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Fourth International, December 1946


An Editorial

Is the US Heading Towards a New Depression?


From Fourth International, December 1946, Vol.7 No.12, pp.355-356.
Transcribed, edited & formatted by Ted Crawford & David Walters in 2008 for ETOL.


Post-War Boom Passes Peak

The post-war boom of US capitalism has passed its peak and the country is now heading for another economic depression. This trend has already found its tell-tale expression in the agonized gyrations of the stock exchange and the cotton market.

In the space of a few days the September selling wave wiped out most of Wall Street’s gains during the four years of war boom. The losses totalled the fantastic sum of $12 billion, wiping out hordes of small speculators. The break in the cotton market followed in October, with the price of cotton declining as much as $30 a bale. The estimated loss to the cotton farmers was $200-million. Following the break, the stock exchange and the cotton market staged feeble recoveries, only to sag again despite the unchecked inflationary pressures.

The stock and commodity exchanges play a key role in the mechanics of capitalist economy. Through them the conditions and trends in economic life are registered and verified. These exchanges often anticipate or “discount” future developments. In the given instance, however, the September crash in Wall Street and the October plunge in cotton came not as a prevision of future developments, but rather as a belated reaction to conditions actually unfolding.

Production of both durable and non-durable goods for civilian use has been expanding very rapidly since the latter part of 1945. Branch after branch of industry has been setting all-time highs. A few comparative figures for key consumer durable commodities tell their own eloquent story.








of Monthly

Electric ranges




Gas ranges




Washing machines




Vacuum cleaners




Electric irons








Truck & bus tires




Passenger tires









Only in the output of refrigerators and automobiles has production lagged behind pre-war figures. But expansion is confidently expected here as well. According to Federal Reserve Board estimates, the index of production in consumer durables is supposed to jump from 206 in the third quarter of the current year to 212 in the fourth quarter. From the standpoint of production everything appears in the best possible order.

The profits reported by the corporations likewise keep setting records. Where then is the trouble? The vast flood of commodities is not being absorbed by the domestic market. This is not a forecast, but a fact.

In the face of rising production, manufacturers’ shipments have not been increasing. These shipments reached their peak in April and then levelled off at approximately $10 billion a month. This means that the surplus was going into the warehouses. There has been a steady increase in manufacturers’ inventories, which at first kept rising at the rate of about 1 per cent a month. A parallel accumulation was taking place in the inventories of wholesalers and retailers. The domestic market was approaching its point of saturation. Early in 1946 came the first unmistakable signs that the absorbing capacity of the market could not keep pace with the expanding production. This was blithely ignored by the manufacturers, the wholesalers and the retailers. The banks and government authorities shut their eyes. The stock market and commodity exchanges spurred on the orgy of speculation. Record-breaking profits kept piling in.

Beginning with July the disproportion between the rate of production and the rate of distribution began to assume menacing proportions. In July the inventories increased fivefold as compared with June, touching an all-time peak of $30-billion.


The warehouses held as much goods as industry had been able to ship in any single quarter in the current year. Of this huge stockpile, manufacturers’ inventories held $18 billion while wholesalers’ and retailers’ inventories held $12 billion.

But this is not all. In July, for the first time since V-J Day, there was a decline in the orders received by the manufacturers. Their monthly shipments in July likewise declined 1 per cent from June. In the wholesale and retail field, the decline in the total volume of goods sold had set in much earlier, in February. Only the sharp price rises have masked this decline.

August marked not only. a continuation but an acceleration of this process. Total inventories increased half as much again as in July and seven and one-half times as against June. Manufacturers’ inventories rose to a new high of $18.4 billion while wholesale and retail inventories shot up to $12.8 billion.

Goods were not only piling up at a headlong pace, but what is most noteworthy, they were piling up twice as fast in the distribution field as in the field of production (0.8 billion dollars among wholesalers and retailers as against 0.4 billion dollars among the manufacturers). Here is striking proof that the market is henceforward able to absorb ever smaller amounts of commodities.

