operate "in a manner calculated to foster and promote free, competitive enterprise".'

But what if some of the forty-eight states or 'private business agencies', equally jealous of their constitutional and factual prerogatives and equally opposed to Federal 'interference', should refuse to coordinate their policies with Washington's? What if labour refused to live up to its strange designation as a 'private business agency'? These crucial questions, ignored by the theory of the Act, were answered in the practice of its attempted use.

The new Council of Economic Advisers—until the Cold War made it another helpless member, and then a prominent cheer leader, of the Captive Audience of the opinion-making industries—undertook a good deal of 'diagnosis of situations as they arose', and some of it was courageously to the point. The Government also made some occasional, mild 'recommendations'. But most of those 'Fair Deal' proposals for legislation on prices and wages, the rights of labour, housing, public works projects, health insurance and the broadening of social security were turned down by Congress. Almost each time the business lobbies won easy victories.

In violation of the spirit of the Act, it came to be acknowledged that intervention to forestall an economic crisis 'might include exploitation of national defence and. foreign situations for the purpose of forcibly preventing perfectly natural fluctuations in heavy-industry activity', as Lewis H. Brown, chairman of the Johns-Manville Corporation, was quoted by the New York Times of February 16, 1949; and that high Cold War expenses were a safer means of fighting depression than what Big Business called attempts at the 'cold socialization' of the American economy.

The Joint Committee on the Economic Report—the group of Congressmen which, under the Act, has to review the President's Economic Report and to facilitate legislation on measures he recommends—proved utterly uncooperative. Even the Joint Committee o f the 1949-50 Congress with its Democratic majority and headed by Senator Joseph C. O'Mahoney, one of the sponsors of the original Full Employment Bill, had nothing constructive to say in its comments on Mr Truman's report of 1949 about the glaring discrepancies between the promises of the Act and the realities of rising unemployment, falling production and increasing reliance upon the remedies of armaments and Marshall Plan exports.

Instead, the Committee discussed the eternal plight of the ever unstable American economy, giving a classically clear-cut analysis of the relentless forces which, under these circumstances, must some day provoke another economic crisis.

'Even with the aids to business (sic) provided in the Employment Act of 1946', the Committee stated, 'the fundamental dilemma on which individual businessmen find their price-and-profit policy impaled is this: must business be prepared to weather a recurrence of the old "boom and bust", or is it safe now to gamble on the maintenance of a steady and high level of activity? Much as public policy may seek to sustain high levels of prosperity, dare the individual company bank on it?'

The Committee's answers to its own questions reflected the tragic helplessness of the existing economic system: 'If business continues to have ups and downs like those in the past, profits in 1948, though at record levels, may well be needed to provide a reserve to meet losses in years of depression. Yet such high profits may result from a wage-cost-price relationship completely inimical to the maintenance of full employment levels of consumption expenditures.'

In other words, high profits at the expense of high prices and low wages must, as they have been doing, cut the people's purchasing power for the goods they produce, must cause increasing unemployment, must deepen the inevitable depression once it conies.

The leaders of business, when their high profits are criticized, usually defend themselves with the argument that they reinvest most of those profits in their plants, to help the economy expand its productive capacity and provide more jobs. But even if this were true—if business had not merely held in reserve large parts of its enormous profits as a safeguard against the depression it must thus bring about, and if its `expansion' had not so often taken the form of absorbing existing enterprises—the use of high profits for reinvestment would still be `no guarantee of sustained prosperity', in the words of the Joint Committee. For, while 'such high investment depends ultimately on the volume of consumer demand', this very policy of business cannot possibly enable the people to buy all they produce. And while the useful investment of high profits further presupposes 'a continued abundance of profitable investment outlets', this policy of business prevents their creation.

As a result, 'if the process of building plants is continued, there ultimately must come, and in the past postwar periods always has come, a period of mal-investment'. Finally, then, 'there comes a time when additional plant and equipment cannot be added in an industry without bankrupting the owners of existing properties . . . or precipitating a struggle for consumer patronage, ending either in cut-throat competition or cartel agreements in restraint of trade. In short, the high profit economy of boom years inevitably, in the past, drove headlong into a depression. .

Evidently, there is no way out while private enterprise remains in control. The circle is a vicious one. Prosperity profits are needed to weather depression losses. Yet they undermine the very type of high-volume, high-wage, low-profit-margin economy needed to sustain high-level employment. . . . The fact that business as a whole considers the present swollen amounts of profits necessary may be a measure of the magnitude of the depression which they feel lies ahead.

Of course, 'if the individual businessman could feel perfectly sure that business activity would be maintained at a high level, he, jointly with all others, might dare to risk lowering his profit margin . . . and lowering prices to consumers', the Committee added. 'But even if such a guarantee were iron-clad, he would be super-altruistic or even foolish to pursue such a policy all by himself or in advance of his competitors.'

But what about the remedies that were to be provided by the Employment Act? What about the fulfilment of that 'deep-seated desire of the people for a determined and positive attack upon the ever-recurring problems of mass unemployment and ruinous depression' which the Act promised, seemingly with the intention of breaking just this vicious circle?

'Without any demonstrated experience showing that the laudable aims of the Employment Act of 1946 can in fact be consistently achieved', the Committee admitted the failure of this mutilated anti-depression legislation three years later, 'the individual business(man), no matter how large, cannot afford thus to risk the solvency and competitive position of his company. Yet the very policies which enable his enterprise best to weather a depression—that is, the amassing of reserves, charging as prices "what the traffic will bear", resisting wage increases except where pressured through by militant unionism, lobbying for tax reduction even if it means a deficit in Government finance—these very policies ... inevitably bring on the catastrophe feared.'

Is it true, then, that America, with all her science and power and self-assurance, is unable to control the workings of her economic system?

'As in the case of nervous breakdown in medicine, a plethora of explanations is offered, but reliable knowledge concerning causes and methods of control, if any, of general business breakdowns is distressingly meager. One can hardly feel optimistic about the chances of continuously securing answers . . . from the admixture of politics, pressures, bureaucracy and sprawling giantism that characterizes modern government.' This was the fatalistic opinion of another group of experts engaged by the Joint Committee.*

It means little in view of such fundamental admissions, that editorialists and after-dinner speakers continue making reassuring comparisons between some specific aspects of the American situation before the collapse of 1929 and that of the present, trying to assure America and a world dependent on her every move that IT cannot happen again.

Look at the Stock Exchanges, they say, how inflated and feverish and full of dangers they were in the late twenties and how quiet and well-behaved they have become.

This is true enough. In the twenties, the Stock Exchanges went wild in an epidemic of speculation that gripped bank presidents, politicians and university deans like elevator boys and backwoods farmers and drove stocks first far above and then a good deal below their real values. But now, most of the time, 'the market' is a dismal backwater outside the sphere of the new inflationary boom tide, the half-deserted playground of professionals and 'insiders'. The crash of 1929 has undermined the public's confidence in it and changed the country's speculative fashions. And a great historical era of America's economic development has quietly faded away: the great joint stock corporations no longer finance most of their capital needs out of the people's savings by way of the Stock Exchanges; they simply 'tax' the consumers for the required investment funds, using their near-monopolistic power over the prices consumers have to pay for the accumulation of unprecedented profits.

The Stock Exchanges, the retail counters of Wall Street's business, might therefore not again open the first act of the drama of economic crisis.

Look at the banks, the reassuring comparisons go on, how shaky and irresponsible they were and how solid they are now.

This is true, too. In the twenties, under little legal restraint, the banks were disastrously involved in speculation, committed large amounts of their depositors' money in risky, often stupid, sometimes dishonest deals. Now, thanks to the legislation of the New Deal period, they are more or less prevented from such excesses. A federal deposit insurance has long been protecting every depositor's first $5,000. And the public's wrath against the irresponsible banks, together with its recent demands for their nationalization, are well enough remembered in the boardrooms to make for sounder use of borrowed funds.

A run of panicky depositors on the bank windows of Wall Street, therefore, might not again open the second act of crisis.

Look at the people's private debts, continues the argument: how sky-high they were then, exposing everybody to foreclosure, bankruptcy and misery, and how moderate they are now.

This, also, is more or less correct. In the twenties, the private debts of Americans were nearly twice as great as the annual national income. The law protected neither farmers from being driven off their fields nor house owners from being robbed of their homes, nor instalment buyers who failed on the last few dollars of their instalment debt from losing the furniture, automobile, radio or winter coat for which they had been paying month after month. Now New Deal legislation protects debtors and even provides government insurance for many home and farm mortgages.