Why then have prices continued rising? Why then has there been no noticeable lag in production? Because of the speculative character of the post-war boom. Because the price structure and production have been propped up by a vast accumulation of inventories. If in 1929 it was the loans to stock brokers that skyrocketed, then today it is the loans to business men that are soaring. They are primarily used to hoard merchandise in the hope of further price rises. These loans have increased by $2.5 billion since last year, and are still rising. Once the banks start calling in these loans (as they sooner or later must), the bottom will drop out of the price structure.

In the face of the foregoing facts it is clear that the September upheaval in Wall Street did not at all come in anticipation of some future economic difficulties, but because it was no longer possible to ignore or hide the grave disproportions already in existence.

In September the Department of Commerce released the inventory figures for July. Had it also released the figures for August (which were undoubtedly known at the time), the break would have been much more severe. Concurrently, Secretary of the Treasury Snyder issued in September a warning to the banks not to make any more “inflationary or speculative’) loans. Refusal by the banks to advance loans would make the maintenance of swollen inventories impossible. Goods would be thrown into the already over-sold market. On the other hand, continuation of the loans means further monstrous dislocations. This is the insoluble contradiction that today confronts American capitalism.


The first crack in the price structure came in cotton. By October it was no longer possible to conceal the fantastic inventories of the textile industry. The discrepancy between the abnormally high stocks and the shrinking market sent the prices of cotton tumbling. By October 29, the price of cotton had declined $50 a bale. The handwriting was on the wall.

But it is an open secret that inventories have continued to rise since August. At the same time, manufacturers’ shipments and the volume of retail sales have kept steadily declining. Orders to manufacturers, especially in light industry, are being cut more and more drastically. Credit is likewise being gradually tightened.

We are thus definitely on the downward curve of the economic cycle. Upward fluctuations on this downward swing are of course possible. By manipulating the levers at its disposal, particularly the credit system, the bourgeoisie can temporarily retard the downward plunge. This is precisely what we have been witnessing since July. The September liquidation in Wall Street was checked before it assumed run-away proportions. Similarly with the break in cotton. But the bourgeoisie is impotent to forestall the inevitable. The longer the full-blown “bust” is delayed the more destructive will be its ultimate consequences.

The consensus of authoritative capitalist opinion is that a sharp break in the price structure and in production is unavoidable in 1947. This is in reality not a forecast at all but a blueprint of the course the bourgeoisie proposes to follow in the next period. It hopes to make the descent relatively gradual for a period of six to eight months, and then level off on that new lower foundation.

The financial papers and periodicals even have a new name for the coming depression. The choice at present is between “shake-up,” “shakedown,” and “shakeout.” The last is a brand new word. It is proposed as a new addition to the English language as the one word that is least invidious in its connotations. But the new name will not make the new depression one whit easier for the working people.

A 1920 OR 1929 CRASH?

Will the new depression, whether it comes in the spring of 1947, as some economists predict; or in the fall of 1947, as others believe; or even later – will this new depression be of the 1920-21 variety (which lasted a year and witnessed a 1/3 decline in production), or a profound social crisis of the 1929 variety? The capitalist economists are all sure that the new depression will just be a “mild” one, like that of 1920-21. What makes them so sure? Certainly not any facts they have uncovered. Their assurances are based simply on hope, on babbit-like smugness that somehow or other things will muddle through. How much the assurances of the Wall Street economists or the university professors are worth – we all learned in the 1929 crisis.

Nevertheless it is by no means excluded that the new economic depression – when it strikes – will be of the “mild” variety. In other words, it will “merely” wipe out hundreds of thousands of small business men’ and farmers, depress the already lowered living standards of the working masses, throw 8 to 10 million people on relief rolls. Then after a year or so of the “shakedown” or “shakeout,” a new rise may take place in the economic cycle, proceeding from this lower level. And only after a number of additional years of “boom” will the economy plummet into the depths of a 1929 crisis; or what is more likely, a far graver crisis than 1929.

It is impossible to predict such events down to the last decimal point, because too many unknown and unknowable factors enter in. But what is sure is that one year after V-J Day, American capitalism is again heading for a crash. What is sure is that Karl Marx’s ghost has again reappeared to plague the Wall Street “brains.” What is sure is that they cannot escape the crisis of capitalist “overproduction.” What is sure is that America has entered the period of deep-going social and political struggles revolving around the question of how the national wealth is to be divided, and for whose benefit American economy is to be run.

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Last updated on 12.2.2009