But private debts of all kinds, nearly twice as high in 1952 as they were in 1945, are again rising fast. It is once more 'an uncomfortable thought to walk this dazzling city', as the Daily Mail's correspondent reported from New York on November 30, 1949, 'and realize that a large percentage of the cars on the streets, of the coats on the people's backs, the rings on their fingers, the shoes on their feet, and maybe, the food in their stomachs has not been paid for'.

Even so, the money-lending affiliates of Wall Street at the grassroots may not again play the same major role in the next crisis.

All this, however, does not mean that the prolonged post-war boom is in less danger of eventual collapse than was that of the twenties. It only means that history has moved on, that two decades of rapid development have changed many aspects of America's economy that the main danger zones of the past are no longer of primary importance; just as at a certain age whooping cough ceases to be a serious hazard of life. Such comparisons only show that next time the depression may have a different start and a different character. It may not even break out with a sudden explosion like the stock crash of 1929.

The 'next depression' in fact already began in the late forties—as a creeping disease which grows slowly and is still characterized by periods of relative well-being. It undermines the patient's resistance while it continues to react favourably, although for shorter and shorter intervals, to the stronger and stronger doses of inflationary medicine that relieve its symptoms but aggravate the causes of the malady—until, some day, it will break out violently in a dangerously advanced stage and drive the patient into a panic of anguish and helplessness.

There are telling parallels between the phases that preceded the depression of the thirties and the present symptoms.

Instead of the wild speculation on higher and higher stock and land values of last time, there is now the speculation on the need and curative effect of huge semi-war expenditures; and while America's economy remains without basic reform, this inflationary bubble of false prosperity is also bound to burst.

Instead of the precipitous stoppage of inflated bank credits and the disastrous foreclosure of swollen mortgages of the past, there might be a refusal of the American people to believe any longer in the insufficiency of their military defences and to appropriate ever more billions of tax money for armaments.

Instead of driving up the prices of stocks and real estate, as in the booming twenties, inflation, this time, has been concentrating its force on driving up prices and the cost of living, impairing the purchasing power of large sections of the population. 'Our troubles in the past have been traced to the simple fact that once 25 or 30 per cent of the population has been supplied, the demand dies because there are no' more consumers with the wherewithal to make purchases', the New York Times recalled on January 9, 1949. And this is happening again.

Instead of the huge private indebtedness before the last crash, there is now that of the Government, already accompanied by much fuller exploitation of all the sources of revenue from very high taxation than ever before in time of peace. It will therefore be much more difficult in the fifties than it was under the New Deal of the thirties to prime the pumps of the economy with fresh government funds, once it is necessary to fight acute depression.

All the old and many new pump-priming devices have already been put to use in one attempt after another to prop up the increasingly shaky boom.

Even before the Korean war, the Government spent more than ten per cent of the national income on various means of increasing economic activity. By comparison, the pump-priming expenditures during the Great Depression averaged less than five per cent of the much lower national income of that time.

There have already been relatively large expenditures on public works: 'All peacetime records were broken by the $4 billion expenditure in 1948 for public works by Federal, state and local governments', the New York Times reported on January 6, 1949.

Unprecedented amounts have been spent for the increase of exports by 'foreign aid'; and the Joint Committee on the Economic Report, on February 21, 1949 frankly asked: 'When the Marshall Plan succeeds and the contribution we are making to world recovery is lessened by continued progress in the rehabilitation we are seeking to promote, what will take the place of the production, the labor, the investment that is now going into that phase of our national policy?'

Still greater amounts of money have been lavished on armaments, the largest of all boom supports, even before the Korean war doubled and then trebled and quadrupled them. During the fiscal years from July 1947 to June 195o they averaged twelve times as much as before the war.

`If the success of the Marshall Plan should in turn promote the success of the United Nations, as we all hope, and our expenditures for national defense are thereby lessened', the Joint Committee asked, `what shall we substitute for the economic effort, the goods and the services that now go into our military activities?'

`If peace settlement or its economic equivalent were achieved'—the New York Times of December 29, 1951 summarized 'the consensus of the country's leading economists' in the more careful language which by then characterized the discussion of the depression problem—'this country's economy would be in for a drastic readjustment leading to a serious slump. This would test counter-depression techniques, and in the opinion of most economists, find them wanting.'

The World The Dollar Built:
The World The Dollar Built

Corporate Power

The Captive Audience

Business Of Government

The Dangerous Drift

America Needs Foreign Aid

The Urge To Arm

Cold War At Home

Too Little - But Too Much

Income Pyramid

Read More Articles About: The World The Dollar Built

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